[Senate Report 109-119]
[From the U.S. Government Publishing Office]
Calendar No. 191
109th Congress Report
SENATE
1st Session 109-119
======================================================================
COMMODITY EXCHANGE REAUTHORIZATION ACT OF 2005
_______
July 29, 2005.--Ordered to be printed
_______
Mr. Chambliss, from the Committee on Agriculture, Nutrition, and
Forestry, submitted the following
R E P O R T
[To accompany S. 1566]
The Committee on Agriculture, Nutrition, and Forestry,
having considered the bill (S. 1566) to reauthorize the
Commodity Exchange Act, and for other purposes, reports
favorably thereon and recommends that the bill do pass.
CONTENTS
Page
I. Purpose, need, and background.....................................1
II. Legislative history and votes in the committee....................2
III.Section-by-section analysis.......................................5
IV. Regulatory impact statement......................................10
V. Cost Estimate....................................................10
VI. Changes in existing law..........................................13
I. Purpose, Need, and Background
The Commodity Futures Trading Commission (CFTC or the
Commission) is due to be reauthorized by September 30, 2005.
The CFTC is charged with protecting market users and the public
from fraud and manipulation in the nation's futures markets
while fostering open, competitive, and financially sound
markets. The Commodity Exchange Act (CEA) is the basic law that
empowers the CFTC with the regulatory authority to oversee
futures markets.
Futures contracts for agricultural commodities have been
traded in the United States for more than 150 years and have
been regulated under Federal statutes since the 1920's. In
recent years, trading in futures contracts has expanded rapidly
beyond physical commodities into a vast array of financial
instruments, including foreign currencies, U.S. and foreign
government securities, and U.S. and foreign stock indexes. More
than one billion futures and option contracts were traded on
U.S. futures exchanges in 2004. Futures and options exchanges
play a vital role in the national economy as a price discovery
mechanism and as risk management tools for individuals,
farmers, and businesses throughout the nation. The
responsibility of eliminating fraud and manipulation within
these markets lies with the CFTC.
The Commodity Exchange Act (CEA) was passed in 1922,
marking the beginning of the modern era of government
regulation and oversight of the U.S. futures markets. The
Commodity Futures Trading Commission (CFTC) was created in 1974
as the agency of the Federal government responsible for
oversight and regulation of futures markets through the CEA.
Landmark changes were made to the CEA in the Commodity Futures
Modernization Act of 2000 (CFMA). Since its passage, futures
markets have grown dramatically in volume.
II. Legislative History and Committee Votes
The Committee on Agriculture, Nutrition, and Forestry held
two full Committee hearings to consider the reauthorization of
the Commodity Futures Trading Commission (CFTC) prior to its
markup of this legislation.
The first hearing took place on March 8, 2005, and
consisted of two panels. Sharon Brown-Hruska, Acting Chairman
of the CFTC, testified before the committee that the CEA, as
amended by the CFMA, is functioning exceptionally well.
However, her testimony highlighted three areas of concern that
have arisen since Congress last reauthorized the CFTC. First,
she suggested Congress evaluate whether clarifications are
necessary to the legal framework provided for exempt markets.
Second, she stated Congress may wish to examine ways to further
reduce the burdens of duplicate market regulation by multiple
agencies. And third, Ms. Brown-Hruska recognized Congress's
firm commitment to protecting customers from fraud and
manipulation, and asked that Congress review whether CFTC has
sufficient authority to police retail fraud.
Charles P. Carey, Chairman of the Chicago Board of Trade
(CBOT), shared his views on CFTC reauthorization. Mr. Carey
commended Congress for the passage of the CFMA, and also called
attention to several issues he felt deserved discussion. He
highlighted the challenges which have been presented from dual
regulation by the CFTC and Securities and Exchange Commission
(SEC) of certain products. Mr. Carey also expressed his
concerns on how Congress may choose to address a particular
court decision, CFTC v. Zelener. He stated that the decision
held that CFTC has no anti-fraud jurisdiction over certain
retail foreign currency (forex) transactions and could
potentially lead to increased opportunities for fraud. Mr.
Carey also discussed the challenges the futures industry has
faced with respect to international expansion and cross-border
business arrangements.
Terrence A. Duffy, Chairman of the Chicago Mercantile
Exchange (CME), testified before the Committee. Mr. Duffy
echoed the comments of others by applauding the success of the
CFMA, but suggested some changes based on developments since
the CFMA was enacted. One problem Mr. Duffy recognized is
continuing fraud against retail customers in over-the-counter
foreign exchange markets. He stated this problem has been
compounded by the CFTC v. Zelener decision, as the court
adopted a narrow definition of a futures contract. Mr. Duffy
also pointed out this problem extends beyond foreign exchange
and could be applied to any commodity. He suggested a
compromise be worked out between SEC and CFTC's jurisdiction in
reference to single-stock futures products to avoid duplicate
regulation.
James Newsome, President of New York Mercantile Exchange
(NYMEX), testified on behalf of the exchange. Dr. Newsome spoke
of the benefits to the market from the passage of the CFMA, and
noted that the CFMA maintained the CFTC's exclusive
jurisdiction over futures and options on futures. He also
discussed the role of hedge funds in several markets, and
explained their importance in these markets. Questions were
raised regarding CFTC's anti-fraud authority over principal-to-
principal transactions involving exempt commodities. Dr.
Newsome suggested that Congress consider whether clarifications
or guidance in this area is needed.
Frederick W. Schoenhut, Chairman of the New York Board of
Trade (NYBOT), discussed his comments on CFTC reauthorization
before the Committee. After stating that he believed the CFMA
is working the way it was intended, Mr. Schoenhut expressed his
support for a reauthorization bill that continues this
regulatory structure. Three areas of the exchange self-
regulatory structure which he felt should be maintained were
then listed. The first was that each exchange should continue
to determine the composition of its governing board. Second,
that the structure for exchange compliance and disciplinary
functions should also remain unchanged. And third, that
exchanges be required to establish and enforce rules that
minimize conflicts of interest in the decision making process.
The Chief Executive Officer of Eurex, US, Satish
Nandapurker, was the next to appear before the Committee. Mr.
