Act or any of such Acts, or has failed reason-
ably to supervise, with a view to preventing vio-
lations of the provisions of such Acts, rules, and 
regulations, another person who commits such a 
violation, if such other person is subject to his 
supervision. For the purposes of this subpara-
graph, no person shall be deemed to have failed 
reasonably to supervise any other person, if— 
(i) there have been established proce-
dures, and a system for applying such pro-
cedures, which would reasonably be ex-
pected to prevent and detect, insofar as 
practicable, any such violation by such 
other person; and 
(ii) such person has reasonably dis-
charged the duties and obligations incum-
bent upon him by reason of such proce-
dures and system without reasonable cause 
to believe that such procedures and system 
were not being complied with; 
(F) is subject to any order of the Secretary 
barring or suspending the right of the person to 
be associated with a derivatives trader; 
(G) has been found by a foreign financial 
regulatory authority to have— 
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(i) made or caused to be made in any 
application for registration or report re-
quired to be filed with a foreign financial 
regulatory authority, or in any proceeding 
before a foreign financial regulatory au-
thority with respect to registration, any 
statement that was at the time and in the 
light of the circumstances under which it 
was made false or misleading with respect 
to any material fact, or has omitted to 
state in any application or report to the 
foreign financial regulatory authority any 
material fact that is required to be stated 
therein; 
(ii) violated any foreign statute or 
regulation regarding transactions in securi-
ties, or contracts of sale of a commodity 
for future delivery, traded on or subject to 
the rules of a contract market or any 
board of trade; 
(iii) aided, abetted, counseled, com-
manded, induced, or procured the violation 
by any person of any provision of any stat-
utory provisions enacted by a foreign gov-
ernment, or rules or regulations there-
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under, empowering a foreign financial reg-
ulatory authority regarding transactions in 
securities, or contracts of sale of a com-
modity for future delivery, traded on or 
subject to the rules of a contract market or 
any board of trade, or has been found, by 
a foreign financial regulatory authority, to 
have failed reasonably to supervise, with a 
view to preventing violations of such statu-
tory provisions, rules, and regulations, an-
other person who commits such a violation, 
if such other person is subject to his super-
vision; or 
(H) is subject to any final order of a State 
securities commission (or any agency or officer 
performing like functions), State authority that 
supervises or examines banks, savings associa-
tions, or credit unions, State insurance commis-
sion (or any agency or office performing like 
functions), an appropriate Federal banking 
agency (as defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813)), or 
the National Credit Union Administration, 
that— 
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(i) bars such person from association 
with an entity regulated by such commis-
sion, authority, agency, or officer, or from 
engaging in the business of securities, in-
surance, banking, savings association ac-
tivities, or credit union activities; or 
(ii) constitutes a final order based on 
violations of any laws or regulations that 
prohibit fraudulent, manipulative, or de-
ceptive conduct. 
(5) TEMPORARY
SUSPENSION.—Pending final 
determination whether any registration under this 
subsection shall be revoked, the Secretary, by order, 
may suspend such registration, if such suspension 
appears to the Secretary, after notice and oppor-
tunity for hearing, to be necessary or appropriate in 
the public interest or for the protection of investors. 
Any registered derivatives trader may, upon such 
terms and conditions as the Secretary deems nec-
essary or appropriate in the public interest or for 
the protection of investors, withdraw from registra-
tion by filing a written notice of withdrawal with the 
Secretary. If the Secretary finds that any registered 
derivatives trader is no longer in existence or has 
ceased to do business as a derivatives trader, the 
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Secretary, by order, shall cancel the registration of 
such derivatives trader. 
(6) STANDARDS
OF
COMPETENCE.—No reg-
istered derivatives trader shall act as such unless it 
meets such standards of operational capability and 
such derivatives trader and all natural persons asso-
ciated with such derivatives trader meet such stand-
ards of training, experience, competence, and such 
other qualifications as the Secretary finds necessary 
or appropriate in the public interest or for the pro-
tection of investors. The Secretary shall establish 
such standards by rules and regulations, which 
may— 
(A) specify that all or any portion of such 
standards shall be applicable to any class of de-
rivatives traders and persons associated with 
derivatives traders; 
(B) require persons in any such class to 
pass tests prescribed in accordance with such 
rules and regulations, which tests shall, with re-
spect to any class of partners, officers, or su-
pervisory employees (which latter term may be 
defined by the Secretary’s rules and regula-
tions) engaged in the management of the de-
rivatives trader, include questions relating to 
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bookkeeping, accounting, supervision of employ-
ees, maintenance of records, and other appro-
priate matters; and 
(C) provide that persons in any such class 
other than derivatives traders and partners, of-
ficers, and supervisory employees of derivatives 
traders, may be qualified solely on the basis of 
compliance with such standards of training and 
such other qualifications as the Secretary finds 
appropriate. 
