[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3300 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 3300

 To provide increased transparency and regulatory requirements for the 
          trading of certain derivative financial instruments.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 22, 2009

Mr. McMahon (for himself, Ms. Bean, Mr. Moore of Kansas, Mr. Himes, Mr. 
Crowley, Mr. Kind, Mr. Smith of Washington, Mrs. McCarthy of New York, 
Ms. Schwartz, Mr. Adler of New Jersey, Ms. Kosmas, Mr. Peters, and Mr. 
 Murphy of New York) introduced the following bill; which was referred 
    to the Committee on Financial Services, and in addition to the 
Committee on Agriculture, 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 provide increased transparency and regulatory requirements for the 
          trading of certain derivative financial instruments.

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

SECTION 1. SHORT TITLE; FINDINGS.

    (a) Short Title.--This Act may be cited as the ``Derivative Trading 
Accountability and Disclosure Act''.
    (b) Findings.--Congress finds the following:
            (1) Derivatives are financial instruments used by companies 
        to manage and mitigate risk and are widely used by American 
        companies.
            (2) Derivatives are bilateral contracts that exchange 
        financial risk. Over the counter (OTC) derivatives are 
        customized to a particular company's or investor's situation 
        and needs.
            (3) Many exchange traded products are not customizable, and 
        as a result, companies are unable to match their risks to the 
        products that are offered on exchanges, which are, by 
        necessity, highly standardized.
            (4) Clearinghouses require that participants pledge only 
        liquid collateral, such as cash or short-term government 
        securities, to support their positions in the market without 
        regard to the credit quality of the company. However, companies 
        need their most liquid assets for their working capital and 
        investment purposes. Requiring a company to post cash as 
        collateral means removing cash from the company's core 
        business, which hurts the company and its employees, as well as 
        the overall economy of the United States.
            (5) Lack of transparency, inadequate margin and capital 
        requirements, and poor coordination of regulatory agencies to 
        identify risks in the trading of derivatives, have all led to 
        intense and unexpected pressure on individual financial service 
        companies, and the American financial system as a whole.
            (6) The lack of oversight over the mortgage-backed credit 
        default swap (CDS) market and the challenge corporate 
        executives, business partners, investors and regulators had in 
        identifying the value of and risks associated with various 
        derivative markets played a central role in the near collapse 
        of global financial and insurance giant American International 
        Group, Inc. in late 2008.
            (7) Increased regulation and oversight of the derivatives 
        market is critical to achieving the goals of--
                    (A) lowering systemic risk to the financial system 
                as a whole;
                    (B) promoting the efficiency and transparency of 
                derivative markets;
                    (C) promoting market integrity by preventing fraud, 
                manipulation, and other market abuses; and
                    (D) protecting the public from improper marketing 
                practices.

SEC. 2. DEFINITIONS.

    As used in this Act--
            (1) the term ``clearinghouse'' means a derivatives clearing 
        organization as such term is defined in section 1a(9) of the 
        Commodity Exchange Act (7 U.S.C. 1a(9) and a clearing agency as 
        such term is defined in section 3(a)(23) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)(23));
            (2) the term ``derivative'' means any financial instrument, 
        traded on or off an exchange, the price of which, at least in 
        part, is directly dependent upon the value of one or more 
        underlying securities, equity indices, debt instruments, 
        commodities, other derivative instruments, or any agreed upon 
        pricing index or arrangement;
            (3) the term ``derivatives trader'' means any person 
        engaged in the business of buying and selling any type of 
        derivative as part of its market making activity but does not 
        include a person who buys or sells any type of derivative 
        primarily for purposes of hedging an exposure or making an 
        investment;
            (4) the term ``exchange'' has the meaning given such term 
        in section 3(a)(1) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78c(a)(1)) and includes a board of trade as such term is 
        defined in section 1a(2) of the Commodity Exchange Act (7 
        U.S.C. 1a(2));
            (5) the term ``major market participant'' means any entity 
        which engages in not fewer than such number of such kinds of 
        transactions, or trades not fewer than such number of such 
        kinds of derivatives, as the Commodities Future Trading 
        Commission or the Securities and Exchange Commission, as 
        appropriate, determines to qualify such entity as a financial 
        institution (or other entity) of significant relevance to the 
        national financial system as a whole, including all 
        subsidiaries or affiliates of such entity whose activities fall 
        under the jurisdiction of the Commodities Future Trading 
        Commission or the Securities and Exchange Commission, as 
        appropriate;
            (6) the term ``the Office'' means the Office of Derivatives 
        Supervision established in the Department of the Treasury under 
        section 3; and
            (7) the term ``over-the-counter derivatives trade 
        depository'' means any person who acts as a custodian for the 
        primary record of an over-the-counter derivative transaction or 
        who provides facilities for central processing and 
        reconciliation of transaction information relating to over-the-
        counter derivative transactions.

