I 

111TH CONGRESS 

1ST SESSION H. R. 3300 

To provide increased transparency and regulatory requirements for the trading 

of certain derivative financial instruments. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 22, 2009 

Mr. MCMAHON (for himself, Ms. BEAN, Mr. MOORE of Kansas, Mr. HIMES, 

Mr. CROWLEY, Mr. KIND, Mr. SMITH of Washington, Mrs. MCCARTHY

of New York, Ms. SCHWARTZ, Mr. ADLER of New Jersey, Ms. KOSMAS, 

Mr. PETERS, and Mr. MURPHY of New York) introduced the following 

bill; which was referred to the Committee on Financial Services, and in 

addition to the Committee on Agriculture, for a period to be subsequently 

determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To provide increased transparency and regulatory requirements for the trading of certain derivative financial instruments. 

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; FINDINGS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Derivative Trading Accountability and Disclosure Act’’. 

6 (b) FINDINGS.—Congress finds the following: 


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1 (1) Derivatives are financial instruments used 

2 by companies to manage and mitigate risk and are 

3 widely used by American companies. 

4 (2) Derivatives are bilateral contracts that ex5 change financial risk. Over the counter (OTC) de6 rivatives are customized to a particular company’s or 

7 investor’s situation and needs. 

8 (3) Many exchange traded products are not 

9 customizable, and as a result, companies are unable 

10 to match their risks to the products that are offered 

11 on exchanges, which are, by necessity, highly stand12 ardized. 

13 (4) Clearinghouses require that participants 

14 pledge only liquid collateral, such as cash or short15 term government securities, to support their posi16 tions in the market without regard to the credit 

17 quality of the company. However, companies need 

18 their most liquid assets for their working capital and 

19 investment purposes. Requiring a company to post 

20 cash as collateral means removing cash from the 

21 company’s core business, which hurts the company 

22 and its employees, as well as the overall economy of 

23 the United States. 

24 (5) Lack of transparency, inadequate margin 

25 and capital requirements, and poor coordination of 


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1 regulatory agencies to identify risks in the trading of 

2 derivatives, have all led to intense and unexpected 

3 pressure on individual financial service companies, 

4 and the American financial system as a whole. 

5 (6) The lack of oversight over the mortgage6 backed credit default swap (CDS) market and the 

7 challenge corporate executives, business partners, in8 vestors and regulators had in identifying the value 

9 of and risks associated with various derivative mar10 kets played a central role in the near collapse of 

11 global financial and insurance giant American Inter12 national Group, Inc. in late 2008. 

13 (7) Increased regulation and oversight of the 

14 derivatives market is critical to achieving the goals 

15 of— 

16 (A) lowering systemic risk to the financial 

17 system as a whole; 

18 (B) promoting the efficiency and trans19 parency of derivative markets; 

20 (C) promoting market integrity by pre21 venting fraud, manipulation, and other market 

22 abuses; and 

23 (D) protecting the public from improper 

24 marketing practices. 


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1 SEC. 2. DEFINITIONS. 

2 As used in this Act— 

3 (1) the term ‘‘clearinghouse’’ means a deriva4 tives clearing organization as such term is defined in 

5 section 1a(9) of the Commodity Exchange Act (7 

6 U.S.C. 1a(9) and a clearing agency as such term is 

7 defined in section 3(a)(23) of the Securities Ex8 change Act of 1934 (15 U.S.C. 78c(a)(23)); 

9 (2) the term ‘‘derivative’’ means any financial 

10 instrument, traded on or off an exchange, the price 

11 of which, at least in part, is directly dependent upon 

12 the value of one or more underlying securities, eq13 uity indices, debt instruments, commodities, other 

14 derivative instruments, or any agreed upon pricing 

15 index or arrangement; 

16 (3) the term ‘‘derivatives trader’’ means any 

17 person engaged in the business of buying and selling 

18 any type of derivative as part of its market making 

19 activity but does not include a person who buys or 

20 sells any type of derivative primarily for purposes of 

21 hedging an exposure or making an investment; 

22 (4) the term ‘‘exchange’’ has the meaning given 

23 such term in section 3(a)(1) of the Securities Ex24 change Act of 1934 (15 U.S.C. 78c(a)(1)) and in25 cludes a board of trade as such term is defined in 


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1 section 1a(2) of the Commodity Exchange Act (7 

2 U.S.C. 1a(2)); 

3 (5) the term ‘‘major market participant’’ means 

4 any entity which engages in not fewer than such 

5 number of such kinds of transactions, or trades not 

6 fewer than such number of such kinds of derivatives, 

7 as the Commodities Future Trading Commission or 

8 the Securities and Exchange Commission, as appro9 priate, determines to qualify such entity as a finan10 cial institution (or other entity) of significant rel11 evance to the national financial system as a whole, 

12 including all subsidiaries or affiliates of such entity 

13 whose activities fall under the jurisdiction of the 

14 Commodities Future Trading Commission or the Se15 curities and Exchange Commission, as appropriate; 

16 (6) the term ‘‘the Office’’ means the Office of 

17 Derivatives Supervision established in the Depart18 ment of the Treasury under section 3; and 

19 (7) the term ‘‘over-the-counter derivatives trade 

20 depository’’ means any person who acts as a custo21 dian for the primary record of an over-the-counter 

22 derivative transaction or who provides facilities for 

23 central processing and reconciliation of transaction 

24 information relating to over-the-counter derivative 

25 transactions. 


