II
Calendar No. 191
109th CONGRESS
1st Session
S. 1566
[Report No. 109–119]
IN THE SENATE OF THE UNITED STATES
July 29, 2005
Mr. Chambliss from the Committee on Agriculture, Nutrition, and Forestry reported the following original bill; which was read twice and placed on the calendar
A BILL
To reauthorize the Commodity Exchange Act, and for other purposes.
Short title
This Act may be cited as
the Commodity Exchange Reauthorization
Act of 2005
.
Contracts designed to defraud or mislead
Section 4b of the Commodity Exchange Act (7 U.S.C. 6b) is amended—
by redesignating subsections (b) and (c) as subsections (c) and (d), respectively; and
by striking
Sec. 4b
and all that follows through the end of subsection (a)
and inserting the following:
Contracts designed to defraud or mislead
Unlawful actions
It shall be unlawful—
for any person, in or in connection with any order to make, or the making of, any contract of sale of any commodity in interstate commerce or for future delivery that is made, or to be made, on or subject to the rules of a designated contract market, for or on behalf of any other person; or
for any person, in or in connection with any order to make, or the making of, any contract of sale of any commodity for future delivery, or other agreement, contract, or transaction subject to paragraphs (1) and (2) of section 5a(g), that is made, or to be made, for or on behalf of, or with, any other person, other than on or subject to the rules of a designated contract market—
to cheat or defraud or attempt to cheat or defraud such other person;
willfully to make or cause to be made to such other person any false report or statement or willfully to enter or cause to be entered for such other person any false record;
willfully to deceive or attempt to deceive such other person by any means whatsoever in regard to any order or contract or the disposition or execution of any order or contract, or in regard to any act of agency performed, with respect to any order or contract for or, in the case of paragraph (2), with such other person; or
to bucket an order if such order is either represented by such person as an order to be executed, or is required to be executed, on or subject to the rules of a designated contract market; or
to fill an order by offset against the order or orders of any other person, or willfully and knowingly and without the prior consent of such other person to become the buyer in respect to any selling order of such other person, or become the seller in respect to any buying order of such other person, if such order is either represented by such person as an order to be executed, or is required to be executed, on or subject to the rules of a designated contract market unless such order is executed in accordance with the rules of the designated contract market.
Clarification
Subsection (a)(2) shall not obligate any person, in or in connection with a transaction in a contract of sale of a commodity for future delivery, or other agreement, contract or transaction subject to paragraphs (1) and (2) of section 5a(g), with another person, to disclose to such other person nonpublic information that may be material to the market price, rate or level of such commodity or transaction, except as necessary to make any statement made to such other person in or in connection with such transaction, not misleading in any material respect.
.
Criminal and civil penalties
Enforcement powers of the commission
Section 6(c) of the Commodity Exchange Act (7 U.S.C. 9, 15) is amended in paragraph (3) of the 10th sentence—
by inserting
(A)
after assess such person
; and
by inserting
after each such violation
the following: “, or (B) in any case
of manipulation of, or attempt to manipulate, the price of any commodity, a
civil penalty of not more than the greater of $1,000,000 or triple the monetary
gain to such person for each such violation,”.
Nonenforcement of rules of government or other violations
Section 6b of the Commodity Exchange Act (7 U.S.C. 13a) is amended—
in the 1st
sentence, by inserting before the period at the end the following: , or,
in any case of manipulation of, or an attempt to manipulate, the price of any
commodity, a civil penalty of not more than $1,000,000 for each such
violation
; and
in the 2nd
sentence, by inserting before the period at the end the following: ,
except that if the failure or refusal to obey or comply with the order involved
any offense under section 9(a)(2), the registered entity, director, officer,
agent, or employee shall be guilty of a felony and, on conviction, shall be
subject to penalties under section 9(a)(2)
.
Action to enjoin or restrain violations
Section 6c(d) of the Commodity
Exchange Act (7 U.S.C. 13a–1(d)) is amended by striking (d)
and
all that follows through the end of the paragraph (1) and inserting the
following:
Civil penalties
In general
In any action brought under this section, the Commission may seek and the court shall have jurisdiction to impose, on a proper showing, on any person found in the action to have committed any violation—
a civil penalty in the amount of not more than the greater of $100,000 or triple the monetary gain to the person for each violation; or
in any case of manipulation of, or an attempt to manipulate, the price of any commodity, a civil penalty in the amount of not more than the greater of $1,000,000 or triple the monetary gain to the person for each violation.
.
Violations generally
In general
Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is amended—
in subsection (a), in the matter preceding paragraph (1)—
by
striking (or $500,000 in the case of a person who is an
individual)
; and
by
striking five years
and inserting 10
years
;
by redesignating subsection (f) as subsection (e);
in paragraph (1)
of subsection (e) (as redesignated by subparagraph (B)), by striking the period
at the end and inserting ; or
; and
by adding at the end the following:
Commission administrative and civil authority
The Commission may bring an administrative or civil action under this Act for an alleged violation of any provision of this section.
.
Effect of clarification
The amendment made by paragraph (1)(D) restates, without substantive change, Commission civil enforcement authority in effect on the date of enactment of this Act, which continues to apply to any action pending on or commenced after the date of enactment of this Act for any alleged violation occurring before, on, or after, that date.
