[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4541 Engrossed in House (EH)]
106th CONGRESS
2d Session
H. R. 4541
_______________________________________________________________________
AN ACT
To reauthorize and amend the Commodity Exchange Act to promote legal
certainty, enhance competition, and reduce systemic risk in markets for
futures and over-the-counter derivatives, and for other purposes.
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 Futures
Modernization Act of 2000''.
(b) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Purposes.
TITLE I--COMMODITY FUTURES MODERNIZATION
Sec. 101. Definitions.
Sec. 102. Agreements, contracts, and transactions in foreign currency,
government securities, and certain other
commodities.
Sec. 103. Legal certainty for excluded derivative transactions.
Sec. 104. Excluded electronic trading facilities.
Sec. 105. Hybrid instruments.
Sec. 106. Transactions in exempt commodities.
Sec. 107. Swap transactions.
Sec. 108. Application of commodity futures laws.
Sec. 109. Protection of the public interest.
Sec. 110. Prohibited transactions.
Sec. 111. Designation of boards of trade as contract markets.
Sec. 112. Derivatives transaction execution facilities.
Sec. 113. Derivatives clearing.
Sec. 114. Common provisions applicable to registered entities.
Sec. 115. Exempt boards of trade.
Sec. 116. Suspension or revocation of designation as contract market.
Sec. 117. Authorization of appropriations.
Sec. 118. Preemption.
Sec. 119. Predispute resolution agreements for institutional customers.
Sec. 120. Consideration of costs and benefits and antitrust laws.
Sec. 121. Contract enforcement between eligible counterparties.
Sec. 122. Special procedures to encourage and facilitate bona fide
hedging by agricultural producers.
Sec. 123. Rule of construction.
Sec. 124. Technical and conforming amendments.
Sec. 125. Privacy.
Sec. 126. Report to Congress.
Sec. 127. International activities of the Commodity Futures Trading
Commission.
Sec. 128. Rules of construction.
TITLE II--COORDINATED REGULATION OF SECURITY FUTURES PRODUCTS
Subtitle A--Securities Law Amendments
Sec. 201. Definitions under the Securities Exchange Act of 1934.
Sec. 202. Regulatory relief for markets trading security futures
products.
Sec. 203. Regulatory relief for intermediaries trading security futures
products.
Sec. 204. Special provisions for interagency cooperation.
Sec. 205. Maintenance of market integrity for security futures
products.
Sec. 206. Special provisions for the trading of security futures
products.
Sec. 207. Clearance and settlement.
Sec. 208. Amendments relating to registration and disclosure issues
under the Securities Act of 1933 and the
Securities Exchange Act of 1934.
Sec. 209. Amendments to the Investment Company Act of 1940 and the
Investment Advisers Act of 1940.
Sec. 210. Preemption of State laws.
Subtitle B--Amendments to the Commodity Exchange Act
Sec. 221. Jurisdiction of Securities and Exchange Commission; other
provisions.
Sec. 222. Application of the Commodity Exchange Act to national
securities exchanges and national
securities associations that trade security
futures.
Sec. 223. Notification of investigations and enforcement actions.
SEC. 2. PURPOSES.
The purposes of this Act are--
(1) to reauthorize the appropriation for the Commodity
Futures Trading Commission;
(2) to streamline and eliminate unnecessary regulation for
the commodity futures exchanges and other entities regulated
under the Commodity Exchange Act;
(3) to transform the role of the Commodity Futures Trading
Commission to oversight of the futures markets;
(4) to provide a statutory and regulatory framework for
allowing the trading of futures on securities;
(5) to clarify the jurisdiction of the Commodity Futures
Trading Commission over certain retail foreign exchange
transactions and bucket shops that may not be otherwise
regulated;
(6) to promote innovation for futures and derivatives and
to reduce systemic risk by enhancing legal certainty in the
markets for certain futures and derivatives transactions;
(7) to reduce systemic risk and provide greater stability
to markets during times of market disorder by allowing the
clearing of transactions in over-the-counter derivatives
through appropriately regulated clearing organizations; and
(8) to enhance the competitive position of United States
financial institutions and financial markets.
TITLE I--COMMODITY FUTURES MODERNIZATION
SEC. 101. DEFINITIONS.
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended--
(1) by redesignating paragraphs (1) through (7), (8)
through (12), (13), (14), (15), and (16) as paragraphs (2)
through (8), (16) through (20), (22), (23), (24), and (28),
respectively;
(2) by inserting before paragraph (2) (as redesignated by
paragraph (1)) the following:
``(1) Alternative trading system.--The term `alternative
trading system' means an organization, association, or group of
persons that--
``(A) is registered as a broker or dealer pursuant
to section 15(b) of the Securities Exchange Act of 1934
(except paragraph (11) thereof);
``(B) performs the functions commonly performed by
an exchange (as defined in section 3(a)(1) of the
Securities Exchange Act of 1934);
``(C) does not--
``(i) set rules governing the conduct of
subscribers other than the conduct of such
subscribers' trading on the alternative trading
system; or
``(ii) discipline subscribers other than by
exclusion from trading; and
``(D) is exempt from the definition of the term
`exchange' under such section 3(a)(1) by rule or
regulation of the Securities and Exchange Commission on
terms that require compliance with regulations of its
trading functions.'';
(3) by striking paragraph (2) (as redesignated by paragraph
(1)) and inserting the following:
``(2) Board of trade.--The term `board of trade' means any
organized exchange or other trading facility.'';
(4) by inserting after paragraph (8) the following:
``(9) Derivatives clearing organization.--
``(A) In general.--The term `derivatives clearing
organization' means a clearinghouse, clearing
association, clearing corporation, or similar entity,
facility, system, or organization that, with respect to
an agreement, contract, or transaction--
``(i) enables each party to the agreement,
contract, or transaction to substitute, through
novation or otherwise, the credit of the
derivatives clearing organization for the
credit of the parties;
``(ii) arranges or provides, on a
multilateral basis, for the settlement or
netting of obligations resulting from such
agreements, contracts, or transactions executed
by participants in the derivatives clearing
organization; or
``(iii) otherwise provides clearing
services or arrangements that mutualize or
transfer among participants in the derivatives
clearing organization the credit risk arising
from such agreements, contracts, or
transactions executed by the participants.
``(B) Exclusions.--The term `derivatives clearing
organization' does not include an entity, facility,
system, or organization solely because it arranges or
provides for--
``(i) settlement, netting, or novation of
obligations resulting from agreements,
contracts, or transactions, on a bilateral
basis and without a central counterparty;
``(ii) settlement or netting of cash
payments through an interbank payment system;
or
``(iii) settlement, netting, or novation of
obligations resulting from a sale of a
commodity in a transaction in the spot market
for the commodity.
``(10) Electronic trading facility.--The term `electronic
trading facility' means a trading facility that--
``(A) operates by means of an electronic or
telecommunications network; and
``(B) maintains an automated audit trail of bids,
offers, and the matching of orders or the execution of
transactions on the facility.
``(11) Eligible commercial entity.--The term `eligible
commercial entity' means, with respect to an agreement,
contract or transaction in a commodity--
``(A) an eligible contract participant described in
clause (i), (ii), (v), (vii), (viii), or (ix) of
paragraph (12)(A) that, in connection with its
business--
``(i) has a demonstrable ability, directly
or through separate contractual arrangements,
to make or take delivery of the underlying
commodity;
``(ii) incurs risks, in addition to price
risk, related to the commodity; or
``(iii) is a dealer that regularly provides
risk management or hedging services to, or
engages in market-making activities with, the
foregoing entities involving transactions to
purchase or sell the commodity or derivative
agreements, contracts, or transactions in the
commodity;
``(B) an eligible contract participant, other than
a natural person or an instrumentality, department, or
agency of a State or local governmental entity, that--
``(i) regularly enters into transactions to
purchase or sell the commodity or derivative
agreements, contracts, or transactions in the
commodity; and
``(ii) either--
``(I) in the case of a collective
investment vehicle whose participants
include persons other than--
``(aa) qualified eligible
persons, as defined in
Commission rule 4.7(a) (17
C.F.R. 4.7(a));
``(bb) accredited
investors, as defined in
Regulation D of Securities and
Exchange Commission under the
Securities Act of 1933 (17
C.F.R. 230.501(a)), with total
assets of $2,000,000; or
``(cc) qualified
purchasers, as defined in
section 2(a)(51)(A) of the
Investment Company Act of 1940;
in each case as in effect on the date
of the enactment of the Commodity
Futures Modernization Act of 2000, has,
or is one of a group of vehicles under
common control or management having in
the aggregate, $1,000,000,000 in total
assets; or
``(II) in the case of other
persons, has, or is one of a group of
persons under common control or
management having in the aggregate,
$100,000,000 in total assets; or
``(C) such other persons as the Commission shall
determine appropriate and shall designate by rule,
regulation, or order.
``(12) Eligible contract participant.--The term `eligible
contract participant' means--
``(A) acting for its own account--
``(i) a financial institution;
``(ii) an insurance company that is
regulated by a State, or that is regulated by a
foreign government and is subject to comparable
regulation as determined by the Commission,
including a regulated subsidiary or affiliate
of such an insurance company;
``(iii) an investment company subject to
regulation under the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) or a foreign
person performing a similar role or function
subject as such to foreign regulation
(regardless of whether each investor in the
investment company or the foreign person is
itself an eligible contract participant);
``(iv) a commodity pool that--
``(I) has total assets exceeding
$5,000,000; and
``(II) is formed and operated by a
person subject to regulation under this
Act or a foreign person performing a
similar role or function subject as
such to foreign regulation (regardless
of whether each investor in the
commodity pool or the foreign person is
itself an eligible contract
participant);
``(v) a corporation, partnership,
proprietorship, organization, trust, or other
entity--
``(I) that has total assets
exceeding $10,000,000;
``(II) the obligations of which
under an agreement, contract, or
transaction are guaranteed or otherwise
supported by a letter of credit or
keepwell, support, or other agreement
by an entity described in subclause
(I), in clause (i), (ii), (iii), (iv),
or (vii), or in subparagraph (C); or
``(III) that--
``(aa) has a net worth
exceeding $1,000,000; and
``(bb) enters into an
agreement, contract, or
transaction in connection with
the conduct of the entity's
business or to manage the risk
associated with an asset or
liability owned or incurred or
reasonably likely to be owned
or incurred by the entity in
the conduct of the entity's
business;
``(vi) an employee benefit plan subject to
the Employee Retirement Income Security Act of
1974 (29 U.S.C. 1001 et seq.), a governmental
employee benefit plan, or a foreign person
performing a similar role or function subject
as such to foreign regulation--
``(I) that has total assets
exceeding $5,000,000; or
``(II) the investment decisions of
which are made by--
``(aa) an investment
adviser or commodity trading
advisor subject to regulation
under the Investment Advisers
Act of 1940 (15 U.S.C. 80b-1 et
seq.) or this Act;
``(bb) a foreign person
performing a similar role or
function subject as such to
foreign regulation;
``(cc) a financial
institution; or
``(dd) an insurance company
described in clause (ii), or a
regulated subsidiary or
affiliate of such an insurance
company;
``(vii)(I) a governmental entity (including
the United States, a State, or a foreign
government) or political subdivision of a
governmental entity;
``(II) a multinational or supranational
government entity; or
``(III) an instrumentality, agency, or
department of an entity described in subclause
(I) or (II),
except that such term does not include an
entity, instrumentality, agency, or department
referred to in subclause (I) or (III) of this
clause unless (aa) the entity, instrumentality,
agency, or department is a person described in
clause (i), (ii), or (iii) of section
1a(11)(A); (bb) the entity, instrumentality,
agency, or department owns and invests on a
discretionary basis $25,000,000 or more in
investments; or (cc) the agreement, contract,
or transaction is offered by, and entered into
with, an entity that is listed in any of
subclauses (I) through (VI) of section
2(c)(2)(B)(ii);
``(viii)(I) a broker or dealer subject to
regulation under the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) or a foreign
person performing a similar role or function
subject as such to foreign regulation, except
that, if the broker or dealer or foreign person
is a natural person or proprietorship, the
broker or dealer or foreign person shall not be
considered to be an eligible contract
participant unless the broker or dealer or
foreign person also meets the requirements of
clause (v) or (xi);
``(II) an associated person of a registered
broker or dealer concerning the financial or
securities activities of which the registered
person makes and keeps records under section
15C(b) or 17(h) of the Securities Exchange Act
of 1934 (15 U.S.C. 78o-5(b), 78q(h));
``(III) an investment bank holding company
(as defined in section 17(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(i));
``(ix) a futures commission merchant
subject to regulation under this Act or a
foreign person performing a similar role or
function subject as such to foreign regulation,
except that, if the futures commission merchant
or foreign person is a natural person or
proprietorship, the futures commission merchant
or foreign person shall not be considered to be
an eligible contract participant unless the
futures commission merchant or foreign person
also meets the requirements of clause (v) or
(xi);
``(x) a floor broker or floor trader
subject to regulation under this Act in
connection with any transaction that takes
place on or through the facilities of a
registered entity or an exempt board of trade,
or any affiliate thereof, on which such person
regularly trades; or
``(xi) an individual who has total assets
in an amount in excess of--
``(I) $10,000,000; or
``(II) $5,000,000 and who enters
into the agreement, contract, or
transaction in order to manage the risk
associated with an asset owned or
liability incurred, or reasonably
likely to be owned or incurred, by the
individual;
``(B)(i) a person described in clause (i), (ii),
(iv), (v), (viii), (ix), or (x) of subparagraph (A) or
in subparagraph (C), acting as broker or performing an
equivalent agency function on behalf of another person
described in subparagraph (A) or (C); or
``(ii) an investment adviser subject to regulation
under the Investment Advisers Act of 1940, a commodity
trading advisor subject to regulation under this Act, a
foreign person performing a similar role or function
subject as such to foreign regulation, or a person
described in clause (i), (ii), (iv), (v), (viii), (ix),
or (x) of subparagraph (A) or in subparagraph (C), in
any such case acting as investment manager or fiduciary
(but excluding a person acting as broker or performing
an equivalent agency function) for another person
described in subparagraph (A) or (C) and who is
authorized by such person to commit such person to the
transaction; or
``(C) any other person that the Commission
determines to be eligible in light of the financial or
other qualifications of the person.
``(13) Excluded commodity.--The term `excluded commodity'
means--
``(i) an interest rate, exchange rate,
currency, security, security index, credit risk
or measure, debt or equity instrument, index or
measure of inflation, or other macroeconomic
index or measure;
``(ii) any other rate, differential, index,
or measure of economic or commercial risk,
return, or value that is--
``(I) not based in substantial part
on the value of a narrow group of
commodities not described in clause
(i); or
``(II) based solely on 1 or more
commodities that have no cash market;
``(iii) any economic or commercial index
based on prices, rates, values, or levels that
are not within the control of any party to the
relevant contract, agreement, or transaction;
or
``(iv) an occurrence, extent of an
occurrence, or contingency (other than a change
in the price, rate, value, or level of a
commodity not described in clause (i)) that
is--
``(I) beyond the control of the
parties to the relevant contract,
agreement, or transaction; and
``(II) associated with a financial,
commercial, or economic consequence.
``(14) Exempt commodity.--The term `exempt commodity' means
a commodity that is not an excluded commodity or an
agricultural commodity.
``(15) Financial institution.--The term `financial
institution' means--
``(A) a corporation operating under the fifth
undesignated paragraph of section 25 of the Federal
Reserve Act (12 U.S.C. 603), commonly known as `an
agreement corporation';
``(B) a corporation organized under section 25A of
the Federal Reserve Act (12 U.S.C. 611 et seq.),
commonly known as an `Edge Act corporation';
``(C) an institution that is regulated by the Farm
Credit Administration;
``(D) a Federal credit union or State credit union
(as defined in section 101 of the Federal Credit Union
Act (12 U.S.C. 1752));
``(E) a depository institution (as defined in
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813));
``(F) a foreign bank or a branch or agency of a
foreign bank (each as defined in section 1(b) of the
International Banking Act of 1978 (12 U.S.C. 3101(b)));
``(G) any financial holding company (as defined in
section 2 of the Bank Holding Company Act of 1956);
``(H) a trust company; or
``(I) a similarly regulated subsidiary or affiliate
of an entity described in any of subparagraphs (A)
through (H).'';
(5) by inserting after paragraph (20) (as redesignated by
paragraph (1)) the following:
``(21) Hybrid instrument.--
``(A) In general.--The term `hybrid instrument'
means a deposit instrument offered by a financial
institution, or a security, having 1 or more payments
indexed to the value, level, or rate of 1 or more
commodities.
``(B) Deposit instrument defined.--The term
`deposit instrument' means an instrument representing
an interest described in paragraph (1), (2), (3), (4),
or (5) of section 3(l) of the Federal Deposit Insurance
Act, other than in subparagraph (A), (B), or (C) at the
end of such paragraph (5).'';
(6) by striking paragraph (24) (as redesignated by
paragraph (1)) and inserting the following:
``(24) Member of a contract market; member of a derivatives
transaction execution facility.--The term `member' means, with
respect to a contract market or derivatives transaction
execution facility, an individual, association, partnership,
corporation, or trust--
``(A) owning or holding membership in, or admitted
to membership representation on, the contract market or
derivatives transaction execution facility; or
``(B) having trading privileges on the contract
market or derivatives transaction execution facility.
``(25) Narrow-based security index.--
``(A) The term `narrow-based security index' means
an index--
``(i) that has 9 or fewer component
securities;
``(ii) in which a component security
comprises more than 30 percent of the index's
weighting;
``(iii) in which the 5 highest weighted
component securities in the aggregate comprise
more than 60 percent of the index's weighting;
or
``(iv) in which the lowest weighted
component securities comprising, in the
aggregate, 25 percent of the index's weighting
have an aggregate dollar value of average daily
trading volume of less than $50,000,000 (or in
the case of an index with 15 or more component
securities, $30,000,000), except that if there
are two or more securities with equal weighting
that could be included in the calculation of
the lowest weighted component securities
comprising, in the aggregate, 25 percent of the
index's weighting, such securities shall be
ranked from lowest to highest dollar value of
average daily trading volume and shall be
included in the calculation based on their
ranking starting with the lowest ranked
security.
``(B) Notwithstanding subparagraph (A), an index is
not a narrow-based security index if--
``(i)(I) it has at least 9 component
securities;
``(II) no component security comprises more
than 30 percent of the index's weighting; and
``(III) each component security is--
``(aa) registered pursuant to
section 12 of the Securities Exchange
Act of 1934;
``(bb) 1 of 750 securities with the
largest market capitalization; and
``(cc) 1 of 675 securities with the
largest dollar value of average daily
trading volume;
``(ii) it is a contract of sale for future
delivery with respect to which a board of trade
was designated as a contract market by the
Commodity Futures Trading Commission prior to
the date of enactment of the Commodity Futures
Modernization Act of 2000;
``(iii)(I) it traded on a designated
contract market or registered derivatives
transaction execution facility for at least 30
days as a contract of sale for future delivery
that was not a narrow-based security index; and
``(II) it has been a narrow-based security
index for no more than 45 business days over 3
consecutive calendar months;
``(iv) it is traded on or subject to the
rules of a foreign board of trade and meets
such requirements as are jointly established by
rule or regulation by the Commission and the
Securities and Exchange Commission;
``(v) no more than 18 months have passed
since enactment of the Commodity Futures
Modernization Act of 2000 and it is--
``(I) traded on or subject to the
rules of a foreign board of trade;
``(II) the offer and sale in the
United States of a contract of sale for
future delivery on the index was
authorized before the date of the
enactment of the Commodity Futures
Modernization Act of 2000; and
``(III) the conditions of such
authorization continue to be met; or
``(vi) it is traded on or subject to the
rules of a board of trade and meets such
requirements as are jointly established by
rule, regulation, or order by the Commission
and the Securities and Exchange Commission.
``(C) Within 1 year after the date of the enactment
of the Commodity Futures Modernization Act of 2000, the
Commission and the Securities and Exchange Commission
jointly shall adopt rules or regulations that set forth
the requirements under subparagraph (B)(iv).
``(D) An index that is a narrow-based security
index solely because it was a narrow-based security
index for more than 45 business days over 3 consecutive
calendar months pursuant to clause (iii) of
subparagraph (B) shall not be a narrow-based security
index for the 3 following calendar months.
``(E) For purposes of subparagraphs (A) and (B)--
``(i) the dollar value of average daily
trading volume and the market capitalization
shall be calculated as of the preceding 6 full
calendar months; and
``(ii) the Commission and the Securities
and Exchange Commission shall, by rule or
regulation, jointly specify the method to be
used to determine market capitalization and
dollar value of average daily trading volume.
``(26) Option.--The term `option' means an agreement,
contract, or transaction that is of the character of, or is
commonly known to the trade as, an `option', `privilege',
`indemnity', `bid', `offer', `put', `call', `advance guaranty',
or `decline guaranty'.
``(27) Organized exchange.--The term `organized exchange'
means a trading facility that--
``(A) permits trading--
``(i) by or on behalf of a person that is
not an eligible contract participant; or
``(ii) by persons other than on a
principal-to-principal basis; or
``(B) has adopted (directly or through another
nongovernmental entity) rules that--
``(i) govern the conduct of participants,
other than rules that govern the submission of
orders or execution of transactions on the
trading facility; and
``(ii) include disciplinary sanctions other
than the exclusion of participants from
trading.''; and
(7) by adding at the end the following:
``(29) Registered entity.--The term `registered entity'
means--
``(A) a board of trade designated as a contract
market under section 5;
``(B) a derivatives transaction execution facility
registered under section 5a;
``(C) a derivatives clearing organization
registered under section 5b; and
``(D) a board of trade designated as a contract
market under section 5f.
``(30) Security.--The term `security' means a security as
defined in section 2(a)(1) of the Securities Act of 1933 (15
U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(10)).
``(31) Security future.--The term `security future' means a
contract of sale for future delivery of a single security or of
a narrow-based security index, including any interest therein
or based on the value thereof, except an exempted security
under section 3(a)(12) of the Securities Exchange Act of 1934
as in effect on the date of enactment of the Futures Trading
Act of 1982 (other than any municipal security as defined in
section 3(a)(29) of the Securities Exchange Act of 1934 as in
effect on the date of enactment of the Futures Trading Act of
1982). The term `security future' does not include any
agreement, contract, or transaction excluded from this Act
under subsection (c), (d), (f), or (h) of section 2 of this
Act, as in effect on the date of the enactment of the Commodity
Futures Modernization Act of 2000.
``(32) Security futures product.--The term `security
futures product' means a security future or any put, call,
straddle, option, or privilege on any security future.
``(33) Trading facility.--
``(A) In general.--The term `trading facility'
means a person or group of persons that constitutes,
maintains, or provides a physical or electronic
facility or system in which multiple participants have
the ability to execute or trade agreements, contracts,
or transactions by accepting bids and offers made by
other participants that are open to multiple
participants in the facility or system.
``(B) Exclusions.--The term `trading facility' does
not include--
``(i) a person or group of persons solely
because the person or group of persons
constitutes, maintains, or provides an
electronic facility or system that enables
participants to negotiate the terms of and
enter into bilateral transactions as a result
of communications exchanged by the parties and
not from interaction of multiple bids and
multiple offers within a predetermined,
nondiscretionary automated trade matching and
execution algorithm;
``(ii) a government securities dealer or
government securities broker, to the extent
that the dealer or broker executes or trades
agreements, contracts, or transactions in
government securities, or assists persons in
communicating about, negotiating, entering
into, executing, or trading an agreement,
contract, or transaction in government
securities (as the terms `government securities
dealer', `government securities broker', and
`government securities' are defined in section
3(a) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a))); or
``(iii) facilities on which bids and
offers, and acceptances of bids and offers
effected on the facility, are not binding.
``(C) Special rule.--A person or group of persons
that would not otherwise constitute a trading facility
shall not be considered to be a trading facility solely
as a result of the submission to a derivatives clearing
organization of transactions executed on or through the
person or group of persons.''.
SEC. 102. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN CURRENCY,
GOVERNMENT SECURITIES, AND CERTAIN OTHER COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is amended by adding at the end the following:
``(c) Agreements, Contracts, and Transactions in Foreign Currency,
Government Securities, and Certain Other Commodities.--
``(1) In general.--Except as provided in paragraph (2),
nothing in this Act (other than section 5a (to the extent
provided in section 5a(g)), 5b, 5d, or 12(e)(2)(B)) governs or
applies to an agreement, contract, or transaction in--
``(A) foreign currency;
``(B) government securities;
``(C) security warrants;
``(D) security rights;
``(E) resales of installment loan contracts;
``(F) repurchase transactions in an excluded
commodity; or
``(G) mortgages or mortgage purchase commitments.
