[Congressional Record Volume 146, Number 155 (Friday, December 15, 2000)]
[Senate]
[Pages S11896-S11897]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              COMMODITY FUTURES MODERNIZATION ACT OF 2000

  Mr. HARKIN. Mr. President, I want to thank and commend Chairman Lugar 
for all of his hard work and leadership in bringing the Commodity 
Futures Modernization Act to the point of this final, agreed upon bill, 
which will be a part of the appropriations measure passed later today. 
I am pleased to have had the opportunity to work with Chairman Lugar on 
this important legislation and to cosponsor it.
  This bill will bring much-needed modernization, legal certainty, 
clarification and reform to the regulation of futures, options and 
over-the-counter financial derivatives. At the same time, it maintains 
regulatory oversight of the agricultural futures and options markets 
and continues and improves protections for investors and the public 
interest with regard to futures, options and derivatives.
  The legislation carries out the recommendations of the President's 
Working Group on Financial Markets. Members and staff of the Working 
Group, especially the Department of the Treasury, the Commodity Futures 
Trading Commission and the Securities and Exchange Commission, were 
instrumental in helping to craft the bill. And it is significant that 
this final version of the bill is strongly supported by all members of 
President's Working Group on Financial Markets. I ask unanimous consent 
that a letter from the Working Group be printed in the Record at the 
conclusion of this statement.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 1.)
  Mr. HARKIN. After many years of effort, this legislation resolves a 
number of very difficult issues regarding the trading of futures on 
securities--issues that have caused a great many headaches as well as 
disparities in the markets over the years. I am pleased that we have 
been able to arrive at solutions that clear away regulatory impediments 
to market development, while maintaining and strengthening investor 
protections and addressing margin and tax issues in order to avoid 
giving any market an inappropriate competitive advantage over others 
involved in related transactions.
  Clearly, modernizing the regulatory scheme for futures and 
derivatives must be balanced with maintaining and strengthening 
protection for individual investors and the public interest. The 
principal anti-fraud provision of the Commodity Exchange Act is section 
4b, which the Commodity Futures Trading Commission has consistently 
relied upon to combat fraudulent conduct, such as by bucket shops and 
boiler rooms that enter into transactions directly with their 
customers, even though such conduct does not involve a traditional 
broker-client relationship. Reliance on section 4b in such 
circumstances has been supported in federal courts that have examined 
the issue, and is fully consistent with the understanding of Congress 
and with past amendments to Section 4b, which confirmed the 
applicability of Section 4b to fraudulent actions by parties that enter 
transactions directly with customers. It is the intent of Congress in 
retaining Section 4b in this bill that the provision not be limited to 
fiduciary, broker-client or other agency-like relationships. Section 4b 
provides the Commission with broad authority to police fraudulent 
conduct within its jurisdiction, whether occurring in boiler rooms and 
bucket shops, or in the e-commerce and other markets that will develop 
under this new statutory framework.
  I would also like to discuss my views regarding the substantial 
regulatory changes for electronic markets in derivatives relating to 
non-agricultural commodities. Essentially, those commodities are energy 
and metals. With particular regard to energy, given the recent high 
volatility in energy markets--with dramatic price increases for 
gasoline, heating oil, natural gas and electricity--we must take great 
care in whatever Congress does affecting the way in which markets in 
energy function. In the Agriculture Committee, I worked to remove an 
outright exclusion from the bill and basically to continue with the 
substantial exemption the Commodity Futures Trading Commission had 
already granted for energy and metal derivatives. Later, there were 
further negotiations to arrive at the provisions on this subject that 
are in this bill.
  While I still have certain reservations about the energy and metals 
markets, I recognize the need for compromise, particularly in 
considering the overall importance and positive features of this 
legislation. This bill's language and Congressional intent is clear 
that the Commodity Futures Trading Commission retains a substantial 
role in ensuring the honesty, integrity and transparency of these 
markets. For exempt commodities that are traded on a trading facility, 
this bill clearly specifies that if the Commission determines that the 
facility performs a significant cash market price discovery function, 
the Commission will be able to ensure that price, trading volume and 
any other appropriate trading data will be disseminated as determined 
by the Commission. This bill also clearly continues in full effect the 
Commission's anti-fraud and anti-manipulation authority with regard to 
exempt transactions in energy and metals derivatives markets.
  I also want to mention and express appreciation for the cooperation 
of Chairman Gramm and Ranking Member Sarbanes of the Banking Committee 
in completing this bill. With respect to banking products, the language 
of the bill clarifies what is already the current state of the law. The 
Commodity Futures Trading Commission does not regulate traditional 
banking products: deposit accounts, savings accounts, certificates of 
deposit, banker's acceptances, letters of credit, loans, credit card 
accounts and loan participations.
  The language of Title IV of this bill is very clear and very tightly 
worded. It requires that to qualify for the exclusion, a bank must 
first obtain a certification from its regulator that the identified 
bank product was commonly offered by that bank prior to December 5, 
2000. The product must have been actively bought, sold, purchased or 
offered--and not be just a customized deal that the bank may have done 
for a handful of clients. The product cannot be one that was either 
prohibited by the Commodity Exchange Act or regulated by the Commodity 
Futures Trading Commission. In other words--a bank cannot pull a 
futures product out of regulation by using this provision.
  For new products, Title IV is also abundantly clear: the Commodity 
Exchange Act does not apply to new bank products that are not indexed 
to the value of a commodity. Again, the plain language is clear and the 
intent of Congress is clear that no bank may use this exclusion to 
remove products from proper regulation under the Commodity Exchange 
Act.
  Lastly, Title IV allows hybrid products to be excluded from the 
Commodity Exchange Act if, and only if, they pass a ``predominance 
test'' that

[[Page S11897]]

indicates that they are primarily an identified banking product and not 
a contract, agreement or transaction appropriately regulated by the 
CFTC. While the statute provides a mechanism for resolving disputes 
about the application of this test, there is no intent that a product 
which flunks this test be regulated by anyone other than the CFTC.
  Once again, I commend Chairman Lugar and Congressman Tom Ewing, the 
Chairman of the Subcommittee on Risk Management, Research and Specialty 
Crops, as well as all staff involved for their outstanding work in 
making this important legislation a reality.

                               Exhibit 1

                                                December 15, 2000.
     Hon. Tom Harkin,
     Ranking Member, Committee on Agriculture, Nutrition, and 
         Forestry U.S. Senate, Washington, DC.
       Dear Senator Harkin: The Members of the President's Working 
     Group on Financial Markets strongly support the Commodities 
     Futures Modernization Act. This important legislation will 
     allow the United States to maintain its competitive position 
     in the over-the-counter derivative markets by providing legal 
     certainty and promoting innovation, transparency and 
     efficiency in our financial markets while maintaining 
     appropriate protections for transactions in non-financial 
     commodities and for small investors.
           Sincerely,
     Lawrence H. Summers,
       Secretary, Department of the Treasury.
     Arthur Levitt,
       Chairman, Securities and Exchange Commission.
     Alan Greenspan,
       Chairman, Board of Governors of the Federal Reserve.
     William J. Rainer,
       Chairman, Commodity Futures Trading Commission.

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