IB
Union Calendar No. 477
106TH CONGRESS
2D SESSION
H. R. 4541
[Report No. 106–711, Parts I, II, and III]
To reauthorize and amend the Commodity Exchange Act to promote legal
certainty, enhance competition, and reduce systemic risk in markets
for futures and over-the-counter derivatives, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 25, 2000
Mr. EWING introduced the following bill; which was referred to the Committee
on Agriculture, and in addition to the Committees on Banking and Fi-
nancial Services, and Commerce, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
JUNE 29, 2000
Reported from the Committee on Agriculture with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
SEPTEMBER 6, 2000
Reported from the Committee on Banking and Financial Services with
amendments
[Strike out all after the enacting clause and insert the part printed in boldface roman]
SEPTEMBER 6, 2000
Additional sponsors: Mr. BARRETT of Nebraska, Mr. CHAMBLISS, and Mr.
GUTKNECHT
SEPTEMBER 6, 2000
Reported from the Committee on Commerce with an amendment, committed
to the Committee of the Whole House on the State of the Union, and
ordered to be printed
[Strike out all after the enacting clause and insert the part printed in boldface italic]
[For text of introduced bill, see copy of bill as introduced on May 25, 2000]
A BILL
To reauthorize and amend the Commodity Exchange Act
to promote legal certainty, enhance competition, and re-
duce systemic risk in markets for futures and over-the-
counter derivatives, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Commodity Futures Modernization Act of 2000’’.
(b) TABLE OF CONTENTS.—The table of contents of this
Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Purposes.
Sec. 3. Definitions.
Sec. 4. Agreements, contracts, and transactions in foreign currency, government
securities, and certain other commodities.
Sec. 5. Legal certainty for excluded derivative transactions.
Sec. 6. Excluded electronic trading facilities.
Sec. 7. Hybrid instruments.
Sec. 8. Futures on securities.
Sec. 9. Transactions in exempt commodities.
Sec. 10. Protection of the public interest.
Sec. 11. Prohibited transactions.
Sec. 12. Designation of boards of trade as contract markets.
Sec. 13. Derivatives transaction execution facilities.
Sec. 14. Derivatives clearing organizations.
Sec. 15. Common provisions applicable to registered entities.
Sec. 16. Exempt boards of trade.
Sec. 17. Suspension or revocation of designation as contract market.
Sec. 18. Authorization of appropriations.
Sec. 19. Preemption.
Sec. 20. Predispute resolution agreements for institutional customers.
Sec. 21. Consideration of costs and benefits and antitrust laws.
Sec. 22. Contract enforcement between eligible counterparties.
Sec. 23. Special procedures to encourage and facilitate bona fide hedging by agri-
cultural producers.
Sec. 24. Rule of construction.
Sec. 25. Technical and conforming amendments.
Sec. 26. Report to Congress.
Sec. 27. Effective date.
Sec. 28. International activities of the Commodity Futures Trading Commission.
SEC. 2. PURPOSES.
The purposes of this Act are—
(1) to reauthorize the appropriation for the Com-
modity Futures Trading Commission;
(2) to streamline and eliminate unnecessary reg-
ulation for the commodity futures exchanges and
other entities regulated under the Commodity Ex-
change Act;
(3) to transform the role of the Commodity Fu-
tures Trading Commission to oversight of the futures
markets;
(4) to provide a statutory and regulatory frame-
work for allowing the trading of futures on securities;
(5) to provide the Commission jurisdiction over
certain retail foreign exchange transactions and buck-
et shops that may not be otherwise regulated;
(6) to promote innovation for futures and de-
rivatives and to reduce systemic risk by enhancing
legal certainty in the markets for certain futures and
derivatives transactions;
(7) to reduce systemic risk and provide greater
stability to markets during times of market disorder
by allowing the clearing of transactions in over-the-
counter derivatives through appropriately regulated
clearing organizations; and
(8) to enhance the competitive position of United
States financial institutions and financial markets.
SEC. 3. DEFINITIONS.
Section 1a of the Commodity Exchange Act (7 U.S.C.
1a) is amended—
(1) by redesignating paragraphs (8) through
(12), (13) through (15), and (16) as paragraphs (15)
through (19), (21) through (23), and (27), respec-
tively;
(2) by inserting after paragraph (7) the fol-
lowing:
‘‘(8) DERIVATIVES CLEARING ORGANIZATION.—
‘‘(A) IN GENERAL.—The term ‘derivatives
clearing organization’ means a clearinghouse,
clearing association, clearing corporation, or
similar entity, facility, system, or organization
that, with respect to a derivative agreement, con-
tract, or transaction—
‘‘(i) enables each party to the deriva-
tive agreement, contract, or transaction to
substitute, through novation or otherwise,
the credit of the derivatives clearing organi-
zation for the credit of the parties;
‘‘(ii) arranges or provides, on a multi-
lateral basis, for the settlement or netting of
obligations resulting from such agreements,
contracts, or transactions executed by par-
ties in the derivatives clearing organization;
or
‘‘(iii) otherwise provides clearing serv-
ices or arrangements that mutualize or
transfer among parties in the derivatives
clearing organization the credit risk arising
from such agreements, contracts, or trans-
actions executed by the parties.
‘‘(B) EXCLUSIONS.—The term ‘derivatives
clearing organization’ does not include an entity,
facility, system, or organization solely because it
arranges or provides for—
‘‘(i) settlement, netting, or novation of
obligations resulting from agreements, con-
tracts, or transactions, on a bilateral basis
and without a centralized counterparty;
‘‘(ii) settlement or netting of cash pay-
ments through an interbank payment sys-
tem; or
‘‘(iii) settlement, netting, or novation
of obligations resulting from a sale of a
commodity in a transaction in the spot
market for the commodity.
‘‘(9) ELECTRONIC TRADING FACILITY.—The term
‘electronic trading facility’ means a trading facility
that—
‘‘(A) operates by means of an electronic net-
work; and
‘‘(B) maintains a real-time audit trail of
bids, offers, and the matching of orders or the
execution of transactions.
‘‘(10) ELIGIBLE
COMMERCIAL
PARTICIPANT.—
The term ‘eligible commercial participant’ means a
party or entity described in paragraph (11)(A)(i),
(ii), (v), or (vii) or paragraph (11)(C), who, in con-
nection with its business—
‘‘(A) has a demonstrable capacity or ability,
directly or through separate contractual arrange-
ments, to make or take delivery of the underlying
physical commodity;
‘‘(B) incurs risks, in addition to price risk,
related to the commodity; or
‘‘(C) is a dealer that regularly provides
hedging, risk management, or market-making
services to the foregoing entities.
‘‘(11) ELIGIBLE
CONTRACT
PARTICIPANT.—The
term ‘eligible contract participant’ means—
‘‘(A) acting for its own account—
‘‘(i) a financial institution;
‘‘(ii) an insurance company regulated
by a State (including a subsidiary or affil-
iate of such an insurance company);
‘‘(iii) an investment company subject
to regulation under the Investment Com-
pany Act of 1940 (15 U.S.C. 80a–1 et seq.)
