[Congressional Record Volume 143, Number 12 (Tuesday, February 4, 1997)]
[Senate]
[Pages S949-S967]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       THE NATIONAL CHEESE EXCHANGE OVERSIGHT AND IMPROVEMENT ACT

 Mr. KOHL. Mr. President, I am introducing legislation to 
address a matter of great concern to all dairy farmers in the Nation--
the lack of a credible milk-pricing system. Though there are many 
aspects of the milk-pricing system in need of reform, the legislation 
that I am introducing today seeks to address concerns about the 
potential for manipulation on the National Cheese Exchange [NCE] in 
Green Bay, WI, and the influence of the NCE on farmers' milk prices.
  Last year, a 3-year study funded by USDA, and conducted by economists 
at the University of Wisconsin-Madison, highlighted the flaws of the 
National Cheese Exchange. Specifically, the report showed that although 
less than 1 percent of the nation's cheese is traded on the exchange, 
the price resulting from the exchange's weekly trading sessions acts as 
a reference price for nearly 95 percent of the commercial bulk cheese 
sales in the country. Further, the NCE price is also used by the U.S. 
Department of Agriculture as a factor in calculating the monthly 
minimum price that farmers receive for their milk.
  The report raised serious concerns about the appropriateness of 
allowing a market that is as thinly traded, highly concentrated, 
unregulated, and subject to manipulation as the NCE to have such 
extreme influence over farmers' milk checks and national cheese prices.
  Since the report was released, a great deal of time has been devoted 
to a discussion of whether certain companies or cooperatives have 
intentionally manipulated the exchange. I personally asked the 
Department of Justice and the Federal Trade Commission to review the 
report, to determine if any antitrust laws had been violated. While I 
am not convinced that either agency gave much attention to the matter, 
both replied that they saw no sign of illegality in the activities by 
large traders on the NCE.
  While these questions of legality and manipulation are valid, they 
are questions that may never be resolved to anyone's satisfaction. 
Ultimately what I believe to be the most important exercise is to find 
a market that will be more reflective of supply and demand, and to 
eliminate any potential for manipulation in price discovery. Farmers 
and consumers alike deserve to know that markets are fair and 
aboveboard.
  With that goal in mind, my colleagues from Wisconsin, Senator 
Feingold and Congressman Obey, and I have worked continuously on 
several initiatives to create and promote alternative price discovery 
mechanisms, and to urge Federal and State regulatory agencies to 
exercise any authorities they might have to oversee the operations of 
the exchange.


             Need for an Alternative Cash Market for Cheese

  With regard to the possible establishment of alternative cash markets 
for cheese, several months ago, Senator Feingold and I asked the 
Coffee, Sugar, and Cocoa Exchange [CSCE] to explore the possibility of 
establishing such an alternative. The CSCE, which already trades 
futures contracts for cheese, is regulated by the U.S. Commodity 
Futures Trading Commission, and imposes strict self-regulatory 
guidelines on its traders as well.
  Further, there is some hope that the establishment of cash market for 
cheese on the CSCE, and the more direct connection to the existing 
cheese futures trading business, would lead to an increased volume of 
trading on both the cash and futures markets for cheese.
  I have been very pleased to see that the CSCE is seriously 
considering our proposal, and is actively exploring the possibility of 
creating a cash market for cheese in the near term. While there is no 
guarantee that such a market will be successful, it is my hope that the 
CSCE leadership will opt to establish such a market, and will establish 
and enforce guidelines to assure that the new market does not merely 
mimic the flaws of the National Cheese Exchange.
  However, even if the CSCE decides to establish an alternative market 
for

[[Page S950]]

cheese, it will be some time before the influence of the National 
Cheese Exchange over farmers' milk prices and national cheese prices is 
diminished. Therefore, I have tried to deal with that problem directly 
and immediately.


   Efforts to Reduce the Influence of the NCE on Farmers' Milk Prices

  First, since I believe that it is inappropriate for an unregulated 
and thinly traded market like the NCE to be used in setting farmers' 
milk prices, I and other members of the Wisconsin congressional 
delegation have asked Secretary Glickman to delink the NCE from the 
calculation of the basic formula price [BFP]. Therefore, I was very 
pleased last week when Secretary Glickman announced a 60-day comment 
period to solicit comments about whether to delink the NCE from the 
calculation of the BFP. I am hopeful that this process will free 
farmers' milk checks from the direct connection to NCE within a few 
short months.
  But even if the Secretary decides to eliminate the direct link 
between the NCE price and the basic formula price, farmers' milk prices 
will still be indirectly linked to the NCE, as long as industry leaders 
continue to use the NCE as a reference price for forward contracts for 
bulk cheese. Since cheese is such a dominant end product for milk, 
especially in Wisconsin, as long as cheese prices are set off the NCE, 
the NCE will be remain a major factor in milk prices.
  That is why, in the long term, I believe the creation of an 
alternative market for cheese, which could become the new reference 
price for bulk cheese contracts, will be in the best interest of 
farmers, consumers, and cheese manufacturers.
  However, until that happens, we must continue in the efforts to fix 
some of the flaws of the National Cheese Exchange. And it is with that 
purpose that I am introducing the National Cheese Exchange Oversight 
and Improvement Act, to require the U.S. Commodity Futures Trading 
Commission to oversee the activities of the NCE.


 Legislation Needed to Require Federal Regulatory Oversight of the NCE

  In October of 1996, Senator Feingold, Congressman Obey, and I wrote 
to the CFTC to urge them to oversee the activities of the National 
Cheese Exchange. This month, we received a response letter explaining 
that the CFTC, as a futures market regulatory agency, has very limited 
authority over cash markets. In the letter, CFTC Acting Director 
Theodore C. Barreaux states,

       The Commodity Exchange Act does not provide the CFTC with 
     regulatory jurisdiction over the day-to-day operations of 
     cash commodity markets * * * The Commodity Exchange Act does 
     confer on the CFTC the authority to investigate possible 
     manipulation of cash markets and to impose sanctions based on 
     its findings, if appropriate. Historically, given the 
     Commission's principal regulatory responsibility over futures 
     and options markets and its relatively limited resources, the 
     CFTC has focused its investigative attention on cash market 
     activity that involves possible adverse impact on one or more 
     of the numerous futures and option markets which it 
     regulates.

  However, it seems very likely that the industrywide concern about the 
lack of viability of the cash market for cheese, is a direct factor in 
the reluctance of the industry to participate more fully in the trading 
of futures contracts for cheese on the CSCE. Therefore, I believe that 
the NCE does have a more direct nexus with the futures market than the 
CFTC is acknowledging.
  However, accepting CFTC's claim that it lacks the necessary authority 
to oversee or regulate the NCE, this legislation is intended to give 
the Commission the explicit authority to do so, at least until the 
Commission determines that the NCE is no longer acting as a reference 
price for commercial sales of bulk cheese of the NCE.
  While I understand the concern of the Commission that requiring CFTC 
regulation of cash markets would open a Pandora's box of new work for 
the Commission, the bill has been written in a very narrow manner, so 
as only to require regulation of the NCE, or other concentrated cash 
markets that share the specific flaws of the NCE.
  I believe there are certain circumstances where a cash market has 
such great influence over national prices, and is so subject to 
manipulation, that it needs to be regulated. And the cheese exchange is 
perhaps the best example of that.
  When you have a cash market that is very thinly traded, completely 
unregulated, and used as a reference price for both raw product prices 
paid to farmers and commercial end product sales, something must be 
done to bring some credibility to the market.
  It is my hope that this legislation could be attached as an amendment 
to the Commodity Exchange Act reauthorization, which is on the Senate 
Agriculture Committee agenda for early action this year. I look forward 
to working with Chairman Lugar, Senator Harkin, and the other members 
of the committee to assure that the necessary Federal oversight of the 
NCE is put in place.
  Further, I welcome my colleague Senator Feingold as an original 
cosponsor of this legislation, and thank Congressman Obey and other 
members of the Wisconsin House delegation for introducing companion 
legislation in the House today as well. It is very gratifying that the 
Wisconsin delegation is working cooperatively and constructively in 
advancing these necessary dairy pricing reforms.
  In that regard, I am also pleased to be an original cosponsor of the 
Milk Price Discovery Improvement Act of 1997, as introduced today by 
Senator Feingold. This legislation will make the U.S. Department of 
Agriculture an equal partner in the NCE reform efforts by: First, 
requiring USDA to delink the NCE opinion price from the USDA basic 
formula price [BFP], which establishes minimum milk prices paid to 
farmers; second, requires USDA to take steps to improve price discovery 
for cheese, in order to reduce the influence of the NCE on farmers' 
milk prices; and third, requires USDA to prohibit competitive practices 
on any cash market that may affect milk prices regulated under Federal 
milk marketing orders.
  While my legislation requires CFTC oversight of the NCE and its day-
to-day rules of operation, Senator Feingold's legislation requires USDA 
authority to prohibit anticompetitive actions by traders on the NCE. 
These two roles are entirely compatible and complementary.
  Mr. President, I ask unanimous consent that the bill summary, and the 
full text of the bill, be included in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 256

       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 ``National Cheese Exchange 
     Oversight and Improvement Act of 1997''.

     SEC. 2. FINDINGS.

       The Congress finds that the operation of the National 
     Cheese Exchange and other cash markets is of national concern 
     and in need of Federal oversight because of the following:
       (1) The National Cheese Exchange, located in Green Bay, 
     Wisconsin, is the dominant cash market for bulk cheese in the 
     United States.
       (2) While less than 1 percent of the cheese produced in the 
     United States is sold on the National Cheese Exchange, the 
     price determined by the National Cheese Exchange acts as a 
     reference price for as much as 95 percent of the commercial 
     cheese transactions conducted in the United States.
       (3) A three-year federally funded investigation into the 
     activities of the National Cheese Exchange determined that 
     the National Cheese Exchange is very thinly traded, highly 
     concentrated, completely unregulated, and subject to 
     manipulation.
       (4) The Coffee, Sugar, and Cocoa Exchange in New York, an 
     exchange regulated by the Commodity Futures Trading 
     Commission, trades futures contracts for cheese.
       (5) The low volume in trading of cheese futures contracts 
     on the Coffee, Sugar, and Cocoa Exchange is partially related 
     to concerns about the lack of viability, and potential for 
     manipulation, in the dominant cash market for cheese, the 
     National Cheese Exchange.
       (6) The National Cheese Exchange is completely unregulated 
     by any Federal or State agency.
       (7) The Commodity Futures Trading Commission claims a lack 
     of authority to regulate or oversee the National Cheese 
     Exchange and similar cash markets.

     SEC. 3. COMMODITY FUTURES TRADING COMMISSION REGULATION OF 
                   NATIONAL CHEESE EXCHANGE AND SIMILAR CASH 
                   MARKETS.

       The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended 
     by inserting after section 20 (7 U.S.C. 24) the following new 
     section:

[[Page S951]]

     ``SEC. 21. COMMISSION REGULATION OF NATIONAL CHEESE EXCHANGE 
                   AND SIMILAR CASH MARKETS.

       ``(a) Definition of Concentrated Cash Market.--In this 
     section, the term `concentrated cash market' means--
       ``(1) the National Cheese Exchange located in Green Bay, 
     Wisconsin; and
       ``(2) a cash market for a commodity if the Commission 
     determines that--
       ``(A) the cash market is geographically centralized in the 
     form of a market or exchange;
       ``(B) the cash market is very thinly traded or highly 
     illiquid;
       ``(C) the price established by the cash market functions as 
     a reference price for a majority of commercial transactions 
     off the cash market for the commodity being traded;
       ``(D) trading in the cash market is concentrated among 
     relatively few buyers and sellers;
       ``(E) the cash market is substantially unregulated by any 
     other regulatory structure (including State regulation or 
     self-regulation);
       ``(F) a futures market regulated under this Act also exists 
     for the commodity that is being traded on the cash market; 
     and
       ``(G) the instability, illiquidity, or potential for 
     manipulation for on the cash market could be a deterrent to 
     the use of the futures market for that commodity.
       ``(b) Regulation of Concentrated Cash Markets.--In 
     consultation with the Secretary of Agriculture, the 
     Commission shall regulate a concentrated cash market under 
     this Act until such time as the Commission determines that 
     the concentrated cash market is not functioning as a 
     reference price for a majority of commercial transactions off 
     the cash market for the commodity being traded on the 
     concentrated cash market.
       ``(c) Submission and Review of Operating Rules.--The 
     Commission shall require a cash market that is subject to 
     this section to:
       ``(1) Submission required.--The Commission shall require a 
     concentrated cash market subject to regulation under 
     subsection (b) to submit to the Commission for approval a set 
     of rules governing the operation of the concentrated cash 
     market; and
       ``(2) Time for submission.--In the case of the National 
     Cheese Exchange, the operating rules required under this 
     subsection shall be submitted not later than 90 days after 
     the date of enactment of this section. In the case of other 
     concentrated cash markets, the operating rules shall be 
     submitted not later than 90 days after the date on which the 
     Commission notifies the concentrated cash market that it is 
     subject to regulation under this section.
       ``(3) Notification of commission action.--The Commission 
     shall promptly review operating rules submitted by a 
     concentrated cash market under this subsection to determine 
     whether the rules are sufficient to govern the operation of 
     the concentrated cash market. Not later than 60 days after 
     receiving the rules from a concentrated cash market, the 
     Commission shall notify the concentrated cash market of the 
     result of the review, including whether the rules are 
     approved or disapproved. If disapproved, the Commission shall 
     provide such recommendations regarding changes to the rules 
     as the Commission considers necessary to secure approval and 
     provide a schedule for resubmission of the rules.
       ``(4) Subsequent rule changes.--A concentrated cash market 
     may not change approved operating rules unless the proposed 
     change is also submitted to the Commission for review and the 
     Commission approves the change in the manner provided in 
     paragraph (3).
       ``(d) Effect of Failure To Submit or Receive Approval of 
     Rules.--Beginning one year after the date of the enactment of 
     this section, the National Cheese Exchange may operate only 
     in accordance with rules approved by the Commission under 
     subsection (c). In the case of other concentrated cash 
     markets, beginning one year after the date on which the 
     concentrated cash market is notified that it is subject to 
     regulation under this section, the concentrated cash market 
     may operate only in accordance with rules approved by the 
     Commission under subsection (c).''.
                                                                    ____


                          Summary of the Bill

       Amends the Commodity Exchange Act, to require the Commodity 
     Futures Trading Commission (CFTC) to regulate the National 
     Cheese Exchange (NCE), in consultation with USDA, until such 
     time as the NCE is no longer used as a reference price for 
     the majority of commercial cheese sales off the exchange.
       Require the NCE (or any other cash market regulated by the 
     CFTC as a result of this bill) to submit to the CFTC for 
     approval a set of rules of operation, and to enforce those 
     rules.
       Further, the bill would give the CFTC authority to regulate 
     other cash markets, if the conditions similar to those on the 
     NCE were to occur on another cash market. Specifically, CFTC 
     would be required to regulate a cash market when the 
     following conditions coincide:
       Trading is geographically centralized.
       The cash market is very thinly traded or highly illiquid.
       The price established by the market or exchange acts as a 
     reference price for a majority of commercial transactions off 
     the market.
       The market is concentrated among relatively few buyers and 
     sellers.
       The market is substantially unregulated by any other 
     regulatory structure (included state regulation or regulation 
     by the market itself).
       Manipulation on the cash market is a deterrent to the use 
     of the futures market for the same commodity.
                                 ______
                                 
      By Mr. LUGAR (for himself, Mr. Harkin, and Mr. Leahy):
  S. 257. A bill to amend the Commodity Exchange Act to improve the 
act, and for other purposes; to the Committee on Agriculture, 
Nutrition, and Forestry.


             THE COMMODITY EXCHANGE ACT AMENDMENTS OF 1997

  Mr. LUGAR. Mr. President, today I am introducing, along with Senators 
Harkin and Leahy, legislation to amend the Commodity Exchange Act. This 
bill is very similar to S. 2077, which Senator Leahy and I introduced 
last September after several months of hearings and informal 
consultations with industry, academics, and regulators. The legislation 
streamlines U.S. futures trading law, conforming it to changing 
competitive realities.
  In many ways, regulation has benefited the U.S. futures industry. 
Prudent regulation enhances customer protection, prevents and punishes 
fraud and other abuses, and makes futures markets better able to 
provide risk management, price discovery, and investment opportunity.
  Regulation, however, also has its costs. U.S. futures markets face 
competition that is, in some cases, less regulated or differently 
regulated. In the years ahead, our challenge is to balance the need for 
adequate regulation with the need to offer cost-competitive products.
  This bill tries to strike such a balance. It requires the Commodity 
Futures Trading Commission to consider the costs for industry of the 
regulations it imposes. The bill streamlines the process of introducing 
new futures contracts, reducing the time that is required to begin 
trading these new products. It makes similar reforms to the process by 
which exchanges' rules are reviewed by the CFTC.
  Where additional authority for the CFTC is needed, the bill provides 
it. The CFTC will have the authority to require U.S. delivery points 
for overseas futures markets to provide information that is also 
regularly demanded of American market participants. This is eminently 
reasonable, and may assist the CFTC and other regulators in the future 
if situations similar to the 1996 London copper market scandal recur.
  The bill will also provide greater legal certainty for swaps, over-
the-counter products that are of increasing importance to many 
businesses. It is important that these contracts' enforceability be 
made more certain, so that legal risk does not compound the other risks 
inherent in any financial transaction. In one important addition to 
last year's legislation, the new bill will also provide this legal 
certainty for swaps that are based on equities, as well as for hybrid 
instruments. In a more limited way, the bill will establish the terms 
of exemptions for on-exchange products traded solely among professional 
investors.
  Another addition to last year's legislation is a major rewrite of the 
so-called Treasury amendment, a provision of the Commodity Exchange Act 
that excludes some financial products from its regulatory coverage. 
This controversial section is at best unclear, and needs a fresh look 
from Congress. I hope the proposals we have made in this bill--which 
are explained in a discussion document I will mention in a moment--will 
both stimulate dialog and find wide acceptance.
  It is unfortunate that the CFTC and the Treasury Department, which 
discussed this subject at Senator Leahy's and my request, were unable 
to agree on a common approach. However, the committee will work with 
both agencies as we move forward. Despite some differences in drafting, 
I believe the Treasury Department's ideas are basically consistent with 
what Senators Harkin, Leahy, and I have proposed. The Treasury did not 
propose, as we do, to allow futures exchanges to create professionals-
only markets in Treasury amendment products. However, Senator Harkin 
and I are informed that while the Treasury is still studying

[[Page S952]]

this proposal, in principle the Department does not object to treating 
exchange affiliates in a manner similar to other sophisticated market 
participants.
  The bill contains a number of other provisions. Senator Harkin and I 
have prepared a section-by-section discussion document, which may be 
helpful to our colleagues.
  On February 11 and 13, the committee will hold hearings on this 
legislation. It is a priority for the committee during the coming weeks 
and months.
  I would like to thank Senator Harkin for his extraordinary 
cooperation in putting this bill together. As the new ranking member of 
the committee, he has been gracious and collegial. Likewise, Senator 
Leahy's efforts both last year and this year deserve special praise. I 
salute them both for their leadership.
  Mr. President, I ask unanimous consent that the bill and additional 
material be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 257

       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 ``Commodity Exchange 
     Amendments Act of 1997''.

