[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4276 Introduced in House (IH)]







104th CONGRESS
  2d Session
                                H. R. 4276

To amend the Commodity Exchange Act to provide a conditional exemption 
for certain transactions involving professional markets, to clarify the 
effect of the designation of a board of trade as a contract market, to 
simplify the process for the making effective of contract market rules, 
    to regulate audit trail requirements, to establish cost-benefit 
analysis requirements, to combat fraud in transactions in or involving 
               foreign currency, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           September 28, 1996

  Mr. Ewing introduced the following bill; which was referred to the 
                        Committee on Agriculture

_______________________________________________________________________

                                 A BILL


 
To amend the Commodity Exchange Act to provide a conditional exemption 
for certain transactions involving professional markets, to clarify the 
effect of the designation of a board of trade as a contract market, to 
simplify the process for the making effective of contract market rules, 
    to regulate audit trail requirements, to establish cost-benefit 
analysis requirements, to combat fraud in transactions in or involving 
               foreign currency, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Commodity Exchange 
Act Amendments of 1996''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
           TITLE I--ADMINISTRATION OF COMMODITY EXCHANGE ACT

Sec. 101. Findings and purposes.
Sec. 102. Conditional exemption from Commodity Exchange Act for certain 
                            transactions involving professional 
                            markets.
Sec. 103. Designation of contract markets.
Sec. 104. Process for submission and disapproval of contract market 
                            rules.
Sec. 105. Regulation of audit trail requirements.
Sec. 106. Use of benefit-cost analysis.
Sec. 107. Commission oversight and deficiency orders.
               TITLE II--TREASURY AMENDMENT CLARIFICATION

Sec. 201. Regulation of transactions in or involving foreign currency.

           TITLE I--ADMINISTRATION OF COMMODITY EXCHANGE ACT

SEC. 101. FINDINGS AND PURPOSES.

    Section 3 of the Commodity Exchange Act (7 U.S.C. 5) is amended to 
read as follows:

``SEC. 3. FINDINGS AND PURPOSES.

    ``(a) Findings.--The Congress finds the following:
            ``(1) Commodity futures and commodity options are traded in 
        interstate commerce, and the regulation of transactions in or 
        involving commodity futures and commodity options is in the 
        national public interest.
            ``(2) Commodity futures and commodity options transactions 
        are used to hedge and manage price or other economic risks 
        faced by businesses and financial enterprises throughout the 
        world.
            ``(3) Such hedging activity allows businesses and financial 
        enterprises to operate in a more efficient manner, with 
        corresponding benefits to consumers and others served by these 
        businesses and enterprises.
            ``(4) Liquid trading in commodity futures and commodity 
        options contracts also provides a mechanism for discovering 
        important pricing information relating to the various 
        commodities that are the subject of such trading.
            ``(5) Such pricing information may be widely quoted and 
        disseminated in order to allow consumers, businesses, and 
        financial enterprises to rely upon such pricing information in 
        making various commercial arrangements and decisions relating 
        to the price of the affected commodities in interstate 
        commerce.
            ``(6) Unless appropriately and prudently regulated, whether 
        through self-regulation by the market participants themselves 
        or through Government regulation, transactions subject to this 
        Act may not serve these public interests.
    ``(b) Purpose.--It is the purpose of this Act to provide for self-
regulation that is in the public interest and Government oversight of 
transactions subject to this Act--
            ``(1) to prevent fraud, sales practice abuses, and price 
        manipulation;
            ``(2) to foster efficient and effective transaction 
        executions at fair prices;
            ``(3) to ensure conduct consistent with just and equitable 
        principles of trade and the financial integrity of all futures 
        and options transactions, market participants, and markets; and
            ``(4) to promote responsible economic or financial 
        innovation and fair competition among all markets, market 
        participants, and consumers of the markets' services.''.

SEC. 102. CONDITIONAL EXEMPTION FROM COMMODITY EXCHANGE ACT FOR CERTAIN 
              TRANSACTIONS INVOLVING PROFESSIONAL MARKETS.

    Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is amended by 
adding the following subsections:
    ``(e) Exemption for Certain Professional Markets.--
            ``(1) Exemption.--Subject to paragraphs (2) and (3), any 
        agreement, contract, or transaction (or class thereof) that is 
        or may be subject to this Act shall be exempt from all of the 
        provisions of this Act if the only parties eligible to enter 
        into the agreement, contract, or transaction (or class thereof) 
        qualify as appropriate persons (as defined in subsection 
        (c)(3)).
            ``(2) Rules against fraud and manipulation.--Any agreement, 
        contract, or transaction (or class thereof) for which an 
        exemption is provided under this subsection shall still be 
        subject to prohibitions against fraud or manipulation issued by 
        the Commission, following notice and opportunity for hearing, 
        that are specifically designed to apply to such agreements, 
        contracts, and transactions.
            ``(3) Use of approved clearinghouses and systems.--Any 
        agreement, contract, or transaction (or class thereof) for 
        which an exemption is provided under this subsection shall not 
        be submitted to any clearinghouse or clearing system (or 
        similar entity) unless that clearinghouse or clearing system 
        (or similar entity) has been approved by the Commission to do 
        business as a clearinghouse or clearing system.''.

SEC. 103. DESIGNATION OF CONTRACT MARKETS.

    (a) Designation Required.--Section 4(a)(1) of the Commodity 
Exchange Act (7 U.S.C. 6(a)(1)) is amended by striking ``for such 
commodity''.
    (b) Conditions and Requirements for Designation.--Section 5 of the 
Commodity Exchange Act (7 U.S.C. 7) is amended--
            (1) by striking the matter preceding paragraph (1) and 
        inserting the following:

``SEC. 5. DESIGNATION OF BOARD OF TRADE AS CONTRACT MARKET.

    ``(a) In General.--The Commission shall designate a board of trade 
as a contract market if, and only if, the board of trade complies with 
and carries out the following conditions and requirements:'';
            (2) by striking paragraphs (1), (7), and (8);
            (3) by redesignating paragraphs (2) through (6) as 
        paragraphs (1) through (5), respectively; and
            (4) by inserting at the end the following new paragraph:
            ``(6) When the board of trade demonstrates that it is in 
        compliance with the requirements of section 5a(b).''.
    (c) Effect of Designation.--Section 5 of the Commodity Exchange Act 
(7 U.S.C. 7) is amended by inserting after paragraph (6), as added by 
subsection (b)(4), the following new subsection:
    ``(b) Existing and Future Designations.--
            ``(1) Future designations.--If a board of trade is 
        designated as a contract market by the Commission under 
        subsection (a) and section 6, the board of trade shall retain 
        the designation for all existing or future contracts, unless--
                    ``(A) the Commission suspends or revokes the 
                designation; or
                    ``(B) the board of trade relinquishes the 
                designation.
            ``(2) Existing designations.--A board of trade that has 
        been designated as a contract market as of the date of the 
        enactment of this subsection shall retain the designation 
        unless--
                    ``(A) the Commission finds that a violation of this 
                Act or a rule, regulation, or order of the Commission 
                by the contract market justifies suspension or 
                revocation of the designation under section 6(b); or
                    ``(B) the board of trade relinquishes the 
                designation.''.
    (d) Application for Designation.--The first sentence of section 
6(a) of the Commodity Exchange Act (7 U.S.C. 8(a)) is amended by 
striking ``Any board of trade desiring to be designated a `contract 
market' '' and inserting ``A board of trade that has not obtained 
designation as a contract market for a contract of sale for a commodity 
under section 5, but that desires to be designated as a contract 
market,''.

SEC. 104. PROCESS FOR SUBMISSION AND DISAPPROVAL OF CONTRACT MARKET 
              RULES.

