[Congressional Record (Bound Edition), Volume 146 (2000), Part 16]
[House]
[Pages 23638-23672]
[From the U.S. Government Publishing Office, www.gpo.gov]



              COMMODITY FUTURES MODERNIZATION ACT OF 2000

  Mr. COMBEST. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 4541) to reauthorize and amend the Commodity Exchange Act to 
promote legal certainty, enhance competition, and reduce systemic risk 
in markets for future and over-the-counter derivatives, and for other 
purposes, as amended.
  The Clerk read as follows:

                               H.R. 4541

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Commodity 
     Futures Modernization Act of 2000''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Purposes.

                TITLE I--COMMODITY FUTURES MODERNIZATION

Sec. 101. Definitions.
Sec. 102. Agreements, contracts, and transactions in foreign currency, 
              government securities, and certain other commodities.
Sec. 103. Legal certainty for excluded derivative transactions.
Sec. 104. Excluded electronic trading facilities.
Sec. 105. Hybrid instruments.
Sec. 106. Transactions in exempt commodities.
Sec. 107. Swap transactions.
Sec. 108. Application of commodity futures laws.
Sec. 109. Protection of the public interest.
Sec. 110. Prohibited transactions.
Sec. 111. Designation of boards of trade as contract markets.
Sec. 112. Derivatives transaction execution facilities.
Sec. 113. Derivatives clearing.
Sec. 114. Common provisions applicable to registered entities.
Sec. 115. Exempt boards of trade.
Sec. 116. Suspension or revocation of designation as contract market.
Sec. 117. Authorization of appropriations.
Sec. 118. Preemption.
Sec. 119. Predispute resolution agreements for institutional customers.
Sec. 120. Consideration of costs and benefits and antitrust laws.
Sec. 121. Contract enforcement between eligible counterparties.
Sec. 122. Special procedures to encourage and facilitate bona fide 
              hedging by agricultural producers.
Sec. 123. Rule of construction.
Sec. 124. Technical and conforming amendments.
Sec. 125. Privacy.
Sec. 126. Report to Congress.
Sec. 127. International activities of the Commodity Futures Trading 
              Commission.
Sec. 128. Rules of construction.

     TITLE II--COORDINATED REGULATION OF SECURITY FUTURES PRODUCTS

                 Subtitle A--Securities Law Amendments

Sec. 201. Definitions under the Securities Exchange Act of 1934.
Sec. 202. Regulatory relief for markets trading security futures 
              products.
Sec. 203. Regulatory relief for intermediaries trading security futures 
              products.
Sec. 204. Special provisions for interagency cooperation.
Sec. 205. Maintenance of market integrity for security futures 
              products.
Sec. 206. Special provisions for the trading of security futures 
              products.
Sec. 207. Clearance and settlement.
Sec. 208. Amendments relating to registration and disclosure issues 
              under the Securities Act of 1933 and the Securities 
              Exchange Act of 1934.
Sec. 209. Amendments to the Investment Company Act of 1940 and the 
              Investment Advisers Act of 1940.
Sec. 210. Preemption of State laws.

          Subtitle B--Amendments to the Commodity Exchange Act

Sec. 221. Jurisdiction of Securities and Exchange Commission; other 
              provisions.
Sec. 222. Application of the Commodity Exchange Act to national 
              securities exchanges and national securities associations 
              that trade security futures.
Sec. 223. Notification of investigations and enforcement actions.

     SEC. 2. PURPOSES.

       The purposes of this Act are--
       (1) to reauthorize the appropriation for the Commodity 
     Futures Trading Commission;
       (2) to streamline and eliminate unnecessary regulation for 
     the commodity futures exchanges and other entities regulated 
     under the Commodity Exchange Act;
       (3) to transform the role of the Commodity Futures Trading 
     Commission to oversight of the futures markets;
       (4) to provide a statutory and regulatory framework for 
     allowing the trading of futures on securities;
       (5) to clarify the jurisdiction of the Commodity Futures 
     Trading Commission over certain retail foreign exchange 
     transactions and bucket shops that may not be otherwise 
     regulated;
       (6) to promote innovation for futures and derivatives and 
     to reduce systemic risk by enhancing legal certainty in the 
     markets for certain futures and derivatives transactions;
       (7) to reduce systemic risk and provide greater stability 
     to markets during times of market disorder by allowing the 
     clearing of transactions in over-the-counter derivatives 
     through appropriately regulated clearing organizations; and
       (8) to enhance the competitive position of United States 
     financial institutions and financial markets.

                TITLE I--COMMODITY FUTURES MODERNIZATION

     SEC. 101. DEFINITIONS.

       Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is 
     amended--
       (1) by redesignating paragraphs (1) through (7), (8) 
     through (12), (13), (14), (15), and (16) as paragraphs (2) 
     through (8), (16) through (20), (22), (23), (24), and (28), 
     respectively;
       (2) by inserting before paragraph (2) (as redesignated by 
     paragraph (1)) the following:
       ``(1) Alternative trading system.--The term `alternative 
     trading system' means an organization, association, or group 
     of persons that--
       ``(A) is registered as a broker or dealer pursuant to 
     section 15(b) of the Securities Exchange Act of 1934 (except 
     paragraph (11) thereof);
       ``(B) performs the functions commonly performed by an 
     exchange (as defined in section 3(a)(1) of the Securities 
     Exchange Act of 1934);
       ``(C) does not--
       ``(i) set rules governing the conduct of subscribers other 
     than the conduct of such subscribers' trading on the 
     alternative trading system; or
       ``(ii) discipline subscribers other than by exclusion from 
     trading; and
       ``(D) is exempt from the definition of the term `exchange' 
     under such section 3(a)(1) by rule or regulation of the 
     Securities and Exchange Commission on terms that require 
     compliance with regulations of its trading functions.'';
       (3) by striking paragraph (2) (as redesignated by paragraph 
     (1)) and inserting the following:
       ``(2) Board of trade.--The term `board of trade' means any 
     organized exchange or other trading facility.'';
       (4) by inserting after paragraph (8) the following:
       ``(9) Derivatives clearing organization.--
       ``(A) In general.--The term `derivatives clearing 
     organization' means a clearinghouse, clearing association, 
     clearing corporation, or similar entity, facility, system, or 
     organization that, with respect to an agreement, contract, or 
     transaction--
       ``(i) enables each party to the agreement, contract, or 
     transaction to substitute, through novation or otherwise, the 
     credit of the derivatives clearing organization for the 
     credit of the parties;
       ``(ii) arranges or provides, on a multilateral basis, for 
     the settlement or netting of obligations resulting from such 
     agreements, contracts, or transactions executed by 
     participants in the derivatives clearing organization; or

[[Page 23639]]

       ``(iii) otherwise provides clearing services or 
     arrangements that mutualize or transfer among participants in 
     the derivatives clearing organization the credit risk arising 
     from such agreements, contracts, or transactions executed by 
     the participants.
       ``(B) Exclusions.--The term `derivatives clearing 
     organization' does not include an entity, facility, system, 
     or organization solely because it arranges or provides for--
       ``(i) settlement, netting, or novation of obligations 
     resulting from agreements, contracts, or transactions, on a 
     bilateral basis and without a central counterparty;
       ``(ii) settlement or netting of cash payments through an 
     interbank payment system; or
       ``(iii) settlement, netting, or novation of obligations 
     resulting from a sale of a commodity in a transaction in the 
     spot market for the commodity.
       ``(10) Electronic trading facility.--The term `electronic 
     trading facility' means a trading facility that--
       ``(A) operates by means of an electronic or 
     telecommunications network; and
       ``(B) maintains an automated audit trail of bids, offers, 
     and the matching of orders or the execution of transactions 
     on the facility.
       ``(11) Eligible commercial entity.--The term `eligible 
     commercial entity' means, with respect to an agreement, 
     contract or transaction in a commodity--
       ``(A) an eligible contract participant described in clause 
     (i), (ii), (v), (vii), (viii), or (ix) of paragraph (12)(A) 
     that, in connection with its business--
       ``(i) has a demonstrable ability, directly or through 
     separate contractual arrangements, to make or take delivery 
     of the underlying commodity;
       ``(ii) incurs risks, in addition to price risk, related to 
     the commodity; or
       ``(iii) is a dealer that regularly provides risk management 
     or hedging services to, or engages in market-making 
     activities with, the foregoing entities involving 
     transactions to purchase or sell the commodity or derivative 
     agreements, contracts, or transactions in the commodity;
       ``(B) an eligible contract participant, other than a 
     natural person or an instrumentality, department, or agency 
     of a State or local governmental entity, that--
       ``(i) regularly enters into transactions to purchase or 
     sell the commodity or derivative agreements, contracts, or 
     transactions in the commodity; and
       ``(ii) either--

       ``(I) in the case of a collective investment vehicle whose 
     participants include persons other than--

       ``(aa) qualified eligible persons, as defined in Commission 
     rule 4.7(a) (17 C.F.R. 4.7(a));
       ``(bb) accredited investors, as defined in Regulation D of 
     Securities and Exchange Commission under the Securities Act 
     of 1933 (17 C.F.R. 230.501(a)), with total assets of 
     $2,000,000; or
       ``(cc) qualified purchasers, as defined in section 
     2(a)(51)(A) of the Investment Company Act of 1940;

     in each case as in effect on the date of the enactment of the 
     Commodity Futures Modernization Act of 2000, has, or is one 
     of a group of vehicles under common control or management 
     having in the aggregate, $1,000,000,000 in total assets; or
       ``(II) in the case of other persons, has, or is one of a 
     group of persons under common control or management having in 
     the aggregate, $100,000,000 in total assets; or

       ``(C) such other persons as the Commission shall determine 
     appropriate and shall designate by rule, regulation, or 
     order.
       ``(12) Eligible contract participant.--The term `eligible 
     contract participant' means--
       ``(A) acting for its own account--
       ``(i) a financial institution;
       ``(ii) an insurance company that is regulated by a State, 
     or that is regulated by a foreign government and is subject 
     to comparable regulation as determined by the Commission, 
     including a regulated subsidiary or affiliate of such an 
     insurance company;
       ``(iii) an investment company subject to regulation under 
     the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) 
     or a foreign person performing a similar role or function 
     subject as such to foreign regulation (regardless of whether 
     each investor in the investment company or the foreign person 
     is itself an eligible contract participant);
       ``(iv) a commodity pool that--

       ``(I) has total assets exceeding $5,000,000; and
       ``(II) is formed and operated by a person subject to 
     regulation under this Act or a foreign person performing a 
     similar role or function subject as such to foreign 
     regulation (regardless of whether each investor in the 
     commodity pool or the foreign person is itself an eligible 
     contract participant);

       ``(v) a corporation, partnership, proprietorship, 
     organization, trust, or other entity--

       ``(I) that has total assets exceeding $10,000,000;
       ``(II) the obligations of which under an agreement, 
     contract, or transaction are guaranteed or otherwise 
     supported by a letter of credit or keepwell, support, or 
     other agreement by an entity described in subclause (I), in 
     clause (i), (ii), (iii), (iv), or (vii), or in subparagraph 
     (C); or
       ``(III) that--

       ``(aa) has a net worth exceeding $1,000,000; and
       ``(bb) enters into an agreement, contract, or transaction 
     in connection with the conduct of the entity's business or to 
     manage the risk associated with an asset or liability owned 
     or incurred or reasonably likely to be owned or incurred by 
     the entity in the conduct of the entity's business;
       ``(vi) an employee benefit plan subject to the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1001 et 
     seq.), a governmental employee benefit plan, or a foreign 
     person performing a similar role or function subject as such 
     to foreign regulation--

       ``(I) that has total assets exceeding $5,000,000; or
       ``(II) the investment decisions of which are made by--

       ``(aa) an investment adviser or commodity trading advisor 
     subject to regulation under the Investment Advisers Act of 
     1940 (15 U.S.C. 80b-1 et seq.) or this Act;
       ``(bb) a foreign person performing a similar role or 
     function subject as such to foreign regulation;
       ``(cc) a financial institution; or
       ``(dd) an insurance company described in clause (ii), or a 
     regulated subsidiary or affiliate of such an insurance 
     company;
       ``(vii)(I) a governmental entity (including the United 
     States, a State, or a foreign government) or political 
     subdivision of a governmental entity;
       ``(II) a multinational or supranational government entity; 
     or
       ``(III) an instrumentality, agency, or department of an 
     entity described in subclause (I) or (II),
     except that such term does not include an entity, 
     instrumentality, agency, or department referred to in 
     subclause (I) or (III) of this clause unless (aa) the entity, 
     instrumentality, agency, or department is a person described 
     in clause (i), (ii), or (iii) of section 1a(11)(A); (bb) the 
     entity, instrumentality, agency, or department owns and 
     invests on a discretionary basis $25,000,000 or more in 
     investments; or (cc) the agreement, contract, or transaction 
     is offered by, and entered into with, an entity that is 
     listed in any of subclauses (I) through (VI) of section 
     2(c)(2)(B)(ii);
       ``(viii)(I) a broker or dealer subject to regulation under 
     the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) 
     or a foreign person performing a similar role or function 
     subject as such to foreign regulation, except that, if the 
     broker or dealer or foreign person is a natural person or 
     proprietorship, the broker or dealer or foreign person shall 
     not be considered to be an eligible contract participant 
     unless the broker or dealer or foreign person also meets the 
     requirements of clause (v) or (xi);
       ``(II) an associated person of a registered broker or 
     dealer concerning the financial or securities activities of 
     which the registered person makes and keeps records under 
     section 15C(b) or 17(h) of the Securities Exchange Act of 
     1934 (15 U.S.C. 78o-5(b), 78q(h));
       ``(III) an investment bank holding company (as defined in 
     section 17(i) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78q(i));
       ``(ix) a futures commission merchant subject to regulation 
     under this Act or a foreign person performing a similar role 
     or function subject as such to foreign regulation, except 
     that, if the futures commission merchant or foreign person is 
     a natural person or proprietorship, the futures commission 
     merchant or foreign person shall not be considered to be an 
     eligible contract participant unless the futures commission 
     merchant or foreign person also meets the requirements of 
     clause (v) or (xi);
       ``(x) a floor broker or floor trader subject to regulation 
     under this Act in connection with any transaction that takes 
     place on or through the facilities of a registered entity or 
     an exempt board of trade, or any affiliate thereof, on which 
     such person regularly trades; or
       ``(xi) an individual who has total assets in an amount in 
     excess of--

       ``(I) $10,000,000; or
       ``(II) $5,000,000 and who enters into the agreement, 
     contract, or transaction in order to manage the risk 
     associated with an asset owned or liability incurred, or 
     reasonably likely to be owned or incurred, by the individual;

       ``(B)(i) a person described in clause (i), (ii), (iv), (v), 
     (viii), (ix), or (x) of subparagraph (A) or in subparagraph 
     (C), acting as broker or performing an equivalent agency 
     function on behalf of another person described in 
     subparagraph (A) or (C); or
       ``(ii) an investment adviser subject to regulation under 
     the Investment Advisers Act of 1940, a commodity trading 
     advisor subject to regulation under this Act, a foreign 
     person performing a similar role or function subject as such 
     to foreign regulation, or a person described in clause (i), 
     (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or 
     in subparagraph (C), in any such case acting as investment 
     manager or fiduciary (but excluding a person acting as broker 
     or performing an equivalent agency function) for another 
     person described in subparagraph (A) or (C) and who is 
     authorized by such person to commit such person to the 
     transaction; or
       ``(C) any other person that the Commission determines to be 
     eligible in light of the financial or other qualifications of 
     the person.
       ``(13) Excluded commodity.--The term `excluded commodity' 
     means--

[[Page 23640]]

       ``(i) an interest rate, exchange rate, currency, security, 
     security index, credit risk or measure, debt or equity 
     instrument, index or measure of inflation, or other 
     macroeconomic index or measure;
       ``(ii) any other rate, differential, index, or measure of 
     economic or commercial risk, return, or value that is--

       ``(I) not based in substantial part on the value of a 
     narrow group of commodities not described in clause (i); or
       ``(II) based solely on 1 or more commodities that have no 
     cash market;

       ``(iii) any economic or commercial index based on prices, 
     rates, values, or levels that are not within the control of 
     any party to the relevant contract, agreement, or 
     transaction; or
       ``(iv) an occurrence, extent of an occurrence, or 
     contingency (other than a change in the price, rate, value, 
     or level of a commodity not described in clause (i)) that 
     is--

       ``(I) beyond the control of the parties to the relevant 
     contract, agreement, or transaction; and
       ``(II) associated with a financial, commercial, or economic 
     consequence.

       ``(14) Exempt commodity.--The term `exempt commodity' means 
     a commodity that is not an excluded commodity or an 
     agricultural commodity.
       ``(15) Financial institution.--The term `financial 
     institution' means--
       ``(A) a corporation operating under the fifth undesignated 
     paragraph of section 25 of the Federal Reserve Act (12 U.S.C. 
     603), commonly known as `an agreement corporation';
       ``(B) a corporation organized under section 25A of the 
     Federal Reserve Act (12 U.S.C. 611 et seq.), commonly known 
     as an `Edge Act corporation';
       ``(C) an institution that is regulated by the Farm Credit 
     Administration;
       ``(D) a Federal credit union or State credit union (as 
     defined in section 101 of the Federal Credit Union Act (12 
     U.S.C. 1752));
       ``(E) a depository institution (as defined in section 3 of 
     the Federal Deposit Insurance Act (12 U.S.C. 1813));
       ``(F) a foreign bank or a branch or agency of a foreign 
     bank (each as defined in section 1(b) of the International 
     Banking Act of 1978 (12 U.S.C. 3101(b)));
       ``(G) any financial holding company (as defined in section 
     2 of the Bank Holding Company Act of 1956);
       ``(H) a trust company; or
       ``(I) a similarly regulated subsidiary or affiliate of an 
     entity described in any of subparagraphs (A) through (H).'';
       (5) by inserting after paragraph (20) (as redesignated by 
     paragraph (1)) the following:
       ``(21) Hybrid instrument.--
       ``(A) In general.--The term `hybrid instrument' means a 
     deposit instrument offered by a financial institution, or a 
     security, having 1 or more payments indexed to the value, 
     level, or rate of 1 or more commodities.
       ``(B) Deposit instrument defined.--The term `deposit 
     instrument' means an instrument representing an interest 
     described in paragraph (1), (2), (3), (4), or (5) of section 
     3(l) of the Federal Deposit Insurance Act, other than in 
     subparagraph (A), (B), or (C) at the end of such paragraph 
     (5).'';
       (6) by striking paragraph (24) (as redesignated by 
     paragraph (1)) and inserting the following:
       ``(24) Member of a contract market; member of a derivatives 
     transaction execution facility.--The term `member' means, 
     with respect to a contract market or derivatives transaction 
     execution facility, an individual, association, partnership, 
     corporation, or trust--
       ``(A) owning or holding membership in, or admitted to 
     membership representation on, the contract market or 
     derivatives transaction execution facility; or
       ``(B) having trading privileges on the contract market or 
     derivatives transaction execution facility.
       ``(25) Narrow-based security index.--
       ``(A) The term `narrow-based security index' means an 
     index--
       ``(i) that has 9 or fewer component securities;
       ``(ii) in which a component security comprises more than 30 
     percent of the index's weighting;
       ``(iii) in which the 5 highest weighted component 
     securities in the aggregate comprise more than 60 percent of 
     the index's weighting; or
       ``(iv) in which the lowest weighted component securities 
     comprising, in the aggregate, 25 percent of the index's 
     weighting have an aggregate dollar value of average daily 
     trading volume of less than $50,000,000 (or in the case of an 
     index with 15 or more component securities, $30,000,000), 
     except that if there are two or more securities with equal 
     weighting that could be included in the calculation of the 
     lowest weighted component securities comprising, in the 
     aggregate, 25 percent of the index's weighting, such 
     securities shall be ranked from lowest to highest dollar 
     value of average daily trading volume and shall be included 
     in the calculation based on their ranking starting with the 
     lowest ranked security.
       ``(B) Notwithstanding subparagraph (A), an index is not a 
     narrow-based security index if--
       ``(i)(I) it has at least 9 component securities;
       ``(II) no component security comprises more than 30 percent 
     of the index's weighting; and
       ``(III) each component security is--

       ``(aa) registered pursuant to section 12 of the Securities 
     Exchange Act of 1934;
       ``(bb) 1 of 750 securities with the largest market 
     capitalization; and
       ``(cc) 1 of 675 securities with the largest dollar value of 
     average daily trading volume;

       ``(ii) it is a contract of sale for future delivery with 
     respect to which a board of trade was designated as a 
     contract market by the Commodity Futures Trading Commission 
     prior to the date of enactment of the Commodity Futures 
     Modernization Act of 2000;
       ``(iii)(I) it traded on a designated contract market or 
     registered derivatives transaction execution facility for at 
     least 30 days as a contract of sale for future delivery that 
     was not a narrow-based security index; and
       ``(II) it has been a narrow-based security index for no 
     more than 45 business days over 3 consecutive calendar 
     months;
       ``(iv) it is traded on or subject to the rules of a foreign 
     board of trade and meets such requirements as are jointly 
     established by rule or regulation by the Commission and the 
     Securities and Exchange Commission;
       ``(v) no more than 18 months have passed since enactment of 
     the Commodity Futures Modernization Act of 2000 and it is--

       ``(I) traded on or subject to the rules of a foreign board 
     of trade;
       ``(II) the offer and sale in the United States of a 
     contract of sale for future delivery on the index was 
     authorized before the date of the enactment of the Commodity 
     Futures Modernization Act of 2000; and
       ``(III) the conditions of such authorization continue to be 
     met; or

       ``(vi) it is traded on or subject to the rules of a board 
     of trade and meets such requirements as are jointly 
     established by rule, regulation, or order by the Commission 
     and the Securities and Exchange Commission.
       ``(C) Within 1 year after the date of the enactment of the 
     Commodity Futures Modernization Act of 2000, the Commission 
     and the Securities and Exchange Commission jointly shall 
     adopt rules or regulations that set forth the requirements 
     under subparagraph (B)(iv).
       ``(D) An index that is a narrow-based security index solely 
     because it was a narrow-based security index for more than 45 
     business days over 3 consecutive calendar months pursuant to 
     clause (iii) of subparagraph (B) shall not be a narrow-based 
     security index for the 3 following calendar months.
       ``(E) For purposes of subparagraphs (A) and (B)--
       ``(i) the dollar value of average daily trading volume and 
     the market capitalization shall be calculated as of the 
     preceding 6 full calendar months; and
       ``(ii) the Commission and the Securities and Exchange 
     Commission shall, by rule or regulation, jointly specify the 
     method to be used to determine market capitalization and 
     dollar value of average daily trading volume.
       ``(26) Option.--The term `option' means an agreement, 
     contract, or transaction that is of the character of, or is 
     commonly known to the trade as, an `option', `privilege', 
     `indemnity', `bid', `offer', `put', `call', `advance 
     guaranty', or `decline guaranty'.
       ``(27) Organized exchange.--The term `organized exchange' 
     means a trading facility that--
       ``(A) permits trading--
       ``(i) by or on behalf of a person that is not an eligible 
     contract participant; or
       ``(ii) by persons other than on a principal-to-principal 
     basis; or
       ``(B) has adopted (directly or through another 
     nongovernmental entity) rules that--
       ``(i) govern the conduct of participants, other than rules 
     that govern the submission of orders or execution of 
     transactions on the trading facility; and
       ``(ii) include disciplinary sanctions other than the 
     exclusion of participants from trading.''; and
       (7) by adding at the end the following:
       ``(29) Registered entity.--The term `registered entity' 
     means--
       ``(A) a board of trade designated as a contract market 
     under section 5;
       ``(B) a derivatives transaction execution facility 
     registered under section 5a;
       ``(C) a derivatives clearing organization registered under 
     section 5b; and
       ``(D) a board of trade designated as a contract market 
     under section 5f.
       ``(30) Security.--The term `security' means a security as 
     defined in section 2(a)(1) of the Securities Act of 1933 (15 
     U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78c(a)(10)).
       ``(31) Security future.--The term `security future' means a 
     contract of sale for future delivery of a single security or 
     of a narrow-based security index, including any interest 
     therein or based on the value thereof, except an exempted 
     security under section 3(a)(12) of the Securities Exchange 
     Act of 1934 as in effect on the date of enactment of the 
     Futures Trading Act of 1982 (other than any municipal 
     security as defined in section 3(a)(29) of the Securities 
     Exchange Act of 1934 as in effect on the date of enactment of 
     the Futures Trading Act of 1982). The term `security future' 
     does not include any agreement, contract, or transaction 
     excluded from this Act under subsection (c), (d), (f), or (h)

[[Page 23641]]

     of section 2 of this Act, as in effect on the date of the 
     enactment of the Commodity Futures Modernization Act of 2000.
       ``(32) Security futures product.--The term `security 
     futures product' means a security future or any put, call, 
     straddle, option, or privilege on any security future.
       ``(33) Trading facility.--
       ``(A) In general.--The term `trading facility' means a 
     person or group of persons that constitutes, maintains, or 
     provides a physical or electronic facility or system in which 
     multiple participants have the ability to execute or trade 
     agreements, contracts, or transactions by accepting bids and 
     offers made by other participants that are open to multiple 
     participants in the facility or system.
       ``(B) Exclusions.--The term `trading facility' does not 
     include--
       ``(i) a person or group of persons solely because the 
     person or group of persons constitutes, maintains, or 
     provides an electronic facility or system that enables 
     participants to negotiate the terms of and enter into 
     bilateral transactions as a result of communications 
     exchanged by the parties and not from interaction of multiple 
     bids and multiple offers within a predetermined, 
     nondiscretionary automated trade matching and execution 
     algorithm;
       ``(ii) a government securities dealer or government 
     securities broker, to the extent that the dealer or broker 
     executes or trades agreements, contracts, or transactions in 
     government securities, or assists persons in communicating 
     about, negotiating, entering into, executing, or trading an 
     agreement, contract, or transaction in government securities 
     (as the terms `government securities dealer', `government 
     securities broker', and `government securities' are defined 
     in section 3(a) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a))); or
       ``(iii) facilities on which bids and offers, and 
     acceptances of bids and offers effected on the facility, are 
     not binding.
       ``(C) Special rule.--A person or group of persons that 
     would not otherwise constitute a trading facility shall not 
     be considered to be a trading facility solely as a result of 
     the submission to a derivatives clearing organization of 
     transactions executed on or through the person or group of 
     persons.''.

     SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN 
                   CURRENCY, GOVERNMENT SECURITIES, AND CERTAIN 
                   OTHER COMMODITIES.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is amended by adding at the end the following:
       ``(c) Agreements, Contracts, and Transactions in Foreign 
     Currency, Government Securities, and Certain Other 
     Commodities.--
       ``(1) In general.--Except as provided in paragraph (2), 
     nothing in this Act (other than section 5a (to the extent 
     provided in section 5a(g)), 5b, 5d, or 12(e)(2)(B)) governs 
     or applies to an agreement, contract, or transaction in--
       ``(A) foreign currency;
       ``(B) government securities;
       ``(C) security warrants;
       ``(D) security rights;
       ``(E) resales of installment loan contracts;
       ``(F) repurchase transactions in an excluded commodity; or
       ``(G) mortgages or mortgage purchase commitments.
       ``(2) Commission jurisdiction.--
       ``(A) Agreements, contracts, and transactions traded on an 
     organized exchange.--This Act applies to, and the Commission 
     shall have jurisdiction over, an agreement, contract, or 
     transaction described in paragraph (1) that is--
       ``(i) a contract of sale of a commodity for future delivery 
     (or an option thereon), or an option on a commodity (other 
     than foreign currency or a security or a group or index of 
     securities), that is executed or traded on an organized 
     exchange; or
       ``(ii) an option on foreign currency executed or traded on 
     an organized exchange that is not a national securities 
     exchange registered pursuant to section 6(a) of the 
     Securities Exchange Act of 1934.
       ``(B) Agreements, contracts, and transactions in retail 
     foreign currency.--This Act applies to, and the Commission 
     shall have jurisdiction over, an agreement, contract, or 
     transaction in foreign currency that--
       ``(i) is a contract of sale for future delivery (or an 
     option on such a contract) or an option (other than an option 
     executed or traded on a national securities exchange 
     registered pursuant to section 6(a) of the Securities 
     Exchange Act of 1934); and
       ``(ii) is offered to, or entered into with, a person that 
     is not an eligible contract participant, unless the 
     counterparty, or the person offering to be the counterparty, 
     of the person is--

       ``(I) a financial institution;
       ``(II) a broker or dealer registered under section 15(b) or 
     15C of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b), 
     78o-5) or a futures commission merchant registered under this 
     Act;
       ``(III) an associated person of a broker or dealer 
     registered under section 15(b) or 15C of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o(b), 78o-5), or an 
     affiliated person of a futures commission merchant registered 
     under this Act, concerning the financial or securities 
     activities of which the registered person makes and keeps 
     records under section 15C(b) or 17(h) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o-5(b), 78q(h)) or section 
     4f(c)(2)(B) of this Act;
       ``(IV) an insurance company described in section 
     1a(12)(A)(ii) of this Act, or a regulated subsidiary or 
     affiliate of such an insurance company;
       ``(V) a financial holding company (as defined in section 2 
     of the Bank Holding Company Act of 1956); or
       ``(VI) an investment bank holding company (as defined in 
     section 17(i) of the Securities Exchange Act of 1934).

       ``(C) Notwithstanding subclauses (II) and (III) of 
     subparagraph (B)(ii), agreements, contracts, or transactions 
     described in subparagraph (B) shall be subject to sections 
     4b, 4c, 6c, 6d, and 8(a) if they are entered into by a 
     futures commission merchant or an affiliate of a futures 
     commission merchant that is not also an entity described in 
     subparagraph (B)(ii) of this paragraph.''.

     SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE 
                   TRANSACTIONS.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is further amended by adding at the end the following:
       ``(d) Excluded Derivative Transactions.--
       ``(1) In general.--Nothing in this Act (other than section 
     5b or 12(e)(2)(B)) governs or applies to an agreement, 
     contract, or transaction in an excluded commodity if--
       ``(A) the agreement, contract, or transaction is entered 
     into only between persons that are eligible contract 
     participants at the time at which the persons enter into the 
     agreement, contract, or transaction; and
       ``(B) the agreement, contract, or transaction is not 
     executed or traded on a trading facility.
       ``(2) Electronic trading facility exclusion.--Nothing in 
     this Act (other than section 5a (to the extent provided in 
     section 5a(g)), 5b, 5d, or 12(e)(2)(B)) governs or applies to 
     an agreement, contract, or transaction in an excluded 
     commodity if--
       ``(A) the agreement, contract, or transaction is entered 
     into on a principal-to-principal basis between parties 
     trading for their own accounts or as described in section 
     1a(12)(B)(ii);
       ``(B) the agreement, contract, or transaction is entered 
     into only between persons that are eligible contract 
     participants described in subparagraph (A), (B)(ii), or (C) 
     of section 1a(12)) at the time at which the persons enter 
     into the agreement, contract, or transaction; and
       ``(C) the agreement, contract, or transaction is executed 
     or traded on an electronic trading facility.''.

     SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is further amended by adding at the end the following:
       ``(e) Excluded Electronic Trading Facilities.--
       ``(1) In general.--Nothing in this Act (other than section 
     12(e)(2)(B)) governs or is applicable to an electronic 
     trading facility that limits transactions authorized to be 
     conducted on its facilities to those satisfying the 
     requirements of sections 2(d)(2), 2(g)(3), and 2(h).
       ``(2) Effect on authority to establish and operate.--
     Nothing in this Act shall prohibit a board of trade 
     designated by the Commission as a contract market, 
     derivatives transaction execution facility, or exempt board 
     of trade from establishing and operating an electronic 
     trading facility excluded under this Act pursuant to 
     paragraph (1).
       ``(3) Effect on transactions.--No failure by an electronic 
     trading facility to limit transactions as required by 
     paragraph (1) of this subsection or to comply with section 
     2(g)(5) shall in itself affect the legality, validity, or 
     enforceability of an agreement, contract, or transaction 
     entered into or traded on the electronic trading facility or 
     cause a participant on the system to be in violation of this 
     Act.

     SEC. 105. HYBRID INSTRUMENTS.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is further amended by adding at the end the following:
       ``(f) Exclusion for Qualifying Hybrid Instruments.--
       ``(1) In general.--Nothing in this Act (other than section 
     12(e)(2)(B)) governs or is applicable to a hybrid instrument 
     that is predominantly a security or deposit instrument.
       ``(2) Predominance.--A hybrid instrument shall be 
     considered to be predominantly a security or deposit 
     instrument if--
       ``(A) the issuer of the hybrid instrument receives payment 
     in full of the purchase price of the hybrid instrument, 
     substantially contemporaneously with delivery of the hybrid 
     instrument;
       ``(B) the purchaser or holder of the hybrid instrument is 
     not required to make any payment to the issuer in addition to 
     the purchase price paid under subparagraph (A), whether as 
     margin, settlement payment, or otherwise, during the life of 
     the hybrid instrument or at maturity;
       ``(C) the issuer of the hybrid instrument is not subject by 
     the terms of the instrument

[[Page 23642]]

     to mark-to-market margining requirements; and
       ``(D) the hybrid instrument is not marketed as a contract 
     of sale for future delivery of a commodity (or option on such 
     a contract) subject to this Act.
       ``(3) Mark-to-market margining requirements.--For the 
     purposes of paragraph (2)(C), mark-to-market margining 
     requirements do not include the obligation of an issuer of a 
     secured debt instrument to increase the amount of collateral 
     held in pledge for the benefit of the purchaser of the 
     secured debt instrument to secure the repayment obligations 
     of the issuer under the secured debt instrument.''.

