[House Report 106-711]
[From the U.S. Government Publishing Office]



106th Congress                                            Rept. 106-711
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

======================================================================



 
              COMMODITY FUTURES MODERNIZATION ACT OF 2000

                                _______
                                

                 June 29, 2000.--Ordered to be printed

                                _______
                                

Mr. Combest, from the Committee on Agriculture, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4541]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Agriculture, to whom was referred 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 futures and over-the-counter 
derivatives, and for other purposes, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

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.
Sec. 3. Definitions.
Sec. 4. Agreements, contracts, and transactions in foreign currency, 
government securities, and certain other commodities.
Sec. 5. Legal certainty for excluded derivative transactions.
Sec. 6. Excluded electronic trading facilities.
Sec. 7. Hybrid instruments.
Sec. 8. Futures on securities.
Sec. 9. Transactions in exempt commodities.
Sec. 10. Protection of the public interest.
Sec. 11. Prohibited transactions.
Sec. 12. Designation of boards of trade as contract markets.
Sec. 13. Derivatives transaction execution facilities.
Sec. 14. Derivatives clearing organizations.
Sec. 15. Common provisions applicable to registered entities.
Sec. 16. Exempt boards of trade.
Sec. 17. Suspension or revocation of designation as contract market.
Sec. 18. Authorization of appropriations.
Sec. 19. Preemption.
Sec. 20. Predispute resolution agreements for institutional customers.
Sec. 21. Consideration of costs and benefits and antitrust laws.
Sec. 22. Contract enforcement between eligible counterparties.
Sec. 23. Special procedures to encourage and facilitate bona fide 
hedging by agricultural producers.
Sec. 24. Rule of construction.
Sec. 25. Technical and conforming amendments.
Sec. 26. Report to Congress.
Sec. 27. Effective date.
Sec. 28. International activities of the Commodity Futures Trading 
Commission.

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 provide the Commission jurisdiction 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.

SEC. 3. DEFINITIONS.

  Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended--
          (1) by redesignating paragraphs (8) through (12), (13) 
        through (15), and (16) as paragraphs (15) through (19), (21) 
        through (23), and (27), respectively;
          (2) by inserting after paragraph (7) the following:
          ``(8) 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 
                a derivative agreement, contract, or transaction--
                          ``(i) enables each party to the derivative 
                        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 parties in the derivatives clearing 
                        organization; or
                          ``(iii) otherwise provides clearing services 
                        or arrangements that mutualize or transfer 
                        among parties in the derivatives clearing 
                        organization the credit risk arising from such 
                        agreements, contracts, or transactions executed 
                        by the parties.
                  ``(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 centralized 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.
          ``(9) Electronic trading facility.--The term `electronic 
        trading facility' means a trading facility that--
                  ``(A) operates by means of an electronic network; and
                  ``(B) maintains a real-time audit trail of bids, 
                offers, and the matching of orders or the execution of 
                transactions.
          ``(10) Eligible commercial participant.--The term `eligible 
        commercial participant' means a party or entity described in 
        paragraph (11)(A)(i), (ii), (v), or (vii) or paragraph (11)(C), 
        who, in connection with its business--
                  ``(A) has a demonstrable capacity or ability, 
                directly or through separate contractual arrangements, 
                to make or take delivery of the underlying physical 
                commodity;
                  ``(B) incurs risks, in addition to price risk, 
                related to the commodity; or
                  ``(C) is a dealer that regularly provides hedging, 
                risk management, or market-making services to the 
                foregoing entities.
          ``(11) Eligible contract participant.--The term `eligible 
        contract participant' means--
                  ``(A) acting for its own account--
                          ``(i) a financial institution;
                          ``(ii) an insurance company regulated by a 
                        State (including a 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.) 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 advisor 
                                        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 
                                        regulated by a State (including 
                                        a 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);
                          ``(viii) 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);
                          ``(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) a natural person with total assets 
                        exceeding $10,000,000;
                  ``(B)(i) a person described in any of clauses (i) 
                through (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);
                  ``(ii) an investment adviser subject to regulation 
                under the Investment Advisors 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 any of clauses (i) through (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
                  ``(iii) a commodity trading advisor subject to 
                regulation under this Act, having assets under 
                management of not less than $25,000,000 and acting as 
                investment manager or fiduciary for another person and 
                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.
          ``(12) Excluded commodity.--The term `excluded commodity' 
        means--
                  ``(A) an interest rate, exchange rate, currency, 
                security, security index, credit risk or measure, debt 
                or equity instrument, or index or measure of inflation;
                  ``(B) any other rate, differential, index, or measure 
                of economic or commercial risk, return, or value that--
                          ``(i) is not within the control of any party 
                        to the relevant contract, agreement, or 
                        transaction; or
                          ``(ii) is not based in substantial part on 
                        the value of a limited number of commodities 
                        not described in subparagraph (A) that have a 
                        finite supply; or
                  ``(C) an occurrence, extent of an occurrence, or 
                contingency beyond the control of the parties to the 
                relevant contract, agreement, or transaction.
          ``(13) Exempt commodity.--The term `exempt commodity' means a 
        commodity that is not an excluded commodity or an agricultural 
        commodity.
          ``(14) 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) a trust company; or
                  ``(H) a similarly regulated subsidiary or affiliate 
                of an entity described in any of subparagraphs (A) 
                through (F).'';
          (3) by inserting after paragraph (19) (as redesignated by 
        paragraph (1)) the following:
          ``(20) Hybrid instrument.--The term `hybrid instrument' means 
        a deposit (as defined in section 3 of the Federal Deposit 
        Insurance Act (12 U.S.C. 1813)) 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.'';
          (4) by inserting after paragraph (23) (as redesignated by 
        paragraph (1)) the following:
          ``(24) Nonexempt security.--The term `nonexempt security' 
        means a security that is not an exempted security under section 
        3 of the Securities Act of 1933 or section 3(a)(12) of the 
        Securities Exchange Act of 1934 (other than any municipal 
        security, as defined in section 3(a)(29) of the Securities 
        Exchange Act of 1934).
          ``(25) 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'.
          ``(26) 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; or
                          ``(ii) include disciplinary sanctions other 
                        than the exclusion of participants from 
                        trading.''; and
          (5) by adding at the end the following:
          ``(28) 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; or
                  ``(C) a derivatives clearing organization registered 
                under section 5b.
          ``(29) Security.--The term `security' has the meaning given 
        the term in section 3(a) of the Securities Exchange Act of 1934 
        (15 U.S.C. 78c(a)) as in effect on date of the enactment of 
        this paragraph.
          ``(30) 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 orders within 
                        a predetermined, nondiscretionary automated 
                        trade matching 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.''.

SEC. 4. 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 5b 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 that 
                are futures 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), that is executed or 
                        traded on an organized exchange; or
                          ``(ii) an option on foreign currency and is 
                        executed or traded on an organized exchange 
                        that is not a national securities exchange.
                  ``(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; 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 that is 
                                subject to State regulation (including 
                                a 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).''.

SEC. 5. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE TRANSACTIONS.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 4) is 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, 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 on a principal-to-principal basis between 
                parties trading for their own accounts or as described 
                in section 1a(11)(B)(ii) of this Act;
                  ``(B) the agreement, contract, or transaction is 
                entered into only between persons that are eligible 
                contract participants (as defined in sections 
                1a(11)(A), (B)(ii), and (C)) 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. 6. EXCLUDED ELECTRONIC TRADING FACILITIES.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 5) is 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) and 2(h)(3)(B) of this Act.
          ``(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 or derivatives transaction 
        execution facility, or an exempt board of trade, from 
        establishing and operating an excluded electronic trading 
        facility excluded under this Act pursuant to paragraph (1).''.

SEC. 7. HYBRID INSTRUMENTS.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 6) is 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 depository instrument.
          ``(2) Predominance.--A hybrid instrument shall be considered 
        to be predominantly a security or depository 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 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. 8. FUTURES ON SECURITIES.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 7) is amended by adding at the end the 
following:
  ``(g) Notwithstanding any other provision of law:
          ``(1) This Act shall not apply to and the Commission shall 
        have no jurisdiction to designate a board of trade as a 
        contract market for any transaction whereby any party to the 
        transaction acquires a put, call, or other option on 1 or more 
        securities (as defined in section 2(a)(1) of the Securities Act 
        of 1933 or section 3(a)(10) of the Securities Exchange Act of 
        1934, on the date of enactment of the Futures Trading Act of 
        1982), including any group or index of securities and any 
        interest in or based on the value of securities.
          ``(2) Nothing in this subsection governs or applies to--
                  ``(A) an agreement, contract, or transaction in a 
                commodity that is excluded under subsection (c) or (d);
                  ``(B) an electronic trading facility that is excluded 
                under subsection (e); or
                  ``(C) a hybrid instrument that is covered by an 
                exclusion under subsection (f) or an exemption granted 
                by the Commission under section 4(c) (whether or not 
                the hybrid instrument is otherwise subject to this 
                Act).
          ``(3) Except as provided in paragraph (4) of this subsection, 
        or unless excluded by paragraph (2) of this subsection, a 
        person shall not offer to enter into, enter into, or confirm 
        the execution of any contract of sale (or option on the 
        contract) for future delivery of any security or interest in or 
        based on the value of a nonexempt security.
          ``(4)(A) Except as excluded by paragraph (2) of this 
        subsection, this Act shall apply to and the Commission shall 
        have exclusive 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 under section 5 or register 
        the board of trade as a derivatives transaction execution 
        facility under section 5a in, contracts of sale (or options on 
        the contracts) for future delivery of 1 or more securities (as 
        defined in section 2(a)(1) of the Securities Act of 1933 or 
        section 3(a)(10) of the Securities Exchange Act of 1934), 
        including any group or index of securities and any interest in 
        or based on the value of securities.
          ``(B) The Commission shall not designate a board of trade as 
        a contract market under section 5 or register a board of trade 
        as a derivatives transaction execution facility under section 
        5a with respect to any such contracts of sale (or options on 
        the contracts) for future delivery unless the board of trade 
        demonstrates and the Commission expressly finds that the 
        specific contract (or option on the contract) with respect to 
        which the application for the designation or recognition has 
        been made meets the following requirements:
                  ``(i) Settlement of or delivery on the contract (or 
                option on the contract) shall be effected in cash or by 
                means other than the transfer or receipt of a nonexempt 
                security.
                  ``(ii) Susceptibility to price manipulation.--Trading 
                in a contract (or option on such a contract) described 
                in subparagraph (A) shall not be readily susceptible 
                to--
                          ``(I) manipulation of the price of the 
                        contract (or option on such a contract); or
                          ``(II) causing or being used in the 
                        manipulation of the price of any underlying 
                        security, option on a security, or option on a 
                        group or index that includes a security.
                  ``(iii) If the contract is based on a single 
                nonexempt security, an option on the security 
                underlying the contract would meet all Securities and 
                Exchange Commission requirements for listing on a 
                national securities exchange.
                  ``(iv) If the contract is based on any group or index 
                of nonexempt securities comprised of fewer than 5 
                securities, or on an index in which a single nonexempt 
                security predominates, an option on each security 
                comprising the group or index would meet all 
                requirements for listing on a national securities 
                exchange.
                  ``(v) The contract will be traded on a board of trade 
                that establishes the level of margin for futures 
                contracts (or options on the contracts) based on a 
                single nonexempt security, an index of fewer than 5 
                nonexempt securities, or an index in which a single 
                nonexempt security predominates, at a level consistent 
                with the level of margin on comparable option contracts 
                listed on any national securities exchange.
                  ``(vi) The contract will be traded on a board of 
                trade that prohibits a person who acts as a floor 
                broker for any contract of sale (or options on the 
                contract) for future delivery of a nonexempt security, 
                an index based on fewer than 5 nonexempt securities, or 
                an index in which a single nonexempt security 
                predominates, from trading that contract for the 
                broker's own account during the same trading session.
                  ``(vii) The contract will be traded on a board of 
                trade that collects, maintains, and promptly provides 
                to the Securities and Exchange Commission such 
                information as the Commission and the Securities and 
                Exchange Commission jointly consider necessary to 
                perform the enforcement responsibilities described in 
                paragraph (6).
          ``(5) The Commission shall consult with the Securities and 
        Exchange Commission with respect to any application submitted 
        by a board of trade for designation as a contract market or 
        derivatives transaction execution facility with respect to any 
        contract of sale (or option on the contract) for future 
        delivery of a nonexempt security or a group or index of such 
        securities. If, not later than 15 days after the consultation, 
        the Securities and Exchange Commission objects to the 
        designation of a board of trade as a contract market or 
        derivatives transaction execution facility in the contract (or 
        option on the contract) on the ground that any requirement of 
        paragraph (4)(B) is not met, the Commission shall afford the 
        Securities and Exchange Commission an opportunity for an oral 
        hearing to be transcribed before the Commission, and shall give 
        appropriate weight to the views of the Securities and Exchange 
        Commission. The oral hearing shall be held before Commission 
        action upon the application for the designation, and not less 
        than 30 nor more than 45 days after the Securities and Exchange 
        Commission has objected. If such an oral hearing is held, the 
        Securities and Exchange Commission fails to withdraw its 
        objections, and the Commission issues an order designating a 
        board of trade as a contract market or recognizes the board of 
        trade as a derivatives transaction execution facility with 
        respect to any such contract (or option on the contract), the 
        Securities and Exchange Commission may seek judicial review of 
        the order in accordance with the procedural requirements set 
        forth in section 6(c). If, pursuant to section 6, there is a 
        hearing on the record with respect to an application for such 
        designation, the Securities and Exchange Commission may 
        participate in that hearing as an interested party.
          ``(6) Notwithstanding any other provision of this Act, the 
        Securities and Exchange Commission may enforce against a person 
        that purchases or sells any contract of sale (or option on the 
        contract) for future delivery of any nonexempt security, any 
        index comprised of fewer than 5 nonexempt securities, or any 
        index in which a single nonexempt security predominates to the 
        same extent as if the person had purchased or sold an option on 
        the security or index under the following provisions of the 
        securities laws and regulations with respect to the following 
        categories of conduct:
                  ``(A) Section 10(b) and 21A of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78j(b), 78u-1) with 
                respect to insider trading.
                  ``(B) Section 16(b) of such Act (15 U.S.C. 78p(b)) 
                with respect to unfair use of information in short 
                swing trading by a corporate insider.
                  ``(C) Section 9 of such Act (15 U.S.C. 78i) with 
                respect to manipulation of securities prices.
                  ``(D) Section 10(b) of such Act (15 U.S.C. 78J(b)) 
                and section 204A of the Investment Adviser's Act of 
                1940 (15 U.S.C. 80b-4a) with respect to frontrunning.
                  ``(E) Section 14 of the Securities Exchange Act of 
                1934 (15 U.S.C. 78n) with respect to the pricing and 
                integrity of tender offers.
                  ``(F) Rule 144 of the rules of the Securities and 
                Exchange Commission (17 C.F.R. 230.144) with respect to 
                trading in restricted securities.
          ``(7)(A) Notwithstanding any other provision of this Act, any 
        contract market or derivatives transaction execution facility 
        in a nonexempt security or stock index futures contract (or 
        option thereon) 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 the nonexempt 
        security or stock index futures contract (or option on the 
        contract).
          ``(B) The Board may at any time request any contract market 
        or derivatives transaction execution facility to set the level 
        of margin for any nonexempt security or stock index futures 
        contract (or option on the contract) at such levels as the 
        Board in its judgment determines are appropriate to preserve 
        the financial integrity of the contract market or derivatives 
        transaction execution facility 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 or derivatives transaction execution facility 
        to alter or supplement the rules of the contract market or 
        derivatives transaction execution facility as specified in the 
        request.
          ``(C) Subject to such conditions as the Board may determine, 
        the Board may delegate any or all of its authority under this 
        paragraph to the Commission or an intermarket margin board as 
        provided in subparagraph (D).
          ``(D) Intermarket margin board.--
                  ``(i) Establishment.--With the concurrence of the 
                Securities and Exchange Commission and the Commission, 
                the Board may establish an intermarket margin board, 
                consisting of representatives of any or all of the 
                three agencies.
                  ``(ii) Duties.--The intermarket margin board may set 
                and maintain margin levels and rules pertaining to 
                margin for futures on a single nonexempt security, an 
                index of fewer than 5 nonexempt securities, or an index 
                in which a single nonexempt security predominates, 
                listed on a contract market or derivatives transaction 
                execution facility. In discharging these duties, the 
                intermarket margin board shall endeavor to make the 
                levels of margin for futures and options on a single 
                nonexempt security consistent taking into account any 
                material differences in such contracts, including--
                          ``(I) the price volatility of the contracts;
                          ``(II) the frequency with which margin calls 
                        are made; and
                          ``(III) the period of time within which 
                        margin calls must be met.
          ``(E) This paragraph shall not be construed to supersede or 
        limit the authority granted to the Commission in section 8a(9) 
        to direct a contract market or derivatives transaction 
        execution facility, on finding an emergency to exist, to raise 
        temporary emergency margin levels on any futures contract or 
        option on the contract covered by this paragraph.
          ``(F) Any action taken by the Board under this paragraph, or 
        by the Commission acting under the delegation of authority 
        under subparagraph (C), directing a contract market or 
        derivatives transaction execution facility to alter or 
        supplement a contract market or derivatives transaction 
        execution facility rule shall be subject to review only in the 
        United States Court of Appeals for the judicial circuit in 
        which the party seeking review resides or has its principal 
        place of business, or in the United States Court of Appeals for 
        the District of Columbia Circuit. The review shall be based on 
        the examination of all information before the Board or the 
        Commission, as the case may be, at the time the determination 
        was made. The court reviewing the action of the Board or the 
        Commission shall not enter a stay or order of mandamus unless 
        the court determines, after notice and a hearing before a panel 
        of the court, that the agency action complained of was 
        arbitrary, capricious, an abuse of discretion, or otherwise not 
        in accordance with law.
          ``(8) This subsection shall not be construed to prohibit--
                  ``(A) an agreement, contract, or transaction excluded 
                from this Act by paragraph (2); or
                  ``(B) any hybrid instrument that is covered by the 
                terms of any exemption granted by the Commission under 
                section 4(c) (whether or not any such hybrid instrument 
                is otherwise subject to this Act).
          ``(9)(A) No futures commission merchant, commodity trading 
        advisor, or introducing broker shall recommend to any customer 
        the purchase or sale of any contract of sale for future 
        delivery of a single nonexempt security, an index of fewer than 
        5 nonexempt securities, or an index in which a single nonexempt 
        security predominates, unless the futures commission merchant, 
        commodity trading advisor, or introducing broker complies with 
        the rules described in subparagraph (B) of a registered futures 
        association of which such merchant, advisor, or broker is a 
        member.
          ``(B) Within 9 months of the date of enactment of the 
        Commodity Futures Modernization Act of 2000, a registered 
        futures association shall adopt rules requiring a futures 
        commission merchant, a commodity trading advisor, or an 
        introducing broker which recommends to any customer the 
        purchase or sale of any contract of sale for future delivery of 
        a single nonexempt security, an index of fewer than 5 nonexempt 
        securities, or an index in which a single nonexempt security 
        predominates to ascertain through reasonable due diligence that 
        the recommendation is suitable for that customer in light of 
        the customer's financial position and trading goals. The 
        registered futures association shall consult with the 
        Commission and the Securities and Exchange Commission prior to 
        the adoption of any such rule, and shall submit any such rule 
        to the Commission for approval in the manner and according to 
        the procedures described in section 17(j) of this Act, 
        provided, that in such case the rule shall become effective if 
        the Commission fails to disapprove such rule within 90 days of 
        submission.
          ``(10)(A) Nothing in this Act shall be construed to require 
        or authorize the Commission to review or approve, directly or 
        indirectly, any contract, rule, regulation, or action adopted 
        by a foreign board of trade, exchange, or market, or a 
        clearinghouse for such a board of trade, exchange, or market, 
        relating to any transaction involving a contract of sale for 
        future delivery (or option on such a contract) in or involving 
        any security, including any foreign government debt security, 
        or group or index of such securities, if--
                  ``(i)(I) in the case of a contract of sale for future 
                delivery (or option on such a contract) in or involving 
                a single equity security, the United States is not the 
                primary trading market for the underlying security; or
                  ``(II) in the case of a contract of sale for future 
                delivery (or option on such a contract) in or involving 
                a group or index of equity securities, less than 25 
                percent of the weighting of the group or index is 
                derived from securities for which the United States is 
                the primary trading market for the securities 
                underlying the contract for future delivery (or option 
                on the contract); and
                  ``(ii) settlement of or delivery on the contract for 
                future delivery (or option on such a contract) is to be 
                effected in cash or by means other than the transfer or 
                receipt of a security in the United States other than 
                an exempted security.
          ``(B) Within 90 days after the date of the enactment of this 
        paragraph, the Commission shall adopt such procedures as it 
        deems appropriate pursuant to which, consistent with this Act, 
        the Commission shall authorize the offer and sale in the United 
        States of any contract of sale for future delivery (or option 
        on such a contract) of a security, other than a security of the 
        type described in subparagraph (A)(i)(I) or a group or index of 
        securities of the type described in subparagraph (A)(i)(II), 
        traded on or subject to the rules of a foreign board of trade, 
        exchange, or market, or a clearinghouse for such a board of 
        trade, exchange, or market, except that such procedures shall 
        not require a foreign board of trade, exchange, or market, or a 
        clearinghouse for such a board of trade, exchange, or market to 
        apply for designation as a contract market under this Act with 
        respect to such a contract for future delivery (or option on 
        such a contract).''.

SEC. 9. TRANSACTIONS IN EXEMPT COMMODITIES.

  Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a) 
(as amended by section 8) is amended by adding at the end the 
following.
  ``(h) Legal Certainty for Certain Transactions in Exempt 
Commodities.--
          ``(1) Except as provided in paragraph (2) of this subsection, 
        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 they 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) of this Act;
                  ``(B) sections 4b and 4n of this Act and the 
                regulations of the Commission pursuant to section 4c(b) 
                of this Act proscribing fraud in connection with 
                commodity option transactions, to the extent such 
                agreement, contract, or transaction is not between 
                eligible commercial participants and would otherwise be 
                subject to those provisions; and
                  ``(C) sections 6(c) and 9(a)(2) of this Act to the 
                extent they prohibit manipulation of the market price 
                of any commodity in interstate commerce, to the extent 
                such agreement, contract, or transaction would 
                otherwise be subject to those provisions.
          ``(3) Except as provided in paragraph (4) of this subsection, 
        nothing in this Act shall apply to an agreement, contract, or 
        transaction in an exempt commodity (other than a metal 
        commodity enumerated in section 1a(3) of this Act) which--
                  ``(A) is entered into solely between persons that are 
                eligible contract participants at the time at which the 
                persons enter into the agreement, contract, or 
                transaction; and
                  ``(B) is executed or traded on an electronic trading 
                facility.
          ``(4) An agreement, contract, or transaction described in 
        paragraph (3) shall be subject to--
                  ``(A) sections 5b and 12(e)(2)(B) of this Act;
                  ``(B) sections 4b and 4n of this Act and the 
                regulations of the Commission pursuant to section 4c(b) 
                of this Act proscribing fraud in connection with 
                commodity option transactions and section 6(c) and 
                9(a)(2) of this Act, to the extent these provisions 
                prohibit manipulation of the market price of any 
                commodity in interstate commerce, to the extent such 
                agreement, contract, or transaction would otherwise be 
                subject to those provisions; and
                  ``(C) 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 related to 
                the commodity executed or traded on the electronic 
                trading facility.''.

SEC. 10. 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 futures contracts and options contracts that are 
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, and 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. 11. 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 any 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. 12. 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. Such rules may authorize--
                  ``(A) an exchange of--
                          ``(i) futures in connection with a cash 
                        commodity transaction;
                          ``(ii) futures for cash commodities;
                          ``(iii) transfer trades or office trades; or
                          ``(iv) futures for swaps; and
                  ``(B) 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 trading 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.
          ``(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 effective date 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, a board of trade shall comply with 
        the core principles specified in this subsection.
          ``(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 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 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--
                  ``(A) maintain full 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 at 
                least 5 years;
                  ``(B) make the records readily available during at 
                least the first 2 years of the 5-year period and 
                provide the records to the Commission at the expense of 
                the person required to maintain the records; and
                  ``(C) keep the records open to inspection by any 
                representative of the Commission or the Department of 
                Justice.
          ``(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 and Metal Commodities.--
          ``(1) Subject to paragraph (2), a contract for purchase or 
        sale for future delivery of an agricultural or metal commodity 
        enumerated in section 1a(3) 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. 13. 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 12(2)) the following:

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

  ``(a) In General.--In lieu of compliance with the contract market 
designation requirements of section 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).
  ``(b) Requirements for Trading Futures Contracts or Other Derivatives 
Transactions.--
          ``(1) In general.--A registered derivatives transaction 
        execution facility under subsection (a) may trade any futures 
        contract (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 
        futures 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; or
                  ``(D) the Commission determines, based on the market 
                characteristics, surveillance history, self-regulatory 
                record, and capacity of the facility that trading in 
                the futures contract is highly unlikely to be 
                susceptible to the threat of manipulation.
          ``(3) Eligible traders.--To trade on a registered derivatives 
        transaction execution facility, a person shall--
                  ``(A) be authorized by the board of trade to trade on 
                the facility; and
                  ``(B)(i) be an eligible contract participant; or
                  ``(ii) 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;
                          ``(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 demonstrate to the Commission that the board of trade 
        meets the criteria specified in this paragraph.
          ``(2) Deterrence of abuses.--The board of trade shall 
        establish and enforce trading 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. Such rules may authorize--
                  ``(A) an exchange of--
                          ``(i) futures in connection with a cash 
                        commodity transaction;
                          ``(ii) futures for cash commodities;
                          ``(iii) transfer trades or office trades; or
                          ``(iv) futures for swaps; and
                  ``(B) 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 
        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.
          ``(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.
          ``(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 
        actively traded contracts on the facility.
          ``(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 decisionmaking process of the derivatives transaction 
        execution facility and establish a process for resolving such 
        conflicts of interest.
          ``(8) Recordkeeping.--The board of trade shall--
                  ``(A) maintain full 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 at least 5 years;
                  ``(B) make the records readily available during at 
                least the first 2 years of the 5-year period and 
                provide the records to the Commission at the expense of 
                the person required to maintain the records; and
                  ``(C) keep the records open to inspection by any 
                representatives of the Commission or the Department of 
                Justice.
          ``(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.--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 such 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 effective date 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 futures commission merchant for 
purposes of trading on or through the facilities of the registered 
derivatives transaction execution facility.
  ``(g) Election To Trade Excluded Commodities.--
          ``(1) In general.--A board of trade that is a registered 
        derivatives transaction execution facility may trade on the 
        facility any agreements, contracts, or transactions involving 
        excluded commodities that are otherwise excluded from this Act 
        under section 2(c), 2(d), or 2(h).
          ``(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. 14. 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 13) the following:

``SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

  ``(a) Registration Requirement.--Except as provided in subsection 
(b), 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(8).
  ``(b) Exclusion of Derivatives Clearing Organizations Subject to 
Other Regulatory Authorities.--A derivatives clearing organization 
shall not be required to register with the Commission, and the 
Commission shall have no jurisdiction with respect to the derivatives 
clearing organization, if the derivatives clearing organization--
          ``(1)(A) is registered as a clearing agency under the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);
          ``(B) is subject to the supervisory jurisdiction of a Federal 
        banking agency (as defined in section 3 of the Federal Deposit 
        Insurance Act (12 U.S.C. 1813)) or the National Credit Union 
        Administration; or
          ``(C) is subject to the supervisory jurisdiction of a foreign 
        regulatory authority that is recognized by the Securities and 
        Exchange Commission, the Board of Governors of the Federal 
        Reserve System, the Comptroller of the Currency, or the 
        Commission as overseeing a system of consolidated supervision 
        comparable to that provided under applicable United States law; 
        and
          ``(2) does not clear a contract of sale for future delivery, 
        option on a contract of sale for future delivery, or option on 
        a commodity that is not a security (unless the contract or 
        option is excluded under subsection (c) or (d) of section 2).
  ``(c) Voluntary Registration.--A derivatives clearing organization 
that is exempt from registration under subsection (b) may register with 
the Commission as a derivatives clearing organization.
  ``(d) 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. 
                  ``(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 
                without interruption in various market conditions.
                  ``(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--
                          ``(i) maintain full 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 at least 5 years;
                          ``(ii) make the records readily available 
                        during at least the first 2 years of the 5-year 
                        period and provide the records to the 
                        Commission at the expense of the person 
                        required to maintain the records; and
                          ``(iii) keep the records open to inspection 
                        by any representative of the Commission or the 
                        Department of Justice.
                  ``(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.
  ``(e) Existing Derivatives Clearing Organizations.--A derivatives 
clearing organization shall be deemed to be registered under this 
section to the extent that--
        ``(1) 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; and
        ``(2) the Commission has reviewed and approved the rules of the 
        derivatives clearing organization before that date.
  ``(f) 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.
  ``(g) 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.''.

SEC. 15. 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 14) 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 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, 
        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(3) 
                of this Act (or any option thereon) traded through its 
                facilities if such 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 has reason to believe 
        that a registered entity is violating any applicable provision 
        specified in section 5(d), 5a(d), or 5b(d)(2), the Commission 
        shall notify the registered entity in writing of the reasons 
        for the preliminary determination by the Commission of a 
        violation, including any data, materials, and facts the 
        Commission relied on in making the preliminary determination.
          ``(2) Injunctive or administrative action.--The Commission 
        may initiate an action for an injunction under section 6c or an 
        administrative proceeding, to demonstrate, by the preponderance 
        of the evidence, that--
                  ``(A) the registered entity is violating any 
                applicable provision specified in section 5(d), 5a(d), 
                or 5b(d)(2); and
                  ``(B) the Commission has recommended an appropriate 
                remedial action to remove the deficiency based on an 
                analysis of the costs and benefits in the public 
                interest of the Commission recommendation.
          ``(3) Burden of proof.--In making a determination that a 
        registered entity is violating any applicable provision 
        specified in section 5(d), 5a(d), or 5b(d)(2), the Commission 
        shall have the burden of proving that the registered entity is 
        violating the applicable core principle.
  ``(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) of this Act.''.

