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 the 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. 113. 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 112(f )) 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.
‘‘(3) NONCOMPLIANCE.—If a contract market
or derivatives transaction execution facility that del-
egates a function under paragraph (1) becomes
aware that a delegated function is not being per-
formed as required under this Act, the contract mar-
ket or derivatives transaction execution facility shall
promptly take steps to address the noncompliance.
‘‘(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 of a government secu-
rity for future delivery (or option on such a con-
tract) or a rule or rule amendment specifically re-
lated to such a contract) a written certification that
the new contract or instrument or clearing of the
new contract or instrument, new rule, or rule
amendment complies with this Act (including regula-
tions 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.
100
‘‘(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. 114. 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 113) 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 sections 2(a)(1)
and 12(e)(2)(B)) shall apply with respect to a contract
of sale of a commodity for future delivery (or option on
such a contract) 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
101
trade to contracts of sale of a commodity for future deliv-
ery (or options on such contracts or on a commodity)—
‘‘(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 or on a commodity) for future
delivery of any security, including any group or
index of securities or any interest in, or based on the
value of, any security or any group or index of secu-
rities.
‘‘(c) ANTIMANIPULATION REQUIREMENTS.—A party
to a contract of sale of a commodity for future delivery
(or option on such a contract or on a commodity) 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 Com-
102
mission 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
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, contract,
or transaction involving a contract of sale of a commodity
for future delivery, or option on such a contract or on a
commodity, to the extent that the account, agreement,
contract, 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.
103
‘‘(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.’’.
SEC. 115. SUSPENSION OR REVOCATION OF DESIGNATION
AS CONTRACT MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C.
7b) (as redesignated by section 20(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. 116. 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’’.
104
SEC. 117. 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—
‘‘(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
105
‘‘(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.
‘‘(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 excluded
under section 2(e) of this Act; and
‘‘(B) an agreement, contract, or trans-
action that is excluded from this Act under sec-
tion 2(c), 2(d), 2(f ), or 2(g) of this Act or title
IV of the Commodity Futures Modernization
Act of 2000, or exempted under section 2(h) or
4(c) of this Act (regardless of whether any such
agreement, contract, or transaction is otherwise
subject to this Act).’’.
106
SEC. 118. 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
agreement waiving the right to file a claim under this sec-
tion.’’.
SEC. 119. 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.
107
‘‘(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;
‘‘(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’’.
108
SEC. 120. 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 ELI-
GIBLE COUNTERPARTIES.—No agreement, contract,
or transaction between eligible contract participants
or persons reasonably believed to be eligible contract
participants, and no hybrid instrument sold to any
investor, shall be void, voidable, or unenforceable,
and no such party shall be entitled to rescind, or re-
cover any payment made with respect to, such an
agreement, contract, transaction, or instrument
under this section or any other provision of Federal
or State law, based solely on the failure of the agree-
ment, contract, transaction, or instrument to comply
with the terms or conditions of an exemption or ex-
clusion from any provision of this Act or regulations
of the Commission.’’.
SEC. 121. 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:
109
‘‘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-
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.
110
‘‘(b) REPORT.—Within 1 year after the date of the
enactment of this section, the Commission shall submit to
the Committee on Agriculture of the House of Representa-
tives and the Committee on Agriculture, Nutrition, and
Forestry 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. 122. 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 this Act supersedes, affects, or otherwise
limits or expands the scope and applicability of laws gov-
erning the Securities and Exchange Commission.
SEC. 123. 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)—
111
(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—
(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
112
(B) in subsection (a)(1)—
(i) in subparagraph (A) (as amended
by subparagraph (A) of this paragraph)—
(I) 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’’;
(II) by striking ‘‘contract market
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’’;
(III) by striking clause (ii); and
(IV) 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)—
113
(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’’;
(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
114
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-
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
115
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
(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
116
(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
(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’’;
117
(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.
(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 ‘‘clear-
inghouses, contract markets, and exchanges’’
and inserting ‘‘registered entities’’.
118
(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-
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—
119
(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’’;
(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
120
(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
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
121
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)—
(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’’;
122
(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
‘‘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’’
123
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—
(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’’;
124
(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’’.
(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’’.
125
(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—
(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)—
126
(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
(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
127
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
(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
128
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.’’.
SEC. 124. PRIVACY.
The Commodity Exchange Act (7 U.S.C. 1 et seq.)
is amended by inserting after section 5f (as added by sec-
tion 252) the following:
‘‘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 the enactment of this
section.’’.
129
SEC. 125. 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—
(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-
130
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
Senate a report of the results of its study, which shall
include an analysis of comments received.
SEC. 126. 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;
131
(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
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
132
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
(5) improvements in the quality and timeliness
of international information sharing.
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,’’;
133
(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 other security which the Commission shall
deem to be of similar nature and consider necessary
or appropriate, by such rules and regulations as it
may prescribe in the public interest or for the pro-
tection of investors, to treat as an equity 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
134
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 the 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 the enactment of the Futures Trading Act of
1982). The term ‘security future’ does not include
any agreement, contract, or transaction excluded
from the Commodity Exchange Act under section
2(c), 2(d), 2(f ), or 2(g) of the Commodity Exchange
Act (as in effect on the date of the enactment of the
Commodity Futures Modernization Act of 2000) or
title IV 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 five highest weighted
component securities in the aggregate comprise
135
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
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 nine component secu-
rities;
‘‘(II) no component security comprises
more than 30 percent of the index’s weighting;
and
136
‘‘(III) each component security is—
‘‘(aa) registered pursuant to section
12 of the Securities Exchange Act of 1934;
‘‘(bb) one of 750 securities with the
largest market capitalization; and
‘‘(cc) one of 675 securities with the
largest dollar value of average daily trad-
ing volume;
‘‘(ii) a board of trade was designated as a
contract market by the Commodity Futures
Trading Commission with respect to a contract
of sale for future delivery on the index, before
the date of the enactment of the Commodity
Futures Modernization Act of 2000;
‘‘(iii)(I) a contract of sale for future deliv-
ery on the index traded on a designated con-
tract market or registered derivatives trans-
action execution facility for at least 30 days as
a contract of sale for future delivery on an
index 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;
137
‘‘(iv) a contract of sale for future delivery
on the index 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 the date of the enactment of the Com-
modity Futures Modernization Act of 2000
and—
‘‘(I) it is 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 de-
livery on the index was authorized before
the date of the enactment of the Com-
modity Futures Modernization Act of
2000; and
‘‘(III) the conditions of such author-
ization continue to be met; or
‘‘(vi) a contract of sale for future delivery
on the index 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-
138
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
regulation, jointly specify the method to be used
to determine market capitalization and dollar
value of average daily trading volume.
139
‘‘(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-
imum amount established and in effect pursuant to
section 7(c)(2)(B).’’.
140
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 fol-
lowing:
‘‘(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
such registration is not suspended by the
141
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-
propriate in the public interest or for the pro-
142
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.
‘‘(4) EXEMPTION OF EXCHANGES FROM SPECI-
FIED PROVISIONS.—
143
‘‘(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—
‘‘(i) such exchange shall file proposed
rule changes related to higher margin lev-
144
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
to execute or trade a security futures product
until the later of—
145
‘‘(i) 1 year after the date of the 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
agreement, contract, or transaction;
and
146
‘‘(ii) the transaction is entered into on
or after the later of—
‘‘(I) 8 months after the date of
the enactment of the Commodity Fu-
tures 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-
ance with such rules as the Commission may
prescribe, copies of any proposed rule change or
147
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.
‘‘(B) FILING WITH CFTC.—A proposed rule
change filed with the Commission pursuant to
148
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
Futures Trading Commission determines that
review of such proposed rule change is not nec-
149
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, may summarily 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 of this title nor deemed to be a final
agency action 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
filing of a proposed rule change that is ab-
rogated in accordance with subparagraph
150
(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-
mission, by order, shall approve or
disapprove such proposed rule change.
151
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
finds good cause for so doing and pub-
lishes its reasons for so finding.’’.
152
(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-
ties association registered pursuant to section
15A(a) or a national securities exchange subject
153
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,
the Commission shall, prior to approving or dis-
approving the proposed rule, find that such rule
154
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,
contract, or transaction, this subsection shall apply
only to the extent such violation involves a security
futures product.’’.
155
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
interest or for the protection of investors.
A broker or dealer may not register under
this paragraph unless that broker or dealer
156
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.
‘‘(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-
157
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
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.—
158
‘‘(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:
‘‘(i) Section 8.
‘‘(ii) Section 11.
‘‘(iii) Subsections (c)(3), (c)(5), and
(e) of this section.
159
‘‘(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—
‘‘(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
160
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
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-
161
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—
‘‘(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-
162
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-
quired to comply, with the following provisions of
this title and the rules thereunder:
‘‘(A) Section 8.
163
‘‘(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’’; and
(C) by adding at the end the following:
‘‘(iii) persons who are registered as a
broker or dealer pursuant to section
164
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-
ant to section 6(g), or national securities asso-
ciation registered pursuant to section 15A(k)
gives notice to the Commodity Futures Trading
165
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.
‘‘(3) USE OF CFTC REPORTS.—Prior to con-
ducting an examination under paragraph (1), the
Commission shall use the reports of examinations, if
166
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.
‘‘(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
167
national securities association registered pursu-
ant to section 15A(k) shall be limited to records
with respect to persons, accounts, agreements,
contracts, 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
(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
168
(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 the following:
‘‘(2) Notwithstanding the Commodity Exchange Act,
the Commission shall have the authority to regulate the
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’’
169
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
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
170
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.
‘‘(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-
171
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
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
172
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-
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
173
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
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
174
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.
‘‘(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
175
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—
‘‘(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;
176
‘‘(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 the
enactment 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
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-
177
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
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
178
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:
‘‘(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
179
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).
‘‘(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-
180
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
‘‘(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
181
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).’’.
(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,
182
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.
‘‘(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.’’.
183
(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
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
184
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
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’’;
185
(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-
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.’’.
186
(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-
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
187
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 REGU-
LATION 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) of this section, 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-
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
188
(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
(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
189
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 the enactment of the Commodity
Futures 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.’’.
