II

Calendar No. 766

106TH CONGRESS

2D SESSION S. 2697

[Report No. 106–390]

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.

IN THE SENATE OF THE UNITED STATES

JUNE 8, 2000

Mr. LUGAR (for himself, Mr. GRAMM, and Mr. FITZGERALD) introduced the

following bill; which was read twice and referred to the Committee on Agriculture, Nutrition, and Forestry

AUGUST 25, 2000

Reported under authority of the order of the Senate of July 26, 2000, by Mr.

LUGAR, with an amendment

[Strike out all after the enacting clause and insert the part printed in italic]

A 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-thecounter derivatives, 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,
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1 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

2 (a) SHORT TITLE.—This Act may be cited as the

3 ‘‘Commodity Futures Modernization Act of 2000’’.

4 (b) TABLE OF CONTENTS.—The table of contents of

5 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Purposes.

Sec. 3. Definitions.

Sec. 4. Agreements, contracts, and transactions in foreign currency, government securities, and certain other commodities.

Sec. 5. Legal certainty for excluded derivative transactions.

Sec. 6. Electronic trading facilities.

Sec. 7. Hybrid instruments.

Sec. 8. Futures on securities.

Sec. 9. Finding and purposes.

Sec. 10. Prohibited transactions.

Sec. 11. Designation of boards of trade as contract markets.

Sec. 12. Derivatives transaction execution facilities.

Sec. 13. Derivatives clearing organizations.

Sec. 14. Common provisions applicable to registered entities.

Sec. 15. Exempt boards of trade.

Sec. 16. Suspension or revocation of designation as contract market.

Sec. 17. Authorization of appropriations.

Sec. 18. Preemption.

Sec. 19. Predispute resolution agreements for institutional customers.

Sec. 20. Consideration of costs and benefits and antitrust laws.

Sec. 21. Contract enforcement between eligible counterparties.

Sec. 22. Legal certainty for swap agreements.

Sec. 23. Technical and conforming amendments.

Sec. 24. Effective date.

6 SEC. 2. PURPOSES.

7 The purposes of this Act are—

8 (1) to reauthorize the Commodity Exchange Act

9 (7 U.S.C. 1 et seq.);

10 (2) to streamline and eliminate unnecessary

11 regulation for the commodity futures exchanges and

12 other entities regulated under the Commodity Ex13 change Act;
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1 (3) to transform the role of the Commodity Fu2 tures Trading Commission in its oversight of the fu3 tures markets;

4 (4) to provide a legislative and regulatory

5 framework for allowing the trading of futures on se6 curities;

7 (5) to clarify the jurisdiction of the Commission

8 over certain retail foreign exchange transactions and

9 bucket shops that are not otherwise regulated;

10 (6) to promote innovation for futures and de11 rivatives and to reduce systemic risk by enhancing

12 legal certainty in the markets for certain futures and

13 derivatives;

14 (7) to reduce systemic risk and provide greater

15 stability to markets during times of market disorder

16 by allowing the clearing of transactions in over-the17 counter derivatives through appropriately regulated

18 clearing organizations; and

19 (8) to enhance the competitive position of

20 United States financial institutions and financial

21 markets.

22 SEC. 3. DEFINITIONS.

23 Section 1a of the Commodity Exchange Act (7 U.S.C.

24 1a) is amended—
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1 (1) by redesignating paragraphs (8) through

2 (12), (13) through (15), and (16) as paragraphs

3 (17) through (21), (23) through (25), and (29), re4 spectively;

5 (2) by inserting after paragraph (7) the fol6 lowing:

7 ‘‘(8) DERIVATIVES CLEARING ORGANIZATION.—

8 ‘‘(A) IN GENERAL.—The term ‘derivatives

9 clearing organization’ means a clearinghouse,

10 clearing association, clearing corporation, or

11 similar entity, facility, system, or organization

12 that, with respect to a derivative agreement,

13 contract, or transaction (other than a secu14 rity)—

15 ‘‘(i) enables each party to the deriva16 tive agreement, contract, or transaction to

17 substitute, through novation or otherwise,

18 the credit of the derivatives clearing orga19 nization for the credit of the parties;

20 ‘‘(ii) arranges or provides, on a multi21 lateral basis, for the settlement or netting

22 of obligations resulting from such agree23 ments, contracts, or transactions executed

24 by participants in the derivatives clearing

25 organization; or
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1 ‘‘(iii) otherwise provides clearing serv2 ices or arrangements that mutualize or

3 transfer among participants in the deriva4 tives clearing organization the credit risk

5 arising from such agreements, contracts,

6 or transactions executed by the partici7 pants.

8 ‘‘(B) EXCLUSIONS.—The term ‘derivatives

9 clearing organization’ does not include an enti10 ty, facility, system, or organization solely be11 cause it arranges or provides for—

12 ‘‘(i) settlement, netting, or novation of

13 obligations resulting from agreements, con14 tracts, or transactions, on a bilateral basis

15 and without a centralized counterparty;

16 ‘‘(ii) settlement or netting of cash

17 payments through an interbank payment

18 system; or

19 ‘‘(iii) settlement, netting, or novation

20 of obligations resulting from a sale of a

21 commodity in a transaction in the spot

22 market for the commodity.

23 ‘‘(9) DESIGNATED FUTURE ON A SECURITY.—

24 The term ‘designated future on a security’ means a
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1 contract of sale (or option on such a contract) for

2 future delivery of—

3 ‘‘(A) a single nonexempted security;

4 ‘‘(B) an index based on fewer than 5 non5 exempted securities; or

6 ‘‘(C) an index in which a single non7 exempted security accounts for 30 percent or

8 more of the value of the index.

9 ‘‘(10) ELECTRONIC TRADING FACILITY.—The

10 term ‘electronic trading facility’ means a trading fa11 cility that—

12 ‘‘(A) operates by means of an electronic

13 network; and

14 ‘‘(B) maintains a real-time audit trail of

15 bids, offers, and the matching of orders or the

16 execution of transactions.

17 ‘‘(11) ELIGIBLE CONTRACT PARTICIPANT.—The

18 term ‘eligible contract participant’ means—

19 ‘‘(A) acting for its own account—

20 ‘‘(i) a financial institution;

21 ‘‘(ii) an insurance company (as de22 fined in section 2 of the Bank Holding

23 Company Act of 1956 (12 U.S.C. 1841));

24 ‘‘(iii) an investment company subject

25 to regulation under the Investment Com-
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1 pany Act of 1940 (15 U.S.C. 80a–1 et

2 seq.) or a foreign person performing a

3 similar role or function subject as such to

4 foreign regulation (regardless of whether

5 each investor in the investment company or

6 the foreign person is itself an eligible con7 tract participant);

8 ‘‘(iv) a commodity pool that—

9 ‘‘(I) has total assets exceeding

10 $5,000,000; and

11 ‘‘(II) is formed and operated by a

12 person subject to regulation under

13 this Act or a foreign person per14 forming a similar role or function sub15 ject as such to foreign regulation (re16 gardless of whether each investor in

17 the commodity pool or the foreign per18 son is itself an eligible contract partic19 ipant);

20 ‘‘(v) a corporation, partnership, pro21 prietorship, organization, trust, or other

22 entity—

23 ‘‘(I) that has total assets exceed24 ing $10,000,000;
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1 ‘‘(II) the obligations of which

2 under an agreement, contract, or

3 transaction are guaranteed or other4 wise supported by a letter of credit or

5 keepwell, support, or other agreement

6 by an entity described in subclause

7 (I), in clause (i), (ii), (iii), (iv), or

8 (vii), or in subparagraph (C); or

9 ‘‘(III) that—

10 ‘‘(aa) has a net worth ex11 ceeding $1,000,000; and

12 ‘‘(bb) enters into an agree13 ment, contract, or transaction in

14 connection with the conduct of

15 the entity’s business or to man16 age the risk associated with an

17 asset or liability owned or in18 curred or reasonably likely to be

19 owned or incurred by the entity

20 in the conduct of the entity’s

21 business;

22 ‘‘(vi) an employee benefit plan subject

23 to the Employee Retirement Income Secu24 rity Act of 1974 (29 U.S.C. 1001 et seq.)

25 or a foreign person performing a similar
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1 role or function subject as such to foreign

2 regulation—

3 ‘‘(I) that has total assets exceed4 ing $5,000,000; or

5 ‘‘(II) the investment decisions of

6 which are made by—

7 ‘‘(aa) an investment adviser

8 subject to regulation under the

9 Investment Advisers Act of 1940

10 (15 U.S.C. 80b–1 et seq.) or a

11 commodity trading advisor sub12 ject to regulation under this Act;

13 ‘‘(bb) a foreign person per14 forming a role or function similar

15 to that of such an investment ad16 viser or commodity trading advi17 sor subject to foreign regulation

18 in the performance of that role or

19 function;

20 ‘‘(cc) a financial institution;

21 or

22 ‘‘(dd) an insurance company

23 (as defined in section 2 of the

24 Bank Holding Company Act of

25 1956 (12 U.S.C. 1841));
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1 ‘‘(vii)(I) a governmental entity (in2 cluding the United States, a State, or a

3 foreign government) or political subdivision

4 of a governmental entity;

5 ‘‘(II) a multinational or supranational

6 government entity; or

7 ‘‘(III) an instrumentality, agency, or

8 department of an entity described in sub9 clause (I) or (II);

10 ‘‘(viii) a broker or dealer subject to

11 regulation under the Securities Exchange

12 Act of 1934 (15 U.S.C. 78a et seq.) or a

13 foreign person performing a similar role or

14 function subject as such to foreign regula15 tion, except that, if the broker or dealer or

16 foreign person is a natural person or pro17 prietorship, the broker or dealer or foreign

18 person shall not be considered to be an eli19 gible contract participant unless the broker

20 or dealer or foreign person also meets the

21 requirements of clause (v) or (xi);

22 ‘‘(ix) a futures commission merchant

23 subject to regulation under this Act or a

24 foreign person performing a similar role or

25 function subject as such to foreign regula-
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1 tion, except that, if the futures commission

2 merchant or foreign person is a natural

3 person or proprietorship, the futures com4 mission merchant or foreign person shall

5 not be considered to be an eligible contract

6 participant unless the futures commission

7 merchant or foreign person also meets the

8 requirements of clause (v) or (xi);

9 ‘‘(x) a floor broker or floor trader sub10 ject to regulation under this Act, to the ex11 tent that the floor broker or floor trader

12 trades on or through the facilities of a reg13 istered entity or exempt board of trade or

14 any affiliate of a registered entity or ex15 empt board of trade; or

16 ‘‘(xi) a natural person with total as17 sets exceeding $10,000,000;

18 ‘‘(B)(i) a person described in any of

19 clauses (i) through (x) of subparagraph (A) or

20 in subparagraph (C), acting as broker or per21 forming an equivalent agency function on behalf

22 of another person described in subparagraph

23 (A) or (C); or
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1 ‘‘(ii)(I) an investment adviser subject to

2 regulation under the Investment Advisers Act of

3 1940 (15 U.S.C. 80b–1 et seq.);

4 ‘‘(II) a commodity trading advisor subject

5 to regulation under this Act;

6 ‘‘(III) a foreign person performing a role

7 or function similar to that of such an invest8 ment adviser or commodity trading advisor sub9 ject to foreign regulation in the performance of

10 that role or function; or

11 ‘‘(IV) a person described in any of clauses

12 (i) through (x) of subparagraph (A) or in sub13 paragraph (C), that is acting as an investment

14 manager or fiduciary (but excluding a person

15 acting as a broker or performing an equivalent

16 agency function) for another person described

17 in subparagraph (A) or (C) and that is author18 ized by the other person to commit the other

19 person to the transaction; or

20 ‘‘(C) any other person that the Commis21 sion determines to be eligible in light of the fi22 nancial or other qualifications of the person.

23 ‘‘(12) ENERGY COMMODITY.—The term ‘energy

24 commodity’ includes crude oil, condensates, natural

25 gas, natural gas liquids, electricity, and coal.
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1 ‘‘(13) EXCLUSION-ELIGIBLE COMMODITY.—

2 ‘‘(A) IN GENERAL.—The term ‘exclusion3 eligible commodity’ means—

4 ‘‘(i) a financial commodity;

5 ‘‘(ii) an energy commodity; and

6 ‘‘(iii) a commodity that has no cash

7 market.

8 ‘‘(B) EXCLUSION.—The term ‘exclusion-el9 igible commodity’ does not include any com10 modity described in paragraph (3) that is an

11 agricultural commodity.

12 ‘‘(14) EXEMPTED SECURITY.—

13 ‘‘(A) IN GENERAL.—The term ‘exempted

14 security’ means a security that is an exempted

15 security under section 3(a) of the Securities Act

16 of 1933 (15 U.S.C. 77c(a)) or section 3(a) of

17 the Securities Exchange Act of 1934 (15

18 U.S.C. 78c(a)).

19 ‘‘(B) EXCLUSION.—The term ‘exempted

20 security’ does not include a municipal security

21 (as defined in section 3(a) of the Securities Ex22 change Act of 1934 (15 U.S.C. 78c(a))).

23 ‘‘(15) FINANCIAL COMMODITY.—The term ‘fi24 nancial commodity’ means—
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1 ‘‘(A) an interest rate, exchange rate, cur2 rency, security, security index, credit risk, debt

3 or equity instrument, or index or measure of in4 flation; or

5 ‘‘(B) any other rate, differential, index, or

6 measure of economic risk, return, or value (ex7 cluding any rate, differential, index, or measure

8 based on a commodity not described in subpara9 graph (A) that has a finite supply).

10 ‘‘(16) FINANCIAL INSTITUTION.—The term ‘fi11 nancial institution’ means—

12 ‘‘(A) a corporation operating under the

13 fifth undesignated paragraph of section 25 of

14 the Federal Reserve Act (12 U.S.C. 603), com15 monly known as ‘an agreement corporation’;

16 ‘‘(B) a corporation organized under section

17 25A of the Federal Reserve Act (12 U.S.C. 611

18 et seq.), commonly known as an ‘Edge Act cor19 poration’;

20 ‘‘(C) an institution that is regulated by the

21 Farm Credit Administration;

22 ‘‘(D) a Federal credit union or State credit

23 union (as defined in section 101 of the Federal

24 Credit Union Act (12 U.S.C. 1752));
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1 ‘‘(E) a depository institution (as defined in

2 section 3 of the Federal Deposit Insurance Act

3 (12 U.S.C. 1813));

4 ‘‘(F) a foreign bank or a branch or agency

5 of a foreign bank (each as defined in section

6 1(b) of the International Banking Act of 1978

7 (12 U.S.C. 3101(b)));

8 ‘‘(G) a trust company; or

9 ‘‘(H) a regulated subsidiary or affiliate of

10 an entity described in any of subparagraphs (A)

11 through (G).’’;

12 (3) by inserting after paragraph (21) (as redes13 ignated by paragraph (1)) the following:

14 ‘‘(22) HYBRID INSTRUMENT.—The term ‘hybrid

15 instrument’ means a deposit (as defined in section 3

16 of the Federal Deposit Insurance Act (12 U.S.C.

17 1813)) offered by a financial institution, or a secu18 rity, having 1 or more payments indexed to the

19 value, level, or rate of 1 or more commodities.’’;

20 (4) by inserting after paragraph (25) (as redes21 ignated by paragraph (1)) the following:

22 ‘‘(26) NATIONAL SECURITIES EXCHANGE.—The

23 term ‘national securities exchange’ means—

24 ‘‘(A) an exchange that is registered as a

25 national securities exchange under section 6 of
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1 the Securities Exchange Act of 1934 (15

2 U.S.C. 78f); or

3 ‘‘(B) an association that is registered as a

4 national securities association under section

5 15A of the Securities Exchange Act of 1934

6 (15 U.S.C. 78o–3).

7 ‘‘(27) OPTION.—The term ‘option’ means an

8 agreement, contract, or transaction that is of the

9 character of, or is commonly known to the trade as,

10 an ‘option’, ‘privilege’, ‘indemnity’, ‘bid’, ‘offer’,

11 ‘put’, ‘call’, ‘advance guaranty’, or ‘decline guar12 anty’.

13 ‘‘(28) ORGANIZED EXCHANGE.—The term ‘or14 ganized exchange’ means a trading facility that—

15 ‘‘(A) permits—

16 ‘‘(i) trading by or on behalf of a per17 son that is not an eligible contract partici18 pant; or

19 ‘‘(ii) trading by persons other than on

20 a bona fide principal-to-principal basis; or

21 ‘‘(B) has adopted (directly or through an22 other nongovernmental entity) rules that—

23 ‘‘(i) govern the conduct of partici24 pants, other than rules that govern the
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1 submission of orders or execution of trans2 actions on the trading system; or

3 ‘‘(ii) include disciplinary sanctions

4 other than the exclusion of participants

5 from trading.’’; and

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

7 ‘‘(30) REGISTERED ENTITY.—The term ‘reg8 istered entity’ means—

9 ‘‘(A) a board of trade designated as a con10 tract market under section 5;

11 ‘‘(B) a derivatives transaction execution fa12 cility registered under section 5a; or

13 ‘‘(C) a derivatives clearing organization

14 registered under section 5b.

15 ‘‘(31) SECURITY.—The term ‘security’ has the

16 meaning given the term in section 3(a) of the Secu17 rities Exchange Act of 1934 (15 U.S.C. 78c(a)).

18 ‘‘(32) TRADING FACILITY.—

19 ‘‘(A) IN GENERAL.—The term ‘trading fa20 cility’ means a person or group of persons that

21 constitutes, maintains, or provides a physical or

22 electronic facility or system in which multiple

23 participants have the ability to execute or trade

24 agreements, contracts, or transactions by ac25 cepting bids and offers made by other partici-
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1 pants that are open to multiple participants in

2 the facility or system.

3 ‘‘(B) EXCLUSIONS.—The term ‘trading fa4 cility’ does not include—

5 ‘‘(i) a person or group of persons sole6 ly because the person or group of

7 persons—

8 ‘‘(I) constitutes, maintains, or

9 provides an electronic facility or sys10 tem that enables participants to nego11 tiate the terms of and enter into bilat12 eral transactions with other partici13 pants as a result of the communica14 tions exchanged between the partici15 pants and not from interaction of

16 multiple orders within a centralized,

17 predetermined, nondiscretionary, auto18 mated trade matching algorithm; or

19 ‘‘(II)(aa) is a derivatives clearing

20 organization; or

21 ‘‘(bb) permits participants to

22 submit agreements, contracts, or

23 transactions to a derivatives clearing

24 organization;
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1 ‘‘(ii) a government securities dealer or

2 government securities broker, to the extent

3 that the dealer or broker executes or

4 trades agreements, contracts, or trans5 actions in government securities, or assists

6 persons in communicating about, negoti7 ating, entering into, executing, or trading

8 an agreement, contract, or transaction in

9 government securities (as the terms ‘gov10 ernment securities dealer’, ‘government se11 curities broker’, and ‘government securi12 ties’ are defined in section 3(a) of the Se13 curities Exchange Act of 1934 (15 U.S.C.

14 78c(a))); or

15 ‘‘(iii) a facility on which bids and of16 fers and acceptances of bids and offers ef17 fected on the facility are not binding.’’.

18 SEC. 4. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN

19 FOREIGN CURRENCY, GOVERNMENT SECURI20 TIES, AND CERTAIN OTHER COMMODITIES.

21 Section 2 of the Commodity Exchange Act (7 U.S.C.

22 2, 2a, 3, 4, 4a) is amended by adding at the end the fol23 lowing:
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1 ‘‘(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS

2 IN FOREIGN CURRENCY, GOVERNMENT SECURITIES, AND

3 CERTAIN OTHER COMMODITIES.—

4 ‘‘(1) IN GENERAL.—Except as provided in para5 graph (2), nothing in this Act (other than section 5b

6 or 12(e)(2)(B)) governs or applies to an agreement,

7 contract, or transaction in—

8 ‘‘(A) foreign currency;

9 ‘‘(B) government securities;

10 ‘‘(C) security warrants;

11 ‘‘(D) security rights;

12 ‘‘(E) resales of installment loan contracts;

13 ‘‘(F) repurchase transactions in a financial

14 commodity; or

15 ‘‘(G) mortgages or mortgage purchase

16 commitments.

17 ‘‘(2) COMMISSION JURISDICTION.—

18 ‘‘(A) AGREEMENTS, CONTRACTS, AND

19 TRANSACTIONS THAT ARE FUTURES TRADED

20 ON AN ORGANIZED EXCHANGE.—This Act ap21 plies to, and the Commission shall have juris22 diction over, an agreement, contract, or trans23 action described in paragraph (1) that—
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1 ‘‘(i)(I) is a contract of sale of a com2 modity for future delivery (or an option on

3 such a contract); and

4 ‘‘(II) is executed or traded on an or5 ganized exchange;

6 ‘‘(ii)(I) is an option on a commodity

7 other than foreign currency or a security;

8 and

9 ‘‘(II is executed or traded on an orga10 nized exchange; or

11 ‘‘(iii)(I) is an option on foreign cur12 rency; and

13 ‘‘(II) is executed or traded on an or14 ganized exchange that is not a national se15 curities exchange.

16 ‘‘(B) AGREEMENTS, CONTRACTS, AND

17 TRANSACTIONS IN RETAIL FOREIGN CUR18 RENCY.—This Act applies to, and the Commis19 sion shall have jurisdiction over, an agreement,

20 contract, or transaction in foreign currency

21 that—

22 ‘‘(i) is—

23 ‘‘(I) a contract of sale for future

24 delivery; or

25 ‘‘(II) an option; and
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1 ‘‘(ii) is offered to, or entered into

2 with, a person that is not an eligible con3 tract participant, unless the counterparty,

4 or the person offering to be the

5 counterparty, of the person is—

6 ‘‘(I) a financial institution;

7 ‘‘(II) a broker or dealer reg8 istered under section 15(b) or 15C of

9 the Securities Exchange Act of 1934

10 (15 U.S.C. 78o(b), 78o–5);

11 ‘‘(III) an associated person of a

12 broker or dealer registered under sec13 tion 15(b) or 15C of the Securities

14 Exchange Act of 1934 (15 U.S.C.

15 78o(b), 78o–5) concerning the finan16 cial or securities activities of which

17 the registered person makes and

18 keeps records under section 15C(b) or

19 17(h) of the Securities Exchange Act

20 of 1934 (15 U.S.C. 78o–5(b), 78q(h));

21 ‘‘(IV) an insurance company (as

22 defined in section 2 of the Bank Hold23 ing Company Act of 1956 (12 U.S.C.

24 1841));
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1 ‘‘(V) a financial holding company

2 (as defined in section 2 of the Bank

3 Holding Company Act of 1956 (12

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

5 ‘‘(VI) an investment bank hold6 ing company (as defined in section

7 17(i) of the Securities Exchange Act

8 of 1934 (15 U.S.C. 78q(i))).’’.

9 SEC. 5. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE

10 TRANSACTIONS.

11 Section 2 of the Commodity Exchange Act (7 U.S.C.

12 2, 2a, 3, 4, 4a) (as amended by section 4) is amended

13 by adding at the end the following:

14 ‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.—

15 ‘‘(1) IN GENERAL.—Nothing in this Act (other

16 than section 5b or 12(e)(2)(B)) governs or applies to

17 an agreement, contract, or transaction in an exclu18 sion-eligible commodity if—

19 ‘‘(A) the agreement, contract, or trans20 action is entered into only between persons that

21 are eligible contract participants at the time at

22 which the persons enter into the agreement,

23 contract, or transaction; and
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1 ‘‘(B) the agreement, contract, or trans2 action is not executed or traded on a trading fa3 cility.

4 ‘‘(2) ELECTRONIC TRADING FACILITY EXCLU5 SION.—Nothing in this Act (other than section 5b or

6 12(e)(2)(B)) governs or applies to an agreement,

7 contract, or transaction in an exclusion-eligible com8 modity if—

9 ‘‘(A) the agreement, contract, or trans10 action is entered into on a bona fide principal11 to-principal basis between parties trading for

12 their own accounts or as described in section

13 1a(11)(B)(ii);

14 ‘‘(B) the agreement, contract, or trans15 action is entered into only between persons that

16 are eligible contract participants (as defined in

17 subparagraph (A), (B)(ii), or (C) of section

18 1a(11)) at the time at which the persons enter

19 into the agreement, contract, or transaction;

20 and

21 ‘‘(C) the agreement, contract, or trans22 action is executed or traded on an electronic

23 trading facility.

24 ‘‘(3) EXCEPTION TO PREVENT MANIPULA25 TION.—Notwithstanding paragraphs (1) and (2),
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1 any agreement, contract, or transaction in an exclu2 sion-eligible commodity (other than a financial com3 modity) that is an energy commodity or is suscep4 tible to a material risk of manipulation shall be sub5 ject to sections 6(c) and 9(a)(2).’’.

6 SEC. 6. ELECTRONIC TRADING FACILITIES.

7 Section 2 of the Commodity Exchange Act (7 U.S.C.

8 2, 2a, 3, 4, 4a) (as amended by section 5) is amended

9 by adding at the end the following:

10 ‘‘(e) ELECTRONIC TRADING FACILITIES.—

11 ‘‘(1) IN GENERAL.—Nothing in this Act (other

12 than section 12(e)(2)(B)) governs or is applicable to

13 an electronic trading facility that limits transactions

14 authorized to be conducted on the facility to trans15 actions that satisfy the requirements of subsection

16 (d)(2).

17 ‘‘(2) EFFECT ON AUTHORITY TO ESTABLISH

18 AND OPERATE.—Nothing in this Act shall prohibit a

19 board of trade designated by the Commission as a

20 contract market or derivatives transaction execution

21 facility, or an exempt board of trade, from estab22 lishing and operating an electronic trading facility

23 excluded under this Act by paragraph (1).’’.
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1 SEC. 7. HYBRID INSTRUMENTS.

2 Section 2 of the Commodity Exchange Act (7 U.S.C.

3 2, 2a, 3, 4, 4a) (as amended by section 6) is amended

4 by adding at the end the following:

5 ‘‘(f) EXCLUSION FOR QUALIFYING HYBRID INSTRU6 MENTS.—

7 ‘‘(1) IN GENERAL.—Nothing in this Act (other

8 than section 12(e)(2)(B)) governs or is applicable to

9 a hybrid instrument that is predominantly a security

10 or depository instrument.

11 ‘‘(2) PREDOMINANCE.—A hybrid instrument

12 shall be considered to be predominantly a security or

13 depository instrument if—

14 ‘‘(A) the issuer of the hybrid instrument

15 receives payment in full of the purchase price of

16 the hybrid instrument, substantially contem17 poraneously with delivery of the hybrid instru18 ment;

19 ‘‘(B) the purchaser or holder of the hybrid

20 instrument is not required to make any pay21 ment to the issuer in addition to the purchase

22 price paid under subparagraph (A), whether as

23 margin, settlement payment, or otherwise, dur24 ing the life of the hybrid instrument or at ma25 turity;
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1 ‘‘(C) the issuer of the hybrid instrument is

2 not subject by the terms of the instrument to

3 mark-to-market margining requirements; and

4 ‘‘(D) the hybrid instrument is not mar5 keted as a contract of sale for future delivery

6 of a commodity (or option on such a contract)

7 subject to this Act.

8 ‘‘(3) MARK-TO-MARKET MARGINING REQUIRE9 MENTS.—For the purposes of paragraph (2)(C),

10 mark-to-market margining requirements do not in11 clude the obligation of an issuer of a secured debt

12 instrument to increase the amount of collateral held

13 in pledge for the benefit of the purchaser of the se14 cured debt instrument to secure the repayment obli15 gations of the issuer under the secured debt instru16 ment.’’.

17 SEC. 8. FUTURES ON SECURITIES.

18 Section 2 of the Commodity Exchange Act (7 U.S.C.

19 2, 2a, 3, 4, 4a) (as amended by section 7) is amended

20 by adding at the end the following:

21 ‘‘(g) FUTURES ON SECURITIES.—

22 ‘‘(1) EXCLUSIONS.—

23 ‘‘(A) EXCLUSION OF OVER-THE-COUNTER

24 EQUITY INSTRUMENTS.—Nothing in this sub25 section governs or applies to—
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1 ‘‘(i) an agreement, contract, or trans2 action in a commodity that is excluded

3 under subsection (c) or (d);

4 ‘‘(ii) an electronic trading facility that

5 is excluded under subsection (e); or

6 ‘‘(iii) a hybrid instrument that is cov7 ered by an exclusion under subsection (f)

8 or an exemption granted by the Commis9 sion under section 4(c) (whether or not the

10 hybrid instrument is otherwise subject to

11 this Act).

12 ‘‘(B) EXCLUSION OF SECURITY OPTIONS.—

13 This Act does not apply to, and the Commission

14 shall have no jurisdiction to designate a board

15 of trade as a contract market or register a de16 rivatives transaction execution facility for, any

17 transaction under which a party to the trans18 action acquires an option on 1 or more securi19 ties, group or index of securities, or interest in,

20 or interest that is based on the value of, a secu21 rity.

22 ‘‘(2) INCLUSION OF TRADING OF NONDES23 IGNATED FUTURES ON SECURITIES ON A CONTRACT

24 MARKET.—
29

•S 2697 RS

1 ‘‘(A) IN GENERAL.—This Act applies to,

2 and the Commission shall have exclusive juris3 diction with respect to and may designate a

4 board of trade as a contract market in, ac5 counts, agreements, and transactions involving

6 a contract of sale (or option on such a contract)

7 for future delivery of a group or index of non8 exempted securities (or an interest in, or inter9 est that is based on the value of, such securi10 ties), none of which is a designated future on

11 a security.

12 ‘‘(B) REQUIREMENTS FOR DESIGNA13 TION.—

14 ‘‘(i) IN GENERAL.—No board of trade

15 shall be designated as a contract market

16 with respect to any contract of sale (or op17 tion on such a contract) for future delivery

18 under subparagraph (A) unless—

19 ‘‘(I) the board of trade files with

20 the Commission an application for

21 designation; and

22 ‘‘(II) the board of trade dem23 onstrates and the Commission ex24 pressly finds that the specific contract

25 (or option on such a contract) with re-
30

•S 2697 RS

1 spect to which the application is made

2 meets the minimum requirements of

3 clauses (ii) and (iii).