Nandapurker concurred with earlier testimony that the CFMA has
been a tremendous success and commended CFTC on an outstanding
job with implementing the language.
The final witness of the first hearing was John M. Damgard,
President of the Futures Industry Association (FIA). Mr.
Damgard asked that any changes made to the CEA be made by the
Senate Committee on Agriculture, Nutrition, and Forestry during
reauthorization of the CFTC rather than another venue. He
agreed that the fundamental reforms in the CFMA have worked
well, and stated that he favors no change to the basic
statutory design.
On March 10, 2005, the Committee met to hear testimony on
CFTC reauthorization from representatives of the over-the-
counter (OTC) markets and other witnesses.
First to testify was Jeffrey Spreecher, Chairman and Chief
Executive Officer of Intercontinental Exchange (ICE). Mr.
Spreecher thanked the Committee for its work in developing and
adopting the CFMA, and listed three reasons why the legislation
has been a success for his company. First, it provided legal
certainty OTC products. Second, the CFMA created a new category
of trading facility called the exempt commercial market (ECM).
Lastly, the CFMA permitted the clearing of OTC transactions.
Robert G. Pickel, Executive Director and Chief Executive
Officer for the International Swaps and Derivatives Association
(ISDA), shared his views on CFTC reauthorization with the
Committee. Mr. Pickel noted that the principal interest of his
company in the CFMA was and remains those provisions intended
to provide legal certainty for OTC derivatives. He applauded
the CFMA and stated that he does not believe there is a
fundamental need for Congress to make substantive changes to
those portions of the legislation governing OTC derivatives.
Oliver Ireland testified before the Committee on behalf of
Huntsman Corporation and Industrial Energy Consumers of America
(IECA). After reiterating that the CEA as amended by the CFMA
functions exceptionally well, he stated that price volatility
in the natural gas contracts suggest the market for natural gas
may not be operating efficiently and the regulatory framework
for these contracts should be reviewed. Mr. Ireland provided
the Committee with several suggestions, some of which included
regulating natural gas under the same framework of the CEA
applicable to agricultural commodities and providing the CFTC
backup authority to require large position reporting.
The second panel of the hearing included the testimony of
Daniel J. Roth, President and Chief Executive Officer of the
National Futures Association (NFA). Mr. Roth stated that
although the CFMA is successful, it fails to achieve one of its
customer protection objectives. He said that that CFTC's
authority to protect retail customers investing in forex may be
more uncertain now than before passage of the CFMA due to the
CFTC v. Zelener court decision. Mr. Roth pointed out that the
results of this decision are not solely a forex problem because
nothing in the Zelener decision limited its rationale to forex
products and that other commodities could be sold in the same
fraudulent manner. Mr. Roth reiterated that the NFA, which is
the self-regulatory body of the futures industry, believes this
decision has created a customer protection issue, and Congress
must address it.
John G. Gaine, President of the Managed Funds Association
(MFA), provided testimony for the Committee. Mr. Gaine
discussed the role of hedge funds in the futures markets, and
referenced studies that concluded hedge funds do not cause
volatility in the energy markets. He also urged cooperation
between the SEC and CFTC to avoid duplicative regulation. Mr.
Gaine asked that CFTC act on petitions from various futures
exchanges which would relax speculative position limits on a
number of agricultural products.
The final witness was Micah S. Green, President of the Bond
Market Association (BMA). Mr. Green stated the CFMA is
extremely successful, especially since it clarifies the
exclusion from the CEA of OTC derivatives, swaps, and foreign
exchange transactions. Mr. Green urged the Committee to not
alter any of the fundamental elements of the CFMA with respect
to OTC derivatives markets.
COMMITTEE VOTE
In compliance with paragraph 7 of rule XXVI of the Standing
Rules of the Senate, the following statements are made
concerning the votes of the Committee in its consideration of
the Committee bill: The Committee met to mark up the bill on
Thursday, July 21, 2005. The Committee ordered that the bill be
favorably reported by a voice vote.
III. Section-by-Section Analysis
Section 1: Short title
The name of the Act is the ``Commodity Exchange
Reauthorization Act of 2005.''
Section 2: Contracts designed to defraud or mislead
Section 2 of the legislation amends Section 4b of the CEA,
the CFTC's main anti-fraud authority. Section 4b is revised to
provide the CFTC with the authority to bring fraud actions in
off-exchange principal-to-principal futures transactions. In
November 2000, the 7th Circuit Court of Appeals ruled that the
CFTC could only use Section 4b in intermediated transactions--
those involving a broker, Commodity Trend Service, Inc. v.
CFTC, 233 F.3d 981, 991-992 (7th Cir. 2000). As subsequently
amended by the CFMA, the CEA now permits off-exchange futures
and options transactions that are done on a principal-to-
principal basis, such as energy transactions pursuant to CEA
Sections 2(h)(1) and 2(h)(3).
Subsection 4b(a)(2) is amended by adding the words ``or
with'' to address the principal-to-principal transactions. This
new language clarifies that the CFTC has the authority to bring
anti-fraud actions in off-exchange principal-to-principal
futures transactions, including exempt commodity transactions
in energy under Section 2(h) as well as all transactions
conducted on derivatives transaction execution facilities. The
new Section 4b clarifies that market participants in these
transactions are not required to disclose information that may
be material to the market price, rate or level of the commodity
in such off-exchange transactions. It also codifies existing
law that prohibits market participants from using half-truths
in negotiations and solicitations by requiring a person to
disclose all necessary information to make any statement they
have made not misleading in any material respect. The
prohibitions in subparagraphs (A) through (D) of the new
Section 4b(a) would apply to all transactions covered by
paragraphs (1) and (2). Derivatives clearing organizations
(DCOs) are not subject to fraud actions under Section 4b in
connection with their clearing activities.
The amendments to Section 4b(a) of the CEA regarding
transactions currently prohibited under subparagraph (iv)
(found in paragraph 2(D) of this bill) are not intended to
affect in any way the CFTC's historical ability to prosecute
cases of indirect bucketing of orders executed on designated
contract markets. See, e.g., Reddy v. CFTC, 191 F.3d 109 (2nd
Cir. 1999); In re DeFrancesco, et al., CFTC Docket No. 02-09
(CFTC May 22, 2003) (Order Making Findings and Imposing
Remedial Sanctions as to Respondent Brian Thornton).
