[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 2077 Introduced in Senate (IS)]







104th CONGRESS
  2d Session
                                S. 2077

 To amend the Commodity Exchange Act to improve the Act, and for other 
                               purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                           September 16, 1996

 Mr. Lugar (for himself and Mr. Leahy) introduced the following bill; 
  which was read twice and referred to the Committee on Agriculture, 
                        Nutrition, and Forestry

_______________________________________________________________________

                                 A BILL


 
 To amend the Commodity Exchange Act to improve the Act, 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.

    This Act may be cited as the ``Commodity Exchange Amendments Act of 
1996''.

SEC. 2. HEDGING.

    The fourth sentence of section 3 of the Commodity Exchange Act (7 
U.S.C. 5) is amended by striking ``through fluctuations in price''.

SEC. 3. DELIVERY POINTS FOR FOREIGN FUTURES CONTRACTS.

    Section 4(b) of the Commodity Exchange Act (7 U.S.C. 6(b)) is 
amended--
            (1) in the third sentence--
                    (A) by striking ``(1)'' and ``(2)'' and inserting 
                ``(A)'' and ``(B)'', respectively; and
                    (B) by striking ``No rule'' and inserting ``Except 
                as provided in paragraph (2), no rule'';
            (2) by inserting ``(1)'' after ``(b)''; and
            (3) by adding at the end the following:
    ``(2)(A) The Commission shall consult with a foreign government, 
foreign futures authority, or department, agency, governmental body, or 
regulatory organization empowered by a foreign government to regulate a 
board of trade, exchange, or market located outside the United States, 
or a territory or possession of the United States, that has 1 or more 
established delivery points in the United States, or a territory or 
possession of the United States, for a contract of sale of a commodity 
for future delivery that is made or will be made on or subject to the 
rules of the board of trade, exchange, or market.
    ``(B) In the consultations, the Commission shall endeavor to secure 
adequate assurances, through memoranda of understanding or any other 
means the Commission considers appropriate, that the presence of the 
delivery points will not create the potential for manipulation of the 
price, or any other disruption in trading, of a contract of sale of a 
commodity for future delivery traded on or subject to the rules of a 
contract market, or a commodity, in interstate commerce.
    ``(C) Any warehouse or other facility housing an established 
delivery point in the United States, or a territory or possession of 
the United States, described in subparagraph (A) shall--
            ``(i) keep books, records, and other information specified 
        by the Commission pertaining to all transactions and positions 
        in all contracts made or carried on the foreign board of trade, 
        exchange, or market in such form and manner and for such period 
        as may be required by the Commission;
            ``(ii) file such reports regarding the transactions and 
        positions with the Commission as the Commission may specify; 
        and
            ``(iii) keep the books and records open to inspection by a 
        representative of the Commission or the United States 
        Department of Justice.''.

SEC. 4. EXEMPTION AUTHORITY AND SWAP EXEMPTION.