SEC. 16. 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 15) the following:

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

    ``(a) In General.--Except as otherwise provided in this section, 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 shall be exempt from all provisions of this Act, other than 
section 2(g).
    ``(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) that have--
                  ``(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 the 
        contract) for future delivery of any security, including any 
        group or index of securities or any interest in, or interest 
        that is based on the value of, any security.
    ``(c) Antimanipulation Requirements.--A party to a futures contract 
or related option that is traded on an exempt board of trade shall be 
subject to sections 4b, 4n, 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 any 
underlying commodity in any 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 related option, 
to the extent that such 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.''.

SEC. 17. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT MARKET.

    Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as 
redesignated by section 12(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. 18. 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. 19. PREEMPTION.

    Section 12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) is 
amended by striking paragraph (2) and inserting the following:
          ``(2) the application of any Federal or State law (including 
        any regulation) to an agreement, contract, or transaction in or 
        involving any commodity, product, right, service, or interest, 
        except that this Act shall supersede and preempt--
                  ``(A) in the case of any such agreement, contract, or 
                transaction--
                          ``(i) that is conducted on or subject to the 
                        rules of a registered entity or exempt board of 
                        trade;
                          ``(ii) that is conducted on or subject to the 
                        rules of any board of trade, exchange, or 
                        market located outside the United States, or 
                        any territory or possession of the United 
                        States (in accordance with any terms or 
                        conditions specified by the Commission by 
                        regulation); and
                          ``(iii) that is subject to regulation by the 
                        Commission under section 4c or 19; and
                  ``(B) any State or local law that prohibits or 
                regulates gaming or the operation of bucket shops 
                (other than antifraud provisions of general 
                applicability) in the case of--
                          ``(i) an electronic trading facility under 
                        section 2(e); or
                          ``(ii) an agreement, contract, or transaction 
                        that is excluded or exempt under section 2(c), 
                        2(d), 2(f), 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); or''.

SEC. 20. 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. 21. 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. 22. 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 shall be void, voidable, or unenforceable, and no such 
eligible contract participant shall be entitled to rescind, or recover 
any payment made with respect to, such an agreement, contract, or 
transaction, under this section 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. 23. 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(3) 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 
        such 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 exchanges 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. 24. 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. 25. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Commodity Exchange Act.--
          (1) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is 
        amended--
                  (A) in paragraph (3), by inserting ``aluminum, 
                copper, gold, palladium, platinum, silver,'' after 
                ``orange juice,'';
                  (B) in paragraphs (4), (5), (8), (9), (12), and (14), 
                by inserting ``or derivatives transaction execution 
                facility'' after ``contract market'' each place it 
                appears; and
                  (C) in paragraph (15)--
                          (i) in the paragraph heading, by striking 
                        ``contract market'' and inserting ``registered 
                        entity''; and
                          (ii) by striking ``contract market'' each 
                        place it appears and inserting ``registered 
                        entity''.
          (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)--
                          (i) in paragraph (1) (as amended by 
                        subparagraph (A))--
                                  (I) by striking subparagraph (B);
                                  (II) by striking ``subparagraph (B) 
                                of this subparagraph'' and inserting 
                                ``subsection (g)'';
                                  (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'';
                          (ii) in paragraph (7), by striking ``contract 
                        market'' and inserting ``registered entity'';
                          (iii) in paragraph (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
                          (iv) 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
                          (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 ``section 
                                2(g)''; 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 4j of the Commodity Exchange Act (7 U.S.C. 6j) 
        is repealed.
          (11) 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.
          (12) 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,''.
          (13) The Commodity Exchange Act (as amended by paragraphs 
        (10), (11), and (12)) is amended by redesignating section 4k 
        through 4p (7 U.S.C. 6k through 6p) as sections 4j through 4o, 
        respectively.
          (14) 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 such 
                                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, such 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'';
                          (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''.
          (15) 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''.
          (16) 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''.
          (17) Section 6c(a) of the Commodity Exchange Act (7 U.S.C. 
        13a-1(a)) by striking ``contract market'' and inserting 
        ``registered entity''.
          (18) 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,''.
          (19) 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''.
          (20) 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''.
          (21) 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''.
          (22) 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''.
          (23) Section 8e of the Commodity Exchange Act (7 U.S.C. 12e) 
        is amended--
                  (A) by striking ``contract market'' each place it 
                appears and inserting ``registered entity'';
                  (B) in subsection (a), by striking ``section 5a(b)'' 
                and inserting ``sections 5 through 5c'';
                  (C) in subsection (b)--
                          (i) in paragraph (1), by striking ``contract 
                        market's trade monitoring system implemented 
                        pursuant to section 5a(b)'' and inserting ``the 
                        trade monitoring system of a registered entity 
                        implemented pursuant to sections 5 through 
                        5c'';
                          (ii) by striking paragraph (3) and inserting 
                        the following:
          ``(3) Remedies.--On becoming final, the Commission deficiency 
        order may require the registered entity to--
                  ``(A) institute appropriate improvements in its trade 
                monitoring system necessary to correct the deficiencies 
                in the order;
                  ``(B) satisfy stated objective performance criteria 
                to correct the deficiencies;
                  ``(C) upgrade or reconfigure existing systems for 
                collecting or processing relevant data on trading and 
                trader or broker activity, including, where 
                appropriate, the commitment of additional resources.''; 
                and
                          (iii) in paragraph (5)--
                                  (I) in the paragraph heading, by 
                                striking ``Designation as contract 
                                market'' and inserting ``Designation or 
                                registration as registered entity'';
                                  (II) by inserting ``or registration'' 
                                after ``designation''; and
                                  (III) by striking ``board of trade'' 
                                and inserting ``person'';
                  (D) in subsection (d)(2), by striking ``section 5b'' 
                and inserting ``section 5e''; and
                  (E) in the paragraph heading of subsection (e)(2), by 
                striking ``Contract markets'' and inserting 
                ``Registered entities''.
          (24) Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is 
        amended--
                  (A) by striking ``contract market'' each place it 
                appears and inserting ``registered entity''; and
                  (B) in subsection (a)(2), by striking ``section 
                4o(1),'' and inserting ``section 4n(1),''.
          (25) 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''.
          (26) Section 17 of the Commodity Exchange Act (7 U.S.C. 21) 
        is amended by striking ``contract market'' each place it 
        appears and inserting ``registered entity''.
          (27) 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.''.

SEC. 26. 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. 27. EFFECTIVE DATE.

  (a) In General.--Except as provided in subsection (b), this Act takes 
effect on the date of enactment of this Act.
  (b) Jurisdiction of Commission.--Section 8, and the amendments made 
by that section, take effect 1 year after the date of enactment of this 
Act.

SEC. 28. 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.

                           Brief Explanation

    H.R. 4541, the Commodity Futures Modernization Act of 2000, 
reauthorizes the regulatory body established under the 
Commodity Exchange Act (CEA or the Act), the Commodity Futures 
Trading Commission (CFTC). The legislation modernizes the 
regulatory structure of the U.S. futures markets and provides 
greater legal certainty to most over-the-counter (OTC) 
transactions.
    Authorization for the CFTC under the CEA expires on 
September 30 of this year. H.R. 4541 reauthorizes the CFTC for 
five years and reforms the Act in three primary ways: (1) it 
incorporates many of the President's Working Group (PWG) 
findings on legal certainty for OTC derivatives; (2) it 
codifies regulatory relief provisions for the U.S. futures 
exchanges and their markets; and (3) it reforms the Shad-
Johnson jurisdictional accord regarding futures on securities.
    (1) Legal Certainty for over-the-counter derivatives: 
Because the terms ``commodity'' and ``futures contract'' have 
never been clearly defined, there has been much debate over who 
the appropriate regulator should be for many OTC derivatives. 
In 1998, the CFTC released a concept paper on OTC derivatives 
that was perceived by many as a precursor to regulating these 
instruments. The Treasury Department, the Federal Reserve 
(FED), and the Securities and Exchange Commission (SEC) opposed 
this release and requested that Congress enact a moratorium on 
the CFTC's ability to regulate these instruments until after 
the PWG could complete a study on the issue. In response, 
Congress enacted a six month moratorium on the CFTC's concept 
paper. In November 1999, the PWG released its unanimous report 
on OTC derivatives.
    The report concluded that bilateral swap agreements entered 
into by eligible parties (large and/or sophisticated) and done 
on a principal-to-principal basis should be excluded from the 
CEA. The report also stated the PWG's belief that these 
agreements be allowed on certain electronic trading systems 
that should be excluded from the CEA and that clearing for 
these products should be encouraged to prevent systemic risk.
    H.R. 4541 implements the PWG recommendations listed in the 
prior paragraph. Because of concerns over the possibility that 
products with a finite supply may be subject to manipulation, 
all agricultural and metal commodities will remain under the 
purview of the CEA, unless they are conducted bilaterally by 
institutional or sophisticated parties.
    (2) Regulatory Relief for Futures Markets: In February of 
this year, the CFTC issued a regulatory relief proposal that 
would provide relief to futures exchanges and their customers. 
Sections 12, 13, and 16 of the bill are based on this proposal. 
H.R. 4541 moves CFTC from a frontline regulatory role to an 
oversight regulatory role. Instead of listing specific 
requirements for complying with the CEA, the bill requires 
exchanges to meet internationally agreed-upon standards, which 
would provide needed flexibility for these fluid markets of 
today's world. The bill creates three levels of regulation for 
exchanges based on whether the underlying commodities being 
traded may be susceptible to manipulation or whether the users 
of the exchange are limited to institutional customers. The 
first level of regulation will be most like the current 
exchange structure. It will offer the most customer protection 
and be open to retail investors. The second level of regulation 
will be limited mainly to products not susceptible to 
manipulation and must be traded by or through appropriate 
persons. The third level of regulation will be open only to 
large or sophisticated investors who trade on products that are 
not considered susceptible to manipulation.
    To address concerns voiced by some agricultural producer 
groups, the bill includes language that restates the 
Commission's emergency powers over agricultural or metal 
instruments. The bill also ensures that the producer groups 
have adequate input in the rulemaking process. Agricultural and 
metal products are allowed to be traded only under the most 
stringent level of regulation, unless after public comment and 
rulemaking and adoption of appropriate regulations, the 
Commission determines agricultural transactions may be 
conducted on a derivatives transaction execution facility.
    (3) Reform of the Shad-Johnson Jurisdictional Accord: In 
1982, SEC Chairman John Shad and CFTC Chairman Phil Johnson 
reached an agreement on dividing jurisdiction between the 
agencies for those products that had characteristics of both 
securities and futures. Known as the Shad-Johnson Accord, this 
agreement prohibited single stock futures and delineated 
jurisdiction between the SEC and the CFTC on stock index 
futures and options. Meant as a temporary agreement, many have 
suggested that the Shad-Johnson accord should be repealed. The 
PWG unanimously agreed that the Accord can be repealed if 
regulatory disparities are resolved between the regulation of 
futures and securities. The U.S. General Accounting Office 
(GAO) released a report that found that single stock futures 
are being traded in foreign markets, in the options markets and 
in the OTC markets. This report concludes that futures on 
securities should be allowed under the appropriate regulatory 
framework. Earlier this year, the House and SenateAgriculture 
Committees requested that the CFTC and the SEC make recommendations and 
provide the Subcommittee legislative language to reform the Shad-
Johnson Accord. 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 options markets, and 
that the SEC would enforce the insider trading laws on these products.
    H.R. 4541 requires that to be eligible to be traded, a 
single stock futures contract must be (a) cash-settled; (b) 
traded on a security with sufficient liquidity that it would be 
eligible for options trading under SEC requirements; (c) 
subject to margin levels that must be consistent with options 
margins for comparable securities; (d) traded on boards of 
trade that outlaw dual trading in single stock futures 
contracts; and (e) traded on boards of trade that will collect, 
maintain and promptly provide to the SEC any information the 
SEC needs to carry out its enforcement responsibilities. If the 
CFTC determines any of these conditions would not be met, it 
must deny a board of trade's application to trade these 
products. If the SEC believes that any of these conditions 
would not be met, it may so advise the CFTC and elect to pursue 
specified legal procedures, including judicial review, to 
vindicate its position.
    GAO's report also identified three areas of significant 
concern--insider trading, margin and suitability. The issues 
addressed by the agencies and GAO report are incorporated into 
the bill by applying the appropriate securities law provisions 
and providing a level playing field for all markets. 
Specifically, the bill includes provisions on:

(1) Insider trading

    The SEC is given express authority to enforce the insider 
trading prohibitions of federal securities laws against those 
who trade single stock futures on the same terms as stock 
options trading. Nothing will distinguish futures from options 
in terms of insider trading enforcement. In addition, the SEC 
is given authority to enforce five other provisions of federal 
securities law designed to promote fair trading and market 
integrity so that no trading in single stock futures could lead 
to questions about stock market integrity. These include 
prohibitions on short swing profits, front-running, trading in 
restricted securities and market manipulation. The SEC would be 
empowered to take unilateral action against futures market 
participants in each of these areas.

(2) Margin

    For margin, the bill specifies that single stock futures 
margins, as determined by the FED, must be consistent with 
options margins for comparable securities. The bill also 
authorizes the FED to create an Intermarket Margin Board 
(consisting of the FED, CFTC and SEC) to facilitate the setting 
of appropriate margin level.

(3) Suitability

    For suitability, the bill requires a registered futures 
association (the National Futures Association) to promulgate 
rules barring futures professionals from recommending 
unsuitable single stock futures trades to their customers. This 
provision would complement the National Futures Association's 
existing ``know your customer'' rule.

                            Purpose and Need

    Since October, 1974, when Congress created the Commodity 
Futures Trading Commission (CFTC or the Commission), the CEA 
has been amended four times in an effort to accommodate the 
futures industry's rapid development of innovative risk 
management products. This innovation took place despite an 
arcane statutory and regulatory structure, which Congress chose 
to deal with only piecemeal each time the CFTC needed 
reauthorization.
    The fourth major set of amendments--those enacted in the 
Futures Trading Practices Act of 1992--recognized changes in 
the world financial services industry (an industry U.S. futures 
exchanges helped develop by giving agricultural risk management 
concepts to financial institutions) and sought an accommodation 
between the still innovative futures industry and the exploding 
growth in financial risk management tools developed and used 
outside traditional futures markets--over-the-counter or off-
exchange markets created by the Nation's investment and 
commercial banking industry, energy firms and subsidiaries of 
major broker-dealers and used by small, large and multinational 
businesses in their everyday activities.
    U.S. financial market makers and dealers and the user 
community were not the only ones who began to recognize the 
value and importance of futures and option markets. Countries 
around the world not having agricultural futures markets as 
models for financial futures began to develop financial 
derivatives, generally molding the U.S. model into a more 
flexible regulatory regime. Foreign regulation tended to let 
markets respond to business and economicdevelopments whereas 
U.S. markets were still subjected to the whims of their federal 
regulators and occasional Congressional expressions of concern.
    While the 1992 amendments provided a few years' of relief, 
rapid development of markets here and abroad began to put 
competitive pressures on all markets. This development was 
aided by the simultaneous explosion in information and 
telecommunications technologies, creating economic risks not 
known in the more sedate days of land lines communications and 
harbors of protectionism.
    In 1996, U.S. futures exchanges began to ask for relief 
from the restrictions of the CEA. Legislation was introduced in 
early 1997 to provide that relief, but Congress took no action 
during the 105th Congress. Since then, seminars have been held, 
papers have been written and meetings have been assembled in an 
effort to find consensus about how to bring the CEA into the 
new century. It was generally agreed that fostering financial 
innovation while preserving market integrity and protecting 
traders and investors could be accomplished. Creating the 
perfect regulatory atmosphere to achieve those goals was not so 
easily done, however, because those who thought they were 
engineering new financial products were actually adopting forms 
of risk management that had been used by agricultural interests 
for hundreds of years. Forward rice contracts were conducted in 
Japan in the early 1700s, and the Osaka Rice Exchange was 
legally recognized in 1730. U.S. futures markets began in the 
mid-1850s.
    Congress and federal regulators have wrestled for years 
with OTC markets and regulated futures exchanges trading 
instruments with similar or identical economic characteristics. 
OTC markets, which may have federal oversight, are operated 
with less regulation; futures exchanges, on the other hand, are 
operating under a federal presence that may be stultifying 
depending on the whims of the CFTC.
    The current Commission elected some time ago to examine its 
regulatory program, and the result of that examination has been 
a comprehensive proposal trimming its activities from the 
frontline regulator of earlier years into an oversight agency. 
The CFTC also has been active as a member of the PWG, which 
recommended recently a regulatory structure contemplating legal 
certainty for many financial instruments similarly structured 
to futures or option contracts. Unfortunately, the PWG was 
unable to reach consensus on reform of Shad-Johnson, even 
though the PWG determined that the problems were resolvable.
    In addition, work of the GAO helped the Committee determine 
its course in reforming Shad-Johnson. GAO indicated that single 
stock futures should be allowed to trade, pointing out that 
such futures on foreign stocks are now trading and that stock 
options have traded untroubled for years. GAO identified three 
areas of concern--insider trading, margin and suitability--that 
would need to be addressed. The bill addresses each of these 
concerns.
    The PWG and CFTC recommendations, as well as GAO's 
suggestions, have been substantially incorporated into the 
Committee's legislation.
    For instance, foreign currencies may be marketed and sold 
to retail customers by banks and others while at the same time 
the CFTC is authorized to combat fraudulent foreign currency 
and other activities of boiler rooms or bucket shops.
    Legal certainty for swaps and other OTC derivatives is 
secured, and the trading of derivatives using certain 
electronic trading facilities has been clarified.
    Likewise, hybrid instruments involving depository or debt 
instruments with futures or option-like components are 
rationalized along trade practices instead of the predominance 
of the economic ``play'' of the commodity component that 
determines the periodic pay out rate.
    Shad-Johnson has been reformed substantially within the 
jurisdiction of the Committee while providing the SEC full 
enforcement authorities in the event of problems in the futures 
or underlying securities markets.
    The bill follows the CFTC's proposed regulatory relief 
initiative by providing three tiers of regulation: the 
designated contract market (highest level), the derivatives 
transaction execution facility [DTEF] (midlevel) and the exempt 
board of trade (lowest level), where derivatives may trade 
reasonably freely so long as the underlying commodity has a 
nearly inexhaustible deliverable supply, a deliverable supply 
sufficiently large and the cash market sufficiently liquid to 
make any contract highly insusceptible to manipulation or no 
cash market at all. Only eligible contract participants may 
trade, and Treasury futures products are prohibited from 
trading.
    Agricultural markets are retained at the highest level of 
regulation and further safeguards, such as making certain 
affected persons are provided ample opportunity to comment on 
any contract market rule proposal or rule change, are in place. 
Traditional agricultural markets and metals markets may trade 
at the DTEF level following procedures set in place in the 
bill.

