II 

110TH CONGRESS 

2D SESSION S. 3671 

To amend the Commodity Exchange Act to require the Commodity Futures 

Trading Commission to develop and impose aggregate position limits 

on certain large over-the-counter transactions and classes of large overthe-counter transactions. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 1 (legislative day, SEPTEMBER 17), 2008 

Mrs. FEINSTEIN 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 require the Commodity Futures Trading Commission to develop and impose aggregate position limits on certain large over-thecounter transactions and classes of large over-the-counter 

transactions. 

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 ‘‘Over-the-Counter 

5 Swaps Speculation Limit Act’’. 


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1 SEC. 2. AGGREGATE POSITION LIMITS. 

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

3 2) is amended by adding at the end the following: 

4 ‘‘(j) AGGREGATE POSITION LIMITS.— 

5 ‘‘(1) DEFINITION OF BONA FIDE HEDGING

6 TRANSACTION.—In this subsection: 

7 ‘‘(A) IN GENERAL.—The term ‘bona fide 

8 hedging transaction’ means a transaction 

9 that— 

10 ‘‘(i) is a substitute for a transaction 

11 to be made or a position to be taken at a 

12 later time in a physical marketing channel; 

13 ‘‘(ii) is economically appropriate for 

14 the reduction of risks in the conduct and 

15 management of a commercial enterprise; 

16 and 

17 ‘‘(iii) arises from a potential change in 

18 the value of— 

19 ‘‘(I) assets that a person owns, 

20 produces, manufactures, possesses, or 

21 merchandises (or anticipates owning, 

22 producing, manufacturing, possessing, 

23 or merchandising); 

24 ‘‘(II) liabilities that a person in25 curs or anticipates incurring; or 


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1 ‘‘(III) services that a person pro2 vides or purchases (or anticipates pro3 viding or purchasing). 

4 ‘‘(B) EXCLUSION.—The term ‘bona fide 

5 hedging transaction’ does not include a trans6 action entered into on a designated contract 

7 market for the purpose of offsetting a financial 

8 risk arising from an over-the-counter com9 modity derivative. 

10 ‘‘(2) AGGREGATE POSITION LIMITS.— 

11 ‘‘(A) DEVELOPMENT; IMPOSITION.—Not12 withstanding any other provision of this Act, in 

13 accordance with subparagraph (B), to reduce 

14 the potential threat of market manipulation, ex15 cessive speculation, or congestion in any con16 tract listed for trading on a registered entity or 

17 a contract that the Commission has determined 

18 to provide a price discovery role, the Commis19 sion shall impose aggregate position limits on 

20 positions held on registered entities, foreign 

21 boards of trade, and each large over-the-counter 

22 transaction or class of large over-the-counter 

23 transactions that the Commission determines to 

24 be appropriate to assist the Commission in proVerDate Aug 31 2005 22:30 Oct 06, 2008 Jkt 079200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3671.IS S3671

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1 tecting the price discovery function of contracts 

2 under the jurisdiction of the Commission. 

3 ‘‘(B) REQUIREMENTS FOR DEVELOPMENT

4 AND IMPOSITION OF AGGREGATE POSITION LIM5 ITS.— 

6 ‘‘(i) EVALUATION SYSTEM.—In devel7 oping aggregate position limits under sub8 paragraph (A), the Commission shall es9 tablish a system for evaluating the degree 

10 to which— 

11 ‘‘(I) each large over-the-counter 

12 transaction and class of large over13 the-counter transactions are equiva14 lent to positions in contracts on reg15 istered entities; and 

16 ‘‘(II) contracts on registered enti17 ties are equivalent to contracts on 

18 other registered entities. 

19 ‘‘(ii) MAXIMUM LEVEL OF AGGREGATE

20 POSITION LIMITS.—In developing aggre21 gate position limits under subparagraph 

22 (A), the Commission shall set the aggre23 gate position limits at the minimum level 

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1 quidity for the conduct of bona fide hedg2 ing transactions. 

