[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2765 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 2765

   To amend the securities laws to provide for regulatory parity for 
             single stock futures, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 21, 2000

  Mr. Schumer introduced the following bill; which was read twice and 
    referred to the Committee on Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
   To amend the securities laws to provide for regulatory parity for 
             single stock futures, and for other purposes.

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

SEC. 101. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934.

    Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)) is amended--
            (1) in paragraph (10), by inserting ``security future,'' 
        between ``treasury stock,'' and ``bond'';
            (2) by striking paragraph (11) and inserting the following:
            ``(11) The term `equity security' means any stock or 
        similar security; or any security future; or any security 
        convertible, with or without consideration, into such a 
        security, or carrying any warrant or right to subscribe to or 
        purchase such a security; or any such warrant or right; or any 
        put, call, straddle, option, or privilege on any such security; 
        or any other security which the Commission shall deem to be of 
        similar nature and consider necessary or appropriate, by such 
        rules and regulations as it may prescribe in the public 
        interest or for the protection of investors, to treat as an 
        equity security.'';
            (3) in paragraph (13), by adding at the end the following: 
        ``For security future products, this includes any contract, 
        agreement, or transaction for future delivery.'';
            (4) in paragraph (14), by adding at the end the following: 
        ``For security future products, this includes any contract, 
        agreement, or transaction for future delivery.''; and
            (5) by adding at the end the following:
            ``(55)(A) The term `security future' means a contract of 
        sale for future delivery of a single security or of a narrow-
        based security index, including any interest therein or based 
        on the value thereof.
            ``(B) A `narrow-based security index' is an index--
                    ``(i) that has 10 or fewer component securities;
                    ``(ii) in which the securities of a single issuer 
                account on average, over the six-month period ending on 
                the date equity options expire in June of each year and 
                over the six-month period ending on the date equity 
                options expire in December of each year, for more than 
                10% of the market capitalization of that index;
                    ``(iii) in which the securities of a single issuer 
                in a price-weighted (or other non-capitalization 
                weighted) index account on average, over the six-month 
                period ending on the date equity options expire in June 
                of each year and over the six-month period ending on 
                the date equity options expire in December of each 
                year, for more than three times their weight in the 
                index if calculated on a market-capitalization basis;
                    ``(iv) in which any component security has an 
                average daily trading volume value of less than $1 
                million or an aggregate market value of the voting and 
                non-voting common equity held by non-affiliates of less 
                than $150 million;
                    ``(v) in which the average correlation of the 
                securities in the index to the index itself is greater 
                than 0.6 over the six-month period ending on the date 
                equity options expire in June of each year and over the 
                six-month period ending on the date equity options 
                expire in December of each year; or
                    ``(vi) in which the correlation of any security in 
                the index to the index itself is greater than 0.9 over 
                the six-month period ending on the date equity options 
                expire in June of each year and over the six-month 
                period ending on the date equity options expire in 
                December of each year.
            ``(C) The term `security future product' means a security 
        future or any put, call, straddle, option, or privilege on any 
        security future.
            ``(56)(A) The term `margin', when used with respect to a 
        security future product, means the amount, type, and form of 
        collateral required to secure any extension, maintenance, or 
        arrangement of the extension or maintenance of credit, or the 
        amount of collateral required as a performance bond related to 
        the purchase, sale, or carrying of a security future product, 
        and all other uses of collateral related to the purchasing, 
        selling, or carrying of a security future product.
            ``(B) The terms `margin level' and `level of margin', when 
        used with respect to a security future product, mean the amount 
        of collateral required to secure any extension, maintenance, or 
        arrangement of the extension or maintenance of credit, or the 
        amount of collateral required as a performance bond, related to 
        the purchase, sale, or carrying of a security future product.
            ``(C) The terms `higher margin level' and `higher level of 
        margin', when used with respect to a security future product, 
        mean a margin level established by a national securities 
        exchange or a national securities association that is higher 
        than the minimum amount established jointly by the Commission 
        and the Commodity Futures Trading Commission pursuant to 
        section 7(c)(1)(C)(ii).''.

SEC. 102. REGULATORY RELIEF FOR MARKETS TRADING SECURITY FUTURE 
              PRODUCTS.

