[Congressional Record Volume 146, Number 132 (Thursday, October 19, 2000)]
[House]
[Pages H10416-H10449]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
{time} 1800
COMMODITY FUTURES MODERNIZATION ACT OF 2000
Mr. COMBEST. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 4541) to reauthorize and amend the Commodity Exchange Act to
promote legal certainty, enhance competition, and reduce systemic risk
in markets for future and over-the-counter derivatives, and for other
purposes, as amended.
The Clerk read as follows:
H.R. 4541
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Commodity
Futures Modernization Act of 2000''.
(b) Table of Contents.--The table of contents of this Act
is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Purposes.
TITLE I--COMMODITY FUTURES MODERNIZATION
Sec. 101. Definitions.
Sec. 102. Agreements, contracts, and transactions in foreign currency,
government securities, and certain other commodities.
Sec. 103. Legal certainty for excluded derivative transactions.
Sec. 104. Excluded electronic trading facilities.
Sec. 105. Hybrid instruments.
Sec. 106. Transactions in exempt commodities.
Sec. 107. Swap transactions.
Sec. 108. Application of commodity futures laws.
Sec. 109. Protection of the public interest.
Sec. 110. Prohibited transactions.
Sec. 111. Designation of boards of trade as contract markets.
Sec. 112. Derivatives transaction execution facilities.
Sec. 113. Derivatives clearing.
Sec. 114. Common provisions applicable to registered entities.
Sec. 115. Exempt boards of trade.
Sec. 116. Suspension or revocation of designation as contract market.
Sec. 117. Authorization of appropriations.
Sec. 118. Preemption.
Sec. 119. Predispute resolution agreements for institutional customers.
Sec. 120. Consideration of costs and benefits and antitrust laws.
Sec. 121. Contract enforcement between eligible counterparties.
Sec. 122. Special procedures to encourage and facilitate bona fide
hedging by agricultural producers.
Sec. 123. Rule of construction.
Sec. 124. Technical and conforming amendments.
Sec. 125. Privacy.
Sec. 126. Report to Congress.
Sec. 127. International activities of the Commodity Futures Trading
Commission.
Sec. 128. Rules of construction.
TITLE II--COORDINATED REGULATION OF SECURITY FUTURES PRODUCTS
Subtitle A--Securities Law Amendments
Sec. 201. Definitions under the Securities Exchange Act of 1934.
Sec. 202. Regulatory relief for markets trading security futures
products.
Sec. 203. Regulatory relief for intermediaries trading security futures
products.
Sec. 204. Special provisions for interagency cooperation.
Sec. 205. Maintenance of market integrity for security futures
products.
Sec. 206. Special provisions for the trading of security futures
products.
Sec. 207. Clearance and settlement.
Sec. 208. Amendments relating to registration and disclosure issues
under the Securities Act of 1933 and the Securities
Exchange Act of 1934.
Sec. 209. Amendments to the Investment Company Act of 1940 and the
Investment Advisers Act of 1940.
Sec. 210. Preemption of State laws.
Subtitle B--Amendments to the Commodity Exchange Act
Sec. 221. Jurisdiction of Securities and Exchange Commission; other
provisions.
Sec. 222. Application of the Commodity Exchange Act to national
securities exchanges and national securities associations
that trade security futures.
Sec. 223. Notification of investigations and enforcement actions.
SEC. 2. PURPOSES.
The purposes of this Act are--
(1) to reauthorize the appropriation for the Commodity
Futures Trading Commission;
(2) to streamline and eliminate unnecessary regulation for
the commodity futures exchanges and other entities regulated
under the Commodity Exchange Act;
(3) to transform the role of the Commodity Futures Trading
Commission to oversight of the futures markets;
(4) to provide a statutory and regulatory framework for
allowing the trading of futures on securities;
(5) to clarify the jurisdiction of the Commodity Futures
Trading Commission over certain retail foreign exchange
transactions and bucket shops that may not be otherwise
regulated;
(6) to promote innovation for futures and derivatives and
to reduce systemic risk by enhancing legal certainty in the
markets for certain futures and derivatives transactions;
(7) to reduce systemic risk and provide greater stability
to markets during times of market disorder by allowing the
clearing of transactions in over-the-counter derivatives
through appropriately regulated clearing organizations; and
(8) to enhance the competitive position of United States
financial institutions and financial markets.
TITLE I--COMMODITY FUTURES MODERNIZATION
SEC. 101. DEFINITIONS.
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is
amended--
(1) by redesignating paragraphs (1) through (7), (8)
through (12), (13), (14), (15), and (16) as paragraphs (2)
through (8), (16) through (20), (22), (23), (24), and (28),
respectively;
(2) by inserting before paragraph (2) (as redesignated by
paragraph (1)) the following:
``(1) Alternative trading system.--The term `alternative
trading system' means an organization, association, or group
of persons that--
``(A) is registered as a broker or dealer pursuant to
section 15(b) of the Securities Exchange Act of 1934 (except
paragraph (11) thereof);
``(B) performs the functions commonly performed by an
exchange (as defined in section 3(a)(1) of the Securities
Exchange Act of 1934);
``(C) does not--
``(i) set rules governing the conduct of subscribers other
than the conduct of such subscribers' trading on the
alternative trading system; or
``(ii) discipline subscribers other than by exclusion from
trading; and
``(D) is exempt from the definition of the term `exchange'
under such section 3(a)(1) by rule or regulation of the
Securities and Exchange Commission on terms that require
compliance with regulations of its trading functions.'';
(3) by striking paragraph (2) (as redesignated by paragraph
(1)) and inserting the following:
``(2) Board of trade.--The term `board of trade' means any
organized exchange or other trading facility.'';
(4) by inserting after paragraph (8) the following:
``(9) Derivatives clearing organization.--
``(A) In general.--The term `derivatives clearing
organization' means a clearinghouse, clearing association,
clearing corporation, or similar entity, facility, system, or
organization that, with respect to an agreement, contract, or
transaction--
``(i) enables each party to the agreement, contract, or
transaction to substitute, through novation or otherwise, the
credit of the derivatives clearing organization for the
credit of the parties;
``(ii) arranges or provides, on a multilateral basis, for
the settlement or netting of obligations resulting from such
agreements, contracts, or transactions executed by
participants in the derivatives clearing organization; or
``(iii) otherwise provides clearing services or
arrangements that mutualize or transfer among participants in
the derivatives clearing organization the credit risk arising
from such agreements, contracts, or transactions executed by
the participants.
``(B) Exclusions.--The term `derivatives clearing
organization' does not include an entity, facility, system,
or organization solely because it arranges or provides for--
``(i) settlement, netting, or novation of obligations
resulting from agreements, contracts, or transactions, on a
bilateral basis and without a central counterparty;
``(ii) settlement or netting of cash payments through an
interbank payment system; or
``(iii) settlement, netting, or novation of obligations
resulting from a sale of a commodity in a transaction in the
spot market for the commodity.
``(10) Electronic trading facility.--The term `electronic
trading facility' means a trading facility that--
``(A) operates by means of an electronic or
telecommunications network; and
``(B) maintains an automated audit trail of bids, offers,
and the matching of orders or the execution of transactions
on the facility.
``(11) Eligible commercial entity.--The term `eligible
commercial entity' means, with respect to an agreement,
contract or transaction in a commodity--
``(A) an eligible contract participant described in clause
(i), (ii), (v), (vii), (viii), or (ix) of paragraph (12)(A)
that, in connection with its business--
``(i) has a demonstrable ability, directly or through
separate contractual arrangements, to make or take delivery
of the underlying commodity;
``(ii) incurs risks, in addition to price risk, related to
the commodity; or
``(iii) is a dealer that regularly provides risk management
or hedging services to, or engages in market-making
activities with, the foregoing entities involving
transactions to purchase or sell the commodity or derivative
agreements, contracts, or transactions in the commodity;
``(B) an eligible contract participant, other than a
natural person or an instrumentality,
[[Page H10417]]
department, or agency of a State or local governmental
entity, that--
``(i) regularly enters into transactions to purchase or
sell the commodity or derivative agreements, contracts, or
transactions in the commodity; and
``(ii) either--
``(I) in the case of a collective investment vehicle whose
participants include persons other than--
``(aa) qualified eligible persons, as defined in Commission
rule 4.7(a) (17 C.F.R. 4.7(a));
``(bb) accredited investors, as defined in Regulation D of
Securities and Exchange Commission under the Securities Act
of 1933 (17 C.F.R. 230.501(a)), with total assets of
$2,000,000; or
``(cc) qualified purchasers, as defined in section
2(a)(51)(A) of the Investment Company Act of 1940;
in each case as in effect on the date of the enactment of the
Commodity Futures Modernization Act of 2000, has, or is one
of a group of vehicles under common control or management
having in the aggregate, $1,000,000,000 in total assets; or
``(II) in the case of other persons, has, or is one of a
group of persons under common control or management having in
the aggregate, $100,000,000 in total assets; or
``(C) such other persons as the Commission shall determine
appropriate and shall designate by rule, regulation, or
order.
``(12) Eligible contract participant.--The term `eligible
contract participant' means--
``(A) acting for its own account--
``(i) a financial institution;
``(ii) an insurance company that is regulated by a State,
or that is regulated by a foreign government and is subject
to comparable regulation as determined by the Commission,
including a regulated subsidiary or affiliate of such an
insurance company;
``(iii) an investment company subject to regulation under
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.)
or a foreign person performing a similar role or function
subject as such to foreign regulation (regardless of whether
each investor in the investment company or the foreign person
is itself an eligible contract participant);
``(iv) a commodity pool that--
``(I) has total assets exceeding $5,000,000; and
``(II) is formed and operated by a person subject to
regulation under this Act or a foreign person performing a
similar role or function subject as such to foreign
regulation (regardless of whether each investor in the
commodity pool or the foreign person is itself an eligible
contract participant);
``(v) a corporation, partnership, proprietorship,
organization, trust, or other entity--
``(I) that has total assets exceeding $10,000,000;
``(II) the obligations of which under an agreement,
contract, or transaction are guaranteed or otherwise
supported by a letter of credit or keepwell, support, or
other agreement by an entity described in subclause (I), in
clause (i), (ii), (iii), (iv), or (vii), or in subparagraph
(C); or
``(III) that--
``(aa) has a net worth exceeding $1,000,000; and
``(bb) enters into an agreement, contract, or transaction
in connection with the conduct of the entity's business or to
manage the risk associated with an asset or liability owned
or incurred or reasonably likely to be owned or incurred by
the entity in the conduct of the entity's business;
``(vi) an employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1001 et
seq.), a governmental employee benefit plan, or a foreign
person performing a similar role or function subject as such
to foreign regulation--
``(I) that has total assets exceeding $5,000,000; or
``(II) the investment decisions of which are made by--
``(aa) an investment adviser or commodity trading advisor
subject to regulation under the Investment Advisers Act of
1940 (15 U.S.C. 80b-1 et seq.) or this Act;
``(bb) a foreign person performing a similar role or
function subject as such to foreign regulation;
``(cc) a financial institution; or
``(dd) an insurance company described in clause (ii), or a
regulated subsidiary or affiliate of such an insurance
company;
``(vii)(I) a governmental entity (including the United
States, a State, or a foreign government) or political
subdivision of a governmental entity;
``(II) a multinational or supranational government entity;
or
``(III) an instrumentality, agency, or department of an
entity described in subclause (I) or (II),
except that such term does not include an entity,
instrumentality, agency, or department referred to in
subclause (I) or (III) of this clause unless (aa) the entity,
instrumentality, agency, or department is a person described
in clause (i), (ii), or (iii) of section 1a(11)(A); (bb) the
entity, instrumentality, agency, or department owns and
invests on a discretionary basis $25,000,000 or more in
investments; or (cc) the agreement, contract, or transaction
is offered by, and entered into with, an entity that is
listed in any of subclauses (I) through (VI) of section
2(c)(2)(B)(ii);
``(viii)(I) a broker or dealer subject to regulation under
the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
or a foreign person performing a similar role or function
subject as such to foreign regulation, except that, if the
broker or dealer or foreign person is a natural person or
proprietorship, the broker or dealer or foreign person shall
not be considered to be an eligible contract participant
unless the broker or dealer or foreign person also meets the
requirements of clause (v) or (xi);
``(II) an associated person of a registered broker or
dealer concerning the financial or securities activities of
which the registered person makes and keeps records under
section 15C(b) or 17(h) of the Securities Exchange Act of
1934 (15 U.S.C. 78o-5(b), 78q(h));
``(III) an investment bank holding company (as defined in
section 17(i) of the Securities Exchange Act of 1934 (15
U.S.C. 78q(i));
``(ix) a futures commission merchant subject to regulation
under this Act or a foreign person performing a similar role
or function subject as such to foreign regulation, except
that, if the futures commission merchant or foreign person is
a natural person or proprietorship, the futures commission
merchant or foreign person shall not be considered to be an
eligible contract participant unless the futures commission
merchant or foreign person also meets the requirements of
clause (v) or (xi);
``(x) a floor broker or floor trader subject to regulation
under this Act in connection with any transaction that takes
place on or through the facilities of a registered entity or
an exempt board of trade, or any affiliate thereof, on which
such person regularly trades; or
``(xi) an individual who has total assets in an amount in
excess of--
``(I) $10,000,000; or
``(II) $5,000,000 and who enters into the agreement,
contract, or transaction in order to manage the risk
associated with an asset owned or liability incurred, or
reasonably likely to be owned or incurred, by the individual;
``(B)(i) a person described in clause (i), (ii), (iv), (v),
(viii), (ix), or (x) of subparagraph (A) or in subparagraph
(C), acting as broker or performing an equivalent agency
function on behalf of another person described in
subparagraph (A) or (C); or
``(ii) an investment adviser subject to regulation under
the Investment Advisers Act of 1940, a commodity trading
advisor subject to regulation under this Act, a foreign
person performing a similar role or function subject as such
to foreign regulation, or a person described in clause (i),
(ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or
in subparagraph (C), in any such case acting as investment
manager or fiduciary (but excluding a person acting as broker
or performing an equivalent agency function) for another
person described in subparagraph (A) or (C) and who is
authorized by such person to commit such person to the
transaction; or
``(C) any other person that the Commission determines to be
eligible in light of the financial or other qualifications of
the person.
``(13) Excluded commodity.--The term `excluded commodity'
means--
``(i) an interest rate, exchange rate, currency, security,
security index, credit risk or measure, debt or equity
instrument, index or measure of inflation, or other
macroeconomic index or measure;
``(ii) any other rate, differential, index, or measure of
economic or commercial risk, return, or value that is--
``(I) not based in substantial part on the value of a
narrow group of commodities not described in clause (i); or
``(II) based solely on 1 or more commodities that have no
cash market;
``(iii) any economic or commercial index based on prices,
rates, values, or levels that are not within the control of
any party to the relevant contract, agreement, or
transaction; or
``(iv) an occurrence, extent of an occurrence, or
contingency (other than a change in the price, rate, value,
or level of a commodity not described in clause (i)) that
is--
``(I) beyond the control of the parties to the relevant
contract, agreement, or transaction; and
``(II) associated with a financial, commercial, or economic
consequence.
``(14) Exempt commodity.--The term `exempt commodity' means
a commodity that is not an excluded commodity or an
agricultural commodity.
``(15) Financial institution.--The term `financial
institution' means--
``(A) a corporation operating under the fifth undesignated
paragraph of section 25 of the Federal Reserve Act (12 U.S.C.
603), commonly known as `an agreement corporation';
``(B) a corporation organized under section 25A of the
Federal Reserve Act (12 U.S.C. 611 et seq.), commonly known
as an `Edge Act corporation';
``(C) an institution that is regulated by the Farm Credit
Administration;
``(D) a Federal credit union or State credit union (as
defined in section 101 of the Federal Credit Union Act (12
U.S.C. 1752));
``(E) a depository institution (as defined in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813));
``(F) a foreign bank or a branch or agency of a foreign
bank (each as defined in section 1(b) of the International
Banking Act of 1978 (12 U.S.C. 3101(b)));
``(G) any financial holding company (as defined in section
2 of the Bank Holding Company Act of 1956);
``(H) a trust company; or
``(I) a similarly regulated subsidiary or affiliate of an
entity described in any of subparagraphs (A) through (H).'';
[[Page H10418]]
(5) by inserting after paragraph (20) (as redesignated by
paragraph (1)) the following:
``(21) Hybrid instrument.--
``(A) In general.--The term `hybrid instrument' means a
deposit instrument offered by a financial institution, or a
security, having 1 or more payments indexed to the value,
level, or rate of 1 or more commodities.
``(B) Deposit instrument defined.--The term `deposit
instrument' means an instrument representing an interest
described in paragraph (1), (2), (3), (4), or (5) of section
3(l) of the Federal Deposit Insurance Act, other than in
subparagraph (A), (B), or (C) at the end of such paragraph
(5).'';
(6) by striking paragraph (24) (as redesignated by
paragraph (1)) and inserting the following:
``(24) Member of a contract market; member of a derivatives
transaction execution facility.--The term `member' means,
with respect to a contract market or derivatives transaction
execution facility, an individual, association, partnership,
corporation, or trust--
``(A) owning or holding membership in, or admitted to
membership representation on, the contract market or
derivatives transaction execution facility; or
``(B) having trading privileges on the contract market or
derivatives transaction execution facility.
``(25) Narrow-based security index.--
``(A) The term `narrow-based security index' means an
index--
``(i) that has 9 or fewer component securities;
``(ii) in which a component security comprises more than 30
percent of the index's weighting;
``(iii) in which the 5 highest weighted component
securities in the aggregate comprise more than 60 percent of
the index's weighting; or
``(iv) in which the lowest weighted component securities
comprising, in the aggregate, 25 percent of the index's
weighting have an aggregate dollar value of average daily
trading volume of less than $50,000,000 (or in the case of an
index with 15 or more component securities, $30,000,000),
except that if there are two or more securities with equal
weighting that could be included in the calculation of the
lowest weighted component securities comprising, in the
aggregate, 25 percent of the index's weighting, such
securities shall be ranked from lowest to highest dollar
value of average daily trading volume and shall be included
in the calculation based on their ranking starting with the
lowest ranked security.
``(B) Notwithstanding subparagraph (A), an index is not a
narrow-based security index if--
``(i)(I) it has at least 9 component securities;
``(II) no component security comprises more than 30 percent
of the index's weighting; and
``(III) each component security is--
``(aa) registered pursuant to section 12 of the Securities
Exchange Act of 1934;
``(bb) 1 of 750 securities with the largest market
capitalization; and
``(cc) 1 of 675 securities with the largest dollar value of
average daily trading volume;
``(ii) it is a contract of sale for future delivery with
respect to which a board of trade was designated as a
contract market by the Commodity Futures Trading Commission
prior to the date of enactment of the Commodity Futures
Modernization Act of 2000;
``(iii)(I) it traded on a designated contract market or
registered derivatives transaction execution facility for at
least 30 days as a contract of sale for future delivery that
was not a narrow-based security index; and
``(II) it has been a narrow-based security index for no
more than 45 business days over 3 consecutive calendar
months;
``(iv) it is traded on or subject to the rules of a foreign
board of trade and meets such requirements as are jointly
established by rule or regulation by the Commission and the
Securities and Exchange Commission;
``(v) no more than 18 months have passed since enactment of
the Commodity Futures Modernization Act of 2000 and it is--
``(I) traded on or subject to the rules of a foreign board
of trade;
``(II) the offer and sale in the United States of a
contract of sale for future delivery on the index was
authorized before the date of the enactment of the Commodity
Futures Modernization Act of 2000; and
``(III) the conditions of such authorization continue to be
met; or
``(vi) it is traded on or subject to the rules of a board
of trade and meets such requirements as are jointly
established by rule, regulation, or order by the Commission
and the Securities and Exchange Commission.
``(C) Within 1 year after the date of the enactment of the
Commodity Futures Modernization Act of 2000, the Commission
and the Securities and Exchange Commission jointly shall
adopt rules or regulations that set forth the requirements
under subparagraph (B)(iv).
``(D) An index that is a narrow-based security index solely
because it was a narrow-based security index for more than 45
business days over 3 consecutive calendar months pursuant to
clause (iii) of subparagraph (B) shall not be a narrow-based
security index for the 3 following calendar months.
``(E) For purposes of subparagraphs (A) and (B)--
``(i) the dollar value of average daily trading volume and
the market capitalization shall be calculated as of the
preceding 6 full calendar months; and
``(ii) the Commission and the Securities and Exchange
Commission shall, by rule or regulation, jointly specify the
method to be used to determine market capitalization and
dollar value of average daily trading volume.
``(26) Option.--The term `option' means an agreement,
contract, or transaction that is of the character of, or is
commonly known to the trade as, an `option', `privilege',
`indemnity', `bid', `offer', `put', `call', `advance
guaranty', or `decline guaranty'.
``(27) Organized exchange.--The term `organized exchange'
means a trading facility that--
``(A) permits trading--
``(i) by or on behalf of a person that is not an eligible
contract participant; or
``(ii) by persons other than on a principal-to-principal
basis; or
``(B) has adopted (directly or through another
nongovernmental entity) rules that--
``(i) govern the conduct of participants, other than rules
that govern the submission of orders or execution of
transactions on the trading facility; and
``(ii) include disciplinary sanctions other than the
exclusion of participants from trading.''; and
(7) by adding at the end the following:
``(29) Registered entity.--The term `registered entity'
means--
``(A) a board of trade designated as a contract market
under section 5;
``(B) a derivatives transaction execution facility
registered under section 5a;
``(C) a derivatives clearing organization registered under
section 5b; and
``(D) a board of trade designated as a contract market
under section 5f.
``(30) Security.--The term `security' means a security as
defined in section 2(a)(1) of the Securities Act of 1933 (15
U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(10)).
``(31) Security future.--The term `security future' means a
contract of sale for future delivery of a single security or
of a narrow-based security index, including any interest
therein or based on the value thereof, except an exempted
security under section 3(a)(12) of the Securities Exchange
Act of 1934 as in effect on the date of enactment of the
Futures Trading Act of 1982 (other than any municipal
security as defined in section 3(a)(29) of the Securities
Exchange Act of 1934 as in effect on the date of enactment of
the Futures Trading Act of 1982). The term `security future'
does not include any agreement, contract, or transaction
excluded from this Act under subsection (c), (d), (f), or (h)
of section 2 of this Act, as in effect on the date of the
enactment of the Commodity Futures Modernization Act of 2000.
``(32) Security futures product.--The term `security
futures product' means a security future or any put, call,
straddle, option, or privilege on any security future.
``(33) Trading facility.--
``(A) In general.--The term `trading facility' means a
person or group of persons that constitutes, maintains, or
provides a physical or electronic facility or system in which
multiple participants have the ability to execute or trade
agreements, contracts, or transactions by accepting bids and
offers made by other participants that are open to multiple
participants in the facility or system.
``(B) Exclusions.--The term `trading facility' does not
include--
``(i) a person or group of persons solely because the
person or group of persons constitutes, maintains, or
provides an electronic facility or system that enables
participants to negotiate the terms of and enter into
bilateral transactions as a result of communications
exchanged by the parties and not from interaction of multiple
bids and multiple offers within a predetermined,
nondiscretionary automated trade matching and execution
algorithm;
``(ii) a government securities dealer or government
securities broker, to the extent that the dealer or broker
executes or trades agreements, contracts, or transactions in
government securities, or assists persons in communicating
about, negotiating, entering into, executing, or trading an
agreement, contract, or transaction in government securities
(as the terms `government securities dealer', `government
securities broker', and `government securities' are defined
in section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a))); or
``(iii) facilities on which bids and offers, and
acceptances of bids and offers effected on the facility, are
not binding.
``(C) Special rule.--A person or group of persons that
would not otherwise constitute a trading facility shall not
be considered to be a trading facility solely as a result of
the submission to a derivatives clearing organization of
transactions executed on or through the person or group of
persons.''.
SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN
CURRENCY, GOVERNMENT SECURITIES, AND CERTAIN
OTHER COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is amended by adding at the end the following:
``(c) Agreements, Contracts, and Transactions in Foreign
Currency, Government Securities, and Certain Other
Commodities.--
``(1) In general.--Except as provided in paragraph (2),
nothing in this Act (other than section 5a (to the extent
provided in section 5a(g)), 5b, 5d, or 12(e)(2)(B)) governs
[[Page H10419]]
or applies to an agreement, contract, or transaction in--
``(A) foreign currency;
``(B) government securities;
``(C) security warrants;
``(D) security rights;
``(E) resales of installment loan contracts;
``(F) repurchase transactions in an excluded commodity; or
``(G) mortgages or mortgage purchase commitments.
``(2) Commission jurisdiction.--
``(A) Agreements, contracts, and transactions traded on an
organized exchange.--This Act applies to, and the Commission
shall have jurisdiction over, an agreement, contract, or
transaction described in paragraph (1) that is--
``(i) a contract of sale of a commodity for future delivery
(or an option thereon), or an option on a commodity (other
than foreign currency or a security or a group or index of
securities), that is executed or traded on an organized
exchange; or
``(ii) an option on foreign currency executed or traded on
an organized exchange that is not a national securities
exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934.
``(B) Agreements, contracts, and transactions in retail
foreign currency.--This Act applies to, and the Commission
shall have jurisdiction over, an agreement, contract, or
transaction in foreign currency that--
``(i) is a contract of sale for future delivery (or an
option on such a contract) or an option (other than an option
executed or traded on a national securities exchange
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934); and
``(ii) is offered to, or entered into with, a person that
is not an eligible contract participant, unless the
counterparty, or the person offering to be the counterparty,
of the person is--
``(I) a financial institution;
``(II) a broker or dealer registered under section 15(b) or
15C of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b),
78o-5) or a futures commission merchant registered under this
Act;
``(III) an associated person of a broker or dealer
registered under section 15(b) or 15C of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(b), 78o-5), or an
affiliated person of a futures commission merchant registered
under this Act, concerning the financial or securities
activities of which the registered person makes and keeps
records under section 15C(b) or 17(h) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o-5(b), 78q(h)) or section
4f(c)(2)(B) of this Act;
``(IV) an insurance company described in section
1a(12)(A)(ii) of this Act, or a regulated subsidiary or
affiliate of such an insurance company;
``(V) a financial holding company (as defined in section 2
of the Bank Holding Company Act of 1956); or
``(VI) an investment bank holding company (as defined in
section 17(i) of the Securities Exchange Act of 1934).
``(C) Notwithstanding subclauses (II) and (III) of
subparagraph (B)(ii), agreements, contracts, or transactions
described in subparagraph (B) shall be subject to sections
4b, 4c, 6c, 6d, and 8(a) if they are entered into by a
futures commission merchant or an affiliate of a futures
commission merchant that is not also an entity described in
subparagraph (B)(ii) of this paragraph.''.
SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE
TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is further amended by adding at the end the following:
``(d) Excluded Derivative Transactions.--
``(1) In general.--Nothing in this Act (other than section
5b or 12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in an excluded commodity if--
``(A) the agreement, contract, or transaction is entered
into only between persons that are eligible contract
participants at the time at which the persons enter into the
agreement, contract, or transaction; and
``(B) the agreement, contract, or transaction is not
executed or traded on a trading facility.
``(2) Electronic trading facility exclusion.--Nothing in
this Act (other than section 5a (to the extent provided in
section 5a(g)), 5b, 5d, or 12(e)(2)(B)) governs or applies to
an agreement, contract, or transaction in an excluded
commodity if--
``(A) the agreement, contract, or transaction is entered
into on a principal-to-principal basis between parties
trading for their own accounts or as described in section
1a(12)(B)(ii);
``(B) the agreement, contract, or transaction is entered
into only between persons that are eligible contract
participants described in subparagraph (A), (B)(ii), or (C)
of section 1a(12)) at the time at which the persons enter
into the agreement, contract, or transaction; and
``(C) the agreement, contract, or transaction is executed
or traded on an electronic trading facility.''.
SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is further amended by adding at the end the following:
``(e) Excluded Electronic Trading Facilities.--
``(1) In general.--Nothing in this Act (other than section
12(e)(2)(B)) governs or is applicable to an electronic
trading facility that limits transactions authorized to be
conducted on its facilities to those satisfying the
requirements of sections 2(d)(2), 2(g)(3), and 2(h).
``(2) Effect on authority to establish and operate.--
Nothing in this Act shall prohibit a board of trade
designated by the Commission as a contract market,
derivatives transaction execution facility, or exempt board
of trade from establishing and operating an electronic
trading facility excluded under this Act pursuant to
paragraph (1).
``(3) Effect on transactions.--No failure by an electronic
trading facility to limit transactions as required by
paragraph (1) of this subsection or to comply with section
2(g)(5) shall in itself affect the legality, validity, or
enforceability of an agreement, contract, or transaction
entered into or traded on the electronic trading facility or
cause a participant on the system to be in violation of this
Act.
SEC. 105. HYBRID INSTRUMENTS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is further amended by adding at the end the following:
``(f) Exclusion for Qualifying Hybrid Instruments.--
``(1) In general.--Nothing in this Act (other than section
12(e)(2)(B)) governs or is applicable to a hybrid instrument
that is predominantly a security or deposit instrument.
``(2) Predominance.--A hybrid instrument shall be
considered to be predominantly a security or deposit
instrument if--
``(A) the issuer of the hybrid instrument receives payment
in full of the purchase price of the hybrid instrument,
substantially contemporaneously with delivery of the hybrid
instrument;
``(B) the purchaser or holder of the hybrid instrument is
not required to make any payment to the issuer in addition to
the purchase price paid under subparagraph (A), whether as
margin, settlement payment, or otherwise, during the life of
the hybrid instrument or at maturity;
``(C) the issuer of the hybrid instrument is not subject by
the terms of the instrument to mark-to-market margining
requirements; and
``(D) the hybrid instrument is not marketed as a contract
of sale for future delivery of a commodity (or option on such
a contract) subject to this Act.
``(3) Mark-to-market margining requirements.--For the
purposes of paragraph (2)(C), mark-to-market margining
requirements do not include the obligation of an issuer of a
secured debt instrument to increase the amount of collateral
held in pledge for the benefit of the purchaser of the
secured debt instrument to secure the repayment obligations
of the issuer under the secured debt instrument.''.
SEC. 106. TRANSACTIONS IN EXEMPT COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is further amended by adding at the end the following.
``(g) Legal Certainty for Certain Transactions in Exempt
Commodities.--
``(1) Except as provided in paragraph (2), nothing in this
Act shall apply to a contract, agreement or transaction in an
exempt commodity which--
``(A) is entered into solely between persons that are
eligible contract participants at the time the persons enter
into the agreement, contract, or transaction; and
``(B) is not entered into on a trading facility.
``(2) An agreement, contract, or transaction described in
paragraph (1) of this subsection shall be subject to--
``(A) sections 5b and 12(e)(2)(B);
``(B) sections 4b, 4o, 6(c), 6(d), 6c, 6d, and 8a, and the
regulations of the Commission pursuant to section 4c(b)
proscribing fraud in connection with commodity option
transactions, to the extent the agreement, contract, or
transaction is not between eligible commercial entities
(unless 1 of the entities is an instrumentality, department,
or agency of a State or local governmental entity) and would
otherwise be subject to such sections and regulations; and
``(C) sections 6(c), 6(d), 6c, 6d, 8a, and 9(a)(2), to the
extent such sections prohibit manipulation of the market
price of any commodity in interstate commerce and the
agreement, contract, or transaction would otherwise be
subject to such sections.
``(3) Except as provided in paragraph (4), nothing in this
Act shall apply to an agreement, contract, or transaction in
an exempt commodity which is--
``(A) entered into on a principal-to-principal basis solely
between persons that are eligible commercial entities at the
time the persons enter into the agreement, contract, or
transaction; and
``(B) executed or traded on an electronic trading facility.
``(4) An agreement, contract, or transaction described in
paragraph (3) of this subsection shall be subject to--
``(A) sections 5a (to the extent provided in section
5a(g)), 5b, 5d, and 12(e)(2)(B);
``(B) sections 4b and 4o and the regulations of the
Commission pursuant to section 4c(b) proscribing fraud in
connection with commodity option transactions to the extent
the agreement, contract, or transaction would otherwise be
subject to such sections and regulations;
``(C) sections 6(c) and 9(a)(2), to the extent such
sections prohibit manipulation of the market price of any
commodity in interstate commerce and to the extent the
agreement,
[[Page H10420]]
contract, or transaction would otherwise be subject to such
sections; and
``(D) such rules and regulations as the Commission may
prescribe if necessary to ensure timely dissemination by the
electronic trading facility of price, trading volume, and
other trading data to the extent appropriate, if the
Commission determines that the electronic trading facility
performs a significant price discovery function for
transactions in the cash market for the commodity underlying
any agreement, contract, or transaction executed or traded on
the electronic trading facility.
