II

106TH CONGRESS

2D SESSION S. 3283

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

DECEMBER 15 (legislative day, SEPTEMBER 22), 2000

Mr. LUGAR (for himself, Mr. GRAMM, Mr. HARKIN, Mr. FITZGERALD, Mr.

HAGEL, and Mr. JOHNSON) introduced the following bill; which was read

the first time

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,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

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

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

7 this Act is as follows:

Sec. 1. Short title; table of contents.
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Sec. 2. Purposes.

TITLE I—COMMODITY FUTURES MODERNIZATION

Sec. 101. Definitions.

Sec. 102. Agreements, contracts, and transactions in foreign currency, government securities, and certain other commodities.

Sec. 103. Legal certainty for excluded derivative transactions.

Sec. 104. Excluded electronic trading facilities.

Sec. 105. Hybrid instruments; swap transactions.

Sec. 106. Transactions in exempt commodities.

Sec. 107. Application of commodity futures laws.

Sec. 108. Protection of the public interest.

Sec. 109. Prohibited transactions.

Sec. 110. Designation of boards of trade as contract markets.

Sec. 111. Derivatives transaction execution facilities.

Sec. 112. Derivatives clearing.

Sec. 113. Common provisions applicable to registered entities.

Sec. 114. Exempt boards of trade.

Sec. 115. Suspension or revocation of designation as contract market.

Sec. 116. Authorization of appropriations.

Sec. 117. Preemption.

Sec. 118. Predispute resolution agreements for institutional customers.

Sec. 119. Consideration of costs and benefits and antitrust laws.

Sec. 120. Contract enforcement between eligible counterparties.

Sec. 121. Special procedures to encourage and facilitate bona fide hedging by

agricultural producers.

Sec. 122. Rule of construction.

Sec. 123. Technical and conforming amendments.

Sec. 124. Privacy.

Sec. 125. Report to Congress.

Sec. 126. International activities of the Commodity Futures Trading Commission.

TITLE II—COORDINATED REGULATION OF SECURITY FUTURES

PRODUCTS

SUBTITLE A—SECURITIES LAW AMENDMENTS

Sec. 201. Definitions under the Securities Exchange Act of 1934.

Sec. 202. Regulatory relief for markets trading security futures products.

Sec. 203. Regulatory relief for intermediaries trading security futures products.

Sec. 204. Special provisions for interagency cooperation.

Sec. 205. Maintenance of market integrity for security futures products.

Sec. 206. Special provisions for the trading of security futures products.

Sec. 207. Clearance and settlement.

Sec. 208. Amendments relating to registration and disclosure issues under the

Securities Act of 1933 and the Securities Exchange Act of

1934.

Sec. 209. Amendments to the Investment Company Act of 1940 and the Investment Advisers Act of 1940.

Sec. 210. Preemption of State laws.

SUBTITLE B—AMENDMENTS TO THE COMMODITY EXCHANGE ACT

Sec. 251. Jurisdiction of Securities and Exchange Commission; other provisions.
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Sec. 252. Application of the Commodity Exchange Act to national securities exchanges and national securities associations that trade security

futures.

Sec. 253. Notification of investigations and enforcement actions.

TITLE III—LEGAL CERTAINTY FOR SWAP AGREEMENTS

Sec. 301. Swap agreement.

Sec. 302. Amendments to the Securities Act of 1933.

Sec. 303. Amendments to the Securities Exchange Act of 1934.

Sec. 304. Savings provision.

TITLE IV—REGULATORY RESPONSIBILITY FOR BANK PRODUCTS

Sec. 401. Short title.

Sec. 402. Definitions.

Sec. 403. Exclusion of identified banking products commonly offered on or before December 5, 2000.

Sec. 404. Exclusion of certain identified banking products offered by banks

after December 5, 2000.

Sec. 405. Exclusion of certain other identified banking products.

Sec. 406. Administration of the predominance test.

Sec. 407. Exclusion of covered swap agreements.

Sec. 408. Contract enforcement.

1 SEC. 2. PURPOSES.

2 The purposes of this Act are—

3 (1) to reauthorize the appropriation for the

4 Commodity Futures Trading Commission;

5 (2) to streamline and eliminate unnecessary

6 regulation 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 to oversight of the fu11 tures markets;

12 (4) to provide a statutory and regulatory frame13 work for allowing the trading of futures on securi14 ties;
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1 (5) to clarify the jurisdiction of the Commodity

2 Futures Trading Commission over certain retail for3 eign exchange transactions and bucket shops that

4 may not be otherwise regulated;

5 (6) to promote innovation for futures and de6 rivatives and to reduce systemic risk by enhancing

7 legal certainty in the markets for certain futures and

8 derivatives transactions;

9 (7) to reduce systemic risk and provide greater

10 stability to markets during times of market disorder

11 by allowing the clearing of transactions in over-the12 counter derivatives through appropriately regulated

13 clearing organizations; and

14 (8) to enhance the competitive position of

15 United States financial institutions and financial

16 markets.

17 TITLE I—COMMODITY FUTURES

18 MODERNIZATION

19 SEC. 101. DEFINITIONS.

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

21 1a) is amended—

22 (1) by redesignating paragraphs (1) through

23 (7), (8) through (12), (13) through (15), and (16)

24 as paragraphs (2) through (8), (16) through (20),

25 (22) through (24), and (28), respectively;
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1 (2) by inserting before paragraph (2) (as redes2 ignated by paragraph (1)) the following:

3 ‘‘(1) ALTERNATIVE TRADING SYSTEM.—The

4 term ‘alternative trading system’ means an organiza5 tion, association, or group of persons that—

6 ‘‘(A) is registered as a broker or dealer

7 pursuant to section 15(b) of the Securities Ex8 change Act of 1934 (except paragraph (11)

9 thereof);

10 ‘‘(B) performs the functions commonly

11 performed by an exchange (as defined in section

12 3(a)(1) of the Securities Exchange Act of

13 1934);

14 ‘‘(C) does not—

15 ‘‘(i) set rules governing the conduct of

16 subscribers other than the conduct of such

17 subscribers’ trading on the alternative

18 trading system; or

19 ‘‘(ii) discipline subscribers other than

20 by exclusion from trading; and

21 ‘‘(D) is exempt from the definition of the

22 term ‘exchange’ under such section 3(a)(1) by

23 rule or regulation of the Securities and Ex24 change Commission on terms that require com-
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1 pliance with regulations of its trading func2 tions.’’;

3 (3) by striking paragraph (2) (as redesignated

4 by paragraph (1)) and inserting the following:

5 ‘‘(2) BOARD OF TRADE.—The term ‘board of

6 trade’ means any organized exchange or other trad7 ing facility.’’;

8 (4) by inserting after paragraph (8) (as redesig9 nated by paragraph (1)) the following:

10 ‘‘(9) DERIVATIVES CLEARING ORGANIZATION.—

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

12 clearing organization’ means a clearinghouse,

13 clearing association, clearing corporation, or

14 similar entity, facility, system, or organization

15 that, with respect to an agreement, contract, or

16 transaction—

17 ‘‘(i) enables each party to the agree18 ment, contract, or transaction to sub19 stitute, through novation or otherwise, the

20 credit of the derivatives clearing organiza21 tion for the credit of the parties;

22 ‘‘(ii) arranges or provides, on a multi23 lateral basis, for the settlement or netting

24 of obligations resulting from such agree25 ments, contracts, or transactions executed
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1 by participants in the derivatives clearing

2 organization; or

3 ‘‘(iii) otherwise provides clearing serv4 ices or arrangements that mutualize or

5 transfer among participants in the deriva6 tives clearing organization the credit risk

7 arising from such agreements, contracts,

8 or transactions executed by the partici9 pants.

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

11 clearing organization’ does not include an enti12 ty, facility, system, or organization solely be13 cause it arranges or provides for—

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

15 obligations resulting from agreements, con16 tracts, or transactions, on a bilateral basis

17 and without a central counterparty;

18 ‘‘(ii) settlement or netting of cash

19 payments through an interbank payment

20 system; or

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

22 of obligations resulting from a sale of a

23 commodity in a transaction in the spot

24 market for the commodity.
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1 ‘‘(10) ELECTRONIC TRADING FACILITY.—The

2 term ‘electronic trading facility’ means a trading fa3 cility that—

4 ‘‘(A) operates by means of an electronic or

5 telecommunications network; and

6 ‘‘(B) maintains an automated audit trail of

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

8 execution of transactions on the facility.

9 ‘‘(11) ELIGIBLE COMMERCIAL ENTITY.—The

10 term ‘eligible commercial entity’ means, with respect

11 to an agreement, contract or transaction in a

12 commodity—

13 ‘‘(A) an eligible contract participant de14 scribed in clause (i), (ii), (v), (vii), (viii), or (ix)

15 of paragraph (12)(A) that, in connection with

16 its business—

17 ‘‘(i) has a demonstrable ability, di18 rectly or through separate contractual ar19 rangements, to make or take delivery of

20 the underlying commodity;

21 ‘‘(ii) incurs risks, in addition to price

22 risk, related to the commodity; or

23 ‘‘(iii) is a dealer that regularly pro24 vides risk management or hedging services

25 to, or engages in market-making activities
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1 with, the foregoing entities involving trans2 actions to purchase or sell the commodity

3 or derivative agreements, contracts, or

4 transactions in the commodity;

5 ‘‘(B) an eligible contract participant, other

6 than a natural person or an instrumentality, de7 partment, or agency of a State or local govern8 mental entity, that—

9 ‘‘(i) regularly enters into transactions

10 to purchase or sell the commodity or deriv11 ative agreements, contracts, or trans12 actions in the commodity; and

13 ‘‘(ii) either—

14 ‘‘(I) in the case of a collective in15 vestment vehicle whose participants

16 include persons other than—

17 ‘‘(aa) qualified eligible per18 sons, as defined in Commission

19 rule 4.7(a) (17 C.F.R. 4.7(a));

20 ‘‘(bb) accredited investors,

21 as defined in Regulation D of the

22 Securities and Exchange Com23 mission under the Securities Act

24 of 1933 (17 C.F.R. 230.501(a)),
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1 with total assets of $2,000,000;

2 or

3 ‘‘(cc) qualified purchasers,

4 as defined in section 2(a)(51)(A)

5 of the Investment Company Act

6 of 1940;

7 in each case as in effect on the date

8 of the enactment of the Commodity

9 Futures Modernization Act of 2000,

10 has, or is one of a group of vehicles

11 under common control or management

12 having in the aggregate,

13 $1,000,000,000 in total assets; or

14 ‘‘(II) in the case of other per15 sons, has, or is one of a group of per16 sons under common control or man17 agement having in the aggregate,

18 $100,000,000 in total assets; or

19 ‘‘(C) such other persons as the Commis20 sion shall determine appropriate and shall des21 ignate by rule, regulation, or order.

22 ‘‘(12) ELIGIBLE CONTRACT PARTICIPANT.—The

23 term ‘eligible contract participant’ means—

24 ‘‘(A) acting for its own account—

25 ‘‘(i) a financial institution;
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1 ‘‘(ii) an insurance company that is

2 regulated by a State, or that is regulated

3 by a foreign government and is subject to

4 comparable regulation as determined by

5 the Commission, including a regulated sub6 sidiary or affiliate of such an insurance

7 company;

8 ‘‘(iii) an investment company subject

9 to regulation under the Investment Com10 pany Act of 1940 (15 U.S.C. 80a–1 et

11 seq.) or a foreign person performing a

12 similar role or function subject as such to

13 foreign regulation (regardless of whether

14 each investor in the investment company or

15 the foreign person is itself an eligible con16 tract participant);

17 ‘‘(iv) a commodity pool that—

18 ‘‘(I) has total assets exceeding

19 $5,000,000; and

20 ‘‘(II) is formed and operated by a

21 person subject to regulation under

22 this Act or a foreign person per23 forming a similar role or function sub24 ject as such to foreign regulation (re25 gardless of whether each investor in
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1 the commodity pool or the foreign per2 son is itself an eligible contract partic3 ipant);

4 ‘‘(v) a corporation, partnership, pro5 prietorship, organization, trust, or other

6 entity—

7 ‘‘(I) that has total assets exceed8 ing $10,000,000;

9 ‘‘(II) the obligations of which

10 under an agreement, contract, or

11 transaction are guaranteed or other12 wise supported by a letter of credit or

13 keepwell, support, or other agreement

14 by an entity described in subclause

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

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

17 ‘‘(III) that—

18 ‘‘(aa) has a net worth ex19 ceeding $1,000,000; and

20 ‘‘(bb) enters into an agree21 ment, contract, or transaction in

22 connection with the conduct of

23 the entity’s business or to man24 age the risk associated with an

25 asset or liability owned or in-
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1 curred or reasonably likely to be

2 owned or incurred by the entity

3 in the conduct of the entity’s

4 business;

5 ‘‘(vi) an employee benefit plan subject

6 to the Employee Retirement Income Secu7 rity Act of 1974 (29 U.S.C. 1001 et seq.),

8 a governmental employee benefit plan, or a

9 foreign person performing a similar role or

10 function subject as such to foreign

11 regulation—

12 ‘‘(I) that has total assets exceed13 ing $5,000,000; or

14 ‘‘(II) the investment decisions of

15 which are made by—

16 ‘‘(aa) an investment adviser

17 or commodity trading advisor

18 subject to regulation under the

19 Investment Advisers Act of 1940

20 (15 U.S.C. 80b–1 et seq.) or this

21 Act;

22 ‘‘(bb) a foreign person per23 forming a similar role or function

24 subject as such to foreign regula25 tion;
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1 ‘‘(cc) a financial institution;

2 or

3 ‘‘(dd) an insurance company

4 described in clause (ii), or a reg5 ulated subsidiary or affiliate of

6 such an insurance company;

7 ‘‘(vii)(I) a governmental entity (in8 cluding the United States, a State, or a

9 foreign government) or political subdivision

10 of a governmental entity;

11 ‘‘(II) a multinational or supranational

12 government entity; or

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

14 department of an entity described in sub15 clause (I) or (II);

16 except that such term does not include an

17 entity, instrumentality, agency, or depart18 ment referred to in subclause (I) or (III)

19 of this clause unless (aa) the entity, instru20 mentality, agency, or department is a per21 son described in clause (i), (ii), or (iii) of

22 section 1a(11)(A); (bb) the entity, instru23 mentality, agency, or department owns and

24 invests on a discretionary basis

25 $25,000,000 or more in investments; or
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1 (cc) the agreement, contract, or trans2 action is offered by, and entered into with,

3 an entity that is listed in any of subclauses

4 (I) through (VI) of section 2(c)(2)(B)(ii);

5 ‘‘(viii)(I) a broker or dealer subject to

6 regulation under the Securities Exchange

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

8 foreign person performing a similar role or

9 function subject as such to foreign regula10 tion, except that, if the broker or dealer or

11 foreign person is a natural person or pro12 prietorship, the broker or dealer or foreign

13 person shall not be considered to be an eli14 gible contract participant unless the broker

15 or dealer or foreign person also meets the

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

17 ‘‘(II) an associated person of a reg18 istered broker or dealer concerning the fi19 nancial or securities activities of which the

20 registered person makes and keeps records

21 under section 15C(b) or 17(h) of the Secu22 rities Exchange Act of 1934 (15 U.S.C.

23 78o–5(b), 78q(h));

24 ‘‘(III) an investment bank holding

25 company (as defined in section 17(i) of the
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1 Securities Exchange Act of 1934 (15

2 U.S.C. 78q(i));

3 ‘‘(ix) a futures commission merchant

4 subject to regulation under this Act or a

5 foreign person performing a similar role or

6 function subject as such to foreign regula7 tion, except that, if the futures commission

8 merchant or foreign person is a natural

9 person or proprietorship, the futures com10 mission merchant or foreign person shall

11 not be considered to be an eligible contract

12 participant unless the futures commission

13 merchant or foreign person also meets the

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

15 ‘‘(x) a floor broker or floor trader sub16 ject to regulation under this Act in connec17 tion with any transaction that takes place

18 on or through the facilities of a registered

19 entity or an exempt board of trade, or any

20 affiliate thereof, on which such person reg21 ularly trades; or

22 ‘‘(xi) an individual who has total as23 sets in an amount in excess of—

24 ‘‘(I) $10,000,000; or
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1 ‘‘(II) $5,000,000 and who enters

2 into the agreement, contract, or trans3 action in order to manage the risk as4 sociated with an asset owned or liabil5 ity incurred, or reasonably likely to be

6 owned or incurred, by the individual;

7 ‘‘(B)(i) a person described in clause (i),

8 (ii), (iv), (v), (viii), (ix), or (x) of subparagraph

9 (A) or in subparagraph (C), acting as broker or

10 performing an equivalent agency function on

11 behalf of another person described in subpara12 graph (A) or (C); or

13 ‘‘(ii) an investment adviser subject to regu14 lation under the Investment Advisers Act of

15 1940, a commodity trading advisor subject to

16 regulation under this Act, a foreign person per17 forming a similar role or function subject as

18 such to foreign regulation, or a person de19 scribed in clause (i), (ii), (iv), (v), (viii), (ix), or

20 (x) of subparagraph (A) or in subparagraph

21 (C), in any such case acting as investment man22 ager or fiduciary (but excluding a person acting

23 as broker or performing an equivalent agency

24 function) for another person described in sub25 paragraph (A) or (C) and who is authorized by
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1 such person to commit such person to the

2 transaction; or

3 ‘‘(C) any other person that the Commis4 sion determines to be eligible in light of the fi5 nancial or other qualifications of the person.

6 ‘‘(13) EXCLUDED COMMODITY.—The term ‘ex7 cluded commodity’ means—

8 ‘‘(A) an interest rate, exchange rate, cur9 rency, security, security index, credit risk or

10 measure, debt or equity instrument, index or

11 measure of inflation, or other macroeconomic

12 index or measure;

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

14 measure of economic or commercial risk, re15 turn, or value that is—

16 ‘‘(i) not based in substantial part on

17 the value of a narrow group of commod18 ities not described in clause (A); or

19 ‘‘(ii) based solely on 1 or more com20 modities that have no cash market;

21 ‘‘(C) any economic or commercial index

22 based on prices, rates, values, or levels that are

23 not within the control of any party to the rel24 evant contract, agreement, or transaction; or
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1 ‘‘(D) an occurrence, extent of an occur2 rence, or contingency (other than a change in

3 the price, rate, value, or level of a commodity

4 not described in clause (A)) that is—

5 ‘‘(i) beyond the control of the parties

6 to the relevant contract, agreement, or

7 transaction; and

8 ‘‘(ii) associated with a financial, com9 mercial, or economic consequence.

10 ‘‘(14) EXEMPT COMMODITY.—The term ‘exempt

11 commodity’ means a commodity that is not an ex12 cluded commodity or an agricultural commodity.

13 ‘‘(15) FINANCIAL INSTITUTION.—The term ‘fi14 nancial institution’ means—

15 ‘‘(A) a corporation operating under the

16 fifth undesignated paragraph of section 25 of

17 the Federal Reserve Act (12 U.S.C. 603), com18 monly known as ‘an agreement corporation’;

19 ‘‘(B) a corporation organized under section

20 25A of the Federal Reserve Act (12 U.S.C. 611

21 et seq.), commonly known as an ‘Edge Act cor22 poration’;

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

24 Farm Credit Administration;
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1 ‘‘(D) a Federal credit union or State credit

2 union (as defined in section 101 of the Federal

3 Credit Union Act (12 U.S.C. 1752));

4 ‘‘(E) a depository institution (as defined in

5 section 3 of the Federal Deposit Insurance Act

6 (12 U.S.C. 1813));

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

8 of a foreign bank (each as defined in section

9 1(b) of the International Banking Act of 1978

10 (12 U.S.C. 3101(b)));

11 ‘‘(G) any financial holding company (as de12 fined in section 2 of the Bank Holding Com13 pany Act of 1956);

14 ‘‘(H) a trust company; or

15 ‘‘(I) a similarly regulated subsidiary or af16 filiate of an entity described in any of subpara17 graphs (A) through (H).’’;

18 (5) by inserting after paragraph (20) (as redes19 ignated by paragraph (1)) the following:

20 ‘‘(21) HYBRID INSTRUMENT.—The term ‘hybrid

21 instrument’ means a security having 1 or more pay22 ments indexed to the value, level, or rate of, or pro23 viding for the delivery of, 1 or more commodities.’’;

24 (6) by striking paragraph (24) (as redesignated

25 by paragraph (1)) and inserting the following:
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1 ‘‘(24) MEMBER OF A CONTRACT MARKET; MEM2 BER OF A DERIVATIVES TRANSACTION EXECUTION

3 FACILITY.—The term ‘member’ means, with respect

4 to a contract market or derivatives transaction exe5 cution facility, an individual, association, partner6 ship, corporation, or trust—

7 ‘‘(A) owning or holding membership in, or

8 admitted to membership representation on, the

9 contract market or derivatives transaction exe10 cution facility; or

11 ‘‘(B) having trading privileges on the con12 tract market or derivatives transaction execu13 tion facility.

14 ‘‘(25) NARROW-BASED SECURITY INDEX.—

15 ‘‘(A) The term ‘narrow-based security

16 index’ means an index—

17 ‘‘(i) that has 9 or fewer component se18 curities;

19 ‘‘(ii) in which a component security

20 comprises more than 30 percent of the

21 index’s weighting;

22 ‘‘(iii) in which the 5 highest weighted

23 component securities in the aggregate com24 prise more than 60 percent of the index’s

25 weighting; or
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1 ‘‘(iv) in which the lowest weighted

2 component securities comprising, in the ag3 gregate, 25 percent of the index’s

4 weighting have an aggregate dollar value

5 of average daily trading volume of less

6 than $50,000,000 (or in the case of an

7 index with 15 or more component securi8 ties, $30,000,000), except that if there are

9 two or more securities with equal

10 weighting that could be included in the cal11 culation of the lowest weighted component

12 securities comprising, in the aggregate, 25

13 percent of the index’s weighting, such se14 curities shall be ranked from lowest to

15 highest dollar value of average daily trad16 ing volume and shall be included in the

17 calculation based on their ranking starting

18 with the lowest ranked security.

19 ‘‘(B) Notwithstanding subparagraph (A),

20 an index is not a narrow-based security index

21 if—

22 ‘‘(i)(I) it has at least 9 component se23 curities;
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1 ‘‘(II) no component security comprises

2 more than 30 percent of the index’s

3 weighting; and

4 ‘‘(III) each component security is—

5 ‘‘(aa) registered pursuant to sec6 tion 12 of the Securities Exchange

7 Act of 1934;

8 ‘‘(bb) 1 of 750 securities with the

9 largest market capitalization; and

10 ‘‘(cc) 1 of 675 securities with the

11 largest dollar value of average daily

12 trading volume;

13 ‘‘(ii) a board of trade was designated

14 as a contract market by the Commodity

15 Futures Trading Commission with respect

16 to a contract of sale for future delivery on

17 the index, before the date of enactment of

18 the Commodity Futures Modernization Act

19 of 2000;

20 ‘‘(iii)(I) a contract of sale for future

21 delivery on the index traded on a des22 ignated contract market or registered de23 rivatives transaction execution facility for

24 at least 30 days as a contract of sale for
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1 future delivery on an index that was not a

2 narrow-based security index; and

3 ‘‘(II) it has been a narrow-based secu4 rity index for no more than 45 business

5 days over 3 consecutive calendar months;

6 ‘‘(iv) a contract of sale for future de7 livery on the index is traded on or subject

8 to the rules of a foreign board of trade and

9 meets such requirements as are jointly es10 tablished by rule or regulation by the Com11 mission and the Securities and Exchange

12 Commission;

13 ‘‘(v) no more than 18 months have

14 passed since the date of enactment of the

15 Commodity Futures Modernization Act of

16 2000 and—

17 ‘‘(I) it is traded on or subject to

18 the rules of a foreign board of trade;

19 ‘‘(II) the offer and sale in the

20 United States of a contract of sale for

21 future delivery on the index was au22 thorized before the date of the enact23 ment of the Commodity Futures Mod24 ernization Act of 2000; and
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1 ‘‘(III) the conditions of such au2 thorization continue to be met; or

3 ‘‘(vi) a contract of sale for future de4 livery on the index is traded on or subject

5 to the rules of a board of trade and meets

6 such requirements as are jointly estab7 lished by rule, regulation, or order by the

8 Commission and the Securities and Ex9 change Commission.

10 ‘‘(C) Within 1 year after the date of the

11 enactment of the Commodity Futures Mod12 ernization Act of 2000, the Commission and the

13 Securities and Exchange Commission jointly

14 shall adopt rules or regulations that set forth

15 the requirements under subparagraph (B)(iv).

16 ‘‘(D) An index that is a narrow-based se17 curity index solely because it was a narrow18 based security index for more than 45 business

19 days over 3 consecutive calendar months pursu20 ant to clause (iii) of subparagraph (B) shall not

21 be a narrow-based security index for the 3 fol22 lowing calendar months.

23 ‘‘(E) For purposes of subparagraphs (A)

24 and (B)—
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1 ‘‘(i) the dollar value of average daily

2 trading volume and the market capitaliza3 tion shall be calculated as of the preceding

4 6 full calendar months; and

5 ‘‘(ii) the Commission and the Securi6 ties and Exchange Commission shall, by

7 rule or regulation, jointly specify the meth8 od to be used to determine market capital9 ization and dollar value of average daily

10 trading volume.

11 ‘‘(26) OPTION.—The term ‘option’ means an

12 agreement, contract, or transaction that is of the

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

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

15 ‘put’, ‘call’, ‘advance guaranty’, or ‘decline guar16 anty’.

17 ‘‘(27) ORGANIZED EXCHANGE.—The term ‘or18 ganized exchange’ means a trading facility that—

19 ‘‘(A) permits trading—

20 ‘‘(i) by or on behalf of a person that

21 is not an eligible contract participant; or

22 ‘‘(ii) by persons other than on a prin23 cipal-to-principal basis; or

24 ‘‘(B) has adopted (directly or through an25 other nongovernmental entity) rules that—
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1 ‘‘(i) govern the conduct of partici2 pants, other than rules that govern the

3 submission of orders or execution of trans4 actions on the trading facility; and

5 ‘‘(ii) include disciplinary sanctions

6 other than the exclusion of participants

7 from trading.’’; and

8 (7) by adding at the end the following:

9 ‘‘(29) REGISTERED ENTITY.—The term ‘reg10 istered entity’ means—

11 ‘‘(A) a board of trade designated as a con12 tract market under section 5;

13 ‘‘(B) a derivatives transaction execution fa14 cility registered under section 5a;

15 ‘‘(C) a derivatives clearing organization

16 registered under section 5b; and

17 ‘‘(D) a board of trade designated as a con18 tract market under section 5f.

19 ‘‘(30) SECURITY.—The term ‘security’ means a

20 security as defined in section 2(a)(1) of the Securi21 ties Act of 1933 (15 U.S.C. 77b(a)(1)) or section

22 3(a)(10) of the Securities Exchange Act of 1934 (15

23 U.S.C. 78c(a)(10)).

24 ‘‘(31) SECURITY FUTURE.—The term ‘security

25 future’ means a contract of sale for future delivery
28

•S 3283 IS

1 of a single security or of a narrow-based security

2 index, including any interest therein or based on the

3 value thereof, except an exempted security under

4 section 3(a)(12) of the Securities Exchange Act of

5 1934 as in effect on the date of enactment of the

6 Futures Trading Act of 1982 (other than any mu7 nicipal security as defined in section 3(a)(29) of the

8 Securities Exchange Act of 1934 as in effect on the

9 date of enactment of the Futures Trading Act of

10 1982). The term ‘security future’ does not include

11 any agreement, contract, or transaction excluded

12 from this Act under section 2(c), 2(d), 2(f), or 2(g)

13 of this Act (as in effect on the date of the enactment

14 of the Commodity Futures Modernization Act of

15 2000) or title IV of the Commodity Futures Mod16 ernization Act of 2000.

17 ‘‘(32) SECURITY FUTURES PRODUCT.—The

18 term ‘security futures product’ means a security fu19 ture or any put, call, straddle, option, or privilege on

20 any security future.

21 ‘‘(33) TRADING FACILITY.—

22 ‘‘(A) IN GENERAL.—The term ‘trading fa23 cility’ means a person or group of persons that

24 constitutes, maintains, or provides a physical or

25 electronic facility or system in which multiple
29

•S 3283 IS

1 participants have the ability to execute or trade

2 agreements, contracts, or transactions by ac3 cepting bids and offers made by other partici4 pants that are open to multiple participants in

5 the facility or system.

6 ‘‘(B) EXCLUSIONS.—The term ‘trading fa7 cility’ does not include—

8 ‘‘(i) a person or group of persons sole9 ly because the person or group of persons

10 constitutes, maintains, or provides an elec11 tronic facility or system that enables par12 ticipants to negotiate the terms of and

13 enter into bilateral transactions as a result

14 of communications exchanged by the par15 ties and not from interaction of multiple

16 bids and multiple offers within a predeter17 mined, nondiscretionary automated trade

18 matching and execution algorithm;

19 ‘‘(ii) a government securities dealer or

20 government securities broker, to the extent

21 that the dealer or broker executes or

22 trades agreements, contracts, or trans23 actions in government securities, or assists

24 persons in communicating about, negoti25 ating, entering into, executing, or trading
30

•S 3283 IS

1 an agreement, contract, or transaction in

2 government securities (as the terms ‘gov3 ernment securities dealer’, ‘government se4 curities broker’, and ‘government securi5 ties’ are defined in section 3(a) of the Se6 curities Exchange Act of 1934 (15 U.S.C.

7 78c(a))); or

8 ‘‘(iii) facilities on which bids and of9 fers, and acceptances of bids and offers ef10 fected on the facility, are not binding.

11 Any person, group of persons, dealer, broker, or

12 facility described in clause (i) or (ii) is excluded

13 from the meaning of the term ‘trading facility’

14 for the purposes of this Act without any prior

15 specific approval, certification, or other action

16 by the Commission.

17 ‘‘(C) SPECIAL RULE.—A person or group

18 of persons that would not otherwise constitute

19 a trading facility shall not be considered to be

20 a trading facility solely as a result of the sub21 mission to a derivatives clearing organization of

22 transactions executed on or through the person

23 or group of persons.’’.
31

•S 3283 IS

1 SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS

2 IN FOREIGN CURRENCY, GOVERNMENT SECU3 RITIES, AND CERTAIN OTHER COMMODITIES.

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

5 2, 2a, 3, 4, 4a) is amended by adding at the end the fol6 lowing:

7 ‘‘(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS

8 IN FOREIGN CURRENCY, GOVERNMENT SECURITIES, AND

9 CERTAIN OTHER COMMODITIES.—

10 ‘‘(1) IN GENERAL.—Except as provided in para11 graph (2), nothing in this Act (other than section 5a

12 (to the extent provided in section 5a(g)), 5b, 5d, or

13 12(e)(2)(B)) governs or applies to an agreement,

14 contract, or transaction in—

15 ‘‘(A) foreign currency;

16 ‘‘(B) government securities;

17 ‘‘(C) security warrants;

18 ‘‘(D) security rights;

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

20 ‘‘(F) repurchase transactions in an ex21 cluded commodity; or

22 ‘‘(G) mortgages or mortgage purchase

23 commitments.

24 ‘‘(2) COMMISSION JURISDICTION.—

25 ‘‘(A) AGREEMENTS, CONTRACTS, AND

26 TRANSACTIONS TRADED ON AN ORGANIZED EX-
32

•S 3283 IS

1 CHANGE.—This Act applies to, and the Com2 mission shall have jurisdiction over, an agree3 ment, contract, or transaction described in

4 paragraph (1) that is—

5 ‘‘(i) a contract of sale of a commodity

6 for future delivery (or an option on such a

7 contract), or an option on a commodity

8 (other than foreign currency or a security

9 or a group or index of securities), that is

10 executed or traded on an organized ex11 change; or

12 ‘‘(ii) an option on foreign currency ex13 ecuted or traded on an organized exchange

14 that is not a national securities exchange

15 registered pursuant to section 6(a) of the

16 Securities Exchange Act of 1934.

17 ‘‘(B) AGREEMENTS, CONTRACTS, AND

18 TRANSACTIONS IN RETAIL FOREIGN CUR19 RENCY.—This Act applies to, and the Commis20 sion shall have jurisdiction over, an agreement,

21 contract, or transaction in foreign currency

22 that—

23 ‘‘(i) is a contract of sale of a com24 modity for future delivery (or an option on

25 such a contract) or an option (other than
33

•S 3283 IS

1 an option executed or traded on a national

2 securities exchange registered pursuant to

3 section 6(a) of the Securities Exchange Act

4 of 1934); and

5 ‘‘(ii) is offered to, or entered into

6 with, a person that is not an eligible con7 tract participant, unless the counterparty,

8 or the person offering to be the

9 counterparty, of the person is—

10 ‘‘(I) a financial institution;

11 ‘‘(II) a broker or dealer reg12 istered under section 15(b) or 15C of

13 the Securities Exchange Act of 1934

14 (15 U.S.C. 78o(b), 78o–5) or a fu15 tures commission merchant registered

16 under this Act;

17 ‘‘(III) an associated person of a

18 broker or dealer registered under sec19 tion 15(b) or 15C of the Securities

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

21 78o(b), 78o–5), or an affiliated person

22 of a futures commission merchant

23 registered under this Act, concerning

24 the financial or securities activities of

25 which the registered person makes
34

•S 3283 IS

1 and keeps records under section

2 15C(b) or 17(h) of the Securities Ex3 change Act of 1934 (15 U.S.C. 78o–

4 5(b), 78q(h)) or section 4f(c)(2)(B) of

5 this Act;

6 ‘‘(IV) an insurance company de7 scribed in section 1a(12)(A)(ii) of this

8 Act, or a regulated subsidiary or affil9 iate of such an insurance company;

10 ‘‘(V) a financial holding company

11 (as defined in section 2 of the Bank

12 Holding Company Act of 1956); or

13 ‘‘(VI) an investment bank hold14 ing company (as defined in section

15 17(i) of the Securities Exchange Act

16 of 1934).

17 ‘‘(C) Notwithstanding subclauses (II) and

18 (III) of subparagraph (B)(ii), agreements, con19 tracts, or transactions described in subpara20 graph (B) shall be subject to sections 4b, 4c(b),

21 6(c) and 6(d) (to the extent that sections 6(c)

22 and 6(d) prohibit manipulation of the market

23 price of any commodity, in interstate commerce,

24 or for future delivery on or subject to the rules

25 of any market), 6c, 6d, and 8(a) if they are en-
35

•S 3283 IS

1 tered into by a futures commission merchant or

2 an affiliate of a futures commission merchant

3 that is not also an entity described in subpara4 graph (B)(ii) of this paragraph.’’.

