II

105TH CONGRESS

2D SESSION S. 1884

To amend the Commodity Exchange Act to remove the prohibition on

agricultural trade options outside contract markets.

IN THE SENATE OF THE UNITED STATES

MARCH 31, 1998

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

to the Committee on Agriculture, Nutrition, and Forestry

A BILL

To amend the Commodity Exchange Act to remove the prohibition on agricultural trade options outside contract

markets.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. AGRICULTURAL TRADE OPTIONS OUTSIDE

4 CONTRACT MARKETS.

5 The Commodity Exchange Act is amended by insert6 ing after section 4p (7 U.S.C. 6p) the following:

7 ‘‘SEC. 4q. AGRICULTURAL TRADE OPTIONS OUTSIDE CON8 TRACT MARKETS.

9 ‘‘(a) DEFINITIONS.—In this section:
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1 ‘‘(1) AGRICULTURAL TRADE OPTION OUTSIDE A

2 CONTRACT MARKET.—The term ‘agricultural trade

3 option outside a contract market’ means an agree4 ment, contract, or transaction (or class thereof) en5 tered into on other than a contract market for—

6 ‘‘(A) the purchase of an agricultural trade

7 option involving a commodity by a person who

8 is a producer, processor, commercial user, or

9 merchant handler of the commodity;

10 ‘‘(B) the sale or transfer of an agricultural

11 trade option involving a commodity; or

12 ‘‘(C) a purpose related to the business of

13 a person referred to in subparagraph (A).

14 ‘‘(2) COMMODITY.—The term ‘commodity’

15 means an agricultural commodity referred to in sec16 tion 1a(3).

17 ‘‘(b) AUTHORIZATION.—Subject to subsection (c), an

18 agricultural trade option outside a contract market shall

19 be permitted and shall be considered to be consistent with

20 the other provisions of this Act.

21 ‘‘(c) REGULATION.—

22 ‘‘(1) SAFEGUARDS.—Subject to paragraph (2),

23 an agricultural trade option outside a contract mar24 ket shall, to the extent determined to be applicable

25 by the Board, be subject to—
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1 ‘‘(A) sections 4b and 4o;

2 ‘‘(B) the provisions of sections 6(c) and

3 9(a)(2), to the extent that the provisions pro4 hibit manipulation of the market price of any

5 commodity in interstate commerce for future

6 delivery;

7 ‘‘(C) prohibitions against fraud or manipu8 lation under section 4c(b);

9 ‘‘(D) registration requirements of the Com10 mission administered by the National Futures

11 Association;

12 ‘‘(E) a requirement that the person provid13 ing the option has a net worth of at least

14 $50,000;

15 ‘‘(F) requirements for full disclosure of

16 risks and responsibilities involved in the con17 tract or agreement for the option; and

18 ‘‘(G) recordkeeping and reporting require19 ments of the Commission.

20 ‘‘(2) LIMITATIONS.—

21 ‘‘(A) TOTAL ASSETS.—Except for the

22 fraud and manipulation provisions of the provi23 sions of law referred to in subparagraphs (A),

24 (B), and (C) of paragraph (1), paragraph (1)

25 shall not apply to an agricultural trade option
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1 outside a contract market if the buyer and sell2 er of the option each have assets of a value of

3 at least $10,000,000.

4 ‘‘(B) PHYSICAL DELIVERY; STRUCTURE

5 AND STRATEGIES.—An agricultural trade op6 tion outside a contract market shall not be sub7 ject to—

8 ‘‘(i) a requirement that the option, if

9 exercised, be physically delivered; or

10 ‘‘(ii) a limitation on the structure of

11 the option or trading strategies for the use

12 of the option.

13 ‘‘(c) TERMINATION OF EFFECTIVENESS.—The au14 thority provided by this section terminates effective Sep15 tember 30, 2002.’’.

16 SEC. 2. CONFORMING AMENDMENTS.

17 (a) Section 4(a) of the Commodity Exchange Act (7

18 U.S.C. 6(a)) is amended—

19 (1) in paragraph (1), by inserting ‘‘(A)’’ after

20 ‘‘(1)’’;

21 (2) by redesignating paragraphs (2) and (3) as

22 subparagraphs (B) and (C), respectively;

23 (3) in subparagraph (C) (as so redesignated),

24 by striking the period at the end and inserting ‘‘;

25 or’’; and
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1 (4) by adding at the end the following:

2 ‘‘(2) the contract is an agricultural trade option

3 outside a contract market permitted under section

4 4q.’’.

5 (b) Section 4c(b) of the Commodity Exchange Act (7

6 U.S.C. 6c(b)) is amended in the first sentence by striking

7 ‘‘No’’ and inserting ‘‘Except as provided in section 4q,

8 no’’.

9 SEC. 3. REGULATIONS.

10 Not later than 90 days after the date of enactment

11 of this Act, the Commodity Futures Trading Commission

12 shall issue such regulations as the Commission determines

13 are necessary to carry out this Act and the amendments

14 made by this Act.

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