``(2) Commission jurisdiction.--
``(A) Agreements, contracts, and transactions
traded on an organized exchange.--This Act applies to,
and the Commission shall have jurisdiction over, an
agreement, contract, or transaction described in
paragraph (1) that is--
``(i) a contract of sale of a commodity for
future delivery (or an option thereon), or an
option on a commodity (other than foreign
currency or a security 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 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-5) or a futures
commission merchant registered under
this Act;
``(III) an associated person of a
broker or dealer registered under
section 15(b) or 15C of the Securities
Exchange Act of 1934 (15 U.S.C. 78o(b),
78o-5), or an affiliated person of a
futures commission merchant registered
under this Act, concerning the
financial or securities activities of
which the registered person makes and
keeps records under section 15C(b) or
17(h) of the Securities Exchange Act of
1934 (15 U.S.C. 78o-5(b), 78q(h)) or
section 4f(c)(2)(B) of this Act;
``(IV) an insurance company
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, 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.''.
SEC. 103. LEGAL CERTAINTY FOR EXCLUDED DERIVATIVE TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is further amended by adding at the end the following:
``(d) Excluded Derivative Transactions.--
``(1) In general.--Nothing in this Act (other than section
5b or 12(e)(2)(B)) governs or applies to an agreement,
contract, or transaction in an excluded commodity if--
``(A) the agreement, contract, or transaction is
entered into only between persons that are eligible
contract participants at the time at which the persons
enter into the agreement, contract, or transaction; and
``(B) the agreement, contract, or transaction is
not executed or traded on a trading facility.
``(2) Electronic trading facility exclusion.--Nothing in
this Act (other than section 5a (to the extent provided in
section 5a(g)), 5b, 5d, or 12(e)(2)(B)) governs or applies to
an agreement, contract, or transaction in an excluded commodity
if--
``(A) the agreement, contract, or transaction is
entered into on a principal-to-principal basis between
parties trading for their own accounts or as described
in section 1a(12)(B)(ii);
``(B) the agreement, contract, or transaction is
entered into only between persons that are eligible
contract participants described in subparagraph (A),
(B)(ii), or (C) of section 1a(12)) at the time at which
the persons enter into the agreement, contract, or
transaction; and
``(C) the agreement, contract, or transaction is
executed or traded on an electronic trading
facility.''.
SEC. 104. EXCLUDED ELECTRONIC TRADING FACILITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is further amended by adding at the end the following:
``(e) Excluded Electronic Trading Facilities.--
``(1) In general.--Nothing in this Act (other than section
12(e)(2)(B)) governs or is applicable to an electronic trading
facility that limits transactions authorized to be conducted on
its facilities to those satisfying the requirements of sections
2(d)(2), 2(g)(3), and 2(h).
``(2) Effect on authority to establish and operate.--
Nothing in this Act shall prohibit a board of trade designated
by the Commission as a contract market, derivatives transaction
execution facility, or exempt board of trade from establishing
and operating an electronic trading facility excluded under
this Act pursuant to paragraph (1).
``(3) Effect on transactions.--No failure by an electronic
trading facility to limit transactions as required by paragraph
(1) of this subsection or to comply with section 2(g)(5) shall
in itself affect the legality, validity, or enforceability of
an agreement, contract, or transaction entered into or traded
on the electronic trading facility or cause a participant on
the system to be in violation of this Act.
SEC. 105. HYBRID INSTRUMENTS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is further amended by adding at the end the following:
``(f) Exclusion for Qualifying Hybrid Instruments.--
``(1) In general.--Nothing in this Act (other than section
12(e)(2)(B)) governs or is applicable to a hybrid instrument
that is predominantly a security or deposit instrument.
``(2) Predominance.--A hybrid instrument shall be
considered to be predominantly a security or deposit instrument
if--
``(A) the issuer of the hybrid instrument receives
payment in full of the purchase price of the hybrid
instrument, substantially contemporaneously with
delivery of the hybrid instrument;
``(B) the purchaser or holder of the hybrid
instrument is not required to make any payment to the
issuer in addition to the purchase price paid under
subparagraph (A), whether as margin, settlement
payment, or otherwise, during the life of the hybrid
instrument or at maturity;
``(C) the issuer of the hybrid instrument is not
subject by the terms of the instrument to mark-to-
market margining requirements; and
``(D) the hybrid instrument is not marketed as a
contract of sale for future delivery of a commodity (or
option on such a contract) subject to this Act.
``(3) Mark-to-market margining requirements.--For the
purposes of paragraph (2)(C), mark-to-market margining
requirements do not include the obligation of an issuer of a
secured debt instrument to increase the amount of collateral
held in pledge for the benefit of the purchaser of the secured
debt instrument to secure the repayment obligations of the
issuer under the secured debt instrument.''.
SEC. 106. TRANSACTIONS IN EXEMPT COMMODITIES.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is further amended by adding at the end the following.
``(g) Legal Certainty for Certain Transactions in Exempt
Commodities.--
``(1) Except as provided in paragraph (2), nothing in this
Act shall apply to a contract, agreement or transaction in an
exempt commodity which--
``(A) is entered into solely between persons that
are eligible contract participants at the time the
persons enter into the agreement, contract, or
transaction; and
``(B) is not entered into on a trading facility.
``(2) An agreement, contract, or transaction described in
paragraph (1) of this subsection shall be subject to--
``(A) sections 5b and 12(e)(2)(B);
``(B) sections 4b, 4o, 6(c), 6(d), 6c, 6d, and 8a,
and the regulations of the Commission pursuant to
section 4c(b) proscribing fraud in connection with
commodity option transactions, to the extent the
agreement, contract, or transaction is not between
eligible commercial entities (unless 1 of the entities
is an instrumentality, department, or agency of a State
or local governmental entity) and would otherwise be
subject to such sections and regulations; and
``(C) sections 6(c), 6(d), 6c, 6d, 8a, and 9(a)(2),
to the extent such sections prohibit manipulation of
the market price of any commodity in interstate
commerce and the agreement, contract, or transaction
would otherwise be subject to such sections.
``(3) Except as provided in paragraph (4), nothing in this
Act shall apply to an agreement, contract, or transaction in an
exempt commodity which is--
``(A) entered into on a principal-to-principal
basis solely between persons that are eligible
commercial entities at the time the persons enter into
the agreement, contract, or transaction; and
``(B) executed or traded on an electronic trading
facility.
``(4) An agreement, contract, or transaction described in
paragraph (3) of this subsection shall be subject to--
``(A) sections 5a (to the extent provided in
section 5a(g)), 5b, 5d, and 12(e)(2)(B);
``(B) sections 4b and 4o and the regulations of the
Commission pursuant to section 4c(b) proscribing fraud
in connection with commodity option transactions to the
extent the agreement, contract, or transaction would
otherwise be subject to such sections and regulations;
``(C) sections 6(c) and 9(a)(2), to the extent such
sections prohibit manipulation of the market price of
any commodity in interstate commerce and to the extent
the agreement, contract, or transaction would otherwise
be subject to such sections; and
``(D) such rules and regulations as the Commission
may prescribe if necessary to ensure timely
dissemination by the electronic trading facility of
price, trading volume, and other trading data to the
extent appropriate, if the Commission determines that
the electronic trading facility performs a significant
price discovery function for transactions in the cash
market for the commodity underlying any agreement,
contract, or transaction executed or traded on the
electronic trading facility.
``(5) An electronic trading facility relying on the
exemption provided in paragraph (3) shall--
``(A) notify the Commission of its intention to
operate an electronic trading facility in reliance on
the exemption set forth in paragraph (3), which notice
shall include the following:
``(i) the name and address of the facility
and a person designated to receive
communications from the Commission;
``(ii) the commodity categories that the
facility intends to list or otherwise make
available for trading on the facility in
reliance on the exemption set forth in
paragraph (3);
``(iii) certifications that--
``(I) no executive officer or
member of the governing board of, or
any holder of a 10 percent or greater
equity interest in, the facility is a
person described in any of
subparagraphs (A) through (H) of
section 8a(2);
``(II) the facility will comply
with the conditions for exemption under
this paragraph; and
``(III) the facility will notify
the Commission of any material change
in the information previously provided
by the facility to the Commission
pursuant to this paragraph; and
``(iv) the identity of any derivatives
clearing organization to which the facility
transmits or intends to transmit transaction
data for the purpose of facilitating the
clearance and settlement of transactions
conducted on the facility in reliance on the
exemption set forth in paragraph (3);
``(B)(i)(I) provide the Commission with access to
the facility's trading protocols and electronic access
to the facility with respect to transactions conducted
in reliance on the exemption set forth in paragraph
(3); or
``(II) provide such reports to the Commission
regarding transactions executed on the facility in
reliance on the exemption set forth in paragraph (3) as
the Commission may from time to time request to enable
the Commission to satisfy its obligations under this
Act; and
``(ii) maintain for 5 years, and make available for
inspection by the Commission upon request, records of
all activities related to its business as an electronic
trading facility exempt under paragraph (3),
including--
``(I) information relating to data entry
and transaction details sufficient to enable
the Commission to reconstruct trading activity
on the facility conducted in reliance on the
exemption set forth in paragraph (3); and
``(II) the name and address of each
participant on the facility authorized to enter
into transactions in reliance on the exemption
set forth in paragraph (3); and
``(iii) upon special call by the Commission,
provide to the Commission, in a form and manner and
within the period specified in the special call, such
information related to its business as an electronic
trading facility exempt under paragraph (3), including
information relating to data entry and transaction
details in respect of transactions entered into in
reliance on the exemption set forth in paragraph (3),
as the Commission may determine appropriate--
``(I) to enforce the provisions specified
in subparagraphs (B) and (C) of paragraph (4);
``(II) to evaluate a systemic market event;
or
``(III) to obtain information requested by
a Federal financial regulatory authority in
order to enable the regulator to fulfill its
regulatory or supervisory responsibilities; and
``(C)(i) upon receipt of any subpoena issued by or
on behalf of the Commission to any foreign person who
the Commission believes is conducting or has conducted
transactions in reliance on the exemption set forth in
paragraph (3) on or through the electronic trading
facility relating to the transactions, promptly notify
the foreign person of, and transmit to the foreign
person, the subpoena in a manner reasonable under the
circumstances, or as specified by the Commission; and
``(ii) if the Commission has reason to believe that
a person has not timely complied with a subpoena issued
by or on behalf of the Commission pursuant to clause
(i), and the Commission in writing has directed that a
facility relying on the exemption set forth in
paragraph (3) deny or limit further transactions by the
person, the facility shall deny that person further
trading access to the facility or, as applicable, limit
that person's access to the facility for liquidation
trading only;
``(D) comply with the requirements of this
paragraph applicable to the facility and require that
each participant, as a condition of trading on the
facility in reliance on the exemption set forth in
paragraph (3), agree to comply with all applicable law;
``(E) have a reasonable basis for believing that
participants authorized to conduct transactions on the
facility in reliance on the exemption set forth in
paragraph (3) are eligible commercial entities; and
``(F) not represent to any person that the facility
is registered with, or designated, recognized, licensed
or approved by the Commission.
``(6) A person named in a subpoena referred to in paragraph
(5)(C) that believes the person is or may be adversely affected
or aggrieved by action taken by the Commission under this
section, shall have the opportunity for a prompt hearing after
the Commission acts under procedures that the Commission shall
establish by rule, regulation, or order.''.
SEC. 107. SWAP TRANSACTIONS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is further amended by adding at the end the following:
``(h) Excluded Swap Transactions.--No provision of this Act (other
than section 5a (to the extent provided in section 5a(g)), 5b, 5d, or
12(e)(2)) shall apply to or govern any agreement, contract, or
transaction in a commodity other than an agricultural commodity if--
``(1) the agreement, contract, or transaction is entered
into only between persons that are eligible contract
participants at the time they enter into the agreement,
contract, or transaction; and
``(2) each of the material economic terms of the agreement,
contract, or transaction is individually negotiated by the
parties.''.
SEC. 108. APPLICATION OF COMMODITY FUTURES LAWS.
Section 2 of the Commodity Exchange Act (7 U.S.C. 2, 2a, 3, 4, 4a)
is further amended by adding at the end the following:
``(i) Application of Commodity Futures Laws.--
``(1) No provision of this Act shall be construed as
implying or creating any presumption that--
``(A) any agreement, contract, or transaction that
is excluded or exempted under subsection (c), (d), (e),
(f), (g), or (h) of section 2 or section 4(c); or
``(B) any agreement, contract, or transaction, not
otherwise subject to this Act, that is not so excluded
or exempted,
is or would otherwise be subject to this Act.
``(2) No provision of, or amendment made by, the Commodity
Futures Modernization Act of 2000 shall be construed as
conferring jurisdiction on the Commission with respect to any
such agreement, contract, or transaction, except as expressly
provided in section 5a of this Act (to the extent provided in
section 5a(g) of this Act), 5b of this Act, or 5d of this
Act.''.
SEC. 109. PROTECTION OF THE PUBLIC INTEREST.
The Commodity Exchange Act is amended by striking section 3 (7
U.S.C. 5) and inserting the following:
``SEC. 3. FINDINGS AND PURPOSE.
``(a) Findings.--The transactions subject to this Act are entered
into regularly in interstate and international commerce and are
affected with a national public interest by providing a means for
managing and assuming price risks, discovering prices, or disseminating
pricing information through trading in liquid, fair and financially
secure trading facilities.
``(b) Purpose.--It is the purpose of this Act to serve the public
interests described in subsection (a) through a system of effective
self-regulation of trading facilities, clearing systems, market
participants and market professionals under the oversight of the
Commission. To foster these public interests, it is further the purpose
of this Act to deter and prevent price manipulation or any other
disruptions to market integrity; to ensure the financial integrity of
all transactions subject to this Act and the avoidance of systemic
risk; to protect all market participants from fraudulent or other
abusive sales practices and misuses of customer assets; and to promote
responsible innovation and fair competition among boards of trade,
other markets and market participants.''.
SEC. 110. PROHIBITED TRANSACTIONS.
Section 4c of the Commodity Exchange Act (7 U.S.C. 6c) is amended
by striking ``Sec. 4c.'' and all that follows through subsection (a)
and inserting the following:
``SEC. 4C. PROHIBITED TRANSACTIONS.
``(a) In General.--
``(1) Prohibition.--It shall be unlawful for any person to
offer to enter into, enter into, or confirm the execution of a
transaction described in paragraph (2) involving the purchase
or sale of any commodity for future delivery (or any option on
such a transaction or option on a commodity) if the transaction
is used or may be used to--
``(A) hedge any transaction in interstate commerce
in the commodity or the product or byproduct of the
commodity;
``(B) determine the price basis of any such
transaction in interstate commerce in the commodity; or
``(C) deliver any such commodity sold, shipped, or
received in interstate commerce for the execution of
the transaction.
``(2) Transaction.--A transaction referred to in paragraph
(1) is a transaction that--
``(A)(i) is, is of the character of, or is commonly
known to the trade as, a `wash sale' or `accommodation
trade'; or
``(ii) is a fictitious sale; or
``(B) is used to cause any price to be reported,
registered, or recorded that is not a true and bona
fide price.''.
SEC. 111. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
The Commodity Exchange Act is amended--
(1) by redesignating section 5b (7 U.S.C. 7b) as section
5e; and
(2) by striking sections 5 and 5a (7 U.S.C. 7, 7a) and
inserting the following:
``SEC. 5. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS.
``(a) Applications.--A board of trade applying to the Commission
for designation as a contract market shall submit an application to the
Commission that includes any relevant materials and records the
Commission may require consistent with this Act.
``(b) Criteria for Designation.--
``(1) In general.--To be designated as a contract market,
the board of trade shall demonstrate to the Commission that the
board of trade meets the criteria specified in this subsection.
``(2) Prevention of market manipulation.--The board of
trade shall have the capacity to prevent market manipulation
through market surveillance, compliance, and enforcement
practices and procedures, including methods for conducting
real-time monitoring of trading and comprehensive and accurate
trade reconstructions.
``(3) Fair and equitable trading.--The board of trade shall
establish and enforce trading rules to ensure fair and
equitable trading through the facilities of the contract
market, and the capacity to detect, investigate, and discipline
any person that violates the rules. The rules may authorize--
``(A) transfer trades or office trades;
``(B) an exchange of--
``(i) futures in connection with a cash
commodity transaction;
``(ii) futures for cash commodities; or
``(iii) futures for swaps; or
``(C) a futures commission merchant, acting as
principal or agent, to enter into or confirm the
execution of a contract for the purchase or sale of a
commodity for future delivery if the contract is
reported, recorded, or cleared in accordance with the
rules of the contract market or a derivatives clearing
organization.
``(4) Trade execution facility.--The board of trade shall--
``(A) establish and enforce rules defining, or
specifications detailing, the manner of operation of
the trade execution facility maintained by the board of
trade, including rules or specifications describing the
operation of any electronic matching platform; and
``(B) demonstrate that the trade execution facility
operates in accordance with the rules or
specifications.
``(5) Financial integrity of transactions.--The board of
trade shall establish and enforce rules and procedures for
ensuring the financial integrity of transactions entered into
by or through the facilities of the contract market, including
the clearance and settlement of the transactions with a
derivatives clearing organization.
``(6) Disciplinary procedures.--The board of trade shall
establish and enforce disciplinary procedures that authorize
the board of trade to discipline, suspend, or expel members or
market participants that violate the rules of the board of
trade, or similar methods for performing the same functions,
including delegation of the functions to third parties.
``(7) Public access.--The board of trade shall provide the
public with access to the rules, regulations, and contract
specifications of the board of trade.
``(8) Ability to obtain information.--The board of trade
shall establish and enforce rules that will allow the board of
trade to obtain any necessary information to perform any of the
functions described in this subsection, including the capacity
to carry out such international information-sharing agreements
as the Commission may require.
``(c) Existing Contract Markets.--A board of trade that is
designated as a contract market on the date of the enactment of the
Commodity Futures Modernization Act of 2000 shall be considered to be a
designated contract market under this section.
``(d) Core Principles for Contract Markets.--
``(1) In general.--To maintain the designation of a board
of trade as a contract market, the board of trade shall comply
with the core principles specified in this subsection. The
board of trade shall have reasonable discretion in establishing
the manner in which it complies with the core principles.
``(2) Compliance with rules.--The board of trade shall
monitor and enforce compliance with the rules of the contract
market, including the terms and conditions of any contracts to
be traded and any limitations on access to the contract market.
``(3) Contracts not readily subject to manipulation.--The
board of trade shall list on the contract market only contracts
that are not readily susceptible to manipulation.
``(4) Monitoring of trading.--The board of trade shall
monitor trading to prevent manipulation, price distortion, and
disruptions of the delivery or cash-settlement process.
``(5) Position limitations or accountability.--To reduce
the potential threat of market manipulation or congestion,
especially during trading in the delivery month, the board of
trade shall adopt position limitations or position
accountability for speculators, where necessary and
appropriate.
``(6) Emergency authority.--The board of trade shall adopt
rules to provide for the exercise of emergency authority, in
consultation or cooperation with the Commission, where
necessary and appropriate, including the authority to--
``(A) liquidate or transfer open positions in any
contract;
``(B) suspend or curtail trading in any contract;
and
``(C) require market participants in any contract
to meet special margin requirements.
``(7) Availability of general information.--The board of
trade shall make available to market authorities, market
participants, and the public information concerning--
``(A) the terms and conditions of the contracts of
the contract market; and
``(B) the mechanisms for executing transactions on
or through the facilities of the contract market.
``(8) Daily publication of trading information.--The board
of trade shall make public daily information on settlement
prices, volume, open interest, and opening and closing ranges
for actively traded contracts on the contract market.
``(9) Execution of transactions.--The board of trade shall
provide a competitive, open, and efficient market and mechanism
for executing transactions.
``(10) Trade information.--The board of trade shall
maintain rules and procedures to provide for the recording and
safe storage of all identifying trade information in a manner
that enables the contract market to use the information for
purposes of assisting in the prevention of customer and market
abuses and providing evidence of any violations of the rules of
the contract market.
``(11) Financial integrity of contracts.--The board of
trade shall establish and enforce rules providing for the
financial integrity of any contracts traded on the contract
market (including the clearance and settlement of the
transactions with a derivatives clearing organization), and
rules to ensure the financial integrity of any futures
commission merchants and introducing brokers and the protection
of customer funds.
``(12) Protection of market participants.--The board of
trade shall establish and enforce rules to protect market
participants from abusive practices committed by any party
acting as an agent for the participants.
``(13) Dispute resolution.--The board of trade shall
establish and enforce rules regarding and provide facilities
for alternative dispute resolution as appropriate for market
participants and any market intermediaries.
``(14) Governance fitness standards.--The board of trade
shall establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee, members of
the contract market, and any other persons with direct access
to the facility (including any parties affiliated with any of
the persons described in this paragraph).
``(15) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of interest
in the decisionmaking process of the contract market and
establish a process for resolving such conflicts of interest.
``(16) Composition of boards of mutually owned contract
markets.--In the case of a mutually owned contract market, the
board of trade shall ensure that the composition of the
governing board reflects market participants.
``(17) Recordkeeping.--The board of trade shall maintain
records of all activities related to the business of the
contract market in a form and manner acceptable to the
Commission for a period of 5 years.
``(18) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the board of
trade shall endeavor to avoid--
``(A) adopting any rules or taking any actions that
result in any unreasonable restraints of trade; or
``(B) imposing any material anticompetitive burden
on trading on the contract market.
``(e) Current Agricultural Commodities.--
``(1) Subject to paragraph (2) of this subsection, a
contract for purchase or sale for future delivery of an
agricultural commodity enumerated in section 1a(4) that is
available for trade on a contract market, as of the date of the
enactment of this subsection, may be traded only on a contract
market designated under this section.
``(2) In order to promote responsible economic or financial
innovation and fair competition, the Commission, on application
by any person, after notice and public comment and opportunity
for hearing, may prescribe rules and regulations to provide for
the offer and sale of contracts for future delivery or options
thereon to be conducted on a derivatives transaction execution
facility.''.
SEC. 112. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5 (as amended by section 111(2)) the following:
``SEC. 5A. DERIVATIVES TRANSACTION EXECUTION FACILITIES.
``(a) In General.--In lieu of compliance with the contract market
designation requirements of sections 4(a) and 5, a board of trade may
elect to operate as a registered derivatives transaction execution
facility if the facility is--
``(1) designated as a contract market and meets the
requirements of this section; or
``(2) registered as a derivatives transaction execution
facility under subsection (c) of this section.
``(b) Requirements for Trading.--
``(1) In general.--A registered derivatives transaction
execution facility under subsection (a) may trade any contract
for sale of a commodity for future delivery (or option on such
a contract) on or through the facility only by satisfying the
requirements of this section.
``(2) Requirements for underlying commodities.--A
registered derivatives transaction execution facility may trade
any contract for sale of a commodity for future delivery (or
option on such a contract) only if--
``(A) the underlying commodity has a nearly
inexhaustible deliverable supply;
``(B) the underlying commodity has a deliverable
supply that is sufficiently large that the contract is
highly unlikely to be susceptible to the threat of
manipulation;
``(C) the underlying commodity has no cash market;
``(D)(i) the contract is a security futures
product, and (ii) the registered derivatives
transaction execution facility is a national securities
exchange registered under the Securities Exchange Act
of 1934 or an alternative trading system;
``(E) the Commission determines, based on the
market characteristics, surveillance history, self-
regulatory record, and capacity of the facility that
trading in the contract (or option) is highly unlikely
to be susceptible to the threat of manipulation; or
``(F) except as provided in section 5(e)(2), the
underlying commodity is a commodity other than an
agricultural commodity enumerated in section 1a(4), and
trading access to the facility is limited to eligible
commercial entities trading for their own account.
``(3) Eligible traders.--To trade on a registered
derivatives transaction execution facility, a person shall--
``(A) be an eligible contract participant; or
``(B) be a person trading through a futures
commission merchant that--
``(i) is registered with the Commission;
``(ii) is a member of a futures self-
regulatory organization or, if the person
trades only security futures products on the
facility, a national securities association
registered under section 15A(a) of the
Securities Exchange Act of 1934;
``(iii) is a clearing member of a
derivatives clearing organization; and
``(iv) has net capital of at least
$20,000,000.
``(4) Trading by contract markets.--A board of trade that
is designated as a contract market shall, to the extent that
the contract market also operates a registered derivatives
transaction execution facility--
``(A) provide a physical location for the contract
market trading of the board of trade that is separate
from trading on the derivatives transaction execution
facility of the board of trade; or
``(B) if the board of trade uses the same
electronic trading system for trading on the contract
market and derivatives transaction execution facility
of the board of trade, identify whether the electronic
trading is taking place on the contract market or the
derivatives transaction execution facility.
