I 

109TH CONGRESS 

1ST SESSION H. R. 1638

To reinstate regulation under the Commodity Exchange Act of futures contracts, swaps, and hybrid instruments involving natural gas, to require 

review and approval by the Commodity Futures Trading Commission 

of rules applicable to transactions involving natural gas, to provide for 

the reporting of large positions in natural gas, to provide for cash 

settlement for certain contracts of sale for future delivery of natural 

gas, to temporarily prohibit members of the Commodity Futures Trading 

Commission from going to work for organizations subject to regulation 

by the Commission, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 14, 2005

Mr. GRAVES (for himself and Mr. BARROW) introduced the following bill; 

which was referred to the Committee on Agriculture 

A BILL

To reinstate regulation under the Commodity Exchange Act 

of futures contracts, swaps, and hybrid instruments involving natural gas, to require review and approval by 

the Commodity Futures Trading Commission of rules 

applicable to transactions involving natural gas, to provide for the reporting of large positions in natural gas, 

to provide for cash settlement for certain contracts of 

sale for future delivery of natural gas, to temporarily 

prohibit members of the Commodity Futures Trading 

Commission from going to work for organizations subject 

to regulation by the Commission, and for other purposes.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE. 

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

5 Improvements Act of 2005’’. 

6 SEC. 2. REINSTATEMENT OF REGULATION UNDER THE 

7 COMMODITY EXCHANGE ACT OF FUTURES 

8 CONTRACTS, SWAPS, AND HYBRID INSTRU9 MENTS INVOLVING NATURAL GAS. 

10 (a) NATURAL GAS TREATED AS AN AGRICULTURAL

11 COMMODITY.—Section 1a(4) of the Commodity Exchange 

12 Act (7 U.S.C. 1a(4)) is amended—

13 (1) by inserting ‘‘natural gas,’’ before ‘‘live14 stock,’’; and 

15 (2) by adding at the end the following: ‘‘For 

16 purposes of this Act and any other Act referencing 

17 this paragraph, natural gas shall be considered an 

18 agricultural commodity enumerated in this para19 graph.’’. 

20 (b) HYBRID INSTRUMENTS.—Section 405(a) of the 

21 Commodity Futures Modernization Act of 2000 (7 U.S.C. 

22 27c(a)) is amended by inserting ‘‘not having one or more 

23 payments indexed to the value, level, or rate of, or pro24 viding delivery of, natural gas)’’ after ‘‘hybrid instru25 ment’’. 
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1 (c) ELIMINATION OF AUTHORITY TO EXEMPT NAT2 URAL GAS TRANSACTIONS FROM STATUTORY REQUIRE3 MENTS.—Section 4(c) of the Commodity Exchange Act (7 

4 U.S.C. 6(c)) is amended by adding at the end the fol5 lowing: 

6 ‘‘(6) INAPPLICABILITY TO CERTAIN CONTRACTS

7 INVOLVING NATURAL GAS.—The preceding provi8 sions of this subsection shall not apply to an agree9 ment, contract, or transaction involving natural 

10 gas.’’. 

11 (d) EFFECTIVE DATE.—The amendments made by 

12 this section shall take effect 90 days after the date of the 

13 enactment of this Act. 

14 SEC. 3. REGULATORY REVIEW OF RULE CHANGES AND 

15 RULES APPLICABLE TO TRANSACTIONS IN16 VOLVING NATURAL GAS. 

17 (a) REGULATORY REVIEW OF RULE CHANGES AP18 PLICABLE TO NATURAL GAS TRANSACTIONS.—

19 (1) IN GENERAL.—Section 5 of the Commodity 

20 Exchange Act (7 U.S.C. 7) is amended by adding at 

21 the end the following: 

22 ‘‘(f) REGULATORY REVIEW OF RULE CHANGES AP23 PLICABLE TO NATURAL GAS TRANSACTIONS.—

24 ‘‘(1) PRIOR APPROVAL OF RULE CHANGES RE25 QUIRED.—Notwithstanding any other provision of 
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1 this section, a board of trade that is a designated 

2 contract market shall not, without prior approval of 

3 the Commission, change a rule, regulation, or con4 tract specification of the board of trade that applies 

5 to any agreement, contract, or transactions involving 

6 natural gas. 

