[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 1399 Introduced in Senate (IS)]
111th CONGRESS
1st Session
S. 1399
To amend the Commodity Exchange Act to establish a market for the
trading of greenhouse gases, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
July 6, 2009
Mrs. Feinstein (for herself and Ms. Snowe) 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 establish a market for the
trading of greenhouse gases, 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 ``Carbon Market Oversight Act of
2009''.
SEC. 2. REGULATION OF CARBON MARKETS.
(a) In General.--The Commodity Exchange Act (7 U.S.C. 1 et seq.) is
amended by adding at the end the following:
``TITLE II--REGULATION OF CARBON MARKETS
``SEC. 201. PURPOSES.
``The purposes of this title are--
``(1) to ensure that the greenhouse gas market established
by this title--
``(A) is formed in a manner consistent with the
public interest;
``(B) is formed in a manner consistent with the
goal of reducing greenhouse gas emissions in the United
States;
``(C) is designed to prevent fraud and
manipulation, which could potentially arise from many
sources, including--
``(i) the concentration of market power
within the control of a limited number of
individuals or entities;
``(ii) the abuse of material, nonpublic
information; and
``(iii) the unique nature of the allowance
markets in which supply is known and declining
over time, but demand is unknown, which can
create an inherent potential for scarcity;
``(D)(i) is appropriately transparent, with real-
time reporting of quotes and trades;
``(ii) makes information on price, volume, and
supply, and other important statistical information,
available to the public on fair, reasonable, and
nondiscriminatory terms;
``(iii) is subject to appropriate recordkeeping and
reporting requirements regarding transactions; and
``(iv) has the confidence of investors;
``(E) functions smoothly and efficiently,
generating prices that accurately reflect supply and
demand for emission allowances;
``(F) promotes just and equitable principles of
trade; and
``(G) establishes an equitable system for the best
execution of customer orders;
``(2) to minimize transaction costs for regulated entities
so that the cost of abatement is reduced for those entities and
customers of those entities;
``(3) to establish a cost-effective capability for real-
time monitoring of the market in order to avoid manipulation
and market failure;
``(4) to minimize the volatility induced by the structure
of the marketplace itself in the interest of providing an
accurate price signal for regulated entities; and
``(5) to ensure that the markets will function in a stable
and efficient manner to promote the environmental and economic
objectives of the United States.
``SEC. 202. DEFINITIONS.
``In this title:
``(1) Carbon clearing organization.--The term `Carbon
Clearing Organization' means the entity established under
section 206(a).
``(2) Carbon dioxide equivalent.--The term `carbon dioxide
equivalent' means for each greenhouse gas, the quantity of the
greenhouse gas that the Administrator of the Environmental
Protection Agency determines makes the same contribution to
global warming as 1 metric ton of carbon dioxide.
``(3) Dealer.--The term `dealer' means an individual,
association, partnership, corporation, or trust that--
``(A) is engaged in soliciting or in accepting
orders for the purchase or sale of a regulated
instrument on or subject to the rules of a registered
carbon trading facility; and
``(B) in or in connection with the solicitation or
acceptance of such an order, accepts money, securities,
or property (or extends credit in lieu of such an
acceptance) to margin, guarantee, or secure any trade
or contract that results or may result from such an
acceptance.
``(4) Director.--The term `Director' means the Director of
the Office.
``(5) Electronic market trader.--The term `electronic
market trader' means a person who executes a trade on an
electronic trading facility.
``(6) Electronic trading facility.--The term `electronic
trading facility' means a trading facility that--
``(A) operates by means of an electronic or
telecommunications network; and
``(B) maintains an automated audit trail of bids,
offers, and the matching of orders or the execution of
transactions on the facility.
``(7) Emission allowance.--The term `emission allowance'
means a Government-issued or Government-accredited
authorization to emit 1 carbon dioxide equivalent of greenhouse
gas.
``(8) Greenhouse gas.--The term `greenhouse gas' means any
of--
``(A) carbon dioxide;
``(B) methane;
``(C) nitrous oxide;
``(D) sulfur hexafluoride;
``(E) a perfluorocarbon; or
``(F) a hydrofluorocarbon.
``(9) Introducing broker.--
``(A) In general.--The term `introducing broker'
means any person engaged in soliciting or in accepting
orders for the purchase or sale of a regulated
instrument on or subject to the rules of a registered
carbon trading facility, who does not accept money,
securities, or property (or extend credit in lieu of
such an acceptance) to margin, guarantee, or secure any
trade or contract that results or may result from such
a solicitation or acceptance.
``(B) Exclusion.--The term `introducing broker'
does not include an individual who elects to be and is
registered as an associated person of a dealer.
``(10) Member.--The term `member' means, with respect to a
trading facility, an individual, association, partnership,
corporation, or trust owning or holding membership in, admitted
to membership representation on, or having trading privileges
on the trading facility.
``(11) Office.--The term `Office' means the Office of
Carbon Market Oversight established by section 203(a)(1).
``(12) Private bilateral contract.--The term `private
bilateral contract' means a nonstandard contract that lacks
each of the following characteristics:
``(A) The applicable transaction or class of
transactions settles against any price (including the
daily or final settlement price) of 1 or more contracts
listed for trading on a registered trading facility.
``(B) The price of the applicable transaction or
class of transactions is reported to a third party,
published, or otherwise disseminated.
``(C) The price of the applicable transaction or
class of transactions is referenced in another
transaction.
``(D) There is a significant volume of the
applicable transaction or class of transactions.
``(E) The value of the applicable transaction is
significant in comparison to the value of the
underlying carbon derivative market.
