[Congressional Record Volume 153, Number 137 (Monday, September 17, 2007)]
[Senate]
[Pages S11588-S11603]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mrs. FEINSTEIN (for herself, Mr. Specter, and Mr. Feingold):
S. 2052. A bill to allow for certiorari review of certain cases
denied relief or review by the United States Court of Appeals for the
Armed Forces; to the Committee on the Judiciary.
Mrs. FEINSTEIN. Mr. President, today I am pleased to join with
Senators Specter and Feingold in introducing the Equal Justice for U.S.
Service Members Act. The act would eliminate an inequity in current law
by allowing all court-martialed U.S. service-members who face
dismissal, discharge or confinement for a year or more to petition the
U.S. Supreme Court for discretionary review through a writ of
certiorari.
The bill is a simple one, and would do the following: It would allow
a writ of certiorari to be filed in any case in which the U.S. Court of
Appeals for the Armed Forces has denied review; and it would allow a
writ of certiorari to be filed in any case in which the U.S. Court of
Appeals for the Armed Forces has denied a petition for extraordinary
relief.
All persons convicted of a crime in U.S. civilian courts today,
including illegal aliens, and regardless of the crime they may have
committed, have an absolute right to petition the U.S. Supreme Court
for discretionary review if they lose in the court of appeals. By
contrast, however, our men and women in uniform do not share this same
right as their civilian counterparts. Our military personnel can apply
to our highest court on direct appeal for a writ of certiorari only if
the U.S. Court of Appeals for the Armed Forces actually conducts a
review of their case, or grants a petition for extraordinary relief.
That happens only about 10 percent of the time.
In other words, the other 90 percent of the time, our U.S.
servicemembers are precluded from ever seeking or obtaining direct
review from the highest court of the country that they fight and die
for.
A disparity not only exists between our civilian and military court
systems. A similar disparity exists even within our military court
system itself. The Government routinely has
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the opportunity to petition the Supreme Court for review of adverse
court-martial rulings in any case where the charges are severe enough
to make a punitive discharge possible. But our military personnel do
not share these same rights to petition the Supreme Court as their
opponents, even on the other side of the same case.
That is wrong, and this inequity was recently noted by the American
Bar Association. At its annual meeting in August 2006, the ABA House of
Delegates passed a resolution calling on Congress to fix this long-
standing ``disparity in our laws governing procedural due process.''
That is perhaps reason enough to fix this problem, but I also must
note that this existing disparity has only become more acute now that
Congress has enacted the Military Commission Act. Section 950g(d) of
that law, which Congress passed last September, gives the Supreme Court
the ability to review by writ of certiorari any final judgment issued
by the U.S. Court of Appeals for the D.C. Circuit, in an appeal filed
by terrorists and war criminals who get convicted by U.S. military
commissions.
So the worst of the worst at Guantanamo will have a right to petition
our Supreme Court to hear their case. Yet unless we act, those same
Supreme Court doors will continue to be closed to almost all of our
U.S. service personnel who would seek direct review in their own
highest Court. Even service-members who apprehended those same
terrorists, or served in judgment on their military commissions, or who
guard them at Guantanamo, will continue to be treated as second-class
citizens, deprived of the opportunity to seek Supreme Court review if
they ever need it themselves.
Our U.S. service personnel regularly place their lives on the line in
defense of American rights. It is simply unacceptable for us to
continue to routinely deprive our men and women in uniform of one of
those basic rights, the ability to petition their Nation's highest
court for direct relief, that is given to all convicted persons in our
civilian courts, that is given to their prosecutorial adversaries in
our military courts, and that we have now given even to the terrorists
we expect to prosecute as war criminals in our upcoming military
commission process.
It is time to give equal justice to our U.S. servicemembers. That is
what this act does.
I urge my colleagues to support this legislation.
I ask unanimous consent the text of the bill be printed in the
Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 2052
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 ``Equal Justice for United
States Military Personnel Act of 2007''.
SEC. 2. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE ARMED FORCES.
(a) In General.--Section 1259 of title 28, United States
Code, is amended--
(1) in paragraph (3), by inserting ``or denied'' after
``granted''; and
(2) in paragraph (4), by inserting ``or denied'' after
``granted''.
(b) Technical and Conforming Amendment.--Section 867a(a) of
title 10, United States Code, is amended by striking ``The
Supreme Court may not review by a writ of certiorari under
this section any action of the Court of Appeals for the Armed
Forces in refusing to grant a petition for review.''.
______
By Mr. FEINGOLD (for himself and Mr. Leahy):
S. 2053. A bill to amend part A of title I of the Elementary and
Secondary Education Act of 1965 to improve elementary and secondary
education; to the Committee on Health, Education, Labor, and Pensions.
Mr. FEINGOLD. Mr. President, this month millions of American
schoolchildren are returning to classrooms to begin the new school
year, making this a time of hope and possibilities. Students in my
State of Wisconsin and around the country are meeting new teachers,
getting reacquainted with old friends, joining clubs or athletic teams,
and embarking on the next step in their educational careers. Teachers
and administrators around the country are starting a new school year
with fresh lesson plans and high goals for all the students in their
schools. And many educators, parents, and school officials are
continuing to work diligently toward the goal of closing the
achievement gap that continues to exist throughout many communities
across the country.
These students, teachers, and administrators will also face their
sixth year under the Federal No Child Left Behind Act, NCLB, the
centerpiece of President Bush's domestic agenda. NCLB, which is 2001-
2002 reauthorization of the Elementary and Secondary Education Act,
ESEA, requires that students be tested annually in reading and math,
and starting this school year, in science. The law is up for
reauthorization this year and it remains unknown how much change
students, teachers, parents, and administrators can expect as Congress
works to reauthorize the law.
I voted against No Child Left Behind in 2001 in large part because of
the law's new Federal testing mandate. The comments that I heard from
Wisconsinites during the 2001 debate and that I continue to hear 6
years later have been almost universally negative. While Wisconsinites
support holding their schools accountable for results and closing the
achievement gap, they are concerned about the Federal law's primary
focus on standardized testing.
Let me make clear at the outset that this country has a long way to
go toward ensuring that all students, regardless of their backgrounds,
have a chance to get a good education. I remain troubled by the
inequality in funding and resources provided to our Nation's schools
and by the persistent segregation that schools around the country,
including those in Wisconsin, continue to face. Moreover, I am deeply
concerned that NCLB's testing and sanctions approach has forced some
schools, particularly those in our inner cities and rural areas, to
become places where students are not taught, but are drilled with
workbooks and test-taking strategies, while in wealthy suburban
schools, these tests do not greatly impact school curriculums rich in
social studies, civics, arts, music, and other important subjects.
All levels of government--local, State, and Federal--need to act to
ensure that equal educational opportunities are afforded to every
student in our country.
I do not necessarily oppose the use of standardized testing in our
Nation's schools. I agree that some tests are needed to ensure that our
children are keeping pace and that schools, districts, and States are
held accountable for closing the persistent achievement gap that
continues to exist among different groups of students, including among
students in Wisconsin. But the Federal one-size-fits-all testing-and-
punishment approach that NCLB takes is not providing an equal education
for all, eradicating the achievement gap that exists in our country or
ensuring that each student reaches his or her full potential.
Rather, the reauthorized ESEA needs to recognize that States and
local communities have the primary responsibility for providing a good
public education to our students. The reauthorized ESEA should also
encourage States and local districts to pursue innovative reform
efforts including utilizing more robust accountability systems that can
measure student academic growth from year to year and measure student
academic growth using multiple forms of assessment, rather than just
standardized tests.
Today, I am introducing the Improving Student Testing Act to overhaul
the Federal testing mandate and provide States and local districts
flexibility to determine the frequency and use of standardized testing
in their accountability systems. My legislation is fully offset, while
providing approximately $200 million in deficit reduction over the next
5 years.
Nothing in my legislation would force States to alter their
accountability systems in recognition of the fact that different States
are at different stages of their education reform efforts and may wish
to maintain their current assessment systems. However, my legislation
says that for Federal accountability purposes, States can choose to
test once in grades 3 to 5, 6 to 9, and 10 to 12 rather than the
current Federal requirement for annual testing in grades 3 through 8
and once in high school.
For States that choose to test in grade spans instead of annually, my
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legislation encourages them to use more than high-stakes standardized
tests in their accountability systems. By removing the Federal
requirement to test annually, Congress can encourage States and local
districts to lead innovative school reform efforts, including
developing more robust assessment systems that use a range of academic
assessments, such as valid and reliable performance-based assessments,
formative assessments that provide meaningful and timely feedback to
both students and teachers, and portfolio assessments that allow
students to accumulate a broad range of student work and assess their
own learning as they progress through school.
I have heard from a number of teachers and administrators who are
concerned about the testing burden NCLB imposed on our Nation's
educational system. The Federal mandate to test annually has strapped
State and local districts' financial resources. Congress promised
States specific funding levels for Title I, part A in NCLB, but
Congress has failed to live up to those promised resources every year
since NCLB was enacted. Despite the lack of adequate resources, our
schools continue to be forced to test and to ratchet up the
consequences associated with these tests.
NCLB's testing mandates have also led to a substantial demand for
increased numbers of standardized tests and I have heard from some
Wisconsinites concerned that the testing industry cannot keep up with
this demand. There have been stories coming in from around the country
documenting the burden faced by the testing industry, including
incorrectly scored tests, test scores arriving much later than
expected, and schools given incorrect testing booklets and supplies by
the testing companies.
My legislation would help alleviate this testing burden by providing
States with the option to reduce the number of grades tested for
Federal accountability purposes. Eighteen States would then be able to
dedicate more of their critical Title I dollars toward efforts that
will help close the achievement including improving teacher quality
through professional development and providing more targeted
instruction to disadvantaged students in critical subject areas.
Some may say that with a Federal requirement to test in grade spans
and not every year, the students in the nontested years will be
ignored. I have more faith in Wisconsin's teachers and other dedicated
teachers around the country than to assume that because there is no
external, federally required test, teachers will not teach their kids
or ensure that their students make academic progress. Effective schools
contain teachers who work collaboratively within grade levels and
across grades to raise the academic achievement of every student. Good
teachers know that they are responsible for ensuring all their students
make substantial academic progress in a given year regardless of
whether those students must take a federally imposed standardized test.
My legislation also provides States with the flexibility and
resources to develop high-quality assessments that can be used to give
a more accurate picture of student achievement. I have heard a number
of criticisms of the standardized tests used in Wisconsin and around
the country--namely, that they may not measure higher-order thinking
skills and that the results are returned to teachers too late in the
school year, preventing teachers from receiving feedback that could
help inform their instructional techniques to increase student
learning. It is important that Congress listen to the feedback provided
by teachers and administrators from around the country and provide
States and local districts with the flexibility to develop and use
other types of assessments in their accountability systems.
My bill authorizes a competitive grant program to help States and
local districts develop multiple forms of high-quality assessments,
including formative assessments, performance-based assessments, and
portfolio assessments. These assessments can give a more accurate and
detailed picture of student achievement than a single standardized
test. These assessments can also be designed to provide more immediate
feedback to teachers and students than the statewide standardized tests
used for Federal accountability purposes. By incorporating these richer
assessments, teachers can better assess student learning throughout the
school year and continuously modify their instruction to ensure all
students continue to learn.
These high-quality, multiple measures can be more expensive for
States to develop and my bill recognizes that cost by authorizing a
competitive grant program to assist States in developing these
assessments. States and local districts can use these funds for a
variety of purposes, including training teachers in how to use these
assessments, creating the assessments, aligning the assessments with
State standards, and collaborating with other States to share
information about assessment creation.
My legislation makes clear that these funds are not to be used for
the purchase of additional test preparation materials. I have long been
concerned that NCLB could result in a generation of students who know
how to take tests, but who do not have the skills necessary to become
successful adults. This grant program will help innovative States
develop higher quality assessments to better ensure that the students
in their State are prepared for careers in the 21st century, including
the ability to think critically, analyze new situations, and work
collaboratively with others.
My legislation also makes clear that these multiple forms of
assessment are not a loophole for States and local districts to avoid
accountability. Rather, my legislation recognizes that these multiple
measures can provide a more accurate and more complete picture of
student achievement. My legislation makes clear that these assessments
must: be aligned with States' academic and content standards, be peer
reviewed by the Federal Department of Education, produce timely
evidence about student learning and achievement, and provide teachers
with meaningful feedback so that teachers can modify and improve their
classroom instruction to address specific student needs.
Congress also needs to reform NCLB's accountability provisions during
the reauthorization process, including providing credit to schools that
demonstrate their students have made substantial growth from year to
year. Right now, NCLB measures students' achievement based primarily on
reading and math tests, and students either achieve the cut score on
the NCLB tests or they do not. A number of teachers and parents in
Wisconsin have expressed concerned that NCLB's current approach leads
schools to focus on students who are closest to achieving the cut score
on tests so as to continue to boost the number of kids passing the test
each year. As a result, parents and teachers are concern that the
lowest achieving students who are not yet proficient and the highest
performing students who are already proficient may be ignored in the
effort to meet AYP each year.