                      Section-by-Section Analysis

    Section 1. Short Title and Table of Contents. The Act is 
entitled the Commodity Futures Modernization Act of 2000.
    Section 2. Purposes. The section lists eight purposes for 
the bill including reauthorizing the CFTC; streamlining the 
CEA; eliminating unnecessary regulation for the futures 
exchanges; transforming the regulatory role of the CFTC; 
providing a legislative and regulatory framework for the 
trading of futures on securities; providing CFTC jurisdiction 
over the retail foreign exchange market and bucket shops; 
promoting innovation and reducing systemic risk for OTC 
derivatives; allowing clearing of OTC derivatives and enhancing 
the competitive position of the U.S. financial institutions and 
markets.
    Section 3. Definitions. Adds definitions to section 1a of 
the CEA for the following terms: ``derivatives clearing 
organization''; ``designated future on a security''; 
``electronic trading facility''; ``eligible commercial 
participant'', ``eligible contract participant''; ``exempt 
commodity''; ``excluded commodity''; ``financial institution''; 
``hybrid instrument''; ``nonexempt security''; ``option''; 
``organized exchange''; ``registered entity''; ``security''; 
and ``trading facility''.
    The Committee notes that the term ``exempt commodity'' 
means a commodity other than an ``excluded commodity'' or an 
``agricultural commodity.'' For purposes of this definition, 
the Committee intends ``agricultural commodity'' to include all 
agricultural commodities, whether or not such agricultural 
commodities are specifically enumerated in the definition of 
``commodity'' in section 1a(3) of the CEA.
    Section 4. Agreements, Contracts, and Transactions in 
Foreign Currency, Government Securities and Certain Other 
Commodities. Clarifies section 2 of the CEA (the ``Treasury 
Amendment'') with respect to CFTC jurisdiction over foreign 
currency transactions by adding a new subsection (c).
    New paragraph (c)(2) excludes foreign currency transactions 
from CFTC regulation, other than those conducted on an 
organized exchange, between specified regulated entities and 
persons who are not eligible contract participants. These 
excluded transactions include transactions executed on an 
electronic facility in which only a single firm is entitled to 
act as a market maker and on which non-market-maker 
counterparties may not accept bids and offers of other non-
market-maker counterparties (either directly or through the 
market maker running a matched book in which non-market-maker 
counterparties' bids and offers become the bids and offers of 
the market maker).
    The bill defines ``organized exchange'' as a trading 
facility that either allows retail customers, permits agency 
trades, or has a self-regulatory role. New subparagraph 
(c)(2)(B) provides the CFTC with jurisdiction over retail 
foreign currency transactions that are not traded on an 
organized exchange and that are not regulated by another 
federal regulator. This would allow the CFTC to take 
enforcement action against illegal bucket shops.
    Section 5. Legal Certainty for Excluded Derivatives 
Transactions (Over-the-Counter Transactions). Amends section 2 
of the CEA to create a new subsection (d), which states that 
nothing in the CEA applies to transactions in an excluded 
commodity if the transaction (1) is entered into on a principal 
to principal basis between parties trading for their own 
accounts; (2) is between eligible contract participants (large, 
institutional entities) and (3) is not executed on a trading 
facility (unless it is an excluded electronic trading 
facility).
    The Committee intends for the exclusions for transactions 
conducted on a trading facility only apply to principal-to-
principal transactions. The exclusion does not apply if an 
eligible contract participant acts as a broker or in an 
equivalent agency capacity for any other party or trades in its 
own name for the economic risk and benefit of any other party. 
This limitation does not preclude an eligible contract 
participant from transacting with a counterparty and 
contemporaneously entering into an economically identical 
hedging transaction, for the eligible contract participant's 
own account and risk, on a trading facility. The limitation 
also does not preclude certain regulated eligible contract 
participants from acting in a discretionary investment 
management or equivalent fiduciary capacity for another 
eligible contract participant as contemplated under the 
definition of eligible contract participant.
    Section 6. Excluded Electronic Trading Facilities. Amends 
section 2 of the CEA to create a new subsection (e) that allows 
for the electronic trading of excluded commodities. Paragraph 
(e)(2)states that nothing in the CEA shall prohibit a contract 
market or derivatives transaction execution facility from establishing 
and operating an excluded electronic trading facility.
    Section 7. Hybrid Instruments. Amends section 2 of the CEA 
to create a new subsection (f) that provides that nothing in 
the CEA applies to a hybrid instrument that is predominantly a 
security or depository instrument. New paragraph (f)(2) sets 
forth conditions for determining predominance to cover any 
hybrid instrument in which (1) the issuer of the instrument 
receives payment in full of the purchase price at the time the 
instrument is delivered; (2) the purchaser is not required to 
make additional payments; (3) the issuer of the instrument is 
not subject to mark-to-market margining requirements; and (4) 
the instrument is not marketed as a futures contract. New 
paragraph (3) clarifies that mark-to-marketing requirements do 
not include the obligation of an issuer of a secured debt 
instrument to increase the amount of collateral for the 
instrument.
    Section 8. Futures on Securities. Amends section 2 of the 
CEA by adding a new subsection (g) that reforms the Shad 
Johnson jurisdictional accord.
     Paragraph (1) provides that CFTC has no 
jurisdiction to designate a board of trade as a contract market 
for any transaction whereby any party to the transaction 
acquires a put, call, or other option on 1 or more securities 
(as defined in section 2(a)(1) of the Securities Act of 1933 or 
section 3(a)(10) of the Securities Exchange Act of 1934, on the 
date of enactment of the Futures Trading Act of 1982), 
including any group or index of securities and any interest in 
or based on the value of securities.
     Paragraph (2) is a savings clause to ensure that 
excluded OTC equity derivatives remain outside the CEA and 
jurisdiction of the CFTC.
     Paragraph (3) states that it is illegal to provide 
for the trading of futures on securities except as provided for 
in the Act.
     Paragraph (4) provides CFTC with exclusive 
jurisdiction for futures on securities and provides criteria 
for contract market designation of these products including: 
cash settlement; insusceptibility to price manipulation (both 
of the contract and the underlying stock or an option on that 
stock); margin requirements; and making information available 
to the regulators.
     Paragraph (5) requires the CFTC and SEC to consult 
with regard to the listing of a futures on a security. If the 
SEC is not satisfied that all requirements regarding a single 
stock future are being met by a contract market, the CFTC shall 
give the SEC an opportunity for an oral hearing. If the hearing 
is held and the SEC's objections are not resolved, the SEC may 
seek judicial review.
     Paragraph (6) authorizes the SEC to enforce the 
securities laws related to insider trading with respect to 
futures on securities.
     Paragraph (7) authorizes the FED to establish an 
Intermarket Margin Board with the concurrence of the CFTC and 
SEC. This would allow the CFTC, FED, and SEC to work jointly to 
set the margin on single stock futures at appropriate levels to 
preserve market financial integrity or to prevent systemic 
risk.
     Paragraph (8) provides that this subsection shall 
not be construed to prohibit any agreement, contract, or 
transaction excluded from this Act by paragraph (2); or any 
hybrid instrument that is covered by the terms of any exemption 
granted by CFTC.
     Paragraph (9) directs a registered futures 
association to adopt rules requiring a futures commission 
merchant (FCM), commodity trading advisor (CTA) or an 
introducing broker (IB) to determine if a customer is suitable 
to purchase single stock futures. FCM's already follow a ``know 
your customer'' rule, however, this paragraph will ensure 
customer protection adheres to suitability standards currently 
used when selling securities and options on securities.
     Paragraph (10) authorizes the offer and sale in 
the United States of any futures or option contracts on 
securities (excluding securities described in subparagraphs 
(A)(i) (I) or (II)), traded on a foreign board of trade without 
being a designated contract market under the CEA, if (1) for 
single stock futures, the United States is not the primary 
trading market for the underlying security; or (2) for stock 
index futures, less than 25 percent of the index is based on 
securities that are primarily traded in the United States; and 
settlement of the futures contract does not involve the 
transfer or receipt of a security in the United States. The 
CFTC is required to promulgate appropriate regulations 
implementing this section within 90 days of enactment.
    The Committee notes that CFTC is required to adopt 
procedures for implementation of paragraph (10) within 90 days 
of enactment. Section 27 of this Act provides that Section 8 is 
to become effective one year after enactment of this Act. The 
Committee intends for the Commission to establish procedures 
and implement paragraph (10) within 90 days of enactment.
    It has come to the attention of the Committee there may be 
discrepancies in the tax treatment of stock futures and other 
stock derivatives. To the extent these discrepancies can be 
identified, the Committee encourages the Congressional tax-
writing committees to harmonize the tax treatment of all stock 
derivatives. The Committee notes that the relevant Committees 
ofjurisdiction could deal with these matters during the one-
year implementation period of the Shad-Johnson reform included in the 
reported bill.
    Section 9. Transactions in Exempt Commodities. Amends 
section 2 of the CEA by adding a new subsection (h) to provide 
legal certainty for exempt commodities. Exempt commodities must 
be traded between eligible participants and not traded on a 
trading facility (except an electronic trading facility). The 
amendment further provides that transactions in an exempt 
commodity, other than a metal commodity, can be conducted 
between eligible contract participants and traded on an 
electronic trading facility. All transactions are also subject 
to the clearing system provisions of the bill, state fraud 
statutes, and the fraud and anti-manipulation provisions of the 
Act. In addition, CFTC may prescribe rules to ensure the timely 
dissemination of electronic trading facility data if CFTC 
determines that the electronic facility performs a significant 
prices discovery function.
    Section 10. Protection of the Public Interest. Rewrites 
section 3 of the CEA that lists the responsibilities of the 
CFTC and purposes of the CEA in protecting the public interest. 
These include: protecting investors from fraud and 
manipulation; fostering efficiency and fairness with 
transparent price dissemination; preventing market manipulation 
and minimizing the risk of systemic failure; and promoting 
financial innovation and fair competition.
    Section 11. Prohibited Transactions. Rewrites section 4c of 
the CEA for clarity.
    Section 12. Designation of Boards of Trade as Contract 
Markets.  Strikes current law sections 5 and 5a and adds a new 
section 5 to the CEA providing for the designation of boards of 
trade as contract markets. Subsection (b) contains criteria 
that boards of trade must meet in order to be designated as a 
contract market. These include establishing and enforcing rules 
preventing market manipulation; ensuring fair and equitable 
trading by authorizing various futures exchange transactions; 
specifying how the trade execution facility operates, including 
any electronic matching systems; ensuring the financial 
integrity of transactions; disciplining members or market 
participants who violate the rules; allowing for public access 
to the board of trade rules and enabling the board of trade to 
obtain information in order to enforce its rules. Existing 
contract markets are grandfathered in under new subsection (c). 
The 18 core principles that must be met to maintain designation 
as a contract market are contained in new subsection (d) and 
provide that a board of trade must:
           monitor and enforce compliance with the 
        contract market rules;
           list only contracts that are not susceptible 
        to manipulation;
           monitor trading to prevent manipulation, 
        price distortion and delivery or settlement 
        disruptions;
           adopt position limits for speculators and 
        hedgers;
           adopt rules to provide for the exercise of 
        emergency authority, including the authority to 
        liquidate or transfer open positions, suspend trading 
        and make margin calls;
           make available the terms and conditions of 
        the contracts and the mechanisms for executing 
        transactions;
           publish daily information on prices, bids, 
        offers, volume, open interest, and opening and closing 
        ranges;
           provide a competitive, open and efficient 
        market and mechanism for executing transactions;
           provide for the safe storage of all trade 
        information in a readily usable manner to assist in 
        fraud prevention;
           provide for the financial integrity of the 
        contracts, the futures commission merchants and 
        customer funds;
           protect market participants from abusive 
        practices;
           provide for alternative dispute resolutions 
        for market participants and intermediaries;
           establish and enforce rules regarding 
        fitness standards for those involved in market 
        governance;
           establish and enforce rules to minimize 
        conflicts of interest in a contract market;
           ensure that the governing board reflects the 
        composition of the market participants (in the case of 
        mutually owned exchanges);
           maintain records and make them available at 
        any time for inspection by the Attorney General; and
           avoid taking any action that restrains trade 
        or imposes anticompetitive burdens on the markets.
    Subsection (e) provides that, with respect to futures 
contracts involving agricultural or metal commodities 
enumerated in section 1a(3) of the CEA, such contracts may only 
trade on designated contract markets. However, upon application 
by any person, the CFTC may prescribe rules and regulations to 
allow such agricultural or metal commodities to trade on a 
derivativestransaction execution facility in instances where it 
would promote responsible economic or financial innovation and fair 
competition.
    Section 13. Derivatives Transaction Execution Facilities. 
Amends the CEA by adding a new section 5a authorizing a new 
trading designation called a derivatives transaction execution 
facility (DTEF). Under subsection (b), a board of trade may 
elect to operate as a DTEF rather than a contract market if 
they meet the DTEF designation requirements. A registered DTEF 
may trade any non-designated futures contract if the commodity 
underlying the contract has a nearly inexhaustible supply, is 
not susceptible to manipulation, and does not have a cash 
market in commercial practice. Eligible DTEF traders include 
authorized contract market participants and persons trading 
through registered futures commission merchants with capital of 
at least $20,000,000 that are members of a self-regulatory 
organization (SRO) and a clearing organization. Boards of trade 
that have been designated as contract markets may operate as 
DTEFs if they provide a separate location for DTEF trading or, 
in the case of an electronic system, identify whether the 
trading is on a DTEF or contract market.
    Subsection (c) provides criteria for boards of trade that 
wish to register as DTEFs, including: establishing and 
enforcing trading rules, by authorizing various futures 
exchange transactions, that will deter abuses and provide 
market participants impartial access to the markets and capture 
information that may be used in rule enforcement; and defining 
trading procedures to be used and provide for the financial 
integrity of DTEF transactions.
    To maintain registration as a DTEF, a board of trade must 
comply with 9 core principles listed in subsection (d):
           maintain and enforce rules;
           ensure orderly trading and provide trading 
        information to the CFTC;
           publicly disclose information regarding 
        contract terms, trading practices, and financial 
        integrity protections;
           provide information on prices, bids and 
        offers to market participants as well as daily 
        information in volume and open interest for the 
        actively traded contracts;
           establish and enforce rules regarding 
        fitness standards for those involved in DTEF 
        governance;
           establish and enforce rules to minimize 
        conflicts of interest in a derivatives transaction 
        execution facility;
           maintain records and make them available at 
        any time for inspection by the Attorney General; and
           avoid taking any action that restrains trade 
        or imposes anticompetitive burdens on the markets.
    Subsection (e) allows a broker-dealer, bank, or Farm Credit 
Institution in good standing to act as an intermediary on 
behalf of its customers and to receive customer funds serving 
as margin or security for the customer's transactions. If such 
entity holds the DTEF customer funds or accounts for more than 
1 business day, such entity must be a registered FCM and a 
member of a registered futures association. The CFTC and SEC 
are to coordinate in adopting rules to implement this 
subsection.
    Under subsection (f), the CFTC may adopt regulations to 
allow FCMs to give their customers the right to not segregate 
customer funds for purposes of trading on the DTEF.
    Subsection (g) clarifies that a DTEF may trade derivatives 
that otherwise would be excluded, exempted or not subject to 
the CEA and the CFTC has exclusive jurisdiction only when these 
instruments are traded on a DTEF.
    Section 14. Derivatives Clearing Organizations. Amends the 
CEA to create a new section 5b regarding derivatives clearing 
organizations.
    Subsection (a) makes it unlawful for a derivatives clearing 
organization to operate unless it is registered with the CFTC.
    For futures or options on non-security commodities, 
subsection (b) provides an exclusion to the requirements in 
subsection (a) if a clearing organization is registered with 
the another federal regulatory agency (SEC or a federal banking 
regulator) or is subject to a foreign regulatory authority 
recognized by U.S. federal regulators.
    Subsection (c) provides that organizations excluded under 
subsection (b) may voluntarily register with CFTC as a clearing 
organization.
    Subsection (d) sets forth the process for applying with 
CFTC to be a clearing organization under this section, and 
provides 14 core principles that must be met and maintained in 
order to maintain registration as a clearing organization.
    Subsection (e) grandfathers in existing derivatives 
clearing organizations that have been designated by CFTC as 
contract markets prior to date of enactment.
    Subsection (f) authorizes CFTC to seek the appointment of a 
trustee by an appropriate U.S. district court if the 
registration of a derivatives clearing organization is 
suspended or revoked by CFTC under section 5e.
    Subsection (g) requires CFTC to facilitate and coordinate 
with other federal regulators with respect to clearing 
organizations registered under this Act and other regulated 
clearing facilities.
    Section 15. Common Provisions Applicable to Registered 
Entities. Amends the CEA to create a new section 5c that 
contains provisions affecting all registered entities (contract 
markets, DTEFs, and derivatives clearing organizations).
    Subsection (a) allows the CFTC to issue or approve 
interpretations to describe what would constitute an acceptable 
business practice under the core principals for registered 
entities.
    Subsection (b) allows a registered entity to delegate its 
self regulatory functions to a registered futures association, 
while specifying that responsibility for carrying out these 
functions remain with the registered entity.
    Subsection (c) enables the registered entity to trade new 
products or adopt or amend rules by providing the CFTC (or, in 
the case of a government security product, the Secretary of the 
Treasury) a written certification that the new contract or new 
rule or amendment complies with the CEA. This subsection would 
allow a registered entity to request that the CFTC grant prior 
approval of a new contract, new rule or rule amendment. For 
enumerated commodity products, a contract market (futures 
exchange) shall submit to the CFTC for prior approval each rule 
amendment that materially changes the terms and conditions of a 
contract that has already been listed and has substantial open 
interest.
    Subsection (d) grants the CFTC the authority to informally 
resolve potential violations of the core principals for 
registered entities.
    Subsection (e) reserves all of CFTC's emergency powers.
    Section 16. Exempt Boards of Trade. Amends the CEA to 
create a new section 5d regarding exempt boards of trade. Under 
subsections (a) and (b), futures contracts traded on an exempt 
board of trade would be exempt from the CEA (except section 
2(g) regarding equity futures) if:
          (1) the commodity underlying the futures contract has 
        an inexhaustible deliverable supply, is not subject to 
        manipulation, or has no cash market;
          (2) participants are eligible contract participants 
        (large institutional investors); and
          (3) the contracts do not involve securities 
        (including security indices).
    Subsection (c) subjects futures contracts traded on an 
exempt board of trade to the anti-fraud and anti-manipulation 
provisions of the CEA.
    Under subsection (d), if the CFTC finds that an exempt 
board of trade is a significant source of price discovery for 
the underlying commodity, 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.
    Section 17. Suspension or Revocation of Designation as 
Contract Market. Amends redesignated section 5e of the CEA to 
authorize the CFTC to suspend the registration of a registered 
entity for 180 days for any violation of the CEA.
    Section 18. Authorization of Appropriations. Amends section 
12(d) of the CEA by striking 2000 and reauthorizing 
appropriations through fiscal year 2005.
    Section 19. Preemption. Rewrites paragraph 12(e)(2) of the 
CEA for clarity and to conform with changes made in the bill. 
Restates the current provisions that the CEA supercedes and 
preempts other laws in the case of transactions conducted on a 
registered entity or subject to regulation by the CFTC (even if 
outside the United States), and adds that in the case of 
excluded electronic trading facilities and any agreements, 
contracts or transactions that are excluded commodities or 
covered by a 4(c) exemption, the CEA supercedes and preempts 
state gaming and bucket shop laws (except for the antifraud 
provisions of those laws that are generally applicable).
    Section 20. Predispute Resolution Agreements for 
Institutional Customers. Amends subsection 14(g) of the CEA to 
clarify that futures commission merchants, as a condition of 
doing business, may require customers, that are eligible 
contract participants, to waive their right to file a 
reparations claim with the CFTC.
    Section 21. Consideration of Costs and Benefits and 
Antitrust Laws. Amends section 15 of the CEA to add a new 
subsection (a) requiring the CFTC, before promulgating 
regulations and issuing orders, to consider the costs and 
benefits of its action. This does not apply to orders 
associated with an ad judicatory or investigative process, or 
to emergency actions or findings of fact regarding compliance 
with CFTC rules.
    Section 22. Contract Enforcement Between Eligible 
Counterparties. Amends subsection 22(a) of the CEA to provide a 
safe harbor so that excluded transactions will not be voidable 
based solely on the failure of the transaction to comply with 
the terms or conditions of an exclusion or exemption from the 
Act or CFTC regulations.
    The Committee acknowledges that categories of over-the-
counter transactions, such as certain commodity swaps that may 
be traded under the current swaps exemption, have not been 
excluded or exempted under the terms of this Act. The Committee 
intends that any failure to provide a statutory exclusion or 
exemption for these categories of swaps transactions does not 
reflect, and should not be construed to reflect, a 
determination by Congress that these categories of swaps 
transactions are subject to the Commodity Exchange Act.
    Section 23. Special procedures to encourage and facilitate 
bona fide hedging by agricultural producers. This section 
authorizes the CFTC to consider several factors to improve 
domestic agricultural producers' ability to use contract 
markets for hedging price risk. Specifically, this section 
authorizes CFTC, in issuing rules or orders, to consider: 
procedures to facilitate the orderly delivery of agricultural 
commodities, including temporary storage costs; the ease with 
which domestic agricultural producers may participate in 
contract markets, including cost and margin requirements; and 
flexibility in the minimum quantities of contract size. This 
section also requires the CFTC to report to the House and 
Senate Agriculture Committees regarding steps taken to 
implement this section.
    Section 24. Rule of Construction. Provides that nothing in 
this Act supersedes, affects, or otherwise limits or expands 
the scope and applicability of laws governing the Securities 
and Exchange Commission unless expressly provided.
    Section 25. Technical and Conforming Amendments. Makes 
technical and conforming amendment throughout the CEA to 
reflect changes made by the bill.
    Section. 26. Report to Congress. Requires the CFTC to study 
the CEA and its rules, regulations and orders governing the 
conduct of CFTC's registrants and report to Congress within one 
year.
    Section. 27. Effective Date. The Act takes effect on the 
date of enactment, except section 8 (dealing with equity 
futures), which takes effect one year after enactment.
    Section 28. International Activities of the Commodity 
Futures Trading Commission. This section contains Congressional 
findings about the changing and global nature of derivatives 
markets, the increase in the use of data processing and 
communications technologies that enable users of risk 
management services to analyze and compare services on a 
worldwide basis, and the need for financial regulatory policy 
to be flexible and to avoid compromising U.S. competitiveness.
    This section also contains a Sense of Congress regarding 
the importance of the CFTC, as part of its international 
activities, to continue to coordinate with foreign regulatory 
authorities, participate in international regulatory 
organizations and forums, and provide technical assistance to 
foreign government authorities in order to encourage and 
facilitate cross-border transactions, reduce unnecessary 
obstacles, and enhance international cooperation and 
information sharing.

                        Committee Consideration


                              I--Hearings

    The Subcommittee on Risk Management, Research, and 
Specialty Crops hosted public hearings for the purposes of 
receiving input regarding the Commodity Exchange Act. The 
Subcommittee commenced forums on May 18, 19, 20, June 8, 1999, 
in Washington, D.C. regarding reauthorization of the Commodity 
Futures Trading Commission (Serial No. 106-18); on August 5, 
1999, in Washington, D.C. to review the Commodity Futures 
Trading Commissions' authority to provide U.S. futures 
exchanges with regulatory relief (Serial No. 106-32); on 
February 15, 2000, in Washington, D.C. regarding the 
President's Working Group on Financial Markets report on Over-
the-Counter Derivative Markets and the Commodity Exchange Act 
(Serial No. 106-43); and on June 14, 2000, in Washington, D.C. 
to review H.R. 4541, the Commodity Futures Modernization Act of 
2000.

                            II--Subcommittee

    Chairman Ewing called the Subcommittee on Risk Management, 
Research, and Specialty Crops business meeting to order on 
Thursday, June 22, 2000, for the purpose of considering H.R. 
4541, the Commodity Futures Modernization Act of 2000, a bill 
by Mr. Ewing to reauthorize and amend the Commodity Exchange 
Act to promote legal certainty, enhance competition, and reduce 
systemic risk in markets for futures and over-the counter 
derivatives, and for other purposes.
    Chairman Ewing made brief opening comments, and he thanked 
all the parties who had worked so hard to present a substitute 
bill to the Subcommittee. Chairman Ewing encouraged all 
interested parties to continue to work together and to improve 
certain provisions in the bill before Full Committee markup, 
especially the provisions regarding Shad-Johnson reform.
    Chairman Ewing offered an Amendment in the Nature of a 
Substitute to H.R. 4541, the Commodity Futures Modernization 
Act of 2000, and without objection, the Ewing Amendment in the 
Nature of a Substitute was considered as original text and open 
for amendment at any point.
    Counsel was recognized for a brief explanation of the 
Amendment in the Nature of a Substitute to H.R. 4541.
    All Members were given permission to submit additional 
statements for the hearing record, which would be kept open for 
ten days.
    Mr. Smith was recognized to offer an amendment for him and 
Mr. Pomeroy. Mr. Smith explained the amendment that would 
instruct the Commodity Futures Trading Commission to explore 
ways to facilitate the use of contract markets by domestic 
agricultural producers who wish to hedge their risks.
    Mr. Pomeroy was recognized and indicated his support for 
making commodity futures a tool more accessible to an average 
farmer.
    Discussion occurred on the amendment, and Chairman Ewing 
announced his support for the amendment. By voice vote, the 
Smith-Pomeroy amendment was adopted.
    Mr. Dooley was recognized to offer and explain the 
amendment, whichwould mandate regulation of clearing houses for 
over-the-counter derivatives by the appropriate functional 
regulator. Mr. Dooley indicated that he would withdraw the 
amendment because of the jurisdiction of other committees, but 
that he thought it was most important that the Committee on 
Agriculture make statements on the record in support of this 
concept. Mr. Dooley noted that the amendment was consistent 
with the recommendations of the President's Working Group and 
was consistent with the companion legislation of the Senate 
side, S. 2697. Mr. Dooley encouraged Chairman Ewing to ensure 
that this amendment would eventually be incorporated into the 
text of this legislation before it goes to the House Floor for 
consideration.
    Chairman Ewing stated that he had made a commitment to Mr. 
Dooley to do his best to get the Dooley amendment incorporated 
into H.R. 4541.
    Discussion occurred on the amendment. Mr. Ose expressed his 
concern about the clearinghouses being aligned with the proper 
regulatory jurisdiction to reduce systemic risk.
    Without objection, the Dooley amendment was withdrawn.
    Mr. Moran was recognized to discuss several issues that he 
felt deserved consideration as the bill proceeded to be marked 
up and brought to the House Floor. Mr. Moran's first concern 
was the delivery of agricultural commodities and possible flaws 
in the futures trading system. Mr. Moran's second concern was 
the effect of repealing Shad-Johnson, and Mr. Moran suggested a 
report, one year after the date of Shad-Johnson repeal, to 
examine the effects of this action. Mr. Moran's third issue was 
the promotion of sales of derivatives in all markets. Mr. Moran 
noted that this issue could cause jurisdiction concerns, but 
that he looked forward to working on this issue with the 
Chairman as the legislation advanced toward the Floor.
    Mr. Moran also expressed concern over the way the bill 
deals with energy products. He urged the Subcommittee to be 
very cautious about the regulatory structure in the energy 
derivatives market and the possibility of over-regulation.
    Mr. Walden expressed regret that the CFTC and SEC as 
requested had not provided him and the Subcommittee with a 
specific outline of the technical differences regarding how 
some of the regulation should take place. Other Members 
expressed their concern that the agencies had not resolved 
these differences.
    Full Committee Chairman Combest commended Subcommittee 
Chairman Ewing for the effort and time that he had put in on 
this difficult subject. The Chairman encouraged all Members to 
have discussions on their concerns and to try to resolve their 
differences before Full Committee markup, which would be held 
on Tuesday, June 27, 2000. The Chairman announcedthat the bill 
would be marked up on Tuesday, June 27, and that the bill would be 
reported by the end of the week so that the sequential referral to the 
Committee on Banking and Financial Services and the Committee on 
Commerce could begin. The Chairman noted that authorizing legislation 
for the Commodity Futures Trading Commission expires on September 30, 
and he hoped to have the legislation reauthorized by that date.
    By voice vote, and in the presence of a quorum, the 
Amendment in the Nature of a Substitute, as amended, was 
adopted.
    Mr. Dooley moved that H.R. 4541, as amended, be adopted and 
reported favorably to the Full Committee. By voice vote, and in 
the presence of a quorum, H.R. 4541, as amended, passed.

                          III--Full Committee

    Chairman Combest called the meeting to order for the 
purpose of considering H.R. 4541, the Commodity Futures 
Modernization Act of 2000, a bill by Mr. Ewing to reauthorize 
and amend the Commodity Exchange Act to promote legal 
certainty, enhance competition, and reduce systemic risk in 
markets for futures and over-the counter derivatives, and for 
other purposes.
    Chairman Combest made brief opening comments and thanked 
all the Members for their cooperation in moving this complex 
piece of legislation. The Chairman gave special thanks to Mr. 
Ewing, Chairman of the Subcommittee on Risk Management, 
Research, and Specialty Crops. Chairman Combest noted that 
there were still unresolved issues that he would continue to 
pursue as the legislative process continued.
    Ranking Minority Member Stenholm gave an opening statement 
and indicated his support for the bill and its expeditious 
enactment. Mr. Stenholm thanked the Commodity Futures Trading 
Commission for their help on the bill. Mr. Stenholm noted that 
the CFTC had reservations with provisions of the bill related 
to correcting violations of core principles, and that he shared 
that concern. Mr. Stenholm urged the CFTC to continue to advise 
the Committee on ways to address this concern and others so 
that the issues could be addressed when H.R. 4541 was taken up 
on the Floor for consideration.
    Mr. Ewing, Chairman of the Subcommittee on Risk Management, 
Research, and Specialty Crops, thanked the Members for the 
praise that he had received. Mr. Ewing said that thanks should 
go to the staff and to the bipartisan way in which everyone had 
worked on the issue. Mr. Ewing also thanked the members of the 
President's Working Group for their assistance in developing 
the bill. Mr. Ewing requested that all parties continue to work 
together as the bill goes through the legislative process.
    Mr. Boehner made brief comments and said that it was 
imperative that the bill be enacted into law this Congress. He 
indicated his support and commitment for getting this done.
    Mr. Smith associated himself with the remarks of Mr. 
Stenholm, and Mr. Smith said that it was important that the 
Committee on Agriculture monitor the effect of this bill on 
American agriculture.
    Mr. Combest placed before the Committee the Subcommittee 
Amendment in the Nature of a Substitute with technical 
modifications, and without objection, the Substitute Amendment 
was considered as original text and open for amendment at any 
point.
    Chairman Combest offered an en bloc amendment and requested 
that Counsel explain the amendment. The Combest en bloc 
amendment would clarify the trading of off exchange exempt 
commodities such as energy and metals, would allow agricultural 
markets to be traded on a market that is less regulated, would 
establish a framework for the clearing of futures and other 
derivative instruments, and would allow U.S. citizens to 
purchase foreign stock futures sold by U.S. futures commission 
merchants. By voice vote, the Combest en bloc amendment was 
adopted.
    Mr. Stenholm offered an amendment concerning international 
activities of the CFTC. The amendment states Congressional 
findings relating to the need for international regulatory 
cooperation. The amendment expresses the Sense of Congress that 
the CFTC should 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 removal 
or lessening of unnecessary regulatory impediments to cross-
border transactions, the development of international standards 
for best practices, theenhancement of international regulatory 
cooperation, and improvements in the quality and timeliness of 
international information sharing. By voice vote, the amendment was 
adopted.
    By voice vote, and in the presence of a quorum, the 
Amendment in the Nature of a Substitute, as amended, was 
adopted.
    Mr. Stenholm moved that H.R. 4541, as amended, be adopted 
and reported favorably to the House. By voice vote, and in the 
presence of a quorum, H.R. 4541, as amended, passed.
    Mr. Stenholm moved that the Committee authorize the 
Chairman to offer such motions as may be necessary in the House 
to go to conference with the Senate on the bill H.R. 4541 or a 
similar Senate bill. By voice vote, the motion was adopted.
    Chairman Combest indicated that there was adequate time to 
give Members two working days to file minority, supplemental, 
or additional views. Without objection, staff was given 
permission to make appropriate technical, clarifying, or 
conforming changes to the legislation.

                   Reporting the Bill--Rollcall Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, H.R. 4541 was reported by voice 
vote with a majority quorum present. There was no request for a 
recorded vote.

           Budget Act Compliance (Sections 308, 402, and 423)

    The provisions of clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives and section 308(a)(1) of the 
Congressional Budget Act of 1974 (relating to estimates of new 
budget authority, new spending authority, new credit authority, 
or increased or decreased revenues or tax expenditures) are not 
considered applicable. The estimate and comparison required to 
be prepared by the Director of the Congressional Budget Office 
under clause 3(c)(3) of rule XIII of the Rules of the House of 
Representatives and sections 402 and 423 of the Congressional 
Budget Act of 1974 submitted to the Committee prior to the 
filing of this report are as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 29, 2000.
Hon. Larry Combest,
Chairman, Committee on Agriculture,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4541, the 
Commodity Futures Modernization Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kenneth 
Johnson (for federal costs), and Susan Sieg Tompkins (for the 
state and local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4541--Commodity Futures Modernization Act of 2000

    Summary: H.R. 4541 would reauthorize funding for the 
activities of Commodity Futures Trading Commission (CFTC) 
during the 2001-2005 period. The bill also would allow trading 
of individual stock futures under certain conditions, with 
oversight being shared by the CFTC and the Securities and 
Exchange Commission (SEC). In addition, H.R. 4541 would clarify 
that certain over-the-counter derivative transactions are 
outside of the jurisdiction of the CFTC. The bill also would 
authorize the CFTC to designate boards of trade as contract 
markets or execution facilities for derivatives transactions.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing this legislation would cost $353 
million over the 2001-2005 period. Although most of this cost 
would be incurred by the CFTC, CBO estimates that the SEC would 
spend $1 million a year to regulate futures on individual 
securities. The bill would not affect direct spending or 
receipts; therefore, pay-as-you-go procedures would not apply.
    H.R. 4541 contains an intergovernmental mandate as defined 
in the Unfunded Mandates Reform Act (UMRA), but CBO estimates 
that the costs, if any, would not exceed the threshold 
established in that act ($55 million in 2000, adjusted annually 
for inflation). The bill does not contain any new private-
sector mandates as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 4541 on CFTC spending is shown in the 
following table. The costs of this legislation fall within 
budget function 370 (commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal year, in millions of dollars--
                                                           -----------------------------------------------------
                                                              2000     2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------------------
CFTC Spending Under Current Law:
    Budget Authority \1\..................................       63        0        0        0        0        0
    Estimated Outlays.....................................       57        6        0        0        0        0
Proposed Changes:
    Estimated Authorization Level.........................        0       67       69       72       74       77
    Estimated Outlays.....................................        0       60       68       71       73       76
CFTC Spending Under H.R. 4541:
    Estimated Authorization Level \1\.....................       63       67       69       72       74       77
    Estimated Outlays.....................................       57       66       68       71       73      76
----------------------------------------------------------------------------------------------------------------
\1\ The 2000 level is the amount appropriated for that year.

    In addition to affecting CFTC spending, implementing H.R. 
4541 also would cost the SEC $1 million each year over the 
2001-2005 period.
    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted by the end of fiscal year 2000 and that 
the necessary amounts will be appropriated by the start of each 
fiscal year. Outlay estimates are based on historical spending 
rates for the CFTC.
    H.R. 4541 would reauthorize funding for activities of the 
CFTC over the 2001-2005 period. Based on the agency's current 
budget and adjusting for anticipated inflation, this 
reauthorization would cost $59 million in 2001 and a total of 
$343 million over the five-year period.
    The bill also would make several changes to the Commodity 
Exchange Act that would increase administrative costs of the 
CFTC and the SEC. Based on information from the two agencies, 
CBO estimates that these new administrative responsibilities 
would cost $2 million in 2001, and $10 million over the 2001-
2005 period. H.R. 4541 requires that the CFTC and the SEC 
jointly regulate individual stock futures. The CFTC also would 
be authorized to designate boards of trade as contract markets 
or execution facilities for derivatives transactions. CBO 
estimates that these added regulatory responsibilities would 
require the CFTC and the SEC to hire new staff.
    Pay-as-you-go considerations: None.
    Estimated impact on state, local, and tribal governments: 
H.R. 4541 would preempt state laws affecting certain 
commodities transactions that are conducted in markets 
regulated by the Commodities Futures Trading Commission. Such a 
preemption would be a mandate as defined by UMRA. CBO estimates 
that the costs of this mandate if any, would not exceed the 
threshold in that act ($55 million in 2000, adjusted annually 
for inflation). The bill would impose no other costs on state, 
local, or tribal governments.
    Estimated impact on the private sector: The bill sets forth 
certain principles and requirements that would govern contract 
markets, execution facilities for derivative transactions, and 
derivative clearing organizations. Government and industry 
sources stated that these provisions appear to be a subset of 
current regulation. Thus, CBO expects that the bill would 
impose no new private-sector mandates.
    Estimate prepared by: Federal Costs: Kenneth Johnson, 
Impact on State, Local, and Tribal Governments: Susan Sieg 
Tompkins; Impact on the Private Sector: Judith Ruud.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the 
Constitutional authority for this legislation in Article I, 
clause 8, section 18, that grants Congress the power to make 
all laws necessary and proper for carrying out the powers 
vested by Congress in the Constitution of the United States or 
in any department or officer thereof.

                          Oversight Statement

    No summary of oversight findings and recommendations made 
by the Committee on Government Reform, as provided for in 
clause 3(c)(4) of rule XIII of the Rules of the House of 
Representatives, was available to the Committee with reference 
to the subject matter specifically addressed by H.R. 4541.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee on Agriculture's 
oversight findings and recommendations are reflected in the 
body of this report.

                      Advisory Committee Statement

    No advisory committee within the meaning of section 5(b) of 
the Federal Advisory Committee Act was created by this 
legislation.

                Applicability to the Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (Public Law 
104-1).

                       Federal Mandates Statement

    The Committee adopted as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act (Public Law 104-4).

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                        COMMODITY EXCHANGE ACT

           *       *       *       *       *       *       *



SEC. 1A. DEFINITIONS.

