[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4473 Introduced in House (IH)]







109th CONGRESS
  1st Session
                                H. R. 4473

 To reauthorize and amend the Commodity Exchange Act to promote legal 
certainty, enhance competition, and reduce systemic risk in markets for 
   futures and over-the-counter derivatives, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            December 8, 2005

Mr. Goodlatte introduced the following bill; which was referred to the 
Committee on Agriculture, and in addition to the Committee on Financial 
Services, for a period to be subsequently determined by the Speaker, in 
   each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
 To reauthorize and amend the Commodity Exchange Act to promote legal 
certainty, enhance competition, and reduce systemic risk in markets for 
   futures and over-the-counter derivatives, and for other purposes.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``CFTC Reauthorization Act of 2005''.

                      TITLE I--GENERAL PROVISIONS

SEC. 101. COMMISSION AUTHORITY OVER AGREEMENTS, CONTRACTS OR 
              TRANSACTIONS IN FOREIGN CURRENCY.

    (a) In General.--Section 2(c)(2) of the Commodity Exchange Act (7 
U.S.C. 2(c)(2)) is amended by striking subparagraphs (B) and (C) and 
inserting the following:
                    ``(B) Agreements, contracts, and transactions in 
                retail foreign currency.--
                            ``(i) This Act applies to, and the 
                        Commission shall have jurisdiction over, an 
                        agreement, contract, or transaction in foreign 
                        currency that--
                                    ``(I) is a contract of sale of a 
                                commodity for future delivery (or an 
                                option on such a contract) or an option 
                                (other than an option executed or 
                                traded on a national securities 
                                exchange registered pursuant to section 
                                6(a) of the Securities Exchange Act of 
                                1934 (15 U.S.C. 78f(a))); and
                                    ``(II) is offered to, or entered 
                                into with, a person that is not an 
                                eligible contract participant, unless 
                                the counterparty, or the person 
                                offering to be the counterparty, of the 
                                person is--
                                            ``(aa) a financial 
                                        institution;
                                            ``(bb)(AA) a broker or 
                                        dealer registered under section 
                                        15(b) (except paragraph (11) 
                                        thereof) or 15C of the 
                                        Securities Exchange Act of 1934 
                                        (15 U.S.C. 78o(b), 78o-5); or
                                            ``(BB) an associated person 
                                        of a broker or dealer 
                                        registered under section 15(b) 
                                        (except paragraph (11) thereof) 
                                        or 15C of the Securities 
                                        Exchange Act of 1934 (15 U.S.C. 
                                        78o(b), 78o-5) concerning the 
                                        financial or securities 
                                        activities of which the broker 
                                        or dealer makes and keeps 
                                        records under section 15C(b) or 
                                        17(h) of the Securities 
                                        Exchange Act of 1934 (15 U.S.C. 
                                        78o-5(b), 78q(h));
                                            ``(cc) a futures commission 
                                        merchant registered under this 
                                        Act (that is not also a person 
                                        described in item (bb)), or an 
                                        affiliated person of such a 
                                        futures commission merchant 
                                        (that is not also a person 
                                        described in item (bb)) if such 
                                        futures commission merchant 
                                        makes and keeps records under 
                                        section 4f(c)(2)(B) of this Act 
                                        concerning the futures and 
                                        other financial activities of 
                                        such affiliated person;
                                            ``(dd) an insurance company 
                                        described in section 
                                        1a(12)(A)(ii) of this Act, or a 
                                        regulated subsidiary or 
                                        affiliate of such an insurance 
                                        company;
                                            ``(ee) a financial holding 
                                        company (as defined in section 
                                        2 of the Bank Holding Company 
                                        Act of 1956); or
                                            ``(ff) an investment bank 
                                        holding company (as defined in 
                                        section 17(i) of the Securities 
                                        Exchange Act of 1934 (15 U.S.C. 
                                        78q(i))).
                            ``(ii) Notwithstanding item (cc) of clause 
                        (i)(II) of this subparagraph, agreements, 
                        contracts, or transactions described in clause 
                        (i) of this subparagraph shall be subject to 
                        subsection (a)(1)(B) of this section and 
                        sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) 
                        (except to the extent that sections 6(c) and 
                        6(d) prohibit manipulation of the market price 
                        of any commodity in interstate commerce, or for 
                        future delivery on or subject to the rules of 
                        any market), 6c, 6d, 8(a), 13(a), and 13(b) if 
                        the agreements, contracts, or transactions are 