7 ‘‘(2) CONSIDERATION.—The Commission shall 

8 not approve a proposal to make such a change, un9 less—

10 ‘‘(A) a period of at least 60 days has 

11 elapsed since the Commission received the pro12 posal; 

13 ‘‘(B) the Commission has evaluated the 

14 economic effects that may result from the 

15 change; 

16 ‘‘(C) the change, if implemented, would be 

17 consistent with the core principles specified in 

18 section 5(d); and 

19 ‘‘(D) for not less than 30 days in the 60-

20 day period, the Commission has sought public 

21 comment on the proposal. 

22 ‘‘(3) CRITERIA.—The Commission shall not 

23 consider such a change to be consistent with the 

24 core principles specified in section 5(d), unless—
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1 ‘‘(A) the rules, regulations, or contract 

2 specifications limit the maximum daily price 

3 fluctuation applicable to the agreement, con4 tract, or transaction to not more than 8 percent 

5 of the settlement price of the prior day’s trad6 ing in the agreement, contract, or transaction; 

7 and 

8 ‘‘(B) the Commission finds on the basis of 

9 substantial evidence that the resulting rules, 

10 regulations, and contract specifications referred 

11 to in paragraph (1) are consistent with the core 

12 principles.’’. 

13 (2) SENSE OF THE CONGRESS.—It is the sense 

14 of the Congress that the Commodity Futures Trad15 ing Commission should evaluate all public comments 

16 submitted to the Commission in response to a pro17 posal to change a rule, regulation, or contract speci18 fication of a board of trade that applies to agree19 ments, contracts, or transactions involving natural 

20 gas, based on how the change relates to the core 

21 principles specified in section 5(d) of the Commodity 

22 Exchange Act. 

23 (3) EFFECTIVE DATE.—The amendment made 

24 by paragraph (1) shall take effect 90 days after the 

25 date of the enactment of this Act. 
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1 (b) REGULATORY REVIEW OF RULES APPLICABLE

2 TO TRANSACTIONS INVOLVING NATURAL GAS.—

3 (1) IN GENERAL.—Not later than 180 days 

4 after the date of the enactment of this Act, the 

5 Commodity Futures Trading Commission (in this 

6 subsection referred to as the ‘‘Commission’’) shall 

7 complete a review of the rules, regulations, and con8 tract specifications of each board of trade (as de9 fined in section 1a(2) of the Commodity Exchange 

10 Act) designated as a contract market under section 

11 5 of such Act, in force as of the date of the enact12 ment of this subsection, that apply to any agree13 ment, contract, or transaction involving natural gas 

14 subject to the rules of the contract market. 

15 (2) CONSIDERATION.—In conducting the review 

16 required by paragraph (1), the Commission shall—

17 (A) seek public comment for a period of 

18 not less than 30 days; and 

19 (B) determine that each rule, regulation, 

20 and contract specification is consistent with the 

21 core principles specified in section 5(d) of the 

22 Commodity Exchange Act, or require that the 

23 rule, regulation, or contract specification be 

24 changed to make it so consistent. 
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1 (3) CRITERIA.—The Commission shall not con2 sider the rules, regulations, and contract specifica3 tions that apply to an agreement, contract, or trans4 action involving natural gas to be consistent with the 

5 core principles specified in section 5(d) of the Com6 modity Exchange Act, unless—

7 (A) the rules, regulations, or contract spec8 ifications limit the maximum daily price fluc9 tuation applicable to the agreement, contract, 

10 or transaction to not more than 8 percent of 

11 the settlement price of the prior day’s trading 

12 in the agreement, contract, or transaction; and 

13 (B) the Commission finds on the basis of 

14 substantial evidence that the rules, regulations, 

15 and contract specifications are consistent with 

16 the core principles. 

17 SEC. 4. BACK-UP REPORTING OF LARGE POSITIONS IN18 VOLVING NATURAL GAS. 

19 (a) IN GENERAL.—Section 4a of the Commodity Ex20 change Act (7 U.S.C. 6a) is amended—

21 (1) in subsection (e), by striking the last sen22 tence; and 

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

24 ‘‘(f) REPORTING OF LARGE POSITIONS INVOLVING

25 NATURAL GAS.—
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1 ‘‘(1) IN GENERAL.—In accordance with such 

2 rules as shall be prescribed by the Commission, any 

3 person holding, maintaining, or controlling any posi4 tion in any agreement, contract, or transaction made 