My legislation seeks to address this concern by providing flexibility
for States that maintain annual testing to develop accountability
models capable of tracking student growth from year to year to better
ensure that every student, regardless of his or her current academic
level, continues to make academic progress. States seeking to use
growth models in their accountability systems would have to prove that
such growth models meet a number of minimum technical requirements,
including ensuring the growth model: is of sufficient technical
capacity to function fairly and accurately for all students, uses
valid, reliable, and accurate measures, has a statewide privacy-
protected data system capable of tracking student growth, does not set
performance measures based on a student's background, and is capable of
tracking student progress in at least reading and math. I am pleased
there is substantial agreement in Congress that growth models should be
part of a reauthorized ESEA, and I will work with my colleagues to
ensure that any growth models included in the ESEA can be fairly
implemented and are flexible enough for States and local districts to
utilize in their accountability systems.
NCLB set the ambitious goal that all children will be proficient on
State reading and math tests by the year 2014. I have heard from a
number of
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educators and administrators in Wisconsin and around the country who
are concerned that very few States will be able to meet NCLB's 2014
deadline. I understand their concern, particularly in light of the fact
that Congress has failed to provide the promised financial resources to
meet NCLB's mandates. Our Nation needs to have high academic
expectations for all of our students, but if Congress is going to set
such ambitious goals for our schools to meet, we need to provide our
schools with the resources to meet those goals.
So far, the Federal Government has not lived up to the funding
promises it made when Congess passed NCLB in late 2001. The
appropriated levels for title I, part A have failed to match the
authorized levels for title I, part A every year from 2002 to 2007,
resulting in an underfunding of title I, part A by over $40 billion
since 2002. It is one thing to set ambitious targets for our Nation's
schools with adequate resources provided to reach those targets. It is
something entirely different to hold our schools accountable for
ensuring all students are proficient by 2014 and providing our schools
with less resources than were promised to them when NCLB passed. My
legislation includes a funding trigger that will waive the 2014
deadline unless Congress fully funds title I, part A from now until
2014. If Congress maintains the 2014 deadline and does not provide
additional resources to our Nation's schools, we are only setting our
schools up for further failure as we approach 2014.
My legislation also reforms the peer-review provisions of NCLB to
ensure that there is more transparency and consistency in the peer-
review process. States are currently required to submit their State
plans for approval by the Department of Education, and I have heard a
number of concerns from my State and others that States do not receive
consistent or timely information from the Department of Education
during peer review. States have also voiced concern about their
inability to speak directly with peer reviewers during the peer-review
process in order to clarify reviewers' comments made about their State
plans.
My bill would amend the peer-review language to ensure that the peer-
review teams contain balanced representation from State education
agencies, local education agencies, and practicing educators. My
legislation also includes language that requires the Secretary to
provide consistency in peer-review decisions among the States and
requires the Department's inspector general to conduct independent
evaluations every 2 years to ensure consistency of approval and denial
decisions by the Department of Education from State to State. My bill
would also require the Secretary to ensure that States are given the
opportunity to receive timely feedback from peer-review teams as well
as directly interact with peer-review panels on issues that need
clarification during the peer-review process.
Despite my concerns regarding the testing provisions of NCLB, there
are other provisions of the law that I continue to support. I have
consistently heard from educators and other interested parties in my
State of Wisconsin in favor of NCLB's requirement to disaggregate data
by specific groups of children, including students from major racial
and ethnic groups, students with disabilities, economically
disadvantaged students, and English language learners. Teachers have
told me that these provisions have added more transparency to school
data and help to ensure that schools continue to remain focused on
closing the achievement gap among these various groups of students and
remain attentive to the academic needs of all students. My legislation
builds on the requirement to disaggregate data by also requiring States
to disaggregate high school graduation rates on the State report cards
required under NCLB.
Justice Louis Brandeis once said, ``sunlight is said to be the best
of disinfectants,'' and I think his statement can be properly applied
to NCLB's requirement to disaggregate and report academic data by
student subgroups. Information about the achievement gaps that exist
throughout our Nation's schools, whether they are gaps in academic
achievement or graduation rates, can help parents, educators, local
school board members, and others continue to advocate for education
reform at the local level. Some States already have the ability to
disaggregate graduation rates by NCLB's subgroups, and my legislation
provides funding to all States to comply with this public reporting
requirement.
Tracking students' achievement and disaggregating student data are
fundamental components of No Child Left Behind and require States to
maintain large data systems containing detailed information about
students. The bill that I am introducing will also ensure that these
data systems are maintained in a way that safeguards individual
privacy. Use of the data by educational entities, as well as
disclosures of student-level data to third parties, will be carefully
limited, and individuals will have a right to know who is inspecting
their information and for what purpose.
My legislation also provides additional funding for States to build
additional infrastructure at the State and local level in order to
improve their educational accountability systems. States and local
districts will have to secure additional resources in order to
implement growth models or utilize multiple forms of assessment in
their accountability systems. My bill creates a competitive and
flexible grant program to help ensure the Federal Government does its
part in assisting States in accessing these resourses.
States have varying capacity needs and funds under this program can
help States build their privacy-protected educational databases, train
individuals in how to use multiple measures of student achievement in
State accountability systems, and provide additional professional
development opportunities for both state education agency and local
education agency staff members. I have heard from a number of State and
local administrators who are trying diligently to reconcile increased
Federal and State mandates with less financial resources. Providing
additional resources will help build State and local educational
infrastructure and will help encourage States to move to accountability
systems that can measure student growth and use more than standardized
test scores when making decisions about students and schools.
There are a number of other issues that we need to address in the
NCLB reauthorization. My bill seeks to address some of the top concerns
I have heard about from constituents around the State related to
testing. During the reauthorization process, we need to examine and
modify NCLB sanctions structure to address implementation problems that
rural and large urban districts have faced. We also need to recognize
that every school and every school district is different and the rigid
sanctions of NCLB may not allow States and local districts the
opportunity to implement a variety of other innvative school reform
efforts.
We also need to address the diverse learning needs of students with
disabilities and English language learners. We need to ensure that NCLB
works in concert with the Individuals with Disabilities Education Act,
IDEA, and that students with disabilities are provided with proper
modifications on assessments without holding lower academic
expectations for these students. I have long supported full funding for
IDEA and strongly support high academic expectations for students with
disabilities. I was disappointed the final NCLB conference report in
2001 dropped the Senate language on full funding of the Federal share
of IDEA, and I hope we can be successful during this reauthorization
process in efforts to fully fund IDEA.
The number of English language learners is growing around the
country, including in my State of Wisconsin. I have heard concerns from
educators around Wisconsin that NCLB does not properly address the
unique learning needs of English language learners. Teachers are
concerned about the lack of valid and reliable assessments for English
language learners and the unfairness of testing these students when
they may not yet have learned English well enough to take standardized
tests in English. During the reauthorization, we need to ensure that
additional resources are provided to develop valid and reliable
assessments for English language learners so that these students are
fairly assessed while learning the English language.
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There are many issues that need to be addressed during the
reauthorization process, and my bill seeks to address some of the
issues related to testing under NCLB. I am pleased this bill is
cosponsored by my friend and colleague, Senator Patrick Leahy, and that
it has the support of the American Association of School
Administrators, the National Education Association, the National
Association of Elementary School Principals, the School Social Work
Association of America, the Wisconsin Department of Public Instruction,
the Wisconsin Education Association Council, the Milwaukee Teachers
Education Association, the Wisconsin National Board Network of
Wisconsin National Board Certified Teachers, and the Wisconsin School
Administrator's Alliance, which includes the Association of Wisconsin
School Administrators, the Wisconsin Association of School District
Administrators, the Wisconsin Association of School Business Officials,
and the Wisconsin Council of Administrators of Special Services.
The Elementary and Secondary Education Act of 1965 is the key Federal
law impacting our nation's schools, and I have long supported the law's
commitment to improving the quality of education provided to our
Nation's most disadvantaged students. I strongly support holding
schools accountable for both providing equal educational opportunities
to all our students and for continuing to work to close the achievement
gaps that exist in our Nation's schools.
I also strongly support ensuring that classroom teachers, local
school districts, and States have the primary responsibility for making
decisions regarding day-to-day classroom instruction. Unfortunately,
under NCLB, too much of the activity in classrooms is being dictated by
the Federal one-size- fits-all testing mandates and accountability
provisions. The Federal Government should leave decisions about the
frequency of standardized testing up to the States and local school
districts that a bear the responsibility for educating our children.
While standardized testing does have a role to play in measuring and
improving student achievement, one high-stakes test alone cannot
accurately or responsibly measure our students or our schools.
NCLB was based on a flawed premise--that the way to hold schools
accountable and close the achievement gap was for the Federal
Government to pile on more tests and use the tests as the primary tool
to evaluate schools. Now, 5 years into the law's implementation, we
have evidence showing the need to reduce NCLB's burden on schools, by
providing real support for students and teachers and by providing
flexibility to Sates to use more than standardized tests to measure the
achievement of students. This country has a long way to go before the
opportunity for an equal education is afforded to all of America's
students and Congress can take a step toward helping to ensure that
opportunity by substantially reforming the mandates of NCLB. It is time
to fix No Child Left Behind, and to get back to learning--not just
testing--in all of our Nation's public schools.
______
By Mr. DODD:
S. 2055. A bill for the relief of Alejandro Gomez and Juan Sebastian
Gomez; to the Committee on the Judiciary.
Mr. DODD. Mr. President, today I send to the desk a private relief
bill to provide permanent resident status to Juan and Alejandro Gomez,
and ask that it be appropriately referred.
Juan, 18, and Alejandro, 20, are natives of Colombia who came to the
U.S. with their parents in August 1990 on B-2 visitors visas. They
currently reside in Miami, FL with their parents. They are now the
subjects of an October 14, 2007, voluntary departure date under an
order of deportation. The date of their departure has been extended
from September 14, 2007. Juan and Alejandro have lived continuously in
the U.S. for the last 17 years. They have both graduated from Miami
Killian High School and are currently enrolled in Miami Dade Community
College. They have the strong support of their community. It would be
an extreme hardship to uproot Juan and Alejandro from their community,
which has wholeheartedly embraced them, to send them back to Colombia
where there lives could be in serious danger.
We all know that the circumstances of Juan and Alejandro aren't
unique. Just like many other children here illegally, they had no
control over their parents' decision to overstay their visas a number
of years ago. Most of these young people work hard to complete school
and contribute to their communities. Cases like Juan's and Alejandro's
are the reason why the so called DREAM Act was attached to the
comprehensive immigration reform legislation that the Senate attempted
to pass earlier this year, only to face a filibuster from opponents of
any comprehensive immigration reform proposal.
The DREAM Act has broad partisan support and is not the reason that
the immigration bill has stalled in the Senate. I would hope that
consideration could be given to de-linking the DREAM Act from the
larger bill so that we can put in place a legal framework for dealing
with young people who are caught in this unfortunate immigration
status. But that is not likely to happen soon enough to address the
problems confronting Juan and Alejandro.
That is why I have decided to introduce a private bill on their
behalf. I will also be writing to Senator Edward Kennedy, Chairman of
the Subcommittee on Immigration to request, pursuant to the
Subcommittee's Rules of Procedure, that the Subcommittee formally
request an expedited departmental report from the Bureau of Citizenship
and Immigration Services regarding the Gomez brothers so that the
Subcommittee can then move forward to give consideration to this bill
as soon as possible.
I had an opportunity to meet Juan and Alejandro recently. They
believe that America is their home. They love our country and want to
have an opportunity to fulfill their dreams of becoming full
participants in this country. Passage of the private bill would give
them that opportunity. I look forward to working with the Subcommittee
to facilitate its passage.
______
By Mr. ROCKEFELLER (for himself, Mr. Kyl, Mrs. McCaskill, Mr.
Vitter, Ms. Snowe, Mr. Coburn, Mrs. Dole, Mr. Domenici, Mr.
Inhofe, Mr. Coleman, Mr. Cornyn, Mr. Martinez, Mr. Hagel, Mr.
Cochran, and Mr. Lott):
S. 2056. A bill to amend title XVIII of the Social Security Act to
restore financial stability to Medicare anesthesiology teaching
programs for resident physicians; to the Committee on Finance.
Mr. ROCKEFELLER. Mr. President, I rise today with Senators Kyl and
McCaskill, as well as 12 original cosponsors, to introduce an important
piece of legislation, the Medicare Teaching Anesthesiology Funding
Restoration Act of 2007. This legislation would restore equitable
Medicare reimbursement for teaching anesthesiologists and address our
nation's growing shortage of trained anesthesiologists.
As many of my colleagues are aware, in 1991, the Centers for Medicare
& Medicaid Services, CMS, rolled out a new rule that singled out
academic anesthesiology programs for a 50 percent reduction in Medicare
reimbursement when teaching anesthesiologists supervise residents in
two concurrent cases. The rule took effect in 1994. No other medical
specialties or nonphysician providers were affected by this policy
change. In fact, payments to nonanesthesiology teaching physicians
continue to be paid using the conventional Medicare Physician Fee
Schedule. All teaching physicians, except anesthesiologists, can
collect the full Medicare fee for working with one resident and also
collect an additional full Medicare fee for working with a second
resident on an overlapping case as long as the teaching physician is
present during the ``critical and key'' portions of each procedure and
is immediately available to return to a case when not physically
present.
This arbitrary and unfair payment reduction has had a devastating
impact on the training of anesthesiologists across the country,
anesthesiologists who we rely on daily for safe surgical procedures,
cesarean deliveries during childbirth, emergency and critical care
procedures, pain management, and care of our wounded warriors. Because
of this policy change, teaching hospitals
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receive only half the cost of anesthesiology treatment for Medicare
patients. This shortchanges academic anesthesiology programs an average
of $400,000 annually, with some programs losing more than $1 million
per year. As a result, academic anesthesiology programs have
experienced increased difficulty filling faculty appointments and
sustaining vital research and development programs. But even more
disturbing is the fact that this inconsistent and arbitrary payment
policy has forced 28 academic anesthesiology programs to close since
1994, leaving only 129 programs nationwide.
