[Congressional Record Volume 146, Number 70 (Thursday, June 8, 2000)]
[Senate]
[Pages S4823-S4827]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LUGAR (for himself, Mr. Gramm, and Mr. Fitzgerald):
  S. 2697. A bill to reauthorize and amend the Commodity Exchange Act 
to promote legal certainty, enhance competition, and reduce systemic 
risk in markets for futures and over-the-counter derivatives, and for 
other purposes; to the Committee on Agriculture, Nutrition, and 
Forestry.


            the commodity futures modernization act of 2000

 Mr. LUGAR. Mr. President, I rise today with Senator Gramm, 
distinguished Chairman of the Senate Banking Committee, and Senator 
Fitzgerald, distinguished Chairman of the Subcommittee on Research, 
Nutrition and General Legislation of the Senate Agriculture Committee, 
to introduce

[[Page S4824]]

legislation to reauthorize the Commodity Exchange Act (CEA), which 
lapses on September 30th of this year. The Commodity Futures 
Modernization Act of 2000 would reauthorize the Commodity Exchange Act 
(CEA) for five additional years and would reform the Commodity Exchange 
Act in three primary ways. First, it would incorporate the unanimous 
recommendations of the President's Working Group (PWG) on the proper 
legal and regulatory treatment of over-the-counter (OTC) derivatives. 
Second, it would codify the regulatory relief proposal of the Commodity 
Futures Trading Commission (CFTC) to ensure that futures exchanges are 
appropriately regulated and remain competitive. Lastly, this 
legislation would reform the Shad-Johnson jurisdictional accord, which 
banned single stock futures 18 years ago.
  Derivative instruments, both exchange-traded and over-the-counter 
(OTC), have played a significant role in our economy's current 
expansion due to their innovative nature and their risk-transferring 
attributes. According to the International Swaps and Derivatives 
Association, the global derivatives market has a notional value that 
exceeds $58 trillion and it has grown at a rate exceeding 20 percent 
since 1990. Identified by Alan Greenspan as the ``most significant 
event in finance of the past decade,'' the development of the 
derivatives market has substantially added to the productivity and 
wealth of our nation.
  Derivatives enable companies to unbundle and transfer risk to those 
entities who are willing and able to accept it. By doing so, efficiency 
is enhanced as firms are able to concentrate on their core business 
objective. A farmer can purchase a futures contract, one type of 
derivative, in order to lock in a price for his crop at harvest. 
Automobile manufacturers, whose profits earned overseas can fluctuate 
with changes in currency values, can minimize this uncertainty through 
derivatives, allowing them to focus on the business of building cars. 
Banks significantly lessen their exposure to interest rate movements by 
entering into derivatives contracts known as swaps, which enable these 
institutions to hedge their risk by exchanging variable and fixed rates 
of interests.
  Signed into law in 1974, the Commodity Exchange Act requires that 
futures contracts be traded on a regulated exchange. As a result, a 
futures contract that is traded off an exchange is illegal and 
unenforceable. When Congress enacted the CEA and the Commodity Futures 
Trading Commission (CFTC) to enforce it, this was not a concern. The 
meanings of `futures' and `exchange' were relatively apparent. 
Furthermore, the over-the-counter derivatives business was in its 
infancy. However, in the 26 years since the statute's creation, the OTC 
swaps and derivatives market, sparked by innovation and technology, has 
significantly outpaced the exchange-traded futures markets. And along 
with this expansion, the definitions of a swap and a future began to 
blur.
  In 1998, the CFTC released a concept release on OTC derivatives, 
which was perceived by many as a precursor to regulating these 
instruments as futures. Just the threat of reaching this conclusion 
could have had considerable ramifications, given the size and 
importance of the OTC market. The legal uncertainty interjected by this 
dispute jeopardized the entirety of the OTC market and threatened to 
move significant portions of the business overseas. If we were to 
lose this market, most likely to London, it would take years to bring 
it back to U.S. soil. The resulting loss of business and jobs would be 
immeasurable.