  As used in this Act:
          (1)  * * *

           *       *       *       *       *       *       *

          (3) Commodity.--The term ``commodity'' means wheat, 
        cotton, rice, corn, oats, barley, rye, flaxseed, grain 
        sorghums, mill feeds, butter, eggs, Solanum tuberosum 
        (Irish potatoes), wool, wool tops, fats and oils 
        (including lard, tallow, cottonseed oil, peanut oil, 
        soybean oil, and all other fats and oils), cottonseed 
        meal, cottonseed, peanuts, soybeans, soybean meal, 
        livestock, livestock products, and frozen concentrated 
        orange juice, aluminum, copper, gold, palladium, 
        platinum, silver, and all other goods and articles, 
        except onions as provided in Public Law 85-839 (7 
        U.S.C. 13-1), and all services, rights, and interests 
        in which contracts for future delivery are presently or 
        in the future dealt in.
          (4) Commodity pool operator.--The term ``commodity 
        pool operator'' means any person engaged in a business 
        that is of the nature of an investment trust, 
        syndicate, or similar form of enterprise, and who, in 
        connection therewith, solicits, accepts, or receives 
        from others, funds, securities, or property, either 
        directly or through capital contributions, the sale of 
        stock or other forms of securities, or otherwise, for 
        the purpose of trading in any commodity for future 
        delivery on or subject to the rules of any contract 
        market or derivatives transaction execution facility, 
        except that the term does not include such persons not 
        within the intent of the definition of the term as the 
        Commission may specify by rule, regulation, or order.
          (5) Commodity trading advisor.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, the term ``commodity trading 
                advisor'' means any person who--
                          (i) for compensation or profit, 
                        engages in the business of advising 
                        others, either directly or through 
                        publications, writings, or electronic 
                        media, as to the value of or the 
                        advisability of trading in--
                                  (I) any contract of sale of a 
                                commodity for future delivery 
                                made or to be made on or 
                                subject to the rules of a 
                                contract market or derivatives 
                                transaction execution facility;

           *       *       *       *       *       *       *

                  (B) Exclusions.--Subject to subparagraph (C), 
                the term ``commodity trading advisor'' does not 
                include--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (vi) any contract market or 
                        derivatives transaction execution 
                        facility; and

           *       *       *       *       *       *       *

          (8) 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 a derivative 
                agreement, contract, or transaction--
                          (i) enables each party to the 
                        derivative 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 parties in the 
                        derivatives clearing organization; or
                          (iii) otherwise provides clearing 
                        services or arrangements that mutualize 
                        or transfer among parties in the 
                        derivatives clearing organization the 
                        credit risk arising from such 
                        agreements, contracts, or transactions 
                        executed by the parties.
                  (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 
                        centralized 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.
          (9) Electronic trading facility.--The term 
        ``electronic trading facility'' means a trading 
        facility that--
                  (A) operates by means of an electronic 
                network; and
                  (B) maintains a real-time audit trail of 
                bids, offers, and the matching of orders or the 
                execution of transactions.
          (10) Eligible commercial participant.--The term 
        ``eligible commercial participant'' means a party or 
        entity described in paragraph (11)(A)(i), (ii), (v), or 
        (vii) or paragraph (11)(C), who, in connection with its 
        business--
                  (A) has a demonstrable capacity or ability, 
                directly or through separate contractual 
                arrangements, to make or take delivery of the 
                underlying physical commodity;
                  (B) incurs risks, in addition to price risk, 
                related to the commodity; or
                  (C) is a dealer that regularly provides 
                hedging, risk management, or market-making 
                services to the foregoing entities.
          (11) Eligible contract participant.--The term 
        ``eligible contract participant'' means--
                  (A) acting for its own account--
                          (i) a financial institution;
                          (ii) an insurance company regulated 
                        by a State (including a 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.) 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 
                                        advisor 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 regulated by a 
                                        State (including a 
                                        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);
                          (viii) 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);
                          (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) a natural person with total 
                        assets exceeding $10,000,000;
                  (B)(i) a person described in any of clauses 
                (i) through (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);
                  (ii) an investment adviser subject to 
                regulation under the Investment Advisors 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 any of clauses (i) through (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
                  (iii) a commodity trading advisor subject to 
                regulation under this Act, having assets under 
                management of not less than $25,000,000 and 
                acting as investment manager or fiduciary for 
                another person and 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.
          (12) Excluded commodity.--The term ``excluded 
        commodity'' means--
                  (A) an interest rate, exchange rate, 
                currency, security, security index, credit risk 
                or measure, debt or equity instrument, or index 
                or measure of inflation;
                  (B) any other rate, differential, index, or 
                measure of economic or commercial risk, return, 
                or value that--
                          (i) is not within the control of any 
                        party to the relevant contract, 
                        agreement, or transaction; or
                          (ii) is not based in substantial part 
                        on the value of a limited number of 
                        commodities not described in 
                        subparagraph (A) that have a finite 
                        supply; or
                  (C) an occurrence, extent of an occurrence, 
                or contingency beyond the control of the 
                parties to the relevant contract, agreement, or 
                transaction.
          (13) Exempt commodity.--The term ``exempt commodity'' 
        means a commodity that is not an excluded commodity or 
        an agricultural commodity.
          (14) 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) a trust company; or
                  (H) a similarly regulated subsidiary or 
                affiliate of an entity described in any of 
                subparagraphs (A) through (F).
          [(8)] (15) Floor broker.--The term ``floor broker'' 
        means any person who, in or surrounding any pit, ring, 
        post, or other place provided by a contract market or 
        derivatives transaction execution facility for the 
        meeting of persons similarly engaged, shall purchase or 
        sell for any other person any commodity for future 
        delivery on or subject to the rules of any contract 
        market or derivatives transaction execution facility.
          [(9)] (16) Floor trader.--The term ``floor trader'' 
        means any person who, in or surrounding any pit, ring, 
        post, or other place provided by a contract market or 
        derivatives transaction execution facility for the 
        meeting of persons similarly engaged, purchases, or 
        sells solely for such person's own account, any 
        commodity for future delivery on or subject to the 
        rules of any contract market or derivatives transaction 
        execution facility.
          [(10)] (17) Foreign futures authority.--The term 
        ``foreign futures authority'' means any foreign 
        government, or any department, agency, governmental 
        body, or regulatory organization empowered by a foreign 
        government to administer or enforce a law, rule, or 
        regulation as it relates to a futures or options 
        matter, or any department or agency of a political 
        subdivision of a foreign government empowered to 
        administer or enforce a law, rule, or regulation as it 
        relates to a futures or options matter.
          [(11)] (18) Future delivery.--The term ``future 
        delivery'' does not include any sale of any cash 
        commodity for deferred shipment or delivery.
          [(12)] (19) Futures commission merchant.--The term 
        ``futures commission merchant'' means an individual, 
        association, partnership, corporation, or trust that--
                  (A) is engaged in soliciting or in accepting 
                orders for the purchase or sale of any 
                commodity for future delivery on or subject to 
                the rules of any contract market or derivatives 
                transaction execution facility; and
                  (B) in or in connection with such 
                solicitation or acceptance of orders, accepts 
                any money, securities, or property (or extends 
                credit in lieu thereof) to margin, guarantee, 
                or secure any trades or contracts that result 
                or may result therefrom.
          (20) Hybrid instrument.--The term ``hybrid 
        instrument'' means a deposit (as defined in section 3 
        of the Federal Deposit Insurance Act (12 U.S.C. 1813)) 
        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.
          [(13)] (21) Interstate commerce.--The term 
        ``interstate commerce'' means commerce--
                  (A) between any State, territory, or 
                possession, or the District of Columbia, and 
                any place outside thereof; or
                  (B) between points within the same state, 
                territory, or possession, or the District of 
                Columbia, but through any place outside 
                thereof, or within any territory or possession, 
                or the District of Columbia.
          [(14)] (22) Introducing broker.--The term 
        ``introducing broker'' means any person (except an 
        individual who elects to be and is registered as an 
        associated person of a futures commission merchant) 
        engaged in soliciting or in accepting orders for the 
        purchase or sale of any commodity for future delivery 
        on or subject to the rules of any contract market or 
        derivatives transaction execution facility who does not 
        accept any money, securities, or property (or extend 
        credit in lieu thereof) to margin, guarantee, or secure 
        any trades or contracts that result or may result 
        therefrom.
          [(15)] (23) Member of a [contract market] registered 
        entity.--The term ``member of a [contract market] 
        registered entity'' means an individual, association, 
        partnership, corporation, or trust owning or holding 
        membership in, or admitted to membership representation 
        on, a [contract market] registered entity or given 
        members' trading privileges thereon.
          (24) Nonexempt security.--The term ``nonexempt 
        security'' means a security that is not an exempted 
        security under section 3 of the Securities Act of 1933 
        or section 3(a)(12) of the Securities Exchange Act of 
        1934 (other than any municipal security, as defined in 
        section 3(a)(29) of the Securities Exchange Act of 
        1934).
          (25) 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''.
          (26) 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; or
                          (ii) include disciplinary sanctions 
                        other than the exclusion of 
                        participants from trading.
          [(16)] (27) Person.--The term ``person'' imports the 
        plural or singular, and includes individuals, 
        associations, partnerships, corporations, and trusts.
          (28) 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; or
                  (C) a derivatives clearing organization 
                registered under section 5b.
          (29) Security.--The term ``security'' has the meaning 
        given the term in section 3(a) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)) as in effect on 
        date of the enactment of this paragraph.
          (30) 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 
                        orders within a predetermined, 
                        nondiscretionary automated trade 
                        matching 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.
    [Sec. 2. (a)(1)(A)(i) The]

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 Commission shall have 
                exclusive jurisdiction, except to the extent 
                otherwise provided in [subparagraph (B) of this 
                paragraph] subsection (g), 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 contracts of sale of a 
                commodity for future delivery, traded or 
                executed on a [contract market designated 
                pursuant to section 5 of this Act] contract 
                market designated or derivatives transaction 
                execution facility registered pursuant to 
                section 5 or 5a or any other board of trade, 
                exchange, or market, and transactions subject 
                to regulation by the Commission pursuant to 
                section 19 of this Act. Except as hereinabove 
                provided, nothing contained in this section shall 
                (I) supersede or limit the jurisdiction at any 
                time conferred on the Securities and Exchange 
                Commission or other regulatory authorities under 
                the laws of the United States or of any State, 
                or (II) restrict the Securities and Exchange 
                Commission and such other authorities from carrying 
                out their duties and responsibilities in accordance 
                with such laws. Nothing in this section shall 
                supersede or limit the jurisdiction conferred on 
                courts of the United States or any State.
  [(ii) Nothing in this Act shall be deemed to govern or in any 
way be applicable to transactions in foreign currency, security 
warrants, security rights, resales of installment loan 
contracts, repurchase options, government securities, or 
mortgages and mortgage purchase commitments, unless such 
transactions involve the sale thereof for future delivery 
conducted on a board of trade.]
  [(iii) The]
                  (B) Liability of principal for act of 
                agent.--The act, omission, or failure of any 
                official, agent, or other person acting for any 
                individual, association, partnership, 
                corporation, or trust within the scope of his 
                employment or office shall be deemed the act, 
                omission, or failure of such individual, 
                association, partnership, corporation, or 
                trust, as well as of such official, agent, or 
                other person.
    [(B) Notwithstanding any other provision of law--
          [(i) This Act shall not apply to and the Commission 
        shall have no jurisdiction to designate a board of 
        trade as a contract market for any transaction whereby 
        any party to such transaction acquires any put, call, 
        or other option on one or more securities (as defined 
        in section 2(1) of the Securities Act of 1933 or 
        section 3(a)(10) of the Securities Exchange Act of 1934 
        on the date of enactment of the Futures Trading Act of 
        1982), including any group or index of such securities, 
        or any interest therein or based on the value thereof.
          [(ii) This Act shall apply to and the Commission 
        shall have exclusive 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, contracts of sale (or options on 
        such contracts) for future delivery of a group or index 
        of securities (or any interest therein or based upon 
        the value thereof): Provided, however, That no board of 
        trade shall be designated as a contract market with 
        respect to any such contracts of sale (or options on 
        such contracts) for future delivery unless the board of 
        trade 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 the following minimum 
        requirements:
                  [(I) Settlement of or delivery on such 
                contract (or option on such contract) shall be 
                effected in cash or by means other than the 
                transfer or receipt of any security, except an 
                exempted security under section 3 of the 
                Securities Act of 1933 or 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 on the date of 
                enactment of the Futures Trading Act of 1982);
                  [(II) Trading in such contract (or option on 
                such contract) shall not be readily susceptible 
                to manipulation of the price of such contract 
                (or option on such contract), 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; and
                  [(III) Such group or index of securities 
                shall be predominately composed of the 
                securities of unaffiliated issuers and shall be 
                a widely published measure of, and shall 
                reflect, the market for all publicly traded 
                equity or debt securities or a substantial 
                segment thereof, or shall be comparable to such 
                measure.
          [(iii) Upon application by a board of trade for 
        designation as a contract market with respect to any 
        contract of sale (or option on such contract) for 
        future delivery involving a group or index of 
        securities, the Commission shall provide an opportunity 
        for public comment on whether such contracts (or 
        options on such contracts) meet the minimum 
        requirements set forth in clause (ii) of this 
        subparagraph.
          [(iv)(I) The Commission shall consult with the 
        Securities and Exchange Commission with respect to any 
        application which is submitted by a board of trade 
        before December 9, 1982, for designation as a contract 
        market with respect to any contract of sale (or option 
        on such contract) for future delivery of a group or 
        index of securities. If, no later than fifteen days 
        following the close of the public comment period, the 
        Securities and Exchange Commission shall object to the 
        designation of a board of trade as a contract market in 
        such contract (or option on such contract) on the 
        ground that any minimum requirement of clause (ii) of 
        this subparagraph is not met, the Commission shall 
        afford the Securities and Exchange Commission an 
        opportunity for an oral hearing, to be transcribed, 
        before the Commission, and shall give appropriate 
        weight to the views of the Securities and Exchange 
        Commission. Such oral hearing shall be held after the 
        public comment period, prior to Commission action upon 
        such designation, and not less than thirty nor more 
        than forty-five days after the close of the public 
        comment period, unless both the Commission and the 
        Securities and Exchange Commission otherwise agree. If 
        such an oral hearing is held, the Securities and 
        Exchange Commission fails to withdraw its objections, 
        and the Commission issues an order designating a board 
        of trade as a contract market with respect to any such 
        contract (or option on such contract), the Securities 
        and Exchange Commission shall have the right of 
        judicial review of such order in accordance with the 
        standards of section 6(c) of this Act. If, pursuant to 
        section 6 of this Act, there is a hearing on the record 
        with respect to such application for designation, the 
        Securities and Exchange Commission shall have the right 
        to participate in that hearing as an interested party.
          [(II) Effective for any application submitted by a 
        board of trade on or after December 9, 1982, for 
        designation as a contract market with respect to any 
        contract of sale (or option on such contract) for 
        future delivery of a group or index of securities, the 
        Commission shall transmit a copy of such application to 
        the Securities and Exchange Commission for review. The 
        Commission shall not approve any such application if 
        the Securities and Exchange Commission determines that 
        such contract (or option on such contract) fails to 
        meet the minimum requirements set forth in clause (ii) 
        of this subparagraph. Such determination shall be made 
        by order no later than forty-five days after the close 
        of the public comment period under clause (iii) of this 
        subparagraph. In the event of such determination, the 
        board of trade shall be afforded an opportunity for a 
        hearing on the record before the Securities and 
        Exchange Commission. If a board of trade requests a 
        hearing on the record, the hearing shall commence no 
        later than thirty days following the receipt of the 
        request, and a final determination shall be made no 
        later than thirty days after the close of the hearing. 
        A person aggrieved by any such order of the Securities 
        and Exchange Commission may obtain judicial review 
        thereof in the same manner and under such terms and 
        conditions as are provided in section 6(b) of this Act.
          [(v) No person shall offer to enter into, enter into, 
        or confirm the execution of any contract of sale (or 
        option on such contract) for future delivery of any 
        security, or interest therein or based on the value 
        thereof, except an exempted security under section 3 of 
        the Securities Act of 1933 or 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 
        on the date of enactment of the Futures Trading Act of 
        1982), or except as provided in clause (ii) of this 
        subparagraph, any group or index of such securities or 
        any interest therein or based on the value thereof.
          [(vi)(I) Notwithstanding any other provision of this 
        Act, any contract market in a stock index futures 
        contract (or option thereon) 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 the stock index futures contract 
        (or option thereon).
          [(II) The Board may at any time request any contract 
        market to set the margin for any stock index futures 
        contract (or option thereon) 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 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 under this clause only to the Commission.
          [(IV) Nothing in this clause shall supersede or limit 
        the authority granted to the Commission in section 
        8a(9) to direct a contract market, on finding an 
        emergency to exist, to raise temporary emergency margin 
        levels on any futures contract or option on the 
        contract covered by this clause.
          [(V) Any action taken by the Board, or by the 
        Commission acting under the delegation of authority 
        under subclause III, under this clause directing a 
        contract market to alter or supplement a contract 
        market rule shall be subject to review only in the 
        Court of Appeals where the party seeking review resides 
        or has its principal place of business, or in the 
        United States Court of Appeals for the District of 
        Columbia Circuit. The review shall be based on the 
        examination of all information before the Board or the 
        Commission, as the case may be, at the time the 
        determination was made. The court reviewing the action 
        of the Board or the Commission shall not enter a stay 
        or order of mandamus unless the court has determined, 
        after notice and a hearing before a panel of the court, 
        that the agency action complained of was arbitrary, 
        capricious, an abuse of discretion, or otherwise not in 
        accordance with law.]

           *       *       *       *       *       *       *

          (7) No Commissioner or employee of the Commission 
        shall accept employment or compensation from any 
        person, exchange, or clearinghouse subject to 
        regulation by the Commission under this Act during his 
        term of office, nor shall he participate, directly or 
        indirectly, in any [contract market] registered entity 
        operations or transactions of a character subject to 
        regulation by the Commission.
          (8)(A)  * * *
          (B)(i)  * * *
          (ii) When a board of trade applies for [designation 
        as a contract market] designation or registration as a 
        contract market or derivatives transaction execution 
        facility involving transactions for future delivery of 
        any security issued or guaranteed by the United States 
        or any agency thereof, the Commission shall promptly 
        deliver a copy of such application to the Department of 
        the Treasury and the Board of Governors of the Federal 
        Reserve System. The Commission may not [designate a 
        board of trade as a contract market] designate or 
        register a board of trade as a contract market or 
        derivatives transaction execution facility based on 
        such application until forty-five days after the date 
        the Commission delivers the application to such 
        agencies or until the Commission receives comments from 
        each of such agencies on the application, whichever 
        period is shorter. Any comments received by the 
        Commission from such agencies shall be included as part 
        of the public record of the Commission's designation 
        proceeding. In [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] 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)) with respect to such transactions, the 
        Commission shall take into consideration all comments 
        it receives from the Department of the Treasury and the 
        Board of Governors of the Federal Reserve System and 
        shall consider the effect that any such [designation, 
        suspension, revocation, or emergency action] 
        designation, registration, suspension, revocation, or 
        action may have on the debt financing requirements of 
        the United States Government and the continued 
        efficiency and integrity of the underlying market for 
        government securities.

           *       *       *       *       *       *       *

  (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 5b 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 
                that are futures 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), that is executed or traded 
                        on an organized exchange; or
                          (ii) an option on foreign currency 
                        and is executed or traded on an 
                        organized exchange that is not a 
                        national securities exchange.
                  (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; 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 
                                that is subject to State 
                                regulation (including a 
                                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).
  (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, 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 on a principal-to-principal 
                basis between parties trading for their own 
                accounts or as described in section 
                1a(11)(B)(ii) of this Act;
                  (B) the agreement, contract, or transaction 
                is entered into only between persons that are 
                eligible contract participants (as defined in 
                sections 1a(11)(A), (B)(ii), and (C)) 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.
  (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) and 
        2(h)(3)(B) of this Act.
          (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 or 
        derivatives transaction execution facility, or an 
        exempt board of trade, from establishing and operating 
        an excluded electronic trading facility excluded under 
        this Act pursuant to paragraph (1).
  (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 
        depository instrument.
          (2) Predominance.--A hybrid instrument shall be 
        considered to be predominantly a security or depository 
        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 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.
  (g) Notwithstanding any other provision of law:
          (1) This Act shall not apply to and the Commission 
        shall have no jurisdiction to designate a board of 
        trade as a contract market for any transaction whereby 
        any party to the transaction acquires a put, call, or 
        other option on 1 or more securities (as defined in 
        section 2(a)(1) of the Securities Act of 1933 or 
        section 3(a)(10) of the Securities Exchange Act of 
        1934, on the date of enactment of the Futures Trading 
        Act of 1982), including any group or index of 
        securities and any interest in or based on the value of 
        securities.
          (2) Nothing in this subsection governs or applies 
        to--
                  (A) an agreement, contract, or transaction in 
                a commodity that is excluded under subsection 
                (c) or (d);
                  (B) an electronic trading facility that is 
                excluded under subsection (e); or
                  (C) a hybrid instrument that is covered by an 
                exclusion under subsection (f) or an exemption 
                granted by the Commission under section 4(c) 
                (whether or not the hybrid instrument is 
                otherwise subject to this Act).
          (3) Except as provided in paragraph (4) of this 
        subsection, or unless excluded by paragraph (2) of this 
        subsection, a person shall not offer to enter into, 
        enter into, or confirm the execution of any contract of 
        sale (or option on the contract) for future delivery of 
        any security or interest in or based on the value of a 
        nonexempt security.
          (4)(A) Except as excluded by paragraph (2) of this 
        subsection, this Act shall apply to and the Commission 
        shall have exclusive 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 under section 5 or register 
        the board of trade as a derivatives transaction 
        execution facility under section 5a in, contracts of 
        sale (or options on the contracts) for future delivery 
        of 1 or more securities (as defined in section 2(a)(1) 
        of the Securities Act of 1933 or section 3(a)(10) of 
        the Securities Exchange Act of 1934), including any 
        group or index of securities and any interest in or 
        based on the value of securities.
          (B) The Commission shall not designate a board of 
        trade as a contract market under section 5 or register 
        a board of trade as a derivatives transaction execution 
        facility under section 5a with respect to any such 
        contracts of sale (or options on the contracts) for 
        future delivery unless the board of trade demonstrates 
        and the Commission expressly finds that the specific 
        contract (or option on the contract) with respect to 
        which the application for the designation or 
        recognition has been made meets the following 
        requirements:
                  (i) Settlement of or delivery on the contract 
                (or option on the contract) shall be effected 
                in cash or by means other than the transfer or 
                receipt of a nonexempt security.
                  (ii) Susceptibility to price manipulation.--
                Trading in a contract (or option on such a 
                contract) described in subparagraph (A) shall 
                not be readily susceptible to--
                          (I) manipulation of the price of the 
                        contract (or option on such a 
                        contract); or
                          (II) causing or being used in the 
                        manipulation of the price of any 
                        underlying security, option on a 
                        security, or option on a group or index 
                        that includes a security.
                  (iii) If the contract is based on a single 
                nonexempt security, an option on the security 
                underlying the contract would meet all 
                Securities and Exchange Commission requirements 
                for listing on a national securities exchange.
                  (iv) If the contract is based on any group or 
                index of nonexempt securities comprised of 
                fewer than 5 securities, or on an index in 
                which a single nonexempt security predominates, 
                an option on each security comprising the group 
                or index would meet all requirements for 
                listing on a national securities exchange.
                  (v) The contract will be traded on a board of 
                trade that establishes the level of margin for 
                futures contracts (or options on the contracts) 
                based on a single nonexempt security, an index 
                of fewer than 5 nonexempt securities, or an 
                index in which a single nonexempt security 
                predominates, at a level consistent with the 
                level of margin on comparable option contracts 
                listed on any national securities exchange.
                  (vi) The contract will be traded on a board 
                of trade that prohibits a person who acts as a 
                floor broker for any contract of sale (or 
                options on the contract) for future delivery of 
                a nonexempt security, an index based on fewer 
                than 5 nonexempt securities, or an index in 
                which a single nonexempt security predominates, 
                from trading that contract for the broker's own 
                account during the same trading session.
                  (vii) The contract will be traded on a board 
                of trade that collects, maintains, and promptly 
                provides to the Securities and Exchange 
                Commission such information as the Commission 
                and the Securities and Exchange Commission 
                jointly consider necessary to perform the 
                enforcement responsibilities described in 
                paragraph (6).
          (5) The Commission shall consult with the Securities 
        and Exchange Commission with respect to any application 
        submitted by a board of trade for designation as a 
        contract market or derivatives transaction execution 
        facility with respect to any contract of sale (or 
        option on the contract) for future delivery of a 
        nonexempt security or a group or index of such 
        securities. If, not later than 15 days after the 
        consultation, the Securities and Exchange Commission 
        objects to the designation of a board of trade as a 
        contract market or derivatives transaction execution 
        facility in the contract (or option on the contract) on 
        the ground that any requirement of paragraph (4)(B) is 
        not met, the Commission shall afford the Securities and 
        Exchange Commission an opportunity for an oral hearing 
        to be transcribed before the Commission, and shall give 
        appropriate weight to the views of the Securities and 
        Exchange Commission. The oral hearing shall be held 
        before Commission action upon the application for the 
        designation, and not less than 30 nor more than 45 days 
        after the Securities and Exchange Commission has 
        objected. If such an oral hearing is held, the 
        Securities and Exchange Commission fails to withdraw 
        its objections, and the Commission issues an order 
        designating a board of trade as a contract market or 
        recognizes the board of trade as a derivatives 
        transaction execution facility with respect to any such 
        contract (or option on the contract), the Securities 
        and Exchange Commission may seek judicial review of the 
        order in accordance with the procedural requirements 
        set forth in section 6(c). If, pursuant to section 6, 
        there is a hearing on the record with respect to an 
        application for such designation, the Securities and 
        Exchange Commission may participate in that hearing as 
        an interested party.
          (6) Notwithstanding any other provision of this Act, 
        the Securities and Exchange Commission may enforce 
        against a person that purchases or sells any contract 
        of sale (or option on the contract) for future delivery 
        of any nonexempt security, any index comprised of fewer 
        than 5 nonexempt securities, or any index in which a 
        single nonexempt security predominates to the same 
        extent as if the person had purchased or sold an option 
        on the security or index under the following provisions 
        of the securities laws and regulations with respect to 
        the following categories of conduct:
                  (A) Section 10(b) and 21A of the Securities 
                Exchange Act of 1934 (15 U.S.C. 78j(b), 78u-1) 
                with respect to insider trading.
                  (B) Section 16(b) of such Act (15 U.S.C. 
                78p(b)) with respect to unfair use of 
                information in short swing trading by a 
                corporate insider.
                  (C) Section 9 of such Act (15 U.S.C. 78i) 
                with respect to manipulation of securities 
                prices.
                  (D) Section 10(b) of such Act (15 U.S.C. 
                78J(b)) and section 204A of the Investment 
                Adviser's Act of 1940 (15 U.S.C. 80b-4a) with 
                respect to frontrunning.
                  (E) Section 14 of the Securities Exchange Act 
                of 1934 (15 U.S.C. 78n) with respect to the 
                pricing and integrity of tender offers.
                  (F) Rule 144 of the rules of the Securities 
                and Exchange Commission (17 C.F.R. 230.144) 
                with respect to trading in restricted 
                securities.
          (7)(A) Notwithstanding any other provision of this 
        Act, any contract market or derivatives transaction 
        execution facility in a nonexempt security or stock 
        index futures contract (or option thereon) 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 the nonexempt 
        security or stock index futures contract (or option on 
        the contract).
          (B) The Board may at any time request any contract 
        market or derivatives transaction execution facility to 
        set the level of margin for any nonexempt security or 
        stock index futures contract (or option on the 
        contract) at such levels as the Board in its judgment 
        determines are appropriate to preserve the financial 
        integrity of the contract market or derivatives 
        transaction execution facility 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 or 
        derivatives transaction execution facility to alter or 
        supplement the rules of the contract market or 
        derivatives transaction execution facility as specified 
        in the request.
          (C) Subject to such conditions as the Board may 
        determine, the Board may delegate any or all of its 
        authority under this paragraph to the Commission or an 
        intermarket margin board as provided in subparagraph 
        (D).
          (D) Intermarket margin board.--
                  (i) Establishment.--With the concurrence of 
                the Securities and Exchange Commission and the 
                Commission, the Board may establish an 
                intermarket margin board, consisting of 
                representatives of any or all of the three 
                agencies.
                  (ii) Duties.--The intermarket margin board 
                may set and maintain margin levels and rules 
                pertaining to margin for futures on a single 
                nonexempt security, an index of fewer than 5 
                nonexempt securities, or an index in which a 
                single nonexempt security predominates, listed 
                on a contract market or derivatives transaction 
                execution facility. In discharging these 
                duties, the intermarket margin board shall 
                endeavor to make the levels of margin for 
                futures and options on a single nonexempt 
                security consistent taking into account any 
                material differences in such contracts, 
                including--
                          (I) the price volatility of the 
                        contracts;
                          (II) the frequency with which margin 
                        calls are made; and
                          (III) the period of time within which 
                        margin calls must be met.
          (E) This paragraph shall not be construed to 
        supersede or limit the authority granted to the 
        Commission in section 8a(9) to direct a contract market 
        or derivatives transaction execution facility, on 
        finding an emergency to exist, to raise temporary 
        emergency margin levels on any futures contract or 
        option on the contract covered by this paragraph.
          (F) Any action taken by the Board under this 
        paragraph, or by the Commission acting under the 
        delegation of authority under subparagraph (C), 
        directing a contract market or derivatives transaction 
        execution facility to alter or supplement a contract 
        market or derivatives transaction execution facility 
        rule shall be subject to review only in the United 
        States Court of Appeals for the judicial circuit in 
        which the party seeking review resides or has its 
        principal place of business, or in the United States 
        Court of Appeals for the District of Columbia Circuit. 
        The review shall be based on the examination of all 
        information before the Board or the Commission, as the 
        case may be, at the time the determination was made. 
        The court reviewing the action of the Board or the 
        Commission shall not enter a stay or order of mandamus 
        unless the court determines, after notice and a hearing 
        before a panel of the court, that the agency action 
        complained of was arbitrary, capricious, an abuse of 
        discretion, or otherwise not in accordance with law.
          (8) This subsection shall not be construed to 
        prohibit--
                  (A) an agreement, contract, or transaction 
                excluded from this Act by paragraph (2); or
                  (B) any hybrid instrument that is covered by 
                the terms of any exemption granted by the 
                Commission under section 4(c) (whether or not 
                any such hybrid instrument is otherwise subject 
                to this Act).
          (9)(A) No futures commission merchant, commodity 
        trading advisor, or introducing broker shall recommend 
        to any customer the purchase or sale of any contract of 
        sale for future delivery of a single nonexempt 
        security, an index of fewer than 5 nonexempt 
        securities, or an index in which a single nonexempt 
        security predominates, unless the futures commission 
        merchant, commodity trading advisor, or introducing 
        broker complies with the rules described in 
        subparagraph (B) of a registered futures association of 
        which such merchant, advisor, or broker is a member.
          (B) Within 9 months of the date of enactment of the 
        Commodity Futures Modernization Act of 2000, a 
        registered futures association shall adopt rules 
        requiring a futures commission merchant, a commodity 
        trading advisor, or an introducing broker which 
        recommends to any customer the purchase or sale of any 
        contract of sale for future delivery of a single 
        nonexempt security, an index of fewer than 5 nonexempt 
        securities, or an index in which a single nonexempt 
        security predominates to ascertain through reasonable 
        due diligence that the recommendation is suitable for 
        that customer in light of the customer's financial 
        position and trading goals. The registered futures 
        association shall consult with the Commission and the 
        Securities and Exchange Commission prior to the 
        adoption of any such rule, and shall submit any such 
        rule to the Commission for approval in the manner and 
        according to the procedures described in section 17(j) 
        of this Act, provided, that in such case the rule shall 
        become effective if the Commission fails to disapprove 
        such rule within 90 days of submission.
          (10)(A) Nothing in this Act shall be construed to 
        require or authorize the Commission to review or 
        approve, directly or indirectly, any contract, rule, 
        regulation, or action adopted by a foreign board of 
        trade, exchange, or market, or a clearinghouse for such 
        a board of trade, exchange, or market, relating to any 
        transaction involving a contract of sale for future 
        delivery (or option on such a contract) in or involving 
        any security, including any foreign government debt 
        security, or group or index of such securities, if--
                  (i)(I) in the case of a contract of sale for 
                future delivery (or option on such a contract) 
                in or involving a single equity security, the 
                United States is not the primary trading market 
                for the underlying security; or
                  (II) in the case of a contract of sale for 
                future delivery (or option on such a contract) 
                in or involving a group or index of equity 
                securities, less than 25 percent of the 
                weighting of the group or index is derived from 
                securities for which the United States is the 
                primary trading market for the securities 
                underlying the contract for future delivery (or 
                option on the contract); and
                  (ii) settlement of or delivery on the 
                contract for future delivery (or option on such 
                a contract) is to be effected in cash or by 
                means other than the transfer or receipt of a 
                security in the United States other than an 
                exempted security.
          (B) Within 90 days after the date of the enactment of 
        this paragraph, the Commission shall adopt such 
        procedures as it deems appropriate pursuant to which, 
        consistent with this Act, the Commission shall 
        authorize the offer and sale in the United States of 
        any contract of sale for future delivery (or option on 
        such a contract) of a security, other than a security 
        of the type described in subparagraph (A)(i)(I) or a 
        group or index of securities of the type described in 
        subparagraph (A)(i)(II), traded on or subject to the 
        rules of a foreign board of trade, exchange, or market, 
        or a clearinghouse for such a board of trade, exchange, 
        or market, except that such procedures shall not require 
        a foreign board of trade, exchange, or market, or a 
        clearinghouse for such a board of trade, exchange, or 
        market to apply for designation as a contract market 
        under this Act with respect to such a contract for future 
        delivery (or option on such a contract).
  (h) Legal Certainty for Certain Transactions in Exempt 
Commodities.--
          (1) Except as provided in paragraph (2) of this 
        subsection, 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 they 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) of this Act;
                  (B) sections 4b and 4n of this Act and the 
                regulations of the Commission pursuant to 
                section 4c(b) of this Act proscribing fraud in 
                connection with commodity option transactions, 
                to the extent such agreement, contract, or 
                transaction is not between eligible commercial 
                participants and would otherwise be subject to 
                those provisions; and
                  (C) sections 6(c) and 9(a)(2) of this Act to 
                the extent they prohibit manipulation of the 
                market price of any commodity in interstate 
                commerce, to the extent such agreement, 
                contract, or transaction would otherwise be 
                subject to those provisions.
          (3) Except as provided in paragraph (4) of this 
        subsection, nothing in this Act shall apply to an 
        agreement, contract, or transaction in an exempt 
        commodity (other than a metal commodity enumerated in 
        section 1a(3) of this Act) which--
                  (A) is entered into solely between persons 
                that are eligible contract participants at the 
                time at which the persons enter into the 
                agreement, contract, or transaction; and
                  (B) is executed or traded on an electronic 
                trading facility.
          (4) An agreement, contract, or transaction described 
        in paragraph (3) shall be subject to--
                  (A) sections 5b and 12(e)(2)(B) of this Act;
                  (B) sections 4b and 4n of this Act and the 
                regulations of the Commission pursuant to 
                section 4c(b) of this Act proscribing fraud in 
                connection with commodity option transactions 
                and section 6(c) and 9(a)(2) of this Act, to 
                the extent these provisions prohibit 
                manipulation of the market price of any 
                commodity in interstate commerce, to the extent 
                such agreement, contract, or transaction would 
                otherwise be subject to those provisions; and
                  (C) 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 related to 
                the commodity executed or traded on the 
                electronic trading facility.
    [Sec. 3. Transactions in commodities involving the sale 
thereof for future delivery as commonly conducted on boards of 
trade and known as ``futures'' are affected with a national 
public interest. Such futures transactions are carried on in 
large volume by the public generally and by persons engaged in 
the business of buying and selling commodities and the products 
and byproducts thereof in interstate commerce. The prices 
involved in such transactions are generally quoted and 
disseminated throughout the United States and in foreign 
countries as a basis for determining the prices to the producer 
and the consumer of commodities and the products and byproducts 
thereof and to facilitate the movements thereof in interstate 
commerce. Such transactions are utilized by shippers, dealers, 
millers, and others engaged in handling commodities and the 
products and byproducts thereof in interstate commerce as a 
means of hedging themselves against possible loss through 
fluctuations in price. The transactions and prices of 
commodities on such boards of trade are susceptible to 
excessive speculation and can be manipulated, controlled, 
cornered or squeezed, to the detriment of the producer or the 
consumer and the persons handling commodities and the products 
and byproducts thereof in interstate commerce, rendering 
regulation imperative for the protection of such commerce and 
the national public interest therein. Furthermore, transactions 
which are of the character of, or are commonly known to the 
trade as, ``options'' are or may be utilized by commercial and 
other entities for risk shifting and other purposes. Options 
transactions are in interstate commerce or affect such commerce 
and the national economy, rendering regulation of such 
transactions imperative for the protection of such commerce and 
the national public interest.]

