[Congressional Record Volume 151, Number 160 (Wednesday, December 14, 2005)]
[House]
[Pages H11553-H11561]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    CFTC REAUTHORIZATION ACT OF 2005

  Mr. GOODLATTE. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 4473) to reauthorize and amend the Commodity Exchange Act to 
promote legal certainty, enhance competition, and reduce systemic risk 
in markets for futures and over-the-counter derivatives, and for other 
purposes.
  The Clerk read as follows:

                               H.R. 4473

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``CFTC Reauthorization Act of 
     2005''.

                      TITLE I--GENERAL PROVISIONS

     SEC. 101. COMMISSION AUTHORITY OVER AGREEMENTS, CONTRACTS OR 
                   TRANSACTIONS IN FOREIGN CURRENCY.

       (a) In General.--Section 2(c)(2) of the Commodity Exchange 
     Act (7 U.S.C. 2(c)(2)) is amended by striking subparagraphs 
     (B) and (C) and inserting the following:
       ``(B) Agreements, contracts, and transactions in retail 
     foreign currency.--
       ``(i) 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 of a commodity 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 (15 U.S.C. 78f(a))); 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--

       ``(aa) a financial institution;
       ``(bb)(AA) a broker or dealer registered under section 
     15(b) (except paragraph (11) thereof) or 15C of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o(b), 78o-5); or
       ``(BB) an associated person of a broker or dealer 
     registered under section 15(b) (except paragraph (11) 
     thereof) or 15C of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o(b), 78o-5) concerning the financial or securities 
     activities of which the broker or dealer 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));
       ``(cc) a futures commission merchant registered under this 
     Act (that is not also a person described in item (bb)), or an 
     affiliated person of such a futures commission merchant (that 
     is not also a person described in item (bb)) if such futures 
     commission merchant makes and keeps records under section 
     4f(c)(2)(B) of this Act concerning the futures and other 
     financial activities of such affiliated person;
       ``(dd) an insurance company described in section 
     1a(12)(A)(ii) of this Act, or a regulated subsidiary or 
     affiliate of such an insurance company;
       ``(ee) a financial holding company (as defined in section 2 
     of the Bank Holding Company Act of 1956); or
       ``(ff) an investment bank holding company (as defined in 
     section 17(i) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78q(i))).
       ``(ii) Notwithstanding item (cc) of clause (i)(II) of this 
     subparagraph, agreements, contracts, or transactions 
     described in clause (i) of this subparagraph shall be subject 
     to subsection (a)(1)(B) of this section and sections 4(b), 
     4b, 4c(b), 4o, 6(c) and 6(d) (except to the extent that 
     sections 6(c) and 6(d) prohibit manipulation of the market 
     price of any commodity in interstate commerce, or for future 
     delivery on or subject to the rules of any market), 6c, 6d, 
     8(a), 13(a), and 13(b) if the agreements, contracts, or 
     transactions are offered, or entered into, by a person that 
     is registered as a futures commission merchant or an 
     affiliated person of a futures commission merchant registered 
     under this Act that is not also a person described in any of 
     items (aa), (bb), (dd), (ee), or (ff) of clause (i) of this 
     subparagraph.
       ``(iii)(I) Notwithstanding item (cc) of clause (i)(II), a 
     particular person shall not participate in the solicitation 
     or recommendation of any agreement, contract, or transaction 
     described in clause (i) entered into with or to be entered 
     into with a person described in such item, unless the 
     particular person--

       ``(aa) is registered in such capacity as the Commission by 
     rule, regulation, or order shall determine; and
       ``(bb) is a member of a futures association registered 
     under section 17.

       ``(II) Subclause (I) shall not apply to--

       ``(aa) any person described in any of items (aa), (bb), 
     (dd), (ee), or (ff) of subparagraph (B)(i)(II); or
       ``(bb) any such person's associated persons.

       ``(C)(i)(I) This subparagraph shall apply to any agreement, 
     contract, or transaction in foreign currency that is--

       ``(aa) offered to, or entered into with, a person that is 
     not an eligible contract participant (except that this 
     subparagraph shall not apply if the counterparty, or the 
     person offering to be the counterparty, of the person that is 
     not an eligible contract participant is a person described in 
     any of items (aa), (bb), (dd), (ee), or (ff) of subparagraph 
     (B)(i)(II)); and
       ``(bb) offered, or entered into, on a leveraged or margined 
     basis, or financed by the offeror, the counterparty, or a 
     person acting in concert with the offeror or counterparty on 
     a similar basis.

       ``(II) Subclause (I) shall not apply to--
       ``(aa) a security that is not a security futures product; 
     or
       ``(bb) a contract of sale that--

       ``(AA) results in actual delivery within 2 days; or
       ``(BB) creates an enforceable obligation to deliver between 
     a seller and buyer that have the ability to deliver and 
     accept delivery, respectively, in connection with their line 
     of business.

       ``(ii)(I) Agreements, contracts, or transactions described 
     in clause (i) of this subparagraph shall be subject to 
     subsection (a)(1)(B) of this section and sections 4(b), 4b, 
     4c(b), 4o, 6(c) and 6(d) (except to the extent that sections 
     6(c) and 6(d) prohibit manipulation of the market price of 
     any commodity in interstate commerce, or for future delivery 
     on or subject to the rules of any market), 6c, 6d, 8(a), 
     13(a), and 13(b).
       ``(II) Subclause (I) of this clause shall not apply to--
       ``(aa) any person described in any of items (aa), (bb), 
     (dd), (ee), or (ff) of subparagraph (B)(i)(II); or
       ``(bb) any such person's associated persons.
       ``(iii)(I) A person shall not participate in the 
     solicitation or recommendation of any agreement, contract, or 
     transaction described in clause (i) of this subparagraph 
     unless the person is registered in such capacity as the 
     Commission by rule, regulation or order shall determine, and 
     is a member of a futures association registered under section 
     17.
       ``(II) Subclause (I) shall not apply to any person--
       ``(aa) any person described in any of items (aa), (bb), 
     (dd), (ee), or (ff) of subparagraph (B)(i)(II); or
       ``(bb) any such person's associated persons.
       ``(iv) Sections 4(b) and 4b shall apply to any agreement, 
     contract, or transaction described in clause (i) of this 
     subparagraph as if the agreement, contract, or transaction 
     were a contract of sale of a commodity for future delivery.
       ``(v) This subparagraph shall not be construed to limit any 
     jurisdiction that the Commission may otherwise have under any 
     other provision of this Act over an agreement, contract, or 
     transaction that is a contract of sale of a commodity for 
     future delivery.
       ``(vi) This subparagraph shall not be construed to limit 
     any jurisdiction that the Commission or the Securities and 
     Exchange Commission may otherwise have under any other 
     provision of this Act with respect to security futures 
     products and persons effecting transactions in security 
     futures products.''.
       (b) Effective Date.--Clause (iii) of section 2(c)(2)(B) and 
     clause (iii) of section 2(c)(2)(C) of the Commodity Exchange 
     Act, as amended by subsection (a) of this section, shall be 
     effective 120 days after the date of the enactment of this 
     Act or such other time as the Commodity Futures Trading 
     Commission shall determine.

     SEC. 102. ANTIFRAUD AUTHORITY.

       Section 4b of the Commodity Exchange Act (7 U.S.C. 6b) is 
     amended--
       (1) by redesignating subsections (b) and (c) as subsections 
     (c) and (d), respectively; and
       (2) by striking ``SEC. 4b.'' and all that follows through 
     the end of subsection (a) and inserting the following:

     ``SEC. 4B. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.

       ``(a) Unlawful Actions.--It shall be unlawful--
       ``(1) for any person, in or in connection with any order to 
     make, or the making of, any contract of sale of any commodity 
     in interstate commerce or for future delivery that is made, 
     or to be made, on or subject to the rules of a designated 
     contract market, for or on behalf of any other person; or
       ``(2) for any person, in or in connection with any order to 
     make, or the making of, any contract of sale of any commodity 
     for future delivery, or other agreement, contract, or 
     transaction subject to paragraphs (1) and (2) of section 
     5a(g), that is made, or to be made, for or on behalf of, or 
     with, any other person, other than on or subject to the rules 
     of a designated contract market--
       ``(A) to cheat or defraud or attempt to cheat or defraud 
     the other person;
       ``(B) willfully to make or cause to be made to the other 
     person any false report or statement or willfully to enter or 
     cause to be entered for the other person any false record;
       ``(C) willfully to deceive or attempt to deceive the other 
     person by any means whatsoever in regard to any order or 
     contract or the disposition or execution of any order or 
     contract, or in regard to any act of agency performed, with 
     respect to any order or contract for or, in the case of 
     paragraph (2), with the other person; or
       ``(D)(i) to bucket an order if the order is represented by 
     the person as an order to be executed, or is required to be 
     executed, on or subject to the rules of a designated contract 
     market; or
       ``(ii) to fill an order by offset against the order or 
     orders of any other person, or willfully and knowingly and 
     without the prior

[[Page H11554]]

     consent of the other person to become the buyer in respect to 
     any selling order of the other person, or become the seller 
     in respect to any buying order of the other person, if the 
     order is represented by the person as an order to be 
     executed, or is required to be executed, on or subject to the 
     rules of a designated contract market unless the order is 
     executed in accordance with the rules of the designated 
     contract market.
       ``(b) Clarification.--Subsection (a)(2) of this section 
     shall not obligate any person, in or in connection with a 
     transaction in a contract of sale of a commodity for future 
     delivery, or other agreement, contract or transaction subject 
     to paragraphs (1) and (2) of section 5a(g), with another 
     person, to disclose to the other person nonpublic information 
     that may be material to the market price, rate, or level of 
     the commodity or transaction, except as necessary to make any 
     statement made to the other person in or in connection with 
     the transaction, not misleading in any material respect.''.

