106TH CONGRESS
2D SESSION
H. R. 4541
AN ACT
To reauthorize and amend the Commodity Exchange Act
to promote legal certainty, enhance competition, and re-
duce systemic risk in markets for futures and over-the-
counter derivatives, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Commodity Futures Modernization Act of 2000’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Purposes.
TITLE I—COMMODITY FUTURES MODERNIZATION
Sec. 101. Definitions.
Sec. 102. Agreements, contracts, and transactions in foreign currency, govern-
ment securities, and certain other commodities.
Sec. 103. Legal certainty for excluded derivative transactions.
Sec. 104. Excluded electronic trading facilities.
Sec. 105. Hybrid instruments.
Sec. 106. Transactions in exempt commodities.
Sec. 107. Swap transactions.
Sec. 108. Application of commodity futures laws.
Sec. 109. Protection of the public interest.
Sec. 110. Prohibited transactions.
Sec. 111. Designation of boards of trade as contract markets.
Sec. 112. Derivatives transaction execution facilities.
Sec. 113. Derivatives clearing.
Sec. 114. Common provisions applicable to registered entities.
Sec. 115. Exempt boards of trade.
Sec. 116. Suspension or revocation of designation as contract market.
Sec. 117. Authorization of appropriations.
Sec. 118. Preemption.
Sec. 119. Predispute resolution agreements for institutional customers.
Sec. 120. Consideration of costs and benefits and antitrust laws.
Sec. 121. Contract enforcement between eligible counterparties.
Sec. 122. Special procedures to encourage and facilitate bona fide hedging by
agricultural producers.
Sec. 123. Rule of construction.
Sec. 124. Technical and conforming amendments.
Sec. 125. Privacy.
Sec. 126. Report to Congress.
Sec. 127. International activities of the Commodity Futures Trading Commis-
sion.
Sec. 128. Rules of construction.
TITLE II—COORDINATED REGULATION OF SECURITY FUTURES
PRODUCTS
Subtitle A—Securities Law Amendments
Sec. 201. Definitions under the Securities Exchange Act of 1934.
Sec. 202. Regulatory relief for markets trading security futures products.
Sec. 203. Regulatory relief for intermediaries trading security futures products.
Sec. 204. Special provisions for interagency cooperation.
Sec. 205. Maintenance of market integrity for security futures products.
Sec. 206. Special provisions for the trading of security futures products.
Sec. 207. Clearance and settlement.
Sec. 208. Amendments relating to registration and disclosure issues under the
Securities Act of 1933 and the Securities Exchange Act of
1934.
Sec. 209. Amendments to the Investment Company Act of 1940 and the Invest-
ment Advisers Act of 1940.
Sec. 210. Preemption of State laws.
Subtitle B—Amendments to the Commodity Exchange Act
Sec. 221. Jurisdiction of Securities and Exchange Commission; other provi-
sions.
Sec. 222. Application of the Commodity Exchange Act to national securities ex-
changes and national securities associations that trade security
futures.
Sec. 223. Notification of investigations and enforcement actions.
SEC. 2. PURPOSES.
The purposes of this Act are—
(1) to reauthorize the appropriation for the
Commodity Futures Trading Commission;
(2) to streamline and eliminate unnecessary
regulation for the commodity futures exchanges and
other entities regulated under the Commodity Ex-
change Act;
(3) to transform the role of the Commodity Fu-
tures Trading Commission to oversight of the fu-
tures markets;
(4) to provide a statutory and regulatory frame-
work for allowing the trading of futures on securi-
ties;
(5) to clarify the jurisdiction of the Commodity
Futures Trading Commission over certain retail for-
eign exchange transactions and bucket shops that
may not be otherwise regulated;
(6) to promote innovation for futures and de-
rivatives and to reduce systemic risk by enhancing
legal certainty in the markets for certain futures and
derivatives transactions;
(7) to reduce systemic risk and provide greater
stability to markets during times of market disorder
by allowing the clearing of transactions in over-the-
counter derivatives through appropriately regulated
clearing organizations; and
(8) to enhance the competitive position of
United States financial institutions and financial
markets.
TITLE I—COMMODITY FUTURES
MODERNIZATION
SEC. 101. DEFINITIONS.
Section 1a of the Commodity Exchange Act (7 U.S.C.
1a) is amended—
(1) by redesignating paragraphs (1) through
(7), (8) through (12), (13), (14), (15), and (16) as
paragraphs (2) through (8), (16) through (20), (22),
(23), (24), and (28), respectively;
(2) by inserting before paragraph (2) (as redes-
ignated by paragraph (1)) the following:
‘‘(1) ALTERNATIVE
TRADING
SYSTEM.—The
term ‘alternative trading system’ means an organiza-
tion, association, or group of persons that—
‘‘(A) is registered as a broker or dealer
pursuant to section 15(b) of the Securities Ex-
change Act of 1934 (except paragraph (11)
thereof);
‘‘(B) performs the functions commonly
performed by an exchange (as defined in section
3(a)(1) of the Securities Exchange Act of
1934);
‘‘(C) does not—
‘‘(i) set rules governing the conduct of
subscribers other than the conduct of such
subscribers’ trading on the alternative
trading system; or
‘‘(ii) discipline subscribers other than
by exclusion from trading; and
‘‘(D) is exempt from the definition of the
term ‘exchange’ under such section 3(a)(1) by
rule or regulation of the Securities and Ex-
change Commission on terms that require com-
pliance with regulations of its trading func-
tions.’’;
(3) by striking paragraph (2) (as redesignated
by paragraph (1)) and inserting the following:
‘‘(2) BOARD OF TRADE.—The term ‘board of
trade’ means any organized exchange or other trad-
ing facility.’’;
(4) by inserting after paragraph (8) the fol-
lowing:
‘‘(9) DERIVATIVES CLEARING ORGANIZATION.—
‘‘(A) IN GENERAL.—The term ‘derivatives
clearing organization’ means a clearinghouse,
clearing association, clearing corporation, or
similar entity, facility, system, or organization
that, with respect to an agreement, contract, or
transaction—
‘‘(i) enables each party to the agree-
ment, contract, or transaction to sub-
stitute, through novation or otherwise, the
credit of the derivatives clearing organiza-
tion for the credit of the parties;
‘‘(ii) arranges or provides, on a multi-
lateral basis, for the settlement or netting
of obligations resulting from such agree-
ments, contracts, or transactions executed
by participants in the derivatives clearing
organization; or
‘‘(iii) otherwise provides clearing serv-
ices or arrangements that mutualize or
transfer among participants in the deriva-
tives clearing organization the credit risk
arising from such agreements, contracts,
or transactions executed by the partici-
pants.
‘‘(B) EXCLUSIONS.—The term ‘derivatives
clearing organization’ does not include an enti-
ty, facility, system, or organization solely be-
cause it arranges or provides for—
‘‘(i) settlement, netting, or novation of
obligations resulting from agreements, con-
tracts, or transactions, on a bilateral basis
and without a central counterparty;
‘‘(ii) settlement or netting of cash
payments through an interbank payment
system; or
‘‘(iii) settlement, netting, or novation
of obligations resulting from a sale of a
commodity in a transaction in the spot
market for the commodity.
‘‘(10) ELECTRONIC
TRADING
FACILITY.—The
term ‘electronic trading facility’ means a trading fa-
cility that—
‘‘(A) operates by means of an electronic or
telecommunications network; and
‘‘(B) maintains an automated audit trail of
bids, offers, and the matching of orders or the
execution of transactions on the facility.
‘‘(11) ELIGIBLE
COMMERCIAL
ENTITY.—The
term ‘eligible commercial entity’ means, with respect
to an agreement, contract or transaction in a
commodity—
‘‘(A) an eligible contract participant de-
scribed in clause (i), (ii), (v), (vii), (viii), or (ix)
of paragraph (12)(A) that, in connection with
its business—
‘‘(i) has a demonstrable ability, di-
rectly or through separate contractual ar-
rangements, to make or take delivery of
the underlying commodity;
‘‘(ii) incurs risks, in addition to price
risk, related to the commodity; or
‘‘(iii) is a dealer that regularly pro-
vides risk management or hedging services
to, or engages in market-making activities
with, the foregoing entities involving trans-
actions to purchase or sell the commodity
or derivative agreements, contracts, or
transactions in the commodity;
‘‘(B) an eligible contract participant, other
than a natural person or an instrumentality, de-
partment, or agency of a State or local govern-
mental entity, that—
‘‘(i) regularly enters into transactions
to purchase or sell the commodity or deriv-
ative agreements, contracts, or trans-
actions in the commodity; and
‘‘(ii) either—
‘‘(I) in the case of a collective in-
vestment vehicle whose participants
include persons other than—
‘‘(aa) qualified eligible per-
sons, as defined in Commission
rule 4.7(a) (17 C.F.R. 4.7(a));
‘‘(bb) accredited investors,
as defined in Regulation D of Se-
curities and Exchange Commis-
sion under the Securities Act of
1933 (17 C.F.R. 230.501(a)),
with total assets of $2,000,000;
or
‘‘(cc) qualified purchasers,
as defined in section 2(a)(51)(A)
of the Investment Company Act
of 1940;
in each case as in effect on the date
of the enactment of the Commodity
Futures Modernization Act of 2000,
has, or is one of a group of vehicles
under common control or management
having 
in 
the 
aggregate,
$1,000,000,000 in total assets; or
‘‘(II) in the case of other per-
sons, has, or is one of a group of per-
sons under common control or man-
agement having in the aggregate,
$100,000,000 in total assets; or
‘‘(C) such other persons as the Commis-
sion shall determine appropriate and shall des-
ignate by rule, regulation, or order.
‘‘(12) ELIGIBLE CONTRACT PARTICIPANT.—The
term ‘eligible contract participant’ means—
‘‘(A) acting for its own account—
‘‘(i) a financial institution;
‘‘(ii) an insurance company that is
regulated by a State, or that is regulated
by a foreign government and is subject to
comparable regulation as determined by
the Commission, including a regulated sub-
sidiary or affiliate of such an insurance
company;
‘‘(iii) an investment company subject
to regulation under the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–1 et
seq.) or a foreign person performing a
similar role or function subject as such to
foreign regulation (regardless of whether
each investor in the investment company or
the foreign person is itself an eligible con-
tract participant);
‘‘(iv) a commodity pool that—
‘‘(I) has total assets exceeding
$5,000,000; and
‘‘(II) is formed and operated by a
person subject to regulation under
this Act or a foreign person per-
forming a similar role or function sub-
ject as such to foreign regulation (re-
gardless of whether each investor in
the commodity pool or the foreign per-
son is itself an eligible contract partic-
ipant);
‘‘(v) a corporation, partnership, pro-
prietorship, organization, trust, or other
entity—
‘‘(I) that has total assets exceed-
ing $10,000,000;
‘‘(II) the obligations of which
under an agreement, contract, or
transaction are guaranteed or other-
wise supported by a letter of credit or
keepwell, support, or other agreement
by an entity described in subclause
(I), in clause (i), (ii), (iii), (iv), or
(vii), or in subparagraph (C); or
‘‘(III) that—
‘‘(aa) has a net worth ex-
ceeding $1,000,000; and
‘‘(bb) enters into an agree-
ment, contract, or transaction in
connection with the conduct of
the entity’s business or to man-
age the risk associated with an
asset or liability owned or in-
curred or reasonably likely to be
owned or incurred by the entity
in the conduct of the entity’s
business;
‘‘(vi) an employee benefit plan subject
to the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1001 et seq.),
a governmental employee benefit plan, or a
foreign person performing a similar role or
function 
subject 
as 
such 
to 
foreign
regulation—
‘‘(I) that has total assets exceed-
ing $5,000,000; or
‘‘(II) the investment decisions of
which are made by—
‘‘(aa) an investment adviser
or commodity trading advisor
subject to regulation under the
Investment Advisers Act of 1940
(15 U.S.C. 80b–1 et seq.) or this
Act;
‘‘(bb) a foreign person per-
forming a similar role or function
subject as such to foreign regula-
tion;
‘‘(cc) a financial institution;
or
‘‘(dd) an insurance company
described in clause (ii), or a reg-
ulated subsidiary or affiliate of
such an insurance company;
‘‘(vii)(I) a governmental entity (in-
cluding the United States, a State, or a
foreign government) or political subdivision
of a governmental entity;
‘‘(II) a multinational or supranational
government entity; or
‘‘(III) an instrumentality, agency, or
department of an entity described in sub-
clause (I) or (II),
except that such term does not include an
entity, instrumentality, agency, or depart-
ment referred to in subclause (I) or (III)
of this clause unless (aa) the entity, instru-
mentality, agency, or department is a per-
son described in clause (i), (ii), or (iii) of
section 1a(11)(A); (bb) the entity, instru-
mentality, agency, or department owns and
invests 
on 
a 
discretionary 
basis
$25,000,000 or more in investments; or
(cc) the agreement, contract, or trans-
action is offered by, and entered into with,
an entity that is listed in any of subclauses
(I) through (VI) of section 2(c)(2)(B)(ii);
‘‘(viii)(I) a broker or dealer subject to
regulation under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.) or a
foreign person performing a similar role or
function subject as such to foreign regula-
tion, except that, if the broker or dealer or
foreign person is a natural person or pro-
prietorship, the broker or dealer or foreign
person shall not be considered to be an eli-
gible contract participant unless the broker
or dealer or foreign person also meets the
requirements of clause (v) or (xi);
‘‘(II) an associated person of a reg-
istered broker or dealer concerning the fi-
nancial or securities activities of which the
registered person makes and keeps records
under section 15C(b) or 17(h) of the Secu-
rities Exchange Act of 1934 (15 U.S.C.
78o–5(b), 78q(h));
‘‘(III) an investment bank holding
company (as defined in section 17(i) of the
Securities Exchange Act of 1934 (15
U.S.C. 78q(i));
‘‘(ix) a futures commission merchant
subject to regulation under this Act or a
foreign person performing a similar role or
function subject as such to foreign regula-
tion, except that, if the futures commission
merchant or foreign person is a natural
person or proprietorship, the futures com-
mission merchant or foreign person shall
not be considered to be an eligible contract
participant unless the futures commission
merchant or foreign person also meets the
requirements of clause (v) or (xi);
‘‘(x) a floor broker or floor trader sub-
ject to regulation under this Act in connec-
tion with any transaction that takes place
on or through the facilities of a registered
entity or an exempt board of trade, or any
affiliate thereof, on which such person reg-
ularly trades; or
‘‘(xi) an individual who has total as-
sets in an amount in excess of—
‘‘(I) $10,000,000; or
‘‘(II) $5,000,000 and who enters
into the agreement, contract, or trans-
action in order to manage the risk as-
sociated with an asset owned or liabil-
ity incurred, or reasonably likely to be
owned or incurred, by the individual;
‘‘(B)(i) a person described in clause (i),
(ii), (iv), (v), (viii), (ix), or (x) of subparagraph
(A) or in subparagraph (C), acting as broker or
performing an equivalent agency function on
behalf of another person described in subpara-
graph (A) or (C); or
‘‘(ii) an investment adviser subject to regu-
lation under the Investment Advisers Act of
1940, a commodity trading advisor subject to
regulation under this Act, a foreign person per-
forming a similar role or function subject as
such to foreign regulation, or a person de-
scribed in clause (i), (ii), (iv), (v), (viii), (ix), or
(x) of subparagraph (A) or in subparagraph
(C), in any such case acting as investment man-
ager or fiduciary (but excluding a person acting
as broker or performing an equivalent agency
function) for another person described in sub-
paragraph (A) or (C) and who is authorized by
such person to commit such person to the
transaction; or
‘‘(C) any other person that the Commis-
sion determines to be eligible in light of the fi-
nancial or other qualifications of the person.
‘‘(13) EXCLUDED COMMODITY.—The term ‘ex-
cluded commodity’ means—
‘‘(i) an interest rate, exchange rate,
currency, security, security index, credit
risk or measure, debt or equity instrument,
index or measure of inflation, or other
macroeconomic index or measure;
‘‘(ii) any other rate, differential,
index, or measure of economic or commer-
cial risk, return, or value that is—
‘‘(I) not based in substantial part
on the value of a narrow group of
commodities not described in clause
(i); or
‘‘(II) based solely on 1 or more
commodities that have no cash mar-
ket;
‘‘(iii) any economic or commercial
index based on prices, rates, values, or lev-
els that are not within the control of any
party to the relevant contract, agreement,
or transaction; or
‘‘(iv) an occurrence, extent of an oc-
currence, or contingency (other than a
change in the price, rate, value, or level of
a commodity not described in clause (i))
that is—
‘‘(I) beyond the control of the
parties to the relevant contract, agree-
ment, or transaction; and
‘‘(II) associated with a financial,
commercial, or economic consequence.
‘‘(14) EXEMPT COMMODITY.—The term ‘exempt
commodity’ means a commodity that is not an ex-
cluded commodity or an agricultural commodity.
‘‘(15) FINANCIAL INSTITUTION.—The term ‘fi-
nancial institution’ means—
‘‘(A) a corporation operating under the
fifth undesignated paragraph of section 25 of
the Federal Reserve Act (12 U.S.C. 603), com-
monly known as ‘an agreement corporation’;
‘‘(B) a corporation organized under section
25A of the Federal Reserve Act (12 U.S.C. 611
et seq.), commonly known as an ‘Edge Act cor-
poration’;
‘‘(C) an institution that is regulated by the
Farm Credit Administration;
‘‘(D) a Federal credit union or State credit
union (as defined in section 101 of the Federal
Credit Union Act (12 U.S.C. 1752));
‘‘(E) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813));
‘‘(F) a foreign bank or a branch or agency
of a foreign bank (each as defined in section
1(b) of the International Banking Act of 1978
(12 U.S.C. 3101(b)));
‘‘(G) any financial holding company (as de-
fined in section 2 of the Bank Holding Com-
pany Act of 1956);
‘‘(H) a trust company; or
‘‘(I) a similarly regulated subsidiary or af-
filiate of an entity described in any of subpara-
graphs (A) through (H).’’;
(5) by inserting after paragraph (20) (as redes-
ignated by paragraph (1)) the following:
‘‘(21) HYBRID INSTRUMENT.—
‘‘(A) IN GENERAL.—The term ‘hybrid in-
strument’ means a deposit instrument offered
by a financial institution, or a security, having
1 or more payments indexed to the value, level,
or rate of 1 or more commodities.
‘‘(B) DEPOSIT
INSTRUMENT
DEFINED.—
The term ‘deposit instrument’ means an instru-
ment representing an interest described in para-
graph (1), (2), (3), (4), or (5) of section 3(l) of
the Federal Deposit Insurance Act, other than
in subparagraph (A), (B), or (C) at the end of
such paragraph (5).’’;
(6) by striking paragraph (24) (as redesignated
by paragraph (1)) and inserting the following:
‘‘(24) MEMBER OF A CONTRACT MARKET; MEM-
BER OF A DERIVATIVES TRANSACTION EXECUTION
FACILITY.—The term ‘member’ means, with respect
to a contract market or derivatives transaction exe-
cution facility, an individual, association, partner-
ship, corporation, or trust—
‘‘(A) owning or holding membership in, or
admitted to membership representation on, the
contract market or derivatives transaction exe-
cution facility; or
‘‘(B) having trading privileges on the con-
tract market or derivatives transaction execu-
tion facility.
‘‘(25) NARROW-BASED SECURITY INDEX.—
‘‘(A) The term ‘narrow-based security
index’ means an index—
‘‘(i) that has 9 or fewer component se-
curities;
‘‘(ii) in which a component security
comprises more than 30 percent of the
index’s weighting;
‘‘(iii) in which the 5 highest weighted
component securities in the aggregate com-
prise more than 60 percent of the index’s
weighting; or
‘‘(iv) in which the lowest weighted
component securities comprising, in the ag-
gregate, 
percent 
of 
the 
index’s
weighting have an aggregate dollar value
of average daily trading volume of less
than $50,000,000 (or in the case of an
index with 15 or more component securi-
ties, $30,000,000), except that if there are
two 
or 
more 
securities 
with 
equal
weighting that could be included in the cal-
culation of the lowest weighted component
securities comprising, in the aggregate, 25
percent of the index’s weighting, such se-
curities shall be ranked from lowest to
highest dollar value of average daily trad-
ing volume and shall be included in the
calculation based on their ranking starting
with the lowest ranked security.
‘‘(B) Notwithstanding subparagraph (A),
an index is not a narrow-based security index
if—
‘‘(i)(I) it has at least 9 component se-
curities;
‘‘(II) no component security comprises
more than 30 percent of the index’s
weighting; and
‘‘(III) each component security is—
‘‘(aa) registered pursuant to sec-
tion 12 of the Securities Exchange
Act of 1934;
‘‘(bb) 1 of 750 securities with the
largest market capitalization; and
‘‘(cc) 1 of 675 securities with the
largest dollar value of average daily
trading volume;
‘‘(ii) it is a contract of sale for future
delivery with respect to which a board of
trade was designated as a contract market
by the Commodity Futures Trading Com-
mission prior to the date of enactment of
the Commodity Futures Modernization Act
of 2000;
‘‘(iii)(I) it traded on a designated con-
tract market or registered derivatives
transaction execution facility for at least
30 days as a contract of sale for future de-
livery that was not a narrow-based security
index; and
‘‘(II) it has been a narrow-based secu-
rity index for no more than 45 business
days over 3 consecutive calendar months;
‘‘(iv) it is traded on or subject to the
rules of a foreign board of trade and meets
such requirements as are jointly estab-
lished by rule or regulation by the Com-
mission and the Securities and Exchange
Commission;
‘‘(v) no more than 18 months have
passed since enactment of the Commodity
Futures Modernization Act of 2000 and it
is—
‘‘(I) traded on or subject to the
rules of a foreign board of trade;
‘‘(II) the offer and sale in the
United States of a contract of sale for
future delivery on the index was au-
thorized before the date of the enact-
ment of the Commodity Futures Mod-
ernization Act of 2000; and
‘‘(III) the conditions of such au-
thorization continue to be met; or
‘‘(vi) it is traded on or subject to the
rules of a board of trade and meets such
requirements as are jointly established by
rule, regulation, or order by the Commis-
sion and the Securities and Exchange
Commission.
‘‘(C) Within 1 year after the date of the
enactment of the Commodity Futures Mod-
ernization Act of 2000, the Commission and the
Securities and Exchange Commission jointly
shall adopt rules or regulations that set forth
the requirements under subparagraph (B)(iv).
‘‘(D) An index that is a narrow-based se-
curity index solely because it was a narrow-
based security index for more than 45 business
days over 3 consecutive calendar months pursu-
ant to clause (iii) of subparagraph (B) shall not
be a narrow-based security index for the 3 fol-
lowing calendar months.
‘‘(E) For purposes of subparagraphs (A)
and (B)—
‘‘(i) the dollar value of average daily
trading volume and the market capitaliza-
tion shall be calculated as of the preceding
6 full calendar months; and
‘‘(ii) the Commission and the Securi-
ties and Exchange Commission shall, by
rule or regulation, jointly specify the meth-
od to be used to determine market capital-
ization and dollar value of average daily
trading volume.
‘‘(26) OPTION.—The term ‘option’ means an
agreement, contract, or transaction that is of the
character of, or is commonly known to the trade as,
an ‘option’, ‘privilege’, ‘indemnity’, ‘bid’, ‘offer’,
‘put’, ‘call’, ‘advance guaranty’, or ‘decline guar-
anty’.
