[Congressional Record Volume 154, Number 177 (Thursday, November 20, 2008)]
[Senate]
[Pages S10747-S10748]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HARKIN:
  S. 3714. A bill to amend the Commodity Exchange Act to ensure that 
all agreements, contracts, and transactions with respect to commodities 
are carried out on a regulated exchange, and for other purposes; to the 
Committee on Agriculture, Nutrition, and Forestry.
  Mr. HARKIN. Mr. President, today, I am introducing legislation--the 
Derivatives Trading Integrity Act--which calls for establishing 
stronger standards of openness, transparency and integrity in the 
trading of financial swaps and other over-the-counter derivatives as a 
critical step toward rebuilding and restoring confidence in the 
financial system. With the total face value of swaps reaching a high of 
some $531 trillion at the middle of this year--8-and-a-half times the 
world GDP of $62 trillion--it is long past time for accountability in 
these markets. Over the years, the Commodity Futures Trading Commission 
and Congress have responded to concerns of the the swaps industry by 
allowing instruments that are in form and function futures contracts to 
be privately negotiated without the safeguards provided through 
exchange trading.
  The economic downturn in this country is forcing us to examine all 
contributing factors to the crisis in our financial markets. By 
restoring reasonable safeguards and regulation of swaps, including 
credit default swaps, along with all other futures contracts, this 
legislation will go a long way to restore confidence in the markets and 
reestablish soundness and integrity in the financial system. My bill 
will end the unregulated ``casino capitalism'' that has engendered 
great risks in swaps trading. And it will bring these transactions out 
into the sunlight where they can be monitored and appropriately and 
responsibly regulated. This legislation will establish authority and 
safeguards to ensure that parties can meet their obligations to manage 
and reduce danger and risk to the entire financial system and economy.
  Virtually all contracts now commonly referred to as swaps fall under 
the definition of futures contracts and function basically in the same 
manner as futures contracts. This bill amends the Commodity Exchange 
Act to eliminate the distinction in futures contracts among 
``excluded'' and ``exempt'' commodities and regulated, exchange-traded 
commodities; futures contracts for all commodities would be treated the 
same.
  In addition, the bill eliminates the statutory exclusion of swap 
transactions from regulation, and it ends the Commodity Futures Trading 
Commission's authority to exempt such transactions from the general 
requirement that a contract for the purchase or sale of a commodity for 
future delivery can only trade on a regulated board of trade. In 
effect, this means that all futures contracts must trade on a 
designated contract market or a derivatives transaction execution 
facility.
  Last month, the Senate Committee on Agriculture, Nutrition and 
Forestry heard dramatic testimony about the impact of unregulated 
financial derivatives on the U.S. economy. We have seen large negative 
consequences from the lack of price transparency and the failure to 
properly measure and collateralize the risk in trading over-the-counter 
derivatives. The problems have not been in the trading of financial 
futures on regulated futures markets, subject to the oversight of the 
Commodity Futures Trading Commission.
  This legislation I am introducing will establish the standards that 
all futures contracts trade on regulated exchange. The regulated 
exchanges will work with the Commodity Futures Trading Commission to 
ensure that trading on the exchange is fair and equitable and not 
subject to abuses. The Commodity Futures Trading Commission has the 
experience and expertise to oversee these matters.
  Bringing necessary openness, transparency, soundness, and integrity 
to trading in contracts which are now unregulated over-the-counter 
swaps and related derivatives is a key element in restoring trust and 
confidence in the financial system so that we can rebuild our economy 
on a solid foundation.
  Mr. President, 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. 3714

       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 ``Derivatives Trading 
     Integrity Act of 2008''.

     SEC. 2. REGULATION OF CERTAIN AGREEMENTS, CONTRACTS, AND 
                   TRANSACTIONS.