4 ‘‘(ii) MEANS OF EFFECTUATION OF

5 SETTLEMENT OR DELIVERY.—Settlement

6 of or delivery on a contract (or option on

7 such a contract) described in subparagraph

8 (A) shall be effected in cash or by means

9 other than the transfer or receipt of a se10 curity other than an exempted security.

11 ‘‘(iii) SUSCEPTIBILITY TO PRICE MA12 NIPULATION.—Trading in a contract (or

13 option on such a contract) described in

14 subparagraph (A) shall not be readily sus15 ceptible to—

16 ‘‘(I) manipulation of the price of

17 the contract (or option on such a con18 tract); or

19 ‘‘(II) causing or being used in

20 the manipulation of the price of any

21 underlying security, option on a secu22 rity, or option on a group or index

23 that includes a security.

24 ‘‘(3) TRADING OF DESIGNATED FUTURES ON

25 SECURITIES ON A CONTRACT MARKET OR NATIONAL
31

•S 2697 RS

1 SECURITIES EXCHANGE.—No person shall offer to

2 enter into, enter into, or confirm the execution of a

3 designated future on a security, or an interest in or

4 interest that is based on the value of a designated

5 future on a security, unless—

6 ‘‘(A) the contract—

7 ‘‘(i) is transacted on or subject to the

8 rules of a board of trade that has been

9 designated by the Commission as a con10 tract market for the commodity that is the

11 subject of the contract; and

12 ‘‘(ii) meets the requirements of para13 graph (4); or

14 ‘‘(B) the contract is transacted on or sub15 ject to the rules of a securities exchange that is

16 registered with the Securities and Exchange

17 Commission as a national securities exchange.

18 ‘‘(4) MINIMUM REQUIREMENTS FOR DES19 IGNATED FUTURES ON SECURITIES TRADED ON A

20 CONTRACT MARKET.—

21 ‘‘(A) IN GENERAL.—Subject to paragraph

22 (5), this Act applies to, and the Commission

23 shall have jurisdiction with respect to and may

24 designate a board of trade as a contract market
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•S 2697 RS

1 in, accounts, agreements, and transactions in2 volving a designated future on a security.

3 ‘‘(B) REQUIREMENTS FOR DESIGNA4 TION.—

5 ‘‘(i) IN GENERAL.—No board of trade

6 shall be designated as a contract market

7 with respect to any contract of sale (or op8 tion on such a contract) under subpara9 graph (A) unless—

10 ‘‘(I) the board of trade files with

11 the Commission an application for

12 designation; and

13 ‘‘(II) the board of trade dem14 onstrates and the Commission ex15 pressly finds that the specific contract

16 (or option on such a contract) with re17 spect to which the application is made

18 meets the minimum requirements of

19 clauses (ii) through (viii).

20 ‘‘(ii) MEANS OF EFFECTUATION OF

21 SETTLEMENT OR DELIVERY.—Settlement

22 of or delivery on a contract (or option on

23 such a contract) described in subparagraph

24 (A) shall be effected in cash or by means
33

•S 2697 RS

1 other than the transfer or receipt of a se2 curity other than an exempted security.

3 ‘‘(iii) REAL-TIME AUDIT TRAIL.—

4 Trading in a contract (or option on such a

5 contract) described in subparagraph (A)

6 shall occur on a contract market that exe7 cutes trades by means of a system that

8 provides a real-time audit trail.

9 ‘‘(iv) SUSCEPTIBILITY TO PRICE MA10 NIPULATION.—Trading in a contract (or

11 option on such a contract) described in

12 subparagraph (A) shall not be readily sus13 ceptible to—

14 ‘‘(I) manipulation of the price of

15 the contract (or option on such a con16 tract); or

17 ‘‘(II) causing or being used in

18 the manipulation of the price of any

19 underlying security, option on a secu20 rity, or option on a group or index

21 that includes a security.

22 ‘‘(v) UNDERLYING SECURITY AP23 PROVED FOR LISTING ON NATIONAL SECU24 RITIES EXCHANGE.—Each security that
34

•S 2697 RS

1 underlies a designated future on a security

2 shall—

3 ‘‘(I) meet all requirements for

4 the listing of an option on that secu5 rity on a national securities exchange:

6 or

7 ‘‘(II) be the subject of options

8 trading on a national securities ex9 change.

10 ‘‘(vi) MARGINS FOR FUTURES CON11 TRACTS.—The contract described in sub12 paragraph (A) shall be traded on a board

13 of trade that establishes and maintains

14 margin levels for designated futures on se15 curities that are consistent with the mar16 gin levels established and maintained on an

17 option contract on the same underlying se18 curity that is listed on any national securi19 ties exchange.

20 ‘‘(vii) CONFLICTS OF INTEREST.—The

21 contract described in subparagraph (A)

22 shall be traded on a board of trade that es23 tablishes and enforces rules that protect

24 the customer from conflicts of interest and

25 related trading abuses on the part of bro-
35

•S 2697 RS

1 kers or any other person performing simi2 lar roles or functions.

3 ‘‘(viii) PROVISION OF INFORMATION

4 NECESSARY FOR ENFORCEMENT.—The

5 contract described in subparagraph (A)

6 shall be traded on a board of trade that,

7 in accordance with regulations promul8 gated by the Commission, collects, main9 tains, and promptly provides to the Securi10 ties and Exchange Commission on request

11 such information as the Commission and

12 the Securities and Exchange Commission

13 jointly determine to be appropriate for the

14 performance of the enforcement respon15 sibilities described in paragraph (5).

16 ‘‘(5) SEC ENFORCEMENT AUTHORITY FOR DES17 IGNATED FUTURES ON SECURITIES CONTRACTS

18 LISTED ON A CONTRACT MARKET.—

19 ‘‘(A) IN GENERAL.—With the concurrence

20 of the Commission, the Securities and Ex21 change Commission may enforce the provisions

22 of the securities laws specified in subparagraph

23 (B) against any person that purchases or sells

24 a designated future on a security to the same
36

•S 2697 RS

1 extent as if the person had purchased or sold

2 an option on a security.

3 ‘‘(B) PROVISIONS OF THE SECURITIES

4 LAWS.—The provisions of the securities laws re5 ferred to in subparagraph (A) are—

6 ‘‘(i) section 16 of the Securities Ex7 change Act of 1934 (15 U.S.C. 78p); and

8 ‘‘(ii) section 10(b) of the Securities

9 Exchange Act of 1934 (15 U.S.C. 78j(b)).

10 ‘‘(C) AUTHORITY OF SEC.—Nothing in this

11 paragraph expands the authority of the Securi12 ties and Exchange Commission with respect to

13 registered entities or contracts of sale of a com14 modity for future delivery (or options on such

15 contracts) except as specifically provided in this

16 paragraph.

17 ‘‘(D) REPORT.—Not earlier than the date

18 that is 3 years after the date of enactment of

19 this subsection, the Commission and the Securi20 ties and Exchange Commission shall begin to

21 compile, and not later than the date that is 4

22 years after the date of enactment of this sub23 section, the Commission and the Securities and

24 Exchange Commission shall submit to Con-
37

•S 2697 RS

1 gress, a report on the implementation of this

2 subsection.

3 ‘‘(6) CFTC ENFORCEMENT AUTHORITY FOR

4 DESIGNATED FUTURES ON SECURITIES LISTED ON A

5 NATIONAL SECURITIES EXCHANGE.—

6 ‘‘(A) IN GENERAL.—Except as provided in

7 subparagraph (B), the Securities and Exchange

8 Commission shall have jurisdiction over a des9 ignated future on a security to the extent that

10 the designated future on a security is traded on

11 a national securities exchange.

12 ‘‘(B) LARGE TRADER REPORTING, ANTI13 FRAUD, AND ANTIMANIPULATION AUTHORITY.—

14 With the concurrence of the Securities and Ex15 change Commission, the Commission shall en16 force sections 4b, 4i, 4o, 6(c), and 9(a)(2)

17 against any person that purchases or sells a

18 designated future on a security on a national

19 securities exchange.

20 ‘‘(C) PROVISION OF INFORMATION NEC21 ESSARY FOR ENFORCEMENT.—A designated fu22 ture on a security shall be traded on a national

23 securities exchange that, in accordance with

24 regulations promulgated by the Securities and

25 Exchange Commission, collects, maintains, and
38

•S 2697 RS

1 promptly provides to the Commission on re2 quest such information as the Securities and

3 Exchange Commission and the Commission

4 jointly determine to be appropriate for the per5 formance of the enforcement responsibilities de6 scribed in subparagraph (B).

7 ‘‘(7) PROCESS FOR LISTING FUTURES ON A SE8 CURITY.—

9 ‘‘(A) CONTRACT MARKET PROCESS.—

10 ‘‘(i) IN GENERAL.—The Commission

11 shall transmit to the Securities and Ex12 change Commission a copy of any applica13 tion that is submitted by a board of trade

14 for designation as a contract market with

15 respect to a contract of sale (or option on

16 such a contract) for future delivery of a

17 nonexempted security or a group or index

18 of nonexempted securities.

19 ‘‘(ii) HEARING.—

20 ‘‘(I) OBJECTION BY SEC.—If, not

21 later than 15 days following trans22 mittal of an application under clause

23 (i), the Securities and Exchange Com24 mission submits to the Commission an

25 objection to designation of the board
39

•S 2697 RS

1 of trade as a contract market in the

2 contract (or option on such a con3 tract) based on evidence (including an

4 economic analysis of relevant factors

5 including benefits and costs) that any

6 minimum requirement under para7 graph (2)(B) or (4)(B) is not met, the

8 Commission shall afford the Securities

9 and Exchange Commission an oppor10 tunity for a hearing on the record be11 fore the Commission.

12 ‘‘(II) TIMING.—A hearing under

13 subclause (I) shall be held before the

14 Commission takes action on the appli15 cation, and not less than 30 nor more

16 than 45 days after the Securities and

17 Exchange Commission submits the ob18 jection.

19 ‘‘(B) NATIONAL SECURITIES EXCHANGE

20 PROCESS.—

21 ‘‘(i) IN GENERAL.—The Securities

22 and Exchange Commission shall transmit

23 to the Commission a copy of any applica24 tion that is submitted by a person for list-
40

•S 2697 RS

1 ing of a designated future on a security on

2 a national securities exchange.

3 ‘‘(ii) OBJECTION BY THE COMMIS4 SION.—If, not later than 15 days following

5 transmittal of an application under clause

6 (i), the Commission submits to the Securi7 ties and Exchange Commission an objec8 tion to listing of a designated future on a

9 security on a national securities exchange

10 based on evidence (including an economic

11 analysis of relevant factors including bene12 fits and costs) that any minimum require13 ment under paragraph (4)(B) is not met,

14 the Securities and Exchange Commission

15 shall afford the Commission an oppor16 tunity for a hearing on the record before

17 the Securities and Exchange Commission.

18 ‘‘(8) MARGIN.—

19 ‘‘(A) IN GENERAL.—Notwithstanding any

20 other provision of this Act, any designated con21 tract market in a contract for sale of future de22 livery of a nonexempted security or non23 exempted securities index (or option on such a

24 contract) shall file with the Board of Governors

25 of the Federal Reserve System any rule estab-
41

•S 2697 RS

1 lishing or changing the level of initial margin or

2 maintenance margin for the nonexempted secu3 rity or nonexempted securities index futures

4 contract (or option on such a contract).

5 ‘‘(B) REQUEST TO SET MARGIN.—

6 ‘‘(i) IN GENERAL.—The Board may at

7 any time request a contract market to set

8 the margin for a nonexempted security or

9 nonexempted securities index futures con10 tract (or option on a nonexempted security

11 or nonexempted securities index futures

12 contract) at a level that the Board deter13 mines is appropriate to—

14 ‘‘(I) preserve the financial integ15 rity of the contract market or of the

16 clearing system of the contract mar17 ket; or

18 ‘‘(II) prevent systemic risk.

19 ‘‘(ii) FAILURE TO SET MARGIN.—If

20 the contract market fails to comply with a

21 request under clause (i) within the time

22 specified by the Board in the request, the

23 Board may direct the contract market to

24 alter or supplement the rules of the con25 tract market as specified in the request.
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•S 2697 RS

1 ‘‘(C) DELEGATION OF AUTHORITY TO THE

2 COMMISSION.—Subject to such conditions as

3 the Board may determine, the Board may dele4 gate any or all of its authority with respect to

5 margin levels—

6 ‘‘(i) in the case of a designated future

7 on a security or other stock index futures

8 contract or related option, to the Commis9 sion, if the contract or option is traded on

10 a designated contract market or derivatives

11 transaction execution facility; or

12 ‘‘(ii) in the case of a designated future

13 on a security—

14 ‘‘(I) to the Securities and Ex15 change Commission, if the designated

16 future on a security is listed on a na17 tional securities exchange; or

18 ‘‘(II) to the intermarket margin

19 board established under subparagraph

20 (D).

21 ‘‘(D) INTERMARKET MARGIN BOARD.—

22 ‘‘(i) ESTABLISHMENT.—With the con23 currence of the Securities and Exchange

24 Commission and the Commission, the

25 Board may establish an intermarket mar-
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•S 2697 RS

1 gin board consisting of representatives of

2 each of those 3 entities.

3 ‘‘(ii) DUTIES.—The intermarket mar4 gin board established under clause (i) may

5 set and maintain margin levels and rules

6 pertaining to margin for a designated fu7 ture on a security listed on a contract mar8 ket or on a national securities exchange.

9 ‘‘(E) RELATIONSHIP TO OTHER AUTHOR10 ITY.—Nothing in this section supersedes or lim11 its the authority of the Commission under sec12 tion 8a(9).

13 ‘‘(F) JUDICIAL REVIEW.—

14 ‘‘(i) IN GENERAL.—Any action taken

15 by the Board (or by the Commission acting

16 under the delegation of authority under

17 subparagraph (C) or by the intermarket

18 margin board established under subpara19 graph (D)) under this paragraph directing

20 a contract market to alter or supplement

21 a contract market rule shall be subject to

22 review only in the United States Court of

23 Appeals for the judicial circuit in which the

24 party seeking review resides or has its

25 principal place of business, or in the
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•S 2697 RS

1 United States Court of Appeals for the

2 District of Columbia Circuit.

3 ‘‘(ii) BASIS FOR REVIEW.—Review

4 under clause (i) shall be based on the ex5 amination of all information before the

6 Board (or the Commission, Securities and

7 Exchange Commission, or intermarket

8 margin board) at the time at which the ac9 tion was taken.

10 ‘‘(iii) STANDARD OF REVIEW.—The

11 court reviewing an action of the Board (or

12 the Commission, Securities and Exchange

13 Commission, or intermarket margin board)

14 shall not enter a stay or order of man15 damus unless the court determines, after

16 notice and hearing, that the action was ar17 bitrary, capricious, an abuse of discretion,

18 or otherwise not in accordance with law.’’.

19 SEC. 9. FINDING AND PURPOSES.

20 The Commodity Exchange Act is amended by striking

21 section 3 (7 U.S.C. 5) and inserting the following:

22 ‘‘SEC. 3. FINDING AND PURPOSES.

23 ‘‘(a) FINDING.—Congress finds that the futures con24 tracts and options contracts that are subject to this Act

25 are entered into regularly in interstate and international
45

•S 2697 RS

1 commerce and are affected with a national public interest,

2 in that such futures contracts and options contracts pro3 vide a means for managing and assuming price risks, dis4 covering prices, and disseminating pricing information

5 through trading in liquid, fair, and financially secure trad6 ing facilities.

7 ‘‘(b) PURPOSES.—The purposes of this Act are—

8 ‘‘(1) to serve the public interest described in

9 subsection (a) through a system of effective self-reg10 ulation of trading facilities, clearing systems, market

11 participants, and market professionals under the

12 oversight of the Commission; and

13 ‘‘(2) to authorize the Commission—

14 ‘‘(A) to deter and prevent price manipula15 tion or any other disruptions to market integ16 rity;

17 ‘‘(B) to ensure the financial integrity of all

18 transactions subject to this Act and the avoid19 ance of systemic risk;

20 ‘‘(C) to protect all market participants

21 from fraudulent or other abusive sales practices

22 and misuse of customer assets; and

23 ‘‘(D) to promote responsible innovation

24 and fair competition among boards of trade,

25 other markets, and market participants.’’.
46

•S 2697 RS

1 SEC. 10. PROHIBITED TRANSACTIONS.

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

3 6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows

4 through subsection (a) and inserting the following:

5 ‘‘SEC. 4C. PROHIBITED TRANSACTIONS.

6 ‘‘(a) IN GENERAL.—

7 ‘‘(1) PROHIBITION.—It shall be unlawful for

8 any person to offer to enter into, enter into, or con9 firm the execution of a transaction described in

10 paragraph (2) involving any commodity if the trans11 action is used or may be used to—

12 ‘‘(A) hedge any transaction in interstate

13 commerce in the commodity or the product or

14 byproduct of the commodity;

15 ‘‘(B) determine the price basis of any such

16 transaction in interstate commerce in the com17 modity; or

18 ‘‘(C) deliver any such commodity sold,

19 shipped, or received in interstate commerce for

20 the execution of the transaction.

21 ‘‘(2) TRANSACTION.—A transaction referred to

22 in paragraph (1) is a transaction that—

23 ‘‘(A)(i) is, is of the character of, or is com24 monly known to the trade as, a ‘wash sale’,

25 ‘cross trade’, or ‘accommodation trade’; or

26 ‘‘(ii) is a fictitious sale; or
47

•S 2697 RS

1 ‘‘(B) is used to cause any price to be re2 ported, registered, or recorded that is not a

3 true and bona fide price.

4 ‘‘(3) EFFECT OF SUBSECTION.—Nothing in this

5 subsection—

6 ‘‘(A) makes unlawful an exchange of—

7 ‘‘(i) futures in connection with a cash

8 commodity transaction;

9 ‘‘(ii) futures for cash commodities;

10 ‘‘(iii) transfer trades or office trades;

11 or

12 ‘‘(iv) futures for swaps;

13 if the exchange is made in accordance with

14 rules of the contract market or derivatives

15 transaction execution facility that apply to such

16 transactions, and those rules have been ap17 proved by the Commission; or

18 ‘‘(B) makes it unlawful for a futures com19 mission merchant, acting as principal or agent,

20 to enter into, execute, or confirm the execution

21 of a contract for the purchase or sale of a com22 modity for future delivery if the contract is en23 tered into, executed, reported, recorded, or

24 cleared in accordance with the rules of a con-
48

•S 2697 RS

1 tract market or derivatives transaction execu2 tion facility.’’.

3 SEC. 11. DESIGNATION OF BOARDS OF TRADE AS CON4 TRACT MARKETS.

5 The Commodity Exchange Act is amended—

6 (1) by redesignating section 5b (7 U.S.C. 7b)

7 as section 5e; and

8 (2) by striking sections 5 and 5a (7 U.S.C. 7,

9 7a) and inserting the following:

10 ‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON11 TRACT MARKETS.

12 ‘‘(a) APPLICATIONS.—A board of trade applying to

13 the Commission for designation as a contract market shall

14 submit an application to the Commission that includes any

15 relevant materials and records the Commission may re16 quire consistent with this Act.

17 ‘‘(b) CRITERIA FOR DESIGNATION.—

18 ‘‘(1) IN GENERAL.—To be designated as a con19 tract market, the board of trade shall demonstrate

20 to the Commission that the board of trade meets the

21 criteria specified in this subsection.

22 ‘‘(2) PREVENTION OF MARKET MANIPULA23 TION.—The board of trade shall have the capacity to

24 prevent market manipulation through market sur25 veillance, compliance, and enforcement practices and
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1 procedures, including methods for conducting real2 time monitoring of trading and comprehensive and

3 accurate trade reconstructions.

4 ‘‘(3) FAIR AND EQUITABLE TRADING.—The

5 board of trade shall establish and enforce trading

6 rules to ensure fair and equitable trading through

7 the facilities of the contract market, and the capac8 ity to detect, investigate, and discipline any person

9 that violates the rules.

10 ‘‘(4) TRADE EXECUTION FACILITY.—The board

11 of trade shall—

12 ‘‘(A) establish and enforce rules defining,

13 or specifications detailing, the manner of oper14 ation of the trade execution facility maintained

15 by the board of trade, including rules or speci16 fications describing the operation of any elec17 tronic matching platform; and

18 ‘‘(B) demonstrate that the trading facility

19 operates in accordance with the rules or speci20 fications.

21 ‘‘(5) FINANCIAL INTEGRITY OF TRANS22 ACTIONS.—The board of trade shall establish and

23 enforce rules and procedures for ensuring the finan24 cial integrity of transactions entered into by or

25 through the facilities of the contract market.
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1 ‘‘(6) DISCIPLINARY PROCEDURES.—The board

2 of trade shall establish and enforce disciplinary pro3 cedures that authorize the board of trade to dis4 cipline, suspend, or expel members or market par5 ticipants that violate the rules of the board of trade,

6 or similar methods for performing the same func7 tions, including delegation of the functions to third

8 parties.

9 ‘‘(7) PUBLIC ACCESS.—The board of trade shall

10 provide the public with access to the rules, regula11 tions, and contract specifications of the board of

12 trade.

13 ‘‘(8) ABILITY TO OBTAIN INFORMATION.—The

14 board of trade shall establish and enforce rules that

15 will allow the board of trade to obtain any necessary

16 information to perform any of the functions de17 scribed in this subsection, including the capacity to

18 carry out such international information-sharing

19 agreements as the Commission may require.

20 ‘‘(c) EXISTING CONTRACT MARKETS.—A designated

21 contract market on the effective date of the Commodity

22 Futures Modernization Act of 2000 shall be considered to

23 be a designated contract market under this section.

24 ‘‘(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—
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1 ‘‘(1) IN GENERAL.—To maintain the designa2 tion of a board of trade as a contract market, a

3 board of trade shall comply with the core principles

4 specified in this subsection.

5 ‘‘(2) COMPLIANCE WITH RULES.—The board of

6 trade shall monitor and enforce compliance with the

7 rules of the contract market, including the terms

8 and conditions of any contracts to be traded and any

9 limitations on access to the contract market.

10 ‘‘(3) CONTRACTS NOT READILY SUBJECT TO

11 MANIPULATION.—The board of trade shall list on

12 the contract market only contracts that are not

13 readily susceptible to manipulation.

14 ‘‘(4) MONITORING OF TRADING.—The board of

15 trade shall monitor trading to prevent manipulation,

16 price distortion, and disruptions of the delivery or

17 cash-settlement process.

18 ‘‘(5) POSITION LIMITATIONS OR ACCOUNT19 ABILITY.—To reduce the potential threat of market

20 manipulation or congestion, especially during trading

21 in the delivery month, the board of trade shall adopt

22 position limitations or position accountability for

23 speculators, where necessary and appropriate.

24 ‘‘(6) EMERGENCY AUTHORITY.—The board of

25 trade shall adopt rules to provide for the exercise of
52

•S 2697 RS

1 emergency authority, in consultation or cooperation

2 with the Commission, where necessary and appro3 priate, including the authority to—

4 ‘‘(A) liquidate or transfer open positions in

5 any contract;

6 ‘‘(B) suspend or curtail trading in any con7 tract; and

8 ‘‘(C) require market participants in any

9 contract to meet special margin requirements.

10 ‘‘(7) AVAILABILITY OF GENERAL INFORMA11 TION.—The board of trade shall make available to

12 market authorities, market participants, and the

13 public information concerning—

14 ‘‘(A) the terms and conditions of the con15 tracts of the contract market; and

16 ‘‘(B) the mechanisms for executing trans17 actions on or through the facilities of the con18 tract market.

19 ‘‘(8) DAILY PUBLICATION OF TRADING INFOR20 MATION.—The board of trade shall make public

21 daily information on settlement prices, volume, open

22 interest, and opening and closing ranges for actively

23 traded contracts on the contract market.

24 ‘‘(9) EXECUTION OF TRANSACTIONS.—The

25 board of trade shall provide a competitive, open, and
53

•S 2697 RS

1 efficient market and mechanism for executing trans2 actions.

3 ‘‘(10) TRADE INFORMATION.—The board of

4 trade shall maintain rules and procedures to provide

5 for the recording and safe storage of all identifying

6 data entry and trade information in a manner that

7 enables the contract market to use the information

8 for purposes of assisting in the prevention of cus9 tomer and market abuses and providing evidence of

10 any violations of the rules of the contract market.

11 ‘‘(11) FINANCIAL INTEGRITY OF CONTRACTS.—

12 The board of trade shall establish and enforce rules

13 providing for the financial integrity of any contracts

14 traded on the contract market, including rules to en15 sure the financial integrity of any futures commis16 sion merchants and introducing brokers and the pro17 tection of customer funds.

18 ‘‘(12) PROTECTION OF MARKET PARTICI19 PANTS.—The board of trade shall establish and en20 force rules to protect market participants from abu21 sive practices committed by any party (including a

22 party acting as an agent for the participants).

23 ‘‘(13) DISPUTE RESOLUTION.—The board of

24 trade shall establish and enforce rules regarding and

25 provide facilities for alternative dispute resolution as
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1 appropriate for market participants and any market

2 intermediaries.

3 ‘‘(14) GOVERNANCE FITNESS STANDARDS.—

4 The board of trade shall establish and enforce ap5 propriate fitness standards for directors, members of

6 any disciplinary committee, members of the board of

7 trade, and any other persons with direct access to

8 the facility (including any parties affiliated with any

9 of the persons described in this paragraph).

10 ‘‘(15) CONFLICTS OF INTEREST.—The board of

11 trade shall establish and enforce rules to minimize

12 conflicts of interest in the decisionmaking process of

13 the contract market and establish a process for re14 solving such conflicts of interest.

15 ‘‘(16) COMPOSITION OF BOARDS OF MUTUALLY

16 OWNED CONTRACT MARKETS.—In the case of a mu17 tually owned contract market, the board of trade

18 shall ensure that the composition of the governing

19 board reflects market participants.

20 ‘‘(17) RECORDKEEPING.—The board of trade

21 shall—

22 ‘‘(A) maintain full records of all activities

23 related to the business of the contract market

24 in a form and manner acceptable to the Com25 mission for a period of 5 years;
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1 ‘‘(B) make the records readily available

2 during at least the first 2-years of the 5-year

3 period and provide the records to the Commis4 sion during that 2-year period at the expense of

5 the person required to maintain the records;

6 and

7 ‘‘(C) keep the records open to inspection

8 by any representative of the Commission or the

9 Department of Justice.

10 ‘‘(18) ANTITRUST CONSIDERATIONS.—Unless

11 appropriate to achieve the purposes of this Act, the

12 board of trade shall avoid—

13 ‘‘(A) adopting any rule or taking any ac14 tion that results in any unreasonable restraint

15 of trade; or

16 ‘‘(B) imposing any material anticompeti17 tive burden on trading on the contract mar18 ket.’’.

19 SEC. 12. DERIVATIVES TRANSACTION EXECUTION FACILI20 TIES.

21 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

22 is amended by inserting after section 5 (as amended by

23 section 11(2)) the following:
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1 ‘‘SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILI2 TIES.

3 ‘‘(a) IN GENERAL.—In lieu of compliance with the

4 contract market designation requirements of section 5, a

5 board of trade may elect to operate as a registered deriva6 tives transaction execution facility if the facility is—

7 ‘‘(1) designated as a contract market and meets

8 the requirements of this section; or

9 ‘‘(2) registered as a derivatives transaction exe10 cution facility under subsection (c).

11 ‘‘(b) REQUIREMENTS FOR TRADING FUTURES CON12 TRACTS OR OTHER DERIVATIVES TRANSACTIONS.—

13 ‘‘(1) IN GENERAL.—A registered derivatives

14 transaction execution facility under subsection (a)

15 may trade any futures contract (or option on such

16 a contract) that is not a designated future on a se17 curity on or through the facility only by satisfying

18 the requirements of this section.

19 ‘‘(2) REQUIREMENTS FOR UNDERLYING COM20 MODITIES.—A registered derivatives transaction exe21 cution facility may trade any futures contract only

22 if—

23 ‘‘(A) the underlying commodity has a near24 ly inexhaustible deliverable supply;

25 ‘‘(B) the underlying commodity has a de26 liverable supply that is sufficiently large that
57

•S 2697 RS

1 the contract is highly unlikely to be susceptible

2 to manipulation;

3 ‘‘(C) the underlying commodity has no

4 cash market; or

5 ‘‘(D) the Commission determines, based on

6 the market characteristics, surveillance history,

7 self-regulatory record, and capacity of the facil8 ity that trading in the futures contract is highly

9 unlikely to be susceptible to manipulation.

10 ‘‘(3) ELIGIBLE TRADERS.—To trade on a reg11 istered derivatives transaction execution facility, a

12 person shall—

13 ‘‘(A) be authorized by the board of trade

14 to trade on the facility; and

15 ‘‘(B)(i) be an eligible contract participant;

16 or

17 ‘‘(ii) be a person trading through a futures

18 commission merchant that—

19 ‘‘(I) is registered with the Commis20 sion;

21 ‘‘(II) is a member of a futures self22 regulatory organization;

23 ‘‘(III) is a clearing member of a de24 rivatives clearing organization; and
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1 ‘‘(IV) has adjusted net capital of at

2 least $20,000,000.

3 ‘‘(4) TRADING BY CONTRACT MARKETS.—A

4 board of trade that is designated as a contract mar5 ket shall, to the extent that the contract market also

6 operates a registered derivatives transaction execu7 tion facility—

8 ‘‘(A) provide a physical location for the

9 contract market trading of the board of trade

10 that is separate from trading on the derivatives

11 transaction execution facility of the board of

12 trade; or

13 ‘‘(B) if the board of trade uses the same

14 electronic trading system for trading on the

15 contract market and derivatives transaction

16 execution facility of the board of trade, identify

17 whether the electronic trading is taking place

18 on the contract market or the derivatives trans19 action execution facility.