5 in connection with any contract for the present or 

6 for future delivery of natural gas, any position in 

7 any agreement, contract, or transaction having one 

8 or more payments indexed to the value, level, or rate 

9 of providing natural gas for the present or future 

10 delivery, or any quantity of natural gas that is read11 ily available for delivery shall file such reports re12 garding the position or quantity as the Commission 

13 determines to be necessary and appropriate to pre14 vent or deter actual or potential manipulation of the 

15 price of contracts of sale of natural gas for future 

16 delivery. Notwithstanding any other provision of law, 

17 including any provision of law that excludes any 

18 agreement, contract, transaction, or trading facility 

19 from this Act (other than as specifically provided in 

20 paragraph (2)), any rule, bylaw, or other require21 ment to file any report regarding a position in any 

22 agreement, contract, or transaction involving natural 

23 gas or quantity of natural gas prescribed in accord24 ance with this subsection shall apply to any person 

25 holding any such position or quantity. 
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1 ‘‘(2) NO DUPLICATE REPORTS.—Except as oth2 erwise provided in this paragraph, the rules pre3 scribed under paragraph (1) shall not apply to any 

4 holding or position that otherwise is required to be 

5 reported to any agency of the United States Govern6 ment if the report would otherwise satisfy the re7 quirements of this subsection and the report is avail8 able to the Commission at the request of the Com9 mission. Notwithstanding the preceding sentence, 

10 any report of any such holding or position to any 

11 agency of the United States shall constitute a state12 ment, report, or document required for purposes of 

13 section 9. 

14 ‘‘(3) CRITERIA FOR RULES.—

15 ‘‘(A) IN GENERAL.—In prescribing rules 

16 under paragraph (1), the Commission shall con17 sider—

18 ‘‘(i) the purposes for monitoring large 

19 positions and quantities in natural gas; 

20 ‘‘(ii) the effect of such reporting re21 quirements on the efficiency and liquidity 

22 of the market for natural gas and the mar23 ket for any agreement, contract, or trans24 action made in connection with any con-
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1 tract for the present or for future delivery 

2 of natural gas; and 

3 ‘‘(iii) the costs and burden on the per4 sons that would be required to file such re5 ports. 

6 ‘‘(B) FREQUENCY.—The Commission shall 

7 require reports under paragraph (1) only in cir8 cumstances where manipulation is suspected, 

9 except that the Commission may prescribe rules 

10 requiring regular or continuous reporting if the 

11 Commission finds that such reporting would 

12 help to deter or to detect manipulation in any 

13 market for any agreement, contract, or trans14 action made in connection with any contract for 

15 the present or for future delivery of natural 

16 gas. 

17 ‘‘(C) FILING REQUIREMENTS.—Reports re18 quired under paragraph (1) shall be filed with 

19 the Commission in accordance with such re20 quirements regarding the form, timing, and 

21 manner of filing such reports, as the Commis22 sion may prescribe by rule. 

23 ‘‘(D) RECORDKEEPING REQUIREMENTS.—

24 Rules prescribed under paragraph (1) may re25 quire any person holding, maintaining, or con-
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1 trolling a quantity of natural gas that is readily 

2 available for delivery, or any position in any 

3 agreement, contract, or transaction made in 

4 connection with any agreement, contract, or 

5 transaction for the present or future delivery of 

6 natural gas or any contract requiring one or 

7 more payments indexed to the value, level, or 

8 rate of, or providing for the present or future 

9 delivery of natural gas to make and keep for 

10 prescribed periods such records as the Commis11 sion determines are necessary or appropriate to 

12 ensure that persons covered by reporting re13 quirements of paragraph (1) can comply with 

14 the reporting requirements. 

15 ‘‘(4) EXEMPTIONS.—Consistent with the public 

16 interest and the purposes of this section, the Com17 mission by rule or by order may exempt, in whole or 

18 in part, conditionally or unconditionally, any person 

19 or class of persons from the requirements of this 

20 subsection. 

21 ‘‘(5) OTHER RULES NOT AFFECTED.—This sub22 section shall not be interpreted to prohibit or impair 

23 the adoption by any board of trade licensed, des24 ignated, or registered by the Commission of any 

25 bylaw, rule, regulation, or resolution requiring re-
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1 ports of positions in any agreement, contract, or 

2 transaction made in connection with a contract of 

3 sale for future delivery of natural gas (including 

4 such a contract of sale), including any bylaw, rule, 

5 regulation, or resolution pertaining to filing or rec6 ordkeeping, which may be held by any person sub7 ject to the rules of the board of trade, except that 

8 any bylaw, rule, regulation, or resolution established 

9 by the board of trade shall not be inconsistent with 

10 any requirement prescribed by the Commission 

11 under this subsection. 

