II

106TH CONGRESS

2D SESSION S. 2772

To amend the securities laws to provide for regulatory parity for single

stock futures, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 22, 2000

Mr. SCHUMER introduced the following bill; which was read twice and referred

to the Committee on Banking, Housing, and Urban Affairs

A BILL

To amend the securities laws to provide for regulatory parity

for single stock futures, 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 TITLE I—SHORT TITLE

4 This Act may be cited as the ‘‘Regulatory Parity for

5 Single Stock Futures Act of 2000’’.
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1 TITLE II—SECURITIES ACTS

2 AMENDMENTS

3 SEC. 201. DEFINITIONS UNDER THE SECURITIES EX4 CHANGE ACT OF 1934.

5 Section 3(a) of the Securities Exchange Act of 1934

6 (15 U.S.C. 78c(a)) is amended—

7 (1) in paragraph (10), by inserting ‘‘security

8 future,’’ between ‘‘treasury stock,’’ and ‘‘bond’’;

9 (2) by striking paragraph (11) and inserting

10 the following:

11 ‘‘(11) The term ‘equity security’ means any

12 stock or similar security; or any security future; or

13 any security convertible, with or without consider14 ation, into such a security, or carrying any warrant

15 or right to subscribe to or purchase such a security;

16 or any such warrant or right; or any put, call, strad17 dle, option, or privilege on any such security; or any

18 other security which the Commission shall deem to

19 be of similar nature and consider necessary or ap20 propriate, by such rules and regulations as it may

21 prescribe in the public interest or for the protection

22 of investors, to treat as an equity security.’’;

23 (3) in paragraph (13), by adding at the end the

24 following: ‘‘For security future products, this in-
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1 cludes any contract, agreement, or transaction for

2 future delivery.’’;

3 (4) in paragraph (14), by adding at the end the

4 following: ‘‘For security future products, this in5 cludes any contract, agreement, or transaction for

6 future delivery.’’; and

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

8 ‘‘(55)(A) The term ‘security future’ means a

9 contract of sale for future delivery of a single secu10 rity or of a narrow-based security index, including

11 any interest therein or based on the value thereof.

12 ‘‘(B) A ‘narrow-based security index’ is an

13 index—

14 ‘‘(i) that has 10 or fewer component secu15 rities;

16 ‘‘(ii) in which the securities of a single

17 issuer account on average, over the six-month

18 period ending on the date equity options expire

19 in June of each year and over the six-month pe20 riod ending on the date equity options expire in

21 December of each year, for more than 10 per22 cent of the market capitalization of that index;

23 ‘‘(iii) in which the securities of a single

24 issuer in a price-weighted (or other non-capital25 ization weighted) index account on average,
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1 over the six-month period ending on the date

2 equity options expire in June of each year and

3 over the six-month period ending on the date

4 equity options expire in December of each year,

5 for more than three times their weight in the

6 index if calculated on a market-capitalization

7 basis;

8 ‘‘(iv) in which any component security has

9 an average daily trading volume value of less

10 than $1 million or an aggregate market value

11 of the voting and non-voting common equity

12 held by non-affiliates of less than $150 million;

13 ‘‘(v) in which the average correlation of the

14 securities in the index to the index itself is

15 greater than 0.6 over the six-month period end16 ing on the date equity options expire in June of

17 each year and over the six-month period ending

18 on the date equity options expire in December

19 of each year; or

20 ‘‘(vi) in which the correlation of any secu21 rity in the index to the index itself is greater

22 than 0.9 over the six-month period ending on

23 the date equity options expire in June of each

24 year and over the six-month period ending on
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1 the date equity options expire in December of

2 each year.

3 ‘‘(C) The term ‘security future product’ means

4 a security future or any put, call, straddle, option,

5 or privilege on any security future.

6 ‘‘(56)(A) The term ‘margin’, when used with

7 respect to a security future product, means the

8 amount, type, and form of collateral required to se9 cure any extension, maintenance, or arrangement of

10 the extension or maintenance of credit, or the

11 amount of collateral required as a performance bond

12 related to the purchase, sale, or carrying of a secu13 rity future product, and all other uses of collateral

14 related to the purchasing, selling, or carrying of a

15 security future product.

16 ‘‘(B) The terms ‘margin level’ and ‘level of mar17 gin’, when used with respect to a security future

18 product, mean the amount of collateral required to

19 secure any extension, maintenance, or arrangement

20 of the extension or maintenance of credit, or the

21 amount of collateral required as a performance

22 bond, related to the purchase, sale, or carrying of a

23 security future product.

24 ‘‘(C) The terms ‘higher margin level’ and ‘high25 er level of margin’, when used with respect to a se-
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1 curity future product, mean a margin level estab2 lished by a national securities exchange or a national

3 securities association that is higher than the min4 imum amount established jointly by the Commission

5 and the Commodity Futures Trading Commission

6 pursuant to section 7(c)(1)(C)(ii).’’.

7 SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING

8 SECURITY FUTURE PRODUCTS.

9 (a) EXPEDITED REGISTRATION AND EXEMPTION.—

10 Section 6 of the Securities Exchange Act of 1934 (15

11 U.S.C. 78f) is amended by adding at the end the following:

12 ‘‘(g)(1) An exchange that lists or trades security fu13 ture products may be registered as a national securities

14 exchange solely for the purposes of trading security future

15 products if (A) it is a board of trade, as that term is de16 fined by the Commodity Exchange Act (7 U.S.C. 1a(1)),

17 that has been designated a contract market by the Com18 modity Futures Trading Commission and is not subject

19 to a suspension order by the Commodity Futures Trading

20 Commission, and (B) such exchange does not serve as a

21 market place for securities other than security future

22 products, or futures on exempted securities or groups or

23 indexes of securities that have been authorized by Com24 modity Futures Trading Commission order or options

25 thereon.
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1 ‘‘(2)(A) An exchange required to register only be2 cause it lists or trades security future products may reg3 ister for purposes of this section by filing with the Com4 mission a written notice in such form as the Commission,

5 by rule, may prescribe containing the rules of the exchange

6 and such other information and documents concerning

7 such exchange as the Commission, by rule, may prescribe

8 as necessary or appropriate in the public interest or for

9 the protection of investors.

10 ‘‘(B) Such registration shall be effective immediately

11 upon filing of the written notice with the Commission.

12 Such registration shall not be effective if the exchange

13 were so registered, its registration would be subject to sus14 pension or revocation.

15 ‘‘(C) Such registration shall be terminated imme16 diately if any of the conditions for registration set forth

17 in this subsection are no longer satisfied.

18 ‘‘(3) The Commission shall make available to the

19 public all notices it receives under this subsection.

20 ‘‘(4)(A) An exchange that is registered under para21 graph (1) of this subsection shall be exempt from and shall

22 not be required to enforce compliance by its members with,

23 and its members shall not, solely with respect to those

24 transactions effected on such exchange in security future
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1 products, be required to comply with, the following provi2 sions of this title and the rules thereunder.

3 ‘‘(i) subsections (b)(2), (b)(3), (b)(4), (b)(7),

4 (b)(9), (c), (d), and (e) of section 6;

5 ‘‘(ii) section 11;

6 ‘‘(iii) subsection (d) and (f) of section 17; and

7 ‘‘(iv) subsection (a), (f), and (h) of section 19.

8 ‘‘(B) An exchange that is subject to the registration

9 requirement of paragraph (1) of this subsection shall also

10 be exempt from submitting proposed rule changes pursu11 ant to section 19(b) of this title, except that:

12 ‘‘(i) it shall file proposed rule changes related to

13 higher margin levels, fraud or manipulation, record14 keeping, reporting, listing standards of security fu15 ture products, or sales practices for persons who ef16 fect transactions in security future products or rules

17 primarily related to its obligation to enforce the se18 curities laws pursuant to section 19(b)(7);

19 ‘‘(ii) it shall file pursuant to sections 19(b)(1)

20 and 19(b)(2) proposed rule changes related to mar21 gin, except for changes to higher margin levels; and

22 ‘‘(iii) it shall file pursuant to section 19(b)(1)

23 proposed rule changes that have been abrogated by

24 the Commission pursuant to section 19(b)(7)(C).
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1 ‘‘(5) No exchange that is registered under paragraph

2 (1) of this subsection shall trade any security future prod3 uct until the National Futures Association has met the

4 requirements set forth in section 15A(k)(2) of this title.’’.

5 (b) COMMISSION REVIEW OF PROPOSED RULE

6 CHANGES.—

7 (1) EXPEDITED REVIEW.—Section 19(b) of the

8 Securities Exchange Act of 1934 (15 U.S.C. 78s(b))

9 is amended by adding at the end the following:

10 ‘‘(7)(A) A self-regulatory organization that is

11 an exchange registered with the Commission pursu12 ant to section 6(g) of this title or that is the Na13 tional Futures Association shall file with the Com14 mission, in accordance with such rules as the Com15 mission may prescribe, copies of any proposed rule

16 change or any proposed change in, addition to, or

17 deletion from the rules of such self-regulatory orga18 nization (hereinafter in this subsection collectively

19 referred to as a ‘proposed rule change’) that relates

20 to higher margin levels, fraud or manipulation, rec21 ordkeeping, reporting, listing standards of security

22 future products, or sales practices for persons who

23 effect transactions in security future products or

24 rules primarily related to its obligation to enforce

25 the securities laws. Such proposed rule change shall
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1 be accompanied by a concise general statement of

2 the basis and purpose of such proposed rule change.

3 The Commission shall, upon the filing of any pro4 posed rule change, publish notice thereof together

5 with the terms of substance of the proposed rule

6 change or a description of the subjects and issues in7 volved. The Commission shall give interested persons

8 an opportunity to submit written data, views, and

9 arguments concerning such proposed rule change.