  This threat led the Treasury Department, the Federal Reserve, and the 
SEC to oppose the concept release and request that Congress enact a 
moratorium on the CFTC's ability to regulate these instruments until 
after the President's Working Group (PWG) could complete a study on the 
issue. As a result, Congress passed a six-month moratorium on the 
CFTC's ability to regulate over-the-counter derivatives. Despite 
reservations, I supported this moratorium because it brought legal 
assurance to this skittish market and it allowed the President's 
Working Group time to develop recommendations on the most appropriate 
legal treatment of OTC derivatives. In November 1999, the President's 
Working Group completed its unanimous recommendations on OTC 
derivatives and presented Congress with these findings.
  This legislation adopts much of the recommendations of the PWG 
report. Our bill contains three mechanisms for ensuring that legal 
certainty is attained and that certain transactions remain outside the 
Commodity Exchange Act. The first, the electronic trading facility 
exclusion, would exclude transactions in financial and energy 
commodities from the Act if conducted: (1) on a principal to principal 
basis; (2) between institutions or sophisticated persons with high net 
worth; and (3) on an electronic trading facility. The second would 
exclude these transactions if (1) they are conducted between 
institutions or sophisticated persons with high net worth; and (2) they 
are not on a trading facility. The third exclusion clarifies the 
Treasury Amendment language already contained in the CEA. It would 
exclude all transactions in foreign currency and government securities 
from the Act unless those transactions are futures contracts and traded 
on an organized exchange. As recommended by the PWG, the bill would 
give the CFTC jurisdiction over non-regulated off-exchange retail 
futures transactions in foreign currency. Another important 
recommendation of the PWG was to authorize futures clearing facilities 
to clear OTC derivatives in an effort to lessen systemic risk and this 
bill incorporates this finding.
  As part of this legal certainty section, our legislation also 
addresses the concern that excluding OTC derivatives from the futures 
laws will invite the SEC to regulate these products as securities. With 
Senator Gramm's leadership, this legislation would adopt language that 
would ensure that these products maintain their current regulatory 
status and remain healthy and competitive.
  The second major section of this legislation addresses regulatory 
relief. In February of this year, the CFTC issued a regulatory relief 
proposal that would provide relief to futures exchanges and their 
customers. Instead of listing specific requirements for complying with 
the CEA, the proposal would require exchanges to meet internationally 
agreed-upon core principals. The CFTC proposal creates tiers of 
regulation for exchanges based on whether the underlying commodities 
being traded are susceptible to manipulation or whether the users of 
the exchange are limited to institutional customers.
  The legislation incorporates this framework. A board of trade that is 
designated as a contract market would receive the highest level of 
regulation due to the fact that these products are susceptible to 
manipulation or are offered to retail customers. Futures on 
agricultural commodities would fall into this category. This bill also 
sets out that in lieu of contract market designation, a board of trade 
may register as a Derivatives Transaction Execution Facility (DTEF) if 
the products being offered are not susceptible to manipulation and are 
traded among institutional customers or retail customers who use large 
Futures Commission Merchants (FCMs) who are members of a clearing 
facility. Lastly, a board of trade may choose to be an Exempt Board of 
Trade (XBOT) and not be subject to the Act (except for the CFTC's anti-
manipulation authority) if the products being offered are traded among 
institutional customers only (absolutely no retail) and the instruments 
are not susceptible to manipulation. Our bill would allow a board of 
trade that is a DTEF or an XBOT to opt to trade derivatives that are 
otherwise excluded from the Act on these facilities and to the extent 
that these products are traded on these facilities, the CFTC would have 
exclusive jurisdiction over them. With this provision, the intent is to 
provide these facilities that trade derivatives with a choice--if 
regulation is beneficial, the facility may choose to be regulated. If 
not, the facility may choose to be excluded or exempted from the Act.

  The bill's last section addresses the Shad-Johnson jurisdictional 
accord. In 1982, SEC Chairman John Shad and CFTC Chairman Phil Johnson 
reached an agreement on dividing jurisdiction between the agencies for 
those products that had characteristics of both securities and futures. 
Known as the Shad-Johnson Accord, this agreement prohibited single 
stock futures and delineated jurisdiction between the SEC