12 ‘‘(g) VIOLATION OF CERTAIN RULES IS A VIOLATION

13 OF THIS ACT.—It shall be a violation of this Act for any 

14 person to violate any bylaw, rule, regulation, or resolution 

15 of any board of trade licensed, designated, or registered 

16 by the Commission that—

17 ‘‘(1) fixes limits on the amount of trading 

18 which may be done or positions which may be held 

19 by any person under contracts of sale of any com20 modity for future delivery or under options on such 

21 contracts or commodities; or 

22 ‘‘(2) establishes requirements regarding reports 

23 of any position or quantity which may be held by 

24 any person (including any requirements pertaining 
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1 to filing and keeping records of reports of any such 

2 positions), 

3 if the bylaw, rule, regulation, or resolution has been ap4 proved by the Commission: Provided, That section 9(c) 

5 shall apply only to those who knowingly violate such lim6 its.’’. 

7 (b) DEADLINE.—The Commission shall prescribe the 

8 rules required by section 4a(f) of the Commodity Ex9 change Act not later than 180 days after the date of the 

10 enactment of this Act. 

11 (c) CONFORMING AMENDMENTS.—Section 2 of the 

12 Commodity Exchange Act (7 U.S.C. 2) is amended—

13 (1) in each of subsections (g) and (h)(4)(A), by 

14 inserting ‘‘4a(f),’’ before ‘‘5a (to’’; 

15 (2) in subsection (h)(2)(A), by striking ‘‘5b’’ 

16 and inserting ‘‘4a(f), 5b,’’; and 

17 (3) in subsection (i)(2), by inserting ‘‘4a(f) of 

18 this Act,’’ before ‘‘5a of’’. 

19 SEC. 5. ADDITIONAL AUTHORITY TO PROVIDE FOR CASH 

20 SETTLEMENT OF TRANSACTIONS INVOLVING 

21 NATURAL GAS. 

22 (a) IN GENERAL.—Section 4a of the Commodity Ex23 change Act (7 U.S.C. 6a) is further amended by adding 

24 at the end the following: 
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1 ‘‘(h) CASH SETTLEMENT OF NATURAL GAS CON2 TRACTS.—

3 ‘‘(1) For the purpose of diminishing, elimi4 nating, or preventing the burden on interstate com5 merce associated with excessive speculation in any 

6 commodity under contracts of sale of such com7 modity for future delivery made on or subject to the 

8 rules of contract markets, the Commission shall pre9 scribe rules requiring any board of trade to imple10 ment rules that provide for any contract of sale for 

11 future delivery of natural gas to be settled in cash 

12 in lieu of making delivery of the natural gas but only 

13 in circumstances in which the Commission has deter14 mined that market conditions suggest the possibility 

15 of manipulation. 

16 ‘‘(2) Any rules prescribed under paragraph (1) 

17 shall not be construed as limiting or otherwise im18 pairing any authority granted to the Commission or 

19 to a board of trade, respectively, under section 5.’’. 

20 (b) CONFORMING AMENDMENTS.—Section 5 of such 

21 Act (7 U.S.C. 7) is amended—

22 (1) in subsection (b)(3)—

23 (A) by striking ‘‘or’’ at the end of subpara24 graph (B)(iii); 
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1 (B) by striking the period at the end of 

2 subparagraph (C) and inserting ‘‘; or’’; and 

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

4 ‘‘(D) any contract of sale for future deliv5 ery of natural gas to be settled in cash in lieu 

6 of making delivery of the commodity.’’; and 

7 (2) in subsection (d)(6)—

8 (A) by striking ‘‘and’’ at the end of sub9 paragraph (B); 

10 (B) by striking the period at the end of 

11 subparagraph (C) and inserting ‘‘and’’; and 

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

13 ‘‘(D) require market participants in any 

14 contract to settle any contract of sale for future 

15 delivery of natural gas in cash in lieu of making 

16 delivery of such commodity.’’. 

17 (c) DEADLINE.—The Commodity Futures Trading 

18 Commission shall prescribe the rules required by section 

19 4a(h) of the Commodity Exchange Act not later than 180 

20 days after the date of the enactment of this Act. 