or a foreign person performing a similar
role or function subject as such to foreign
regulation (regardless of whether each inves-
tor in the investment company or the for-
eign person is itself an eligible contract par-
ticipant);
‘‘(iv) a commodity pool that—
‘‘(I) has total assets exceeding
$5,000,000; and
‘‘(II) is formed and operated by a
person subject to regulation under this
Act or a foreign person performing a
similar role or function subject as such
to foreign regulation (regardless of
whether each investor in the com-
modity pool or the foreign person is
itself an eligible contract participant);
‘‘(v) a corporation, partnership, pro-
prietorship, organization, trust, or other
entity—
‘‘(I) that has total assets exceeding
$10,000,000;
‘‘(II) the obligations of which
under an agreement, contract, or
transaction are guaranteed or other-
wise supported by a letter of credit or
keepwell, support, or other agreement
by an entity described in subclause (I),
in clause (i), (ii), (iii), (iv), or (vii),
or in subparagraph (C); or
‘‘(III) that—
‘‘(aa) has a net worth exceed-
ing $1,000,000; and
‘‘(bb) enters into an agree-
ment, contract, or transaction in
connection with the conduct of the
entity’s business or to manage the
risk associated with an asset or li-
ability owned or incurred or rea-
sonably likely to be owned or in-
curred by the entity in the con-
duct of the entity’s business;
‘‘(vi) an employee benefit plan subject
to the Employee Retirement Income Secu-
rity Act of 1974 (29 U.S.C. 1001 et seq.) or
a foreign person performing a similar role
or function subject as such to foreign
regulation—
‘‘(I) that has total assets exceeding
$5,000,000; or
‘‘(II) the investment decisions of
which are made by—
‘‘(aa) an investment advisor
or commodity trading advisor
subject to regulation under the In-
vestment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.) or this Act;
‘‘(bb) a foreign person per-
forming a similar role or function
subject as such to foreign regula-
tion;
‘‘(cc) a financial institution;
or
‘‘(dd) an insurance company
regulated by a State (including a
subsidiary or affiliate of such an
insurance company);
‘‘(vii)(I) a governmental entity (in-
cluding the United States, a State, or a for-
eign government) or political subdivision of
a governmental entity;
‘‘(II) a multinational or supranational
government entity; or
‘‘(III) an instrumentality, agency, or
department of an entity described in sub-
clause (I) or (II);
‘‘(viii) a broker or dealer subject to reg-
ulation under the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.) or a foreign
person performing a similar role or func-
tion subject as such to foreign regulation,
except that, if the broker or dealer or foreign
person is a natural person or proprietor-
ship, the broker or dealer or foreign person
shall not be considered to be an eligible con-
tract participant unless the broker or dealer
or foreign person also meets the require-
ments of clause (v) or (xi);
‘‘(ix) a futures commission merchant
subject to regulation under this Act or a for-
eign person performing a similar role or
function subject as such to foreign regula-
tion, except that, if the futures commission
merchant or foreign person is a natural
person or proprietorship, the futures com-
mission merchant or foreign person shall
not be considered to be an eligible contract
participant unless the futures commission
merchant or foreign person also meets the
requirements of clause (v) or (xi);
‘‘(x) a floor broker or floor trader sub-
ject to regulation under this Act in connec-
tion with any transaction that takes place
on or through the facilities of a registered
entity or an exempt board of trade, or any
affiliate thereof, on which such person regu-
larly trades; or
‘‘(xi) a natural person with total assets
exceeding $10,000,000;
‘‘(B)(i) a person described in any of clauses
(i) through (x) of subparagraph (A) or in sub-
paragraph (C), acting as broker or performing
an equivalent agency function on behalf of an-
other person described in subparagraph (A) or
(C);
‘‘(ii) an investment adviser subject to regu-
lation under the Investment Advisors Act of
1940, a commodity trading advisor subject to
regulation under this Act, a foreign person per-
forming a similar role or function subject as
such to foreign regulation, or a person described
in any of clauses (i) through (x) of subparagraph
(A) or in subparagraph (C), in any such case
acting as investment manager or fiduciary (but
excluding a person acting as broker or per-
forming an equivalent agency function) for an-
other person described in subparagraph (A) or
(C) and who is authorized by such person to
commit such person to the transaction; or
‘‘(iii) a commodity trading advisor subject
to regulation under this Act, having assets under
management of not less than $25,000,000 and
acting as investment manager or fiduciary for
another person and authorized by such person to
commit such person to the transaction; or
‘‘(C) any other person that the Commission
determines to be eligible in light of the financial
or other qualifications of the person.
‘‘(12) EXCLUDED
COMMODITY.—The term ‘ex-
cluded commodity’ means—
‘‘(A) an interest rate, exchange rate, cur-
rency, security, security index, credit risk or
measure, debt or equity instrument, or index or
measure of inflation;
‘‘(B) any other rate, differential, index, or
measure of economic or commercial risk, return,
or value that—
‘‘(i) is not within the control of any
party to the relevant contract, agreement, or
transaction; or
‘‘(ii) is not based in substantial part
on the value of a limited number of com-
modities not described in subparagraph (A)
that have a finite supply; or
‘‘(C) an occurrence, extent of an occurrence,
or contingency beyond the control of the parties
to the relevant contract, agreement, or trans-
action.
‘‘(13) EXEMPT COMMODITY.—The term ‘exempt
commodity’ means a commodity that is not an ex-
cluded commodity or an agricultural commodity.
‘‘(14) FINANCIAL
INSTITUTION.—The term ‘fi-
nancial institution’ means—
‘‘(A) a corporation operating under the fifth
undesignated paragraph of section 25 of the Fed-
eral Reserve Act (12 U.S.C. 603), commonly
known as ‘an agreement corporation’;
‘‘(B) a corporation organized under section
25A of the Federal Reserve Act (12 U.S.C. 611
et seq.), commonly known as an ‘Edge Act cor-
poration’;
‘‘(C) an institution that is regulated by the
Farm Credit Administration;
‘‘(D) a Federal credit union or State credit
union (as defined in section 101 of the Federal
Credit Union Act (12 U.S.C. 1752));
‘‘(E) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act
(12 U.S.C. 1813));
‘‘(F) a foreign bank or a branch or agency
of a foreign bank (each as defined in section 1(b)
of the International Banking Act of 1978 (12
U.S.C. 3101(b)));
‘‘(G) a trust company; or
‘‘(H) a similarly regulated subsidiary or af-
filiate of an entity described in any of subpara-
graphs (A) through (F).’’;
(3) by inserting after paragraph (19) (as redes-
ignated by paragraph (1)) the following:
‘‘(20) HYBRID INSTRUMENT.—The term ‘hybrid
instrument’ means a deposit (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C.
1813)) offered by a financial institution, or a secu-
rity, having 1 or more payments indexed to the value,
level, or rate of 1 or more commodities.’’;
(4) by inserting after paragraph (23) (as redes-
ignated by paragraph (1)) the following:
‘‘(24) NONEXEMPT SECURITY.—The term ‘non-
exempt security’ means a security that is not an ex-
empted security under section 3 of the Securities Act
of 1933 or section 3(a)(12) of the Securities Exchange
Act of 1934 (other than any municipal security, as
defined in section 3(a)(29) of the Securities Exchange
Act of 1934).
‘‘(25) OPTION.—The term ‘option’ means an
agreement, contract, or transaction that is of the
character of, or is commonly known to the trade as,
an ‘option’, ‘privilege’, ‘indemnity’, ‘bid’, ‘offer’, ‘put’,
‘call’, ‘advance guaranty’, or ‘decline guaranty’.
‘‘(26) ORGANIZED EXCHANGE.—The term ‘orga-
nized exchange’ means a trading facility that—
‘‘(A) permits trading—
‘‘(i) by or on behalf of a person that is
not an eligible contract participant; or
‘‘(ii) by persons other than on a prin-
cipal-to-principal basis; or
‘‘(B) has adopted (directly or through an-
other nongovernmental entity) rules that—
‘‘(i) govern the conduct of participants,
other than rules that govern the submission
of orders or execution of transactions on the
trading facility; or
‘‘(ii) include disciplinary sanctions
other than the exclusion of participants
from trading.’’; and
(5) by adding at the end the following:
‘‘(28) REGISTERED
ENTITY.—The term ‘reg-
istered entity’ means—
‘‘(A) a board of trade designated as a con-
tract market under section 5;
‘‘(B) a derivatives transaction execution fa-
cility registered under section 5a; or
‘‘(C) a derivatives clearing organization
registered under section 5b.
‘‘(29) SECURITY.—The term ‘security’ has the
meaning given the term in section 3(a) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78c(a)) as in
effect on date of the enactment of this paragraph.
‘‘(30) TRADING FACILITY.—
‘‘(A) IN GENERAL.—The term ‘trading facil-
ity’ means a person or group of persons that
constitutes, maintains, or provides a physical or
electronic facility or system in which multiple
participants have the ability to execute or trade
agreements, contracts, or transactions by accept-
ing bids and offers made by other participants
that are open to multiple participants in the fa-
cility or system.
‘‘(B) EXCLUSIONS.—The term ‘trading fa-
cility’ does not include—
‘‘(i) a person or group of persons solely
because the person or group of persons con-
stitutes, maintains, or provides an elec-
tronic facility or system that enables par-
ticipants to negotiate the terms of and enter
into bilateral transactions as a result of
communications exchanged by the parties
and not from interaction of multiple orders
within a predetermined, nondiscretionary
automated trade matching algorithm;
‘‘(ii) a government securities dealer or
government securities broker, to the extent
that the dealer or broker executes or trades
agreements, contracts, or transactions in
government securities, or assists persons in
communicating about, negotiating, entering
into, executing, or trading an agreement,
contract, or transaction in government secu-
rities (as the terms ‘government securities
dealer’, ‘government securities broker’, and
‘government securities’ are defined in sec-
tion 3(a) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a))); or
‘‘(iii) facilities on which bids and of-
fers, and acceptances of bids and offers ef-
fected on the facility, are not binding.’’.
