1.This Act may be cited as
the Close the Enron Loophole
Act
.
2.Energy trading
facilities
(a)Section
1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended by redesignating
paragraphs (13) through (33) as paragraphs (15) through (35), respectively, and
by inserting after paragraph (12) the following:
(13)The term energy commodity means a
commodity (other than an excluded commodity, a metal, or an agricultural
commodity) that is—
(A)used as a source
of energy, including but not limited to—
(i)crude oil;
(ii)gasoline, diesel
fuel, heating oil, and any other product derived or refined from crude
oil;
(iii)natural gas,
including methane, propane, and any other gas or liquid derived from natural
gas; and
(iv)electricity;
or
(B)results from the
burning of fossil fuels to produce energy, including but not limited to carbon
dioxide and sulfur dioxide.
(14)The term energy trading facility means a
trading facility that—
(A)is not a
designated contract market; and
(B)facilitates the
execution or trading of agreements, contracts, or transactions in an energy
commodity that are not spot sales of a cash commodity or sales of a cash
commodity for deferred shipment or delivery, and that are entered into on a
principal-to-principal basis solely between persons that are eligible
commercial entities at the time the persons enter into the agreement, contract,
or transaction; and
(i)facilitates the
clearance and settlement of such agreements, contracts, or transactions;
or
(ii)the Commission
determines performs a significant price discovery function in relation to an
energy commodity listed for trading on a trading facility or in the cash market
for the energy commodity. In making a determination whether a trading facility
performs a significant price discovery function the Commission may consider, as
appropriate—
(I)the extent to
which the price of an agreement, contract, or transaction traded or executed on
the trading facility is derived from or linked to the price of a contract in an
energy commodity listed for trading on a designated contract market;
(II)the extent to
which cash market bids, offers, or transactions in an energy commodity are
directly based on, or quoted at a differential to, the prices generated by
agreements, contracts, or transactions in the same energy commodity being
traded or executed on the trading facility;
(III)the volume of
agreements, contracts, or transactions in the energy commodity being traded on
the trading facility;
(IV)the extent to
which data regarding completed transactions are posted, disseminated, or made
available immediately after completion of such transactions, with or without a
fee, to other market participants and other persons;
(V)the extent to
which an arbitrage market exists between the agreements, contracts, or
transactions traded or executed on the trading facility and a contract in an
energy commodity listed for trading on a designated contract market; and
(VI)such other
factors as the Commission determines
appropriate.
.
(b)Commission
oversight of energy trading facilitiesSection 2(h) of the
Commodity Exchange Act (7 U.S.C. 2(h)) is amended—
(1)in paragraph
(3)(B) after an electronic trading facility
by inserting
that is not an energy trading facility
; and
(2)by adding at the
end the following:
(7)Energy trading
facilitiesNotwithstanding any other provision of this Act, an
energy trading facility shall be subject to the provisions of section 2(j) of
this
Act.
.
(c)Standards
applicable to energy trading facilitiesSection 2 of the
Commodity Exchange Act (7 U.S.C. 2) is amended by adding the following new
subsection:
(j)Registration of
energy trading facilities
(1)It shall be unlawful for any person to enter into an
agreement, contract, or transaction for future delivery of an energy commodity
that is not a spot sale of a cash commodity or a sale of a cash commodity for
deferred shipment or delivery, on or through an energy trading facility unless
such facility is registered with the Commission as an energy trading
facility.
(2)Any
trading facility applying to the Commission for registration as an energy
trading facility shall submit an application to the Commission that includes
any relevant materials and records, consistent with the Act, that the
Commission may require.
(3)The Commission shall make a determination whether to
approve an application for registration as an energy trading facility within
120 days after such application is submitted.
(4)Criteria for
registrationTo be registered as an energy trading facility, the
applicant shall demonstrate to the Commission that the trading facility meets
the criteria specified in this paragraph.
(A)Prevention of
price manipulation and excessive speculationThe trading facility
shall have the capacity to prevent price manipulation, excessive speculation,
price distortion, and disruption of the delivery or cash-settlement process
through market surveillance, compliance, and enforcement practices and
procedures, including methods for conducting real-time monitoring of trading
and comprehensive and accurate trade reconstructions.
(B)The trading facility shall monitor trading to prevent
price manipulation, excessive speculation, price distortion, and disruption of
the delivery or cash-settlement process.
(C)Contracts not
readily susceptible to manipulationThe trading facility shall
list for trading only contracts that are not readily susceptible to
manipulation.
(D)Financial
integrity of transactionsA trading facility that facilitates the
clearance and settlement of agreements, contracts, or transactions by a
derivatives clearing organization shall establish and enforce rules and
procedures for ensuring the financial integrity of such agreements, contracts,
and transactions.