                        offered, or entered into, by a person that is 
                        registered as a futures commission merchant or 
                        an affiliated person of a futures commission 
                        merchant registered under this Act that is not 
                        also a person described in any of items (aa), 
                        (bb), (dd), (ee), or (ff) of clause (i) of this 
                        subparagraph.
                            ``(iii)(I) Notwithstanding item (cc) of 
                        clause (i)(II), a particular person shall not 
                        participate in the solicitation or 
                        recommendation of any agreement, contract, or 
                        transaction described in clause (i) entered 
                        into with or to be entered into with a person 
                        described in such item, unless the particular 
                        person--
                                    ``(aa) is registered in such 
                                capacity as the Commission by rule, 
                                regulation, or order shall determine; 
                                and
                                    ``(bb) is a member of a futures 
                                association registered under section 
                                17.
                            ``(II) Subclause (I) shall not apply to--
                                    ``(aa) any person described in any 
                                of items (aa), (bb), (dd), (ee), or 
                                (ff) of subparagraph (B)(i)(II); or
                                    ``(bb) any such person's associated 
                                persons.
                    ``(C)(i)(I) This subparagraph shall apply to any 
                agreement, contract, or transaction in foreign currency 
                that is--
                                    ``(aa) offered to, or entered into 
                                with, a person that is not an eligible 
                                contract participant (except that this 
                                subparagraph shall not apply if the 
                                counterparty, or the person offering to 
                                be the counterparty, of the person that 
                                is not an eligible contract participant 
                                is a person described in any of items 
                                (aa), (bb), (dd), (ee), or (ff) of 
                                subparagraph (B)(i)(II)); and
                                    ``(bb) offered, or entered into, on 
                                a leveraged or margined basis, or 
                                financed by the offeror, the 
                                counterparty, or a person acting in 
                                concert with the offeror or 
                                counterparty on a similar basis.
                    ``(II) Subclause (I) shall not apply to--
                            ``(aa) a security that is not a security 
                        futures product; or
                            ``(bb) a contract of sale that--
                                    ``(AA) results in actual delivery 
                                within 2 days; or
                                    ``(BB) creates an enforceable 
                                obligation to deliver between a seller 
                                and buyer that have the ability to 
                                deliver and accept delivery, 
                                respectively, in connection with their 
                                line of business.
                    ``(ii)(I) Agreements, contracts, or transactions 
                described in clause (i) of this subparagraph shall be 
                subject to subsection (a)(1)(B) of this section and 
                sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) (except to 
                the extent that sections 6(c) and 6(d) prohibit 
                manipulation of the market price of any commodity in 
                interstate commerce, or for future delivery on or 
                subject to the rules of any market), 6c, 6d, 8(a), 
                13(a), and 13(b).
                    ``(II) Subclause (I) of this clause shall not apply 
                to--
                            ``(aa) any person described in any of items 
                        (aa), (bb), (dd), (ee), or (ff) of subparagraph 
                        (B)(i)(II); or
                            ``(bb) any such person's associated 
                        persons.
                    ``(iii)(I) A person shall not participate in the 
                solicitation or recommendation of any agreement, 
                contract, or transaction described in clause (i) of 
                this subparagraph unless the person is registered in 
                such capacity as the Commission by rule, regulation or 
                order shall determine, and is a member of a futures 
                association registered under section 17.
                    ``(II) Subclause (I) shall not apply to any 
                person--
                            ``(aa) any person described in any of items 
                        (aa), (bb), (dd), (ee), or (ff) of subparagraph 
                        (B)(i)(II); or
                            ``(bb) any such person's associated 
                        persons.
                    ``(iv) Sections 4(b) and 4b shall apply to any 
                agreement, contract, or transaction described in clause 
                (i) of this subparagraph as if the agreement, contract, 
                or transaction were a contract of sale of a commodity 
                for future delivery.
                    ``(v) This subparagraph shall not be construed to 
                limit any jurisdiction that the Commission may 
                otherwise have under any other provision of this Act 
                over an agreement, contract, or transaction that is a 
                contract of sale of a commodity for future delivery.
                    ``(vi) This subparagraph shall not be construed to 
                limit any jurisdiction that the Commission or the 
                Securities and Exchange Commission may otherwise have 
                under any other provision of this Act with respect to 
                security futures products and persons effecting 
                transactions in security futures products.''.
    (b) Effective Date.--Clause (iii) of section 2(c)(2)(B) and clause 
(iii) of section 2(c)(2)(C) of the Commodity Exchange Act, as amended 
by subsection (a) of this section, shall be effective 120 days after 
the date of the enactment of this Act or such other time as the 
Commodity Futures Trading Commission shall determine.