    (a) Expedited Registration and Exemption.--Section 6 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at 
the end the following:
    ``(g)(1) An exchange that lists or trades security future products 
may be registered as a national securities exchange solely for the 
purposes of trading security future products if (A) it is a board of 
trade, as that term is defined by the Commodity Exchange Act (7 U.S.C. 
1a(1)), that has been designated a contract market by the Commodity 
Futures Trading Commission and is not subject to a suspension order by 
the Commodity Futures Commission, and (B) such exchange does not serve 
as a market place for securities other than security future products, 
or futures on exempted securities or groups or indexes of securities 
that have been authorized by Commodity Futures Trading Commission order 
or options thereon.
    ``(2)(A) An exchange required to register only because it lists or 
trades security future products may register for purposes of this 
section by filing with the Commission a written notice in such form as 
the Commission, by rule, may prescribe containing the rules of the 
exchange and such other information and documents concerning such 
exchange as the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of investors.
    ``(B) Such registration shall be effective immediately upon filing 
of the written notice with the Commission. Such registration shall not 
be effective if the exchange were so registered, its registration would 
be subject to suspension or revocation.
    ``(C) Such registration shall be terminated immediately if any of 
the conditions for registration set forth in this subsection are no 
longer satisfied.
    ``(3) The Commission shall make available to the public all notices 
it receives under this subsection.
    ``(4)(A) An exchange that is registered under paragraph (1) of this 
subsection shall be exempt from and shall not be required to enforce 
compliance by its members with, and its members shall not, solely with 
respect to those transactions effected on such exchange in security 
future products, be required to comply with, the following provisions 
of this title and the rules thereunder:
            ``(i) subsections (b)(2), (b)(3), (b)(4), (b)(7), (b)(9), 
        (c), (d), and (e) of section 6;
            ``(ii) section 11;
            ``(iii) subsection (d) and (f) of section 17; and
            ``(iv) subsection (a), (f), and (h) of section 19.
    ``(B) An exchange that is subject to the registration requirement 
of paragraph (1) of this subsection shall also be exempt from 
submitting proposed rule changes pursuant to section 19(b) of this 
title, except that:
            ``(i) it shall file proposed rule changes related to higher 
        margin levels, fraud or manipulation, recordkeeping, reporting, 
        listing standards of security future products, or sales 
        practices for persons who effect transactions in security 
        future products or rules primarily related to its obligation to 
        enforce the securities laws pursuant to section 19(b)(7);
            ``(ii) it shall file pursuant to sections 19(b)(1) and 
        19(b)(2) proposed rule changes related to margin, except for 
        changes to higher margin levels; and
            ``(iii) it shall file pursuant to section 19(b)(1) proposed 
        rule changes that have been abrogated by the Commission 
        pursuant to section 19(b)(7)(C).
    ``(5) No exchange that is registered under paragraph (1) of this 
subsection shall trade any security future product until the National 
Futures Association has met the requirements set forth in section 
15A(k)(2) of this title.''.
    (b) Commission Review of Proposed Rule Changes.--
            (1) Expedited review.--Section 19(b) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by adding at 
        the end the following:
            ``(7)(A) A self-regulatory organization that is an exchange 
        registered with the Commission pursuant to section 6(g) of this 
        title or that is the National Futures Association shall file 
        with the Commission, in accordance with such rules as the 
        Commission may prescribe, copies of any proposed rule change or 
        any proposed change in, addition to, or deletion from the rules 
        of such self-regulatory organization (hereinafter in this 
        subsection collectively referred to as a `proposed rule 
        change') that relates to higher margin levels, fraud or 
        manipulation, recordkeeping, reporting, listing standards of 
        security future products, or sales practices for persons who 
        effect transactions in security future products or rules 
        primarily related to its obligation to enforce the securities 
        laws. Such proposed rule change shall be accompanied by a 
        concise general statement of the basis and purpose of such 
        proposed rule change. The Commission shall, upon the filing of 
        any proposed rule change, publish notice thereof together with 
        the terms of substance of the proposed rule change or a 
        description of the subjects and issues involved. The Commission 
        shall give interested persons an opportunity to submit written 
        data, views, and arguments concerning such proposed rule 
        change.
            ``(B) A proposed rule change filed with the Commission 
        pursuant to subparagraph (A) must be filed concurrently with 
        the Commodity Futures Trading Commission. Such proposed rule 
        change may take effect upon a determination by the Commodity 
        Futures Trading Commission that review of the proposed rule 
change is not necessary or upon approval of the proposed rule change by 
the Commodity Futures Trading Commission.
            ``(C) Any proposed rule change of a self-regulatory 
        organization that has taken effect pursuant to subparagraph (B) 