SEC. 3. OFFICE OF DERIVATIVES SUPERVISION IN THE TREASURY.

    (a) Establishment.--There is hereby established within the 
Department of the Treasury an office to be known as the Office of 
Derivatives Supervision.
    (b) Duties.--
            (1) Oversight of registration of derivatives traders.--The 
        Office shall oversee the registration of derivatives traders as 
        required under section 4 and issue such rules or regulations as 
        required to implement the requirements of such section.
            (2) Coordination on derivatives regulations.--The Office 
        shall provide support and coordination to the Securities and 
        Exchange Commission and the Commodity Futures Trading 
        Commission in developing a comprehensive and standardized set 
        of regulations for the sale, purchase, exchange, or trade of 
        derivatives. In particular, the Office shall harmonize 
        substantive futures and securities regulation for economically 
        equivalent instruments and require the development of 
        consistent procedures for reviewing and approving proposals for 
        new products and rulemakings by self-regulatory organizations.
            (3) Information facilitation.--The Office shall facilitate 
        the exchange of information related to the development of 
        derivatives regulations described in paragraph (1) between--
                    (A) the Securities and Exchange Commission;
                    (B) the Commodity Futures Trading Commission;
                    (C) the Office of the Comptroller of the Currency;
                    (D) the Office of Thrift Supervision;
                    (E) the Federal Reserve System; and
                    (F) such other Federal agencies or departments as 
                the Office may prescribe.
            (4) Disapproval power over derivatives regulations.--
                    (A) In general.--If, within 30 days of the 
                prescription of a rule or regulation with respect to 
                the sale, purchase, exchange, or trade of derivatives 
                prescribed by the Securities and Exchange Commission or 
                the Commodity Futures Trading Commission, the Secretary 
                of the Treasury, acting through the Office, determines 
                that such rule or regulation does not harmonize 
                substantive commodities and securities regulation for 
                economically equivalent instruments between the 
                Securities and Exchange Commission and the Commodity 
                Futures Trading Commission, such rule or regulation 
                shall not take effect.
                    (B) Exception.--Subparagraph (A) shall not apply to 
                a rule or regulation if such rule or regulation is 
                expressly required to be prescribed by law.
    (c) Report.--Not later than June 30, 2010, and each year 
thereafter, the Office shall transmit a report to Congress that--
            (1) identifies and details the rules promulgated under this 
        Act;
            (2) evaluates the number, percentage, volume or notional 
        size, and economic exposure of derivative instruments that 
        are--
                    (A) traded on exchanges;
                    (B) cleared through clearinghouses; and
                    (C) traded on the over-the-counter market; and
            (3) assesses the effect of changes in mark-to-market fair 
        value accounting rules, hedge accounting rules, and other 
        related regulations on the derivatives market.

SEC. 4. REGISTRATION OF DERIVATIVES TRADERS.