``(c) Criteria for Registration.--
``(1) In general.--To be registered as a registered
derivatives transaction execution facility, the board of trade
shall be required to demonstrate to the Commission only that
the board of trade meets the criteria specified in subsection
(b) and this subsection.
``(2) Deterrence of abuses.--The board of trade shall
establish and enforce trading and participation rules that will
deter abuses and has the capacity to detect, investigate, and
enforce those rules, including means to--
``(A) obtain information necessary to perform the
functions required under this section; or
``(B) use technological means to--
``(i) provide market participants with
impartial access to the market; and
``(ii) capture information that may be used
in establishing whether rule violations have
occurred.
``(3) Trading procedures.--The board of trade shall
establish and enforce rules or terms and conditions defining,
or specifications detailing, trading procedures to be used in
entering and executing orders traded on the facilities of the
board of trade. The rules may authorize--
``(A) transfer trades or office trades;
``(B) an exchange of--
``(i) futures in connection with a cash
commodity transaction;
``(ii) futures for cash commodities;
``(iii) futures for swaps; or
``(C) a futures commission merchant, acting as
principal or agent, to enter into or confirm the
execution of a contract for the purchase or sale of a
commodity for future delivery if the contract is
reported, recorded, or cleared in accordance with the
rules of the registered derivatives transaction
execution facility or a derivatives clearing
organization.
``(4) Financial integrity of transactions.--The board of
trade shall establish and enforce rules or terms and conditions
providing for the financial integrity of transactions entered
on or through the facilities of the board of trade (including
the clearance and settlement of the transactions with a
derivatives clearing organization), and rules or terms and
conditions to ensure the financial integrity of any futures
commission merchants and introducing brokers and the protection
of customer funds.
``(d) Core Principles for Registered Derivatives Transaction
Execution Facilities.--
``(1) In general.--To maintain the registration of a board
of trade as a derivatives transaction execution facility, a
board of trade shall comply with the core principles specified
in this subsection. The board of trade shall have reasonable
discretion in establishing the manner in which the board of
trade complies with the core principles.
``(2) Compliance with rules.--The board of trade shall
monitor and enforce the rules of the facility, including any
terms and conditions of any contracts traded on or through the
facility and any limitations on access to the facility.
``(3) Monitoring of trading.--The board of trade shall
monitor trading in the contracts of the facility to ensure
orderly trading in the contract and to maintain an orderly
market while providing any necessary trading information to the
Commission to allow the Commission to discharge the
responsibilities of the Commission under the Act.
``(4) Disclosure of general information.--The board of
trade shall disclose publicly and to the Commission information
concerning--
``(A) contract terms and conditions;
``(B) trading conventions, mechanisms, and
practices;
``(C) financial integrity protections; and
``(D) other information relevant to participation
in trading on the facility.
``(5) Daily publication of trading information.--The board
of trade shall make public daily information on settlement
prices, volume, open interest, and opening and closing ranges
for contracts traded on the facility if the Commission
determines that the contracts perform a significant price
discovery function for transactions in the cash market for the
commodity underlying the contracts.
``(6) Fitness standards.--The board of trade shall
establish and enforce appropriate fitness standards for
directors, members of any disciplinary committee, members, and
any other persons with direct access to the facility, including
any parties affiliated with any of the persons described in
this paragraph.
``(7) Conflicts of interest.--The board of trade shall
establish and enforce rules to minimize conflicts of interest
in the decision making process of the derivatives transaction
execution facility and establish a process for resolving such
conflicts of interest.
``(8) Recordkeeping.--The board of trade shall maintain
records of all activities related to the business of the
derivatives transaction execution facility in a form and manner
acceptable to the Commission for a period of 5 years.
``(9) Antitrust considerations.--Unless necessary or
appropriate to achieve the purposes of this Act, the board of
trade shall endeavor to avoid--
``(A) adopting any rules or taking any actions that
result in any unreasonable restraint of trade; or
``(B) imposing any material anticompetitive burden
on trading on the derivatives transaction execution
facility.
``(e) Use of Broker-Dealers, Depository Institutions, and Farm
Credit System Institutions as Intermediaries.--
``(1) In general.--With respect to transactions other than
transactions in security futures products, a registered
derivatives transaction execution facility may by rule allow a
broker-dealer, depository institution, or institution of the
Farm Credit System that meets the requirements of paragraph (2)
to--
``(A) act as an intermediary in transactions
executed on the facility on behalf of customers of the
broker-dealer, depository institution, or institution
of the Farm Credit System; and
``(B) receive funds of customers to serve as margin
or security for the transactions.
``(2) Requirements.--The requirements referred to in
paragraph (1) are that--
``(A) the broker-dealer be in good standing with
the Securities and Exchange Commission, or the
depository institution or institution of the Farm
Credit System be in good standing with Federal bank
regulatory agencies (including the Farm Credit
Administration), as applicable; and
``(B) if the broker-dealer, depository institution,
or institution of the Farm Credit System carries or
holds customer accounts or funds for transactions on
the derivatives transaction execution facility for more
than 1 business day, the broker-dealer, depository
institution, or institution of the Farm Credit System
is registered as a futures commission merchant and is a
member of a registered futures association.
``(3) Implementation.--The Commission shall cooperate and
coordinate with the Securities and Exchange Commission, the
Secretary of the Treasury, and Federal banking regulatory
agencies (including the Farm Credit Administration) in adopting
rules and taking any other appropriate action to facilitate the
implementation of this subsection.
``(f) Segregation of Customer Funds.--Not later than 180 days after
the date of the enactment of the Commodity Futures Modernization Act of
2000, consistent with regulations adopted by the Commission, a
registered derivatives transaction execution facility may authorize a
futures commission merchant to offer any customer of the futures
commission merchant that is an eligible contract participant the right
to not segregate the customer funds of the customer that are carried
with the futures commission merchant for purposes of trading on or
through the facilities of the registered derivatives transaction
execution facility.
``(g) Election To Trade Excluded and Exempt Commodities.--
``(1) In general.--Notwithstanding subsection (b)(2) of
this section, a board of trade that is or elects to become a
registered derivatives transaction execution facility may trade
on the facility any agreements, contracts, or transactions
involving excluded or exempt commodities other than securities,
except contracts of sale for future delivery of exempt
securities under section 3(a)(12) of the Securities Exchange
Act of 1934 as in effect on the date of enactment of the
Futures Trading Act of 1982, that are otherwise excluded or
exempt from this Act under section 2(c), 2(d), 2(g), or 2(h) of
this Act.
``(2) Exclusive jurisdiction of the commission.--The
Commission shall have exclusive jurisdiction over agreements,
contracts, or transactions described in paragraph (1) to the
extent that the agreements, contracts, or transactions are
traded on a derivatives transaction execution facility.''.
SEC. 113. DERIVATIVES CLEARING.
(a) In General.--Subtitle A of title IV of the Federal Deposit
Insurance Corporation Improvement Act of 1991 is amended--
(1) by inserting before the section heading for section
401, the following new heading:
``CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING'';
(2) in section 402, by striking ``this subtitle'' and
inserting ``this chapter''; and
(3) by inserting after section 407, the following new
chapter:
``CHAPTER 2--MULTILATERAL CLEARING ORGANIZATIONS
``SEC. 408. DEFINITIONS.
For purposes of this chapter, the following definitions shall
apply:
``(1) Multilateral clearing organization.--The term
`multilateral clearing organization' means a system utilized by
more than 2 participants in which the bilateral credit
exposures of participants arising from the transactions cleared
are effectively eliminated and replaced by a system of
guarantees, insurance, or mutualized risk of loss.
``(2) Over-the-counter derivative instrument.--The term
`over-the-counter derivative instrument' includes--
``(A) any agreement, contract, or transaction,
including the terms and conditions incorporated by
reference in any such agreement, contract, or
transaction, which is an interest rate swap, option, or
forward agreement, including a rate floor, rate cap,
rate collar, cross-currency rate swap, basis swap, and
forward rate agreement; a same day-tomorrow, tomorrow-
next, forward, or other foreign exchange or precious
metals agreement; a currency swap, option, or forward
agreement; an equity index or equity swap, option, or
forward agreement; a debt index or debt swap, option,
or forward agreement; a credit spread or credit swap,
option, or forward agreement; a commodity index or
commodity swap, option, or forward agreement; and a
weather swap, weather derivative, or weather option;
``(B) any agreement, contract or transaction
similar to any other agreement, contract, or
transaction referred to in this clause that is
presently, or in the future becomes, regularly entered
into by parties that participate in swap transactions
(including terms and conditions incorporated by
reference in the agreement) and that is a forward,
swap, or option on 1 or more occurrences of any event,
rates, currencies, commodities, equity securities or
other equity instruments, debt securities or other debt
instruments, economic or other indices or measures of
economic or other risk or value;
``(C) any agreement, contract, or transaction
described in subsection (c), (d), (f), or (h) of
section 2 of the Commodity Exchange Act or exempted
under section 2(g) or 4(c) of such Act; and
``(D) any option to enter into any, or any
combination of, agreements, contracts or transactions
referred to in this subparagraph.
``(3) Other definitions.--The terms `insured State
nonmember bank', `State member bank', and `affiliate' have the
same meanings as in section 3 of the Federal Deposit Insurance
Act.
``SEC. 409. MULTILATERAL CLEARING ORGANIZATIONS.
``(a) In General.--Except with respect to clearing organizations
described in subsection (b), no person may operate a multilateral
clearing organization for over-the-counter derivative instruments, or
otherwise engage in activities that constitute such a multilateral
clearing organization unless the person is a national bank, a State
member bank, an insured State nonmember bank, an affiliate of a
national bank, a State member bank, or an insured State nonmember bank,
or a corporation chartered under section 25A of the Federal Reserve
Act.
``(b) Clearing Organizations.--Subsection (a) shall not apply to
any clearing organization that--
``(1) is registered as a clearing agency under the
Securities Exchange Act of 1934;
``(2) is registered as a derivatives clearing organization
under the Commodity Exchange Act; or
``(3) is supervised by a foreign financial regulator that
the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance
Corporation, the Securities and Exchange Commission, or the
Commodity Futures Trading Commission, as applicable, has
determined satisfies appropriate standards.''.
(b) Enforcement Powers of the Board of Governors of the Federal
Reserve System.--Section 9 of the Federal Reserve Act (12 U.S.C. 221)
is amended by adding at the end the following new paragraph:
``(24) Enforcement authority.--Section 3(u), subsections
(j) and (k) of section 7, subsections (b) through (n), (s),
(u), and (v) of section 8, and section 19 of the Federal
Deposit Insurance Act shall apply to a State member bank which
is not an insured depository institution (as defined in section
3 of the Federal Deposit Insurance Act) in the same manner and
to the same extent as such provisions apply to State member
insured banks, and any reference in such sections to an insured
depository institution shall be deemed to include a reference
to any such noninsured State member bank.''.
(c) Resolution of Clearing Banks.--The Federal Reserve Act (12
U.S.C. 221 et seq.) is amended by inserting after section 9A the
following new section:
``SEC. 9B. RESOLUTION OF CLEARING BANKS.
``(a) Conservatorship or Receivership.--
``(1) Appointment.--The Board may appoint a conservator or
receiver to take possession and control of any uninsured State
member bank which operates, or operates as, a multilateral
clearing organization pursuant to section 409 of the Federal
Deposit Insurance Corporation Improvement Act of 1991 to the
same extent and in the same manner as the Comptroller of the
Currency may appoint a conservator or receiver for a national
bank.
``(2) Powers.--The conservator or receiver for an uninsured
State member bank referred to in paragraph (1) shall exercise
the same powers, functions, and duties, subject to the same
limitations, as a conservator or receiver for a national bank.
``(b) Board Authority.--The Board shall have the same authority
with respect to any conservator or receiver appointed under subsection
(a), and the uninsured State member bank for which the conservator or
receiver has been appointed, as the Comptroller of the Currency has
with respect to a conservator or receiver for a national bank and the
national bank for which the conservator or receiver has been appointed.
``(c) Bankruptcy Proceedings.--The Board (in the case of an
uninsured State member bank which operates, or operates as, such a
multilateral clearing organization) may direct a conservator or
receiver appointed for the bank to file a petition pursuant to title
11, United States Code, in which case, title 11, United States Code,
shall apply to the bank in lieu of otherwise applicable Federal or
State insolvency law.''.
(d) Technical and Conforming Amendments to Title 11, United States
Code.--
(1) Bankruptcy code debtors.--Section 109(b)(2) of title
11, United States Code, is amended by striking ``; or'' and
inserting the following: ``, except that an uninsured State
member bank, or a corporation organized under section 25A of
the Federal Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of
the Federal Deposit Insurance Corporation Improvement Act of
1991 may be a debtor if a petition is filed at the direction of
the Board of Governors of the Federal Reserve System; or''.
(2) Chapter 7 debtors.--Section 109(d) of title 11, United
States Code, is amended to read as follows:
``(d) Only a railroad, a person that may be a debtor under chapter
7 of this title (except a stockbroker or a commodity broker), and an
uninsured State member bank, or a corporation organized under section
25A of the Federal Reserve Act, which operates, or operates as, a
multilateral clearing organization pursuant to section 409 of the
Federal Deposit Insurance Corporation Improvement Act of 1991 may be a
debtor under chapter 11 of this title.''.
(3) Definition of financial institution.--Section 101(22)
of title 11, United States Code, is amended to read as follows:
``(22) the term `financial institution'--
``(A) means a Federal reserve bank or an entity
(domestic or foreign) that is a commercial or savings
bank, industrial savings bank, savings and loan
association, trust company, a bank or a corporation
organized under section 25A of the Federal Reserve Act
and, when any such bank or entity is acting as agent or
custodian for a customer in connection with a
securities contract, as defined in section 741, the
customer; and
``(B) includes any person described in subparagraph
(A) which operates, or operates as, a multilateral
clearing organization pursuant to section 409 of the
Federal Deposit Insurance Corporation Improvement Act
of 1991;''.
(4) Definition of uninsured state member bank.--Section 101
of title 11, United States Code, is amended by inserting after
paragraph (54) the following new paragraph--
``(54A) the term `uninsured State member bank' means a State member
bank (as defined in section 3 of the Federal Deposit Insurance Act) the
deposits of which are not insured by the Federal Deposit Insurance
Corporation; and''.
(5) Subchapter v of chapter 7.--
(A) In general.--Section 103 of title 11, United
States Code, is amended--
(i) by redesignating subsections (e)
through (i) as subsections (f) through (j),
respectively; and
(ii) by inserting after subsection (d) the
following new subsection:
``(e) Scope of Application.--Subchapter V of chapter 7 of this
title shall apply only in a case under such chapter concerning the
liquidation of an uninsured State member bank, or a corporation
organized under section 25A of the Federal Reserve Act, which operates,
or operates as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance Corporation Improvement
Act of 1991.''.
(B) Clearing bank liquidation.--Chapter 7 of title
11, United States Code, is amended by adding at the end
the following new subchapter:
``SUBCHAPTER V--CLEARING BANK LIQUIDATION
``Sec. 781. Definitions
``For purposes of this subchapter, the following definitions shall
apply:
``(1) Board.--The term `Board' means the Board of Governors
of the Federal Reserve System.
``(2) Depository institution.--The term `depository
institution' has the same meaning as in section 3 of the
Federal Deposit Insurance Act.
``(3) Clearing bank.--The term `clearing bank' means an
uninsured State member bank, or a corporation organized under
section 25A of the Federal Reserve Act, which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of the Federal Deposit Insurance Corporation
Improvement Act of 1991.
``Sec. 782. Selection of trustee
``(a) In General.--
``(1) Appointment.--Notwithstanding any other provision of
this title, the conservator or receiver who files the petition
shall be the trustee under this chapter, unless the Board
designates an alternative trustee.
``(2) Successor.--The Board may designate a successor
trustee if required.
``(b) Authority of Trustee.--Whenever the Board appoints or
designates a trustee, chapter 3 and sections 704 and 705 of this title
shall apply to the Board in the same way and to the same extent that
they apply to a United States trustee.
``Sec. 783. Additional powers of trustee
``(a) Distribution of Property Not of the Estate.--The trustee
under this subchapter has power to distribute property not of the
estate, including distributions to customers that are mandated by
subchapters III and IV of this chapter.
``(b) Disposition of Institution.--The trustee under this
subchapter may, after notice and a hearing--
``(1) sell the clearing bank to a depository institution or
consortium of depository institutions (which consortium may
agree on the allocation of the clearing bank among the
consortium);
``(2) merge the clearing bank with a depository
institution;
``(3) transfer contracts to the same extent as could a
receiver for a depository institution under paragraphs (9) and
(10) of section 11(e) of the Federal Deposit Insurance Act;
``(4) transfer assets or liabilities to a depository
institution;
``(5) transfer assets and liabilities to a bridge bank as
provided in paragraphs (1), (3)(A), (5), (6), of section 11(n)
of the Federal Deposit Insurance Act, paragraphs (9) through
(13) of such section, and subparagraphs (A) through (H) and
subparagraph (K) of paragraph (4) of such section 11(n), except
that--
``(A) the bridge bank to which such assets or
liabilities are transferred shall be treated as a
clearing bank for the purpose of this subsection; and
``(B) any references in any such provision of law
to the Federal Deposit Insurance Corporation shall be
construed to be references to the appointing agency and
that references to deposit insurance shall be omitted.
``(c) Certain Transfers Included.--Any reference in this section to
transfers of liabilities includes a ratable transfer of liabilities
within a priority class.
``Sec. 784. Right to be heard
``The Board or a Federal reserve bank (in the case of a clearing
bank that is a member of that bank) may raise and may appear and be
heard on any issue in a case under this subchapter.''.
(6) Definitions of clearing organization, contract market,
and related definitions.--
(A) Section 761(2) of title 11, United States Code,
is amended to read as follows:
``(2) `clearing organization' means a derivatives clearing
organization registered under the Act;''.
(B) Section 761(7) of title 11, United States Code,
is amended to read as follows:
``(7) `contract market' means a registered entity;''.
(C) Section 761(8) of title 11, United States Code,
is amended to read as follows:
``(8) `contract of sale', `commodity', `derivatives
clearing organization', `future delivery', `board of trade',
`registered entity', and `futures commission merchant' have the
meanings assigned to those terms in the Act;''.
(e) Clerical Amendment.--The table of sections for chapter 7 of
title 11, United States Code, is amended by adding at the end the
following new items:
``SUBCHAPTER V--CLEARING BANK LIQUIDATION
``Sec.
``781. Definitions.
``782. Selection of trustee.
``783. Additional powers of trustee.
``784. Right to be heard.''.
(g) Resolution of Edge Act Corporations.--The 16th undesignated
paragraph of section 25A of the Federal Reserve Act (12 U.S.C. 624) is
amended to read as follows:
``(16) Appointment of receiver or conservator.--
``(A) In general.--The Board may appoint a
conservator or receiver for a corporation organized
under the provisions of this section to the same extent
and in the same manner as the Comptroller of the
Currency may appoint a conservator or receiver for a
national bank, and the conservator or receiver for such
corporation shall exercise the same powers, functions,
and duties, subject to the same limitations, as a
conservator or receiver for a national bank.
``(B) Equivalent authority.--The Board shall have
the same authority with respect to any conservator or
receiver appointed for a corporation organized under
the provisions of this section under this paragraph and
any such corporation as the Comptroller of the Currency
has with respect to a conservator or receiver of a
national bank and the national bank for which a
conservator or receiver has been appointed.
``(C) Title 11 petitions.--The Board may direct the
conservator or receiver of a corporation organized
under the provisions of this section to file a petition
pursuant to title 11, United States Code, in which
case, title 11, United States Code, shall apply to the
corporation in lieu of otherwise applicable Federal or
State insolvency law.''.
(g) Derivatives Clearing Organizations.--The Commodity Exchange Act
(7 U.S.C. 1 et seq.) is amended by inserting after section 5a (as added
by section 112) the following new section:
``SEC. 5B. DERIVATIVES CLEARING ORGANIZATIONS.
``(a) Registration Requirement.--It shall be unlawful for a
derivatives clearing organization, unless registered with the
Commission, directly or indirectly to make use of the mails or any
means or instrumentality of interstate commerce to perform the
functions of a derivatives clearing organization described in section
1a(9) with respect to a contract of sale of a commodity for future
delivery, or option on such a contract or on a commodity, in each case
unless the contract or option--
``(1) is excluded from this Act by subsection (a)(1)(C)(i),
(c), (d), (f), or (h) of section 2, or exempted under section
2(g) or 4(c); or
``(2) is a security futures product cleared by a clearing
agency registered under the Securities Exchange Act of 1934.
``(b) Voluntary Registration.--A derivatives clearing organization
that clears agreements, contracts, or transactions excluded from this
Act by subsection (c), (d), (f), or (h) of section 2 of this Act, or
exempted under section 2(g) or 4(c) or other over-the-counter
derivative instruments (as defined in the Federal Deposit Insurance
Corporation Improvement Act of 1991) may register with the Commission
as a derivatives clearing organization.
``(c) Registration of Derivatives Clearing Organizations.--
``(1) Application.--A person desiring to register as a
derivatives clearing organization shall submit to the
Commission an application in such form and containing such
information as the Commission may require for the purpose of
making the determinations required for approval under paragraph
(2).
``(2) Core principles.--
``(A) In general.--To be registered and to maintain
registration as a derivatives clearing organization, an
applicant shall demonstrate to the Commission that the
applicant complies with the core principles specified
in this paragraph. The applicant shall have reasonable
discretion in establishing the manner in which it
complies with the core principles.
``(B) Financial resources.--The applicant shall
demonstrate that the applicant has adequate financial,
operational, and managerial resources to discharge the
responsibilities of a derivatives clearing
organization.
``(C) Participant and product eligibility.--The
applicant shall establish--
``(i) appropriate admission and continuing
eligibility standards (including appropriate
minimum financial requirements) for members of
and participants in the organization; and
``(ii) appropriate standards for
determining eligibility of agreements,
contracts, or transactions submitted to the
applicant.
``(D) Risk management.--The applicant shall have
the ability to manage the risks associated with
discharging the responsibilities of a derivatives
clearing organization through the use of appropriate
tools and procedures.
``(E) Settlement procedures.--The applicant shall
have the ability to--
``(i) complete settlements on a timely
basis under varying circumstances;
``(ii) maintain an adequate record of the
flow of funds associated with each transaction
that the applicant clears; and
``(iii) comply with the terms and
conditions of any permitted netting or offset
arrangements with other clearing organizations.
``(F) Treatment of funds.--The applicant shall have
standards and procedures designed to protect and ensure
the safety of member and participant funds.
``(G) Default rules and procedures.--The applicant
shall have rules and procedures designed to allow for
efficient, fair, and safe management of events when
members or participants become insolvent or otherwise
default on their obligations to the derivatives
clearing organization.
``(H) Rule enforcement.--The applicant shall--
``(i) maintain adequate arrangements and
resources for the effective monitoring and
enforcement of compliance with rules of the
applicant and for resolution of disputes; and
``(ii) have the authority and ability to
discipline, limit, suspend, or terminate a
member's or participant's activities for
violations of rules of the applicant.
``(I) System safeguards.--The applicant shall
demonstrate that the applicant--
``(i) has established and will maintain a
program of oversight and risk analysis to
ensure that the automated systems of the
applicant function properly and have adequate
capacity and security; and
``(ii) has established and will maintain
emergency procedures and a plan for disaster
recovery, and will periodically test backup
facilities sufficient to ensure daily
processing, clearing, and settlement of
transactions.
``(J) Reporting.--The applicant shall provide to
the Commission all information necessary for the
Commission to conduct the oversight function of the
applicant with respect to the activities of the
derivatives clearing organization.
``(K) Recordkeeping.--The applicant shall maintain
records of all activities related to the business of
the applicant as a derivatives clearing organization in
a form and manner acceptable to the Commission for a
period of 5 years.
``(L) Public information.--The applicant shall make
information concerning the rules and operating
procedures governing the clearing and settlement
systems (including default procedures) available to
market participants.
``(M) Information sharing.--The applicant shall--
``(i) enter into and abide by the terms of
all appropriate and applicable domestic and
international information-sharing agreements;
and
``(ii) use relevant information obtained
from the agreements in carrying out the
clearing organization's risk management
program.
``(N) Antitrust considerations.--Unless appropriate
to achieve the purposes of this Act, the derivatives
clearing organization shall avoid--
``(i) adopting any rule or taking any
action that results in any unreasonable
restraint of trade; or
``(ii) imposing any material
anticompetitive burden on trading on the
contract market.
``(3) Orders concerning competition.--A derivatives
clearing organization may request the Commission to issue an
order concerning whether a rule or practice of the applicant is
the least anticompetitive means of achieving the objectives,
purposes, and policies of this Act.