20 ‘‘(c) CRITERIA FOR REGISTRATION.—

21 ‘‘(1) IN GENERAL.—To be registered as a reg22 istered derivatives transaction execution facility, the

23 board of trade shall demonstrate to the Commission

24 that the board of trade meets the criteria specified

25 in this paragraph.
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1 ‘‘(2) DETERRENCE OF ABUSES.—The board of

2 trade shall establish and enforce trading rules that

3 will deter abuses and has the capacity to detect, in4 vestigate, and enforce those rules, including means

5 to—

6 ‘‘(A) obtain information necessary to per7 form the functions required under this section;

8 or

9 ‘‘(B) use technological means to—

10 ‘‘(i) provide market participants with

11 impartial access to the market; and

12 ‘‘(ii) capture information that may be

13 used in establishing whether rule violations

14 have occurred.

15 ‘‘(3) TRADING PROCEDURES.—The board of

16 trade shall establish and enforce rules or terms and

17 conditions defining, or specifications detailing, trad18 ing procedures to be used in entering and executing

19 orders traded on the facilities of the board of trade.

20 ‘‘(4) FINANCIAL INTEGRITY OF TRANS21 ACTIONS.—The board of trade shall establish and

22 enforce rules or terms and conditions providing for

23 the financial integrity of transactions entered on or

24 through the facilities of the board of trade, including

25 rules or terms and conditions to ensure the financial
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1 integrity of any futures commission merchants and

2 introducing brokers and the protection of customer

3 funds.

4 ‘‘(d) CORE PRINCIPLES FOR REGISTERED DERIVA5 TIVES TRANSACTION EXECUTION FACILITIES.—

6 ‘‘(1) IN GENERAL.—To maintain the registra7 tion of a board of trade as a derivatives transaction

8 execution facility, a board of trade shall comply with

9 the core principles specified in this subsection.

10 ‘‘(2) COMPLIANCE WITH RULES.—The board of

11 trade shall monitor and enforce the rules of the fa12 cility, including any terms and conditions of any

13 contracts traded on or through the facility and any

14 limitations on access to the facility.

15 ‘‘(3) MONITORING OF TRADING.—The board of

16 trade shall monitor trading in the contracts of the

17 facility to ensure orderly trading in the contract and

18 to maintain an orderly market while providing any

19 necessary trading information to the Commission to

20 allow the Commission to discharge the responsibil21 ities of the Commission under the Act.

22 ‘‘(4) DISCLOSURE OF GENERAL INFORMA23 TION.—The board of trade shall disclose publicly

24 and to the Commission information concerning—

25 ‘‘(A) contract terms and conditions;
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1 ‘‘(B) trading conventions, mechanisms, and

2 practices;

3 ‘‘(C) financial integrity protections; and

4 ‘‘(D) other information relevant to partici5 pation in trading on the facility.

6 ‘‘(5) PROVISION OF TRADING INFORMATION.—

7 The board of trade shall provide to market partici8 pants on a fair, equitable, and timely basis—

9 ‘‘(A) information regarding prices, bids,

10 and offers; and

11 ‘‘(B) for actively traded contracts, daily in12 formation on settlement prices, volume, open in13 terest, and opening and closing ranges.

14 ‘‘(6) FITNESS STANDARDS.—The board of trade

15 shall establish and enforce appropriate fitness stand16 ards for directors, members of any disciplinary com17 mittee, members, and any other persons with direct

18 access to the facility, including any parties affiliated

19 with any of the persons described in this paragraph.

20 ‘‘(7) CONFLICTS OF INTEREST.—The board of

21 trade shall establish and enforce rules to minimize

22 conflicts of interest in the decisionmaking process of

23 the derivatives transaction execution facility and es24 tablish a process for resolving such conflicts of inter25 est.
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1 ‘‘(8) RECORDKEEPING.—The board of trade

2 shall—

3 ‘‘(A) maintain full records of all activities

4 related to the business of the derivatives trans5 action execution facility in a form and manner

6 acceptable to the Commission for a period of at

7 least 5 years;

8 ‘‘(B) make the records readily available

9 during at least the first 2 years of the 5-year

10 period and provide the records to the Commis11 sion at the expense of the person required to

12 maintain the records; and

13 ‘‘(C) keep the records open to inspection

14 by any representative of the Commission or the

15 Department of Justice.

16 ‘‘(9) ANTITRUST CONSIDERATIONS.—Unless ap17 propriate to achieve the purposes of this Act, the

18 board of trade shall avoid—

19 ‘‘(A) adopting any rule or taking any ac20 tion that results in any unreasonable restraint

21 of trade; or

22 ‘‘(B) imposing any material anticompeti23 tive burden on trading on the derivatives trans24 action execution facility.
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1 ‘‘(e) USE OF BROKER-DEALERS AND DEPOSITORY

2 INSTITUTIONS AS INTERMEDIARIES.—

3 ‘‘(1) IN GENERAL.—A registered derivatives

4 transaction execution facility may by rule allow a

5 broker-dealer or depository institution that meets

6 the requirements of paragraph (2) to—

7 ‘‘(A) act as an intermediary in trans8 actions executed on the facility on behalf of cus9 tomers of the broker-dealer or depository insti10 tution; and

11 ‘‘(B) receive funds of customers to serve as

12 margin or security for such transactions.

13 ‘‘(2) REQUIREMENTS.—The requirements re14 ferred to in paragraph (1) are that—

15 ‘‘(A) a broker-dealer be in good standing

16 with the Securities and Exchange Commission

17 and a depository institution be in good stand18 ing, as determined by the appropriate Federal

19 banking agency (as defined in section 3 of the

20 Federal Deposit Insurance Act (12 U.S.C.

21 1813)) (including the Farm Credit Administra22 tion), as applicable; and

23 ‘‘(B) if a broker-dealer or depository insti24 tution carries or holds customer accounts or
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•S 2697 RS

1 funds for transactions on the derivatives trans2 action execution facility for more than 1 busi3 ness day, the broker-dealer or depository insti4 tution is registered as a futures commission

5 merchant and is a member of a registered fu6 tures association.

7 ‘‘(3) IMPLEMENTATION.—The Commission shall

8 cooperate and coordinate with the Securities and Ex9 change Commission and Federal banking regulatory

10 agencies (including the Farm Credit Administration)

11 in adopting rules and taking any other appropriate

12 action to facilitate the implementation of this sub13 section.

14 ‘‘(f) SEGREGATION OF CUSTOMER FUNDS.—Not

15 later than 180 days after the effective date of the Com16 modity Futures Modernization Act of 2000, consistent

17 with regulations adopted by the Commission, a registered

18 derivatives transaction execution facility may authorize a

19 futures commission merchant to offer any customer of the

20 futures commission merchant that is an eligible contract

21 participant the right to not segregate the customer funds

22 of the futures commission merchant for purposes of trad23 ing on or through the facilities of the registered derivatives

24 transaction execution facility.
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1 ‘‘(g) ELECTION TO TRADE EXCLUDED TRANS2 ACTIONS.—

3 ‘‘(1) IN GENERAL.—A board of trade that is a

4 registered derivatives transaction execution facility

5 may trade on the facility any agreements, contracts,

6 or transactions that are excluded from this Act

7 under subsection (c) or (d) of section 2.

8 ‘‘(2) EXCLUSIVE JURISDICTION OF THE COM9 MISSION.—The Commission shall have exclusive ju10 risdiction over agreements, contracts, or transactions

11 described in paragraph (1) to the extent that the

12 agreements, contracts, or transactions are traded on

13 a derivatives transaction execution facility.’’.

14 SEC. 13. DERIVATIVES CLEARING ORGANIZATIONS.

15 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

16 is amended by inserting after section 5a (as added by sec17 tion 12) the following:

18 ‘‘SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

19 ‘‘(a) REGISTRATION REQUIREMENT.—Except as pro20 vided in subsection (b), it shall be unlawful for a deriva21 tives clearing organization, unless registered with the

22 Commission, directly or indirectly to make use of the mails

23 or any means or instrumentality of interstate commerce

24 to perform the functions of a derivatives clearing organiza25 tion described in section 1a(8).
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1 ‘‘(b) EXCLUSION OF DERIVATIVES CLEARING ORGA2 NIZATIONS SUBJECT TO OTHER REGULATORY AUTHORI3 TIES.—A derivatives clearing organization shall not be re4 quired to register with the Commission, and the Commis5 sion shall have no jurisdiction with respect to the deriva6 tives clearing organization, if the derivatives clearing

7 organization—

8 ‘‘(1)(A) is registered as a clearing agency under

9 the Securities Exchange Act of 1934 (15 U.S.C. 78a

10 et seq.);

11 ‘‘(B) is subject to the supervisory jurisdiction of

12 a Federal banking agency (as defined in section 3 of

13 the Federal Deposit Insurance Act (12 U.S.C.

14 1813)) or the National Credit Union Administration;

15 or

16 ‘‘(C) is subject to the supervisory jurisdiction of

17 a foreign regulatory authority that is recognized by

18 the Securities and Exchange Commission, the Board

19 of Governors of the Federal Reserve System, the

20 Comptroller of the Currency, or the Commission as

21 overseeing a system of consolidated supervision com22 parable to that provided under applicable United

23 States law; and

24 ‘‘(2) does not clear a contract of sale for future

25 delivery, option on a contract of sale for future deliv-
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1 ery, or option on a commodity that is not a security

2 (unless the contract or option is excluded under sub3 section (c) or (d) of section 2).

4 ‘‘(c) VOLUNTARY REGISTRATION.—A derivatives

5 clearing organization that is exempt from registration

6 under subsection (b) may register with the Commission

7 as a derivatives clearing organization.

8 ‘‘(d) REGISTRATION OF DERIVATIVES CLEARING OR9 GANIZATIONS.—

10 ‘‘(1) APPLICATION.—A person desiring to reg11 ister as a derivatives clearing organization shall sub12 mit to the Commission an application in such form

13 and containing such information as the Commission

14 may require for the purpose of making the deter15 minations required for approval under paragraph

16 (2).

17 ‘‘(2) CORE PRINCIPLES.—

18 ‘‘(A) IN GENERAL.—To be registered and

19 to maintain registration as a derivatives clear20 ing organization, an applicant shall demonstrate

21 to the Commission that the applicant complies

22 with the core principles specified in this para23 graph.

24 ‘‘(B) FINANCIAL RESOURCES.—The appli25 cant shall demonstrate that the applicant has
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•S 2697 RS

1 adequate financial, operational, and managerial

2 resources to discharge the responsibilities of a

3 derivatives clearing organization without inter4 ruption in various market conditions.

5 ‘‘(C) PARTICIPANT AND PRODUCT ELIGI6 BILITY.—The applicant shall establish—

7 ‘‘(i) appropriate admission and con8 tinuing eligibility standards (including ap9 propriate minimum financial requirements)

10 for members of and participants in the or11 ganization; and

12 ‘‘(ii) appropriate standards for deter13 mining eligibility of agreements, contracts,

14 or transactions submitted to the applicant.

15 ‘‘(D) RISK MANAGEMENT.—The applicant

16 shall have the ability to manage the risks asso17 ciated with discharging the responsibilities of a

18 derivatives clearing organization through the

19 use of appropriate tools and procedures.

20 ‘‘(E) SETTLEMENT PROCEDURES.—The

21 applicant shall have the ability to—

22 ‘‘(i) complete settlements on a timely

23 basis under varying circumstances;
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•S 2697 RS

1 ‘‘(ii) maintain an adequate record of

2 the flow of funds associated with each

3 transaction that the applicant clears; and

4 ‘‘(iii) comply with the terms and con5 ditions of any permitted netting or offset

6 arrangements with other clearing organiza7 tions.

8 ‘‘(F) TREATMENT OF FUNDS.—The appli9 cant shall have standards and procedures de10 signed to protect and ensure the safety of mem11 ber and participant funds.

12 ‘‘(G) DEFAULT RULES AND PROCE13 DURES.—The applicant shall have rules and

14 procedures designed to allow for efficient, fair,

15 and safe management of events when members

16 or participants become insolvent or otherwise

17 default on their obligations to the derivatives

18 clearing organization.

19 ‘‘(H) RULE ENFORCEMENT.—The appli20 cant shall—

21 ‘‘(i) maintain adequate arrangements

22 and resources for the effective monitoring

23 and enforcement of compliance with rules

24 of the applicant and for resolution of dis25 putes; and
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1 ‘‘(ii) have the authority and ability to

2 discipline, limit, suspend, or terminate a

3 member’s or participant’s activities for vio4 lations of rules of the applicant.

5 ‘‘(I) SYSTEM SAFEGUARDS.—The applicant

6 shall demonstrate that the applicant—

7 ‘‘(i) has established and will maintain

8 a program of oversight and risk analysis to

9 ensure that the automated systems of the

10 applicant function properly and have ade11 quate capacity and security; and

12 ‘‘(ii) has established and will maintain

13 emergency procedures and a plan for dis14 aster recovery, and will periodically test

15 backup facilities sufficient to ensure daily

16 processing, clearing, and settlement of

17 transactions.

18 ‘‘(J) REPORTING.—The applicant shall

19 provide to the Commission all information nec20 essary for the Commission to conduct the over21 sight function of the applicant with respect to

22 the activities of the derivatives clearing organi23 zation.

24 ‘‘(K) RECORDKEEPING.—The applicant

25 shall—
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1 ‘‘(i) maintain full records of all activi2 ties related to the business of the applicant

3 as a derivatives clearing organization in a

4 form and manner acceptable to the Com5 mission for a period of at least 5 years;

6 ‘‘(ii) make the records readily avail7 able during at least the first 2 years of the

8 5-year period and provide the records to

9 the Commission at the expense of the per10 son required to maintain the records; and

11 ‘‘(iii) keep the records open to inspec12 tion by any representative of the Commis13 sion or the Department of Justice.

14 ‘‘(L) PUBLIC INFORMATION.—The appli15 cant shall make information concerning the

16 rules and operating procedures governing the

17 clearing and settlement systems (including de18 fault procedures) available to market partici19 pants.

20 ‘‘(M) INFORMATION SHARING.—The appli21 cant shall—

22 ‘‘(i) enter into and abide by the terms

23 of all appropriate and applicable domestic

24 and international information-sharing

25 agreements; and
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1 ‘‘(ii) use relevant information obtained

2 from the agreements in carrying out the

3 clearing organization’s risk management

4 program.

5 ‘‘(N) ANTITRUST CONSIDERATIONS.—Un6 less appropriate to achieve the purposes of this

7 Act, the derivatives clearing organization shall

8 avoid—

9 ‘‘(i) adopting any rule or taking any

10 action that results in any unreasonable re11 straint of trade; or

12 ‘‘(ii) imposing any material anti13 competitive burden on trading on the con14 tract market.

15 ‘‘(3) ORDERS CONCERNING COMPETITION.—A

16 derivatives clearing organization may request the

17 Commission to issue an order concerning whether a

18 rule or practice of the applicant is the least anti19 competitive means of achieving the objectives, pur20 poses, and policies of this Act.

21 ‘‘(e) EXISTING DERIVATIVES CLEARING ORGANIZA22 TIONS.—A derivatives clearing organization shall be

23 deemed to be registered under this section to the extent

24 that—
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1 ‘‘(1) the derivatives clearing organization clears

2 agreements, contracts, or transactions for a board of

3 trade that has been designated by the Commission

4 as a contract market for such agreements, contracts,

5 or transactions before the date of enactment of this

6 section; and

7 ‘‘(2) the Commission has reviewed and ap8 proved the rules of the derivatives clearing organiza9 tion before that date.

10 ‘‘(f) APPOINTMENT OF TRUSTEE.—

11 ‘‘(1) IN GENERAL.—If a proceeding under sec12 tion 5e results in the suspension or revocation of the

13 registration of a derivatives clearing organization, or

14 if a derivatives clearing organization withdraws from

15 registration, the Commission, on notice to the de16 rivatives clearing organization, may apply to the ap17 propriate United States district court where the de18 rivatives clearing organization is located for the ap19 pointment of a trustee.

20 ‘‘(2) ASSUMPTION OF JURISDICTION.—If the

21 Commission applies for appointment of a trustee

22 under paragraph (1)—

23 ‘‘(A) the court may take exclusive jurisdic24 tion over the derivatives clearing organization
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1 and the records and assets of the derivatives

2 clearing organization, wherever located; and

3 ‘‘(B) if the court takes jurisdiction under

4 subparagraph (A), the court shall appoint the

5 Commission, or a person designated by the

6 Commission, as trustee with power to take pos7 session and continue to operate or terminate

8 the operations of the derivatives clearing orga9 nization in an orderly manner for the protection

10 of participants, subject to such terms and con11 ditions as the court may prescribe.

12 ‘‘(g) LINKING OF REGULATED CLEARING FACILI13 TIES.—

14 ‘‘(1) IN GENERAL.—The Commission shall fa15 cilitate the linking or coordination of derivatives

16 clearing organizations registered under this Act with

17 other regulated clearance facilities for the coordi18 nated settlement of cleared transactions.

19 ‘‘(2) COORDINATION.—In carrying out para20 graph (1), the Commission shall coordinate with the

21 Federal banking agencies and the Securities and Ex22 change Commission.’’.
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1 SEC. 14. COMMON PROVISIONS APPLICABLE TO REG2 ISTERED ENTITIES.

3 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

4 is amended by inserting after section 5b (as added by sec5 tion 13) the following:

6 ‘‘SEC. 5C. COMMON PROVISIONS APPLICABLE TO REG7 ISTERED ENTITIES.

8 ‘‘(a) ACCEPTABLE BUSINESS PRACTICES UNDER

9 CORE PRINCIPLES.—

10 ‘‘(1) IN GENERAL.—Consistent with the pur11 poses of this Act, the Commission may issue inter12 pretations, or approve interpretations submitted to

13 the Commission, of the core principles for registered

14 entities specified in sections 5(d), 5a(d), and

15 5b(d)(2) to describe what would constitute an ac16 ceptable business practice under the core principles.

17 ‘‘(2) TIMING.—If any person submits to the

18 Commission a request for an interpretation or for

19 approval of an interpretation under paragraph (1),

20 the Commission shall issue the interpretation or

21 shall approve or disapprove the interpretation not

22 later than 45 days after receiving the request.

23 ‘‘(3) EFFECT OF INTERPRETATION.—An inter24 pretation issued under paragraph (1) shall not pro25 vide the exclusive means for complying with the core

26 principles.
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1 ‘‘(b) DELEGATION OF FUNCTIONS UNDER CORE

2 PRINCIPLES.—

3 ‘‘(1) IN GENERAL.—A registered entity may

4 comply with any applicable core principle through

5 delegation of any relevant function to a registered

6 futures association or another registered entity.

7 ‘‘(2) RESPONSIBILITY.—A registered entity that

8 delegates a function under paragraph (1) shall re9 main responsible for carrying out the function.

10 ‘‘(c) NEW CONTRACTS, NEW RULES, AND RULE

11 AMENDMENTS.—

12 ‘‘(1) IN GENERAL.—Subject to paragraph (2), a

13 registered entity may elect to list for trading any

14 new contract or other instrument, or may elect to

15 approve and implement any new rule or rule amend16 ment, by providing to the Commission a written cer17 tification that the new contract, new rule, or rule

18 amendment complies with this Act (including regula19 tions under this Act).

20 ‘‘(2) PRIOR APPROVAL.—

21 ‘‘(A) IN GENERAL.—A registered entity

22 may request that the Commission grant prior

23 approval to any new contract or other instru24 ment, new rule, or rule amendment.
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1 ‘‘(B) DEADLINE.—If prior approval is re2 quested under subparagraph (A), the Commis3 sion shall take final action on the request not

4 later than 90 days after submission of the re5 quest, unless the person submitting the request

6 agrees to an extension of the time limitation es7 tablished under this subparagraph.

8 ‘‘(C) AGRICULTURAL CONTRACTS.—Not9 withstanding any other provision of this section,

10 a designated contract market shall submit for

11 prior approval by the Commission each rule

12 amendment that materially changes a term or

13 condition in any contract of sale of a com14 modity for future delivery or related option

15 traded through the facilities of the designated

16 contract market, if—

17 ‘‘(i) the commodity is specifically list18 ed in section 1a(3); and

19 ‘‘(ii) the rule amendment applies to

20 contracts and delivery months that have

21 previously been listed for trading and have

22 open interest.

23 ‘‘(3) APPROVAL.—The Commission shall ap24 prove any such new contract or instrument, new

25 rule, or rule amendment unless the Commission
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1 finds that the new contract or instrument, new rule,

2 or rule amendment would violate this Act.

3 ‘‘(d) VIOLATION OF CORE PRINCIPLES.—

4 ‘‘(1) IN GENERAL.—If the Commission deter5 mines, on the basis of substantial evidence, that a

6 registered entity is violating any of the applicable

7 core principles specified in sections 5(d), 5a(d), and

8 5b(d)(2), the Commission shall—

9 ‘‘(A) notify the registered entity of the de10 termination; and

11 ‘‘(B) afford the registered entity an oppor12 tunity to make appropriate changes to bring the

13 registered entity into compliance with the core

14 principles.

15 ‘‘(2) FAILURE TO MAKE CHANGES.—If, not

16 later than 30 days after receiving a notification

17 under paragraph (1), a registered entity fails to

18 make changes that, in the opinion of the Commis19 sion, are necessary to accomplish the objectives of

20 the core principles, the Commission may take fur21 ther action in accordance with this Act.

22 ‘‘(e) RESERVATION OF EMERGENCY AUTHORITY.—

23 Notwithstanding any other provision of this section, the

24 Commission shall retain the full scope of its emergency

25 powers under section 8a(9) to direct any contract market
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1 to take emergency action in compliance with the provisions

2 and standards of section 8a(9).’’.

3 SEC. 15. EXEMPT BOARDS OF TRADE.

4 The Commodity Exchange Act (7 U.S.C. 1 et seq.)

5 is amended by inserting after section 5c (as added by sec6 tion 14) the following:

7 ‘‘SEC. 5D. EXEMPT BOARDS OF TRADE.

8 ‘‘(a) IN GENERAL.—Except as otherwise provided in

9 this section, a contract of sale (or option on such a con10 tract) of a commodity for future delivery traded on or

11 through the facilities of an exempt board of trade shall

12 be exempt from all provisions of this Act, other than sec13 tion 2(g).

14 ‘‘(b) CRITERIA FOR EXEMPTION.—To qualify for an

15 exemption under subsection (a), a board of trade shall

16 limit trading on or through the facilities of the board of

17 trade to contracts of sale of a commodity for future deliv18 ery (or options on such contracts)—

19 ‘‘(1) that have—

20 ‘‘(A) a nearly inexhaustible deliverable sup21 ply;

22 ‘‘(B) a deliverable supply that is suffi23 ciently large, and a cash market sufficiently liq24 uid, to render any contract traded on the com-
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1 modity highly unlikely to be susceptible to ma2 nipulation; or

3 ‘‘(C) no cash market; and

4 ‘‘(2) that are entered into only between persons

5 that—

6 ‘‘(A) are eligible contract participants at

7 the time at which the persons enter into the

8 contract; or

9 ‘‘(B) enter into the contract or option for

10 the benefit only of eligible contract participants.

11 ‘‘(c) ANTIMANIPULATION REQUIREMENTS.—A party

12 to a futures contract or related option that is traded on

13 an exempt board of trade shall be subject to sections 4b,

14 4o, 6(c), and 9(a)(2), and the Commission shall enforce

15 those provisions with respect to any such trading.

16 ‘‘(d) PRICE DISCOVERY.—If the Commission finds

17 that an exempt board of trade is a significant source of

18 price discovery for any underlying commodity in any

19 transaction traded on or through the facilities of the board

20 of trade, the board of trade shall disseminate publicly on

21 a daily basis trading volume, opening and closing price

22 ranges, open interest, and other trading data as appro23 priate to the market.

24 ‘‘(e) JURISDICTION.—The Commission shall have ex25 clusive jurisdiction over any account, agreement, or trans-
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1 action involving a contract of sale of a commodity for fu2 ture delivery, or related option, to the extent that such

3 an account, agreement, or transaction is traded on an ex4 empt board of trade.

5 ‘‘(f) SUBSIDIARIES.—A board of trade that is des6 ignated as a contract market or registered as a derivatives

7 transaction execution facility may operate an exempt

8 board of trade by establishing a separate subsidiary or

9 other legal entity and otherwise satisfying the require10 ments of this section.’’.

11 SEC. 16. SUSPENSION OR REVOCATION OF DESIGNATION

12 AS CONTRACT MARKET.

13 Section 5e of the Commodity Exchange Act (7 U.S.C.

14 7b) (as redesignated by section 11(1)) is amended to read

15 as follows:

16 ‘‘SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION

17 AS REGISTERED ENTITY.

18 ‘‘The failure of a registered entity to comply with any

19 provision of this Act, or any regulation or order of the

20 Commission under this Act, shall be cause for the suspen21 sion of the registered entity for a period not to exceed 180

22 days, or revocation of designation as a registered entity

23 in accordance with the procedures and subject to the judi24 cial review provided in section 6(b).’’.
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1 SEC. 17. AUTHORIZATION OF APPROPRIATIONS.

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

3 U.S.C. 16(d)) is amended by striking ‘‘2000’’ and insert4 ing ‘‘2005’’.

5 SEC. 18. PREEMPTION.

6 Section 12(e) of the Commodity Exchange Act (7

7 U.S.C. 16(e)) is amended by striking paragraph (2) and

8 inserting the following:

9 ‘‘(2) the application of any Federal or State law

10 (including any regulation) to an agreement, contract,

11 or transaction in or involving any commodity, prod12 uct, right, service, or interest, except that this Act

13 shall supersede and preempt—

14 ‘‘(A) any Federal or State law (including

15 any regulation), in the case of any such agree16 ment, contract, or transaction—

17 ‘‘(i) that is conducted on or subject to

18 the rules of a registered entity or exempt

19 board of trade;

20 ‘‘(ii) that is conducted on or subject

21 to the rules of any board of trade, ex22 change, or market located outside the

23 United States, or any territory or posses24 sion of the United States (in accordance

25 with any terms or conditions specified by

26 the Commission by regulation); and
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1 ‘‘(iii) that is subject to regulation by

2 the Commission under section 4c or 19;

3 and

4 ‘‘(B) any State or local law that prohibits

5 or regulates gaming or the operation of bucket

6 shops (other than antifraud provisions of gen7 eral applicability) in the case of—

8 ‘‘(i) an excluded trading facility under

9 section 2(e); or

10 ‘‘(ii) an agreement, contract, or trans11 action that—

12 ‘‘(I) is excluded under subsection

13 (c), (d), or (f) of section 2; or

14 ‘‘(II) is covered by the terms of

15 an exemption granted by the Commis16 sion under section 4(c) (regardless of

17 whether any such agreement, con18 tract, or transaction is otherwise sub19 ject to this Act); or’’.

20 SEC. 19. PREDISPUTE RESOLUTION AGREEMENTS FOR IN21 STITUTIONAL CUSTOMERS.

22 Section 14 of the Commodity Exchange Act (7 U.S.C.

23 18) is amended by striking subsection (g) and inserting

24 the following:
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1 ‘‘(g) PREDISPUTE RESOLUTION AGREEMENTS FOR

2 INSTITUTIONAL CUSTOMERS.—Nothing in this section

3 prohibits a registered futures commission merchant from

4 requiring a customer that is an eligible contract partici5 pant, as a condition to the commission merchant’s con6 ducting a transaction for the customer, to enter into an

7 agreement waiving the right to file a claim under this sec8 tion.’’.

9 SEC. 20. CONSIDERATION OF COSTS AND BENEFITS AND

10 ANTITRUST LAWS.

11 Section 15 of the Commodity Exchange Act (7 U.S.C.

12 19) is amended by striking ‘‘SEC. 15. The Commission’’

13 and inserting the following:

14 ‘‘SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND

15 ANTITRUST LAWS.

16 ‘‘(a) COSTS AND BENEFITS.—

17 ‘‘(1) IN GENERAL.—Before promulgating a reg18 ulation under this Act or issuing an order (except as

19 provided in paragraph (3)), the Commission shall

20 consider the costs and benefits of the action of the

21 Commission.

22 ‘‘(2) CONSIDERATIONS.—The costs and benefits

23 of the proposed Commission action shall be evalu24 ated in light of—
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1 ‘‘(A) considerations of protection of market

2 participants and the public;

3 ‘‘(B) considerations of the efficiency, com4 petitiveness, and financial integrity of futures

5 markets;

6 ‘‘(C) considerations of price discovery;

7 ‘‘(D) considerations of sound risk manage8 ment practices; and

9 ‘‘(E) other public interest considerations.

10 ‘‘(3) APPLICABILITY.—This subsection does not

11 apply to the following actions of the Commission:

12 ‘‘(A) An order that initiates, is part of, or

13 is the result of an adjudicatory or investigative

14 process of the Commission.

15 ‘‘(B) An emergency action.

16 ‘‘(C) A finding of fact regarding compli17 ance with a requirement of the Commission.

18 ‘‘(b) ANTITRUST LAWS.—The Commission’’.

19 SEC. 21. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE

20 COUNTERPARTIES.

21 Section 22(a) of the Commodity Exchange Act (7

22 U.S.C. 25(a)) is amended by adding at the end the fol23 lowing:

24 ‘‘(4) CONTRACT ENFORCEMENT BETWEEN ELI25 GIBLE COUNTERPARTIES.—No agreement, contract,
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1 or transaction between eligible contract participants

2 shall be void, voidable, or unenforceable, and no

3 such eligible contract participant shall be entitled to

4 rescind, or recover any payment made with respect

5 to, such an agreement, contract, or transaction,

6 under this section based solely on the failure of the

7 agreement, contract, or transaction to comply with

8 the terms or conditions of an exemption or exclusion

9 from any provision of this Act or regulations of the

10 Commission.’’.

11 SEC. 22. LEGAL CERTAINTY FOR SWAP AGREEMENTS.

12 (a) DEFINITION OF SWAP AGREEMENT.—In this sec13 tion, the term ‘‘swap agreement’’ has the meaning given

14 the term in section 5220 of the Revised Statutes.