10 ‘‘(B) A proposed rule change filed with the

11 Commission pursuant to subparagraph (A) must be

12 filed concurrently with the Commodity Futures

13 Trading Commission. Such proposed rule change

14 may take effect upon a determination by the Com15 modity Futures Trading Commission that review of

16 the proposed rule change is not necessary or upon

17 approval of the proposed rule change by the Com18 modity Futures Trading Commission.

19 ‘‘(C) Any proposed rule change of a self-regu20 latory organization that has taken effect pursuant to

21 subparagraph (B) may be enforced by such self-reg22 ulatory organization to the extent it is not incon23 sistent with the provisions of this title, the rules and

24 regulations thereunder, and applicable Federal and

25 State law. At any time within sixty days of the date
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1 the Commodity Futures Trading Commission deter2 mines that review of such proposed rule change is

3 not necessary or the date the Commodity Futures

4 Trading Commission approves such proposed rule

5 change, the Commission summarily may abrogate

6 the proposed rule change and require that the pro7 posed rule change be refiled in accordance with the

8 provisions of section 19(b)(1), if it appears to the

9 Commission that such proposed rule change unduly

10 burdens competition, conflicts with the securities

11 laws, or does not promote efficiency. Commission ac12 tion pursuant to the preceding sentence shall not af13 fect the validity or force of the rule change during

14 the period it was in effect and shall not be review15 able under section 25 nor deemed to be a final agen16 cy action for purposes of section 704 of title 5,

17 United States Code.

18 (‘‘D) Within thirty-five days of the date of pub19 lication of notice of the filing of a proposed rule

20 change that is abrogated in accordance with sub21 paragraph (C) and refiled in accordance with section

22 19(b)(1), or within such longer period as the Com23 mission may designate up to ninety days after such

24 date if it finds such longer period to be appropriate

25 and publishes its reasons for so finding or as to
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1 which the self-regulatory organization consents, the

2 Commission shall—

3 ‘‘(i) by order approve such proposed rule

4 change, or

5 ‘‘(ii) institute proceedings to determine

6 whether the proposed rule change should be dis7 approved. Such proceedings shall include notice

8 of the grounds for disapproval under consider9 ation and opportunity for hearing and be con10 cluded within one hundred eighty days of the

11 date of publication of notice of the filing of the

12 proposed rule change. At the conclusion of such

13 proceedings the Commission, by order, shall ap14 prove or disapprove such proposed rule change.

15 The Commission may extend the time for con16 clusion of such proceedings for up to sixty days

17 if it finds good cause for such extension and

18 publishes its reasons for so finding or for such

19 longer period as to which the self-regulatory or20 ganization consents.

21 The Commission shall approve a proposed rule

22 change of a self-regulatory organization if it finds

23 that such proposed rule change promotes efficiency,

24 does not unduly burden competition, and does not

25 conflict with the securities laws. The Commission
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1 shall disapprove a proposed rule change of a self2 regulatory organization if it does not make such

3 finding. The Commission shall not approve any pro4 posed rule change prior to the thirtieth day after the

5 date of publication of notice of the filing thereof, un6 less the Commission finds good cause for so doing

7 and publishes its reasons for so finding.’’.

8 (2) CONSULTATION PROVISIONS.—Section 19(b)

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

10 78s(b)) is amended by adding after paragraph (7),

11 as added by this Act, the following:

12 ‘‘(8)(A) The Commission shall consult with and

13 consider the views of the Commodity Futures Trad14 ing Commission prior to approving a proposed rule

15 change filed by a national securities association reg16 istered pursuant to section 15(A)(a) or a national

17 securities exchange subject to the provisions of sec18 tion 19(a) that primarily concerns conduct related to

19 transactions in security futures products, except

20 where the Commission determines that an emer21 gency exists requiring expeditious or summary action

22 and publishes its reasons therefore. If the Com23 modity Futures Trading Commission comments in

24 writing to the Commission on a proposed rule that

25 has been published for comment, the Commission
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1 shall respond in writing to such written comment be2 fore approving the proposed rule. If the Commodity

3 Futures Trading Commission determines, and noti4 fies the Commission, that such rule, if implemented,

5 would, or as applied: (i) adversely affect the liquidity

6 or efficiency of the market for security future prod7 ucts; or (ii) impose any burden on competition not

8 necessary or appropriate in furtherance of the pur9 poses of this section, the Commission shall, prior to

10 adopting the proposed rule, find that such rule is

11 necessary and appropriate in furtherance of the pur12 poses of this section notwithstanding the Commodity

13 Futures Trading Commission’s determination.

14 ‘‘(B) In approving rules described in subpara15 graph (A), the Commission shall consider the suffi16 ciency and appropriateness of then existing laws and

17 rules applicable to security futures products.’’.

18 (c) REVIEW OF DISCIPLINARY PROCEEDINGS.—Sec19 tion 19(d) of the Securities Exchange Act of 1934 (15

20 U.S.C. 78s(d)) is amended by adding at the end the fol21 lowing:

22 ‘‘(3) The provisions of section 19(d) shall apply

23 to an exchange registered pursuant to section 6(g)

24 of this title or the National Futures Association only

25 to the extent that such self-regulatory organization
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1 imposes any final disciplinary sanction related to a

2 security future product or the securities laws.’’.

3 SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES

4 TRADING SECURITY FUTURE PRODUCTS.

5 (a) EXPEDITED REGISTRATION AND EXEMPTIONS.—

6 (1) Section 15(b) of the Securities Exchange

7 Act of 1934 (15 U.S.C. 78o(b)) is amended by add8 ing at the end of the following:

9 ‘‘(11)(A)(i) A broker or dealer required to reg10 ister only because it effects transactions in security

11 future products on an exchange registered pursuant

12 to section 6(g) may register for purposes of this sec13 tion by filing with the Commission a written notice

14 in such form and containing such information con15 cerning such broker or dealer and any persons asso16 ciated with such broker or dealer as the Commission,

17 by rule, may prescribe as necessary or appropriate

18 in the public interest or for the protection of inves19 tors, if that broker or dealer is a member of the

20 National Futures Association.

21 ‘‘(ii) Such registration shall be effective imme22 diately upon filing of the written notice with the

23 Commission. Such registration shall not be effective

24 if the applicant were so registered, its registration
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1 would be subject to suspension or revocation under

2 paragraph (4).

3 ‘‘(iii) Such registration shall be suspended im4 mediately if the National Futures Association sus5 pends the membership of that broker or dealer.

6 ‘‘(iv) Such registration shall be terminated im7 mediately if any of the above stated conditions for

8 registration set forth in this paragraph are no longer

9 satisfied.

10 ‘‘(B) A broker or dealer registered pursuant to

11 the requirements of subparagraph (A) shall be ex12 empt from the following provisions of this title and

13 the rules thereunder with respect to transactions in

14 security future products:

15 ‘‘(i) section 8;

16 ‘‘(ii) subsection (a) of section 10;

17 ‘‘(iii) section 11;

18 ‘‘(iv) subsection (c)(3) of section 15;

19 ‘‘(v) section 15B;

20 ‘‘(vi) section 15C; and

21 ‘‘(vii) subsections (d), (e), (f)(g), and (h)

22 of section 17.

23 The Commission, by rule, regulation, or order, also

24 may conditionally or unconditionally exempt any

25 broker or dealer from any other requirement of this
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1 title related to security future products, to the ex2 tent that such exemption is necessary or appropriate

3 in the public interest, and is consistent with the pro4 tection of investors.’’; and

5 (2) Section 28(e) of the Securities Exchange

6 Act of 1934 (15 U.S.C. 78bb(e)) is amended by add7 ing at the end the following:

8 ‘‘(4) The provisions of subsection (e) shall not

9 apply with regard to securities that are security fu10 ture products.’’.

11 (b) FLOOR BROKERS.—Section 15(b) of the Securi12 ties Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended

13 by adding after paragraph (11), as added by this Act, the

14 following:

15 ‘‘(12)(A) A natural person shall be exempt from

16 the registration requirements of this section if such

17 person:

18 ‘‘(i) is a member of a designated contract

19 market registered with the Commission as an

20 exchange pursuant to section 6(g);

21 ‘‘(ii) only effects transactions in securities

22 of the exchange of which he is a member; and

23 ‘‘(iii) has no direct contact with public cus24 tomers.
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1 ‘‘(B) A natural person exempt from registration

2 pursuant to subparagraph (A) shall also be exempt

3 from the following provisions of this title and the

4 rules thereunder:

5 ‘‘(i) section 8;

6 ‘‘(ii) subsection (a) of section 10;

7 ‘‘(iii) section 11;

8 ‘‘(iv) subsection (c)(3) of section 15;

9 ‘‘(v) section 15B;

10 ‘‘(vi) section 15C; and

11 ‘‘(vii) subsections (d), (e), (f)(g), and (h)

12 of section 17.’’.

13 (c) LIMITED PURPOSE NATIONAL SECURITIES ASSO14 CIATION.—Section 15A of the Securities Exchange Act of

15 1934 (15 U.S.C. 78o–3) is amended by adding at the end

16 of the following:

17 ‘‘(k)(1) The National Futures Association shall be a

18 registered national securities association for the limited

19 purpose of regulating the activities of members who are

20 registered as brokers or dealers in security future products

21 pursuant to section 15(b)(11).

