I
105TH CONGRESS
1ST SESSION
H. R. 467
To amend the Commodity Exchange Act to provide a conditional exemption
for certain transactions involving professional markets, to clarify the
effect of the designation of a board of trade as a contract market,
to simplify the process for implementing contract market rules, to regu-
late audit trail requirements, to establish cost-benefit analysis require-
ments, to combat fraud in transactions in or involving foreign currency,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 21, 1997
Mr. EWING introduced the following bill; which was referred to the Committee
on Agriculture
A BILL
To amend the Commodity Exchange Act to provide a condi-
tional exemption for certain transactions involving profes-
sional markets, to clarify the effect of the designation
of a board of trade as a contract market, to simplify
the process for implementing contract market rules, to
regulate audit trail requirements, to establish cost-benefit
analysis requirements, to combat fraud in transactions
in or involving foreign currency, 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 Exchange Act Amendments of 1997’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—ADMINISTRATION OF COMMODITY EXCHANGE
ACT
Sec. 101. Findings and purposes.
Sec. 102. Conditional exemption from Commodity Exchange Act for certain
transactions involving professional markets.
Sec. 103. Designation of contract markets.
Sec. 104. Process for submission and disapproval of contract market rules.
Sec. 105. Regulation of audit trail requirements.
Sec. 106. Use of benefit-cost analysis.
Sec. 107. Commission oversight and deficiency orders.
TITLE II—TREASURY AMENDMENT CLARIFICATION
Sec. 201. Regulation of transactions in or involving foreign currency.
TITLE I—ADMINISTRATION OF
COMMODITY EXCHANGE ACT
SEC. 101. FINDINGS AND PURPOSES.
Section 3 of the Commodity Exchange Act (7 U.S.C.
5) is amended to read as follows:
‘‘SEC. 3. FINDINGS AND PURPOSES.
‘‘(a) FINDINGS.—The Congress finds the following:
‘‘(1) Commodity futures and commodity options
are traded in interstate commerce, and the regula-
tion of transactions in or involving commodity fu-
tures and commodity options is in the national pub-
lic interest.
‘‘(2) Commodity futures and commodity options
transactions are used to hedge and manage price or
other economic risks faced by businesses and finan-
cial enterprises throughout the world.
‘‘(3) Such hedging activity allows businesses
and financial enterprises to operate in a more effi-
cient manner, with corresponding benefits to con-
sumers and others served by these businesses and
enterprises.
‘‘(4) Liquid trading in commodity futures and
commodity options contracts also provides a mecha-
nism for discovering important pricing information
relating to the various commodities that are the sub-
ject of such trading.
‘‘(5) Such pricing information may be widely
quoted and disseminated in order to allow consum-
ers, businesses, and financial enterprises to rely
upon such pricing information in making various
commercial arrangements and decisions relating to
the price of the affected commodities in interstate
commerce.
‘‘(6) Unless appropriately and prudently regu-
lated, whether through self-regulation by the market
participants themselves or through Government reg-
ulation, transactions subject to this Act may not
serve these public interests.
‘‘(b) PURPOSE.—It is the purpose of this Act to pro-
vide for self-regulation that is in the public interest and
Government oversight of transactions subject to this
Act—
‘‘(1) to prevent fraud, sales practice abuses,
and price manipulation;
‘‘(2) to foster efficient and effective transaction
executions at fair prices;
‘‘(3) to ensure conduct consistent with just and
equitable principles of trade and the financial integ-
rity of all futures and options transactions, market
participants, and markets; and
‘‘(4) to promote responsible economic or finan-
cial innovation and fair competition among all mar-
kets, market participants, and consumers of the
markets’ services.’’.
SEC. 102. CONDITIONAL EXEMPTION FROM COMMODITY EX-
CHANGE ACT FOR CERTAIN TRANSACTIONS
INVOLVING PROFESSIONAL MARKETS.
Section 4 of the Commodity Exchange Act (7 U.S.C.
6) is amended by adding the following subsections:
‘‘(e) EXEMPTION FOR CERTAIN PROFESSIONAL MAR-
KETS.—
‘‘(1) EXEMPTION.—Subject to paragraphs (2)
and (3), any agreement, contract, or transaction (or
class thereof) that is or may be subject to this Act
shall be exempt from all of the provisions of this Act
if the only parties eligible to enter into the agree-
ment, contract, or transaction (or class thereof)
qualify as appropriate persons (as defined in sub-
section (c)(3)).
