200
(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 futures product
traded on a national securities exchange.’’.
(2) EXEMPTIONS FROM REPORTING REQUIRE-
MENT.—Section 12(g)(5) of the Securities Exchange
Act of 1934 (15 U.S.C. 78l(g)(5)) is amended by
adding at the end the following: ‘‘For purposes of
this subsection, a security futures product shall not
be considered a class of equity security of the issuer
of the securities underlying the security futures
product.’’.
(3) TRANSACTIONS BY CORPORATE INSIDERS.—
Section 16 of the Securities Exchange Act of 1934
(15 U.S.C. 78p) is amended by adding at the end
the following:
‘‘(f) TREATMENT OF TRANSACTIONS IN SECURITY
FUTURES PRODUCTS.—The provisions of this section shall
apply to ownership of and transactions in security futures
products as if they were ownership of and transactions in
the underlying equity security. The Commission may
adopt such rules and regulations as it deems necessary
201
or appropriate in the public interest to carry out the pur-
poses of this section.’’.
SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY
ACT OF 1940 AND THE INVESTMENT ADVIS-
ERS ACT OF 1940.
(a) DEFINITIONS UNDER THE INVESTMENT COM-
PANY ACT OF 1940 AND THE INVESTMENT ADVISERS ACT
OF 1940.—
(1) Section 2(a)(36) of the Investment Com-
pany 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 Investment Advis-
ers Act of 1940 (15 U.S.C. 80b–2(a)(18)) is amend-
ed 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 following:
‘‘(52) The terms ‘security future’ and ‘narrow-
based security index’ have the same meanings as
provided in section 3(a)(55) of the Securities Ex-
change Act of 1934.’’.
202
(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 following:
‘‘(27) The terms ‘security future’ and ‘narrow-
based security index’ have the same meanings as
provided in section 3(a)(55) of the Securities Ex-
change Act of 1934.’’.
(b) OTHER PROVISION.—Section 203(b) of the In-
vestment Advisers Act of 1940 (15 U.S.C. 80b–3(b)) is
amended—
(1) by striking ‘‘or’’ at the end of paragraph
(4);
(2) by striking the period at the end of para-
graph (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 investment ad-
viser, as defined in section 202(a)(11) of this title,
and that does not act as an investment adviser to—
‘‘(A) an investment company registered
under title I of this Act; or
‘‘(B) a company which has elected to be a
business development company pursuant to sec-
203
tion 54 of title I of this Act and has not with-
drawn its election.’’.
SEC. 210. PREEMPTION OF STATE LAWS.
Section 28(a) of the Securities Exchange Act of 1934
(15 U.S.C. 78bb(a)) is amended—
(1) in the last sentence—
(A) by inserting ‘‘subject to this title’’
after ‘‘privilege, or other security’’; and
(B) 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 Commission pursuant to
section 19(b) of this Act’’ and inserting ‘‘any
such security’’; and
(2) by adding at the end the following new sen-
tence: ‘‘No provision of State law regarding the
offer, sale, or distribution of securities shall apply to
any transaction in a security futures product, except
that this sentence shall not be construed as limiting
any State antifraud law of general applicability.’’.
204
Subtitle B—Amendments to the
Commodity Exchange Act
SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE
COMMISSION; OTHER PROVISIONS.
(a) JURISDICTION OF SECURITIES AND EXCHANGE
COMMISSION.—
(1) Section 2(a)(1)(C) of the Commodity Ex-
change Act (7 U.S.C. 2a) (as redesignated by sec-
tion 124(a)(2)(C)) is amended—
(A) in clause (ii)—
(i) by inserting ‘‘or register a deriva-
tives transaction execution facility that
trades or executes,’’ after ‘‘contract market
in,’’;
(ii) by inserting after ‘‘contracts) for
future delivery’’ the following: ‘‘, and no
derivatives transaction execution facility
shall trade or execute such contracts of
sale (or options on such contracts) for fu-
ture delivery,’’;
(iii) by striking ‘‘making such applica-
tion demonstrates and the Commission ex-
pressly finds that the specific contract (or
option on such contract) with respect to
which the application has been made
205
meets’’ and inserting ‘‘or the derivatives
transaction execution facility, and the ap-
plicable contract, meet’’;
(iv) by striking subclause (III) of
clause (ii) and inserting the following:
‘‘(III) Such group or index of securities
shall not constitute a narrow-based security
index.’’;
(B) by striking clause (iii);
(C) by striking clause (iv) and inserting
the following:
‘‘(iii) If, in its discretion, the Commission deter-
mines that a stock index futures contract, notwith-
standing its conformance with the requirements in
clause (ii) of this subparagraph, can reasonably be
used as a surrogate for trading a security (including
a security futures product), it may, by order, require
such contract and any option thereon be traded and
regulated as security futures products as defined in
section 3(a)(56) of the Securities Exchange Act of
1934 and section 1a(32) of this Act subject to all
rules and regulations applicable to security futures
products under this Act and the securities laws as
defined in section 3(a)(47) of the Securities Ex-
change Act of 1934.’’; and
206
(D) by redesignating clause (v) as clause
(iv).