     SEC. 106. TRANSACTIONS IN EXEMPT COMMODITIES.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is further amended by adding at the end the following.
       ``(g) Legal Certainty for Certain Transactions in Exempt 
     Commodities.--
       ``(1) Except as provided in paragraph (2), nothing in this 
     Act shall apply to a contract, agreement or transaction in an 
     exempt commodity which--
       ``(A) is entered into solely between persons that are 
     eligible contract participants at the time the persons enter 
     into the agreement, contract, or transaction; and
       ``(B) is not entered into on a trading facility.
       ``(2) An agreement, contract, or transaction described in 
     paragraph (1) of this subsection shall be subject to--
       ``(A) sections 5b and 12(e)(2)(B);
       ``(B) sections 4b, 4o, 6(c), 6(d), 6c, 6d, and 8a, and the 
     regulations of the Commission pursuant to section 4c(b) 
     proscribing fraud in connection with commodity option 
     transactions, to the extent the agreement, contract, or 
     transaction is not between eligible commercial entities 
     (unless 1 of the entities is an instrumentality, department, 
     or agency of a State or local governmental entity) and would 
     otherwise be subject to such sections and regulations; and
       ``(C) sections 6(c), 6(d), 6c, 6d, 8a, and 9(a)(2), to the 
     extent such sections prohibit manipulation of the market 
     price of any commodity in interstate commerce and the 
     agreement, contract, or transaction would otherwise be 
     subject to such sections.
       ``(3) Except as provided in paragraph (4), nothing in this 
     Act shall apply to an agreement, contract, or transaction in 
     an exempt commodity which is--
       ``(A) entered into on a principal-to-principal basis solely 
     between persons that are eligible commercial entities at the 
     time the persons enter into the agreement, contract, or 
     transaction; and
       ``(B) executed or traded on an electronic trading facility.
       ``(4) An agreement, contract, or transaction described in 
     paragraph (3) of this subsection shall be subject to--
       ``(A) sections 5a (to the extent provided in section 
     5a(g)), 5b, 5d, and 12(e)(2)(B);
       ``(B) sections 4b and 4o and the regulations of the 
     Commission pursuant to section 4c(b) proscribing fraud in 
     connection with commodity option transactions to the extent 
     the agreement, contract, or transaction would otherwise be 
     subject to such sections and regulations;
       ``(C) sections 6(c) and 9(a)(2), to the extent such 
     sections prohibit manipulation of the market price of any 
     commodity in interstate commerce and to the extent the 
     agreement, contract, or transaction would otherwise be 
     subject to such sections; and
       ``(D) such rules and regulations as the Commission may 
     prescribe if necessary to ensure timely dissemination by the 
     electronic trading facility of price, trading volume, and 
     other trading data to the extent appropriate, if the 
     Commission determines that the electronic trading facility 
     performs a significant price discovery function for 
     transactions in the cash market for the commodity underlying 
     any agreement, contract, or transaction executed or traded on 
     the electronic trading facility.
       ``(5) An electronic trading facility relying on the 
     exemption provided in paragraph (3) shall--
       ``(A) notify the Commission of its intention to operate an 
     electronic trading facility in reliance on the exemption set 
     forth in paragraph (3), which notice shall include the 
     following:
       ``(i) the name and address of the facility and a person 
     designated to receive communications from the Commission;
       ``(ii) the commodity categories that the facility intends 
     to list or otherwise make available for trading on the 
     facility in reliance on the exemption set forth in paragraph 
     (3);
       ``(iii) certifications that--

       ``(I) no executive officer or member of the governing board 
     of, or any holder of a 10 percent or greater equity interest 
     in, the facility is a person described in any of 
     subparagraphs (A) through (H) of section 8a(2);
       ``(II) the facility will comply with the conditions for 
     exemption under this paragraph; and
       ``(III) the facility will notify the Commission of any 
     material change in the information previously provided by the 
     facility to the Commission pursuant to this paragraph; and

       ``(iv) the identity of any derivatives clearing 
     organization to which the facility transmits or intends to 
     transmit transaction data for the purpose of facilitating the 
     clearance and settlement of transactions conducted on the 
     facility in reliance on the exemption set forth in paragraph 
     (3);
       ``(B)(i)(I) provide the Commission with access to the 
     facility's trading protocols and electronic access to the 
     facility with respect to transactions conducted in reliance 
     on the exemption set forth in paragraph (3); or
       ``(II) provide such reports to the Commission regarding 
     transactions executed on the facility in reliance on the 
     exemption set forth in paragraph (3) as the Commission may 
     from time to time request to enable the Commission to satisfy 
     its obligations under this Act; and
       ``(ii) maintain for 5 years, and make available for 
     inspection by the Commission upon request, records of all 
     activities related to its business as an electronic trading 
     facility exempt under paragraph (3), including--
       ``(I) information relating to data entry and transaction 
     details sufficient to enable the Commission to reconstruct 
     trading activity on the facility conducted in reliance on the 
     exemption set forth in paragraph (3); and
       ``(II) the name and address of each participant on the 
     facility authorized to enter into transactions in reliance on 
     the exemption set forth in paragraph (3); and
       ``(iii) upon special call by the Commission, provide to the 
     Commission, in a form and manner and within the period 
     specified in the special call, such information related to 
     its business as an electronic trading facility exempt under 
     paragraph (3), including information relating to data entry 
     and transaction details in respect of transactions entered 
     into in reliance on the exemption set forth in paragraph (3), 
     as the Commission may determine appropriate--
       ``(I) to enforce the provisions specified in subparagraphs 
     (B) and (C) of paragraph (4);
       ``(II) to evaluate a systemic market event; or
       ``(III) to obtain information requested by a Federal 
     financial regulatory authority in order to enable the 
     regulator to fulfill its regulatory or supervisory 
     responsibilities; and
       ``(C)(i) upon receipt of any subpoena issued by or on 
     behalf of the Commission to any foreign person who the 
     Commission believes is conducting or has conducted 
     transactions in reliance on the exemption set forth in 
     paragraph (3) on or through the electronic trading facility 
     relating to the transactions, promptly notify the foreign 
     person of, and transmit to the foreign person, the subpoena 
     in a manner reasonable under the circumstances, or as 
     specified by the Commission; and
       ``(ii) if the Commission has reason to believe that a 
     person has not timely complied with a subpoena issued by or 
     on behalf of the Commission pursuant to clause (i), and the 
     Commission in writing has directed that a facility relying on 
     the exemption set forth in paragraph (3) deny or limit 
     further transactions by the person, the facility shall deny 
     that person further trading access to the facility or, as 
     applicable, limit that person's access to the facility for 
     liquidation trading only;
       ``(D) comply with the requirements of this paragraph 
     applicable to the facility and require that each participant, 
     as a condition of trading on the facility in reliance on the 
     exemption set forth in paragraph (3), agree to comply with 
     all applicable law;
       ``(E) have a reasonable basis for believing that 
     participants authorized to conduct transactions on the 
     facility in reliance on the exemption set forth in paragraph 
     (3) are eligible commercial entities; and
       ``(F) not represent to any person that the facility is 
     registered with, or designated, recognized, licensed or 
     approved by the Commission.
       ``(6) A person named in a subpoena referred to in paragraph 
     (5)(C) that believes the person is or may be adversely 
     affected or aggrieved by action taken by the Commission under 
     this section, shall have the opportunity for a prompt hearing 
     after the Commission acts under procedures that the 
     Commission shall establish by rule, regulation, or order.''.

     SEC. 107. SWAP TRANSACTIONS.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is further amended by adding at the end the following:
       ``(h) Excluded Swap Transactions.--No provision of this Act 
     (other than section 5a (to the extent provided in section 
     5a(g)), 5b, 5d, or 12(e)(2)) shall apply to or govern any 
     agreement, contract, or transaction in a commodity other than 
     an agricultural commodity if--
       ``(1) the agreement, contract, or transaction is entered 
     into only between persons that are eligible contract 
     participants at the time they enter into the agreement, 
     contract, or transaction; and
       ``(2) each of the material economic terms of the agreement, 
     contract, or transaction is individually negotiated by the 
     parties.''.

     SEC. 108. APPLICATION OF COMMODITY FUTURES LAWS.

       Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 
     4, 4a) is further amended by adding at the end the following:
       ``(i) Application of Commodity Futures Laws.--

[[Page 23643]]

       ``(1) No provision of this Act shall be construed as 
     implying or creating any presumption that--
       ``(A) any agreement, contract, or transaction that is 
     excluded or exempted under subsection (c), (d), (e), (f), 
     (g), or (h) of section 2 or section 4(c); or
       ``(B) any agreement, contract, or transaction, not 
     otherwise subject to this Act, that is not so excluded or 
     exempted,
     is or would otherwise be subject to this Act.
       ``(2) No provision of, or amendment made by, the Commodity 
     Futures Modernization Act of 2000 shall be construed as 
     conferring jurisdiction on the Commission with respect to any 
     such agreement, contract, or transaction, except as expressly 
     provided in section 5a of this Act (to the extent provided in 
     section 5a(g) of this Act), 5b of this Act, or 5d of this 
     Act.''.

     SEC. 109. PROTECTION OF THE PUBLIC INTEREST.

       The Commodity Exchange Act is amended by striking section 3 
     (7 U.S.C. 5) and inserting the following:

     ``SEC. 3. FINDINGS AND PURPOSE.

       ``(a) Findings.--The transactions subject to this Act are 
     entered into regularly in interstate and international 
     commerce and are affected with a national public interest by 
     providing a means for managing and assuming price risks, 
     discovering prices, or disseminating pricing information 
     through trading in liquid, fair and financially secure 
     trading facilities.
       ``(b) Purpose.--It is the purpose of this Act to serve the 
     public interests described in subsection (a) through a system 
     of effective self-regulation of trading facilities, clearing 
     systems, market participants and market professionals under 
     the oversight of the Commission. To foster these public 
     interests, it is further the purpose of this Act to deter and 
     prevent price manipulation or any other disruptions to market 
     integrity; to ensure the financial integrity of all 
     transactions subject to this Act and the avoidance of 
     systemic risk; to protect all market participants from 
     fraudulent or other abusive sales practices and misuses of 
     customer assets; and to promote responsible innovation and 
     fair competition among boards of trade, other markets and 
     market participants.''.

     SEC. 110. PROHIBITED TRANSACTIONS.

       Section 4c of the Commodity Exchange Act (7 U.S.C. 6c) is 
     amended by striking ``Sec. 4c.'' and all that follows through 
     subsection (a) and inserting the following:

     ``SEC. 4C. PROHIBITED TRANSACTIONS.

       ``(a) In General.--
       ``(1) Prohibition.--It shall be unlawful for any person to 
     offer to enter into, enter into, or confirm the execution of 
     a transaction described in paragraph (2) involving the 
     purchase or sale of any commodity for future delivery (or any 
     option on such a transaction or option on a commodity) if the 
     transaction is used or may be used to--
       ``(A) hedge any transaction in interstate commerce in the 
     commodity or the product or byproduct of the commodity;
       ``(B) determine the price basis of any such transaction in 
     interstate commerce in the commodity; or
       ``(C) deliver any such commodity sold, shipped, or received 
     in interstate commerce for the execution of the transaction.
       ``(2) Transaction.--A transaction referred to in paragraph 
     (1) is a transaction that--
       ``(A)(i) is, is of the character of, or is commonly known 
     to the trade as, a `wash sale' or `accommodation trade'; or
       ``(ii) is a fictitious sale; or
       ``(B) is used to cause any price to be reported, 
     registered, or recorded that is not a true and bona fide 
     price.''.

     SEC. 111. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.

       The Commodity Exchange Act is amended--
       (1) by redesignating section 5b (7 U.S.C. 7b) as section 
     5e; and
       (2) by striking sections 5 and 5a (7 U.S.C. 7, 7a) and 
     inserting the following:

     ``SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.

       ``(a) Applications.--A board of trade applying to the 
     Commission for designation as a contract market shall submit 
     an application to the Commission that includes any relevant 
     materials and records the Commission may require consistent 
     with this Act.
       ``(b) Criteria for Designation.--
       ``(1) In general.--To be designated as a contract market, 
     the board of trade shall demonstrate to the Commission that 
     the board of trade meets the criteria specified in this 
     subsection.
       ``(2) Prevention of market manipulation.--The board of 
     trade shall have the capacity to prevent market manipulation 
     through market surveillance, compliance, and enforcement 
     practices and procedures, including methods for conducting 
     real-time monitoring of trading and comprehensive and 
     accurate trade reconstructions.
       ``(3) Fair and equitable trading.--The board of trade shall 
     establish and enforce trading rules to ensure fair and 
     equitable trading through the facilities of the contract 
     market, and the capacity to detect, investigate, and 
     discipline any person that violates the rules. The rules may 
     authorize--
       ``(A) transfer trades or office trades;
       ``(B) an exchange of--
       ``(i) futures in connection with a cash commodity 
     transaction;
       ``(ii) futures for cash commodities; or
       ``(iii) futures for swaps; or
       ``(C) a futures commission merchant, acting as principal or 
     agent, to enter into or confirm the execution of a contract 
     for the purchase or sale of a commodity for future delivery 
     if the contract is reported, recorded, or cleared in 
     accordance with the rules of the contract market or a 
     derivatives clearing organization.
       ``(4) Trade execution facility.--The board of trade shall--
       ``(A) establish and enforce rules defining, or 
     specifications detailing, the manner of operation of the 
     trade execution facility maintained by the board of trade, 
     including rules or specifications describing the operation of 
     any electronic matching platform; and
       ``(B) demonstrate that the trade execution facility 
     operates in accordance with the rules or specifications.
       ``(5) Financial integrity of transactions.--The board of 
     trade shall establish and enforce rules and procedures for 
     ensuring the financial integrity of transactions entered into 
     by or through the facilities of the contract market, 
     including the clearance and settlement of the transactions 
     with a derivatives clearing organization.
       ``(6) Disciplinary procedures.--The board of trade shall 
     establish and enforce disciplinary procedures that authorize 
     the board of trade to discipline, suspend, or expel members 
     or market participants that violate the rules of the board of 
     trade, or similar methods for performing the same functions, 
     including delegation of the functions to third parties.
       ``(7) Public access.--The board of trade shall provide the 
     public with access to the rules, regulations, and contract 
     specifications of the board of trade.
       ``(8) Ability to obtain information.--The board of trade 
     shall establish and enforce rules that will allow the board 
     of trade to obtain any necessary information to perform any 
     of the functions described in this subsection, including the 
     capacity to carry out such international information-sharing 
     agreements as the Commission may require.
       ``(c) Existing Contract Markets.--A board of trade that is 
     designated as a contract market on the date of the enactment 
     of the Commodity Futures Modernization Act of 2000 shall be 
     considered to be a designated contract market under this 
     section.
       ``(d) Core Principles for Contract Markets.--
       ``(1) In general.--To maintain the designation of a board 
     of trade as a contract market, the board of trade shall 
     comply with the core principles specified in this subsection. 
     The board of trade shall have reasonable discretion in 
     establishing the manner in which it complies with the core 
     principles.
       ``(2) Compliance with rules.--The board of trade shall 
     monitor and enforce compliance with the rules of the contract 
     market, including the terms and conditions of any contracts 
     to be traded and any limitations on access to the contract 
     market.
       ``(3) Contracts not readily subject to manipulation.--The 
     board of trade shall list on the contract market only 
     contracts that are not readily susceptible to manipulation.
       ``(4) Monitoring of trading.--The board of trade shall 
     monitor trading to prevent manipulation, price distortion, 
     and disruptions of the delivery or cash-settlement process.
       ``(5) Position limitations or accountability.--To reduce 
     the potential threat of market manipulation or congestion, 
     especially during trading in the delivery month, the board of 
     trade shall adopt position limitations or position 
     accountability for speculators, where necessary and 
     appropriate.
       ``(6) Emergency authority.--The board of trade shall adopt 
     rules to provide for the exercise of emergency authority, in 
     consultation or cooperation with the Commission, where 
     necessary and appropriate, including the authority to--
       ``(A) liquidate or transfer open positions in any contract;
       ``(B) suspend or curtail trading in any contract; and
       ``(C) require market participants in any contract to meet 
     special margin requirements.
       ``(7) Availability of general information.--The board of 
     trade shall make available to market authorities, market 
     participants, and the public information concerning--
       ``(A) the terms and conditions of the contracts of the 
     contract market; and
       ``(B) the mechanisms for executing transactions on or 
     through the facilities of the contract market.
       ``(8) Daily publication of trading information.--The board 
     of trade shall make public daily information on settlement 
     prices, volume, open interest, and opening and closing ranges 
     for actively traded contracts on the contract market.
       ``(9) Execution of transactions.--The board of trade shall 
     provide a competitive, open, and efficient market and 
     mechanism for executing transactions.
       ``(10) Trade information.--The board of trade shall 
     maintain rules and procedures to provide for the recording 
     and safe storage of all identifying trade information in a 
     manner that enables the contract market to use

[[Page 23644]]

     the information for purposes of assisting in the prevention 
     of customer and market abuses and providing evidence of any 
     violations of the rules of the contract market.
       ``(11) Financial integrity of contracts.--The board of 
     trade shall establish and enforce rules providing for the 
     financial integrity of any contracts traded on the contract 
     market (including the clearance and settlement of the 
     transactions with a derivatives clearing organization), and 
     rules to ensure the financial integrity of any futures 
     commission merchants and introducing brokers and the 
     protection of customer funds.
       ``(12) Protection of market participants.--The board of 
     trade shall establish and enforce rules to protect market 
     participants from abusive practices committed by any party 
     acting as an agent for the participants.
       ``(13) Dispute resolution.--The board of trade shall 
     establish and enforce rules regarding and provide facilities 
     for alternative dispute resolution as appropriate for market 
     participants and any market intermediaries.
       ``(14) Governance fitness standards.--The board of trade 
     shall establish and enforce appropriate fitness standards for 
     directors, members of any disciplinary committee, members of 
     the contract market, and any other persons with direct access 
     to the facility (including any parties affiliated with any of 
     the persons described in this paragraph).
       ``(15) Conflicts of interest.--The board of trade shall 
     establish and enforce rules to minimize conflicts of interest 
     in the decisionmaking process of the contract market and 
     establish a process for resolving such conflicts of interest.
       ``(16) Composition of boards of mutually owned contract 
     markets.--In the case of a mutually owned contract market, 
     the board of trade shall ensure that the composition of the 
     governing board reflects market participants.
       ``(17) Recordkeeping.--The board of trade shall maintain 
     records of all activities related to the business of the 
     contract market in a form and manner acceptable to the 
     Commission for a period of 5 years.
       ``(18) Antitrust considerations.--Unless necessary or 
     appropriate to achieve the purposes of this Act, the board of 
     trade shall endeavor to avoid--
       ``(A) adopting any rules or taking any actions that result 
     in any unreasonable restraints of trade; or
       ``(B) imposing any material anticompetitive burden on 
     trading on the contract market.
       ``(e) Current Agricultural Commodities.--
       ``(1) Subject to paragraph (2) of this subsection, a 
     contract for purchase or sale for future delivery of an 
     agricultural commodity enumerated in section 1a(4) that is 
     available for trade on a contract market, as of the date of 
     the enactment of this subsection, may be traded only on a 
     contract market designated under this section.
       ``(2) In order to promote responsible economic or financial 
     innovation and fair competition, the Commission, on 
     application by any person, after notice and public comment 
     and opportunity for hearing, may prescribe rules and 
     regulations to provide for the offer and sale of contracts 
     for future delivery or options thereon to be conducted on a 
     derivatives transaction execution facility.''.

     SEC. 112. DERIVATIVES TRANSACTION EXECUTION FACILITIES.

       The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended 
     by inserting after section 5 (as amended by section 111(2)) 
     the following:

     ``SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.

       ``(a) In General.--In lieu of compliance with the contract 
     market designation requirements of sections 4(a) and 5, a 
     board of trade may elect to operate as a registered 
     derivatives transaction execution facility if the facility 
     is--
       ``(1) designated as a contract market and meets the 
     requirements of this section; or
       ``(2) registered as a derivatives transaction execution 
     facility under subsection (c) of this section.
       ``(b) Requirements for Trading.--
       ``(1) In general.--A registered derivatives transaction 
     execution facility under subsection (a) may trade any 
     contract for sale of a commodity for future delivery (or 
     option on such a contract) on or through the facility only by 
     satisfying the requirements of this section.
       ``(2) Requirements for underlying commodities.--A 
     registered derivatives transaction execution facility may 
     trade any contract for sale of a commodity for future 
     delivery (or option on such a contract) only if--
       ``(A) the underlying commodity has a nearly inexhaustible 
     deliverable supply;
       ``(B) the underlying commodity has a deliverable supply 
     that is sufficiently large that the contract is highly 
     unlikely to be susceptible to the threat of manipulation;
       ``(C) the underlying commodity has no cash market;
       ``(D)(i) the contract is a security futures product, and 
     (ii) the registered derivatives transaction execution 
     facility is a national securities exchange registered under 
     the Securities Exchange Act of 1934 or an alternative trading 
     system;
       ``(E) the Commission determines, based on the market 
     characteristics, surveillance history, self-regulatory 
     record, and capacity of the facility that trading in the 
     contract (or option) is highly unlikely to be susceptible to 
     the threat of manipulation; or
       ``(F) except as provided in section 5(e)(2), the underlying 
     commodity is a commodity other than an agricultural commodity 
     enumerated in section 1a(4), and trading access to the 
     facility is limited to eligible commercial entities trading 
     for their own account.
       ``(3) Eligible traders.--To trade on a registered 
     derivatives transaction execution facility, a person shall--
       ``(A) be an eligible contract participant; or
       ``(B) be a person trading through a futures commission 
     merchant that--
       ``(i) is registered with the Commission;
       ``(ii) is a member of a futures self-regulatory 
     organization or, if the person trades only security futures 
     products on the facility, a national securities association 
     registered under section 15A(a) of the Securities Exchange 
     Act of 1934;
       ``(iii) is a clearing member of a derivatives clearing 
     organization; and
       ``(iv) has net capital of at least $20,000,000.
       ``(4) Trading by contract markets.--A board of trade that 
     is designated as a contract market shall, to the extent that 
     the contract market also operates a registered derivatives 
     transaction execution facility--
       ``(A) provide a physical location for the contract market 
     trading of the board of trade that is separate from trading 
     on the derivatives transaction execution facility of the 
     board of trade; or
       ``(B) if the board of trade uses the same electronic 
     trading system for trading on the contract market and 
     derivatives transaction execution facility of the board of 
     trade, identify whether the electronic trading is taking 
     place on the contract market or the derivatives transaction 
     execution facility.
       ``(c) Criteria for Registration.--
       ``(1) In general.--To be registered as a registered 
     derivatives transaction execution facility, the board of 
     trade shall be required to demonstrate to the Commission only 
     that the board of trade meets the criteria specified in 
     subsection (b) and this subsection.
       ``(2) Deterrence of abuses.--The board of trade shall 
     establish and enforce trading and participation rules that 
     will deter abuses and has the capacity to detect, 
     investigate, and enforce those rules, including means to--
       ``(A) obtain information necessary to perform the functions 
     required under this section; or
       ``(B) use technological means to--
       ``(i) provide market participants with impartial access to 
     the market; and
       ``(ii) capture information that may be used in establishing 
     whether rule violations have occurred.
       ``(3) Trading procedures.--The board of trade shall 
     establish and enforce rules or terms and conditions defining, 
     or specifications detailing, trading procedures to be used in 
     entering and executing orders traded on the facilities of the 
     board of trade. The rules may authorize--
       ``(A) transfer trades or office trades;
       ``(B) an exchange of--
       ``(i) futures in connection with a cash commodity 
     transaction;
       ``(ii) futures for cash commodities;
       ``(iii) futures for swaps; or
       ``(C) a futures commission merchant, acting as principal or 
     agent, to enter into or confirm the execution of a contract 
     for the purchase or sale of a commodity for future delivery 
     if the contract is reported, recorded, or cleared in 
     accordance with the rules of the registered derivatives 
     transaction execution facility or a derivatives clearing 
     organization.
       ``(4) Financial integrity of transactions.--The board of 
     trade shall establish and enforce rules or terms and 
     conditions providing for the financial integrity of 
     transactions entered on or through the facilities of the 
     board of trade (including the clearance and settlement of the 
     transactions with a derivatives clearing organization), and 
     rules or terms and conditions to ensure the financial 
     integrity of any futures commission merchants and introducing 
     brokers and the protection of customer funds.
       ``(d) Core Principles for Registered Derivatives 
     Transaction Execution Facilities.--
       ``(1) In general.--To maintain the registration of a board 
     of trade as a derivatives transaction execution facility, a 
     board of trade shall comply with the core principles 
     specified in this subsection. The board of trade shall have 
     reasonable discretion in establishing the manner in which the 
     board of trade complies with the core principles.
       ``(2) Compliance with rules.--The board of trade shall 
     monitor and enforce the rules of the facility, including any 
     terms and conditions of any contracts traded on or through 
     the facility and any limitations on access to the facility.
       ``(3) Monitoring of trading.--The board of trade shall 
     monitor trading in the contracts of the facility to ensure 
     orderly trading in the contract and to maintain an orderly 
     market while providing any necessary trading information to 
     the Commission to allow the Commission to discharge the 
     responsibilities of the Commission under the Act.

[[Page 23645]]

       ``(4) Disclosure of general information.--The board of 
     trade shall disclose publicly and to the Commission 
     information concerning--
       ``(A) contract terms and conditions;
       ``(B) trading conventions, mechanisms, and practices;
       ``(C) financial integrity protections; and
       ``(D) other information relevant to participation in 
     trading on the facility.
       ``(5) Daily publication of trading information.--The board 
     of trade shall make public daily information on settlement 
     prices, volume, open interest, and opening and closing ranges 
     for contracts traded on the facility if the Commission 
     determines that the contracts perform a significant price 
     discovery function for transactions in the cash market for 
     the commodity underlying the contracts.
       ``(6) Fitness standards.--The board of trade shall 
     establish and enforce appropriate fitness standards for 
     directors, members of any disciplinary committee, members, 
     and any other persons with direct access to the facility, 
     including any parties affiliated with any of the persons 
     described in this paragraph.
       ``(7) Conflicts of interest.--The board of trade shall 
     establish and enforce rules to minimize conflicts of interest 
     in the decision making process of the derivatives transaction 
     execution facility and establish a process for resolving such 
     conflicts of interest.
       ``(8) Recordkeeping.--The board of trade shall maintain 
     records of all activities related to the business of the 
     derivatives transaction execution facility in a form and 
     manner acceptable to the Commission for a period of 5 years.
       ``(9) Antitrust considerations.--Unless necessary or 
     appropriate to achieve the purposes of this Act, the board of 
     trade shall endeavor to avoid--
       ``(A) adopting any rules or taking any actions that result 
     in any unreasonable restraint of trade; or
       ``(B) imposing any material anticompetitive burden on 
     trading on the derivatives transaction execution facility.
       ``(e) Use of Broker-Dealers, Depository Institutions, and 
     Farm Credit System Institutions as Intermediaries.--
       ``(1) In general.--With respect to transactions other than 
     transactions in security futures products, a registered 
     derivatives transaction execution facility may by rule allow 
     a broker-dealer, depository institution, or institution of 
     the Farm Credit System that meets the requirements of 
     paragraph (2) to--
       ``(A) act as an intermediary in transactions executed on 
     the facility on behalf of customers of the broker-dealer, 
     depository institution, or institution of the Farm Credit 
     System; and
       ``(B) receive funds of customers to serve as margin or 
     security for the transactions.
       ``(2) Requirements.--The requirements referred to in 
     paragraph (1) are that--
       ``(A) the broker-dealer be in good standing with the 
     Securities and Exchange Commission, or the depository 
     institution or institution of the Farm Credit System be in 
     good standing with Federal bank regulatory agencies 
     (including the Farm Credit Administration), as applicable; 
     and
       ``(B) if the broker-dealer, depository institution, or 
     institution of the Farm Credit System carries or holds 
     customer accounts or funds for transactions on the 
     derivatives transaction execution facility for more than 1 
     business day, the broker-dealer, depository institution, or 
     institution of the Farm Credit System is registered as a 
     futures commission merchant and is a member of a registered 
     futures association.
       ``(3) Implementation.--The Commission shall cooperate and 
     coordinate with the Securities and Exchange Commission, the 
     Secretary of the Treasury, and Federal banking regulatory 
     agencies (including the Farm Credit Administration) in 
     adopting rules and taking any other appropriate action to 
     facilitate the implementation of this subsection.
       ``(f) Segregation of Customer Funds.--Not later than 180 
     days after the date of the enactment of the Commodity Futures 
     Modernization Act of 2000, consistent with regulations 
     adopted by the Commission, a registered derivatives 
     transaction execution facility may authorize a futures 
     commission merchant to offer any customer of the futures 
     commission merchant that is an eligible contract participant 
     the right to not segregate the customer funds of the customer 
     that are carried with the futures commission merchant for 
     purposes of trading on or through the facilities of the 
     registered derivatives transaction execution facility.
       ``(g) Election To Trade Excluded and Exempt Commodities.--
       ``(1) In general.--Notwithstanding subsection (b)(2) of 
     this section, a board of trade that is or elects to become a 
     registered derivatives transaction execution facility may 
     trade on the facility any agreements, contracts, or 
     transactions involving excluded or exempt commodities other 
     than securities, except contracts of sale for future delivery 
     of exempt securities under section 3(a)(12) of the Securities 
     Exchange Act of 1934 as in effect on the date of enactment of 
     the Futures Trading Act of 1982, that are otherwise excluded 
     or exempt from this Act under section 2(c), 2(d), 2(g), or 
     2(h) of this Act.
       ``(2) Exclusive jurisdiction of the commission.--The 
     Commission shall have exclusive jurisdiction over agreements, 
     contracts, or transactions described in paragraph (1) to the 
     extent that the agreements, contracts, or transactions are 
     traded on a derivatives transaction execution facility.''.

     SEC. 113. DERIVATIVES CLEARING.

       (a) In General.--Subtitle A of title IV of the Federal 
     Deposit Insurance Corporation Improvement Act of 1991 is 
     amended--
       (1) by inserting before the section heading for section 
     401, the following new heading:

      ``CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING'';

       (2) in section 402, by striking ``this subtitle'' and 
     inserting ``this chapter''; and
       (3) by inserting after section 407, the following new 
     chapter:

            ``CHAPTER 2--MULTILATERAL CLEARING ORGANIZATIONS

     ``SEC. 408. DEFINITIONS.

       For purposes of this chapter, the following definitions 
     shall apply:
       ``(1) Multilateral clearing organization.--The term 
     `multilateral clearing organization' means a system utilized 
     by more than 2 participants in which the bilateral credit 
     exposures of participants arising from the transactions 
     cleared are effectively eliminated and replaced by a system 
     of guarantees, insurance, or mutualized risk of loss.
       ``(2) Over-the-counter derivative instrument.--The term 
     `over-the-counter derivative instrument' includes--
       ``(A) any agreement, contract, or transaction, including 
     the terms and conditions incorporated by reference in any 
     such agreement, contract, or transaction, which is an 
     interest rate swap, option, or forward agreement, including a 
     rate floor, rate cap, rate collar, cross-currency rate swap, 
     basis swap, and forward rate agreement; a same day-tomorrow, 
     tomorrow-next, forward, or other foreign exchange or precious 
     metals agreement; a currency swap, option, or forward 
     agreement; an equity index or equity swap, option, or forward 
     agreement; a debt index or debt swap, option, or forward 
     agreement; a credit spread or credit swap, option, or forward 
     agreement; a commodity index or commodity swap, option, or 
     forward agreement; and a weather swap, weather derivative, or 
     weather option;
       ``(B) any agreement, contract or transaction similar to any 
     other agreement, contract, or transaction referred to in this 
     clause that is presently, or in the future becomes, regularly 
     entered into by parties that participate in swap transactions 
     (including terms and conditions incorporated by reference in 
     the agreement) and that is a forward, swap, or option on 1 or 
     more occurrences of any event, rates, currencies, 
     commodities, equity securities or other equity instruments, 
     debt securities or other debt instruments, economic or other 
     indices or measures of economic or other risk or value;
       ``(C) any agreement, contract, or transaction described in 
     subsection (c), (d), (f), or (h) of section 2 of the 
     Commodity Exchange Act or exempted under section 2(g) or 4(c) 
     of such Act; and
       ``(D) any option to enter into any, or any combination of, 
     agreements, contracts or transactions referred to in this 
     subparagraph.
       ``(3) Other definitions.--The terms `insured State 
     nonmember bank', `State member bank', and `affiliate' have 
     the same meanings as in section 3 of the Federal Deposit 
     Insurance Act.

     ``SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.

       ``(a) In General.--Except with respect to clearing 
     organizations described in subsection (b), no person may 
     operate a multilateral clearing organization for over-the-
     counter derivative instruments, or otherwise engage in 
     activities that constitute such a multilateral clearing 
     organization unless the person is a national bank, a State 
     member bank, an insured State nonmember bank, an affiliate of 
     a national bank, a State member bank, or an insured State 
     nonmember bank, or a corporation chartered under section 25A 
     of the Federal Reserve Act.
       ``(b) Clearing Organizations.--Subsection (a) shall not 
     apply to any clearing organization that--
       ``(1) is registered as a clearing agency under the 
     Securities Exchange Act of 1934;
       ``(2) is registered as a derivatives clearing organization 
     under the Commodity Exchange Act; or
       ``(3) is supervised by a foreign financial regulator that 
     the Comptroller of the Currency, the Board of Governors of 
     the Federal Reserve System, the Federal Deposit Insurance 
     Corporation, the Securities and Exchange Commission, or the 
     Commodity Futures Trading Commission, as applicable, has 
     determined satisfies appropriate standards.''.
       (b) Enforcement Powers of the Board of Governors of the 
     Federal Reserve System.--Section 9 of the Federal Reserve Act 
     (12 U.S.C. 221) is amended by adding at the end the following 
     new paragraph:
       ``(24) Enforcement authority.--Section 3(u), subsections 
     (j) and (k) of section 7, subsections (b) through (n), (s), 
     (u), and (v) of section 8, and section 19 of the Federal 
     Deposit Insurance Act shall apply to a State

[[Page 23646]]

     member bank which is not an insured depository institution 
     (as defined in section 3 of the Federal Deposit Insurance 
     Act) in the same manner and to the same extent as such 
     provisions apply to State member insured banks, and any 
     reference in such sections to an insured depository 
     institution shall be deemed to include a reference to any 
     such noninsured State member bank.''.
       (c) Resolution of Clearing Banks.--The Federal Reserve Act 
     (12 U.S.C. 221 et seq.) is amended by inserting after section 
     9A the following new section:

     ``SEC. 9B. RESOLUTION OF CLEARING BANKS.

       ``(a) Conservatorship or Receivership.--
       ``(1) Appointment.--The Board may appoint a conservator or 
     receiver to take possession and control of any uninsured 
     State member bank which operates, or operates as, a 
     multilateral clearing organization pursuant to section 409 of 
     the Federal Deposit Insurance Corporation Improvement Act of 
     1991 to the same extent and in the same manner as the 
     Comptroller of the Currency may appoint a conservator or 
     receiver for a national bank.
       ``(2) Powers.--The conservator or receiver for an uninsured 
     State member bank referred to in paragraph (1) shall exercise 
     the same powers, functions, and duties, subject to the same 
     limitations, as a conservator or receiver for a national 
     bank.
       ``(b) Board Authority.--The Board shall have the same 
     authority with respect to any conservator or receiver 
     appointed under subsection (a), and the uninsured State 
     member bank for which the conservator or receiver has been 
     appointed, as the Comptroller of the Currency has with 
     respect to a conservator or receiver for a national bank and 
     the national bank for which the conservator or receiver has 
     been appointed.
       ``(c) Bankruptcy Proceedings.--The Board (in the case of an 
     uninsured State member bank which operates, or operates as, 
     such a multilateral clearing organization) may direct a 
     conservator or receiver appointed for the bank to file a 
     petition pursuant to title 11, United States Code, in which 
     case, title 11, United States Code, shall apply to the bank 
     in lieu of otherwise applicable Federal or State insolvency 
     law.''.
       (d) Technical and Conforming Amendments to Title 11, United 
     States Code.--
       (1) Bankruptcy code debtors.--Section 109(b)(2) of title 
     11, United States Code, is amended by striking ``; or'' and 
     inserting the following: ``, except that an uninsured State 
     member bank, or a corporation organized under section 25A of 
     the Federal Reserve Act, which operates, or operates as, a 
     multilateral clearing organization pursuant to section 409 of 
     the Federal Deposit Insurance Corporation Improvement Act of 
     1991 may be a debtor if a petition is filed at the direction 
     of the Board of Governors of the Federal Reserve System; 
     or''.
       (2) Chapter 7 debtors.--Section 109(d) of title 11, United 
     States Code, is amended to read as follows:
       ``(d) Only a railroad, a person that may be a debtor under 
     chapter 7 of this title (except a stockbroker or a commodity 
     broker), and an uninsured State member bank, or a corporation 
     organized under section 25A of the Federal Reserve Act, which 
     operates, or operates as, a multilateral clearing 
     organization pursuant to section 409 of the Federal Deposit 
     Insurance Corporation Improvement Act of 1991 may be a debtor 
     under chapter 11 of this title.''.
       (3) Definition of financial institution.--Section 101(22) 
     of title 11, United States Code, is amended to read as 
     follows:
       ``(22) the term `financial institution'--
       ``(A) means a Federal reserve bank or an entity (domestic 
     or foreign) that is a commercial or savings bank, industrial 
     savings bank, savings and loan association, trust company, a 
     bank or a corporation organized under section 25A of the 
     Federal Reserve Act and, when any such bank or entity is 
     acting as agent or custodian for a customer in connection 
     with a securities contract, as defined in section 741, the 
     customer; and
       ``(B) includes any person described in subparagraph (A) 
     which operates, or operates as, a multilateral clearing 
     organization pursuant to section 409 of the Federal Deposit 
     Insurance Corporation Improvement Act of 1991;''.
       (4) Definition of uninsured state member bank.--Section 101 
     of title 11, United States Code, is amended by inserting 
     after paragraph (54) the following new paragraph--
       ``(54A) the term `uninsured State member bank' means a 
     State member bank (as defined in section 3 of the Federal 
     Deposit Insurance Act) the deposits of which are not insured 
     by the Federal Deposit Insurance Corporation; and''.
       (5) Subchapter v of chapter 7.--
       (A) In general.--Section 103 of title 11, United States 
     Code, is amended--
       (i) by redesignating subsections (e) through (i) as 
     subsections (f) through (j), respectively; and
       (ii) by inserting after subsection (d) the following new 
     subsection:
       ``(e) Scope of Application.--Subchapter V of chapter 7 of 
     this title shall apply only in a case under such chapter 
     concerning the liquidation of an uninsured State member bank, 
     or a corporation organized under section 25A of the Federal 
     Reserve Act, which operates, or operates as, a multilateral 
     clearing organization pursuant to section 409 of the Federal 
     Deposit Insurance Corporation Improvement Act of 1991.''.
       (B) Clearing bank liquidation.--Chapter 7 of title 11, 
     United States Code, is amended by adding at the end the 
     following new subchapter:

               ``SUBCHAPTER V--CLEARING BANK LIQUIDATION

     ``Sec. 781. Definitions

       ``For purposes of this subchapter, the following 
     definitions shall apply:
       ``(1) Board.--The term `Board' means the Board of Governors 
     of the Federal Reserve System.
       ``(2) Depository institution.--The term `depository 
     institution' has the same meaning as in section 3 of the 
     Federal Deposit Insurance Act.
       ``(3) Clearing bank.--The term `clearing bank' means an 
     uninsured State member bank, or a corporation organized under 
     section 25A of the Federal Reserve Act, which operates, or 
     operates as, a multilateral clearing organization pursuant to 
     section 409 of the Federal Deposit Insurance Corporation 
     Improvement Act of 1991.

     ``Sec. 782. Selection of trustee

       ``(a) In General.--
       ``(1) Appointment.--Notwithstanding any other provision of 
     this title, the conservator or receiver who files the 
     petition shall be the trustee under this chapter, unless the 
     Board designates an alternative trustee.
       ``(2) Successor.--The Board may designate a successor 
     trustee if required.
       ``(b) Authority of Trustee.--Whenever the Board appoints or 
     designates a trustee, chapter 3 and sections 704 and 705 of 
     this title shall apply to the Board in the same way and to 
     the same extent that they apply to a United States trustee.