(2) NATIONAL SECURITIES EXCHANGES.—Sec-
tion 6 of the Securities Exchange Act of 1934 (15
U.S.C. 78f ) is amended by inserting after subsection
(i), as added by subsection (i) of this section, the fol-
lowing 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-
190
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 ( j), as added by
subsection (k) of this section, the following:
‘‘(k)(1) To the extent necessary or appropriate in the
public interest, to promote fair competition, and consistent
with the promotion of market efficiency, innovation, and
expansion of investment opportunities, the protection of
investors, and the maintenance of fair and orderly mar-
kets, the Commission and the Commodity Futures Trad-
ing Commission shall jointly issue such rules, regulations,
or orders as are necessary and appropriate to permit the
offer and sale of a security futures 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.’’.
191
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-
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.’’.
192
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.’’; and
(C) by adding at the end the following:
‘‘(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.
193
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.—
(1) EXEMPTION FROM REGISTRATION.—Section
12(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78l(a)) is amended by adding at the end the
following: ‘‘The provisions of this subsection shall
not apply in respect of a security futures product
traded on a national securities exchange.’’.
194
(2) EXEMPTIONS FROM REPORTING REQUIRE-
MENT.—Section 12(g)(5) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(g)(5)) is amended by
adding at the end the following: ‘‘For purposes of
this subsection, a security futures product shall not
be considered a class of equity security of the issuer
of the securities underlying the security futures
product.’’.
(3) TRANSACTIONS BY CORPORATE INSIDERS.—
Section 16 of the Securities Exchange Act of 1934
(15 U.S.C. 78p) is amended by adding at the end
the following:
‘‘(f ) TREATMENT OF TRANSACTIONS IN SECURITY
FUTURES PRODUCTS.—The provisions of this section
shall apply to ownership of and transactions in security
futures products.’’.
SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY
ACT OF 1940 AND THE INVESTMENT ADVIS-
ERS ACT OF 1940.
(a) DEFINITIONS UNDER THE INVESTMENT COM-
PANY ACT OF 1940 AND THE INVESTMENT ADVISERS ACT
OF 1940.—
(1) Section 2(a)(36) of the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–2(a)(36)) is
195
amended by inserting ‘‘security future,’’ after
‘‘treasury stock,’’.
(2) Section 202(a)(18) of the Investment Advis-
ers Act of 1940 (15 U.S.C. 80b–2(a)(18)) is amend-
ed by inserting ‘‘security future,’’ after ‘‘treasury
stock,’’.
(3) Section 2(a) of the Investment Company
Act of 1940 (15 U.S.C. 80a–2(a)) is amended by
adding at the end the following:
‘‘(52) The terms ‘security future’ and ‘narrow-
based security index’ have the same meanings as
provided in section 3(a)(55) of the Securities Ex-
change Act of 1934.’’.
(4) Section 202(a) of the Investment Advisers
Act of 1940 (15 U.S.C. 80b–2(a)) is amended by
adding at the end the following:
‘‘(27) The terms ‘security future’ and ‘narrow-
based security index’ have the same meanings as
provided in section 3(a)(55) of the Securities Ex-
change Act of 1934.’’.
(b) OTHER PROVISION.—Section 203(b) of the In-
vestment Advisers Act of 1940 (15 U.S.C. 80b–3(b)) is
amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
196
(2) by striking the period at the end of para-
graph (5) and inserting ‘‘; or’’; and
(3) by adding at the end the following:
‘‘(6) any investment adviser that is registered
with the Commodity Futures Trading Commission
as a commodity trading advisor whose business does
not consist primarily of acting as an investment ad-
viser, as defined in section 202(a)(11) of this title,
and that does not act as an investment adviser to—
‘‘(A) an investment company registered
under title I of this Act; or
‘‘(B) a company which has elected to be a
business development company pursuant to sec-
tion 54 of title I of this Act and has not with-
drawn its election.’’.
SEC. 210. PREEMPTION OF STATE LAWS.
Section 28(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78bb(a)) is amended—
(1) in the last sentence—
(A) by inserting ‘‘subject to this title’’
after ‘‘privilege, or other security’’; and
(B) by striking ‘‘any such instrument, if
such instrument is traded pursuant to rules and
regulations of a self-regulatory organization
that are filed with the Commission pursuant to
197
section 19(b) of this Act’’ and inserting ‘‘any
such security’’; and
(2) by adding at the end the following new sen-
tence: ‘‘No provision of State law regarding the
offer, sale, or distribution of securities shall apply to
any transaction in a security futures product, except
that this sentence shall not be construed as limiting
any State antifraud law of general applicability.’’.
Subtitle B—Amendments to the
Commodity Exchange Act
SEC. 251. JURISDICTION OF SECURITIES AND EXCHANGE
COMMISSION; OTHER PROVISIONS.
(a) JURISDICTION OF SECURITIES AND EXCHANGE
COMMISSION.—
(1) Section 2(a)(1)(C) of the Commodity Ex-
change Act (7 U.S.C. 2a) (as redesignated by sec-
tion 34(a)(2)(C)) is amended—
(A) in clause (ii)—
(i) by inserting ‘‘or register a deriva-
tives transaction execution facility that
trades or executes,’’ after ‘‘contract market
in,’’;
(ii) by inserting after ‘‘contracts) for
future delivery’’ the following: ‘‘, and no
derivatives transaction execution facility
198
shall trade or execute such contracts of
sale (or options on such contracts) for fu-
ture delivery,’’;
(iii) by striking ‘‘making such applica-
tion demonstrates and the Commission ex-
pressly finds that the specific contract (or
option on such contract) with respect to
which the application has been made
meets’’ and inserting ‘‘or the derivatives
transaction execution facility, and the ap-
plicable contract, meet’’; and
(iv) by striking subclause (III) of
clause (ii) and inserting the following:
‘‘(III) Such group or index of securities
shall not constitute a narrow-based security
index.’’;
(B) by striking clause (iii);
(C) by striking clause (iv) and inserting
the following:
‘‘(iii) If, in its discretion, the Commission deter-
mines that a stock index futures contract, notwith-
standing its conformance with the requirements in
clause (ii) of this subparagraph, can reasonably be
used as a surrogate for trading a security (including
a security futures product), it may, by order, require
199
such contract and any option thereon be traded and
regulated as security futures products as defined in
section 3(a)(56) of the Securities Exchange Act of
1934 and section 1a of this Act subject to all rules
and regulations applicable to security futures prod-
ucts under this Act and the securities laws as de-
fined in section 3(a)(47) of the Securities Exchange
Act of 1934.’’; and
(D) by redesignating clause (v) as clause
(iv).
(2) Section 2(a)(1) of the Commodity Exchange
Act (7 U.S.C. 2, 2a, 4) is amended by adding at the
end the following:
‘‘(D)(i) Notwithstanding any other provision of this
Act, the Securities and Exchange Commission shall have
jurisdiction and authority over security futures as defined
in section 3(a)(55) of the Securities Exchange Act of
1934, section 2(a)(16) of the Securities Act of 1933, sec-
tion 2(a)(52) of the Investment Company Act of 1940,
and section 202(a)(27) of the Investment Advisers Act of
1940, options on security futures, and persons effecting
transactions in security futures and options thereon, and
this Act shall apply to and the Commission shall have ju-
risdiction with respect to accounts, agreements (including
any transaction which is of the character of, or is com-
200
monly known to the trade as, an ‘option’, ‘privilege’, ‘in-
demnity’, ‘bid’, ‘offer’, ‘put’, ‘call’, ‘advance guaranty’, or
‘decline guaranty’), contracts, and transactions involving,
and may designate a board of trade as a contract market
in, or register a derivatives transaction execution facility
that trades or executes, a security futures product as de-
fined in section 1a of this Act: Provided, however, That,
except as provided in clause (vi) of this subparagraph, no
board of trade shall be designated as a contract market
with respect to, or registered as a derivatives transaction
execution facility for, any such contracts of sale for future
delivery unless the board of trade and the applicable con-
tract meet the following criteria:
‘‘(I) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause (v) of
this subparagraph, any security underlying the secu-
rity future, including each component security of a
narrow-based security index, is registered pursuant
to section 12 of the Securities Exchange Act of
1934.
‘‘(II) If the security futures product is not cash
settled, the board of trade on which the security fu-
tures product is traded has arrangements in place
with a clearing agency registered pursuant to section
17A of the Securities Exchange Act of 1934 for the
201
payment and delivery of the securities underlying the
security futures product.
‘‘(III) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause (v) of
this subparagraph, the security future is based upon
common stock and such other equity securities as
the Commission and the Securities and Exchange
Commission jointly determine appropriate.
‘‘(IV) 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 security futures product to be purchased
on a designated contract market, registered deriva-
tives transaction execution facility, national securi-
ties exchange registered under section 6(a) of the
Securities Exchange Act of 1934, or national securi-
ties association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 and
offset on another designated contract market, reg-
istered derivatives transaction execution facility, na-
tional securities exchange registered under section
6(a) of the Securities Exchange Act of 1934, or na-
tional securities association registered pursuant to
202
section 15A(a) of the Securities Exchange Act of
1934.
‘‘(V) Only futures commission merchants, intro-
ducing brokers, commodity trading advisors, com-
modity pool operators or associated persons subject
to suitability rules comparable to those of a national
securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 so-
licit, accept any order for, or otherwise deal in any
transaction in or in connection with the security fu-
tures product.
‘‘(VI) The security futures product is subject to
a prohibition against dual trading in section 4j of
this Act and the rules and regulations thereunder or
the provisions of section 11(a) of the Securities Ex-
change Act of 1934 and the rules and regulations
thereunder, except to the extent otherwise permitted
under the Securities Exchange Act of 1934 and the
rules and regulations thereunder.
‘‘(VII) Trading in the security futures product
is not readily susceptible to manipulation of the
price of such security futures product, nor to caus-
ing or being used in the manipulation of the price
of any underlying security, option on such security,
203
or option on a group or index including such securi-
ties;
‘‘(VIII) The board of trade on which the secu-
rity futures product is traded has procedures in
place for coordinated surveillance among such board
of trade, any market on which any security under-
lying the security futures product is traded, and
other markets on which any related security is trad-
ed to detect manipulation and insider trading, except
that, if the board of trade is an alternative trading
system, a national securities association registered
pursuant to section 15A(a) of the Securities Ex-
change Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 of which such alternative
trading system is a member has in place such proce-
dures.
