time personnel holding permanent positions shall not
cause any such employee to be separated or reduced in
grade or compensation for one year after the date of trans-
fer to the Commission.
(b) EXECUTIVE LEVEL APPOINTEES.—Any person
who, on the day preceding the effective date of this Act,
held a position compensated in accordance with the Execu-
tive Schedule prescribed in chapter 53 of title 5, United
States Code, and who, without a break in service, is ap-
pointed in the Commission to a position having duties
comparable to the duties performed immediately preceding
such appointment shall continue to be compensated in
such new position at not less than the rate provided for
such previous position, for the duration of the service of
such person in such new position.
SEC. 503. AGENCY TERMINATIONS.
(a) TERMINATED AGENCIES.—On the effective date
of this Act, the following entities shall terminate:
(A) The Commodity Futures Trading Commis-
sion.
(B) The Securities and Exchange Commission.
(b) TERMINATED POSITIONS.—Each position which
was expressly authorized by law, or the incumbent of
which was authorized to receive compensation at the rate
prescribed for level III, IV, or V of the Executive Schedule
(5 U.S.C. 5315–5316), in an office terminated pursuant
to this Act shall also terminate.
SEC. 504. INCIDENTAL TRANSFERS.
(a) GENERAL AUTHORITY OF OMB.—The Director
of the Office of Management and Budget, at such time
or times as the Director shall provide, is authorized and
directed to make such determinations as may be necessary
with regard to the functions, offices, or portions thereof
transferred by this Act, and to make such additional inci-
dental dispositions of personnel, assets, liabilities, grants,
contracts, property, records, and unexpended balances of
appropriations, authorizations, allocations, and other
funds held, used, arising from, available to, or to be made
available in connection with such functions, offices, or por-
tions thereof, as may be necessary to carry out the provi-
sions of this Act. The Director shall provide for the termi-
nation of the affairs of all entities terminated by this Act
and for such further measures and dispositions as may
be necessary to effectuate the purposes of this Act.
(b) SES POSITIONS.—After consultation with the Di-
rector of the Office of Personnel Management, the Direc-
tor of the Office of Management and Budget is authorized,
at such time as the Director of the Office of Management
and Budget provides, to make such determinations as may
be necessary with regard to the transfer of positions with-
in the Senior Executive Service in connection with func-
tions and offices transferred by this Act.
SEC. 505. SAVINGS PROVISIONS.
(a) CONTINUITY OF LEGAL INSTRUMENTS.—All or-
ders, determinations, rules, regulations, permits, grants,
contracts, certificates, licenses, and privileges—
(1) which have been issued, made, granted, or
allowed to become effective by the President, any
Federal department or agency or official thereof, or
by a court of competent jurisdiction, in the perform-
ance of functions which are transferred under this
Act to the Commission, and
(2) which are in effect at the time this Act
takes effect,
shall continue in effect according to their terms until
modified, terminated, superseded, set aside, or revoked in
accordance with the law by the President, the Commission,
or other authorized official, a court of competent jurisdic-
tion, or by operation of law.
(b) CONTINUITY OF PROCEEDINGS.—
(1) IN GENERAL.—The provisions of this Act
shall not affect any proceedings, including notices of
proposed rulemaking, or any application for any li-
cense, permit, certificate, or financial assistance
pending on the effective date of this Act before any
department, agency, commission, or component
thereof, functions of which are transferred by this
Act; but such proceedings and applications, to the
extent that they relate to functions so transferred,
shall be continued. Orders shall be issued in such
proceedings, appeals shall be taken therefrom, and
payments shall be made pursuant to such orders, as
if this Act had not been enacted; and orders issued
in any such proceedings shall continue in effect until
modified, terminated, superseded, or revoked by the
Commission, by a court of competent jurisdiction, or
by operation of law. Nothing in this subsection shall
be deemed to prohibit the discontinuance or modi-
fication of any such proceeding under the same
terms and conditions and to the same extent that
such proceeding could have been discontinued or
modified if this Act had not been enacted.
(2) REGULATIONS CONCERNING TRANSFERS.—
The Commission is authorized to promulgate regula-
tions providing for the orderly transfer of pro-
ceedings continued under paragraph (1) to the Com-
mission.