‘‘(2) RULES AGAINST FRAUD AND MANIPULA-
TION.—Any agreement, contract, or transaction (or
class thereof) for which an exemption is provided
under this subsection shall still be subject to prohibi-
tions against fraud or manipulation issued by the
Commission, following notice and opportunity for
hearing, that are specifically designed to apply to
such agreements, contracts, and transactions.
‘‘(3) USE OF APPROVED CLEARINGHOUSES AND
SYSTEMS.—Any agreement, contract, or transaction
(or class thereof) for which an exemption is provided
under this subsection shall not be submitted to any
clearinghouse or clearing system (or similar entity)
unless that clearinghouse or clearing system (or
similar entity) has been approved by the Commission
to do business as a clearinghouse or clearing sys-
tem.’’.
SEC. 103. DESIGNATION OF CONTRACT MARKETS.
(a) DESIGNATION REQUIRED.—Section 4(a)(1) of the
Commodity Exchange Act (7 U.S.C. 6(a)(1)) is amended
by striking ‘‘for such commodity’’.
(b) CONDITIONS AND REQUIREMENTS FOR DESIGNA-
TION.—Section 5 of the Commodity Exchange Act (7
U.S.C. 7) is amended—
(1) by striking the matter preceding paragraph
(1) and inserting the following:
‘‘SEC. 5. DESIGNATION OF BOARD OF TRADE AS CONTRACT
MARKET.
‘‘(a) IN GENERAL.—The Commission shall designate
a board of trade as a contract market if, and only if, the
board of trade complies with and carries out the following
conditions and requirements:’’;
(2) by striking paragraphs (1), (7), and (8);
(3) by redesignating paragraphs (2) through
(6) as paragraphs (1) through (5), respectively; and
(4) by inserting at the end the following new
paragraph:
‘‘(6) When the board of trade demonstrates
that it is in compliance with the requirements of sec-
tion 5a(b).’’.
(c) EFFECT
OF DESIGNATION.—Section 5 of the
Commodity Exchange Act (7 U.S.C. 7) is amended by in-
serting after paragraph (6), as added by subsection (b)(4),
the following new subsection:
‘‘(b) EXISTING AND FUTURE DESIGNATIONS.—
‘‘(1) FUTURE
DESIGNATIONS.—If a board of
trade is designated as a contract market by the
Commission under subsection (a) and section 6, the
board of trade shall retain the designation for all ex-
isting or future contracts, unless—
‘‘(A) the Commission suspends or revokes
the designation; or
‘‘(B) the board of trade relinquishes the
designation.
‘‘(2) EXISTING
DESIGNATIONS.—A board of
trade that has been designated as a contract market
as of the date of the enactment of this subsection
shall retain the designation unless—
‘‘(A) the Commission finds that a violation
of this Act or a rule, regulation, or order of the
Commission by the contract market justifies
suspension or revocation of the designation
under section 6(b); or
‘‘(B) the board of trade relinquishes the
designation.’’.
(d) APPLICATION FOR DESIGNATION.—The first sen-
tence of section 6(a) of the Commodity Exchange Act (7
U.S.C. 8(a)) is amended by striking ‘‘Any board of trade
desiring to be designated a ‘contract market’ ’’ and insert-
ing ‘‘A board of trade that has not obtained designation
as a contract market for a contract of sale for a commod-
ity under section 5, but that desires to be designated as
a contract market,’’.
SEC. 104. PROCESS FOR SUBMISSION AND DISAPPROVAL
OF CONTRACT MARKET RULES.
Section 5a of the Commodity Exchange Act (7 U.S.C.
7a) is amended—
(1) in subsection (a), by striking paragraph
(12); and
(2) by adding at the end the following new sub-
section:
‘‘(c) CONTRACT MARKET BYLAWS, RULES, REGULA-
TIONS, AND RESOLUTIONS.—
‘‘(1) SUBMISSION TO COMMISSION.—Except as
otherwise provided in this subsection, each contract
market shall submit to the Commission all bylaws,
rules, regulations, and resolutions (in this subsection
referred to as ‘rules’) made or issued by the contract
market, or by the governing board or any committee
thereof, other than rules that relate to the setting of
levels of margin and such other rules as the Com-
mission may specify by regulation.