     SEC. 2. TREASURY AMENDMENT.

       Section 2(a)(1)(A) of the Commodity Exchange Act (7 U.S.C. 
     2) is amended by striking clause (ii) and inserting the 
     following:
       ``(ii) Treasury amendment.--

       ``(I) In general.--Nothing in this Act shall be deemed to 
     govern or in any way be applicable to transactions in or 
     involving foreign currency, security warrants, security 
     rights, resales of installment loan contracts, repurchase 
     options, government securities, or mortgages and mortgage 
     purchase commitments, unless such transactions involve the 
     sale thereof to the general public for future delivery 
     conducted on a board of trade.
       ``(II) Other agencies.--Nothing in subclause (I) shall 
     affect the powers of the Securities and Exchange Commission, 
     the Office of the Comptroller of the Currency, the Board of 
     Governors of the Federal Reserve System, the Department of 
     the Treasury, the Federal Deposit Insurance Corporation, any 
     agency of State government with the authority to charter, 
     regulate, or license banks, or any State insurance regulatory 
     agency, under this Act or any other provision of law.
       ``(III) Definitions.--

       ``(aa) Board of trade; foreign exchange transactions.--The 
     term `board of trade', as applied to foreign exchange 
     transactions described in subclause (I), shall include 
     unsupervised entities that are engaged in the systematic 
     marketing of standardized, non-negotiable foreign currency 
     transactions to retail investors.
       ``(bb) Board of trade; government securities.--The term 
     `board of trade', as used in subclause (I), shall not include 
     a government securities dealer or government securities 
     broker, to the extent the dealer or broker engage in 
     transactions in government securities, as the terms 
     `government securities', `government securities dealer', and 
     `government securities broker' are defined in section 3(a) of 
     the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
       ``(cc) General public; retail investors.--The Commission 
     shall define the terms `general public' as used in subclause 
     (I) and `retail investors' as used in item (aa), taking into 
     account, to the extent practicable, section 4(c)(3) of this 
     Act and section 35(b)(2) of title 17, Code of Federal 
     Regulations. In carrying out the preceding sentence, the 
     Commission shall not include in the definition of `retail 
     investors' a natural person with total assets that exceeds 
     $10,000,000.
       ``(dd) Option.--For purposes of this clause, an `option' 
     shall be considered to be a transaction at the time it is 
     purchased or sold and at the time, if any, that it is 
     exercised.

       ``(IV) Emergency authority.--Nothing in this clause shall 
     restrict the powers of the Commission under section 8a(9) as 
     they apply to designated contract markets.''.

     SEC. 3. HEDGING.

       Section 3 of the Commodity Exchange Act (7 U.S.C. 5) is 
     amended in the fourth sentence by striking ``through 
     fluctuations in price''.

     SEC. 4. DELIVERY POINTS FOR FOREIGN FUTURES CONTRACTS.

       Section 4(b) of the Commodity Exchange Act (7 U.S.C. 6(b)) 
     is amended--
       (1) in the third sentence--
       (A) by striking ``(1)'' and ``(2)'' and inserting ``(A)'' 
     and ``(B)'', respectively; and
       (B) by striking ``No rule'' and inserting ``Except as 
     provided in paragraph (2), no rule'';
       (2) by inserting ``(1)'' after ``(b)''; and
       (3) by adding at the end the following:
       ``(2)(A) The Commission shall consult with a foreign 
     government, foreign futures authority, or department, agency, 
     governmental body, or regulatory organization empowered by a 
     foreign government to regulate a board of trade, exchange, or 
     market located outside the United States, or a territory or 
     possession of the United States, that has 1 or more 
     established delivery points in the United States, or a 
     territory or possession of the United States, for a contract 
     of sale of a commodity for future delivery that is made or 
     will be made on or subject to the rules of the board of 
     trade, exchange, or market.
       ``(B) In the consultations, the Commission shall endeavor 
     to secure adequate assurances, through memoranda of 
     understanding or any other means the Commission considers 
     appropriate, that the presence of the delivery points will 
     not create the potential for manipulation of the price, or 
     any other disruption in trading, of a contract of sale of a 
     commodity for future delivery traded on or subject to the 
     rules of a contract market, or a commodity, in interstate 
     commerce.
       ``(C) Any warehouse or other facility housing an 
     established delivery point in the United States, or a 
     territory or possession of the United States, described in 
     subparagraph (A) shall--
       ``(i) keep books, records, and other information specified 
     by the Commission pertaining to all transactions and 
     positions in all contracts made or carried on the foreign 
     board of trade, exchange, or market in such form and manner 
     and for such period as may be required by the Commission;
       ``(ii) file such reports regarding the transactions and 
     positions with the Commission as the Commission may specify; 
     and
       ``(iii) keep the books and records open to inspection by a 
     representative of the Commission or the United States 
     Department of Justice.''.

     SEC. 5. EXEMPTION AUTHORITIES.

       Section 4 of the Commodity Exchange Act (7 U.S.C. 6(c)) is 
     amended by adding at the end the following:
       ``(e) Private Transaction Exemption.--
       ``(1) In general.--Notwithstanding subsection (c)(1), to 
     the extent, if any, that an agreement, contract, or 
     transaction (or class thereof) is otherwise subject to this 
     Act, it shall be exempt from all provisions of this Act and 
     any person or class of persons offering, entering into, 
     rendering advice, or rendering other services with respect to 
     the agreement, contract, or transaction (or class thereof), 
     shall be exempt for the activity from all provisions of this 
     Act (except in each case the provisions of sections 4b and 
     4o, any antifraud provision adopted by the Commission 
     pursuant to section 4c(b), and the provisions of section 6(c) 
     and 9(a)(2) to the extent the provisions prohibit 
     manipulation of the market price of any commodity in 
     interstate commerce for future delivery on or subject to the 
     rules of any contract market) if--
       ``(A) the agreement, contract, or transaction (or class 
     thereof) is entered into only between appropriate persons at 
     the time the persons enter into the agreement, contract, or 
     transaction (or class thereof);
       ``(B) the agreement, contract, or transaction (or class 
     thereof) is not part of a fungible class of agreements, 
     contracts, or transactions that are standardized as to their 
     material economic terms;
       ``(C) the creditworthiness of any party having an actual or 
     potential obligation under the agreement, contract, or 
     transaction (or class thereof) would be a material 
     consideration in entering into or determining the terms of 
     the agreement, contract, or transaction (or class thereof), 
     including pricing, cost, or credit enhancement terms of the 
     agreement, contract, or transaction (or class thereof); and
       ``(D) the agreement, contract, or transaction (or class 
     thereof) is not entered into and traded on or through a 
     multilateral transaction execution facility.
       ``(2) Exceptions.--Paragraph (1) shall not preclude--
       ``(A) arrangements or facilities between parties to an 
     agreement, contract, or transaction (or class thereof) that 
     provide for netting of payment obligations resulting from the 
     agreement, contract, or transaction (or class thereof);
       ``(B) arrangements or facilities among parties to an 
     agreement, contract, or transaction (or class thereof) that 
     provide for netting of payments resulting from the agreement, 
     contract or transaction (or class thereof); or
       ``(C) the prohibition of transactions covered under section 
     32.2 of title 17, Code of Federal Regulations.
       ``(3) Definition of appropriate person.--In paragraph (1), 
     the term `appropriate person' means--
       ``(A) a person (as defined in subsection (c)(3)); or
       ``(B) a natural person whose total assets exceed 
     $10,000,000.
       ``(4) Hybrid instrument exemption.--
       ``(A) Definitions.--In this paragraph:
       ``(i) Commodity-dependent component.--The term `commodity-
     dependent component' means a component of a hybrid 
     instrument, the payment of which results from indexing to, or 
     calculation by reference to, the price of a commodity.
       ``(ii) Commodity-dependent value.--The term `commodity-
     dependent value' means the value of a commodity-dependent 
     component, which when decomposed into an option payout or 
     payouts, is measured by the absolute net value of the put 
     option premia with strike prices less than or equal to the 
     reference price plus the absolute net value of the call 
     option premia with strike prices greater than or equal to the 
     reference price, calculated as of the time of issuance of the 
     hybrid instrument.
       ``(iii) Commodity-independent component.--The term 
     `commodity-independent component' means the component of a 
     hybrid instrument, the payments of which do

[[Page S953]]

     not result from indexing to, or calculation by reference to, 
     the price of a commodity.
       ``(iv) Commodity-independent value.--The term `commodity-
     independent value' means the present value of the payments 
     attributable to the commodity-independent component 
     calculated as of the time of issuance of the hybrid 
     instrument.
       ``(v) Hybrid instrument.--The term `hybrid instrument' 
     means an equity or debt security or depository instrument 
     with 1 or more commodity-dependent components that have 
     payment features similar to commodity futures or commodity 
     option contracts or combinations thereof.
       ``(vi) Option premium.--The term `option premium' means the 
     value of an option on the referenced commodity of the hybrid 
     instrument, calculated by using--

       ``(I) the same method as that used to determine the issue 
     price of the instrument; or
       ``(II) a commercially reasonable method appropriate to the 
     instrument being priced where the premia are not explicitly 
     calculated in determining the issue price of the instrument.

       ``(vii) Reference price.--The term `reference price' means 
     a price nearest the current spot or forward price, whichever 
     is used to price the instrument, at which a commodity-
     dependent payment becomes non-zero, or, in the case in which 
     2 potential reference prices exist, the price that results in 
     the greatest commodity-dependent value.
       ``(B) Exemption.--Notwithstanding subsection (c)(1), a 
     hybrid instrument is exempt from all provisions of this Act, 
     and any person or class of persons offering, entering into, 
     or rendering advice or other services with respect to the 
     hybrid instrument is exempt for such activity from all 
     provisions of this Act, if the following terms and conditions 
     are satisfied:
       ``(i) The instrument is--

       ``(I) an equity or debt security (within the meaning of 
     section 2(1) of the Securities Act of 1933 (15 U.S.C. 77b); 
     or
       ``(II) a demand deposit, time deposit or transaction 
     account within the meaning of subsections (b)(1),(c)(l), and 
     (e) of section 204.2 of title 12, Code of Federal 
     Regulations, respectively, that are offered by--

       ``(aa) an insured depository institution (as defined in 
     section 3 of the Federal Deposit Insurance Act (12 U.S.C. 
     1813));
       ``(bb) an insured credit union (as defined in section 101 
     of the Federal Credit Union Act (12 U.S.C. 1752)); or
       ``(cc) a Federal or State branch or agency of a foreign 
     bank (as defined in section 1 of the International Banking 
     Act of 1978 (12 U.S.C. 3101)).
       ``(ii) The sum of the commodity-dependent values of the 
     commodity-dependent components is less than the commodity-
     independent value of the commodity-independent component.
       ``(iii) Provided that--

       ``(I) an issuer must receive full payment of the purchase 
     price of the hybrid instrument, and a purchaser or holder of 
     a hybrid instrument may not be required to make additional 
     out-of-pocket payments to the issuer during the life of the 
     instrument or at maturity;
       ``(II) the instrument is not marketed as a futures contract 
     or a commodity option or, except to the extent necessary to 
     describe the functioning of the instrument or to comply with 
     applicable disclosure requirements, as having the 
     characteristics of a futures contract or a commodity option; 
     and
       ``(III) the instrument does not provide for settlement in 
     the form of a delivery instrument that is specified as such 
     in the rules of a designated contract market.

       ``(iv) The instrument is initially issued or sold subject 
     to applicable Federal or State securities or banking laws to 
     persons who are permitted under the laws to purchase or enter 
     into the hybrid instrument.
       ``(C) Provision not exempted.--The prohibition of 
     transactions covered under section 32.2 of title 17, Code of 
     Federal Regulations, shall apply to a hybrid instrument under 
     this paragraph.
       ``(5) Application of exemptions.--Subsection (c) shall not 
     restrict the authority of the Commission to grant an 
     exemption under this subsection that is in addition to or 
     independent of an exemption provided under paragraph (1) or 
     (4). An exemption provided under subsection (c) may not be 
     applied in a manner that restricts the exemption provided 
     under either paragraph (1) or (4).
       ``(6) Exemption by commission.--
       ``(A) In general.--The Commission may exempt an agreement, 
     contract, or transaction (or class thereof), or a hybrid 
     instrument under this subsection, to the extent that the 
     agreement, contract, or transaction (or class thereof), or 
     hybrid instrument, may be subject to this Act.
       ``(B) No presumption created.--An exemption under this 
     subsection shall not create a presumption that the exempted 
     agreement, contract, or transaction (or class thereof), or 
     hybrid instrument, is subject to this Act.''.

     SEC. 6. EXEMPTION FOR PROFESSIONAL MARKETS.

       Section 4 of the Commodity Exchange Act (7 U.S.C. 6) (as 
     amended by section 5) is amended by adding at the end the 
     following:
       ``(f) Exemption for Professional Markets.--
       ``(1) Definitions.--In this subsection:
       ``(A) Appropriate person.--The term `appropriate person' 
     means--
       ``(i) a person (as defined in subsection (c)(3)); or
       ``(ii) a natural person whose total assets exceed 
     $10,000,000.
       ``(B) Professional market.--The term `professional market' 
     means a market--
       ``(i) that is traded on a board of trade that is otherwise 
     designated by the Commission as a contract market; and
       ``(ii) on which only an appropriate person (as defined in 
     subparagraph (A)) may enter into an agreement, contract, or 
     transaction (or class thereof) on the market.
       ``(2) Exemption.--
       ``(A) In general.--An agreement, contract, or transaction 
     (or class thereof) that is traded on a professional market 
     and is, or may be, subject to this Act shall be exempt from 
     this Act.
       ``(B) Contracts not exempted.--The exemption provided under 
     subparagraph (A) shall not apply to--
       ``(i) any individual agreement, contract, or transaction 
     that has been transacted for the product involved as of the 
     effective date of this subsection; or
       ``(ii) an agreement, contract, or transaction (or class 
     thereof) that involves an agricultural commodity referred to 
     in section 1a.
       ``(3) Applicability of certain provisions.--An agreement, 
     contract, or transaction (or class thereof) for which an 
     exemption is provided under paragraph (2)(A), shall, to the 
     extent applicable, in each case be subject to--
       ``(A) sections 2(a)(1)(B), 4b, and 4o;
       ``(B) the provisions of sections 6(c) and 9(a)(2) to the 
     extent the provisions prohibit manipulation of the market 
     price of any commodity in interstate commerce for future 
     delivery on or subject to the rules of a contract market;
       ``(C) prohibitions adopted by the Commission against fraud 
     or manipulation under section 4c(b); and
       ``(D) the powers of the Commission to respond to 
     emergencies as provided in section 8a(9).''.

     SEC. 7. CONTRACT DESIGNATION.

       (a) In General.--Section 5 of the Commodity Exchange Act (7 
     U.S.C. 7) is amended--
       (1) by striking the matter preceding paragraph (1) and 
     inserting the following:

     ``SEC. 5. DESIGNATION OF A BOARD OF TRADE AS A CONTRACT 
                   MARKET.

       ``(a) In General.--The Commission shall designate a board 
     of trade as a contract market if the board of trade complies 
     with and carries out the following conditions and 
     requirements:'';
       (2) by striking paragraph (7);
       (3) by redesignating paragraph (8) as paragraph (7); and
       (4) by adding at the end the following:
       ``(b) Existing and Future Designations.--
       ``(1) In general.--If a board of trade is designated as a 
     contract market by the Commission under subsection (a) and 
     section 6, the board of trade shall retain the designation 
     for all existing or future contracts, unless the Commission 
     suspends or revokes the designation or the board of trade 
     relinquishes the designation.
       ``(2) Existing designations.--A board of trade that has 
     been designated as a contract market as of the date of 
     enactment of this subsection shall retain the designation 
     unless the Commission finds that a violation of this Act or a 
     rule, regulation, or order of the Commission by the contract 
     market justifies suspension or revocation of the designation 
     under section 6(b), or the board of trade relinquishes the 
     designation.
       ``(c) New Contract Submissions.--Except as provided in 
     subsection (e), a board of trade that has been designated as 
     a contract market under subsection (a) shall submit to the 
     Commission all rules that establish the terms and conditions 
     of a new contract of sale in accordance with subsection (d) 
     (referred to in this section as a `new contract'), other than 
     a rule relating to the setting of levels of margin and other 
     rules that the Commission may specify by regulation.
       ``(d) Procedures for New Contracts.--
       ``(1) Required submission to commission.--Except as 
     provided in subsection (e), a contract market shall submit 
     new contracts to the Commission in accordance with subsection 
     (c).
       ``(2) Effectiveness of new contracts.--A contract market 
     may make effective a new contract and may implement trading 
     in the new contract--
       ``(A) not earlier than 10 business days after the receipt 
     of the new contract by the Commission; or
       ``(B) earlier if authorized by the Commission by rule, 
     regulation, order, or written notice.
       ``(3) Notice to contract market.--The new contract shall 
     become effective and may be traded on the contract market, 
     unless, within the 10-business-day period beginning on the 
     date of the receipt of the new contract by the Commission, 
     the Commission notifies the contract market in writing--
       ``(A) of the determination of the Commission that the 
     proposed new contract appears to--
       ``(i) violate a specific provision of this Act (including 
     paragraphs (1) through (7) of section 5(a)) or a rule, 
     regulation, or order of the Commission; or
       ``(ii) be contrary to the public interest; and
       ``(B) that the Commission intends to review the new 
     contract.
       ``(4) Notice in the federal register.--Notwithstanding the 
     determination of the Commission to review a new contract 
     under paragraph (3) and except as provided in subsection (e), 
     the contract market may make

[[Page S954]]

     the new contract effective, and may implement trading in the 
     new contract, on a date that is not earlier than 15 business 
     days after the determination of the Commission to review the 
     new contract unless within the period of 15 business days the 
     Commission institutes proceedings to disapprove the new 
     contract by providing notice in the Federal Register of the 
     information required under paragraph (5)(A).
       ``(5) Disapproval proceedings.--
       ``(A) Notice of proposed violations.--If the Commission 
     institutes proceedings to determine whether to disapprove a 
     new contract under this subsection, the Commission shall 
     provide the contract market with written notice, including an 
     explanation and analysis of the substantive basis for the 
     proposed grounds for disapproval, of what the Commission has 
     reason to believe are the grounds for disapproval, including, 
     as applicable--
       ``(i) the 1 or more specific provisions of this Act or a 
     rule, regulation, or order of the Commission that the 
     Commission has reason to believe the new contract violates 
     or, if the new contract became effective, would violate; or
       ``(ii) the 1 or more specific public interests to which the 
     Commission has reason to believe the new contract is 
     contrary, or if the new contract became effective would be 
     contrary.
       ``(B) Disapproval proceedings and determination.--
       ``(i) Opportunity to participate; hearing.--Before deciding 
     to disapprove a new contract, the Commission shall give 
     interested persons (including the board of trade) an 
     opportunity to participate in the disapproval proceedings 
     through the submission of written data, views, or arguments 
     following appropriate notice and an opportunity for a hearing 
     on the record before the Commission.
       ``(ii) Determination of disapproval.--At the conclusion of 
     the disapproval proceeding, the Commission shall determine 
     whether to disapprove the new contract.
       ``(iii) Grounds for disapproval.--The Commission shall 
     disapprove the new contract if the Commission determines that 
     the new contract--

       ``(I) violates this Act or a rule, regulation, or order of 
     the Commission; or
       ``(II) is contrary to public interest.

