511
istered with the Commission as an
exchange pursuant to section 6(g);
‘‘(ii) effects transactions only
in securities on the exchange of
which such person is a member;
and
‘‘(iii) has no direct contact
with public customers.
‘‘(B) OTHER
EXEMPTIONS.—A nat-
ural person exempt from registration
pursuant to subparagraph (A) shall
also be exempt from the following pro-
visions of this title and the rules
thereunder:
‘‘(i) Section 8.
‘‘(ii) Subsection (a) of section
10.
‘‘(iii) Section 11.
‘‘(iv) Subsections (c)(3), (c)(5),
and (e) of this section.
‘‘(v) Section 15B.
‘‘(vi) Section 15C.
‘‘(vii) Subsections (d), (e), (f),
(g), (h), and (i) of section 17.’’.
512
(c) LIMITED PURPOSE NATIONAL SECURITIES
ASSOCIATION.—Section 15A of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–3) is
amended by adding at the end the following:
‘‘(k) LIMITED PURPOSE NATIONAL SECURI-
TIES ASSOCIATION.—
‘‘(1) REGULATION OF MEMBERS WITH RE-
SPECT
TO
SECURITY
FUTURE
PRODUCTS.—A
futures association registered under sec-
tion 17 of the Commodity Exchange Act
shall be a registered national securities
association for the limited purpose of reg-
ulating the activities of members who are
registered as brokers or dealers in secu-
rity future products pursuant to section
15(b)(11).
‘‘(2) 
REQUIREMENTS
FOR
REGISTRA-
TION.—Such 
a 
securities 
association
shall—
‘‘(A) be so organized and have the
capacity to carry out the purposes of
the securities laws applicable to secu-
rity future products and to comply,
and (subject to any rule or order of
the Commission pursuant to section
513
19(g)(2)) to enforce compliance by its
members and persons associated with
its members, with the provisions of the
securities laws applicable to security
future products, the rules and regula-
tions thereunder, and its rules;
‘‘(B) have rules that—
‘‘(i) are designed to prevent
fraudulent and manipulative acts
and practices, to promote just and
equitable principles of trade, and,
in general, to protect investors
and the public interest, including
rules governing sales practices
and the advertising of security fu-
ture products comparable to those
of other national securities asso-
ciations registered pursuant to
subsection (a); and
‘‘(ii) are not designed to regu-
late by virtue of any authority con-
ferred by this title matters not re-
lated to the purposes of this title
or the administration of the asso-
ciation;
514
‘‘(C) have rules that provide that
(subject to any rule or order of the
Commission 
pursuant 
to 
section
19(g)(2)) its members and persons as-
sociated with its members shall be ap-
propriately disciplined for violation of
any provision of the securities laws
applicable to security future products,
the rules or regulations thereunder, or
the rules of the association, by expul-
sion, suspension, limitation of activi-
ties, functions, and operations, fine,
censure, being suspended or barred
from being associated with a member,
or any other fitting sanction; and
‘‘(D) have rules that ensure that
members and natural persons associ-
ated with members meet such stand-
ards of training, experience, and com-
petence 
necessary 
to 
effect 
trans-
actions in security future products
and are tested for their knowledge of
securities and security future prod-
ucts.
515
‘‘(3) EXEMPTION
FROM
RULE
CHANGE
SUBMISSION.—Such a securities associa-
tion shall be exempt from submitting pro-
posed rule changes pursuant to section
19(b) of this title, except that—
‘‘(A) the association shall file pro-
posed rule changes related to higher
margin levels, fraud or manipulation,
recordkeeping, 
reporting, 
listing
standards, or decimal pricing for se-
curity future products, sales practices,
advertising of security future prod-
ucts, or standards of training, experi-
ence, competence, or other qualifica-
tions for security future products for
persons who effect transactions in se-
curity future products or rules effec-
tuating the association’s obligation to
enforce the securities laws pursuant
to section 19(b)(7);
‘‘(B) the association shall file pur-
suant to sections 19(b)(1) and 19(b)(2)
proposed rule changes related to mar-
gin, except for changes resulting in
higher margin levels; and
516
‘‘(C) the association shall file pur-
suant to section 19(b)(1) proposed rule
changes that have been abrogated by
the Commission pursuant to section
19(b)(7)(C).
‘‘(4) OTHER EXEMPTIONS.—Such a secu-
rities association shall be exempt from
and shall not be required to enforce com-
pliance by its members, and its members
shall not, solely with respect to their
transactions effected in security future
products, be required to comply, with the
following provisions of this title and the
rules thereunder:
‘‘(A) 
Subsections 
(b)(1), 
(b)(3),
(b)(4), (b)(5), (b)(8), (b)(10), (b)(11),
(b)(12), (b)(13), (c), (d), (e), (f), (g), (h),
and (i) of this section.
‘‘(B) Subsections (d), (f), and (k) of
section 17.
‘‘(C) Subsections (a), (f), and (h) of
section 19.’’.
(d) EXEMPTION UNDER THE SECURITIES IN-
VESTOR PROTECTION ACT OF 1970.—
517
(1) Section 16(14) of the Securities In-
vestor Protection Act of 1970 (15 U.S.C.
78lll(14)) is amended by inserting ‘‘or any
security future as that term is defined in
section 3(a)(55)(A) of the Securities Ex-
change Act of 1934,’’ after ‘‘certificate of
deposit for a security,’’.
(2) Section 3(a)(2)(A) of the Securities
Investor Protection Act of 1970 (15 U.S.C.
78ccc(a)(2)(A)) is amended—
(A) in clause (i), by striking ‘‘and’’
after the semicolon;
(B) in clause (ii), by striking the
period and inserting ‘‘; and’’;
(C) by adding at the end the fol-
lowing:
‘‘(iii) persons who are reg-
istered as a broker or dealer pur-
suant to section 15(b)(11)(A) of the
Securities Exchange Act of 1934.’’.