Section 3: Criminal and civil penalties
Section 3 of the legislation amends CEA Section 9 to double
the civil and criminal penalties available for certain criminal
violations of the CEA such as manipulation, false reporting,
and conversion. The maximum fines for individuals under Section
9 are increased from $500,000 to $1 million, and the maximum
prison sentence is increased from 5 to 10 years. In a similar
vein, Section 3 includes amendments to the procedural
enforcement provisions in Sections 6(c), 6b, and 6c of the CEA
to increase the civil monetary penalties to $1 million or
triple the monetary gain to the person for each violation of
manipulation or attempted manipulation.
Section 9 of the CEA makes it a felony for any person to
knowingly make false, misleading or inaccurate reports
regarding the price of any commodity, including electricity and
natural gas. Most of the other provisions of Section 9
similarly identify types of misconduct that constitute
felonies. The CFTC lacks criminal powers, but it has brought
civil enforcement proceedings under Section 9 throughout its
history. In fact, in the last 25 years the CFTC has brought
over 70 civil injunctive or administrative actions under
Section 9, so it is well-established that the CFTC has such
authority. Recently, the CFTC has used Section 9 to obtain
settlements totaling nearly $300 million for false reporting
violations by energy trading firms in connection with natural
gas and electricity transactions that were falsely reported in
an attempt to manipulate prices. These included charges based
on the reporting of transactions that arguably were done under
Section 2(g) of the CEA. The Committee concurs with the CFTC's
consistent position that even if a transaction is excluded from
CFTC jurisdiction under Section 2(g), the false reporting of
such a transaction is a separate act and remains a violation of
Section 9 so the CFTC has authority to prosecute.
Regarding natural gas markets, the Committee expects the
CFTC to aggressively oversee those markets to ensure that they
are free from improper trading practices. The Committee is
particularly concerned about the high volatility, but there are
varying views about its cause. The volatility in prices for
natural gas futures trading on the NYMEX has risen
significantly since the year 2000. This price volatility raises
costs for participants in the physical market for natural gas.
The NYMEX completed a study in March, 2005, analyzing, among
other issues, volatility in the natural gas markets. The study
concluded that divergent trends in natural gas supply and
demand have led to the tight balance between supply and demand,
higher gas prices, and increased gas volatility.
Natural gas is vitally important to the United States
economy, and businesses that continually need natural gas
depend on the futures markets for risk control and price
discovery purposes. The high price volatility in the natural
gas futures markets hurts consumers, farmers, and
manufacturers. The Committee will continue to monitor the price
volatility in the natural gas markets.
The legislative change to Section 9 clarifies the CFTC's
authority to bring civil and administrative actions, and would
ensure that the CFTC can continue to bring false reporting
cases in the energy arena for acts or omissions that occurred
prior to enactment. The bill expressly provides that these
amendments simply restate, without substantive change, existing
CFTC civil enforcement authority. This clarifying change does
not grant any new statutory authority, and the provisions of
this section, as restated, continue to apply to any action
pending on or commenced after the date of enactment for any
alleged violation occurring before, on, or after the date of
enactment.
Section 4: Clarification of authority
The Committee finds that there is a significant customer
protection problem with respect to retail forex fraud. Since
the clarification of the CFTC's anti-fraud authority regarding
foreign currency trading in the Commodity Futures Modernization
Act of 2000, the CFTC has brought 79 retail forex fraud
enforcement actions involving over 23,000 victims and $350
million invested.
Section 4 of the bill, ``Clarification of Authority,''
addresses several of the problems in the area of retail forex
trading pursuant to Section 2(c) of the CEA. This section
amends Sections 2(c)(2)(B) and (C) of the CEA to address three
substantive areas: (i) the Zelener decision, CFTC v. Zelener,
373 F.3d 861 (7th Cir. 2004); (ii) solicitors; and (iii)
affiliates and notice-registered broker-dealers (BDs). In
addition, the amendments also include a non-substantive,
structural change to make Section 2(c)(2)(B) easier to explain
in CFTC enforcement cases, and certain technical amendments to
the reservation of CFTC anti-fraud authority in Section
2(c)(2)(C) with respect to retail forex transactions by
registered futures commission merchants (FCMs).
In Zelener, the 7th Circuit held that the contracts at
issue were spot contracts, not futures contracts, even though
no deliveries of foreign currency were ever made. The
amendments to Section 2(c)(2)(B)(i) address the Zelener holding
by providing the CFTC with clear anti-fraud jurisdiction over
forex transactions: (i) offered to, or entered into with, a
person that is not an eligible contract participant (i.e., a
retail customer); (ii) offered or entered into on a leveraged,
margined, or financed on a similar basis; and (iii) offered or
entered into for purposes other than commercial or personal use
of such foreign currency. Personal use transactions, which are
outside the CFTC's jurisdiction under this bill, include only
situations where a retail customer takes immediate ownership
and possession of foreign currency. This is the bank, or Thomas
Cook, exception.
If the test in Section 2(c)(2)(B)(i) is met, the CEA
applies. Courts will no longer have to decide whether retail
transactions that meet these requirements are futures contracts
in order to permit the CFTC to pursue an action for fraud. But
since anti-fraud Section 4b of the CEA is limited by its terms
to futures, a new forex provision (Section 2(c)(2)(D)) is added
to ensure that Section 4b applies to all covered retail forex
transactions--e.g., rolling spot or other futures look-alike
products. CEA Section 4(b) also is included in new Section
2(c)(2)(D) to cover foreign markets.
In addition, the amendments address the role of individuals
who solicit or are otherwise engaged in retail forex
transactions. For FCMs and BDs to qualify for the otherwise
regulated exception to CFTC jurisdiction of their retail forex
activities, each person who participates in the solicitation or
recommendation of the transaction must register with the CFTC
or SEC and be a member or associate of NFA or a registered
securities association, as applicable. Also, Section
2(c)(2)(B)(i) clarifies that if the CFTC has jurisdiction over
the transaction, it also has jurisdiction over individuals who
engage in any activity in connection with the transaction.
Similar language is added to the reservation of CFTC anti-fraud
authority for transactions by registered FCMs in Section
2(c)(2)(C).