        may be enforced by such self-regulatory organization to the 
        extent it is not inconsistent with the provisions of this 
        title, the rules and regulations thereunder, and applicable 
        Federal and State law. At any time within sixty days of the 
        date the Commodity Futures Trading Commission determines that 
        review of such proposed rule change is not necessary or the 
        date the Commodity Futures Trading Commission approves such 
        proposed rule change, the Commission summarily may abrogate the 
        proposed rule change and require that the proposed rule change 
        be refiled in accordance with the provisions of section 
        19(b)(1), if it appears to the Commission that such proposed 
        rule change unduly burdens competition, conflicts with the 
        securities laws, or does not promote efficiency. Commission 
        action pursuant to the preceding sentence shall not affect the 
        validity or force of the rule change during the period it was 
        in effect and shall not be reviewable under section 25 nor 
        deemed to be a final agency action for purposes of section 704 
        of title 5, United States Code.
            ``(D) Within thirty-five days of the date of publication of 
        notice of the filing of a proposed rule change that is 
        abrogated in accordance with subparagraph (C) and refiled in 
        accordance with section 19(b)(1), or within such longer period 
        as the Commission may designate up to ninety days after such 
        date if it finds such longer period to be appropriate and 
        publishes its reasons for so finding or as to which the self-
        regulatory organization consents, the Commission shall--
                    ``(i) by order approve such proposed rule change, 
                or
                    ``(ii) institute proceedings to determine whether 
                the proposed rule change should be disapproved. Such 
                proceedings shall include notice of the grounds for 
                disapproval under consideration and opportunity for 
                hearing and be concluded within one hundred eighty days 
                of the date of publication of notice of the filing of 
                the proposed rule change. At the conclusion of such 
                proceedings the Commission, by order, shall approve or 
                disapprove such proposed rule change. The Commission 
                may extend the time for conclusion of such proceedings 
                for up to sixty days if it finds good cause for such 
                extension and publishes its reasons for so finding or 
                for such longer period as to which the self-regulatory 
                organization consents.
        The Commission shall approve a proposed rule change of a self-
        regulatory organization if it finds that such proposed rule 
        change promotes efficiency, does not unduly burden competition, 
        and does not conflict with the securities laws. The Commission 
        shall disapprove a proposed rule change of a self-regulatory 
        organization if it does not make such finding. The Commission 
        shall not approve any proposed rule change prior to the 
        thirtieth day after the date of publication of notice of the 
        filing thereof, unless the Commission finds good cause for so 
        doing and publishes its reasons for so finding.''.
            (2) Consultation provisions.--Section 19(b) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended 
        by adding after paragraph (7), as added by this Act, the 
        following:
            ``(8)(A) The Commission shall consult with and consider the 
        views of the Commodity Futures Trading Commission prior to 
        approving a proposed rule change filed by a national securities 
        association registered pursuant to section 15A(a) or a national 
        securities exchange subject to the provisions of section 19(a) 
        that primarily concerns conduct related to transactions in 
        security futures products, except where the Commission 
        determines that an emergency exists requiring expeditious or 
        summary action and publishes its reasons therefore. If the 
        Commodity Futures Trading Commission comments in writing to the 
        Commission on a proposed rule that has been published for 
        comment, the Commission shall respond in writing to such 
        written comment before approving the proposed rule. If the 
        Commodity Futures Trading Commission determines, and notifies 
        the Commission, that such rule, if implemented, would, or as 
        applied: (i) adversely affect the liquidity or efficiency of 
        the market for security future products; or (ii) impose any 
        burden on competition not necessary or appropriate in 
        furtherance of the purposes of this section, the Commission 
        shall, prior to adopting the proposed rule, find that such rule 
        is necessary and appropriate in furtherance of the purposes of 
        this section notwithstanding the Commodity Futures Trading 
        Commission's determination.
            ``(B) In approving rules described in subparagraph (A), the 
        Commission shall consider the sufficiency and appropriateness 
        of then existing laws and rules applicable to security futures 
        products.''.
    (c) Review of Disciplinary Proceedings.--Section 19(d) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78s(d)) is amended by adding 
at the end the following:
            ``(3) The provisions of section 19(d) shall apply to an 
        exchange registered pursuant to section 6(g) of this title or 
        the National Futures Association only to the extent that such 
        self-regulatory organization imposes any final disciplinary 
        sanction related to a security future product or the securities 
        laws.''.