(e) OTHER PROVISION.—Section 15(i)(6)(A)
of the Securities Exchange Act of 1934 (15
U.S.C. 78o(i)(6)(A)) is amended—
(1) in clause (ii), by striking ‘‘and’’
after the semicolon;
518
(2) in clause (iii), by striking the pe-
riod and inserting ‘‘; and’’; and
(3) by adding at the end the following:
‘‘(iv) is not a security future
product.’’.
SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY CO-
OPERATION.
Section 17 of the Securities Exchange Act
of 1934 (15 U.S.C. 78q) is amended by striking
subsection (b) and inserting the following:
‘‘(b) RECORDS SUBJECT TO EXAMINATION.—
‘‘(1) PROCEDURES
FOR
COOPERATION
WITH OTHER AGENCIES.—All records of per-
sons described in subsection (a) are sub-
ject at any time, or from time to time, to
such reasonable periodic, special, or other
examinations by representatives of the
Commission and the appropriate regu-
latory agency for such persons as the
Commission or the appropriate regulatory
agency for such persons deems necessary
or appropriate in the public interest, for
the protection of investors, or otherwise in
furtherance of the purposes of this title if
519
the Commission, prior to conducting any
such examination of a—
‘‘(A) registered clearing agency,
registered 
transfer 
agent, 
or 
reg-
istered municipal securities dealer for
which it is not the appropriate regu-
latory agency, gives notice to the ap-
propriate regulatory agency for such
clearing agency, transfer agent, or
municipal securities dealer, of such
proposed examination and consults
with the appropriate regulatory agen-
cy concerning the feasibility and de-
sirability of coordinating such exami-
nations conducted by the appropriate
regulatory agency with a view to
avoiding unnecessary regulatory du-
plication or undue regulatory burdens
for such clearing agency, transfer
agent, or municipal securities dealer;
or
‘‘(B) broker or dealer registered
pursuant 
to 
section 
15(b)(11), 
ex-
change registered pursuant to section
6(g), or national securities association
520
registered pursuant to section 15A(k)
gives notice to the Commodity Futures
Trading Commission of such proposed
examination and consults with the
Commodity Futures Trading Commis-
sion concerning the feasibility and de-
sirability of coordinating such exam-
ination with examinations conducted
by the Commodity Futures Trading
Commission with a view to avoiding
unnecessary regulatory duplication or
undue regulatory burdens for such
broker or dealer or exchange.
‘‘(2) FURNISHING DATA AND REPORTS TO
CFTC.—The Commission shall notify the
Commodity Futures Trading Commission
of any examination conducted of any
broker or dealer registered pursuant to
section 15(b)(11), exchange registered pur-
suant to section 6(g), or national securi-
ties association registered pursuant to
section 15A(k) and, upon request, furnish
to the Commodity Futures Trading Com-
mission any examination report and data
521
supplied to the Commission in connection
with such examination.
‘‘(3) USE OF CFTC REPORTS.—The Com-
mission shall, to the fullest extent pos-
sible, use the reports of examinations of
any broker or dealer registered pursuant
to section 15(b)(11) or exchange registered
pursuant to section 6(g) made by the Com-
modity Futures Trading Commission, a
national securities association registered
pursuant to section 15A(k), or an ex-
change registered pursuant to section
6(g).
‘‘(4) LARGE
TRADER
REPORTING.—The
Commission and the Commodity Futures
Trading Commission shall jointly pre-
scribe rules to require large trader report-
ing with respect to security future prod-
ucts. Such rules shall specify a reporting
level for each security future product, a
format for reporting, and the procedures
for filing such reports with the Commis-
sion and the Commodity Futures Trading
Commission.
522
‘‘(5) RULE OF CONSTRUCTION.—Nothing
in this subsection shall be construed to
impair or limit (other than by the require-
ment of prior consultation) the power of
the Commission under this subsection to
examine any clearing agency, transfer
agent, or municipal securities dealer,
broker or dealer registered pursuant to
section 15(b)(11), exchange registered pur-
suant to section 6(g), or national securi-
ties association registered pursuant to
section 15A(k), or to affect in any way the
power of the Commission under any other
provision of this title or otherwise to in-
spect, examine, or investigate any clear-
ing agency, transfer agent, or municipal
securities dealer, broker or dealer reg-
istered pursuant to section 15(b)(11), ex-
change registered pursuant to section
6(g), or national securities association
registered pursuant to section 15A(k).’’.
523
SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SECU-
RITY FUTURE PRODUCTS.
(a) ADDITION OF SECURITY FUTURE PROD-
UCTS TO OPTION-SPECIFIC ENFORCEMENT PROVI-
SIONS.—
(1) PROHIBITION
AGAINST
MANIPULA-
TION.—Section 9(b) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78i(b)) is
amended—
(A) in paragraph (1)—
(i) by inserting ‘‘(A)’’ after ‘‘ac-
quires’’; and
(ii) by striking ‘‘; or’’ and in-
serting ‘‘, or (B) any security fu-
ture product on the security; or’’;
(B) in paragraph (2)—
(i) by inserting ‘‘(A)’’ after ‘‘in-
terest in any’’; and
(ii) by striking ‘‘; or’’ and in-
serting ‘‘, or (B) such security fu-
ture product delivery; or’’; and
(C) in paragraph (3)—
(i) by inserting ‘‘(A)’’ after ‘‘in-
terest in any’’; and
524
(ii) by inserting ‘‘, or (B) such
security 
future 
product’’ 
after
‘‘privilege’’.
(2) MANIPULATION
IN
OPTIONS
AND
OTHER DERIVATIVE PRODUCTS.—Section 9(g)
of the Securities Exchange Act of 1934 (15
U.S.C. 78i(g)) is amended—
(A) by inserting ‘‘(1)’’ after ‘‘(g)’’;
(B) by inserting ‘‘other than a se-
curity future product’’ after ‘‘future
delivery’’; and
(C) by adding at the end fol-
lowing:
‘‘(2) Notwithstanding the Commodity Ex-
change Act, the Commission shall have the au-
thority to regulate the trading of any security
future product to the extent provided in the se-
curities laws.’’.