     ``Sec. 783. Additional powers of trustee

       ``(a) Distribution of Property Not of the Estate.--The 
     trustee under this subchapter has power to distribute 
     property not of the estate, including distributions to 
     customers that are mandated by subchapters III and IV of this 
     chapter.
       ``(b) Disposition of Institution.--The trustee under this 
     subchapter may, after notice and a hearing--
       ``(1) sell the clearing bank to a depository institution or 
     consortium of depository institutions (which consortium may 
     agree on the allocation of the clearing bank among the 
     consortium);
       ``(2) merge the clearing bank with a depository 
     institution;
       ``(3) transfer contracts to the same extent as could a 
     receiver for a depository institution under paragraphs (9) 
     and (10) of section 11(e) of the Federal Deposit Insurance 
     Act;
       ``(4) transfer assets or liabilities to a depository 
     institution;
       ``(5) transfer assets and liabilities to a bridge bank as 
     provided in paragraphs (1), (3)(A), (5), (6), of section 
     11(n) of the Federal Deposit Insurance Act, paragraphs (9) 
     through (13) of such section, and subparagraphs (A) through 
     (H) and subparagraph (K) of paragraph (4) of such section 
     11(n), except that--
       ``(A) the bridge bank to which such assets or liabilities 
     are transferred shall be treated as a clearing bank for the 
     purpose of this subsection; and
       ``(B) any references in any such provision of law to the 
     Federal Deposit Insurance Corporation shall be construed to 
     be references to the appointing agency and that references to 
     deposit insurance shall be omitted.
       ``(c) Certain Transfers Included.--Any reference in this 
     section to transfers of liabilities includes a ratable 
     transfer of liabilities within a priority class.

     ``Sec. 784. Right to be heard

       ``The Board or a Federal reserve bank (in the case of a 
     clearing bank that is a member of that bank) may raise and 
     may appear and be heard on any issue in a case under this 
     subchapter.''.
       (6) Definitions of clearing organization, contract market, 
     and related definitions.--
       (A) Section 761(2) of title 11, United States Code, is 
     amended to read as follows:
       ``(2) `clearing organization' means a derivatives clearing 
     organization registered under the Act;''.
       (B) Section 761(7) of title 11, United States Code, is 
     amended to read as follows:
       ``(7) `contract market' means a registered entity;''.
       (C) Section 761(8) of title 11, United States Code, is 
     amended to read as follows:
       ``(8) `contract of sale', `commodity', `derivatives 
     clearing organization', `future delivery', `board of trade', 
     `registered entity', and `futures commission merchant' have 
     the meanings assigned to those terms in the Act;''.
       (e) Clerical Amendment.--The table of sections for chapter 
     7 of title 11, United States Code, is amended by adding at 
     the end the following new items:

               ``SUBCHAPTER V--CLEARING BANK LIQUIDATION

``Sec.
``781. Definitions.
``782. Selection of trustee.
``783. Additional powers of trustee.
``784. Right to be heard.''.

       (g) Resolution of Edge Act Corporations.--The 16th 
     undesignated paragraph of

[[Page 23647]]

     section 25A of the Federal Reserve Act (12 U.S.C. 624) is 
     amended to read as follows:
       ``(16) Appointment of receiver or conservator.--
       ``(A) In general.--The Board may appoint a conservator or 
     receiver for a corporation organized under the provisions of 
     this section to the same extent and in the same manner as the 
     Comptroller of the Currency may appoint a conservator or 
     receiver for a national bank, and the conservator or receiver 
     for such corporation shall exercise the same powers, 
     functions, and duties, subject to the same limitations, as a 
     conservator or receiver for a national bank.
       ``(B) Equivalent authority.--The Board shall have the same 
     authority with respect to any conservator or receiver 
     appointed for a corporation organized under the provisions of 
     this section under this paragraph and any such corporation as 
     the Comptroller of the Currency has with respect to a 
     conservator or receiver of a national bank and the national 
     bank for which a conservator or receiver has been appointed.
       ``(C) Title 11 petitions.--The Board may direct the 
     conservator or receiver of a corporation organized under the 
     provisions of this section to file a petition pursuant to 
     title 11, United States Code, in which case, title 11, United 
     States Code, shall apply to the corporation in lieu of 
     otherwise applicable Federal or State insolvency law.''.
       (g) Derivatives Clearing Organizations.--The Commodity 
     Exchange Act (7 U.S.C. 1 et seq.) is amended by inserting 
     after section 5a (as added by section 112) the following new 
     section:

     ``SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

       ``(a) Registration Requirement.--It shall be unlawful for a 
     derivatives clearing organization, unless registered with the 
     Commission, directly or indirectly to make use of the mails 
     or any means or instrumentality of interstate commerce to 
     perform the functions of a derivatives clearing organization 
     described in section 1a(9) with respect to a contract of sale 
     of a commodity for future delivery, or option on such a 
     contract or on a commodity, in each case unless the contract 
     or option--
       ``(1) is excluded from this Act by subsection (a)(1)(C)(i), 
     (c), (d), (f), or (h) of section 2, or exempted under section 
     2(g) or 4(c); or
       ``(2) is a security futures product cleared by a clearing 
     agency registered under the Securities Exchange Act of 1934.
       ``(b) Voluntary Registration.--A derivatives clearing 
     organization that clears agreements, contracts, or 
     transactions excluded from this Act by subsection (c), (d), 
     (f), or (h) of section 2 of this Act, or exempted under 
     section 2(g) or 4(c) or other over-the-counter derivative 
     instruments (as defined in the Federal Deposit Insurance 
     Corporation Improvement Act of 1991) may register with the 
     Commission as a derivatives clearing organization.
       ``(c) Registration of Derivatives Clearing Organizations.--
       ``(1) Application.--A person desiring to register as a 
     derivatives clearing organization shall submit to the 
     Commission an application in such form and containing such 
     information as the Commission may require for the purpose of 
     making the determinations required for approval under 
     paragraph (2).
       ``(2) Core principles.--
       ``(A) In general.--To be registered and to maintain 
     registration as a derivatives clearing organization, an 
     applicant shall demonstrate to the Commission that the 
     applicant complies with the core principles specified in this 
     paragraph. The applicant shall have reasonable discretion in 
     establishing the manner in which it complies with the core 
     principles.
       ``(B) Financial resources.--The applicant shall demonstrate 
     that the applicant has adequate financial, operational, and 
     managerial resources to discharge the responsibilities of a 
     derivatives clearing organization.
       ``(C) Participant and product eligibility.--The applicant 
     shall establish--
       ``(i) appropriate admission and continuing eligibility 
     standards (including appropriate minimum financial 
     requirements) for members of and participants in the 
     organization; and
       ``(ii) appropriate standards for determining eligibility of 
     agreements, contracts, or transactions submitted to the 
     applicant.
       ``(D) Risk management.--The applicant shall have the 
     ability to manage the risks associated with discharging the 
     responsibilities of a derivatives clearing organization 
     through the use of appropriate tools and procedures.
       ``(E) Settlement procedures.--The applicant shall have the 
     ability to--
       ``(i) complete settlements on a timely basis under varying 
     circumstances;
       ``(ii) maintain an adequate record of the flow of funds 
     associated with each transaction that the applicant clears; 
     and
       ``(iii) comply with the terms and conditions of any 
     permitted netting or offset arrangements with other clearing 
     organizations.
       ``(F) Treatment of funds.--The applicant shall have 
     standards and procedures designed to protect and ensure the 
     safety of member and participant funds.
       ``(G) Default rules and procedures.--The applicant shall 
     have rules and procedures designed to allow for efficient, 
     fair, and safe management of events when members or 
     participants become insolvent or otherwise default on their 
     obligations to the derivatives clearing organization.
       ``(H) Rule enforcement.--The applicant shall--
       ``(i) maintain adequate arrangements and resources for the 
     effective monitoring and enforcement of compliance with rules 
     of the applicant and for resolution of disputes; and
       ``(ii) have the authority and ability to discipline, limit, 
     suspend, or terminate a member's or participant's activities 
     for violations of rules of the applicant.
       ``(I) System safeguards.--The applicant shall demonstrate 
     that the applicant--
       ``(i) has established and will maintain a program of 
     oversight and risk analysis to ensure that the automated 
     systems of the applicant function properly and have adequate 
     capacity and security; and
       ``(ii) has established and will maintain emergency 
     procedures and a plan for disaster recovery, and will 
     periodically test backup facilities sufficient to ensure 
     daily processing, clearing, and settlement of transactions.
       ``(J) Reporting.--The applicant shall provide to the 
     Commission all information necessary for the Commission to 
     conduct the oversight function of the applicant with respect 
     to the activities of the derivatives clearing organization.
       ``(K) Recordkeeping.--The applicant shall maintain records 
     of all activities related to the business of the applicant as 
     a derivatives clearing organization in a form and manner 
     acceptable to the Commission for a period of 5 years.
       ``(L) Public information.--The applicant shall make 
     information concerning the rules and operating procedures 
     governing the clearing and settlement systems (including 
     default procedures) available to market participants.
       ``(M) Information sharing.--The applicant shall--
       ``(i) enter into and abide by the terms of all appropriate 
     and applicable domestic and international information-sharing 
     agreements; and
       ``(ii) use relevant information obtained from the 
     agreements in carrying out the clearing organization's risk 
     management program.
       ``(N) Antitrust considerations.--Unless appropriate to 
     achieve the purposes of this Act, the derivatives clearing 
     organization shall avoid--
       ``(i) adopting any rule or taking any action that results 
     in any unreasonable restraint of trade; or
       ``(ii) imposing any material anticompetitive burden on 
     trading on the contract market.
       ``(3) Orders concerning competition.--A derivatives 
     clearing organization may request the Commission to issue an 
     order concerning whether a rule or practice of the applicant 
     is the least anticompetitive means of achieving the 
     objectives, purposes, and policies of this Act.
       ``(d) Existing Derivatives Clearing Organizations.--A 
     derivatives clearing organization shall be deemed to be 
     registered under this section to the extent that the 
     derivatives clearing organization clears agreements, 
     contracts, or transactions for a board of trade that has been 
     designated by the Commission as a contract market for such 
     agreements, contracts, or transactions before the date of 
     enactment of this section.
       ``(e) Appointment of Trustee.--
       ``(1) In general.--If a proceeding under section 5e results 
     in the suspension or revocation of the registration of a 
     derivatives clearing organization, or if a derivatives 
     clearing organization withdraws from registration, the 
     Commission, on notice to the derivatives clearing 
     organization, may apply to the appropriate United States 
     district court where the derivatives clearing organization is 
     located for the appointment of a trustee.
       ``(2) Assumption of jurisdiction.--If the Commission 
     applies for appointment of a trustee under paragraph (1)--
       ``(A) the court may take exclusive jurisdiction over the 
     derivatives clearing organization and the records and assets 
     of the derivatives clearing organization, wherever located; 
     and
       ``(B) if the court takes jurisdiction under subparagraph 
     (A), the court shall appoint the Commission, or a person 
     designated by the Commission, as trustee with power to take 
     possession and continue to operate or terminate the 
     operations of the derivatives clearing organization in an 
     orderly manner for the protection of participants, subject to 
     such terms and conditions as the court may prescribe.
       ``(f) Linking of Regulated Clearing Facilities.--
       ``(1) In general.--The Commission shall facilitate the 
     linking or coordination of derivatives clearing organizations 
     registered under this Act with other regulated clearance 
     facilities for the coordinated settlement of cleared 
     transactions.
       ``(2) Coordination.--In carrying out paragraph (1), the 
     Commission shall coordinate with the Federal banking agencies 
     and the Securities and Exchange Commission.''.

[[Page 23648]]



     SEC. 114. COMMON PROVISIONS APPLICABLE TO REGISTERED 
                   ENTITIES.

       The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended 
     by inserting after section 5b (as added by section 113(g)) 
     the following:

     ``SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED 
                   ENTITIES.

       ``(a) Acceptable Business Practices Under Core 
     Principles.--
       ``(1) In general.--Consistent with the purposes of this 
     Act, the Commission may issue interpretations, or approve 
     interpretations submitted to the Commission, of sections 
     5(d), 5a(d), and 5b(d)(2) to describe what would constitute 
     an acceptable business practice under such sections.
       ``(2) Effect of interpretation.--An interpretation issued 
     under paragraph (1) shall not provide the exclusive means for 
     complying with such sections.
       ``(b) Delegation of Functions Under Core Principles.--
       ``(1) In general.--A contract market or derivatives 
     transaction execution facility may comply with any applicable 
     core principle through delegation of any relevant function to 
     a registered futures association or another registered 
     entity.
       ``(2) Responsibility.--A contract market or derivatives 
     transaction execution facility that delegates a function 
     under paragraph (1) shall remain responsible for carrying out 
     the function.
       ``(c) New Contracts, New Rules, and Rule Amendments.--
       ``(1) In general.--Subject to paragraph (2), a registered 
     entity may elect to list for trading or accept for clearing 
     any new contract or other instrument, or may elect to approve 
     and implement any new rule or rule amendment, by providing to 
     the Commission (and the Secretary of the Treasury, in the 
     case of a contract of sale for future delivery of a 
     government security (or option thereon) or a rule or rule 
     amendment specifically related to such a contract) a written 
     certification that the new contract or instrument or clearing 
     of the new contract or instrument, new rule, or rule 
     amendment complies with this Act (including regulations under 
     this Act).
       ``(2) Prior approval.--
       ``(A) In general.--A registered entity may request that the 
     Commission grant prior approval to any new contract or other 
     instrument, new rule, or rule amendment.
       ``(B) Prior approval required.--Notwithstanding any other 
     provision of this section, a designated contract market shall 
     submit to the Commission for prior approval each rule 
     amendment that materially changes the terms and conditions, 
     as determined by the Commission, in any contract of sale for 
     future delivery of a commodity specifically enumerated in 
     section 1a(4) (or any option thereon) traded through its 
     facilities if the rule amendment applies to contracts and 
     delivery months which have already been listed for trading 
     and have open interest.
       ``(C) Deadline.--If prior approval is requested under 
     subparagraph (A), the Commission shall take final action on 
     the request not later than 90 days after submission of the 
     request, unless the person submitting the request agrees to 
     an extension of the time limitation established under this 
     subparagraph.
       ``(3) Approval.--The Commission shall approve any such new 
     contract or instrument, new rule, or rule amendment unless 
     the Commission finds that the new contract or instrument, new 
     rule, or rule amendment would violate this Act.
       ``(d) Violation of Core Principles.--
       ``(1) In general.--If the Commission determines, on the 
     basis of substantial evidence, that a registered entity is 
     violating any applicable core principle specified in section 
     5(d), 5a(d), or 5b(d)(2), the Commission shall--
       ``(A) notify the registered entity in writing of the 
     determination; and
       ``(B) afford the registered entity an opportunity to make 
     appropriate changes to bring the registered entity into 
     compliance with the core principles.
       ``(2) Failure to make changes.--If, not later than 30 days 
     after receiving a notification under paragraph (1), a 
     registered entity fails to make changes that, in the opinion 
     of the Commission, are necessary to comply with the core 
     principles, the Commission may take further action in 
     accordance with this Act.
       ``(e) Reservation of Emergency Authority.--Nothing in this 
     section shall limit or in any way affect the emergency powers 
     of the Commission provided in section 8a(9).''.

     SEC. 115. EXEMPT BOARDS OF TRADE.

       The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended 
     by inserting after section 5c (as added by section 114) the 
     following:

     ``SEC. 5D. EXEMPT BOARDS OF TRADE.

       ``(a) Election To Register With the Commission.--A board of 
     trade that meets the requirements of subsection (b) of this 
     section may operate as an exempt board of trade on receipt 
     from the board of trade of a notice, provided in such manner 
     as the Commission may by rule or regulation prescribe, that 
     the board of trade elects to operate as an exempt board of 
     trade. Except as otherwise provided in this section, no 
     provision of this Act (other than subparagraphs (C) and (D) 
     of section 2(a)(1) and section 12(e)(2)(B)) shall apply with 
     respect to a contract of sale (or option on such a contract) 
     of a commodity for future delivery traded on or through the 
     facilities of an exempt board of trade.
       ``(b) Criteria for Exemption.--To qualify for an exemption 
     under subsection (a), a board of trade shall limit trading on 
     or through the facilities of the board of trade to contracts 
     of sale of a commodity for future delivery (or options on 
     such contracts)--
       ``(1) for which the underlying commodity has--
       ``(A) a nearly inexhaustible deliverable supply;
       ``(B) a deliverable supply that is sufficiently large, and 
     a cash market sufficiently liquid, to render any contract 
     traded on the commodity highly unlikely to be susceptible to 
     the threat of manipulation; or
       ``(C) no cash market;
       ``(2) that are entered into only between persons that are 
     eligible contract participants at the time at which the 
     persons enter into the contract; and
       ``(3) that are not contracts of sale (or options on such a 
     contract) for future delivery of any security, including any 
     group or index of securities or any interest in, or based on 
     the value of, any security or any group or index of 
     securities.
       ``(c) Antimanipulation Requirements.--A party to a contract 
     for sale of a commodity for future delivery (or option on 
     such a contract) that is traded on an exempt board of trade 
     shall be subject to sections 4b, 4c(b), 4o, 6(c), and 
     9(a)(2), and the Commission shall enforce those provisions 
     with respect to any such trading.
       ``(d) Price Discovery.--If the Commission finds that an 
     exempt board of trade is a significant source of price 
     discovery for transactions in the cash market for the 
     commodity underlying any contract, agreement, or transaction 
     traded on or through the facilities of the board of trade, 
     the board of trade shall disseminate publicly on a daily 
     basis trading volume, opening and closing price ranges, open 
     interest, and other trading data as appropriate to the 
     market.
       ``(e) Jurisdiction.--The Commission shall have exclusive 
     jurisdiction over any account, agreement, or transaction 
     involving a contract of sale of a commodity for future 
     delivery, or option on such a contract or on a commodity, to 
     the extent that the account, agreement, or transaction is 
     traded on an exempt board of trade.
       ``(f) Subsidiaries.--A board of trade that is designated as 
     a contract market or registered as a derivatives transaction 
     execution facility may operate an exempt board of trade by 
     establishing a separate subsidiary or other legal entity and 
     otherwise satisfying the requirements of this section.
       ``(g) An exempt board of trade that meets the requirements 
     of subsection (b) shall not represent to any person that the 
     board of trade is registered with, or designated, recognized, 
     licensed, or approved by the Commission.''.

     SEC. 116. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT 
                   MARKET.

       Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as 
     redesignated by section 111(1)) is amended to read as 
     follows:

     ``SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS 
                   REGISTERED ENTITY.

       ``The failure of a registered entity to comply with any 
     provision of this Act, or any regulation or order of the 
     Commission under this Act, shall be cause for the suspension 
     of the registered entity for a period not to exceed 180 days, 
     or revocation of designation as a registered entity in 
     accordance with the procedures and subject to the judicial 
     review provided in section 6(b).''.

     SEC. 117. AUTHORIZATION OF APPROPRIATIONS.

       Section 12(d) of the Commodity Exchange Act (7 U.S.C. 
     16(d)) is amended by striking ``2000'' and inserting 
     ``2005''.

     SEC. 118. PREEMPTION.

       Section 12 of the Commodity Exchange Act (7 U.S.C. 16(e)) 
     is amended by striking subsection (e) and inserting the 
     following:
       ``(e) Relation to Other Law, Departments, or Agencies.--
       ``(1) Nothing in this Act shall supersede or preempt--
       ``(A) criminal prosecution under any Federal criminal 
     statute;
       ``(B) the application of any Federal or State statute 
     (except as provided in paragraph (2)), including any rule or 
     regulation thereunder, to any transaction in or involving any 
     commodity, product, right, service, or interest--
       ``(i) that is not conducted on or subject to the rules of a 
     registered entity or exempt board of trade;
       ``(ii) (except as otherwise specified by the Commission by 
     rule or regulation) that is not conducted on or subject to 
     the rules of any board of trade, exchange, or market located 
     outside the United States, its territories or possessions; or
       ``(iii) that is not subject to regulation by the Commission 
     under section 4c or 19; or
       ``(C) the application of any Federal or State statute, 
     including any rule or regulation thereunder, to any person 
     required to be registered or designated under this Act who 
     shall fail or refuse to obtain such registration or 
     designation.
       ``(2) This Act shall supersede and preempt the application 
     of any State or local law

[[Page 23649]]

     that prohibits or regulates gaming or the operation of bucket 
     shops (other than antifraud provisions of general 
     applicability) in the case of--
       ``(A) an electronic trading facility under section 2(e);
       ``(B) an agreement, contract, or transaction that is 
     excluded or exempt under section 2(c), 2(d), 2(f), 2(g), or 
     2(h) or is covered by the terms of an exemption granted by 
     the Commission under section 4(c) (regardless of whether any 
     such agreement, contract, or transaction is otherwise subject 
     to this Act).''.

     SEC. 119. PREDISPUTE RESOLUTION AGREEMENTS FOR INSTITUTIONAL 
                   CUSTOMERS.

       Section 14 of the Commodity Exchange Act (7 U.S.C. 18) is 
     amended by striking subsection (g) and inserting the 
     following:
       ``(g) Predispute Resolution Agreements for Institutional 
     Customers.--Nothing in this section prohibits a registered 
     futures commission merchant from requiring a customer that is 
     an eligible contract participant, as a condition to the 
     commission merchant's conducting a transaction for the 
     customer, to enter into an agreement waiving the right to 
     file a claim under this section.''.

     SEC. 120. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST 
                   LAWS.

       Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is 
     amended by striking ``Sec. 15. The Commission'' and inserting 
     the following:

     ``SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST 
                   LAWS.

       ``(a) Costs and Benefits.--
       ``(1) In general.--Before promulgating a regulation under 
     this Act or issuing an order (except as provided in paragraph 
     (3)), the Commission shall consider the costs and benefits of 
     the action of the Commission.
       ``(2) Considerations.--The costs and benefits of the 
     proposed Commission action shall be evaluated in light of--
       ``(A) considerations of protection of market participants 
     and the public;
       ``(B) considerations of the efficiency, competitiveness, 
     and financial integrity of futures markets;
       ``(C) considerations of price discovery;
       ``(D) considerations of sound risk management practices; 
     and
       ``(E) other public interest considerations.
       ``(3) Applicability.--This subsection does not apply to the 
     following actions of the Commission:
       ``(A) An order that initiates, is part of, or is the result 
     of an adjudicatory or investigative process of the 
     Commission.
       ``(B) An emergency action.
       ``(C) A finding of fact regarding compliance with a 
     requirement of the Commission.
       ``(b) Antitrust Laws.--The Commission''.

     SEC. 121. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE 
                   COUNTERPARTIES.

       Section 22(a) of the Commodity Exchange Act (7 U.S.C. 
     25(a)) is amended by adding at the end the following:
       ``(4) Contract enforcement between eligible 
     counterparties.--No agreement, contract, or transaction 
     between eligible contract participants or persons reasonably 
     believed to be eligible contract participants shall be void, 
     voidable, or unenforceable, and no such party shall be 
     entitled to rescind, or recover any payment made with respect 
     to, such an agreement, contract, or transaction, under this 
     section or any other provision of Federal or State law, based 
     solely on the failure of the agreement, contract, or 
     transaction to comply with the terms or conditions of an 
     exemption or exclusion from any provision of this Act or 
     regulations of the Commission.''.

     SEC. 122. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA 
                   FIDE HEDGING BY AGRICULTURAL PRODUCERS.

       The Commodity Exchange Act, as otherwise amended by this 
     Act, is amended by inserting after section 4o the following:

     ``SEC. 4P. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE 
                   BONA FIDE HEDGING BY AGRICULTURAL PRODUCERS.

       ``(a) Authority.--The Commission shall consider issuing 
     rules or orders which--
       ``(1) prescribe procedures under which each contract market 
     is to provide for orderly delivery, including temporary 
     storage costs, of any agricultural commodity enumerated in 
     section 1a(4) which is the subject of a contract for purchase 
     or sale for future delivery;
       ``(2) increase the ease with which domestic agricultural 
     producers may participate in contract markets, including by 
     addressing cost and margin requirements, so as to better 
     enable the producers to hedge price risk associated with 
     their production;
       ``(3) provide flexibility in the minimum quantities of such 
     agricultural commodities that may be the subject of a 
     contract for purchase or sale for future delivery that is 
     traded on a contract market, to better allow domestic 
     agricultural producers to hedge such price risk; and
       ``(4) encourage contract markets to provide information and 
     otherwise facilitate the participation of domestic 
     agricultural producers in contract markets.
       ``(b) Report.--Within 1 year after the date of enactment of 
     this section, the Commission shall submit to the Committee on 
     Agriculture of the House of Representatives and the Committee 
     on Agriculture, Nutrition, and Forestry of the Senate a 
     report on the steps it has taken to implement this section 
     and on the activities of contract markets pursuant to this 
     section.''.

     SEC. 123. RULE OF CONSTRUCTION.

       Except as expressly provided in this Act or an amendment 
     made by this Act, nothing in this Act or an amendment made by 
     the Act supersedes, affects, or otherwise limits or expands 
     the scope and applicability of laws governing the Securities 
     and Exchange Commission.

     SEC. 124. TECHNICAL AND CONFORMING AMENDMENTS.

       (a) Commodity Exchange Act.--
       (1) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a), 
     as amended by section 101, is amended--
       (A) in paragraphs (5), (6), (16), (17), (20), and (23), by 
     inserting ``or derivatives transaction execution facility'' 
     after ``contract market'' each place it appears; and
       (B) in paragraph (24)--
       (i) in the paragraph heading, by striking ``contract 
     market'' and inserting ``registered entity'';
       (ii) by striking ``contract market'' each place it appears 
     and inserting ``registered entity''; and
       (iii) by adding at the end the following:
     ``A participant in an alternative trading system that is 
     designated as a contract market pursuant to section 5f is 
     deemed a member of the contract market for purposes of 
     transactions in security futures products through the 
     contract market.''.
       (2) Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 
     2a, 4, 4a, 3) is amended--
       (A) by striking ``Sec. 2. (a)(1)(A)(i) The'' and inserting 
     the following:

     ``SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL 
                   FOR ACT OF AGENT; COMMODITY FUTURES TRADING 
                   COMMISSION; TRANSACTION IN INTERSTATE COMMERCE.

       ``(a) Jurisdiction of Commission; Commodity Futures Trading 
     Commission.--
       ``(1) Jurisdiction of commission.--
       ``(A) In general.--The''; and
       (B) in subsection (a)(1)--
       (i) in subparagraph (A) (as amended by subparagraph (A) of 
     this paragraph)--

       (II) by striking ``subparagraph (B) of this subparagraph'' 
     and inserting ``subparagraphs (C) and (D) of this paragraph 
     and subsections (c) through (i) of this section'';
       (III) by striking ``contract market designated pursuant to 
     section 5 of this Act'' and inserting ``contract market 
     designated or derivatives transaction execution facility 
     registered pursuant to section 5 or 5a'';
       (IV) by striking clause (ii); and
       (V) in clause (iii), by striking ``(iii) The'' and 
     inserting the following:

       ``(B) Liability of principal for act of agent.--The''; and
       (ii) in subparagraph (B)--

       (I) by striking ``(B)'' and inserting ``(C)'';
       (II) in clause (v)--

       (aa) by striking ``section 3 of the Securities Act of 
     1933''; and
       (bb) by inserting ``or subparagraph (D)'' after 
     ``subparagraph''; and

       (III) by moving clauses (i) through (v) 4 ems to the right;

       (C) in subsection (a)(7), by striking ``contract market'' 
     and inserting ``registered entity'';
       (D) in subsection (a)(8)(B)(ii)--
       (i) in the first sentence, by striking ``designation as a 
     contract market'' and inserting ``designation or registration 
     as a contract market or derivatives transaction execution 
     facility'';
       (ii) in the second sentence, by striking ``designate a 
     board of trade as a contract market'' and inserting 
     ``designate or register a board of trade as a contract market 
     or derivatives transaction execution facility''; and
       (iii) in the fourth sentence, by striking ``designating, or 
     refusing, suspending, or revoking the designation of, a board 
     of trade as a contract market involving transactions for 
     future delivery referred to in this clause or in considering 
     possible emergency action under section 8a(9) of this Act'' 
     and inserting ``designating, registering, or refusing, 
     suspending, or revoking the designation or registration of, a 
     board of trade as a contract market or derivatives 
     transaction execution facility involving transactions for 
     future delivery referred to in this clause or in considering 
     any possible action under this Act (including without 
     limitation emergency action under section 8a(9))'', and by 
     striking ``designation, suspension, revocation, or emergency 
     action'' and inserting ``designation, registration, 
     suspension, revocation, or action''; and
       (E) in subsection (a), by moving paragraphs (2) through (9) 
     2 ems to the right.
       (3) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is 
     amended--
       (A) in subsection (a)--
       (i) in paragraph (1), by striking ``designated by the 
     Commission as a `contract market' for'' and inserting 
     ``designated or registered by the Commission as a contract 
     market or derivatives transaction execution facility for'';
       (ii) in paragraph (2), by striking ``member of such''; and

[[Page 23650]]

       (iii) in paragraph (3), by inserting ``or derivatives 
     transaction execution facility'' after ``contract market''; 
     and
       (B) in subsection (c)--
       (i) in paragraph (1)--

       (I) by striking ``designated as a contract market'' and 
     inserting ``designated or registered as a contract market or 
     derivatives transaction execution facility''; and
       (II) by striking ``section 2(a)(1)(B)'' and inserting 
     ``subparagraphs (C)(ii) and (D) of section 2(a)(1), except 
     that the Commission and the Securities and Exchange 
     Commission may by rule, regulation, or order jointly exclude 
     any agreement, contract, or transaction from section 
     2(a)(1)(D)''; and

       (ii) in paragraph (2)(B)(ii), by inserting ``or derivatives 
     transaction execution facility'' after ``contract market''.
       (4) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) 
     is amended--
       (A) in subsection (a)--
       (i) in the first sentence, by inserting ``or derivatives 
     transaction execution facilities'' after ``contract 
     markets''; and
       (ii) in the second sentence, by inserting ``or derivatives 
     transaction execution facility'' after ``contract market'';
       (B) in subsection (b)--
       (i) in paragraph (1), by inserting ``, or derivatives 
     transaction execution facility or facilities,'' after 
     ``markets''; and
       (ii) in paragraph (2), by inserting ``or derivatives 
     transaction execution facility'' after ``contract market''; 
     and
       (C) in subsection (e)--
       (i) by striking ``contract market or'' each place it 
     appears and inserting ``contract market, derivatives 
     transaction execution facility, or'';
       (ii) by striking ``licensed or designated'' each place it 
     appears and inserting ``licensed, designated, or 
     registered''; and
       (iii) by striking ``contract market, or'' and inserting 
     ``contract market or derivatives transaction execution 
     facility, or''.
       (5) Section 4b(a) of the Commodity Exchange Act (7 U.S.C. 
     6b(a)) is amended by striking ``contract market'' each place 
     it appears and inserting ``registered entity''.
       (6) Sections 4c(g), 4d, 4e, and 4f of the Commodity 
     Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f) are amended by 
     inserting ``or derivatives transaction execution facility'' 
     after ``contract market'' each place it appears.
       (7) Section 4g of the Commodity Exchange Act (7 U.S.C. 6g) 
     is amended--
       (A) in subsection (b), by striking ``clearinghouse and 
     contract market'' and inserting ``registered entity''; and
       (B) in subsection (f), by striking ``clearinghouses, 
     contract markets, and exchanges'' and inserting ``registered 
     entities''.
       (8) Section 4h of the Commodity Exchange Act (7 U.S.C. 6h) 
     is amended by striking ``contract market'' each place it 
     appears and inserting ``registered entity''.
       (9) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i) 
     is amended in the first sentence by inserting ``or 
     derivatives transaction execution facility'' after ``contract 
     market''.
       (10) Section 4l of the Commodity Exchange Act (7 U.S.C. 6l) 
     is amended by inserting ``or derivatives transaction 
     execution facilities'' after ``contract markets'' each place 
     it appears.
       (11) Section 4p of the Commodity Exchange Act (7 U.S.C. 6p) 
     is amended--
       (A) in the third sentence of subsection (a), by striking 
     ``Act or contract markets'' and inserting ``Act, contract 
     markets, or derivatives transaction execution facilities''; 
     and
       (B) in subsection (b), by inserting ``derivatives 
     transaction execution facility,'' after ``contract market,''.
       (12) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 
     9, 9a, 9b, 13b, 15) is amended--
       (A) in subsection (a)--
       (i) in the first sentence--

       (I) by striking ``board of trade desiring to be designated 
     a `contract market' shall make application to the Commission 
     for such designation'' and inserting ``person desiring to be 
     designated or registered as a contract market or derivatives 
     transaction execution facility shall make application to the 
     Commission for the designation or registration'';
       (II) by striking ``above conditions'' and inserting 
     ``conditions set forth in this Act''; and
       (III) by striking ``above requirements'' and inserting 
     ``the requirements of this Act'';

       (ii) in the second sentence, by striking ``designation as a 
     contract market within one year'' and inserting ``designation 
     or registration as a contract market or derivatives 
     transaction execution facility within 180 days'';
       (iii) in the third sentence--

       (I) by striking ``board of trade'' and inserting 
     ``person''; and
       (II) by striking ``one-year period'' and inserting ``180-
     day period''; and

       (iv) in the last sentence, by striking ``designate as a 
     `contract market' any board of trade that has made 
     application therefor, such board of trade'' and inserting 
     ``designate or register as a contract market or derivatives 
     transaction execution facility any person that has made 
     application therefor, the person'';
       (B) in subsection (b)--
       (i) in the first sentence--

       (I) by striking ``designation of any board of trade as a 
     `contract market' upon'' and inserting ``designation or 
     registration of any contract market or derivatives 
     transaction execution facility on'';
       (II) by striking ``board of trade'' each place it appears 
     and inserting ``contract market or derivatives transaction 
     execution facility''; and
       (III) by striking ``designation as set forth in section 5 
     of this Act'' and inserting ``designation or registration as 
     set forth in sections 5 through 5b or section 5f'';

       (ii) in the second sentence--

       (I) by striking ``board of trade'' the first place it 
     appears and inserting ``contract market or derivatives 
     transaction execution facility''; and
       (II) by striking ``board of trade'' the second and third 
     places it appears and inserting ``person''; and

       (iii) in the last sentence, by striking ``board of trade'' 
     each place it appears and inserting ``person'';
       (C) in subsection (c)--
       (i) by striking ``contract market'' each place it appears 
     and inserting ``registered entity'';
       (ii) by striking ``contract markets'' each place it appears 
     and inserting ``registered entities''; and
       (iii) by striking ``trading privileges'' each place it 
     appears and inserting ``privileges'';
       (D) in subsection (d), by striking ``contract market'' each 
     place it appears and inserting ``registered entity''; and
       (E) in subsection (e), by striking ``trading on all 
     contract markets'' each place it appears and inserting ``the 
     privileges of all registered entities''.
       (13) Section 6a of the Commodity Exchange Act (7 U.S.C. 
     10a) is amended--
       (A) in the first sentence of subsection (a), by striking 
     ``designated as a `contract market' shall'' and inserting 
     ``designated or registered as a contract market or a 
     derivatives transaction execution facility''; and
       (B) in subsection (b), by striking ``designated as a 
     contract market'' and inserting ``designated or registered as 
     a contract market or a derivatives transaction execution 
     facility''.
       (14) Section 6b of the Commodity Exchange Act (7 U.S.C. 
     13a) is amended--
       (A) by striking ``contract market'' each place it appears 
     and inserting ``registered entity'';
       (B) in the first sentence, by striking ``designation as set 
     forth in section 5 of this Act'' and inserting ``designation 
     or registration as set forth in sections 5 through 5c''; and
       (C) in the last sentence, by striking ``the contract 
     market's ability'' and inserting ``the ability of the 
     registered entity''.
       (15) Section 6c(a) of the Commodity Exchange Act (7 U.S.C. 
     13a-1(a)) by striking ``contract market'' and inserting 
     ``registered entity''.
       (16) Section 6d(1) of the Commodity Exchange Act (7 U.S.C. 
     13a-2(1)) is amended by inserting ``derivatives transaction 
     execution facility,'' after ``contract market,''.
       (17) Section 7 of the Commodity Exchange Act (7 U.S.C. 11) 
     is amended--
       (A) in the first sentence--
       (i) by striking ``board of trade'' and inserting 
     ``person'';
       (ii) by inserting ``or registered'' after ``designated'';
       (iii) by inserting ``or registration'' after 
     ``designation'' each place it appears; and
       (iv) by striking ``contract market'' each place it appears 
     and inserting ``registered entity'';
       (B) in the second sentence--
       (i) by striking ``designation of such board of trade as a 
     contract market'' and inserting ``designation or registration 
     of the registered entity''; and
       (ii) by striking ``contract markets'' and inserting 
     ``registered entities''; and
       (C) in the last sentence--
       (i) by striking ``board of trade'' and inserting 
     ``person''; and
       (ii) by striking ``designated again a contract market'' and 
     inserting ``designated or registered again a registered 
     entity''.
       (18) Section 8(c) of the Commodity Exchange Act (7 U.S.C. 
     12(c)) is amended in the first sentence by striking ``board 
     of trade'' and inserting ``registered entity''.
       (19) Section 8a of the Commodity Exchange Act (7 U.S.C. 
     12a) is amended--
       (A) by striking ``contract market'' each place it appears 
     and inserting ``registered entity''; and
       (B) in paragraph (2)(F), by striking ``trading privileges'' 
     and inserting ``privileges''.
       (20) Sections 8b and 8c(e) of the Commodity Exchange Act (7 
     U.S.C. 12b, 12c(e)) are amended by striking ``contract 
     market'' each place it appears and inserting ``registered 
     entity''.
       (21) Section 8e of the Commodity Exchange Act (7 U.S.C. 
     12e) is repealed.
       (22) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) 
     is amended by striking ``contract market'' each place it 
     appears and inserting ``registered entity''.
       (23) Section 14 of the Commodity Exchange Act (7 U.S.C. 18) 
     is amended--
       (A) in subsection (a)(1)(B), by striking ``contract 
     market'' and inserting ``registered entity''; and
       (B) in subsection (f), by striking ``contract markets'' and 
     inserting ``registered entities''.
       (24) Section 17 of the Commodity Exchange Act (7 U.S.C. 21) 
     is amended by striking

[[Page 23651]]

     ``contract market'' each place it appears and inserting 
     ``registered entity''.
       (25) Section 22 of the Commodity Exchange Act (7 U.S.C. 25) 
     is amended--
       (A) in subsection (a)--
       (i) in paragraph (1)--

       (I) by striking ``contract market, clearing organization of 
     a contract market, licensed board of trade,'' and inserting 
     ``registered entity''; and
       (II) in subparagraph (C)(i), by striking ``contract 
     market'' and inserting ``registered entity'';

       (ii) in paragraph (2), by striking ``sections 5a(11),'' and 
     inserting ``sections 5(d)(13), 5b(b)(1)(E),''; and
       (iii) in paragraph (3), by striking ``contract market'' and 
     inserting ``registered entity''; and
       (B) in subsection (b)--
       (i) in paragraph (1)--

       (I) by striking ``contract market or clearing organization 
     of a contract market'' and inserting ``registered entity'';
       (II) by striking ``section 5a(8) and section 5a(9) of this 
     Act'' and inserting ``sections 5 through 5c'';
       (III) by striking ``contract market, clearing organization 
     of a contract market, or licensed board of trade'' and 
     inserting ``registered entity''; and
       (IV) by striking ``contract market or licensed board of 
     trade'' and inserting ``registered entity'';

       (ii) in paragraph (3)--

       (I) by striking ``a contract market, clearing organization, 
     licensed board of trade,'' and inserting ``registered 
     entity''; and
       (II) by striking ``contract market, licensed board of 
     trade'' and inserting ``registered entity'';

       (iii) in paragraph (4), by striking ``contract market, 
     licensed board of trade, clearing organization,'' and 
     inserting ``registered entity''; and
       (iv) in paragraph (5), by striking ``contract market, 
     licensed board of trade, clearing organization,'' and 
     inserting ``registered entity''.
       (b) Federal Deposit Insurance Corporation Improvement Act 
     of 1991.--Section 402(2) of the Federal Deposit Insurance 
     Corporation Improvement Act of 1991 (12 U.S.C. 4402(2)) is 
     amended by striking subparagraph (B) and inserting the 
     following:
       ``(B) that is registered as a derivatives clearing 
     organization under section 5b of the Commodity Exchange 
     Act.''.
       (c) Tax Treatment of Securities Futures Contracts.--
       (1) In general.--Subpart IV of subchapter P of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to special rules 
     for determining gains and losses) is amended by inserting 
     after section 1234A the following new section:

     ``SEC. 1234B. GAINS OR LOSSES FROM SECURITIES FUTURES 
                   CONTRACTS.