[[Page S4825]]

and the CFTC on stock index futures and other options.
  Meant as a temporary agreement, many have suggested that the Shad-
Johnson accord should be repealed. The President's Working Group 
unanimously agreed that the Accord can be repealed if regulatory 
disparities are resolved between the regulation of futures and 
securities. Recently, the General Accounting Office (GAO) released a 
report that found that there is no legitimate policy reasons for 
maintaining the ban on single stock futures since they are being traded 
in foreign markets, in the OTC market, and synthetically in the options 
markets. Senator Gramm, chairman of the Senate Banking Committee, and I 
sent a letter in December requesting the CFTC and the SEC to make 
recommendations on reforming the Shad-Johnson. On March 2, the SEC and 
CFTC responded that, although progress had been made, the agencies 
could not resolve these issues before October. Disappointment with this 
answer led Senator Gramm and I to once again ask SEC Chairman Arthur 
Levitt and CFTC Chairman Bill Rainer to attempt to resolve the problems 
surrounding lifting the ban. Unfortunately, the agencies were not able 
to reach an agreement within our time-frame.
  This legislation would repeal the prohibition on single stock futures 
and narrow-based stock index futures. It would allow these products, 
termed designated futures on securities, to trade on either a CFTC-
regulated contract market or a SEC-regulated national securities 
exchange or association. The SEC would maintain its insider trading and 
antifraud enforcement authority over these products traded on a 
contract market and the CFTC would maintain its anti-manipulation 
authority, including large trader reporting, over these products traded 
on a national securities exchange or association. Margin levels on 
these products would be harmonized with the options markets. The bill 
would provide the regulators with one year after enactment to resolve 
any remaining issues.
  The goal of this legislation is to ensure that the United States 
remains a global leader in the derivatives marketplace and that these 
markets are appropriately and effectively regulated. Due to the 
shortened legislative calendar in this election year, it will be 
difficult to pass this bill without momentum and a strong base of 
support. If Congress fails to enact a bill, we will begin the debate 
again next year. However, in this technology-driven economy, a one year 
delay is an eternity. Legal uncertainty for OTC derivatives will remain 
and our futures markets will continue to lose market share due in part 
to an outdated regulatory structure. For this reason, it is imperative 
that Congress enact thoughtful legislation this year when it has a 
golden opportunity to do so.
  I ask unanimous consent that a section by section analysis of this 
bill be included in the Record immediately after my statement.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  Section-by-Section Analysis--Commodity Futures Modernization Act of 
                                  2000