The Secretary, by rule, may prescribe reasonable 
fees and charges to defray its costs in carrying out 
this paragraph, including, but not limited to, fees for 
any test administered by the Secretary or under its 
direction. 
(c) ADDITIONAL PROHIBITIONS.— 
(1) FRAUDULENT, DECEPTIVE, OR MANIPULA-
TIVE ACTS OR PRACTICES.—(A) No derivatives trad-
er shall make use of the mails or any means or in-
strumentality of interstate commerce in connection 
with which such derivatives trader engages in any 
fraudulent, deceptive, or manipulative act or practice 
or violates such rules and regulations regarding con-
flicts of interest or fair practices, including but not 
limited to rules and regulations related to political 
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contributions, as the Secretary shall prescribe in the 
public interest or for the protection of investors or 
to maintain fair and orderly markets. 
(B) The Secretary shall, for the purposes of 
this paragraph as the Secretary finds necessary or 
appropriate in the public interest or for the protec-
tion of investors, by rules and regulations define, 
and prescribe means reasonably designed to prevent, 
such acts and practices as are fraudulent, deceptive, 
or manipulative. 
(2) ENFORCEMENT.—If the Secretary finds, 
after notice and opportunity for a hearing, that any 
person subject to the provisions of this section or 
any rule or regulation thereunder has failed to com-
ply with any such provision, rule, or regulation in 
any material respect, the Secretary may publish its 
findings and issue an order requiring such person, 
and any person who was a cause of the failure to 
comply due to an act or omission the person knew 
or should have known would contribute to the failure 
to comply, to comply, or to take steps to effect com-
pliance, with such provision or such rule or regula-
tion thereunder upon such terms and conditions and 
within such time as the Secretary may specify in 
such order. 
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(d) POLICIES AND PROCEDURES.—Every registered 
derivatives trader shall establish, maintain, and enforce 
written policies and procedures reasonably designed, tak-
ing into consideration the nature of such derivatives trad-
er’s business, to prevent the misuse in violation of this 
Act, or the rules or regulations thereunder, of material, 
nonpublic information by such derivatives trader or any 
person associated with such derivatives trader. The Sec-
retary, as the Secretary deems necessary or appropriate 
in the public interest or for the protection of investors, 
shall adopt rules or regulations to require specific policies 
or procedures reasonably designed to prevent misuse in 
violation of this Act (or the rules or regulations there-
under) of material, nonpublic information. 
SEC. 5. RULEMAKING AUTHORITY RELATED TO DERIVA-
TIVES. 
(a) ISSUANCE OF PROPOSED REGULATIONS.—Not 
later than 120 days after the date of the enactment of 
this Act, the Commodity Futures Trading Commission 
and the Securities and Exchange Commission shall each 
issue separate proposed regulations imposing the following 
kinds of requirements with respect to trading in the deriv-
ative instruments over which each Commission has juris-
diction as of such date of enactment: 
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(1) Requirements governing the disclosure to 
the respective Commission of information about the 
positions and trading in the instruments, and trans-
parency, including an audit trail of the record of 
trading information identifying, for the derivatives 
traders participating in each transaction, the firms 
clearing the trade, the terms and time or sequence 
of the trade, the order receipt and execution time, 
as applicable and, ultimately, and as applicable, the 
customers involved. 
(2) Anti-fraud and truth-in-marketing require-
ments. 
(3) Mandatory minimum initial margin require-
ments. 
(4) Mandatory minimum variation margin re-
quirements. 
(5) Acceptable or permissible types of collateral. 
(b) FACTORS TO BE CONSIDERED.—The proposed 
regulations that impose the requirements referred to in 
paragraphs (3) through (5) of subsection (a) with respect 
to trading in a derivative shall be based on an evaluation 
of the following: 
(1) The potential systemic risk posed by the 
sale, purchase, exchange, or trade of the derivative, 
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determined after reviewing whether the trade is 
being made by a major market participant. 
(2) The extent to which the instrument has 
been customized, determined after reviewing the fol-
lowing: 
(A) The volume of transactions involving 
the derivative. 
(B) The similarity of the terms of the de-
rivative to the terms in derivatives that are 
more standardized in the industry. 
(C) Whether the differences between the 
terms of the derivative and the terms of such 
standardized derivatives are of economic signifi-
cance. 
(D) The extent to which any of the terms 
in the derivative are disseminated to third par-
ties. 