SEC. 102. ANTIFRAUD AUTHORITY.

    Section 4b of the Commodity Exchange Act (7 U.S.C. 6b) is amended--
            (1) by redesignating subsections (b) and (c) as subsections 
        (c) and (d), respectively; and
            (2) by striking ``SEC. 4b.'' and all that follows through 
        the end of subsection (a) and inserting the following:

``SEC. 4B. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.

    ``(a) Unlawful Actions.--It shall be unlawful--
            ``(1) for any person, in or in connection with any order to 
        make, or the making of, any contract of sale of any commodity 
        in interstate commerce or for future delivery that is made, or 
        to be made, on or subject to the rules of a designated contract 
        market, for or on behalf of any other person; or
            ``(2) for any person, in or in connection with any order to 
        make, or the making of, any contract of sale of any commodity 
        for future delivery, or other agreement, contract, or 
        transaction subject to paragraphs (1) and (2) of section 5a(g), 
        that is made, or to be made, for or on behalf of, or with, any 
        other person, other than on or subject to the rules of a 
        designated contract market--
                    ``(A) to cheat or defraud or attempt to cheat or 
                defraud the other person;
                    ``(B) willfully to make or cause to be made to the 
                other person any false report or statement or willfully 
                to enter or cause to be entered for the other person 
                any false record;
                    ``(C) willfully to deceive or attempt to deceive 
                the other person by any means whatsoever in regard to 
                any order or contract or the disposition or execution 
                of any order or contract, or in regard to any act of 
                agency performed, with respect to any order or contract 
                for or, in the case of paragraph (2), with the other 
                person; or
                    ``(D)(i) to bucket an order if the order is 
                represented by the person as an order to be executed, 
                or is required to be executed, on or subject to the 
                rules of a designated contract market; or
                    ``(ii) to fill an order by offset against the order 
                or orders of any other person, or willfully and 
                knowingly and without the prior consent of the other 
                person to become the buyer in respect to any selling 
                order of the other person, or become the seller in 
                respect to any buying order of the other person, if the 
                order is represented by the person as an order to be 
                executed, or is required to be executed, on or subject 
                to the rules of a designated contract market unless the 
                order is executed in accordance with the rules of the 
                designated contract market.
    ``(b) Clarification.--Subsection (a)(2) of this section shall not 
obligate any person, in or in connection with a transaction in a 
contract of sale of a commodity for future delivery, or other 
agreement, contract or transaction subject to paragraphs (1) and (2) of 
section 5a(g), with another person, to disclose to the other person 
nonpublic information that may be material to the market price, rate, 
or level of the commodity or transaction, except as necessary to make 
any statement made to the other person in or in connection with the 
transaction, not misleading in any material respect.''.

SEC. 103. PORTFOLIO MARGINING AND SECURITY INDEX ISSUES.

    (a) The agencies represented on the President's Working Group on 
Financial Markets shall work to ensure that the Securities and Exchange 
Commission (SEC), the Commodity Futures Trading Commission (CFTC), or 
both, as appropriate, have taken the actions required under subsection 
(b).
    (b) The SEC, the CFTC, or both, as appropriate, shall take action 
under their existing authorities to permit--
            (1) by September 30, 2006, risk-based portfolio margining 
        for security options and security futures products; and
            (2) by June 30, 2006, the trading of futures on certain 
        security indexes by resolving issues related to debt security 
        indexes and foreign security indexes.

SEC. 104. AUTHORIZATION OF APPROPRIATIONS.

     Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is 
amended to read as follows:
    ``(d) There are authorized to be appropriated such sums as are 
necessary to carry out this Act for each of the fiscal years 2006 
through 2010.''