``(5) An electronic trading facility relying on the
exemption provided in paragraph (3) shall--
``(A) notify the Commission of its intention to operate an
electronic trading facility in reliance on the exemption set
forth in paragraph (3), which notice shall include the
following:
``(i) the name and address of the facility and a person
designated to receive communications from the Commission;
``(ii) the commodity categories that the facility intends
to list or otherwise make available for trading on the
facility in reliance on the exemption set forth in paragraph
(3);
``(iii) certifications that--
``(I) no executive officer or member of the governing board
of, or any holder of a 10 percent or greater equity interest
in, the facility is a person described in any of
subparagraphs (A) through (H) of section 8a(2);
``(II) the facility will comply with the conditions for
exemption under this paragraph; and
``(III) the facility will notify the Commission of any
material change in the information previously provided by the
facility to the Commission pursuant to this paragraph; and
``(iv) the identity of any derivatives clearing
organization to which the facility transmits or intends to
transmit transaction data for the purpose of facilitating the
clearance and settlement of transactions conducted on the
facility in reliance on the exemption set forth in paragraph
(3);
``(B)(i)(I) provide the Commission with access to the
facility's trading protocols and electronic access to the
facility with respect to transactions conducted in reliance
on the exemption set forth in paragraph (3); or
``(II) provide such reports to the Commission regarding
transactions executed on the facility in reliance on the
exemption set forth in paragraph (3) as the Commission may
from time to time request to enable the Commission to satisfy
its obligations under this Act; and
``(ii) maintain for 5 years, and make available for
inspection by the Commission upon request, records of all
activities related to its business as an electronic trading
facility exempt under paragraph (3), including--
``(I) information relating to data entry and transaction
details sufficient to enable the Commission to reconstruct
trading activity on the facility conducted in reliance on the
exemption set forth in paragraph (3); and
``(II) the name and address of each participant on the
facility authorized to enter into transactions in reliance on
the exemption set forth in paragraph (3); and
``(iii) upon special call by the Commission, provide to the
Commission, in a form and manner and within the period
specified in the special call, such information related to
its business as an electronic trading facility exempt under
paragraph (3), including information relating to data entry
and transaction details in respect of transactions entered
into in reliance on the exemption set forth in paragraph (3),
as the Commission may determine appropriate--
``(I) to enforce the provisions specified in subparagraphs
(B) and (C) of paragraph (4);
``(II) to evaluate a systemic market event; or
``(III) to obtain information requested by a Federal
financial regulatory authority in order to enable the
regulator to fulfill its regulatory or supervisory
responsibilities; and
``(C)(i) upon receipt of any subpoena issued by or on
behalf of the Commission to any foreign person who the
Commission believes is conducting or has conducted
transactions in reliance on the exemption set forth in
paragraph (3) on or through the electronic trading facility
relating to the transactions, promptly notify the foreign
person of, and transmit to the foreign person, the subpoena
in a manner reasonable under the circumstances, or as
specified by the Commission; and
``(ii) if the Commission has reason to believe that a
person has not timely complied with a subpoena issued by or
on behalf of the Commission pursuant to clause (i), and the
Commission in writing has directed that a facility relying on
the exemption set forth in paragraph (3) deny or limit
further transactions by the person, the facility shall deny
that person further trading access to the facility or, as
applicable, limit that person's access to the facility for
liquidation trading only;
``(D) comply with the requirements of this paragraph
applicable to the facility and require that each participant,
as a condition of trading on the facility in reliance on the
exemption set forth in paragraph (3), agree to comply with
all applicable law;
``(E) have a reasonable basis for believing that
participants authorized to conduct transactions on the
facility in reliance on the exemption set forth in paragraph
(3) are eligible commercial entities; and
``(F) not represent to any person that the facility is
registered with, or designated, recognized, licensed or
approved by the Commission.
``(6) A person named in a subpoena referred to in paragraph
(5)(C) that believes the person is or may be adversely
affected or aggrieved by action taken by the Commission under
this section, shall have the opportunity for a prompt hearing
after the Commission acts under procedures that the
Commission shall establish by rule, regulation, or order.''.
SEC. 107. SWAP TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is further amended by adding at the end the following:
``(h) Excluded Swap Transactions.--No provision of this Act
(other than section 5a (to the extent provided in section
5a(g)), 5b, 5d, or 12(e)(2)) shall apply to or govern any
agreement, contract, or transaction in a commodity other than
an agricultural commodity if--
``(1) the agreement, contract, or transaction is entered
into only between persons that are eligible contract
participants at the time they enter into the agreement,
contract, or transaction; and
``(2) each of the material economic terms of the agreement,
contract, or transaction is individually negotiated by the
parties.''.
SEC. 108. APPLICATION OF COMMODITY FUTURES LAWS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3,
4, 4a) is further amended by adding at the end the following:
``(i) Application of Commodity Futures Laws.--
``(1) No provision of this Act shall be construed as
implying or creating any presumption that--
``(A) any agreement, contract, or transaction that is
excluded or exempted under subsection (c), (d), (e), (f),
(g), or (h) of section 2 or section 4(c); or
``(B) any agreement, contract, or transaction, not
otherwise subject to this Act, that is not so excluded or
exempted,
is or would otherwise be subject to this Act.
``(2) No provision of, or amendment made by, the Commodity
Futures Modernization Act of 2000 shall be construed as
conferring jurisdiction on the Commission with respect to any
such agreement, contract, or transaction, except as expressly
provided in section 5a of this Act (to the extent provided in
section 5a(g) of this Act), 5b of this Act, or 5d of this
Act.''.
SEC. 109. PROTECTION OF THE PUBLIC INTEREST.
The Commodity Exchange Act is amended by striking section 3
(7 U.S.C. 5) and inserting the following:
``SEC. 3. FINDINGS AND PURPOSE.
``(a) Findings.--The transactions subject to this Act are
entered into regularly in interstate and international
commerce and are affected with a national public interest by
providing a means for managing and assuming price risks,
discovering prices, or disseminating pricing information
through trading in liquid, fair and financially secure
trading facilities.
``(b) Purpose.--It is the purpose of this Act to serve the
public interests described in subsection (a) through a system
of effective self-regulation of trading facilities, clearing
systems, market participants and market professionals under
the oversight of the Commission. To foster these public
interests, it is further the purpose of this Act to deter and
prevent price manipulation or any other disruptions to market
integrity; to ensure the financial integrity of all
transactions subject to this Act and the avoidance of
systemic risk; to protect all market participants from
fraudulent or other abusive sales practices and misuses of
customer assets; and to promote responsible innovation and
fair competition among boards of trade, other markets and
market participants.''.
SEC. 110. PROHIBITED TRANSACTIONS.
Section 4c of the Commodity Exchange Act (7 U.S.C. 6c) is
amended by striking ``Sec. 4c.'' and all that follows through
subsection (a) and inserting the following:
``SEC. 4C. PROHIBITED TRANSACTIONS.
``(a) In General.--
``(1) Prohibition.--It shall be unlawful for any person to
offer to enter into, enter into, or confirm the execution of
a transaction described in paragraph (2) involving the
purchase or sale of any commodity for future delivery (or any
option on such a transaction or option on a commodity) if the
transaction is used or may be used to--
``(A) hedge any transaction in interstate commerce in the
commodity or the product or byproduct of the commodity;
``(B) determine the price basis of any such transaction in
interstate commerce in the commodity; or
``(C) deliver any such commodity sold, shipped, or received
in interstate commerce for the execution of the transaction.
``(2) Transaction.--A transaction referred to in paragraph
(1) is a transaction that--
``(A)(i) is, is of the character of, or is commonly known
to the trade as, a `wash sale' or `accommodation trade'; or
``(ii) is a fictitious sale; or
``(B) is used to cause any price to be reported,
registered, or recorded that is not a true and bona fide
price.''.
SEC. 111. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
The Commodity Exchange Act is amended--
(1) by redesignating section 5b (7 U.S.C. 7b) as section
5e; and
[[Page H10421]]
(2) by striking sections 5 and 5a (7 U.S.C. 7, 7a) and
inserting the following:
``SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
``(a) Applications.--A board of trade applying to the
Commission for designation as a contract market shall submit
an application to the Commission that includes any relevant
materials and records the Commission may require consistent
with this Act.
``(b) Criteria for Designation.--
``(1) In general.--To be designated as a contract market,
the board of trade shall demonstrate to the Commission that
the board of trade meets the criteria specified in this
subsection.
``(2) Prevention of market manipulation.--The board of
trade shall have the capacity to prevent market manipulation
through market surveillance, compliance, and enforcement
practices and procedures, including methods for conducting
real-time monitoring of trading and comprehensive and
accurate trade reconstructions.
``(3) Fair and equitable trading.--The board of trade shall
establish and enforce trading rules to ensure fair and
equitable trading through the facilities of the contract
market, and the capacity to detect, investigate, and
discipline any person that violates the rules. The rules may
authorize--
``(A) transfer trades or office trades;
``(B) an exchange of--
``(i) futures in connection with a cash commodity
transaction;
``(ii) futures for cash commodities; or
``(iii) futures for swaps; or
``(C) a futures commission merchant, acting as principal or
agent, to enter into or confirm the execution of a contract
for the purchase or sale of a commodity for future delivery
if the contract is reported, recorded, or cleared in
accordance with the rules of the contract market or a
derivatives clearing organization.
``(4) Trade execution facility.--The board of trade shall--
``(A) establish and enforce rules defining, or
specifications detailing, the manner of operation of the
trade execution facility maintained by the board of trade,
including rules or specifications describing the operation of
any electronic matching platform; and
``(B) demonstrate that the trade execution facility
operates in accordance with the rules or specifications.
``(5) Financial integrity of transactions.--The board of
trade shall establish and enforce rules and procedures for
ensuring the financial integrity of transactions entered into
by or through the facilities of the contract market,
including the clearance and settlement of the transactions
with a derivatives clearing organization.
``(6) Disciplinary procedures.--The board of trade shall
establish and enforce disciplinary procedures that authorize
the board of trade to discipline, suspend, or expel members
or market participants that violate the rules of the board of
trade, or similar methods for performing the same functions,
including delegation of the functions to third parties.
``(7) Public access.--The board of trade shall provide the
public with access to the rules, regulations, and contract
specifications of the board of trade.
``(8) Ability to obtain information.--The board of trade
shall establish and enforce rules that will allow the board
of trade to obtain any necessary information to perform any
of the functions described in this subsection, including the
capacity to carry out such international information-sharing
agreements as the Commission may require.
``(c) Existing Contract Markets.--A board of trade that is
designated as a contract market on the date of the enactment
of the Commodity Futures Modernization Act of 2000 shall be
considered to be a designated contract market under this
section.
``(d) Core Principles for Contract Markets.--
``(1) In general.--To maintain the designation of a board
of trade as a contract market, the board of trade shall
comply with the core principles specified in this subsection.
The board of trade shall have reasonable discretion in
establishing the manner in which it complies with the core
principles.
``(2) Compliance with rules.--The board of trade shall
monitor and enforce compliance with the rules of the contract
market, including the terms and conditions of any contracts
to be traded and any limitations on access to the contract
market.
``(3) Contracts not readily subject to manipulation.--The
board of trade shall list on the contract market only
contracts that are not readily susceptible to manipulation.
``(4) Monitoring of trading.--The board of trade shall
monitor trading to prevent manipulation, price distortion,
and disruptions of the delivery or cash-settlement process.
``(5) Position limitations or accountability.--To reduce
the potential threat of market manipulation or congestion,
especially during trading in the delivery month, the board of
trade shall adopt position limitations or position
accountability for speculators, where necessary and
appropriate.
``(6) Emergency authority.--The board of trade shall adopt
rules to provide for the exercise of emergency authority, in
consultation or cooperation with the Commission, where
necessary and appropriate, including the authority to--
``(A) liquidate or transfer open positions in any contract;
``(B) suspend or curtail trading in any contract; and
``(C) require market participants in any contract to meet
special margin requirements.
``(7) Availability of general information.--The board of
trade shall make available to market authorities, market
participants, and the public information concerning--
``(A) the terms and conditions of the contracts of the
contract market; and
``(B) the mechanisms for executing transactions on or
through the facilities of the contract market.
``(8) Daily publication of trading information.--The board
of trade shall make public daily information on settlement
prices, volume, open interest, and opening and closing ranges
for actively traded contracts on the contract market.
``(9) Execution of transactions.--The board of trade shall
provide a competitive, open, and efficient market and
mechanism for executing transactions.
``(10) Trade information.--The board of trade shall
maintain rules and procedures to provide for the recording
and safe storage of all identifying trade information in a
manner that enables the contract market to use the
information for purposes of assisting in the prevention of
customer and market abuses and providing evidence of any
violations of the rules of the contract market.
``(11) Financial integrity of contracts.--The board of
trade shall establish and enforce rules providing for the
financial integrity of any contracts traded on the contract
market (including the clearance and settlement of the
transactions with a derivatives clearing organization), and
rules to ensure the financial integrity of any futures
commission merchants and introducing brokers and the
protection of customer funds.
``(12) Protection of market participants.--The board of
trade shall establish and enforce rules to protect market
participants from abusive practices committed by any party
acting as an agent for the participants.
``(13) Dispute resolution.--The board of trade shall
establish and enforce rules regarding and provide facilities
for alternative dispute resolution as appropriate for market
participants and any market intermediaries.
``(14) Governance fitness standards.--The board of trade
shall establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee, members of
the contract market, and any other persons with direct access
to the facility (including any parties affiliated with any of
the persons described in this paragraph).
``(15) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of interest
in the decisionmaking process of the contract market and
establish a process for resolving such conflicts of interest.
``(16) Composition of boards of mutually owned contract
markets.--In the case of a mutually owned contract market,
the board of trade shall ensure that the composition of the
governing board reflects market participants.
``(17) Recordkeeping.--The board of trade shall maintain
records of all activities related to the business of the
contract market in a form and manner acceptable to the
Commission for a period of 5 years.
``(18) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the board of
trade shall endeavor to avoid--
``(A) adopting any rules or taking any actions that result
in any unreasonable restraints of trade; or
``(B) imposing any material anticompetitive burden on
trading on the contract market.
``(e) Current Agricultural Commodities.--
``(1) Subject to paragraph (2) of this subsection, a
contract for purchase or sale for future delivery of an
agricultural commodity enumerated in section 1a(4) that is
available for trade on a contract market, as of the date of
the enactment of this subsection, may be traded only on a
contract market designated under this section.
``(2) In order to promote responsible economic or financial
innovation and fair competition, the Commission, on
application by any person, after notice and public comment
and opportunity for hearing, may prescribe rules and
regulations to provide for the offer and sale of contracts
for future delivery or options thereon to be conducted on a
derivatives transaction execution facility.''.
SEC. 112. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by inserting after section 5 (as amended by section 111(2))
the following:
``SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
``(a) In General.--In lieu of compliance with the contract
market designation requirements of sections 4(a) and 5, a
board of trade may elect to operate as a registered
derivatives transaction execution facility if the facility
is--
``(1) designated as a contract market and meets the
requirements of this section; or
``(2) registered as a derivatives transaction execution
facility under subsection (c) of this section.
``(b) Requirements for Trading.--
``(1) In general.--A registered derivatives transaction
execution facility under subsection (a) may trade any
contract for sale of a commodity for future delivery (or
option
[[Page H10422]]
on such a contract) on or through the facility only by
satisfying the requirements of this section.
``(2) Requirements for underlying commodities.--A
registered derivatives transaction execution facility may
trade any contract for sale of a commodity for future
delivery (or option on such a contract) only if--
``(A) the underlying commodity has a nearly inexhaustible
deliverable supply;
``(B) the underlying commodity has a deliverable supply
that is sufficiently large that the contract is highly
unlikely to be susceptible to the threat of manipulation;
``(C) the underlying commodity has no cash market;
``(D)(i) the contract is a security futures product, and
(ii) the registered derivatives transaction execution
facility is a national securities exchange registered under
the Securities Exchange Act of 1934 or an alternative trading
system;
``(E) the Commission determines, based on the market
characteristics, surveillance history, self-regulatory
record, and capacity of the facility that trading in the
contract (or option) is highly unlikely to be susceptible to
the threat of manipulation; or
``(F) except as provided in section 5(e)(2), the underlying
commodity is a commodity other than an agricultural commodity
enumerated in section 1a(4), and trading access to the
facility is limited to eligible commercial entities trading
for their own account.
``(3) Eligible traders.--To trade on a registered
derivatives transaction execution facility, a person shall--
``(A) be an eligible contract participant; or
``(B) be a person trading through a futures commission
merchant that--
``(i) is registered with the Commission;
``(ii) is a member of a futures self-regulatory
organization or, if the person trades only security futures
products on the facility, a national securities association
registered under section 15A(a) of the Securities Exchange
Act of 1934;
``(iii) is a clearing member of a derivatives clearing
organization; and
``(iv) has net capital of at least $20,000,000.
``(4) Trading by contract markets.--A board of trade that
is designated as a contract market shall, to the extent that
the contract market also operates a registered derivatives
transaction execution facility--
``(A) provide a physical location for the contract market
trading of the board of trade that is separate from trading
on the derivatives transaction execution facility of the
board of trade; or
``(B) if the board of trade uses the same electronic
trading system for trading on the contract market and
derivatives transaction execution facility of the board of
trade, identify whether the electronic trading is taking
place on the contract market or the derivatives transaction
execution facility.
``(c) Criteria for Registration.--
``(1) In general.--To be registered as a registered
derivatives transaction execution facility, the board of
trade shall be required to demonstrate to the Commission only
that the board of trade meets the criteria specified in
subsection (b) and this subsection.
``(2) Deterrence of abuses.--The board of trade shall
establish and enforce trading and participation rules that
will deter abuses and has the capacity to detect,
investigate, and enforce those rules, including means to--
``(A) obtain information necessary to perform the functions
required under this section; or
``(B) use technological means to--
``(i) provide market participants with impartial access to
the market; and
``(ii) capture information that may be used in establishing
whether rule violations have occurred.
``(3) Trading procedures.--The board of trade shall
establish and enforce rules or terms and conditions defining,
or specifications detailing, trading procedures to be used in
entering and executing orders traded on the facilities of the
board of trade. The rules may authorize--
``(A) transfer trades or office trades;
``(B) an exchange of--
``(i) futures in connection with a cash commodity
transaction;
``(ii) futures for cash commodities;
``(iii) futures for swaps; or
``(C) a futures commission merchant, acting as principal or
agent, to enter into or confirm the execution of a contract
for the purchase or sale of a commodity for future delivery
if the contract is reported, recorded, or cleared in
accordance with the rules of the registered derivatives
transaction execution facility or a derivatives clearing
organization.
``(4) Financial integrity of transactions.--The board of
trade shall establish and enforce rules or terms and
conditions providing for the financial integrity of
transactions entered on or through the facilities of the
board of trade (including the clearance and settlement of the
transactions with a derivatives clearing organization), and
rules or terms and conditions to ensure the financial
integrity of any futures commission merchants and introducing
brokers and the protection of customer funds.
``(d) Core Principles for Registered Derivatives
Transaction Execution Facilities.--
``(1) In general.--To maintain the registration of a board
of trade as a derivatives transaction execution facility, a
board of trade shall comply with the core principles
specified in this subsection. The board of trade shall have
reasonable discretion in establishing the manner in which the
board of trade complies with the core principles.
``(2) Compliance with rules.--The board of trade shall
monitor and enforce the rules of the facility, including any
terms and conditions of any contracts traded on or through
the facility and any limitations on access to the facility.
``(3) Monitoring of trading.--The board of trade shall
monitor trading in the contracts of the facility to ensure
orderly trading in the contract and to maintain an orderly
market while providing any necessary trading information to
the Commission to allow the Commission to discharge the
responsibilities of the Commission under the Act.
``(4) Disclosure of general information.--The board of
trade shall disclose publicly and to the Commission
information concerning--
``(A) contract terms and conditions;
``(B) trading conventions, mechanisms, and practices;
``(C) financial integrity protections; and
``(D) other information relevant to participation in
trading on the facility.
``(5) Daily publication of trading information.--The board
of trade shall make public daily information on settlement
prices, volume, open interest, and opening and closing ranges
for contracts traded on the facility if the Commission
determines that the contracts perform a significant price
discovery function for transactions in the cash market for
the commodity underlying the contracts.
``(6) Fitness standards.--The board of trade shall
establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee, members,
and any other persons with direct access to the facility,
including any parties affiliated with any of the persons
described in this paragraph.
``(7) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of interest
in the decision making process of the derivatives transaction
execution facility and establish a process for resolving such
conflicts of interest.
``(8) Recordkeeping.--The board of trade shall maintain
records of all activities related to the business of the
derivatives transaction execution facility in a form and
manner acceptable to the Commission for a period of 5 years.
``(9) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the board of
trade shall endeavor to avoid--
``(A) adopting any rules or taking any actions that result
in any unreasonable restraint of trade; or
``(B) imposing any material anticompetitive burden on
trading on the derivatives transaction execution facility.
``(e) Use of Broker-Dealers, Depository Institutions, and
Farm Credit System Institutions as Intermediaries.--
``(1) In general.--With respect to transactions other than
transactions in security futures products, a registered
derivatives transaction execution facility may by rule allow
a broker-dealer, depository institution, or institution of
the Farm Credit System that meets the requirements of
paragraph (2) to--
``(A) act as an intermediary in transactions executed on
the facility on behalf of customers of the broker-dealer,
depository institution, or institution of the Farm Credit
System; and
``(B) receive funds of customers to serve as margin or
security for the transactions.
``(2) Requirements.--The requirements referred to in
paragraph (1) are that--
``(A) the broker-dealer be in good standing with the
Securities and Exchange Commission, or the depository
institution or institution of the Farm Credit System be in
good standing with Federal bank regulatory agencies
(including the Farm Credit Administration), as applicable;
and
``(B) if the broker-dealer, depository institution, or
institution of the Farm Credit System carries or holds
customer accounts or funds for transactions on the
derivatives transaction execution facility for more than 1
business day, the broker-dealer, depository institution, or
institution of the Farm Credit System is registered as a
futures commission merchant and is a member of a registered
futures association.
``(3) Implementation.--The Commission shall cooperate and
coordinate with the Securities and Exchange Commission, the
Secretary of the Treasury, and Federal banking regulatory
agencies (including the Farm Credit Administration) in
adopting rules and taking any other appropriate action to
facilitate the implementation of this subsection.
``(f) Segregation of Customer Funds.--Not later than 180
days after the date of the enactment of the Commodity Futures
Modernization Act of 2000, consistent with regulations
adopted by the Commission, a registered derivatives
transaction execution facility may authorize a futures
commission merchant to offer any customer of the futures
commission merchant that is an eligible contract participant
the right to not segregate the customer funds of the customer
that are carried with the futures commission merchant for
purposes of trading on or through the facilities of the
registered derivatives transaction execution facility.
``(g) Election To Trade Excluded and Exempt Commodities.--
[[Page H10423]]
``(1) In general.--Notwithstanding subsection (b)(2) of
this section, a board of trade that is or elects to become a
registered derivatives transaction execution facility may
trade on the facility any agreements, contracts, or
transactions involving excluded or exempt commodities other
than securities, except contracts of sale for future delivery
of exempt securities under section 3(a)(12) of the Securities
Exchange Act of 1934 as in effect on the date of enactment of
the Futures Trading Act of 1982, that are otherwise excluded
or exempt from this Act under section 2(c), 2(d), 2(g), or
2(h) of this Act.
``(2) Exclusive jurisdiction of the commission.--The
Commission shall have exclusive jurisdiction over agreements,
contracts, or transactions described in paragraph (1) to the
extent that the agreements, contracts, or transactions are
traded on a derivatives transaction execution facility.''.
SEC. 113. DERIVATIVES CLEARING.
(a) In General.--Subtitle A of title IV of the Federal
Deposit Insurance Corporation Improvement Act of 1991 is
amended--
(1) by inserting before the section heading for section
401, the following new heading:
``CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING'';
(2) in section 402, by striking ``this subtitle'' and
inserting ``this chapter''; and
(3) by inserting after section 407, the following new
chapter:
``CHAPTER 2--MULTILATERAL CLEARING ORGANIZATIONS
``SEC. 408. DEFINITIONS.
For purposes of this chapter, the following definitions
shall apply:
``(1) Multilateral clearing organization.--The term
`multilateral clearing organization' means a system utilized
by more than 2 participants in which the bilateral credit
exposures of participants arising from the transactions
cleared are effectively eliminated and replaced by a system
of guarantees, insurance, or mutualized risk of loss.
``(2) Over-the-counter derivative instrument.--The term
`over-the-counter derivative instrument' includes--
``(A) any agreement, contract, or transaction, including
the terms and conditions incorporated by reference in any
such agreement, contract, or transaction, which is an
interest rate swap, option, or forward agreement, including a
rate floor, rate cap, rate collar, cross-currency rate swap,
basis swap, and forward rate agreement; a same day-tomorrow,
tomorrow-next, forward, or other foreign exchange or precious
metals agreement; a currency swap, option, or forward
agreement; an equity index or equity swap, option, or forward
agreement; a debt index or debt swap, option, or forward
agreement; a credit spread or credit swap, option, or forward
agreement; a commodity index or commodity swap, option, or
forward agreement; and a weather swap, weather derivative, or
weather option;
``(B) any agreement, contract or transaction similar to any
other agreement, contract, or transaction referred to in this
clause that is presently, or in the future becomes, regularly
entered into by parties that participate in swap transactions
(including terms and conditions incorporated by reference in
the agreement) and that is a forward, swap, or option on 1 or
more occurrences of any event, rates, currencies,
commodities, equity securities or other equity instruments,
debt securities or other debt instruments, economic or other
indices or measures of economic or other risk or value;
``(C) any agreement, contract, or transaction described in
subsection (c), (d), (f), or (h) of section 2 of the
Commodity Exchange Act or exempted under section 2(g) or 4(c)
of such Act; and
``(D) any option to enter into any, or any combination of,
agreements, contracts or transactions referred to in this
subparagraph.
``(3) Other definitions.--The terms `insured State
nonmember bank', `State member bank', and `affiliate' have
the same meanings as in section 3 of the Federal Deposit
Insurance Act.
``SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.
``(a) In General.--Except with respect to clearing
organizations described in subsection (b), no person may
operate a multilateral clearing organization for over-the-
counter derivative instruments, or otherwise engage in
activities that constitute such a multilateral clearing
organization unless the person is a national bank, a State
member bank, an insured State nonmember bank, an affiliate of
a national bank, a State member bank, or an insured State
nonmember bank, or a corporation chartered under section 25A
of the Federal Reserve Act.
``(b) Clearing Organizations.--Subsection (a) shall not
apply to any clearing organization that--
``(1) is registered as a clearing agency under the
Securities Exchange Act of 1934;
``(2) is registered as a derivatives clearing organization
under the Commodity Exchange Act; or
``(3) is supervised by a foreign financial regulator that
the Comptroller of the Currency, the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Securities and Exchange Commission, or the
Commodity Futures Trading Commission, as applicable, has
determined satisfies appropriate standards.''.
(b) Enforcement Powers of the Board of Governors of the
Federal Reserve System.--Section 9 of the Federal Reserve Act
(12 U.S.C. 221) is amended by adding at the end the following
new paragraph:
``(24) Enforcement authority.--Section 3(u), subsections
(j) and (k) of section 7, subsections (b) through (n), (s),
(u), and (v) of section 8, and section 19 of the Federal
Deposit Insurance Act shall apply to a State member bank
which is not an insured depository institution (as defined in
section 3 of the Federal Deposit Insurance Act) in the same
manner and to the same extent as such provisions apply to
State member insured banks, and any reference in such
sections to an insured depository institution shall be deemed
to include a reference to any such noninsured State member
bank.''.
(c) Resolution of Clearing Banks.--The Federal Reserve Act
(12 U.S.C. 221 et seq.) is amended by inserting after section
9A the following new section:
``SEC. 9B. RESOLUTION OF CLEARING BANKS.
``(a) Conservatorship or Receivership.--
``(1) Appointment.--The Board may appoint a conservator or
receiver to take possession and control of any uninsured
State member bank which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of
the Federal Deposit Insurance Corporation Improvement Act of
1991 to the same extent and in the same manner as the
Comptroller of the Currency may appoint a conservator or
receiver for a national bank.
``(2) Powers.--The conservator or receiver for an uninsured
State member bank referred to in paragraph (1) shall exercise
the same powers, functions, and duties, subject to the same
limitations, as a conservator or receiver for a national
bank.
``(b) Board Authority.--The Board shall have the same
authority with respect to any conservator or receiver
appointed under subsection (a), and the uninsured State
member bank for which the conservator or receiver has been
appointed, as the Comptroller of the Currency has with
respect to a conservator or receiver for a national bank and
the national bank for which the conservator or receiver has
been appointed.
``(c) Bankruptcy Proceedings.--The Board (in the case of an
uninsured State member bank which operates, or operates as,
such a multilateral clearing organization) may direct a
conservator or receiver appointed for the bank to file a
petition pursuant to title 11, United States Code, in which
case, title 11, United States Code, shall apply to the bank
in lieu of otherwise applicable Federal or State insolvency
law.''.
(d) Technical and Conforming Amendments to Title 11, United
States Code.--
(1) Bankruptcy code debtors.--Section 109(b)(2) of title
11, United States Code, is amended by striking ``; or'' and
inserting the following: ``, except that an uninsured State
member bank, or a corporation organized under section 25A of
the Federal Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of
the Federal Deposit Insurance Corporation Improvement Act of
1991 may be a debtor if a petition is filed at the direction
of the Board of Governors of the Federal Reserve System;
or''.
(2) Chapter 7 debtors.--Section 109(d) of title 11, United
States Code, is amended to read as follows:
``(d) Only a railroad, a person that may be a debtor under
chapter 7 of this title (except a stockbroker or a commodity
broker), and an uninsured State member bank, or a corporation
organized under section 25A of the Federal Reserve Act, which
operates, or operates as, a multilateral clearing
organization pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 may be a debtor
under chapter 11 of this title.''.
(3) Definition of financial institution.--Section 101(22)
of title 11, United States Code, is amended to read as
follows:
``(22) the term `financial institution'--
``(A) means a Federal reserve bank or an entity (domestic
or foreign) that is a commercial or savings bank, industrial
savings bank, savings and loan association, trust company, a
bank or a corporation organized under section 25A of the
Federal Reserve Act and, when any such bank or entity is
acting as agent or custodian for a customer in connection
with a securities contract, as defined in section 741, the
customer; and
``(B) includes any person described in subparagraph (A)
which operates, or operates as, a multilateral clearing
organization pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of 1991;''.
(4) Definition of uninsured state member bank.--Section 101
of title 11, United States Code, is amended by inserting
after paragraph (54) the following new paragraph--
``(54A) the term `uninsured State member bank' means a
State member bank (as defined in section 3 of the Federal
Deposit Insurance Act) the deposits of which are not insured
by the Federal Deposit Insurance Corporation; and''.
(5) Subchapter v of chapter 7.--
(A) In general.--Section 103 of title 11, United States
Code, is amended--
(i) by redesignating subsections (e) through (i) as
subsections (f) through (j), respectively; and
(ii) by inserting after subsection (d) the following new
subsection:
``(e) Scope of Application.--Subchapter V of chapter 7 of
this title shall apply only in a case under such chapter
concerning the liquidation of an uninsured State member bank,
or a corporation organized under section 25A of the Federal
Reserve Act, which
[[Page H10424]]
operates, or operates as, a multilateral clearing
organization pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of 1991.''.
(B) Clearing bank liquidation.--Chapter 7 of title 11,
United States Code, is amended by adding at the end the
following new subchapter:
``SUBCHAPTER V--CLEARING BANK LIQUIDATION
``Sec. 781. Definitions
``For purposes of this subchapter, the following
definitions shall apply:
``(1) Board.--The term `Board' means the Board of Governors
of the Federal Reserve System.
``(2) Depository institution.--The term `depository
institution' has the same meaning as in section 3 of the
Federal Deposit Insurance Act.
``(3) Clearing bank.--The term `clearing bank' means an
uninsured State member bank, or a corporation organized under
section 25A of the Federal Reserve Act, which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991.
``Sec. 782. Selection of trustee
``(a) In General.--
``(1) Appointment.--Notwithstanding any other provision of
this title, the conservator or receiver who files the
petition shall be the trustee under this chapter, unless the
Board designates an alternative trustee.
``(2) Successor.--The Board may designate a successor
trustee if required.
``(b) Authority of Trustee.--Whenever the Board appoints or
designates a trustee, chapter 3 and sections 704 and 705 of
this title shall apply to the Board in the same way and to
the same extent that they apply to a United States trustee.
``Sec. 783. Additional powers of trustee
``(a) Distribution of Property Not of the Estate.--The
trustee under this subchapter has power to distribute
property not of the estate, including distributions to
customers that are mandated by subchapters III and IV of this
chapter.
``(b) Disposition of Institution.--The trustee under this
subchapter may, after notice and a hearing--
``(1) sell the clearing bank to a depository institution or
consortium of depository institutions (which consortium may
agree on the allocation of the clearing bank among the
consortium);
``(2) merge the clearing bank with a depository
institution;
``(3) transfer contracts to the same extent as could a
receiver for a depository institution under paragraphs (9)
and (10) of section 11(e) of the Federal Deposit Insurance
Act;
``(4) transfer assets or liabilities to a depository
institution;
``(5) transfer assets and liabilities to a bridge bank as
provided in paragraphs (1), (3)(A), (5), (6), of section
11(n) of the Federal Deposit Insurance Act, paragraphs (9)
through (13) of such section, and subparagraphs (A) through
(H) and subparagraph (K) of paragraph (4) of such section
11(n), except that--
``(A) the bridge bank to which such assets or liabilities
are transferred shall be treated as a clearing bank for the
purpose of this subsection; and
``(B) any references in any such provision of law to the
Federal Deposit Insurance Corporation shall be construed to
be references to the appointing agency and that references to
deposit insurance shall be omitted.