(c) FINAL REGULATIONS.—Within 180 days after 
the date of the enactment of this Act, the Commodity Fu-
tures Trading Commission and the Securities and Ex-
change Commission shall each promulgate in final form, 
with the approval of the Secretary, the regulations devel-
oped under this section. 
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SEC. 6. REGULATIONS REGARDING THE TRADING AND 
CLEARING OF DERIVATIVES. 
(a) IN GENERAL.—The Securities and Exchange 
Commission and the Commodities Futures Trading Com-
mission shall jointly determine, in coordination with the 
Office, which derivatives or class of derivatives shall be— 
(1) required to be traded on an exchange; 
(2) required to be cleared through a clearing-
house; and 
(3) permitted to be traded through the over-the- 
counter market. 
(b) GUIDELINES.—Such determinations shall be 
made in accordance with the following guidelines: 
(1) All standardized derivatives shall be per-
mitted to be traded on an exchange, including those 
derivatives excluded or exempt from such trading on 
Organized Exchanges under the Commodities and 
Exchange Act. 
(2) Standardized derivatives sold, purchased, 
traded, or exchanged between major market partici-
pants shall be cleared through clearinghouses. 
(3) Derivatives that continue to be traded in 
the over-the-counter market that are not cleared 
through a clearinghouse shall be processed through 
an over-the-counter derivatives trade depository. 
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(c) UNIFORM REGULATIONS.—Regardless of whether 
a transaction is made on an exchange, through a clearing-
house, or through the over-the-counter market, all trades 
shall be subject to the disclosure, transparency, anti-fraud, 
truth-in-marketing, and reporting requirements set jointly 
by the Securities and Exchange Commission, the Com-
modities Futures Trading Commission, and the Office. 
(d) 
ADDITIONAL
REQUIREMENTS.—Regulations 
issued under this section shall require that— 
(1) derivatives that are not traded on exchanges 
or cleared through clearinghouses and are made by 
major market participants be subject to higher total 
capital requirements (either through higher initial 
margin, higher variation margin, or other higher col-
lateral positions) than those derivatives traded on 
exchanges or through clearinghouses; and 
(2) derivatives that are sold, purchased, traded, 
or exchanged between a major market participant 
and a non-major market participant that is able to 
borrow 
funds 
in 
the 
debt 
markets 
on 
an 
uncollateralized basis, or is able to obtain other 
sources of credit without posting cash or cash 
equivalents to secure funds borrowed, shall be per-
mitted to be sold, purchased, traded, or exchanged 
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with limited or no required initial margin, variation 
margin or other capital or collateral positions. 
(e) SUBSEQUENT DETERMINATIONS.—Nothing in 
this Act shall prevent the Securities and Exchange Com-
mission, the Commodities Futures Trading Commission, 
or the Office from making a subsequent determination, or 
amendment of, an initial determination of which class of 
derivatives may be traded on an exchange, cleared through 
a clearinghouse, or permitted to be traded through the 
over-the-counter market. 
(f) REPORT.—Not later than 45 days following the 
date of enactment of this Act, the Securities and Ex-
change Commission and the Commodities Futures Trad-
ing Commission shall jointly prepare and transmit a re-
port to Congress that identifies all conflicts in statutes 
and regulations with respect to similar types of financial 
instruments and either explains why those differences are 
essential to achieve underlying policy objectives with re-
spect to investor protection, market integrity, and price 
transparency or makes recommendations for changes to 
statutes and regulations that would eliminate the dif-
ferences. 
SEC. 7. CIVIL PENALTY AUTHORITY OF THE SEC AND CFTC. 
(a) AUTHORITY TO ASSESS CIVIL PENALTIES.—The 
Securities and Exchange Commission or the Commodity 
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Futures Trading Commission, as appropriate, may impose 
a civil penalty on any person over which each respective 
Commission has jurisdiction under this Act and the regu-
lations issued under this Act, if it finds, on the record 
after notice and opportunity for hearing, that such per-
son— 
(1) has violated any requirement of this Act 
and the regulations issued under this Act with re-
spect to derivatives trading, 
(2) has willfully aided, abetted, counseled, com-
manded, induced, or procured such a violation by 
any other person, 
(3) has willfully made or caused to be made in 
any application for registration or report required to 
be filed with the Office or with each respective Com-
mission, or 
(4) has failed reasonably to supervise another 
person who commits such a violation, if such other 
person is subject to such supervision, 
and that such penalty is in the public interest. 
(b) MAXIMUM AMOUNT OF PENALTY.— 
(1) FIRST
TIER.—The maximum amount of 
penalty for each act or omission described in sub-
section (a) of this section shall be $15,000 for a nat-
ural person or $150,000 for any other person. 
