    [United States Senate Manual, 113th Congress]
    [S. Doc. 113-1]
    [USCODETITLE]
    [Pages 921-926]
    [From the U.S. Government Publishing Office, www.gpo.gov]

    [[Page 921]]

                                    TITLE 7.--AGRICULTURE

                               Chapter 1.--COMMODITY EXCHANGES

                                        * * * * * * *

          1195  Sec. 6c. Prohibited transactions
                (a) In general
                                (1) Prohibition
                                It shall be unlawful for any person to offer
                            to enter into, enter into, or confirm the
                            execution of a transaction described in
                            paragraph (2) involving the purchase or sale of
                            any commodity for future delivery (or any option
                            on such a transaction or option on a commodity)
                            or swap 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, 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.

                (3) Contract of sale
                                It shall be unlawful for any employee or
                            agent of any department or agency of the Federal
                            Government or any Member of Congress or employee
                            of Congress (as such terms are defined under
                            section 2 of the STOCK Act) or any judicial
                            officer or judicial employee (as such terms are
                            defined, respectively, under section 2 of the
                            STOCK Act) who, by virtue of the employment or
                            position of the Member, officer, employee or
                            agent, acquires information that may affect or
                            tend to affect the price of any commodity in
                            interstate commerce, or for future delivery, or
                            any swap, and which information has not been
                            disseminated by the department or agency of the
                            Federal Government holding or creating the
                            information or by Congress or by the judiciary
                            in a manner which makes it generally available
                            to the trading public, or disclosed in a
                            criminal, civil, or administrative hearing, or
                            in a congressional, administrative, or
                            Government Accountability Office report,
                            hearing, audit, or investigation, to use the
                            information in his personal capacity and for
                            personal gain to enter into, or offer to enter
                            into----

                                    (A) a contract of sale of a commodity
                                for future delivery (or option on such a
                                contract);

    [[Page 922]]

                                    (B) an option (other than an option
                                executed or traded on a national securities
                                exchange registered pursuant to section
                                78f(a) of Title 15; or

                                    (C) a swap.

                                (4) Nonpublic information

                                    (A) Imparting of nonpublic information

                                    It shall be unlawful for any employee or
                                agent of any department or agency of the
                                Federal Government or any Member of Congress
                                or employee of Congress or any judicial
                                officer or judicial employee who, by virtue
                                of the employment or position of the Member,
                                officer, employee or agent, acquires
                                information that may affect or tend to
                                affect the price of any commodity in
                                interstate commerce, or for future delivery,
                                or any swap, and which information has not
                                been disseminated by the department or
                                agency of the Federal Government holding or
                                creating the information or by Congress or
                                by the judiciary in a manner which makes it
                                generally available to the trading public,
                                or disclosed in a criminal, civil, or
                                administrative hearing, or in a
                                congressional, administrative, or Government
                                Accountability Office report, hearing,
                                audit, or investigation, to impart the
                                information in his personal capacity and for
                                personal gain with intent to assist another
                                person, directly or indirectly, to use the
                                information to enter into, or offer to enter
                                into----

                                            (i) a contract of sale of a
                                        commodity for future delivery (or
                                        option on such a contract);

                                            (ii) an option (other than an
                                        option executed or traded on a
                                        national securities exchange
                                        registered pursuant to section
                                        78f(a) of Title 15; or

                                            (iii) a swap.

                                    (B) Knowing use

                                    It shall be unlawful for any person who
                                receives information imparted by any
                                employee or agent of any department or
                                agency of the Federal Government or any
                                Member of Congress or employee of Congress
                                or any judicial officer or judicial employee
                                as described in subparagraph (A) to
                                knowingly use such information to enter
                                into, or offer to enter into----

                                            (i) a contract of sale of a
                                        commodity for future delivery (or
                                        option on such a contract);

                                            (ii) an option (other than an
                                        option executed or traded on a
                                        national securities exchange
                                        registered pursuant to section
                                        78f(a) of Title 15; or

                                            (iii) a swap.

                                    (C) Theft of nonpublic information

                                    It shall be unlawful for any person to
                                steal, convert, or misappropriate, by any
                                means whatsoever, information held or
                                created by any department or agency of the
                                Federal Government or by Congress or by the
                                judiciary that may affect or tend to affect
                                the price of any commodity in interstate
                                commerce, or for future delivery, or any
                                swap, where such person knows, or acts in
                                reckless disregard of the fact, that such
                                information has not been disseminated by the
                                department or agency of the Federal
                                Government holding or creating the
                                information or by Congress or by the
                                judiciary in a manner which makes it gen

    [[Page 923]]