SEC. 4. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN
FOREIGN CURRENCY, GOVERNMENT SECURI-
TIES, AND CERTAIN OTHER COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) is amended by adding at the end the fol-
lowing:
‘‘(c) AGREEMENTS, CONTRACTS, AND TRANSACTIONS
IN FOREIGN CURRENCY, GOVERNMENT SECURITIES, AND
CERTAIN OTHER COMMODITIES.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), nothing in this Act (other than section 5b
or 12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in—
‘‘(A) foreign currency;
‘‘(B) government securities;
‘‘(C) security warrants;
‘‘(D) security rights;
‘‘(E) resales of installment loan contracts;
‘‘(F) repurchase transactions in an excluded
commodity; or
‘‘(G) mortgages or mortgage purchase com-
mitments.
‘‘(2) COMMISSION JURISDICTION.—
‘‘(A) 
AGREEMENTS, 
CONTRACTS, 
AND
TRANSACTIONS THAT ARE FUTURES TRADED ON
AN ORGANIZED EXCHANGE.—This Act applies to,
and the Commission shall have jurisdiction over,
an agreement, contract, or transaction described
in paragraph (1) that is—
‘‘(i) a contract of sale of a commodity
for future delivery (or an option thereon),
or an option on a commodity (other than
foreign currency or a security), that is exe-
cuted or traded on an organized exchange;
or
‘‘(ii) an option on foreign currency
and is executed or traded on an organized
exchange that is not a national securities
exchange.
‘‘(B) 
AGREEMENTS, 
CONTRACTS, 
AND
TRANSACTIONS IN RETAIL FOREIGN CURRENCY.—
This Act applies to, and the Commission shall
have jurisdiction over, an agreement, contract, or
transaction in foreign currency that—
‘‘(i) is a contract of sale for future de-
livery (or an option on such a contract) or
an option; and
‘‘(ii) is offered to, or entered into with,
a person that is not an eligible contract
participant, unless the counterparty, or the
person offering to be the counterparty, of the
person is—
‘‘(I) a financial institution;
‘‘(II) a broker or dealer registered
under section 15(b) or 15C of the Secu-
rities Exchange Act of 1934 (15 U.S.C.
78o(b), 78o–5) or a futures commission
merchant registered under this Act;
‘‘(III) an associated person of a
broker or dealer registered under sec-
tion 15(b) or 15C of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o(b),
78o–5), or an affiliated person of a fu-
tures commission merchant registered
under this Act, concerning the finan-
cial or securities activities of which the
registered person makes and keeps
records under section 15C(b) or 17(h)
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–5(b), 78q(h)) or section
4f(c)(2)(B) of this Act;
‘‘(IV) an insurance company that
is subject to State regulation (includ-
ing a subsidiary or affiliate of such an
insurance company);
‘‘(V) a financial holding company
(as defined in section 2 of the Bank
Holding Company Act of 1956); or
‘‘(VI) an investment bank holding
company (as defined in section 17(i) of
the Securities Exchange Act of 1934).’’.
SEC. 5. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE
TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) (as amended by section 4) is amended by
adding at the end the following:
‘‘(d) EXCLUDED DERIVATIVE TRANSACTIONS.—
‘‘(1) IN GENERAL.—Nothing in this Act (other
than section 5b or 12(e)(2)(B)) governs or applies to
an agreement, contract, or transaction in an excluded
commodity if—
‘‘(A) the agreement, contract, or transaction
is entered into only between persons that are eli-
gible contract participants at the time at which
the persons enter into the agreement, contract, or
transaction; and
‘‘(B) the agreement, contract, or transaction
is not executed or traded on a trading facility.
‘‘(2) ELECTRONIC
TRADING
FACILITY
EXCLU-
SION.—Nothing in this Act (other than section 5a, 5b,
or 12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in an excluded commodity
if—
‘‘(A) the agreement, contract, or transaction
is entered into on a principal-to-principal basis
between parties trading for their own accounts
or as described in section 1a(11)(B)(ii) of this
Act;
‘‘(B) the agreement, contract, or transaction
is entered into only between persons that are eli-
gible contract participants (as defined in sec-
tions 1a(11)(A), (B)(ii), and (C)) at the time at
which the persons enter into the agreement, con-
tract, or transaction; and
‘‘(C) the agreement, contract, or transaction
is executed or traded on an electronic trading fa-
cility.’’.
SEC. 6. EXCLUDED ELECTRONIC TRADING FACILITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) (as amended by section 5) is amended by
adding at the end the following:
‘‘(e) EXCLUDED ELECTRONIC TRADING FACILITIES.—
‘‘(1) IN GENERAL.—Nothing in this Act (other
than section 12(e)(2)(B)) governs or is applicable to
an electronic trading facility that limits transactions
authorized to be conducted on its facilities to those
satisfying the requirements of sections 2(d)(2) and
2(h)(3)(B) of this Act.
‘‘(2) EFFECT ON AUTHORITY TO ESTABLISH AND
OPERATE.—Nothing in this Act shall prohibit a board
of trade designated by the Commission as a contract
market or derivatives transaction execution facility,
or an exempt board of trade, from establishing and
operating an excluded electronic trading facility ex-
cluded under this Act pursuant to paragraph (1).’’.
SEC. 7. HYBRID INSTRUMENTS.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) (as amended by section 6) is amended by
adding at the end the following:
‘‘(f) EXCLUSION FOR QUALIFYING HYBRID INSTRU-
MENTS.—
‘‘(1) IN GENERAL.—Nothing in this Act (other
than section 12(e)(2)(B)) governs or is applicable to
a hybrid instrument that is predominantly a security
or depository instrument.
‘‘(2) PREDOMINANCE.—A hybrid instrument
shall be considered to be predominantly a security or
depository instrument if—
‘‘(A) the issuer of the hybrid instrument re-
ceives payment in full of the purchase price of
the hybrid instrument, substantially contempora-
neously with delivery of the hybrid instrument;
‘‘(B) the purchaser or holder of the hybrid
instrument is not required to make any payment
to the issuer in addition to the purchase price
paid under subparagraph (A), whether as mar-
gin, settlement payment, or otherwise, during the
life of the hybrid instrument or at maturity;
‘‘(C) the issuer of the hybrid instrument is
not subject by the terms of the instrument to
mark-to-market margining requirements; and
‘‘(D) the hybrid instrument is not marketed
as a contract of sale for future delivery of a com-
modity (or option on such a contract) subject to
this Act.
‘‘(3) MARK-TO-MARKET
MARGINING
REQUIRE-
MENTS.—For the purposes of paragraph (2)(C),
mark-to-market margining requirements do not in-
clude the obligation of an issuer of a secured debt in-
strument 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 instrument.’’.
SEC. 8. FUTURES ON SECURITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) (as amended by section 7) is amended by
adding at the end the following:
‘‘(g) Notwithstanding any other provision of law:
‘‘(1) This Act shall not apply to and the Com-
mission shall have no jurisdiction to designate a
board of trade as a contract market for any trans-
action whereby any party to the transaction acquires
a put, call, or other option on 1 or more securities (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, on the date of enactment of the Futures Trad-
ing Act of 1982), including any group or index of se-
curities and any interest in or based on the value of
securities.
‘‘(2) Nothing in this subsection governs or ap-
plies to—
‘‘(A) an agreement, contract, or transaction
in a commodity that is excluded under sub-
section (c) or (d);
‘‘(B) an electronic trading facility that is
excluded under subsection (e); or
‘‘(C) a hybrid instrument that is covered by
an exclusion under subsection (f) or an exemp-
tion granted by the Commission under section
4(c) (whether or not the hybrid instrument is
otherwise subject to this Act).
‘‘(3) Except as provided in paragraph (4) of this
subsection, or unless excluded by paragraph (2) of
this subsection, a person shall not offer to enter into,
enter into, or confirm the execution of any contract
of sale (or option on the contract) for future delivery
of any security or interest in or based on the value
of a nonexempt security.
‘‘(4)(A) Except as excluded by paragraph (2) of
this subsection, this Act shall apply to and the Com-
mission shall have exclusive jurisdiction with respect
to accounts, agreements (including any transaction
which is of the character of, or is commonly known
to the trade as an option, privilege, indemnity, bid,
offer, put, call, advance guaranty, or decline guar-
anty), and transactions involving, and may designate
a board of trade as a contract market under section
5 or register the board of trade as a derivatives trans-
action execution facility under section 5a in, con-
tracts of sale (or options on the contracts) for future
delivery of 1 or more securities (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), in-
cluding any group or index of securities and any in-
terest in or based on the value of securities.