5 SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE

6 TRANSACTIONS.

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

8 2, 2a, 3, 4, 4a) is further amended by adding at the end

9 the following:

10 ‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.—

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

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

13 an agreement, contract, or transaction in an ex14 cluded commodity if—

15 ‘‘(A) the agreement, contract, or trans16 action is entered into only between persons that

17 are eligible contract participants at the time at

18 which the persons enter into the agreement,

19 contract, or transaction; and

20 ‘‘(B) the agreement, contract, or trans21 action is not executed or traded on a trading fa22 cility.

23 ‘‘(2) ELECTRONIC TRADING FACILITY EXCLU24 SION.—Nothing in this Act (other than section 5a

25 (to the extent provided in section 5a(g)), 5b, 5d, or
36

•S 3283 IS

1 12(e)(2)(B)) governs or applies to an agreement,

2 contract, or transaction in an excluded commodity

3 if—

4 ‘‘(A) the agreement, contract, or trans5 action is entered into on a principal-to-principal

6 basis between parties trading for their own ac7 counts or as described in section 1a(12)(B)(ii);

8 ‘‘(B) the agreement, contract, or trans9 action is entered into only between persons that

10 are eligible contract participants described in

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

12 1a(12)) at the time at which the persons enter

13 into the agreement, contract, or transaction;

14 and

15 ‘‘(C) the agreement, contract, or trans16 action is executed or traded on an electronic

17 trading facility.’’.

18 SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.

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

20 2, 2a, 3, 4, 4a) is further amended by adding at the end

21 the following:

22 ‘‘(e) EXCLUDED ELECTRONIC TRADING FACILI23 TIES.—

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

25 than section 12(e)(2)(B)) governs or is applicable to
37

•S 3283 IS

1 an electronic trading facility that limits transactions

2 authorized to be conducted on its facilities to those

3 satisfying the requirements of section 2(d)(2), 2(g),

4 or 2(h)(3).

5 ‘‘(2) EFFECT ON AUTHORITY TO ESTABLISH

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

7 board of trade designated by the Commission as a

8 contract market or derivatives transaction execution

9 facility, or operating as an exempt board of trade

10 from establishing and operating an electronic trad11 ing facility excluded under this Act pursuant to

12 paragraph (1).

13 ‘‘(3) EFFECT ON TRANSACTIONS.—No failure

14 by an electronic trading facility to limit transactions

15 as required by paragraph (1) of this subsection or

16 to comply with section 2(h)(5) shall in itself affect

17 the legality, validity, or enforceability of an agree18 ment, contract, or transaction entered into or traded

19 on the electronic trading facility or cause a partici20 pant on the system to be in violation of this Act.

21 ‘‘(4) SPECIAL RULE.—A person or group of

22 persons that would not otherwise constitute a trad23 ing facility shall not be considered to be a trading

24 facility solely as a result of the submission to a de25 rivatives clearing organization of transactions exe-
38

•S 3283 IS

1 cuted on or through the person or group of per2 sons.’’.

3 SEC. 105. HYBRID INSTRUMENTS; SWAP TRANSACTIONS.

4 (a) HYBRID INSTRUMENTS.—Section 2 of the Com5 modity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) is further

6 amended by adding at the end the following:

7 ‘‘(f) EXCLUSION FOR QUALIFYING HYBRID INSTRU8 MENTS.—

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

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

11 a hybrid instrument that is predominantly a secu12 rity.

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

14 shall be considered to be predominantly a security

15 if—

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

17 receives payment in full of the purchase price of

18 the hybrid instrument, substantially contem19 poraneously with delivery of the hybrid instru20 ment;

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

22 instrument is not required to make any pay23 ment to the issuer in addition to the purchase

24 price paid under subparagraph (A), whether as

25 margin, settlement payment, or otherwise, dur-
39

•S 3283 IS

1 ing the life of the hybrid instrument or at ma2 turity;

3 ‘‘(C) the issuer of the hybrid instrument is

4 not subject by the terms of the instrument to

5 mark-to-market margining requirements; and

6 ‘‘(D) the hybrid instrument is not mar7 keted as a contract of sale of a commodity for

8 future delivery (or option on such a contract)

9 subject to this Act.

10 ‘‘(3) MARK-TO-MARKET MARGINING REQUIRE11 MENTS.—For the purposes of paragraph (2)(C),

12 mark-to-market margining requirements do not in13 clude the obligation of an issuer of a secured debt

14 instrument to increase the amount of collateral held

15 in pledge for the benefit of the purchaser of the se16 cured debt instrument to secure the repayment obli17 gations of the issuer under the secured debt instru18 ment.’’.

19 (b) SWAP TRANSACTIONS.—Section 2 of the Com20 modity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) is further

21 amended by adding at the end the following:

22 ‘‘(g) EXCLUDED SWAP TRANSACTIONS.—No provi23 sion of this Act (other than section 5a (to the extent pro24 vided in section 5a(g)), 5b, 5d, or 12(e)(2)) shall apply

25 to or govern any agreement, contract, or transaction in
40

•S 3283 IS

1 a commodity other than an agricultural commodity if the

2 agreement, contract, or transaction is—

3 ‘‘(1) entered into only between persons that are

4 eligible contract participants at the time they enter

5 into the agreement, contract, or transaction;

6 ‘‘(2) subject to individual negotiation by the

7 parties; and

8 ‘‘(3) not executed or traded on a trading facil9 ity.’’.

10 (c) STUDY REGARDING RETAIL SWAPS.—

11 (1) IN GENERAL.—The Board of Governors of

12 the Federal Reserve System, the Secretary of the

13 Treasury, the Commodity Futures Trading Commis14 sion, and the Securities and Exchange Commission

15 shall conduct a study of issues involving the offering

16 of swap agreements to persons other than eligible

17 contract participants (as defined in section 1a of the

18 Commodity Exchange Act).

19 (2) MATTERS TO BE ADDRESSED.—The study

20 shall address—

21 (A) the potential uses of swap agreements

22 by persons other than eligible contract partici23 pants;

24 (B) the extent to which financial institu25 tions are willing to offer swap agreements to
41

•S 3283 IS

1 persons other than eligible contract partici2 pants;

3 (C) the appropriate regulatory structure to

4 address customer protection issues that may

5 arise in connection with the offer of swap agree6 ments to persons other than eligible contract

7 participants; and

8 (D) such other relevant matters deemed

9 necessary or appropriate to address.

10 (3) REPORT.—Before the end of the 1-year pe11 riod beginning on the date of enactment of this Act,

12 a report on the findings and conclusions of the study

13 required by paragraph (1) shall be submitted to

14 Congress, together with such recommendations for

15 legislative action as are deemed necessary and ap16 propriate.

17 SEC. 106. TRANSACTIONS IN EXEMPT COMMODITIES.

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

19 2, 2a, 3, 4, 4a) is further amended by adding at the end

20 the following.

21 ‘‘(h) LEGAL CERTAINTY FOR CERTAIN TRANS22 ACTIONS IN EXEMPT COMMODITIES.—

23 ‘‘(1) Except as provided in paragraph (2), noth24 ing in this Act shall apply to a contract, agreement

25 or transaction in an exempt commodity which—
42

•S 3283 IS

1 ‘‘(A) is entered into solely between persons

2 that are eligible contract participants at the

3 time the persons enter into the agreement, con4 tract, or transaction; and

5 ‘‘(B) is not entered into on a trading facil6 ity.

7 ‘‘(2) An agreement, contract, or transaction de8 scribed in paragraph (1) of this subsection shall be

9 subject to—

10 ‘‘(A) sections 5b and 12(e)(2)(B);

11 ‘‘(B) sections 4b, 4o, 6(c), 6(d), 6c, 6d,

12 and 8a, and the regulations of the Commission

13 pursuant to section 4c(b) proscribing fraud in

14 connection with commodity option transactions,

15 to the extent the agreement, contract, or trans16 action is not between eligible commercial enti17 ties (unless 1 of the entities is an instrumen18 tality, department, or agency of a State or local

19 governmental entity) and would otherwise be

20 subject to such sections and regulations; and

21 ‘‘(C) sections 6(c), 6(d), 6c, 6d, 8a, and

22 9(a)(2), to the extent such sections prohibit ma23 nipulation of the market price of any com24 modity in interstate commerce and the agree-
43

•S 3283 IS

1 ment, contract, or transaction would otherwise

2 be subject to such sections.

3 ‘‘(3) Except as provided in paragraph (4), noth4 ing in this Act shall apply to an agreement, contract,

5 or transaction in an exempt commodity which is—

6 ‘‘(A) entered into on a principal-to-prin7 cipal basis solely between persons that are eligi8 ble commercial entities at the time the persons

9 enter into the agreement, contract, or trans10 action; and

11 ‘‘(B) executed or traded on an electronic

12 trading facility.

13 ‘‘(4) An agreement, contract, or transaction de14 scribed in paragraph (3) of this subsection shall be

15 subject to—

16 ‘‘(A) sections 5a (to the extent provided in

17 section 5a(g)), 5b, 5d, and 12(e)(2)(B);

18 ‘‘(B) sections 4b and 4o and the regula19 tions of the Commission pursuant to section

20 4c(b) proscribing fraud in connection with com21 modity option transactions to the extent the

22 agreement, contract, or transaction would oth23 erwise be subject to such sections and regula24 tions;
44

•S 3283 IS

1 ‘‘(C) sections 6(c) and 9(a)(2), to the ex2 tent such sections prohibit manipulation of the

3 market price of any commodity in interstate

4 commerce and to the extent the agreement, con5 tract, or transaction would otherwise be subject

6 to such sections; and

7 ‘‘(D) such rules and regulations as the

8 Commission may prescribe if necessary to en9 sure timely dissemination by the electronic trad10 ing facility of price, trading volume, and other

11 trading data to the extent appropriate, if the

12 Commission determines that the electronic trad13 ing facility performs a significant price dis14 covery function for transactions in the cash

15 market for the commodity underlying any

16 agreement, contract, or transaction executed or

17 traded on the electronic trading facility.

18 ‘‘(5) An electronic trading facility relying on the

19 exemption provided in paragraph (3) shall—

20 ‘‘(A) notify the Commission of its intention

21 to operate an electronic trading facility in reli22 ance on the exemption set forth in paragraph

23 (3), which notice shall include—
45

•S 3283 IS

1 ‘‘(i) the name and address of the facil2 ity and a person designated to receive com3 munications from the Commission;

4 ‘‘(ii) the commodity categories that

5 the facility intends to list or otherwise

6 make available for trading on the facility

7 in reliance on the exemption set forth in

8 paragraph (3);

9 ‘‘(iii) certifications that—

10 ‘‘(I) no executive officer or mem11 ber of the governing board of, or any

12 holder of a 10 percent or greater eq13 uity interest in, the facility is a person

14 described in any of subparagraphs (A)

15 through (H) of section 8a(2);

16 ‘‘(II) the facility will comply with

17 the conditions for exemption under

18 this paragraph; and

19 ‘‘(III) the facility will notify the

20 Commission of any material change in

21 the information previously provided by

22 the facility to the Commission pursu23 ant to this paragraph; and

24 ‘‘(iv) the identity of any derivatives

25 clearing organization to which the facility
46

•S 3283 IS

1 transmits or intends to transmit trans2 action data for the purpose of facilitating

3 the clearance and settlement of trans4 actions conducted on the facility in reliance

5 on the exemption set forth in paragraph

6 (3);

7 ‘‘(B)(i)(I) provide the Commission with ac8 cess to the facility’s trading protocols and elec9 tronic access to the facility with respect to

10 transactions conducted in reliance on the ex11 emption set forth in paragraph (3); or

12 ‘‘(II) provide such reports to the Commis13 sion regarding transactions executed on the fa14 cility in reliance on the exemption set forth in

15 paragraph (3) as the Commission may from

16 time to time request to enable the Commission

17 to satisfy its obligations under this Act;

18 ‘‘(ii) maintain for 5 years, and make avail19 able for inspection by the Commission upon re20 quest, records of activities related to its busi21 ness as an electronic trading facility exempt

22 under paragraph (3), including—

23 ‘‘(I) information relating to data entry

24 and transaction details sufficient to enable

25 the Commission to reconstruct trading ac-
47

•S 3283 IS

1 tivity on the facility conducted in reliance

2 on the exemption set forth in paragraph

3 (3); and

4 ‘‘(II) the name and address of each

5 participant on the facility authorized to

6 enter into transactions in reliance on the

7 exemption set forth in paragraph (3); and

8 ‘‘(iii) upon special call by the Commission,

9 provide to the Commission, in a form and man10 ner and within the period specified in the spe11 cial call, such information related to its busi12 ness as an electronic trading facility exempt

13 under paragraph (3), including information re14 lating to data entry and transaction details in

15 respect of transactions entered into in reliance

16 on the exemption set forth in paragraph (3), as

17 the Commission may determine appropriate—

18 ‘‘(I) to enforce the provisions specified

19 in subparagraphs (B) and (C) of para20 graph (4);

21 ‘‘(II) to evaluate a systemic market

22 event; or

23 ‘‘(III) to obtain information requested

24 by a Federal financial regulatory authority

25 in order to enable the regulator to fulfill
48

•S 3283 IS

1 its regulatory or supervisory responsibil2 ities;

3 ‘‘(C)(i) upon receipt of any subpoena

4 issued by or on behalf of the Commission to any

5 foreign person who the Commission believes is

6 conducting or has conducted transactions in re7 liance on the exemption set forth in paragraph

8 (3) on or through the electronic trading facility

9 relating to the transactions, promptly notify the

10 foreign person of, and transmit to the foreign

11 person, the subpoena in a manner reasonable

12 under the circumstances, or as specified by the

13 Commission; and

14 ‘‘(ii) if the Commission has reason to be15 lieve that a person has not timely complied with

16 a subpoena issued by or on behalf of the Com17 mission pursuant to clause (i), and the Commis18 sion in writing has directed that a facility rely19 ing on the exemption set forth in paragraph (3)

20 deny or limit further transactions by the per21 son, the facility shall deny that person further

22 trading access to the facility or, as applicable,

23 limit that person’s access to the facility for liq24 uidation trading only;
49

•S 3283 IS

1 ‘‘(D) comply with the requirements of this

2 paragraph applicable to the facility and require

3 that each participant, as a condition of trading

4 on the facility in reliance on the exemption set

5 forth in paragraph (3), agree to comply with all

6 applicable law;

7 ‘‘(E) have a reasonable basis for believing

8 that participants authorized to conduct trans9 actions on the facility in reliance on the exemp10 tion set forth in paragraph (3) are eligible com11 mercial entities; and

12 ‘‘(F) not represent to any person that the

13 facility is registered with, or designated, recog14 nized, licensed or approved by the Commission.

15 ‘‘(6) A person named in a subpoena referred to

16 in paragraph (5)(C) that believes the person is or

17 may be adversely affected or aggrieved by action

18 taken by the Commission under this section, shall

19 have the opportunity for a prompt hearing after the

20 Commission acts under procedures that the Commis21 sion shall establish by rule, regulation, or order.’’.

22 SEC. 107. APPLICATION OF COMMODITY FUTURES LAWS.

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

24 2, 2a, 3, 4, 4a) is further amended by adding at the end

25 the following:
50

•S 3283 IS

1 ‘‘(i) APPLICATION OF COMMODITY FUTURES

2 LAWS.—

3 ‘‘(1) No provision of this Act shall be construed

4 as implying or creating any presumption that—

5 ‘‘(A) any agreement, contract, or trans6 action that is excluded from this Act under sec7 tion 2(c), 2(d), 2(e), 2(f), or 2(g) of this Act or

8 title IV of the Commodity Futures Moderniza9 tion Act of 2000, or exempted under section

10 2(h) or 4(c) of this Act; or

11 ‘‘(B) any agreement, contract, or trans12 action, not otherwise subject to this Act, that is

13 not so excluded or exempted,

14 is or would otherwise be subject to this Act.

15 ‘‘(2) No provision of, or amendment made by,

16 the Commodity Futures Modernization Act of 2000

17 shall be construed as conferring jurisdiction on the

18 Commission with respect to any such agreement,

19 contract, or transaction, except as expressly provided

20 in section 5a of this Act (to the extent provided in

21 section 5a(g) of this Act), 5b of this Act, or 5d of

22 this Act.’’.

23 SEC. 108. PROTECTION OF THE PUBLIC INTEREST.

24 The Commodity Exchange Act is amended by striking

25 section 3 (7 U.S.C. 5) and inserting the following:
51

•S 3283 IS

1 ‘‘SEC. 3. FINDINGS AND PURPOSE.

2 ‘‘(a) FINDINGS.—The transactions subject to this Act

3 are entered into regularly in interstate and international

4 commerce and are affected with a national public interest

5 by providing a means for managing and assuming price

6 risks, discovering prices, or disseminating pricing informa7 tion through trading in liquid, fair and financially secure

8 trading facilities.

9 ‘‘(b) PURPOSE.—It is the purpose of this Act to serve

10 the public interests described in subsection (a) through a

11 system of effective self-regulation of trading facilities,

12 clearing systems, market participants and market profes13 sionals under the oversight of the Commission. To foster

14 these public interests, it is further the purpose of this Act

15 to deter and prevent price manipulation or any other dis16 ruptions to market integrity; to ensure the financial integ17 rity of all transactions subject to this Act and the avoid18 ance of systemic risk; to protect all market participants

19 from fraudulent or other abusive sales practices and mis20 uses of customer assets; and to promote responsible inno21 vation and fair competition among boards of trade, other

22 markets and market participants.’’.

23 SEC. 109. PROHIBITED TRANSACTIONS.

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

25 6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows

26 through subsection (a) and inserting the following:
52

•S 3283 IS

1 ‘‘SEC. 4c. PROHIBITED TRANSACTIONS.

2 ‘‘(a) IN GENERAL.—

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

4 any person to offer to enter into, enter into, or con5 firm the execution of a transaction described in

6 paragraph (2) involving the purchase or sale of any

7 commodity for future delivery (or any option on such

8 a transaction or option on a commodity) if the

9 transaction is used or may be used to—

10 ‘‘(A) hedge any transaction in interstate

11 commerce in the commodity or the product or

12 byproduct of the commodity;

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

14 transaction in interstate commerce in the com15 modity; or

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

17 shipped, or received in interstate commerce for

18 the execution of the transaction.

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

20 in paragraph (1) is a transaction that—

21 ‘‘(A)(i) is, is of the character of, or is com22 monly known to the trade as, a ‘wash sale’ or

23 ‘accommodation trade’; or

24 ‘‘(ii) is a fictitious sale; or
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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 SEC. 110. DESIGNATION OF BOARDS OF TRADE AS CON5 TRACT MARKETS.

6 The Commodity Exchange Act is amended—

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

8 as section 5e; and

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

10 7a) and inserting the following:

11 ‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON12 TRACT MARKETS.

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

14 the Commission for designation as a contract market shall

15 submit an application to the Commission that includes any

16 relevant materials and records the Commission may re17 quire consistent with this Act.

18 ‘‘(b) CRITERIA FOR DESIGNATION.—

19 ‘‘(1) IN GENERAL.—To be designated as a con20 tract market, the board of trade shall demonstrate

21 to the Commission that the board of trade meets the

22 criteria specified in this subsection.

23 ‘‘(2) PREVENTION OF MARKET MANIPULA24 TION.—The board of trade shall have the capacity to

25 prevent market manipulation through market sur-
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•S 3283 IS

1 veillance, compliance, and enforcement practices and

2 procedures, including methods for conducting real3 time monitoring of trading and comprehensive and

4 accurate trade reconstructions.

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

6 board of trade shall establish and enforce trading

7 rules to ensure fair and equitable trading through

8 the facilities of the contract market, and the capac9 ity to detect, investigate, and discipline any person

10 that violates the rules. The rules may authorize—

11 ‘‘(A) transfer trades or office trades;

12 ‘‘(B) an exchange of—

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

14 commodity transaction;

15 ‘‘(ii) futures for cash commodities; or

16 ‘‘(iii) futures for swaps; or

17 ‘‘(C) a futures commission merchant, act18 ing as principal or agent, to enter into or con19 firm the execution of a contract for the pur20 chase or sale of a commodity for future delivery

21 if the contract is reported, recorded, or cleared

22 in accordance with the rules of the contract

23 market or a derivatives clearing organization.

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

25 of trade shall—
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•S 3283 IS

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

2 or specifications detailing, the manner of oper3 ation of the trade execution facility maintained

4 by the board of trade, including rules or speci5 fications describing the operation of any elec6 tronic matching platform; and

7 ‘‘(B) demonstrate that the trade execution

8 facility operates in accordance with the rules or

9 specifications.

10 ‘‘(5) FINANCIAL INTEGRITY OF TRANS11 ACTIONS.—The board of trade shall establish and

12 enforce rules and procedures for ensuring the finan13 cial integrity of transactions entered into by or

14 through the facilities of the contract market, includ15 ing the clearance and settlement of the transactions

16 with a derivatives clearing organization.

17 ‘‘(6) DISCIPLINARY PROCEDURES.—The board

18 of trade shall establish and enforce disciplinary pro19 cedures that authorize the board of trade to dis20 cipline, suspend, or expel members or market par21 ticipants that violate the rules of the board of trade,

22 or similar methods for performing the same func23 tions, including delegation of the functions to third

24 parties.
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1 ‘‘(7) PUBLIC ACCESS.—The board of trade shall

2 provide the public with access to the rules, regula3 tions, and contract specifications of the board of

4 trade.

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

6 board of trade shall establish and enforce rules that

7 will allow the board of trade to obtain any necessary

8 information to perform any of the functions de9 scribed in this subsection, including the capacity to

10 carry out such international information-sharing

11 agreements as the Commission may require.

12 ‘‘(c) EXISTING CONTRACT MARKETS.—A board of

13 trade that is designated as a contract market on the date

14 of the enactment of the Commodity Futures Moderniza15 tion Act of 2000 shall be considered to be a designated

16 contract market under this section.

17 ‘‘(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—

18 ‘‘(1) IN GENERAL.—To maintain the designa19 tion of a board of trade as a contract market, the

20 board of trade shall comply with the core principles

21 specified in this subsection. The board of trade shall

22 have reasonable discretion in establishing the man23 ner in which it complies with the core principles.

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

25 trade shall monitor and enforce compliance with the
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•S 3283 IS

1 rules of the contract market, including the terms

2 and conditions of any contracts to be traded and any

3 limitations on access to the contract market.

4 ‘‘(3) CONTRACTS NOT READILY SUBJECT TO

5 MANIPULATION.—The board of trade shall list on

6 the contract market only contracts that are not

7 readily susceptible to manipulation.

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

9 trade shall monitor trading to prevent manipulation,

10 price distortion, and disruptions of the delivery or

11 cash-settlement process.

12 ‘‘(5) POSITION LIMITATIONS OR ACCOUNT13 ABILITY.—To reduce the potential threat of market

14 manipulation or congestion, especially during trading

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

16 position limitations or position accountability for

17 speculators, where necessary and appropriate.

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

19 trade shall adopt rules to provide for the exercise of

20 emergency authority, in consultation or cooperation

21 with the Commission, where necessary and appro22 priate, including the authority to—

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

24 any contract;
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•S 3283 IS

1 ‘‘(B) suspend or curtail trading in any con2 tract; and

3 ‘‘(C) require market participants in any

4 contract to meet special margin requirements.

5 ‘‘(7) AVAILABILITY OF GENERAL INFORMA6 TION.—The board of trade shall make available to

7 market authorities, market participants, and the

8 public information concerning—

9 ‘‘(A) the terms and conditions of the con10 tracts of the contract market; and

11 ‘‘(B) the mechanisms for executing trans12 actions on or through the facilities of the con13 tract market.

14 ‘‘(8) DAILY PUBLICATION OF TRADING INFOR15 MATION.—The board of trade shall make public

16 daily information on settlement prices, volume, open

17 interest, and opening and closing ranges for actively

18 traded contracts on the contract market.

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

20 board of trade shall provide a competitive, open, and

21 efficient market and mechanism for executing trans22 actions.

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

24 trade shall maintain rules and procedures to provide

25 for the recording and safe storage of all identifying
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•S 3283 IS

1 trade information in a manner that enables the con2 tract market to use the information for purposes of

3 assisting in the prevention of customer and market

4 abuses and providing evidence of any violations of

5 the rules of the contract market.

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

7 The board of trade shall establish and enforce rules

8 providing for the financial integrity of any contracts

9 traded on the contract market (including the clear10 ance and settlement of the transactions with a de11 rivatives clearing organization), and rules to ensure

12 the financial integrity of any futures commission

13 merchants and introducing brokers and the protec14 tion of customer funds.

15 ‘‘(12) PROTECTION OF MARKET PARTICI16 PANTS.—The board of trade shall establish and en17 force rules to protect market participants from abu18 sive practices committed by any party acting as an

19 agent for the participants.

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

21 trade shall establish and enforce rules regarding and

22 provide facilities for alternative dispute resolution as

23 appropriate for market participants and any market

24 intermediaries.
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1 ‘‘(14) GOVERNANCE FITNESS STANDARDS.—

2 The board of trade shall establish and enforce ap3 propriate fitness standards for directors, members of

4 any disciplinary committee, members of the contract

5 market, and any other persons with direct access to

6 the facility (including any parties affiliated with any

7 of the persons described in this paragraph).

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

9 trade shall establish and enforce rules to minimize

10 conflicts of interest in the decisionmaking process of

11 the contract market and establish a process for re12 solving such conflicts of interest.

13 ‘‘(16) COMPOSITION OF BOARDS OF MUTUALLY

14 OWNED CONTRACT MARKETS.—In the case of a mu15 tually owned contract market, the board of trade

16 shall ensure that the composition of the governing

17 board reflects market participants.

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

19 shall maintain records of all activities related to the

20 business of the contract market in a form and man21 ner acceptable to the Commission for a period of 5

22 years.

23 ‘‘(18) ANTITRUST CONSIDERATIONS.—Unless

24 necessary or appropriate to achieve the purposes of
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1 this Act, the board of trade shall endeavor to

2 avoid—

3 ‘‘(A) adopting any rules or taking any ac4 tions that result in any unreasonable restraints

5 of trade; or

6 ‘‘(B) imposing any material anticompeti7 tive burden on trading on the contract market.

8 ‘‘(e) CURRENT AGRICULTURAL COMMODITIES.—

9 ‘‘(1) Subject to paragraph (2) of this sub10 section, a contract for purchase or sale for future

11 delivery of an agricultural commodity enumerated in

12 section 1a(4) that is available for trade on a con13 tract market, as of the date of the enactment of this

14 subsection, may be traded only on a contract market

15 designated under this section.

16 ‘‘(2) In order to promote responsible economic

17 or financial innovation and fair competition, the

18 Commission, on application by any person, after no19 tice and public comment and opportunity for hear20 ing, may prescribe rules and regulations to provide

21 for the offer and sale of contracts for future delivery

22 or options on such contracts to be conducted on a

23 derivatives transaction execution facility.’’.
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•S 3283 IS

1 SEC. 111. DERIVATIVES TRANSACTION EXECUTION FACILI2 TIES.

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

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

5 section 110(2)) the following:

6 ‘‘SEC. 5a. DERIVATIVES TRANSACTION EXECUTION FACILI7 TIES.

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

9 contract market designation requirements of sections 4(a)

10 and 5, a board of trade may elect to operate as a reg11 istered derivatives transaction execution facility if the fa12 cility is—

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

14 the requirements of this section; or

15 ‘‘(2) registered as a derivatives transaction exe16 cution facility under subsection (c) of this section.

17 ‘‘(b) REQUIREMENTS FOR TRADING.—

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

19 transaction execution facility under subsection (a)

20 may trade any contract of sale of a commodity for

21 future delivery (or option on such a contract) on or

22 through the facility only by satisfying the require23 ments of this section.

24 ‘‘(2) REQUIREMENTS FOR UNDERLYING COM25 MODITIES.—A registered derivatives transaction exe26 cution facility may trade any contract of sale of a
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1 commodity for future delivery (or option on such a

2 contract) only if—

3 ‘‘(A) the underlying commodity has a near4 ly inexhaustible deliverable supply;

5 ‘‘(B) the underlying commodity has a de6 liverable supply that is sufficiently large that

7 the contract is highly unlikely to be susceptible

8 to the threat of manipulation;

9 ‘‘(C) the underlying commodity has no

10 cash market;

11 ‘‘(D)(i) the contract is a security futures

12 product, and (ii) the registered derivatives

13 transaction execution facility is a national secu14 rities exchange registered under the Securities

15 Exchange Act of 1934;

16 ‘‘(E) the Commission determines, based on

17 the market characteristics, surveillance history,

18 self-regulatory record, and capacity of the facil19 ity that trading in the contract (or option) is

20 highly unlikely to be susceptible to the threat of

21 manipulation; or

22 ‘‘(F) except as provided in section 5(e)(2),

23 the underlying commodity is a commodity other

24 than an agricultural commodity enumerated in

25 section 1a(4), and trading access to the facility
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•S 3283 IS

1 is limited to eligible commercial entities trading

2 for their own account.

3 ‘‘(3) ELIGIBLE TRADERS.—To trade on a reg4 istered derivatives transaction execution facility, a

5 person shall—

6 ‘‘(A) be an eligible contract participant; or

7 ‘‘(B) be a person trading through a futures

8 commission merchant that—

9 ‘‘(i) is registered with the Commis10 sion;

11 ‘‘(ii) is a member of a futures self-reg12 ulatory organization or, if the person

13 trades only security futures products on

14 the facility, a national securities associa15 tion registered under section 15A(a) of the

16 Securities Exchange Act of 1934;

17 ‘‘(iii) is a clearing member of a de18 rivatives clearing organization; and

19 ‘‘(iv) has net capital of at least

20 $20,000,000.

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

22 board of trade that is designated as a contract mar23 ket shall, to the extent that the contract market also

24 operates a registered derivatives transaction execu25 tion facility—
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1 ‘‘(A) provide a physical location for the

2 contract market trading of the board of trade

3 that is separate from trading on the derivatives

4 transaction execution facility of the board of

5 trade; or

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

7 electronic trading system for trading on the

8 contract market and derivatives transaction

9 execution facility of the board of trade, identify

10 whether the electronic trading is taking place

11 on the contract market or the derivatives trans12 action execution facility.

13 ‘‘(c) CRITERIA FOR REGISTRATION.—

14 ‘‘(1) IN GENERAL.—To be registered as a reg15 istered derivatives transaction execution facility, the

16 board of trade shall be required to demonstrate to

17 the Commission only that the board of trade meets

18 the criteria specified in subsection (b) and this sub19 section.

20 ‘‘(2) DETERRENCE OF ABUSES.—The board of

21 trade shall establish and enforce trading and partici22 pation rules that will deter abuses and has the ca23 pacity to detect, investigate, and enforce those rules,

24 including means to—
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1 ‘‘(A) obtain information necessary to per2 form the functions required under this section;

3 or

4 ‘‘(B) use technological means to—

5 ‘‘(i) provide market participants with

6 impartial access to the market; and

7 ‘‘(ii) capture information that may be

8 used in establishing whether rule violations

9 have occurred.

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

11 trade shall establish and enforce rules or terms and

12 conditions defining, or specifications detailing, trad13 ing procedures to be used in entering and executing

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

15 The rules may authorize—

16 ‘‘(A) transfer trades or office trades;

17 ‘‘(B) an exchange of—

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

19 commodity transaction;

20 ‘‘(ii) futures for cash commodities; or

21 ‘‘(iii) futures for swaps; or

22 ‘‘(C) a futures commission merchant, act23 ing as principal or agent, to enter into or con24 firm the execution of a contract for the pur25 chase or sale of a commodity for future delivery
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1 if the contract is reported, recorded, or cleared

2 in accordance with the rules of the registered

3 derivatives transaction execution facility or a

4 derivatives clearing organization.

5 ‘‘(4) FINANCIAL INTEGRITY OF TRANS6 ACTIONS.—The board of trade shall establish and

7 enforce rules or terms and conditions providing for

8 the financial integrity of transactions entered on or

9 through the facilities of the board of trade, and rules

10 or terms and conditions to ensure the financial in11 tegrity of any futures commission merchants and in12 troducing brokers and the protection of customer

13 funds.

14 ‘‘(d) CORE PRINCIPLES FOR REGISTERED DERIVA15 TIVES TRANSACTION EXECUTION FACILITIES.—

16 ‘‘(1) IN GENERAL.—To maintain the registra17 tion of a board of trade as a derivatives transaction

18 execution facility, a board of trade shall comply with

19 the core principles specified in this subsection. The

20 board of trade shall have reasonable discretion in es21 tablishing the manner in which the board of trade

22 complies with the core principles.

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

24 trade shall monitor and enforce the rules of the fa25 cility, including any terms and conditions of any
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1 contracts traded on or through the facility and any

2 limitations on access to the facility.

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

4 trade shall monitor trading in the contracts of the

5 facility 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 responsibil9 ities of the Commission under the Act.

10 ‘‘(4) DISCLOSURE OF GENERAL INFORMA11 TION.—The board of trade shall disclose publicly

12 and to the 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 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 con23 tracts traded on the facility if the Commission deter24 mines that the contracts perform a significant price
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1 discovery function for transactions in the cash mar2 ket for the commodity underlying the contracts.

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

4 shall establish and enforce appropriate fitness stand5 ards for directors, members of any disciplinary com6 mittee, members, and any other persons with direct

7 access to the facility, including any parties affiliated

8 with any of the persons described in this paragraph.

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

10 trade shall establish and enforce rules to minimize

11 conflicts of interest in the decision making process

12 of the derivatives transaction execution facility and

13 establish a process for resolving such conflicts of in14 terest.

15 ‘‘(8) RECORDKEEPING.—The board of trade

16 shall maintain records of all activities related to the

17 business of the derivatives transaction execution fa18 cility in a form and manner acceptable to the Com19 mission for a period of 5 years.

20 ‘‘(9) ANTITRUST CONSIDERATIONS.—Unless

21 necessary or appropriate to achieve the purposes of

22 this Act, the board of trade shall endeavor to

23 avoid—
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1 ‘‘(A) adopting any rules or taking any ac2 tions that result in any unreasonable restraint

3 of trade; or

4 ‘‘(B) imposing any material anticompeti5 tive burden on trading on the derivatives trans6 action execution facility.

7 ‘‘(e) USE OF BROKER-DEALERS, DEPOSITORY INSTI8 TUTIONS, AND FARM CREDIT SYSTEM INSTITUTIONS AS

9 INTERMEDIARIES.—

10 ‘‘(1) IN GENERAL.—With respect to trans11 actions other than transactions in security futures

12 products, a registered derivatives transaction execu13 tion facility may by rule allow a broker-dealer, de14 pository institution, or institution of the Farm Cred15 it System that meets the requirements of paragraph

16 (2) to—

17 ‘‘(A) act as an intermediary in trans18 actions executed on the facility on behalf of cus19 tomers of the broker-dealer, depository institu20 tion, or institution of the Farm Credit System;

21 and

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

23 margin or security for the transactions.