                                erally available to the trading public, or
                                disclosed in a criminal, civil, or
                                administrative hearing, or in a
                                congressional, administrative, or Government
                                Accountability Office report, hearing,
                                audit, or investigation, and to use such
                                information, or to impart such information
                                with the intent to assist another person,
                                directly or indirectly, to use such
                                information to enter into, or offer to enter
                                into----

                                            (i) a contract of sale of a
                                        commodity for future delivery (or
                                        option on such a contract);

                                            (ii) an option (other than an
                                        option executed or traded on a
                                        national securities exchange
                                        registered pursuant to section
                                        78f(a) of Title 15; or

                                            (iii) a swap, provided, however,
                                        that nothing in this subparagraph
                                        shall preclude a person that has
                                        provided information concerning, or
                                        generated by, the person, its
                                        operations or activities, to any
                                        employee or agent of any department
                                        or agency of the Federal Government,
                                        to Congress, any Member of Congress,
                                        any employee of Congress, any
                                        judicial officer, or any judicial
                                        employee, voluntarily or as required
                                        by law, from using such information
                                        to enter into, or offer to enter
                                        into, a contract of sale, option, or
                                        swap described in clauses\1\ (i),
                                        (ii), or (iii).

                    \1\ So in original. Probably should be ``clause''.
                                (5) Disruptive practices
                                It shall be unlawful for any person to
                            engage in any trading, practice, or conduct on
                            or subject to the rules of a registered entity
                            that----

                                    (A) violates bids or offers;

                                    (B) demonstrates intentional or reckless
                                disregard for the orderly execution of
                                transactions during the closing period; or

                                    (C) is, is of the character of, or is
                                commonly known to the trade as, ``spoofing''
                                (bidding or offering with the intent to
                                cancel the bid or offer before execution).

                                (6) Rulemaking authority
                                The Commission may make and promulgate such
                            rules and regulations as, in the judgment of the
                            Commission, are reasonably necessary to prohibit
                            the trading practices described in paragraph (5)
                            and any other trading practice that is
                            disruptive of fair and equitable trading.
                                (7) Use of swaps to defraud
                                It shall be unlawful for any person to enter
                            into a swap knowing, or acting in reckless
                            disregard of the fact, that its counterparty
                            will use the swap as part of a device, scheme,
                            or artifice to defraud any third party.
                (b) Regulated option trading
                    No person shall offer to enter into, enter into or
                confirm the execution of, any transaction involving any
                commodity regulated under this chapter 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'', contrary to any rule, regulation, or
                order of the Commission prohibiting any such transaction or
                allowing any such transaction under such terms and
                conditions as the Commis

    [[Page 924]]

                sion shall prescribe. Any such order, rule, or regulation
                may be made only after notice and opportunity for hearing,
                and the Commission may set different terms and conditions
                for different markets.
                (c) Regulations for elimination of pilot status of commodity
                    option transactions; terms and conditions of options
                    trading
                    Not later than 90 days after November 10, 1986, the
                Commission shall issue regulations----
                                (1) to eliminate the pilot status of its
                            program for commodity option transactions
                            involving the trading of options on contract
                            markets, including any numerical restrictions on
                            the number of commodities or option contracts
                            for which a contract market may be designated;
                            and
                                (2) otherwise to continue to permit the
                            trading of such commodity options under such
                            terms and conditions that the Commission from
                            time to time may prescribe.
                (d) Dealer options exempt from subsections (b) and (c)
                    prohibitions; requirements
                    Notwithstanding the provisions of subsection (c) of this
                section----
                                (1) any person domiciled in the United
                            States who on May 1, 1978, was in the business
                            of granting an option on a physical commodity,
                            other than a commodity specifically set forth in
                            section 2(a) of this title prior to October 23,
                            1974, and was in the business of buying,
                            selling, producing, or otherwise using that
                            commodity, may continue to grant or issue
                            options on that commodity in accordance with
                            Commission regulations in effect on August 17,
                            1978, until thirty days after the effective date
                            of regulations issued by the Commission under
                            clause (2) of this subsection: Provided, That if
                            such person files an application for
                            registration under the regulations issued under
                            clause (2) of this subsection within thirty days
                            after the effective date of such regulations,
                            that person may continue to grant or issue
                            options pending a final determination by the
                            Commission on the application; and
                                (2) the Commission shall issue regulations
                            that permit grantors and futures commission
                            merchants to offer to enter into, enter into, or
                            confirm the execution of, any commodity option
                            transaction on a physical commodity subject to
                            the provisions of subsection (b) of this
                            section, other than a commodity specifically set
                            forth in section 2(a) of this title prior to
                            October 23, 1974, if----

                                    (A) the grantor is a person domiciled in
                                the United States who----

                                            (i) is in the business of
                                        buying, selling, producing, or
                                        otherwise using the underlying
                                        commodity;

                                            (ii) at all times has a net
                                        worth of at least $5,000,000
                                        certified annually by an independent
                                        public accountant using generally
                                        accepted accounting principles;

