[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2772 Introduced in Senate (IS)]







106th CONGRESS
  2d Session
                                S. 2772

   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 22, 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,

                          TITLE I--SHORT TITLE

    This Act may be cited as the ``Regulatory Parity for Single Stock 
Futures Act of 2000''.

                  TITLE II--SECURITIES ACTS AMENDMENTS

SEC. 201. 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 percent 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. 202. 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 Trading 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 15(A)(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. 203. 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 of 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;
                    ``(vi) 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 market 
                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;
                    ``(vi) 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 of 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 
        its 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 of 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''; and
            (3) by adding at the end the following:
                            ``(iv) is not a security future product.''.

SEC. 204. 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 purpose 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. 205. 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 of 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. 206. 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); and
            ``(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 pace 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 be 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 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. 207. 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 for 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 percent 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. 208. 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. 80a-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 percent 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 percent 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.''.
    (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 an investment adviser, 
        as defined in section 202(a)(11) of this title.''.

              TITLE III--COMMODITY EXCHANGE ACT AMENDMENTS

SEC. 301. DEFINITIONS UNDER THE COMMODITY EXCHANGE ACT.

    Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended 
by adding at the end the following:
            ``(17) The term `security' means a security as defined in 
        section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 
        77b(a)(1)), section 3(a)(10) of the Securities Exchange Act of 
        1934 (15 U.S.C. 78c(a)(10)), section 202(a)(18) of the 
        Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(18)), or 
        section 2(a)(36) of the Investment Company Act of 1940 (15 
        U.S.C. 80a-2(a)(36)).
            ``(18) 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.
            ``(19) The term `narrow-based security index' means an 
        index--
                    ``(A) that has 10 or fewer component securities;
                    ``(B) 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 percent of the market capitalization of that index;
                    ``(C) 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;
                    ``(D) 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;
                    ``(E) 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
                    ``(F) 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.
            ``(20) The term `security future product' means a security 
        future or any put, call, straddle, option, or privilege on any 
        security future.
            ``(21)(A) The term `margin', when used with respect to a 
        security future product, shall 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, 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, shall mean the 
        amount of collateral required to secure any credit extended, 
        maintained, or arranged by a futures commission merchant for 
        the purchase, sale, or carrying of a security future product, 
        or the amount of collateral required as a performance bond by a 
        futures commission merchant 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 
        shall mean a margin level established by a contract market that 
        is higher than the minimum amount established by the Commission 
        and the Securities and Exchange Commission pursuant to 
        subsection 2(a)(1)(B)(vi)(IV)(i)(II) of this Act.''.

SEC. 302. JURISDICTION OF THE COMMODITY FUTURES TRADING COMMISSION.