(2) 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 security futures as defined
in section 3(a)(55) of the Securities Exchange Act of
1934, section 2(a)(16) of the Securities Act of 1933, sec-
tion 2(a)(52) of the Investment Company Act of 1940,
and section 202(a)(27) of the Investment 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 ju-
risdiction with respect to accounts, agreements (including
any transaction which is of the character of, or is com-
monly known to the trade as, an ‘option’, ‘privilege’, ‘in-
demnity’, ‘bid’, ‘offer’, ‘put’, ‘call’, ‘advance guaranty’, or
‘decline guaranty’) and transactions involving, and may
designate a board of trade as a contract market in, or
register a derivatives transaction execution facility that
trades or executes, a security futures product as defined
in section 1a(32) of this Act: Provided, however, That, ex-
cept as provided in clause (vi) of this subparagraph, no
207
board of trade shall be designated as a contract market
with respect to, or registered as a derivatives transaction
execution facility for, any such contracts of sale for future
delivery unless the board of trade and the applicable con-
tract meet the following criteria:
‘‘(I) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause (v) of
this subparagraph, any security underlying the secu-
rity future, including each component security of a
narrow-based security index, is registered pursuant
to section 12 of the Securities Exchange Act of
1934.
‘‘(II) If the security futures product is not cash
settled, the board of trade on which the security fu-
tures product is traded has arrangements in place
with a clearing agency registered pursuant to section
17A of the Securities Exchange Act of 1934 for the
payment and delivery of the securities underlying the
security futures product.
‘‘(III) Except as otherwise provided in a rule,
regulation, or order issued pursuant to clause (v) of
this subparagraph, the security future is based upon
common stock and such other equity securities as
the Commission and the Securities and Exchange
Commission jointly determine appropriate.
208
‘‘(IV) The security futures product is cleared by
a clearing agency that has in place provisions for
linked and coordinated clearing with other clearing
agencies that clear security futures products, which
permits the security futures product to be purchased
on a designated contract market, registered deriva-
tives transaction execution facility, national securi-
ties exchange registered under section 6(a) of the
Securities Exchange Act of 1934, or national securi-
ties association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 and
offset on another designated contract market, reg-
istered derivatives transaction execution facility, na-
tional securities exchange registered under section
6(a) of the Securities Exchange Act of 1934, or na-
tional securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of
1934.
‘‘(V) Only futures commission merchants, intro-
ducing brokers, commodity trading advisors, com-
modity pool operators or associated persons subject
to suitability rules comparable to those of a national
securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 so-
licit, accept any order for, or otherwise deal in any
209
transaction in or in connection with the security fu-
tures product.
‘‘(VI) The security futures product is subject to
a prohibition against dual trading in section 4j of
this Act and the rules and regulations thereunder or
the provisions of section 11(a) of the Securities Ex-
change Act of 1934 and the rules and regulations
thereunder, except to the extent otherwise permitted
under the Securities Exchange Act of 1934 and the
rules and regulations thereunder.
‘‘(VII) Trading in the security futures product
is not readily susceptible to manipulation of the
price of such security futures product, nor to caus-
ing or being used in the manipulation of the price
of any underlying security, option on such security,
or option on a group or index including such securi-
ties;
‘‘(VIII) The board of trade on which the secu-
rity futures product is traded has procedures in
place for coordinated surveillance among such board
of trade, any market on which any security under-
lying the security futures product is traded, and
other markets on which any related security is trad-
ed to detect manipulation and insider trading, except
that, if the board of trade is an alternative trading
210
system, a national securities association registered
pursuant to section 15A(a) of the Securities Ex-
change Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 of which such alternative
trading system is a member has in place such proce-
dures.
‘‘(IX) The board of trade on which the security
futures product is traded has in place audit trails
necessary or appropriate to facilitate the coordinated
surveillance required in subclause (VIII), except
that, if the board of trade is an alternative trading
system, a national securities association registered
pursuant to section 15A(a) of the Securities Ex-
change Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 of which such alternative
trading system is a member has rules to require
such audit trails.