‘‘(IX) The board of trade on which the security
futures product is traded has in place audit trails
necessary or appropriate to facilitate the coordinated
surveillance required in subclause (VIII), except
that, if the board of trade is an alternative trading
system, a national securities association registered
pursuant to section 15A(a) of the Securities Ex-
change Act of 1934 or national securities exchange
204
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 of which such alternative
trading system is a member has rules to require
such audit trails.
‘‘(X) The board of trade on which the security
futures product is traded has in place procedures to
coordinate trading halts between such board of trade
and markets on which any security underlying the
security futures product is traded and other markets
on which any related security is traded, except that,
if the board of trade is an alternative trading sys-
tem, a national securities association registered pur-
suant to section 15A(a) of the Securities Exchange
Act of 1934 or national securities exchange reg-
istered pursuant to section 6(a) of the Securities Ex-
change Act of 1934 of which such alternative trad-
ing system is a member has rules to require such co-
ordinated trading halts.
‘‘(XI) The margin requirements for a security
futures product comply with the regulations pre-
scribed pursuant to section 7(c)(2)(B) of the Securi-
ties Exchange Act of 1934, except that nothing in
this subclause shall be construed to prevent a board
of trade from requiring higher margin levels for a
205
security futures product when it deems such action
to be necessary or appropriate.
‘‘(ii) It shall be unlawful for any person to offer, to
enter into, to execute, to confirm the execution of, or to
conduct any office or business anywhere in the United
States, its territories or possessions, for the purpose of
soliciting, or accepting any order for, or otherwise dealing
in, any transaction in, or in connection with, a security
futures product unless—
‘‘(I) the transaction is conducted on or subject
to the rules of a board of trade that—
‘‘(aa) has been designated by the Commis-
sion as a contract market in such security fu-
tures product; or
‘‘(bb) is a registered derivatives trans-
action execution facility for the security futures
product that has provided a certification with
respect to the security futures product pursuant
to clause (vii);
‘‘(II) the contract is executed or consummated
by, through, or with a member of the contract mar-
ket or registered derivatives transaction execution
facility; and
‘‘(III) the security futures product is evidenced
by a record in writing which shows the date, the
206
parties to such security futures product and their
addresses, the property covered, and its price, and
each contract market member or registered deriva-
tives transaction execution facility member shall
keep the record for a period of 3 years from the date
of the transaction, or for a longer period if the Com-
mission so directs, which record shall at all times be
open to the inspection of any duly authorized rep-
resentative of the Commission.
‘‘(iii)(I) Except as provided in subclause (II) but not-
withstanding any other provision of this Act, no person
shall offer to enter into, enter into, or confirm the execu-
tion of any option on a security future.
‘‘(II) After 3 years after the date of the enactment
of the Commodity Futures Modernization Act of 2000, the
Commission and the Securities and Exchange Commission
may by order jointly determine to permit trading of op-
tions on any security future authorized to be traded under
the provisions of this Act and the Securities Exchange Act
of 1934.
‘‘(iv)(I) All relevant records of a futures commission
merchant or introducing broker registered pursuant to
section 4f(a)(2), floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3), associated per-
son exempt from registration pursuant to section 4k(6),
207
or board of trade designated as a contract market in a
security futures product pursuant to section 5f shall be
subject to such reasonable periodic or special examinations
by representatives of the Commission as the Commission
deems necessary or appropriate in the public interest, for
the protection of investors, or otherwise in furtherance of
the purposes of this Act, and the Commission, before con-
ducting any such examination, shall give notice to the Se-
curities and Exchange Commission of the proposed exam-
ination and consult with the Securities and Exchange
Commission concerning the feasibility and desirability of
coordinating the examination with examinations conducted
by the Securities and Exchange Commission in order to
avoid unnecessary regulatory duplication or undue regu-
latory burdens for the registrant or board of trade.
‘‘(II) The Commission shall notify the Securities and
Exchange Commission of any examination conducted of
any futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), floor broker or
floor trader exempt from registration pursuant to section
4f(a)(3), associated person exempt from registration pur-
suant to section 4k(6), or board of trade designated as
a contract market in a security futures product pursuant
to section 5f, and, upon request, furnish to the Securities
and Exchange Commission any examination report and
208
data supplied to or prepared by the Commission in connec-
tion with the examination.
‘‘(III) Before conducting an examination under sub-
clause (I), the Commission shall use the reports of exami-
nations, unless the information sought is unavailable in
the reports, of any futures commission merchant or intro-
ducing broker registered pursuant to section 4f(a)(2),
floor broker or floor trader exempt from registration pur-
suant to section 4f(a)(3), associated person exempt from
registration pursuant to section 4k(6), or board of trade
designated as a contract market in a security futures
product pursuant to section 5f that is made by the Securi-
ties and Exchange Commission, a national securities asso-
ciation registered pursuant to section 15A(a) of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78o–3(a)), or a
national securities exchange registered pursuant to section
6(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78f(a)).
‘‘(IV) Any records required under this subsection for
a futures commission merchant or introducing broker reg-
istered pursuant to section 4f(a)(2), floor broker or floor
trader exempt from registration pursuant to section
4f(a)(3), associated person exempt from registration pur-
suant to section 4k(6), or board of trade designated as
a contract market in a security futures product pursuant
209
to section 5f, shall be limited to records with respect to
accounts, agreements, contracts, and transactions involv-
ing security futures products.
‘‘(v)(I) The Commission and the Securities and Ex-
change Commission, by rule, regulation, or order, may
jointly modify the criteria specified in subclause (I) or
(III) of clause (i), including the trading of security futures
based on securities other than equity securities, to the ex-
tent such modification 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 protection of investors.
‘‘(II) The Commission and the Securities and Ex-
change Commission, by order, may jointly exempt any per-
son from compliance with the criterion specified in clause
(i)(IV) to the extent such exemption fosters the develop-
ment of fair and orderly markets in security futures prod-
ucts, is necessary or appropriate in the public interest, and
is consistent with the protection of investors.
‘‘(vi)(I) Notwithstanding clauses (i) and (vii), until
the compliance date, a board of trade shall not be required
to meet the criterion specified in clause (i)(IV).
‘‘(II) The Commission and the Securities and Ex-
change Commission shall jointly publish in the Federal
210
Register a notice of the compliance date no later than 165
days before the compliance date.
‘‘(III) For purposes of this clause, the term ‘compli-
ance date’ means the later of—
‘‘(aa) 180 days after the end of the first full
calendar month period in which the average aggre-
gate comparable share volume for all security fu-
tures products based on single equity securities trad-
ed on all designated contract markets and registered
derivatives transaction execution facilities equals or
exceeds 10 percent of the average aggregate com-
parable share volume of options on single equity se-
curities traded on all national securities exchanges
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 and any national securities
associations registered pursuant to section 15A(a) of
such Act; or
‘‘(bb) 2 years after the date on which trading
in any security futures product commences under
this Act.
‘‘(vii) It shall be unlawful for a board of trade to
trade or execute a security futures product unless the
board of trade has provided the Commission with a certifi-
cation that the specific security futures product and the
board of trade, as applicable, meet the criteria specified
211
in subclauses (I) through (XI) of clause (i), except as oth-
erwise provided in clause (vi).’’.
(b) MARGIN
ON
SECURITY
FUTURES.—Section
2(a)(1)(C)(vi) of the Commodity Exchange Act (7 U.S.C.
2a(vi)) (as redesignated by section 34) is amended—
(1) by redesignating subclause (V) as subclause
(VI); and
(2) by striking ‘‘(vi)(I)’’ and all that follows
through subclause (IV) and inserting the following:
‘‘(v)(I) Notwithstanding any other provision of
this Act, any contract market in a stock index fu-
tures contract (or option thereon) other than a secu-
rity futures product, or any derivatives transaction
execution facility on which such contract or option
is traded, shall file with the Board of Governors of
the Federal Reserve System any rule establishing or
changing the levels of margin (initial and mainte-
nance) for such stock index futures contract (or op-
tion thereon) other than security futures products.
‘‘(II) The Board may at any time request any
contract market or derivatives transaction execution
facility to set the margin for any stock index futures
contract (or option thereon), other than for any se-
curity futures product, at such levels as the Board
in its judgment determines are appropriate to pre-
212
serve the financial integrity of the contract market
or derivatives transaction execution facility, or its
clearing system, or to prevent systemic risk. If the
contract market or derivatives transaction execution
facility fails to do so within the time specified by the
Board in its request, the Board may direct the con-
tract market or derivatives transaction execution fa-
cility to alter or supplement the rules of the contract
market or derivatives transaction execution facility
as specified in the request.
‘‘(III) Subject to such conditions as the Board
may determine, the Board may delegate any or all
of its authority, relating to margin for any stock
index futures contract (or option thereon), other
than security futures products, under this clause to
the Commission.
‘‘(IV) It shall be unlawful for any futures com-
mission merchant 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 pre-
scribed pursuant to section 7(c)(2)(B) of the Securi-
ties Exchange Act of 1934.
‘‘(V) Nothing in this clause shall supersede or
limit the authority granted to the Commission in
213
section 8a(9) to direct a contract market or reg-
istered derivatives transaction execution facility, on
finding an emergency to exist, to raise temporary
margin levels on any futures contract, or option on
the contract covered by this clause, or on any secu-
rity futures product.’’.
(c) DUAL TRADING.—Section 4j of the Commodity
Exchange Act (7 U.S.C. 6j) is amended to read as follows:
‘‘SEC. 4j. RESTRICTIONS ON DUAL TRADING IN SECURITY
FUTURES PRODUCTS ON DESIGNATED CON-
TRACT MARKETS AND REGISTERED DERIVA-
TIVES TRANSACTION EXECUTION FACILITIES.
‘‘(a) The Commission shall issue regulations to pro-
hibit the privilege of dual trading in security futures prod-
ucts on each contract market and registered derivatives
transaction execution facility. The regulations issued by
the Commission under this section—
‘‘(1) shall provide that the prohibition of dual
trading thereunder shall take effect upon issuance of
the regulations; and
‘‘(2) shall provide exceptions, as the Commis-
sion determines appropriate, to ensure fairness and
orderly trading in security futures product markets,
including—
214
‘‘(A) exceptions for spread transactions
and the correction of trading errors;
‘‘(B) allowance for a customer to designate
in writing not less than once annually a named
floor broker to execute orders for such cus-
tomer, notwithstanding the regulations to pro-
hibit the privilege of dual trading required
under this section; and
‘‘(C) other measures reasonably designed
to accommodate unique or special characteris-
tics of individual boards of trade or contract
markets, to address emergency or unusual mar-
ket conditions, or otherwise to further the pub-
lic interest consistent with the promotion of
market efficiency, innovation, and expansion of
investment opportunities, the protection of in-
vestors, and with the purposes of this section.