       ``(iv) Specifications for disapproval.--Each disapproval 
     determination shall specify, as applicable--

       ``(I) the 1 or more specific provisions of this Act or a 
     rule, regulation, or order of the Commission, that the 
     Commission determines the new contract violates or, if the 
     new contract became effective, would violate; or
       ``(II) the 1 or more specific public interests to which the 
     Commission determines the new contract is contrary, or if the 
     new contract became effective would be contrary.

       ``(C) Failure to timely complete disapproval 
     determination.--If the Commission does not conclude a 
     disapproval proceeding as provided in subparagraph (B) for a 
     new contract by the date that is 120 calendar days after the 
     Commission institutes the proceeding, the new contract may be 
     made effective, and trading in the new contract may be 
     implemented, by the contract market until such time as the 
     Commission disapproves the new contract in accordance with 
     this paragraph.
       ``(D) Appeals.--A board of trade that has been subject to 
     disapproval of a new contract by the Commission under this 
     subsection shall have the right to an appeal of the 
     disapproval to the court of appeals as provided in section 
     6(b).
       ``(6) Contract market deemed designated.--A board of trade 
     shall be deemed to be designated a contract market for a new 
     contract of sale for future delivery when the new contract 
     becomes effective and trading in the new contract begins.
       ``(e) Required Interagency Review.--Notwithstanding 
     subsection (d), no board of trade may make effective a new 
     contract (or option on the contract) that is subject to the 
     requirements and procedures of clauses (ii) through (v) of 
     paragraph (1)(B), and paragraph (8)(B)(ii), of section 2(a) 
     until the requirements and procedures are satisfied and 
     carried out.''.
       (b) Conforming Amendment.--Section 6(a) of the Commodity 
     Exchange Act (7 U.S.C. 8(a)) is amended in the first sentence 
     by striking ``Any board of trade desiring'' and inserting ``A 
     board of trade that has not obtained any designation as a 
     contract market for a contract of sale for a commodity under 
     section 5 that desires''.

     SEC. 8. DELIVERY BY FEDERALLY LICENSED WAREHOUSES.

       Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 
     7a(a)) is amended by striking paragraph (7) and inserting the 
     following:
       ``(7) Repealed;''.

     SEC. 9. SUBMISSION OF RULES TO COMMISSION.

       Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 
     7a(a)(12)) is amended by striking paragraph (12) and 
     inserting the following:
       ``(12)(A)(i) except as otherwise provided in this 
     paragraph, submit to the Commission all bylaws, rules, 
     regulations, and resolutions (collectively referred to in 
     this subparagraph as `rules') made or issued by the contract 
     market, or by the governing board or committee of the 
     contract market (except those relating to the setting of 
     levels of margin, those submitted pursuant to section 5 or 
     6(a), and those the Commission may specify by regulation) and 
     may make a rule effective not earlier than 10 business days 
     after the receipt of the submission by the Commission or 
     earlier, if approved by the Commission by rule, regulation, 
     order, or written notice, unless, within the 10-business-day 
     period, the Commission notifies the contract market in 
     writing of its determination to review such rules for 
     disapproval and of the specific sections of this Act or the 
     regulations of the Commission that the Commission determines 
     the rule would violate. The determination to review such 
     rules for disapproval shall not be delegable to any employee 
     of the Commission. Not later than 45 calendar days before 
     disapproving a rule of major economic significance (as 
     determined by the Commission), the Commission shall publish a 
     notice of the rule in the Federal Register. The Commission 
     shall give interested persons an opportunity to participate 
     in the disapproval process through the submission of written 
     data, views, or arguments. The determination by the 
     Commission whether a rule is of major economic significance 
     shall be final and not subject to judicial review. The 
     Commission shall disapprove, after appropriate notice and 
     opportunity for hearing (including an opportunity for the 
     contract market to have a hearing on the record before the 
     Commission), a rule only if the Commission determines the 
     rule at any time to be in violation of this Act or a 
     regulation of the Commission. If the Commission institutes 
     proceedings to determine whether a rule should be disapproved 
     pursuant to this paragraph, the Commission shall provide the 
     contract market with written notice of the proposed grounds 
     for disapproval, including the specific sections of this Act 
     or the regulations of the Commission that would be violated. 
     At the conclusion of the proceedings, the Commission shall 
     determine whether to disapprove the rule. Any disapproval 
     shall specify the sections of this Act or the regulations of 
     the Commission that the Commission determines the rule has 
     violated or, if effective, would violate. If the Commission 
     does not institute disapproval proceedings with respect to a 
     rule within 45 calendar days after receipt of the rule by the 
     Commission, or if the Commission does not conclude a 
     disapproval proceeding with respect to a rule within 120 
     calendar days after receipt of the rule by the Commission, 
     the rule may be made effective by the contract market until 
     such time as the Commission disapproves the rule in 
     accordance with this paragraph.
       ``(B)(i) The Commission shall issue regulations to specify 
     the terms and conditions under which, in an emergency as 
     defined by the Commission, a contract market may, by a two-
     thirds vote of the governing board of the contract market, 
     make a rule (referred to in this subparagraph as an 
     `emergency rule') immediately effective without compliance 
     with the 10-day notice requirement under subparagraph (A), if 
     the contract market makes every effort practicable to notify 
     the Commission of the emergency rule, and provide a complete 
     explanation of the emergency involved, prior to making the 
     emergency rule effective.
       ``(ii) If the contract market does not provide the 
     Commission with the requisite notification and explanation 
     before making the emergency rule effective, the contract 
     market shall provide the Commission with the notification and 
     explanation at the earliest practicable date.
       ``(iii) The Commission may delegate the power to receive 
     the notification and explanation to such individuals as the 
     Commission determines necessary and appropriate.
       ``(iv) Not later than 10 days after the receipt from a 
     contract market of notification of such an emergency rule and 
     an explanation of the emergency involved, or as soon as 
     practicable, the Commission shall determine whether to 
     suspend the effect of the rule pending review by the 
     Commission under the procedures of subparagraph (A).
       ``(v)(I) The Commission shall submit a report on the 
     determination of the Commission on the emergency rule under 
     clause (iv), and the basis for the determination, to the 
     affected contract market, the Committee on Agriculture of the 
     House of Representatives, and the Committee on Agriculture, 
     Nutrition, and Forestry of the Senate.
       ``(II) If the report is submitted more than 10 days after 
     the Commission's receipt of notification of the emergency 
     rule from a contract market, the report shall explain why 
     submission within the 10-day period was not practicable.
       ``(III) A determination by the Commission to suspend the 
     effect of a rule under this subparagraph shall be subject to 
     judicial review on the same basis as an emergency 
     determination under section 8a(9).
       ``(IV) Nothing in this paragraph limits the authority of 
     the Commission under section 8a(9);''.

     SEC. 10. AUDIT TRAIL.

       Section 5a(b) of the Commodity Exchange Act (7 U.S.C. 
     7a(b)) is amended--
       (1) in paragraph (3), by inserting ``selected by the 
     contract market'' after ``means'' each place it appears; and
       (2) by adding at the end the following:
       ``(7) The requirements of this subsection establish 
     performance standards and do not mandate the use of a 
     specific technology to satisfy the requirements.''.

     SEC. 11. CONSIDERATION OF EFFICIENCY, COMPETITION, RISK 
                   MANAGEMENT, AND ANTITRUST LAWS.

       Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is 
     amended--

[[Page S955]]

       (1) by striking ``Sec. 15. The Commission'' and inserting 
     the following:
       ``Sec. 15. (a)(1) Prior to adopting a rule or regulation 
     authorized by this Act or adopting an order (except as 
     provided in subsection (b)), the Commission shall consider 
     the costs and benefits of the action of the Commission.
       ``(2) The costs and benefits of the proposed Commission 
     action shall be evaluated in light of considerations of 
     protection of market participants, the efficiency, 
     competitiveness, and financial integrity of futures markets, 
     price discovery, sound risk management practices, and other 
     appropriate factors, as determined by the Commission.
       ``(b) Subsection (a) shall not apply to the following 
     actions of the Commission:
       ``(1) An order that initiates, is part of, or is the result 
     of an adjudicatory or investigative process of the 
     Commission.
       ``(2) An emergency action.
       ``(3) A finding of fact regarding compliance with a 
     requirement of the Commission.
       ``(c) The Commission''; and
       (2) by striking ``requiring or approving'' and inserting 
     ``requiring, reviewing, or disapproving''.

     SEC. 12. DISCIPLINARY AND ENFORCEMENT ACTIVITIES.

       (a) In General.--It is the sense of Congress that the 
     Commodity Futures Trading Commission should--
       (1) to the extent practicable, avoid unnecessary 
     duplication of effort in pursuing disciplinary and 
     enforcement actions if adequate self-regulatory actions have 
     been taken by contract markets and registered futures 
     associations; and
       (2) retain an oversight and disciplinary role over the 
     self-regulatory activities by contract markets and registered 
     futures associations in a manner that is sufficient to 
     safeguard financial and market integrity and the public 
     interest.
       (b) Report.--Not later than 1 year after the date of 
     enactment of this Act, the Commission shall submit a report 
     to the Committee on Agriculture of the House of 
     Representatives and the Committee on Agriculture, Nutrition, 
     and Forestry of the Senate that evaluates the effectiveness 
     of the enforcement activities of the Commission, including an 
     evaluation of the experience of the Commission in preventing, 
     deterring, and disciplining violations of the Commodity 
     Exchange Act (7 U.S.C. 1 et seq.) and Commission regulations 
     involving fraud against the public through the bucketing of 
     orders and similar abuses.

     SEC. 13. DELEGATION OF FUNCTIONS BY THE COMMISSION.

       (a) In General.--It is the sense of Congress that the 
     Commodity Futures Trading Commission should--
       (1) review its rules and regulations that delegate any of 
     its duties or authorities under the Commodity Exchange Act (7 
     U.S.C. 1 et seq.) to contract markets or registered futures 
     associations;
       (2) consistent with the public interest and law, determine 
     which additional functions, if any, performed by the 
     Commission should be delegated to contract markets or 
     registered futures associations; and
       (3) establish procedures (such as spot checks, random 
     audits, reporting requirements, pilot projects, or other 
     means) to ensure adequate performance of the additional 
     functions that are delegated to contract markets or 
     registered futures associations.
       (b) Report.--Not later than 1 year after the date of 
     enactment of this Act, the Commission shall report the 
     results of its review and actions under subsection (a) to the 
     Committee on Agriculture of the House of Representatives and 
     the Committee on Agriculture, Nutrition, and Forestry of the 
     Senate.

     SEC. 14. TECHNICAL AND CONFORMING AMENDMENTS.

       (a) Section 1a(13)(B) of the Commodity Exchange Act (7 
     U.S.C. 1a(13)(B)) is amended by striking ``state'' and 
     inserting ``State''.
       (b) Section 2(a)(1)(B)(iv)(I) of the Commodity Exchange Act 
     (7 U.S.C. 2a(iv)(I)) is amended in the last sentence by 
     striking ``section 6 of this Act'' and inserting ``section 
     6(a)''.
       (c) Section 4(c)(3)(H) of the Commodity Exchange Act (7 
     U.S.C. 6(c)(3)(H)) is amended by striking ``state'' and 
     inserting ``State''.
       (d) Section 4a(e) of the Commodity Exchange Act (7 U.S.C. 
     6a(e)) is amended in the last sentence by striking ``section 
     9(c) of this Act'' and inserting ``section 9(a)(5)''.
       (e) Section 4c(d)(2)(A)(iv) of the Commodity Exchange Act 
     (7 U.S.C. 6c(d)(2)(A)(iv)) is amended by striking 
     ``78c(a)(12)),'' and inserting ``78c(a)(12))),''.
       (f) Section 4f(c)(4)(B)(i) of the Commodity Exchange Act (7 
     U.S.C. 6f(c)(4)(B)(i)) is amended--
       (1) by striking ``compiled'' and inserting ``complied''; 
     and
       (2) by striking ``1817(a),'' and inserting ``1817(a)),''.
       (g) Section 5a(a) of the Commodity Exchange Act (7 U.S.C. 
     7a(a)) is amended--
       (1) in paragraph (11)(ii), by striking the second semicolon 
     at the end;
       (2) in paragraph (15)(C), by striking ``categories as'' and 
     inserting ``categories as--''; and
       (3) in paragraph (17)--
       (A) in subparagraph (A), by striking ``minimum, that'' and 
     inserting ``minimum, that--''; and
       (B) in subparagraph (B)(ii), by striking ``affect'' and 
     inserting ``effect''.
       (h) Sections 5b, 6(b), 6(c), 6(d), and 13(c) of the 
     Commodity Exchange Act (7 U.S.C. 7b, 8(b), 9, 13b, and 
     13c(c)) are amended by striking ``or the Commission'' after 
     ``the Commission'' each place it appears.
       (i) Section 6(c) of the Commodity Exchange Act (7 U.S.C. 9) 
     is amended in the tenth sentence by inserting a comma after 
     ``such violation''.
       (j) Section 6a(a) of the Commodity Exchange Act (7 U.S.C. 
     10a(a)) is amended in the second sentence by striking ``Such 
     Commission'' and inserting ``The Commission''.
       (k) Section 8 of the Commodity Exchange Act (7 U.S.C. 12) 
     is amended--
       (1) in subsection (a)(1)(B), by striking ``in any 
     receivership proceeding commenced involving a receiver 
     appointed in a judicial proceeding by the United States or 
     the Commission'' and inserting ``in any receivership 
     proceeding involving a receiver appointed in a judicial 
     proceeding commenced by the United States or the 
     Commission''; and
       (2) in the last sentence of subsection (e), by striking 
     ``authority.'' and inserting ``authority''.
       (l) Section 8a of the Commodity Exchange Act (7 U.S.C. 12a) 
     is amended--
       (1) in paragraph (2)--
       (A) in subparagraph (B), by striking ``the provisions of 
     paragraph (3) of this section'' and inserting ``the 
     provisions of this paragraph or paragraph (3)'';
       (B) in subparagraph (C), by adding a semicolon at the end;
       (C) in subparagraph (D), by inserting ``pleaded guilty to 
     or has'' after ``such person has''; and
       (D) in subparagraph (E), by striking ``Investors'' and 
     inserting ``Investor'';
       (2) in paragraph (3)--
       (A) in subparagraph (B), by striking ``Investors'' and 
     inserting ``Investor'';
       (B) by striking subparagraph (D) and inserting the 
     following:
       ``(D) the person has pleaded guilty to or has been 
     convicted of a felony other than a felony of the type 
     specified in paragraph (2)(D), or has pleaded guilty to or 
     has been convicted of a felony of the type specified in 
     paragraph (2)(D) more than 10 years preceding the filing of 
     the application;''; and
       (C) in subparagraph (H), by striking ``or has been 
     convicted in a State court,'' and inserting ``or has pleaded 
     guilty to, or has been convicted, in a State court,''; and
       (3) in paragraph (11)(F), by striking ``section 6(b)'' and 
     inserting ``section 6(c)''.
       (m) Section 8c(a)(2) of the Commodity Exchange Act (7 
     U.S.C. 12c(a)(2)) is amended in the second sentence by 
     inserting after ``denied access,'' the following: ``to any 
     other exchange, to any other registered futures 
     association,''.
       (n) Section 8e(d)(1) of the Commodity Exchange Act (7 
     U.S.C. 12e(d)(1)) is amended by striking ``section 6b'' and 
     inserting ``section 6(c)''.
       (o) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) 
     is amended--
       (1) by redesignating subsection (f) as subsection (e); and
       (2) in subsection (e)(1) (as so redesignated), by striking 
     the period at the end and inserting ``; or''.
       (p) Section 12(b) of the Commodity Exchange Act (7 U.S.C. 
     16(b)) is amended by aligning the margin of paragraph (4) so 
     as to align with paragraph (3).
       (q) Section 14(a) of the Commodity Exchange Act (7 U.S.C. 
     18(a)) is amended by aligning the margin of paragraph (2) so 
     as to align with subsection (b).
       (r) Section 17 of the Commodity Exchange Act (7 U.S.C. 21) 
     is amended--
       (1) in subsection (b)--
       (A) in paragraph (9)(D), by striking the semicolon at the 
     end and inserting a period;
       (B) in paragraph (10)(C)(ii), by striking ``and'' at the 
     end;
       (C) in paragraph (11), by striking the period at the end 
     and inserting a semicolon;
       (D) in paragraph (12)--
       (i) by striking ``(12)(A)'' and inserting ``(12)''; and
       (ii) by striking the period at the end and inserting ``; 
     and''; and
       (E) in paragraph (13), by striking ``A major'' and 
     inserting ``a major'';
       (2) in subsection (h)(1)--
       (A) in the first sentence, by inserting after ``person 
     associated with a member,'' the following: ``takes any 
     membership action against any member or associate 
     responsibility action against any person associated with a 
     member,''; and
       (B) by adding at the end the following: ``The association 
     shall make public its findings and the reasons for the 
     association action (including the action and penalty imposed) 
     in any action described in the first sentence, except that 
     evidence obtained in the action shall not be disclosed other 
     than to an exchange, the Commission, or the member or person 
     who is being disciplined, who is subject to a member 
     responsibility action, who is being denied admission to the 
     futures association, or who is being barred from associating 
     with members of the futures association.'';
       (3) in the last sentence of subsection (j)--
       (A) by striking ``one hundred and eighty days'' and 
     inserting ``45 calendar days''; and
       (B) by striking ``one year'' and inserting ``120 calendar 
     days''; and
       (4) by redesignating subsection (q) (as added by section 
     206(b)(2) of the Futures Trading Practices Act of 1992 
     (Public Law 102-546)) as subsection (r) and moving such 
     subsection to the end of the section.