     SEC. 103. PORTFOLIO MARGINING AND SECURITY INDEX ISSUES.

       (a) The agencies represented on the President's Working 
     Group on Financial Markets shall work to ensure that the 
     Securities and Exchange Commission (SEC), the Commodity 
     Futures Trading Commission (CFTC), or both, as appropriate, 
     have taken the actions required under subsection (b).
       (b) The SEC, the CFTC, or both, as appropriate, shall take 
     action under their existing authorities to permit--
       (1) by September 30, 2006, risk-based portfolio margining 
     for security options and security futures products; and
       (2) by June 30, 2006, the trading of futures on certain 
     security indexes by resolving issues related to debt security 
     indexes and foreign security indexes.

     SEC. 104. AUTHORIZATION OF APPROPRIATIONS.

        Section 12(d) of the Commodity Exchange Act (7 U.S.C. 
     16(d)) is amended to read as follows:
       ``(d) There are authorized to be appropriated such sums as 
     are necessary to carry out this Act for each of the fiscal 
     years 2006 through 2010.''

     SEC. 105. TECHNICAL AND CONFORMING AMENDMENTS.

       (a) Section 4a(e) of the Commodity Exchange Act (7 U.S.C 
     6a(e)) is amended in the last proviso by striking ``section 
     9(c)'' and inserting ``section 9(a)(5)''.
       (b) Section 4f(c)(4)(B)(i) of such Act (7 U.S.C. 
     6f(c)(4)(B)(i)) is amended by striking ``compiled'' and 
     inserting ``complied''.
       (c) Section 4k of such Act (7 U.S.C. 6k) is amended by 
     redesignating the second paragraph (5) as paragraph (6).
       (d) The Commodity Exchange Act is amended--
       (1) by redesignating the first section 4p (7 U.S.C. 6o-1), 
     as added by section 121 of the Commodity Futures 
     Modernization Act of 2000, as section 4q; and
       (2) by moving such section to after the second section 4p, 
     as added by section 206 of Public Law 93-446.
       (e) Subsections (a)(1) and (d)(1) of section 5c of such Act 
     (7 U.S.C. 7a-2(a)(1), (d)(1)) are each amended by striking 
     ``5b(d)(2)'' and inserting ``5b(c)(2)''.
       (f) Sections 5c(f) and 17(r) of such Act (7 U.S.C. 7a-2(f), 
     21(r)) are each amended by striking ``4d(3)'' and inserting 
     ``4d(c)''.
       (g) Section 8(a)(1) of such Act (7 U.S.C. 12(a)(1)) is 
     amended in the matter following subparagraph (B)--
       (1) by striking ``commenced'' the 2nd place it appears; and
       (2) by inserting ``commenced'' after ``in a judicial 
     proceeding''.
       (h) Section 22(a)(2) of such Act (7 U.S.C. 25(a)(2)) is 
     amended by striking ``5b(b)(1)(E)'' and inserting 
     ``5b(c)(2)(H)''.

                TITLE II--NATURAL GAS PRICE TRANSPARENCY

     SEC. 201. MARKET SURVEILLANCE.

       (a) In General.--The Commodity Futures Trading Commission 
     (in this section referred to as the ``Commission'') shall 
     detect and deter manipulation and attempted manipulation and 
     increase the transparency of the pricing of natural gas by 
     conducting surveillance of trading in contracts for natural 
     gas.
       (b) Certain Events Required to Be Reviewed.--
       (1) Requirement.--In the event of a significant and highly 
     unusual change in the settlement price of any physically 
     delivered natural gas futures contract traded on a contract 
     market (within the meaning of section 5 of the Commodity 
     Exchange Act) or derivatives transaction execution facility 
     (within the meaning of section 5a of such Act), the 
     Commission shall conduct a review of the factors that caused 
     the price movement in order to determine if manipulation or 
     attempted manipulation in violation of such Act has occurred.
       (2) Certain factors required to be considered.--The 
     Commission shall consider in its review, among other things 
     and as appropriate to the circumstances, the following:
       (A) Prices and price relationships in the futures and cash 
     markets.
       (B) Market information, and cash market supply and demand 
     factors which may be relevant to the price event.
       (C) Large futures and options market positions and large 
     futures and options market transactions on the contract 
     market or derivatives transaction execution facility.
       (D) Any related contract, agreement or transaction in 
     natural gas.

     SEC. 202. REPORTING OF LARGE POSITIONS INVOLVING NATURAL GAS.

       (a) In General.--Section 4a of the Commodity Exchange Act 
     (7 U.S.C. 6a) is amended--
       (1) in subsection (e), by striking the last sentence; and
       (2) by adding at the end the following:
       ``(f) Reporting of Large Positions Involving Natural Gas.--
       ``(1) In general.--The Commission, by rule, shall require 
     any person holding, maintaining, or controlling any position 
     in a contract of sale of natural gas for future delivery, or 
     option thereon, on or subject to the rules of any contract 
     market or derivatives transaction execution facility, at or 
     in excess of such limits as the Commission may specify as 
     reportable, to maintain for a period of 5 years and provide 
     on request to the Commission, records of the person regarding 
     the position and any related contract, agreement, or 
     transaction in natural gas to which the person is a party.
       ``(2) No duplicate reports.--Except as otherwise provided 
     in this paragraph, the rules prescribed under paragraph (1) 
     shall not apply to any position that otherwise is required to 
     be reported to any agency of the United States if the report 
     would otherwise satisfy the requirements under this 
     subsection and the report of the position is available to the 
     Commission at the request of the Commission. Notwithstanding 
     the preceding sentence, any report of any such position to 
     any agency of the United States shall constitute a statement, 
     report, or document required for the purposes of section 9.
       ``(3) Criteria for rules.--
       ``(A) In general.--In prescribing rules required by 
     paragraph (1), the Commission shall consider--
       ``(i) the purposes for monitoring large positions in any 
     contract for future delivery of natural gas;
       ``(ii) the effect of the reporting requirements on the 
     efficiency and liquidity of the market for any agreement, 
     contract, or transaction made in connection with any contract 
     for the future delivery of natural gas; and
       ``(iii) the costs and burden on the persons that would be 
     required to file the reports.
       ``(B) Frequency.--The Commission shall require the 
     provision of records under paragraph (1) only in 
     circumstances where manipulation is suspected, except that 
     the Commission may prescribe rules requiring regular or 
     continuous reporting if the Commission finds that such 
     reporting would help to deter or to detect manipulation in 
     any market for any agreement, contract, or transaction made 
     in connection with any contract for the future delivery of 
     natural gas.
       ``(C) Filing requirements.--Records required to be provided 
     under paragraph (1) shall be required to be filed with the 
     Commission in accordance with such requirements regarding the 
     form, timing, and manner of filing such reports, as the 
     Commission may prescribe by rule.
       ``(5) Other rules not affected.--This subsection shall not 
     be interpreted to prohibit or impair the adoption by any 
     board of trade licensed, designated, or registered by the 
     Commission of any bylaw, rule, regulation, or resolution 
     requiring reports of positions in any agreement, contract, or 
     transaction made in connection with a contract of sale for 
     future delivery of natural gas (including such a contract of 
     sale), including any bylaw, rule, regulation, or resolution 
     pertaining to filing or recordkeeping, which may be held by 
     any person subject to the rules of the board of trade, except 
     that any bylaw, rule, regulation, or resolution established 
     by the board of trade shall not be inconsistent with any 
     requirement prescribed by the Commission under this 
     subsection.''.

     SEC. 203. CRIMINAL AND CIVIL PENALTIES.