‘‘(b) As used in this section, the term ‘dual trading’
means the execution of customer orders by a floor broker
during the same trading session in which the floor broker
executes any trade in the same contract market or reg-
istered derivatives transaction execution facility for—
‘‘(1) the account of such floor broker;
‘‘(2) an account for which such floor broker has
trading discretion; or
215
‘‘(3) an account controlled by a person with
whom such floor broker has a relationship through
membership in a broker association.
‘‘(c) As used in this section, the term ‘broker associa-
tion’ shall include two or more contract market members
or registered derivatives transaction execution facility
members with floor trading privileges of whom at least one
is acting as a floor broker, who—
‘‘(1) engage in floor brokerage activity on be-
half of the same employer,
‘‘(2) have an employer and employee relation-
ship which relates to floor brokerage activity,
‘‘(3) share profits and losses associated with
their brokerage or trading activity, or
‘‘(4) regularly share a deck of orders.’’.
(d) EXEMPTION FROM REGISTRATION FOR INVEST-
MENT ADVISERS.—Section 4m of the Commodity Ex-
change Act (7 U.S.C. 6m) is amended by adding at the
end the following:
‘‘(3) Subsection (1) of this section shall not apply to
any commodity trading advisor that is registered with the
Securities and Exchange Commission as an investment ad-
viser whose business does not consist primarily of acting
as a commodity trading advisor, as defined in section
1a(6), and that does not act as a commodity trading advi-
216
sor to any investment trust, syndicate, or similar form of
enterprise that is engaged primarily in trading in any com-
modity for future delivery on or subject to the rules of
any contract market or registered derivatives transaction
execution facility.’’.
(e) EXEMPTION FROM INVESTIGATIONS OF MARKETS
IN UNDERLYING SECURITIES.—Section 16 of the Com-
modity Exchange Act (7 U.S.C. 20) is amended by adding
at the end the following:
‘‘(e) This section shall not apply to investigations in-
volving any security underlying a security futures prod-
uct.’’.
(f ) RULEMAKING AUTHORITY TO ADDRESS DUPLI-
CATIVE REGULATION OF DUAL REGISTRANTS.—Section
4d of the Commodity Exchange Act (7 U.S.C. 6d) is
amended—
(1) by inserting ‘‘(a)’’ before the first undesig-
nated paragraph;
(2) by inserting ‘‘(b)’’ before the second undes-
ignated paragraph; and
(3) by adding at the end the following:
‘‘(c) Consistent with this Act, the Commission, in
consultation with the Securities and Exchange Commis-
sion, shall issue such rules, regulations, or orders as are
necessary to avoid duplicative or conflicting regulations
217
applicable to any futures commission merchant registered
with the Commission pursuant to section 4f(a) (except
paragraph (2) thereof ), that is also registered with the
Securities and Exchange Commission pursuant to section
15(b) of the Securities Exchange Act (except paragraph
(11) thereof ), involving the application of—
‘‘(1) section 8, section 15(c)(3), and section 17
of the Securities Exchange Act of 1934 and the
rules and regulations thereunder related to the treat-
ment of customer funds, securities, or property,
maintenance of books and records, financial report-
ing or other financial responsibility rules (as defined
in section 3(a)(40) of the Securities Exchange Act
of 1934), involving security futures products; and
‘‘(2) similar provisions of this Act and the rules
and regulations thereunder involving security futures
products.’’.
(g) OBLIGATION TO ADDRESS DUPLICATIVE REGU-
LATION OF DUAL REGISTRANTS.—Section 17 of the Com-
modity Exchange Act (7 U.S.C. 21) is amended by adding
at the end the following:
‘‘(r) Consistent with this Act, each futures associa-
tion registered under this section shall issue such rules
as are necessary to avoid duplicative or conflicting rules
applicable to any futures commission merchant registered
218
with the Commission pursuant to section 4f(a) of this Act
(except paragraph (2) thereof ), that is also registered with
the Securities and Exchange Commission pursuant to sec-
tion 15(b) of the Securities and Exchange Act of 1934
(except paragraph (11) thereof ), with respect to the appli-
cation of—
‘‘(1) rules of such futures association of the
type specified in section 4d(3) of this Act involving
security futures products; and
‘‘(2) similar rules of national securities associa-
tions registered pursuant to section 15A(a) of the
Securities and Exchange Act of 1934 involving secu-
rity futures products.’’.
(h) OBLIGATION TO ADDRESS DUPLICATIVE REGU-
LATION OF DUAL REGISTRANTS.—Section 5c of the Com-
modity Exchange Act (as added by section 114) is amend-
ed by adding at the end the following:
‘‘(f ) Consistent with this Act, each designated con-
tract market and registered derivatives transaction execu-
tion facility shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any futures
commission merchant registered with the Commission pur-
suant to section 4f(a) of this Act (except paragraph (2)
thereof ), that is also registered with the Securities and
Exchange Commission pursuant to section 15(b) of the
219
Securities Exchange Act of 1934 (except paragraph (11)
thereof ) with respect to the application of—
‘‘(1) rules of such designated contract market
or registered derivatives transaction execution facil-
ity of the type specified in section 4d(3) of this Act
involving security futures products; and
‘‘(2) similar rules of national securities associa-
tions registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and national secu-
rities exchanges registered pursuant to section 6(g)
of such Act involving security futures products.’’.
(i) OBLIGATION TO ADDRESS SECURITY FUTURES
PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section
2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a,
and 4) is amended by adding at the end the following:
‘‘(E)(i) To the extent necessary or appropriate in the
public interest, to promote fair competition, and consistent
with promotion of market efficiency, innovation, and ex-
pansion of investment opportunities, the protection of in-
vestors, and the maintenance of fair and orderly markets,
the Commission and the Securities and Exchange Com-
mission shall jointly issue such rules, regulations, or or-
ders as are necessary and appropriate to permit the offer
and sale of a security futures product traded on or subject
220
to the rules of a foreign board of trade to United States
persons.
‘‘(ii) The rules, regulations, or orders adopted under
clause (i) shall take into account, as appropriate, the na-
ture and size of the markets that the securities underlying
the security futures product reflects.’’.
( j) SECURITY FUTURES PRODUCTS TRADED
ON
FOREIGN BOARDS OF TRADE.—Section 2(a)(1) of the
Commodity Exchange Act (7 U.S.C. 2, 2a, and 4) is
amended by adding at the end the following:
‘‘(F)(i) Nothing in this Act is intended to prohibit
a futures commission merchant from carrying security fu-
tures products traded on or subject to the rules of a for-
eign board of trade in the accounts of persons located out-
side of the United States.
‘‘(ii) Nothing in this Act is intended to prohibit any
eligible contract participant located in the United States
from purchasing or carrying securities futures products
traded on or subject to the rules of a foreign board of
trade, exchange, or market to the same extent such person
may be authorized to purchase or carry other securities
traded on a foreign board of trade, exchange, or market
so long as any underlying security for such security fu-
tures products is traded principally on, by, or through any
exchange or market located outside the United States.’’.
221
SEC. 252. APPLICATION OF THE COMMODITY EXCHANGE
ACT TO NATIONAL SECURITIES EXCHANGES
AND NATIONAL SECURITIES ASSOCIATIONS
THAT TRADE SECURITY FUTURES.
(a) NOTICE DESIGNATION OF NATIONAL SECURITIES
EXCHANGES
AND
NATIONAL
SECURITIES
ASSOCIA-
TIONS.—The Commodity Exchange Act is amended by in-
serting after section 5e (7 U.S.C. 7b), as redesignated by
section 21(1), the following:
‘‘SEC. 5f. DESIGNATION OF SECURITIES EXCHANGES AND
ASSOCIATIONS AS CONTRACT MARKETS.
‘‘(a) Any board of trade that is registered with the
Securities and Exchange Commission as a national securi-
ties exchange, is a national securities association reg-
istered pursuant to section 15A(a) of the Securities Ex-
change Act of 1934, or is an alternative trading system
shall be a designated contract market in security futures
products if—
‘‘(1) such national securities exchange, national
securities association, or alternative trading system
lists or trades no other contracts of sale for future
delivery, except for security futures products;
‘‘(2) such national securities exchange, national
securities association, or alternative trading system
files written notice with the Commission in such
form as the Commission, by rule, may prescribe con-
222
taining such information as the Commission, by rule,
may prescribe as necessary or appropriate in the
public interest or for the protection of customers;
and
‘‘(3) the registration of such national securities
exchange, national securities association, or alter-
native trading system is not suspended pursuant to
an order by the Securities and Exchange Commis-
sion.
Such designation shall be effective contemporaneously
with the submission of notice, in written or electronic
form, to the Commission.
‘‘(b)(1) A national securities exchange, national secu-
rities association, or alternative trading system that is des-
ignated as a contract market pursuant to section 5f shall
be exempt from the following provisions of this Act and
the rules thereunder:
‘‘(A) Subsections (c), (e), and (g) of section 4c.
‘‘(B) Section 4j.
‘‘(C) Section 5.
‘‘(D) Section 5c.
‘‘(E) Section 6a.
‘‘(F) Section 8(d).
‘‘(G) Section 9(f ).
‘‘(H) Section 16.
223
‘‘(2) An alternative trading system that is a des-
ignated contract market under this section shall be re-
quired to be a member of a futures association registered
under section 17 and shall be exempt from any provision
of this Act that would require such alternative trading sys-
tem to—
‘‘(A) set rules governing the conduct of sub-
scribers other than the conduct of such subscribers’
trading on such alternative trading system; or
‘‘(B) discipline subscribers other than by exclu-
sion from trading.
‘‘(3) To the extent that an alternative trading system
is exempt from any provision of this Act pursuant to para-
graph (2) of this subsection, the futures association reg-
istered under section 17 of which the alternative trading
system is a member shall set rules governing the conduct
of subscribers to the alternative trading system and dis-
cipline the subscribers.