‘‘(27) ORGANIZED EXCHANGE.—The term ‘or-
ganized exchange’ means a trading facility that—
‘‘(A) permits trading—
‘‘(i) by or on behalf of a person that
is not an eligible contract participant; or
‘‘(ii) by persons other than on a prin-
cipal-to-principal basis; or
‘‘(B) has adopted (directly or through an-
other nongovernmental entity) rules that—
‘‘(i) govern the conduct of partici-
pants, other than rules that govern the
submission of orders or execution of trans-
actions on the trading facility; and
‘‘(ii) include disciplinary sanctions
other than the exclusion of participants
from trading.’’; and
(7) by adding at the end the following:
‘‘(29) REGISTERED
ENTITY.—The term ‘reg-
istered entity’ means—
‘‘(A) a board of trade designated as a con-
tract market under section 5;
‘‘(B) a derivatives transaction execution fa-
cility registered under section 5a;
‘‘(C) a derivatives clearing organization
registered under section 5b; and
‘‘(D) a board of trade designated as a con-
tract market under section 5f.
‘‘(30) SECURITY.—The term ‘security’ means a
security as defined in section 2(a)(1) of the Securi-
ties Act of 1933 (15 U.S.C. 77b(a)(1)) or section
trades agreements, contracts, or trans-
actions in government securities, or assists
persons in communicating about, negoti-
ating, entering into, executing, or trading
an agreement, contract, or transaction in
government securities (as the terms ‘gov-
ernment securities dealer’, ‘government se-
curities broker’, and ‘government securi-
ties’ are defined in section 3(a) of the Se-
curities Exchange Act of 1934 (15 U.S.C.
78c(a))); or
‘‘(iii) facilities on which bids and of-
fers, and acceptances of bids and offers ef-
fected on the facility, are not binding.
‘‘(C) SPECIAL RULE.—A person or group
of persons that would not otherwise constitute
a trading facility shall not be considered to be
a trading facility solely as a result of the sub-
mission to a derivatives clearing organization of
transactions executed on or through the person
or group of persons.’’.
SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS
IN FOREIGN CURRENCY, GOVERNMENT SECU-
RITIES, AND CERTAIN OTHER COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is amended by adding at the end the fol-
lowing:
‘‘(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS
IN FOREIGN CURRENCY, GOVERNMENT SECURITIES, AND
CERTAIN OTHER COMMODITIES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), nothing in this Act (other than section 5a
(to the extent provided in section 5a(g)), 5b, 5d, or
12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in—
‘‘(A) foreign currency;
‘‘(B) government securities;
‘‘(C) security warrants;
‘‘(D) security rights;
‘‘(E) resales of installment loan contracts;
‘‘(F) repurchase transactions in an ex-
cluded commodity; or
‘‘(G) mortgages or mortgage purchase
commitments.
‘‘(2) COMMISSION JURISDICTION.—
‘‘(A) 
AGREEMENTS, 
CONTRACTS, 
AND
TRANSACTIONS TRADED ON AN ORGANIZED EX-
CHANGE.—This Act applies to, and the Com-
mission shall have jurisdiction over, an agree-
ment, contract, or transaction described in
paragraph (1) that is—
‘‘(i) a contract of sale of a commodity
for future delivery (or an option thereon),
or an option on a commodity (other than
foreign currency or a security or a group
or index of securities), that is executed or
traded on an organized exchange; or
‘‘(ii) an option on foreign currency ex-
ecuted or traded on an organized exchange
that is not a national securities exchange
registered pursuant to section 6(a) of the
Securities Exchange Act of 1934.
‘‘(B) 
AGREEMENTS, 
CONTRACTS, 
AND
TRANSACTIONS
IN
RETAIL
FOREIGN
CUR-
RENCY.—This Act applies to, and the Commis-
sion shall have jurisdiction over, an agreement,
contract, or transaction in foreign currency
that—
‘‘(i) is a contract of sale for future de-
livery (or an option on such a contract) or
an option (other than an option executed
or traded on a national securities exchange
registered pursuant to section 6(a) of the
Securities Exchange Act of 1934); and
‘‘(ii) is offered to, or entered into
with, a person that is not an eligible con-
tract participant, unless the counterparty,
or 
the 
person 
offering 
to 
be 
the
counterparty, of the person is—
‘‘(I) a financial institution;
‘‘(II) a broker or dealer reg-
istered under section 15(b) or 15C of
the Securities Exchange Act of 1934
(15 U.S.C. 78o(b), 78o–5) or a fu-
tures commission merchant registered
under this Act;
‘‘(III) an associated person of a
broker or dealer registered under sec-
tion 15(b) or 15C of the Securities
Exchange Act of 1934 (15 U.S.C.
78o(b), 78o–5), or an affiliated person
of a futures commission merchant
registered under this Act, concerning
the financial or securities activities of
which the registered person makes
and keeps records under section
15C(b) or 17(h) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o–
5(b), 78q(h)) or section 4f(c)(2)(B) of
this Act;
‘‘(IV) an insurance company de-
scribed in section 1a(12)(A)(ii) of this
Act, or a regulated subsidiary or affil-
iate of such an insurance company;
‘‘(V) a financial holding company
(as defined in section 2 of the Bank
Holding Company Act of 1956); or
‘‘(VI) an investment bank hold-
ing company (as defined in section
17(i) of the Securities Exchange Act
of 1934).
‘‘(C) Notwithstanding subclauses (II) and
(III) of subparagraph (B)(ii), agreements, con-
tracts, or transactions described in subpara-
graph (B) shall be subject to sections 4b, 4c,
6c, 6d, and 8(a) if they are entered into by a
futures commission merchant or an affiliate of
a futures commission merchant that is not also
an entity described in subparagraph (B)(ii) of
this paragraph.’’.
SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE
TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is further amended by adding at the end
the following:
‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.—
‘‘(1) IN GENERAL.—Nothing in this Act (other
than section 5b or 12(e)(2)(B)) governs or applies to
an agreement, contract, or transaction in an ex-
cluded commodity if—
‘‘(A) the agreement, contract, or trans-
action is entered into only between persons that
are eligible contract participants at the time at
which the persons enter into the agreement,
contract, or transaction; and
‘‘(B) the agreement, contract, or trans-
action is not executed or traded on a trading fa-
cility.
‘‘(2) ELECTRONIC TRADING FACILITY EXCLU-
SION.—Nothing in this Act (other than section 5a
(to the extent provided in section 5a(g)), 5b, 5d, or
12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in an excluded commodity
if—
‘‘(A) the agreement, contract, or trans-
action is entered into on a principal-to-principal
basis between parties trading for their own ac-
counts or as described in section 1a(12)(B)(ii);
‘‘(B) the agreement, contract, or trans-
action is entered into only between persons that
are eligible contract participants described in
subparagraph (A), (B)(ii), or (C) of section
1a(12)) at the time at which the persons enter
into the agreement, contract, or transaction;
and
‘‘(C) the agreement, contract, or trans-
action is executed or traded on an electronic
trading facility.’’.
SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is further amended by adding at the end
the following:
‘‘(e) EXCLUDED
ELECTRONIC
TRADING
FACILI-
TIES.—
‘‘(1) IN GENERAL.—Nothing in this Act (other
than section 12(e)(2)(B)) governs or is applicable to
an electronic trading facility that limits transactions
authorized to be conducted on its facilities to those
satisfying the requirements of sections 2(d)(2),
2(g)(3), and 2(h).
‘‘(2) EFFECT
ON
AUTHORITY
TO
ESTABLISH
AND OPERATE.—Nothing in this Act shall prohibit a
board of trade designated by the Commission as a
contract market, derivatives transaction execution
facility, or exempt board of trade from establishing
and operating an electronic trading facility excluded
under this Act pursuant to paragraph (1).
‘‘(3) EFFECT ON TRANSACTIONS.—No failure
by an electronic trading facility to limit transactions
as required by paragraph (1) of this subsection or
to comply with section 2(g)(5) shall in itself affect
the legality, validity, or enforceability of an agree-
ment, contract, or transaction entered into or traded
on the electronic trading facility or cause a partici-
pant on the system to be in violation of this Act.
SEC. 105. HYBRID INSTRUMENTS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is further amended by adding at the end
the following:
‘‘(f) EXCLUSION FOR QUALIFYING HYBRID INSTRU-
MENTS.—
‘‘(1) IN GENERAL.—Nothing in this Act (other
than section 12(e)(2)(B)) governs or is applicable to
a hybrid instrument that is predominantly a security
or deposit instrument.
‘‘(2) PREDOMINANCE.—A hybrid instrument
shall be considered to be predominantly a security or
deposit instrument if—
‘‘(A) the issuer of the hybrid instrument
receives payment in full of the purchase price of
the hybrid instrument, substantially contem-
poraneously with delivery of the hybrid instru-
ment;
‘‘(B) the purchaser or holder of the hybrid
instrument is not required to make any pay-
ment to the issuer in addition to the purchase
price paid under subparagraph (A), whether as
margin, settlement payment, or otherwise, dur-
ing the life of the hybrid instrument or at ma-
turity;
‘‘(C) the issuer of the hybrid instrument is
not subject by the terms of the instrument to
mark-to-market margining requirements; and
‘‘(D) the hybrid instrument is not mar-
keted as a contract of sale for future delivery
of a commodity (or option on such a contract)
subject to this Act.
‘‘(3) MARK-TO-MARKET
MARGINING
REQUIRE-
MENTS.—For the purposes of paragraph (2)(C),
mark-to-market margining requirements do not in-
clude the obligation of an issuer of a secured debt
instrument to increase the amount of collateral held
in pledge for the benefit of the purchaser of the se-
cured debt instrument to secure the repayment obli-
gations of the issuer under the secured debt instru-
ment.’’.
SEC. 106. TRANSACTIONS IN EXEMPT COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is further amended by adding at the end
the following.
‘‘(g) LEGAL
CERTAINTY
FOR
CERTAIN
TRANS-
ACTIONS IN EXEMPT COMMODITIES.—
‘‘(1) Except as provided in paragraph (2), noth-
ing in this Act shall apply to a contract, agreement
or transaction in an exempt commodity which—
‘‘(A) is entered into solely between persons
that are eligible contract participants at the
time the persons enter into the agreement, con-
tract, or transaction; and
‘‘(B) is not entered into on a trading facil-
ity.
‘‘(2) An agreement, contract, or transaction de-
scribed in paragraph (1) of this subsection shall be
subject to—
‘‘(A) sections 5b and 12(e)(2)(B);
described in any of subparagraphs (A)
through (H) of section 8a(2);
‘‘(II) the facility will comply with
the conditions for exemption under
this paragraph; and
‘‘(III) the facility will notify the
Commission of any material change in
the information previously provided by
the facility to the Commission pursu-
ant to this paragraph; and
‘‘(iv) the identity of any derivatives
clearing organization to which the facility
transmits or intends to transmit trans-
action data for the purpose of facilitating
the clearance and settlement of trans-
actions conducted on the facility in reliance
on the exemption set forth in paragraph
(3);
‘‘(B)(i)(I) provide the Commission with ac-
cess to the facility’s trading protocols and elec-
tronic access to the facility with respect to
transactions conducted in reliance on the ex-
emption set forth in paragraph (3); or
‘‘(II) provide such reports to the Commis-
sion regarding transactions executed on the fa-
cility in reliance on the exemption set forth in
paragraph (3) as the Commission may from
time to time request to enable the Commission
to satisfy its obligations under this Act; and
‘‘(ii) maintain for 5 years, and make avail-
able for inspection by the Commission upon re-
quest, records of all activities related to its
business as an electronic trading facility exempt
under paragraph (3), including—
‘‘(I) information relating to data entry
and transaction details sufficient to enable
the Commission to reconstruct trading ac-
tivity on the facility conducted in reliance
on the exemption set forth in paragraph
(3); and
‘‘(II) the name and address of each
participant on the facility authorized to
enter into transactions in reliance on the
exemption set forth in paragraph (3); and
‘‘(iii) upon special call by the Commission,
provide to the Commission, in a form and man-
ner and within the period specified in the spe-
cial call, such information related to its busi-
ness as an electronic trading facility exempt
under paragraph (3), including information re-
lating to data entry and transaction details in
respect of transactions entered into in reliance
on the exemption set forth in paragraph (3), as
the Commission may determine appropriate—
‘‘(I) to enforce the provisions specified
in subparagraphs (B) and (C) of para-
graph (4);
‘‘(II) to evaluate a systemic market
event; or
‘‘(III) to obtain information requested
by a Federal financial regulatory authority
in order to enable the regulator to fulfill
its regulatory or supervisory responsibil-
ities; and
‘‘(C)(i) upon receipt of any subpoena
issued by or on behalf of the Commission to any
foreign person who the Commission believes is
conducting or has conducted transactions in re-
liance on the exemption set forth in paragraph
(3) on or through the electronic trading facility
relating to the transactions, promptly notify the
foreign person of, and transmit to the foreign
person, the subpoena in a manner reasonable
under the circumstances, or as specified by the
Commission; and
‘‘(ii) if the Commission has reason to be-
lieve that a person has not timely complied with
a subpoena issued by or on behalf of the Com-
mission pursuant to clause (i), and the Commis-
sion in writing has directed that a facility rely-
ing on the exemption set forth in paragraph (3)
deny or limit further transactions by the per-
son, the facility shall deny that person further
trading access to the facility or, as applicable,
limit that person’s access to the facility for liq-
uidation trading only;
‘‘(D) comply with the requirements of this
paragraph applicable to the facility and require
that each participant, as a condition of trading
on the facility in reliance on the exemption set
forth in paragraph (3), agree to comply with all
applicable law;
‘‘(E) have a reasonable basis for believing
that participants authorized to conduct trans-
actions on the facility in reliance on the exemp-
tion set forth in paragraph (3) are eligible com-
mercial entities; and
‘‘(F) not represent to any person that the
facility is registered with, or designated, recog-
nized, licensed or approved by the Commission.
‘‘(6) A person named in a subpoena referred to
in paragraph (5)(C) that believes the person is or
may be adversely affected or aggrieved by action
taken by the Commission under this section, shall
have the opportunity for a prompt hearing after the
Commission acts under procedures that the Commis-
sion shall establish by rule, regulation, or order.’’.
SEC. 107. SWAP TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is further amended by adding at the end
the following:
‘‘(h) EXCLUDED SWAP TRANSACTIONS.—No provi-
sion of this Act (other than section 5a (to the extent pro-
vided in section 5a(g)), 5b, 5d, or 12(e)(2)) shall apply
to or govern any agreement, contract, or transaction in
a commodity other than an agricultural commodity if—
‘‘(1) the agreement, contract, or transaction is
entered into only between persons that are eligible
contract participants at the time they enter into the
agreement, contract, or transaction; and
‘‘(2) each of the material economic terms of the
agreement, contract, or transaction is individually
negotiated by the parties.’’.
SEC. 108. APPLICATION OF COMMODITY FUTURES LAWS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is further amended by adding at the end
the following:
‘‘(i) 
APPLICATION
OF
COMMODITY
FUTURES
LAWS.—
‘‘(1) No provision of this Act shall be construed
as implying or creating any presumption that—
‘‘(A) any agreement, contract, or trans-
action that is excluded or exempted under sub-
section (c), (d), (e), (f), (g), or (h) of section 2
or section 4(c); or
‘‘(B) any agreement, contract, or trans-
action, not otherwise subject to this Act, that is
not so excluded or exempted,
is or would otherwise be subject to this Act.
‘‘(2) No provision of, or amendment made by,
the Commodity Futures Modernization Act of 2000
shall be construed as conferring jurisdiction on the
Commission with respect to any such agreement,
contract, or transaction, except as expressly provided
in section 5a of this Act (to the extent provided in
section 5a(g) of this Act), 5b of this Act, or 5d of
this Act.’’.
SEC. 109. PROTECTION OF THE PUBLIC INTEREST.
The Commodity Exchange Act is amended by striking
section 3 (7 U.S.C. 5) and inserting the following:
‘‘SEC. 3. FINDINGS AND PURPOSE.
‘‘(a) FINDINGS.—The transactions subject to this Act
are entered into regularly in interstate and international
commerce and are affected with a national public interest
by providing a means for managing and assuming price
risks, discovering prices, or disseminating pricing informa-
tion through trading in liquid, fair and financially secure
trading facilities.
‘‘(b) PURPOSE.—It is the purpose of this Act to serve
the public interests described in subsection (a) through a
system of effective self-regulation of trading facilities,
clearing systems, market participants and market profes-
sionals under the oversight of the Commission. To foster
these public interests, it is further the purpose of this Act
to deter and prevent price manipulation or any other dis-
ruptions to market integrity; to ensure the financial integ-
rity of all transactions subject to this Act and the avoid-
ance of systemic risk; to protect all market participants
from fraudulent or other abusive sales practices and mis-
uses of customer assets; and to promote responsible inno-
vation and fair competition among boards of trade, other
markets and market participants.’’.
SEC. 110. PROHIBITED TRANSACTIONS.
Section 4c of the Commodity Exchange Act (7 U.S.C.
6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows
through subsection (a) and inserting the following:
‘‘SEC. 4c. PROHIBITED TRANSACTIONS.
‘‘(a) IN GENERAL.—
‘‘(1) PROHIBITION.—It shall be unlawful for
any person to offer to enter into, enter into, or con-
firm the execution of a transaction described in
paragraph (2) involving the purchase or sale of any
commodity for future delivery (or any option on such
a transaction or option on a commodity) if the
transaction is used or may be used to—
‘‘(A) hedge any transaction in interstate
commerce in the commodity or the product or
byproduct of the commodity;
‘‘(B) determine the price basis of any such
transaction in interstate commerce in the com-
modity; or
‘‘(C) deliver any such commodity sold,
shipped, or received in interstate commerce for
the execution of the transaction.
‘‘(2) TRANSACTION.—A transaction referred to
in paragraph (1) is a transaction that—
‘‘(A)(i) is, is of the character of, or is com-
monly known to the trade as, a ‘wash sale’ or
‘accommodation trade’; or
‘‘(ii) is a fictitious sale; or
‘‘(B) is used to cause any price to be re-
ported, registered, or recorded that is not a
true and bona fide price.’’.
SEC. 111. DESIGNATION OF BOARDS OF TRADE AS CON-
TRACT MARKETS.
The Commodity Exchange Act is amended—
(1) by redesignating section 5b (7 U.S.C. 7b)
as section 5e; and
(2) by striking sections 5 and 5a (7 U.S.C. 7,
7a) and inserting the following:
‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON-
TRACT MARKETS.
‘‘(a) APPLICATIONS.—A board of trade applying to
the Commission for designation as a contract market shall
submit an application to the Commission that includes any
relevant materials and records the Commission may re-
quire consistent with this Act.
‘‘(b) CRITERIA FOR DESIGNATION.—
‘‘(1) IN GENERAL.—To be designated as a con-
tract market, the board of trade shall demonstrate
to the Commission that the board of trade meets the
criteria specified in this subsection.
‘‘(2) PREVENTION
OF
MARKET
MANIPULA-
TION.—The board of trade shall have the capacity to
prevent market manipulation through market sur-
veillance, compliance, and enforcement practices and
procedures, including methods for conducting real-
time monitoring of trading and comprehensive and
accurate trade reconstructions.
‘‘(3) FAIR
AND
EQUITABLE
TRADING.—The
board of trade shall establish and enforce trading
rules to ensure fair and equitable trading through
the facilities of the contract market, and the capac-
ity to detect, investigate, and discipline any person
that violates the rules. The rules may authorize—
‘‘(A) transfer trades or office trades;
‘‘(B) an exchange of—
‘‘(i) futures in connection with a cash
commodity transaction;
‘‘(ii) futures for cash commodities; or
‘‘(iii) futures for swaps; or
‘‘(C) a futures commission merchant, act-
ing as principal or agent, to enter into or con-
firm the execution of a contract for the pur-
chase or sale of a commodity for future delivery
ticipants that violate the rules of the board of trade,
or similar methods for performing the same func-
tions, including delegation of the functions to third
parties.
‘‘(7) PUBLIC ACCESS.—The board of trade shall
provide the public with access to the rules, regula-
tions, and contract specifications of the board of
trade.
‘‘(8) ABILITY TO OBTAIN INFORMATION.—The
board of trade shall establish and enforce rules that
will allow the board of trade to obtain any necessary
information to perform any of the functions de-
scribed in this subsection, including the capacity to
carry out such international information-sharing
agreements as the Commission may require.
‘‘(c) EXISTING CONTRACT MARKETS.—A board of
trade that is designated as a contract market on the date
of the enactment of the Commodity Futures Moderniza-
tion Act of 2000 shall be considered to be a designated
contract market under this section.
‘‘(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—
‘‘(1) IN GENERAL.—To maintain the designa-
tion of a board of trade as a contract market, the
board of trade shall comply with the core principles
specified in this subsection. The board of trade shall
have reasonable discretion in establishing the man-
ner in which it complies with the core principles.
‘‘(2) COMPLIANCE WITH RULES.—The board of
trade shall monitor and enforce compliance with the
rules of the contract market, including the terms
and conditions of any contracts to be traded and any
limitations on access to the contract market.
‘‘(3) CONTRACTS
NOT
READILY
SUBJECT
TO
MANIPULATION.—The board of trade shall list on
the contract market only contracts that are not
readily susceptible to manipulation.
‘‘(4) MONITORING OF TRADING.—The board of
trade shall monitor trading to prevent manipulation,
price distortion, and disruptions of the delivery or
cash-settlement process.
‘‘(5) POSITION
LIMITATIONS
OR
ACCOUNT-
ABILITY.—To reduce the potential threat of market
manipulation or congestion, especially during trading
in the delivery month, the board of trade shall adopt
position limitations or position accountability for
speculators, where necessary and appropriate.
‘‘(6) EMERGENCY AUTHORITY.—The board of
trade shall adopt rules to provide for the exercise of
emergency authority, in consultation or cooperation
with the Commission, where necessary and appro-
priate, including the authority to—
‘‘(A) liquidate or transfer open positions in
any contract;
‘‘(B) suspend or curtail trading in any con-
tract; and
‘‘(C) require market participants in any
contract to meet special margin requirements.
‘‘(7) AVAILABILITY
OF
GENERAL
INFORMA-
TION.—The board of trade shall make available to
market authorities, market participants, and the
public information concerning—
‘‘(A) the terms and conditions of the con-
tracts of the contract market; and
‘‘(B) the mechanisms for executing trans-
actions on or through the facilities of the con-
tract market.
‘‘(8) DAILY PUBLICATION OF TRADING INFOR-
MATION.—The board of trade shall make public
daily information on settlement prices, volume, open
interest, and opening and closing ranges for actively
traded contracts on the contract market.
‘‘(9) 
EXECUTION
OF
TRANSACTIONS.—The
board of trade shall provide a competitive, open, and
efficient market and mechanism for executing trans-
actions.
‘‘(10) TRADE
INFORMATION.—The board of
trade shall maintain rules and procedures to provide
for the recording and safe storage of all identifying
trade information in a manner that enables the con-
tract market to use the information for purposes of
assisting in the prevention of customer and market
abuses and providing evidence of any violations of
the rules of the contract market.
‘‘(11) FINANCIAL INTEGRITY OF CONTRACTS.—
The board of trade shall establish and enforce rules
providing for the financial integrity of any contracts
traded on the contract market (including the clear-
ance and settlement of the transactions with a de-
rivatives clearing organization), and rules to ensure
the financial integrity of any futures commission
merchants and introducing brokers and the protec-
tion of customer funds.
‘‘(12) 
PROTECTION
OF
MARKET
PARTICI-
PANTS.—The board of trade shall establish and en-
force rules to protect market participants from abu-
sive practices committed by any party acting as an
agent for the participants.