The amendments would no longer permit unregistered
affiliates of FCMs and BDs to qualify for the otherwise
regulated exception to CFTC jurisdiction of their retail forex
transactions. The result is that such affiliates must register
or the retail forex business must be done within the registered
FCM or BD itself. In addition, notice-registered BDs will no
longer qualify for the otherwise regulated exception to CFTC
jurisdiction. The exception is available only to fully-
registered BDs, not notice-registered BDs who undertake this
type of registration with the SEC solely for the purpose of
trading security futures products. This carve-out addresses the
possibility that entities could avoid CFTC fraud jurisdiction
by notice-registering as BDs with the SEC without a bona fide
intention to trade security futures products.
The amendments also make a non-substantive change to the
structure of Section 2(c)(2)(B) to make it more easily
comprehensible by reorganizing Subclauses (II) and (III). As
amended, subclause (II) describes BDs, and subclause (III)
describes FCMs.
Finally, the amendments include several changes to Section
2(c)(2)(C), which reserves CFTC anti-fraud authority for the
retail forex transactions of registered FCMs. First, the word
``except'' is inserted at the beginning of the parenthetical,
as it appears that it was inadvertently omitted from the CFMA.
Inserting this word confirms that the provisions of CEA
Sections 6(c) and 6(d), which enable CFTC to bring
administrative enforcement actions, are available for retail
forex fraud cases. Second, the amendments clarify that CFTC
anti-fraud authority is reserved with respect to the retail
forex activities of all persons registered as FCMs, even those
that are dually registered. Third, they reserve CFTC anti-fraud
authority for transactions offered by, in addition to those
entered into by, registered FCMs. Last, the amendments
explicitly reserve CEA Sections 2(a)(1)(B) (principal-agent
liability); 4(b) (foreign markets); 4(o) (fraud by Commodity
Pool Operators and Commodity Trade Advisors); 13(a) (aiding and
abetting liability); and 13(b) (controlling person liability)
with respect to fraudulent forex activities where a registered
FCM is the counterparty. While the secondary liability
provisions of principal-agent, aiding-abetting, and
controlling-person liability were implied in the CFMA, these
amendments make that reservation of CFTC anti-fraud authority
explicit. The amendments are not intended to suggest, nor do
they create a negative inference, that these secondary
liability provisions are not available in actions brought under
other sections of the CEA where CFTC anti-fraud or anti-
manipulation authority is reserved.
Section 5: Authorization of appropriations
Section 5 authorizes such sums as are necessary to carry
out the Commodity Exchange Act through 2010.
Section 6: Liaison with Department of Justice
This section requires that CFTC maintain a liaison with the
Department of Justice to coordinate civil and criminal
investigations and prosecutions of violations of the CEA.
Section 7: Single stock futures margining pilot program
Following enactment of the CFMA, the CFTC and SEC jointly
promulgated rules relating to the margining of security futures
products. With very limited exceptions, however, portfolio
margining for these products was not made available, which many
have argued has contributed to the low volume of trading in
securities futures product markets. This section authorizes a
two-year portfolio margining pilot program for security futures
products that would be eligible to continue beyond this initial
period depending upon the conclusions of a report on the pilot
program submitted to the House and Senate Agriculture
Committees by the Board of Governors of the Federal Reserve
System after consultation with the CFTC and the SEC not later
than two years after enactment of this Act. Accordingly, these
amendments are intended to promote innovation and fair
competition between economically similar markets, and to allow
customers to benefit from the use of a risk-based margining
system.
The Committee has heard from several interested parties
about portfolio margining for security options. These parties
have expressed interest in seeing portfolio margining expanded
to both security options and security futures products. The
Committee looks forward to working with all interested parties
and the Senate Committee on Banking on this issue.
Section 8: Broad-based index definitions
Section 8 of the bill is designed to bring clarity to
security futures product (SFPs) definitions, which include both
futures on individual securities as well as on narrow-based
security indexes. SFPs are considered to be both securities and
futures. SFPs are jointly regulated by the CFTC and the SEC.
The CFTC has exclusive jurisdiction over futures on broad-based
security indexes.
The current statutory test for narrow-based security
indexes is quite detailed. This test, which was established in
2000 through the enactment of the CFMA, was tailored to fit the
U.S. equity markets. The U.S. equity markets are by far the
largest, deepest and most liquid securities markets in the
world. The narrow-based security index test was not intended to
apply to debt instruments or foreign equity markets, and
therefore, should not be applied to them.
Section 8 provides clarity in this area by requiring the
CFTC and the SEC to jointly promulgate final rules within 180
days providing criteria which will be used to exclude indexes
on U.S. debt instruments, foreign equities, foreign debt
instruments and other U.S. securities from the definition of
narrow-based security index. The Committee believes that the
CFTC and SEC should tailor their rule for foreign equity
markets (which are significantly smaller than U.S. equity
markets) and debt instruments based on the size and nature of
those markets, including the potential for insider trading and
market manipulation. Section 8 sets forth in subsection (b)
certain criteria which direct the agencies to use in connection
with promulgating their joint rule and is consistent with the
approach the CFTC has taken over the last twenty years with
respect to granting no-action letters for the sale of futures
on foreign security indexes to U.S. investors. In addition, the
Committee believes Section 8 is consistent with Congressional
intent and language in the CFMA. For these reasons, the
Committee would encourage the CFTC and SEC, in the strongest
possible terms, to proceed quickly in adopting final rules in
this area.
IV. Regulatory Impact Statement
In compliance with paragraph 11(b) of rule XXVI of the
Standing Rules of the Senate, the following evaluation is made
concerning the regulatory impact of carrying out the changes
proposed in this legislation:
The Commodity Futures Trading Commission is responsible for
ensuring the economic utility of futures markets by encouraging
their competitiveness and efficiency, ensuring their integrity,
and protecting market participants against manipulation,
abusive trading practices, and fraud. Futures and options
contracts traded on U.S. exchanges regulated by the CFTC
totaled nearly 1.5 billion contracts traded during fiscal 2004.