24 ‘‘(2) REQUIREMENTS.—The requirements re25 ferred to in paragraph (1) are that—
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1 ‘‘(A) the broker-dealer be in good standing

2 with the Securities and Exchange Commission,

3 or the depository institution or institution of

4 the Farm Credit System be in good standing

5 with Federal bank regulatory agencies (includ6 ing the Farm Credit Administration), as appli7 cable; and

8 ‘‘(B) if the broker-dealer, depository insti9 tution, or institution of the Farm Credit Sys10 tem carries or holds customer accounts or funds

11 for transactions on the derivatives transaction

12 execution facility for more than 1 business day,

13 the broker-dealer, depository institution, or in14 stitution of the Farm Credit System is reg15 istered as a futures commission merchant and

16 is a member of a registered futures association.

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

18 cooperate and coordinate with the Securities and Ex19 change Commission, the Secretary of the Treasury,

20 and Federal banking regulatory agencies (including

21 the Farm Credit Administration) in adopting rules

22 and taking any other appropriate action to facilitate

23 the implementation of this subsection.

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

25 later than 180 days after the date of the enactment of
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•S 3283 IS

1 the Commodity Futures Modernization Act of 2000, con2 sistent with regulations adopted by the Commission, a reg3 istered derivatives transaction execution facility may au4 thorize a futures commission merchant to offer any cus5 tomer of the futures commission merchant that is an eligi6 ble contract participant the right to not segregate the cus7 tomer funds of the customer that are carried with the fu8 tures commission merchant for purposes of trading on or

9 through the facilities of the registered derivatives trans10 action execution facility.

11 ‘‘(g) ELECTION TO TRADE EXCLUDED AND EXEMPT

12 COMMODITIES.—

13 ‘‘(1) IN GENERAL.—Notwithstanding subsection

14 (b)(2) of this section, a board of trade that is or

15 elects to become a registered derivatives transaction

16 execution facility may trade on the facility any

17 agreements, contracts, or transactions involving ex18 cluded or exempt commodities other than securities,

19 except contracts of sale for future delivery of exempt

20 securities under section 3(a)(12) of the Securities

21 Exchange Act of 1934 as in effect on the date of en22 actment of the Futures Trading Act of 1982, that

23 are otherwise excluded from this Act under section

24 2(c), 2(d), or 2(g) of this Act, or exempt under sec25 tion 2(h) of this Act.
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1 ‘‘(2) EXCLUSIVE JURISDICTION OF THE COM2 MISSION.—The Commission shall have exclusive ju3 risdiction over agreements, contracts, or transactions

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

5 agreements, contracts, or transactions are traded on

6 a derivatives transaction execution facility.’’.

7 SEC. 112. DERIVATIVES CLEARING.

8 (a) IN GENERAL.—Subtitle A of title IV of the Fed9 eral Deposit Insurance Corporation Improvement Act of

10 1991 is amended—

11 (1) by inserting before the section heading for

12 section 401, the following new heading:

13 ‘‘CHAPTER 1—BILATERAL AND CLEARING

14 ORGANIZATION NETTING’’;

15 (2) in section 402, by striking ‘‘this subtitle’’

16 and inserting ‘‘this chapter’’; and

17 (3) by inserting after section 407, the following

18 new chapter:

19 ‘‘CHAPTER 2—MULTILATERAL CLEARING

20 ORGANIZATIONS

21 ‘‘SEC. 408. DEFINITIONS.

22 For purposes of this chapter, the following definitions

23 shall apply:

24 ‘‘(1) MULTILATERAL CLEARING ORGANIZA25 TION.—The term ‘multilateral clearing organization’
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1 means a system utilized by more than 2 participants

2 in which the bilateral credit exposures of partici3 pants arising from the transactions cleared are effec4 tively eliminated and replaced by a system of guar5 antees, insurance, or mutualized risk of loss.

6 ‘‘(2) OVER-THE-COUNTER DERIVATIVE INSTRU7 MENT.—The term ‘over-the-counter derivative in8 strument’ includes—

9 ‘‘(A) any agreement, contract, or trans10 action, including the terms and conditions in11 corporated by reference in any such agreement,

12 contract, or transaction, which is an interest

13 rate swap, option, or forward agreement, in14 cluding a rate floor, rate cap, rate collar, cross15 currency rate swap, basis swap, and forward

16 rate agreement; a same day-tomorrow, tomor17 row-next, forward, or other foreign exchange or

18 precious metals agreement; a currency swap,

19 option, or forward agreement; an equity index

20 or equity swap, option, or forward agreement; a

21 debt index or debt swap, option, or forward

22 agreement; a credit spread or credit swap, op23 tion, or forward agreement; a commodity index

24 or commodity swap, option, or forward agree-
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•S 3283 IS

1 ment; and a weather swap, weather derivative,

2 or weather option;

3 ‘‘(B) any agreement, contract or trans4 action similar to any other agreement, contract,

5 or transaction referred to in this clause that is

6 presently, or in the future becomes, regularly

7 entered into by parties that participate in swap

8 transactions (including terms and conditions in9 corporated by reference in the agreement) and

10 that is a forward, swap, or option on 1 or more

11 occurrences of any event, rates, currencies,

12 commodities, equity securities or other equity

13 instruments, debt securities or other debt in14 struments, economic or other indices or meas15 ures of economic or other risk or value;

16 ‘‘(C) any agreement, contract, or trans17 action excluded from the Commodity Exchange

18 Act under section 2(c), 2(d), 2(f), or 2(g) of

19 such Act, or exempted under section 2(h) or

20 4(c) of such Act; and

21 ‘‘(D) any option to enter into any, or any

22 combination of, agreements, contracts or trans23 actions referred to in this subparagraph.

24 ‘‘(3) OTHER DEFINITIONS.—The terms ‘insured

25 State nonmember bank’, ‘State member bank’, and
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•S 3283 IS

1 ‘affiliate’ have the same meanings as in section 3 of

2 the Federal Deposit Insurance Act.

3 ‘‘SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.

4 ‘‘(a) IN GENERAL.—Except with respect to clearing

5 organizations described in subsection (b), no person may

6 operate a multilateral clearing organization for over-the7 counter derivative instruments, or otherwise engage in ac8 tivities that constitute such a multilateral clearing organi9 zation unless the person is a national bank, a State mem10 ber bank, an insured State nonmember bank, an affiliate

11 of a national bank, a State member bank, or an insured

12 State nonmember bank, or a corporation chartered under

13 section 25A of the Federal Reserve Act.

14 ‘‘(b) CLEARING ORGANIZATIONS.—Subsection (a)

15 shall not apply to any clearing organization that—

16 ‘‘(1) is registered as a clearing agency under

17 the Securities Exchange Act of 1934;

18 ‘‘(2) is registered as a derivatives clearing orga19 nization under the Commodity Exchange Act; or

20 ‘‘(3) is supervised by a foreign financial regu21 lator that the Comptroller of the Currency, the

22 Board of Governors of the Federal Reserve System,

23 the Federal Deposit Insurance Corporation, the Se24 curities and Exchange Commission, or the Com-
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•S 3283 IS

1 modity Futures Trading Commission, as applicable,

2 has determined satisfies appropriate standards.’’.

3 (b) RESOLUTION OF CLEARING BANKS.—The Fed4 eral Reserve Act (12 U.S.C. 221 et seq.) is amended by

5 inserting after section 9A the following new section:

6 ‘‘SEC. 9B. RESOLUTION OF CLEARING BANKS.

7 ‘‘(a) CONSERVATORSHIP OR RECEIVERSHIP.—

8 ‘‘(1) APPOINTMENT.—The Board may appoint

9 a conservator or receiver to take possession and con10 trol of any uninsured State member bank which op11 erates, or operates as, a multilateral clearing organi12 zation pursuant to section 409 of the Federal De13 posit Insurance Corporation Improvement Act of

14 1991 to the same extent and in the same manner as

15 the Comptroller of the Currency may appoint a con16 servator or receiver for a national bank.

17 ‘‘(2) POWERS.—The conservator or receiver for

18 an uninsured State member bank referred to in

19 paragraph (1) shall exercise the same powers, func20 tions, and duties, subject to the same limitations, as

21 a conservator or receiver for a national bank.

22 ‘‘(b) BOARD AUTHORITY.—The Board shall have the

23 same authority with respect to any conservator or receiver

24 appointed under subsection (a), and the uninsured State

25 member bank for which the conservator or receiver has
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1 been appointed, as the Comptroller of the Currency has

2 with respect to a conservator or receiver for a national

3 bank and the national bank for which the conservator or

4 receiver has been appointed.

5 ‘‘(c) BANKRUPTCY PROCEEDINGS.—The Board (in

6 the case of an uninsured State member bank which oper7 ates, or operates as, such a multilateral clearing organiza8 tion) may direct a conservator or receiver appointed for

9 the bank to file a petition pursuant to title 11, United

10 States Code, in which case, title 11, United States Code,

11 shall apply to the bank in lieu of otherwise applicable Fed12 eral or State insolvency law.’’.

13 (c) TECHNICAL AND CONFORMING AMENDMENTS TO

14 TITLE 11, UNITED STATES CODE.—

15 (1) BANKRUPTCY CODE DEBTORS.—Section

16 109(b)(2) of title 11, United States Code, is amend17 ed by striking ‘‘; or’’ and inserting the following: ‘‘,

18 except that an uninsured State member bank, or a

19 corporation organized under section 25A of the Fed20 eral Reserve Act, which operates, or operates as, a

21 multilateral clearing organization pursuant to sec22 tion 409 of the Federal Deposit Insurance Corpora23 tion Improvement Act of 1991 may be a debtor if

24 a petition is filed at the direction of the Board of

25 Governors of the Federal Reserve System; or’’.
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1 (2) CHAPTER 7 DEBTORS.—Section 109(d) of

2 title 11, United States Code, is amended to read as

3 follows:

4 ‘‘(d) Only a railroad, a person that may be a debtor

5 under chapter 7 of this title (except a stockbroker or a

6 commodity broker), and an uninsured State member bank,

7 or a corporation organized under section 25A of the Fed8 eral Reserve Act, which operates, or operates as, a multi9 lateral clearing organization pursuant to section 409 of

10 the Federal Deposit Insurance Corporation Improvement

11 Act of 1991 may be a debtor under chapter 11 of this

12 title.’’.

13 (3) DEFINITION OF FINANCIAL INSTITUTION.—

14 Section 101(22) of title 11, United States Code, is

15 amended to read as follows:

16 ‘‘(22) the term ‘financial institution’—

17 ‘‘(A) means—

18 ‘‘(i) a Federal reserve bank or an en19 tity (domestic or foreign) that is a com20 mercial or savings bank, industrial savings

21 bank, savings and loan association, trust

22 company, or receiver or conservator for

23 such entity and, when any such Federal re24 serve bank, receiver, conservator, or entity

25 is acting as agent or custodian for a cus-
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•S 3283 IS

1 tomer in connection with a securities con2 tract, as defined in section 741 of this

3 title, the customer; or

4 ‘‘(ii) in connection with a securities

5 contract, as defined in section 741 of this

6 title, an investment company registered

7 under the Investment Company Act of

8 1940; and

9 ‘‘(B) includes any person described in sub10 paragraph (A) which operates, or operates as, a

11 multilateral clearing organization pursuant to

12 section 409 of the Federal Deposit Insurance

13 Corporation Improvement Act of 1991;’’.

14 (4) DEFINITION OF UNINSURED STATE MEM15 BER BANK.—Section 101 of title 11, United States

16 Code, is amended by inserting after paragraph (54)

17 the following new paragraph—

18 ‘‘(54A) the term ‘uninsured State member bank’

19 means a State member bank (as defined in section 3 of

20 the Federal Deposit Insurance Act) the deposits of which

21 are not insured by the Federal Deposit Insurance Cor22 poration; and’’.

23 (5) SUBCHAPTER V OF CHAPTER 7.—

24 (A) IN GENERAL.—Section 103 of title 11,

25 United States Code, is amended—
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1 (i) by redesignating subsections (e)

2 through (i) as subsections (f) through (j),

3 respectively; and

4 (ii) by inserting after subsection (d)

5 the following new subsection:

6 ‘‘(e) SCOPE OF APPLICATION.—Subchapter V of

7 chapter 7 of this title shall apply only in a case under

8 such chapter concerning the liquidation of an uninsured

9 State member bank, or a corporation organized under sec10 tion 25A of the Federal Reserve Act, which operates, or

11 operates as, a multilateral clearing organization pursuant

12 to section 409 of the Federal Deposit Insurance Corpora13 tion Improvement Act of 1991.’’.

14 (B) CLEARING BANK LIQUIDATION.—

15 Chapter 7 of title 11, United States Code, is

16 amended by adding at the end the following

17 new subchapter:

18 ‘‘SUBCHAPTER V—CLEARING BANK

19 LIQUIDATION

20 ‘‘§ 781. Definitions

21 ‘‘For purposes of this subchapter, the following defi22 nitions shall apply:

23 ‘‘(1) BOARD.—The term ‘Board’ means the

24 Board of Governors of the Federal Reserve System.
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•S 3283 IS

1 ‘‘(2) DEPOSITORY INSTITUTION.—The term ‘de2 pository institution’ has the same meaning as in sec3 tion 3 of the Federal Deposit Insurance Act.

4 ‘‘(3) CLEARING BANK.—The term ‘clearing

5 bank’ means an uninsured State member bank, or a

6 corporation organized under section 25A of the Fed7 eral Reserve Act, which operates, or operates as, a

8 multilateral clearing organization pursuant to sec9 tion 409 of the Federal Deposit Insurance Corpora10 tion Improvement Act of 1991.

11 ‘‘§ 782. Selection of trustee

12 ‘‘(a) IN GENERAL.—

13 ‘‘(1) APPOINTMENT.—Notwithstanding any

14 other provision of this title, the conservator or re15 ceiver who files the petition shall be the trustee

16 under this chapter, unless the Board designates an

17 alternative trustee.

18 ‘‘(2) SUCCESSOR.—The Board may designate a

19 successor trustee if required.

20 ‘‘(b) AUTHORITY OF TRUSTEE.—Whenever the

21 Board appoints or designates a trustee, chapter 3 and sec22 tions 704 and 705 of this title shall apply to the Board

23 in the same way and to the same extent that they apply

24 to a United States trustee.
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1 ‘‘§ 783. Additional powers of trustee

2 ‘‘(a) DISTRIBUTION OF PROPERTY NOT OF THE ES3 TATE.—The trustee under this subchapter has power to

4 distribute property not of the estate, including distribu5 tions to customers that are mandated by subchapters III

6 and IV of this chapter.

7 ‘‘(b) DISPOSITION OF INSTITUTION.—The trustee

8 under this subchapter may, after notice and a hearing—

9 ‘‘(1) sell the clearing bank to a depository insti10 tution or consortium of depository institutions

11 (which consortium may agree on the allocation of

12 the clearing bank among the consortium);

13 ‘‘(2) merge the clearing bank with a depository

14 institution;

15 ‘‘(3) transfer contracts to the same extent as

16 could a receiver for a depository institution under

17 paragraphs (9) and (10) of section 11(e) of the Fed18 eral Deposit Insurance Act;

19 ‘‘(4) transfer assets or liabilities to a depository

20 institution;

21 ‘‘(5) transfer assets and liabilities to a bridge

22 bank as provided in paragraphs (1), (3)(A), (5), (6),

23 of section 11(n) of the Federal Deposit Insurance

24 Act, paragraphs (9) through (13) of such section,

25 and subparagraphs (A) through (H) and subpara-
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•S 3283 IS

1 graph (K) of paragraph (4) of such section 11(n),

2 except that—

3 ‘‘(A) the bridge bank to which such assets

4 or liabilities are transferred shall be treated as

5 a clearing bank for the purpose of this sub6 section; and

7 ‘‘(B) any references in any such provision

8 of law to the Federal Deposit Insurance Cor9 poration shall be construed to be references to

10 the appointing agency and that references to

11 deposit insurance shall be omitted.

12 ‘‘(c) CERTAIN TRANSFERS INCLUDED.—Any ref13 erence in this section to transfers of liabilities includes a

14 ratable transfer of liabilities within a priority class.

15 ‘‘§ 784. Right to be heard

16 ‘‘The Board or a Federal reserve bank (in the case

17 of a clearing bank that is a member of that bank) may

18 raise and may appear and be heard on any issue in a case

19 under this subchapter.’’.

20 (6) DEFINITIONS OF CLEARING ORGANIZATION,

21 CONTRACT MARKET, AND RELATED DEFINITIONS.—

22 (A) Section 761(2) of title 11, United

23 States Code, is amended to read as follows:

24 ‘‘(2) ‘clearing organization’ means a derivatives

25 clearing organization registered under the Act;’’.
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•S 3283 IS

1 (B) Section 761(7) of title 11, United

2 States Code, is amended to read as follows:

3 ‘‘(7) ‘contract market’ means a registered enti4 ty;’’.

5 (C) Section 761(8) of title 11, United

6 States Code, is amended to read as follows:

7 ‘‘(8) ‘contract of sale’, ‘commodity’, ‘derivatives

8 clearing organization’, ‘future delivery’, ‘board of

9 trade’, ‘registered entity’, and ‘futures commission

10 merchant’ have the meanings assigned to those

11 terms in the Act;’’.

12 (d) CLERICAL AMENDMENT.—The table of sections

13 for chapter 7 of title 11, United States Code, is amended

14 by adding at the end the following new items:

15 ‘‘SUBCHAPTER V—CLEARING BANK

16 LIQUIDATION

‘‘Sec.

‘‘781. Definitions.

‘‘782. Selection of trustee.

‘‘783. Additional powers of trustee.

‘‘784. Right to be heard.’’.

17 (e) RESOLUTION OF EDGE ACT CORPORATIONS.—

18 The 16th undesignated paragraph of section 25A of the

19 Federal Reserve Act (12 U.S.C. 624) is amended to read

20 as follows:

21 ‘‘(16) APPOINTMENT OF RECEIVER OR CONSER22 VATOR.—
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•S 3283 IS

1 ‘‘(A) IN GENERAL.—The Board may ap2 point a conservator or receiver for a corporation

3 organized under the provisions of this section to

4 the same extent and in the same manner as the

5 Comptroller of the Currency may appoint a con6 servator or receiver for a national bank, and the

7 conservator or receiver for such corporation

8 shall exercise the same powers, functions, and

9 duties, subject to the same limitations, as a

10 conservator or receiver for a national bank.

11 ‘‘(B) EQUIVALENT AUTHORITY.—The

12 Board shall have the same authority with re13 spect to any conservator or receiver appointed

14 for a corporation organized under the provisions

15 of this section under this paragraph and any

16 such corporation as the Comptroller of the Cur17 rency has with respect to a conservator or re18 ceiver of a national bank and the national bank

19 for which a conservator or receiver has been ap20 pointed.

21 ‘‘(C) TITLE 11 PETITIONS.—The Board

22 may direct the conservator or receiver of a cor23 poration organized under the provisions of this

24 section to file a petition pursuant to title 11,

25 United States Code, in which case, title 11,
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•S 3283 IS

1 United States Code, shall apply to the corpora2 tion in lieu of otherwise applicable Federal or

3 State insolvency law.’’.

4 (f) DERIVATIVES CLEARING ORGANIZATIONS.—The

5 Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended

6 by inserting after section 5a, as added by section 111 of

7 this Act, the following:

8 ‘‘SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.

9 ‘‘(a) REGISTRATION REQUIREMENT.—It shall be un10 lawful for a derivatives clearing organization, unless reg11 istered with the Commission, directly or indirectly to make

12 use of the mails or any means or instrumentality of inter13 state commerce to perform the functions of a derivatives

14 clearing organization described in section 1a(9) of this Act

15 with respect to a contract of sale of a commodity for fu16 ture delivery (or option on such a contract) or option on

17 a commodity, in each case unless the contract or option—

18 ‘‘(1) is excluded from this Act by section

19 2(a)(1)(C)(i), 2(c), 2(d), 2(f), or 2(g) of this Act or

20 title IV of the Commodity Futures Modernization

21 Act of 2000, or exempted under section 2(h) or 4(c)

22 of this Act; or

23 ‘‘(2) is a security futures product cleared by a

24 clearing agency registered under the Securities Ex25 change Act of 1934.
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•S 3283 IS

1 ‘‘(b) VOLUNTARY REGISTRATION.—A derivatives

2 clearing organization that clears agreements, contracts, or

3 transactions excluded from this Act by section 2(c), 2(d),

4 2(f) or 2(g) of this Act or title IV of the Commodity Fu5 tures Modernization Act of 2000, or exempted under sec6 tion 2(h) or 4(c) of this Act, or other over-the-counter de7 rivative instruments (as defined in the Federal Deposit In8 surance Corporation Improvement Act of 1991) may reg9 ister with the Commission as a derivatives clearing organi10 zation.

11 ‘‘(c) REGISTRATION OF DERIVATIVES CLEARING OR12 GANIZATIONS.—

13 ‘‘(1) APPLICATION.—A person desiring to reg14 ister as a derivatives clearing organization shall sub15 mit to the Commission an application in such form

16 and containing such information as the Commission

17 may require for the purpose of making the deter18 minations required for approval under paragraph

19 (2).

20 ‘‘(2) CORE PRINCIPLES.—

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

22 to maintain registration as a derivatives clear23 ing organization, an applicant shall demonstrate

24 to the Commission that the applicant complies

25 with the core principles specified in this para-
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1 graph. The applicant shall have reasonable dis2 cretion in establishing the manner in which it

3 complies with the core principles.

4 ‘‘(B) FINANCIAL RESOURCES.—The appli5 cant shall demonstrate that the applicant has

6 adequate financial, operational, and managerial

7 resources to discharge the responsibilities of a

8 derivatives clearing organization.

9 ‘‘(C) PARTICIPANT AND PRODUCT ELIGI10 BILITY.—The applicant shall establish—

11 ‘‘(i) appropriate admission and con12 tinuing eligibility standards (including ap13 propriate minimum financial requirements)

14 for members of and participants in the or15 ganization; and

16 ‘‘(ii) appropriate standards for deter17 mining eligibility of agreements, contracts,

18 or transactions submitted to the applicant.

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

20 shall have the ability to manage the risks asso21 ciated with discharging the responsibilities of a

22 derivatives clearing organization through the

23 use of appropriate tools and procedures.

24 ‘‘(E) SETTLEMENT PROCEDURES.—The

25 applicant shall have the ability to—
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1 ‘‘(i) complete settlements on a timely

2 basis under varying circumstances;

3 ‘‘(ii) maintain an adequate record of

4 the flow of funds associated with each

5 transaction that the applicant clears; and

6 ‘‘(iii) comply with the terms and con7 ditions of any permitted netting or offset

8 arrangements with other clearing organiza9 tions.

10 ‘‘(F) TREATMENT OF FUNDS.—The appli11 cant shall have standards and procedures de12 signed to protect and ensure the safety of mem13 ber and participant funds.

14 ‘‘(G) DEFAULT RULES AND PROCE15 DURES.—The applicant shall have rules and

16 procedures designed to allow for efficient, fair,

17 and safe management of events when members

18 or participants become insolvent or otherwise

19 default on their obligations to the derivatives

20 clearing organization.

21 ‘‘(H) RULE ENFORCEMENT.—The appli22 cant shall—

23 ‘‘(i) maintain adequate arrangements

24 and resources for the effective monitoring

25 and enforcement of compliance with rules
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1 of the applicant and for resolution of dis2 putes; and

3 ‘‘(ii) have the authority and ability to

4 discipline, limit, suspend, or terminate a

5 member’s or participant’s activities for vio6 lations of rules of the applicant.

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

8 shall demonstrate that the applicant—

9 ‘‘(i) has established and will maintain

10 a program of oversight and risk analysis to

11 ensure that the automated systems of the

12 applicant function properly and have ade13 quate capacity and security; and

14 ‘‘(ii) has established and will maintain

15 emergency procedures and a plan for dis16 aster recovery, and will periodically test

17 backup facilities sufficient to ensure daily

18 processing, clearing, and settlement of

19 transactions.

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

21 provide to the Commission all information nec22 essary for the Commission to conduct the over23 sight function of the applicant with respect to

24 the activities of the derivatives clearing organi25 zation.
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1 ‘‘(K) RECORDKEEPING.—The applicant

2 shall maintain records of all activities related to

3 the business of the applicant as a derivatives

4 clearing organization in a form and manner ac5 ceptable to the Commission for a period of 5

6 years.

7 ‘‘(L) PUBLIC INFORMATION.—The appli8 cant shall make information concerning the

9 rules and operating procedures governing the

10 clearing and settlement systems (including de11 fault procedures) available to market partici12 pants.

13 ‘‘(M) INFORMATION SHARING.—The appli14 cant shall—

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

16 of all appropriate and applicable domestic

17 and international information-sharing

18 agreements; and

19 ‘‘(ii) use relevant information obtained

20 from the agreements in carrying out the

21 clearing organization’s risk management

22 program.

23 ‘‘(N) ANTITRUST CONSIDERATIONS.—Un24 less appropriate to achieve the purposes of this
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1 Act, the derivatives clearing organization shall

2 avoid—

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

4 action that results in any unreasonable re5 straint of trade; or

6 ‘‘(ii) imposing any material anti7 competitive burden on trading on the con8 tract market.

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

10 derivatives clearing organization may request the

11 Commission to issue an order concerning whether a

12 rule or practice of the applicant is the least anti13 competitive means of achieving the objectives, pur14 poses, and policies of this Act.

15 ‘‘(d) EXISTING DERIVATIVES CLEARING ORGANIZA16 TIONS.—A derivatives clearing organization shall be

17 deemed to be registered under this section to the extent

18 that the derivatives clearing organization clears agree19 ments, contracts, or transactions for a board of trade that

20 has been designated by the Commission as a contract mar21 ket for such agreements, contracts, or transactions before

22 the date of enactment of this section.

23 ‘‘(e) APPOINTMENT OF TRUSTEE.—

24 ‘‘(1) IN GENERAL.—If a proceeding under sec25 tion 5e results in the suspension or revocation of the
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1 registration of a derivatives clearing organization, or

2 if a derivatives clearing organization withdraws from

3 registration, the Commission, on notice to the de4 rivatives clearing organization, may apply to the ap5 propriate United States district court where the de6 rivatives clearing organization is located for the ap7 pointment of a trustee.

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

9 Commission applies for appointment of a trustee

10 under paragraph (1)—

11 ‘‘(A) the court may take exclusive jurisdic12 tion over the derivatives clearing organization

13 and the records and assets of the derivatives

14 clearing organization, wherever located; and

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

16 subparagraph (A), the court shall appoint the

17 Commission, or a person designated by the

18 Commission, as trustee with power to take pos19 session and continue to operate or terminate

20 the operations of the derivatives clearing orga21 nization in an orderly manner for the protection

22 of participants, subject to such terms and con23 ditions as the court may prescribe.

24 ‘‘(f) LINKING OF REGULATED CLEARING FACILI25 TIES.—
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1 ‘‘(1) IN GENERAL.—The Commission shall fa2 cilitate the linking or coordination of derivatives

3 clearing organizations registered under this Act with

4 other regulated clearance facilities for the coordi5 nated settlement of cleared transactions.

6 ‘‘(2) COORDINATION.—In carrying out para7 graph (1), the Commission shall coordinate with the

8 Federal banking agencies and the Securities and Ex9 change Commission.’’.

10 SEC. 113. COMMON PROVISIONS APPLICABLE TO REG11 ISTERED ENTITIES.

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

13 is amended by inserting after section 5b (as added by sec14 tion 112(f)) the following:

15 ‘‘SEC. 5c. COMMON PROVISIONS APPLICABLE TO REG16 ISTERED ENTITIES.

17 ‘‘(a) ACCEPTABLE BUSINESS PRACTICES UNDER

18 CORE PRINCIPLES.—

19 ‘‘(1) IN GENERAL.—Consistent with the pur20 poses of this Act, the Commission may issue inter21 pretations, or approve interpretations submitted to

22 the Commission, of sections 5(d), 5a(d), and

23 5b(d)(2) to describe what would constitute an ac24 ceptable business practice under such sections.
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1 ‘‘(2) EFFECT OF INTERPRETATION.—An inter2 pretation issued under paragraph (1) shall not pro3 vide the exclusive means for complying with such

4 sections.

5 ‘‘(b) DELEGATION OF FUNCTIONS UNDER CORE

6 PRINCIPLES.—

7 ‘‘(1) IN GENERAL.—A contract market or de8 rivatives transaction execution facility may comply

9 with any applicable core principle through delegation

10 of any relevant function to a registered futures asso11 ciation or another registered entity.

12 ‘‘(2) RESPONSIBILITY.—A contract market or

13 derivatives transaction execution facility that dele14 gates a function under paragraph (1) shall remain

15 responsible for carrying out the function.

16 ‘‘(3) NONCOMPLIANCE.—If a contract market

17 or derivatives transaction execution facility that del18 egates a function under paragraph (1) becomes

19 aware that a delegated function is not being per20 formed as required under this Act, the contract mar21 ket or derivatives transaction execution facility shall

22 promptly take steps to address the noncompliance.

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

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

2 registered entity may elect to list for trading or ac3 cept for clearing any new contract or other instru4 ment, or may elect to approve and implement any

5 new rule or rule amendment, by providing to the

6 Commission (and the Secretary of the Treasury, in

7 the case of a contract of sale of a government secu8 rity for future delivery (or option on such a con9 tract) or a rule or rule amendment specifically re10 lated to such a contract) a written certification that

11 the new contract or instrument or clearing of the

12 new contract or instrument, new rule, or rule

13 amendment complies with this Act (including regula14 tions under this Act).

15 ‘‘(2) PRIOR APPROVAL.—

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

17 may request that the Commission grant prior

18 approval to any new contract or other instru19 ment, new rule, or rule amendment.

20 ‘‘(B) PRIOR APPROVAL REQUIRED.—Not21 withstanding any other provision of this section,

22 a designated contract market shall submit to

23 the Commission for prior approval each rule

24 amendment that materially changes the terms

25 and conditions, as determined by the Commis-
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1 sion, in any contract of sale for future delivery

2 of a commodity specifically enumerated in sec3 tion 1a(4) (or any option thereon) traded

4 through its facilities if the rule amendment ap5 plies to contracts and delivery months which

6 have already been listed for trading and have

7 open interest.

8 ‘‘(C) DEADLINE.—If prior approval is re9 quested under subparagraph (A), the Commis10 sion shall take final action on the request not

11 later than 90 days after submission of the re12 quest, unless the person submitting the request

13 agrees to an extension of the time limitation es14 tablished under this subparagraph.

15 ‘‘(3) APPROVAL.—The Commission shall ap16 prove any such new contract or instrument, new

17 rule, or rule amendment unless the Commission

18 finds that the new contract or instrument, new rule,

19 or rule amendment would violate this Act.

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

21 ‘‘(1) IN GENERAL.—If the Commission deter22 mines, on the basis of substantial evidence, that a

23 registered entity is violating any applicable core

24 principle specified in section 5(d), 5a(d), or

25 5b(d)(2), the Commission shall—
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1 ‘‘(A) notify the registered entity in writing

2 of the determination; and

3 ‘‘(B) afford the registered entity an oppor4 tunity to make appropriate changes to bring the

5 registered entity into compliance with the core

6 principles.

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

8 later than 30 days after receiving a notification

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

10 make changes that, in the opinion of the Commis11 sion, are necessary to comply with the core prin12 ciples, the Commission may take further action in

13 accordance with this Act.

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

15 Nothing in this section shall limit or in any way affect

16 the emergency powers of the Commission provided in sec17 tion 8a(9).’’.

18 SEC. 114. EXEMPT BOARDS OF TRADE.

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

20 is amended by inserting after section 5c (as added by sec21 tion 113) the following:

22 ‘‘SEC. 5d. EXEMPT BOARDS OF TRADE.

23 ‘‘(a) ELECTION TO REGISTER WITH THE COMMIS24 SION.—A board of trade that meets the requirements of

25 subsection (b) of this section may operate as an exempt
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1 board of trade on receipt from the board of trade of a

2 notice, provided in such manner as the Commission may

3 by rule or regulation prescribe, that the board of trade

4 elects to operate as an exempt board of trade. Except as

5 otherwise provided in this section, no provision of this Act

6 (other than subparagraphs (C) and (D) of section 2(a)(1)

7 and section 12(e)(2)(B)) shall apply with respect to a con8 tract of sale of a commodity for future delivery (or option

9 on such a contract) traded on or through the facilities of

10 an exempt board of trade.

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

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

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

14 trade to contracts of sale of a commodity for future deliv15 ery (or options on such contracts or on a commodity)—

16 ‘‘(1) for which the underlying commodity has—

17 ‘‘(A) a nearly inexhaustible deliverable

18 supply;

19 ‘‘(B) a deliverable supply that is suffi20 ciently large, and a cash market sufficiently liq21 uid, to render any contract traded on the com22 modity highly unlikely to be susceptible to the

23 threat of manipulation; or

24 ‘‘(C) no cash market;
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1 ‘‘(2) that are entered into only between persons

2 that are eligible contract participants at the time at

3 which the persons enter into the contract; and

4 ‘‘(3) that are not contracts of sale (or options

5 on such a contract or on a commodity) for future

6 delivery of any security, including any group or

7 index of securities or any interest in, or based on the

8 value of, any security or any group or index of secu9 rities.

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

11 to a contract of sale of a commodity for future delivery

12 (or option on such a contract or on a commodity) that

13 is traded on an exempt board of trade shall be subject

14 to sections 4b, 4c(b), 4o, 6(c), and 9(a)(2), and the Com15 mission shall enforce those provisions with respect to any

16 such trading.

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

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

19 price discovery for transactions in the cash market for the

20 commodity underlying any contract, agreement, or trans21 action traded on or through the facilities of the board of

22 trade, the board of trade shall disseminate publicly on a

23 daily basis trading volume, opening and closing price

24 ranges, open interest, and other trading data as appro25 priate to the market.
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1 ‘‘(e) JURISDICTION.—The Commission shall have ex2 clusive jurisdiction over any account, agreement, contract,

3 or transaction involving a contract of sale of a commodity

4 for future delivery, or option on such a contract or on a

5 commodity, to the extent that the account, agreement,

6 contract, or transaction is traded on an exempt board of

7 trade.

8 ‘‘(f) SUBSIDIARIES.—A board of trade that is des9 ignated as a contract market or registered as a derivatives

10 transaction execution facility may operate an exempt

11 board of trade by establishing a separate subsidiary or

12 other legal entity and otherwise satisfying the require13 ments of this section.