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1 SEC. 3. OFFICE OF DERIVATIVES SUPERVISION IN THE 

2 TREASURY. 

3 (a) ESTABLISHMENT.—There is hereby established 

4 within the Department of the Treasury an office to be 

5 known as the Office of Derivatives Supervision. 

6 (b) DUTIES.— 

7 (1) OVERSIGHT OF REGISTRATION OF DERIVA8 TIVES TRADERS.—The Office shall oversee the reg9 istration of derivatives traders as required under 

10 section 4 and issue such rules or regulations as re11 quired to implement the requirements of such sec12 tion. 

13 (2) COORDINATION ON DERIVATIVES REGULA14 TIONS.—The Office shall provide support and co15 ordination to the Securities and Exchange Commis16 sion and the Commodity Futures Trading Commis17 sion in developing a comprehensive and standardized 

18 set of regulations for the sale, purchase, exchange, 

19 or trade of derivatives. In particular, the Office shall 

20 harmonize substantive futures and securities regula21 tion for economically equivalent instruments and re22 quire the development of consistent procedures for 

23 reviewing and approving proposals for new products 

24 and rulemakings by self-regulatory organizations. 

25 (3) INFORMATION FACILITATION.—The Office 

26 shall facilitate the exchange of information related to 


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1 the development of derivatives regulations described 

2 in paragraph (1) between— 

3 (A) the Securities and Exchange Commis4 sion; 

5 (B) the Commodity Futures Trading Com6 mission; 

7 (C) the Office of the Comptroller of the 

8 Currency; 

9 (D) the Office of Thrift Supervision; 

10 (E) the Federal Reserve System; and 

11 (F) such other Federal agencies or depart12 ments as the Office may prescribe. 

13 (4) DISAPPROVAL POWER OVER DERIVATIVES

14 REGULATIONS.— 

15 (A) IN GENERAL.—If, within 30 days of 

16 the prescription of a rule or regulation with re17 spect to the sale, purchase, exchange, or trade 

18 of derivatives prescribed by the Securities and 

19 Exchange Commission or the Commodity Fu20 tures Trading Commission, the Secretary of the 

21 Treasury, acting through the Office, determines 

22 that such rule or regulation does not harmonize 

23 substantive commodities and securities regula24 tion for economically equivalent instruments be25 tween the Securities and Exchange Commission 


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1 and the Commodity Futures Trading Commis2 sion, such rule or regulation shall not take ef3 fect. 

4 (B) EXCEPTION.—Subparagraph (A) shall 

5 not apply to a rule or regulation if such rule or 

6 regulation is expressly required to be prescribed 

7 by law. 

8 (c) REPORT.—Not later than June 30, 2010, and 

9 each year thereafter, the Office shall transmit a report to 

10 Congress that— 

11 (1) identifies and details the rules promulgated 

12 under this Act; 

13 (2) evaluates the number, percentage, volume or 

14 notional size, and economic exposure of derivative in15 struments that are— 

16 (A) traded on exchanges; 

17 (B) cleared through clearinghouses; and 

18 (C) traded on the over-the-counter market; 

19 and 

20 (3) assesses the effect of changes in mark-to21 market fair value accounting rules, hedge accounting 

22 rules, and other related regulations on the deriva23 tives market. 

24 SEC. 4. REGISTRATION OF DERIVATIVES TRADERS. 

25 (a) UNLAWFUL CONDUCT.— 


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1 (1) IN GENERAL.—It shall be unlawful for any 

2 derivatives trader to make use of the mails or any 

3 means or instrumentality of interstate commerce to 

4 effect any transactions in, or to induce or attempt 

5 to induce the purchase or sale of, any type of deriva6 tive unless such derivatives trader is registered in 

7 accordance with subsection (b). 

8 (2) EXEMPTION.—The Secretary of the Treas9 ury, acting through the Office (referred to in this 

10 section as ‘‘the Secretary’’), by rule or order, after 

11 consultation with the Securities and Exchange Com12 mission and the Commodities Futures Trading Com13 mission, as applicable, may conditionally or uncondi14 tionally exempt from paragraph (1) any derivatives 

15 trader or class of derivatives traders specified in 

16 such rule or order. 

17 (b) REGISTRATION.— 

18 (1) IN GENERAL.—A derivatives trader may be 

19 registered by filing with the Secretary an application 

20 for registration in such form and containing such in21 formation and documents concerning such deriva22 tives trader and any persons associated with such 

23 derivatives trader as the Secretary, by rule, may pre24 scribe as necessary or appropriate in the public in25 terest or for the protection of investors. Within 45 


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1 days of the date of the filing of such application (or 

2 within such longer period as to which the applicant 

3 consents), the Secretary shall— 

4 (A) by order grant registration, or 

5 (B) institute proceedings to determine 

6 whether registration should be denied. 