       (a) Definitions.--Section 1a of the Commodity Exchange Act 
     (7 U.S.C. 1a) is amended--
       (1) by striking paragraphs (10), (11), (13), (14), and 
     (33); and
       (2) by redesignating--
       (A) paragraph (12) as paragraph (10);
       (B) paragraphs (15) through (32) as paragraphs (11) through 
     (28), respectively; and
       (C) paragraph (34) as paragraph (29).
       (b) Exclusions.--Section 2 of the Commodity Exchange Act (7 
     U.S.C. 2) is amended--
       (1) by striking subsections (d), (e), (g), (h), and (i); 
     and
       (2) by redesignating subsection (f) as subsection (d).
       (c) Restriction of Futures Trading to Contract Markets or 
     Derivatives Transaction Execution Facilities.--Section 4 of 
     the Commodity Exchange Act (7 U.S.C. 6) is amended--
       (1) in subsection (a), in the matter preceding paragraph 
     (1), by striking ``Unless exempted by the Commission pursuant 
     to subsection (c), it shall'' and inserting ``It shall'';
       (2) by striking subsection (c); and
       (3) by redesignating subsection (d) as subsection (c).
       (d) Exempt Boards of Trade.--Section 5d of the Commodity 
     Exchange Act (7 U.S.C. 7a-3) is repealed.

     SEC. 3. CONFORMING AMENDMENTS.

       (a) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) 
     (as amended by section 2(a)(2)) is amended--
       (1) in paragraph (10)(A)(x), by striking ``(other than an 
     electronic trading facility with respect to a significant 
     price discovery contract)'';
       (2) in paragraph (25)--
       (A) in subparagraph (C), by inserting ``and'' after the 
     semicolon at the end;
       (B) in subparagraph (D), by striking ``; and'' and 
     inserting a period; and
       (C) by striking subparagraph (E); and
       (3) in paragraph (27), by striking ``section 2(c), 2(d), 
     2(f), or 2(g) of this Act'' and inserting ``subsection (c) or 
     (d) of section 2''.
       (b) Section 2(c) of the Commodity Exchange Act (7 U.S.C. 
     2(c)) is amended--
       (1) in paragraph (1)--
       (A) in the matter preceding subparagraph (A), by striking 
     ``5d,''; and
       (B) in subparagraph (F), by striking ``in an excluded 
     commodity''; and
       (2) in paragraph (2)(B)(i)(II)--
       (A) in item (cc), by striking ``section 1a(20) of this 
     Act'' each place it appears and inserting ``section 1a(16)''; 
     and
       (B) in item (dd), by striking ``section 1a(12)(A)(ii) of 
     this Act'' and inserting ``section 1a(10)(A)(ii)''.
       (c) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) 
     is amended--
       (1) in subsection (a)--
       (A) in the first sentence, by striking ``or on electronic 
     trading facilities with respect to a significant price 
     discovery contract''; and
       (B) in the second sentence, by striking ``or on an 
     electronic trading facility with respect to a significant 
     price discovery contract,'';
       (2) in subsection (b)--
       (A) in paragraph (1), by striking ``or electronic trading 
     facility with respect to a significant price discovery 
     contract''; and
       (B) in paragraph (2), in the matter preceding the proviso, 
     by striking ``or electronic trading facility with respect to 
     a significant price discovery contract''; and
       (3) in subsection (e)--
       (A) in the first sentence--
       (i) in the matter preceding the proviso--

       (I) by striking ``or by any electronic trading facility'';
       (II) by striking ``or on an electronic trading facility''; 
     and
       (III) by striking ``or electronic trading facility''; and

       (ii) in the proviso, by striking ``or electronic trading 
     facility''; and
       (B) in the second sentence, in the matter preceding the 
     proviso, by striking ``or electronic trading facility with 
     respect to a significant price discovery contract''.
       (d) Section 4g(a) of the Commodity Exchange Act (7 U.S.C. 
     6g(a)) is amended by striking ``and in any significant price 
     discovery contract traded or executed on an electronic 
     trading facility or''.
       (e) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i) 
     is amended--
       (1) in the matter preceding paragraph (1), by striking ``or 
     any significant price discovery contract traded or executed 
     on an electronic trading facility''; and
       (2) in the matter following paragraph (2), by striking ``or 
     electronic trading facility''.
       (f) Section 5a of the Commodity Exchange Act (7 U.S.C. 7a) 
     is amended--
       (1) in subsection (b)(2)--
       (A) in subparagraph (D)(ii), by inserting ``or'' after the 
     semicolon at the end;
       (B) in subparagraph (E), by striking ``; or'' and inserting 
     a period; and

[[Page S10748]]