‘‘(B) The Commission shall not designate a
board of trade as a contract market under section 5
or register a board of trade as a derivatives trans-
action execution facility under section 5a with respect
to any such contracts of sale (or options on the con-
tracts) for future delivery unless the board of trade
demonstrates and the Commission expressly finds that
the specific contract (or option on the contract) with
respect to which the application for the designation or
recognition has been made meets the following re-
quirements:
‘‘(i) Settlement of or delivery on the con-
tract (or option on the contract) shall be effected
in cash or by means other than the transfer or
receipt of a nonexempt security.
‘‘(ii) SUSCEPTIBILITY TO PRICE MANIPULA-
TION.—Trading in a contract (or option on such
a contract) described in subparagraph (A) shall
not be readily susceptible to—
‘‘(I) manipulation of the price of the
contract (or option on such a contract); or
‘‘(II) causing or being used in the ma-
nipulation of the price of any underlying
security, option on a security, or option on
a group or index that includes a security.
‘‘(iii) If the contract is based on a single
nonexempt security, an option on the security
underlying the contract would meet all Securities
and Exchange Commission requirements for list-
ing on a national securities exchange.
‘‘(iv) If the contract is based on any group
or index of nonexempt securities comprised of
fewer than 5 securities, or on an index in which
a single nonexempt security predominates, an
option on each security comprising the group or
index would meet all requirements for listing on
a national securities exchange.
‘‘(v) The contract will be traded on a board
of trade that establishes the level of margin for
futures contracts (or options on the contracts)
based on a single nonexempt security, an index
of fewer than 5 nonexempt securities, or an index
in which a single nonexempt security predomi-
nates, at a level consistent with the level of mar-
gin on comparable option contracts listed on any
national securities exchange.
‘‘(vi) The contract will be traded on a board
of trade that prohibits a person who acts as a
floor broker for any contract of sale (or options
on the contract) for future delivery of a non-
exempt security, an index based on fewer than 5
nonexempt securities, or an index in which a
single nonexempt security predominates, from
trading that contract for the broker’s own ac-
count during the same trading session.
‘‘(vii) The contract will be traded on a
board of trade that collects, maintains, and
promptly provides to the Securities and Ex-
change Commission such information as the
Commission and the Securities and Exchange
Commission jointly consider necessary to per-
form the enforcement responsibilities described in
paragraph (6).
‘‘(5) The Commission shall consult with the Se-
curities and Exchange Commission with respect to
any application submitted by a board of trade for
designation as a contract market or derivatives trans-
action execution facility with respect to any contract
of sale (or option on the contract) for future delivery
of a nonexempt security or a group or index of such
securities. If, not later than 15 days after the con-
sultation, the Securities and Exchange Commission
objects to the designation of a board of trade as a con-
tract market or derivatives transaction execution fa-
cility in the contract (or option on the contract) on
the ground that any requirement of paragraph (4)(B)
is not met, the Commission shall afford the Securities
and Exchange Commission an opportunity for an
oral hearing to be transcribed before the Commission,
and shall give appropriate weight to the views of the
Securities and Exchange Commission. The oral hear-
ing shall be held before Commission action upon the
application for the designation, and not less than 30
nor more than 45 days after the Securities and Ex-
change Commission has objected. If such an oral hear-
ing is held, the Securities and Exchange Commission
fails to withdraw its objections, and the Commission
issues an order designating a board of trade as a con-
tract market or recognizes the board of trade as a de-
rivatives transaction execution facility with respect to
any such contract (or option on the contract), the Se-
curities and Exchange Commission may seek judicial
review of the order in accordance with the procedural
requirements set forth in section 6(c). If, pursuant to
section 6, there is a hearing on the record with respect
to an application for such designation, the Securities
and Exchange Commission may participate in that
hearing as an interested party.
‘‘(6) Notwithstanding any other provision of this
Act, the Securities and Exchange Commission may
enforce against a person that purchases or sells any
contract of sale (or option on the contract) for future
delivery of any nonexempt security, any index com-
prised of fewer than 5 nonexempt securities, or any
index in which a single nonexempt security predomi-
nates to the same extent as if the person had pur-
chased or sold an option on the security or index
under the following provisions of the securities laws
and regulations with respect to the following cat-
egories of conduct:
‘‘(A) Section 10(b) and 21A of the Securi-
ties Exchange Act of 1934 (15 U.S.C. 78j(b),
78u–1) with respect to insider trading.
‘‘(B) Section 16(b) of such Act (15 U.S.C.
78p(b)) with respect to unfair use of information
in short swing trading by a corporate insider.
‘‘(C) Section 9 of such Act (15 U.S.C. 78i)
with respect to manipulation of securities prices.
‘‘(D) Section 10(b) of such Act (15 U.S.C.
78J(b)) and section 204A of the Investment Ad-
viser’s Act of 1940 (15 U.S.C. 80b–4a) with re-
spect to frontrunning.
‘‘(E) Section 14 of the Securities Exchange
Act of 1934 (15 U.S.C. 78n) with respect to the
pricing and integrity of tender offers.
‘‘(F) Rule 144 of the rules of the Securities
and Exchange Commission (17 C.F.R. 230.144)
with respect to trading in restricted securities.
‘‘(7)(A) Notwithstanding any other provision of
this Act, any contract market or derivatives trans-
action execution facility in a nonexempt security or
stock index futures contract (or option thereon) shall
file with the Board of Governors of the Federal Re-
serve System any rule establishing or changing the
levels of margin (initial and maintenance) for the
nonexempt security or stock index futures contract (or
option on the contract).
‘‘(B) The Board may at any time request any
contract market or derivatives transaction execution
facility to set the level of margin for any nonexempt
security or stock index futures contract (or option on
the contract) at such levels as the Board in its judg-
ment determines are appropriate to preserve the fi-
nancial integrity of the contract market or derivatives
transaction execution facility or its clearing system or
to prevent systemic risk. If the contract market or de-
rivatives transaction execution facility fails to do so
within the time specified by the Board in its request,
the Board may direct the contract market or deriva-
tives transaction execution facility to alter or supple-
ment the rules of the contract market or derivatives
transaction execution facility as specified in the re-
quest.
‘‘(C) Subject to such conditions as the Board
may determine, the Board may delegate any or all of
its authority under this paragraph to the Commission
or an intermarket margin board as provided in sub-
paragraph (D).
‘‘(D) INTERMARKET MARGIN BOARD.—
‘‘(i) ESTABLISHMENT.—With the concur-
rence of the Securities and Exchange Commis-
sion and the Commission, the Board may estab-
lish an intermarket margin board, consisting of
representatives of any or all of the three agencies.
‘‘(ii) DUTIES.—The intermarket margin
board may set and maintain margin levels and
rules pertaining to margin for futures on a sin-
gle nonexempt security, an index of fewer than
5 nonexempt securities, or an index in which a
single nonexempt security predominates, listed
on a contract market or derivatives transaction
execution facility. In discharging these duties,
the intermarket margin board shall endeavor to
make the levels of margin for futures and options
on a single nonexempt security consistent taking
into account any material differences in such
contracts, including—
‘‘(I) the price volatility of the con-
tracts;
‘‘(II) the frequency with which margin
calls are made; and
‘‘(III) the period of time within which
margin calls must be met.
‘‘(E) This paragraph shall not be construed to
supersede or limit the authority granted to the Com-
mission in section 8a(9) to direct a contract market
or derivatives transaction execution facility, on find-
ing an emergency to exist, to raise temporary emer-
gency margin levels on any futures contract or option
on the contract covered by this paragraph.
‘‘(F) Any action taken by the Board under this
paragraph, or by the Commission acting under the
delegation of authority under subparagraph (C), di-
recting a contract market or derivatives transaction
execution facility to alter or supplement a contract
market or derivatives transaction execution facility
rule shall be subject to review only in the United
States Court of Appeals for the judicial circuit in
which the party seeking review resides or has its prin-
cipal place of business, or in the United States Court
of Appeals for the District of Columbia Circuit. The
review shall be based on the examination of all infor-
mation before the Board or the Commission, as the
case may be, at the time the determination was made.
