[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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