``(F) The contract or applicable transactions meets
other criteria that the Commission determines to be
appropriate.
``(13) Registered carbon trader.--The term `registered
carbon trader' means a member, in good standing, of a
registered carbon trading facility who has registered with the
Commission under section 205(b).
``(14) Registered carbon trading facility.--The term
`registered carbon trading facility' means a facility that
meets standards established by the Commission under section
203(d)(1).
``(15) Regulated allowance.--The term `regulated allowance'
means--
``(A) an emission allowance; or
``(B) a Government-issued unit of reduction in the
quantity of emissions, or an increase in sequestration,
equal to 1 carbon dioxide equivalent.
``(16) Regulated allowance derivative.--The term `regulated
allowance derivative' means an instrument that is or includes--
``(A) any instrument, contract, or other obligation
(or guaranty or indemnity of such an obligation), the
value of which, in whole or in part, is linked to the
price of a regulated allowance or another regulated
allowance derivative;
``(B) any contract for future delivery (including
an option, a swap agreement, or a futures contract)
of--
``(i) a regulated allowance; or
``(ii) any obligation described in
subparagraph (A); or
``(C) any other contract--
``(i) the value of which is derived from
the existence of a market for regulated
allowances; and
``(ii) that the Commission has not
determined to be a private bilateral contract.
``(17) Regulated instrument.--The term `regulated
instrument' means--
``(A) a regulated allowance; or
``(B) a regulated allowance derivative.
``(18) Short sale.--The term `short sale' means--
``(A) any sale of a regulated allowance that the
seller does not own; and
``(B) any sale that is consummated by the delivery
of a regulated allowance borrowed by, or for the
account of, the seller.
``(19) Trading facility.--
``(A) In general.--The term `trading facility'
means 1 or more individuals or entities that
constitute, maintain, or provide a physical or
electronic facility or system in which multiple
participants have the ability to execute or trade
agreements, contracts, or transactions involving a
regulated instrument by accepting bids and offers made
by other participants that are open to multiple
participants in the facility or system.
``(B) Inclusion.--The term `trading facility'
includes a telephone voice brokerage that executes
multiple, largely offsetting, bilateral transactions.
``(20) United states.--The term `United States' includes
the territories and possessions of the United States.
``SEC. 203. OFFICE OF CARBON MARKET OVERSIGHT; JURISDICTION.
``(a) Establishment of Office of Carbon Market Oversight.--
``(1) In general.--There is established within the
Commission an Office of Carbon Market Oversight.
``(2) Director.--
``(A) In general.--The Office shall be headed by a
Director for Carbon Market Oversight.
``(B) Additional nature of position.--The position
of Director for Carbon Market Oversight shall be in
addition to the directors of other offices of the
Commission.
``(C) Appointment; qualifications.--The Director
shall be--
``(i) appointed by the Commission; and
``(ii) an individual who is, by reason of
background and experience in the regulation of
commodities, securities, or other financial
markets, especially qualified to direct a
program of oversight of the market in regulated
instruments.
``(b) Administration of This Title.--The Commission, acting through
the Director, shall administer this title.
``(c) Duty of Commission.--The Commission shall regulate all
contracts of sale involving regulated instruments under the
jurisdiction of the Commission.
``(d) Regulations.--The Commission shall, not later than 1 year
after the date of enactment of this title, promulgate regulations
governing the implementation of this title, and periodically
thereafter, revise the regulations as necessary, including regulations
that relate to--
``(1) specific initial and ongoing standards for
qualification as a registered carbon trading facility;
``(2) position limits for individual market participants,
adjusted as necessary based on market conditions;
``(3) margin requirements for the instruments traded by
registered carbon trading facilities;
``(4) suitability standards for the solicitation by members
of carbon instruments to retail investors;
``(5) a best execution standard for regulated allowance
trading, such as the standard used in the national securities
markets;
``(6) approval of--
``(A) specific protocols of the central limit order
books of carbon trading facilities; and
``(B) the connection of those facilities to--
``(i) Carbon Clearing Organizations
established under section 206; and
``(ii) the automated quotation system
established under section 207;
``(7) the establishment of baseline initial and ongoing
membership standards for registered carbon trading facilities;
``(8) subject to section 204(a)(4), specific standards for
short sale transactions involving regulated instruments;
``(9) such other matters as are necessary for the carbon
market to operate with the highest standards of fairness and
efficiency; and
``(10) the establishment and operation of a carbon clearing
organization.
``(e) Memorandum of Understanding.--
``(1) In general.--Not later than 180 days after the date
of enactment of this title, the Commission shall enter into a
memorandum of understanding with the Federal Energy Regulatory
Commission, the Environmental Protection Agency, and any State
or regional organization operating a market-based greenhouse
gas emissions control program relating to information-sharing
and coordination of oversight roles regarding--
``(A) trading facilities;
``(B) registered carbon traders;
``(C) carbon clearing organizations; and
``(D) derivative clearing organizations.
``(2) Inclusions.--The memorandum of understanding shall
include, at a minimum, provisions--
``(A) ensuring that information requests to markets
within the respective jurisdictions of each agency are
properly coordinated to minimize duplicative
information requests; and
``(B) regarding the treatment of proprietary
trading information.
``(f) Coordination for Foreign Regulators.--Not later than 180 days
after the date of enactment of this title, the Commission shall, to the
maximum extent practicable, enter into agreements with foreign
regulatory bodies to ensure that foreign boards of trade do not offer
for sale allowance derivatives beyond the jurisdiction of the
Commission that would undermine the authority of the carbon market
regulators in the United States or reduce the effectiveness of
Commission oversight.