       Sec. 1. Short Title and Table of Contents. The Act is 
     entitled the Commodity Futures Modernization Act of 2000
       Sec. 2. Purposes. The section lists 8 purposes for the bill 
     including reauthorizing and streamlining the Commodity 
     Exchange Act (CEA); eliminating unnecessary regulation for 
     the futures exchanges; clarifying the jurisdiction of the 
     CFTC over certain retail foreign currency transactions; 
     transforming the role of the Commodities Futures Trading 
     Commission (CFTC); providing a legislative and regulatory 
     framework for the trading of futures on securities; promoting 
     innovation and reducing systemic risk for futures and over-
     the-counter (OTC) derivatives; allowing clearing of OTC 
     derivatives and enhancing the competitive position of the 
     U.S. financial institutions and markets.
       Sec. 3. Definitions. Adds definitions to section 1(a) of 
     the CEA for the following terms: derivatives clearing 
     organizations; designated future on a security; electronic 
     trading facility; eligible contract participant; energy 
     commodity; exclusion-eligible commodity; exempted security; 
     financial commodity; financial institution, hybrid 
     instrument; national securities exchange; option organized 
     exchange; registered entity; security and trading facility.
       Sec. 4. Agreements, Contracts, and Transactions in Foreign 
     Currency, Government Securities and Certain Other 
     Commodities. Strikes 2(a)(1)(A)(ii) (the current law Treasury 
     Amendment) and replaces it with a new subsection 2(c), which 
     states that nothing in the CEA applies to transactions in 
     foreign currency, government securities and other similar 
     instruments unless these instruments are futures traded on an 
     organized exchange. The bill defines ``organized exchange'' 
     as a trading facility that either allows retail customers, 
     permits agency trades, or has a self regulatory role. 
     Subparagraph (2)(B) provides the CFTC with jurisdiction over 
     retail foreign currency transactions that are not traded on 
     an organized exchange and that are not regulated by another 
     federal regulator.
       Sec. 5. Legal Certainty for Over-the-Counter Transactions. 
     Amends section 2 of the CEA to create a new subsection 2(d), 
     which provides two exclusions from the CEA for over-the-
     counter derivatives. Section 2(d)(1) provides that nothing in 
     the CEA applies to transactions in an exclusive-eligible 
     commodity if the transaction: (1) is between eligible 
     contract participants (large, institutional entities) and (2) 
     is not executed on a trading facility. The second exclusion 
     in paragraph (d)(2) provides that nothing in the CEA shall 
     apply to a transaction in exclusion-eligible commodity if the 
     transaction: (1) is entered into on a principal to principal 
     basis between parties trading for their own accounts; (2) is 
     between eligible contract participants (large, institutional 
     entities) and (3) is executed on an electronic trading 
     facility. Paragraph (d)(3) provides that derivatives on 
     energy commodities (i.e., energy swaps) that have been 
     excluded from the CEA would be subject to anti-manipulation 
     provisions of the CEA.
       Sec. 6. Excluded Electronic Trading Facilities. Amends 
     section 2 of the CEA to create a new subsection 2(e) that 
     provides that trading instruments that are otherwise excluded 
     from the CEA on an electronic trading facility does not 
     subject the transactions to the CEA. Paragraph (c)(2) 
     states that nothing in the DEA shall prohibit a contract 
     market or derivatives transaction execution facility from 
     establishing and operating an excluded electronic trading 
     facility.
       Sec. 7. Hybrid Instruments. Amends section 2 of the CEA to 
     create a new subsection 2(f) that provides that nothing in 
     the CEA applies to a hybrid instrument that is predominantly 
     a security to mean any hybrid instrument in which (1) the 
     issuer of the instrument receives payment in full of the 
     purchase price at the time the instrument is delivered; (2) 
     the purchaser is not required to make additional payments; 
     (3) the issuer of the instrument is not subject to mark-to-
     market margining requirements; and (4) the instrument is not 
     marketed as a futures contract. Paragraph (f)(3) clarifies 
     that mark-to-market requirements do not include the 
     obligation of an issuer of a secured debt instrument to 
     increase the amount of collateral for the instrument.
       Sec. 8. Futures on Securities. Amends section 2 of the CEA 
     by adding a new subsection 2(g) that repeals the Shad Johnson 
     jurisdictional accord. The new section 2(g)(1) is a savings 
     clause to ensure that excluded OTC equity derivatives remain 
     outside the CEA and the jurisdiction of the CFTC. This 
     paragraph also prohibits the CFTC from designating a board of 
     trade as a contract market in options on securities (as in 
     current law).
       Paragraph (2) allows the trading of futures on security 
     indexes on contract markets. Gives the CETC exclusive 
     jurisdiction in regulating these futures. In order for these 
     products to be designated as a contract market, the contracts 
     must be cash settled and must not be susceptible to 
     manipulation (applies to both the price of the contract or 
     the underlying securities (or an option on such securities)).
       Paragraph (3) allows the trading of designated futures on 
     securities (defined in the bill as a contract for future 
     delivery on a single non-exempted security, an index based on 
     fewer than 5 non-exempted securities or an index in which a 
     single stock predominates by its value accounting for more 
     than 30 percent of the index's total value). The Act 
     authorizes these products to be traded on designated contract 
     markets and national securities exchanges or associations.
       Paragraph (4) provides criteria for contract market 
     designation of these products including: cash settlement; 
     real-time audit trails; insusceptibility to price 
     manipulation (both of the contract and the underlying stock 
     or an option on that stock); eligibility for listing on a 
     national securities exchange; margin requirements; conflict 
     of interest rules; and making information available to the 
     regulators.
       Paragraph (5) authorizes the SEC to enforce the securities 
     laws related to insider trading and fraud with respect to 
     designated futures on securities listed on a contract market. 
     This paragraph also requires the SEC and the CFTC, beginning 
     three years from the date of enactment, to jointly compile a 
     report on the implementation of this new authority and, 
     four years after the date of enactment, to submit the 
     report to Congress.
       Paragraph (6) authorizes the CFTC to enforce its large 
     trader reporting and other antifraud and antimanipulation 
     authorities for designated futures on securities listed on a 
     national securities exchange. It requires national securities 
     exchanges to provide the CFTC information to enforce these 
     provisions.
       Paragraph (7) provides the process for listing a designated 
     future on security on either a futures exchange or national 
     securities exchange.
       As in current law, paragraph (8) provides the Federal 
     Reserve with the authority to