(3) LIABILITY OF CONTROLLING PERSONS
AND
PERSONS
WHO
AID
AND
ABET
VIOLA-
TIONS.—Section 20(d) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78t(d)) is
amended by striking ‘‘or privilege’’ and in-
serting ‘‘privilege, or security future prod-
uct’’.
525
(4) LIABILITY
TO
CONTEMPORANEOUS
TRADERS
FOR
INSIDER
TRADING.—Section
21A(a)(1) of the Securities Exchange Act
of 1934 (15 U.S.C. 78u–1(a)(1)) is amended
by striking ‘‘standardized options, the
Commission—’’ and inserting ‘‘standard-
ized options or security future products,
the Commission—’’.
(5) ENFORCEMENT CONSULTATION.—Sec-
tion 21 of the Securities Exchange Act of
1934 (15 U.S.C. 78u) is amended by adding
at the end the following:
‘‘(i) INFORMATION TO CFTC.—The Commis-
sion shall provide the Commodity Futures
Trading Commission with notice of the com-
mencement of any proceeding and a copy of
any order entered by the Commission against
any broker or dealer registered pursuant to
section 15(b)(11) or any exchange registered
pursuant to section 6(g).’’.
SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SE-
CURITY FUTURE PRODUCTS.
(a) LISTING STANDARDS
AND CONDITIONS
FOR TRADING.—Section 6 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f) is amended
526
by inserting after subsection (g), as added by
section 202, the following:
‘‘(h) TRADING IN SECURITY FUTURE PROD-
UCTS.—
‘‘(1) TRADING ON EXCHANGE OR ASSOCIA-
TION REQUIRED.—It shall be unlawful for
any person to effect transactions in secu-
rity future products that are not listed on
a national securities exchange or a na-
tional securities association registered
pursuant to section 15A(a).
‘‘(2) LISTING
STANDARDS
AND
CONDI-
TIONS FOR TRADING REQUIRED.—A national
securities exchange or a national securi-
ties association registered pursuant to
section 15A(a) may trade only security fu-
ture products that (A) conform with list-
ing standards and conditions for trading
that such exchange or association files
with the Commission under section 19(b),
and (B) meet the criteria specified in sec-
tion 2(a)(1)(D)(i) of the Commodity Ex-
change Act.
‘‘(3) REQUIREMENTS FOR LISTING STAND-
ARDS AND CONDITIONS FOR TRADING.—Such
527
listing standards and conditions for trad-
ing shall—
‘‘(A) except as otherwise provided
in a rule, regulation, or order issued
pursuant to paragraph (4), require
that any security underlying the secu-
rity future, including each component
security of a narrow-based security
index, be registered pursuant to sec-
tion 12 of this title;
‘‘(B) except as otherwise provided
in a rule, regulation, or order issued
pursuant to paragraph (4), require
that the security future product be
cash settled;
‘‘(C) be no less restrictive than
comparable listing standards for op-
tions traded on a national securities
exchange or a national securities as-
sociation registered pursuant to sec-
tion 15A(a) of this title;
‘‘(D) except as otherwise provided
in a rule, regulation, or order issued
pursuant to paragraph (4), require
that the security future be based upon
528
common stock and such other equity
securities as the Commission and the
Commodity Futures Trading Commis-
sion jointly determine appropriate;
‘‘(E) require that the security fu-
ture product is cleared by a clearing
agency that has in place provisions
for linked and coordinated clearing
with other clearing agencies that
clear security future products, which
permits the security future product to
be purchased on one market and off-
set on any other market on which the
security future product is traded;
‘‘(F) require that only a broker or
dealer subject to suitability rules com-
parable to those of a national securi-
ties association registered pursuant to
section 15A(a) effect transactions in
the security future product;
‘‘(G) require that the security fu-
ture product be subject to the prohibi-
tion against dual trading in section 4j
of the Commodity Exchange Act (7
U.S.C. 6j) and the rules and regula-
529
tions thereunder or the provisions of
section 11(a) of this title and the rules
and regulations thereunder, except to
the extent otherwise permitted under
this title and the rules and regula-
tions thereunder;
‘‘(H) require that trading in the
security future product not be readily
susceptible to manipulation of the
price of such security future product,
nor to causing or being used in the
manipulation of the price of any un-
derlying security, option on such secu-
rity, or option on a group or index in-
cluding such securities;
‘‘(I) require that procedures be in
place for coordinated surveillance
among the market on which the secu-
rity future product is traded, any mar-
ket on which any security underlying
the security future product is traded,
and other markets on which any re-
lated security is traded to detect ma-
nipulation and insider trading;
530
‘‘(J) require that the market on
which the security future product is
traded has in place audit trails nec-
essary or appropriate to facilitate the
coordinated surveillance required in
subparagraph (I);
‘‘(K) require that the market on
which the security future product is
traded has in place procedures to co-
ordinate trading halts between such
market and any market on which any
security underlying the security future
product is traded and other markets
on which any related security is trad-
ed; and
‘‘(L) require that the margin re-
quirements for a security future prod-
uct be consistent with the margin re-
quirements 
for 
comparable 
option
contracts traded on an exchange reg-
istered pursuant to section 6(a) of this
title and that initial and maintenance
margin levels for a security future
product not be lower than the levels of
margin required for comparable op-
531
tion contracts traded on an exchange
registered pursuant to section 6(a) of
this title, except that nothing in this
subparagraph shall be construed to
prevent 
a 
national 
securities 
ex-
change or national securities associa-
tion from requiring higher margin
levels for a security future product
when it deems such action to be nec-
essary or appropriate.
‘‘(4) AUTHORITY
TO
MODIFY
CERTAIN
LISTING
STANDARD
REQUIREMENTS.—The
Commission and the Commodity Futures
Trading Commission, by rule, regulation,
or order, may jointly modify the listing
standard requirements specified in sub-
paragraph (A), (B), or (D) of paragraph
(3) to the extent such modification fosters
the development of fair and orderly mar-
kets in security future products, is nec-
essary or appropriate in the public inter-
est, and is consistent with the protection
of investors.