``(c) Certain Transfers Included.--Any reference in this
section to transfers of liabilities includes a ratable
transfer of liabilities within a priority class.
``Sec. 784. Right to be heard
``The Board or a Federal reserve bank (in the case of a
clearing bank that is a member of that bank) may raise and
may appear and be heard on any issue in a case under this
subchapter.''.
(6) Definitions of clearing organization, contract market,
and related definitions.--
(A) Section 761(2) of title 11, United States Code, is
amended to read as follows:
``(2) `clearing organization' means a derivatives clearing
organization registered under the Act;''.
(B) Section 761(7) of title 11, United States Code, is
amended to read as follows:
``(7) `contract market' means a registered entity;''.
(C) Section 761(8) of title 11, United States Code, is
amended to read as follows:
``(8) `contract of sale', `commodity', `derivatives
clearing organization', `future delivery', `board of trade',
`registered entity', and `futures commission merchant' have
the meanings assigned to those terms in the Act;''.
(e) Clerical Amendment.--The table of sections for chapter
7 of title 11, United States Code, is amended by adding at
the end the following new items:
``SUBCHAPTER V--CLEARING BANK LIQUIDATION
``Sec.
``781. Definitions.
``782. Selection of trustee.
``783. Additional powers of trustee.
``784. Right to be heard.''.
(g) Resolution of Edge Act Corporations.--The 16th
undesignated paragraph of section 25A of the Federal Reserve
Act (12 U.S.C. 624) is amended to read as follows:
``(16) Appointment of receiver or conservator.--
``(A) In general.--The Board may appoint a conservator or
receiver for a corporation organized under the provisions of
this section to the same extent and in the same manner as the
Comptroller of the Currency may appoint a conservator or
receiver for a national bank, and the conservator or receiver
for such corporation shall exercise the same powers,
functions, and duties, subject to the same limitations, as a
conservator or receiver for a national bank.
``(B) Equivalent authority.--The Board shall have the same
authority with respect to any conservator or receiver
appointed for a corporation organized under the provisions of
this section under this paragraph and any such corporation as
the Comptroller of the Currency has with respect to a
conservator or receiver of a national bank and the national
bank for which a conservator or receiver has been appointed.
``(C) Title 11 petitions.--The Board may direct the
conservator or receiver of a corporation organized under the
provisions of this section to file a petition pursuant to
title 11, United States Code, in which case, title 11, United
States Code, shall apply to the corporation in lieu of
otherwise applicable Federal or State insolvency law.''.
(g) Derivatives Clearing Organizations.--The Commodity
Exchange Act (7 U.S.C. 1 et seq.) is amended by inserting
after section 5a (as added by section 112) the following new
section:
``SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.
``(a) Registration Requirement.--It shall be unlawful for a
derivatives clearing organization, unless registered with the
Commission, directly or indirectly to make use of the mails
or any means or instrumentality of interstate commerce to
perform the functions of a derivatives clearing organization
described in section 1a(9) with respect to a contract of sale
of a commodity for future delivery, or option on such a
contract or on a commodity, in each case unless the contract
or option--
``(1) is excluded from this Act by subsection (a)(1)(C)(i),
(c), (d), (f), or (h) of section 2, or exempted under section
2(g) or 4(c); or
``(2) is a security futures product cleared by a clearing
agency registered under the Securities Exchange Act of 1934.
``(b) Voluntary Registration.--A derivatives clearing
organization that clears agreements, contracts, or
transactions excluded from this Act by subsection (c), (d),
(f), or (h) of section 2 of this Act, or exempted under
section 2(g) or 4(c) or other over-the-counter derivative
instruments (as defined in the Federal Deposit Insurance
Corporation Improvement Act of 1991) may register with the
Commission as a derivatives clearing organization.
``(c) Registration of Derivatives Clearing Organizations.--
``(1) Application.--A person desiring to register as a
derivatives clearing organization shall submit to the
Commission an application in such form and containing such
information as the Commission may require for the purpose of
making the determinations required for approval under
paragraph (2).
``(2) Core principles.--
``(A) In general.--To be registered and to maintain
registration as a derivatives clearing organization, an
applicant shall demonstrate to the Commission that the
applicant complies with the core principles specified in this
paragraph. The applicant shall have reasonable discretion in
establishing the manner in which it complies with the core
principles.
``(B) Financial resources.--The applicant shall demonstrate
that the applicant has adequate financial, operational, and
managerial resources to discharge the responsibilities of a
derivatives clearing organization.
``(C) Participant and product eligibility.--The applicant
shall establish--
``(i) appropriate admission and continuing eligibility
standards (including appropriate minimum financial
requirements) for members of and participants in the
organization; and
``(ii) appropriate standards for determining eligibility of
agreements, contracts, or transactions submitted to the
applicant.
``(D) Risk management.--The applicant shall have the
ability to manage the risks associated with discharging the
responsibilities of a derivatives clearing organization
through the use of appropriate tools and procedures.
``(E) Settlement procedures.--The applicant shall have the
ability to--
``(i) complete settlements on a timely basis under varying
circumstances;
``(ii) maintain an adequate record of the flow of funds
associated with each transaction that the applicant clears;
and
``(iii) comply with the terms and conditions of any
permitted netting or offset arrangements with other clearing
organizations.
``(F) Treatment of funds.--The applicant shall have
standards and procedures designed to protect and ensure the
safety of member and participant funds.
``(G) Default rules and procedures.--The applicant shall
have rules and procedures designed to allow for efficient,
fair, and safe management of events when members or
participants become insolvent or otherwise default on their
obligations to the derivatives clearing organization.
``(H) Rule enforcement.--The applicant shall--
[[Page H10425]]
``(i) maintain adequate arrangements and resources for the
effective monitoring and enforcement of compliance with rules
of the applicant and for resolution of disputes; and
``(ii) have the authority and ability to discipline, limit,
suspend, or terminate a member's or participant's activities
for violations of rules of the applicant.
``(I) System safeguards.--The applicant shall demonstrate
that the applicant--
``(i) has established and will maintain a program of
oversight and risk analysis to ensure that the automated
systems of the applicant function properly and have adequate
capacity and security; and
``(ii) has established and will maintain emergency
procedures and a plan for disaster recovery, and will
periodically test backup facilities sufficient to ensure
daily processing, clearing, and settlement of transactions.
``(J) Reporting.--The applicant shall provide to the
Commission all information necessary for the Commission to
conduct the oversight function of the applicant with respect
to the activities of the derivatives clearing organization.
``(K) Recordkeeping.--The applicant shall maintain records
of all activities related to the business of the applicant as
a derivatives clearing organization in a form and manner
acceptable to the Commission for a period of 5 years.
``(L) Public information.--The applicant shall make
information concerning the rules and operating procedures
governing the clearing and settlement systems (including
default procedures) available to market participants.
``(M) Information sharing.--The applicant shall--
``(i) enter into and abide by the terms of all appropriate
and applicable domestic and international information-sharing
agreements; and
``(ii) use relevant information obtained from the
agreements in carrying out the clearing organization's risk
management program.
``(N) Antitrust considerations.--Unless appropriate to
achieve the purposes of this Act, the derivatives clearing
organization shall avoid--
``(i) adopting any rule or taking any action that results
in any unreasonable restraint of trade; or
``(ii) imposing any material anticompetitive burden on
trading on the contract market.
``(3) Orders concerning competition.--A derivatives
clearing organization may request the Commission to issue an
order concerning whether a rule or practice of the applicant
is the least anticompetitive means of achieving the
objectives, purposes, and policies of this Act.
``(d) Existing Derivatives Clearing Organizations.--A
derivatives clearing organization shall be deemed to be
registered under this section to the extent that the
derivatives clearing organization clears agreements,
contracts, or transactions for a board of trade that has been
designated by the Commission as a contract market for such
agreements, contracts, or transactions before the date of
enactment of this section.
``(e) Appointment of Trustee.--
``(1) In general.--If a proceeding under section 5e results
in the suspension or revocation of the registration of a
derivatives clearing organization, or if a derivatives
clearing organization withdraws from registration, the
Commission, on notice to the derivatives clearing
organization, may apply to the appropriate United States
district court where the derivatives clearing organization is
located for the appointment of a trustee.
``(2) Assumption of jurisdiction.--If the Commission
applies for appointment of a trustee under paragraph (1)--
``(A) the court may take exclusive jurisdiction over the
derivatives clearing organization and the records and assets
of the derivatives clearing organization, wherever located;
and
``(B) if the court takes jurisdiction under subparagraph
(A), the court shall appoint the Commission, or a person
designated by the Commission, as trustee with power to take
possession and continue to operate or terminate the
operations of the derivatives clearing organization in an
orderly manner for the protection of participants, subject to
such terms and conditions as the court may prescribe.
``(f) Linking of Regulated Clearing Facilities.--
``(1) In general.--The Commission shall facilitate the
linking or coordination of derivatives clearing organizations
registered under this Act with other regulated clearance
facilities for the coordinated settlement of cleared
transactions.
``(2) Coordination.--In carrying out paragraph (1), the
Commission shall coordinate with the Federal banking agencies
and the Securities and Exchange Commission.''.
SEC. 114. COMMON PROVISIONS APPLICABLE TO REGISTERED
ENTITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by inserting after section 5b (as added by section 113(g))
the following:
``SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED
ENTITIES.
``(a) Acceptable Business Practices Under Core
Principles.--
``(1) In general.--Consistent with the purposes of this
Act, the Commission may issue interpretations, or approve
interpretations submitted to the Commission, of sections
5(d), 5a(d), and 5b(d)(2) to describe what would constitute
an acceptable business practice under such sections.
``(2) Effect of interpretation.--An interpretation issued
under paragraph (1) shall not provide the exclusive means for
complying with such sections.
``(b) Delegation of Functions Under Core Principles.--
``(1) In general.--A contract market or derivatives
transaction execution facility may comply with any applicable
core principle through delegation of any relevant function to
a registered futures association or another registered
entity.
``(2) Responsibility.--A contract market or derivatives
transaction execution facility that delegates a function
under paragraph (1) shall remain responsible for carrying out
the function.
``(c) New Contracts, New Rules, and Rule Amendments.--
``(1) In general.--Subject to paragraph (2), a registered
entity may elect to list for trading or accept for clearing
any new contract or other instrument, or may elect to approve
and implement any new rule or rule amendment, by providing to
the Commission (and the Secretary of the Treasury, in the
case of a contract of sale for future delivery of a
government security (or option thereon) or a rule or rule
amendment specifically related to such a contract) a written
certification that the new contract or instrument or clearing
of the new contract or instrument, new rule, or rule
amendment complies with this Act (including regulations under
this Act).
``(2) Prior approval.--
``(A) In general.--A registered entity may request that the
Commission grant prior approval to any new contract or other
instrument, new rule, or rule amendment.
``(B) Prior approval required.--Notwithstanding any other
provision of this section, a designated contract market shall
submit to the Commission for prior approval each rule
amendment that materially changes the terms and conditions,
as determined by the Commission, in any contract of sale for
future delivery of a commodity specifically enumerated in
section 1a(4) (or any option thereon) traded through its
facilities if the rule amendment applies to contracts and
delivery months which have already been listed for trading
and have open interest.
``(C) Deadline.--If prior approval is requested under
subparagraph (A), the Commission shall take final action on
the request not later than 90 days after submission of the
request, unless the person submitting the request agrees to
an extension of the time limitation established under this
subparagraph.
``(3) Approval.--The Commission shall approve any such new
contract or instrument, new rule, or rule amendment unless
the Commission finds that the new contract or instrument, new
rule, or rule amendment would violate this Act.
``(d) Violation of Core Principles.--
``(1) In general.--If the Commission determines, on the
basis of substantial evidence, that a registered entity is
violating any applicable core principle specified in section
5(d), 5a(d), or 5b(d)(2), the Commission shall--
``(A) notify the registered entity in writing of the
determination; and
``(B) afford the registered entity an opportunity to make
appropriate changes to bring the registered entity into
compliance with the core principles.
``(2) Failure to make changes.--If, not later than 30 days
after receiving a notification under paragraph (1), a
registered entity fails to make changes that, in the opinion
of the Commission, are necessary to comply with the core
principles, the Commission may take further action in
accordance with this Act.
``(e) Reservation of Emergency Authority.--Nothing in this
section shall limit or in any way affect the emergency powers
of the Commission provided in section 8a(9).''.
SEC. 115. EXEMPT BOARDS OF TRADE.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by inserting after section 5c (as added by section 114) the
following:
``SEC. 5D. EXEMPT BOARDS OF TRADE.
``(a) Election To Register With the Commission.--A board of
trade that meets the requirements of subsection (b) of this
section may operate as an exempt board of trade on receipt
from the board of trade of a notice, provided in such manner
as the Commission may by rule or regulation prescribe, that
the board of trade elects to operate as an exempt board of
trade. Except as otherwise provided in this section, no
provision of this Act (other than subparagraphs (C) and (D)
of section 2(a)(1) and section 12(e)(2)(B)) shall apply with
respect to a contract of sale (or option on such a contract)
of a commodity for future delivery traded on or through the
facilities of an exempt board of trade.
``(b) Criteria for Exemption.--To qualify for an exemption
under subsection (a), a board of trade shall limit trading on
or through the facilities of the board of trade to contracts
of sale of a commodity for future delivery (or options on
such contracts)--
``(1) for which the underlying commodity has--
``(A) a nearly inexhaustible deliverable supply;
``(B) a deliverable supply that is sufficiently large, and
a cash market sufficiently liquid, to render any contract
traded on the commodity highly unlikely to be susceptible to
the threat of manipulation; or
``(C) no cash market;
[[Page H10426]]
``(2) that are entered into only between persons that are
eligible contract participants at the time at which the
persons enter into the contract; and
``(3) that are not contracts of sale (or options on such a
contract) for future delivery of any security, including any
group or index of securities or any interest in, or based on
the value of, any security or any group or index of
securities.
``(c) Antimanipulation Requirements.--A party to a contract
for sale of a commodity for future delivery (or option on
such a contract) that is traded on an exempt board of trade
shall be subject to sections 4b, 4c(b), 4o, 6(c), and
9(a)(2), and the Commission shall enforce those provisions
with respect to any such trading.
``(d) Price Discovery.--If the Commission finds that an
exempt board of trade is a significant source of price
discovery for transactions in the cash market for the
commodity underlying any contract, agreement, or transaction
traded on or through the facilities of the board of trade,
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.
``(e) Jurisdiction.--The Commission shall have exclusive
jurisdiction over any account, agreement, or transaction
involving a contract of sale of a commodity for future
delivery, or option on such a contract or on a commodity, to
the extent that the account, agreement, or transaction is
traded on an exempt board of trade.
``(f) Subsidiaries.--A board of trade that is designated as
a contract market or registered as a derivatives transaction
execution facility may operate an exempt board of trade by
establishing a separate subsidiary or other legal entity and
otherwise satisfying the requirements of this section.
``(g) An exempt board of trade that meets the requirements
of subsection (b) shall not represent to any person that the
board of trade is registered with, or designated, recognized,
licensed, or approved by the Commission.''.
SEC. 116. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT
MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as
redesignated by section 111(1)) is amended to read as
follows:
``SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS
REGISTERED ENTITY.
``The failure of a registered entity to comply with any
provision of this Act, or any regulation or order of the
Commission under this Act, shall be cause for the suspension
of the registered entity for a period not to exceed 180 days,
or revocation of designation as a registered entity in
accordance with the procedures and subject to the judicial
review provided in section 6(b).''.
SEC. 117. AUTHORIZATION OF APPROPRIATIONS.
Section 12(d) of the Commodity Exchange Act (7 U.S.C.
16(d)) is amended by striking ``2000'' and inserting
``2005''.
SEC. 118. PREEMPTION.
Section 12 of the Commodity Exchange Act (7 U.S.C. 16(e))
is amended by striking subsection (e) and inserting the
following:
``(e) Relation to Other Law, Departments, or Agencies.--
``(1) Nothing in this Act shall supersede or preempt--
``(A) criminal prosecution under any Federal criminal
statute;
``(B) the application of any Federal or State statute
(except as provided in paragraph (2)), including any rule or
regulation thereunder, to any transaction in or involving any
commodity, product, right, service, or interest--
``(i) that is not conducted on or subject to the rules of a
registered entity or exempt board of trade;
``(ii) (except as otherwise specified by the Commission by
rule or regulation) that is not conducted on or subject to
the rules of any board of trade, exchange, or market located
outside the United States, its territories or possessions; or
``(iii) that is not subject to regulation by the Commission
under section 4c or 19; or
``(C) the application of any Federal or State statute,
including any rule or regulation thereunder, to any person
required to be registered or designated under this Act who
shall fail or refuse to obtain such registration or
designation.
``(2) This Act shall supersede and preempt the application
of any State or local law that prohibits or regulates gaming
or the operation of bucket shops (other than antifraud
provisions of general applicability) in the case of--
``(A) an electronic trading facility under section 2(e);
``(B) an agreement, contract, or transaction that is
excluded or exempt under section 2(c), 2(d), 2(f), 2(g), or
2(h) or is covered by the terms of an exemption granted by
the Commission under section 4(c) (regardless of whether any
such agreement, contract, or transaction is otherwise subject
to this Act).''.
SEC. 119. PREDISPUTE RESOLUTION AGREEMENTS FOR INSTITUTIONAL
CUSTOMERS.
Section 14 of the Commodity Exchange Act (7 U.S.C. 18) is
amended by striking subsection (g) and inserting the
following:
``(g) Predispute Resolution Agreements for Institutional
Customers.--Nothing in this section prohibits a registered
futures commission merchant from requiring a customer that is
an eligible contract participant, as a condition to the
commission merchant's conducting a transaction for the
customer, to enter into an agreement waiving the right to
file a claim under this section.''.
SEC. 120. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST
LAWS.
Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is
amended by striking ``Sec. 15. The Commission'' and inserting
the following:
``SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST
LAWS.
``(a) Costs and Benefits.--
``(1) In general.--Before promulgating a regulation under
this Act or issuing an order (except as provided in paragraph
(3)), the Commission shall consider the costs and benefits of
the action of the Commission.
``(2) Considerations.--The costs and benefits of the
proposed Commission action shall be evaluated in light of--
``(A) considerations of protection of market participants
and the public;
``(B) considerations of the efficiency, competitiveness,
and financial integrity of futures markets;
``(C) considerations of price discovery;
``(D) considerations of sound risk management practices;
and
``(E) other public interest considerations.
``(3) Applicability.--This subsection does not apply to the
following actions of the Commission:
``(A) An order that initiates, is part of, or is the result
of an adjudicatory or investigative process of the
Commission.
``(B) An emergency action.
``(C) A finding of fact regarding compliance with a
requirement of the Commission.
``(b) Antitrust Laws.--The Commission''.
SEC. 121. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE
COUNTERPARTIES.
Section 22(a) of the Commodity Exchange Act (7 U.S.C.
25(a)) is amended by adding at the end the following:
``(4) Contract enforcement between eligible
counterparties.--No agreement, contract, or transaction
between eligible contract participants or persons reasonably
believed to be eligible contract participants shall be void,
voidable, or unenforceable, and no such party shall be
entitled to rescind, or recover any payment made with respect
to, such an agreement, contract, or transaction, under this
section or any other provision of Federal or State law, based
solely on the failure of the agreement, contract, or
transaction to comply with the terms or conditions of an
exemption or exclusion from any provision of this Act or
regulations of the Commission.''.
SEC. 122. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA
FIDE HEDGING BY AGRICULTURAL PRODUCERS.
The Commodity Exchange Act, as otherwise amended by this
Act, is amended by inserting after section 4o the following:
``SEC. 4P. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE
BONA FIDE HEDGING BY AGRICULTURAL PRODUCERS.
``(a) Authority.--The Commission shall consider issuing
rules or orders which--
``(1) prescribe procedures under which each contract market
is to provide for orderly delivery, including temporary
storage costs, of any agricultural commodity enumerated in
section 1a(4) which is the subject of a contract for purchase
or sale for future delivery;
``(2) increase the ease with which domestic agricultural
producers may participate in contract markets, including by
addressing cost and margin requirements, so as to better
enable the producers to hedge price risk associated with
their production;
``(3) provide flexibility in the minimum quantities of such
agricultural commodities that may be the subject of a
contract for purchase or sale for future delivery that is
traded on a contract market, to better allow domestic
agricultural producers to hedge such price risk; and
``(4) encourage contract markets to provide information and
otherwise facilitate the participation of domestic
agricultural producers in contract markets.
``(b) Report.--Within 1 year after the date of enactment of
this section, the Commission shall submit to the Committee on
Agriculture of the House of Representatives and the Committee
on Agriculture, Nutrition, and Forestry of the Senate a
report on the steps it has taken to implement this section
and on the activities of contract markets pursuant to this
section.''.
SEC. 123. RULE OF CONSTRUCTION.
Except as expressly provided in this Act or an amendment
made by this Act, nothing in this Act or an amendment made by
the Act supersedes, affects, or otherwise limits or expands
the scope and applicability of laws governing the Securities
and Exchange Commission.
SEC. 124. TECHNICAL AND CONFORMING AMENDMENTS.
(a) Commodity Exchange Act.--
(1) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a),
as amended by section 101, is amended--
(A) in paragraphs (5), (6), (16), (17), (20), and (23), by
inserting ``or derivatives transaction execution facility''
after ``contract market'' each place it appears; and
(B) in paragraph (24)--
(i) in the paragraph heading, by striking ``contract
market'' and inserting ``registered entity'';
(ii) by striking ``contract market'' each place it appears
and inserting ``registered entity''; and
(iii) by adding at the end the following:
``A participant in an alternative trading system that is
designated as a contract market pursuant to section 5f is
deemed a member of
[[Page H10427]]
the contract market for purposes of transactions in security
futures products through the contract market.''.
(2) Section 2 of the Commodity Exchange Act (7 U.S.C. 2,
2a, 4, 4a, 3) is amended--
(A) by striking ``Sec. 2. (a)(1)(A)(i) The'' and inserting
the following:
``SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL
FOR ACT OF AGENT; COMMODITY FUTURES TRADING
COMMISSION; TRANSACTION IN INTERSTATE COMMERCE.
``(a) Jurisdiction of Commission; Commodity Futures Trading
Commission.--
``(1) Jurisdiction of commission.--
``(A) In general.--The''; and
(B) in subsection (a)(1)--
(i) in subparagraph (A) (as amended by subparagraph (A) of
this paragraph)--
(II) by striking ``subparagraph (B) of this subparagraph''
and inserting ``subparagraphs (C) and (D) of this paragraph
and subsections (c) through (i) of this section'';
(III) by striking ``contract market designated pursuant to
section 5 of this Act'' and inserting ``contract market
designated or derivatives transaction execution facility
registered pursuant to section 5 or 5a'';
(IV) by striking clause (ii); and
(V) in clause (iii), by striking ``(iii) The'' and
inserting the following:
``(B) Liability of principal for act of agent.--The''; and
(ii) in subparagraph (B)--
(I) by striking ``(B)'' and inserting ``(C)'';
(II) in clause (v)--
(aa) by striking ``section 3 of the Securities Act of
1933''; and
(bb) by inserting ``or subparagraph (D)'' after
``subparagraph''; and
(III) by moving clauses (i) through (v) 4 ems to the right;
(C) in subsection (a)(7), by striking ``contract market''
and inserting ``registered entity'';
(D) in subsection (a)(8)(B)(ii)--
(i) in the first sentence, by striking ``designation as a
contract market'' and inserting ``designation or registration
as a contract market or derivatives transaction execution
facility'';
(ii) in the second sentence, by striking ``designate a
board of trade as a contract market'' and inserting
``designate or register a board of trade as a contract market
or derivatives transaction execution facility''; and
(iii) in the fourth sentence, by striking ``designating, or
refusing, suspending, or revoking the designation of, a board
of trade as a contract market involving transactions for
future delivery referred to in this clause or in considering
possible emergency action under section 8a(9) of this Act''
and inserting ``designating, registering, or refusing,
suspending, or revoking the designation or registration of, a
board of trade as a contract market or derivatives
transaction execution facility involving transactions for
future delivery referred to in this clause or in considering
any possible action under this Act (including without
limitation emergency action under section 8a(9))'', and by
striking ``designation, suspension, revocation, or emergency
action'' and inserting ``designation, registration,
suspension, revocation, or action''; and
(E) in subsection (a), by moving paragraphs (2) through (9)
2 ems to the right.
(3) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is
amended--
(A) in subsection (a)--
(i) in paragraph (1), by striking ``designated by the
Commission as a `contract market' for'' and inserting
``designated or registered by the Commission as a contract
market or derivatives transaction execution facility for'';
(ii) in paragraph (2), by striking ``member of such''; and
(iii) in paragraph (3), by inserting ``or derivatives
transaction execution facility'' after ``contract market'';
and
(B) in subsection (c)--
(i) in paragraph (1)--
(I) by striking ``designated as a contract market'' and
inserting ``designated or registered as a contract market or
derivatives transaction execution facility''; and
(II) by striking ``section 2(a)(1)(B)'' and inserting
``subparagraphs (C)(ii) and (D) of section 2(a)(1), except
that the Commission and the Securities and Exchange
Commission may by rule, regulation, or order jointly exclude
any agreement, contract, or transaction from section
2(a)(1)(D)''; and
(ii) in paragraph (2)(B)(ii), by inserting ``or derivatives
transaction execution facility'' after ``contract market''.
(4) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a)
is amended--
(A) in subsection (a)--
(i) in the first sentence, by inserting ``or derivatives
transaction execution facilities'' after ``contract
markets''; and
(ii) in the second sentence, by inserting ``or derivatives
transaction execution facility'' after ``contract market'';
(B) in subsection (b)--
(i) in paragraph (1), by inserting ``, or derivatives
transaction execution facility or facilities,'' after
``markets''; and
(ii) in paragraph (2), by inserting ``or derivatives
transaction execution facility'' after ``contract market'';
and
(C) in subsection (e)--
(i) by striking ``contract market or'' each place it
appears and inserting ``contract market, derivatives
transaction execution facility, or'';
(ii) by striking ``licensed or designated'' each place it
appears and inserting ``licensed, designated, or
registered''; and
(iii) by striking ``contract market, or'' and inserting
``contract market or derivatives transaction execution
facility, or''.
(5) Section 4b(a) of the Commodity Exchange Act (7 U.S.C.
6b(a)) is amended by striking ``contract market'' each place
it appears and inserting ``registered entity''.
(6) Sections 4c(g), 4d, 4e, and 4f of the Commodity
Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f) are amended by
inserting ``or derivatives transaction execution facility''
after ``contract market'' each place it appears.
(7) Section 4g of the Commodity Exchange Act (7 U.S.C. 6g)
is amended--
(A) in subsection (b), by striking ``clearinghouse and
contract market'' and inserting ``registered entity''; and
(B) in subsection (f), by striking ``clearinghouses,
contract markets, and exchanges'' and inserting ``registered
entities''.
(8) Section 4h of the Commodity Exchange Act (7 U.S.C. 6h)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(9) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i)
is amended in the first sentence by inserting ``or
derivatives transaction execution facility'' after ``contract
market''.
(10) Section 4l of the Commodity Exchange Act (7 U.S.C. 6l)
is amended by inserting ``or derivatives transaction
execution facilities'' after ``contract markets'' each place
it appears.
(11) Section 4p of the Commodity Exchange Act (7 U.S.C. 6p)
is amended--
(A) in the third sentence of subsection (a), by striking
``Act or contract markets'' and inserting ``Act, contract
markets, or derivatives transaction execution facilities'';
and
(B) in subsection (b), by inserting ``derivatives
transaction execution facility,'' after ``contract market,''.
(12) Section 6 of the Commodity Exchange Act (7 U.S.C. 8,
9, 9a, 9b, 13b, 15) is amended--
(A) in subsection (a)--
(i) in the first sentence--
(I) by striking ``board of trade desiring to be designated
a `contract market' shall make application to the Commission
for such designation'' and inserting ``person desiring to be
designated or registered as a contract market or derivatives
transaction execution facility shall make application to the
Commission for the designation or registration'';
(II) by striking ``above conditions'' and inserting
``conditions set forth in this Act''; and
(III) by striking ``above requirements'' and inserting
``the requirements of this Act'';
(ii) in the second sentence, by striking ``designation as a
contract market within one year'' and inserting ``designation
or registration as a contract market or derivatives
transaction execution facility within 180 days'';
(iii) in the third sentence--
(I) by striking ``board of trade'' and inserting
``person''; and
(II) by striking ``one-year period'' and inserting ``180-
day period''; and
(iv) in the last sentence, by striking ``designate as a
`contract market' any board of trade that has made
application therefor, such board of trade'' and inserting
``designate or register as a contract market or derivatives
transaction execution facility any person that has made
application therefor, the person'';
(B) in subsection (b)--
(i) in the first sentence--
(I) by striking ``designation of any board of trade as a
`contract market' upon'' and inserting ``designation or
registration of any contract market or derivatives
transaction execution facility on'';
(II) by striking ``board of trade'' each place it appears
and inserting ``contract market or derivatives transaction
execution facility''; and
(III) by striking ``designation as set forth in section 5
of this Act'' and inserting ``designation or registration as
set forth in sections 5 through 5b or section 5f'';
(ii) in the second sentence--
(I) by striking ``board of trade'' the first place it
appears and inserting ``contract market or derivatives
transaction execution facility''; and
(II) by striking ``board of trade'' the second and third
places it appears and inserting ``person''; and
(iii) in the last sentence, by striking ``board of trade''
each place it appears and inserting ``person'';
(C) in subsection (c)--
(i) by striking ``contract market'' each place it appears
and inserting ``registered entity'';
(ii) by striking ``contract markets'' each place it appears
and inserting ``registered entities''; and
(iii) by striking ``trading privileges'' each place it
appears and inserting ``privileges'';
(D) in subsection (d), by striking ``contract market'' each
place it appears and inserting ``registered entity''; and
(E) in subsection (e), by striking ``trading on all
contract markets'' each place it appears and inserting ``the
privileges of all registered entities''.
(13) Section 6a of the Commodity Exchange Act (7 U.S.C.
10a) is amended--
(A) in the first sentence of subsection (a), by striking
``designated as a `contract market' shall'' and inserting
``designated or registered as a contract market or a
derivatives transaction execution facility''; and
(B) in subsection (b), by striking ``designated as a
contract market'' and inserting
[[Page H10428]]
``designated or registered as a contract market or a
derivatives transaction execution facility''.
(14) Section 6b of the Commodity Exchange Act (7 U.S.C.
13a) is amended--
(A) by striking ``contract market'' each place it appears
and inserting ``registered entity'';
(B) in the first sentence, by striking ``designation as set
forth in section 5 of this Act'' and inserting ``designation
or registration as set forth in sections 5 through 5c''; and
(C) in the last sentence, by striking ``the contract
market's ability'' and inserting ``the ability of the
registered entity''.
(15) Section 6c(a) of the Commodity Exchange Act (7 U.S.C.
13a-1(a)) by striking ``contract market'' and inserting
``registered entity''.
(16) Section 6d(1) of the Commodity Exchange Act (7 U.S.C.
13a-2(1)) is amended by inserting ``derivatives transaction
execution facility,'' after ``contract market,''.
(17) Section 7 of the Commodity Exchange Act (7 U.S.C. 11)
is amended--
(A) in the first sentence--
(i) by striking ``board of trade'' and inserting
``person'';
(ii) by inserting ``or registered'' after ``designated'';
(iii) by inserting ``or registration'' after
``designation'' each place it appears; and
(iv) by striking ``contract market'' each place it appears
and inserting ``registered entity'';
(B) in the second sentence--
(i) by striking ``designation of such board of trade as a
contract market'' and inserting ``designation or registration
of the registered entity''; and
(ii) by striking ``contract markets'' and inserting
``registered entities''; and
(C) in the last sentence--
(i) by striking ``board of trade'' and inserting
``person''; and
(ii) by striking ``designated again a contract market'' and
inserting ``designated or registered again a registered
entity''.
(18) Section 8(c) of the Commodity Exchange Act (7 U.S.C.
12(c)) is amended in the first sentence by striking ``board
of trade'' and inserting ``registered entity''.
(19) Section 8a of the Commodity Exchange Act (7 U.S.C.
12a) is amended--
(A) by striking ``contract market'' each place it appears
and inserting ``registered entity''; and
(B) in paragraph (2)(F), by striking ``trading privileges''
and inserting ``privileges''.
(20) Sections 8b and 8c(e) of the Commodity Exchange Act (7
U.S.C. 12b, 12c(e)) are amended by striking ``contract
market'' each place it appears and inserting ``registered
entity''.