    (a) Unlawful Conduct.--
            (1) In general.--It shall be unlawful for any derivatives 
        trader to make use of the mails or any means or instrumentality 
        of interstate commerce to effect any transactions in, or to 
        induce or attempt to induce the purchase or sale of, any type 
        of derivative unless such derivatives trader is registered in 
        accordance with subsection (b).
            (2) Exemption.--The Secretary of the Treasury, acting 
        through the Office (referred to in this section as ``the 
        Secretary''), by rule or order, after consultation with the 
        Securities and Exchange Commission and the Commodities Futures 
        Trading Commission, as applicable, may conditionally or 
        unconditionally exempt from paragraph (1) any derivatives 
        trader or class of derivatives traders specified in such rule 
        or order.
    (b) Registration.--
            (1) In general.--A derivatives trader may be registered by 
        filing with the Secretary an application for registration in 
        such form and containing such information and documents 
        concerning such derivatives trader and any persons associated 
        with such derivatives trader as the Secretary, by rule, may 
        prescribe as necessary or appropriate in the public interest or 
        for the protection of investors. Within 45 days of the date of 
        the filing of such application (or within such longer period as 
        to which the applicant consents), the Secretary shall--
                    (A) by order grant registration, or
                    (B) institute proceedings to determine whether 
                registration should be denied.
            (2) Determination.--The Secretary shall grant such 
        registration if the Secretary finds that the requirements of 
        this section are satisfied. The Secretary shall deny such 
        registration if the Secretary does not make such a finding or 
        if the Secretary finds that if the applicant were so 
        registered, its registration would be subject to suspension or 
        revocation under paragraph (4). If the Secretary institutes 
        proceedings under paragraph (1)(B), such proceedings shall 
        include notice of the grounds for denial under consideration 
        and opportunity for hearing and shall be concluded within 120 
        days of the date of the filing of the application for 
        registration. At the conclusion of such proceedings, the 
        Secretary, by order, shall grant or deny such registration. The 
        Secretary may extend the time for conclusion of such 
        proceedings for up to 90 days if the Secretary finds good cause 
        for such extension and publishes its reasons for so finding or 
        for such longer period as to which the applicant consents.
            (3) Application.--An application for registration of a 
        derivatives trader to be formed or organized may be made by a 
        derivatives trader to which the derivatives trader to be formed 
        or organized is to be the successor. Such application, in such 
        form as the Secretary, by rule, may prescribe, shall contain 
        such information and documents concerning the applicant, the 
        successor, and any persons associated with the applicant or the 
        successor, as the Secretary, by rule, may prescribe as 
        necessary or appropriate in the public interest or for the 
        protection of investors. The grant or denial of registration to 
        such an applicant shall be in accordance with the procedures 
        set forth in paragraph (1). If the Secretary grants such 
        registration, the registration shall terminate on the 45th day 
        after the effective date thereof, unless prior thereto the 
        successor shall, in accordance with such rules and regulations 
        as the Secretary may prescribe, adopt the application for 
        registration as its own.
            (4) Censure, suspension, revocation.--The Secretary, by 
        order, shall censure, place limitations on the activities, 
        functions, or operations of, suspend for a period not exceeding 
        12 months, or revoke the registration of any derivatives trader 
        if the Secretary finds, on the record after notice and 
        opportunity for hearing, that such censure, placing of 
        limitations, suspension, or revocation is in the public 
        interest and that such derivatives trader, whether prior or 
        subsequent to becoming such, or any person associated with such 
        derivatives trader, whether prior or subsequent to becoming so 
        associated--
                    (A) has willfully made or caused to be made in any 
                application for registration or report required to be 
                filed with the Secretary under this Act, or in any 
                proceeding before the Secretary with respect to 
                registration, any statement which was at the time and 
                in the light of the circumstances under which it was 
                made false or misleading with respect to any material 
                fact, or has omitted any material fact which is 
                required to be stated therein;
                    (B) has been convicted within 10 years preceding 
                the filing of any application for registration or at 
                any time thereafter of any felony or misdemeanor or of 
                a substantially equivalent crime by a foreign court of 
                competent jurisdiction which the Secretary finds--
                            (i) involves the purchase or sale of any 
                        security or derivative, the taking of a false 
                        oath, the making of a false report, bribery, 
                        perjury, burglary, any substantially equivalent 
                        activity however denominated by the laws of the 
                        relevant foreign government, or conspiracy to 
                        commit any such offense;
                            (ii) arises out of the conduct of the 
                        business of a derivatives trader, broker, 
                        dealer, municipal securities dealer, government 
                        securities broker, government securities 
                        dealer, investment adviser, bank, insurance 
                        company, fiduciary, transfer agent, nationally 
                        recognized statistical rating organization, 
                        foreign person performing a function 
                        substantially equivalent to any of the above, 
                        or entity or person required to be registered 
                        under the Commodity Exchange Act (7 U.S.C. 1 et 
                        seq.) or any substantially equivalent foreign 
                        statute or regulation;
                            (iii) involves the larceny, theft, robbery, 
                        extortion, forgery, counterfeiting, fraudulent 
                        concealment, embezzlement, fraudulent 
                        conversion, or misappropriation of funds, or 
                        securities or derivatives, or substantially 
                        equivalent activity however denominated by the 
                        laws of the relevant foreign government; or
                            (iv) involves the violation of section 152, 
                        1341, 1342, or 1343 or chapter 25 or 47 of 
                        title 18, United States Code, or a violation of 
                        a substantially equivalent foreign statute;
                    (C) is permanently or temporarily enjoined by 
                order, judgment, or decree of any court of competent 
                jurisdiction from acting as a derivatives trader, 
                investment adviser, underwriter, broker, dealer, 
                municipal securities dealer, government securities 
                broker, government securities dealer, transfer agent, 
                nationally recognized statistical rating organization, 
                foreign person performing a function substantially 
                equivalent to any of the above, or entity or person 
                required to be registered under the Commodity Exchange 
                Act or any substantially equivalent foreign statute or 
                regulation, or as an affiliated person or employee of 
                any investment company, bank, insurance company, 
                foreign entity substantially equivalent to any of the 
                above, or entity or person required to be registered 
                under the Commodity Exchange Act or any substantially 
                equivalent foreign statute or regulation or from 
                engaging in or continuing any conduct or practice in 
                connection with any such activity, or in connection 
                with the purchase or sale of any security or 
                derivative;
                    (D) has willfully violated any provision of the 
                securities laws (as such term is defined in section 
                3(a)(47) of the Securities Exchange Act of 1934 (15 
                U.S.C. 78c(a)(47)), the Commodity Exchange Act (7 
                U.S.C. 1a et seq.), any rule or regulation issued under 
                this Act or under any of such Acts, or is unable to 
                comply with any such provision;
                    (E) has willfully aided, abetted, counseled, 
                commanded, induced, or procured the violation by any 
                other person of any provision of the securities laws 
                (as such term is defined in section 3(a)(47) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), 
                the Commodity Exchange Act (7 U.S.C. 1a et seq.), any 
                rule or regulation issued under this Act or under any 
                of such Acts, the rules or regulations under this Act 
                or any of such Acts, or has failed reasonably to 
                supervise, with a view to preventing violations of the 
                provisions of such Acts, rules, and regulations, 
                another person who commits such a violation, if such 
                other person is subject to his supervision. For the 
                purposes of this subparagraph, no person shall be 