‘‘(4)(A) Except as provided in subparagraph (B), but
notwithstanding any other provision of this Act, the Com-
mission, by rule, regulation, or order, may conditionally
or unconditionally exempt any designated contract market
in security futures subject to the designation requirement
of this section from any provision of this Act or of any
rule or regulation thereunder, to the extent such exemp-
224
tion is necessary or appropriate in the public interest and
is consistent with the protection of investors.
‘‘(B) The Commission shall, by rule or regulation, de-
termine the procedures under which an exemptive order
under this section is granted and may, in its sole discre-
tion, decline to entertain any application for an order of
exemption under this section.
‘‘(C) An alternative trading system shall not be
deemed to be an exchange for any purpose as a result of
the designation of such alternative trading system as a
contract market under this section.’’.
(b) NOTICE REGISTRATION OF CERTAIN SECURITIES
BROKER-DEALERS; EXEMPTION FROM REGISTRATION
FOR CERTAIN SECURITIES BROKER-DEALERS.—Section
4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a))
is amended—
(1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and
(2) by adding at the end the following:
‘‘(2) Notwithstanding paragraph (1), and except as
provided in paragraph (3), any broker or dealer that is
registered with the Securities and Exchange Commission
shall be registered as a futures commission merchant or
introducing broker, as applicable, if—
‘‘(A) the broker or dealer limits its solicitation
of orders, acceptance of orders, or execution of or-
225
ders, or placing of orders on behalf of others involv-
ing any contracts of sale of any commodity for fu-
ture delivery, on or subject to the rules of any con-
tract market or registered derivatives transaction
execution facility to security futures products;
‘‘(B) the broker or dealer files written notice
with the Commission in such form as the Commis-
sion, by rule, may prescribe containing such infor-
mation as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for
the protection of investors;
‘‘(C) the registration of the broker or dealer is
not suspended pursuant to an order of the Securities
and Exchange Commission; and
‘‘(D) the broker or dealer is a member of a na-
tional securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of
1934.
The registration shall be effective contemporaneously with
the submission of notice, in written or electronic form, to
the Commission.
‘‘(3) A floor broker or floor trader shall be exempt
from the registration requirements of section 4e and para-
graph (1) of this subsection if—
226
‘‘(A) the floor broker or floor trader is a broker
or dealer registered with the Securities and Ex-
change Commission;
‘‘(B) the floor broker or floor trader limits its
solicitation of orders, acceptance of orders, or execu-
tion of orders, or placing of orders on behalf of oth-
ers involving any contracts of sale of any commodity
for future delivery, on or subject to the rules of any
contract market to security futures products; and
‘‘(C) the registration of the floor broker or floor
trader is not suspended pursuant to an order of the
Securities and Exchange Commission.’’.
(c) EXEMPTION FOR SECURITIES BROKER-DEALERS
FROM CERTAIN PROVISIONS OF THE COMMODITY EX-
CHANGE ACT.—Section 4f(a) of the Commodity Exchange
Act (7 U.S.C. 6f(a)) is amended by inserting after para-
graph (3), as added by subsection (b) of this section, the
following:
‘‘(4)(A) A broker or dealer that is registered as a fu-
tures commission merchant or introducing broker pursu-
ant to paragraph (2), or that is a floor broker or floor
trader exempt from registration pursuant to paragraph
(3), shall be exempt from the following provisions of this
Act and the rules thereunder:
227
‘‘(i) Subsections (b), (d), (e), and (g) of section
4c.
‘‘(ii) Sections 4d, 4e, and 4h.
‘‘(iii) Subsections (b) and (c) of this section.
‘‘(iv) Section 4j.
‘‘(v) Section 4k(1).
‘‘(vi) Section 4p.
‘‘(vii) Section 6d.
‘‘(viii) Subsections (d) and (g) of section 8.
‘‘(ix) Section 16.
‘‘(B)(i) Except as provided in clause (ii) of this sub-
paragraph, but notwithstanding any other provision of this
Act, the Commission, by rule, regulation, or order, may
conditionally or unconditionally exempt any broker or
dealer subject to the registration requirement of para-
graph (2), or any broker or dealer exempt from registra-
tion pursuant to paragraph (3), from any provision of this
Act or of any rule or regulation thereunder, to the extent
the exemption is necessary or appropriate in the public
interest and is consistent with the protection of investors.
‘‘(ii) The Commission shall, by rule or regulation, de-
termine the procedures under which an exemptive order
under this section shall be granted and may, in its sole
discretion, decline to entertain any application for an
order of exemption under this section.
228
‘‘(C)(i) A broker or dealer that is registered as a fu-
tures commission merchant or introducing broker pursu-
ant to paragraph (2) or an associated person thereof, or
that is a floor broker or floor trader exempt from registra-
tion pursuant to paragraph (3), shall not be required to
become a member of any futures association registered
under section 17.
‘‘(ii) No futures association registered under section
17 shall limit its members from carrying an account, ac-
cepting an order, or transacting business with a broker
or dealer that is registered as a futures commission mer-
chant or introducing broker pursuant to paragraph (2) or
an associated person thereof, or that is a floor broker or
floor trader exempt from registration pursuant to para-
graph (3).’’.
(d) EXEMPTIONS FOR ASSOCIATED PERSONS OF SE-
CURITIES BROKER-DEALERS.—Section 4k of the Com-
modity Exchange Act (7 U.S.C. 6k), is amended by insert-
ing after paragraph (4), as added by subsection (c) of this
section, the following:
‘‘(5) Any associated person of a broker or dealer that
is registered with the Securities and Exchange Commis-
sion, and who limits its solicitation of orders, acceptance
of orders, or execution of orders, or placing of orders on
behalf of others involving any contracts of sale of any com-
229
modity for future delivery or any option on such a con-
tract, on or subject to the rules of any contract market
or registered derivatives transaction execution facility to
security futures products, shall be exempt from the fol-
lowing provisions of this Act and the rules thereunder:
‘‘(A) Subsections (b), (d), (e), and (g) of section
4c.
‘‘(B) Sections 4d, 4e, and 4h.
‘‘(C) Subsections (b) and (c) of section 4f.
‘‘(D) Section 4j.
‘‘(E) Paragraph (1) of this section.
‘‘(F) Section 4p.
‘‘(G) Section 6d.
‘‘(H) Subsections (d) and (g) of section 8.
‘‘(I) Section 16.’’.
SEC. 253. NOTIFICATION OF INVESTIGATIONS AND EN-
FORCEMENT ACTIONS.
(a) Section 8(a) of the Commodity Exchange Act (7
U.S.C. 12(a)) is amended by adding at the end the fol-
lowing:
‘‘(3) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement
of any proceeding and a copy of any order entered by the
Commission against any futures commission merchant or
introducing broker registered pursuant to section 4f(a)(2),
230
any floor broker or floor trader exempt from registration
pursuant to section 4f(a)(3), any associated person exempt
from registration pursuant to section 4k(6), or any board
of trade designated as a contract market pursuant to sec-
tion 5f.’’.
(b) Section 6 of the Commodity Exchange Act (7
U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended by adding at
the end the following:
‘‘(g) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement
of any proceeding and a copy of any order entered by the
Commission pursuant to subsections (c) and (d) of this
section against any futures commission merchant or intro-
ducing broker registered pursuant to section 4f(a)(2), any
floor broker or floor trader exempt from registration pur-
suant to section 4f(a)(3), any associated person exempt
from registration pursuant to section 4k(6), or any board
of trade designated as a contract market pursuant to sec-
tion 5f.’’.
(c) Section 6c of the Commodity Exchange Act (7
U.S.C. 13a–1) is amended by adding at the end the fol-
lowing:
‘‘(h) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement
of any proceeding and a copy of any order entered by the
231
Commission against any futures commission merchant or
introducing broker registered pursuant to section 4f(a)(2),
any floor broker or floor trader exempt from registration
pursuant to section 4f(a)(3), any associated person exempt
from registration pursuant to section 4k(6), or any board
of trade designated as a contract market pursuant to sec-
tion 5f.’’.
TITLE III—LEGAL CERTAINTY
FOR SWAP AGREEMENTS
SEC. 301. SWAP AGREEMENT.
(a) AMENDMENT.—Title II of the Gramm-Leach-Bli-
ley Act (Public Law 106–102) is amended by inserting
after section 206 the following new sections:
‘‘SEC. 206A. SWAP AGREEMENT.
‘‘(a) IN GENERAL.—Except as provided in subsection
(b), as used in this section, the term ‘swap agreement’
means any agreement, contract, or transaction between el-
igible contract participants (as defined in section 1a(12)
of the Commodity Exchange Act as in effect on the date
of the enactment of this section), other than a person that
is an eligible contract participant under section 1a(12)(C)
of the Commodity Exchange Act, the material terms of
which (other than price and quantity) are subject to indi-
vidual negotiation, and that—
232
‘‘(1) is a put, call, cap, floor, collar, or similar
option of any kind for the purchase or sale of, or
based on the value of, one or more interest or other
rates, currencies, commodities, indices, quantitative
measures, or other financial or economic interests or
property of any kind;
‘‘(2) provides for any purchase, sale, payment
or delivery (other than a dividend on an equity secu-
rity) that is dependent on the occurrence, non-occur-
rence, or the extent of the occurrence of an event or
contingency associated with a potential financial,
economic, or commercial consequence;
‘‘(3) provides on an executory basis for the ex-
change, on a fixed or contingent basis, of one or
more payments based on the value or level of one or
more interest or other rates, currencies, commod-
ities, securities, instruments of indebtedness, indices,
quantitative measures, or other financial or eco-
nomic interests or property of any kind, or any in-
terest therein or based on the value thereof, and
that transfers, as between the parties to the trans-
action, in whole or in part, the financial risk associ-
ated with a future change in any such value or level
without also conveying a current or future direct or
indirect ownership interest in an asset (including
233
any enterprise or investment pool) or liability that
incorporates the financial risk so transferred, includ-
ing any such agreement, contract, or transaction
commonly known as an interest rate swap, including
a rate floor, rate cap, rate collar, cross-currency rate
swap, basis swap, currency swap, equity index swap,
equity swap, debt index swap, debt swap, credit
spread, credit default swap, credit swap, weather
swap, or commodity swap;
‘‘(4) provides for the purchase or sale, on a
fixed or contingent basis, of any commodity, cur-
rency, instrument, interest, right, service, good, arti-
cle, or property of any kind; or
‘‘(5) is any combination or permutation of, or
option on, any agreement, contract, or transaction
described in any of paragraphs (1) through (4).