22 ‘‘(2) The National Futures Association shall—

23 ‘‘(A) be so organized and have the capacity to

24 carry out the purposes of the securities laws applica25 ble to security future products and to comply, and
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1 (subject to any rule or order of the Commission pur2 suant to section 19(g)(2)) to enforce compliance by

3 its members and persons associated with its mem4 bers, with the provisions of the securities laws appli5 cable to security future products, the rules and regu6 lations thereunder, and the rules of the National Fu7 tures Association;

8 ‘‘(B) have rules that are designed to prevent

9 fraudulent and manipulative acts and practices, to

10 promote just and equitable principles of trade, and,

11 in general, to protect investors and the public inter12 est; and are not designed to regulate by virtue of

13 any authority conferred by this title matters not re14 lated to the purposes of this title or the administra15 tion of the association;

16 ‘‘(C) have rules that provide that (subject to

17 any rule or order of the Commission pursuant to

18 section 19(g)(2)) its members and persons associ19 ated with its members shall be appropriately dis20 ciplined for violation of any provision of the securi21 ties laws applicable to security future products, the

22 rules or regulations thereunder, or the rules of the

23 association, by expulsion, suspension, limitation of

24 activities, functions, and operations, fine, censure,
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1 being suspended or barred from being associated

2 with a member, or any other fitting sanction;

3 ‘‘(D) have rules that ensure that members and

4 natural persons associated with members meet such

5 standards of training, experience, and competence

6 necessary to effect transactions in security future

7 products and are tested for their knowledge of secu8 rities and security future products; and

9 ‘‘(E) have rules governing sales practices and

10 the advertising of security future products com11 parable to those of other national securities associa12 tions registered pursuant to section 15A(a).

13 ‘‘(3) The National Futures Association shall be ex14 empt from submitting proposed rule changes pursuant to

15 section 19(b) of this title, except that:

16 ‘‘(A) it shall file proposed rule changes related

17 to higher margin levels, fraud or manipulation, rec18 ordkeeping, reporting, listing of standards of secu19 rity future products, or sales practices or standards

20 of training, experience, competence, or other quali21 fications for persons who effect transactions in secu22 rity future products or rules primarily related to its

23 obligation to enforce the securities laws pursuant to

24 section 19(b)(7).
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1 ‘‘(B) it shall file pursuant to sections 19(b)(1)

2 and 19(b)(2) proposed rule changes related to mar3 gin, except for changes to higher margin levels; and

4 ‘‘(C) it shall file pursuant to section 19(b)(1)

5 proposed rule changes that have been abrogated by

6 the Commission pursuant to section 19(b)(7)(C).

7 ‘‘(4) The National Futures Association shall be ex8 empt from and shall not be required to enforce compliance

9 by its members, and its members shall not, solely with re10 spect to their transactions effected in security future prod11 ucts, be required to comply, with the following provisions

12 of this title and the rules thereunder:

13 ‘‘(A) subsections (b)(1), (b)(3), (b)(4), (b)(5),

14 (b)(8), (b)(10), (b)(11), (b)(12), (b)(13), (c), (d),

15 (e), (f), (g), (h), and (i) of section 15A;

16 ‘‘(B) subsections (d) and (f) of section 17; and

17 ‘‘(C) subsections (a), (f), and (h) of section

18 19.’’.

19 (d) EXEMPTION UNDER THE SECURITIES INVESTOR

20 PROTECTION ACT OF 1970.—

21 (1) Section 16(14) of the Securities Investor

22 Protection Act of 1970 (15 U.S.C. 78lll(14)) is

23 amended by inserting ‘‘or any security future as that

24 term is defined in section 3(a)(55)(A) of the Securi25 ties Exchange Act of 1934,’’ between ‘‘certificate of
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1 deposit for a security,’’ and ‘‘any investment con2 tract or certificate of interest or participation’’; and

3 (2) Section 3(a)(2) of the Securities Investor

4 Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)) is

5 amended—

6 (A) in subparagraph (A)(i), by striking

7 ‘‘and’’ after the semicolon;

8 (B) in subparagraph (A)(ii), by striking

9 the period and inserting ‘‘; and’’;

10 (C) by adding at the end the following:

11 ‘‘(iii) persons who are registered as a

12 broker or dealer pursuant to section

13 15(b)(11)(A) of the Securities Exchange

14 Act of 1934.’’.

15 (e) OTHER PROVISION.—Section 15(i)(6)(A) of the

16 Securities Exchange Act of 1934 (15 U.S.C. 78o(i)(6)(A))

17 is amended.—

18 (1) in subparagraph (A)(ii), by striking ‘‘and’’;

19 (2) in subparagraph (A)(iii), by striking the pe20 riod and inserting ‘‘; and’’; and

21 (3) by adding at the end the following:

22 ‘‘(iv) is not a security future prod23 uct.’’.
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1 SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY CO2 OPERATION.

3 Section 17 of the Securities Exchange Act of 1934

4 (15 U.S.C. 78q) is amended by striking subsection (b) and

5 inserting the following:

6 ‘‘(b)(1) All records of persons described in subsection

7 (a) are subject at any time, or from time to time, to such

8 reasonable periodic, special, or other examinations by rep9 resentatives of the Commission and the appropriate regu10 latory agency for such persons as the Commission or the

11 appropriate regulatory agency for such persons deems nec12 essary or appropriate in the public interest, for the protec13 tion of investors, or otherwise in furtherance of the pur14 pose of this title if the Commission, prior to conducting

15 any such examination of a—

16 ‘‘(A) registered clearing agency, registered

17 transfer agent, or registered municipal securities

18 dealer for which it is not the appropriate regulatory

19 agency, gives notice to the appropriate regulatory

20 agency for such clearing agency, transfer agent, or

21 municipal securities dealer, of such proposed exam22 ination and consults with the appropriate regulatory

23 agency concerning the feasibility and desirability of

24 coordinating such examinations conducted by the ap25 propriate regulatory agency with a view to avoiding

26 unnecessary regulatory duplication or undue regu-
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1 latory burdens for such clearing agency, transfer

2 agent, or municipal securities dealer; or

3 ‘‘(B) broker or dealer registered pursuant to

4 section 15(b)(11) or exchange registered pursuant to

5 section 6(g), gives notice to the Commodity Futures

6 Trading Commission of such proposed examination

7 and consults with the Commodity Futures Trading

8 Commission concerning the feasibility and desir9 ability of coordinating such examination with exami10 nations conducted by the Commodity Futures Trad11 ing Commission with a view to avoiding unnecessary

12 regulatory duplication or undue regulatory burdens

13 for such broker or dealer or exchange.

14 ‘‘(2) The Commission shall notify the Commodity Fu15 tures Trading Commission of any examination conducted

16 of any broker or dealer registered pursuant to section

17 15(b)(11) or exchange registered pursuant to section 6(g),

18 and, upon request, furnish to the Commodity Futures

19 Trading Commission any examination report and data

20 supplied to the Commission in connection with such exam21 ination.

22 ‘‘(3) The Commission shall, to the fullest extent pos23 sible, use the reports of examinations of any broker or

24 dealer registered pursuant to section 15(b)(11) or ex25 change registered pursuant to section 6(g) made by the
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1 Commodity Futures Trading Commission, the National

2 Futures Association, or an exchange registered pursuant

3 to section 6(g).

4 ‘‘(4) Nothing in this subsection shall be construed to

5 impair or limit (other than by the requirement of prior

6 consultation) the power of the Commission under this sub7 section to examine any clearing agency, transfer agent, or

8 municipal securities dealer, broker or dealer registered

9 pursuant to section 15(b)(11), or exchange registered pur10 suant to section 6(g), or to affect in any way the power

11 of the Commission under any other provision of this title

12 or otherwise to inspect, examine, or investigate any clear13 ing agency, transfer agent, or municipal securities dealer,

14 broker or dealer registered pursuant to section 15(b)(11),

15 or exchange registered pursuant to section 6(g).’’.

16 SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SE17 CURITY FUTURE PRODUCTS.

18 (A) ADDITION OF SECURITY FUTURE PRODUCTS TO

19 OPTION-SPECIFIC ENFORCEMENT PROVISIONS.—

20 (1) PROHIBITION AGAINST MANIPULATION.—

21 Section 9(B) of the Securities Exchange Act of 1934

22 (15 U.S.C. 78i) is amended—

23 (A) in paragraph (1), by inserting ‘‘(A)’’

24 between ‘‘acquires’’ and ‘‘any’’ and by striking
26

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1 ‘‘; or’’ and inserting ‘‘, or (B) any contract of

2 sale of the security for future delivery; or’’;

3 (B) in paragraph (2), by inserting ‘‘(A)’’

4 between ‘‘any’’ and ‘‘such’’ and by striking ‘‘;

5 or’’ and inserting ‘‘or (B) such contract of sale

6 for future delivery; or’’; and

7 (C) in paragraph (3), by inserting ‘‘(A)’’

8 between ‘‘any’’ and ‘‘such’’ and inserting ‘‘or

9 (B) contract of sale for future delivery’’ be10 tween ‘‘security’’ and ‘‘with’’.

11 (2) LIABILITY OF CONTROLLING PERSONS AND

12 PERSONS WHO AID AND ABET VIOLATIONS.—Section

13 20(d) of the Securities Exchange Act of 1934 (15

14 U.S.C. 78t) is amended by striking ‘‘or privilege’’

15 and inserting ‘‘privilege, or security future product’’.

16 (3) LIABILITY TO CONTEMPORANEOUS TRADERS

17 FOR INSIDER TRADING.—Section 21A(a)(1) of the

18 Securities Exchange Act of 1934 (15 U.S.C. 78u–

19 1(a)(1)) is amended by striking ‘‘standardized op20 tions, the Commission—’’ and inserting ‘‘standard21 ized options or security future products, the Com22 mission—’’.

23 (4) ENFORCEMENT CONSULTATION.—Section

24 21 of the Securities Exchange Act of 1934 (15
27

S 2772 IS

1 U.S.C. 78u) is amended by adding at the end of the

2 following:

3 ‘‘(i) The Commission shall file with

4 the Commodity Futures Trading Commis5 sion notice of the commencement of any

6 proceeding and a copy of any order entered

7 by the Commission against any broker or

8 dealer registered pursuant to section

9 15(b)(11) or any exchange registered pur10 suant to section 6(g).’’

