I

105TH CONGRESS

1ST SESSION H. R. 645

To amend the Commodity Exchange Act to require the Commodity Futures

Trading Commission to regulate certain cash markets, such as the National Cheese Exchange, until the Commission determines that the market does not establish reference points for other transactions.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 6, 1997

Mr. OBEY (for himself, Mr. KIND, Mr. JOHNSON of Wisconsin, and Mr.

BARRETT of Wisconsin) introduced the following bill; which was referred

to the Committee on Agriculture

A BILL

To amend the Commodity Exchange Act to require the Commodity Futures Trading Commission to regulate certain

cash markets, such as the National Cheese Exchange,

until the Commission determines that the market does

not establish reference points for other 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 ‘‘National Cheese Ex5 change Oversight and Improvement Act of 1997’’.
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1 SEC. 2. FINDINGS.

2 The Congress finds that the operation of the National

3 Cheese Exchange and other cash markets is of national

4 concern and in need of Federal oversight because of the

5 following:

6 (1) The National Cheese Exchange, located in

7 Green Bay, Wisconsin, is the dominant cash market

8 for bulk cheese in the United States.

9 (2) While less than 1 percent of the cheese pro10 duced in the United States is sold on the National

11 Cheese Exchange, the price determined by the Na12 tional Cheese Exchange acts as a reference price for

13 as much as 95 percent of the commercial cheese

14 transactions conducted in the United States.

15 (3) A three-year federally funded investigation

16 into the activities of the National Cheese Exchange

17 determined that the National Cheese Exchange is

18 very thinly traded, highly concentrated, completely

19 unregulated, and subject to manipulation.

20 (4) The Coffee, Sugar, and Cocoa Exchange in

21 New York, an exchange regulated by the Commodity

22 Futures Trading Commission, trades futures con23 tracts for cheese.

24 (5) The low volume in trading of cheese futures

25 contracts on the Coffee, Sugar, and Cocoa Exchange
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1 is partially related to concerns about the lack of via2 bility, and potential for manipulation, in the domi3 nant cash market for cheese, the National Cheese

4 Exchange.

5 (6) The National Cheese Exchange is com6 pletely unregulated by any Federal or State agency.

7 (7) The Commodity Futures Trading Commis8 sion claims a lack of authority to regulate or oversee

9 the National Cheese Exchange and similar cash

10 markets.

11 SEC. 3. COMMODITY FUTURES TRADING COMMISSION REG12 ULATION OF NATIONAL CHEESE EXCHANGE

13 AND SIMILAR CASH MARKETS.

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

15 is amended by inserting after section 20 (7 U.S.C. 24)

16 the following new section:

17 ‘‘SEC. 21. COMMISSION REGULATION OF NATIONAL CHEESE

18 EXCHANGE AND SIMILAR CASH MARKETS.

19 ‘‘(a) DEFINITION OF CONCENTRATED CASH MAR20 KET.—In this section, the term ‘concentrated cash mar21 ket’ means—

22 ‘‘(1) the National Cheese Exchange located in

23 Green Bay, Wisconsin; and

24 ‘‘(2) a cash market for a commodity if the

25 Commission determines that—
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1 ‘‘(A) the cash market is geographically

2 centralized in the form of a market or ex3 change;

4 ‘‘(B) the cash market is very thinly traded

5 or highly illiquid;

6 ‘‘(C) the price established by the cash mar7 ket functions as a reference price for a majority

8 of commercial transactions off the cash market

9 for the commodity being traded;

10 ‘‘(D) trading in the cash market is con11 centrated among relatively few buyers and sell12 ers;

13 ‘‘(E) the cash market is substantially un14 regulated by any other regulatory structure (in15 cluding State regulation or self-regulation);

16 ‘‘(F) a futures market regulated under this

17 Act also exists for the commodity that is being

18 traded on the cash market; and

19 ‘‘(G) the instability, illiquidity, or potential

20 for manipulation on the cash market could be

21 a deterrent to the use of the futures market for

22 that commodity.

23 ‘‘(b) REGULATION OF CONCENTRATED CASH MAR24 KETS.—In consultation with the Secretary of Agriculture,

25 the Commission shall regulate a concentrated cash market
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1 under this Act until such time as the Commission deter2 mines that the concentrated cash market is not function3 ing as a reference price for a majority of commercial

4 transactions off the cash market for the commodity being

5 traded on the concentrated cash market.

6 ‘‘(c) SUBMISSION AND REVIEW OF OPERATING

7 RULES.—

8 ‘‘(1) SUBMISSION REQUIRED.—The Commission

9 shall require a concentrated cash market subject to

10 regulation under subsection (b) to submit to the

11 Commission for approval a set of rules governing the

12 operation of the concentrated cash market.

13 ‘‘(2) TIME FOR SUBMISSION.—In the case of

14 the National Cheese Exchange, the operating rules

15 required under this subsection shall be submitted

16 not later than 90 days after the date of the enact17 ment of this section. In the case of other con18 centrated cash markets, the operating rules shall be

19 submitted not later than 90 days after the date on

20 which the Commission notifies the concentrated cash

21 market that it is subject to regulation under this

22 section.

23 ‘‘(3) NOTIFICATION OF COMMISSION ACTION.—

24 The Commission shall promptly review operating

25 rules submitted by a concentrated cash market
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1 under this subsection to determine whether the rules

2 are sufficient to govern the operation of the con3 centrated cash market. Not later than 60 days after

4 receiving the rules from a concentrated cash market,

5 the Commission shall notify the concentrated cash

6 market of the results of the review, including wheth7 er the rules are approved or disapproved. If dis8 approved, the Commission shall provide such rec9 ommendations regarding changes to the rules as the

10 Commission considers necessary to secure approval

11 and provide a schedule for resubmission of the rules.

12 ‘‘(4) SUBSEQUENT RULE CHANGES.—A con13 centrated cash market may not change approved op14 erating rules unless the proposed change is also sub15 mitted to the Commission for review and the Com16 mission approves the change in the manner provided

17 in paragraph (3).

18 ‘‘(d) EFFECT OF FAILURE TO SUBMIT OR RECEIVE

19 APPROVAL OF RULES.—Beginning one year after the date

20 of the enactment of this section, the National Cheese Ex21 change may operate only in accordance with rules ap22 proved by the Commission under subsection (c). In the

23 case of other concentrated cash markets, beginning one

24 year after the date on which the concentrated cash market
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1 is notified that it is subject to regulation under this sec2 tion, the concentrated cash market may operate only in

3 accordance with rules approved by the Commission under

4 subsection (c).’’.

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