(21) Section 8e of the Commodity Exchange Act (7 U.S.C.
12e) is repealed.
(22) Section 9 of the Commodity Exchange Act (7 U.S.C. 13)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(23) Section 14 of the Commodity Exchange Act (7 U.S.C. 18)
is amended--
(A) in subsection (a)(1)(B), by striking ``contract
market'' and inserting ``registered entity''; and
(B) in subsection (f), by striking ``contract markets'' and
inserting ``registered entities''.
(24) Section 17 of the Commodity Exchange Act (7 U.S.C. 21)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(25) Section 22 of the Commodity Exchange Act (7 U.S.C. 25)
is amended--
(A) in subsection (a)--
(i) in paragraph (1)--
(I) by striking ``contract market, clearing organization of
a contract market, licensed board of trade,'' and inserting
``registered entity''; and
(II) in subparagraph (C)(i), by striking ``contract
market'' and inserting ``registered entity'';
(ii) in paragraph (2), by striking ``sections 5a(11),'' and
inserting ``sections 5(d)(13), 5b(b)(1)(E),''; and
(iii) in paragraph (3), by striking ``contract market'' and
inserting ``registered entity''; and
(B) in subsection (b)--
(i) in paragraph (1)--
(I) by striking ``contract market or clearing organization
of a contract market'' and inserting ``registered entity'';
(II) by striking ``section 5a(8) and section 5a(9) of this
Act'' and inserting ``sections 5 through 5c'';
(III) by striking ``contract market, clearing organization
of a contract market, or licensed board of trade'' and
inserting ``registered entity''; and
(IV) by striking ``contract market or licensed board of
trade'' and inserting ``registered entity'';
(ii) in paragraph (3)--
(I) by striking ``a contract market, clearing organization,
licensed board of trade,'' and inserting ``registered
entity''; and
(II) by striking ``contract market, licensed board of
trade'' and inserting ``registered entity'';
(iii) in paragraph (4), by striking ``contract market,
licensed board of trade, clearing organization,'' and
inserting ``registered entity''; and
(iv) in paragraph (5), by striking ``contract market,
licensed board of trade, clearing organization,'' and
inserting ``registered entity''.
(b) Federal Deposit Insurance Corporation Improvement Act
of 1991.--Section 402(2) of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (12 U.S.C. 4402(2)) is
amended by striking subparagraph (B) and inserting the
following:
``(B) that is registered as a derivatives clearing
organization under section 5b of the Commodity Exchange
Act.''.
(c) Tax Treatment of Securities Futures Contracts.--
(1) In general.--Subpart IV of subchapter P of chapter 1 of
the Internal Revenue Code of 1986 (relating to special rules
for determining gains and losses) is amended by inserting
after section 1234A the following new section:
``SEC. 1234B. GAINS OR LOSSES FROM SECURITIES FUTURES
CONTRACTS.
``(a) Treatment of Gain or Loss.--
``(1) In general.--Gain or loss attributable to the sale or
exchange of a securities futures contract shall be considered
gain or loss from the sale or exchange of property which has
the same character as the property to which the contract
relates has in the hands of the taxpayer (or would have in
the hands of the taxpayer if acquired by the taxpayer).
``(2) Nonapplication of subsection.--This subsection shall
not apply to--
``(A) a contract which constitutes property described in
paragraph (1) or (7) of section 1221(a), and
``(B) any income derived in connection with a contract
which, without regard to this subsection, is treated as other
than gain from the sale or exchange of a capital asset.
``(b) Short-Term Gains and Losses.--Except as provided in
the regulations under section 1092(b) or this section, if
gain or loss on the sale or exchange of a securities futures
contract to sell property is considered as gain or loss from
the sale or exchange of a capital asset, such gain or loss
shall be treated as short-term capital gain or loss.
``(c) Securities Futures Contract.--For purposes of this
section, the term `securities futures contract' means any
security future (as defined in section 3(a)(55)(A) of the
Securities Exchange Act of 1934, as in effect on the date of
the enactment of this section).
``(d) Contracts Not Treated as Commodity Futures
Contracts.--For purposes of this title, a securities futures
contract shall not be treated as a commodity futures
contract.
``(e) Regulations.--The Secretary shall prescribe such
regulations as may be appropriate to provide for the proper
treatment of securities futures contracts under this title.''
(2) Terminations, etc.--Section 1234A of such Code is
amended--
(A) by inserting ``(other than a securities futures
contract, as defined in section 1234B)'' after ``right or
obligation'' in paragraph (1),
(B) by striking ``or'' at the end of paragraph (1),
(C) by adding ``or'' at the end of paragraph (2), and
(D) by inserting after paragraph (2) the following new
paragraph:
``(3) a securities futures contract (as so defined) which
is a capital asset in the hands of the taxpayer,''.
(3) Nonrecognition under section 1032.--The second sentence
of section 1032(a) of such Code is amended by inserting ``,
or with respect to a securities futures contract (as defined
in section 1234B),'' after ``an option''.
(4) Treatment under wash sales rules.--Section 1091 of such
Code is amended by adding at the end the following new
subsection:
``(f) Cash Settlement.--This section shall not fail to
apply to a contract or option to acquire or sell stock or
securities solely by reason of the fact that the contract or
option settles in (or could be settled in) cash or property
other than such stock or securities.''
(5) Treatment under straddle rules.--Clause (i) of section
1092(d)(3)(B) of such Code is amended by striking ``or'' at
the end of subclause (I), by redesignating subclause (II) as
subclause (III), and by inserting after subclause (I) the
following new subclause:
``(II) a securities futures contract (as defined in section
1234B) with respect to such stock or substantially identical
stock or securities, or''.
(6) Treatment under short sales rules.--Paragraph (2) of
section 1233(e) of such Code is amended by striking ``and''
at the end of subparagraph (B), by striking the period at the
end of subparagraph (C) and inserting ``; and'', and by
adding at the end the following:
``(D) a securities futures contract (as defined in section
1234B) to acquire substantially identical property shall be
treated as substantially identical property.''
(7) Treatment under section 1256.--
(A)(i) Subsection (b) of section 1256 of such Code is
amended by striking ``and'' at the end of paragraph (3), by
striking the period at the end of paragraph (4) and inserting
``, and'', and by adding at the end the following:
``(5) any dealer securities futures contract.
The term `section 1256 contract' shall not include any
securities futures contract or option to enter into such a
contract unless such contract or option is a dealer
securities futures contract.''
(ii) Subsection (g) of section 1256 of such Code is amended
by adding at the end the following new paragraph:
``(9) Dealer securities futures contract.--
``(A) In general.--The term `dealer securities futures
contract' means, with respect to any dealer, any securities
futures contract,
[[Page H10429]]
and any option to enter into such a contract, which--
``(i) is entered into by such dealer (or, in the case of an
option, is purchased or granted by such dealer) in the normal
course of his activity of dealing in such contracts or
options, as the case may be, and
``(ii) is traded on a qualified board or exchange.
``(B) Dealer.--For purposes of subparagraph (A), a person
shall be treated as a dealer in securities futures contracts
or options on such contracts if the Secretary determines that
such person performs, with respect to such contracts or
options, as the case may be, functions similar to the persons
described in paragraph (8)(A). Such determination shall be
made to the extent appropriate to carry out the purposes of
this section.
``(C) Securities futures contract.--The term `securities
futures contract' has the meaning given to such term by
section 1234B.''
(B) Paragraph (4) of section 1256(f) of such Code is
amended--
(i) by inserting ``, or dealer securities futures
contracts,'' after ``dealer equity options'' in the text, and
(ii) by inserting ``and dealer securities futures
contracts'' after ``dealer equity options'' in the heading.
(C) Paragraph (6) of section 1256(g) of such Code is
amended to read as follows:
``(6) Equity option.--The term `equity option' means any
option--
``(A) to buy or sell stock, or
``(B) the value of which is determined directly or
indirectly by reference to any stock or any narrow-based
security index (as defined in section 3(a)(55) of the
Securities Exchange Act of 1934, as in effect on the date of
the enactment of this paragraph).
The term `equity option' includes such an option with respect
to a group of stocks only if such group meets the
requirements for a narrow-based security index (as so
defined).''
(D) The Secretary of the Treasury or his delegate shall
make the determinations under section 1256(g)(9)(B) of the
Internal Revenue Code of 1986, as added by this Act, not
later than July 1, 2001.
(8) Conforming amendments.--
(A) Section 1223 of such Code is amended by redesignating
paragraph (16) as paragraph (17) and by inserting after
paragraph (15) the following new paragraph:
``(16) If the security to which a securities futures
contract (as defined in section 1234B) relates (other than a
contract to which section 1256 applies) is acquired in
satisfaction of such contract, in determining the period for
which the taxpayer has held such security, there shall be
included the period for which the taxpayer held such contract
if such contract was a capital asset in the hands of the
taxpayer.''.
(B) The table of sections for subpart IV of subchapter P of
chapter 1 of such Code is amended by inserting after the item
relating to section 1234A the following new item:
``Sec. 1234B. Securities futures contracts.''
(9) Effective date.--The amendments made by this subsection
shall take effect on the date of the enactment of this Act.
(d) Designation of Contract Markets.--Section 7701 of the
Internal Revenue Code of 1986 is amended by redesignating
subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
``(m) Designation of Contract Markets.--Any designation by
the Commodity Futures Trading Commission of a contract market
which could not have been made under the law in effect on the
day before the date of the enactment of the Commodity Futures
Modernization Act of 2000 shall apply for purposes of this
title except to the extent provided in regulations prescribed
by the Secretary.''
SEC. 125. PRIVACY.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by inserting after section 5f (as added by section 222) the
following:
``SEC. 5G. PRIVACY.
``(a) Treatment as Financial Institutions.--Notwithstanding
section 509(3)(B) of the Gramm-Leach-Bliley Act, any futures
commission merchant, commodity trading advisor, commodity
pool operator, or introducing broker that is subject to the
jurisdiction of the Commission under this Act with respect to
any financial activity shall be treated as a financial
institution for purposes of title V of such Act with respect
to such financial activity.
``(b) Treatment of CFTC as Federal Functional Regulator.--
For purposes of title V of such Act, the Commission shall be
treated as a Federal functional regulator within the meaning
of section 509(2) of such Act and shall prescribe regulations
under such title within 6 months after the date of enactment
of this section.''.
SEC. 126. REPORT TO CONGRESS.
(a) The Commodity Futures Trading Commission (in this
section referred to as the ``Commission'') shall undertake
and complete a study of the Commodity Exchange Act (in this
section referred to as ``the Act'') and the Commission's
rules, regulations and orders governing the conduct of
persons required to be registered under the Act, not later
than 1 year after the date of the enactment of this Act. The
study shall identify--
(1) the core principles and interpretations of acceptable
business practices that the Commission has adopted or intends
to adopt to replace the provisions of the Act and the
Commission's rules and regulations thereunder;
(2) the rules and regulations that the Commission has
determined must be retained and the reasons therefor;
(3) the extent to which the Commission believes it can
effect the changes identified in paragraph (1) of this
subsection through its exemptive authority under section 4(c)
of the Act; and
(4) the regulatory functions the Commission currently
performs that can be delegated to a registered futures
association (within the meaning of the Act) and the
regulatory functions that the Commission has determined must
be retained and the reasons therefor.
(b) In conducting the study, the Commission shall solicit
the views of the public as well as Commission registrants,
registered entities, and registered futures associations (all
within the meaning of the Act).
(c) The Commission shall transmit to the Committee on
Agriculture of the House of Representatives and the Committee
on Agriculture, Nutrition, and Forestry of the Senate a
report of the results of its study, which shall include an
analysis of comments received.
SEC. 127. INTERNATIONAL ACTIVITIES OF THE COMMODITY FUTURES
TRADING COMMISSION.
(a) Findings.--The Congress finds that--
(1) derivatives markets serving United States industry are
increasingly global in scope;
(2) developments in data processing and communications
technologies enable users of risk management services to
analyze and compare those services on a worldwide basis;
(3) financial services regulatory policy must be flexible
to account for rapidly changing derivatives industry business
practices;
(4) regulatory impediments to the operation of global
business interests can compromise the competitiveness of
United States businesses;
(5) events that disrupt financial markets and economies are
often global in scope, require rapid regulatory response, and
coordinated regulatory effort across international
jurisdictions;
(6) through its membership in the International
Organisation of Securities Commissions, the Commodity Futures
Trading Commission has promoted beneficial communication
among market regulators and international regulatory
cooperation; and
(7) the Commodity Futures Trading Commission and other
United States financial regulators and self-regulatory
organizations should continue to foster productive and
cooperative working relationships with their counterparts in
foreign jurisdictions.
(b) Sense of the Congress.--It is the sense of the Congress
that, consistent with its responsibilities under the
Commodity Exchange Act, the Commodity Futures Trading
Commission should, as part of its international activities,
continue to coordinate with foreign regulatory authorities,
to participate in international regulatory organizations and
forums, and to provide technical assistance to foreign
government authorities, in order to encourage--
(1) the facilitation of cross-border transactions through
the removal or lessening of any unnecessary legal or
practical obstacles;
(2) the development of internationally accepted regulatory
standards of best practice;
(3) the enhancement of international supervisory
cooperation and emergency procedures;
(4) the strengthening of international cooperation for
customer and market protection; and
(5) improvements in the quality and timeliness of
international information sharing.
SEC. 128. RULES OF CONSTRUCTION.
(a) Financial Institution Activities.--No provision of this
Act, or any amendment made by this Act to any other provision
of law, shall be construed as authorizing, supporting the
authorization for, or implying any prior authorization for,
any financial institution (as defined in section 1a(15) of
the Commodity Exchange Act), or any subsidiary of such
financial institution, to engage in any activity or
transaction or to hold any security or other asset.
(b) Depository Institutions.--Section 18 of the Federal
Deposit Insurance Act (12 U.S.C. 1828) is amended by adding
at the end the following new subsection:
``(v) Rules of Construction.--
``(1) In general.--No depository institution may take
delivery of an equity security under a security futures
product (as defined in section 3(a)(56) of the Securities
Exchange Act of 1934).
``(2) Additional rule.--Paragraph (1) shall not be
construed as creating any inference that a depository
institution may take delivery of, or make any investment in,
an equity security under any other circumstance.''.
TITLE II--COORDINATED REGULATION OF SECURITY FUTURES PRODUCTS
Subtitle A--Securities Law Amendments
SEC. 201. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF
1934.
Section 3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)) is amended--
(1) in paragraph (10), by inserting ``security future,''
after ``treasury stock,'';
(2) by striking paragraph (11) and inserting the following:
``(11) The term `equity security' means any stock or
similar security; or any security future on any such
security; or any security convertible, with or without
consideration, into such a security, or carrying any warrant
or right to subscribe to or purchase such a
[[Page H10430]]
security; or any such warrant or right; or any put, call,
straddle, option, or privilege on any such security; or any
other security which the Commission shall deem to be of
similar nature and consider necessary or appropriate, by such
rules and regulations as it may prescribe in the public
interest or for the protection of investors, to treat as an
equity security.'';
(3) in paragraph (13), by adding at the end the following:
``For security futures products, such term includes any
contract, agreement, or transaction for future delivery.'';
(4) in paragraph (14), by adding at the end the following:
``For security futures products, such term includes any
contract, agreement, or transaction for future delivery.'';
and
(5) by adding at the end the following:
``(55)(A) The term `security future' means a contract of
sale for future delivery of a single security or of a narrow-
based security index, including any interest therein or based
on the value thereof, except an exempted security under
section 3(a)(12) of the Securities Exchange Act of 1934 as in
effect on the date of enactment of the Futures Trading Act of
1982 (other than any municipal security as defined in section
3(a)(29) as in effect on the date of enactment of the Futures
Trading Act of 1982). The term `security future' does not
include any agreement, contract, or transaction excluded
under subsection (c), (d), (f), or (h) of section 2 of the
Commodity Exchange Act as in effect on the date of enactment
of the Commodity Futures Modernization Act of 2000.
``(B) The term `narrow-based security index' means an
index--
``(i) that has 9 or fewer component securities;
``(ii) in which a component security comprises more than 30
percent of the index's weighting;
``(iii) in which the 5 highest weighted component
securities in the aggregate comprise more than 60 percent of
the index's weighting; or
``(iv) in which the lowest weighted component securities
comprising, in the aggregate, 25 percent of the index's
weighting have an aggregate dollar value of average daily
trading volume of less than $50,000,000 (or in the case of an
index with 15 or more component securities, $30,000,000),
except that if there are two or more securities with equal
weighting that could be included in the calculation of the
lowest weighted component securities comprising, in the
aggregate, 25 percent of the index's weighting, such
securities shall be ranked from lowest to highest dollar
value of average daily trading volume and shall be included
in the calculation based on their ranking starting with the
lowest ranked security.
``(C) Notwithstanding subparagraph (B), an index is not a
narrow-based security index if--
``(i)(I) it has at least 9 component securities;
``(II) no component security comprises more than 30 percent
of the index's weighting; and
``(III) each component security is--
``(aa) registered pursuant to section 12 of this title;
``(bb) 1 of 750 securities with the largest market
capitalization; and
``(cc) 1 of 675 securities with the largest dollar value of
average daily trading volume;
``(ii) it is a contract of sale for future delivery with
respect to which a board of trade was designated as a
contract market by the Commodity Futures Trading Commission
prior to the date of enactment of the Commodity Futures
Modernization Act of 2000;
``(iii)(I) it traded on a designated contract market or
registered derivatives transaction execution facility for at
least 30 days as a contract of sale for future delivery that
was not a narrow-based security index; and
``(II) it has been a narrow-based security index for no
more than 45 business days over 3 consecutive calendar
months;
``(iv) it is traded on or subject to the rules of a foreign
board of trade and meets such requirements as are jointly
established by rule or regulation by the Commission and the
Commodity Futures Trading Commission;
``(v) no more than 18 months have passed since enactment of
the Commodity Futures Modernization Act of 2000 and it is (I)
traded on or subject to the rules of a foreign board of
trade; (II) the offer and sale in the United States of a
contract of sale for future delivery on such index was
authorized prior to the effective date of the Commodity
Futures Modernization Act of 2000; and (III) the conditions
of such authorization continue to be met; or
``(vi) it is traded on or subject to the rules of a board
of trade and meets such requirements as are jointly
established by rule, regulation, or order by the Commission
and the Commodity Futures Trading Commission.
``(D) Within 1 year after the enactment of the Commodity
Futures Modernization Act of 2000, the Commission and the
Commodity Futures Trading Commission jointly shall adopt
rules or regulations that set forth the requirements under
clause (iv) of subparagraph (C).
``(E) An index that is a narrow-based security index solely
because it was a narrow-based security index for more than 45
business days over 3 consecutive calendar months pursuant to
clause (iii) of subparagraph (C) shall not be a narrow-based
security index for the 3 following calendar months.
``(F) For purposes of subparagraphs (B) and (C) of this
paragraph--
``(i) the dollar value of average daily trading volume and
the market capitalization shall be calculated as of the
preceding 6 full calendar months; and
``(ii) the Commission and the Commodity Futures Trading
Commission shall, by rule or regulation, jointly specify the
method to be used to determine market capitalization and
dollar value of average daily trading volume.
``(56) The term `security futures product' means a security
future or any put, call, straddle, option, or privilege on
any security future.
``(57)(A) The term `margin', when used with respect to a
security futures product, means the amount, type, and form of
collateral required to secure any extension or maintenance of
credit, or the amount, type, and form of collateral required
as a performance bond related to the purchase, sale, or
carrying of a security futures product.
``(B) The terms `margin level' and `level of margin', when
used with respect to a security futures product, mean the
amount of margin required to secure any extension or
maintenance of credit, or the amount of margin required as a
performance bond related to the purchase, sale, or carrying
of a security futures product.
``(C) The terms `higher margin level' and `higher level of
margin', when used with respect to a security futures
product, mean a margin level established by a national
securities exchange registered pursuant to section 6(g) that
is higher than the minimum amount established and in effect
pursuant to section 7(c)(2)(B).''.
SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING SECURITY
FUTURES PRODUCTS.
(a) Expedited Registration and Exemption.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by
adding at the end the following:
``(g) Notice Registration of Security Futures Product
Exchanges.--
``(1) Registration required.--An exchange that lists or
trades security futures products may register as a national
securities exchange solely for the purposes of trading
security futures products if--
``(A) the exchange is a board of trade, as that term is
defined by the Commodity Exchange Act (7 U.S.C. 1a(2)),
that--
``(i) has been designated a contract market by the
Commodity Futures Trading Commission and such designation is
not suspended by order of the Commodity Futures Trading
Commission; or
``(ii) is registered as a derivative transaction execution
facility under section 5a of the Commodity Exchange Act and
such registration is not suspended by the Commodity Futures
Trading Commission; and
``(B) such exchange does not serve as a market place for
transactions in securities other than--
``(i) security futures products; or
``(ii) futures on exempted securities or groups or indexes
of securities or options thereon that have been authorized
under section 2(a)(1)(C) of the Commodity Exchange Act.
``(2) Registration by notice filing.--
``(A) Form and content.--An exchange required to register
only because such exchange lists or trades security futures
products may register for purposes of this section by filing
with the Commission a written notice in such form as the
Commission, by rule, may prescribe containing the rules of
the exchange and such other information and documents
concerning such exchange, comparable to the information and
documents required for national securities exchanges under
section 6(a), as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the
protection of investors. If such exchange has filed documents
with the Commodity Futures Trading Commission, to the extent
that such documents contain information satisfying the
Commission's informational requirements, copies of such
documents may be filed with the Commission in lieu of the
required written notice.
``(B) Immediate effectiveness.--Such registration shall be
effective contemporaneously with the submission of notice, in
written or electronic form, to the Commission, except that
such registration shall not be effective if such registration
would be subject to suspension or revocation.
``(C) Termination.--Such registration shall be terminated
immediately if any of the conditions for registration set
forth in this subsection are no longer satisfied.
``(3) Public availability.--The Commission shall promptly
publish in the Federal Register an acknowledgment of receipt
of all notices the Commission receives under this subsection
and shall make all such notices available to the public.
``(4) Exemption of exchanges from specified provisions.--
``(A) Transaction exemptions.--An exchange that is
registered under paragraph (1) of this subsection shall be
exempt from, and shall not be required to enforce compliance
by its members with, and its members shall not, solely with
respect to those transactions effected on such exchange in
security futures products, be required to comply with, the
following provisions of this title and the rules thereunder:
``(i) Subsections (b)(2), (b)(3), (b)(4), (b)(7), (b)(9),
(c), (d), and (e) of this section.
``(ii) Section 8.
``(iii) Section 11.
[[Page H10431]]
``(iv) Subsections (d), (f), and (k) of section 17.
``(v) Subsections (a), (f), and (h) of section 19.
``(B) Rule change exemptions.--An exchange that registered
under paragraph (1) of this subsection shall also be exempt
from submitting proposed rule changes pursuant to section
19(b) of this title, except that--
``(i) such exchange shall file proposed rule changes
related to higher margin levels, fraud or manipulation,
recordkeeping, reporting, listing standards, or decimal
pricing for security futures products, sales practices for
security futures products for persons who effect transactions
in security futures products, or rules effectuating such
exchange's obligation to enforce the securities laws pursuant
to section 19(b)(7);
``(ii) such exchange shall file pursuant to sections
19(b)(1) and 19(b)(2) proposed rule changes related to
margin, except for changes resulting in higher margin levels;
and
``(iii) such exchange shall file pursuant to section
19(b)(1) proposed rule changes that have been abrogated by
the Commission pursuant to section 19(b)(7)(C).
``(5) Trading in security futures products.--
``(A) In general.--Subject to subparagraph (B), it shall be
unlawful for any person to execute or trade a security
futures product until the later of--
``(i) 1 year after the date of enactment of the Commodity
Futures Modernization Act of 2000; or
``(ii) such date that a futures association registered
under section 17 of the Commodity Exchange Act has met the
requirements set forth in section 15A(k)(2) of this title.
``(B) Principal-to-principal transactions.--Notwithstanding
subparagraph (A), a person may execute or trade a security
futures product transaction if--
``(i) the transaction is entered into--
``(I) on a principal-to-principal basis between parties
trading for their own accounts or as described in section
1a(12)(B)(ii) of the Commodity Exchange Act; and
``(II) only between eligible contract participants (as
defined in subparagraphs (A), (B)(ii), and (C) of such
section 1a(12)) at the time at which the persons enter into
the agreement, contract, or transaction; and
``(ii) the transaction is entered into on or after the
later of--
``(I) 8 months after the date of enactment of the Commodity
Futures Modernization Act of 2000; or
``(II) such date that a futures association registered
under section 17 of the Commodity Exchange Act has met the
requirements set forth in section 15A(k)(2) of this title.''.
(b) Commission Review of Proposed Rule Changes.--
(1) Expedited review.--Section 19(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by adding
at the end the following:
``(7) Security futures product rule changes.--
``(A) Filing required.--A self-regulatory organization that
is an exchange registered with the Commission pursuant to
section 6(g) of this title or that is a national securities
association registered pursuant to section 15A(k) of this
title shall file with the Commission, in accordance with such
rules as the Commission may prescribe, copies of any proposed
rule change or any proposed change in, addition to, or
deletion from the rules of such self-regulatory organization
(hereinafter in this paragraph collectively referred to as a
`proposed rule change') that relates to higher margin levels,
fraud or manipulation, recordkeeping, reporting, listing
standards, or decimal pricing for security futures products,
sales practices for security futures products for persons who
effect transactions in security futures products, or rules
effectuating such self-regulatory organization's obligation
to enforce the securities laws. Such proposed rule change
shall be accompanied by a concise general statement of the
basis and purpose of such proposed rule change. The
Commission shall, upon the filing of any proposed rule
change, promptly publish notice thereof together with the
terms of substance of the proposed rule change or a
description of the subjects and issues involved. The
Commission shall give interested persons an opportunity to
submit data, views, and arguments concerning such proposed
rule change.
``(B) Filing with cftc.--A proposed rule change filed with
the Commission pursuant to subparagraph (A) shall be filed
concurrently with the Commodity Futures Trading Commission.
Such proposed rule change may take effect upon filing of a
written certification with the Commodity Futures Trading
Commission under section 5c(c) of the Commodity Exchange Act,
upon a determination by the Commodity Futures Trading
Commission that review of the proposed rule change is not
necessary, or upon approval of the proposed rule change by
the Commodity Futures Trading Commission.
``(C) Abrogation of rule changes.--Any proposed rule change
of a self-regulatory organization that has taken effect
pursuant to subparagraph (B) may be enforced by such self-
regulatory organization to the extent such rule is not
inconsistent with the provisions of this title, the rules and
regulations thereunder, and applicable Federal law. At any
time within 60 days of the date of the filing of a written
certification with the Commodity Futures Trading Commission
under section 5c(c) of the Commodity Exchange Act, the date
the Commodity Futures Trading Commission determines that
review of such proposed rule change is not necessary, or the
date the Commodity Futures Trading Commission approves such
proposed rule change, the Commission, after consultation with
the Commodity Futures Trading Commission, summarily may
abrogate the proposed rule change and require that the
proposed rule change be refiled in accordance with the
provisions of paragraph (1), if it appears to the Commission
that such proposed rule change unduly burdens competition or
efficiency, conflicts with the securities laws, or is
inconsistent with the public interest and the protection of
investors. Commission action pursuant to the preceding
sentence shall not affect the validity or force of the rule
change during the period it was in effect and shall not be
reviewable under section 25 nor deemed to be a final agency
action for purposes of section 704 of title 5, United States
Code.
``(D) Review of resubmitted abrogated rules.--
``(i) Proceedings.--Within 35 days of the date of
publication of notice of the filing of a proposed rule change
that is abrogated in accordance with subparagraph (C) and
refiled in accordance with paragraph (1), or within such
longer period as the Commission may designate up to 90 days
after such date if the Commission finds such longer period to
be appropriate and publishes its reasons for so finding or as
to which the self-regulatory organization consents, the
Commission shall--
``(I) by order approve such proposed rule change; or
``(II) after consultation with the Commodity Futures
Trading Commission, institute proceedings to determine
whether the proposed rule change should be disapproved.
Proceedings under subclause (II) shall include notice of the
grounds for disapproval under consideration and opportunity
for hearing and be concluded within 180 days after the date
of publication of notice of the filing of the proposed rule
change. At the conclusion of such proceedings, the
Commission, by order, shall approve or disapprove such
proposed rule change. The Commission may extend the time for
conclusion of such proceedings for up to 60 days if the
Commission finds good cause for such extension and publishes
its reasons for so finding or for such longer period as to
which the self-regulatory organization consents.
``(ii) Grounds for approval.--The Commission shall approve
a proposed rule change of a self-regulatory organization
under this subparagraph if the Commission finds that such
proposed rule change does not unduly burden competition or
efficiency, does not conflict with the securities laws, and
is not inconsistent with the public interest or the
protection of investors. The Commission shall disapprove such
a proposed rule change of a self-regulatory organization if
it does not make such finding. The Commission shall not
approve any proposed rule change prior to the 30th day after
the date of publication of notice of the filing thereof,
unless the Commission finds good cause for so doing and
publishes its reasons for so finding.''.
(2) Decimal pricing provisions.--Section 19(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended
by inserting after paragraph (7), as added by paragraph (1),
the following:
``(8) Decimal pricing.--Not later than 9 months after the
date on which trading in any security futures product
commences under this title, all self-regulatory organizations
listing or trading security futures products shall file
proposed rule changes necessary to implement decimal pricing
of security futures products. The Commission may not require
such rules to contain equal minimum increments in such
decimal pricing.''.
(3) Consultation provisions.--Section 19(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended
by inserting after paragraph (8), as added by paragraph (2),
the following:
``(9) Consultation with cftc.--
``(A) Consultation required.--The Commission shall consult
with and consider the views of the Commodity Futures Trading
Commission prior to approving or disapproving a proposed rule
change filed by a national securities association registered
pursuant to section 15A(a) or a national securities exchange
subject to the provisions of subsection (a) that primarily
concerns conduct related to transactions in security futures
products, except where the Commission determines that an
emergency exists requiring expeditious or summary action and
publishes its reasons therefor.
``(B) Responses to cftc comments and findings.--If the
Commodity Futures Trading Commission comments in writing to
the Commission on a proposed rule that has been published for
comment, the Commission shall respond in writing to such
written comment before approving or disapproving the proposed
rule. If the Commodity Futures Trading Commission determines,
and notifies the Commission, that such rule, if implemented
or as applied, would--
``(i) adversely affect the liquidity or efficiency of the
market for security futures products; or
``(ii) impose any burden on competition not necessary or
appropriate in furtherance of the purposes of this section,
the Commission shall, prior to approving or disapproving the
proposed rule, find that such rule is necessary and
appropriate in furtherance of the purposes of this section
notwithstanding the Commodity Futures Trading Commission's
determination.''.
[[Page H10432]]
(c) Review of Disciplinary Proceedings.--Section 19(d) of
the Securities Exchange Act of 1934 (15 U.S.C. 78s(d)) is
amended by adding at the end the following:
``(3) The provisions of this subsection shall apply to an
exchange registered pursuant to section 6(g) of this title or
a national securities association registered pursuant to
section 15A(k) of this title only to the extent that such
exchange or association imposes any final disciplinary
sanction for--
``(A) a violation of the Federal securities laws or the
rules and regulations thereunder; or
``(B) a violation of a rule of such exchange or
association, as to which a proposed change would be required
to be filed under section 19 of this title, except that, to
the extent that the exchange or association rule violation
relates to any account, agreement, or transaction, this
subsection shall apply only to the extent such violation
involves a security futures product.''.
SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES TRADING
SECURITY FUTURES PRODUCTS.
(a) Expedited Registration and Exemptions.--
(1) Amendment.--Section 15(b) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(b)) is amended by adding at the
end the following:
``(11) Broker/dealer registration with respect to
transactions in security futures products.--
``(A) Notice registration.--
``(i) Contents of notice.--Notwithstanding paragraphs (1)
and (2), a broker or dealer required to register only because
it effects transactions in security futures products on an
exchange registered pursuant to section 6(g) may register for
purposes of this section by filing with the Commission a
written notice in such form and containing such information
concerning such broker or dealer and any persons associated
with such broker or dealer as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest
or for the protection of investors. A broker or dealer may
not register under this paragraph unless that broker or
dealer is a member of a national securities association
registered under section 15A(k).
``(ii) Immediate effectiveness.--Such registration shall be
effective contemporaneously with the submission of notice, in
written or electronic form, to the Commission, except that
such registration shall not be effective if the registration
would be subject to suspension or revocation under paragraph
(4).
``(iii) Suspension.--Such registration shall be suspended
immediately if a national securities association registered
pursuant to section 15A(k) of this title suspends the
membership of that broker or dealer.
``(iv) Termination.--Such registration shall be terminated
immediately if any of the above stated conditions for
registration set forth in this paragraph are no longer
satisfied.
``(B) Exemptions for registered brokers and dealers.--A
broker or dealer registered pursuant to the requirements of
subparagraph (A) shall be exempt from the following
provisions of this title and the rules thereunder with
respect to transactions in security futures products:
``(i) Section 8.