    (a) Lifting the Ban on Security Futures, Modifying the Jurisdiction 
of the Commodity Futures Trading Commission, and Recordkeeping 
Provisions.--Section 2(a)(1)(B) of the Commodity Exchange Act (7 U.S.C. 
2a) is amended--
            (1) in clause (v), by inserting ``or subparagraph (C)'' 
        between ``clause (ii) of this subparagraph'' and ``, any 
        group'';
            (2) by redesignating subclause (V) of clause (vi) as 
        subclause (VI);
            (3) by inserting in lieu of subclauses (I) through (IV) of 
        clause (vi) the following:
                                    ``(I) Notwithstanding any other 
                                provision of this Act, any contract 
                                market in a stock index futures (or 
                                option thereon), other than a security 
                                future product, shall file with the 
                                Board of Governors of the Federal 
                                Reserve System any rule establishing or 
                                changing the levels of margin (initial 
                                and maintenance) for such stock index 
                                futures contract (or option thereon), 
                                other than security futures products.
                                    ``(II) The Board may at any time 
                                request any contract market to set the 
                                margin for any stock index futures 
                                contract (or option thereon), other 
                                than for any security futures contract 
                                (or option thereon), at such levels as 
                                the Board in its judgment determines 
                                are appropriate to preserve the 
                                financial integrity of the contract 
                                market or its clearing system or to 
                                prevent systemic risk. If the contract 
                                market fails to do so within the time 
                                specified by the Board in its request, 
                                the Board, may direct the contract 
                                market to alter or supplement the rules 
                                of the contract market as specified in 
                                the request.
                                    ``(III) Subject to such conditions 
                                as the Board may determine, the Board 
                                may delegate any or all of its 
                                authority, relating to margin for any 
                                stock index futures contract, other 
                                than security future products, under 
                                this clause to the Securities and 
                                Exchange Commission.
                                    ``(IV) Joint Regulations.--
                                            ``(aa) It shall be unlawful 
                                        for any futures commission 
                                        merchant to directly or 
                                        indirectly, extend or maintain, 
                                        credit or arrange for the 
                                        extension or maintenance of 
                                        credit or to collect margin 
                                        from any customer on any 
                                        security future product, in 
                                        contravention of the rules and 
                                        regulation which the Commission 
                                        and the Securities and Exchange 
                                        Commission shall prescribe 
                                        pursuant to subparagraph (II) 
                                        of this paragraph.
                                            ``(bb) The Commission and 
                                        the Securities and Exchange 
                                        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 Securities 
                                        and Exchange Commission jointly 
                                        deem: (A) appropriate to 
                                        preserve the financial 
                                        integrity of markets trading 
                                        security future products; (B) 
                                        to prevent systemic risk; (C) 
                                        to make equivalent the margin 
                                        levels (initial and 
                                        maintenance) and other margin 
                                        requirements between security 
                                        future products and options on 
                                        securities traded on national 
                                        securities exchange; and (D) to 
                                        ensure that the margin 
                                        requirements, other than margin 
                                        levels, including use of 
                                        collateral for security future 
                                        products, are and remain 
                                        consistent with the 
                                        requirements established by the 
                                        Federal Reserve Board, pursuant 
                                        to subparagraphs ((c)(1)(A) and 
                                        (c)(1)(B)) of section 7(c) of 
                                        the Securities Exchange Act of 
                                        1934.''.
                                    ``(V) Nothing in this clause shall 
                                supersede or limit the authority 
                                granted to the Commission in section 
                                8a(9) to direct a contract market, on 
                                finding an emergency to exist, to raise 
                                temporary margin levels on any futures 
                                contract, or option on the contract 
                                covered by this clause, or on any 
                                security future product.''; and
            (4) by adding at the end the following:
                    ``(C)(i) Notwithstanding any other provision of 
                this Act, the Securities and Exchange Commission shall 
                have jurisdiction and authority over security futures 
                as defined in section 3(a)(55) of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78c(a)(55)), options on 
                security futures, and persons effecting transactions in 
                security futures and options thereon, and this Act 
                shall apply to and the Commission shall have 
                jurisdiction with respect to accounts, agreements 
                (including any transaction which is of the character 
                of, or is commonly known to the trade as, an `option', 
                `privilege', `indemnity', `bid', `offer', `put', 
                `call', `advance guaranty', or `decline guaranty',) and 
                transactions involving, and may designate a board of 
                trade as a contract market in a security future product 
                as defined in section 1(a)(19) of this Act: Provided, 
                however, That no board of trade shall be designated as 
                a contract market with respect to any such contracts of 
                sale for future delivery unless the board of trade 
                making such application demonstrates and the Commission 
                expressly finds that the specific contract with respect 
                to which the application has been made, or the board of 
                trade, meets the following criteria:
                            ``(I) that any security underlying the 
                        security future, including each component 
                        security of a contract of sale for future 
                        delivery on a narrow-based security index, be 
                        registered pursuant to section 12 of the 
                        Securities Exchange Act of 1934 (15 U.S.C. 
                        78l);
                            ``(II) that the security future product be 
                        cash settled;
                            ``(III) that the terms and conditions of a 
                        security future product be no less restrictive 
                        than comparable listing standards for options;
                            ``(IV) that the security future be based 
                        upon common stocks and such other equity 
                        securities as the Commission determines 
                        appropriate;
                            ``(V) 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 designated contract market, 
                        national securities exchange registered under 
                        section 6(a) of the Securities Exchange Act of 
                        1934 (____ U.S.C. ____), or national securities 
                        association registered pursuant to section 
                        15A(a) of the Securities Exchange Act of 1934 
                        (____ U.S.C. ____) and offset on another 
                        designated contract market, national securities 
                        exchange, or national securities association;