In my home State, we have only one academic anesthesiology program,
at the West Virginia University in Morgantown. This program is losing
nearly $700,000 per year because of this unfair Medicare payment
policy. When you take into account the fact that many private insurance
companies follow Medicare's lead on reimbursement, the final dollar
impact is even greater. Other departments within the medical school are
being called upon to subsidize these losses instead of using their
resources to advance important research initiatives or recruit highly
qualified faculty.
West Virginia students interested in studying anesthesiology are also
at risk. Because this is the only academic anesthesiology program in
the State, far fewer West Virginians will have the opportunity to enter
the specialty of anesthesiology if this program is forced to close.
This will have a direct impact on our State's health care
infrastructure because the majority of graduates from West Virginia
University's anesthesiology residency program stay in West Virginia. If
this program closes, the number of qualified anesthesiologists in West
Virginia could plummet, leaving residents with severe access problems
for surgery, emergency care, and other high risk procedures.
This is not just a West Virginia problem. This is a national problem
with severe implications in every community. Academic anesthesiology
programs treat the sickest of the sick, patients with multiple
diagnoses, unusual conditions and/or in need of highly complex and
sophisticated surgeries. The arbitrary Medicare payment reductions for
teaching anesthesiologists could mean that patients of all ages and in
all communities could see increased anesthesiology shortages in
operating rooms, pain clinics, the military, critical care units, labor
and delivery rooms, and emergency rooms.
In order to address this problem, the Medicare Anesthesiology
Teaching Funding Restoration Act eliminates the Medicare payment
inequity for physicians who teach anesthesiology. It restores Medicare
reimbursement for academic anesthesiology programs to the level in
existence before 1994 and subjects teaching anesthesiologists to the
same ``critical and key'' portion rule as other physicians under
Medicare. This payment restoration will provide physician residents
with sufficient opportunities to pursue the specialty of
anesthesiology. It will also provide patients, especially high risk
patients, with continued access to quality anesthesia care when they
need it. And, finally, this vital legislation will allow academic
anesthesiology programs to continue making advances in patient safety
through research and development.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 2056
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 ``Medicare Anesthesiology
Teaching Funding Restoration Act of 2007''.
SEC. 2. SPECIAL PAYMENT RULE FOR TEACHING ANESTHESIOLOGISTS.
Section 1848(a) of the Social Security Act (42 U.S.C.
1395w-4(a)) is amended--
(1) in paragraph (4)(A), by inserting ``except as provided
in paragraph (5),'' after ``anesthesia cases,''; and
(2) by adding at the end the following new paragraph:
``(5) Special rule for teaching anesthesiologists.--With
respect to physicians' services furnished on or after January
1, 2008, in the case of teaching anesthesiologists involved
in the training of physician residents in a single anesthesia
case or two concurrent anesthesia cases, the fee schedule
amount to be applied shall be 100 percent of the fee schedule
amount otherwise applicable under this section if the
anesthesia services were personally performed by the teaching
anesthesiologist alone and paragraph (4) shall not apply if--
``(A) the teaching anesthesiologist is present during all
critical or key portions of the anesthesia service or
procedure involved; and
``(B) the teaching anesthesiologist (or another
anesthesiologist with whom the teaching anesthesiologist has
entered into an arrangement) is immediately available to
furnish anesthesia services during the entire procedure.''.
Mr. KYL. Mr. President, today Senator Rockefeller and I introduce the
Medicare Anesthesiology Teaching Funding Restoration Act of 2007.
I want to thank Senator Rockefeller for his leadership, as well as
Senator Vitter who introduced a similar bill last Congress.
As my colleagues may be aware, Arizona is the Nation's fastest
growing State, and as its population grows, so does the demand for
health care services. Yet Arizona suffers from a critical shortage of
health care professionals.
Inadequate Medicare reimbursement exacerbates physician shortages and
disrupts patient access to care. In fact, each year Medicare
shortchanges academic anesthesiology programs nearly $40 million.
Currently, a teaching physician may receive the full Medicare fee
schedule if he or she is involved in two concurrent cases with
residents.
In 1994 the Centers for Medicare and Medicaid Services, CMS, singled
out anesthesiology teaching programs and implemented a payment change.
The payment change required that teaching anesthesiologists receive
only 50 percent of the Medicare fee schedule if he or she is involved
in two concurrent cases with residents.
As a result, 28 academic anesthesiology programs have closed, leaving
129 academic anesthesiology programs in existence today.
As one of the remaining teaching programs, the University of Arizona
loses over $300,000 each year.
This is likely a conservative estimate as private payers are
increasingly adopting Medicare's payment policy, compounding a teaching
program's total financial loss. Medicare's policy challenges a teaching
program's ability to fill vacant faculty positions, retain expert
faculty, and train residents, particularly in rural and underserved
communities.
Additionally, and perhaps most importantly, as training I programs
close, patients will increasingly encounter anesthesiologist shortages.
In Arizona alone, the Health Resources and Services Administration,
HRSA, projects that between 2000 and 2020 the State's population will
grow 18 percent and the population 65 and older will grow 72 percent.
The Medicare Anesthesiology Teaching Funding Restoration Act of 2007
repeals the 1994 payment change and restores Medicare payment to
teaching anesthesiologists.
Under this bill, the clear winners are patients. Restoring funding
helps preserve patient access to safe, quality health care and
alleviate growing health professional shortages.
I urge my colleagues to cosponsor this critical legislation.
______
By Mr. AKAKA:
S. 2057. A bill to reauthorize the Merit Sytems Protection Board and
the Office of Special Counsel, to modify the procedures of the Merit
Systems Protection Board and the Office of Special Counsel, and for
other purposes; to the Committee on Homeland Security and Governmental
Affairs.
Mr. AKAKA. Mr. President, today I rise to introduce the
Federal Merit System Reauthorization Act of 2007 to reauthorize the
Office of Special Counsel, OSC, and the Merit Systems Protection Board,
MSPB, and make other changes to improve the performance of both
agencies. I am pleased to note that Representative Danny Davis,
Chairman of the House Federal Workforce Subcommittee, is introducing
companion legislation today as well.
Both MSPB and OSC were created by the Civil Service Reform Act of
1978 to safeguard the merit system principles and to help ensure that
federal employees are free from discriminatory, arbitrary, and
retaliatory actions, especially against those who step forward to
disclose government waste, fraud,
[[Page S11594]]
and abuse. These protections are essential so that employees can
perform their duties in the best interests of the American public,
which, in turn, helps ensure that the federal government is an employer
of choice.
MSPB is charged with monitoring the Federal Government's merit-based
system of employment by hearing and deciding appeals from Federal
employees regarding job removal and other major personnel actions. The
board also reviews regulations of the Office of Personnel Management,
OPM, and conducts studies of the merit systems.
OSC is charged with protecting Federal employees and job applicants
from reprisal for whistleblowing and other prohibited personnel
practices. OSC is to serve as a safe and secure channel for Federal
workers who wish to disclose violations of law, gross mismanagement or
waste of funds, abuse of authority, and a specific danger to the public
health and safety. In addition, OSC enforces the Hatch Act, which
restricts the political activities of Federal employees, and the
Uniformed Services Employment and Reemployment Rights Act of 1994.
OSC and MSPB are to be the stalwarts of the merit system. However,
both agencies have been criticized for failing to live up to their
mission.
For example, as the author of the Federal Employee Protection of
Disclosures Act, S. 274, I am deeply concerned by the fact that no
Federal whistleblower has won on the merits of their claim before the
Board since 2003. At the Federal Circuit Court of Appeals,
whistleblowers have won on the merits twice since October 1994, when
Congress last strengthened the Whistleblower Protection Act.
In addition, testimony provided at the House and Senate
reauthorization hearings earlier this year raised several concerns
about the structure of the MPSB and the rights and responsibilities of
the Chairman of the MSPB compared to the other Members. This raises
concerns about the structure of the MSPB and warrants a closer review.
At OSC, the most recent Federal employee satisfaction survey shows
that less than five percent of the respondents reported any degree of
satisfaction with the results obtained by OSC while over 92 percent
were dissatisfied. Moreover, in the past few years, OSC has become
subject to numerous allegations by employees, good government groups,
and employee unions who allege that OSC is acting counter to its
mission by: ignoring whistleblower complaints, failing to protect
employees subjected to sexual orientation discrimination, and
retaliating against whistleblowers at OSC.
If true, these practices violate OSC's legal responsibility to be the
protector of civil service employees. Given the fact that OSC employees
could not make their disclosure to the Special Counsel, the alleged
individual who engaged in the wrongdoing and retaliated against them,
the employees and stakeholders filed a complaint with the President's
Council on Integrity and Efficiency, PCIE. Unfortunately, the
investigation is still ongoing.
As such, the Federal Merit System Reauthorization Act would
reauthorize OSC and MSPB for a period of three years instead of the 5
years requested by both agencies in order to give Congress a chance to
take a closer review of the two agencies. The bill would also
legislatively establish a process for OSC employees to bring
allegations of retaliation against the Special Counsel or the Deputy
Special Counsel to the PCIE and clarify that Federal employees are
protected from discrimination based on their sexual orientation.
Finally the bill would make procedural changes at OSC and MSPB to
improve agency operations and customer service and impose new reporting
requirements on both agencies.
Both OSC and MSPB must be free from allegations of wrongdoing and the
appearance of any activity that would question their independence. I
believe that the provisions in this bill will make needed improvements
in both agencies to build trust in the Federal workforce and the
American people. I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the text of the bill was ordered to be
printed in the Record, as follows:
S. 2057
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Federal
Merit System Reauthorization Act of 2007''.
(b) Table of Contents.--The table of contents is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Authorization of appropriations.
Sec. 3. Allegations of wrongdoing against Special Counsel or Deputy
Special Counsel.
Sec. 4. Discrimination on the basis of sexual orientation prohibited.
Sec. 5. Procedures of the Merit Systems Protection Board.
Sec. 6. Procedures of the Office of Special Counsel.
Sec. 7. Reporting requirements.
SEC. 2. AUTHORIZATION OF APPROPRIATIONS.
(a) Merit Systems Protection Board.--Section 8(a)(1) of the
Whistleblower Protection Act of 1989 (5 U.S.C. 5509 note) is
amended by striking ``2003, 2004, 2005, 2006, and 2007'' and
inserting ``2008, 2009, and 2010''.
(b) Office of Special Counsel.--Section 8(a)(2) of the
Whistleblower Protection Act of 1989 (5 U.S.C. 5509 note) is
amended by striking ``2003, 2004, 2005, 2006, and 2007'' and
inserting ``2008, 2009, and 2010''.
(c) Effective Date.--This section shall take effect as of
October 1, 2007.
SEC. 3. ALLEGATIONS OF WRONGDOING AGAINST SPECIAL COUNSEL OR
DEPUTY SPECIAL COUNSEL.
(a) Definitions.--In this section--
(1) the term ``Special Counsel'' refers to the Special
Counsel appointed under section 1211(b) of title 5, United
States Code;
(2) the term ``Integrity Committee'' refers to the
Integrity Committee described in Executive Order 12993
(relating to administrative allegations against inspectors
general) or its successor in function (as identified by the
President); and
(3) the terms ``wrongdoing'' and ``Inspector General'' have
the same respective meanings as under the Executive order
cited in paragraph (2).
(b) Authority of Integrity Committee.--
(1) In general.--An allegation of wrongdoing against the
Special Counsel (or the Deputy Special Counsel) may be
received, reviewed, and referred for investigation by the
Integrity Committee to the same extent and in the same manner
as in the case of an allegation against an Inspector General
(or a member of the staff of an Office of Inspector General),
subject to the requirement that the Special Counsel recuse
himself or herself from the consideration of any allegation
brought under this subsection.
(2) Coordination with existing provisions of law.--This
section does not eliminate access to the Merit Systems
Protection Board for review under section 7701 of title 5,
United States Code. To the extent that an allegation brought
under this subsection involves section 2302(b)(8) of such
title, a failure to obtain corrective action within 120 days
after the date on which that allegation is received by the
Integrity Committee shall, for purposes of section 1221 of
such title, be considered to satisfy section 1214(a)(3)(B) of
such title.
(c) Regulations.--The Integrity Committee may prescribe any
rules or regulations necessary to carry out this section,
subject to such consultation or other requirements as might
otherwise apply.
SEC. 4. DISCRIMINATION ON THE BASIS OF SEXUAL ORIENTATION
PROHIBITED.
(a) Repudiation.--In order to dispel any public confusion,
Congress repudiates any assertion that Federal employees are
not protected from discrimination on the basis of sexual
orientation.
(b) Affirmation.--It is the sense of Congress that, in the
absence of the amendment made by subsection (c),
discrimination against Federal employees and applicants for
Federal employment on the basis of sexual orientation is
prohibited by section 2302(b)(10) of title 5, United States
Code.
(c) Discrimination Based on Sexual Orientation
Prohibited.--Section 2302(b)(1) of title 5, United States
Code, is amended--
(1) in subparagraph (D), by striking ``or'' at the end;
(2) in subparagraph (E), by inserting ``or'' at the end;
and
(3) by adding at the end the following:
``(F) on the basis of sexual orientation;''.
