I 
110TH CONGRESS 
2D SESSION 
H. R. 7266 
To amend the Federal securities laws to enhance oversight over certain 
derivatives dealers and hedge funds, reduce the potential for such entities 
to increase systemic risk in the financial markets, enhance investor 
protections, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
OCTOBER 3, 2008 
Mr. MARKEY introduced the following bill; which was referred to the 
Committee on Financial Services 
A BILL 
To amend the Federal securities laws to enhance oversight 
over certain derivatives dealers and hedge funds, reduce 
the potential for such entities to increase systemic risk 
in the financial markets, enhance investor protections, 
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. 
This Act may be cited as the ‘‘Derivatives Market Re-
form Act of 1999’’. 
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SEC. 2. DEFINITIONS. 
Section 3(a) of the Securities Exchange Act of 1934 
(15 U.S.C. 78c(a)) is amended by adding at the end the 
following new paragraphs: 
‘‘(65) The term ‘derivative’ means any financial 
contract or other instrument that derives its value 
from the value or performance of any security or 
other financial instrument, or of any excluded com-
modity (as defined in section 1a(13) of the Com-
modity Exchange Act), but does not include— 
‘‘(A) any security that is traded on a na-
tional securities exchange or on an automated 
interdealer quotation system sponsored by a se-
curities association registered under section 
15A of this title; 
‘‘(B) any forward contract which has a 
maturity at the time of issuance not exceeding 
270 days; or 
‘‘(C) any deposit held by a financial insti-
tution. 
‘‘(66) The term ‘derivatives dealer’ means any 
person engaged in the business of buying, selling, or 
entering into derivatives for his own account, but 
does not include— 
‘‘(A) any person insofar as such person 
buys, sells, or enters into derivatives for his own 
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account, either individually or in a fiduciary ca-
pacity, but not as part of a regular business; or 
‘‘(B) any financial institution. 
‘‘(67) The term ‘material associated person’ 
means any associated person of a broker, dealer, 
government securities broker, government securities 
dealer, municipal securities dealer, or derivatives 
dealer (other than a natural person) whose business 
activities are reasonably likely to have a material im-
pact on the financial or operational condition of any 
such broker, dealer, government securities broker, 
government securities dealer, municipal securities 
dealer, or derivatives dealer, including on its net 
capital, its liquidity, or its ability to conduct or fi-
nance its operations. 
‘‘(68) The term ‘person associated with a de-
rivatives dealer’ or ‘associated person of a deriva-
tives dealer’ means any partner, officer, director, or 
branch manager of such derivatives dealer (or any 
person occupying a similar status or performing 
similar functions), and any other employee of such 
derivatives dealer who is engaged in the manage-
ment, direction, supervision, or performance of any 
activities relating to derivatives, and any person di-
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rectly or indirectly controlling, controlled by, or 
under common control with such derivatives dealer. 
‘‘(69) The term ‘designated examining author-
ity’ means the national securities exchange or reg-
istered securities association of which a registered 
broker or dealer is a member, and if such broker or 
dealer is a member of more than 1 such self-regu-
latory organization, the organization designated by 
the Commission as the principal examining authority 
for such broker or dealer.’’. 
TITLE I—DERIVATIVES DEALERS 
SEC. 101. DERIVATIVES DEALER REGISTRATION. 
The Securities Exchange Act of 1934 is amended by 
inserting after section 15E (15 U.S.C. 78o–7) the fol-
lowing new section: 
‘‘SEC. 15F. DERIVATIVES DEALERS. 
‘‘(a) REGISTRATION REQUIRED.— 
‘‘(1) REGISTRATION
OF
DERIVATIVES
DEAL-
ERS.— 
‘‘(A) REGISTRATION
REQUIREMENT.—It 
shall be unlawful for any derivatives dealer 
(other than a registered broker or dealer, or a 
material associated person of a registered 
broker or dealer that has filed notice in accord-
ance with subparagraph (B) of this paragraph) 
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to make use of the mails or any means or in-
strumentality of interstate commerce to effect 
any transaction in, or to induce or attempt to 
induce the purchase or sale of, any derivative 
unless such derivatives dealer is registered in 
accordance with paragraph (2) of this sub-
section. 