       (a) Enforcement Powers of the Commission.--Section 6(c) of 
     the Commodity Exchange Act (7 U.S.C. 9, 15) is amended in 
     clause (3) of the 10th sentence--
       (1) by inserting ``(A)'' after ``assess such person''; and
       (2) by inserting after ``each such violation'' the 
     following: ``or (B) in any case of manipulation of, or 
     attempt to manipulate under section 9(a)(2), a civil penalty 
     of not more than the greater of $1,000,000 or triple the 
     monetary gain to such person for each such violation,''.
       (b) Nonenforcement of Rules of Government or Other 
     Violations.--Section 6b of such Act (7 U.S.C. 13a) is 
     amended--
       (1) in the 1st sentence, by inserting ``, or, in any case 
     of manipulation of, or an attempt to manipulate, the price of 
     any commodity, a civil penalty of not more than $1,000,000 
     for each such violation'' before the period; and
       (2) in the 2nd sentence, by inserting ``, except that if 
     the failure or refusal to obey or comply with the order 
     involved any offense under section 9(a)(2), the registered 
     entity, director, officer, agent, or employee shall be guilty 
     of a felony and, on conviction, shall be subject to penalties 
     under section 9(f)'' before the period.
       (c) Action to Enjoin or Restrain Violations.--Section 6c(d) 
     of such Act (7 U.S.C. 13a-1(d)) is amended by striking 
     ``(d)'' and all that follows through the end of the paragraph 
     (1) and inserting the following:
       ``(d) Civil Penalties.--(1) In any action brought under 
     this section, the Commission may seek and the court shall 
     have jurisdiction to impose, on a proper showing, on any 
     person found in the action to have committed any violation--
       ``(A) a civil penalty in the amount of not more than the 
     greater of $100,000 or triple the monetary gain to the person 
     for each violation; or

[[Page H11555]]

       ``(B) in any case of manipulation of, or an attempt to 
     manipulate, the price of any commodity, a civil penalty in 
     the amount of not more than the greater of $1,000,000 or 
     triple the monetary gain to the person for each violation.''.
       (d) Violations Generally.--Section 9(a) of such Act (7 
     U.S.C. 13(a)) is amended--
       (1) by striking ``(or $500,000 in the case of a person who 
     is an individual)''; and
       (2) by striking ``five years'' and inserting ``10 years''.

  The SPEAKER pro tempore (Mr. Terry). Pursuant to the rule, the 
gentleman from Virginia (Mr. Goodlatte) and the gentleman from 
Minnesota (Mr. Peterson) each will control 20 minutes.
  The Chair recognizes the gentleman from Virginia.

                              {time}  1545

  Mr. GOODLATTE. Mr. Speaker, I yield myself such time as I may 
consume.
  Mr. Speaker, the Committee on Agriculture brings to the House today 
H.R. 4473, a bill that, among other things, reauthorizes appropriations 
for the Commodity Futures Trading Commission through fiscal year 2010. 
The committee approved the bill last week by voice vote.
  The committee began the reauthorization process early this year, 
holding 2 days of hearings in March when all witnesses supported CFTC 
reauthorization and testified favorably to the general success of the 
Commodity Futures Modernization Act of 2000. The CFMA brought legal 
certainty to the off-exchange derivatives industry and brought the 
exchange-traded regulatory program into an era when the futures pit is 
being replaced by electronic trading.
  The bill the committee brings to the floor today contains remedies to 
the areas of concern outlined by then FTC chairman, Sharon Brown-
Hruska, in her testimony before the Risk Management Subcommittee. With 
the assistance of the President's Working Group on Financial Markets, 
the committee has included the following provisions:
  A change to the so-called Treasury amendment contained in section 
2(c) of the Commodity Exchange Act to stop unscrupulous persons who 
write and market contracts in foreign currencies that are nothing more 
than schemes to defraud the general public; a final resolution to the 
outstanding issues on establishing risk-based portfolio margining 
systems for stock futures products and stock options; as well as moving 
forward on approval of trading on foreign debt indexes and foreign 
security indexes; of these two matters, the bill provides deadlines for 
action by the Securities and Exchange Commission and the CFTC; a 
clarification of the Commission's authority to bring anti-fraud actions 
in off-exchange principal-to-principal transactions under section 4(b) 
of the CEA; and a refinement of the CFTC's surveillance program to 
provide certainty to consumers that the CFTC is looking at significant 
and highly unusual price moves in natural gas and additional 
information to the CFTC's large trader reporting system.
  A number of end user and consumer groups have endorsed title II of 
the bill, which was originally drafted by my committee colleagues, the 
gentleman from Missouri (Mr. Graves) and the gentleman from Georgia 
(Mr. Barrow). These new provisions will codify the factors the CFTC 
will consider as they conduct surveillance of volatile markets in 
natural gas futures and option contracts. I believe this will go a long 
way to restore the public's trust and confidence that the price 
discovery mechanism for natural gas is subject only to the factors of 
supply and demand.
  In conclusion, Mr. Speaker, this legislation makes the adjustments in 
the Commodity Exchange Act that will enable our markets to continue 
their efficient operations for price discovery and risk management. The 
legislation will provide additional tools for the CFTC and the self-
regulatory organizations under its purview to police the markets and 
bring enforcement actions for fraudulent business practices aimed at 
the unsuspecting public. I urge my colleagues to adopt H.R. 4473.
  Mr. Speaker, I reserve the balance of my time.
  Mr. PETERSON of Minnesota. Mr. Speaker, I yield myself such time as I 
may consume, and I rise today in support of the bill before us.
  I want to commend Chairman Goodlatte for this fine work, and I also 
want to thank the subcommittee chairman (Mr. Moran) and the ranking 
member (Mr. Etheridge), who have done an excellent job in helping us 
put this bill together. In addition, Mr. Graves, Mr. Barrow and Mr. 
Marshall, all members of the committee, have worked very hard on 
important issues related to energy markets. I think the bill before us 
makes important progress thanks to their efforts.
  Mr. Speaker, during hearings held in the Agriculture Committee, there 
was substantial discussion regarding the potential of the effects of 
the Zelener decision. In that case, the CFTC sought to use provisions 
of the Commodity Exchange Act to put an end to the deceptive sales 
practices being employed by one company in the marketing of retail 
foreign exchange contracts. The case was thrown out, however, because 
the defendant prevailed in court with his argument that the product he 
was offering was not technically a futures contract and, therefore, not 
the jurisdiction of the CFTC. The ruling was upheld in a Federal 
appeals court, and the Solicitor General declined to appeal the case to 
the Supreme Court.
  Some of our witnesses who testified about the Zelener decision 
expressed concern that it will have far-reaching effects. Other 
witnesses were more concerned that a broad response to the decision 
would have harmful unintended consequences. The President's Working 
Group on Financial Markets advised the Agriculture Committee to adopt a 
relatively modest response, and that is what is included in this bill.
  Mr. Speaker, I believe the remedy included in this bill will restore 
the CFTC's ability to ensure that similar perpetrators of deceptive 
schemes involving foreign exchange trading can be policed effectively. 
However, because the scope of this fix is limited to foreign exchange 
contracts, we need to be prepared for the possibility that a similar 
problem will arise in other product areas.
  Because the future in this area is so uncertain, we are counting on 
the CFTC to monitor developments carefully to determine whether or not 
in fact criminals are using the Zelener reasoning to avoid detection 
and prosecution. In their letter to the Agriculture Committee, the 
President's Working Group did not explain clearly why they are so sure 
that the modest fix is sufficient to solve the problem. Hopefully, the 
Working Group's members will join us in monitoring future cases and 
will be open to developing policy changes quickly that may be necessary 
to protect our Nation's investors.
  Mr. Speaker, the futures industry is an important segment of our 
economy. Adequate regulation and investor protection must be balanced 
with the need to allow businesses to promote responsible innovations. 
Passage of the bill before us today will help us ensure that the 
Commodity Futures Trading Commission can continue to protect America's 
investors without excessively impeding progress. I urge passage of the 
bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. GOODLATTE. Mr. Speaker, I would also like to thank the gentleman 
from Minnesota (Mr. Peterson) for the cooperation from him and a number 
of others on his side of the aisle, and also the gentleman from North 
Carolina as well as my subcommittee chairman, the gentleman from Kansas 
(Mr. Moran).
  Mr. Speaker, I yield 5 minutes to the gentleman from Ohio (Mr. 
Oxley), chairman of the Financial Services Committee, another 
individual who has played a critical part in bringing this legislation 
to the floor and thank him for his cooperation as well.
  Mr. OXLEY. Mr. Speaker, let me thank the gentleman for yielding and 
thank him for his leadership on this critical issue.
  I fully support title I of the legislation, particularly sections 101 
and 103. These sections reflect legislative language that the 
President's Working Group proposed this past November clarifying the 
Commodity Futures Trading Commission's anti-fraud authority, mandating 
the application of risk-based portfolio margining to both options and 
single stock futures positions, resolving issues related to the 
definitions of narrow-based security indexes.