    (a) In General.--Section 4(c) of the Commodity Exchange Act (7 
U.S.C. 6(c)) is amended by adding at the end the following:
    ``(6)(A) An agreement, contract, or transaction (or class thereof) 
that is otherwise subject to this Act shall be exempt from all 
provisions of this Act and any person or class of persons offering, 
entering into, rendering advice, or rendering other services with 
respect to the agreement, contract, or transaction (or class thereof) 
shall be exempt for the activity from all provisions of this Act 
(except in each case the provisions of sections 2(a)(1)(B), 4b, and 4o, 
any antifraud provision adopted by the Commission pursuant to section 
4c(b), and the provisions of section 6(c) and 9(a)(2) to the extent the 
provisions prohibit manipulation of the market price of any commodity 
in interstate commerce or for future delivery on or subject to the 
rules of any contract market): Provided, That prior to, on, or after 
the date of enactment of this paragraph, the agreement, contract, or 
transaction (or class thereof) satisfies the eligibility conditions for 
an exemption under the regulations of the Commission published in the 
Federal Register on January 22, 1993, and codified in sections 
35.1(b)(2) and 35.2 of part 35 of title 17, Code of Federal 
Regulations.
    ``(B) This paragraph shall not restrict the authority of the 
Commission to grant exemptions under this subsection that are in 
addition to or independent of the exemption provided in this paragraph. 
No such exemption shall be applied in a manner that restricts an 
exemption provided under this paragraph.
    ``(7)(A) The Commission may exempt an agreement, contract, or 
transaction (or class thereof) under this subsection to the extent that 
the agreement, contract, or transaction (or class thereof) may be 
subject to this Act.
    ``(B) An exemption under this subsection shall not create a 
presumption that the exempted agreement, contract, or transaction (or 
class thereof) is subject to this Act.''.
    (b) Review.--Not later than 1 year after the date of enactment of 
this Act, the Commodity Futures Trading Commission shall complete a 
reconsideration of the regulations contained in part 36 of title 17, 
Code of Federal Regulations, with the goal of establishing exemptive 
provisions that are consistent with subsection (c).
    (c) Sense of Congress.--It is the sense of Congress that--
            (1) the exemption provided under section 4(c) of the 
        Commodity Exchange Act (7 U.S.C. 6(c)), and codified in part 36 
        of title 17, Code of Federal Regulations, does not yet 
        sufficiently promote fair competition by affording exchange-
        traded instruments fair and even-handed treatment with similar 
        products traded over-the-counter among institutions and 
        professionals; and
            (2) the Commodity Futures Trading Commission should provide 
        for such fair competition by granting instruments traded on or 
        subject to the facilities of exchanges, exemptive flexibility 
        that is equitable in comparison to the exemptive flexibility 
        the Commission has granted to over-the-counter transactions, 
        while ensuring the protection of market participants and 
        financial and market integrity.
    (d) Report.--On completion of the review required by subsection 
(b), the Commodity Futures Trading Commission shall report on the 
results of the review to the Committee on Agriculture of the House of 
Representatives and the Committee on Agriculture, Nutrition, and 
Forestry of the Senate.

SEC. 5. CONTRACT DESIGNATION.

    (a) In General.--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 A BOARD OF TRADE AS A CONTRACT MARKET.