SEC. 3. FINDINGS AND PURPOSE.

  (a) Findings.--The futures contracts and options contracts 
that are 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, and 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. 4. (a) Unless exempted by the Commission pursuant to 
subsection (c), it shall be unlawful for any person to offer to 
enter into, 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 contract for 
the purchase or sale of a commodity for future delivery (other 
than a contract which is made on or subject to the rules of a 
board of trade, exchange, or market located outside the United 
States, its territories or possessions) unless--
          (1) such transaction is conducted on or subject to 
        the rules of a board of trade which has been 
        [designated by the Commission as a ``contract market'' 
        for] designated or registered by the Commission as a 
        contract market or derivatives transaction execution 
        facility for such commodity;
          (2) such contract is executed or consummated by or 
        through a [member of such] contract market; and
          (3) such contract is evidenced by a record in writing 
        which shows the date, the parties to such contract and 
        their addresses, the property covered and its price, 
        and the terms of delivery: Provided, That each contract 
        market or derivatives transaction execution facility 
        member shall keep such record for a period of three 
        years from the date thereof, or for a longer period if 
        the Commission shall so direct, which record shall at 
        all times be open to the inspection of any 
        representative of the Commission or the Department of 
        Justice.

           *       *       *       *       *       *       *

  (c)(1) In order to promote responsible economic or financial 
innovation and fair competition, the Commission by rule, 
regulation, or order, after notice and opportunity for hearing, 
may (on its own initiative or on application of any person, 
including any board of trade [designated as a contract market] 
designated or registered as a contract market or derivatives 
transaction execution facility for transactions for future 
delivery in any commodity under section 5 of this Act) exempt 
any agreement, contract, or transaction (or class thereof) that 
is otherwise subject to subsection (a) (including any person or 
class of persons offering, entering into, rendering advice or 
rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated 
terms or conditions or for stated periods and either 
retroactively or prospectively, or both, from any of the 
requirements of subsection (a), or from any other provision of 
this Act (except [section 2(a)(1)(B)] section 2(g)), if the 
Commission determines that the exemption would be consistent 
with the public interest.
  (2) The Commission shall not grant any exemption under 
paragraph (1) from any of the requirements of subsection (a) 
unless the Commission determines that--
          (A)  * * *
          (B) the agreement, contract, or transaction--
                  (i)  * * *
                  (ii) will not have a material adverse effect 
                on the ability of the Commission or any 
                contract market or derivatives transaction 
                execution facility to discharge its regulatory 
                or self-regulatory duties under this Act.

           *       *       *       *       *       *       *

    Sec. 4a. (a) Excessive speculation in any commodity under 
contracts of sale of such commodity for future delivery made on 
or subject to the rules of contract markets or derivatives 
transaction execution facilities causing sudden or unreasonable 
fluctuations or unwarranted changes in the price of such 
commodity, is an undue and unnecessary burden on interstate 
commerce in such commodity. For the purpose of diminishing, 
eliminating, or preventing such burden, the Commission shall, 
from time to time, after due notice and opportunity for 
hearing, by rule, regulation, or order, proclaim and fix such 
limits on the amounts of trading which may be done or positions 
which may be held by any person under contracts of sale of such 
commodity for future delivery on or subject to the rules of any 
contract market or derivatives transaction execution facility 
as the Commission finds are necessary to diminish, eliminate, 
or prevent such burden. In determining whether any person has 
exceeded such limits, the positions held and trading done by 
any persons directly or indirectly controlled by such person 
shall be included with the positions held and trading done by 
such person; and further, such limits upon positions and 
trading shall apply to positions held by, and trading done by, 
two or more persons acting pursuant to an expressed or implied 
agreement or understanding, the same as if the positions were 
held by, or the trading were done by, a single person. Nothing 
in this section shall be construed to prohibit the Commission 
from fixing different trading or position limits for different 
commodities, markets, futures, or delivery months, or for 
different number of days remaining until the last day of 
trading in a contract, or different trading limits for buying 
and selling operations, or different limits for the purposes of 
paragraphs (1) and (2) of subsection (b) of this section, or 
from exempting transactions normally known to the trade as 
``spreads'' or ``straddles'' or ``arbitrage'' or from fixing 
limits applying to such transactions or positions different 
from limits fixed for other transactions or positions. The word 
``arbitrage'' in domestic markets shall be defined to mean the 
same as a ``spread'' or ``straddle''. The Commission is 
authorized to define the term ``international arbitrage''.
    (b) The Commission shall, in such rule, regulation, or 
order, fix a reasonable time (not to exceed ten days) after the 
promulgation of the rule, regulation, or order; after which, 
and until such rule, regulation, or order is suspended, 
modified, or revoked, it shall be unlawful for any person--
          (1) directly or indirectly to buy or sell, or agree 
        to buy or sell, under contracts of sale of such 
        commodity for future delivery on or subject to the 
        rules of the contract market or markets, or derivatives 
        transaction execution facility or facilities, to which 
        the rule, regulation, or order applies, any amount of 
        such commodity during any one business day in excess of 
        any trading limit fixed for one business day by the 
        Commission in such rule, regulation, or order for or 
        with respect to such commodity; or
          (2) directly or indirectly to hold or control a net 
        long or a net short position in any commodity for 
        future delivery on or subject to the rules of any 
        contract market or derivatives transaction execution 
        facility in excess of any position limit fixed by the 
        Commission for or with respect to such commodity: 
        Provided, That such position limit shall not apply to a 
        position acquired in good faith prior to the effective 
        date of such rule, regulation, or order.

           *       *       *       *       *       *       *

    (e) Nothing in this section shall prohibit or impair the 
adoption by any [contract market or] contract market, 
derivatives transaction execution facility, or by any other 
board of trade [licensed or designated] licensed, designated, 
or registered by the Commission of any bylaw, rule, regulation, 
or resolution fixing limits on the amount of trading which may 
be done or positions which may be held by any person under 
contracts of sale of any commodity for future delivery traded 
on or subject to the rules of such [contract market, or] 
contract market or derivatives transaction execution facility, 
or under options on such contracts or commodities traded on or 
subject to the rules of such [contract market or] contract 
market, derivatives transaction execution facility, or such 
board of trade: Provided, That if the Commission shall have 
fixed limits under this section for any contract or under 
section 4c of this Act for any commodity option, then the 
limits fixed by the bylaws, rules, regulations, and resolutions 
adopted by such [contract market or] contract market, 
derivatives transaction execution facility, or such board of 
trade shall not be higher than the limits fixed by the 
Commission. It shall be a violation of this Act for any person 
to violate any bylaw, rule, regulation, or resolution of any 
[contract market or] contract market, derivatives transaction 
execution facility, or other board of trade [licensed or 
designated] licensed, designated, or registered by the 
Commission fixing limits on the amount of trading which may be 
done or positions which may be held by any person under 
contracts of sale of any commodity for future delivery or under 
options on such contracts or commodities, if such bylaw, rule, 
regulation, or resolution has been approved by the Commission: 
Provided, That the provisions of section 9(c) of this Act shall 
apply only to those who knowingly violate such limits.

           *       *       *       *       *       *       *

    Sec. 4b. (a) It shall be unlawful (1) for any member of a 
[contract market] registered entity, or for any correspondent, 
agent, or employee of any member, in or in connection with any 
order to make, or the making of, any contract of sale of any 
commodity in interstate commerce, made, or to be made, on or 
subject to the rules of any [contract market] registered 
entity, for or on behalf of any other person, or (2) for any 
person, in or in connection with any order to make, or the 
making of, any contract of sale of any commodity for future 
delivery, made, or to be made, for or on behalf of any other 
person if such contract for future delivery is or may be used 
for (A) hedging any transaction in interstate commerce in such 
commodity or the products or by products thereof, or (B) 
determining the price basis of any transaction in interstate 
commerce in such commodity, or (C) delivering any such 
commodity sold, shipped, or received in interstate commerce for 
the fulfillment thereof--
          (i)  * * *

           *       *       *       *       *       *       *

    [Sec. 4c. (a) It shall be unlawful for any person to offer 
to enter into, enter into, or confirm the execution of, any 
transaction involving any commodity, which is or may be used 
for (1) hedging any transaction in interstate commerce in such 
commodity or the products or byproducts thereof, or (2) 
determining the price basis of any such transaction in 
interstate commerce in such commodity, or (3) delivering any 
such commodity sold, shipped, or received in interstate 
commerce for the fulfillment thereof--
          [(A) if such transaction is, is of the character of, 
        or is commonly known to the trade as, a ``wash sale'', 
        ``cross trade'', or ``accommodation trade'', or is a 
        fictitious sale; or
          [(B) if such transaction is used to cause any price 
        to be reported, registered, or recorded which is not a 
        true and bona fide price.
    Nothing in this section shall be construed to prevent the 
exchange of futures in connection with cash commodity 
transactions or of futures for cash commodities, or of transfer 
trades or office trades if made in accordance with board of 
trade rules applying to such transactions and such rules shall 
have been approved by the Commission.]

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 any 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.

           *       *       *       *       *       *       *

  (g) The Commission shall adopt rules requiring that a 
contemporaneous written record be made, as practicable, of all 
orders for execution on the floor or subject to the rules of 
each contract market or derivatives transaction execution 
facility placed by a member of the contract market who is 
present on the floor at the time such order is placed.
    Sec. 4d. It shall be unlawful for any person to engage as 
futures commission merchant or introducing broker in soliciting 
orders or accepting orders for the purchase or sale of any 
commodity for future delivery, or involving any contracts of 
sale of any commodity for future delivery, on or subject to the 
rules of any contract market or derivatives transaction 
execution facility unless--
          (1)  * * *
          (2) such person shall, if a futures commission 
        merchant, whether a member or nonmember of a contract 
        market or derivatives transaction execution facility, 
        treat and deal with all money, securities, and property 
        received by such person to margin, guarantee, or secure 
        the trades or contracts of any customer of such person, 
        or accruing to such customer as the result of such 
        trades or contracts, as belonging to such customer. 
        Such money, securities, and property shall be 
        separately accounted for and shall not be commingled 
        with the funds of such commission merchant or be used 
        to margin or guarantee the trades or contracts, or to 
        secure or extend the credit, of any customer or person 
        other than the one for whom the same are held: 
        Provided, however, That such money, securities, and 
        property of the customers of such futures commission 
        merchant may, for convenience, be commingled and 
        deposited in the same account or accounts with any bank 
        or trust company or with the clearing house 
        organization of such contract market or derivatives 
        transaction execution facility, and that such share 
        thereof as in the normal course of business shall be 
        necessary to margin, guarantee, secure, transfer, 
        adjust, or settle the contracts or trades of such 
        customers, or resulting market positions, with the 
        clearing-house organization of such contract market or 
        derivatives transaction execution facility or with any 
        member of such contract market or derivatives 
        transaction execution facility, may be withdrawn and 
        applied to such purposes, including the payment of 
        commissions, brokerage, interest, taxes, storage, and 
        other charges, lawfully accruing in connection with 
        such contracts and trades: Provided further, That in 
        accordance with such terms and conditions as the 
        Commission may prescribe by rule, regulation, or order, 
        such money, securities, and property of the customers 
        of such futures commission merchant may be commingled 
        and deposited as provided in this section with any 
        other money, securities, and property received by such 
        futures commission merchant and required by the 
        Commission to be separately accounted for and treated 
        and dealt with as belonging to the customers of such 
        futures commission merchant: Provided further, That 
        such money may be invested in obligations of the United 
        States, in general obligations of any State or of any 
        political subdivision thereof, and in obligations fully 
        guaranteed as to principal and interest by the United 
        States, such investments to be made in accordance with 
        such rules and regulations and subject to such 
        conditions as the Commission may prescribe.
    It shall be unlawful for any person, including but not 
limited to any clearing agency of a contract market or 
derivatives transaction execution facility and any depository, 
that has received any money, securities, or property for 
deposit in a separate account as provided in paragraph (2) of 
this section, to hold, dispose of, or use any such money, 
securities, or property as belonging to the depositing futures 
commission merchant or any person other than the customers of 
such futures commission merchant.
    Sec. 4e. It shall be unlawful for any person to act as 
floor trader in executing purchases and sales, or as floor 
broker in executing any orders for the purchase or sale, of any 
commodity for future delivery, or involving any contracts of 
sale of any commodity for future delivery, on or subject to the 
rules of any contract market or derivatives transaction 
execution facility unless such person shall have registered, 
under this Act, with the Commission as such floor trader or 
floor broker and such registration shall not have expired nor 
been suspended nor revoked.
    Sec. 4f. (a)  * * *
    (b) Notwithstanding any other provisions of this Act, no 
person desiring to register as futures commission merchant or 
as introducing broker shall be so registered unless he meets 
such minimum financial requirements as the Commission may by 
regulation prescribe as necessary to insure his meeting his 
obligations as a registrant, and each person so registered 
shall at all times continue to meet such prescribed minimum 
financial requirements: Provided, That such minimum financial 
requirements will be considered met if the applicant for 
registration or registrant is a member of a contract market or 
derivatives transaction execution facility and conforms to 
minimum financial standards and related reporting requirements 
set by such contract market or derivatives transaction 
execution facility in its bylaws, rules, regulations, or 
resolutions and approved by the Commission as adequate to 
effectuate the purposes of this subsection.
  (c)(1)  * * *

           *       *       *       *       *       *       *

  (3)(A)  * * *
  (B) The Commission, in requiring reports pursuant to this 
paragraph, shall specify the information required, the period 
for which it is required, the time and date on which the 
information must be furnished, and whether the information is 
to be furnished directly to the Commission or to a contract 
market or derivatives transaction execution facility or other 
self-regulatory organization with primary responsibility for 
examining the registered futures commission merchant's 
financial and operational condition.

           *       *       *       *       *       *       *

    Sec. 4g. (a)  * * *
    (b) Every [clearinghouse and contract market] registered 
entity shall maintain daily trading records. The daily trading 
records shall include such information as the Commission shall 
prescribe by rule.

           *       *       *       *       *       *       *

    (f) Nothing contained in this section shall be construed to 
prohibit the Commission from making separate determinations for 
different [clearinghouses, contract markets, and exchanges] 
registered entities when such determinations are warranted in 
the judgment of the Commission.
    Sec. 4h. It shall be unlawful for any person falsely to 
represent such person to be a member of a [contract market] 
registered entity or the representative or agent of such 
member, or to be a registrant under this Act or the 
representative or agent of any registrant, in soliciting or 
handling any order or contract for the purchase or sale of any 
commodity in interstate commerce or for future delivery, or 
falsely to represent in connection with the handling of any 
such order or contract that the same is to be or has been 
executed on, or by or through a member of, any [contract 
market] registered entity.
    Sec. 4i. It shall be unlawful for any person to make any 
contract for the purchase or sale of any commodity for future 
delivery on or subject to the rules of any contract market or 
derivatives transaction execution facility--
          (1)  * * *

           *       *       *       *       *       *       *

    [Sec. 4j. (a)(1) The Commission shall issue regulations to 
prohibit the privilege of dual trading on each contract market 
which has not been exempted from such regulations under 
paragraph (3). The regulations issued by the Commission under 
this paragraph--
          [(A) shall provide that the prohibition of dual 
        trading thereunder shall take effect not less than 
        thirty days after the issuance of the regulations;
          [(B) shall provide for exceptions, as the Commission 
        determines necessary and appropriate, to ensure 
        fairness and orderly trading in affected contract 
        markets, including--
                  [(i) transition measures and a reasonable 
                phase-in period,
                  [(ii) exceptions for spread transactions and 
                the correction of trading errors,
                  [(iii) 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 paragraph, and
                  [(iv) 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;
          [(C) shall establish procedures for the application 
        for and issuance of exemptions under paragraph (3) 
        which, among other things, shall specify the relevant 
        data required to be submitted by the board of trade 
        with each application;
          [(D) shall specify the methodology by which it shall 
        determine the average daily trading volume on a 
        contract market for purposes of paragraph (4) based on 
        a moving daily average of either six or twelve months; 
        and
          [(E) shall establish an expeditious procedure to 
        revoke an exemption granted under paragraph (3) 
        providing sufficient notice, opportunity for hearing, 
        and findings to assure fundamental fairness.
  [(2) As used in this section, the term ``dual trading'' means 
the execution of customer orders by a floor broker during any 
trading session in which the floor broker executes any trade in 
the same contract market for--
          [(A) the account of such floor broker;
          [(B) an account for which such floor broker has 
        trading discretion; or
          [(C) an account controlled by a person with whom such 
        floor broker is subject to trading restrictions under 
        section 4j(d).
  [(3) The Commission shall exempt a contract market from the 
regulations issued under paragraph (1), either unconditionally 
or on stated conditions (including stated periods of time) 
relevant to the attainment or maintenance of compliance with 
the standards in subparagraphs (A) and (B), upon finding that--
          [(A) the trade monitoring system in place at the 
        contract market satisfies the requirements of section 
        5a(b) with regard to violations attributable to dual 
        trading at such contract market; or
          [(B)(i) there is a substantial likelihood that a dual 
        trading suspension would harm the public interest in 
        hedging or price basing at such contract market, and
          [(ii) other corrective actions, such as those 
        described in section 8e, are sufficient and appropriate 
        to bring the contract market into compliance with the 
        standard in subparagraph (A).
  [(4)(A) The regulations issued by the Commission under 
paragraph (1) shall not apply to any contract market in which 
the Commission determines that the average daily trading volume 
is less than the threshold trading level established for the 
contract market under this paragraph.
  [(B) The threshold trading level shall be set initially at 
eight thousand contracts.
  [(C) The Commission may, by rule or order--
          [(i) increase, or
          [(ii) at any time following the date three years 
        after the date of enactment of this paragraph, 
        decrease,
the threshold trading level for specific contract markets after 
taking into consideration the actual or potential effects of a 
dual trading ban on the public interest in hedging or price 
basing at the affected contract market.
  [(D) The Commission shall provide the affected contract 
market with adequate notice of any such increase or decrease.
  [(5) Before the Commission denies an application for an 
exemption under paragraph (3) or exempts a contract market 
subject to conditions, it shall--
          [(A) provide the affected board of trade with notice 
        of the reason or reasons that the application was not 
        approved as submitted, including--
                  [(i) any reason the Commission has to believe 
                that the trade monitoring system in place at 
                the contract market does not satisfy the 
                requirements of paragraph (3)(A) and the basis 
                for such reason;
                  [(ii) any corrective action or actions, such 
                as those described in section 8e, that the 
                Commission believes the affected contract 
                market must take to satisfy the requirements of 
                paragraph (3)(A), and an acceptable timetable 
                for such corrective action; and
                  [(iii) any conditions or limitations that the 
                Commission proposes to attach to the exemption 
                under paragraph (3);
          [(B) provide the affected board of trade with an 
        opportunity for a hearing through submission of written 
        data, views, or arguments and, under terms set by the 
        Commission at the request of the board of trade, 
        through an oral presentation of views and comments to 
        the Commission, in order to make the demonstration 
        required under paragraph (3) or otherwise to petition 
        the Commission with respect to its application; and
          [(C) make findings, based on the information, views, 
        and arguments placed before it in connection with the 
        application, as to whether--
                  [(i) the standard in either paragraph (3)(A) 
                or (3)(B) applies, and
                  [(ii) any conditions or limitations which the 
                Commission proposes to attach under paragraph 
                (3) are appropriate in light of the purposes of 
                this subsection.
The Commission shall publish in the Federal Register notice of 
any exemptive petitions filed under paragraph (3) and any 
proposed or final actions the Commission may take on such 
petitions. Unless the Commission determines that more immediate 
action is appropriate in the public interest, any Commission 
order denying an application or exempting a contract market 
conditionally shall not take effect for at least twenty days 
following the issuance of the order.
  [(6) Violation of an order issued under this subsection shall 
be considered a violation of an order of the Commission for 
purposes of--
          [(i) establishing liability and assessing penalties 
        against a contract market or any director, officer, 
        agent, or employee thereof under section 6b or 6c; or
          [(ii) initiating proceedings under section 5b or 
        6(a).
  [(7) Any board of trade which has applied to the Commission 
to exempt a contract market from the regulations issued under 
paragraph (1) may obtain judicial review of any final action of 
the Commission to deny such application, to issue an exemption 
subject to conditions, or to revoke an exemption, only in the 
United States Court of Appeals for the circuit in which the 
party seeking review resides or has its principal place of 
business, or in the United States Court of Appeals for the 
District of Columbia Circuit, under the standards applicable to 
rulemaking proceedings under section 553 of title 5, United 
States Code.
  [(8)(A) The Commission shall issue the regulations required 
under paragraph (1) not later than two hundred and seventy days 
after the enactment of this section. If, prior to the effective 
date of the prohibition on dual trading under such regulations, 
a board of trade submits to the Commission an application for 
an exemption for a contract market under paragraph (3), the 
Commission shall not apply the prohibition against dual trading 
under paragraph (1) to the contract market until the Commission 
has approved or denied the application.
  [(B) The Commission shall approve or deny any application for 
an exemption under paragraph (3) within seventy-five days after 
receipt of the application, or as soon as practicable.
  [(b) If, in addition to the regulations issued pursuant to 
subsection (a), the Commission has reason to believe that dual 
trading-related or facilitated abuses are not being or cannot 
be effectively addressed by subsection (a), the Commission 
shall make a determination, after notice and opportunity for 
hearing, whether or not a floor broker may trade for his own 
account or any account in which such broker has trading 
discretion, and also execute a customer's order for future 
delivery and, if the Commission determines that such trades and 
such executions shall be permitted, the Commission shall 
further determine the terms, conditions, and circumstances 
under which such trades and such executions shall be conducted: 
Provided, That any such determination shall, at a minimum, take 
into account the effect upon the liquidity of trading of each 
market: And provided further, That nothing herein shall be 
construed to prohibit the Commission from making separate 
determinations for different contract markets when such are 
warranted in the judgment of the Commission, or to prohibit 
contract markets from setting terms and conditions more 
restrictive than those set by the Commission.
    [(c) The Commission shall within nine months after the 
effective date of the Commodity Futures Trading Commission Act 
of 1974, and subsequently when it determines that changes are 
required, make a determination, after notice and opportunity 
for hearing, whether or not a futures commission merchant may 
trade for its own account or any proprietary account, as 
defined by the Commission, and if the Commission determines 
that such trades shall be permitted, the Commission shall 
further determine the terms, conditions, and circumstances 
under which such trades shall be conducted: Provided, That any 
such determination, at a minimum, shall take into account the 
effect upon the liquidity of trading of each market: And 
provided further, That nothing herein shall be construed to 
prohibit the Commission from making separate determinations for 
different contract markets when such are warranted in the 
judgment of the Commission, or to prohibit contract markets 
from setting terms and conditions more restrictive than those 
set by the Commission.
  [(d)(1) Except as provided in paragraph (2), a floor broker 
may not execute an order of a customer if such floor broker 
knows the opposite party to the transaction to be a floor 
broker or floor trader with whom such trader or broker has a 
relationship involving trading on such contract market as--
          [(A) a partner in a partnership;
          [(B) an employer or employee; or
          [(C) Such other affiliation as the Commission may 
        specify by rule.
  [(2) Paragraph (1) shall not apply--
          [(A) if the Commission has adopted rules that the 
        Commission certifies to Congress require procedures and 
        standards designed to prevent violations of this Act 
        attributable to the trading described in paragraph (1); 
        or
          [(B) to any contract market that has implemented 
        rules designed to prevent violations of this Act 
        attributable to the trading described in paragraph (1), 
        except that, if the Commission determines, by rule or 
        order, that such rules are not adequate to prevent such 
        violations, paragraph (1) shall become effective with 
        respect to such contract market after a reasonable 
        period determined by the Commission.]
    Sec. [4k.] 4j. (1) It shall be unlawful for any person to 
be associated with a futures commission merchant as a partner, 
officer, or employee, or to be associated with an introducing 
broker as a partner, officer, employee, or agent (or any person 
occupying a similar status or performing similar functions), in 
any capacity that involves (i) the solicitation or acceptance 
of customers' orders (other than in a clerical capacity) or 
(ii) the supervision of any person or persons so engaged, 
unless such person is registered with the Commission under this 
Act as an associated person of such futures commission merchant 
or of such introducing broker and such registration shall not 
have expired, been suspended (and the period of suspension has 
not expired), or been revoked. It shall be unlawful for a 
futures commission merchant or introducing broker to permit 
such a person to become or remain associated with the futures 
commission merchant or introducing broker in any such capacity 
if such futures commission merchant or introducing broker knew 
or should have known that such person was not so registered or 
that such registration had expired, been suspended (and the 
period of suspension has not expired), or been revoked. Any 
individual who is registered as a floor broker, futures 
commission merchant, or introducing broker (and such 
registration is not suspended or revoked) need not also 
register under this subsection.