[[Page S956]]

     
                                                                    ____
 Summary and Discussion--The Commodity Exchange Act Amendments of 1997


                         section 1. short title

  The bill is entitled the ``Commodity Exchange Act Amendments of 
1997.''


                       sec. 2. treasury amendment

       The ``Treasury amendment'' to the Commodity Exchange Act 
     (so called because it was added in 1974 at the request of the 
     Treasury Department) excludes certain transactions from the 
     Act altogether, so that the CFTC has no authority to regulate 
     them. Foreign currency and government securities transactions 
     are the most prominent categories of transactions excluded by 
     the Treasury amendment, though there are several others. The 
     history, purpose and scope of the Treasury amendment have 
     been the subject of frequent disagreement even among federal 
     agencies, and the provision has been frequently litigated.
       The CFTC has historically asserted that the amendment 
     permits it to enforce the Act against firms offering Treasury 
     amendment products to the general public, arguing that the 
     amendment's purpose was merely to exclude such institutional 
     markets as the interbank currency market from regulation. 
     Other agencies have dissented from this view. In addition, 
     futures exchanges have argued that they should be able to 
     offer contracts in Treasury amendment products that would not 
     be subject to CFTC regulation, as long as they did not offer 
     these contracts to the general public but only to a 
     sophisticated, institutional or professional clientele.
       The Committee, in mid-1996, asked the CFTC and the Treasury 
     Department to arrive at a consensus on how the Treasury 
     amendment should be interpreted and, if necessary, re-
     written. Unfortunately, the agencies were unable to agree and 
     have formulated recommendations that are quite different in 
     both intent and effect.
       This legislation reflects a view that there should be a 
     federal role in protecting retail investors from abusive, 
     improper or fraudulent activity in connection with the sale 
     of foreign currency futures or options by an otherwise 
     unregulated entity. By the same token, the legislation 
     provides no role for the CFTC where other regulators--
     including the banking and securities agencies--already 
     provide federal regulatory oversight. Similarly, the bill 
     views current regulation of other off-exchange Treasury 
     amendment products as adequate and does not provide a role 
     for the CFTC in this regard. For example, federal agencies 
     and private firms alike have widely agreed that it would be 
     unnecessary and inappropriate for the CFTC to regulate the 
     ``when-issued'' market in Treasury securities.
       The bill defines more clearly the CFTC's role in regulating 
     retail transactions and affords equivalent opportunities for 
     futures exchanges to develop markets in Treasury amendment 
     products for professional investors. In particular, the bill 
     states that an unsupervised entity systematically marketing 
     standardized, non-negotiable foreign currency transactions to 
     retail investors will be considered a ``board of trade,'' and 
     hence subject to the CFTC's jurisdiction.
       The bill instructs the CFTC to define the term ``retail 
     investors,'' and provides some guidance on how to do so. It 
     further clarifies that an option involving a Treasury 
     amendment product is a ``transaction,'' meaning that it is 
     excluded from the Act to the same extent as other 
     transactions. Finally, the bill retains the current Treasury 
     amendment provision which extends CFTC jurisdiction to 
     products offered on a board of trade, but makes this 
     provision apply only when these products are offered to the 
     general public. The effect is that futures exchanges would be 
     able to develop separate markets in Treasury amendment 
     products. As is the case when such products are traded over 
     the counter among institutions today, the Act and its 
     regulations would not apply. The bill instructs the CFTC to 
     define the term ``the general public,'' in order to make 
     clear the parameters under which exchanges may establish 
     these markets. The bill also confirms the CFTC's ability, 
     acting pursuant to its emergency powers under Sec. 8a(9) of 
     the Act, to secure the integrity and viability of approved 
     contract markets in the event that market factors, including 
     the establishment by futures exchanges of markets in Treasury 
     amendment products, adversely affect them.


                            sec. 3. hedging

       The CEA does not directly define the term ``hedging.'' In 
     Section 3 of the CEA, which contains various legislative 
     findings that justify regulation of futures markets, the 
     statute speaks of business operators ``hedging themselves 
     against possible loss through fluctuations in price.'' 
     Questions have been raised whether hedging can occur against 
     risks other than price risks--for instance, in new futures 
     contracts that are based on yields of specified crops in 
     particular States. The bill deletes the phrase ``through 
     fluctuations in price.'' It makes clear that risks to be 
     hedged may be risks other than those directly resulting from 
     price changes. This change will not affect the authority to 
     establish speculative limits, require reporting of large 
     trader positions and otherwise ensure market integrity.
       In the course of hearings and discussions on the proposed 
     legislation, the Committee may also consider whether to 
     revise Section 3 of the Act more extensively in order to 
     bring it up to date with market needs and conditions, 
     preserving the Act's important functions of facilitating 
     price discovery and customer protection while recognizing the 
     changes that have occurred in the composition and 
     sophistication of market participants as well as the more 
     competitive environment in which the futures industry now 
     operates.


         sec. 4. delivery points for foreign futures contracts

       In recent years, some overseas futures exchanges have 
     established delivery points in the United States. The 
     implications of making and taking delivery of a physical 
     commodity that is priced on a foreign exchange may differ, 
     depending on the comparability of price discovery on that 
     exchange and on U.S. exchanges, as well as other factors. 
     Serious questions were raised last year, as various 
     allegations about the copper markets were made and 
     investigated, about what role, if any, delivery points for 
     foreign futures contracts may have played in that affair. 
     These questions are not yet answered. However, the 
     legislation makes changes that will be appropriate regardless 
     of the outcome of specific investigations.
       The bill directs the CFTC to consult with overseas 
     regulators and other appropriate parties in countries where 
     futures exchanges have established U.S. delivery points. 
     The aim of the consultations will be to secure adequate 
     assurances against any adverse effect on U.S. markets 
     because of these delivery points. Such assurances could 
     take the form of changes to regulations or trading rules 
     in the overseas market.
       The bill also gives the CFTC authority to obtain 
     information from warehouses that are delivery points for 
     foreign exchanges. This information would be similar to that 
     which the CFTC may already require of persons making trades 
     on overseas futures markets, and will assist the CFTC in 
     ensuring market integrity, preventing abuses, and otherwise 
     discharging its responsibilities.


             SEC. 5. EXEMPTION AUTHORITY AND SWAP EXEMPTION

       The Act gives the CFTC authority to exempt transactions 
     from its regulatory requirements, either completely or on 
     stated terms. In 1993, the CFTC used this authority to exempt 
     swap agreements from most, but not all, portions of the Act. 
     This exemption generally has worked well, facilitating a 
     climate in which swaps, which offer numerous benefits to 
     their users if properly and prudently employed, could trade 
     with secure legal status. (It was the lack of such legal 
     certainty which, in part, prompted Congress to enact the 
     exemptive authority.) Despite the CFTC's prompt action 
     following the 1992 enactment of exemptive authority, the 
     status of swaps remains subject to a change in regulations 
     that could subject these instruments to renewed legal 
     uncertainty.
       The bill will provide additional legal certainty for swaps 
     and similar transactions in three ways. First, the bill 
     codifies the present exemption from regulation for 
     transactions that meet its requirements, either now or in the 
     future. For these qualifying instruments--which now rely on 
     the exemptions for swaps in Part 35 of the Code of Federal 
     Regulations and for hybrid instruments in Part 34--a 
     statutory change would be required in order for the exemption 
     to become more restrictive than it now is. The codification 
     does not affect the CFTC's power to grant additional 
     exemptions that would be less restrictive than, or 
     independent of, the current exemption. Nor does it limit the 
     CFTC's ability to enforce antimanipulation or anti-fraud 
     provisions of the CEA as they may apply to these transactions 
     or as the present exemptions may be conditioned on compliance 
     with their provisions. The CFTC will have, under the codified 
     exemption, the same authority to enforce these provisions of 
     the Act as it has retained under its current policies. In 
     addition, the CFTC would implement the conditions for an 
     exemption, such as making creditworthiness a material 
     consideration, in a manner consistent with its current 
     interpretations. (It has been suggested that some additional 
     conforming changes may also be appropriate to Section 12(e) 
     of the Act.)
       Second, the bill codifies two important elements of the 
     present swaps exemptive authority, again to enhance legal 
     certainty. The legislation clarifies that the CFTC may issue 
     an exemption that is applicable to the extent the exempted 
     transaction may have been subject to the Act--i.e., without 
     requiring a prior decision on whether the transaction 
     actually was, in fact, subject to the Act. Relatedly, the 
     legislation states that the mere fact that a transaction was 
     exempted from the Act does not, in itself, create a 
     presumption that the transaction was one that would have 
     fallen under the Act's regulatory requirements had it not 
     been exempted. Thus, the bill makes the existence of an 
     exemption a neutral event, for purposes of determining 
     whether the exempted transaction was subject to the Act: 
     No inference for or against such a determination is 
     warranted by the mere fact of an exemption. Both these 
     clarifications are consistent with present regulations for 
     these exemptions.
       Third, the bill for the first time extends the same legal 
     certainty to swaps based on equities as is now available for 
     other swaps. Although the great majority of swaps involve 
     interest rates or currencies, there presently exist swaps 
     based on equities or equity indices. The legal status of 
     these instruments has been less certain than that of other 
     swaps; they rely primarily on a 1989 policy statement by the 
     CFTC which predates the present swaps exemption. The bill 
     codifies, for these swaps, the same exempt

[[Page S957]]

     status as for other similar instruments: To the extent they 
     may be subject to the Act's provisions, they will be exempt 
     from those provisions (other than anti-fraud and anti-
     manipulation strictures) as long as they satisfy the terms 
     and conditions of the present swaps exemption as to the way 
     in which they are structured and traded, and as to the 
     persons who may enter into them.


            SEC. 6. EXEMPT TRANSACTIONS ON CONTRACT MARKETS

       In contrast to the exemptions for swaps and hybrids, the 
     Commission's exemptive terms for on-exchange professionally 
     traded markets (codified in Part 36 of the Code of Federal 
     Regulations) have not led to significant commercial activity. 
     The legislation provides that such markets may be established 
     by futures exchanges, subject to some limitations. In 
     particular, the bill does not exempt such ``professional 
     markets'' from the so-called ``Shad-Johnson'' accord, which 
     governs on-exchange products involving equities. Moreover, 
     the legislation excludes agricultural commodities from the 
     list of products for which the professional markets must be 
     recognized.


                      SEC. 7. CONTRACT DESIGNATION

       The Act now requires futures exchanges to be ``designated'' 
     as a ``contract market'' for each futures contract they 
     trade. This process has been streamlined by the CFTC in 
     recent years, but the statute continues to reflect a rather 
     elaborate process in which, in many ways, the burden of proof 
     is placed on exchanges to demonstrate why they should be able 
     to offer new products for trading. Even for a sector like the 
     the futures industry, where the public interest requires 
     regulation, this implicit presumption against new product 
     development is out of date.
       The bill streamlines the process of introducing new futures 
     contracts, both by compressing the time available for agency 
     review and by creating a presumption that products developed 
     by exchanges should be permitted to trade unless the CFTC 
     finds compellingly why they should not. The legislation 
     treats new contract applications as rules, albeit under 
     somewhat different procedures from other exchange rules. 
     Under the new procedure, an exchange submits a new contract 
     to the CFTC. The new contract may trade after 10 business 
     days, unless the CFTC states an intention to review it for 
     possible disapproval. After a further 15 business days, the 
     new contract can be traded unless the CFTC institutes 
     proceedings to disapprove it. These proceedings are to be 
     completed within 120 days; if not, the new contract can trade 
     until and unless it is finally disapproved. In contrast to 
     the present burden on an exchange to show that a contract is 
     in ``the public interest,'' the CFTC could only disapprove 
     a contract by showing that it was ``contrary to the public 
     interest'' (or by showing that it violated law or 
     regulations). The philosophy is a fairly simple one: 
     Subject to prudent regulatory limits, private futures 
     exchanges can more appropriately and efficiently decide 
     which new products are ripe for trading than can the 
     government. The exchanges may sometimes err in these 
     judgments, but that is the way markets work.


           sec. 8. delivery by federally licensed warehouses

       An obscure provision of the Act now allows any federally 
     licensed grain warehouse to make delivery against a futures 
     contract, on giving reasonable notice. Though seldom if ever 
     used, this provision appears to conflict with the ability of 
     exchanges to establish their own trading procedures, 
     including delivery points. In an extremely tight market, the 
     current provision could in some circumstances facilitate 
     market manipulation. The bill repeals this provision.


               sec. 9. submission of rules to commission

       The bill revises current requirements for submitting 
     exchange rules to the CFTC. These rules affect the everyday 
     procedures for doing business on the exchange, as well as the 
     ground rules for trading. They run the gamut from major to 
     minor. As with the procedures for approving new contracts, 
     the legislation compresses the time available for federal 
     review and generally streamlines procedures. Rules are to be 
     submitted to the CFTC and can become effective in 10 business 
     days unless the CFTC notifies the exchange that it will 
     review them for possible disapproval. If the CFTC does not 
     institute disapproval proceedings within 45 days of receiving 
     the proposed rule, or conclude its proceedings within 120 
     days, the rule can become effective until and unless 
     disapproved.
       The authors of the bill intend that its legislative history 
     will also discuss the implementation of statutory 
     requirements for the composition of exchange boards of 
     directors. The CFTC will be directed to report, on an ongoing 
     basis, its evaluation of how fully these requirements are 
     being met. The report language will provide further 
     clarification of Congressional intent with regard to the 
     qualification of individuals to satisfy particular 
     requirements for board representation.


                          sec. 10. audit trail

       Futures exchanges are subject to audit trail requirements 
     that are intended to ensure market integrity, and to deter 
     and detect abuse. The bill clarifies these requirements in 
     one respect. It states--consistent with testimony by the CFTC 
     before Congress in 1995--that the audit trail requirements 
     establish a performance standard, not a mandate for any 
     particular technological means of achieving the standard. In 
     further support of this clarification, the bill speaks of the 
     ``means selected by the contract market'' for meeting audit 
     trail standards. The authors of the bill intend that its 
     legislative history will also note further CFTC testimony 
     that, in assessing the ``practicability'' of various 
     components of the audit trail standards, the cost to 
     exchanges of meeting the standards is one factor to be taken 
     into account.


              sec. 11. miscellaneous technical amendments

       The bill makes several technical changes to correct 
     omissions in the current statute. Moreover, it makes 
     additional technical amendments, in many cases as a result of 
     CFTC suggestions, that correct previous errors or 
     inconsistencies as to typography, proper citation and the 
     like.


sec. 12. consideration of efficiency, competition, risk management, and 
                             antitrust laws

       The bill requires the CFTC, in issuing rules, regulations 
     and some types of orders, to take into account the costs and 
     benefits of the action it contemplates. The requirement is 
     not for a quantitative cost-benefit analysis, but a mandate 
     to consider both costs and benefits, as well as other 
     enumerated factors. The authors of the bill believe that in 
     establishing its policies and giving direction to market 
     participants, the CFTC should weigh how its actions may 
     affect the participants' costs of doing business, as well as 
     what benefits may accrue from the action.
       Some activities of the CFTC, of course, do not call for 
     this kind of approach, and indeed applying a cost-benefit 
     requirement to them would be inappropriate. Thus, the bill 
     exempts the CFTC's adjudicatory and investigative processes, 
     emergency actions and certain findings of fact that are 
     objective, quantitative or otherwise unsuitable for a cost-
     benefit approach. The bill's eventual legislative history 
     will further discuss Congressional intent in enacting this 
     requirement.


            sec. 13. disciplinary and enforcement activities

       Enforcement is a priority for the CFTC. Like other 
     financial regulators, the CFTC is assisted in its enforcement 
     activities by the complementary rules, surveillance and 
     disciplinary actions of self-regulatory organizations (SROs). 
     These include both the futures exchanges themselves and the 
     National Futures Association. The bill provides guidance to 
     the CFTC on the deployment of enforcement resources, and 
     requires a report in one year on the overall enforcement 
     program. The legislation expresses the sense of Congress that 
     the CFTC should avoid unnecessary duplication of effort where 
     SROs have taken adequate action to deter abuse and ensure 
     customer protection. It further states that the CFTC's 
     oversight and disciplinary role should be sufficient to 
     safeguard market integrity and protect public confidence in 
     markets.


           sec. 14. delegation of functions by the commission

       The CFTC, under current law, has delegated some limited 
     duties to the National Futures Association. Today's austere 
     budget climate makes it prudent for the commission to assess 
     whether other functions could appropriately be delegated. The 
     bill calls on the CFTC to determine which, if any, additional 
     functions should be delegated to SROs, suggesting the use of 
     procedures like spot checks and random audits to ensure that 
     any delegated functions are adequately performed, and 
     requires a report in one year with the results of the review. 
     The authors intend that the bill's legislative history will 
     cite several current CFTC activities that could be considered 
     for delegation.