``(g) Regulations.--The regulations issued to carry out this
section shall take into account impacts on liquidity, flexibility, and
robust participation in carbon markets, in order to maximize cost-
effective and efficient reductions in carbon emissions.
``SEC. 204. REGULATION OF CARBON TRADING.
``(a) Limitation of Certain Activities to Registered Entities.--
``(1) Carbon allowance trading facility activities.--It
shall be unlawful for a person to offer to enter into, execute,
confirm the execution of, or conduct an office or a business
for the purpose of soliciting, accepting an order for, or
otherwise dealing in, an agreement, contract, or transaction
involving a contract for the purchase or sale of a regulated
allowance, unless--
``(A) the transaction is conducted through the
carbon allowance trading facility established under
section 205(a);
``(B) the contract for the purchase or sale is
evidenced by a record in writing (or other form
acceptable to the Commission) that includes--
``(i) the date;
``(ii) the names of the parties to the
contract (including the addresses of those
parties);
``(iii) a description of the property
covered by the contract (including the price of
the property);
``(iv) the terms of delivery; and
``(v) all other nonstandardized terms and
conditions; and
``(C) the contract is cleared through the Carbon
Clearing Organization.
``(2) Carbon derivative trading facility activities.--It
shall be unlawful for a person to offer to enter into, execute,
confirm the execution of, or conduct an office or a business
for the purpose of soliciting, accepting an order for, or
otherwise dealing in, an agreement, contract, or transaction
involving a contract for the purchase or sale of a regulated
allowance derivative, unless--
``(A) the Commission has determined that the
contract is a private bilateral contract that has been
reported to the Commission and included as part of the
total market risk exposure of a participant; or
``(B)(i) the transaction is conducted through a
trading facility designated as a registered carbon
derivative trading facility under section 205(a);
``(ii) the contract for the purchase or sale is
evidenced by a record in writing (or other form
acceptable to the Commission) that includes--
``(I) the date;
``(II) the names of the parties to the
contract (including the addresses of those
parties);
``(III) a description of the property
covered by the contract (including the price of
the property);
``(IV) the terms of delivery; and
``(V) all other nonstandardized terms and
conditions; and
``(iii) the contract is cleared through a
derivatives clearing organization registered with the
Commission pursuant to section 5b.
``(3) Broker or dealer activities.--It shall be unlawful
for a person to act in the capacity of an introducing broker,
dealer, floor broker, electronic market trader, or floor trader
in connection with the purchase or sale of a regulated
instrument, unless--
``(A) the person is a registered carbon trader; and
``(B) the registration of the person is not
suspended, revoked, or expired.
``(4) Short sale transactions.--A short sale transaction
involving a regulated instrument that occurs without the
borrowing of a regulated allowance shall be unlawful unless the
Commission determines that the transaction is in the best
interest of regulated entities and the public.
``(b) Prohibition on Price or Market Manipulation, Fraud, and False
or Misleading Statements or Reports.--It shall be unlawful for a
person, directly or indirectly--
``(1) to use or employ, or attempt to use or employ, in
connection with a transaction involving the purchase or sale of
a regulated instrument or private bilateral contract, in
violation of such rules and regulations as the Commission may
promulgate to protect the public interest or consumers,
including--
``(A) any manipulative or deceptive device or
contrivance (within the meaning of section 10(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78j(b)));
``(B) any corner; or
``(C) any device or contrivance that cheats or
defrauds any other person;
``(2) for the purpose of creating a false or misleading
appearance of active trading in a regulated instrument or
private bilateral contract, or a false or misleading appearance
with respect to the market for such an instrument--
``(A) to effect any transaction in the instrument
that involves no change in the beneficial ownership of
the instrument;
``(B) to enter an order for the purchase of the
instrument, with the knowledge that 1 or more orders of
substantially the same size, at substantially the same
time, and at substantially the same price, for the sale
of any such instrument, has been or will be entered by
or for the same or different parties; or
``(C) to enter an order for the sale of the
instrument with the knowledge that 1 or more orders of
substantially the same size, at substantially the same
time, and at substantially the same price, for the
purchase of the instrument, has been or will be entered
by or for the same or different parties;
``(3) to deliver or cause to be delivered a knowingly
false, misleading, or inaccurate report concerning information
or conditions that affect or tend to affect the price of a
regulated instrument;
``(4)(A) to make, or cause to be made, in an application,
report, or document required to be filed under this title or
any regulation promulgated under this title, a statement that
is false or misleading with respect to a material fact; or
``(B) to omit any material fact that is required to be
stated in such an application, report, or document, or that is
necessary to make the statements in such an application,
report, or document not misleading; or
``(5) to falsify, conceal, or cover up by any trick,
scheme, or artifice a material fact, make any false,
fictitious, or fraudulent statements or representations, or
make or use any false writing or document that contains a
false, fictitious, or fraudulent statement or entry, to an
entity registered under this title acting in furtherance of the
official duties of the entity under this title.
``(c) Prevention of Excessive Speculation.--
``(1) In general.--To prevent, decrease, or eliminate
burdens associated with excessive speculation relating to
regulated instruments (which may be more severe in markets in
which supply is known and declining and demand is unknown), the
Commission shall promulgate regulations establishing such
position or transaction limitations, in the aggregate, as the
Commission determines to be necessary to prevent potential
upward bias in price with respect to any regulated instrument.
``(2) Aggregate positions.--In carrying out paragraph (1),
the Commission shall, to the maximum extent practicable,
aggregate carbon dioxide equivalent positions in natural gas,
electricity, and regulated instruments.