[[Page H11556]]

  I am inserting the President's Working Group's November letter which 
proposed this language and the accompanying report language in the 
Record. These provisions will enhance the liquidity and competitiveness 
of our capital markets, all the while preserving investor protection. 
These provisions also reaffirm the intent of the CFMA, that is that 
regulatory parity applies to options and single-stock futures, and that 
the SEC and the CFTC jointly regulate single-stock futures.
  I fully support the application of risk-based portfolio margining not 
only to options and single-stock futures, as this legislation so 
mandates, but also to all equities. Risk-based portfolio margining more 
accurately reflects economic exposure to the marketplace than does the 
traditional strategy-based margining methodology. Today's investors 
often use equity options and futures positions interchangeably, and a 
broader portfolio margining rule would more appropriately reflect these 
investors' economic risk. I urge the SEC to approve rules to permit 
portfolio margining for all equities in the same time frame, as this 
legislation calls for, with respect to options and single-stock 
futures.
  Title II authorizes the CFTC to survey the trading of natural gas 
contracts to deter manipulation, and we are all familiar with that 
language. The reasoning behind this title is to combat perceived, and I 
say perceived, manipulation of prices in the trading of natural gas 
contracts. This legislation attempts to address deep-seated factors in 
our energy markets, namely supply-and-demand issues. However, it does 
so by revamping a derivatives policy that was well-negotiated and well-
settled in 2000 under the Commodity Futures Modernization Act.
  The CFTC's General Counsel commented this past July that ``the CFTC 
has reviewed this natural gas market several times during the last few 
years and each time has concluded that the volatility had been due to 
fundamentals such as tight supplies and other market forces and not due 
to any price manipulation.'' Federal Reserve Chairman Greenspan has 
weighed in similarly, stating that high natural gas prices ``are the 
result of a lack of adequate liquified natural gas import facilities in 
the United States as well as a lack of adequate facilities abroad to 
produce liquified natural gas. They are not the result of weaknesses in 
the regulation of U.S. natural gas markets generally or futures 
exchanges specifically.'' And Chairman Greenspan was asked and 
testified such to our committee on at least two occasions.
  This proposed new regulation of over-the-counter derivatives in 
natural gas may have unintended consequences, including detrimentally 
affecting the competition in our robust capital markets. I have asked 
my counterpart at the Committee on Agriculture to work with the 
Committee on Financial Services and the President's Working Group to 
ensure that these provisions do not upset the intent of the Commodities 
Futures Modernization Act. The CFMA was the product of lengthy, and 
bipartisan congressional negotiations and reflected the President's 
Working Group's 1999 report.
  It was decided then and reflected in the Congressional Record and 
most keenly in a report accompanying the CFMA by the House Banking and 
Financial Services Committee, one of the predecessor committees to the 
Committee on Financial Services, that legal certainty and regulatory 
relief for OTC derivatives was necessary. That committee stated that 
these products ``have become essential to banks' risk-management 
strategies. These OTC derivative markets have become central to a wide 
range of banking activities.''
  I would like to work with the Committee on Agriculture as this 
legislation moves forward to ensure that the regulatory relief and 
legal certainty that the CFMA imposed upon the OTC derivative markets 
in 2000 remain in law.
  Upon the introduction of this legislation last Thursday, my 
colleague, the gentleman from Massachusetts (Mr. Frank), our ranking 
member, and I sent a letter to the members of the President's Working 
Group requesting their views on this title. I am inserting this 
correspondence in the Record and will share a few of their concerns.
  Treasury Under Secretary for Domestic Finance, Randal Quarles stated 
that the provisions in title II ``could result in unintended adverse 
consequences and undermine the regulatory relief and legal certainty 
that were so carefully crafted through the CFMA of 2000. They could 
have a significant and negative impact on the important risk-management 
function that these OTC markets perform in the U.S. economy.''
  Federal Reserve Chairman Alan Greenspan responded that the

     provisions of Title II are rather vague and could be 
     construed as a broad expansion of the Commodity Futures 
     Trading Commission's mandate. . . . The case for such a broad 
     expansion of the Commission's mandate simply had not been 
     made . . . [B]roadening recordkeeping and reporting 
     requirements beyond futures contracts could impose 
     substantial burdens on market participants that are unlikely 
     to be outweighed by their benefits.

  CFTC Chairman Reuben Jeffery reiterated that the CFTC already ``has 
the necessary tools to oversee the markets it regulates.''
  It is my intent that if this legislation moves forward that the views 
of the President's Working Group will be taken into consideration. In 
the event of a House-Senate conference, the Committee on Financial 
Services will be represented. Our conferees will take into account the 
intent of the CFMA and the counsel of the President's Working Group.
  I thank my colleagues for their time and their work on these 
important issues.
  Mr. Speaker, as mentioned above, I include for the Record the 
President's Working Group's November letter with the proposed language 
and the accompanying report language.

                                   Department of the Treasury,

                                 Washington, DC, November 3, 2005.
     Hon. Michael G. Oxley,
     Chairman, Committee on Financial Services, House of 
         Representatives, Washington, DC.
       Dear Chairman Oxley: As Chairman of the President's Working 
     Group on Financial Markets (PWG) and on behalf of its 
     members, I am enclosing a joint PWG letter which transmits 
     legislative and report language that addresses the retail 
     foreign currency fraud issues raised by the 7th Circuit's 
     decision of last year in CFTC v. Zelener. The enclosed letter 
     also transmits legislative language to establish statutory 
     deadlines for the resolution of issues related to portfolio 
     margining and certain security indexes. The PWG will continue 
     to monitor the very recent events concerning Refco and its 
     affiliates as the facts unfold to determine whether or not 
     any measures may be needed to address any additional issues 
     that the situation raises.
           Sincerely,
                                                     John W. Snow,
     Secretary of the Treasury.
                                  ____

         Department of the Treasury Board of Governors of the 
           Federal Reserve system, U.S. Securities and Exchange 
           Commission, U.S. Commodity Futures Trading Commission.
     Hon. Michael G. Oxley,
     Chairman, Committee on Financial Services, House of 
         Representatives, Washington, DC.
     Hon. Barney Frank,
     Ranking Member, Committee on Financial Services, House of 
         Representatives, Washington, DC.
       Dear Chairman Oxley and Ranking Member Frank: As 
     representatives of the President's Working Group on Financial 
     Markets (PWG) testified before the Senate Banking Committee 
     on September 8, 2005, the PWG principals have reached 
     agreement on an approach to address the retail foreign 
     currency fraud issues raised by the 7th Circuit's decision of 
     last year in CFTC v. Zelener. As promised, we are enclosing 
     legislative and accompanying report language that would 
     implement the PWG's agreement. This legislative language is 
     supported by each member of the PWG and is drafted as an 
     amendment to section 2(c)(2) of the Commodity Exchange Act 
     (CEA).
       The PWG's amendment confirms the CFTC's anti-fraud 
     jurisdiction over retail foreign currency transactions 
     similar to those that were involved in the Zelener case that 
     are offered by persons not already regulated by another 
     financial regulator. The amendment also would grant the CFTC 
     authority to require certain persons involved in soliciting 
     and recommending retail foreign currency futures and similar 
     transactions to register with the CFTC, if such persons are 
     not already regulated by another financial regulator. It is 
     the view of the PWG that it is not necessary at this time to 
     deal with anti-fraud jurisdiction over other products or 
     instruments other than retail foreign currency as set forth 
     in the attached proposed amendment.
       In addition to retail foreign currency fraud issues, the 
     PWG members have discussed the complex issues related to (1) 
     the implementation of risk-based portfolio margining systems 
     for security futures products and security options, and (2) 
     resolution of definitional issues relating to narrow-based 
     security indexes. As part of these discussions, the PWG is 
     committed to resolving the portfolio margining system and 
     narrow-based index issues within the time frames set forth 
     below.

[[Page H11557]]

       With regard to portfolio margining, the SEC has committed 
     to approving self regulatory organization (SRO) rules that 
     permit the use of a risk-based portfolio margining 
     methodology to determine margin requirements for portfolios 
     that include security futures products and for security 
     options by June 30, 2006. In the event that the SEC does not 
     approve such SRO rules, the SEC will promulgate rules to 
     permit risk-based portfolio margining for security options by 
     September 30, 2006, and the SEC and CFTC will do so jointly 
     for security futures products by the same date.
       With regard to futures on indexes composed of debt 
     securities, the CFTC and SEC have committed to use joint 
     authority to accommodate the trading of such products by 
     excluding certain debt securities from the definition of 
     ``narrow-based security index'' by June 30, 2006, and permit 
     trading of futures based on such indexes. The CFTC and the 
     SEC also have committed to resolve whether it is appropriate 
     to exclude certain foreign security indexes from the 
     definition of ``narrow-based security index'' by June 30, 
     2006.
       We are enclosing legislative language that directs the PWG, 
     working through its member agencies, to resolve these issues 
     within the time periods described above. For both the 
     portfolio margining and narrow-based index issues, the PWG 
     will continue its efforts to resolve these important issues 
     by meeting as appropriate and ensuring open and ongoing 
     communication and discussion among the PWG members and staff. 
     In addition, the PWG will continue to focus on developing a 
     consistent approach to regulatory oversight of margin 
     requirements. Thank you for the opportunity to provide input 
     into your important work of reauthorizing the CFTC and 
     related legislative issues. We look forward to working with 
     your Committee and your counterparts in the Senate as this 
     process moves forward.
           Sincerely,
     John W. Snow,
       Secretary of the Treasury.
     Christopher Cox,
       Chairman, Securities and Exchange Commission.
     Alan Greenspan,
       Chairman, Board of Governors of the Federal Reserve System.
     Reuben Jeffery, III,
       Chairman, Commodity Futures Trading Commission.