3 ‘‘(C) CONSIDERATION OF FACTORS FOR

4 DETERMINATION.— 

5 ‘‘(i) IN GENERAL.—In making a de6 termination under subparagraph (A) with 

7 respect to the imposition of aggregate posi8 tion limits on appropriate large over-the9 counter transactions and classes of large 

10 over-the-counter transactions, the Commis11 sion may determine not to impose aggre12 gate position limits on any large over-the13 counter transaction or class of large over14 the-counter transactions if the Commission 

15 determines that the large over-the-counter 

16 transaction or class of large over-the17 counter transactions does not meet any of 

18 the factors described in clause (ii). 

19 ‘‘(ii) FACTORS.—The factors de20 scribed in clause (i) include— 

21 ‘‘(I) whether a standardized 

22 agreement is used to execute the large 

23 over-the-counter transaction or class 

24 of large over-the-counter transactions; 


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1 ‘‘(II) whether the large over-the2 counter transaction or class of large 

3 over-the-counter transactions settles 

4 against any price (including the daily 

5 or final settlement price) of one or 

6 more contracts listed for trading on a 

7 registered entity; 

8 ‘‘(III) whether the price of the 

9 large over-the-counter transaction or 

10 class of large over-the-counter trans11 actions is reported to a third party, 

12 published, or otherwise disseminated; 

13 ‘‘(IV) whether the price of the 

14 large over-the-counter transaction or 

15 class of large over-the-counter trans16 actions is referenced in any other 

17 transaction; 

18 ‘‘(V) whether there is a signifi19 cant volume of the large over-the20 counter transaction or class of large 

21 over-the-counter transactions; and 

22 ‘‘(VI) any other factor that the 

23 Commission determines to be appro24 priate. 


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1 ‘‘(D) EXEMPTION FOR BONA FIDE HEDG2 ING TRANSACTIONS.—The Commission may ex3 empt any large over-the-counter transaction or 

4 class of large over-the-counter transactions 

5 from any aggregate position limit developed and 

6 imposed by the Commission under subpara7 graph (A) if the Commission determines that 

8 the large over-the-counter transaction or class 

9 of large over-the-counter transactions is a bona 

10 fide hedging transaction. 

11 ‘‘(E) NET SUM OF POSITIONS.—The aggre12 gate position limits developed and imposed by 

13 the Commission under subparagraph (A) shall 

14 apply to the net sum of the like positions held 

15 by a person on or in— 

16 ‘‘(i) registered entities; 

17 ‘‘(ii) foreign boards of trade; and 

18 ‘‘(iii) over-the-counter commodity de19 rivatives. 

20 ‘‘(F) ENFORCEMENT.— 

21 ‘‘(i) IN GENERAL.—Subject to clause 

22 (ii), in enforcing each aggregate position 

23 limit developed and imposed by the Com24 mission under subparagraph (A), the ComVerDate Aug 31 2005 22:30 Oct 06, 2008 Jkt 079200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3671.IS S3671

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1 mission may order a person to reduce any 

2 position of the person. 

3 ‘‘(ii) MAINTENANCE OF POSITION; 

4 CIVIL PENALTY.— 

5 ‘‘(I) MAINTENANCE OF POSI6 TION.—If the Commission determines 

7 that the reduction of a position of a 

8 person under clause (i) would be dis9 ruptive to the price discovery function, 

10 the Commission may allow the person 

11 to maintain the position. 

12 ‘‘(II) CIVIL PENALTY.—The 

13 Commission shall impose on the per14 son described in subclause (I) a civil 

15 penalty in an amount not greater 

16 than— 

17 ‘‘(aa) $1,000,000 for each 

18 violation committed by the per19 son; or 

20 ‘‘(bb) with respect to each 

21 violation committed by the per22 son, the market value of the posi23 tion in excess of the appropriate 

24 aggregate position limit. 


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1 ‘‘(iii) EFFECT OF VIOLATION.—A vio2 lation of an aggregate position limit devel3 oped and imposed by the Commission 

4 under subparagraph (A) shall be deter5 mined to be a violation of this Act.’’. 

Æ 


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