‘‘(B) MATERIAL ASSOCIATED PERSONS OF 
BROKERS AND DEALERS.— 
‘‘(i) NOTICE REQUIREMENT.—It shall 
be unlawful for any derivatives dealer that 
is a material associated person of a reg-
istered broker or dealer (other than a ma-
terial associated person of a registered 
broker or dealer that is itself a registered 
broker or dealer, or a derivatives dealer 
that is registered in accordance with para-
graph (2) of this subsection) to make use 
of the mails or any means or instrumen-
tality of interstate commerce to effect any 
transaction in, or to induce or attempt to 
induce the purchase or sale of, any deriva-
tive unless such derivatives dealer has filed 
with the Commission written notice that it 
is a derivatives dealer. When such a de-
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‘‘(B) INITIAL ACTION.—Within 45 days of 
the date of filing of such application (or within 
such longer period as to which the applicant 
consents), the Commission shall— 
‘‘(i) by order grant registration, or 
‘‘(ii) institute proceedings to deter-
mine whether registration should be de-
nied. 
‘‘(C) PROCEEDINGS
ON
APPLICATION.— 
Such proceedings shall include notice of the 
grounds for denial under consideration and op-
portunity for hearing and shall be concluded 
within 120 days of the date of the filing of the 
application for registration. At the conclusion of 
such proceedings, the Commission, by order, 
shall grant or deny such registration. The Com-
mission may extend the time for the conclusion 
of such proceedings for up to 90 days if it finds 
good cause for such extension and publishes its 
reasons for so finding or for such longer period 
as to which the applicant consents. 
‘‘(D) EFFECTIVE
DATE
OF
REGISTRA-
TION.—The order granting registration shall 
not be effective until such derivatives dealer has 
become a member of a securities association 
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registered under section 15A of this title, unless 
the Commission has exempted such derivatives 
dealer, by rule or order, from such membership. 
‘‘(E) GROUNDS FOR DECISION.—The Com-
mission shall grant the registration of a deriva-
tives dealer if the Commission finds that the re-
quirements of this section are satisfied. The 
Commission shall deny such registration if it 
does not make such a finding or if it finds that 
if the applicant were so registered, its registra-
tion would be subject to suspension or revoca-
tion under subsection (c) of this section. 
‘‘(3) PROHIBITED CONDUCT.—Any provision of 
this title (other than section 5 or paragraph (1) of 
this subsection) which prohibits any act, practice, or 
course of business if the mails or any means or in-
strumentality of interstate commerce is used in con-
nection therewith shall also prohibit any such act, 
practice, or course of business by any derivatives 
dealer registered or having filed notice under para-
graph (1) of this subsection or any person acting on 
behalf of such derivatives dealer, irrespective of any 
use of the mails or any means or instrumentality of 
interstate commerce in connection therewith. 
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‘‘(4) EXEMPTIONS.—The Commission, by rule 
or order, upon the Commission’s own motion or 
upon application, may conditionally or uncondition-
ally exempt any derivatives dealer, or class of deriva-
tives dealers, from any provision of this section, or 
the rules thereunder, if the Commission finds that 
such exemption is consistent with the public interest, 
the protection of investors, and the purposes of this 
title. 
‘‘(b) RULES.— 
‘‘(1) AUTHORITY.—The Commission shall pro-
pose and adopt rules to effect the purposes of this 
title with respect to transactions in derivatives ef-
fected by derivatives dealers registered or required to 
register under subsection (a)(1)(A) of this section as 
follows: 
‘‘(A) FINANCIAL
RESPONSIBILITY.—Such 
rules shall provide safeguards with respect to 
the financial responsibility and related practices 
of such derivatives dealers including, but not 
limited to, capital adequacy standards and the 
carrying and use of customers’ deposits or cred-
it balances. 