[[Page S4826]]

     set margin and delegate this authority. The paragraph would 
     allow the Federal Reserve to create a three member board 
     consisting of members of the CFTC, SEC and the Federal 
     Reserve to set and maintain margin levels on designated 
     futures on securities.
       Sec. 9. Protection of the Public Interest. Replaces section 
     3 of the CEA with a new section listing the responsibilities 
     of the CFTC in protecting the public interest. These include: 
     ensuring the financial integrity of all transactions subject 
     to the Act; protecting market participants from fraud and 
     manipulation; preventing market manipulation and minimizing 
     the risk of systemic failure; and promoting financial 
     innovation and fair competition.
       Sec. 10. Prohibited Transactions. Re-writes the current 
     section 4c for clarity and adds a new provision (sec. 
     4c(a)(3)(B)) to allow futures commission merchants to trade 
     futures off the floor of a futures exchange as long as the 
     board of trade allows such transactions and the FCMs report, 
     record and clear the transactions in accordance with the 
     rules of the contract market or derivatives trading execution 
     facility.
       Sec. 11. Designation of Boards of Trade as Contract 
     Markets. Strikes current law sections 5 and 5a and adds a new 
     section 5 providing for the designation of boards of trade as 
     contract markets. Subsection (b) contains criteria that 
     boards of trade must meet in order to be designated as a 
     contract market. These include establishing and enforcing 
     rules preventing market manipulation; ensuring fair and 
     equitable trading; specifying how the trade execution 
     facility operates--including any electronic matching systems; 
     ensuring the financial integrity of transactions; 
     disciplining members or market participants who violate the 
     rules; allowing for public access to the board of trade rules 
     and enabling the board of trade to obtain information in 
     order to enforce its rules. Existing contract markets are 
     grand fathered in.
       The 17 core principles that must be met to maintain 
     designation as a contract market are contained in (d) and 
     provide that the board of trade must: monitor and enforce 
     compliance with the contract market rules; list only 
     contracts that are not susceptible to manipulation; monitor 
     trading to prevent manipulation, price distortion and 
     delivery or settlement disruptions; adopt position limits for 
     speculators; adopt rules to provide for the exercise of 
     emergency authority, including the authority to liquidate 
     or transfer open positions, suspend trading and make 
     margin calls; make available the terms and conditions of 
     the contracts and the mechanisms for executing 
     transactions; publish daily information on prices, bids, 
     offers, volume, open interest, and opening and closing 
     ranges; provide a competitive, open and efficient market 
     and mechanism for executing transactions; provide for the 
     safe storage of all trade information in a readily usable 
     manner to assist in fraud prevention; provide for the 
     financial integrity of the contracts, the futures 
     commission merchants and customer funds; protect market 
     participants from abusive practices; provide for 
     alternative dispute resolutions for market participants 
     and intermediaries; establish and enforce rules regarding 
     fitness standards for those involved in market governance; 
     ensure that the governing board reflects the composition 
     of the market participants (in the case of mutually owned 
     exchanges); maintain records and make them available at 
     any time for inspection by the Attorney General; and avoid 
     taking any action that restrains trade or imposes 
     anticompetitive burdens on the markets.
       Sec. 12. Derivatives Transaction Execution Facilities. 
     Amends the CEA by adding a new section 5a authorizing a new 
     trading designation, derivatives transaction execution 
     facility (DTEF). Under (b), a board of trade may elect to 
     operate as a DTEF rather than a contract market if they meet 
     the DTEF designation requirements. A registered DTEF may 
     trade any non-designated futures contract if the commodity 
     underlying the contract has a nearly inexhaustible supply, is 
     not susceptible to manipulation and does not have a cash 
     market in commercial practice. Eligible DTEF traders include 
     authorized contract market participants and persons trading 
     through registered futures commission merchants with capital 
     of at least $20,000,000 that are members of a futures self-
     regulatory organization (SRO) and a clearing organization. 
     Boards of trade that have been designated as contract markets 
     may operate as DTEFs if they provide a separate location for 
     DTEF trading or, in the case of an electronic system, 
     identify whether the trading is on a DTEF or contract market.
       Subsection (c) provides requirements for boards of trade 
     that wish to register as DTEFs, including: establishing and 
     enforcing trading rules that will deter abuses and provide 
     market participants impartial access to the markets and 
     capture information that may be used in rule enforcement; 
     define trading procedures to be used; and provide for the 
     financial integrity of DTEF transactions.
       To maintain registration as a DTEF, the board of trade must 
     comply with 8 core principles listed in (d): maintain and 
     enforce rules; ensure orderly trading and provide trading 
     information to the CFTC; publicly disclose information 
     regarding contract terms, trading practices, and financial 
     integrity protections; provide information on prices, bids 
     and offers to market participants as well as daily 