    Section 5a of the Commodity Exchange Act (7 U.S.C. 7a) is amended--
            (1) in subsection (a), by striking paragraph (12); and
            (2) by adding at the end the following new subsection:
    ``(c) Contract Market Bylaws, Rules, Regulations, and 
Resolutions.--
            ``(1) Submission to commission.--Except as otherwise 
        provided in this subsection, each contract market shall submit 
        to the Commission all bylaws, rules, regulations, and 
        resolutions (in this subsection referred to as `rules') made or 
        issued by the contract market, or by the governing board or any 
        committee thereof, other than rules that relate to the setting 
        of levels of margin and such other rules as the Commission may 
        specify by regulation.
            ``(2) Effective date.--
                    ``(A) In general.--Except in the case of a rule 
                described in subparagraph (B) or (C), a contract market 
                may make a rule of that contract market effective 10 
                days after the date on which the Commission receives 
                the rule under paragraph (1), unless, within such 
                period, the contract market requests review of the rule 
                by the Commission or the Commission institutes 
                proceedings to determine whether the rule should be 
                disapproved. The disapproval proceedings shall be 
                conducted in accordance with paragraph (3).
                    ``(B) Special effective date for certain rules.--In 
                the case of a rule that would establish the terms and 
                conditions of a contract for the purchase or sale of a 
                commodity for future delivery, which is to be executed 
                subject to the rules of a contract market and has not 
                previously been traded subject to the rules of the 
                contract market, the contract market may make the rule 
                effective 15 days after the date on which the 
                Commission receives the rule under paragraph (1), 
                unless, within such period, the Commission institutes 
                proceedings to determine whether the rule should be 
                disapproved. The disapproval proceedings shall be 
                conducted in accordance with paragraph (3).
                    ``(C) Exception.--A board of trade may not make 
                effective any rule to establish the terms and 
                conditions of a new contract (or option on such a 
                contract) that is subject to the requirements and 
                procedures of clauses (ii) through (v) of section 
                2(a)(1)(B) unless and until the requirements and 
                procedures of such clauses are satisfied and carried 
                out.
            ``(3) Disapproval process.--
                    ``(A) Notice of proposed disapproval.--If the 
                Commission institutes a proceeding to determine whether 
                a rule submitted under paragraph (1) should be 
                disapproved, the Commission shall provide the contract 
                market with written notice of the proposed grounds for 
                disapproval, including--
                            ``(i) the specific sections of this Act or 
                        the regulations of the Commission that would be 
                        violated; and
                            ``(ii) in the case of a rule described in 
                        paragraph (2)(B), the specific reason or 
                        reasons why the rule might be contrary to the 
                        public interest.
                    ``(B) Disapproval proceeding.--In a disapproval 
                proceeding under this paragraph, the Commission shall 
                afford the contract market a reasonable opportunity to 
                respond in writing and an opportunity for a hearing, 
                including the right to an oral hearing before a quorum 
                of the Commission. In a disapproval proceeding 
                involving a rule described in paragraph (2)(B), the 
                Commission shall have the burden of proving that the 
                rule is contrary to the public interest.
                    ``(C) Disapproval.--At the conclusion of a 
                disapproval proceeding under this paragraph, the 
                Commission shall determine whether to disapprove the 
                rule and shall disapprove the rule if the Commission 
                determines in the proceeding that the rule would be--
                            ``(i) in violation of the provisions of 
                        this Act or the regulations of the Commission; 
                        or
                            ``(ii) in the case of a rule described in 
                        paragraph (2)(B), contrary to the public 
                        interest.
                    ``(D) Notice of disapproval.--The Commission shall 
                provide the contract market with written notice of the 
                disapproval of a rule of the contract market. The 
                notice shall--
                            ``(i) specify the sections of this Act or 
                        the Commission's regulations that the 
                        Commission determines the rule violates or, if 
                        effective, would violate; and
                            ``(ii) in the case of a rule described in 
                        paragraph (2)(B), contain an explanation and 
                        analysis of the substantive basis why the rule 
                        violates or, if effective, would violate the 
                        public interest.
                    ``(E) Time for disapproval.--Before the end of the 
                60-day period beginning on the date on which the 
                Commission receives a rule under paragraph (1), the 
                Commission shall complete any disapproval proceeding 
                instituted under this paragraph regarding the rule. 
                Unless the Commission has notified the contract market 
                by the end of such period that the Commission has 
                disapproved the rule, the contract market may make such 
                rule effective, and the Commission shall not thereafter 
                disapprove the rule. However, this subparagraph shall 
                not be construed to modify or affect the ability of the 
                Commission to alter or supplement any rules of a 
                contract market pursuant to section 8a(7).
            ``(5) Rule of construction regarding public interest 
        standard.--The authority of the Commission to disapprove a rule 
        described in paragraph (2)(B) on the basis that the rule is 
        contrary to the public interest shall not be construed to 
        authorize the Commission to apply such a standard to any other 
        provision of this Act or any other action of the Commission.
            ``(6) Temporary effectiveness for emergency rules.--
                    ``(A) Emergency rules authorized.--The Commission 
                shall issue regulations to specify the terms and 
                conditions under which, in an emergency as defined by 
                the Commission, a contract market may, by a two-thirds 
                vote of its governing board, make a rule (in this 
                paragraph referred to as an `emergency rule') 
                immediately effective on a temporary basis without 
                compliance with the applicable notice requirements 
                under paragraph (2), or during any period of review by 
                the Commission, if the contract market makes every 
                effort practicable to notify the Commission of the 
                emergency rule before making the emergency rule 
                effective. The notification shall include a complete 
                explanation of the emergency involved. If the contract 
                market does not provide the Commission with such 
                notification and explanation before making the 
                emergency rule effective, the contract market shall 
                provide the Commission with such notification and 
                explanation at the earliest possible date. The 
                Commission may delegate the power to receive such 
                notification and explanation to such individuals as the 
                Commission determines necessary and appropriate.
                    ``(B) Commission consideration of emergency 
                rules.--Within 10 days of the receipt from a contract 
                market of notification of an emergency rule and an 
                explanation of the emergency involved, or as soon as 
                practicable, the Commission shall determine whether it 
                is appropriate either--
                            ``(i) to permit the emergency rule to 
                        remain in effect during the pendency of the 
                        emergency; or
                            ``(ii) to suspend the effect of the 
                        emergency rule pending review either under the 
                        procedures of this subsection or otherwise.
                    ``(C) Report on consideration.--The Commission 
                shall submit to the affected contract market, to the 
                Committee on Agriculture of the House of 
                Representatives and the Committee on Agriculture, 
                Nutrition, and Forestry of the Senate a report 
                regarding its determination (and the basis thereof) 
                with respect to an emergency rule. If the report is 
                submitted more than 10 days after the Commission's 
                receipt of notification of the emergency rule, the 
                report shall also contain an explanation of why 
                submission within such period was not practicable. A 
                determination by the Commission to suspend the effect 
                of a rule under this paragraph shall be subject to 
                judicial review on the same basis as an emergency 
                determination under section 8a(9). Nothing in this 
                paragraph shall be construed to limit the authority of 
                the Commission under section 8a(9).''.