‘‘(b) EXCLUSIONS.—The term ‘swap agreement’ does
not include—
‘‘(1) any put, call, straddle, option, or privilege
on any security, certificate of deposit, or group or
index of securities, including any interest therein or
based on the value thereof;
‘‘(2) any put, call, straddle, option, or privilege
entered into on a national securities exchange reg-
234
istered pursuant to section 6(a) of the Securities Ex-
change Act of 1934 relating to foreign currency;
‘‘(3) any agreement, contract, or transaction
providing for the purchase or sale of one or more se-
curities on a fixed basis;
‘‘(4) any agreement, contract, or transaction
providing for the purchase or sale of one or more se-
curities on a contingent basis, unless such agree-
ment, contract, or transaction predicates such pur-
chase or sale on the occurrence of a bona fide con-
tingency that might reasonably be expected to affect
or be affected by the creditworthiness of a party
other than a party to the agreement, contract, or
transaction;
‘‘(5) any note, bond, or evidence of indebted-
ness that is a security as defined in section 2(a)(1)
of the Securities Act of 1933 or section 3(a)(10) of
the Securities Exchange Act of 1934; or
‘‘(6) any agreement, contract, or transaction
that is—
‘‘(A) based on a security; and
‘‘(B) entered into directly or through an
underwriter (as defined in section 2(a) of the
Securities Act of 1933) by the issuer of such se-
curity for the purposes of raising capital, unless
235
such agreement, contract, or transaction is en-
tered into to manage a risk associated with cap-
ital raising.
‘‘(c) RULE OF CONSTRUCTION REGARDING MASTER
AGREEMENTS.—As used in this section, the term ‘swap
agreement’ shall be construed to include a master agree-
ment that provides for an agreement, contract, or trans-
action that is a swap agreement pursuant to subsections
(a) and (b), together with all supplements to any such
master agreement, without regard to whether the master
agreement contains an agreement, contract, or transaction
that is not a swap agreement pursuant to subsections (a)
and (b), except that the master agreement shall be consid-
ered to be a swap agreement only with respect to each
agreement, contract, or transaction under the master
agreement that is a swap agreement pursuant to sub-
sections (a) and (b).
‘‘SEC. 206B. SECURITY-BASED SWAP AGREEMENT.
‘‘As used in this section, the term ‘security-based
swap agreement’ means a swap agreement (as defined in
section 206A) of which a material term is based on the
price, yield, value, or volatility of any security or any
group or index of securities, or any interest therein.
236
‘‘SEC. 206C. NON-SECURITY-BASED SWAP AGREEMENT.
‘‘As used in this section, the term ‘non-security-based
swap agreement’ means any swap agreement (as defined
in section 206A) that is not a security-based swap agree-
ment (as defined in section 206B).’’.
(b) SECURITY DEFINITION.—As used in the amend-
ment made by subsection (a), the term ‘‘security’’ has the
same meaning as in section 2(a)(1) of the Securities Act
of 1933 or section 3(a)(10) of the Securities Exchange
Act of 1934.
SEC. 302. AMENDMENTS TO THE SECURITIES ACT OF 1933.
(a) ENFORCEMENT FOCUS.—The Securities Act of
1933 is amended by inserting after section 2 (15 U.S.C.
77b) the following new section:
‘‘SEC. 2A. SWAP AGREEMENTS.
‘‘(a) NON-SECURITY-BASED SWAP AGREEMENTS.—
The definition of ‘security’ in section 2(a)(1) of this title
does not include any non-security-based swap agreement
(as defined in section 206C of the Gramm-Leach-Bliley
Act).
‘‘(b) SECURITY-BASED SWAP AGREEMENTS.—
‘‘(1) The definition of ‘security’ in section
2(a)(1) of this title does not include any security-
based swap agreement (as defined in section 206B
of the Gramm-Leach-Bliley Act).
237
‘‘(2) The Commission is prohibited from reg-
istering, or requiring, recommending, or suggesting,
the registration under this title of any security-based
swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act). If the Commission be-
comes aware that a registrant has filed a registra-
tion statement with respect to such a swap agree-
ment, the Commission shall promptly so notify the
registrant. Any such registration statement with re-
spect to such a swap agreement shall be void and of
no force or effect.
‘‘(3) The Commission is prohibited from—
‘‘(A) promulgating, interpreting, or enforc-
ing rules; or
‘‘(B) issuing orders of general applicability;
under this title in a manner that imposes or speci-
fies reporting or recordkeeping requirements, proce-
dures, or standards as prophylactic measures against
fraud, manipulation, or insider trading with respect
to any security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act).
‘‘(4) References in this title to the ‘purchase’ or
‘sale’ of a security-based swap agreement shall be
deemed to mean the execution, termination (prior to
its scheduled maturity date), assignment, exchange,
238
or similar transfer or conveyance of, or extinguishing
of rights or obligations under, a security-based swap
agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act), as the context may re-
quire.’’.
(b) ANTI-FRAUD
AND
ANTI-MANIPULATION
EN-
FORCEMENT AUTHORITY.—Section 17(a) of the Securities
Act of 1933 (15 U.S.C. 77q(a)) is amended to read as
follows:
‘‘(a) It shall be unlawful for any person in the offer
or sale of any securities or any security-based swap agree-
ment (as defined in section 206B of the Gramm-Leach-
Bliley Act) by the use of any means or instruments of
transportation or communication in interstate commerce
or by use of the mails, directly or indirectly—
‘‘(1) to employ any device, scheme, or artifice to
defraud, or
‘‘(2) to obtain money or property by means of
any untrue statement of a material fact or any omis-
sion to state a material fact necessary in order to
make the statements made, in light of the cir-
cumstances under which they were made, not mis-
leading; or
239
‘‘(3) to engage in any transaction, practice, or
course of business which operates or would operate
as a fraud or deceit upon the purchaser.’’.
(c) LIMITATION.—Section 17 of the Securities Act of
1933 is amended by adding at the end the following new
subsection:
‘‘(d) The authority of the Commission under this sec-
tion with respect to security-based swap agreements (as
defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of sec-
tion 2A(b) of this title.’’.
SEC. 303. AMENDMENTS TO THE SECURITIES EXCHANGE
ACT OF 1934.
(a) ENFORCEMENT
FOCUS.—The Securities Ex-
change Act of 1934 is amended by inserting after section
3 (15 U.S.C. 78c) the following new section:
‘‘SEC. 3A. SWAP AGREEMENTS.
‘‘(a) NON-SECURITY-BASED SWAP AGREEMENTS.—
The definition of ‘security’ in section 3(a)(10) of this title
does not include any non-security-based swap agreement
(as defined in section 206C of the Gramm-Leach-Bliley
Act).
‘‘(b) SECURITY-BASED SWAP AGREEMENTS.—
‘‘(1) The definition of ‘security’ in section
3(a)(10) of this title does not include any security-
240
based swap agreement (as defined in section 206B
of the Gramm-Leach-Bliley Act).
‘‘(2) The Commission is prohibited from reg-
istering, or requiring, recommending, or suggesting,
the registration under this title of any security-based
swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act). If the Commission be-
comes aware that a registrant has filed a registra-
tion application with respect to such a swap agree-
ment, the Commission shall promptly so notify the
registrant. Any such registration with respect to
such a swap agreement shall be void and of no force
or effect.
‘‘(3) Except as provided in section 16(a) with
respect to reporting requirements, the Commission is
prohibited from—
‘‘(A) promulgating, interpreting, or enforc-
ing rules; or
‘‘(B) issuing orders of general applicability;
under this title in a manner that imposes or speci-
fies reporting or recordkeeping requirements, proce-
dures, or standards as prophylactic measures against
fraud, manipulation, or insider trading with respect
to any security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act).
241
‘‘(4) References in this title to the ‘purchase’ or
‘sale’ of a security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley Act)
shall be deemed to mean the execution, termination
(prior to its scheduled maturity date), assignment,
exchange, or similar transfer or conveyance of, or
extinguishing of rights or obligations under, a secu-
rity-based swap agreement, as the context may re-
quire.’’.
(b) ANTI-FRAUD, ANTI-MANIPULATION ENFORCE-
MENT AUTHORITY.—Paragraphs (2) through (5) of sec-
tion 9(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78i(a)(2)–(5)) are amended to read as follows:
‘‘(2) To effect, alone or with one or more other per-
sons, a series of transactions in any security registered
on a national securities exchange or in connection with
any security-based swap agreement (as defined in section
206B of the Gramm-Leach-Bliley Act) with respect to
such security creating actual or apparent active trading
in such security, or raising or depressing the price of such
security, for the purpose of inducing the purchase or sale
of such security by others.
‘‘(3) If a dealer or broker, or other person selling or
offering for sale or purchasing or offering to purchase the
security or a security-based swap agreement (as defined
242
in section 206B of the Gramm-Leach-Bliley Act) with re-
spect to such security, to induce the purchase or sale of
any security registered on a national securities exchange
or any security-based swap agreement (as defined in sec-
tion 206B of the Gramm-Leach-Bliley Act) with respect
to such security by the circulation or dissemination in the
ordinary course of business of information to the effect
that the price of any such security will or is likely to rise
or fall because of market operations of any one or more
persons conducted for the purpose of raising or depressing
the price of such security.
‘‘(4) If a dealer or broker, or the person selling or
offering for sale or purchasing or offering to purchase the
security or a security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley Act) with re-
spect to such security, to make, regarding any security
registered on a national securities exchange or any secu-
rity-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) with respect to such secu-
rity, for the purpose of inducing the purchase or sale of
such security or such security-based swap agreement, any
statement which was at the time and in the light of the
circumstances under which it was made, false or mis-
leading with respect to any material fact, and which he
243
knew or had reasonable ground to believe was so false or
misleading.