These transactions occurred on the ten futures exchanges
designated as contract markets by the CFTC and involved
transactions on traders' own accounts and on the accounts of
their customers. The Commission oversees the activities of more
than 2,500 businesses and 50,000 individuals involved in the
regulated futures industry taking and executing orders on
behalf of customers, advising those customers, managing their
trading, and/or handling their funds. This bill does not have a
major impact on this already regulated marketplace. In addition
to its oversight of the regulated futures markets, the
Commission has anti-fraud and anti-manipulation authority with
respect to certain off-exchange transactions. These contracts
are otherwise exempt from most Commission regulation except
those provisions directed at prohibiting fraud and
manipulation. The sale of forex contracts to the retail public
is an area of particular concern addressed in this bill. Fraud
by firms selling retail forex has been a significant problem
that has been of particular concern to the Commission. While
the total amount of fraud or firms involved in that fraud is
not known, the Commission has brought almost 80 cases since the
CFMA clarified that the CFTC has the authority to bring
enforcement actions for fraud by firms selling retail forex
contracts to the public. The total amount of customer losses
suffered by over 23,000 victims in these cases was
approximately $350,000,000. Under this bill, those persons
currently unregistered under the CEA who are in the business of
selling retail forex contracts, and who would like to
legitimately remain in that business, would have to submit the
same sort of information to the NFA as is submitted currently
by persons in the regulated futures industry. It is not known
how many persons will choose to register under this bill, if
enacted; however, current applicants for licenses as commodity
brokers, known as associated persons under the CEA, spend
approximately thirty minutes completing the application forms,
which are available on the internet.
V. Cost Estimate
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate, the following letter has been
received from the Congressional Budget Office regarding the
budgetary impact of the bill:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 28, 2005.
Hon. Saxby Chambliss,
Chairman, Committee on Agriculture, Nutrition, and Forestry,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for the Commodity Exchange
Reauthorization Act of 2005.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Melissa E.
Zimmerman.
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.
S. 1566--Commodity Exchange Reauthorization Act of 2005
Summary: The legislation would extend the authority to
appropriate funds for the Commodity Futures Trading Commission
(CFTC) through 2010. The bill also would amend and clarify the
CFTC's jurisdiction over certain futures transactions and
financial products. CBO estimates that implementing the
legislation would cost $89 million in 2006 and $512 million
over the 2006-2010 period, assuming appropriation of the
necessary amounts.
CBO also estimates that enacting the bill would increase
revenue collections by $30 million in 2006, $150 million over
the 2006-2010 period, and $300 million over the 2006-2015
period because it would increase the maximum penalty for price
manipulation of commodities. (Civil penalties are recorded in
the federal budget as revenues.) Enacting the bill would not
affect direct spending.
The bill contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
The bill would impose private-sector mandates, as defined
in UMRA, on certain entities involved in retail foreign
currency transactions, by changing the criteria to qualify for
exclusion from CFTC jurisdiction with regard to those
transactions. CBO expects that the direct cost of those
mandates would not exceed the annual threshold established by
UMRA ($123 million in 2005, adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of the bill is shown in the following table.
The costs of this legislation fall within budget function 370
(commerce and housing credit). For this estimate, CBO assumes
that the bill will be enacted by the end of 2005, that the
estimated amounts will be appropriated for each fiscal year,
and that outlays will follow historical trends for spending by
the CFTC.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-----------------------------------------------------------
2005 2006 2007 2008 2009 2010
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
CFTC Spending Under Current Law:
Budget Authority a.............................. 94 0 0 0 0 0
Estimated Outlays............................... 95 11 0 0 0 0
Proposed Changes:
Estimated Authorization Level................... 0 100 103 106 110 113
Estimated Outlays............................... 0 89 101 104 107 111
CFTC Spending Under the Bill:
Estimated Authorization Level a................. 94 100 103 106 110 113
Estimated Outlays............................... 95 100 101 104 107 111
CHANGES IN REVENUES
Estimated Revenues.................................. 0 30 30 30 30 30
----------------------------------------------------------------------------------------------------------------
a The 2005 level is the amount appropriated for that year for the Commodity Futures Trading Commission.
Basis of estimate: CBO estimates that implementing the bill
would cost $89 million in 2006 and $512 million over the 2006-
2010 period to continue current activities of the CFTC and for
new tasks specified in the bill. Enacting the legislation would
increase revenues by $30 million a year, CBO estimates, for
increasing civil monetary penalties for price manipulation of
commodities.
Spending subject to appropriation
The legislation would extend the authority to appropriate
funds for the CFTC through 2010 and would amend and clarify the
jurisdiction of the CFTC over certain futures transactions and
financial products. Finally, the bill would establish a pilot
program involving changes in margin requirements for certain
futures products.
For 2005, the CFTC received an appropriation of $94
million. Based on the agency's current budget and adjusting for
anticipated inflation, CBO estimates that extending the
authorization of appropriations for the current functions of
the CFTC would require $98 million in funding for 2006 and $522
million in appropriations over the 2006-2010 period. Based on
information provided by the CFTC, CBO estimates that the agency
would require 10 additional personnel to manage the increased
workload anticipated because of the legislation's impact on the
agency's jurisdiction over certain future transactions. We
estimate that salaries, benefits, and overhead for those
additional staff would cost about $2 million in 2006 and $10
million over the 2006-2010 period.
Revenues
The legislation would increase tenfold the maximum
penalties for manipulation of prices in the commodities market.
According to the CFTC, collections for these penalties have
averaged about $40 million between 2002 and 2004, but were much
lower over the previous three-year period. Considering that the
CFTC has the authority to assess penalties in amounts less than
the maximum penalty set in law, the deterrent effect of
increased penalties, and the cyclical nature of violations of
these laws over the last several years, CBO expects that, on
average, collections from penalties would increase by about $40
million per year. CBO estimates that, under the bill, revenues
would increase by $30 million in 2006, $150 million over the
2006-2010 period, and $300 million over the 2006-2015 period,
net of income and payroll tax offsets.
Estimated impact on state, local, and tribal governments:
The bill contains no intergovernmental mandates as defined in
UMRA and would not affect the budgets of state, local, and
tribal governments.