14 ‘‘(g) An exempt board of trade that meets the re15 quirements of subsection (b) shall not represent to any

16 person that the board of trade is registered with, or des17 ignated, recognized, licensed, or approved by the Commis18 sion.’’.

19 SEC. 115. SUSPENSION OR REVOCATION OF DESIGNATION

20 AS CONTRACT MARKET.

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

22 7b) (as redesignated by section 20(1)) is amended to read

23 as follows:
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1 ‘‘SEC. 5e. SUSPENSION OR REVOCATION OF DESIGNATION

2 AS REGISTERED ENTITY.

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

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

5 Commission under this Act, shall be cause for the suspen6 sion of the registered entity for a period not to exceed 180

7 days, or revocation of designation as a registered entity

8 in accordance with the procedures and subject to the judi9 cial review provided in section 6(b).’’.

10 SEC. 116. AUTHORIZATION OF APPROPRIATIONS.

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

12 U.S.C. 16(d)) is amended by striking ‘‘2000’’ and insert13 ing ‘‘2005’’.

14 SEC. 117. PREEMPTION.

15 Section 12 of the Commodity Exchange Act (7 U.S.C.

16 16(e)) is amended by striking subsection (e) and inserting

17 the following:

18 ‘‘(e) RELATION TO OTHER LAW, DEPARTMENTS, OR

19 AGENCIES.—

20 ‘‘(1) Nothing in this Act shall supersede or

21 preempt—

22 ‘‘(A) criminal prosecution under any Fed23 eral criminal statute;

24 ‘‘(B) the application of any Federal or

25 State statute (except as provided in paragraph

26 (2)), including any rule or regulation there-
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1 under, to any transaction in or involving any

2 commodity, product, right, service, or interest—

3 ‘‘(i) that is not conducted on or sub4 ject to the rules of a registered entity or

5 exempt board of trade;

6 ‘‘(ii) (except as otherwise specified by

7 the Commission by rule or regulation) that

8 is not conducted on or subject to the rules

9 of any board of trade, exchange, or market

10 located outside the United States, its terri11 tories or possessions; or

12 ‘‘(iii) that is not subject to regulation

13 by the Commission under section 4c or 19;

14 or

15 ‘‘(C) the application of any Federal or

16 State statute, including any rule or regulation

17 thereunder, to any person required to be reg18 istered or designated under this Act who shall

19 fail or refuse to obtain such registration or des20 ignation.

21 ‘‘(2) This Act shall supersede and preempt the

22 application of any State or local law that prohibits

23 or regulates gaming or the operation of bucket shops

24 (other than antifraud provisions of general applica25 bility) in the case of—
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1 ‘‘(A) an electronic trading facility excluded

2 under section 2(e) of this Act;

3 ‘‘(B) an agreement, contract, or trans4 action that is excluded from this Act under sec5 tion 2(c), 2(d), 2(f), or 2(g) of this Act or title

6 IV of the Commodity Futures Modernization

7 Act of 2000, or exempted under section 2(h) or

8 4(c) of this Act (regardless of whether any such

9 agreement, contract, or transaction is otherwise

10 subject to this Act).’’.

11 SEC. 118. PREDISPUTE RESOLUTION AGREEMENTS FOR IN12 STITUTIONAL CUSTOMERS.

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

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

15 the following:

16 ‘‘(g) PREDISPUTE RESOLUTION AGREEMENTS FOR

17 INSTITUTIONAL CUSTOMERS.—Nothing in this section

18 prohibits a registered futures commission merchant from

19 requiring a customer that is an eligible contract partici20 pant, as a condition to the commission merchant’s con21 ducting a transaction for the customer, to enter into an

22 agreement waiving the right to file a claim under this sec23 tion.’’.
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1 SEC. 119. CONSIDERATION OF COSTS AND BENEFITS AND

2 ANTITRUST LAWS.

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

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

5 and inserting the following:

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

7 ANTITRUST LAWS.

8 ‘‘(a) COSTS AND BENEFITS.—

9 ‘‘(1) IN GENERAL.—Before promulgating a reg10 ulation under this Act or issuing an order (except as

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

12 consider the costs and benefits of the action of the

13 Commission.

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

15 of the proposed Commission action shall be evalu16 ated in light of—

17 ‘‘(A) considerations of protection of market

18 participants and the public;

19 ‘‘(B) considerations of the efficiency, com20 petitiveness, and financial integrity of futures

21 markets;

22 ‘‘(C) considerations of price discovery;

23 ‘‘(D) considerations of sound risk manage24 ment practices; and

25 ‘‘(E) other public interest considerations.
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1 ‘‘(3) APPLICABILITY.—This subsection does not

2 apply to the following actions of the Commission:

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

4 is the result of an adjudicatory or investigative

5 process of the Commission.

6 ‘‘(B) An emergency action.

7 ‘‘(C) A finding of fact regarding compli8 ance with a requirement of the Commission.

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

10 SEC. 120. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE

11 COUNTERPARTIES.

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

13 U.S.C. 25(a)) is amended by adding at the end the fol14 lowing:

15 ‘‘(4) CONTRACT ENFORCEMENT BETWEEN ELI16 GIBLE COUNTERPARTIES.—No agreement, contract,

17 or transaction between eligible contract participants

18 or persons reasonably believed to be eligible contract

19 participants, and no hybrid instrument sold to any

20 investor, shall be void, voidable, or unenforceable,

21 and no such party shall be entitled to rescind, or re22 cover any payment made with respect to, such an

23 agreement, contract, transaction, or instrument

24 under this section or any other provision of Federal

25 or State law, based solely on the failure of the agree-
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1 ment, contract, transaction, or instrument to comply

2 with the terms or conditions of an exemption or ex3 clusion from any provision of this Act or regulations

4 of the Commission.’’.

5 SEC. 121. SPECIAL PROCEDURES TO ENCOURAGE AND FA6 CILITATE BONA FIDE HEDGING BY AGRICUL7 TURAL PRODUCERS.

8 The Commodity Exchange Act, as otherwise amended

9 by this Act, is amended by inserting after section 4o the

10 following:

11 ‘‘SEC. 4p. SPECIAL PROCEDURES TO ENCOURAGE AND FA12 CILITATE BONA FIDE HEDGING BY AGRICUL13 TURAL PRODUCERS.

14 ‘‘(a) AUTHORITY.—The Commission shall consider

15 issuing rules or orders which—

16 ‘‘(1) prescribe procedures under which each

17 contract market is to provide for orderly delivery, in18 cluding temporary storage costs, of any agricultural

19 commodity enumerated in section 1a(4) which is the

20 subject of a contract for purchase or sale for future

21 delivery;

22 ‘‘(2) increase the ease with which domestic agri23 cultural producers may participate in contract mar24 kets, including by addressing cost and margin re-
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1 quirements, so as to better enable the producers to

2 hedge price risk associated with their production;

3 ‘‘(3) provide flexibility in the minimum quan4 tities of such agricultural commodities that may be

5 the subject of a contract for purchase or sale for fu6 ture delivery that is traded on a contract market, to

7 better allow domestic agricultural producers to hedge

8 such price risk; and

9 ‘‘(4) encourage contract markets to provide in10 formation and otherwise facilitate the participation

11 of domestic agricultural producers in contract mar12 kets.

13 ‘‘(b) REPORT.—Within 1 year after the date of enact14 ment of this section, the Commission shall submit to the

15 Committee on Agriculture of the House of Representatives

16 and the Committee on Agriculture, Nutrition, and For17 estry of the Senate a report on the steps it has taken to

18 implement this section and on the activities of contract

19 markets pursuant to this section.’’.

20 SEC. 122. RULE OF CONSTRUCTION.

21 Except as expressly provided in this Act or an amend22 ment made by this Act, nothing in this Act or an amend23 ment made by this Act supersedes, affects, or otherwise

24 limits or expands the scope and applicability of laws gov25 erning the Securities and Exchange Commission.
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1 SEC. 123. TECHNICAL AND CONFORMING AMENDMENTS.

2 (a) COMMODITY EXCHANGE ACT.—

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

4 (7 U.S.C. 1a) (as amended by section 101) is

5 amended—

6 (A) in paragraphs (5), (6), (16), (17),

7 (20), and (23), by inserting ‘‘or derivatives

8 transaction execution facility’’ after ‘‘contract

9 market’’ each place it appears; and

10 (B) in paragraph (24)—

11 (i) in the paragraph heading, by strik12 ing ‘‘CONTRACT MARKET’’ and inserting

13 ‘‘REGISTERED ENTITY’’;

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

15 each place it appears and inserting ‘‘reg16 istered entity’’; and

17 (iii) by adding at the end the fol18 lowing:

19 ‘‘A participant in an alternative trading system that

20 is designated as a contract market pursuant to sec21 tion 5f is deemed a member of the contract market

22 for purposes of transactions in security futures prod23 ucts through the contract market.’’.

24 (2) Section 2 of the Commodity Exchange Act

25 (7 U.S.C. 2, 2a, 4, 4a, 3) is amended—
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1 (A) by striking ‘‘SEC. 2. (a)(1)(A)(i) The’’

2 and inserting the following:

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

4 PRINCIPAL FOR ACT OF AGENT; COMMODITY

5 FUTURES TRADING COMMISSION; TRANS6 ACTION IN INTERSTATE COMMERCE.

7 ‘‘(a) JURISDICTION OF COMMISSION; COMMODITY

8 FUTURES TRADING COMMISSION.—

9 ‘‘(1) JURISDICTION OF COMMISSION.—

10 ‘‘(A) IN GENERAL.—The’’; and

11 (B) in subsection (a)(1)—

12 (i) in subparagraph (A) (as amended

13 by subparagraph (A) of this paragraph)—

14 (II) by striking ‘‘subparagraph

15 (B) of this subparagraph’’ and insert16 ing ‘‘subparagraphs (C) and (D) of

17 this paragraph and subsections (c)

18 through (i) of this section’’;

19 (III) by striking ‘‘contract mar20 ket designated pursuant to section 5

21 of this Act’’ and inserting ‘‘contract

22 market designated or derivatives

23 transaction execution facility reg24 istered pursuant to section 5 or 5a’’;

25 (IV) by striking clause (ii); and
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1 (V) in clause (iii), by striking

2 ‘‘(iii) The’’ and inserting the fol3 lowing:

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

5 AGENT.—The’’; and

6 (ii) in subparagraph (B)—

7 (I) by striking ‘‘(B)’’ and insert8 ing ‘‘(C)’’;

9 (II) in clause (v)—

10 (aa) by striking ‘‘section 3

11 of the Securities Act of 1933’’;

12 and

13 (bb) by inserting ‘‘or sub14 paragraph (D)’’ after ‘‘subpara15 graph’’; and

16 (III) by moving clauses (i)

17 through (v) 4 ems to the right;

18 (C) in subsection (a)(7), by striking ‘‘con19 tract market’’ and inserting ‘‘registered entity’’;

20 (D) in subsection (a)(8)(B)(ii)—

21 (i) in the first sentence, by striking

22 ‘‘designation as a contract market’’ and in23 serting ‘‘designation or registration as a

24 contract market or derivatives transaction

25 execution facility’’;
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1 (ii) in the second sentence, by striking

2 ‘‘designate a board of trade as a contract

3 market’’ and inserting ‘‘designate or reg4 ister a board of trade as a contract market

5 or derivatives transaction execution facil6 ity’’; and

7 (iii) in the fourth sentence, by striking

8 ‘‘designating, or refusing, suspending, or

9 revoking the designation of, a board of

10 trade as a contract market involving trans11 actions for future delivery referred to in

12 this clause or in considering possible emer13 gency action under section 8a(9) of this

14 Act’’ and inserting ‘‘designating, reg15 istering, or refusing, suspending, or revok16 ing the designation or registration of, a

17 board of trade as a contract market or de18 rivatives transaction execution facility in19 volving transactions for future delivery re20 ferred to in this clause or in considering

21 any possible action under this Act (includ22 ing without limitation emergency action

23 under section 8a(9))’’, and by striking

24 ‘‘designation, suspension, revocation, or

25 emergency action’’ and inserting ‘‘designa-
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1 tion, registration, suspension, revocation,

2 or action’’; and

3 (E) in subsection (a), by moving para4 graphs (2) through (9) 2 ems to the right.

5 (3) Section 4 of the Commodity Exchange Act

6 (7 U.S.C. 6) is amended—

7 (A) in subsection (a)—

8 (i) in paragraph (1), by striking ‘‘des9 ignated by the Commission as a ‘contract

10 market’ for’’ and inserting ‘‘designated or

11 registered by the Commission as a contract

12 market or derivatives transaction execution

13 facility for’’;

14 (ii) in paragraph (2), by striking

15 ‘‘member of such’’; and

16 (iii) in paragraph (3), by inserting ‘‘or

17 derivatives transaction execution facility’’

18 after ‘‘contract market’’; and

19 (B) in subsection (c)—

20 (i) in paragraph (1)—

21 (I) by striking ‘‘designated as a

22 contract market’’ and inserting ‘‘des23 ignated or registered as a contract

24 market or derivatives transaction exe25 cution facility’’; and
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1 (II) by striking ‘‘section

2 2(a)(1)(B)’’ and inserting ‘‘subpara3 graphs (C)(ii) and (D) of section

4 2(a)(1), except that the Commission

5 and the Securities and Exchange

6 Commission may by rule, regulation,

7 or order jointly exclude any agree8 ment, contract, or transaction from

9 section 2(a)(1)(D)’’; and

10 (ii) in paragraph (2)(B)(ii), by insert11 ing ‘‘or derivatives transaction execution

12 facility’’ after ‘‘contract market’’.

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

14 (7 U.S.C. 6a) is amended—

15 (A) in subsection (a)—

16 (i) in the first sentence, by inserting

17 ‘‘or derivatives transaction execution facili18 ties’’ after ‘‘contract markets’’; and

19 (ii) in the second sentence, by insert20 ing ‘‘or derivatives transaction execution

21 facility’’ after ‘‘contract market’’;

22 (B) in subsection (b)—

23 (i) in paragraph (1), by inserting ‘‘, or

24 derivatives transaction execution facility or

25 facilities,’’ after ‘‘markets’’; and
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1 (ii) in paragraph (2), by inserting ‘‘or

2 derivatives transaction execution facility’’

3 after ‘‘contract market’’; 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 ‘‘con18 tract market’’ each place it appears and inserting

19 ‘‘registered 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)

22 are amended by inserting ‘‘or derivatives transaction

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

24 place it 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 ‘‘clear4 inghouse and contract market’’ and inserting

5 ‘‘registered entity’’; and

6 (B) in subsection (f), by striking ‘‘clearing7 houses, contract markets, and exchanges’’ and

8 inserting ‘‘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 4l of the Commodity Exchange Act

18 (7 U.S.C. 6l) is amended by inserting ‘‘or derivatives

19 transaction execution facilities’’ after ‘‘contract mar20 kets’’ each place it appears.

21 (11) Section 4p of the Commodity Exchange

22 Act (7 U.S.C. 6p) is amended—

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

24 by striking ‘‘Act or contract markets’’ and in-
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1 serting ‘‘Act, contract markets, or derivatives

2 transaction execution facilities’’; and

3 (B) in subsection (b), by inserting ‘‘deriva4 tives transaction execution facility,’’ after ‘‘con5 tract market,’’.

6 (12) Section 6 of the Commodity Exchange Act

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

8 (A) in subsection (a)—

9 (i) in the first sentence—

10 (I) by striking ‘‘board of trade

11 desiring to be designated a ‘contract

12 market’ shall make application to the

13 Commission for such designation’’ and

14 inserting ‘‘person desiring to be des15 ignated or registered as a contract

16 market or derivatives transaction exe17 cution facility shall make application

18 to the Commission for the designation

19 or registration’’;

20 (II) by striking ‘‘above condi21 tions’’ and inserting ‘‘conditions set

22 forth in this Act’’; and

23 (III) by striking ‘‘above require24 ments’’ and inserting ‘‘the require25 ments of this Act’’;
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1 (ii) in the second sentence, by striking

2 ‘‘designation as a contract market within

3 one year’’ and inserting ‘‘designation or

4 registration as a contract market or de5 rivatives transaction execution facility

6 within 180 days’’;

7 (iii) in the third sentence—

8 (I) by striking ‘‘board of trade’’

9 and inserting ‘‘person’’; and

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

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

12 (iv) in the last sentence, by striking

13 ‘‘designate as a ‘contract market’ any

14 board of trade that has made application

15 therefor, such board of trade’’ and insert16 ing ‘‘designate or register as a contract

17 market or derivatives transaction execution

18 facility any person that has made applica19 tion therefor, the person’’;

20 (B) in subsection (b)—

21 (i) in the first sentence—

22 (I) by striking ‘‘designation of

23 any board of trade as a ‘contract mar24 ket’ upon’’ and inserting ‘‘designation

25 or registration of any contract market
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1 or derivatives transaction execution

2 facility on’’;

3 (II) by striking ‘‘board of trade’’

4 each place it appears and inserting

5 ‘‘contract market or derivatives trans6 action execution facility’’; and

7 (III) by striking ‘‘designation as

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

9 inserting ‘‘designation or registration

10 as set forth in sections 5 through 5b

11 or section 5f’’;

12 (ii) in the second sentence—

13 (I) by striking ‘‘board of trade’’

14 the first place it appears and inserting

15 ‘‘contract market or derivatives trans16 action execution facility’’; 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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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

16 entities’’.

17 (13) Section 6a of the Commodity Exchange

18 Act (7 U.S.C. 10a) is amended—

19 (A) in the first sentence of subsection (a),

20 by striking ‘‘designated as a ‘contract market’

21 shall’’ and inserting ‘‘designated or registered

22 as a contract market or a derivatives trans23 action execution facility’’; and

24 (B) in subsection (b), by striking ‘‘des25 ignated as a contract market’’ and inserting
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1 ‘‘designated or registered as a contract market

2 or a derivatives transaction execution facility’’.

3 (14) Section 6b of the Commodity Exchange

4 Act (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 (15) 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 (16) Section 6d(1) of the Commodity Exchange

19 Act (7 U.S.C. 13a–2(1)) is amended by inserting

20 ‘‘derivatives transaction execution facility,’’ after

21 ‘‘contract market,’’.

22 (17) Section 7 of the Commodity Exchange Act

23 (7 U.S.C. 11) is amended—

24 (A) in the first sentence—
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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’’

9 each place it appears and inserting ‘‘reg10 istered 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

15 the registered entity’’; and

16 (ii) by striking ‘‘contract markets’’

17 and 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 ‘‘des23 ignated or registered again a registered en24 tity’’.
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1 (18) Section 8(c) of the Commodity Exchange

2 Act (7 U.S.C. 12(c)) is amended in the first sen3 tence by striking ‘‘board of trade’’ and inserting

4 ‘‘registered entity’’.

5 (19) Section 8a of the Commodity Exchange

6 Act (7 U.S.C. 12a) is amended—

7 (A) by striking ‘‘contract market’’ each

8 place it appears and inserting ‘‘registered enti9 ty’’; and

10 (B) in paragraph (2)(F), by striking ‘‘trad11 ing privileges’’ and inserting ‘‘privileges’’.

12 (20) Sections 8b and 8c(e) of the Commodity

13 Exchange Act (7 U.S.C. 12b, 12c(e)) are amended

14 by striking ‘‘contract market’’ each place it appears

15 and inserting ‘‘registered entity’’.

16 (21) Section 8e of the Commodity Exchange

17 Act (7 U.S.C. 12e) is repealed.

18 (22) Section 9 of the Commodity Exchange Act

19 (7 U.S.C. 13) is amended by striking ‘‘contract mar20 ket’’ each place it appears and inserting ‘‘registered

21 entity’’.

22 (23) Section 14 of the Commodity Exchange

23 Act (7 U.S.C. 18) is amended—
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1 (A) in subsection (a)(1)(B), by striking

2 ‘‘contract market’’ and inserting ‘‘registered en3 tity’’; and

4 (B) in subsection (f), by striking ‘‘contract

5 markets’’ and inserting ‘‘registered entities’’.

6 (24) Section 17 of the Commodity Exchange

7 Act (7 U.S.C. 21) is amended by striking ‘‘contract

8 market’’ each place it appears and inserting ‘‘reg9 istered entity’’.

10 (25) Section 22 of the Commodity Exchange

11 Act (7 U.S.C. 25) is amended—

12 (A) in subsection (a)—

13 (i) in paragraph (1)—

14 (I) by striking ‘‘contract market,

15 clearing organization of a contract

16 market, licensed board of trade,’’ and

17 inserting ‘‘registered entity’’; and

18 (II) in subparagraph (C)(i), by

19 striking ‘‘contract market’’ and insert20 ing ‘‘registered entity’’;

21 (ii) in paragraph (2), by striking ‘‘sec22 tions 5a(11),’’ and inserting ‘‘sections

23 5(d)(13), 5b(b)(1)(E),’’; and
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1 (iii) in paragraph (3), by striking

2 ‘‘contract market’’ and inserting ‘‘reg3 istered entity’’; and

4 (B) in subsection (b)—

5 (i) in paragraph (1)—

6 (I) by striking ‘‘contract market

7 or clearing organization of a contract

8 market’’ and inserting ‘‘registered en9 tity’’;

10 (II) by striking ‘‘section 5a(8)

11 and section 5a(9) of this Act’’ and in12 serting ‘‘sections 5 through 5c’’;

13 (III) by striking ‘‘contract mar14 ket, clearing organization of a con15 tract market, or licensed board of

16 trade’’ and inserting ‘‘registered enti17 ty’’; and

18 (IV) by striking ‘‘contract market

19 or licensed board of trade’’ and insert20 ing ‘‘registered entity’’;

21 (ii) in paragraph (3)—

22 (I) by striking ‘‘a contract mar23 ket, clearing organization, licensed

24 board of trade,’’ and inserting ‘‘reg25 istered entity’’; and
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1 (II) by striking ‘‘contract market,

2 licensed board of trade’’ and inserting

3 ‘‘registered entity’’;

4 (iii) in paragraph (4), by striking

5 ‘‘contract market, licensed board of trade,

6 clearing organization,’’ and inserting ‘‘reg7 istered entity’’; and

8 (iv) in paragraph (5), by striking

9 ‘‘contract market, licensed board of trade,

10 clearing organization,’’ and inserting ‘‘reg11 istered entity’’.

12 (b) FEDERAL DEPOSIT INSURANCE CORPORATION

13 IMPROVEMENT ACT OF 1991.—Section 402(2) of the Fed14 eral Deposit Insurance Corporation Improvement Act of

15 1991 (12 U.S.C. 4402(2)) is amended by striking sub16 paragraph (B) and inserting the following:

17 ‘‘(B) that is registered as a derivatives

18 clearing organization under section 5b of the

19 Commodity Exchange Act.’’.

20 SEC. 124. PRIVACY.

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

22 is amended by inserting after section 5f (as added by sec23 tion 252) the following:
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1 ‘‘SEC. 5g. PRIVACY.

2 ‘‘(a) TREATMENT AS FINANCIAL INSTITUTIONS.—

3 Notwithstanding section 509(3)(B) of the Gramm-Leach4 Bliley Act, any futures commission merchant, commodity

5 trading advisor, commodity pool operator, or introducing

6 broker that is subject to the jurisdiction of the Commis7 sion under this Act with respect to any financial activity

8 shall be treated as a financial institution for purposes of

9 title V of such Act with respect to such financial activity.

10 ‘‘(b) TREATMENT OF CFTC AS FEDERAL FUNC11 TIONAL REGULATOR.—For purposes of title V of such

12 Act, the Commission shall be treated as a Federal func13 tional regulator within the meaning of section 509(2) of

14 such Act and shall prescribe regulations under such title

15 within 6 months after the date of enactment of this sec16 tion.’’.

17 SEC. 125. REPORT TO CONGRESS.

18 (a) The Commodity Futures Trading Commission (in

19 this section referred to as the ‘‘Commission’’) shall under20 take and complete a study of the Commodity Exchange

21 Act (in this section referred to as ‘‘the Act’’) and the Com22 mission’s rules, regulations and orders governing the con23 duct of persons required to be registered under the Act,

24 not later than 1 year after the date of the enactment of

25 this Act. The study shall identify—
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1 (1) the core principles and interpretations of ac2 ceptable business practices that the Commission has

3 adopted or intends to adopt to replace the provisions

4 of the Act and the Commission’s rules and regula5 tions thereunder;

6 (2) the rules and regulations that the Commis7 sion has determined must be retained and the rea8 sons therefor;

9 (3) the extent to which the Commission believes

10 it can effect the changes identified in paragraph (1)

11 of this subsection through its exemptive authority

12 under section 4(c) of the Act; and

13 (4) the regulatory functions the Commission

14 currently performs that can be delegated to a reg15 istered futures association (within the meaning of

16 the Act) and the regulatory functions that the Com17 mission has determined must be retained and the

18 reasons therefor.

19 (b) In conducting the study, the Commission shall so20 licit the views of the public as well as Commission reg21 istrants, registered entities, and registered futures asso22 ciations (all within the meaning of the Act).

23 (c) The Commission shall transmit to the Committee

24 on Agriculture of the House of Representatives and the

25 Committee on Agriculture, Nutrition, and Forestry of the
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1 Senate a report of the results of its study, which shall

2 include an analysis of comments received.

3 SEC. 126. INTERNATIONAL ACTIVITIES OF THE COMMODITY

4 FUTURES TRADING COMMISSION.

5 (a) FINDINGS.—The Congress finds that—

6 (1) derivatives markets serving United States

7 industry are increasingly global in scope;

8 (2) developments in data processing and com9 munications technologies enable users of risk man10 agement services to analyze and compare those serv11 ices on a worldwide basis;

12 (3) financial services regulatory policy must be

13 flexible to account for rapidly changing derivatives

14 industry business practices;

15 (4) regulatory impediments to the operation of

16 global business interests can compromise the com17 petitiveness of United States businesses;

18 (5) events that disrupt financial markets and

19 economies are often global in scope, require rapid

20 regulatory response, and coordinated regulatory ef21 fort across international jurisdictions;

22 (6) through its membership in the International

23 Organisation of Securities Commissions, the Com24 modity Futures Trading Commission has promoted
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1 beneficial communication among market regulators

2 and international regulatory cooperation; and

3 (7) the Commodity Futures Trading Commis4 sion and other United States financial regulators

5 and self-regulatory organizations should continue to

6 foster productive and cooperative working relation7 ships with their counterparts in foreign jurisdictions.

8 (b) SENSE OF THE CONGRESS.—It is the sense of

9 the Congress that, consistent with its responsibilities

10 under the Commodity Exchange Act, the Commodity Fu11 tures Trading Commission should, as part of its inter12 national activities, continue to coordinate with foreign reg13 ulatory authorities, to participate in international regu14 latory organizations and forums, and to provide technical

15 assistance to foreign government authorities, in order to

16 encourage—

17 (1) the facilitation of cross-border transactions

18 through the removal or lessening of any unnecessary

19 legal or practical obstacles;

20 (2) the development of internationally accepted

21 regulatory standards of best practice;

22 (3) the enhancement of international super23 visory cooperation and emergency procedures;

24 (4) the strengthening of international coopera25 tion for customer and market protection; and
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1 (5) improvements in the quality and timeliness

2 of international information sharing.

3 TITLE II—COORDINATED REGU4 LATION OF SECURITY FU5 TURES PRODUCTS

6 Subtitle A—Securities Law

7 Amendments

8 SEC. 201. DEFINITIONS UNDER THE SECURITIES EX9 CHANGE ACT OF 1934.

10 Section 3(a) of the Securities Exchange Act of 1934

11 (15 U.S.C. 78c(a)) is amended—

12 (1) in paragraph (10), by inserting ‘‘security

13 future,’’ after ‘‘treasury stock,’’;

14 (2) by striking paragraph (11) and inserting

15 the following:

16 ‘‘(11) The term ‘equity security’ means any

17 stock or similar security; or any security future on

18 any such security; or any security convertible, with

19 or without consideration, into such a security, or

20 carrying any warrant or right to subscribe to or pur21 chase such a security; or any such warrant or right;

22 or any other security which the Commission shall

23 deem to be of similar nature and consider necessary

24 or appropriate, by such rules and regulations as it
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1 may prescribe in the public interest or for the pro2 tection of investors, to treat as an equity security.’’;

3 (3) in paragraph (13), by adding at the end the

4 following: ‘‘For security futures products, such term

5 includes any contract, agreement, or transaction for

6 future delivery.’’;

7 (4) in paragraph (14), by adding at the end the

8 following: ‘‘For security futures products, such term

9 includes any contract, agreement, or transaction for

10 future delivery.’’; and

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

12 ‘‘(55)(A) The term ‘security future’ means a

13 contract of sale for future delivery of a single secu14 rity or of a narrow-based security index, including

15 any interest therein or based on the value thereof,

16 except an exempted security under section 3(a)(12)

17 of the Securities Exchange Act of 1934 as in effect

18 on the date of enactment of the Futures Trading

19 Act of 1982 (other than any municipal security as

20 defined in section 3(a)(29) as in effect on the date

21 of enactment of the Futures Trading Act of 1982).

22 The term ‘security future’ does not include any

23 agreement, contract, or transaction excluded from

24 the Commodity Exchange Act under section 2(c),

25 2(d), 2(f) or 2(g) of the Commodity Exchange Act
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1 (as in effect on the date of enactment of the Com2 modity Futures Modernization Act of 2000) or title

3 IV of the Commodity Futures Modernization Act of

4 2000.

5 ‘‘(B) The term ‘narrow-based security index’

6 means an index—

7 ‘‘(i) that has 9 or fewer component securi8 ties;

9 ‘‘(ii) in which a component security com10 prises more than 30 percent of the index’s

11 weighting;

12 ‘‘(iii) in which the 5 highest weighted com13 ponent securities in the aggregate comprise

14 more than 60 percent of the index’s weighting;

15 or

16 ‘‘(iv) in which the lowest weighted compo17 nent securities comprising, in the aggregate, 25

18 percent of the index’s weighting have an aggre19 gate dollar value of average daily trading vol20 ume of less than $50,000,000 (or in the case of

21 an index with 15 or more component securities,

22 $30,000,000), except that if there are two or

23 more securities with equal weighting that could

24 be included in the calculation of the lowest

25 weighted component securities comprising, in
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1 the aggregate, 25 percent of the index’s

2 weighting, such securities shall be ranked from

3 lowest to highest dollar value of average daily

4 trading volume and shall be included in the cal5 culation based on their ranking starting with

6 the lowest ranked security.

7 ‘‘(C) Notwithstanding subparagraph (B), an

8 index is not a narrow-based security index if—

9 ‘‘(i)(I) it has at least 9 component securi10 ties;

11 ‘‘(II) no component security comprises

12 more than 30 percent of the index’s weighting;

13 and

14 ‘‘(III) each component security is—

15 ‘‘(aa) registered pursuant to section

16 12 of the Securities Exchange Act of 1934;

17 ‘‘(bb) 1 of 750 securities with the

18 largest market capitalization; and

19 ‘‘(cc) 1 of 675 securities with the

20 largest dollar value of average daily trad21 ing volume;

22 ‘‘(ii) a board of trade was designated as a

23 contract market by the Commodity Futures

24 Trading Commission with respect to a contract

25 of sale for future delivery on the index, before
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1 the date of enactment of the Commodity Fu2 tures Modernization Act of 2000;

3 ‘‘(iii)(I) a contract of sale for future deliv4 ery on the index traded on a designated con5 tract market or registered derivatives trans6 action execution facility for at least 30 days as

7 a contract of sale for future delivery on an

8 index that was not a narrow-based security

9 index; and

10 ‘‘(II) it has been a narrow-based security

11 index for no more than 45 business days over

12 3 consecutive calendar months;

13 ‘‘(iv) a contract of sale for future delivery

14 on the index is traded on or subject to the rules

15 of a foreign board of trade and meets such re16 quirements as are jointly established by rule or

17 regulation by the Commission and the Com18 modity Futures Trading Commission;

19 ‘‘(v) no more than 18 months have passed

20 since the date of enactment of the Commodity

21 Futures Modernization Act of 2000 and—

22 ‘‘(I) it is traded on or subject to the

23 rules of a foreign board of trade;

24 ‘‘(II) the offer and sale in the United

25 States of a contract of sale for future de-
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1 livery on the index was authorized before

2 the date of the enactment of the Com3 modity Futures Modernization Act of

4 2000; and

5 ‘‘(III) the conditions of such author6 ization continue to be met; or

7 ‘‘(vi) a contract of sale for future delivery

8 on the index is traded on or subject to the rules

9 of a board of trade and meets such require10 ments as are jointly established by rule, regula11 tion, or order by the Commission and the Com12 modity Futures Trading Commission.

13 ‘‘(D) Within 1 year after the enactment of the

14 Commodity Futures Modernization Act of 2000, the

15 Commission and the Commodity Futures Trading

16 Commission jointly shall adopt rules or regulations

17 that set forth the requirements under clause (iv) of

18 subparagraph (C).

19 ‘‘(E) An index that is a narrow-based security

20 index solely because it was a narrow-based security

21 index for more than 45 business days over 3 con22 secutive calendar months pursuant to clause (iii) of

23 subparagraph (C) shall not be a narrow-based secu24 rity index for the 3 following calendar months.
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1 ‘‘(F) For purposes of subparagraphs (B) and

2 (C) of this paragraph—

3 ‘‘(i) the dollar value of average daily trad4 ing volume and the market capitalization shall

5 be calculated as of the preceding 6 full calendar

6 months; and

7 ‘‘(ii) the Commission and the Commodity

8 Futures Trading Commission shall, by rule or

9 regulation, jointly specify the method to be used

10 to determine market capitalization and dollar

11 value of average daily trading volume.

12 ‘‘(56) The term ‘security futures product’

13 means a security future or any put, call, straddle,

14 option, or privilege on any security future.

15 ‘‘(57)(A) The term ‘margin’, when used with

16 respect to a security futures product, means the

17 amount, type, and form of collateral required to se18 cure any extension or maintenance of credit, or the

19 amount, type, and form of collateral required as a

20 performance bond related to the purchase, sale, or

21 carrying of a security futures product.

22 ‘‘(B) The terms ‘margin level’ and ‘level of mar23 gin’, when used with respect to a security futures

24 product, mean the amount of margin required to se25 cure any extension or maintenance of credit, or the
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1 amount of margin required as a performance bond

2 related to the purchase, sale, or carrying of a secu3 rity futures product.

4 ‘‘(C) The terms ‘higher margin level’ and ‘high5 er level of margin’, when used with respect to a se6 curity futures product, mean a margin level estab7 lished by a national securities exchange registered

8 pursuant to section 6(g) that is higher than the min9 imum amount established and in effect pursuant to

10 section 7(c)(2)(B).’’.