(c) PENDING LITIGATION.—Except as provided in
subsection (e)—
(1) the provisions of this Act shall not affect
suits commenced prior to the effective date of this
Act, and
(2) in all such suits, proceedings shall be had,
appeals taken, and judgments rendered in the same
manner and effect as if this Act had not been en-
acted.
(d) NONABATEMENT.—No suit, action, or other pro-
ceeding commenced by or against any officer in the official
capacity of such individual as an officer of any department
or agency, functions of which are transferred by this Act,
shall abate by reason of the enactment of this Act. No
cause of action by or against any department or agency,
functions of which are transferred by this Act, or by or
against any officer thereof in the official capacity of such
officer shall abate by reason of the enactment of this Act.
(e) SUBSTITUTION OF PARTIES.—If, before the date
on which this Act takes effect, any department or agency,
or officer thereof in the official capacity of such officer,
is a party to a suit, and under this Act any function of
such department, agency, or officer is transferred to the
Commission or any other official of the Commission, then
such suit shall be continued with the Commission or other
appropriate official of the Commission substituted or
added as a party.
(f) JUDICIAL REVIEW AS REQUIRED BY EXISTING
LAW.—Orders and actions of the Commission in the exer-
cise of functions transferred under this Act shall be sub-
ject to judicial review to the same extent and in the same
manner as if such orders and actions had been by the
agency or office, or part thereof, exercising such functions
immediately preceding their transfer. Any statutory re-
quirements relating to notice, hearings, action upon the
record, or administrative review that apply to any function
transferred by this Act shall apply to the exercise of such
function by the Commission.
SEC. 506. SEPARABILITY.
If any provision of this Act or the application thereof
to any person or circumstance is held invalid, neither the
remainder of this Act nor the application of such provision
to other persons or circumstances shall be affected there-
by.
SEC. 507. REFERENCE.
With respect to any function transferred by this Act
and exercised on or after the effective date of this Act,
reference in any other Federal law to any department,
commission, or agency or any officer or office the func-
tions of which are so transferred shall be deemed to refer
to the Commission, other official, or component of the
Commission to which this Act transfers such functions.
SEC. 508. AMENDMENTS.
(a) EXECUTIVE SCHEDULE SALARIES.—
(1) CHAIRMAN.—Section 5314 of title 5, United
States Code, is amended—
(A) by striking ‘‘Chairman, Securities and
Exchange Commission.’’ and inserting ‘‘Chair-
man, Markets and Trading Commission.’’; and
(B) by striking ‘‘Chairman, Commodity
Futures Trading Commission.’’.
(2) MEMBERS.—Section 5315 of title 5, United
States Code, is amended—
(A) by striking ‘‘Members, Securities and
Exchange Commission’’ and inserting ‘‘Mem-
bers, Markets and Trading Commission’’; and
(B) by striking ‘‘Members, Commodity Fu-
tures Trading Commission.’’.
(b) CONFORMING AMENDMENTS.—
(1) SECURITIES
EXCHANGE
ACT.—Sections 4
and 35 of the Securities Exchange Act of 1934 are
repealed.
(2) COMMODITY EXCHANGE ACT.—Section 2(a)
of the Commodity Exchange Act is amended by
striking paragraphs (2), (3), and (4).
SEC. 509. TRANSITION.
With the consent of the appropriate department or
agency head concerned, the Commission is authorized to
utilize the services of such officers, employees, and other
personnel of the departments and agencies from which
functions or offices have been transferred to the Commis-
sion, and funds appropriated to such functions or offices
for such period of time as may reasonably be needed to
facilitate the orderly implementation of this Act.
TITLE VI—REGULATION OF OTC
DERIVATIVES
SEC. 601. REGULATION OF OVER-THE-COUNTER DERIVA-
TIVES.