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(2) SECOND TIER.—Notwithstanding paragraph 
(1), the maximum amount of penalty for each such 
act or omission shall be $150,000 for a natural per-
son or $750,000 for any other person if the act or 
omission described in subsection (a) of this section 
involved fraud, deceit, manipulation, or deliberate or 
reckless disregard of a regulatory requirement. 
(3) THIRD TIER.—Notwithstanding paragraphs 
(1) and (2), the maximum amount of penalty for 
each such act or omission shall be $300,000 for a 
natural person or $1,500,000 for any other person 
if— 
(A) the act or omission described in sub-
section (a) of this section involved fraud, deceit, 
manipulation, or deliberate or reckless dis-
regard of a regulatory requirement; and 
(B) such act or omission directly or indi-
rectly resulted in substantial losses or created a 
significant risk of substantial losses to other 
persons or resulted in substantial pecuniary 
gain to the person who committed the act or 
omission. 
(c) DETERMINATION OF PUBLIC INTEREST.—In con-
sidering under this section whether a penalty is in the pub-
lic interest, the appropriate Commission may consider— 
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(1) whether the act or omission for which such 
penalty is assessed involved fraud, deceit, manipula-
tion, or deliberate or reckless disregard of a regu-
latory requirement; 
(2) the harm to other persons resulting either 
directly or indirectly from such act or omission; 
(3) the extent to which any person was unjustly 
enriched, taking into account any restitution made 
to persons injured by such behavior; 
(4) whether such person previously has been 
found by the appropriate Commission to have vio-
lated any provision of the Federal securities laws, 
State securities laws, or the Commodities Futures 
Trading Act, has been enjoined by a court of com-
petent jurisdiction from violations of such laws or 
rules, or has been convicted by a court of competent 
jurisdiction of violations of such laws; 
(5) the need to deter such person and other 
persons from committing such acts or omissions; 
and 
(6) such other matters as justice may require. 
(d) EVIDENCE CONCERNING ABILITY TO PAY.—In 
any proceeding in which a Commission may impose a pen-
alty under this section, a respondent may present evidence 
of the respondent’s ability to pay such penalty. The appro-
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priate Commission may, in its discretion, consider such 
evidence in determining whether such penalty is in the 
public interest. Such evidence may relate to the extent of 
such person’s ability to continue in business and the col-
lectability of a penalty, taking into account any other 
claims of the United States or third parties upon such per-
son’s assets and the amount of such person’s assets. 
(e) AUTHORITY TO ENTER ORDER REQUIRING AC-
COUNTING AND DISGORGEMENT.—In any proceeding in 
which a Commission may impose a penalty under this sec-
tion, the appropriate Commission may enter an order re-
quiring accounting and disgorgement, including reason-
able interest. Each Commission is authorized to adopt 
rules, regulations, and orders concerning payments to in-
vestors, rates of interest, periods of accrual, and such 
other matters with respect to those derivatives over which 
each respective Commission has jurisdiction under this 
Act and the regulations issued under this Act, as the ap-
propriate Commission deems appropriate to implement 
this subsection. 
SEC. 8. CEASE-AND-DESIST PROCEEDINGS. 
(a) AUTHORITY OF COMMISSION.—If the Securities 
and Exchange Commission or the Commodity Futures 
Trading Commission, as appropriate, finds that any per-
son over which each respective Commission has jurisdic-
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tion under this Act is violating, has violated, or is about 
to violate any provision of this Act, or any rule or regula-
tion thereunder, the appropriate Commission may publish 
its findings and enter an order requiring such person, and 
any other person that is, was, or would be a cause of the 
violation, due to an act or omission the person knew or 
should have known would contribute to such violation, to 
cease and desist from committing or causing such violation 
and any future violation of the same provision, rule, or 
regulation. Such order may, in addition to requiring a per-
son to cease and desist from committing or causing a vio-
lation, require such person to comply, or to take steps to 
effect compliance, with such provision, rule, or regulation, 
upon such terms and conditions and within such time as 
the appropriate Commission may specify in such order. 
Any such order may, as such Commission deems appro-
priate, require future compliance or steps to effect future 
compliance, either permanently or for such period of time 
as such Commission may specify, with such provision, 
rule, or regulation with respect to any security, any issuer, 
or any other person. 
(b) HEARING.—The notice instituting proceedings 
pursuant to subsection (a) shall fix a hearing date not ear-
lier than 30 days not later than 60 days after service of 
the notice unless an earlier or a later date is set by the 
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appropriate Commission with the consent of any respond-
ent so served. 