          COMMODITY EXCHANGE ACT--FOREIGN CURRENCY AMENDMENTS

       Section 2(c)(2) of the Commodity Exchange Act is amended by 
     striking all of existing subparagraphs (B) and (C) and 
     inserting instead the following:
       ``(B) Agreements, contracts, and transactions in retail 
     foreign currency.--
       ``(i) 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 of a commodity 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 [15 U.S.C. 78f(a)]); 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--
       ``(aa) a financial institution;
       ``(bb)
       ``(AA) a broker or dealer registered under section 15(b) 
     (except paragraph (11) thereof) or 15C of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o(b), 78o-5); or
       ``(BB) an associated person of a broker or dealer 
     registered under section 15(b) (except paragraph (11) 
     thereof) or 15C of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o(b), 78o-5) concerning the financial or securities 
     activities of which the broker or dealer 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));
       ``(cc) a futures commission merchant registered under this 
     Act (that is not also a person described in item (bb)), or an 
     affiliated person of such a futures commission merchant (that 
     is not also a person described in item (bb)) if such futures 
     commission merchant makes and keeps records under Section 
     4f(c)(2)(B) of this Act concerning the futures and other 
     financial activities of such affiliated person;
       ``(dd) an insurance company described in section 
     la(12)(A)(ii) of this title, or a regulated subsidiary or 
     affiliate of such an insurance company;
       ``(ee) a financial holding company (as defined in section 
     1841 of title 12); or
       ``(ff) an investment bank holding company (as defined in 
     section 17(i) of the Securities Exchange Act of 1934 [15 
     U.S.C. 78q(i)]).
       ``(ii) Notwithstanding item (cc) of subparagraph 
     (B)(i)(II), agreements, contracts, or transactions described 
     in subparagraph (B)(i) shall be subject to subsection 
     (a)(1)(B) and sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) 
     (except to the extent that sections 6(c) and 6(d) prohibit 
     manipulation of the market price of any commodity in 
     interstate commerce, or for future delivery on or subject to 
     the rules of any market), 6c, 6d, 8(a), 13(a), and 13(b) if 
     such agreements, contracts, or transactions are offered, or 
     entered into, by a person that is registered as a futures 
     commission merchant or an affiliated person of a futures 
     commission merchant registered under this Act that is not 
     also a person described in any of items (aa), (bb), (dd), 
     (ee), or (ff) of subparagraph (B)(i)(II).
       ``(iii) Notwithstanding item (cc) of subparagraph 
     (B)(i)(II), any person who participates in the solicitation 
     or recommendation of any agreement, contract, or transaction 
     described in subparagraph (B)(i) entered into with or to be 
     entered into with a person described in item (cc) of 
     subparagraph (B)(i)(II) must be registered in such capacity 
     as the Commission by rule, regulation or order shall 
     determine and must be a member of a futures association 
     registered under section 17 of the Act. This clause shall not 
     apply to any person (i) described in any of items (aa), (bb), 
     (dd), (ee), or (ff) of subparagraph (B)(i)(II) or (ii) its 
     associated persons. This paragraph shall be effective 120 
     days from the date of enactment or such other time as the 
     Commission shall determine.
       ``(C)(i) This subparagraph (C) shall apply to any 
     agreement, contract or transaction in foreign currency that 
     is--
       ``(I) offered to, or entered into with, a person that is 
     not an eligible contract participant (except that 
     subparagraph (C) shall not apply if the counterparty, or the 
     person offering to be the counterparty, of the person that is 
     not an eligible contract participant is a person described in 
     any of items (aa), (bb), (dd), (ee), or (ff) of subparagraph 
     (B)(i)(II)); and
       ``(II) offered, or entered into, on a leveraged or margined 
     basis, or financed by the offeror, the counterparty, or a 
     person acting in concert with the offeror or counterparty on 
     a similar basis; ``Provided, however, that subparagraph (C) 
     shall not apply to--
       ``(aa) a security (as defined in section 1a(30)) that is 
     not a security futures product (as defined in section 
     1a(32)); or
       ``(bb) a contract of sale that--
       ``(AA) results in actual delivery within two days; or
       ``(BB) creates an enforceable obligation to deliver between 
     a seller and buyer that have the ability to deliver and 
     accept delivery, respectively, in connection with their line 
     of business.
       ``(ii) Agreements, contracts, or transactions described in 
     subparagraph (C)(i) shall be subject to subsection (a)(1)(B) 
     and sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) (except to 
     the extent that sections 6(c) and 6(d) prohibit manipulation 
     of the market price of any commodity in interstate commerce, 
     or for future delivery on or subject to the rules of any 
     market), 6c, 6d, 8(a), 13(a), and 13(b). Provided, however, 
     that this clause shall not apply to any person described in 
     any of items (aa), (bb), (dd), (ee), or (ff) of subparagraph 
     (B)(i)(II) or to such person's associated persons.
       ``(iii) Any person who participates in the solicitation or 
     recommendation of any agreement, contract, or transaction 
     described in subparagraph (C)(i) must be registered in such 
     capacity as the Commission by rule, regulation or order shall 
     determine and must be a member of a futures association 
     registered under section 17 of the Act. This clause shall not 
     apply to any person (i) described in any of items (aa), (bb), 
     (dd), (ee), or (ff) of subparagraph (B)(i)(II) or (ii) its 
     associated persons. This clause shall be effective 120 days 
     from the date of enactment or such other time as the 
     Commission shall determine.
       ``(iv) Sections 4(b) and 4b shall apply to any agreement, 
     contract, or transaction described in subparagraph (C)(i) as 
     though the agreement, contract, or transaction were a 
     contract of sale of a commodity for future delivery.
       ``(v) Subparagraph (C) does not limit any jurisdiction that 
     the Commission may otherwise have under any other provision 
     of this Act over an agreement, contract, or transaction that 
     is a contract of sale of a commodity for future delivery.
       ``(vi) Subparagraph (C) does not limit any jurisdiction 
     that the Commission or the Securities and Exchange Commission 
     may otherwise have under any other provision of this Act with 
     respect to security futures products and persons effecting 
     transactions in security futures products''.

 REPORT LANGUAGE TO ACCOMPANY PRESIDENT'S WORKING GROUP RETAIL FOREIGN 
                     EXCHANGE LEGISLATIVE LANGUAGE

       The Committee notes that the term ``line of business'' in 
     new subparagraph (C)(i)(II)(bb)(BB) refers to any legitimate 
     line of business, not just a foreign exchange business.

        SEC. XXX. PORTFOLIO MARGINING AND SECURITY INDEX ISSUES

       (a) The agencies represented on the President's Working 
     Group on Financial Markets shall work to ensure that the 
     Securities and Exchange Commission (SEC), the Commodity 
     Futures Trading Commission (CFTC), or both, as appropriate, 
     have taken the actions required under subsection (b).
       (b) The SEC, the CFTC, or both, as appropriate, shall take 
     action under their existing authorities to permit--
       (1) by September 30,2006, risk-based portfolio margining 
     for security options and security futures products; and
       (2) by June 30, 2006, the trading of futures on certain 
     security indexes by resolving issues related to debt security 
     indexes and foreign security indexes.

[[Page H11558]]

     
                                  ____
                                   Department of the Treasury,

                                Washington, DC, December 12, 2005.
     Hon. Michael G. Oxley,
     Hon. Barney Frank,
     U.S. House of Representatives,
     Washington, DC.
       Dear Chairman Oxley and Ranking Member Frank: I am replying 
     on behalf of Secretary Snow to your letter of December 8, 
     2005, in which you requested our views on certain language 
     that was recently approved by the House Committee on 
     Agriculture in its ``Commodity Futures Trading Commission 
     Reauthorization Act of 2005.'' The bill contains language in 
     Title II (``Natural Gas Price Transparency'') that has not 
     been reviewed previously by the Department of the Treasury or 
     the President's Working Group on Financial Markets (PWG).
       While the Treasury Department has had only a brief 
     opportunity to review the natural gas provisions of the 
     Agriculture Committee's bill, we have serious concerns with 
     Title II that are similar to concerns that Treasury and other 
     PWG members have expressed in the past regarding provisions 
     that could affect over-the-counter (OTC) derivatives markets, 
     including energy and natural gas markets.
       The scope of Title II is broad, and its vague language 
     could be construed to have implications for natural gas 
     transactions in OTC markets. These provisions could result in 
     unintended adverse consequences and undermine the regulatory 
     relief and legal certainty that were so carefully crafted 
     through the Commodity Futures Modernization Act of 2000 
     (CFMA). They could have a significant and negative impact on 
     the important risk management function that these OTC markets 
     perform in the U.S. economy.
       In testimony before the Senate Banking Committee in 
     September on the subject of the CFMA and recent market 
     developments, I stated that major changes to the significant 
     modernizations made by the CFMA were not warranted. Unless 
     there were a clearly demonstrated need, Treasury continues to 
     believe that legislation that would undo any of the 
     modernizations made by the CFMA--in the area of legal 
     certainty or otherwise--is not warranted.
       Thank you very much for the opportunity to present our 
     views on this important matter.
           Sincerely,
                                                Randal K. Quarles,
     Under Secretary for Domestic Finance.
                                  ____