11 SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING

12 SECURITY FUTURES PRODUCTS.

13 (a) EXPEDITED REGISTRATION AND EXEMPTION.—

14 Section 6 of the Securities Exchange Act of 1934 (15

15 U.S.C. 78f) is amended by adding at the end the following:

16 ‘‘(g) NOTICE REGISTRATION OF SECURITY FUTURES

17 PRODUCT EXCHANGES.—

18 ‘‘(1) REGISTRATION REQUIRED.—An exchange

19 that lists or trades security futures products may

20 register as a national securities exchange solely for

21 the purposes of trading security futures products

22 if—

23 ‘‘(A) the exchange is a board of trade, as

24 that term is defined by the Commodity Ex25 change Act (7 U.S.C. 1a(2)), that—
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1 ‘‘(i) has been designated a contract

2 market by the Commodity Futures Trad3 ing Commission and such designation is

4 not suspended by order of the Commodity

5 Futures Trading Commission; or

6 ‘‘(ii) is registered as a derivative

7 transaction execution facility under section

8 5a of the Commodity Exchange Act and

9 such registration is not suspended by the

10 Commodity Futures Trading Commission;

11 and

12 ‘‘(B) such exchange does not serve as a

13 market place for transactions in securities other

14 than—

15 ‘‘(i) security futures products; or

16 ‘‘(ii) futures on exempted securities or

17 groups or indexes of securities or options

18 thereon that have been authorized under

19 section 2(a)(1)(C) of the Commodity Ex20 change Act.

21 ‘‘(2) REGISTRATION BY NOTICE FILING.—

22 ‘‘(A) FORM AND CONTENT.—An exchange

23 required to register only because such exchange

24 lists or trades security futures products may

25 register for purposes of this section by filing
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1 with the Commission a written notice in such

2 form as the Commission, by rule, may prescribe

3 containing the rules of the exchange and such

4 other information and documents concerning

5 such exchange, comparable to the information

6 and documents required for national securities

7 exchanges under section 6(a), as the Commis8 sion, by rule, may prescribe as necessary or ap9 propriate in the public interest or for the pro10 tection of investors. If such exchange has filed

11 documents with the Commodity Futures Trad12 ing Commission, to the extent that such docu13 ments contain information satisfying the Com14 mission’s informational requirements, copies of

15 such documents may be filed with the Commis16 sion in lieu of the required written notice.

17 ‘‘(B) IMMEDIATE EFFECTIVENESS.—Such

18 registration shall be effective contempora19 neously with the submission of notice, in writ20 ten or electronic form, to the Commission, ex21 cept that such registration shall not be effective

22 if such registration would be subject to suspen23 sion or revocation.

24 ‘‘(C) TERMINATION.—Such registration

25 shall be terminated immediately if any of the
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1 conditions for registration set forth in this sub2 section are no longer satisfied.

3 ‘‘(3) PUBLIC AVAILABILITY.—The Commission

4 shall promptly publish in the Federal Register an ac5 knowledgment of receipt of all notices the Commis6 sion receives under this subsection and shall make

7 all such notices available to the public.

8 ‘‘(4) EXEMPTION OF EXCHANGES FROM SPECI9 FIED PROVISIONS.—

10 ‘‘(A) TRANSACTION EXEMPTIONS.—An ex11 change that is registered under paragraph (1)

12 of this subsection shall be exempt from, and

13 shall not be required to enforce compliance by

14 its members with, and its members shall not,

15 solely with respect to those transactions effected

16 on such exchange in security futures products,

17 be required to comply with, the following provi18 sions of this title and the rules thereunder:

19 ‘‘(i) Subsections (b)(2), (b)(3), (b)(4),

20 (b)(7), (b)(9), (c), (d), and (e) of this sec21 tion.

22 ‘‘(ii) Section 8.

23 ‘‘(iii) Section 11.

24 ‘‘(iv) Subsections (d), (f), and (k) of

25 section 17.
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1 ‘‘(v) Subsections (a), (f), and (h) of

2 section 19.

3 ‘‘(B) RULE CHANGE EXEMPTIONS.—An ex4 change that registered under paragraph (1) of

5 this subsection shall also be exempt from sub6 mitting proposed rule changes pursuant to sec7 tion 19(b) of this title, except that—

8 ‘‘(i) such exchange shall file proposed

9 rule changes related to higher margin lev10 els, fraud or manipulation, recordkeeping,

11 reporting, listing standards, or decimal

12 pricing for security futures products, sales

13 practices for security futures products for

14 persons who effect transactions in security

15 futures products, or rules effectuating such

16 exchange’s obligation to enforce the securi17 ties laws pursuant to section 19(b)(7);

18 ‘‘(ii) such exchange shall file pursuant

19 to sections 19(b)(1) and 19(b)(2) proposed

20 rule changes related to margin, except for

21 changes resulting in higher margin levels;

22 and

23 ‘‘(iii) such exchange shall file pursu24 ant to section 19(b)(1) proposed rule

25 changes that have been abrogated by the
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1 Commission pursuant to section

2 19(b)(7)(C).

3 ‘‘(5) TRADING IN SECURITY FUTURES PROD4 UCTS.—

5 ‘‘(A) IN GENERAL.—Subject to subpara6 graph (B), it shall be unlawful for any person

7 to execute or trade a security futures product

8 until the later of—

9 ‘‘(i) 1 year after the date of enact10 ment of the Commodity Futures Mod11 ernization Act of 2000; or

12 ‘‘(ii) such date that a futures associa13 tion registered under section 17 of the

14 Commodity Exchange Act has met the re15 quirements set forth in section 15A(k)(2)

16 of this title.

17 ‘‘(B) PRINCIPAL-TO-PRINCIPAL TRANS18 ACTIONS.—Notwithstanding subparagraph (A),

19 a person may execute or trade a security fu20 tures product transaction if—

21 ‘‘(i) the transaction is entered into—

22 ‘‘(I) on a principal-to-principal

23 basis between parties trading for their

24 own accounts or as described in sec-
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1 tion 1a(12)(B)(ii) of the Commodity

2 Exchange Act; and

3 ‘‘(II) only between eligible con4 tract participants (as defined in sub5 paragraphs (A), (B)(ii), and (C) of

6 such section 1a(12)) at the time at

7 which the persons enter into the

8 agreement, contract, or transaction;

9 and

10 ‘‘(ii) the transaction is entered into on

11 or after the later of—

12 ‘‘(I) 8 months after the date of

13 enactment of the Commodity Futures

14 Modernization Act of 2000; or

15 ‘‘(II) such date that a futures as16 sociation registered under section 17

17 of the Commodity Exchange Act has

18 met the requirements set forth in sec19 tion 15A(k)(2) of this title.’’.

20 (b) COMMISSION REVIEW OF PROPOSED RULE

21 CHANGES.—

22 (1) EXPEDITED REVIEW.—Section 19(b) of the

23 Securities Exchange Act of 1934 (15 U.S.C. 78s(b))

24 is amended by adding at the end the following:
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1 ‘‘(7) SECURITY FUTURES PRODUCT RULE

2 CHANGES.—

3 ‘‘(A) FILING REQUIRED.—A self-regulatory

4 organization that is an exchange registered with

5 the Commission pursuant to section 6(g) of this

6 title or that is a national securities association

7 registered pursuant to section 15A(k) of this

8 title shall file with the Commission, in accord9 ance with such rules as the Commission may

10 prescribe, copies of any proposed rule change or

11 any proposed change in, addition to, or deletion

12 from the rules of such self-regulatory organiza13 tion (hereinafter in this paragraph collectively

14 referred to as a ‘proposed rule change’) that re15 lates to higher margin levels, fraud or manipu16 lation, recordkeeping, reporting, listing stand17 ards, or decimal pricing for security futures

18 products, sales practices for security futures

19 products for persons who effect transactions in

20 security futures products, or rules effectuating

21 such self-regulatory organization’s obligation to

22 enforce the securities laws. Such proposed rule

23 change shall be accompanied by a concise gen24 eral statement of the basis and purpose of such

25 proposed rule change. The Commission shall,
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1 upon the filing of any proposed rule change,

2 promptly publish notice thereof together with

3 the terms of substance of the proposed rule

4 change or a description of the subjects and

5 issues involved. The Commission shall give in6 terested persons an opportunity to submit data,

7 views, and arguments concerning such proposed

8 rule change.

9 ‘‘(B) FILING WITH CFTC.—A proposed rule

10 change filed with the Commission pursuant to

11 subparagraph (A) shall be filed concurrently

12 with the Commodity Futures Trading Commis13 sion. Such proposed rule change may take ef14 fect upon filing of a written certification with

15 the Commodity Futures Trading Commission

16 under section 5c(c) of the Commodity Exchange

17 Act, upon a determination by the Commodity

18 Futures Trading Commission that review of the

19 proposed rule change is not necessary, or upon

20 approval of the proposed rule change by the

21 Commodity Futures Trading Commission.

22 ‘‘(C) ABROGATION OF RULE CHANGES.—

23 Any proposed rule change of a self-regulatory

24 organization that has taken effect pursuant to

25 subparagraph (B) may be enforced by such self-
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1 regulatory organization to the extent such rule

2 is not inconsistent with the provisions of this

3 title, the rules and regulations thereunder, and

4 applicable Federal law. At any time within 60

5 days of the date of the filing of a written cer6 tification with the Commodity Futures Trading

7 Commission under section 5c(c) of the Com8 modity Exchange Act, the date the Commodity

9 Futures Trading Commission determines that

10 review of such proposed rule change is not nec11 essary, or the date the Commodity Futures

12 Trading Commission approves such proposed

13 rule change, the Commission, after consultation

14 with the Commodity Futures Trading Commis15 sion, may summarily abrogate the proposed rule

16 change and require that the proposed rule

17 change be refiled in accordance with the provi18 sions of paragraph (1), if it appears to the

19 Commission that such proposed rule change un20 duly burdens competition or efficiency, conflicts

21 with the securities laws, or is inconsistent with

22 the public interest and the protection of inves23 tors. Commission action pursuant to the pre24 ceding sentence shall not affect the validity or

25 force of the rule change during the period it
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1 was in effect and shall not be reviewable under

2 section 25 of this title nor deemed to be a final

3 agency action for purposes of section 704 of

4 title 5, United States Code.

5 ‘‘(D) REVIEW OF RESUBMITTED ABRO6 GATED RULES.—

7 ‘‘(i) PROCEEDINGS.—Within 35 days

8 of the date of publication of notice of the

9 filing of a proposed rule change that is ab10 rogated in accordance with subparagraph

11 (C) and refiled in accordance with para12 graph (1), or within such longer period as

13 the Commission may designate up to 90

14 days after such date if the Commission

15 finds such longer period to be appropriate

16 and publishes its reasons for so finding or

17 as to which the self-regulatory organization

18 consents, the Commission shall—

19 ‘‘(I) by order approve such pro20 posed rule change; or

21 ‘‘(II) after consultation with the

22 Commodity Futures Trading Commis23 sion, institute proceedings to deter24 mine whether the proposed rule

25 change should be disapproved. Pro-
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1 ceedings under subclause (II) shall in2 clude notice of the grounds for dis3 approval under consideration and op4 portunity for hearing and be con5 cluded within 180 days after the date

6 of publication of notice of the filing of

7 the proposed rule change. At the con8 clusion of such proceedings, the Com9 mission, by order, shall approve or

10 disapprove such proposed rule change.

11 The Commission may extend the time

12 for conclusion of such proceedings for

13 up to 60 days if the Commission finds

14 good cause for such extension and

15 publishes its reasons for so finding or

16 for such longer period as to which the

17 self-regulatory organization consents.

18 ‘‘(ii) GROUNDS FOR APPROVAL.—The

19 Commission shall approve a proposed rule

20 change of a self-regulatory organization

21 under this subparagraph if the Commission

22 finds that such proposed rule change does

23 not unduly burden competition or effi24 ciency, does not conflict with the securities

25 laws, and is not inconsistent with the pub-
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1 lic interest or the protection of investors.

2 The Commission shall disapprove such a

3 proposed rule change of a self-regulatory

4 organization if it does not make such find5 ing. The Commission shall not approve any

6 proposed rule change prior to the 30th day

7 after the date of publication of notice of

8 the filing thereof, unless the Commission

9 finds good cause for so doing and pub10 lishes its reasons for so finding.’’.

11 (2) DECIMAL PRICING PROVISIONS.—Section

12 19(b) of the Securities Exchange Act of 1934 (15

13 U.S.C. 78s(b)) is amended by inserting after para14 graph (7), as added by paragraph (1), the following:

15 ‘‘(8) DECIMAL PRICING.—Not later than 9

16 months after the date on which trading in any secu17 rity futures product commences under this title, all

18 self-regulatory organizations listing or trading secu19 rity futures products shall file proposed rule changes

20 necessary to implement decimal pricing of security

21 futures products. The Commission may not require

22 such rules to contain equal minimum increments in

23 such decimal pricing.’’.

24 (3) CONSULTATION PROVISIONS.—Section 19(b)

25 of the Securities Exchange Act of 1934 (15 U.S.C.
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1 78s(b)) is amended by inserting after paragraph (8),

2 as added by paragraph (2), the following:

3 ‘‘(9) CONSULTATION WITH CFTC.—

4 ‘‘(A) CONSULTATION REQUIRED.—The

5 Commission shall consult with and consider the

6 views of the Commodity Futures Trading Com7 mission prior to approving or disapproving a

8 proposed rule change filed by a national securi9 ties association registered pursuant to section

10 15A(a) or a national securities exchange subject

11 to the provisions of subsection (a) that pri12 marily concerns conduct related to transactions

13 in security futures products, except where the

14 Commission determines that an emergency ex15 ists requiring expeditious or summary action

16 and publishes its reasons therefor.

17 ‘‘(B) RESPONSES TO CFTC COMMENTS AND

18 FINDINGS.—If the Commodity Futures Trading

19 Commission comments in writing to the Com20 mission on a proposed rule that has been pub21 lished for comment, the Commission shall re22 spond in writing to such written comment be23 fore approving or disapproving the proposed

24 rule. If the Commodity Futures Trading Com25 mission determines, and notifies the Commis-
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1 sion, that such rule, if implemented or as ap2 plied, would—

3 ‘‘(i) adversely affect the liquidity or

4 efficiency of the market for security fu5 tures products; or

6 ‘‘(ii) impose any burden on competi7 tion not necessary or appropriate in fur8 therance of the purposes of this section,

9 the Commission shall, prior to approving or dis10 approving the proposed rule, find that such rule

11 is necessary and appropriate in furtherance of

12 the purposes of this section notwithstanding the

13 Commodity Futures Trading Commission’s de14 termination.’’.

15 (c) REVIEW OF DISCIPLINARY PROCEEDINGS.—Sec16 tion 19(d) of the Securities Exchange Act of 1934 (15

17 U.S.C. 78s(d)) is amended by adding at the end the fol18 lowing:

19 ‘‘(3) The provisions of this subsection shall apply to

20 an exchange registered pursuant to section 6(g) of this

21 title or a national securities association registered pursu22 ant to section 15A(k) of this title only to the extent that

23 such exchange or association imposes any final discipli24 nary sanction for—
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1 ‘‘(A) a violation of the Federal securities laws

2 or the rules and regulations thereunder; or

3 ‘‘(B) a violation of a rule of such exchange or

4 association, as to which a proposed change would be

5 required to be filed under section 19 of this title, ex6 cept that, to the extent that the exchange or associa7 tion rule violation relates to any account, agreement,

8 contract, or transaction, this subsection shall apply

9 only to the extent such violation involves a security

10 futures product.’’.

11 SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES

12 TRADING SECURITY FUTURES PRODUCTS.

13 (a) EXPEDITED REGISTRATION AND EXEMPTIONS.—

14 (1) AMENDMENT.—Section 15(b) of the Securi15 ties Exchange Act of 1934 (15 U.S.C. 78o(b)) is

16 amended by adding at the end the following:

17 ‘‘(11) BROKER/DEALER REGISTRATION WITH

18 RESPECT TO TRANSACTIONS IN SECURITY FUTURES

19 PRODUCTS.—

20 ‘‘(A) NOTICE REGISTRATION.—

21 ‘‘(i) CONTENTS OF NOTICE.—Not22 withstanding paragraphs (1) and (2), a

23 broker or dealer required to register only

24 because it effects transactions in security

25 futures products on an exchange registered
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1 pursuant to section 6(g) may register for

2 purposes of this section by filing with the

3 Commission a written notice in such form

4 and containing such information con5 cerning such broker or dealer and any per6 sons associated with such broker or dealer

7 as the Commission, by rule, may prescribe

8 as necessary or appropriate in the public

9 interest or for the protection of investors.

10 A broker or dealer may not register under

11 this paragraph unless that broker or dealer

12 is a member of a national securities asso13 ciation registered under section 15A(k).

14 ‘‘(ii) IMMEDIATE EFFECTIVENESS.—

15 Such registration shall be effective contem16 poraneously with the submission of notice,

17 in written or electronic form, to the Com18 mission, except that such registration shall

19 not be effective if the registration would be

20 subject to suspension or revocation under

21 paragraph (4).

22 ‘‘(iii) SUSPENSION.—Such registration

23 shall be suspended immediately if a na24 tional securities association registered pur25 suant to section 15A(k) of this title sus-
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1 pends the membership of that broker or

2 dealer.

3 ‘‘(iv) TERMINATION.—Such registra4 tion shall be terminated immediately if any

5 of the above stated conditions for registra6 tion set forth in this paragraph are no

7 longer satisfied.

8 ‘‘(B) EXEMPTIONS FOR REGISTERED BRO9 KERS AND DEALERS.—A broker or dealer reg10 istered pursuant to the requirements of sub11 paragraph (A) shall be exempt from the fol12 lowing provisions of this title and the rules

13 thereunder with respect to transactions in secu14 rity futures products:

15 ‘‘(i) Section 8.

16 ‘‘(ii) Section 11.

17 ‘‘(iii) Subsections (c)(3) and (c)(5) of

18 this section.

19 ‘‘(iv) Section 15B.

20 ‘‘(v) Section 15C.

21 ‘‘(vi) Subsections (d), (e), (f), (g), (h),

22 and (i) of section 17.’’.

23 (2) CONFORMING AMENDMENT.—Section 28(e)

24 of the Securities Exchange Act of 1934 (15 U.S.C.
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1 78bb(e)) is amended by adding at the end the fol2 lowing:

3 ‘‘(4) The provisions of this subsection shall not apply

4 with regard to securities that are security futures prod5 ucts.’’.

6 (b) FLOOR BROKERS AND FLOOR TRADERS.—Sec7 tion 15(b) of the Securities Exchange Act of 1934 (15

8 U.S.C. 78o(b)) is amended by inserting after paragraph

9 (11), as added by subsection (a), the following:

10 ‘‘(12) EXEMPTION FOR SECURITY FUTURES

11 PRODUCT EXCHANGE MEMBERS.—

12 ‘‘(A) REGISTRATION EXEMPTION.—A nat13 ural person shall be exempt from the registra14 tion requirements of this section if such

15 person—

16 ‘‘(i) is a member of a designated con17 tract market registered with the Commis18 sion as an exchange pursuant to section

19 6(g);

20 ‘‘(ii) effects transactions only in secu21 rities on the exchange of which such per22 son is a member; and

23 ‘‘(iii) does not directly accept or solicit

24 orders from public customers or provide

25 advice to public customers in connection
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1 with the trading of security futures prod2 ucts.

3 ‘‘(B) OTHER EXEMPTIONS.—A natural

4 person exempt from registration pursuant to

5 subparagraph (A) shall also be exempt from the

6 following provisions of this title and the rules

7 thereunder:

8 ‘‘(i) Section 8.

9 ‘‘(ii) Section 11.

10 ‘‘(iii) Subsections (c)(3), (c)(5), and

11 (e) of this section.

12 ‘‘(iv) Section 15B.

13 ‘‘(v) Section 15C.

14 ‘‘(vi) Subsections (d), (e), (f), (g), (h),

15 and (i) of section 17.’’.

16 (c) LIMITED PURPOSE NATIONAL SECURITIES ASSO17 CIATION.—Section 15A of the Securities Exchange Act of

18 1934 (15 U.S.C. 78o–3) is amended by adding at the end

19 the following:

20 ‘‘(k) LIMITED PURPOSE NATIONAL SECURITIES AS21 SOCIATION.—

22 ‘‘(1) REGULATION OF MEMBERS WITH RESPECT

23 TO SECURITY FUTURES PRODUCTS.—A futures asso24 ciation registered under section 17 of the Com25 modity Exchange Act shall be a registered national
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1 securities association for the limited purpose of reg2 ulating the activities of members who are registered

3 as brokers or dealers in security futures products

4 pursuant to section 15(b)(11).

5 ‘‘(2) REQUIREMENTS FOR REGISTRATION.—

6 Such a securities association shall—

7 ‘‘(A) be so organized and have the capacity

8 to carry out the purposes of the securities laws

9 applicable to security futures products and to

10 comply, and (subject to any rule or order of the

11 Commission pursuant to section 19(g)(2)) to

12 enforce compliance by its members and persons

13 associated with its members, with the provisions

14 of the securities laws applicable to security fu15 tures products, the rules and regulations there16 under, and its rules;

17 ‘‘(B) have rules that—

18 ‘‘(i) are designed to prevent fraudu19 lent and manipulative acts and practices,

20 to promote just and equitable principles of

21 trade, and, in general, to protect investors

22 and the public interest, including rules

23 governing sales practices and the adver24 tising of security futures products reason25 ably comparable to those of other national
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1 securities associations registered pursuant

2 to subsection (a) that are applicable to se3 curity futures products; and

4 ‘‘(ii) are not designed to regulate by

5 virtue of any authority conferred by this

6 title matters not related to the purposes of

7 this title or the administration of the asso8 ciation;

9 ‘‘(C) have rules that provide that (subject

10 to any rule or order of the Commission pursu11 ant to section 19(g)(2)) its members and per12 sons associated with its members shall be ap13 propriately disciplined for violation of any provi14 sion of the securities laws applicable to security

15 futures products, the rules or regulations there16 under, or the rules of the association, by expul17 sion, suspension, limitation of activities, func18 tions, and operations, fine, censure, being sus19 pended or barred from being associated with a

20 member, or any other fitting sanction; and

21 ‘‘(D) have rules that ensure that members

22 and natural persons associated with members

23 meet such standards of training, experience,

24 and competence necessary to effect transactions

25 in security futures products and are tested for
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1 their knowledge of securities and security fu2 tures products.

3 ‘‘(3) EXEMPTION FROM RULE CHANGE SUBMIS4 SION.—Such a securities association shall be exempt

5 from submitting proposed rule changes pursuant to

6 section 19(b) of this title, except that—

7 ‘‘(A) the association shall file proposed

8 rule changes related to higher margin levels,

9 fraud or manipulation, recordkeeping, report10 ing, listing standards, or decimal pricing for se11 curity futures products, sales practices for, ad12 vertising of, or standards of training, experi13 ence, competence, or other qualifications for se14 curity futures products for persons who effect

15 transactions in security futures products, or

16 rules effectuating the association’s obligation to

17 enforce the securities laws pursuant to section

18 19(b)(7);

19 ‘‘(B) the association shall file pursuant to

20 sections 19(b)(1) and 19(b)(2) proposed rule

21 changes related to margin, except for changes

22 resulting in higher margin levels; and

23 ‘‘(C) the association shall file pursuant to

24 section 19(b)(1) proposed rule changes that
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1 have been abrogated by the Commission pursu2 ant to section 19(b)(7)(C).

3 ‘‘(4) OTHER EXEMPTIONS.—Such a securities

4 association shall be exempt from and shall not be re5 quired to enforce compliance by its members, and its

6 members shall not, solely with respect to their trans7 actions effected in security futures products, be re8 quired to comply, with the following provisions of

9 this title and the rules thereunder:

10 ‘‘(A) Section 8.

11 ‘‘(B) Subsections (b)(1), (b)(3), (b)(4),

12 (b)(5), (b)(8), (b)(10), (b)(11), (b)(12), (b)(13),

13 (c), (d), (e), (f), (g), (h), and (i) of this section.

14 ‘‘(C) Subsections (d), (f), and (k) of sec15 tion 17.

16 ‘‘(D) Subsections (a), (f), and (h) of sec17 tion 19.’’.

18 (d) EXEMPTION UNDER THE SECURITIES INVESTOR

19 PROTECTION ACT OF 1970.—

20 (1) Section 16(14) of the Securities Investor

21 Protection Act of 1970 (15 U.S.C. 78lll(14)) is

22 amended by inserting ‘‘or any security future as that

23 term is defined in section 3(a)(55)(A) of the Securi24 ties Exchange Act of 1934,’’ after ‘‘certificate of de25 posit for a security,’’.
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1 (2) Section 3(a)(2)(A) of the Securities Investor

2 Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A))

3 is amended—

4 (A) in clause (i), by striking ‘‘and’’ after

5 the semicolon;

6 (B) in clause (ii), by striking the period

7 and inserting ‘‘; and’’; and

8 (C) by adding at the end the following:

9 ‘‘(iii) persons who are registered as a

10 broker or dealer pursuant to section

11 15(b)(11)(A) of the Securities Exchange

12 Act of 1934.’’.

13 SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY CO14 OPERATION.

15 Section 17(b) of the Securities Exchange Act of 1934

16 (15 U.S.C. 78q(b)) is amended—

17 (1) by striking ‘‘(b) All’’ and inserting the fol18 lowing:

19 ‘‘(b) RECORDS SUBJECT TO EXAMINATION.—

20 ‘‘(1) PROCEDURES FOR COOPERATION WITH

21 OTHER AGENCIES.—All’’;

22 (2) by striking ‘‘prior to conducting any such

23 examination of a registered clearing’’ and inserting

24 the following: ‘‘prior to conducting any such exam25 ination of a—
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1 ‘‘(A) registered clearing’’;

2 (3) by redesignating the last sentence as para3 graph (4)(C);

4 (4) by striking the period at the end of the first

5 sentence and inserting the following: ‘‘; or

6 ‘‘(B) broker or dealer registered pursuant

7 to section 15(b)(11), exchange registered pursu8 ant to section 6(g), or national securities asso9 ciation registered pursuant to section 15A(k)

10 gives notice to the Commodity Futures Trading

11 Commission of such proposed examination and

12 consults with the Commodity Futures Trading

13 Commission concerning the feasibility and de14 sirability of coordinating such examination with

15 examinations conducted by the Commodity Fu16 tures Trading Commission in order to avoid un17 necessary regulatory duplication or undue regu18 latory burdens for such broker or dealer or ex19 change.’’;

20 (5) by adding at the end the following new

21 paragraphs:

22 ‘‘(2) FURNISHING DATA AND REPORTS TO

23 CFTC.—The Commission shall notify the Commodity

24 Futures Trading Commission of any examination

25 conducted of any broker or dealer registered pursu-
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1 ant to section 15(b)(11), exchange registered pursu2 ant to section 6(g), or national securities association

3 registered pursuant to section 15A(k) and, upon re4 quest, furnish to the Commodity Futures Trading

5 Commission any examination report and data sup6 plied to, or prepared by, the Commission in connec7 tion with such examination.

8 ‘‘(3) USE OF CFTC REPORTS.—Prior to con9 ducting an examination under paragraph (1), the

10 Commission shall use the reports of examinations, if

11 the information available therein is sufficient for the

12 purposes of the examination, of—

13 ‘‘(A) any broker or dealer registered pursu14 ant to section 15(b)(11);

15 ‘‘(B) exchange registered pursuant to sec16 tion 6(g); or

17 ‘‘(C) national securities association reg18 istered pursuant to section 15A(k);

19 that is made by the Commodity Futures Trading

20 Commission, a national securities association reg21 istered pursuant to section 15A(k), or an exchange

22 registered pursuant to section 6(g).

23 ‘‘(4) RULES OF CONSTRUCTION.—

24 ‘‘(A) Notwithstanding any other provision

25 of this subsection, the records of a broker or
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•S 3283 IS

1 dealer registered pursuant to section 15(b)(11),

2 an exchange registered pursuant to section

3 6(g), or a national securities association reg4 istered pursuant to section 15A(k) described in

5 this subparagraph shall not be subject to rou6 tine periodic examinations by the Commission.

7 ‘‘(B) Any recordkeeping rules adopted

8 under this subsection for a broker or dealer reg9 istered pursuant to section 15(b)(11), an ex10 change registered pursuant to section 6(g), or a

11 national securities association registered pursu12 ant to section 15A(k) shall be limited to records

13 with respect to persons, accounts, agreements,

14 contracts, and transactions involving security

15 futures products.’’; and

16 (6) in paragraph (4)(C) (as redesignated by

17 paragraph (3) of this section), by striking ‘‘Nothing

18 in the proviso to the preceding sentence’’ and insert19 ing ‘‘Nothing in the proviso in paragraph (1)’’.

20 SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SE21 CURITY FUTURES PRODUCTS.

22 (a) ADDITION OF SECURITY FUTURES PRODUCTS TO

23 OPTION-SPECIFIC ENFORCEMENT PROVISIONS.—
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1 (1) PROHIBITION AGAINST MANIPULATION.—

2 Section 9(b) of the Securities Exchange Act of 1934

3 (15 U.S.C. 78i(b)) is amended—

4 (A) in paragraph (1)—

5 (i) by inserting ‘‘(A)’’ after ‘‘ac6 quires’’; and

7 (ii) by striking ‘‘; or’’ and inserting ‘‘;

8 or (B) any security futures product on the

9 security; or’’;

10 (B) in paragraph (2)—

11 (i) by inserting ‘‘(A)’’ after ‘‘interest

12 in any’’; and

13 (ii) by striking ‘‘; or’’ and inserting ‘‘;

14 or (B) such security futures product; or’’;

15 and

16 (C) in paragraph (3)—

17 (i) by inserting ‘‘(A)’’ after ‘‘interest

18 in any’’; and

19 (ii) by inserting ‘‘; or (B) such secu20 rity futures product’’ after ‘‘privilege’’.

21 (2) MANIPULATION IN OPTIONS AND OTHER

22 DERIVATIVE PRODUCTS.—Section 9(g) of the Securi23 ties Exchange Act of 1934 (15 U.S.C. 78i(g)) is

24 amended—

25 (A) by inserting ‘‘(1)’’ after ‘‘(g)’’;
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1 (B) by inserting ‘‘other than a security fu2 tures product’’ after ‘‘future delivery’’; and

3 (C) by adding at the end following:

4 ‘‘(2) Notwithstanding the Commodity Exchange Act,

5 the Commission shall have the authority to regulate the

6 trading of any security futures product to the extent pro7 vided in the securities laws.’’.

8 (3) LIABILITY OF CONTROLLING PERSONS AND

9 PERSONS WHO AID AND ABET VIOLATIONS.—Section

10 20(d) of the Securities Exchange Act of 1934 (15

11 U.S.C. 78t(d)) is amended by striking ‘‘or privilege’’

12 and inserting ‘‘, privilege, or security futures prod13 uct’’.

14 (4) LIABILITY TO CONTEMPORANEOUS TRADERS

15 FOR INSIDER TRADING.—Section 21A(a)(1) of the

16 Securities Exchange Act of 1934 (15 U.S.C. 78u–

17 1(a)(1)) is amended by striking ‘‘standardized op18 tions, the Commission—’’ and inserting ‘‘standard19 ized options or security futures products, the Com20 mission—’’.

21 (5) ENFORCEMENT CONSULTATION.—Section

22 21 of the Securities Exchange Act of 1934 (15

23 U.S.C. 78u) is amended by adding at the end the

24 following:
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1 ‘‘(i) INFORMATION TO CFTC.—The Commission

2 shall provide the Commodity Futures Trading Commission

3 with notice of the commencement of any proceeding and

4 a copy of any order entered by the Commission against

5 any broker or dealer registered pursuant to section

6 15(b)(11), any exchange registered pursuant to section

7 6(g), or any national securities association registered pur8 suant to section 15A(k).’’.

9 SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SE10 CURITY FUTURES PRODUCTS.

11 (a) LISTING STANDARDS AND CONDITIONS FOR

12 TRADING.—Section 6 of the Securities Exchange Act of

13 1934 (15 U.S.C. 78f) is amended by inserting after sub14 section (g), as added by section 202, the following:

15 ‘‘(h) TRADING IN SECURITY FUTURES PRODUCTS.—

16 ‘‘(1) TRADING ON EXCHANGE OR ASSOCIATION

17 REQUIRED.—It shall be unlawful for any person to

18 effect transactions in security futures products that

19 are not listed on a national securities exchange or a

20 national securities association registered pursuant to

21 section 15A(a).

22 ‘‘(2) LISTING STANDARDS REQUIRED.—Except

23 as otherwise provided in paragraph (7), a national

24 securities exchange or a national securities associa25 tion registered pursuant to section 15A(a) may trade
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1 only security futures products that (A) conform with

2 listing standards that such exchange or association

3 files with the Commission under section 19(b) and

4 (B) meet the criteria specified in section

5 2(a)(1)(D)(i) of the Commodity Exchange Act.

6 ‘‘(3) REQUIREMENTS FOR LISTING STANDARDS

7 AND CONDITIONS FOR TRADING.—Such listing

8 standards shall—

9 ‘‘(A) except as otherwise provided in a

10 rule, regulation, or order issued pursuant to

11 paragraph (4), require that any security under12 lying the security future, including each compo13 nent security of a narrow-based security index,

14 be registered pursuant to section 12 of this

15 title;

16 ‘‘(B) require that if the security futures

17 product is not cash settled, the market on

18 which the security futures product is traded

19 have arrangements in place with a registered

20 clearing agency for the payment and delivery of

21 the securities underlying the security futures

22 product;

23 ‘‘(C) be no less restrictive than comparable

24 listing standards for options traded on a na25 tional securities exchange or national securities
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1 association registered pursuant to section

2 15A(a) of this title;

3 ‘‘(D) except as otherwise provided in a

4 rule, regulation, or order issued pursuant to

5 paragraph (4), require that the security future

6 be based upon common stock and such other

7 equity securities as the Commission and the

8 Commodity Futures Trading Commission joint9 ly determine appropriate;

10 ‘‘(E) require that the security futures

11 product is cleared by a clearing agency that has

12 in place provisions for linked and coordinated

13 clearing with other clearing agencies that clear

14 security futures products, which permits the se15 curity futures product to be purchased on one

16 market and offset on another market that

17 trades such product;

18 ‘‘(F) require that only a broker or dealer

19 subject to suitability rules comparable to those

20 of a national securities association registered

21 pursuant to section 15A(a) effect transactions

22 in the security futures product;

23 ‘‘(G) require that the security futures

24 product be subject to the prohibition against

25 dual trading in section 4j of the Commodity Ex-
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1 change Act (7 U.S.C. 6j) and the rules and reg2 ulations thereunder or the provisions of section

3 11(a) of this title and the rules and regulations

4 thereunder, except to the extent otherwise per5 mitted under this title and the rules and regula6 tions thereunder;

7 ‘‘(H) require that trading in the security

8 futures product not be readily susceptible to

9 manipulation of the price of such security fu10 tures product, nor to causing or being used in

11 the manipulation of the price of any underlying

12 security, option on such security, or option on

13 a group or index including such securities;

14 ‘‘(I) require that procedures be in place for

15 coordinated surveillance among the market on

16 which the security futures product is traded,

17 any market on which any security underlying

18 the security futures product is traded, and

19 other markets on which any related security is

20 traded to detect manipulation and insider trad21 ing;

22 ‘‘(J) require that the market on which the

23 security futures product is traded has in place

24 audit trails necessary or appropriate to facili-
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1 tate the coordinated surveillance required in

2 subparagraph (I);

3 ‘‘(K) require that the market on which the

4 security futures product is traded has in place

5 procedures to coordinate trading halts between

6 such market and any market on which any se7 curity underlying the security futures product is

8 traded and other markets on which any related

9 security is traded; and

10 ‘‘(L) require that the margin requirements

11 for a security futures product comply with the

12 regulations prescribed pursuant to section

13 7(c)(2)(B), except that nothing in this subpara14 graph shall be construed to prevent a national

15 securities exchange or national securities asso16 ciation from requiring higher margin levels for

17 a security futures product when it deems such

18 action to be necessary or appropriate.