‘‘(5) REQUIREMENTS FOR OTHER PERSONS
TRADING
SECURITY
FUTURE
PRODUCTS.—It
532
shall be unlawful for any person (other
than a national securities exchange or a
national securities association registered
pursuant to section 15A(a)) to constitute,
maintain, or provide a marketplace or fa-
cilities for bringing together purchasers
and sellers of security future products or
to otherwise perform with respect to secu-
rity future products the functions com-
monly performed by a stock exchange as
that term is generally understood, unless
a national securities association reg-
istered pursuant to section 15A(a)—
‘‘(A) has in place procedures for
coordinated surveillance among such
person, the market trading the securi-
ties underlying the security future
products, and other markets trading
related securities to detect manipula-
tion and insider trading;
‘‘(B) has rules to require audit
trails necessary or appropriate to fa-
cilitate the coordinated surveillance
required in subparagraph (A); and
533
‘‘(C) has rules to require such per-
son to coordinate trading halts with
markets trading the securities under-
lying the security future products and
other markets trading related securi-
ties.
‘‘(6) DEFERRAL OF OPTIONS ON SECURITY
FUTURES TRADING.—No person shall offer
to enter into, enter into, or confirm the
execution of any put, call, straddle, op-
tion, or privilege on a security future, ex-
cept that, after 3 years after the date of
enactment of this subsection, the Commis-
sion and the Commodity Futures Trading
Commission may by order jointly deter-
mine to permit trading of puts, calls,
straddles, options, or privileges on any se-
curity future authorized to be traded
under the provisions of this Act and the
Commodity Exchange Act. Before any such
determination, the Commission and the
Commodity Futures Trading Commission
shall conduct a study of the effect of the
trading of security futures on the markets
for futures contracts, securities, and op-
534
tions and the adequacy of protections for
investors and other market participants.’’.
(b) MARGIN.—Section 7 of the Securities Ex-
change 
Act 
of 
1934 
(15 
U.S.C. 
78g) 
is
amended—
(1) in subsection (a), by inserting ‘‘or a
security future product’’ after ‘‘exempted
security’’;
(2) in subsection (c)(1)(A), by inserting
‘‘except as provided in paragraph (2),’’
after ‘‘security),’’;
(3) by redesignating paragraph (2) of
subsection (c) as paragraph (3) of such
subsection; and
(4) by inserting after paragraph (1) of
such subsection the following:
‘‘(2) MARGIN REGULATIONS.—
‘‘(A) 
COMPLIANCE
WITH
MARGIN
RULES REQUIRED.—It shall be unlawful
for any broker, dealer, or member of a
national securities exchange to, di-
rectly or indirectly, extend or main-
tain credit to or for, or collect margin
from any customer on, any security fu-
ture product unless such activities
535
comply with the rules and regulations
which the Commission, after consulta-
tion with the Commodity Futures
Trading Commission shall prescribe
pursuant to subparagraph (B).
‘‘(B) CRITERIA
FOR
ISSUANCE
OF
RULES.—The Commission shall issue
such regulations to establish margin
requirements, including the establish-
ment of levels of margin (initial and
maintenance) and use of collateral for
security future products under such
terms, and at such levels, as the Com-
mission deems appropriate—
‘‘(i) to preserve the financial
integrity of markets trading secu-
rity future products;
‘‘(ii) to prevent systemic risk;
‘‘(iii) to make consistent the
margin levels (initial and mainte-
nance) and other margin require-
ments 
between 
security 
future
products and comparable options
contracts traded on a national se-
curities exchange; and
536
‘‘(iv) to ensure that the margin
requirements (other than levels of
margin), including the type, form,
and use of collateral for security
future products, are and remain
consistent with the requirements
established by the Federal Reserve
Board, 
pursuant 
to 
subpara-
graphs (A) and (B) of paragraph
(1).’’.
(c) INCORPORATION
OF SECURITY FUTURE
PRODUCTS INTO
THE NATIONAL MARKET SYS-
TEM.—Section 11A of the Securities Exchange
Act of 1934 (15 U.S.C. 78k–1) is amended by
adding at the end the following:
‘‘(e) NATIONAL MARKETS SYSTEM FOR SECU-
RITY FUTURE PRODUCTS.—
‘‘(1) CONSULTATION
AND
COOPERATION
REQUIRED.—With respect to security future
products, the Commission and the Com-
modity Futures Trading Commission shall
consult and cooperate so that, to the max-
imum extent practicable, their respective
regulatory responsibilities may be ful-
filled and the rules and regulations appli-
537
cable to security future products may fos-
ter a national market system for security
future products if the Commission and the
Commodity Futures Trading Commission
jointly determine that such a system
would be consistent with the congres-
sional findings in subsection (a)(1). In ac-
cordance with this objective, the Commis-
sion shall, at least 15 days prior to the
issuance for public comment of any pro-
posed rule or regulation under this sec-
tion concerning security future products,
consult and request the views of the Com-
modity Futures Trading Commission.
‘‘(2) APPLICATION
OF
RULES
BY
ORDER
OF
CFTC.—No rule adopted pursuant to
this section shall be applied to any person
with respect to the trading of security fu-
ture products on an exchange that is reg-
istered under section 6(g) unless the Com-
modity Futures Trading Commission has
issued an order directing that such rule is
applicable to such persons.’’.
(d) INCORPORATION
OF SECURITY FUTURE
PRODUCTS
INTO
THE
NATIONAL
SYSTEM
FOR
538
CLEARANCE AND SETTLEMENT.—Section 17A(b)
of the Securities Exchange Act of 1934 (15
U.S.C. 78q–1(b)) is amended by adding at the
end the following:
‘‘(7) A clearing agency that is regulated di-
rectly or indirectly by the Commodity Futures
Trading Commission through its association
with a designated contract market for security
future products, and that performs the func-
tions of a clearing agency only with respect to
security future products and transactions in
securities effected pursuant to the rules of the
designated contract market with which such
agency is associated, is exempted from the pro-
visions of this section and the rules and regu-
lations thereunder, except that any clearing
agency that performs the functions of a clear-
ing agency with respect to security future
products must coordinate with and develop
fair and reasonable links with any and all
other clearing agencies that perform the func-
tions of a clearing agency with respect to secu-
rity future products, in order to permit secu-
rity future products to be purchased on a na-
tional securities exchange or national securi-
539
ties association registered pursuant to section
15A(a) and offset on another national securi-
ties exchange or national securities associa-
tion registered pursuant to section 15A(a).’’.