``(3) Inapplicability to bona fide hedging transactions and
positions.--The limitations and requirements established under
paragraph (1) shall not apply to a position or transaction that
is a bona fide hedging position or transaction, as defined by
the Commission in accordance with the purposes of this title.
``(d) Recordkeeping; Reporting; Access to Books and Records.--
``(1) Members of registered entities.--Each member of an
entity registered under this title shall--
``(A) keep books and records, and make such reports
as are required by the Commission, regarding the
transactions and positions of the member, and the
transactions and positions of the customer involved, in
regulated instruments and private bilateral contracts,
in such form and manner, and for such period, as may be
required by the Commission; and
``(B) make the books and records available for
inspection by any representative of the Commission or
the Department of Justice.
``(2) Registered entities.--Each entity registered under
this title shall--
``(A) maintain daily trading records (including a
time-stamped audit trail), that include such
information, in such form, and for such period as the
Commission may require by regulation;
``(B) before the beginning of trading each day,
insofar as is practicable and under terms and
conditions specified by the Commission, make public the
volume of trading on each type of contract for the
previous day and such other information as the
Commission considers necessary in the public interest
and prescribes by rule, order, or regulation; and
``(C) make such reports from the records, at such
times and places, and in such form, as the Commission
may require by regulation to protect the public
interest and the interest of persons trading in
regulated instruments.
``(e) Foreign Transactions.--
``(1) In general.--Any United States person or corporation
shall be subject to this section for all contracts executed by
the United States person or corporation, including contracts
executed outside of the United States.
``(2) Foreign persons and corporations.--A foreign person
or corporation shall be subject to this section for all
contracts executed by the foreign person or corporation within
the United States.
``SEC. 205. ESTABLISHMENT AND REGISTRATION OF A CARBON TRADING
FACILITIES; REGISTRATION OF TRADERS, BROKERS, AND
DEALERS.
``(a) Carbon Trading Facilities.--
``(1) Establishment of a carbon allowance trading
facility.--The Commission may establish a carbon allowance
trading facility in accordance with this section to process
trades of regulated allowances.
``(2) Registration of carbon trading facilities.--
``(A) In general.--A trading facility may apply to
the Commission for designation as a registered carbon
allowance trading facility or a registered carbon
allowance derivative trading facility by submitting to
the Commission an application that contains such
information and commitments as the Commission may
require.
``(B) Review.--A designation under this paragraph
shall be reviewed by the Commission from time to time,
but not less frequently than once every 3 years.
``(3) Operation of the carbon trading facilities.--
``(A) In general.--To obtain or maintain
designation and continue operating as a registered
carbon allowance trading facility or a registered
carbon allowance derivative trading facility under this
title, a carbon allowance trading facility established
by the Commission or registered with the Commission
under this section shall comply with the requirements
and principles described in this paragraph.
``(B) Prevention of market manipulation.--The
trading facility shall demonstrate capability to
prevent market manipulation through market
surveillance, compliance, and enforcement practices and
procedures, including methods for conducting real-time
monitoring of trading and comprehensive and accurate
trade reconstructions.
``(C) Electronic monitoring of trading.--The
trading facility shall demonstrate--
``(i) that the trading facility monitors
trading on or through the facility to prevent
manipulation, price distortion, and disruptions
of the delivery or cash-settlement process; and
``(ii) in addition to traditional methods,
a capability to monitor market activities
electronically on a real-time basis and, if
appropriate, by algorithm and other such means
as are determined to be appropriate by the
Commission.
``(D) Fair and equitable trading.--The trading
facility shall establish and enforce rules to ensure--
``(i) fair and equitable trading through
the trading facility;
``(ii) the capacity to detect, investigate,
and discipline any person that violates the
rules;
``(iii) the operation of any electronic
matching platform;
``(iv) the terms and conditions of any
contracts to be traded on or through the
trading facility;
``(v) any limitations on access to the
trading facility;
``(vi) the financial integrity of
transactions and contracts entered into by or
through the trading facility, including the
clearance and settlement of the transactions;
``(vii) the financial integrity of brokers,
dealers, and traders doing business on or
through the trading facility;
``(viii) the protection of customer funds;
``(ix) that the trading facility is able to
discipline, suspend, or expel members or market
participants that violate the rules of the
trading facility, or similar methods for
performing the same functions, including
delegation of the functions to third parties;
and
``(x) that market participants are
protected from abusive practices committed by
any party acting as an agent for the
participants.
``(E) Aggregate position limitations or
accountability.--The trading facility shall--
``(i) adopt and enforce aggregate position
limitations or position accountability for
speculators, as necessary and appropriate, to
reduce the potential threat of market
manipulation and excessive speculation in a
marketplace in which supply is fixed by
government policy and demand is set by market
prices;
``(ii) facilitate netting of members'
positions across all of the instruments through
the trading facility, in order to minimize the
cost of trading while ensuring adequate risk
management; and
``(iii) monitor and enforce any limitations
on leverage or position size that might be
imposed by the Commission.
``(F) Emergency authority.--The trading facility
shall adopt and enforce rules to provide for the
exercise of emergency authority, in consultation or
cooperation with the Commission, as necessary and
appropriate, including the authority--
``(i) to liquidate or transfer open
positions in any contract;
``(ii) to suspend or curtail trading in any
regulated instrument; and
``(iii) in the case of a regulated
derivative, to require market participants to
meet special margin requirements.
``(G) Availability of general information.--The
trading facility shall make available to market
authorities, market participants, and the public
information concerning--
``(i) the terms, conditions, and
specifications of the contracts traded on or
through the trading facility;
``(ii) the mechanisms for executing
transactions on or through the trading
facility; and
``(iii) the rules and regulations of the
trading facility.