‘‘(B) REPORTS.—Such rules shall require 
every such derivatives dealer to make reports to 
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and furnish copies of records to the Commis-
sion, and to file with the Commission, annually 
or more frequently, a balance sheet and income 
statement certified by an independent public ac-
countant, prepared on a calendar or fiscal year 
basis, and such other financial statements 
(which shall, as the Commission specifies, be 
certified) and information concerning its finan-
cial condition as required by such rules. 
‘‘(C) RECORDKEEPING.—Such rules shall 
require records to be made and kept by such 
derivatives dealers and shall specify the periods 
for which such records shall be preserved. 
‘‘(2) AUTHORITY TO LIMIT DISCLOSURE OF IN-
FORMATION.—Notwithstanding any other provision 
of law, the Commission shall not be compelled to 
disclose any information required to be kept or re-
ported under rules adopted under paragraph (1) of 
this subsection. Nothing in this paragraph shall au-
thorize the Commission to withhold information 
from Congress, or prevent the Commission from 
complying with a request for information from any 
other Federal department or agency requesting the 
information for purposes within the scope of its ju-
risdiction, or complying with an order of a court of 
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the United States in an action brought by the 
United States or the Commission. For purposes of 
section 552 of title 5, United States Code, this para-
graph shall be considered a statute described in sub-
section (b)(3)(B) of such section 552. 
‘‘(3) FRAUDULENT
ACTS
AND
PRACTICES.— 
With respect to any derivatives dealer, the Commis-
sion may, by rule or regulation define, and prescribe 
means reasonably designed to prevent, such acts and 
practices as are fraudulent, deceptive, or manipula-
tive. 
‘‘(4) COMPLIANCE
WITH
RULES
UNDER
THIS 
SECTION.—No derivatives dealer shall make use of 
the mails or any means or instrumentality of inter-
state commerce to effect any transaction in, or to in-
duce or attempt to induce the purchase or sale of, 
any derivative in contravention of any rule under 
this section. 
‘‘(c) ENFORCEMENT BY THE COMMISSION.— 
‘‘(1) ADMINISTRATIVE
POWERS
TO
IMPOSE 
SANCTIONS.—With respect to any derivatives dealer 
registered or required to register under subsection 
(a)(1)(A) of this section: 
‘‘(A) DERIVATIVES DEALERS.—The Com-
mission, by order, shall censure, place limita-
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tions on the activities, functions, or operations 
of, suspend for a period not exceeding 12 
months, or revoke the registration of such de-
rivatives dealer, if it finds, on the record after 
notice and opportunity for hearing, that such 
censure, placing of limitations, suspension, or 
revocation is in the public interest and that 
such derivatives dealer, or any person associ-
ated with such derivatives dealer (whether prior 
or subsequent to becoming so associated), has 
committed or omitted any act or omission enu-
merated in subparagraph (A), (D), (E), or (G) 
of paragraph (4) of section 15(b) of this title, 
has been convicted of any offense specified in 
subparagraph (B) of such paragraph (4) within 
10 years of the commencement of the pro-
ceedings under this paragraph, or is enjoined 
from any action, conduct, or practice specified 
in subparagraph (C) of such paragraph (4). 
‘‘(B) SUSPENSION OR WITHDRAWAL PEND-
ING FINAL DETERMINATION.—Pending final de-
termination whether registration of any deriva-
tives dealer shall be revoked, the Commission, 
by order, may suspend such registration, if such 
suspension appears to the Commission, after 
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notice and opportunity for hearing, to be nec-
essary or appropriate in the public interest or 
for the protection of investors. Any registered 
derivatives dealer may, upon such terms and 
conditions as the Commission may deem nec-
essary in the public interest or for the protec-
tion of investors, withdraw from registration by 
filing a written notice of withdrawal with the 
Commission. If the Commission finds that any 
registered derivatives dealer is no longer in ex-
istence or has ceased to do business as a deriva-
tives dealer, the Commission, by order, shall 
cancel the registration of such derivatives deal-
er. 