 Mr. HARKIN. Mr. President, I am pleased to join Chairman Lugar 
and Senator Leahy in introducing legislation to amend the Commodity 
Exchange Act. This bill updates and streamlines U.S. futures trading 
law, and provides needed clarification to several critical issues 
facing today's vast derivative markets.
  After reviewing the committee testimony taken last year, and meeting 
informally with industry, regulators, and academics, Chairman Lugar, 
Senator Leahy, and I are convinced that these changes are appropriate 
and necessary if the United States is to maintain its dynamic, world-
class futures trading industry.
  There is a strong public interest in maintaining a competitive and 
sound futures market in the United States. These markets are critical 
because they allow farmers, ranchers, and other businesses to manage 
risk and maximize their investment opportunities. At the same time, the 
committee has an obligation to protect the public trust through 
effective enforcement and regulatory measures that prevent and punish 
fraud and other abuses that may, and have, occurred in the 
international financial markets--including the futures market.
  This bill is a bipartisan effort to find the balance between the need 
for prudent regulation with industry's need for changes so that the 
U.S. futures market continues to be the driving

[[Page S958]]

force in today's competitive global financial markets.
  Introduction of this legislation is timely. President Clinton's 1998 
budget, due for release later this week, challenges Federal agencies to 
do more with less. It will ask Federal agencies to improve programs and 
services and streamline procedures.
  This legislation provides legislative backing to accomplish this 
crucial goal. The bill proposes specific changes that will further 
assist the Commodity Futures Trading Commission, the primary regulator 
of the futures industry, to continue its on-going effort to focus 
scarce resources where they are most effective--in enforcement--
preventing consumer fraud and manipulation of market prices.
  The legislation allows industry to focus on product innovation and 
marketing so that the end users--farmers, ranchers, and other 
businesses--have available to them, free of fraud and at a competitive 
price, the most state-of-the-art financial products.
  The bill also provides the CFTC with additional authority to require 
U.S. delivery points for overseas futures markets to provide 
information similar to that currently demanded of American market 
participants. This provision may help prevent a repeat of last summer's 
1996 London/Tokyo copper market crisis where billions of dollars were 
lost due, in part, to lack of sufficient information and Government 
oversight by the CFTC's foreign counterparts.
  I am pleased that this legislation addresses the uncertainty that 
currently exists in the so-called ``Treasury amendment'', a 1974 
provision of the Commodity Exchange Act that excludes certain financial 
products from its regulatory coverage. This provision has long been 
controversial and our proposal suggests one solution.
  It is unfortunate that the Treasury Department and the CFTC were 
unable to negotiate a resolution of this issue in time for this bill's 
reintroduction. But I remain open to alternative proposals, and look 
forward to hearing the views of all interested regulators, industry 
participants, and users of these products at next week's hearings.
  Two other important aspects of this legislation are a provision that 
provides greater legal certainty for the over-the-counter financial 
tools such as swaps and hybrids, and a provision that codifies a 1992 
provision to allow on-exchange products to be traded solely among 
professional investors. Both of these provisions are important to the 
ability of private enterprises to manage business risk.
  I am very pleased to join my colleagues in offering this bill. 
Chairman Lugar, Senator Leahy, and I have worked together on futures 
issues for many years. We did the same on this bill--working to ensure 
that these markets remain competitive while maintaining effective 
provisions on customer protection and market integrity.
  Introducing this bill early in the 105th Congress offers ample time 
to continue last year's public discussion and debate over what changes 
are appropriate and necessary to maintaining a viable U.S. futures 
market.
  It is my experience that such a dialogue helps develop solid 
bipartisan legislation. As with most issues, there are many interests 
that must be balanced, and this bill strives to find that balance. I am 
certainly open to further input as we hold hearings next week.
  I look forward to continuing the process.
                                 ______
                                 
       By Mr. FEINGOLD (for himself and Mr. Kohl):
  S. 258. A bill to improve price discovery in milk and dairy markets 
by reducing the effects of the National Cheese Exchange on the basic 
formula price established under milk marketing orders, and for other 
purposes; to the Committee on Agriculture, Nutrition, and Forestry.


            THE MILK PRICE DISCOVERY IMPROVEMENT ACT OF 1997

 Mr. FEINGOLD. Mr. President, I introduce the Milk Price 
Discovery Improvement Act of 1997 with my senior Senator from Wisconsin 
[Mr. Kohl]. Mr. President, this bill addresses longstanding farmer 
concerns that milk prices can be manipulated by those with the 
incentive and ability to do so. Those concerns were validated by a 
March 1996 University of Wisconsin study funded by the Department of 
Agriculture which concluded that the National Cheese Exchange, a cash 
market for cheese located in Green Bay, WI, directly and indirectly 
influences farm milk prices and is highly vulnerable to price 
manipulation by its major traders.
  Concern about trader concentration and price manipulation is not 
exclusive to the dairy industry, Mr. President. Two weeks ago, the 
minority leader, Senator Daschle, introduced the Cattle Industry 
Improvement Act which addressed concerns about growing concentration in 
the livestock industry and the lack of market information available to 
livestock producers. Less than 2 percent of the cattle in the U.S. are 
sold on markets with open and competitive bidding and the top four 
packing firms in this country slaughter 80 percent of all cattle.
  The unfortunate trend of increasing concentration throughout 
agriculture and the growing scarcity of reliable market information has 
placed farmers at an extreme disadvantage compared to powerful 
corporate traders. Mr. President, I was pleased to cosponsor the Cattle 
Industry Improvement Act, which seeks to prevent noncompetitive 
practices in the livestock industry and improve market information 
because I believe this trend must be stopped.
  The bill I am introducing today addresses these same alarming trends 
in the dairy industry and seeks to prevent manipulation of farm-level 
milk prices. Dairy farmers must not be held captive to a market that 
cannot be relied upon to provide accurate information about the value 
of the milk they produce. Unfortunately, farm milk prices are currently 
determined by such a market--the National Cheese Exchange.
  The National Cheese Exchange is the only cash market in the United 
States for the sale of bulk cheese. Located in Green Bay, WI, the 
Exchange trades cheese each Friday for half an hour. Between 1988 and 
1993, only 1 percent of all bulk cheese sold nationally was traded on 
the NCE. During this 5-year period, eight buyers and sellers dominated 
much of the exchange trading, despite exchange membership of 30 to 40 
companies. The top seller on the exchange accounted for 75 percent of 
all sales during this period.
  Thus, the exchange is not only thin with respect to the volume of 
cheese bought and sold, it is also thinly traded with the same small 
number of large firms dominating the trading activity. The opinion 
price on the National Cheese Exchange, and other markets with these 
characteristics, is easily influenced by one trade. In addition, unlike 
other cash markets which trade more frequently, when the price changes 
at the National Cheese Exchange it stays at that level until one week 
later at the next trading session. This infrequency of trading lends 
greater significance to any trading activity which alters the price of 
cheese.
  The existence of such a market on its own would not be a problem if 
it did not affect dairy farmers and others off the exchange. 
Unfortunately, the opinion price of the National Cheese Exchange 
directly and decisively affects the price that farmers throughout the 
Nation receive for their milk. A 1-cent change in the opinion price at 
the exchange generally translates into a 10-cent change in the price of 
milk to farmers. When prices on the exchange drop suddenly and 
precipitously, dairy farmers nationally lose millions of dollars in 
producer receipts. In the last 3 months of 1996, cheese prices on the 
National Cheese Exchange fell by more than 50 cents per pound, with an 
unprecedented price plunge of 21 cents in one trading session. As a 
result, as many of my colleagues are aware, milk prices fell by more 
than $4 per hundredweight--a 26-percent decline in income. In Wisconsin 
alone, this price decline has cost dairy farmers more than $165 million 
in lost income.
  The price decline has been extremely painful for dairy farmers still 
struggling with high feed bills but what has made the pain more 
difficult to bear is the general belief held by many dairy economists 
that the price fell too far too fast and could not be justified based 
on prevailing market conditions. Whether the price declined so 
drastically simply because the National Cheese Exchange is a poor 
indicator of market conditions or because traders intentionally drove 
the price down is irrelevant. The perception of farmers that the 
exchange price was manipulated warrants its retirement as the mover of 
milk prices in this country.

[[Page S959]]

 The reality that the exchange clearly overreacted to market conditions 
with record-setting price declines necessitates it.
  The National Cheese Exchange has such a dramatic effect on milk 
prices for two reasons. First, milk prices are tied directly to the 
exchange opinion price through the basic formula price [BFP], 
calculated by USDA. The BFP determines the class III price for milk 
regulated under the Federal milk marketing order system. Second, even 
if the formal linkage did not exist, milk prices would still be 
dramatically affected by the exchange opinion because it is used as the 
benchmark in virtually all forward contracts for bulk cheese; 90 to 95 
percent of bulk cheese in the United States is sold through forward 
contracts. In other words, virtually all cheese sold in the country is 
priced based on the opinion price at the Cheese Exchange. That is, at 
least in part, due to the lack of any alternative market information on 
the value of cheese.
  The combination of thin nature of the National Cheese Exchange and 
its influence on milk prices nationally, creates a situation in which 
there is both the opportunity and the incentive for price manipulation. 
Anyone buying or selling cheese on the National Cheese Exchange may be 
able to affect the price of milk throughout the country. The extensive 
report issued by the University of Wisconsin last year concluded that 
the trading patterns on the NCE suggest that lead traders use the NCE 
to influence exchange prices with the intent of affecting milk and 
cheese prices nationwide.
  Unfortunately, no viable alternative to the National Cheese Exchange 
currently exists for cheese price discovery. While there is a futures 
market for cheese and other dairy products, trading of futures 
contracts have been weak making the futures prices unreliable 
benchmarks. Furthermore, there is little or no market information on 
prices for off-exchange spot transactions of cheese collected by the 
Department of Agriculture. Secretary of Agriculture Dan Glickman 
recently announced a new cheese price series that should improve market 
information for off-exchange transactions. However, such information 
may not be adequate to supplant the role of the National Cheese 
Exchange. Of even greater concern is that despite its influence over 
milk prices nationwide and its vulnerability to manipulation, the 
exchange is not regulated by any State or Federal entity.

  Mr. President, farmers throughout the country are frustrated by a 
pricing system that can no longer guarantee that milk prices are 
determined competitively and without manipulation and that they believe 
led to the severe and unwarranted price decline last fall. They have 
rightfully demanded that we change the way milk prices are set by U.S. 
Department of Agriculture to reduce the influence of the exchange on 
farm-level prices. In addition, farmers have called for increased 
regulation of the exchange to prohibit manipulation of milk and cheese 
prices.
  Mr. President, that is my goal in introducing this legislation today. 
Farmers must not be held hostage to this market any longer. First, my 
legislation directs USDA to break the direct link between the basic 
formula price and the National Cheese Exchange. Second, it requires 
USDA to develop alternative sources of cheese market information so 
that buyers and sellers of cheese need no longer rely on the exchange 
as a reference price for forward contracts. Finally, my legislation 
will provide USDA with clear authority to prohibit noncompetitive 
practices on any cash market that affects the price of milk regulated 
under Federal milk marketing orders, including the National Cheese 
Exchange. By law, USDA has been charged with ensuring orderly 
conditions for the marketing of milk. The agency cannot meet that 
charge without greater authority to oversee the National Cheese 
Exchange and prevent those who benefit from low milk prices from 
driving them down. Ultimately, the solution to these problems lies in 
the creation of a reliable price discovery system for milk and dairy 
products that the dairy industry can rely on. But it will take time to 
develop those alternatives, and it will take time for the dairy 
industry to come to rely on them. Until we reach that goal, it is 
absolutely critical that USDA prohibit noncompetitive activities on the 
National Cheese Exchange.
  Mr. President, I am also pleased to be a cosponsor of the National 
Cheese Exchange Oversight and Improvement Act introduced by my senior 
Senator from Wisconsin, Senator Kohl. This bill provides the Commodity 
Futures Trading Commission [CFTC] with day-to-day regulatory 
jurisdiction over the activities of the National Cheese Exchange. While 
the CFTC has some limited jurisdiction over the exchange, they do not 
have the authority to impose trading rules on the exchange. The new 
authority provided in our respective bills for USDA and CFTC to oversee 
the exchange should ensure farmers that until the functions of the 
exchange can be replaced by alternative price discovery mechanisms, we 
will do all we can to prevent manipulation of farm milk prices.
  Mr. President, I believe the combination of the provisions of the 
Milk Price Discovery Improvement Act and the National Cheese Exchange 
Oversight and Improvement Act will go far toward resolving some of the 
problems that have led to the recent milk price plunge that has cost 
this country's family farmers so dearly. This legislation, if passed, 
may also help restore the confidence of dairy farmers in our milk 
pricing system.
  Mr. President, there are varied and complicated reasons that the 
trend in American agriculture is toward fewer and larger farms and 
toward greater concentration in processing and manufacturing. However, 
I believe that Federal policies that provide competitive advantages to 
larger farms and subtly discriminate against smaller farmers are among 
them. Sanctioning pricing mechanisms, like the National Cheese 
Exchange, that provide unequal market power and information, and 
relying on them to set prices, is one such policy. Small dairy farmers 
are less able to withstand the lost income resulting from volatile 
prices caused by the National Cheese Exchange. Small cheese processors 
and manufacturers that dot Wisconsin's countryside also suffer from 
price volatility and manipulation on the exchange yet lack the ability 
to counteract the power of other traders. We can restore a degree of 
market equality by improving price discovery and by preventing those 
with the power to manipulate prices from doing so. That is the goal of 
the Milk Price Discovery Act of 1997. I urge my colleagues to support 
this important legislation.
  Mr. President, I ask unanimous consent that a summary of my 
legislation as well as the full text of the bill be included in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 258

       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 ``Milk Price Discovery 
     Improvement Act of 1997''.

     SEC. 2. FINDINGS.

       Congress finds that--
       (1) the National Cheese Exchange, located in Green Bay, 
     Wisconsin, is the only cash market for bulk cheese in the 
     United States, trades less than 1 percent of all bulk cheese 
     sold nationally, and currently functions as the only price 
     discovery mechanism for bulk cheese throughout the industry;
       (2) the National Cheese Exchange opinion price directly 
     influences milk prices paid to farmers because of its use in 
     the Department of Agriculture's basic formula price under 
     Federal milk marketing orders;
       (3) opinion prices at the National Cheese Exchange 
     influence the price for much of the bulk cheese bought and 
     sold in the United States and directly or indirectly 
     influences the price of milk paid to producers throughout the 
     United States;
       (4) the National Cheese Exchange is a thinly traded, 
     illiquid, and highly concentrated market that is increasingly 
     volatile;
       (5) a report issued by the University of Wisconsin and 
     funded by the United States Department of Agriculture 
     concluded that the National Cheese Exchange is vulnerable to 
     price manipulation;
       (6) the thin nature of the National Cheese Exchange and the 
     characteristics of that market that may facilitate price 
     manipulation have led to widespread producer concern about 
     the validity of prices at the National Cheese Exchange; and
       (7) it is in the national interest to ensure that prices on 
     cash markets that directly and indirectly affect milk prices 
     are determined in the most competitive manner practicable and 
     to improve price discovery for milk and other dairy products.

[[Page S960]]

     SEC. 3. BASIC FORMULA PRICE.

       Section 143(a) of the Agricultural Market Transition Act (7 
     U.S.C. 7253(a)) is amended by adding at the end the 
     following:
       ``(5) National cheese exchange.--
       ``(A) In general.--In carrying out this subsection and 
     section 8c(5) of the Agricultural Adjustment Act (7 U.S.C. 
     608c(5)), reenacted with amendments by the Agricultural 
     Marketing Agreement Act of 1937, the Secretary shall not, 
     directly or indirectly, use a price established on the 
     National Cheese Exchange to determine the basic formula price 
     for milk or any other milk price regulated by the Secretary.
       ``(B) Regulations.--Not later than 60 days after the date 
     of enactment of this paragraph, the Secretary shall review 
     and amend the applicable regulations promulgated by the 
     Secretary to ensure that the regulations comply with 
     subparagraph (A).
       ``(C) Effect on further revision.--Subparagraph (B) shall 
     not preclude a further revision to, or replacement of, the 
     basic formula price under this subsection or section 8c(5) of 
     the Agricultural Adjustment Act (7 U.S.C. 608c(5)), reenacted 
     with amendments by the Agricultural Marketing Agreement Act 
     of 1937, except that the revision or replacement shall be 
     consistent with subparagraph (A).''.

     SEC. 4. DAIRY PRICE DISCOVERY AND REPORTING SYSTEM.

       Section 203 of the Agricultural Marketing Act of 1946 (7 
     U.S.C. 1622) is amended by adding at the end the following:
       ``(o) Dairy Price Discovery and Reporting System.--
       ``(1) In general.--Not later than 1 year after the date of 
     enactment of this subsection, the Secretary shall develop a 
     price discovery system for raw milk, bulk cheese, and other 
     dairy products in order to facilitate orderly marketing 
     conditions.
       ``(2) Administration.--In carrying out paragraph (1), the 
     Secretary shall--
       ``(A) collect and disseminate, on a weekly basis, 
     statistically reliable information, obtained from all cheese 
     manufacturing areas in the United States on prices and terms 
     of trade for spot and forward contracts, reported separately, 
     transactions involving bulk cheese, including information on 
     the national average price and regional average prices for 
     bulk cheese sold through spot and contract transactions;
       ``(B) provide technical assistance to any person, group of 
     persons, or organization seeking to organize a cash market 
     alternative to the National Cheese Exchange that the 
     Secretary believes will improve price discovery; and
       ``(C) not later than 180 days after the date of enactment 
     of this subsection--
       ``(i) in cooperation with the Commodity Futures Trading 
     Commission, conduct a study and report to Congress on means 
     of encouraging improved volume in futures trading for milk, 
     bulk cheese, and other dairy products; and
       ``(ii) conduct a study and report to Congress on the 
     feasibility and desirability of the creation of an electronic 
     exchange for cheese and other dairy products.
       ``(3) Confidentiality.--All information provided to, or 
     acquired by, the Secretary under paragraph (2)(A) shall be 
     kept confidential by each officer and employee of the 
     Department of Agriculture, except that general weekly 
     statements may be issued that are based on the information 
     and that do not identify the information provided by any 
     person.''.

     SEC. 5. OVERSIGHT OF CASH MARKETS AFFECTING FEDERAL MILK 
                   MARKETING ORDERS.