7 (2) DETERMINATION.—The Secretary shall 

8 grant such registration if the Secretary finds that 

9 the requirements of this section are satisfied. The 

10 Secretary shall deny such registration if the Sec11 retary does not make such a finding or if the Sec12 retary finds that if the applicant were so registered, 

13 its registration would be subject to suspension or 

14 revocation under paragraph (4). If the Secretary in15 stitutes proceedings under paragraph (1)(B), such 

16 proceedings shall include notice of the grounds for 

17 denial under consideration and opportunity for hear18 ing and shall be concluded within 120 days of the 

19 date of the filing of the application for registration. 

20 At the conclusion of such proceedings, the Secretary, 

21 by order, shall grant or deny such registration. The 

22 Secretary may extend the time for conclusion of 

23 such proceedings for up to 90 days if the Secretary 

24 finds good cause for such extension and publishes its 


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1 reasons for so finding or for such longer period as 

2 to which the applicant consents. 

3 (3) APPLICATION.—An application for registra4 tion of a derivatives trader to be formed or orga5 nized may be made by a derivatives trader to which 

6 the derivatives trader to be formed or organized is 

7 to be the successor. Such application, in such form 

8 as the Secretary, by rule, may prescribe, shall con9 tain such information and documents concerning the 

10 applicant, the successor, and any persons associated 

11 with the applicant or the successor, as the Secretary, 

12 by rule, may prescribe as necessary or appropriate 

13 in the public interest or for the protection of inves14 tors. The grant or denial of registration to such an 

15 applicant shall be in accordance with the procedures 

16 set forth in paragraph (1). If the Secretary grants 

17 such registration, the registration shall terminate on 

18 the 45th day after the effective date thereof, unless 

19 prior thereto the successor shall, in accordance with 

20 such rules and regulations as the Secretary may pre21 scribe, adopt the application for registration as its 

22 own. 

23 (4) CENSURE, SUSPENSION, REVOCATION.—The 

24 Secretary, by order, shall censure, place limitations 

25 on the activities, functions, or operations of, suspend 


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1 for a period not exceeding 12 months, or revoke the 

2 registration of any derivatives trader if the Secretary 

3 finds, on the record after notice and opportunity for 

4 hearing, that such censure, placing of limitations, 

5 suspension, or revocation is in the public interest 

6 and that such derivatives trader, whether prior or 

7 subsequent to becoming such, or any person associ8 ated with such derivatives trader, whether prior or 

9 subsequent to becoming so associated— 

10 (A) has willfully made or caused to be 

11 made in any application for registration or re12 port required to be filed with the Secretary 

13 under this Act, or in any proceeding before the 

14 Secretary with respect to registration, any 

15 statement which was at the time and in the 

16 light of the circumstances under which it was 

17 made false or misleading with respect to any 

18 material fact, or has omitted any material fact 

19 which is required to be stated therein; 

20 (B) has been convicted within 10 years 

21 preceding the filing of any application for reg22 istration or at any time thereafter of any felony 

23 or misdemeanor or of a substantially equivalent 

24 crime by a foreign court of competent jurisdic25 tion which the Secretary finds— 


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1 (i) involves the purchase or sale of 

2 any security or derivative, the taking of a 

3 false oath, the making of a false report, 

4 bribery, perjury, burglary, any substan5 tially equivalent activity however denomi6 nated by the laws of the relevant foreign 

7 government, or conspiracy to commit any 

8 such offense; 

9 (ii) arises out of the conduct of the 

10 business of a derivatives trader, broker, 

11 dealer, municipal securities dealer, govern12 ment securities broker, government securi13 ties dealer, investment adviser, bank, in14 surance company, fiduciary, transfer agent, 

15 nationally recognized statistical rating or16 ganization, foreign person performing a 

17 function substantially equivalent to any of 

18 the above, or entity or person required to 

19 be registered under the Commodity Ex20 change Act (7 U.S.C. 1 et seq.) or any 

21 substantially equivalent foreign statute or 

22 regulation; 

23 (iii) involves the larceny, theft, rob24 bery, extortion, forgery, counterfeiting, 

25 fraudulent concealment, embezzlement, 


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1 fraudulent conversion, or misappropriation 

2 of funds, or securities or derivatives, or 

3 substantially equivalent activity however 

4 denominated by the laws of the relevant 

5 foreign government; or 

6 (iv) involves the violation of section 

7 152, 1341, 1342, or 1343 or chapter 25 or 

8 47 of title 18, United States Code, or a 

9 violation of a substantially equivalent for10 eign statute; 

11 (C) is permanently or temporarily enjoined 

12 by order, judgment, or decree of any court of 

13 competent jurisdiction from acting as a deriva14 tives trader, investment adviser, underwriter, 

15 broker, dealer, municipal securities dealer, gov16 ernment securities broker, government securi17 ties dealer, transfer agent, nationally recognized 

18 statistical rating organization, foreign person 

19 performing a function substantially equivalent 

20 to any of the above, or entity or person required 

21 to be registered under the Commodity Ex22 change Act or any substantially equivalent for23 eign statute or regulation, or as an affiliated 

24 person or employee of any investment company, 

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1 stantially equivalent to any of the above, or en2 tity or person required to be registered under 

3 the Commodity Exchange Act or any substan4 tially equivalent foreign statute or regulation or 

5 from engaging in or continuing any conduct or 

6 practice in connection with any such activity, or 

7 in connection with the purchase or sale of any 

8 security or derivative; 