‘‘(X) The board of trade on which the security
futures product is traded has in place procedures to
coordinate trading halts between such board of trade
and markets on which any security underlying the
security futures product is traded and other markets
on which any related security is traded, except that,
211
if the board of trade is an alternative trading sys-
tem, a national securities association registered pur-
suant to section 15A(a) of the Securities Exchange
Act of 1934 or national securities exchange reg-
istered pursuant to section 6(a) of the Securities Ex-
change Act of 1934 of which such alternative trad-
ing system is a member has rules to require such co-
ordinated trading halts.
‘‘(XI) The margin requirements for a security
futures product comply with the regulations pre-
scribed pursuant to section 7(c)(2)(B) of the Securi-
ties Exchange Act of 1934, except that nothing in
this subclause shall be construed to prevent a board
of trade from requiring higher margin levels for a
security futures product when it deems such action
to be necessary or appropriate.
‘‘(ii) It shall be unlawful for any person to offer, to
enter into, to execute, to confirm the execution of, or to
conduct any office or business anywhere in the United
States, its territories 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
futures product unless—
‘‘(I) the transaction is conducted on or subject
to the rules of a board of trade that—
212
‘‘(aa) has been designated by the Commis-
sion as a contract market in such security fu-
tures product; or
‘‘(bb) is a registered derivatives trans-
action execution facility for the security futures
product that has provided a certification with
respect to the security futures product pursuant
to clause (vii);
‘‘(II) the contract is executed or consummated
by, through, or with a member of the contract mar-
ket or registered derivatives transaction execution
facility; and
‘‘(III) the security futures product is evidenced
by a record in writing which shows the date, the
parties to such security futures product and their
addresses, the property covered, and its price, and
each contract market member or registered deriva-
tives transaction execution facility member shall
keep the record for a period of 3 years from the date
of the transaction, or for a longer period if the Com-
mission so directs, which record shall at all times be
open to the inspection of any duly authorized rep-
resentative of the Commission.
‘‘(iii)(I) Except as provided in subclause (II) but not-
withstanding any other provision of this Act, no person
213
shall offer to enter into, enter into, or confirm the execu-
tion of any option on a security future.
‘‘(II) After 3 years after the date of the enactment
of the Commodity Futures Modernization Act of 2000, the
Commission and the Securities and Exchange Commission
may by order jointly determine to permit trading of op-
tions on any security future authorized to be traded under
the provisions of this Act and the Securities Exchange Act
of 1934.
‘‘(iv)(I) All relevant records of a futures commission
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 per-
son exempt from registration pursuant to section 4k(6),
or board of trade designated as a contract market in a
security futures product pursuant to section 5f shall be
subject to such reasonable periodic or special 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 Act, and the Commission, before con-
ducting any such examination, shall give notice to the Se-
curities and Exchange Commission of the proposed exam-
ination and consult with the Securities and Exchange
Commission concerning the feasibility and desirability of
214
coordinating the examination with examinations conducted
by the Securities and Exchange Commission in order to
avoid unnecessary regulatory duplication or undue regu-
latory burdens for the registrant or board of trade.
‘‘(II) The Commission shall notify the Securities and
Exchange Commission of any examination conducted of
any futures commission 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 exempt from registration pur-
suant to section 4k(6), or board of trade designated as
a contract market in a security futures product pursuant
to section 5f, and, upon request, furnish to the Securities
and Exchange Commission any examination report and
data supplied to the Commission in connection with the
examination.
‘‘(III) Before conducting an examination under sub-
clause (I), the Commission shall use the reports of exami-
nations, unless the information sought is unavailable in
the reports, of any futures commission merchant or intro-
ducing broker registered pursuant to section 4f(a)(2),
floor broker or floor trader exempt from registration pur-
suant 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 futures
215
product pursuant to section 5f that is made by the Securi-
ties and Exchange Commission, a national securities asso-
ciation registered pursuant to section 15A(a) of the Secu-
rities Exchange Act of 1934 (15 U.S.C. 78o–3(a)), or a
national securities exchange registered pursuant to section
6(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78f(a)).
‘‘(IV) Any records required under this subsection for
a futures commission merchant 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 pur-
suant to section 4k(6), or board of trade designated as
a contract market in a security futures product pursuant
to section 5f, shall be limited to records with respect to
accounts, agreements, and transactions involving security
futures products.