‘‘(13) DISPUTE
RESOLUTION.—The board of
trade shall establish and enforce rules regarding and
provide facilities for alternative dispute resolution as
appropriate for market participants and any market
intermediaries.
‘‘(14) GOVERNANCE
FITNESS
STANDARDS.—
The board of trade shall establish and enforce ap-
propriate fitness standards for directors, members of
any disciplinary committee, members of the contract
market, and any other persons with direct access to
the facility (including any parties affiliated with any
of the persons described in this paragraph).
‘‘(15) CONFLICTS OF INTEREST.—The board of
trade shall establish and enforce rules to minimize
conflicts of interest in the decisionmaking process of
the contract market and establish a process for re-
solving such conflicts of interest.
‘‘(16) COMPOSITION OF BOARDS OF MUTUALLY
OWNED CONTRACT MARKETS.—In the case of a mu-
tually owned contract market, the board of trade
shall ensure that the composition of the governing
board reflects market participants.
‘‘(17) RECORDKEEPING.—The board of trade
shall maintain records of all activities related to the
business of the contract market in a form and man-
ner acceptable to the Commission for a period of 5
years.
‘‘(18) ANTITRUST
CONSIDERATIONS.—Unless
necessary or appropriate to achieve the purposes of
this Act, the board of trade shall endeavor to
avoid—
‘‘(A) adopting any rules or taking any ac-
tions that result in any unreasonable restraints
of trade; or
‘‘(B) imposing any material anticompeti-
tive burden on trading on the contract market.
‘‘(e) CURRENT AGRICULTURAL COMMODITIES.—
‘‘(1) Subject to paragraph (2) of this sub-
section, a contract for purchase or sale for future
delivery of an agricultural commodity enumerated in
section 1a(4) that is available for trade on a con-
tract market, as of the date of the enactment of this
subsection, may be traded only on a contract market
designated under this section.
‘‘(2) In order to promote responsible economic
or financial innovation and fair competition, the
Commission, on application by any person, after no-
tice and public comment and opportunity for hear-
ing, may prescribe rules and regulations to provide
for the offer and sale of contracts for future delivery
or options thereon to be conducted on a derivatives
transaction execution facility.’’.
SEC. 112. DERIVATIVES TRANSACTION EXECUTION FACILI-
TIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
is amended by inserting after section 5 (as amended by
section 111(2)) the following:
‘‘SEC. 5a. DERIVATIVES TRANSACTION EXECUTION FACILI-
TIES.
‘‘(a) IN GENERAL.—In lieu of compliance with the
contract market designation requirements of sections 4(a)
and 5, a board of trade may elect to operate as a reg-
istered derivatives transaction execution facility if the fa-
cility is—
‘‘(1) designated as a contract market and meets
the requirements of this section; or
‘‘(2) registered as a derivatives transaction exe-
cution facility under subsection (c) of this section.
‘‘(b) REQUIREMENTS FOR TRADING.—
‘‘(1) IN
GENERAL.—A registered derivatives
transaction execution facility under subsection (a)
may trade any contract for sale of a commodity for
future delivery (or option on such a contract) on or
through the facility only by satisfying the require-
ments of this section.
‘‘(2) REQUIREMENTS
FOR
UNDERLYING
COM-
MODITIES.—A registered derivatives transaction exe-
cution facility may trade any contract for sale of a
commodity for future delivery (or option on such a
contract) only if—
‘‘(A) the underlying commodity has a near-
ly inexhaustible deliverable supply;
‘‘(B) the underlying commodity has a de-
liverable supply that is sufficiently large that
the contract is highly unlikely to be susceptible
to the threat of manipulation;
‘‘(C) the underlying commodity has no
cash market;
‘‘(D)(i) the contract is a security futures
product, and (ii) the registered derivatives
transaction execution facility is a national secu-
rities exchange registered under the Securities
Exchange Act of 1934 or an alternative trading
system;
‘‘(E) the Commission determines, based on
the market characteristics, surveillance history,
self-regulatory record, and capacity of the facil-
ity that trading in the contract (or option) is
highly unlikely to be susceptible to the threat of
manipulation; or
‘‘(F) except as provided in section 5(e)(2),
the underlying commodity is a commodity other
than an agricultural commodity enumerated in
section 1a(4), and trading access to the facility
is limited to eligible commercial entities trading
for their own account.
‘‘(3) ELIGIBLE TRADERS.—To trade on a reg-
istered derivatives transaction execution facility, a
person shall—
‘‘(A) be an eligible contract participant; or
‘‘(B) be a person trading through a futures
commission merchant that—
‘‘(i) is registered with the Commis-
sion;
‘‘(ii) is a member of a futures self-reg-
ulatory organization or, if the person
trades only security futures products on
the facility, a national securities associa-
tion registered under section 15A(a) of the
Securities Exchange Act of 1934;
‘‘(iii) is a clearing member of a de-
rivatives clearing organization; and
‘‘(iv) has net capital of at least
$20,000,000.
‘‘(4) TRADING
BY
CONTRACT
MARKETS.—A
board of trade that is designated as a contract mar-
ket shall, to the extent that the contract market also
operates a registered derivatives transaction execu-
tion facility—
‘‘(A) provide a physical location for the
contract market trading of the board of trade
that is separate from trading on the derivatives
transaction execution facility of the board of
trade; or
‘‘(B) if the board of trade uses the same
electronic trading system for trading on the
contract market and derivatives transaction
execution facility of the board of trade, identify
whether the electronic trading is taking place
on the contract market or the derivatives trans-
action execution facility.
‘‘(c) CRITERIA FOR REGISTRATION.—
‘‘(1) IN GENERAL.—To be registered as a reg-
istered derivatives transaction execution facility, the
board of trade shall be required to demonstrate to
the Commission only that the board of trade meets
the criteria specified in subsection (b) and this sub-
section.
‘‘(2) DETERRENCE OF ABUSES.—The board of
trade shall establish and enforce trading and partici-
pation rules that will deter abuses and has the ca-
pacity to detect, investigate, and enforce those rules,
including means to—
‘‘(A) obtain information necessary to per-
form the functions required under this section;
or
‘‘(B) use technological means to—
‘‘(i) provide market participants with
impartial access to the market; and
‘‘(ii) capture information that may be
used in establishing whether rule violations
have occurred.
‘‘(3) TRADING
PROCEDURES.—The board of
trade shall establish and enforce rules or terms and
conditions defining, or specifications detailing, trad-
ing procedures to be used in entering and executing
orders traded on the facilities of the board of trade.
The rules may authorize—
‘‘(A) transfer trades or office trades;
‘‘(B) an exchange of—
‘‘(i) futures in connection with a cash
commodity transaction;
‘‘(ii) futures for cash commodities;
‘‘(iii) futures for swaps; or
‘‘(C) a futures commission merchant, act-
ing as principal or agent, to enter into or con-
firm the execution of a contract for the pur-
chase or sale of a commodity for future delivery
if the contract is reported, recorded, or cleared
in accordance with the rules of the registered
derivatives transaction execution facility or a
derivatives clearing organization.
‘‘(4) 
FINANCIAL
INTEGRITY
OF
TRANS-
ACTIONS.—The board of trade shall establish and
enforce rules or terms and conditions providing for
the financial integrity of transactions entered on or
through the facilities of the board of trade (including
the clearance and settlement of the transactions with
a derivatives clearing organization), and rules or
terms and conditions to ensure the financial integ-
rity of any futures commission merchants and intro-
ducing brokers and the protection of customer
funds.
‘‘(d) CORE PRINCIPLES FOR REGISTERED DERIVA-
TIVES TRANSACTION EXECUTION FACILITIES.—
‘‘(1) IN GENERAL.—To maintain the registra-
tion of a board of trade as a derivatives transaction
execution facility, a board of trade shall comply with
the core principles specified in this subsection. The
board of trade shall have reasonable discretion in es-
tablishing the manner in which the board of trade
complies with the core principles.
‘‘(2) COMPLIANCE WITH RULES.—The board of
trade shall monitor and enforce the rules of the fa-
cility, including any terms and conditions of any
contracts traded on or through the facility and any
limitations on access to the facility.
‘‘(3) MONITORING OF TRADING.—The board of
trade shall monitor trading in the contracts of the
facility to ensure orderly trading in the contract and
to maintain an orderly market while providing any
necessary trading information to the Commission to
allow the Commission to discharge the responsibil-
ities of the Commission under the Act.
‘‘(4) DISCLOSURE
OF
GENERAL
INFORMA-
TION.—The board of trade shall disclose publicly
and to the Commission information concerning—
‘‘(A) contract terms and conditions;
‘‘(B) trading conventions, mechanisms, and
practices;
‘‘(C) financial integrity protections; and
‘‘(D) other information relevant to partici-
pation in trading on the facility.
‘‘(5) DAILY PUBLICATION OF TRADING INFOR-
MATION.—The board of trade shall make public
daily information on settlement prices, volume, open
interest, and opening and closing ranges for con-
tracts traded on the facility if the Commission deter-
mines that the contracts perform a significant price
discovery function for transactions in the cash mar-
ket for the commodity underlying the contracts.
‘‘(6) FITNESS STANDARDS.—The board of trade
shall establish and enforce appropriate fitness stand-
ards for directors, members of any disciplinary com-
mittee, members, and any other persons with direct
access to the facility, including any parties affiliated
with any of the persons described in this paragraph.
‘‘(7) CONFLICTS OF INTEREST.—The board of
trade shall establish and enforce rules to minimize
conflicts of interest in the decision making process
of the derivatives transaction execution facility and
establish a process for resolving such conflicts of in-
terest.
‘‘(8) RECORDKEEPING.—The board of trade
shall maintain records of all activities related to the
business of the derivatives transaction execution fa-
cility in a form and manner acceptable to the Com-
mission for a period of 5 years.
‘‘(9) 
ANTITRUST
CONSIDERATIONS.—Unless
necessary or appropriate to achieve the purposes of
this Act, the board of trade shall endeavor to
avoid—
‘‘(A) adopting any rules or taking any ac-
tions that result in any unreasonable restraint
of trade; or
‘‘(B) imposing any material anticompeti-
tive burden on trading on the derivatives trans-
action execution facility.
‘‘(e) USE OF BROKER-DEALERS, DEPOSITORY INSTI-
TUTIONS, AND FARM CREDIT SYSTEM INSTITUTIONS AS
INTERMEDIARIES.—
‘‘(1) IN
GENERAL.—With respect to trans-
actions other than transactions in security futures
products, a registered derivatives transaction execu-
tion facility may by rule allow a broker-dealer, de-
pository institution, or institution of the Farm Cred-
it System that meets the requirements of paragraph
(2) to—
‘‘(A) act as an intermediary in trans-
actions executed on the facility on behalf of cus-
tomers of the broker-dealer, depository institu-
tion, or institution of the Farm Credit System;
and
‘‘(B) receive funds of customers to serve as
margin or security for the transactions.
‘‘(2) REQUIREMENTS.—The requirements re-
ferred to in paragraph (1) are that—
‘‘(A) the broker-dealer be in good standing
with the Securities and Exchange Commission,
or the depository institution or institution of
the Farm Credit System be in good standing
with Federal bank regulatory agencies (includ-
ing the Farm Credit Administration), as appli-
cable; and
‘‘(B) if the broker-dealer, depository insti-
tution, or institution of the Farm Credit Sys-
tem carries or holds customer accounts or funds
for transactions on the derivatives transaction
execution facility for more than 1 business day,
the broker-dealer, depository institution, or in-
stitution of the Farm Credit System is reg-
istered as a futures commission merchant and
is a member of a registered futures association.
‘‘(3) IMPLEMENTATION.—The Commission shall
cooperate and coordinate with the Securities and Ex-
change Commission, the Secretary of the Treasury,
and Federal banking regulatory agencies (including
the Farm Credit Administration) in adopting rules
and taking any other appropriate action to facilitate
the implementation of this subsection.
‘‘(f) SEGREGATION
OF CUSTOMER FUNDS.—Not
later than 180 days after the date of the enactment of
the Commodity Futures Modernization Act of 2000, con-
sistent with regulations adopted by the Commission, a reg-
istered derivatives transaction execution facility may au-
thorize a futures commission merchant to offer any cus-
tomer of the futures commission merchant that is an eligi-
ble contract participant the right to not segregate the cus-
tomer funds of the customer that are carried with the fu-
tures commission merchant for purposes of trading on or
through the facilities of the registered derivatives trans-
action execution facility.
‘‘(g) ELECTION TO TRADE EXCLUDED AND EXEMPT
COMMODITIES.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(b)(2) of this section, a board of trade that is or
elects to become a registered derivatives transaction
execution facility may trade on the facility any
agreements, contracts, or transactions involving ex-
cluded or exempt commodities other than securities,
except contracts of sale for future delivery of exempt
securities under section 3(a)(12) of the Securities
Exchange Act of 1934 as in effect on the date of en-
actment of the Futures Trading Act of 1982, that
are otherwise excluded or exempt from this Act
under section 2(c), 2(d), 2(g), or 2(h) of this Act.
‘‘(2) EXCLUSIVE JURISDICTION OF THE COM-
MISSION.—The Commission shall have exclusive ju-
risdiction over agreements, contracts, or transactions
described in paragraph (1) to the extent that the
agreements, contracts, or transactions are traded on
a derivatives transaction execution facility.’’.
SEC. 113. DERIVATIVES CLEARING.
(a) IN GENERAL.—Subtitle A of title IV of the Fed-
eral Deposit Insurance Corporation Improvement Act of
1991 is amended—
(1) by inserting before the section heading for
section 401, the following new heading:
‘‘CHAPTER 1—BILATERAL AND CLEARING
ORGANIZATION NETTING’’;
(2) in section 402, by striking ‘‘this subtitle’’
and inserting ‘‘this chapter’’; and
(3) by inserting after section 407, the following
new chapter:
‘‘CHAPTER 2—MULTILATERAL CLEARING
ORGANIZATIONS
‘‘SEC. 408. DEFINITIONS.
For purposes of this chapter, the following definitions
shall apply:
‘‘(1) MULTILATERAL
CLEARING
ORGANIZA-
TION.—The term ‘multilateral clearing organization’
means a system utilized by more than 2 participants
in which the bilateral credit exposures of partici-
pants arising from the transactions cleared are effec-
tively eliminated and replaced by a system of guar-
antees, insurance, or mutualized risk of loss.
‘‘(2) OVER-THE-COUNTER DERIVATIVE INSTRU-
MENT.—The term ‘over-the-counter derivative in-
strument’ includes—
‘‘(A) any agreement, contract, or trans-
action, including the terms and conditions in-
corporated by reference in any such agreement,
contract, or transaction, which is an interest
rate swap, option, or forward agreement, in-
cluding a rate floor, rate cap, rate collar, cross-
currency rate swap, basis swap, and forward
rate agreement; a same day-tomorrow, tomor-
row-next, forward, or other foreign exchange or
precious metals agreement; a currency swap,
option, or forward agreement; an equity index
or equity swap, option, or forward agreement; a
debt index or debt swap, option, or forward
agreement; a credit spread or credit swap, op-
tion, or forward agreement; a commodity index
or commodity swap, option, or forward agree-
ment; and a weather swap, weather derivative,
or weather option;
‘‘(B) any agreement, contract or trans-
action similar to any other agreement, contract,
or transaction referred to in this clause that is
presently, or in the future becomes, regularly
entered into by parties that participate in swap
transactions (including terms and conditions in-
corporated by reference in the agreement) and
that is a forward, swap, or option on 1 or more
occurrences of any event, rates, currencies,
commodities, equity securities or other equity
instruments, debt securities or other debt in-
struments, economic or other indices or meas-
ures of economic or other risk or value;
‘‘(C) any agreement, contract, or trans-
action described in subsection (c), (d), (f), or
(h) of section 2 of the Commodity Exchange
Act or exempted under section 2(g) or 4(c) of
such Act; and
‘‘(D) any option to enter into any, or any
combination of, agreements, contracts or trans-
actions referred to in this subparagraph.
‘‘(3) OTHER DEFINITIONS.—The terms ‘insured
State nonmember bank’, ‘State member bank’, and
‘affiliate’ have the same meanings as in section 3 of
the Federal Deposit Insurance Act.
‘‘SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.
‘‘(a) IN GENERAL.—Except with respect to clearing
organizations described in subsection (b), no person may
operate a multilateral clearing organization for over-the-
counter derivative instruments, or otherwise engage in ac-
tivities that constitute such a multilateral clearing organi-
zation unless the person is a national bank, a State mem-
ber bank, an insured State nonmember bank, an affiliate
of a national bank, a State member bank, or an insured
State nonmember bank, or a corporation chartered under
section 25A of the Federal Reserve Act.
‘‘(b) CLEARING
ORGANIZATIONS.—Subsection (a)
shall not apply to any clearing organization that—
‘‘(1) is registered as a clearing agency under
the Securities Exchange Act of 1934;
‘‘(2) is registered as a derivatives clearing orga-
nization under the Commodity Exchange Act; or
‘‘(3) is supervised by a foreign financial regu-
lator that the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, the Se-
curities and Exchange Commission, or the Com-
modity Futures Trading Commission, as applicable,
has determined satisfies appropriate standards.’’.
(b) ENFORCEMENT POWERS OF THE BOARD OF GOV-
ERNORS OF THE FEDERAL RESERVE SYSTEM.—Section
9 of the Federal Reserve Act (12 U.S.C. 221) is amended
by adding at the end the following new paragraph:
‘‘(24) 
ENFORCEMENT
AUTHORITY.—Section
3(u), subsections (j) and (k) of section 7, sub-
sections (b) through (n), (s), (u), and (v) of section
8, and section 19 of the Federal Deposit Insurance
Act shall apply to a State member bank which is not
an insured depository institution (as defined in sec-
tion 3 of the Federal Deposit Insurance Act) in the
same manner and to the same extent as such provi-
sions apply to State member insured banks, and any
reference in such sections to an insured depository
institution shall be deemed to include a reference to
any such noninsured State member bank.’’.
(c) RESOLUTION OF CLEARING BANKS.—The Fed-
eral Reserve Act (12 U.S.C. 221 et seq.) is amended by
inserting after section 9A the following new section:
‘‘SEC. 9B. RESOLUTION OF CLEARING BANKS.
‘‘(a) CONSERVATORSHIP OR RECEIVERSHIP.—
‘‘(1) APPOINTMENT.—The Board may appoint
a conservator or receiver to take possession and con-
trol of any uninsured State member bank which op-
erates, or operates as, a multilateral clearing organi-
zation pursuant to section 409 of the Federal De-
posit Insurance Corporation Improvement Act of
1991 to the same extent and in the same manner as
the Comptroller of the Currency may appoint a con-
servator or receiver for a national bank.
‘‘(2) POWERS.—The conservator or receiver for
an uninsured State member bank referred to in
paragraph (1) shall exercise the same powers, func-
tions, and duties, subject to the same limitations, as
a conservator or receiver for a national bank.
‘‘(b) BOARD AUTHORITY.—The Board shall have the
same authority with respect to any conservator or receiver
appointed under subsection (a), and the uninsured State
member bank for which the conservator or receiver has
been appointed, as the Comptroller of the Currency has
with respect to a conservator or receiver for a national
bank and the national bank for which the conservator or
receiver has been appointed.
‘‘(c) BANKRUPTCY PROCEEDINGS.—The Board (in
the case of an uninsured State member bank which oper-
ates, or operates as, such a multilateral clearing organiza-
tion) may direct a conservator or receiver appointed for
the bank to file a petition pursuant to title 11, United
States Code, in which case, title 11, United States Code,
shall apply to the bank in lieu of otherwise applicable Fed-
eral or State insolvency law.’’.
(d) TECHNICAL AND CONFORMING AMENDMENTS TO
TITLE 11, UNITED STATES CODE.—
(1) BANKRUPTCY
CODE
DEBTORS.—Section
109(b)(2) of title 11, United States Code, is amend-
ed by striking ‘‘; or’’ and inserting the following: ‘‘,
except that an uninsured State member bank, or a
corporation organized under section 25A of the Fed-
eral Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to sec-
tion 409 of the Federal Deposit Insurance Corpora-
tion Improvement Act of 1991 may be a debtor if
a petition is filed at the direction of the Board of
Governors of the Federal Reserve System; or’’.
(2) CHAPTER 7 DEBTORS.—Section 109(d) of
title 11, United States Code, is amended to read as
follows:
‘‘(d) Only a railroad, a person that may be a debtor
under chapter 7 of this title (except a stockbroker or a
commodity broker), and an uninsured State member bank,
or a corporation organized under section 25A of the Fed-
eral Reserve Act, which operates, or operates as, a multi-
lateral clearing organization pursuant to section 409 of
the Federal Deposit Insurance Corporation Improvement
Act of 1991 may be a debtor under chapter 11 of this
title.’’.
(3) DEFINITION OF FINANCIAL INSTITUTION.—
Section 101(22) of title 11, United States Code, is
amended to read as follows:
‘‘(22) the term ‘financial institution’—
‘‘(A) means a Federal reserve bank or an
entity (domestic or foreign) that is a commer-
cial or savings bank, industrial savings bank,
savings and loan association, trust company, a
bank or a corporation organized under section
25A of the Federal Reserve Act and, when any
such bank or entity is acting as agent or custo-
dian for a customer in connection with a securi-
ties contract, as defined in section 741, the cus-
tomer; and
‘‘(B) includes any person described in sub-
paragraph (A) which operates, or operates as, a
multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance
Corporation Improvement Act of 1991;’’.
(4) DEFINITION OF UNINSURED STATE MEM-
BER BANK.—Section 101 of title 11, United States
Code, is amended by inserting after paragraph (54)
the following new paragraph—
‘‘(54A) the term ‘uninsured State member bank’
means a State member bank (as defined in section 3 of
the Federal Deposit Insurance Act) the deposits of which
are not insured by the Federal Deposit Insurance Cor-
poration; and’’.
(5) SUBCHAPTER V OF CHAPTER 7.—
(A) IN GENERAL.—Section 103 of title 11,
United States Code, is amended—
(i) by redesignating subsections (e)
through (i) as subsections (f) through (j),
respectively; and
(ii) by inserting after subsection (d)
the following new subsection:
‘‘(e) SCOPE
OF APPLICATION.—Subchapter V of
chapter 7 of this title shall apply only in a case under
such chapter concerning the liquidation of an uninsured
State member bank, or a corporation organized under sec-
tion 25A of the Federal Reserve Act, which operates, or
operates as, a multilateral clearing organization pursuant
to section 409 of the Federal Deposit Insurance Corpora-
tion Improvement Act of 1991.’’.
(B) 
CLEARING
BANK
LIQUIDATION.—
Chapter 7 of title 11, United States Code, is
amended by adding at the end the following
new subchapter:
‘‘SUBCHAPTER V—CLEARING BANK
LIQUIDATION
‘‘§ 781. Definitions
‘‘For purposes of this subchapter, the following defi-
nitions shall apply:
‘‘(1) BOARD.—The term ‘Board’ means the
Board of Governors of the Federal Reserve System.
‘‘(2) DEPOSITORY INSTITUTION.—The term ‘de-
pository institution’ has the same meaning as in sec-
tion 3 of the Federal Deposit Insurance Act.
‘‘(3) CLEARING
BANK.—The term ‘clearing
bank’ means an uninsured State member bank, or a
corporation organized under section 25A of the Fed-
eral Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to sec-
tion 409 of the Federal Deposit Insurance Corpora-
tion Improvement Act of 1991.
