S.Amdt. 5186

SA 5186. Ms. CANTWELL (for herself, Mr. Lieberman, and Mr. Nelson of Florida) submitted an amendment intended to be proposed by her to the bill S. 3268, to amend the Commodity Exchange Act, to prevent excessive price speculation with respect to energy commodities, and for other purposes; which was ordered to lie on the table; as follows:

In section 6, at page 10 line 8, strike all through page 20 line 6 and insert the following:

Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) (as amended by section 5) is amended by adding at the end the following:

“(h) Elimination of Excessive Speculation as a Cause of High Oil, Gas, and Energy Prices.--

“(1) “(1).--Definition of bona-fide hedge trading.--

(A) In general.--The term ‘Bona-Fide Hedge Trading' means a transaction that--

(aa) represents a substitute for a transaction to be made or a position to be taken at a later time in a physical marketing channel;

(bb) is economically appropriate for the reduction of risks in the conduct and management of a commercial enterprise that uses the underlying commodity in the production or operation of its business; and

(cc) arises from the potential change in the value of--

(AA) assets that a person owns, produces, manufactures, possesses, or merchandises (or anticipates owning, producing, manufacturing, possessing, or merchandising);

(BB) liabilities that a person incurs or anticipates incurring; or

(CC) services that a person provides or purchases (or anticipates providing or purchasing).

(B) Exclusion.--The term ‘Bona-fide Hedge Trading' does not include a transaction entered into on a designated contract market for the purpose of offsetting a financial risk arising from an over-the-counter commodity derivative.”

“(2) Identification of bona-fide hedge trading.--In carrying out this Act, the Commission shall distinguish between--

“(A) bona-fide hedge trading; and

“(B) all other trading in energy commodities.

(3) Definition of covered over-the-counter commodity derivative.--The term ‘over-the-counter commodity derivative' means any agreement, contract, or transaction that--

(A) (aa) traded or executed in the United States;

(bb) is held by a person located in the United States; or

(B) is not traded on a designated contract market or derivatives transaction execution facility; and

(C) (aa) is a put, call, cap, floor, collar, or similar option of any kind for the purchase or sale of, or substantially based on the value of, or more qualifying commodities or an economic or financial index or measure of economic or financial risk primarily associated with 1 or more qualifying commodities;

(bb) provides on an executory basis for the applicable transaction, on a fixed or contingent basis, of 1 or more payments substantially based on the value of 1 or more qualifying commodities or an economic or financial index or measure of economic or financial risk primarily associated with 1 or more qualifying commodities, and that transfers between the parties to the transaction, in whole or in part, the economic or financial risk associated with a future change in any such value without also conveying a current or future direct or indirect ownership interest in an asset or liability that incorporates the financial risk that is transferred; or

(cc) is any combination or permutation of, or option on, any agreement, contract, or transaction described in item (aa) or (bb).

“(4) “Control entity.--For purposes of this Act, a control entity shall mean a person or entity that holds or controls a position in proportion to the person or entity's direct or indirect ownership or equity interest in the position.

(5) In section 4a(h)(4)(C)(i) of the Commodity Exchange Act (as added by section 6), strike subclause (II) and insert the following:

“(II) Application.--The Commission shall apply the limits imposed under subclause (I) to--

“(aa) any person who executes accounts, agreements, or transactions involving an energy commodity for the own account of the person and to any person for whom an agent in fact or substance executes accounts, agreements, or transactions involving an energy commodity, on a registered entity or in covered over-the-counter trading; and

“(bb) any citizen of the United States who executes accounts, agreements, or transactions involving an energy commodity for the own account of the citizen and to any citizen of the United States for whom an agent in fact or substance executes accounts, agreements, or transactions involving an energy commodity, on a foreign board of trade or trading facility based in a country other than the United States.

“(4) Elimination of excessive speculation.--

“(A) In general.--Notwithstanding any other provision of this Act, the Commission shall review all regulations, rules, exemptions, exclusions, guidance, no action letters, orders, and other actions taken by or on behalf of the Commission (including any action or inaction taken pursuant to delegated authority by an exchange, self-regulatory organization, or any other entity) regarding all energy futures market participants or market activity (referred to in this subsection individually as a ‘prior action') to ensure that--

“(i) bona fide hedge trading is protected and promoted; and

“(ii) excessive speculation is eliminated.

“(B) Prior action.--

“(i) In general.--The Commission shall modify or revoke the application after the date of enactment of this subsection of any prior action taken by the Commission (including any prior action taken pursuant to delegated authority by any other entity) with respect to any trade on any market, exchange, foreign board of trade, swap or swap transaction, index or index market participant or trade, hedge fund, pension fund, and any other transaction, trade, trader, or petroleum or energy futures market activity unless the Commission affirmatively determines that such prior action will protect and promote bona fide hedge trading and does not permit or encourage excessive speculation.

“(ii) Revocation.--In carrying out this subparagraph, the Commission shall modify or revoke the results of each prior action that, in whole or in part, has the direct or indirect affect of limiting, reducing, or eliminating the filing of any report or data regarding any direct or indirect trade or trader, including the filing of large trader reports.

“(C) Aggregate speculative position limits applicable to trading in energy commodities and derivatives that is not bonafide hedge trading.--

“(i) Aggregate speculative position limits.--

“(I) In general.--Not later than 30 days after the date of enactment of this subsection, the Commission shall impose, by rule, regulation, or order, aggregate speculative position limits on trading that is not bona fide hedge trading at the control entity level,

“(a) on designated contract markets;

“(b) on derivatives transaction execution facilities; and

“(c) in covered over-the-counter commodity derivatives.