The court reviewing the action of the Board or the
Commission shall not enter a stay or order of man-
damus unless the court determines, after notice and a
hearing before a panel of the court, that the agency
action complained of was arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance
with law.
‘‘(8) This subsection shall not be construed to
prohibit—
‘‘(A) an agreement, contract, or transaction
excluded from this Act by paragraph (2); or
‘‘(B) any hybrid instrument that is covered
by the terms of any exemption granted by the
Commission under section 4(c) (whether or not
any such hybrid instrument is otherwise subject
to this Act).
‘‘(9)(A) No futures commission merchant, com-
modity trading advisor, or introducing broker shall
recommend to any customer the purchase or sale of
any contract of sale for future delivery of a single
nonexempt security, an index of fewer than 5 non-
exempt securities, or an index in which a single non-
exempt security predominates, unless the futures com-
mission merchant, commodity trading advisor, or in-
troducing broker complies with the rules described in
subparagraph (B) of a registered futures association
of which such merchant, advisor, or broker is a mem-
ber.
‘‘(B) Within 9 months of the date of enactment
of the Commodity Futures Modernization Act of 2000,
a registered futures association shall adopt rules re-
quiring a futures commission merchant, a commodity
trading advisor, or an introducing broker which rec-
ommends to any customer the purchase or sale of any
contract of sale for future delivery of a single non-
exempt security, an index of fewer than 5 nonexempt
securities, or an index in which a single nonexempt
security predominates to ascertain through reasonable
due diligence that the recommendation is suitable for
that customer in light of the customer’s financial po-
sition and trading goals. The registered futures asso-
ciation shall consult with the Commission and the Se-
curities and Exchange Commission prior to the adop-
tion of any such rule, and shall submit any such rule
to the Commission for approval in the manner and
according to the procedures described in section 17(j)
of this Act, provided, that in such case the rule shall
become effective if the Commission fails to disapprove
such rule within 90 days of submission.
‘‘(10)(A) Nothing in this Act shall be construed
to require or authorize the Commission to review or
approve, directly or indirectly, any contract, rule,
regulation, or action adopted by a foreign board of
trade, exchange, or market, or a clearinghouse for
such a board of trade, exchange, or market, relating
to any transaction involving a contract of sale for fu-
ture delivery (or option on such a contract) in or in-
volving any security, including any foreign govern-
ment debt security, or group or index of such securi-
ties, if—
‘‘(i)(I) in the case of a contract of sale for
future delivery (or option on such a contract) in
or involving a single equity security, the United
States is not the primary trading market for the
underlying security; or
‘‘(II) in the case of a contract of sale for fu-
ture delivery (or option on such a contract) in
or involving a group or index of equity securi-
ties, less than 25 percent of the weighting of the
group or index is derived from securities for
which the United States is the primary trading
market for the securities underlying the contract
for future delivery (or option on the contract);
and
‘‘(ii) settlement of or delivery on the con-
tract for future delivery (or option on such a
contract) is to be effected in cash or by means
other than the transfer or receipt of a security in
the United States other than an exempted secu-
rity.
‘‘(B) Within 90 days after the date of the enact-
ment of this paragraph, the Commission shall adopt
such procedures as it deems appropriate pursuant to
which, consistent with this Act, the Commission shall
authorize the offer and sale in the United States of
any contract of sale for future delivery (or option on
such a contract) of a security, other than a security
of the type described in subparagraph (A)(i)(I) or a
group or index of securities of the type described in
subparagraph (A)(i)(II), traded on or subject to the
rules of a foreign board of trade, exchange, or market,
or a clearinghouse for such a board of trade, ex-
change, or market, except that such procedures shall
not require a foreign board of trade, exchange, or
market, or a clearinghouse for such a board of trade,
exchange, or market to apply for designation as a
contract market under this Act with respect to such
a contract for future delivery (or option on such a
contract).’’.
SEC. 9. TRANSACTIONS IN EXEMPT COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C.
2, 2a, 3, 4, 4a) (as amended by section 8) is amended by
adding at the end the following.
‘‘(h) LEGAL CERTAINTY FOR CERTAIN TRANSACTIONS
IN EXEMPT COMMODITIES.—
‘‘(1) Except as provided in paragraph (2) of this
subsection, nothing in this Act shall apply to a con-
tract, agreement or transaction in an exempt com-
modity which—
‘‘(A) is entered into solely between persons
that are eligible contract participants at the time
they enter into the agreement, contract, or trans-
action; and
‘‘(B) is not entered into on a trading facil-
ity.
‘‘(2) An agreement, contract, or transaction de-
scribed in paragraph (1) of this subsection shall be
subject to—
‘‘(A) sections 5b and 12(e)(2)(B) of this Act;
‘‘(B) sections 4b and 4n of this Act and the
regulations of the Commission pursuant to sec-
tion 4c(b) of this Act proscribing fraud in con-
nection with commodity option transactions, to
the extent such agreement, contract, or trans-
action is not between eligible commercial partici-
nection with commodity option transactions and
section 6(c) and 9(a)(2) of this Act, to the extent
these provisions prohibit manipulation of the
market price of any commodity in interstate
commerce, to the extent such agreement, contract,
or transaction would otherwise be subject to those
provisions; and
‘‘(C) such rules and regulations as the Com-
mission may prescribe if necessary to ensure
timely dissemination by the electronic trading
facility of price, trading volume, and other trad-
ing data to the extent appropriate, if the Com-
mission determines that the electronic trading fa-
cility performs a significant price discovery
function for transactions related to the com-
modity executed or traded on the electronic trad-
ing facility.’’.
SEC. 10. PROTECTION OF THE PUBLIC INTEREST.
The Commodity Exchange Act is amended by striking
section 3 (7 U.S.C. 5) and inserting the following:
‘‘SEC. 3. FINDINGS AND PURPOSE.
‘‘(a) FINDINGS.—The futures contracts and options
contracts that are subject to this Act are entered into regu-
larly in interstate and international commerce and are af-
fected with a national public interest by providing a means
for managing and assuming price risks, discovering prices,
and disseminating pricing information through trading in
liquid, fair and financially secure trading facilities.
‘‘(b) PURPOSE.—It is the purpose of this Act to serve
the public interests described in subsection (a) through a
system of effective self-regulation of trading facilities, clear-
ing systems, market participants and market professionals
under the oversight of the Commission. To foster these pub-
lic interests, it is further the purpose of this Act to deter
and prevent price manipulation or any other disruptions
to market integrity; to ensure the financial integrity of all
transactions subject to this Act and the avoidance of sys-
temic risk; to protect all market participants from fraudu-
lent or other abusive sales practices and misuses of customer
assets; and to promote responsible innovation and fair com-
petition among boards of trade, other markets and market
participants.’’.
SEC. 11. PROHIBITED TRANSACTIONS.
Section 4c of the Commodity Exchange Act (7 U.S.C.
6c) is amended by striking ‘‘SEC. 4c.’’ and all that follows
through subsection (a) and inserting the following:
‘‘SEC. 4c. PROHIBITED TRANSACTIONS.
‘‘(a) IN GENERAL.—
‘‘(1) PROHIBITION.—It shall be unlawful for any
person to offer to enter into, enter into, or confirm the
execution of a transaction described in paragraph (2)
involving any commodity if the transaction is used or
may be used to—
‘‘(A) hedge any transaction in interstate
commerce in the commodity or the product or
byproduct of the commodity;
‘‘(B) determine the price basis of any such
transaction in interstate commerce in the com-
modity; or
‘‘(C) deliver any such commodity sold,
shipped, or received in interstate commerce for
the execution of the transaction.
‘‘(2) TRANSACTION.—A transaction referred to in
paragraph (1) is a transaction that—
‘‘(A)(i) is, is of the character of, or is com-
monly known to the trade as, a ‘wash sale’ or
‘accommodation trade’; or
‘‘(ii) is a fictitious sale; or
‘‘(B) is used to cause any price to be re-
ported, registered, or recorded that is not a true
and bona fide price.’’.
SEC. 12. DESIGNATION OF BOARDS OF TRADE AS CON-
TRACT MARKETS.
The Commodity Exchange Act is amended—
(1) by redesignating section 5b (7 U.S.C. 7b) as
section 5e; and
(2) by striking sections 5 and 5a (7 U.S.C. 7,
7a) and inserting the following:
‘‘SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CON-
TRACT MARKETS.
‘‘(a) APPLICATIONS.—A board of trade applying to the
Commission for designation as a contract market shall sub-
mit an application to the Commission that includes any
relevant materials and records the Commission may require
consistent with this Act.