15 (b) LEGAL CERTAINTY.—

16 (1) IN GENERAL.—Nothing in this Act or any

17 amendment made by this Act authorizes the Securi18 ties and Exchange Commission to regulate, super19 vise, or otherwise subject to oversight any activity,

20 agreement, instrument, transaction, or product over

21 which the Securities and Exchange Commission is

22 not granted specific jurisdiction under this Act, any

23 amendment made by this Act, or any other law.

24 (2) SWAP AGREEMENTS.—Nothing in this Act

25 or any amendment made by this Act grants the
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1 Commodity Futures Trading Commission or the Se2 curities and Exchange Commission any jurisdiction

3 over any swap agreement, except that a registered

4 entity may voluntarily submit to the jurisdiction of

5 the Commodities Futures Trading Commission

6 under section 12 or 13 of the Commodities Ex7 change Act (7 U.S.C. 16, 13c).

8 (c) MORATORIUM ON RETAIL SWAP AGREEMENTS.—

9 (1) IN GENERAL.—During the 1-year period be10 ginning on the date of enactment of this Act, no fi11 nancial institution engaged in activities authorized

12 or permitted under section 4(k) of the Bank Holding

13 Company Act (12 U.S.C. 1843(k)) may initiate

14 through a widespread offering the opportunity for

15 individuals other than accredited investors to enter

16 into swap agreements. In the preceding sentence, the

17 term ‘‘accredited investor’’ means an individual with

18 net worth of at least $5,000,000.

19 (2) REPORT.—Not later than the date that is

20 1 year after the date of enactment of this Act, the

21 Federal banking agencies (as defined in section 3 of

22 the Federal Deposit Insurance Act (12 U.S.C.

23 1813)), the Department of the Treasury, the Com24 modity Futures Trading Commission, and the Secu25 rities and Exchange Commission shall submit to the
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1 Committee on Agriculture, Nutrition, and Forestry

2 and the Committee on Banking, Housing, and

3 Urban Affairs of the Senate, and the Committee on

4 Agriculture and the Committee on Banking and Fi5 nancial Services of the House of Representatives a

6 report on—

7 (A) the regulatory framework under which

8 swap agreements identified in paragraph (1)

9 should be supervised;

10 (B) the jurisdictional issues relating to

11 swap agreements identified in paragraph (1);

12 and

13 (C) investor protection concerns in connec14 tion with swap agreements identified in para15 graph (1).

16 SEC. 23. TECHNICAL AND CONFORMING AMENDMENTS.

17 (a) COMMODITY EXCHANGE ACT.—

18 (1) Section 1a of the Commodity Exchange Act

19 (7 U.S.C. 1a) (as amended by section 3(1)) is

20 amended—

21 (A) in paragraphs (4), (5), (17), (18),

22 (21), and (24), by inserting ‘‘or derivatives

23 transaction execution facility’’ after ‘‘contract

24 market’’ each place it appears; and

25 (B) in paragraph (25)—
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1 (i) in the paragraph heading, by strik2 ing ‘‘CONTRACT MARKET’’ and inserting

3 ‘‘REGISTERED ENTITY’’; and

4 (ii) by striking ‘‘contract market’’

5 each place it appears and inserting ‘‘reg6 istered entity’’.

7 (2) Section 2 of the Commodity Exchange Act

8 (7 U.S.C. 2, 2a, 4, 4a, 3) is amended—

9 (A) by striking ‘‘SEC. 2. (a)(1)(A)(i) The’’

10 and inserting the following:

11 ‘‘SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF

12 PRINCIPAL FOR ACT OF AGENT; COMMODITY

13 FUTURES TRADING COMMISSION; TRANS14 ACTION IN INTERSTATE COMMERCE.

15 ‘‘(a) JURISDICTION OF COMMISSION; COMMODITY

16 FUTURES TRADING COMMISSION.—

17 ‘‘(1) JURISDICTION OF COMMISSION.—

18 ‘‘(A) IN GENERAL.—The’’; and

19 (B) in subsection (a)—

20 (i) in paragraph (1) (as amended by

21 subparagraph (A))—

22 (I) by striking subparagraph (B);

23 (II) by striking ‘‘subparagraph

24 (B) of this subparagraph’’ and insert25 ing ‘‘subsection (g)’’;
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1 (III) by striking ‘‘contract mar2 ket designated pursuant to section 5

3 of this Act’’ and inserting ‘‘contract

4 market designated or derivatives

5 transaction execution facility reg6 istered pursuant to section 5 or 5a’’;

7 (IV) by striking clause (ii); and

8 (V) in clause (iii), by striking

9 ‘‘(iii) The’’ and inserting the fol10 lowing:

11 ‘‘(B) LIABILITY OF PRINCIPAL FOR ACT OF

12 AGENT.—The’’;

13 (ii) in paragraph (7), by striking

14 ‘‘contract market’’ and inserting ‘‘reg15 istered entity’’; and

16 (iii) in paragraph (8)(B)(ii)—

17 (I) in the first sentence, by strik18 ing ‘‘designation as a contract mar19 ket’’ and inserting ‘‘designation or

20 registration as a contract market or

21 derivatives transaction execution facil22 ity’’;

23 (II) in the second sentence, by

24 striking ‘‘designate a board of trade

25 as a contract market’’ and inserting
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1 ‘‘designate or register a board of

2 trade as a contract market or deriva3 tives transaction execution facility’’;

4 and

5 (III) in the fourth sentence, by

6 striking ‘‘designating, or refusing,

7 suspending, or revoking the designa8 tion of, a board of trade as a contract

9 market’’ and inserting ‘‘designating,

10 registering, or refusing, suspending,

11 or revoking the designation or reg12 istration of, a board of trade as a con13 tract market or derivatives trans14 action execution facility’’.

15 (3) Section 4 of the Commodity Exchange Act

16 (7 U.S.C. 6) is amended—

17 (A) in subsection (a)—

18 (i) by inserting ‘‘exempted by oper19 ation of section 5d or unless’’ after ‘‘Un20 less’’;

21 (ii) in paragraph (1), by striking

22 ‘‘designated by the Commission as a ‘con23 tract market’ for’’ and inserting ‘‘des24 ignated or registered by the Commission as
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1 a contract market or derivatives trans2 action execution facility for’’;

3 (iii) in paragraph (2), by striking

4 ‘‘member of such’’; and

5 (iv) in paragraph (3), by inserting ‘‘or

6 derivatives transaction execution facility’’

7 after ‘‘contract market’’; and

8 (B) in subsection (c)—

9 (i) in paragraph (1)—

10 (I) by striking ‘‘designated as a

11 contract market’’ and inserting ‘‘des12 ignated or registered as a contract

13 market or derivatives transaction exe14 cution facility’’; and

15 (II) by striking ‘‘section

16 2(a)(1)(B)’’ and inserting ‘‘section

17 2(g)’’; and

18 (ii) in paragraph (2)(B)(ii), by insert19 ing ‘‘or derivatives transaction execution

20 facility’’ after ‘‘contract market’’.

21 (4) Section 4a of the Commodity Exchange Act

22 (7 U.S.C. 6a) is amended—

23 (A) in subsection (a)—
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1 (i) in the first sentence, by inserting

2 ‘‘or derivatives transaction execution facili3 ties’’ after ‘‘contract markets’’; and

4 (ii) in the second sentence, by insert5 ing ‘‘or derivatives transaction execution

6 facility’’ after ‘‘contract market’’;

7 (B) in subsection (b), by inserting ‘‘or de8 rivatives transaction execution facility’’ after

9 ‘‘contract market’’ each place it appears; and

10 (C) in subsection (e)—

11 (i) by striking ‘‘contract market or’’

12 each place it appears and inserting ‘‘con13 tract market, derivatives transaction execu14 tion facility, or’’;

15 (ii) by striking ‘‘licensed or des16 ignated’’ each place it appears and insert17 ing ‘‘licensed, designated, or registered’’;

18 and

19 (iii) by striking ‘‘contract market, or’’

20 and inserting ‘‘contract market or deriva21 tives transaction execution facility, or’’.

22 (5) Section 4b(a) of the Commodity Exchange

23 Act (7 U.S.C. 6b(a)) is amended by striking ‘‘con24 tract market’’ each place it appears and inserting

25 ‘‘registered entity’’.
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1 (6) Sections 4c(g), 4d, 4e, and 4f of the Com2 modity Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f)

3 are amended by inserting ‘‘or derivatives transaction

4 execution facility’’ after ‘‘contract market’’ each

5 place it appears.

6 (7) Section 4g of the Commodity Exchange Act

7 (7 U.S.C. 6g) is amended—

8 (A) in subsection (b), by striking ‘‘clear9 inghouse and contract market’’ and inserting

10 ‘‘registered entity’’; and

11 (B) in subsection (f), by striking ‘‘clearing12 houses, contract markets, and exchanges’’ and

13 inserting ‘‘registered entities’’.

14 (8) Section 4h of the Commodity Exchange Act

15 (7 U.S.C. 6h) is amended by striking ‘‘contract mar16 ket’’ each place it appears and inserting ‘‘registered

17 entity’’.

18 (9) Section 4i of the Commodity Exchange Act

19 (7 U.S.C. 6i) is amended in the first sentence by in20 serting ‘‘or derivatives transaction execution facility’’

21 after ‘‘contract market’’.

22 (10) Section 4j of the Commodity Exchange

23 Act (7 U.S.C. 6j) is repealed.

24 (11) Section 4l of the Commodity Exchange Act

25 (7 U.S.C. 6l) is amended by inserting ‘‘or derivatives
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1 transaction execution facilities’’ after ‘‘contract mar2 kets’’ each place it appears.

3 (12) Section 4p of the Commodity Exchange

4 Act (7 U.S.C. 6p) is amended—

5 (A) in the third sentence of subsection (a),

6 by striking ‘‘Act or contract markets’’ and in7 serting ‘‘Act, contract markets, or derivatives

8 transaction execution facilities’’; and

9 (B) in subsection (b), by inserting ‘‘deriva10 tives transaction execution facility,’’ after ‘‘con11 tract market,’’.

12 (13) The Commodity Exchange Act (as amend13 ed by paragraphs (10), (11), and (12)) is amended

14 by redesignating section 4k through 4p (7 U.S.C. 6k

15 through 6p) as sections 4j through 4o, respectively.

16 (14) Section 6 of the Commodity Exchange Act

17 (7 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended—

18 (A) in subsection (a)—

19 (i) in the first sentence—

20 (I) by striking ‘‘board of trade

21 desiring to be designated a ‘contract

22 market’ shall make application to the

23 Commission for such designation’’ and

24 inserting ‘‘person desiring to be des25 ignated or registered as a registered
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1 entity shall make application to the

2 Commission for such designation or

3 registration’’;

4 (II) by striking ‘‘above condi5 tions’’ and inserting ‘‘conditions set

6 forth in this Act’’; and

7 (III) by striking ‘‘above require8 ments’’ and inserting ‘‘the require9 ments of this Act’’;

10 (ii) in the second sentence, by striking

11 ‘‘designation as a contract market within

12 one year’’ and inserting ‘‘designation or

13 registration as a registered entity within

14 180 days’’;

15 (iii) in the third sentence—

16 (I) by striking ‘‘board of trade’’

17 and inserting ‘‘person’’; and

18 (II) by striking ‘‘one-year period’’

19 and inserting ‘‘180-day period’’; and

20 (iv) in the last sentence, by striking

21 ‘‘designate as a ‘contract market’ any

22 board of trade that has made application

23 therefor, such board of trade’’ and insert24 ing ‘‘designate or register as a registered
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1 entity any person that has made applica2 tion therefor, such person’’;

3 (B) in subsection (b)—

4 (i) in the first sentence—

5 (I) by striking ‘‘designation of

6 any board of trade as a ‘contract mar7 ket’ upon’’ and inserting ‘‘designation

8 or registration of any registered entity

9 on’’;

10 (II) by striking ‘‘board of trade’’

11 each place it appears and inserting

12 ‘‘registered entity’’; and

13 (III) by striking ‘‘designation as

14 set forth in section 5 of this Act’’ and

15 inserting ‘‘designation or registration

16 as set forth in sections 5 through 5c’’;

17 (ii) in the second sentence—

18 (I) by striking ‘‘board of trade’’

19 the first place it appears and inserting

20 ‘‘registered entity’’; and

21 (II) by striking ‘‘board of trade’’

22 the second and third places it appears

23 and inserting ‘‘person’’; and
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1 (iii) in the last sentence, by striking

2 ‘‘board of trade’’ each place it appears and

3 inserting ‘‘person’’;

4 (C) in subsection (c)—

5 (i) by striking ‘‘contract market’’ each

6 place it appears and inserting ‘‘registered

7 entity’’;

8 (ii) by striking ‘‘contract markets’’

9 each place it appears and inserting ‘‘reg10 istered entities’’; and

11 (iii) by striking ‘‘trading privileges’’

12 each place it appears and inserting ‘‘privi13 leges’’;

14 (D) in subsection (d), by striking ‘‘contract

15 market’’ each place it appears and inserting

16 ‘‘registered entity’’; and

17 (E) in subsection (e), by striking ‘‘trading

18 on all contract markets’’ each place it appears

19 and inserting ‘‘the privileges of all registered

20 entities’’.

21 (15) Section 6a of the Commodity Exchange

22 Act (7 U.S.C. 10a) is amended—

23 (A) in the first sentence of subsection (a),

24 by striking ‘‘designated as a ‘contract market’

25 shall’’ and inserting ‘‘designated or registered
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1 as a contract market or a derivatives trans2 action execution facility’’; and

3 (B) in subsection (b), by striking ‘‘des4 ignated as a contract market’’ and inserting

5 ‘‘designated or registered as a contract market

6 or a derivatives transaction execution facility’’.

7 (16) Section 6b of the Commodity Exchange

8 Act (7 U.S.C. 13a) is amended—

9 (A) by striking ‘‘contract market’’ each

10 place it appears and inserting ‘‘registered enti11 ty’’;

12 (B) in the first sentence, by striking ‘‘des13 ignation as set forth in section 5 of this Act’’

14 and inserting ‘‘designation or registration as set

15 forth in sections 5 through 5c’’; and

16 (C) in the last sentence, by striking ‘‘the

17 contract market’s ability’’ and inserting ‘‘the

18 ability of the registered entity’’.

19 (17) Section 6c(a) of the Commodity Exchange

20 Act (7 U.S.C. 13a–1(a)) by striking ‘‘contract mar21 ket’’ and inserting ‘‘registered entity’’.

22 (18) Section 6d(1) of the Commodity Exchange

23 Act (7 U.S.C. 13a–2(1)) is amended by inserting

24 ‘‘derivatives transaction execution facility,’’ after

25 ‘‘contract market,’’.
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1 (19) Section 7 of the Commodity Exchange Act

2 (7 U.S.C. 11) is amended—

3 (A) in the first sentence—

4 (i) by striking ‘‘board of trade’’ and

5 inserting ‘‘person’’;

6 (ii) by inserting ‘‘or registered’’ after

7 ‘‘designated’’;

8 (iii) by inserting ‘‘or registration’’

9 after ‘‘designation’’ each place it appears;

10 and

11 (iv) by striking ‘‘contract market’’

12 each place it appears and inserting ‘‘reg13 istered entity’’;

14 (B) in the second sentence—

15 (i) by striking ‘‘designation of such

16 board of trade as a contract market’’ and

17 inserting ‘‘designation or registration of

18 the registered entity’’; and

19 (ii) by striking ‘‘contract markets’’

20 and inserting ‘‘registered entities’’; and

21 (C) in the last sentence—

22 (i) by striking ‘‘board of trade’’ and

23 inserting ‘‘person’’; and

24 (ii) by striking ‘‘designated again a

25 contract market’’ and inserting ‘‘des-
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1 ignated or registered again a registered en2 tity’’.

3 (20) Section 8(c) of the Commodity Exchange

4 Act (7 U.S.C. 12(c)) is amended in the first sen5 tence by striking ‘‘board of trade’’ and inserting

6 ‘‘registered entity’’.

7 (21) Section 8a of the Commodity Exchange

8 Act (7 U.S.C. 12a) is amended—

9 (A) by striking ‘‘contract market’’ each

10 place it appears and inserting ‘‘registered enti11 ty’’; and

12 (B) in paragraph (2)(F), by striking ‘‘trad13 ing privileges’’ and inserting ‘‘privileges’’.

14 (22) Sections 8b and 8c(e) of the Commodity

15 Exchange Act (7 U.S.C. 12b, 12c(e)) are amended

16 by striking ‘‘contract market’’ each place it appears

17 and inserting ‘‘registered entity’’.

18 (23) Section 8e of the Commodity Exchange

19 Act (7 U.S.C. 12e) is amended—

20 (A) by striking ‘‘contract market’’ each

21 place it appears and inserting ‘‘registered enti22 ty’’;

23 (B) in subsection (a), by striking ‘‘section

24 5a(b)’’ and inserting ‘‘sections 5 through 5c’’;

25 (C) in subsection (b)—
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1 (i) in paragraph (1), by striking ‘‘a

2 contract market’s trade monitoring system

3 implemented pursuant to section 5a(b)’’

4 and inserting ‘‘the trade monitoring system

5 of a registered entity implemented pursu6 ant to sections 5 through 5c’’;

7 (ii) by striking paragraph (3) and in8 serting the following:

9 ‘‘(3) REMEDIES.—On becoming final, the Com10 mission deficiency order may require the registered

11 entity to—

12 ‘‘(A) institute appropriate improvements in

13 its trade monitoring system necessary to correct

14 the deficiencies in the order;

15 ‘‘(B) satisfy stated objective performance

16 criteria to correct the deficiencies; or

17 ‘‘(C) upgrade or reconfigure existing sys18 tems for collecting or processing relevant data

19 on trading and trader or broker activity, includ20 ing, where appropriate, the commitment of ad21 ditional resources.’’; and

22 (iii) in paragraph (5)—

23 (I) in the paragraph heading, by

24 striking ‘‘DESIGNATION AS CONTRACT

25 MARKET’’ and inserting ‘‘DESIGNA-
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1 TION OR REGISTRATION AS REG2 ISTERED ENTITY’’;

3 (II) by inserting ‘‘or registra4 tion’’ after ‘‘designation’’; and

5 (III) by striking ‘‘board of trade’’

6 and inserting ‘‘person’’;

7 (D) in subsection (d)(2), by striking ‘‘sec8 tion 5b’’ and inserting ‘‘section 5e’’; and

9 (E) in the paragraph heading of subsection

10 (e)(2), by striking ‘‘CONTRACT MARKETS’’ and

11 inserting ‘‘REGISTERED ENTITIES’’.

12 (24) Section 9 of the Commodity Exchange Act

13 (7 U.S.C. 13) is amended—

14 (A) by striking ‘‘contract market’’ each

15 place it appears and inserting ‘‘registered enti16 ty’’; and

17 (B) in subsection (a)(2), by striking ‘‘sec18 tion 4o(1),’’ and inserting ‘‘section 4n(1),’’.

19 (25) Section 14 of the Commodity Exchange

20 Act (7 U.S.C. 18) is amended—

21 (A) in subsection (a)(1)(B), by striking

22 ‘‘contract market’’ and inserting ‘‘registered en23 tity’’; and

24 (B) in subsection (f), by striking ‘‘contract

25 markets’’ and inserting ‘‘registered entities’’.
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1 (26) Sections 15 and 17 of the Commodity Ex2 change Act (7 U.S.C. 19, 21) are amended by strik3 ing ‘‘contract market’’ each place it appears and in4 serting ‘‘registered entity’’.

5 (27) Section 22 of the Commodity Exchange

6 Act (7 U.S.C. 25) is amended—

7 (A) in subsection (a)—

8 (i) in paragraph (1)—

9 (I) by striking ‘‘contract market,

10 clearing organization of a contract

11 market, licensed board of trade,’’ and

12 inserting ‘‘registered entity’’; and

13 (II) in subparagraph (C)(i), by

14 striking ‘‘contract market’’ and insert15 ing ‘‘registered entity’’;

16 (ii) in paragraph (2), by striking ‘‘sec17 tions 5a(11),’’ and inserting ‘‘sections

18 5(d)(13), 5b(d)(2)(H)(i),’’; and

19 (iii) in paragraph (3), by striking

20 ‘‘contract market’’ and inserting ‘‘reg21 istered entity’’; and

22 (B) in subsection (b)—

23 (i) in paragraph (1)—

24 (I) by striking ‘‘contract market

25 or clearing organization of a contract
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1 market’’ and inserting ‘‘registered en2 tity’’;

3 (II) by striking ‘‘section 5a(8)

4 and section 5a(9) of this Act’’ and in5 serting ‘‘sections 5 through 5c’’;

6 (III) by striking ‘‘contract mar7 ket, clearing organization of a con8 tract market, or licensed board of

9 trade’’ and inserting ‘‘registered enti10 ty’’; and

11 (IV) by striking ‘‘contract market

12 or licensed board of trade’’ and insert13 ing ‘‘registered entity’’;

14 (ii) in paragraph (3)—

15 (I) by striking ‘‘a contract mar16 ket, clearing organization, licensed

17 board of trade,’’ and inserting ‘‘reg18 istered entity’’; and

19 (II) by striking ‘‘contract market,

20 licensed board of trade’’ and inserting

21 ‘‘registered entity’’;

22 (iii) in paragraph (4), by striking

23 ‘‘contract market, licensed board of trade,

24 clearing organization,’’ and inserting ‘‘reg25 istered entity’’; and
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1 (iv) in paragraph (5), by striking

2 ‘‘contract market, licensed board of trade,

3 clearing organization,’’ and inserting ‘‘reg4 istered entity’’.

5 (b) FEDERAL DEPOSIT INSURANCE CORPORATION

6 IMPROVEMENT ACT OF 1991.—Section 402(2) of the Fed7 eral Deposit Insurance Corporation Improvement Act of

8 1991 (12 U.S.C. 4402(2)) is amended by striking sub9 paragraph (B) and inserting the following:

10 ‘‘(B) that is registered as a derivatives

11 clearing organization under section 5b of the

12 Commodity Exchange Act.’’.

13 (c) REVISED STATUTES.—Chapter three of title LXII

14 of the Revised Statutes is amended by adding at the end

15 the following:

16 ‘‘SEC. 5220. SWAP AGREEMENTS.

17 ‘‘(a) IN GENERAL.—The term ‘swap agreement’

18 means—

19 ‘‘(1) an individually negotiated contract, agree20 ment, warrant, note, option, or transaction that is

21 based, in whole or in part, on the occurrence of any

22 event, or on the value of, any interest in, or any

23 quantitative measure relating to, 1 or more commod24 ities, securities, currencies, interest rates, indices,

25 other rates, or other assets;
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1 ‘‘(2) any other agreement or combination of

2 agreements that is similar to a contract, agreement,

3 warrant, note, option, or transaction described in

4 paragraph (1); and

5 ‘‘(3) an option to enter into a contract, agree6 ment, warrant, note, or option described in para7 graph (1) or an agreement described in paragraph

8 (2).

9 ‘‘(b) INCLUSIONS.—The term ‘swap agreement’ in10 cludes a master swap agreement, and all supplements to

11 a master swap agreement, without regard to whether the

12 master swap agreement contains a contract, agreement,

13 warrant, note, option, or transaction that is not a swap

14 agreement described in subsection (a), but only to the ex15 tent that the master swap agreement contains such a con16 tract, agreement, warrant, note, option, or transaction.’’.

17 (d) GRAMM-LEACH-BLILEY ACT.—Section 206 of the

18 Gramm-Leach-Bliley Act (15 U.S.C. 78c note; Public Law

19 106–102) is amended—

20 (1) in subsection (a), by striking paragraph (6)

21 and inserting the following:

22 ‘‘(6) a swap agreement (as defined in section

23 5220 of the Revised Statutes).’’;

24 (2) by striking subsection (b); and
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1 (3) by redesignating subsections (c) and (d) as

2 subsections (b) and (c), respectively.

3 (e) SECURITIES ACT OF 1933.—The Securities Act

4 of 1933 (15 U.S.C. 77a et seq.) is amended by inserting

5 after section 3 the following:

6 ‘‘SEC. 3A. SWAP AGREEMENTS.

7 ‘‘Nothing in this Act (including regulations under

8 this Act) authorizes the Commission to regulate, super9 vise, or otherwise subject to oversight—

10 ‘‘(1) an activity, agreement, instrument, trans11 action, or product over which the Commission is not

12 explicitly granted jurisdiction or enforcement author13 ity under this Act; or

14 ‘‘(2) a swap agreement (as defined in section

15 5220 of the Revised Statutes), without regard to

16 whether the swap agreement is entered into or en17 gaged in by a depository institution (as defined in

18 section 3 of the Federal Deposit Insurance Act (12

19 U.S.C. 1813)).’’.

20 (f) SECURITIES EXCHANGE ACT OF 1934.—The Se21 curities Exchange Act of 1934 (15 U.S.C. 78a et seq.)

22 is amended by inserting after section 3 the following:
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1 ‘‘SEC. 3A. SWAP AGREEMENTS.

2 ‘‘Nothing in this Act (including regulations under

3 this Act) authorizes the Commission to regulate, super4 vise, or otherwise subject to oversight—

5 ‘‘(1) an activity, agreement, instrument, trans6 action, or product over which the Commission is not

7 explicitly granted jurisdiction or enforcement author8 ity under this Act; or

9 ‘‘(2) a swap agreement (as defined in section

10 5220 of the Revised Statutes), without regard to

11 whether the swap agreement is entered into or en12 gaged in by a depository institution (as defined in

13 section 3 of the Federal Deposit Insurance Act (12

14 U.S.C. 1813)).’’.

15 (g) TRUST INDENTURE ACT OF 1939.—The Trust

16 Indenture Act of 1939 (15 U.S.C. 77aaa et seq.) is

17 amended by inserting after section 304 the following:

18 ‘‘SEC. 304A. SWAP AGREEMENTS.

19 ‘‘Nothing in this Act (including regulations under

20 this Act) authorizes the Commission to regulate, super21 vise, or otherwise subject to oversight—

22 ‘‘(1) an activity, agreement, instrument, trans23 action, or product over which the Commission is not

24 explicitly granted jurisdiction or enforcement author25 ity under this Act; or
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1 ‘‘(2) a swap agreement (as defined in section

2 5220 of the Revised Statutes), without regard to

3 whether the swap agreement is entered into or en4 gaged in by a depository institution (as defined in

5 section 3 of the Federal Deposit Insurance Act (12

6 U.S.C. 1813)).’’.

7 (h) INVESTMENT COMPANY ACT OF 1940.—The In8 vestment Company Act of 1940 (15 U.S.C. 80a–1 et seq.)

9 is amended by inserting after section 6 the following:

10 ‘‘SEC. 6A. SWAP AGREEMENTS.

11 ‘‘Nothing in this Act (including regulations under

12 this Act) authorizes the Commission to regulate, super13 vise, or otherwise subject to oversight—

14 ‘‘(1) an activity, agreement, instrument, trans15 action, or product over which the Commission is not

16 explicitly granted jurisdiction or enforcement author17 ity under this Act; or

18 ‘‘(2) a swap agreement (as defined in section

19 5220 of the Revised Statutes), without regard to

20 whether the swap agreement is entered into or en21 gaged in by a depository institution (as defined in

22 section 3 of the Federal Deposit Insurance Act (12

23 U.S.C. 1813)).’’.
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1 (i) INVESTMENT ADVISERS ACT OF 1940.—The In2 vestment Advisers Act of 1940 (15 U.S.C. 80b–1 et seq.)

3 is amended by inserting after section 206A the following:

4 ‘‘SEC. 206B. SWAP AGREEMENTS.

5 ‘‘Nothing in this Act (including regulations under

6 this Act) authorizes the Commission to regulate, super7 vise, or otherwise subject to oversight—

8 ‘‘(1) an activity, agreement, instrument, trans9 action, or product over which the Commission is not

10 explicitly granted jurisdiction or enforcement author11 ity under this Act; or

12 ‘‘(2) a swap agreement (as defined in section

13 5220 of the Revised Statutes), without regard to

14 whether the swap agreement is entered into or en15 gaged in by a depository institution (as defined in

16 section 3 of the Federal Deposit Insurance Act (12

17 U.S.C. 1813)).’’.

18 (j) PUBLIC UTILITY HOLDING COMPANY ACT OF

19 1935.—The Public Utility Holding Company Act of 1935

20 (15 U.S.C. 79 et seq.) is amended by inserting after sec21 tion 34 the following:

22 ‘‘SEC. 34A. SWAP AGREEMENTS.

23 ‘‘Nothing in this Act (including regulations under

24 this Act) authorizes the Commission to regulate, super25 vise, or otherwise subject to oversight—
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1 ‘‘(1) an activity, agreement, instrument, trans2 action, or product over which the Commission is not

3 explicitly granted jurisdiction or enforcement author4 ity under this Act; or

5 ‘‘(2) a swap agreement (as defined in section

6 5220 of the Revised Statutes), without regard to

7 whether the swap agreement is entered into or en8 gaged in by a depository institution (as defined in

9 section 3 of the Federal Deposit Insurance Act (12

10 U.S.C. 1813)).’’.

11 (k) SECURITIES INVESTOR PROTECTION ACT OF

12 1970.—The Securities Investor Protection Act of 1970

13 (15 U.S.C. 78aaa et seq.) is amended by adding at the

14 end the following:

15 ‘‘SEC. 17. SWAP AGREEMENTS.