SEC. 103. REGULATORY RELIEF FOR INTERMEDIARIES TRADING SECURITY FUTURE 
              PRODUCTS.

    (a) Expedited Registration and Exemptions.--
            (1) Section 15(b) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78o(b)) is amended by adding at the end the 
        following:
            ``(11)(A)(i) A broker or dealer required to register only 
        because it effects transactions in security future products on 
        an exchange registered pursuant to section 6(g) may register 
        for purposes of this section by filing with the Commission a 
        written notice in such form and containing such information 
        concerning such broker or dealer and any persons associated 
with such broker or dealer as the Commission, by rule, may prescribe as 
necessary or appropriate in the public interest or for the protection 
of investors, if that broker or dealer is a member of the National 
Futures Association.
            ``(ii) Such registration shall be effective immediately 
        upon filing of the written notice with the Commission. Such 
        registration shall not be effective if the applicant were so 
        registered, its registration would be subject to suspension or 
        revocation under paragraph (4).
            ``(iii) Such registration shall be suspended immediately if 
        the National Futures Association suspends the membership of 
        that broker or dealer.
            ``(iv) Such registration shall be terminated immediately if 
        any of the above stated conditions for registration set forth 
        in this paragraph are no longer satisfied.
            ``(B) A broker or dealer registered pursuant to the 
        requirements of subparagraph (A) shall be exempt from the 
        following provisions of this title and the rules thereunder 
        with respect to transactions in security future products:
                    ``(i) section 8;
                    ``(ii) subsection (a) of section 10;
                    ``(iii) section 11;
                    ``(iv) subsection (c)(3) of section 15;
                    ``(v) section 15B;
                    ``(iv) section 15C; and
                    ``(vii) subsections (d), (e), (f) (g), and (h) of 
                section 17.
        The Commission, by rule, regulation, or order, also may 
        conditionally or unconditionally exempt any broker or dealer 
        from any other requirement of this title related to security 
        future products, to the extent that such exemption is necessary 
        or appropriate in the public interest, and is consistent with 
        the protection of investors.''; and
            (2) Section 28(e) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78bb(e)) is amended by adding at the end the 
        following:
            ``(4) The provisions of subsection (e) shall not apply with 
        regard to securities that are security future products.''.
    (b) Floor Brokers.--Section 15(b) of the Securities Exchange Act of 
1934 (15 U.S.C. 78o(b)) is amended by adding after paragraph (11), as 
added by this Act, the following:
            ``(12)(A) A natural person shall be exempt from the 
        registration requirements of this section if such person:
                    ``(i) is a member of a designated contract 
                registered with the Commission as an exchange pursuant 
                to section 6(g);
                    ``(ii) only effects transactions in securities of 
                the exchange of which he is a member; and
                    ``(iii) has no direct contact with public 
                customers.
            ``(B) A natural person exempt from registration pursuant to 
        subparagraph (A) shall also be exempt from the following 
        provisions of this title and the rules thereunder:
                    ``(i) section 8;
                    ``(ii) subsection (a) of section 10;
                    ``(iii) section 11;
                    ``(iv) subsection (c)(3) of section 15;
                    ``(v) section 15B;
                    ``(iv) section 15C; and
                    ``(vii) subsections (d), (e), (f) (g), and (h) of 
                section 17.''.
    (c) Limited Purpose National Securities Association.--Section 15A 
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by 
adding at the end the following:
    ``(k)(1) The National Futures Association shall be a registered 
national securities association for the limited purpose of regulating 
the activities of members who are registered as brokers or dealers in 
security future products pursuant to section 15(b)(11).
    ``(2) The National Futures Association shall--
            ``(A) be so organized and have the capacity to carry out 
        the purposes of the securities laws applicable to security 
        future products and to comply, and (subject to any rule or 
        order of the Commission pursuant to section 19(g)(2)) to 
        enforce compliance by its members and persons associated with 
        members, with the provisions of the securities laws applicable 
to security future products, the rules and regulations thereunder, and 
the rules of the National Futures Association;
            ``(B) have rules that are designed to prevent fraudulent 
        and manipulative acts and practices, to promote just and 
        equitable principles of trade, and, in general, to protect 
        investors and the public interest; and are not designed to 
        regulate by virtue of any authority conferred by this title 
        matters not related to the purposes of this title or the 
        administration of the association;
            ``(C) have rules that provide that (subject to any rule or 
        order of the Commission pursuant to section 19(g)(2)) its 
        members and persons associated with its members shall be 
        appropriately disciplined for violation of any provision of the 
        securities laws applicable to security future products, the 
        rules or regulations thereunder, or the rules of the 
        association, by expulsion, suspension, limitation of 
        activities, functions, and operations, fine, censure, being 
        suspended or barred from being associated with a member, or any 
        other fitting sanction;
            ``(D) have rules that ensure that members and natural 
        persons associated with members meet such standards of 
        training, experience, and competence necessary to effect 
        transactions in security future products and are tested for 
        their knowledge of securities and security future products; and
            ``(E) have rules governing sales practices and the 
        advertising of security future products comparable to those of 
        other national securities associations registered pursuant to 
        section 15A(a).
    ``(3) The National Futures Association shall be exempt from 
submitting proposed rule changes pursuant to section 19(b) of this 
title, except that:
            ``(A) it shall file proposed rule changes related to higher 
        margin levels, fraud or manipulation, recordkeeping, reporting, 
        listing standards of security future products, or sales 
        practices or standards of training, experience, competence, or 
        other qualifications for persons who effect transactions in 
        security future products or rules primarily related to its 
        obligation to enforce the securities laws pursuant to section 
        19(b)(7);
            ``(B) it shall file pursuant to sections 19(b)(1) and 
        19(b)(2) proposed rule changes related to margin, except for 
        changes to higher margin levels; and
            ``(C) it shall file pursuant to section 19(b)(1) proposed 
        rule changes that have been abrogated by the Commission 
        pursuant to section 19(b)(7)(C).
    ``(4) The National Futures Association shall be exempt from and 
shall not be required to enforce compliance by its members, and its 
members shall not, solely with respect to their transactions effected 
in security future products, be required to comply, with the following 
provisions of this title and the rules thereunder:
            ``(A) subsections (b)(1), (b)(3), (b)(4), (b)(5), (b)(8), 
        (b)(10), (b)(11), (b)(12), (b)(13), (c), (d), (e), (f), (g), 
        (h), and (i) of section 15A;
            ``(B) subsections (d) and (f) of section 17; and
            ``(C) subsections (a), (f), and (h) of section 19.''.
    ``(d) Exemption Under the Securities Investor Protection Act of 
1970.--
            (1) Section 16(14) of the Securities Investor Protection 
        Act of 1970 (15 U.S.C. 78lll(14)) is amended by inserting ``or 
        any security future as that term is defined in Section 
        3(a)(55)(A) of the Securities Exchange Act of 1934,'' between 
        ``certificate of deposit for a security,'' and ``any investment 
        contract or certificate of interest or participation''; and
            (2) Section 3(a)(2) of the Securities Investor Protection 
        Act of 1970 (15 U.S.C. 78ccc(a)(2)) is amended--
                    (A) in subparagraph (A)(i), by striking ``and'' 
                after the semicolon;
                    (B) in subparagraph (A)(ii), by striking the period 
                and inserting ``; and'';
                    (C) by adding at the end the following:
                            ``(iii) persons who are registered as a 
                        broker or dealer pursuant to section 
                        15(b)(11)(A) of the Securities Exchange Act of 
                        1934.''.
    (e) Other Provision.--Section 15(i)(6)(A) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78o(i)(6)(A)) is amended--
                    (1) in subparagraph (A)(ii), by striking ``and'';
                    (2) in subparagraph (A)(iii), by striking the 
                period and inserting ``; and'';
                    (3) by adding at the end the following:
                            ``(iv) is not a security future product.''.

SEC. 104. SPECIAL PROVISIONS FOR INTERAGENCY COOPERATION.