11 SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SE12 CURITY FUTURE PRODUCTS.

13 (a) LISTING STANDARDS.—Section 6 of the Securi14 ties Exchange Act of 1934 (15 U.S.C. 78f) is amended

15 by inserting after subsection (g), as added by this Act,

16 the following:

17 ‘‘(h)(1) It shall be unlawful for any person to effect

18 transactions in security future products otherwise than on

19 a national securities exchange or a national securities as20 sociation registered pursuant to section 15A(a).

21 ‘‘(2) A national securities exchange or a national se22 curities association registered pursuant to section 15A(a)

23 may trade only security future products that conform with

24 listing standards that such exchanges file with the Com25 mission under section 19(b)(7) and the Commodity Fu-
28

S 2772 IS

1 tures Trading Commission under section ll of the Com2 modity Exchange Act (7 U.S.C. ll).

3 ‘‘(3) Such listing standards must:

4 ‘‘(A) require that any security underlying the

5 security future, including each component security of

6 a narrow-based security index, be registered pursu7 ant to section 12 of this title;

8 ‘‘(B) require that the security future product be

9 cash settled;

10 ‘‘(C) be no less restrictive than comparable list11 ing standards for options;

12 ‘‘(D) require that the security future be based

13 upon common stock and such other equity securities

14 as the Commission determines appropriate;

15 ‘‘(E) require that the security future product is

16 guaranteed by a clearing agency that has in place

17 provisions for linked and coordinated clearing with

18 other clearing agencies that guarantee security fu19 ture products, which permits the security future

20 product to be purchased on a national securities ex21 change or national securities association registered

22 pursuant to section 15A(a) and offset on another

23 national securities exchange or national securities

24 association registered pursuant to section 15A(a);

25 and
29

S 2772 IS

1 ‘‘(F) require that only a broker or dealer sub2 ject to suitability rules comparable to those of a na3 tional securities association registered pursuant to

4 section 15A(a) effect transactions in the security fu5 ture product;

6 ‘‘(G) require that the security future product be

7 subject to the prohibition against dual trading in

8 section 4(j) of the Commodity Exchange Act (7

9 U.S.C. 6j) or the provisions of section 11(a) of this

10 title and the rules and regulations thereunder, ex11 cept to the extent otherwise permitted under this

12 title and the rules and regulations thereunder;

13 ‘‘(H) require that trading in the security future

14 product and any security that underlies the security

15 future product not be readily susceptible to manipu16 lation;

17 ‘‘(I) require that procedures be in pace for co18 ordinated surveillance to detect manipulation and in19 sider trading between the market trading the secu20 rity future product, the market trading the securities

21 underlying the security future product, and other

22 markets trading related securities;

23 ‘‘(J) require that the market trading the secu24 rity future product has in place audit trails nec-
30

S 2772 IS

1 essary or appropriate to facilitate the coordinated

2 surveillance required in subparagraph (I);

3 ‘‘(K) require that the market trading the secu4 rity future product has in place procedures to co5 ordinate trading halts between that market and mar6 kets trading the securities underlying the security

7 future product and other markets trading related se8 curities; and

9 ‘‘(L) require that initial and maintenance mar10 gin levels for a security future product shall not be

11 lower than the levels of margin required on a com12 parable option traded on an exchange registered pur13 suant to section 6(a) of this title.

14 ‘‘(4) No person shall offer to enter into, enter into,

15 or confirm the execution of any option on a securities fu16 ture: Provided, however, that after 3 years from the date

17 of enactment of this Act the Commission and the Com18 modity Futures Trading Commission may be order deter19 mine to permit trading of options on any security future

20 authorized to be traded under the provisions of this Act.

21 Before any such determination, the Commission and the

22 Commodity Futures Trading Commission shall conduct a

23 study of the effect of the trading of security futures on

24 the markets for futures contracts, securities, and options
31

S 2772 IS

1 and the adequacy of protections for investors and other

2 market participants.’’.

3 (b) MARGIN.—Section 7(c)(1) of the Securities Ex4 change Act of 1934 (15 U.S.C. 78g) is amended—

5 (1) in subparagraph (A), by inserting ‘‘except

6 as provided in subparagraph (C),’’ between ‘‘secu7 rity),’’ and ‘‘in contravention’’ and by striking ‘‘and’’

8 after the semicolon;

9 (2) in subparagraph (B), by striking the period

10 and inserting ‘‘; and’’; and

11 (3) by adding at the end the following:

12 ‘‘(C) JOINT REGULATIONS.—

13 ‘‘(i) It shall be unlawful for any

14 broker, dealer, or member of a national se15 curities exchange to, directly or indirectly,

16 extend or maintain credit to or for, ar17 range for the extension or maintenance of

18 credit for, or collect margin from any cus19 tomer on any security future product in

20 contravention of the rules and regulations

21 which the Commission and the Commodity

22 Futures Trading Commission shall pre23 scribe pursuant to subparagraph (C)(ii).

24 ‘‘(ii) The Commission and the Com25 modity Futures Trading Commission shall
32

S 2772 IS

1 issue jointly such regulations to establish

2 margin requirements, including the estab3 lishment of levels of margin (initial and

4 maintenance) and use of collateral for se5 curity future products under such terms,

6 and at such levels as the Commission and

7 the Commodity Futures Trading Commis8 sion jointly deem: (I) appropriate to pre9 serve the financial integrity of markets

10 trading security future products; (II) to

11 prevent systemic risk; (III) to make equiv12 alent the margin levels (initial and mainte13 nance) and other margin requirements be14 tween security future products and com15 parable options traded on a national secu16 rities exchange; and (IV) to ensure that

17 the margin requirements, other than levels

18 of margin, including the type, form, and

19 use of collateral for security future prod20 ucts, are and remain consistent with re21 quirements for options traded on a na22 tional securities exchange established by

23 the Federal Reserve Board, pursuant to

24 subparagraphs (A) and (B).
33

S 2772 IS

1 (c) INCORPORATION OF SECURITY FUTURE PROD2 UCTS INTO THE NATIONAL MARKET SYSTEM.—Section

3 11A of the Securities Exchange Act of 1934 (15 U.S.C.

4 78k–1) is amended by adding at the end the following:

5 ‘‘(e)(1) With respect to security future products, the

6 Commission and the Commodity Futures Trading Com7 mission shall consult and cooperate so that, to the max8 imum extent practicable, their respective regulatory re9 sponsibilities may be fulfilled and the rules and regulations

10 applicable to security future products may foster a na11 tional market system for security future products if the

12 Commission and the Commodity Futures Trading Com13 mission determine that such a system would be consistent

14 with the Congressional findings in subsection (a)(1). In

15 accordance with this objective, the Commission shall, at

16 least fifteen days prior to the issuance for public comment

17 of any proposed rule or regulation under this section con18 cerning security future products, consult and request the

19 views of the Commodity Futures Trading Commission.

20 ‘‘(2) No rule adopted pursuant to this section shall

21 be applied to any person with respect to security future

22 products traded on an exchange that is registered under

23 section 6(g) unless the Commodity Futures Trading Com24 mission has issued an order directing that such rule is ap25 plicable to such persons.’’.
34

S 2772 IS

1 (d) INCORPORATION OF SECURITY FUTURE PROD2 UCTS INTO THE NATIONAL SYSTEM FOR CLEARANCE AND

3 SETTLEMENT.—Section 17A(b) of the Securities Ex4 change Act of 1934 (15 U.S.C. 78q–1(b)) is amended by

5 adding at the end the following:

6 ‘‘(7) A clearing agency that is regulated directly

7 or indirectly by the Commodity Futures Trading

8 Commission through its association with a des9 ignated contract market for security future products,

10 and that only performs the functions of a clearing

11 agency with respect to security future products and

12 transactions in securities effected pursuant to the

13 rules of the designated contract market with which

14 it is associated, is exempted from the provisions of

15 this section and the rules and regulations there16 under, except that any clearing agency that performs

17 the functions of a clearing agency with respect to se18 curity future products must coordinate with and de19 velop fair and reasonable links with any and all

20 other clearing agencies that perform the functions of

21 a clearing agency with respect to security future

22 products, which will permit security future product

23 to be purchased on a national securities exchange or

24 national securities association registered pursuant to

25 section 15A(a) and offset on another national securi-
35

S 2772 IS

1 ties exchange or national securities association reg2 istered pursuant to section 15A(a).’’.

3 (e) MARKET EMERGENCY POWERS AND CIRCUIT

4 BREAKERS.—Section 12(k) of the Securities Exchange

5 Act of 1934 (15 U.S.C. 78l(k)) is amended—

6 (1) in paragraph (1), by adding at the end the

7 following: ‘‘If the actions described in subparagraph

8 (A) or (B) involve a security future product, the

9 Commission shall consult with and consider the

10 views of the Commodity Futures Trading Commis11 sion.’’; and

12 (2) in paragraph (2)(A), by inserting between

13 ‘‘extensions.’’ and ‘‘In exercising’’ the following: ‘‘If

14 the actions described in subparagraph (A) involve a

15 security future product, the Commission shall con16 sult with and consider the views of the Commodity

17 Futures Trading Commission.’’.

18 SEC. 207. AMENDMENTS RELATING TO REGISTRATION AND

19 DISCLOSURE ISSUES UNDER THE SECURI20 TIES ACT OF 1933 AND THE SECURITIES EX21 CHANGE ACT OF 1934.

22 (a) AMENDMENTS TO THE SECURITIES ACT OF

23 1933.—

24 (1) Section 2(a) of the Securities Act of 1933

25 (15 U.S.C. 77b(a)) is amended—
36

S 2772 IS

1 (A) in paragraph (1), by inserting ‘‘secu2 rity future,’’ between ‘‘treasury stock,’’ and

3 ‘‘bond’’;

4 (B) in paragraph (3), by adding at the end

5 the following: ‘‘Any offer or sale of a security

6 future product by or on behalf of the issuer of

7 the securities underlying the security future

8 product, an affiliate of the issuer, or an under9 writer, will constitute a contract for sale of, sale