9 (D) has willfully violated any provision of 

10 the securities laws (as such term is defined in 

11 section 3(a)(47) of the Securities Exchange Act 

12 of 1934 (15 U.S.C. 78c(a)(47)), the Commodity 

13 Exchange Act (7 U.S.C. 1a et seq.), any rule or 

14 regulation issued under this Act or under any 

15 of such Acts, or is unable to comply with any 

16 such provision; 

17 (E) has willfully aided, abetted, counseled, 

18 commanded, induced, or procured the violation 

19 by any other person of any provision of the se20 curities laws (as such term is defined in section 

21 3(a)(47) of the Securities Exchange Act of 

22 1934 (15 U.S.C. 78c(a)(47)), the Commodity 

23 Exchange Act (7 U.S.C. 1a et seq.), any rule or 

24 regulation issued under this Act or under any 

25 of such Acts, the rules or regulations under this 


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1 Act or any of such Acts, or has failed reason2 ably to supervise, with a view to preventing vio3 lations of the provisions of such Acts, rules, and 

4 regulations, another person who commits such a 

5 violation, if such other person is subject to his 

6 supervision. For the purposes of this subpara7 graph, no person shall be deemed to have failed 

8 reasonably to supervise any other person, if— 

9 (i) there have been established proce10 dures, and a system for applying such pro11 cedures, which would reasonably be ex12 pected to prevent and detect, insofar as 

13 practicable, any such violation by such 

14 other person; and 

15 (ii) such person has reasonably dis16 charged the duties and obligations incum17 bent upon him by reason of such proce18 dures and system without reasonable cause 

19 to believe that such procedures and system 

20 were not being complied with; 

21 (F) is subject to any order of the Secretary 

22 barring or suspending the right of the person to 

23 be associated with a derivatives trader; 

24 (G) has been found by a foreign financial 

25 regulatory authority to have— 


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1 (i) made or caused to be made in any 

2 application for registration or report re3 quired to be filed with a foreign financial 

4 regulatory authority, or in any proceeding 

5 before a foreign financial regulatory au6 thority with respect to registration, any 

7 statement that was at the time and in the 

8 light of the circumstances under which it 

9 was made false or misleading with respect 

10 to any material fact, or has omitted to 

11 state in any application or report to the 

12 foreign financial regulatory authority any 

13 material fact that is required to be stated 

14 therein; 

15 (ii) violated any foreign statute or 

16 regulation regarding transactions in securi17 ties, or contracts of sale of a commodity 

18 for future delivery, traded on or subject to 

19 the rules of a contract market or any 

20 board of trade; 

21 (iii) aided, abetted, counseled, com22 manded, induced, or procured the violation 

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1 under, empowering a foreign financial reg2 ulatory authority regarding transactions in 

3 securities, or contracts of sale of a com4 modity for future delivery, traded on or 

5 subject to the rules of a contract market or 

6 any board of trade, or has been found, by 

7 a foreign financial regulatory authority, to 

8 have failed reasonably to supervise, with a 

9 view to preventing violations of such statu10 tory provisions, rules, and regulations, an11 other person who commits such a violation, 

12 if such other person is subject to his super13 vision; or 

14 (H) is subject to any final order of a State 

15 securities commission (or any agency or officer 

16 performing like functions), State authority that 

17 supervises or examines banks, savings associa18 tions, or credit unions, State insurance commis19 sion (or any agency or office performing like 

20 functions), an appropriate Federal banking 

21 agency (as defined in section 3 of the Federal 

22 Deposit Insurance Act (12 U.S.C. 1813)), or 

23 the National Credit Union Administration, 

24 that— 


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1 (i) bars such person from association 

2 with an entity regulated by such commis3 sion, authority, agency, or officer, or from 

4 engaging in the business of securities, in5 surance, banking, savings association ac6 tivities, or credit union activities; or 

7 (ii) constitutes a final order based on 

8 violations of any laws or regulations that 

9 prohibit fraudulent, manipulative, or de10 ceptive conduct. 

11 (5) TEMPORARY SUSPENSION.—Pending final 

12 determination whether any registration under this 

13 subsection shall be revoked, the Secretary, by order, 

14 may suspend such registration, if such suspension 

15 appears to the Secretary, after notice and oppor16 tunity for hearing, to be necessary or appropriate in 

17 the public interest or for the protection of investors. 

18 Any registered derivatives trader may, upon such 

19 terms and conditions as the Secretary deems nec20 essary or appropriate in the public interest or for 

21 the protection of investors, withdraw from registra22 tion by filing a written notice of withdrawal with the 

23 Secretary. If the Secretary finds that any registered 

24 derivatives trader is no longer in existence or has 

25 ceased to do business as a derivatives trader, the 


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1 Secretary, by order, shall cancel the registration of 

2 such derivatives trader. 