19 ‘‘(4) AUTHORITY TO MODIFY CERTAIN LISTING

20 STANDARD REQUIREMENTS.—

21 ‘‘(A) AUTHORITY TO MODIFY.—The Com22 mission and the Commodity Futures Trading

23 Commission, by rule, regulation, or order, may

24 jointly modify the listing standard requirements

25 specified in subparagraph (A) or (D) of para-
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1 graph (3) to the extent such modification fos2 ters the development of fair and orderly mar3 kets in security futures products, is necessary

4 or appropriate in the public interest, and is con5 sistent with the protection of investors.

6 ‘‘(B) AUTHORITY TO GRANT EXEMP7 TIONS.—The Commission and the Commodity

8 Futures Trading Commission, by order, may

9 jointly exempt any person from compliance with

10 the listing standard requirement specified in

11 subparagraph (E) of paragraph (3) to the ex12 tent such exemption fosters the development of

13 fair and orderly markets in security futures

14 products, is necessary or appropriate in the

15 public interest, and is consistent with the pro16 tection of investors.

17 ‘‘(5) REQUIREMENTS FOR OTHER PERSONS

18 TRADING SECURITY FUTURE PRODUCTS.—It shall be

19 unlawful for any person (other than a national secu20 rities exchange or a national securities association

21 registered pursuant to section 15A(a)) to constitute,

22 maintain, or provide a marketplace or facilities for

23 bringing together purchasers and sellers of security

24 future products or to otherwise perform with respect

25 to security future products the functions commonly
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1 performed by a stock exchange as that term is gen2 erally understood, unless a national securities asso3 ciation registered pursuant to section 15A(a) or a

4 national securities exchange of which such person is

5 a member—

6 ‘‘(A) has in place procedures for coordi7 nated surveillance among such person, the mar8 ket trading the securities underlying the secu9 rity future products, and other markets trading

10 related securities to detect manipulation and in11 sider trading;

12 ‘‘(B) has rules to require audit trails nec13 essary or appropriate to facilitate the coordi14 nated surveillance required in subparagraph

15 (A); and

16 ‘‘(C) has rules to require such person to

17 coordinate trading halts with markets trading

18 the securities underlying the security future

19 products and other markets trading related se20 curities.

21 ‘‘(6) DEFERRAL OF OPTIONS ON SECURITY FU22 TURES TRADING.—No person shall offer to enter

23 into, enter into, or confirm the execution of any put,

24 call, straddle, option, or privilege on a security fu25 ture, except that, after 3 years after the date of en-
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1 actment of this subsection, the Commission and the

2 Commodity Futures Trading Commission may by

3 order jointly determine to permit trading of puts,

4 calls, straddles, options, or privileges on any security

5 future authorized to be traded under the provisions

6 of this Act and the Commodity Exchange Act.

7 ‘‘(7) DEFERRAL OF LINKED AND COORDINATED

8 CLEARING.—

9 ‘‘(A) Notwithstanding paragraph (2), until

10 the compliance date, a national securities ex11 change or national securities association reg12 istered pursuant to section 15A(a) may trade a

13 security futures product that does not—

14 ‘‘(i) conform with any listing standard

15 promulgated to meet the requirement spec16 ified in subparagraph (E) of paragraph

17 (3); or

18 ‘‘(ii) meet the criterion specified in

19 section 2(a)(1)(D)(i)(IV) of the Com20 modity Exchange Act.

21 ‘‘(B) The Commission and the Commodity

22 Futures Trading Commission shall jointly pub23 lish in the Federal Register a notice of the com24 pliance date no later than 165 days before the

25 compliance date.
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1 ‘‘(C) For purposes of this paragraph, the

2 term ‘compliance date’ means the later of—

3 ‘‘(i) 180 days after the end of the

4 first full calendar month period in which

5 the average aggregate comparable share

6 volume for all security futures products

7 based on single equity securities traded on

8 all national securities exchanges, any na9 tional securities associations registered

10 pursuant to section 15A(a), and all other

11 persons equals or exceeds 10 percent of the

12 average aggregate comparable share vol13 ume of options on single equity securities

14 traded on all national securities exchanges

15 and any national securities associations

16 registered pursuant to section 15A(a); or

17 ‘‘(ii) 2 years after the date on which

18 trading in any security futures product

19 commences under this title.’’.

20 (b) MARGIN.—Section 7 of the Securities Exchange

21 Act of 1934 (15 U.S.C. 78g) is amended—

22 (1) in subsection (a), by inserting ‘‘or a security

23 futures product’’ after ‘‘exempted security’’;

24 (2) in subsection (c)(1)(A), by inserting ‘‘except

25 as provided in paragraph (2),’’ after ‘‘security),’’;
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1 (3) by redesignating paragraph (2) of sub2 section (c) as paragraph (3) of such subsection; and

3 (4) by inserting after paragraph (1) of such

4 subsection the following:

5 ‘‘(2) MARGIN REGULATIONS.—

6 ‘‘(A) COMPLIANCE WITH MARGIN RULES

7 REQUIRED.—It shall be unlawful for any

8 broker, dealer, or member of a national securi9 ties exchange to, directly or indirectly, extend

10 or maintain credit to or for, or collect margin

11 from any customer on, any security futures

12 product unless such activities comply with the

13 regulations—

14 ‘‘(i) which the Board shall prescribe

15 pursuant to subparagraph (B); or

16 ‘‘(ii) if the Board determines to dele17 gate the authority to prescribe such regula18 tions, which the Commission and the Com19 modity Futures Trading Commission shall

20 jointly prescribe pursuant to subparagraph

21 (B).

22 If the Board delegates the authority to pre23 scribe such regulations under clause (ii) and the

24 Commission and the Commodity Futures Trad25 ing Commission have not jointly prescribed such
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1 regulations within a reasonable period of time

2 after the date of such delegation, the Board

3 shall prescribe such regulations pursuant to

4 subparagraph (B).

5 ‘‘(B) CRITERIA FOR ISSUANCE OF

6 RULES.—The Board shall prescribe, or, if the

7 authority is delegated pursuant to subpara8 graph (A)(ii), the Commission and the Com9 modity Futures Trading Commission shall

10 jointly prescribe, such regulations to establish

11 margin requirements, including the establish12 ment of levels of margin (initial and mainte13 nance) for security futures products under such

14 terms, and at such levels, as the Board deems

15 appropriate, or as the Commission and the

16 Commodity Futures Trading Commission joint17 ly deem appropriate—

18 ‘‘(i) to preserve the financial integrity

19 of markets trading security futures prod20 ucts;

21 ‘‘(ii) to prevent systemic risk;

22 ‘‘(iii) to require that—

23 ‘‘(I) the margin requirements for

24 a security future product be con25 sistent with the margin requirements
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1 for comparable option contracts trad2 ed on any exchange registered pursu3 ant to section 6(a) of this title; and

4 ‘‘(II) initial and maintenance

5 margin levels for a security future

6 product not be lower than the lowest

7 level of margin, exclusive of premium,

8 required for any comparable option

9 contract traded on any exchange reg10 istered pursuant to section 6(a) of

11 this title, other than an option on a

12 security future;

13 except that nothing in this subparagraph

14 shall be construed to prevent a national se15 curities exchange or national securities as16 sociation from requiring higher margin lev17 els for a security future product when it

18 deems such action to be necessary or ap19 propriate; and

20 ‘‘(iv) to ensure that the margin re21 quirements (other than levels of margin),

22 including the type, form, and use of collat23 eral for security futures products, are and

24 remain consistent with the requirements

25 established by the Board, pursuant to sub-
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1 paragraphs (A) and (B) of paragraph

2 (1).’’.

3 (c) INCORPORATION OF SECURITY FUTURES PROD4 UCTS INTO THE NATIONAL MARKET SYSTEM.—Section

5 11A of the Securities Exchange Act of 1934 (15 U.S.C.

6 78k–1) is amended by adding at the end the following:

7 ‘‘(e) NATIONAL MARKETS SYSTEM FOR SECURITY

8 FUTURES PRODUCTS.—

9 ‘‘(1) CONSULTATION AND COOPERATION RE10 QUIRED.—With respect to security futures products,

11 the Commission and the Commodity Futures Trad12 ing Commission shall consult and cooperate so that,

13 to the maximum extent practicable, their respective

14 regulatory responsibilities may be fulfilled and the

15 rules and regulations applicable to security futures

16 products may foster a national market system for

17 security futures products if the Commission and the

18 Commodity Futures Trading Commission jointly de19 termine that such a system would be consistent with

20 the congressional findings in subsection (a)(1). In

21 accordance with this objective, the Commission shall,

22 at least 15 days prior to the issuance for public com23 ment of any proposed rule or regulation under this

24 section concerning security futures products, consult
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1 and request the views of the Commodity Futures

2 Trading Commission.

3 ‘‘(2) APPLICATION OF RULES BY ORDER OF

4 CFTC.—No rule adopted pursuant to this section

5 shall be applied to any person with respect to the

6 trading of security futures products on an exchange

7 that is registered under section 6(g) unless the Com8 modity Futures Trading Commission has issued an

9 order directing that such rule is applicable to such

10 persons.’’.

11 (d) INCORPORATION OF SECURITY FUTURES PROD12 UCTS INTO THE NATIONAL SYSTEM FOR CLEARANCE AND

13 SETTLEMENT.—Section 17A(b) of the Securities Ex14 change Act of 1934 (15 U.S.C. 78q–1(b)) is amended by

15 adding at the end the following:

16 ‘‘(7)(A) A clearing agency that is regulated directly

17 or indirectly by the Commodity Futures Trading Commis18 sion through its association with a designated contract

19 market for security futures products that is a national se20 curities exchange registered pursuant to section 6(g), and

21 that would be required to register pursuant to paragraph

22 (1) of this subsection only because it performs the func23 tions of a clearing agency with respect to security futures

24 products effected pursuant to the rules of the designated

25 contract market with which such agency is associated, is
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1 exempted from the provisions of this section and the rules

2 and regulations thereunder, except that if such a clearing

3 agency performs the functions of a clearing agency with

4 respect to a security futures product that is not cash set5 tled, it must have arrangements in place with a registered

6 clearing agency to effect the payment and delivery of the

7 securities underlying the security futures product.

8 ‘‘(B) Any clearing agency that performs the functions

9 of a clearing agency with respect to security futures prod10 ucts must coordinate with and develop fair and reasonable

11 links with any and all other clearing agencies that perform

12 the functions of a clearing agency with respect to security

13 futures products, in order to permit, as of the compliance

14 date (as defined in section 6(h)(6)(C)), security futures

15 products to be purchased on one market and offset on an16 other market that trades such products.’’.

17 (e) MARKET EMERGENCY POWERS AND CIRCUIT

18 BREAKERS.—Section 12(k) of the Securities Exchange

19 Act of 1934 (15 U.S.C. 78l(k)) is amended—

20 (1) in paragraph (1), by adding at the end the

21 following: ‘‘If the actions described in subparagraph

22 (A) or (B) involve a security futures product, the

23 Commission shall consult with and consider the

24 views of the Commodity Futures Trading Commis25 sion.’’; and
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1 (2) in paragraph (2)(B), by inserting after the

2 first sentence the following: ‘‘If the actions described

3 in subparagraph (A) involve a security futures prod4 uct, the Commission shall consult with and consider

5 the views of the Commodity Futures Trading Com6 mission.’’.

7 (f) TRANSACTION FEES.—Section 31 of the Securi8 ties Exchange Act of 1934 (15 U.S.C. 78ee) is amended—

9 (1) in subsection (a), by inserting ‘‘and assess10 ments’’ after ‘‘fees’’;

11 (2) in subsections (b), (c), and (d)(1), by strik12 ing ‘‘and other evidences of indebtedness’’ and in13 serting ‘‘other evidences of indebtedness, and secu14 rity futures products’’;

15 (3) in subsection (f), by inserting ‘‘or assess16 ment’’ after ‘‘fee’’;

17 (4) in subsection (g), by inserting ‘‘and assess18 ment’’ after ‘‘fee’’;

19 (5) by redesignating subsections (e), (f), and

20 (g) as subsections (f), (g), and (h), respectively; and

21 (6) by inserting after subsection (d) the fol22 lowing new subsection:

23 ‘‘(e) ASSESSMENTS ON SECURITY FUTURES TRANS24 ACTIONS.—Each national securities exchange and national

25 securities association shall pay to the Commission an as-
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1 sessment equal to $0.02 for each round turn transaction

2 (treated as including one purchase and one sale of a con3 tract of sale for future delivery) on a security future trad4 ed on such national securities exchange or by or through

5 any member of such association otherwise than on a na6 tional securities exchange, except that for fiscal year 2007

7 or any succeeding fiscal year such assessment shall be

8 equal to $0.0075 for each such transaction. Assessments

9 collected pursuant to this subsection shall be deposited

10 and collected as general revenue of the Treasury.’’.

11 (g) EXEMPTION FROM SHORT SALE PROVISIONS.—

12 Section 10(a) of the Securities Exchange Act of 1934 (15

13 U.S.C 78j(a)) is amended—

14 (1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and

15 (2) by adding at the end the following:

16 ‘‘(2) Paragraph (1) of this subsection shall not apply

17 to security futures products.’’.

18 (h) RULEMAKING AUTHORITY TO ADDRESS DUPLI19 CATIVE REGULATION OF DUAL REGISTRANTS.—Section

20 15(c)(3) of the Securities Exchange Act of 1934 (15

21 U.S.C. 78o(c)(3))is amended—

22 (1) by inserting ‘‘(A)’’ after ‘‘(3)’’; and

23 (2) by adding at the end the following:

24 ‘‘(B) Consistent with this title, the Commission, in

25 consultation with the Commodity Futures Trading Com-
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1 mission, shall issue such rules, regulations, or orders as

2 are necessary to avoid duplicative or conflicting regula3 tions applicable to any broker or dealer registered with

4 the Commission pursuant to section 15(b) (except para5 graph (11) thereof), that is also registered with the Com6 modity Futures Trading Commission pursuant to section

7 4f(a) of the Commodity Exchange Act (except paragraph

8 (2) thereof), with respect to the application of (i) the pro9 visions of section 8, section 15(c)(3), and section 17 of

10 this title and the rules and regulations thereunder related

11 to the treatment of customer funds, securities, or prop12 erty, maintenance of books and records, financial report13 ing, or other financial responsibility rules, involving secu14 rity futures products and (ii) similar provisions of the

15 Commodity Exchange Act and rules and regulations there16 under involving security futures products.’’.

17 (i) OBLIGATION TO ADDRESS DUPLICATIVE REGU18 LATION OF DUAL REGISTRANTS.—Section 6 of the Securi19 ties Exchange Act of 1934 (15 U.S.C 78f) is amended

20 by inserting after subsection (h), as added by subsection

21 (a) of this section, the following:

22 ‘‘(i) Consistent with this title, each national securities

23 exchange registered pursuant to subsection (a) of this sec24 tion shall issue such rules as are necessary to avoid dupli25 cative or conflicting rules applicable to any broker or deal-
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1 er registered with the Commission pursuant to section

2 15(b) (except paragraph (11) thereof), that is also reg3 istered with the Commodity Futures Trading Commission

4 pursuant to section 4f(a) of the Commodity Exchange Act

5 (except paragraph (2) thereof), with respect to the appli6 cation of—

7 (1) rules of such national securities exchange of

8 the type specified in section 15(c)(3)(B) involving

9 security futures products; and

10 (2) similar rules of national securities ex11 changes registered pursuant to section 6(g) and na12 tional securities associations registered pursuant to

13 section 15A(k) involving security futures products.’’.

14 (j) OBLIGATION TO ADDRESS DUPLICATIVE REGU15 LATION OF DUAL REGISTRANTS.—Section 15A of the Se16 curities Exchange Act of 1934 (15 U.S.C 78o–3) is

17 amended by inserting after subsection (k), as added by

18 section 203, the following:

19 ‘‘(l) Consistent with this title, each national securities

20 association registered pursuant to subsection (a) of this

21 section shall issue such rules as are necessary to avoid du22 plicative or conflicting rules applicable to any broker or

23 dealer registered with the Commission pursuant to section

24 15(b) (except paragraph (11) thereof), that is also reg25 istered with the Commodity Futures Trading Commission
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1 pursuant to section 4f(a) of the Commodity Exchange Act

2 (except paragraph (2) thereof), with respect to the appli3 cation of—

4 ‘‘(1) rules of such national securities association

5 of the type specified in section 15(c)(3)(B) involving

6 security futures products; and

7 ‘‘(2) similar rules of national securities associa8 tions registered pursuant to subsection (k) of this

9 section and national securities exchanges registered

10 pursuant to section 6(g) involving security futures

11 products.’’.

12 (k) OBLIGATION TO PUT IN PLACE PROCEDURES

13 AND ADOPT RULES.—

14 (1) NATIONAL SECURITIES ASSOCIATIONS.—

15 Section 15A of the Securities Exchange Act of 1934

16 (15 U.S.C. 78o–3) is amended by inserting after

17 subsection (l), as added by subsection (j) of this sec18 tion, the following new subsection:

19 ‘‘(m) PROCEDURES AND RULES FOR SECURITY FU20 TURE PRODUCTS.—A national securities association reg21 istered pursuant to subsection (a) shall, not later than 8

22 months after the date of enactment of the Commodity Fu23 tures Modernization Act of 2000, implement the proce24 dures specified in section 6(h)(5)(A) of this title and adopt
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1 the rules specified in subparagraphs (B) and (C) of section

2 6(h)(5) of this title.’’.

3 (2) NATIONAL SECURITIES EXCHANGES.—Sec4 tion 6 of the Securities Exchange Act of 1934 (15

5 U.S.C. 78f) is amended by inserting after subsection

6 (i), as added by subsection (i) of this section, the fol7 lowing new subsection:

8 ‘‘(j) PROCEDURES AND RULES FOR SECURITY FU9 TURE PRODUCTS.—A national securities exchange reg10 istered pursuant to subsection (a) shall implement the pro11 cedures specified in section 6(h)(5)(A) of this title and

12 adopt the rules specified in subparagraphs (B) and (C)

13 of section 6(h)(5) of this title not later than 8 months

14 after the date of receipt of a request from an alternative

15 trading system for such implementation and rules.’’.

16 (l) OBLIGATION TO ADDRESS SECURITY FUTURES

17 PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section

18 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f)

19 is amended by adding after subsection (j), as added by

20 subsection (k) of this section, the following—

21 ‘‘(k)(1) To the extent necessary or appropriate in the

22 public interest, to promote fair competition, and consistent

23 with the promotion of market efficiency, innovation, and

24 expansion of investment opportunities, the protection of

25 investors, and the maintenance of fair and orderly mar-
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1 kets, the Commission and the Commodity Futures Trad2 ing Commission shall jointly issue such rules, regulations,

3 or orders as are necessary and appropriate to permit the

4 offer and sale of a security futures product traded on or

5 subject to the rules of a foreign board of trade to United

6 States persons.

7 ‘‘(2) The rules, regulations, or orders adopted under

8 paragraph (1) shall take into account, as appropriate, the

9 nature and size of the markets that the securities under10 lying the security futures product reflect.’’.

11 SEC. 207. CLEARANCE AND SETTLEMENT.

12 Section 17A(b) of the Securities Exchange Act of

13 1934 (15 U.S.C. 78q–1(b)) is amended—

14 (1) in paragraph (3)(A), by inserting ‘‘and de15 rivative agreements, contracts, and transactions’’

16 after ‘‘prompt and accurate clearance and settlement

17 of securities transactions’’;

18 (2) in paragraph (3)(F), by inserting ‘‘and, to

19 the extent applicable, derivative agreements, con20 tracts, and transactions’’ after ‘‘designed to promote

21 the prompt and accurate clearance and settlement of

22 securities transactions’’; and

23 (3) by inserting after paragraph (7), as added

24 by section 206(d), the following:
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1 ‘‘(8) A registered clearing agency shall be permitted

2 to provide facilities for the clearance and settlement of any

3 derivative agreements, contracts, or transactions that are

4 excluded from the Commodity Exchange Act, subject to

5 the requirements of this section and to such rules and reg6 ulations as the Commission may prescribe as necessary or

7 appropriate in the public interest, for the protection of in8 vestors, or otherwise in furtherance of the purposes of this

9 title.’’.

10 SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND

11 DISCLOSURE ISSUES UNDER THE SECURI12 TIES ACT OF 1933 AND THE SECURITIES EX13 CHANGE ACT OF 1934.

14 (a) AMENDMENTS TO THE SECURITIES ACT OF

15 1933.—

16 (1) TREATMENT OF SECURITY FUTURES PROD17 UCTS.—Section 2(a) of the Securities Act of 1933

18 (15 U.S.C. 77b(a)) is amended—

19 (A) in paragraph (1), by inserting ‘‘secu20 rity future,’’ after ‘‘treasury stock,’’;

21 (B) in paragraph (3), by adding at the end

22 the following: ‘‘Any offer or sale of a security

23 futures product by or on behalf of the issuer of

24 the securities underlying the security futures

25 product, an affiliate of the issuer, or an under-
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1 writer, shall constitute a contract for sale of,

2 sale of, offer for sale, or offer to sell the under3 lying securities.’’;

4 (C) by adding at the end the following:

5 ‘‘(16) The terms ‘security future’, ‘narrow6 based security index’, and ‘security futures product’

7 have the same meanings as provided in section

8 3(a)(55) of the Securities Exchange Act of 1934.’’.

9 (2) EXEMPTION FROM REGISTRATION.—Section

10 3(a) of the Securities Act of 1933 (15 U.S.C.

11 77c(a)) is amended by adding at the end the fol12 lowing:

13 ‘‘(14) Any security futures product that is—

14 ‘‘(A) cleared by a clearing agency reg15 istered under section 17A of the Securities Ex16 change Act of 1934 or exempt from registration

17 under subsection (b)(7) of such section 17A;

18 and

19 ‘‘(B) traded on a national securities ex20 change or a national securities association reg21 istered pursuant to section 15A(a) of the Secu22 rities Exchange Act of 1934.’’.

23 (3) CONFORMING AMENDMENT.—Section

24 12(a)(2) of the Securities Act of 1933 (15 U.S.C.
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1 77l(a)(2)) is amended by striking ‘‘paragraph (2)’’

2 and inserting ‘‘paragraphs (2) and (14)’’.

3 (b) AMENDMENTS TO THE SECURITIES EXCHANGE

4 ACT OF 1934.—

5 (1) EXEMPTION FROM REGISTRATION.—Section

6 12(a) of the Securities Exchange Act of 1934 (15

7 U.S.C. 78l(a)) is amended by adding at the end the

8 following: ‘‘The provisions of this subsection shall

9 not apply in respect of a security futures product

10 traded on a national securities exchange.’’.

11 (2) EXEMPTIONS FROM REPORTING REQUIRE12 MENT.—Section 12(g)(5) of the Securities Exchange

13 Act of 1934 (15 U.S.C. 78l(g)(5)) is amended by

14 adding at the end the following: ‘‘For purposes of

15 this subsection, a security futures product shall not

16 be considered a class of equity security of the issuer

17 of the securities underlying the security futures

18 product.’’.

19 (3) TRANSACTIONS BY CORPORATE INSIDERS.—

20 Section 16 of the Securities Exchange Act of 1934

21 (15 U.S.C. 78p) is amended by adding at the end

22 the following:

23 ‘‘(f) TREATMENT OF TRANSACTIONS IN SECURITY

24 FUTURES PRODUCTS.—The provisions of this section
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1 shall apply to ownership of and transactions in security

2 futures products.’’.

3 SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY

4 ACT OF 1940 AND THE INVESTMENT ADVIS5 ERS ACT OF 1940.

6 (a) DEFINITIONS UNDER THE INVESTMENT COM7 PANY ACT OF 1940 AND THE INVESTMENT ADVISERS ACT

8 OF 1940.—

9 (1) Section 2(a)(36) of the Investment Com10 pany Act of 1940 (15 U.S.C. 80a–2(a)(36)) is

11 amended by inserting ‘‘security future,’’ after

12 ‘‘treasury stock,’’.

13 (2) Section 202(a)(18) of the Investment Advis14 ers Act of 1940 (15 U.S.C. 80b–2(a)(18)) is amend15 ed by inserting ‘‘security future,’’ after ‘‘treasury

16 stock,’’.

17 (3) Section 2(a) of the Investment Company

18 Act of 1940 (15 U.S.C. 80a–2(a)) is amended by

19 adding at the end the following:

20 ‘‘(52) The terms ‘security future’ and ‘narrow21 based security index’ have the same meanings as

22 provided in section 3(a)(55) of the Securities Ex23 change Act of 1934.’’.
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1 (4) Section 202(a) of the Investment Advisers

2 Act of 1940 (15 U.S.C. 80b–2(a)) is amended by

3 adding at the end the following:

4 ‘‘(27) The terms ‘security future’ and ‘narrow5 based security index’ have the same meanings as

6 provided in section 3(a)(55) of the Securities Ex7 change Act of 1934.’’.

8 (b) OTHER PROVISION.—Section 203(b) of the In9 vestment Advisers Act of 1940 (15 U.S.C. 80b–3(b)) is

10 amended—

11 (1) by striking ‘‘or’’ at the end of paragraph

12 (4);

13 (2) by striking the period at the end of para14 graph (5) and inserting ‘‘; or’’; and

15 (3) by adding at the end the following:

16 ‘‘(6) any investment adviser that is registered

17 with the Commodity Futures Trading Commission

18 as a commodity trading advisor whose business does

19 not consist primarily of acting as an investment ad20 viser, as defined in section 202(a)(11) of this title,

21 and that does not act as an investment adviser to—

22 ‘‘(A) an investment company registered

23 under title I of this Act; or

24 ‘‘(B) a company which has elected to be a

25 business development company pursuant to sec-
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1 tion 54 of title I of this Act and has not with2 drawn its election.’’.

3 SEC. 210. PREEMPTION OF STATE LAWS.

4 Section 28(a) of the Securities Exchange Act of 1934

5 (15 U.S.C. 78bb(a)) is amended—

6 (1) in the last sentence—

7 (A) by inserting ‘‘subject to this title’’

8 after ‘‘privilege, or other security’’; and

9 (B) by striking ‘‘any such instrument, if

10 such instrument is traded pursuant to rules and

11 regulations of a self-regulatory organization

12 that are filed with the Commission pursuant to

13 section 19(b) of this Act’’ and inserting ‘‘any

14 such security’’; and

15 (2) by adding at the end the following new sen16 tence: ‘‘No provision of State law regarding the

17 offer, sale, or distribution of securities shall apply to

18 any transaction in a security futures product, except

19 that this sentence shall not be construed as limiting

20 any State antifraud law of general applicability.’’.
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1 Subtitle B—Amendments to the

2 Commodity Exchange Act

3 SEC. 251. JURISDICTION OF SECURITIES AND EXCHANGE

4 COMMISSION; OTHER PROVISIONS.

5 (a) JURISDICTION OF SECURITIES AND EXCHANGE

6 COMMISSION.—

7 (1) Section 2(a)(1)(C) of the Commodity Ex8 change Act (7 U.S.C. 2a) (as redesignated by sec9 tion 34(a)(2)(C)) is amended—

10 (A) in clause (ii)—

11 (i) by inserting ‘‘or register a deriva12 tives transaction execution facility that

13 trades or executes,’’ after ‘‘contract market

14 in,’’;

15 (ii) by inserting after ‘‘contracts) for

16 future delivery’’ the following: ‘‘, and no

17 derivatives transaction execution facility

18 shall trade or execute such contracts of

19 sale (or options on such contracts) for fu20 ture delivery,’’;

21 (iii) by striking ‘‘making such applica22 tion demonstrates and the Commission ex23 pressly finds that the specific contract (or

24 option on such contract) with respect to

25 which the application has been made
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1 meets’’ and inserting ‘‘or the derivatives

2 transaction execution facility, and the ap3 plicable contract, meet’’;

4 (iv) by striking subclause (III) of

5 clause (ii) and inserting the following:

6 ‘‘(III) Such group or index of securities

7 shall not constitute a narrow-based security

8 index.’’;

9 (B) by striking clause (iii);

10 (C) by striking clause (iv) and inserting

11 the following:

12 ‘‘(iii) If, in its discretion, the Commission deter13 mines that a stock index futures contract, notwith14 standing its conformance with the requirements in

15 clause (ii) of this subparagraph, can reasonably be

16 used as a surrogate for trading a security (including

17 a security futures product), it may, by order, require

18 such contract and any option thereon be traded and

19 regulated as security futures products as defined in

20 section 3(a)(56) of the Securities Exchange Act of

21 1934 and section 1a of this Act subject to all rules

22 and regulations applicable to security futures prod23 ucts under this Act and the securities laws as de24 fined in section 3(a)(47) of the Securities Exchange

25 Act of 1934.’’; and
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1 (D) by redesignating clause (v) as clause

2 (iv).

3 (2) Section 2(a)(1) of the Commodity Exchange

4 Act (7 U.S.C. 2, 2a, 4) is amended by adding at the

5 end the following:

6 ‘‘(D)(i) Notwithstanding any other provision of this

7 Act, the Securities and Exchange Commission shall have

8 jurisdiction and authority over security futures as defined

9 in section 3(a)(55) of the Securities Exchange Act of

10 1934, section 2(a)(16) of the Securities Act of 1933, sec11 tion 2(a)(52) of the Investment Company Act of 1940,

12 and section 202(a)(27) of the Investment Advisers Act of

13 1940, options on security futures, and persons effecting

14 transactions in security futures and options thereon, and

15 this Act shall apply to and the Commission shall have ju16 risdiction with respect to accounts, agreements (including

17 any transaction which is of the character of, or is com18 monly known to the trade as, an ‘option’, ‘privilege’, ‘in19 demnity’, ‘bid’, ‘offer’, ‘put’, ‘call’, ‘advance guaranty’, or

20 ‘decline guaranty’), contracts, and transactions involving,

21 and may designate a board of trade as a contract market

22 in, or register a derivatives transaction execution facility

23 that trades or executes, a security futures product as de24 fined in section 1a of this Act: Provided, however, That,

25 except as provided in clause (vi) of this subparagraph, no
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1 board of trade shall be designated as a contract market

2 with respect to, or registered as a derivatives transaction

3 execution facility for, any such contracts of sale for future

4 delivery unless the board of trade and the applicable con5 tract meet the following criteria:

6 ‘‘(I) Except as otherwise provided in a rule,

7 regulation, or order issued pursuant to clause (v) of

8 this subparagraph, any security underlying the secu9 rity future, including each component security of a

10 narrow-based security index, is registered pursuant

11 to section 12 of the Securities Exchange Act of

12 1934.

13 ‘‘(II) If the security futures product is not cash

14 settled, the board of trade on which the security fu15 tures product is traded has arrangements in place

16 with a clearing agency registered pursuant to section

17 17A of the Securities Exchange Act of 1934 for the

18 payment and delivery of the securities underlying the

19 security futures product.

20 ‘‘(III) Except as otherwise provided in a rule,

21 regulation, or order issued pursuant to clause (v) of

22 this subparagraph, the security future is based upon

23 common stock and such other equity securities as

24 the Commission and the Securities and Exchange

25 Commission jointly determine appropriate.
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1 ‘‘(IV) The security futures product is cleared by

2 a clearing agency that has in place provisions for

3 linked and coordinated clearing with other clearing

4 agencies that clear security futures products, which

5 permits the security futures product to be purchased

6 on a designated contract market, registered deriva7 tives transaction execution facility, national securi8 ties exchange registered under section 6(a) of the

9 Securities Exchange Act of 1934, or national securi10 ties association registered pursuant to section

11 15A(a) of the Securities Exchange Act of 1934 and

12 offset on another designated contract market, reg13 istered derivatives transaction execution facility, na14 tional securities exchange registered under section

15 6(a) of the Securities Exchange Act of 1934, or na16 tional securities association registered pursuant to

17 section 15A(a) of the Securities Exchange Act of

18 1934.

19 ‘‘(V) Only futures commission merchants, intro20 ducing brokers, commodity trading advisors, com21 modity pool operators or associated persons subject

22 to suitability rules comparable to those of a national

23 securities association registered pursuant to section

24 15A(a) of the Securities Exchange Act of 1934 so25 licit, accept any order for, or otherwise deal in any
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1 transaction in or in connection with the security fu2 tures product.

3 ‘‘(VI) The security futures product is subject to

4 a prohibition against dual trading in section 4j of

5 this Act and the rules and regulations thereunder or

6 the provisions of section 11(a) of the Securities Ex7 change Act of 1934 and the rules and regulations

8 thereunder, except to the extent otherwise permitted

9 under the Securities Exchange Act of 1934 and the

10 rules and regulations thereunder.

11 ‘‘(VII) Trading in the security futures product

12 is not readily susceptible to manipulation of the

13 price of such security futures product, nor to caus14 ing or being used in the manipulation of the price

15 of any underlying security, option on such security,

16 or option on a group or index including such securi17 ties;

18 ‘‘(VIII) The board of trade on which the secu19 rity futures product is traded has procedures in

20 place for coordinated surveillance among such board

21 of trade, any market on which any security under22 lying the security futures product is traded, and

23 other markets on which any related security is trad24 ed to detect manipulation and insider trading, except

25 that, if the board of trade is an alternative trading
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1 system, a national securities association registered

2 pursuant to section 15A(a) of the Securities Ex3 change Act of 1934 or national securities exchange

4 registered pursuant to section 6(a) of the Securities

5 Exchange Act of 1934 of which such alternative

6 trading system is a member has in place such proce7 dures.