     information in volume and open interest for the actively 
     traded contracts; establish and enforce rules regarding 
     fitness standards for those involved in DTEF governance; 
     maintain records and make them available at any time for 
     inspection by the Attorney General; and avoid taking any 
     action that restrains trade or imposes anticompetitive 
     burdens on the markets.
       Subsection (e) allows a broker-dealer or a bank in good 
     standing to act as an intermediary on behalf of its customers 
     and to receive customer funds serving as margin or security 
     for the customer's transactions. If the broker-dealer holds 
     the DTEF customer funds or accounts for more than 1 business 
     day, the broker-dealer must be a registered FCM and a member 
     of a registered futures association. The CFTC and SEC are to 
     coordinate in adopting rules to implement this subsection.
       Under (f), the CFTC may adopt regulations to allow FCMs to 
     give their customers the right to not segregate customer 
     funds for purposes of trading on the DTEF.
       Subsection (g) clarifies that a DTEF may trade derivatives 
     that otherwise would be excluded from the CEA and the CFTC 
     has exclusive jurisdiction only when these instruments are 
     traded on a DTEF.
       Sec. 13. Derivatives Clearing Organizations. Amends the CEA 
     to create a new section 5b regarding derivatives clearing 
     organizations. Under subsection (a), these clearing entities, 
     which are allowed to clear derivatives (that are not a 
     security), must register with the CFTC and meet a set of 14 
     core principals set out in subsection (d), including 
     principals on financial resources of the clearing facility, 
     participant eligibility, risk management systems, settlement 
     procedures, treatment of client funds, default rules, rule 
     enforcement, system safeguards, reporting, record keeping, 
     public information disclosure, information sharing, and 
     minimizing competitive restraints.
       Under subsection (b), a derivatives clearing organization 
     will not have to register with the CFTC if it is registered 
     with another federal financial regulator and it does not 
     clear futures. Under subsection (c), a derivatives clearing 
     organization that is exempt from registration may opt to 
     register with the CFTC. Subsection (e) provides that existing 
     clearing entities that clear futures contracts on a 
     designated contract market will be grand fathered in as a 
     derivatives clearing organization.
       Sec. 14. Common Provisions Applicable to Registered 
     Entities. Amends the CEA to create a new section 5c that 
     contains provisions affecting all registered entities 
     (contract markets, derivatives transaction execution 
     facilities and derivatives clearing organizations).
       Subsection (a) would allow the CFTC to issue or approve 
     interpretations to describe what would constitute an 
     acceptable business practice under the core principals for 
     registered entities.
       Subsection (b) would allow a registered entity to delegate 
     its self regulatory functions to a registered futures 
     association, while specifying that responsibility for 
     carrying out these functions remain with the registered 
     entity.
       Subsection (c) would enable the registered entity to trade 
     new products or adopt or amend rules by providing the CFTC a 
     written certification that the new contract or new rule or 
     amendment complies with the CEA. This subsection would allow 
     a registered entity to request that the CFTC grant prior 
     approval of a new contract, new rule or rule amendment. This 
     subsection would require the CFTC to pre-approve rule changes 
     to open agricultural contracts.
       Subsection (d) grants the CFTC the authority to informally 
     resolve potential violations of the core principals for 
     registered entities.
       Sec. 15. Exempt Boards of Trade. Amends the CEA to create a 
     new section 5d regarding exempt boards of trade. Under 
     subsections (a) and (b), futures contracts traded on an 
     exempt board of trade would be exempt from the CEA (except 
     section 2(g) regarding equity futures) if (1) participants 
     are eligible contract participants (large institutional 
     investors) and (2) the commodity underlying the futures 
     contract has an inexhaustible deliverable supply, is not 
     subject to manipulation, or has no cash market. Subsection 
     (c) subjects futures contracts traded on an exempt board of 
     trade to the anti-fraud and anti-manipulation provisions of 
     the CEA. Under subsection (d), if the CFTC finds that an 
     exempt board of trade is a significant source of price 
     discovery for the underlying commodity, the board of trade 
     shall disseminate publicly on a daily basis trading volume, 
     opening and closing price ranges, open interest, and other 
     trading data as appropriate to the market.
       Sec. 16. Suspension or Revocation of Designation as 
     Contract Market. Designates current section 5b as 5d and 
     amends it to authorize the CFTC to suspend the registration 
     of a registered entity for 180 days for any violation of the 
     CEA.
       Sec. 17. Authorization of Appropriations. Amends section 
     12(d) of the CEA by striking 2000 and reauthorizing 
     appropriations through fiscal year 2005.
       Sec. 18. Preemption. Rewrites paragraph 12(e)(2) of the CEA 
     for clarity and to conform with changes made in the bill. Re-
     states the current provisions that the CEA supercedes and 
     preempts other laws in the case of transactions conducted on 
     a registered entity or subject to regulation by the CFTC 
     (even if outside the United States), and adds that in the 
     case of excluded electronic trading facilities, and any 
     agreements, contracts or transactions that are excluded or 
     covered by a 4(c)