3 (6) STANDARDS OF COMPETENCE.—No reg4 istered derivatives trader shall act as such unless it 

5 meets such standards of operational capability and 

6 such derivatives trader and all natural persons asso7 ciated with such derivatives trader meet such stand8 ards of training, experience, competence, and such 

9 other qualifications as the Secretary finds necessary 

10 or appropriate in the public interest or for the pro11 tection of investors. The Secretary shall establish 

12 such standards by rules and regulations, which 

13 may— 

14 (A) specify that all or any portion of such 

15 standards shall be applicable to any class of de16 rivatives traders and persons associated with 

17 derivatives traders; 

18 (B) require persons in any such class to 

19 pass tests prescribed in accordance with such 

20 rules and regulations, which tests shall, with re21 spect to any class of partners, officers, or su22 pervisory employees (which latter term may be 

23 defined by the Secretary’s rules and regula24 tions) engaged in the management of the de25 rivatives trader, include questions relating to 


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1 bookkeeping, accounting, supervision of employ2 ees, maintenance of records, and other appro3 priate matters; and 

4 (C) provide that persons in any such class 

5 other than derivatives traders and partners, of6 ficers, and supervisory employees of derivatives 

7 traders, may be qualified solely on the basis of 

8 compliance with such standards of training and 

9 such other qualifications as the Secretary finds 

10 appropriate. 

11 The Secretary, by rule, may prescribe reasonable 

12 fees and charges to defray its costs in carrying out 

13 this paragraph, including, but not limited to, fees for 

14 any test administered by the Secretary or under its 

15 direction. 

16 (c) ADDITIONAL PROHIBITIONS.— 

17 (1) FRAUDULENT, DECEPTIVE, OR MANIPULA18 TIVE ACTS OR PRACTICES.—(A) No derivatives trad19 er shall make use of the mails or any means or in20 strumentality of interstate commerce in connection 

21 with which such derivatives trader engages in any 

22 fraudulent, deceptive, or manipulative act or practice 

23 or violates such rules and regulations regarding con24 flicts of interest or fair practices, including but not 

25 limited to rules and regulations related to political 


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1 contributions, as the Secretary shall prescribe in the 

2 public interest or for the protection of investors or 

3 to maintain fair and orderly markets. 

4 (B) The Secretary shall, for the purposes of 

5 this paragraph as the Secretary finds necessary or 

6 appropriate in the public interest or for the protec7 tion of investors, by rules and regulations define, 

8 and prescribe means reasonably designed to prevent, 

9 such acts and practices as are fraudulent, deceptive, 

10 or manipulative. 

11 (2) ENFORCEMENT.—If the Secretary finds, 

12 after notice and opportunity for a hearing, that any 

13 person subject to the provisions of this section or 

14 any rule or regulation thereunder has failed to com15 ply with any such provision, rule, or regulation in 

16 any material respect, the Secretary may publish its 

17 findings and issue an order requiring such person, 

18 and any person who was a cause of the failure to 

19 comply due to an act or omission the person knew 

20 or should have known would contribute to the failure 

21 to comply, to comply, or to take steps to effect com22 pliance, with such provision or such rule or regula23 tion thereunder upon such terms and conditions and 

24 within such time as the Secretary may specify in 

25 such order. 


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1 (d) POLICIES AND PROCEDURES.—Every registered 

2 derivatives trader shall establish, maintain, and enforce 

3 written policies and procedures reasonably designed, tak4 ing into consideration the nature of such derivatives trad5 er’s business, to prevent the misuse in violation of this 

6 Act, or the rules or regulations thereunder, of material, 

7 nonpublic information by such derivatives trader or any 

8 person associated with such derivatives trader. The Sec9 retary, as the Secretary deems necessary or appropriate 

10 in the public interest or for the protection of investors, 

11 shall adopt rules or regulations to require specific policies 

12 or procedures reasonably designed to prevent misuse in 

13 violation of this Act (or the rules or regulations there14 under) of material, nonpublic information. 

15 SEC. 5. RULEMAKING AUTHORITY RELATED TO DERIVA16 TIVES. 

17 (a) ISSUANCE OF PROPOSED REGULATIONS.—Not 

18 later than 120 days after the date of the enactment of 

19 this Act, the Commodity Futures Trading Commission 

20 and the Securities and Exchange Commission shall each 

21 issue separate proposed regulations imposing the following 

22 kinds of requirements with respect to trading in the deriv23 ative instruments over which each Commission has juris24 diction as of such date of enactment: 


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1 (1) Requirements governing the disclosure to 

2 the respective Commission of information about the 

3 positions and trading in the instruments, and trans4 parency, including an audit trail of the record of 

5 trading information identifying, for the derivatives 

6 traders participating in each transaction, the firms 

7 clearing the trade, the terms and time or sequence 

8 of the trade, the order receipt and execution time, 

9 as applicable and, ultimately, and as applicable, the 

10 customers involved. 

11 (2) Anti-fraud and truth-in-marketing require12 ments. 

13 (3) Mandatory minimum initial margin require14 ments. 

15 (4) Mandatory minimum variation margin re16 quirements. 

17 (5) Acceptable or permissible types of collateral. 

18 (b) FACTORS TO BE CONSIDERED.—The proposed 

19 regulations that impose the requirements referred to in 

20 paragraphs (3) through (5) of subsection (a) with respect 

21 to trading in a derivative shall be based on an evaluation 

22 of the following: 

23 (1) The potential systemic risk posed by the 

24 sale, purchase, exchange, or trade of the derivative, 


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1 determined after reviewing whether the trade is 

2 being made by a major market participant. 

3 (2) The extent to which the instrument has 

4 been customized, determined after reviewing the fol5 lowing: 

6 (A) The volume of transactions involving 

7 the derivative. 