       Section 8c of the Agricultural Adjustment Act (7 U.S.C. 
     608c), reenacted with amendments by the Agricultural 
     Marketing Agreement Act of 1937, is amended by adding at the 
     end the following:
       ``(20) Oversight of cash markets affecting federal milk 
     marketing orders.--
       ``(A) Definition of noncompetitive practice.--In this 
     paragraph, the term `noncompetitive practice' means an action 
     or measure that involves engaging in a course of business or 
     act for the purpose or with the effect of--
       ``(i) manipulating or controlling a price on a cash market 
     that affects the price of milk regulated under an order 
     issued under this section;
       ``(ii) creating a monopoly in the acquiring, buying, 
     selling, or dealing in a product; or
       ``(iii) restraining commerce.
       ``(B) General rule.--In order to ensure fair trade 
     practices and orderly marketing conditions for milk and milk 
     products under this section, the Secretary shall prohibit 
     noncompetitive practices on a cash exchange for milk, cheese, 
     and other milk products that the Secretary finds affects or 
     influences the price of milk regulated under an order issued 
     under this section.
       ``(C) Other agencies and states.--This paragraph shall not 
     affect the authority of the Federal Trade Commission, 
     Commodity Futures Trading Commission, Department of Justice, 
     any other Federal agency, or any State agency to regulate a 
     noncompetitive practice described in subparagraph (B).
       ``(D) Enforcement.--The enforcement provisions of sections 
     203, 204, and 205 of the Packers and Stockyards Act, 1921 (7 
     U.S.C. 193, 194, 195) shall apply, to the extent practicable 
     (as determined by the Secretary), to this paragraph.''.
                                                                    ____


            The Milk Price Discovery Improvement Act of 1997

       Section 1. Short Title.
       Section 2. Findings.
       Section 3. Basic Formula Price.
       Requires U.S. Secretary of Agriculture to delink the 
     National Cheese Exchange (NCE) opinion price from the USDA 
     Basic Formula Price used under Federal Milk Marketing Orders 
     at a date no later than 60 days after enactment of this Act. 
     This will eliminate the formulaic link between the NCE and 
     milk prices that has been in place since Spring 1995.
       Prohibits USDA's use of NCE prices in any future revision 
     or replacement of the Basic Formula Price.
       Section 4. Dairy Price Discovery and Reporting System.
       Requires Secretary to take steps to improve price discovery 
     in order to reduce the influence of the National Cheese 
     Exchange on farmer milk prices. Alternative price discovery 
     mechanisms will provide more information to buyers and 
     sellers of cheese and may reduce trader reliance on the 
     Exchange as the sole source of price information.
       Requires Secretary to expand USDA's monthly cheese price 
     reporting system to provide weekly information on actual 
     prices paid for cheese throughout the country.
       Requires Secretary to provide technical assistance to 
     farmers and others seeking the creation of alternative cash 
     markets.
       Requires Secretary to work with the Commodity Futures 
     Trading Commission to determine means of increasing trading 
     volume on dairy futures markets.
       Requires Secretary to conduct a study on the feasibility of 
     creating an electronic market for cheese and other dairy 
     products.
       Section 5. Oversight of Cash Markets Affecting Federal Milk 
     Marketing Orders.
       Requires Secretary to prohibit noncompetitive practices on 
     any cash market that may affect or influence the price of 
     milk regulated under Federal Milk Marketing Orders. 
     Noncompetitive practices include any activity conducted for 
     the purpose or with the effect of manipulating prices on such 
     a market.
                                 ______
                                 
      By Mr. CRAIG:
  S. 259. A bill to amend the Fair Labor Standards Act of 1938 to 
adjust the maximum hour exemption for agricultural employees, and for 
other purposes; to the Committee on Labor and Human Resources.


 the fair labor standards act water delivery organizations flexibility 
                         amendment act of 1997

  Mr. CRAIG. Mr. President, I am introducing a bill today, 
which this body previously approved as an amendment to the first bill 
amending the Fair Labor Standards Act [FLSA] that the Senate passed in 
1989. This bill would solve a problem with the interpretation of a 
provision of the FLSA, clarifying that the maximum hour exemption for 
agricultural employees applies to water delivery organizations that 
supply 75 percent or more of their water for agricultural purposes.
  Representative Mike Crapo, of the Second District of Idaho, is today 
introducing an identical bill in the other body. Our bill would restore 
an exemption that was always intended by Congress.
  Companies that delivery water for agricultural purposes are exempt 
from the maximum-hour requirements of the FLSA. The Department of Labor 
has interpreted this to mean that no amount of this water, however 
minimal, can be used for other purposes. Therefore, if even a small 
portion of the water delivered winds up being used for road watering, 
lawn and garden irrigation, livestock consumption, or construction, for 
example, delivery organizations are assessed severe penalties.
  The exemption for overtime pay requirements was placed in the FLSA to 
protect the economies of rural areas. Irrigation has never been, and 
cannot be, a 40-hour-per-week undertaking. During the summer, water 
must be managed and delivered continually. Later in the year, following 
the harvest, the work load is light, consisting mainly of maintenance 
duties.
  Our bill is better for employers, workers, and farmers. Winter 
compensation and time off traditionally have been the method of 
compensating for longer summer hours. Without this exemption, 
irrigators are forced to lay off their employees in the winter. 
Therefore, our bill would benefit employees, who would continue to earn 
a year-round income. It also would keep costs level, which would 
benefit suppliers and consumers.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

[[Page S961]]

                                 S. 259

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

     SECTION 1. AMENDMENT TO THE FAIR LABOR STANDARDS ACT OF 1938.

       Section 13(b)(12) of the Fair Labor Standards Act of 1938 
     (29 U.S.C. 213(b)(12)) is amended by inserting after 
     ``water'' the following: ``, at least 75 percent of which is 
     ultimately delivered''.
                                 ______
                                 
      By Mr. ABRAHAM (for himself, Mr. Hatch, Mrs. Feinstein, Mr. 
        Grassley, Mr. Kyl, Mr. Hutchinson, Mr. Roberts, and Mr. Robb):
  S. 260. A bill to amend the Controlled Substances Act with respect to 
penalties for crimes involving cocaine, and for other purposes; to the 
Committee on the Judiciary.


                  Powder Cocaine Penalties Legislation

 Mr. ABRAHAM. Mr. President, I introduce legislation that would 
increase penalties for distribution of powder cocaine. It would do this 
by applying existing mandatory minimum sentences of 5 and 10 years for 
this crime to a larger class of powder cocaine dealers.
  Specifically, under current law, a dealer has to distribute 500 grams 
of powder to qualify for the 5-year minimum, and 5,000 grams to qualify 
for the 10-year minimum. My bill would lower the trigger quantities to 
100 grams and 1,000 grams, respectively.
  As many of you will recall, last Congress, the Sentencing Commission 
proposed a dramatic lowering of penalties for distribution of crack. 
That proposal would have taken effect automatically had Congress not 
stepped in to prevent it from doing so it by adopting legislation I 
introduced to block it.
  The principal argument the Commission advanced for its proposal was 
that current law's sharp differentiation between sentences for crack 
cocaine and powder cocaine distribution is wrong. Therefore, the 
Commission argued, we should equalize these penalties by lowering 
penalties for crack cocaine.
  As is clear from the fact that I sponsored legislation to prevent its 
recommendation from taking effect, I did not agree with the 
Commission's view that crack and powder penalties should be equalized. 
I also did not think that dramatically lowering crack penalties was a 
good idea for anyone--least of all for inner-city residents where crack 
is most freely available and where parents need the most help in 
protecting their kids from those peddling this poisonous drug.
  At the same time, it also seemed to me that the Commission's report 
made some valid criticisms of the current disparity in the sentences. 
It just seemed to me that it drew the wrong conclusion from its 
criticisms, and that the answer to the problems it identified was not 
to lower crack sentences but to raise powder sentences.
  That is why, at the same time I introduced my legislation to prevent 
the Commission's proposal from taking effect last Congress, I also 
introduced the same bill I am introducing today: to raise the sentences 
for those who deal powder cocaine, and thereby bring the quantity ratio 
down from 100-1 to 20-1.
  I believe this proposal recognizes two realities: that crack is more 
dangerous and more addictive than powder, but that powder is very 
dangerous and a critical contributor to our very serious crack problem.
  First, as both the Commission's own study of the matter and a recent 
medical study indicate, crack is a more dangerous and addictive form of 
cocaine than powder. Moreover because of its relative cheapness and 
ease of use, it is more attractive to first-time users, and especially 
children.
  It is also common sense that with crack use finally stabilizing, we 
should not jeopardize what success we have had in combating it by 
dramatically lowering the penalties for selling it. That would surely 
invite new entrants into the crack market, and thereby lead to an 
increase in drug use and trigger a resurgence of violence among 
competing crack dealers.
  On the other hand, as the Commission's report also pointed out, 
present law has resulted, at least occasionally, in insufficiently 
severe punishment of individuals at the top of crack distribution 
chains. These dealers distribute their product in powder rather than in 
crack form. And at least a few of them have received considerably less 
than the mandatory 5-year penalty. At the same time lower level dealers 
who worked for them and sold the final product, crack, were receiving 
at least 5-year sentences. This overly lenient treatment of the powder 
kingpins does not seem right.
  Second and more generally, when the mandatory sentences for powder 
were originally set, they were set without knowledge of the extent of 
our crack problem and the contribution that powder cocaine makes to it. 
An increase therefore is warranted for that reason as well.
  Finally, while I believe some differential in the quantities that 
trigger the same sentence for crack and powder is warranted, 100 to 1 
seems too great. It is also unique in our drug laws' treatment of 
derivative versus source drugs, and that uniqueness is part of what has 
made it racially divisive.
  My proposed legislation addresses all three of these points. Its 
lower threshold for powder mandatories would make it much less likely 
that a powder kingpin at the top of a crack-dealing chain would escape 
with a lower punishment than those further down in the chain.
  By raising the sentences for powder significantly, the bill also 
takes into account the contribution that powder cocaine dealing 
generally makes to the crack market.
  Finally, the change in the powder triggers makes the ratio of powder 
to crack necessary to trigger the same sentences 20 to 1 rather than 
100 to 1. This would bring it in line with other similar differentials 
between source and derivative drugs, such as opium and heroin, which 
likewise have a 20 to 1 quantity ratio.
  Mr. President, last Congress we withheld action on this question 
beyond blocking the Sentencing Commission's proposal because we were 
told that the Commission ought to be given another chance to devise a 
solution. I believe, however, that this Congress must act on this 
matter--whether with the help of the Commission or on its own. By 
introducing this legislation at this time, I want to make clear that I 
intend to see to it that we do so.
                                 ______
                                 
      By Mr. DOMENICI (for himself, Mr. Ford, Ms. Snowe, Mr. Thompson, 
        Mr. Thomas, Mr. Roth, Mr. Moynihan, Mr. Nickles, Mr. McCain, 
        Mr. Conrad, Mr. Abraham, Mr. Frist, Mr. Grams, Mr. Lugar, Ms. 
        Collins, Mr. Breaux Mr. DeWine, Mr. Burns, Mr. Warner, Mr. 
        Roberts, Mr. Coats, Mr. Mack, Mr. Kempthorne, Mr. D'Amato and 
        Mr. Enzi):
  S. 261. A bill to provide for biennial budget process and a biennial 
appropriations process and to enhance oversight and the performance of 
the Federal Government; to the Committee on the Budget and the 
Committee on Governmental Affairs, jointly, pursuant to the order of 
August 4, 1977, with instructions that if one committee reports, the 
other committee have 30 days to report or be discharged.


             THE BIENNIAL BUDGETING AND APPROPRIATIONS ACT

  Mr. DOMENICI. Mr. President, on behalf of Senator Ford and 23 other 
Senators, I rise to introduce the Biennial Budgeting and Appropriations 
Act, a bill to convert the budget and appropriations process to a 2-
year cycle and to enhance oversight of Federal programs.
  One of the greatest challenges facing the 105th Congress and 
President Clinton is to balance the Federal budget by 2002 and maintain 
balance through the next century when we will need to confront the very 
serious fiscal problems associated with an aging America. Balancing the 
Federal budget will require long-term planning, tough choices, and 
steadfast effort. These decisions should not be made, indeed I contend 
cannot be made, using the current fractionated annual budget process.
  Congress should now act to streamline the system by moving to a 2-
year, or biennial, budget process. This is the most important reform we 
can enact to streamline the budget process, to make the Congress a more 
deliberative and effective institution, and to make us more accountable 
to the American people.
  Mr. President, moving to a biennial budget and appropriations process 
enjoys very broad support. President Clinton has proposed this reform. 
Presidents Reagan and Bush also proposed a biennial appropriations and 
budget cycle. Leon Panetta, who has

[[Page S962]]

served as White House Chief of Staff, OMB Director, and House Budget 
Committee chairman, has advocated a biennial budget since the late 
1970's. Former OMB and CBO Director Alice Rivlin has been arguing for a 
biennial budget for almost two decades. Other supporters include 
Senators Lott, Ford, Roth, Thompson, and Glenn. Last year, 42 Senators 
wrote our two Senate leaders calling for quick action to pass 
legislation to convert the budget and appropriations process to a 2-
year cycle.
  The most recent comprehensive studies of the Federal Government and 
the Congress have recommended this reform. The Vice President's 
National Performance Review and the Joint Committee on the 
Reorganization of Congress both recommended a biennial appropriations 
and budget cycle.
  A biennial budget will dramatically improve the current budget 
process. The current annual budget process is redundant, inefficient, 
and destined for failure each year. The current process to develop, 
legislate, and implement the annual budget consumes 3 years: 1 year for 
the administration to prepare the President's budget, another year for 
the Congress to put the budget into law, and the final year to actually 
execute the budget.
  Today, I want to focus just on the congressional budget process, the 
process of annually passing a budget resolution, authorization 
legislation, and 13 appropriation bills. The record clearly 
demonstrates the serious shortcomings of this process:
  We have met the statutory deadline to complete a budget resolution 
only 3 times since 1974. In 1995, we broke the Senate record for the 
most rollcall votes cast in a day on a budget reconciliation bill.
  The Congressional Budget Office just released its report on 
unauthorized appropriations. For fiscal year 1997, 121 laws authorizing 
appropriations have expired. These laws cover over one-third, or $89.6 
billion, of appropriations for nondefense programs. Another 52 laws 
authorizing non-defense appropriations will expire at the end of fiscal 
year 1997, representing $31 billion more in unauthorized nondefense 
programs.
  Since 1950 Congress has only twice met the fiscal year deadline for 
completion of all 13 individual appropriations bills to fully fund the 
Government.
  While we have made a number of improvements in the budget process, 
the current annual process is redundant and inefficient. The Senate has 
the same debate, amendments, and votes on the same issue three or four 
times a year--once on the budget resolution, again on the authorization 
bill, and finally on the appropriations bill.
  I recently asked the Congressional Research Service [CRS] to update 
and expand upon an analysis of the amount of time we spend on the 
budget. CRS looked at all votes on appropriations, revenue, 
reconciliation, and debt limit measures as well as budget resolutions. 
CRS then examined any other vote dealing with budgetary levels, Budget 
Act waivers, or votes pertaining to the budget process. For 1996, CRS 
found that the Senate devoted 73 percent of its time to the budget.
  If we cannot adequately focus on our duties because we are constantly 
debating the budget in the authorization, budget, and appropriations 
process, just imagine how confused the American public is about what we 
are doing. The result is that the public does not understand what we 
are doing and it breeds cynicism about our Government.
  Under the legislation I am introducing today, the President would 
submit a 2-year budget and Congress would consider a 2-year budget 
resolution and 13 2-year appropriation bills during the first session 
of a Congress. The second session of the Congress would be devoted to 
consideration of authorization bills and for oversight of Government 
agencies.
  Most of the arguments against a biennial budget process will come 
from those who claim we cannot predict or plan on a 2 year basis. For 
two-thirds of the budget, we do not actually budget on an annual basis. 
Our entitlement and revenue laws are under permanent law and Congress 
does not change these laws on an annual basis. The only component of 
the budget that is set in law annually are the appropriated, or 
discretionary accounts.
  Mr. President, the most predictable category of the budget are these 
appropriated, or discretionary, accounts of the Federal Government. I 
recently asked CBO to update an analysis of discretionary spending to 
determine those programs that had unpredictable or volatile funding 
needs. CBO found that only 4 percent of total discretionary funding 
fell into this category. Most of this spending is associated with 
international activities or emergencies. Because most of this funding 
cannot be predicted on an annual basis, a biennial budget is no more 
deficient than the current annual process. My bill will continue to 
allow supplemental appropriations necessary to meet these emergency and 
unanticipated requirements.

  This legislation also will enhance oversight of Federal programs and 
activities. Frankly, the limited oversight we are now doing is not as 
good as it should be. We have a total of 34 House and Senate standing 
authorizing committees and these committees are increasingly crowded 
out of the legislative process. Under a biennial budget, the second 
year of the biennium will be devoted to examining Federal programs and 
developing authorization legislation. The calendar will be free of the 
budget and appropriations process, giving these committees the time and 
opportunity to fully review and legislate changes to Federal programs.
  We also build on the oversight process by incorporating the new 
requirements of the Government Performance and Results Act of 1993 
[GPRA] into the biennial budget process. The primary objective of this 
law is to force the Federal Government to produce budgets focused on 
outcomes, not just dollars spent. When the goal is to balance the 
budget, decisions must be made based on performance.
  More specifically, GPRA requires agencies to develop strategic plans, 
performance plans, and performance goals. GPRA requires agencies to 
report on their actual performance in relation to these goals. Finally, 
GPRA requires the President to incorporate these performance plans into 
the President's budget submission to Congress.
  At the beginning of each even-numbered year, this new biennial bill 
requires Federal agencies to submit their preliminary performance plans 
and any proposed legislation that will enhance the performance of 
Federal programs to authorizing committees. During these even-numbered 
years, the authorizing committees will review these performance plans 
and actual performance and develop authorization legislation geared to 
enhancing the performance of the Federal Government.
  Mr. President, a biennial budget is not a panacea for all our budget 
woes. A biennial budget cannot make the difficult decisions that must 
be made in budgeting, but it can provide the tools necessary to make 
much better decisions. By moving to a biennial budget cycle, we can 
budget more effectively, strengthen oversight and watchdog functions, 
improve the efficiency of Government agencies, and work to balance the 
budget in an intelligent, fair, and deliberative manner.
  Mr. President, I ask unanimous consent that a Washington Post 
article, a description of the bill, and a section-by-section analysis 
of the bill be made a part of the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

      Description of the Biennial Budgeting and Appropriations Act

       Cosponsors (24): Senators Ford, Snowe, Thompson, Thomas, 
     Roth, Moynihan, Nickles, McCain, Conrad, Abraham, Frist, 
     Grams, Lugar, Collins, Breaux, DeWine, Burns, Warner, 
     Roberts, Coats, Mack, Kempthorne, D'Amato, and Enzi.
       The Domenici bill would convert the annual budget, 
     appropriations, and authorization process to a biennial, or 
     two-year, cycle.