    Section 17 of the Securities Exchange Act of 1934 (15 U.S.C. 78q) 
is amended by striking subsection (b) and inserting the following:
    ``(b)(1) All records of persons described in subsection (a) are 
subject at any time, or from time to time, to such reasonable periodic, 
special, or other examinations by representatives of the Commission and 
the appropriate regulatory agency for such persons as the Commission or 
the appropriate regulatory agency for such persons deems necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of this title if the 
Commission, prior to conducting any such examination of a--
            ``(A) registered clearing agency, registered transfer 
        agent, or registered municipal securities dealer for which it 
        is not the appropriate regulatory agency, gives notice to the 
        appropriate regulatory agency for such clearing agency, 
        transfer agent, or municipal securities dealer, of such 
        proposed examination and consults with the appropriate 
        regulatory agency concerning the feasibility and desirability 
        of coordinating such examinations conducted by the appropriate 
        regulatory agency with a view to avoiding unnecessary 
        regulatory duplication or undue regulatory burdens for such 
        clearing agency, transfer agent, or municipal securities 
        dealer; or
            ``(B) broker or dealer registered pursuant to section 
        15(b)(11) or exchange registered pursuant to section 6(g), 
        gives notice to the Commodity Futures Trading Commission of 
        such proposed examination and consults with the Commodity 
        Futures Trading Commission concerning the feasibility and 
        desirability of coordinating such examination with examinations 
        conducted by the Commodity Futures Trading Commission with a 
        view to avoiding unnecessary regulatory duplication or undue 
        regulatory burdens for such broker or dealer or exchange.
    ``(2) The Commission shall notify the Commodity Futures Trading 
Commission of any examination conducted of any broker or dealer 
registered pursuant to section 15(b)(11) or exchange registered 
pursuant to section 6(g), and, upon request, furnish to the Commodity 
Futures Trading Commission any examination report and data supplied to 
the Commission in connection with such examination.
    ``(3) The Commission shall, to the fullest extent possible, use the 
reports of examinations of any broker or dealer registered pursuant to 
section 15(b)(11) or exchange registered pursuant to section 6(g) made 
by the Commodity Futures Trading Commission, the National Futures 
Association, or an exchange registered pursuant to section 6(g).
    ``(4) Nothing in this subsection shall be construed to impair or 
limit (other than by the requirement of prior consultation) the power 
of the Commission under this subsection to examine any clearing agency, 
transfer agent, or municipal securities dealer, broker or dealer 
registered pursuant to section 15(b)(11), or exchange registered 
pursuant to section 6(g), or to affect in any way the power of the 
Commission under any other provision of this title or otherwise to 
inspect, examine, or investigate any clearing agency, transfer agent, 
or municipal securities dealer, broker or dealer registered pursuant to 
section 15(b)(11), or exchange registered pursuant to section 6(g).''.

SEC. 105. MAINTENANCE OF MARKET INTEGRITY FOR SECURITY FUTURE PRODUCTS.

    (a) Addition of Security Future Products to Option-Specific 
Enforcement Provisions.--
            (1) Prohibition against manipulation.--Section 9(b) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78i) is amended--
                    (A) in paragraph (1), by inserting ``(A)'' between 
                ``acquires'' and ``any'' and by striking ``; or'' and 
                inserting ``, or (B) any contract of sale of the 
                security for future delivery; or'';
                    (B) in paragraph (2), by inserting ``(A)'' between 
                ``any'' and ``such'' and by striking 
                ``; or'' and inserting ``or (B) such contract of sale 
                for future delivery; or''; and
                    (C) in paragraph (3), by inserting ``(A)'' between 
                ``any'' and ``such'' and inserting ``or (B) contract of 
                sale for future delivery'' between ``security'' and 
                ``with''.
            (2) Liability of controlling persons and persons who aid 
        and abet violations.--Section 20(d) of the Securities Exchange 
        Act of 1934 (15 U.S.C. 78t) is amended by striking ``or 
        privilege'' and inserting ``privilege, or security future 
        product''.
            (3) Liability to contemporaneous traders for insider 
        trading.--Section 21A(a)(1) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78u-1(a)(1)) is amended by striking 
        ``standardized options, the Commission--'' and inserting 
        ``standardized options or security future products, the 
        Commission--''.
            (4) Enforcement consultation.--Section 21 of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at 
        the end the following:
                            ``(i) The Commission shall file with the 
                        Commodity Futures Trading Commission notice of 
                        the commencement of any proceeding and a copy 
                        of any order entered by the Commission against 
                        any broker or dealer registered pursuant to 
                        section 15(b)(11) or any exchange registered 
                        pursuant to section 6(g).''.

SEC. 106. SPECIAL PROVISIONS FOR THE TRADING OF SECURITY FUTURE 
              PRODUCTS.