16 ‘‘Nothing in this Act (including regulations under

17 this Act) authorizes the Commission to regulate, super18 vise, or otherwise subject to oversight—

19 ‘‘(1) an activity, agreement, instrument, trans20 action, or product over which the Commission is not

21 explicitly granted jurisdiction or enforcement author22 ity under this Act; or

23 ‘‘(2) a swap agreement (as defined in section

24 5220 of the Revised Statutes), without regard to

25 whether the swap agreement is entered into or en-
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1 gaged in by a depository institution (as defined in

2 section 3 of the Federal Deposit Insurance Act (12

3 U.S.C. 1813)).’’.

4 SEC. 24. EFFECTIVE DATE.

5 (a) IN GENERAL.—Except as provided in subsection

6 (b), this Act takes effect on the date of enactment of this

7 Act.

8 (b) JURISDICTION OF COMMODITIES FUTURES

9 TRADING COMMISSION.—Section 8, and the amendments

10 made by that section, take effect 1 year after the date

11 of enactment of this Act.

12 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

13 (a) SHORT TITLE.—This Act may be cited as the

14 ‘‘Commodity Futures Modernization Act of 2000’’.

15 (b) TABLE OF CONTENTS.—The table of contents of this

16 Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Purposes.

Sec. 3. Definitions.

Sec. 4. Agreements, contracts, and transactions in foreign currency, government

securities, and certain other commodities.

Sec. 5. Legal certainty for excluded derivative transactions.

Sec. 6. Electronic trading facilities.

Sec. 7. Hybrid instruments.

Sec. 8. Futures on securities.

Sec. 9. Exempted transactions.

Sec. 10. Finding and purposes.

Sec. 11. Prohibited transactions.

Sec. 12. Designation of boards of trade as contract markets.

Sec. 13. Derivatives transaction execution facilities.

Sec. 14. Derivatives clearing organizations.

Sec. 15. Common provisions applicable to registered entities.

Sec. 16. Exempt boards of trade.

Sec. 17. Suspension or revocation of designation as contract market.

Sec. 18. Authorization of appropriations.

Sec. 19. Preemption.
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Sec. 20. Predispute resolution agreements for institutional customers.

Sec. 21. Consideration of costs and benefits and antitrust laws.

Sec. 22. Contract enforcement between eligible counterparties.

Sec. 23. Legal certainty for swap agreements.

Sec. 24. Commission oversight; deficiency orders.

Sec. 25. Technical and conforming amendments.

Sec. 26. Effective date.

1 SEC. 2. PURPOSES.

2 The purposes of this Act are—

3 (1) to reauthorize the Commodity Exchange Act

4 (7 U.S.C. 1 et seq.);

5 (2) to streamline and eliminate unnecessary reg6 ulation for the commodity futures exchanges and

7 other entities regulated under the Commodity Ex8 change Act;

9 (3) to transform the role of the Commodity Fu10 tures Trading Commission in its oversight of the fu11 tures markets;

12 (4) to provide a legislative and regulatory frame13 work for allowing the trading of futures on non14 exempted securities;

15 (5) to clarify the jurisdiction of the Commission

16 over certain retail foreign exchange futures and op17 tion transactions and bucket shops that are not other18 wise regulated;

19 (6) to promote innovation for futures and de20 rivatives and to reduce systemic risk by enhancing

21 legal certainty in the markets for certain futures and

22 derivatives;
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1 (7) to reduce systemic risk and provide greater

2 stability to markets during times of market disorder

3 by allowing the clearing of transactions in over-the4 counter derivatives through appropriately regulated

5 clearing organizations; and

6 (8) to enhance the competitive position of United

7 States financial institutions and financial markets.

8 SEC. 3. DEFINITIONS.

9 Section 1a of the Commodity Exchange Act (7 U.S.C.

10 1a) is amended—

11 (1) by redesignating paragraphs (8) through

12 (12), (13) through (15), and (16) as paragraphs (17)

13 through (21), (23) through (25), and (29), respec14 tively;

15 (2) by inserting after paragraph (7) the fol16 lowing:

17 ‘‘(8) DERIVATIVES CLEARING ORGANIZATION.—

18 ‘‘(A) IN GENERAL.—The term ‘derivatives

19 clearing organization’ means a clearinghouse,

20 clearing association, clearing corporation, or

21 similar entity, facility, system, or organization

22 that, with respect to a derivative agreement, con23 tract, or transaction (other than a security)—

24 ‘‘(i) enables each party to the deriva25 tive agreement, contract, or transaction to
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1 substitute, through novation or otherwise,

2 the credit of the derivatives clearing organi3 zation for the credit of the parties;

4 ‘‘(ii) arranges or provides, on a multi5 lateral basis, for the settlement or netting of

6 obligations resulting from such agreements,

7 contracts, or transactions executed by par8 ticipants in the derivatives clearing organi9 zation; or

10 ‘‘(iii) otherwise provides clearing serv11 ices or arrangements that mutualize or

12 transfer among participants in the deriva13 tives clearing organization the credit risk

14 arising from such agreements, contracts, or

15 transactions executed by the participants.

16 ‘‘(B) EXCLUSIONS.—The term ‘derivatives

17 clearing organization’ does not include an entity,

18 facility, system, or organization solely because it

19 arranges or provides for—

20 ‘‘(i) settlement, netting, or novation of

21 obligations resulting from agreements, con22 tracts, or transactions, on a bilateral basis

23 and without a centralized counterparty;
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1 ‘‘(ii) settlement or netting of cash pay2 ments through an interbank payment sys3 tem; or

4 ‘‘(iii) settlement, netting, or novation

5 of obligations resulting from a sale of a

6 commodity in a transaction in the spot

7 market for the commodity.

8 ‘‘(9) DESIGNATED FUTURE ON A SECURITY.—The

9 term ‘designated future on a security’ means a con10 tract of sale (or option on such a contract) for future

11 delivery of—

12 ‘‘(A) a single nonexempted security;

13 ‘‘(B) an index based on fewer than 5 non14 exempted securities; or

15 ‘‘(C) an index in which during at least 3 of

16 the 4 calendar quarters preceding the date of any

17 transaction in the index, a single nonexempted

18 security accounted for a daily average of 30 per19 cent or more of the value of the index.

20 ‘‘(10) ELECTRONIC TRADING FACILITY.—The

21 term ‘electronic trading facility’ means a trading fa22 cility that—

23 ‘‘(A) operates by means of an electronic net24 work; and
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1 ‘‘(B) maintains a real-time audit trail of

2 bids, offers, and the matching of orders or the

3 execution of transactions on the facility.

4 ‘‘(11) ELIGIBLE COMMERCIAL PARTICIPANT.—

5 The term ‘eligible commercial participant’ means an

6 eligible contract participant described in clause (i),

7 (ii), (v), or (vii) of paragraph (12)(A) or in subpara8 graph (12)(C) that—

9 ‘‘(A) in connection with its business has a

10 demonstrable capacity or ability, directly or

11 through separate contractual agreements, to

12 make or take delivery of the underlying physical

13 commodity;

14 ‘‘(B) incurs risk, in addition to price risk,

15 related to the commodity; or

16 ‘‘(C) is a dealer that regularly provides

17 hedging, risk management, or market-making

18 services to such eligible contract participants.

19 ‘‘(12) ELIGIBLE CONTRACT PARTICIPANT.—The

20 term ‘eligible contract participant’ means—

21 ‘‘(A) acting for its own account—

22 ‘‘(i) a financial institution;

23 ‘‘(ii) an insurance company (as de24 fined in section 2 of the Bank Holding

25 Company Act of 1956 (12 U.S.C. 1841));
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1 ‘‘(iii) an investment company subject

2 to regulation under the Investment Com3 pany Act of 1940 (15 U.S.C. 80a–1 et seq.)

4 or a foreign person performing a similar

5 role or function subject as such to foreign

6 regulation (regardless of whether each inves7 tor in the investment company or the for8 eign person is itself an eligible contract par9 ticipant);

10 ‘‘(iv) a commodity pool that—

11 ‘‘(I) has total assets exceeding

12 $5,000,000; and

13 ‘‘(II) is formed and operated by a

14 person subject to regulation under this

15 Act or a foreign person performing a

16 similar role or function subject as such

17 to foreign regulation (regardless of

18 whether each investor in the com19 modity pool or the foreign person is

20 itself an eligible contract participant);

21 ‘‘(v) a corporation, partnership, pro22 prietorship, organization, trust, or other

23 entity—

24 ‘‘(I) that has total assets exceeding

25 $10,000,000;
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1 ‘‘(II) the obligations of which

2 under an agreement, contract, or

3 transaction are guaranteed or other4 wise supported by a letter of credit or

5 keepwell, support, or other agreement

6 by an entity described in subclause (I),

7 in clause (i), (ii), (iii), (iv), or (vii),

8 or in subparagraph (C); or

9 ‘‘(III) that—

10 ‘‘(aa) has a net worth exceed11 ing $1,000,000; and

12 ‘‘(bb) enters into an agree13 ment, contract, or transaction in

14 connection with the conduct of the

15 entity’s business or to manage the

16 risk associated with an asset or li17 ability owned or incurred or rea18 sonably likely to be owned or in19 curred by the entity in the con20 duct of the entity’s business;

21 ‘‘(vi) an employee benefit plan subject

22 to the Employee Retirement Income Secu23 rity Act of 1974 (29 U.S.C. 1001 et seq.) or

24 a foreign person performing a similar role
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1 or function subject as such to foreign

2 regulation—

3 ‘‘(I) that has total assets exceeding

4 $5,000,000; or

5 ‘‘(II) the investment decisions of

6 which are made by—

7 ‘‘(aa) an investment adviser

8 subject to regulation under the In9 vestment Advisers Act of 1940 (15

10 U.S.C. 80b–1 et seq.) or a com11 modity trading advisor subject to

12 regulation under this Act;

13 ‘‘(bb) a foreign person per14 forming a role or function similar

15 to that of such an investment ad16 viser or commodity trading advi17 sor subject to foreign regulation in

18 the performance of that role or

19 function;

20 ‘‘(cc) a financial institution;

21 or

22 ‘‘(dd) an insurance company

23 (as defined in section 2 of the

24 Bank Holding Company Act of

25 1956 (12 U.S.C. 1841));
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1 ‘‘(vii)(I) a governmental entity (in2 cluding the United States, a State, or a for3 eign government) or political subdivision of

4 a governmental entity;

5 ‘‘(II) a multinational or supranational

6 government entity; or

7 ‘‘(III) an instrumentality, agency, or

8 department of an entity described in sub9 clause (I) or (II);

10 ‘‘(viii) a broker or dealer subject to reg11 ulation under the Securities Exchange Act

12 of 1934 (15 U.S.C. 78a et seq.) or a foreign

13 person performing a similar role or func14 tion subject as such to foreign regulation,

15 except that, if the broker or dealer or foreign

16 person is a natural person or proprietor17 ship, the broker or dealer or foreign person

18 shall not be considered to be an eligible con19 tract participant unless the broker or dealer

20 or foreign person also meets the require21 ments of clause (v) or (xi);

22 ‘‘(ix) a futures commission merchant

23 subject to regulation under this Act or a for24 eign person performing a similar role or

25 function subject as such to foreign regula-
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1 tion, except that, if the futures commission

2 merchant or foreign person is a natural

3 person or proprietorship, the futures com4 mission merchant or foreign person shall

5 not be considered to be an eligible contract

6 participant unless the futures commission

7 merchant or foreign person also meets the

8 requirements of clause (v) or (xi);

9 ‘‘(x) a floor broker or floor trader sub10 ject to regulation under this Act, to the ex11 tent that the floor broker or floor trader

12 trades on or through the facilities of a reg13 istered entity or exempt board of trade or

14 any affiliate of a registered entity or exempt

15 board of trade; or

16 ‘‘(xi) a natural person with total assets

17 exceeding $10,000,000;

18 ‘‘(B)(i) a person described in any of clauses

19 (i) through (x) of subparagraph (A) or in sub20 paragraph (C), acting as broker or performing

21 an equivalent agency function on behalf of an22 other person described in subparagraph (A) or

23 (C); or
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1 ‘‘(ii)(I) an investment adviser subject to

2 regulation under the Investment Advisers Act of

3 1940 (15 U.S.C. 80b–1 et seq.);

4 ‘‘(II) a commodity trading advisor subject

5 to regulation under this Act;

6 ‘‘(III) a foreign person performing a role or

7 function similar to that of such an investment

8 adviser or commodity trading advisor subject to

9 foreign regulation in the performance of that role

10 or function; or

11 ‘‘(IV) a person described in any of clauses

12 (i) through (x) of subparagraph (A) or in sub13 paragraph (C), that is acting as an investment

14 manager or fiduciary (but excluding a person

15 acting as a broker or performing an equivalent

16 agency function) for another person described in

17 subparagraph (A) or (C) and that is authorized

18 by the other person to commit the other person

19 to the transaction; or

20 ‘‘(C) any other person that the Commission

21 determines to be eligible in light of the financial

22 or other qualifications of the person.

23 ‘‘(13) EXCLUSION-ELIGIBLE COMMODITY.—

24 ‘‘(A) IN GENERAL.—The term ‘exclusion-eli25 gible commodity’ means—
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1 ‘‘(i) a financial commodity; and

2 ‘‘(ii) a commodity that has no cash

3 market.

4 ‘‘(B) EXCLUSION.—The term ‘exclusion-eli5 gible commodity’ does not include any com6 modity described in paragraph (3) that is an ag7 ricultural commodity.

8 ‘‘(14) EXEMPTED SECURITY.—

9 ‘‘(A) IN GENERAL.—The term ‘exempted se10 curity’ means a security that is an exempted se11 curity under section 3(a) of the Securities Act of

12 1933 (15 U.S.C. 77c(a)) or section 3(a) of the

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

14 78c(a)).

15 ‘‘(B) EXCLUSION.—The term ‘exempted se16 curity’ does not include a municipal security (as

17 defined in section 3(a) of the Securities Ex18 change Act of 1934 (15 U.S.C. 78c(a))).

19 ‘‘(15) FINANCIAL COMMODITY.—The term ‘finan20 cial commodity’ means—

21 ‘‘(A) an interest rate, exchange rate, cur22 rency, security, security index, credit risk, debt

23 or equity instrument, or index or measure of in24 flation; or
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1 ‘‘(B) any other rate, differential, index, or

2 measure of economic risk, return, or value (ex3 cluding any rate, differential, index, or measure

4 based on a commodity not described in subpara5 graph (A) that has a finite supply).

6 ‘‘(16) FINANCIAL INSTITUTION.—The term ‘fi7 nancial institution’ means—

8 ‘‘(A) a corporation operating under the fifth

9 undesignated paragraph of section 25 of the Fed10 eral Reserve Act (12 U.S.C. 603), commonly

11 known as ‘an agreement corporation’;

12 ‘‘(B) a corporation organized under section

13 25A of the Federal Reserve Act (12 U.S.C. 611

14 et seq.), commonly known as an ‘Edge Act cor15 poration’;

16 ‘‘(C) an institution that is regulated by the

17 Farm Credit Administration;

18 ‘‘(D) a Federal credit union or State credit

19 union (as defined in section 101 of the Federal

20 Credit Union Act (12 U.S.C. 1752));

21 ‘‘(E) a depository institution (as defined in

22 section 3 of the Federal Deposit Insurance Act

23 (12 U.S.C. 1813));

24 ‘‘(F) a foreign bank or a branch or agency

25 of a foreign bank (each as defined in section 1(b)
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1 of the International Banking Act of 1978 (12

2 U.S.C. 3101(b)));

3 ‘‘(G) a trust company; or

4 ‘‘(H) a regulated subsidiary or affiliate of

5 an entity described in any of subparagraphs (A)

6 through (G).’’;

7 (3) by inserting after paragraph (21) (as redes8 ignated by paragraph (1)) the following:

9 ‘‘(22) HYBRID INSTRUMENT.—The term ‘hybrid

10 instrument’ means a deposit (as defined in section 3

11 of the Federal Deposit Insurance Act (12 U.S.C.

12 1813)) offered by a financial institution, or a secu13 rity, having 1 or more payments indexed to the value,

14 level, or rate of 1 or more commodities.’’;

15 (4) by inserting after paragraph (25) (as redes16 ignated by paragraph (1)) the following:

17 ‘‘(26) NATIONAL SECURITIES EXCHANGE.—The

18 term ‘national securities exchange’ means—

19 ‘‘(A) an exchange that is registered as a na20 tional securities exchange under section 6 of the

21 Securities Exchange Act of 1934 (15 U.S.C. 78f);

22 or

23 ‘‘(B) an association that is registered as a

24 national securities association under section 15A
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1 of the Securities Exchange Act of 1934 (15

2 U.S.C. 78o–3).

3 ‘‘(27) OPTION.—The term ‘option’ means an

4 agreement, contract, or transaction that is of the

5 character of, or is commonly known to the trade as,

6 an ‘option,’ ‘privilege,’ ‘indemnity,’ ‘bid,’ ‘offer,’ ‘put,’

7 ‘call,’ ‘advance guaranty,’ or ‘decline guaranty.’

8 ‘‘(28) ORGANIZED EXCHANGE.—The term ‘orga9 nized exchange’ means a trading facility that—

10 ‘‘(A) permits—

11 ‘‘(i) trading by or on behalf of a person

12 that is not an eligible contract participant;

13 or

14 ‘‘(ii) trading by persons other than on

15 a principal-to-principal basis; or

16 ‘‘(B) has adopted (directly or through an17 other nongovernmental entity) rules that—

18 ‘‘(i) govern the conduct of participants

19 on the facility, other than rules that govern

20 the submission of orders or execution of

21 transactions on the trading facility; or

22 ‘‘(ii) include disciplinary sanctions

23 other than the exclusion of participants

24 from trading.’’; and

25 (5) by adding at the end the following:
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1 ‘‘(30) REGISTERED ENTITY.—The term ‘reg2 istered entity’ means—

3 ‘‘(A) a board of trade designated as a con4 tract market under section 5;

5 ‘‘(B) a derivatives transaction execution fa6 cility registered under section 5a; or

7 ‘‘(C) a derivatives clearing organization

8 registered under section 5b.

9 ‘‘(31) SECURITY.—The term ‘security’ has the

10 meaning given the term in section 3(a) of the Securi11 ties Exchange Act of 1934 (15 U.S.C. 78c(a)).

12 ‘‘(32) TRADING FACILITY.—

13 ‘‘(A) IN GENERAL.—The term ‘trading facil14 ity’ means a person or group of persons that

15 constitutes, maintains, or provides a physical or

16 electronic facility or system in which multiple

17 participants have the ability to execute or trade

18 agreements, contracts, or transactions by accept19 ing bids and offers made by other participants

20 that are open to multiple participants in the fa21 cility or system.

22 ‘‘(B) EXCLUSIONS.—The term ‘trading fa23 cility’ does not include—

24 ‘‘(i) a person or group of persons solely

25 because the person or group of persons—
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1 ‘‘(I) constitutes, maintains, or

2 provides an electronic facility or sys3 tem that enables participants to nego4 tiate the terms of and enter into bilat5 eral transactions with other partici6 pants as a result of communications

7 exchanged between the participants

8 and not from interaction of multiple

9 orders within a centralized, predeter10 mined, nondiscretionary, automated

11 trade matching algorithm; or

12 ‘‘(II)(aa) is a derivatives clearing

13 organization; or

14 ‘‘(bb) permits participants to sub15 mit agreements, contracts, or trans16 actions to a derivatives clearing orga17 nization;

18 ‘‘(ii) a government securities dealer or

19 government securities broker, to the extent

20 that the dealer or broker executes or trades

21 agreements, contracts, or transactions in

22 government securities, or assists persons in

23 communicating about, negotiating, entering

24 into, executing, or trading an agreement,

25 contract, or transaction in government secu-
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1 rities (as the terms ‘government securities

2 dealer’, ‘government securities broker’, and

3 ‘government securities’ are defined in sec4 tion 3(a) of the Securities Exchange Act of

5 1934 (15 U.S.C. 78c(a))); or

6 ‘‘(iii) a facility on which bids and of7 fers and acceptances of bids and offers ef8 fected on the facility are not binding.’’.

9 SEC. 4. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN

10 FOREIGN CURRENCY, GOVERNMENT SECURI11 TIES, AND CERTAIN OTHER COMMODITIES.

12 Section 2 of the Commodity Exchange Act (7 U.S.C.

13 2, 2a, 3, 4, 4a) is amended by adding at the end the fol14 lowing:

15 ‘‘(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS

16 IN FOREIGN CURRENCY, GOVERNMENT SECURITIES, AND

17 CERTAIN OTHER COMMODITIES.—

18 ‘‘(1) IN GENERAL.—Except as provided in para19 graph (2), nothing in this Act (other than section 5b

20 or 12(e)(2)(B)) governs or applies to an agreement,

21 contract, or transaction in—

22 ‘‘(A) foreign currency;

23 ‘‘(B) government securities;

24 ‘‘(C) security warrants;

25 ‘‘(D) security rights;
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1 ‘‘(E) sales and resales of installment loan

2 contracts;

3 ‘‘(F) purchase transactions and repurchase

4 transactions in a financial commodity; or

5 ‘‘(G) mortgages or mortgage purchase or

6 sale commitments.

7 ‘‘(2) COMMISSION JURISDICTION.—

8 ‘‘(A) AGREEMENTS, CONTRACTS, AND

9 TRANSACTIONS THAT ARE FUTURES TRADED ON

10 AN ORGANIZED EXCHANGE.—This Act applies to,

11 and the Commission shall have jurisdiction over,

12 an agreement, contract, or transaction described

13 in paragraph (1) that—

14 ‘‘(i)(I) is a contract of sale of a com15 modity for future delivery (or an option on

16 such a contract); and

17 ‘‘(II) is executed or traded on an orga18 nized exchange;

19 ‘‘(ii)(I) is an option on a commodity

20 other than foreign currency or a security;

21 and

22 ‘‘(II) is executed or traded on an orga23 nized exchange; or

24 ‘‘(iii)(I) is an option on foreign cur25 rency; and
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1 ‘‘(II) is executed or traded on an orga2 nized exchange that is not a national secu3 rities exchange.

4 ‘‘(B) AGREEMENTS, CONTRACTS, AND

5 TRANSACTIONS IN RETAIL FOREIGN CURRENCY.—

6 This Act applies to, and the Commission shall

7 have jurisdiction over, an agreement, contract, or

8 transaction in foreign currency that—

9 ‘‘(i) is—

10 ‘‘(I) a contract of sale for future

11 delivery (or an option on such a con12 tract); or

13 ‘‘(II) an option (other than an op14 tion executed or traded on a national

15 securities exchange); and

16 ‘‘(ii) is offered to, or entered into with,

17 a person that is not an eligible contract

18 participant, unless the counterparty, or the

19 person offering to be the counterparty, of the

20 person is—

21 ‘‘(I) a financial institution;

22 ‘‘(II) a broker or dealer registered

23 under section 15(b) or 15C of the Secu24 rities Exchange Act of 1934 (15 U.S.C.
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1 78o(b), 78o–5) or a futures commission

2 merchant registered under this Act;

3 ‘‘(III) an associated person of a

4 broker or dealer registered under sec5 tion 15(b) or 15C of the Securities Ex6 change Act of 1934 (15 U.S.C. 78o(b),

7 78o–5), or an affiliated person of a fu8 tures commission merchant registered

9 under this Act, concerning the finan10 cial or securities activities of which the

11 registered person makes and keeps

12 records under section 15C(b) or 17(h)

13 of the Securities Exchange Act of 1934

14 (15 U.S.C. 78o–5(b), 78q(h)) or section

15 4f(c)(2)(B) of this Act;

16 ‘‘(IV) an insurance company (as

17 defined in section 2 of the Bank Hold18 ing Company Act of 1956 (12 U.S.C.

19 1841));

20 ‘‘(V) a financial holding company

21 (as defined in section 2 of the Bank

22 Holding Company Act of 1956 (12

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

24 ‘‘(VI) an investment bank holding

25 company (as defined in section 17(i) of
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1 the Securities Exchange Act of 1934

2 (15 U.S.C. 78q(i))).’’.

3 SEC. 5. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE

4 TRANSACTIONS.

5 Section 2 of the Commodity Exchange Act (7 U.S.C.

6 2, 2a, 3, 4, 4a) (as amended by section 4) is amended by

7 adding at the end the following:

8 ‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.—

9 ‘‘(1) IN GENERAL.—Nothing in this Act (other

10 than section 5b or 12(e)(2)(B)) governs or applies to

11 an agreement, contract, or transaction in an exclu12 sion-eligible commodity if—

13 ‘‘(A) the agreement, contract, or transaction

14 is entered into only between persons that are eli15 gible contract participants at the time at which

16 the persons enter into the agreement, contract, or

17 transaction; and

18 ‘‘(B) the agreement, contract, or transaction

19 is not executed or traded on a trading facility.

20 ‘‘(2) ELECTRONIC TRADING FACILITY EXCLU21 SION.—Nothing in this Act (other than section 5b or

22 12(e)(2)(B)) governs or applies to an agreement, con23 tract, or transaction in an exclusion-eligible com24 modity if—
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1 ‘‘(A) the agreement, contract, or transaction

2 is entered into on a principal-to-principal basis

3 between parties trading for their own accounts

4 or as described in section 1a(12)(B)(ii);

5 ‘‘(B) the agreement, contract, or transaction

6 is entered into only between persons that are eli7 gible contract participants (as defined in sub8 paragraph (A), (B)(ii), or (C) of section 1a(12))

9 at the time at which the persons enter into the

10 agreement, contract, or transaction; and

11 ‘‘(C) the agreement, contract, or transaction

12 is executed or traded on an electronic trading fa13 cility.’’.

14 SEC. 6. ELECTRONIC TRADING FACILITIES.

15 Section 2 of the Commodity Exchange Act (7 U.S.C.

16 2, 2a, 3, 4, 4a) (as amended by section 5) is amended by

17 adding at the end the following:

18 ‘‘(e) ELECTRONIC TRADING FACILITIES.—

19 ‘‘(1) IN GENERAL.—Nothing in this Act (other

20 than section 12(e)(2)(B)) governs or is applicable to

21 an electronic trading facility that limits transactions

22 authorized to be conducted on the facility to trans23 actions that satisfy the requirements of subsection

24 (d)(2).
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1 ‘‘(2) EFFECT ON AUTHORITY TO ESTABLISH AND

2 OPERATE.—Nothing in this Act shall prohibit a board

3 of trade designated by the Commission as a contract

4 market or derivatives transaction execution facility,

5 or an exempt board of trade, from establishing and

6 operating an electronic trading facility excluded

7 under this Act by paragraph (1).’’.

8 SEC. 7. HYBRID INSTRUMENTS.

9 Section 2 of the Commodity Exchange Act (7 U.S.C.

10 2, 2a, 3, 4, 4a) (as amended by section 6) is amended by

11 adding at the end the following:

12 ‘‘(f) EXCLUSION FOR QUALIFYING HYBRID INSTRU13 MENTS.—

14 ‘‘(1) IN GENERAL.—Nothing in this Act (other

15 than section 12(e)(2)(B)) governs or is applicable to

16 a hybrid instrument that is predominantly a security

17 or depository instrument.

18 ‘‘(2) PREDOMINANCE.—A hybrid instrument

19 shall be considered to be predominantly a security or

20 depository instrument if—

21 ‘‘(A) the issuer of the hybrid instrument re22 ceives payment in full of the purchase price of

23 the hybrid instrument, substantially contempora24 neously with delivery of the hybrid instrument;
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1 ‘‘(B) the purchaser or holder of the hybrid

2 instrument is not required to make any payment

3 to the issuer in addition to the purchase price

4 paid under subparagraph (A), whether as mar5 gin, settlement payment, or otherwise, during the

6 life of the hybrid instrument or at maturity;

7 ‘‘(C) the issuer of the hybrid instrument is

8 not subject by the terms of the instrument to

9 mark-to-market margining requirements; and

10 ‘‘(D) the hybrid instrument is not marketed

11 as a contract of sale for future delivery of a com12 modity (or option on such a contract) subject to

13 this Act.

14 ‘‘(3) MARK-TO-MARKET MARGINING REQUIRE15 MENTS.—For the purposes of paragraph (2)(C),

16 mark-to-market margining requirements do not in17 clude the obligation of an issuer of a secured debt in18 strument to increase the amount of collateral held in

19 pledge for the benefit of the purchaser of the secured

20 debt instrument to secure the repayment obligations of

21 the issuer under the secured debt instrument.’’.

22 SEC. 8. FUTURES ON SECURITIES.

23 (a) IN GENERAL.—Section 2 of the Commodity Ex24 change Act (7 U.S.C. 2, 2a, 3, 4, 4a) (as amended by section

25 7) is amended by adding at the end the following:
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1 ‘‘(g) FUTURES ON SECURITIES.—

2 ‘‘(1) EXCLUSIONS.—

3 ‘‘(A) EXCLUSION OF OVER-THE-COUNTER

4 EQUITY INSTRUMENTS.—Nothing in this sub5 section governs or applies to—

6 ‘‘(i) an agreement, contract, or trans7 action that is excluded under subsection (c)

8 or (d);

9 ‘‘(ii) an electronic trading facility that

10 is excluded under subsection (e); or

11 ‘‘(iii) a hybrid instrument that is cov12 ered by an exclusion under subsection (f) or

13 an exemption granted by the Commission

14 under section 4(c) (whether or not the hy15 brid instrument is otherwise subject to this

16 Act).

17 ‘‘(B) EXCLUSION OF SECURITY OPTIONS.—

18 This Act does not apply to, and the Commission

19 shall have no jurisdiction to designate a board of

20 trade as a contract market or register a deriva21 tives transaction execution facility for, any

22 transaction under which a party to the trans23 action acquires an option on 1 or more securi24 ties, group or index of securities, or interest in,
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•S 2697 RS

1 or interest that is based on the value of, 1 or

2 more securities.