‘‘(5) For a consideration, received directly or indi-
rectly from a dealer or broker, or other person selling or
offering for sale or purchasing or offering to purchase the
security or a security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley Act) with re-
spect to such security, to induce the purchase of any secu-
rity registered on a national securities exchange or any
security-based swap agreement (as defined in section
206B of the Gramm-Leach-Bliley Act) with respect to
such security by the circulation or dissemination of infor-
mation to the effect that the price of any such security
will or is likely to rise or fall because of the market oper-
ations of any one or more persons conducted for the pur-
pose of raising or depressing the price of such security.’’.
(c) LIMITATION.—Section 9 of the Securities Ex-
change Act of 1934 is amended by adding at the end the
following new subsection:
‘‘(i) The authority of the Commission under this sec-
tion with respect to security-based swap agreements (as
defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of sec-
tion 3A(b) of this title.’’.
244
(d) REGULATIONS ON THE USE OF MANIPULATIVE
AND DECEPTIVE DEVICES.—Section 10 of the Securities
Exchange Act of 1934 (15 U.S.C. 78j) is amended—
(1) in subsection (b), by inserting ‘‘or any secu-
rities-based swap agreement (as defined in section
206B of the Gramm-Leach-Bliley Act),’’ before ‘‘any
manipulative or deceptive device’’; and
(2) by adding at the end the following:
‘‘Rules promulgated under subsection (b) that prohibit
fraud, manipulation, or insider trading (but not rules im-
posing or specifying reporting or recordkeeping require-
ments, procedures, or standards as prophylactic measures
against fraud, manipulation, or insider trading), and judi-
cial precedents decided under subsection (b) and rules pro-
mulgated thereunder that prohibit fraud, manipulation, or
insider trading, shall apply to security-based swap agree-
ments (as defined in section 206B of the Gramm-Leach-
Bliley Act) to the same extent as they apply to securities.
Judicial precedents decided under section 17(a) of the Se-
curities Act of 1933 and sections 9, 15, 16, 20, and 21A
of this title, and judicial precedents decided under applica-
ble rules promulgated under such sections, shall apply to
security-based swap agreements (as defined in section
206B of the Gramm-Leach-Bliley Act) to the same extent
as they apply to securities.’’.
245
(e) BROKER, DEALER ANTI-FRAUD, ANTI-MANIPU-
LATION ENFORCEMENT AUTHORITY.—Section 15(c)(1) of
the Securities Exchange Act of 1934 (15 U.S.C.
78o(c)(1)) is amended to read as follows:
‘‘(c)(1)(A) No broker or dealer shall make use of the
mails or any means or instrumentality of interstate com-
merce to effect any transaction in, or to induce or attempt
to induce the purchase or sale of, any security (other than
commercial paper, bankers’ acceptances, or commercial
bills) otherwise than on a national securities exchange of
which it is a member, or any security-based swap agree-
ment (as defined in section 206B of the Gramm-Leach-
Bliley Act), by means of any manipulative, deceptive, or
other fraudulent device or contrivance.
‘‘(B) No municipal securities dealer shall make use
of the mails or any means or instrumentality of interstate
commerce to effect any transaction in, or to induce or at-
tempt to induce the purchase or sale of, any municipal
security or any security-based swap agreement (as defined
in section 206B of the Gramm-Leach-Bliley Act) involving
a municipal security by means of any manipulative, decep-
tive, or other fraudulent device or contrivance.
‘‘(C) No government securities broker or government
securities dealer shall make use of the mails or any means
or instrumentality of interstate commerce to effect any
246
transaction in, or to induce or to attempt to induce the
purchase or sale of, any government security or any secu-
rity-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) involving a government se-
curity by means of any manipulative, deceptive, or other
fraudulent device or contrivance.’’.
(f ) LIMITATION.—Section 15 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o) is amended by adding
at the end the following new subsection:
‘‘(i) The authority of the Commission under this sec-
tion with respect to security-based swap agreements (as
defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of sec-
tion 3A(b) of this title.’’.
(g) ANTI-INSIDER
TRADING
ENFORCEMENT
AU-
THORITY.—Subsections (a) and (b) of section 16 (15
U.S.C. 78p(a), (b)) of the Securities Exchange of 1934
are amended to read as follows:
‘‘(a) Every person who is directly or indirectly the
beneficial owner of more than 10 per centum of any class
of any equity security (other than an exempted security)
which is registered pursuant to section 12 of this title,
or who is a director or an officer of the issuer of such
security, shall file, at the time of the registration of such
security on a national securities exchange or by the effec-
247
tive date of a registration statement filed pursuant to sec-
tion 12(g) of this title, or within ten days after he becomes
such beneficial owner, director, or officer, a statement
with the Commission (and, if such security is registered
on a national securities exchange, also with the exchange)
of the amount of all equity securities of such issuer of
which he is the beneficial owner, and within ten days after
the close of each calendar month thereafter, if there has
been a change in such ownership or if such person shall
have purchased or sold a security-based swap agreement
(as defined in section 206B of the Gramm-Leach-Bliley
Act) involving such equity security during such month,
shall file with the Commission (and if such security is reg-
istered on a national securities exchange, shall also file
with the exchange), a statement indicating his ownership
at the close of the calendar month and such changes in
his ownership and such purchases and sales of such secu-
rity-based swap agreements as have occurred during such
calendar month.
‘‘(b) For the purpose of preventing the unfair use of
information which may have been obtained by such bene-
ficial owner, director, or officer by reason of his relation-
ship to the issuer, any profit realized by him from any
purchase and sale, or any sale and purchase, of any equity
security of such issuer (other than an exempted security)
248
or a security-based swap agreement (as defined in section
206B of the Gramm-Leach-Bliley Act) involving any such
equity security within any period of less than six months,
unless such security or security-based swap agreement was
acquired in good faith in connection with a debt previously
contracted, shall inure to and be recoverable by the issuer,
irrespective of any intention on the part of such beneficial
owner, director, or officer in entering into such transaction
of holding the security or security-based swap agreement
purchased or of not repurchasing the security or security-
based swap agreement sold for a period exceeding six
months. Suit to recover such profit may be instituted at
law or in equity in any court of competent jurisdiction by
the issuer, or by the owner of any security of the issuer
in the name and in behalf of the issuer if the issuer shall
fail or refuse to bring such suit within sixty days after
request or shall fail diligently to prosecute the same there-
after; but no such suit shall be brought more than two
years after the date such profit was realized. This sub-
section shall not be construed to cover any transaction
where such beneficial owner was not such both at the time
of the purchase and sale, or the sale and purchase, of the
security or security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) involved, or
any transaction or transactions which the Commission by
249
rules and regulations may exempt as not comprehended
within the purpose of this subsection.’’.
(h) LIMITATION.—Section 16 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78p) is amended by adding
at the end the following new subsection:
‘‘(g) The authority of the Commission under this sec-
tion with respect to security-based swap agreements (as
defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of sec-
tion 3A(b) of this title.’’.
(i) MATERIAL NONPUBLIC INFORMATION.—Section
20(d) of the Securities Exchange Act of 1934 (15 U.S.C.
78t(d)) is amended to read as follows:
‘‘(d) Wherever communicating, or purchasing or sell-
ing a security while in possession of, material nonpublic
information would violate, or result in liability to any pur-
chaser or seller of the security under any provisions of
this title, or any rule or regulation thereunder, such con-
duct in connection with a purchase or sale of a put, call,
straddle, option, privilege or security-based swap agree-
ment (as defined in section 206B of the Gramm-Leach-
Bliley Act) with respect to such security or with respect
to a group or index of securities including such security,
shall also violate and result in comparable liability to any
250
purchaser or seller of that security under such provision,
rule, or regulation.’’.
( j) LIMITATION.—Section 20 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78t) is amended by adding
at the end the following new subsection:
‘‘(f ) The authority of the Commission under this sec-
tion with respect to security-based swap agreements (as
defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of sec-
tion 3A(b) of this title.’’.
(k) CIVIL PENALTIES.—Section 21A(a)(1) of the Se-
curities Exchange Act of 1934 (15 U.S.C. 78u–1(a)(1))
is amended by inserting after ‘‘purchasing or selling a se-
curity’’ the following: ‘‘or security-based swap agreement
(as defined in section 206B of the Gramm-Leach-Bliley
Act)’’.
(l) LIMITATION.—Section 21A of the Securities Ex-
change Act of 1934 (15 U.S.C. 78u–1) is amended by add-
ing at the end the following new subsection:
‘‘(g) The authority of the Commission under this sec-
tion with respect to security-based swap agreements (as
defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of sec-
tion 3A(b) of this title.’’.
251
SEC. 304. SAVINGS PROVISIONS.
Nothing in this Act or the amendments made by this
Act shall be construed as finding or implying that any
swap agreement is or is not a security for any purpose
under the securities laws. Nothing in this Act or the
amendments made by this Act shall be construed as find-
ing or implying that any swap agreement is or is not a
futures contract or commodity option for any purpose
under the Commodity Exchange Act.
TITLE 
IV—REGULATORY 
RE-
SPONSIBILITY 
FOR 
BANK
PRODUCTS
SEC. 401. SHORT TITLE.
This title may be cited as the ‘‘Legal Certainty for
Bank Products Act of 2000’’.
SEC. 402. DEFINITIONS.
(a) BANK.—In this title, the term ‘‘bank’’ means—
(1) any depository institution (as defined in sec-
tion 3(c) of the Federal Deposit Insurance Act);
(2) any foreign bank or branch or agency of a
foreign bank (each as defined in section 1(b) of the
International Banking Act of 1978);
(3) any Federal or State credit union (as de-
fined in section 101 of the Federal Credit Union
Act);
252
(4) any corporation organized under section
25A of the Federal Reserve Act;
(5) any corporation operating under section 25
of the Federal Reserve Act;
(6) any trust company; or
(7) any subsidiary of any entity described in
paragraph (1) through (6) of this subsection, if the
subsidiary is regulated as if the subsidiary were part
of the entity and is not a broker or dealer (as such
terms are defined in section 3 of the Securities Ex-
change Act of 1934) or a futures commission mer-
chant (as defined in section 1a(20) of the Com-
modity Exchange Act).