(E)Ability to
obtain informationThe trading facility shall establish and
enforce rules that will allow the trading facility to obtain any necessary
information to perform any of the functions described in this subsection,
including the capacity to carry out such international information-sharing
agreements as the Commission may require.
(F)Position limits
or accountability levelsTo reduce the threat of price
manipulation, excessive speculation, price distortion, or disruption of the
delivery or cash-settlement process, the trading facility shall adopt position
limits or position accountability levels for speculators, where necessary and
appropriate.
(G)The trading facility shall adopt rules to provide for
the exercise of emergency authority, in consultation and cooperation with the
Commission, where necessary and appropriate, including the authority to—
(i)liquidate open
positions in any contract;
(ii)suspend or
curtail trading in any contract; and
(iii)require market
participants in any contract to meet special margin requirements.
(H)Daily
publication of trading informationThe trading facility shall
make public daily information on settlement prices, volume, open interest, and
opening and closing ranges for actively traded contracts on the
facility.
(I)The trading facility shall establish and enforce trading
and participation rules that will deter abuses and shall have the capacity to
detect, investigate violations of, and enforce those rules, including means
to—
(i)obtain
information necessary to perform the functions required under this section;
or
(ii)use
technological means to capture information that may be used in establishing
whether rule violations have occurred.
(J)The trading facility shall maintain rules and
procedures to provide for the recording and safe storage of all identifying
trade information in a manner that enables the facility to use the information
for the purposes of assisting in the prevention of price manipulation,
excessive speculation, price distortion, or disruption of the delivery or
cash-settlement process, and providing evidence of any violations of the rules
of the facility.
(K)The trading facility shall establish and enforce rules
or terms and conditions defining, or specifications detailing, trading
procedures to be used in entering and executing orders traded on the facility,
including procedures to provide participants with impartial access to the
trading facility.
(L)The trading facility shall monitor and enforce the rules of
the facility, including any terms and conditions of any contracts traded on or
through the facility and any limitations on access to the facility.
(M)Disclosure of
general informationThe trading facility shall disclose publicly
and to the Commission information concerning—
(i)contract terms
and conditions;
(ii)trading
conventions, mechanisms, and practices;
(iii)financial
integrity protections; and
(iv)other
information relevant to participation in trading on the facility.
(N)The trading facility shall establish and enforce
appropriate fitness standards for directors, members of any disciplinary
committee, and any other persons with direct access to the facility, including
any parties affiliated with any of the persons described in this
paragraph.
(O)The trading facility shall establish and enforce rules
to minimize conflicts of interest in the decision making process of the
facility and establish a process for resolving such conflicts of
interest.
(P)The
trading facility shall maintain records of all activities related to the
business of the facility in a form and manner acceptable to the Commission for
a period of 5 years.
(Q)Unless necessary or appropriate to achieve the
purposes of this Act, the trading facility shall endeavor to avoid—
(i)adopting any
rules or taking any actions that result in any unreasonable restraint of trade;
or
(ii)imposing any
material anticompetitive burden on trading on the facility.
(5)Criteria for
energy trading facilitiesTo maintain the registration as an
energy trading facility, the trading facility shall comply with all of the
criteria in paragraph (4). Failure to comply with any of these criteria shall
constitute a violation of this Act. The trading facility shall have reasonable
discretion in establishing the manner in which it complies with the criteria in
paragraph (4).
(6)Position limits
and accountability levels
(A)The Commission shall ensure that the position limits
and accountability levels applicable to contracts in an energy commodity listed
for trading on a designated contract market and the position limits and
accountability levels applicable to similar contracts in the same energy
commodity listed for trading on an energy trading facility—
(i)appropriately
prevent price manipulation, excessive speculation, price distortion, and
disruption of the delivery or cash-settlement process; and
(ii)are on a parity
with each other and applied in a functionally equivalent manner.
(B)Upon learning that a person has exceeded an applicable
position limit or accountability level in an energy commodity, the Commission
shall obtain such information as it determines to be necessary and appropriate
regarding all of the positions held by such person in such energy commodity and
take such action as may be necessary and appropriate, in addition to any action
taken by an energy trading facility or a designated contract market, to
require, or direct an energy trading facility or a designated contract market
to require, such person to limit, reduce, or liquidate any position to prevent
or reduce the threat of price manipulation, excessive speculation, price
distortion, or disruption of the delivery or cash-settlement process.