‘‘§ 782. Selection of trustee
‘‘(a) IN GENERAL.—
‘‘(1) 
APPOINTMENT.—Notwithstanding 
any
other provision of this title, the conservator or re-
ceiver who files the petition shall be the trustee
under this chapter, unless the Board designates an
alternative trustee.
‘‘(2) SUCCESSOR.—The Board may designate a
successor trustee if required.
‘‘(b) AUTHORITY
OF
TRUSTEE.—Whenever the
Board appoints or designates a trustee, chapter 3 and sec-
tions 704 and 705 of this title shall apply to the Board
in the same way and to the same extent that they apply
to a United States trustee.
‘‘§ 783. Additional powers of trustee
‘‘(a) DISTRIBUTION OF PROPERTY NOT OF THE ES-
TATE.—The trustee under this subchapter has power to
distribute property not of the estate, including distribu-
tions to customers that are mandated by subchapters III
and IV of this chapter.
‘‘(b) DISPOSITION
OF INSTITUTION.—The trustee
under this subchapter may, after notice and a hearing—
‘‘(1) sell the clearing bank to a depository insti-
tution or consortium of depository institutions
(which consortium may agree on the allocation of
the clearing bank among the consortium);
‘‘(2) merge the clearing bank with a depository
institution;
‘‘(3) transfer contracts to the same extent as
could a receiver for a depository institution under
paragraphs (9) and (10) of section 11(e) of the Fed-
eral Deposit Insurance Act;
‘‘(4) transfer assets or liabilities to a depository
institution;
‘‘(5) transfer assets and liabilities to a bridge
bank as provided in paragraphs (1), (3)(A), (5), (6),
of section 11(n) of the Federal Deposit Insurance
Act, paragraphs (9) through (13) of such section,
and subparagraphs (A) through (H) and subpara-
graph (K) of paragraph (4) of such section 11(n),
except that—
‘‘(A) the bridge bank to which such assets
or liabilities are transferred shall be treated as
a clearing bank for the purpose of this sub-
section; and
‘‘(B) any references in any such provision
of law to the Federal Deposit Insurance Cor-
poration shall be construed to be references to
the appointing agency and that references to
deposit insurance shall be omitted.
‘‘(c) CERTAIN TRANSFERS INCLUDED.—Any ref-
erence in this section to transfers of liabilities includes a
ratable transfer of liabilities within a priority class.
‘‘§ 784. Right to be heard
‘‘The Board or a Federal reserve bank (in the case
of a clearing bank that is a member of that bank) may
raise and may appear and be heard on any issue in a case
under this subchapter.’’.
(6) DEFINITIONS OF CLEARING ORGANIZATION,
CONTRACT MARKET, AND RELATED DEFINITIONS.—
(A) Section 761(2) of title 11, United
States Code, is amended to read as follows:
‘‘(2) ‘clearing organization’ means a derivatives
clearing organization registered under the Act;’’.
(B) Section 761(7) of title 11, United
States Code, is amended to read as follows:
‘‘(7) ‘contract market’ means a registered enti-
ty;’’.
(C) Section 761(8) of title 11, United
States Code, is amended to read as follows:
‘‘(8) ‘contract of sale’, ‘commodity’, ‘derivatives
clearing organization’, ‘future delivery’, ‘board of
trade’, ‘registered entity’, and ‘futures commission
merchant’ have the meanings assigned to those
terms in the Act;’’.
(e) CLERICAL AMENDMENT.—The table of sections
for chapter 7 of title 11, United States Code, is amended
by adding at the end the following new items:
‘‘SUBCHAPTER V—CLEARING BANK
LIQUIDATION
‘‘Sec.
‘‘781. Definitions.
‘‘782. Selection of trustee.
‘‘783. Additional powers of trustee.
‘‘784. Right to be heard.’’.
(g) RESOLUTION OF EDGE ACT CORPORATIONS.—
The 16th undesignated paragraph of section 25A of the
Federal Reserve Act (12 U.S.C. 624) is amended to read
as follows:
‘‘(16) APPOINTMENT OF RECEIVER OR CONSER-
VATOR.—
‘‘(A) IN GENERAL.—The Board may ap-
point a conservator or receiver for a corporation
organized under the provisions of this section to
the same extent and in the same manner as the
Comptroller of the Currency may appoint a con-
servator or receiver for a national bank, and the
conservator or receiver for such corporation
shall exercise the same powers, functions, and
duties, subject to the same limitations, as a
conservator or receiver for a national bank.
‘‘(B) 
EQUIVALENT
AUTHORITY.—The
Board shall have the same authority with re-
spect to any conservator or receiver appointed
for a corporation organized under the provisions
of this section under this paragraph and any
such corporation as the Comptroller of the Cur-
rency has with respect to a conservator or re-
ceiver of a national bank and the national bank
for which a conservator or receiver has been ap-
pointed.
‘‘(C) TITLE
PETITIONS.—The Board
may direct the conservator or receiver of a cor-
poration organized under the provisions of this
section to file a petition pursuant to title 11,
United States Code, in which case, title 11,
United States Code, shall apply to the corpora-
tion in lieu of otherwise applicable Federal or
State insolvency law.’’.
(g) DERIVATIVES CLEARING ORGANIZATIONS.—The
Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by inserting after section 5a (as added by section 112)
the following new section:
‘‘SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.
‘‘(a) REGISTRATION REQUIREMENT.—It shall be un-
lawful for a derivatives clearing organization, unless reg-
istered with the Commission, directly or indirectly to make
use of the mails or any means or instrumentality of inter-
state commerce to perform the functions of a derivatives
clearing organization described in section 1a(9) with re-
spect to a contract of sale of a commodity for future deliv-
ery, or option on such a contract or on a commodity, in
each case unless the contract or option—
‘‘(1) is excluded from this Act by subsection
(a)(1)(C)(i), (c), (d), (f), or (h) of section 2, or ex-
empted under section 2(g) or 4(c); or
‘‘(2) is a security futures product cleared by a
clearing agency registered under the Securities Ex-
change Act of 1934.
‘‘(b) VOLUNTARY
REGISTRATION.—A derivatives
clearing organization that clears agreements, contracts, or
transactions excluded from this Act by subsection (c), (d),
(f), or (h) of section 2 of this Act, or exempted under sec-
tion 2(g) or 4(c) or other over-the-counter derivative in-
struments (as defined in the Federal Deposit Insurance
Corporation Improvement Act of 1991) may register with
the Commission as a derivatives clearing organization.
‘‘(c) REGISTRATION OF DERIVATIVES CLEARING OR-
GANIZATIONS.—
‘‘(1) APPLICATION.—A person desiring to reg-
ister as a derivatives clearing organization shall sub-
mit to the Commission an application in such form
and containing such information as the Commission
may require for the purpose of making the deter-
minations required for approval under paragraph
(2).
‘‘(2) CORE PRINCIPLES.—
‘‘(A) IN GENERAL.—To be registered and
to maintain registration as a derivatives clear-
ing organization, an applicant shall demonstrate
to the Commission that the applicant complies
with the core principles specified in this para-
graph. The applicant shall have reasonable dis-
cretion in establishing the manner in which it
complies with the core principles.
‘‘(B) FINANCIAL RESOURCES.—The appli-
cant shall demonstrate that the applicant has
adequate financial, operational, and managerial
resources to discharge the responsibilities of a
derivatives clearing organization.
‘‘(C) PARTICIPANT AND PRODUCT ELIGI-
BILITY.—The applicant shall establish—
‘‘(i) appropriate admission and con-
tinuing eligibility standards (including ap-
propriate minimum financial requirements)
for members of and participants in the or-
ganization; and
‘‘(ii) appropriate standards for deter-
mining eligibility of agreements, contracts,
or transactions submitted to the applicant.
‘‘(D) RISK MANAGEMENT.—The applicant
shall have the ability to manage the risks asso-
ciated with discharging the responsibilities of a
derivatives clearing organization through the
use of appropriate tools and procedures.
‘‘(E) 
SETTLEMENT
PROCEDURES.—The
applicant shall have the ability to—
‘‘(i) complete settlements on a timely
basis under varying circumstances;
‘‘(ii) maintain an adequate record of
the flow of funds associated with each
transaction that the applicant clears; and
‘‘(iii) comply with the terms and con-
ditions of any permitted netting or offset
arrangements with other clearing organiza-
tions.
‘‘(F) TREATMENT OF FUNDS.—The appli-
cant shall have standards and procedures de-
signed to protect and ensure the safety of mem-
ber and participant funds.
‘‘(G) 
DEFAULT
RULES
AND
PROCE-
DURES.—The applicant shall have rules and
procedures designed to allow for efficient, fair,
and safe management of events when members
or participants become insolvent or otherwise
default on their obligations to the derivatives
clearing organization.
‘‘(H) RULE
ENFORCEMENT.—The appli-
cant shall—
‘‘(i) maintain adequate arrangements
and resources for the effective monitoring
and enforcement of compliance with rules
of the applicant and for resolution of dis-
putes; and
‘‘(ii) have the authority and ability to
discipline, limit, suspend, or terminate a
member’s or participant’s activities for vio-
lations of rules of the applicant.
‘‘(I) SYSTEM SAFEGUARDS.—The applicant
shall demonstrate that the applicant—
‘‘(i) has established and will maintain
a program of oversight and risk analysis to
ensure that the automated systems of the
applicant function properly and have ade-
quate capacity and security; and
‘‘(ii) has established and will maintain
emergency procedures and a plan for dis-
aster recovery, and will periodically test
backup facilities sufficient to ensure daily
processing, clearing, and settlement of
transactions.
‘‘(J) REPORTING.—The applicant shall
provide to the Commission all information nec-
essary for the Commission to conduct the over-
sight function of the applicant with respect to
the activities of the derivatives clearing organi-
zation.
‘‘(K) 
RECORDKEEPING.—The 
applicant
shall maintain records of all activities related to
the business of the applicant as a derivatives
clearing organization in a form and manner ac-
ceptable to the Commission for a period of 5
years.
‘‘(L) PUBLIC
INFORMATION.—The appli-
cant shall make information concerning the
rules and operating procedures governing the
clearing and settlement systems (including de-
fault procedures) available to market partici-
pants.
‘‘(M) INFORMATION SHARING.—The appli-
cant shall—
‘‘(i) enter into and abide by the terms
of all appropriate and applicable domestic
and 
international 
information-sharing
agreements; and
‘‘(ii) use relevant information obtained
from the agreements in carrying out the
clearing organization’s risk management
program.
‘‘(N) ANTITRUST
CONSIDERATIONS.—Un-
less appropriate to achieve the purposes of this
Act, the derivatives clearing organization shall
avoid—
‘‘(i) adopting any rule or taking any
action that results in any unreasonable re-
straint of trade; or
‘‘(ii) imposing any material anti-
competitive burden on trading on the con-
tract market.
‘‘(3) ORDERS
CONCERNING
COMPETITION.—A
derivatives clearing organization may request the
Commission to issue an order concerning whether a
rule or practice of the applicant is the least anti-
competitive means of achieving the objectives, pur-
poses, and policies of this Act.
‘‘(d) EXISTING DERIVATIVES CLEARING ORGANIZA-
TIONS.—A derivatives clearing organization shall be
deemed to be registered under this section to the extent
that the derivatives clearing organization clears agree-
ments, contracts, or transactions for a board of trade that
has been designated by the Commission as a contract mar-
ket for such agreements, contracts, or transactions before
the date of enactment of this section.
‘‘(e) APPOINTMENT OF TRUSTEE.—
‘‘(1) IN GENERAL.—If a proceeding under sec-
tion 5e results in the suspension or revocation of the
registration of a derivatives clearing organization, or
if a derivatives clearing organization withdraws from
registration, the Commission, on notice to the de-
rivatives clearing organization, may apply to the ap-
propriate United States district court where the de-
rivatives clearing organization is located for the ap-
pointment of a trustee.
‘‘(2) ASSUMPTION
OF
JURISDICTION.—If the
Commission applies for appointment of a trustee
under paragraph (1)—
‘‘(A) the court may take exclusive jurisdic-
tion over the derivatives clearing organization
and the records and assets of the derivatives
clearing organization, wherever located; and
‘‘(B) if the court takes jurisdiction under
subparagraph (A), the court shall appoint the
Commission, or a person designated by the
Commission, as trustee with power to take pos-
session and continue to operate or terminate
the operations of the derivatives clearing orga-
nization in an orderly manner for the protection
of participants, subject to such terms and con-
ditions as the court may prescribe.
‘‘(f) LINKING
OF REGULATED CLEARING FACILI-
TIES.—
‘‘(1) IN GENERAL.—The Commission shall fa-
cilitate the linking or coordination of derivatives
clearing organizations registered under this Act with
other regulated clearance facilities for the coordi-
nated settlement of cleared transactions.
‘‘(2) COORDINATION.—In carrying out para-
graph (1), the Commission shall coordinate with the
Federal banking agencies and the Securities and Ex-
change Commission.’’.
SEC. 114. COMMON PROVISIONS APPLICABLE TO REG-
ISTERED ENTITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
is amended by inserting after section 5b (as added by sec-
tion 113(g)) the following:
‘‘SEC. 5c. COMMON PROVISIONS APPLICABLE TO REG-
ISTERED ENTITIES.
‘‘(a) ACCEPTABLE BUSINESS PRACTICES UNDER
CORE PRINCIPLES.—
‘‘(1) IN GENERAL.—Consistent with the pur-
poses of this Act, the Commission may issue inter-
pretations, or approve interpretations submitted to
the Commission, of sections 5(d), 5a(d), and
5b(d)(2) to describe what would constitute an ac-
ceptable business practice under such sections.
‘‘(2) EFFECT OF INTERPRETATION.—An inter-
pretation issued under paragraph (1) shall not pro-
vide the exclusive means for complying with such
sections.
‘‘(b) DELEGATION
OF FUNCTIONS UNDER CORE
PRINCIPLES.—
‘‘(1) IN GENERAL.—A contract market or de-
rivatives transaction execution facility may comply
with any applicable core principle through delegation
of any relevant function to a registered futures asso-
ciation or another registered entity.
‘‘(2) RESPONSIBILITY.—A contract market or
derivatives transaction execution facility that dele-
gates a function under paragraph (1) shall remain
responsible for carrying out the function.
‘‘(c) NEW CONTRACTS, NEW RULES, AND RULE
AMENDMENTS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a
registered entity may elect to list for trading or ac-
cept for clearing any new contract or other instru-
ment, or may elect to approve and implement any
new rule or rule amendment, by providing to the
Commission (and the Secretary of the Treasury, in
the case of a contract of sale for future delivery of
a government security (or option thereon) or a rule
or rule amendment specifically related to such a con-
tract) a written certification that the new contract
or instrument or clearing of the new contract or in-
strument, new rule, or rule amendment complies
with this Act (including regulations under this Act).
‘‘(2) PRIOR APPROVAL.—
‘‘(A) IN
GENERAL.—A registered entity
may request that the Commission grant prior
approval to any new contract or other instru-
ment, new rule, or rule amendment.
‘‘(B) PRIOR APPROVAL REQUIRED.—Not-
withstanding any other provision of this section,
a designated contract market shall submit to
the Commission for prior approval each rule
amendment that materially changes the terms
and conditions, as determined by the Commis-
sion, in any contract of sale for future delivery
of a commodity specifically enumerated in sec-
tion 1a(4) (or any option thereon) traded
through its facilities if the rule amendment ap-
plies to contracts and delivery months which
have already been listed for trading and have
open interest.
‘‘(C) DEADLINE.—If prior approval is re-
quested under subparagraph (A), the Commis-
sion shall take final action on the request not
later than 90 days after submission of the re-
quest, unless the person submitting the request
agrees to an extension of the time limitation es-
tablished under this subparagraph.
‘‘(3) APPROVAL.—The Commission shall ap-
prove any such new contract or instrument, new
rule, or rule amendment unless the Commission
finds that the new contract or instrument, new rule,
or rule amendment would violate this Act.
‘‘(d) VIOLATION OF CORE PRINCIPLES.—
‘‘(1) IN GENERAL.—If the Commission deter-
mines, on the basis of substantial evidence, that a
registered entity is violating any applicable core
principle specified in section 5(d), 5a(d), or
5b(d)(2), the Commission shall—
‘‘(A) notify the registered entity in writing
of the determination; and
‘‘(B) afford the registered entity an oppor-
tunity to make appropriate changes to bring the
registered entity into compliance with the core
principles.
‘‘(2) FAILURE
TO
MAKE
CHANGES.—If, not
later than 30 days after receiving a notification
under paragraph (1), a registered entity fails to
make changes that, in the opinion of the Commis-
sion, are necessary to comply with the core prin-
ciples, the Commission may take further action in
accordance with this Act.
‘‘(e) RESERVATION OF EMERGENCY AUTHORITY.—
Nothing in this section shall limit or in any way affect
the emergency powers of the Commission provided in sec-
tion 8a(9).’’.
SEC. 115. EXEMPT BOARDS OF TRADE.
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
is amended by inserting after section 5c (as added by sec-
tion 114) the following:
‘‘SEC. 5d. EXEMPT BOARDS OF TRADE.
‘‘(a) ELECTION TO REGISTER WITH THE COMMIS-
SION.—A board of trade that meets the requirements of
subsection (b) of this section may operate as an exempt
board of trade on receipt from the board of trade of a
notice, provided in such manner as the Commission may
by rule or regulation prescribe, that the board of trade
elects to operate as an exempt board of trade. Except as
otherwise provided in this section, no provision of this Act
(other than subparagraphs (C) and (D) of section 2(a)(1)
and section 12(e)(2)(B)) shall apply with respect to a con-
tract of sale (or option on such a contract) of a commodity
for future delivery traded on or through the facilities of
an exempt board of trade.
‘‘(b) CRITERIA FOR EXEMPTION.—To qualify for an
exemption under subsection (a), a board of trade shall
limit trading on or through the facilities of the board of
trade to contracts of sale of a commodity for future deliv-
ery (or options on such contracts)—
‘‘(1) for which the underlying commodity has—
‘‘(A) a nearly inexhaustible deliverable sup-
ply;
‘‘(B) a deliverable supply that is suffi-
ciently large, and a cash market sufficiently liq-
uid, to render any contract traded on the com-
modity highly unlikely to be susceptible to the
threat of manipulation; or
‘‘(C) no cash market;
‘‘(2) that are entered into only between persons
that are eligible contract participants at the time at
which the persons enter into the contract; and
‘‘(3) that are not contracts of sale (or options
on such a contract) for future delivery of any secu-
rity, including any group or index of securities or
any interest in, or based on the value of, any secu-
rity or any group or index of securities.
‘‘(c) ANTIMANIPULATION REQUIREMENTS.—A party
to a contract for sale of a commodity for future delivery
(or option on such a contract) that is traded on an exempt
board of trade shall be subject to sections 4b, 4c(b), 4o,
6(c), and 9(a)(2), and the Commission shall enforce those
provisions with respect to any such trading.
‘‘(d) PRICE DISCOVERY.—If the Commission finds
that an exempt board of trade is a significant source of
price discovery for transactions in the cash market for the
commodity underlying any contract, agreement, or trans-
action traded on or through the facilities of the board of
100
trade, the board of trade shall disseminate publicly on a
daily basis trading volume, opening and closing price
ranges, open interest, and other trading data as appro-
priate to the market.
‘‘(e) JURISDICTION.—The Commission shall have ex-
clusive jurisdiction over any account, agreement, or trans-
action involving a contract of sale of a commodity for fu-
ture delivery, or option on such a contract or on a com-
modity, to the extent that the account, agreement, or
transaction is traded on an exempt board of trade.
‘‘(f) SUBSIDIARIES.—A board of trade that is des-
ignated as a contract market or registered as a derivatives
transaction execution facility may operate an exempt
board of trade by establishing a separate subsidiary or
other legal entity and otherwise satisfying the require-
ments of this section.
‘‘(g) An exempt board of trade that meets the re-
quirements of subsection (b) shall not represent to any
person that the board of trade is registered with, or des-
ignated, recognized, licensed, or approved by the Commis-
sion.’’.
101
SEC. 116. SUSPENSION OR REVOCATION OF DESIGNATION
AS CONTRACT MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C.
7b) (as redesignated by section 111(1)) is amended to
read as follows:
‘‘SEC. 5e. SUSPENSION OR REVOCATION OF DESIGNATION
AS REGISTERED ENTITY.
‘‘The failure of a registered entity to comply with any
provision of this Act, or any regulation or order of the
Commission under this Act, shall be cause for the suspen-
sion of the registered entity for a period not to exceed 180
days, or revocation of designation as a registered entity
in accordance with the procedures and subject to the judi-
cial review provided in section 6(b).’’.
SEC. 117. AUTHORIZATION OF APPROPRIATIONS.
Section 12(d) of the Commodity Exchange Act (7
U.S.C. 16(d)) is amended by striking ‘‘2000’’ and insert-
ing ‘‘2005’’.
SEC. 118. PREEMPTION.
Section 12 of the Commodity Exchange Act (7 U.S.C.
16(e)) is amended by striking subsection (e) and inserting
the following:
‘‘(e) RELATION TO OTHER LAW, DEPARTMENTS, OR
AGENCIES.—
‘‘(1) Nothing in this Act shall supersede or
preempt—
102
‘‘(A) criminal prosecution under any Fed-
eral criminal statute;
‘‘(B) the application of any Federal or
State statute (except as provided in paragraph
(2)), including any rule or regulation there-
under, to any transaction in or involving any
commodity, product, right, service, or interest—
‘‘(i) that is not conducted on or sub-
ject to the rules of a registered entity or
exempt board of trade;
‘‘(ii) (except as otherwise specified by
the Commission by rule or regulation) that
is not conducted on or subject to the rules
of any board of trade, exchange, or market
located outside the United States, its terri-
tories or possessions; or
‘‘(iii) that is not subject to regulation
by the Commission under section 4c or 19;
or
‘‘(C) the application of any Federal or
State statute, including any rule or regulation
thereunder, to any person required to be reg-
istered or designated under this Act who shall
fail or refuse to obtain such registration or des-
ignation.
103
‘‘(2) This Act shall supersede and preempt the
application of any State or local law that prohibits
or regulates gaming or the operation of bucket shops
(other than antifraud provisions of general applica-
bility) in the case of—
‘‘(A) an electronic trading facility under
section 2(e);
‘‘(B) an agreement, contract, or trans-
action that is excluded or exempt under section
2(c), 2(d), 2(f), 2(g), or 2(h) or is covered by
the terms of an exemption granted by the Com-
mission under section 4(c) (regardless of wheth-
er any such agreement, contract, or transaction
is otherwise subject to this Act).’’.
SEC. 119. PREDISPUTE RESOLUTION AGREEMENTS FOR IN-
STITUTIONAL CUSTOMERS.
Section 14 of the Commodity Exchange Act (7 U.S.C.
18) is amended by striking subsection (g) and inserting
the following:
‘‘(g) PREDISPUTE RESOLUTION AGREEMENTS FOR
INSTITUTIONAL CUSTOMERS.—Nothing in this section
prohibits a registered futures commission merchant from
requiring a customer that is an eligible contract partici-
pant, as a condition to the commission merchant’s con-
ducting a transaction for the customer, to enter into an
104
agreement waiving the right to file a claim under this sec-
tion.’’.
SEC. 120. CONSIDERATION OF COSTS AND BENEFITS AND
ANTITRUST LAWS.
Section 15 of the Commodity Exchange Act (7 U.S.C.