       ``(a) Treatment of Gain or Loss.--
       ``(1) In general.--Gain or loss attributable to the sale or 
     exchange of a securities futures contract shall be considered 
     gain or loss from the sale or exchange of property which has 
     the same character as the property to which the contract 
     relates has in the hands of the taxpayer (or would have in 
     the hands of the taxpayer if acquired by the taxpayer).
       ``(2) Nonapplication of subsection.--This subsection shall 
     not apply to--
       ``(A) a contract which constitutes property described in 
     paragraph (1) or (7) of section 1221(a), and
       ``(B) any income derived in connection with a contract 
     which, without regard to this subsection, is treated as other 
     than gain from the sale or exchange of a capital asset.
       ``(b) Short-Term Gains and Losses.--Except as provided in 
     the regulations under section 1092(b) or this section, if 
     gain or loss on the sale or exchange of a securities futures 
     contract to sell property is considered as gain or loss from 
     the sale or exchange of a capital asset, such gain or loss 
     shall be treated as short-term capital gain or loss.
       ``(c) Securities Futures Contract.--For purposes of this 
     section, the term `securities futures contract' means any 
     security future (as defined in section 3(a)(55)(A) of the 
     Securities Exchange Act of 1934, as in effect on the date of 
     the enactment of this section).
       ``(d) Contracts Not Treated as Commodity Futures 
     Contracts.--For purposes of this title, a securities futures 
     contract shall not be treated as a commodity futures 
     contract.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to provide for the proper 
     treatment of securities futures contracts under this title.''
       (2) Terminations, etc.--Section 1234A of such Code is 
     amended--
       (A) by inserting ``(other than a securities futures 
     contract, as defined in section 1234B)'' after ``right or 
     obligation'' in paragraph (1),
       (B) by striking ``or'' at the end of paragraph (1),
       (C) by adding ``or'' at the end of paragraph (2), and
       (D) by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) a securities futures contract (as so defined) which 
     is a capital asset in the hands of the taxpayer,''.
       (3) Nonrecognition under section 1032.--The second sentence 
     of section 1032(a) of such Code is amended by inserting ``, 
     or with respect to a securities futures contract (as defined 
     in section 1234B),'' after ``an option''.
       (4) Treatment under wash sales rules.--Section 1091 of such 
     Code is amended by adding at the end the following new 
     subsection:
       ``(f) Cash Settlement.--This section shall not fail to 
     apply to a contract or option to acquire or sell stock or 
     securities solely by reason of the fact that the contract or 
     option settles in (or could be settled in) cash or property 
     other than such stock or securities.''
       (5) Treatment under straddle rules.--Clause (i) of section 
     1092(d)(3)(B) of such Code is amended by striking ``or'' at 
     the end of subclause (I), by redesignating subclause (II) as 
     subclause (III), and by inserting after subclause (I) the 
     following new subclause:

       ``(II) a securities futures contract (as defined in section 
     1234B) with respect to such stock or substantially identical 
     stock or securities, or''.

       (6) Treatment under short sales rules.--Paragraph (2) of 
     section 1233(e) of such Code is amended by striking ``and'' 
     at the end of subparagraph (B), by striking the period at the 
     end of subparagraph (C) and inserting ``; and'', and by 
     adding at the end the following:
       ``(D) a securities futures contract (as defined in section 
     1234B) to acquire substantially identical property shall be 
     treated as substantially identical property.''
       (7) Treatment under section 1256.--
       (A)(i) Subsection (b) of section 1256 of such Code is 
     amended by striking ``and'' at the end of paragraph (3), by 
     striking the period at the end of paragraph (4) and inserting 
     ``, and'', and by adding at the end the following:
       ``(5) any dealer securities futures contract.
     The term `section 1256 contract' shall not include any 
     securities futures contract or option to enter into such a 
     contract unless such contract or option is a dealer 
     securities futures contract.''
       (ii) Subsection (g) of section 1256 of such Code is amended 
     by adding at the end the following new paragraph:
       ``(9) Dealer securities futures contract.--
       ``(A) In general.--The term `dealer securities futures 
     contract' means, with respect to any dealer, any securities 
     futures contract, and any option to enter into such a 
     contract, which--
       ``(i) is entered into by such dealer (or, in the case of an 
     option, is purchased or granted by such dealer) in the normal 
     course of his activity of dealing in such contracts or 
     options, as the case may be, and
       ``(ii) is traded on a qualified board or exchange.
       ``(B) Dealer.--For purposes of subparagraph (A), a person 
     shall be treated as a dealer in securities futures contracts 
     or options on such contracts if the Secretary determines that 
     such person performs, with respect to such contracts or 
     options, as the case may be, functions similar to the persons 
     described in paragraph (8)(A). Such determination shall be 
     made to the extent appropriate to carry out the purposes of 
     this section.
       ``(C) Securities futures contract.--The term `securities 
     futures contract' has the meaning given to such term by 
     section 1234B.''
       (B) Paragraph (4) of section 1256(f) of such Code is 
     amended--
       (i) by inserting ``, or dealer securities futures 
     contracts,'' after ``dealer equity options'' in the text, and
       (ii) by inserting ``and dealer securities futures 
     contracts'' after ``dealer equity options'' in the heading.
       (C) Paragraph (6) of section 1256(g) of such Code is 
     amended to read as follows:
       ``(6) Equity option.--The term `equity option' means any 
     option--
       ``(A) to buy or sell stock, or
       ``(B) the value of which is determined directly or 
     indirectly by reference to any stock or any narrow-based 
     security index (as defined in section 3(a)(55) of the 
     Securities Exchange Act of 1934, as in effect on the date of 
     the enactment of this paragraph).
     The term `equity option' includes such an option with respect 
     to a group of stocks only if such group meets the 
     requirements for a narrow-based security index (as so 
     defined).''
       (D) The Secretary of the Treasury or his delegate shall 
     make the determinations under section 1256(g)(9)(B) of the 
     Internal Revenue Code of 1986, as added by this Act, not 
     later than July 1, 2001.
       (8) Conforming amendments.--
       (A) Section 1223 of such Code is amended by redesignating 
     paragraph (16) as paragraph (17) and by inserting after 
     paragraph (15) the following new paragraph:
       ``(16) If the security to which a securities futures 
     contract (as defined in section 1234B) relates (other than a 
     contract to which section 1256 applies) is acquired in 
     satisfaction of such contract, in determining the period for 
     which the taxpayer has held such security, there shall be 
     included the period for which the taxpayer held such contract 
     if such contract was a capital asset in the hands of the 
     taxpayer.''.
       (B) The table of sections for subpart IV of subchapter P of 
     chapter 1 of such Code is

[[Page 23652]]

     amended by inserting after the item relating to section 1234A 
     the following new item:

``Sec. 1234B. Securities futures contracts.''
       (9) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.
       (d) Designation of Contract Markets.--Section 7701 of the 
     Internal Revenue Code of 1986 is amended by redesignating 
     subsection (m) as subsection (n) and by inserting after 
     subsection (l) the following new subsection:
       ``(m) Designation of Contract Markets.--Any designation by 
     the Commodity Futures Trading Commission of a contract market 
     which could not have been made under the law in effect on the 
     day before the date of the enactment of the Commodity Futures 
     Modernization Act of 2000 shall apply for purposes of this 
     title except to the extent provided in regulations prescribed 
     by the Secretary.''

     SEC. 125. PRIVACY.

       The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended 
     by inserting after section 5f (as added by section 222) the 
     following:

     ``SEC. 5G. PRIVACY.

       ``(a) Treatment as Financial Institutions.--Notwithstanding 
     section 509(3)(B) of the Gramm-Leach-Bliley Act, any futures 
     commission merchant, commodity trading advisor, commodity 
     pool operator, or introducing broker that is subject to the 
     jurisdiction of the Commission under this Act with respect to 
     any financial activity shall be treated as a financial 
     institution for purposes of title V of such Act with respect 
     to such financial activity.
       ``(b) Treatment of CFTC as Federal Functional Regulator.--
     For purposes of title V of such Act, the Commission shall be 
     treated as a Federal functional regulator within the meaning 
     of section 509(2) of such Act and shall prescribe regulations 
     under such title within 6 months after the date of enactment 
     of this section.''.

     SEC. 126. REPORT TO CONGRESS.

       (a) The Commodity Futures Trading Commission (in this 
     section referred to as the ``Commission'') shall undertake 
     and complete a study of the Commodity Exchange Act (in this 
     section referred to as ``the Act'') and the Commission's 
     rules, regulations and orders governing the conduct of 
     persons required to be registered under the Act, not later 
     than 1 year after the date of the enactment of this Act. The 
     study shall identify--
       (1) the core principles and interpretations of acceptable 
     business practices that the Commission has adopted or intends 
     to adopt to replace the provisions of the Act and the 
     Commission's rules and regulations thereunder;
       (2) the rules and regulations that the Commission has 
     determined must be retained and the reasons therefor;
       (3) the extent to which the Commission believes it can 
     effect the changes identified in paragraph (1) of this 
     subsection through its exemptive authority under section 4(c) 
     of the Act; and
       (4) the regulatory functions the Commission currently 
     performs that can be delegated to a registered futures 
     association (within the meaning of the Act) and the 
     regulatory functions that the Commission has determined must 
     be retained and the reasons therefor.
       (b) In conducting the study, the Commission shall solicit 
     the views of the public as well as Commission registrants, 
     registered entities, and registered futures associations (all 
     within the meaning of the Act).
       (c) The Commission shall transmit to the Committee on 
     Agriculture of the House of Representatives and the Committee 
     on Agriculture, Nutrition, and Forestry of the Senate a 
     report of the results of its study, which shall include an 
     analysis of comments received.

     SEC. 127. INTERNATIONAL ACTIVITIES OF THE COMMODITY FUTURES 
                   TRADING COMMISSION.

       (a) Findings.--The Congress finds that--
       (1) derivatives markets serving United States industry are 
     increasingly global in scope;
       (2) developments in data processing and communications 
     technologies enable users of risk management services to 
     analyze and compare those services on a worldwide basis;
       (3) financial services regulatory policy must be flexible 
     to account for rapidly changing derivatives industry business 
     practices;
       (4) regulatory impediments to the operation of global 
     business interests can compromise the competitiveness of 
     United States businesses;
       (5) events that disrupt financial markets and economies are 
     often global in scope, require rapid regulatory response, and 
     coordinated regulatory effort across international 
     jurisdictions;
       (6) through its membership in the International 
     Organisation of Securities Commissions, the Commodity Futures 
     Trading Commission has promoted beneficial communication 
     among market regulators and international regulatory 
     cooperation; and
       (7) the Commodity Futures Trading Commission and other 
     United States financial regulators and self-regulatory 
     organizations should continue to foster productive and 
     cooperative working relationships with their counterparts in 
     foreign jurisdictions.
       (b) Sense of the Congress.--It is the sense of the Congress 
     that, consistent with its responsibilities under the 
     Commodity Exchange Act, the Commodity Futures Trading 
     Commission should, as part of its international activities, 
     continue to coordinate with foreign regulatory authorities, 
     to participate in international regulatory organizations and 
     forums, and to provide technical assistance to foreign 
     government authorities, in order to encourage--
       (1) the facilitation of cross-border transactions through 
     the removal or lessening of any unnecessary legal or 
     practical obstacles;
       (2) the development of internationally accepted regulatory 
     standards of best practice;
       (3) the enhancement of international supervisory 
     cooperation and emergency procedures;
       (4) the strengthening of international cooperation for 
     customer and market protection; and
       (5) improvements in the quality and timeliness of 
     international information sharing.

     SEC. 128. RULES OF CONSTRUCTION.

       (a) Financial Institution Activities.--No provision of this 
     Act, or any amendment made by this Act to any other provision 
     of law, shall be construed as authorizing, supporting the 
     authorization for, or implying any prior authorization for, 
     any financial institution (as defined in section 1a(15) of 
     the Commodity Exchange Act), or any subsidiary of such 
     financial institution, to engage in any activity or 
     transaction or to hold any security or other asset.
       (b) Depository Institutions.--Section 18 of the Federal 
     Deposit Insurance Act (12 U.S.C. 1828) is amended by adding 
     at the end the following new subsection:
       ``(v) Rules of Construction.--
       ``(1) In general.--No depository institution may take 
     delivery of an equity security under a security futures 
     product (as defined in section 3(a)(56) of the Securities 
     Exchange Act of 1934).
       ``(2) Additional rule.--Paragraph (1) shall not be 
     construed as creating any inference that a depository 
     institution may take delivery of, or make any investment in, 
     an equity security under any other circumstance.''.

     TITLE II--COORDINATED REGULATION OF SECURITY FUTURES PRODUCTS

                 Subtitle A--Securities Law Amendments

     SEC. 201. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 
                   1934.

       Section 3(a) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78c(a)) is amended--
       (1) in paragraph (10), by inserting ``security future,'' 
     after ``treasury stock,'';
       (2) by striking paragraph (11) and inserting the following:
       ``(11) The term `equity security' means any stock or 
     similar security; or any security future on any such 
     security; or any security convertible, with or without 
     consideration, into such a security, or carrying any warrant 
     or right to subscribe to or purchase such a security; or any 
     such warrant or right; or any put, call, straddle, option, or 
     privilege on any such security; or any other security which 
     the Commission shall deem to be of similar nature and 
     consider necessary or appropriate, by such rules and 
     regulations as it may prescribe in the public interest or for 
     the protection of investors, to treat as an equity 
     security.'';
       (3) in paragraph (13), by adding at the end the following: 
     ``For security futures products, such term includes any 
     contract, agreement, or transaction for future delivery.'';
       (4) in paragraph (14), by adding at the end the following: 
     ``For security futures products, such term includes any 
     contract, agreement, or transaction for future delivery.''; 
     and
       (5) by adding at the end the following:
       ``(55)(A) The term `security future' means a contract of 
     sale for future delivery of a single security or of a narrow-
     based security index, including any interest therein or based 
     on the value thereof, except an exempted security under 
     section 3(a)(12) of the Securities Exchange Act of 1934 as in 
     effect on the date of enactment of the Futures Trading Act of 
     1982 (other than any municipal security as defined in section 
     3(a)(29) as in effect on the date of enactment of the Futures 
     Trading Act of 1982). The term `security future' does not 
     include any agreement, contract, or transaction excluded 
     under subsection (c), (d), (f), or (h) of section 2 of the 
     Commodity Exchange Act as in effect on the date of enactment 
     of the Commodity Futures Modernization Act of 2000.
       ``(B) The term `narrow-based security index' means an 
     index--
       ``(i) that has 9 or fewer component securities;
       ``(ii) in which a component security comprises more than 30 
     percent of the index's weighting;
       ``(iii) in which the 5 highest weighted component 
     securities in the aggregate comprise more than 60 percent of 
     the index's weighting; or
       ``(iv) in which the lowest weighted component securities 
     comprising, in the aggregate, 25 percent of the index's 
     weighting have an aggregate dollar value of average daily 
     trading volume of less than $50,000,000 (or in the case of an 
     index with 15 or more component securities, $30,000,000), 
     except that if there are two or more securities with equal 
     weighting that could be included in the calculation of the 
     lowest weighted component securities comprising, in the 
     aggregate, 25

[[Page 23653]]

     percent of the index's weighting, such securities shall be 
     ranked from lowest to highest dollar value of average daily 
     trading volume and shall be included in the calculation based 
     on their ranking starting with the lowest ranked security.
       ``(C) Notwithstanding subparagraph (B), an index is not a 
     narrow-based security index if--
       ``(i)(I) it has at least 9 component securities;
       ``(II) no component security comprises more than 30 percent 
     of the index's weighting; and
       ``(III) each component security is--
       ``(aa) registered pursuant to section 12 of this title;
       ``(bb) 1 of 750 securities with the largest market 
     capitalization; and
       ``(cc) 1 of 675 securities with the largest dollar value of 
     average daily trading volume;
       ``(ii) it is a contract of sale for future delivery with 
     respect to which a board of trade was designated as a 
     contract market by the Commodity Futures Trading Commission 
     prior to the date of enactment of the Commodity Futures 
     Modernization Act of 2000;
       ``(iii)(I) it traded on a designated contract market or 
     registered derivatives transaction execution facility for at 
     least 30 days as a contract of sale for future delivery that 
     was not a narrow-based security index; and
       ``(II) it has been a narrow-based security index for no 
     more than 45 business days over 3 consecutive calendar 
     months;
       ``(iv) it is traded on or subject to the rules of a foreign 
     board of trade and meets such requirements as are jointly 
     established by rule or regulation by the Commission and the 
     Commodity Futures Trading Commission;
       ``(v) no more than 18 months have passed since enactment of 
     the Commodity Futures Modernization Act of 2000 and it is (I) 
     traded on or subject to the rules of a foreign board of 
     trade; (II) the offer and sale in the United States of a 
     contract of sale for future delivery on such index was 
     authorized prior to the effective date of the Commodity 
     Futures Modernization Act of 2000; and (III) the conditions 
     of such authorization continue to be met; or
       ``(vi) it is traded on or subject to the rules of a board 
     of trade and meets such requirements as are jointly 
     established by rule, regulation, or order by the Commission 
     and the Commodity Futures Trading Commission.
       ``(D) Within 1 year after the enactment of the Commodity 
     Futures Modernization Act of 2000, the Commission and the 
     Commodity Futures Trading Commission jointly shall adopt 
     rules or regulations that set forth the requirements under 
     clause (iv) of subparagraph (C).
       ``(E) An index that is a narrow-based security index solely 
     because it was a narrow-based security index for more than 45 
     business days over 3 consecutive calendar months pursuant to 
     clause (iii) of subparagraph (C) shall not be a narrow-based 
     security index for the 3 following calendar months.
       ``(F) For purposes of subparagraphs (B) and (C) of this 
     paragraph--
       ``(i) the dollar value of average daily trading volume and 
     the market capitalization shall be calculated as of the 
     preceding 6 full calendar months; and
       ``(ii) the Commission and the Commodity Futures Trading 
     Commission shall, by rule or regulation, jointly specify the 
     method to be used to determine market capitalization and 
     dollar value of average daily trading volume.
       ``(56) The term `security futures product' means a security 
     future or any put, call, straddle, option, or privilege on 
     any security future.
       ``(57)(A) The term `margin', when used with respect to a 
     security futures product, means the amount, type, and form of 
     collateral required to secure any extension or maintenance of 
     credit, or the amount, type, and form of collateral required 
     as a performance bond related to the purchase, sale, or 
     carrying of a security futures product.
       ``(B) The terms `margin level' and `level of margin', when 
     used with respect to a security futures product, mean the 
     amount of margin required to secure any extension or 
     maintenance of credit, or the amount of margin required as a 
     performance bond related to the purchase, sale, or carrying 
     of a security futures product.
       ``(C) The terms `higher margin level' and `higher level of 
     margin', when used with respect to a security futures 
     product, mean a margin level established by a national 
     securities exchange registered pursuant to section 6(g) that 
     is higher than the minimum amount established and in effect 
     pursuant to section 7(c)(2)(B).''.

     SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING SECURITY 
                   FUTURES PRODUCTS.

       (a) Expedited Registration and Exemption.--Section 6 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by 
     adding at the end the following:
       ``(g) Notice Registration of Security Futures Product 
     Exchanges.--
       ``(1) Registration required.--An exchange that lists or 
     trades security futures products may register as a national 
     securities exchange solely for the purposes of trading 
     security futures products if--
       ``(A) the exchange is a board of trade, as that term is 
     defined by the Commodity Exchange Act (7 U.S.C. 1a(2)), 
     that--
       ``(i) has been designated a contract market by the 
     Commodity Futures Trading Commission and such designation is 
     not suspended by order of the Commodity Futures Trading 
     Commission; or
       ``(ii) is registered as a derivative transaction execution 
     facility under section 5a of the Commodity Exchange Act and 
     such registration is not suspended by the Commodity Futures 
     Trading Commission; and
       ``(B) such exchange does not serve as a market place for 
     transactions in securities other than--
       ``(i) security futures products; or
       ``(ii) futures on exempted securities or groups or indexes 
     of securities or options thereon that have been authorized 
     under section 2(a)(1)(C) of the Commodity Exchange Act.
       ``(2) Registration by notice filing.--
       ``(A) Form and content.--An exchange required to register 
     only because such exchange lists or trades security futures 
     products may register for purposes of this section by filing 
     with the Commission a written notice in such form as the 
     Commission, by rule, may prescribe containing the rules of 
     the exchange and such other information and documents 
     concerning such exchange, comparable to the information and 
     documents required for national securities exchanges under 
     section 6(a), as the Commission, by rule, may prescribe as 
     necessary or appropriate in the public interest or for the 
     protection of investors. If such exchange has filed documents 
     with the Commodity Futures Trading Commission, to the extent 
     that such documents contain information satisfying the 
     Commission's informational requirements, copies of such 
     documents may be filed with the Commission in lieu of the 
     required written notice.
       ``(B) Immediate effectiveness.--Such registration shall be 
     effective contemporaneously with the submission of notice, in 
     written or electronic form, to the Commission, except that 
     such registration shall not be effective if such registration 
     would be subject to suspension or revocation.
       ``(C) Termination.--Such registration shall be terminated 
     immediately if any of the conditions for registration set 
     forth in this subsection are no longer satisfied.
       ``(3) Public availability.--The Commission shall promptly 
     publish in the Federal Register an acknowledgment of receipt 
     of all notices the Commission receives under this subsection 
     and shall make all such notices available to the public.
       ``(4) Exemption of exchanges from specified provisions.--
       ``(A) Transaction exemptions.--An exchange that is 
     registered under paragraph (1) of this subsection shall be 
     exempt from, and shall not be required to enforce compliance 
     by its members with, and its members shall not, solely with 
     respect to those transactions effected on such exchange in 
     security futures products, be required to comply with, the 
     following provisions of this title and the rules thereunder:
       ``(i) Subsections (b)(2), (b)(3), (b)(4), (b)(7), (b)(9), 
     (c), (d), and (e) of this section.
       ``(ii) Section 8.
       ``(iii) Section 11.
       ``(iv) Subsections (d), (f), and (k) of section 17.
       ``(v) Subsections (a), (f), and (h) of section 19.
       ``(B) Rule change exemptions.--An exchange that registered 
     under paragraph (1) of this subsection shall also be exempt 
     from submitting proposed rule changes pursuant to section 
     19(b) of this title, except that--
       ``(i) such exchange shall file proposed rule changes 
     related to higher margin levels, fraud or manipulation, 
     recordkeeping, reporting, listing standards, or decimal 
     pricing for security futures products, sales practices for 
     security futures products for persons who effect transactions 
     in security futures products, or rules effectuating such 
     exchange's obligation to enforce the securities laws pursuant 
     to section 19(b)(7);
       ``(ii) such exchange shall file pursuant to sections 
     19(b)(1) and 19(b)(2) proposed rule changes related to 
     margin, except for changes resulting in higher margin levels; 
     and
       ``(iii) such exchange shall file pursuant to section 
     19(b)(1) proposed rule changes that have been abrogated by 
     the Commission pursuant to section 19(b)(7)(C).
       ``(5) Trading in security futures products.--
       ``(A) In general.--Subject to subparagraph (B), it shall be 
     unlawful for any person to execute or trade a security 
     futures product until the later of--
       ``(i) 1 year after the date of enactment of the Commodity 
     Futures Modernization Act of 2000; or
       ``(ii) such date that a futures association registered 
     under section 17 of the Commodity Exchange Act has met the 
     requirements set forth in section 15A(k)(2) of this title.
       ``(B) Principal-to-principal transactions.--Notwithstanding 
     subparagraph (A), a person may execute or trade a security 
     futures product transaction if--
       ``(i) the transaction is entered into--

       ``(I) on a principal-to-principal basis between parties 
     trading for their own accounts or as described in section 
     1a(12)(B)(ii) of the Commodity Exchange Act; and
       ``(II) only between eligible contract participants (as 
     defined in subparagraphs (A),

[[Page 23654]]

     (B)(ii), and (C) of such section 1a(12)) at the time at which 
     the persons enter into the agreement, contract, or 
     transaction; and

       ``(ii) the transaction is entered into on or after the 
     later of--

       ``(I) 8 months after the date of enactment of the Commodity 
     Futures Modernization Act of 2000; or
       ``(II) such date that a futures association registered 
     under section 17 of the Commodity Exchange Act has met the 
     requirements set forth in section 15A(k)(2) of this title.''.

       (b) Commission Review of Proposed Rule Changes.--
       (1) Expedited review.--Section 19(b) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by adding 
     at the end the following:
       ``(7) Security futures product rule changes.--
       ``(A) Filing required.--A self-regulatory organization that 
     is an exchange registered with the Commission pursuant to 
     section 6(g) of this title or that is a national securities 
     association registered pursuant to section 15A(k) of this 
     title shall file with the Commission, in accordance with such 
     rules as the Commission may prescribe, copies of any proposed 
     rule change or any proposed change in, addition to, or 
     deletion from the rules of such self-regulatory organization 
     (hereinafter in this paragraph collectively referred to as a 
     `proposed rule change') that relates to higher margin levels, 
     fraud or manipulation, recordkeeping, reporting, listing 
     standards, or decimal pricing for security futures products, 
     sales practices for security futures products for persons who 
     effect transactions in security futures products, or rules 
     effectuating such self-regulatory organization's obligation 
     to enforce the securities laws. Such proposed rule change 
     shall be accompanied by a concise general statement of the 
     basis and purpose of such proposed rule change. The 
     Commission shall, upon the filing of any proposed rule 
     change, promptly publish notice thereof together with the 
     terms of substance of the proposed rule change or a 
     description of the subjects and issues involved. The 
     Commission shall give interested persons an opportunity to 
     submit data, views, and arguments concerning such proposed 
     rule change.
       ``(B) Filing with cftc.--A proposed rule change filed with 
     the Commission pursuant to subparagraph (A) shall be filed 
     concurrently with the Commodity Futures Trading Commission. 
     Such proposed rule change may take effect upon filing of a 
     written certification with the Commodity Futures Trading 
     Commission under section 5c(c) of the Commodity Exchange Act, 
     upon a determination by the Commodity Futures Trading 
     Commission that review of the proposed rule change is not 
     necessary, or upon approval of the proposed rule change by 
     the Commodity Futures Trading Commission.
       ``(C) Abrogation of rule changes.--Any proposed rule change 
     of a self-regulatory organization that has taken effect 
     pursuant to subparagraph (B) may be enforced by such self-
     regulatory organization to the extent such rule is not 
     inconsistent with the provisions of this title, the rules and 
     regulations thereunder, and applicable Federal law. At any 
     time within 60 days of the date of the filing of a written 
     certification with the Commodity Futures Trading Commission 
     under section 5c(c) of the Commodity Exchange Act, the date 
     the Commodity Futures Trading Commission determines that 
     review of such proposed rule change is not necessary, or the 
     date the Commodity Futures Trading Commission approves such 
     proposed rule change, the Commission, after consultation with 
     the Commodity Futures Trading Commission, summarily may 
     abrogate the proposed rule change and require that the 
     proposed rule change be refiled in accordance with the 
     provisions of paragraph (1), if it appears to the Commission 
     that such proposed rule change unduly burdens competition or 
     efficiency, conflicts with the securities laws, or is 
     inconsistent with the public interest and the protection of 
     investors. Commission action pursuant to the preceding 
     sentence shall not affect the validity or force of the rule 
     change during the period it was in effect and shall not be 
     reviewable under section 25 nor deemed to be a final agency 
     action for purposes of section 704 of title 5, United States 
     Code.
       ``(D) Review of resubmitted abrogated rules.--
       ``(i) Proceedings.--Within 35 days of the date of 
     publication of notice of the filing of a proposed rule change 
     that is abrogated in accordance with subparagraph (C) and 
     refiled in accordance with paragraph (1), or within such 
     longer period as the Commission may designate up to 90 days 
     after such date if the Commission finds such longer period to 
     be appropriate and publishes its reasons for so finding or as 
     to which the self-regulatory organization consents, the 
     Commission shall--

       ``(I) by order approve such proposed rule change; or
       ``(II) after consultation with the Commodity Futures 
     Trading Commission, institute proceedings to determine 
     whether the proposed rule change should be disapproved. 
     Proceedings under subclause (II) shall include notice of the 
     grounds for disapproval under consideration and opportunity 
     for hearing and be concluded within 180 days after the date 
     of publication of notice of the filing of the proposed rule 
     change. At the conclusion of such proceedings, the 
     Commission, by order, shall approve or disapprove such 
     proposed rule change. The Commission may extend the time for 
     conclusion of such proceedings for up to 60 days if the 
     Commission finds good cause for such extension and publishes 
     its reasons for so finding or for such longer period as to 
     which the self-regulatory organization consents.

       ``(ii) Grounds for approval.--The Commission shall approve 
     a proposed rule change of a self-regulatory organization 
     under this subparagraph if the Commission finds that such 
     proposed rule change does not unduly burden competition or 
     efficiency, does not conflict with the securities laws, and 
     is not inconsistent with the public interest or the 
     protection of investors. The Commission shall disapprove such 
     a proposed rule change of a self-regulatory organization if 
     it does not make such finding. The Commission shall not 
     approve any proposed rule change prior to the 30th day after 
     the date of publication of notice of the filing thereof, 
     unless the Commission finds good cause for so doing and 
     publishes its reasons for so finding.''.
       (2) Decimal pricing provisions.--Section 19(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended 
     by inserting after paragraph (7), as added by paragraph (1), 
     the following:
       ``(8) Decimal pricing.--Not later than 9 months after the 
     date on which trading in any security futures product 
     commences under this title, all self-regulatory organizations 
     listing or trading security futures products shall file 
     proposed rule changes necessary to implement decimal pricing 
     of security futures products. The Commission may not require 
     such rules to contain equal minimum increments in such 
     decimal pricing.''.
       (3) Consultation provisions.--Section 19(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended 
     by inserting after paragraph (8), as added by paragraph (2), 
     the following:
       ``(9) Consultation with cftc.--
       ``(A) Consultation required.--The Commission shall consult 
     with and consider the views of the Commodity Futures Trading 
     Commission prior to approving or disapproving a proposed rule 
     change filed by a national securities association registered 
     pursuant to section 15A(a) or a national securities exchange 
     subject to the provisions of subsection (a) that primarily 
     concerns conduct related to transactions in security futures 
     products, except where the Commission determines that an 
     emergency exists requiring expeditious or summary action and 
     publishes its reasons therefor.
       ``(B) Responses to cftc comments and findings.--If the 
     Commodity Futures Trading Commission comments in writing to 
     the Commission on a proposed rule that has been published for 
     comment, the Commission shall respond in writing to such 
     written comment before approving or disapproving the proposed 
     rule. If the Commodity Futures Trading Commission determines, 
     and notifies the Commission, that such rule, if implemented 
     or as applied, would--
       ``(i) adversely affect the liquidity or efficiency of the 
     market for security futures products; or
       ``(ii) impose any burden on competition not necessary or 
     appropriate in furtherance of the purposes of this section,
     the Commission shall, prior to approving or disapproving the 
     proposed rule, find that such rule is necessary and 
     appropriate in furtherance of the purposes of this section 
     notwithstanding the Commodity Futures Trading Commission's 
     determination.''.
       (c) Review of Disciplinary Proceedings.--Section 19(d) of 
     the Securities Exchange Act of 1934 (15 U.S.C. 78s(d)) is 
     amended by adding at the end the following:
       ``(3) The provisions of this subsection shall apply to an 
     exchange registered pursuant to section 6(g) of this title or 
     a national securities association registered pursuant to 
     section 15A(k) of this title only to the extent that such 
     exchange or association imposes any final disciplinary 
     sanction for--
       ``(A) a violation of the Federal securities laws or the 
     rules and regulations thereunder; or
       ``(B) a violation of a rule of such exchange or 
     association, as to which a proposed change would be required 
     to be filed under section 19 of this title, except that, to 
     the extent that the exchange or association rule violation 
     relates to any account, agreement, or transaction, this 
     subsection shall apply only to the extent such violation 
     involves a security futures product.''.

     SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES TRADING 
                   SECURITY FUTURES PRODUCTS.