                                            (iii) notifies the Commission
                                        and every futures commission
                                        merchant offering the grantor's
                                        option if the grantor knows or has
                                        reason to believe that the grantor's
                                        net worth has fallen below
                                        $5,000,000;

                                            (iv) segregates daily,
                                        exclusively for the benefit of
                                        purchasers, money, exempted
                                        securities (within the meaning of
                                        section 78c(a)(12) of Title 15),
                                        commercial paper, bankers'

    [[Page 925]]

                                        acceptances, commercial bills, or
                                        unencumbered warehouse receipts,
                                        equal to an amount by which the
                                        value of each transaction exceeds
                                        the amount received or to be
                                        received by the grantor for such
                                        transaction;

                                            (v) provides an identification
                                        number for each transaction; and

                                            (vi) provides confirmation of
                                        all orders for such transactions
                                        executed, including the execution
                                        price and a transaction
                                        identification number;

                                    (B) the futures commission merchant is a
                                person who----

                                            (i) has evidence that the
                                        grantor meets the requirements
                                        specified in subclause (A) of this
                                        clause;

                                            (ii) treats and deals with all
                                        money, securities, or property
                                        received from its customers as
                                        payment of the purchase price in
                                        connection with such transactions,
                                        as belonging to such customers until
                                        the expiration of the term of the
                                        option, or, if the customer
                                        exercises the option, until all
                                        rights of the customer under the
                                        commodity option transaction have
                                        been fulfilled;

                                            (iii) records each transaction
                                        in its customer's name by the
                                        transaction identification number
                                        provided by the grantor;

                                            (iv) provides a disclosure
                                        statement to its customers, under
                                        regulations of the Commission, that
                                        discloses, among other things, all
                                        costs, including any markups or
                                        commissions involved in such
                                        transaction; and

                                    (C) the grantor and futures commission
                                merchant comply with any additional uniform
                                and reasonable terms and conditions the
                                Commission may prescribe, including
                                registration with the Commission.

                                    The Commission may permit persons not
                                domiciled in the United States to grant
                                options under this subsection, other than
                                options on a commodity specifically set
                                forth in section 2(a) of this title prior to
                                October 23, 1974, under such additional
                                rules, regulations, and orders as the
                                Commission may adopt to provide protection
                                to purchasers that are substantially the
                                equivalent of those applicable to grantors
                                domiciled in the United States. The
                                Commission may terminate the right of any
                                person to grant, offer, or sell options
                                under this subsection only after a hearing,
                                including a finding that the continuation of
                                such right is contrary to the public
                                interest: Provided, That pending the
                                completion of such termination proceedings,
                                the Commission may suspend the right to
                                grant, offer, or sell options of any person
                                whose activities in the Commission's
                                judgment present a substantial risk to the
                                public interest.

                (e) Rules and regulations
                    The Commission may adopt rules and regulations, after
                public notice and opportunity for a hearing on the record,
                prohibiting the granting, issuance, or sale of options
                permitted under subsection (d) of this section if the
                Commission determines that such options are contrary to the
                public interest.

    [[Page 926]]

                (f) Nonapplicability to foreign currency options
                    Nothing in this chapter shall be deemed to govern or in
                any way be applicable to any transaction in an option on
                foreign currency traded on a national securities exchange.
                (g) Oral orders
                    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
                or derivatives transaction execution facility who is present
                on the floor at the time such order is placed. (Sept. 21,
                1922, c. 369, Sec. 4c, as added June 15, 1936, c. 545,
                Sec. 5, 49 Stat. 1494; amended Oct. 23, 1974, Pub.L. 93-463,
                Title I, Sec. 103(a), Title IV, Sec. 402, 88 Stat. 1392,
                1412; Sept. 30, 1978, Pub.L. 95-405, Sec. 3, 92 Stat. 867;
                Jan. 11, 1983, Pub.L. 97-444, Title I, Sec. 102, Title II,
                Sec. 206, 96 Stat. 2296, 2301; Nov. 10, 1986, Pub.L. 99-641,
                Title I, Sec. 102, 100 Stat. 3557; Oct. 28, 1992, Pub.L.
                102-546, Title II, Sec. 203(a), Title IV, Sec. 402(4), 106
                Stat. 3600, 3624; Dec. 21, 2000, Pub.L. 106-554,
                Sec. 1(a)(5) [Title I, Sec. Sec. 109, 123(a)(6)], 114 Stat.
                2763, 2763A-383, 2763A-407; Pub.L. 111-203, Title VII,
                Sec. Sec. 741(b)(2), 746, 747, July 21, 2010, 124 Stat.
                1731, 1737, 1739; Pub.L. 112-105, Sec. 5, Apr. 4, 2012, 126
                Stat. 293.)
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