Estimated impact on the private sector: The CFTC has
jurisdiction over certain retail foreign currency agreements,
contracts, and transactions. The bill may expand the range of
such products over which the CFTC has jurisdiction. Under
current law, some entities are excluded from the jurisdiction
of the CFTC for such transactions. The bill would impose
private-sector mandates, as defined in UMRA, on certain
entities involved in retail foreign currency transactions by
changing the criteria to qualify for an exclusion from CFTC
jurisdiction with regard to those transactions. The bill would
no longer permit unregistered affiliates of futures commission
merchants (FCMs), unregistered affiliates of broker dealers, or
``notice registered'' broker dealers to be excluded from the
jurisdiction of the CFTC regarding their retail foreign
currency transactions. For registered FCMs and registered
broker dealers to qualify for exclusion, the bill would require
that each person who participates in the solicitation or
recommendation of such transactions must register with the CFTC
or Securities and Exchange Comission and be a member of the
National Futures Association or a registered securities
association, as applicable.
Some entities that would no longer qualify for exclusion
from CFTC jurisdiction under the bill could take certain
actions to continue to qualify. For example, unregistered
affiliates of broker dealers may move their foreign currency
activities into the operations of the registered broker dealer.
Based on information from government sources, CBO expects that
the direct cost of the mandates in the bill would not exceed
the annual threshold established by UMRA ($123 million in 2005,
adjusted annually for inflation).
Estimate prepared by: Federal costs: Melissa E. Zimmerman;
Federal revenues: Annabelle Bartsch and Melissa E. Zimmerman;
impact on state, local, and tribal governments: Sarah Puro;
impact on the private sector: Judith Ruud.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
VI. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 1566 as reported are shown as follows (existing law proposed
to be omitted is enclosed in brackets, new matter is printed in
italic, and existing law in which no change is proposed is
shown in roman):
COMMODITY EXCHANGE ACT
* * * * * * *
SEC. 2 * * *
[Sec. 2(a)(1)](C) Notwithstanding any other provision of
law--* * *
(v)(I) Notwithstanding any other provision of this
Act, any contract market in a stock index futures
contract (or option thereon) [other than] or a security
futures product, or any derivatives transaction
execution facility on which such [contract or option]
contract, option, or security futures product is
traded, shall file with the Board of Governors of the
Federal Reserve System any rule establishing or
changing the levels of margin (initial and maintenance)
for such stock index futures contract (or option
thereon) [other than] or security futures products.
(II) The Board may at any time request any contract
market or derivatives transaction execution facility to
set the margin for any stock index futures contract (or
option thereon), [other than] or for any security
futures product, at such levels as the Board in its
judgment determines are appropriate to preserve the
financial integrity of the contract market or
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.
(III) Subject to such conditions as the Board may
determine, the Board may delegate any or all of its
authority, relating to margin for any stock index
futures contract (or option thereon), [other than] or
security futures products, under this clause to the
Commission.* * *
* * * * * * *
(D)(i) * * *
[(XI) The margin requirements] (XI) Margin
requirements.--
(aa) In general.--The margin requirement for
a security futures product comply with the
regulations prescribed pursuant to section
7(c)(2)(B) of the Securities Exchange Act of
1934, except that nothing in this subclause
shall be construed to prevent a board of trade
from requiring higher margin levels for a
security futures product when it deems such
action to be necessary or appropriate.
(bb) Pilot program for margining security
futures products.--Notwithstanding any other
provision of law, for a period of 2 years
beginning on the date of enactment of this
item, an entity that is designated or
registered as a contract market or derivatives
transaction execution facility under section 5
and that is also notice-registered as a
national securities exchange under section 6(g)
of the Securities Exchange Act of 1934 (15
U.S.C. 78f(g)), and its clearing organization,
a futures commission merchant registered under
this Act, and a broker or dealer registered
under section 15(b) of that Act (15 U.S.C.
78o(b)), shall not be required to comply with
item (aa) or subparagraph (C)(v)(IV).
(cc) Acting in reliance.--Any entity acting
in reliance upon item (bb) shall not be
required to comply with regulations promulgated
under section 7(c)(2)(B) of the Securities
Exchange Act of 1934 (15 U.S.C. 78g(c)(2)(B)),
or with the rules of a self-regulatory
organization (as defined in section 3(a)(26) of
that Act (15 U.S.C. 78c(a)(26)), pertaining to
levels of initial and maintenance margin, or
with any regulation that operates to preclude
the implementation of risk-based portfolio
margining systems.
(dd) Promulgation of final rules.--Subject to
item (ee), an entity designated or registered
as a contract market or derivatives transaction
execution facility under section 5 and that is
notice-registered as a national securities
exchange under section 6(g) of the Securities
Exchange Act of 1934 (15 U.S.C. 78f(g)) and its
clearing organization shall be permitted to
promulgate final rules to--
(AA) set margin requirements for
security futures products, held in any
account, in accordance with
subparagraph (C)(v)(I); and
(BB) permit futures commission
merchants registered under this Act,
and brokers and dealers registered
under section 15(b) of the Securities
Exchange Act of 1934 (15 U.S.C.
78o(b)), to collect initial and
maintenance margin for security futures
products, held in any account, in
accordance with the rules.
(ee) Effective date and reviewability of
final rules.--Final rules promulgated by any
entity under item (dd) shall become effective
in accordance with section 5c(c), and,
notwithstanding any other provision of law,
shall not be subject to any other approval or
review requirements.
(ff) Report.--Not later than 2 years after
the date of enactment of this item, the Board
of Governors of the Federal Reserve System,
after consultation with the Commission and the
Securities and Exchange 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 describing the results of the
pilot program for margining security futures
products.
(gg) Continuation of pilot program.--The
pilot program for margining security futures
products shall continue to apply unless the
report under item (ff) concludes that the pilot
program has resulted in undue risks to the
financial integrity of the relevant contract
markets or derivatives transaction execution
facilities, or to their respective clearing
systems, or has resulted in systemic risk to
financial markets or undue risk to customers. *
* *
[Sec. 2(a)](2)(A) * * *
(iii) The provisions of this subparagraph shall not
create any rights, liabilities, or obligations upon
which actions may be brought against the Commission.
(C) Liaison with department of justice.--
(i) In general.--The Commission shall, in cooperation
with the Attorney General, maintain a liaison between
the Commission and the Department of Justice to
coordinate civil and criminal investigations and
prosecutions of violations of this Act as appropriate.