       (a) Expedited Registration and Exemptions.--
       (1) Amendment.--Section 15(b) of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78o(b)) is amended by adding at the 
     end the following:
       ``(11) Broker/dealer registration with respect to 
     transactions in security futures products.--
       ``(A) Notice registration.--
       ``(i) Contents of notice.--Notwithstanding paragraphs (1) 
     and (2), a broker or dealer required to register only because 
     it effects transactions in security futures products on an 
     exchange registered pursuant to section

[[Page 23655]]

     6(g) may register for purposes of this section by filing with 
     the Commission a written notice in such form and containing 
     such information concerning such broker or dealer and any 
     persons associated with such broker or dealer as the 
     Commission, by rule, may prescribe as necessary or 
     appropriate in the public interest or for the protection of 
     investors. A broker or dealer may not register under this 
     paragraph unless that broker or dealer is a member of a 
     national securities association registered under section 
     15A(k).
       ``(ii) Immediate effectiveness.--Such registration shall be 
     effective contemporaneously with the submission of notice, in 
     written or electronic form, to the Commission, except that 
     such registration shall not be effective if the registration 
     would be subject to suspension or revocation under paragraph 
     (4).
       ``(iii) Suspension.--Such registration shall be suspended 
     immediately if a national securities association registered 
     pursuant to section 15A(k) of this title suspends the 
     membership of that broker or dealer.
       ``(iv) Termination.--Such registration shall be terminated 
     immediately if any of the above stated conditions for 
     registration set forth in this paragraph are no longer 
     satisfied.
       ``(B) Exemptions for registered brokers and dealers.--A 
     broker or dealer registered pursuant to the requirements of 
     subparagraph (A) shall be exempt from the following 
     provisions of this title and the rules thereunder with 
     respect to transactions in security futures products:
       ``(i) Section 8.
       ``(ii) Section 11.
       ``(iii) Subsections (c)(3) and (c)(5) of this section.
       ``(iv) Section 15B.
       ``(v) Section 15C.
       ``(vi) Subsections (d), (e), (f), (g), (h), and (i) of 
     section 17.''.
       (2) Conforming amendment.--Section 28(e) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78bb(e)) is amended by adding 
     at the end the following:
       ``(4) The provisions of this subsection shall not apply 
     with regard to securities that are security futures 
     products.''.
       (b) Floor Brokers and Floor Traders.--Section 15(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended 
     by inserting after paragraph (11), as added by subsection 
     (a), the following:
       ``(12) Exemption for security futures product exchange 
     members.--
       ``(A) Registration exemption.--A natural person shall be 
     exempt from the registration requirements of this section if 
     such person--
       ``(i) is a member of a designated contract market 
     registered with the Commission as an exchange pursuant to 
     section 6(g);
       ``(ii) effects transactions only in securities on the 
     exchange of which such person is a member; and
       ``(iii) does not directly accept or solicit orders from 
     public customers or provide advice to public customers in 
     connection with the trading of security futures products.
       ``(B) Other exemptions.--A natural person exempt from 
     registration pursuant to subparagraph (A) shall also be 
     exempt from the following provisions of this title and the 
     rules thereunder:
       ``(i) Section 8.
       ``(ii) Section 11.
       ``(iii) Subsections (c)(3), (c)(5), and (e) of this 
     section.
       ``(iv) Section 15B.
       ``(v) Section 15C.
       ``(vi) Subsections (d), (e), (f), (g), (h), and (i) of 
     section 17.''.
       (c) Limited Purpose National Securities Association.--
     Section 15A of the Securities Exchange Act of 1934 (15 U.S.C. 
     78o-3) is amended by adding at the end the following:
       ``(k) Limited Purpose National Securities Association.--
       ``(1) Regulation of members with respect to security 
     futures products.--A futures association registered under 
     section 17 of the Commodity Exchange Act shall be a 
     registered national securities association for the limited 
     purpose of regulating the activities of members who are 
     registered as brokers or dealers in security futures products 
     pursuant to section 15(b)(11).
       ``(2) Requirements for registration.--Such a securities 
     association shall--
       ``(A) be so organized and have the capacity to carry out 
     the purposes of the securities laws applicable to security 
     futures products and to comply, and (subject to any rule or 
     order of the Commission pursuant to section 19(g)(2)) to 
     enforce compliance by its members and persons associated with 
     its members, with the provisions of the securities laws 
     applicable to security futures products, the rules and 
     regulations thereunder, and its rules;
       ``(B) have rules that--
       ``(i) are designed to prevent fraudulent and manipulative 
     acts and practices, to promote just and equitable principles 
     of trade, and, in general, to protect investors and the 
     public interest, including rules governing sales practices 
     and the advertising of security futures products reasonably 
     comparable to those of other national securities associations 
     registered pursuant to subsection (a) that are applicable to 
     security futures products; and
       ``(ii) are not designed to regulate by virtue of any 
     authority conferred by this title matters not related to the 
     purposes of this title or the administration of the 
     association;
       ``(C) have rules that provide that (subject to any rule or 
     order of the Commission pursuant to section 19(g)(2)) its 
     members and persons associated with its members shall be 
     appropriately disciplined for violation of any provision of 
     the securities laws applicable to security futures products, 
     the rules or regulations thereunder, or the rules of the 
     association, by expulsion, suspension, limitation of 
     activities, functions, and operations, fine, censure, being 
     suspended or barred from being associated with a member, or 
     any other fitting sanction; and
       ``(D) have rules that ensure that members and natural 
     persons associated with members meet such standards of 
     training, experience, and competence necessary to effect 
     transactions in security futures products and are tested for 
     their knowledge of securities and security futures products.
       ``(3) Exemption from rule change submission.--Such a 
     securities association shall be exempt from submitting 
     proposed rule changes pursuant to section 19(b) of this 
     title, except that--
       ``(A) the association shall file proposed rule changes 
     related to higher margin levels, fraud or manipulation, 
     recordkeeping, reporting, listing standards, or decimal 
     pricing for security futures products, sales practices for, 
     advertising of, or standards of training, experience, 
     competence, or other qualifications for security futures 
     products for persons who effect transactions in security 
     futures products, or rules effectuating the association's 
     obligation to enforce the securities laws pursuant to section 
     19(b)(7);
       ``(B) the association shall file pursuant to sections 
     19(b)(1) and 19(b)(2) proposed rule changes related to 
     margin, except for changes resulting in higher margin levels; 
     and
       ``(C) the association shall file pursuant to section 
     19(b)(1) proposed rule changes that have been abrogated by 
     the Commission pursuant to section 19(b)(7)(C).
       ``(4) Other exemptions.--Such a securities association 
     shall be exempt from and shall not be required to enforce 
     compliance by its members, and its members shall not, solely 
     with respect to their transactions effected in security 
     futures products, be required to comply, with the following 
     provisions of this title and the rules thereunder:
       ``(A) Section 8.
       ``(B) Subsections (b)(1), (b)(3), (b)(4), (b)(5), (b)(8), 
     (b)(10), (b)(11), (b)(12), (b)(13), (c), (d), (e), (f), (g), 
     (h), and (i) of this section.
       ``(C) Subsections (d), (f), and (k) of section 17.
       ``(D) Subsections (a), (f), and (h) of section 19.''.
       (d) Exemption Under the Securities Investor Protection Act 
     of 1970.--
       (1) Section 16(14) of the Securities Investor Protection 
     Act of 1970 (15 U.S.C. 78lll(14)) is amended by inserting 
     ``or any security future as that term is defined in section 
     3(a)(55)(A) of the Securities Exchange Act of 1934,'' after 
     ``certificate of deposit for a security,''.
       (2) Section 3(a)(2)(A) of the Securities Investor 
     Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A)) is 
     amended--
       (A) in clause (i), by striking ``and'' after the semicolon;
       (B) in clause (ii), by striking the period and inserting 
     ``; and'';
       (C) by adding at the end the following:
       ``(iii) persons who are registered as a broker or dealer 
     pursuant to section 15(b)(11)(A) of the Securities Exchange 
     Act of 1934.''.

     SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY COOPERATION.

       Section 17(b) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78q(b)) is amended--
       (1) by striking ``(b) All'' and inserting the following:
       ``(b) Records Subject to Examination.--
       ``(1) Procedures for cooperation with other agencies.--
     All'';
       (2) by striking ``prior to conducting any such examination 
     of a registered clearing'' and inserting the following: 
     ``prior to conducting any such examination of a--
       ``(A) registered clearing'';
       (3) by redesignating the last sentence as paragraph (4)(C);
       (4) by striking the period at the end of the first sentence 
     and inserting the following: ``; or
       ``(B) broker or dealer registered pursuant to section 
     15(b)(11), exchange registered pursuant to section 6(g), or 
     national securities association registered pursuant to 
     section 15A(k) gives notice to the Commodity Futures Trading 
     Commission of such proposed examination and consults with the 
     Commodity Futures Trading Commission concerning the 
     feasibility and desirability of coordinating such examination 
     with examinations conducted by the Commodity Futures Trading 
     Commission in order to avoid unnecessary regulatory 
     duplication or undue regulatory burdens for such broker or 
     dealer or exchange.'';
       (5) by adding at the end the following new paragraphs:
       ``(2) Furnishing data and reports to cftc.--The Commission 
     shall notify the Commodity Futures Trading Commission of any 
     examination conducted of any broker or dealer registered 
     pursuant to section

[[Page 23656]]

     15(b)(11), exchange registered pursuant to section 6(g), or 
     national securities association registered pursuant to 
     section 15A(k) and, upon request, furnish to the Commodity 
     Futures Trading Commission any examination report and data 
     supplied to, or prepared by, the Commission in connection 
     with such examination.
       ``(3) Use of cftc reports.--Prior to conducting an 
     examination under paragraph (1), the Commission shall use the 
     reports of examinations, if the information available therein 
     is sufficient for the purposes of the examination, of--
       ``(A) any broker or dealer registered pursuant to section 
     15(b)(11);
       ``(B) exchange registered pursuant to section 6(g); or
       ``(C) national securities association registered pursuant 
     to section 15A(k);
     that is made by the Commodity Futures Trading Commission, a 
     national securities association registered pursuant to 
     section 15A(k), or an exchange registered pursuant to section 
     6(g).
       ``(4) Rules of construction.--
       ``(A) Notwithstanding any other provision of this 
     subsection, the records of a broker or dealer registered 
     pursuant to section 15(b)(11), an exchange registered 
     pursuant to section 6(g), or a national securities 
     association registered pursuant to section 15A(k) described 
     in this subparagraph shall not be subject to routine periodic 
     examinations by the Commission.
       ``(B) Any recordkeeping rules adopted under this subsection 
     for a broker or dealer registered pursuant to section 
     15(b)(11), an exchange registered pursuant to section 6(g), 
     or a national securities association registered pursuant to 
     section 15A(k) shall be limited to records with respect to 
     persons, accounts, agreements, and transactions involving 
     security futures products.''; and
       (6) in paragraph (4)(C) (as redesignated by paragraph (3) 
     of this section), by striking ``Nothing in the proviso to the 
     preceding sentence'' and inserting ``Nothing in the proviso 
     in paragraph (1)''.

     SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SECURITY 
                   FUTURES PRODUCTS.

       (a) Addition of Security Futures Products to Option-
     Specific Enforcement Provisions.--
       (1) Prohibition against manipulation.--Section 9(b) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78i(b)) is 
     amended--
       (A) in paragraph (1)--
       (i) by inserting ``(A)'' after ``acquires''; and
       (ii) by striking ``; or'' and inserting ``; or (B) any 
     security futures product on the security; or'';
       (B) in paragraph (2)--
       (i) by inserting ``(A)'' after ``interest in any''; and
       (ii) by striking ``; or'' and inserting ``; or (B) such 
     security futures product; or''; and
       (C) in paragraph (3)--
       (i) by inserting ``(A)'' after ``interest in any''; and
       (ii) by inserting ``; or (B) such security futures 
     product'' after ``privilege''.
       (2) Manipulation in options and other derivative 
     products.--Section 9(g) of the Securities Exchange Act of 
     1934 (15 U.S.C. 78i(g)) is amended--
       (A) by inserting ``(1)'' after ``(g)'';
       (B) by inserting ``other than a security futures product'' 
     after ``future delivery''; and
       (C) by adding at the end following:
       ``(2) Notwithstanding the Commodity Exchange Act, the 
     Commission shall have the authority to regulate the trading 
     of any security futures product to the extent provided in the 
     securities laws.''.
       (3) Liability of controlling persons and persons who aid 
     and abet violations.--Section 20(d) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78t(d)) is amended by 
     striking ``or privilege'' and inserting ``, privilege, or 
     security futures product''.
       (4) Liability to contemporaneous traders for insider 
     trading.--Section 21A(a)(1) of the Securities Exchange Act of 
     1934 (15 U.S.C. 78u-1(a)(1)) is amended by striking 
     ``standardized options, the Commission--'' and inserting 
     ``standardized options or security futures products, the 
     Commission--''.
       (5) Enforcement consultation.--Section 21 of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at 
     the end the following:
       ``(i) Information to CFTC.--The Commission shall provide 
     the Commodity Futures Trading Commission with notice of the 
     commencement of any proceeding and a copy of any order 
     entered by the Commission against any broker or dealer 
     registered pursuant to section 15(b)(11), any exchange 
     registered pursuant to section 6(g), or any national 
     securities association registered pursuant to section 
     15A(k).''.

     SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SECURITY 
                   FUTURES PRODUCTS.

       (a) Listing Standards and Conditions for Trading.--Section 
     6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) is 
     amended by inserting after subsection (g), as added by 
     section 202, the following:
       ``(h) Trading in Security Futures Products.--
       ``(1) Trading on exchange or association required.--It 
     shall be unlawful for any person to effect transactions in 
     security futures products that are not listed on a national 
     securities exchange or a national securities association 
     registered pursuant to section 15A(a).
       ``(2) Listing standards required.--Except as otherwise 
     provided in paragraph (7), a national securities exchange or 
     a national securities association registered pursuant to 
     section 15A(a) may trade only security futures products that 
     (A) conform with listing standards that such exchange or 
     association files with the Commission under section 19(b) and 
     (B) meet the criteria specified in section 2(a)(1)(D)(i) of 
     the Commodity Exchange Act.
       ``(3) Requirements for listing standards and conditions for 
     trading.--Such listing standards shall--
       ``(A) except as otherwise provided in a rule, regulation, 
     or order issued pursuant to paragraph (4), require that any 
     security underlying the security future, including each 
     component security of a narrow-based security index, be 
     registered pursuant to section 12 of this title;
       ``(B) require that if the security futures product is not 
     cash settled, the market on which the security futures 
     product is traded have arrangements in place with a 
     registered clearing agency for the payment and delivery of 
     the securities underlying the security futures product;
       ``(C) be no less restrictive than comparable listing 
     standards for options traded on a national securities 
     exchange or national securities association registered 
     pursuant to section 15A(a) of this title;
       ``(D) except as otherwise provided in a rule, regulation, 
     or order issued pursuant to paragraph (4), require that the 
     security future be based upon common stock and such other 
     equity securities as the Commission and the Commodity Futures 
     Trading Commission jointly determine appropriate;
       ``(E) require that the security futures product is cleared 
     by a clearing agency that has in place provisions for linked 
     and coordinated clearing with other clearing agencies that 
     clear security futures products, which permits the security 
     futures product to be purchased on one market and offset on 
     another market that trades such product;
       ``(F) require that only a broker or dealer subject to 
     suitability rules comparable to those of a national 
     securities association registered pursuant to section 15A(a) 
     effect transactions in the security futures product;
       ``(G) require that the security futures product be subject 
     to the prohibition against dual trading in section 4j of the 
     Commodity Exchange Act (7 U.S.C. 6j) and the rules and 
     regulations thereunder or the provisions of section 11(a) of 
     this title and the rules and regulations thereunder, except 
     to the extent otherwise permitted under this title and the 
     rules and regulations thereunder;
       ``(H) require that trading in the security futures product 
     not be readily susceptible to manipulation of the price of 
     such security futures product, nor to causing or being used 
     in the manipulation of the price of any underlying security, 
     option on such security, or option on a group or index 
     including such securities;
       ``(I) require that procedures be in place for coordinated 
     surveillance among the market on which the security futures 
     product is traded, any market on which any security 
     underlying the security futures product is traded, and other 
     markets on which any related security is traded to detect 
     manipulation and insider trading;
       ``(J) require that the market on which the security futures 
     product is traded has in place audit trails necessary or 
     appropriate to facilitate the coordinated surveillance 
     required in subparagraph (I);
       ``(K) require that the market on which the security futures 
     product is traded has in place procedures to coordinate 
     trading halts between such market and any market on which any 
     security underlying the security futures product is traded 
     and other markets on which any related security is traded; 
     and
       ``(L) require that the margin requirements for a security 
     futures product comply with the regulations prescribed 
     pursuant to section 7(c)(2)(B), except that nothing in this 
     subparagraph shall be construed to prevent a national 
     securities exchange or national securities association from 
     requiring higher margin levels for a security futures product 
     when it deems such action to be necessary or appropriate.
       ``(4) Authority to modify certain listing standard 
     requirements.--
       ``(A) Authority to modify.--The Commission and the 
     Commodity Futures Trading Commission, by rule, regulation, or 
     order, may jointly modify the listing standard requirements 
     specified in subparagraph (A) or (D) of paragraph (3) to the 
     extent such modification fosters the development of fair and 
     orderly markets in security futures products, is necessary or 
     appropriate in the public interest, and is consistent with 
     the protection of investors.
       ``(B) Authority to grant exemptions.--The Commission and 
     the Commodity Futures Trading Commission, by order, may 
     jointly exempt any person from compliance with the listing 
     standard requirement specified in subparagraph (E) of 
     paragraph (3) to the extent such exemption fosters the 
     development of fair and orderly markets in security futures 
     products, is necessary or appropriate in the public interest, 
     and is consistent with the protection of investors.
       ``(5) Requirements for other persons trading security 
     future products.--It

[[Page 23657]]

     shall be unlawful for any person (other than a national 
     securities exchange or a national securities association 
     registered pursuant to section 15A(a)) to constitute, 
     maintain, or provide a marketplace or facilities for bringing 
     together purchasers and sellers of security future products 
     or to otherwise perform with respect to security future 
     products the functions commonly performed by a stock exchange 
     as that term is generally understood, unless a national 
     securities association registered pursuant to section 15A(a) 
     or a national securities exchange of which such person is a 
     member--
       ``(A) has in place procedures for coordinated surveillance 
     among such person, the market trading the securities 
     underlying the security future products, and other markets 
     trading related securities to detect manipulation and insider 
     trading;
       ``(B) has rules to require audit trails necessary or 
     appropriate to facilitate the coordinated surveillance 
     required in subparagraph (A); and
       ``(C) has rules to require such person to coordinate 
     trading halts with markets trading the securities underlying 
     the security future products and other markets trading 
     related securities.
       ``(6) Deferral of options on security futures trading.--No 
     person shall offer to enter into, enter into, or confirm the 
     execution of any put, call, straddle, option, or privilege on 
     a security future, except that, after 3 years after the date 
     of enactment of this subsection, the Commission and the 
     Commodity Futures Trading Commission may by order jointly 
     determine to permit trading of puts, calls, straddles, 
     options, or privileges on any security future authorized to 
     be traded under the provisions of this Act and the Commodity 
     Exchange Act.
       ``(7) Deferral of linked and coordinated clearing.--
       ``(A) Notwithstanding paragraph (2), until the compliance 
     date, a national securities exchange or national securities 
     association registered pursuant to section 15A(a) may trade a 
     security futures product that does not--
       ``(i) conform with any listing standard promulgated to meet 
     the requirement specified in subparagraph (E) of paragraph 
     (3); or
       ``(ii) meet the criterion specified in section 
     2(a)(1)(D)(i)(IV) of the Commodity Exchange Act.
       ``(B) The Commission and the Commodity Futures Trading 
     Commission shall jointly publish in the Federal Register a 
     notice of the compliance date no later than 165 days before 
     the compliance date.
       ``(C) For purposes of this paragraph, the term `compliance 
     date' means the later of--
       ``(i) 180 days after the end of the first full calendar 
     month period in which the average aggregate comparable share 
     volume for all security futures products based on single 
     equity securities traded on all national securities 
     exchanges, any national securities associations registered 
     pursuant to section 15A(a), and all other persons equals or 
     exceeds 10 percent of the average aggregate comparable share 
     volume of options on single equity securities traded on all 
     national securities exchanges and any national securities 
     associations registered pursuant to section 15A(a); or
       ``(ii) 2 years after the date on which trading in any 
     security futures product commences under this title.''.
       (b) Margin.--Section 7 of the Securities Exchange Act of 
     1934 (15 U.S.C. 78g) is amended--
       (1) in subsection (a), by inserting ``or a security futures 
     product'' after ``exempted security'';
       (2) in subsection (c)(1)(A), by inserting ``except as 
     provided in paragraph (2),'' after ``security),'';
       (3) by redesignating paragraph (2) of subsection (c) as 
     paragraph (3) of such subsection; and
       (4) by inserting after paragraph (1) of such subsection the 
     following:
       ``(2) Margin regulations.--
       ``(A) Compliance with margin rules required.--It shall be 
     unlawful for any broker, dealer, or member of a national 
     securities exchange to, directly or indirectly, extend or 
     maintain credit to or for, or collect margin from any 
     customer on, any security futures product unless such 
     activities comply with the regulations--
       ``(i) which the Board shall prescribe pursuant to 
     subparagraph (B); or
       ``(ii) if the Board determines to delegate the authority to 
     prescribe such regulations, which the Commission and the 
     Commodity Futures Trading Commission shall jointly prescribe 
     pursuant to subparagraph (B).
     If the Board delegates the authority to prescribe such 
     regulations under clause (ii) and the Commission and the 
     Commodity Futures Trading Commission have not jointly 
     prescribed such regulations within a reasonable period of 
     time after the date of such delegation, the Board shall 
     prescribe such regulations pursuant to subparagraph (B).
       ``(B) Criteria for issuance of rules.--The Board shall 
     prescribe, or, if the authority is delegated pursuant to 
     subparagraph (A)(ii), the Commission and the Commodity 
     Futures Trading Commission shall jointly prescribe, such 
     regulations to establish margin requirements, including the 
     establishment of levels of margin (initial and maintenance) 
     for security futures products under such terms, and at such 
     levels, as the Board deems appropriate, or as the Commission 
     and the Commodity Futures Trading Commission jointly deem 
     appropriate--
       ``(i) to preserve the financial integrity of markets 
     trading security futures products;
       ``(ii) to prevent systemic risk;
       ``(iii) to require that--

       ``(I) the margin requirements for a security future product 
     be consistent with the margin requirements for comparable 
     option contracts traded on any exchange registered pursuant 
     to section 6(a) of this title; and
       ``(II) initial and maintenance margin levels for a security 
     future product not be lower than the lowest level of margin, 
     exclusive of premium, required for any comparable option 
     contract traded on any exchange registered pursuant to 
     section 6(a) of this title, other than an option on a 
     security future;

     except that nothing in this subparagraph shall be construed 
     to prevent a national securities exchange or national 
     securities association from requiring higher margin levels 
     for a security future product when it deems such action to be 
     necessary or appropriate; and
       ``(iv) to ensure that the margin requirements (other than 
     levels of margin), including the type, form, and use of 
     collateral for security futures products, are and remain 
     consistent with the requirements established by the Board, 
     pursuant to subparagraphs (A) and (B) of paragraph (1).''.
       (c) Incorporation of Security Futures Products Into the 
     National Market System.--Section 11A of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78k-1) is amended by adding 
     at the end the following:
       ``(e) National Markets System for Security Futures 
     Products.--
       ``(1) Consultation and cooperation required.--With respect 
     to security futures products, the Commission and the 
     Commodity Futures Trading Commission shall consult and 
     cooperate so that, to the maximum extent practicable, their 
     respective regulatory responsibilities may be fulfilled and 
     the rules and regulations applicable to security futures 
     products may foster a national market system for security 
     futures products if the Commission and the Commodity Futures 
     Trading Commission jointly determine that such a system would 
     be consistent with the congressional findings in subsection 
     (a)(1). In accordance with this objective, the Commission 
     shall, at least 15 days prior to the issuance for public 
     comment of any proposed rule or regulation under this section 
     concerning security futures products, consult and request the 
     views of the Commodity Futures Trading Commission.
       ``(2) Application of rules by order of cftc.--No rule 
     adopted pursuant to this section shall be applied to any 
     person with respect to the trading of security futures 
     products on an exchange that is registered under section 6(g) 
     unless the Commodity Futures Trading Commission has issued an 
     order directing that such rule is applicable to such 
     persons.''.
       (d) Incorporation of Security Futures Products Into the 
     National System for Clearance and Settlement.--Section 17A(b) 
     of the Securities Exchange Act of 1934 (15 U.S.C. 78q-1(b)) 
     is amended by adding at the end the following:
       ``(7)(A) A clearing agency that is regulated directly or 
     indirectly by the Commodity Futures Trading Commission 
     through its association with a designated contract market for 
     security futures products that is a national securities 
     exchange registered pursuant to section 6(g), and that would 
     be required to register pursuant to paragraph (1) of this 
     subsection only because it performs the functions of a 
     clearing agency with respect to security futures products 
     effected pursuant to the rules of the designated contract 
     market with which such agency is associated, is exempted from 
     the provisions of this section and the rules and regulations 
     thereunder, except that if such a clearing agency performs 
     the functions of a clearing agency with respect to a security 
     futures product that is not cash settled, it must have 
     arrangements in place with a registered clearing agency to 
     effect the payment and delivery of the securities underlying 
     the security futures product.
       ``(B) Any clearing agency that performs the functions of a 
     clearing agency with respect to security futures products 
     must coordinate with and develop fair and reasonable links 
     with any and all other clearing agencies that perform the 
     functions of a clearing agency with respect to security 
     futures products, in order to permit, as of the compliance 
     date (as defined in section 6(h)(6)(C)), security futures 
     products to be purchased on one market and offset on another 
     market that trades such products.''.
       (e) Market Emergency Powers and Circuit Breakers.--Section 
     12(k) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78l(k)) is amended--
       (1) in paragraph (1), by adding at the end the following: 
     ``If the actions described in subparagraph (A) or (B) involve 
     a security futures product, the Commission shall consult with 
     and consider the views of the Commodity Futures Trading 
     Commission.''; and
       (2) in paragraph (2)(B), by inserting after the first 
     sentence the following: ``If the actions described in 
     subparagraph (A) involve a

[[Page 23658]]

     security futures product, the Commission shall consult with 
     and consider the views of the Commodity Futures Trading 
     Commission.''.
       (f) Transaction Fees.--Section 31 of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78ee) is amended
       (1) in subsection (a), by inserting ``and assessments'' 
     after ``fees'';
       (2) in subsections (b), (c), and (d)(1), by striking ``and 
     other evidences of indebtedness'' and inserting ``other 
     evidences of indebtedness, and security futures products'';
       (3) in subsection (f), by inserting ``or assessment'' after 
     ``fee'';
       (4) in subsection (g), by inserting ``and assessment'' 
     after ``fee'';
       (5) by redesignating subsections (e), (f), and (g) as 
     subsections (f), (g), and (h), respectively; and
       (6) by inserting after subsection (d) the following new 
     subsection:
       ``(e) Assessments on Security Futures Transactions.--Each 
     national securities exchange and national securities 
     association shall pay to the Commission an assessment equal 
     to $0.02 for each round turn transaction (treated as 
     including one purchase and one sale of a contract of sale for 
     future delivery) on a security future traded on such national 
     securities exchange or by or through any member of such 
     association otherwise than on a national securities exchange, 
     except that for fiscal year 2007 or any succeeding fiscal 
     year such assessment shall be equal to $0.0075 for each such 
     transaction. Assessments collected pursuant to this 
     subsection shall be deposited and collected as general 
     revenue of the Treasury.''.
       (g) Exemption From Short Sale Provisions.--Section 10(a) of 
     the Securities Exchange Act of 1934 (15 U.S.C 78j(a)) is 
     amended--
       (1) by inserting ``(1)'' after ``(a)''; and
       (2) by adding at the end the following:
       ``(2) Paragraph (1) of this subsection shall not apply to 
     security futures products.''.
       (h) Rulemaking Authority To Address Duplicative Regulation 
     of Dual Registrants.--Section 15(c)(3) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78o(c)(3))is amended--
       (1) by inserting ``(A)'' after ``(3)''; and
       (2) by adding at the end the following:
       ``(B) Consistent with this title, the Commission, in 
     consultation with the Commodity Futures Trading Commission, 
     shall issue such rules, regulations, or orders as are 
     necessary to avoid duplicative or conflicting regulations 
     applicable to any broker or dealer registered with the 
     Commission pursuant to section 15(b) (except paragraph (11) 
     thereof), that is also registered with the Commodity Futures 
     Trading Commission pursuant to section 4f(a) of the Commodity 
     Exchange Act (except paragraph (2) thereof), with respect to 
     the application of (i) the provisions of section 8, section 
     15(c)(3), and section 17 of this title and the rules and 
     regulations thereunder related to the treatment of customer 
     funds, securities, or property, maintenance of books and 
     records, financial reporting, or other financial 
     responsibility rules, involving security futures products and 
     (ii) similar provisions of the Commodity Exchange Act and 
     rules and regulations thereunder involving security futures 
     products.''.
       (i) Obligation to Address Duplicative Regulation of Dual 
     Registrants.--Section 6 of the Securities Exchange Act of 
     1934 (15 U.S.C 78f) is amended by inserting after subsection 
     (h), as added by subsection (a), the following:
       ``(i) Consistent with this title, each national securities 
     exchange registered pursuant to subsection (a) of this 
     section shall issue such rules as are necessary to avoid 
     duplicative or conflicting rules applicable to any broker or 
     dealer registered with the Commission pursuant to section 
     15(b) (except paragraph (11) thereof), that is also 
     registered with the Commodity Futures Trading Commission 
     pursuant to section 4f(a) of the Commodity Exchange Act 
     (except paragraph (2) thereof), with respect to the 
     application of--
       (1) rules of such national securities exchange of the type 
     specified in section 15(c)(3)(B) involving security futures 
     products; and
       (2) similar rules of national securities exchanges 
     registered pursuant to section 6(g) and national securities 
     associations registered pursuant to section 15A(k) involving 
     security futures products.''.
       (j) Obligation To Address Duplicative Regulation of Dual 
     Registrants.--Section 15A of the Securities Exchange Act of 
     1934 (15 U.S.C 78o-3) is amended by inserting after 
     subsection (k), as added by section 203, the following:
       ``(l) Consistent with this title, each national securities 
     association registered pursuant to subsection (a) of this 
     section shall issue such rules as are necessary to avoid 
     duplicative or conflicting rules applicable to any broker or 
     dealer registered with the Commission pursuant to section 
     15(b) (except paragraph (11) thereof), that is also 
     registered with the Commodity Futures Trading Commission 
     pursuant to section 4f(a) of the Commodity Exchange Act 
     (except paragraph (2) thereof), with respect to the 
     application of--
       ``(1) rules of such national securities association of the 
     type specified in section 15(c)(3)(B) involving security 
     futures products; and
       ``(2) similar rules of national securities associations 
     registered pursuant to subsection (k) of this section and 
     national securities exchanges registered pursuant to section 
     6(g) involving security futures products.''.
       (k) Obligation To Put in Place Procedures and Adopt 
     Rules.--
       (1) National securities associations.--Section 15A of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended 
     by inserting after subsection (l), as added by subsection (j) 
     of this section, the following new subsection:
       ``(m) Procedures and Rules for Security Future Products.--A 
     national securities association registered pursuant to 
     subsection (a) shall, not later than 8 months after the date 
     of enactment of the Commodity Futures Modernization Act of 
     2000, implement the procedures specified in section 
     6(h)(5)(A) of this title and adopt the rules specified in 
     subparagraphs (B) and (C) of section 6(h)(5) of this 
     title.''.
       (2) National securities exchanges.--Section 6 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended 
     by inserting after subsection (i), as added by subsection (i) 
     of this section, the following new subsection:
       ``(j) Procedures and Rules for Security Future Products.--A 
     national securities exchange registered pursuant to 
     subsection (a) shall implement the procedures specified in 
     section 6(h)(5)(A) of this title and adopt the rules 
     specified in subparagraphs (B) and (C) of section 6(h)(5) of 
     this title not later than 8 months after the date of receipt 
     of a request from an alternative trading system for such 
     implementation and rules.''.
       (l) Obligation To Address Security Futures Products Traded 
     on Foreign Exchanges.--Section 6 of the Securities Exchange 
     Act of 1934 (15 U.S.C. 78f) is amended by adding after 
     subsection (i), as added by subsection (i), the following--
       ``(j)(1) To the extent necessary or appropriate in the 
     public interest, to promote fair competition, and consistent 
     with the protection of investors and the maintenance of fair 
     and orderly markets, the Commission and the Commodity Futures 
     Trading Commission shall jointly issue such rules, 
     regulations, or orders as are necessary and appropriate to 
     permit the offer and sale of a security futures product 
     traded on or subject to the rules of a foreign board of trade 
     to United States persons.
       ``(2) The rules, regulations, or orders adopted under 
     paragraph (1) shall take into account, as appropriate, the 
     nature and size of the markets that the securities underlying 
     the security futures product reflect.''.

     SEC. 207. CLEARANCE AND SETTLEMENT.

       Section 17A(b) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78q-1(b)) is amended--
       (1) in paragraph (3)(A), by inserting ``and derivative 
     agreements, contracts, and transactions'' after ``prompt and 
     accurate clearance and settlement of securities 
     transactions'';
       (2) in paragraph (3)(F), by inserting ``and, to the extent 
     applicable, derivative agreements, contracts, and 
     transactions'' after ``designed to promote the prompt and 
     accurate clearance and settlement of securities 
     transactions''; and
       (3) by inserting after paragraph (7), as added by section 
     206(d), the following:
       ``(8) A registered clearing agency shall be permitted to 
     provide facilities for the clearance and settlement of any 
     derivative agreements, contracts, or transactions that are 
     excluded from the Commodity Exchange Act, subject to the 
     requirements of this section and to such rules and 
     regulations as the Commission may prescribe as necessary or 
     appropriate in the public interest, for the protection of 
     investors, or otherwise in furtherance of the purposes of 
     this title.''.

     SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE 
                   ISSUES UNDER THE SECURITIES ACT OF 1933 AND THE 
                   SECURITIES EXCHANGE ACT OF 1934.

       (a) Amendments to the Securities Act of 1933.--
       (1) Treatment of Security Futures Products.--Section 2(a) 
     of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended--
       (A) in paragraph (1), by inserting ``security future,'' 
     after ``treasury stock,'';
       (B) in paragraph (3), by adding at the end the following: 
     ``Any offer or sale of a security futures product by or on 
     behalf of the issuer of the securities underlying the 
     security futures product, an affiliate of the issuer, or an 
     underwriter, shall constitute a contract for sale of, sale 
     of, offer for sale, or offer to sell the underlying 
     securities.'';
       (C) by adding at the end the following:
       ``(16) The terms `security future', `narrow-based security 
     index', and `security futures product' have the same meanings 
     as provided in section 3(a)(55) of the Securities Exchange 
     Act of 1934.''.
       (2) Exemption from registration.--Section 3(a) of the 
     Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by 
     adding at the end the following:
       ``(14) Any security futures product that is--
       ``(A) cleared by a clearing agency registered under section 
     17A of the Securities Exchange Act of 1934 or exempt from 
     registration under subsection (b)(7) of such section 17A; and

[[Page 23659]]

       ``(B) traded on a national securities exchange or a 
     national securities association registered pursuant to 
     section 15A(a) of the Securities Exchange Act of 1934.''.
       (3) Conforming amendment.--Section 12(a)(2) of the 
     Securities Act of 1933 (15 U.S.C. 77l(a)(2)) is amended by 
     striking ``paragraph (2)'' and inserting ``paragraphs (2) and 
     (14)''.
       (b) Amendments to the Securities Exchange Act of 1934.--
       (1) Exemption from registration.--Section 12(a) of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78l(a)) is amended 
     by adding at the end the following: ``The provisions of this 
     subsection shall not apply in respect of a security futures 
     product traded on a national securities exchange.''.
       (2) Exemptions from reporting requirement.--Section 
     12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 
     78l(g)(5)) is amended by adding at the end the following: 
     ``For purposes of this subsection, a security futures product 
     shall not be considered a class of equity security of the 
     issuer of the securities underlying the security futures 
     product.''.
       (3) Transactions by corporate insiders.--Section 16 of the 
     Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by 
     adding at the end the following:
       ``(f) Treatment of transactions in security futures 
     products.--The provisions of this section shall apply to 
     ownership of and transactions in security futures products as 
     if they were ownership of and transactions in the underlying 
     equity security. The Commission may adopt such rules and 
     regulations as it deems necessary or appropriate in the 
     public interest to carry out the purposes of this section.''.

     SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940 
                   AND THE INVESTMENT ADVISERS ACT OF 1940.