SEC. 5. PROCEDURES OF THE MERIT SYSTEMS PROTECTION BOARD.
(a) Proof of Exhaustion for Individual Right of Action.--
Section 1221(a) of title 5, United States Code, is amended--
(1) by striking ``(a)'' and inserting ``(a)(1)''; and
(2) by adding at the end the following:
``(2) For purposes of paragraph (1), an employee, former
employee, or applicant for employment may demonstrate
compliance with section 1214(a)(3)(B) by--
``(A) submitting a copy of the complaint or other pleading
pursuant to which such employee, former employee, or
applicant sought corrective action from the Special Counsel
with respect to the personnel action involved; and
``(B) certifying that the Special Counsel did not provide
notice of intent to seek such corrective action to such
employee, former employee, or applicant within the 120-day
period described in such section 1214(a)(3)(B).''.
(b) Individual Requests for Stays.--Section 1221(c) of
title 5, United States Code, is amended by striking paragraph
(2) and inserting the following:
[[Page S11595]]
``(2) Any stay requested under paragraph (1) shall be
granted within 10 calendar days (excluding Saturdays,
Sundays, and legal holidays) after the date the request is
made, if the Board determines that the employee, former
employee, or applicant has demonstrated that protected
activity described under section 2302(b)(8) was a
contributing factor to the personnel action involved. If the
stay request is denied, the employee, former employee, or
applicant may submit an interlocutory appeal for expedited
review by the Board.''.
(c) Joining Subsequent and Related Claims With Pending
Litigation.--
(1) In general.--Section 1221 of title 5, United States
Code, is amended--
(A) by redesignating subsections (h), (i), and (j) as
subsections (i), (j), and (k), respectively; and
(B) inserting after subsection (g) the following:
``(h) During a pending proceeding, subsequent personnel
actions may be joined if the employee, former employee, or
applicant for employment demonstrates that retaliation for
protected activity at issue in the pending proceeding was a
contributing factor to subsequent alleged prohibited
personnel practices.''.
(2) Conforming amendment.--Section 1222 of title 5, United
States Code, is amended by striking ``section 1221(i)'' and
inserting ``section 1221(j)''.
(d) Procedural Due Process.--Section 1204(b)(1) of title 5,
United States Code, is amended by inserting ``in accordance
with regulations consistent with the Federal Rules of Civil
Procedure, so far as practicable'' before the period.
(e) Attorney Fees.--Section 7701(g)(1) of title 5, United
States Code, is amended by striking ``if the employee or
applicant is the prevailing party and'' and inserting ``if
the claim or claims raised by the employee or applicant were
not frivolous, unreasonable, or groundless; the case was a
substantial or significant factor in the agency's action
providing some relief or benefit to the employee or
applicant; and''.
SEC. 6. PROCEDURES OF THE OFFICE OF SPECIAL COUNSEL.
(a) Investigations of Alleged Prohibited Personnel
Practices.--Section 1212(e) of title 5, United States Code,
is amended by striking ``may prescribe such regulations as
may be necessary to perform the functions'' and inserting
``shall prescribe such regulations as may be necessary to
carry out subsection (a)(2) and may prescribe any regulations
necessary to carry out any of the other functions''.
(b) Mandatory Communications With Complainants.--
(1) Contact information.--Section 1214(a)(1)(B) of title 5,
United States Code, is amended by striking clause (ii) and
inserting the following:
``(ii) shall include the name and contact information of a
person at the Office of Special Counsel who--
``(I) shall be responsible for interviewing the complainant
and making recommendations to the Special Counsel regarding
the allegations of the complainant; and
``(II) shall be available to respond to reasonable
questions from the complainant regarding the investigation or
review conducted by the Special Counsel, the relevant facts
ascertained by the Special Counsel, and the law applicable to
the allegations of the complainant.''.
(2) Statement after termination of investigation.--Section
1214(a)(2)(A)(iv) of title 5, United States Code, is amended
by striking ``a response'' and inserting ``specific
responses''.
(c) Qualifications of Special Counsel.--The third sentence
of section 1211(b) of title 5, United States Code, is amended
by striking ``position.'' and inserting ``position and has
professional experience that demonstrates an understanding of
and a commitment to protecting the merit based civil
service.''.
(d) Alternative Dispute Resolution Program of the Office of
Special Counsel.--Section 1212 of title 5, United States
Code, is amended by adding at the end the following:
``(h) The Office of Special Counsel shall by regulation
provide for one or more alternative methods for settling
matters subject to the jurisdiction of the Office which shall
be applicable at the election of an employee, former
employee, or applicant for employment or at the direction of
the Special Counsel with the consent of the employee, former
employee, or applicant concerned. In order to carry out this
subsection, the Special Counsel shall provide for appropriate
offices in the District of Columbia and other appropriate
locations.''.
(e) Substantial Likelihood Determinations.--Section 1213 of
title 5, United States Code, is amended--
(1) in subsection (b), by striking ``15 days'' and
inserting ``45 days''; and
(2) in subsection (c)(1), by inserting ``, after consulting
with the person who made the disclosure on how to
characterize the issues,'' after ``appropriate agency head''.
(f) Determination of Statutory Requirements Met.--Section
1213(e) of title 5, United States Code, is amended--
(1) in paragraph (3), by striking ``subsection (e)(1)'' and
inserting ``paragraph (1)'';
(2) by redesignating paragraphs (3) and (4) as paragraphs
(4) and (5), respectively; and
(3) by inserting after paragraph (2) the following:
``(3) Upon receipt of any report of the head of an agency
required under subsection (c), if the Special Counsel is
unable to make a determination under paragraph (2)(A) or (B),
the Special Counsel shall require the agency head to submit
any additional information necessary for the Special Counsel
to make such determinations before any information is
transmitted under paragraph (4).''.
(g) Public and Internet Access for Agency Investigations.--
Section 1219 of title 5, United States Code, is amended by
striking subsections (a) and (b) and inserting the following:
``(a) The Special Counsel shall maintain and make available
to the public (including on the website of the Office of
Special Counsel)--
``(1) a list of noncriminal matters referred to heads of
agencies under subsection (c) of section 1213, together
with--
``(A) reports from heads of agencies under subsection
(c)(1)(B) of such section relating to such matters;
``(B) comments submitted under subsection (e)(1) of such
section relating to such matters, if the person making the
disclosure consents; and
``(C) comments or recommendations by the Special Counsel
under subsection (e)(4) of such section relating to such
matters;
``(2) a list of matters referred to heads of agencies under
section 1215(c)(2);
``(3) a list of matters referred to heads of agencies under
subsection (e) of section 1214, together with certifications
from heads of agencies under such subsection; and
``(4) reports from heads of agencies under section
1213(g)(1).
``(b) The Special Counsel shall take steps to ensure that
any list or report made available to the public or placed on
the website of the Office of Special Counsel under this
section does not contain any information the disclosure of
which is prohibited by law or by Executive order requiring
that information be kept secret in the interest of national
defense or the conduct of foreign affairs.''.
SEC. 7. REPORTING REQUIREMENTS.
(a) Merit Systems Protection Board.--Each annual report
submitted by the Merit Systems Protection Board under section
1206 of title 5, United States Code, shall, with respect to
the period covered by such report, include--
(1) the number of cases and alleged violations of section
2302 of such title 5 filed with the Board for each agency,
itemized for each prohibited personnel practice;
(2) the number of cases and alleged violations of section
2302 of such title 5 that the Board determines for each
agency, itemized for each prohibited personnel practice and
compared to the total number of cases and allegations filed
with the Board for each, both with respect to the initial
decisions by administrative judges and final Board decisions;
(3) the number of cases and allegations in which corrective
action was provided, compared to the total number of cases
and allegations filed with the Board for each, itemized
separately for settlements and final Board decisions; and
(4) with respect to paragraphs (8) and (9) of section 2302
(b) of such title 5, the number of cases in which the Board
has ruled in favor of the employee on the merits of the claim
compared to the total number of cases and allegations filed
with the Board for each, where findings of fact and
conclusions of law were issued on whether those provisions
were violated, independent from cases disposed by procedural
determinations, including a separate itemization of both
initial decisions by administrative judges and final Board
decisions for each category.
(b) Office of Special Counsel.--Each annual report
submitted under section 1218 of title 5, United States Code,
by the Special Counsel or an employee designated by the
Special Counsel shall, with respect to the period covered by
such report, include--
(1) the number of cases and allegations for each prohibited
personnel practice, delineated by type of prohibited
personnel practice;
(2) for each type of prohibited personnel practice, the
number of cases and allegations as to which the Office of
Special Counsel found reasonable grounds to believe section
2302 of such title 5 had been violated;
(3) for each type of prohibited personnel practice, the
number of cases and allegations as to which the Office of
Special Counsel referred the complaint for full field
investigation;
(4) for each prohibited personnel practice, the number of
cases and allegations as to which the Office of Special
Counsel recommended corrective action;
(5) for each prohibited personnel practice, the number of
cases and allegations as to which the Office of Special
Counsel conducted a mediation or other form of alternative
dispute resolution, with statistics and illustrative examples
describing the results with particularity;
(6) the number of instances in which the Office of Special
Counsel referred disclosures submitted under section 1213 of
such title 5 to an agency head, without any finding under
subsection (c) or (g) of such section;
(7) a statistical tabulation of results for each customer
satisfaction survey question, both with respect to
allegations of prohibited personnel practice submitted under
section 1214 of such title 5 and disclosures submitted under
section 1213 of such title; and
(8) for each provision under section 1216(a) (1) through
(5) and (c) of such title 5, the number of cases and
allegations, the number of field investigations opened, the
number of instances in which corrective action was sought,
and the number of instances in which corrective action was
obtained.
[[Page S11596]]
(c) Annual Survey.--Section 13(a) of the Act entitled ``An
Act to reauthorize the Office of Special Counsel, and for
other purposes'', approved October 29, 1994 (5 U.S.C. 1212
note; Public Law 103-424) is amended in the first sentence by
inserting ``, including individuals who disclose information
to the Office of Special Counsel under section 1213'' before
the period.
______
By Mr. LEVIN:
S. 2058. A bill to amend the Commodity Exchange Act to close the
Enron loophole, prevent price manipulation and excessive speculation in
the trading of energy commodities, and for other purposes; to the
Committee on Agriculture, Nutrition, and Forestry.
Mr. LEVIN. Mr. President, today I am introducing the Close the Enron
Loophole Act to help prevent price manipulation and dampen the
excessive speculation that have unfairly increased the cost of energy
in the U.S.
This legislation is the product of more than 4 years of work
examining U.S. energy commodity markets by the Senate Permanent
Subcommittee on Investigations, which I chair. That work has shown that
U.S. market prices for crude oil, natural gas, jet fuel, diesel fuel
and other energy commodities are more unpredictable and variable than
ever before, and too often are imposing huge cost increases on the
backs of working American families and businesses. The legislation I am
introducing today is essential to help ensure that our energy markets
provide prices that reflect the fundamentals of supply and demand for
energy instead of prices boosted by manipulation or excessive
speculation. It is also essential to close an egregious loophole in the
law that was championed by Enron and other large energy traders in the
heyday of deregulation and that continues to haunt our energy markets
and harm American consumers through inflated and distorted energy
prices.
The ``Enron loophole'' is a provision that was inserted at the last-
minute, without opportunity for debate, into commodity legislation that
was attached to an omnibus appropriations bill and passed by Congress
in late December 2000, in the waning hours of the 106 Congress. This
loophole exempted from U.S. Government regulation the electronic
trading of energy commodities by large traders. The loophole has helped
foster the explosive growth of trading on unregulated electronic energy
exchanges. It has also rendered U.S. energy markets more vulnerable to
price manipulation and excessive speculation with resulting price
distortions. This legislation is necessary to close the Enron loophole
and reduce our vulnerability to manipulation and excessive speculation
by providing for regulation of the electronic trading of energy
commodities by large traders.
A stable and affordable supply of energy is vital to the national and
economic security of the United States. We need energy to heat and cool
our homes and offices, to generate electricity for lighting,
manufacturing, and vital services, and to power our transportation
sector--automobiles, trucks, boats, and airplanes.
Over 80 percent of our energy comes from fossil fuels--oil, natural
gas, and coal. About 50 percent is from oil and natural gas. The U.S.
consumes around 20 million barrels of crude oil each day, over half of
which is imported. About 90 percent of this oil is refined into
products such as gasoline, home heating oil, jet fuel, and diesel fuel.
The crude oil market is the largest commodity market in the world,
and hundreds of millions of barrels are traded daily in the various
crude oil futures, over-the-counter, and spot markets. The world's
leading exchanges for crude oil futures contracts are the New York
Mercantile Exchange, NYMEX, and the Intercontinental Exchange, known as
ICE Futures in London. Futures contracts for gasoline, heating oil, and
diesel fuel are also traded on these exchanges. Presently, regulatory
authority over the U.S. crude oil market is split between British and
U.S. regulators.
Natural gas heats the majority of American homes, is used to harvest
crops, powers 20 percent of our electrical plants, and plays a critical
role in many industries, including manufacturers of fertilizers,
paints, medicines, and chemicals. It is one of the cleanest fuels we
have, and we produce most of it ourselves with only 15 percent being
imported, primarily from Canada. In 2005 alone, U.S. consumers and
businesses spent about $200 billion on natural gas.