SEC. 105. REGULATION OF AUDIT TRAIL REQUIREMENTS.

    Section 5a(b) of the Commodity Exchange Act (7 U.S.C. 7a(b)) is 
amended--
            (1) by striking paragraphs (3), (4), and (6);
            (2) by redesignating paragraph (5) as paragraph (6);
            (3) in paragraph (6) (as so redesignated)--
                    (A) by striking ``paragraph (3)'' both places it 
                appears and inserting ``this subsection'' and
                    (B) by striking ``such paragraph'' and inserting 
                ``this subsection''; and
            (4) by inserting after paragraph (2) the following new 
        paragraphs:
            ``(3) Development of standards for time of execution.--Not 
        later than nine months after the date of the enactment of this 
        paragraph, the Commission shall issue a regulation, after 
        notice and an opportunity for a hearing, that prescribes an 
        objective standard or methodology for establishing whether a 
        contract market meets the requirement under paragraph (2) that 
        each contract market must be able to determine, with reasonable 
        accuracy, the time of execution, in increments of no more than 
        one minute in length. In issuing the regulation, the 
        Commission--
                    ``(A) shall take into account any unique features 
                and trading practices of each contract market and any 
                surveillance mechanisms beyond a manual trade 
                recordation system adopted by each contract market;
                    ``(B) shall not prescribe a specific means or 
                technology for meeting the accuracy or any other 
                requirement.
            ``(4) Use of trade recordation data.--Consistent with 
        Commission regulations, the audit trail system for a contract 
        market shall rely upon trade recordation data that are--
                    ``(A) entered by floor traders, floor brokers or 
                others in nonerasable ink or other form that cannot be 
                altered without leaving a complete record of such 
                alteration; and
                    ``(B) continually provided to the contract market 
                during the trading day in intervals of not more than 30 
                minutes for processing by the contract market.
            ``(5) Use of time stamps.--The audit trail system for a 
        contract market shall rely upon accurate time stamps or 
        similarly reliable devices for recording when a customer's 
        order reaches the trading floor and when that order is reported 
        from the floor as having been executed.''.