8 (B) The similarity of the terms of the de9 rivative to the terms in derivatives that are 

10 more standardized in the industry. 

11 (C) Whether the differences between the 

12 terms of the derivative and the terms of such 

13 standardized derivatives are of economic signifi14 cance. 

15 (D) The extent to which any of the terms 

16 in the derivative are disseminated to third par17 ties. 

18 (c) FINAL REGULATIONS.—Within 180 days after 

19 the date of the enactment of this Act, the Commodity Fu20 tures Trading Commission and the Securities and Ex21 change Commission shall each promulgate in final form, 

22 with the approval of the Secretary, the regulations devel23 oped under this section. 


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1 SEC. 6. REGULATIONS REGARDING THE TRADING AND 

2 CLEARING OF DERIVATIVES. 

3 (a) IN GENERAL.—The Securities and Exchange 

4 Commission and the Commodities Futures Trading Com5 mission shall jointly determine, in coordination with the 

6 Office, which derivatives or class of derivatives shall be— 

7 (1) required to be traded on an exchange; 

8 (2) required to be cleared through a clearing9 house; and 

10 (3) permitted to be traded through the over-the11 counter market. 

12 (b) GUIDELINES.—Such determinations shall be 

13 made in accordance with the following guidelines: 

14 (1) All standardized derivatives shall be per15 mitted to be traded on an exchange, including those 

16 derivatives excluded or exempt from such trading on 

17 Organized Exchanges under the Commodities and 

18 Exchange Act. 

19 (2) Standardized derivatives sold, purchased, 

20 traded, or exchanged between major market partici21 pants shall be cleared through clearinghouses. 

22 (3) Derivatives that continue to be traded in 

23 the over-the-counter market that are not cleared 

24 through a clearinghouse shall be processed through 

25 an over-the-counter derivatives trade depository. 


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1 (c) UNIFORM REGULATIONS.—Regardless of whether 

2 a transaction is made on an exchange, through a clearing3 house, or through the over-the-counter market, all trades 

4 shall be subject to the disclosure, transparency, anti-fraud, 

5 truth-in-marketing, and reporting requirements set jointly 

6 by the Securities and Exchange Commission, the Com7 modities Futures Trading Commission, and the Office. 

8 (d) ADDITIONAL REQUIREMENTS.—Regulations 

9 issued under this section shall require that— 

10 (1) derivatives that are not traded on exchanges 

11 or cleared through clearinghouses and are made by 

12 major market participants be subject to higher total 

13 capital requirements (either through higher initial 

14 margin, higher variation margin, or other higher col15 lateral positions) than those derivatives traded on 

16 exchanges or through clearinghouses; and 

17 (2) derivatives that are sold, purchased, traded, 

18 or exchanged between a major market participant 

19 and a non-major market participant that is able to 

20 borrow funds in the debt markets on an 

21 uncollateralized basis, or is able to obtain other 

22 sources of credit without posting cash or cash 

23 equivalents to secure funds borrowed, shall be per24 mitted to be sold, purchased, traded, or exchanged 


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1 with limited or no required initial margin, variation 

2 margin or other capital or collateral positions. 

3 (e) SUBSEQUENT DETERMINATIONS.—Nothing in 

4 this Act shall prevent the Securities and Exchange Com5 mission, the Commodities Futures Trading Commission, 

6 or the Office from making a subsequent determination, or 

7 amendment of, an initial determination of which class of 

8 derivatives may be traded on an exchange, cleared through 

9 a clearinghouse, or permitted to be traded through the 

10 over-the-counter market. 

11 (f) REPORT.—Not later than 45 days following the 

12 date of enactment of this Act, the Securities and Ex13 change Commission and the Commodities Futures Trad14 ing Commission shall jointly prepare and transmit a re15 port to Congress that identifies all conflicts in statutes 

16 and regulations with respect to similar types of financial 

17 instruments and either explains why those differences are 

18 essential to achieve underlying policy objectives with re19 spect to investor protection, market integrity, and price 

20 transparency or makes recommendations for changes to 

21 statutes and regulations that would eliminate the dif22 ferences. 

23 SEC. 7. CIVIL PENALTY AUTHORITY OF THE SEC AND CFTC. 

24 (a) AUTHORITY TO ASSESS CIVIL PENALTIES.—The 

25 Securities and Exchange Commission or the Commodity 


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1 Futures Trading Commission, as appropriate, may impose 

2 a civil penalty on any person over which each respective 

3 Commission has jurisdiction under this Act and the regu4 lations issued under this Act, if it finds, on the record 

5 after notice and opportunity for hearing, that such per6 son— 

7 (1) has violated any requirement of this Act 

8 and the regulations issued under this Act with re9 spect to derivatives trading, 

10 (2) has willfully aided, abetted, counseled, com11 manded, induced, or procured such a violation by 

12 any other person, 

13 (3) has willfully made or caused to be made in 

14 any application for registration or report required to 

15 be filed with the Office or with each respective Com16 mission, or 

17 (4) has failed reasonably to supervise another 

18 person who commits such a violation, if such other 

19 person is subject to such supervision, 

20 and that such penalty is in the public interest. 

21 (b) MAXIMUM AMOUNT OF PENALTY.— 

22 (1) FIRST TIER.—The maximum amount of 

23 penalty for each act or omission described in sub24 section (a) of this section shall be $15,000 for a nat25 ural person or $150,000 for any other person. 