[[Page S4827]]

     exemption, the CEA supercedes and preempts state gaming and 
     bucket shop laws (except for the anti-fraud provisions of 
     those laws that are generally applicable).
       Sec. 19. Predispute Resolution Agreements for Institutional 
     Customers. Amends section 14 of the CEA to clarify that 
     futures commission merchants, as a condition of doing 
     business, may require customers, that are eligible contract 
     participants, to waive their right to file a reparations 
     claim with the CFTC.
       Sec. 20. Consideration of Costs and Benefits and Antitrust 
     Laws. Amends section 15 of the CEA to add a new subsection 
     (a) requiring the CFTC, before promulgating regulations and 
     issuing orders, to consider the costs and benefits of their 
     action. This does not apply to orders associated with an 
     adjudicatory or investigative process, emergency actions or 
     findings of fact regarding compliance with CFTC rules.
       Sec. 21. Contract Enforcement Between Eligible 
     Counterparties. Amends section 22 of the CEA to provide a 
     safe harbor so that transactions will not be voidable based 
     solely on the failure of the transaction to comply with the 
     terms or conditions of an exclusion or exemption from the Act 
     or CFTC regulations.
       Sec. 22. Legal Certainty for Swaps. Provides that the SEC 
     does not have jurisdiction over swap agreements. Places a one 
     year moratorium on banks being able to market swaps to the 
     retail public. Requests the President's Working Group to 
     conduct a study on the regulatory treatment of swaps offered 
     to retail customers.
       Sec. 23. Technical and Conforming Amendments. Makes 
     technical and conforming amendments throughout the CEA to 
     reflect changes made by the bill.
       Sec. 24. Effective Date. The Act takes effect on the date 
     of enactment, except section 8 (dealing with futures on 
     securities), which takes effect one year after 
     enactment.

  Mr. GRAMM. Mr. President, today I join with Senator Lugar, chairman 
of the Senate Agriculture Committee, to introduce the Commodity Futures 
Modernization Act of 2000. The formal purpose of this legislation is to 
reauthorize the Commodity Exchange Act, the legal authority for the 
Commodity Futures Trading Commission. As important as that is, this 
legislation does far more.
  This is a landmark bill, that addresses four chief goals that Senator 
Lugar and I set out to achieve when we first began discussing this 
legislation. First of all, this bill would repeal the so-called Shad-
Johnson Accord, the 18-year-old temporary prohibition on the trading of 
futures based on individual stocks. Second, the bill eliminates the 
legal uncertainly that today hangs as an ominous cloud over the $7 
trillion financial swaps markets. Third, the bill addresses the need to 
harmonize the treatment of margins among the futures, stock, and 
options markets. Fourth, the bill provides important and necessary 
regulatory relief to the futures and securities markets.
  One of the most notable aspects of this bill is that it brings 
together the chairmen of the two committees with jurisdiction over 
these issues, the Agriculture Committee and the Banking Committee. To 
start out with such cooperation speaks well, I believe, for the 
prospects for this legislation. While the Commodity Exchange Act is 
clearly within the jurisdiction of the Agriculture Committee, stocks, 
options, and swaps are within the jurisdiction of the Banking 
Committee.
  The next step for this bill will be joint hearings of our two 
committees to consider it. Few bills are in a perfected form when first 
introduced, and I fully expect that additional changes will be made to 
this one before it becomes law. For example, I hope to see additional 
measures of regulatory relief for the securities markets included.
  But this bill is a fine beginning, introduced in the best way. We 
bring together two committees that could choose to argue over turf but 
instead are choosing to cooperate to make changes in law that are 
needed to ensure that our financial market places continue to lead the 
world. At the same time, we will be providing the widest choice of 
investment opportunities for American businesses and families.
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