[Congressional Bills 104th Congress]
[From the U.S. Government Printing Office]
[H.R. 4276 Introduced in House (IH)]
104th CONGRESS
2d Session
H. R. 4276
To amend the Commodity Exchange Act to provide a conditional exemption
for certain transactions involving professional markets, to clarify the
effect of the designation of a board of trade as a contract market, to
simplify the process for the making effective of contract market rules,
to regulate audit trail requirements, to establish cost-benefit
analysis requirements, to combat fraud in transactions in or involving
foreign currency, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 28, 1996
Mr. Ewing introduced the following bill; which was referred to the
Committee on Agriculture
_______________________________________________________________________
A BILL
To amend the Commodity Exchange Act to provide a conditional exemption
for certain transactions involving professional markets, to clarify the
effect of the designation of a board of trade as a contract market, to
simplify the process for the making effective of contract market rules,
to regulate audit trail requirements, to establish cost-benefit
analysis requirements, to combat fraud in transactions in or involving
foreign currency, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Commodity Exchange
Act Amendments of 1996''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--ADMINISTRATION OF COMMODITY EXCHANGE ACT
Sec. 101. Findings and purposes.
Sec. 102. Conditional exemption from Commodity Exchange Act for certain
transactions involving professional
markets.
Sec. 103. Designation of contract markets.
Sec. 104. Process for submission and disapproval of contract market
rules.
Sec. 105. Regulation of audit trail requirements.
Sec. 106. Use of benefit-cost analysis.
Sec. 107. Commission oversight and deficiency orders.
TITLE II--TREASURY AMENDMENT CLARIFICATION
Sec. 201. Regulation of transactions in or involving foreign currency.
TITLE I--ADMINISTRATION OF COMMODITY EXCHANGE ACT
SEC. 101. FINDINGS AND PURPOSES.
Section 3 of the Commodity Exchange Act (7 U.S.C. 5) is amended to
read as follows:
``SEC. 3. FINDINGS AND PURPOSES.
``(a) Findings.--The Congress finds the following:
``(1) Commodity futures and commodity options are traded in
interstate commerce, and the regulation of transactions in or
involving commodity futures and commodity options is in the
national public interest.
``(2) Commodity futures and commodity options transactions
are used to hedge and manage price or other economic risks
faced by businesses and financial enterprises throughout the
world.
``(3) Such hedging activity allows businesses and financial
enterprises to operate in a more efficient manner, with
corresponding benefits to consumers and others served by these
businesses and enterprises.
``(4) Liquid trading in commodity futures and commodity
options contracts also provides a mechanism for discovering
important pricing information relating to the various
commodities that are the subject of such trading.
``(5) Such pricing information may be widely quoted and
disseminated in order to allow consumers, businesses, and
financial enterprises to rely upon such pricing information in
making various commercial arrangements and decisions relating
to the price of the affected commodities in interstate
commerce.
``(6) Unless appropriately and prudently regulated, whether
through self-regulation by the market participants themselves
or through Government regulation, transactions subject to this
Act may not serve these public interests.
``(b) Purpose.--It is the purpose of this Act to provide for self-
regulation that is in the public interest and Government oversight of
transactions subject to this Act--
``(1) to prevent fraud, sales practice abuses, and price
manipulation;
``(2) to foster efficient and effective transaction
executions at fair prices;
``(3) to ensure conduct consistent with just and equitable
principles of trade and the financial integrity of all futures
and options transactions, market participants, and markets; and
``(4) to promote responsible economic or financial
innovation and fair competition among all markets, market
participants, and consumers of the markets' services.''.
SEC. 102. CONDITIONAL EXEMPTION FROM COMMODITY EXCHANGE ACT FOR CERTAIN
TRANSACTIONS INVOLVING PROFESSIONAL MARKETS.
Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is amended by
adding the following subsections:
``(e) Exemption for Certain Professional Markets.--
``(1) Exemption.--Subject to paragraphs (2) and (3), any
agreement, contract, or transaction (or class thereof) that is
or may be subject to this Act shall be exempt from all of the
provisions of this Act if the only parties eligible to enter
into the agreement, contract, or transaction (or class thereof)
qualify as appropriate persons (as defined in subsection
(c)(3)).
``(2) Rules against fraud and manipulation.--Any agreement,
contract, or transaction (or class thereof) for which an
exemption is provided under this subsection shall still be
subject to prohibitions against fraud or manipulation issued by
the Commission, following notice and opportunity for hearing,
that are specifically designed to apply to such agreements,
contracts, and transactions.