(ii) Designation.--The Attorney General shall
designate a person as liaison and take such steps as
are necessary to facilitate communications described in
clause (i). * * *
(c) Agreements, Contracts, and Transactions in Foreign
Currency, Government Securities, and Certain Other
Commodities.--* * *
(2) Commission jurisdiction.--
(A) Agreements, contracts, and transactions
traded on an organized exchange.--This Act
applies to, and the Commission shall have
jurisdiction over, an agreement, contract, or
transaction described in paragraph (1) that
is--
(i) a contract of sale of a commodity
for future delivery (or an option on
such a contract), or an option on a
commodity (other than foreign currency
or a security or a group or index of
securities), that is executed or traded
on an organized exchange; or
[(ii) an option on foreign currency
executed or traded on an organized
exchange that is not a national
securities exchange registered pursuant
to section 6(a) of the Securities
Exchange Act of 1934.
[(B) Agreements, contracts, and transactions
in retail foreign currency.--This Act applies
to, and the Commission shall have jurisdiction
over, an agreement, contract, or transaction in
foreign currency that--
[(i) is a contract of sale of a
commodity for future delivery (or an
option on such a contract) or an option
(other than an option executed or
traded on a national securities
exchange registered pursuant to section
6(a) of the Securities Exchange Act of
1934); 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 095) 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 095), 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 095(b), 78q(h))
or section 4f(c)(2)(B) of this
Act;
[(IV) an insurance company
described in section
1a(12)(A)(ii) of this Act, or a
regulated subsidiary or
affiliate of such an insurance
company;
[(V) a financial holding
company (as defined in section
2 of the Bank Holding Company
Act of 1956); or
[(VI) an investment bank
holding company (as defined in
section 17(i) of the Securities
Exchange Act of 1934).
[(C) Notwithstanding subclauses (II) and
(III) of subparagraph (B)(ii), agreements,
contracts, or transactions described in
subparagraph (B) shall be subject to sections
4b, 4c(b), 6(c) and 6(d) (to the extent that
sections 6(c) and 6(d) prohibit manipulation of
the market price of any commodity, in
interstate commerce, or for future delivery on
or subject to the rules of any market), 6c, 6d,
and 8(a) if they are entered into by a futures
commission merchant or an affiliate of a
futures commission merchant that is not also an
entity described in subparagraph (B)(ii) of
this paragraph.]
(B) Agreements, contracts, and transactions
in retail foreign currency.--
(i) In general.--This Act applies to,
and the Commission shall have
jurisdiction over, any agreement,
contract, or transaction in foreign
currency (including agreements,
contracts, or transactions described in
subsection (a)(1)(A)), and any person
who engages in any activity in
connection with any agreement,
contract, or transaction in foreign
currency, that is--
(I) offered to, or entered
into with, a person that is not
an eligible contract
participant;
(II) offered, or entered
into, on a leveraged, margined,
or financed on a similar basis;
and
(III) offered, or entered
into, for purposes other than
commercial or personal use of
such foreign currency, except
that personal use shall include
only those agreements,
contracts, or transactions in
which a person takes immediate
ownership and possession of
foreign currency.
(ii) Exclusions.--Subparagraph (B)(i)
shall not apply if the counterparty, or
the person offering to be the
counterparty, of the person that is not
an eligible contract participant is--
(I) a financial institution;
(II) a broker or dealer
registered under section 15(b)
of the Securities Exchange Act
of 1934 (15 U.S.C. 78o(b))
(except notice registration
under paragraph (11)(A) of that
section) or under section 15C
of that Act (15 U.S.C. 78o-5),
provided that each person who
participates in the
solicitation or recommendation
of the agreement, contract, or
transaction is--
(aa) registered under
section 15(b) or 15C of
that Act (15 U.S.C.
78o(b), 78o-5);
(bb) an individual
registered with a
securities association
registered under
section 15A(a) of that
Act (15 U.S.C. 78o-
3(a)); and
(cc) a member or
associate of a
securities association
registered under
section 15A(a) of that
Act (15 U.S.C. 78o-
3(a));
(III) a person that is
registered as a futures
commission merchant under this
Act, provided that each person
who participates in the
solicitation or recommendation
of the agreement, contract, or
transaction is--
(aa) registered under
section 4d, 4k, or 4m;
and
(bb) a member or
associate of a futures
association registered
under section 17;
(IV) an insurance company
described in section
1a(12)(A)(ii), or a regulated
subsidiary or affiliate of such
an insurance company;
(V) a financial holding
company (as defined in section
2 of the Bank Holding Company
Act of 1956 (12 U.S.C. 1841));
or
(VI) an investment bank
holding company (as defined in
section 17(i) of the Securities
Exchange Act of 1934 (15 U.S.C.
78q)).
(C) Notwithstanding subclause (III) of
subparagraph (B)(ii), agreements, contracts, or
transactions described in subparagraph (B), and
persons who engage in any activity in
connection with agreements, contracts, or
transactions described in subparagraph (B),
shall be subject to subsection (a)(1)(B) and
sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d)
(except to the extent that sections 6(c) and
6(d) prohibit manipulation of the market price
of any commodity in interstate commerce, or for
future delivery on or subject to the rules of
any market), 6c, 6d, 8(a), 13(a), and 13(b) if
the agreements, contracts, or transactions are
offered, or entered into, by a person that is
registered as a futures commission merchant
under this Act.
(D) Sections 4(b) and 4b shall apply to any
agreement, contract, or transaction in foreign
currency described in subparagraphs (B) and (C)
as though the agreement, contract, or
transaction were a contract of sale of a
commodity for future delivery. * * *
* * * * * * *
[SEC. 4B * * *
[(a) It shall be unlawful (1) for any member of a
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 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) to cheat or defraud or attempt to cheat or
defraud such other person;
[(ii) willfully to make or cause to be made to such
other person any false report or statement thereof, or
willfully to enter or cause to be entered for such
person any false record thereof;
[(iii) willfully to deceive or attempt to deceive
such other person by any means whatsoever in regard to
any such order or contract or the disposition or
execution of any such order or contract, or in regard
to any act of agency performed with respect to such
order or contract for such person; or
[(iv) to bucket such order, or to fill such order by
offset against the order or orders of any other person,
or willfully and knowingly and without the prior
consent of such person to become the buyer in respect
to any selling order of such person, or become the
seller in respect to any buying order of such person.]