(e) MARKET EMERGENCY POWERS AND CIR-
CUIT BREAKERS.—Section 12(k) of the Securities
Exchange Act of 1934 (15 U.S.C. 78l(k)) is
amended—
(1) in paragraph (1), by adding at the
end the following: ‘‘If the actions de-
scribed in subparagraph (A) or (B) in-
volve a security future product, the Com-
mission shall consult with and consider
the views of the Commodity Futures Trad-
ing Commission.’’; and
(2) in paragraph (2)(B), by inserting
after the first sentence the following: ‘‘If
the actions described in subparagraph (A)
involve a security future product, the
Commission shall consult with and con-
sider the views of the Commodity Futures
Trading Commission.’’.
(f) OBLIGATION
TO PUT
IN PLACE PROCE-
DURES AND ADOPT RULES.—Section 15A of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-
540
3) is amended by inserting after subsection (k),
as added by section 203, the following new sub-
section:
‘‘(l) PROCEDURES AND RULES FOR SECURITY
FUTURE PRODUCTS.—A national securities asso-
ciation registered pursuant to subsection (a)
shall, not later than one year after the date of
enactment of the Commodity Futures Mod-
ernization Act of 2000, implement the proce-
dures specified in section 6(h)(5)(A) of this
title and adopt the rules specified in subpara-
graphs (B) and (C) of section 6(h)(5) of this
title.’’.
SEC. 207. CLEARANCE AND SETTLEMENT.
Section 17A of the Securities Exchange Act
of 1934 (15 U.S.C. 78q–1) is amended—
(1) in subsection (a)—
(A) in paragraph (1), by inserting
after subparagraph (D) the following:
‘‘(E) The clearance and settlement of
transactions in over-the-counter deriva-
tives through clearing agencies registered
with the Commission will reduce systemic
risk and provide stability to financial
541
markets during times of market dis-
order.’’; and
(B) in paragraph (2)(A)(ii), by
striking ‘‘and commodity options’’ and
inserting ‘‘commodity options, and
over-the-counter derivatives’’; and
(2) in subsection (b)—
(A) in paragraph (3)(A), by insert-
ing ‘‘and derivative agreements, con-
tracts, 
and 
transactions’’ 
after
‘‘prompt and accurate clearance and
settlement of securities transactions’’;
(B) in paragraph (3)(F), by insert-
ing ‘‘and, to the extent applicable, de-
rivative agreements, contracts, and
transactions’’ after ‘‘designed to pro-
mote the prompt and accurate clear-
ance 
and 
settlement 
of 
securities
transactions’’; and
(C) by inserting after paragraph
(7), as added by section 206(d), the fol-
lowing:
‘‘(8) A registered clearing agency shall be
permitted to provide facilities for the clear-
ance and settlement of any derivative agree-
542
ments, contracts, or transactions that are ex-
cluded from the Commodity Exchange Act,
subject to the requirements of this section and
to such rules and regulations as the Commis-
sion may prescribe as necessary or appro-
priate in the public interest, for the protection
of investors, or otherwise in furtherance of the
purposes of this title.’’.
SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND
DISCLOSURE ISSUES UNDER THE SECURITIES
ACT OF 1933 AND THE SECURITIES EXCHANGE
ACT OF 1934.
(a) AMENDMENTS TO THE SECURITIES ACT OF
1933.—
(1) TREATMENT
OF
SECURITY
FUTURE
PRODUCTS.—Section 2(a) of the Securities
Act 
of 
1933 
(15 
U.S.C. 
77b(a)) 
is
amended—
(A) in paragraph (1), by inserting
‘‘security 
future,’’ 
after 
‘‘treasury
stock,’’;
(B) in paragraph (3), by adding at
the end the following: ‘‘Any offer or
sale of a security future product by or
on behalf of the issuer of the securities
543
underlying the security future prod-
uct, an affiliate of the issuer, or an
underwriter, shall constitute a con-
tract for sale of, sale of, offer for sale,
or offer to sell the underlying securi-
ties.’’; and
(C) by adding at the end the fol-
lowing:
‘‘(16) The terms ‘security future’, ‘nar-
row-based security index’, and ‘security
future product’ have the same meanings
as provided in section 3(a)(55) of the Se-
curities Exchange Act of 1934.’’.
(2) EXEMPTION
FROM
REGISTRATION.—
Section 3(a) of the Securities Act of 1933
(15 U.S.C. 77c(a)) is amended by adding at
the end the following:
‘‘(14) Any security future product that
is—
‘‘(A) cleared by a clearing agency
registered under section 17A of the Se-
curities Exchange Act of 1934 or ex-
empt from registration under sub-
section (b)(7) of such section 17A; and
544
‘‘(B) listed on a national securities
exchange or a national securities as-
sociation registered pursuant to sec-
tion 15A(a) of the Securities Exchange
Act of 1934.’’.
(3) CONFORMING AMENDMENT.—Section
12(a)(2) of the Securities Act of 1933 (15
U.S.C. 77l(a)(2)) is amended by striking
‘‘paragraph (2)’’ and inserting ‘‘para-
graphs (2) and (14)’’.
(b) AMENDMENTS
TO
THE SECURITIES EX-
CHANGE ACT OF 1934.—
(1) EXEMPTION
FROM
REGISTRATION.—
Section 12(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(a)) is amended
by adding at the end the following: ‘‘The
provisions of this subsection shall not
apply in respect of a security future prod-
uct listed on a national securities ex-
change.’’.
(2) EXEMPTIONS
FROM
REPORTING
RE-
QUIREMENT.—Section 12(g)(5) of the Secu-
rities Exchange Act of 1934 (15 U.S.C.