(c) TEMPORARY ORDER.—Whenever the appropriate 
Commission determines that the alleged violation or 
threatened violation specified in the notice instituting pro-
ceedings pursuant to subsection (a) is likely to result in 
significant dissipation or conversion of assets, significant 
harm to investors, or substantial harm to the public inter-
est, such Commission may enter a temporary order requir-
ing the respondent to cease and desist from the violation 
or threatened violation and to take such action to prevent 
the violation or threatened violation and to prevent dis-
sipation or conversion of assets, significant harm to inves-
tors, or substantial harm to the public interest as such 
Commission deems appropriate pending completion of 
such proceedings. Such an order shall be entered only 
after notice and opportunity for a hearing, unless the 
Commission determines that notice and hearing prior to 
entry would be impracticable or contrary to the public in-
terest. A temporary order shall become effective upon 
service upon the respondent and, unless set aside, limited, 
or suspended by the appropriate Commission or a court 
of competent jurisdiction, shall remain effective and en-
forceable pending the completion of the proceedings. 
(d) REVIEW OF TEMPORARY ORDERS.— 
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(1) COMMISSION REVIEW.—At any time after 
the respondent has been served with a temporary 
cease-and-desist order pursuant to subsection (c), 
the respondent may apply to the Commission serving 
the order to have the order set aside, limited, or sus-
pended. If the respondent has been served with a 
temporary cease-and-desist order entered without a 
prior Commission hearing, the respondent may, 
within 10 days after the date on which the order 
was served, request a hearing on such application 
and such Commission shall hold a hearing and 
render a decision on such application at the earliest 
possible time. 
(2) JUDICIAL REVIEW.—Within— 
(A) 10 days after the date the respondent 
was served with a temporary cease-and-desist 
order entered with a prior Commission hearing, 
or 
(B) 10 days after the Commission renders 
a decision on an application and hearing under 
paragraph (1), with respect to any temporary 
cease-and-desist order entered without a prior 
Commission hearing, 
the respondent may apply to the United States dis-
trict court for the district in which the respondent 
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resides or has its principal place of business, or for 
the District of Columbia, for an order setting aside, 
limiting, or suspending the effectiveness or enforce-
ment of the order, and the court shall have jurisdic-
tion to enter such an order. A respondent served 
with a temporary cease-and-desist order entered 
without a prior Commission hearing may not apply 
to the court except after hearing and decision by the 
Commission on the respondent’s application under 
paragraph (1). 
(3) NO
AUTOMATIC
STAY
OF
TEMPORARY 
ORDER.—The commencement of proceedings under 
paragraph (2) shall not, unless specifically ordered 
by the court, operate as a stay of the Commission’s 
order. 
(e) AUTHORITY TO ENTER ORDER REQUIRING AC-
COUNTING AND DISGORGEMENT.—In any cease-and-desist 
proceeding under subsection (a), the Commission may 
enter an order requiring accounting and disgorgement, in-
cluding reasonable interest. Each Commission is author-
ized to adopt rules, regulations, and orders concerning 
payments to investors, rates of interest, periods of accrual, 
and such other matters as it deems appropriate to imple-
ment this subsection. 
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SEC. 9. EXPEDITED RULEMAKING PROCEDURES. 
The Office, the Commodities Futures Trading Com-
mission, and the Securities and Exchange Commission 
may issue the rules required under this Act through expe-
dited rulemaking procedures. 
SEC. 10. WORKING GROUP OF INTERNATIONAL REGU-
LATORS. 
(a) IN GENERAL.—Not later than 90 days after the 
date of the enactment of this Act, the Office shall invite 
representatives of the Securities and Exchange Commis-
sion, the Commodity Futures Trading Commission, regu-
lators of domestic and foreign boards of trade, and other 
experts, to participate in a working group of international 
regulators to review international reporting and regulatory 
standards to evaluate international regulations regarding 
the harmonization of substantive commodities and securi-
ties regulation for economically equivalent instruments. 
(b) REPRESENTATION OF THE UNITED STATES.— 
The representation of the United States in discussions 
among and negotiations with other nations relating to the 
international regulation of derivatives shall be composed 
of the following: 
(1) One individual appointed by the Secretary 
of the Treasury acting through the Office. 
(2) One individual appointed by the Chairman 
of the Securities and Exchange Commission. 
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(3) One individual appointed by the Chairman 
of the Commodity Futures Trading Commission. 
SEC. 11. AUTHORIZATION OF APPROPRIATIONS. 
There is authorized to be appropriated to each of the 
Secretary of the Treasury, the Commodities Futures 
Trading Commission, and the Securities and Exchange 
Commission, such sums as may be necessary to carry out 
this Act. 
Æ 
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