       (a) Definitions Under the Investment Company Act of 1940 
     and the Investment Advisers Act of 1940.--
       (1) Section 2(a)(36) of the Investment Company Act of 1940 
     (15 U.S.C. 80a-2(a)(36)) is amended by inserting ``security 
     future,'' after ``treasury stock,''.
       (2) Section 202(a)(18) of the Investment Advisers Act of 
     1940 (15 U.S.C. 80b-2(a)(18)) is amended by inserting 
     ``security future,'' after ``treasury stock,''.
       (3) Section 2(a) of the Investment Company Act of 1940 (15 
     U.S.C. 80a-2(a)) is amended by adding at the end the 
     following:
       ``(52) The terms `security future' and `narrow-based 
     security index' have the same meanings as provided in section 
     3(a)(55) of the Securities Exchange Act of 1934.''.
       (4) Section 202(a) of the Investment Advisers Act of 1940 
     (15 U.S.C. 80b-2(a)) is amended by adding at the end the 
     following:
       ``(27) The terms `security future' and `narrow-based 
     security index' have the same meanings as provided in section 
     3(a)(55) of the Securities Exchange Act of 1934.''.
       (b) Other Provision.--Section 203(b) of the Investment 
     Advisers Act of 1940 (15 U.S.C. 80b-3(b)) is amended--
       (1) by striking ``or'' at the end of paragraph (4);
       (2) by striking the period at the end of paragraph (5) and 
     inserting ``; or''; and
       (3) by adding at the end the following:
       ``(6) any investment adviser that is registered with the 
     Commodity Futures Trading Commission as a commodity trading 
     advisor whose business does not consist primarily of acting 
     as an investment adviser, as defined in section 202(a)(11) of 
     this title, and that does not act as an investment adviser 
     to--
       ``(A) an investment company registered under title I of 
     this Act; or
       ``(B) a company which has elected to be a business 
     development company pursuant to section 54 of title I of this 
     Act and has not withdrawn its election.''.

     SEC. 210. PREEMPTION OF STATE LAWS.

       Section 28(a) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78bb(a)) is amended--
       (1) in the last sentence--
       (A) by inserting ``subject to this title'' after 
     ``privilege, or other security''; and
       (B) by striking ``any such instrument, if such instrument 
     is traded pursuant to rules and regulations of a self-
     regulatory organization that are filed with the Commission 
     pursuant to section 19(b) of this Act'' and inserting ``any 
     such security''; and
       (2) by adding at the end the following new sentence: ``No 
     provision of State law regarding the offer, sale, or 
     distribution of securities shall apply to any transaction in 
     a security futures product, except that this sentence shall 
     not be construed as limiting any State antifraud law of 
     general applicability.''.

          Subtitle B--Amendments to the Commodity Exchange Act

     SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE COMMISSION; 
                   OTHER PROVISIONS.

       (a) Jurisdiction of Securities and Exchange Commission.--
       (1) Section 2(a)(1)(C) of the Commodity Exchange Act (7 
     U.S.C. 2a) (as redesignated by section 124(a)(2)(C)) is 
     amended--
       (A) in clause (ii)--
       (i) by inserting ``or register a derivatives transaction 
     execution facility that trades or executes,'' after 
     ``contract market in,'';
       (ii) by inserting after ``contracts) for future delivery'' 
     the following: ``, and no derivatives transaction execution 
     facility shall trade or execute such contracts of sale (or 
     options on such contracts) for future delivery,'';
       (iii) by striking ``making such application demonstrates 
     and the Commission expressly finds that the specific contract 
     (or option on such contract) with respect to which the 
     application has been made meets'' and inserting ``or the 
     derivatives transaction execution facility, and the 
     applicable contract, meet'';
       (iv) by striking subclause (III) of clause (ii) and 
     inserting the following:
       ``(III) Such group or index of securities shall not 
     constitute a narrow-based security index.'';
       (B) by striking clause (iii);
       (C) by striking clause (iv) and inserting the following:
       ``(iii) If, in its discretion, the Commission determines 
     that a stock index futures contract, notwithstanding its 
     conformance with the requirements in clause (ii) of this 
     subparagraph, can reasonably be used as a surrogate for 
     trading a security (including a security futures product), it 
     may, by order, require such contract and any option thereon 
     be traded and regulated as security futures products as 
     defined in section 3(a)(56) of the Securities Exchange Act of 
     1934 and section 1a(32) of this Act subject to all rules and 
     regulations applicable to security futures products under 
     this Act and the securities laws as defined in section 
     3(a)(47) of the Securities Exchange Act of 1934.''; and
       (D) by redesignating clause (v) as clause (iv).
       (2) Section 2(a)(1) of the Commodity Exchange Act (7 U.S.C. 
     2, 2a, 4) is amended by adding at the end the following:
       ``(D)(i) Notwithstanding any other provision of this Act, 
     the Securities and Exchange Commission shall have 
     jurisdiction and authority over security futures as defined 
     in section 3(a)(55) of the Securities Exchange Act of 1934, 
     section 2(a)(16) of the Securities Act of 1933, section 
     2(a)(52) of the Investment Company Act of 1940, and section 
     202(a)(27) of the Investment Advisers Act of 1940, options on 
     security futures, and persons effecting transactions in 
     security futures and options thereon, and this Act shall 
     apply to and the Commission shall have jurisdiction with 
     respect to accounts, agreements (including any transaction 
     which is of the character of, or is commonly known to the 
     trade as, an `option', `privilege', `indemnity', `bid', 
     `offer', `put', `call', `advance guaranty', or `decline 
     guaranty') and transactions involving, and may designate a 
     board of trade as a contract market in, or register a 
     derivatives transaction execution facility that trades or 
     executes, a security futures product as defined in section 
     1a(32) of this Act: Provided, however, That, except as 
     provided in clause (vi) of this subparagraph, no board of 
     trade shall be designated as a contract market with respect 
     to, or registered as a derivatives transaction execution 
     facility for, any such contracts of sale for future delivery 
     unless the board of trade and the applicable contract meet 
     the following criteria:
       ``(I) Except as otherwise provided in a rule, regulation, 
     or order issued pursuant to clause (v) of this subparagraph, 
     any security underlying the security future, including each 
     component security of a narrow-based security index, is 
     registered pursuant to section 12 of the Securities Exchange 
     Act of 1934.
       ``(II) If the security futures product is not cash settled, 
     the board of trade on which the security futures product is 
     traded has arrangements in place with a clearing agency 
     registered pursuant to section 17A of the Securities Exchange 
     Act of 1934 for the payment and delivery of the securities 
     underlying the security futures product.
       ``(III) Except as otherwise provided in a rule, regulation, 
     or order issued pursuant to clause (v) of this subparagraph, 
     the security future is based upon common stock and such other 
     equity securities as the Commission and the Securities and 
     Exchange Commission jointly determine appropriate.
       ``(IV) The security futures product is cleared by a 
     clearing agency that has in place provisions for linked and 
     coordinated clearing with other clearing agencies that clear 
     security futures products, which permits the security futures 
     product to be purchased on a designated contract market, 
     registered derivatives transaction execution facility, 
     national securities exchange registered under section 6(a) of 
     the Securities Exchange Act of 1934, or national securities 
     association registered pursuant to section 15A(a) of the 
     Securities Exchange Act of 1934 and offset on another 
     designated contract market, registered derivatives 
     transaction execution facility, national securities exchange 
     registered under section 6(a) of the Securities Exchange Act 
     of 1934, or national securities association registered 
     pursuant to section 15A(a) of the Securities Exchange Act of 
     1934.
       ``(V) Only futures commission merchants, introducing 
     brokers, commodity trading advisors, commodity pool operators 
     or associated persons subject to suitability rules comparable 
     to those of a national securities association registered 
     pursuant to section 15A(a) of the Securities Exchange Act of 
     1934 solicit, accept any order for, or otherwise deal in any 
     transaction in or in connection with the security futures 
     product.

[[Page 23660]]

       ``(VI) The security futures product is subject to a 
     prohibition against dual trading in section 4j of this Act 
     and the rules and regulations thereunder or the provisions of 
     section 11(a) of the Securities Exchange Act of 1934 and the 
     rules and regulations thereunder, except to the extent 
     otherwise permitted under the Securities Exchange Act of 1934 
     and the rules and regulations thereunder.
       ``(VII) Trading in the security futures product is not 
     readily susceptible to manipulation of the price of such 
     security futures product, nor to causing or being used in the 
     manipulation of the price of any underlying security, option 
     on such security, or option on a group or index including 
     such securities;
       ``(VIII) The board of trade on which the security futures 
     product is traded has procedures in place for coordinated 
     surveillance among such board of trade, any market on which 
     any security underlying the security futures product is 
     traded, and other markets on which any related security is 
     traded to detect manipulation and insider trading, except 
     that, if the board of trade is an alternative trading system, 
     a national securities association registered pursuant to 
     section 15A(a) of the Securities Exchange Act of 1934 or 
     national securities exchange registered pursuant to section 
     6(a) of the Securities Exchange Act of 1934 of which such 
     alternative trading system is a member has in place such 
     procedures.
       ``(IX) The board of trade on which the security futures 
     product is traded has in place audit trails necessary or 
     appropriate to facilitate the coordinated surveillance 
     required in subclause (VIII), except that, if the board of 
     trade is an alternative trading system, a national securities 
     association registered pursuant to section 15A(a) of the 
     Securities Exchange Act of 1934 or national securities 
     exchange registered pursuant to section 6(a) of the 
     Securities Exchange Act of 1934 of which such alternative 
     trading system is a member has rules to require such audit 
     trails.
       ``(X) The board of trade on which the security futures 
     product is traded has in place procedures to coordinate 
     trading halts between such board of trade and markets on 
     which any security underlying the security futures product is 
     traded and other markets on which any related security is 
     traded, except that, if the board of trade is an alternative 
     trading system, a national securities association registered 
     pursuant to section 15A(a) of the Securities Exchange Act of 
     1934 or national securities exchange registered pursuant to 
     section 6(a) of the Securities Exchange Act of 1934 of which 
     such alternative trading system is a member has rules to 
     require such coordinated trading halts.
       ``(XI) The margin requirements for a security futures 
     product comply with the regulations prescribed pursuant to 
     section 7(c)(2)(B) of the Securities Exchange Act of 1934, 
     except that nothing in this subclause shall be construed to 
     prevent a board of trade from requiring higher margin levels 
     for a security futures product when it deems such action to 
     be necessary or appropriate.
       ``(ii) It shall be unlawful for any person to offer, to 
     enter into, to execute, to confirm the execution of, or to 
     conduct any office or business anywhere in the United States, 
     its territories or possessions, for the purpose of 
     soliciting, or accepting any order for, or otherwise dealing 
     in, any transaction in, or in connection with, a security 
     futures product unless--
       ``(I) the transaction is conducted on or subject to the 
     rules of a board of trade that--
       ``(aa) has been designated by the Commission as a contract 
     market in such security futures product; or
       ``(bb) is a registered derivatives transaction execution 
     facility for the security futures product that has provided a 
     certification with respect to the security futures product 
     pursuant to clause (vii);
       ``(II) the contract is executed or consummated by, through, 
     or with a member of the contract market or registered 
     derivatives transaction execution facility; and
       ``(III) the security futures product is evidenced by a 
     record in writing which shows the date, the parties to such 
     security futures product and their addresses, the property 
     covered, and its price, and each contract market member or 
     registered derivatives transaction execution facility member 
     shall keep the record for a period of 3 years from the date 
     of the transaction, or for a longer period if the Commission 
     so directs, which record shall at all times be open to the 
     inspection of any duly authorized representative of the 
     Commission.
       ``(iii)(I) Except as provided in subclause (II) but 
     notwithstanding any other provision of this Act, no person 
     shall offer to enter into, enter into, or confirm the 
     execution of any option on a security future.
       ``(II) After 3 years after the date of the enactment of the 
     Commodity Futures Modernization Act of 2000, the Commission 
     and the Securities and Exchange Commission may by order 
     jointly determine to permit trading of options on any 
     security future authorized to be traded under the provisions 
     of this Act and the Securities Exchange Act of 1934.
       ``(iv)(I) All relevant records of a futures commission 
     merchant or introducing broker registered pursuant to section 
     4f(a)(2), floor broker or floor trader exempt from 
     registration pursuant to section 4f(a)(3), associated person 
     exempt from registration pursuant to section 4k(6), or board 
     of trade designated as a contract market in a security 
     futures product pursuant to section 5f shall be subject to 
     such reasonable periodic or special examinations by 
     representatives of the Commission as the Commission deems 
     necessary or appropriate in the public interest, for the 
     protection of investors, or otherwise in furtherance of the 
     purposes of this Act, and the Commission, before conducting 
     any such examination, shall give notice to the Securities and 
     Exchange Commission of the proposed examination and consult 
     with the Securities and Exchange Commission concerning the 
     feasibility and desirability of coordinating the examination 
     with examinations conducted by the Securities and Exchange 
     Commission in order to avoid unnecessary regulatory 
     duplication or undue regulatory burdens for the registrant or 
     board of trade.
       ``(II) The Commission shall notify the Securities and 
     Exchange Commission of any examination conducted of any 
     futures commission merchant or introducing broker registered 
     pursuant to section 4f(a)(2), floor broker or floor trader 
     exempt from registration pursuant to section 4f(a)(3), 
     associated person exempt from registration pursuant to 
     section 4k(6), or board of trade designated as a contract 
     market in a security futures product pursuant to section 5f, 
     and, upon request, furnish to the Securities and Exchange 
     Commission any examination report and data supplied to the 
     Commission in connection with the examination.
       ``(III) Before conducting an examination under subclause 
     (I), the Commission shall use the reports of examinations, 
     unless the information sought is unavailable in the reports, 
     of any futures commission merchant or introducing broker 
     registered pursuant to section 4f(a)(2), floor broker or 
     floor trader exempt from registration pursuant to section 
     4f(a)(3), associated person exempt from registration pursuant 
     to section 4k(6), or board of trade designated as a contract 
     market in a security futures product pursuant to section 5f 
     that is made by the Securities and Exchange Commission, a 
     national securities association registered pursuant to 
     section 15A(a) of the Securities Exchange Act of 1934 (15 
     U.S.C. 78o-3(a)), or a national securities exchange 
     registered pursuant to section 6(a) of the Securities 
     Exchange Act of 1934 (15 U.S.C. 78f(a)).
       ``(IV) Any records required under this subsection for a 
     futures commission merchant or introducing broker registered 
     pursuant to section 4f(a)(2), floor broker or floor trader 
     exempt from registration pursuant to section 4f(a)(3), 
     associated person exempt from registration pursuant to 
     section 4k(6), or board of trade designated as a contract 
     market in a security futures product pursuant to section 5f, 
     shall be limited to records with respect to accounts, 
     agreements, and transactions involving security futures 
     products.
       ``(v)(I) The Commission and the Securities and Exchange 
     Commission, by rule, regulation, or order, may jointly modify 
     the criteria specified in subclause (I) or (III) of clause 
     (i), including the trading of security futures based on 
     securities other than equity securities, to the extent such 
     modification fosters the development of fair and orderly 
     markets in security futures products, is necessary or 
     appropriate in the public interest, and is consistent with 
     the protection of investors.
       ``(II) The Commission and the Securities and Exchange 
     Commission, by order, may jointly exempt any person from 
     compliance with the criterion specified in clause (i)(IV) to 
     the extent such exemption fosters the development of fair and 
     orderly markets in security futures products, is necessary or 
     appropriate in the public interest, and is consistent with 
     the protection of investors.
       ``(vi)(I) Notwithstanding clauses (i) and (vii), until the 
     compliance date, a board of trade shall not be required to 
     meet the criterion specified in clause (i)(IV).
       ``(II) The Commission and the Securities and Exchange 
     Commission shall jointly publish in the Federal Register a 
     notice of the compliance date no later than 165 days before 
     the compliance date.
       ``(III) For purposes of this clause, the term `compliance 
     date' means the later of--
       ``(aa) 180 days after the end of the first full calendar 
     month period in which the average aggregate comparable share 
     volume for all security futures products based on single 
     equity securities traded on all designated contract markets 
     and registered derivatives transaction execution facilities 
     equals or exceeds 10 percent of the average aggregate 
     comparable share volume of options on single equity 
     securities traded on all national securities exchanges 
     registered pursuant to section 6(a) of the Securities 
     Exchange Act of 1934 and any national securities associations 
     registered pursuant to section 15A(a) of such Act; or
       ``(bb) 2 years after the date on which trading in any 
     security futures product commences under this Act.
       ``(vii) It shall be unlawful for a board of trade to trade 
     or execute a security futures product unless the board of 
     trade has provided the Commission with a certification that 
     the specific security futures product

[[Page 23661]]

     and the board of trade, as applicable, meet the criteria 
     specified in subclauses (I) through (XI) of clause (i), 
     except as otherwise provided in clause (vi).''.
       (b) Margin on Security Futures.--Section 2(a)(1)(C)(vi) of 
     the Commodity Exchange Act (7 U.S.C. 2a(vi)) (as redesignated 
     by section 124) is amended--
       (1) by redesignating subclause (V) as subclause (VI); and
       (2) by striking ``(vi)(I)'' and all that follows through 
     subclause (IV) and inserting the following:
       ``(v)(I) Notwithstanding any other provision of this Act, 
     any contract market in a stock index futures contract (or 
     option thereon) other than a security futures product, or any 
     derivatives transaction execution facility on which such 
     contract or option is traded, shall file with the Board of 
     Governors of the Federal Reserve System any rule establishing 
     or changing the levels of margin (initial and maintenance) 
     for such stock index futures contract (or option thereon) 
     other than security futures products.
       ``(II) The Board may at any time request any contract 
     market to set the margin for any stock index futures contract 
     (or option thereon), other than for any security futures 
     product, at such levels as the Board in its judgment 
     determines are appropriate to preserve the financial 
     integrity of the contract market or its clearing system or to 
     prevent systemic risk. If the contract market or derivatives 
     transaction execution facility fails to do so within the time 
     specified by the Board in its request, the Board may direct 
     the contract market to alter or supplement the rules of the 
     contract market as specified in the request.
       ``(III) Subject to such conditions as the Board may 
     determine, the Board may delegate any or all of its 
     authority, relating to margin for any stock index futures 
     contract (or option thereon), other than security futures 
     products, under this clause to the Commission.
       ``(IV) It shall be unlawful for any futures commission 
     merchant to, directly or indirectly, extend or maintain 
     credit to or for, or collect margin from any customer on any 
     security futures product unless such activities comply with 
     the regulations prescribed pursuant to section 7(c)(2)(B) of 
     the Securities Exchange Act of 1934.
       ``(V) Nothing in this clause shall supersede or limit the 
     authority granted to the Commission in section 8a(9) to 
     direct a contract market or registered derivatives 
     transaction execution facility, on finding an emergency to 
     exist, to raise temporary margin levels on any futures 
     contract, or option on the contract covered by this clause, 
     or on any security futures product.''.
       (c) Dual Trading.--Section 4j of the Commodity Exchange Act 
     (7 U.S.C. 6j) is amended to read as follows:

     ``SEC. 4J. RESTRICTIONS ON DUAL TRADING IN SECURITY FUTURES 
                   PRODUCTS ON DESIGNATED CONTRACT MARKETS AND 
                   REGISTERED DERIVATIVES TRANSACTION EXECUTION 
                   FACILITIES.

       ``(a) The Commission shall issue regulations to prohibit 
     the privilege of dual trading in security futures products on 
     each contract market and registered derivatives transaction 
     execution facility. The regulations issued by the Commission 
     under this section--
       ``(1) shall provide that the prohibition of dual trading 
     thereunder shall take effect upon issuance of the 
     regulations; and
       ``(2) shall provide exceptions, as the Commission 
     determines appropriate, to ensure fairness and orderly 
     trading in security futures product markets, including--
       ``(A) exceptions for spread transactions and the correction 
     of trading errors;
       ``(B) allowance for a customer to designate in writing not 
     less than once annually a named floor broker to execute 
     orders for such customer, notwithstanding the regulations to 
     prohibit the privilege of dual trading required under this 
     section; and
       ``(C) other measures reasonably designed to accommodate 
     unique or special characteristics of individual boards of 
     trade or contract markets, to address emergency or unusual 
     market conditions, or otherwise to further the public 
     interest consistent with the purposes of this section.
       ``(b) As used in this section, the term `dual trading' 
     means the execution of customer orders by a floor broker 
     during the same trading session in which the floor broker 
     executes any trade in the same contract market or registered 
     derivatives transaction execution facility for--
       ``(1) the account of such floor broker;
       ``(2) an account for which such floor broker has trading 
     discretion; or
       ``(3) an account controlled by a person with whom such 
     floor broker has a relationship through membership in a 
     broker association.
       ``(c) As used in this section, the term `broker 
     association' shall include two or more contract market 
     members or registered derivatives transaction execution 
     facility members with floor trading privileges of whom at 
     least one is acting as a floor broker, who--
       ``(1) engage in floor brokerage activity on behalf of the 
     same employer,
       ``(2) have an employer and employee relationship which 
     relates to floor brokerage activity,
       ``(3) share profits and losses associated with their 
     brokerage or trading activity, or
       ``(4) regularly share a deck of orders.''.
       (d) Exemption From Registration for Investment Advisers.--
     Section 4m of the Commodity Exchange Act (7 U.S.C. 6m) is 
     amended by adding at the end the following:
       ``(3) Subsection (1) of this section shall not apply to any 
     commodity trading advisor that is registered with the 
     Securities and Exchange Commission as an investment adviser 
     whose business does not consist primarily of acting as a 
     commodity trading advisor, as defined in section 1a(6), and 
     that does not act as a commodity trading advisor to any 
     investment trust, syndicate, or similar form of enterprise 
     that is engaged primarily in trading in any commodity for 
     future delivery on or subject to the rules of any contract 
     market or registered derivatives transaction execution 
     facility.''.
       (e) Exemption From Investigations of Markets in Underlying 
     Securities.--Section 16 of the Commodity Exchange Act (7 
     U.S.C. 20) is amended by adding at the end the following:
       ``(e) This section shall not apply to investigations 
     involving any security underlying a security futures 
     product.''.
       (f) Rulemaking Authority To Address Duplicative Regulation 
     of Dual Registrants.--Section 4d of the Commodity Exchange 
     Act (7 U.S.C. 6d) is amended--
       (1) by inserting ``(a)'' before the first undesignated 
     paragraph;
       (2) by inserting ``(b)'' before the second undesignated 
     paragraph; and
       (3) by adding at the end the following:
       ``(c) Consistent with this Act, the Commission, in 
     consultation with the Securities and Exchange Commission, 
     shall issue such rules, regulations, or orders as are 
     necessary to avoid duplicative or conflicting regulations 
     applicable to any futures commission merchant registered with 
     the Commission pursuant to section 4f(a) (except paragraph 
     (2) thereof), that is also registered with the Securities and 
     Exchange Commission pursuant to section 15(b) of the 
     Securities Exchange Act (except paragraph (11) thereof), 
     involving the application of--
       ``(1) section 8, section 15(c)(3), and section 17 of the 
     Securities Exchange Act of 1934 and the rules and regulations 
     thereunder related to the treatment of customer funds, 
     securities, or property, maintenance of books and records, 
     financial reporting or other financial responsibility rules 
     (as defined in section 3(a)(40) of the Securities Exchange 
     Act of 1934), involving security futures products; and
       ``(2) similar provisions of this Act and the rules and 
     regulations thereunder involving security futures 
     products.''.
       (g) Obligation To Address Duplicative Regulation of Dual 
     Registrants.--Section 17 of the Commodity Exchange Act (7 
     U.S.C. 21) is amended by adding at the end the following:
       ``(r) Consistent with this Act, each futures association 
     registered under this section shall issue such rules as are 
     necessary to avoid duplicative or conflicting rules 
     applicable to any futures commission merchant registered with 
     the Commission pursuant to section 4f(a) of this Act (except 
     paragraph (2) thereof), that is also registered with the 
     Securities and Exchange Commission pursuant to section 15(b) 
     of the Securities and Exchange Act of 1934 (except paragraph 
     (11) thereof), with respect to the application of--
       ``(1) rules of such futures association of the type 
     specified in section 4d(3) of this Act involving security 
     futures products; and
       ``(2) similar rules of national securities associations 
     registered pursuant to section 15A(a) of the Securities and 
     Exchange Act of 1934 involving security futures products.''.
       (h) Obligation to Address Duplicative Regulation of Dual 
     Registrants.--Section 5c of the Commodity Exchange Act (as 
     added by section 114) is amended by adding at the end the 
     following new subsection:
       ``(f) Consistent with this Act, each designated contract 
     market and registered derivatives transaction execution 
     facility shall issue such rules as are necessary to avoid 
     duplicative or conflicting rules applicable to any futures 
     commission merchant registered with the Commission pursuant 
     to section 4f(a) of this Act (except paragraph (2) thereof), 
     that is also registered with the Securities and Exchange 
     Commission pursuant to section 15(b) of the Securities 
     Exchange Act of 1934 (except paragraph (11) thereof) with 
     respect to the application of--
       ``(1) rules of such designated contract market or 
     registered derivatives transaction execution facility of the 
     type specified in section 4d(3) of this Act involving 
     security futures products; and
       ``(2) similar rules of national securities associations 
     registered pursuant to section 15A(a) of the Securities 
     Exchange Act of 1934 and national securities exchanges 
     registered pursuant to section 6(g) of such Act involving 
     security futures products.''.
       (i) Obligation To Address Security Futures Products Traded 
     on Foreign Exchanges.--Section 2(a)(1) of the Commodity 
     Exchange Act (7 U.S.C. 2, 2a, and 4)) is amended by adding at 
     the end the following:
       ``(E)(i) To the extent necessary or appropriate in the 
     public interest, to promote fair

[[Page 23662]]

     competition, and consistent with the protection of investors 
     and the maintenance of fair and orderly markets, the 
     Commission and the Securities and Exchange Commission shall 
     jointly issue such rules, regulations, or orders as are 
     necessary and appropriate to permit the offer and sale of a 
     security futures product traded on or subject to the rules of 
     a foreign board of trade to United States persons.
       ``(ii) The rules, regulations, or orders adopted under 
     clause (i) shall take into account, as appropriate, the 
     nature and size of the markets that the securities underlying 
     the security futures product reflects.''.
       (j) Security Futures Products Traded on Foreign Boards of 
     Trade.--Section 2(a)(1) of the Commodity Exchange Act (7 
     U.S.C. 2, 2a, and 4) is amended by adding at the end the 
     following:
       ``(F)(i) Nothing in this Act is intended to prohibit a 
     futures commission merchant from carrying security futures 
     products traded on or subject to the rules of a foreign board 
     of trade in the accounts of persons located outside of the 
     United States.
       ``(ii) Nothing in this Act is intended to prohibit any 
     person located in the United States from purchasing or 
     carrying securities futures products traded on or subject to 
     the rules of a foreign board of trade, exchange, or market to 
     the same extent such person may be authorized to purchase or 
     carry other securities traded on a foreign board of trade, 
     exchange, or market.''.

     SEC. 222. APPLICATION OF THE COMMODITY EXCHANGE ACT TO 
                   NATIONAL SECURITIES EXCHANGES AND NATIONAL 
                   SECURITIES ASSOCIATIONS THAT TRADE SECURITY 
                   FUTURES.

       (a) Notice Designation of National Securities Exchanges and 
     National Securities Associations.--The Commodity Exchange Act 
     is amended by inserting after section 5e (7 U.S.C. 7b), as 
     redesignated by section 111(1), the following:

     ``SEC. 5F. DESIGNATION OF SECURITIES EXCHANGES AND 
                   ASSOCIATIONS AS CONTRACT MARKETS.

       ``(a) Any board of trade that is registered with the 
     Securities and Exchange Commission as a national securities 
     exchange, is a national securities association registered 
     pursuant to section 15A(a) of the Securities Exchange Act of 
     1934, or is an alternative trading system shall be a 
     designated contract market in security futures products if--
       ``(1) such national securities exchange, national 
     securities association, or alternative trading system lists 
     or trades no other contracts of sale for future delivery, 
     except for security futures products;
       ``(2) such national securities exchange, national 
     securities association, or alternative trading system files 
     written notice with the Commission in such form as the 
     Commission, by rule, may prescribe containing such 
     information as the Commission, by rule, may prescribe as 
     necessary or appropriate in the public interest or for the 
     protection of customers; and
       ``(3) the registration of such national securities 
     exchange, national securities association, or alternative 
     trading system is not suspended pursuant to an order by the 
     Securities and Exchange Commission.
     Such designation shall be effective contemporaneously with 
     the submission of notice, in written or electronic form, to 
     the Commission.
       ``(b)(1) A national securities exchange, national 
     securities association, or alternative trading system that is 
     designated as a contract market pursuant to section 5f shall 
     be exempt from the following provisions of this Act and the 
     rules thereunder:
       ``(A) Subsections (c), (e), and (g) of section 4c.
       ``(B) Section 4j.
       ``(C) Section 5.
       ``(D) Section 5c.
       ``(E) Section 6a.
       ``(F) Section 8(d).
       ``(G) Section 9(f).
       ``(H) Section 16.
       ``(2) An alternative trading system that is a designated 
     contract market under this section shall be required to be a 
     member of a futures association registered under section 17 
     and shall be exempt from any provision of this Act that would 
     require such alternative trading system to--
       ``(A) set rules governing the conduct of subscribers other 
     than the conduct of such subscribers' trading on such 
     alternative trading system; or
       ``(B) discipline subscribers other than by exclusion from 
     trading.
       ``(3) To the extent that an alternative trading system is 
     exempt from any provision of this Act pursuant to paragraph 
     (2) of this subsection, the futures association registered 
     under section 17 of which the alternative trading system is a 
     member shall set rules governing the conduct of subscribers 
     to the alternative trading system and discipline the 
     subscribers.
       ``(4)(A) Except as provided in subparagraph (B), but 
     notwithstanding any other provision of this Act, the 
     Commission, by rule, regulation, or order, may conditionally 
     or unconditionally exempt any designated contract market in 
     security futures subject to the designation requirement of 
     this section from any provision of this Act or of any rule or 
     regulation thereunder, to the extent such exemption is 
     necessary or appropriate in the public interest and is 
     consistent with the protection of investors.
       ``(B) The Commission shall, by rule or regulation, 
     determine the procedures under which an exemptive order under 
     this section is granted and may, in its sole discretion, 
     decline to entertain any application for an order of 
     exemption under this section.
       ``(C) An alternative trading system shall not be deemed to 
     be an exchange for any purpose as a result of the designation 
     of such alternative trading system as a contract market under 
     this section.''.
       (b) Notice Registration of Certain Securities Broker-
     Dealers; Exemption From Registration for Certain Securities 
     Broker-Dealers.--Section 4f(a) of the Commodity Exchange Act 
     (7 U.S.C. 6f(a)) is amended--
       (1) by inserting ``(1)'' after ``(a)''; and
       (2) by adding at the end the following:
       ``(2) Notwithstanding paragraph (1), and except as provided 
     in paragraph (3), any broker or dealer that is registered 
     with the Securities and Exchange Commission shall be 
     registered as a futures commission merchant or introducing 
     broker, as applicable, if--
       ``(A) the broker or dealer limits its solicitation of 
     orders, acceptance of orders, or execution of orders, or 
     placing of orders on behalf of others involving any contracts 
     of sale of any commodity for future delivery, on or subject 
     to the rules of any contract market or registered derivatives 
     transaction execution facility to security futures products;
       ``(B) the broker or dealer files written notice with the 
     Commission in such form as the Commission, by rule, may 
     prescribe containing such information as the Commission, by 
     rule, may prescribe as necessary or appropriate in the public 
     interest or for the protection of investors;
       ``(C) the registration of the broker or dealer is not 
     suspended pursuant to an order of the Securities and Exchange 
     Commission; and
       ``(D) the broker or dealer is a member of a national 
     securities association registered pursuant to section 15A(a) 
     of the Securities Exchange Act of 1934.
     The registration shall be effective contemporaneously with 
     the submission of notice, in written or electronic form, to 
     the Commission.
       ``(3) A floor broker or floor trader shall be exempt from 
     the registration requirements of section 4e and paragraph (1) 
     of this subsection if--
       ``(A) the floor broker or floor trader is a broker or 
     dealer registered with the Securities and Exchange 
     Commission;
       ``(B) the floor broker or floor trader limits its 
     solicitation of orders, acceptance of orders, or execution of 
     orders, or placing of orders on behalf of others involving 
     any contracts of sale of any commodity for future delivery, 
     on or subject to the rules of any contract market to security 
     futures products; and
       ``(C) the registration of the floor broker or floor trader 
     is not suspended pursuant to an order of the Securities and 
     Exchange Commission.''.
       (c) Exemption for Securities Broker-Dealers From Certain 
     Provisions of the Commodity Exchange Act.--Section 4f(a) of 
     the Commodity Exchange Act (7 U.S.C. 6f(a)) is amended by 
     inserting after paragraph (3), as added by subsection (b), 
     the following:
       ``(4)(A) A broker or dealer that is registered as a futures 
     commission merchant or introducing broker pursuant to 
     paragraph (2), or that is a floor broker or floor trader 
     exempt from registration pursuant to paragraph (3), shall be 
     exempt from the following provisions of this Act and the 
     rules thereunder:
       ``(i) Subsections (b), (d), (e), and (g) of section 4c.
       ``(ii) Sections 4d, 4e, and 4h.
       ``(iii) Subsections (b) and (c) of this section.
       ``(iv) Section 4j.
       ``(v) Section 4k(1).
       ``(vi) Section 4p.
       ``(vii) Section 6d.
       ``(viii) Subsections (d) and (g) of section 8.
       ``(ix) Section 16.
       ``(B)(i) Except as provided in clause (ii) of this 
     subparagraph, but notwithstanding any other provision of this 
     Act, the Commission, by rule, regulation, or order, may 
     conditionally or unconditionally exempt any broker or dealer 
     subject to the registration requirement of paragraph (2), or 
     any broker or dealer exempt from registration pursuant to 
     paragraph (3), from any provision of this Act or of any rule 
     or regulation thereunder, to the extent the exemption is 
     necessary or appropriate in the public interest and is 
     consistent with the protection of investors.
       ``(ii) The Commission shall, by rule or regulation, 
     determine the procedures under which an exemptive order under 
     this section shall be granted and may, in its sole 
     discretion, decline to entertain any application for an order 
     of exemption under this section.
       ``(C)(i) A broker or dealer that is registered as a futures 
     commission merchant or introducing broker pursuant to 
     paragraph (2) or an associated person thereof, or that is a 
     floor broker or floor trader exempt from registration 
     pursuant to paragraph (3), shall not be required to become a 
     member of any futures association registered under section 
     17.
       ``(ii) No futures association registered under section 17 
     shall limit its members

[[Page 23663]]

     from carrying an account, accepting an order, or transacting 
     business with a broker or dealer that is registered as a 
     futures commission merchant or introducing broker pursuant to 
     paragraph (2) or an associated person thereof, or that is a 
     floor broker or floor trader exempt from registration 
     pursuant to paragraph (3).''.
       (d) Exemptions for Associated Persons of Securities Broker-
     Dealers.--Section 4k of the Commodity Exchange Act (7 U.S.C. 
     6k), is amended by inserting after paragraph (4), as added by 
     subsection (c), the following:
       ``(5) Any associated person of a broker or dealer that is 
     registered with the Securities and Exchange Commission, and 
     who limits its solicitation of orders, acceptance of orders, 
     or execution of orders, or placing of orders on behalf of 
     others involving any contracts of sale of any commodity for 
     future delivery or any option on such a contract, on or 
     subject to the rules of any contract market or registered 
     derivatives transaction execution facility to security 
     futures products, shall be exempt from the following 
     provisions of this Act and the rules thereunder:
       ``(A) Subsections (b), (d), (e), and (g) of section 4c.
       ``(B) Sections 4d, 4e, and 4h.
       ``(C) Subsections (b) and (c) of section 4f.
       ``(D) Section 4j.
       ``(E) Paragraph (1) of this section.
       ``(F) Section 4p.
       ``(G) Section 6d.
       ``(H) Subsections (d) and (g) of section 8.
       ``(I) Section 16.''.

     SEC. 223. NOTIFICATION OF INVESTIGATIONS AND ENFORCEMENT 
                   ACTIONS.

       (a) Section 8(a) of the Commodity Exchange Act (7 U.S.C. 
     12(a)) is amended by adding at the end the following:
       ``(3) The Commission shall provide the Securities and 
     Exchange Commission with notice of the commencement of any 
     proceeding and a copy of any order entered by the Commission 
     against any futures commission merchant or introducing broker 
     registered pursuant to section 4f(a)(2), any floor broker or 
     floor trader exempt from registration pursuant to section 
     4f(a)(3), any associated person exempt from registration 
     pursuant to section 4k(6), or any board of trade designated 
     as a contract market pursuant to section 5f.''.
       (b) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9, 
     9a, 9b, 13b, 15) is amended by adding at the end the 
     following:
       ``(g) The Commission shall provide the Securities and 
     Exchange Commission with notice of the commencement of any 
     proceeding and a copy of any order entered by the Commission 
     pursuant to subsections (c) and (d) of this section against 
     any futures commission merchant or introducing broker 
     registered pursuant to section 4f(a)(2), any floor broker or 
     floor trader exempt from registration pursuant to section 
     4f(a)(3), any associated person exempt from registration 
     pursuant to section 4k(6), or any board of trade designated 
     as a contract market pursuant to section 5f.''.
       (c) Section 6c of the Commodity Exchange Act (7 U.S.C. 13a-
     1) is amended by adding at the end the following:
       ``(h) The Commission shall provide the Securities and 
     Exchange Commission with notice of the commencement of any 
     proceeding and a copy of any order entered by the Commission 
     against any futures commission merchant or introducing broker 
     registered pursuant to section 4f(a)(2), any floor broker or 
     floor trader exempt from registration pursuant to section 
     4f(a)(3), any associated person exempt from registration 
     pursuant to section 4k(6), or any board of trade designated 
     as a contract market pursuant to section 5f.''.