``(H) Publication of trading information.--
``(i) In general.--The trading facility
shall, in real time, to the maximum extent
practicable, provide the public with
information on bids, offers, settlement prices,
volume, open interest, and opening and closing
ranges for all regulated instruments traded on
the trading facility.
``(ii) Centralized entity.--The Commission
may by regulation permit compliance with this
subparagraph through the provision of pricing
information described in clause (i) to a
centralized entity that will simultaneously
post that information to the public.
``(I) Execution of transactions.--The trading
facility shall provide a competitive, open, and
efficient market and mechanism for executing
transactions on or through the trading facility.
``(J) Security of trade information.--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 trading
facility to use the information--
``(i) to assist the prevention of customer
and market abuses; and
``(ii) provide evidence of violations of
the rules of the trading facility.
``(K) Dispute resolution.--The trading facility
shall establish and enforce rules regarding and provide
facilities for alternative dispute resolution as
appropriate for market participants and any market
intermediaries.
``(L) Governance fitness standards.--The trading
facility shall establish and enforce appropriate
fitness standards for directors, members of any
disciplinary committee, members of the trading
facility, and any other person with direct access to
the trading facility (including any parties affiliated
with any of the persons described in this
subparagraph).
``(M) Conflicts of interest.--The trading facility
shall--
``(i) establish and enforce rules to
minimize conflicts of interest in the
decisionmaking process of the trading facility;
and
``(ii) establish a process for resolving
any such conflict of interest.
``(N) Composition of boards of mutually owned
trading facilities.--In the case of a mutually owned
trading facility, the trading facility shall ensure
that the composition of the governing board reflects
market participants.
``(O) Recordkeeping.--The trading facility shall
maintain records of all activities relating to the
business of the trading facility in a form and manner
acceptable to the Commission for a period of at least 5
years.
``(P) Antitrust considerations.--Unless necessary
or appropriate to achieve the purposes of this title,
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 or through
the trading facility.
``(Q) Trading fees.--The trading facility shall
establish and enforce rules requiring the payment of
fees for the purpose of funding Commission oversight,
as established under section 208(h).
``(R) Central limit order book.--The trading
facility shall operate an electronic central limit
order book as the trading mechanism for regulated
derivatives and regulated allocations and share
sufficient information, in a timely manner, with the
automated quotation system to allow implementation of
section 207.
``(S) National market system.--The trading facility
shall participate, along with the Commission, in the
formation and operation of a national market system
that allows for best execution in the trading of
regulated instruments among registered carbon trading
facilities.
``(T) Screening.--The trading facility shall
establish and enforce rules to screen members based on
capital, systems, and standards of compliance, and
other such membership standards as the Commission
determines to be appropriate.
``(U) Use of clearing.--The trading facility shall
facilitate the clearing of all trades of regulated
allowances through the Carbon Clearing Organization and
the clearing of all trades of regulated allowance
derivatives through a Derivatives Clearing Organization
registered with the Commission.
``(V) Enforcement.--The trading facility shall
establish and enforce rules that allow the trading
facility to obtain any necessary information to perform
any of the functions described in this paragraph,
including the capacity to carry out such international
information-sharing agreements as the Commission may
require.
``(b) Brokers, Dealers, Traders, and Their Associates.--The
Commission shall promulgate regulations governing--
``(1) the eligibility of a person to act in the capacity of
an introducing broker, a dealer, a floor broker, an electronic
market trader, or a floor trader of regulated instruments in
the United States;
``(2) the registration of introducing brokers, dealers,
floor brokers, electronic market traders, and floor traders as
registered carbon traders with the Commission;
``(3) the conduct of a person registered pursuant to
regulations promulgated under paragraph (2), and of a partner,
officer, employee, or agent of the registered person, in
connection with transactions involving a regulated instrument;
and
``(4) minimum standards for eligibility of a person to
register as a registered carbon trader, including the
requirements that an applicant for such a position--
``(A) has never had an applicable license or
registration revoked in any governmental jurisdiction;
``(B) has never been convicted of, or pled guilty
or nolo contendere to, a felony in a domestic, foreign,
or military court;
``(C) has demonstrated such financial
responsibility, character, and general fitness as to
command the confidence of the community and to warrant
a determination that the applicant will operate
honestly, fairly, and efficiently within the purposes
of this title;
``(D) has completed the preregistration education
requirement described in paragraph (5); and
``(E) has passed a written test that meets the test
requirement described in paragraph (6).
``(5) Preregistration education of a carbon trader.--
``(A) Minimum educational requirements.--In order
to meet the preregistration education requirement
referred to in paragraph (4)(D), a person shall
complete at least 20 hours of education approved in
accordance with subparagraph (B), which shall include
at least--
``(i) 6 hours of instruction on applicable
Federal law (including regulations);
``(ii) 10 hours of instruction in ethics,
which shall include instruction on fraud,
manipulation, excessive speculation, and
consumer protection; and
``(iii) 2 hours of training relating to
reporting requirements under this title.
``(B) Approved educational courses.--
``(i) In general.--For the purpose of
subparagraph (A), preregistration educational
courses shall be reviewed and approved by the
Commission.
``(ii) Prohibition.--To maintain the
independence of the approval process, the
Commission shall not directly or indirectly
offer preregistration educational courses for
loan originators.
``(C) Standards.--In approving courses under this
paragraph, the Commission shall apply reasonable
standards in the review and approval of courses.
``(6) Testing of a carbon trader.--
``(A) In general.--In order to meet the written
test requirement referred to in paragraph (4)(E), an
individual shall pass, in accordance with the standards
established under this paragraph, a qualified written
test developed by the Commission and administered by an
approved test provider.