Only part of the natural gas futures market is regulated. Natural gas
produced in the United States is traded on NYMEX and on an unregulated
ICE electronic trading platform located in Georgia. The price of
natural gas in both the futures market and in the spot or physical
market depends on the prices on both of these U.S. exchanges.
Trading abuses plague existing energy markets. The key federal
regulator, the Commodity Futures Trading Commission, CFTC, reports that
overall in recent years it has issued several hundred million dollars
in fines for trading abuses in the energy markets. Several major
enforcement actions are pending.
Since 2001, the Senate Permanent Subcommittee on Investigations has
been examining the vulnerability of U.S. energy markets to price
manipulation and excessive speculation due to the lack of regulation of
electronic energy exchanges under the so called ``Enron loophole.''
Although the CFTC and Federal Energy Regulatory Commission have brought
a number of enforcement cases against energy traders, the CFTC's
ability to prevent abuses before they occur is severely hampered by its
lack of regulatory authority over key energy markets.
The Subcommittee first documented the weaknesses in the regulation of
our energy markets in a 2003 staff report I initiated called, ``U.S.
Strategic Petroleum Reserve: Recent Policy Has Increased Costs to
Consumers But Not Overall U.S. Energy Security.'' The report found that
crude oil prices were ``affected by trading not only regulated
exchanges like the NYMEX, but also on unregulated `over-the-counter',
OTC, markets which have become major trading centers for energy
contracts and derivatives. The lack of information on prices and large
positions in these OTC markets makes it difficult in many instances, if
not impossible in practice, to determine whether traders have
manipulated crude oil prices.''
In June 2006, the Subcommittee issued a staff report entitled, ``The
Role of Market Speculation in Rising Oil and Gas Prices: A Need To Put
the Cop Back on the Beat.'' This bipartisan staff report analyzed the
extent to which the increasing amount of financial speculation in
energy markets had contributed to the steep rise in energy prices over
the past few years. The report concluded that ``[s]peculation has
contributed to rising U.S. energy prices,'' and endorsed the estimate
of various analysts that the influx of speculative investments into
crude oil futures accounted for approximately $20 of the then-
prevailing crude oil price of approximately $70 per barrel.
The 2006 report recommended that the CFTC be provided with the same
authority to regulate and monitor electronic energy exchanges, such as
ICE, as it has with respect to the fully regulated futures markets,
such as NYMEX, to ensure that excessive speculation in the energy
markets did not adversely effect the availability and affordability of
vital energy commodities through unwarranted price increases.
In June 2007, the Subcommittee released another report, ``Excessive
Speculation in the Natural Gas Market.'' Our report found that a single
hedge fund named Amaranth dominated the natural gas market during the
spring and summer of 2006, and Amaranth's large-scale trading
significantly distorted natural gas prices from their fundamental
values based on supply and demand.
The report concluded that the current regulatory system was unable to
prevent these distortions because much of Amaranth's trading took place
on an unregulated electronic market. The report recommended that
Congress close the ``Enron loophole'' that exempted such markets from
regulation.
The Subcommittee's Report describes how Amaranth used the major
unregulated electronic market, ICE, to amass huge positions in natural
gas contracts, outside regulatory scrutiny, and beyond any regulatory
authority. During the spring and summer of 2006, Amaranth held by far
the largest positions of any trader in the natural gas market.
According to traders interviewed by the Subcommittee, during this
period natural gas prices for the following winter were ``clearly out
of whack,'' at ``ridiculous levels,'' and unrelated to supply and
demand. At the
[[Page S11597]]
Subcommittee's hearing in June of this year, natural gas purchasers,
such as the American Public Gas Association and the Industrial Energy
Consumers of America, explained how these price distortions increased
the cost of hedging for natural gas consumers, which ultimately led to
increased costs for American industries and households. The Municipal
Gas Authority of Georgia calculated that Amaranth's excesses increased
the cost of their winter gas purchases by $18 million.
Finally, when Amaranth's positions on the regulated futures market,
NYMEX, became so large that NYMEX directed Amaranth to reduce the size
of its positions on NYMEX, Amaranth simply switched those positions to
ICE, an unregulated market that is beyond the reach of the CFTC. In
other words, in response to NYMEX's order, Amaranth did not reduce its
size; it merely moved it from a regulated market to an unregulated
market.
This regulatory system makes no sense. It is as if a cop on the beat
tells a liquor store owner that he must obey the law and stop selling
liquor to minors, yet the store owner is allowed to move his store
across the street and sell to whomever he wants because the cop has no
jurisdiction on the other side of the street and none of the same laws
apply. The Amaranth case history shows it is clearly time to put the
cop on the beat in all of our energy exchanges.
The Subcommittee held two days of hearings relating to issues covered
in its 2007 report. Both of the major energy exchanges, NYMEX and ICE,
testified that they would support a change in the law that would
eliminate the current exemption from regulation for electronic energy
markets, in order to reduce the potential for manipulation and
excessive speculation. Consumers and users of natural gas and other
energy commodities--the American Public Gas Association, the New
England Fuel Institute, the Petroleum Marketers Association of America,
and the Industrial Energy Consumers of America--also testified in favor
of closing the Enron loophole.
The legislation I am introducing today is intended to end the
exemption from regulation that electronic energy trading facilities now
have. The bill includes suggestions made by the exchanges, the CFTC,
and natural gas users, and I will continue to seek their input as the
legislative process moves forward.
Essentially, this bill would restore the CFTC's ability to police all
U.S. energy exchanges to prevent price manipulation and excessive
speculation from hiking energy prices. In particular, it would restore
CFTC oversight of large-trader energy exchanges that were exempted from
regulation in the 2000 Commodity Futures Modernization Act by means of
the Enron loophole. The bill would require the CFTC to oversee these
facilities in the same manner and according to the same standards that
currently apply to futures exchanges like NYMEX. Because these energy
exchanges currently restrict trading to large traders, however, the
bill would not require them to comply with rules applicable to retail
trading or trading by brokers on behalf of smaller traders. In all
other respects, however, including the rules that create position
limits and accountability levels to stop price manipulation and
excessive speculation, the bill would apply the same rules to energy
exchanges like ICE as currently apply to futures exchanges like NYMEX.
The bill also would require large trades in U.S. energy commodities
conducted from within the United States on a foreign board of trade to
be reported to the CFTC. This provision is intended to ensure that the
CFTC has a more complete view of the positions of U.S. energy traders
buying or selling energy commodities for delivery in the United States.
This provision could be waived by the CFTC if the CFTC reaches
agreement with the foreign board of trade to obtain the same
information.
Preventing price manipulation and excessive speculation in U.S.
energy markets is not an easy undertaking. I welcome good-faith
comments on how this bill can be improved. I want to make it clear,
however, that in my opinion the Enron loophole has got to be closed.
Recent cases have shown us that market abuses and failures did not stop
with the fall of Enron. They are still with us. We cannot afford to let
the current situation continue, allowing energy traders to use
unregulated markets to avoid regulated markets. It's time to put the
cop back on the beat in all U.S. energy markets. The stakes for our
energy security and for competition in the market place are too high to
do otherwise.
I ask unanimous consent that the text of the bill, a bill summary,
and a section-by-section analysis be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 2058
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 ``Close the Enron Loophole
Act''.
SEC. 2. ENERGY TRADING FACILITIES.
(a) Definitions.--Section 1a of the Commodity Exchange Act
(7 U.S.C. 1a) is amended by redesignating paragraphs (13)
through (33) as paragraphs (15) through (35), respectively,
and by inserting after paragraph (12) the following:
``(13) Energy commodity.--The term `energy commodity' means
a commodity (other than an excluded commodity, a metal, or an
agricultural commodity) that is--
``(A) used as a source of energy, including but not limited
to--
``(i) crude oil;
``(ii) gasoline, diesel fuel, heating oil, and any other
product derived or refined from crude oil;
``(iii) natural gas, including methane, propane, and any
other gas or liquid derived from natural gas; and
``(iv) electricity; or
``(B) results from the burning of fossil fuels to produce
energy, including but not limited to carbon dioxide and
sulfur dioxide.
``(14) Energy trading facility.--The term `energy trading
facility' means a trading facility that--
``(A) is not a designated contract market; and
``(B) facilitates the execution or trading of agreements,
contracts, or transactions in an energy commodity that are
not spot sales of a cash commodity or sales of a cash
commodity for deferred shipment or delivery, and that are
entered into on a principal-to-principal basis solely between
persons that are eligible commercial entities at the time the
persons enter into the agreement, contract, or transaction;
and
``(i) facilitates the clearance and settlement of such
agreements, contracts, or transactions; or
``(ii) the Commission determines performs a significant
price discovery function in relation to an energy commodity
listed for trading on a trading facility or in the cash
market for the energy commodity. In making a determination
whether a trading facility performs a significant price
discovery function the Commission may consider, as
appropriate--
``(I) the extent to which the price of an agreement,
contract, or transaction traded or executed on the trading
facility is derived from or linked to the price of a contract
in an energy commodity listed for trading on a designated
contract market;
``(II) the extent to which cash market bids, offers, or
transactions in an energy commodity are directly based on, or
quoted at a differential to, the prices generated by
agreements, contracts, or transactions in the same energy
commodity being traded or executed on the trading facility;
``(III) the volume of agreements, contracts, or
transactions in the energy commodity being traded on the
trading facility;
``(IV) the extent to which data regarding completed
transactions are posted, disseminated, or made available
immediately after completion of such transactions, with or
without a fee, to other market participants and other
persons;
``(V) the extent to which an arbitrage market exists
between the agreements, contracts, or transactions traded or
executed on the trading facility and a contract in an energy
commodity listed for trading on a designated contract market;
and
``(VI) such other factors as the Commission determines
appropriate.''.
(b) Commission Oversight of Energy Trading Facilities.--
Section 2(h) of the Commodity Exchange Act (7 U.S.C. 2(h)) is
amended--
(1) in paragraph (3)(B) after ``an electronic trading
facility'' by inserting ``that is not an energy trading
facility''; and
(2) by adding at the end the following:
``(7) Energy trading facilities.--Notwithstanding any other
provision of this Act, an energy trading facility shall be
subject to the provisions of section 2(j) of this Act.''.
(c) Standards Applicable to Energy Trading Facilities.--
Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is
amended by adding the following new subsection:
``(j) Registration of Energy Trading Facilities.--
``(1) In general.--It shall be unlawful for any person to
enter into an agreement, contract, or transaction for future
delivery of an energy commodity that is not a spot sale of a
cash commodity or a sale of a cash commodity for deferred
shipment or delivery, on
[[Page S11598]]
or through an energy trading facility unless such facility is
registered with the Commission as an energy trading facility.
``(2) Applications.--Any trading facility applying to the
Commission for registration as an energy trading facility
shall submit an application to the Commission that includes
any relevant materials and records, consistent with the Act,
that the Commission may require.
``(3) Commission action.--The Commission shall make a
determination whether to approve an application for
registration as an energy trading facility within 120 days
after such application is submitted.
``(4) Criteria for registration.--To be registered as an
energy trading facility, the applicant shall demonstrate to
the Commission that the trading facility meets the criteria
specified in this paragraph.
``(A) Prevention of price manipulation and excessive
speculation.--The trading facility shall have the capacity to
prevent price manipulation, excessive speculation, price
distortion, and disruption of the delivery or cash-settlement
process through market surveillance, compliance, and
enforcement practices and procedures, including methods for
conducting real-time monitoring of trading and comprehensive
and accurate trade reconstructions.
``(B) Monitoring of trading.--The trading facility shall
monitor trading to prevent price manipulation, excessive
speculation, price distortion, and disruption of the delivery
or cash-settlement process.
``(C) Contracts not readily susceptible to manipulation.--
The trading facility shall list for trading only contracts
that are not readily susceptible to manipulation.
``(D) Financial integrity of transactions.--A trading
facility that facilitates the clearance and settlement of
agreements, contracts, or transactions by a derivatives
clearing organization shall establish and enforce rules and
procedures for ensuring the financial integrity of such
agreements, contracts, and transactions.
``(E) Ability to obtain information.--The trading facility
shall establish and enforce rules that will allow the trading
facility to obtain any necessary information to perform any
of the functions described in this subsection, including the
capacity to carry out such international information-sharing
agreements as the Commission may require.
``(F) Position limits or accountability levels.--To reduce
the threat of price manipulation, excessive speculation,
price distortion, or disruption of the delivery or cash-
settlement process, the trading facility shall adopt position
limits or position accountability levels for speculators,
where necessary and appropriate.
``(G) Emergency authority.--The trading facility shall
adopt rules to provide for the exercise of emergency
authority, in consultation and cooperation with the
Commission, where necessary and appropriate, including the
authority to--
``(i) liquidate open positions in any contract;
``(ii) suspend or curtail trading in any contract; and
``(iii) require market participants in any contract to meet
special margin requirements.
``(H) Daily publication of trading information.--The
trading facility shall make public daily information on
settlement prices, volume, open interest, and opening and
closing ranges for actively traded contracts on the facility.
``(I) Deterrence of abuses.--The trading facility shall
establish and enforce trading and participation rules that
will deter abuses and shall have the capacity to detect,
investigate violations of, and enforce those rules, including
means to--
``(i) obtain information necessary to perform the functions
required under this section; or
``(ii) use technological means to capture information that
may be used in establishing whether rule violations have
occurred.