           *       *       *       *       *       *       *

    Sec. [4l.] 4k. It is hereby found that the activities of 
commodity trading advisors and commodity pool operators are 
affected with a national public interest in that, among other 
things--
          (1) their advice, counsel, publications, writings, 
        analyses, and reports are furnished and distributed, 
        and their contracts, solicitations, subscriptions, 
        agreements, and other arrangements with clients take 
        place and are negotiated and performed by the use of 
        the mails and other means and instrumentalities of 
        interstate commerce;
          (2) their advice, counsel, publications, writings, 
        analyses, and reports customarily relate to and their 
        operations are directed toward and cause the purchase 
        and sale of commodities for future delivery on or 
        subject to the rules of contract markets or derivatives 
        transaction execution facilities; and
          (3) the foregoing transactions occur in such volume 
        as to affect substantially transactions on contract 
        markets or derivatives transaction execution 
        facilities.
    Sec. [4m.] 4l. (1) It shall be unlawful for any commodity 
trading advisor or commodity pool operator, unless registered 
under this Act, to make use of the mails or any means or 
instrumentality of interstate commerce in connection with his 
business as such commodity trading advisor or commodity pool 
operator: Provided, That the provisions of this section shall 
not apply to any commodity trading advisor who, during the 
course of the precedingtwelve months, has not furnished 
commodity trading advice to more than fifteen persons and who does not 
hold himself out generally to the public as a commodity trading 
advisor. The provisions of this section shall not apply to any 
commodity trading advisor who is a (1) dealer, processor, broker, or 
seller in cash market transactions of any commodity specifically set 
forth in section 2(a) of this Act prior to the enactment of the 
Commodity Futures Trading Commission Act of 1974 (or products thereof) 
or (2) nonprofit, voluntary membership, general farm organization, who 
provides advice on the sale or purchase of any commodity specifically 
set forth in section 2(a) of this Act prior to the enactment of the 
Commodity Futures Trading Commission Act of 1974; if the advice by the 
person described in clause (1) or (2) of this sentence as a commodity 
trading advisor is solely incidental to the conduct of that person's 
business: Provided, That such person shall be subject to proceedings 
under section 14 of this Act.

           *       *       *       *       *       *       *

    Sec. [4n.] 4m. (1) Any commodity trading advisor or 
commodity pool operator, or any person who contemplates 
becoming a commodity trading advisor or commodity pool 
operator, may register under this Act by filing an application 
with the Commission. Such application shall contain such 
information, in such form and detail, as the Commission may, by 
rules and regulations, prescribe as necessary or appropriate in 
the public interest, including the following:
          (A)  * * *

           *       *       *       *       *       *       *

    Sec. [4o.] 4n. (1) It shall be unlawful for a commodity 
trading advisor, associated person of a commodity trading 
advisor, commodity pool operator, or associated person of a 
commodity pool operator by use of the mails or any means or 
instrumentality of interstate commerce, directly or 
indirectly--
          (A)  * * *

           *       *       *       *       *       *       *

    Sec. [4p.] 4o. (a) The Commission may specify by rules and 
regulations appropriate standards with respect to training, 
experience, and such other qualifications as the Commission 
finds necessary or desirable to insure the fitness of persons 
required to be registered with the Commission. In connection 
therewith, the Commission may prescribe by rules and 
regulations the adoption of written proficiency examinations to 
be given to applicants for registration and the establishment 
of reasonable fees to be charged to such applicants to cover 
the administration of such examinations. The Commission may 
further prescribe by rules and regulations that, in lieu of 
examinations administered by the Commission, futures 
associations registered under section 17 of this [Act or 
contract markets] Act, contract markets, or derivatives 
transaction execution facilities may adopt written proficiency 
examinations to be given to applicants for registration and 
charge reasonable fees to such applicants to cover the 
administration of such examinations. Notwithstanding any other 
provision of this section, the Commission may specify by rules 
and regulations such terms and conditions as it deems 
appropriate to protect the public interest wherein exception to 
any written proficiency examination shall be made with respect 
to individuals who have demonstrated, through training and 
experience, the degree of proficiency and skill necessary to 
protect the interests of customers, clients, pool participants, 
or other members of the public with whom such individuals deal.
  (b) The Commission shall issue regulations to require new 
registrants, within six months after receiving such 
registration, to attend a training session, and all other 
registrants to attend periodic training sessions, to ensure 
that registrants understand their responsibilities to the 
public under this Act, including responsibilities to observe 
just and equitable principles of trade, any rule or regulation 
of the Commission, any rule of any appropriate contract market, 
derivatives transaction execution facility, registered futures 
association, or other self-regulatory organization, or any 
other applicable Federal or state law, rule or regulation.

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(3) 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 such 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 exchanges 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. 5. The Commission is hereby authorized and directed 
to designate any board of trade as a ``contract market'' when, 
and only when, such board of trade complies with and carries 
out the following conditions and requirements:
          [(1) When located at a terminal market where any cash 
        commodity of the kind specified in the contracts of 
        sale of commodities for future delivery to be executed 
        on such board is sold in sufficient volumes and under 
        such conditions as fairly to reflect the general value 
        of the commodity and the differences in value between 
        the various grades of such commodity, and where there 
        is available to such board of trade official inspection 
        service approved by the Secretary of Agriculture or the 
        Commission for the purpose: Provided, That any board of 
        trade not so located shall be designated as a 
        ``contract market'' if such board of trade provides for 
        the delivery of commodities on such contracts at a 
        delivery point or points and upon terms and conditions 
        approved by the Commission.
          [(2) When the governing board thereof provides for 
        the making and filing by the board or any member 
        thereof, as the Commission may direct, of reports in 
        accordance with the rules and regulations, and in such 
        manner and form and at such times as may be prescribed 
        by the Commission, showing the details and terms of all 
        transactions entered into by the board, or the members 
        thereof, either in cash transactions or transactions 
        for future delivery consummated on or subject to the 
        rules of a board of trade, and when such governing 
        board provides, in accordance with such rules and 
        regulations, for the keeping of a record by the board 
        or the members of the board of trade, as the Commission 
        may direct, showing the details and terms of all cash 
        and future transactions entered into by them, 
        consummated on or subject to the rules of a board of 
        trade, such record to be in permanent form, showing the 
        parties to all such transactions, including the persons 
        for whom made, any assignments or transfers thereof, 
        with the parties thereto, and the manner in which said 
        transactions are fulfilled, discharged, or terminated. 
        Such record shall be required to be kept for a period 
        of three years from the date thereof, or for a longer 
        period if the Commission shall so direct, and shall at 
        all times be open to the inspection of any 
        representative of the Commission or United States 
        Department of Justice.
          [(3) When the governing board thereof provides for 
        the prevention of dissemination by the board or any 
        member thereof, of false or misleading or knowingly 
        inaccurate reports concerning crop or market 
        information or conditions that affect or tend to affect 
        the price of any commodity in interstate commerce.
          [(4) When the governing board thereof provides for 
        the prevention of manipulation of prices and the 
        cornering of any commodity by the dealers or operators 
        upon such board.
          [(5) When the governing board thereof does not 
        exclude from membership in, and all privileges on, such 
        board of trade, any duly authorized representative of 
        any lawfully formed and conducted cooperative 
        association of producers having adequate financial 
        responsibility which is engaged in any cash commodity 
        business, if such association has complied, and agrees 
        to comply, with such terms and conditions as are or may 
        be imposed lawfully on other members of such board: 
        Provided, That no rule of a contract market shall 
        forbid or be construed to forbid the return on a 
        patronage basis by such cooperative association to its 
        bona fide members of moneys collected in excess of the 
        expense of conducting the business of such association.
          [(6) When the governing board provides for making 
        effective the final orders or decisions entered 
        pursuant to the provisions of section 6(c), and the 
        orders issued pursuant to the provisions of section 5a 
        of this Act, and for compliance in all other respects 
        with the requirements applicable to such board of trade 
        under this Act.
          [(7) When such board of trade demonstrates that 
        transactions for future delivery in the commodity for 
        which designation as a contract market is sought will 
        not be contrary to the public interest.
          [(8) When such board of trade demonstrates that every 
        contract market for which such board of trade is 
        designated complies with the requirements of section 
        5a(b).
    [Sec. 5a. (a) Each contract market shall--
          [(1) promptly furnish the Commission copies of all 
        bylaws, rules, regulations, and resolutions made or 
        issued by it or by the governing board thereof or any 
        committee, and of all changes and proposed changes 
        therein;
          [(2) keep all books, records, minutes, and journals 
        of proceedings of such contract market, and its 
        governing board, committees, subsidiaries, and 
        affiliates in a manner that will clearly describe all 
        matters discussed by such contract market, governing 
        board, committees, subsidiaries and affiliates and 
        reveal any action taken in such matters, and allow 
        inspection at all times by any authorized 
        representative of the Commission or United States 
        Department of Justice of all such books, records, 
        minutes, and journals of proceedings. Such books, 
        records, minutes, and journals of proceedings shall be 
        kept for a period of three years from the date thereof, 
        or for a longer period if the Commission shall so 
        direct;
          [(3) require the operators of warehouses in which or 
        out of which any commodity is deliverable on any 
        contract for future delivery made on or subject to the 
        rules of such contract market, to make such reports, 
        keep such records, and permit such warehouse visitation 
        as the Commission may prescribe. Such books and records 
        shall be required to be kept for a period of three 
        years from the date thereof, or for a longer period if 
        the Commission shall so direct, and such books, 
        records, and warehouses shall be open at all times to 
        inspection by any representative of the Commission or 
        United States Department of Justice;
          [(4) when so directed by order of the Commission, 
        provide for a period, after trading in contracts of 
        sale of any commodity for future delivery in a delivery 
        month has ceased, during which contracts of sale of 
        such commodity for future delivery in such month may be 
        satisfied by the delivery of the actual cash commodity. 
        Whenever, after due notice and opportunity for hearing, 
        the Commission finds that provision for such a period 
        of delivery for any one or more commodities or markets 
        would prevent or tend to prevent ``squeezes'' and 
        market congestion endangering price stability, it 
        shall, by order, require such period of delivery (which 
        shall be not less than three nor more than ten business 
        days) applicable to such commodities and markets as it 
        finds will prevent or tend to prevent such ``squeezes'' 
        and market congestion: Provided, however, That such 
        order shall not apply to then existing contracts;
          [(5) require the party making delivery of any 
        commodity on any contract of sale of such commodity for 
        future delivery to furnish the party obligated under 
        the contract to accept delivery, written notice of the 
        date of delivery at least one business day prior to 
        such date of delivery. Whenever, after due notice and 
        opportunity for hearing, the Commission finds that the 
        giving of longer notice of delivery is necessary to 
        prevent or diminish unfair practices in trading in any 
        one or more commodities or markets, it shall by order 
        require such longer notice of delivery (which shall be 
        not more than ten business days) applicable to such 
        commodities and markets as it finds will prevent or 
        diminish such unfair practices: Provided, however, That 
        such order shall not apply to then existing contracts;
          [(6) require that all contracts of sale of any 
        commodity for future delivery on such contract market 
        shall provide for the delivery thereunder of 
        commodities of grades conforming to United States 
        standards, if such standards shall have been officially 
        promulgated and adopted by the Commission;
          [(7) require that receipts issued under the United 
        States Warehouse Act (U.S.C., 1934 ed., title 7, secs. 
        241-273) shall be accepted in satisfaction of any 
        futures contract, made on or subject to the rules of 
        such contract market, without discrimination and 
        notwithstanding that the warehouseman issuing such 
        receipts is not also licensed as a warehouseman under 
        the laws of any State or enjoys other or different 
        privileges than under State law: Provided, however, 
        That such receipts shall be for the kind, quality, and 
        quantity of commodity specified in such contract and 
        that the warehouse in which the commodity is stored 
        meets such reasonable requirements as may be imposed by 
        such contract market on other warehouses as to 
        location, accessibility, and suitability for 
        warehousing and delivery purposes: And provided 
        further, That this subsection shall apply only to 
        futures contracts for those commodities which may be 
        delivered from a warehouse subject to the United States 
        Warehouse Act;
          [(8) enforce all bylaws, rules, regulations, and 
        resolutions, made or issued by it or by the governing 
        board thereof or any committee, that (i) have been 
        approved by the Commission pursuant to paragraph (12) 
        of this section, (ii) have become effective under such 
        paragraph, or (iii) must be enforced pursuant to any 
        Commission rule, regulation, or order; and revoke and 
        not enforce any bylaw, rule, regulation, or resolution, 
        made, issued, or proposed by it or by the governing 
        board thereof or any committee, that has been 
        disapproved by the Commission;
          [(9) enforce all bylaws, rules, regulations, and 
        resolutions made or issued by it or by the governing 
        board thereof or by any committee, which provide 
        minimum financial standards and related reporting 
        requirements for futures commission merchants who are 
        members of such contract market, and which have been 
        approved by the Commission;
          [(10) permit the delivery of any commodity, on 
        contracts of sale thereof for future delivery, of such 
        grade or grades, at such point or points and at such 
        quality and locational price differentials as will tend 
        to prevent or diminish price manipulation, market 
        congestion, or the abnormal movement of such commodity 
        in interstate commerce. If the Commission after 
        investigation finds that the rules and regulations 
        adopted by a contract market permitting delivery of any 
        commodity on contracts of sale thereof for future 
        delivery, do not accomplish the objectives of this 
        subsection, then the Commission shall notify the 
        contract market of its finding and afford the contract 
        market an opportunity to make appropriate changes in 
        such rules and regulations. If the contract market 
        within seventy-five days of such notification fails to 
        make the changes which in the opinion of the Commission 
        are necessary to accomplish the objectives of this 
        subsection, then the Commission after granting the 
        contract market an opportunity to be heard, may change 
        or supplement such rules and regulations of the 
        contract market to achieve the above objectives: 
        Provided, That any order issued under this paragraph 
        shall not apply to contracts of sale for future 
        delivery in any months in which contracts are currently 
        outstanding and open: And provided further, That no 
        requirement for an additional delivery point or points 
        shall be promulgated following hearings until the 
        contract market affected has had notice and opportunity 
        to file exceptions to the proposed order determining 
        the location and number of such delivery point or 
        points;
          [(11) provide a fair and equitable procedure through 
        arbitration or otherwise (such as by delegation to a 
        registered futures association having rules providing 
        for such procedures) for the settlement of customers' 
        claims and grievances against any member or employee 
        thereof: Provided, That (A) the use of such procedure 
        by a customer shall be voluntary, (B) the term 
        ``customer'' as used in this paragraph shall not 
        include another member of the contract market, and (C) 
        in the case of a claim arising from a violation in the 
        execution of an order on the floor of a contract 
        market, such procedure shall provide, to the extent 
        appropriate--
                  [(i) for payment of actual damages 
                proximately caused by such violation. If an 
                award of actual damages is made against a floor 
                broker in connection with the execution of a 
                customer order, and the futures commission 
                merchant which selected the floor broker for 
                the execution of the customer order is held to 
                be responsible under section 2(a)(1) for the 
                floor broker's violation, such futures 
                commission merchant may be required to satisfy 
                such award; and
                  [(ii) where the violation is willful and 
                intentional, for payment to the customer of 
                punitive or exemplary damages, in addition to 
                losses proximately caused by the violation, in 
                an amount equal to no more than two times the 
                amount of such losses. If punitive or exemplary 
                damages are awarded against a floor broker in 
                connection with the execution of a customer 
                order, and the futures commission merchant 
                which selected the floor broker for the 
                execution of such order is held to be 
                responsible under section 2(a)(1) for the floor 
                broker's violation, such futures commission 
                merchant may be required to satisfy the award 
                of punitive or exemplary damages if the floor 
                broker fails to do so, except that such requirement 
                shall apply to the futures commission merchant only 
                if it willfully and intentionally selected the floor 
                broker with the intent to assist or facilitate the 
                floor broker's violation;
          [(12)(A) except as otherwise provided in this 
        paragraph, submit to the Commission for its prior 
        approval all bylaws, rules, regulations, and 
        resolutions (``rules'') made or issued by such contract 
        market, or by the governing board thereof or any 
        committee thereof, that relate to terms and conditions 
        in contracts of sale to be executed on or subject to 
        the rules of such contract market, as such terms and 
        conditions are defined by the Commission by rule or 
        regulation, except those rules relating to the setting 
        of levels of margin. Each contract market shall submit 
        to the Commission all other rules (except those 
        relating to the setting of levels of margin and except 
        those that the Commission may specify by regulation) 
        and may make such rules effective ten days after 
        receipt of such submission by the Commission unless, 
        within the ten-day period, the contract market requests 
        review and approval thereof by the Commission or the 
        Commission notifies such contract market in writing of 
        its determination to review such rules for approval. 
        The determination to review such rules for approval 
        shall not be delegable to any employee of the 
        Commission. At least thirty days before approving any 
        rules of major economic significance, as determined by 
        the Commission, the Commission shall publish a notice 
        of such rules in the Federal Register. The Commission 
        shall give interested persons an opportunity to 
        participate in the approval process through the 
        submission of written data, views, or arguments. The 
        determination by the Commission whether any such rules 
        are of major economic significance shall be final and 
        not subject to judicial review. The Commission shall 
        approve such rules if such rules are determined by the 
        Commission not to be in violation of this Act or the 
        regulations of the Commission and the Commission shall 
        disapprove, after appropriate notice and opportunity 
        for hearing, any such rule which the Commission 
        determines at any time to be in violation of the 
        provisions of this Act or the regulations of the 
        Commission. If the Commission institutes proceedings to 
        determine whether a rule should be disapproved pursuant 
        to this paragraph, it shall provide the contract market 
        with written notice of the proposed grounds for 
        disapproval, including the specific sections of this 
        Act or the Commission's regulations which would be 
        violated. At the conclusion of such proceedings, the 
        Commission shall approve or disapprove such rule. Any 
        disapproval shall specify the sections of this Act or 
        the Commission's regulations which the Commission 
        determines such rule has violated or, if effective, 
        would violate. If the Commission does not approve or 
        institute disapproval proceedings with respect to any 
        rule within one hundred and eighty days after receipt 
        or within such longer period as the contract market may 
        agree to, or if the Commission does not conclude a 
        disapproval proceeding with respect to any rule within 
        one year after receipt or within such longer period as 
        the contract market may agree to, such rule may be made 
        effective by the contract market until such time as the 
        Commission disapproves such rule in accordance with 
        this paragraph.
          [(B)(i) The Commission shall issue regulations to 
        specify the terms and conditions under which, in an 
        emergency as defined by the Commission, a contract 
        market may, by a two-thirds vote of its governing 
        board, make a rule (hereinafter referred to as an 
        ``emergency rule'') effective on a temporary basis 
        without prior Commission approval, or without 
        compliance with the ten-day notice requirement under 
        subparagraph (A), or during any period of review by the 
        Commission, if the contract market makes every effort 
        practicable to notify the Commission of such emergency 
        rule, along with a complete explanation of the 
        emergency involved, prior to making the emergency rule 
        effective. If the contract market does not provide the 
        Commission with such notification and explanation 
        before making the emergency rule effective, the 
        contract market shall provide the Commission with such 
        notification and explanation at the earliest possible 
        date. The Commission may delegate the power to receive 
        such notification and explanation to such individuals 
        as the Commission determines necessary and appropriate.
          [(ii) Within ten days of the receipt from a contract 
        market of notification of such an emergency rule and an 
        explanation of the emergency involved, or as soon as 
        practicable, the Commission shall determine whether it 
        is appropriate either--
                  [(I) to permit such rule to remain in effect 
                during the pendency of the emergency, or
                  [(II) to suspend the effect of such rule 
                pending review either under the procedures of 
                subparagraph (A) or otherwise.
        The Commission shall submit a report on its 
        determination and the basis thereof with respect to 
        such emergency rule to the affected contract market, to 
        the Committee on Agriculture of the House of 
        Representatives and the Committee on Agriculture, 
        Nutrition, and Forestry of the Senate. If the report is 
        submitted more than ten days after the Commission's 
        receipt of notification of such an emergency rule from 
        a contract market, the report shall explain why 
        submission within such ten-day period was not 
        practicable. A determination by the Commission to 
        suspend the effect of a rule under this subparagraph 
        shall be subject to judicial review on the same basis 
        as an emergency determination under section 8a(9). 
        Nothing in this paragraph shall be construed to limit 
        the authority of the Commission under section 8a(9);
          [(13) provide for disclosure to the contract market 
        and the Commission of any trade, business, or financial 
        partnership, cost-, profit-, or capital-sharing 
        agreements or other formal arrangement among or between 
        floor brokers and traders on such contract market where 
        such partnership agreement or arrangement is material 
        and known to the floor broker or floor trader;
          [(14)(A) provide for meaningful representation on the 
        governing board of the contract market's board of trade 
        of a diversity of interests, including--
                  [(i) futures commission merchants;
                  [(ii) producers of, and consumers, 
                processors, distributors, or merchandisers of, 
                principal commodities traded on the board of 
                trade;
                  [(iii) floor brokers and traders; and
                  [(iv) participants in a variety of pits or 
                principal groups of commodities traded on the 
                exchange.
          [(B) provide that no less than 20 percent of the 
        regular voting members of such board be comprised of 
        nonmembers of such contract market's board of trade 
        with--
                  [(i) expertise in futures trading, or the 
                regulation thereof, or in commodities traded 
                through contracts on the board of trade; or
                  [(ii) other eminent qualifications making 
                such person capable of participating in and 
                contributing to board deliberations.
          [(C) provide that no less than 10 percent of the 
        regular voting members of such board be comprised where 
        applicable of farmers, producers, merchants, or 
        exporters of principal commodities traded on the 
        exchange;
          [(15)(A) provide on all major disciplinary committees 
        for a diversity of membership sufficient to ensure 
        fairness and to prevent special treatment or preference 
        for any person in the conduct of disciplinary 
        proceedings and the assessment of penalties.
          [(B) Consistent with Commission rules, a major 
        disciplinary committee hearing a disciplinary matter 
        shall include--
                  [(i) a majority of qualified persons 
                representing a trading status other than that 
                of the subject of the proceeding; and
                  [(ii) where appropriate to carry out the 
                purposes of this Act, qualified persons who are 
                not members of the exchange.
          [(C) For purposes of this paragraph, a trading status 
        on a contract market may include, consistent with 
        Commission rules, such categories as
                  [(i) floor brokers and traders;
                  [(ii) producers, consumers, processors, 
                distributors, or merchandisers of commodities;
                  [(iii) futures commission merchants; and
                  [(iv) members of the aforementioned 
                categories who participate in particular 
                contract markets or principal groups of 
                commodities on the board of trade.
          [(D) If a contract market takes final disciplinary 
        action against a member for a violation that involves 
        the execution of a customer transaction and results in 
        financial harm to such customer, the contract market 
        shall promptly inform the futures commission merchant 
        identified on the records of such contract market as 
        having cleared such transaction, and such futures 
        commission merchant shall promptly inform the person 
        identified on its records as the owner of the account 
        for which such transaction was executed, of the 
        disciplinary action and the principal facts thereof;
          [(16) provide that no member found by the Commission, 
        a contract market, a registered futures association, or 
        a court of competent jurisdiction to have committed any 
        violation of this Act or any other provision of law 
        that would reflect on the fitness of the member may 
        serve on any contract market oversight or disciplinary 
        panel for an appropriate period (as defined by 
        Commission rule); and
          [(17)(A) provide for the avoidance of conflict of 
        interest in deliberations by the governing board and 
        any disciplinary and oversight committees. In order to 
        comply with this subparagraph, each contract market 
        shall adopt rules and procedures to require, at a 
        minimum, that--
                  [(i) any member of a governing board or a 
                disciplinary or other oversight committee must 
                abstain from confidential deliberations and 
                voting on any matter where the named party in 
                interest is the member, the member's employer, 
                the member's employee, or any other person that 
                has a business, employment, or family 
                relationship with the member that warrants 
                abstention by the member;
                  [(ii) any member of a governing board or a 
                disciplinary or other oversight committee must 
                abstain from voting on any significant action 
                that would not be submitted to the Commission 
                for its prior approval, if, as determined in 
                accordance with regulations promulgated by the 
                Commission, the member knowingly has a direct 
                and substantial financial interest in the 
                result of the vote, based either on positions 
                held personally or at an affiliated firm;
                  [(iii) prior to the deliberations of the 
                governing board, disciplinary board, or other 
                oversight committee, acting directly or 
                indirectly through an authorized member or 
                contract market official, the positions of the 
                members of such board or committee, and 
                positions of the firm or firms with which such 
                members are affiliated, are reviewed: Provided, 
                however, That no contract market or official, 
                employee, member, other than the member whose 
                position or positions are being reviewed, or 
                agent thereof shall be subject to liability, 
                except for liability in an action initiated by 
                the Commission, for having conducted this 
                review and for having taken or not taken 
                further action; and
                  [(iv) the board or committee shall clearly 
                reflect, in the minutes of such meeting, that 
                the review required in clause (iii) occurred 
                and any decisions by a member to abstain or by 
                the board or committee whether to direct a 
                member or members to abstain from deliberations 
                or voting on the matter before the board or 
                committee.
        Any member prohibited from voting on a rule pursuant to 
        this paragraph shall not be included in determining 
        whether there has been a two-thirds vote of members of 
        the governing board or committee as required by 
        subparagraph (12).
          [(B) For the purposes of this paragraph, the term 
        ``significant action that would not be submitted to the 
        Commission for its prior approval'' includes--
                  [(i) any nonphysical emergency rule; or
                  [(ii) any changes in margin levels designed 
                to respond to extraordinary market conditions 
                that are likely to have a substantial affect on 
                prices in any contract traded on such contract 
                market, but does not include any rule not 
                submitted for prior Commission approval because 
                such rule is unrelated to terms and conditions 
                of any contract traded on such contract market.
          [(C) Notwithstanding the provisions of subparagraph 
        (A)(ii), the Commission shall issue rules establishing 
        the conditions under which a member of a board or 
        committee who is required to abstain from voting on a 
        significant action, as provided in subparagraph 
        (A)(ii), may participate in deliberations on that 
        action prior to such vote, where the member's 
        participation is consistent with the public interest.
  [(b)(1) Each contract market shall maintain and utilize a 
system to monitor trading to detect and deter violations of the 
contract market's rules and regulations committed in the making 
of trades and the execution of customer orders on the floor or 
subject to the rules of such contract market. The system shall 
include--
          [(A) physical observation of trading areas;
          [(B) audit trail and recordkeeping systems able to 
        capture essential data on the terms, participants, and 
        sequence of transactions (including relevant data on 
        unmatched trades and out-trades);
          [(C) systems capable of reviewing, and used to 
        review, data on trades effectively on a regular basis 
        to detect violations committed in making trades and 
        executing customer orders on the floor or subject to 
        the rules of such contract market, including--
                  [(i) all types of violations attributable to 
                dual trading; and
                  [(ii) to the full extent feasible, as 
                determined by the Commission, all other types 
                of violations involving the making of trades 
                and the execution of customer orders;
          [(D) the use of information gathered through such 
        system on a consistent basis to bring appropriate 
        disciplinary actions against violators;
          [(E) the commitment of resources to such system 
        necessary for such system to be effective in detecting 
        and deterring such violations, including adequate staff 
        to develop and prosecute disciplinary actions; and
          [(F) the assessment of meaningful penalties against 
        violators and the referral of appropriate cases to the 
        Commission.
  [(2) The audit trail system of the contract market shall, 
consistent with Commission regulations, accurately record--
          [(A) the times of trades in increments of no more 
        than one minute in length; and
          [(B) the sequence of trades for each floor trader and 
        broker.
  [(3) Beginning three years after the date of enactment of 
this subsection, the audit trail system of each contract 
market, except as provided in paragraph (5) and except to the 
extent the Commission determines that circumstances beyond the 
control of the contract market prevent compliance despite the 
contract market's affirmative good faith efforts to comply, 
shall--
          [(A) for all trades, record accurately and promptly 
        the essential data on terms, participants, and times as 
        required by the Commission by rule, including the time 
        of execution of such trade, through a means that--
                  [(i) records such data in a form which cannot 
                be altered except in a manner that will leave a 
                complete and independent record of such 
                alteration;
                  [(ii) continually provides such data to the 
                contract market;
                  [(iii) identifies such time, to the extent 
                practicable as determined by the Commission--
                          [(I) independently of the person 
                        making the trade;
                          [(II) through a mechanism that 
                        records the time automatically when 
                        entered by the person making the trade; 
                        or
                          [(III) through such other means that 
                        will capture a similarly reliable time; 
                        and
                  [(iv) is adequately precise to determine, to 
                the extent practicable as determined by the 
                Commission by rule or order--
                          [(I) the sequence of all trades by 
                        each floor trader; and
                          [(II) the sequence of all trades by 
                        each floor broker; and
          [(B) to the extent practicable as determined by the 
        Commission by rule or order, for customer trades, 
        record the time that each order is received on the 
        floor of the board of trade, is received by the floor 
        broker for execution (or when such order is transmitted 
        in an extremely rapid manner to the broker), and is 
        reported from the floor of the board of trade as 
        executed, through a means that--
                  [(i) records such times in a form which 
                cannot be altered except in a manner that will 
                leave a complete and independent record of such 
                alteration;
                  [(ii) continually provides such data to the 
                contract market;
                  [(iii) identifies such time--
                          [(I) independently of the person 
                        making the trade or processing the 
                        order;
                          [(II) through a mechanism that 
                        records the time automatically when 
                        entered by the person making the trade 
                        or processing such order, as 
                        appropriate; or
                          [(III) through such other means as 
                        will capture a similarly reliable time; 
                        and
                  [(iv) is adequately precise to determine--
                          [(I) the sequence in which, for each 
                        futures commission merchant, floor 
                        broker, or member firm, as applicable, 
                        all orders are received on and reported 
                        from the floor of the contract market; 
                        and
                          [(II) the sequence in which orders 
                        are received by each floor broker for 
                        execution.
  [(4) The Commission may, by rule, establish standards under 
which the audit trail systems required under paragraph (3) 
shall record, to the extent practicable--
          [(A) the sequence of all trades made by all floor 
        traders and floor brokers; and
          [(B) the interval between the time of receipt and the 
        time of execution of each order by the floor broker 
        executing the order.
  [(5)(A) The Commission shall, by rule or order, make 
exemptions from the requirements of paragraph (3)--
          [(i) for an exchange with respect to which the 
        Commission finds that--
                  [(I) the volume of trading on such exchange 
                is relatively small and the exchange has 
                demonstrated substantial compliance with the 
                objectives of such paragraph; and
                  [(II) the trade monitoring system at such 
                exchange otherwise maintains a high level of 
                compliance with this subsection; and
          [(ii) to the extent determined appropriate by the 
        Commission, for categories of customer orders with 
        respect to which the Commission finds that such orders 
        are transmitted to and reported from the trading pit in 
        an extremely rapid manner such that substantial 
        compliance with the objectives of paragraph (3) can be 
        otherwise achieved.
  [(B) For purposes of subparagraph (A)(i)(I) the Commission 
shall find that the volume of trading at an exchange is 
relatively small if, among other things, the Commission 
determines that the average daily trading volume for each 
contract market for which the board of trade is designated is 
less than the threshold trading level established for the 
contract market under section 4j(a)(4).
  [(6) Any rule or order adopted by the Commission under 
paragraphs (4) and (5) shall become effective thirty 
legislative days or ninety calendar days, whichever is later, 
after submission of such rule or order to the Committee on 
Agriculture of the House of Representatives and the Committee 
on Agriculture, Nutrition, and Forestry of the Senate. For 
purposes of this paragraph, the term ``legislative day'' means 
any day on which either House of Congress is in session.
    [Sec. 5b. The failure or refusal of any board of trade to 
comply with any of the provisions of this Act, or any of the 
rules, regulations, or orders of the Commission or the 
commission thereunder, shall be cause for suspending for a 
period not to exceed six months or revoking the designation of 
such board of trade as a ``contract market'' in accordance with 
the procedure and subject to the judicial review provided in 
section 6(b) of this Act.]