                 First Year: Budget and Appropriations

       Requires the President to submit a two-year budget at the 
     beginning of the first session of a Congress. The President's 
     budget would cover each year in the biennium and planning 
     levels for the four out-years. Converts the ``Mid-session 
     Review'' into a ``Mid-biennium review''. The President would 
     submit his ``mid-biennium review'' at the beginning of the 
     second year.
       Requires Congress to adopt a two-year budget resolution and 
     a reconciliation bill (if necessary). Instead of enforcing 
     the first fiscal year and the sum of the five years set out 
     in the budget resolution, the bill provides that the budget 
     resolution establish binding levels for each year in the 
     biennium and the sum of the six-year period. The bill 
     modifies the time frames in the Senate ten-year pay-as-you-go 
     point of order to provide that legislation could not increase 
     the deficit for the

[[Page S963]]

     biennium, the sum of the first six years, and the sum of the 
     last 4 years.
       Requires Congress to enact a two-year appropriations bill 
     during the first session of Congress. The Domenici bill 
     provides two fail-safe measures if there were an attempt to 
     continue to appropriate funding on an annual basis. First, 
     the Domenici bill provides a new majority point of order 
     against appropriations bills that fail to cover two years. 
     Second, if an appropriations bill were enacted that failed to 
     appropriate money for the second year of the biennium, 
     funding would be automatically appropriated at the first 
     year's level. These fail-safe measures would not apply to 
     supplemental appropriations bills to fund unanticipated needs 
     such as emergencies.
       Makes budgeting and appropriating the priority for the 
     first session of a Congress. The bill provides a majority 
     point of order against consideration of authorization and 
     revenue legislation until the completion of the biennial 
     budget resolution, reconciliation legislation (if necessary) 
     and the thirteen biennial appropriations bills. An exception 
     is made for certain ``must-do'' measures.


     Second Year: Authorization Legislation and Enhanced Oversight

       Devotes the second session of a Congress to consideration 
     of biennial authorization bills and oversight of federal 
     programs. The bill provides a majority point of order against 
     authorization and revenue legislation that cover less than 
     two years except those measures limited to temporary programs 
     or activities lasting less than two years.
       Requires the General Accounting Office (GAO) to give 
     priority to requests for audits and evaluations of programs 
     and activities during the second year of the biennium.
       Modifies the Government Performance and Results Act of 1993 
     (GPRA) to incorporate the government performance planning and 
     reporting process into the two-year budget cycle to enhance 
     oversight of federal programs.
       The Government Performance and Results Act of 1993 (GPRA) 
     requires federal agencies to develop strategic plans, 
     performance plans, and performance reports. The law requires 
     agencies to establish performance goals and to report on 
     their actual performance in meeting these goals. GPRA 
     requires federal agencies to consult with congressional 
     committees as they develop their plans. Beginning this year, 
     GPRA will require all federal agencies to submit their 
     strategic plans to the Office of Management and Budget, along 
     with their budget submissions, by September 30 of each year. 
     Finally, GPRA requires the President to include a performance 
     plan for the entire government, beginning with the FY 1999 
     budget.
       The Domenici bill modifies GPRA to place it on a two-year 
     cycle along with the budget process. The bill also requires 
     the authorizing committees to review the strategic plans, 
     performance plans, and performance reports of federal 
     agencies and to submit their views, if any, on these GPRA 
     plans and reports as part of their views and estimates 
     submissions to the budget committees.
       The Domenici bill requires agencies to submit a preliminary 
     performance plan and proposed authorization legislation to 
     the relevant authorizing committees by March 31 of even-
     numbered years. In developing proposed authorization 
     legislation, the bill directs agencies to include in their 
     proposed legislation, changes that will enhance agencies' 
     ability to meet their strategic and performance goals.
                                                                    ____


 Biennial Budgeting and Appropriations Act--Section-by-Section Analysis

       Section 1 states the title of the legislation--the 
     ``Biennial Budgeting and Appropriations Act''.
       Section 2 amends section 300 of the Congressional Budget 
     and Impoundment Control Act to revise the timetable to 
     reflect a biennial budget process. In general, the revised 
     timetable is similar to the current timetable except that 
     most of the milestones only apply to the first session of a 
     Congress. The timetable is modified to extend the deadline 
     for completion of the budget resolution to May 15th and to 
     extend the deadline for completion of reconciliation 
     legislation to August 1st. The revised timetable contains two 
     milestones in the second session: a February 15th reporting 
     requirement for the CBO annual report on the budget and an 
     end of session deadline for completion of action on 
     authorization legislation. This section also amends the 
     timetable to provide a special schedule in years a new 
     President is elected. Generally, deadlines are extended by 6 
     weeks to give a new President more time to prepare and submit 
     his budget.
       Section 3 includes most of the other amendments made to the 
     Congressional Budget and Impoundment Control Act.
       Section 3(a) amends section 2 of the Act to make a 
     conforming change to the statement of the purposes of the 
     Act. Section 3(b) adds a definition for ``biennium'' and 
     makes a conforming change to the definition of a budget 
     resolution.
       Section 3(c) amends section 301 to require the Congress to 
     complete action on a biennial budget resolution by May 15th 
     of each odd-numbered year; to require the budget resolution 
     to cover the biennium, and each of the ensuing four years; to 
     make conforming changes regarding requirements for hearings 
     and reports on budgets; to make other conforming changes to 
     the section; and, to make conforming changes to the section 
     heading and the table of contents of the Act.
       Section 3(d) amends section 302 of the Budget Act, 
     regarding committee allocations, to require the conference 
     report on a budget resolution to include an allocation of 
     budget authority and outlays to each committee for each year 
     in the biennium and the total of the biennium and the four 
     succeeding fiscal years. This subsection also makes 
     conforming changes to section 302(f).
       Section 3(e) amends section 303 of the Budget Act, 
     regarding the point of order against spending and revenue 
     legislation affecting future fiscal years, to make a 
     conforming change to provide that such legislation cannot be 
     considered until the budget resolution for a biennium is 
     adopted. This subsection also drops an exception in the 
     Senate that exempts appropriations measures providing an 
     advance appropriation for the two fiscal years following 
     the budget year from this point of order.
       Section 3(f) makes conforming changes to section 304 of the 
     Budget Act, regarding revisions of budget resolutions. 
     Maintains current law that allows Congress to revise the 
     budget resolution at any time.
       Section 3(g) amends section 305 to make a conforming change 
     regarding a reference to the budget resolution.
       Section 3(h) and (i) amend sections 307 and 309 to make 
     conforming changes regarding the deadlines for completion of 
     appropriations bills.
       Section 3(j) amends section 310 to make conforming changes 
     regarding reconciliation.
       Section 3(k) amends section 311 to provide that a point of 
     order will lie against any legislation that would cause the 
     total budget authority, outlay, Social Security outlay, or 
     Social Security revenue levels to be breached in either 
     fiscal year of the biennium or that would cause revenue, 
     Social Security revenue, or Social Security outlays levels to 
     breached for the sum of the biennium and the four outyears 
     covered by the resolution. Currently, the budget resolution 
     all budget authority and outlays are enforced for the first 
     year covered by the budget resolution and Social Security 
     outlay, Social Security revenue, and total revenues are 
     enforced for the five years covered by the budget resolution.
       Section 3(l) amends section 401(b)(2) to make a conforming 
     change regarding the referral of certain entitlement 
     legislation to the Appropriations Committee.
       Section 3(m) amends section 603 to make a conforming change 
     regarding automatic allocations to the House Appropriations 
     Committee if the budget resolution is not adopted by May 
     15th.
       Section 4 amends the Senate pay-as-you-go point of order 
     that prohibits consideration of legislation that would 
     increase the deficit over a ten year period. The current 
     Senate pay-as-you-go point of order prohibits consideration 
     of legislation that would increase the deficit in the first 
     year, the sum of the first five years, or the sum of the last 
     five years. Section 4 modifies this point of order to 
     prohibit consideration of legislation that would increase the 
     deficit for the sum of the first two years (the biennium), 
     the sum of the first six years, or the sum of the last four 
     years.
       Section 5 amends the relevant sections of Title 31 of the 
     U.S. Code regarding materials the President's budget 
     submission and related documents.
       Section 5(a) amends section 1101 to add a definition of 
     ``biennium''.
       Section 5(b) amends section 1105 to require the President 
     to submit the budget the first Monday of February for every 
     odd-numbered year (except the schedule in section 300(b) of 
     the Budget Act applies for years in which a new President is 
     elected). Section 5(b) also amends a number of requirements 
     in section 1105 to conform the President's budget to a 
     biennial budget. Among these changes, the President's budget 
     would have to propose levels for each fiscal year in the 
     biennium and projections for the four succeeding years.
       Section 5(c) amends section 1105(b), regarding estimated 
     expenditures and proposed appropriations for the legislative 
     and judicial branches, to require the submittal of these 
     proposals to the President by October 16th of even-numbered 
     years.
       Subsections (d) and (e) of section 5 make conforming 
     changes to section 1105 regarding the President's 
     recommendations if there is a proposed deficit or surplus and 
     capital investment analyses.
       Section 5(f) amends section 1106 to change the requirements 
     regarding the President's ``Mid-session Review''. Current law 
     requires the President to submit the Mid-session Review 
     before July 16 of each year. Section 5(f) requires the 
     President to submit a ``Mid-biennium Review'' before February 
     15 of each even-numbered year. With this modification, the 
     President will submit his biennial budget at the beginning of 
     each odd-numbered year and provide updated information on the 
     budget at the beginning of each even-numbered year.
       Section 5(g) amends section 1109 to make conforming changes 
     to require the President to submit current services estimates 
     for the upcoming biennium and to require the Joint Economic 
     Committee to submit an economic evaluation to the Budget 
     Committee as part of its views and estimates report. This 
     subsection also makes two technical corrections to require 
     the President to submit the current services information with 
     his budget

[[Page S964]]

     submission and to require the Joint Economic Committee to 
     submit its economic evaluation within 6 weeks of the 
     President's budget submission.
       Section 5(h) makes amendments to provisions regarding year 
     ahead requests on authorization legislation to require the 
     President to submit requests for authorization legislation by 
     March 31st of even-numbered years.
       Section 5(i) amends section 1119 to conform a requirement 
     regarding agency budget justifications and consulting 
     services information to the biennial budget submission.
       Section 6 amends section 105 of Title I of the U.S. Code 
     regarding the form and style of appropriations Acts to 
     require that they cover two years.
       Section 7 adds a new section 314 to the Budget Act that 
     establishes two new points of order in the Congress against 
     authorization legislation. The first point of order prohibits 
     consideration of authorization legislation that covers less 
     than 2 years except for temporary activities. The second 
     point order prohibits consideration of authorization or 
     revenue legislation until the Congress has completed action 
     on the biennial budget resolution, biennial appropriations 
     bills, and all reconciliation bills. These two points of 
     order do not apply to appropriations measures, reconciliation 
     bills, privileged matters, treaties, or nominations. This 
     point of order can be waived by a simple majority.
       Section 8 amends section 717 of title 31 of the U.S. Code 
     to require the General Accounting Office to give priority 
     during the second session of a Congress to requests for 
     Federal program audits and evaluations.
       Section 9 establishes a stopgap funding mechanism to 
     provide funding authority for the second year if Congress 
     enacts an appropriations bill that only funds one year. This 
     automatic funding authority does not apply to supplementals 
     or continuing resolutions.
       Section 9(a) amends chapter 13 of title 31 to add a new 
     section 1311. Section 9(b) amends the table of contents of 
     chapter 13 of title 31 to add the new section 1311.
       Section 1311(a)(1) provides that if Congress enacts a 
     regular appropriation bill in an odd-numbered year that fails 
     to provide funding for the second year of the biennium, the 
     second year is automatically funded at the first year's 
     level. Section 1311(a)(2) provides that in determining the 
     level of funding for the first year, the President must take 
     into account sequester reductions made pursuant to the 
     Balanced Budget and Emergency Deficit Control Act and 
     cancellations made pursuant to the Line Item Veto Act. 
     Section 1311(a)(3) provides that the automatic funding 
     authority remains in effect only for the duration of the 
     second fiscal year.
       Section 1311(b) makes the automatic appropriation in the 
     second year subject to the same terms and conditions Congress 
     established for the first year's appropriation.
       Section 1311(c) provides that the funding authority shall 
     not apply to a project or activity if another law prohibits 
     funding for that activity.
       Section 1311(d) defines ``regular appropriation bill'' as 
     any one of the thirteen regular appropriations bills.
       Section 10 amends the Government and Performance and 
     Results Act of 1993 (GPRA) to incorporate GPRA into the 
     biennial budget cycle.
       The Government Performance and Results Act of 1993 (GPRA) 
     requires federal agencies to develop strategic plans, 
     performance plans, and performance reports. Strategic plans 
     set out the agencies' missions and general goals. Performance 
     plans lay out the specific quantifiable goals and measures. 
     Performance reports compare actual performance with the goals 
     of past performance plans.
       GPRA currently requires federal agencies to consult with 
     congressional committees as they develop their strategic 
     plans. Beginning this year, GPRA will require all federal 
     agencies to submit their strategic and performance plans to 
     the Office of Management and Budget, along with their budget 
     submissions, by September 30 of each year. Finally, GPRA 
     requires the President to include a performance plan for the 
     entire government, beginning with the FY 1999 budget.
       Section 10(a) and (b) amend section 306 of title 5 and 
     section 115 of title 31 to require agencies to prepare 
     performance plans every two years, in conjunction with the 
     President's development of a biennial budget, and strategic 
     plans every four years (covering a six-year period). This 
     subsection also requires federal agencies to submit a 
     preliminary draft of the performance plans to the relevant 
     authorizing committees by March 31 of even-numbered years. 
     Subsection (b) also requires agencies to include an executive 
     summary of their 10 most important performance goals and to 
     consult with Congress in developing these priority goals. The 
     purpose of this change is to require agencies to highlight 
     the crucial goals for Congress.
       Section 10(c) amends section 1105(a)(30) of title 31 to 
     require the President's budget to include aggregate 
     performance report for the executive branch starting with the 
     FY 2002-03 budget. Currently, OMB must submit an aggregate 
     performance plan (known as the Federal Government performance 
     plan) with the President's budget, but GPRA does not require 
     them to prepare a performance report, indicating how they 
     measured up to their goals.
       Section 10(d) amends section 1116 of title 31 to make two 
     changes. First, this subsection requires agencies to report 
     to Congress on statutory barriers that limit their ability to 
     meet their mission statement and to propose legislative 
     recommendations to modify or eliminate such barriers. Second, 
     this subsection adds subsections (g) and (h) to section 1116. 
     Subsection (g) would require agencies to include an executive 
     summary in their performance report describing actual results 
     in relation to their 10 most important performance goals. 
     Subsection (h) requires OMB's overall performance report to 
     compare actual results with the goals established in previous 
     federal government performance plans.
       Section 10(e) amends section 301(d) of the Budget Act to 
     require Congressional committees to review the strategic 
     plans, performance plans, and performance reports of agencies 
     in their jurisdiction. Committees may then provide their 
     views on the plans or reports to the Budget Committee, if 
     they so choose, as part of their views and estimates report.
       Section 10(f) provides that the amendments shall take 
     effect on March 31, 1998.
       Section 11 amends the Budget Act to add a new section 315 
     that provides a majority point of order against consideration 
     in any odd-numbered year of a regular appropriations bill 
     that fails to fund both years of the biennium. This point of 
     order does not apply to supplementals or continuing 
     resolutions.
       Section 12 requires OMB to conduct a study within 6 months 
     of enactment of the feasibility of converting the fiscal year 
     to a two year period.
       Section 13 provides an effective date for the Act and a 
     transition period. Subsection (a) generally provides that the 
     Act takes effect on January 1, 1998. Section 13(b) provides a 
     transition year to the biennial cycle by requiring the 
     authorizing committees to start consideration of two-year 
     authorization legislation in 1997. The result is that the 
     authorizing committees will act on legislation for the fiscal 
     year 2000-2001 biennium in calendar year 1997. The budget and 
     appropriations committees will then follow by developing a 
     budget resolution and 13 appropriations bills for the fiscal 
     year 2000-2001 biennium in calendar year 1998.
                                                                    ____


                [From the Washington Post, Dec. 8, 1996]

                       Make It a Two-Year Budget

                         (By Pete V. Domenici)

       Democrats and Republicans are pledging bipartisanship 
     cooperation in fashioning this year's federal budget. We 
     should begin by abandoning the outmoded and disorderly annual 
     budget and appropriation process and move to biennial 
     budgeting and appropriating to stabilize our budget 
     decisions. This is the most important reform we can adopt to 
     improve the process, provide for oversight and careful 
     deliberation, and make us accountable to the American people.
       This is not a partisan issue. President Clinton, Senate 
     Republican Leader Trent Lott and Democratic Whip Wendell Ford 
     support biennial budgeting and appropriating. It also was 
     recommended in 1993 by the bipartisan Joint Committee on 
     Reorganization of Congress.
       Under a biennial budget, the president would submit a two-
     year budget and Congress would consider a two-year budget 
     resolution and 13 two-year appropriation bills during the 
     first session of a Congress. The second session would be 
     devoted to consideration of authorization bills and for 
     oversight of government agencies.
       A biennial budget would dramatically improve the current 
     budget process. It would allow legislators to legislate 
     intelligently. It would provide for oversight of what has 
     been legislated, and it would cut down on the tremendous 
     annual effort that now is devoted to developing and 
     implementing the annual budget.
       Consider that each year program managers interrupt their 
     work to develop detailed documents to propose and support 
     their budget. That budget must be reviewed by agency budget 
     officers and senior agency officials before it is presented 
     to the Office of Management and Budget (OMB). After OMB's 
     review and the president's approval, the entire budget is 
     presented to Congress. The executive branch's preparation and 
     review of the budget takes a year.
       After the budget is submitted to Congress; the agencies 
     have to track and respond to inquiries from Congress as it 
     considers the budget through the budget resolution, 
     authorizing legislation and, ultimately, through 
     appropriations legislation. The congressional budget consumes 
     another year.
       To understand how much effort goes into preparation of the 
     annual budget, one need only look at one agency's budget 
     justification in the annual process. Let's take the civil 
     works program of the Army Corps of Engineers. The corps' 
     civil works budget amounts to roughly $3.7 billion, or 0.2 
     percent of the total federal budget. Each year