(a) IN GENERAL.—The Commission shall prescribe
such rules and regulations governing over-the-counter de-
rivatives dealers and over-the-counter derivatives trans-
actions as may be necessary and appropriate in the public
interest and for the protection of investors to ensure the
safety and soundness of financial markets and the Na-
tion’s economy as a whole, including rules and regulations
with respect to—
(1) the eligibility of persons to trade over-the-
counter derivatives;
(2) registration requirements for over-the-
counter derivatives dealers, institutions employing
over-the-counter derivatives dealers, and facilities on
which over-the-counter derivatives transactions are
executed, which shall be similar to the registration
requirements prescribed under the Securities Ex-
change Act of 1934 for securities dealers, for insti-
tutions employing securities dealers, and for securi-
ties exchanges;
(3) adequate capital requirements for over-the-
counter derivatives dealers, that are similar to the
net capital requirements applicable to securities
dealers under section 15(c)(3) of the Securities Ex-
change Act of 1934;
(4) adequate collateral or margin for over-the-
counter derivatives transactions, which rules and
regulations shall be prescribed in consultation with
the Board of Governors of the Federal Reserve Sys-
tem;
(5) registration and approval of facilities for the
execution of over-the-counter derivatives trans-
actions;
(6) sales practices, including sales licensing and
training;
(7) self-regulation;
(8) internal risk control;
(9) disciplinary procedures;
(10) violations and enforcement; and
(11) standardized reporting and recordkeeping
requirements.
(b) REPORTING REQUIREMENTS.—
(1) IN GENERAL.—An over-the-counter deriva-
tives dealer shall submit to the Commission, in such
form 
and 
manner 
as 
the 
Commission 
may
prescribe—
(A) a daily report on price, volume of
transactions, open interest, implied volatility of
options contracts, and the positions of large
traders in the over-the-counter derivatives mar-
ket; and
(B) a quarterly report on the over-the-
counter derivatives in the dealer’s own account,
and for each type of over-the-counter derivative,
the currency, maturity, and the underlying
basis for pricing.
(2) DATA ELEMENTS.—The Commission shall
prescribe how each feature of an over-the-counter
derivatives transaction is to be reported to the Com-
mission pursuant to paragraph (1).
(3) RETROACTIVE
APPLICABILITY.—On reg-
istration of an over-the-counter derivatives dealer
under this section, the dealer shall file with the
Commission a report of the type described in para-
graph (1)(B) covering the calendar quarter most re-
cently ending before the registration date.
(c) DEFINITIONS.—In this section:
(1) OVER-THE-COUNTER
DERIVATIVES
DEAL-
ER.—The term ‘‘over-the-counter derivatives dealer’’
means—
(A) any person engaged in the business of
buying, selling, trading, and clearing over-the-
counter derivatives for the person’s own ac-
count, as an intermediary for others, through
an intermediary, or otherwise; and
(B) any counter party to the transaction
whose exposure to over-the-counter derivatives
exceeds such threshold as the Commission shall
prescribe by regulation.
(2) 
OVER-THE-COUNTER
DERIVATIVE.—The
term ‘‘over-the-counter derivative’’ means—
(A)(i) any agreement, contract, or trans-
action that is not subject to regulation—
(I) under the Securities Exchange Act
of 1934 as a security (as defined in section
3(a)(10) of the such Act) or a security fu-
ture 
product 
(as 
defined 
in 
section
3(a)(56) of such Act); or
(II) as a financial instrument traded
on a board of trade which, before Decem-
ber 21, 2000, was designated by the Com-
mission as a contract market; or
(ii) any condition incorporated by reference
in any such agreement, contract, or transaction;
and
(B) the value of which agreement, con-
tract, transaction, or condition depends on—
(i) an interest rate, exchange rate,
currency, security, security index, credit
risk or measure, debt or equity instrument,
index or measure of inflation or other mac-
roeconomic index;
(ii) any other rate, differential, index
or measure of economic or commercial
risk, return, or value;
(iii) any economic or commercial index
based on prices, rates, value or levels that
are beyond the control of any party to the
relevant contract, agreement or trans-
action; or
(iv) an occurrence, extent of an occur-
rence, or contingency that is beyond the
control of the parties to the relevant con-
tract, agreement, or transaction.
