Short title

This Act may be cited as the

Commodities Exchange Improvements Act of 2005

Reinstatement of regulation under the Commodity Exchange Act of futures contracts, swaps, and hybrid instruments involving natural gas

(a)

Natural gas treated as an agricultural commodity

Section 1a(4) of the Commodity Exchange Act (7 U.S.C. 1a(4)) is amended— (1)by inserting natural gas, before livestock,; and (2)by adding at the end the following: For purposes of this Act and any other Act referencing this paragraph, natural gas shall be considered an agricultural commodity enumerated in this paragraph.. (b)

Hybrid instruments

Section 405(a) of the Commodity Futures Modernization Act of 2000 (7 U.S.C. 27c(a)) is amended by inserting not having one or more payments indexed to the value, level, or rate of, or providing delivery of, natural gas) after hybrid instrument. (c)

Elimination of authority to exempt natural gas transactions from statutory requirements

Section 4(c) of the Commodity Exchange Act (7 U.S.C. 6(c)) is amended by adding at the end the following:

(6)

Inapplicability to certain contracts involving natural gas

The preceding provisions of this subsection shall not apply to an agreement, contract, or transaction involving natural gas.

(d)

Effective date

The amendments made by this section shall take effect 90 days after the date of the enactment of this Act.

Regulatory review of rule changes and rules applicable to transactions involving natural gas

(a)

Regulatory review of rule changes applicable to natural gas transactions

(1)

In general

Section 5 of the Commodity Exchange Act (7 U.S.C. 7) is amended by adding at the end the following:

(f)

Regulatory review of rule changes applicable to natural gas transactions

(1)

Prior approval of rule changes required

Notwithstanding any other provision of this section, a board of trade that is a designated contract market shall not, without prior approval of the Commission, change a rule, regulation, or contract specification of the board of trade that applies to any agreement, contract, or transactions involving natural gas. (2)

Consideration

The Commission shall not approve a proposal to make such a change, unless— (A)a period of at least 60 days has elapsed since the Commission received the proposal; (B)the Commission has evaluated the economic effects that may result from the change; (C)the change, if implemented, would be consistent with the core principles specified in section 5(d); and (D)for not less than 30 days in the 60-day period, the Commission has sought public comment on the proposal. (3)

Criteria

The Commission shall not consider such a change to be consistent with the core principles specified in section 5(d), unless— (A)the rules, regulations, or contract specifications limit the maximum daily price fluctuation applicable to the agreement, contract, or transaction to not more than 8 percent of the settlement price of the prior day’s trading in the agreement, contract, or transaction; and (B)the Commission finds on the basis of substantial evidence that the resulting rules, regulations, and contract specifications referred to in paragraph (1) are consistent with the core principles.

(2)

Sense of the Congress

It is the sense of the Congress that the Commodity Futures Trading Commission should evaluate all public comments submitted to the Commission in response to a proposal to change a rule, regulation, or contract specification of a board of trade that applies to agreements, contracts, or transactions involving natural gas, based on how the change relates to the core principles specified in section 5(d) of the Commodity Exchange Act. (3)

Effective date

The amendment made by paragraph (1) shall take effect 90 days after the date of the enactment of this Act. (b)

Regulatory review of rules applicable to transactions involving natural gas

(1)

In general

Not later than 180 days after the date of the enactment of this Act, the Commodity Futures Trading Commission (in this subsection referred to as the Commission) shall complete a review of the rules, regulations, and contract specifications of each board of trade (as defined in section 1a(2) of the Commodity Exchange Act) designated as a contract market under section 5 of such Act, in force as of the date of the enactment of this subsection, that apply to any agreement, contract, or transaction involving natural gas subject to the rules of the contract market. (2)

Consideration

In conducting the review required by paragraph (1), the Commission shall— (A)seek public comment for a period of not less than 30 days; and (B)determine that each rule, regulation, and contract specification is consistent with the core principles specified in section 5(d) of the Commodity Exchange Act, or require that the rule, regulation, or contract specification be changed to make it so consistent. (3)

Criteria

The Commission shall not consider the rules, regulations, and contract specifications that apply to an agreement, contract, or transaction involving natural gas to be consistent with the core principles specified in section 5(d) of the Commodity Exchange Act, unless— (A)the rules, regulations, or contract specifications limit the maximum daily price fluctuation applicable to the agreement, contract, or transaction to not more than 8 percent of the settlement price of the prior day’s trading in the agreement, contract, or transaction; and (B)the Commission finds on the basis of substantial evidence that the rules, regulations, and contract specifications are consistent with the core principles.