‘‘(v)(I) The Commission and the Securities and Ex-
change Commission, by rule, regulation, or order, may
jointly modify the criteria specified in subclause (I) or
(III) of clause (i), including the trading of security futures
based on securities other than equity securities, to the ex-
tent such modification fosters the development of fair and
orderly markets in security futures products, is necessary
216
or appropriate in the public interest, and is consistent with
the protection of investors.
‘‘(II) The Commission and the Securities and Ex-
change Commission, by order, may jointly exempt any per-
son from compliance with the criterion specified in clause
(i)(IV) to the extent such exemption fosters the develop-
ment of fair and orderly markets in security futures prod-
ucts, is necessary or appropriate in the public interest, and
is consistent with the protection of investors.
‘‘(vi)(I) Notwithstanding clauses (i) and (vii), until
the compliance date, a board of trade shall not be required
to meet the criterion specified in clause (i)(IV).
‘‘(II) The Commission and the Securities and Ex-
change Commission shall jointly publish in the Federal
Register a notice of the compliance date no later than 165
days before the compliance date.
‘‘(III) For purposes of this clause, the term ‘compli-
ance date’ means the later of—
‘‘(aa) 180 days after the end of the first full
calendar month period in which the average aggre-
gate comparable share volume for all security fu-
tures products based on single equity securities trad-
ed on all designated contract markets and registered
derivatives transaction execution facilities equals or
exceeds 10 percent of the average aggregate com-
217
parable share volume of options on single equity se-
curities traded on all national securities exchanges
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 and any national securities
associations registered pursuant to section 15A(a) of
such Act; or
‘‘(bb) 2 years after the date on which trading
in any security futures product commences under
this Act.
‘‘(vii) It shall be unlawful for a board of trade to
trade or execute a security futures product unless the
board of trade has provided the Commission with a certifi-
cation that the specific security futures product and the
board of trade, as applicable, meet the criteria specified
in subclauses (I) through (XI) of clause (i), except as oth-
erwise provided in clause (vi).’’.
(b) MARGIN
ON
SECURITY
FUTURES.—Section
2(a)(1)(C)(vi) of the Commodity Exchange Act (7 U.S.C.
2a(vi)) (as redesignated by section 124) is amended—
(1) by redesignating subclause (V) as subclause
(VI); and
(2) by striking ‘‘(vi)(I)’’ and all that follows
through subclause (IV) and inserting the following:
‘‘(v)(I) Notwithstanding any other provision of
this Act, any contract market in a stock index fu-
218
tures contract (or option thereon) other than a secu-
rity futures product, or any derivatives transaction
execution facility on which such contract or option
is traded, shall file with the Board of Governors of
the Federal Reserve System any rule establishing or
changing the levels of margin (initial and mainte-
nance) for such stock index futures contract (or op-
tion thereon) other than security futures products.
‘‘(II) The Board may at any time request any
contract market to set the margin for any stock
index futures contract (or option thereon), other
than for any security futures product, at such levels
as the Board in its judgment determines are appro-
priate to preserve the financial integrity of the con-
tract market or its clearing system or to prevent sys-
temic risk. If the contract market or derivatives
transaction execution facility 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 conditions as the Board
may determine, the Board may delegate any or all
of its authority, relating to margin for any stock
index futures contract (or option thereon), other
219
than security futures products, under this clause to
the Commission.
‘‘(IV) It shall be unlawful for any futures com-
mission merchant to, directly or indirectly, extend or
maintain credit to or for, or collect margin from any
customer on any security futures product unless
such activities comply with the regulations pre-
scribed pursuant to section 7(c)(2)(B) of the Securi-
ties Exchange Act of 1934.
‘‘(V) Nothing in this clause shall supersede or
limit the authority granted to the Commission in
section 8a(9) to direct a contract market or reg-
istered derivatives transaction execution facility, on
finding an emergency to exist, to raise temporary
margin levels on any futures contract, or option on
the contract covered by this clause, or on any secu-
rity futures product.’’.
(c) DUAL TRADING.—Section 4j of the Commodity
Exchange Act (7 U.S.C. 6j) is amended to read as follows:
‘‘SEC. 4j. RESTRICTIONS ON DUAL TRADING IN SECURITY
FUTURES PRODUCTS ON DESIGNATED CON-
TRACT MARKETS AND REGISTERED DERIVA-
TIVES TRANSACTION EXECUTION FACILITIES.