19) is amended by striking ‘‘SEC. 15. The Commission’’
and inserting the following:
‘‘SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND
ANTITRUST LAWS.
‘‘(a) COSTS AND BENEFITS.—
‘‘(1) IN GENERAL.—Before promulgating a reg-
ulation under this Act or issuing an order (except as
provided in paragraph (3)), the Commission shall
consider the costs and benefits of the action of the
Commission.
‘‘(2) CONSIDERATIONS.—The costs and benefits
of the proposed Commission action shall be evalu-
ated in light of—
‘‘(A) considerations of protection of market
participants and the public;
‘‘(B) considerations of the efficiency, com-
petitiveness, and financial integrity of futures
markets;
‘‘(C) considerations of price discovery;
105
‘‘(D) considerations of sound risk manage-
ment practices; and
‘‘(E) other public interest considerations.
‘‘(3) APPLICABILITY.—This subsection does not
apply to the following actions of the Commission:
‘‘(A) An order that initiates, is part of, or
is the result of an adjudicatory or investigative
process of the Commission.
‘‘(B) An emergency action.
‘‘(C) A finding of fact regarding compli-
ance with a requirement of the Commission.
‘‘(b) ANTITRUST LAWS.—The Commission’’.
SEC. 121. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE
COUNTERPARTIES.
Section 22(a) of the Commodity Exchange Act (7
U.S.C. 25(a)) is amended by adding at the end the fol-
lowing:
‘‘(4) CONTRACT ENFORCEMENT BETWEEN ELIGIBLE
COUNTERPARTIES.—No agreement, contract, or trans-
action between eligible contract participants or persons
reasonably believed to be eligible contract participants
shall be void, voidable, or unenforceable, and no such
party shall be entitled to rescind, or recover any payment
made with respect to, such an agreement, contract, or
transaction, under this section or any other provision of
106
Federal or State law, based solely on the failure of the
agreement, contract, or transaction to comply with the
terms or conditions of an exemption or exclusion from any
provision of this Act or regulations of the Commission.’’.
SEC. 122. SPECIAL PROCEDURES TO ENCOURAGE AND FA-
CILITATE BONA FIDE HEDGING BY AGRICUL-
TURAL PRODUCERS.
The Commodity Exchange Act, as otherwise amended
by this Act, is amended by inserting after section 4o the
following:
‘‘SEC. 4p. SPECIAL PROCEDURES TO ENCOURAGE AND FA-
CILITATE BONA FIDE HEDGING BY AGRICUL-
TURAL PRODUCERS.
‘‘(a) AUTHORITY.—The Commission shall consider
issuing rules or orders which—
‘‘(1) prescribe procedures under which each
contract market is to provide for orderly delivery, in-
cluding temporary storage costs, of any agricultural
commodity enumerated in section 1a(4) which is the
subject of a contract for purchase or sale for future
delivery;
‘‘(2) increase the ease with which domestic agri-
cultural producers may participate in contract mar-
kets, including by addressing cost and margin re-
107
quirements, so as to better enable the producers to
hedge price risk associated with their production;
‘‘(3) provide flexibility in the minimum quan-
tities of such agricultural commodities that may be
the subject of a contract for purchase or sale for fu-
ture delivery that is traded on a contract market, to
better allow domestic agricultural producers to hedge
such price risk; and
‘‘(4) encourage contract markets to provide in-
formation and otherwise facilitate the participation
of domestic agricultural producers in contract mar-
kets.
‘‘(b) REPORT.—Within 1 year after the date of enact-
ment of this section, the Commission shall submit to the
Committee on Agriculture of the House of Representatives
and the Committee on Agriculture, Nutrition, and For-
estry of the Senate a report on the steps it has taken to
implement this section and on the activities of contract
markets pursuant to this section.’’.
SEC. 123. RULE OF CONSTRUCTION.
Except as expressly provided in this Act or an amend-
ment made by this Act, nothing in this Act or an amend-
ment made by the Act supersedes, affects, or otherwise
limits or expands the scope and applicability of laws gov-
erning the Securities and Exchange Commission.
108
SEC. 124. TECHNICAL AND CONFORMING AMENDMENTS.
(a) COMMODITY EXCHANGE ACT.—
(1) Section 1a of the Commodity Exchange Act
(7 U.S.C. 1a), as amended by section 101, is
amended—
(A) in paragraphs (5), (6), (16), (17),
(20), and (23), by inserting ‘‘or derivatives
transaction execution facility’’ after ‘‘contract
market’’ each place it appears; and
(B) in paragraph (24)—
(i) in the paragraph heading, by strik-
ing ‘‘CONTRACT
MARKET’’ and inserting
‘‘REGISTERED ENTITY’’;
(ii) by striking ‘‘contract market’’
each place it appears and inserting ‘‘reg-
istered entity’’; and
(iii) by adding at the end the fol-
lowing:
‘‘A participant in an alternative trading system that
is designated as a contract market pursuant to sec-
tion 5f is deemed a member of the contract market
for purposes of transactions in security futures prod-
ucts through the contract market.’’.
(2) Section 2 of the Commodity Exchange Act
(7 U.S.C. 2, 2a, 4, 4a, 3) is amended—
109
(A) by striking ‘‘SEC. 2. (a)(1)(A)(i) The’’
and inserting the following:
‘‘SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF
PRINCIPAL FOR ACT OF AGENT; COMMODITY
FUTURES 
TRADING 
COMMISSION; 
TRANS-
ACTION IN INTERSTATE COMMERCE.
‘‘(a) JURISDICTION
OF COMMISSION; COMMODITY
FUTURES TRADING COMMISSION.—
‘‘(1) JURISDICTION OF COMMISSION.—
‘‘(A) IN GENERAL.—The’’; and
(B) in subsection (a)(1)—
(i) in subparagraph (A) (as amended
by subparagraph (A) of this paragraph)—
(II) by striking ‘‘subparagraph
(B) of this subparagraph’’ and insert-
ing ‘‘subparagraphs (C) and (D) of
this paragraph and subsections (c)
through (i) of this section’’;
(III) by striking ‘‘contract mar-
ket designated pursuant to section 5
of this Act’’ and inserting ‘‘contract
market 
designated 
or 
derivatives
transaction execution facility reg-
istered pursuant to section 5 or 5a’’;
(IV) by striking clause (ii); and
110
(V) in clause (iii), by striking
‘‘(iii) The’’ and inserting the fol-
lowing:
‘‘(B) LIABILITY OF PRINCIPAL FOR ACT OF
AGENT.—The’’; and
(ii) in subparagraph (B)—
(I) by striking ‘‘(B)’’ and insert-
ing ‘‘(C)’’;
(II) in clause (v)—
(aa) by striking ‘‘section 3
of the Securities Act of 1933’’;
and
(bb) by inserting ‘‘or sub-
paragraph (D)’’ after ‘‘subpara-
graph’’; and
(III) 
by 
moving 
clauses 
(i)
through (v) 4 ems to the right;
(C) in subsection (a)(7), by striking ‘‘con-
tract market’’ and inserting ‘‘registered entity’’;
(D) in subsection (a)(8)(B)(ii)—
(i) in the first sentence, by striking
‘‘designation as a contract market’’ and in-
serting ‘‘designation or registration as a
contract market or derivatives transaction
execution facility’’;
111
(ii) in the second sentence, by striking
‘‘designate a board of trade as a contract
market’’ and inserting ‘‘designate or reg-
ister a board of trade as a contract market
or derivatives transaction execution facil-
ity’’; and
(iii) in the fourth sentence, by striking
‘‘designating, or refusing, suspending, or
revoking the designation of, a board of
trade as a contract market involving trans-
actions for future delivery referred to in
this clause or in considering possible emer-
gency action under section 8a(9) of this
Act’’ and inserting ‘‘designating, reg-
istering, or refusing, suspending, or revok-
ing the designation or registration of, a
board of trade as a contract market or de-
rivatives transaction execution facility in-
volving transactions for future delivery re-
ferred to in this clause or in considering
any possible action under this Act (includ-
ing without limitation emergency action
under section 8a(9))’’, and by striking
‘‘designation, suspension, revocation, or
emergency action’’ and inserting ‘‘designa-
112
tion, registration, suspension, revocation,
or action’’; and
(E) in subsection (a), by moving para-
graphs (2) through (9) 2 ems to the right.
(3) Section 4 of the Commodity Exchange Act
(7 U.S.C. 6) is amended—
(A) in subsection (a)—
(i) in paragraph (1), by striking ‘‘des-
ignated by the Commission as a ‘contract
market’ for’’ and inserting ‘‘designated or
registered by the Commission as a contract
market or derivatives transaction execution
facility for’’;
(ii) in paragraph (2), by striking
‘‘member of such’’; and
(iii) in paragraph (3), by inserting ‘‘or
derivatives transaction execution facility’’
after ‘‘contract market’’; and
(B) in subsection (c)—
(i) in paragraph (1)—
(I) by striking ‘‘designated as a
contract market’’ and inserting ‘‘des-
ignated or registered as a contract
market or derivatives transaction exe-
cution facility’’; and
113
(II) 
by 
striking 
‘‘section
2(a)(1)(B)’’ and inserting ‘‘subpara-
graphs (C)(ii) and (D) of section
2(a)(1), except that the Commission
and the Securities and Exchange
Commission may by rule, regulation,
or order jointly exclude any agree-
ment, contract, or transaction from
section 2(a)(1)(D)’’; and
(ii) in paragraph (2)(B)(ii), by insert-
ing ‘‘or derivatives transaction execution
facility’’ after ‘‘contract market’’.
(4) Section 4a of the Commodity Exchange Act
(7 U.S.C. 6a) is amended—
(A) in subsection (a)—
(i) in the first sentence, by inserting
‘‘or derivatives transaction execution facili-
ties’’ after ‘‘contract markets’’; and
(ii) in the second sentence, by insert-
ing ‘‘or derivatives transaction execution
facility’’ after ‘‘contract market’’;
(B) in subsection (b)—
(i) in paragraph (1), by inserting ‘‘, or
derivatives transaction execution facility or
facilities,’’ after ‘‘markets’’; and
114
(ii) in paragraph (2), by inserting ‘‘or
derivatives transaction execution facility’’
after ‘‘contract market’’; and
(C) in subsection (e)—
(i) by striking ‘‘contract market or’’
each place it appears and inserting ‘‘con-
tract market, derivatives transaction execu-
tion facility, or’’;
(ii) by striking ‘‘licensed or des-
ignated’’ each place it appears and insert-
ing ‘‘licensed, designated, or registered’’;
and
(iii) by striking ‘‘contract market, or’’
and inserting ‘‘contract market or deriva-
tives transaction execution facility, or’’.
(5) Section 4b(a) of the Commodity Exchange
Act (7 U.S.C. 6b(a)) is amended by striking ‘‘con-
tract market’’ each place it appears and inserting
‘‘registered entity’’.
(6) Sections 4c(g), 4d, 4e, and 4f of the Com-
modity Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f)
are amended by inserting ‘‘or derivatives transaction
execution facility’’ after ‘‘contract market’’ each
place it appears.
115
(7) Section 4g of the Commodity Exchange Act
(7 U.S.C. 6g) is amended—
(A) in subsection (b), by striking ‘‘clear-
inghouse and contract market’’ and inserting
‘‘registered entity’’; and
(B) in subsection (f), by striking ‘‘clearing-
houses, contract markets, and exchanges’’ and
inserting ‘‘registered entities’’.
(8) Section 4h of the Commodity Exchange Act
(7 U.S.C. 6h) is amended by striking ‘‘contract mar-
ket’’ each place it appears and inserting ‘‘registered
entity’’.
(9) Section 4i of the Commodity Exchange Act
(7 U.S.C. 6i) is amended in the first sentence by in-
serting ‘‘or derivatives transaction execution facility’’
after ‘‘contract market’’.
(10) Section 4l of the Commodity Exchange Act
(7 U.S.C. 6l) is amended by inserting ‘‘or derivatives
transaction execution facilities’’ after ‘‘contract mar-
kets’’ each place it appears.
(11) Section 4p of the Commodity Exchange
Act (7 U.S.C. 6p) is amended—
(A) in the third sentence of subsection (a),
by striking ‘‘Act or contract markets’’ and in-
116
serting ‘‘Act, contract markets, or derivatives
transaction execution facilities’’; and
(B) in subsection (b), by inserting ‘‘deriva-
tives transaction execution facility,’’ after ‘‘con-
tract market,’’.
(12) Section 6 of the Commodity Exchange Act
(7 U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended—
(A) in subsection (a)—
(i) in the first sentence—
(I) by striking ‘‘board of trade
desiring to be designated a ‘contract
market’ shall make application to the
Commission for such designation’’ and
inserting ‘‘person desiring to be des-
ignated or registered as a contract
market or derivatives transaction exe-
cution facility shall make application
to the Commission for the designation
or registration’’;
(II) by striking ‘‘above condi-
tions’’ and inserting ‘‘conditions set
forth in this Act’’; and
(III) by striking ‘‘above require-
ments’’ and inserting ‘‘the require-
ments of this Act’’;
117
(ii) in the second sentence, by striking
‘‘designation as a contract market within
one year’’ and inserting ‘‘designation or
registration as a contract market or de-
rivatives 
transaction 
execution 
facility
within 180 days’’;
(iii) in the third sentence—
(I) by striking ‘‘board of trade’’
and inserting ‘‘person’’; and
(II) by striking ‘‘one-year period’’
and inserting ‘‘180-day period’’; and
(iv) in the last sentence, by striking
‘‘designate as a ‘contract market’ any
board of trade that has made application
therefor, such board of trade’’ and insert-
ing ‘‘designate or register as a contract
market or derivatives transaction execution
facility any person that has made applica-
tion therefor, the person’’;
(B) in subsection (b)—
(i) in the first sentence—
(I) by striking ‘‘designation of
any board of trade as a ‘contract mar-
ket’ upon’’ and inserting ‘‘designation
or registration of any contract market
118
or derivatives transaction execution
facility on’’;
(II) by striking ‘‘board of trade’’
each place it appears and inserting
‘‘contract market or derivatives trans-
action execution facility’’; and
(III) by striking ‘‘designation as
set forth in section 5 of this Act’’ and
inserting ‘‘designation or registration
as set forth in sections 5 through 5b
or section 5f’’;
(ii) in the second sentence—
(I) by striking ‘‘board of trade’’
the first place it appears and inserting
‘‘contract market or derivatives trans-
action execution facility’’; and
(II) by striking ‘‘board of trade’’
the second and third places it appears
and inserting ‘‘person’’; and
(iii) in the last sentence, by striking
‘‘board of trade’’ each place it appears and
inserting ‘‘person’’;
(C) in subsection (c)—
119
(i) by striking ‘‘contract market’’ each
place it appears and inserting ‘‘registered
entity’’;
(ii) by striking ‘‘contract markets’’
each place it appears and inserting ‘‘reg-
istered entities’’; and
(iii) by striking ‘‘trading privileges’’
each place it appears and inserting ‘‘privi-
leges’’;
(D) in subsection (d), by striking ‘‘contract
market’’ each place it appears and inserting
‘‘registered entity’’; and
(E) in subsection (e), by striking ‘‘trading
on all contract markets’’ each place it appears
and inserting ‘‘the privileges of all registered
entities’’.
(13) Section 6a of the Commodity Exchange
Act (7 U.S.C. 10a) is amended—
(A) in the first sentence of subsection (a),
by striking ‘‘designated as a ‘contract market’
shall’’ and inserting ‘‘designated or registered
as a contract market or a derivatives trans-
action execution facility’’; and
(B) in subsection (b), by striking ‘‘des-
ignated as a contract market’’ and inserting
120
‘‘designated or registered as a contract market
or a derivatives transaction execution facility’’.
(14) Section 6b of the Commodity Exchange
Act (7 U.S.C. 13a) is amended—
(A) by striking ‘‘contract market’’ each
place it appears and inserting ‘‘registered enti-
ty’’;
(B) in the first sentence, by striking ‘‘des-
ignation as set forth in section 5 of this Act’’
and inserting ‘‘designation or registration as set
forth in sections 5 through 5c’’; and
(C) in the last sentence, by striking ‘‘the
contract market’s ability’’ and inserting ‘‘the
ability of the registered entity’’.
(15) Section 6c(a) of the Commodity Exchange
Act (7 U.S.C. 13a–1(a)) by striking ‘‘contract mar-
ket’’ and inserting ‘‘registered entity’’.
(16) Section 6d(1) of the Commodity Exchange
Act (7 U.S.C. 13a–2(1)) is amended by inserting
‘‘derivatives transaction execution facility,’’ after
‘‘contract market,’’.
(17) Section 7 of the Commodity Exchange Act
(7 U.S.C. 11) is amended—
(A) in the first sentence—
121
(i) by striking ‘‘board of trade’’ and
inserting ‘‘person’’;
(ii) by inserting ‘‘or registered’’ after
‘‘designated’’;
(iii) by inserting ‘‘or registration’’
after ‘‘designation’’ each place it appears;
and
(iv) by striking ‘‘contract market’’
each place it appears and inserting ‘‘reg-
istered entity’’;
(B) in the second sentence—
(i) by striking ‘‘designation of such
board of trade as a contract market’’ and
inserting ‘‘designation or registration of
the registered entity’’; and
(ii) by striking ‘‘contract markets’’
and inserting ‘‘registered entities’’; and
(C) in the last sentence—
(i) by striking ‘‘board of trade’’ and
inserting ‘‘person’’; and
(ii) by striking ‘‘designated again a
contract market’’ and inserting ‘‘des-
ignated or registered again a registered en-
tity’’.
122
(18) Section 8(c) of the Commodity Exchange
Act (7 U.S.C. 12(c)) is amended in the first sen-
tence by striking ‘‘board of trade’’ and inserting
‘‘registered entity’’.
(19) Section 8a of the Commodity Exchange
Act (7 U.S.C. 12a) is amended—
(A) by striking ‘‘contract market’’ each
place it appears and inserting ‘‘registered enti-
ty’’; and
(B) in paragraph (2)(F), by striking ‘‘trad-
ing privileges’’ and inserting ‘‘privileges’’.
(20) Sections 8b and 8c(e) of the Commodity
Exchange Act (7 U.S.C. 12b, 12c(e)) are amended
by striking ‘‘contract market’’ each place it appears
and inserting ‘‘registered entity’’.
(21) Section 8e of the Commodity Exchange
Act (7 U.S.C. 12e) is repealed.
(22) Section 9 of the Commodity Exchange Act
(7 U.S.C. 13) is amended by striking ‘‘contract mar-
ket’’ each place it appears and inserting ‘‘registered
entity’’.
(23) Section 14 of the Commodity Exchange
Act (7 U.S.C. 18) is amended—
123
(A) in subsection (a)(1)(B), by striking
‘‘contract market’’ and inserting ‘‘registered en-
tity’’; and
(B) in subsection (f), by striking ‘‘contract
markets’’ and inserting ‘‘registered entities’’.
(24) Section 17 of the Commodity Exchange
Act (7 U.S.C. 21) is amended by striking ‘‘contract
market’’ each place it appears and inserting ‘‘reg-
istered entity’’.
(25) Section 22 of the Commodity Exchange
Act (7 U.S.C. 25) is amended—
(A) in subsection (a)—
(i) in paragraph (1)—
(I) by striking ‘‘contract market,
clearing organization of a contract
market, licensed board of trade,’’ and
inserting ‘‘registered entity’’; and
(II) in subparagraph (C)(i), by
striking ‘‘contract market’’ and insert-
ing ‘‘registered entity’’;
(ii) in paragraph (2), by striking ‘‘sec-
tions 5a(11),’’ and inserting ‘‘sections
5(d)(13), 5b(b)(1)(E),’’; and
124
(iii) in paragraph (3), by striking
‘‘contract market’’ and inserting ‘‘reg-
istered entity’’; and
(B) in subsection (b)—
(i) in paragraph (1)—
(I) by striking ‘‘contract market
or clearing organization of a contract
market’’ and inserting ‘‘registered en-
tity’’;
(II) by striking ‘‘section 5a(8)
and section 5a(9) of this Act’’ and in-
serting ‘‘sections 5 through 5c’’;
(III) by striking ‘‘contract mar-
ket, clearing organization of a con-
tract market, or licensed board of
trade’’ and inserting ‘‘registered enti-
ty’’; and
(IV) by striking ‘‘contract market
or licensed board of trade’’ and insert-
ing ‘‘registered entity’’;
(ii) in paragraph (3)—
(I) by striking ‘‘a contract mar-
ket, clearing organization, licensed
board of trade,’’ and inserting ‘‘reg-
istered entity’’; and
125
(II) by striking ‘‘contract market,
licensed board of trade’’ and inserting
‘‘registered entity’’;
(iii) in paragraph (4), by striking
‘‘contract market, licensed board of trade,
clearing organization,’’ and inserting ‘‘reg-
istered entity’’; and
(iv) in paragraph (5), by striking
‘‘contract market, licensed board of trade,
clearing organization,’’ and inserting ‘‘reg-
istered entity’’.
(b) FEDERAL DEPOSIT INSURANCE CORPORATION
IMPROVEMENT ACT OF 1991.—Section 402(2) of the Fed-
eral Deposit Insurance Corporation Improvement Act of
1991 (12 U.S.C. 4402(2)) is amended by striking sub-
paragraph (B) and inserting the following:
‘‘(B) that is registered as a derivatives
clearing organization under section 5b of the
Commodity Exchange Act.’’.
(c) TAX TREATMENT OF SECURITIES FUTURES CON-
TRACTS.—
(1) IN GENERAL.—Subpart IV of subchapter P
of chapter 1 of the Internal Revenue Code of 1986
(relating to special rules for determining gains and
126
losses) is amended by inserting after section 1234A
the following new section:
‘‘SEC. 1234B. GAINS OR LOSSES FROM SECURITIES FU-
TURES CONTRACTS.
‘‘(a) TREATMENT OF GAIN OR LOSS.—
‘‘(1) IN GENERAL.—Gain or loss attributable to
the sale or exchange of a securities futures contract
shall be considered gain or loss from the sale or ex-
change of property which has the same character as
the property to which the contract relates has in the
hands of the taxpayer (or would have in the hands
of the taxpayer if acquired by the taxpayer).
‘‘(2) NONAPPLICATION OF SUBSECTION.—This
subsection shall not apply to—
‘‘(A) a contract which constitutes property
described in paragraph (1) or (7) of section
1221(a), and
‘‘(B) any income derived in connection
with a contract which, without regard to this
subsection, is treated as other than gain from
the sale or exchange of a capital asset.
‘‘(b) SHORT-TERM GAINS AND LOSSES.—Except as
provided in the regulations under section 1092(b) or this
section, if gain or loss on the sale or exchange of a securi-
ties futures contract to sell property is considered as gain
127
or loss from the sale or exchange of a capital asset, such
gain or loss shall be treated as short-term capital gain or
loss.
‘‘(c) SECURITIES FUTURES CONTRACT.—For pur-
poses of this section, the term ‘securities futures contract’
means any security future (as defined in section
3(a)(55)(A) of the Securities Exchange Act of 1934, as
in effect on the date of the enactment of this section).
‘‘(d) CONTRACTS NOT TREATED AS COMMODITY FU-
TURES CONTRACTS.—For purposes of this title, a securi-
ties futures contract shall not be treated as a commodity
futures contract.
‘‘(e) REGULATIONS.—The Secretary shall prescribe
such regulations as may be appropriate to provide for the
proper treatment of securities futures contracts under this
title.’’