‘‘(2) EFFECTIVE DATE.—
‘‘(A) IN GENERAL.—Except in the case of
a rule described in subparagraph (B) or (C), a
contract market may make a rule of that con-
tract market effective 10 days after the date on
which the Commission receives the rule under
paragraph (1), unless, within such period, the
contract market requests review of the rule by
the Commission or the Commission institutes
proceedings to determine whether the rule
should be disapproved. The disapproval pro-
ceedings shall be conducted in accordance with
paragraph (3).
‘‘(B) SPECIAL EFFECTIVE DATE FOR CER-
TAIN RULES.—In the case of a rule that would
establish the terms and conditions of a contract
for the purchase or sale of a commodity for fu-
ture delivery, which is to be executed subject to
the rules of a contract market and has not pre-
viously been traded subject to the rules of the
contract market, the contract market may make
the rule effective 15 days after the date on
which the Commission receives the rule under
paragraph (1), unless, within such period, the
Commission institutes proceedings to determine
whether the rule should be disapproved. The
disapproval proceedings shall be conducted in
accordance with paragraph (3).
‘‘(C) EXCEPTION.—A board of trade may
not make effective any rule to establish the
terms and conditions of a new contract (or op-
tion on such a contract) that is subject to the
requirements and procedures of clauses (ii)
through (v) of section 2(a)(1)(B) unless and
until the requirements and procedures of such
clauses are satisfied and carried out.
‘‘(3) DISAPPROVAL PROCESS.—
‘‘(A) 
NOTICE
OF
PROPOSED
DIS-
APPROVAL.—If the Commission institutes a
proceeding to determine whether a rule submit-
ted under paragraph (1) should be disapproved,
the Commission shall provide the contract mar-
ket with written notice of the proposed grounds
for disapproval, including—
‘‘(i) the specific sections of this Act or
the regulations of the Commission that
would be violated; and
‘‘(ii) in the case of a rule described in
paragraph (2)(B), the specific reason or
reasons why the rule might be contrary to
the public interest.
‘‘(B) DISAPPROVAL
PROCEEDING.—In a
disapproval proceeding under this paragraph,
the Commission shall afford the contract mar-
ket a reasonable opportunity to respond in writ-
ing and an opportunity for a hearing, including
the right to an oral hearing before a quorum of
the Commission. In a disapproval proceeding in-
volving a rule described in paragraph (2)(B),
the Commission shall have the burden of prov-
ing that the rule is contrary to the public inter-
est.
‘‘(C) DISAPPROVAL.—At the conclusion of
a disapproval proceeding under this paragraph,
the Commission shall determine whether to dis-
approve the rule and shall disapprove the rule
if the Commission determines in the proceeding
that the rule would be—
‘‘(i) in violation of the provisions of
this Act or the regulations of the Commis-
sion; or
‘‘(ii) in the case of a rule described in
paragraph (2)(B), contrary to the public
interest.
‘‘(D) 
NOTICE
OF
DISAPPROVAL.—The
Commission shall provide the contract market
with written notice of the disapproval of a rule
of the contract market. The notice shall—
‘‘(i) specify the sections of this Act or
the Commission’s regulations that the
Commission determines the rule violates
or, if effective, would violate; and
‘‘(ii) in the case of a rule described in
paragraph (2)(B), contain an explanation
and analysis of the substantive basis why
the rule violates or, if effective, would vio-
late the public interest.
‘‘(4) TIME FOR DISAPPROVAL ACTIONS.—
‘‘(A) 60-DAY PERIOD.—Before the end of
the 60-day period beginning on the date on
which the Commission receives a rule under
paragraph (1), the Commission shall complete
any disapproval proceeding instituted under this
subsection regarding the rule.
‘‘(B) EFFECT OF FAILURE TO COMPLETE
ACTION.—Unless the Commission has notified
the contract market by the end of such 60-day
period that the Commission has disapproved the
rule, the contract market may make the rule ef-
fective. Except as provided in subparagraph
(C), the Commission shall not thereafter dis-
approve the rule.