    (a) Listing Standards.--Section 6 of the Securities Exchange Act of 
1934 (15 U.S.C. 78f) is amended by inserting after subsection (g), as 
added by this Act, the following:
    ``(h)(1) It shall be unlawful for any person to effect transactions 
in security future products otherwise than on a national securities 
exchange or a national securities association registered pursuant to 
section 15A(a).
    ``(2) A national securities exchange or a national securities 
association registered pursuant to section 15A(a) may trade only 
security future products that conform with listing standards that such 
exchanges file with the Commission under section 19(b)(7) and the 
Commodity Futures Trading Commission under section ____ of the 
Commodity Exchange Act (7 U.S.C. ____).
    ``(3) Such listing standards must:
            ``(A) require that any security underlying the security 
        future, including each component security of a narrow-based 
        security index, be registered pursuant to section 12 of this 
        title;
            ``(B) require that the security future product be cash 
        settled;
            ``(C) be no less restrictive than comparable listing 
        standards for options;
            ``(D) require that the security future be based upon common 
        stock and such other equity securities as the Commission 
        determines appropriate;
            ``(E) require that the security future product is 
        guaranteed by a clearing agency that has in place provisions 
        for linked and coordinated clearing with other clearing 
        agencies that guarantee security future products, which permits 
        the security future product to be purchased on a national 
        securities exchange or national securities association 
        registered pursuant to section 15A(a) and offset on another 
        national securities exchange or national securities association 
        registered pursuant to section 15A(a);
            ``(F) require that only a broker or dealer subject to 
        suitability rules comparable to those of a national securities 
        association registered pursuant to section 15A(a) effect 
        transactions in the security future product;
            ``(G) require that the security future product be subject 
        to the prohibition against dual trading in section 4(j) of the 
        Commodity Exchange Act (7 U.S.C. 6j) or the provisions of 
        section 11(a) of this title and the rules and regulations 
        thereunder, except to the extent otherwise permitted under this 
        title and the rules and regulations thereunder;
            ``(H) require that trading in the security future product 
        and any security that underlies the security future product not 
        be readily susceptible to manipulation;
            ``(I) require that procedures be in place for coordinated 
        surveillance to detect manipulation and insider trading between 
        the market trading the security future product, the market 
        trading the securities underlying the security future product, 
        and other markets trading related securities;
            ``(J) require that the market trading the security future 
        product has in place audit trails necessary or appropriate to 
        facilitate the coordinated surveillance required in 
        subparagraph (I);
            ``(K) require that the market trading the security future 
        product has in place procedures to coordinate trading halts 
        between that market and markets trading the securities 
        underlying the security future product and other markets 
        trading related securities; and
            ``(L) require that initial and maintenance margin levels 
        for a security future product shall not be lower than the 
        levels of margin required on a comparable option traded on an 
        exchange registered pursuant to section 6(a) of this title.
    ``(4) No person shall offer to enter into, enter into, or confirm 
the execution of any option on a securities future: Provided, however, 
That after 3 years from the date of enactment of this Act the 
Commission and the Commodity Futures Trading Commission may by order 
determine to permit trading of options on any security future 
authorized to be traded under the provisions of this Act. Before any 
such determination, the Commission and the Commodity Futures Trading 
Commission shall conduct a study of the effect of the trading of 
security futures on the markets for futures contracts, securities, and 
options and the adequacy of protections for investors and other market 
participants.''.
    (b) Margin.--Section 7(c)(1) of the Securities Exchange Act of 1934 
(15 U.S.C. 78g) is amended--
            (1) in subparagraph (A), by inserting ``except as provided 
        in subparagraph (C),'' between ``security),'' and ``in 
        contravention'' and by striking ``and'' after the semicolon;
            (2) in subparagraph (B), by striking the period and 
        inserting ``; and''; and
            (3) by adding at the end the following:
                    ``(C) Joint regulations.--
                            ``(i) It shall be unlawful for any broker, 
                        dealer, or member of a national securities 
                        exchange to, directly or indirectly, extend or 
                        maintain credit to or for, arrange for the 
                        extension or maintenance of credit for, or 
                        collect margin from any customer on any 
                        security future product in contravention of the 
                        rules and regulations which the Commission and 
                        the Commodity Futures Trading Commission shall 
                        prescribe pursuant to subparagraph (C)(ii).
                            ``(ii) The Commission and the Commodity 
                        Futures Trading Commission shall issue jointly 
                        such regulations to establish margin 
                        requirements, including the establishment of 
                        levels of margin (initial and maintenance) and 
                        use of collateral for security future products 
                        under such terms, and at such levels as the 
                        Commission and the Commodity Futures Trading 
                        Commission jointly deem: (I) appropriate to 
                        preserve the financial integrity of markets 
                        trading security future products; (II) to 
                        prevent systemic risk; (III) to make equivalent 
                        the margin levels (initial and maintenance) and 
                        other margin requirements between security 
                        future products and comparable options traded 
                        on a national securities exchange; and (IV) to 
                        ensure that the margin requirements, other than 
                        levels of margin, including the type, form, and 
                        use of collateral for security future products, 
                        are and remain consistent with the requirements 
                        for options traded on a national securities 
                        exchange established by the Federal Reserve 
                        Board, pursuant to subparagraphs (A) and 
                        (B).''.
    (c) Incorporation of Security Future Products Into the National 
Market System.--Section 11A of the Securities Exchange Act of 1934 (15 
U.S.C. 78k-1) is amended by adding at the end the following:
    ``(e)(1) With respect to security future products, the Commission 
and the Commodity Futures Trading Commission shall consult and 
cooperate so that, to the maximum extent practicable, their respective 
regulatory responsibilities may be fulfilled and the rules and 
regulations applicable to security future products may foster a 
national market system for security future products if the Commission 
and the Commodity Futures Trading Commission determine that such a 
system would be consistent with the Congressional findings in 
subsection (a)(1). In accordance with this objective, the Commission 
shall, at least fifteen days prior to the issuance for public comment 
of any proposed rule or regulation under this section concerning 
security future products, consult and request the views of the 
Commodity Futures Trading Commission.
    ``(2) No rule adopted pursuant to this section shall be applied to 
any person with respect to security future products traded on an 
exchange that is registered under section 6(g) unless the Commodity 
Futures Trading Commission has issued an order directing that such rule 
is applicable to such persons.''.
    (d) Incorporation of Security Future Products Into the National 
System for Clearance and Settlement.--Section 17A(b) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78q-1(b)) is amended by adding at the 
end the following:
            ``(7) A clearing agency that is regulated directly or 
        indirectly by the Commodity Futures Trading Commission through 
        its association with a designated contract market for security 
        future products, and that only performs the functions of a 
        clearing agency with respect to security future products and 
        transactions in securities effected pursuant to the rules of 
        the designated contract market with which it is associated, is 
        exempted from the provisions of this section and the rules and 
        regulations thereunder, except that any clearing agency that 
        performs the functions of a clearing agency with respect to 
        security future products must coordinate with and develop fair 
        and reasonable links with any and all other clearing agencies 
        that perform the functions of a clearing agency with respect to 
        security future products, which will permit security future 
        product to be purchased on a national securities exchange or 
        national securities association registered pursuant to section 
        15A(a)and offset on another national securities exchange or 
        national securities association registered pursuant to section 
        15A(a).''.
    (e) Market Emergency Powers and Circuit Breakers.--Section 12(k) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)) is amended--
            (1) in paragraph (1), by adding at the end the following: 
        ``If the actions described in subparagraph (A) or (B) involve a 
        security future product, the Commission shall consult with and 
        consider the views of the Commodity Futures Trading 
        Commission.''; and
            (2) in paragraph (2)(A), by inserting between 
        ``extensions.'' and ``In exercising'' the following: ``If the 
        actions described in subparagraph (A) involve a security future 
        product, the Commission shall consult with and consider the 
        views of the Commodity Futures Trading Commission.''.