    ``(a) In General.--The Commission shall designate a board of trade 
as a contract market if the board of trade complies with and carries 
out the following conditions and requirements:'';
            (2) by striking paragraph (7);
            (3) by redesignating paragraph (8) as paragraph (7); and
            (4) by adding at the end the following:
    ``(b) Existing and Future Designations.--
            ``(1) In general.--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 the Commission 
        suspends or revokes the designation or 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 
        enactment of this subsection shall retain the designation 
        unless 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 the board of trade relinquishes the 
        designation.
    ``(c) New Contract Submissions.--Except as provided in subsection 
(e), a board of trade that has been designated as a contract market 
under subsection (a) shall submit to the Commission all rules that 
establish the terms and conditions of a new contract of sale in 
accordance with subsection (d) (referred to in this section as a `new 
contract'), other than a rule relating to the setting of levels of 
margin and other rules that the Commission may specify by regulation.
    ``(d) Procedures for New Contracts.--
            ``(1) Required submission to commission.--Except as 
        provided in subsection (e), a contract market shall submit new 
        contracts to the Commission in accordance with subsection (c).
            ``(2) Effectiveness of new contracts.--A contract market 
        may make effective a new contract and may implement trading in 
        the new contract--
                    ``(A) not earlier than 10 business days after the 
                receipt of the new contract by the Commission; or
                    ``(B) earlier if authorized by the Commission by 
                rule, regulation, order, or written notice.
            ``(3) Notice to contract market.--The new contract shall 
        become effective and may be traded on the contract market, 
        unless, within the 10-business-day period beginning on the date 
        of the receipt of the new contract by the Commission, the 
        Commission notifies the contract market in writing--
                    ``(A) of the determination of the Commission that 
                the proposed new contract appears to--
                            ``(i) violate a specific provision of this 
                        Act (including paragraphs (1) through (7) of 
                        section 5(a)) or a rule, regulation, or order 
                        of the Commission; or
                            ``(ii) be contrary to the public interest; 
                        and
                    ``(B) that the Commission intends to review the new 
                contract.
            ``(4) Notice in the federal register.--Notwithstanding the 
        determination of the Commission to review a new contract under 
        paragraph (3) and except as provided in subsection (e), the 
        contract market may make the new contract effective, and may 
        implement trading in the new contract, on a date that is not 
        earlier than 15 business days after the determination of the 
        Commission to review the new contract unless within the period 
        of 15 business days the Commission institutes proceedings to 
        disapprove the new contract by providing notice in the Federal 
        Register of the information required under paragraph (5)(A).
            ``(5) Disapproval proceedings.--
                    ``(A) Notice of proposed violations.--If the 
                Commission institutes proceedings to determine whether 
                to disapprove a new contract under this subsection, the 
                Commission shall provide the contract market with 
                written notice, including an explanation and analysis 
                of the substantive basis for the proposed grounds for 
                disapproval, of what the Commission has reason to 
                believe are the grounds for disapproval, including, as 
                applicable--
                            ``(i) the 1 or more specific provisions of 
                        this Act or a rule, regulation, or order of the 
                        Commission that the Commission has reason to 
                        believe the new contract violates or, if the 
                        new contract became effective, would violate; 
                        or
                            ``(ii) the 1 or more specific public 
                        interests to which the Commission has reason to 
                        believe the new contract is contrary, or if the 
                        new contract became effective would be 
                        contrary.
                    ``(B) Disapproval proceedings and determination.--
                            ``(i) Opportunity to participate; 
                        hearing.--Before deciding to disapprove a new 
                        contract, the Commission shall give interested 
                        persons (including the board of trade) an 
                        opportunity to participate in the disapproval 
                        proceedings through the submission of written 
                        data, views, or arguments following appropriate 
                        notice and an opportunity for a hearing on the 
                        record before the Commission.
                            ``(ii) Determination of disapproval.--At 
                        the conclusion of the disapproval proceeding, 
                        the Commission shall determine whether to 
                        disapprove the new contract.
                            ``(iii) Grounds for disapproval.--The 
                        Commission shall disapprove the new contract if 
                        the Commission determines that the new 
                        contract--
                                    ``(I) violates this Act or a rule, 
                                regulation, or order of the Commission; 
                                or
                                    ``(II) is contrary to public 
                                interest.
                            ``(iv) Specifications for disapproval.--
                        Each disapproval determination shall specify, 
                        as applicable--
                                    ``(I) the 1 or more specific 
                                provisions of this Act or a rule, 
                                regulation, or order of the Commission, 
                                that the Commission determines the new 
                                contract violates or, if the new 
                                contract became effective, would 
                                violate; or
                                    ``(II) the 1 or more specific 
                                public interests to which the 
                                Commission determines the new contract 
                                is contrary, or if the new contract 
                                became effective would be contrary.
                    ``(C) Failure to timely complete disapproval 
                determination.--If the Commission does not conclude a 
                disapproval proceeding as provided in subparagraph (B) 
                for a new contract by the date that is 120 calendar 
                days after the Commission institutes the proceeding, 
                the new contract may be made effective, and trading in 
                the new contract may be implemented, by the contract 
                market until such time as the Commission disapproves 
                the new contract in accordance with this paragraph.
                    ``(D) Appeals.--A board of trade that has been 
                subject to disapproval of a new contract by the 
                Commission under this subsection shall have the right 
                to an appeal of the disapproval to the court of appeals 
                as provided in section 6(b).
            ``(6) Contract market deemed designated.--A board of trade 
        shall be deemed to be designated a contract market for a new 
        contract of sale for future delivery when the new contract 
        becomes effective and trading in the new contract begins.
    ``(e) Required Interagency Review.--Notwithstanding subsection (d), 
no board of trade may make effective a new contract (or option on the 
contract) that is subject to the requirements and procedures of clauses 
(ii) through (v) of paragraph (1)(B), and paragraph (8)(B)(ii), of 
section 2(a) until the requirements and procedures are satisfied and 
carried out.''.
    (b) Conforming Amendment.--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'' and inserting ``A board of trade that has not 
obtained any designation as a contract market for a contract of sale 
for a commodity under section 5 that desires''.

SEC. 6. DELIVERY BY FEDERALLY LICENSED WAREHOUSES.

    Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 7a(a)) is 
amended by striking paragraph (7) and inserting the following:
            ``(7) Repealed;''.

SEC. 7. SUBMISSION OF RULES TO COMMISSION.

    Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 7a(a)(12)) is 
amended by striking paragraph (12) and inserting the following:
            ``(12)(A)(i) except as otherwise provided in this 
        paragraph, submit to the Commission all bylaws, rules, 
        regulations, and resolutions (collectively referred to in this 
        subparagraph as `rules') made or issued by the contract market, 
        or by the governing board or committee of the contract market 
        (except those relating to the setting of levels of margin, 
        those submitted pursuant to section 5 or 6(a), and those the 
        Commission may specify by regulation) and may make a rule 
        effective not earlier than 10 business days after the receipt 
        of the submission by the Commission or earlier, if approved by 
        the Commission by rule, regulation, order, or written notice, 
        unless, within the 10-business-day period, the Commission 
        notifies the contract market in writing of its determination to 
        review such rules for disapproval and of the specific sections 
        of this Act or the regulations of the Commission that the 
        Commission determines the rule would violate. The determination 
        to review such rules for disapproval shall not be delegable to 
        any employee of the Commission. Not later than 45 calendar days 
        before disapproving a rule of major economic significance (as 
        determined by the Commission), the Commission shall publish a 
        notice of the rule in the Federal Register. The Commission 
        shall give interested persons an opportunity to participate in 
        the disapproval process through the submission of written data, 
        views, or arguments. The determination by the Commission 
        whether a rule is of major economic significance shall be final 
        and not subject to judicial review. The Commission shall 
        disapprove, after appropriate notice and opportunity for 
        hearing (including an opportunity for the contract market to 
        have a hearing on the record before the Commission), a rule 
        only if the Commission determines the rule at any time to be in 
        violation of this Act or a regulation of the Commission. If the 
        Commission institutes proceedings to determine whether a rule 
        should be disapproved pursuant to this paragraph, the 
        Commission shall provide the contract market with written 
        notice of the proposed grounds for disapproval, including the 
        specific sections of this Act or the regulations of the 
        Commission that would be violated. At the conclusion of the 
        proceedings, the Commission shall determine whether to 
        disapprove the rule. Any disapproval shall specify the sections 
        of this Act or the regulations of the Commission that the 
        Commission determines the rule has violated or, if effective, 
        would violate. If the Commission does not institute disapproval 
        proceedings with respect to a rule within 45 calendar days 
        after receipt of the rule by the Commission, or if the 
        Commission does not conclude a disapproval proceeding with 
        respect to a rule within 120 calendar days after receipt of the 
        rule by the Commission, the rule may be made effective by the 
        contract market until such time as the Commission disapproves 
        the rule in accordance with this paragraph.
            ``(B)(i) 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 the governing board of the contract market, make 
        a rule (referred to in this subparagraph as an `emergency 
        rule') immediately effective without compliance with the 10-day 
        notice requirement under subparagraph (A), if the contract 
        market makes every effort practicable to notify the Commission 
        of the emergency rule, and provide a complete explanation of 
        the emergency involved, prior to making the emergency rule 
        effective.
            ``(ii) If the contract market does not provide the 
        Commission with the requisite notification and explanation 
        before making the emergency rule effective, the contract market 
        shall provide the Commission with the notification and 
        explanation at the earliest practicable date.
            ``(iii) The Commission may delegate the power to receive 
        the notification and explanation to such individuals as the 
        Commission determines necessary and appropriate.
            ``(iv) Not later than 10 days after the receipt from a 
        contract market of notification of such an emergency rule and 
        an explanation of the emergency involved, or as soon as 
        practicable, the Commission shall determine whether to suspend 
        the effect of the rule pending review by the Commission under 
        the procedures of subparagraph (A).
            ``(v)(I) The Commission shall submit a report on the 
        determination of the Commission on the emergency rule under 
clause (iv), and the basis for the determination, to the affected 
contract market, the Committee on Agriculture of the House of 
Representatives, and the Committee on Agriculture, Nutrition, and 
Forestry of the Senate.
            ``(II) If the report is submitted more than 10 days after 
        the Commission's receipt of notification of the emergency rule 
        from a contract market, the report shall explain why submission 
        within the 10-day period was not practicable.
            ``(III) A determination by the Commission to suspend the 
        effect of a rule under this subparagraph shall be subject to 
        judicial review on the same basis as an emergency determination 
        under section 8a(9).
            ``(IV) Nothing in this paragraph limits the authority of 
        the Commission under section 8a(9);''.

SEC. 8. AUDIT TRAIL.