‘‘(C) 
EXCEPTION.—Subparagraph 
(B)
shall not be construed to modify or affect the
ability of the Commission to alter or supple-
ment any rules of a contract market pursuant
to section 8a(7).
‘‘(5) RULE OF CONSTRUCTION REGARDING PUB-
LIC
INTEREST
STANDARD.—The authority of the
Commission to disapprove a rule described in para-
graph (2)(B) on the basis that the rule is contrary
to the public interest shall not be construed to au-
thorize the Commission to apply such a standard to
any other provision of this Act or any other action
of the Commission.
‘‘(6) TEMPORARY EFFECTIVENESS FOR EMER-
GENCY RULES.—
‘‘(A) EMERGENCY RULES AUTHORIZED.—
The Commission shall issue regulations to
specify the terms and conditions under which,
in an emergency as defined by the Commission,
a contract market may, by a two-thirds vote of
its governing board, make a rule (in this para-
graph referred to as an ‘emergency rule’) imme-
diately effective on a temporary basis without
compliance with the applicable notice require-
ments under paragraph (2), or during any pe-
riod of review by the Commission, if the con-
tract market makes every effort practicable to
notify the Commission of the emergency rule
before making the emergency rule effective. The
notification shall include a complete explanation
of the emergency involved. If the contract mar-
ket does not provide the Commission with such
notification and explanation before making the
emergency rule effective, the contract market
shall provide the Commission with such notifi-
cation and explanation at the earliest possible
date. The Commission may delegate the power
to receive such notification and explanation to
such individuals as the Commission determines
necessary and appropriate.
‘‘(B) COMMISSION
CONSIDERATION
OF
EMERGENCY RULES.—Within 10 days of the re-
ceipt from a contract market of notification of
an emergency rule and an explanation of the
emergency involved, or as soon as practicable,
the Commission shall determine whether it is
appropriate either—
‘‘(i) to permit the emergency rule to
remain in effect during the period of the
emergency; or
‘‘(ii) to suspend the effect of the
emergency rule pending review either
under the procedures of this subsection or
otherwise.
‘‘(C) REPORT
ON
CONSIDERATION.—The
Commission shall submit to the affected con-
tract market, to the Committee on Agriculture
of the House of Representatives and the Com-
mittee on Agriculture, Nutrition, and Forestry
of the Senate a report regarding its determina-
tion (and the basis thereof) with respect to an
emergency rule. If the report is submitted more
than 10 days after the Commission’s receipt of
notification of the emergency rule, the report
shall also contain an explanation of why sub-
mission within such period was not practicable.
A determination by the Commission to suspend
the effect of a rule under this paragraph shall
be subject to judicial review on the same basis
as an emergency determination under section
8a(9). Nothing in this paragraph shall be con-
strued to limit the authority of the Commission
under section 8a(9).’’.
SEC. 105. REGULATION OF AUDIT TRAIL REQUIREMENTS.
Section 5a(b) of the Commodity Exchange Act (7
U.S.C. 7a(b)) is amended—
(1) by striking paragraphs (3), (4), and (6);
(2) by redesignating paragraph (5) as para-
graph (6);
(3) in paragraph (6) (as so redesignated)—
(A) by striking ‘‘paragraph (3)’’ both
places it appears and inserting ‘‘this sub-
section’’ and
(B) by striking ‘‘such paragraph’’ and in-
serting ‘‘this subsection’’; and
(4) by inserting after paragraph (2) the follow-
ing new paragraphs:
‘‘(3) DEVELOPMENT OF STANDARDS FOR TIME
OF EXECUTION.—Not later than nine months after
the date of the enactment of this paragraph, the
Commission shall issue a regulation, after notice and
an opportunity for a hearing, that prescribes an ob-
jective standard or methodology for establishing
whether a contract market meets the requirement
under paragraph (2) that each contract market must
be able to determine, with reasonable accuracy, the
time of execution, in increments of no more than one
minute in length. In issuing the regulation, the Com-
mission—
‘‘(A) shall take into account any unique
features and trading practices of each contract
market and any surveillance mechanisms be-
yond a manual trade recording system adopted
by each contract market;
‘‘(B) shall not prescribe a specific means
or technology for meeting the accuracy or any
other requirement.