3 ‘‘(2) INCLUSION OF TRADING OF NONDESIGNATED

4 FUTURES ON SECURITIES ON A CONTRACT MARKET.—

5 ‘‘(A) IN GENERAL.—This Act applies to,

6 and the Commission shall have exclusive juris7 diction with respect to and may designate a

8 board of trade as a contract market in, accounts,

9 agreements, and transactions involving a con10 tract of sale (or option on such a contract) for

11 future delivery of a group or index of non12 exempted securities (or an interest in, or interest

13 that is based on the value of, such securities),

14 none of which is a designated future on a secu15 rity.

16 ‘‘(B) REQUIREMENTS FOR DESIGNATION.—

17 ‘‘(i) IN GENERAL.—No board of trade

18 shall be designated as a contract market

19 with respect to any contract of sale (or op20 tion on such a contract) for future delivery

21 under subparagraph (A) unless—

22 ‘‘(I) the board of trade files with

23 the Commission an application for des24 ignation; and
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1 ‘‘(II) the board of trade dem2 onstrates and the Commission ex3 pressly finds that the specific contract

4 (or option on such a contract) with re5 spect to which the application is made

6 meets the minimum requirements of

7 clauses (ii) and (iii).

8 ‘‘(ii) MEANS OF EFFECTUATION OF

9 SETTLEMENT OR DELIVERY.—Settlement of

10 or delivery on a contract (or option on such

11 a contract) described in subparagraph (A)

12 shall be effected in cash or by means other

13 than the transfer or receipt of a security

14 other than an exempted security.

15 ‘‘(iii) SUSCEPTIBILITY TO PRICE MA16 NIPULATION.—Trading in a contract (or

17 option on such a contract) described in sub18 paragraph (A) shall not be readily suscep19 tible to—

20 ‘‘(I) manipulation of the price of

21 the contract (or option on such a con22 tract); or

23 ‘‘(II) causing or being used in the

24 manipulation of the price of any un25 derlying security, option on a security,
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1 or option on a group or index that in2 cludes a security.

3 ‘‘(3) TRADING OF DESIGNATED FUTURES ON SE4 CURITIES ON A CONTRACT MARKET OR NATIONAL SE5 CURITIES EXCHANGE.—No person shall offer to enter

6 into, enter into, or confirm the execution of a des7 ignated future on a security, or an interest in or in8 terest that is based on the value of a designated future

9 on a security, unless the contract—

10 ‘‘(A) is transacted on or subject to the rules

11 of—

12 ‘‘(i) a board of trade that has been des13 ignated by the Commission as a contract

14 market for the commodity that is the subject

15 of the contract; or

16 ‘‘(ii) a securities exchange that is reg17 istered with the Securities and Exchange

18 Commission as a national securities ex19 change; and

20 ‘‘(B) meets the requirements of clauses (ii)

21 through (vii) of paragraph (4)(B).

22 ‘‘(4) MINIMUM REQUIREMENTS FOR DESIGNATED

23 FUTURES ON SECURITIES TRADED ON A CONTRACT

24 MARKET.—
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1 ‘‘(A) IN GENERAL.—Subject to paragraph

2 (5), this Act applies to, and the Commission

3 shall have jurisdiction with respect to and may

4 designate a board of trade as a contract market

5 in, accounts, agreements, and transactions in6 volving a designated future on a security.

7 ‘‘(B) REQUIREMENTS FOR DESIGNATION.—

8 ‘‘(i) IN GENERAL.—No board of trade

9 shall be designated as a contract market

10 with respect to any contract of sale (or op11 tion on such a contract) under subpara12 graph (A) unless—

13 ‘‘(I) the board of trade files with

14 the Commission an application for des15 ignation; and

16 ‘‘(II) the board of trade dem17 onstrates and the Commission ex18 pressly finds that the specific contract

19 (or option on such a contract) with re20 spect to which the application is made

21 meets the minimum requirements of

22 clauses (ii) through (viii).

23 ‘‘(ii) MEANS OF EFFECTUATION OF

24 SETTLEMENT OR DELIVERY.—Settlement of

25 or delivery on a contract (or option on such
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1 a contract) described in subparagraph (A)

2 shall be effected in cash or by means other

3 than the transfer or receipt of a security

4 other than an exempted security.

5 ‘‘(iii) REAL-TIME AUDIT TRAIL.—

6 Trading in a contract (or option on such a

7 contract) described in subparagraph (A)

8 shall occur on a contract market that exe9 cutes trades by means of a system that pro10 vides a real-time audit trail.

11 ‘‘(iv) SUSCEPTIBILITY TO PRICE MA12 NIPULATION.—Trading in a contract (or

13 option on such a contract) described in sub14 paragraph (A) shall not be readily suscep15 tible to—

16 ‘‘(I) manipulation of the price of

17 the contract (or option on such a con18 tract); or

19 ‘‘(II) causing or being used in the

20 manipulation of the price of any un21 derlying security, option on a security,

22 or option on a group or index that in23 cludes a security.

24 ‘‘(v) UNDERLYING SECURITY APPROVED

25 FOR LISTING ON NATIONAL SECURITIES EX-
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1 CHANGE.—Each security that underlies a

2 designated future on a security shall—

3 ‘‘(I) meet all requirements for the

4 listing of an option on that security on

5 a national securities exchange: or

6 ‘‘(II) be the subject of options

7 trading on a national securities ex8 change.

9 ‘‘(vi) MARGINS FOR FUTURES CON10 TRACTS.—

11 ‘‘(I) IN GENERAL.—The contract

12 described in subparagraph (A) shall be

13 traded on a board of trade that estab14 lishes and maintains margin levels for

15 designated futures on securities that

16 are consistent with the margin levels

17 established and maintained on an op18 tion contract on the same underlying

19 security that is listed on any national

20 securities exchange.

21 ‘‘(II) CONSISTENCY.—For the

22 purposes of subclause (I), a margin for

23 designated futures on securities and

24 options on securities shall be consid25 ered to be consistent if the margin pro-
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1 vides a similar level of protection

2 against defaults by counterparties, tak3 ing into account any differences in—

4 ‘‘(aa) the price volatility of

5 the contracts;

6 ‘‘(bb) the frequency with

7 which compliance with margin re8 quirements is assessed;

9 ‘‘(cc) the length of time per10 mitted to cure any margin defi11 ciency; and

12 ‘‘(dd) the degree of leverage

13 permitted by the margin.

14 ‘‘(vii) CONFLICTS OF INTEREST.—The

15 contract described in subparagraph (A)

16 shall be traded on a board of trade that es17 tablishes and enforces rules that protect the

18 customer from conflicts of interest and re19 lated trading abuses on the part of brokers

20 or any other person performing similar

21 roles or functions.

22 ‘‘(viii) PROVISION OF INFORMATION

23 NECESSARY FOR ENFORCEMENT.—The con24 tract described in subparagraph (A) shall be

25 traded on a board of trade that, in accord-
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•S 2697 RS

1 ance with regulations promulgated by the

2 Commission, collects, maintains, and

3 promptly provides to the Securities and Ex4 change Commission on request such infor5 mation as the Commission and the Securi6 ties and Exchange Commission jointly de7 termine to be appropriate for the perform8 ance of the enforcement responsibilities de9 scribed in paragraph (5).

10 ‘‘(5) SEC ENFORCEMENT AUTHORITY FOR DES11 IGNATED FUTURES ON SECURITIES CONTRACTS LIST12 ED ON A CONTRACT MARKET.—

13 ‘‘(A) IN GENERAL.—On notice to the Com14 mission, the Securities and Exchange Commis15 sion may enforce the provisions of the securities

16 laws specified in subparagraph (B) against any

17 person that purchases or sells a designated future

18 on a security to the same extent as if the person

19 had purchased or sold an option on a security.

20 ‘‘(B) PROVISIONS OF THE SECURITIES

21 LAWS.—The provisions of the securities laws re22 ferred to in subparagraph (A) are—

23 ‘‘(i) section 16 of the Securities Ex24 change Act of 1934 (15 U.S.C. 78p); and
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1 ‘‘(ii) section 10(b) of the Securities Ex2 change Act of 1934 (15 U.S.C. 78j(b)).

3 ‘‘(C) AUTHORITY OF SEC.—Nothing in this

4 paragraph expands the authority of the Securi5 ties and Exchange Commission with respect to

6 registered entities or contracts of sale of a com7 modity for future delivery (or options on such

8 contracts) except as specifically provided in this

9 paragraph.

10 ‘‘(D) REPORT.—Not earlier than the date

11 that is 3 years after the date of enactment of this

12 subsection, the Commission and the Securities

13 and Exchange Commission shall begin to com14 pile, and not later than the date that is 4 years

15 after the date of enactment of this subsection, the

16 Commission and the Securities and Exchange

17 Commission shall submit to Congress, a report

18 on the implementation of this subsection.

19 ‘‘(6) CFTC ENFORCEMENT AUTHORITY FOR DES20 IGNATED FUTURES ON SECURITIES LISTED ON A NA21 TIONAL SECURITIES EXCHANGE.—

22 ‘‘(A) IN GENERAL.—Except as provided in

23 subparagraph (B), the Securities and Exchange

24 Commission shall have jurisdiction over a des25 ignated future on a security to the extent that
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•S 2697 RS

1 the designated future on a security is traded on

2 a national securities exchange.

3 ‘‘(B) LARGE TRADER REPORTING, ANTI4 FRAUD, AND ANTIMANIPULATION AUTHORITY.—

5 On notice to the Securities and Exchange Com6 mission, the Commission shall enforce sections

7 4b, 4i, 4o, 6(c), and 9(a)(2) against any person

8 that purchases or sells a designated future on a

9 security on a national securities exchange.

10 ‘‘(C) PROVISION OF INFORMATION NEC11 ESSARY FOR ENFORCEMENT.—A designated fu12 ture on a security shall be traded on a national

13 securities exchange that, in accordance with reg14 ulations promulgated by the Securities and Ex15 change Commission, collects, maintains, and

16 promptly provides to the Commission on request

17 such information as the Securities and Exchange

18 Commission and the Commission jointly deter19 mine to be appropriate for the performance of

20 the enforcement responsibilities described in sub21 paragraph (B).

22 ‘‘(7) PROCESS FOR LISTING FUTURES ON A SE23 CURITY.—

24 ‘‘(A) CONTRACT MARKET PROCESS.—
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1 ‘‘(i) IN GENERAL.—The Commission

2 shall transmit to the Securities and Ex3 change Commission a copy of any applica4 tion that is submitted by a board of trade

5 for designation as a contract market with

6 respect to a contract of sale (or option on

7 such a contract) for future delivery of a

8 nonexempted security or a group or index of

9 nonexempted securities.

10 ‘‘(ii) HEARING.—

11 ‘‘(I) OBJECTION BY SEC.—If, not

12 later than 15 days following trans13 mittal of an application under clause

14 (i), the Securities and Exchange Com15 mission submits to the Commission an

16 objection to designation of the board of

17 trade as a contract market in the con18 tract (or option on such a contract)

19 based on evidence (including an eco20 nomic analysis of relevant factors in21 cluding benefits and costs) that any

22 minimum requirement under para23 graph (2)(B) or (4)(B) is not met, the

24 Commission shall afford the Securities

25 and Exchange Commission an oppor-
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•S 2697 RS

1 tunity for a hearing on the record be2 fore the Commission.

3 ‘‘(II) TIMING.—A hearing under

4 subclause (I) shall be held before the

5 Commission takes action on the appli6 cation, and not less than 30 nor more

7 than 45 days after the Securities and

8 Exchange Commission submits the ob9 jection.

10 ‘‘(B) NATIONAL SECURITIES EXCHANGE

11 PROCESS.—

12 ‘‘(i) IN GENERAL.—The Securities and

13 Exchange Commission shall transmit to the

14 Commission a copy of any application that

15 is submitted by a person for listing of a des16 ignated future on a security on a national

17 securities exchange.

18 ‘‘(ii) OBJECTION BY THE COMMIS19 SION.—If, not later than 15 days following

20 transmittal of an application under clause

21 (i), the Commission submits to the Securi22 ties and Exchange Commission an objection

23 to listing of a designated future on a secu24 rity on a national securities exchange based

25 on evidence (including an economic anal-
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•S 2697 RS

1 ysis of relevant factors including benefits

2 and costs) that any minimum requirement

3 under paragraph (4)(B) is not met, the Se4 curities and Exchange Commission shall af5 ford the Commission an opportunity for a

6 hearing on the record before the Securities

7 and Exchange Commission.

8 ‘‘(8) MARGIN.—

9 ‘‘(A) IN GENERAL.—Notwithstanding any

10 other provision of this Act, any designated con11 tract market in a contract for sale of future de12 livery of a nonexempted security or nonexempted

13 securities index (or option on such a contract)

14 shall file with the Board of Governors of the Fed15 eral Reserve System any rule establishing or

16 changing the level of initial margin or mainte17 nance margin for the nonexempted security or

18 nonexempted securities index futures contract (or

19 option on such a contract).

20 ‘‘(B) REQUEST TO SET MARGIN.—

21 ‘‘(i) IN GENERAL.—The Board may at

22 any time request a contract market to set

23 the margin for a nonexempted security or

24 nonexempted securities index futures con25 tract (or option on a nonexempted security
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1 or nonexempted securities index futures con2 tract) at a level that the Board determines

3 is appropriate to—

4 ‘‘(I) preserve the financial integ5 rity of the contract market or of the

6 clearing system of the contract market;

7 ‘‘(II) prevent competitive distor8 tions between markets offering similar

9 products; or

10 ‘‘(III) prevent systemic risk.

11 ‘‘(ii) FAILURE TO SET MARGIN.—If the

12 contract market fails to comply with a re13 quest under clause (i) within the time speci14 fied by the Board in the request, the Board

15 may direct the contract market to alter or

16 supplement the rules of the contract market

17 as specified in the request.

18 ‘‘(C) DELEGATION OF AUTHORITY TO THE

19 COMMISSION.—Subject to such conditions as the

20 Board may determine, the Board may delegate

21 any or all of its authority with respect to mar22 gin levels—

23 ‘‘(i) in the case of a designated future

24 on a security or other stock index futures

25 contract or related option, to the Commis-
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•S 2697 RS

1 sion, if the contract or option is traded on

2 a designated contract market or derivatives

3 transaction execution facility; or

4 ‘‘(ii) in the case of a designated future

5 on a security—

6 ‘‘(I) to the Securities and Ex7 change Commission, if the designated

8 future on a security is listed on a na9 tional securities exchange; or

10 ‘‘(II) to the intermarket margin

11 board established under subparagraph

12 (D).

13 ‘‘(D) INTERMARKET MARGIN BOARD.—

14 ‘‘(i) ESTABLISHMENT.—With the con15 currence of the Securities and Exchange

16 Commission and the Commission, the Board

17 may establish an intermarket margin board

18 consisting of the Chairman of the Board,

19 the Chairman of the Commission, and the

20 Chairman of the Securities and Exchange

21 Commission, or their designees.

22 ‘‘(ii) DUTIES.—The intermarket mar23 gin board established under clause (i) may

24 set and maintain margin levels and rules

25 pertaining to margin for a designated fu-
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1 ture on a security listed on a contract mar2 ket or on a national securities exchange.

3 ‘‘(iii) REQUIREMENT AS TO DES4 IGNEES.—An individual may not be des5 ignated as a member of the intermarket

6 margin board unless the individual is an

7 officer of the United States appointed by the

8 President with the advice and consent of the

9 Senate.

10 ‘‘(E) RELATIONSHIP TO OTHER AUTHOR11 ITY.—Nothing in this section supersedes or limits

12 the authority of the Commission under section

13 8a(9).

14 ‘‘(F) JUDICIAL REVIEW.—

15 ‘‘(i) IN GENERAL.—Any action taken

16 by the Board (or by the Commission acting

17 under the delegation of authority under sub18 paragraph (C) or by the intermarket mar19 gin board established under subparagraph

20 (D)) under this paragraph directing a con21 tract market to alter or supplement a con22 tract market rule shall be subject to review

23 only in the United States Court of Appeals

24 for the judicial circuit in which the party

25 seeking review resides or has its principal
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1 place of business, or in the United States

2 Court of Appeals for the District of Colum3 bia Circuit.

4 ‘‘(ii) BASIS FOR REVIEW.—Review

5 under clause (i) shall be based on the exam6 ination of all information before the Board

7 (or the Commission, Securities and Ex8 change Commission, or intermarket margin

9 board) at the time at which the action was

10 taken.

11 ‘‘(iii) STANDARD OF REVIEW.—The

12 court reviewing an action of the Board (or

13 the Commission, Securities and Exchange

14 Commission, or intermarket margin board)

15 shall not enter a stay or order of mandamus

16 unless the court determines, after notice and

17 hearing, that the action was arbitrary, ca18 pricious, an abuse of discretion, or other19 wise not in accordance with law.

20 ‘‘(9) FUTURES ON SECURITIES LISTED ON FOR21 EIGN EXCHANGES.—Nothing in this Act requires or

22 authorizes the Commission to review or approve any

23 contract, rule, regulation, or action adopted by a for24 eign board of trade, exchange, or market, or a clear25 inghouse for such a board of trade, exchange, or mar-
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1 ket, relating to any transaction involving a contract

2 of sale for future delivery (or option on such a con3 tract) in any security, including any foreign govern4 ment debt security, or group or index of such securi5 ties, if—

6 ‘‘(A)(i) in the case of a contract of sale for

7 future delivery (or option on such a contract) in

8 a single equity security, the United States is not

9 the primary trading market for the underlying

10 security; or

11 ‘‘(ii) in the case of a contract of sale for fu12 ture delivery (or option on such a contract) in

13 or involving a group or index of equity securi14 ties, less than 25 percent of the weighting of the

15 group or index is derived from securities for

16 which the United States is the primary trading

17 market for the securities underlying the contract

18 for future delivery (or option on the contract);

19 and

20 ‘‘(B) settlement of or delivery on the con21 tract for future delivery (or option on such a

22 contract) is to be effected in cash or by means

23 other than the transfer or receipt of a security in

24 the United States other than an exempted secu25 rity.
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1 ‘‘(10) SUITABILITY STANDARDS.—

2 ‘‘(A) RULES.—

3 ‘‘(i) IN GENERAL.—Not later than 270

4 days after the date of enactment of this sub5 section, a registered futures association shall

6 adopt rules requiring a futures commission

7 merchant, a commodity trading advisor, or

8 an introducing broker that recommends to

9 any customer the purchase or sale of a des10 ignated future on a security to ascertain

11 through reasonable due diligence that the

12 recommendation is suitable for that cus13 tomer in light of the customer’s financial

14 position and trading goals.

15 ‘‘(ii) PROCEDURE.—Before adopting a

16 rule under clause (i), a registered futures

17 association shall—

18 ‘‘(I) consult with the Commission

19 and the Securities and Exchange Com20 mission; and

21 ‘‘(II) submit the proposed rule to

22 the Commission for approval in ac23 cordance with section 17(j).

24 ‘‘(iii) TIMING.—If the Commission

25 fails to disapprove a proposed rule within
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1 90 days after the date on which the rule is

2 submitted for approval, the rule shall be3 come effective on the day after that date.

4 ‘‘(B) COMPLIANCE.—No futures commission

5 merchant, commodity trading advisor, or intro6 ducing broker shall recommend to any customer

7 the purchase or sale of a designated future on a

8 security unless the futures commission merchant,

9 commodity advisor, or introducing broker com10 plies with the rules, adopted under subparagraph

11 (A), of a registered futures association of which

12 such merchant, advisor, or broker is a member.’’.

13 (b) SENSE OF THE SENATE.—It is the sense of the Sen14 ate that, not later than the date on which the amendment

15 made by subsection (a) takes effect, Congress should take

16 such action as is necessary to harmonize—

17 (1) the tax treatment of equity options and des18 ignated futures on securities; and

19 (2) the transaction fees for equity options and

20 designated futures on securities.

21 SEC. 9. EXEMPTED TRANSACTIONS.

22 Section 2 of the Commodity Exchange Act (7 U.S.C.

23 2, 2a, 3, 4, 4a) (as amended by section 8(a)) is amended

24 by adding at the end the following:

25 ‘‘(h) EXEMPTED TRANSACTIONS.—
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1 ‘‘(1) EXEMPTION.—Except as provided in para2 graph (2) and except with respect to a contract,

3 agreement, or transaction in an agricultural com4 modity specified in section 1a(3), nothing in this Act

5 applies to a contract, agreement, or transaction—

6 ‘‘(A) that is entered into only between per7 sons that are eligible contract participants at the

8 time at which the persons enter into the contract,

9 agreement, or transaction;

10 ‘‘(B) that is not executed or traded on a

11 trading facility; and

12 ‘‘(C) except for a contract, agreement, or

13 transaction submitted for clearance or settlement

14 to a derivatives clearing organization as pro15 vided under section 5b, in which the credit16 worthiness of any party having an actual or po17 tential obligation under the contract, agreement,

18 or transaction would be a material consideration

19 in entering into or determining the terms of the

20 contract, agreement, or transaction (including

21 pricing, cost, and credit enhancement terms).

22 ‘‘(2) RESERVATION OF AUTHORITY.—A contract,

23 agreement, or transaction described in paragraph (1)

24 shall be subject to—

25 ‘‘(A) sections 5b and 12(e)(2)(B);
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1 ‘‘(B) sections 4b and 4n, to the extent that

2 the contract, agreement, or transaction would be

3 subject to those sections but for paragraph (1);

4 ‘‘(C) any antifraud regulation promulgated

5 by the Commission under section 4c(b), to the ex6 tent that the contract, agreement, or transaction

7 would be subject to that regulation but for para8 graph (1); and

9 ‘‘(D) sections 6(c) and 9(a)(2), to the extent

10 that those provisions prohibit manipulation of

11 the market price of any commodity in interstate

12 commerce or for future delivery and to the extent

13 the contract, agreement, or transaction would be

14 subject to those provisions but for paragraph

15 (1).’’.

16 SEC. 10. FINDING AND PURPOSES.

17 The Commodity Exchange Act is amended by striking

18 section 3 (7 U.S.C. 5) and inserting the following:

19 ‘‘SEC. 3. FINDING AND PURPOSES.

20 ‘‘(a) FINDING.—Congress finds that the futures con21 tracts and options contracts that are subject to this Act are

22 entered into regularly in interstate and international com23 merce and are affected with a national public interest, in

24 that such futures contracts and options contracts provide

25 a means for managing and assuming price risks, discov-
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1 ering prices, and disseminating pricing information

2 through trading in liquid, fair, and financially secure trad3 ing facilities.

4 ‘‘(b) PURPOSES.—The purposes of this Act are—

5 ‘‘(1) to serve the public interest described in sub6 section (a) through a system of effective self-regulation

7 of trading facilities, clearing systems, market partici8 pants, and market professionals under the oversight of

9 the Commission; and

10 ‘‘(2) to authorize the Commission—

11 ‘‘(A) to deter and prevent price manipula12 tion or any other disruptions to market integ13 rity;

14 ‘‘(B) to ensure the financial integrity of all

15 transactions subject to this Act and the avoid16 ance of systemic risk;

17 ‘‘(C) to protect all market participants from

18 fraudulent or other abusive sales practices and

19 misuse of customer assets; and

20 ‘‘(D) to promote responsible innovation and

21 fair competition among boards of trade, other

22 markets, and market participants.’’.
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1 SEC. 11. PROHIBITED TRANSACTIONS.

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

3 6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows

4 through subsection (a) and inserting the following:

5 ‘‘SEC. 4c. PROHIBITED TRANSACTIONS.

6 ‘‘(a) IN GENERAL.—

7 ‘‘(1) PROHIBITION.—It shall be unlawful for any

8 person to offer to enter into, enter into, or confirm the

9 execution of a transaction described in paragraph (2)

10 involving the purchase or sale of any commodity for

11 future delivery or any option on a contract involving

12 any commodity if the transaction is used or may be

13 used to—

14 ‘‘(A) hedge any transaction in interstate

15 commerce in the commodity or the product or

16 byproduct of the commodity;

17 ‘‘(B) determine the price basis of any such

18 transaction in interstate commerce in the com19 modity; or

20 ‘‘(C) deliver any such commodity sold,

21 shipped, or received in interstate commerce for

22 the execution of the transaction.

23 ‘‘(2) TRANSACTION.—A transaction referred to in

24 paragraph (1) is a transaction that—
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1 ‘‘(A)(i) is, is of the character of, or is com2 monly known to the trade as, a ‘wash sale’ or

3 ‘accommodation trade’; or

4 ‘‘(ii) is a fictitious sale; or

5 ‘‘(B) is used to cause any price to be re6 ported, registered, or recorded that is not a true

7 and bona fide price.’’.

8 SEC. 12. DESIGNATION OF BOARDS OF TRADE AS CON9 TRACT MARKETS.

10 The Commodity Exchange Act is amended—

11 (1) by redesignating section 5b (7 U.S.C. 7b) as

12 section 5e; and

13 (2) by striking sections 5 and 5a (7 U.S.C. 7,

14 7a) and inserting the following:

15 ‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON16 TRACT MARKETS.

17 ‘‘(a) APPLICATIONS.—A board of trade applying to the

18 Commission for designation as a contract market shall sub19 mit an application to the Commission that includes any

20 relevant materials and records the Commission may require

21 consistent with this Act.

22 ‘‘(b) CRITERIA FOR DESIGNATION.—

23 ‘‘(1) IN GENERAL.—To be designated as a con24 tract market, the board of trade shall demonstrate to
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1 the Commission that the board of trade meets the cri2 teria specified in this subsection.

3 ‘‘(2) PREVENTION OF MARKET MANIPULATION.—

4 The board of trade shall have the capacity to prevent

5 market manipulation through market surveillance,

6 compliance, and enforcement practices and proce7 dures, including methods for conducting real-time

8 monitoring of trading and comprehensive and accu9 rate trade reconstructions.

10 ‘‘(3) FAIR AND EQUITABLE TRADING.—The board

11 of trade shall establish and enforce trading rules to

12 ensure fair and equitable trading through the facili13 ties of the contract market, and the capacity to detect,

14 investigate, and discipline any person that violates

15 the rules.

16 ‘‘(4) TRADE EXECUTION FACILITY.—The board of

17 trade shall—

18 ‘‘(A) establish and enforce rules defining, or

19 specifications detailing, the manner of operation

20 of the trade execution facility maintained by the

21 board of trade, including rules or specifications

22 describing the operation of any electronic match23 ing platform; and
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1 ‘‘(B) demonstrate that the trading facility

2 operates in accordance with the rules or speci3 fications.

4 ‘‘(5) FINANCIAL INTEGRITY OF TRANSACTIONS.—

5 The board of trade shall establish and enforce rules

6 and procedures for ensuring the financial integrity of

7 transactions entered into by or through the facilities

8 of the contract market.

9 ‘‘(6) DISCIPLINARY PROCEDURES.—The board of

10 trade shall establish and enforce disciplinary proce11 dures that authorize the board of trade to discipline,

12 suspend, or expel members or market participants

13 that violate the rules of the board of trade, or similar

14 methods for performing the same functions, including

15 delegation of the functions to third parties.

16 ‘‘(7) PUBLIC ACCESS.—The board of trade shall

17 provide the public with access to the rules, regula18 tions, and contract specifications of the board of

19 trade.

20 ‘‘(8) ABILITY TO OBTAIN INFORMATION.—The

21 board of trade shall establish and enforce rules that

22 will allow the board of trade to obtain any necessary

23 information to perform any of the functions described

24 in this subsection, including the capacity to carry out
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1 such international information-sharing agreements as

2 the Commission may require.

3 ‘‘(c) EXISTING CONTRACT MARKETS.—A designated

4 contract market on the effective date of the Commodity Fu5 tures Modernization Act of 2000 shall be considered to be

6 a designated contract market under this section.

7 ‘‘(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—

8 ‘‘(1) IN GENERAL.—To maintain the designation

9 of a board of trade as a contract market, a board of

10 trade shall comply with the core principles specified

11 in this subsection.

12 ‘‘(2) COMPLIANCE WITH RULES.—The board of

13 trade shall monitor and enforce compliance with the

14 rules of the contract market, including the terms and

15 conditions of any contracts to be traded and any lim16 itations on access to the contract market.

17 ‘‘(3) CONTRACTS NOT READILY SUBJECT TO MA18 NIPULATION.—The board of trade shall list on the

19 contract market only contracts that are not readily

20 susceptible to manipulation.

21 ‘‘(4) MONITORING OF TRADING.—The board of

22 trade shall monitor trading to prevent manipulation,

23 price distortion, and disruptions of the delivery or

24 cash-settlement process.
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1 ‘‘(5) POSITION LIMITATIONS OR ACCOUNT2 ABILITY.—To reduce the potential threat of market

3 manipulation or congestion, especially during trading

4 in the delivery month, the board of trade shall adopt

5 position limitations or position accountability for

6 speculators, where necessary and appropriate.

7 ‘‘(6) EMERGENCY AUTHORITY.—The board of

8 trade shall adopt rules to provide for the exercise of

9 emergency authority, in consultation or cooperation

10 with the Commission, where necessary and appro11 priate, including the authority to—

12 ‘‘(A) liquidate or transfer open positions in

13 any contract;

14 ‘‘(B) suspend or curtail trading in any con15 tract; and

16 ‘‘(C) require market participants in any

17 contract to meet special margin requirements.

18 ‘‘(7) AVAILABILITY OF GENERAL INFORMATION.—

19 The board of trade shall make available to market au20 thorities, market participants, and the public infor21 mation concerning—

22 ‘‘(A) the terms and conditions of the con23 tracts of the contract market; and
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1 ‘‘(B) the mechanisms for executing trans2 actions on or through the facilities of the con3 tract market.

4 ‘‘(8) DAILY PUBLICATION OF TRADING INFORMA5 TION.—The board of trade shall make public daily in6 formation on settlement prices, volume, open interest,

7 and opening and closing ranges for actively traded

8 contracts on the contract market.

9 ‘‘(9) EXECUTION OF TRANSACTIONS.—The board

10 of trade shall provide a competitive, open, and effi11 cient market and mechanism for executing trans12 actions.