``(J) Trade information.--The trading facility shall
maintain rules and procedures to provide for the recording
and safe storage of all identifying trade information in a
manner that enables the facility to use the information for
the purposes of assisting in the prevention of price
manipulation, excessive speculation, price distortion, or
disruption of the delivery or cash-settlement process, and
providing evidence of any violations of the rules of the
facility.
``(K) Trading procedures.--The trading facility shall
establish and enforce rules or terms and conditions defining,
or specifications detailing, trading procedures to be used in
entering and executing orders traded on the facility,
including procedures to provide participants with impartial
access to the trading facility.
``(L) Compliance with rules.--The trading facility shall
monitor and enforce the rules of the facility, including any
terms and conditions of any contracts traded on or through
the facility and any limitations on access to the facility.
``(M) Disclosure of general information.--The trading
facility shall disclose publicly and to the Commission
information concerning--
``(i) contract terms and conditions;
``(ii) trading conventions, mechanisms, and practices;
``(iii) financial integrity protections; and
``(iv) other information relevant to participation in
trading on the facility.
``(N) Fitness standards.--The trading facility shall
establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee, and any
other persons with direct access to the facility, including
any parties affiliated with any of the persons described in
this paragraph.
``(O) Conflicts of interest.--The trading facility shall
establish and enforce rules to minimize conflicts of interest
in the decision making process of the facility and establish
a process for resolving such conflicts of interest.
``(P) Recordkeeping.--The trading facility shall maintain
records of all activities related to the business of the
facility in a form and manner acceptable to the Commission
for a period of 5 years.
``(Q) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the trading
facility shall endeavor to avoid--
``(i) adopting any rules or taking any actions that result
in any unreasonable restraint of trade; or
``(ii) imposing any material anticompetitive burden on
trading on the facility.
``(5) Criteria for energy trading facilities.--To maintain
the registration as an energy trading facility, the trading
facility shall comply with all of the criteria in paragraph
(4). Failure to comply with any of these criteria shall
constitute a violation of this Act. The trading facility
shall have reasonable discretion in establishing the manner
in which it complies with the criteria in paragraph (4).
``(6) Position limits and accountability levels.--
``(A) Duty of commission.--The Commission shall ensure that
the position limits and accountability levels applicable to
contracts in an energy commodity listed for trading on a
designated contract market and the position limits and
accountability levels applicable to similar contracts in the
same energy commodity listed for trading on an energy trading
facility--
``(i) appropriately prevent price manipulation, excessive
speculation, price distortion, and disruption of the delivery
or cash-settlement process; and
``(ii) are on a parity with each other and applied in a
functionally equivalent manner.
``(B) Commission review.--Upon learning that a person has
exceeded an applicable position limit or accountability level
in an energy commodity, the Commission shall obtain such
information as it determines to be necessary and appropriate
regarding all of the positions held by such person in such
energy commodity and take such action as may be necessary and
appropriate, in addition to any action taken by an energy
trading facility or a designated contract market, to require,
or direct an energy trading facility or a designated contract
market to require, such person to limit, reduce, or liquidate
any position to prevent or reduce the threat of price
manipulation, excessive speculation, price distortion, or
disruption of the delivery or cash-settlement process.
``(C) Information to commission.--In order to make any
determination required under this section, the Commission may
request all relevant information regarding all of the
positions held by any person in the energy commodity for
which the person has exceeded a position limit or
accountability level, including positions held or controlled
or transactions executed on or through a designated contract
market, an energy trading facility, an exempt commercial
markets operating pursuant to sections 2(h)(3) through
paragraph (5) of this Act, an exempt board of trade operating
pursuant to section 5d of this Act, a derivative transaction
execution facility, a foreign board of trade, over-the-
counter pursuant to sections 2(g), or 2(h)(1) and (2) of this
Act, and in the cash market for the commodity. Any person
entering into or executing an agreement, contract, or
transaction with respect to an energy commodity on a
designated contract market or on an energy trading facility
shall retain such books and records as the Commission may
require in order to provide such information upon request,
and upon request shall promptly provide such information to
the Commission or the Department of Justice. Notwithstanding
this requirement to retain and provide position information,
the Commission may alternatively choose to obtain any of the
position information specified in this paragraph from the
trading facility at which such positions are maintained.
``(D) Criteria for commission determination.--In making any
determination to require a limitation, reduction, or
liquidation of any position with respect to an energy
commodity, the Commission may consider, as appropriate--
``(i) the person's open interest in a contract, agreement,
or transaction involving an energy commodity relative to the
total open interest in such contracts, agreements, or
transactions;
``(ii) the daily volume of trading in such contracts,
agreements or transactions;
``(iii) the person's overall position in related contracts,
including options, and the overall open interest or liquidity
in such related contracts and options;
``(iv) the potential for such positions to cause or allow
price manipulation, excessive speculation, price distortion,
or disruption of the delivery or cash-settlement process;
``(v) the person's record of compliance with rules,
regulations, and orders of the Commission, a designated
contract market, or an energy trading facility, as
appropriate;
``(vi) the person's financial ability to support such
positions on an ongoing basis;
[[Page S11599]]
``(vii) any justification provided by the person for such
positions; and
``(viii) other such factors determined to be appropriate by
the Commission.''.
(d) Information for Price Discovery Determination.--
(1) Section 2(h)(5)(B) of the Commodity Exchange Act (7
U.S.C. 2(h)(5)(B)) is amended by adding the following new
clause:
``(iv) to the extent that the electronic trading facility
provides for the trading of agreements, contracts, or
transactions in an energy commodity, provide the Commission
with such information as the Commission determines necessary
to evaluate whether the energy trading facility performs a
significant price discovery function in relation to a
contract in an energy commodity listed for trading on a
trading facility or in the cash market for the energy
commodity, including the provision of such requested
information on a continuous basis.''.
(2) Section 5a(b) of the Commodity Exchange Act (7 U.S.C.
7a(b)) is amended by adding the following new paragraph:
``(5) Price discovery for energy commodity.--A registered
derivatives transaction execution facility shall, to the
extent that it provides for the trading of any contract of
sale of a commodity for future delivery (or option on such
contract) based on an energy commodity, provide the
Commission with such information as the Commission determines
necessary to evaluate whether the registered derivatives
transaction execution facility performs a significant price
discovery function in relation to a contract in an energy
commodity listed for trading on a trading facility or in the
cash market for the energy commodity, including the provision
of such requested information on a continuous basis.''.
(e) Conforming Amendments.--The Commodity Exchange Act is
amended--
(1) in paragraph 29 of section 1a (7 U.S.C. 1a)--
(A) in subparagraph (C) by deleting ``and'';
(B) in subparagraph (D) by deleting the period and
inserting ``; and'';
(C) by adding at the end the following:
``(E) an energy trading facility registered under section
2(j).'';
(2) in subsection (a) of section 4 (7 U.S.C. 6(a))--
(A) in paragraph (1) by inserting ``registered energy
trading facility or a'' after ``subject to the rules of a'';
and
(B) in paragraph (2) by inserting ``or energy trading
facility'' after ``derivatives transaction execution
facility'';
(3) in subsection (c) of section 4 (7 U.S.C. 6(c)), by
inserting ``registered energy trading facility or'' in the
parenthetical after ``including any'';
(4) in subsection (a) of section 4a (7 U.S.C. 6a)--
(A) in the first sentence by inserting ``or energy trading
facilities'' after ``derivatives transaction execution
facilities''; and
(B) in the second sentence by inserting ``or energy trading
facility'' after ``derivatives transaction execution
facility'';
(5) in subsection (b) of section 4a (7 U.S.C. 6a), by
inserting ``or energy trading facility'' after ``derivatives
transaction execution facility'' wherever it appears;
(6) in subsection (e) of section 4a (7 U.S.C. 6a)--
(A) in the first sentence--
(i) by inserting ``or by any energy trading facility''
after ``registered by the Commission'';
(ii) by inserting ``or energy trading facility'' after
``derivatives transaction execution facility'' the second
time it appears;
(iii) by inserting ``energy trading facility'' before ``or
such board of trade'' each time it appears; and
(B) in the second sentence, by inserting ``or energy
trading facility'' after ``registered by the Commission'';
(7) in section 4e (7 U.S.C. 6e), by inserting ``or energy
trading facility'' after ``or derivatives transaction
execution facility'';
(8) in section 4i (7 U.S.C. 6i), by inserting ``or energy
trading facility'' after ``derivatives transaction execution
facility'';
(9) in section 4l (7 U.S.C. 6l), by inserting ``or energy
trading facilities'' after ``derivatives transaction
execution facilities'' wherever it appears in paragraphs (2)
and (3);
(10) in section 5c(b) (7 U.S.C. 7a-2(b)), by inserting ``or
energy trading facility'' after ``derivatives transaction
execution facility'' wherever it appears in paragraphs (1),
(2), and (3);
(11) in section 6(b) (7 U.S.C. 8(b))--
(A) by inserting ``or energy trading facility'' after
``derivatives transaction execution facility'' wherever it
appears; and
(B) by inserting ``section 2(j) or'' before ``sections 5
through 5b''; and
(12) in section 6d(1) (7 U.S.C. 13a-2(1)), by inserting
``energy trading facility'' after ``derivatives transaction
execution facility''.
SEC. 3. REPORTING OF U.S. ENERGY TRADES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 1a) is
amended by adding at the end the following:
``(k) Domestic Energy Trades on a Foreign Board of Trade.--
``(1) Definitions.--In this subsection:
``(A) Domestic terminal.--The term `domestic terminal'
means a technology, software, or other means of providing
electronic access within the United States to a contract,
agreement, or transaction traded on a foreign board of trade.
``(B) Reportable contract.--The term `reportable contract'
means a contract, agreement, or transaction for future
delivery of an energy commodity (or option thereon), or an
option on an energy commodity, for which the underlying
commodity has a physical delivery point within the United
States and that is executed through a domestic terminal.
``(2) Record keeping.--The Commission, by rule, shall
require any person holding, maintaining, or controlling any
position in any reportable contract under this section--
``(A) to maintain such records as directed by the
Commission for a period of 5 years, or longer, if directed by
the Commission; and
``(B) to provide such records upon request to the
Commission or the Department of Justice.
``(3) Reporting.--The Commission shall prescribe rules
requiring such regular or continuous reporting of positions
in a reportable contract in accordance with such requirements
regarding size limits for reportable contracts and the form,
timing, and manner of filing such reports under this
paragraph, as the Commission shall determine.
``(4) Equivalent means of obtaining information.--The
Commission may waive the requirement under paragraph (3) if
the Commission determines that the foreign board of trade is
providing the Commission with equivalent information in a
usable format pursuant to an agreement between the Commission
and the foreign board of trade or a foreign futures
authority, department or agency of a foreign government, or
political subdivision thereof.
``(5) Other rules not affected.--
``(A) In general.--Except as provided in clause (ii), this
paragraph does not prohibit or impair the adoption by any
board of trade or energy trading facility licensed,
designated, or registered by the Commission of any bylaw,
rule, regulation, or resolution requiring reports of
positions in any agreement, contract, or transaction for
future delivery of an energy commodity (or option thereon),
or option on an energy commodity, 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 or energy trading facility.
``(B) Exception.--Any bylaw, rule, regulation, or
resolution established by a board of trade or energy trading
facility described in clause (i) shall not be inconsistent
with any requirement prescribed by the Commission under this
paragraph.''.
SEC. 4. 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 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.''.
[[Page S11600]]
SEC. 5. COMMISSION RULEMAKING.
Not later than 180 days after the date of enactment of this
Act, the Commission shall issue a proposed rule regarding the
requirements for an application for registration for an
energy trading facility, and not later than 270 days after
the date of enactment of this Act, shall issue a final rule.
SEC. 6. EFFECTIVE DATE.
(a) In General.--Except as provided in this section, this
Act shall become effective immediately upon enactment.
(b) Trading Facilities.--With respect to any trading
facility operating on the date of enactment of this Act in
reliance upon the exemption set forth in section 2(h)(3) of
the Commodity Exchange Act with respect to an energy
commodity, the prohibition in section 2(j)(1) of the
Commodity Exchange Act, as added by this Act, shall not
apply, if the trading facility submits an application to the
Commission for registration as an energy trading facility
within 180 days after the Commission promulgates a final rule
regarding the requirements for an application for
registration for an energy trading facility, prior to a
determination by the Commission on whether to approve such
application.
(c) Extensions.--(1) At the time the Commission approves an
application by a trading facility operating on the date of
enactment of this Act in reliance on the exemption set forth
in section 2(h)(3) of the Commodity Exchange Act for
registration as an energy trading facility, the Commission
shall, upon the written request of the facility, grant an
extension of up to 180 days to fully implement a requirement
applicable under this Act to an energy trading facility.
(2) The Commission may in its discretion, upon the written
request of the facility and for good cause, grant an
additional extension of up to 6 months to fully implement a
requirement for which an initial extension has been granted
under paragraph (1).
(3) The Commission may not grant any extension under
paragraphs (1) or (2) for any information reporting or
recordkeeping requirement.
(d) Domestic Trading on Foreign Boards of Trade.--Section 3
of this Act shall take effect 180 days after the date of the
enactment of this Act.
____
Summary of the Close the Enron Loophole Act
Closes the ``Enron Loophole.'' The bill would close the
Enron loophole and require government oversight of the
trading of energy commodities by large traders to prevent
price manipulation and excessive speculation.