78l(g)(5)) is amended by adding at the end
the following: ‘‘For purposes of this sub-
545
section, a security future product shall
not be considered a class of equity secu-
rity of the issuer of the securities under-
lying the security future product.’’.
(3) TRANSACTIONS BY CORPORATE INSID-
ERS.—Section 16 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78p) is
amended by adding at the end the fol-
lowing:
‘‘(f) TREATMENT OF TRANSACTIONS IN SECU-
RITY FUTURE PRODUCTS.—The provisions of this
section shall apply to ownership of and trans-
actions in security future products as if they
were ownership of and transactions in the un-
derlying equity security. The Commission may
adopt such rules and regulations as it deems
necessary or appropriate in the public interest
to carry out the purposes of this section.’’.
SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY
ACT OF 1940 AND THE INVESTMENT ADVISERS
ACT OF 1940.
(a) DEFINITIONS UNDER
THE INVESTMENT
COMPANY ACT OF 1940 AND THE INVESTMENT AD-
VISERS ACT OF 1940.—
546
(1) Section 2(a)(36) of the Investment
Company Act of 1940 (15 U.S.C. 80a–
2(a)(36)) is amended by inserting ‘‘security
future,’’ after ‘‘treasury stock,’’.
(2) Section 202(a)(18) of the Invest-
ment Advisers Act of 1940 (15 U.S.C. 80b–
2(a)(18)) is amended by inserting ‘‘security
future,’’ after ‘‘treasury stock,’’.
(3) Section 2(a) of the Investment
Company Act of 1940 (15 U.S.C. 80a–2(a))
is amended by adding at the end the fol-
lowing:
‘‘(52) The terms ‘security future’ and
‘narrow-based security index’ have the
same meanings as provided in section
3(a)(55) of the Securities Exchange Act of
1934.’’.
(4) Section 202(a) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–2(a)) is
amended by adding at the end the fol-
lowing:
‘‘(27) The terms ‘security future’ and
‘narrow-based security index’ have the
same meanings as provided in section
547
3(a)(55) of the Securities Exchange Act of
1934.’’.
(b) OTHER PROVISION.—Section 203(b) of
the Investment Advisers Act of 1940 (15 U.S.C.
80b–3(b)) is amended—
(1) by striking ‘‘or’’ at the end of para-
graph (4);
(2) by striking the period at the end of
paragraph (5) and inserting ‘‘; or’’; and
(3) by adding at the end the following:
‘‘(6) any investment adviser that is
registered with the Commodity Futures
Trading Commission as a commodity
trading advisor whose business does not
consist primarily of acting as an invest-
ment 
adviser, 
as 
defined 
in 
section
202(a)(11) of this title, and that does not
act as an investment adviser to (A) an in-
vestment company registered under title I
of this Act, or (B) a company which has
elected to be a business development com-
pany pursuant to section 54 of title I of
this Act and has not withdrawn its elec-
tion.’’.
548
SEC. 210. PREEMPTION OF STATE GAMING AND BUCKET
SHOP LAWS.
The last sentence of section 28(a) of the Se-
curities Exchange Act of 1934 (15 U.S.C.
78bb(a)) is amended—
(1) by inserting ‘‘subject to this title’’
after ‘‘privilege, or other security’’; and
(2) by striking ‘‘any such instrument,
if such instrument is traded pursuant to
rules and regulations of a self-regulatory
organization that are filed with the Com-
mission pursuant to section 19(b) of this
Act’’ and inserting ‘‘any such security’’.
Subtitle 
B—Conforming 
Amend-
ments to the Commodity Ex-
change Act
SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE
COMMISSION; OTHER PROVISIONS.
(a) JURISDICTION
OF SECURITIES
AND EX-
CHANGE COMMISSION.—Section 2(a)(1) of the
Commodity Exchange Act (7 U.S.C. 2, 2a, 4) is
amended by adding at the end the following:
‘‘(D)(i) Notwithstanding any other
provision of this Act, the Securities
and Exchange Commission shall have
jurisdiction and authority over secu-
549
rity futures as defined in section
3(a)(55) of the Securities Exchange
Act of 1934, section 2(a)(16) of the Se-
curities Act of 1933, section 2(a)(52) of
the Investment Company Act of 1940,
and section 202(a)(27) of the Invest-
ment Advisers Act of 1940, options on
security futures, and persons effecting
transactions in security futures and
options thereon, and this Act shall
apply to and the Commission shall
have jurisdiction with respect to ac-
counts, 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 guaranty’) and
transactions involving, and may des-
ignate a board of trade as a contract
market in, a security future product
as defined in section 1a(33) of this
Act: Provided, however, That, except
as provided in clause (v) of this sub-
paragraph, no board of trade shall be
550
designated as a contract market with
respect to any such contracts of sale
for future delivery unless the board of
trade making such application dem-
onstrates and the Commission ex-
pressly finds that the specific contract
with respect to which the application
has been made, or the board of trade,
meets the following criteria:
‘‘(I) Except as otherwise pro-
vided in a rule, regulation, or
order issued pursuant to clause
(vi) of this subparagraph, any se-
curity underlying the security fu-
ture, including each component
security of a contract of sale for
future delivery on a narrow-based
security index, is registered pursu-
ant to section 12 of the Securities
Exchange Act of 1934.
‘‘(II) Except as otherwise pro-
vided in a rule, regulation, or
order issued pursuant to clause
(vi) of this subparagraph, the se-
551
curity future product is cash set-
tled.
‘‘(III) The security future prod-
uct is not traded on an exempt
board of trade or a designated
transaction execution facility.
‘‘(IV) Except as otherwise pro-
vided in a rule, regulation, or
order issued pursuant to clause
(vi) of this subparagraph, the se-
curity future is based upon com-
mon stock and such other equity
securities as the Commission and
the Securities and Exchange Com-
mission jointly determine appro-
priate.