13 ‘‘(10) TRADE INFORMATION.—The board of trade

14 shall maintain rules and procedures to provide for the

15 recording and safe storage of all identifying data

16 entry and trade information in a manner that en17 ables the contract market to use the information for

18 purposes of assisting in the prevention of customer

19 and market abuses and providing evidence of any vio20 lations of the rules of the contract market.

21 ‘‘(11) FINANCIAL INTEGRITY OF CONTRACTS.—

22 The board of trade shall establish and enforce rules

23 providing for the financial integrity of any contracts

24 traded on the contract market, including rules to en25 sure the financial integrity of any futures commission
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1 merchants and introducing brokers and the protection

2 of customer funds.

3 ‘‘(12) PROTECTION OF MARKET PARTICIPANTS.—

4 The board of trade shall establish and enforce rules to

5 protect market participants from abusive practices

6 committed by any party (including a party acting as

7 an agent for the participants).

8 ‘‘(13) DISPUTE RESOLUTION.—The board of

9 trade shall establish and enforce rules regarding and

10 provide facilities for alternative dispute resolution as

11 appropriate for market participants and any market

12 intermediaries.

13 ‘‘(14) GOVERNANCE FITNESS STANDARDS.—The

14 board of trade shall establish and enforce appropriate

15 fitness standards for directors, members of any dis16 ciplinary committee, members of the board of trade,

17 and any other persons with direct access to the facil18 ity (including any parties affiliated with any of the

19 persons described in this paragraph).

20 ‘‘(15) CONFLICTS OF INTEREST.—The board of

21 trade shall establish and enforce rules to minimize

22 conflicts of interest in the decisionmaking process of

23 the contract market and establish a process for resolv24 ing such conflicts of interest.
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1 ‘‘(16) COMPOSITION OF BOARDS OF MUTUALLY

2 OWNED CONTRACT MARKETS.—In the case of a mutu3 ally owned contract market, the board of trade shall

4 provide for meaningful representation on its gov5 erning board of the diversity of interests that trade on

6 that contract market.

7 ‘‘(17) RECORDKEEPING.—The board of trade

8 shall—

9 ‘‘(A) maintain full records of all activities

10 related to the business of the contract market in

11 a form and manner acceptable to the Commis12 sion for a period of 5 years;

13 ‘‘(B) make the records readily available

14 during at least the first 2-years of the 5-year pe15 riod and provide the records to the Commission

16 during that 2-year period at the expense of the

17 person required to maintain the records; and

18 ‘‘(C) keep the records open to inspection by

19 any representative of the Commission or the De20 partment of Justice.

21 ‘‘(18) ANTITRUST CONSIDERATIONS.—Unless ap22 propriate to achieve the purposes of this Act, the

23 board of trade shall avoid—
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1 ‘‘(A) adopting any rule or taking any ac2 tion that results in any unreasonable restraint of

3 trade; or

4 ‘‘(B) imposing any material anticompeti5 tive burden on trading on the contract market.’’.

6 SEC. 13. DERIVATIVES TRANSACTION EXECUTION FACILI7 TIES.

8 The Commodity Exchange Act (7 U.S.C. 1 et seq.) is

9 amended by inserting after section 5 (as amended by section

10 12(2)) the following:

11 ‘‘SEC. 5a. DERIVATIVES TRANSACTION EXECUTION FACILI12 TIES.

13 ‘‘(a) IN GENERAL.—In lieu of compliance with the

14 contract market designation requirements of section 5, a

15 board of trade may elect to operate as a registered deriva16 tives transaction execution facility if the facility is—

17 ‘‘(1) designated as a contract market and meets

18 the requirements of this section; or

19 ‘‘(2) registered as a derivatives transaction exe20 cution facility under subsection (c).

21 ‘‘(b) REQUIREMENTS FOR TRADING FUTURES CON22 TRACTS OR OTHER DERIVATIVES TRANSACTIONS.—

23 ‘‘(1) IN GENERAL.—A registered derivatives

24 transaction execution facility under subsection (a)

25 may trade any futures contract (or option on such a
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1 contract) that is not a designated future on a security

2 on or through the facility only by satisfying the re3 quirements of this section.

4 ‘‘(2) REQUIREMENTS FOR UNDERLYING COMMOD5 ITIES.—A registered derivatives transaction execution

6 facility may trade any futures contract only if—

7 ‘‘(A) the underlying commodity has a near8 ly inexhaustible deliverable supply;

9 ‘‘(B) the underlying commodity has a deliv10 erable supply that is sufficiently large that the

11 contract is highly unlikely to be susceptible to

12 manipulation;

13 ‘‘(C) the underlying commodity has no cash

14 market;

15 ‘‘(D)(i) the underlying commodity is not an

16 agricultural commodity specified in section

17 1a(3); and

18 ‘‘(ii) trading access to the derivatives trans19 action execution facility is limited to eligible

20 commercial participants trading for their own

21 account; or

22 ‘‘(E) the Commission determines, based on

23 the market characteristics, surveillance history,

24 self-regulatory record, and capacity of the facil-
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1 ity that trading in the futures contract is un2 likely to be susceptible to manipulation.

3 ‘‘(3) ELIGIBLE TRADERS.—To trade on a reg4 istered derivatives transaction execution facility, a

5 person shall—

6 ‘‘(A) be authorized by the board of trade to

7 trade on the facility; and

8 ‘‘(B)(i) be an eligible contract participant;

9 or

10 ‘‘(ii) be a person trading through a futures

11 commission merchant that—

12 ‘‘(I) is registered with the Commission;

13 ‘‘(II) is a member of a futures self-reg14 ulatory organization;

15 ‘‘(III) is a clearing member of a de16 rivatives clearing organization; and

17 ‘‘(IV) has adjusted net capital of at

18 least $20,000,000.

19 ‘‘(4) TRADING BY CONTRACT MARKETS.—A board

20 of trade that is designated as a contract market shall,

21 to the extent that the contract market also operates a

22 registered derivatives transaction execution facility—

23 ‘‘(A) provide a physical location for the

24 contract market trading of the board of trade

25 that is separate from trading on the derivatives
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1 transaction execution facility of the board of

2 trade; or

3 ‘‘(B) if the board of trade uses the same

4 electronic trading system for trading on the con5 tract market and derivatives transaction execu6 tion facility of the board of trade, identify

7 whether the electronic trading is taking place on

8 the contract market or the derivatives trans9 action execution facility.

10 ‘‘(c) CRITERIA FOR REGISTRATION.—

11 ‘‘(1) IN GENERAL.—To be registered as a reg12 istered derivatives transaction execution facility, the

13 board of trade shall demonstrate to the Commission

14 that the board of trade meets the criteria specified in

15 this paragraph.

16 ‘‘(2) DETERRENCE OF ABUSES.—The board of

17 trade shall establish and enforce trading rules that

18 will deter abuses and has the capacity to detect, inves19 tigate, and enforce those rules, including means to—

20 ‘‘(A) obtain information necessary to per21 form the functions required under this section; or

22 ‘‘(B) use technological means to—

23 ‘‘(i) provide market participants with

24 impartial access to the market; and
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1 ‘‘(ii) capture information that may be

2 used in establishing whether rule violations

3 have occurred.

4 ‘‘(3) TRADING PROCEDURES.—The board of trade

5 shall establish and enforce rules or terms and condi6 tions defining, or specifications detailing, trading

7 procedures to be used in entering and executing orders

8 traded on the facilities of the board of trade.

9 ‘‘(4) FINANCIAL INTEGRITY OF TRANSACTIONS.—

10 The board of trade shall establish and enforce rules or

11 terms and conditions providing for the financial in12 tegrity of transactions entered on or through the fa13 cilities of the board of trade, including rules or terms

14 and conditions to ensure the financial integrity of

15 any futures commission merchants and introducing

16 brokers and the protection of customer funds.

17 ‘‘(d) CORE PRINCIPLES FOR REGISTERED DERIVA18 TIVES TRANSACTION EXECUTION FACILITIES.—

19 ‘‘(1) IN GENERAL.—To maintain the registration

20 of a board of trade as a derivatives transaction execu21 tion facility, a board of trade shall comply with the

22 core principles specified in this subsection.

23 ‘‘(2) COMPLIANCE WITH RULES.—The board of

24 trade shall monitor and enforce the rules of the facil25 ity, including any terms and conditions of any con-
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1 tracts traded on or through the facility and any limi2 tations on access to the facility.

3 ‘‘(3) MONITORING OF TRADING.—The board of

4 trade shall monitor trading in the contracts of the fa5 cility to ensure orderly trading in the contract and

6 to maintain an orderly market while providing any

7 necessary trading information to the Commission to

8 allow the Commission to discharge the responsibilities

9 of the Commission under the Act.

10 ‘‘(4) DISCLOSURE OF GENERAL INFORMATION.—

11 The board of trade shall disclose publicly and to the

12 Commission information concerning—

13 ‘‘(A) contract terms and conditions;

14 ‘‘(B) trading conventions, mechanisms, and

15 practices;

16 ‘‘(C) financial integrity protections; and

17 ‘‘(D) other information relevant to partici18 pation in trading on the facility.

19 ‘‘(5) DAILY PUBLICATION OF TRADING INFORMA20 TION.—The board of trade shall make public daily in21 formation on settlement prices, volume, open interest,

22 and opening and closing ranges for actively traded

23 contracts on the derivatives transaction execution fa24 cility.
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1 ‘‘(6) FITNESS STANDARDS.—The board of trade

2 shall establish and enforce appropriate fitness stand3 ards for directors, members of any disciplinary com4 mittee, members, and any other persons with direct

5 access to the facility, including any parties affiliated

6 with any of the persons described in this paragraph.

7 ‘‘(7) CONFLICTS OF INTEREST.—The board of

8 trade shall establish and enforce rules to minimize

9 conflicts of interest in the decisionmaking process of

10 the derivatives transaction execution facility and es11 tablish a process for resolving such conflicts of inter12 est.

13 ‘‘(8) RECORDKEEPING.—The board of trade

14 shall—

15 ‘‘(A) maintain full records of all activities

16 related to the business of the derivatives trans17 action execution facility in a form and manner

18 acceptable to the Commission for a period of at

19 least 5 years;

20 ‘‘(B) make the records readily available

21 during at least the first 2 years of the 5-year pe22 riod and provide the records to the Commission

23 at the expense of the person required to maintain

24 the records; and
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1 ‘‘(C) keep the records open to inspection by

2 any representative of the Commission or the De3 partment of Justice.

4 ‘‘(9) ANTITRUST CONSIDERATIONS.—Unless ap5 propriate to achieve the purposes of this Act, the

6 board of trade shall avoid—

7 ‘‘(A) adopting any rule or taking any ac8 tion that results in any unreasonable restraint of

9 trade; or

10 ‘‘(B) imposing any material anticompeti11 tive burden on trading on the derivatives trans12 action execution facility.

13 ‘‘(e) USE OF BROKER-DEALERS AND DEPOSITORY IN14 STITUTIONS AND FARM CREDIT SYSTEM INSTITUTIONS AS

15 INTERMEDIARIES.—

16 ‘‘(1) IN GENERAL.—A registered derivatives

17 transaction execution facility may by rule allow a

18 broker-dealer, depository institution, or institution of

19 the Farm Credit System that meets the requirements

20 of paragraph (2) to—

21 ‘‘(A) act as an intermediary in transactions

22 executed on the facility on behalf of customers of

23 the broker-dealer, depository institution or insti24 tution of the Farm Credit System; and
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1 ‘‘(B) receive funds of customers to serve as

2 margin or security for such transactions.

3 ‘‘(2) REQUIREMENTS.—The requirements re4 ferred to in paragraph (1) are that—

5 ‘‘(A) a broker-dealer be in good standing

6 with the Securities and Exchange Commission

7 and a depository institution or institution of the

8 Farm Credit System be in good standing, as de9 termined by the appropriate Federal banking

10 agency (as defined in section 3 of the Federal

11 Deposit Insurance Act (12 U.S.C. 1813)) (in12 cluding the Farm Credit Administration), as ap13 plicable; and

14 ‘‘(B) if a broker-dealer, depository institu15 tion, or institution of the Farm Credit System

16 carries or holds customer accounts or funds for

17 transactions on the derivatives transaction exe18 cution facility for more than 1 business day, the

19 broker-dealer, depository institution, or institu20 tion of the Farm Credit System is registered as

21 a futures commission merchant and is a member

22 of a registered futures association.

23 ‘‘(3) IMPLEMENTATION.—The Commission shall

24 cooperate and coordinate with the Securities and Ex25 change Commission, the Secretary of the Treasury,
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1 and Federal banking regulatory agencies (including

2 the Farm Credit Administration) in adopting rules

3 and taking any other appropriate action to facilitate

4 the implementation of this subsection.

5 ‘‘(f) SEGREGATION OF CUSTOMER FUNDS.—Not later

6 than 180 days after the effective date of the Commodity Fu7 tures Modernization Act of 2000, consistent with regula8 tions adopted by the Commission, a registered derivatives

9 transaction execution facility may authorize a futures com10 mission merchant to offer any customer of the futures com11 mission merchant that is an eligible contract participant

12 the right to not segregate the customer funds of the futures

13 commission merchant for purposes of trading on or through

14 the facilities of the registered derivatives transaction execu15 tion facility.

16 ‘‘(g) ELECTION TO TRADE EXCLUDED TRANS17 ACTIONS.—

18 ‘‘(1) IN GENERAL.—A board of trade that is a

19 registered derivatives transaction execution facility

20 may trade on the facility any agreements, contracts,

21 or transactions that are excluded from this Act under

22 subsection (c) or (d) of section 2.

23 ‘‘(2) EXCLUSIVE JURISDICTION OF THE COMMIS24 SION.—The Commission shall have exclusive jurisdic25 tion over agreements, contracts, or transactions de-
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1 scribed in paragraph (1) to the extent that the agree2 ments, contracts, or transactions are traded on a de3 rivatives transaction execution facility.’’.

4 SEC. 14. DERIVATIVES CLEARING ORGANIZATIONS.

5 The Commodity Exchange Act (7 U.S.C. 1 et seq.) is

6 amended by inserting after section 5a (as added by section

7 13) the following:

8 ‘‘SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.

9 ‘‘(a) REGISTRATION REQUIREMENT.—Except as pro10 vided in subsection (b), it shall be unlawful for a derivatives

11 clearing organization, unless registered with the Commis12 sion, directly or indirectly to make use of the mails or any

13 means or instrumentality of interstate commerce to perform

14 the functions of a derivatives clearing organization de15 scribed in section 1a(8).

16 ‘‘(b) EXCLUSION OF DERIVATIVES CLEARING ORGANI17 ZATIONS SUBJECT TO OTHER REGULATORY AUTHORI18 TIES.—A derivatives clearing organization shall not be re19 quired to register with the Commission, and the Commis20 sion shall have no jurisdiction with respect to the deriva21 tives clearing organization, if the derivatives clearing

22 organization—

23 ‘‘(1)(A) is registered as a clearing agency under

24 the Securities Exchange Act of 1934 (15 U.S.C. 78a

25 et seq.);
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1 ‘‘(B) is subject to the supervisory jurisdiction of

2 a Federal banking agency (as defined in section 3 of

3 the Federal Deposit Insurance Act (12 U.S.C. 1813))

4 or the National Credit Union Administration; or

5 ‘‘(C) is subject to the supervisory jurisdiction of

6 a foreign regulatory authority that is recognized by

7 the Securities and Exchange Commission, the Board

8 of Governors of the Federal Reserve System, the

9 Comptroller of the Currency, or the Commission as

10 overseeing a system of consolidated supervision com11 parable to that provided under applicable United

12 States law; and

13 ‘‘(2) does not clear a contract of sale for future

14 delivery, option on a contract of sale for future deliv15 ery, or option on a commodity that is not a security

16 (unless the contract or option is excluded under sub17 section (c) or (d) of section 2).

18 ‘‘(c) VOLUNTARY REGISTRATION.—A derivatives clear19 ing organization that is exempt from registration under

20 subsection (b) may register with the Commission as a de21 rivatives clearing organization.

22 ‘‘(d) REGISTRATION OF DERIVATIVES CLEARING OR23 GANIZATIONS.—

24 ‘‘(1) APPLICATION.—A person desiring to reg25 ister as a derivatives clearing organization shall sub-
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1 mit to the Commission an application in such form

2 and containing such information as the Commission

3 may require for the purpose of making the determina4 tions required for approval under paragraph (2).

5 ‘‘(2) CORE PRINCIPLES.—

6 ‘‘(A) IN GENERAL.—To be registered and to

7 maintain registration as a derivatives clearing

8 organization, an applicant shall demonstrate to

9 the Commission that the applicant complies with

10 the core principles specified in this paragraph.

11 ‘‘(B) FINANCIAL RESOURCES.—The appli12 cant shall demonstrate that the applicant has

13 adequate financial, operational, and managerial

14 resources to discharge the responsibilities of a de15 rivatives clearing organization without interrup16 tion in various market conditions.

17 ‘‘(C) PARTICIPANT AND PRODUCT ELIGI18 BILITY.—The applicant shall establish—

19 ‘‘(i) appropriate admission and con20 tinuing eligibility standards (including ap21 propriate minimum financial requirements)

22 for members of and participants in the or23 ganization; and
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1 ‘‘(ii) appropriate standards for deter2 mining eligibility of agreements, contracts,

3 or transactions submitted to the applicant.

4 ‘‘(D) RISK MANAGEMENT.—The applicant

5 shall have the ability to manage the risks associ6 ated with discharging the responsibilities of a de7 rivatives clearing organization through the use of

8 appropriate tools and procedures.

9 ‘‘(E) SETTLEMENT PROCEDURES.—The ap10 plicant shall have the ability to—

11 ‘‘(i) complete settlements on a timely

12 basis under varying circumstances;

13 ‘‘(ii) maintain an adequate record of

14 the flow of funds associated with each trans15 action that the applicant clears; and

16 ‘‘(iii) comply with the terms and con17 ditions of any permitted netting or offset

18 arrangements with other clearing organiza19 tions.

20 ‘‘(F) TREATMENT OF FUNDS.—The appli21 cant shall have standards and procedures de22 signed to protect and ensure the safety of member

23 and participant funds.

24 ‘‘(G) DEFAULT RULES AND PROCEDURES.—

25 The applicant shall have rules and procedures
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1 designed to allow for efficient, fair, and safe

2 management of events when members or partici3 pants become insolvent or otherwise default on

4 their obligations to the derivatives clearing orga5 nization.

6 ‘‘(H) RULE ENFORCEMENT.—The applicant

7 shall—

8 ‘‘(i) maintain adequate arrangements

9 and resources for the effective monitoring

10 and enforcement of compliance with rules of

11 the applicant and for resolution of disputes;

12 and

13 ‘‘(ii) have the authority and ability to

14 discipline, limit, suspend, or terminate a

15 member’s or participant’s activities for vio16 lations of rules of the applicant.

17 ‘‘(I) SYSTEM SAFEGUARDS.—The applicant

18 shall demonstrate that the applicant—

19 ‘‘(i) has established and will maintain

20 a program of oversight and risk analysis to

21 ensure that the automated systems of the

22 applicant function properly and have ade23 quate capacity and security; and

24 ‘‘(ii) has established and will maintain

25 emergency procedures and a plan for dis-
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1 aster recovery, and will periodically test

2 backup facilities sufficient to ensure daily

3 processing, clearing, and settlement of

4 transactions.

5 ‘‘(J) REPORTING.—The applicant shall pro6 vide to the Commission all information nec7 essary for the Commission to conduct the over8 sight function of the applicant with respect to

9 the activities of the derivatives clearing organi10 zation.

11 ‘‘(K) RECORDKEEPING.—The applicant

12 shall—

13 ‘‘(i) maintain full records of all activi14 ties related to the business of the applicant

15 as a derivatives clearing organization in a

16 form and manner acceptable to the Commis17 sion for a period of at least 5 years;

18 ‘‘(ii) make the records readily available

19 during at least the first 2 years of the 5-

20 year period and provide the records to the

21 Commission at the expense of the person re22 quired to maintain the records; and

23 ‘‘(iii) keep the records open to inspec24 tion by any representative of the Commis25 sion or the Department of Justice.
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1 ‘‘(L) PUBLIC INFORMATION.—The applicant

2 shall make information concerning the rules and

3 operating procedures governing the clearing and

4 settlement systems (including default procedures)

5 available to market participants.

6 ‘‘(M) INFORMATION SHARING.—The appli7 cant shall—

8 ‘‘(i) enter into and abide by the terms

9 of all appropriate and applicable domestic

10 and international information-sharing

11 agreements; and

12 ‘‘(ii) use relevant information obtained

13 from the agreements in carrying out the

14 clearing organization’s risk management

15 program.

16 ‘‘(N) ANTITRUST CONSIDERATIONS.—Unless

17 appropriate to achieve the purposes of this Act,

18 the derivatives clearing organization shall

19 avoid—

20 ‘‘(i) adopting any rule or taking any

21 action that results in any unreasonable re22 straint of trade; or

23 ‘‘(ii) imposing any material anti24 competitive burden on trading on the con25 tract market.
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1 ‘‘(3) ORDERS CONCERNING COMPETITION.—A de2 rivatives clearing organization may request the Com3 mission to issue an order concerning whether a rule

4 or practice of the applicant is the least anticompeti5 tive means of achieving the objectives, purposes, and

6 policies of this Act.

7 ‘‘(e) EXISTING DERIVATIVES CLEARING ORGANIZA8 TIONS.—A derivatives clearing organization shall be

9 deemed to be registered under this section to the extent

10 that—

11 ‘‘(1) the derivatives clearing organization clears

12 agreements, contracts, or transactions for a board of

13 trade that has been designated by the Commission as

14 a contract market for such agreements, contracts, or

15 transactions before the date of enactment of this sec16 tion; and

17 ‘‘(2) the Commission has reviewed and approved

18 the rules of the derivatives clearing organization be19 fore that date.

20 ‘‘(f) APPOINTMENT OF TRUSTEE.—

21 ‘‘(1) IN GENERAL.—If a proceeding under section

22 5e results in the suspension or revocation of the reg23 istration of a derivatives clearing organization, or if

24 a derivatives clearing organization withdraws from

25 registration, the Commission, on notice to the deriva-
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1 tives clearing organization, may apply to the appro2 priate United States district court where the deriva3 tives clearing organization is located for the appoint4 ment of a trustee.

5 ‘‘(2) ASSUMPTION OF JURISDICTION.—If the

6 Commission applies for appointment of a trustee

7 under paragraph (1)—

8 ‘‘(A) the court may take exclusive jurisdic9 tion over the derivatives clearing organization

10 and the records and assets of the derivatives

11 clearing organization, wherever located; and

12 ‘‘(B) if the court takes jurisdiction under

13 subparagraph (A), the court shall appoint the

14 Commission, or a person designated by the Com15 mission, as trustee with power to take possession

16 and continue to operate or terminate the oper17 ations of the derivatives clearing organization in

18 an orderly manner for the protection of partici19 pants, subject to such terms and conditions as

20 the court may prescribe.

21 ‘‘(g) LINKING OF REGULATED CLEARING FACILI22 TIES.—

23 ‘‘(1) IN GENERAL.—The Commission shall facili24 tate the linking or coordination of derivatives clearing

25 organizations registered under this Act with other reg-
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1 ulated clearance facilities for the coordinated settle2 ment of cleared transactions.

3 ‘‘(2) COORDINATION.—In carrying out para4 graph (1), the Commission shall coordinate with the

5 Federal banking agencies and the Securities and Ex6 change Commission.’’.

7 SEC. 15. COMMON PROVISIONS APPLICABLE TO REG8 ISTERED ENTITIES.

9 The Commodity Exchange Act (7 U.S.C. 1 et seq.) is

10 amended by inserting after section 5b (as added by section

11 13) the following:

12 ‘‘SEC. 5c. COMMON PROVISIONS APPLICABLE TO REG13 ISTERED ENTITIES.

14 ‘‘(a) ACCEPTABLE BUSINESS PRACTICES UNDER CORE

15 PRINCIPLES.—

16 ‘‘(1) IN GENERAL.—Consistent with the purposes

17 of this Act, the Commission may issue interpreta18 tions, or approve interpretations submitted to the

19 Commission, of the core principles for registered enti20 ties specified in sections 5(d), 5a(d), and 5b(d)(2) to

21 describe what would constitute an acceptable business

22 practice under the core principles.

23 ‘‘(2) TIMING.—If any person submits to the

24 Commission a request for an interpretation or for ap25 proval of an interpretation under paragraph (1), the
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1 Commission shall issue the interpretation or shall ap2 prove or disapprove the interpretation not later than

3 45 days after receiving the request.

4 ‘‘(3) EFFECT OF INTERPRETATION.—An inter5 pretation issued under paragraph (1) shall not pro6 vide the exclusive means for complying with the core

7 principles.

8 ‘‘(b) DELEGATION OF FUNCTIONS UNDER CORE PRIN9 CIPLES.—

10 ‘‘(1) IN GENERAL.—A registered entity may com11 ply with any applicable core principle through dele12 gation of any relevant function to a registered futures

13 association or another registered entity.

14 ‘‘(2) RESPONSIBILITY.—A registered entity that

15 delegates a function under paragraph (1) shall re16 main responsible for carrying out the function.

17 ‘‘(c) NEW CONTRACTS, NEW RULES, AND RULE

18 AMENDMENTS.—

19 ‘‘(1) IN GENERAL.—Subject to paragraph (2), a

20 registered entity may elect to list for trading or ac21 cept for clearing any new contract or other instru22 ment, or may elect to approve and implement any

23 new rule or rule amendment, by providing to the

24 Commission (and the Secretary of the Treasury, in

25 the case of a contract, rule, or rule amendment that
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1 relates to or affects a government security) a written

2 certification that the new contract, new rule, or rule

3 amendment complies with this Act (including regula4 tions under this Act).

5 ‘‘(2) PRIOR APPROVAL.—

6 ‘‘(A) IN GENERAL.—A registered entity may

7 request that the Commission grant prior ap8 proval to any new contract or other instrument,

9 new rule, or rule amendment.

10 ‘‘(B) DEADLINE.—If prior approval is re11 quested under subparagraph (A), the Commis12 sion shall take final action on the request not

13 later than 90 days after submission of the re14 quest, unless the person submitting the request

15 agrees to an extension of the time limitation es16 tablished under this subparagraph.

17 ‘‘(C) AGRICULTURAL CONTRACTS.—Notwith18 standing any other provision of this section, a

19 designated contract market shall submit for prior

20 approval by the Commission each rule amend21 ment that materially changes a term or condi22 tion in any contract of sale of a commodity for

23 future delivery or related option traded through

24 the facilities of the designated contract market,

25 if—
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1 ‘‘(i) the commodity is specifically listed

2 in section 1a(3); and

3 ‘‘(ii) the rule amendment applies to

4 contracts and delivery months that have

5 previously been listed for trading and have

6 open interest.

7 ‘‘(3) APPROVAL.—The Commission shall approve

8 any such new contract or instrument, new rule, or

9 rule amendment unless the Commission finds that the

10 new contract or instrument, new rule, or rule amend11 ment would violate this Act.

12 ‘‘(d) VIOLATION OF CORE PRINCIPLES.—

13 ‘‘(1) IN GENERAL.—If the Commission deter14 mines, on the basis of substantial evidence, that a reg15 istered entity is violating any of the applicable core

16 principles specified in sections 5(d), 5a(d), and

17 5b(d)(2), the Commission shall—

18 ‘‘(A) notify the registered entity of the deter19 mination; and

20 ‘‘(B) afford the registered entity an oppor21 tunity to make appropriate changes to bring the

22 registered entity into compliance with the core

23 principles.

24 ‘‘(2) FAILURE TO MAKE CHANGES.—If, not later

25 than 30 days after receiving a notification under
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1 paragraph (1), a registered entity fails to make

2 changes that, in the opinion of the Commission, are

3 necessary to accomplish the objectives of the core prin4 ciples, the Commission may take further action in ac5 cordance with this Act.

6 ‘‘(e) RESERVATION OF EMERGENCY AUTHORITY.—Not7 withstanding any other provision of this section, the Com8 mission shall retain the full scope of its emergency powers

9 under section 8a(9) to direct any contract market to take

10 emergency action in compliance with the provisions and

11 standards of section 8a(9).

12 ‘‘(f) CORE PRINCIPLES FOR INTERMEDIARIES.—The

13 Commission shall—

14 ‘‘(1) review the provisions of this Act relating to

15 registered entities and intermediaries (including the

16 regulations and interpretations applying those provi17 sions); and

18 ‘‘(2) to the extent appropriate and consistent

19 with this Act, administer those provisions in a man20 ner that is consistent with core principles and inter21 pretations of acceptable business practices for inter22 mediaries as described in this section.

23 ‘‘(g) EFFECT OF ACT.—Nothing in this Act—

24 ‘‘(1) prohibits an exchange of—
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1 ‘‘(A) futures in connection with a cash com2 modity transaction;

3 ‘‘(B) futures for cash commodities; or

4 ‘‘(C) futures for swaps;

5 ‘‘(2) prohibits transfer trades or office trades; or

6 ‘‘(3) prohibits a futures commission merchant,

7 acting as a principal or agent, from entering into or

8 confirming the execution of a contract for the pur9 chase or sale of a commodity for future delivery if the

10 contract is reported, recorded, and cleared in accord11 ance with the rules of the contract market.’’.

12 SEC. 16. EXEMPT BOARDS OF TRADE.

13 The Commodity Exchange Act (7 U.S.C. 1 et seq.) is

14 amended by inserting after section 5c (as added by section

15 14) the following:

16 ‘‘SEC. 5d. EXEMPT BOARDS OF TRADE.

17 ‘‘(a) IN GENERAL.—Except as otherwise provided in

18 this section, a contract of sale (or option on such a contract)

19 of a commodity for future delivery traded on or through

20 the facilities of an exempt board of trade shall be exempt

21 from all provisions of this Act, other than section 2(g).