8 ‘‘(IX) The board of trade on which the security

9 futures product is traded has in place audit trails

10 necessary or appropriate to facilitate the coordinated

11 surveillance required in subclause (VIII), except

12 that, if the board of trade is an alternative trading

13 system, a national securities association registered

14 pursuant to section 15A(a) of the Securities Ex15 change Act of 1934 or national securities exchange

16 registered pursuant to section 6(a) of the Securities

17 Exchange Act of 1934 of which such alternative

18 trading system is a member has rules to require

19 such audit trails.

20 ‘‘(X) The board of trade on which the security

21 futures product is traded has in place procedures to

22 coordinate trading halts between such board of trade

23 and markets on which any security underlying the

24 security futures product is traded and other markets

25 on which any related security is traded, except that,
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1 if the board of trade is an alternative trading sys2 tem, a national securities association registered pur3 suant to section 15A(a) of the Securities Exchange

4 Act of 1934 or national securities exchange reg5 istered pursuant to section 6(a) of the Securities Ex6 change Act of 1934 of which such alternative trad7 ing system is a member has rules to require such co8 ordinated trading halts.

9 ‘‘(XI) The margin requirements for a security

10 futures product comply with the regulations pre11 scribed pursuant to section 7(c)(2)(B) of the Securi12 ties Exchange Act of 1934, except that nothing in

13 this subclause shall be construed to prevent a board

14 of trade from requiring higher margin levels for a

15 security futures product when it deems such action

16 to be necessary or appropriate.

17 ‘‘(ii) It shall be unlawful for any person to offer, to

18 enter into, to execute, to confirm the execution of, or to

19 conduct any office or business anywhere in the United

20 States, its territories or possessions, for the purpose of

21 soliciting, or accepting any order for, or otherwise dealing

22 in, any transaction in, or in connection with, a security

23 futures product unless—

24 ‘‘(I) the transaction is conducted on or subject

25 to the rules of a board of trade that—
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1 ‘‘(aa) has been designated by the Commis2 sion as a contract market in such security fu3 tures product; or

4 ‘‘(bb) is a registered derivatives trans5 action execution facility for the security futures

6 product that has provided a certification with

7 respect to the security futures product pursuant

8 to clause (vii);

9 ‘‘(II) the contract is executed or consummated

10 by, through, or with a member of the contract mar11 ket or registered derivatives transaction execution

12 facility; and

13 ‘‘(III) the security futures product is evidenced

14 by a record in writing which shows the date, the

15 parties to such security futures product and their

16 addresses, the property covered, and its price, and

17 each contract market member or registered deriva18 tives transaction execution facility member shall

19 keep the record for a period of 3 years from the date

20 of the transaction, or for a longer period if the Com21 mission so directs, which record shall at all times be

22 open to the inspection of any duly authorized rep23 resentative of the Commission.

24 ‘‘(iii)(I) Except as provided in subclause (II) but not25 withstanding any other provision of this Act, no person
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1 shall offer to enter into, enter into, or confirm the execu2 tion of any option on a security future.

3 ‘‘(II) After 3 years after the date of the enactment

4 of the Commodity Futures Modernization Act of 2000, the

5 Commission and the Securities and Exchange Commission

6 may by order jointly determine to permit trading of op7 tions on any security future authorized to be traded under

8 the provisions of this Act and the Securities Exchange Act

9 of 1934.

10 ‘‘(iv)(I) All relevant records of a futures commission

11 merchant or introducing broker registered pursuant to

12 section 4f(a)(2), floor broker or floor trader exempt from

13 registration pursuant to section 4f(a)(3), associated per14 son exempt from registration pursuant to section 4k(6),

15 or board of trade designated as a contract market in a

16 security futures product pursuant to section 5f shall be

17 subject to such reasonable periodic or special examinations

18 by representatives of the Commission as the Commission

19 deems necessary or appropriate in the public interest, for

20 the protection of investors, or otherwise in furtherance of

21 the purposes of this Act, and the Commission, before con22 ducting any such examination, shall give notice to the Se23 curities and Exchange Commission of the proposed exam24 ination and consult with the Securities and Exchange

25 Commission concerning the feasibility and desirability of
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•S 3283 IS

1 coordinating the examination with examinations conducted

2 by the Securities and Exchange Commission in order to

3 avoid unnecessary regulatory duplication or undue regu4 latory burdens for the registrant or board of trade.

5 ‘‘(II) The Commission shall notify the Securities and

6 Exchange Commission of any examination conducted of

7 any futures commission merchant or introducing broker

8 registered pursuant to section 4f(a)(2), floor broker or

9 floor trader exempt from registration pursuant to section

10 4f(a)(3), associated person exempt from registration pur11 suant to section 4k(6), or board of trade designated as

12 a contract market in a security futures product pursuant

13 to section 5f, and, upon request, furnish to the Securities

14 and Exchange Commission any examination report and

15 data supplied to or prepared by the Commission in connec16 tion with the examination.

17 ‘‘(III) Before conducting an examination under sub18 clause (I), the Commission shall use the reports of exami19 nations, unless the information sought is unavailable in

20 the reports, of any futures commission merchant or intro21 ducing broker registered pursuant to section 4f(a)(2),

22 floor broker or floor trader exempt from registration pur23 suant to section 4f(a)(3), associated person exempt from

24 registration pursuant to section 4k(6), or board of trade

25 designated as a contract market in a security futures
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•S 3283 IS

1 product pursuant to section 5f that is made by the Securi2 ties and Exchange Commission, a national securities asso3 ciation registered pursuant to section 15A(a) of the Secu4 rities Exchange Act of 1934 (15 U.S.C. 78o–3(a)), or a

5 national securities exchange registered pursuant to section

6 6(a) of the Securities Exchange Act of 1934 (15 U.S.C.

7 78f(a)).

8 ‘‘(IV) Any records required under this subsection for

9 a futures commission merchant or introducing broker reg10 istered pursuant to section 4f(a)(2), floor broker or floor

11 trader exempt from registration pursuant to section

12 4f(a)(3), associated person exempt from registration pur13 suant to section 4k(6), or board of trade designated as

14 a contract market in a security futures product pursuant

15 to section 5f, shall be limited to records with respect to

16 accounts, agreements, contracts, and transactions involv17 ing security futures products.

18 ‘‘(v)(I) The Commission and the Securities and Ex19 change Commission, by rule, regulation, or order, may

20 jointly modify the criteria specified in subclause (I) or

21 (III) of clause (i), including the trading of security futures

22 based on securities other than equity securities, to the ex23 tent such modification fosters the development of fair and

24 orderly markets in security futures products, is necessary
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•S 3283 IS

1 or appropriate in the public interest, and is consistent with

2 the protection of investors.

3 ‘‘(II) The Commission and the Securities and Ex4 change Commission, by order, may jointly exempt any per5 son from compliance with the criterion specified in clause

6 (i)(IV) to the extent such exemption fosters the develop7 ment of fair and orderly markets in security futures prod8 ucts, is necessary or appropriate in the public interest, and

9 is consistent with the protection of investors.

10 ‘‘(vi)(I) Notwithstanding clauses (i) and (vii), until

11 the compliance date, a board of trade shall not be required

12 to meet the criterion specified in clause (i)(IV).

13 ‘‘(II) The Commission and the Securities and Ex14 change Commission shall jointly publish in the Federal

15 Register a notice of the compliance date no later than 165

16 days before the compliance date.

17 ‘‘(III) For purposes of this clause, the term ‘compli18 ance date’ means the later of—

19 ‘‘(aa) 180 days after the end of the first full

20 calendar month period in which the average aggre21 gate comparable share volume for all security fu22 tures products based on single equity securities trad23 ed on all designated contract markets and registered

24 derivatives transaction execution facilities equals or

25 exceeds 10 percent of the average aggregate com-
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•S 3283 IS

1 parable share volume of options on single equity se2 curities traded on all national securities exchanges

3 registered pursuant to section 6(a) of the Securities

4 Exchange Act of 1934 and any national securities

5 associations registered pursuant to section 15A(a) of

6 such Act; or

7 ‘‘(bb) 2 years after the date on which trading

8 in any security futures product commences under

9 this Act.

10 ‘‘(vii) It shall be unlawful for a board of trade to

11 trade or execute a security futures product unless the

12 board of trade has provided the Commission with a certifi13 cation that the specific security futures product and the

14 board of trade, as applicable, meet the criteria specified

15 in subclauses (I) through (XI) of clause (i), except as oth16 erwise provided in clause (vi).’’.

17 (b) MARGIN ON SECURITY FUTURES.—Section

18 2(a)(1)(C)(vi) of the Commodity Exchange Act (7 U.S.C.

19 2a(vi)) (as redesignated by section 34) is amended—

20 (1) by redesignating subclause (V) as subclause

21 (VI); and

22 (2) by striking ‘‘(vi)(I)’’ and all that follows

23 through subclause (IV) and inserting the following:

24 ‘‘(v)(I) Notwithstanding any other provision of

25 this Act, any contract market in a stock index fu-
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•S 3283 IS

1 tures contract (or option thereon) other than a secu2 rity futures product, or any derivatives transaction

3 execution facility on which such contract or option

4 is traded, shall file with the Board of Governors of

5 the Federal Reserve System any rule establishing or

6 changing the levels of margin (initial and mainte7 nance) for such stock index futures contract (or op8 tion thereon) other than security futures products.

9 ‘‘(II) The Board may at any time request any

10 contract market or derivatives transaction execution

11 facility to set the margin for any stock index futures

12 contract (or option thereon), other than for any se13 curity futures product, at such levels as the Board

14 in its judgment determines are appropriate to pre15 serve the financial integrity of the contract market

16 or derivatives transaction execution facility, or its

17 clearing system, or to prevent systemic risk. If the

18 contract market or derivatives transaction execution

19 facility fails to do so within the time specified by the

20 Board in its request, the Board may direct the con21 tract market or derivatives transaction execution fa22 cility to alter or supplement the rules of the contract

23 market or derivatives transaction execution facility

24 as specified in the request.
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•S 3283 IS

1 ‘‘(III) Subject to such conditions as the Board

2 may determine, the Board may delegate any or all

3 of its authority, relating to margin for any stock

4 index futures contract (or option thereon), other

5 than security futures products, under this clause to

6 the Commission.

7 ‘‘(IV) It shall be unlawful for any futures com8 mission merchant to, directly or indirectly, extend or

9 maintain credit to or for, or collect margin from any

10 customer on any security futures product unless

11 such activities comply with the regulations pre12 scribed pursuant to section 7(c)(2)(B) of the Securi13 ties Exchange Act of 1934.

14 ‘‘(V) Nothing in this clause shall supersede or

15 limit the authority granted to the Commission in

16 section 8a(9) to direct a contract market or reg17 istered derivatives transaction execution facility, on

18 finding an emergency to exist, to raise temporary

19 margin levels on any futures contract, or option on

20 the contract covered by this clause, or on any secu21 rity futures product.’’.

22 (c) DUAL TRADING.—Section 4j of the Commodity

23 Exchange Act (7 U.S.C. 6j) is amended to read as follows:
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•S 3283 IS

1 ‘‘SEC. 4j. RESTRICTIONS ON DUAL TRADING IN SECURITY

2 FUTURES PRODUCTS ON DESIGNATED CON3 TRACT MARKETS AND REGISTERED DERIVA4 TIVES TRANSACTION EXECUTION FACILITIES.

5 ‘‘(a) The Commission shall issue regulations to pro6 hibit the privilege of dual trading in security futures prod7 ucts on each contract market and registered derivatives

8 transaction execution facility. The regulations issued by

9 the Commission under this section—

10 ‘‘(1) shall provide that the prohibition of dual

11 trading thereunder shall take effect upon issuance of

12 the regulations; and

13 ‘‘(2) shall provide exceptions, as the Commis14 sion determines appropriate, to ensure fairness and

15 orderly trading in security futures product markets,

16 including—

17 ‘‘(A) exceptions for spread transactions

18 and the correction of trading errors;

19 ‘‘(B) allowance for a customer to designate

20 in writing not less than once annually a named

21 floor broker to execute orders for such cus22 tomer, notwithstanding the regulations to pro23 hibit the privilege of dual trading required

24 under this section; and

25 ‘‘(C) other measures reasonably designed

26 to accommodate unique or special characteris-
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•S 3283 IS

1 tics of individual boards of trade or contract

2 markets, to address emergency or unusual mar3 ket conditions, or otherwise to further the pub4 lic interest consistent with the promotion of

5 market efficiency, innovation, and expansion of

6 investment opportunities, the protection of in7 vestors, and with the purposes of this section.

8 ‘‘(b) As used in this section, the term ‘dual trading’

9 means the execution of customer orders by a floor broker

10 during the same trading session in which the floor broker

11 executes any trade in the same contract market or reg12 istered derivatives transaction execution facility for—

13 ‘‘(1) the account of such floor broker;

14 ‘‘(2) an account for which such floor broker has

15 trading discretion; or

16 ‘‘(3) an account controlled by a person with

17 whom such floor broker has a relationship through

18 membership in a broker association.

19 ‘‘(c) As used in this section, the term ‘broker associa20 tion’ shall include two or more contract market members

21 or registered derivatives transaction execution facility

22 members with floor trading privileges of whom at least one

23 is acting as a floor broker, who—

24 ‘‘(1) engage in floor brokerage activity on be25 half of the same employer,
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•S 3283 IS

1 ‘‘(2) have an employer and employee relation2 ship which relates to floor brokerage activity,

3 ‘‘(3) share profits and losses associated with

4 their brokerage or trading activity, or

5 ‘‘(4) regularly share a deck of orders.’’.

6 (d) EXEMPTION FROM REGISTRATION FOR INVEST7 MENT ADVISERS.—Section 4m of the Commodity Ex8 change Act (7 U.S.C. 6m) is amended by adding at the

9 end the following:

10 ‘‘(3) Subsection (1) of this section shall not apply to

11 any commodity trading advisor that is registered with the

12 Securities and Exchange Commission as an investment ad13 viser whose business does not consist primarily of acting

14 as a commodity trading advisor, as defined in section

15 1a(6), and that does not act as a commodity trading advi16 sor to any investment trust, syndicate, or similar form of

17 enterprise that is engaged primarily in trading in any com18 modity for future delivery on or subject to the rules of

19 any contract market or registered derivatives transaction

20 execution facility.’’.

21 (e) EXEMPTION FROM INVESTIGATIONS OF MARKETS

22 IN UNDERLYING SECURITIES.—Section 16 of the Com23 modity Exchange Act (7 U.S.C. 20) is amended by adding

24 at the end the following:
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•S 3283 IS

1 ‘‘(e) This section shall not apply to investigations in2 volving any security underlying a security futures prod3 uct.’’.

4 (f) RULEMAKING AUTHORITY TO ADDRESS DUPLI5 CATIVE REGULATION OF DUAL REGISTRANTS.—Section

6 4d of the Commodity Exchange Act (7 U.S.C. 6d) is

7 amended—

8 (1) by inserting ‘‘(a)’’ before the first undesig9 nated paragraph;

10 (2) by inserting ‘‘(b)’’ before the second undes11 ignated paragraph; and

12 (3) by adding at the end the following:

13 ‘‘(c) Consistent with this Act, the Commission, in

14 consultation with the Securities and Exchange Commis15 sion, shall issue such rules, regulations, or orders as are

16 necessary to avoid duplicative or conflicting regulations

17 applicable to any futures commission merchant registered

18 with the Commission pursuant to section 4f(a) (except

19 paragraph (2) thereof), that is also registered with the Se20 curities and Exchange Commission pursuant to section

21 15(b) of the Securities Exchange Act (except paragraph

22 (11) thereof), involving the application of—

23 ‘‘(1) section 8, section 15(c)(3), and section 17

24 of the Securities Exchange Act of 1934 and the

25 rules and regulations thereunder related to the treat-
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•S 3283 IS

1 ment of customer funds, securities, or property,

2 maintenance of books and records, financial report3 ing or other financial responsibility rules (as defined

4 in section 3(a)(40) of the Securities Exchange Act

5 of 1934), involving security futures products; and

6 ‘‘(2) similar provisions of this Act and the rules

7 and regulations thereunder involving security futures

8 products.’’.

9 (g) OBLIGATION TO ADDRESS DUPLICATIVE REGU10 LATION OF DUAL REGISTRANTS.—Section 17 of the Com11 modity Exchange Act (7 U.S.C. 21) is amended by adding

12 at the end the following:

13 ‘‘(r) Consistent with this Act, each futures associa14 tion registered under this section shall issue such rules

15 as are necessary to avoid duplicative or conflicting rules

16 applicable to any futures commission merchant registered

17 with the Commission pursuant to section 4f(a) of this Act

18 (except paragraph (2) thereof), that is also registered with

19 the Securities and Exchange Commission pursuant to sec20 tion 15(b) of the Securities and Exchange Act of 1934

21 (except paragraph (11) thereof), with respect to the appli22 cation of—

23 ‘‘(1) rules of such futures association of the

24 type specified in section 4d(3) of this Act involving

25 security futures products; and
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•S 3283 IS

1 ‘‘(2) similar rules of national securities associa2 tions registered pursuant to section 15A(a) of the

3 Securities and Exchange Act of 1934 involving secu4 rity futures products.’’.

5 (h) OBLIGATION TO ADDRESS DUPLICATIVE REGU6 LATION OF DUAL REGISTRANTS.—Section 5c of the Com7 modity Exchange Act (as added by section 114) is amend8 ed by adding at the end the following:

9 ‘‘(f) Consistent with this Act, each designated con10 tract market and registered derivatives transaction execu11 tion facility shall issue such rules as are necessary to avoid

12 duplicative or conflicting rules applicable to any futures

13 commission merchant registered with the Commission pur14 suant to section 4f(a) of this Act (except paragraph (2)

15 thereof), that is also registered with the Securities and Ex16 change Commission pursuant to section 15(b) of the Secu17 rities Exchange Act of 1934 (except paragraph (11) there18 of) with respect to the application of—

19 ‘‘(1) rules of such designated contract market

20 or registered derivatives transaction execution facil21 ity of the type specified in section 4d(3) of this Act

22 involving security futures products; and

23 ‘‘(2) similar rules of national securities associa24 tions registered pursuant to section 15A(a) of the

25 Securities Exchange Act of 1934 and national secu-
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•S 3283 IS

1 rities exchanges registered pursuant to section 6(g)

2 of such Act involving security futures products.’’.

3 (i) OBLIGATION TO ADDRESS SECURITY FUTURES

4 PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section

5 2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a,

6 and 4)) is amended by adding at the end the following:

7 ‘‘(E)(i) To the extent necessary or appropriate in the

8 public interest, to promote fair competition, and consistent

9 with promotion of market efficiency, innovation, and ex10 pansion of investment opportunities, the protection of in11 vestors, and the maintenance of fair and orderly markets,

12 the Commission and the Securities and Exchange Com13 mission shall jointly issue such rules, regulations, or or14 ders as are necessary and appropriate to permit the offer

15 and sale of a security futures product traded on or subject

16 to the rules of a foreign board of trade to United States

17 persons.

18 ‘‘(ii) The rules, regulations, or orders adopted under

19 clause (i) shall take into account, as appropriate, the na20 ture and size of the markets that the securities underlying

21 the security futures product reflects.’’.

22 (j) SECURITY FUTURES PRODUCTS TRADED ON FOR23 EIGN BOARDS OF TRADE.—Section 2(a)(1) of the Com24 modity Exchange Act (7 U.S.C. 2, 2a, and 4) is amended

25 by adding at the end the following:
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•S 3283 IS

1 ‘‘(F)(i) Nothing in this Act is intended to prohibit

2 a futures commission merchant from carrying security fu3 tures products traded on or subject to the rules of a for4 eign board of trade in the accounts of persons located out5 side of the United States.

6 ‘‘(ii) Nothing in this Act is intended to prohibit any

7 eligible contract participant located in the United States

8 from purchasing or carrying securities futures products

9 traded on or subject to the rules of a foreign board of

10 trade, exchange, or market to the same extent such person

11 may be authorized to purchase or carry other securities

12 traded on a foreign board of trade, exchange, or market

13 so long as any underlying security for such security fu14 tures products is traded principally on, by, or through any

15 exchange or market located outside the United States.’’.

16 SEC. 252. APPLICATION OF THE COMMODITY EXCHANGE

17 ACT TO NATIONAL SECURITIES EXCHANGES

18 AND NATIONAL SECURITIES ASSOCIATIONS

19 THAT TRADE SECURITY FUTURES.

20 (a) NOTICE DESIGNATION OF NATIONAL SECURITIES

21 EXCHANGES AND NATIONAL SECURITIES ASSOCIA22 TIONS.—The Commodity Exchange Act is amended by in23 serting after section 5e (7 U.S.C. 7b), as redesignated by

24 section 21(1), the following:
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•S 3283 IS

1 ‘‘SEC. 5f. DESIGNATION OF SECURITIES EXCHANGES AND

2 ASSOCIATIONS AS CONTRACT MARKETS.

3 ‘‘(a) Any board of trade that is registered with the

4 Securities and Exchange Commission as a national securi5 ties exchange, is a national securities association reg6 istered pursuant to section 15A(a) of the Securities Ex7 change Act of 1934, or is an alternative trading system

8 shall be a designated contract market in security futures

9 products if—

10 ‘‘(1) such national securities exchange, national

11 securities association, or alternative trading system

12 lists or trades no other contracts of sale for future

13 delivery, except for security futures products;

14 ‘‘(2) such national securities exchange, national

15 securities association, or alternative trading system

16 files written notice with the Commission in such

17 form as the Commission, by rule, may prescribe con18 taining such information as the Commission, by rule,

19 may prescribe as necessary or appropriate in the

20 public interest or for the protection of customers;

21 and

22 ‘‘(3) the registration of such national securities

23 exchange, national securities association, or alter24 native trading system is not suspended pursuant to

25 an order by the Securities and Exchange Commis26 sion.
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•S 3283 IS

1 Such designation shall be effective contemporaneously

2 with the submission of notice, in written or electronic

3 form, to the Commission.

4 ‘‘(b)(1) A national securities exchange, national secu5 rities association, or alternative trading system that is des6 ignated as a contract market pursuant to section 5f shall

7 be exempt from the following provisions of this Act and

8 the rules thereunder:

9 ‘‘(A) Subsections (c), (e), and (g) of section 4c.

10 ‘‘(B) Section 4j.

11 ‘‘(C) Section 5.

12 ‘‘(D) Section 5c.

13 ‘‘(E) Section 6a.

14 ‘‘(F) Section 8(d).

15 ‘‘(G) Section 9(f).

16 ‘‘(H) Section 16.

17 ‘‘(2) An alternative trading system that is a des18 ignated contract market under this section shall be re19 quired to be a member of a futures association registered

20 under section 17 and shall be exempt from any provision

21 of this Act that would require such alternative trading sys22 tem to—

23 ‘‘(A) set rules governing the conduct of sub24 scribers other than the conduct of such subscribers’

25 trading on such alternative trading system; or
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•S 3283 IS

1 ‘‘(B) discipline subscribers other than by exclu2 sion from trading.

3 ‘‘(3) To the extent that an alternative trading system

4 is exempt from any provision of this Act pursuant to para5 graph (2) of this subsection, the futures association reg6 istered under section 17 of which the alternative trading

7 system is a member shall set rules governing the conduct

8 of subscribers to the alternative trading system and dis9 cipline the subscribers.

10 ‘‘(4)(A) Except as provided in subparagraph (B), but

11 notwithstanding any other provision of this Act, the Com12 mission, by rule, regulation, or order, may conditionally

13 or unconditionally exempt any designated contract market

14 in security futures subject to the designation requirement

15 of this section from any provision of this Act or of any

16 rule or regulation thereunder, to the extent such exemp17 tion is necessary or appropriate in the public interest and

18 is consistent with the protection of investors.

19 ‘‘(B) The Commission shall, by rule or regulation, de20 termine the procedures under which an exemptive order

21 under this section is granted and may, in its sole discre22 tion, decline to entertain any application for an order of

23 exemption under this section.

24 ‘‘(C) An alternative trading system shall not be

25 deemed to be an exchange for any purpose as a result of
224

•S 3283 IS

1 the designation of such alternative trading system as a

2 contract market under this section.’’.

3 (b) NOTICE REGISTRATION OF CERTAIN SECURITIES

4 BROKER-DEALERS; EXEMPTION FROM REGISTRATION

5 FOR CERTAIN SECURITIES BROKER-DEALERS.—Section

6 4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a))

7 is amended—

8 (1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and

9 (2) by adding at the end the following:

10 ‘‘(2) Notwithstanding paragraph (1), and except as

11 provided in paragraph (3), any broker or dealer that is

12 registered with the Securities and Exchange Commission

13 shall be registered as a futures commission merchant or

14 introducing broker, as applicable, if—

15 ‘‘(A) the broker or dealer limits its solicitation

16 of orders, acceptance of orders, or execution of or17 ders, or placing of orders on behalf of others involv18 ing any contracts of sale of any commodity for fu19 ture delivery, on or subject to the rules of any con20 tract market or registered derivatives transaction

21 execution facility to security futures products;

22 ‘‘(B) the broker or dealer files written notice

23 with the Commission in such form as the Commis24 sion, by rule, may prescribe containing such infor25 mation as the Commission, by rule, may prescribe as
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•S 3283 IS

1 necessary or appropriate in the public interest or for

2 the protection of investors;

3 ‘‘(C) the registration of the broker or dealer is

4 not suspended pursuant to an order of the Securities

5 and Exchange Commission; and

6 ‘‘(D) the broker or dealer is a member of a na7 tional securities association registered pursuant to

8 section 15A(a) of the Securities Exchange Act of

9 1934.

10 The registration shall be effective contemporaneously with

11 the submission of notice, in written or electronic form, to

12 the Commission.

13 ‘‘(3) A floor broker or floor trader shall be exempt

14 from the registration requirements of section 4e and para15 graph (1) of this subsection if—

16 ‘‘(A) the floor broker or floor trader is a broker

17 or dealer registered with the Securities and Ex18 change Commission;

19 ‘‘(B) the floor broker or floor trader limits its

20 solicitation of orders, acceptance of orders, or execu21 tion of orders, or placing of orders on behalf of oth22 ers involving any contracts of sale of any commodity

23 for future delivery, on or subject to the rules of any

24 contract market to security futures products; and
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•S 3283 IS

1 ‘‘(C) the registration of the floor broker or floor

2 trader is not suspended pursuant to an order of the

3 Securities and Exchange Commission.’’.

4 (c) EXEMPTION FOR SECURITIES BROKER-DEALERS

5 FROM CERTAIN PROVISIONS OF THE COMMODITY EX6 CHANGE ACT.—Section 4f(a) of the Commodity Exchange

7 Act (7 U.S.C. 6f(a)) is amended by inserting after para8 graph (3), as added by subsection (b) of this section, the

9 following:

10 ‘‘(4)(A) A broker or dealer that is registered as a fu11 tures commission merchant or introducing broker pursu12 ant to paragraph (2), or that is a floor broker or floor

13 trader exempt from registration pursuant to paragraph

14 (3), shall be exempt from the following provisions of this

15 Act and the rules thereunder:

16 ‘‘(i) Subsections (b), (d), (e), and (g) of section

17 4c.

18 ‘‘(ii) Sections 4d, 4e, and 4h.

19 ‘‘(iii) Subsections (b) and (c) of this section.

20 ‘‘(iv) Section 4j.

21 ‘‘(v) Section 4k(1).

22 ‘‘(vi) Section 4p.

23 ‘‘(vii) Section 6d.

24 ‘‘(viii) Subsections (d) and (g) of section 8.

25 ‘‘(ix) Section 16.
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•S 3283 IS

1 ‘‘(B)(i) Except as provided in clause (ii) of this sub2 paragraph, but notwithstanding any other provision of this

3 Act, the Commission, by rule, regulation, or order, may

4 conditionally or unconditionally exempt any broker or

5 dealer subject to the registration requirement of para6 graph (2), or any broker or dealer exempt from registra7 tion pursuant to paragraph (3), from any provision of this

8 Act or of any rule or regulation thereunder, to the extent

9 the exemption is necessary or appropriate in the public

10 interest and is consistent with the protection of investors.

11 ‘‘(ii) The Commission shall, by rule or regulation, de12 termine the procedures under which an exemptive order

13 under this section shall be granted and may, in its sole

14 discretion, decline to entertain any application for an

15 order of exemption under this section.

16 ‘‘(C)(i) A broker or dealer that is registered as a fu17 tures commission merchant or introducing broker pursu18 ant to paragraph (2) or an associated person thereof, or

19 that is a floor broker or floor trader exempt from registra20 tion pursuant to paragraph (3), shall not be required to

21 become a member of any futures association registered

22 under section 17.

23 ‘‘(ii) No futures association registered under section

24 17 shall limit its members from carrying an account, ac25 cepting an order, or transacting business with a broker
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•S 3283 IS

1 or dealer that is registered as a futures commission mer2 chant or introducing broker pursuant to paragraph (2) or

3 an associated person thereof, or that is a floor broker or

4 floor trader exempt from registration pursuant to para5 graph (3).’’.

6 (d) EXEMPTIONS FOR ASSOCIATED PERSONS OF SE7 CURITIES BROKER-DEALERS.—Section 4k of the Com8 modity Exchange Act (7 U.S.C. 6k), is amended by insert9 ing after paragraph (4), as added by subsection (c) of this

10 section, the following:

11 ‘‘(5) Any associated person of a broker or dealer that

12 is registered with the Securities and Exchange Commis13 sion, and who limits its solicitation of orders, acceptance

14 of orders, or execution of orders, or placing of orders on

15 behalf of others involving any contracts of sale of any com16 modity for future delivery or any option on such a con17 tract, on or subject to the rules of any contract market

18 or registered derivatives transaction execution facility to

19 security futures products, shall be exempt from the fol20 lowing provisions of this Act and the rules thereunder:

21 ‘‘(A) Subsections (b), (d), (e), and (g) of section

22 4c.

23 ‘‘(B) Sections 4d, 4e, and 4h.

24 ‘‘(C) Subsections (b) and (c) of section 4f.

25 ‘‘(D) Section 4j.
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•S 3283 IS

1 ‘‘(E) Paragraph (1) of this section.

2 ‘‘(F) Section 4p.

3 ‘‘(G) Section 6d.

4 ‘‘(H) Subsections (d) and (g) of section 8.

5 ‘‘(I) Section 16.’’.

6 SEC. 253. NOTIFICATION OF INVESTIGATIONS AND EN7 FORCEMENT ACTIONS.

8 (a) Section 8(a) of the Commodity Exchange Act (7

9 U.S.C. 12(a)) is amended by adding at the end the fol10 lowing:

11 ‘‘(3) The Commission shall provide the Securities and

12 Exchange Commission with notice of the commencement

13 of any proceeding and a copy of any order entered by the

14 Commission against any futures commission merchant or

15 introducing broker registered pursuant to section 4f(a)(2),

16 any floor broker or floor trader exempt from registration

17 pursuant to section 4f(a)(3), any associated person exempt

18 from registration pursuant to section 4k(6), or any board

19 of trade designated as a contract market pursuant to sec20 tion 5f.’’.

21 (b) Section 6 of the Commodity Exchange Act (7

22 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended by adding at

23 the end the following:

24 ‘‘(g) The Commission shall provide the Securities and

25 Exchange Commission with notice of the commencement
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•S 3283 IS

1 of any proceeding and a copy of any order entered by the

2 Commission pursuant to subsections (c) and (d) of this

3 section against any futures commission merchant or intro4 ducing broker registered pursuant to section 4f(a)(2), any

5 floor broker or floor trader exempt from registration pur6 suant to section 4f(a)(3), any associated person exempt

7 from registration pursuant to section 4k(6), or any board

8 of trade designated as a contract market pursuant to sec9 tion 5f.’’.

10 (c) Section 6c of the Commodity Exchange Act (7

11 U.S.C. 13a–1) is amended by adding at the end the fol12 lowing:

13 ‘‘(h) The Commission shall provide the Securities and

14 Exchange Commission with notice of the commencement

15 of any proceeding and a copy of any order entered by the

16 Commission against any futures commission merchant or

17 introducing broker registered pursuant to section 4f(a)(2),

18 any floor broker or floor trader exempt from registration

19 pursuant to section 4f(a)(3), any associated person exempt

20 from registration pursuant to section 4k(6), or any board

21 of trade designated as a contract market pursuant to sec22 tion 5f.’’.
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1 TITLE III—LEGAL CERTAINTY

2 FOR SWAP AGREEMENTS

3 SEC. 301. SWAP AGREEMENT.

4 (a) AMENDMENT.—Title II of the Gramm-Leach-Bli5 ley Act (Public Law 106–102) is amended by inserting

6 after section 206 the following new sections:

7 ‘‘SEC. 206A. SWAP AGREEMENT.

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

9 (b), as used in this section, the term ‘swap agreement’

10 means any agreement, contract, or transaction between el11 igible contract participants (as defined in section 1a(12)

12 of the Commodity Exchange Act as in effect on the date

13 of enactment of this section), other than a person that

14 is an eligible contract participant under section 1a(12)(C)

15 of the Commodity Exchange Act, the material terms of

16 which (other than price and quantity) are subject to indi17 vidual negotiation, and that—

18 ‘‘(1) is a put, call, cap, floor, collar, or similar

19 option of any kind for the purchase or sale of, or

20 based on the value of, one or more interest or other

21 rates, currencies, commodities, indices, quantitative

22 measures, or other financial or economic interests or

23 property of any kind;

24 ‘‘(2) provides for any purchase, sale, payment

25 or delivery (other than a dividend on an equity secu-
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1 rity) that is dependent on the occurrence, non-occur2 rence, or the extent of the occurrence of an event or

3 contingency associated with a potential financial,

4 economic, or commercial consequence;

5 ‘‘(3) provides on an executory basis for the ex6 change, on a fixed or contingent basis, of one or

7 more payments based on the value or level of one or

8 more interest or other rates, currencies, commod9 ities, securities, instruments of indebtedness, indices,

10 quantitative measures, or other financial or eco11 nomic interests or property of any kind, or any in12 terest therein or based on the value thereof, and

13 that transfers, as between the parties to the trans14 action, in whole or in part, the financial risk associ15 ated with a future change in any such value or level

16 without also conveying a current or future direct or

17 indirect ownership interest in an asset (including

18 any enterprise or investment pool) or liability that

19 incorporates the financial risk so transferred, includ20 ing any such agreement, contract, or transaction

21 commonly known as an interest rate swap, including

22 a rate floor, rate cap, rate collar, cross-currency rate

23 swap, basis swap, currency swap, equity index swap,

24 equity swap, debt index swap, debt swap, credit
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1 spread, credit default swap, credit swap, weather

2 swap, or commodity swap;

3 ‘‘(4) provides for the purchase or sale, on a

4 fixed or contingent basis, of any commodity, cur5 rency, instrument, interest, right, service, good, arti6 cle, or property of any kind; or

7 ‘‘(5) is any combination or permutation of, or

8 option on, any agreement, contract, or transaction

9 described in any of paragraphs (1) through (4).