SEC. 105. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Section 4a(e) of the Commodity Exchange Act (7 U.S.C 6a(e)) is 
amended in the last proviso by striking ``section 9(c)'' and inserting 
``section 9(a)(5)''.
    (b) Section 4f(c)(4)(B)(i) of such Act (7 U.S.C. 6f(c)(4)(B)(i)) is 
amended by striking ``compiled'' and inserting ``complied''.
    (c) Section 4k of such Act (7 U.S.C. 6k) is amended by 
redesignating the second paragraph (5) as paragraph (6).
    (d) The Commodity Exchange Act is amended--
            (1) by redesignating the first section 4p (7 U.S.C. 6o-1), 
        as added by section 121 of the Commodity Futures Modernization 
        Act of 2000, as section 4q; and
            (2) by moving such section to after the second section 4p, 
        as added by section 206 of Public Law 93-446.
    (e) Subsections (a)(1) and (d)(1) of section 5c of such Act (7 
U.S.C. 7a-2(a)(1), (d)(1)) are each amended by striking ``5b(d)(2)'' 
and inserting ``5b(c)(2)''.
    (f) Sections 5c(f) and 17(r) of such Act (7 U.S.C. 7a-2(f), 21(r)) 
are each amended by striking ``4d(3)'' and inserting ``4d(c)''.
    (g) Section 8(a)(1) of such Act (7 U.S.C. 12(a)(1)) is amended in 
the matter following subparagraph (B)--
            (1) by striking ``commenced'' the 2nd place it appears; and
            (2) by inserting ``commenced'' after ``in a judicial 
        proceeding''.
    (h) Section 22(a)(2) of such Act (7 U.S.C. 25(a)(2)) is amended by 
striking ``5b(b)(1)(E)'' and inserting ``5b(c)(2)(H)''.

                TITLE II--NATURAL GAS PRICE TRANSPARENCY

SEC. 201. MARKET SURVEILLANCE.

    (a) In General.--The Commodity Futures Trading Commission (in this 
section referred to as the ``Commission'') shall detect and deter 
manipulation and attempted manipulation and increase the transparency 
of the pricing of natural gas by conducting surveillance of trading in 
contracts for natural gas.
    (b) Certain Events Required to Be Reviewed.--
            (1) Requirement.--In the event of a significant and highly 
        unusual change in the settlement price of any physically 
        delivered natural gas futures contract traded on a contract 
        market (within the meaning of section 5 of the Commodity 
        Exchange Act) or derivatives transaction execution facility 
        (within the meaning of section 5a of such Act), the Commission 
        shall conduct a review of the factors that caused the price 
        movement in order to determine if manipulation or attempted 
        manipulation in violation of such Act has occurred.
            (2) Certain factors required to be considered.--The 
        Commission shall consider in its review, among other things and 
        as appropriate to the circumstances, the following:
                    (A) Prices and price relationships in the futures 
                and cash markets.
                    (B) Market information, and cash market supply and 
                demand factors which may be relevant to the price 
                event.
                    (C) Large futures and options market positions and 
                large futures and options market transactions on the 
                contract market or derivatives transaction execution 
                facility.
                    (D) Any related contract, agreement or transaction 
                in natural gas.

SEC. 202. 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.--The Commission, by rule, shall require 
        any person holding, maintaining, or controlling any position in 
        a contract of sale of natural gas for future delivery, or 
        option thereon, on or subject to the rules of any contract 
        market or derivatives transaction execution facility, at or in 
        excess of such limits as the Commission may specify as 
        reportable, to maintain for a period of 5 years and provide on 
        request to the Commission, records of the person regarding the 
        position and any related contract, agreement, or transaction in 
        natural gas to which the person is a party.
            ``(2) No duplicate reports.--Except as otherwise provided 
        in this paragraph, the rules prescribed under paragraph (1) 
        shall not apply to any position that otherwise is required to 
        be reported to any agency of the United States if the report 
        would otherwise satisfy the requirements under this subsection 
        and the report of the position is available to the Commission 
        at the request of the Commission. Notwithstanding the preceding 
        sentence, any report of any such position to any agency of the 
        United States shall constitute a statement, report, or document 
        required for the purposes of section 9.
            ``(3) Criteria for rules.--
                    ``(A) In general.--In prescribing rules required by 
                paragraph (1), the Commission shall consider--
                            ``(i) the purposes for monitoring large 
                        positions in any contract for future delivery 
                        of natural gas;
                            ``(ii) the effect of the reporting 
                        requirements on the efficiency and liquidity of 
                        the market for any agreement, contract, or 
                        transaction made in connection with any 
                        contract for the future delivery of natural 
                        gas; and
                            ``(iii) the costs and burden on the persons 
                        that would be required to file the reports.
                    ``(B) Frequency.--The Commission shall require the 
                provision of records 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 future delivery of natural gas.
                    ``(C) Filing requirements.--Records required to be 
                provided under paragraph (1) shall be required to 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.
            ``(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.''.

SEC. 203. CRIMINAL AND CIVIL PENALTIES.

    (a) Enforcement Powers of the 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 under section 9(a)(2), 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) 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(a)(2), 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.
    (c) 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 the 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.''.
    (d) 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)''; and
            (2) by striking ``five years'' and inserting ``10 years''.
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