``(3) Use of approved clearinghouses and systems.--Any
agreement, contract, or transaction (or class thereof) for
which an exemption is provided under this subsection shall not
be submitted to any clearinghouse or clearing system (or
similar entity) unless that clearinghouse or clearing system
(or similar entity) has been approved by the Commission to do
business as a clearinghouse or clearing system.''.
SEC. 103. DESIGNATION OF CONTRACT MARKETS.
(a) Designation Required.--Section 4(a)(1) of the Commodity
Exchange Act (7 U.S.C. 6(a)(1)) is amended by striking ``for such
commodity''.
(b) Conditions and Requirements for Designation.--Section 5 of the
Commodity Exchange Act (7 U.S.C. 7) is amended--
(1) by striking the matter preceding paragraph (1) and
inserting the following:
``SEC. 5. DESIGNATION OF BOARD OF TRADE AS CONTRACT MARKET.
``(a) In General.--The Commission shall designate a board of trade
as a contract market if, and only if, the board of trade complies with
and carries out the following conditions and requirements:'';
(2) by striking paragraphs (1), (7), and (8);
(3) by redesignating paragraphs (2) through (6) as
paragraphs (1) through (5), respectively; and
(4) by inserting at the end the following new paragraph:
``(6) When the board of trade demonstrates that it is in
compliance with the requirements of section 5a(b).''.
(c) Effect of Designation.--Section 5 of the Commodity Exchange Act
(7 U.S.C. 7) is amended by inserting after paragraph (6), as added by
subsection (b)(4), the following new subsection:
``(b) Existing and Future Designations.--
``(1) Future designations.--If a board of trade is
designated as a contract market by the Commission under
subsection (a) and section 6, the board of trade shall retain
the designation for all existing or future contracts, unless--
``(A) the Commission suspends or revokes the
designation; or
``(B) the board of trade relinquishes the
designation.
``(2) Existing designations.--A board of trade that has
been designated as a contract market as of the date of the
enactment of this subsection shall retain the designation
unless--
``(A) the Commission finds that a violation of this
Act or a rule, regulation, or order of the Commission
by the contract market justifies suspension or
revocation of the designation under section 6(b); or
``(B) the board of trade relinquishes the
designation.''.
(d) Application for Designation.--The first sentence of section
6(a) of the Commodity Exchange Act (7 U.S.C. 8(a)) is amended by
striking ``Any board of trade desiring to be designated a `contract
market' '' and inserting ``A board of trade that has not obtained
designation as a contract market for a contract of sale for a commodity
under section 5, but that desires to be designated as a contract
market,''.
SEC. 104. PROCESS FOR SUBMISSION AND DISAPPROVAL OF CONTRACT MARKET
RULES.
Section 5a of the Commodity Exchange Act (7 U.S.C. 7a) is amended--
(1) in subsection (a), by striking paragraph (12); and
(2) by adding at the end the following new subsection:
``(c) Contract Market Bylaws, Rules, Regulations, and
Resolutions.--
``(1) Submission to commission.--Except as otherwise
provided in this subsection, each contract market shall submit
to the Commission all bylaws, rules, regulations, and
resolutions (in this subsection referred to as `rules') made or
issued by the contract market, or by the governing board or any
committee thereof, other than rules that relate to the setting
of levels of margin and such other rules as the Commission may
specify by regulation.
``(2) Effective date.--
``(A) In general.--Except in the case of a rule
described in subparagraph (B) or (C), a contract market
may make a rule of that contract market effective 10
days after the date on which the Commission receives
the rule under paragraph (1), unless, within such
period, the contract market requests review of the rule
by the Commission or the Commission institutes
proceedings to determine whether the rule should be
disapproved. The disapproval proceedings shall be
conducted in accordance with paragraph (3).
``(B) Special effective date for certain rules.--In
the case of a rule that would establish the terms and
conditions of a contract for the purchase or sale of a
commodity for future delivery, which is to be executed
subject to the rules of a contract market and has not
previously been traded subject to the rules of the
contract market, the contract market may make the rule
effective 15 days after the date on which the
Commission receives the rule under paragraph (1),
unless, within such period, the Commission institutes
proceedings to determine whether the rule should be
disapproved. The disapproval proceedings shall be
conducted in accordance with paragraph (3).
``(C) Exception.--A board of trade may not make
effective any rule to establish the terms and
conditions of a new contract (or option on such a
contract) that is subject to the requirements and
procedures of clauses (ii) through (v) of section
2(a)(1)(B) unless and until the requirements and
procedures of such clauses are satisfied and carried
out.