10 ‘‘(b) EXCLUSIONS.—The term ‘swap agreement’ does

11 not include—

12 ‘‘(1) any put, call, straddle, option, or privilege

13 on any security, certificate of deposit, or group or

14 index of securities, including any interest therein or

15 based on the value thereof;

16 ‘‘(2) any put, call, straddle, option, or privilege

17 entered into on a national securities exchange reg18 istered pursuant to section 6(a) of the Securities Ex19 change Act of 1934 relating to foreign currency;

20 ‘‘(3) any agreement, contract, or transaction

21 providing for the purchase or sale of one or more se22 curities on a fixed basis;

23 ‘‘(4) any agreement, contract, or transaction

24 providing for the purchase or sale of one or more se25 curities on a contingent basis, unless such agree-
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•S 3283 IS

1 ment, contract, or transaction predicates such pur2 chase or sale on the occurrence of a bona fide con3 tingency that might reasonably be expected to affect

4 or be affected by the creditworthiness of a party

5 other than a party to the agreement, contract, or

6 transaction;

7 ‘‘(5) any note, bond, or evidence of indebted8 ness that is a security as defined in section 2(a)(1)

9 of the Securities Exchange Act of 1933 or section

10 3(a)(10) of the Securities Exchange Act of 1934; or

11 ‘‘(6) any agreement, contract, or transaction

12 that is—

13 ‘‘(A) based on a security; and

14 ‘‘(B) entered into directly or through an

15 underwriter (as defined in section 2(a) of the

16 Securities Act of 1933) by the issuer of such se17 curity for the purposes of raising capital, unless

18 such agreement, contract, or transaction is en19 tered into to manage a risk associated with cap20 ital raising.

21 ‘‘(c) RULE OF CONSTRUCTION REGARDING MASTER

22 AGREEMENTS.—As used in this section, the term ‘swap

23 agreement’ shall be construed to include a master agree24 ment that provides for an agreement, contract, or trans25 action that is a swap agreement pursuant to subsections
235

•S 3283 IS

1 (a) and (b), together with all supplements to any such

2 master agreement, without regard to whether the master

3 agreement contains an agreement, contract, or transaction

4 that is not a swap agreement pursuant to subsections (a)

5 and (b), except that the master agreement shall be consid6 ered to be a swap agreement only with respect to each

7 agreement, contract, or transaction under the master

8 agreement that is a swap agreement pursuant to sub9 sections (a) and (b).

10 ‘‘SEC. 206B. SECURITY-BASED SWAP AGREEMENT.

11 ‘‘As used in this section, the term ‘security-based

12 swap agreement’ means a swap agreement (as defined in

13 section 206A) of which a material term is based on the

14 price, yield, value, or volatility of any security or any

15 group or index of securities, or any interest therein.

16 ‘‘SEC. 206C. NON-SECURITY-BASED SWAP AGREEMENT.

17 ‘‘As used in this section, the term ‘non-security-based

18 swap agreement’ means any swap agreement (as defined

19 in section 206A) that is not a security-based swap agree20 ment (as defined in section 206B).’’.

21 (b) SECURITY DEFINITION.—As used in the amend22 ment made by subsection (a), the term ‘‘security’’ has the

23 same meaning as in section 2(a)(1) of the Securities Act

24 of 1933 or section 3(a)(10) of the Securities Exchange

25 Act of 1934.
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•S 3283 IS

1 SEC. 302. AMENDMENTS TO THE SECURITIES ACT OF 1933.

2 (a) ENFORCEMENT FOCUS.—The Securities Act of

3 1933 is amended by inserting after section 2 (15

4 U.S.C.77b) the following new section:

5 ‘‘SEC. 2A. SWAP AGREEMENTS.

6 ‘‘(a) NON-SECURITY-BASED SWAP AGREEMENTS.—

7 The definition of ‘security’ in section 2(a)(1) of this title

8 does not include any non-security-based swap agreement

9 (as defined in section 206C of the Gramm-Leach-Bliley

10 Act).

11 ‘‘(b) SECURITY-BASED SWAP AGREEMENTS.—

12 ‘‘(1) The definition of ‘security’ in section

13 2(a)(1) of this title does not include any security14 based swap agreement (as defined in section 206B

15 of the Gramm-Leach-Bliley Act).

16 ‘‘(2) The Commission is prohibited from reg17 istering, or requiring, recommending, or suggesting,

18 the registration under this title of any security-based

19 swap agreement (as defined in section 206B of the

20 Gramm-Leach-Bliley Act). If the Commission be21 comes aware that a registrant has filed a registra22 tion statement with respect to such a swap agree23 ment, the Commission shall promptly so notify the

24 registrant. Any such registration statement with re25 spect to such a swap agreement shall be void and of

26 no force or effect.
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•S 3283 IS

1 ‘‘(3) The Commission is prohibited from—

2 ‘‘(A) promulgating, interpreting, or enforc3 ing rules; or

4 ‘‘(B) issuing orders of general applicability;

5 under this title in a manner that imposes or speci6 fies reporting or recordkeeping requirements, proce7 dures, or standards as prophylactic measures against

8 fraud, manipulation, or insider trading with respect

9 to any security-based swap agreement (as defined in

10 section 206B of the Gramm-Leach-Bliley Act).

11 ‘‘(4) References in this title to the ‘purchase’ or

12 ‘sale’ of a security-based swap agreement shall be

13 deemed to mean the execution, termination (prior to

14 its scheduled maturity date), assignment, exchange,

15 or similar transfer or conveyance of, or extinguishing

16 of rights or obligations under, a security-based swap

17 agreement (as defined in section 206B of the

18 Gramm-Leach-Bliley Act), as the context may re19 quire.’’.

20 (b) ANTI-FRAUD AND ANTI-MANIPULATION EN21 FORCEMENT AUTHORITY.—Section 17(a) of the Securities

22 Act of 1933 (15 U.S.C. 77q(a)) is amended to read as

23 follows:

24 ‘‘(a) It shall be unlawful for any person in the offer

25 or sale of any securities or any security-based swap agree-
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•S 3283 IS

1 ment (as defined in section 206B of the Gramm-Leach2 Bliley Act) by the use of any means or instruments of

3 transportation or communication in interstate commerce

4 or by use of the mails, directly or indirectly—

5 ‘‘(1) to employ any device, scheme, or artifice to

6 defraud, or

7 ‘‘(2) to obtain money or property by means of

8 any untrue statement of a material fact or any omis9 sion to state a material fact necessary in order to

10 make the statements made, in light of the cir11 cumstances under which they were made, not mis12 leading; or

13 ‘‘(3) to engage in any transaction, practice, or

14 course of business which operates or would operate

15 as a fraud or deceit upon the purchaser.’’.

16 (c) LIMITATION.—Section 17 of the Securities Act of

17 1933 is amended by adding at the end the following new

18 subsection:

19 ‘‘(d) The authority of the Commission under this sec20 tion with respect to security-based swap agreements (as

21 defined in section 206B of the Gramm-Leach-Bliley Act)

22 shall be subject to the restrictions and limitations of sec23 tion 2A(b) of this title.’’.
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•S 3283 IS

1 SEC. 303. AMENDMENTS TO THE SECURITIES EXCHANGE

2 ACT OF 1934.

3 (a) ENFORCEMENT FOCUS.—The Securities Ex4 change Act of 1934 is amended by inserting after section

5 3 (15 U.S.C. 78c) the following new section:

6 ‘‘SEC. 3A. SWAP AGREEMENTS.

7 ‘‘(a) NON-SECURITY-BASED SWAP AGREEMENTS.—

8 The definition of ‘security’ in section 3(a)(10) of this title

9 does not include any non-security-based swap agreement

10 (as defined in section 206C of the Gramm-Leach-Bliley

11 Act).

12 ‘‘(b) SECURITY-BASED SWAP AGREEMENTS.—

13 ‘‘(1) The definition of ‘security’ in section

14 3(a)(10) of this title does not include any security15 based swap agreement (as defined in section 206B

16 of the Gramm-Leach-Bliley Act).

17 ‘‘(2) The Commission is prohibited from reg18 istering, or requiring, recommending, or suggesting,

19 the registration under this title of any security-based

20 swap agreement (as defined in section 206B of the

21 Gramm-Leach-Bliley Act). If the Commission be22 comes aware that a registrant has filed a registra23 tion application with respect to such a swap agree24 ment, the Commission shall promptly so notify the

25 registrant. Any such registration with respect to
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•S 3283 IS

1 such a swap agreement shall be void and of no force

2 or effect.

3 ‘‘(3) Except as provided in section 16(a) with

4 respect to reporting requirements, the Commission is

5 prohibited from—

6 ‘‘(A) promulgating, interpreting, or enforc7 ing rules; or

8 ‘‘(B) issuing orders of general applicability;

9 under this title in a manner that imposes or speci10 fies reporting or recordkeeping requirements, proce11 dures, or standards as prophylactic measures against

12 fraud, manipulation, or insider trading with respect

13 to any security-based swap agreement (as defined in

14 section 206B of the Gramm-Leach-Bliley Act).

15 ‘‘(4) References in this title to the ‘purchase’ or

16 ‘sale’ of a security-based swap agreement (as defined

17 in section 206B of the Gramm-Leach-Bliley Act)

18 shall be deemed to mean the execution, termination

19 (prior to its scheduled maturity date), assignment,

20 exchange, or similar transfer or conveyance of, or

21 extinguishing of rights or obligations under, a secu22 rity-based swap agreement, as the context may re23 quire.’’.

24 (b) ANTI-FRAUD, ANTI-MANIPULATION ENFORCE25 MENT AUTHORITY.—Paragraphs (2) through (5) of sec-
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•S 3283 IS

1 tion 9(a) of the Securities Exchange Act of 1934 (15

2 U.S.C. 78i(a)(2)–(5)) are amended to read as follows:

3 ‘‘(2) To effect, alone or with one or more other per4 sons, a series of transactions in any security registered

5 on a national securities exchange or in connection with

6 any security-based swap agreement (as defined in section

7 206B of the Gramm-Leach-Bliley Act) with respect to

8 such security creating actual or apparent active trading

9 in such security, or raising or depressing the price of such

10 security, for the purpose of inducing the purchase or sale

11 of such security by others.

12 ‘‘(3) If a dealer or broker, or other person selling or

13 offering for sale or purchasing or offering to purchase the

14 security or a security-based swap agreement (as defined

15 in section 206B of the Gramm-Leach-Bliley Act) with re16 spect to such security, to induce the purchase or sale of

17 any security registered on a national securities exchange

18 or any security-based swap agreement (as defined in sec19 tion 206B of the Gramm-Leach-Bliley Act) with respect

20 to such security by the circulation or dissemination in the

21 ordinary course of business of information to the effect

22 that the price of any such security will or is likely to rise

23 or fall because of market operations of any one or more

24 persons conducted for the purpose of raising or depressing

25 the price of such security.
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•S 3283 IS

1 ‘‘(4) If a dealer or broker, or the person selling or

2 offering for sale or purchasing or offering to purchase the

3 security or a security-based swap agreement (as defined

4 in section 206B of the Gramm-Leach-Bliley Act) with re5 spect to such security, to make, regarding any security

6 registered on a national securities exchange or any secu7 rity-based swap agreement (as defined in section 206B of

8 the Gramm-Leach-Bliley Act) with respect to such secu9 rity, for the purpose of inducing the purchase or sale of

10 such security or such security-based swap agreement, any

11 statement which was at the time and in the light of the

12 circumstances under which it was made, false or mis13 leading with respect to any material fact, and which he

14 knew or had reasonable ground to believe was so false or

15 misleading.

16 ‘‘(5) For a consideration, received directly or indi17 rectly from a dealer or broker, or other person selling or

18 offering for sale or purchasing or offering to purchase the

19 security or a security-based swap agreement (as defined

20 in section 206B of the Gramm-Leach-Bliley Act) with re21 spect to such security, to induce the purchase of any secu22 rity registered on a national securities exchange or any

23 security-based swap agreement (as defined in section

24 206B of the Gramm-Leach-Bliley Act) with respect to

25 such security by the circulation or dissemination of infor-
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•S 3283 IS

1 mation to the effect that the price of any such security

2 will or is likely to rise or fall because of the market oper3 ations of any one or more persons conducted for the pur4 pose of raising or depressing the price of such security.’’.

5 (c) LIMITATION.—Section 9 of the Securities Ex6 change Act of 1934 is amended by adding at the end the

7 following new subsection:

8 ‘‘(i) The authority of the Commission under this sec9 tion with respect to security-based swap agreements (as

10 defined in section 206B of the Gramm-Leach-Bliley Act)

11 shall be subject to the restrictions and limitations of sec12 tion 3A(b) of this title.’’.

13 (d) REGULATIONS ON THE USE OF MANIPULATIVE

14 AND DECEPTIVE DEVICES.—Section 10 of the Securities

15 Exchange Act of 1934 (15 U.S.C. 78j) is amended—

16 (1) in subsection (b), by inserting ‘‘or any secu17 rities-based swap agreement (as defined in section

18 206B of the Gramm-Leach-Bliley Act),’’ before ‘‘any

19 manipulative or deceptive device’’; and

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

21 ‘‘Rules promulgated under subsection (b) that prohibit

22 fraud, manipulation, or insider trading (but not rules im23 posing or specifying reporting or recordkeeping require24 ments, procedures, or standards as prophylactic measures

25 against fraud, manipulation, or insider trading), and judi-
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1 cial precedents decided under subsection (b) and rules pro2 mulgated thereunder that prohibit fraud, manipulation, or

3 insider trading, shall apply to security-based swap agree4 ments (as defined in section 206B of the Gramm-Leach5 Bliley Act) to the same extent as they apply to securities.

6 Judicial precedents decided under section 17(a) of the Se7 curities Act of 1933 and sections 9, 15, 16, 20, and 21A

8 of this title, and judicial precedents decided under applica9 ble rules promulgated under such sections, shall apply to

10 security-based swap agreements (as defined in section

11 206B of the Gramm-Leach-Bliley Act) to the same extent

12 as they apply to securities.’’.

13 (e) BROKER, DEALER ANTI-FRAUD, ANTI-MANIPU14 LATION ENFORCEMENT AUTHORITY.—Section 15(c)(1) of

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

16 78o(c)(1)) is amended to read as follows:

17 ‘‘(c)(1)(A) No broker or dealer shall make use of the

18 mails or any means or instrumentality of interstate com19 merce to effect any transaction in, or to induce or attempt

20 to induce the purchase or sale of, any security (other than

21 commercial paper, bankers’ acceptances, or commercial

22 bills) otherwise than on a national securities exchange of

23 which it is a member, or any security-based swap agree24 ment (as defined in section 206B of the Gramm-Leach-
245

•S 3283 IS

1 Bliley Act), by means of any manipulative, deceptive, or

2 other fraudulent device or contrivance.

3 ‘‘(B) No municipal securities dealer shall make use

4 of the mails or any means or instrumentality of interstate

5 commerce to effect any transaction in, or to induce or at6 tempt to induce the purchase or sale of, any municipal

7 security or any security-based swap agreement (as defined

8 in section 206B of the Gramm-Leach-Bliley Act) involving

9 a municipal security by means of any manipulative, decep10 tive, or other fraudulent device or contrivance.

11 ‘‘(C) No government securities broker or government

12 securities dealer shall make use of the mails or any means

13 or instrumentality of interstate commerce to effect any

14 transaction in, or to induce or to attempt to induce the

15 purchase or sale of, any government security or any secu16 rity-based swap agreement (as defined in section 206B of

17 the Gramm-Leach-Bliley Act) involving a government se18 curity by means of any manipulative, deceptive, or other

19 fraudulent device or contrivance.’’.

20 (f) LIMITATION.—Section 15 of the Securities Ex21 change Act of 1934 (15 U.S.C. 78o) is amended by adding

22 at the end the following new subsection:

23 ‘‘(i) The authority of the Commission under this sec24 tion with respect to security-based swap agreements (as

25 defined in section 206B of the Gramm-Leach-Bliley Act)
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•S 3283 IS

1 shall be subject to the restrictions and limitations of sec2 tion 3A(b) of this title.’’.

3 (g) ANTI-INSIDER TRADING ENFORCEMENT AU4 THORITY.—Subsections (a) and (b) of section 16 (15

5 U.S.C. 78p(a), (b)) of the Securities Exchange of 1934

6 are amended to read as follows:

7 ‘‘(a) Every person who is directly or indirectly the

8 beneficial owner of more than 10 per centum of any class

9 of any equity security (other than an exempted security)

10 which is registered pursuant to section 12 of this title,

11 or who is a director or an officer of the issuer of such

12 security, shall file, at the time of the registration of such

13 security on a national securities exchange or by the effec14 tive date of a registration statement filed pursuant to sec15 tion 12(g) of this title, or within ten days after he becomes

16 such beneficial owner, director, or officer, a statement

17 with the Commission (and, if such security is registered

18 on a national securities exchange, also with the exchange)

19 of the amount of all equity securities of such issuer of

20 which he is the beneficial owner, and within ten days after

21 the close of each calendar month thereafter, if there has

22 been a change in such ownership or if such person shall

23 have purchased or sold a security-based swap agreement

24 (as defined in section 206B of the Gramm-Leach-Bliley

25 Act) involving such equity security during such month,
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1 shall file with the Commission (and if such security is reg2 istered on a national securities exchange, shall also file

3 with the exchange), a statement indicating his ownership

4 at the close of the calendar month and such changes in

5 his ownership and such purchases and sales of such secu6 rity-based swap agreements as have occurred during such

7 calendar month.

8 ‘‘(b) For the purpose of preventing the unfair use of

9 information which may have been obtained by such bene10 ficial owner, director, or officer by reason of his relation11 ship to the issuer, any profit realized by him from any

12 purchase and sale, or any sale and purchase, of any equity

13 security of such issuer (other than an exempted security)

14 or a security-based swap agreement (as defined in section

15 206B of the Gramm-Leach-Bliley Act) involving any such

16 equity security within any period of less than six months,

17 unless such security or security-based swap agreement was

18 acquired in good faith in connection with a debt previously

19 contracted, shall inure to and be recoverable by the issuer,

20 irrespective of any intention on the part of such beneficial

21 owner, director, or officer in entering into such transaction

22 of holding the security or security-based swap agreement

23 purchased or of not repurchasing the security or security24 based swap agreement sold for a period exceeding six

25 months. Suit to recover such profit may be instituted at
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1 law or in equity in any court of competent jurisdiction by

2 the issuer, or by the owner of any security of the issuer

3 in the name and in behalf of the issuer if the issuer shall

4 fail or refuse to bring such suit within sixty days after

5 request or shall fail diligently to prosecute the same there6 after; but no such suit shall be brought more than two

7 years after the date such profit was realized. This sub8 section shall not be construed to cover any transaction

9 where such beneficial owner was not such both at the time

10 of the purchase and sale, or the sale and purchase, of the

11 security or security-based swap agreement (as defined in

12 section 206B of the Gramm-Leach-Bliley Act) involved, or

13 any transaction or transactions which the Commission by

14 rules and regulations may exempt as not comprehended

15 within the purpose of this subsection.’’.

16 (h) LIMITATION.—Section 16 of the Securities Ex17 change Act of 1934 (15 U.S.C. 78p) is amended by adding

18 at the end the following new subsection:

19 ‘‘(g) The authority of the Commission under this sec20 tion with respect to security-based swap agreements (as

21 defined in section 206B of the Gramm-Leach-Bliley Act)

22 shall be subject to the restrictions and limitations of sec23 tion 3A(b) of this title.’’.
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1 (i) MATERIAL NONPUBLIC INFORMATION.—Section

2 20(d) of the Securities Exchange Act of 1934 (15 U.S.C.

3 78t(d)) is amended to read as follows:

4 ‘‘(d) Wherever communicating, or purchasing or sell5 ing a security while in possession of, material nonpublic

6 information would violate, or result in liability to any pur7 chaser or seller of the security under any provisions of

8 this title, or any rule or regulation thereunder, such con9 duct in connection with a purchase or sale of a put, call,

10 straddle, option, privilege or security-based swap agree11 ment (as defined in section 206B of the Gramm-Leach12 Bliley Act) with respect to such security or with respect

13 to a group or index of securities including such security,

14 shall also violate and result in comparable liability to any

15 purchaser or seller of that security under such provision,

16 rule, or regulation.’’.

17 (j) LIMITATION.—Section 20 of the Securities Ex18 change Act of 1934 (15 U.S.C. 78t) is amended by adding

19 at the end the following new subsection:

20 ‘‘(f) The authority of the Commission under this sec21 tion with respect to security-based swap agreements (as

22 defined in section 206B of the Gramm-Leach-Bliley Act)

23 shall be subject to the restrictions and limitations of sec24 tion 3A(b) of this title.’’.
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1 (k) CIVIL PENALTIES.—Section 21A(a)(1) of the Se2 curities Exchange Act of 1934 (15 U.S.C. 78u–1(a)(1))

3 is amended by inserting after ‘‘purchasing or selling a se4 curity’’ the following: ‘‘or security-based swap agreement

5 (as defined in section 206B of the Gramm-Leach-Bliley

6 Act)’’.

7 (l) LIMITATION.—Section 21A of the Securities Ex8 change Act of 1934 (15 U.S.C. 78u–1) is amended by add9 ing at the end the following new subsection:

10 ‘‘(g) The authority of the Commission under this sec11 tion with respect to security-based swap agreements (as

12 defined in section 206B of the Gramm-Leach-Bliley Act)

13 shall be subject to the restrictions and limitations of sec14 tion 3A(b) of this title.’’.

15 SEC. 304. SAVINGS PROVISIONS.

16 Nothing in this Act or the amendments made by this

17 Act shall be construed as finding or implying that any

18 swap agreement is or is not a security for any purpose

19 under the securities laws. Nothing in this Act or the

20 amendments made by this Act shall be construed as find21 ing or implying that any swap agreement is or is not a

22 futures contract or commodity option for any purpose

23 under the Commodity Exchange Act.
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1 TITLE IV—REGULATORY RE2 SPONSIBILITY FOR BANK

3 PRODUCTS

4 SEC. 401. SHORT TITLE.

5 This title may be cited as the ‘‘Legal Certainty for

6 Bank Products Act of 2000’’.

7 SEC. 402. DEFINITIONS.

8 (a) BANK.—In this title, the term ‘‘bank’’ means—

9 (1) any depository institution (as defined in sec10 tion 3(c) of the Federal Deposit Insurance Act);

11 (2) any foreign bank or branch or agency of a

12 foreign bank (each as defined in section 1(b) of the

13 International Banking Act of 1978);

14 (3) any Federal or State credit union (as de15 fined in section 101 of the Federal Credit Union

16 Act);

17 (4) any corporation organized under section

18 25A of the Federal Reserve Act;

19 (5) any corporation operating under section 25

20 of the Federal Reserve Act;

21 (6) any trust company; or

22 (7) any subsidiary of any entity described in

23 paragraph (1) through (6) of this subsection, if the

24 subsidiary is regulated as if the subsidiary were part

25 of the entity and is not a broker or dealer (as such
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1 terms are defined in section 3 of the Securities Ex2 change Act of 1934) or a futures commission mer3 chant (as defined in section 1a(20) of the Com4 modity Exchange Act).

5 (b) IDENTIFIED BANKING PRODUCT.—In this title,

6 the term ‘‘identified banking product’’ shall have the same

7 meaning as in paragraphs (1) through (5) of section

8 206(a) of the Gramm-Leach-Bliley Act, except that in ap9 plying such section for purposes of this title—

10 (1) the term ‘‘bank’’ shall have the meaning

11 given in subsection (a) of this section; and

12 (2) the term ‘‘qualified investor’’ means eligible

13 contract participant (as defined in section 1a(12) of

14 the Commodity Exchange Act, as in effect on the

15 date of enactment of the Commodity Futures Mod16 ernization Act of 2000).

17 (c) HYBRID INSTRUMENT.—In this title, the term

18 ‘‘hybrid instrument’’ means an identified banking product

19 not excluded by section 403 of this Act, offered by a bank,

20 having 1 or more payments indexed to the value, level,

21 or rate of, or providing for the delivery of, 1 or more com22 modities (as defined in section 1a(4) of the Commodity

23 Exchange Act).

24 (d) COVERED SWAP AGREEMENT.—In this title, the

25 term ‘‘covered swap agreement’’ means a swap agreement
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1 (as defined in section 206(b) of the Gramm-Leach-Bliley

2 Act), including a credit or equity swap, based on a com3 modity other than an agricultural commodity enumerated

4 in section 1a(4) of the Commodity Exchange Act if—

5 (1) the swap agreement—

6 (A) is entered into only between persons

7 that are eligible contract participants (as de8 fined in section 1a(12) of the Commodity Ex9 change Act, as in effect on the date of enact10 ment of the Commodity Futures Modernization

11 Act of 2000) at the time the persons enter into

12 the swap agreement; and

13 (B) is not entered into or executed on a

14 trading facility (as defined in section 1a(33) of

15 the Commodity Exchange Act); or

16 (2) the swap agreement—

17 (A) is entered into or executed on an elec18 tronic trading facility (as defined in section

19 1a(10) of the Commodity Exchange Act);

20 (B) is entered into on a principal-to-prin21 cipal basis between parties trading for their

22 own accounts or as described in section

23 1a(12)(B)(ii) of the Commodity Exchange Act;

24 (C) is entered into only between persons

25 that are eligible contract participants as de-
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1 scribed in subparagraphs (A), (B)(ii), or (C) of

2 section 1a(12) of the Commodity Exchange Act,

3 as in effect on the date of enactment of the

4 Commodity Futures Modernization Act of 2000,

5 at the time the persons enter into the swap

6 agreement; and

7 (D) is an agreement, contract or trans8 action in an excluded commodity (as defined in

9 section 1a(13) of the Commodity Exchange

10 Act).

11 SEC. 403. EXCLUSION OF IDENTIFIED BANKING PRODUCTS

12 COMMONLY OFFERED ON OR BEFORE DE13 CEMBER 5, 2000.

14 No provision of the Commodity Exchange Act shall

15 apply to, and the Commodity Futures Trading Commis16 sion shall not exercise regulatory authority with respect

17 to, an identified banking product if—

18 (1) an appropriate banking agency certifies that

19 the product has been commonly offered, entered

20 into, or provided in the United States by any bank

21 on or before December 5, 2000, under applicable

22 banking law; and

23 (2) the product was not prohibited by the Com24 modity Exchange Act and not regulated by the Com25 modity Futures Trading Commission as a contract
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1 of sale of a commodity for future delivery (or an op2 tion on such a contract) or an option on a com3 modity, on or before December 5, 2000.

4 SEC. 404. EXCLUSION OF CERTAIN IDENTIFIED BANKING

5 PRODUCTS OFFERED BY BANKS AFTER DE6 CEMBER 5, 2000.

7 No provision of the Commodity Exchange Act shall

8 apply to, and the Commodity Futures Trading Commis9 sion shall not exercise regulatory authority with respect

10 to, an identified banking product which had not been com11 monly offered, entered into, or provided in the United

12 States by any bank on or before December 5, 2000, under

13 applicable banking law if—

14 (1) the product has no payment indexed to the

15 value, level, or rate of, and does not provide for the

16 delivery of, any commodity (as defined in section

17 1a(4) of the Commodity Exchange Act); or

18 (2) the product or commodity is otherwise ex19 cluded from the Commodity Exchange Act.

20 SEC. 405. EXCLUSION OF CERTAIN OTHER IDENTIFIED

21 BANKING PRODUCTS.

22 (a) IN GENERAL.—No provision of the Commodity

23 Exchange Act shall apply to, and the Commodity Futures

24 Trading Commission shall not exercise regulatory author25 ity with respect to, a banking product if the product is
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1 a hybrid instrument that is predominantly a banking prod2 uct under the predominance test set forth in subsection

3 (b).

4 (b) PREDOMINANCE TEST.—A hybrid instrument

5 shall be considered to be predominantly a banking product

6 for purposes of this section if—

7 (1) the issuer of the hybrid instrument receives

8 payment in full of the purchase price of the hybrid

9 instrument substantially contemporaneously with de10 livery of the hybrid instrument;

11 (2) the purchaser or holder of the hybrid in12 strument is not required to make under the terms

13 of the instrument, or any arrangement referred to in

14 the instrument, any payment to the issuer in addi15 tion to the purchase price referred to in paragraph

16 (1), whether as margin, settlement payment, or oth17 erwise during the life of the hybrid instrument or at

18 maturity;

19 (3) the issuer of the hybrid instrument is not

20 subject by the terms of the instrument to mark-to21 market margining requirements; and

22 (4) the hybrid instrument is not marketed as a

23 contract of sale of a commodity for future delivery

24 (or option on such a contract) subject to the Com25 modity Exchange Act.
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1 (c) MARK-TO-MARKET MARGINING REQUIREMENT.—

2 For purposes of subsection (b)(3), mark-to-market mar3 gining requirements shall not include the obligation of an

4 issuer of a secured debt instrument to increase the amount

5 of collateral held in pledge for the benefit of the purchaser

6 of the secured debt instrument to secure the repayment

7 obligations of the issuer under the secured debt instru8 ment.

9 SEC. 406. ADMINISTRATION OF THE PREDOMINANCE TEST.

10 (a) IN GENERAL.—No provision of the Commodity

11 Exchange Act shall apply to, and the Commodity Futures

12 Trading Commission shall not regulate, a hybrid instru13 ment, unless the Commission determines, by or under a

14 rule issued in accordance with this section, that—

15 (1) the action is necessary and appropriate in

16 the public interest;

17 (2) the action is consistent with the Commodity

18 Exchange Act and the purposes of the Commodity

19 Exchange Act; and

20 (3) the hybrid instrument is not predominantly

21 a banking product under the predominance test set

22 forth in section 405(b) of this Act.

23 (b) CONSULTATION.—Before commencing a rule24 making or making a determination pursuant to a rule

25 issued under this title, the Commodity Futures Trading
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1 Commission shall consult with and seek the concurrence

2 of the Board of Governors of the Federal Reserve System

3 concerning—

4 (1) the nature of the hybrid instrument; and

5 (2) the history, purpose, extent, and appro6 priateness of the regulation of the hybrid instrument

7 under the Commodity Exchange Act and under ap8 propriate banking laws.

9 (c) OBJECTION TO COMMISSION REGULATION.—

10 (1) FILING OF PETITION FOR REVIEW.—The

11 Board of Governors of the Federal Reserve System

12 may obtain review of any rule or determination re13 ferred to in subsection (a) in the United States

14 Court of Appeals for the District of Columbia Cir15 cuit by filing in the court, not later than 60 days

16 after the date of publication of the rule or deter17 mination, a written petition requesting that the rule

18 or determination be set aside. Any proceeding to

19 challenge any such rule or determination shall be ex20 pedited by the court.

21 (2) TRANSMITTAL OF PETITION AND

22 RECORD.—A copy of a petition described in para23 graph (1) shall be transmitted as soon as possible by

24 the Clerk of the court to an officer or employee of

25 the Commodity Futures Trading Commission des-
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1 ignated for that purpose. Upon receipt of the peti2 tion, the Commission shall file with the court the

3 rule or determination under review and any docu4 ments referred to therein, and any other relevant

5 materials prescribed by the court.

6 (3) EXCLUSIVE JURISDICTION.—On the date of

7 the filing of a petition under paragraph (1), the

8 court shall have jurisdiction, which shall become ex9 clusive on the filing of the materials set forth in

10 paragraph (2), to affirm and enforce or to set aside

11 the rule or determination at issue.

12 (4) STANDARD OF REVIEW.—The court shall

13 determine to affirm and enforce or set aside a rule

14 or determination of the Commodity Futures Trading

15 Commission under this section, based on the deter16 mination of the court as to whether—

17 (A) the subject product is predominantly a

18 banking product; and

19 (B) making the provision or provisions of

20 the Commodity Exchange Act at issue applica21 ble to the subject instrument is appropriate in

22 light of the history, purpose, and extent of reg23 ulation under such Act, this title, and under the

24 appropriate banking laws, giving deference nei25 ther to the views of the Commodity Futures
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1 Trading Commission nor the Board of Gov2 ernors of the Federal Reserve System.

3 (5) JUDICIAL STAY.—The filing of a petition by

4 the Board pursuant to paragraph (1) shall operate

5 as a judicial stay, until the date on which the deter6 mination of the court is final (including any appeal

7 of the determination).

8 (6) OTHER AUTHORITY TO CHALLENGE.—Any

9 aggrieved party may seek judicial review pursuant to

10 section 6(c) of the Commodity Exchange Act of a

11 determination or rulemaking by the Commodity Fu12 tures Trading Commission under this section.

13 SEC. 407. EXCLUSION OF COVERED SWAP AGREEMENTS.

14 No provision of the Commodity Exchange Act (other

15 than section 5b of such Act with respect to the clearing

16 of covered swap agreements) shall apply to, and the Com17 modity Futures Trading Commission shall not exercise

18 regulatory authority with respect to, a covered swap agree19 ment offered, entered into, or provided by a bank.

20 SEC. 408. CONTRACT ENFORCEMENT.

21 (a) HYBRID INSTRUMENTS.—No hybrid instrument

22 shall be void, voidable, or unenforceable, and no party to

23 a hybrid instrument shall be entitled to rescind, or recover

24 any payment made with respect to, a hybrid instrument

25 under any provision of Federal or State law, based solely
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1 on the failure of the hybrid instrument to satisfy the pre2 dominance test set forth in section 405(b) of this Act or

3 to comply with the terms or conditions of an exemption

4 or exclusion from any provision of the Commodity Ex5 change Act or any regulation of the Commodity Futures

6 Trading Commission.

7 (b) COVERED SWAP AGREEMENTS.—No covered

8 swap agreement shall be void, voidable, or unenforceable,

9 and no party to a covered swap agreement shall be entitled

10 to rescind, or recover any payment made with respect to,

11 a covered swap agreement under any provision of Federal

12 or State law, based solely on the failure of the covered

13 swap agreement to comply with the terms or conditions

14 of an exemption or exclusion from any provision of the

15 Commodity Exchange Act or any regulation of the Com16 modity Futures Trading Commission.

17 (c) PREEMPTION.—This title shall supersede and pre18 empt the application of any State or local law that pro19 hibits or regulates gaming or the operation of bucket

20 shops (other than antifraud provisions of general applica21 bility) in the case of—

22 (1) a hybrid instrument that is predominantly

23 a banking product; or

24 (2) a covered swap agreement.

Æ