‘‘(b) CRITERIA FOR DESIGNATION.—
‘‘(1) IN GENERAL.—To be designated as a con-
tract market, the board of trade shall demonstrate to
the Commission that the board of trade meets the cri-
teria specified in this subsection.
‘‘(2) PREVENTION OF MARKET MANIPULATION.—
The board of trade shall have the capacity to prevent
market manipulation through market surveillance,
compliance, and enforcement practices and proce-
dures, including methods for conducting real-time
monitoring of trading and comprehensive and accu-
rate trade reconstructions.
‘‘(3) FAIR AND EQUITABLE TRADING.—The board
of trade shall establish and enforce trading rules to
ensure fair and equitable trading through the facili-
ties of the contract market, and the capacity to detect,
investigate, and discipline any person that violates
the rules. Such rules may authorize—
‘‘(A) an exchange of—
‘‘(i) futures in connection with a cash
commodity transaction;
‘‘(ii) futures for cash commodities;
‘‘(iii) transfer trades or office trades;
or
‘‘(iv) futures for swaps; and
‘‘(B) a futures commission merchant, acting
as principal or agent, to enter into or confirm
the execution of a contract for the purchase or
sale of a commodity for future delivery if the
contract is reported, recorded, or cleared in ac-
cordance with the rules of the contract market or
a derivatives clearing organization.
‘‘(4) TRADE EXECUTION FACILITY.—The board of
trade shall—
‘‘(A) establish and enforce rules defining, or
specifications detailing, the manner of operation
of the trade execution facility maintained by the
board of trade, including rules or specifications
describing the operation of any electronic match-
ing platform; and
‘‘(B) demonstrate that the trading facility
operates in accordance with the rules or speci-
fications.
‘‘(5) FINANCIAL INTEGRITY OF TRANSACTIONS.—
The board of trade shall establish and enforce rules
and procedures for ensuring the financial integrity of
transactions entered into by or through the facilities
of the contract market.
‘‘(6) DISCIPLINARY PROCEDURES.—The board of
trade shall establish and enforce disciplinary proce-
dures that authorize the board of trade to discipline,
suspend, or expel members or market participants
that violate the rules of the board of trade, or similar
methods for performing the same functions, including
delegation of the functions to third parties.
‘‘(7) PUBLIC ACCESS.—The board of trade shall
provide the public with access to the rules, regula-
tions, and contract specifications of the board of
trade.
‘‘(8) ABILITY
TO
OBTAIN
INFORMATION.—The
board of trade shall establish and enforce rules that
will allow the board of trade to obtain any necessary
information to perform any of the functions described
in this subsection, including the capacity to carry out
such international information-sharing agreements as
the Commission may require.
‘‘(c) EXISTING CONTRACT MARKETS.—A board of
trade that is designated as a contract market on the effective
date of the Commodity Futures Modernization Act of 2000
shall be considered to be a designated contract market under
this section.
‘‘(d) CORE PRINCIPLES FOR CONTRACT MARKETS.—
‘‘(1) IN GENERAL.—To maintain the designation
of a board of trade as a contract market, a board of
trade shall comply with the core principles specified
in this subsection.
‘‘(2) COMPLIANCE WITH RULES.—The board of
trade shall monitor and enforce compliance with the
rules of the contract market, including the terms and
conditions of any contracts to be traded and any lim-
itations on access to the contract market.
‘‘(3) CONTRACTS NOT READILY SUBJECT TO MA-
NIPULATION.—The board of trade shall list on the
contract market only contracts that are not readily
susceptible to manipulation.
‘‘(4) MONITORING OF TRADING.—The board of
trade shall monitor trading to prevent manipulation,
price distortion, and disruptions of the delivery or
cash-settlement process.
‘‘(5) 
POSITION
LIMITATIONS
OR
ACCOUNT-
ABILITY.—To reduce the potential threat of market
manipulation or congestion, especially during trading
in the delivery month, the board of trade shall adopt
position limitations or position accountability for
speculators, where necessary and appropriate.
‘‘(6) EMERGENCY
AUTHORITY.—The board of
trade shall adopt rules to provide for the exercise of
emergency authority, in consultation or cooperation
with the Commission, where necessary and appro-
priate, including the authority to—
‘‘(A) liquidate or transfer open positions in
any contract;
‘‘(B) suspend or curtail trading in any con-
tract; and
‘‘(C) require market participants in any
contract to meet special margin requirements.
‘‘(7) AVAILABILITY OF GENERAL INFORMATION.—
The board of trade shall make available to market au-
thorities, market participants, and the public infor-
mation concerning—
‘‘(A) the terms and conditions of the con-
tracts of the contract market; and
‘‘(B) the mechanisms for executing trans-
actions on or through the facilities of the con-
tract market.
‘‘(8) DAILY PUBLICATION OF TRADING INFORMA-
TION.—The board of trade shall make public daily in-
formation on settlement prices, volume, open interest,
and opening and closing ranges for actively traded
contracts on the contract market.
‘‘(9) EXECUTION OF TRANSACTIONS.—The board
of trade shall provide a competitive, open, and effi-
cient market and mechanism for executing trans-
actions.
‘‘(10) TRADE INFORMATION.—The board of trade
shall maintain rules and procedures to provide for the
recording and safe storage of all identifying trade in-
formation in a manner that enables the contract mar-
ket to use the information for purposes of assisting in
the prevention of customer and market abuses and
providing evidence of any violations of the rules of the
contract market.
‘‘(11) FINANCIAL INTEGRITY OF CONTRACTS.—
The board of trade shall establish and enforce rules
providing for the financial integrity of any contracts
traded on the contract market, including rules to en-
sure the financial integrity of any futures commission
merchants and introducing brokers and the protection
of customer funds.
‘‘(12) PROTECTION OF MARKET PARTICIPANTS.—
The board of trade shall establish and enforce rules to
protect market participants from abusive practices
committed by any party acting as an agent for the
participants.
‘‘(13) DISPUTE
RESOLUTION.—The board of
trade shall establish and enforce rules regarding and
provide facilities for alternative dispute resolution as
appropriate for market participants and any market
intermediaries.
‘‘(14) GOVERNANCE FITNESS STANDARDS.—The
board of trade shall establish and enforce appropriate
fitness standards for directors, members of any dis-
ciplinary committee, members of the contract market,
and any other persons with direct access to the facil-
ity (including any parties affiliated with any of the
persons described in this paragraph).
‘‘(15) CONFLICTS OF INTEREST.—The board of
trade shall establish and enforce rules to minimize
conflicts of interest in the decisionmaking process of
the contract market and establish a process for resolv-
ing such conflicts of interest.
‘‘(16) COMPOSITION OF BOARDS OF MUTUALLY
OWNED CONTRACT MARKETS.—In the case of a mutu-
ally owned contract market, the board of trade shall
ensure that the composition of the governing board re-
flects market participants.
‘‘(17) RECORDKEEPING.—The board of trade
shall—
‘‘(A) maintain full records of all activities
related to the business of the contract market in
a form and manner acceptable to the Commis-
sion for a period of at least 5 years;
‘‘(B) make the records readily available
during at least the first 2 years of the 5-year pe-
riod and provide the records to the Commission
at the expense of the person required to maintain
the records; and
‘‘(C) keep the records open to inspection by
any representative of the Commission or the De-
partment of Justice.
‘‘(18) ANTITRUST CONSIDERATIONS.—Unless nec-
essary or appropriate to achieve the purposes of this
Act, the board of trade shall endeavor to avoid—
‘‘(A) adopting any rules or taking any ac-
tions that result in any unreasonable restraints
of trade; or
‘‘(B) imposing any material anticompeti-
tive burden on trading on the contract market.
‘‘(e) CURRENT AGRICULTURAL AND METAL COMMOD-
ITIES.—
‘‘(1) Subject to paragraph (2), a contract for
purchase or sale for future delivery of an agricultural
or metal commodity enumerated in section 1a(3) that
is available for trade on a contract market, as of the
date of the enactment of this subsection, may be trad-
ed only on a contract market designated under this
section.
‘‘(2) In order to promote responsible economic or
financial innovation and fair competition, the Com-
mission, on application by any person, after notice
and public comment and opportunity for hearing,
may prescribe rules and regulations to provide for the
offer and sale of contracts for future delivery or op-
tions thereon to be conducted on a derivatives trans-
action execution facility.’’.