‘‘(C) ASSOCIATED
PERSONS.—The Com-
mission, by order, shall censure or place limita-
tions on the activities or functions of any per-
son associated, or seeking to become associated, 
with a derivatives dealer registered or required 
to register under subsection (a)(1)(A) of this 
section or suspend for a period not exceeding 
12 months or bar any such person from being 
associated with such a derivatives dealer, if the 
Commission finds, on the record after notice 
and opportunity for hearing, that such censure, 
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placing of limitations, suspension, or bar is in 
the public interest and that such person has 
committed or omitted any act or omission enu-
merated in subparagraph (A), (D), (E), or (G) 
of paragraph (4) of section 15(b) of this title, 
has been convicted of any offense specified in 
subparagraph (B) of such paragraph (4) within 
10 years of the commencement of the pro-
ceedings under this paragraph, or is enjoined 
from any action, conduct, or practice specified 
in subparagraph (C) of such paragraph (4). 
‘‘(2) PERSONS SUSPENDED OR BARRED FROM 
ASSOCIATION.—It shall be unlawful for any person 
as to whom an order entered pursuant to paragraph 
(1) of this subsection suspending or barring him 
from being associated with a derivatives dealer is in 
effect willfully to become, or to be, associated with 
a derivatives dealer without the consent of the Com-
mission, and it shall be unlawful for any derivatives 
dealer to permit such a person to become, or remain, 
a person associated with it without the consent of 
the Commission, if such derivatives dealer knew, or, 
in the exercise of reasonable care should have 
known, of such order. 
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‘‘(d) EXAMINATION OF RECORDS.—All records of a 
derivatives dealer registered or required to register under 
subsection (a)(1)(A) of this section, or that has filed notice 
or is required to file notice under subsection (a)(1)(B) of 
this section, are subject at any time, or from time to time, 
to such reasonable periodic, special, or other examinations 
by representatives of the Commission as the Commission 
deems necessary or appropriate in the public interest, for 
the protection of investors, or otherwise in furtherance of 
the purposes of this title. 
‘‘(e) SECURITIES ASSOCIATION MEMBERSHIP.— 
‘‘(1) MEMBERSHIP REQUIREMENT.—It shall be 
unlawful for any derivatives dealer registered or re-
quired to register with the Commission under sub-
section (a)(1)(A) of this section to effect any trans-
action in, or induce or attempt to induce the pur-
chase or sale of, any derivative, unless such deriva-
tives dealer is a member of a securities association 
registered under section 15A of this title. 
‘‘(2) EXEMPTION.—The Commission, by rule or 
order, as it deems consistent with the public interest 
and the protection of investors, may conditionally or 
unconditionally exempt from paragraph (1) of this 
subsection any derivatives dealer or class of deriva-
tives dealers specified in such rule or order. 
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‘‘(f) EXCLUSIVE JURISDICTION.— 
‘‘(1) IN GENERAL.—The Commission shall have 
exclusive jurisdiction with respect to accounts, agree-
ments, transactions, and markets in derivatives (as 
such term is defined in section 3(a)(65)). 
‘‘(2) CONFLICT OF LAWS.—In the event of a 
conflict between any provision of, or regulation pre-
scribed under the securities laws, and any provision 
of, or regulation prescribed under the Commodity 
Exchange Act or the Commodity Futures Mod-
ernization Act of 2000, the provision of, or regula-
tion prescribed under the securities laws shall con-
trol.’’. 
TITLE II—BROKER–DEALER 
OVERSIGHT REFORMS 
SEC. 201. DERIVATIVES ON SECURITIES. 
(a) AMENDMENT.—Section 3(a)(10) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(10)) is amended 
by inserting ‘‘derivative,’’ after ‘‘any put, call, straddle, 
option,’’ the first place it appears. 