                                         Board of Governors of the


                                       Federal Reserve System,

                                Washington, DC, December 13, 2005.
     Hon. Michael G. Oxley,
     Chairman, Committee on Financial Services,
     House of Representatives, Washington, DC.
       Dear Mr. Chairman: You have asked for my views on Title II 
     of the CFTC Reauthorization Act of 2005, which relates to 
     transparency of the pricing of natural gas, and has not been 
     reviewed by the President's Working Group on Financial 
     Markets. Natural gas prices in the United States have been 
     higher and more volatile than natural gas prices abroad in 
     recent years, and these price movements have weakened the 
     competitive position of industries that are heavily dependent 
     on natural gas. However, these developments are the result of 
     a lack of adequate liquefied natural gas import facilities in 
     the United States, as well as a lack of adequate facilities 
     abroad to produce liquefied natural gas. Title II does not 
     affect those market fundamentals and, therefore, will not 
     lower natural gas prices or reduce price volatility.
       The provisions of Title II are rather vague and could be 
     construed as a broad expansion of the Commodity Futures 
     Trading Commission's mandate. Specifically, the legislation 
     requires the Commission to conduct surveillance of trading in 
     contracts for natural gas, which could be read to require 
     surveillance of cash markets and over-the-counter 
     derivatives, as well as the exchange-traded markets that the 
     Commission currently oversees. The case for such a broad 
     expansion of the Commission's mandate simply has not been 
     made.
       The legislation also directs the Commission to require 
     persons that hold large positions in natural gas futures 
     contracts on an exchange to keep records and submit reports 
     on those contracts, as well as on any related contracts to 
     which the person is a party. The Commission already has broad 
     authority under existing law to require records and reports 
     on futures contracts, so there does not appear to be a need 
     for additional statutory provisions with regard to that 
     authority. Potentially broadening recordkeeping and reporting 
     requirements beyond futures contracts could impose 
     substantial burdens on market participants that are unlikely 
     to be outweighed by their benefits.
           Sincerely,
                                                   Alan Greenspan,
     Chairman.
                                  ____

                                            U.S. Commodity Futures


                                           Trading Commission,

                                Washington, DC, December 13, 2005.
     Hon. Michael G. Oxley,
     Chairman, Committee on Financial Services,
     House of Representatives, Rayburn House Office Building, 
         Washington, DC.
     Hon. Barney Frank,
     Ranking Member, Committee on Financial Services, House of 
         Representatives, Rayburn House Office Building, 
         Washington, DC.
       Dear Chairman Oxley and Ranking Member Frank: Thank you for 
     your letter of December 8 requesting the views of the Members 
     of the President's Working Group on Financial Markets (PWG) 
     regarding the proposed CFTC Reauthorization Act of 2005 (the 
     ``Reauthorization Act''). In reporting this bill, the House 
     Agriculture Committee has taken a significant step forward in 
     the process of Congressional reauthorization of the Commodity 
     Exchange Act (CEA).
       Thank you for this opportunity to share views on this 
     important legislation. As a member of the PWG, I am 
     supportive of the provisions of the proposed Reauthorization 
     Act that address the issues of retail foreign currency 
     transactions, risk-based portfolio margining for security 
     options and security futures products, and trading of futures 
     on certain debt security and foreign security indexes. These 
     provisions incorporate legislative language on these issues 
     that the PWG submitted to Congress on November 3, 2005. 
     Mindful of the deadlines that would be established if the 
     Reauthorization Act is enacted, staff from the PWG agencies 
     has continued to work on the risk-based portfolio margining 
     and security index issues during the weeks since November 3.
       The amendment included in the Reauthorization Act to 
     Section 4b of the CEA, the CFTC's primary anti-fraud 
     provision, incorporates consensus legislative language of the 
     CFTC and industry representatives. It provides an important 
     clarification of the CFTC's anti-fraud authority with respect 
     to off-exchange, principal-to-principal transactions.
       We are aware that our PWG colleagues have expressed concern 
     that the proposed natural gas provisions in the 
     Reauthorization Act could be construed to have negative 
     implications on the risk management functions of over-the-
     counter markets. Our understanding is that these provisions 
     are intended to be narrow in scope and ensure that there is 
     appropriate surveillance in the event of a significant and 
     highly unusual price movement in any physically delivered 
     natural gas futures contract traded on a contract market or 
     derivatives transaction execution facility. The CFTC has 
     stated on many occasions that it has the necessary tools to 
     oversee the markets it regulates, but appreciates the bi-
     partisan effort by the House Agriculture Committee to address 
     consumer concerns over volatility in the natural gas markets. 
     We will work to ensure that these provisions maintain legal 
     certainty and avoid unintended consequences.
       As the legislative process moves forward on CEA 
     reauthorization, we stand ready to work with you and Chairmen 
     Goodlatte, Chambliss, and Shelby, and the respective 
     Committees, to ensure a successful resolution of these 
     issues.
           Sincerely,
     Reuben Jeffery, III.
                                  ____

                                               U.S. Securities and


                                          Exchange Commission,

                                 Washington, DC, December 14,2005.
     Hon. Michael G. Oxley,
     Chairman, Committee on Financial Services, House of 
         Representatives, Rayburn House Office Building, 
         Washington, DC.
       Dear Chairman Oxley: Thank you for your December 8, 2005 
     letter asking for the views of the members of the President's 
     Working Group on Financial Markets on the CFTC 
     Reauthorization Act of 2005.
       I applaud the fact that Title I of the CFTC Reauthorization 
     Act includes language carefully considered and agreed to by 
     the members of the President's Working Group (PWG) that was 
     transmitted to you and other Members of Congress last month 
     on November 3, 2005. That consensus language addresses issues 
     involving retail foreign currency fraud, portfolio margining 
     for security options and security futures products, and debt 
     security indexes and foreign security indexes.
       Title II of the CFTC Reauthorization Act includes 
     provisions that would, among other things:
       Require reviews by the Commodity Futures Trading Commission 
     (CFTC) of the factors that cause significant and highly 
     unusual changes in the settlement price of any physically 
     delivered natural gas futures contract traded on a contract 
     market or derivatives transaction execution facility;
       Require CFTC rulemaking requiring record-keeping and 
     reporting of large positions in natural gas;
       Expand CFTC enforcement powers to include criminal and 
     civil penalties for manipulation or attempted manipulation of 
     the price of any commodity.
       Unfortunately, there is not enough time between now and the 
     scheduled House consideration of the CFTC Reauthorization Act 
     for the PWG to review and provide you with a reaction to the 
     language in Title II of the proposed legislation. I would 
     note, however, that the PWG has provided comments in the past 
     expressing concerns with other legislative proposals to 
     increase the regulation of over-the-counter derivatives 
     markets.
       Although the provisions in Title II do not appear to affect 
     the Commission or the securities markets directly, the 
     Commission has historically been supportive of the 
     development of a robust over-the-counter derivatives market 
     that is free from unnecessary regulatory requirements.
       Thank you for bringing this legislation to my attention. I 
     appreciate the opportunity to work with you on this and other 
     matters that affect our Nation's securities markets.
           Sincerely,
                                                  Christopher Cox,
                                                         Chairman.

[[Page H11559]]

  Mr. PETERSON of Minnesota. Mr. Speaker, I am pleased to yield 5 
minutes to the distinguished gentleman from North Carolina (Mr. 
Etheridge), the ranking member of the Risk Management Subcommittee, who 
along with Chairman Moran provided outstanding work and leadership on 
bringing this legislation to the floor.
  Mr. ETHERIDGE. Mr. Speaker, I thank the gentleman for yielding me 
this time.
  This has been a long day coming, but today, this body will vote, and 
I trust pass, H.R. 4473, a bill that will reauthorize the Commodity 
Futures Trading Commission. I want to applaud the chairman for his hard 
work, our ranking member of the full committee, as well as my colleague 
Mr. Moran for his hard work, who is chairman of the subcommittee that 
has jurisdiction over the CFTC for their hard work in making this 
possible.
  I would be remiss if I did not thank the members of our staff who 
worked hard to help get all the details done.
  I also want to add my appreciation to Mr. Barrow, Mr. Marshall and 
Mr. Graves for their efforts to bring attention to rising natural gas 
prices. The provisions in this bill will go a long way to bringing 
greater transparency to this important market as a result of their 
actions.
  Some people believe that H.R. 4473 does too much. They would have 
preferred a simple two-line bill that reauthorized the CFTC for 5 years 
and nothing more. However, it is important that we use the CFTC 
reauthorization to review the Commodity Exchange Act and the reform 
enacted in 2000 through the Commodity Futures Modernization Act.