    Section 5a(b) of the Commodity Exchange Act (7 U.S.C. 7a(b)) is 
amended--
            (1) in paragraph (3), by inserting ``selected by the 
        contract market'' after ``means'' each place it appears; and
            (2) by adding at the end the following:
    ``(7) The requirements of this subsection establish performance 
standards and do not mandate the use of a specific technology to 
satisfy the requirements.''.

SEC. 9. MISCELLANEOUS TECHNICAL AMENDMENTS.

    Section 8a of the Commodity Exchange Act (7 U.S.C. 12a) is 
amended--
            (1) in paragraph (2)--
                    (A) in subparagraph (B), by inserting ``this 
                paragraph or'' after ``the provisions of''; and
                    (B) in subparagraph (D), by inserting ``pleaded 
                guilty to or'' after ``such person has''; and
            (2) in paragraph (3)(H), by striking ``or has been 
        convicted in a State court,'' and inserting ``or has pleaded 
        guilty to, or has been convicted, in a State court,''.

SEC. 10. CONSIDERATION OF EFFICIENCY, COMPETITION, RISK MANAGEMENT, AND 
              ANTITRUST LAWS.

    Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is amended--
            (1) by striking ``Sec. 15. The Commission'' and inserting 
        the following:
    ``Sec. 15. (a)(1) Prior to adopting a rule or regulation authorized 
by this Act or adopting an order (except as provided in subsection 
(b)), the Commission shall consider the costs and benefits of the 
action of the Commission.
    ``(2) The costs and benefits of the proposed Commission action 
shall be evaluated in light of considerations of protection of market 
participants, the efficiency, competitiveness, and financial integrity 
of futures markets, price discovery, sound risk management practices, 
and other appropriate factors, as determined by the Commission.
    ``(b) Subsection (a) shall not apply to the following actions of 
the Commission:
            ``(1) An order that initiates, is part of, or is the result 
        of an adjudicatory or investigative process of the Commission.
            ``(2) An emergency action.
            ``(3) A finding of fact regarding compliance with a 
        requirement of the Commission.
    ``(c) The Commission''; and
            (2) by striking ``requiring or approving'' and inserting 
        ``requiring, reviewing, or disapproving''.

SEC. 11. DISCIPLINARY AND ENFORCEMENT ACTIVITIES.

    (a) In General.--It is the sense of Congress that the Commodity 
Futures Trading Commission should--
            (1) to the extent practicable, avoid unnecessary 
        duplication of effort in pursuing disciplinary and enforcement 
        actions if adequate self-regulatory actions have been taken by 
        contract markets and registered futures associations; and
            (2) retain an oversight and disciplinary role over the 
        self-regulatory activities by contract markets and registered 
        futures associations in a manner that is sufficient to 
        safeguard financial and market integrity and the public 
        interest.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Commission shall submit a report to the Committee on 
Agriculture of the House of Representatives and the Committee on 
Agriculture, Nutrition, and Forestry of the Senate that evaluates the 
effectiveness of the enforcement activities of the Commission, 
including an evaluation of the experience of the Commission in 
preventing, deterring, and disciplining violations of the Commodity 
Exchange Act (7 U.S.C. 1 et seq.) and Commission regulations involving 
fraud against the public through the bucketing of orders and similar 
abuses.

SEC. 12. DELEGATION OF FUNCTIONS BY THE COMMISSION.

    (a) In General.--It is the sense of Congress that the Commodity 
Futures Trading Commission should--
            (1) review its rules and regulations that delegate any of 
        its duties or authorities under the Commodity Exchange Act (7 
        U.S.C. 1 et seq.) to contract markets or registered futures 
        associations;
            (2) consistent with the public interest and law, determine 
        which additional functions, if any, performed by the Commission 
        should be delegated to contract markets or registered futures 
        associations; and
            (3) establish procedures (such as spot checks, random 
        audits, reporting requirements, pilot projects, or other means) 
        to ensure adequate performance of the additional functions that 
        are delegated to contract markets or registered futures 
        associations.
    (b) Report.--Not later than 1 year after the date of enactment of 
this Act, the Commission shall report the results of its review and 
actions under subsection (a) to the Committee on Agriculture of the 
House of Representatives and the Committee on Agriculture, Nutrition, 
and Forestry of the Senate.
                                 <all>