       (C) by striking subparagraph (F); and
       (2) in subsection (g)--
       (A) in the heading, by striking ``Election To Trade 
     Excluded and Exempt Commodities'' and inserting ``Excluded 
     Securities''; and
       (B) in paragraph (1)--
       (i) by striking ``excluded or exempt commodities other 
     than'' and inserting ``commodities other than an agricultural 
     commodity enumerated in section 1a(4) or''; and
       (ii) by striking ``, 2(d), or 2(g) of this Act, or exempt 
     under section 2(h) of this Act''.
       (g) Section 5b of the Commodity Exchange Act (7 U.S.C. 7a-
     1) is amended--
       (1) in subsection (a)(1), by striking ``section 
     2(a)(1)(C)(i), 2(c), 2(d), 2(f), or 2(g) of this Act or title 
     IV of the Commodity Futures Modernization Act of 2000, or 
     exempted under section 2(h) or 4(c) of this Act'' and 
     inserting ``subsection (a)(1)(C)(i), (c), or (d) of section 2 
     or title IV of the Commodity Futures Modernization Act of 
     2000 (Public Law 106-554; 114 Stat. 2763A457)''; and
       (2) in subsection (b), by striking ``section 2(c), 2(d), 
     2(f), or 2(g) of this Act or title IV of the Commodity 
     Futures Modernization Act of 2000, or exempted under section 
     2(h) or 4(c) of this Act'' and inserting ``subsection (c) or 
     (d) of section 2 or title IV of the Commodity Futures 
     Modernization Act of 2000 (Public Law 106-554; 114 Stat. 
     2763A457)''.
       (h) Section 5c of the Commodity Exchange Act (7 U.S.C. 7a-
     2) is amended--
       (1) in subsection (a)(1), by striking ``and section 2(h)(7) 
     with respect to significant price discovery contracts,'';
       (2) in subsection (b)--
       (A) in paragraph (1), by striking ``, derivatives 
     transaction execution facility, or electronic trading 
     facility with respect to a significant price discovery 
     contract'' and inserting ``or derivatives transaction 
     execution facility''; and
       (B) in paragraphs (2) and (3), by striking ``, derivatives 
     transaction execution facility, or electronic trading 
     facility'' each place it appears and inserting ``or 
     derivatives transaction execution facility''; and
       (3) in subsection (d)(1), in the matter preceding 
     subparagraph (A), by striking ``or 2(h)(7)(C) with respect to 
     a significant price discovery contract traded or executed on 
     an electronic trading facility,''.
       (i) Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) 
     is amended by striking ``or revocation of the right of an 
     electronic trading facility to rely on the exemption set 
     forth in section 2(h)(3) with respect to a significant price 
     discovery contract,''.
       (j) Section 5f(b)(1) of the Commodity Exchange Act (7 
     U.S.C. 7b-1(b)(1)) is amended in the matter preceding 
     subparagraph (A), by striking ``section 5f'' and inserting 
     ``this section''.
       (k) Section 6(b) of the Commodity Exchange Act (7 U.S.C. 
     8(b)) is amended--
       (1) in the first sentence--
       (A) by striking ``or to revoke the right of an electronic 
     trading facility to rely on the exemption set forth in 
     section 2(h)(3) with respect to a significant price discovery 
     contract,''; and
       (B) by striking ``or electronic trading facility''; and
       (2) in the second sentence, in the matter preceding the 
     proviso, by striking ``or electronic trading facility''.
       (l) Section 12(e) of the Commodity Exchange Act (7 U.S.C. 
     16(e)) is amended by striking paragraph (2) and inserting the 
     following:
       ``(2) Effect.--This Act supersedes and preempts the 
     application of any State or local law that prohibits or 
     regulates gaming or the operation of bucket shops (other than 
     antifraud provisions of general applicability) in the case of 
     an agreement, contract, or transaction that is excluded from 
     this Act under--
       ``(A) subsection (c) or (d) of section 2; or
       ``(B) title IV of the Commodity Futures Modernization Act 
     of 2000 (Public Law 106-554; 114 Stat. 2763A457).''.
       (m) Section 15(b) of the Commodity Exchange Act (7 U.S.C. 
     19(b)) is amended by striking ``4(c) or''.
       (n) Section 22(b)(1)(A) of the Commodity Exchange Act (7 
     U.S.C. 25(b)(1)(A)) is amended by striking ``by section 
     2(h)(7) or sections 5 through 5c'' and inserting ``under 
     sections 5 through 5c''.
       (o) Section 13106(b)(1) of the Food, Conservation, and 
     Energy Act of 2008 (7 U.S.C. 2 note; Public Law 110-246) is 
     amended by striking ``section 1a(32)'' and inserting 
     ``section 1a''.
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