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1 (2) SECOND TIER.—Notwithstanding paragraph 

2 (1), the maximum amount of penalty for each such 

3 act or omission shall be $150,000 for a natural per4 son or $750,000 for any other person if the act or 

5 omission described in subsection (a) of this section 

6 involved fraud, deceit, manipulation, or deliberate or 

7 reckless disregard of a regulatory requirement. 

8 (3) THIRD TIER.—Notwithstanding paragraphs 

9 (1) and (2), the maximum amount of penalty for 

10 each such act or omission shall be $300,000 for a 

11 natural person or $1,500,000 for any other person 

12 if— 

13 (A) the act or omission described in sub14 section (a) of this section involved fraud, deceit, 

15 manipulation, or deliberate or reckless dis16 regard of a regulatory requirement; and 

17 (B) such act or omission directly or indi18 rectly resulted in substantial losses or created a 

19 significant risk of substantial losses to other 

20 persons or resulted in substantial pecuniary 

21 gain to the person who committed the act or 

22 omission. 

23 (c) DETERMINATION OF PUBLIC INTEREST.—In con24 sidering under this section whether a penalty is in the pub25 lic interest, the appropriate Commission may consider— 


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1 (1) whether the act or omission for which such 

2 penalty is assessed involved fraud, deceit, manipula3 tion, or deliberate or reckless disregard of a regu4 latory requirement; 

5 (2) the harm to other persons resulting either 

6 directly or indirectly from such act or omission; 

7 (3) the extent to which any person was unjustly 

8 enriched, taking into account any restitution made 

9 to persons injured by such behavior; 

10 (4) whether such person previously has been 

11 found by the appropriate Commission to have vio12 lated any provision of the Federal securities laws, 

13 State securities laws, or the Commodities Futures 

14 Trading Act, has been enjoined by a court of com15 petent jurisdiction from violations of such laws or 

16 rules, or has been convicted by a court of competent 

17 jurisdiction of violations of such laws; 

18 (5) the need to deter such person and other 

19 persons from committing such acts or omissions; 

20 and 

21 (6) such other matters as justice may require. 

22 (d) EVIDENCE CONCERNING ABILITY TO PAY.—In 

23 any proceeding in which a Commission may impose a pen24 alty under this section, a respondent may present evidence 

25 of the respondent’s ability to pay such penalty. The approVerDate Nov 24 2008 05:54 Jul 23, 2009 Jkt 079200 PO 00000 Frm 00031 Fmt 6652 Sfmt 6201 E:\BILLS\H3300.IH H3300

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1 priate Commission may, in its discretion, consider such 

2 evidence in determining whether such penalty is in the 

3 public interest. Such evidence may relate to the extent of 

4 such person’s ability to continue in business and the col5 lectability of a penalty, taking into account any other 

6 claims of the United States or third parties upon such per7 son’s assets and the amount of such person’s assets. 

8 (e) AUTHORITY TO ENTER ORDER REQUIRING AC9 COUNTING AND DISGORGEMENT.—In any proceeding in 

10 which a Commission may impose a penalty under this sec11 tion, the appropriate Commission may enter an order re12 quiring accounting and disgorgement, including reason13 able interest. Each Commission is authorized to adopt 

14 rules, regulations, and orders concerning payments to in15 vestors, rates of interest, periods of accrual, and such 

16 other matters with respect to those derivatives over which 

17 each respective Commission has jurisdiction under this 

18 Act and the regulations issued under this Act, as the ap19 propriate Commission deems appropriate to implement 

20 this subsection. 

21 SEC. 8. CEASE-AND-DESIST PROCEEDINGS. 

22 (a) AUTHORITY OF COMMISSION.—If the Securities 

23 and Exchange Commission or the Commodity Futures 

24 Trading Commission, as appropriate, finds that any per25 son over which each respective Commission has jurisdicVerDate Nov 24 2008 05:54 Jul 23, 2009 Jkt 079200 PO 00000 Frm 00032 Fmt 6652 Sfmt 6201 E:\BILLS\H3300.IH H3300

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1 tion under this Act is violating, has violated, or is about 

2 to violate any provision of this Act, or any rule or regula3 tion thereunder, the appropriate Commission may publish 

4 its findings and enter an order requiring such person, and 

5 any other person that is, was, or would be a cause of the 

6 violation, due to an act or omission the person knew or 

7 should have known would contribute to such violation, to 

8 cease and desist from committing or causing such violation 

9 and any future violation of the same provision, rule, or 

10 regulation. Such order may, in addition to requiring a per11 son to cease and desist from committing or causing a vio12 lation, require such person to comply, or to take steps to 

13 effect compliance, with such provision, rule, or regulation, 

14 upon such terms and conditions and within such time as 

15 the appropriate Commission may specify in such order. 

16 Any such order may, as such Commission deems appro17 priate, require future compliance or steps to effect future 

18 compliance, either permanently or for such period of time 

19 as such Commission may specify, with such provision, 

20 rule, or regulation with respect to any security, any issuer, 

21 or any other person. 