(d) CRIMINAL PROVISIONS.—
(1) It shall be a felony punishable by a fine of
not more than $1,000,000 (or $500,000, in the case
of a person who is an individual), imprisonment for
not more than 5 years, or both, together with the
costs of prosecution, for:
(A) Any person registered or required to
be registered under this section, or any em-
ployee or agent thereof, to embezzle, steal, pur-
loin, or with criminal intent convert to the per-
son’s use or to the use of another, any money,
securities, or property having a value in excess
of $100, which was received by the person or
any employee or agent thereof to margin, guar-
antee, or secure the trades or contracts of any
customer or accruing to the customer as a re-
sult of the trades or contracts or which other-
wise was received from any customer, client, or
pool participant in connection with the business
of the person. In this subparagraph, the term
‘‘value’’ means face, par, or market value, or
cost price, either wholesale or retail, whichever
is greater.
(B) Any person to manipulate or attempt
to manipulate the price of any over-the-counter
derivative in interstate commerce, or for future
delivery on or subject to the rules of any entity
registered under this section, or to corner or at-
tempt to corner any such derivative or know-
ingly to deliver or cause to be delivered for
transmission through the mails or interstate
commerce by telegraph, telephone, wireless, or
other means of communication false or mis-
leading or knowingly inaccurate reports con-
cerning market information or conditions that
affect or tend to affect the price of any deriva-
tive in interstate commerce.
(C) Any person knowingly to make, or
cause to be made, any statement in any applica-
tion, report, or document required to be filed
under this section or any rule or regulation
under this section or any undertaking contained
in a registration statement required under this
section, which statement was false or mis-
leading with respect to any material fact, or
knowingly to omit any material fact required to
be stated in the statement or necessary to make
the statements in the statement not misleading.
(D) Any person willfully to falsify, conceal,
or cover up by any trick, scheme, or artifice a
material fact, make any false, fictitious, or
fraudulent statements or representations, or
make or use any false writing or document
knowing the same to contain any false, ficti-
tious, or fraudulent statement or entry to an
entity registered under this section acting in
furtherance of its official duties under this sec-
tion.
(E) Any person willfully to violate any
other provision of this section, or any rule or
regulation under this section, the violation of
which is made unlawful or the observance of
which is required under this section, but a per-
son shall not be subject to imprisonment under
this subparagraph for the violation of any rule
or regulation if the person proves that the per-
son had no knowledge of the rule or regulation.
(2) Any person convicted of a felony under this
subsection shall be suspended from registration
under this section and shall be denied registration or
reregistration for 5 years or such longer period as
the Commission may determine, and barred from
using, or participating in any manner in, any market
regulated by the Commission for 5 years or such
longer period as the Commission shall determine, on
such terms and conditions as the Commission may
prescribe, unless the Commission determines that
the imposition of the suspension, denial of registra-
tion or reregistration, or market bar is not required
to protect the public interest. The Commission may
upon petition later review the disqualification and
market bar and for good cause shown reduce the pe-
riod of the disqualification.
(3) It shall be a felony punishable by a fine of
not more than $500,000, imprisonment for not more
than 5 years, or both, together with the costs of
prosecution, for any Commissioner of the Commis-
sion or any employee or agent of the Commission, to
participate, directly or indirectly, in any over-the-
counter derivatives transaction, or any transaction
for the delivery of any over-the-counter derivative
under a standardized contract commonly known to
the trade as a margin account, margin contract, le-
verage account, or leverage contract, or under any
contract, account, arrangement, scheme, or device
that the Commission determines serves the same
function or functions as such a standardized con-
tract, or is marketed or managed in substantially
the same manner as such a standardized contract,
or for any such person to participate, directly or in-
directly, in any investment transaction in an over-
the-counter derivative if nonpublic information is
used in the investment transaction, if the investment
transaction is prohibited by rule or regulation of the
Commission, or if the investment transaction is ef-
fected by means of any instrument regulated by the
Commission. The foregoing prohibitions shall not
apply to any transaction or class of transactions that
the Commission, by rule or regulation, has deter-
mined would not be contrary to the public interest
or otherwise inconsistent with the purposes of this
paragraph.