(b) USE
OF EXEMPTIVE AUTHORITY.—Not later 
than 180 days after the date of enactment of this Act, 
the Securities and Exchange Commission shall, pursuant 
to section 36 of the Securities Exchange Act of 1934 (15 
U.S.C. 78mm) and the general exemptive authorities of 
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the other securities laws (as such term is defined in section 
3(a) of such Act), prescribe such exemptions from treating 
derivatives (as so defined) as securities (as so defined) as 
are necessary or appropriate in the public interest and for 
the protection of investors. 
SEC. 202. NATIONAL SECURITIES EXCHANGES. 
Section 6 of the Securities Exchange Act of 1934 (15 
U.S.C. 78f) is amended by adding at the end the following 
new subsection: 
‘‘(l) AUTHORITY TO ADOPT RULES RELATING TO 
TRANSACTIONS IN DERIVATIVES.—A national securities 
exchange may adopt and implement rules applicable to 
members of such exchange, and material associated per-
sons that have filed notice or are required to file notice 
under section 15F(a)(1)(B) of this title and that are asso-
ciated with members for which the exchange is the des-
ignated examining authority, who engage in transactions 
in derivatives— 
‘‘(1) to enforce compliance with applicable pro-
visions of this title and the rules and regulations 
thereunder; 
‘‘(2) to provide that any such person shall be 
appropriately disciplined for violations of applicable 
provisions of this title and the rules and regulations 
thereunder; 
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‘‘(3) to provide for reasonable inspection and 
examination of the books and records of any such 
person; 
‘‘(4) to prevent fraudulent and manipulative 
acts and practices; 
‘‘(5) to promote just and equitable principles of 
trade; and 
‘‘(6) to require the establishment of, and adher-
ence to, appropriate internal controls structures.’’. 
SEC. 203. FINANCIAL RESPONSIBILITY. 
Section 15(c)(3)(A) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78o(c)(3)(A)) is amended— 
(1) by striking ‘‘and’’ at the end of clause (A); 
and 
(2) by inserting after ‘‘requirements for all bro-
kers and dealers’’ the following: ‘‘, and (C) require 
the maintenance of sufficient capital levels taking 
into account the financial activities conducted by, 
the customary sources of capital and funding of, and 
the credit risk and aggregate leverage of, any deriva-
tives dealer that is a material associated person of 
the broker or dealer and that has filed notice or is 
required to file notice under section 15F(a)(1)(B) of 
this title’’. 
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SEC. 204. REGISTERED SECURITIES ASSOCIATION. 
Section 15A of the Securities Exchange Act of 1934 
(15 U.S.C. 78o–3) is hereby amended by adding at the 
end the following new subsection: 
‘‘(n) AUTHORITY TO ADOPT RULES RELATING TO 
TRANSACTIONS IN DERIVATIVES.—A registered securities 
association may adopt and implement rules applicable to 
members of such association, and material associated per-
sons that have filed notice or are required to file notice 
under section 15F(a)(1)(B) of this title and that are asso-
ciated with members for which the association is the des-
ignated examining authority, who engage in transactions 
in derivatives— 
‘‘(1) to enforce compliance with applicable pro-
visions of this title and the rules and regulations 
thereunder; 
‘‘(2) to provide that any such person shall be 
appropriately disciplined, in accordance with sub-
sections (b)(7), (b)(8), and (h) of this section, for 
violations of applicable provisions of this title and 
the rules and regulations thereunder; 
‘‘(3) to provide for reasonable inspection and 
examination of the books and records of any such 
person; 
‘‘(4) to prevent fraudulent and manipulative 
acts and practices; 
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‘‘(5) to promote just and equitable principles of 
trade; and 
‘‘(6) to require the establishment of, and adher-
ence to, appropriate internal controls structures.’’. 
SEC. 205. RISK ASSESSMENT FOR GOVERNMENT SECURI-
TIES BROKERS AND DEALERS. 