``(d) Existing Derivatives Clearing Organizations.--A derivatives
clearing organization shall be deemed to be registered under this
section to the extent that the derivatives clearing organization clears
agreements, contracts, or transactions for a board of trade that has
been designated by the Commission as a contract market for such
agreements, contracts, or transactions before the date of enactment of
this section.
``(e) Appointment of Trustee.--
``(1) In general.--If a proceeding under section 5e results
in the suspension or revocation of the registration of a
derivatives clearing organization, or if a derivatives clearing
organization withdraws from registration, the Commission, on
notice to the derivatives clearing organization, may apply to
the appropriate United States district court where the
derivatives clearing organization is located for the
appointment of a trustee.
``(2) Assumption of jurisdiction.--If the Commission
applies for appointment of a trustee under paragraph (1)--
``(A) the court may take exclusive jurisdiction
over the derivatives clearing organization and the
records and assets of the derivatives clearing
organization, wherever located; and
``(B) if the court takes jurisdiction under
subparagraph (A), the court shall appoint the
Commission, or a person designated by the Commission,
as trustee with power to take possession and continue
to operate or terminate the operations of the
derivatives clearing organization in an orderly manner
for the protection of participants, subject to such
terms and conditions as the court may prescribe.
``(f) Linking of Regulated Clearing Facilities.--
``(1) In general.--The Commission shall facilitate the
linking or coordination of derivatives clearing organizations
registered under this Act with other regulated clearance
facilities for the coordinated settlement of cleared
transactions.
``(2) Coordination.--In carrying out paragraph (1), the
Commission shall coordinate with the Federal banking agencies
and the Securities and Exchange Commission.''.
SEC. 114. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5b (as added by section 113(g)) the following:
``SEC. 5C. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES.
``(a) Acceptable Business Practices Under Core Principles.--
``(1) In general.--Consistent with the purposes of this
Act, the Commission may issue interpretations, or approve
interpretations submitted to the Commission, of sections 5(d),
5a(d), and 5b(d)(2) to describe what would constitute an
acceptable business practice under such sections.
``(2) Effect of interpretation.--An interpretation issued
under paragraph (1) shall not provide the exclusive means for
complying with such sections.
``(b) Delegation of Functions Under Core Principles.--
``(1) In general.--A contract market or derivatives
transaction execution facility may comply with any applicable
core principle through delegation of any relevant function to a
registered futures association or another registered entity.
``(2) Responsibility.--A contract market or derivatives
transaction execution facility that delegates a function under
paragraph (1) shall remain responsible for carrying out the
function.
``(c) New Contracts, New Rules, and Rule Amendments.--
``(1) In general.--Subject to paragraph (2), a registered
entity may elect to list for trading or accept for clearing any
new contract or other instrument, or may elect to approve and
implement any new rule or rule amendment, by providing to the
Commission (and the Secretary of the Treasury, in the case of a
contract of sale for future delivery of a government security
(or option thereon) or a rule or rule amendment specifically
related to such a contract) a written certification that the
new contract or instrument or clearing of the new contract or
instrument, new rule, or rule amendment complies with this Act
(including regulations under this Act).
``(2) Prior approval.--
``(A) In general.--A registered entity may request
that the Commission grant prior approval to any new
contract or other instrument, new rule, or rule
amendment.
``(B) Prior approval required.--Notwithstanding any
other provision of this section, a designated contract
market shall submit to the Commission for prior
approval each rule amendment that materially changes
the terms and conditions, as determined by the
Commission, in any contract of sale for future delivery
of a commodity specifically enumerated in section 1a(4)
(or any option thereon) traded through its facilities
if the rule amendment applies to contracts and delivery
months which have already been listed for trading and
have open interest.
``(C) Deadline.--If prior approval is requested
under subparagraph (A), the Commission shall take final
action on the request not later than 90 days after
submission of the request, unless the person submitting
the request agrees to an extension of the time
limitation established under this subparagraph.
``(3) Approval.--The Commission shall approve any such new
contract or instrument, new rule, or rule amendment unless the
Commission finds that the new contract or instrument, new rule,
or rule amendment would violate this Act.
``(d) Violation of Core Principles.--
``(1) In general.--If the Commission determines, on the
basis of substantial evidence, that a registered entity is
violating any applicable core principle specified in section
5(d), 5a(d), or 5b(d)(2), the Commission shall--
``(A) notify the registered entity in writing of
the determination; and
``(B) afford the registered entity an opportunity
to make appropriate changes to bring the registered
entity into compliance with the core principles.
``(2) Failure to make changes.--If, not later than 30 days
after receiving a notification under paragraph (1), a
registered entity fails to make changes that, in the opinion of
the Commission, are necessary to comply with the core
principles, the Commission may take further action in
accordance with this Act.
``(e) Reservation of Emergency Authority.--Nothing in this section
shall limit or in any way affect the emergency powers of the Commission
provided in section 8a(9).''.
SEC. 115. EXEMPT BOARDS OF TRADE.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5c (as added by section 114) the following:
``SEC. 5D. EXEMPT BOARDS OF TRADE.
``(a) Election To Register With the Commission.--A board of trade
that meets the requirements of subsection (b) of this section may
operate as an exempt board of trade on receipt from the board of trade
of a notice, provided in such manner as the Commission may by rule or
regulation prescribe, that the board of trade elects to operate as an
exempt board of trade. Except as otherwise provided in this section, no
provision of this Act (other than subparagraphs (C) and (D) of section
2(a)(1) and section 12(e)(2)(B)) shall apply with respect to a contract
of sale (or option on such a contract) of a commodity for future
delivery traded on or through the facilities of an exempt board of
trade.
``(b) Criteria for Exemption.--To qualify for an exemption under
subsection (a), a board of trade shall limit trading on or through the
facilities of the board of trade to contracts of sale of a commodity
for future delivery (or options on such contracts)--
``(1) for which the underlying commodity has--
``(A) a nearly inexhaustible deliverable supply;
``(B) a deliverable supply that is sufficiently
large, and a cash market sufficiently liquid, to render
any contract traded on the commodity highly unlikely to
be susceptible to the threat of manipulation; or
``(C) no cash market;
``(2) that are entered into only between persons that are
eligible contract participants at the time at which the persons
enter into the contract; and
``(3) that are not contracts of sale (or options on such a
contract) for future delivery of any security, including any
group or index of securities or any interest in, or based on
the value of, any security or any group or index of securities.
``(c) Antimanipulation Requirements.--A party to a contract for
sale of a commodity for future delivery (or option on such a contract)
that is traded on an exempt board of trade shall be subject to sections
4b, 4c(b), 4o, 6(c), and 9(a)(2), and the Commission shall enforce
those provisions with respect to any such trading.
``(d) Price Discovery.--If the Commission finds that an exempt
board of trade is a significant source of price discovery for
transactions in the cash market for the commodity underlying any
contract, agreement, or transaction traded on or through the facilities
of the board of trade, the board of trade shall disseminate publicly on
a daily basis trading volume, opening and closing price ranges, open
interest, and other trading data as appropriate to the market.
``(e) Jurisdiction.--The Commission shall have exclusive
jurisdiction over any account, agreement, or transaction involving a
contract of sale of a commodity for future delivery, or option on such
a contract or on a commodity, to the extent that the account,
agreement, or transaction is traded on an exempt board of trade.
``(f) Subsidiaries.--A board of trade that is designated as a
contract market or registered as a derivatives transaction execution
facility may operate an exempt board of trade by establishing a
separate subsidiary or other legal entity and otherwise satisfying the
requirements of this section.
``(g) An exempt board of trade that meets the requirements of
subsection (b) shall not represent to any person that the board of
trade is registered with, or designated, recognized, licensed, or
approved by the Commission.''.
SEC. 116. SUSPENSION OR REVOCATION OF DESIGNATION AS CONTRACT MARKET.
Section 5e of the Commodity Exchange Act (7 U.S.C. 7b) (as
redesignated by section 111(1)) is amended to read as follows:
``SEC. 5E. SUSPENSION OR REVOCATION OF DESIGNATION AS REGISTERED
ENTITY.
``The failure of a registered entity to comply with any provision
of this Act, or any regulation or order of the Commission under this
Act, shall be cause for the suspension of the registered entity for a
period not to exceed 180 days, or revocation of designation as a
registered entity in accordance with the procedures and subject to the
judicial review provided in section 6(b).''.
SEC. 117. AUTHORIZATION OF APPROPRIATIONS.
Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is
amended by striking ``2000'' and inserting ``2005''.
SEC. 118. PREEMPTION.
Section 12 of the Commodity Exchange Act (7 U.S.C. 16(e)) is
amended by striking subsection (e) and inserting the following:
``(e) Relation to Other Law, Departments, or Agencies.--
``(1) Nothing in this Act shall supersede or preempt--
``(A) criminal prosecution under any Federal
criminal statute;
``(B) the application of any Federal or State
statute (except as provided in paragraph (2)),
including any rule or regulation thereunder, to any
transaction in or involving any commodity, product,
right, service, or interest--
``(i) that is not conducted on or subject
to the rules of a registered entity or exempt
board of trade;
``(ii) (except as otherwise specified by
the Commission by rule or regulation) that is
not conducted on or subject to the rules of any
board of trade, exchange, or market located
outside the United States, its territories or
possessions; or
``(iii) that is not subject to regulation
by the Commission under section 4c or 19; or
``(C) the application of any Federal or State
statute, including any rule or regulation thereunder,
to any person required to be registered or designated
under this Act who shall fail or refuse to obtain such
registration or designation.
``(2) This Act shall supersede and preempt the application
of any State or local law that prohibits or regulates gaming or
the operation of bucket shops (other than antifraud provisions
of general applicability) in the case of--
``(A) an electronic trading facility under section
2(e);
``(B) an agreement, contract, or transaction that
is excluded or exempt under section 2(c), 2(d), 2(f),
2(g), or 2(h) or is covered by the terms of an
exemption granted by the Commission under section 4(c)
(regardless of whether any such agreement, contract, or
transaction is otherwise subject to this Act).''.
SEC. 119. PREDISPUTE RESOLUTION AGREEMENTS FOR INSTITUTIONAL CUSTOMERS.
Section 14 of the Commodity Exchange Act (7 U.S.C. 18) is amended
by striking subsection (g) and inserting the following:
``(g) Predispute Resolution Agreements for Institutional
Customers.--Nothing in this section prohibits a registered futures
commission merchant from requiring a customer that is an eligible
contract participant, as a condition to the commission merchant's
conducting a transaction for the customer, to enter into an agreement
waiving the right to file a claim under this section.''.
SEC. 120. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.
Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is amended
by striking ``Sec. 15. The Commission'' and inserting the following:
``SEC. 15. CONSIDERATION OF COSTS AND BENEFITS AND ANTITRUST LAWS.
``(a) Costs and Benefits.--
``(1) In general.--Before promulgating a regulation under
this Act or issuing an order (except as provided in paragraph
(3)), the Commission shall consider the costs and benefits of
the action of the Commission.
``(2) Considerations.--The costs and benefits of the
proposed Commission action shall be evaluated in light of--
``(A) considerations of protection of market
participants and the public;
``(B) considerations of the efficiency,
competitiveness, and financial integrity of futures
markets;
``(C) considerations of price discovery;
``(D) considerations of sound risk management
practices; and
``(E) other public interest considerations.
``(3) Applicability.--This subsection does not apply to the
following actions of the Commission:
``(A) An order that initiates, is part of, or is
the result of an adjudicatory or investigative process
of the Commission.
``(B) An emergency action.
``(C) A finding of fact regarding compliance with a
requirement of the Commission.
``(b) Antitrust Laws.--The Commission''.
SEC. 121. CONTRACT ENFORCEMENT BETWEEN ELIGIBLE COUNTERPARTIES.
Section 22(a) of the Commodity Exchange Act (7 U.S.C. 25(a)) is
amended by adding at the end the following:
``(4) Contract enforcement between eligible counterparties.--No
agreement, contract, or transaction between eligible contract
participants or persons reasonably believed to be eligible contract
participants shall be void, voidable, or unenforceable, and no such
party shall be entitled to rescind, or recover any payment made with
respect to, such an agreement, contract, or transaction, under this
section or any other provision of Federal or State law, based solely on
the failure of the agreement, contract, or transaction to comply with
the terms or conditions of an exemption or exclusion from any provision
of this Act or regulations of the Commission.''.
SEC. 122. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE
HEDGING BY AGRICULTURAL PRODUCERS.
The Commodity Exchange Act, as otherwise amended by this Act, is
amended by inserting after section 4o the following:
``SEC. 4P. SPECIAL PROCEDURES TO ENCOURAGE AND FACILITATE BONA FIDE
HEDGING BY AGRICULTURAL PRODUCERS.
``(a) Authority.--The Commission shall consider issuing rules or
orders which--
``(1) prescribe procedures under which each contract market
is to provide for orderly delivery, including temporary storage
costs, of any agricultural commodity enumerated in section
1a(4) which is the subject of a contract for purchase or sale
for future delivery;
``(2) increase the ease with which domestic agricultural
producers may participate in contract markets, including by
addressing cost and margin requirements, so as to better enable
the producers to hedge price risk associated with their
production;
``(3) provide flexibility in the minimum quantities of such
agricultural commodities that may be the subject of a contract
for purchase or sale for future delivery that is traded on a
contract market, to better allow domestic agricultural
producers to hedge such price risk; and
``(4) encourage contract markets to provide information and
otherwise facilitate the participation of domestic agricultural
producers in contract markets.
``(b) Report.--Within 1 year after the date of enactment of this
section, the Commission shall submit to the Committee on Agriculture of
the House of Representatives and the Committee on Agriculture,
Nutrition, and Forestry of the Senate a report on the steps it has
taken to implement this section and on the activities of contract
markets pursuant to this section.''.
SEC. 123. RULE OF CONSTRUCTION.
Except as expressly provided in this Act or an amendment made by
this Act, nothing in this Act or an amendment made by the Act
supersedes, affects, or otherwise limits or expands the scope and
applicability of laws governing the Securities and Exchange Commission.
SEC. 124. TECHNICAL AND CONFORMING AMENDMENTS.
(a) Commodity Exchange Act.--
(1) Section 1a of the Commodity Exchange Act (7 U.S.C. 1a),
as amended by section 101, is amended--
(A) in paragraphs (5), (6), (16), (17), (20), and
(23), by inserting ``or derivatives transaction
execution facility'' after ``contract market'' each
place it appears; and
(B) in paragraph (24)--
(i) in the paragraph heading, by striking
``contract market'' and inserting ``registered
entity'';
(ii) by striking ``contract market'' each
place it appears and inserting ``registered
entity''; and
(iii) by adding at the end the following:
``A participant in an alternative trading system that is
designated as a contract market pursuant to section 5f is
deemed a member of the contract market for purposes of
transactions in security futures products through the contract
market.''.
(2) Section 2 of the Commodity Exchange Act (7 U.S.C. 2,
2a, 4, 4a, 3) is amended--
(A) by striking ``Sec. 2. (a)(1)(A)(i) The'' and
inserting the following:
``SEC. 2. JURISDICTION OF COMMISSION; LIABILITY OF PRINCIPAL FOR ACT OF
AGENT; COMMODITY FUTURES TRADING COMMISSION; TRANSACTION
IN INTERSTATE COMMERCE.
``(a) Jurisdiction of Commission; Commodity Futures Trading
Commission.--
``(1) Jurisdiction of commission.--
``(A) In general.--The''; and
(B) in subsection (a)(1)--
(i) in subparagraph (A) (as amended by
subparagraph (A) of this paragraph)--
(II) by striking ``subparagraph (B)
of this subparagraph'' and inserting
``subparagraphs (C) and (D) of this
paragraph and subsections (c) through
(i) of this section'';
(III) by striking ``contract market
designated pursuant to section 5 of
this Act'' and inserting ``contract
market designated or derivatives
transaction execution facility
registered pursuant to section 5 or
5a'';
(IV) by striking clause (ii); and
(V) in clause (iii), by striking
``(iii) The'' and inserting the
following:
``(B) Liability of principal for act of agent.--
The''; and
(ii) in subparagraph (B)--
(I) by striking ``(B)'' and
inserting ``(C)'';
(II) in clause (v)--
(aa) by striking ``section
3 of the Securities Act of
1933''; and
(bb) by inserting ``or
subparagraph (D)'' after
``subparagraph''; and
(III) by moving clauses (i) through
(v) 4 ems to the right;
(C) in subsection (a)(7), by striking ``contract
market'' and inserting ``registered entity'';
(D) in subsection (a)(8)(B)(ii)--
(i) in the first sentence, by striking
``designation as a contract market'' and
inserting ``designation or registration as a
contract market or derivatives transaction
execution facility'';
(ii) in the second sentence, by striking
``designate a board of trade as a contract
market'' and inserting ``designate or register
a board of trade as a contract market or
derivatives transaction execution facility'';
and
(iii) in the fourth sentence, by striking
``designating, or refusing, suspending, or
revoking the designation of, a board of trade
as a contract market involving transactions for
future delivery referred to in this clause or
in considering possible emergency action under
section 8a(9) of this Act'' and inserting
``designating, registering, or refusing,
suspending, or revoking the designation or
registration of, a board of trade as a contract
market or derivatives transaction execution
facility involving transactions for future
delivery referred to in this clause or in
considering any possible action under this Act
(including without limitation emergency action
under section 8a(9))'', and by striking
``designation, suspension, revocation, or
emergency action'' and inserting ``designation,
registration, suspension, revocation, or
action''; and
(E) in subsection (a), by moving paragraphs (2)
through (9) 2 ems to the right.
(3) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is
amended--
(A) in subsection (a)--
(i) in paragraph (1), by striking
``designated by the Commission as a `contract
market' for'' and inserting ``designated or
registered by the Commission as a contract
market or derivatives transaction execution
facility for'';
(ii) in paragraph (2), by striking ``member
of such''; and
(iii) in paragraph (3), by inserting ``or
derivatives transaction execution facility''
after ``contract market''; and
(B) in subsection (c)--
(i) in paragraph (1)--
(I) by striking ``designated as a
contract market'' and inserting
``designated or registered as a
contract market or derivatives
transaction execution facility''; and
(II) by striking ``section
2(a)(1)(B)'' and inserting
``subparagraphs (C)(ii) and (D) of
section 2(a)(1), except that the
Commission and the Securities and
Exchange Commission may by rule,
regulation, or order jointly exclude
any agreement, contract, or transaction
from section 2(a)(1)(D)''; and
(ii) in paragraph (2)(B)(ii), by inserting
``or derivatives transaction execution
facility'' after ``contract market''.
(4) Section 4a of the Commodity Exchange Act (7 U.S.C. 6a)
is amended--
(A) in subsection (a)--
(i) in the first sentence, by inserting
``or derivatives transaction execution
facilities'' after ``contract markets''; and
(ii) in the second sentence, by inserting
``or derivatives transaction execution
facility'' after ``contract market'';
(B) in subsection (b)--
(i) in paragraph (1), by inserting ``, or
derivatives transaction execution facility or
facilities,'' after ``markets''; and
(ii) in paragraph (2), by inserting ``or
derivatives transaction execution facility''
after ``contract market''; and
(C) in subsection (e)--
(i) by striking ``contract market or'' each
place it appears and inserting ``contract
market, derivatives transaction execution
facility, or'';
(ii) by striking ``licensed or designated''
each place it appears and inserting ``licensed,
designated, or registered''; and
(iii) by striking ``contract market, or''
and inserting ``contract market or derivatives
transaction execution facility, or''.
(5) Section 4b(a) of the Commodity Exchange Act (7 U.S.C.
6b(a)) is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(6) Sections 4c(g), 4d, 4e, and 4f of the Commodity
Exchange Act (7 U.S.C. 6c(g), 6d, 6e, 6f) are amended by
inserting ``or derivatives transaction execution facility''
after ``contract market'' each place it appears.
(7) Section 4g of the Commodity Exchange Act (7 U.S.C. 6g)
is amended--
(A) in subsection (b), by striking ``clearinghouse
and contract market'' and inserting ``registered
entity''; and
(B) in subsection (f), by striking
``clearinghouses, contract markets, and exchanges'' and
inserting ``registered entities''.
(8) Section 4h of the Commodity Exchange Act (7 U.S.C. 6h)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(9) Section 4i of the Commodity Exchange Act (7 U.S.C. 6i)
is amended in the first sentence by inserting ``or derivatives
transaction execution facility'' after ``contract market''.
(10) Section 4l of the Commodity Exchange Act (7 U.S.C. 6l)
is amended by inserting ``or derivatives transaction execution
facilities'' after ``contract markets'' each place it appears.
(11) Section 4p of the Commodity Exchange Act (7 U.S.C. 6p)
is amended--
(A) in the third sentence of subsection (a), by
striking ``Act or contract markets'' and inserting
``Act, contract markets, or derivatives transaction
execution facilities''; and
(B) in subsection (b), by inserting ``derivatives
transaction execution facility,'' after ``contract
market,''.
(12) Section 6 of the Commodity Exchange Act (7 U.S.C. 8,
9, 9a, 9b, 13b, 15) is amended--
(A) in subsection (a)--
(i) in the first sentence--
(I) by striking ``board of trade
desiring to be designated a `contract
market' shall make application to the
Commission for such designation'' and
inserting ``person desiring to be
designated or registered as a contract
market or derivatives transaction
execution facility shall make
application to the Commission for the
designation or registration'';
(II) by striking ``above
conditions'' and inserting ``conditions
set forth in this Act''; and
(III) by striking ``above
requirements'' and inserting ``the
requirements of this Act'';
(ii) in the second sentence, by striking
``designation as a contract market within one
year'' and inserting ``designation or
registration as a contract market or
derivatives transaction execution facility
within 180 days'';
(iii) in the third sentence--
(I) by striking ``board of trade''
and inserting ``person''; and
(II) by striking ``one-year
period'' and inserting ``180-day
period''; and
(iv) in the last sentence, by striking
``designate as a `contract market' any board of
trade that has made application therefor, such
board of trade'' and inserting ``designate or
register as a contract market or derivatives
transaction execution facility any person that
has made application therefor, the person'';
(B) in subsection (b)--
(i) in the first sentence--
(I) by striking ``designation of
any board of trade as a `contract
market' upon'' and inserting
``designation or registration of any
contract market or derivatives
transaction execution facility on'';
(II) by striking ``board of trade''
each place it appears and inserting
``contract market or derivatives
transaction execution facility''; and
(III) by striking ``designation as
set forth in section 5 of this Act''
and inserting ``designation or
registration as set forth in sections 5
through 5b or section 5f'';
(ii) in the second sentence--
(I) by striking ``board of trade''
the first place it appears and
inserting ``contract market or
derivatives transaction execution
facility''; and
(II) by striking ``board of trade''
the second and third places it appears
and inserting ``person''; and
(iii) in the last sentence, by striking
``board of trade'' each place it appears and
inserting ``person'';
(C) in subsection (c)--
(i) by striking ``contract market'' each
place it appears and inserting ``registered
entity'';
(ii) by striking ``contract markets'' each
place it appears and inserting ``registered
entities''; and
(iii) by striking ``trading privileges''
each place it appears and inserting
``privileges'';
(D) in subsection (d), by striking ``contract
market'' each place it appears and inserting
``registered entity''; and
(E) in subsection (e), by striking ``trading on all
contract markets'' each place it appears and inserting
``the privileges of all registered entities''.
(13) Section 6a of the Commodity Exchange Act (7 U.S.C.
10a) is amended--
(A) in the first sentence of subsection (a), by
striking ``designated as a `contract market' shall''
and inserting ``designated or registered as a contract
market or a derivatives transaction execution
facility''; and
(B) in subsection (b), by striking ``designated as
a contract market'' and inserting ``designated or
registered as a contract market or a derivatives
transaction execution facility''.
(14) Section 6b of the Commodity Exchange Act (7 U.S.C.
13a) is amended--
(A) by striking ``contract market'' each place it
appears and inserting ``registered entity'';
(B) in the first sentence, by striking
``designation as set forth in section 5 of this Act''
and inserting ``designation or registration as set
forth in sections 5 through 5c''; and
(C) in the last sentence, by striking ``the
contract market's ability'' and inserting ``the ability
of the registered entity''.
(15) Section 6c(a) of the Commodity Exchange Act (7 U.S.C.
13a-1(a)) by striking ``contract market'' and inserting
``registered entity''.
(16) Section 6d(1) of the Commodity Exchange Act (7 U.S.C.
13a-2(1)) is amended by inserting ``derivatives transaction
execution facility,'' after ``contract market,''.