10 of, offer for sale, or offer to sell the issuer’s un11 derlying securities.’’;

12 (C) in paragraph (10), by adding at the

13 end of the following: ‘‘Any materials meeting

14 the requirements of section ll of the Securi15 ties Exchange Act of 1934 or section ll of

16 the Commodity Exchange Act (7 U.S.C. ll)

17 shall not be deemed to constitute a prospectus

18 for the offer or sale of a security future prod19 uct.’’; and

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

21 ‘‘(16)(A) The term ‘security future’ means a

22 contract of sale for future delivery for a single secu23 rity or of a narrow-based security index, including

24 any interest therein or based on the value thereof.
37

S 2772 IS

1 ‘‘(B) A ‘narrow-based security index’ is an

2 index—

3 ‘‘(i) that has 10 or fewer component secu4 rities;

5 ‘‘(ii) in which the securities of a single

6 issuer account on average, over the six-month

7 period ending on the date equity options expire

8 in June of each year and over the six-month pe9 riod ending on the date equity options expire in

10 December of each year, for more than 10 per11 cent of the market capitalization of that index;

12 ‘‘(iii) in which the securities of a single

13 issuer in a price-weighted (or other non-capital14 ization weighted) index account on average,

15 over the six-month period ending on the date

16 equity options expire in June of each year and

17 over the six-month period ending on the date

18 equity options expire in December of each year,

19 for more than three times their weight in the

20 index if calculated on a market-capitalization

21 basis;

22 ‘‘(iv) in which any component security has

23 an average daily trading volume value of less

24 than $1 million or an aggregate market value
38

S 2772 IS

1 of the voting and non-voting common equity

2 held by non-affiliates of less than $150 million;

3 ‘‘(v) in which the average correlation of the

4 securities in the index to the index itself is

5 greater than 0.6 over the six-month period end6 ing on the date equity options expire in June of

7 each year and over the six-month period ending

8 on the date equity options expire in December

9 of each year; or

10 ‘‘(vi) in which the correlation of any secu11 rity in the index to the index itself is greater

12 than 0.9 over the six-month period ending on

13 the date equity options expire in June of each

14 year and over the six-month period ending on

15 the date equity options expire in December of

16 each year.

17 ‘‘(17) The term ‘security future product’ means

18 a security future or any put, call, straddle, option,

19 or privilege on any security future.’’.

20 (2) Section 3(a) of the Securities Act of 1933

21 (15 U.S.C. 77c) is amended by adding at the end

22 the following:

23 ‘‘(14) Any security future product that is (A)

24 guaranteed by a clearing agency registered under

25 section 17A of the Securities Exchange Act of 1934
39

S 2772 IS

1 or exempt from registration under paragraph (b)(4)

2 of section 17A of the Securities Exchange Act of

3 1934; and (B) traded on a national securities ex4 change or a national securities association registered

5 pursuant to section 15A(a) of the Securities Ex6 change Act of 1934.’’.

7 (3) Section 12(a)(2) of the Securities Act of

8 1933 (15 U.S.C. 77l(a)(2)) is amended by striking

9 ‘‘paragraph 2’’ and inserting ‘‘paragraphs (2) and

10 (14).’’

11 (b) AMENDMENTS TO THE SECURITIES EXCHANGE

12 ACT OF 1934.—

13 (1) Section 12(a) of the Securities Exchange

14 Act of 1934 (15 U.S.C. 78l(a)) is amended by add15 ing at the end the following:

16 ‘‘(1) The provisions of this subsection shall not

17 apply in respect of a security future product listed

18 on a national securities exchange.’’.

19 (2) Section 12(g)(5) of the Securities Exchange

20 Act of 1934 (15 U.S.C. 78l(g)) is amended by add21 ing at the end the following: ‘‘For purposes of this

22 subsection, a security future product shall not be

23 considered a class of equity security of the issuer of

24 the securities underlying the security future prod25 uct.’’; and
40

S 2772 IS

1 (3) Section 16 of the Securities Exchange Act

2 of 1934 (15 U.S.C. 78p) is amended by adding at

3 the end the following:

4 ‘‘(f) The provisions of this section shall apply to own5 ership of and transactions in security future products as

6 if they were ownership of and transactions in the under7 lying equity security. The Commission may adopt such

8 rules and regulations as it deems necessary or appropriate

9 in the public interest to carry out the purposes of this sec10 tion.’’.

11 SEC. 208. AMENDMENTS TO THE INVESTMENT COMPANY

12 ACT OF 1940 AND THE INVESTMENT ADVIS13 ERS ACT OF 1940.

14 (a) DEFINITIONS UNDER THE INVESTMENT COM15 PANY ACT OF 1940 AND THE INVESTMENT ADVISERS ACT

16 OF 1940.—

17 (1) Section 2(a)(36) of the Investment Com18 pany Act of 1940 (15 U.S.C. 80a–2(a)(36)) is

19 amended by inserting ‘‘security future,’’ between

20 ‘‘treasury stock,’’ and ‘‘bond’’;

21 (2) Section 202(a)(18) of the Investment Advis22 ers Act of 1940 (15 U.S.C. 80b–2(a)(18)) is amend23 ed by inserting ‘‘security future,’’ between ‘‘treasury

24 stock,’’ and ‘‘bond’’;
41

S 2772 IS

1 (3) Section 2(a) of the Investment Company

2 Act of 1940 (15 U.S.C. 80a–2(a)) is amended by

3 adding at the end the following:

4 ‘‘(52)(A) ‘Security future’ means a contract of

5 sale for future delivery of a single security other

6 than an exempted security under section 3 of the Se7 curities Act of 1933 or of a narrow-based security

8 index, including any interest therein or based on the

9 value thereof.

10 ‘‘(B) A ‘narrow-based security index’ is an

11 index—

12 ‘‘(i) that has 10 or fewer component secu13 rities;

14 ‘‘(ii) in which the securities of a single

15 issuer account on average, over the six-month

16 period ending on the date equity options expire

17 in June of each year and over the six-month pe18 riod ending on the date equity options expire in

19 December of each year, for more than 10 per20 cent of the market capitalization of that index;

21 ‘‘(iii) in which the securities of a single

22 issuer in a price-weighted (or other non-capital23 ization weighted) index account on average,

24 over the six-month period ending on the date

25 equity options expire in June of each year and
42

S 2772 IS

1 over the six-month period ending on the date

2 equity options expire in December of each year,

3 for more than three times their weight in the

4 index if calculated on a market-capitalization

5 basis;

6 ‘‘(iv) in which any component security has

7 an average daily trading volume value of less

8 than $1 million or an aggregate market value

9 of the voting and non-voting common equity

10 held by non-affiliates of less than $150 million;

11 ‘‘(v) in which the average correlation of the

12 securities in the index to the index itself is

13 greater than 0.6 over the six-month period end14 ing on the date equity options expire in June of

15 each year and over the six-month period ending

16 on the date equity options expire in December

17 of each year; or

18 ‘‘(vi) in which the correlation of any secu19 rity in the index to the index itself is greater

20 than 0.9 over the six-month period ending on

21 the date equity options expire in June of each

22 year and over the six-month period ending on

23 the date equity options expire in December of

24 each year.’’; and
43

S 2772 IS

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 ‘‘(25)(A) ‘Security future’ means a contract of

5 sale for future delivery of a single security or of a

6 narrow-based security index, including any interest

7 therein or based on the value thereof.

8 ‘‘(B) A ‘narrow-based security index’ is an

9 index—

10 ‘‘(i) that has 10 or fewer component secu11 rities;

12 ‘‘(ii) in which the securities of a single

13 issuer account on average, over the six-month

14 period ending on the date equity options expire

15 in June of each year and over the six-month pe16 riod ending on the date equity options expire in

17 December of each year, for more than 10 per18 cent of the market capitalization of that index;

19 ‘‘(iii) in which the securities of a single

20 issuer in a price-weighted (or other non-capital21 ization weighted) index account on average,

22 over the six-month period ending on the date

23 equity options expire in June of each year and

24 over the six-month period ending on the date

25 equity options expire in December of each year,
44

S 2772 IS

1 for more than three times their weight in the

2 index if calculated on a market-capitalization

3 basis;

4 ‘‘(iv) in which any component security has

5 an average daily trading volume value of less

6 than $1 million or an aggregate market value

7 of the voting and non-voting common equity

8 held by non-affiliates of less than $150 million;

9 ‘‘(v) in which the average correlation of the

10 securities in the index to the index itself is

11 greater than 0.6 over the six-month period end12 ing on the date equity options expire in June of

13 each year and over the six-month period ending

14 on the date equity options expire in December

15 of each year; or

16 ‘‘(vi) in which the correlation of any secu17 rity in the index to the index itself is greater

18 than 0.9 over the six-month period ending on

19 the date equity options expire in June of each

20 year and over the six-month period ending on

21 the date equity options expire in December of

22 each year.’’.

23 (b) OTHER PROVISION.—Section 203(b) of the In24 vestment Advisers Act of 1940 (15 U.S.C. 80b–3(b)) is

25 amended by adding at the end the following:
45

S 2772 IS

1 ‘‘(6) any investment adviser that is registered,

2 or required to be registered, with the Commodity

3 Futures Trading Commission as a commodity trad4 ing advisor and whose business does not consist pri5 marily of acting as an investment adviser, as defined

6 in section 202(a)(11) of this title.’’.

7 TITLE III—COMMODITY

8 EXCHANGE ACT AMENDMENTS

9 SEC. 301. DEFINITIONS UNDER THE COMMODITY EX10 CHANGE ACT.

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

12 1a) is amended by adding at the end the following:

13 ‘‘(17) The term ‘security’ means a security as

14 defined in section 2(a)(1) of the Securities Act of

15 1933 (15 U.S.C. 77b(a)(1)), section 3(a)(10) of the

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

17 78c(a)(10)), section 202(a)(18) of the Investment

18 Advisers Act of 1940 (15 U.S.C. 80b–2(a)(18)), or

19 section 2(a)(36) of the Investment Company Act of

20 1940 (15 U.S.C. 80a–2(a)(36)).