(C)Information to
commissionIn order to make any determination required under this
section, the Commission may request all relevant information regarding all of
the positions held by any person in the energy commodity for which the person
has exceeded a position limit or accountability level, including positions held
or controlled or transactions executed on or through a designated contract
market, an energy trading facility, an exempt commercial markets operating
pursuant to sections 2(h)(3) through paragraph (5) of this Act, an exempt board
of trade operating pursuant to section 5d of this Act, a derivative transaction
execution facility, a foreign board of trade, over-the-counter pursuant to
sections 2(g), or 2(h)(1) and (2) of this Act, and in the cash market for the
commodity. Any person entering into or executing an agreement, contract, or
transaction with respect to an energy commodity on a designated contract market
or on an energy trading facility shall retain such books and records as the
Commission may require in order to provide such information upon request, and
upon request shall promptly provide such information to the Commission or the
Department of Justice. Notwithstanding this requirement to retain and provide
position information, the Commission may alternatively choose to obtain any of
the position information specified in this paragraph from the trading facility
at which such positions are maintained.
(D)Criteria for
commission determinationIn making any determination to require a
limitation, reduction, or liquidation of any position with respect to an energy
commodity, the Commission may consider, as appropriate—
(i)the person’s open
interest in a contract, agreement, or transaction involving an energy commodity
relative to the total open interest in such contracts, agreements, or
transactions;
(ii)the daily volume
of trading in such contracts, agreements or transactions;
(iii)the person’s
overall position in related contracts, including options, and the overall open
interest or liquidity in such related contracts and options;
(iv)the potential
for such positions to cause or allow price manipulation, excessive speculation,
price distortion, or disruption of the delivery or cash-settlement
process;
(v)the person’s
record of compliance with rules, regulations, and orders of the Commission, a
designated contract market, or an energy trading facility, as
appropriate;
(vi)the person’s
financial ability to support such positions on an ongoing basis;
(vii)any
justification provided by the person for such positions; and
(viii)other such
factors determined to be appropriate by the
Commission.
.
(d)Information for
price discovery determination
(1)Section
2(h)(5)(B) of the Commodity Exchange Act (7 U.S.C. 2(h)(5)(B)) is amended by
adding the following new clause:
(iv)to the extent
that the electronic trading facility provides for the trading of agreements,
contracts, or transactions in an energy commodity, provide the Commission with
such information as the Commission determines necessary to evaluate whether the
energy trading facility performs a significant price discovery function in
relation to a contract in an energy commodity listed for trading on a trading
facility or in the cash market for the energy commodity, including the
provision of such requested information on a continuous
basis.
.
(2)Section 5a(b) of
the Commodity Exchange Act (7 U.S.C. 7a(b)) is amended by adding the following
new paragraph:
(5)Price discovery
for energy commodityA registered derivatives transaction
execution facility shall, to the extent that it provides for the trading of any
contract of sale of a commodity for future delivery (or option on such
contract) based on an energy commodity, provide the Commission with such
information as the Commission determines necessary to evaluate whether the
registered derivatives transaction execution facility performs a significant
price discovery function in relation to a contract in an energy commodity
listed for trading on a trading facility or in the cash market for the energy
commodity, including the provision of such requested information on a
continuous
basis.
.
(e)The Commodity Exchange Act is amended—
(1)in paragraph 29
of section 1a (7 U.S.C. 1a)—
(A)in subparagraph
(C) by deleting and
;
(B)in subparagraph
(D) by deleting the period and inserting ; and
; and
(C)by adding at the
end the following:
(E)an energy trading
facility registered under section
2(j).
;
(2)in subsection (a)
of section 4 (7 U.S.C. 6(a))—
(A)in paragraph (1)
by inserting registered energy trading facility or a
after
subject to the rules of a
; and
(B)in paragraph (2)
by inserting or energy trading facility
after derivatives
transaction execution facility
;
(3)in subsection (c)
of section 4 (7 U.S.C. 6(c)), by inserting registered energy trading
facility or
in the parenthetical after including
any
;
(4)in subsection (a)
of section 4a (7 U.S.C. 6a)—
(A)in the first
sentence by inserting or energy trading facilities
after
derivatives transaction execution facilities
; and
(B)in the second
sentence by inserting or energy trading facility
after
derivatives transaction execution facility
;
(5)in subsection (b)
of section 4a (7 U.S.C. 6a), by inserting or energy trading
facility
after derivatives transaction execution
facility
wherever it appears;
(6)in subsection (e)
of section 4a (7 U.S.C. 6a)—
(A)in the first
sentence—
(i)by
inserting or by any energy trading facility
after
registered by the Commission
;
(ii)by
inserting or energy trading facility
after derivatives
transaction execution facility
the second time it appears; and
(iii)by inserting
energy trading facility
before or such board of
trade
each time it appears; and
(B)in the second
sentence, by inserting or energy trading facility
after
registered by the Commission
;
(7)in section 4e (7
U.S.C. 6e), by inserting or energy trading facility
after
or derivatives transaction execution facility
;
(8)in section 4i (7
U.S.C. 6i), by inserting or energy trading facility
after
derivatives transaction execution facility
;
(9)in section 4l (7
U.S.C. 6l), by inserting or energy trading facilities
after
derivatives transaction execution facilities
wherever it appears
in paragraphs (2) and (3);
(10)in section 5c(b)
(7 U.S.C. 7a–2(b)), by inserting or energy trading facility
after derivatives transaction execution facility
wherever it
appears in paragraphs (1), (2), and (3);
(11)in section 6(b)
(7 U.S.C. 8(b))—
(A)by inserting
or energy trading facility
after derivatives transaction
execution facility
wherever it appears; and
(B)by inserting
section 2(j) or
before sections 5 through 5b
;
and
(12)in section 6d(1)
(7 U.S.C. 13a–2(1)), by inserting energy trading facility
after
derivatives transaction execution facility
.