``(ii) Section 11.
``(iii) Subsections (c)(3) and (c)(5) of this section.
``(iv) Section 15B.
``(v) Section 15C.
``(vi) Subsections (d), (e), (f), (g), (h), and (i) of
section 17.''.
(2) Conforming amendment.--Section 28(e) of the Securities
Exchange Act of 1934 (15 U.S.C. 78bb(e)) is amended by adding
at the end the following:
``(4) The provisions of this subsection shall not apply
with regard to securities that are security futures
products.''.
(b) Floor Brokers and Floor Traders.--Section 15(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended
by inserting after paragraph (11), as added by subsection
(a), the following:
``(12) Exemption for security futures product exchange
members.--
``(A) Registration exemption.--A natural person shall be
exempt from the registration requirements of this section if
such person--
``(i) is a member of a designated contract market
registered with the Commission as an exchange pursuant to
section 6(g);
``(ii) effects transactions only in securities on the
exchange of which such person is a member; and
``(iii) does not directly accept or solicit orders from
public customers or provide advice to public customers in
connection with the trading of security futures products.
``(B) Other exemptions.--A natural person exempt from
registration pursuant to subparagraph (A) shall also be
exempt from the following provisions of this title and the
rules thereunder:
``(i) Section 8.
``(ii) Section 11.
``(iii) Subsections (c)(3), (c)(5), and (e) of this
section.
``(iv) Section 15B.
``(v) Section 15C.
``(vi) Subsections (d), (e), (f), (g), (h), and (i) of
section 17.''.
(c) Limited Purpose National Securities Association.--
Section 15A of the Securities Exchange Act of 1934 (15 U.S.C.
78o-3) is amended by adding at the end the following:
``(k) Limited Purpose National Securities Association.--
``(1) Regulation of members with respect to security
futures products.--A futures association registered under
section 17 of the Commodity Exchange Act shall be a
registered national securities association for the limited
purpose of regulating the activities of members who are
registered as brokers or dealers in security futures products
pursuant to section 15(b)(11).
``(2) Requirements for registration.--Such a securities
association shall--
``(A) be so organized and have the capacity to carry out
the purposes of the securities laws applicable to security
futures products and to comply, and (subject to any rule or
order of the Commission pursuant to section 19(g)(2)) to
enforce compliance by its members and persons associated with
its members, with the provisions of the securities laws
applicable to security futures products, the rules and
regulations thereunder, and its rules;
``(B) have rules that--
``(i) are designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles
of trade, and, in general, to protect investors and the
public interest, including rules governing sales practices
and the advertising of security futures products reasonably
comparable to those of other national securities associations
registered pursuant to subsection (a) that are applicable to
security futures products; and
``(ii) are not designed to regulate by virtue of any
authority conferred by this title matters not related to the
purposes of this title or the administration of the
association;
``(C) have rules that provide that (subject to any rule or
order of the Commission pursuant to section 19(g)(2)) its
members and persons associated with its members shall be
appropriately disciplined for violation of any provision of
the securities laws applicable to security futures products,
the rules or regulations thereunder, or the rules of the
association, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure, being
suspended or barred from being associated with a member, or
any other fitting sanction; and
``(D) have rules that ensure that members and natural
persons associated with members meet such standards of
training, experience, and competence necessary to effect
transactions in security futures products and are tested for
their knowledge of securities and security futures products.
``(3) Exemption from rule change submission.--Such a
securities association shall be exempt from submitting
proposed rule changes pursuant to section 19(b) of this
title, except that--
``(A) the association shall file proposed rule changes
related to higher margin levels, fraud or manipulation,
recordkeeping, reporting, listing standards, or decimal
pricing for security futures products, sales practices for,
advertising of, or standards of training, experience,
competence, or other qualifications for security futures
products for persons who effect transactions in security
futures products, or rules effectuating the association's
obligation to enforce the securities laws pursuant to section
19(b)(7);
``(B) the association shall file pursuant to sections
19(b)(1) and 19(b)(2) proposed rule changes related to
margin, except for changes resulting in higher margin levels;
and
``(C) the association shall file pursuant to section
19(b)(1) proposed rule changes that have been abrogated by
the Commission pursuant to section 19(b)(7)(C).
``(4) Other exemptions.--Such a securities association
shall be exempt from and shall not be required to enforce
compliance by its members, and its members shall not, solely
with respect to their transactions effected in security
futures products, be required to comply, with the following
provisions of this title and the rules thereunder:
``(A) Section 8.
``(B) Subsections (b)(1), (b)(3), (b)(4), (b)(5), (b)(8),
(b)(10), (b)(11), (b)(12), (b)(13), (c), (d), (e), (f), (g),
(h), and (i) of this section.
``(C) Subsections (d), (f), and (k) of section 17.
``(D) Subsections (a), (f), and (h) of section 19.''.
(d) Exemption Under the Securities Investor Protection Act
of 1970.--
(1) Section 16(14) of the Securities Investor Protection
Act of 1970 (15 U.S.C. 78lll(14)) is amended by inserting
``or any security future as that term is defined in section
3(a)(55)(A) of the Securities Exchange Act of 1934,'' after
``certificate of deposit for a security,''.
(2) Section 3(a)(2)(A) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A)) is
amended--
(A) in clause (i), by striking ``and'' after the semicolon;
(B) in clause (ii), by striking the period and inserting
``; and'';
(C) by adding at the end the following:
``(iii) persons who are registered as a broker or dealer
pursuant to section 15(b)(11)(A) of the Securities Exchange
Act of 1934.''.
SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY COOPERATION.
Section 17(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78q(b)) is amended--
(1) by striking ``(b) All'' and inserting the following:
``(b) Records Subject to Examination.--
``(1) Procedures for cooperation with other agencies.--
All'';
(2) by striking ``prior to conducting any such examination
of a registered clearing''
[[Page H10433]]
and inserting the following: ``prior to conducting any such
examination of a--
``(A) registered clearing'';
(3) by redesignating the last sentence as paragraph (4)(C);
(4) by striking the period at the end of the first sentence
and inserting the following: ``; or
``(B) broker or dealer registered pursuant to section
15(b)(11), exchange registered pursuant to section 6(g), or
national securities association registered pursuant to
section 15A(k) gives notice to the Commodity Futures Trading
Commission of such proposed examination and consults with the
Commodity Futures Trading Commission concerning the
feasibility and desirability of coordinating such examination
with examinations conducted by the Commodity Futures Trading
Commission in order to avoid unnecessary regulatory
duplication or undue regulatory burdens for such broker or
dealer or exchange.'';
(5) by adding at the end the following new paragraphs:
``(2) Furnishing data and reports to cftc.--The Commission
shall notify the Commodity Futures Trading Commission of any
examination conducted of any broker or dealer registered
pursuant to section 15(b)(11), exchange registered pursuant
to section 6(g), or national securities association
registered pursuant to section 15A(k) and, upon request,
furnish to the Commodity Futures Trading Commission any
examination report and data supplied to, or prepared by, the
Commission in connection with such examination.
``(3) Use of cftc reports.--Prior to conducting an
examination under paragraph (1), the Commission shall use the
reports of examinations, if the information available therein
is sufficient for the purposes of the examination, of--
``(A) any broker or dealer registered pursuant to section
15(b)(11);
``(B) exchange registered pursuant to section 6(g); or
``(C) national securities association registered pursuant
to section 15A(k);
that is made by the Commodity Futures Trading Commission, a
national securities association registered pursuant to
section 15A(k), or an exchange registered pursuant to section
6(g).
``(4) Rules of construction.--
``(A) Notwithstanding any other provision of this
subsection, the records of a broker or dealer registered
pursuant to section 15(b)(11), an exchange registered
pursuant to section 6(g), or a national securities
association registered pursuant to section 15A(k) described
in this subparagraph shall not be subject to routine periodic
examinations by the Commission.
``(B) Any recordkeeping rules adopted under this subsection
for a broker or dealer registered pursuant to section
15(b)(11), an exchange registered pursuant to section 6(g),
or a national securities association registered pursuant to
section 15A(k) shall be limited to records with respect to
persons, accounts, agreements, and transactions involving
security futures products.''; and
(6) in paragraph (4)(C) (as redesignated by paragraph (3)
of this section), by striking ``Nothing in the proviso to the
preceding sentence'' and inserting ``Nothing in the proviso
in paragraph (1)''.
SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SECURITY
FUTURES PRODUCTS.
(a) Addition of Security Futures Products to Option-
Specific Enforcement Provisions.--
(1) Prohibition against manipulation.--Section 9(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78i(b)) is
amended--
(A) in paragraph (1)--
(i) by inserting ``(A)'' after ``acquires''; and
(ii) by striking ``; or'' and inserting ``; or (B) any
security futures product on the security; or'';
(B) in paragraph (2)--
(i) by inserting ``(A)'' after ``interest in any''; and
(ii) by striking ``; or'' and inserting ``; or (B) such
security futures product; or''; and
(C) in paragraph (3)--
(i) by inserting ``(A)'' after ``interest in any''; and
(ii) by inserting ``; or (B) such security futures
product'' after ``privilege''.
(2) Manipulation in options and other derivative
products.--Section 9(g) of the Securities Exchange Act of
1934 (15 U.S.C. 78i(g)) is amended--
(A) by inserting ``(1)'' after ``(g)'';
(B) by inserting ``other than a security futures product''
after ``future delivery''; and
(C) by adding at the end following:
``(2) Notwithstanding the Commodity Exchange Act, the
Commission shall have the authority to regulate the trading
of any security futures product to the extent provided in the
securities laws.''.
(3) Liability of controlling persons and persons who aid
and abet violations.--Section 20(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78t(d)) is amended by
striking ``or privilege'' and inserting ``, privilege, or
security futures product''.
(4) Liability to contemporaneous traders for insider
trading.--Section 21A(a)(1) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-1(a)(1)) is amended by striking
``standardized options, the Commission--'' and inserting
``standardized options or security futures products, the
Commission--''.
(5) Enforcement consultation.--Section 21 of the Securities
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at
the end the following:
``(i) Information to CFTC.--The Commission shall provide
the Commodity Futures Trading Commission with notice of the
commencement of any proceeding and a copy of any order
entered by the Commission against any broker or dealer
registered pursuant to section 15(b)(11), any exchange
registered pursuant to section 6(g), or any national
securities association registered pursuant to section
15A(k).''.
SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SECURITY
FUTURES PRODUCTS.
(a) Listing Standards and Conditions for Trading.--Section
6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is
amended by inserting after subsection (g), as added by
section 202, the following:
``(h) Trading in Security Futures Products.--
``(1) Trading on exchange or association required.--It
shall be unlawful for any person to effect transactions in
security futures products that are not listed on a national
securities exchange or a national securities association
registered pursuant to section 15A(a).
``(2) Listing standards required.--Except as otherwise
provided in paragraph (7), a national securities exchange or
a national securities association registered pursuant to
section 15A(a) may trade only security futures products that
(A) conform with listing standards that such exchange or
association files with the Commission under section 19(b) and
(B) meet the criteria specified in section 2(a)(1)(D)(i) of
the Commodity Exchange Act.
``(3) Requirements for listing standards and conditions for
trading.--Such listing standards shall--
``(A) except as otherwise provided in a rule, regulation,
or order issued pursuant to paragraph (4), require that any
security underlying the security future, including each
component security of a narrow-based security index, be
registered pursuant to section 12 of this title;
``(B) require that if the security futures product is not
cash settled, the market on which the security futures
product is traded have arrangements in place with a
registered clearing agency for the payment and delivery of
the securities underlying the security futures product;
``(C) be no less restrictive than comparable listing
standards for options traded on a national securities
exchange or national securities association registered
pursuant to section 15A(a) of this title;
``(D) except as otherwise provided in a rule, regulation,
or order issued pursuant to paragraph (4), require that the
security future be based upon common stock and such other
equity securities as the Commission and the Commodity Futures
Trading Commission jointly determine appropriate;
``(E) require that the security futures product is cleared
by a clearing agency that has in place provisions for linked
and coordinated clearing with other clearing agencies that
clear security futures products, which permits the security
futures product to be purchased on one market and offset on
another market that trades such product;
``(F) require that only a broker or dealer subject to
suitability rules comparable to those of a national
securities association registered pursuant to section 15A(a)
effect transactions in the security futures product;
``(G) require that the security futures product be subject
to the prohibition against dual trading in section 4j of the
Commodity Exchange Act (7 U.S.C. 6j) and the rules and
regulations thereunder or the provisions of section 11(a) of
this title and the rules and regulations thereunder, except
to the extent otherwise permitted under this title and the
rules and regulations thereunder;
``(H) require that trading in the security futures product
not be readily susceptible to manipulation of the price of
such security futures product, nor to causing or being used
in the manipulation of the price of any underlying security,
option on such security, or option on a group or index
including such securities;
``(I) require that procedures be in place for coordinated
surveillance among the market on which the security futures
product is traded, any market on which any security
underlying the security futures product is traded, and other
markets on which any related security is traded to detect
manipulation and insider trading;
``(J) require that the market on which the security futures
product is traded has in place audit trails necessary or
appropriate to facilitate the coordinated surveillance
required in subparagraph (I);
``(K) require that the market on which the security futures
product is traded has in place procedures to coordinate
trading halts between such market and any market on which any
security underlying the security futures product is traded
and other markets on which any related security is traded;
and
``(L) require that the margin requirements for a security
futures product comply with the regulations prescribed
pursuant to section 7(c)(2)(B), except that nothing in this
subparagraph shall be construed to prevent a national
securities exchange or national securities association from
requiring higher margin levels for a security futures product
when it deems such action to be necessary or appropriate.
``(4) Authority to modify certain listing standard
requirements.--
``(A) Authority to modify.--The Commission and the
Commodity Futures Trading Commission, by rule, regulation, or
order,
[[Page H10434]]
may jointly modify the listing standard requirements
specified in subparagraph (A) or (D) of paragraph (3) to the
extent such modification fosters the development of fair and
orderly markets in security futures products, is necessary or
appropriate in the public interest, and is consistent with
the protection of investors.
``(B) Authority to grant exemptions.--The Commission and
the Commodity Futures Trading Commission, by order, may
jointly exempt any person from compliance with the listing
standard requirement specified in subparagraph (E) of
paragraph (3) to the extent such exemption fosters the
development of fair and orderly markets in security futures
products, is necessary or appropriate in the public interest,
and is consistent with the protection of investors.
``(5) Requirements for other persons trading security
future products.--It shall be unlawful for any person (other
than a national securities exchange or a national securities
association registered pursuant to section 15A(a)) to
constitute, maintain, or provide a marketplace or facilities
for bringing together purchasers and sellers of security
future products or to otherwise perform with respect to
security future products the functions commonly performed by
a stock exchange as that term is generally understood, unless
a national securities association registered pursuant to
section 15A(a) or a national securities exchange of which
such person is a member--
``(A) has in place procedures for coordinated surveillance
among such person, the market trading the securities
underlying the security future products, and other markets
trading related securities to detect manipulation and insider
trading;
``(B) has rules to require audit trails necessary or
appropriate to facilitate the coordinated surveillance
required in subparagraph (A); and
``(C) has rules to require such person to coordinate
trading halts with markets trading the securities underlying
the security future products and other markets trading
related securities.
``(6) Deferral of options on security futures trading.--No
person shall offer to enter into, enter into, or confirm the
execution of any put, call, straddle, option, or privilege on
a security future, except that, after 3 years after the date
of enactment of this subsection, the Commission and the
Commodity Futures Trading Commission may by order jointly
determine to permit trading of puts, calls, straddles,
options, or privileges on any security future authorized to
be traded under the provisions of this Act and the Commodity
Exchange Act.
``(7) Deferral of linked and coordinated clearing.--
``(A) Notwithstanding paragraph (2), until the compliance
date, a national securities exchange or national securities
association registered pursuant to section 15A(a) may trade a
security futures product that does not--
``(i) conform with any listing standard promulgated to meet
the requirement specified in subparagraph (E) of paragraph
(3); or
``(ii) meet the criterion specified in section
2(a)(1)(D)(i)(IV) of the Commodity Exchange Act.
``(B) The Commission and the Commodity Futures Trading
Commission shall jointly publish in the Federal Register a
notice of the compliance date no later than 165 days before
the compliance date.
``(C) For purposes of this paragraph, the term `compliance
date' means the later of--
``(i) 180 days after the end of the first full calendar
month period in which the average aggregate comparable share
volume for all security futures products based on single
equity securities traded on all national securities
exchanges, any national securities associations registered
pursuant to section 15A(a), and all other persons equals or
exceeds 10 percent of the average aggregate comparable share
volume of options on single equity securities traded on all
national securities exchanges and any national securities
associations registered pursuant to section 15A(a); or
``(ii) 2 years after the date on which trading in any
security futures product commences under this title.''.
(b) Margin.--Section 7 of the Securities Exchange Act of
1934 (15 U.S.C. 78g) is amended--
(1) in subsection (a), by inserting ``or a security futures
product'' after ``exempted security'';
(2) in subsection (c)(1)(A), by inserting ``except as
provided in paragraph (2),'' after ``security),'';
(3) by redesignating paragraph (2) of subsection (c) as
paragraph (3) of such subsection; and
(4) by inserting after paragraph (1) of such subsection the
following:
``(2) Margin regulations.--
``(A) Compliance with margin rules required.--It shall be
unlawful for any broker, dealer, or member of a national
securities exchange to, directly or indirectly, extend or
maintain credit to or for, or collect margin from any
customer on, any security futures product unless such
activities comply with the regulations--
``(i) which the Board shall prescribe pursuant to
subparagraph (B); or
``(ii) if the Board determines to delegate the authority to
prescribe such regulations, which the Commission and the
Commodity Futures Trading Commission shall jointly prescribe
pursuant to subparagraph (B).
If the Board delegates the authority to prescribe such
regulations under clause (ii) and the Commission and the
Commodity Futures Trading Commission have not jointly
prescribed such regulations within a reasonable period of
time after the date of such delegation, the Board shall
prescribe such regulations pursuant to subparagraph (B).
``(B) Criteria for issuance of rules.--The Board shall
prescribe, or, if the authority is delegated pursuant to
subparagraph (A)(ii), the Commission and the Commodity
Futures Trading Commission shall jointly prescribe, such
regulations to establish margin requirements, including the
establishment of levels of margin (initial and maintenance)
for security futures products under such terms, and at such
levels, as the Board deems appropriate, or as the Commission
and the Commodity Futures Trading Commission jointly deem
appropriate--
``(i) to preserve the financial integrity of markets
trading security futures products;
``(ii) to prevent systemic risk;
``(iii) to require that--
``(I) the margin requirements for a security future product
be consistent with the margin requirements for comparable
option contracts traded on any exchange registered pursuant
to section 6(a) of this title; and
``(II) initial and maintenance margin levels for a security
future product not be lower than the lowest level of margin,
exclusive of premium, required for any comparable option
contract traded on any exchange registered pursuant to
section 6(a) of this title, other than an option on a
security future;
except that nothing in this subparagraph shall be construed
to prevent a national securities exchange or national
securities association from requiring higher margin levels
for a security future product when it deems such action to be
necessary or appropriate; and
``(iv) to ensure that the margin requirements (other than
levels of margin), including the type, form, and use of
collateral for security futures products, are and remain
consistent with the requirements established by the Board,
pursuant to subparagraphs (A) and (B) of paragraph (1).''.
(c) Incorporation of Security Futures Products Into the
National Market System.--Section 11A of the Securities
Exchange Act of 1934 (15 U.S.C. 78k-1) is amended by adding
at the end the following:
``(e) National Markets System for Security Futures
Products.--
``(1) Consultation and cooperation required.--With respect
to security futures products, the Commission and the
Commodity Futures Trading Commission shall consult and
cooperate so that, to the maximum extent practicable, their
respective regulatory responsibilities may be fulfilled and
the rules and regulations applicable to security futures
products may foster a national market system for security
futures products if the Commission and the Commodity Futures
Trading Commission jointly determine that such a system would
be consistent with the congressional findings in subsection
(a)(1). In accordance with this objective, the Commission
shall, at least 15 days prior to the issuance for public
comment of any proposed rule or regulation under this section
concerning security futures products, consult and request the
views of the Commodity Futures Trading Commission.
``(2) Application of rules by order of cftc.--No rule
adopted pursuant to this section shall be applied to any
person with respect to the trading of security futures
products on an exchange that is registered under section 6(g)
unless the Commodity Futures Trading Commission has issued an
order directing that such rule is applicable to such
persons.''.
(d) Incorporation of Security Futures Products Into the
National System for Clearance and Settlement.--Section 17A(b)
of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1(b))
is amended by adding at the end the following:
``(7)(A) A clearing agency that is regulated directly or
indirectly by the Commodity Futures Trading Commission
through its association with a designated contract market for
security futures products that is a national securities
exchange registered pursuant to section 6(g), and that would
be required to register pursuant to paragraph (1) of this
subsection only because it performs the functions of a
clearing agency with respect to security futures products
effected pursuant to the rules of the designated contract
market with which such agency is associated, is exempted from
the provisions of this section and the rules and regulations
thereunder, except that if such a clearing agency performs
the functions of a clearing agency with respect to a security
futures product that is not cash settled, it must have
arrangements in place with a registered clearing agency to
effect the payment and delivery of the securities underlying
the security futures product.
``(B) Any clearing agency that performs the functions of a
clearing agency with respect to security futures products
must coordinate with and develop fair and reasonable links
with any and all other clearing agencies that perform the
functions of a clearing agency with respect to security
futures products, in order to permit, as of the compliance
date (as defined in section 6(h)(6)(C)), security futures
products to be purchased on one market and offset on another
market that trades such products.''.
[[Page H10435]]
(e) Market Emergency Powers and Circuit Breakers.--Section
12(k) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(k)) is amended--
(1) in paragraph (1), by adding at the end the following:
``If the actions described in subparagraph (A) or (B) involve
a security futures product, the Commission shall consult with
and consider the views of the Commodity Futures Trading
Commission.''; and
(2) in paragraph (2)(B), by inserting after the first
sentence the following: ``If the actions described in
subparagraph (A) involve a security futures product, the
Commission shall consult with and consider the views of the
Commodity Futures Trading Commission.''.
(f) Transaction Fees.--Section 31 of the Securities
Exchange Act of 1934 (15 U.S.C. 78ee) is amended
(1) in subsection (a), by inserting ``and assessments''
after ``fees'';
(2) in subsections (b), (c), and (d)(1), by striking ``and
other evidences of indebtedness'' and inserting ``other
evidences of indebtedness, and security futures products'';
(3) in subsection (f), by inserting ``or assessment'' after
``fee'';
(4) in subsection (g), by inserting ``and assessment''
after ``fee'';
(5) by redesignating subsections (e), (f), and (g) as
subsections (f), (g), and (h), respectively; and
(6) by inserting after subsection (d) the following new
subsection:
``(e) Assessments on Security Futures Transactions.--Each
national securities exchange and national securities
association shall pay to the Commission an assessment equal
to $0.02 for each round turn transaction (treated as
including one purchase and one sale of a contract of sale for
future delivery) on a security future traded on such national
securities exchange or by or through any member of such
association otherwise than on a national securities exchange,
except that for fiscal year 2007 or any succeeding fiscal
year such assessment shall be equal to $0.0075 for each such
transaction. Assessments collected pursuant to this
subsection shall be deposited and collected as general
revenue of the Treasury.''.
(g) Exemption From Short Sale Provisions.--Section 10(a) of
the Securities Exchange Act of 1934 (15 U.S.C 78j(a)) is
amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end the following:
``(2) Paragraph (1) of this subsection shall not apply to
security futures products.''.
(h) Rulemaking Authority To Address Duplicative Regulation
of Dual Registrants.--Section 15(c)(3) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(c)(3))is amended--
(1) by inserting ``(A)'' after ``(3)''; and
(2) by adding at the end the following:
``(B) Consistent with this title, the Commission, in
consultation with the Commodity Futures Trading Commission,
shall issue such rules, regulations, or orders as are
necessary to avoid duplicative or conflicting regulations
applicable to any broker or dealer registered with the
Commission pursuant to section 15(b) (except paragraph (11)
thereof), that is also registered with the Commodity Futures
Trading Commission pursuant to section 4f(a) of the Commodity
Exchange Act (except paragraph (2) thereof), with respect to
the application of (i) the provisions of section 8, section
15(c)(3), and section 17 of this title and the rules and
regulations thereunder related to the treatment of customer
funds, securities, or property, maintenance of books and
records, financial reporting, or other financial
responsibility rules, involving security futures products and
(ii) similar provisions of the Commodity Exchange Act and
rules and regulations thereunder involving security futures
products.''.
(i) Obligation to Address Duplicative Regulation of Dual
Registrants.--Section 6 of the Securities Exchange Act of
1934 (15 U.S.C 78f) is amended by inserting after subsection
(h), as added by subsection (a), the following:
``(i) Consistent with this title, each national securities
exchange registered pursuant to subsection (a) of this
section shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any broker or
dealer registered with the Commission pursuant to section
15(b) (except paragraph (11) thereof), that is also
registered with the Commodity Futures Trading Commission
pursuant to section 4f(a) of the Commodity Exchange Act
(except paragraph (2) thereof), with respect to the
application of--
(1) rules of such national securities exchange of the type
specified in section 15(c)(3)(B) involving security futures
products; and
(2) similar rules of national securities exchanges
registered pursuant to section 6(g) and national securities
associations registered pursuant to section 15A(k) involving
security futures products.''.
(j) Obligation To Address Duplicative Regulation of Dual
Registrants.--Section 15A of the Securities Exchange Act of
1934 (15 U.S.C 78o-3) is amended by inserting after
subsection (k), as added by section 203, the following:
``(l) Consistent with this title, each national securities
association registered pursuant to subsection (a) of this
section shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any broker or
dealer registered with the Commission pursuant to section
15(b) (except paragraph (11) thereof), that is also
registered with the Commodity Futures Trading Commission
pursuant to section 4f(a) of the Commodity Exchange Act
(except paragraph (2) thereof), with respect to the
application of--
``(1) rules of such national securities association of the
type specified in section 15(c)(3)(B) involving security
futures products; and
``(2) similar rules of national securities associations
registered pursuant to subsection (k) of this section and
national securities exchanges registered pursuant to section
6(g) involving security futures products.''.
(k) Obligation To Put in Place Procedures and Adopt
Rules.--
(1) National securities associations.--Section 15A of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended
by inserting after subsection (l), as added by subsection (j)
of this section, the following new subsection:
``(m) Procedures and Rules for Security Future Products.--A
national securities association registered pursuant to
subsection (a) shall, not later than 8 months after the date
of enactment of the Commodity Futures Modernization Act of
2000, implement the procedures specified in section
6(h)(5)(A) of this title and adopt the rules specified in
subparagraphs (B) and (C) of section 6(h)(5) of this
title.''.
(2) National securities exchanges.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended
by inserting after subsection (i), as added by subsection (i)
of this section, the following new subsection:
``(j) Procedures and Rules for Security Future Products.--A
national securities exchange registered pursuant to
subsection (a) shall implement the procedures specified in
section 6(h)(5)(A) of this title and adopt the rules
specified in subparagraphs (B) and (C) of section 6(h)(5) of
this title not later than 8 months after the date of receipt
of a request from an alternative trading system for such
implementation and rules.''.
(l) Obligation To Address Security Futures Products Traded
on Foreign Exchanges.--Section 6 of the Securities Exchange
Act of 1934 (15 U.S.C. 78f) is amended by adding after
subsection (i), as added by subsection (i), the following--
``(j)(1) To the extent necessary or appropriate in the
public interest, to promote fair competition, and consistent
with the protection of investors and the maintenance of fair
and orderly markets, the Commission and the Commodity Futures
Trading Commission shall jointly issue such rules,
regulations, or orders as are necessary and appropriate to
permit the offer and sale of a security futures product
traded on or subject to the rules of a foreign board of trade
to United States persons.
``(2) The rules, regulations, or orders adopted under
paragraph (1) shall take into account, as appropriate, the
nature and size of the markets that the securities underlying
the security futures product reflect.''.
SEC. 207. CLEARANCE AND SETTLEMENT.
Section 17A(b) of the Securities Exchange Act of 1934 (15
U.S.C. 78q-1(b)) is amended--
(1) in paragraph (3)(A), by inserting ``and derivative
agreements, contracts, and transactions'' after ``prompt and
accurate clearance and settlement of securities
transactions'';
(2) in paragraph (3)(F), by inserting ``and, to the extent
applicable, derivative agreements, contracts, and
transactions'' after ``designed to promote the prompt and
accurate clearance and settlement of securities
transactions''; and
(3) by inserting after paragraph (7), as added by section
206(d), the following:
``(8) A registered clearing agency shall be permitted to
provide facilities for the clearance and settlement of any
derivative agreements, contracts, or transactions that are
excluded from the Commodity Exchange Act, subject to the
requirements of this section and to such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of
this title.''.
SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE
ISSUES UNDER THE SECURITIES ACT OF 1933 AND THE
SECURITIES EXCHANGE ACT OF 1934.
(a) Amendments to the Securities Act of 1933.--
(1) Treatment of Security Futures Products.--Section 2(a)
of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended--
(A) in paragraph (1), by inserting ``security future,''
after ``treasury stock,'';
(B) in paragraph (3), by adding at the end the following:
``Any offer or sale of a security futures product by or on
behalf of the issuer of the securities underlying the
security futures product, an affiliate of the issuer, or an
underwriter, shall constitute a contract for sale of, sale
of, offer for sale, or offer to sell the underlying
securities.'';
(C) by adding at the end the following:
``(16) The terms `security future', `narrow-based security
index', and `security futures product' have the same meanings
as provided in section 3(a)(55) of the Securities Exchange
Act of 1934.''.
(2) Exemption from registration.--Section 3(a) of the
Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by
adding at the end the following:
``(14) Any security futures product that is--
``(A) cleared by a clearing agency registered under section
17A of the Securities
[[Page H10436]]
Exchange Act of 1934 or exempt from registration under
subsection (b)(7) of such section 17A; and
``(B) traded on a national securities exchange or a
national securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of 1934.''.
(3) Conforming amendment.--Section 12(a)(2) of the
Securities Act of 1933 (15 U.S.C. 77l(a)(2)) is amended by
striking ``paragraph (2)'' and inserting ``paragraphs (2) and
(14)''.
(b) Amendments to the Securities Exchange Act of 1934.--
(1) Exemption from registration.--Section 12(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(a)) is amended
by adding at the end the following: ``The provisions of this
subsection shall not apply in respect of a security futures
product traded on a national securities exchange.''.
(2) Exemptions from reporting requirement.--Section
12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(g)(5)) is amended by adding at the end the following:
``For purposes of this subsection, a security futures product
shall not be considered a class of equity security of the
issuer of the securities underlying the security futures
product.''.
(3) Transactions by corporate insiders.--Section 16 of the
Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by
adding at the end the following:
``(f) Treatment of transactions in security futures
products.--The provisions of this section shall apply to
ownership of and transactions in security futures products as
if they were ownership of and transactions in the underlying
equity security. The Commission may adopt such rules and
regulations as it deems necessary or appropriate in the
public interest to carry out the purposes of this section.''.
SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940
AND THE INVESTMENT ADVISERS ACT OF 1940.
(a) Definitions Under the Investment Company Act of 1940
and the Investment Advisers Act of 1940.--
(1) Section 2(a)(36) of the Investment Company Act of 1940
(15 U.S.C. 80a-2(a)(36)) is amended by inserting ``security
future,'' after ``treasury stock,''.
(2) Section 202(a)(18) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-2(a)(18)) is amended by inserting
``security future,'' after ``treasury stock,''.
(3) Section 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)) is amended by adding at the end the
following:
``(52) The terms `security future' and `narrow-based
security index' have the same meanings as provided in section
3(a)(55) of the Securities Exchange Act of 1934.''.
(4) Section 202(a) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-2(a)) is amended by adding at the end the
following:
``(27) The terms `security future' and `narrow-based
security index' have the same meanings as provided in section
3(a)(55) of the Securities Exchange Act of 1934.''.
(b) Other Provision.--Section 203(b) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-3(b)) is amended--
(1) by striking ``or'' at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and
inserting ``; or''; and
(3) by adding at the end the following:
``(6) any investment adviser that is registered with the
Commodity Futures Trading Commission as a commodity trading
advisor whose business does not consist primarily of acting
as an investment adviser, as defined in section 202(a)(11) of
this title, and that does not act as an investment adviser
to--
``(A) an investment company registered under title I of
this Act; or
``(B) a company which has elected to be a business
development company pursuant to section 54 of title I of this
Act and has not withdrawn its election.''.
SEC. 210. PREEMPTION OF STATE LAWS.
Section 28(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78bb(a)) is amended--
(1) in the last sentence--
(A) by inserting ``subject to this title'' after
``privilege, or other security''; and
(B) by striking ``any such instrument, if such instrument
is traded pursuant to rules and regulations of a self-
regulatory organization that are filed with the Commission
pursuant to section 19(b) of this Act'' and inserting ``any
such security''; and
(2) by adding at the end the following new sentence: ``No
provision of State law regarding the offer, sale, or
distribution of securities shall apply to any transaction in
a security futures product, except that this sentence shall
not be construed as limiting any State antifraud law of
general applicability.''.