(17) Section 7 of the Commodity Exchange Act (7 U.S.C. 11)
is amended--
(A) in the first sentence--
(i) by striking ``board of trade'' and
inserting ``person'';
(ii) by inserting ``or registered'' after
``designated'';
(iii) by inserting ``or registration''
after ``designation'' each place it appears;
and
(iv) by striking ``contract market'' each
place it appears and inserting ``registered
entity'';
(B) in the second sentence--
(i) by striking ``designation of such board
of trade as a contract market'' and inserting
``designation or registration of the registered
entity''; and
(ii) by striking ``contract markets'' and
inserting ``registered entities''; and
(C) in the last sentence--
(i) by striking ``board of trade'' and
inserting ``person''; and
(ii) by striking ``designated again a
contract market'' and inserting ``designated or
registered again a registered entity''.
(18) Section 8(c) of the Commodity Exchange Act (7 U.S.C.
12(c)) is amended in the first sentence by striking ``board of
trade'' and inserting ``registered entity''.
(19) Section 8a of the Commodity Exchange Act (7 U.S.C.
12a) is amended--
(A) by striking ``contract market'' each place it
appears and inserting ``registered entity''; and
(B) in paragraph (2)(F), by striking ``trading
privileges'' and inserting ``privileges''.
(20) Sections 8b and 8c(e) of the Commodity Exchange Act (7
U.S.C. 12b, 12c(e)) are amended by striking ``contract market''
each place it appears and inserting ``registered entity''.
(21) Section 8e of the Commodity Exchange Act (7 U.S.C.
12e) is repealed.
(22) Section 9 of the Commodity Exchange Act (7 U.S.C. 13)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(23) Section 14 of the Commodity Exchange Act (7 U.S.C. 18)
is amended--
(A) in subsection (a)(1)(B), by striking ``contract
market'' and inserting ``registered entity''; and
(B) in subsection (f), by striking ``contract
markets'' and inserting ``registered entities''.
(24) Section 17 of the Commodity Exchange Act (7 U.S.C. 21)
is amended by striking ``contract market'' each place it
appears and inserting ``registered entity''.
(25) Section 22 of the Commodity Exchange Act (7 U.S.C. 25)
is amended--
(A) in subsection (a)--
(i) in paragraph (1)--
(I) by striking ``contract market,
clearing organization of a contract
market, licensed board of trade,'' and
inserting ``registered entity''; and
(II) in subparagraph (C)(i), by
striking ``contract market'' and
inserting ``registered entity'';
(ii) in paragraph (2), by striking
``sections 5a(11),'' and inserting ``sections
5(d)(13), 5b(b)(1)(E),''; and
(iii) in paragraph (3), by striking
``contract market'' and inserting ``registered
entity''; and
(B) in subsection (b)--
(i) in paragraph (1)--
(I) by striking ``contract market
or clearing organization of a contract
market'' and inserting ``registered
entity'';
(II) by striking ``section 5a(8)
and section 5a(9) of this Act'' and
inserting ``sections 5 through 5c'';
(III) by striking ``contract
market, clearing organization of a
contract market, or licensed board of
trade'' and inserting ``registered
entity''; and
(IV) by striking ``contract market
or licensed board of trade'' and
inserting ``registered entity'';
(ii) in paragraph (3)--
(I) by striking ``a contract
market, clearing organization, licensed
board of trade,'' and inserting
``registered entity''; and
(II) by striking ``contract market,
licensed board of trade'' and inserting
``registered entity'';
(iii) in paragraph (4), by striking
``contract market, licensed board of trade,
clearing organization,'' and inserting
``registered entity''; and
(iv) in paragraph (5), by striking
``contract market, licensed board of trade,
clearing organization,'' and inserting
``registered entity''.
(b) Federal Deposit Insurance Corporation Improvement Act of
1991.--Section 402(2) of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (12 U.S.C. 4402(2)) is amended by striking
subparagraph (B) and inserting the following:
``(B) that is registered as a derivatives clearing
organization under section 5b of the Commodity Exchange
Act.''.
(c) Tax Treatment of Securities Futures Contracts.--
(1) In general.--Subpart IV of subchapter P of chapter 1 of
the Internal Revenue Code of 1986 (relating to special rules
for determining gains and losses) is amended by inserting after
section 1234A the following new section:
``SEC. 1234B. GAINS OR LOSSES FROM SECURITIES FUTURES CONTRACTS.
``(a) Treatment of Gain or Loss.--
``(1) In general.--Gain or loss attributable to the sale or
exchange of a securities futures contract shall be considered
gain or loss from the sale or exchange of property which has
the same character as the property to which the contract
relates has in the hands of the taxpayer (or would have in the
hands of the taxpayer if acquired by the taxpayer).
``(2) Nonapplication of subsection.--This subsection shall
not apply to--
``(A) a contract which constitutes property
described in paragraph (1) or (7) of section 1221(a),
and
``(B) any income derived in connection with a
contract which, without regard to this subsection, is
treated as other than gain from the sale or exchange of
a capital asset.
``(b) Short-Term Gains and Losses.--Except as provided in the
regulations under section 1092(b) or this section, if gain or loss on
the sale or exchange of a securities futures contract to sell property
is considered as gain or loss from the sale or exchange of a capital
asset, such gain or loss shall be treated as short-term capital gain or
loss.
``(c) Securities Futures Contract.--For purposes of this section,
the term `securities futures contract' means any security future (as
defined in section 3(a)(55)(A) of the Securities Exchange Act of 1934,
as in effect on the date of the enactment of this section).
``(d) Contracts Not Treated as Commodity Futures Contracts.--For
purposes of this title, a securities futures contract shall not be
treated as a commodity futures contract.
``(e) Regulations.--The Secretary shall prescribe such regulations
as may be appropriate to provide for the proper treatment of securities
futures contracts under this title.''
(2) Terminations, etc.--Section 1234A of such Code is
amended--
(A) by inserting ``(other than a securities futures
contract, as defined in section 1234B)'' after ``right
or obligation'' in paragraph (1),
(B) by striking ``or'' at the end of paragraph (1),
(C) by adding ``or'' at the end of paragraph (2),
and
(D) by inserting after paragraph (2) the following
new paragraph:
``(3) a securities futures contract (as so defined) which
is a capital asset in the hands of the taxpayer,''.
(3) Nonrecognition under section 1032.--The second sentence
of section 1032(a) of such Code is amended by inserting ``, or
with respect to a securities futures contract (as defined in
section 1234B),'' after ``an option''.
(4) Treatment under wash sales rules.--Section 1091 of such
Code is amended by adding at the end the following new
subsection:
``(f) Cash Settlement.--This section shall not fail to apply to a
contract or option to acquire or sell stock or securities solely by
reason of the fact that the contract or option settles in (or could be
settled in) cash or property other than such stock or securities.''
(5) Treatment under straddle rules.--Clause (i) of section
1092(d)(3)(B) of such Code is amended by striking ``or'' at the
end of subclause (I), by redesignating subclause (II) as
subclause (III), and by inserting after subclause (I) the
following new subclause:
``(II) a securities futures
contract (as defined in section 1234B)
with respect to such stock or
substantially identical stock or
securities, or''.
(6) Treatment under short sales rules.--Paragraph (2) of
section 1233(e) of such Code is amended by striking ``and'' at
the end of subparagraph (B), by striking the period at the end
of subparagraph (C) and inserting ``; and'', and by adding at
the end the following:
``(D) a securities futures contract (as defined in
section 1234B) to acquire substantially identical
property shall be treated as substantially identical
property.''
(7) Treatment under section 1256.--
(A)(i) Subsection (b) of section 1256 of such Code
is amended by striking ``and'' at the end of paragraph
(3), by striking the period at the end of paragraph (4)
and inserting ``, and'', and by adding at the end the
following:
``(5) any dealer securities futures contract.
The term `section 1256 contract' shall not include any securities
futures contract or option to enter into such a contract unless such
contract or option is a dealer securities futures contract.''
(ii) Subsection (g) of section 1256 of such Code is
amended by adding at the end the following new
paragraph:
``(9) Dealer securities futures contract.--
``(A) In general.--The term `dealer securities
futures contract' means, with respect to any dealer,
any securities futures contract, and any option to
enter into such a contract, which--
``(i) is entered into by such dealer (or,
in the case of an option, is purchased or
granted by such dealer) in the normal course of
his activity of dealing in such contracts or
options, as the case may be, and
``(ii) is traded on a qualified board or
exchange.
``(B) Dealer.--For purposes of subparagraph (A), a
person shall be treated as a dealer in securities
futures contracts or options on such contracts if the
Secretary determines that such person performs, with
respect to such contracts or options, as the case may
be, functions similar to the persons described in
paragraph (8)(A). Such determination shall be made to
the extent appropriate to carry out the purposes of
this section.
``(C) Securities futures contract.--The term
`securities futures contract' has the meaning given to
such term by section 1234B.''
(B) Paragraph (4) of section 1256(f) of such Code
is amended--
(i) by inserting ``, or dealer securities
futures contracts,'' after ``dealer equity
options'' in the text, and
(ii) by inserting ``and dealer securities
futures contracts'' after ``dealer equity
options'' in the heading.
(C) Paragraph (6) of section 1256(g) of such Code
is amended to read as follows:
``(6) Equity option.--The term `equity option' means any
option--
``(A) to buy or sell stock, or
``(B) the value of which is determined directly or
indirectly by reference to any stock or any narrow-
based security index (as defined in section 3(a)(55) of
the Securities Exchange Act of 1934, as in effect on
the date of the enactment of this paragraph).
The term `equity option' includes such an option with respect
to a group of stocks only if such group meets the requirements
for a narrow-based security index (as so defined).''
(D) The Secretary of the Treasury or his delegate
shall make the determinations under section
1256(g)(9)(B) of the Internal Revenue Code of 1986, as
added by this Act, not later than July 1, 2001.
(8) Conforming amendments.--
(A) Section 1223 of such Code is amended by
redesignating paragraph (16) as paragraph (17) and by
inserting after paragraph (15) the following new
paragraph:
``(16) If the security to which a securities futures
contract (as defined in section 1234B) relates (other than a
contract to which section 1256 applies) is acquired in
satisfaction of such contract, in determining the period for
which the taxpayer has held such security, there shall be
included the period for which the taxpayer held such contract
if such contract was a capital asset in the hands of the
taxpayer.''.
(B) The table of sections for subpart IV of
subchapter P of chapter 1 of such Code is amended by
inserting after the item relating to section 1234A the
following new item:
``Sec. 1234B. Securities futures
contracts.''
(9) Effective date.--The amendments made by this subsection
shall take effect on the date of the enactment of this Act.
(d) Designation of Contract Markets.--Section 7701 of the Internal
Revenue Code of 1986 is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the following new
subsection:
``(m) Designation of Contract Markets.--Any designation by the
Commodity Futures Trading Commission of a contract market which could
not have been made under the law in effect on the day before the date
of the enactment of the Commodity Futures Modernization Act of 2000
shall apply for purposes of this title except to the extent provided in
regulations prescribed by the Secretary.''
SEC. 125. PRIVACY.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 5f (as added by section 222) the following:
``SEC. 5G. PRIVACY.
``(a) Treatment as Financial Institutions.--Notwithstanding section
509(3)(B) of the Gramm-Leach-Bliley Act, any futures commission
merchant, commodity trading advisor, commodity pool operator, or
introducing broker that is subject to the jurisdiction of the
Commission under this Act with respect to any financial activity shall
be treated as a financial institution for purposes of title V of such
Act with respect to such financial activity.
``(b) Treatment of CFTC as Federal Functional Regulator.--For
purposes of title V of such Act, the Commission shall be treated as a
Federal functional regulator within the meaning of section 509(2) of
such Act and shall prescribe regulations under such title within 6
months after the date of enactment of this section.''.
SEC. 126. REPORT TO CONGRESS.
(a) The Commodity Futures Trading Commission (in this section
referred to as the ``Commission'') shall undertake and complete a study
of the Commodity Exchange Act (in this section referred to as ``the
Act'') and the Commission's rules, regulations and orders governing the
conduct of persons required to be registered under the Act, not later
than 1 year after the date of the enactment of this Act. The study
shall identify--
(1) the core principles and interpretations of acceptable
business practices that the Commission has adopted or intends
to adopt to replace the provisions of the Act and the
Commission's rules and regulations thereunder;
(2) the rules and regulations that the Commission has
determined must be retained and the reasons therefor;
(3) the extent to which the Commission believes it can
effect the changes identified in paragraph (1) of this
subsection through its exemptive authority under section 4(c)
of the Act; and
(4) the regulatory functions the Commission currently
performs that can be delegated to a registered futures
association (within the meaning of the Act) and the regulatory
functions that the Commission has determined must be retained
and the reasons therefor.
(b) In conducting the study, the Commission shall solicit the views
of the public as well as Commission registrants, registered entities,
and registered futures associations (all within the meaning of the
Act).
(c) The Commission shall transmit to the Committee on Agriculture
of the House of Representatives and the Committee on Agriculture,
Nutrition, and Forestry of the Senate a report of the results of its
study, which shall include an analysis of comments received.
SEC. 127. INTERNATIONAL ACTIVITIES OF THE COMMODITY FUTURES TRADING
COMMISSION.
(a) Findings.--The Congress finds that--
(1) derivatives markets serving United States industry are
increasingly global in scope;
(2) developments in data processing and communications
technologies enable users of risk management services to
analyze and compare those services on a worldwide basis;
(3) financial services regulatory policy must be flexible
to account for rapidly changing derivatives industry business
practices;
(4) regulatory impediments to the operation of global
business interests can compromise the competitiveness of United
States businesses;
(5) events that disrupt financial markets and economies are
often global in scope, require rapid regulatory response, and
coordinated regulatory effort across international
jurisdictions;
(6) through its membership in the International
Organisation of Securities Commissions, the Commodity Futures
Trading Commission has promoted beneficial communication among
market regulators and international regulatory cooperation; and
(7) the Commodity Futures Trading Commission and other
United States financial regulators and self-regulatory
organizations should continue to foster productive and
cooperative working relationships with their counterparts in
foreign jurisdictions.
(b) Sense of the Congress.--It is the sense of the Congress that,
consistent with its responsibilities under the Commodity Exchange Act,
the Commodity Futures Trading Commission should, as part of its
international activities, continue to coordinate with foreign
regulatory authorities, to participate in international regulatory
organizations and forums, and to provide technical assistance to
foreign government authorities, in order to encourage--
(1) the facilitation of cross-border transactions through
the removal or lessening of any unnecessary legal or practical
obstacles;
(2) the development of internationally accepted regulatory
standards of best practice;
(3) the enhancement of international supervisory
cooperation and emergency procedures;
(4) the strengthening of international cooperation for
customer and market protection; and
(5) improvements in the quality and timeliness of
international information sharing.
SEC. 128. RULES OF CONSTRUCTION.
(a) Financial Institution Activities.--No provision of this Act, or
any amendment made by this Act to any other provision of law, shall be
construed as authorizing, supporting the authorization for, or implying
any prior authorization for, any financial institution (as defined in
section 1a(15) of the Commodity Exchange Act), or any subsidiary of
such financial institution, to engage in any activity or transaction or
to hold any security or other asset.
(b) Depository Institutions.--Section 18 of the Federal Deposit
Insurance Act (12 U.S.C. 1828) is amended by adding at the end the
following new subsection:
``(v) Rules of Construction.--
``(1) In general.--No depository institution may take
delivery of an equity security under a security futures product
(as defined in section 3(a)(56) of the Securities Exchange Act
of 1934).
``(2) Additional rule.--Paragraph (1) shall not be
construed as creating any inference that a depository
institution may take delivery of, or make any investment in, an
equity security under any other circumstance.''.
TITLE II--COORDINATED REGULATION OF SECURITY FUTURES PRODUCTS
Subtitle A--Securities Law Amendments
SEC. 201. DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 1934.
Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)) is amended--
(1) in paragraph (10), by inserting ``security future,''
after ``treasury stock,'';
(2) by striking paragraph (11) and inserting the following:
``(11) The term `equity security' means any stock or
similar security; or any security future on any such security;
or any security convertible, with or without consideration,
into such a security, or carrying any warrant or right to
subscribe to or purchase such a security; or any such warrant
or right; or any put, call, straddle, option, or privilege on
any such security; or any other security which the Commission
shall deem to be of similar nature and consider necessary or
appropriate, by such rules and regulations as it may prescribe
in the public interest or for the protection of investors, to
treat as an equity security.'';
(3) in paragraph (13), by adding at the end the following:
``For security futures products, such term includes any
contract, agreement, or transaction for future delivery.'';
(4) in paragraph (14), by adding at the end the following:
``For security futures products, such term includes any
contract, agreement, or transaction for future delivery.''; and
(5) by adding at the end the following:
``(55)(A) The term `security future' means a contract of
sale for future delivery of a single security or of a narrow-
based security index, including any interest therein or based
on the value thereof, except an exempted security under section
3(a)(12) of the Securities Exchange Act of 1934 as in effect on
the date of enactment of the Futures Trading Act of 1982 (other
than any municipal security as defined in section 3(a)(29) as
in effect on the date of enactment of the Futures Trading Act
of 1982). The term `security future' does not include any
agreement, contract, or transaction excluded under subsection
(c), (d), (f), or (h) of section 2 of the Commodity Exchange
Act as in effect on the date of enactment of the Commodity
Futures Modernization Act of 2000.
``(B) The term `narrow-based security index' means an
index--
``(i) that has 9 or fewer component securities;
``(ii) in which a component security comprises more
than 30 percent of the index's weighting;
``(iii) in which the 5 highest weighted component
securities in the aggregate comprise more than 60
percent of the index's weighting; or
``(iv) in which the lowest weighted component
securities comprising, in the aggregate, 25 percent of
the index's weighting have an aggregate dollar value of
average daily trading volume of less than $50,000,000
(or in the case of an index with 15 or more component
securities, $30,000,000), except that if there are two
or more securities with equal weighting that could be
included in the calculation of the lowest weighted
component securities comprising, in the aggregate, 25
percent of the index's weighting, such securities shall
be ranked from lowest to highest dollar value of
average daily trading volume and shall be included in
the calculation based on their ranking starting with
the lowest ranked security.
``(C) Notwithstanding subparagraph (B), an index is not a
narrow-based security index if--
``(i)(I) it has at least 9 component securities;
``(II) no component security comprises more than 30
percent of the index's weighting; and
``(III) each component security is--
``(aa) registered pursuant to section 12 of
this title;
``(bb) 1 of 750 securities with the largest
market capitalization; and
``(cc) 1 of 675 securities with the largest
dollar value of average daily trading volume;
``(ii) it is a contract of sale for future delivery
with respect to which a board of trade was designated
as a contract market by the Commodity Futures Trading
Commission prior to the date of enactment of the
Commodity Futures Modernization Act of 2000;
``(iii)(I) it traded on a designated contract
market or registered derivatives transaction execution
facility for at least 30 days as a contract of sale for
future delivery that was not a narrow-based security
index; and
``(II) it has been a narrow-based security index
for no more than 45 business days over 3 consecutive
calendar months;
``(iv) it is traded on or subject to the rules of a
foreign board of trade and meets such requirements as
are jointly established by rule or regulation by the
Commission and the Commodity Futures Trading
Commission;
``(v) no more than 18 months have passed since
enactment of the Commodity Futures Modernization Act of
2000 and it is (I) traded on or subject to the rules of
a foreign board of trade; (II) the offer and sale in
the United States of a contract of sale for future
delivery on such index was authorized prior to the
effective date of the Commodity Futures Modernization
Act of 2000; and (III) the conditions of such
authorization continue to be met; or
``(vi) it is traded on or subject to the rules of a
board of trade and meets such requirements as are
jointly established by rule, regulation, or order by
the Commission and the Commodity Futures Trading
Commission.
``(D) Within 1 year after the enactment of the Commodity
Futures Modernization Act of 2000, the Commission and the
Commodity Futures Trading Commission jointly shall adopt rules
or regulations that set forth the requirements under clause
(iv) of subparagraph (C).
``(E) An index that is a narrow-based security index solely
because it was a narrow-based security index for more than 45
business days over 3 consecutive calendar months pursuant to
clause (iii) of subparagraph (C) shall not be a narrow-based
security index for the 3 following calendar months.
``(F) For purposes of subparagraphs (B) and (C) of this
paragraph--
``(i) the dollar value of average daily trading
volume and the market capitalization shall be
calculated as of the preceding 6 full calendar months;
and
``(ii) the Commission and the Commodity Futures
Trading Commission shall, by rule or regulation,
jointly specify the method to be used to determine
market capitalization and dollar value of average daily
trading volume.
``(56) The term `security futures product' means a security
future or any put, call, straddle, option, or privilege on any
security future.
``(57)(A) The term `margin', when used with respect to a
security futures product, means the amount, type, and form of
collateral required to secure any extension or maintenance of
credit, or the amount, type, and form of collateral required as
a performance bond related to the purchase, sale, or carrying
of a security futures product.
``(B) The terms `margin level' and `level of margin', when
used with respect to a security futures product, mean the
amount of margin required to secure any extension or
maintenance of credit, or the amount of margin required as a
performance bond related to the purchase, sale, or carrying of
a security futures product.
``(C) The terms `higher margin level' and `higher level of
margin', when used with respect to a security futures product,
mean a margin level established by a national securities
exchange registered pursuant to section 6(g) that is higher
than the minimum amount established and in effect pursuant to
section 7(c)(2)(B).''.
SEC. 202. REGULATORY RELIEF FOR MARKETS TRADING SECURITY FUTURES
PRODUCTS.
(a) Expedited Registration and Exemption.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by adding at
the end the following:
``(g) Notice Registration of Security Futures Product Exchanges.--
``(1) Registration required.--An exchange that lists or
trades security futures products may register as a national
securities exchange solely for the purposes of trading security
futures products if--
``(A) the exchange is a board of trade, as that
term is defined by the Commodity Exchange Act (7 U.S.C.
1a(2)), that--
``(i) has been designated a contract market
by the Commodity Futures Trading Commission and
such designation is not suspended by order of
the Commodity Futures Trading Commission; or
``(ii) is registered as a derivative
transaction execution facility under section 5a
of the Commodity Exchange Act and such
registration is not suspended by the Commodity
Futures Trading Commission; and
``(B) such exchange does not serve as a market
place for transactions in securities other than--
``(i) security futures products; or
``(ii) futures on exempted securities or
groups or indexes of securities or options
thereon that have been authorized under section
2(a)(1)(C) of the Commodity Exchange Act.
``(2) Registration by notice filing.--
``(A) Form and content.--An exchange required to
register only because such exchange lists or trades
security futures products may register for purposes of
this section by filing with the Commission a written
notice in such form as the Commission, by rule, may
prescribe containing the rules of the exchange and such
other information and documents concerning such
exchange, comparable to the information and documents
required for national securities exchanges under
section 6(a), as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest or
for the protection of investors. If such exchange has
filed documents with the Commodity Futures Trading
Commission, to the extent that such documents contain
information satisfying the Commission's informational
requirements, copies of such documents may be filed
with the Commission in lieu of the required written
notice.
``(B) Immediate effectiveness.--Such registration
shall be effective contemporaneously with the
submission of notice, in written or electronic form, to
the Commission, except that such registration shall not
be effective if such registration would be subject to
suspension or revocation.
``(C) Termination.--Such registration shall be
terminated immediately if any of the conditions for
registration set forth in this subsection are no longer
satisfied.
``(3) Public availability.--The Commission shall promptly
publish in the Federal Register an acknowledgment of receipt of
all notices the Commission receives under this subsection and
shall make all such notices available to the public.
``(4) Exemption of exchanges from specified provisions.--
``(A) Transaction exemptions.--An exchange that is
registered under paragraph (1) of this subsection shall
be exempt from, and shall not be required to enforce
compliance by its members with, and its members shall
not, solely with respect to those transactions effected
on such exchange in security futures products, be
required to comply with, the following provisions of
this title and the rules thereunder:
``(i) Subsections (b)(2), (b)(3), (b)(4),
(b)(7), (b)(9), (c), (d), and (e) of this
section.
``(ii) Section 8.
``(iii) Section 11.
``(iv) Subsections (d), (f), and (k) of
section 17.
``(v) Subsections (a), (f), and (h) of
section 19.
``(B) Rule change exemptions.--An exchange that
registered under paragraph (1) of this subsection shall
also be exempt from submitting proposed rule changes
pursuant to section 19(b) of this title, except that--
``(i) such exchange shall file proposed
rule changes related to higher margin levels,
fraud or manipulation, recordkeeping,
reporting, listing standards, or decimal
pricing for security futures products, sales
practices for security futures products for
persons who effect transactions in security
futures products, or rules effectuating such
exchange's obligation to enforce the securities
laws pursuant to section 19(b)(7);
``(ii) such exchange shall file pursuant to
sections 19(b)(1) and 19(b)(2) proposed rule
changes related to margin, except for changes
resulting in higher margin levels; and
``(iii) such exchange shall file pursuant
to section 19(b)(1) proposed rule changes that
have been abrogated by the Commission pursuant
to section 19(b)(7)(C).