SEC. 107. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE ISSUES 
              UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES 
              EXCHANGE ACT OF 1934.

    (a) Amendments to the Securities Act of 1933.--
            (1) Section 2(a) of the Securities Act of 1933 (15 U.S.C. 
        77b(a)) is amended--
                    (A) in paragraph (1), by inserting ``security 
                future,'' between ``treasury stock,'' and ``bond'';
                    (B) in paragraph (3), by adding at the end the 
                following: ``Any offer or sale of a security future 
                product by or on behalf of the issuer of the securities 
                underlying the security future product, an affiliate of 
                the issuer, or an underwriter, will constitute a 
                contract for sale of, sale of, offer for sale, or offer 
                to sell the issuer's underlying securities.'';
                    (C) in paragraph (10), by adding at the end of the 
                following: ``Any materials meeting the requirements of 
                section ____ of the Securities Exchange Act of 1934 or 
                section ____ of the Commodity Exchange Act (7 
U.S.C. ____) shall not be deemed to constitute a prospectus for the 
offer or sale of a security future product.''; and
                    (D) by adding at the end the following:
                    ``(16)(A) The term `security future' means a 
                contract of sale for future delivery of a single 
                security or of a narrow-based security index, including 
                any interest therein or based on the value thereof.
                    ``(B) A `narrow-based security index' is an index--
                            ``(i) that has 10 or fewer component 
                        securities;
                            ``(ii) in which the securities of a single 
                        issuer account on average, over the six-month 
                        period ending on the date equity options expire 
                        in June of each year and over the six-month 
                        period ending on the date equity options expire 
                        in December of each year, for more than 10% of 
                        the market capitalization of that index;
                            ``(iii) in which the securities of a single 
                        issuer in a price-weighted (or other non-
                        capitalization weighted) index account on 
                        average, over the six-month period ending on 
                        the date equity options expire in June of each 
                        year and over the six-month period ending on 
                        the date equity options expire in December of 
                        each year, for more than three times their 
                        weight in the index if calculated on a market-
                        capitalization basis;
                            ``(iv) in which any component security has 
                        an average daily trading volume value of less 
                        than $1 million or an aggregate market value of 
                        the voting and non-voting common equity held by 
                        non-affiliates of less than $150 million;
                            ``(v) in which the average correlation of 
                        the securities in the index to the index itself 
                        is greater than 0.6 over the six-month period 
                        ending on the date equity options expire in 
                        June of each year and over the six-month period 
                        ending on the date equity options expire in 
                        December of each year; or
                            ``(vi) in which the correlation of any 
                        security in the index to the index itself is 
                        greater than 0.9 over the six-month period 
                        ending on the date equity options expire in 
                        June of each year and over the six-month period 
                        ending on the date equity options expire in 
                        December of each year.
                    ``(17) The term `security future product' means a 
                security future or any put, call, straddle, option, or 
                privilege on any security future.''.
            (2) Section 3(a) of the Securities Act of 1933 (15 U.S.C. 
        77c) is amended by adding at the end the following:
            ``(14) Any security future product that is (A) guaranteed 
        by a clearing agency registered under section 17A of the 
        Securities Exchange Act of 1934 or exempt from registration 
        under paragraph (b)(4) of section 17A of the Securities 
        Exchange Act of 1934; and (B) traded on a national securities 
        exchange or a national securities association registered 
        pursuant to section 15A(a) of the Securities Exchange Act of 
        1934.''.
            (3) Section 12(a)(2) of the Securities Act of 1933 (15 
        U.S.C. 77l(a)(2)) is amended by striking ``paragraph 2'' and 
        inserting ``paragraphs (2) and (14)''.
    (b) Amendments to the Securities Exchange Act of 1934.--
            (1) 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:
            ``(1) The provisions of this subsection shall not apply in 
        respect of a security future product listed on a national 
        securities exchange.''.
            (2) Section 12(g)(5) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78l(g)) is amended by adding at the end the 
        following: ``For purposes of this subsection, a security future 
        product shall not be considered a class of equity security of 
        the issuer of the securities underlying the security future 
        product.''; and
            (3) Section 16 of the Securities Exchange Act of 1934 (15 
        U.S.C. 78p) is amended by adding at the end the following:
    ``(f) The provisions of this section shall apply to ownership of 
and transactions in security future 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 or 
appropriate in the public interest to carry out the purposes of this 
section.''.