(b) IDENTIFIED BANKING PRODUCT.—In this title,
the term ‘‘identified banking product’’ shall have the same
meaning as in paragraphs (1) through (5) of section
206(a) of the Gramm-Leach-Bliley Act, except that in ap-
plying such section for purposes of this title—
(1) the term ‘‘bank’’ shall have the meaning
given in subsection (a) of this section; and
(2) the term ‘‘qualified investor’’ means eligible
contract participant (as defined in section 1a(12) of
the Commodity Exchange Act, as in effect on the
date of the enactment of the Commodity Futures
Modernization Act of 2000).
253
(c) HYBRID INSTRUMENT.—In this title, the term
‘‘hybrid instrument’’ means an identified banking product
not excluded by section 403 of this Act, offered by a bank,
having one or more payments indexed to the value, level,
or rate of, or providing for the delivery of, one or more
commodities (as defined in section 1a(4) of the Com-
modity Exchange Act).
(d) COVERED SWAP AGREEMENT.—In this title, the
term ‘‘covered swap agreement’’ means a swap agreement
(as defined in section 206(b) of the Gramm-Leach-Bliley
Act), including a credit or equity swap, based on a com-
modity other than an agricultural commodity enumerated
in section 1a(4) of the Commodity Exchange Act if—
(1) the swap agreement—
(A) is entered into only between persons
that are eligible contract participants (as de-
fined in section 1a(12) of the Commodity Ex-
change Act, as in effect on the date of the en-
actment of the Commodity Futures Moderniza-
tion Act of 2000) at the time the persons enter
into the swap agreement; and
(B) is not entered into or executed on a
trading facility (as defined in section 1a(33) of
the Commodity Exchange Act); or
(2) the swap agreement—
254
(A) is entered into or executed on an elec-
tronic trading facility (as defined in section
1a(10) of the Commodity Exchange Act);
(B) is entered into on a principal-to-prin-
cipal basis between parties trading for their
own accounts or as described in section
1a(12)(B)(ii) of the Commodity Exchange Act;
(C) is entered into only between persons
that are eligible contract participants as de-
scribed in subparagraph (A), (B)(ii), or (C) of
section 1a(12) of the Commodity Exchange Act,
as in effect on the date of the enactment of the
Commodity Futures Modernization Act of 2000,
at the time the persons enter into the swap
agreement; and
(D) is an agreement, contract or trans-
action in an excluded commodity (as defined in
section 1a(13) of the Commodity Exchange
Act).
SEC. 403. EXCLUSION OF IDENTIFIED BANKING PRODUCTS
COMMONLY OFFERED ON OR BEFORE DE-
CEMBER 5, 2000.
No provision of the Commodity Exchange Act shall
apply to, and the Commodity Futures Trading Commis-
255
sion shall not exercise regulatory authority with respect
to, an identified banking product if—
(1) an appropriate banking agency certifies that
the product has been commonly offered, entered
into, or provided in the United States by any bank
on or before December 5, 2000, under applicable
banking law; and
(2) the product was not prohibited by the Com-
modity Exchange Act and not regulated by the Com-
modity Futures Trading Commission as a contract
of sale of a commodity for future delivery (or an op-
tion on such a contract) or an option on a com-
modity, on or before December 5, 2000.
SEC. 404. EXCLUSION OF CERTAIN IDENTIFIED BANKING
PRODUCTS OFFERED BY BANKS AFTER DE-
CEMBER 5, 2000.
No provision of the Commodity Exchange Act shall
apply to, and the Commodity Futures Trading Commis-
sion shall not exercise regulatory authority with respect
to, an identified banking product which had not been com-
monly offered, entered into, or provided in the United
States by any bank on or before December 5, 2000, under
applicable banking law if—
(1) the product has no payment indexed to the
value, level, or rate of, and does not provide for the
256
delivery of, any commodity (as defined in section
1a(4) of the Commodity Exchange Act); or
(2) the product or commodity is otherwise ex-
cluded from the Commodity Exchange Act.
SEC. 405. EXCLUSION OF CERTAIN OTHER IDENTIFIED
BANKING PRODUCTS.
(a) IN GENERAL.—No provision of the Commodity
Exchange Act shall apply to, and the Commodity Futures
Trading Commission shall not exercise regulatory author-
ity with respect to, a banking product if the product is
a hybrid instrument that is predominantly a banking prod-
uct under the predominance test set forth in subsection
(b).
(b) PREDOMINANCE TEST.—A hybrid instrument
shall be considered to be predominantly a banking product
for purposes of this section if—
(1) the issuer of the hybrid instrument receives
payment in full of the purchase price of the hybrid
instrument substantially contemporaneously with de-
livery of the hybrid instrument;
(2) the purchaser or holder of the hybrid in-
strument is not required to make under the terms
of the instrument, or any arrangement referred to in
the instrument, any payment to the issuer in addi-
tion to the purchase price referred to in paragraph
257
(1), whether as margin, settlement payment, or oth-
erwise during the life of the hybrid instrument or at
maturity;
(3) the issuer of the hybrid instrument is not
subject by the terms of the instrument to mark-to-
market margining requirements; and
(4) the hybrid instrument is not marketed as a
contract of sale of a commodity for future delivery
(or option on such a contract) subject to the Com-
modity Exchange Act.
(c) MARK-TO-MARKET MARGINING REQUIREMENT.—
For purposes of subsection (b)(3), mark-to-market mar-
gining requirements shall not include 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 secured debt instrument to secure the repayment
obligations of the issuer under the secured debt instru-
ment.
SEC. 406. ADMINISTRATION OF THE PREDOMINANCE TEST.
(a) IN GENERAL.—No provision of the Commodity
Exchange Act shall apply to, and the Commodity Futures
Trading Commission shall not regulate, a hybrid instru-
ment, unless the Commission determines, by or under a
rule issued in accordance with this section, that—
258
(1) the action is necessary and appropriate in
the public interest;
(2) the action is consistent with the Commodity
Exchange Act and the purposes of the Commodity
Exchange Act; and
(3) the hybrid instrument is not predominantly
a banking product under the predominance test set
forth in section 405(b) of this Act.
(b) CONSULTATION.—Before commencing a rule-
making or making a determination pursuant to a rule
issued under this title, the Commodity Futures Trading
Commission shall consult with and seek the concurrence
of the Board of Governors of the Federal Reserve System
concerning—
(1) the nature of the hybrid instrument; and
(2) the history, purpose, extent, and appro-
priateness of the regulation of the hybrid instrument
under the Commodity Exchange Act and under ap-
propriate banking laws.
(c) OBJECTION TO COMMISSION REGULATION.—
(1) FILING OF PETITION FOR REVIEW.—The
Board of Governors of the Federal Reserve System
may obtain review of any rule or determination re-
ferred to in subsection (a) in the United States
Court of Appeals for the District of Columbia Cir-
259
cuit by filing in the court, not later than 60 days
after the date of publication of the rule or deter-
mination, a written petition requesting that the rule
or determination be set aside. Any proceeding to
challenge any such rule or determination shall be ex-
pedited by the court.
(2) 
TRANSMITTAL
OF
PETITION
AND
RECORD.—A copy of a petition described in para-
graph (1) shall be transmitted as soon as possible by
the Clerk of the court to an officer or employee of
the Commodity Futures Trading Commission des-
ignated for that purpose. Upon receipt of the peti-
tion, the Commission shall file with the court the
rule or determination under review and any docu-
ments referred to therein, and any other relevant
materials prescribed by the court.
(3) EXCLUSIVE JURISDICTION.—On the date of
the filing of a petition under paragraph (1), the
court shall have jurisdiction, which shall become ex-
clusive on the filing of the materials set forth in
paragraph (2), to affirm and enforce or to set aside
the rule or determination at issue.
(4) STANDARD OF REVIEW.—The court shall
determine to affirm and enforce or set aside a rule
or determination of the Commodity Futures Trading
260
Commission under this section, based on the deter-
mination of the court as to whether—
(A) the subject product is predominantly a
banking product; and
(B) making the provision or provisions of
the Commodity Exchange Act at issue applica-
ble to the subject instrument is appropriate in
light of the history, purpose, and extent of reg-
ulation under such Act, this title, and under the
appropriate banking laws, giving deference nei-
ther to the views of the Commodity Futures
Trading Commission nor the Board of Gov-
ernors of the Federal Reserve System.
(5) JUDICIAL STAY.—The filing of a petition by
the Board pursuant to paragraph (1) shall operate
as a judicial stay, until the date on which the deter-
mination of the court is final (including any appeal
of the determination).
(6) OTHER AUTHORITY TO CHALLENGE.—Any
aggrieved party may seek judicial review pursuant to
section 6(c) of the Commodity Exchange Act of a
determination or rulemaking by the Commodity Fu-
tures Trading Commission under this section.
261
SEC. 407. EXCLUSION OF COVERED SWAP AGREEMENTS.
No provision of the Commodity Exchange Act (other
than section 5b of such Act with respect to the clearing
of covered swap agreements) shall apply to, and the Com-
modity Futures Trading Commission shall not exercise
regulatory authority with respect to, a covered swap agree-
ment offered, entered into, or provided by a bank.
SEC. 408. CONTRACT ENFORCEMENT.
(a) HYBRID INSTRUMENTS.—No hybrid instrument
shall be void, voidable, or unenforceable, and no party to
a hybrid instrument shall be entitled to rescind, or recover
any payment made with respect to, a hybrid instrument
under any provision of Federal or State law, based solely
on the failure of the hybrid instrument to satisfy the pre-
dominance test set forth in section 405(b) of this Act or
to comply with the terms or conditions of an exemption
or exclusion from any provision of the Commodity Ex-
change Act or any regulation of the Commodity Futures
Trading Commission.
(b) COVERED
SWAP
AGREEMENTS.—No covered
swap agreement shall be void, voidable, or unenforceable,
and no party to a covered swap agreement shall be entitled
to rescind, or recover any payment made with respect to,
a covered swap agreement under any provision of Federal
or State law, based solely on the failure of the covered
swap agreement to comply with the terms or conditions
262
of an exemption or exclusion from any provision of the
Commodity Exchange Act or any regulation of the Com-
modity Futures Trading Commission.
(c) PREEMPTION.—This title shall supersede and pre-
empt the application of any State or local law that pro-
hibits or regulates gaming or the operation of bucket
shops (other than antifraud provisions of general applica-
bility) in the case of—
(1) a hybrid instrument that is predominantly
a banking product; or
(2) a covered swap agreement.
Æ