  The SPEAKER pro tempore (Mr. LaHood). Pursuant to the rule, the 
gentleman from Texas (Mr. Combest) and the gentleman from Texas (Mr. 
Stenholm) each will control 20 minutes.
  The Chair recognizes the gentleman from Texas (Mr. Combest).
  Mr. COMBEST. Mr. Speaker, I ask unanimous consent that the gentleman 
from Iowa (Mr. Leach) from the Committee on Banking and Financial 
Services have control of 5 minutes of my time and that he be permitted 
to yield blocks of time.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Texas?
  There was no objection.
  Mr. COMBEST. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, today the House considers a bill that addresses another 
of the contentious areas where capital and investment needs of American 
business intersect with the needs of managing economic risk in a global 
market.
  Although the issues in this bill do not have the long history 
associated with Glass-Steagall reforms, the process that we hope to be 
culminating this afternoon actually began in 1989. Then it took the 
Congress 3 years to broker a solution on how to deal with over-the-
counter financial instruments that had many of the economic 
characteristics of agricultural futures. While the Futures Trading 
Practices Act of 1992 proved temporary, we hope that today's 
legislation will be more lasting.
  Let me emphasize at the outset of this bill it aligns itself closely 
with the recommendations of the President's Working Group on Financial 
Services. The Department of the Treasury, the Federal Reserve, the 
Securities and Exchange Commission and the Commodity Futures Trading 
Commission compromise the President's Working Group.
  The PWG urged the Congress to steer clear of allowing over-the-
counter financial instruments to be offered to unsuspecting individuals 
who could lose their life's savings by picking an unsuitable 
investment. These are the so-called ``retail customers,'' and in all 
instances this bill has followed the PWG's advice.
  Indeed, the three committees of jurisdiction here in the House have 
taken a cautious approach, while making the three remain reforms the 
centerpiece of this legislation.
  First, we provide legal certainty to the vast multi-trillion dollar 
derivative markets, but we make certain that only highly sophisticated, 
deep-pocketed companies and individuals may participate in these 
markets.
  Second, we provide the U.S. derivatives industry the ability to trade 
single stock futures, but only under the watchful eyes of Federal 
securities and futures regulators.
  Third, we allow U.S. futures exchanges to set their own course in 
operating their derivatives markets under CFTC oversight, but without 
the burdens of a regulatory regime designed for the mid-20th century.
  These accomplishments were realized even though three committees 
shared legislative jurisdiction over these matters. The Committee on 
Agriculture, whose jurisdiction grew from the 150-year-old agricultural 
futures markets, understands the urgency of giving legal certainty to a 
$90 trillion swaps market. The Committee on Commerce, with jurisdiction 
over the securities laws, knows that if U.S. financial firms are to 
compete in global markets, single stock futures must be allowed to 
trade here in this country. And the Committee on Banking and Financial 
Services accepts the nexus between traditional banking activities and 
the tools of risk management that are not of their making.
  In conclusion, Mr. Speaker, I urge my colleagues to adopt this sound 
legislation. It rounds out many of the historic financial reforms 
passed by the 106th Congress. To fail to pass this legislation this 
year will put our financial services industry at a severe competitive 
disadvantage in the world market. That is why it is so important that 
the House get this bill to the other body now, where it may be 
considered and sent on to the President.
  Finally, Mr. Speaker, I would simply say in recognition, the 
gentleman from Illinois (Mr. Ewing), the chairman of the subcommittee 
with this jurisdiction, has not spent simply days, weeks or months on 
this bill, he has spent years on drafting this. We all regrettably know 
that the gentleman from Illinois (Mr. Ewing) is finalizing his 
congressional career at the end of this term. This, I think, could be 
his legacy. There have been countless hours that he has put in on this 
work. I commend the gentleman very much for what it is that he has 
done.
  I also want to thank the staff on all of the committees for the 
countless numbers of hours that they have put in over the past several 
weeks to try to get us to this point today.
  Mr. Speaker, I ask unanimous consent that the gentleman from Illinois 
(Mr. Ewing) control the balance of the time that is allotted to the 
Committee on Agriculture.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Texas?
  There was no objection.
  Mr. STENHOLM. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of H.R. 4541. It is an important piece 
of legislation and has a number of components that will improve the 
business environment for the derivatives portion of our

[[Page 23664]]

Nation's financial services industry. While I support the bill, I do 
have some reservations.
  Mr. Speaker, in its early stages, this bill was built from agreements 
developed between regulators and the President's Working Group on 
Financial Markets; between the over-the-counter derivatives industry 
and our futures exchanges; between the Securities and Exchange 
Commission and the Commodity Futures Trading Commission; and between 
the three committees of jurisdiction.
  Mr. Speaker, for a time, the bill's development was the focus of a 
bipartisan group of members from the three committees that conducted 
the committee markups; but in a bizarre twist, the leadership 
intervened and decided to substitute partisan negotiations in place of 
the bipartisan discussions that were already under way and that were 
yielding productive results.
  Mr. Speaker, the leadership's partisan diversion in this matter was 
clearly unnecessary. In my view, it slowed the process of developing a 
consensus bill, and consequently it nearly cost us our opportunity to 
move this legislation forward. The process has also had the effect of 
detracting from confidence in the final product.
  Nevertheless, Mr. Speaker, the bill tackles and accomplishes the 
three main tasks that the Committee on Agriculture set for itself at 
the beginning of this process: modernizing our Commodity Exchange Act 
regulatory system, providing legal certainty for our over-the-counter 
derivatives market, and repealing the outdated prohibition on the 
trading of single stock futures in the United States.
  Mr. Speaker, I want to compliment the CFTC for their help. The 
commission deserves special credit for the design of the new futures 
market regulatory scheme.
  The bill reforms futures trading regulation by freeing the CFTC from 
the task of prescribing the rules and procedures that exchanges must 
follow. With the bill's enactment, the CFTC's primary role will be to 
examine and enforce trading entities' compliance with core principles 
of self-regulatory responsibility. Exchanges will be able to design 
their businesses the best they can, by adopting practices that are in 
compliance with these principles.
  The enforcement provisions of H.R. 4541, as reported by the Committee 
on Agriculture, caused the CFTC to be concerned that it would lack 
sufficient authority to bring enforcement action against a registered 
entity that fails to abide by core principles. I am pleased to say that 
since that time, the bill's provisions have been modified to meet the 
concerns of the CFTC. At the same time, provisions have been added to 
clarify that registered entities will have some flexibility in meeting 
core principles.
  Mr. Speaker, the bill before the House repeals the outdated ban on 
single stock futures. We have never had a better opportunity to 
eliminate this barrier to progress. With all the things we do trade in 
this country today, not just corn, cotton, wheat, soybeans, interest 
rates, currencies, sugar, crude oil and milk futures, but futures on 
heating degree days, on catastrophic insurance and Iowa crop yields and 
many other commodities, the ban is particularly absurd.
  Our Nation is the capital of financial innovation; but we ban futures 
trading on two things, just two things: onions and single stock 
futures. The agreements in this bill that will allow trading in single 
stock futures are an important development, and I am grateful for the 
work of the SEC and the CFTC in developing their agreement.
  Mr. Speaker, sections 102 through 106 of the bill provide the legal 
certainty for over-the-counter derivatives recommended by the 
President's Working Group and sought by the over-the-counter industry. 
Section 107 is intended to further bolster that certainty with regard 
to swap transactions. The application of section 107 is limited to 
bilateral, individually negotiated transactions, not entered into on a 
transaction facility.
  Mr. Speaker, as the Treasury Department said for the Committee on 
Agriculture's record earlier this year, ``The changes resulting from 
technology, globalization and financial innovation have made it 
increasingly important that our regulatory and legal framework keeps 
pace with rapid progress in the marketplace.''
  Mr. Speaker, the place of our financial industry in worldwide 
competition depends on us. We should move this bill forward.
  I would, however, be much more comfortable if we had been given the 
opportunity to analyze the bill and expose it to greater public 
scrutiny. Our work product would benefit, since the issues involved are 
complicated and very technical in nature. However, I have decided after 
listening to the regulators and the industry representatives involved 
that expediency is more important than a careful analytical process. I 
can easily understand how another decision could be reached on this 
legislation.
  Mr. Speaker, despite my reservations, I do want to especially commend 
the leaders of the House committees who worked on this bill, and 
particularly recognize the gentleman from Texas (Chairman Combest) for 
his leadership. Special recognition must be reserved for our 
subcommittee chairman, the gentleman from Illinois (Mr. Ewing). His 
leadership over a number of years has been key to laying the groundwork 
for and designing the architecture of the delicate agreements that hold 
H.R. 4541 together. He is a true consensus builder, and the bill before 
us is a tribute to his service.
  Mr. Speaker, I urge my colleagues to pass this bill, and at this time 
I ask the gentleman from Illinois (Chairman Ewing) if he will join me 
in a colloquy.
  Mr. Speaker, the bill before us seeks to modernize regulation of 
futures markets by replacing rigid governmentally imposed restrictions 
with flexible, but comprehensive, core principles that registered 
entities must comply with in the conduct of administering trading.
  Does the chairman of the subcommittee agree that the bill is meant to 
provide this flexibility while also maintaining the ability of the CFTC 
to compel compliance with their provisions?
  Mr. EWING. Mr. Speaker, will the gentleman yield?
  Mr. STENHOLM. I yield to the gentleman from Illinois.
  Mr. EWING. Mr. Speaker, as included in the bill before us, the core 
principles will be, by their nature, flexible standards. Accordingly, a 
regulated entity would have reasonable discretion in making 
determinations as to how it will meet these requirements. Regulated 
entities will be able to exercise reasonable discretion in interpreting 
the language of a core principle to the extent such language includes 
discretionary language. However, the commission retains its clear 
authority to issue interpretations by rule, regulation, or order.
  Mr. STENHOLM. Mr. Speaker, reclaiming my time, I thank the chairman 
for his answer, and for his work on the bill. I again encourage the 
support of this legislation.
  Mr. Speaker, I include for the Record the statement of administration 
policy in support of the legislation before us.

                   Statement of Administration Policy

     H.R. 4541--Commodity Futures Modernization Act of 2000
       (Rep Ewing (R) Illinois and 3 cosponsors)
       The Administration strongly supports the version of H.R. 
     4541, the Commodity Futures Modernization Act of 2000, that 
     the Administration understands will be considered on the 
     House floor. This legislation would reauthorize the Commodity 
     Futures Trading Commission (CFTC) and modernize the Nation's 
     legal and regulatory framework regarding over-the-counter 
     (OTC) derivatives transactions and markets. In so doing, H.R. 
     4541 also would implement many of the unanimous 
     recommendations regarding the treatment of OTC derivatives 
     made by the President's Working Group on Financial Markets, 
     which includes the Secretary of the Treasury and the Chairmen 
     of the Federal Reserve Board of Governors, the Securities and 
     Exchange Commission, and the Commodity Futures Trading 
     Commission.
       It is important that this legislation be enacted this year 
     because of the meaningful steps it would take in helping to: 
     promote innovation; enhance the transparency and efficiency 
     of derivative markets; maintain the competitiveness of U.S. 
     businesses and markets; and, potentially, reduce systemic 
     risk.

[[Page 23665]]

     H.R. 4541 would accomplish these goals while assuring 
     adequate customer protection for small investors and 
     protecting the integrity of the underlying securities and 
     futures markets. A failure to modernize the Nation's 
     framework for OTC derivatives during this legislative session 
     would deprive American markets and businesses of these 
     important benefits that could result in the movement of these 
     markets to overseas locations with more updated regulatory 
     regimes. The Administration looks forward to working with 
     members of Congress to improve certain aspects of the bill as 
     it continues through the legislative process.

  Mr. Speaker, I reserve the balance of my time.
  Mr. EWING. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I truly appreciate all of the hard work from majority 
and minority members and staff of my committee, the Committee on 
Banking and Financial Services and the Committee on Commerce. I also 
must say that the Treasury Department, the Commodity Futures Trading 
Commission, the Securities and Exchange Commission, and the Federal 
Reserve have cooperated greatly in working through this process.
  Mr. Speaker, the President's Working Group report on OTC derivatives 
was requested by the House and Senate Committee on Agriculture chairmen 
in September of 1998 and presented to the committee in November of 
1999. This report laid the groundwork for many of the legal certainty 
provisions and other provisions included in H.R. 4541.
  The President's Working Group report pointed out two issues apart 
from the legal certainty that also deserve congressional close 
attention. Regulatory relief for the domestic futures exchanges was of 
great importance to ensure the U.S. futures exchanges can compete 
globally.

                              {time}  1815

  Chairman Greenspan said it most clearly in past testimony, ``Already 
the largest futures exchange in the world is no longer in America's 
heartland; instead, it is now in the heart of Europe. To be sure, no 
U.S. exchange has yet to lose a major contract to a foreign competitor. 
But it would be a serious mistake for us to wait for such unmistakable 
evidence of a loss of international competitiveness before acting.''
  While the President's working group report did not give details on 
regulatory relief for futures exchanges, it did conclude that the 
Commodities Future Trading Commission should provide appropriate 
regulatory relief for the exchange-traded financial futures.
  The CFTC took the initiative to develop a far-reaching staff proposal 
to provide regulatory relief for domestic futures exchanges. I am 
extremely impressed with the CFTC's commitment to work with the 
industry and with others and the President's working group members in 
creating its proposal. I particularly pay tribute to the chairman, Mr. 
Rainer, for his work.
  H.R. 4541 incorporates much of the framework put forward by the CFTC.
  The final aspect of the CEA modernization that I would like to 
address is the Shad/Johnson Accord. The President's working group 
members believed that the current prohibition on single stock futures 
could be repealed if issues about integrity of the underlying 
securities market and regulatory arbitrage are resolved.
  The gentleman from Texas (Chairman Combest); the gentleman from Texas 
(Mr. Stenholm), the ranking member; the gentleman from Virginia 
(Chairman Bliley); and I all sent a letter to Chairman Levitt of the 
SEC and Chairman Rainer of the CFTC asking them to create and present a 
plan regarding the Shad/Johnson.
  The agencies agreed that they would share jurisdiction on regulating 
these products; that dual trading would be banned; that margins would 
be set equivalent to the levels on option markets; and that the SEC 
would enforce the insider trading laws on these products.
  The CFTC and the SEC's language is the basis for the current reform 
of the Shad/Johnson; however, a tax provision was added to ensure 
parity between the single stock futures and options trading and a 
section 31 fee currently assessed on securities will also be assessed 
on single stock futures.
  Banking modernization was enacted last year. It is time for the 
financial industry to move onto CEA modernization.
  I made it clear that I was interested in a comprehensive bill, and I 
believe this bill displays a substantial cooperative effort among the 
House Committee on Agriculture, the Committee on Banking and Financial 
Services, the Committee on Commerce to substantially address the most 
important reforms for the U.S. financial industry. For the first time, 
members of the President's working group, many of the futures exchanges 
and many over-the-counter parties have agreed on a majority of the 
bill.
  America's financial industry is involved in a global battle. If the 
U.S. futures exchange, the OTC industry are to compete with new 
electronic exchanges and other foreign competition, such as the EUREX, 
we need to send a clear message that the United States will have a fair 
and competitive regulatory system.
  Finally, I would like to thank the gentleman from Texas (Chairman 
Archer) and the joint tax staff for all of their hard work in crafting 
the legislative language to address the tax treatment for security 
future products.
  Mr. Speaker, I submit the following explanation from the gentleman 
from Texas (Mr. Archer) that describes the tax language that is 
contained in this bill for the Record:
                                      Committee on Ways and Means,


                                     House of Representatives,

                                                 October 19, 2000.
     Hon. Larry Combest,
     Chairman, Committee on Agriculture, Washington, DC.
       Dear Larry: I understand that H.R. 4541, the ``Commodities 
     Futures Modernization Act of 2000,'' is scheduled for 
     consideration by the House today. One of the issues raised by 
     the bill has been the tax treatment of transactions involving 
     security futures contracts. Time constrains have prevented 
     the Committee on Ways and Means from formally considering 
     this legislation. Nonetheless, I have been asked to provide 
     you with statutory language that addresses the tax treatment 
     of security futures contracts, and I understand that the 
     language I provided has been included in the bill.
       To provide assistance in interpreting the statutory 
     language, I am attaching a technical explanation prepared by 
     the staff of the Joint Committee on Taxation. I would 
     appreciate your introducing this letter and explanation into 
     the record during consideration of H.R. 4541. Thank you very 
     much for your assistance in this regard.
       With Best Personal Regards,
           Sincerely,
                                                       Bil Archer,
     Chairman.
                                  ____


     TECHNICAL EXPLANATION OF THE TAX PROVISIONS OF H.R. 4541, THE 
            ``COMMODITY FUTURES MODERNIZATION ACT OF 2000''


        PREPARED BY THE STAFF OF THE JOINT COMMITTEE ON TAXATION

                            I. INTRODUCTION

       This document \1\ prepared by the staff of the Joint 
     Committee on Taxation provides a technical explanation of the 
     tax provisions of H.R. 4541, the ``Commodity Futures 
     Modernization Act of 2000.'' The bill is scheduled for 
     consideration by the House of Representatives on October 19, 
     2000. The non-tax portions of the bill provides for exchange 
     trading a ``securities futures contract'', which will be a 
     contract for future delivery of a single security or a 
     narrow-based security index. The bill provides for the tax 
     treatment of these instruments in a manner generally 
     consistent with the present-law treatment of transactions in 
     stock and stock options.
---------------------------------------------------------------------------
     \1\ This document may be cited as follows: Joint Committee on 
     Taxation, ``Technical Explanation of the Tax Provisions of 
     H.R. 4541, the `Commodity Futures Modernization Act of 2000' 
     '' (JCX-108-00), October 19, 2000.
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           II. EXPLANATION OF THE TAX PROVISIONS OF THE BILL


 tax treatment of securities futures contracts (sec. 124(c) and (d) of 
            H.R. 4541 and secs. 1234b and 1256 of the code)

     Present Law
       In general
       Generally, gain or loss from the sale of property, 
     including stock, is recognized at the time of sale or other 
     disposition of the property, unless there is a specific 
     statutory provision for nonrecognition (sec. 1001).
       Gains and losses from the sale or exchange of capital 
     assets are subject to special rules. In the case of 
     individuals, net capital gain is generally subject to a 
     maximum tax rate of 20 percent (sec. 1(h)). Net capital gain 
     is the excess of net long-term capital gains over net short-
     term capital losses. Also, capital losses are allowed only to 
     the extent of capital gains plus, in the case of individuals,

[[Page 23666]]

     $3,000 (sec. 1211). Capital losses of individuals may be 
     carried forward indefinitely and capital losses of 
     corporations may be carried back three years and forward five 
     years (sec. 1212).
       Generally, in order for gains or losses on a sale or 
     exchange of a capital asset to be long-term capital gains or 
     losses, the asset must be held for more than one year (sec. 
     1222).\2\ A capital asset generally includes all property 
     held by the taxpayer except certain enumerated types of 
     property such as inventory (sec. 1221).
---------------------------------------------------------------------------
     \2\ The holding period for futures transactions in a 
     commodity is 6 months. The 6-month holding period does not 
     apply to futures which are subject to the mark-to-market 
     rules of section 1256, discussed below.
---------------------------------------------------------------------------
       Section 1256 contracts
       Special rules apply to ``section 1256 contracts,'' which 
     include regulated futures contracts, certain foreign currency 
     contracts, nonequity options, and dealer equity options. Each 
     section 1256 contract is treated as if it were sold (and 
     repurchased) for its fair market value on the last business 
     day of the year (i.e., ``marked to market''). Any gain or 
     loss with respect to a section 1256 contract which is subject 
     to the mark-market rule is treated as if 40 percent of 
     capital gain or loss. This results in a maximum rate of 27.84 
     percent on such gain for taxpayers other than corporations. 
     The mark-to-market rule (and the special 60/40 capital 
     treatment) is inapplicable to hedging transactions.
       A ``regulated futures contract'' is a contract (1) which is 
     traded on or subject to the rules of a national securities 
     exchange registered with the Securities Exchange Commission, 
     a domestic board of trade designated a contract market by the 
     Commodities Futures Trading Commission, or similar exchange, 
     board of trade, or market, and (2) with respect to which the 
     amount required to be deposited and which may be withdrawn 
     depends on a system of marking to market.
       A ``dealer equity option'' means, with respect to an 
     options dealer, an equity option purchased in the normal 
     course of the activity of dealing in options and listed on 
     the qualified board or exchange on which the options dealer 
     is registered. An equity option is an option to buy or sell 
     stock or an option the value of which is determined by 
     reference to any stock, group or stocks, or stock index, 
     other than an option on certain broad-based groups of stock 
     or stock index.\3\ An options dealer is any person who is 
     registered with an appropriate national securities exchange 
     as a market maker or specialist in listed options, or who the 
     Secretary of the Treasury determines performs functions 
     similar to market makers and specialists.\4\
---------------------------------------------------------------------------
     \3\ Rev. Rul. 94-63, 1994-2 C.B. 188, provides that the 
     determination made by the Securities and Exchange Commission 
     will determine whether or not an option is ``broad based''.
     \4\ A special rule provides that any gain or loss with 
     respect to dealer equity options which are allocable to 
     limited partners or limited entrepreneurs are treated as 
     short-term capital gain or loss and do not qualify for the 60 
     percent long-term, 40 percent short-term capital gain or loss 
     treatment of section 1256(a)(3).
---------------------------------------------------------------------------
       Mark to market accounting for dealers in securities
       Under present law, a dealer in securities must compute its 
     income from dealing in securities pursuant to the mark-to-
     market method of accounting (sec. 475). Gains and losses are 
     treated as ordinary income and loss. Traders in securities, 
     and dealers and traders in commodities may elect to use this 
     method of accounting, including the ordinary income 
     treatment. Section 1256 contracts are not treated as 
     securities for purposes of section 475.\5\
---------------------------------------------------------------------------
     \5\ As discussed above, dealers in equity options are subject 
     to mark-to-market accounting and the special capital gain 
     rules of section 1256.
---------------------------------------------------------------------------
       Short sales
       In case of a ``short sale'' (i.e., where the taxpayer sells 
     borrowed property and later closes the sale by repaying the 
     lender with substantially identical property), any gain or 
     loss on the closing transaction is considered gain or loss 
     from the sale or exchange of a capital asset if the property 
     used to close the short sale is a capital asset in the hands 
     of the taxpayer, but the gain is ordinarily treated as short-
     term gain (sec. 1233(a)).
       The Internal Revenue Code (the ``Code'') also contains 
     several rules intended to prevent the transformation of 
     short-term capital gain into the long-term capital gain or 
     long-term capital loss into short-term capital loss by 
     simultaneously holding property and selling short 
     substantially identical property (sec. 1233(b) and (d)). 
     Under these rules, if a taxpayer holds property for less than 
     the long-term holding period and sells short substantially 
     identical property, any gain or loss upon the closing of the 
     short sale is considered short-term capital gain, and the 
     holding period of the substantially identical property is 
     generally considered to begin on the date of the closing of 
     the short-term sale. Also, if a taxpayer has held property 
     for more than the long-term holding period and sells short 
     substantially identical property, any loss on the closing of 
     the short sale is considered a long-term capital loss.
       For purposes of these short sale rules, property includes 
     stock, securities, and commodity futures, but commodity 
     futures are not considered substantially identical if they 
     call for delivery in different months.
       For purposes of the short-sale rules relating to short-term 
     gains, the acquisition of an option to sell at a fixed price 
     is treated as a short sale, and the exercise or failure to 
     exercise the option is considered a closing of the short 
     sale.\6\
---------------------------------------------------------------------------
     \6\ An exception applies to an option to sell acquired on the 
     same day as the property identified as intended to be used 
     (and is so used) in exercising the option is acquired (sec. 
     1233(c)).
---------------------------------------------------------------------------
       The Code also treats a taxpayer as recognizing gain where 
     the taxpayer holds appreciated property and enters into a 
     short sale of the same or substantially identical property, 
     or enters into a contract to sell the same or substantially 
     identical property (sec. 1259).
       Wash sales
       The wash-sale rule (sec. 1091) disallows certain losses 
     from the disposition of stock or securities if substantially 
     identical stock or securities (or an option or contract to 
     acquire such property) are acquired by the taxpayer during 
     the period beginning 30 days before the date of sale and 
     ending 30 days after such date of sale. Commodity futures are 
     not treated as stock or securities for purposes of this rule. 
     The basis of the substantially identical stock or securities 
     is adjusted to include the disallowed loss.
       Similar rules apply to disallow any loss realized on the 
     closing of a short sale of stock or securities where 
     substantially identical stock or securities are sold (or a 
     short sale, option or contract to sell is entered into) 
     during the applicable period before and after the closing of 
     the short sale.
       Straddle rules
       If a taxpayer realizes a loss with respect to a position in 
     a straddle, the taxpayer may recognize that loss for the 
     taxable year only to the extent that the loss exceeds the 
     unrecognized gain (if any) with respect to offsetting 
     positions in the straddle (sec. 1092). Disallowed losses are 
     carried forward to the succeeding taxable year and are 
     subject to the same limitation in that taxable year.
       A ``straddle'' generally refers to offsetting positions 
     with respect to actively traded personal property. Positions 
     are offsetting if there is a substantial diminution of risk 
     of loss from holding one position by reason of holding one or 
     more other positions in personal property. A ``position'' in 
     personal property is an interest (including a futures or 
     forward contract or option) in personal property.
       The straddle rules provide that the Secretary of the 
     Treasury may issue regulations applying the short sale 
     holding period rules to positions in a straddle. Temporary 
     regulations have been issued setting forth the holding period 
     rules applicable to positions in a straddle.\7\ To the extent 
     these rules apply to a position, the rules in section 1233(b) 
     and (d) do not apply.
---------------------------------------------------------------------------
     \7\ Reg. sec. 1.1092(b)-2T.
---------------------------------------------------------------------------
       The straddle rules generally do not apply to positions in 
     stock. However the straddle rules apply if one of the 
     positions is stock and at least one of the offsetting 
     positions is either (1) an option with respect to stock or 
     (2) a position with respect to substantially similar or 
     related property (other than stock) as defined in Treasury 
     regulations. Under property Treasury regulations, a position 
     with respect to substantially similar or related property 
     does not include stock or a short sale of stock, but includes 
     any other position with respect to substantially similar or 
     related property.\8\
---------------------------------------------------------------------------
     \8\ Prop. Reg. sec. 1.1092(d)-2(c).
---------------------------------------------------------------------------
       If a straddle consists of both positions that are section 
     1256 contracts and positions that are not such contracts, the 
     taxpayer may designate the positions as a mixed straddle. 
     Positions in a mixed straddle are not subject to the mark-to-
     mark rule of section 1256, but instead are subject to rules 
     written under regulations to prevent the deferral of tax or 
     the conversion of short-term capital gain to long-term 
     capital gain or long-term capital loss into short-term 
     capital loss.
       Transactions by a corporation in its own stock
       A corporation does not recognize gain or loss on the 
     receipt of money or other property in exchange for its own 
     stock. Likewise, a corporation does not recognize gain or 
     loss when it redeems its stock with cash, for less or more 
     than it received when the stock was issued. In addition, a 
     corporation does not recognize gain or loss on any lapse or 
     acquisition of an option to buy or sell its stock (sec. 
     1032).
     Explanation of the Tax Provisions of the Bill
       In general
       Except in the case of dealer securities futures contracts 
     described below, securities futures contracts are not treated 
     as section 1256 contracts. Thus, holders of these contracts 
     are not subject to the mark-to-market rules of section 1256 
     and are not eligible for 60-percent long-term capital gain 
     treatment under section 1256. Instead, gain or loss on these 
     contracts will be recognized under the general rules relating 
     to the disposition of property.\9\
---------------------------------------------------------------------------
     \9\ Any securities futures contract which is not a section 
     1256 contract will be treated a ``security'' for purposes of 
     section 475. Thus, for example, traders in securities future 
     contracts which are not section 1256 contracts could elect to 
     have section 475 apply.

---------------------------------------------------------------------------

[[Page 23667]]

       A securities futures contract is defined in section 
     3(a)(55)(A) of the Securities Exchange Act of 1934, as added 
     by the bill. In general, that definition provides that a 
     securities futures contract means a contract of sale for 
     future delivery of a single security or a narrow-based 
     security index. A securities future contract will not be 
     treated as a commodities futures contract for purposes of the 
     Code.
       Treatment of gains and losses
       The bill provides that any gain or loss from the sale or 
     exchange of a securities futures contract (other than a 
     dealer securities futures contract) will be considered as 
     gain or loss from the sale or exchange of property which has 
     the same character as the property to which the contract 
     relates has (or would have) in the hands of the taxpayer. 
     Thus, if the underlying security would be a capital asset in 
     the taxpayer's hands, then gain or loss from the sale or 
     exchange of the securities futures contract would be capital 
     gain or loss. The bill also provides that the termination of 
     a securities futures which is a capital asset will be treated 
     as a sale or exchange of the contract.
       Capital gain treatment will not apply to contracts which 
     themselves are not capital assets because of the exceptions 
     of the definition of a capital asset relating to inventory 
     (sec. 1221(a)(1)) or hedging (sec. 1221(a)(7)), or to any 
     income derived in connection with a contract which would 
     otherwise be treated as ordinary income.
       Except as otherwise provided in regulations under section 
     1092(b) (which treats certain losses from a straddle as long-
     term capital losses) and section 1234B, as added by the bill, 
     any capital gain or loss from the sale or exchange of a 
     securities futures contract to sell property (i.e., the short 
     side of a securities futures contract) will be short-term 
     capital gain or loss. In other words, a securities futures 
     contract to sell property is treated as equivalent to a short 
     sale of the underlying property.
       Wash sale rules
       The bill clarifies that, under the wash sale rules, a 
     contract or option to acquire or sell stock or securities 
     shall include options and contracts that are (or may be) 
     settled in cash or property other than the stock or 
     securities to which the contract relates. Thus, for example, 
     the acquisition, within the period set forth in section 1091, 
     of a securities futures contract to acquire stock of a 
     corporation could cause the taxpayer's loss on the sale of 
     stock in that corporation to be disallowed, notwithstanding 
     that the contract may be settled in cash.
       Short sale rules
       In applying the short sale rules, a securities futures 
     contract to acquire property will be treated in manner 
     similar to the property itself. Thus, for example, the 
     holding of a securities futures contract to acquire property 
     and the short sale of property which is substantially 
     identical to the property under the contract will result in 
     the application of the rules of section 1233(b).\10\ In 
     addition, as stated above, a securities futures contract to 
     sell is treated in a manner similar to a short sale of the 
     property.
---------------------------------------------------------------------------
     \10\ Because securities futures contracts are not treated as 
     futures contracts with respect to commodities, the rule 
     providing that commodity futures are not substantially 
     identical if they call for delivery in different months does 
     not apply.
---------------------------------------------------------------------------
       Straddle rules
       Stock which is part of a straddle at least one of the 
     offsetting positions of which is a securities futures 
     contract with respect to the stock or substantially identical 
     stock will be subject to the straddle rules of section 1092. 
     Treasury regulations under section 1092 applying the 
     principles of the section 1233(b) and (d) short sale rules to 
     positions in a straddle will also apply.
       For example, assume a taxpayer holds a long-term position 
     in actively traded stock (which is a capital asset in the 
     taxpayer's hands) and enters into a securities futures 
     contract to sell substantially identical stock (at a time 
     when the position in the stock has not appreciated in value 
     so that the constructive sale rules of section 1259 do not 
     apply). The taxpayer has a straddle. Treasury regulations 
     prescribed under section 1092(b) applying the principles of 
     section 1233(d) will apply, so that any loss on closing the 
     securities futures contract will be a long-term capital loss.
       Section 1032
       A corporation will not recognize gain or loss on 
     transactions in securities futures contracts with respect to 
     its own stock.
       Holding period
       If property is delivered in a satisfaction of a securities 
     futures contract to acquire property (other than a contract 
     to which section 1256 applies), the holding period for the 
     property will include the period the taxpayer held the 
     contract, provided that the contract was a capital asset in 
     the hands of the taxpayer.
       Regulations
       The Secretary of the Treasury or his delegate has the 
     authority to prescribe regulations to provide for the proper 
     treatment of securities futures contracts under provisions of 
     the Internal Revenue Code.
       Dealers in securities futures contracts
       In general, the bill provides that securities futures 
     contracts and options on such contracts are not section 1256 
     contracts. The bill provides, however, that ``dealer 
     securities futures contracts'' will be treated as section 
     1256 contracts.
       The term ``dealer securities futures contract'' means a 
     securities futures contract which is entered into by a dealer 
     in the normal course of his or her trade or business activity 
     of dealing in such contracts, and is traded on a qualified 
     board of trade or exchange. The term also includes any option 
     to enter into securities futures contracts purchased or 
     granted by a dealer in the normal course of his or her trade 
     or business activity of dealing in such options. The 
     determination of who is to be treated as a dealer in 
     securities futures contracts is to be made by the Secretary 
     of the Treasury or his delegate not later than July 1, 2001. 
     Accordingly, the bill authorizes the Secretary to treat a 
     person as a dealer in securities futures contracts or options 
     on such contracts if the Secretary determines that the person 
     performs, with respect to such contracts or options, 
     functions similar to an equity options dealer, as defined 
     under present law.
       The determination of who is a dealer in securities futures 
     contracts is to be made in a manner that is appropriate to 
     carry out the purpose of the provision, which generally is to 
     provide comparable tax treatment between dealers in 
     securities futures contracts, on the one hand, and dealers in 
     equity options, on the other. Although traders in securities 
     futures contracts (and options on such contracts) may not 
     have the same market-making obligations as market makers or 
     specialists in equity options, many traders are expected to 
     perform analogous functions to such market makers or 
     specialists by providing market liquidity for securities 
     futures contracts (and options) even in the absence of a 
     legal obligation to do so. Accordingly, the absence of 
     market-making obligations is not inconsistent with a 
     determination that a class of traders are dealers in 
     securities futures contracts (and options), if the relevant 
     factors, including providing market liquidity for such 
     contracts (and options), indicate that the market functions 
     of the traders is comparable to that of equity options 
     dealers.
       As in the case of dealer equity options, gains and losses 
     allocated to any limited partner or limited entrepreneur with 
     respect to a dealer securities futures contract will be 
     treated as short-term capital gain or loss.
       Treatment of options under section 1256
       The bill modifies the definition of ``equity option'' for 
     purposes of section 1256 to take into account changes made by 
     the non-tax provisions of the bill. Only options dealers are 
     eligible for section 1256 with respect to equity options. The 
     term ``equity option'' is modified to include an option to 
     buy or sell stock, or an option the value of which is 
     determined, directly or indirectly, by reference to any 
     stock, or any ``narrow-based security index,'' as defined in 
     section 3(a)(55) of the Securities Exchange Act of 1934 (as 
     modified by the bill). An equity option includes an option 
     with respect to a group of stocks only if the group meets the 
     requirements for a narrow-based security index.
       As under present law, listed options that are not ``equity 
     options'' are considered ``nonequity options'' to which 
     section 1256 applies for all taxpayers. For example, options 
     relating to broad-based groups of stocks and broad based 
     stock indexes will continue to be treated as nonequity 
     options under section 1256.
       Definition of contract markets
       The non-tax provisions of the bill designate certain new 
     contract markets. The new contract markets will be contract 
     markets for purposes of the Code, except to the extent 
     provided in Treasury regulations.
     Effective date
       These provisions will take effect on the date of enactment 
     of the bill.