21 ‘‘(18) The term ‘security future’ means a con22 tract of sale for future delivery of a single security

23 or of a narrow-based security index, including any

24 interest therein or based on the value thereof.
46

S 2772 IS

1 ‘‘(19) The term ‘narrow-based security index’

2 means an index—

3 ‘‘(A) that has 10 or fewer component secu4 rities;

5 ‘‘(B) in which the securities of a single

6 issuer account on average, over the six-month

7 period ending on the date equity options expire

8 in June of each year and over the six-month pe9 riod ending on the date equity options expire in

10 December of each year, for more than 10 per11 cent of the market capitalization of that index;

12 ‘‘(C) in which the securities of a single

13 issuer in a price-weighted (or other non-capital14 ization weighted) index account on average,

15 over the six-month period ending on the date

16 equity options expire in June of each year and

17 over the six-month period ending on the date

18 equity options expire in December of each year,

19 for more than three times their weight in the

20 index if calculated on a market-capitalization

21 basis;

22 ‘‘(D) in which any component security has

23 an average daily trading volume value of less

24 than $1 million or an aggregate market value
47

S 2772 IS

1 of the voting and non-voting common equity

2 held by non-affiliates of less than $150 million;

3 ‘‘(E) in which the average correlation of

4 the securities in the index to the index itself is

5 greater than 0.6 over the six-month period end6 ing on the date equity options expire in June of

7 each year and over the six-month period ending

8 on the date equity options expire in December

9 of each year; or

10 ‘‘(F) in which the correlation of any secu11 rity in the index to the index itself is greater

12 than 0.9 over the six-month period ending on

13 the date equity options expire in June of each

14 year and over the six-month period ending on

15 the date equity options expire in December of

16 each year.

17 ‘‘(20) The term ‘security future product’ means

18 a security future or any put, call, straddle, option,

19 or privilege on any security future.

20 ‘‘(21)(A) The term ‘margin’, when used with

21 respect to a security future product, shall mean the

22 amount of collateral required to secure any exten23 sion, maintenance, or arrangement of the extension

24 or maintenance of credit, or the amount of collateral

25 required as a performance bond related to the pur-
48

S 2772 IS

1 chase, sale, or carrying of a security future product,

2 and all other uses of collateral related to the pur3 chasing, selling, or carrying of a security future

4 product.

5 ‘‘(B) The terms ‘margin level’ and ‘level of mar6 gin’ when used with respect to a security future

7 product, shall mean the amount of collateral re8 quired to secure any credit extended, maintained, or

9 arranged by a futures commission merchant for the

10 purchase, sale, or carrying of a security future prod11 uct, or the amount of collateral required as a per12 formance bond by a futures commission merchant

13 related to the purchase, sale, or carrying of a secu14 rity future product.

15 ‘‘(C) The terms ‘higher margin level’ and ‘high16 er level of margin’ when used with respect to a secu17 rity future product shall mean a margin level estab18 lished by a contract market that is higher than the

19 minimum amount established by the Commission

20 and the Securities and Exchange Commission pursu21 ant to subsection 2(a)(1)(B)(vi)(IV)(i)(II) of this

22 Act.’’.
49

S 2772 IS

1 SEC. 302. JURISDICTION OF THE COMMODITY FUTURES

2 TRADING COMMISSION.

3 (a) LIFTING THE BAN ON SECURITY FUTURES,

4 MODIFYING THE JURISDICTION OF THE COMMODITY FU5 TURES TRADING COMMISSION, AND RECORDKEEPING

6 PROVISIONS.—Section 2(a)(1)(B) of the Commodity Ex7 change Act (7 U.S.C. 2a) is amended—

8 (1) in clause (v), by inserting ‘‘or subparagraph

9 (C)’’ between ‘‘clause (ii) of this subparagraph’’ and

10 ‘‘, any group’’;

11 (2) by redesignating subclause (V) of clause (vi)

12 as subclause (VI);

13 (3) by inserting in lieu of subclauses (I)

14 through (IV) of clause (vi) the following:

15 ‘‘(I) Notwithstanding any other

16 provision of this Act, any contract

17 market in a stock index futures (or

18 option thereon), other than a security

19 future product, shall file with the

20 Board of Governors of the Federal

21 Reserve System any rule establishing

22 or changing the levels of margin (ini23 tial and maintenance) for such stock

24 index futures contract (or option

25 thereon), other than security futures

26 products.
50

S 2772 IS

1 ‘‘(II) The Board may at any time

2 request any contract market to set the

3 margin for any stock index futures

4 contract (or option thereon), other

5 than for any security futures contract

6 (or option thereon), at such levels as

7 the Board in its judgment determines

8 are appropriate to preserve the finan9 cial integrity of the contract market

10 or its clearing system or to prevent

11 systemic risk. If the contract market

12 fails to do so within the time specified

13 by the Board in its request, the

14 Board, may direct the contract mar15 ket to alter or supplement the rules of

16 the contract market as specified in the

17 request.

18 ‘‘(III) Subject to such conditions

19 as the Board may determine, the

20 Board may delegate any or all of its

21 authority, relating to margin for any

22 stock index futures contract, other

23 than security future products, under

24 this clause to the Securities and Ex25 change Commission.
51

S 2772 IS

1 ‘‘(IV) Joint Regulations.—

2 ‘‘(aa) It shall be unlawful

3 for any futures commission mer4 chant to directly or indirectly, ex5 tend or maintain, credit or ar6 range for the extension or main7 tenance of credit or to collect

8 margin from any customer on

9 any security future product, in

10 contravention of the rules and

11 regulation which the Commission

12 and the Securities and Exchange

13 Commission shall prescribe pur14 suant to subparagraph (II) of

15 this paragraph.

16 ‘‘(bb) The Commission and

17 the Securities and Exchange

18 Commission shall issue jointly

19 such regulations to establish

20 margin requirements, including

21 the establishment of levels of

22 margin (initial and maintenance)

23 and use of collateral for security

24 future products under such

25 terms, and at such levels as the
52

S 2772 IS

1 Commission and the Securities

2 and Exchange Commission joint3 ly deem: (A) appropriate to pre4 serve the financial integrity of

5 markets trading security future

6 products; (B) to prevent systemic

7 risk; (C) to make equivalent the

8 margin levels (initial and mainte9 nance) and other margin require10 ments between security future

11 products and options on securi12 ties traded on national securities

13 exchange; and (D) to ensure that

14 the margin requirements, other

15 than margin levels, including use

16 of collateral for security future

17 products, are and remain con18 sistent with the requirements es19 tablished by the Federal Reserve

20 Board, pursuant to subpara21 graphs ((c)(1)(A) and (c)(1)(B))

22 of section 7(c) of the Securities

23 Exchange Act of 1934.’’.

24 ‘‘(V) Nothing in this clause shall

25 supersede or limit the authority grant-
53

S 2772 IS

1 ed to the Commission in section 8a(9)

2 to direct a contract market, on finding

3 an emergency to exist, to raise tem4 porary margin levels on any futures

5 contract, or option on the contract

6 covered by this clause, or on any secu7 rity future product.’’; and

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

9 ‘‘(C)(i) Notwithstanding any other provi10 sion of this Act, the Securities and Exchange

11 Commission shall have jurisdiction and author12 ity over security futures as defined in section

13 3(a)(55) of the Securities Exchange Act of

14 1934 (15 U.S.C. 78c(a)(55)), options on secu15 rity futures, and persons effecting transactions

16 in security futures and options thereon, and

17 this Act shall apply to and the Commission

18 shall have jurisdiction with respect to accounts,

19 agreements (including any transaction which is

20 of the character of, or is commonly known to

21 the trade as, an ‘option’, ‘privilege’, ‘indemnity’,

22 ‘bid’, ‘offer’, ‘put’, ‘call’, ‘advance guaranty’, or

23 ‘decline guaranty’,) and transactions involving,

24 and may designate a board of trade as a con25 tract market in a security future product as de-
54

S 2772 IS

1 fined in section 1(a)(19) of this Act: Provided,

2 however, That no board of trade shall be des3 ignated as a contract market with respect to

4 any such contracts of sale for future delivery

5 unless the board of trade making such applica6 tion demonstrates and the Commission ex7 pressly finds that the specific contract with re8 spect to which the application has been made,

9 or the board of trade, meets the following cri10 teria:

11 ‘‘(I) that any security underlying the

12 security future, including each component

13 security of a contract of sale for future de14 livery on a narrow-based security index, be

15 registered pursuant to section 12 of the

16 Securities Exchange Act of 1934 (15

17 U.S.C. 78l);

18 ‘‘(II) that the security future product

19 be cash settled;

20 ‘‘(III) that the terms and conditions

21 of a security future product be no less re22 strictive than comparable listing standards

23 for options;

24 ‘‘(IV) that the security future be

25 based upon common stocks and such other
55

S 2772 IS

1 equity securities as the Commission deter2 mines appropriate;

3 ‘‘(V) that the security future product

4 is guaranteed by a clearing agency that

5 has in place provisions for linked and co6 ordinated clearing with other clearing

7 agencies that guarantee security future

8 products, which permits the security future

9 product to be purchased on a designated

10 contract market, national securities ex11 change registered under section 6(a) of the

12 Securities Exchange Act of 1934 (ll

13 U.S.C. ll), or national securities asso14 ciation registered pursuant to section

15 15A(a) of the Securities Exchange Act of

16 1934 (ll U.S.C. ll) and offset on an17 other designated contract market, national

18 securities exchange, or national securities

19 association;

20 ‘‘(VI) that only futures commission

21 merchants, introducing brokers, commodity

22 trading advisors, commodity pool operators

23 or associated persons subject to suitability

24 rules comparable to those of a national se25 curities association registered pursuant to
56