                            ``(VI) that only futures commission 
                        merchants, introducing brokers, commodity 
                        trading advisors, commodity pool operators or 
                        associated persons subject to suitability rules 
                        comparable to those of a national securities 
                        association registered pursuant to section 
                        15A(a) of the Securities Exchange Act of 1934 
                        (____ U.S.C. ____) solicit, accept any order 
                        for, or otherwise deal in any transaction in or 
                        in connection with a contract of sale for 
                        future delivery in a security future product;
                            ``(VII) that the security future product be 
                        subject to a prohibition against dual trading 
                        in section 4j of this Act or the provisions of 
                        section 11(a) of the Securities Exchange Act of 
                        1934 (____ U.S.C. ____) and the rules and 
                        regulations thereunder, except to the extent 
                        otherwise permitted under the Securities 
                        Exchange Act of 1934 and the rules and 
                        regulations thereunder;
                            ``(VIII) that trading in a security future 
                        product and any security that underlies the 
                        security future product not be readily 
                        susceptible to manipulation;
                            ``(IX) that the board of trade has 
                        procedures in place for coordinated 
                        surveillance to detect manipulation and insider 
                        trading between the contract market trading the 
                        security future product, the market trading the 
                        securities underlying the security future 
                        product, and other markets trading related 
                        securities;
                            ``(X) that the contract market trading the 
                        security future product has in place audit 
                        trails necessary or appropriate to facilitate 
                        the coordinated surveillance required in 
                        section subparagraph (I);
                            ``(XI) that the contract market trading the 
                        security future product has in place procedures 
                        to coordinate trading halts between that 
                        contract market and markets trading the 
                        securities underlying the security future 
                        product and other markets trading related 
                        securities; and
                            ``(XII) 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 the 
                        Securities Exchange Act of 1934 (____ U.S.C. 
                        ____).
                    ``(ii) It shall be unlawful for any person to 
                offer, to enter into, to execute, to confirm the 
                execution of, or to conduct any office or business 
                anywhere in the United States, its territories or 
                possessions, for the purpose of soliciting, or 
                accepting any order for, or otherwise dealing in, any 
                transaction in, or in connection with, a contract for 
                the purchase or sale of a security future product for 
                future delivery unless--
                            ``(I) such transaction is conducted on or 
                        subject to the rules of a board of trade which 
                        has been designated by the Commission as a 
                        contract market in a security future product;
                            ``(II) such contract is executed or 
                        consummated by or through a member of such 
                        contract market; and
                            ``(III) such contract is evidenced by a 
                        record in writing which shows the date, the 
                        parties to such contract and their addresses, 
                        the property covered and its price: Provided, 
                        That each contract market member shall keep 
                        such record for a period of three years from 
                        the date thereof, or for a longer period if the 
                        Commission shall so direct, which record shall 
                        at all times be open to the inspection of any 
                        representative of the Commission or the 
                        Securities and Exchange Commission or the 
                        Department of Justice.
                    ``(iii) Notwithstanding any other provision of this 
                Act, 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 
                Securities and Exchange 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 Securities and Exchange 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.
                    ``(iv)(I) All records of persons registered with 
                the Commission pursuant to section 4f(a) and 4k(4)(b) 
                and a board of trade designated as contract market in 
                security futures pursuant to section 6(c) 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--
                            ``(aa) registered clearing agency, 
                        registered transfer agent, or registered 
                        municipal securities dealer for which it is not 
                        the appropriate regulatory agency, give notice 
                        to the appropriate regulatory agency for such 
                        clearing agency, transfer agent, or municipal 
                        securities dealer, of such proposed examination 
                        and consult 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
                            ``(bb) futures commission merchant, 
                        introducing broker, floor trader, or floor 
                        registered pursuant to section 4f(a), or 
                        associated person registered pursuant to 
                        section 4k(4)(b), or a board of trade 
                        designated as a contract market in a security 
                        product pursuant to section 6(c), give notice 
                        to the Securities and Exchange Commission such 
                        proposed examination and consult with the 
Securities and Exchange Commission concerning the feasibility and 
desirability of coordinating such examination with examinations 
conducted by the Securities and Exchange Commission with a view to 
avoiding unnecessary regulatory duplication or undue regulatory burdens 
for such registrant or board of trade.
                    ``(II) The Commission shall notify the Securities 
                and Exchange Commission of any examination conducted of 
                any futures commission merchant, introducing broker, 
                floor trader, or floor registered pursuant to section 
                4f(a), or associated person registered pursuant to 
                section 4k(4)(b), or a board of trade designated as a 
                contract market in a security product pursuant to 
                section 6(c), and, upon request, furnish to the 
                Commission any examination report and data supplied to 
                the Securities and Exchange Commission in connection 
                with such examination.
                    ``(III) The Commission shall, to the fullest extent 
                possible, use the reports of examinations of any 
                futures commission merchant, introducing broker, floor 
                trader, or floor registered pursuant to section 4f(a), 
                or associated person registered pursuant to section 
                4k(4)(b), or a board of trade designated as a contract 
                market in a security product pursuant to section 6(c), 
                made by the Securities and Exchange Commission, a 
                national securities association registered pursuant to 
                section 15A(a) of the Securities Exchange Act of 1934 
                (____ U.S.C. ____), or a national securities exchange 
                registered pursuant to section 6(g) of the Securities 
                Exchange Act of 1934 (____ U.S.C. ____).
                    ``(IV) 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, futures commission 
                merchant, introducing broker, floor trader, or floor 
                registered pursuant to section 4f(a), or associated 
                person registered pursuant to section 4k(4)(b), or a 
                board of trade designated as a contract market in a 
                security future product, or to affect in any way the 
                power of the Commission under any other provision of 
                this Act.''.
    (b) Dual Trading.--Section 4j(a)(3) of the Commodity Exchange Act 
(7 U.S.C. 6j(a)(3)) is amended by inserting ``, other than a designated 
contract market in a security future product,'' between ``exempt a 
contract market'' and ``from the regulations''.
    (c) Margin Rule Review.--Section 5a(a)(12)(A) of the Commodity 
Exchange Act 7 U.S.C. ____) is amended--
            (1) by inserting ``other than the setting of levels of 
        margin for a security future product'' between ``setting of 
        levels of margin'' and ``. Each contract''; and
            (2) by inserting ``other than the setting of levels of 
        margin for a security future product'' between ``setting of 
        levels of margin'' and ``and except those that''.