                              {time}  1600

  That is because the futures industry impacts our lives every single 
day. Derivatives trading provides customers with forums for price 
discovery and price hedging for a wide variety of commodities and 
financial instruments.
  We are talking about a trillion-dollar-plus industry that impacts the 
price of corn, wheat and soybeans that goes into our food products, the 
price of meat at the grocery store, the price of gas at the pump, the 
price of energy to heat our homes, the interest rates we pay on our 
credit cards, the interest we pay on our mortgages, the price of metals 
that make up the products that we buy, and many other things that we 
use every single day.
  The issues affecting futures trading are often complex and esoteric. 
However, it is important that we work through these tough issues if we 
want to maintain a healthy and vibrant derivatives industry.
  I am one of those who believes we should have done more with this 
bill. I am concerned what we left undone today could come back to haunt 
us tomorrow, and you have heard talk of the Zelener decision, so I will 
not go into that. I hope years from now we are not hearing stories of 
fraud being perpetuated upon the American people through contracts for 
oil, natural gas, gold, or platinum that act like futures, but remain 
outside the CFTC's jurisdiction, because we chose to limit this bill's 
reach to foreign exchange products as recommended by the working group.
  I hope we are not seeing an industry still waiting for risk-based 
margining on security futures or a broad-based security index 
definition that allows them to compete with foreign exchanges offering 
similar products.
  However, we should not let the perfect become the enemy of the good. 
This bill remains a good piece of legislation. I intend to support this 
plan because I believe it is time to move forward. We do not need this 
legislation unresolved any longer. It is time to pass it and send it to 
the Senate. I urge my colleagues to vote for H.R. 4473.
  Mr. GOODLATTE. Mr. Speaker, I yield 2 minutes to the gentleman from 
Kansas (Mr. Moran), the chairman of the Commodities Subcommittee.
  Mr. MORAN of Kansas. Mr. Speaker, I thank the gentleman from Virginia 
and the gentleman from Minnesota for their efforts in regards to this 
piece of legislation, and especially thank Mr. Etheridge, my ranking 
member.
  The Subcommittee on General Farm Commodities and Risk Management has 
jurisdiction over the Commodities Futures Trading Commission; and our 
work product, together with the full committee, is here before the 
House today for its consideration. I would assure my colleagues in the 
House that our committee has taken extraordinary steps to make certain 
that we provide oversight, review, and understanding of what is 
transpiring at the Commodity Futures Trading Commission since the 
passage of the Commodity Futures Modernization Act in 2000.
  Mr. Speaker, I actually believe that the Commodity Futures 
Modernization Act of 2000 was one of the most successful pieces of 
legislation that has been passed by Congress in my time here. What we 
learned in the hearings and oversight in the reauthorization effort was 
that it is working well. With only a couple of changes, a couple of 
additions to this legislation, we bring this modernization act back to 
the floor for approval again today.
  We made a change to deal with what is known as the Zelener case to 
make certain that the CFTC has jurisdiction over foreign exchange 
contracts. A court determined CFTC did not have jurisdiction. We have 
now made that clear. We need to continue to keep our eye on other 
commodities other than foreign exchange to make certain that if similar 
circumstances arise to the foreign currency problem that Congress acts. 
And we also continue to find frustration with the inability of the 
Securities and Exchange Commission and others to come together to 
develop the protocols necessary for single stock futures to be traded 
on markets in the United States. I think there is great opportunity for 
expansion of this market if we can come together on uniform 
responsibility for margins between the CFTC and the SEC.
  This legislation establishes a firm deadline by which we expect that 
response to be concluded. So I urge passage of this bill and thank my 
colleagues for their efforts.
  Mr. PETERSON of Minnesota. Mr. Speaker, I yield 2 minutes to the 
gentlewoman from South Dakota (Ms. Herseth), one of our more valuable 
members of the Committee on Agriculture.
  Ms. HERSETH. Mr. Speaker, I am pleased to rise today in support of 
H.R. 4473, the CFTC Reauthorization Act of 2005. As a resident of a 
farm State and a member of the Committee on Agriculture, I understand 
the critical role that futures exchanges play in the marketing of 
agricultural commodities. They are indispensable in providing price 
discovery and market transparency for producers and commodity users 
alike. That said, futures markets cannot perform these functions if 
they are being manipulated. Futures markets must be effectively 
regulated in order to ensure their integrity and protect the well-being 
of small investors. This bill strikes that balance.
  Five years ago, Congress undertook a major overhaul of the Commodity 
Exchange Act, which my colleagues who have already risen in support of 
took a lead. By most accounts, the reforms adopted at that time have 
worked well, but there have been some issues that have arisen since the 
bill passed. I believe today's legislation makes important improvements 
to the act while maintaining a good balance between the competing goals 
of promoting robust futures exchanges and protecting market 
participants.
  One provision of this bill that is particularly important is language 
on energy derivatives. This legislation would increase recordkeeping 
requirements on entities that hold large quantities of natural gas 
contracts, and give the CFTC access to these records so it can better 
investigate and prevent market manipulation. The bill also raises civil 
and criminal penalties for energy price manipulation. In light of 
today's high natural gas prices, this authority is needed.
  Because of the balance that it strikes and because of the provisions 
that it leaves alone, I strongly support this legislation and urge my 
colleagues to vote ``yes'' on this important bill.
  Mr. GOODLATTE. Mr. Speaker, I yield 3 minutes to the gentleman from 
Oklahoma (Mr. Lucas).
  Mr. LUCAS. Mr. Speaker, I rise today to urge my colleagues to support 
H.R. 4473. It has been 5 years since this body last passed legislation 
aimed at reauthorizing the CFTC, which has jurisdiction over futures 
and options markets.

[[Page H11560]]

  The Ag Committee has jurisdiction over futures and options because 
the derivatives were first developed on agricultural products, or 
commodities as they are commonly called. These innovative products are 
now predominantly traded on other financial products, such as interest 
rates and foreign currencies.
  The CFTC implemented the Commodity Futures Modernization Act of 2000 
in a very straightforward and responsible manner. Yes, there have been 
a few bumps in the road, but overall CFMA has been very successful.
  What issues brought us to the point in 2000 that a major rewrite of 
the futures laws and passage of CFMA was required? The U.S. futures 
markets were quickly losing ground to foreign exchanges in the late 
1990s due to heavy-handed regulation and antiquated business models. 
The over-the-counter markets were coming to grips with the fact that 
they did not have a high enough degree of legal certainty to ensure 
that their swap products would not be challenged in court as illegal 
off-exchange futures. And, finally, some foreign exchanges were 
beginning to seriously encourage the development of single stock 
futures products.
  The futures markets, and other agricultural commodities, were 
deregulated to allow them to compete with foreign exchanges in both 
open outcry and electronically traded arenas. The OTC markets were 
given legal certainty, and the single stock futures guidelines were set 
in place.
  Fast forward to 2005, what has happened? The domestic futures and 
options exchanges have been reinvigorated. The OTC market is thriving, 
and a few issues have come to light. The President's working group, 
consisting of the Federal Reserve, Treasury, the SEC and the CFTC, have 
weighed in on the Zelener case which found that the CFTC did not have 
adequate authority to stop certain fraudulent activities regarding 
retail currency transactions. H.R. 4473 will authorize the CFTC to stop 
those unscrupulous actors.
  The natural gas markets have become an arena of intense scrutiny over 
the last few years. There is unprecedented demand for natural gas and 
still a fairly captive supply in the U.S., and indeed the world. It 
will take time for the energy bill that we recently passed to increase 
supply, and we are most likely in a period of relatively high natural 
gas prices. The CFTC does have fairly broad authority under the CFMA to 
investigate the natural gas markets. It is a very fine line for 
Congress and the CFTC to decide how much to regulate a market without 
creating excessive regulatory burden or causing it to become 
inefficient or allowing another country to become the leader of trading 
in that commodity.
  As a member of both the Agriculture and Financial Services 
Committees, I know how seriously the two chairmen take their 
responsibilities. I also know that fair and appropriately applied 
regulation is necessary. I encourage my colleagues to vote ``yes'' on 
H.R. 4473.
  Mr. PETERSON of Minnesota. Mr. Speaker, I reserve the balance of my 
time.
  Mr. GOODLATTE. Mr. Speaker, I yield 1\1/2\ minutes to the gentleman 
from Missouri (Mr. Graves).
  Mr. GRAVES. Mr. Speaker, I rise in support of H.R. 4473, the 
reauthorization of the Commodity Futures Exchange Act, and I want to 
thank the chairman for the opportunity to speak on this very important 
issue.
  Last week we passed an amendment out of the Committee on Agriculture 
markup by a voice vote that addressed prices and market manipulation in 
the natural gas markets. I am glad to report that the measure had very 
broad bipartisan support, and I want to thank the chairman for working 
with me on this very important issue.
  The amendment that the chairman and I introduced, along with other 
members of the committee, addresses volatility in the natural gas 
market. This amendment seeks to ensure that market manipulation is not 
creating some of the price spikes that we are seeing today in that 
natural gas market. Through increased transparency, penalties and 
oversight, this goal is going to be achieved.
  Energy prices right now are at a high. Most solutions being discussed 
are in the long term. Today's bill includes a provision that can 
provide some short-term relief by ensuring Americans, consumers, that 
market manipulation is not going to continue and will not be a 
contributing factor in the price of natural gas.
  It is the farmers, it is the senior citizens, manufacturers, and 
consumers that I had in mind when I introduced this measure last 
spring. The price of natural gas is almost double what it was when I 
first brought this issue to my colleagues' attention. It is my hope 
that H.R. 4473 will bring some stability to the natural gas market and 
limit losses associated with extreme natural gas prices and price 
spikes.
  Mr. Speaker, I encourage my colleagues to support this important 
measure and pass it on the floor.
  Mr. GOODLATTE. Mr. Speaker, I yield 2 minutes to the gentleman from 
Ohio (Mr. Boehner), the vice chairman of the Committee on Agriculture.
  Mr. BOEHNER. Mr. Speaker, I congratulate both the gentleman from 
Virginia and the ranking member, Mr. Peterson, for a job well done on 
the Commodity Exchange Act reauthorization. This is a very important 
bill for the futures markets in our country. The work that was done in 
2000 clearly has paid significant dividends. The Commodity Futures 
Modernization Act is working and it is working well. I think what we 
have seen over the last 5 years is nothing short of a firestorm of 
innovation in these markets.
  Between 2000 and 2004, the volumes of futures and options contracts 
traded on exchanges has increased from 600 million contracts a year to 
more than 1.6 billion contracts per year. I think the futures industry 
is stronger today as a result of the Commodity Futures Modernization 
Act because it has allowed those markets to function without the heavy 
hand of government, as heavy as it used to be.
  I think the bill before us makes some changes to that act. Clearly, 
in the Zelener case, which has been talked about, I think we take a 
practical approach to solving the Zelener problem.
  Secondly, it follows through on promises made on CFMA by setting a 
date certain for risk-based portfolio margining for single stock 
futures and for a definition of broad-based securities indexes.
  Now, my colleague before me, Mr. Graves, talked about the issue of 
natural gas. This provision is included in the bill, and it is there 
because we are hearing from farmers and consumers about the high cost 
of natural gas. Unfortunately, the provision would not lower the cost 
of fertilizer or heating oil or natural, and it may have the reverse 
effect. I have concerns about the language there. I think it is very 
intrusive and could be overly far reaching. I would hope as this bill 
goes to conference that my colleagues will take a close look at the 
natural gas provisions so we do not overreach like we did back in the 
1990s.
  Mr. GOODLATTE. Mr. Speaker, I yield 1\1/2\ minutes to the gentlewoman 
from Pennsylvania (Ms. Hart).