SEC. 108. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940 AND THE 
              INVESTMENT ADVISERS ACT OF 1940.

    (a) Definitions Under the Investment Company Act of 1940 and the 
Investment Advisers Act of 1940.--
            (1) Section 2(a)(36) of the Investment Company Act of 1940 
        (15 U.S.C. 80a-2(a)(36)) is amended by inserting ``security 
        future,'' between ``treasury stock,'' and ``bond'';
            (2) Section 202(a)(18) of the Investment Advisers Act of 
        1940 (15 U.S.C. 80b-2(a)(18)) is amended by inserting 
        ``security future,'' between ``treasury stock,'' and ``bond'';
            (3) Section 2(a) of the Investment Company Act of 1940 (15 
        U.S.C. 801-2(a)) is amended by adding at the end the following:
            ``(52)(A) `Security future' means a contract of sale for 
        future delivery of a single security other than an exempted 
        security under section 3 of the Securities Act of 1933 or of a 
        narrow-based security index, including any interest therein or 
        based on the value thereof.
            ``(B) A `narrow-based security index' is an index--
                    ``(i) that has 10 or fewer component securities;
                    ``(ii) in which the securities of a single issuer 
                account on average, over the six-month period ending on 
                the date equity options expire in June of each year and 
                over the six-month period ending on the date equity 
                options expire in December of each year, for more than 
                10% of the market capitalization of that index;
                    ``(iii) in which the securities of a single issuer 
                in a price-weighted (or other non-capitalization 
                weighted) index account on average, over the six-month 
                period ending on the date equity options expire in June 
                of each year and over the six-month period ending on 
                the date equity options expire in December of each 
                year, for more than three times their weight in the 
                index if calculated on a market-capitalization basis;
                    ``(iv) in which any component security has an 
                average daily trading volume value of less than $1 
                million or an aggregate market value of the voting and 
                non-voting common equity held by non-affiliates of less 
                than $150 million;
                    ``(v) in which the average correlation of the 
                securities in the index to the index itself is greater 
                than 0.6 over the six-month period ending on the date 
                equity options expire in June of each year and over the 
                six-month period ending on the date equity options 
                expire in December of each year; or
                    ``(vi) in which the correlation of any security in 
                the index to the index itself is greater than 0.9 over 
                the six-month period ending on the date equity options 
                expire in June of each year and over the six-month 
                period ending on the date equity options expire in 
                December of each year.''; and
            (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:
            ``(25)(A) `Security future' means a contract of sale for 
        future delivery of a single security or of a narrow-based 
        security index, including any interest therein or based on the 
        value thereof.
            ``(B) A `narrow-based security index' is an index--
                    ``(i) that has 10 or fewer component securities;
                    ``(ii) in which the securities of a single issuer 
                account on average, over the six-month period ending on 
                the date equity options expire in June of each year and 
                over the six-month period ending on the date equity 
                options expire in December of each year, for more than 
                10% of the market capitalization of that index;
                    ``(iii) in which the securities of a single issuer 
                in a price-weighted (or other non-capitalization 
                weighted) index account on average, over the six-month 
                period ending on the date equity options expire in June 
                of each year and over the six-month period ending on 
                the date equity options expire in December of each 
                year, for more than three times their weight in the 
                index if calculated on a market-capitalization basis;
                    ``(iv) in which any component security has an 
                average daily trading volume value of less than $1 
                billion or an aggregate market value of the voting and 
                non-voting common equity held by non-affiliates of less 
                than $150 million;
                    ``(v) in which the average correlation of the 
                securities in the index to the index itself is greater 
                than 0.6 over the six-month period ending on the date 
                equity options expire in June of each year and over the 
                six-month period ending on the date equity options 
                expire in December of each year; or
                    ``(vi) in which the correlation of any security in 
                the index to the index itself is greater than 0.9 over 
                the six-month period ending on the date equity options 
                expire in June of each year and over the six-month 
                period ending on the date equity options expire in 
                December of each year.''.
    (b) Other Provision.--Section 203(b) of the Investment Advisers Act 
of 1940 (15 U.S.C. 80b-3(b)) is amended by adding at the end the 
following:
            ``(6) any investment adviser that is registered, or 
        required to be registered, with the Commodity Futures Trading 
        Commission as a commodity trading advisor and whose business 
        does not consist primarily of acting as a investment adviser, 
        as defined in section 202(a)(11) of this title.''.

SEC. 109. EFFECTIVE DATE.

    The amendments made by this title shall become effective one year 
after the date of enactment of this Act.
                                 <all>