“(II) In establishing aggregate speculative position limits, the Commission shall set the limits at the minimum level practicable--

(a) to ensure sufficient market liquidity for the conduct of bonafide hedging activities;

(b) to ensure that price discovery is not disrupted;

(c) to protect and promote bonafide hedge trading;

(d) to minimize non-bonafide hedge trading; and (e) to eliminate excess speculation.”

“(II) The aggregate speculative position limits shall apply to positions held that expire during--

(a) the spot month;

(b) each separate futures trading month (other than the spot month); or

(c) the sum of each trading month (including the spot month).”

“(ii) Advisory group.--Physical Hedgers Energy Advisory Committee

(a) Advisory committee.--Not later than 30 days after enactment, the CFTC shall establish a “physical hedgers energy advisory committee” for users of futures and swaps transactions for price discovery or hedging price risk of physical energy commodities (hereinafter “physical hedgers”), which shall include:

(aa) commercial producers or sellers,

(bb) purchasers or users, or

(cc) middlemen involved with the purchase or sale of such energy commodities

(b) Composition.--In making appointments, not fewer than 75% of the membership of this committee shall be composed of participants (or their associations) for whom the preponderance of their participation in futures or over the counter markets is confined to hedging price risk for an energy commodity in their capacity as a commercial producer, seller, purchaser, user or middleman involved with such commodities. Not fewer than two representatives shall be appointed from each category:

(aa) Airlines

(bb) Trucking and Railroads

(cc) Petroleum Marketers and Heating Oil Distributors

(dd) Industrial Energy Consumers

(ee) Public and private gas and electric utilities

(ff) Oil and distillate refiners

(gg) Crude oil producers and shippers/terminal operators

(hh) Natural gas producers and pipeline operators

(ii) Other energy producers or sellers who use futures markets

Up to 25% of such committee shall include consumer advocacy organizations, futures exchanges and trading facilities, state and local governments, financial services industry participants.

(c) Meetings.--This committee shall meet not less than 4 times per year, but shall meet more often upon the call of the Chair or by the request of the Commission.

(d) Purposes.--The Physical Hedgers Energy Advisory Committee shall provide advice to the Commission on rules, regulations and policies related to energy commodity markets, recommend appropriate levels of liquidity necessary for price discovery and physical hedging, review and make recommendations on the size of speculative positions limits, review and make recommendations on transactions that should be deemed commercial or non-commercial, evaluate whether additional policies are needed to prevent excessive speculation, and recommend improvements to rules, regulations and policies, and for other purposes.

(e) Chair and Tenure.--The Chair shall be selected by the full Commission. Members shall serve for 3 year terms. The Committee shall have not more than 24 members.

(f) FACA.--The Committee shall be subject to the Federal Advisory Committee Act (FACA).

(g) Interim Recommendations to CFTC.--Not later than 60 days after enactment, the “physical hedgers energy advisory committee” shall submit to the CFTC interim recommendations on the establishment of an appropriate level for aggregate speculative position limits for each energy commodity. Such recommendation shall be transmitted to Congress.

“(iii) Review of recommendations.--Not later than 270 days after the date of enactment of this subsection, the Commission shall--

“(I) analyze and review the recommendations submitted by the advisory group under clause (ii)(II); and

“(II) submit to the appropriate committees of Congress a report describing each recommendation (including each modification to the statutory authority of the Commission that the Commission determines to be necessary to effectuate each recommendation).

“(iv) Rulemaking.--

“(I) In general.--Not later than 18 months after the date of enactment of this subsection, the Commission shall promulgate a final rule that establishes speculative position limits--

“(aa) for any person engaged in trading of an energy commodity that is not bona-fide hedge trading; and

“(bb) that are consistent with this Act.

“(II) Effective date.--The final rule described in subclause (I) shall take effect on the date that is 30 days after the date on which the Commission promulgates the final rule.

“(V) Development of methodology.--

“(I) In general.--Not later than 180 days after the date of enactment of this subsection, the Commission shall propose a methodology to determine and set aggregate speculative position limits for each person engaging trading that is not bona-fide hedge trading of energy commodities--

“(aa) on designated contract markets;

“(bb) on derivatives transaction execution facilities; and

“(cc) in covered over-the-counter commodity derivatives.

“(dd) The aggregate speculative position limits established under this subsection shall apply to positions held that expire during--

(AA) the spot month;

(BB) each separate futures trading month (other than the spot month); or

(CC) the sum of each trading month (including the spot month).”

“(II) Report.--Not later than 180 days after the date of enactment of this subsection, the Commission shall submit to the appropriate committees of Congress a report that contains--

“(aa) any recommendations regarding any additional statutory authority that the Commission determines to be necessary for the imposition of the speculative position limits described in subclause (I); and

“(bb) a description of the resources that the Commission considers to be necessary to implement the speculative position limits.

“(D) Maximum level of speculative position limits.--

“(i) In general. In establishing speculative position limits under this section (including subparagraph (C)(iv)), the Commission shall set the limits at the minimum level practicable--

“(I) to ensure sufficient market liquidity for the conduct of bona-fide hedging activities;

“(II) to ensure that price discovery is not disrupted;

“(III) to protect and promote bona-fide hedge trading;

“(IV) to minimize trading of an energy commodity that is not bona-fide hedge trading; and

“(V) to eliminate excess speculation.