``(5) Trading in security futures products.--
``(A) In general.--Subject to subparagraph (B), it
shall be unlawful for any person to execute or trade a
security futures product until the later of--
``(i) 1 year after the date of enactment of
the Commodity Futures Modernization Act of
2000; or
``(ii) such date that a futures association
registered under section 17 of the Commodity
Exchange Act has met the requirements set forth
in section 15A(k)(2) of this title.
``(B) Principal-to-principal transactions.--
Notwithstanding subparagraph (A), a person may execute
or trade a security futures product transaction if--
``(i) the transaction is entered into--
``(I) on a principal-to-principal
basis between parties trading for their
own accounts or as described in section
1a(12)(B)(ii) of the Commodity Exchange
Act; and
``(II) only between eligible
contract participants (as defined in
subparagraphs (A), (B)(ii), and (C) of
such section 1a(12)) at the time at
which the persons enter into the
agreement, contract, or transaction;
and
``(ii) the transaction is entered into on
or after the later of--
``(I) 8 months after the date of
enactment of the Commodity Futures
Modernization Act of 2000; or
``(II) such date that a futures
association registered under section 17
of the Commodity Exchange Act has met
the requirements set forth in section
15A(k)(2) of this title.''.
(b) Commission Review of Proposed Rule Changes.--
(1) Expedited review.--Section 19(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended by adding at
the end the following:
``(7) Security futures product rule changes.--
``(A) Filing required.--A self-regulatory
organization that is an exchange registered with the
Commission pursuant to section 6(g) of this title or
that is a national securities association registered
pursuant to section 15A(k) of this title shall file
with the Commission, in accordance with such rules as
the Commission may prescribe, copies of any proposed
rule change or any proposed change in, addition to, or
deletion from the rules of such self-regulatory
organization (hereinafter in this paragraph
collectively referred to as a `proposed rule change')
that relates to higher margin levels, fraud or
manipulation, recordkeeping, reporting, listing
standards, or decimal pricing for security futures
products, sales practices for security futures products
for persons who effect transactions in security futures
products, or rules effectuating such self-regulatory
organization's obligation to enforce the securities
laws. Such proposed rule change shall be accompanied by
a concise general statement of the basis and purpose of
such proposed rule change. The Commission shall, upon
the filing of any proposed rule change, promptly
publish notice thereof together with the terms of
substance of the proposed rule change or a description
of the subjects and issues involved. The Commission
shall give interested persons an opportunity to submit
data, views, and arguments concerning such proposed
rule change.
``(B) Filing with cftc.--A proposed rule change
filed with the Commission pursuant to subparagraph (A)
shall be filed concurrently with the Commodity Futures
Trading Commission. Such proposed rule change may take
effect upon filing of a written certification with the
Commodity Futures Trading Commission under section
5c(c) of the Commodity Exchange Act, upon a
determination by the Commodity Futures Trading
Commission that review of the proposed rule change is
not necessary, or upon approval of the proposed rule
change by the Commodity Futures Trading Commission.
``(C) Abrogation of rule changes.--Any proposed
rule change of a self-regulatory organization that has
taken effect pursuant to subparagraph (B) may be
enforced by such self-regulatory organization to the
extent such rule is not inconsistent with the
provisions of this title, the rules and regulations
thereunder, and applicable Federal law. At any time
within 60 days of the date of the filing of a written
certification with the Commodity Futures Trading
Commission under section 5c(c) of the Commodity
Exchange Act, the date the Commodity Futures Trading
Commission determines that review of such proposed rule
change is not necessary, or the date the Commodity
Futures Trading Commission approves such proposed rule
change, the Commission, after consultation with the
Commodity Futures Trading Commission, summarily may
abrogate the proposed rule change and require that the
proposed rule change be refiled in accordance with the
provisions of paragraph (1), if it appears to the
Commission that such proposed rule change unduly
burdens competition or efficiency, conflicts with the
securities laws, or is inconsistent with the public
interest and the protection of investors. Commission
action pursuant to the preceding sentence shall not
affect the validity or force of the rule change during
the period it was in effect and shall not be reviewable
under section 25 nor deemed to be a final agency action
for purposes of section 704 of title 5, United States
Code.
``(D) Review of resubmitted abrogated rules.--
``(i) Proceedings.--Within 35 days of the
date of publication of notice of the filing of
a proposed rule change that is abrogated in
accordance with subparagraph (C) and refiled in
accordance with paragraph (1), or within such
longer period as the Commission may designate
up to 90 days after such date if the Commission
finds such longer period to be appropriate and
publishes its reasons for so finding or as to
which the self-regulatory organization
consents, the Commission shall--
``(I) by order approve such
proposed rule change; or
``(II) after consultation with the
Commodity Futures Trading Commission,
institute proceedings to determine
whether the proposed rule change should
be disapproved. Proceedings under
subclause (II) shall include notice of
the grounds for disapproval under
consideration and opportunity for
hearing and be concluded within 180
days after the date of publication of
notice of the filing of the proposed
rule change. At the conclusion of such
proceedings, the Commission, by order,
shall approve or disapprove such
proposed rule change. The Commission
may extend the time for conclusion of
such proceedings for up to 60 days if
the Commission finds good cause for
such extension and publishes its
reasons for so finding or for such
longer period as to which the self-
regulatory organization consents.
``(ii) Grounds for approval.--The
Commission shall approve a proposed rule change
of a self-regulatory organization under this
subparagraph if the Commission finds that such
proposed rule change does not unduly burden
competition or efficiency, does not conflict
with the securities laws, and is not
inconsistent with the public interest or the
protection of investors. The Commission shall
disapprove such a proposed rule change of a
self-regulatory organization if it does not
make such finding. The Commission shall not
approve any proposed rule change prior to the
30th day after the date of publication of
notice of the filing thereof, unless the
Commission finds good cause for so doing and
publishes its reasons for so finding.''.
(2) Decimal pricing provisions.--Section 19(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended
by inserting after paragraph (7), as added by paragraph (1),
the following:
``(8) Decimal pricing.--Not later than 9 months after the
date on which trading in any security futures product commences
under this title, all self-regulatory organizations listing or
trading security futures products shall file proposed rule
changes necessary to implement decimal pricing of security
futures products. The Commission may not require such rules to
contain equal minimum increments in such decimal pricing.''.
(3) Consultation provisions.--Section 19(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(b)) is amended
by inserting after paragraph (8), as added by paragraph (2),
the following:
``(9) Consultation with cftc.--
``(A) Consultation required.--The Commission shall
consult with and consider the views of the Commodity
Futures Trading Commission prior to approving or
disapproving a proposed rule change filed by a national
securities association registered pursuant to section
15A(a) or a national securities exchange subject to the
provisions of subsection (a) that primarily concerns
conduct related to transactions in security futures
products, except where the Commission determines that
an emergency exists requiring expeditious or summary
action and publishes its reasons therefor.
``(B) Responses to cftc comments and findings.--If
the Commodity Futures Trading Commission comments in
writing to the Commission on a proposed rule that has
been published for comment, the Commission shall
respond in writing to such written comment before
approving or disapproving the proposed rule. If the
Commodity Futures Trading Commission determines, and
notifies the Commission, that such rule, if implemented
or as applied, would--
``(i) adversely affect the liquidity or
efficiency of the market for security futures
products; or
``(ii) impose any burden on competition not
necessary or appropriate in furtherance of the
purposes of this section,
the Commission shall, prior to approving or
disapproving the proposed rule, find that such rule is
necessary and appropriate in furtherance of the
purposes of this section notwithstanding the Commodity
Futures Trading Commission's determination.''.
(c) Review of Disciplinary Proceedings.--Section 19(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78s(d)) is amended by adding
at the end the following:
``(3) The provisions of this subsection shall apply to an exchange
registered pursuant to section 6(g) of this title or a national
securities association registered pursuant to section 15A(k) of this
title only to the extent that such exchange or association imposes any
final disciplinary sanction for--
``(A) a violation of the Federal securities laws or the
rules and regulations thereunder; or
``(B) a violation of a rule of such exchange or
association, as to which a proposed change would be required to
be filed under section 19 of this title, except that, to the
extent that the exchange or association rule violation relates
to any account, agreement, or transaction, this subsection
shall apply only to the extent such violation involves a
security futures product.''.
SEC. 203. REGULATORY RELIEF FOR INTERMEDIARIES TRADING SECURITY FUTURES
PRODUCTS.
(a) Expedited Registration and Exemptions.--
(1) Amendment.--Section 15(b) of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(b)) is amended by adding at the end
the following:
``(11) Broker/dealer registration with respect to
transactions in security futures products.--
``(A) Notice registration.--
``(i) Contents of notice.--Notwithstanding
paragraphs (1) and (2), a broker or dealer
required to register only because it effects
transactions in security futures products on an
exchange registered pursuant to section 6(g)
may register for purposes of this section by
filing with the Commission a written notice in
such form and containing such information
concerning such broker or dealer and any
persons associated with such broker or dealer
as the Commission, by rule, may prescribe as
necessary or appropriate in the public interest
or for the protection of investors. A broker or
dealer may not register under this paragraph
unless that broker or dealer is a member of a
national securities association registered
under section 15A(k).
``(ii) Immediate effectiveness.--Such
registration shall be effective
contemporaneously with the submission of
notice, in written or electronic form, to the
Commission, except that such registration shall
not be effective if the registration would be
subject to suspension or revocation under
paragraph (4).
``(iii) Suspension.--Such registration
shall be suspended immediately if a national
securities association registered pursuant to
section 15A(k) of this title suspends the
membership of that broker or dealer.
``(iv) Termination.--Such registration
shall be terminated immediately if any of the
above stated conditions for registration set
forth in this paragraph are no longer
satisfied.
``(B) Exemptions for registered brokers and
dealers.--A broker or dealer registered pursuant to the
requirements of subparagraph (A) shall be exempt from
the following provisions of this title and the rules
thereunder with respect to transactions in security
futures products:
``(i) Section 8.
``(ii) Section 11.
``(iii) Subsections (c)(3) and (c)(5) of
this section.
``(iv) Section 15B.
``(v) Section 15C.
``(vi) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.''.
(2) Conforming amendment.--Section 28(e) of the Securities
Exchange Act of 1934 (15 U.S.C. 78bb(e)) is amended by adding
at the end the following:
``(4) The provisions of this subsection shall not apply with regard
to securities that are security futures products.''.
(b) Floor Brokers and Floor Traders.--Section 15(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) is amended by
inserting after paragraph (11), as added by subsection (a), the
following:
``(12) Exemption for security futures product exchange
members.--
``(A) Registration exemption.--A natural person
shall be exempt from the registration requirements of
this section if such person--
``(i) is a member of a designated contract
market registered with the Commission as an
exchange pursuant to section 6(g);
``(ii) effects transactions only in
securities on the exchange of which such person
is a member; and
``(iii) does not directly accept or solicit
orders from public customers or provide advice
to public customers in connection with the
trading of security futures products.
``(B) Other exemptions.--A natural person exempt
from registration pursuant to subparagraph (A) shall
also be exempt from the following provisions of this
title and the rules thereunder:
``(i) Section 8.
``(ii) Section 11.
``(iii) Subsections (c)(3), (c)(5), and (e)
of this section.
``(iv) Section 15B.
``(v) Section 15C.
``(vi) Subsections (d), (e), (f), (g), (h),
and (i) of section 17.''.
(c) Limited Purpose National Securities Association.--Section 15A
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by
adding at the end the following:
``(k) Limited Purpose National Securities Association.--
``(1) Regulation of members with respect to security
futures products.--A futures association registered under
section 17 of the Commodity Exchange Act shall be a registered
national securities association for the limited purpose of
regulating the activities of members who are registered as
brokers or dealers in security futures products pursuant to
section 15(b)(11).
``(2) Requirements for registration.--Such a securities
association shall--
``(A) be so organized and have the capacity to
carry out the purposes of the securities laws
applicable to security futures products and to comply,
and (subject to any rule or order of the Commission
pursuant to section 19(g)(2)) to enforce compliance by
its members and persons associated with its members,
with the provisions of the securities laws applicable
to security futures products, the rules and regulations
thereunder, and its rules;
``(B) have rules that--
``(i) are designed to prevent fraudulent
and manipulative acts and practices, to promote
just and equitable principles of trade, and, in
general, to protect investors and the public
interest, including rules governing sales
practices and the advertising of security
futures products reasonably comparable to those
of other national securities associations
registered pursuant to subsection (a) that are
applicable to security futures products; and
``(ii) are not designed to regulate by
virtue of any authority conferred by this title
matters not related to the purposes of this
title or the administration of the association;
``(C) have rules that provide that (subject to any
rule or order of the Commission pursuant to section
19(g)(2)) its members and persons associated with its
members shall be appropriately disciplined for
violation of any provision of the securities laws
applicable to security futures products, the rules or
regulations thereunder, or the rules of the
association, by expulsion, suspension, limitation of
activities, functions, and operations, fine, censure,
being suspended or barred from being associated with a
member, or any other fitting sanction; and
``(D) have rules that ensure that members and
natural persons associated with members meet such
standards of training, experience, and competence
necessary to effect transactions in security futures
products and are tested for their knowledge of
securities and security futures products.
``(3) Exemption from rule change submission.--Such a
securities association shall be exempt from submitting proposed
rule changes pursuant to section 19(b) of this title, except
that--
``(A) the association shall file proposed rule
changes related to higher margin levels, fraud or
manipulation, recordkeeping, reporting, listing
standards, or decimal pricing for security futures
products, sales practices for, advertising of, or
standards of training, experience, competence, or other
qualifications for security futures products for
persons who effect transactions in security futures
products, or rules effectuating the association's
obligation to enforce the securities laws pursuant to
section 19(b)(7);
``(B) the association shall file pursuant to
sections 19(b)(1) and 19(b)(2) proposed rule changes
related to margin, except for changes resulting in
higher margin levels; and
``(C) the association shall file pursuant to
section 19(b)(1) proposed rule changes that have been
abrogated by the Commission pursuant to section
19(b)(7)(C).
``(4) Other exemptions.--Such a securities association
shall be exempt from and shall not be required to enforce
compliance by its members, and its members shall not, solely
with respect to their transactions effected in security futures
products, be required to comply, with the following provisions
of this title and the rules thereunder:
``(A) Section 8.
``(B) Subsections (b)(1), (b)(3), (b)(4), (b)(5),
(b)(8), (b)(10), (b)(11), (b)(12), (b)(13), (c), (d),
(e), (f), (g), (h), and (i) of this section.
``(C) Subsections (d), (f), and (k) of section 17.
``(D) Subsections (a), (f), and (h) of section
19.''.
(d) Exemption Under the Securities Investor Protection Act of
1970.--
(1) Section 16(14) of the Securities Investor Protection
Act of 1970 (15 U.S.C. 78lll(14)) is amended by inserting ``or
any security future as that term is defined in section
3(a)(55)(A) of the Securities Exchange Act of 1934,'' after
``certificate of deposit for a security,''.
(2) Section 3(a)(2)(A) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78ccc(a)(2)(A)) is amended--
(A) in clause (i), by striking ``and'' after the
semicolon;
(B) in clause (ii), by striking the period and
inserting ``; and'';
(C) by adding at the end the following:
``(iii) persons who are registered as a
broker or dealer pursuant to section
15(b)(11)(A) of the Securities Exchange Act of
1934.''.
SEC. 204. SPECIAL PROVISIONS FOR INTERAGENCY COOPERATION.
Section 17(b) of the Securities Exchange Act of 1934 (15 U.S.C.
78q(b)) is amended--
(1) by striking ``(b) All'' and inserting the following:
``(b) Records Subject to Examination.--
``(1) Procedures for cooperation with other agencies.--
All'';
(2) by striking ``prior to conducting any such examination
of a registered clearing'' and inserting the following: ``prior
to conducting any such examination of a--
``(A) registered clearing'';
(3) by redesignating the last sentence as paragraph (4)(C);
(4) by striking the period at the end of the first sentence
and inserting the following: ``; or
``(B) broker or dealer registered pursuant to
section 15(b)(11), exchange registered pursuant to
section 6(g), or national securities association
registered pursuant to section 15A(k) gives notice to
the Commodity Futures Trading Commission of such
proposed examination and consults with the Commodity
Futures Trading Commission concerning the feasibility
and desirability of coordinating such examination with
examinations conducted by the Commodity Futures Trading
Commission in order to avoid unnecessary regulatory
duplication or undue regulatory burdens for such broker
or dealer or exchange.'';
(5) by adding at the end the following new paragraphs:
``(2) Furnishing data and reports to cftc.--The Commission
shall notify the Commodity Futures Trading Commission of any
examination conducted of any broker or dealer registered
pursuant to section 15(b)(11), exchange registered pursuant to
section 6(g), or national securities association registered
pursuant to section 15A(k) and, upon request, furnish to the
Commodity Futures Trading Commission any examination report and
data supplied to, or prepared by, the Commission in connection
with such examination.
``(3) Use of cftc reports.--Prior to conducting an
examination under paragraph (1), the Commission shall use the
reports of examinations, if the information available therein
is sufficient for the purposes of the examination, of--
``(A) any broker or dealer registered pursuant to
section 15(b)(11);
``(B) exchange registered pursuant to section 6(g);
or
``(C) national securities association registered
pursuant to section 15A(k);
that is made by the Commodity Futures Trading Commission, a
national securities association registered pursuant to section
15A(k), or an exchange registered pursuant to section 6(g).
``(4) Rules of construction.--
``(A) Notwithstanding any other provision of this
subsection, the records of a broker or dealer
registered pursuant to section 15(b)(11), an exchange
registered pursuant to section 6(g), or a national
securities association registered pursuant to section
15A(k) described in this subparagraph shall not be
subject to routine periodic examinations by the
Commission.
``(B) Any recordkeeping rules adopted under this
subsection for a broker or dealer registered pursuant
to section 15(b)(11), an exchange registered pursuant
to section 6(g), or a national securities association
registered pursuant to section 15A(k) shall be limited
to records with respect to persons, accounts,
agreements, and transactions involving security futures
products.''; and
(6) in paragraph (4)(C) (as redesignated by paragraph (3)
of this section), by striking ``Nothing in the proviso to the
preceding sentence'' and inserting ``Nothing in the proviso in
paragraph (1)''.
SEC. 205. MAINTENANCE OF MARKET INTEGRITY FOR SECURITY FUTURES
PRODUCTS.
(a) Addition of Security Futures Products to Option-Specific
Enforcement Provisions.--
(1) Prohibition against manipulation.--Section 9(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78i(b)) is amended--
(A) in paragraph (1)--
(i) by inserting ``(A)'' after
``acquires''; and
(ii) by striking ``; or'' and inserting ``;
or (B) any security futures product on the
security; or'';
(B) in paragraph (2)--
(i) by inserting ``(A)'' after ``interest
in any''; and
(ii) by striking ``; or'' and inserting ``;
or (B) such security futures product; or''; and
(C) in paragraph (3)--
(i) by inserting ``(A)'' after ``interest
in any''; and
(ii) by inserting ``; or (B) such security
futures product'' after ``privilege''.
(2) Manipulation in options and other derivative
products.--Section 9(g) of the Securities Exchange Act of 1934
(15 U.S.C. 78i(g)) is amended--
(A) by inserting ``(1)'' after ``(g)'';
(B) by inserting ``other than a security futures
product'' after ``future delivery''; and
(C) by adding at the end following:
``(2) Notwithstanding the Commodity Exchange Act, the Commission
shall have the authority to regulate the trading of any security
futures product to the extent provided in the securities laws.''.
(3) Liability of controlling persons and persons who aid
and abet violations.--Section 20(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78t(d)) is amended by striking ``or
privilege'' and inserting ``, privilege, or security futures
product''.
(4) Liability to contemporaneous traders for insider
trading.--Section 21A(a)(1) of the Securities Exchange Act of
1934 (15 U.S.C. 78u-1(a)(1)) is amended by striking
``standardized options, the Commission--'' and inserting
``standardized options or security futures products, the
Commission--''.
(5) Enforcement consultation.--Section 21 of the Securities
Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at
the end the following:
``(i) Information to CFTC.--The Commission shall provide the
Commodity Futures Trading Commission with notice of the commencement of
any proceeding and a copy of any order entered by the Commission
against any broker or dealer registered pursuant to section 15(b)(11),
any exchange registered pursuant to section 6(g), or any national
securities association registered pursuant to section 15A(k).''.
SEC. 206. SPECIAL PROVISIONS FOR THE TRADING OF SECURITY FUTURES
PRODUCTS.
(a) Listing Standards and Conditions for Trading.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by inserting
after subsection (g), as added by section 202, the following:
``(h) Trading in Security Futures Products.--
``(1) Trading on exchange or association required.--It
shall be unlawful for any person to effect transactions in
security futures products that are not listed on a national
securities exchange or a national securities association
registered pursuant to section 15A(a).
``(2) Listing standards required.--Except as otherwise
provided in paragraph (7), a national securities exchange or a
national securities association registered pursuant to section
15A(a) may trade only security futures products that (A)
conform with listing standards that such exchange or
association files with the Commission under section 19(b) and
(B) meet the criteria specified in section 2(a)(1)(D)(i) of the
Commodity Exchange Act.
``(3) Requirements for listing standards and conditions for
trading.--Such listing standards shall--
``(A) except as otherwise provided in a rule,
regulation, or order issued pursuant to paragraph (4),
require that any security underlying the security
future, including each component security of a narrow-
based security index, be registered pursuant to section
12 of this title;
``(B) require that if the security futures product
is not cash settled, the market on which the security
futures product is traded have arrangements in place
with a registered clearing agency for the payment and
delivery of the securities underlying the security
futures product;
``(C) be no less restrictive than comparable
listing standards for options traded on a national
securities exchange or national securities association
registered pursuant to section 15A(a) of this title;
``(D) except as otherwise provided in a rule,
regulation, or order issued pursuant to paragraph (4),
require that the security future be based upon common
stock and such other equity securities as the
Commission and the Commodity Futures Trading Commission
jointly determine appropriate;
``(E) require that the security futures product is
cleared by a clearing agency that has in place
provisions for linked and coordinated clearing with
other clearing agencies that clear security futures
products, which permits the security futures product to
be purchased on one market and offset on another market
that trades such product;
``(F) require that only a broker or dealer subject
to suitability rules comparable to those of a national
securities association registered pursuant to section
15A(a) effect transactions in the security futures
product;
``(G) require that the security futures product be
subject to the prohibition against dual trading in
section 4j of the Commodity Exchange Act (7 U.S.C. 6j)
and the rules and regulations thereunder or the
provisions of section 11(a) of this title and the rules
and regulations thereunder, except to the extent
otherwise permitted under this title and the rules and
regulations thereunder;
``(H) require that trading in the security futures
product not be readily susceptible to manipulation of
the price of such security futures product, nor to
causing or being used in the manipulation of the price
of any underlying security, option on such security, or
option on a group or index including such securities;
``(I) require that procedures be in place for
coordinated surveillance among the market on which the
security futures product is traded, any market on which
any security underlying the security futures product is
traded, and other markets on which any related security
is traded to detect manipulation and insider trading;
``(J) require that the market on which the security
futures product is traded has in place audit trails
necessary or appropriate to facilitate the coordinated
surveillance required in subparagraph (I);
``(K) require that the market on which the security
futures product is traded has in place procedures to
coordinate trading halts between such market and any
market on which any security underlying the security
futures product is traded and other markets on which
any related security is traded; and
``(L) require that the margin requirements for a
security futures product comply with the regulations
prescribed pursuant to section 7(c)(2)(B), except that
nothing in this subparagraph shall be construed to
prevent a national securities exchange or national
securities association from requiring higher margin
levels for a security futures product when it deems
such action to be necessary or appropriate.
``(4) Authority to modify certain listing standard
requirements.--
``(A) Authority to modify.--The Commission and the
Commodity Futures Trading Commission, by rule,
regulation, or order, may jointly modify the listing
standard requirements specified in subparagraph (A) or
(D) of paragraph (3) to the extent such modification
fosters the development of fair and orderly markets in
security futures products, is necessary or appropriate
in the public interest, and is consistent with the
protection of investors.
``(B) Authority to grant exemptions.--The
Commission and the Commodity Futures Trading
Commission, by order, may jointly exempt any person
from compliance with the listing standard requirement
specified in subparagraph (E) of paragraph (3) to the
extent such exemption fosters the development of fair
and orderly markets in security futures products, is
necessary or appropriate in the public interest, and is
consistent with the protection of investors.