[[Page S965]]

     the corps prepares and submits to the Appropriations 
     Committee an eight-volume budget justification amounting to 
     2,005 pages!
       Moreover, our current budget process--in which Congress 
     tries to hold hearings, markups and floor action annually on 
     authorization, budget and appropriations legislation--makes 
     it extremely difficult for a member of Congress to fully meet 
     all his or her obligations, much less take the necessary time 
     to fully participate in each of these activities.
       While an improvement over what went before, the current 
     budget process is redundant and inefficient. Yogi Berra once 
     observed that ``it's never over until it's over,'' but it 
     seems too often that the budget process is never over. The 
     Senate has the same debate and votes on the same issue three 
     or four times a year--once on the budget resolution, again on 
     the authorization bill and few amendments on the floor, and 
     again on the appropriations bill. In 1993 I found that the 
     Senate devotes roughly 40 percent of its time debating budget 
     resolutions, reconciliation and appropriations bills.
       In addition to the time-consuming nature of the budget 
     process, Congress regularly misses its own deadlines and 
     guidelines, which generates cynicism about our work. In the 
     22-year history of the Budget Act, we have met the statutory 
     deadline to complete a budget resolution only three times. 
     Last year, we broke the Senate record for the most roll-call 
     votes cast in a day on a budget reconciliation bill.
       Since 1950, Congress only twice has met the fiscal year 
     deadline for completion of all 13 individual appropriations 
     bills to fully fund the government. Congress usually governs 
     in the breach, rushing to complete action on omnibus 
     continuing resolutions in the best years or government 
     shutdowns in the worst.
       A biennial budget, while not a panacea, could improve the 
     budget process dramatically. In 1987 I asked 50 agencies 
     about their views on the biennial budget. Thirty-seven 
     agencies supported a biennial budget. None opposed it. The 
     agencies generally responded that they could operate under a 
     biennial budget, and that it would save money for their 
     operations.
       Based on a 1993 congressional study, only 4 percent of 
     discretionary funding--or $18.5 billion of the $541 billion 
     appropriated in FY 1993--required annual funding because of 
     unpredictable funding patterns.
       If we have a two-year process, we can deal with another 
     concern--that Congress does not spend enough time reviewing 
     the operations of the federal government. Frankly, the 
     limited oversight we are doing now is not as good as it 
     should be.
       Authorizing committees must increase their focus on their 
     oversight role. Implementing the Government Performance and 
     Results Act will begin to force the federal government to 
     produce budgets next year focused on outcomes, not just 
     dollars spent. When the goal is to balance the budget, 
     decisions must be made based on performance. With a biennial 
     budget, we would create an atmosphere that encourages and 
     rewards better oversight, because the entire second year of 
     any Congress would be devoted to authorizations and reviewing 
     program performance.
       By moving to a two-year budget and appropriations cycle, 
     Congress can inject stability into a sometimes chaotic 
     system, strengthen congressional oversight and watchdog 
     functions, improve the efficiency of government agencies 
     and--finally, it is hoped--increase the public's confidence 
     that the achievement of balanced budget has been done 
     intelligently, deliberatively and fairly.

  Mr. McCAIN. Mr. President, I rise in strong support of the Biennial 
Appropriations and Budget Act--A bill introduced today by Senator 
Domenici, the chairman of the Budget Committee. I am pleased to be an 
original cosponsor of this important legislation.
  Under a biennial budget, the President would submit a 2-year budget 
in the first session of a Congress. The priority in the first session 
of the Congress would be completion of the biennial budget resolution 
and biennial appropriations bills. The second session would be reserved 
for authorization legislation and enhanced oversight. The planning and 
performance requirements of the Government Performance and Results Act 
of 1993 would be incorporated into the budgeting process as well.
  I have long advocated changing our budget process in this manner. As 
a matter of fact in 1993, I introduced similar legislation. Changing 
our budget process would give Congress more time to develop and 
implement long-term budget plans. In addition, the 2-year cycle would 
allow more time for oversight and thorough evaluation of programs and 
spending.
  Our current process is simply not working. Only three times in the 
past 20 years has Congress passed the budget resolution on time, and 
this is only the first step in congressional action on the budget. Only 
twice since 1950, has Congress met the fiscal year deadline for 
completion of all 13 individual appropriations bills. Most of the time 
Congress is rushing to pass appropriations bills, continuing 
resolutions, or omnibus spending bills at the last minute, trying to 
avoid a Government shutdown. This is not how we should be managing the 
power of the purse.
  This idea is not new. President Clinton's former Chief of Staff and 
OMB Director, Leon Panetta, introduced the first biennial budget bill 
in 1977 when he was a Congressman. Vice President Gore strongly 
endorsed this idea in his National Performance Review. In his book, 
``Creating a Government that Works Better and Costs Less,'' Gore 
states, ``Biennial budgeting will not make our budget decisions easier, 
for they are shaped by competing interests and priorities. But it will 
eliminate an enormous amount of busy work that keeps us from evaluating 
programs and meeting customer needs.''
  Congress' failure to meet our prescribed deadlines, in current budget 
process, contributes to the American people's cynicism about politics. 
The time has come to recognize that our current budget process is 
broken and we must find a way to fix it. Biennial budgeting is an 
important first step toward fixing our current system by making our 
budget process more efficient and streamlined. I hope that Congress 
will act on this important legislation expeditiously.
  Mr. THOMAS. Mr. President, it is an honor to join the chairman of the 
Budget Committee, Senator Domenici, in introducing legislation to 
create a 2-year budget and appropriations process. Senator Domenici has 
worked long and hard on this issue and I am hopeful that we can finally 
enact this commonsense reform this year.
  The current budget process is breaking down. Congress and the 
executive branch spend entirely too much time on budget issues. Since 
the most recent budget process reform in 1974, Congress has 
consistently failed to complete action on the Federal budget before the 
start of the fiscal year and, as a result, has increasingly relied on 
omnibus spending measures to fund the Federal Government. In fact, 
since 1977, Congress has passed over 60 continuing resolutions just to 
keep the Federal Government open.
  The budget resolution, reconciliation bill, and appropriations bills 
continue to become more time consuming. In the process, authorizing 
committees are being squeezed out of the schedule. There are too many 
votes on the same issues and too much duplication. In the end, this 
time could be better spent conducting vigorous oversight of Federal 
programs which currently go unchecked, exacerbating the Federal budget 
deficit.
  In response to these problems, last Congress I introduced legislation 
that would create a biennial budget process. I am pleased to continue 
this effort by joining Senator Domenici in offering this bill. It will 
rectify many of the problems regarding the current process by promoting 
timely action on budget legislation. In addition, it will eliminate 
much of the redundancy in the current budget process. This legislation 
does not eliminate any of the current budget processes--each step 
serves an important role in congressional deliberations. However, by 
making decisions once every 2 years instead of annually, the burden 
should be significantly reduced.
  Perhaps most importantly, biennial budgeting will provide more time 
for effective congressional oversight, which will help reduce the size 
and scope of the Federal Government. Congress simply needs more time to 
review existing Federal programs in order to determine priorities in 
our drive to balance the budget.
  Another benefit of a 2-year budget cycle is its effect on long-term 
planning. A biennial budget will allow the executive branch and State 
and local governments, all of which depend on congressional 
appropriations, to do a better job making plans for long-term projects.
  Two-year budgets are not a novel idea. Nor will biennial budgeting 
cure all of the Federal Government's ills. However, separating the 
budget session from the oversight session works well across the country 
in our State legislatures. It is a solid first step toward restoring 
some fiscal accountability in our Nation's Capital. I am hopeful this 
bill will be a catalyst for action on this commonsense, good Government 
reform.
  Mr. FORD. Mr. President, I am pleased to be an original cosponsor of

[[Page S966]]

the Biennial Budgeting and Appropriations Act. I am a full-fledged 
supporter of a 2-year budget cycle--an issue I have been championing 
since 1981. I believe in its potential as strongly now as I did then. 
It's an idea whose time has come.
  There are several advantages to a 2-year budget cycle. Foremost, 
there will be a savings of time and money. Congress currently debates 
spending priorities and funding decisions not only every year, but 
several times within 1 year. By limiting budget action to only one 
session of each Congress, we eliminate repetitive votes on budget 
priorities and spending allocations. We also allow the executive branch 
and recipients of Federal aid, such as State and local governments, to 
better manage Federal dollars to get more cents out of the dollar.
  Biennial budgeting allows for greater planning and more deliberate 
spending decisions. Too often, Congress has padded the budget 
resolution with spending for anticipated reforms and new initiatives 
only to find that action is not completed on the authorization before 
the new fiscal year begins. Unfortunately, those funds provided in the 
budget cannot be deleted or reserved for the next fiscal year, but must 
be spent on other programs.
  A 2-year budget, with one session reserved specifically for oversight 
and authorizations, will give Congress the time to enact responsible 
spending proposals before the adoption of a budget resolution and 
appropriations bill. A 2-year budget cycle will give the executive 
branch and State and local governments, 2 years to plan for the most 
efficient use of Federal dollars.
  This legislation will give Congress the opportunity to review 
spending decisions, and allow the executive branch to conduct 
compliance review. Too often we hear that once a Federal program is 
created, it will be funded into eternity. Congress simply needs more 
time to review existing spending programs to determine whether they 
should be modified, expanded, or replaced.
  The Biennial Budgeting and Appropriations Act provides greater 
funding certainty for State and local governments. Our elected 
counterparts in the States must plan their budgets in large part around 
Federal spending decisions. As we know from last year's debate on the 
budget, Congress all too often misses deadlines and does not complete 
action before the beginning of the fiscal year. State and local 
governments simply cannot put their budget deliberations on automatic 
pilot while Congress completes its work and they cannot be expected to 
efficiently carry out Federal spending programs if they lack the 
certainty that funds will be provided on time.
  While a 2-year budget won't replace the tough decisionmaking 
necessary for deficit reduction, it will make our work on the deficit 
and the Federal budget more efficient and more effective. When I was 
Governor of Kentucky, 2-year budgeting helped us to lay out a master 
plan for the entire State. And that master plan enabled agencies, local 
governments, and constituency groups to do long-term planning--planning 
that led to greater efficiency, overall cost savings, and equally 
important, peace of mind about future funding. We need this sort of 
planning on the Federal level. Ask any constituent what some of their 
top concerns are, and most, if not all, will talk about wasteful 
Government spending. If we truly want to address their concerns, I say 
the 2-year budget is the way to go and I am pleased to join Senator 
Domenici and others in pushing it forward with renewed vigor this year.
  Mr. THOMPSON. Mr. President, I am pleased to join Senator Domenici as 
a cosponsor of this important legislation. I supported a similar 
measure in the 104th Congress and held a hearing last year in the 
Committee on Governmental Affairs. The issue has been debated over a 
number of years without success. However, the 105th Congress presents a 
new opportunity. As chairman of the Governmental Affairs Committee, I 
pledge my support in moving this measure to the full Senate.
  The bill being introduced today has the fundamental goal of moving 
both the budget and appropriations process to a 2-year cycle--just once 
at the beginning of each Congress. In addition, it will link program 
results obtained under the Government Performance and Results Act 
[GPRA] to the budget process. Congressional committees will be required 
to review the GPRA reports and provide views and comments in 
conjunction with their comments on the budget.
  Biennial budgeting would provide more time for Congress to conduct 
greater oversight and indepth evaluations of existing programs. We need 
to take more time to find out what is working and what is not. Congress 
should not just rely on good intentions when it passes new measures. We 
must ensure that the laws we write do provide the benefits and services 
as envisioned. The current budget process leaves us with far too little 
time to devote to thoughtful and systematic oversight of Federal 
programs, and far too little time to develop and consider long-term 
policy initiatives.
  Another important reason I support 2-year budgeting, in addition to 
enhanced oversight, I believe the bill would provide Members of 
Congress with more time to spend with the people they represent, 
receiving their views and insights on Government programs, services, 
and pending legislation. Freedom from dealing with the budget on an 
annual basis has the ability to move us closer to a citizen legislature 
as envisioned by the Founding Fathers. We have no greater 
responsibility than representing the people of our State. To do so, we 
need to spend time at home.
  On the issue biennial budgeting, once again the States are leading 
the way, with more than 20 States currently using some form of it. I 
firmly believe it is time for Washington to recognize the value in this 
and enact this bill promptly. I support the Biennial Appropriations and 
Budget Act of 1997, and encourage all my colleagues to do the same. It 
is an idea whose time has come.
                                 ______
                                 
      By Mr. WELLSTONE:
  S. 262. A bill to amend title 18, United States Code, to provide for 
the prospective application of certain prohibitions relating to 
firearms; to the Committee on the Judiciary.


                          firearms legislation

 Mr. WELLSTONE. Mr. President, today I am introducing 
legislation that will make clear that from now on, if you are convicted 
of beating your wife, your husband, or your children, your actions will 
result in you forfeiting your firearm privileges, no matter who you 
are.
  The bill amends the Federal law that prohibits someone with a 
misdemeanor conviction for domestic violence from possessing firearms 
or ammunition so that the law is applied prospectively only, from the 
date of enactment. I urge my colleagues to support this bill. We know 
that all too often the only difference between a battered woman and a 
dead woman is a batterer with a gun. Many of you are familiar with 
facts I have stood here and recited in the past: Four women a day are 
killed at the hands of their batterer;
  The California Department of Justice Law Enforcement reported in 1994 
that 68 percent of the murder victims known to have been killed by an 
intimate were killed by firearms, 68 percent;
  The likelihood of a woman dying during a domestic assault is directly 
related to the type of weapon available. When a firearms is available, 
the assault is three times more likely to end in death than an assault 
with a knife. If no weapon is available the dispute is 23 times less 
likely to end in death;
  Fifty-seven percent of children under 12 who are murdered are killed 
by a parent.
  These are statistics based only on what is reported. We know that 
there are people watching who are victims of abuse in their own homes. 
It is happening to women that you know in your work place, in your 
church or synagogue and your neighborhood.
  Domestic violence is the most underreported crime in the country.
  We will not tolerate the violence.
  We will not ignore the violence.
  We will not say that it is someone else's responsibility.
  I urge my colleagues to support this bill.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

[[Page S967]]

                                 S. 262

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

     SECTION 1. PROSPECTIVE APPLICATION OF THE DOMESTIC VIOLENCE 
                   MISDEMEANOR CONVICTION FIREARMS PROHIBITION.

       (a) Findings.--Congress makes the following findings:
       (1) Spouses, ex-spouses, and current and former boyfriends 
     commit over 1,000,000 violent crimes against women each year, 
     including assault, rape, and murder.
       (2) Approximately 28 percent of all women murdered in the 
     United States each year are killed by current or former 
     husbands or boyfriends.
       (3) Weapons are used in 30 percent of domestic violence 
     incidents.
       (4) Domestic violence calls are one of the largest 
     categories of calls to police each year, and, in some 
     locations, up to one-third of all police time is spent 
     responding to domestic calls.
       (5) Studies show that police are more likely to respond to 
     a reported incident within 5 minutes if the offender is a 
     stranger to the victim and that, police are more likely to 
     take a formal report with respect to an incident in which the 
     offender is a stranger to the victim.
       (6) Studies show that only approximately 10 percent of 
     spouses who are abused ever call the police, in spite of the 
     fact that conjugal assaults account for 12 percent of all 
     assaults that result in serious injury, 16 percent of all 
     assaults requiring medical care, and 18 percent of assaults 
     that result in the loss of at least a full day of work.
       (7) Data compilation suggests that injuries in all domestic 
     assaults are at least as severe as those suffered in 90 
     percent of violent felonies, although the overwhelming number 
     of domestic violence injuries are considered to be only 
     misdemeanors in most States.
       (8) In the 104th Congress, Congress amended the Federal law 
     that regulates the lawful transfer and possession of firearms 
     and ammunition to provide that an individual's conviction of 
     a misdemeanor crime of domestic violence will prohibit the 
     individual from possessing any firearm or ammunition and will 
     prohibit others from licensing or transferring a firearm or 
     ammunition to that person.
       (9) The term ``misdemeanor crime of domestic violence'' is 
     defined in Federal law as a Federal or State misdemeanor 
     crime that ``has, as an element, the use or attempted use of 
     physical force, or the threatened use of a deadly weapon, 
     committed by a current or former spouse, parent, or guardian 
     of the victim, by a person with whom the victim shares a 
     child in common, by a person who is cohabiting with or has 
     cohabited with the victim as a spouse, parent, or guardian, 
     or by a person similarly situated to a spouse, parent, or 
     guardian of the victim''.
       (10) For purposes of Federal law, to be considered 
     convicted to be of a misdemeanor crime of domestic violence, 
     a person must--
       (A) have been represented by counsel or knowingly waived 
     representation; and
       (B) have been tried by a jury or knowingly waived trial by 
     a guilty plea or otherwise if entitled to a jury trial for 
     the offense at issue.
       (11) There are exceptions to the new Federal law that may 
     apply to an individual determined to have been convicted of a 
     misdemeanor crime of domestic violence, if ``the conviction 
     has been expunged or set aside, or is an offense for which 
     the person has been pardoned or has had civil rights restored 
     (if the law of the applicable provision provides for the loss 
     of civil rights under such an offense) unless the pardon, 
     expungement, or restoration of civil rights expressly 
     provides that the person may not ship, transport, possess, or 
     receive firearms''.
       (12) Congress clearly intended for this Federal law to 
     apply to peace officers. The general exception to the law for 
     firearms and ammunition that are issued for the use of ``the 
     United States or any department or agency thereof or any 
     State or any department, agency, or political subdivision 
     thereof,'' does not apply to individuals convicted of a 
     misdemeanor crime of domestic violence.
       (b) Unlawful Acts.--Subsections (d)(9), (g)(9), and 
     (s)(3)(B)(i) of section 922 of title 18, United States Code, 
     are each amended by inserting'', on or after September 30, 
     1996,'' before ``of a misdemeanor''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendments made by 
     the first section designated as section 658 of Public Law 
     104-208.

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