22 (b) HEARING.—The notice instituting proceedings 

23 pursuant to subsection (a) shall fix a hearing date not ear24 lier than 30 days not later than 60 days after service of 

25 the notice unless an earlier or a later date is set by the 


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1 appropriate Commission with the consent of any respond2 ent so served. 

3 (c) TEMPORARY ORDER.—Whenever the appropriate 

4 Commission determines that the alleged violation or 

5 threatened violation specified in the notice instituting pro6 ceedings pursuant to subsection (a) is likely to result in 

7 significant dissipation or conversion of assets, significant 

8 harm to investors, or substantial harm to the public inter9 est, such Commission may enter a temporary order requir10 ing the respondent to cease and desist from the violation 

11 or threatened violation and to take such action to prevent 

12 the violation or threatened violation and to prevent dis13 sipation or conversion of assets, significant harm to inves14 tors, or substantial harm to the public interest as such 

15 Commission deems appropriate pending completion of 

16 such proceedings. Such an order shall be entered only 

17 after notice and opportunity for a hearing, unless the 

18 Commission determines that notice and hearing prior to 

19 entry would be impracticable or contrary to the public in20 terest. A temporary order shall become effective upon 

21 service upon the respondent and, unless set aside, limited, 

22 or suspended by the appropriate Commission or a court 

23 of competent jurisdiction, shall remain effective and en24 forceable pending the completion of the proceedings. 

25 (d) REVIEW OF TEMPORARY ORDERS.— 


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1 (1) COMMISSION REVIEW.—At any time after 

2 the respondent has been served with a temporary 

3 cease-and-desist order pursuant to subsection (c), 

4 the respondent may apply to the Commission serving 

5 the order to have the order set aside, limited, or sus6 pended. If the respondent has been served with a 

7 temporary cease-and-desist order entered without a 

8 prior Commission hearing, the respondent may, 

9 within 10 days after the date on which the order 

10 was served, request a hearing on such application 

11 and such Commission shall hold a hearing and 

12 render a decision on such application at the earliest 

13 possible time. 

14 (2) JUDICIAL REVIEW.—Within— 

15 (A) 10 days after the date the respondent 

16 was served with a temporary cease-and-desist 

17 order entered with a prior Commission hearing, 

18 or 

19 (B) 10 days after the Commission renders 

20 a decision on an application and hearing under 

21 paragraph (1), with respect to any temporary 

22 cease-and-desist order entered without a prior 

23 Commission hearing, 

24 the respondent may apply to the United States dis25 trict court for the district in which the respondent 


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1 resides or has its principal place of business, or for 

2 the District of Columbia, for an order setting aside, 

3 limiting, or suspending the effectiveness or enforce4 ment of the order, and the court shall have jurisdic5 tion to enter such an order. A respondent served 

6 with a temporary cease-and-desist order entered 

7 without a prior Commission hearing may not apply 

8 to the court except after hearing and decision by the 

9 Commission on the respondent’s application under 

10 paragraph (1). 

11 (3) NO AUTOMATIC STAY OF TEMPORARY

12 ORDER.—The commencement of proceedings under 

13 paragraph (2) shall not, unless specifically ordered 

14 by the court, operate as a stay of the Commission’s 

15 order. 

16 (e) AUTHORITY TO ENTER ORDER REQUIRING AC17 COUNTING AND DISGORGEMENT.—In any cease-and-desist 

18 proceeding under subsection (a), the Commission may 

19 enter an order requiring accounting and disgorgement, in20 cluding reasonable interest. Each Commission is author21 ized to adopt rules, regulations, and orders concerning 

22 payments to investors, rates of interest, periods of accrual, 

23 and such other matters as it deems appropriate to imple24 ment this subsection. 


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1 SEC. 9. EXPEDITED RULEMAKING PROCEDURES. 

2 The Office, the Commodities Futures Trading Com3 mission, and the Securities and Exchange Commission 

4 may issue the rules required under this Act through expe5 dited rulemaking procedures. 

6 SEC. 10. WORKING GROUP OF INTERNATIONAL REGU7 LATORS. 

8 (a) IN GENERAL.—Not later than 90 days after the 

9 date of the enactment of this Act, the Office shall invite 

10 representatives of the Securities and Exchange Commis11 sion, the Commodity Futures Trading Commission, regu12 lators of domestic and foreign boards of trade, and other 

13 experts, to participate in a working group of international 

14 regulators to review international reporting and regulatory 

15 standards to evaluate international regulations regarding 

16 the harmonization of substantive commodities and securi17 ties regulation for economically equivalent instruments. 

18 (b) REPRESENTATION OF THE UNITED STATES.— 

19 The representation of the United States in discussions 

20 among and negotiations with other nations relating to the 

21 international regulation of derivatives shall be composed 

22 of the following: 

23 (1) One individual appointed by the Secretary 

24 of the Treasury acting through the Office. 

25 (2) One individual appointed by the Chairman 

26 of the Securities and Exchange Commission. 


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1 (3) One individual appointed by the Chairman 

2 of the Commodity Futures Trading Commission. 

3 SEC. 11. AUTHORIZATION OF APPROPRIATIONS. 

4 There is authorized to be appropriated to each of the 

5 Secretary of the Treasury, the Commodities Futures 

6 Trading Commission, and the Securities and Exchange 

7 Commission, such sums as may be necessary to carry out 

8 this Act. 

Æ 


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