3.Reporting of
u.s. energy tradesSection 2
of the Commodity Exchange Act (7 U.S.C. 1a) is amended by adding at the end the
following:
(k)Domestic energy
trades on a foreign board of trade
(1)In
this subsection:
(A)The term domestic terminal means a
technology, software, or other means of providing electronic access within the
United States to a contract, agreement, or transaction traded on a foreign
board of trade.
(B)The term reportable contract means a
contract, agreement, or transaction for future delivery of an energy commodity
(or option thereon), or an option on an energy commodity, for which the
underlying commodity has a physical delivery point within the United States and
that is executed through a domestic terminal.
(2)The Commission, by rule, shall require any person
holding, maintaining, or controlling any position in any reportable contract
under this section—
(A)to maintain such
records as directed by the Commission for a period of 5 years, or longer, if
directed by the Commission; and
(B)to provide such
records upon request to the Commission or the Department of Justice.
(3)The
Commission shall prescribe rules requiring such regular or continuous reporting
of positions in a reportable contract in accordance with such requirements
regarding size limits for reportable contracts and the form, timing, and manner
of filing such reports under this paragraph, as the Commission shall
determine.
(4)Equivalent
means of obtaining informationThe Commission may waive the
requirement under paragraph (3) if the Commission determines that the foreign
board of trade is providing the Commission with equivalent information in a
usable format pursuant to an agreement between the Commission and the foreign
board of trade or a foreign futures authority, department or agency of a
foreign government, or political subdivision thereof.
(5)
(A)Except as provided in clause (ii), this paragraph does
not prohibit or impair the adoption by any board of trade or energy trading
facility licensed, designated, or registered by the Commission of any bylaw,
rule, regulation, or resolution requiring reports of positions in any
agreement, contract, or transaction for future delivery of an energy commodity
(or option thereon), or option on an energy commodity, 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 or energy
trading facility.
(B)Any
bylaw, rule, regulation, or resolution established by a board of trade or
energy trading facility described in clause (i) shall not be inconsistent with
any requirement prescribed by the Commission under this
paragraph.
.
4.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:
4b.Contracts designed to defraud or
mislead
(a)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)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.
.
5.Not later than 180
days after the date of enactment of this Act, the Commission shall issue a
proposed rule regarding the requirements for an application for registration
for an energy trading facility, and not later than 270 days after the date of
enactment of this Act, shall issue a final rule.
6.
(a)Except as provided in this section, this Act shall become
effective immediately upon enactment.
(b)With respect to any trading facility operating on the
date of enactment of this Act in reliance upon the exemption set forth in
section 2(h)(3) of the Commodity Exchange Act with respect to an energy
commodity, the prohibition in section 2(j)(1) of the Commodity Exchange Act, as
added by this Act, shall not apply, if the trading facility submits an
application to the Commission for registration as an energy trading facility
within 180 days after the Commission promulgates a final rule regarding the
requirements for an application for registration for an energy trading
facility, prior to a determination by the Commission on whether to approve such
application.
(c)(1)At the time the
Commission approves an application by a trading facility operating on the date
of enactment of this Act in reliance on the exemption set forth in section
2(h)(3) of the Commodity Exchange Act for registration as an energy trading
facility, the Commission shall, upon the written request of the facility, grant
an extension of up to 180 days to fully implement a requirement applicable
under this Act to an energy trading facility.
(2)The Commission may in its discretion,
upon the written request of the facility and for good cause, grant an
additional extension of up to 6 months to fully implement a requirement for
which an initial extension has been granted under paragraph (1).
(3)The Commission may not grant any
extension under paragraphs (1) or (2) for any information reporting or
recordkeeping requirement.
(d)Domestic
trading on foreign boards of tradeSection 3 of this Act shall take effect 180
days after the date of the enactment of this Act.