``(3) Disapproval process.--
``(A) Notice of proposed disapproval.--If the
Commission institutes a proceeding to determine whether
a rule submitted under paragraph (1) should be
disapproved, the Commission shall provide the contract
market with written notice of the proposed grounds for
disapproval, including--
``(i) the specific sections of this Act or
the regulations of the Commission that would be
violated; and
``(ii) in the case of a rule described in
paragraph (2)(B), the specific reason or
reasons why the rule might be contrary to the
public interest.
``(B) Disapproval proceeding.--In a disapproval
proceeding under this paragraph, the Commission shall
afford the contract market a reasonable opportunity to
respond in writing and an opportunity for a hearing,
including the right to an oral hearing before a quorum
of the Commission. In a disapproval proceeding
involving a rule described in paragraph (2)(B), the
Commission shall have the burden of proving that the
rule is contrary to the public interest.
``(C) Disapproval.--At the conclusion of a
disapproval proceeding under this paragraph, the
Commission shall determine whether to disapprove the
rule and shall disapprove the rule if the Commission
determines in the proceeding that the rule would be--
``(i) in violation of the provisions of
this Act or the regulations of the Commission;
or
``(ii) in the case of a rule described in
paragraph (2)(B), contrary to the public
interest.
``(D) Notice of disapproval.--The Commission shall
provide the contract market with written notice of the
disapproval of a rule of the contract market. The
notice shall--
``(i) specify the sections of this Act or
the Commission's regulations that the
Commission determines the rule violates or, if
effective, would violate; and
``(ii) in the case of a rule described in
paragraph (2)(B), contain an explanation and
analysis of the substantive basis why the rule
violates or, if effective, would violate the
public interest.
``(E) Time for disapproval.--Before the end of the
60-day period beginning on the date on which the
Commission receives a rule under paragraph (1), the
Commission shall complete any disapproval proceeding
instituted under this paragraph regarding the rule.
Unless the Commission has notified the contract market
by the end of such period that the Commission has
disapproved the rule, the contract market may make such
rule effective, and the Commission shall not thereafter
disapprove the rule. However, this subparagraph shall
not be construed to modify or affect the ability of the
Commission to alter or supplement any rules of a
contract market pursuant to section 8a(7).
``(5) Rule of construction regarding public interest
standard.--The authority of the Commission to disapprove a rule
described in paragraph (2)(B) on the basis that the rule is
contrary to the public interest shall not be construed to
authorize the Commission to apply such a standard to any other
provision of this Act or any other action of the Commission.
``(6) Temporary effectiveness for emergency rules.--
``(A) Emergency rules authorized.--The Commission
shall issue regulations to specify the terms and
conditions under which, in an emergency as defined by
the Commission, a contract market may, by a two-thirds
vote of its governing board, make a rule (in this
paragraph referred to as an `emergency rule')
immediately effective on a temporary basis without
compliance with the applicable notice requirements
under paragraph (2), or during any period of review by
the Commission, if the contract market makes every
effort practicable to notify the Commission of the
emergency rule before making the emergency rule
effective. The notification shall include a complete
explanation of the emergency involved. If the contract
market does not provide the Commission with such
notification and explanation before making the
emergency rule effective, the contract market shall
provide the Commission with such notification and
explanation at the earliest possible date. The
Commission may delegate the power to receive such
notification and explanation to such individuals as the
Commission determines necessary and appropriate.
``(B) Commission consideration of emergency
rules.--Within 10 days of the receipt from a contract
market of notification of an emergency rule and an
explanation of the emergency involved, or as soon as
practicable, the Commission shall determine whether it
is appropriate either--
``(i) to permit the emergency rule to
remain in effect during the pendency of the
emergency; or
``(ii) to suspend the effect of the
emergency rule pending review either under the
procedures of this subsection or otherwise.
``(C) Report on consideration.--The Commission
shall submit to the affected contract market, to the
Committee on Agriculture of the House of
Representatives and the Committee on Agriculture,
Nutrition, and Forestry of the Senate a report
regarding its determination (and the basis thereof)
with respect to an emergency rule. If the report is
submitted more than 10 days after the Commission's
receipt of notification of the emergency rule, the
report shall also contain an explanation of why
submission within such period was not practicable. A
determination by the Commission to suspend the effect
of a rule under this paragraph shall be subject to
judicial review on the same basis as an emergency
determination under section 8a(9). Nothing in this
paragraph shall be construed to limit the authority of
the Commission under section 8a(9).''.
SEC. 105. REGULATION OF AUDIT TRAIL REQUIREMENTS.