Back-up reporting of large positions involving natural gas

(a)

In general

Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is amended— (1)in subsection (e), by striking the last sentence; and (2)by adding at the end the following:

(f)

Reporting of large positions involving natural gas

(1)

In general

In accordance with such rules as shall be prescribed by the Commission, any person holding, maintaining, or controlling any position in any agreement, contract, or transaction made in connection with any contract for the present or for future delivery of natural gas, any position in any agreement, contract, or transaction having one or more payments indexed to the value, level, or rate of providing natural gas for the present or future delivery, or any quantity of natural gas that is readily available for delivery shall file such reports regarding the position or quantity as the Commission determines to be necessary and appropriate to prevent or deter actual or potential manipulation of the price of contracts of sale of natural gas for future delivery. Notwithstanding any other provision of law, including any provision of law that excludes any agreement, contract, transaction, or trading facility from this Act (other than as specifically provided in paragraph (2)), any rule, bylaw, or other requirement to file any report regarding a position in any agreement, contract, or transaction involving natural gas or quantity of natural gas prescribed in accordance with this subsection shall apply to any person holding any such position or quantity. (2)

No duplicate reports

Except as otherwise provided in this paragraph, the rules prescribed under paragraph (1) shall not apply to any holding or position that otherwise is required to be reported to any agency of the United States Government if the report would otherwise satisfy the requirements of this subsection and the report is available to the Commission at the request of the Commission. Notwithstanding the preceding sentence, any report of any such holding or position to any agency of the United States shall constitute a statement, report, or document required for purposes of section 9. (3)

Criteria for rules

(A)

In general

In prescribing rules under paragraph (1), the Commission shall consider— (i)the purposes for monitoring large positions and quantities in natural gas; (ii)the effect of such reporting requirements on the efficiency and liquidity of the market for natural gas and the market for any agreement, contract, or transaction made in connection with any contract for the present or for future delivery of natural gas; and (iii)the costs and burden on the persons that would be required to file such reports. (B)

Frequency

The Commission shall require reports under paragraph (1) only in circumstances where manipulation is suspected, except that the Commission may prescribe rules requiring regular or continuous reporting if the Commission finds that such reporting would help to deter or to detect manipulation in any market for any agreement, contract, or transaction made in connection with any contract for the present or for future delivery of natural gas. (C)

Filing requirements

Reports required under paragraph (1) shall be filed with the Commission in accordance with such requirements regarding the form, timing, and manner of filing such reports, as the Commission may prescribe by rule. (D)

Recordkeeping requirements

Rules prescribed under paragraph (1) may require any person holding, maintaining, or controlling a quantity of natural gas that is readily available for delivery, or any position in any agreement, contract, or transaction made in connection with any agreement, contract, or transaction for the present or future delivery of natural gas or any contract requiring one or more payments indexed to the value, level, or rate of, or providing for the present or future delivery of natural gas to make and keep for prescribed periods such records as the Commission determines are necessary or appropriate to ensure that persons covered by reporting requirements of paragraph (1) can comply with the reporting requirements. (4)

Exemptions

Consistent with the public interest and the purposes of this section, the Commission by rule or by order may exempt, in whole or in part, conditionally or unconditionally, any person or class of persons from the requirements of this subsection. (5)

Other rules not affected

This subsection shall not be interpreted to prohibit or impair the adoption by any board of trade licensed, designated, or registered by the Commission of any bylaw, rule, regulation, or resolution requiring reports of positions in any agreement, contract, or transaction made in connection with a contract of sale for future delivery of natural gas (including such a contract of sale), including any bylaw, rule, regulation, or resolution pertaining to filing or recordkeeping, which may be held by any person subject to the rules of the board of trade, except that any bylaw, rule, regulation, or resolution established by the board of trade shall not be inconsistent with any requirement prescribed by the Commission under this subsection. (g)

Violation of certain rules is a violation of this Act

It shall be a violation of this Act for any person to violate any bylaw, rule, regulation, or resolution of any board of trade licensed, designated, or registered by the Commission that— (1)fixes limits on the amount of trading which may be done or positions which may be held by any person under contracts of sale of any commodity for future delivery or under options on such contracts or commodities; or (2)establishes requirements regarding reports of any position or quantity which may be held by any person (including any requirements pertaining to filing and keeping records of reports of any such positions),

if the bylaw, rule, regulation, or resolution has been approved by the Commission: Provided, That section 9(c) shall apply only to those who knowingly violate such limits.

(b)

Deadline

The Commission shall prescribe the rules required by section 4a(f) of the Commodity Exchange Act not later than 180 days after the date of the enactment of this Act. (c)

Conforming amendments

Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is amended— (1)in each of subsections (g) and (h)(4)(A), by inserting 4a(f), before 5a (to; (2)in subsection (h)(2)(A), by striking 5b and inserting 4a(f), 5b,; and (3)in subsection (i)(2), by inserting 4a(f) of this Act, before 5a of.