  Mr. EWING. Mr. Speaker, I reserve the balance of my time.
  Mr. LEACH. Mr. Speaker, I yield myself such time as I may consume.
  Last year, after nearly 2 decades of work, the United States Congress 
passed the Financial Modernization Act to bring our Nation's banking 
and securities laws in line with the realities of the marketplace. In 
the few days left for legislation in this Congress, an analogous 
opportunity presents itself to modernize the Commodity Exchange Act 
that governs the trading of futures and options.
  At issue is the question of whether an appropriate regulatory 
framework can be established to deal not only with certain problems 
that confront today's risk management markets, but new dilemmas that 
appear on the horizon.
  Legislation of this nature involves different committees with 
different concerns and sometimes competitive jurisdictional interests. 
From the perspective of the Committee on Banking

[[Page 23668]]

and Financial Services, I would like to express my respect for the 
initial Committee on Agriculture product. That Committee's product, led 
by the gentleman from Texas (Chairman Combest) and the gentleman from 
Texas (Mr. Ewing), reflected a credible way of dealing with a number of 
concerns that have developed during much of the last of the decade as 
derivatives-related products have grown. Nonetheless, the Committee on 
Banking and Financial Services believes that some modifications to H.R. 
4541 were in order; and in July, a number of clarifying approaches were 
adopted on a bipartisan manner.
  The fact is that the CEA, or Commodity Exchange Act, is an awkward 
legislative vehicle designed in an era in which financial products have 
of a nature now in place were neither in existence nor much 
contemplated. Indeed, the Commodities Future Trading Commission was 
fundamentally designed to supervise agriculture and commodities 
markets, not financial institutions.
  Because of anachronistic constraints established under the Commodity 
Exchange Act, legal uncertainty exists for trillions of dollars of 
existing contractual obligations. This bill resolves this uncertainty 
for the benefit of customers of many of these products, but it does not 
fully resolve the certain issue for some kinds of future activities.
  While I would have wished that more could have been achieved, it 
should be clear that no additional legal uncertainty is created under 
the bill and progressive strides have been made on the fundamental 
aspects of the legal certainty issue.
  Mr. Speaker, at this point let me just conclude by thanking the staff 
of the committees of jurisdiction, the staffs frankly of the 
professional parts of the United States Government, the Treasury, the 
Fed, the SEC, that have put forth a great deal of effort and input into 
this legislative vehicle. Most of all, I think it has to be stressed 
that one Member of this body has contributed significantly to the 
embellishment of this institution, this legislative vehicle and I 
personally want to thank the gentleman from Texas (Mr. Ewing) for 
everything he has done to bring this forth in such a responsible, 
decent and credible way.
  Mr. Speaker, I reserve the balance of my time.
  Mr. STENHOLM. Mr. Speaker, I yield 4 minutes to the gentleman from 
Massachusetts (Mr. Markey).
  Mr. MARKEY. Mr. Speaker, I thank the gentleman from Texas for 
yielding me the time, and I thank him for the excellent work that he 
has contributed to this product, along with the gentleman from Iowa 
(Mr. Leach), the gentleman from Virginia (Mr. Bliley) and all across 
the spectrum of the House and the Senate.
  Mr. Speaker, I rise in reluctant support for this bill today, because 
of the fact that I still have some very serious concerns about both the 
process that has brought this bill to the floor and some of its 
provisions.
  Mr. Speaker, to the extent to which the bill has been made minimally 
acceptable to those of us on the Committee on Commerce who work for it, 
the gentleman from Michigan (Mr. Dingell) and I, the gentleman from New 
York (Mr. Towns) who has spent a lot of time on this bill, I want to 
thank especially Consuela Washington for her excellent work and Jeff 
Duncan, from my staff, and the staff of the gentleman from New York 
(Mr. Towns) for their excellent work in trying to improve this piece of 
legislation, as best as it could have been improved and still pass the 
House floor.
  What we are doing in this bill is saying, okay, we are going to take 
OTC swaps between eligible contract participants out of the CEA. They 
are excluded from the act. Now, I do not have any problem with that. If 
the swap dealers feel more comfortable with a statutory exclusion for 
sophisticated counterparties instead of the CFTC exemptive authority 
and the Committee on Agriculture is willing to agree to an exclusion 
that makes sense, that is fine with me. However, I am not willing to 
allow legal certainty to become a guise for sweeping exemptions from 
the antifraud or market manipulation provisions of the securities laws. 
I do not think that is wise.
  Mr. Speaker, while some earlier drafts of this bill would have done 
precisely that, the bill we are considering today does not, and that is 
a good thing. That is why I am willing to support the legal certainty 
language today. However, I do have some concern about how we have 
defined eligible contract participants, that is, the sophisticated 
institutions that will be allowed to play in the swaps market with 
little or no regulation, I might add.
  The bill before us today lowers the threshold for who will be an 
eligible contract participant far below what the Committee on Commerce 
had allowed. By the way, we agreed upon that, Democrat and Republican, 
from the gentleman from Virginia (Mr. Bliley) to the gentleman from 
Michigan (Mr. Dingell), that was our standard. I feel that this will 
now create a regulatory gap for retail swap participants that 
ultimately must be addressed.
  For example, under one part of this definition, an individual with 
total assets in excess of only $5 million who uses a swap to manage 
certain risks is an eligible contract participant for that swap. I 
think that threshold is simply too low.
  I believe that the original Committee on Commerce investor protection 
provisions should have been fully restored. Moreover, the bill should 
clarify explicitly that counterparties who may enter into transactions 
with retail-eligible contract participants are subject for such 
transactions to the antifraud authority of their primary regulators.
  Mr. Speaker, let me turn to the provisions of this bill that would 
allow the trading of stock futures. These new products that would trade 
on exchanges and compete directly with stocks and stock options.
  Now, I have serious reservations about the impact of single stock 
futures on our securities markets, and in all likelihood these products 
are going to be used principally by day traders and other speculators. 
There is nothing inherently wrong with speculation. It can be an 
important source of liquidity in the financial markets, but one of the 
purposes of the Federal securities laws has traditionally been to 
control excessive speculation and excessive and artificial volatility 
in the markets and to limit the potential for markets to be manipulated 
or used to carry out insider trading or other fraudulent schemes.
  Mr. Speaker, I support this bill. I hope it receives its support of 
the full House. It is much better than it had been, but there could 
have been greater consumer protections built in.
  Mr. EWING. Mr. Speaker, I yield 2 minutes to the gentleman from 
Virginia (Mr. Bliley), the distinguished chairman of the Committee on 
Commerce.
  Mr. BLILEY. Mr. Speaker, I thank the gentleman for yielding me the 
time.
  Mr. Speaker, as we considered H.R. 4541 in the Committee on Commerce, 
I had two priorities. First, that security-future products be traded in 
decimals with no government-mandated minimal increments. We have 
recently witnessed the beginning of decimal trading in the securities 
markets. When securities are priced in free market increments, spreads 
narrow and investors win. These efficiencies should accrue to the 
security futures market as well.
  Second, electronic communications networks, ECNs, should have the 
ability to trade security future products. ECNs have provided increased 
competition and liquidity in the securities marketplace. Competition 
brings investors enhanced services and cheaper transactions. These 
benefits should certainly be extended to the market for security future 
products.
  I am pleased these two provisions are in the bill we are considering 
today.
  I thank my colleagues, the gentleman from Texas (Chairman Combest) 
and the gentleman from Texas (Mr. Ewing), the chairman of the 
Subcommittee on Risk Management, Research and Specialty Crops; the 
gentleman from Iowa (Chairman Leach); and the gentleman from Louisiana 
(Mr. Baker), chairman of the Subcommittee

[[Page 23669]]

on Capital Markets, Securities and Government Sponsored Enterprises; as 
well as the gentleman from Ohio (Mr. Oxley), my good friend, chairman 
of the Subcommittee on Finance and Hazardous Materials, for their fine 
work and constructive participation in this developing this 
legislation.
  I support this bill, and I urge my colleagues to do the same.
  Mr. STENHOLM. Mr. Speaker, I yield 2 minutes to the gentleman from 
Michigan (Mr. Dingell).
  Mr. DINGELL. Mr. Speaker, I thank my good friend for yielding me the 
time.
  Mr. Speaker, I rise to hold my nose at and to support this 
legislation. It just barely meets the standards in which legislation 
may be considered acceptable.

                              {time}  1830

  It does so only because the matter is going to go to the Senate, 
where I hope that the very visible and very obvious remaining defects 
are corrected.
  There are a number of problems.
  First of all, the bill almost died because of flawed procedure. 
Subject to action by the committees after just one bipartisan meeting, 
which from all counts was constructive, Democratic staff were booted 
out of the negotiations on this bill, at the direction of the 
Republican leadership.
  This is not a surprise to me because it has happened on many other 
occasions. However, 2 weeks ago, the Committee on Agriculture majority 
staff started circulating drafts of legislation for Democratic review 
and comment. I salute them and thank them for that.
  The development of these events and the willingness of the Committee 
on Agriculture to make significant changes in the bill in response to 
our comments have made it possible for me to support the bill at this 
point in the process. I want to commend and thank both the majority and 
the minority on the Committee on Agriculture for the remarkable 
consideration and courtesy which was shown.
  This has gone from being an extraordinarily bad piece of legislation 
to being a bill which is worth moving to the next stage. It does not 
provide necessary investor protections, and it does not assure in the 
fullest that we will not have excessive speculation which will put the 
markets at risk in this country.
  For reasons not adequately explained, greedy brokers and banks are 
arguably relieved of selected statutory and regulatory restraints on 
their behavior. These must be addressed before the bill becomes law. 
But I support passage of this bill at this time as a step forward, and 
as part of moving the process forward, as it should be.
  But I want to make it very clear, I am still holding my nose. It will 
not be possible to support this bill if it is not significantly 
improved at the next stage of the process.
  Mr. Speaker, I would like to address my principal concerns with this 
bill.
  First, I support legal certainty under the Commodity Exchange Act 
(CEA) for swaps entered into between professional traders and similar 
sophisticated parties who have the means to protect themselves. 
However, the Republican negotiations have produced a bill that also 
excludes retail swaps from the CEA. Brokers can sell swaps to retail 
investors (in this market that means investors with $5 million in 
assets) without the antimanipulation and antifraud protections that 
otherwise would apply under that Act. The bill does not provide any 
substitute protections. This needs more work. I would like to clarify 
for the record that it is the intent of Congress in passing this 
legislation that counterparties who may enter into transactions with 
retail ``eligible contract participants'' are subject for such 
transactions to the antifraud authority of their primary regulator. 
This bill should not be interpreted as declaring open season on 
investors.
  Second, Section 107 provides a redundant exclusion for a broad range 
of swap transactions. I would have preferred that this section be 
deleted and that we defer instead to the bill's carefully crafted 
exclusions for specific groups of products. However, as amended by the 
agreement we reached last night, I will support its inclusion. I want 
it clearly understood that the limitations on this exclusion are 
strict. To qualify for the Section 107 exclusion, each of the material 
economic terms of the swap must be individually negotiated, not 
passively accepted, by the parties. In contrast to the products for 
which the Section 107 exclusion is designed, exchange-traded products 
may have some terms that are standardized and some that can be 
negotiated on behalf of the purchaser or seller by an agent. Section 
107 clarifies that exchange-traded products, such as security futures 
products, do not fall within the exclusion. Moreover, the Section 107 
exclusion would not apply to an electronic system where a user 
passively could accept contract terms as opposed to actively 
negotiating every material economic term. Section 107 should not be 
construed to affect the applicability of other exclusions in the bill, 
such as the one found in Section 103 conditionally excluding certain 
transactions on electronic trading facilities from the CEA. Finally, 
Section 107 should not be construed to narrow or broaden the conditions 
that apply to such exclusions.
  Third, H.R. 4541 establishes a comprehensive regulatory system for 
the regulation of security futures products. It rests on a system of 
joint regulation by the CFTC and SEC, both of whom are assigned 
specific tasks designed to maintain fair and orderly markets for single 
stock futures and futures or groups or indexes of securities. Under 
this system, it is clear that intermediaries that trade securities 
futures products must register with the SEC as broker-dealers, although 
it allows futures market intermediaries that are regulated by the CFTC 
to register with the SEC on a streamlined basis as notice registrants.
  In the middle of the night, language was stripped from the bill with 
the result that banks would now be exempted from the rules that apply 
to everyone else. As a result a bank selling securities futures could 
register with the CFTC as a futures commission merchant but, unlike 
other entities, not have to notice register with the SEC. Effectively, 
half of the regulatory framework that we have negotiated over many 
months would disappear. There is no public interest to be served in 
eliminating SEC oversight over issues such as insider trading frauds, 
market manipulation, and customer sales practice rules just because a 
bank traded the security.
  I want to make the following observations about this seeming 
travesty:
  1. There are not many bank FCM's left.
  2. I do not believe any responsible financial services lawyer will 
recommend that the bank FCM not file a broker-dealer notice 
registration with the SEC.
  3. Given the clear findings of the Congress, which has expressly 
concluded that a security future is a security, the SEC would be on 
solid legal standing should it proceed by rule to require bank FCM's to 
register as broker-dealers through the streamlined notice process.
  4. Similarly, the CFTC would be on solid legal standing should it bar 
bank FCM's from selling security futures unless they have notice 
registered with the SEC.
  Fourth, also last night, language was added on page 227 of the bill 
that has the effect of creating a major competitive advantage for 
foreign futures exchanges trading single stock futures based on U.S. 
securities. That provision, a new Section 2(a)(1)(F)(ii) of the 
Commodity Exchange Act, permits any retail customer in the U.S. to 
purchase single stock futures on U.S. stocks sold by a foreign board of 
trade without regard to any of the regulatory constraints imposed on 
U.S. exchanges. Because of this change, U.S. exchanges will not face 
direct electronic competition on U.S. trading terminals from foreign 
exchanges that can cut margins, fees, and regulatory costs. This 
provision, for which no one will now claim responsibility, undoes much 
of the good work in this legislation to ensure fair competition and 
consistent market integrity and investor protections. This provision 
should be deleted from the bill.
  With these serious reservations, I support passage of this 
legislation.
  Mr. LEACH. Mr. Speaker, I yield 1 minute to the distinguished 
gentlewoman from New Jersey (Mrs. Roukema), the subcommittee chairman.
  Mrs. ROUKEMA. Mr. Speaker, I thank the gentleman for yielding time to 
me.
  Mr. Speaker, I want to associate myself with the remarks of the 
chairman of the Committee on Banking and Financial Services, with which 
I agree.
  I do want to make a couple of statements here. What we are doing here 
today is very essential in terms of improving and clarifying the legal 
uncertainty under the Commodity Exchange Act. That has been pointed 
out.
  We are also talking about a modernized economy, not only here in the 
United States but in the global economy. As has been mentioned, the 
derivatives and the swap agreements are growing throughout, and we need 
this clarification of legal certainty.

[[Page 23670]]

  But as a member of the Committee on Banking and Financial Services, I 
also want to say that this legislation would ensure that derivatives 
engaged in by financial institutions would continue to be regulated by 
the appropriate bank regulatory agencies. I must stress that this law 
would in no way reduce the appropriate oversight of these products.
  Mr. Speaker, I will work in the next Congress to revisit these issues 
as the market continues to grow, but this is an essential first step.
  Mr. Speaker. I rise as a Member of the Banking Committee in support 
of H.R. 4541, the Commodity Futures Modernization Act of 2000. This is 
an important piece of legislation that addresses a host of issues 
relating to products and transactions that form a critical part of our 
nation's economy. Today I want to focus on the regulatory treatment of 
one type of product: over-the-counter derivatives contracts that are 
currently traded among large financial institutions throughout the 
world. These derivatives, which include swap agreements, various 
options, and hybrid instruments, are used by large financial 
institutions to manage and control various risks--particularly interest 
rate risk. These instruments help maintain a safe and sound banking 
system.
  However, there have been questions about the legal certainty of these 
derivatives because their status under the commodity Exchange Act is 
unclear. This uncertainty is a result of the law not keeping up with 
the marketplace. This bill would go a long way to address the question 
of legal certainty of these instruments traded among large institutions 
in the wholesale market by exempting these products from the Commodity 
Exchange Act. This legislation would ensure that these derivatives 
engaged in by financial institutions would continue to be regulated by 
the appropriate bank regulatory agencies. I must stress that this law 
would in no way reduce appropriate oversight of these products, but 
would ensure that our financial institutions would not be subject to a 
burdensome additional layer of regulation solely as a result of 
participating in this derivatives activity.
  I want to note that I support the additional provisions that were 
passed out of the Banking Committee earlier this year that would have 
provided clarification for a broader market of products identified as 
``banking products.'' I will work in the next Congress to revisit these 
issues as the market continues to grow. This is an essential first 
step. But I want to thank the chairmen of the Agriculture Committee, 
the Commerce Committee, and the Banking Committee for working together 
to bring this bill to the floor and addressing the most critical 
component of the ``legal certainty'' issue. This bill would ensure the 
continued ability of large financial institutions to manage risks with 
derivatives, and I support its passage.
  Mr. EWING. Mr. Speaker, I yield 1\1/2\ minutes to the gentleman from 
Ohio (Mr. Boehner).
  Mr. BOEHNER. Mr. Speaker, I want to thank the gentleman from Illinois 
for yielding time to me.
  Mr. Speaker, I rise today in support of H.R. 4541, the Commodity 
Futures Modernization Act, which provides for the deregulation and 
modernization of the U.S. futures industry.
  It also reforms the antiquated Shad-Johnson accord to allow U.S. 
futures exchanges to trade single stock futures.
  Finally, the bill provides legal certainty for the $90 trillion 
financial derivatives industry that really has become critical to the 
operation of American finance and industry.
  This important legislation was negotiated between the Committee on 
Agriculture, the Committee on Banking and Financial Services, and the 
Committee on Commerce to provide real reform. It places our financial 
industry on solid ground for the highly competitive future. Without it, 
many of these important financial products will move overseas, 
threatening the growth of the American economy.
  I especially want to compliment my good friend, the gentleman from 
Illinois (Mr. Ewing), who worked tirelessly on this bill. The gentleman 
from Illinois is retiring this year, and his leadership on this issue 
will be sorely missed. I think this landmark legislation is a 
compliment to his years of service as a legislator.
  I also want to congratulate all of the chairmen of the relevant 
committees, the three committees and subcommittees, and their ranking 
members for their efforts in bringing this bill together so it can be 
on the floor today.
  The Commodity Futures Modernization Act is right for our economy and 
it is right for our financial industry. I am proud to lend my support 
to this important bill.
  Mr. STENHOLM. Mr. Speaker, I yield 1 minute to the gentleman from 
Maine (Mr. Baldacci).
  Mr. BALDACCI. Mr. Speaker, I thank the gentleman for yielding time to 
me, and also for his leadership on the Committee on Agriculture, and 
for working to fashion the bipartisan measure that is before us today.
  Also, I commend the gentleman from Illinois (Chairman Ewing) for his 
leadership and support on the committee. Having been a member of the 
committee, to end up working on a bill like this, I am very proud of 
the part that I have played in that effort.
  Mr. Speaker, I rise in support of the Commodity Futures Modernization 
Act. The legislation has been a product of a lot of hard work over 
several years, and the reforms are a long time in coming. But between 
now and when the committee dealt with it, it has been undergoing some 
changes, which is not really surprising. However, some of what I 
supported has been taken out. I hope we can continue working on this 
when we revisit one of those issues.
  With respect to the definition of eligible contract participants, the 
CFTC has the broad authority to determine that other persons are 
eligible beyond those specifically listed. It is my understanding that 
the commodity trading advisors, with over $25 million in client assets 
under management, are among those other persons which the CFTC should 
determine to meet the requirements.
  Mr. LEACH. Mr. Speaker, I yield 1 minute to my distinguished 
colleague, the gentleman from Pennsylvania (Mr. Toomey).
  Mr. TOOMEY. Mr. Speaker, I thank the chairman for yielding time to 
me.
  Mr. Speaker, over the last 20 years, American and international 
financial markets have changed dramatically. Opportunities for 
investors have expanded tremendously. New access to capital has 
empowered entrepreneurs. The ability to hedge financial and commodity 
price risk has stabilized earnings and encouraged investment.
  This democratization of the capital markets has been driven largely 
by the development and application of derivative transactions, 
especially over-the-counter derivatives.
  I worked in the derivative sector of the financial services industry 
for 7 years in the 1980s and 1990s. I marvel now at how widespread, 
sophisticated, and indispensable these products have become since then.
  Today we are going to pass a Commodity Exchange Act that will 
eliminate most of the cloud of legal and regulatory uncertainty that 
has shadowed these products since their invention. For that reason, I 
urge my colleagues to vote yes on this bill.
  It is not, however, a perfect bill. I hope the other body will 
eliminate the remaining legal uncertainty that will still shadow the 
use of these transactions by retail customers. I hope that they will 
allow greater flexibility in the electronic trading of the over-the-
counter derivatives.
  Today we do have a good bill. It will strengthen the ability of 
American financial institutions to compete in a vital sector of 
finance. I urge its passage.
  Mr. STENHOLM. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, I would just close by encouraging all of my colleagues 
to support this bill, and again commend the gentleman from Illinois 
(Mr. Ewing) for his tireless work in putting together a package that 
has brought three different committees together under a most strange 
situation, but one in which we do have the opportunity to pass 
legislation of some extreme importance.
  Mr. EWING. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, in closing, let me say that this has been a great 
experience. I have had wonderful cooperation from both sides of the 
aisle, from chairmen and subcommittee chairmen and ranking members on 
those committees.
  I think it is important today to recognize that we are here at a time 
and

[[Page 23671]]

a place when this legislation, so badly needed by our financial 
industry, can pass through this House and be considered in the other 
body.
  When we realize how long it takes us sometimes to move complicated 
pieces of legislation, such as the Banking Reform Act of last year, we 
should recognize that now is the time to move this legislation before 
we have a new administration, before we have new chairmen, before we 
have whoever may be in control of this Congress after the next 
election.
  We have come together. We have grappled with the issues. We have 
reached a good conclusion and devised a good bill for our financial 
industry. I thank everyone again, and I ask for a positive vote on this 
bill.
  Mr. OXLEY. Mr. Speaker, during this Congress, we have made historic 
progress in enacting legislation to modernize and improve our financial 
markets. We enacted Gramm-Leach-Bliley, and finally repealed the 
outdated restrictions against affiliations among banks, securities 
firms, and insurance firms, paving the way for new efficiencies and 
innovations in our marketplace.
  We enacted E-SIGN, facilitating the growth of electronic commerce in 
not only the financial marketplace, but indeed the entire U.S. 
marketplace.
  And today we are taking a step toward further improving the 
competitiveness of U.S. markets in the financial arena. H.R. 4541 
serves three important functions. It promotes regulatory efficiency, 
enhances legal certainly in the derivatives market, and stimulates 
competition.
  This bill enhances regulatory efficiency in the futures market by 
streamlining the regulations of the CFTC. I support this prudent 
approach to deregulation.
  It enhances legal certainty in the derivatives market by explicitly 
carving out derivatives transactions from CFTC regulation. I welcome 
the resulting legal certainty, which is vital to the continued growth 
of an industry that is so fundamentally important to the financial 
health of U.S. companies, and, indeed, the global financial 
marketplace.
  The legislation also promotes competition both domestically and 
internationally by lifting a ban on a type of financial product that 
could serve important functions in our markets and abroad. While 
current law bans the trading of futures on individual securities and on 
narrow-based indices in the U.S. overseas markets for these security 
futures products are rapidly developing. It is important for our 
markets to be able to compete for this business, because I strongly 
believe that in a fair competitive environment, our markets will always 
win.
  This legislation authorizes the trading of securities futures 
products on futures exchanges, options exchanges, equity exchanges and, 
importantly, Alternative Trading Systems. The broad spectrum of 
competition that this legislation will foster will serve the market 
well.
  I would like to thank my colleagues for their good work on this 
legislation. In particular I thank Chairman Bliley, Chairman Combest, 
Chairman Leach, Chairman Ewing and Chairman Baker for the leadership 
they have displayed in moving this bill forward. The bill certainly 
reflects the hard work these gentlemen have put into it. This is good 
policy and I urge each of you to support it.
  Mr. BAKER. Mr. Speaker, Commodity Exchange Act reform is long 
overdue.
  The CEA has become an obstacle to the competitiveness of the US 
futures industry. It prohibits US futures exchanges from offering 
single stock futures while the same products are being created in 
London for international investors. It burdens futures exchanges with 
regulation that amounts to micromanagement, and that increases the cost 
of managing risk for American companies and financial institutions.
  Even worse, some at the CFTC have tried to apply CFTC regulations--
which don't even work well for the futures business--to banking 
activities, including bank deposits and swaps. Banks don't need a 
second regulator, not for their deposits and not for their swap 
business. CFTC regulation for swaps is so inappropriate that, if swaps 
were ever found to be futures contracts regulated by the CFTC, many of 
them would be illegal and unenforceable under CFTC rules. Swaps aren't 
futures and swaps aren't securities, and we must make that clear in 
federal law.
  The House Banking Committee, under the able leadership of Chairman 
Leach at our July 27 mark-up of this bill, added provisions to the 
House Agriculture Committee version that dealt with many of these 
problems. Our approach wasn't the most clear and straightforward, and 
I'll be the first to admit it. I would have preferred--and I still 
prefer--to simply add a definition of futures contracts to the 
Commodity Exchange Act so the questions of legal certainty for swaps 
would be completely resolved. But the Banking Committee approach was 
still effective, and it was included in the compromise version of this 
bill that was agreed to by Committee Chairmen from the House and Senate 
last week.
  In the bill going to the floor today, those protections for swaps are 
gone. This bill does not create legal certainty for all swap 
participants. It does not protect banks from duplicate regulation by 
the CFTC and SEC. It is not good enough to become law.
  Furthermore, the CFTC, an agency in search of a mission, will become 
an unwanted and unneeded regulator of e-commerce, particularly in the 
realm of financial services. The Bill contains a definition of 
electronic trading facility, and while it rules out CFTC regulation of 
some electronic trading, it opens the door to CFTC regulation of other 
electronic facilities. I wonder whether the e-commerce community is 
even aware of how this legislation might constrain the growth of 
electronic finance. We should not build a regulatory structure before 
it even exists, especially whether other countries are promoting 
unrestricted growth of such financial e-commerce platforms. We should 
not build a regulatory structure for e-commerce before we even know 
what it looks like.
  It is evident that these problems will not be solved on the House 
side. They must be tackled by the House working together with the 
Senate, and in particular with Senate Banking Committee Chairman Phil 
Gramm. I look forward to productive discussions with the Senator that 
will enable the Congress to adopt responsible guidelines for financial 
products.
  Mr. DAVIS of Illinois. Mr. Speaker, I rise today in strong support of 
H.R. 4541, the Commodity Futures Modernization Act of 2000. I represent 
the 7th Congressional District of Illinois, which is home to the 
Chicago Mercantile Exchange and the Chicago Board of Trade--two of this 
country's premier derivatives exchanges. While I have the honor of 
representing them in Congress, they and the rest of the U.S. markets 
represent us all over the world. I believe that it is in this nation's 
best economic interests for U.S. financial markets to grow and prosper 
and once again lead the world.
  This legislation helps us to do that. This much-needed legislation 
would provide regulatory reform to U.S. futures exchanges, provide 
legal certainty to the U.S. derivatives market, and finally lift the 
19-year ban on single stock futures, allowing U.S. investors access to 
these products and expanding our markets.
  The threat to U.S. markets has increased in just the last month. The 
London International Financial Futures Exchange announced that it would 
begin trading single stock futures on U.S. based company stocks in 
January 2001. In just three months, futures on the stock of AT&T, 
Citigroup, Cisco, Systems, Exxon Mobil, and Merck will be traded in 
London. If H.R. 4541 does not pass, U.S. markets will continue to be 
prohibited from offering these products--handcuffed from competing with 
foreign exchanges for a U.S. market that should be traded here at home.
  Let me be clear, this is not just an Illinois issue. Futures 
exchanges are a huge part of what makes the entire U.S. economy robust 
and vibrant. If we fail to lift the ban on single stock futures, if we 
fail to provide regulatory reform, and if we fail to provide legal 
certainty to U.S. derivatives markets, then the consequences could be 
devastating. For example, U.S. exchanges will be rendered completely 
unable to compete. Without this legislation, single stock futures, 
which are based on assets developed and produced in the United States, 
may never be traded in this country.
  We all need to ensure that the U.S. financial services industry 
remain competitive in the global marketplace. Therefore, I urge you to 
join with me in passing this important legislation.
  Mr. BARRETT of Nebraska. Mr. Speaker, I rise today in support of H.R. 
4541, the Commodity Futures Modernization Act of 2000. I commend 
Chairman Ewing and his staff for their hard work and leadership as we 
debate this legislation.
  The House Agriculture Committee has worked together with the Banking 
and Financial Services and Commerce Committees to draft a bill that 
will discourage fraud and manipulation, but encourage technology, 
competition and a sound business environment. Our farmers and ranchers 
are now more dependent on a sound futures market than ever before. I am 
pleased that this legislation will allow our agriculture producers 
access to a risk management tool as we move into the 21st century.
  Mr. Speaker, this legislation will provide our financial institutions 
with the tools needed to conduct trading practices in a friendly 
manner. This bill also brings our U.S. exchanges onto

[[Page 23672]]

a level playing field with foreign exchanges. American agriculture 
producers are becoming more involved in futures markets. It is 
important that we establish regulations that are fair and will allow 
our farmers to use the futures market as intended.
  In my home state of Nebraska, I try to encourage the use of the 
futures market to provide procedures with yet another valuable risk 
tool. When Congress approves this legislation, the Commodity Exchange 
Act reauthorization will be complete. I then fully expect the Commodity 
Futures Trading Commission (CFTC) to regulate the U.S. futures and 
related markets and protect the interests of those who use the markets.
  The Commodity Futures Modernization Act of 2000 accomplishes three 
main goals. First, this bill establishes legal certainty for over-the-
counter derivatives. Second, this legislation provides regulatory 
relief to futures exchanges and their customers. This relief will 
transform the CFTC from a frontline regulatory role to more of an 
oversight role. Third, this act will reform the Shad-Johnson 
Jurisdictional Accord to make clear rules of regulation between 
agencies.
  Mr. Speaker, I urge my colleagues to support the Commodity Futures 
Modernization Act and allow our American farmers and ranchers to make 
use of the commodity futures market.
  The SPEAKER pro tempore (Mr. LaHood). The question is on the motion 
offered by the gentleman from Illinois (Mr. Ewing) that the House 
suspend the rules and pass the bill, H.R. 4541, as amended.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.
  Mr. EWING. Mr. Speaker, I object to the vote on the ground that a 
quorum is not present and make the point of order that a quorum is not 
present.
  The SPEAKER pro tempore. Evidently a quorum is not present.
  The Sergeant at Arms will notify absent Members.
  The vote was taken by electronic device, and there were--yeas 377, 
nays 4, not voting 51, as follows:

                             [Roll No. 540]

                               YEAS--377

     Abercrombie
     Aderholt
     Allen
     Andrews
     Archer
     Armey
     Baca
     Bachus
     Baird
     Baldacci
     Baldwin
     Ballenger
     Barcia
     Barr
     Barrett (NE)
     Barrett (WI)
     Bartlett
     Barton
     Bass
     Becerra
     Bentsen
     Bereuter
     Berkley
     Berman
     Berry
     Biggert
     Bilbray
     Bishop
     Blagojevich
     Bliley
     Blumenauer
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonior
     Bono
     Borski
     Boswell
     Boyd
     Brady (TX)
     Brown (FL)
     Brown (OH)
     Bryant
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Canady
     Cannon
     Capps
     Capuano
     Cardin
     Carson
     Castle
     Chabot
     Chambliss
     Clayton
     Clement
     Clyburn
     Coble
     Coburn
     Collins
     Combest
     Condit
     Cook
     Costello
     Cox
     Coyne
     Cramer
     Crane
     Crowley
     Cubin
     Cummings
     Cunningham
     Danner
     Davis (FL)
     Deal
     DeGette
     Delahunt
     DeLauro
     Deutsch
     Dickey
     Dicks
     Dingell
     Dixon
     Doggett
     Dooley
     Doolittle
     Doyle
     Dreier
     Duncan
     Dunn
     Edwards
     Ehlers
     Ehrlich
     Emerson
     Engel
     English
     Eshoo
     Etheridge
     Evans
     Ewing
     Farr
     Fattah
     Fletcher
     Foley
     Ford
     Fossella
     Fowler
     Frank (MA)
     Frelinghuysen
     Frost
     Gallegly
     Ganske
     Gejdenson
     Gekas
     Gibbons
     Gilchrest
     Gillmor
     Gilman
     Gonzalez
     Goode
     Goodlatte
     Goodling
     Gordon
     Goss
     Graham
     Granger
     Green (WI)
     Greenwood
     Gutierrez
     Gutknecht
     Hall (OH)
     Hall (TX)
     Hastings (FL)
     Hastings (WA)
     Hayes
     Hayworth
     Hefley
     Herger
     Hill (IN)
     Hill (MT)
     Hilleary
     Hilliard
     Hinchey
     Hinojosa
     Hobson
     Hoeffel
     Hoekstra
     Holden
     Holt
     Hooley
     Horn
     Hostettler
     Houghton
     Hoyer
     Hulshof
     Hunter
     Hutchinson
     Hyde
     Inslee
     Isakson
     Istook
     Jackson (IL)
     Jefferson
     Jenkins
     John
     Johnson (CT)
     Johnson, E.B.
     Johnson, Sam
     Jones (NC)
     Kanjorski
     Kaptur
     Kasich
     Kelly
     Kennedy
     Kildee
     Kilpatrick
     Kind (WI)
     King (NY)
     Kingston
     Kleczka
     Knollenberg
     Kolbe
     Kucinich
     Kuykendall
     LaFalce
     LaHood
     Lampson
     Lantos
     Largent
     Larson
     Latham
     LaTourette
     Leach
     Lee
     Levin
     Lewis (GA)
     Lewis (KY)
     Linder
     LoBiondo
     Lofgren
     Lowey
     Lucas (KY)
     Lucas (OK)
     Luther
     Maloney (CT)
     Maloney (NY)
     Manzullo
     Markey
     Martinez
     Mascara
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McCrery
     McDermott
     McGovern
     McHugh
     McIntyre
     McKeon
     McKinney
     McNulty
     Meehan
     Meek (FL)
     Meeks (NY)
     Menendez
     Mica
     Millender-McDonald
     Miller, Gary
     Miller, George
     Minge
     Mink
     Moakley
     Mollohan
     Moore
     Moran (KS)
     Moran (VA)
     Morella
     Murtha
     Myrick
     Nadler
     Napolitano
     Neal
     Nethercutt
     Ney
     Northup
     Norwood
     Nussle
     Obey
     Olver
     Ortiz
     Ose
     Packard
     Pallone
     Pastor
     Payne
     Pease
     Pelosi
     Peterson (MN)
     Peterson (PA)
     Petri
     Phelps
     Pickering
     Pickett
     Pitts
     Pombo
     Pomeroy
     Porter
     Portman
     Price (NC)
     Pryce (OH)
     Quinn
     Radanovich
     Rahall
     Ramstad
     Rangel
     Regula
     Reyes
     Reynolds
     Riley
     Rivers
     Roemer
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Rothman
     Roukema
     Roybal-Allard
     Royce
     Ryan (WI)
     Ryun (KS)
     Sabo
     Salmon
     Sanders
     Sandlin
     Sanford
     Sawyer
     Saxton
     Scarborough
     Schaffer
     Schakowsky
     Scott
     Sensenbrenner
     Serrano
     Sessions
     Shadegg
     Sherman
     Sherwood
     Shimkus
     Shows
     Simpson
     Skeen
     Skelton
     Slaughter
     Smith (NJ)
     Smith (TX)
     Smith (WA)
     Snyder
     Souder
     Spence
     Stabenow
     Stark
     Stearns
     Stenholm
     Strickland
     Stump
     Stupak
     Sununu
     Sweeney
     Tancredo
     Tanner
     Tauscher
     Tauzin
     Taylor (NC)
     Terry
     Thomas
     Thompson (CA)
     Thornberry
     Thune
     Thurman
     Tiahrt
     Tierney
     Toomey
     Towns
     Traficant
     Udall (CO)
     Udall (NM)
     Upton
     Velazquez
     Visclosky
     Vitter
     Walden
     Walsh
     Wamp
     Waters
     Watkins
     Watt (NC)
     Watts (OK)
     Waxman
     Weiner
     Weldon (FL)
     Weldon (PA)
     Weller
     Wexler
     Whitfield
     Wicker
     Wilson
     Wolf
     Woolsey
     Wu
     Wynn
     Young (AK)
     Young (FL)

                                NAYS--4

     DeFazio
     Paul
     Smith (MI)
     Taylor (MS)

                             NOT VOTING--51

     Ackerman
     Baker
     Bilirakis
     Boucher
     Brady (PA)
     Campbell
     Chenoweth-Hage
     Clay
     Conyers
     Cooksey
     Davis (IL)
     Davis (VA)
     DeLay
     DeMint
     Diaz-Balart
     Everett
     Filner
     Forbes
     Franks (NJ)
     Gephardt
     Green (TX)
     Hansen
     Jackson-Lee (TX)
     Jones (OH)
     Klink
     Lazio
     Lewis (CA)
     Lipinski
     McCollum
     McInnis
     McIntosh
     Metcalf
     Miller (FL)
     Oberstar
     Owens
     Oxley
     Pascrell
     Rodriguez
     Rogan
     Rush
     Sanchez
     Shaw
     Shays
     Shuster
     Sisisky
     Spratt
     Talent
     Thompson (MS)
     Turner
     Weygand
     Wise

                              {time}  1902

  So (two-thirds having voted in favor thereof) the rules were 
suspended and the bill, as amended, was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.
  Stated for:
  Mr. DIAZ-BALART. Mr. Speaker, on rollcall vote 540, H.R. 4541, the 
Commodity Futures Modernization Act of 2000, I was in my district on 
official business. Had I been present, I would have voted ``yea.''
  Mr. FILNER. Mr. Speaker, on rollcall No. 540, I had to return to my 
Congressional District on official business and missed this vote. Had I 
been present, I would have voted ``yea.''
  Ms. SANCHEZ. Mr. Speaker, during rollcall vote No. 540 on H.R. 4541 I 
was unavoidably detained. Had I been present, I would have voted 
``yea.''

                          ____________________