``(5) Requirements for other persons trading security
future products.--It shall be unlawful for any person (other
than a national securities exchange or a national securities
association registered pursuant to section 15A(a)) to
constitute, maintain, or provide a marketplace or facilities
for bringing together purchasers and sellers of security future
products or to otherwise perform with respect to security
future products the functions commonly performed by a stock
exchange as that term is generally understood, unless a
national securities association registered pursuant to section
15A(a) or a national securities exchange of which such person
is a member--
``(A) has in place procedures for coordinated
surveillance among such person, the market trading the
securities underlying the security future products, and
other markets trading related securities to detect
manipulation and insider trading;
``(B) has rules to require audit trails necessary
or appropriate to facilitate the coordinated
surveillance required in subparagraph (A); and
``(C) has rules to require such person to
coordinate trading halts with markets trading the
securities underlying the security future products and
other markets trading related securities.
``(6) Deferral of options on security futures trading.--No
person shall offer to enter into, enter into, or confirm the
execution of any put, call, straddle, option, or privilege on a
security future, except that, after 3 years after the date of
enactment of this subsection, the Commission and the Commodity
Futures Trading Commission may by order jointly determine to
permit trading of puts, calls, straddles, options, or
privileges on any security future authorized to be traded under
the provisions of this Act and the Commodity Exchange Act.
``(7) Deferral of linked and coordinated clearing.--
``(A) Notwithstanding paragraph (2), until the
compliance date, a national securities exchange or
national securities association registered pursuant to
section 15A(a) may trade a security futures product
that does not--
``(i) conform with any listing standard
promulgated to meet the requirement specified
in subparagraph (E) of paragraph (3); or
``(ii) meet the criterion specified in
section 2(a)(1)(D)(i)(IV) of the Commodity
Exchange Act.
``(B) The Commission and the Commodity Futures
Trading Commission shall jointly publish in the Federal
Register a notice of the compliance date no later than
165 days before the compliance date.
``(C) For purposes of this paragraph, the term
`compliance date' means the later of--
``(i) 180 days after the end of the first
full calendar month period in which the average
aggregate comparable share volume for all
security futures products based on single
equity securities traded on all national
securities exchanges, any national securities
associations registered pursuant to section
15A(a), and all other persons equals or exceeds
10 percent of the average aggregate comparable
share volume of options on single equity
securities traded on all national securities
exchanges and any national securities
associations registered pursuant to section
15A(a); or
``(ii) 2 years after the date on which
trading in any security futures product
commences under this title.''.
(b) Margin.--Section 7 of the Securities Exchange Act of 1934 (15
U.S.C. 78g) is amended--
(1) in subsection (a), by inserting ``or a security futures
product'' after ``exempted security'';
(2) in subsection (c)(1)(A), by inserting ``except as
provided in paragraph (2),'' after ``security),'';
(3) by redesignating paragraph (2) of subsection (c) as
paragraph (3) of such subsection; and
(4) by inserting after paragraph (1) of such subsection the
following:
``(2) Margin regulations.--
``(A) Compliance with margin rules required.--It
shall be unlawful for any broker, dealer, or member of
a national securities exchange to, directly or
indirectly, extend or maintain credit to or for, or
collect margin from any customer on, any security
futures product unless such activities comply with the
regulations--
``(i) which the Board shall prescribe
pursuant to subparagraph (B); or
``(ii) if the Board determines to delegate
the authority to prescribe such regulations,
which the Commission and the Commodity Futures
Trading Commission shall jointly prescribe
pursuant to subparagraph (B).
If the Board delegates the authority to prescribe such
regulations under clause (ii) and the Commission and
the Commodity Futures Trading Commission have not
jointly prescribed such regulations within a reasonable
period of time after the date of such delegation, the
Board shall prescribe such regulations pursuant to
subparagraph (B).
``(B) Criteria for issuance of rules.--The Board
shall prescribe, or, if the authority is delegated
pursuant to subparagraph (A)(ii), the Commission and
the Commodity Futures Trading Commission shall jointly
prescribe, such regulations to establish margin
requirements, including the establishment of levels of
margin (initial and maintenance) for security futures
products under such terms, and at such levels, as the
Board deems appropriate, or as the Commission and the
Commodity Futures Trading Commission jointly deem
appropriate--
``(i) to preserve the financial integrity
of markets trading security futures products;
``(ii) to prevent systemic risk;
``(iii) to require that--
``(I) the margin requirements for a
security future product be consistent
with the margin requirements for
comparable option contracts traded on
any exchange registered pursuant to
section 6(a) of this title; and
``(II) initial and maintenance
margin levels for a security future
product not be lower than the lowest
level of margin, exclusive of premium,
required for any comparable option
contract traded on any exchange
registered pursuant to section 6(a) of
this title, other than an option on a
security future;
except that nothing in this subparagraph shall
be construed to prevent a national securities
exchange or national securities association
from requiring higher margin levels for a
security future product when it deems such
action to be necessary or appropriate; and
``(iv) to ensure that the margin
requirements (other than levels of margin),
including the type, form, and use of collateral
for security futures products, are and remain
consistent with the requirements established by
the Board, pursuant to subparagraphs (A) and
(B) of paragraph (1).''.
(c) Incorporation of Security Futures Products Into the National
Market System.--Section 11A of the Securities Exchange Act of 1934 (15
U.S.C. 78k-1) is amended by adding at the end the following:
``(e) National Markets System for Security Futures Products.--
``(1) Consultation and cooperation required.--With respect
to security futures products, the Commission and the Commodity
Futures Trading Commission shall consult and cooperate so that,
to the maximum extent practicable, their respective regulatory
responsibilities may be fulfilled and the rules and regulations
applicable to security futures products may foster a national
market system for security futures products if the Commission
and the Commodity Futures Trading Commission jointly determine
that such a system would be consistent with the congressional
findings in subsection (a)(1). In accordance with this
objective, the Commission shall, at least 15 days prior to the
issuance for public comment of any proposed rule or regulation
under this section concerning security futures products,
consult and request the views of the Commodity Futures Trading
Commission.
``(2) Application of rules by order of cftc.--No rule
adopted pursuant to this section shall be applied to any person
with respect to the trading of security futures products on an
exchange that is registered under section 6(g) unless the
Commodity Futures Trading Commission has issued an order
directing that such rule is applicable to such persons.''.
(d) Incorporation of Security Futures Products Into the National
System for Clearance and Settlement.--Section 17A(b) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q-1(b)) is amended by adding at the
end the following:
``(7)(A) A clearing agency that is regulated directly or indirectly
by the Commodity Futures Trading Commission through its association
with a designated contract market for security futures products that is
a national securities exchange registered pursuant to section 6(g), and
that would be required to register pursuant to paragraph (1) of this
subsection only because it performs the functions of a clearing agency
with respect to security futures products effected pursuant to the
rules of the designated contract market with which such agency is
associated, is exempted from the provisions of this section and the
rules and regulations thereunder, except that if such a clearing agency
performs the functions of a clearing agency with respect to a security
futures product that is not cash settled, it must have arrangements in
place with a registered clearing agency to effect the payment and
delivery of the securities underlying the security futures product.
``(B) Any clearing agency that performs the functions of a clearing
agency with respect to security futures products must coordinate with
and develop fair and reasonable links with any and all other clearing
agencies that perform the functions of a clearing agency with respect
to security futures products, in order to permit, as of the compliance
date (as defined in section 6(h)(6)(C)), security futures products to
be purchased on one market and offset on another market that trades
such products.''.
(e) Market Emergency Powers and Circuit Breakers.--Section 12(k) of
the Securities Exchange Act of 1934 (15 U.S.C. 78l(k)) is amended--
(1) in paragraph (1), by adding at the end the following:
``If the actions described in subparagraph (A) or (B) involve a
security futures product, the Commission shall consult with and
consider the views of the Commodity Futures Trading
Commission.''; and
(2) in paragraph (2)(B), by inserting after the first
sentence the following: ``If the actions described in
subparagraph (A) involve a security futures product, the
Commission shall consult with and consider the views of the
Commodity Futures Trading Commission.''.
(f) Transaction Fees.--Section 31 of the Securities Exchange Act of
1934 (15 U.S.C. 78ee) is amended
(1) in subsection (a), by inserting ``and assessments''
after ``fees'';
(2) in subsections (b), (c), and (d)(1), by striking ``and
other evidences of indebtedness'' and inserting ``other
evidences of indebtedness, and security futures products'';
(3) in subsection (f), by inserting ``or assessment'' after
``fee'';
(4) in subsection (g), by inserting ``and assessment''
after ``fee'';
(5) by redesignating subsections (e), (f), and (g) as
subsections (f), (g), and (h), respectively; and
(6) by inserting after subsection (d) the following new
subsection:
``(e) Assessments on Security Futures Transactions.--Each national
securities exchange and national securities association shall pay to
the Commission an assessment equal to $0.02 for each round turn
transaction (treated as including one purchase and one sale of a
contract of sale for future delivery) on a security future traded on
such national securities exchange or by or through any member of such
association otherwise than on a national securities exchange, except
that for fiscal year 2007 or any succeeding fiscal year such assessment
shall be equal to $0.0075 for each such transaction. Assessments
collected pursuant to this subsection shall be deposited and collected
as general revenue of the Treasury.''.
(g) Exemption From Short Sale Provisions.--Section 10(a) of the
Securities Exchange Act of 1934 (15 U.S.C 78j(a)) is amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end the following:
``(2) Paragraph (1) of this subsection shall not apply to security
futures products.''.
(h) Rulemaking Authority To Address Duplicative Regulation of Dual
Registrants.--Section 15(c)(3) of the Securities Exchange Act of 1934
(15 U.S.C. 78o(c)(3))is amended--
(1) by inserting ``(A)'' after ``(3)''; and
(2) by adding at the end the following:
``(B) Consistent with this title, the Commission, in consultation
with the Commodity Futures Trading Commission, shall issue such rules,
regulations, or orders as are necessary to avoid duplicative or
conflicting regulations applicable to any broker or dealer registered
with the Commission pursuant to section 15(b) (except paragraph (11)
thereof), that is also registered with the Commodity Futures Trading
Commission pursuant to section 4f(a) of the Commodity Exchange Act
(except paragraph (2) thereof), with respect to the application of (i)
the provisions of section 8, section 15(c)(3), and section 17 of this
title and the rules and regulations thereunder related to the treatment
of customer funds, securities, or property, maintenance of books and
records, financial reporting, or other financial responsibility rules,
involving security futures products and (ii) similar provisions of the
Commodity Exchange Act and rules and regulations thereunder involving
security futures products.''.
(i) Obligation to Address Duplicative Regulation of Dual
Registrants.--Section 6 of the Securities Exchange Act of 1934 (15
U.S.C 78f) is amended by inserting after subsection (h), as added by
subsection (a), the following:
``(i) Consistent with this title, each national securities exchange
registered pursuant to subsection (a) of this section shall issue such
rules as are necessary to avoid duplicative or conflicting rules
applicable to any broker or dealer registered with the Commission
pursuant to section 15(b) (except paragraph (11) thereof), that is also
registered with the Commodity Futures Trading Commission pursuant to
section 4f(a) of the Commodity Exchange Act (except paragraph (2)
thereof), with respect to the application of--
(1) rules of such national securities exchange of the type
specified in section 15(c)(3)(B) involving security futures
products; and
(2) similar rules of national securities exchanges
registered pursuant to section 6(g) and national securities
associations registered pursuant to section 15A(k) involving
security futures products.''.
(j) Obligation To Address Duplicative Regulation of Dual
Registrants.--Section 15A of the Securities Exchange Act of 1934 (15
U.S.C 78o-3) is amended by inserting after subsection (k), as added by
section 203, the following:
``(l) Consistent with this title, each national securities
association registered pursuant to subsection (a) of this section shall
issue such rules as are necessary to avoid duplicative or conflicting
rules applicable to any broker or dealer registered with the Commission
pursuant to section 15(b) (except paragraph (11) thereof), that is also
registered with the Commodity Futures Trading Commission pursuant to
section 4f(a) of the Commodity Exchange Act (except paragraph (2)
thereof), with respect to the application of--
``(1) rules of such national securities association of the
type specified in section 15(c)(3)(B) involving security
futures products; and
``(2) similar rules of national securities associations
registered pursuant to subsection (k) of this section and
national securities exchanges registered pursuant to section
6(g) involving security futures products.''.
(k) Obligation To Put in Place Procedures and Adopt Rules.--
(1) National securities associations.--Section 15A of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by
inserting after subsection (l), as added by subsection (j) of
this section, the following new subsection:
``(m) Procedures and Rules for Security Future Products.--A
national securities association registered pursuant to subsection (a)
shall, not later than 8 months after the date of enactment of the
Commodity Futures Modernization Act of 2000, implement the procedures
specified in section 6(h)(5)(A) of this title and adopt the rules
specified in subparagraphs (B) and (C) of section 6(h)(5) of this
title.''.
(2) National securities exchanges.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3) is amended by
inserting after subsection (i), as added by subsection (i) of
this section, the following new subsection:
``(j) Procedures and Rules for Security Future Products.--A
national securities exchange registered pursuant to subsection (a)
shall implement the procedures specified in section 6(h)(5)(A) of this
title and adopt the rules specified in subparagraphs (B) and (C) of
section 6(h)(5) of this title not later than 8 months after the date of
receipt of a request from an alternative trading system for such
implementation and rules.''.
(l) Obligation To Address Security Futures Products Traded on
Foreign Exchanges.--Section 6 of the Securities Exchange Act of 1934
(15 U.S.C. 78f) is amended by adding after subsection (i), as added by
subsection (i), the following--
``(j)(1) To the extent necessary or appropriate in the public
interest, to promote fair competition, and consistent with the
protection of investors and the maintenance of fair and orderly
markets, the Commission and the Commodity Futures Trading Commission
shall jointly issue such rules, regulations, or orders as are necessary
and appropriate to permit the offer and sale of a security futures
product traded on or subject to the rules of a foreign board of trade
to United States persons.
``(2) The rules, regulations, or orders adopted under paragraph (1)
shall take into account, as appropriate, the nature and size of the
markets that the securities underlying the security futures product
reflect.''.
SEC. 207. CLEARANCE AND SETTLEMENT.
Section 17A(b) of the Securities Exchange Act of 1934 (15 U.S.C.
78q-1(b)) is amended--
(1) in paragraph (3)(A), by inserting ``and derivative
agreements, contracts, and transactions'' after ``prompt and
accurate clearance and settlement of securities transactions'';
(2) in paragraph (3)(F), by inserting ``and, to the extent
applicable, derivative agreements, contracts, and
transactions'' after ``designed to promote the prompt and
accurate clearance and settlement of securities transactions'';
and
(3) by inserting after paragraph (7), as added by section
206(d), the following:
``(8) A registered clearing agency shall be permitted to provide
facilities for the clearance and settlement of any derivative
agreements, contracts, or transactions that are excluded from the
Commodity Exchange Act, subject to the requirements of this section and
to such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of this
title.''.
SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE ISSUES
UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES
EXCHANGE ACT OF 1934.
(a) Amendments to the Securities Act of 1933.--
(1) Treatment of Security Futures Products.--Section 2(a)
of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended--
(A) in paragraph (1), by inserting ``security
future,'' after ``treasury stock,'';
(B) in paragraph (3), by adding at the end the
following: ``Any offer or sale of a security futures
product by or on behalf of the issuer of the securities
underlying the security futures product, an affiliate
of the issuer, or an underwriter, shall constitute a
contract for sale of, sale of, offer for sale, or offer
to sell the underlying securities.'';
(C) by adding at the end the following:
``(16) The terms `security future', `narrow-based security
index', and `security futures product' have the same meanings
as provided in section 3(a)(55) of the Securities Exchange Act
of 1934.''.
(2) Exemption from registration.--Section 3(a) of the
Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by adding
at the end the following:
``(14) Any security futures product that is--
``(A) cleared by a clearing agency registered under
section 17A of the Securities Exchange Act of 1934 or
exempt from registration under subsection (b)(7) of
such section 17A; and
``(B) traded on a national securities exchange or a
national securities association registered pursuant to
section 15A(a) of the Securities Exchange Act of
1934.''.
(3) Conforming amendment.--Section 12(a)(2) of the
Securities Act of 1933 (15 U.S.C. 77l(a)(2)) is amended by
striking ``paragraph (2)'' and inserting ``paragraphs (2) and
(14)''.
(b) Amendments to the Securities Exchange Act of 1934.--
(1) Exemption from registration.--Section 12(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(a)) is amended
by adding at the end the following: ``The provisions of this
subsection shall not apply in respect of a security futures
product traded on a national securities exchange.''.
(2) Exemptions from reporting requirement.--Section
12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C.
78l(g)(5)) is amended by adding at the end the following: ``For
purposes of this subsection, a security futures product shall
not be considered a class of equity security of the issuer of
the securities underlying the security futures product.''.
(3) Transactions by corporate insiders.--Section 16 of the
Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by
adding at the end the following:
``(f) Treatment of transactions in security futures products.--The
provisions of this section shall apply to ownership of and transactions
in security futures products as if they were ownership of and
transactions in the underlying equity security. The Commission may
adopt such rules and regulations as it deems necessary or appropriate
in the public interest to carry out the purposes of this section.''.
SEC. 209. AMENDMENTS TO THE INVESTMENT COMPANY ACT OF 1940 AND THE
INVESTMENT ADVISERS ACT OF 1940.
(a) Definitions Under the Investment Company Act of 1940 and the
Investment Advisers Act of 1940.--
(1) Section 2(a)(36) of the Investment Company Act of 1940
(15 U.S.C. 80a-2(a)(36)) is amended by inserting ``security
future,'' after ``treasury stock,''.
(2) Section 202(a)(18) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-2(a)(18)) is amended by inserting
``security future,'' after ``treasury stock,''.
(3) Section 2(a) of the Investment Company Act of 1940 (15
U.S.C. 80a-2(a)) is amended by adding at the end the following:
``(52) The terms `security future' and `narrow-based
security index' have the same meanings as provided in section
3(a)(55) of the Securities Exchange Act of 1934.''.
(4) Section 202(a) of the Investment Advisers Act of 1940
(15 U.S.C. 80b-2(a)) is amended by adding at the end the
following:
``(27) The terms `security future' and `narrow-based
security index' have the same meanings as provided in section
3(a)(55) of the Securities Exchange Act of 1934.''.
(b) Other Provision.--Section 203(b) of the Investment Advisers Act
of 1940 (15 U.S.C. 80b-3(b)) is amended--
(1) by striking ``or'' at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and
inserting ``; or''; and
(3) by adding at the end the following:
``(6) any investment adviser that is registered with the
Commodity Futures Trading Commission as a commodity trading
advisor whose business does not consist primarily of acting as
an investment adviser, as defined in section 202(a)(11) of this
title, and that does not act as an investment adviser to--
``(A) an investment company registered under title
I of this Act; or
``(B) a company which has elected to be a business
development company pursuant to section 54 of title I
of this Act and has not withdrawn its election.''.
SEC. 210. PREEMPTION OF STATE LAWS.
Section 28(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78bb(a)) is amended--
(1) in the last sentence--
(A) by inserting ``subject to this title'' after
``privilege, or other security''; and
(B) by striking ``any such instrument, if such
instrument is traded pursuant to rules and regulations
of a self-regulatory organization that are filed with
the Commission pursuant to section 19(b) of this Act''
and inserting ``any such security''; and
(2) by adding at the end the following new sentence: ``No
provision of State law regarding the offer, sale, or
distribution of securities shall apply to any transaction in a
security futures product, except that this sentence shall not
be construed as limiting any State antifraud law of general
applicability.''.
Subtitle B--Amendments to the Commodity Exchange Act
SEC. 221. JURISDICTION OF SECURITIES AND EXCHANGE COMMISSION; OTHER
PROVISIONS.
(a) Jurisdiction of Securities and Exchange Commission.--
(1) Section 2(a)(1)(C) of the Commodity Exchange Act (7
U.S.C. 2a) (as redesignated by section 124(a)(2)(C)) is
amended--
(A) in clause (ii)--
(i) by inserting ``or register a
derivatives transaction execution facility that
trades or executes,'' after ``contract market
in,'';
(ii) by inserting after ``contracts) for
future delivery'' the following: ``, and no
derivatives transaction execution facility
shall trade or execute such contracts of sale
(or options on such contracts) for future
delivery,'';
(iii) by striking ``making such application
demonstrates and the Commission expressly finds
that the specific contract (or option on such
contract) with respect to which the application
has been made meets'' and inserting ``or the
derivatives transaction execution facility, and
the applicable contract, meet'';
(iv) by striking subclause (III) of clause
(ii) and inserting the following:
``(III) Such group or index of securities shall not
constitute a narrow-based security index.'';
(B) by striking clause (iii);
(C) by striking clause (iv) and inserting the
following:
``(iii) If, in its discretion, the Commission determines
that a stock index futures contract, notwithstanding its
conformance with the requirements in clause (ii) of this
subparagraph, can reasonably be used as a surrogate for trading
a security (including a security futures product), it may, by
order, require such contract and any option thereon be traded
and regulated as security futures products as defined in
section 3(a)(56) of the Securities Exchange Act of 1934 and
section 1a(32) of this Act subject to all rules and regulations
applicable to security futures products under this Act and the
securities laws as defined in section 3(a)(47) of the
Securities Exchange Act of 1934.''; and
(D) by redesignating clause (v) as clause (iv).
(2) Section 2(a)(1) of the Commodity Exchange Act (7 U.S.C.
2, 2a, 4) is amended by adding at the end the following:
``(D)(i) Notwithstanding any other provision of this Act, the
Securities and Exchange Commission shall have jurisdiction and
authority over security futures as defined in section 3(a)(55) of the
Securities Exchange Act of 1934, section 2(a)(16) of the Securities Act
of 1933, section 2(a)(52) of the Investment Company Act of 1940, and
section 202(a)(27) of the Investment Advisers Act of 1940, options on
security futures, and persons effecting transactions in security
futures and options thereon, and this Act shall apply to and the
Commission shall have jurisdiction with respect to accounts, agreements
(including any transaction which is of the character of, or is commonly
known to the trade as, an `option', `privilege', `indemnity', `bid',
`offer', `put', `call', `advance guaranty', or `decline guaranty') and
transactions involving, and may designate a board of trade as a
contract market in, or register a derivatives transaction execution
facility that trades or executes, a security futures product as defined
in section 1a(32) of this Act: Provided, however, That, except as
provided in clause (vi) of this subparagraph, no board of trade shall
be designated as a contract market with respect to, or registered as a
derivatives transaction execution facility for, any such contracts of
sale for future delivery unless the board of trade and the applicable
contract meet the following criteria:
``(I) Except as otherwise provided in a rule, regulation,
or order issued pursuant to clause (v) of this subparagraph,
any security underlying the security future, including each
component security of a narrow-based security index, is
registered pursuant to section 12 of the Securities Exchange
Act of 1934.
``(II) If the security futures product is not cash settled,
the board of trade on which the security futures product is
traded has arrangements in place with a clearing agency
registered pursuant to section 17A of the Securities Exchange
Act of 1934 for the payment and delivery of the securities
underlying the security futures product.
``(III) Except as otherwise provided in a rule, regulation,
or order issued pursuant to clause (v) of this subparagraph,
the security future is based upon common stock and such other
equity securities as the Commission and the Securities and
Exchange Commission jointly determine appropriate.
``(IV) The security futures product is cleared by a
clearing agency that has in place provisions for linked and
coordinated clearing with other clearing agencies that clear
security futures products, which permits the security futures
product to be purchased on a designated contract market,
registered derivatives transaction execution facility, national
securities exchange registered under section 6(a) of the
Securities Exchange Act of 1934, or national securities
association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and offset on another
designated contract market, registered derivatives transaction
execution facility, national securities exchange registered
under section 6(a) of the Securities Exchange Act of 1934, or
national securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934.
``(V) Only futures commission merchants, introducing
brokers, commodity trading advisors, commodity pool operators
or associated persons subject to suitability rules comparable
to those of a national securities association registered
pursuant to section 15A(a) of the Securities Exchange Act of
1934 solicit, accept any order for, or otherwise deal in any
transaction in or in connection with the security futures
product.
``(VI) The security futures product is subject to a
prohibition against dual trading in section 4j of this Act and
the rules and regulations thereunder or the provisions of
section 11(a) of the Securities Exchange Act of 1934 and the
rules and regulations thereunder, except to the extent
otherwise permitted under the Securities Exchange Act of 1934
and the rules and regulations thereunder.
``(VII) Trading in the security futures product is not
readily susceptible to manipulation of the price of such
security futures product, nor to causing or being used in the
manipulation of the price of any underlying security, option on
such security, or option on a group or index including such
securities;
``(VIII) The board of trade on which the security futures
product is traded has procedures in place for coordinated
surveillance among such board of trade, any market on which any
security underlying the security futures product is traded, and
other markets on which any related security is traded to detect
manipulation and insider trading, except that, if the board of
trade is an alternative trading system, a national securities
association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange
Act of 1934 of which such alternative trading system is a
member has in place such procedures.