Subtitle B--Amendments to the Commodity Exchange Act
SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE COMMISSION;
OTHER PROVISIONS.
(a) Jurisdiction of Securities and Exchange Commission.--
(1) Section 2(a)(1)(C) of the Commodity Exchange Act (7
U.S.C. 2a) (as redesignated by section 124(a)(2)(C)) is
amended--
(A) in clause (ii)--
(i) by inserting ``or register a derivatives transaction
execution facility that trades or executes,'' after
``contract market in,'';
(ii) by inserting after ``contracts) for future delivery''
the following: ``, and no derivatives transaction execution
facility shall trade or execute such contracts of sale (or
options on such contracts) for future delivery,'';
(iii) by striking ``making such application demonstrates
and the Commission expressly finds that the specific contract
(or option on such contract) with respect to which the
application has been made meets'' and inserting ``or the
derivatives transaction execution facility, and the
applicable contract, meet'';
(iv) by striking subclause (III) of clause (ii) and
inserting the following:
``(III) Such group or index of securities shall not
constitute a narrow-based security index.'';
(B) by striking clause (iii);
(C) by striking clause (iv) and inserting the following:
``(iii) If, in its discretion, the Commission determines
that a stock index futures contract, notwithstanding its
conformance with the requirements in clause (ii) of this
subparagraph, can reasonably be used as a surrogate for
trading a security (including a security futures product), it
may, by order, require such contract and any option thereon
be traded and regulated as security futures products as
defined in section 3(a)(56) of the Securities Exchange Act of
1934 and section 1a(32) of this Act subject to all rules and
regulations applicable to security futures products under
this Act and the securities laws as defined in section
3(a)(47) of the Securities Exchange Act of 1934.''; and
(D) by redesignating clause (v) as clause (iv).
(2) Section 2(a)(1) of the Commodity Exchange Act (7 U.S.C.
2, 2a, 4) is amended by adding at the end the following:
``(D)(i) Notwithstanding any other provision of this Act,
the Securities and Exchange Commission shall have
jurisdiction and authority over security futures as defined
in section 3(a)(55) of the Securities Exchange Act of 1934,
section 2(a)(16) of the Securities Act of 1933, section
2(a)(52) of the Investment Company Act of 1940, and section
202(a)(27) of the Investment Advisers Act of 1940, options on
security futures, and persons effecting transactions in
security futures and options thereon, and this Act shall
apply to and the Commission shall have jurisdiction with
respect to accounts, agreements (including any transaction
which is of the character of, or is commonly known to the
trade as, an `option', `privilege', `indemnity', `bid',
`offer', `put', `call', `advance guaranty', or `decline
guaranty') and transactions involving, and may designate a
board of trade as a contract market in, or register a
derivatives transaction execution facility that trades or
executes, a security futures product as defined in section
1a(32) of this Act: Provided, however, That, except as
provided in clause (vi) of this subparagraph, no board of
trade shall be designated as a contract market with respect
to, or registered as a derivatives transaction execution
facility for, any such contracts of sale for future delivery
unless the board of trade and the applicable contract meet
the following criteria:
``(I) Except as otherwise provided in a rule, regulation,
or order issued pursuant to clause (v) of this subparagraph,
any security underlying the security future, including each
component security of a narrow-based security index, is
registered pursuant to section 12 of the Securities Exchange
Act of 1934.
``(II) If the security futures product is not cash settled,
the board of trade on which the security futures product is
traded has arrangements in place with a clearing agency
registered pursuant to section 17A of the Securities Exchange
Act of 1934 for the payment and delivery of the securities
underlying the security futures product.
``(III) Except as otherwise provided in a rule, regulation,
or order issued pursuant to clause (v) of this subparagraph,
the security future is based upon common stock and such other
equity securities as the Commission and the Securities and
Exchange Commission jointly determine appropriate.
``(IV) The security futures product is cleared by a
clearing agency that has in place provisions for linked and
coordinated clearing with other clearing agencies that clear
security futures products, which permits the security futures
product to be purchased on a designated contract market,
registered derivatives transaction execution facility,
national securities exchange registered under section 6(a) of
the Securities Exchange Act of 1934, or national securities
association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and offset on another
designated contract market, registered derivatives
transaction execution facility, national securities exchange
registered under section 6(a) of the Securities Exchange Act
of 1934, or national securities association registered
pursuant to section 15A(a) of the Securities Exchange Act of
1934.
``(V) Only futures commission merchants, introducing
brokers, commodity trading advisors, commodity pool operators
or associated persons subject to suitability rules comparable
to those of a national securities association registered
pursuant to section 15A(a) of the Securities Exchange Act of
1934 solicit, accept any order for, or otherwise deal in any
transaction in or in connection with the security futures
product.
``(VI) The security futures product is subject to a
prohibition against dual trading in section 4j of this Act
and the rules and regulations thereunder or the provisions of
section 11(a) of the Securities Exchange Act of
[[Page H10437]]
1934 and the rules and regulations thereunder, except to the
extent otherwise permitted under the Securities Exchange Act
of 1934 and the rules and regulations thereunder.
``(VII) Trading in the security futures product is not
readily susceptible to manipulation of the price of such
security futures product, nor to causing or being used in the
manipulation of the price of any underlying security, option
on such security, or option on a group or index including
such securities;
``(VIII) The board of trade on which the security futures
product is traded has procedures in place for coordinated
surveillance among such board of trade, any market on which
any security underlying the security futures product is
traded, and other markets on which any related security is
traded to detect manipulation and insider trading, except
that, if the board of trade is an alternative trading system,
a national securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of 1934 or
national securities exchange registered pursuant to section
6(a) of the Securities Exchange Act of 1934 of which such
alternative trading system is a member has in place such
procedures.
``(IX) The board of trade on which the security futures
product is traded has in place audit trails necessary or
appropriate to facilitate the coordinated surveillance
required in subclause (VIII), except that, if the board of
trade is an alternative trading system, a national securities
association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities
exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934 of which such alternative
trading system is a member has rules to require such audit
trails.
``(X) The board of trade on which the security futures
product is traded has in place procedures to coordinate
trading halts between such board of trade and markets on
which any security underlying the security futures product is
traded and other markets on which any related security is
traded, except that, if the board of trade is an alternative
trading system, a national securities association registered
pursuant to section 15A(a) of the Securities Exchange Act of
1934 or national securities exchange registered pursuant to
section 6(a) of the Securities Exchange Act of 1934 of which
such alternative trading system is a member has rules to
require such coordinated trading halts.
``(XI) The margin requirements for a security futures
product comply with the regulations prescribed pursuant to
section 7(c)(2)(B) of the Securities Exchange Act of 1934,
except that nothing in this subclause shall be construed to
prevent a board of trade from requiring higher margin levels
for a security futures product when it deems such action to
be necessary or appropriate.
``(ii) It shall be unlawful for any person to offer, to
enter into, to execute, to confirm the execution of, or to
conduct any office or business anywhere in the United States,
its territories or possessions, for the purpose of
soliciting, or accepting any order for, or otherwise dealing
in, any transaction in, or in connection with, a security
futures product unless--
``(I) the transaction is conducted on or subject to the
rules of a board of trade that--
``(aa) has been designated by the Commission as a contract
market in such security futures product; or
``(bb) is a registered derivatives transaction execution
facility for the security futures product that has provided a
certification with respect to the security futures product
pursuant to clause (vii);
``(II) the contract is executed or consummated by, through,
or with a member of the contract market or registered
derivatives transaction execution facility; and
``(III) the security futures product is evidenced by a
record in writing which shows the date, the parties to such
security futures product and their addresses, the property
covered, and its price, and each contract market member or
registered derivatives transaction execution facility member
shall keep the record for a period of 3 years from the date
of the transaction, or for a longer period if the Commission
so directs, which record shall at all times be open to the
inspection of any duly authorized representative of the
Commission.
``(iii)(I) Except as provided in subclause (II) but
notwithstanding any other provision of this Act, no person
shall offer to enter into, enter into, or confirm the
execution of any option on a security future.
``(II) After 3 years after the date of the enactment of the
Commodity Futures Modernization Act of 2000, the Commission
and the Securities and Exchange Commission may by order
jointly determine to permit trading of options on any
security future authorized to be traded under the provisions
of this Act and the Securities Exchange Act of 1934.
``(iv)(I) All relevant records of a futures commission
merchant or introducing broker registered pursuant to section
4f(a)(2), floor broker or floor trader exempt from
registration pursuant to section 4f(a)(3), associated person
exempt from registration pursuant to section 4k(6), or board
of trade designated as a contract market in a security
futures product pursuant to section 5f shall be subject to
such reasonable periodic or special examinations by
representatives of the Commission as the Commission deems
necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the
purposes of this Act, and the Commission, before conducting
any such examination, shall give notice to the Securities and
Exchange Commission of the proposed examination and consult
with the Securities and Exchange Commission concerning the
feasibility and desirability of coordinating the examination
with examinations conducted by the Securities and Exchange
Commission in order to avoid unnecessary regulatory
duplication or undue regulatory burdens for the registrant or
board of trade.
``(II) The Commission shall notify the Securities and
Exchange Commission of any examination conducted of any
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3),
associated person exempt from registration pursuant to
section 4k(6), or board of trade designated as a contract
market in a security futures product pursuant to section 5f,
and, upon request, furnish to the Securities and Exchange
Commission any examination report and data supplied to the
Commission in connection with the examination.
``(III) Before conducting an examination under subclause
(I), the Commission shall use the reports of examinations,
unless the information sought is unavailable in the reports,
of any futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), floor broker or
floor trader exempt from registration pursuant to section
4f(a)(3), associated person exempt from registration pursuant
to section 4k(6), or board of trade designated as a contract
market in a security futures product pursuant to section 5f
that is made by the Securities and Exchange Commission, a
national securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3(a)), or a national securities exchange
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78f(a)).
``(IV) Any records required under this subsection for a
futures commission merchant or introducing broker registered
pursuant to section 4f(a)(2), floor broker or floor trader
exempt from registration pursuant to section 4f(a)(3),
associated person exempt from registration pursuant to
section 4k(6), or board of trade designated as a contract
market in a security futures product pursuant to section 5f,
shall be limited to records with respect to accounts,
agreements, and transactions involving security futures
products.
``(v)(I) The Commission and the Securities and Exchange
Commission, by rule, regulation, or order, may jointly modify
the criteria specified in subclause (I) or (III) of clause
(i), including the trading of security futures based on
securities other than equity securities, to the extent such
modification fosters the development of fair and orderly
markets in security futures products, is necessary or
appropriate in the public interest, and is consistent with
the protection of investors.
``(II) The Commission and the Securities and Exchange
Commission, by order, may jointly exempt any person from
compliance with the criterion specified in clause (i)(IV) to
the extent such exemption fosters the development of fair and
orderly markets in security futures products, is necessary or
appropriate in the public interest, and is consistent with
the protection of investors.
``(vi)(I) Notwithstanding clauses (i) and (vii), until the
compliance date, a board of trade shall not be required to
meet the criterion specified in clause (i)(IV).
``(II) The Commission and the Securities and Exchange
Commission shall jointly publish in the Federal Register a
notice of the compliance date no later than 165 days before
the compliance date.
``(III) For purposes of this clause, the term `compliance
date' means the later of--
``(aa) 180 days after the end of the first full calendar
month period in which the average aggregate comparable share
volume for all security futures products based on single
equity securities traded on all designated contract markets
and registered derivatives transaction execution facilities
equals or exceeds 10 percent of the average aggregate
comparable share volume of options on single equity
securities traded on all national securities exchanges
registered pursuant to section 6(a) of the Securities
Exchange Act of 1934 and any national securities associations
registered pursuant to section 15A(a) of such Act; or
``(bb) 2 years after the date on which trading in any
security futures product commences under this Act.
``(vii) It shall be unlawful for a board of trade to trade
or execute a security futures product unless the board of
trade has provided the Commission with a certification that
the specific security futures product and the board of trade,
as applicable, meet the criteria specified in subclauses (I)
through (XI) of clause (i), except as otherwise provided in
clause (vi).''.
(b) Margin on Security Futures.--Section 2(a)(1)(C)(vi) of
the Commodity Exchange Act (7 U.S.C. 2a(vi)) (as redesignated
by section 124) is amended--
(1) by redesignating subclause (V) as subclause (VI); and
(2) by striking ``(vi)(I)'' and all that follows through
subclause (IV) and inserting the following:
``(v)(I) Notwithstanding any other provision of this Act,
any contract market in a stock index futures contract (or
option
[[Page H10438]]
thereon) other than a security futures product, or any
derivatives transaction execution facility on which such
contract or option is traded, shall file with the Board of
Governors of the Federal Reserve System any rule establishing
or changing the levels of margin (initial and maintenance)
for such stock index futures contract (or option thereon)
other than security futures products.
``(II) The Board may at any time request any contract
market to set the margin for any stock index futures contract
(or option thereon), other than for any security futures
product, at such levels as the Board in its judgment
determines are appropriate to preserve the financial
integrity of the contract market or its clearing system or to
prevent systemic risk. If the contract market or derivatives
transaction execution facility fails to do so within the time
specified by the Board in its request, the Board may direct
the contract market to alter or supplement the rules of the
contract market as specified in the request.
``(III) Subject to such conditions as the Board may
determine, the Board may delegate any or all of its
authority, relating to margin for any stock index futures
contract (or option thereon), other than security futures
products, under this clause to the Commission.
``(IV) It shall be unlawful for any futures commission
merchant to, directly or indirectly, extend or maintain
credit to or for, or collect margin from any customer on any
security futures product unless such activities comply with
the regulations prescribed pursuant to section 7(c)(2)(B) of
the Securities Exchange Act of 1934.
``(V) Nothing in this clause shall supersede or limit the
authority granted to the Commission in section 8a(9) to
direct a contract market or registered derivatives
transaction execution facility, on finding an emergency to
exist, to raise temporary margin levels on any futures
contract, or option on the contract covered by this clause,
or on any security futures product.''.
(c) Dual Trading.--Section 4j of the Commodity Exchange Act
(7 U.S.C. 6j) is amended to read as follows:
``SEC. 4J. RESTRICTIONS ON DUAL TRADING IN SECURITY FUTURES
PRODUCTS ON DESIGNATED CONTRACT MARKETS AND
REGISTERED DERIVATIVES TRANSACTION EXECUTION
FACILITIES.
``(a) The Commission shall issue regulations to prohibit
the privilege of dual trading in security futures products on
each contract market and registered derivatives transaction
execution facility. The regulations issued by the Commission
under this section--
``(1) shall provide that the prohibition of dual trading
thereunder shall take effect upon issuance of the
regulations; and
``(2) shall provide exceptions, as the Commission
determines appropriate, to ensure fairness and orderly
trading in security futures product markets, including--
``(A) exceptions for spread transactions and the correction
of trading errors;
``(B) allowance for a customer to designate in writing not
less than once annually a named floor broker to execute
orders for such customer, notwithstanding the regulations to
prohibit the privilege of dual trading required under this
section; and
``(C) other measures reasonably designed to accommodate
unique or special characteristics of individual boards of
trade or contract markets, to address emergency or unusual
market conditions, or otherwise to further the public
interest consistent with the purposes of this section.
``(b) As used in this section, the term `dual trading'
means the execution of customer orders by a floor broker
during the same trading session in which the floor broker
executes any trade in the same contract market or registered
derivatives transaction execution facility for--
``(1) the account of such floor broker;
``(2) an account for which such floor broker has trading
discretion; or
``(3) an account controlled by a person with whom such
floor broker has a relationship through membership in a
broker association.
``(c) As used in this section, the term `broker
association' shall include two or more contract market
members or registered derivatives transaction execution
facility members with floor trading privileges of whom at
least one is acting as a floor broker, who--
``(1) engage in floor brokerage activity on behalf of the
same employer,
``(2) have an employer and employee relationship which
relates to floor brokerage activity,
``(3) share profits and losses associated with their
brokerage or trading activity, or
``(4) regularly share a deck of orders.''.
(d) Exemption From Registration for Investment Advisers.--
Section 4m of the Commodity Exchange Act (7 U.S.C. 6m) is
amended by adding at the end the following:
``(3) Subsection (1) of this section shall not apply to any
commodity trading advisor that is registered with the
Securities and Exchange Commission as an investment adviser
whose business does not consist primarily of acting as a
commodity trading advisor, as defined in section 1a(6), and
that does not act as a commodity trading advisor to any
investment trust, syndicate, or similar form of enterprise
that is engaged primarily in trading in any commodity for
future delivery on or subject to the rules of any contract
market or registered derivatives transaction execution
facility.''.
(e) Exemption From Investigations of Markets in Underlying
Securities.--Section 16 of the Commodity Exchange Act (7
U.S.C. 20) is amended by adding at the end the following:
``(e) This section shall not apply to investigations
involving any security underlying a security futures
product.''.
(f) Rulemaking Authority To Address Duplicative Regulation
of Dual Registrants.--Section 4d of the Commodity Exchange
Act (7 U.S.C. 6d) is amended--
(1) by inserting ``(a)'' before the first undesignated
paragraph;
(2) by inserting ``(b)'' before the second undesignated
paragraph; and
(3) by adding at the end the following:
``(c) Consistent with this Act, the Commission, in
consultation with the Securities and Exchange Commission,
shall issue such rules, regulations, or orders as are
necessary to avoid duplicative or conflicting regulations
applicable to any futures commission merchant registered with
the Commission pursuant to section 4f(a) (except paragraph
(2) thereof), that is also registered with the Securities and
Exchange Commission pursuant to section 15(b) of the
Securities Exchange Act (except paragraph (11) thereof),
involving the application of--
``(1) section 8, section 15(c)(3), and section 17 of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder related to the treatment of customer funds,
securities, or property, maintenance of books and records,
financial reporting or other financial responsibility rules
(as defined in section 3(a)(40) of the Securities Exchange
Act of 1934), involving security futures products; and
``(2) similar provisions of this Act and the rules and
regulations thereunder involving security futures
products.''.
(g) Obligation To Address Duplicative Regulation of Dual
Registrants.--Section 17 of the Commodity Exchange Act (7
U.S.C. 21) is amended by adding at the end the following:
``(r) Consistent with this Act, each futures association
registered under this section shall issue such rules as are
necessary to avoid duplicative or conflicting rules
applicable to any futures commission merchant registered with
the Commission pursuant to section 4f(a) of this Act (except
paragraph (2) thereof), that is also registered with the
Securities and Exchange Commission pursuant to section 15(b)
of the Securities and Exchange Act of 1934 (except paragraph
(11) thereof), with respect to the application of--
``(1) rules of such futures association of the type
specified in section 4d(3) of this Act involving security
futures products; and
``(2) similar rules of national securities associations
registered pursuant to section 15A(a) of the Securities and
Exchange Act of 1934 involving security futures products.''.
(h) Obligation to Address Duplicative Regulation of Dual
Registrants.--Section 5c of the Commodity Exchange Act (as
added by section 114) is amended by adding at the end the
following new subsection:
``(f) Consistent with this Act, each designated contract
market and registered derivatives transaction execution
facility shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any futures
commission merchant registered with the Commission pursuant
to section 4f(a) of this Act (except paragraph (2) thereof),
that is also registered with the Securities and Exchange
Commission pursuant to section 15(b) of the Securities
Exchange Act of 1934 (except paragraph (11) thereof) with
respect to the application of--
``(1) rules of such designated contract market or
registered derivatives transaction execution facility of the
type specified in section 4d(3) of this Act involving
security futures products; and
``(2) similar rules of national securities associations
registered pursuant to section 15A(a) of the Securities
Exchange Act of 1934 and national securities exchanges
registered pursuant to section 6(g) of such Act involving
security futures products.''.
(i) Obligation To Address Security Futures Products Traded
on Foreign Exchanges.--Section 2(a)(1) of the Commodity
Exchange Act (7 U.S.C. 2, 2a, and 4)) is amended by adding at
the end the following:
``(E)(i) To the extent necessary or appropriate in the
public interest, to promote fair competition, and consistent
with the protection of investors and the maintenance of fair
and orderly markets, the Commission and the Securities and
Exchange Commission shall jointly issue such rules,
regulations, or orders as are necessary and appropriate to
permit the offer and sale of a security futures product
traded on or subject to the rules of a foreign board of trade
to United States persons.
``(ii) The rules, regulations, or orders adopted under
clause (i) shall take into account, as appropriate, the
nature and size of the markets that the securities underlying
the security futures product reflects.''.
(j) Security Futures Products Traded on Foreign Boards of
Trade.--Section 2(a)(1) of the Commodity Exchange Act (7
U.S.C. 2, 2a, and 4) is amended by adding at the end the
following:
``(F)(i) Nothing in this Act is intended to prohibit a
futures commission merchant from carrying security futures
products traded on or subject to the rules of a foreign board
of trade in the accounts of persons located outside of the
United States.
``(ii) Nothing in this Act is intended to prohibit any
person located in the United States from purchasing or
carrying securities futures products traded on or subject to
the
[[Page H10439]]
rules of a foreign board of trade, exchange, or market to the
same extent such person may be authorized to purchase or
carry other securities traded on a foreign board of trade,
exchange, or market.''.
SEC. 222. APPLICATION OF THE COMMODITY EXCHANGE ACT TO
NATIONAL SECURITIES EXCHANGES AND NATIONAL
SECURITIES ASSOCIATIONS THAT TRADE SECURITY
FUTURES.
(a) Notice Designation of National Securities Exchanges and
National Securities Associations.--The Commodity Exchange Act
is amended by inserting after section 5e (7 U.S.C. 7b), as
redesignated by section 111(1), the following:
``SEC. 5F. DESIGNATION OF SECURITIES EXCHANGES AND
ASSOCIATIONS AS CONTRACT MARKETS.
``(a) Any board of trade that is registered with the
Securities and Exchange Commission as a national securities
exchange, is a national securities association registered
pursuant to section 15A(a) of the Securities Exchange Act of
1934, or is an alternative trading system shall be a
designated contract market in security futures products if--
``(1) such national securities exchange, national
securities association, or alternative trading system lists
or trades no other contracts of sale for future delivery,
except for security futures products;
``(2) such national securities exchange, national
securities association, or alternative trading system files
written notice with the Commission in such form as the
Commission, by rule, may prescribe containing such
information as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the
protection of customers; and
``(3) the registration of such national securities
exchange, national securities association, or alternative
trading system is not suspended pursuant to an order by the
Securities and Exchange Commission.
Such designation shall be effective contemporaneously with
the submission of notice, in written or electronic form, to
the Commission.
``(b)(1) A national securities exchange, national
securities association, or alternative trading system that is
designated as a contract market pursuant to section 5f shall
be exempt from the following provisions of this Act and the
rules thereunder:
``(A) Subsections (c), (e), and (g) of section 4c.
``(B) Section 4j.
``(C) Section 5.
``(D) Section 5c.
``(E) Section 6a.
``(F) Section 8(d).
``(G) Section 9(f).
``(H) Section 16.
``(2) An alternative trading system that is a designated
contract market under this section shall be required to be a
member of a futures association registered under section 17
and shall be exempt from any provision of this Act that would
require such alternative trading system to--
``(A) set rules governing the conduct of subscribers other
than the conduct of such subscribers' trading on such
alternative trading system; or
``(B) discipline subscribers other than by exclusion from
trading.
``(3) To the extent that an alternative trading system is
exempt from any provision of this Act pursuant to paragraph
(2) of this subsection, the futures association registered
under section 17 of which the alternative trading system is a
member shall set rules governing the conduct of subscribers
to the alternative trading system and discipline the
subscribers.
``(4)(A) Except as provided in subparagraph (B), but
notwithstanding any other provision of this Act, the
Commission, by rule, regulation, or order, may conditionally
or unconditionally exempt any designated contract market in
security futures subject to the designation requirement of
this section from any provision of this Act or of any rule or
regulation thereunder, to the extent such exemption is
necessary or appropriate in the public interest and is
consistent with the protection of investors.
``(B) The Commission shall, by rule or regulation,
determine the procedures under which an exemptive order under
this section is granted and may, in its sole discretion,
decline to entertain any application for an order of
exemption under this section.
``(C) An alternative trading system shall not be deemed to
be an exchange for any purpose as a result of the designation
of such alternative trading system as a contract market under
this section.''.
(b) Notice Registration of Certain Securities Broker-
Dealers; Exemption From Registration for Certain Securities
Broker-Dealers.--Section 4f(a) of the Commodity Exchange Act
(7 U.S.C. 6f(a)) is amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end the following:
``(2) Notwithstanding paragraph (1), and except as provided
in paragraph (3), any broker or dealer that is registered
with the Securities and Exchange Commission shall be
registered as a futures commission merchant or introducing
broker, as applicable, if--
``(A) the broker or dealer limits its solicitation of
orders, acceptance of orders, or execution of orders, or
placing of orders on behalf of others involving any contracts
of sale of any commodity for future delivery, on or subject
to the rules of any contract market or registered derivatives
transaction execution facility to security futures products;
``(B) the broker or dealer files written notice with the
Commission in such form as the Commission, by rule, may
prescribe containing such information as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors;
``(C) the registration of the broker or dealer is not
suspended pursuant to an order of the Securities and Exchange
Commission; and
``(D) the broker or dealer is a member of a national
securities association registered pursuant to section 15A(a)
of the Securities Exchange Act of 1934.
The registration shall be effective contemporaneously with
the submission of notice, in written or electronic form, to
the Commission.
``(3) A floor broker or floor trader shall be exempt from
the registration requirements of section 4e and paragraph (1)
of this subsection if--
``(A) the floor broker or floor trader is a broker or
dealer registered with the Securities and Exchange
Commission;
``(B) the floor broker or floor trader limits its
solicitation of orders, acceptance of orders, or execution of
orders, or placing of orders on behalf of others involving
any contracts of sale of any commodity for future delivery,
on or subject to the rules of any contract market to security
futures products; and
``(C) the registration of the floor broker or floor trader
is not suspended pursuant to an order of the Securities and
Exchange Commission.''.
(c) Exemption for Securities Broker-Dealers From Certain
Provisions of the Commodity Exchange Act.--Section 4f(a) of
the Commodity Exchange Act (7 U.S.C. 6f(a)) is amended by
inserting after paragraph (3), as added by subsection (b),
the following:
``(4)(A) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to
paragraph (2), or that is a floor broker or floor trader
exempt from registration pursuant to paragraph (3), shall be
exempt from the following provisions of this Act and the
rules thereunder:
``(i) Subsections (b), (d), (e), and (g) of section 4c.
``(ii) Sections 4d, 4e, and 4h.
``(iii) Subsections (b) and (c) of this section.
``(iv) Section 4j.
``(v) Section 4k(1).
``(vi) Section 4p.
``(vii) Section 6d.
``(viii) Subsections (d) and (g) of section 8.
``(ix) Section 16.
``(B)(i) Except as provided in clause (ii) of this
subparagraph, but notwithstanding any other provision of this
Act, the Commission, by rule, regulation, or order, may
conditionally or unconditionally exempt any broker or dealer
subject to the registration requirement of paragraph (2), or
any broker or dealer exempt from registration pursuant to
paragraph (3), from any provision of this Act or of any rule
or regulation thereunder, to the extent the exemption is
necessary or appropriate in the public interest and is
consistent with the protection of investors.
``(ii) The Commission shall, by rule or regulation,
determine the procedures under which an exemptive order under
this section shall be granted and may, in its sole
discretion, decline to entertain any application for an order
of exemption under this section.
``(C)(i) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to
paragraph (2) or an associated person thereof, or that is a
floor broker or floor trader exempt from registration
pursuant to paragraph (3), shall not be required to become a
member of any futures association registered under section
17.
``(ii) No futures association registered under section 17
shall limit its members from carrying an account, accepting
an order, or transacting business with a broker or dealer
that is registered as a futures commission merchant or
introducing broker pursuant to paragraph (2) or an associated
person thereof, or that is a floor broker or floor trader
exempt from registration pursuant to paragraph (3).''.
(d) Exemptions for Associated Persons of Securities Broker-
Dealers.--Section 4k of the Commodity Exchange Act (7 U.S.C.
6k), is amended by inserting after paragraph (4), as added by
subsection (c), the following:
``(5) Any associated person of a broker or dealer that is
registered with the Securities and Exchange Commission, and
who limits its solicitation of orders, acceptance of orders,
or execution of orders, or placing of orders on behalf of
others involving any contracts of sale of any commodity for
future delivery or any option on such a contract, on or
subject to the rules of any contract market or registered
derivatives transaction execution facility to security
futures products, shall be exempt from the following
provisions of this Act and the rules thereunder:
``(A) Subsections (b), (d), (e), and (g) of section 4c.
``(B) Sections 4d, 4e, and 4h.
``(C) Subsections (b) and (c) of section 4f.
``(D) Section 4j.
``(E) Paragraph (1) of this section.
``(F) Section 4p.
``(G) Section 6d.
``(H) Subsections (d) and (g) of section 8.
``(I) Section 16.''.
SEC. 223. NOTIFICATION OF INVESTIGATIONS AND ENFORCEMENT
ACTIONS.
(a) Section 8(a) of the Commodity Exchange Act (7 U.S.C.
12(a)) is amended by adding at the end the following:
[[Page H10440]]
``(3) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement of any
proceeding and a copy of any order entered by the Commission
against any futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), any floor broker or
floor trader exempt from registration pursuant to section
4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated
as a contract market pursuant to section 5f.''.
(b) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9,
9a, 9b, 13b, 15) is amended by adding at the end the
following:
``(g) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement of any
proceeding and a copy of any order entered by the Commission
pursuant to subsections (c) and (d) of this section against
any futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), any floor broker or
floor trader exempt from registration pursuant to section
4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated
as a contract market pursuant to section 5f.''.
(c) Section 6c of the Commodity Exchange Act (7 U.S.C. 13a-
1) is amended by adding at the end the following:
``(h) The Commission shall provide the Securities and
Exchange Commission with notice of the commencement of any
proceeding and a copy of any order entered by the Commission
against any futures commission merchant or introducing broker
registered pursuant to section 4f(a)(2), any floor broker or
floor trader exempt from registration pursuant to section
4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated
as a contract market pursuant to section 5f.''.
The SPEAKER pro tempore (Mr. LaHood). Pursuant to the rule, the
gentleman from Texas (Mr. Combest) and the gentleman from Texas (Mr.
Stenholm) each will control 20 minutes.
The Chair recognizes the gentleman from Texas (Mr. Combest).
Mr. COMBEST. Mr. Speaker, I ask unanimous consent that the gentleman
from Iowa (Mr. Leach) from the Committee on Banking and Financial
Services have control of 5 minutes of my time and that he be permitted
to yield blocks of time.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. COMBEST. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, today the House considers a bill that addresses another
of the contentious areas where capital and investment needs of American
business intersect with the needs of managing economic risk in a global
market.
Although the issues in this bill do not have the long history
associated with Glass-Steagall reforms, the process that we hope to be
culminating this afternoon actually began in 1989. Then it took the
Congress 3 years to broker a solution on how to deal with over-the-
counter financial instruments that had many of the economic
characteristics of agricultural futures. While the Futures Trading
Practices Act of 1992 proved temporary, we hope that today's
legislation will be more lasting.
Let me emphasize at the outset of this bill it aligns itself closely
with the recommendations of the President's Working Group on Financial
Services. The Department of the Treasury, the Federal Reserve, the
Securities and Exchange Commission and the Commodity Futures Trading
Commission compromise the President's Working Group.
The PWG urged the Congress to steer clear of allowing over-the-
counter financial instruments to be offered to unsuspecting individuals
who could lose their life's savings by picking an unsuitable
investment. These are the so-called ``retail customers,'' and in all
instances this bill has followed the PWG's advice.
Indeed, the three committees of jurisdiction here in the House have
taken a cautious approach, while making the three remain reforms the
centerpiece of this legislation.
First, we provide legal certainty to the vast multi-trillion dollar
derivative markets, but we make certain that only highly sophisticated,
deep-pocketed companies and individuals may participate in these
markets.
Second, we provide the U.S. derivatives industry the ability to trade
single stock futures, but only under the watchful eyes of Federal
securities and futures regulators.
Third, we allow U.S. futures exchanges to set their own course in
operating their derivatives markets under CFTC oversight, but without
the burdens of a regulatory regime designed for the mid-20th century.
These accomplishments were realized even though three committees
shared legislative jurisdiction over these matters. The Committee on
Agriculture, whose jurisdiction grew from the 150-year-old agricultural
futures markets, understands the urgency of giving legal certainty to a
$90 trillion swaps market. The Committee on Commerce, with jurisdiction
over the securities laws, knows that if U.S. financial firms are to
compete in global markets, single stock futures must be allowed to
trade here in this country. And the Committee on Banking and Financial
Services accepts the nexus between traditional banking activities and
the tools of risk management that are not of their making.