SEC. 13. DERIVATIVES TRANSACTION EXECUTION FACILI-
TIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is
amended by inserting after section 5 (as amended by section
12(2)) the following:
‘‘SEC. 5a. DERIVATIVES TRANSACTION EXECUTION FACILI-
TIES.
‘‘(a) IN GENERAL.—In lieu of compliance with the
contract market designation requirements of section 5, a
board of trade may elect to operate as a registered deriva-
tives transaction execution facility if the facility is—
‘‘(1) designated as a contract market and meets
the requirements of this section; or
‘‘(2) registered as a derivatives transaction exe-
cution facility under subsection (c).
‘‘(b) REQUIREMENTS FOR TRADING FUTURES CON-
TRACTS OR OTHER DERIVATIVES TRANSACTIONS.—
‘‘(1) IN
GENERAL.—A registered derivatives
transaction execution facility under subsection (a)
may trade any futures contract (or option on such a
contract) on or through the facility only by satisfying
the requirements of this section.
‘‘(2) REQUIREMENTS FOR UNDERLYING COMMOD-
ITIES.—A registered derivatives transaction execution
facility may trade any futures contract only if—
‘‘(A) the underlying commodity has a near-
ly inexhaustible deliverable supply;
‘‘(B) the underlying commodity has a deliv-
erable supply that is sufficiently large that the
contract is highly unlikely to be susceptible to the
threat of manipulation;
‘‘(C) the underlying commodity has no cash
market; or
‘‘(D) the Commission determines, based on
the market characteristics, surveillance history,
self-regulatory record, and capacity of the facil-
ity that trading in the futures contract is highly
unlikely to be susceptible to the threat of manip-
ulation.
‘‘(3) ELIGIBLE TRADERS.—To trade on a reg-
istered derivatives transaction execution facility, a
person shall—
‘‘(A) be authorized by the board of trade to
trade on the facility; and
‘‘(B)(i) be an eligible contract participant;
or
‘‘(ii) be a person trading through a futures
commission merchant that—
‘‘(I) is registered with the Commission;
‘‘(II) is a member of a futures self-reg-
ulatory organization;
‘‘(III) is a clearing member of a de-
rivatives clearing organization; and
‘‘(IV) has net capital of at least
$20,000,000.
‘‘(4) TRADING BY CONTRACT MARKETS.—A board
of trade that is designated as a contract market shall,
to the extent that the contract market also operates a
registered derivatives transaction execution facility—
‘‘(A) provide a physical location for the
contract market trading of the board of trade
that is separate from trading on the derivatives
transaction execution facility of the board of
trade; or
‘‘(B) if the board of trade uses the same
electronic trading system for trading on the con-
tract market and derivatives transaction execu-
tion facility of the board of trade, identify
whether the electronic trading is taking place on
the contract market or the derivatives trans-
action execution facility.
‘‘(c) CRITERIA FOR REGISTRATION.—
‘‘(1) IN GENERAL.—To be registered as a reg-
istered derivatives transaction execution facility, the
board of trade shall demonstrate to the Commission
that the board of trade meets the criteria specified in
this paragraph.
‘‘(2) DETERRENCE OF ABUSES.—The board of
trade shall establish and enforce trading rules that
will deter abuses and has the capacity to detect, inves-
tigate, and enforce those rules, including means to—
‘‘(A) obtain information necessary to per-
form the functions required under this section; or
‘‘(B) use technological means to—
‘‘(i) provide market participants with
impartial access to the market; and
‘‘(ii) capture information that may be
used in establishing whether rule violations
have occurred.
‘‘(3) TRADING PROCEDURES.—The board of trade
shall establish and enforce rules or terms and condi-
tions defining, or specifications detailing, trading
procedures to be used in entering and executing orders
traded on the facilities of the board of trade. Such
rules may authorize—
‘‘(A) an exchange of—
‘‘(i) futures in connection with a cash
commodity transaction;
‘‘(ii) futures for cash commodities;
‘‘(iii) transfer trades or office trades;
or
‘‘(iv) futures for swaps; and
‘‘(B) a futures commission merchant, acting
as principal or agent, to enter into or confirm
the execution of a contract for the purchase or
sale of a commodity for future delivery if the
contract is reported, recorded, or cleared in ac-
cordance with the rules of the registered deriva-
tives transaction execution facility or a deriva-
tives clearing organization.
‘‘(4) FINANCIAL INTEGRITY OF TRANSACTIONS.—
The board of trade shall establish and enforce rules or
terms and conditions providing for the financial in-
tegrity of transactions entered on or through the fa-
cilities of the board of trade, including rules or terms
and conditions to ensure the financial integrity of
any futures commission merchants and introducing
brokers and the protection of customer funds.
‘‘(d) CORE PRINCIPLES FOR REGISTERED DERIVA-
TIVES TRANSACTION EXECUTION FACILITIES.—
‘‘(1) IN GENERAL.—To maintain the registration
of a board of trade as a derivatives transaction execu-
tion facility, a board of trade shall comply with the
core principles specified in this subsection.
‘‘(2) COMPLIANCE WITH RULES.—The board of
trade shall monitor and enforce the rules of the facil-
ity, including any terms and conditions of any con-
tracts traded on or through the facility and any limi-
tations on access to the facility.
‘‘(3) MONITORING OF TRADING.—The board of
trade shall monitor trading in the contracts of the fa-
cility to ensure orderly trading in the contract and
to maintain an orderly market while providing any
necessary trading information to the Commission to
allow the Commission to discharge the responsibilities
of the Commission under the Act.
‘‘(4) DISCLOSURE OF GENERAL INFORMATION.—
The board of trade shall disclose publicly and to the
Commission information concerning—
‘‘(A) contract terms and conditions;
‘‘(B) trading conventions, mechanisms, and
practices;
‘‘(C) financial integrity protections; and
‘‘(D) other information relevant to partici-
pation in trading on the facility.
‘‘(5) DAILY PUBLICATION OF TRADING INFORMA-
TION.—The board of trade shall make public daily in-
formation on settlement prices, volume, open interest,
and opening and closing ranges for actively traded
contracts on the facility.
‘‘(6) FITNESS STANDARDS.—The board of trade
shall establish and enforce appropriate fitness stand-
ards for directors, members of any disciplinary com-
mittee, members, and any other persons with direct
access to the facility, including any parties affiliated
with any of the persons described in this paragraph.
‘‘(7) CONFLICTS
OF
INTEREST.—The board of
trade shall establish and enforce rules to minimize
conflicts of interest in the decisionmaking process of
the derivatives transaction execution facility and es-
tablish a process for resolving such conflicts of inter-
est.
‘‘(8) RECORDKEEPING.—The board of trade
shall—
‘‘(A) maintain full records of all activities
related to the business of the derivatives trans-
action execution facility in a form and manner
acceptable to the Commission for a period of at
least 5 years;
‘‘(B) make the records readily available
during at least the first 2 years of the 5-year pe-
riod and provide the records to the Commission
at the expense of the person required to maintain
the records; and
‘‘(C) keep the records open to inspection by
any representatives of the Commission or the De-
partment of Justice.
‘‘(9) ANTITRUST CONSIDERATIONS.—Unless nec-
essary or appropriate to achieve the purposes of this
Act, the board of trade shall endeavor to avoid—
‘‘(A) adopting any rules or taking any ac-
tions that result in any unreasonable restraint of
trade; or
‘‘(B) imposing any material anticompeti-
tive burden on trading on the derivatives trans-
action execution facility.
‘‘(e) USE OF BROKER-DEALERS, DEPOSITORY INSTI-
TUTIONS, AND FARM CREDIT SYSTEM INSTITUTIONS AS
INTERMEDIARIES.—
‘‘(1) IN
GENERAL.—A registered derivatives
transaction execution facility may by rule allow a
broker-dealer, depository institution, or institution of
the Farm Credit System that meets the requirements
of paragraph (2) to—
‘‘(A) act as an intermediary in transactions
executed on the facility on behalf of customers of
the broker-dealer, depository institution, or insti-
tution of the Farm Credit System; and
‘‘(B) receive funds of customers to serve as
margin or security for such transactions.
‘‘(2) REQUIREMENTS.—The requirements re-
ferred to in paragraph (1) are that—
‘‘(A) the broker-dealer be in good standing
with the Securities and Exchange Commission,
or the depository institution or institution of the
Farm Credit System be in good standing with
Federal bank regulatory agencies (including the
Farm Credit Administration), as applicable; and
‘‘(B) if the broker-dealer, depository institu-
tion, or institution of the Farm Credit System
carries or holds customer accounts or funds for
transactions on the derivatives transaction exe-
cution facility for more than 1 business day, the
broker-dealer, depository institution, or institu-
tion of the Farm Credit System is registered as
a futures commission merchant and is a member
of a registered futures association.