S 2772 IS

1 section 15A(a) of the Securities Exchange

2 Act of 1934 (ll U.S.C. ll) solicit, ac3 cept any order for, or otherwise deal in any

4 transaction in or in connection with a con5 tract of sale for future delivery in a secu6 rity future product;

7 ‘‘(VII) that the security future prod8 uct be subject to a prohibition against dual

9 trading in section 4j of this Act or the pro10 visions of section 11(a) of the Securities

11 Exchange Act of 1934 (ll U.S.C. ll)

12 and the rules and regulations thereunder,

13 except to the extent otherwise permitted

14 under the Securities Exchange Act of 1934

15 and the rules and regulations thereunder;

16 ‘‘(VIII) that trading in a security fu17 ture product and any security that

18 underlies the security future product not

19 be readily susceptible to manipulation;

20 ‘‘(IX) that the board of trade has pro21 cedures in place for coordinated surveil22 lance to detect manipulation and insider

23 trading between the contract market trad24 ing the security future product, the market

25 trading the securities underlying the secu-
57

S 2772 IS

1 rity future product, and other markets

2 trading related securities;

3 ‘‘(X) that the contract market trading

4 the security future product has in place

5 audit trails necessary or appropriate to fa6 cilitate the coordinated surveillance re7 quired in section subparagraph (I);

8 ‘‘(XI) that the contract market trad9 ing the security future product has in place

10 procedures to coordinate trading halts be11 tween that contract market and markets

12 trading the securities underlying the secu13 rity future product and other markets

14 trading related securities; and

15 ‘‘(XII) that initial and maintenance

16 margin levels for a security future product

17 shall not be lower than the levels of margin

18 required on a comparable option traded on

19 an exchange registered pursuant to section

20 6(a) of the Securities Exchange Act of

21 1934 (ll U.S.C. ll).

22 ‘‘(ii) It shall be unlawful for any person to

23 offer, to enter into, to execute, to confirm the

24 execution of, or to conduct any office or busi25 ness anywhere in the United States, its terri-
58

S 2772 IS

1 tories or possessions, for the purpose of solic2 iting, or accepting any order for, or otherwise

3 dealing in, any transaction in, or in connection

4 with, a contract for the purchase or sale of a

5 security future product for future delivery

6 unless—

7 ‘‘(I) such transaction is conducted on

8 or subject to the rules of a board of trade

9 which has been designated by the Commis10 sion as a contract market in a security fu11 ture product;

12 ‘‘(II) such contract is executed or con13 summated by or through a member of such

14 contract market; and

15 ‘‘(III) such contract is evidenced by a

16 record in writing which shows the date, the

17 parties to such contract and their address18 es, the property covered and its price: Pro19 vided, That each contract market member

20 shall keep such record for a period of three

21 years from the date thereof, or for a longer

22 period if the Commission shall so direct,

23 which record shall at all times be open to

24 the inspection of any representative of the

25 Commission or the Securities and Ex-
59

S 2772 IS

1 change Commission or the Department of

2 Justice.

3 ‘‘(iii) Notwithstanding any other provision

4 of this Act, no person shall offer to enter into,

5 enter into, or confirm the execution of any op6 tion on a securities future: Provided, however,

7 That after 3 years from the date of enactment

8 of this Act the Commission and the Securities

9 and Exchange Commission may by order deter10 mine to permit trading of options on any secu11 rity future authorized to be traded under the

12 provisions of this Act. Before any such deter13 mination, the Commission and the Securities

14 and Exchange Commission shall conduct a

15 study of the effect of the trading of security fu16 tures on the markets for futures contracts, se17 curities, and options and the adequacy of pro18 tections for investors and other market partici19 pants.

20 ‘‘(iv)(I) All records of persons registered

21 with the Commission pursuant to section 4f(a)

22 and 4k(4)(b) and a board of trade designated

23 as contract market in security futures pursuant

24 to section 6(c) are subject at any time, or from

25 time to time, to such reasonable periodic, spe-
60

S 2772 IS

1 cial, or other examinations by representatives of

2 the Commission and the appropriate regulatory

3 agency for such persons as the Commission or

4 the appropriate regulatory agency for such per5 sons deems necessary or appropriate in the pub6 lic interest, for the protection of investors, or

7 otherwise in furtherance of the purposes of this

8 title if the Commission, prior to conducting any

9 such examination of a—

10 ‘‘(aa) registered clearing agency, reg11 istered transfer agent, or registered munic12 ipal securities dealer for which it is not the

13 appropriate regulatory agency, give notice

14 to the appropriate regulatory agency for

15 such clearing agency, transfer agent, or

16 municipal securities dealer, of such pro17 posed examination and consult with the

18 appropriate regulatory agency concerning

19 the feasibility and desirability of coordi20 nating such examinations conducted by the

21 appropriate regulatory agency with a view

22 to avoiding unnecessary regulatory duplica23 tion or undue regulatory burdens for such

24 clearing agency, transfer agent, or munic25 ipal securities dealer; or
61

S 2772 IS

1 ‘‘(bb) futures commission merchant,

2 introducing broker, floor trader, or floor

3 registered pursuant to section 4f(a), or as4 sociated person registered pursuant to sec5 tion 4k(4)(b), or a board of trade des6 ignated as a contract market in a security

7 product pursuant to section 6(c), give no8 tice to the Securities and Exchange Com9 mission such proposed examination and

10 consult with the Securities and Exchange

11 Commission concerning the feasibility and

12 desirability of coordinating such examina13 tion with examinations conducted by the

14 Securities and Exchange Commission with

15 a view to avoiding unnecessary regulatory

16 duplication or undue regulatory burdens

17 for such registrant or board of trade.

18 ‘‘(II) The Commission shall notify the Se19 curities and Exchange Commission of any ex20 amination conducted of any futures commission

21 merchant, introducing broker, floor trader, or

22 floor registered pursuant to section 4f(a), or as23 sociated person registered pursuant to section

24 4k(4)(b), or a board of trade designated as a

25 contract market in a security product pursuant
62

S 2772 IS

1 to section 6(c), and, upon request, furnish to

2 the Commission any examination report and

3 data supplied to the Securities and Exchange

4 Commission in connection with such examina5 tion.

6 ‘‘(III) The Commission shall, to the fullest

7 extent possible, use the reports of examinations

8 of any futures commission merchant, intro9 ducing broker, floor trader, or floor registered

10 pursuant to section 4f(a), or associated person

11 registered pursuant to section 4k(4)(b), or a

12 board of trade designated as a contract market

13 in a security product pursuant to section 6(c),

14 made by the Securities and Exchange Commis15 sion, a national securities association registered

16 pursuant to section 15A(a) of the Securities

17 Exchange Act of 1934 (ll U.S.C. ll), or

18 a national securities exchange registered pursu19 ant to section 6(g) of the Securities Exchange

20 Act of 1934 (ll U.S.C. ll).

21 ‘‘(IV) Nothing in this subsection shall be

22 construed to impair or limit (other than by the

23 requirement of prior consultation) the power of

24 the Commission under this subsection to exam25 ine any clearing agency, transfer agent, futures
63

S 2772 IS

1 commission merchant, introducing broker, floor

2 trader, or floor registered pursuant to section

3 4f(a), or associated person registered pursuant

4 to section 4k(4)(b), or a board of trade des5 ignated as a contract market in a security fu6 ture product, or to affect in any way the power

7 of the Commission under any other provision of

8 this Act.’’.

9 (b) DUAL TRADING.—Section 4j(a)(3) of the Com10 modity Exchange Act (7 U.S.C. 6j(a)(3)) is amended by

11 inserting ‘‘, other than a designated contract market in

12 a security future product,’’ between ‘‘exempt a contract

13 market’’ and ‘‘from the regulations’’.

14 (c) MARGIN RULE REVIEW.—Section 5a(a)(12)(A) of

15 the Commodity Exchange Act 7 U.S.C. ll) is

16 amended—

17 (1) by inserting ‘‘other than the setting of levels

18 of margin for a security future product’’ between

19 ‘‘setting of levels of margin’’ and ‘‘. Each contract’’;

20 and

21 (2) by inserting ‘‘other than the setting of levels

22 of margin for a security future product’’ between

23 ‘‘setting of levels of margin’’ and ‘‘and except those

24 that’’.
64

S 2772 IS

1 SEC. 303. APPLICATION OF THE COMMODITY EXCHANGE

2 ACT TO NATIONAL SECURITIES EXCHANGES

3 AND NATIONAL SECURITIES ASSOCIATIONS

4 THAT TRADE SECURITY FUTURES.

5 (a) NOTICE DESIGNATION OF NATIONAL SECURITIES

6 EXCHANGES AND NATIONAL SECURITIES ASSOCIA7 TIONS.—The Commodity Exchange Act is amended by

8 adding after section 5b (7 U.S.C. 7b) the following:

9 ‘‘SEC. 5c. Any board of trade that is registered with

10 the Securities and Exchange Commission as a national se11 curities exchange or is a national securities association

12 registered pursuant to section 15A(a) of the Securities Ex13 change Act of 1934 (ll U.S.C. ll) shall be a des14 ignated contract market in security futures provided that

15 such national securities exchange or national securities as16 sociation: (i) lists or trades no other contracts of sale for

17 future delivery, except for contracts of sale for future de18 livery in security future products; (ii) files written notice

19 with the Commission in such form as the Commission, by

20 rule, may prescribe containing such information as the

21 Commission, by rule, may prescribe as necessary or appro22 priate in the public interest or for the protection of cus23 tomers; and (iii) is not subject to a suspension pursuant

24 to an order by the Securities and Exchange Commission.’’.
65

S 2772 IS

1 (b) EXEMPTIONS FOR NOTICE REGISTRANTS.—Sec2 tion 6(f) of the Commodity Exchange Act (7 U.S.C. 8(f))

3 is amended by adding at the end the following:

4 ‘‘(3)(A) A national securities exchange or na5 tional securities association that is designated as a

6 contract market pursuant to section 5c of this Act

7 shall be exempt from the following provisions of this

8 Act and the rules thereunder:

9 ‘‘(i) paragraphs (b) and (e) of section 4g;

10 ‘‘(ii) section 4h;

11 ‘‘(iii) paragraphs (a) and (d) of section 4j;

12 ‘‘(iv) paragraphs (2), (3), (5), (7), and (8),

13 of section 5;

14 ‘‘(v) paragraphs (a)(1), (a)(11), (a)(12),

15 (a)(13), (a)(14), (a)(15), (a)(16), (a)(17), and

16 (b) of section 5a;

17 ‘‘(vi) section 6(b);

18 ‘‘(vii) section 6a;

19 ‘‘(viii) section 6b;

20 ‘‘(ix) paragraphs (b), (c), (d), and (e) of

21 section 8;

22 ‘‘(x) section 8e;

23 ‘‘(xi) paragraph (a) of section 9;

24 ‘‘(xii) paragraph (f) of section 9;

25 ‘‘(xiii) section 15;
66

S 2772 IS

1 ‘‘(xiv) section 16; and

2 ‘‘(xv) paragraph (b) of section 22.