‘‘(4) USE OF TRADE RECORDING DATA.—Con-
sistent with Commission regulations, the audit trail
system for a contract market shall rely upon trade
recording data that are—
‘‘(A) entered by floor traders, floor brokers
or others in nonerasable ink or other form that
cannot be altered without leaving a complete
record of such alteration; and
‘‘(B) continually provided to the contract
market during the trading day in intervals of
not more than 30 minutes for processing by the
contract market.
‘‘(5) USE OF TIME STAMPS.—The audit trail
system for a contract market shall rely upon accu-
rate time stamps or similarly reliable devices for re-
cording when a customer’s order reaches the trading
floor and when that order is reported from the floor
as having been executed.’’.
SEC. 106. USE OF BENEFIT-COST ANALYSIS.
Section 12 of the Commodity Exchange Act (7 U.S.C.
16) is amended by adding at the end the following new
subsection:
‘‘(h) USE OF BENEFIT-COST ANALYSIS.—
‘‘(1) ANALYSIS REQUIRED.—Except as provided
in paragraph (4), the Commission shall not adopt
any rule, regulation, or order, or take any other reg-
ulatory action, if the benefits of such an action do
not exceed the costs. The Commission shall make
this benefit-cost determination based upon the infor-
mation available in the record of such action main-
tained by the Commission.
‘‘(2) BENEFITS
DEFINED.—For purposes of
this subsection, the term ‘benefits’ means the signifi-
cant, reasonably identifiable, favorable effects (in-
cluding the impact on market liquidity and effi-
ciency, financial and market integrity, customer pro-
tection, and fair competition) that are reasonably ex-
pected to result, directly or indirectly, from the
adoption of a rule or other agency action.
‘‘(3) COSTS DEFINED.—For purposes of this
subsection, the term ‘costs’ means the significant,
reasonably identifiable, adverse effects (including the
impact on market liquidity and efficiency, financial
and market integrity, customer protection, and fair
competition) that are reasonably expected to result,
directly or indirectly, from the adoption of a rule or
other agency action.
‘‘(4) EXCEPTION FOR CERTAIN RULES AND AC-
TIONS.—This subsection shall not apply to the fol-
lowing:
‘‘(A) Any adjudicatory or formal rule-
making determinations made by the Commis-
sion after a hearing on the record.
‘‘(B) Any emergency determination made
by the Commission under section 8a(a)(9).
‘‘(C) Any review or action taken by the
Commission on appeal from a contract market
disciplinary action in accordance with section
8c.
‘‘(D) Any Commission approvals of rules
or rule changes in accordance with section
5a(c).
‘‘(E) Any Commission approvals of con-
tract market designation applications under sec-
tion 6.’’.
SEC. 107. COMMISSION OVERSIGHT AND DEFICIENCY OR-
DERS.
(a) REPEAL.—Section 8e of the Commodity Ex-
change Act (7 U.S.C. 12e) is repealed.
(b) CONFORMING AMENDMENTS.—(1) Section 4j(a)
of the Commodity Exchange Act (7 U.S.C. 6j(a)) is
amended—
(1) in paragraph (3)(B)(ii), by striking ‘‘, such
as those described in section 8e,’’; and
(2) in paragraph (5)(A)(ii), by striking ‘‘, such
as those described in section 8e,’’.
TITLE II—TREASURY
AMENDMENT CLARIFICATION
SEC. 201. TREASURY AMENDMENT CLARIFICATION.
Section 2(a)(1)(A)(ii) of the Commodity Exchange
Act (7 U.S.C. 2(ii)) is amended—
(1) by inserting ‘‘or transactions involving’’
after ‘‘transactions in’’;
(2) by inserting ‘‘to the general public’’ after
‘‘sale thereof’’; and
(3) by adding at the end the following new sen-
tence: ‘‘For purposes of this clause only, the term
‘board of trade’, as it applies to transactions in or
involving foreign currency, means any facility where-
by standardized contracts are systematically mar-
keted to retail investors (other than individuals and
entities described as eligible participants under the
regulations of the Commission published in the Fed-
eral Register on January 22, 1993, as codified in
section 35.1(b)(2) of part 35 of title 17, Code of
Federal Regulations).’’.
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