22 ‘‘(b) CRITERIA FOR EXEMPTION.—To qualify for an

23 exemption under subsection (a), a board of trade shall limit

24 trading on or through the facilities of the board of trade
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1 to contracts of sale of a commodity for future delivery (or

2 options on such contracts)—

3 ‘‘(1) for which the underlying commodity has—

4 ‘‘(A) a nearly inexhaustible deliverable sup5 ply;

6 ‘‘(B) a deliverable supply that is sufficiently

7 large, and a cash market that is sufficiently liq8 uid, to render any contract traded on the com9 modity highly unlikely to be susceptible to ma10 nipulation; or

11 ‘‘(C) no cash market;

12 ‘‘(2) that are entered into only between persons

13 that—

14 ‘‘(A) are eligible contract participants at

15 the time at which the persons enter into the con16 tract; or

17 ‘‘(B) enter into the contract or option for

18 the benefit only of eligible contract participants;

19 and

20 ‘‘(3) that are not contracts of sale (or options on

21 the contract) for future delivery of any security, in22 cluding any group or index of securities or any inter23 est in, or interest that is based on the value of, 1 or

24 more securities.
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1 ‘‘(c) ANTIMANIPULATION REQUIREMENTS.—A party to

2 a futures contract or related option that is traded on an

3 exempt board of trade shall be subject to sections 4b, 4o,

4 6(c), and 9(a)(2), and the Commission shall enforce those

5 provisions with respect to any such trading.

6 ‘‘(d) PRICE DISCOVERY.—If the Commission finds that

7 an exempt board of trade is a significant source of price

8 discovery for any underlying commodity in any transaction

9 traded on or through the facilities of the board of trade,

10 the board of trade shall disseminate publicly on a daily

11 basis trading volume, opening and closing price ranges,

12 open interest, and other trading data as appropriate to the

13 market.

14 ‘‘(e) JURISDICTION.—The Commission shall have ex15 clusive jurisdiction over any account, agreement, or trans16 action involving a contract of sale of a commodity for future

17 delivery, or related option, to the extent that such an ac18 count, agreement, or transaction is traded on an exempt

19 board of trade.

20 ‘‘(f) SUBSIDIARIES.—A board of trade that is des21 ignated as a contract market or registered as a derivatives

22 transaction execution facility may operate an exempt board

23 of trade by establishing a separate subsidiary or other legal

24 entity and otherwise satisfying the requirements of this sec25 tion.’’.
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1 SEC. 17. SUSPENSION OR REVOCATION OF DESIGNATION AS

2 CONTRACT MARKET.

3 Section 5e of the Commodity Exchange Act (7 U.S.C.

4 7b) (as redesignated by section 11(1)) is amended to read

5 as follows:

6 ‘‘SEC. 5e. SUSPENSION OR REVOCATION OF DESIGNATION

7 AS REGISTERED ENTITY.

8 ‘‘The failure of a registered entity to comply with any

9 provision of this Act, or any regulation or order of the Com10 mission under this Act, shall be cause for the suspension

11 of the registered entity for a period not to exceed 180 days,

12 or revocation of designation as a registered entity in accord13 ance with the procedures and subject to the judicial review

14 provided in section 6(b).’’.

15 SEC. 18. AUTHORIZATION OF APPROPRIATIONS.

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

17 U.S.C. 16(d)) is amended by striking ‘‘2000’’ and inserting

18 ‘‘2005’’.

19 SEC. 19. PREEMPTION.

20 Section 12(e) of the Commodity Exchange Act (7

21 U.S.C. 16(e)) is amended by striking paragraph (2) and

22 inserting the following:

23 ‘‘(2) the application of any Federal or State law

24 (including any regulation) to an agreement, contract,

25 or transaction in or involving any commodity, prod-
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1 uct, right, service, or interest, except that this Act

2 shall supersede and preempt—

3 ‘‘(A) any Federal or State law (including

4 any regulation), in the case of any such agree5 ment, contract, or transaction—

6 ‘‘(i) that is conducted on or subject to

7 the rules of a registered entity or exempt

8 board of trade;

9 ‘‘(ii) that is conducted on or subject to

10 the rules of any board of trade, exchange, or

11 market located outside the United States, or

12 any territory or possession of the United

13 States (in accordance with any terms or

14 conditions specified by the Commission by

15 regulation); and

16 ‘‘(iii) that is subject to regulation by

17 the Commission under section 4c or 19; and

18 ‘‘(B) any State or local law that prohibits

19 or regulates gaming or the operation of bucket

20 shops (other than antifraud provisions of general

21 applicability) in the case of—

22 ‘‘(i) an excluded trading facility under

23 section 2(e); or

24 ‘‘(ii) an agreement, contract, or trans25 action that—
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1 ‘‘(I) is excluded or exempt under

2 subsection (c), (d), (f), or (h) of section

3 2; or

4 ‘‘(II) is covered by the terms of an

5 exemption granted by the Commission

6 under section 4(c) (regardless of wheth7 er any such agreement, contract, or

8 transaction is otherwise subject to this

9 Act); or’’.

10 SEC. 20. PREDISPUTE RESOLUTION AGREEMENTS FOR IN11 STITUTIONAL CUSTOMERS.

12 Section 14 of the Commodity Exchange Act (7 U.S.C.

13 18) is amended by striking subsection (g) and inserting the

14 following:

15 ‘‘(g) PREDISPUTE RESOLUTION AGREEMENTS FOR IN16 STITUTIONAL CUSTOMERS.—Nothing in this Act prohibits

17 a registered futures commission merchant from requiring

18 a customer that is an eligible contract participant, as a

19 condition to the commission merchant’s conducting a trans20 action for the customer, to enter into an agreement—

21 ‘‘(1) waiving the right to file a claim under this

22 section; and

23 ‘‘(2) otherwise agreeing to submit any claim the

24 customer may have against the futures commission

25 merchant to binding arbitration pursuant to the rules
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1 and procedures of a registered entity or registered fu2 tures association or any other forum authorized to

3 hear such claims.’’.

4 SEC. 21. CONSIDERATION OF COSTS AND BENEFITS AND

5 ANTITRUST LAWS.

6 Section 15 of the Commodity Exchange Act (7 U.S.C.

7 19) is amended by striking ‘‘SEC. 15. The Commission’’ and

8 inserting the following:

9 ‘‘SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND

10 ANTITRUST LAWS.

11 ‘‘(a) COSTS AND BENEFITS.—

12 ‘‘(1) IN GENERAL.—Before promulgating a regu13 lation under this Act or issuing an order (except as

14 provided in paragraph (3)), the Commission shall

15 consider the costs and benefits of the action of the

16 Commission.

17 ‘‘(2) CONSIDERATIONS.—The costs and benefits

18 of the proposed Commission action shall be evaluated

19 in light of—

20 ‘‘(A) considerations of protection of market

21 participants and the public;

22 ‘‘(B) considerations of the efficiency, com23 petitiveness, and financial integrity of futures

24 markets;

25 ‘‘(C) considerations of price discovery;
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1 ‘‘(D) considerations of sound risk manage2 ment practices; and

3 ‘‘(E) other public interest considerations.

4 ‘‘(3) APPLICABILITY.—This subsection does not

5 apply to the following actions of the Commission:

6 ‘‘(A) An order that initiates, is part of, or

7 is the result of an adjudicatory or investigative

8 process of the Commission.

9 ‘‘(B) An emergency action.

10 ‘‘(C) A finding of fact regarding compliance

11 with a requirement of the Commission.

12 ‘‘(b) ANTITRUST LAWS.—The Commission’’.

13 SEC. 22. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE

14 COUNTERPARTIES.

15 Section 22(a) of the Commodity Exchange Act (7

16 U.S.C. 25(a)) is amended by adding at the end the fol17 lowing:

18 ‘‘(4) CONTRACT ENFORCEMENT BETWEEN ELIGI19 BLE COUNTERPARTIES.—No agreement, contract, or

20 transaction between eligible contract participants

21 shall be void, voidable, or unenforceable, and no such

22 eligible contract participant shall be entitled to re23 scind, or recover any payment made with respect to,

24 such an agreement, contract, or transaction, under

25 this section based solely on the failure of the agree-
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1 ment, contract, or transaction to comply with the

2 terms or conditions of an exemption or exclusion from

3 any provision of this Act or regulations of the Com4 mission.’’.

5 SEC. 23. LEGAL CERTAINTY FOR SWAP AGREEMENTS.

6 (a) LEGAL CERTAINTY.—

7 (1) IN GENERAL.—Nothing in this Act or any

8 amendment made by this Act authorizes the Securi9 ties and Exchange Commission to regulate, supervise,

10 or otherwise subject to oversight any activity, agree11 ment, instrument, transaction, or product over which

12 the Securities and Exchange Commission is not

13 granted specific jurisdiction under this Act, any

14 amendment made by this Act, or any other law.

15 (2) SWAP AGREEMENTS.—Nothing in this Act or

16 any amendment made by this Act grants the Com17 modity Futures Trading Commission or the Securi18 ties and Exchange Commission any jurisdiction over

19 any swap agreement, except that a registered entity

20 may voluntarily submit to the jurisdiction of the

21 Commodities Futures Trading Commission under sec22 tion 12 or 13 of the Commodities Exchange Act (7

23 U.S.C. 16, 13c).

24 (b) REPORT ON SWAP AGREEMENTS.—Not later than

25 the date that is 1 year after the date of enactment of this
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1 Act, the Federal banking agencies (as defined in section 3

2 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), the

3 Department of the Treasury, the Commodity Futures Trad4 ing Commission, and the Securities and Exchange Commis5 sion shall submit to the Committee on Agriculture, Nutri6 tion, and Forestry and the Committee on Banking, Hous7 ing, and Urban Affairs of the Senate, and the Committee

8 on Agriculture and the Committee on Banking and Finan9 cial Services of the House of Representatives a report on—

10 (1) potential issues of legal uncertainty under

11 the securities laws that affect swap agreements; and

12 (2) the extent to which exclusions or exemptions

13 from the Federal securities laws are warranted to en14 hance legal certainty for swap agreements.

15 SEC. 24. COMMISSION OVERSIGHT; DEFICIENCY ORDERS.

16 Section 8e of the Commodity Exchange Act (7 U.S.C.

17 12e) is repealed.

18 SEC. 25. TECHNICAL AND CONFORMING AMENDMENTS.

19 (a) COMMODITY EXCHANGE ACT.—

20 (1) Section 1a of the Commodity Exchange Act

21 (7 U.S.C. 1a) (as amended by section 3(1)) is

22 amended—

23 (A) in paragraphs (4), (5), (17), (18), (21),

24 and (24), by inserting ‘‘or derivatives trans-
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1 action execution facility’’ after ‘‘contract mar2 ket’’ each place it appears; and

3 (B) in paragraph (25)—

4 (i) in the paragraph heading, by strik5 ing ‘‘CONTRACT MARKET’’ and inserting

6 ‘‘REGISTERED ENTITY’’; and

7 (ii) by striking ‘‘contract market’’ each

8 place it appears and inserting ‘‘registered

9 entity’’.

10 (2) Section 2 of the Commodity Exchange Act (7

11 U.S.C. 2, 2a, 4, 4a, 3) is amended—

12 (A) by striking ‘‘SEC. 2. (a)(1)(A)(i) The’’

13 and inserting the following:

14 ‘‘SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF

15 PRINCIPAL FOR ACT OF AGENT; COMMODITY

16 FUTURES TRADING COMMISSION; TRANS17 ACTION IN INTERSTATE COMMERCE.

18 ‘‘(a) JURISDICTION OF COMMISSION; COMMODITY FU19 TURES TRADING COMMISSION.—

20 ‘‘(1) JURISDICTION OF COMMISSION.—

21 ‘‘(A) IN GENERAL.—The’’; and

22 (B) in subsection (a)—

23 (i) in paragraph (1) (as amended by

24 subparagraph (A))—

25 (I) by striking subparagraph (B);
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1 (II) by striking ‘‘subparagraph

2 (B) of this paragraph’’ and inserting

3 ‘‘subsection (g)’’;

4 (III) by striking ‘‘contract market

5 designated pursuant to section 5 of this

6 Act’’ and inserting ‘‘contract market

7 designated or derivatives transaction

8 execution facility registered pursuant

9 to section 5 or 5a’’;

10 (IV) by striking clause (ii); and

11 (V) in clause (iii), by striking

12 ‘‘(iii) The’’ and inserting the following:

13 ‘‘(B) LIABILITY OF PRINCIPAL FOR ACT OF

14 AGENT.—The’’;

15 (ii) in paragraph (7), by striking

16 ‘‘contract market’’ and inserting ‘‘registered

17 entity’’; and

18 (iii) in paragraph (8)(B)(ii)—

19 (I) in the first sentence, by strik20 ing ‘‘designation as a contract market’’

21 and inserting ‘‘designation or registra22 tion as a contract market or deriva23 tives transaction execution facility’’;

24 (II) in the second sentence, by

25 striking ‘‘designate a board of trade as
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1 a contract market’’ and inserting ‘‘des2 ignate or register a board of trade as

3 a contract market or derivatives trans4 action execution facility’’;

5 (III) in the fourth sentence—

6 (aa) by striking ‘‘desig7 nating, or refusing, suspending, or

8 revoking the designation of, a

9 board of trade as a contract mar10 ket involving transactions for fu11 ture delivery referred to in this

12 clause or in considering possible

13 emergency action under section

14 8a(9) of this Act’’ and inserting

15 ‘‘designating, registering, or refus16 ing, suspending, or revoking the

17 designation or registration of, a

18 board of trade as a contract mar19 ket or derivatives transaction exe20 cution facility involving trans21 actions for future delivery referred

22 to in this clause or in considering

23 any action under this Act (includ24 ing emergency action under sec25 tion 8a(9))’’; and
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1 (bb) by striking ‘‘designation,

2 suspension, revocation, or emer3 gency action’’ and inserting ‘‘des4 ignation, registration, suspension,

5 revocation, or other action’’.

6 (3) Section 4 of the Commodity Exchange Act (7

7 U.S.C. 6) is amended—

8 (A) in subsection (a)—

9 (i) by inserting ‘‘exempted by oper10 ation of section 2(h) or 5d or unless’’ after

11 ‘‘Unless’’;

12 (ii) in paragraph (1), by striking ‘‘des13 ignated by the Commission as a ‘contract

14 market’ for’’ and inserting ‘‘designated or

15 registered by the Commission as a contract

16 market or derivatives transaction execution

17 facility for’’;

18 (iii) in paragraph (2), by striking

19 ‘‘member of such’’; and

20 (iv) in paragraph (3), by inserting ‘‘or

21 derivatives transaction execution facility’’

22 after ‘‘contract market’’; and

23 (B) in subsection (c)—

24 (i) in paragraph (1)—
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1 (I) by striking ‘‘any board of

2 trade designated as a contract market

3 for transactions for future delivery in

4 any commodity’’ and inserting ‘‘any

5 registered entity’’;

6 (II) by striking ‘‘section 5 of this

7 Act’’ and inserting ‘‘section 5, 5a, or

8 5b’’; and

9 (III) by striking ‘‘section

10 2(a)(1)(B)’’ and inserting ‘‘section

11 2(g)’’; and

12 (ii) in paragraph (2)(B)(ii), by insert13 ing ‘‘or derivatives transaction execution fa14 cility’’ after ‘‘contract market’’.

15 (4) Section 4a of the Commodity Exchange Act

16 (7 U.S.C. 6a) is amended—

17 (A) in subsection (a)—

18 (i) in the first sentence, by inserting

19 ‘‘or derivatives transaction execution facili20 ties’’ after ‘‘contract markets’’; and

21 (ii) in the second sentence, by inserting

22 ‘‘or derivatives transaction execution facil23 ity’’ after ‘‘contract market’’;
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•S 2697 RS

1 (B) in subsection (b), by inserting ‘‘or de2 rivatives transaction execution facility’’ after

3 ‘‘contract market’’ each place it appears; and

4 (C) in subsection (e)—

5 (i) by striking ‘‘contract market or’’

6 each place it appears and inserting ‘‘con7 tract market, derivatives transaction execu8 tion facility, or’’;

9 (ii) by striking ‘‘licensed or des10 ignated’’ each place it appears and insert11 ing ‘‘licensed, designated, or registered’’;

12 and

13 (iii) by striking ‘‘contract market, or’’

14 and inserting ‘‘contract market or deriva15 tives transaction execution facility, or’’.

16 (5) Section 4b(a) of the Commodity Exchange

17 Act (7 U.S.C. 6b(a)) is amended by striking ‘‘contract

18 market’’ each place it appears and inserting ‘‘reg19 istered entity’’.

20 (6) Sections 4c(g), 4d, 4e, and 4f of the Com21 modity Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f) are

22 amended by inserting ‘‘or derivatives transaction exe23 cution facility’’ after ‘‘contract market’’ each place it

24 appears.
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1 (7) Section 4g of the Commodity Exchange Act

2 (7 U.S.C. 6g) is amended—

3 (A) in subsection (b), by striking ‘‘clearing4 house and contract market’’ and inserting ‘‘reg5 istered entity’’; and

6 (B) in subsection (f), by striking ‘‘clearing7 houses, contract markets, and exchanges’’ and in8 serting ‘‘registered entities’’.

9 (8) Section 4h of the Commodity Exchange Act

10 (7 U.S.C. 6h) is amended by striking ‘‘contract mar11 ket’’ each place it appears and inserting ‘‘registered

12 entity’’.

13 (9) Section 4i of the Commodity Exchange Act

14 (7 U.S.C. 6i) is amended in the first sentence by in15 serting ‘‘or derivatives transaction execution facility’’

16 after ‘‘contract market’’.

17 (10) Section 4j of the Commodity Exchange Act

18 (7 U.S.C. 6j) is repealed.

19 (11) Section 4l of the Commodity Exchange Act

20 (7 U.S.C. 6l) is amended by inserting ‘‘or derivatives

21 transaction execution facilities’’ after ‘‘contract mar22 kets’’ each place it appears.

23 (12) Section 4p of the Commodity Exchange Act

24 (7 U.S.C. 6p) is amended—
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•S 2697 RS

1 (A) in the third sentence of subsection (a),

2 by striking ‘‘Act or contract markets’’ and in3 serting ‘‘Act, contract markets, or derivatives

4 transaction execution facilities’’; and

5 (B) in subsection (b), by inserting ‘‘deriva6 tives transaction execution facility,’’ after ‘‘con7 tract market,’’.

8 (13) The Commodity Exchange Act (as amended

9 by paragraphs (10), (11), and (12)) is amended by

10 redesignating sections 4k through 4p (7 U.S.C. 6k

11 through 6p) as sections 4j through 4o, respectively.

12 (14) Section 6 of the Commodity Exchange Act

13 (7 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended—

14 (A) in subsection (a)—

15 (i) in the first sentence—

16 (I) by striking ‘‘board of trade de17 siring to be designated a ‘contract

18 market’ shall make application to the

19 Commission for such designation’’ and

20 inserting ‘‘person desiring to be des21 ignated or registered as a registered en22 tity shall make application to the

23 Commission for such designation or

24 registration’’;
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•S 2697 RS

1 (II) by striking ‘‘above condi2 tions’’ and inserting ‘‘conditions set

3 forth in this Act’’; and

4 (III) by striking ‘‘above require5 ments’’ and inserting ‘‘the require6 ments of this Act’’;

7 (ii) in the second sentence, by striking

8 ‘‘designation as a contract market within

9 one year’’ and inserting ‘‘designation or

10 registration as a registered entity within

11 180 days’’;

12 (iii) in the third sentence—

13 (I) by striking ‘‘board of trade’’

14 and inserting ‘‘person’’; and

15 (II) by striking ‘‘one-year period’’

16 and inserting ‘‘180-day period’’; and

17 (iv) in the last sentence, by striking

18 ‘‘designate as a ‘contract market’ any board

19 of trade that has made application therefor,

20 such board of trade’’ and inserting ‘‘des21 ignate or register as a registered entity any

22 person that has made application therefore,

23 such person’’;

24 (B) in subsection (b)—

25 (i) in the first sentence—
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•S 2697 RS

1 (I) by striking ‘‘designation of

2 any board of trade as a ‘contract mar3 ket’ upon’’ and inserting ‘‘designation

4 or registration of any registered entity

5 on’’;

6 (II) by striking ‘‘board of trade’’

7 each place it appears and inserting

8 ‘‘registered entity’’; and

9 (III) by striking ‘‘designation as

10 set forth in section 5 of this Act’’ and

11 inserting ‘‘designation or registration

12 as set forth in sections 5 through 5c’’;

13 (ii) in the second sentence—

14 (I) by striking ‘‘board of trade’’

15 the first place it appears and inserting

16 ‘‘registered entity’’; and

17 (II) by striking ‘‘board of trade’’

18 the second and third places it appears

19 and inserting ‘‘person’’; and

20 (iii) in the last sentence, by striking

21 ‘‘board of trade’’ each place it appears and

22 inserting ‘‘person’’;

23 (C) in subsection (c)—
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•S 2697 RS

1 (i) by striking ‘‘contract market’’ each

2 place it appears and inserting ‘‘registered

3 entity’’;

4 (ii) by striking ‘‘contract markets’’

5 each place it appears and inserting ‘‘reg6 istered entities’’; and

7 (iii) by striking ‘‘trading privileges’’

8 each place it appears and inserting ‘‘privi9 leges’’;

10 (D) in subsection (d), by striking ‘‘contract

11 market’’ each place it appears and inserting

12 ‘‘registered entity’’; and

13 (E) in subsection (e), by striking ‘‘trading

14 on all contract markets’’ each place it appears

15 and inserting ‘‘the privileges of all registered en16 tities’’.

17 (15) Section 6a of the Commodity Exchange Act

18 (7 U.S.C. 10a) is amended—

19 (A) in the first sentence of subsection (a), by

20 striking ‘‘designated as a ‘contract market’

21 shall’’ and inserting ‘‘designated or registered as

22 a contract market or a derivatives transaction

23 execution facility shall’’; and

24 (B) in subsection (b), by striking ‘‘des25 ignated as a contract market’’ and inserting
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•S 2697 RS

1 ‘‘designated or registered as a contract market or

2 a derivatives transaction execution facility’’.

3 (16) Section 6b of the Commodity Exchange Act

4 (7 U.S.C. 13a) is amended—

5 (A) by striking ‘‘contract market’’ each

6 place it appears and inserting ‘‘registered enti7 ty’’;

8 (B) in the first sentence, by striking ‘‘des9 ignation as set forth in section 5 of this Act’’

10 and inserting ‘‘designation or registration as set

11 forth in sections 5 through 5c’’; and

12 (C) in the last sentence, by striking ‘‘the

13 contract market’s ability’’ and inserting ‘‘the

14 ability of the registered entity’’.

15 (17) Section 6c(a) of the Commodity Exchange

16 Act (7 U.S.C. 13a–1(a)) by striking ‘‘contract mar17 ket’’ and inserting ‘‘registered entity’’.

18 (18) Section 6d(1) of the Commodity Exchange

19 Act (7 U.S.C. 13a–2(1)) is amended by striking

20 ‘‘clearinghouse,’’ and inserting ‘‘derivatives trans21 action execution facility, derivatives clearing organi22 zation,’’.

23 (19) Section 7 of the Commodity Exchange Act

24 (7 U.S.C. 11) is amended—

25 (A) in the first sentence—
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•S 2697 RS

1 (i) by striking ‘‘board of trade’’ and

2 inserting ‘‘person’’;

3 (ii) by inserting ‘‘or registered’’ after

4 ‘‘designated’’;

5 (iii) by inserting ‘‘or registration’’

6 after ‘‘designation’’ each place it appears;

7 and

8 (iv) by striking ‘‘contract market’’ each

9 place it appears and inserting ‘‘registered

10 entity’’;

11 (B) in the second sentence—

12 (i) by striking ‘‘designation of such

13 board of trade as a contract market’’ and

14 inserting ‘‘designation or registration of the

15 registered entity’’; and

16 (ii) by striking ‘‘contract markets’’ and

17 inserting ‘‘registered entities’’; and

18 (C) in the last sentence—

19 (i) by striking ‘‘board of trade’’ and

20 inserting ‘‘person’’; and

21 (ii) by striking ‘‘designated again a

22 contract market’’ and inserting ‘‘designated

23 or registered again a registered entity’’.

24 (20) Section 8(c) of the Commodity Exchange

25 Act (7 U.S.C. 12(c)) is amended in the first sentence
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•S 2697 RS

1 by striking ‘‘board of trade’’ and inserting ‘‘registered

2 entity’’.

3 (21) Section 8a of the Commodity Exchange Act

4 (7 U.S.C. 12a) is amended—

5 (A) by striking ‘‘contract market’’ each

6 place it appears and inserting ‘‘registered enti7 ty’’; and

8 (B) in paragraph (2)(F), by striking ‘‘trad9 ing privileges’’ and inserting ‘‘privileges’’.

10 (22) Section 8b of the Commodity Exchange Act

11 (7 U.S.C. 12b) is amended by striking ‘‘any contract

12 market, to make or cause to be made in contravention

13 of such order, any contract for future delivery of any

14 commodity, on or subject to the rules of any contract

15 market’’ and inserting ‘‘, or exercising any clearing

16 privileges on, any registered entity, to make or cause

17 to be made, or clear or cause to be cleared, in con18 travention of the order, any contract for future deliv19 ery of any commodity on or subject to the rules of

20 any registered entity’’.

21 (23) Section 8c(e) of the Commodity Exchange

22 Act (7 U.S.C. 12b, 12c(e)) are amended by striking

23 ‘‘contract market’’ each place it appears and insert24 ing ‘‘registered entity’’.
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1 (24) Section 9 of the Commodity Exchange Act

2 (7 U.S.C. 13) is amended—

3 (A) by striking ‘‘contract market’’ each

4 place it appears and inserting ‘‘registered enti5 ty’’; and

6 (B) in subsection (a)(2), by striking ‘‘sec7 tion 4o(1),’’ and inserting ‘‘section 4n(1),’’.

8 (25) Section 14 of the Commodity Exchange Act

9 (7 U.S.C. 18) is amended—

10 (A) in subsection (a)(1)(B), by striking

11 ‘‘contract market’’ and inserting ‘‘registered enti12 ty’’; and

13 (B) in subsection (f)—

14 (i) by inserting ‘‘or clearing’’ after

15 ‘‘trading’’ each place it appears; and

16 (ii) by striking ‘‘contract markets’’ and

17 inserting ‘‘registered entities’’.

18 (26) Sections 15 and 17 of the Commodity Ex19 change Act (7 U.S.C. 19, 21) are amended by striking

20 ‘‘contract market’’ each place it appears and insert21 ing ‘‘registered entity’’.

22 (27) Section 22 of the Commodity Exchange Act

23 (7 U.S.C. 25) is amended—

24 (A) in subsection (a)—

25 (i) in paragraph (1)—
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•S 2697 RS

1 (I) by striking ‘‘contract market,

2 clearing organization of a contract

3 market, licensed board of trade,’’ and

4 inserting ‘‘registered entity’’; and

5 (II) in subparagraph (C)(i), by

6 inserting ‘‘, derivatives transaction

7 execution facility,’’ after ‘‘contract

8 market’’;

9 (ii) in paragraph (2), by striking ‘‘sec10 tions 5a(11),’’ and inserting ‘‘sections

11 5(d)(13), 5b(d)(2)(H)(i),’’; and

12 (iii) in paragraph (3), by striking

13 ‘‘contract market’’ and inserting ‘‘registered

14 entity’’; and

15 (B) in subsection (b)—

16 (i) in paragraph (1)—

17 (I) by striking ‘‘contract market

18 or clearing organization of a contract

19 market’’ and inserting ‘‘registered enti20 ty’’;

21 (II) by striking ‘‘section 5a(8)

22 and section 5a(9) of this Act’’ and in23 serting ‘‘sections 5 through 5c’’;

24 (III) by striking ‘‘contract mar25 ket, clearing organization of a contract
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•S 2697 RS

1 market, or licensed board of trade’’ and

2 inserting ‘‘registered entity’’; and

3 (IV) by striking ‘‘contract market

4 or licensed board of trade’’ and insert5 ing ‘‘registered entity’’;

6 (ii) in paragraph (3)—

7 (I) by striking ‘‘a contract mar8 ket, clearing organization, licensed

9 board of trade,’’ and inserting ‘‘reg10 istered entity’’; and

11 (II) by striking ‘‘contract market,

12 licensed board of trade’’ and inserting

13 ‘‘registered entity’’;

14 (iii) in paragraph (4), by striking

15 ‘‘contract market, licensed board of trade,

16 clearing organization,’’ and inserting ‘‘reg17 istered entity’’; and

18 (iv) in paragraph (5), by striking

19 ‘‘contract market, licensed board of trade,

20 clearing organization,’’ and inserting ‘‘reg21 istered entity’’.

22 (b) FEDERAL DEPOSIT INSURANCE CORPORATION IM23 PROVEMENT ACT OF 1991.—Section 402(2) of the Federal

24 Deposit Insurance Corporation Improvement Act of 1991
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1 (12 U.S.C. 4402(2)) is amended by striking subparagraph

2 (B) and inserting the following:

3 ‘‘(B) that is registered as a derivatives

4 clearing organization under section 5b of the

5 Commodity Exchange Act.’’.

6 SEC. 26. EFFECTIVE DATE.

7 (a) IN GENERAL.—Except as provided in subsection

8 (b), this Act takes effect on the date of enactment of this

9 Act.

10 (b) JURISDICTION OF COMMODITIES FUTURES TRAD11 ING COMMISSION.—Section 8, and the amendments made

12 by that section, take effect 1 year after the date of enactment

13 of this Act.
Calendar No. 766

106TH CONGRESS

2D SESSION S. 2697

[Report No. 106–390]

A BILL

To reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance

competition, and reduce systemic risk in marketsfor futures and over-the-counter derivatives, andfor other purposes.

AUGUST 25, 2000

Reported with an amendment