[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 3671 Introduced in Senate (IS)]







110th CONGRESS
  2d Session
                                S. 3671

 To amend the Commodity Exchange Act to require the Commodity Futures 
 Trading Commission to develop and impose aggregate position limits on 
 certain large over-the-counter transactions and classes of large over-
                       the-counter transactions.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            October 1 (legislative day, September 17), 2008

Mrs. Feinstein introduced the following bill; which was read twice and 
   referred to the Committee on Agriculture, Nutrition, and Forestry

_______________________________________________________________________

                                 A BILL


 
 To amend the Commodity Exchange Act to require the Commodity Futures 
 Trading Commission to develop and impose aggregate position limits on 
 certain large over-the-counter transactions and classes of large over-
                       the-counter transactions.

    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 ``Over-the-Counter Swaps Speculation 
Limit Act''.

SEC. 2. AGGREGATE POSITION LIMITS.

    Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is amended by 
adding at the end the following:
    ``(j) Aggregate Position Limits.--
            ``(1) Definition of bona fide hedging transaction.--In this 
        subsection:
                    ``(A) In general.--The term `bona fide hedging 
                transaction' means a transaction that--
                            ``(i) is a substitute for a transaction to 
                        be made or a position to be taken at a later 
                        time in a physical marketing channel;
                            ``(ii) is economically appropriate for the 
                        reduction of risks in the conduct and 
                        management of a commercial enterprise; and
                            ``(iii) arises from a potential change in 
                        the value of--
                                    ``(I) assets that a person owns, 
                                produces, manufactures, possesses, or 
                                merchandises (or anticipates owning, 
                                producing, manufacturing, possessing, 
                                or merchandising);
                                    ``(II) liabilities that a person 
                                incurs or anticipates incurring; or
                                    ``(III) services that a person 
                                provides or purchases (or anticipates 
                                providing or purchasing).
                    ``(B) Exclusion.--The term `bona fide hedging 
                transaction' does not include a transaction entered 
                into on a designated contract market for the purpose of 
                offsetting a financial risk arising from an over-the-
                counter commodity derivative.
            ``(2) Aggregate position limits.--
                    ``(A) Development; imposition.--Notwithstanding any 
                other provision of this Act, in accordance with 
                subparagraph (B), to reduce the potential threat of 
                market manipulation, excessive speculation, or 
                congestion in any contract listed for trading on a 
                registered entity or a contract that the Commission has 
                determined to provide a price discovery role, the 
                Commission shall impose aggregate position limits on 
                positions held on registered entities, foreign boards 
                of trade, and each large over-the-counter transaction 
                or class of large over-the-counter transactions that 
                the Commission determines to be appropriate to assist 
                the Commission in protecting the price discovery 
                function of contracts under the jurisdiction of the 
                Commission.
                    ``(B) Requirements for development and imposition 
                of aggregate position limits.--
                            ``(i) Evaluation system.--In developing 
                        aggregate position limits under subparagraph 
                        (A), the Commission shall establish a system 
                        for evaluating the degree to which--
                                    ``(I) each large over-the-counter 
                                transaction and class of large over-
                                the-counter transactions are equivalent 
                                to positions in contracts on registered 
                                entities; and
                                    ``(II) contracts on registered 
                                entities are equivalent to contracts on 
                                other registered entities.
                            ``(ii) Maximum level of aggregate position 
                        limits.--In developing aggregate position 
                        limits under subparagraph (A), the Commission 
                        shall set the aggregate position limits at the 
                        minimum level practicable to ensure sufficient 
                        market liquidity for the conduct of bona fide 
                        hedging transactions.
                    ``(C) Consideration of factors for determination.--
                            ``(i) In general.--In making a 
                        determination under subparagraph (A) with 
                        respect to the imposition of aggregate position 
                        limits on appropriate large over-the-counter 
                        transactions and classes of large over-the-
                        counter transactions, the Commission may 
                        determine not to impose aggregate position 
                        limits on any large over-the-counter 
                        transaction or class of large over-the-counter 
                        transactions if the Commission determines that 
                        the large over-the-counter transaction or class 
                        of large over-the-counter transactions does not 
                        meet any of the factors described in clause 
                        (ii).
                            ``(ii) Factors.--The factors described in 
                        clause (i) include--
                                    ``(I) whether a standardized 
                                agreement is used to execute the large 
                                over-the-counter transaction or class 
                                of large over-the-counter transactions;
                                    ``(II) whether the large over-the-
                                counter transaction or class of large 
                                over-the-counter transactions settles 
                                against any price (including the daily 
                                or final settlement price) of one or 
                                more contracts listed for trading on a 
                                registered entity;
                                    ``(III) whether the price of the 
                                large over-the-counter transaction or 
                                class of large over-the-counter 
                                transactions is reported to a third 
                                party, published, or otherwise 
                                disseminated;
                                    ``(IV) whether the price of the 
                                large over-the-counter transaction or 
                                class of large over-the-counter 
                                transactions is referenced in any other 
                                transaction;
                                    ``(V) whether there is a 
                                significant volume of the large over-
                                the-counter transaction or class of 
                                large over-the-counter transactions; 
                                and
                                    ``(VI) any other factor that the 
                                Commission determines to be 
                                appropriate.
                    ``(D) Exemption for bona fide hedging 
                transactions.--The Commission may exempt any large 
                over-the-counter transaction or class of large over-
                the-counter transactions from any aggregate position 
                limit developed and imposed by the Commission under 
                subparagraph (A) if the Commission determines that the 
                large over-the-counter transaction or class of large 
                over-the-counter transactions is a bona fide hedging 
                transaction.
                    ``(E) Net sum of positions.--The aggregate position 
                limits developed and imposed by the Commission under 
                subparagraph (A) shall apply to the net sum of the like 
                positions held by a person on or in--
                            ``(i) registered entities;
                            ``(ii) foreign boards of trade; and
                            ``(iii) over-the-counter commodity 
                        derivatives.
                    ``(F) Enforcement.--
                            ``(i) In general.--Subject to clause (ii), 
                        in enforcing each aggregate position limit 
                        developed and imposed by the Commission under 
                        subparagraph (A), the Commission may order a 
                        person to reduce any position of the person.
                            ``(ii) Maintenance of position; civil 
                        penalty.--
                                    ``(I) Maintenance of position.--If 
                                the Commission determines that the 
                                reduction of a position of a person 
                                under clause (i) would be disruptive to 
                                the price discovery function, the 
                                Commission may allow the person to 
                                maintain the position.
                                    ``(II) Civil penalty.--The 
                                Commission shall impose on the person 
                                described in subclause (I) a civil 
                                penalty in an amount not greater than--
                                            ``(aa) $1,000,000 for each 
                                        violation committed by the 
                                        person; or
                                            ``(bb) with respect to each 
                                        violation committed by the 
                                        person, the market value of the 
                                        position in excess of the 
                                        appropriate aggregate position 
                                        limit.
                            ``(iii) Effect of violation.--A violation 
                        of an aggregate position limit developed and 
                        imposed by the Commission under subparagraph 
                        (A) shall be determined to be a violation of 
                        this Act.''.
                                 <all>