Since 2000, the ``Enron loophole'' in Sec. 2(h)(3) of the
Commodity Exchange Act has exempted from oversight the
electronic trading of energy commodities by large traders. As
a hedge fund known as Amaranth Advisors demonstrated in the
natural gas market in 2006, the Enron loophole makes it
impossible to prevent traders from distorting energy prices
through large trades on these unregulated exchanges. Under
this bill, a trading facility that functions as an energy
exchange would be subject to Commodity Futures Trading
Commission (CFTC) oversight to prevent price manipulation and
excessive speculation. The bill would:
Require oversight of Energy Trading Facilities (ETFs). ETFs
would have to comply with the same standards that apply to
futures exchanges, like NYMEX, to prevent price manipulation
and excessive speculation. The only difference would be that
regulatory provisions governing retail trading and brokers on
a futures exchange would not apply because trading on an ETF
is restricted to large traders trading amongst themselves.
ETFs would function as self-regulatory organizations under
CFTC oversight in the same manner as futures exchanges.
Require ETFs to establish trading limits on traders, such
as position limits or accountability levels, to prevent price
manipulation and excessive speculation, subject to CFTC
approval, in the same manner as futures exchanges. Position
limits set a ceiling on the number of contracts that a trader
can hold at one time on a trading facility; accountability
levels, when exceeded, trigger a review by regulators of a
trader's holdings in order to prevent price manipulation and
excessive speculation. The CFTC would ensure that position
limits and accountability levels for similar contracts on
different exchanges are on parity with each other and applied
in a functionally equivalent manner. The CFTC would also
ensure that a trader's positions on multiple exchanges and
other markets, when combined, are not excessive.
Define ``energy commodity'' as a commodity used as a source
of energy, including crude oil, gasoline, heating oil, diesel
fuel, natural gas, and electricity, or results from the
burning of fossil fuels, including carbon dioxide and sulfur
dioxide.
Define ``energy trading facility'' as a trading facility
that trades contracts in an energy commodity (other than in
the cash or spot market) between large traders (``eligible
commercial entities''), and provides either for the clearing
of those contracts or a price discovery function in the
futures or cash market for that energy commodity. Clearing
services, which are already subject to CFTC oversight,
generally guarantee the performance of a contract, and
facilitate the trading of those contracts. A trading facility
performs a price discovery function when the price of
transactions are publicly disseminated and can affect the
prices of subsequent transactions.
Require large-trader reporting for domestic trades on
foreign exchanges. Large trades of U.S. energy commodities
taking place from the United States on foreign exchanges
would have to be reported to the CFTC. Traders would be
relieved of this reporting requirement if the CFTC reached
agreement with a foreign board of trade to obtain the same
information.
____
Close the Enron Loophole Act Section-by-Section Analysis
Section 1. Short Title
The title of this bill is the ``Close the Enron Loophole
Act''.
Sec. 2. Energy trading facilities
This section amends the Commodity Exchange Act (CEA) to
regulate energy trading facilities that are currently exempt
from Commodity Futures Trading Commission (CFTC) oversight
under section 2(h)(3) of the CEA. After defining the terms
``energy commodity'' and ``energy trading facility,'' this
section delineates the criteria required for an energy
trading facility to be registered with the CFTC. The
specified criteria are based upon existing criteria in the
CEA for futures markets (designated contract markets) and
derivatives transaction execution facilities so that energy
trading facilities will operate under a comparable degree of
self-regulation and CFTC oversight as current facilities,
taking into account certain differences between the types of
markets.
Section 2(a). Definitions. This section defines the terms
``energy commodity'' and ``energy trading facility.''
The term ``energy commodity'' means a commodity (other than
an excluded commodity, a metal, or an agricultural commodity)
that is used as a source of energy or that results from the
burning of fossil fuels to produce energy. Examples of energy
commodities that are used as a source of energy include crude
oil; gasoline, heating oil and other products refined from
crude oil; natural gas; and electricity. Examples of energy
commodities that result from the burning of fossil fuels to
produce energy include carbon dioxide and sulfur dioxide.
The term ``energy trading facility'' means a trading
facility (as defined in section la(33) of the CEA) that: (A)
is not a designated contract market (DCM); and (B)
facilitates the trading of energy commodities between
eligible commercial entities (essentially large,
sophisticated traders); and either (i) provides a clearing
service for products traded on the facility or (ii) the CFTC
determines that trading on the facility provides a price
discovery function on a trading facility or in the cash
market for an energy commodity.
The definition of ``energy trading facility'' represents a
subset of trading facilities that would otherwise qualify as
``exempt commercial markets'' under current law. In essence,
it requires the regulation of energy trading facilities that
exhibit the key attributes of a futures exchange--the trading
of standardized and cleared contracts for future delivery of
a commodity having a finite supply.
The definition of ``energy trading facility'' excludes the
trading of energy commodities that are ``spot sales of a cash
commodity or sales of a cash commodity for deferred shipment
or delivery,'' since the bill is not intended to apply to the
cash market for energy commodities. This exclusion, however,
does not encompass contracts that are commonly referred to as
``swaps,'' since swaps are not spot sales of a cash commodity
or sales of a cash commodity for deferred shipment or
delivery. Because swaps in the energy market are economically
and functionally equivalent to futures contracts for energy
commodities, this bill ensures that they will be regulated in
a functionally equivalent manner.
The definition restricts the bill's application to energy
trading facilities that allow only ``exempt commercial
entities'' (ECEs) to participate, meaning large sophisticated
traders who trade with each other on a principal-to-principal
basis. This restriction is identical to the restriction in
current law for trading facilities that qualify as exempt
commercial markets under section 2(h)(3). A trading facility
that permits brokered or intermediated transactions or
participation by persons other than ECEs would not qualify as
an energy trading facility subject to the type of regulation
provided under this bill. Instead, as is the case under
current law, a facility that allows the trading of futures
contracts by persons other than ECEs must register with and
be designated by the CFTC as a contract market subject to the
regulations that apply to a DCM.
The definition also addresses the concern that, despite the
advantages and widespread use of clearing services to
facilitate trading, if the presence of a clearing function
triggers regulatory oversight, then alternative trading
platforms may develop that do not provide clearing services
in order to avoid the reporting and monitoring requirements
essential to an effective regulatory system. To address this
concern, the bill provides that a trading facility that does
not provide clearing services still may qualify as an energy
trading facility subject to regulation if the CFTC determines
the facility ``performs a significant price discovery
function in relation to an energy commodity listed for
trading on a trading facility or in the cash market for the
energy commodity.'' Factors for the CFTC to consider in
determining whether a trading facility performs such a
significant price discovery function include the extent to
which the prices of contracts traded on the facility are
linked to or derived from
[[Page S11601]]
the prices of futures contracts traded on a DCM, the volume
of trading on the facility, whether prices of completed
transactions are immediately posted or disseminated, and the
extent to which traders engage in arbitrage trading between
the contracts traded on the facility and those traded on a
regulated market.
Section 2(b). Oversight of Energy Trading Facilities. This
section specifies that an energy trading facility, and any
agreement, contract, or transaction traded on that facility,
shall be subject to the regulatory requirements established
in a new CEA section 2(j).
Section 2(b)(1) amends CEA section 2(h)(3) to exclude
energy trading facilities from qualifying as an exempt
commercial market in order to make it clear that those
facilities must instead comply with the new CEA section 2(j).
Section 2(b)(2) adds a new section 2(h)(7) to the CEA. This
new section provides that notwithstanding any other provision
of the CEA, an energy trading facility and persons trading on
an energy trading facility are subject to the new CEA section
2(j). This clarifying provision means, for example, that a
trading facility that meets the criteria for an energy
trading facility could not operate as a derivatives
transaction execution facility (DTEF) under another provision
of the CEA.
Section 2(c). Standards Applicable to Energy Trading
Facilities. This section adds a new section 2(j) to the CEA,
specifying the standards that an applicant must meet to
register with the CFTC as an energy trading facility.
Commission Approval of Energy Trading Facilities. A new
section 2(j)(1) makes it illegal for any person to enter into
an agreement, contract, or transaction on an energy trading
facility unless such facility has been registered with the
Commission as an energy trading facility. Section 6 of this
bill provides a timeline for facilities in operation on the
date of enactment of this Act under CEA section 2(h)(3) to
submit an application, obtain registration, and comply with
these requirements.
Applications for Operation as Energy Trading Facility. New
section 2(j)(2) provides that a facility must submit an
application to the Commission for operation as an energy
trading facility in order to register as an energy trading
facility. The Commission is authorized to establish such
application requirements as it deems appropriate. New section
2(j)(3) provides that the Commission shall make a
determination on any such application within 120 days after
receiving it.
Criteria for Approval of Applications. New section 2(j)(4)
specifies the criteria that an applicant must meet for
registration as an energy trading facility. Because an energy
trading facility may trade instruments that possess the same
characteristics as futures contracts traded on a designated
contract market, several of the criteria, particularly those
regarding prevention of price manipulation, excessive
speculation, and price distortion, are identical to the
criteria applicable to a designated contract market (DCM).
Other DCM criteria are not used, such as those applicable to
intermediated or brokered transactions, since those types of
transactions are not permitted on an energy trading facility.
In addition, because energy trading facilities conduct all
trading on a principal-to-principal basis, a number of the
criteria applicable to a derivatives transaction execution
facility are included in the section. The criteria are as
follows.
New section 2(j)(4)(A): Prevention of Price Manipulation
and Excessive Speculation.--This section requires the
facility to have the capacity to prevent price manipulation,
excessive speculation, price distortion, and disruption
through market surveillance, compliance, and enforcement
practices and procedures, including methods for conducting
real-time monitoring of trading and comprehensive and
accurate trade reconstructions. The term ``excessive
speculation'' as used in this bill has the same meaning as
the term ``excessive speculation'' in section 4a(a) of the
Act as ``causing sudden or unreasonable fluctuations or
unwarranted changes in the price of such commodity.''
[Equivalent to DCM Criteria: Prevention of Market
Manipulation, CEA Sec. 5(b)(2)].
New Section 2(j)(4)(B): Monitoring of Trading.--This
section requires the facility to monitor trading to prevent
price manipulation, excessive speculation, price distortion,
and disruption of the delivery or cash-settlement process.
[Equivalent to DCM Core Principles: Monitoring of Trading,
CEA Sec. 5(d)(4); see also DTEF Core Principles: Monitoring
of Trading, CEA Sec. 5a(d)(3)].
New Section 2(j)(4)(C): Contracts Not Readily Susceptible
to Manipulation.--This section requires the facility to list
for trading only contracts that are not readily susceptible
to manipulation. [Equivalent to DCM Core Principles:
Contracts Not Readily Susceptible to Manipulation, CEA
Sec. 5(d)(3)].
New Section 2(j)(4)(D): Financial Integrity of
Transactions.--This section requires the facility to
establish and enforce rules and procedures for ensuring the
financial integrity of transactions cleared and settled
through the facilities of the energy trading facility. [Based
on DCM Criteria: Financial Integrity of Transactions, CEA
Sec. 5(b)(5); and DTEF Registration Criteria: Transactional
Financial Integrity, CEA Sec. 5a(c)(4)].
New Section 2(j)(4)(E): Ability To Obtain Information.--
This section requires the facility to establish and enforce
rules that will allow the facility to obtain any necessary
information to perform any of the functions described in this
subsection, including the capacity to carry out such
international information-sharing agreements as the
Commission may require. [Equivalent to DCM Criteria: Ability
to Obtain Information, CEA Sec. 5(b)(8)].
New Section 2(j)(4)(F): Position Limits or Accountability
Levels.--This section requires the facility to reduce the
potential threat of price manipulation, excessive
speculation, price distortion, or disruption of the delivery
or cash-settlement process, by adopting position limits or
position accountability levels for speculators, where
necessary and appropriate. [Equivalent to DCM Core
Principles: Position Limitation or Accountability, CEA
Sec. 5(d)(5)].
New Section 2(j)(4)(G): Emergency Authority.--This section
requires the facility to adopt rules to provide for the
exercise of emergency authority to liquidate or transfer open
positions in any contract, suspend or curtail trading in any
contract, and require market participants in any contract to
meet special margin requirements. [Equivalent to DCM Core
Principles: Emergency Authority, CEA Sec. 5(d)(6)].
New Section 2(j)(4)(H): Daily Publication of Trading
Information.--This section requires the facility to make
public daily information on settlement prices, volume, open
interest, and opening and closing ranges for actively traded
contracts on the facility. [Equivalent to DCM Core Principle:
Daily Publication of Trading Information; CEA Sec. 5(d)(8);
see also DTEF Core Principles: Daily Publication of Trading
Information, CEA Sec. 5a(d)(5)].
New Section 2(j)(4)(I): Deterrence of Abuses.--This section
requires the facility to establish and enforce trading and
participation rules that will deter abuses and to maintain
the capacity to detect, investigate, and enforce those rules.
[Based on DTEF Registration Criteria: Deterrence of Abuses,
CEA Sec. 5a(c)(2)].
New Section 2(j)(4)(J): Trade Information.--This section
requires the facility to maintain rules and procedures to
provide for the recording and safe storage of all identifying
trade information in a manner that enables the facility to
use the information for the purposes of assisting in the
prevention of price manipulation, excessive speculation,
price distortion, or disruption of the delivery or cash-
settlement process, and providing evidence of any violations
of the rules of the facility. [Based on DCM Core Principles:
Trade Information, CEA Sec. 5(d)(10)].