SEC. 4B. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.
(a) Unlawful Actions.--It shall be unlawful--
(1) for any person, in or in connection with any
order to make, or the making of, any contract of sale
of any commodity in interstate commerce or for future
delivery that is made, or to be made, on or subject to
the rules of a designated contract market, for or on
behalf of any other person;
(2) for any person, in or in connection with any
order to make, or the making of, any contract of sale
of any commodity for future delivery, or other
agreement, contract, or transaction subject to
paragraphs (1) and (2) of section 5a(g), that is made,
or to be made, for or on behalf of, or with, any other
person, other than on or subject to the rules of a
designated contract market--
(A) to cheat or defraud or attempt to cheat
or defraud such other person;
(B) willfully to make or cause to be made to
such other person any false report or statement
or willfully to enter or cause to be entered
for such other person any false record;
(C) willfully to deceive or attempt to
deceive such other person by any means
whatsoever in regard to any order or contract
or the disposition or execution of any order or
contract, or in regard to any act of agency
performed, with respect to any order or
contract for or, in the case of paragraph (2),
with such other person; or
(D)(i) to bucket an order if such order is
either represented by such person as an order
to be executed, or is required to be executed,
on or subject to the rules of a designated
contract market; or
(ii) to fill an order by offset against the
order or orders of any other person, or
willfully and knowingly and without the prior
consent of such other person to become the
buyer in respect to any selling order of such
other person, or become the seller in respect
to any buying order of such other person, if
such order is either represented by such person
as an order to be executed, or is required to
be executed, on or subject to the rules of a
designated contract market unless such order is
executed in accordance with the rules of the
designated contract market.
(b) Clarification.--Subsection (a)(2) shall not obligate
any person, in or in connection with a transaction in a
contract of sale of a commodity for future delivery, or other
agreement, contract or transaction subject to paragraphs (1)
and (2) of section 5a(g), with another person, to disclose to
such other person nonpublic information that may be material to
the market price, rate or level of such commodity or
transaction, except as necessary to make any statement made to
such other person in or in connection with such transaction,
not misleading in any material respect.
[(b)] (c) Nothing in this section or in any other section
of this Act shall be construed to prevent a futures commission
merchant or floor broker who shall have in hand,
simultaneously, buying and selling orders at the market for
different principals for a like quantity of a commodity for
future delivery in the same month, from executing such buying
and selling orders at the market price: Provided, That any such
execution shall take place on the floor of the exchange where
such orders are to be executed at public outcry across the ring
and shall be duly reported, recorded, and cleared in the same
manner as other orders executed on such exchange: And provided
further, That such transactions shall be made in accordance
with such rules and regulations as the Commission may
promulgate regarding the manner of the execution of such
transactions.
[(c)] (d) Nothing in this section shall apply to any
activity that occurs on a board of trade, exchange, or market,
or clearinghouse for such board of trade, exchange, or market,
located outside the United States, or territories or
possessions of the United States, involving any contract of
sale of a commodity for future delivery that is made, or to be
made, on or subject to the rules of such board of trade,
exchange, or market. * * *
* * * * * * *
SEC. 6 * * *
(b) The Commission is authorized to suspend for a period
not to exceed six months or to revoke the designation or
registration of any contract market or derivatives transaction
execution facility on a showing that such contract market or
derivatives transaction execution facility is not enforcing or
has not enforced its rules of government made a condition of
its designation or registration as set forth in sections 5
through 5b or section 5f or that such 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, or, in any case of manipulation of, or
an attempt to manipulate, the price of any commodity, a civil
penalty of not more than $1,000,000 for each such violation.
Such suspension or revocation shall only be after a notice to
the officers of the 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 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 person will pay the costs of the proceedings if the court
so directs, except that if the failure or refusal to obey or
comply with the order involved any offense under section
9(a)(2), the registered entity, director, officer, agent, or
employee shall be guilty of a felony and, on conviction, shall
be subject to penalties under section 9(a)(2). * * *
[Sec. 6](c) * * * Upon evidence received, the Commission
may--
(1) prohibit such person from trading on or subject
to the rules of any registered entity and require all
registered entities to refuse such person all
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) a civil penalty of not more than the
higher of $100,000 or triple the monetary gain
to such person for each such violation, or
(B) in any case of manipulation of, or
attempt to manipulate, the price of any
commodity, a civil penalty of not more than the
greater of $1,000,000 or triple the monetary
gain to such person for each such violation,
and
(4) * * *
SEC. 6C. * * *
[(d)(1) In any action brought under this section, the
Commission may seek and the court shall have jurisdiction to
impose, on a proper showing, on any person found in the action
to have committed any violation a civil penalty in the amount
of not more than the higher of $100,000 or triple the monetary
gain to the person for each violation.]
(d) Civil Penalties.--
(1) In general.--In any action brought under this
section, the Commission may seek and the court shall
have jurisdiction to impose, on a proper showing, on
any person found in the action to have committed any
violation--
(A) a civil penalty in the amount of not more
than the greater of $100,000 or triple the
monetary gain to the person for each violation;
or
(B) in any case of manipulation of, or an
attempt to manipulate, the price of any
commodity, a civil penalty in the amount of not
more than the greater of $1,000,000 or triple
the monetary gain to the person for each
violation.
(2) If a person on whom such a penalty is imposed
fails to pay the penalty within the time prescribed in
the court's order, the Commission may refer the matter
to the Attorney General who shall recover the penalty
by action in the appropriate United States district
court. * * *
* * * * * * *
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] 10
years, or both, together with the costs of prosecution, for: *
* *
[(f)] (e) 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,
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[.]; or
* * * * * * *
(f) Commission Administrative and Civil Authority.--The
Commission may bring an administrative or civil action under
this Act for an alleged violation of any provision of this
section. * * *
* * * * * * *
SEC. 12 * * *
(d) There are authorized to be appropriated such sums as
are necessary to carry out this Act for each of fiscal years
1995 through [2005] 2010.* * *