Section 5a(b) of the Commodity Exchange Act (7 U.S.C. 7a(b)) is
amended--
(1) by striking paragraphs (3), (4), and (6);
(2) by redesignating paragraph (5) as paragraph (6);
(3) in paragraph (6) (as so redesignated)--
(A) by striking ``paragraph (3)'' both places it
appears and inserting ``this subsection'' and
(B) by striking ``such paragraph'' and inserting
``this subsection''; and
(4) by inserting after paragraph (2) the following new
paragraphs:
``(3) Development of standards for time of execution.--Not
later than nine months after the date of the enactment of this
paragraph, the Commission shall issue a regulation, after
notice and an opportunity for a hearing, that prescribes an
objective standard or methodology for establishing whether a
contract market meets the requirement under paragraph (2) that
each contract market must be able to determine, with reasonable
accuracy, the time of execution, in increments of no more than
one minute in length. In issuing the regulation, the
Commission--
``(A) shall take into account any unique features
and trading practices of each contract market and any
surveillance mechanisms beyond a manual trade
recordation system adopted by each contract market;
``(B) shall not prescribe a specific means or
technology for meeting the accuracy or any other
requirement.
``(4) Use of trade recordation data.--Consistent with
Commission regulations, the audit trail system for a contract
market shall rely upon trade recordation data that are--
``(A) entered by floor traders, floor brokers or
others in nonerasable ink or other form that cannot be
altered without leaving a complete record of such
alteration; and
``(B) continually provided to the contract market
during the trading day in intervals of not more than 30
minutes for processing by the contract market.
``(5) Use of time stamps.--The audit trail system for a
contract market shall rely upon accurate time stamps or
similarly reliable devices for recording when a customer's
order reaches the trading floor and when that order is reported
from the floor as having been executed.''.
SEC. 106. USE OF BENEFIT-COST ANALYSIS.
Section 12 of the Commodity Exchange Act (7 U.S.C. 16) is amended
by adding at the end the following new subsection:
``(h) Use of Benefit-Cost Analysis.--
``(1) Analysis required.--Except as provided in paragraph
(4), the Commission shall not adopt any rule, regulation, or
order, or take any other regulatory action, if the benefits of
such an action do not exceed the costs. The Commission shall
make this benefit-cost determination based upon the information
available in the record of such action maintained by the
Commission.
``(2) Benefits defined.--For purposes of this subsection,
the term `benefits' means the significant, reasonably
identifiable, favorable effects (including the impact on market
liquidity and efficiency, financial and market integrity,
customer protection, and fair competition) that are reasonably
expected to result, directly or indirectly, from the adoption
of a rule or other agency action.
``(3) Costs Defined.--For purposes of this subsection, the
term `costs' means the significant, reasonably identifiable,
adverse effects (including the impact on market liquidity and
efficiency, financial and market integrity, customer
protection, and fair competition) that are reasonably expected
to result, directly or indirectly, from the adoption of a rule
or other agency action.
``(4) Exception for certain rules and actions.--This
subsection shall not apply to the following:
``(A) Any adjudicatory or formal rulemaking
determinations made by the Commission after a hearing
on the record.
``(B) Any emergency determination made by the
Commission under section 8a(a)(9).
``(C) Any review or action taken by the Commission
on appeal from a contract market disciplinary action in
accordance with section 8c.
``(D) Any Commission approvals of rules or rule
changes in accordance with section 5a(c).
``(E) Any Commission approvals of contract market
designation applications under section 6.''.
SEC. 107. COMMISSION OVERSIGHT AND DEFICIENCY ORDERS.
(a) Repeal.--Section 8e of the Commodity Exchange Act (7 U.S.C.
12e) is repealed.
(b) Conforming Amendments.--(1) Section 4j(a) of the Commodity
Exchange Act (7 U.S.C. 6j(a)) is amended--
(1) in paragraph (3)(B)(ii), by striking ``, such as those
described in section 8e,''; and
(2) in paragraph (5)(A)(ii), by striking ``, such as those
described in section 8e,''.
TITLE II--TREASURY AMENDMENT CLARIFICATION
SEC. 201. TREASURY AMENDMENT CLARIFICATION.
Section 2(a)(1)(A)(ii) of the Commodity Exchange Act (7 U.S.C.
2(ii)) is amended--
(1) by inserting ``or transactions involving'' after
``transactions in'';
(2) by inserting ``to the general public'' after ``sale
thereof''; and
(3) by adding at the end the following new sentence: ``For
purposes of this clause only, the term `board of trade', as it
applies to transactions in or involving foreign currency, means
any facility whereby standardized contracts are systematically
marketed to retail investors (other than individuals and
entities described as eligible participants under the
regulations of the Commission published in the Federal Register
on January 22, 1993, as codified in section 35.1(b)(2) of part
35 of title 17, Code of Federal Regulations).''.
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