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. Such rules may authorize--
                  (A) an exchange of--
                          (i) futures in connection with a cash 
                        commodity transaction;
                          (ii) futures for cash commodities;
                          (iii) transfer trades or office 
                        trades; or
                          (iv) futures for swaps; and
                  (B) 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 trading 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.
          (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 effective date 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, a board of trade 
        shall comply with the core principles specified in this 
        subsection.
          (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 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 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--
                  (A) maintain full 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 at least 5 years;
                  (B) make the records readily available during 
                at least the first 2 years of the 5-year period 
                and provide the records to the Commission at 
                the expense of the person required to maintain 
                the records; and
                  (C) keep the records open to inspection by 
                any representative of the Commission or the 
                Department of Justice.
          (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 and Metal Commodities.--
          (1) Subject to paragraph (2), a contract for purchase 
        or sale for future delivery of an agricultural or metal 
        commodity enumerated in section 1a(3) 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. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.

  (a) In General.--In lieu of compliance with the contract 
market designation requirements of section 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).
  (b) Requirements for Trading Futures Contracts or Other 
Derivatives Transactions.--
          (1) In general.--A registered derivatives transaction 
        execution facility under subsection (a) may trade any 
        futures contract (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 futures 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; or
                  (D) the Commission determines, based on the 
                market characteristics, surveillance history, 
                self-regulatory record, and capacity of the 
                facility that trading in the futures contract 
                is highly unlikely to be susceptible to the 
                threat of manipulation.
          (3) Eligible traders.--To trade on a registered 
        derivatives transaction execution facility, a person 
        shall--
                  (A) be authorized by the board of trade to 
                trade on the facility; and
                  (B)(i) be an eligible contract participant; 
                or
                  (ii) 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;
                          (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 demonstrate to the Commission that the 
        board of trade meets the criteria specified in this 
        paragraph.
          (2) Deterrence of abuses.--The board of trade shall 
        establish and enforce trading 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. Such 
        rules may authorize--
                  (A) an exchange of--
                          (i) futures in connection with a cash 
                        commodity transaction;
                          (ii) futures for cash commodities;
                          (iii) transfer trades or office 
                        trades; or
                          (iv) futures for swaps; and
                  (B) 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 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.
          (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.
          (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 actively traded contracts on the 
        facility.
          (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 decisionmaking process of the 
        derivatives transaction execution facility and 
        establish a process for resolving such conflicts of 
        interest.
          (8) Recordkeeping.--The board of trade shall--
                  (A) maintain full 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 at least 5 years;
                  (B) make the records readily available during 
                at least the first 2 years of the 5-year period 
                and provide the records to the Commission at 
                the expense of the person required to maintain 
                the records; and
                  (C) keep the records open to inspection by 
                any representatives of the Commission or the 
                Department of Justice.
          (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.--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 such 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 effective date 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 futures commission merchant for purposes 
of trading on or through the facilities of the registered 
derivatives transaction execution facility.
  (g) Election To Trade Excluded Commodities.--
          (1) In general.--A board of trade that is a 
        registered derivatives transaction execution facility 
        may trade on the facility any agreements, contracts, or 
        transactions involving excluded commodities that are 
        otherwise excluded from this Act under section 2(c), 
        2(d), or 2(h).
          (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. 5B. DERIVATIVES CLEARING ORGANIZATIONS.

  (a) Registration Requirement.--Except as provided in 
subsection (b), 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(8).
  (b) Exclusion of Derivatives Clearing Organizations Subject 
to Other Regulatory Authorities.--A derivatives clearing 
organization shall not be required to register with the 
Commission, and the Commission shall have no jurisdiction with 
respect to the derivatives clearing organization, if the 
derivatives clearing organization--
          (1)(A) is registered as a clearing agency under the 
        Securities Exchange Act of 1934 (15 U.S.C. 78a et 
        seq.);
          (B) is subject to the supervisory jurisdiction of a 
        Federal banking agency (as defined in section 3 of the 
        Federal Deposit Insurance Act (12 U.S.C. 1813)) or the 
        National Credit Union Administration; or
          (C) is subject to the supervisory jurisdiction of a 
        foreign regulatory authority that is recognized by the 
        Securities and Exchange Commission, the Board of 
        Governors of the Federal Reserve System, the 
        Comptroller of the Currency, or the Commission as 
        overseeing a system of consolidated supervision 
        comparable to that provided under applicable United 
        States law; and
          (2) does not clear a contract of sale for future 
        delivery, option on a contract of sale for future 
        delivery, or option on a commodity that is not a 
        security (unless the contract or option is excluded 
        under subsection (c) or (d) of section 2).
  (c) Voluntary Registration.--A derivatives clearing 
organization that is exempt from registration under subsection 
(b) may register with the Commission as a derivatives clearing 
organization.
  (d) 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. 
                  (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 without 
                interruption in various market conditions.
                  (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--
                          (i) maintain full 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 at least 5 years;
                          (ii) make the records readily 
                        available during at least the first 2 
                        years of the 5-year period and provide 
                        the records to the Commission at the 
                        expense of the person required to 
                        maintain the records; and
                          (iii) keep the records open to 
                        inspection by any representative of the 
                        Commission or the Department of 
                        Justice.
                  (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.
  (e) Existing Derivatives Clearing Organizations.--A 
derivatives clearing organization shall be deemed to be 
registered under this section to the extent that--
          (1) 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; and
          (2) the Commission has reviewed and approved the 
        rules of the derivatives clearing organization before 
        that date.
  (f) 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.
  (g) 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.

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 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, 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(3) of this Act (or any option thereon) 
                traded through its facilities if such 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 has reason to 
        believe that a registered entity is violating any 
        applicable provision specified in section 5(d), 5a(d), 
        or 5b(d)(2), the Commission shall notify the registered 
        entity in writing of the reasons for the preliminary 
        determination by the Commission of a violation, 
        including any data, materials, and facts the Commission 
        relied on in making the preliminary determination.
          (2) Injunctive or administrative action.--The 
        Commission may initiate an action for an injunction 
        under section 6c or an administrative proceeding, to 
        demonstrate, by the preponderance of the evidence, 
        that--
                  (A) the registered entity is violating any 
                applicable provision specified in section 5(d), 
                5a(d), or 5b(d)(2); and
                  (B) the Commission has recommended an 
                appropriate remedial action to remove the 
                deficiency based on an analysis of the costs 
                and benefits in the public interest of the 
                Commission recommendation.
          (3) Burden of proof.--In making a determination that 
        a registered entity is violating any applicable 
        provision specified in section 5(d), 5a(d), or 
        5b(d)(2), the Commission shall have the burden of 
        proving that the registered entity is violating the 
        applicable core principle.
  (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) of this Act.

SEC. 5D. EXEMPT BOARDS OF TRADE.

    (a) In General.--Except as otherwise provided in this 
section, 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 shall be exempt from all 
provisions of this Act, other than section 2(g).
    (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) that have--
                  (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 the 
        contract) for future delivery of any security, 
        including any group or index of securities or any 
        interest in, or interest that is based on the value of, 
        any security.
  (c) Antimanipulation Requirements.--A party to a futures 
contract or related option that is traded on an exempt board of 
trade shall be subject to sections 4b, 4n, 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 
any underlying commodity in any 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 related option, to the extent that such 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.

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. 6. (a) Any [board of trade desiring to be designated a 
``contract market'' shall make application to the Commission 
for such designation] person desiring to be designated or 
registered as a contract market or derivatives transaction 
execution facility shall make application to the Commission for 
such designation or registration and accompany the same with a 
showing that it complies with the [above conditions] conditions 
set forth in this Act, and with a sufficient assurance that it 
will continue to comply with the [above requirements] the 
requirements of this Act. The Commission shall approve or deny 
an application for [designation as a contract market within one 
year] designation or registration as a contract market or 
derivatives transaction execution facility within 180 days of 
the filing of the application. If the Commission notifies the 
[board of trade] person that its application is materially 
incomplete and specifies the deficiencies in the application, 
the running of the [one-year period] 180-day period shall be 
stayed from the time of such notification until the application 
is resubmitted in completed form: Provided, That the Commission 
shall have not less than sixty days to approve or deny the 
application from the time the application is resubmitted in 
completed form. If the Commission denies an application, it 
shall specify the grounds for the denial. In the event of a 
refusal to [designate as a ``contract market'' any board of 
trade that has made application therefor, such board of trade] 
designate or register as a contract market or derivatives 
transaction execution facility any person that has made 
application therefor, such person shall be afforded an 
opportunity for a hearing on the record before the Commission, 
with the right to appeal an adverse decision after such hearing 
to the court of appeals as provided for in other cases in 
subsection (b) of this section.
    (b) The Commission is authorized to suspend for a period 
not to exceed six months or to revoke the [designation of any 
board of trade as a ``contract market'' upon] designation or 
registration of any contract market or derivatives transaction 
execution facility on a showing that such [board of trade] 
contract market or derivatives transaction execution facility 
is not enforcing or has not enforced its rules of government 
made a condition of its [designation as set forth in section 5 
of this Act] designation or registration as set forth in 
sections 5 through 5b or that such [board of trade] contract 
market or derivatives transaction execution facility, or any 
director, officer, agent, or employee thereof, otherwise is 
violating or has violated any of the provisions of this Act or 
any of the rules, regulations, or orders of the Commission or 
the Commission thereunder. Such suspension or revocation shall 
only be after a notice to the officers of the [board of trade] 
contract market or derivatives transaction execution facility 
affected and upon a hearing on the record: Provided, That such 
suspension or revocation shall be final and conclusive, unless 
within fifteen days after such suspension or revocation by the 
Commission such [board of trade] person appeals to the court of 
appeals for the circuit in which it has its principal place of 
business, by filing with the clerk of such court a written 
petition praying that the order of the Commission be set aside 
or modified in the manner stated in the petition, together with 
a bond in such sum as the court may determine, conditioned that 
such [board of trade] person will pay the costs of the 
proceedings if the court so directs. The clerk of the court in 
which such a petition is filed shall immediately cause a copy 
thereof to be delivered to the Commission and file in the court 
the record in such proceedings, as provided in section 2112 of 
title 28, United States Code. The testimony and evidence taken 
or submitted before the Commission, duly filed as aforesaid as 
a part of the record, shall be considered by the court of 
appeals as the evidence in the case. Such a court may affirm or 
set aside the order of the Commission or may direct it to 
modify its order. No such order of the Commission shall be 
modified or set aside by the court of appeals unless it is 
shown by the [board of trade] person that the order is 
unsupported by the weight of the evidence or was issued without 
due notice and a reasonable opportunity having been afforded to 
such [board of trade] person for a hearing, or infringes the 
Constitution of the United States, or is beyond the 
jurisdiction of the Commission.
    (c) If the Commission has reason to believe that any person 
(other than a [contract market] registered entity) is 
manipulating or attempting to manipulate or has manipulated or 
attempted to manipulate the market price of any commodity, in 
interstate commerce, or for future delivery on or subject to 
the rules of any [contract market] registered entity, or has 
willfully made any false or misleading statement of a material 
fact in any registration application or any report filed with 
the Commission under this Act, or willfully omitted to state in 
any such application or report any material fact which is 
required to be stated therein, or otherwise is violating or has 
violated any of the provisions of this Act or of the rules, 
regulations, or orders of the Commission or the Commission 
thereunder, it may serve upon such person a complaint stating 
its charges in that respect, which complaint shall have 
attached or shall contain therein a notice of hearing, 
specifying a day and place not less than three days after the 
service thereof, requiring such person to show cause why an 
order should not be made prohibiting him from trading on or 
subject to the rules of any [contract market] registered 
entity, and directing that all [contract markets] registered 
entities refuse all [trading privileges] privileges to such 
person, until further notice of the Commission and to show 
cause why the registration of such person, if registered with 
the Commission in any capacity, should not be suspended or 
revoked. Said hearing may be held in Washington, District of 
Columbia, or elsewhere, before the Commission or before an 
Administrative Law Judge designated by the Commission, which 
Administrative Law Judge shall cause all evidence to be reduced 
to writing and forthwith transmit the same to the Commission. 
For the purpose of securing effective enforcement of the 
provisions of this Act, for the purpose of any investigation or 
proceeding under this Act, and for the purpose of any action 
taken under section 12(f), any member of the Commission or any 
Administrative Law Judge or other officer designated by the 
Commission (except as provided in the fifth sentence of this 
subsection) may administer oaths and affirmations, subpoena 
witnesses, compel their attendance, take evidence, and require 
the production of any books, papers, correspondence, memoranda, 
or other records that the Commission deems relevant or material 
to the inquiry. The attendance of witnesses and the production 
of any such records may be required from any place in the 
United States, any State or any foreign country or jurisdiction 
at any designated place of hearing. A subpoena issued under 
this section may be served upon any person who is not to be 
found within the territorial jurisdiction of any court of the 
United States in such manner as the Federal Rules of Civil 
Procedure prescribe for service of process in a foreign 
country, except that a subpoena to be served on a person who is 
not to be found within the territorial jurisdiction of any 
court of the United States may be issued only on the prior 
approval of the Commission. In case of contumacy by, or refusal 
to obey a subpoena issued to, any person, the Commission may 
invoke the aid of any court of the United States within 
thejurisdiction in which the investigation or proceeding is conducted, 
or where such person resides or transacts business, in requiring the 
attendance and testimony of witnesses and the production of books, 
papers, correspondence, memoranda, and other records. Such court may 
issue an order requiring such person to appear before the Commission or 
member or Administrative Law Judge or other officer designated by the 
Commission, there to produce records, if so ordered, or to give 
testimony touching the matter under investigation or in question. Any 
failure to obey such order of the court may be punished by the court as 
a contempt thereof. All process in any such case may be served in the 
judicial district wherein such person is an inhabitant or transacts 
business or wherever such person may be found. Upon evidence received, 
the Commission may (1) prohibit such person from trading on or subject 
to the rules of any [contract market] registered entity and require all 
[contract markets] registered entities to refuse such person all 
[trading privileges] privileges thereon for such period as may be 
specified in the order, (2) if such person is registered with the 
Commission in any capacity, suspend, for a period not to exceed six 
months, or revoke, the registration of such person, (3) assess such 
person a civil penalty of not more than the higher of $100,000 or 
triple the monetary gain to such person for each such violation and (4) 
require restitution to customers of damages proximately caused by 
violations of such persons. Notice of such order shall be sent 
forthwith by registered mail or by certified mail or delivered to the 
offending person and to the governing boards of said [contract markets] 
registered entities. After the issuance of the order by the Commission, 
as aforesaid, the person against whom it is issued may obtain a review 
of such order or such other equitable relief as to the court may seem 
just by filing in the United States court of appeals of the circuit in 
which the petitioner is doing business, or in the case of an order 
denying registration, the circuit in which the petitioner's principal 
place of business listed on petitioner's application for registration 
is located, a written petition, within fifteen days after the notice of 
such order is given to the offending person praying that the order of 
the Commission be set aside. A copy of such petition shall be forthwith 
transmitted by the clerk of the court to the Commission and thereupon 
the Commission shall file in the court the record theretofore made, as 
provided in section 2112 of title 28, United States Code. Upon the 
filing of the petition the court shall have jurisdiction to affirm, to 
set aside, or modify the order of the Commission, and the findings of 
the Commission as to the facts, if supported by the weight of evidence, 
shall in like manner be conclusive.
    (d) If any person (other than a [contract market] 
registered entity) is manipulating or attempting to manipulate 
or has manipulated or attempted to manipulate the market price 
of any commodity, in interstate commerce, or for future 
delivery on or subject to the rules of any [contract market] 
registered entity, or otherwise is violating or has violated 
any of the provisions of this Act or of the rules, regulations, 
or orders of the Commission or the commission thereunder, the 
Commission may, upon notice and hearing, and subject to appeal 
as in other cases provided for in subsection (c), make and 
enter an order directing that such person shall cease and 
desist therefrom and, if such person thereafter and after the 
lapse of the period allowed for appeal of such order or after 
the affirmance of such order, shall fail or refuse to obey or 
comply with such order, such person shall be guilty of a 
misdemeanor and, upon conviction thereof, shall be fined not 
more than the higher of $100,000 or triple the monetary gain to 
such person, or imprisoned for not less than six months nor 
more than one year, or both, except that if such failure or 
refusal to obey or comply with such order involves any offense 
within paragraph (a) or (b) of section 9 of this Act, such 
person shall be guilty of a felony and, upon conviction 
thereof, shall be subject to the penalties of said paragraph 
9(a) or 9(b): Provided, That any such cease and desist order 
against any respondent in any case of manipulation of, or 
attempt to manipulate, the price of any commodity shall be 
issued only in conjunction with an order issued against such 
respondent under subsection (c). Each day during which such 
failure or refusal to obey or comply with such order continues 
shall be deemed a separate offense.
    (e)(1) In determining the amount of the money penalty 
assessed under subsection (c), the Commission shall consider 
the appropriateness of such penalty to the gravity of the 
violation.
  (2) Unless the person against whom a money penalty is 
assessed under subsection (c) shows to the satisfaction of the 
Commission within fifteen days from the expiration of the 
period allowed for payment of such penalty that either an 
appeal as authorized by subsection (c) has been taken or 
payment of the full amount of the penalty then due has been 
made, at the end of such fifteen-day period and until such 
person shows to the satisfaction of the Commission that payment 
of such amount with interest thereon to date of payment has 
been made--
          (A) such person shall be prohibited automatically 
        from [trading on all contract markets] the privileges 
        of all registered entities; and
          (B) if such person is registered with the Commission, 
        such registration shall be suspended automatically.
  (3) If a person against whom a money penalty is assessed 
under subsection (c) takes an appeal and if the Commission 
prevails or the appeal is dismissed, unless such person shows 
to the satisfaction of the Commission that payment of the full 
amount of the penalty then due has been made by the end of 
thirty days from the date of entry of judgment on the appeal--
          (A) such person shall be prohibited automatically 
        from [trading on all contract markets] the privileges 
        of all registered entities; and
          (B) if such person is registered with the Commission, 
        such registration shall be suspended automatically.
If the person against whom the money penalty is assessed fails 
to pay such penalty after the lapse of the period allowed for 
appeal or after the affirmance of such penalty, the Commission 
may refer the matter to the Attorney General who shall recover 
such penalty by action in the appropriate United States 
district court.

           *       *       *       *       *       *       *

    Sec. 6a. (a) No board of trade which has been [designated 
as a ``contract market'' shall] designated or registered as a 
contract market or a derivatives transaction execution facility 
exclude from membership in, and all privileges on, such board 
of trade, any association or corporation engaged in cash 
commodity business having adequate financial responsibility 
which is organized under the cooperative laws of any State, or 
which has been recognized as a cooperative association of 
producers by the United States Government or by any agency 
thereof, if such association or corporation complies and agrees 
to comply with such terms and conditions as are or may be 
imposed lawfully upon other members of such board, and as are 
or may be imposed lawfully upon a cooperative association of 
producers engaged in cash commodity business, unless such board 
of trade is authorized by the Commission to exclude such 
association or corporation from membership and privileges after 
hearing held upon at least three days' notice subsequent to the 
filing of complaint by the board of trade: Provided, however, 
That if any such association or corporation shall fail to meet 
its obligations with any established clearing house or clearing 
agency of any contract market, such association or corporation 
shall be ipso facto debarred from further trading on such 
contract market, except such trading as may be necessary to 
close open trades and to discharge existing contracts in 
accordance with the rules of such contract market applicable in 
such cases. Such Commission may prescribe that such association 
or corporation shall have and retain membership and privileges, 
with or without imposing conditions, or it may permit such 
board of trade immediately to bar such association or 
corporation from membership and privileges. Any order of said 
Commission entered hereunder shall be reviewable by the court 
of appeals for the circuit in which such association or 
corporation, or such board of trade, has its principal place of 
business, on written petition either of such association or 
corporation, or of such board of trade, under the procedure 
provided in section 6(b) of this Act, but such order shall not 
be stayed by the court pending review.
    (b) No rule of any board of trade [designated as a contract 
market] designated or registered as a contract market or a 
derivatives transaction execution facility shall forbid or be 
construed to forbid the payment of compensation on a commodity-
unit basis, or otherwise, by any federated cooperative 
association to its regional member-associations for services 
rendered or to be rendered in connection with any organization 
work, educational activity, or procurement of patronage, 
provided no part of any such compensation is returned to 
patrons (whether members or nonmembers) of such cooperative 
association, or of its regional or local member-associations, 
otherwise than as a dividend on capital stock or as a patronage 
dividend out of the net earnings or surplus of such federated 
cooperative association.
    Sec. 6b. If any [contract market] registered entity is not 
enforcing or has not enforced its rules of government made a 
condition of its [designation as set forth in section 5 of this 
Act] designation or registration as set forth in sections 5 
through 5c, or if any [contract market] registered entity, or 
any director, officer, agent, or employee of any [contract 
market] registered entity otherwise is violating or has 
violated any of the provisions of this Act or any of the rules, 
regulations, or orders of the Commission thereunder, the 
Commission may, upon notice and hearing on the record and 
subject to appeal as in other cases provided for in section 
6(b)of this Act, make and enter an order directing that such 
[contract market] registered entity, director, officer, agent, or 
employee shall cease and desist from such violation, and assess a civil 
penalty of not more than $500,000 for each such violation. If such 
[contract market] registered entity, director, officer, agent, or 
employee, after the entry of such a cease and desist order and the 
lapse of the period allowed for appeal of such order or after the 
affirmance of such order, shall fail or refuse to obey or comply with 
such order, such [contract market] registered entity, director, 
officer, agent, or employee shall be guilty of a misdemeanor and, upon 
conviction thereof, shall be fined not more than $500,000 or imprisoned 
for not less than six months nor more than one year, or both. Each day 
during which such failure or refusal to obey such cease and desist 
order continues shall be deemed a separate offense. If the offending 
[contract market] registered entity or other person upon whom such 
penalty is imposed, after the lapse of the period allowed for appeal or 
after the affirmance of such penalty, shall fail to pay such penalty, 
the Commission shall refer the matter to the Attorney General who shall 
recover such penalty by action in the appropriate United States 
district court. In determining the amount of the money penalty assessed 
under this section, the Commission shall consider the gravity of the 
offense, and in the case of a [contract market] registered entity shall 
further consider whether the amount of the penalty will materially 
impair [the contract market's ability] the ability of the registered 
entity to carry on its operations and duties.
    Sec. 6c. (a) Whenever it shall appear to the Commission 
that any [contract market] registered entity or other person 
has engaged, is engaging, or is about to engage in any act or 
practice constituting a violation of any provision of this Act 
or any rule, regulation, or order thereunder, or is restraining 
trading in any commodity for future delivery, the Commission 
may bring an action in the proper district court of the United 
States or the proper United States court of any territory or 
other place subject to the jurisdiction of the United States, 
to enjoin such act or practice, or to enforce compliance with 
this Act, or any rule, regulation or order thereunder, and said 
courts shall have jurisdiction to entertain such actions: 
Provided, That no restraining order (other than a restraining 
order which prohibits any person from destroying, altering or 
disposing of, or refusing to permit authorized representatives 
of the Commission to inspect, when and as requested, any books 
and records or other documents or which prohibits any person 
from withdrawing, transferring, removing, dissipating, or 
disposing of any funds, assets, or other property, and other 
than an order appointing a temporary receiver to administer 
such restraining order and to perform such other duties as the 
court may consider appropriate) or injunction for violation of 
the provisions of this Act shall be issued ex parte by said 
court.

           *       *       *       *       *       *       *

    Sec. 6d. (1) Whenever it shall appear to the attorney 
general of any State, the administrator of the securities laws 
of any State, or such other official as a State may designate, 
that the interests of the residents of that State have been, 
are being, or may be threatened or adversely affected because 
any person (other than a contract market, derivatives 
transaction execution facility, clearinghouse, floor broker, or 
floor trader) has engaged in, is engaging or is about to engage 
in, any act or practice constituting a violation of any 
provision of this Act or any rule, regulation, or order of the 
Commission thereunder, the State may bring a suit in equity or 
an action at law on behalf of its residents to enjoin such act 
or practice, to enforce compliance with this Act, or any rule, 
regulation, or order of the Commission thereunder, to obtain 
damages on behalf of their residents, or to obtain such further 
and other relief as the court may deem appropriate.

           *       *       *       *       *       *       *

    Sec. 7. Any [board of trade] person that has been 
designated or registered a [contract market] registered entity 
in the manner herein provided may have such designation or 
registration vacated and set aside by giving notice in writing 
to the Commission requesting that its designation or 
registration as a [contract market] registered entity be 
vacated, which notice shall be served at least ninety days 
prior to the date named therein as the date when the vacation 
of designation or registration shall take effect. Upon receipt 
of such notice the Commission shall forthwith order the 
vacation of the [designation of such board of trade as a 
contract market] designation or registration of the registered 
entity, effective upon the day named in the notice, and shall 
forthwith send a copy of the notice and its order to all other 
[contract markets] registered entities. From and after the date 
upon which the vacation became effective the said [board of 
trade] person can thereafter be [designated again a contract 
market] designated or registered again a registered entity by 
making application to the Commission in the manner herein 
provided for an original application.
    Sec. 8. (a)  * * *

           *       *       *       *       *       *       *

    (c) The Commission may make or issue such reports as it 
deems necessary, or such opinions or orders as may be required 
under other provisions of law, relative to the conduct of any 
[board of trade] registered entity or to the transactions of 
any person found guilty of violating the provisions of this Act 
or the rules, regulations, or orders of the Commission 
thereunder in proceedings brought under section 6 of this Act. 
In any such report or opinion, the Commission may set forth the 
facts as to any actual transaction or any information referred 
to in subsection (b) of this section, if such facts or 
information have previously been disclosed publicly in 
connection with a congressional proceeding, or in an 
administrative or judicial proceeding brought under this Act.

           *       *       *       *       *       *       *

    Sec. 8a. The Commission is authorized--
          (1)  * * *
          (2) upon notice, but without a hearing and pursuant 
        to such rules, regulations, or orders as the Commission 
        may adopt, to refuse to register, to register 
        conditionally, or to suspend or place restrictions upon 
        the registration of, any person and with such a hearing 
        as may be appropriate to revoke the registration of any 
        person--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (F) if such person is subject to an 
                outstanding order of the Commission denying 
                [trading privileges] privileges on any 
                [contract market] registered entity to such 
                person, denying, suspending, or revoking such 
                person's membership in any [contract market] 
                registered entity or registered futures 
                association, or barring or suspending such 
                person from being associated with a registrant 
                under this Act or with a member of a [contract 
                market] registered entity or with a member of a 
                registered futures association;

           *       *       *       *       *       *       *

          (3) to refuse to register or to register 
        conditionally any person, if it is found, after 
        opportunity for hearing, that--
                  (A)  * * *

           *       *       *       *       *       *       *

                  (J) such person is subject to an outstanding 
                order denying, suspending, or expelling such 
                person from membership in a [contract market] 
                registered entity, a registered futures 
                association, any other self-regulatory 
                organization, or any foreign regulatory body 
                that the Commission recognizes as having a 
                comparable regulatory program or barring or 
                suspending such person from being associated 
                with any member or members of such [contract 
                market] registered entity, association, self-
                regulatory organization, or foreign regulatory 
                body;

           *       *       *       *       *       *       *

          (6) to communicate to the proper committee or officer 
        of any [contract market] registered entity, registered 
        futures association, or self-regulatory organization as 
        defined in section 3(a)(26) of the Securities Exchange 
        Act of 1934, notwithstanding the provisions of section 
        8 of this Act, the full facts concerning any 
        transaction or market operation, including the names of 
        parties thereto, which in the judgment of the 
        Commission disrupts or tends to disrupt any market or 
        is otherwise harmful or against the best interests of 
        producers, consumers, or investors, or which is 
        necessary or appropriate to effectuate the purposes of 
        this Act: Provided, That any information furnished by 
        the Commission under this paragraph shall not be 
        disclosed by such [contract market] registered entity, 
        registered futures association, or self-regulatory 
        organization except in any self-regulatory action or 
        proceeding;
          (7) to alter or supplement the rules of a [contract 
        market] registered entity insofar as necessary or 
        appropriate by rule or regulation or by order, if after 
        making the appropriate request in writing to a 
        [contract market] registered entity that such [contract 
        market] registered entity effect on its own behalf 
        specified changes in its rules and practices, and after 
        appropriate notice and opportunity for hearing, the 
        Commission determines that such [contract market] 
        registered entity has not made the changes so required, 
        and that such changes are necessary or appropriate for 
        the protection of persons producing, handling, 
        processing, or consuming any commodity traded for 
        future delivery on such [contract market] registered 
        entity, or the product or byproduct thereof, or for the 
        protection of traders or to insure fair dealing in 
        commodities traded for future delivery on such 
        [contract market] registered entity. Such rules, 
        regulations, or orders may specify changes with respect 
        to such matters as--
                  (A) terms or conditions in contracts of sale 
                to be executed on or subject to the rules of 
                such [contract market] registered entity;

           *       *       *       *       *       *       *

          (8) to make and promulgate such rules and regulations 
        with respect to those persons registered under this 
        Act, who are not members of a [contract market] 
        registered entity, as in the judgment of the Commission 
        are reasonably necessary to protect the public interest 
        and promote just and equitable principles of trade, 
        including but not limited to the manner, method, and 
        place of soliciting business, including the content of 
        such solicitation;
          (9) to direct the [contract market] registered 
        entity, whenever it has reason to believe that an 
        emergency exists, to take such action as in the 
        Commission's judgment is necessary to maintain or 
        restore orderly trading in or liquidation of any 
        futures contract, including, but not limited to, the 
        setting of temporary emergency margin levels on any 
        futures contract, and the fixing of limits that may 
        apply to a market position acquired in good faith prior 
        to the effective date of the Commission's action. The 
        term ``emergency'' as used herein shall mean, in 
        addition to threatened or actual market manipulations 
        and corners, any act of the United States or a foreign 
        government affecting a commodity or any other major 
        market disturbance which prevents the market from 
        accurately reflecting the forces of supply and demand 
        for such commodity. Any action taken by the Commission 
        under this paragraph shall be subject to review only in 
        the United States Court of Appeals for the circuit in 
        which the party seeking review resides or has its 
        principal place of business, or in the United States 
        Court of Appeals for the District of Columbia Circuit. 
        Such review shall be based upon an examination of all 
        the information before the Commission at the time the 
        determination was made. The court reviewing the 
        Commission's action shall not enter a stay or order of 
        mandamus unless it has determined, after notice and 
        hearing before a panel of the court, that the agency 
        action complained of was arbitrary, capricious, an 
        abuse of discretion, or otherwise not in accordance 
        with law. Nothing herein shall be deemed to limit the 
        meaning or interpretation given by a [contract market] 
        registered entity to the terms ``market emergency'', 
        ``emergency'', or equivalent language in its own 
        bylaws, rules, regulations, or resolutions;

           *       *       *       *       *       *       *

    Sec. 8b. It shall be unlawful for any person, against whom 
there is outstanding any order of the Commission prohibiting 
him from trading on or subject to the rules of any [contract 
market] registered entity, to make or cause to be made in 
contravention of such order, any contract for future delivery 
of any commodity, on or subject to the rules of any [contract 
market] registered entity.
    Sec. 8c. (a)  * * *

           *       *       *       *       *       *       *

  (e)(1) The Commission shall issue regulations requiring each 
[contract market] registered entity to establish and make 
available to the public a schedule of major violations of any 
rule within the disciplinary jurisdiction of such [contract 
market] registered entity.
  (2) The regulations issued by the Commission pursuant to this 
subsection shall prohibit, for a period of time to be 
determined by the Commission, any individual who is found to 
have committed any major violation from service on the 
governing board of any [contract market] registered entity or 
registered futures association, or on any disciplinary 
committee thereof.