Section 15C(b)(2) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o–5(b)(2)) is amended— 
(1) in subparagraph (A)— 
(A) by striking ‘‘Such records shall de-
scribe, in the aggregate,’’ in the second sen-
tence and inserting ‘‘Such records may be re-
quired to describe’’; and 
(B) by striking ‘‘summary’’ in the third 
sentence; 
(2) by redesignating subparagraphs (C) through 
(F) as subparagraphs (G) through (J), respectively; 
(3) by inserting after subparagraph (B) the fol-
lowing new subparagraphs: 
‘‘(C) REPORTING BY HOLDING COMPANIES 
AND
OTHER
MATERIAL
ASSOCIATED
PER-
SONS.—Every person, other than a natural per-
son, who is associated with a government secu-
rities broker or government securities dealer for 
which the Commission is the appropriate regu-
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latory agency, and whose business activities are 
reasonably likely to have a material impact on 
the financial or operational condition of such 
registered person, including its net capital, its 
liquidity, or its ability to conduct or finance its 
operations, shall make such reports concerning 
the associated person’s policies, procedures, or 
systems for monitoring and controlling the fi-
nancial and operational risks to the registered 
person and its associated persons as the Sec-
retary, by rule, prescribes. Such reports may be 
required to describe, without limitation, each of 
the associated person’s financial and securities 
activities, and customary sources of capital and 
funding. The Secretary, by rule, may require 
such reports to be filed with the Commission no 
more frequently than quarterly. 
‘‘(D) RECORDKEEPING BY HOLDING COM-
PANIES
AND
OTHER
MATERIAL
ASSOCIATED 
PERSONS.—All persons subject to the reporting 
requirements under subparagraph (C) of this 
subsection shall keep and maintain such records 
as are necessary to permit the Commission to 
verify the information contained in reports filed 
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with the Commission pursuant to subparagraph 
(C). 
‘‘(E) EXAMINATION OF HOLDING COMPA-
NIES AND OTHER MATERIAL ASSOCIATED PER-
SONS.—All records of persons subject to the re-
porting requirements contained in subpara-
graph (C) of this subsection are subject at any 
time, or from time to time, to such reasonable 
periodic, special, or other examinations by rep-
resentatives of the Commission as the Commis-
sion deems necessary or appropriate to verify 
the information contained in reports filed with 
the Commission pursuant to subparagraph (C). 
‘‘(F) USE OF ALTERNATIVE REPORTS BY 
REGISTERED
PERSONS
AND
THEIR
HOLDING 
COMPANIES AND OTHER MATERIAL ASSOCIATED 
PERSONS.—(i) The Secretary, insofar as the 
Secretary determines is consistent with the pur-
poses of this title, shall permit persons subject 
to the reporting requirements of subparagraphs 
(A) and (C) of this paragraph, to use reports 
otherwise created and maintained to meet the 
reporting requirements of those subparagraphs. 
‘‘(ii) The appropriate regulatory agency, 
insofar as such agency determines is consistent 
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with the purposes of this title, shall permit per-
sons, subject to the reporting requirements of 
subparagraph (B) of this paragraph, to use re-
ports otherwise created and maintained to meet 
the reporting requirement of that subpara-
graph.’’; and 
(4) in subparagraphs (G) and (I) (as redesig-
nated by paragraph (2)), by striking ‘‘subparagraph 
(A)’’ each place it appears and inserting ‘‘subpara-
graphs (A) and (C)’’. 
SEC. 206. RISK ASSESSMENT FOR BROKERS AND DEALERS. 
Section 17(h) of the Securities Exchange Act of 1934 
(15 U.S.C. 78q(h)) is amended— 
(1) in paragraph (1)— 
(A) by striking ‘‘Such records shall de-
scribe, in the aggregate,’’ in the second sen-
tence and inserting ‘‘Such records may be re-
quired to describe’’; and 
(B) by striking ‘‘summary’’ in the third 
sentence; 
(2) by redesignating paragraphs (3) through 
(5) as paragraphs (7) through (9), respectively; 
(3) by inserting after paragraph (2) the fol-
lowing new paragraphs: 
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