                deemed to have failed reasonably to supervise any other 
                person, if--
                            (i) there have been established procedures, 
                        and a system for applying such procedures, 
                        which would reasonably be expected to prevent 
                        and detect, insofar as practicable, any such 
                        violation by such other person; and
                            (ii) such person has reasonably discharged 
                        the duties and obligations incumbent upon him 
                        by reason of such procedures and system without 
                        reasonable cause to believe that such 
                        procedures and system were not being complied 
                        with;
                    (F) is subject to any order of the Secretary 
                barring or suspending the right of the person to be 
                associated with a derivatives trader;
                    (G) has been found by a foreign financial 
                regulatory authority to have--
                            (i) made or caused to be made in any 
                        application for registration or report required 
                        to be filed with a foreign financial regulatory 
                        authority, or in any proceeding before a 
                        foreign financial regulatory authority with 
                        respect to registration, any statement that was 
                        at the time and in the light of the 
                        circumstances under which it was made false or 
                        misleading with respect to any material fact, 
                        or has omitted to state in any application or 
                        report to the foreign financial regulatory 
                        authority any material fact that is required to 
                        be stated therein;
                            (ii) violated any foreign statute or 
                        regulation regarding transactions in 
                        securities, or contracts of sale of a commodity 
                        for future delivery, traded on or subject to 
                        the rules of a contract market or any board of 
                        trade;
                            (iii) aided, abetted, counseled, commanded, 
                        induced, or procured the violation by any 
                        person of any provision of any statutory 
                        provisions enacted by a foreign government, or 
                        rules or regulations thereunder, empowering a 
                        foreign financial regulatory authority 
                        regarding transactions in securities, or 
                        contracts of sale of a commodity for future 
                        delivery, traded on or subject to the rules of 
                        a contract market or any board of trade, or has 
                        been found, by a foreign financial regulatory 
                        authority, to have failed reasonably to 
                        supervise, with a view to preventing violations 
                        of such statutory provisions, rules, and 
                        regulations, another person who commits such a 
                        violation, if such other person is subject to 
                        his supervision; or
                    (H) is subject to any final order of a State 
                securities commission (or any agency or officer 
                performing like functions), State authority that 
                supervises or examines banks, savings associations, or 
                credit unions, State insurance commission (or any 
                agency or office performing like functions), an 
                appropriate Federal banking agency (as defined in 
                section 3 of the Federal Deposit Insurance Act (12 
                U.S.C. 1813)), or the National Credit Union 
                Administration, that--
                            (i) bars such person from association with 
                        an entity regulated by such commission, 
                        authority, agency, or officer, or from engaging 
                        in the business of securities, insurance, 
                        banking, savings association activities, or 
                        credit union activities; or
                            (ii) constitutes a final order based on 
                        violations of any laws or regulations that 
                        prohibit fraudulent, manipulative, or deceptive 
                        conduct.
            (5) Temporary suspension.--Pending final determination 
        whether any registration under this subsection shall be 
        revoked, the Secretary, by order, may suspend such 
        registration, if such suspension appears to the Secretary, 
        after notice and opportunity for hearing, to be necessary or 
        appropriate in the public interest or for the protection of 
        investors. Any registered derivatives trader may, upon such 
        terms and conditions as the Secretary deems necessary or 
        appropriate in the public interest or for the protection of 
        investors, withdraw from registration by filing a written 
        notice of withdrawal with the Secretary. If the Secretary finds 
        that any registered derivatives trader is no longer in 
        existence or has ceased to do business as a derivatives trader, 
        the Secretary, by order, shall cancel the registration of such 
        derivatives trader.
            (6) Standards of competence.--No registered derivatives 
        trader shall act as such unless it meets such standards of 
        operational capability and such derivatives trader and all 
        natural persons associated with such derivatives trader meet 
        such standards of training, experience, competence, and such 
        other qualifications as the Secretary finds necessary or 
        appropriate in the public interest or for the protection of 
        investors. The Secretary shall establish such standards by 
        rules and regulations, which may--
                    (A) specify that all or any portion of such 
                standards shall be applicable to any class of 
                derivatives traders and persons associated with 
                derivatives traders;
                    (B) require persons in any such class to pass tests 
                prescribed in accordance with such rules and 
                regulations, which tests shall, with respect to any 
                class of partners, officers, or supervisory employees 
                (which latter term may be defined by the Secretary's 
                rules and regulations) engaged in the management of the 
                derivatives trader, include questions relating to 
                bookkeeping, accounting, supervision of employees, 
                maintenance of records, and other appropriate matters; 
                and
                    (C) provide that persons in any such class other 
                than derivatives traders and partners, officers, and 
                supervisory employees of derivatives traders, may be 
                qualified solely on the basis of compliance with such 
                standards of training and such other qualifications as 
                the Secretary finds appropriate.
        The Secretary, by rule, may prescribe reasonable fees and 
        charges to defray its costs in carrying out this paragraph, 
        including, but not limited to, fees for any test administered 
        by the Secretary or under its direction.
    (c) Additional Prohibitions.--
            (1) Fraudulent, deceptive, or manipulative acts or 
        practices.--(A) No derivatives trader shall make use of the 
        mails or any means or instrumentality of interstate commerce in 
        connection with which such derivatives trader engages in any 
        fraudulent, deceptive, or manipulative act or practice or 
        violates such rules and regulations regarding conflicts of 
        interest or fair practices, including but not limited to rules 
        and regulations related to political contributions, as the 
        Secretary shall prescribe in the public interest or for the 
        protection of investors or to maintain fair and orderly 
        markets.
            (B) The Secretary shall, for the purposes of this paragraph 
        as the Secretary finds necessary or appropriate in the public 
        interest or for the protection of investors, by rules and 
        regulations define, and prescribe means reasonably designed to 
        prevent, such acts and practices as are fraudulent, deceptive, 
        or manipulative.
            (2) Enforcement.--If the Secretary finds, after notice and 
        opportunity for a hearing, that any person subject to the 
        provisions of this section or any rule or regulation thereunder 
        has failed to comply with any such provision, rule, or 
        regulation in any material respect, the Secretary may publish 
        its findings and issue an order requiring such person, and any 
        person who was a cause of the failure to comply due to an act 
        or omission the person knew or should have known would 
        contribute to the failure to comply, to comply, or to take 
        steps to effect compliance, with such provision or such rule or 
        regulation thereunder upon such terms and conditions and within 
        such time as the Secretary may specify in such order.
    (d) Policies and Procedures.--Every registered derivatives trader 
shall establish, maintain, and enforce written policies and procedures 
reasonably designed, taking into consideration the nature of such 
derivatives trader's business, to prevent the misuse in violation of 
this Act, or the rules or regulations thereunder, of material, 
nonpublic information by such derivatives trader or any person 
associated with such derivatives trader. The Secretary, as the 
Secretary deems necessary or appropriate in the public interest or for 
the protection of investors, shall adopt rules or regulations to 
require specific policies or procedures reasonably designed to prevent 
misuse in violation of this Act (or the rules or regulations 
thereunder) of material, nonpublic information.