``(B) Qualified test.--A written test shall not be
treated as a qualified written test for purposes of
subparagraph (A) unless--
``(i) the test consists of a minimum of 100
questions; and
``(ii) the test adequately measures the
knowledge and comprehension of the individual
taking the test in appropriate subject areas,
including--
``(I) ethics;
``(II) Federal law (including
regulations) pertaining to trading
regulated instruments; and
``(III) Federal law (including
regulations) on fraud, manipulation,
excessive speculation, and reporting.
``(C) Minimum competence.--
``(i) Passing score.--An individual shall
not be considered to have passed a qualified
written test under this paragraph unless the
individual achieves a test score of not less
than 75 percent correct answers to questions on
the test.
``(ii) Initial retests.--An individual may
retake a test 3 consecutive times, with each
consecutive taking occurring not later than 14
days after the preceding test.
``(iii) Subsequent retests.--After 3
consecutive tests, an individual shall be
required to wait at least 14 days before
retaking the test.
``(iv) Retest after lapse of
registration.--A registered carbon trader who
fails to maintain a valid registration for a
period of 5 years or longer shall retake the
test.
``(7) Background checks.--An applicant for registration
shall, at a minimum, provide to the Commission--
``(A) fingerprints for submission to the Federal
Bureau of Investigation for a State and national
criminal history background check;
``(B) a description of personal history and
experience, including an independent credit report
obtained from a consumer reporting agency described in
section 603(p) of the Fair Credit Reporting Act (15
U.S.C. 1681a(p)); and
``(C) information relating to any administrative,
civil, or criminal findings by any governmental
jurisdiction.
``SEC. 206. CARBON CLEARING ORGANIZATION.
``(a) Establishment.--
``(1) In general.--The Commission shall establish an entity
to be known as the `Carbon Clearing Organization' for the
purpose of creating a common clearing platform for regulated
allowances.
``(2) Application by derivatives clearing organization.--A
derivatives clearing organization registered with the
Commission pursuant to section 5b may apply to the Commission
for designation as the Carbon Clearing Organization by
submitting to the Commission an application that contains such
information and commitments as the Commission may require.
``(b) Operation.--
``(1) Requirements.--
``(A) In general.--The Carbon Clearing Organization
shall comply with the requirements described in this
paragraph.
``(B) Financial resources.--The Carbon Clearing
Organization shall demonstrate adequate financial,
operational, and managerial resources to discharge the
responsibilities of a clearing organization.
``(C) Participant and product eligibility.--The
Carbon Clearing Organization shall establish--
``(i) appropriate admission and continuing
eligibility standards (including appropriate
minimum financial requirements) for members of
and participants in the Carbon Clearing
Organization; and
``(ii) appropriate standards for
determining eligibility of agreements,
contracts, or transactions submitted to the
Carbon Clearing Organization.
``(D) Risk management.--The Carbon Clearing
Organization shall manage the risks associated with
discharging the responsibilities of a clearing
organization through the use of appropriate tools and
procedures.
``(E) Settlement procedures.--The Carbon Clearing
Organization shall--
``(i) complete settlements on a timely
basis under varying circumstances; and
``(ii) maintain an adequate record of the
flow of funds associated with each transaction
that the Carbon Clearing Organization clears.
``(F) Treatment of funds.--The Carbon Clearing
Organization shall have standards and procedures
designed to protect and ensure the safety of member and
participant funds.
``(G) Default rules and procedures.--The Carbon
Clearing Organization shall have rules and procedures
designed to allow for efficient, fair, and safe
management of events if members or participants become
insolvent or otherwise default on obligations to the
Carbon Clearing Organization.
``(H) Rule enforcement.--The Carbon Clearing
Organization shall--
``(i) maintain adequate arrangements and
resources for the effective monitoring and
enforcement of compliance with rules of Carbon
Clearing Organization and for resolution of
disputes; and
``(ii) have the authority and ability to
discipline, limit, suspend, or terminate the
activities of a member or participant for
violations of rules of the Carbon Clearing
Organization.
``(I) System safeguards.--The Carbon Clearing
Organization shall--
``(i) establish and maintain a program of
oversight and risk analysis to ensure that the
automated systems of the Carbon Clearing
Organization function properly and have
adequate capacity and security; and
``(ii) establish and maintain emergency
procedures and a plan for disaster recovery,
and will periodically test backup facilities
sufficient to ensure daily processing,
clearing, and settlement of transactions.
``(J) Public information.--The Carbon Clearing
Organization shall make information concerning the
rules and operating procedures governing the clearing
and settlement systems (including default procedures)
available to market participants.
``(K) Information-sharing.--The Carbon Clearing
Organization shall--
``(i) enter into and abide by the terms of
all appropriate and applicable domestic and
international information-sharing agreements;
and
``(ii) use relevant information obtained
from the agreements in carrying out the risk
management program of the Carbon Clearing
Organization.
``SEC. 207. AUTOMATED QUOTATION SYSTEMS.
``(a) In General.--The Commission shall facilitate the widespread
dissemination of reliable and accurate last-sale and quotation
information with respect to regulated instruments, short sales, and
private bilateral contracts the value of which, in whole or in part, is
linked to the price of a regulated instrument by establishing an
automated quotation system that will collect and disseminate
information regarding all regulated instruments.
``(b) Characteristics of System.--The automated quotation system
shall--
``(1) collect and disseminate quotation and transaction
information;
``(2) provide bid and ask quotations of participating
brokers or dealers; and
``(3) provide for the reporting of information on bids,
offers, settlement prices, volume, open interest, and opening
and closing ranges for all regulated instrument transactions,
including last-sale reporting.