In conclusion, Mr. Speaker, I urge my colleagues to adopt this sound
legislation. It rounds out many of the historic financial reforms
passed by the 106th Congress. To fail to pass this legislation this
year will put our financial services industry at a severe competitive
disadvantage in the world market. That is why it is so important that
the House get this bill to the other body now, where it may be
considered and sent on to the President.
Finally, Mr. Speaker, I would simply say in recognition, the
gentleman from Illinois (Mr. Ewing), the chairman of the subcommittee
with this jurisdiction, has not spent simply days, weeks or months on
this bill, he has spent years on drafting this. We all regrettably know
that the gentleman from Illinois (Mr. Ewing) is finalizing his
congressional career at the end of this term. This, I think, could be
his legacy. There have been countless hours that he has put in on this
work. I commend the gentleman very much for what it is that he has
done.
I also want to thank the staff on all of the committees for the
countless numbers of hours that they have put in over the past several
weeks to try to get us to this point today.
Mr. Speaker, I ask unanimous consent that the gentleman from Illinois
(Mr. Ewing) control the balance of the time that is allotted to the
Committee on Agriculture.
The SPEAKER pro tempore. Is there objection to the request of the
gentleman from Texas?
There was no objection.
Mr. STENHOLM. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I rise in support of H.R. 4541. It is an important piece
of legislation and has a number of components that will improve the
business environment for the derivatives portion of our Nation's
financial services industry. While I support the bill, I do have some
reservations.
Mr. Speaker, in its early stages, this bill was built from agreements
developed between regulators and the President's Working Group on
Financial Markets; between the over-the-counter derivatives industry
and our futures exchanges; between the Securities and Exchange
Commission and the Commodity Futures Trading Commission; and between
the three committees of jurisdiction.
Mr. Speaker, for a time, the bill's development was the focus of a
bipartisan group of members from the three committees that conducted
the committee markups; but in a bizarre twist, the leadership
intervened and decided to substitute partisan negotiations in place of
the bipartisan discussions that were already under way and that were
yielding productive results.
Mr. Speaker, the leadership's partisan diversion in this matter was
clearly unnecessary. In my view, it slowed the process of developing a
consensus bill, and consequently it nearly cost us our opportunity to
move this legislation forward. The process has also had the effect of
detracting from confidence in the final product.
Nevertheless, Mr. Speaker, the bill tackles and accomplishes the
three main tasks that the Committee on Agriculture set for itself at
the beginning of this process: modernizing our Commodity Exchange Act
regulatory system, providing legal certainty for our over-the-counter
derivatives market, and repealing the outdated prohibition on the
trading of single stock futures in the United States.
[[Page H10441]]
Mr. Speaker, I want to compliment the CFTC for their help. The
commission deserves special credit for the design of the new futures
market regulatory scheme.
The bill reforms futures trading regulation by freeing the CFTC from
the task of prescribing the rules and procedures that exchanges must
follow. With the bill's enactment, the CFTC's primary role will be to
examine and enforce trading entities' compliance with core principles
of self-regulatory responsibility. Exchanges will be able to design
their businesses the best they can, by adopting practices that are in
compliance with these principles.
The enforcement provisions of H.R. 4541, as reported by the Committee
on Agriculture, caused the CFTC to be concerned that it would lack
sufficient authority to bring enforcement action against a registered
entity that fails to abide by core principles. I am pleased to say that
since that time, the bill's provisions have been modified to meet the
concerns of the CFTC. At the same time, provisions have been added to
clarify that registered entities will have some flexibility in meeting
core principles.
Mr. Speaker, the bill before the House repeals the outdated ban on
single stock futures. We have never had a better opportunity to
eliminate this barrier to progress. With all the things we do trade in
this country today, not just corn, cotton, wheat, soybeans, interest
rates, currencies, sugar, crude oil and milk futures, but futures on
heating degree days, on catastrophic insurance and Iowa crop yields and
many other commodities, the ban is particularly absurd.
Our Nation is the capital of financial innovation; but we ban futures
trading on two things, just two things: onions and single stock
futures. The agreements in this bill that will allow trading in single
stock futures are an important development, and I am grateful for the
work of the SEC and the CFTC in developing their agreement.
Mr. Speaker, sections 102 through 106 of the bill provide the legal
certainty for over-the-counter derivatives recommended by the
President's Working Group and sought by the over-the-counter industry.
Section 107 is intended to further bolster that certainty with regard
to swap transactions. The application of section 107 is limited to
bilateral, individually negotiated transactions, not entered into on a
transaction facility.
Mr. Speaker, as the Treasury Department said for the Committee on
Agriculture's record earlier this year, ``The changes resulting from
technology, globalization and financial innovation have made it
increasingly important that our regulatory and legal framework keeps
pace with rapid progress in the marketplace.''
Mr. Speaker, the place of our financial industry in worldwide
competition depends on us. We should move this bill forward.
I would, however, be much more comfortable if we had been given the
opportunity to analyze the bill and expose it to greater public
scrutiny. Our work product would benefit, since the issues involved are
complicated and very technical in nature. However, I have decided after
listening to the regulators and the industry representatives involved
that expediency is more important than a careful analytical process. I
can easily understand how another decision could be reached on this
legislation.
Mr. Speaker, despite my reservations, I do want to especially commend
the leaders of the House committees who worked on this bill, and
particularly recognize the gentleman from Texas (Chairman Combest) for
his leadership. Special recognition must be reserved for our
subcommittee chairman, the gentleman from Illinois (Mr. Ewing). His
leadership over a number of years has been key to laying the groundwork
for and designing the architecture of the delicate agreements that hold
H.R. 4541 together. He is a true consensus builder, and the bill before
us is a tribute to his service.
Mr. Speaker, I urge my colleagues to pass this bill, and at this time
I ask the gentleman from Illinois (Chairman Ewing) if he will join me
in a colloquy.
Mr. Speaker, the bill before us seeks to modernize regulation of
futures markets by replacing rigid governmentally imposed restrictions
with flexible, but comprehensive, core principles that registered
entities must comply with in the conduct of administering trading.
Does the chairman of the subcommittee agree that the bill is meant to
provide this flexibility while also maintaining the ability of the CFTC
to compel compliance with their provisions?
Mr. EWING. Mr. Speaker, will the gentleman yield?
Mr. STENHOLM. I yield to the gentleman from Illinois.
Mr. EWING. Mr. Speaker, as included in the bill before us, the core
principles will be, by their nature, flexible standards. Accordingly, a
regulated entity would have reasonable discretion in making
determinations as to how it will meet these requirements. Regulated
entities will be able to exercise reasonable discretion in interpreting
the language of a core principle to the extent such language includes
discretionary language. However, the commission retains its clear
authority to issue interpretations by rule, regulation, or order.
Mr. STENHOLM. Mr. Speaker, reclaiming my time, I thank the chairman
for his answer, and for his work on the bill. I again encourage the
support of this legislation.
Mr. Speaker, I include for the Record the statement of administration
policy in support of the legislation before us.
Statement of Administration Policy
H.R. 4541--Commodity Futures Modernization Act of 2000
(Rep Ewing (R) Illinois and 3 cosponsors)
The Administration strongly supports the version of H.R.
4541, the Commodity Futures Modernization Act of 2000, that
the Administration understands will be considered on the
House floor. This legislation would reauthorize the Commodity
Futures Trading Commission (CFTC) and modernize the Nation's
legal and regulatory framework regarding over-the-counter
(OTC) derivatives transactions and markets. In so doing, H.R.
4541 also would implement many of the unanimous
recommendations regarding the treatment of OTC derivatives
made by the President's Working Group on Financial Markets,
which includes the Secretary of the Treasury and the Chairmen
of the Federal Reserve Board of Governors, the Securities and
Exchange Commission, and the Commodity Futures Trading
Commission.
It is important that this legislation be enacted this year
because of the meaningful steps it would take in helping to:
promote innovation; enhance the transparency and efficiency
of derivative markets; maintain the competitiveness of U.S.
businesses and markets; and, potentially, reduce systemic
risk. H.R. 4541 would accomplish these goals while assuring
adequate customer protection for small investors and
protecting the integrity of the underlying securities and
futures markets. A failure to modernize the Nation's
framework for OTC derivatives during this legislative session
would deprive American markets and businesses of these
important benefits that could result in the movement of these
markets to overseas locations with more updated regulatory
regimes. The Administration looks forward to working with
members of Congress to improve certain aspects of the bill as
it continues through the legislative process.
Mr. Speaker, I reserve the balance of my time.
Mr. EWING. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, I truly appreciate all of the hard work from majority
and minority members and staff of my committee, the Committee on
Banking and Financial Services and the Committee on Commerce. I also
must say that the Treasury Department, the Commodity Futures Trading
Commission, the Securities and Exchange Commission, and the Federal
Reserve have cooperated greatly in working through this process.
Mr. Speaker, the President's Working Group report on OTC derivatives
was requested by the House and Senate Committee on Agriculture chairmen
in September of 1998 and presented to the committee in November of
1999. This report laid the groundwork for many of the legal certainty
provisions and other provisions included in H.R. 4541.
The President's Working Group report pointed out two issues apart
from the legal certainty that also deserve congressional close
attention. Regulatory relief for the domestic futures exchanges was of
great importance to ensure the U.S. futures exchanges can compete
globally.
{time} 1815
Chairman Greenspan said it most clearly in past testimony, ``Already
the
[[Page H10442]]
largest futures exchange in the world is no longer in America's
heartland; instead, it is now in the heart of Europe. To be sure, no
U.S. exchange has yet to lose a major contract to a foreign competitor.
But it would be a serious mistake for us to wait for such unmistakable
evidence of a loss of international competitiveness before acting.''
While the President's working group report did not give details on
regulatory relief for futures exchanges, it did conclude that the
Commodities Future Trading Commission should provide appropriate
regulatory relief for the exchange-traded financial futures.
The CFTC took the initiative to develop a far-reaching staff proposal
to provide regulatory relief for domestic futures exchanges. I am
extremely impressed with the CFTC's commitment to work with the
industry and with others and the President's working group members in
creating its proposal. I particularly pay tribute to the chairman, Mr.
Rainer, for his work.
H.R. 4541 incorporates much of the framework put forward by the CFTC.
The final aspect of the CEA modernization that I would like to
address is the Shad/Johnson Accord. The President's working group
members believed that the current prohibition on single stock futures
could be repealed if issues about integrity of the underlying
securities market and regulatory arbitrage are resolved.
The gentleman from Texas (Chairman Combest); the gentleman from Texas
(Mr. Stenholm), the ranking member; the gentleman from Virginia
(Chairman Bliley); and I all sent a letter to Chairman Levitt of the
SEC and Chairman Rainer of the CFTC asking them to create and present a
plan regarding the Shad/Johnson.
The agencies agreed that they would share jurisdiction on regulating
these products; that dual trading would be banned; that margins would
be set equivalent to the levels on option markets; and that the SEC
would enforce the insider trading laws on these products.
The CFTC and the SEC's language is the basis for the current reform
of the Shad/Johnson; however, a tax provision was added to ensure
parity between the single stock futures and options trading and a
section 31 fee currently assessed on securities will also be assessed
on single stock futures.
Banking modernization was enacted last year. It is time for the
financial industry to move onto CEA modernization.
I made it clear that I was interested in a comprehensive bill, and I
believe this bill displays a substantial cooperative effort among the
House Committee on Agriculture, the Committee on Banking and Financial
Services, the Committee on Commerce to substantially address the most
important reforms for the U.S. financial industry. For the first time,
members of the President's working group, many of the futures exchanges
and many over-the-counter parties have agreed on a majority of the
bill.
America's financial industry is involved in a global battle. If the
U.S. futures exchange, the OTC industry are to compete with new
electronic exchanges and other foreign competition, such as the EUREX,
we need to send a clear message that the United States will have a fair
and competitive regulatory system.
Finally, I would like to thank the gentleman from Texas (Chairman
Archer) and the joint tax staff for all of their hard work in crafting
the legislative language to address the tax treatment for security
future products.
Mr. Speaker, I submit the following explanation from the gentleman
from Texas (Mr. Archer) that describes the tax language that is
contained in this bill for the Record:
Committee on Ways and Means,
House of Representatives,
October 19, 2000.
Hon. Larry Combest,
Chairman, Committee on Agriculture, Washington, DC.
Dear Larry: I understand that H.R. 4541, the ``Commodities
Futures Modernization Act of 2000,'' is scheduled for
consideration by the House today. One of the issues raised by
the bill has been the tax treatment of transactions involving
security futures contracts. Time constrains have prevented
the Committee on Ways and Means from formally considering
this legislation. Nonetheless, I have been asked to provide
you with statutory language that addresses the tax treatment
of security futures contracts, and I understand that the
language I provided has been included in the bill.
To provide assistance in interpreting the statutory
language, I am attaching a technical explanation prepared by
the staff of the Joint Committee on Taxation. I would
appreciate your introducing this letter and explanation into
the record during consideration of H.R. 4541. Thank you very
much for your assistance in this regard.
With Best Personal Regards,
Sincerely,
Bil Archer,
Chairman.
____
TECHNICAL EXPLANATION OF THE TAX PROVISIONS OF H.R. 4541, THE
``COMMODITY FUTURES MODERNIZATION ACT OF 2000''
PREPARED BY THE STAFF OF THE JOINT COMMITTEE ON TAXATION
I. INTRODUCTION
This document \1\ prepared by the staff of the Joint
Committee on Taxation provides a technical explanation of the
tax provisions of H.R. 4541, the ``Commodity Futures
Modernization Act of 2000.'' The bill is scheduled for
consideration by the House of Representatives on October 19,
2000. The non-tax portions of the bill provides for exchange
trading a ``securities futures contract'', which will be a
contract for future delivery of a single security or a
narrow-based security index. The bill provides for the tax
treatment of these instruments in a manner generally
consistent with the present-law treatment of transactions in
stock and stock options.
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\1\ This document may be cited as follows: Joint Committee on
Taxation, ``Technical Explanation of the Tax Provisions of
H.R. 4541, the `Commodity Futures Modernization Act of 2000'
'' (JCX-108-00), October 19, 2000.
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II. EXPLANATION OF THE TAX PROVISIONS OF THE BILL
tax treatment of securities futures contracts (sec. 124(c) and (d) of
H.R. 4541 and secs. 1234b and 1256 of the code)
Present Law
In general
Generally, gain or loss from the sale of property,
including stock, is recognized at the time of sale or other
disposition of the property, unless there is a specific
statutory provision for nonrecognition (sec. 1001).
Gains and losses from the sale or exchange of capital
assets are subject to special rules. In the case of
individuals, net capital gain is generally subject to a
maximum tax rate of 20 percent (sec. 1(h)). Net capital gain
is the excess of net long-term capital gains over net short-
term capital losses. Also, capital losses are allowed only to
the extent of capital gains plus, in the case of individuals,
$3,000 (sec. 1211). Capital losses of individuals may be
carried forward indefinitely and capital losses of
corporations may be carried back three years and forward five
years (sec. 1212).
Generally, in order for gains or losses on a sale or
exchange of a capital asset to be long-term capital gains or
losses, the asset must be held for more than one year (sec.
1222).\2\ A capital asset generally includes all property
held by the taxpayer except certain enumerated types of
property such as inventory (sec. 1221).
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\2\ The holding period for futures transactions in a
commodity is 6 months. The 6-month holding period does not
apply to futures which are subject to the mark-to-market
rules of section 1256, discussed below.
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Section 1256 contracts
Special rules apply to ``section 1256 contracts,'' which
include regulated futures contracts, certain foreign currency
contracts, nonequity options, and dealer equity options. Each
section 1256 contract is treated as if it were sold (and
repurchased) for its fair market value on the last business
day of the year (i.e., ``marked to market''). Any gain or
loss with respect to a section 1256 contract which is subject
to the mark-market rule is treated as if 40 percent of
capital gain or loss. This results in a maximum rate of 27.84
percent on such gain for taxpayers other than corporations.
The mark-to-market rule (and the special 60/40 capital
treatment) is inapplicable to hedging transactions.
A ``regulated futures contract'' is a contract (1) which is
traded on or subject to the rules of a national securities
exchange registered with the Securities Exchange Commission,
a domestic board of trade designated a contract market by the
Commodities Futures Trading Commission, or similar exchange,
board of trade, or market, and (2) with respect to which the
amount required to be deposited and which may be withdrawn
depends on a system of marking to market.
A ``dealer equity option'' means, with respect to an
options dealer, an equity option purchased in the normal
course of the activity of dealing in options and listed on
the qualified board or exchange on which the options dealer
is registered. An equity option is an option to buy or sell
stock or an option the value of which is determined by
reference to any stock, group or stocks, or stock index,
other than an option on certain broad-based groups of stock
or stock index.\3\
[[Page H10443]]
An options dealer is any person who is registered with an
appropriate national securities exchange as a market maker or
specialist in listed options, or who the Secretary of the
Treasury determines performs functions similar to market
makers and specialists.\4\
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\3\ Rev. Rul. 94-63, 1994-2 C.B. 188, provides that the
determination made by the Securities and Exchange Commission
will determine whether or not an option is ``broad based''.
\4\ A special rule provides that any gain or loss with
respect to dealer equity options which are allocable to
limited partners or limited entrepreneurs are treated as
short-term capital gain or loss and do not qualify for the 60
percent long-term, 40 percent short-term capital gain or loss
treatment of section 1256(a)(3).
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Mark to market accounting for dealers in securities
Under present law, a dealer in securities must compute its
income from dealing in securities pursuant to the mark-to-
market method of accounting (sec. 475). Gains and losses are
treated as ordinary income and loss. Traders in securities,
and dealers and traders in commodities may elect to use this
method of accounting, including the ordinary income
treatment. Section 1256 contracts are not treated as
securities for purposes of section 475.\5\
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\5\ As discussed above, dealers in equity options are subject
to mark-to-market accounting and the special capital gain
rules of section 1256.
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Short sales
In case of a ``short sale'' (i.e., where the taxpayer sells
borrowed property and later closes the sale by repaying the
lender with substantially identical property), any gain or
loss on the closing transaction is considered gain or loss
from the sale or exchange of a capital asset if the property
used to close the short sale is a capital asset in the hands
of the taxpayer, but the gain is ordinarily treated as short-
term gain (sec. 1233(a)).
The Internal Revenue Code (the ``Code'') also contains
several rules intended to prevent the transformation of
short-term capital gain into the long-term capital gain or
long-term capital loss into short-term capital loss by
simultaneously holding property and selling short
substantially identical property (sec. 1233(b) and (d)).
Under these rules, if a taxpayer holds property for less than
the long-term holding period and sells short substantially
identical property, any gain or loss upon the closing of the
short sale is considered short-term capital gain, and the
holding period of the substantially identical property is
generally considered to begin on the date of the closing of
the short-term sale. Also, if a taxpayer has held property
for more than the long-term holding period and sells short
substantially identical property, any loss on the closing of
the short sale is considered a long-term capital loss.
For purposes of these short sale rules, property includes
stock, securities, and commodity futures, but commodity
futures are not considered substantially identical if they
call for delivery in different months.
For purposes of the short-sale rules relating to short-term
gains, the acquisition of an option to sell at a fixed price
is treated as a short sale, and the exercise or failure to
exercise the option is considered a closing of the short
sale.\6\
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\6\ An exception applies to an option to sell acquired on the
same day as the property identified as intended to be used
(and is so used) in exercising the option is acquired (sec.
1233(c)).
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The Code also treats a taxpayer as recognizing gain where
the taxpayer holds appreciated property and enters into a
short sale of the same or substantially identical property,
or enters into a contract to sell the same or substantially
identical property (sec. 1259).
Wash sales
The wash-sale rule (sec. 1091) disallows certain losses
from the disposition of stock or securities if substantially
identical stock or securities (or an option or contract to
acquire such property) are acquired by the taxpayer during
the period beginning 30 days before the date of sale and
ending 30 days after such date of sale. Commodity futures are
not treated as stock or securities for purposes of this rule.
The basis of the substantially identical stock or securities
is adjusted to include the disallowed loss.
Similar rules apply to disallow any loss realized on the
closing of a short sale of stock or securities where
substantially identical stock or securities are sold (or a
short sale, option or contract to sell is entered into)
during the applicable period before and after the closing of
the short sale.
Straddle rules
If a taxpayer realizes a loss with respect to a position in
a straddle, the taxpayer may recognize that loss for the
taxable year only to the extent that the loss exceeds the
unrecognized gain (if any) with respect to offsetting
positions in the straddle (sec. 1092). Disallowed losses are
carried forward to the succeeding taxable year and are
subject to the same limitation in that taxable year.
A ``straddle'' generally refers to offsetting positions
with respect to actively traded personal property. Positions
are offsetting if there is a substantial diminution of risk
of loss from holding one position by reason of holding one or
more other positions in personal property. A ``position'' in
personal property is an interest (including a futures or
forward contract or option) in personal property.
The straddle rules provide that the Secretary of the
Treasury may issue regulations applying the short sale
holding period rules to positions in a straddle. Temporary
regulations have been issued setting forth the holding period
rules applicable to positions in a straddle.\7\ To the extent
these rules apply to a position, the rules in section 1233(b)
and (d) do not apply.
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\7\ Reg. sec. 1.1092(b)-2T.
---------------------------------------------------------------------------
The straddle rules generally do not apply to positions in
stock. However the straddle rules apply if one of the
positions is stock and at least one of the offsetting
positions is either (1) an option with respect to stock or
(2) a position with respect to substantially similar or
related property (other than stock) as defined in Treasury
regulations. Under property Treasury regulations, a position
with respect to substantially similar or related property
does not include stock or a short sale of stock, but includes
any other position with respect to substantially similar or
related property.\8\
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\8\ Prop. Reg. sec. 1.1092(d)-2(c).
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If a straddle consists of both positions that are section
1256 contracts and positions that are not such contracts, the
taxpayer may designate the positions as a mixed straddle.
Positions in a mixed straddle are not subject to the mark-to-
mark rule of section 1256, but instead are subject to rules
written under regulations to prevent the deferral of tax or
the conversion of short-term capital gain to long-term
capital gain or long-term capital loss into short-term
capital loss.
Transactions by a corporation in its own stock
A corporation does not recognize gain or loss on the
receipt of money or other property in exchange for its own
stock. Likewise, a corporation does not recognize gain or
loss when it redeems its stock with cash, for less or more
than it received when the stock was issued. In addition, a
corporation does not recognize gain or loss on any lapse or
acquisition of an option to buy or sell its stock (sec.
1032).
Explanation of the Tax Provisions of the Bill
In general
Except in the case of dealer securities futures contracts
described below, securities futures contracts are not treated
as section 1256 contracts. Thus, holders of these contracts
are not subject to the mark-to-market rules of section 1256
and are not eligible for 60-percent long-term capital gain
treatment under section 1256. Instead, gain or loss on these
contracts will be recognized under the general rules relating
to the disposition of property.\9\
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\9\ Any securities futures contract which is not a section
1256 contract will be treated a ``security'' for purposes of
section 475. Thus, for example, traders in securities future
contracts which are not section 1256 contracts could elect to
have section 475 apply.
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A securities futures contract is defined in section
3(a)(55)(A) of the Securities Exchange Act of 1934, as added
by the bill. In general, that definition provides that a
securities futures contract means a contract of sale for
future delivery of a single security or a narrow-based
security index. A securities future contract will not be
treated as a commodities futures contract for purposes of the
Code.
Treatment of gains and losses
The bill provides that any gain or loss from the sale or
exchange of a securities futures contract (other than a
dealer securities futures contract) will be considered as
gain or loss from the sale or exchange of property which has
the same character as the property to which the contract
relates has (or would have) in the hands of the taxpayer.
Thus, if the underlying security would be a capital asset in
the taxpayer's hands, then gain or loss from the sale or
exchange of the securities futures contract would be capital
gain or loss. The bill also provides that the termination of
a securities futures which is a capital asset will be treated
as a sale or exchange of the contract.
Capital gain treatment will not apply to contracts which
themselves are not capital assets because of the exceptions
of the definition of a capital asset relating to inventory
(sec. 1221(a)(1)) or hedging (sec. 1221(a)(7)), or to any
income derived in connection with a contract which would
otherwise be treated as ordinary income.
Except as otherwise provided in regulations under section
1092(b) (which treats certain losses from a straddle as long-
term capital losses) and section 1234B, as added by the bill,
any capital gain or loss from the sale or exchange of a
securities futures contract to sell property (i.e., the short
side of a securities futures contract) will be short-term
capital gain or loss. In other words, a securities futures
contract to sell property is treated as equivalent to a short
sale of the underlying property.
Wash sale rules
The bill clarifies that, under the wash sale rules, a
contract or option to acquire or sell stock or securities
shall include options and contracts that are (or may be)
settled in cash or property other than the stock or
securities to which the contract relates. Thus, for example,
the acquisition, within the period set forth in section 1091,
of a securities futures contract to acquire stock of a
corporation could cause the taxpayer's loss on the sale of
stock in that corporation to be disallowed, notwithstanding
that the contract may be settled in cash.
Short sale rules
In applying the short sale rules, a securities futures
contract to acquire property will be treated in manner
similar to the property itself. Thus, for example, the
holding of a securities futures contract to acquire property
[[Page H10444]]
and the short sale of property which is substantially
identical to the property under the contract will result in
the application of the rules of section 1233(b).\10\ In
addition, as stated above, a securities futures contract to
sell is treated in a manner similar to a short sale of the
property.
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\10\ Because securities futures contracts are not treated as
futures contracts with respect to commodities, the rule
providing that commodity futures are not substantially
identical if they call for delivery in different months does
not apply.
---------------------------------------------------------------------------
Straddle rules
Stock which is part of a straddle at least one of the
offsetting positions of which is a securities futures
contract with respect to the stock or substantially identical
stock will be subject to the straddle rules of section 1092.
Treasury regulations under section 1092 applying the
principles of the section 1233(b) and (d) short sale rules to
positions in a straddle will also apply.
For example, assume a taxpayer holds a long-term position
in actively traded stock (which is a capital asset in the
taxpayer's hands) and enters into a securities futures
contract to sell substantially identical stock (at a time
when the position in the stock has not appreciated in value
so that the constructive sale rules of section 1259 do not
apply). The taxpayer has a straddle. Treasury regulations
prescribed under section 1092(b) applying the principles of
section 1233(d) will apply, so that any loss on closing the
securities futures contract will be a long-term capital loss.
Section 1032
A corporation will not recognize gain or loss on
transactions in securities futures contracts with respect to
its own stock.
Holding period
If property is delivered in a satisfaction of a securities
futures contract to acquire property (other than a contract
to which section 1256 applies), the holding period for the
property will include the period the taxpayer held the
contract, provided that the contract was a capital asset in
the hands of the taxpayer.
Regulations
The Secretary of the Treasury or his delegate has the
authority to prescribe regulations to provide for the proper
treatment of securities futures contracts under provisions of
the Internal Revenue Code.
Dealers in securities futures contracts
In general, the bill provides that securities futures
contracts and options on such contracts are not section 1256
contracts. The bill provides, however, that ``dealer
securities futures contracts'' will be treated as section
1256 contracts.
The term ``dealer securities futures contract'' means a
securities futures contract which is entered into by a dealer
in the normal course of his or her trade or business activity
of dealing in such contracts, and is traded on a qualified
board of trade or exchange. The term also includes any option
to enter into securities futures contracts purchased or
granted by a dealer in the normal course of his or her trade
or business activity of dealing in such options. The
determination of who is to be treated as a dealer in
securities futures contracts is to be made by the Secretary
of the Treasury or his delegate not later than July 1, 2001.
Accordingly, the bill authorizes the Secretary to treat a
person as a dealer in securities futures contracts or options
on such contracts if the Secretary determines that the person
performs, with respect to such contracts or options,
functions similar to an equity options dealer, as defined
under present law.
The determination of who is a dealer in securities futures
contracts is to be made in a manner that is appropriate to
carry out the purpose of the provision, which generally is to
provide comparable tax treatment between dealers in
securities futures contracts, on the one hand, and dealers in
equity options, on the other. Although traders in securities
futures contracts (and options on such contracts) may not
have the same market-making obligations as market makers or
specialists in equity options, many traders are expected to
perform analogous functions to such market makers or
specialists by providing market liquidity for securities
futures contracts (and options) even in the absence of a
legal obligation to do so. Accordingly, the absence of
market-making obligations is not inconsistent with a
determination that a class of traders are dealers in
securities futures contracts (and options), if the relevant
factors, including providing market liquidity for such
contracts (and options), indicate that the market functions
of the traders is comparable to that of equity options
dealers.
As in the case of dealer equity options, gains and losses
allocated to any limited partner or limited entrepreneur with
respect to a dealer securities futures contract will be
treated as short-term capital gain or loss.
Treatment of options under section 1256
The bill modifies the definition of ``equity option'' for
purposes of section 1256 to take into account changes made by
the non-tax provisions of the bill. Only options dealers are
eligible for section 1256 with respect to equity options. The
term ``equity option'' is modified to include an option to
buy or sell stock, or an option the value of which is
determined, directly or indirectly, by reference to any
stock, or any ``narrow-based security index,'' as defined in
section 3(a)(55) of the Securities Exchange Act of 1934 (as
modified by the bill). An equity option includes an option
with respect to a group of stocks only if the group meets the
requirements for a narrow-based security index.
As under present law, listed options that are not ``equity
options'' are considered ``nonequity options'' to which
section 1256 applies for all taxpayers. For example, options
relating to broad-based groups of stocks and broad based
stock indexes will continue to be treated as nonequity
options under section 1256.
Definition of contract markets
The non-tax provisions of the bill designate certain new
contract markets. The new contract markets will be contract
markets for purposes of the Code, except to the extent
provided in Treasury regulations.
Effective date
These provisions will take effect on the date of enactment
of the bill.
Mr. EWING. Mr. Speaker, I reserve the balance of my time.
Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
(Mr. LEACH asked and was given permission to revise and extend his
remarks and include extraneous material.)
Mr. LEACH. Last year, after nearly 2 decades of work, the United
States Congress passed the Financial Modernization Act to bring our
Nation's banking and securities laws in line with the realities of the
marketplace. In the few days left for legislation in this Congress, an
analogous opportunity presents itself to modernize the Commodity
Exchange Act that governs the trading of futures and options.
At issue is the question of whether an appropriate regulatory
framework can be established to deal not only with certain problems
that confront today's risk management markets, but new dilemmas that
appear on the horizon.
Legislation of this nature involves different committees with
different concerns and sometimes competitive jurisdictional interests.
From the perspective of the Committee on Banking and Financial
Services, I would like to express my respect for the initial Committee
on Agriculture product. That Committee's product, led by the gentleman
from Texas (Chairman Combest) and the gentleman from Texas (Mr. Ewing),
reflected a credible way of dealing with a number of concerns that have
developed during much of the last of the decade as derivatives-related
products have grown. Nonetheless, the Committee on Banking and
Financial Services believes that some modifications to H.R. 4541 were
in order; and in July, a number of clarifying approaches were adopted
on a bipartisan manner.
The fact is that the CEA, or Commodity Exchange Act, is an awkward
legislative vehicle designed in an era in which financial products have
of a nature now in place were neither in existence nor much
contemplated. Indeed, the Commodities Future Trading Commission was
fundamentally designed to supervise agriculture and commodities
markets, not financial institutions.
Because of anachronistic constraints established under the Commodity
Exchange Act, legal uncertainty exists for trillions of dollars of
existing contractual obligations. This bill resolves this uncertainty
for the benefit of customers of many of these products, but it does not
fully resolve the certain issue for some kinds of future activities.
While I would have wished that more could have been achieved, it
should be clear that no additional legal uncertainty is created under
the bill and progressive strides have been made on the fundamental
aspects of the legal certainty issue.
Mr. Speaker, at this point let me just conclude by thanking the staff
of the committees of jurisdiction, the staffs frankly of the
professional parts of the United States Government, the Treasury, the
Fed, the SEC, that have put forth a great deal of effort and input into
this legislative vehicle. Most of all, I think it has to be stressed
that one Member of this body has contributed significantly to the
embellishment of this institution, this legislative vehicle and I
personally want to thank the gentleman from Texas (Mr. Ewing) for
everything he has done to bring this forth in such a responsible,
decent and credible way.
Mr. Speaker, I reserve the balance of my time.
Mr. STENHOLM. Mr. Speaker, I yield 4 minutes to the gentleman from
Massachusetts (Mr. Markey).
Mr. MARKEY. Mr. Speaker, I thank the gentleman from Texas for
yielding me the time, and I thank him for the
[[Page H10445]]
excellent work that he has contributed to this product, along with the
gentleman from Iowa (Mr. Leach), the gentleman from Virginia (Mr.
Bliley) and all across the spectrum of the House and the Senate.
Mr. Speaker, I rise in reluctant support for this bill today, because
of the fact that I still have some very serious concerns about both the
process that has brought this bill to the floor and some of its
provisions.
Mr. Speaker, to the extent to which the bill has been made minimally
acceptable to those of us on the Committee on Commerce who work for it,
the gentleman from Michigan (Mr. Dingell) and I, the gentleman from New
York (Mr. Towns) who has spent a lot of time on this bill, I want to
thank especially Consuela Washington for her excellent work and Jeff
Duncan, from my staff, and the staff of the gentleman from New York
(Mr. Towns) for their excellent work in trying to improve this piece of
legislation, as best as it could have been improved and still pass the
House floor.