‘‘(3) IMPLEMENTATION.—The Commission shall
cooperate and coordinate with the Securities and Ex-
change Commission, the Secretary of the Treasury,
and Federal banking regulatory agencies (including
the Farm Credit Administration) in adopting rules
and taking any other appropriate action to facilitate
the implementation of this subsection.
‘‘(f) SEGREGATION OF CUSTOMER FUNDS.—Not later
than 180 days after the effective date of the Commodity Fu-
tures Modernization Act of 2000, consistent with regula-
tions adopted by the Commission, a registered derivatives
transaction execution facility may authorize a futures com-
mission merchant to offer any customer of the futures com-
mission merchant that is an eligible contract participant
the right to not segregate the customer funds of the futures
commission merchant for purposes of trading on or through
the facilities of the registered derivatives transaction execu-
tion facility.
‘‘(g) ELECTION
TO
TRADE
EXCLUDED
COMMOD-
ITIES.—
‘‘(1) IN GENERAL.—A board of trade that is a
registered derivatives transaction execution facility
may trade on the facility any agreements, contracts,
or transactions involving excluded commodities that
are otherwise excluded from this Act under section
2(c), 2(d), or 2(h).
‘‘(2) EXCLUSIVE JURISDICTION OF THE COMMIS-
SION.—The Commission shall have exclusive jurisdic-
tion over agreements, contracts, or transactions de-
scribed in paragraph (1) to the extent that the agree-
ments, contracts, or transactions are traded on a de-
rivatives transaction execution facility.’’.
SEC. 14. DERIVATIVES CLEARING ORGANIZATIONS.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is
amended by inserting after section 5a (as added by section
13) the following:
‘‘SEC. 5b. DERIVATIVES CLEARING ORGANIZATIONS.
‘‘(a) REGISTRATION REQUIREMENT.—Except as pro-
vided in subsection (b), it shall be unlawful for a derivatives
clearing organization, unless registered with the Commis-
sion, directly or indirectly to make use of the mails or any
means or instrumentality of interstate commerce to perform
the functions of a derivatives clearing organization de-
scribed in section 1a(8).
‘‘(b) EXCLUSION OF DERIVATIVES CLEARING ORGANI-
ZATIONS SUBJECT
TO OTHER REGULATORY AUTHORI-
TIES.—A derivatives clearing organization shall not be re-
quired to register with the Commission, and the Commis-
sion shall have no jurisdiction with respect to the deriva-
tives clearing organization, if the derivatives clearing
organization—
‘‘(1)(A) is registered as a clearing agency under
the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.);
‘‘(B) is subject to the supervisory jurisdiction of
a Federal banking agency (as defined in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813))
or the National Credit Union Administration; or
‘‘(C) is subject to the supervisory jurisdiction of
a foreign regulatory authority that is recognized by
the Securities and Exchange Commission, the Board
of Governors of the Federal Reserve System, the
Comptroller of the Currency, or the Commission as
overseeing a system of consolidated supervision com-
parable to that provided under applicable United
States law; and
‘‘(2) does not clear a contract of sale for future
delivery, option on a contract of sale for future deliv-
ery, or option on a commodity that is not a security
(unless the contract or option is excluded under sub-
section (c) or (d) of section 2).
‘‘(c) VOLUNTARY REGISTRATION.—A derivatives clear-
ing organization that is exempt from registration under
subsection (b) may register with the Commission as a de-
rivatives clearing organization.
‘‘(d) REGISTRATION OF DERIVATIVES CLEARING OR-
GANIZATIONS.—
‘‘(1) APPLICATION.—A person desiring to reg-
ister as a derivatives clearing organization shall sub-
mit to the Commission an application in such form
and containing such information as the Commission
may require for the purpose of making the determina-
tions required for approval under paragraph (2).
‘‘(2) CORE PRINCIPLES.—
‘‘(A) IN GENERAL.—To be registered and to
maintain registration as a derivatives clearing
organization, an applicant shall demonstrate to
the Commission that the applicant complies with
the core principles specified in this paragraph. 
‘‘(B) FINANCIAL
RESOURCES.—The appli-
cant shall demonstrate that the applicant has
adequate financial, operational, and managerial
resources to discharge the responsibilities of a de-
rivatives clearing organization without interrup-
tion in various market conditions.
‘‘(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 associ-
ated with discharging the responsibilities of a de-
rivatives clearing organization through the use of
appropriate tools and procedures.
‘‘(E) SETTLEMENT PROCEDURES.—The ap-
plicant 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 trans-
action 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 member
and participant funds.
‘‘(G) DEFAULT RULES AND PROCEDURES.—
The applicant shall have rules and procedures
designed to allow for efficient, fair, and safe
management of events when members or partici-
pants become insolvent or otherwise default on
their obligations to the derivatives clearing orga-
nization.
‘‘(H) RULE ENFORCEMENT.—The applicant
shall—
‘‘(i) maintain adequate arrangements
and resources for the effective monitoring
and enforcement of compliance with rules of
the applicant and for resolution of disputes;
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 pro-
vide 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—
‘‘(i) maintain full records of all activi-
ties related to the business of the applicant
as a derivatives clearing organization in a
form and manner acceptable to the Commis-
sion for a period of at least 5 years;
‘‘(ii) make the records readily available
during at least the first 2 years of the 5-
year period and provide the records to the
Commission at the expense of the person re-
quired to maintain the records; and
‘‘(iii) keep the records open to inspec-
tion by any representative of the Commis-
sion or the Department of Justice.
‘‘(L) PUBLIC INFORMATION.—The applicant
shall make information concerning the rules and
operating procedures governing the clearing and
settlement systems (including default procedures)
available to market participants.
‘‘(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.—Unless
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 de-
rivatives clearing organization may request the Com-
mission to issue an order concerning whether a rule
or practice of the applicant is the least anticompeti-
tive means of achieving the objectives, purposes, and
policies of this Act.
‘‘(e) EXISTING DERIVATIVES CLEARING ORGANIZA-
TIONS.—A derivatives clearing organization shall be
deemed to be registered under this section to the extent
that—
‘‘(1) the derivatives clearing organization clears
agreements, contracts, or transactions for a board of
trade that has been designated by the Commission as
a contract market for such agreements, contracts, or
transactions before the date of enactment of this sec-
tion; and
‘‘(2) the Commission has reviewed and approved
the rules of the derivatives clearing organization be-
fore that date.
‘‘(f) APPOINTMENT OF TRUSTEE.—
‘‘(1) IN GENERAL.—If a proceeding under section
5e results in the suspension or revocation of the reg-
istration of a derivatives clearing organization, or if
a derivatives clearing organization withdraws from
registration, the Commission, on notice to the deriva-
tives clearing organization, may apply to the appro-
priate United States district court where the deriva-
tives clearing organization is located for the appoint-
ment 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 Com-
mission, as trustee with power to take possession
and continue to operate or terminate the oper-
ations of the derivatives clearing organization in
an orderly manner for the protection of partici-
pants, subject to such terms and conditions as
the court may prescribe.
‘‘(g) LINKING
OF REGULATED CLEARING FACILI-
TIES.—
‘‘(1) IN GENERAL.—The Commission shall facili-
tate the linking or coordination of derivatives clearing
organizations registered under this Act with other reg-
ulated clearance facilities for the coordinated settle-
ment of cleared transactions.
‘‘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 Com-
mission under this Act, shall be cause for the suspension
of the registered entity for a period not to exceed 180 days,
or revocation of designation as a registered entity in accord-
ance with the procedures and subject to the judicial review
provided in section 6(b).’’.
SEC. 18. AUTHORIZATION OF APPROPRIATIONS.
Section 12(d) of the Commodity Exchange Act (7
U.S.C. 16(d)) is amended by striking ‘‘2000’’ and inserting
‘‘2005’’.
SEC. 19. PREEMPTION.
Section 12(e) of the Commodity Exchange Act (7
U.S.C. 16(e)) is amended by striking paragraph (2) and
inserting the following:
‘‘(2) the application of any Federal or State law
(including any regulation) to an agreement, contract,
or transaction in or involving any commodity, prod-
uct, right, service, or interest, except that this Act
shall supersede and preempt—
‘‘(A) in the case of any such agreement, con-
tract, or transaction—