SEC. 5. RULEMAKING AUTHORITY RELATED TO DERIVATIVES.

    (a) Issuance of Proposed Regulations.--Not later than 120 days 
after the date of the enactment of this Act, the Commodity Futures 
Trading Commission and the Securities and Exchange Commission shall 
each issue separate proposed regulations imposing the following kinds 
of requirements with respect to trading in the derivative instruments 
over which each Commission has jurisdiction as of such date of 
enactment:
            (1) Requirements governing the disclosure to the respective 
        Commission of information about the positions and trading in 
        the instruments, and transparency, including an audit trail of 
        the record of trading information identifying, for the 
        derivatives traders participating in each transaction, the 
        firms clearing the trade, the terms and time or sequence of the 
        trade, the order receipt and execution time, as applicable and, 
        ultimately, and as applicable, the customers involved.
            (2) Anti-fraud and truth-in-marketing requirements.
            (3) Mandatory minimum initial margin requirements.
            (4) Mandatory minimum variation margin requirements.
            (5) Acceptable or permissible types of collateral.
    (b) Factors To Be Considered.--The proposed regulations that impose 
the requirements referred to in paragraphs (3) through (5) of 
subsection (a) with respect to trading in a derivative shall be based 
on an evaluation of the following:
            (1) The potential systemic risk posed by the sale, 
        purchase, exchange, or trade of the derivative, determined 
        after reviewing whether the trade is being made by a major 
        market participant.
            (2) The extent to which the instrument has been customized, 
        determined after reviewing the following:
                    (A) The volume of transactions involving the 
                derivative.
                    (B) The similarity of the terms of the derivative 
                to the terms in derivatives that are more standardized 
                in the industry.
                    (C) Whether the differences between the terms of 
                the derivative and the terms of such standardized 
                derivatives are of economic significance.
                    (D) The extent to which any of the terms in the 
                derivative are disseminated to third parties.
    (c) Final Regulations.--Within 180 days after the date of the 
enactment of this Act, the Commodity Futures Trading Commission and the 
Securities and Exchange Commission shall each promulgate in final form, 
with the approval of the Secretary, the regulations developed under 
this section.