Additional authority to provide for cash settlement of transactions involving natural gas

(a)

In general

Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is further amended by adding at the end the following:

(h)

Cash settlement of natural gas contracts

(1)For the purpose of diminishing, eliminating, or preventing the burden on interstate commerce associated with excessive speculation in any commodity under contracts of sale of such commodity for future delivery made on or subject to the rules of contract markets, the Commission shall prescribe rules requiring any board of trade to implement rules that provide for any contract of sale for future delivery of natural gas to be settled in cash in lieu of making delivery of the natural gas but only in circumstances in which the Commission has determined that market conditions suggest the possibility of manipulation. (2)Any rules prescribed under paragraph (1) shall not be construed as limiting or otherwise impairing any authority granted to the Commission or to a board of trade, respectively, under section 5.

(b)

Conforming amendments

Section 5 of such Act (7 U.S.C. 7) is amended— (1)in subsection (b)(3)— (A)by striking or at the end of subparagraph (B)(iii); (B)by striking the period at the end of subparagraph (C) and inserting ; or; and (C)by adding at the end the following:

(D)any contract of sale for future delivery of natural gas to be settled in cash in lieu of making delivery of the commodity.

; and

(2)in subsection (d)(6)— (A)by striking and at the end of subparagraph (B); (B)by striking the period at the end of subparagraph (C) and inserting and; and (C)by adding at the end the following:

(D) require market participants in any contract to settle any contract of sale for future delivery of natural gas in cash in lieu of making delivery of such commodity.

(c)

Deadline

The Commodity Futures Trading Commission shall prescribe the rules required by section 4a(h) of the Commodity Exchange Act not later than 180 days after the date of the enactment of this Act.

Criminal and civil penalties

(a)

Enforcement powers of Commission

Section 6(c) of the Commodity Exchange Act (7 U.S.C. 9, 15) is amended in clause (3) of the 10th sentence— (1)by inserting (A) after assess such person; and (2)by inserting after “each such violation” the following: “or (B) in any case of manipulation of, or attempt to manipulate, the price of any commodity, a civil penalty of not more than the greater of $1,000,000 or triple the monetary gain to such person for each such violation,”. (b)

Manipulations and other violations

Section 6(d) of such Act (7 U.S.C. 13b(d)) is amended in the 1st sentence— (1)by striking “paragraph (a) or (b) of section 9 of this Act” and inserting “subsection (a), (b), or (f) of section 9”; and (2)by striking “said paragraph 9(a) or 9(b)” and inserting “such subsection (a), (b), or (f)”. (c)

Nonenforcement of rules of government or other violations

Section 6b of such Act (7 U.S.C. 13a) is amended— (1)in the 1st sentence, by inserting “, or, in any case of manipulation of, or an attempt to manipulate, the price of any commodity, a civil penalty of not more than $1,000,000 for each such violation” before the period; and (2)in the 2nd sentence, by inserting “, except that if the failure or refusal to obey or comply with the order involved any offense under section 9(f), the registered entity, director, officer, agent, or employee shall be guilty of a felony and, on conviction, shall be subject to penalties under section 9(f)” before the period. (d)

Action to enjoin or restrain violations

Section 6c(d) of such Act (7 U.S.C. 13a–1(d)) is amended by striking “(d)” and all that follows through the end of paragraph (1) and inserting the following:

(d)

Civil penalties

(1)In any action brought under this section, the Commission may seek and the court shall have jurisdiction to impose, on a proper showing, on any person found in the action to have committed any violation— (A)a civil penalty in the amount of not more than the greater of $100,000 or triple the monetary gain to the person for each violation; or (B)in any case of manipulation of, or an attempt to manipulate, the price of any commodity, a civil penalty in the amount of not more than the greater of $1,000,000 or triple the monetary gain to the person for each violation.

(e)

Violations generally

Section 9(a) of such Act (7 U.S.C. 13(a)) is amended— (1)by striking “(or $500,000 in the case of a person who is an individual)”; (2)by striking “five years” and inserting “10 years”; and (3)in paragraph (2), by striking “false or misleading or knowingly inaccurate reports” and inserting “knowingly false, misleading, or inaccurate reports”.

1-year ban on members of the Commodity Futures Trading Commission working for organizations subject to regulation by the Commission

(a)

In general

Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is amended by adding at the end the following:

(g) (1) (A)During the 1-year period that begins with the date an individual ceases to be a member of the Commission, the individual shall not become an employee or agent of any entity subject to regulation by the Commission. (B)Subparagraph (A) shall apply in the case of an individual who becomes an employee or agent of an entity subject to regulation by the Commission, as a result of a merger or takeover. (2)Whoever violates paragraph (1) shall be liable for a civil money penalty of $100,000.

(b)

Effective date

The amendment made by subsection (a) shall take effect 90 days after the date of the enactment of this Act.