(4) It shall be a felony punishable by a fine of
not more than $500,000, imprisonment for not more
than 5 years, or both, together with the costs of
prosecution for:
(A) Any Commissioner of the Commission
or any employee or agent of the Commission
who, by virtue of his employment or position,
acquires information which may affect or tend
to affect the price of any over-the-counter de-
rivatives transaction and which information has
not been made public to impart such informa-
tion with intent to assist another person, di-
rectly or indirectly, to participate in any over-
the-counter derivatives transaction or in any
transaction for the delivery of any over-the-
counter derivative under a standardized con-
tract commonly known to the trade as a margin
account, margin contract, leverage account, or
leverage contract, or under any contract, ac-
count, arrangement, scheme, or device that the
Commission determines serves the same func-
tion or functions as such a standardized con-
tract, or is marketed or managed in substan-
tially the same manner as such a standardized
contract.
(B) Any person to acquire such informa-
tion from any Commissioner of the Commission
or any employee or agent of the Commission
and to use such information in any over-the-
counter derivatives transaction or in any trans-
action for the delivery of any over-the-counter
derivative under a standardized contract com-
monly known to the trade as a margin account,
margin contract, leverage account, or leverage
contract, or under any contract, account, ar-
rangement, scheme, or device that the Commis-
sion determines serves the same function or
functions as such a standardized contract, or is
marketed or managed in substantially the same
manner as such a standardized contract.
(5)(A) It shall be a felony for any person—
(i) who is an employee, member of the gov-
erning board, or member of any entity reg-
istered under this section, in violation of a regu-
lation issued by the Commission, willfully and
knowingly to trade for the person’s own ac-
count, or for or on behalf of any other account,
in over-the-counter derivatives transactions on
the basis of, or willfully and knowingly to dis-
close for any purpose inconsistent with the per-
formance of such person’s official duties as an
employee or member, any material nonpublic in-
formation obtained through special access re-
lated to the performance of such duties; or
(ii) willfully and knowingly to trade for the
person’s own account, or for or on behalf of any
other account, in over-the-counter derivatives
transactions on the basis of any material non-
public information that the person knows was
obtained in violation of clause (i) from an em-
ployee, member of the governing board, or
member of any committee of an entity reg-
istered under this section.
(B) The felony shall be punishable by a fine of
not more than $500,000, plus the amount of any
profits realized from the trading or disclosure made
in violation of this paragraph, or imprisonment for
not more than 5 years, or both, together with the
costs of prosecution.
(e) PRIVATE RIGHTS OF ACTION.—
(1)(A) Any person (other than an entity reg-
istered under this section) who violates this section
or a regulation prescribed under this section or who
willfully aids, abets, counsels, induces, or procures
the commission of a violation of this section or of
such a regulation shall be liable for actual damages
caused by the violation to any other person—
(i) who received trading advice from such
person for a fee;
(ii) who purchased or sold an over-the-
counter derivative if the violation constitutes a
manipulation of the price of any such derivative
or of a rate, currency, index, measure, value, or
level on which such a derivative is based;
(iii) who made through the person any con-
tract of sale of any over-the-counter derivative
for future delivery (or option on such a contract
or derivative), or who deposited with or paid to
the person money, securities, or property (or in-
curred debt in lieu thereof) in connection with
any order to make such a contract; or
(iv) who purchased or sold a contract re-
ferred to in clause (iii) if the violation con-
stitutes a manipulation of the price of any such
contract or the price of any derivative under-
lying the contract.
(B) Except as provided in paragraph (2), the
rights of action authorized by this paragraph shall
be the exclusive remedies under this section available
to any person who sustains loss as a result of any
alleged violation of this section. This paragraph shall
not be construed to limit or abridge the rights of the
parties to agree in advance of a dispute on any
forum for resolving claims under this subsection, in-
cluding arbitration.
(C) In an action arising from a violation in the
execution of an order on the floor of an entity reg-
istered under this section, the person referred to in
subparagraph (A) shall be liable for—
(i) actual damages proximately caused by
the violation; and
(ii) if the violation is willful and inten-
tional, punitive or exemplary damages equal to
no more than twice the amount of the actual
damages.
(2)(A)(i) A entity registered under this section
that fails to enforce any bylaw, rule, regulation, or
resolution that the entity is required under this sec-
tion to enforce, or that in enforcing any such bylaw,
rule, regulation, or resolution violates this section or
any Commission rule, regulation, or order issued
under this section, shall be liable for actual damages
sustained by a person who engaged in any trans-
action on or subject to the rules of the entity to the
extent of the person’s actual losses that resulted
from the transaction and were caused by the failure
to enforce or by enforcement of the bylaws, rules,
regulations, or resolutions.