SEC. 6. REGULATIONS REGARDING THE TRADING AND CLEARING OF DERIVATIVES.

    (a) In General.--The Securities and Exchange Commission and the 
Commodities Futures Trading Commission shall jointly determine, in 
coordination with the Office, which derivatives or class of derivatives 
shall be--
            (1) required to be traded on an exchange;
            (2) required to be cleared through a clearinghouse; and
            (3) permitted to be traded through the over-the-counter 
        market.
    (b) Guidelines.--Such determinations shall be made in accordance 
with the following guidelines:
            (1) All standardized derivatives shall be permitted to be 
        traded on an exchange, including those derivatives excluded or 
        exempt from such trading on Organized Exchanges under the 
        Commodities and Exchange Act.
            (2) Standardized derivatives sold, purchased, traded, or 
        exchanged between major market participants shall be cleared 
        through clearinghouses.
            (3) Derivatives that continue to be traded in the over-the-
        counter market that are not cleared through a clearinghouse 
        shall be processed through an over-the-counter derivatives 
        trade depository.
    (c) Uniform Regulations.--Regardless of whether a transaction is 
made on an exchange, through a clearinghouse, or through the over-the-
counter market, all trades shall be subject to the disclosure, 
transparency, anti-fraud, truth-in-marketing, and reporting 
requirements set jointly by the Securities and Exchange Commission, the 
Commodities Futures Trading Commission, and the Office.
    (d) Additional Requirements.--Regulations issued under this section 
shall require that--
            (1) derivatives that are not traded on exchanges or cleared 
        through clearinghouses and are made by major market 
        participants be subject to higher total capital requirements 
        (either through higher initial margin, higher variation margin, 
        or other higher collateral positions) than those derivatives 
        traded on exchanges or through clearinghouses; and
            (2) derivatives that are sold, purchased, traded, or 
        exchanged between a major market participant and a non-major 
        market participant that is able to borrow funds in the debt 
        markets on an uncollateralized basis, or is able to obtain 
        other sources of credit without posting cash or cash 
        equivalents to secure funds borrowed, shall be permitted to be 
        sold, purchased, traded, or exchanged with limited or no 
        required initial margin, variation margin or other capital or 
        collateral positions.
    (e) Subsequent Determinations.--Nothing in this Act shall prevent 
the Securities and Exchange Commission, the Commodities Futures Trading 
Commission, or the Office from making a subsequent determination, or 
amendment of, an initial determination of which class of derivatives 
may be traded on an exchange, cleared through a clearinghouse, or 
permitted to be traded through the over-the-counter market.
    (f) Report.--Not later than 45 days following the date of enactment 
of this Act, the Securities and Exchange Commission and the Commodities 
Futures Trading Commission shall jointly prepare and transmit a report 
to Congress that identifies all conflicts in statutes and regulations 
with respect to similar types of financial instruments and either 
explains why those differences are essential to achieve underlying 
policy objectives with respect to investor protection, market 
integrity, and price transparency or makes recommendations for changes 
to statutes and regulations that would eliminate the differences.

SEC. 7. CIVIL PENALTY AUTHORITY OF THE SEC AND CFTC.