SEC. 303. APPLICATION OF THE COMMODITY EXCHANGE ACT TO NATIONAL 
              SECURITIES EXCHANGES AND NATIONAL SECURITIES ASSOCIATIONS 
              THAT TRADE SECURITY FUTURES.

    (a) Notice Designation of National Securities Exchanges and 
National Securities Associations.--The Commodity Exchange Act is 
amended by adding after section 5b (7 U.S.C. 7b) the following:
     ``Sec. 5c. Any board of trade that is registered with the 
Securities and Exchange Commission as a national securities exchange or 
is a national securities association registered pursuant to section 
15A(a) of the Securities Exchange Act of 1934 (____ U.S.C. ____) shall 
be a designated contract market in security futures provided that such 
national securities exchange or national securities association: (i) 
lists or trades no other contracts of sale for future delivery, except 
for contracts of sale for future delivery in security future products; 
(ii) files written notice with the Commission in such form as the 
Commission, by rule, may prescribe containing such information as the 
Commission, by rule, may prescribe as necessary or appropriate in the 
public interest or for the protection of customers; and (iii) is not 
subject to a suspension pursuant to an order by the Securities and 
Exchange Commission.''.
    (b) Exemptions for Notice Registrants.--Section 6(f) of the 
Commodity Exchange Act (7 U.S.C. 8(f)) is amended by adding at the end 
the following:
            ``(3)(A) A national securities exchange or national 
        securities association that is designated as a contract market 
        pursuant to section 5c of this Act shall be exempt from the 
        following provisions of this Act and the rules thereunder:
                    ``(i) paragraphs (b) and (e) of section 4g;
                    ``(ii) section 4h;
                    ``(iii) paragraphs (a) and (d) of section 4j;
                    ``(iv) paragraphs (2), (3), (5), (7), and (8), of 
                section 5;
                    ``(v) paragraphs (a)(1), (a)(11), (a)(12), (a)(13), 
                (a)(14), (a)(15), (a)(16), (a)(17), and (b) of section 
                5a;
                    ``(vi) section 6(b);
                    ``(vii) section 6a;
                    ``(viii) section 6b;
                    ``(ix) paragraphs (b), (c), (d), and (e) of section 
                8;
                    ``(x) section 8e;
                    ``(xi) paragraph (a) of section 9;
                    ``(xii) paragraph (f) of section 9;
                    ``(xiii) section 15;
                    ``(xiv) section 16; and
                    ``(xv) paragraph (b) of section 22.
            ``(B)(i) Except as provided in (B)(ii) below, but 
        notwithstanding any other provision of this Act, the 
        Commission, by rule, regulation, or order, may conditionally or 
        unconditionally exempt any designated contract market in 
        security futures subject to the designation requirement of 
        section 5c of this Act, from any provision or provisions of 
        this Act or of any rule or regulation thereunder, to the extent 
        such exemption is necessary or appropriate in the public 
        interest and is consistent with the protection of investors.
            ``(ii) The Commission shall, by rule or regulation, 
        determine the procedures under which an exemptive order under 
        this section shall be granted and may, in its sole discretion, 
        decline to entertain any application for an order of exemption 
        under this section.''.
    (c) Notice Registration of Securities Broker-Dealers.--Section 
4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a)) is amended--
            (1) by inserting ``(1)'' between ``(a)'' and ``Any 
        person''; and
            (2) by adding at the end the following:
            ``(2) Any broker or dealer that is registered with the 
        Securities and Exchange Commission shall be registered as a 
        futures commission merchant, introducing broker, floor broker, 
        or floor trader, as applicable, if such broker or dealer:
                    ``(A) limits its solicitation of orders, acceptance 
                of orders, or the execution of orders, or placing of 
                orders on behalf of others involving any contracts of 
                sale of any commodity for future delivery, on or 
                subject to the rules of any contract market to those 
                contracts of sale on security futures;
                    ``(B) files written notice with the Commission in 
                such form as the Commission, by rule, may prescribe 
                containing such information as the Commission, by rule, 
                may prescribe as necessary or appropriate in the public 
                interest or for the protection of investors;
                    ``(C) is not subject to a suspension pursuant to an 
                order of the Securities and Exchange Commission; and