SEC. 106. USE OF BENEFIT-COST ANALYSIS.

    Section 12 of the Commodity Exchange Act (7 U.S.C. 16) is amended 
by adding at the end the following new subsection:
    ``(h) Use of Benefit-Cost Analysis.--
            ``(1) Analysis required.--Except as provided in paragraph 
        (4), the Commission shall not adopt any rule, regulation, or 
        order, or take any other regulatory action, if the benefits of 
        such an action do not exceed the costs. The Commission shall 
        make this benefit-cost determination based upon the information 
        available in the record of such action maintained by the 
        Commission.
            ``(2) Benefits defined.--For purposes of this subsection, 
        the term `benefits' means the significant, reasonably 
        identifiable, favorable effects (including the impact on market 
        liquidity and efficiency, financial and market integrity, 
        customer protection, and fair competition) that are reasonably 
        expected to result, directly or indirectly, from the adoption 
        of a rule or other agency action.
            ``(3) Costs Defined.--For purposes of this subsection, the 
        term `costs' means the significant, reasonably identifiable, 
        adverse effects (including the impact on market liquidity and 
        efficiency, financial and market integrity, customer 
        protection, and fair competition) that are reasonably expected 
        to result, directly or indirectly, from the adoption of a rule 
        or other agency action.
            ``(4) Exception for certain rules and actions.--This 
        subsection shall not apply to the following:
                    ``(A) Any adjudicatory or formal rulemaking 
                determinations made by the Commission after a hearing 
                on the record.
                    ``(B) Any emergency determination made by the 
                Commission under section 8a(a)(9).
                    ``(C) Any review or action taken by the Commission 
                on appeal from a contract market disciplinary action in 
                accordance with section 8c.
                    ``(D) Any Commission approvals of rules or rule 
                changes in accordance with section 5a(c).
                    ``(E) Any Commission approvals of contract market 
                designation applications under section 6.''.

SEC. 107. COMMISSION OVERSIGHT AND DEFICIENCY ORDERS.

    (a) Repeal.--Section 8e of the Commodity Exchange Act (7 U.S.C. 
12e) is repealed.
    (b) Conforming Amendments.--(1) Section 4j(a) of the Commodity 
Exchange Act (7 U.S.C. 6j(a)) is amended--
            (1) in paragraph (3)(B)(ii), by striking ``, such as those 
        described in section 8e,''; and
            (2) in paragraph (5)(A)(ii), by striking ``, such as those 
        described in section 8e,''.

               TITLE II--TREASURY AMENDMENT CLARIFICATION

SEC. 201. TREASURY AMENDMENT CLARIFICATION.

    Section 2(a)(1)(A)(ii) of the Commodity Exchange Act (7 U.S.C. 
2(ii)) is amended--
            (1) by inserting ``or transactions involving'' after 
        ``transactions in'';
            (2) by inserting ``to the general public'' after ``sale 
        thereof''; and
            (3) by adding at the end the following new sentence: ``For 
        purposes of this clause only, the term `board of trade', as it 
        applies to transactions in or involving foreign currency, means 
        any facility whereby standardized contracts are systematically 
        marketed to retail investors (other than individuals and 
        entities described as eligible participants under the 
        regulations of the Commission published in the Federal Register 
        on January 22, 1993, as codified in section 35.1(b)(2) of part 
        35 of title 17, Code of Federal Regulations).''.
                                 <all>