    (a) Authority To Assess Civil Penalties.--The Securities and 
Exchange Commission or the Commodity Futures Trading Commission, as 
appropriate, may impose a civil penalty on any person over which each 
respective Commission has jurisdiction under this Act and the 
regulations issued under this Act, if it finds, on the record after 
notice and opportunity for hearing, that such person--
            (1) has violated any requirement of this Act and the 
        regulations issued under this Act with respect to derivatives 
        trading,
            (2) has willfully aided, abetted, counseled, commanded, 
        induced, or procured such a violation by any other person,
            (3) has willfully made or caused to be made in any 
        application for registration or report required to be filed 
        with the Office or with each respective Commission, or
            (4) has failed reasonably to supervise another person who 
        commits such a violation, if such other person is subject to 
        such supervision,
and that such penalty is in the public interest.
    (b) Maximum Amount of Penalty.--
            (1) First tier.--The maximum amount of penalty for each act 
        or omission described in subsection (a) of this section shall 
        be $15,000 for a natural person or $150,000 for any other 
        person.
            (2) Second tier.--Notwithstanding paragraph (1), the 
        maximum amount of penalty for each such act or omission shall 
        be $150,000 for a natural person or $750,000 for any other 
        person if the act or omission described in subsection (a) of 
        this section involved fraud, deceit, manipulation, or 
        deliberate or reckless disregard of a regulatory requirement.
            (3) Third tier.--Notwithstanding paragraphs (1) and (2), 
        the maximum amount of penalty for each such act or omission 
        shall be $300,000 for a natural person or $1,500,000 for any 
        other person if--
                    (A) the act or omission described in subsection (a) 
                of this section involved fraud, deceit, manipulation, 
                or deliberate or reckless disregard of a regulatory 
                requirement; and
                    (B) such act or omission directly or indirectly 
                resulted in substantial losses or created a significant 
                risk of substantial losses to other persons or resulted 
                in substantial pecuniary gain to the person who 
                committed the act or omission.
    (c) Determination of Public Interest.--In considering under this 
section whether a penalty is in the public interest, the appropriate 
Commission may consider--
            (1) whether the act or omission for which such penalty is 
        assessed involved fraud, deceit, manipulation, or deliberate or 
        reckless disregard of a regulatory requirement;
            (2) the harm to other persons resulting either directly or 
        indirectly from such act or omission;
            (3) the extent to which any person was unjustly enriched, 
        taking into account any restitution made to persons injured by 
        such behavior;
            (4) whether such person previously has been found by the 
        appropriate Commission to have violated any provision of the 
        Federal securities laws, State securities laws, or the 
        Commodities Futures Trading Act, has been enjoined by a court 
        of competent jurisdiction from violations of such laws or 
        rules, or has been convicted by a court of competent 
        jurisdiction of violations of such laws;
            (5) the need to deter such person and other persons from 
        committing such acts or omissions; and
            (6) such other matters as justice may require.
    (d)  Evidence Concerning Ability To Pay.--In any proceeding in 
which a Commission may impose a penalty under this section, a 
respondent may present evidence of the respondent's ability to pay such 
penalty. The appropriate Commission may, in its discretion, consider 
such evidence in determining whether such penalty is in the public 
interest. Such evidence may relate to the extent of such person's 
ability to continue in business and the collectability of a penalty, 
taking into account any other claims of the United States or third 
parties upon such person's assets and the amount of such person's 
assets.
    (e) Authority To Enter Order Requiring Accounting and 
Disgorgement.--In any proceeding in which a Commission may impose a 
penalty under this section, the appropriate Commission may enter an 
order requiring accounting and disgorgement, including reasonable 
interest. Each Commission is authorized to adopt rules, regulations, 
and orders concerning payments to investors, rates of interest, periods 
of accrual, and such other matters with respect to those derivatives 
over which each respective Commission has jurisdiction under this Act 
and the regulations issued under this Act, as the appropriate 
Commission deems appropriate to implement this subsection.

SEC. 8. CEASE-AND-DESIST PROCEEDINGS.