New Section 2(j)( 4)(K): Trading Procedures.--This section
requires the facility to establish and enforce rules or terms
and conditions defining, or specifications detailing, trading
procedures to be used in entering and executing orders traded
on the facility. [Based on DTEF Registration Criteria:
Trading Procedures, CEA Sec. 5a(c)(3); see also DCM Criteria:
Trade Execution Facility, CEA Sec. 5(b)(4)].
New Section 2(j)(4)(L): Compliance With Rules.--This
section requires the facility to monitor and enforce the
rules of the facility, including any terms and conditions of
any contracts traded on or through the facility and any
limitations on access to the facility. [Equivalent to DTEF
Core Principles: Compliance with Rules, CEA Sec. 5a(d)(2);
see also DCM Core Principles: Compliance with Rules, CEA
Sec. 5(d)(2)].
New Section 2(j)(4)(M): Disclosure of General
Information.--This section requires the facility to disclose
publicly and to the Commission information concerning: (i)
contract terms and conditions; (ii) trading conventions,
mechanisms, and practices; (iii) financial integrity
protections; and (iv) other information relevant to
participation in trading on the facility. [Equivalent to DTEF
Core Principles: Disclosure of General Information, CEA
Sec. 5a(d)( 4); see also DCM Core Principles: Availability of
General Information, CEA Sec. 5(d)(7)].
New Section 2(j)(4)(N): Fitness Standards.--This section
requires the facility to establish and enforce appropriate
fitness standards for directors, members of any disciplinary
committee, and any other persons with direct access to the
facility, including any parties affiliated with any of the
persons described in this paragraph. [Equivalent to DTEF Core
Principles: Fitness Standards, CEA Sec. 5a(d)(6); see also
DCM Core Principles: Governance Fitness Standards, CEA
Sec. 5(d)(14)].
New Section 2(j)(4)(O): Conflicts of Interest.--This
section requires the facility to establish and enforce rules
to minimize conflicts of interest in the decision making
process of the facility and establish a process for resolving
such conflicts of interest. [Equivalent to DTEF Core
Principles: Conflicts of Interest, CEA Sec. 5a(d)(7); and DCM
Core Principles: Conflicts of Interest, CEA Sec. 5(d)(15)].
New Section 2(j)(4)(P): Recordkeeping.--This section
requires the facility to maintain business records for a
period of 5 years. [Equivalent to DTEF Core Principles:
Recordkeeping, CEA Sec. 5a(d)(8); and DCM Core Principles:
Recordkeeping, CEA Sec. 5(d)(17)].
New Section 2(j)(4)(Q): Antitrust Considerations.--This
section requires the facility to endeavor to avoid: (i)
adopting rules or taking any actions that result in any
unreasonable restraint of trade; or (ii) imposing any
material anticompetitive burden on trading on the facility.
[Equivalent to DTEF Core Principles: Antitrust
Considerations, CEA Sec. 5a(d)(9); and DCM Core Principles:
Antitrust Considerations, CEA Sec. 5(d)(18)].
[[Page S11602]]
Compliance with Criteria. New section 2(j)(5) provides that
an energy trading facility must continue to comply with all
of the criteria in section 2(j)(4) to continue operation, and
that violation of any of the criteria shall constitute a
violation of the Commodity Exchange Act. The trading facility
shall have reasonable discretion in establishing the manner
in which it complies with these criteria.
Position Limits and Accountability Levels. New section
2(j)(6) directs the Commission to ensure that the position
limits and accountability levels that are established for
energy trading facilities are on a parity with the position
limits and accountability levels established for similar
contracts traded on a designated contract market and applied
in a functionally equivalent manner. This provision is
designed to ensure that there is no regulatory advantage to
trading on an energy trading facility compared to a
designated contract market, or vice versa.
Additionally, once a trader's position exceeds a position
limit or an accountability level on a particular trading
facility, this section directs the Commission to take such
action as may be necessary and appropriate, in light of the
trader's overall positions in that commodity, to reduce the
potential threat of price manipulation, excessive
speculation, price distortion, or disruption of the delivery
or cash-settlement process.
Such a comprehensive approach may have to be undertaken by
the CFTC, since it may be beyond the authority of a
particular trading facility to obtain information about or
limit a trader's relevant positions when those positions are
outside of the exchange itself. The Commission may direct a
trader, or direct a trading facility to direct a trader, to
limit, reduce or liquidate any position in any market, as the
Commission determines necessary to reduce the potential
threat of price manipulation, excessive speculation, price
distortion or disruption of the delivery or cash-settlement
process.
In order to make a determination on the appropriate action
to take, the Commission is authorized to obtain from a trader
information regarding all of the trader's exchange and off-
exchange positions in that commodity. The Commission will be
receiving on a regular basis, through its large trader
reporting system, information regarding any trader's
positions on a designated contract market or an energy
trading facility that exceed the levels for reportable
positions; the Commission may choose to request additional
information on other positions in the commodity held by the
trader if the Commission determines this additional
information is necessary to make any determinations required
by this section. The authority to obtain this position
information parallels the Commission's existing authority
under CEA sections 3(b), 4i, and 8a(5) to require traders to
retain transaction records for commodities traded on CFTC-
regulated facilities and provide them to the Commission upon
request. The Commission recently described this authority in
its proposed rulemaking ``Maintenance of Books, Records and
Reports by Traders,'' 72 Fed. Reg. 34413 (June 22, 2007). The
information specified to be provided to the Commission under
the new section 2(j)(5)(C) is identical to the information
specified to be provided to the Commission in that proposed
rulemaking.
The Commission's review of a trader's entire position does
not relieve an individual exchange of the authority and
responsibility to review a trader's position on that exchange
once a position limit or accountability level on that
exchange has been exceeded. Rather, it is anticipated that
the Commission's comprehensive review of the trader's entire
position in a commodity will be undertaken in addition to the
review conducted by the individual exchange on which the
trader has taken a position in excess of an accountability
level or position limit. Based on this comprehensive review,
the Commission will then determine whether any additional
action, beyond that initially taken by the exchange, is
necessary to limit, reduce or liquidate the trader's position
to reduce the potential threat of price manipulation,
excessive speculation, price distortion, or disruption of the
delivery or cash-settlement process. In making or
implementing any such determinations, the Commission should
continue to work in consultation and cooperation with the
affected exchanges.
New section 2(j)(6)(D) specifies criteria the Commission or
an exchange may consider when determining whether to require
a trader to limit, reduce, or liquidate a position in an
energy commodity in excess of an accountability level. In
making any such determination with respect to an energy
commodity, the Commission, a designated contract market, or
an energy trading facility should consider, as appropriate:
(i) the person's open interest in a contract, agreement, or
transaction involving an energy commodity relative to the
total open interest in such contracts, agreements or
transactions; (ii) the daily volume of trading such
contracts, agreements or transactions; (iii) the person's
overall position in related contracts, including options, and
the overall open interest or liquidity in such related
contracts and options; (iv) the potential for such positions
to cause or allow price manipulation, excessive speculation,
price distortion, or disruption of the delivery or cash-
settlement process; (v) the person's record of compliance
with rules, regulations, and orders of the Commission, a
designated contract market, or an energy trading facility, as
appropriate; (vi) any justification provided by the person
for such positions; and (vii) other such factors determined
to be appropriate by the Commission.
The criteria specified in this section are not intended to
be the exclusive criteria that may be applied, but are set
forth to provide additional guidance to the Commission, the
exchanges, and persons trading on the exchanges in addition
to the general language pertaining to ``excessive
speculation'' in section 4 of the CEA.
Section 2(d). Information for Price Discovery
Determination. This section provides the Commission with the
authority to obtain from an electronic trading facility or a
derivatives transaction execution facility any information
the Commission determines is necessary for the Commission to
evaluate whether such a facility performs a price discovery
function in relation to a contract in an energy commodity
under the definition of energy trading facility.
Section 2(e). Conforming Amendments. This section amends
the CEA in a variety of sections to provide the Commission
with a comparable degree of authority over the operation of
an energy trading facility that it possesses with respect to
a designated contract market or a derivatives transaction
execution facility.
Sec. 3. Reporting of Energy Trades
Section 3 of the bill adds a new CEA section 2(k) to
require persons that trade from within the United States on a
foreign board of trade a contract for future delivery of an
energy commodity that has a physical delivery point within
the United States to keep records of such trades and to
report large trades in such contracts to the Commission. The
Commission is authorized to waive the reporting requirement
if the Commission determines that a foreign board of trade is
providing the Commission with equivalent information in a
usable format pursuant to an agreement between the Commission
and the foreign board of trade. The purpose of this provision
is to ensure that U.S. commodity regulators have full access
to trading information from U.S. traders conducting
transactions from U.S. locations involving U.S. energy
commodities such as crude oil and gasoline.
Sec. 4. Antifraud authority
Section 4 of the bill amends Section 4b of the CEA, the
CFTC's main anti-fraud authority. Section 4b is revised to
clarify the CFTC's authority to bring fraud actions in off-
exchange principal-to-principal futures transactions. In
November 2000, the Seventh Circuit Court of Appeals ruled
that the CFTC could only use Section 4b in intermediated
transactions--those involving a broker. Commodity Trend
Service, Inc. v. CFTC, 233 F.3d 981, 991-992 (7th Cir. 2000).
As subsequently amended by the CFMA, the CEA now permits off-
exchange futures and options transactions that are done on a
principal-to-principal basis, such as energy transactions
pursuant to CEA Sections 2(h)(1) and 2(h)(3).
Subsection 4b(a)(2) is amended by adding the words `or
with' to address the principal-to-principal transactions.
This new language clarifies that the CFTC has the authority
to bring anti-fraud actions in off-exchange principal-to-
principal futures transactions, including exempt commodity
transactions in energy under Section 2(h) as well as all
transactions conducted on derivatives transaction execution
facilities. The new Section 4b clarifies that market
participants in these transactions are not required to
disclose information that may be material to the market
price, rate or level of the commodity in such off-exchange
transactions. It also codifies existing law that prohibits
market participants from using half-truths in negotiations
and solicitations by requiring a person to disclose all
necessary information to make any statement they have made
not misleading in any material respect. The prohibitions in
subparagraphs (A) through (D) of the new Section 4b(a) would
apply to all transactions covered by paragraphs (1) and (2).
Derivatives clearing organizations (DCOs) are not subject to
fraud actions under Section 4b in connection with their
clearing activities.
The amendments to Section 4b(a) of the CEA regarding
transactions currently prohibited under subparagraph (iv)
(found in paragraph 2(D) of this bill) are not intended to
affect in any way the CFTC's historical ability to prosecute
cases of indirect bucketing of orders executed on designated
contract markets. See, e.g., Reddy v. CFTC, 191 F.3d 109 (2nd
Cir. 1999); In re DeFrancesco, et al., CFTC Docket No. 02-09
(CFTC May 22, 2003) (Order Making Findings and Imposing
Remedial Sanctions as to Respondent Brian Thornton).
This language clarifying the Commission's anti-fraud
authority was included in bills in the previous Congress to
reauthorize the Commodity Exchange Act, one of which was
passed by the House of Representatives (H.R. 4473, passed by
the House on Dec. 14, 2005) and the other of which was
reported to the full Senate by the Senate Committee on
Agriculture, Nutrition, and Forestry (S. 1566, S. Rpt. No.
109-119; 109th Cong., 1st Sess.).
Sec. 5. Commission rulemaking
Section 5 of the bill requires the CFTC, within 180 days
after enactment of this Act, to issue a proposed rule setting
forth the process for submitting an application for
registration as an energy trading facility. The section
requires the CFTC, within 270 days after the date of
enactment, to finalize this rule.
[[Page S11603]]
Sec. 6. Effective date
Section 6(a) of the bill provides that it shall be
immediately effective upon enactment, with several
exceptions.
Existing trading facilities. The first exception applies to
existing trading facilities. Section 6(b) provides that a
trading facility operating under the exemption in CEA section
2(h)(3) on the date of enactment shall have 180 days after
the Commission issues a final rule on registration
applications to submit such an application. Section 5 of the
bill authorizes the Commission to take 270 days to issue this
rule. During this period (270 days plus 180 days), the
prohibition on trading in the new section 2(j)(1) shall not
apply. For any such facility in operation on the date of
enactment of this Act that submits an application to the
Commission for operation as an energy trading facility within
the 180-day period, the suspension of the prohibition in
section 2(j)(1) is extended until the Commission makes a
determination on whether to approve that application.
Subsection (c) provides that if the Commission approves the
registration as an energy trading facility of a facility
operating under the exemption under CEA section 2(h)(3) on
the date of enactment of this Act, the facility may submit a
written request to the Commission for a 6-month extension to
fully implement any requirement made applicable by this Act--
other than an information reporting or recordkeeping
requirement--and that the Commission shall grant any such
request. The Commission, in its discretion, may grant an
additional 6-month extension. The Commission may not grant
any extension for any information reporting or recordkeeping
requirement. This section is intended to ensure that
facilities currently in operation that must register as an
energy trading facility will have sufficient time to come
into compliance with the new requirements of this Act, and
that the operations of those facilities will not be disrupted
during the transition period. Altogether, this section
effectively provides existing trading facilities with over
two years to come into compliance with the Act.
Requirements applicable to domestic use of a foreign board
of trade. Section 6(d) of the bill states that the reporting
requirements applicable to trades from domestic terminals on
a foreign board of trade are effective 180 days after
enactment.
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