                              {time}  1615

  Ms. HART. Mr. Speaker, I also appreciate the opportunity to speak on 
behalf of the reauthorization of the Commodities Exchange Act. I 
appreciate the hard work of the gentleman from Missouri (Mr. Graves) 
and especially Chairman Goodlatte for making sure that this language 
was included. Very important to a number of us who live in the 
Northeast, this bill will provide the Commodity Futures Trading 
Commission with the necessary tools to ensure against market 
manipulation in the trading of natural gas futures, which could lead to 
higher prices.
  With this cold winter arriving in my district in western 
Pennsylvania, this issue is especially important to many of the 
residents in my district who rely on natural gas for heat. Higher 
heating costs because of the rise in the price of natural gas are 
already impacting many of my constituents. This legislation will ensure 
that natural gas traders are not able to gain profits through 
manipulation of prices on the backs of these individuals.
  The price of natural gas is also important to the many manufacturers 
located in and around my district. This issue translates also into job 
stability. Unfortunately, many of these manufacturers are already being 
squeezed by other issues, and the high cost of natural gas is just a 
contributing factor to their financial problems.

[[Page H11561]]

  I recently met with many glass manufacturers in Western Pennsylvania, 
and they explained to me some of the challenges they are facing. Kopp 
Glass in Pittsburgh, for example, has seen their natural gas cost rise 
by 83 percent over the last year, eating into the company's profits by 
50 percent and also eating into their opportunities to grow their 
business.
  General Shale Products, a brick manufacturer, has announced they are 
going to close after 40 years of operation because of high natural gas 
prices. A steel manufacturer has recently asked us to do something 
about it.
  This bill will ensure that the Commodity Futures Trading Commission 
has the tools it needs to find and prosecute market manipulators.
  Mr. GOODLATTE. Mr. Speaker, I yield 1 minute to the gentleman from 
New Jersey (Mr. Garrett).
  Mr. GARRETT of New Jersey. Mr. Speaker, I rise in support of H.R. 
4473, the Commodity Trading Commission Reauthorization Act. And I 
support the underlying bill, and I salute the chairman's efforts to 
reauthorize the CFTC. But I do have a little concern with the specific 
section of the bill dealing with natural gas price transparency. Title 
II of the bill contains new regulatory burdens on the trading of 
natural gas, such as future contracts, over-the-counter transactions 
and cash market purchases. While these provisions will place 
unwarranted and open-ended regulatory burdens on legitimate business 
activities, they will in no way reduce volatility or lower the price of 
natural gas. See, the Commission currently has full authority now to 
examine and oversee the futures market and to request complete trading 
information from any participant in the futures market if it suspects 
price manipulation is occurring.
  But the bill now, with that provision, would shift the regulatory 
intervention away from fraud manipulation to an undefined standard that 
is not based upon law but is based upon legitimate movements in natural 
gas prices. I would just urge the conferees, when this bill goes to 
conference, not to add any new missions to the responsibility and take 
away from the core responsibilities of the CFTC.
  Mr. PETERSON of Minnesota. Mr. Speaker, I have no further speakers, 
and I yield back the balance of my time.
  Mr. GOODLATTE. Mr. Speaker, I yield myself the balance of the time.
  Mr. Speaker, the natural gas language contained in the committee bill 
makes two changes to the CFTC's current regulatory program to detect 
and deter manipulation or attempted manipulation.
  First, upon a finding that there has been a significant and highly 
unusual change in the market price of natural gas, the CFTC is required 
to determine what had caused that price change.
  Second, persons with futures or option positions in natural gas are 
required to keep records of those trades and other related transactions 
and to submit those records to the CFTC upon request.
  In the committee's view, and in my view, this is a reasonable 
compromise that does not add significant new costs to transactions in 
natural gas, whether futures or options contracts or other transactions 
used in over-the-counter strategies of most of the major firms involved 
in the natural gas markets on a daily basis.
  This new recordkeeping requirement is the only part of the 
legislation that imposes any new regulatory mechanism. The CFTC is not 
required to impose itself into any new market arena and will not as a 
result of this legislation. The bill requirements are unobtrusive, 
contain no burdensome new costs and will be used sparingly.
  We have seen over the years, over the course of the last half year, 
an energy sector that is under great stress. And the price response to 
that stress has been of great concern to all of us. This bill does 
nothing to add to that stress, and it should be adopted today.
  I urge my colleagues to support this legislation.
  Mr. POMBO. Mr. Speaker, I rise today to contribute to the debate on 
H.R. 4473 which is currently under consideration. Title II of the bill 
creates new regulatory authority for the Commodity Futures Trading 
Commission (CFTC) to investigate suspected manipulation of the natural 
gas futures markets.
  Currently, the price of natural gas in the United States is floating 
at a high near $14 MMBtu. When compared to most nations around the 
world, this amount is four, five, even fourteen times higher than some 
developing countries! I am encouraged by the attempt of some of my 
colleagues to correct this serious problem, but I have serious concerns 
with the manner by which we address this issue in legislation.
  As Federal Reserve Chairman Alan Greenspan has made very clear in a 
recent letter to Chairman Mike Oxley, the fundamental problem of 
natural gas price spikes is a shortage of supply. The only way this can 
be solved, and Chairman Greenspan appears to agree, is through 
increased production domestically and less barriers to liquefied 
natural gas imports. When the supply increases, natural gas prices will 
most certainly fall.
  While I will support passage of H.R. 4473, I believe Title II is a 
misguided approach that will not ultimately result in lower prices for 
natural gas. Sadly, some Members of Congress who support Title II of 
this bill have consistently opposed additional domestic production of 
energy supplies. They may believe that by voting for this legislation 
today, they will receive further cover for their positions, when in 
fact these Members' positions have led to our nation's high energy 
prices.
  Mr. GOODLATTE. Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Terry). The question is on the motion 
offered by the gentleman from Virginia (Mr. Goodlatte) that the House 
suspend the rules and pass the bill, H.R. 4473.
  The question was taken; and (two-thirds having voted in favor 
thereof) the rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

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