    (a) Authority of Commission.--If the Securities and Exchange 
Commission or the Commodity Futures Trading Commission, as appropriate, 
finds that any person over which each respective Commission has 
jurisdiction under this Act is violating, has violated, or is about to 
violate any provision of this Act, or any rule or regulation 
thereunder, the appropriate Commission may publish its findings and 
enter an order requiring such person, and any other person that is, 
was, or would be a cause of the violation, due to an act or omission 
the person knew or should have known would contribute to such 
violation, to cease and desist from committing or causing such 
violation and any future violation of the same provision, rule, or 
regulation. Such order may, in addition to requiring a person to cease 
and desist from committing or causing a violation, require such person 
to comply, or to take steps to effect compliance, with such provision, 
rule, or regulation, upon such terms and conditions and within such 
time as the appropriate Commission may specify in such order. Any such 
order may, as such Commission deems appropriate, require future 
compliance or steps to effect future compliance, either permanently or 
for such period of time as such Commission may specify, with such 
provision, rule, or regulation with respect to any security, any 
issuer, or any other person.
    (b) Hearing.--The notice instituting proceedings pursuant to 
subsection (a) shall fix a hearing date not earlier than 30 days not 
later than 60 days after service of the notice unless an earlier or a 
later date is set by the appropriate Commission with the consent of any 
respondent so served.
    (c) Temporary Order.--Whenever the appropriate Commission 
determines that the alleged violation or threatened violation specified 
in the notice instituting proceedings pursuant to subsection (a) is 
likely to result in significant dissipation or conversion of assets, 
significant harm to investors, or substantial harm to the public 
interest, such Commission may enter a temporary order requiring the 
respondent to cease and desist from the violation or threatened 
violation and to take such action to prevent the violation or 
threatened violation and to prevent dissipation or conversion of 
assets, significant harm to investors, or substantial harm to the 
public interest as such Commission deems appropriate pending completion 
of such proceedings. Such an order shall be entered only after notice 
and opportunity for a hearing, unless the Commission determines that 
notice and hearing prior to entry would be impracticable or contrary to 
the public interest. A temporary order shall become effective upon 
service upon the respondent and, unless set aside, limited, or 
suspended by the appropriate Commission or a court of competent 
jurisdiction, shall remain effective and enforceable pending the 
completion of the proceedings.
    (d) Review of Temporary Orders.--
            (1) Commission review.--At any time after the respondent 
        has been served with a temporary cease-and-desist order 
        pursuant to subsection (c), the respondent may apply to the 
        Commission serving the order to have the order set aside, 
        limited, or suspended. If the respondent has been served with a 
        temporary cease-and-desist order entered without a prior 
        Commission hearing, the respondent may, within 10 days after 
        the date on which the order was served, request a hearing on 
        such application and such Commission shall hold a hearing and 
        render a decision on such application at the earliest possible 
        time.
            (2) Judicial review.--Within--
                    (A) 10 days after the date the respondent was 
                served with a temporary cease-and-desist order entered 
                with a prior Commission hearing, or
                    (B) 10 days after the Commission renders a decision 
                on an application and hearing under paragraph (1), with 
                respect to any temporary cease-and-desist order entered 
                without a prior Commission hearing,
        the respondent may apply to the United States district court 
        for the district in which the respondent resides or has its 
        principal place of business, or for the District of Columbia, 
        for an order setting aside, limiting, or suspending the 
        effectiveness or enforcement of the order, and the court shall 
        have jurisdiction to enter such an order. A respondent served 
        with a temporary cease-and-desist order entered without a prior 
        Commission hearing may not apply to the court except after 
        hearing and decision by the Commission on the respondent's 
        application under paragraph (1).
            (3) No automatic stay of temporary order.--The commencement 
        of proceedings under paragraph (2) shall not, unless 
        specifically ordered by the court, operate as a stay of the 
        Commission's order.
    (e) Authority To Enter Order Requiring Accounting and 
Disgorgement.--In any cease-and-desist proceeding under subsection (a), 
the Commission may enter an order requiring accounting and 
disgorgement, including reasonable interest. Each Commission is 
authorized to adopt rules, regulations, and orders concerning payments 
to investors, rates of interest, periods of accrual, and such other 
matters as it deems appropriate to implement this subsection.

SEC. 9. EXPEDITED RULEMAKING PROCEDURES.

    The Office, the Commodities Futures Trading Commission, and the 
Securities and Exchange Commission may issue the rules required under 
this Act through expedited rulemaking procedures.

SEC. 10. WORKING GROUP OF INTERNATIONAL REGULATORS.

    (a) In General.--Not later than 90 days after the date of the 
enactment of this Act, the Office shall invite representatives of the 
Securities and Exchange Commission, the Commodity Futures Trading 
Commission, regulators of domestic and foreign boards of trade, and 
other experts, to participate in a working group of international 
regulators to review international reporting and regulatory standards 
to evaluate international regulations regarding the harmonization of 
substantive commodities and securities regulation for economically 
equivalent instruments.
    (b) Representation of the United States.--The representation of the 
United States in discussions among and negotiations with other nations 
relating to the international regulation of derivatives shall be 
composed of the following:
            (1) One individual appointed by the Secretary of the 
        Treasury acting through the Office.
            (2) One individual appointed by the Chairman of the 
        Securities and Exchange Commission.
            (3) One individual appointed by the Chairman of the 
        Commodity Futures Trading Commission.

SEC. 11. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated to each of the Secretary of 
the Treasury, the Commodities Futures Trading Commission, and the 
Securities and Exchange Commission, such sums as may be necessary to 
carry out this Act.
                                 <all>