What we are doing in this bill is saying, okay, we are going to take
OTC swaps between eligible contract participants out of the CEA. They
are excluded from the act. Now, I do not have any problem with that. If
the swap dealers feel more comfortable with a statutory exclusion for
sophisticated counterparties instead of the CFTC exemptive authority
and the Committee on Agriculture is willing to agree to an exclusion
that makes sense, that is fine with me. However, I am not willing to
allow legal certainty to become a guise for sweeping exemptions from
the antifraud or market manipulation provisions of the securities laws.
I do not think that is wise.
Mr. Speaker, while some earlier drafts of this bill would have done
precisely that, the bill we are considering today does not, and that is
a good thing. That is why I am willing to support the legal certainty
language today. However, I do have some concern about how we have
defined eligible contract participants, that is, the sophisticated
institutions that will be allowed to play in the swaps market with
little or no regulation, I might add.
The bill before us today lowers the threshold for who will be an
eligible contract participant far below what the Committee on Commerce
had allowed. By the way, we agreed upon that, Democrat and Republican,
from the gentleman from Virginia (Mr. Bliley) to the gentleman from
Michigan (Mr. Dingell), that was our standard. I feel that this will
now create a regulatory gap for retail swap participants that
ultimately must be addressed.
For example, under one part of this definition, an individual with
total assets in excess of only $5 million who uses a swap to manage
certain risks is an eligible contract participant for that swap. I
think that threshold is simply too low.
I believe that the original Committee on Commerce investor protection
provisions should have been fully restored. Moreover, the bill should
clarify explicitly that counterparties who may enter into transactions
with retail-eligible contract participants are subject for such
transactions to the antifraud authority of their primary regulators.
Mr. Speaker, let me turn to the provisions of this bill that would
allow the trading of stock futures. These new products that would trade
on exchanges and compete directly with stocks and stock options.
Now, I have serious reservations about the impact of single stock
futures on our securities markets, and in all likelihood these products
are going to be used principally by day traders and other speculators.
There is nothing inherently wrong with speculation. It can be an
important source of liquidity in the financial markets, but one of the
purposes of the Federal securities laws has traditionally been to
control excessive speculation and excessive and artificial volatility
in the markets and to limit the potential for markets to be manipulated
or used to carry out insider trading or other fraudulent schemes.
Mr. Speaker, I support this bill. I hope it receives its support of
the full House. It is much better than it had been, but there could
have been greater consumer protections built in.
Mr. EWING. Mr. Speaker, I yield 2 minutes to the gentleman from
Virginia (Mr. Bliley), the distinguished chairman of the Committee on
Commerce.
Mr. BLILEY. Mr. Speaker, I thank the gentleman for yielding me the
time.
Mr. Speaker, as we considered H.R. 4541 in the Committee on Commerce,
I had two priorities. First, that security-future products be traded in
decimals with no government-mandated minimal increments. We have
recently witnessed the beginning of decimal trading in the securities
markets. When securities are priced in free market increments, spreads
narrow and investors win. These efficiencies should accrue to the
security futures market as well.
Second, electronic communications networks, ECNs, should have the
ability to trade security future products. ECNs have provided increased
competition and liquidity in the securities marketplace. Competition
brings investors enhanced services and cheaper transactions. These
benefits should certainly be extended to the market for security future
products.
I am pleased these two provisions are in the bill we are considering
today.
I thank my colleagues, the gentleman from Texas (Chairman Combest)
and the gentleman from Texas (Mr. Ewing), the chairman of the
Subcommittee on Risk Management, Research and Specialty Crops; the
gentleman from Iowa (Chairman Leach); and the gentleman from Louisiana
(Mr. Baker), chairman of the Subcommittee on Capital Markets,
Securities and Government Sponsored Enterprises; as well as the
gentleman from Ohio (Mr. Oxley), my good friend, chairman of the
Subcommittee on Finance and Hazardous Materials, for their fine work
and constructive participation in this developing this legislation.
I support this bill, and I urge my colleagues to do the same.
Mr. STENHOLM. Mr. Speaker, I yield 2 minutes to the gentleman from
Michigan (Mr. Dingell).
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Mr. Speaker, I thank my good friend for yielding me the
time.
Mr. Speaker, I rise to hold my nose at and to support this
legislation. It just barely meets the standards in which legislation
may be considered acceptable.
{time} 1830
It does so only because the matter is going to go to the Senate,
where I hope that the very visible and very obvious remaining defects
are corrected.
There are a number of problems.
First of all, the bill almost died because of flawed procedure.
Subject to action by the committees after just one bipartisan meeting,
which from all counts was constructive, Democratic staff were booted
out of the negotiations on this bill, at the direction of the
Republican leadership.
This is not a surprise to me because it has happened on many other
occasions. However, 2 weeks ago, the Committee on Agriculture majority
staff started circulating drafts of legislation for Democratic review
and comment. I salute them and thank them for that.
The development of these events and the willingness of the Committee
on Agriculture to make significant changes in the bill in response to
our comments have made it possible for me to support the bill at this
point in the process. I want to commend and thank both the majority and
the minority on the Committee on Agriculture for the remarkable
consideration and courtesy which was shown.
This has gone from being an extraordinarily bad piece of legislation
to being a bill which is worth moving to the next stage. It does not
provide necessary investor protections, and it does not assure in the
fullest that we will not have excessive speculation which will put the
markets at risk in this country.
For reasons not adequately explained, greedy brokers and banks are
arguably relieved of selected statutory and regulatory restraints on
their behavior. These must be addressed before the bill becomes law.
But I support passage of this bill at this time as a step forward, and
as part of moving the process forward, as it should be.
But I want to make it very clear, I am still holding my nose. It will
not be possible to support this bill if it is not
[[Page H10446]]
significantly improved at the next stage of the process.
Mr. Speaker, I would like to address my principal concerns with this
bill.
First, I support legal certainty under the Commodity Exchange Act
(CEA) for swaps entered into between professional traders and similar
sophisticated parties who have the means to protect themselves.
However, the Republican negotiations have produced a bill that also
excludes retail swaps from the CEA. Brokers can sell swaps to retail
investors (in this market that means investors with $5 million in
assets) without the antimanipulation and antifraud protections that
otherwise would apply under that Act. The bill does not provide any
substitute protections. This needs more work. I would like to clarify
for the record that it is the intent of Congress in passing this
legislation that counterparties who may enter into transactions with
retail ``eligible contract participants'' are subject for such
transactions to the antifraud authority of their primary regulator.
This bill should not be interpreted as declaring open season on
investors.
Second, Section 107 provides a redundant exclusion for a broad range
of swap transactions. I would have preferred that this section be
deleted and that we defer instead to the bill's carefully crafted
exclusions for specific groups of products. However, as amended by the
agreement we reached last night, I will support its inclusion. I want
it clearly understood that the limitations on this exclusion are
strict. To qualify for the Section 107 exclusion, each of the material
economic terms of the swap must be individually negotiated, not
passively accepted, by the parties. In contrast to the products for
which the Section 107 exclusion is designed, exchange-traded products
may have some terms that are standardized and some that can be
negotiated on behalf of the purchaser or seller by an agent. Section
107 clarifies that exchange-traded products, such as security futures
products, do not fall within the exclusion. Moreover, the Section 107
exclusion would not apply to an electronic system where a user
passively could accept contract terms as opposed to actively
negotiating every material economic term. Section 107 should not be
construed to affect the applicability of other exclusions in the bill,
such as the one found in Section 103 conditionally excluding certain
transactions on electronic trading facilities from the CEA. Finally,
Section 107 should not be construed to narrow or broaden the conditions
that apply to such exclusions.
Third, H.R. 4541 establishes a comprehensive regulatory system for
the regulation of security futures products. It rests on a system of
joint regulation by the CFTC and SEC, both of whom are assigned
specific tasks designed to maintain fair and orderly markets for single
stock futures and futures or groups or indexes of securities. Under
this system, it is clear that intermediaries that trade securities
futures products must register with the SEC as broker-dealers, although
it allows futures market intermediaries that are regulated by the CFTC
to register with the SEC on a streamlined basis as notice registrants.
In the middle of the night, language was stripped from the bill with
the result that banks would now be exempted from the rules that apply
to everyone else. As a result a bank selling securities futures could
register with the CFTC as a futures commission merchant but, unlike
other entities, not have to notice register with the SEC. Effectively,
half of the regulatory framework that we have negotiated over many
months would disappear. There is no public interest to be served in
eliminating SEC oversight over issues such as insider trading frauds,
market manipulation, and customer sales practice rules just because a
bank traded the security.
I want to make the following observations about this seeming
travesty:
1. There are not many bank FCM's left.
2. I do not believe any responsible financial services lawyer will
recommend that the bank FCM not file a broker-dealer notice
registration with the SEC.
3. Given the clear findings of the Congress, which has expressly
concluded that a security future is a security, the SEC would be on
solid legal standing should it proceed by rule to require bank FCM's to
register as broker-dealers through the streamlined notice process.
4. Similarly, the CFTC would be on solid legal standing should it bar
bank FCM's from selling security futures unless they have notice
registered with the SEC.
Fourth, also last night, language was added on page 227 of the bill
that has the effect of creating a major competitive advantage for
foreign futures exchanges trading single stock futures based on U.S.
securities. That provision, a new Section 2(a)(1)(F)(ii) of the
Commodity Exchange Act, permits any retail customer in the U.S. to
purchase single stock futures on U.S. stocks sold by a foreign board of
trade without regard to any of the regulatory constraints imposed on
U.S. exchanges. Because of this change, U.S. exchanges will not face
direct electronic competition on U.S. trading terminals from foreign
exchanges that can cut margins, fees, and regulatory costs. This
provision, for which no one will now claim responsibility, undoes much
of the good work in this legislation to ensure fair competition and
consistent market integrity and investor protections. This provision
should be deleted from the bill.
With these serious reservations, I support passage of this
legislation.
Mr. LEACH. Mr. Speaker, I yield 1 minute to the distinguished
gentlewoman from New Jersey (Mrs. Roukema), the subcommittee chairman.
(Mrs. ROUKEMA asked and was given permission to revise and extend her
remarks.)
Mrs. ROUKEMA. Mr. Speaker, I thank the gentleman for yielding time to
me.
Mr. Speaker, I want to associate myself with the remarks of the
chairman of the Committee on Banking and Financial Services, with which
I agree.
I do want to make a couple of statements here. What we are doing here
today is very essential in terms of improving and clarifying the legal
uncertainty under the Commodity Exchange Act. That has been pointed
out.
We are also talking about a modernized economy, not only here in the
United States but in the global economy. As has been mentioned, the
derivatives and the swap agreements are growing throughout, and we need
this clarification of legal certainty.
But as a member of the Committee on Banking and Financial Services, I
also want to say that this legislation would ensure that derivatives
engaged in by financial institutions would continue to be regulated by
the appropriate bank regulatory agencies. I must stress that this law
would in no way reduce the appropriate oversight of these products.
Mr. Speaker, I will work in the next Congress to revisit these issues
as the market continues to grow, but this is an essential first step.
Mr. Speaker. I rise as a Member of the Banking Committee in support
of H.R. 4541, the Commodity Futures Modernization Act of 2000. This is
an important piece of legislation that addresses a host of issues
relating to products and transactions that form a critical part of our
nation's economy. Today I want to focus on the regulatory treatment of
one type of product: over-the-counter derivatives contracts that are
currently traded among large financial institutions throughout the
world. These derivatives, which include swap agreements, various
options, and hybrid instruments, are used by large financial
institutions to manage and control various risks--particularly interest
rate risk. These instruments help maintain a safe and sound banking
system.
However, there have been questions about the legal certainty of these
derivatives because their status under the commodity Exchange Act is
unclear. This uncertainty is a result of the law not keeping up with
the marketplace. This bill would go a long way to address the question
of legal certainty of these instruments traded among large institutions
in the wholesale market by exempting these products from the Commodity
Exchange Act. This legislation would ensure that these derivatives
engaged in by financial institutions would continue to be regulated by
the appropriate bank regulatory agencies. I must stress that this law
would in no way reduce appropriate oversight of these products, but
would ensure that our financial institutions would not be subject to a
burdensome additional layer of regulation solely as a result of
participating in this derivatives activity.
I want to note that I support the additional provisions that were
passed out of the Banking Committee earlier this year that would have
provided clarification for a broader market of products identified as
``banking products.'' I will work in the next Congress to revisit these
issues as the market continues to grow. This is an essential first
step. But I want to thank the chairmen of the Agriculture Committee,
the Commerce Committee, and the Banking Committee for working together
to bring this bill to the floor and addressing the most critical
component of the ``legal certainty'' issue. This bill would ensure the
continued ability of large financial institutions to manage risks with
derivatives, and I support its passage.
Mr. EWING. Mr. Speaker, I yield 1\1/2\ minutes to the gentleman from
Ohio (Mr. Boehner).
Mr. BOEHNER. Mr. Speaker, I want to thank the gentleman from Illinois
for yielding time to me.
Mr. Speaker, I rise today in support of H.R. 4541, the Commodity
Futures Modernization Act, which provides for the deregulation and
modernization of the U.S. futures industry.
It also reforms the antiquated Shad-Johnson accord to allow U.S.
futures
[[Page H10447]]
exchanges to trade single stock futures.
Finally, the bill provides legal certainty for the $90 trillion
financial derivatives industry that really has become critical to the
operation of American finance and industry.
This important legislation was negotiated between the Committee on
Agriculture, the Committee on Banking and Financial Services, and the
Committee on Commerce to provide real reform. It places our financial
industry on solid ground for the highly competitive future. Without it,
many of these important financial products will move overseas,
threatening the growth of the American economy.
I especially want to compliment my good friend, the gentleman from
Illinois (Mr. Ewing), who worked tirelessly on this bill. The gentleman
from Illinois is retiring this year, and his leadership on this issue
will be sorely missed. I think this landmark legislation is a
compliment to his years of service as a legislator.
I also want to congratulate all of the chairmen of the relevant
committees, the three committees and subcommittees, and their ranking
members for their efforts in bringing this bill together so it can be
on the floor today.
The Commodity Futures Modernization Act is right for our economy and
it is right for our financial industry. I am proud to lend my support
to this important bill.
Mr. STENHOLM. Mr. Speaker, I yield 1 minute to the gentleman from
Maine (Mr. Baldacci).
Mr. BALDACCI. Mr. Speaker, I thank the gentleman for yielding time to
me, and also for his leadership on the Committee on Agriculture, and
for working to fashion the bipartisan measure that is before us today.
Also, I commend the gentleman from Illinois (Chairman Ewing) for his
leadership and support on the committee. Having been a member of the
committee, to end up working on a bill like this, I am very proud of
the part that I have played in that effort.
Mr. Speaker, I rise in support of the Commodity Futures Modernization
Act. The legislation has been a product of a lot of hard work over
several years, and the reforms are a long time in coming. But between
now and when the committee dealt with it, it has been undergoing some
changes, which is not really surprising. However, some of what I
supported has been taken out. I hope we can continue working on this
when we revisit one of those issues.
With respect to the definition of eligible contract participants, the
CFTC has the broad authority to determine that other persons are
eligible beyond those specifically listed. It is my understanding that
the commodity trading advisors, with over $25 million in client assets
under management, are among those other persons which the CFTC should
determine to meet the requirements.
Mr. LEACH. Mr. Speaker, I yield 1 minute to my distinguished
colleague, the gentleman from Pennsylvania (Mr. Toomey).
Mr. TOOMEY. Mr. Speaker, I thank the chairman for yielding time to
me.
Mr. Speaker, over the last 20 years, American and international
financial markets have changed dramatically. Opportunities for
investors have expanded tremendously. New access to capital has
empowered entrepreneurs. The ability to hedge financial and commodity
price risk has stabilized earnings and encouraged investment.
This democratization of the capital markets has been driven largely
by the development and application of derivative transactions,
especially over-the-counter derivatives.
I worked in the derivative sector of the financial services industry
for 7 years in the 1980s and 1990s. I marvel now at how widespread,
sophisticated, and indispensable these products have become since then.
Today we are going to pass a Commodity Exchange Act that will
eliminate most of the cloud of legal and regulatory uncertainty that
has shadowed these products since their invention. For that reason, I
urge my colleagues to vote yes on this bill.
It is not, however, a perfect bill. I hope the other body will
eliminate the remaining legal uncertainty that will still shadow the
use of these transactions by retail customers. I hope that they will
allow greater flexibility in the electronic trading of the over-the-
counter derivatives.
Today we do have a good bill. It will strengthen the ability of
American financial institutions to compete in a vital sector of
finance. I urge its passage.
Mr. STENHOLM. Mr. Speaker, I yield myself the balance of my time.
Mr. Speaker, I would just close by encouraging all of my colleagues
to support this bill, and again commend the gentleman from Illinois
(Mr. Ewing) for his tireless work in putting together a package that
has brought three different committees together under a most strange
situation, but one in which we do have the opportunity to pass
legislation of some extreme importance.
Mr. EWING. Mr. Speaker, I yield myself such time as I may consume.
Mr. Speaker, in closing, let me say that this has been a great
experience. I have had wonderful cooperation from both sides of the
aisle, from chairmen and subcommittee chairmen and ranking members on
those committees.
I think it is important today to recognize that we are here at a time
and a place when this legislation, so badly needed by our financial
industry, can pass through this House and be considered in the other
body.
When we realize how long it takes us sometimes to move complicated
pieces of legislation, such as the Banking Reform Act of last year, we
should recognize that now is the time to move this legislation before
we have a new administration, before we have new chairmen, before we
have whoever may be in control of this Congress after the next
election.
We have come together. We have grappled with the issues. We have
reached a good conclusion and devised a good bill for our financial
industry. I thank everyone again, and I ask for a positive vote on this
bill.
Mr. OXLEY. Mr. Speaker, during this Congress, we have made historic
progress in enacting legislation to modernize and improve our financial
markets. We enacted Gramm-Leach-Bliley, and finally repealed the
outdated restrictions against affiliations among banks, securities
firms, and insurance firms, paving the way for new efficiencies and
innovations in our marketplace.
We enacted E-SIGN, facilitating the growth of electronic commerce in
not only the financial marketplace, but indeed the entire U.S.
marketplace.
And today we are taking a step toward further improving the
competitiveness of U.S. markets in the financial arena. H.R. 4541
serves three important functions. It promotes regulatory efficiency,
enhances legal certainly in the derivatives market, and stimulates
competition.
This bill enhances regulatory efficiency in the futures market by
streamlining the regulations of the CFTC. I support this prudent
approach to deregulation.
It enhances legal certainty in the derivatives market by explicitly
carving out derivatives transactions from CFTC regulation. I welcome
the resulting legal certainty, which is vital to the continued growth
of an industry that is so fundamentally important to the financial
health of U.S. companies, and, indeed, the global financial
marketplace.
The legislation also promotes competition both domestically and
internationally by lifting a ban on a type of financial product that
could serve important functions in our markets and abroad. While
current law bans the trading of futures on individual securities and on
narrow-based indices in the U.S. overseas markets for these security
futures products are rapidly developing. It is important for our
markets to be able to compete for this business, because I strongly
believe that in a fair competitive environment, our markets will always
win.
This legislation authorizes the trading of securities futures
products on futures exchanges, options exchanges, equity exchanges and,
importantly, Alternative Trading Systems. The broad spectrum of
competition that this legislation will foster will serve the market
well.
I would like to thank my colleagues for their good work on this
legislation. In particular I thank Chairman Bliley, Chairman Combest,
Chairman Leach, Chairman Ewing and Chairman Baker for the leadership
they have displayed in moving this bill forward. The bill certainly
reflects the hard work these gentlemen have put into it. This is good
policy and I urge each of you to support it.
Mr. BAKER. Mr. Speaker, Commodity Exchange Act reform is long
overdue.
The CEA has become an obstacle to the competitiveness of the US
futures industry. It prohibits US futures exchanges from offering
single stock futures while the same products are being created in
London for international investors. It burdens futures exchanges with
regulation that amounts to micromanagement, and that increases the cost
of managing risk
[[Page H10448]]
for American companies and financial institutions.
Even worse, some at the CFTC have tried to apply CFTC regulations--
which don't even work well for the futures business--to banking
activities, including bank deposits and swaps. Banks don't need a
second regulator, not for their deposits and not for their swap
business. CFTC regulation for swaps is so inappropriate that, if swaps
were ever found to be futures contracts regulated by the CFTC, many of
them would be illegal and unenforceable under CFTC rules. Swaps aren't
futures and swaps aren't securities, and we must make that clear in
federal law.
The House Banking Committee, under the able leadership of Chairman
Leach at our July 27 mark-up of this bill, added provisions to the
House Agriculture Committee version that dealt with many of these
problems. Our approach wasn't the most clear and straightforward, and
I'll be the first to admit it. I would have preferred--and I still
prefer--to simply add a definition of futures contracts to the
Commodity Exchange Act so the questions of legal certainty for swaps
would be completely resolved. But the Banking Committee approach was
still effective, and it was included in the compromise version of this
bill that was agreed to by Committee Chairmen from the House and Senate
last week.
In the bill going to the floor today, those protections for swaps are
gone. This bill does not create legal certainty for all swap
participants. It does not protect banks from duplicate regulation by
the CFTC and SEC. It is not good enough to become law.
Furthermore, the CFTC, an agency in search of a mission, will become
an unwanted and unneeded regulator of e-commerce, particularly in the
realm of financial services. The Bill contains a definition of
electronic trading facility, and while it rules out CFTC regulation of
some electronic trading, it opens the door to CFTC regulation of other
electronic facilities. I wonder whether the e-commerce community is
even aware of how this legislation might constrain the growth of
electronic finance. We should not build a regulatory structure before
it even exists, especially whether other countries are promoting
unrestricted growth of such financial e-commerce platforms. We should
not build a regulatory structure for e-commerce before we even know
what it looks like.
It is evident that these problems will not be solved on the House
side. They must be tackled by the House working together with the
Senate, and in particular with Senate Banking Committee Chairman Phil
Gramm. I look forward to productive discussions with the Senator that
will enable the Congress to adopt responsible guidelines for financial
products.
Mr. DAVIS of Illinois. Mr. Speaker, I rise today in strong support of
H.R. 4541, the Commodity Futures Modernization Act of 2000. I represent
the 7th Congressional District of Illinois, which is home to the
Chicago Mercantile Exchange and the Chicago Board of Trade--two of this
country's premier derivatives exchanges. While I have the honor of
representing them in Congress, they and the rest of the U.S. markets
represent us all over the world. I believe that it is in this nation's
best economic interests for U.S. financial markets to grow and prosper
and once again lead the world.
This legislation helps us to do that. This much-needed legislation
would provide regulatory reform to U.S. futures exchanges, provide
legal certainty to the U.S. derivatives market, and finally lift the
19-year ban on single stock futures, allowing U.S. investors access to
these products and expanding our markets.
The threat to U.S. markets has increased in just the last month. The
London International Financial Futures Exchange announced that it would
begin trading single stock futures on U.S. based company stocks in
January 2001. In just three months, futures on the stock of AT&T,
Citigroup, Cisco, Systems, Exxon Mobil, and Merck will be traded in
London. If H.R. 4541 does not pass, U.S. markets will continue to be
prohibited from offering these products--handcuffed from competing with
foreign exchanges for a U.S. market that should be traded here at home.
Let me be clear, this is not just an Illinois issue. Futures
exchanges are a huge part of what makes the entire U.S. economy robust
and vibrant. If we fail to lift the ban on single stock futures, if we
fail to provide regulatory reform, and if we fail to provide legal
certainty to U.S. derivatives markets, then the consequences could be
devastating. For example, U.S. exchanges will be rendered completely
unable to compete. Without this legislation, single stock futures,
which are based on assets developed and produced in the United States,
may never be traded in this country.
We all need to ensure that the U.S. financial services industry
remain competitive in the global marketplace. Therefore, I urge you to
join with me in passing this important legislation.
Mr. BARRETT of Nebraska. Mr. Speaker, I rise today in support of H.R.
4541, the Commodity Futures Modernization Act of 2000. I commend
Chairman Ewing and his staff for their hard work and leadership as we
debate this legislation.
The House Agriculture Committee has worked together with the Banking
and Financial Services and Commerce Committees to draft a bill that
will discourage fraud and manipulation, but encourage technology,
competition and a sound business environment. Our farmers and ranchers
are now more dependent on a sound futures market than ever before. I am
pleased that this legislation will allow our agriculture producers
access to a risk management tool as we move into the 21st century.
Mr. Speaker, this legislation will provide our financial institutions
with the tools needed to conduct trading practices in a friendly
manner. This bill also brings our U.S. exchanges onto a level playing
field with foreign exchanges. American agriculture producers are
becoming more involved in futures markets. It is important that we
establish regulations that are fair and will allow our farmers to use
the futures market as intended.
In my home state of Nebraska, I try to encourage the use of the
futures market to provide procedures with yet another valuable risk
tool. When Congress approves this legislation, the Commodity Exchange
Act reauthorization will be complete. I then fully expect the Commodity
Futures Trading Commission (CFTC) to regulate the U.S. futures and
related markets and protect the interests of those who use the markets.
The Commodity Futures Modernization Act of 2000 accomplishes three
main goals. First, this bill establishes legal certainty for over-the-
counter derivatives. Second, this legislation provides regulatory
relief to futures exchanges and their customers. This relief will
transform the CFTC from a frontline regulatory role to more of an
oversight role. Third, this act will reform the Shad-Johnson
Jurisdictional Accord to make clear rules of regulation between
agencies.
Mr. Speaker, I urge my colleagues to support the Commodity Futures
Modernization Act and allow our American farmers and ranchers to make
use of the commodity futures market.
The SPEAKER pro tempore (Mr. LaHood). The question is on the motion
offered by the gentleman from Illinois (Mr. Ewing) that the House
suspend the rules and pass the bill, H.R. 4541, as amended.
The question was taken; and the Speaker pro tempore announced that
the ayes appeared to have it.
Mr. EWING. Mr. Speaker, I object to the vote on the ground that a
quorum is not present and make the point of order that a quorum is not
present.
The SPEAKER pro tempore. Evidently a quorum is not present.
The Sergeant at Arms will notify absent Members.
The vote was taken by electronic device, and there were--yeas 377,
nays 4, not voting 51, as follows:
[Roll No. 540]
YEAS--377
Abercrombie
Aderholt
Allen
Andrews
Archer
Armey
Baca
Bachus
Baird
Baldacci
Baldwin
Ballenger
Barcia
Barr
Barrett (NE)
Barrett (WI)
Bartlett
Barton
Bass
Becerra
Bentsen
Bereuter
Berkley
Berman
Berry
Biggert
Bilbray
Bishop
Blagojevich
Bliley
Blumenauer
Blunt
Boehlert
Boehner
Bonilla
Bonior
Bono
Borski
Boswell
Boyd
Brady (TX)
Brown (FL)
Brown (OH)
Bryant
Burr
Burton
Buyer
Callahan
Calvert
Camp
Canady
Cannon
Capps
Capuano
Cardin
Carson
Castle
Chabot
Chambliss
Clayton
Clement
Clyburn
Coble
Coburn
Collins
Combest
Condit
Cook
Costello
Cox
Coyne
Cramer
Crane
Crowley
Cubin
Cummings
Cunningham
Danner
Davis (FL)
Deal
DeGette
Delahunt
DeLauro
Deutsch
Dickey
Dicks
Dingell
Dixon
Doggett
Dooley
Doolittle
Doyle
Dreier
Duncan
Dunn
Edwards
Ehlers
Ehrlich
Emerson
Engel
English
Eshoo
Etheridge
Evans
Ewing
Farr
Fattah
Fletcher
Foley
Ford
Fossella
Fowler
Frank (MA)
Frelinghuysen
Frost
Gallegly
Ganske
Gejdenson
Gekas
Gibbons
Gilchrest
Gillmor
Gilman
Gonzalez
Goode
Goodlatte
Goodling
Gordon
Goss
Graham
Granger
Green (WI)
Greenwood
Gutierrez
Gutknecht
Hall (OH)
Hall (TX)
Hastings (FL)
Hastings (WA)
Hayes
Hayworth
Hefley
Herger
Hill (IN)
Hill (MT)
Hilleary
Hilliard
Hinchey
Hinojosa
Hobson
Hoeffel
Hoekstra
Holden
Holt
Hooley
Horn
Hostettler
Houghton
Hoyer
Hulshof
Hunter
Hutchinson
Hyde
Inslee
Isakson
[[Page H10449]]
Istook
Jackson (IL)
Jefferson
Jenkins
John
Johnson (CT)
Johnson, E. B.
Johnson, Sam
Jones (NC)
Kanjorski
Kaptur
Kasich
Kelly
Kennedy
Kildee
Kilpatrick
Kind (WI)
King (NY)
Kingston
Kleczka
Knollenberg
Kolbe
Kucinich
Kuykendall
LaFalce
LaHood
Lampson
Lantos
Largent
Larson
Latham
LaTourette
Leach
Lee
Levin
Lewis (GA)
Lewis (KY)
Linder
LoBiondo
Lofgren
Lowey
Lucas (KY)
Lucas (OK)
Luther
Maloney (CT)
Maloney (NY)
Manzullo
Markey
Martinez
Mascara
Matsui
McCarthy (MO)
McCarthy (NY)
McCrery
McDermott
McGovern
McHugh
McIntyre
McKeon
McKinney
McNulty
Meehan
Meek (FL)
Meeks (NY)
Menendez
Mica
Millender-McDonald
Miller, Gary
Miller, George
Minge
Mink
Moakley
Mollohan
Moore
Moran (KS)
Moran (VA)
Morella
Murtha
Myrick
Nadler
Napolitano
Neal
Nethercutt
Ney
Northup
Norwood
Nussle
Obey
Olver
Ortiz
Ose
Packard
Pallone
Pastor
Payne
Pease
Pelosi
Peterson (MN)
Peterson (PA)
Petri
Phelps
Pickering
Pickett
Pitts
Pombo
Pomeroy
Porter
Portman
Price (NC)
Pryce (OH)
Quinn
Radanovich
Rahall
Ramstad
Rangel
Regula
Reyes
Reynolds
Riley
Rivers
Roemer
Rogers
Rohrabacher
Ros-Lehtinen
Rothman
Roukema
Roybal-Allard
Royce
Ryan (WI)
Ryun (KS)
Sabo
Salmon
Sanders
Sandlin
Sanford
Sawyer
Saxton
Scarborough
Schaffer
Schakowsky
Scott
Sensenbrenner
Serrano
Sessions
Shadegg
Sherman
Sherwood
Shimkus
Shows
Simpson
Skeen
Skelton
Slaughter
Smith (NJ)
Smith (TX)
Smith (WA)
Snyder
Souder
Spence
Stabenow
Stark
Stearns
Stenholm
Strickland
Stump
Stupak
Sununu
Sweeney
Tancredo
Tanner
Tauscher
Tauzin
Taylor (NC)
Terry
Thomas
Thompson (CA)
Thornberry
Thune
Thurman
Tiahrt
Tierney
Toomey
Towns
Traficant
Udall (CO)
Udall (NM)
Upton
Velazquez
Visclosky
Vitter
Walden
Walsh
Wamp
Waters
Watkins
Watt (NC)
Watts (OK)
Waxman
Weiner
Weldon (FL)
Weldon (PA)
Weller
Wexler
Whitfield
Wicker
Wilson
Wolf
Woolsey
Wu
Wynn
Young (AK)
Young (FL)
NAYS--4
DeFazio
Paul
Smith (MI)
Taylor (MS)
NOT VOTING--51
Ackerman
Baker
Bilirakis
Boucher
Brady (PA)
Campbell
Chenoweth-Hage
Clay
Conyers
Cooksey
Davis (IL)
Davis (VA)
DeLay
DeMint
Diaz-Balart
Everett
Filner
Forbes
Franks (NJ)
Gephardt
Green (TX)
Hansen
Jackson-Lee (TX)
Jones (OH)
Klink
Lazio
Lewis (CA)
Lipinski
McCollum
McInnis
McIntosh
Metcalf
Miller (FL)
Oberstar
Owens
Oxley
Pascrell
Rodriguez
Rogan
Rush
Sanchez
Shaw
Shays
Shuster
Sisisky
Spratt
Talent
Thompson (MS)
Turner
Weygand
Wise
{time} 1902
So (two-thirds having voted in favor thereof) the rules were
suspended and the bill, as amended, was passed.
The result of the vote was announced as above recorded.
A motion to reconsider was laid on the table.
Stated for:
Mr. DIAZ-BALART. Mr. Speaker, on rollcall vote 540, H.R. 4541, the
Commodity Futures Modernization Act of 2000, I was in my district on
official business. Had I been present, I would have voted ``yea.''
Mr. FILNER. Mr. Speaker, on rollcall No. 540, I had to return to my
Congressional District on official business and missed this vote. Had I
been present, I would have voted ``yea.''
Ms. SANCHEZ. Mr. Speaker, during rollcall vote No. 540 on H.R. 4541 I
was unavoidably detained. Had I been present, I would have voted
``yea.''
____________________