‘‘(a) The Commission shall issue regulations to pro-
hibit the privilege of dual trading in security futures prod-
220
ucts on each contract market and registered derivatives
transaction execution facility. The regulations issued by
the Commission under this section—
‘‘(1) shall provide that the prohibition of dual
trading thereunder shall take effect upon issuance of
the regulations; and
‘‘(2) shall provide exceptions, as the Commis-
sion determines appropriate, to ensure fairness and
orderly trading in security futures product markets,
including—
‘‘(A) exceptions for spread transactions
and the correction of trading errors;
‘‘(B) allowance for a customer to designate
in writing not less than once annually a named
floor broker to execute orders for such cus-
tomer, notwithstanding the regulations to pro-
hibit the privilege of dual trading required
under this section; and
‘‘(C) other measures reasonably designed
to accommodate unique or special characteris-
tics of individual boards of trade or contract
markets, to address emergency or unusual mar-
ket conditions, or otherwise to further the pub-
lic interest consistent with the purposes of this
section.
221
‘‘(b) As used in this section, the term ‘dual trading’
means the execution of customer orders by a floor broker
during the same trading session in which the floor broker
executes any trade in the same contract market or reg-
istered derivatives transaction execution facility for—
‘‘(1) the account of such floor broker;
‘‘(2) an account for which such floor broker has
trading discretion; or
‘‘(3) an account controlled by a person with
whom such floor broker has a relationship through
membership in a broker association.
‘‘(c) As used in this section, the term ‘broker associa-
tion’ shall include two or more contract market members
or registered derivatives transaction execution facility
members with floor trading privileges of whom at least one
is acting as a floor broker, who—
‘‘(1) engage in floor brokerage activity on be-
half of the same employer,
‘‘(2) have an employer and employee relation-
ship which relates to floor brokerage activity,
‘‘(3) share profits and losses associated with
their brokerage or trading activity, or
‘‘(4) regularly share a deck of orders.’’.
(d) EXEMPTION FROM REGISTRATION FOR INVEST-
MENT ADVISERS.—Section 4m of the Commodity Ex-
222
change Act (7 U.S.C. 6m) is amended by adding at the
end the following:
‘‘(3) Subsection (1) of this section shall not apply to
any commodity trading advisor that is registered with the
Securities and Exchange Commission as an investment ad-
viser whose business does not consist primarily of acting
as a commodity trading advisor, as defined in section
1a(6), and that does not act as a commodity trading advi-
sor to any investment trust, syndicate, or similar form of
enterprise that is engaged primarily in trading in any com-
modity for future delivery on or subject to the rules of
any contract market or registered derivatives transaction
execution facility.’’.
(e) EXEMPTION FROM INVESTIGATIONS OF MARKETS
IN UNDERLYING SECURITIES.—Section 16 of the Com-
modity Exchange Act (7 U.S.C. 20) is amended by adding
at the end the following:
‘‘(e) This section shall not apply to investigations in-
volving any security underlying a security futures prod-
uct.’’.
(f) RULEMAKING AUTHORITY TO ADDRESS DUPLI-
CATIVE REGULATION OF DUAL REGISTRANTS.—Section
4d of the Commodity Exchange Act (7 U.S.C. 6d) is
amended—
223
(1) by inserting ‘‘(a)’’ before the first undesig-
nated paragraph;
(2) by inserting ‘‘(b)’’ before the second undes-
ignated paragraph; and
(3) by adding at the end the following:
‘‘(c) Consistent with this Act, the Commission, in
consultation with the Securities and Exchange Commis-
sion, shall issue such rules, regulations, or orders as are
necessary to avoid duplicative or conflicting regulations
applicable to any futures commission merchant registered
with the Commission pursuant to section 4f(a) (except
paragraph (2) thereof), that is also registered with the Se-
curities and Exchange Commission pursuant to section
15(b) of the Securities Exchange Act (except paragraph
(11) thereof), involving the application of—
‘‘(1) section 8, section 15(c)(3), and section 17
of the Securities Exchange Act of 1934 and the
rules and regulations thereunder related to the treat-
ment of customer funds, securities, or property,
maintenance of books and records, financial report-
ing or other financial responsibility rules (as defined
in section 3(a)(40) of the Securities Exchange Act
of 1934), involving security futures products; and
224
‘‘(2) similar provisions of this Act and the rules
and regulations thereunder involving security futures
products.’’.
(g) OBLIGATION TO ADDRESS DUPLICATIVE REGU-
LATION OF DUAL REGISTRANTS.—Section 17 of the Com-
modity Exchange Act (7 U.S.C. 21) is amended by adding
at the end the following:
‘‘(r) Consistent with this Act, each futures associa-
tion registered under this section shall issue such rules
as are necessary to avoid duplicative or conflicting rules
applicable to any futures commission merchant registered
with the Commission pursuant to section 4f(a) of this Act
(except paragraph (2) thereof), that is also registered with
the Securities and Exchange Commission pursuant to sec-
tion 15(b) of the Securities and Exchange Act of 1934
(except paragraph (11) thereof), with respect to the appli-
cation of—
‘‘(1) rules of such futures association of the
type specified in section 4d(3) of this Act involving
security futures products; and
‘‘(2) similar rules of national securities associa-
tions registered pursuant to section 15A(a) of the
Securities and Exchange Act of 1934 involving secu-
rity futures products.’’.