``(IX) The board of trade on which the security futures
product is traded has in place audit trails necessary or
appropriate to facilitate the coordinated surveillance required
in subclause (VIII), except that, if the board of trade is an
alternative trading system, a national securities association
registered pursuant to section 15A(a) of the Securities
Exchange Act of 1934 or national securities exchange registered
pursuant to section 6(a) of the Securities Exchange Act of 1934
of which such alternative trading system is a member has rules
to require such audit trails.
``(X) The board of trade on which the security futures
product is traded has in place procedures to coordinate trading
halts between such board of trade and markets on which any
security underlying the security futures product is traded and
other markets on which any related security is traded, except
that, if the board of trade is an alternative trading system, a
national securities association registered pursuant to section
15A(a) of the Securities Exchange Act of 1934 or national
securities exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934 of which such alternative
trading system is a member has rules to require such
coordinated trading halts.
``(XI) The margin requirements 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.
``(ii) It shall be unlawful for any person to offer, to enter into,
to execute, to confirm the execution of, or to conduct any office or
business anywhere in the United States, its territories or possessions,
for the purpose of soliciting, or accepting any order for, or otherwise
dealing in, any transaction in, or in connection with, a security
futures product unless--
``(I) the transaction is conducted on or subject to the
rules of a board of trade that--
``(aa) has been designated by the Commission as a
contract market in such security futures product; or
``(bb) is a registered derivatives transaction
execution facility for the security futures product
that has provided a certification with respect to the
security futures product pursuant to clause (vii);
``(II) the contract is executed or consummated by, through,
or with a member of the contract market or registered
derivatives transaction execution facility; and
``(III) the security futures product is evidenced by a
record in writing which shows the date, the parties to such
security futures product and their addresses, the property
covered, and its price, and each contract market member or
registered derivatives transaction execution facility member
shall keep the record for a period of 3 years from the date of
the transaction, or for a longer period if the Commission so
directs, which record shall at all times be open to the
inspection of any duly authorized representative of the
Commission.
``(iii)(I) Except as provided in subclause (II) but notwithstanding
any other provision of this Act, no person shall offer to enter into,
enter into, or confirm the execution of any option on a security
future.
``(II) After 3 years after the date of the enactment of the
Commodity Futures Modernization Act of 2000, the Commission and the
Securities and Exchange Commission may by order jointly determine to
permit trading of options on any security future authorized to be
traded under the provisions of this Act and the Securities Exchange Act
of 1934.
``(iv)(I) All relevant records of a futures commission merchant or
introducing broker registered pursuant to section 4f(a)(2), floor
broker or floor trader exempt from registration pursuant to section
4f(a)(3), associated person exempt from registration pursuant to
section 4k(6), or board of trade designated as a contract market in a
security futures product pursuant to section 5f shall be subject to
such reasonable periodic or special examinations by representatives of
the Commission as the Commission deems necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the purposes of this Act, and the Commission, before
conducting any such examination, shall give notice to the Securities
and Exchange Commission of the proposed examination and consult with
the Securities and Exchange Commission concerning the feasibility and
desirability of coordinating the examination with examinations
conducted by the Securities and Exchange Commission in order to avoid
unnecessary regulatory duplication or undue regulatory burdens for the
registrant or board of trade.
``(II) The Commission shall notify the Securities and Exchange
Commission of any examination conducted of any futures commission
merchant or introducing broker registered pursuant to section 4f(a)(2),
floor broker or floor trader exempt from registration pursuant to
section 4f(a)(3), associated person exempt from registration pursuant
to section 4k(6), or board of trade designated as a contract market in
a security futures product pursuant to section 5f, and, upon request,
furnish to the Securities and Exchange Commission any examination
report and data supplied to the Commission in connection with the
examination.
``(III) Before conducting an examination under subclause (I), the
Commission shall use the reports of examinations, unless the
information sought is unavailable in the reports, of any futures
commission merchant or introducing broker registered pursuant to
section 4f(a)(2), floor broker or floor trader exempt from registration
pursuant to section 4f(a)(3), associated person exempt from
registration pursuant to section 4k(6), or board of trade designated as
a contract market in a security futures product pursuant to section 5f
that is made by the Securities and Exchange Commission, a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3(a)), or a national
securities exchange registered pursuant to section 6(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78f(a)).
``(IV) Any records required under this subsection for a futures
commission merchant or introducing broker registered pursuant to
section 4f(a)(2), floor broker or floor trader exempt from registration
pursuant to section 4f(a)(3), associated person exempt from
registration pursuant to section 4k(6), or board of trade designated as
a contract market in a security futures product pursuant to section 5f,
shall be limited to records with respect to accounts, agreements, and
transactions involving security futures products.
``(v)(I) The Commission and the Securities and Exchange Commission,
by rule, regulation, or order, may jointly modify the criteria
specified in subclause (I) or (III) of clause (i), including the
trading of security futures based on securities other than equity
securities, to the extent such modification fosters the development of
fair and orderly markets in security futures products, is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
``(II) The Commission and the Securities and Exchange Commission,
by order, may jointly exempt any person from compliance with the
criterion specified in clause (i)(IV) to the extent such exemption
fosters the development of fair and orderly markets in security futures
products, is necessary or appropriate in the public interest, and is
consistent with the protection of investors.
``(vi)(I) Notwithstanding clauses (i) and (vii), until the
compliance date, a board of trade shall not be required to meet the
criterion specified in clause (i)(IV).
``(II) The Commission and the Securities and Exchange Commission
shall jointly publish in the Federal Register a notice of the
compliance date no later than 165 days before the compliance date.
``(III) For purposes of this clause, the term `compliance date'
means the later of--
``(aa) 180 days after the end of the first full calendar
month period in which the average aggregate comparable share
volume for all security futures products based on single equity
securities traded on all designated contract markets and
registered derivatives transaction execution facilities equals
or exceeds 10 percent of the average aggregate comparable share
volume of options on single equity securities traded on all
national securities exchanges registered pursuant to section
6(a) of the Securities Exchange Act of 1934 and any national
securities associations registered pursuant to section 15A(a)
of such Act; or
``(bb) 2 years after the date on which trading in any
security futures product commences under this Act.
``(vii) It shall be unlawful for a board of trade to trade or
execute a security futures product unless the board of trade has
provided the Commission with a certification that the specific security
futures product and the board of trade, as applicable, meet the
criteria specified in subclauses (I) through (XI) of clause (i), except
as otherwise provided in clause (vi).''.
(b) Margin on Security Futures.--Section 2(a)(1)(C)(vi) of the
Commodity Exchange Act (7 U.S.C. 2a(vi)) (as redesignated by section
124) is amended--
(1) by redesignating subclause (V) as subclause (VI); and
(2) by striking ``(vi)(I)'' and all that follows through
subclause (IV) and inserting the following:
``(v)(I) Notwithstanding any other provision of this Act,
any contract market in a stock index futures contract (or
option thereon) other than a security futures product, or any
derivatives transaction execution facility on which such
contract or option 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 security futures products.
``(II) The Board may at any time request any contract
market to set the margin for any stock index futures contract
(or option thereon), other than 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 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 to alter or supplement the rules of the contract market
as specified in the request.
``(III) Subject to such conditions as the Board may
determine, the Board may delegate any or all of its authority,
relating to margin for any stock index futures contract (or
option thereon), other than security futures products, under
this clause to the Commission.
``(IV) It shall be unlawful for any futures commission
merchant to, directly or indirectly, extend or maintain credit
to or for, or collect margin from any customer on any security
futures product unless such activities comply with the
regulations prescribed pursuant to section 7(c)(2)(B) of the
Securities Exchange Act of 1934.
``(V) Nothing in this clause shall supersede or limit the
authority granted to the Commission in section 8a(9) to direct
a contract market or registered derivatives transaction
execution facility, on finding an emergency to exist, to raise
temporary margin levels on any futures contract, or option on
the contract covered by this clause, or on any security futures
product.''.
(c) Dual Trading.--Section 4j of the Commodity Exchange Act (7
U.S.C. 6j) is amended to read as follows:
``SEC. 4J. RESTRICTIONS ON DUAL TRADING IN SECURITY FUTURES PRODUCTS ON
DESIGNATED CONTRACT MARKETS AND REGISTERED DERIVATIVES
TRANSACTION EXECUTION FACILITIES.
``(a) The Commission shall issue regulations to prohibit the
privilege of dual trading in security futures products on each contract
market and registered derivatives transaction execution facility. The
regulations issued by the Commission under this section--
``(1) shall provide that the prohibition of dual trading
thereunder shall take effect upon issuance of the regulations;
and
``(2) shall provide exceptions, as the Commission
determines appropriate, to ensure fairness and orderly trading
in security futures product markets, including--
``(A) exceptions for spread transactions and the
correction of trading errors;
``(B) allowance for a customer to designate in
writing not less than once annually a named floor
broker to execute orders for such customer,
notwithstanding the regulations to prohibit the
privilege of dual trading required under this section;
and
``(C) other measures reasonably designed to
accommodate unique or special characteristics of
individual boards of trade or contract markets, to
address emergency or unusual market conditions, or
otherwise to further the public interest consistent
with the purposes of this section.
``(b) As used in this section, the term `dual trading' means the
execution of customer orders by a floor broker during the same trading
session in which the floor broker executes any trade in the same
contract market or registered derivatives transaction execution
facility for--
``(1) the account of such floor broker;
``(2) an account for which such floor broker has trading
discretion; or
``(3) an account controlled by a person with whom such
floor broker has a relationship through membership in a broker
association.
``(c) As used in this section, the term `broker association' shall
include two or more contract market members or registered derivatives
transaction execution facility members with floor trading privileges of
whom at least one is acting as a floor broker, who--
``(1) engage in floor brokerage activity on behalf of the
same employer,
``(2) have an employer and employee relationship which
relates to floor brokerage activity,
``(3) share profits and losses associated with their
brokerage or trading activity, or
``(4) regularly share a deck of orders.''.
(d) Exemption From Registration for Investment Advisers.--Section
4m of the Commodity Exchange Act (7 U.S.C. 6m) is amended by adding at
the end the following:
``(3) Subsection (1) of this section shall not apply to any
commodity trading advisor that is registered with the Securities and
Exchange Commission as an investment adviser whose business does not
consist primarily of acting as a commodity trading advisor, as defined
in section 1a(6), and that does not act as a commodity trading advisor
to any investment trust, syndicate, or similar form of enterprise that
is engaged primarily in trading in any commodity for future delivery on
or subject to the rules of any contract market or registered
derivatives transaction execution facility.''.
(e) Exemption From Investigations of Markets in Underlying
Securities.--Section 16 of the Commodity Exchange Act (7 U.S.C. 20) is
amended by adding at the end the following:
``(e) This section shall not apply to investigations involving any
security underlying a security futures product.''.
(f) Rulemaking Authority To Address Duplicative Regulation of Dual
Registrants.--Section 4d of the Commodity Exchange Act (7 U.S.C. 6d) is
amended--
(1) by inserting ``(a)'' before the first undesignated
paragraph;
(2) by inserting ``(b)'' before the second undesignated
paragraph; and
(3) by adding at the end the following:
``(c) Consistent with this Act, the Commission, in consultation
with the Securities and Exchange Commission, shall issue such rules,
regulations, or orders as are necessary to avoid duplicative or
conflicting regulations applicable to any futures commission merchant
registered with the Commission pursuant to section 4f(a) (except
paragraph (2) thereof), that is also registered with the Securities and
Exchange Commission pursuant to section 15(b) of the Securities
Exchange Act (except paragraph (11) thereof), involving the application
of--
``(1) section 8, section 15(c)(3), and section 17 of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder related to the treatment of customer funds,
securities, or property, maintenance of books and records,
financial reporting or other financial responsibility rules (as
defined in section 3(a)(40) of the Securities Exchange Act of
1934), involving security futures products; and
``(2) similar provisions of this Act and the rules and
regulations thereunder involving security futures products.''.
(g) Obligation To Address Duplicative Regulation of Dual
Registrants.--Section 17 of the Commodity Exchange Act (7 U.S.C. 21) is
amended by adding at the end the following:
``(r) Consistent with this Act, each futures association registered
under this section shall issue such rules as are necessary to avoid
duplicative or conflicting rules applicable to any futures commission
merchant registered with the Commission pursuant to section 4f(a) of
this Act (except paragraph (2) thereof), that is also registered with
the Securities and Exchange Commission pursuant to section 15(b) of the
Securities and Exchange Act of 1934 (except paragraph (11) thereof),
with respect to the application of--
``(1) rules of such futures association of the type
specified in section 4d(3) of this Act involving security
futures products; and
``(2) similar rules of national securities associations
registered pursuant to section 15A(a) of the Securities and
Exchange Act of 1934 involving security futures products.''.
(h) Obligation to Address Duplicative Regulation of Dual
Registrants.--Section 5c of the Commodity Exchange Act (as added by
section 114) is amended by adding at the end the following new
subsection:
``(f) Consistent with this Act, each designated contract market and
registered derivatives transaction execution facility shall issue such
rules as are necessary to avoid duplicative or conflicting rules
applicable to any futures commission merchant registered with the
Commission pursuant to section 4f(a) of this Act (except paragraph (2)
thereof), that is also registered with the Securities and Exchange
Commission pursuant to section 15(b) of the Securities Exchange Act of
1934 (except paragraph (11) thereof) with respect to the application
of--
``(1) rules of such designated contract market or
registered derivatives transaction execution facility of the
type specified in section 4d(3) of this Act involving security
futures products; and
``(2) similar rules of national securities associations
registered pursuant to section 15A(a) of the Securities
Exchange Act of 1934 and national securities exchanges
registered pursuant to section 6(g) of such Act involving
security futures products.''.
(i) Obligation To Address Security Futures Products Traded on
Foreign Exchanges.--Section 2(a)(1) of the Commodity Exchange Act (7
U.S.C. 2, 2a, and 4)) is amended by adding at the end the following:
``(E)(i) To the extent necessary or appropriate in the public
interest, to promote fair competition, and consistent with the
protection of investors and the maintenance of fair and orderly
markets, the Commission and the Securities and Exchange Commission
shall jointly issue such rules, regulations, or orders as are necessary
and appropriate to permit the offer and sale of a security futures
product traded on or subject to the rules of a foreign board of trade
to United States persons.
``(ii) The rules, regulations, or orders adopted under clause (i)
shall take into account, as appropriate, the nature and size of the
markets that the securities underlying the security futures product
reflects.''.
(j) Security Futures Products Traded on Foreign Boards of Trade.--
Section 2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2, 2a, and 4)
is amended by adding at the end the following:
``(F)(i) Nothing in this Act is intended to prohibit a futures
commission merchant from carrying security futures products traded on
or subject to the rules of a foreign board of trade in the accounts of
persons located outside of the United States.
``(ii) Nothing in this Act is intended to prohibit any person
located in the United States from purchasing or carrying securities
futures products traded on or subject to the rules of a foreign board
of trade, exchange, or market to the same extent such person may be
authorized to purchase or carry other securities traded on a foreign
board of trade, exchange, or market.''.
SEC. 222. APPLICATION OF THE COMMODITY EXCHANGE ACT TO NATIONAL
SECURITIES EXCHANGES AND NATIONAL SECURITIES ASSOCIATIONS
THAT TRADE SECURITY FUTURES.
(a) Notice Designation of National Securities Exchanges and
National Securities Associations.--The Commodity Exchange Act is
amended by inserting after section 5e (7 U.S.C. 7b), as redesignated by
section 111(1), the following:
``SEC. 5F. DESIGNATION OF SECURITIES EXCHANGES AND ASSOCIATIONS AS
CONTRACT MARKETS.
``(a) Any board of trade that is registered with the Securities and
Exchange Commission as a national securities exchange, is a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934, or is an alternative trading system
shall be a designated contract market in security futures products if--
``(1) such national securities exchange, national
securities association, or alternative trading system lists or
trades no other contracts of sale for future delivery, except
for security futures products;
``(2) such national securities exchange, national
securities association, or alternative trading system files
written notice with the Commission in such form as the
Commission, by rule, may prescribe containing such information
as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of
customers; and
``(3) the registration of such national securities
exchange, national securities association, or alternative
trading system is not suspended pursuant to an order by the
Securities and Exchange Commission.
Such designation shall be effective contemporaneously with the
submission of notice, in written or electronic form, to the Commission.
``(b)(1) A national securities exchange, national securities
association, or alternative trading system that is designated as a
contract market pursuant to section 5f shall be exempt from the
following provisions of this Act and the rules thereunder:
``(A) Subsections (c), (e), and (g) of section 4c.
``(B) Section 4j.
``(C) Section 5.
``(D) Section 5c.
``(E) Section 6a.
``(F) Section 8(d).
``(G) Section 9(f).
``(H) Section 16.
``(2) An alternative trading system that is a designated contract
market under this section shall be required to be a member of a futures
association registered under section 17 and shall be exempt from any
provision of this Act that would require such alternative trading
system to--
``(A) set rules governing the conduct of subscribers other
than the conduct of such subscribers' trading on such
alternative trading system; or
``(B) discipline subscribers other than by exclusion from
trading.
``(3) To the extent that an alternative trading system is exempt
from any provision of this Act pursuant to paragraph (2) of this
subsection, the futures association registered under section 17 of
which the alternative trading system is a member shall set rules
governing the conduct of subscribers to the alternative trading system
and discipline the subscribers.
``(4)(A) Except as provided in subparagraph (B), but
notwithstanding any other provision of this Act, the Commission, by
rule, regulation, or order, may conditionally or unconditionally exempt
any designated contract market in security futures subject to the
designation requirement of this section from any provision of this Act
or of any rule or regulation thereunder, to the extent such exemption
is necessary or appropriate in the public interest and is consistent
with the protection of investors.
``(B) The Commission shall, by rule or regulation, determine the
procedures under which an exemptive order under this section is granted
and may, in its sole discretion, decline to entertain any application
for an order of exemption under this section.
``(C) An alternative trading system shall not be deemed to be an
exchange for any purpose as a result of the designation of such
alternative trading system as a contract market under this section.''.
(b) Notice Registration of Certain Securities Broker-Dealers;
Exemption From Registration for Certain Securities Broker-Dealers.--
Section 4f(a) of the Commodity Exchange Act (7 U.S.C. 6f(a)) is
amended--
(1) by inserting ``(1)'' after ``(a)''; and
(2) by adding at the end the following:
``(2) Notwithstanding paragraph (1), and except as provided in
paragraph (3), any broker or dealer that is registered with the
Securities and Exchange Commission shall be registered as a futures
commission merchant or introducing broker, as applicable, if--
``(A) the broker or dealer limits its solicitation of
orders, acceptance of orders, or execution of orders, or
placing of orders on behalf of others involving any contracts
of sale of any commodity for future delivery, on or subject to
the rules of any contract market or registered derivatives
transaction execution facility to security futures products;
``(B) the broker or dealer files written notice with the
Commission in such form as the Commission, by rule, may
prescribe containing such information as the Commission, by
rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors;
``(C) the registration of the broker or dealer is not
suspended pursuant to an order of the Securities and Exchange
Commission; and
``(D) the broker or dealer is a member of a national
securities association registered pursuant to section 15A(a) of
the Securities Exchange Act of 1934.
The registration shall be effective contemporaneously with the
submission of notice, in written or electronic form, to the Commission.
``(3) A floor broker or floor trader shall be exempt from the
registration requirements of section 4e and paragraph (1) of this
subsection if--
``(A) the floor broker or floor trader is a broker or
dealer registered with the Securities and Exchange Commission;
``(B) the floor broker or floor trader limits its
solicitation of orders, acceptance of orders, or execution of
orders, or placing of orders on behalf of others involving any
contracts of sale of any commodity for future delivery, on or
subject to the rules of any contract market to security futures
products; and
``(C) the registration of the floor broker or floor trader
is not suspended pursuant to an order of the Securities and
Exchange Commission.''.
(c) Exemption for Securities Broker-Dealers From Certain Provisions
of the Commodity Exchange Act.--Section 4f(a) of the Commodity Exchange
Act (7 U.S.C. 6f(a)) is amended by inserting after paragraph (3), as
added by subsection (b), the following:
``(4)(A) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to paragraph (2), or
that is a floor broker or floor trader exempt from registration
pursuant to paragraph (3), shall be exempt from the following
provisions of this Act and the rules thereunder:
``(i) Subsections (b), (d), (e), and (g) of section 4c.
``(ii) Sections 4d, 4e, and 4h.
``(iii) Subsections (b) and (c) of this section.
``(iv) Section 4j.
``(v) Section 4k(1).
``(vi) Section 4p.
``(vii) Section 6d.
``(viii) Subsections (d) and (g) of section 8.
``(ix) Section 16.
``(B)(i) Except as provided in clause (ii) of this subparagraph,
but notwithstanding any other provision of this Act, the Commission, by
rule, regulation, or order, may conditionally or unconditionally exempt
any broker or dealer subject to the registration requirement of
paragraph (2), or any broker or dealer exempt from registration
pursuant to paragraph (3), from any provision of this Act or of any
rule or regulation thereunder, to the extent the exemption is necessary
or appropriate in the public interest and is consistent with the
protection of investors.
``(ii) The Commission shall, by rule or regulation, determine the
procedures under which an exemptive order under this section shall be
granted and may, in its sole discretion, decline to entertain any
application for an order of exemption under this section.
``(C)(i) A broker or dealer that is registered as a futures
commission merchant or introducing broker pursuant to paragraph (2) or
an associated person thereof, or that is a floor broker or floor trader
exempt from registration pursuant to paragraph (3), shall not be
required to become a member of any futures association registered under
section 17.
``(ii) No futures association registered under section 17 shall
limit its members from carrying an account, accepting an order, or
transacting business with a broker or dealer that is registered as a
futures commission merchant or introducing broker pursuant to paragraph
(2) or an associated person thereof, or that is a floor broker or floor
trader exempt from registration pursuant to paragraph (3).''.
(d) Exemptions for Associated Persons of Securities Broker-
Dealers.--Section 4k of the Commodity Exchange Act (7 U.S.C. 6k), is
amended by inserting after paragraph (4), as added by subsection (c),
the following:
``(5) Any associated person of a broker or dealer that is
registered with the Securities and Exchange Commission, and who limits
its solicitation of orders, acceptance of orders, or execution of
orders, or placing of orders on behalf of others involving any
contracts of sale of any commodity for future delivery or any option on
such a contract, on or subject to the rules of any contract market or
registered derivatives transaction execution facility to security
futures products, shall be exempt from the following provisions of this
Act and the rules thereunder:
``(A) Subsections (b), (d), (e), and (g) of section 4c.
``(B) Sections 4d, 4e, and 4h.
``(C) Subsections (b) and (c) of section 4f.
``(D) Section 4j.
``(E) Paragraph (1) of this section.
``(F) Section 4p.
``(G) Section 6d.
``(H) Subsections (d) and (g) of section 8.
``(I) Section 16.''.
SEC. 223. NOTIFICATION OF INVESTIGATIONS AND ENFORCEMENT ACTIONS.
(a) Section 8(a) of the Commodity Exchange Act (7 U.S.C. 12(a)) is
amended by adding at the end the following:
``(3) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding and a copy
of any order entered by the Commission against any futures commission
merchant or introducing broker registered pursuant to section 4f(a)(2),
any floor broker or floor trader exempt from registration pursuant to
section 4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated as a
contract market pursuant to section 5f.''.
(b) Section 6 of the Commodity Exchange Act (7 U.S.C. 8, 9, 9a, 9b,
13b, 15) is amended by adding at the end the following:
``(g) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding and a copy
of any order entered by the Commission pursuant to subsections (c) and
(d) of this section against any futures commission merchant or
introducing broker registered pursuant to section 4f(a)(2), any floor
broker or floor trader exempt from registration pursuant to section
4f(a)(3), any associated person exempt from registration pursuant to
section 4k(6), or any board of trade designated as a contract market
pursuant to section 5f.''.
(c) Section 6c of the Commodity Exchange Act (7 U.S.C. 13a-1) is
amended by adding at the end the following:
``(h) The Commission shall provide the Securities and Exchange
Commission with notice of the commencement of any proceeding and a copy
of any order entered by the Commission against any futures commission
merchant or introducing broker registered pursuant to section 4f(a)(2),
any floor broker or floor trader exempt from registration pursuant to
section 4f(a)(3), any associated person exempt from registration
pursuant to section 4k(6), or any board of trade designated as a
contract market pursuant to section 5f.''.
Passed the House of Representatives October 19, 2000.
Attest:
Clerk.
106th CONGRESS
2d Session
H. R. 4541
_______________________________________________________________________
AN ACT
To reauthorize and amend the Commodity Exchange Act to promote legal
certainty, enhance competition, and reduce systemic risk in markets for
futures and over-the-counter derivatives, and for other purposes.