21 SEC. 6. CRIMINAL AND CIVIL PENALTIES. 

22 (a) ENFORCEMENT POWERS OF COMMISSION.—Sec23 tion 6(c) of the Commodity Exchange Act (7 U.S.C. 9, 

24 15) is amended in clause (3) of the 10th sentence—
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1 (1) by inserting ‘‘(A)’’ after ‘‘assess such per2 son’’; and 

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

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

5 attempt to manipulate, the price of any commodity, 

6 a civil penalty of not more than the greater of 

7 $1,000,000 or triple the monetary gain to such per8 son for each such violation,’’. 

9 (b) MANIPULATIONS AND OTHER VIOLATIONS.—Sec10 tion 6(d) of such Act (7 U.S.C. 13b(d)) is amended in 

11 the 1st sentence—

12 (1) by striking ‘‘paragraph (a) or (b) of section 

13 9 of this Act’’ and inserting ‘‘subsection (a), (b), or 

14 (f) of section 9’’; and 

15 (2) by striking ‘‘said paragraph 9(a) or 9(b)’’ 

16 and inserting ‘‘such subsection (a), (b), or (f)’’. 

17 (c) NONENFORCEMENT OF RULES OF GOVERNMENT

18 OR OTHER VIOLATIONS.—Section 6b of such Act (7 

19 U.S.C. 13a) is amended—

20 (1) in the 1st sentence, by inserting ‘‘, or, in 

21 any case of manipulation of, or an attempt to ma22 nipulate, the price of any commodity, a civil penalty 

23 of not more than $1,000,000 for each such viola24 tion’’ before the period; and 
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1 (2) in the 2nd sentence, by inserting ‘‘, except 

2 that if the failure or refusal to obey or comply with 

3 the order involved any offense under section 9(f), the 

4 registered entity, director, officer, agent, or employee 

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

6 be subject to penalties under section 9(f)’’ before the 

7 period. 

8 (d) ACTION TO ENJOIN OR RESTRAIN VIOLATIONS.—

9 Section 6c(d) of such Act (7 U.S.C. 13a–1(d)) is amended 

10 by striking ‘‘(d)’’ and all that follows through the end of 

11 paragraph (1) and inserting the following: 

12 ‘‘(d) CIVIL PENALTIES.—(1) In any action brought 

13 under this section, the Commission may seek and the 

14 court shall have jurisdiction to impose, on a proper show15 ing, on any person found in the action to have committed 

16 any violation—

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

18 than the greater of $100,000 or triple the monetary 

19 gain to the person for each violation; or 

20 ‘‘(B) in any case of manipulation of, or an at21 tempt to manipulate, the price of any commodity, a 

22 civil penalty in the amount of not more than the 

23 greater of $1,000,000 or triple the monetary gain to 

24 the person for each violation.’’. 
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1 (e) VIOLATIONS GENERALLY.—Section 9(a) of such 

2 Act (7 U.S.C. 13(a)) is amended—

3 (1) by striking ‘‘(or $500,000 in the case of a 

4 person who is an individual)’’; 

5 (2) by striking ‘‘five years’’ and inserting ‘‘10 

6 years’’; and 

7 (3) in paragraph (2), by striking ‘‘false or mis8 leading or knowingly inaccurate reports’’ and insert9 ing ‘‘knowingly false, misleading, or inaccurate re10 ports’’. 

11 SEC. 7. 1-YEAR BAN ON MEMBERS OF THE COMMODITY FU12 TURES TRADING COMMISSION WORKING FOR 

13 ORGANIZATIONS SUBJECT TO REGULATION 

14 BY THE COMMISSION. 

15 (a) IN GENERAL.—Section 9 of the Commodity Ex16 change Act (7 U.S.C. 13) is amended by adding at the 

17 end the following: 

18 ‘‘(g)(1)(A) During the 1-year period that begins with 

19 the date an individual ceases to be a member of the Com20 mission, the individual shall not become an employee or 

21 agent of any entity subject to regulation by the Commis22 sion. 

23 ‘‘(B) Subparagraph (A) shall apply in the case of an 

24 individual who becomes an employee or agent of an entity 
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1 subject to regulation by the Commission, as a result of 

2 a merger or takeover. 

3 ‘‘(2) Whoever violates paragraph (1) shall be liable 

4 for a civil money penalty of $100,000.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 subsection (a) shall take effect 90 days after the date of 

7 the enactment of this Act.

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