``(c) Electronic Linkage.--The carbon allowance trading facility
and all registered carbon derivative trading facilities shall be linked
electronically with the automated quotation system.
``(d) Missing.--All registered carbon trading facilities shall
share sufficient information with the automated quotation system to
allow the implementation of this section.
``SEC. 208. ADMINISTRATIVE ENFORCEMENT.
``(a) Investigations.--The Commission may conduct such
investigations as the Commission determines to be necessary to carry
out this title, in accordance with this Act.
``(b) Review of Adverse Action by Registered Carbon Trading
Facility.--
``(1) In general.--
``(A) Disciplinary actions.--The Commission may, in
accordance with such standards and procedures as the
Commission determines to be appropriate, review a
decision by a registered carbon trading facility--
``(i) to suspend, expel, or otherwise
discipline a member of the trading facility; or
``(ii) to deny access to the trading
facility.
``(B) Other actions.--On application of any person
who is adversely affected by any decision by a
registered carbon trading facility described in
subparagraph (A), the Commission may--
``(i) review the decision; and
``(ii) issue such order with respect to the
decision as the Commission determines to be
appropriate to protect the public interest.
``(2) Scope of authority.--The Commission may affirm,
modify, set aside, or remand a trading facility decision
reviewed under paragraph (1), after a determination on the
record as to whether the decision was made in accordance with
the rules of the trading facility.
``(c) Complaints.--The Commission shall enforce this title in
accordance with this Act.
``(d) Authority To Suspend or Revoke Registered Carbon Trading
Facility Designation.--The Commission may suspend for a period of not
more than 180 days, or revoke, the designation of a trading facility as
a registered carbon trading facility if, after notice and opportunity
for a hearing on the record, the Commission finds that--
``(1) the trading facility or the entity, as the case may
be, has not complied with a requirement of subsection (a)(3) or
(c) of section 205, as the case may be; or
``(2) a director, officer, employee, or agent of the
trading facility or entity, as the case may be, has violated
this title or a regulation or order promulgated or issued under
this title.
``(e) Injunctive Relief.--If the Commission finds that a person has
violated this title or a regulation or order promulgated or issued
under this title, the Commission may seek injunctive relief in
accordance with this Act.
``(f) Trading Suspensions; Emergency Authority.--
``(1) Definition of emergency.--In this subsection, the
term `emergency' means--
``(A) a major market disturbance characterized by
or constituting--
``(i) sudden and excessive fluctuations of
prices of regulated instruments generally (or a
substantial threat of such sudden and excessive
fluctuations) that threaten fair and orderly
markets; or
``(ii) a substantial disruption of the safe
or efficient operation of the national system
for clearance and settlement of transactions in
regulated instruments (or a substantial threat
of such a disruption); or
``(B) a major disturbance that substantially
disrupts, or threatens to substantially disrupt--
``(i) the functioning of markets in
regulated instruments, or any significant
portion or segment of the markets; or
``(ii) the transmission or processing of
transactions in regulated instruments.
``(2) Trading suspensions.--
``(A) In general.--Subject to subparagraph (B), if
the Commission determines that the public interest so
requires, the Commission may, by order, summarily
suspend all trading of regulated instruments on any
trading facility or otherwise, for a period not
exceeding 90 calendar days.
``(B) Notification of decision.--An order issued by
the Commission under subparagraph (A) shall not take
effect unless--
``(i) the Commission notifies the President
of the decision of the Commission; and
``(ii) the President notifies the
Commission that the President does not
disapprove of the decision.
``(3) Emergency orders.--
``(A) In general.--The Commission, in an emergency,
may by order summarily take such action to alter,
supplement, suspend, or impose requirements or
restrictions with respect to any matter or action
subject to regulation by the Commission or an entity
registered under this title, as the Commission
determines is necessary in the public interest--
``(i) to maintain or restore fair and
orderly markets in regulated instruments; or
``(ii) to ensure prompt, accurate, and safe
clearance and settlement of transactions in
regulated instruments.
``(B) Effective period.--An order of the Commission
under this paragraph--
``(i) shall continue in effect for the
period specified by the Commission;
``(ii) may be extended in accordance with
subparagraph (C); and
``(iii) except as provided in subparagraph
(C), may not continue in effect for more than
10 business days, including extensions.
``(C) Extension.--An order of the Commission under
this paragraph may be extended to continue in effect
for more than 10 business days, but in no event may
continue in effect for more than 30 calendar days, if,
at the time of the extension, the Commission determines
that--
``(i) the emergency situation still exists;
and
``(ii) the continuation of the order beyond
10 business days is necessary in the public
interest and for the protection of investors to
attain an objective described in clause (i) or
(ii) of subparagraph (A).
``(D) Exemption.--In exercising the authority
provided by this paragraph, the Commission shall not be
required to comply with section 553 of title 5, United
States Code.
``(4) Termination of emergency actions by president.--The
President may direct that action taken by the Commission under
paragraph (3) shall not continue in effect.
``(5) Compliance with orders.--A member of a trading
facility, introducing broker, dealer, floor broker, or floor
trader shall not effect any transaction in, or induce the
purchase or sale of, any regulated instrument in contravention
of an order of the Commission under this subsection, unless the
order--
``(A) has been stayed, modified, or set aside as
provided in paragraph (6); or
``(B) has ceased to be effective on direction of
the President as provided in paragraph (4).
``(6) Limitations on review of orders.--
``(A) In general.--An order of the Commission
pursuant to this subsection shall be subject to review
by the United States Court of Appeals for the District
of Columbia Circuit.