(B) An individual who, in the capacity as an of-
ficer, director, governor, committee member, or em-
ployee of an entity registered under this section will-
fully aids, abets, counsels, induces, or procures any
failure by any such entity to enforce (or any viola-
tion of this section in enforcing) any bylaw, rule,
regulation, or resolution referred to in subparagraph
(A) of this paragraph, shall be liable for actual dam-
ages sustained by a person who engaged in any
transaction specified in paragraph (1) of this sub-
section on, or subject to the rules of, the entity, to
the extent of the person’s actual losses that resulted
from the transaction and were caused by the failure
or violation.
(C) A person seeking to enforce liability under
this subsection must establish that the entity, offi-
cer, director, governor, committee member, or em-
ployee acted in bad faith in failing to take action or
in taking the action as was taken, and that the fail-
ure or action caused the loss.
(D) The rights of action authorized by this
paragraph shall be the exclusive remedy under this
section available to any person who sustains a loss
as a result of—
(i) the alleged failure by an entity reg-
istered under this section or by any officer, di-
rector, governor, committee member, or em-
ployee to enforce any bylaw, rule, regulation, or
resolution referred to in subparagraph (A) of
this paragraph, or
(ii) the taking of action in enforcing any
bylaw, rule, regulation, or resolution referred to
in this paragraph that is alleged to have vio-
lated this section, or any Commission rule, reg-
ulation, or order issued under this section.
(3) The United States district courts shall have
exclusive jurisdiction of actions brought under this
subsection. Any such action shall be brought not
later than 2 years after the date the cause of action
arises. Any action brought under paragraph (1) may
be brought in any judicial district in which the de-
fendant is found, resides, or transacts business, or
in the judicial district in which any act or trans-
action constituting the violation occurs. Process in
such action may be served in any judicial district of
which the defendant is an inhabitant or wherever the
defendant may be found.
(f) SUPERIORITY TO COMMODITY EXCHANGE ACT
AND THE COMMODITY FUTURES MODERNIZATION ACT OF
2000.—In the event of any conflict between any provision
of, or regulation prescribed under, this section and any
provision of, or regulation prescribed under, the Com-
modity Exchange Act or the Commodity Futures Mod-
ernization Act of 2000, the provison of, or regulation pre-
scribed under, this section shall control.
(g) CONFORMING AMENDMENTS.—The Commodity
Exchange Act is amended—
(1) in section 1a (7 U.S.C. 1a)—
(A) by striking paragraph (13); and
(B) in paragraph (14), by striking ‘‘an ex-
cluded commodity or’’; and
(2) in section 2 (7 U.S.C. 2)—
(A) in subsection (c)(1)—
(i) by adding ‘‘or’’ at the end of sub-
paragraph (E); and
(ii) by striking subparagraph (F) and
redesignating subparagraph (G) as sub-
paragraph (F); and
(B) in subsection (i)(1)(A), by striking
‘‘2(d),’’.
TITLE VII—EFFECTIVE DATE
SEC. 701. EFFECTIVE DATE.
(a) IN GENERAL.—The provisions of this Act shall
take effect 180 days after the first Commissioner takes
office, or on any later date on or before October 1, 2003,
as the President may prescribe and publish in the Federal
Register, except that at any time on or after the date of
enactment of this Act—
(1) any of the officers provided for in title II
of this Act may be nominated and appointed, as pro-
vided in such title; and
(2) the Commission may promulgate regulations
pursuant to section 505(b)(2) of this Act.
(b) TRANSITION EXPENSES.—Funds available to any
department or agency (or any official department or agen-
cy or any official or component thereof), the functions or
offices of which are transferred to the Commission by this
Act, may, with the approval of the Director of the Office
of Management and Budget, be used to pay the compensa-
tion and expenses of any officer appointed pursuant to this
title and other transitional and planning expenses associ-
ated with the establishment of the Commission or transfer
of functions or offices thereto until such time as funds
for such purposes are otherwise available.
Æ