(2) TERMINATIONS, ETC.—Section 1234A of
such Code is amended—
(A) by inserting ‘‘(other than a securities
futures contract, as defined in section 1234B)’’
after ‘‘right or obligation’’ in paragraph (1),
(B) by striking ‘‘or’’ at the end of para-
graph (1),
(C) by adding ‘‘or’’ at the end of para-
graph (2), and
128
(D) by inserting after paragraph (2) the
following new paragraph:
‘‘(3) a securities futures contract (as so de-
fined) which is a capital asset in the hands of the
taxpayer,’’.
(3) NONRECOGNITION UNDER SECTION 1032.—
The second sentence of section 1032(a) of such Code
is amended by inserting ‘‘, or with respect to a secu-
rities futures contract (as defined in section
1234B),’’ after ‘‘an option’’.
(4) TREATMENT UNDER WASH SALES RULES.—
Section 1091 of such Code is amended by adding at
the end the following new subsection:
‘‘(f) CASH SETTLEMENT.—This section shall not fail
to apply to a contract or option to acquire or sell stock
or securities solely by reason of the fact that the contract
or option settles in (or could be settled in) cash or property
other than such stock or securities.’’
(5) TREATMENT UNDER STRADDLE RULES.—
Clause (i) of section 1092(d)(3)(B) of such Code is
amended by striking ‘‘or’’ at the end of subclause
(I), by redesignating subclause (II) as subclause
(III), and by inserting after subclause (I) the fol-
lowing new subclause:
129
‘‘(II) a securities futures contract
(as defined in section 1234B) with re-
spect to such stock or substantially
identical stock or securities, or’’.
(6) 
TREATMENT
UNDER
SHORT
SALES
RULES.—Paragraph (2) of section 1233(e) of such
Code is amended by striking ‘‘and’’ at the end of
subparagraph (B), by striking the period at the end
of subparagraph (C) and inserting ‘‘; and’’, and by
adding at the end the following:
‘‘(D) a securities futures contract (as de-
fined in section 1234B) to acquire substantially
identical property shall be treated as substan-
tially identical property.’’
(7) TREATMENT UNDER SECTION 1256.—
(A)(i) Subsection (b) of section 1256 of
such Code is amended by striking ‘‘and’’ at the
end of paragraph (3), by striking the period at
the end of paragraph (4) and inserting ‘‘, and’’,
and by adding at the end the following:
‘‘(5) any dealer securities futures contract.
The term ‘section 1256 contract’ shall not include any se-
curities futures contract or option to enter into such a con-
tract unless such contract or option is a dealer securities
futures contract.’’
130
(ii) Subsection (g) of section 1256 of such
Code is amended by adding at the end the fol-
lowing new paragraph:
‘‘(9) DEALER
SECURITIES
FUTURES
CON-
TRACT.—
‘‘(A) IN GENERAL.—The term ‘dealer secu-
rities futures contract’ means, with respect to
any dealer, any securities futures contract, and
any option to enter into such a contract,
which—
‘‘(i) is entered into by such dealer (or,
in the case of an option, is purchased or
granted by such dealer) in the normal
course of his activity of dealing in such
contracts or options, as the case may be,
and
‘‘(ii) is traded on a qualified board or
exchange.
‘‘(B) DEALER.—For purposes of subpara-
graph (A), a person shall be treated as a dealer
in securities futures contracts or options on
such contracts if the Secretary determines that
such person performs, with respect to such con-
tracts or options, as the case may be, functions
similar to the persons described in paragraph
131
(8)(A). Such determination shall be made to the
extent appropriate to carry out the purposes of
this section.
‘‘(C) SECURITIES FUTURES CONTRACT.—
The term ‘securities futures contract’ has the
meaning given to such term by section 1234B.’’
(B) Paragraph (4) of section 1256(f) of
such Code is amended—
(i) by inserting ‘‘, or dealer securities
futures contracts,’’ after ‘‘dealer equity op-
tions’’ in the text, and
(ii) by inserting ‘‘AND DEALER SECU-
RITIES
FUTURES
CONTRACTS’’ 
after
‘‘DEALER EQUITY OPTIONS’’ in the head-
ing.
(C) Paragraph (6) of section 1256(g) of
such Code is amended to read as follows:
‘‘(6) EQUITY
OPTION.—The term ‘equity op-
tion’ means any option—
‘‘(A) to buy or sell stock, or
‘‘(B) the value of which is determined di-
rectly or indirectly by reference to any stock or
any narrow-based security index (as defined in
section 3(a)(55) of the Securities Exchange Act
132
of 1934, as in effect on the date of the enact-
ment of this paragraph).
The term ‘equity option’ includes such an option
with respect to a group of stocks only if such group
meets the requirements for a narrow-based security
index (as so defined).’’
(D) The Secretary of the Treasury or his
delegate shall make the determinations under
section 1256(g)(9)(B) of the Internal Revenue
Code of 1986, as added by this Act, not later
than July 1, 2001.
(8) CONFORMING AMENDMENTS.—
(A) Section 1223 of such Code is amended
by redesignating paragraph (16) as paragraph
(17) and by inserting after paragraph (15) the
following new paragraph:
‘‘(16) If the security to which a securities fu-
tures contract (as defined in section 1234B) relates
(other than a contract to which section 1256 ap-
plies) is acquired in satisfaction of such contract, in
determining the period for which the taxpayer has
held such security, there shall be included the period
for which the taxpayer held such contract if such
contract was a capital asset in the hands of the tax-
payer.’’.
133
(B) The table of sections for subpart IV of
subchapter P of chapter 1 of such Code is
amended by inserting after the item relating to
section 1234A the following new item:
‘‘Sec. 1234B. Securities futures contracts.’’
(9) EFFECTIVE DATE.—The amendments made
by this subsection shall take effect on the date of the
enactment of this Act.
(d) DESIGNATION OF CONTRACT MARKETS.—Section
7701 of the Internal Revenue Code of 1986 is amended
by redesignating subsection (m) as subsection (n) and by
inserting after subsection (l) the following new subsection:
‘‘(m) DESIGNATION OF CONTRACT MARKETS.—Any
designation by the Commodity Futures Trading Commis-
sion of a contract market which could not have been made
under the law in effect on the day before the date of the
enactment of the Commodity Futures Modernization Act
of 2000 shall apply for purposes of this title except to the
extent provided in regulations prescribed by the Sec-
retary.’’
SEC. 125. PRIVACY.
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
is amended by inserting after section 5f (as added by sec-
tion 222) the following:
134
‘‘SEC. 5g. PRIVACY.
‘‘(a) TREATMENT AS FINANCIAL INSTITUTIONS.—
Notwithstanding section 509(3)(B) of the Gramm-Leach-
Bliley Act, any futures commission merchant, commodity
trading advisor, commodity pool operator, or introducing
broker that is subject to the jurisdiction of the Commis-
sion under this Act with respect to any financial activity
shall be treated as a financial institution for purposes of
title V of such Act with respect to such financial activity.
‘‘(b) TREATMENT OF CFTC AS FEDERAL FUNC-
TIONAL REGULATOR.—For purposes of title V of such
Act, the Commission shall be treated as a Federal func-
tional regulator within the meaning of section 509(2) of
such Act and shall prescribe regulations under such title
within 6 months after the date of enactment of this sec-
tion.’’.
SEC. 126. REPORT TO CONGRESS.
(a) The Commodity Futures Trading Commission (in
this section referred to as the ‘‘Commission’’) shall under-
take and complete a study of the Commodity Exchange
Act (in this section referred to as ‘‘the Act’’) and the Com-
mission’s rules, regulations and orders governing the con-
duct of persons required to be registered under the Act,
not later than 1 year after the date of the enactment of
this Act. The study shall identify—
135
(1) the core principles and interpretations of ac-
ceptable business practices that the Commission has
adopted or intends to adopt to replace the provisions
of the Act and the Commission’s rules and regula-
tions thereunder;
(2) the rules and regulations that the Commis-
sion has determined must be retained and the rea-
sons therefor;
(3) the extent to which the Commission believes
it can effect the changes identified in paragraph (1)
of this subsection through its exemptive authority
under section 4(c) of the Act; and
(4) the regulatory functions the Commission
currently performs that can be delegated to a reg-
istered futures association (within the meaning of
the Act) and the regulatory functions that the Com-
mission has determined must be retained and the
reasons therefor.
(b) In conducting the study, the Commission shall so-
licit the views of the public as well as Commission reg-
istrants, registered entities, and registered futures asso-
ciations (all within the meaning of the Act).
(c) The Commission shall transmit to the Committee
on Agriculture of the House of Representatives and the
Committee on Agriculture, Nutrition, and Forestry of the
136
Senate a report of the results of its study, which shall
include an analysis of comments received.
SEC. 127. INTERNATIONAL ACTIVITIES OF THE COMMODITY
FUTURES TRADING COMMISSION.
(a) FINDINGS.—The Congress finds that—
(1) derivatives markets serving United States
industry are increasingly global in scope;
(2) developments in data processing and com-
munications technologies enable users of risk man-
agement services to analyze and compare those serv-
ices on a worldwide basis;
(3) financial services regulatory policy must be
flexible to account for rapidly changing derivatives
industry business practices;
(4) regulatory impediments to the operation of
global business interests can compromise the com-
petitiveness of United States businesses;
(5) events that disrupt financial markets and
economies are often global in scope, require rapid
regulatory response, and coordinated regulatory ef-
fort across international jurisdictions;
(6) through its membership in the International
Organisation of Securities Commissions, the Com-
modity Futures Trading Commission has promoted
137
beneficial communication among market regulators
and international regulatory cooperation; and
(7) the Commodity Futures Trading Commis-
sion and other United States financial regulators
and self-regulatory organizations should continue to
foster productive and cooperative working relation-
ships with their counterparts in foreign jurisdictions.
(b) SENSE OF THE CONGRESS.—It is the sense of
the Congress that, consistent with its responsibilities
under the Commodity Exchange Act, the Commodity Fu-
tures Trading Commission should, as part of its inter-
national activities, continue to coordinate with foreign reg-
ulatory authorities, to participate in international regu-
latory organizations and forums, and to provide technical
assistance to foreign government authorities, in order to
encourage—
(1) the facilitation of cross-border transactions
through the removal or lessening of any unnecessary
legal or practical obstacles;
(2) the development of internationally accepted
regulatory standards of best practice;
(3) the enhancement of international super-
visory cooperation and emergency procedures;
(4) the strengthening of international coopera-
tion for customer and market protection; and
138
(5) improvements in the quality and timeliness
of international information sharing.
SEC. 128. RULES OF CONSTRUCTION.
(a) FINANCIAL INSTITUTION ACTIVITIES.—No provi-
sion of this Act, or any amendment made by this Act to
any other provision of law, shall be construed as author-
izing, supporting the authorization for, or implying any
prior authorization for, any financial institution (as de-
fined in section 1a(15) of the Commodity Exchange Act),
or any subsidiary of such financial institution, to engage
in any activity or transaction or to hold any security or
other asset.
(b) DEPOSITORY INSTITUTIONS.—Section 18 of the
Federal Deposit Insurance Act (12 U.S.C. 1828) is
amended by adding at the end the following new sub-
section:
‘‘(v) RULES OF CONSTRUCTION.—
‘‘(1) IN GENERAL.—No depository institution
may take delivery of an equity security under a secu-
rity futures product (as defined in section 3(a)(56)
of the Securities Exchange Act of 1934).
‘‘(2) ADDITIONAL RULE.—Paragraph (1) shall
not be construed as creating any inference that a de-
pository institution may take delivery of, or make
139
any investment in, an equity security under any
other circumstance.’’.
TITLE II—COORDINATED REGU-
LATION 
OF 
SECURITY 
FU-
TURES PRODUCTS
Subtitle A—Securities Law
Amendments
SEC. 201. DEFINITIONS UNDER THE SECURITIES EX-
CHANGE ACT OF 1934.
Section 3(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)) is amended—
(1) in paragraph (10), by inserting ‘‘security
future,’’ after ‘‘treasury stock,’’;
(2) by striking paragraph (11) and inserting
the following:
‘‘(11) The term ‘equity security’ means any
stock or similar security; or any security future on
any such security; or any security convertible, with
or without consideration, into such a security, or
carrying any warrant or right to subscribe to or pur-
chase such a security; or any such warrant or right;
or any put, call, straddle, option, or privilege on any
such security; or any other security which the Com-
mission shall deem to be of similar nature and con-
sider necessary or appropriate, by such rules and
140
regulations as it may prescribe in the public interest
or for the protection of investors, to treat as an eq-
uity security.’’;
(3) in paragraph (13), by adding at the end the
following: ‘‘For security futures products, such term
includes any contract, agreement, or transaction for
future delivery.’’;
(4) in paragraph (14), by adding at the end the
following: ‘‘For security futures products, such term
includes any contract, agreement, or transaction for
future delivery.’’; and
(5) by adding at the end the following:
‘‘(55)(A) The term ‘security future’ means a
contract of sale for future delivery of a single secu-
rity or of a narrow-based security index, including
any interest therein or based on the value thereof,
except an exempted security under section 3(a)(12)
of the Securities Exchange Act of 1934 as in effect
on the date of enactment of the Futures Trading
Act of 1982 (other than any municipal security as
defined in section 3(a)(29) as in effect on the date
of enactment of the Futures Trading Act of 1982).
The term ‘security future’ does not include any
agreement, contract, or transaction excluded under
subsection (c), (d), (f), or (h) of section 2 of the
141
Commodity Exchange Act as in effect on the date of
enactment of the Commodity Futures Modernization
Act of 2000.
‘‘(B) The term ‘narrow-based security index’
means an index—
‘‘(i) that has 9 or fewer component securi-
ties;
‘‘(ii) in which a component security com-
prises more than 30 percent of the index’s
weighting;
‘‘(iii) in which the 5 highest weighted com-
ponent securities in the aggregate comprise
more than 60 percent of the index’s weighting;
or
‘‘(iv) in which the lowest weighted compo-
nent securities comprising, in the aggregate, 25
percent of the index’s weighting have an aggre-
gate dollar value of average daily trading vol-
ume of less than $50,000,000 (or in the case of
an index with 15 or more component securities,
$30,000,000), except that if there are two or
more securities with equal weighting that could
be included in the calculation of the lowest
weighted component securities comprising, in
the aggregate, 25 percent of the index’s
142
weighting, such securities shall be ranked from
lowest to highest dollar value of average daily
trading volume and shall be included in the cal-
culation based on their ranking starting with
the lowest ranked security.
‘‘(C) Notwithstanding subparagraph (B), an
index is not a narrow-based security index if—
‘‘(i)(I) it has at least 9 component securi-
ties;
‘‘(II) no component security comprises
more than 30 percent of the index’s weighting;
and
‘‘(III) each component security is—
‘‘(aa) registered pursuant to section
12 of this title;
‘‘(bb) 1 of 750 securities with the
largest market capitalization; and
‘‘(cc) 1 of 675 securities with the
largest dollar value of average daily trad-
ing volume;
‘‘(ii) it is a contract of sale for future de-
livery with respect to which a board of trade
was designated as a contract market by the
Commodity Futures Trading Commission prior
143
to the date of enactment of the Commodity Fu-
tures Modernization Act of 2000;
‘‘(iii)(I) it traded on a designated contract
market or registered derivatives transaction
execution facility for at least 30 days as a con-
tract of sale for future delivery that was not a
narrow-based security index; and
‘‘(II) it has been a narrow-based security
index for no more than 45 business days over
3 consecutive calendar months;
‘‘(iv) it is traded on or subject to the rules
of a foreign board of trade and meets such re-
quirements as are jointly established by rule or
regulation by the Commission and the Com-
modity Futures Trading Commission;
‘‘(v) no more than 18 months have passed
since enactment of the Commodity Futures
Modernization Act of 2000 and it is (I) traded
on or subject to the rules of a foreign board of
trade; (II) the offer and sale in the United
States of a contract of sale for future delivery
on such index was authorized prior to the effec-
tive date of the Commodity Futures Moderniza-
tion Act of 2000; and (III) the conditions of
such authorization continue to be met; or
144
‘‘(vi) it is traded on or subject to the rules
of a board of trade and meets such require-
ments as are jointly established by rule, regula-
tion, or order by the Commission and the Com-
modity Futures Trading Commission.
‘‘(D) Within 1 year after the enactment of the
Commodity Futures Modernization Act of 2000, the
Commission and the Commodity Futures Trading
Commission jointly shall adopt rules or regulations
that set forth the requirements under clause (iv) of
subparagraph (C).
‘‘(E) An index that is a narrow-based security
index solely because it was a narrow-based security
index for more than 45 business days over 3 con-
secutive calendar months pursuant to clause (iii) of
subparagraph (C) shall not be a narrow-based secu-
rity index for the 3 following calendar months.
‘‘(F) For purposes of subparagraphs (B) and
(C) of this paragraph—
‘‘(i) the dollar value of average daily trad-
ing volume and the market capitalization shall
be calculated as of the preceding 6 full calendar
months; and
‘‘(ii) the Commission and the Commodity
Futures Trading Commission shall, by rule or
145
regulation, jointly specify the method to be used
to determine market capitalization and dollar
value of average daily trading volume.
‘‘(56) The term ‘security futures product’
means a security future or any put, call, straddle,
option, or privilege on any security future.
‘‘(57)(A) The term ‘margin’, when used with
respect to a security futures product, means the
amount, type, and form of collateral required to se-
cure any extension or maintenance of credit, or the
amount, type, and form of collateral required as a
performance bond related to the purchase, sale, or
carrying of a security futures product.
‘‘(B) The terms ‘margin level’ and ‘level of mar-
gin’, when used with respect to a security futures
product, mean the amount of margin required to se-
cure any extension or maintenance of credit, or the
amount of margin required as a performance bond
related to the purchase, sale, or carrying of a secu-
rity futures product.
‘‘(C) The terms ‘higher margin level’ and ‘high-
er level of margin’, when used with respect to a se-
curity futures product, mean a margin level estab-
lished by a national securities exchange registered
pursuant to section 6(g) that is higher than the min-
146
imum amount established and in effect pursuant to
section 7(c)(2)(B).’’.
SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING
SECURITY FUTURES PRODUCTS.
(a) EXPEDITED REGISTRATION AND EXEMPTION.—
Section 6 of the Securities Exchange Act of 1934 (15
U.S.C. 78f) is amended by adding at the end the following:
‘‘(g) NOTICE REGISTRATION OF SECURITY FUTURES
PRODUCT EXCHANGES.—
‘‘(1) REGISTRATION REQUIRED.—An exchange
that lists or trades security futures products may
register as a national securities exchange solely for
the purposes of trading security futures products
if—
‘‘(A) the exchange is a board of trade, as
that term is defined by the Commodity Ex-
change Act (7 U.S.C. 1a(2)), that—
‘‘(i) has been designated a contract
market by the Commodity Futures Trad-
ing Commission and such designation is
not suspended by order of the Commodity
Futures Trading Commission; or
‘‘(ii) is registered as a derivative
transaction execution facility under section
5a of the Commodity Exchange Act and
147
such registration is not suspended by the
Commodity Futures Trading Commission;
and
‘‘(B) such exchange does not serve as a
market place for transactions in securities other
than—
‘‘(i) security futures products; or
‘‘(ii) futures on exempted securities or
groups or indexes of securities or options
thereon that have been authorized under
section 2(a)(1)(C) of the Commodity Ex-
change Act.
‘‘(2) REGISTRATION BY NOTICE FILING.—
‘‘(A) FORM AND CONTENT.—An exchange
required to register only because such exchange
lists or trades security futures products may
register for purposes of this section by filing
with the Commission a written notice in such
form as the Commission, by rule, may prescribe
containing the rules of the exchange and such
other information and documents concerning
such exchange, comparable to the information
and documents required for national securities
exchanges under section 6(a), as the Commis-
sion, by rule, may prescribe as necessary or ap-
148
propriate in the public interest or for the pro-
tection of investors. If such exchange has filed
documents with the Commodity Futures Trad-
ing Commission, to the extent that such docu-
ments contain information satisfying the Com-
mission’s informational requirements, copies of
such documents may be filed with the Commis-
sion in lieu of the required written notice.
‘‘(B) IMMEDIATE
EFFECTIVENESS.—Such
registration shall be effective contempora-
neously with the submission of notice, in writ-
ten or electronic form, to the Commission, ex-
cept that such registration shall not be effective
if such registration would be subject to suspen-
sion or revocation.
‘‘(C) 
TERMINATION.—Such 
registration
shall be terminated immediately if any of the
conditions for registration set forth in this sub-
section are no longer satisfied.
‘‘(3) PUBLIC AVAILABILITY.—The Commission
shall promptly publish in the Federal Register an ac-
knowledgment of receipt of all notices the Commis-
sion receives under this subsection and shall make
all such notices available to the public.
149
‘‘(4) EXEMPTION OF EXCHANGES FROM SPECI-
FIED PROVISIONS.—
‘‘(A) TRANSACTION EXEMPTIONS.—An ex-
change that is registered under paragraph (1)
of this subsection shall be exempt from, and
shall not be required to enforce compliance by
its members with, and its members shall not,
solely with respect to those transactions effected
on such exchange in security futures products,
be required to comply with, the following provi-
sions of this title and the rules thereunder:
‘‘(i) Subsections (b)(2), (b)(3), (b)(4),
(b)(7), (b)(9), (c), (d), and (e) of this sec-
tion.
‘‘(ii) Section 8.
‘‘(iii) Section 11.
‘‘(iv) Subsections (d), (f), and (k) of
section 17.
‘‘(v) Subsections (a), (f), and (h) of
section 19.
‘‘(B) RULE CHANGE EXEMPTIONS.—An ex-
change that registered under paragraph (1) of
this subsection shall also be exempt from sub-
mitting proposed rule changes pursuant to sec-
tion 19(b) of this title, except that—
150
‘‘(i) such exchange shall file proposed
rule changes related to higher margin lev-
els, fraud or manipulation, recordkeeping,
reporting, listing standards, or decimal
pricing for security futures products, sales
practices for security futures products for
persons who effect transactions in security
futures products, or rules effectuating such
exchange’s obligation to enforce the securi-
ties laws pursuant to section 19(b)(7);
‘‘(ii) such exchange shall file pursuant
to sections 19(b)(1) and 19(b)(2) proposed
rule changes related to margin, except for
changes resulting in higher margin levels;
and
‘‘(iii) such exchange shall file pursu-
ant to section 19(b)(1) proposed rule
changes that have been abrogated by the
Commission 
pursuant 
to 
section
19(b)(7)(C).
‘‘(5) TRADING
IN
SECURITY
FUTURES
PROD-
UCTS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), it shall be unlawful for any person
151
to execute or trade a security futures product
until the later of—
‘‘(i) 1 year after the date of enact-
ment of the Commodity Futures Mod-
ernization Act of 2000; or
‘‘(ii) such date that a futures associa-
tion registered under section 17 of the
Commodity Exchange Act has met the re-
quirements set forth in section 15A(k)(2)
of this title.
‘‘(B) 
PRINCIPAL-TO-PRINCIPAL
TRANS-
ACTIONS.—Notwithstanding subparagraph (A),
a person may execute or trade a security fu-
tures product transaction if—
‘‘(i) the transaction is entered into—
‘‘(I) on a principal-to-principal
basis between parties trading for their
own accounts or as described in sec-
tion 1a(12)(B)(ii) of the Commodity
Exchange Act; and
‘‘(II) only between eligible con-
tract participants (as defined in sub-
paragraphs (A), (B)(ii), and (C) of
such section 1a(12)) at the time at
which the persons enter into the
152
agreement, contract, or transaction;
and
‘‘(ii) the transaction is entered into on
or after the later of—
‘‘(I) 8 months after the date of
enactment of the Commodity Futures
Modernization Act of 2000; or
‘‘(II) such date that a futures as-
sociation registered under section 17
of the Commodity Exchange Act has
met the requirements set forth in sec-
tion 15A(k)(2) of this title.’’.