225
(h) OBLIGATION TO ADDRESS DUPLICATIVE REGU-
LATION OF DUAL REGISTRANTS.—Section 5c of the Com-
modity Exchange Act (as added by section 114) is amend-
ed by adding at the end the following new subsection:
‘‘(f) Consistent with this Act, each designated con-
tract market and registered derivatives transaction execu-
tion facility shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any futures
commission merchant registered with the Commission pur-
suant to section 4f(a) of this Act (except paragraph (2)
thereof), that is also registered with the Securities and Ex-
change Commission pursuant to section 15(b) of the Secu-
rities Exchange Act of 1934 (except paragraph (11) there-
of) with respect to the application of—
‘‘(1) rules of such designated contract market
or registered derivatives transaction execution facil-
ity of the type specified in section 4d(3) of this Act
involving security futures products; and
‘‘(2) similar rules of national securities associa-
tions registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and national secu-
rities exchanges registered pursuant to section 6(g)
of such Act involving security futures products.’’.
(i) OBLIGATION TO ADDRESS SECURITY FUTURES
PRODUCTS TRADED ON FOREIGN EXCHANGES.—Section
226
2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a,
and 4)) is amended by adding at the end the following:
‘‘(E)(i) To the extent necessary or appropriate in the
public interest, to promote fair competition, and consistent
with the protection of investors and the maintenance of
fair and orderly markets, the Commission and the Securi-
ties and Exchange Commission shall jointly issue such
rules, regulations, or orders as are necessary and appro-
priate to permit the offer and sale of a security futures
product traded on or subject to the rules of a foreign
board of trade to United States persons.
‘‘(ii) The rules, regulations, or orders adopted under
clause (i) shall take into account, as appropriate, the na-
ture and size of the markets that the securities underlying
the security futures product reflects.’’.
(j) SECURITY FUTURES PRODUCTS TRADED ON FOR-
EIGN BOARDS OF TRADE.—Section 2(a)(1) of the Com-
modity Exchange Act (7 U.S.C. 2, 2a, and 4) is amended
by adding at the end the following:
‘‘(F)(i) Nothing in this Act is intended to prohibit
a futures commission merchant from carrying security fu-
tures products traded on or subject to the rules of a for-
eign board of trade in the accounts of persons located out-
side of the United States.
227
‘‘(ii) Nothing in this Act is intended to prohibit any
person located in the United States from purchasing or
carrying securities futures products traded on or subject
to the rules of a foreign board of trade, exchange, or mar-
ket to the same extent such person may be authorized to
purchase or carry other securities traded on a foreign
board of trade, exchange, or market.’’.
SEC. 222. APPLICATION OF THE COMMODITY EXCHANGE
ACT TO NATIONAL SECURITIES EXCHANGES
AND NATIONAL SECURITIES ASSOCIATIONS
THAT TRADE SECURITY FUTURES.
(a) NOTICE DESIGNATION OF NATIONAL SECURITIES
EXCHANGES
AND
NATIONAL
SECURITIES
ASSOCIA-
TIONS.—The Commodity Exchange Act is amended by in-
serting after section 5e (7 U.S.C. 7b), as redesignated by
section 111(1), the following:
‘‘SEC. 5f. DESIGNATION OF SECURITIES EXCHANGES AND
ASSOCIATIONS AS CONTRACT MARKETS.
‘‘(a) Any board of trade that is registered with the
Securities and Exchange Commission as a national securi-
ties exchange, is a national securities association reg-
istered pursuant to section 15A(a) of the Securities Ex-
change Act of 1934, or is an alternative trading system
shall be a designated contract market in security futures
products if—
228
‘‘(1) such national securities exchange, national
securities association, or alternative trading system
lists or trades no other contracts of sale for future
delivery, except for security futures products;
‘‘(2) such national securities exchange, national
securities association, or alternative trading system
files written notice with the Commission in such
form as the Commission, by rule, may prescribe con-
taining such information as the Commission, by rule,
may prescribe as necessary or appropriate in the
public interest or for the protection of customers;
and
‘‘(3) the registration of such national securities
exchange, national securities association, or alter-
native trading system is not suspended pursuant to
an order by the Securities and Exchange Commis-
sion.