‘‘(V) The security future prod-
uct is cleared by a clearing agency
that has in place provisions for
linked and coordinated clearing
with other clearing agencies that
clear 
security 
future 
products,
which permits the security future
product to be purchased on a des-
ignated contract market, national
552
securities 
exchange 
registered
under section 6(a) of the Securi-
ties Exchange Act of 1934, or na-
tional securities association reg-
istered pursuant to section 15A(a)
of the Securities Exchange Act of
1934 and offset on any other des-
ignated contract market, national
securities 
exchange 
registered
under section 6(a) of the Securi-
ties Exchange Act of 1934, or na-
tional securities association reg-
istered pursuant to section 15A(a)
of the Securities Exchange Act of
1934 on which the security future
product is traded.
‘‘(VI) Only futures commission
merchants, introducing brokers,
commodity trading advisers, com-
modity pool operators or associ-
ated persons subject to suitability
rules comparable to those of a na-
tional securities association reg-
istered pursuant to section 15A(a)
of the Securities Exchange Act of
553
1934 solicit, accept any order for,
or otherwise deal in any trans-
action in or in connection with a
security future product.
‘‘(VII) 
The 
security 
future
product is subject to a prohibition
against dual trading in section 4j
of this Act and the rules and regu-
lations thereunder or the provi-
sions of section 11(a) of the Secu-
rities Exchange Act of 1934 and
the rules and regulations there-
under, except to the extent other-
wise permitted under the Securi-
ties Exchange Act of 1934 and the
rules and regulations thereunder.
‘‘(VIII) Trading in the security
future product is not readily sus-
ceptible to manipulation of the
price of such security future prod-
uct, nor to causing or being used
in the manipulation of the price of
any underlying security, option on
such security, or option on a
554
group or index including such se-
curities.
‘‘(IX) The board of trade on
which the security future product
is traded has procedures in place
for 
coordinated 
surveillance
among such board of trade, any
market on which any security un-
derlying the security future prod-
uct is traded, and other markets
on which any related security is
traded to detect manipulation and
insider trading, except that, if the
board of trade is an alternative
trading system, a national securi-
ties association registered pursu-
ant to section 15A(a) of the Securi-
ties Exchange Act of 1934 of which
such alternative trading system is
a member has in place such proce-
dures.
‘‘(X) The board of trade on
which the security future product
is traded has in place audit trails
necessary or appropriate to facili-
555
tate the coordinated surveillance
required in subclause (IX), except
that, if the board of trade is an al-
ternative trading system, a na-
tional securities association reg-
istered pursuant to section 15A(a)
of the Securities Exchange Act of
1934 of which such alternative
trading system is a member has
rules to require such audit trails.
‘‘(XI) The board of trade on
which the security future product
is traded has in place procedures
to coordinate trading halts be-
tween such board of trade and any
market on which any security un-
derlying the security future prod-
uct is traded and other markets
on which any related security is
traded, except that, if the board of
trade is an alternative trading
system, a national securities asso-
ciation registered pursuant to sec-
tion 15A(a) of the Securities Ex-
change Act of 1934 of which such
556
alternative trading system is a
member has rules to require such
coordinated trading halts.
‘‘(XII) The margin require-
ments for a security future prod-
uct are consistent with the margin
requirements for comparable op-
tion contracts traded on an ex-
change registered pursuant to sec-
tion 6(a) of the Securities Ex-
change Act of 1934 and initial and
maintenance margin levels for a
security future product are not
lower than the levels of margin re-
quired for comparable option con-
tracts traded on an exchange reg-
istered pursuant to section 6(a) of
the Securities Exchange Act of
1934, except that nothing in this
subclause shall be construed to
prevent a board of trade from re-
quiring higher margin levels for a
security future product when it
deems such action to be necessary
or appropriate.
557
‘‘(ii) It shall be unlawful for any
person to offer, to enter into, to exe-
cute, to confirm the execution of, or to
conduct any office or business any-
where in the United States, its terri-
tories or possessions, for the purpose
of soliciting, or accepting any order
for, or otherwise dealing in, any
transaction in, or in connection with,
a security future product unless—
‘‘(I) such transaction is con-
ducted on or subject to the rules of
a board of trade which has been
designated by the Commission as
a contract market in such security
future product;
‘‘(II) such security future prod-
uct is executed or consummated
by, through, or with a member of
such contract market; and
‘‘(III) 
such 
security 
future
product is evidenced by a record
in writing which shows the date,
the parties to such security future
product and their addresses, the
558
property covered and its price:
Provided, That each contract mar-
ket member shall keep such record
for a period of 3 years from the
date thereof, or for a longer period
if 
the 
Commission 
so 
directs,
which record shall at all times be
open to the inspection of any rep-
resentative of the Commission, the
Securities and Exchange Commis-
sion, or the Department of Justice.
‘‘(iii)(I) Except as provided in sub-
clause (II) but notwithstanding any
other provision of this Act, no person
shall offer to enter into, enter into, or
confirm the execution of any option on
a security future.
‘‘(II) After 3 years after the date of
enactment of the Commodity Futures
Modernization Act of 2000, the Com-
mission and the Securities and Ex-
change Commission may by order
jointly determine to permit trading of
options on any security future author-
ized to be traded under the provisions
559
of this Act and the Securities Ex-
change Act of 1934. Before any such
determination, the Commission and
the Securities and Exchange Commis-
sion shall conduct a study of the effect
of the trading of security futures on
the markets for futures contracts, se-
curities, and options and the ade-
quacy of protections for investors and
other market participants.
‘‘(iv)(I) All records of a futures
commission merchant or introducing
broker registered pursuant to section
4f(a)(2), a floor broker or floor trader
exempt from registration pursuant to
section 4f(a)(3), an associated person
exempt from registration pursuant to
section 4k(6), or a board of trade des-
ignated as a contract market in a se-
curity future product pursuant to sec-
tion 5f shall be subject at any time, or
from time to time, to such reasonable
periodic, special, or other examina-
tions by representatives of the Com-
mission as the Commission deems nec-
560
essary or appropriate in the public in-
terest, for the protection of investors,
or otherwise in furtherance of the pur-
poses of this title: Provided, That the
Commission, prior to conducting any
such examination, gives notice to the
Securities and Exchange Commission
of such proposed examination and
consults with the Securities and Ex-
change Commission concerning the
feasibility and desirability of coordi-
nating such examination with exami-
nations conducted by the Securities
and Exchange Commission with a
view to avoiding unnecessary regu-
latory duplication or undue regu-
latory burdens for such registrant or
board of trade.