``(B) Basis.--A review of an order under
subparagraph (A) shall be based on an examination of
all the information before the Commission at the time
the order was issued.
``(C) Standard for findings.--The reviewing court
shall not enter a stay, writ of mandamus, or similar
relief unless the court finds, after notice and hearing
before a panel of the court, that the action of the
Commission is arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.
``(g) Other Authority To Issue Orders.--The Commission may issue
such other orders as are necessary to ensure compliance with this title
(including regulations promulgated under this title).
``(h) Trading Fees To Support Commission Activities.--
``(1) In general.--To support oversight by the Commission
of markets under this title, each registered trading facility
shall charge a trading fee, per transaction, to be established
by the Commission at a level not to exceed \1/2\ of 1 percent
of the value of the contract being executed.
``(2) Remittance of fees.--Each registered trading facility
shall submit fees charged under this subsection to the
Commission on such schedule as the Commission shall designate.
``SEC. 209. CIVIL JUDICIAL ENFORCEMENT.
``(a) In General.--If it appears to the Commission that a person
has engaged, is engaging, or is about to engage in any act or practice
constituting a violation of this title (including a regulation
promulgated or order issued under this title), the Commission may bring
a civil action in the appropriate United States district court or
United States court of any territory or other place subject to the
jurisdiction of the United States--
``(1) to enjoin the act or practice; or
``(2) to enforce compliance with this title (or a
regulation or order promulgated or issued under this title).
``(b) Forms of Relief.--
``(1) Injunctive relief; restraining order.--On a proper
showing, a court described in subsection (a) shall grant a
permanent or temporary injunction or issue a restraining order,
without bond.
``(2) Civil money penalty.--
``(A) In general.--The Commission may seek and the
court, on a proper showing, shall have jurisdiction to
impose on any person found in the civil action brought
under this section to have committed a violation, a
civil penalty in an amount that is not more than the
greater of--
``(i) $100,000; or
``(ii) triple the monetary gain to the
person for the violation.
``(B) Enforcement of penalty by the attorney
general.--If a person on whom such a penalty is imposed
fails to pay the penalty within the time prescribed in
the order of the court, the Commission may refer the
matter to the Attorney General, who shall recover the
penalty by action in the appropriate United States
district court.
``SEC. 210. CRIMINAL ENFORCEMENT.
``(a) Violations Generally.--A person that knowingly violates
section 204 (or any regulation promulgated under section 204), or
willfully violates any other provision of this title (or a regulation
promulgated under this title) the violation of which is made unlawful
or the observance of which is required by or under this title, shall--
``(1) be fined not more than $1,000,000 (or not more than
$500,000, if the violator is an individual), imprisoned not
more than 5 years, or both; and
``(2) shall pay the costs of prosecution.
``(b) Failure To Comply With Cease and Desist Order.--
``(1) In general.--If, after the period allowed for appeal
of an order issued under section 206(e) or after the affirmance
of such an order, a person subject to the order fails or
refuses to comply with the order, the person shall be--
``(A) fined not more than the greater of $100,000
or triple the monetary gain to the person, imprisoned
not less than 180 days nor more than 1 year, or both;
or
``(B) if the failure or refusal to comply involves
a violation referred to in subsection (a), subject to
the penalties provided in that subsection for the
violation.
``(2) Special rule.--Each day during which a failure or
refusal to comply with such an order continues shall be
considered to be a separate offense for purposes of paragraph
(1).
``SEC. 211. MARKET REPORTS.
``(a) Collection and Analysis of Information.--The Commission
shall, on a continuous basis, collect and analyze the following
information on the functioning of the markets for regulated instruments
established under this title:
``(1) The status of, and trends in, the markets, including
prices, trading volumes, transaction types, and trading
channels and mechanisms.
``(2) Spikes, collapses, and volatility in prices of
regulated instruments, and the causes of the spikes, collapses,
and volatility.
``(3) The relationship between the market for emission
allowances, offset credits, and allowance derivatives, and the
spot and futures markets for energy commodities, including
electricity.
``(4) Evidence of fraud or manipulation in any such market,
the effects on any such market of any such fraud or
manipulation (or threat of fraud or manipulation) that the
Commission has identified, and the effectiveness of corrective
measures undertaken by the Commission to address the fraud or
manipulation, or threat.
``(5) The economic effects of the markets, including to the
macro- and micro-economic effects of unexpected significant
increases and decreases in the price of regulated instruments.
``(6) Any changes in the roles, activities, or strategies
of various market participants.
``(7) Regional, industrial, and consumer responses to the
market, and energy investment responses to the markets.
``(8) Any other issue relating to the markets that the
Commission determines to be appropriate.
``(b) Quarterly Reports to Congress.--Not later than 30 days after
the end of each calendar quarter, the Commission shall submit to the
President, the Committee on Energy and Commerce of the House of
Representatives, the Committee on Energy and Natural Resources of the
Senate, and the Committee on Environment and Public Works of the
Senate, and make available to the public, a report on the matters
described in subsection (a) with respect to the quarter, including
recommendations for any administrative or statutory measures the
Commission considers necessary to address any threats to the
transparency, fairness, or integrity of the markets in regulated
instruments.
``SEC. 212. AUTHORIZATION OF APPROPRIATIONS.
``In addition to any fees collected by the Commission under this
Act, there are authorized to be appropriated such sums as are necessary
to carry out this title.''.
(b) Conforming Amendment.--The Commodity Exchange Act (7 U.S.C. 1
et seq.) is amended by inserting after section 1a (7 U.S.C. 1a) the
following:
``TITLE I--REGULATION OF COMMODITY EXCHANGES''.
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