Such designation shall be effective contemporaneously
with the submission of notice, in written or electronic
form, to the Commission.
‘‘(b)(1) A national securities exchange, national secu-
rities association, or alternative trading system that is des-
ignated as a contract market pursuant to section 5f shall
be exempt from the following provisions of this Act and
the rules thereunder:
229
‘‘(A) Subsections (c), (e), and (g) of section 4c.
‘‘(B) Section 4j.
‘‘(C) Section 5.
‘‘(D) Section 5c.
‘‘(E) Section 6a.
‘‘(F) Section 8(d).
‘‘(G) Section 9(f).
‘‘(H) Section 16.
‘‘(2) An alternative trading system that is a des-
ignated contract market under this section shall be re-
quired to be a member of a futures association registered
under section 17 and shall be exempt from any provision
of this Act that would require such alternative trading sys-
tem to—
‘‘(A) set rules governing the conduct of sub-
scribers other than the conduct of such subscribers’
trading on such alternative trading system; or
‘‘(B) discipline subscribers other than by exclu-
sion from trading.
‘‘(3) To the extent that an alternative trading system
is exempt from any provision of this Act pursuant to para-
graph (2) of this subsection, the futures association reg-
istered under section 17 of which the alternative trading
system is a member shall set rules governing the conduct
230
of subscribers to the alternative trading system and dis-
cipline the subscribers.
‘‘(4)(A) Except as provided in subparagraph (B), but
notwithstanding any other provision of this Act, the Com-
mission, by rule, regulation, or order, may conditionally
or unconditionally exempt any designated contract market
in security futures subject to the designation requirement
of this section from any provision of this Act or of any
rule or regulation thereunder, to the extent such exemp-
tion is necessary or appropriate in the public interest and
is consistent with the protection of investors.
‘‘(B) The Commission shall, by rule or regulation, de-
termine the procedures under which an exemptive order
under this section is granted and may, in its sole discre-
tion, decline to entertain any application for an order of
exemption under this section.
‘‘(C) An alternative trading system shall not be
deemed to be an exchange for any purpose as a result of
the designation of such alternative trading system as a
contract market under this section.’’.
(b) NOTICE REGISTRATION OF CERTAIN SECURITIES
BROKER–DEALERS; EXEMPTION FROM REGISTRATION
FOR CERTAIN SECURITIES BROKER–DEALERS.—Section
4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a))
is amended—
231
(1) by inserting ‘‘(1)’’ after ‘‘(a)’’; and
(2) by adding at the end the following:
‘‘(2) Notwithstanding paragraph (1), and except as
provided in paragraph (3), any broker or dealer that is
registered with the Securities and Exchange Commission
shall be registered as a futures commission merchant or
introducing broker, as applicable, if—
‘‘(A) the broker or dealer limits its solicitation
of orders, acceptance of orders, or execution of or-
ders, or placing of orders on behalf of others involv-
ing any contracts of sale of any commodity for fu-
ture delivery, on or subject to the rules of any con-
tract market or registered derivatives transaction
execution facility to security futures products;
‘‘(B) the broker or dealer files written notice
with the Commission in such form as the Commis-
sion, by rule, may prescribe containing such infor-
mation as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for
the protection of investors;
‘‘(C) the registration of the broker or dealer is
not suspended pursuant to an order of the Securities
and Exchange Commission; and
‘‘(D) the broker or dealer is a member of a na-
tional securities association registered pursuant to
232
section 15A(a) of the Securities Exchange Act of
1934.
The registration shall be effective contemporaneously with
the submission of notice, in written or electronic form, to
the Commission.
‘‘(3) A floor broker or floor trader shall be exempt
from the registration requirements of section 4e and para-
graph (1) of this subsection if—
‘‘(A) the floor broker or floor trader is a broker
or dealer registered with the Securities and Ex-
change Commission;
‘‘(B) the floor broker or floor trader limits its
solicitation of orders, acceptance of orders, or execu-
tion of orders, or placing of orders on behalf of oth-
ers involving any contracts of sale of any commodity
for future delivery, on or subject to the rules of any
contract market to security futures products; and
‘‘(C) the registration of the floor broker or floor
trader is not suspended pursuant to an order of the
Securities and Exchange Commission.’’.