‘‘(II) The Commission shall notify
the Securities and Exchange Commis-
sion of any examination conducted of
any futures commission merchant or
introducing broker registered pursu-
ant to section 4f(a)(2), floor broker or
floor trader exempt from registration
561
pursuant to section 4f(a)(3), associ-
ated person exempt from registration
pursuant to section 4k(6), or board of
trade designated as a contract market
in a security future product pursuant
to section 5f, and, upon request, fur-
nish to the Securities and Exchange
Commission any examination report
and data supplied to the Commission
in connection with such examination.
‘‘(III) The Commission shall, to the
fullest extent possible, use the reports
of examinations of any futures com-
mission 
merchant 
or 
introducing
broker registered pursuant to section
4f(a)(2), floor broker or floor trader
exempt from registration pursuant to
section 4f(a)(3), associated person ex-
empt from registration pursuant to
section 4k(6), or board of trade des-
ignated as a contract market in a se-
curity future product pursuant to sec-
tion 5f, made by the Securities and Ex-
change Commission, a national secu-
rities association registered pursuant
562
to section 15A(a) of the Securities Ex-
change Act of 1934 (15 U.S.C. 78o–3),
or a national securities exchange reg-
istered pursuant to section 6(a) of the
Securities Exchange Act of 1934 (15
U.S.C. 78f(g)).
‘‘(IV) Nothing in this subsection
shall be construed to impair or limit
(other than by the requirement of
prior consultation) the power of the
Commission under this subsection to
examine any futures commission mer-
chant 
or 
introducing 
broker 
reg-
istered pursuant to section 4f(a)(2),
floor broker or floor trader exempt
from registration pursuant to section
4f(a)(3), 
associated 
person 
exempt
from registration pursuant to section
4k(6), or board of trade designated as
a contract market in a security future
product pursuant to section 5f, or to
affect in any way the power of the
Commission under any other provi-
sion of this Act.
563
‘‘(v) A board of trade designated
as a contract market pursuant to sec-
tion 5f shall be designated as a con-
tract market with respect to a security
future product by providing to the
Commission a written certification
that the specific contract with respect
to which the application has been
made, or the board of trade, meets the
criteria specified in subclauses (I)
through (XII) of clause (i).
‘‘(vi) The Commission and the Se-
curities and Exchange Commission, by
rule, regulation, or order, may jointly
modify the criteria specified in sub-
clause (I), (II), or (IV) of clause (i) of
this subparagraph to the extent such
modification fosters the development
of fair and orderly markets in security
future products, is necessary or appro-
priate in the public interest, and is
consistent with the protection of inves-
tors.’’.
(b) MARGIN ON SECURITY FUTURES.—Section
2(a)(1)(C)(vi) of the Commodity Exchange Act
564
(7 U.S.C. 2a(vi)) (as redesignated by section
122) is amended—
(1) by redesignating subclause (V) as
subclause (VI); and
(2) by striking ‘‘(vi)(I)’’ and all that
follows through subclause (IV) and insert-
ing the following:
‘‘(vi)(I) 
Notwithstanding
any other provision of this Act,
any contract market in a stock
index futures contract (or op-
tion thereon), other than a se-
curity future product, shall
file with the Board of Gov-
ernors of the Federal Reserve
System any rule establishing
or changing the levels of mar-
gin (initial and maintenance)
for such stock index futures
contract (or option thereon),
other 
than 
security 
future
products.
‘‘(II) The Board may at
any time request any contract
market to set the margin for
565
any stock index futures con-
tract (or option thereon), other
than for any security future
product, at such levels as the
Board in its judgment deter-
mines are appropriate to pre-
serve the financial integrity of
the contract market or its
clearing system or to prevent
systemic risk. If the contract
market fails to do so within
the time specified by the Board
in its request, the Board may
direct the contract market to
alter or supplement the rules
of the contract market as spec-
ified in the request.
‘‘(III) Subject to such con-
ditions as the Board may de-
termine, the Board may dele-
gate any or all of its authority,
relating to margin for any
stock index futures contract
(or option thereon), other than
security 
future 
products,
566
under this clause to the Com-
mission.
‘‘(IV) 
MARGIN
REGULA-
TIONS.—It shall be unlawful
for any futures commission
merchant to, directly or indi-
rectly, 
extend 
or 
maintain
credit to or for, or collect mar-
gin from any customer on any
security future product unless
such activities comply with the
rules and regulations which
the Securities and Exchange
Commission, 
after 
consulta-
tion 
with 
the 
Commission,
shall prescribe pursuant to
section 7(c)(2)(B) of the Secu-
rities Exchange Act of 1934.
‘‘(V) Nothing in this clause
shall supersede or limit the
authority granted to the Com-
mission in section 8a(9) to di-
rect a contract market, on
finding an emergency to exist,
to raise temporary margin lev-
567
els on any futures contract, or
option on the contract covered
by this clause, or on any secu-
rity future product.’’.
(c) EXEMPTION FROM REGISTRATION FOR IN-
VESTMENT ADVISERS.—Section 4m of the Com-
modity Exchange Act (7 U.S.C. 6m) is amended
by adding at the end the following:
‘‘(3) The provisions of subsection (1) of this
section shall not apply to any commodity trad-
ing advisor that is registered with the Securi-
ties and Exchange Commission as an invest-
ment adviser whose business does not consist
primarily of acting as a commodity trading
advisor, as defined in section 1a of this Act,
and that does not act as a commodity trading
advisor to any investment trust, syndicate, or
similar form of enterprise that is engaged pri-
marily in trading in any commodity for future
delivery on or subject to the rules of any con-
tract market.’’.
(d) EXEMPTION FROM INVESTIGATIONS
OF
MARKETS IN UNDERLYING SECURITIES.—Section
16 of the Commodity Exchange Act (7 U.S.C.