                    ``(D) is a member of the National Association of 
                Securities Dealers or a limited member of the National 
                Futures Association subject to the National Futures 
                Association's rules that are applicable to security 
                futures.''.
    (d) Exemption for Securities Broker-Dealers From Certain Provisions 
of the Commodity Exchange Act.--Section 4f(a) of the Commodity Exchange 
Act (7 U.S.C. 6f(a)) is amended by inserting after paragraph (2), as 
added by this Act, the following:
            ``(3)(A) A broker or dealer that is registered as a futures 
        commission merchant, introducing broker, floor broker, or floor 
        trader, pursuant to section 4f(a)(2) shall be exempt from the 
        following provisions of this Act and the rules thereunder:
                    ``(i) section 4c;
                    ``(ii) paragraphs (b) and (c) of section 4f;
                    ``(iii) paragraph (a) of section 4g;
                    ``(iv) paragraphs (b) and (c) of section 4j;
                    ``(v) paragraphs (a) and (b) of section 4p;
                    ``(vi) section 6d;
                    ``(vii) paragraph (g) of section 8;
                    ``(viii) paragraph (a) of section 22.
            ``(B)(i) Except as provided in (B)(ii) below, but 
        notwithstanding any other provision of this Act, the 
        Commission, by rule, regulation, or order, may conditionally or 
        unconditionally exempt any broker or dealer subject to the 
        registration requirement of paragraph (2) of this subsection, 
        from any provision or provisions of this Act or of any rule or 
        regulation thereunder, to the extent such exemption is 
        necessary or appropriate in the public interest and is 
        consistent with the protection of investors.
            ``(ii) The Commission shall, by rule or regulation, 
        determine the procedures under which an exemptive order under 
        this section shall be granted and may, in its sole discretion, 
        decline to entertain any application for an order of exemption 
        under this section.''.
    (e) Notice Registration and Exemptions for Associated Persons of 
Securities Broker-Dealers.--Section 4k(4)) of the Commodity Exchange 
Act (7 U.S.C. ____) is amended--
            (1) by inserting ``(a)'' between ``(4)'' and ``Any 
        person''; and
            (2) by adding at the end the following:
    ``(b)(1) Any person that is an associated person of a broker or 
dealer that is registered with the Securities and Exchange Commission 
shall be registered as an associate person of a futures commission 
merchant or an introducing broker, as applicable: Provided, That: (A) 
such associated person limits its solicitation of orders, acceptance of 
orders, or the execution of orders, or placing of orders on behalf of 
others involving any contracts of sale of any commodity for future 
delivery, on or subject to the rules of any contract market to those 
contracts of sale on security futures; (B) such associated person files 
an application with the Commission in such form as the Commission, by 
rule, may prescribe containing such information and documents as the 
Commission, by rule, may prescribe as necessary or appropriate in the 
public interest or for the protection of investors; and (C) such 
associated person is not subject to a suspension pursuant to an order 
of the Securities and Exchange Commission.
    ``(2)(A) An associated person of a broker or dealer that is 
registered as an associated person of a futures commission merchant or 
an introducing broker pursuant to section 4k(4)(b) of this Act shall be 
exempt from the following provisions of this Act and the rules 
thereunder:
            (i) section 4c;
            (ii) paragraphs (b) and (c) of section 4f;
            (iii) paragraph (a) of section 4g;
            (iv) paragraphs (b) and (c) of section 4j;
            (v) paragraphs (a) and (b) of section 4p;
            (vi) section 6d;
            (vii) paragraph (g) of section 8;
            (viii) paragraph (a) of section 22.
    ``(B)(i) Except as provided in (B)(ii) below, but notwithstanding 
any other provision of this Act, the Commission, by rule, regulation, 
or order, may conditionally or unconditionally exempt any associated 
person of a broker or dealer subject to the designation requirement of 
paragraph (1) of this subsection, from any provision or provisions of 
this Act or of any rule or regulation thereunder, to the extent such 
exemption is necessary or appropriate in the public interest and is 
consistent with the protection of investors.
    ``(ii) The Commission shall, by rule or regulation, determine the 
procedures under which an exemptive order under this section shall be 
granted and may, in its sole discretion, decline to entertain any 
application for an order of exemption under this section.''.