(c) EXEMPTION FOR SECURITIES BROKER-DEALERS
FROM CERTAIN PROVISIONS OF THE COMMODITY EX-
CHANGE ACT.—Section 4f(a) of the Commodity Exchange
Act (7 U.S.C. 6f(a)) is amended by inserting after para-
graph (3), as added by subsection (b), the following:
233
‘‘(4)(A) A broker or dealer that is registered as a fu-
tures commission merchant or introducing broker pursu-
ant to paragraph (2), or that is a floor broker or floor
trader exempt from registration pursuant to paragraph
(3), shall be exempt from the following provisions of this
Act and the rules thereunder:
‘‘(i) Subsections (b), (d), (e), and (g) of section
4c.
‘‘(ii) Sections 4d, 4e, and 4h.
‘‘(iii) Subsections (b) and (c) of this section.
‘‘(iv) Section 4j.
‘‘(v) Section 4k(1).
‘‘(vi) Section 4p.
‘‘(vii) Section 6d.
‘‘(viii) Subsections (d) and (g) of section 8.
‘‘(ix) Section 16.
‘‘(B)(i) Except as provided in clause (ii) of this sub-
paragraph, but notwithstanding any other provision of this
Act, the Commission, by rule, regulation, or order, may
conditionally or unconditionally exempt any broker or
dealer subject to the registration requirement of para-
graph (2), or any broker or dealer exempt from registra-
tion pursuant to paragraph (3), from any provision of this
Act or of any rule or regulation thereunder, to the extent
234
the exemption is necessary or appropriate in the public
interest and is consistent with the protection of investors.
‘‘(ii) The Commission shall, by rule or regulation, de-
termine the procedures under which an exemptive order
under this section shall be granted and may, in its sole
discretion, decline to entertain any application for an
order of exemption under this section.
‘‘(C)(i) A broker or dealer that is registered as a fu-
tures commission merchant or introducing broker pursu-
ant to paragraph (2) or an associated person thereof, or
that is a floor broker or floor trader exempt from registra-
tion pursuant to paragraph (3), shall not be required to
become a member of any futures association registered
under section 17.
‘‘(ii) No futures association registered under section
17 shall limit its members from carrying an account, ac-
cepting an order, or transacting business with a broker
or dealer that is registered as a futures commission mer-
chant or introducing broker pursuant to paragraph (2) or
an associated person thereof, or that is a floor broker or
floor trader exempt from registration pursuant to para-
graph (3).’’.
(d) EXEMPTIONS FOR ASSOCIATED PERSONS OF SE-
CURITIES BROKER-DEALERS.—Section 4k of the Com-
modity Exchange Act (7 U.S.C. 6k), is amended by insert-
235
ing after paragraph (4), as added by subsection (c), the
following:
‘‘(5) Any associated person of a broker or dealer that
is registered with the Securities and Exchange Commis-
sion, and who limits its solicitation of orders, acceptance
of orders, or execution of orders, or placing of orders on
behalf of others involving any contracts of sale of any com-
modity for future delivery or any option on such a con-
tract, on or subject to the rules of any contract market
or registered derivatives transaction execution facility to
security futures products, shall be exempt from the fol-
lowing provisions of this Act and the rules thereunder:
‘‘(A) Subsections (b), (d), (e), and (g) of section
4c.
‘‘(B) Sections 4d, 4e, and 4h.
‘‘(C) Subsections (b) and (c) of section 4f.
‘‘(D) Section 4j.
‘‘(E) Paragraph (1) of this section.
‘‘(F) Section 4p.
‘‘(G) Section 6d.
‘‘(H) Subsections (d) and (g) of section 8.
‘‘(I) Section 16.’’.
236
SEC. 223. NOTIFICATION OF INVESTIGATIONS AND EN-
FORCEMENT ACTIONS.
(a) Section 8(a) of the Commodity Exchange Act (7
U.S.C. 12(a)) is amended by adding at the end the fol-
lowing:
‘‘(3) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement
of any proceeding and a copy of any order entered by the
Commission against any futures commission merchant or
introducing broker registered pursuant to section 4f(a)(2),
any floor broker or floor trader exempt from registration
pursuant to section 4f(a)(3), any associated person exempt
from registration pursuant to section 4k(6), or any board
of trade designated as a contract market pursuant to sec-
tion 5f.’’.
(b) Section 6 of the Commodity Exchange Act (7
U.S.C. 8, 9, 9a, 9b, 13b, 15) is amended by adding at
the end the following:
‘‘(g) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement
of any proceeding and a copy of any order entered by the
Commission pursuant to subsections (c) and (d) of this
section against any futures commission merchant or intro-
ducing broker registered pursuant to section 4f(a)(2), any
floor broker or floor trader exempt from registration pur-
suant to section 4f(a)(3), any associated person exempt