           *       *       *       *       *       *       *


SEC. 8E. COMMISSION OVERSIGHT; DEFICIENCY ORDERS.

  (a) Assessments.--At least once every two years, to the 
extent practicable, the Commission shall assess whether the 
trade monitoring system of each [contract market] registered 
entity satisfies [section 5a(b)] sections 5 through 5c.
  (b) Deficiency Orders.--
          (1) Causes.--The Commission may issue a proposed 
        deficiency order in accordance with paragraph (2), or 
        take such other administrative or enforcement action as 
        the Commission determines is appropriate, if, based on 
        its assessment or on other information, the Commission 
        at any time has reason to believe that [a contract 
        market's trade monitoring system implemented pursuant 
        to section 5a(b)] the trade monitoring system of a 
        registered entity implemented pursuant to sections 5 
        through 5c does not satisfy one or more of the 
        requirements of such section.
          (2) Contents.--A proposed deficiency order issued 
        under this subsection shall specify--
                  (A) the deficiencies the Commission has 
                reason to believe exist in the trade monitoring 
                system of the [contract market] registered 
                entity and a statement of reasons supporting 
                the Commission's belief that those deficiencies 
                exist;
                  (B) the corrective action that the Commission 
                believes that the [contract market] registered 
                entity must take and an acceptable timetable 
                for such corrective action; and
                  (C) a date, not less than twenty days from 
                the date of issuance of the proposed deficiency 
                order, when such deficiency order will become 
                final, subject to subsection (d).
          [(3) Remedies.--On becoming final, the Commission 
        deficiency order may--
                  [(A) require the contract market to--
                          [(i) institute appropriate 
                        improvements in its trade monitoring 
                        system necessary to correct the 
                        deficiencies noted therein;
                          [(ii) satisfy stated objective 
                        performance criteria to correct such 
                        deficiencies;
                          [(iii) upgrade or reconfigure 
                        existing systems for collecting or 
                        processing relevant data on trading and 
                        trader or broker activity, including, 
                        where appropriate, the commitment of 
                        additional resources; or
                  [(B) revoke any exemption of the contract 
                market from the regulations prohibiting the 
                privilege of dual trading under section 4j(a), 
                if the deficiency noted in such deficiency 
                order relates to--
                          [(i) the audit trail system the 
                        contract market is required to maintain 
                        under paragraph (2), (3), or (4) of 
                        section 5a(b); or
                          [(ii) the prevention, detection, or 
                        disciplining of violations attributable 
                        to such trading at such contract 
                        market, subject to the standards, 
                        exceptions, and duration provisions of 
                        section 4j(a); or
                  [(C) take any combination of the actions 
                described in subparagraphs (A) and (B).]
          (3) Remedies.--On becoming final, the Commission 
        deficiency order may require the registered entity to--
                  (A) institute appropriate improvements in its 
                trade monitoring system necessary to correct 
                the deficiencies in the order;
                  (B) satisfy stated objective performance 
                criteria to correct the deficiencies;
                  (C) upgrade or reconfigure existing systems 
                for collecting or processing relevant data on 
                trading and trader or broker activity, 
                including, where appropriate, the commitment of 
                additional resources.
          (4) Removal.--If the Commission finds, after notice 
        and opportunity for a hearing on the record prior to 
        such deficiency order becoming final, that a named 
        officer, director, committee member, or employee of 
        such [contract market] registered entity has 
        willfully--
                  (A) violated this Act, the rules or 
                regulations of the Commission thereunder, or 
                the rules of such [contract market] registered 
                entity;
                  (B) abused the authority of such person; or
                  (C) without reasonable justification or 
                excuse, failed to enforce compliance with any 
                provision of the rules of such [contract 
                market] registered entity by any member or 
                person associated with a member thereof,
        the Commission may issue a deficiency order under this 
        section to remove such officer, director, committee 
        member, or employee.
          (5) [Designation as contract market] Designation or 
        registration as registered entity.--Notwithstanding 
        section 6, during the period that a proposed or final 
        deficiency order under this section is in effect, the 
        Commission may refrain from approving any application 
        for designation or registration as a [contract market] 
        registered entity made by the [board of trade] person 
        whose [contract market] registered entity is the 
        subject of such deficiency order.
          (6) Delegation.--The Commission shall not delegate 
        the authority to issue deficiency orders under this 
        subsection.
  (c) Rescission, Modification, or Delay of Deficiency 
Orders.--Before any proposed deficiency order issued by the 
Commission under subsection (b) may become final, the 
Commission shall--
          (1) provide the affected [contract market] registered 
        entity with an opportunity for a hearing through 
        submission of written data, views, or arguments and, 
        under terms set by the Commission at the request of the 
        [contract market] registered entity, through an oral 
        presentation of views and comments to the Commission, 
        in order to petition the Commission to rescind, modify, 
        or delay such deficiency order; and
          (2) rule on such petition, not less than twenty days 
        before the deficiency order takes effect, making 
        findings, as appropriate, as to whether--
                  (A) the deficiencies cited by the Commission 
                have been corrected or are being corrected 
                under an expeditious timetable acceptable to 
                the Commission;
                  (B) the trade monitoring system of the 
                [contract market] registered entity is 
                deficient as noted in the deficiency order; or
                  (C) the timetable for corrective action by 
                the [contract market] registered entity in the 
                proposed deficiency order, and the particular 
                corrective action proposed, is appropriate in 
                light of the deficiencies noted and the 
                purposes of this Act.
  (d) Penalties.--Violation of a final deficiency order issued 
under subsection (c) shall be considered a violation of an 
order of the Commission for purposes of--
          (1) establishing liability and assessing penalties 
        against a [contract market] registered entity or any 
        director, officer, agent, or employee thereof under 
        section 6b or 6c; or
          (2) initiating proceedings under section [5b] 5e or 
        6(a).
  (e) Judicial Review.--
          (1) Persons.--Any person, other than a [contract 
        market] registered entity, aggrieved by a deficiency 
        order issued under subsection (b)(4), may obtain review 
        of such deficiency order when issued by the Commission 
        under the terms and conditions in section 6(b).
          (2) [Contract markets] Registered entities.--Any 
        [contract market] registered entity that has petitioned 
        the Commission to rescind, modify, or delay any 
        proposed deficiency order issued under subsection (b) 
        may obtain judicial review of any final such deficiency 
        order only in the United States Court of Appeals for 
        the circuit in which the party seeking review resides 
        or has its principal place of business, or in the 
        United States Court of Appeals for the District of 
        Columbia Circuit, under the standards applicable to 
        rulemaking proceedings under section 553 of title 5, 
        United States Code.
    Sec. 9. (a) It shall be a felony punishable by a fine of 
not more than $1,000,000 (or $500,000 in the case of a person 
who is an individual) or imprisonment for not more than five 
years, or both, together with the costs of prosecution, for:
          (1)  * * *
          (2) Any person to manipulate or attempt to manipulate 
        the price of any commodity in interstate commerce, or 
        for future delivery on or subject to the rules of any 
        [contract market] registered entity, or to corner or 
        attempt to corner any such commodity or knowingly to 
        deliver or cause to be delivered for transmission 
        through the mails or interstate commerce by telegraph, 
        telephone, wireless, or other means of communication 
        false or misleading or knowingly inaccurate reports 
        concerning crop or market information or conditions 
        that affect or tend to affect the price of any 
        commodity in interstate commerce, or knowingly to 
        violate the provisions of section 4, section 4b, 
        subsections (a) through (e) of subsection 4c, section 
        4h, [section 4o(1),] section 4n(1), or section 19.
          (3) Any person knowingly to make, or cause to be 
        made, any statement in any application, report, or 
        document required to be filed under this Act or any 
        rule or regulation thereunder or any undertaking 
        contained in a registration statement required under 
        this Act, or by any [contract market] registered entity 
        or registered futures association in connection with an 
        application for membership or participation therein or 
        to become associated with a member thereof, which 
        statement was false or misleading with respect to any 
        material fact, or knowingly to omit any material fact 
        required to be stated therein or necessary to make the 
        statements therein not misleading.
          (4) Any person willfully to falsify, conceal, or 
        cover up by any trick, scheme, or artifice a material 
        fact, make any false, fictitious, or fraudulent 
        statements or representations, or make or use any false 
        writing or document knowing the same to contain any 
        false, fictitious, or fraudulent statement or entry to 
        a [contract market] registered entity, board of trade, 
        or futures association designated or registered under 
        this Act acting in furtherance of its official duties 
        under this Act.

           *       *       *       *       *       *       *

  (f) It shall be a felony for any person--
          (1) who is an employee, member of the governing 
        board, or member of any committee of a board of trade, 
        [contract market] registered entity, or registered 
        futures association, in violation of a regulation 
        issued by the Commission, willfully and knowingly to 
        trade for such person's own account, or for or on 
        behalf of any other account, in contracts for future 
        delivery or options thereon on the basis of, or 
        willfully and knowingly to disclose for any purpose 
        inconsistent with the performance of such person's 
        official duties as an employee or member, any material 
        nonpublic information obtained through special access 
        related to the performance of such duties.
          (2) willfully and knowingly to trade for such 
        person's own account, or for or on behalf of any other 
        account, in contracts for future delivery or options 
        thereon on the basis of any material nonpublic 
        information that such person knows was obtained in 
        violation of paragraph (1) from an employee, member of 
        the governing board, or member of any committee of a 
        board of trade, [contract market] registered entity, or 
        registered futures association.
Such felony shall be punishable by a fine of not more than 
$500,000, plus the amount of any profits realized from such 
trading or disclosure made in violation of this subsection, or 
imprisonment for not more than five years, or both, together 
with the costs of prosecution.

           *       *       *       *       *       *       *

    Sec. 12. (a)  * * *

           *       *       *       *       *       *       *

  (d) There are authorized to be appropriated such sums as are 
necessary to carry out this Act for each of fiscal years 1995 
through [2000] 2005.
    (e) Nothing in this Act shall supersede or preempt--
          (1) criminal prosecution under any Federal criminal 
        statute;
          [(2) the application of any Federal or State statute, 
        including any rule or regulation thereunder, to any 
        transaction in or involving any commodity, product, 
        right, service, or interest (A) that is not conducted 
        on or subject to the rules of a contract market, or, in 
        the case of any State or local law that prohibits or 
        regulates gaming or the operation of ``bucket shops'' 
        (other than antifraud provisions of general 
        applicability), that is not a transaction or class of 
        transactions that has received or is covered by the 
        terms of any exemption previously granted by the 
        Commission under subsection (c) of section 4 of this 
        Act, or (B) (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 (C) that is not 
        subject to regulation by the Commission under section 
        4c or 19 of this Act; or]
          (2) the application of any Federal or State law 
        (including any regulation) to an agreement, contract, 
        or transaction in or involving any commodity, product, 
        right, service, or interest, except that this Act shall 
        supersede and preempt--
                  (A) in the case of any such agreement, 
                contract, or transaction--
                          (i) that is conducted on or subject 
                        to the rules of a registered entity or 
                        exempt board of trade;
                          (ii) that is conducted on or subject 
                        to the rules of any board of trade, 
                        exchange, or market located outside the 
                        United States, or any territory or 
                        possession of the United States (in 
                        accordance with any terms or conditions 
                        specified by the Commission by 
                        regulation); and
                          (iii) that is subject to regulation 
                        by the Commission under section 4c or 
                        19; and
                  (B) any State or local law that prohibits or 
                regulates gaming or the operation of bucket 
                shops (other than antifraud provisions of 
                general applicability) in the case of--
                          (i) an electronic trading facility 
                        under section 2(e); or
                          (ii) an agreement, contract, or 
                        transaction that is excluded or exempt 
                        under section 2(c), 2(d), 2(f), 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); or

           *       *       *       *       *       *       *

    Sec. 14. (a)(1) Any person complaining of any violation of 
any provision of this Act, or any rule, regulation, or order 
issued pursuant to this Act, by any person who is registered 
under this Act may, at any time within two years after the 
cause of action accrues, apply to the Commission for an order 
awarding--
          (A)  * * *
          (B) in the case of any action arising from a willful 
        and intentional violation in the execution of an order 
        on the floor of a [contract market] registered entity, 
        punitive or exemplary damages equal to no more than two 
        times the amount of such actual damages. If an award of 
        punitive or exemplary damages is made against a floor 
        broker in connection with the execution of a customer 
        order, and the futures commission merchant which 
        selected the floor broker for the execution of the 
        customer order is held to be responsible under section 
        2(a)(1) for the floor broker's violation, such futures 
        commission merchant may be required to satisfy such 
        award if the floor broker fails to do so, except that 
        such requirement shall apply to the futures commission 
        merchant only if it willfully and intentionally 
        selected the floor broker with the intent to assist or 
        facilitate the floor broker's violation.

           *       *       *       *       *       *       *

    (f) Unless the party against whom a reparation order has 
been issued shows to the satisfaction of the Commission within 
fifteen days from the expiration of the period allowed for 
compliance with such order that either an appeal as herein 
authorized has been taken or payment of the full amount of the 
order (or any agreed settlement thereof) has been made, such 
party shall be prohibited automatically from trading on all 
[contract markets] registered entities and, if the party is 
registered with the Commission, such registration shall be 
suspended automatically at the expiration of such fifteen-day 
period until such party shows to the satisfaction of the 
Commission that payment of such amount with interest thereon to 
date of payment has been made: Provided, That if on appeal the 
appellee prevails or if the appeal is dismissed, the automatic 
prohibition against trading and suspension of registration 
shall become effective at the expiration of thirty days from 
the date of judgment on the appeal, but if the judgment is 
stayed by a court of competent jurisdiction, the suspension 
shall become effective ten days after the expiration of such 
stay, unless prior thereto the judgment of the court has been 
satisfied.
    [(g) The provisions of this section shall not become 
effective until fifteen months after the date of its enactment: 
Provided, That claims which arise within one year immediately 
prior to the effective date of this section may be heard by the 
Commission after such 15-month period.]
  (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. 15. The Commission]

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 shall take into 
consideration the public interest to be protected by the 
antitrust laws and endeavor to take the least anticompetitive 
means of achieving the objectives of this Act, as well as the 
policies and purposes of this Act, in issuing any order or 
adopting any Commission rule or regulation (including any 
exemption under section 4(c) or 4c(b)), or in requiring or 
approving any bylaw, rule, or regulation of a contract market 
or registered futures association established pursuant to 
section 17 of this Act.

           *       *       *       *       *       *       *

    Sec. 17. (a)  * * *

           *       *       *       *       *       *       *

    (b) An applicant association shall not be registered as a 
futures association unless the Commission finds, under 
standards established by the Commission, that--
          (1)  * * *
          (2) the rules of the association provide that any 
        person registered under this Act, [contract market] 
        registered entity, or any other person designated 
        pursuant to the rules of the Commission as eligible for 
        membership may become a member of such association, 
        except such as are excluded pursuant to paragraph (3) 
        or (4) of this subsection, or a rule of the association 
        permitted under this paragraph. The rules of the 
        association may restrict membership in such association 
        on such specified basis relating to the type of business 
        done by its members, or on such other specified and 
        appropriate basis, as appears to the Commission to be 
        necessary or appropriate in the public interest and to carry 
        out the purpose of this section. Rules adopted by the 
        association may provide that the association may, unless 
        the Commission directs otherwise in cases in which the 
        Commission finds it appropriate in the public interest so 
        to direct, deny admission to, or refuse to continue in such 
        association any person if (i) such person, whether prior of 
        subsequent to becoming registered as such, or (ii) any person 
        associated within the meaning of ``associated person'' as set 
        forth in section 4k of this Act, whether prior or subsequent to 
        becoming so associated, has been and is suspended or expelled 
        from a [contract market] registered entity or has been and is 
        barred or suspended from being associated with all members of 
        such [contract market] registered entity, for violation of any 
        rule of such [contract market] registered entity;
          (3) the rules of the association provide that, except 
        with the approval or at the direction of the Commission 
        in cases in which the Commission finds it appropriate 
        in the public interest so to approve or direct, no 
        person shall be admitted to or continued in membership 
        in such association, if such person--
                  (A) has been and is suspended or expelled 
                from a registered futures association or from a 
                [contract market] registered entity or has been 
                and is barred or suspended from being 
                associated with all members of such association 
                or from being associated with all members of 
                such [contract market] registered entity, for 
                violation of any rule of such association or 
                [contract market] registered entity which 
                prohibits any act or transaction constituting 
                conduct inconsistent with just and equitable 
                principles of trade, or requires any act the 
                omission of which constitutes conduct 
                inconsistent with just and equitable principles 
                of trade;
                  (B) is subject to an order of the Commission 
                denying, suspending, or revoking his 
                registration pursuant to section 6(c) of this 
                Act, or expelling or suspending him from 
                membership in a registered futures association 
                or a [contract market] registered entity, or 
                barring or suspending him from being associated 
                with a futures commission merchant;
                  (C) whether prior or subsequent to becoming a 
                member, by his conduct while associated with a 
                member, was a cause of any suspension, 
                expulsion, or order of the character described 
                in clause (A) or (B) which is in effect with 
                respect to such member, and in entering such a 
                suspension, expulsion, or order, the Commission 
                or any such [contract market] registered entity 
                or association shall have jurisdiction to 
                determine whether or not any person was a cause 
                thereof; or

           *       *       *       *       *       *       *

          (10) the rules of the association provide a fair, 
        equitable, and expeditious procedure through 
        arbitration or otherwise for the settlement of 
        customers' claims and grievances against any member or 
        employee thereof: Provided, That (A) the use of such 
        procedure by a customer shall be voluntary, (B) the 
        term ``customer'' as used in this paragraph shall not 
        include another member of the association, and (C) in 
        the case of a claim arising from a violation in the 
        execution of an order on the floor of a [contract 
        market] registered entity, such procedure shall 
        provide, to the extent appropriate--
                  (i)  * * *

           *       *       *       *       *       *       *

    (o)(1) The Commission may require any futures association 
registered pursuant to this section to perform any portion of 
the registration functions under this Act with respect to each 
member of the association other than a [contract market] 
registered entity and with respect to each associated person of 
such member, in accordance with rules, notwithstanding any 
other provision of law, adopted by such futures association and 
submitted to the Commission pursuant to section 17(j) of this 
Act, and subject to the provisions of this Act applicable to 
registrations granted by the Commission.

           *       *       *       *       *       *       *

  (q)(1) The Commission shall issue regulations requiring each 
registered futures association to establish and make available 
to the public a schedule of major violations of any rule within 
the disciplinary jurisdiction of such registered futures 
association.
  (2) The regulations issued by the Commission pursuant to this 
subsection shall prohibit, for a period of time to be 
determined by the Commission, any member of a registered 
futures association who is found to have committed any major 
violation from service on the governing board of any registered 
futures association or [contract market] registered entity, or 
on any disciplinary committee thereof.

           *       *       *       *       *       *       *

    Sec. 22. (a)(1) Any person (other than a [contract market, 
clearing organization of a contract market, licensed board of 
trade,] registered entity or registered futures association) 
who violates this Act or who willfully aids, abets, counsels, 
induces, or procures the commission of a violation of this Act 
shall be liable for actual damages resulting from one or more 
of the transactions referred to in subparagraphs (A) through 
(D) of this paragraph and caused by such violation to any other 
person--
          (A)  * * *

           *       *       *       *       *       *       *

          (C) who purchased from or sold to such person or 
        placed through such person an order for the purchase or 
        sale of--
                  (i) an option subject to section 4c of this 
                Act (other than an option purchased or sold on 
                a [contract market] registered entity or other 
                board of trade);

           *       *       *       *       *       *       *

    (2) Except as provided in subsection (b), the rights of 
action authorized by this subsection and by [sections 5a(11),] 
sections 5(d)(13), 5b(b)(1)(E), 14, and 17(b)(10) of this Act 
shall be the exclusive remedies under this Act available to any 
person who sustains loss as a result of any alleged violation 
of this Act. Nothing in this subsection shall limit or abridge 
the rights of the parties to agree in advance of a dispute upon 
any forum for resolving claims under this section, including 
arbitration.
  (3) In any action arising from a violation in the execution 
of an order on the floor of a [contract market] registered 
entity, the person referred to in paragraph (1) shall be liable 
for--
          (A)  * * *

           *       *       *       *       *       *       *

  (4) Contract enforcement between eligible counterparties.--No 
agreement, contract, or transaction between eligible contract 
participants shall be void, voidable, or unenforceable, and no 
such eligible contract participant shall be entitled to 
rescind, or recover any payment made with respect to, such an 
agreement, contract, or transaction, under this section 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.
    (b)(1)(A) A [contract market or clearing organization of a 
contract market] registered entity that fails to enforce any 
bylaw, rule, regulation, or resolution that it is required to 
enforce by [section 5a(8) and section 5a(9) of this Act] 
sections 5 through 5c, (B) a licensed board of trade that fails 
to enforce any bylaw, rule, regulation, or resolution that it 
is required to enforce by the Commission, or (C) any [contract 
market, clearing organization of a contract market, or licensed 
board of trade] registered entity that in enforcing any such 
bylaw, rule, regulation, or resolution violates this Act or any 
Commission rule, regulation, or order, shall be liable for 
actual damages sustained by a person who engaged in any 
transaction on or subject to the rules of such [contract market 
or licensed board of trade] registered entity to the extent of 
such person's actual losses that resulted from such transaction 
and were caused by such failure to enforce or enforcement of 
such bylaws, rules, regulations, or resolutions.

           *       *       *       *       *       *       *

    (3) Any individual who, in the capacity as an officer, 
director, governor, committee member, or employee of a 
[contract market, clearing organization, licensed board of 
trade,] registered entity or a registered futures association 
willfully aids, abets, counsels, induces, or procures any 
failure by any such entity to enforce (or any violation of the 
Act in enforcing) any bylaw, rule, regulation, or resolution 
referred to in paragraph (1) or (2) of this subsection, shall 
be liable for actual damages sustained by a person who engaged 
in any transaction specified in subsection (a) of this section 
on, or subject to the rules of, such [contract market, licensed 
board of trade] registered entity or, in the case of an 
officer, director, governor, committee member, or employee of a 
registered futures association, any transaction specified in 
subsection (a) of this section, in either case to the extent of 
such person's actual losses that resulted from such transaction 
and were caused by such failure or violation.
    (4) A person seeking to enforce liability under this 
section must establish that the [contract market, licensed 
board of trade, clearing organization,] registered entity 
registered futures association, officer, director, governor, 
committee member, or employee acted in bad faith in failing to 
take action or in taking such action as was taken, and that 
such failure or action caused the loss.
    (5) The rights of action authorized by this subsection 
shall be the exclusive remedy under this Act available to any 
person who sustains a loss as a result of (A) the alleged 
failure by a [contract market, licensed board of trade, 
clearing organization,] registered entity or registered futures 
association or by any officer, director, governor, committee 
member, or employee to enforce any bylaw, rule, regulation, or 
resolution referred to in paragraph (1) or (2) of this 
subsection, or (B) the taking of action in enforcing any bylaw, 
rule, regulation, or resolution referred to in this subsection 
that is alleged to have violated this Act, or any Commission 
rule, regulation, or order.

           *       *       *       *       *       *       *

                              ----------                              


 SECTION 402 OF THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT 
                              ACT OF 1991

SEC. 402. DEFINITIONS.

  For purposes of this subtitle--
          (1)  * * *

           *       *       *       *       *       *       *

          (2) Clearing organization.--The term ``clearing 
        organization'' means a clearinghouse, clearing 
        association, clearing corporation, or similar 
        organization--
                  (A)  * * *

           *       *       *       *       *       *       *

                  [(B) that performs clearing functions for a 
                contract market designated pursuant to the 
                Commodity Exchange Act.]
                  (B) that is registered as a derivatives 
                clearing organization under section 5b of the 
                Commodity Exchange Act.

           *       *       *       *       *       *       *


                            DISSENTING VIEWS

    Section 8 of H.R. 4541 would repeal the current ban on 
single stock and narrow-based stock index futures contracts 
(``stock futures''). It would permit stock futures to be traded 
only on futures exchanges, subject to the Commodity Exchange 
Act.
    Stock futures are surrogates for stocks and stock options. 
As permitted under the bill, stock futures would trade on 
public markets and be marketed to retail investors in a manner 
similar to stocks and stock options. They would offer investors 
and market professionals a new choice in the menu of available 
equity-based financial products. I support this goal of the 
bill. However, H.R. 4541 fails to address a number of 
significant competitive disparities that would provide stock 
futures traded under the jurisdiction of the Commodities 
Futures Trading Commission with an unfair competitive advantage 
vis-a-vis stocks and stock options traded under the 
jurisdiction of the Securities and Exchange Commission. The 
most noteworthy disparities include the following:
Tax treatment
    The bill would result in a situation where customers would 
receive favorable 60/40 tax treatment on stock futures but 
would not receive that treatment on exchange-listed equity 
options. Essentially, investors of exchange-listed equity 
options would be subject to higher tax rates than investors of 
stock futures. This disparity would violate the congressional 
policy of providing equivalent tax treatment for competing 
products on the options and futures exchanges.
Margin
    Margin refers generally to the deposit amount that a 
customer or other financial entity must pay towards the 
purchase (and in some cases, sale) of a financial instrument. 
Lower margin requirements translate into lower out-of-pocket 
requirements and higher leverage opportunities for investors. 
Many investors seek out the lowest possible margin costs in 
choosing a financial instrument. The bill would require that 
margin levels for stock futures be ``consistent with'' margin 
levels that apply to stock options traded on a securities 
exchange. This provision would not ``harmonize'' margin 
treatment between the securities and futures markets. First, 
the term ``consistent with'' provides an unreasonable amount of 
permitted variation in margin levels, particularly in a setting 
where no single regulator will be acting as a referee with a 
mandate to assure that competitive fairness is maintained. 
Second, dealing only with margin ``levels'' ignores many other 
components that are relevant in addressing the harmonization of 
margin, including cover provisions, margin offsets, and 
acceptable collateral.
Section 31 fees
    Exchange-traded stocks and stock options are subject to a 
transaction fee known as a ``Section 31 fee.'' The purpose of 
this fee is to support the funding of the Securities & Exchange 
Commission (``SEC''). It currently has no counterpart on the 
futures markets. While this tax only represents a fraction of 
one percent on a per trade basis, over the course of time heavy 
traders can end up paying a significant dollar amount. The bill 
does not extend the fee to stock futures, notwithstanding that 
Section 8 requires the SEC to police the stock futures markets 
against violations of several federal securities laws 
addressing fraud and manipulation, including insider trading.
    These disparities could unfairly divert business to those 
markets with the lowest regulatory and tax cost. Since the bill 
would essentially give birth to the trading of stock futures, 
Congress, in permitting these disparities to exist, could be 
viewed as creating them. It certainly has an opportunity and 
obligation to address them. In establishing a legal framework 
to permit the trading of stock futures, Congress should seek to 
establish a level playing field that does not provide an unfair 
competitive advantage to a particular trading venue. 
Unfortunately, H.R. 4541 would establish a regulatory and tax 
scheme that, at least in several key respects, treats competing 
businesses involved in the marketing of nearly identical 
financial products in very different ways. I am opposed to this 
result.

                                                          Doug Ose.

                                  
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