SEC. 304. NOTIFICATION OF INVESTIGATIONS AND ENFORCEMENT ACTIONS.

    (a) Section 8(a) of the Commodity Exchange Act (____ U.S.C. ____) 
is amended by adding at the end the following:
            ``(3) The Commission shall file with the Securities and 
        Exchange Commission notice of the commencement of any 
        proceeding and a copy of any order entered by the Commission 
        against any futures commission merchant, introducing broker, 
        floor trader or floor broker registered pursuant to section 
        4f(a) of this Act, any associated person registered pursuant to 
        section 4k(4)(b) of this Act, or any board of trade designated 
        as a contract market pursuant to section 6(c) of this Act.''.
    (b) Section 6(c) of the Commodity Exchange Act (____ U.S.C. ____) 
is amended by adding at the end the following: ``The Commission shall 
file with the Securities and Exchange Commission notice of the 
commencement of any proceeding and a copy of any order entered by the 
Commission against any futures commission merchant, introducing broker, 
floor trader or floor broker registered pursuant to section 4f(a) of 
this Act, any associated person registered pursuant to section 4k(4)(b) 
of this Act, or any board of trade designated as a contract market 
pursuant to section 6(c) of this Act.''.
    (c) Section 6c of the Commodity Exchange Act (____ U.S.C. ____) is 
amended by adding at the end of the following:
    ``(h) The Commission shall file with the Securities and Exchange 
Commission notice of the commencement of any proceeding and a copy of 
any order entered by the Commission against any futures commission 
merchant, introducing broker, floor trader or floor broker registered 
pursuant to section 4f(a) of this Act, any associated person registered 
pursuant to section 4k(4)(b) of this Act, or any board of trade 
designated as a contract market pursuant to section 6(c) of this 
Act.''.

                        TITLE IV--EFFECTIVE DATE

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