(b) COMMISSION
REVIEW
OF
PROPOSED
RULE
CHANGES.—
(1) EXPEDITED REVIEW.—Section 19(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(b))
is amended by adding at the end the following:
‘‘(7) SECURITY
FUTURES
PRODUCT
RULE
CHANGES.—
‘‘(A) FILING REQUIRED.—A self-regulatory
organization that is an exchange registered with
the Commission pursuant to section 6(g) of this
title or that is a national securities association
registered pursuant to section 15A(k) of this
title shall file with the Commission, in accord-
153
ance with such rules as the Commission may
prescribe, copies of any proposed rule change or
any proposed change in, addition to, or deletion
from the rules of such self-regulatory organiza-
tion (hereinafter in this paragraph collectively
referred to as a ‘proposed rule change’) that re-
lates to higher margin levels, fraud or manipu-
lation, recordkeeping, reporting, listing stand-
ards, or decimal pricing for security futures
products, sales practices for security futures
products for persons who effect transactions in
security futures products, or rules effectuating
such self-regulatory organization’s obligation to
enforce the securities laws. Such proposed rule
change shall be accompanied by a concise gen-
eral statement of the basis and purpose of such
proposed rule change. The Commission shall,
upon the filing of any proposed rule change,
promptly publish notice thereof together with
the terms of substance of the proposed rule
change or a description of the subjects and
issues involved. The Commission shall give in-
terested persons an opportunity to submit data,
views, and arguments concerning such proposed
rule change.
154
‘‘(B) FILING WITH CFTC.—A proposed rule
change filed with the Commission pursuant to
subparagraph (A) shall be filed concurrently
with the Commodity Futures Trading Commis-
sion. Such proposed rule change may take ef-
fect upon filing of a written certification with
the Commodity Futures Trading Commission
under section 5c(c) of the Commodity Exchange
Act, upon a determination by the Commodity
Futures Trading Commission that review of the
proposed rule change is not necessary, or upon
approval of the proposed rule change by the
Commodity Futures Trading Commission.
‘‘(C) ABROGATION OF RULE CHANGES.—
Any proposed rule change of a self-regulatory
organization that has taken effect pursuant to
subparagraph (B) may be enforced by such self-
regulatory organization to the extent such rule
is not inconsistent with the provisions of this
title, the rules and regulations thereunder, and
applicable Federal law. At any time within 60
days of the date of the filing of a written cer-
tification with the Commodity Futures Trading
Commission under section 5c(c) of the Com-
modity Exchange Act, the date the Commodity
155
Futures Trading Commission determines that
review of such proposed rule change is not nec-
essary, or the date the Commodity Futures
Trading Commission approves such proposed
rule change, the Commission, after consultation
with the Commodity Futures Trading Commis-
sion, summarily may abrogate the proposed rule
change and require that the proposed rule
change be refiled in accordance with the provi-
sions of paragraph (1), if it appears to the
Commission that such proposed rule change un-
duly burdens competition or efficiency, conflicts
with the securities laws, or is inconsistent with
the public interest and the protection of inves-
tors. Commission action pursuant to the pre-
ceding sentence shall not affect the validity or
force of the rule change during the period it
was in effect and shall not be reviewable under
section 25 nor deemed to be a final agency ac-
tion for purposes of section 704 of title 5,
United States Code.
‘‘(D) REVIEW
OF
RESUBMITTED
ABRO-
GATED RULES.—
‘‘(i) PROCEEDINGS.—Within 35 days
of the date of publication of notice of the
156
filing of a proposed rule change that is ab-
rogated in accordance with subparagraph
(C) and refiled in accordance with para-
graph (1), or within such longer period as
the Commission may designate up to 90
days after such date if the Commission
finds such longer period to be appropriate
and publishes its reasons for so finding or
as to which the self-regulatory organization
consents, the Commission shall—
‘‘(I) by order approve such pro-
posed rule change; or
‘‘(II) after consultation with the
Commodity Futures Trading Commis-
sion, institute proceedings to deter-
mine 
whether 
the 
proposed 
rule
change should be disapproved. Pro-
ceedings under subclause (II) shall in-
clude notice of the grounds for dis-
approval under consideration and op-
portunity for hearing and be con-
cluded within 180 days after the date
of publication of notice of the filing of
the proposed rule change. At the con-
clusion of such proceedings, the Com-
157
mission, by order, shall approve or
disapprove such proposed rule change.
The Commission may extend the time
for conclusion of such proceedings for
up to 60 days if the Commission finds
good cause for such extension and
publishes its reasons for so finding or
for such longer period as to which the
self-regulatory organization consents.
‘‘(ii) GROUNDS FOR APPROVAL.—The
Commission shall approve a proposed rule
change of a self-regulatory organization
under this subparagraph if the Commission
finds that such proposed rule change does
not unduly burden competition or effi-
ciency, does not conflict with the securities
laws, and is not inconsistent with the pub-
lic interest or the protection of investors.
The Commission shall disapprove such a
proposed rule change of a self-regulatory
organization if it does not make such find-
ing. The Commission shall not approve any
proposed rule change prior to the 30th day
after the date of publication of notice of
the filing thereof, unless the Commission
158
finds good cause for so doing and pub-
lishes its reasons for so finding.’’.
(2) DECIMAL
PRICING
PROVISIONS.—Section
19(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78s(b)) is amended by inserting after para-
graph (7), as added by paragraph (1), the following:
‘‘(8) DECIMAL
PRICING.—Not later than 9
months after the date on which trading in any secu-
rity futures product commences under this title, all
self-regulatory organizations listing or trading secu-
rity futures products shall file proposed rule changes
necessary to implement decimal pricing of security
futures products. The Commission may not require
such rules to contain equal minimum increments in
such decimal pricing.’’.
(3) CONSULTATION PROVISIONS.—Section 19(b)
of the Securities Exchange Act of 1934 (15 U.S.C.
78s(b)) is amended by inserting after paragraph (8),
as added by paragraph (2), the following:
‘‘(9) CONSULTATION WITH CFTC.—
‘‘(A) 
CONSULTATION
REQUIRED.—The
Commission shall consult with and consider the
views of the Commodity Futures Trading Com-
mission prior to approving or disapproving a
proposed rule change filed by a national securi-
159
ties association registered pursuant to section
15A(a) or a national securities exchange subject
to the provisions of subsection (a) that pri-
marily concerns conduct related to transactions
in security futures products, except where the
Commission determines that an emergency ex-
ists requiring expeditious or summary action
and publishes its reasons therefor.
‘‘(B) RESPONSES TO CFTC COMMENTS AND
FINDINGS.—If the Commodity Futures Trading
Commission comments in writing to the Com-
mission on a proposed rule that has been pub-
lished for comment, the Commission shall re-
spond in writing to such written comment be-
fore approving or disapproving the proposed
rule. If the Commodity Futures Trading Com-
mission determines, and notifies the Commis-
sion, that such rule, if implemented or as ap-
plied, would—
‘‘(i) adversely affect the liquidity or
efficiency of the market for security fu-
tures products; or
‘‘(ii) impose any burden on competi-
tion not necessary or appropriate in fur-
therance of the purposes of this section,
160
the Commission shall, prior to approving or dis-
approving the proposed rule, find that such rule
is necessary and appropriate in furtherance of
the purposes of this section notwithstanding the
Commodity Futures Trading Commission’s de-
termination.’’.
(c) REVIEW OF DISCIPLINARY PROCEEDINGS.—Sec-
tion 19(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78s(d)) is amended by adding at the end the fol-
lowing:
‘‘(3) The provisions of this subsection shall apply to
an exchange registered pursuant to section 6(g) of this
title or a national securities association registered pursu-
ant to section 15A(k) of this title only to the extent that
such exchange or association imposes any final discipli-
nary sanction for—
‘‘(A) a violation of the Federal securities laws
or the rules and regulations thereunder; or
‘‘(B) a violation of a rule of such exchange or
association, as to which a proposed change would be
required to be filed under section 19 of this title, ex-
cept that, to the extent that the exchange or associa-
tion rule violation relates to any account, agreement,
or transaction, this subsection shall apply only to the
161
extent such violation involves a security futures
product.’’.
SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES
TRADING SECURITY FUTURES PRODUCTS.
(a) EXPEDITED REGISTRATION AND EXEMPTIONS.—
(1) AMENDMENT.—Section 15(b) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78o(b)) is
amended by adding at the end the following:
‘‘(11) BROKER/DEALER
REGISTRATION
WITH
RESPECT TO TRANSACTIONS IN SECURITY FUTURES
PRODUCTS.—
‘‘(A) NOTICE REGISTRATION.—
‘‘(i) CONTENTS
OF
NOTICE.—Not-
withstanding paragraphs (1) and (2), a
broker or dealer required to register only
because it effects transactions in security
futures products on an exchange registered
pursuant to section 6(g) may register for
purposes of this section by filing with the
Commission a written notice in such form
and containing such information con-
cerning such broker or dealer and any per-
sons associated with such broker or dealer
as the Commission, by rule, may prescribe
as necessary or appropriate in the public
162
interest or for the protection of investors.
A broker or dealer may not register under
this paragraph unless that broker or dealer
is a member of a national securities asso-
ciation registered under section 15A(k).
‘‘(ii) IMMEDIATE
EFFECTIVENESS.—
Such registration shall be effective contem-
poraneously with the submission of notice,
in written or electronic form, to the Com-
mission, except that such registration shall
not be effective if the registration would be
subject to suspension or revocation under
paragraph (4).
‘‘(iii) SUSPENSION.—Such registration
shall be suspended immediately if a na-
tional securities association registered pur-
suant to section 15A(k) of this title sus-
pends the membership of that broker or
dealer.
‘‘(iv) TERMINATION.—Such registra-
tion shall be terminated immediately if any
of the above stated conditions for registra-
tion set forth in this paragraph are no
longer satisfied.
163
‘‘(B) EXEMPTIONS FOR REGISTERED BRO-
KERS AND DEALERS.—A broker or dealer reg-
istered pursuant to the requirements of sub-
paragraph (A) shall be exempt from the fol-
lowing provisions of this title and the rules
thereunder with respect to transactions in secu-
rity futures products:
‘‘(i) Section 8.
‘‘(ii) Section 11.
‘‘(iii) Subsections (c)(3) and (c)(5) of
this section.
‘‘(iv) Section 15B.
‘‘(v) Section 15C.
‘‘(vi) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.’’.
(2) CONFORMING AMENDMENT.—Section 28(e)
of the Securities Exchange Act of 1934 (15 U.S.C.
78bb(e)) is amended by adding at the end the fol-
lowing:
‘‘(4) The provisions of this subsection shall not apply
with regard to securities that are security futures prod-
ucts.’’.
(b) FLOOR BROKERS AND FLOOR TRADERS.—Sec-
tion 15(b) of the Securities Exchange Act of 1934 (15
164
U.S.C. 78o(b)) is amended by inserting after paragraph
(11), as added by subsection (a), the following:
‘‘(12) EXEMPTION
FOR
SECURITY
FUTURES
PRODUCT EXCHANGE MEMBERS.—
‘‘(A) REGISTRATION EXEMPTION.—A nat-
ural person shall be exempt from the registra-
tion requirements of this section if such
person—
‘‘(i) is a member of a designated con-
tract market registered with the Commis-
sion as an exchange pursuant to section
6(g);
‘‘(ii) effects transactions only in secu-
rities on the exchange of which such per-
son is a member; and
‘‘(iii) does not directly accept or solicit
orders from public customers or provide
advice to public customers in connection
with the trading of security futures prod-
ucts.
‘‘(B) OTHER
EXEMPTIONS.—A natural
person exempt from registration pursuant to
subparagraph (A) shall also be exempt from the
following provisions of this title and the rules
thereunder:
165
‘‘(i) Section 8.
‘‘(ii) Section 11.
‘‘(iii) Subsections (c)(3), (c)(5), and
(e) of this section.
‘‘(iv) Section 15B.
‘‘(v) Section 15C.
‘‘(vi) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.’’.
(c) LIMITED PURPOSE NATIONAL SECURITIES ASSO-
CIATION.—Section 15A of the Securities Exchange Act of
1934 (15 U.S.C. 78o–3) is amended by adding at the end
the following:
‘‘(k) LIMITED PURPOSE NATIONAL SECURITIES AS-
SOCIATION.—
‘‘(1) REGULATION OF MEMBERS WITH RESPECT
TO SECURITY FUTURES PRODUCTS.—A futures asso-
ciation registered under section 17 of the Com-
modity Exchange Act shall be a registered national
securities association for the limited purpose of reg-
ulating the activities of members who are registered
as brokers or dealers in security futures products
pursuant to section 15(b)(11).
‘‘(2) REQUIREMENTS
FOR
REGISTRATION.—
Such a securities association shall—
166
‘‘(A) be so organized and have the capacity
to carry out the purposes of the securities laws
applicable to security futures products and to
comply, and (subject to any rule or order of the
Commission pursuant to section 19(g)(2)) to
enforce compliance by its members and persons
associated with its members, with the provisions
of the securities laws applicable to security fu-
tures products, the rules and regulations there-
under, and its rules;
‘‘(B) have rules that—
‘‘(i) are designed to prevent fraudu-
lent and manipulative acts and practices,
to promote just and equitable principles of
trade, and, in general, to protect investors
and the public interest, including rules
governing sales practices and the adver-
tising of security futures products reason-
ably comparable to those of other national
securities associations registered pursuant
to subsection (a) that are applicable to se-
curity futures products; and
‘‘(ii) are not designed to regulate by
virtue of any authority conferred by this
title matters not related to the purposes of
167
this title or the administration of the asso-
ciation;
‘‘(C) have rules that provide that (subject
to any rule or order of the Commission pursu-
ant to section 19(g)(2)) its members and per-
sons associated with its members shall be ap-
propriately disciplined for violation of any provi-
sion of the securities laws applicable to security
futures products, the rules or regulations there-
under, or the rules of the association, by expul-
sion, suspension, limitation of activities, func-
tions, and operations, fine, censure, being sus-
pended or barred from being associated with a
member, or any other fitting sanction; and
‘‘(D) have rules that ensure that members
and natural persons associated with members
meet such standards of training, experience,
and competence necessary to effect transactions
in security futures products and are tested for
their knowledge of securities and security fu-
tures products.
‘‘(3) EXEMPTION FROM RULE CHANGE SUBMIS-
SION.—Such a securities association shall be exempt
from submitting proposed rule changes pursuant to
section 19(b) of this title, except that—
168
‘‘(A) the association shall file proposed
rule changes related to higher margin levels,
fraud or manipulation, recordkeeping, report-
ing, listing standards, or decimal pricing for se-
curity futures products, sales practices for, ad-
vertising of, or standards of training, experi-
ence, competence, or other qualifications for se-
curity futures products for persons who effect
transactions in security futures products, or
rules effectuating the association’s obligation to
enforce the securities laws pursuant to section
19(b)(7);
‘‘(B) the association shall file pursuant to
sections 19(b)(1) and 19(b)(2) proposed rule
changes related to margin, except for changes
resulting in higher margin levels; and
‘‘(C) the association shall file pursuant to
section 19(b)(1) proposed rule changes that
have been abrogated by the Commission pursu-
ant to section 19(b)(7)(C).
‘‘(4) OTHER EXEMPTIONS.—Such a securities
association shall be exempt from and shall not be re-
quired to enforce compliance by its members, and its
members shall not, solely with respect to their trans-
actions effected in security futures products, be re-
169
quired to comply, with the following provisions of
this title and the rules thereunder:
‘‘(A) Section 8.
‘‘(B) Subsections (b)(1), (b)(3), (b)(4),
(b)(5), (b)(8), (b)(10), (b)(11), (b)(12), (b)(13),
(c), (d), (e), (f), (g), (h), and (i) of this section.
‘‘(C) Subsections (d), (f), and (k) of sec-
tion 17.
‘‘(D) Subsections (a), (f), and (h) of sec-
tion 19.’’.
(d) EXEMPTION UNDER THE SECURITIES INVESTOR
PROTECTION ACT OF 1970.—
(1) Section 16(14) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78lll(14)) is
amended by inserting ‘‘or any security future as that
term is defined in section 3(a)(55)(A) of the Securi-
ties Exchange Act of 1934,’’ after ‘‘certificate of de-
posit for a security,’’.
(2) Section 3(a)(2)(A) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A))
is amended—
(A) in clause (i), by striking ‘‘and’’ after
the semicolon;
(B) in clause (ii), by striking the period
and inserting ‘‘; and’’;
170
(C) by adding at the end the following:
‘‘(iii) persons who are registered as a
broker or dealer pursuant to section
15(b)(11)(A) of the Securities Exchange
Act of 1934.’’.
SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY CO-
OPERATION.
Section 17(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78q(b)) is amended—
(1) by striking ‘‘(b) All’’ and inserting the fol-
lowing:
‘‘(b) RECORDS SUBJECT TO EXAMINATION.—
‘‘(1) PROCEDURES
FOR
COOPERATION
WITH
OTHER AGENCIES.—All’’;
(2) by striking ‘‘prior to conducting any such
examination of a registered clearing’’ and inserting
the following: ‘‘prior to conducting any such exam-
ination of a—
‘‘(A) registered clearing’’;
(3) by redesignating the last sentence as para-
graph (4)(C);
(4) by striking the period at the end of the first
sentence and inserting the following: ‘‘; or
‘‘(B) broker or dealer registered pursuant
to section 15(b)(11), exchange registered pursu-
171
ant to section 6(g), or national securities asso-
ciation registered pursuant to section 15A(k)
gives notice to the Commodity Futures Trading
Commission of such proposed examination and
consults with the Commodity Futures Trading
Commission concerning the feasibility and de-
sirability of coordinating such examination with
examinations conducted by the Commodity Fu-
tures Trading Commission in order to avoid un-
necessary regulatory duplication or undue regu-
latory burdens for such broker or dealer or ex-
change.’’;
(5) by adding at the end the following new
paragraphs:
‘‘(2) FURNISHING
DATA
AND
REPORTS
TO
CFTC.—The Commission shall notify the Commodity
Futures Trading Commission of any examination
conducted of any broker or dealer registered pursu-
ant to section 15(b)(11), exchange registered pursu-
ant to section 6(g), or national securities association
registered pursuant to section 15A(k) and, upon re-
quest, furnish to the Commodity Futures Trading
Commission any examination report and data sup-
plied to, or prepared by, the Commission in connec-
tion with such examination.
172
‘‘(3) USE OF CFTC REPORTS.—Prior to con-
ducting an examination under paragraph (1), the
Commission shall use the reports of examinations, if
the information available therein is sufficient for the
purposes of the examination, of—
‘‘(A) any broker or dealer registered pursu-
ant to section 15(b)(11);
‘‘(B) exchange registered pursuant to sec-
tion 6(g); or
‘‘(C) national securities association reg-
istered pursuant to section 15A(k);
that is made by the Commodity Futures Trading
Commission, a national securities association reg-
istered pursuant to section 15A(k), or an exchange
registered pursuant to section 6(g).
‘‘(4) RULES OF CONSTRUCTION.—
‘‘(A) Notwithstanding any other provision
of this subsection, the records of a broker or
dealer registered pursuant to section 15(b)(11),
an exchange registered pursuant to section
6(g), or a national securities association reg-
istered pursuant to section 15A(k) described in
this subparagraph shall not be subject to rou-
tine periodic examinations by the Commission.
173
‘‘(B) Any recordkeeping rules adopted
under this subsection for a broker or dealer reg-
istered pursuant to section 15(b)(11), an ex-
change registered pursuant to section 6(g), or a
national securities association registered pursu-
ant to section 15A(k) shall be limited to records
with respect to persons, accounts, agreements,
and transactions involving security futures
products.’’; and
(6) in paragraph (4)(C) (as redesignated by
paragraph (3) of this section), by striking ‘‘Nothing
in the proviso to the preceding sentence’’ and insert-
ing ‘‘Nothing in the proviso in paragraph (1)’’.
SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SE-
CURITY FUTURES PRODUCTS.
(a) ADDITION OF SECURITY FUTURES PRODUCTS TO
OPTION-SPECIFIC ENFORCEMENT PROVISIONS.—
(1) PROHIBITION
AGAINST
MANIPULATION.—
Section 9(b) of the Securities Exchange Act of 1934
(15 U.S.C. 78i(b)) is amended—
(A) in paragraph (1)—
(i) by inserting ‘‘(A)’’ after ‘‘ac-
quires’’; and
174
(ii) by striking ‘‘; or’’ and inserting ‘‘;
or (B) any security futures product on the
security; or’’;
(B) in paragraph (2)—
(i) by inserting ‘‘(A)’’ after ‘‘interest
in any’’; and
(ii) by striking ‘‘; or’’ and inserting ‘‘;
or (B) such security futures product; or’’;
and
(C) in paragraph (3)—
(i) by inserting ‘‘(A)’’ after ‘‘interest
in any’’; and
(ii) by inserting ‘‘; or (B) such secu-
rity futures product’’ after ‘‘privilege’’.
(2) MANIPULATION
IN
OPTIONS
AND
OTHER
DERIVATIVE PRODUCTS.—Section 9(g) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78i(g)) is
amended—
(A) by inserting ‘‘(1)’’ after ‘‘(g)’’;
(B) by inserting ‘‘other than a security fu-
tures product’’ after ‘‘future delivery’’; and
(C) by adding at the end following:
‘‘(2) Notwithstanding the Commodity Exchange Act,
the Commission shall have the authority to regulate the
175
trading of any security futures product to the extent pro-
vided in the securities laws.’’.
(3) LIABILITY OF CONTROLLING PERSONS AND
PERSONS WHO AID AND ABET VIOLATIONS.—Section
20(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78t(d)) is amended by striking ‘‘or privilege’’
and inserting ‘‘, privilege, or security futures prod-
uct’’.
(4) LIABILITY TO CONTEMPORANEOUS TRADERS
FOR INSIDER TRADING.—Section 21A(a)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78u–
1(a)(1)) is amended by striking ‘‘standardized op-
tions, the Commission—’’ and inserting ‘‘standard-
ized options or security futures products, the Com-
mission—’’.
(5) ENFORCEMENT
CONSULTATION.—Section
21 of the Securities Exchange Act of 1934 (15
U.S.C. 78u) is amended by adding at the end the
following:
‘‘(i) INFORMATION
TO CFTC.—The Commission
shall provide the Commodity Futures Trading Commission
with notice of the commencement of any proceeding and
a copy of any order entered by the Commission against
any broker or dealer registered pursuant to section
15(b)(11), any exchange registered pursuant to section
176
6(g), or any national securities association registered pur-
suant to section 15A(k).’’.
SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SE-
CURITY FUTURES PRODUCTS.
(a) LISTING STANDARDS
AND CONDITIONS
FOR
TRADING.—Section 6 of the Securities Exchange Act of
1934 (15 U.S.C. 78f) is amended by inserting after sub-
section (g), as added by section 202, the following:
‘‘(h) TRADING IN SECURITY FUTURES PRODUCTS.—
‘‘(1) TRADING ON EXCHANGE OR ASSOCIATION
REQUIRED.—It shall be unlawful for any person to
effect transactions in security futures products that
are not listed on a national securities exchange or a
national securities association registered pursuant to
section 15A(a).