3 ‘‘(B)(i) Except as provided in (B)(ii) below, but

4 notwithstanding any other provision of this Act, the

5 Commission, by rule, regulation, or order, may con6 ditionally or unconditionally exempt any designated

7 contract market in security futures subject to the

8 designation requirement of section 5c of this Act,

9 from any provision or provisions of this Act or of

10 any rule or regulation thereunder, to the extent such

11 exemption is necessary or appropriate in the public

12 interest and is consistent with the protection of in13 vestors.

14 ‘‘(ii) The Commission shall, by rule or regula15 tion, determine the procedures under which an ex16 emptive order under this section shall be granted

17 and may, in its sole discretion, decline to entertain

18 any application for an order of exemption under this

19 section.’’.

20 (c) NOTICE REGISTRATION OF SECURITIES BROKER21 DEALERS.—Section 4f(a) of the Commodity Exchange

22 Act (7 U.S.C. 6f(a)) is amended—

23 (1) by inserting ‘‘(1)’’ between ‘‘(a)’’ and ‘‘Any

24 person’’; and

25 (2) by adding at the end the following:
67

S 2772 IS

1 ‘‘(2) Any broker or dealer that is registered

2 with the Securities and Exchange Commission shall

3 be registered as a futures commission merchant, in4 troducing broker, floor broker, or floor trader, as ap5 plicable, if such broker or dealer:

6 ‘‘(A) limits its solicitation of orders, ac7 ceptance of orders, or the execution of orders,

8 or placing of orders on behalf of others involv9 ing any contracts of sale of any commodity for

10 future delivery, on or subject to the rules of any

11 contract market to those contracts of sale on

12 security futures;

13 ‘‘(B) files written notice with the Commis14 sion in such form as the Commission, by rule,

15 may prescribe containing such information as

16 the Commission, by rule, may prescribe as nec17 essary or appropriate in the public interest or

18 for the protection of investors;

19 ‘‘(C) is not subject to a suspension pursu20 ant to an order of the Securities and Exchange

21 Commission; and

22 ‘‘(D) is a member of the National Associa23 tion of Securities Dealers or a limited member

24 of the National Futures Association subject to
68

S 2772 IS

1 the National Futures Association’s rules that

2 are applicable to security futures.’’.

3 (d) EXEMPTION FOR SECURITIES BROKER-DEALERS

4 FROM CERTAIN PROVISIONS OF THE COMMODITY EX5 CHANGE ACT.—Section 4f(a) of the Commodity Exchange

6 Act (7 U.S.C. 6f(a)) is amended by inserting after para7 graph (2), as added by this Act, the following:

8 ‘‘(3)(A) A broker or dealer that is registered as

9 a futures commission merchant, introducing broker,

10 floor broker, or floor trader, pursuant to section

11 4f(a)(2) shall be exempt from the following provi12 sions of this Act and the rules thereunder:

13 ‘‘(i) section 4c;

14 ‘‘(ii) paragraphs (b) and (c) of section 4f;

15 ‘‘(iii) paragraph (a) of section 4g;

16 ‘‘(iv) paragraphs (b) and (c) of section 4j;

17 ‘‘(v) paragraphs (a) and (b) of section 4p;

18 ‘‘(vi) section 6d;

19 ‘‘(vii) paragraph (g) of section 8;

20 ‘‘(viii) paragraph (a) of section 22.

21 ‘‘(B)(i) Except as provided in (B)(ii) below, but

22 notwithstanding any other provision of this Act, the

23 Commission, by rule, regulation, or order, may con24 ditionally or unconditionally exempt any broker or

25 dealer subject to the registration requirement of
69

S 2772 IS

1 paragraph (2) of this subsection, from any provision

2 or provisions of this Act or of any rule or regulation

3 thereunder, to the extent such exemption is nec4 essary or appropriate in the public interest and is

5 consistent with the protection of investors.

6 ‘‘(ii) The Commission shall, by rule or regula7 tion, determine the procedures under which an ex8 emptive order under this section shall be granted

9 and may, in its sole discretion, decline to entertain

10 any application for an order of exemption under this

11 section.’’.

12 (e) NOTICE REGISTRATION AND EXEMPTIONS FOR

13 ASSOCIATED PERSONS OF SECURITIES BROKER-DEAL14 ERS.—Section 4k(4)) of the Commodity Exchange Act (7

15 U.S.C. ll) is amended—

16 (1) by inserting ‘‘(a)’’ between ‘‘(4)’’ and ‘‘Any

17 person’’; and

18 (2) by adding at the end the following:

19 ‘‘(b)(1) Any person that is an associated person of

20 a broker or dealer that is registered with the Securities

21 and Exchange Commission shall be registered as an asso22 ciate person of a futures commission merchant or an intro23 ducing broker, as applicable: Provided, That: (A) such as24 sociated person limits its solicitation of orders, acceptance

25 of orders, or the execution of orders, or placing of orders
70

S 2772 IS

1 on behalf of others involving any contracts of sale of any

2 commodity for future delivery, on or subject to the rules

3 of any contract market to those contracts of sale on secu4 rity futures; (B) such associated person files an applica5 tion with the Commission in such form as the Commission,

6 by rule, may prescribe containing such information and

7 documents as the Commission, by rule, may prescribe as

8 necessary or appropriate in the public interest or for the

9 protection of investors; and (C) such associated person is

10 not subject to a suspension pursuant to an order of the

11 Securities and Exchange Commission.

12 ‘‘(2)(A) An associated person of a broker or dealer

13 that is registered as an associated person of a futures com14 mission merchant or an introducing broker pursuant to

15 section 4k(4)(b) of this Act shall be exempt from the fol16 lowing provisions of this Act and the rules thereunder:

17 (i) section 4c;

18 (ii) paragraphs (b) and (c) of section 4f;

19 (iii) paragraph (a) of section 4g;

20 (iv) paragraphs (b) and (c) of section 4j;

21 (v) paragraphs (a) and (b) of section 4p;

22 (vi) section 6d;

23 (vii) paragraph (g) of section 8;

24 (viii) paragraph (a) of section 22.
71

S 2772 IS

1 ‘‘(B)(i) Except as provided in (B)(ii) below, but not2 withstanding any other provision of this Act, the Commis3 sion, by rule, regulation, or order, may conditionally or

4 unconditionally exempt any associated person of a broker

5 or dealer subject to the designation requirement of para6 graph (1) of this subsection, from any provision or provi7 sions of this Act or of any rule or regulation thereunder,

8 to the extent such exemption is necessary or appropriate

9 in the public interest and is consistent with the protection

10 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 SEC. 304. NOTIFICATION OF INVESTIGATIONS AND EN17 FORCEMENT ACTIONS.

18 (a) Section 8(a) of the Commodity Exchange Act

19 (ll U.S.C. ll) is amended by adding at the end the

20 following:

21 ‘‘(3) The Commission shall file with the Securi22 ties and Exchange Commission notice of the com23 mencement of any proceeding and a copy of any

24 order entered by the Commission against any fu25 tures commission merchant, introducing broker,
72

S 2772 IS

1 floor trader or floor broker registered pursuant to

2 section 4f(a) of this Act, any associated person reg3 istered pursuant to section 4k(4)(b) of this Act, or

4 any board of trade designated as a contract market

5 pursuant to section 6(c) of this Act.’’.

6 (b) Section 6(c) of the Commodity Exchange Act

7 (ll U.S.C. ll) is amended by adding at the end the

8 following: ‘‘The Commission shall file with the Securities

9 and Exchange Commission notice of the commencement

10 of any proceeding and a copy of any order entered by the

11 Commission against any futures commission merchant, in12 troducing broker, floor trader or floor broker registered

13 pursuant to section 4f(a) of this Act, any associated per14 son registered pursuant to section 4k(4)(b) of this Act,

15 or any board of trade designated as a contract market

16 pursuant to section 6(c) of this Act.’’.

17 (c) Section 6c of the Commodity Exchange Act (ll

18 U.S.C. ll) is amended by adding at the end of the fol19 lowing:

20 ‘‘(h) The Commission shall file with the Securities

21 and Exchange Commission notice of the commencement

22 of any proceeding and a copy of any order entered by the

23 Commission against any futures commission merchant, in24 troducing broker, floor trader or floor broker registered

25 pursuant to section 4f(a) of this Act, any associated per-
73

S 2772 IS

1 son registered pursuant to section 4k(4)(b) of this Act,

2 or any board of trade designated as a contract market

3 pursuant to section 6(c) of this Act.’’.

4 TITLE IV—EFFECTIVE DATE

5 The amendments made by this Act shall become ef6 fective one year after the date of enactment of this Act.

Æ