‘‘(2) LISTING STANDARDS REQUIRED.—Except
as otherwise provided in paragraph (7), a national
securities exchange or a national securities associa-
tion registered pursuant to section 15A(a) may trade
only security futures products that (A) conform with
listing standards that such exchange or association
files with the Commission under section 19(b) and
(B) 
meet 
the 
criteria 
specified 
in 
section
2(a)(1)(D)(i) of the Commodity Exchange Act.
177
‘‘(3) REQUIREMENTS FOR LISTING STANDARDS
AND
CONDITIONS
FOR
TRADING.—Such listing
standards shall—
‘‘(A) except as otherwise provided in a
rule, regulation, or order issued pursuant to
paragraph (4), require that any security under-
lying the security future, including each compo-
nent security of a narrow-based security index,
be registered pursuant to section 12 of this
title;
‘‘(B) require that if the security futures
product is not cash settled, the market on
which the security futures product is traded
have arrangements in place with a registered
clearing agency for the payment and delivery of
the securities underlying the security futures
product;
‘‘(C) be no less restrictive than comparable
listing standards for options traded on a na-
tional securities exchange or national securities
association registered pursuant to section
15A(a) of this title;
‘‘(D) except as otherwise provided in a
rule, regulation, or order issued pursuant to
paragraph (4), require that the security future
178
be based upon common stock and such other
equity securities as the Commission and the
Commodity Futures Trading Commission joint-
ly determine appropriate;
‘‘(E) require that the security futures
product is cleared by a clearing agency that has
in place provisions for linked and coordinated
clearing with other clearing agencies that clear
security futures products, which permits the se-
curity futures product to be purchased on one
market and offset on another market that
trades such product;
‘‘(F) require that only a broker or dealer
subject to suitability rules comparable to those
of a national securities association registered
pursuant to section 15A(a) effect transactions
in the security futures product;
‘‘(G) require that the security futures
product be subject to the prohibition against
dual trading in section 4j of the Commodity Ex-
change Act (7 U.S.C. 6j) and the rules and reg-
ulations thereunder or the provisions of section
11(a) of this title and the rules and regulations
thereunder, except to the extent otherwise per-
179
mitted under this title and the rules and regula-
tions thereunder;
‘‘(H) require that trading in the security
futures product not be readily susceptible to
manipulation of the price of such security fu-
tures product, nor to causing or being used in
the manipulation of the price of any underlying
security, option on such security, or option on
a group or index including such securities;
‘‘(I) require that procedures be in place for
coordinated surveillance among the market on
which the security futures product is traded,
any market on which any security underlying
the security futures product is traded, and
other markets on which any related security is
traded to detect manipulation and insider trad-
ing;
‘‘(J) require that the market on which the
security futures product is traded has in place
audit trails necessary or appropriate to facili-
tate the coordinated surveillance required in
subparagraph (I);
‘‘(K) require that the market on which the
security futures product is traded has in place
procedures to coordinate trading halts between
180
such market and any market on which any se-
curity underlying the security futures product is
traded and other markets on which any related
security is traded; and
‘‘(L) require that the margin requirements
for a security futures product comply with the
regulations prescribed pursuant to section
7(c)(2)(B), except that nothing in this subpara-
graph shall be construed to prevent a national
securities exchange or national securities asso-
ciation from requiring higher margin levels for
a security futures product when it deems such
action to be necessary or appropriate.
‘‘(4) AUTHORITY TO MODIFY CERTAIN LISTING
STANDARD REQUIREMENTS.—
‘‘(A) AUTHORITY TO MODIFY.—The Com-
mission and the Commodity Futures Trading
Commission, by rule, regulation, or order, may
jointly modify the listing standard requirements
specified in subparagraph (A) or (D) of para-
graph (3) to the extent such modification fos-
ters the development of fair and orderly mar-
kets in security futures products, is necessary
or appropriate in the public interest, and is con-
sistent with the protection of investors.
181
‘‘(B) AUTHORITY
TO
GRANT
EXEMP-
TIONS.—The Commission and the Commodity
Futures Trading Commission, by order, may
jointly exempt any person from compliance with
the listing standard requirement specified in
subparagraph (E) of paragraph (3) to the ex-
tent such exemption fosters the development of
fair and orderly markets in security futures
products, is necessary or appropriate in the
public interest, and is consistent with the pro-
tection of investors.
‘‘(5) REQUIREMENTS
FOR
OTHER
PERSONS
TRADING SECURITY FUTURE PRODUCTS.—It shall be
unlawful for any person (other than a national secu-
rities exchange or a national securities association
registered pursuant to section 15A(a)) to constitute,
maintain, or provide a marketplace or facilities for
bringing together purchasers and sellers of security
future products or to otherwise perform with respect
to security future products the functions commonly
performed by a stock exchange as that term is gen-
erally understood, unless a national securities asso-
ciation registered pursuant to section 15A(a) or a
national securities exchange of which such person is
a member—
182
‘‘(A) has in place procedures for coordi-
nated surveillance among such person, the mar-
ket trading the securities underlying the secu-
rity future products, and other markets trading
related securities to detect manipulation and in-
sider trading;
‘‘(B) has rules to require audit trails nec-
essary or appropriate to facilitate the coordi-
nated surveillance required in subparagraph
(A); and
‘‘(C) has rules to require such person to
coordinate trading halts with markets trading
the securities underlying the security future
products and other markets trading related se-
curities.
‘‘(6) DEFERRAL OF OPTIONS ON SECURITY FU-
TURES
TRADING.—No person shall offer to enter
into, enter into, or confirm the execution of any put,
call, straddle, option, or privilege on a security fu-
ture, except that, after 3 years after the date of en-
actment of this subsection, the Commission and the
Commodity Futures Trading Commission may by
order jointly determine to permit trading of puts,
calls, straddles, options, or privileges on any security
183
future authorized to be traded under the provisions
of this Act and the Commodity Exchange Act.
‘‘(7) DEFERRAL OF LINKED AND COORDINATED
CLEARING.—
‘‘(A) Notwithstanding paragraph (2), until
the compliance date, a national securities ex-
change or national securities association reg-
istered pursuant to section 15A(a) may trade a
security futures product that does not—
‘‘(i) conform with any listing standard
promulgated to meet the requirement spec-
ified in subparagraph (E) of paragraph
(3); or
‘‘(ii) meet the criterion specified in
section 2(a)(1)(D)(i)(IV) of the Com-
modity Exchange Act.
‘‘(B) The Commission and the Commodity
Futures Trading Commission shall jointly pub-
lish in the Federal Register a notice of the com-
pliance date no later than 165 days before the
compliance date.
‘‘(C) For purposes of this paragraph, the
term ‘compliance date’ means the later of—
‘‘(i) 180 days after the end of the
first full calendar month period in which
184
the average aggregate comparable share
volume for all security futures products
based on single equity securities traded on
all national securities exchanges, any na-
tional securities associations registered
pursuant to section 15A(a), and all other
persons equals or exceeds 10 percent of the
average aggregate comparable share vol-
ume of options on single equity securities
traded on all national securities exchanges
and any national securities associations
registered pursuant to section 15A(a); or
‘‘(ii) 2 years after the date on which
trading in any security futures product
commences under this title.’’.
(b) MARGIN.—Section 7 of the Securities Exchange
Act of 1934 (15 U.S.C. 78g) is amended—
(1) in subsection (a), by inserting ‘‘or a security
futures product’’ after ‘‘exempted security’’;
(2) in subsection (c)(1)(A), by inserting ‘‘except
as provided in paragraph (2),’’ after ‘‘security),’’;
(3) by redesignating paragraph (2) of sub-
section (c) as paragraph (3) of such subsection; and
(4) by inserting after paragraph (1) of such
subsection the following:
185
‘‘(2) MARGIN REGULATIONS.—
‘‘(A) COMPLIANCE
WITH
MARGIN
RULES
REQUIRED.—It shall be unlawful for any
broker, dealer, or member of a national securi-
ties exchange to, directly or indirectly, extend
or maintain credit to or for, or collect margin
from any customer on, any security futures
product unless such activities comply with the
regulations—
‘‘(i) which the Board shall prescribe
pursuant to subparagraph (B); or
‘‘(ii) if the Board determines to dele-
gate the authority to prescribe such regula-
tions, which the Commission and the Com-
modity Futures Trading Commission shall
jointly prescribe pursuant to subparagraph
(B).
If the Board delegates the authority to pre-
scribe such regulations under clause (ii) and the
Commission and the Commodity Futures Trad-
ing Commission have not jointly prescribed such
regulations within a reasonable period of time
after the date of such delegation, the Board
shall prescribe such regulations pursuant to
subparagraph (B).
186
‘‘(B) 
CRITERIA
FOR
ISSUANCE
OF
RULES.—The Board shall prescribe, or, if the
authority is delegated pursuant to subpara-
graph (A)(ii), the Commission and the Com-
modity Futures Trading Commission shall
jointly prescribe, such regulations to establish
margin requirements, including the establish-
ment of levels of margin (initial and mainte-
nance) for security futures products under such
terms, and at such levels, as the Board deems
appropriate, or as the Commission and the
Commodity Futures Trading Commission joint-
ly deem appropriate—
‘‘(i) to preserve the financial integrity
of markets trading security futures prod-
ucts;
‘‘(ii) to prevent systemic risk;
‘‘(iii) to require that—
‘‘(I) the margin requirements for
a security future product be con-
sistent with the margin requirements
for comparable option contracts trad-
ed on any exchange registered pursu-
ant to section 6(a) of this title; and
187
‘‘(II) initial and maintenance
margin levels for a security future
product not be lower than the lowest
level of margin, exclusive of premium,
required for any comparable option
contract traded on any exchange reg-
istered pursuant to section 6(a) of
this title, other than an option on a
security future;
except that nothing in this subparagraph
shall be construed to prevent a national se-
curities exchange or national securities as-
sociation from requiring higher margin lev-
els for a security future product when it
deems such action to be necessary or ap-
propriate; and
‘‘(iv) to ensure that the margin re-
quirements (other than levels of margin),
including the type, form, and use of collat-
eral for security futures products, are and
remain consistent with the requirements
established by the Board, pursuant to sub-
paragraphs (A) and (B) of paragraph
(1).’’.
188
(c) INCORPORATION OF SECURITY FUTURES PROD-
UCTS INTO THE NATIONAL MARKET SYSTEM.—Section
11A of the Securities Exchange Act of 1934 (15 U.S.C.
78k–1) is amended by adding at the end the following:
‘‘(e) NATIONAL MARKETS SYSTEM FOR SECURITY
FUTURES PRODUCTS.—
‘‘(1) CONSULTATION
AND
COOPERATION
RE-
QUIRED.—With respect to security futures products,
the Commission and the Commodity Futures Trad-
ing Commission shall consult and cooperate so that,
to the maximum extent practicable, their respective
regulatory responsibilities may be fulfilled and the
rules and regulations applicable to security futures
products may foster a national market system for
security futures products if the Commission and the
Commodity Futures Trading Commission jointly de-
termine that such a system would be consistent with
the congressional findings in subsection (a)(1). In
accordance with this objective, the Commission shall,
at least 15 days prior to the issuance for public com-
ment of any proposed rule or regulation under this
section concerning security futures products, consult
and request the views of the Commodity Futures
Trading Commission.
189
‘‘(2) APPLICATION
OF
RULES
BY
ORDER
OF
CFTC.—No rule adopted pursuant to this section
shall be applied to any person with respect to the
trading of security futures products on an exchange
that is registered under section 6(g) unless the Com-
modity Futures Trading Commission has issued an
order directing that such rule is applicable to such
persons.’’.
(d) INCORPORATION OF SECURITY FUTURES PROD-
UCTS INTO THE NATIONAL SYSTEM FOR CLEARANCE AND
SETTLEMENT.—Section 17A(b) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78q–1(b)) is amended by
adding at the end the following:
‘‘(7)(A) A clearing agency that is regulated directly
or indirectly by the Commodity Futures Trading Commis-
sion through its association with a designated contract
market for security futures products that is a national se-
curities exchange registered pursuant to section 6(g), and
that would be required to register pursuant to paragraph
(1) of this subsection only because it performs the func-
tions of a clearing agency with respect to security futures
products effected pursuant to the rules of the designated
contract market with which such agency is associated, is
exempted from the provisions of this section and the rules
and regulations thereunder, except that if such a clearing
190
agency performs the functions of a clearing agency with
respect to a security futures product that is not cash set-
tled, it must have arrangements in place with a registered
clearing agency to effect the payment and delivery of the
securities underlying the security futures product.
‘‘(B) Any clearing agency that performs the functions
of a clearing agency with respect to security futures prod-
ucts must coordinate with and develop fair and reasonable
links with any and all other clearing agencies that perform
the functions of a clearing agency with respect to security
futures products, in order to permit, as of the compliance
date (as defined in section 6(h)(6)(C)), security futures
products to be purchased on one market and offset on an-
other market that trades such products.’’.
(e) MARKET EMERGENCY POWERS
AND CIRCUIT
BREAKERS.—Section 12(k) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(k)) is amended—
(1) in paragraph (1), by adding at the end the
following: ‘‘If the actions described in subparagraph
(A) or (B) involve a security futures product, the
Commission shall consult with and consider the
views of the Commodity Futures Trading Commis-
sion.’’; and
(2) in paragraph (2)(B), by inserting after the
first sentence the following: ‘‘If the actions described
191
in subparagraph (A) involve a security futures prod-
uct, the Commission shall consult with and consider
the views of the Commodity Futures Trading Com-
mission.’’.
(f) TRANSACTION FEES.—Section 31 of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78ee) is amended
(1) in subsection (a), by inserting ‘‘and assess-
ments’’ after ‘‘fees’’;
(2) in subsections (b), (c), and (d)(1), by strik-
ing ‘‘and other evidences of indebtedness’’ and in-
serting ‘‘other evidences of indebtedness, and secu-
rity futures products’’;
(3) in subsection (f), by inserting ‘‘or assess-
ment’’ after ‘‘fee’’;
(4) in subsection (g), by inserting ‘‘and assess-
ment’’ after ‘‘fee’’;
(5) by redesignating subsections (e), (f), and
(g) as subsections (f), (g), and (h), respectively; and
(6) by inserting after subsection (d) the fol-
lowing new subsection:
‘‘(e) ASSESSMENTS ON SECURITY FUTURES TRANS-
ACTIONS.—Each national securities exchange and national
securities association shall pay to the Commission an as-
sessment equal to $0.02 for each round turn transaction
(treated as including one purchase and one sale of a con-
192
tract of sale for future delivery) on a security future trad-
ed on such national securities exchange or by or through
any member of such association otherwise than on a na-
tional securities exchange, except that for fiscal year 2007
or any succeeding fiscal year such assessment shall be
equal to $0.0075 for each such transaction. Assessments
collected pursuant to this subsection shall be deposited
and collected as general revenue of the Treasury.’’.
(g) EXEMPTION FROM SHORT SALE PROVISIONS.—
Section 10(a) of the Securities Exchange Act of 1934 (15
U.S.C 78j(a)) is amended—
(1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and
(2) by adding at the end the following:
‘‘(2) Paragraph (1) of this subsection shall not apply
to security futures products.’’.
(h) RULEMAKING AUTHORITY TO ADDRESS DUPLI-
CATIVE REGULATION OF DUAL REGISTRANTS.—Section
15(c)(3) of the Securities Exchange Act of 1934 (15
U.S.C. 78o(c)(3))is amended—
(1) by inserting ‘‘(A)’’ after ‘‘(3)’’; and
(2) by adding at the end the following:
‘‘(B) Consistent with this title, the Commission, in
consultation with the Commodity Futures Trading Com-
mission, shall issue such rules, regulations, or orders as
are necessary to avoid duplicative or conflicting regula-
193
tions applicable to any broker or dealer registered with
the Commission pursuant to section 15(b) (except para-
graph (11) thereof), that is also registered with the Com-
modity Futures Trading Commission pursuant to section
4f(a) of the Commodity Exchange Act (except paragraph
(2) thereof), with respect to the application of (i) the pro-
visions of section 8, section 15(c)(3), and section 17 of
this title and the rules and regulations thereunder related
to the treatment of customer funds, securities, or prop-
erty, maintenance of books and records, financial report-
ing, or other financial responsibility rules, involving secu-
rity futures products and (ii) similar provisions of the
Commodity Exchange Act and rules and regulations there-
under involving security futures products.’’.
(i) OBLIGATION TO ADDRESS DUPLICATIVE REGULA-
TION OF DUAL REGISTRANTS.—Section 6 of the Securi-
ties Exchange Act of 1934 (15 U.S.C 78f) is amended
by inserting after subsection (h), as added by subsection
(a), the following:
‘‘(i) Consistent with this title, each national securities
exchange registered pursuant to subsection (a) of this sec-
tion shall issue such rules as are necessary to avoid dupli-
cative or conflicting rules applicable to any broker or deal-
er registered with the Commission pursuant to section
15(b) (except paragraph (11) thereof), that is also reg-
194
istered with the Commodity Futures Trading Commission
pursuant to section 4f(a) of the Commodity Exchange Act
(except paragraph (2) thereof), with respect to the appli-
cation of—
(1) rules of such national securities exchange of
the type specified in section 15(c)(3)(B) involving
security futures products; and
(2) similar rules of national securities ex-
changes registered pursuant to section 6(g) and na-
tional securities associations registered pursuant to
section 15A(k) involving security futures products.’’.
(j) OBLIGATION TO ADDRESS DUPLICATIVE REGU-
LATION OF DUAL REGISTRANTS.—Section 15A of the Se-
curities Exchange Act of 1934 (15 U.S.C 78o–3) is
amended by inserting after subsection (k), as added by
section 203, the following:
‘‘(l) Consistent with this title, each national securities
association registered pursuant to subsection (a) of this
section shall issue such rules as are necessary to avoid du-
plicative or conflicting rules applicable to any broker or
dealer registered with the Commission pursuant to section
15(b) (except paragraph (11) thereof), that is also reg-
istered with the Commodity Futures Trading Commission
pursuant to section 4f(a) of the Commodity Exchange Act
195
(except paragraph (2) thereof), with respect to the appli-
cation of—
‘‘(1) rules of such national securities association
of the type specified in section 15(c)(3)(B) involving
security futures products; and
‘‘(2) similar rules of national securities associa-
tions registered pursuant to subsection (k) of this
section and national securities exchanges registered
pursuant to section 6(g) involving security futures
products.’’.
(k) OBLIGATION TO PUT IN PLACE PROCEDURES
AND ADOPT RULES.—
(1) NATIONAL
SECURITIES
ASSOCIATIONS.—
Section 15A of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3) is amended by inserting after
subsection (l), as added by subsection (j) of this sec-
tion, the following new subsection:
‘‘(m) PROCEDURES AND RULES FOR SECURITY FU-
TURE PRODUCTS.—A national securities association reg-
istered pursuant to subsection (a) shall, not later than 8
months after the date of enactment of the Commodity Fu-
tures Modernization Act of 2000, implement the proce-
dures specified in section 6(h)(5)(A) of this title and adopt
the rules specified in subparagraphs (B) and (C) of section
6(h)(5) of this title.’’.
196
(2) NATIONAL SECURITIES EXCHANGES.—Sec-
tion 6 of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3) is amended by inserting after sub-
section (i), as added by subsection (i) of this section,
the following new subsection:
‘‘(j) PROCEDURES AND RULES FOR SECURITY FU-
TURE PRODUCTS.—A national securities exchange reg-
istered pursuant to subsection (a) shall implement the pro-
cedures specified in section 6(h)(5)(A) of this title and
adopt the rules specified in subparagraphs (B) and (C)
of section 6(h)(5) of this title not later than 8 months
after the date of receipt of a request from an alternative
trading system for such implementation and rules.’’.
(l) OBLIGATION TO ADDRESS SECURITY FUTURES
PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section
6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f)
is amended by adding after subsection (i), as added by
subsection (i), the following—
‘‘(j)(1) To the extent necessary or appropriate in the
public interest, to promote fair competition, and consistent
with the protection of investors and the maintenance of
fair and orderly markets, the Commission and the Com-
modity Futures Trading Commission shall jointly issue
such rules, regulations, or orders as are necessary and ap-
propriate to permit the offer and sale of a security futures
197
product traded on or subject to the rules of a foreign
board of trade to United States persons.
‘‘(2) The rules, regulations, or orders adopted under
paragraph (1) shall take into account, as appropriate, the
nature and size of the markets that the securities under-
lying the security futures product reflect.’’.
SEC. 207. CLEARANCE AND SETTLEMENT.
Section 17A(b) of the Securities Exchange Act of
1934 (15 U.S.C. 78q–1(b)) is amended—
(1) in paragraph (3)(A), by inserting ‘‘and de-
rivative agreements, contracts, and transactions’’
after ‘‘prompt and accurate clearance and settlement
of securities transactions’’;
(2) in paragraph (3)(F), by inserting ‘‘and, to
the extent applicable, derivative agreements, con-
tracts, and transactions’’ after ‘‘designed to promote
the prompt and accurate clearance and settlement of
securities transactions’’; and
(3) by inserting after paragraph (7), as added
by section 206(d), the following:
‘‘(8) A registered clearing agency shall be permitted
to provide facilities for the clearance and settlement of any
derivative agreements, contracts, or transactions that are
excluded from the Commodity Exchange Act, subject to
the requirements of this section and to such rules and reg-
198
ulations as the Commission may prescribe as necessary or
appropriate in the public interest, for the protection of in-
vestors, or otherwise in furtherance of the purposes of this
title.’’.
SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND
DISCLOSURE ISSUES UNDER THE SECURI-
TIES ACT OF 1933 AND THE SECURITIES EX-
CHANGE ACT OF 1934.
(a) AMENDMENTS
TO
THE SECURITIES ACT
OF
1933.—
(1) TREATMENT OF SECURITY FUTURES PROD-
UCTS.—Section 2(a) of the Securities Act of 1933
(15 U.S.C. 77b(a)) is amended—
(A) in paragraph (1), by inserting ‘‘secu-
rity future,’’ after ‘‘treasury stock,’’;
(B) in paragraph (3), by adding at the end
the following: ‘‘Any offer or sale of a security
futures product by or on behalf of the issuer of
the securities underlying the security futures
product, an affiliate of the issuer, or an under-
writer, shall constitute a contract for sale of,
sale of, offer for sale, or offer to sell the under-
lying securities.’’;
(C) by adding at the end the following:
199
‘‘(16) The terms ‘security future’, ‘narrow-
based security index’, and ‘security futures product’
have the same meanings as provided in section
3(a)(55) of the Securities Exchange Act of 1934.’’.
(2) EXEMPTION FROM REGISTRATION.—Section
3(a) of the Securities Act of 1933 (15 U.S.C.
77c(a)) is amended by adding at the end the fol-
lowing:
‘‘(14) Any security futures product that is—
‘‘(A) cleared by a clearing agency reg-
istered under section 17A of the Securities Ex-
change Act of 1934 or exempt from registration
under subsection (b)(7) of such section 17A;
and
‘‘(B) traded on a national securities ex-
change or a national securities association reg-
istered pursuant to section 15A(a) of the Secu-
rities Exchange Act of 1934.’’.
(3) 
CONFORMING
AMENDMENT.—Section
12(a)(2) of the Securities Act of 1933 (15 U.S.C.
77l(a)(2)) is amended by striking ‘‘paragraph (2)’’
and inserting ‘‘paragraphs (2) and (14)’’.
(b) AMENDMENTS TO THE SECURITIES EXCHANGE
ACT OF 1934.—