Clarification of authority
Section 2(c)(2) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)) is amended by striking subparagraphs (B) and (C) and inserting the following:
Agreements, contracts, and transactions in retail foreign currency
In general
This Act applies to, and the Commission shall have jurisdiction over, any agreement, contract, or transaction in foreign currency (including agreements, contracts, or transactions described in subsection (a)(1)(A)), and any person who engages in any activity in connection with any agreement, contract, or transaction in foreign currency, that is—
offered to, or entered into with, a person that is not an eligible contract participant;
offered, or entered into, on a leveraged, margined, or financed on a similar basis; and
offered, or entered into, for purposes other than commercial or personal use of such foreign currency, except that personal use shall include only those agreements, contracts, or transactions in which a person takes immediate ownership and possession of foreign currency.
Exclusions
Subparagraph (B)(i) shall not apply if the counterparty, or the person offering to be the counterparty, of the person that is not an eligible contract participant is—
a financial institution;
a broker or dealer registered under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) (except notice registration under paragraph (11)(A) of that section) or under section 15C of that Act (15 U.S.C. 78o–5), provided that each person who participates in the solicitation or recommendation of the agreement, contract, or transaction is—
registered under section 15(b) or 15C of that Act (15 U.S.C. 78o(b), 78o–5);
an individual registered with a securities association registered under section 15A(a) of that Act (15 U.S.C. 78o–3(a)); and
a member or associate of a securities association registered under section 15A(a) of that Act (15 U.S.C. 78o–3(a));
a person that is registered as a futures commission merchant under this Act, provided that each person who participates in the solicitation or recommendation of the agreement, contract, or transaction is—
registered under section 4d, 4k, or 4m; and
a member or associate of a futures association registered under section 17;
an insurance company described in section 1a(12)(A)(ii), or a regulated subsidiary or affiliate of such an insurance company;
a financial holding company (as defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841)); or
an investment bank holding company (as defined in section 17(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78q)).
Notwithstanding subclause (III) of subparagraph (B)(ii), agreements, contracts, or transactions described in subparagraph (B), and persons who engage in any activity in connection with agreements, contracts, or transactions described in subparagraph (B), shall be subject to subsection (a)(1)(B) and sections 4(b), 4b, 4c(b), 4o, 6(c) and 6(d) (except to the extent that sections 6(c) and 6(d) prohibit manipulation of the market price of any commodity in interstate commerce, or for future delivery on or subject to the rules of any market), 6c, 6d, 8(a), 13(a), and 13(b) if the agreements, contracts, or transactions are offered, or entered into, by a person that is registered as a futures commission merchant under this Act.
Sections 4(b) and 4b shall apply to any agreement, contract, or transaction in foreign currency described in subparagraphs (B) and (C) as though the agreement, contract, or transaction were a contract of sale of a commodity for future delivery.
.
Authorization of appropriations
Section 12(d)
of the Commodity Exchange Act (7 U.S.C. 16(d)) is amended by striking
2005
and inserting 2010
.
Liaison with Department of Justice
Section 2(a)(9) of the Commodity Exchange Act (7 U.S.C. 2(a)(9)) is amended by adding at the end the following:
Liaison with Department of Justice
In general
The Commission shall, in cooperation with the Attorney General, maintain a liaison between the Commission and the Department of Justice to coordinate civil and criminal investigations and prosecutions of violations of this Act as appropriate.
Designation
The Attorney General shall designate a person as liaison and take such steps as are necessary to facilitate communications described in clause (i).
.
Single stock futures margining pilot program
Section 2(a)(1) of the Commodity Exchange Act (7 U.S.C. 2(a)(1)) is amended—
in subparagraph (C)(v)—
in subclause (I)—
by
striking other than
both places it appears and inserting
or
; and
by
striking contract or option
and inserting contract,
option, or security futures product
;
in the first
sentence of subclause (II), by striking other than
and inserting
or
; and
in subclause
(III), by striking other than
and inserting or
;
and
in subparagraph (D)(i)—
by striking
(XI) The margin requirements
and inserting the following:
Margin requirements
In general
The margin requirement;
; and
by adding at the end the following:
Pilot program for margining security futures products
Notwithstanding any other provision of law, for a period of 2 years beginning on the date of enactment of this item, an entity that is designated or registered as a contract market or derivatives transaction execution facility under section 5 and that is also notice-registered as a national securities exchange under section 6(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(g)), and its clearing organization, a futures commission merchant registered under this Act, and a broker or dealer registered under section 15(b) of that Act (15 U.S.C. 78o(b)), shall not be required to comply with item (aa) or subparagraph (C)(v)(IV).
Acting in reliance
Any entity acting in reliance upon item (bb) shall not be required to comply with regulations promulgated under section 7(c)(2)(B) of the Securities Exchange Act of 1934 (15 U.S.C. 78g(c)(2)(B)), or with the rules of a self-regulatory organization (as defined in section 3(a)(26) of that Act (15 U.S.C. 78c(a)(26)), pertaining to levels of initial and maintenance margin, or with any regulation that operates to preclude the implementation of risk-based portfolio margining systems.
Promulgation of final rules
Subject to item (ee), an entity designated or registered as a contract market or derivatives transaction execution facility under section 5 and that is notice-registered as a national securities exchange under section 6(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(g)) and its clearing organization shall be permitted to promulgate final rules to—
set margin requirements for security futures products, held in any account, in accordance with subparagraph (C)(v)(I); and
permit futures commission merchants registered under this Act, and brokers and dealers registered under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)), to collect initial and maintenance margin for security futures products, held in any account, in accordance with the rules.
Effective date and reviewability of final rules
Final rules promulgated by any entity under item (dd) shall become effective in accordance with section 5c(c), and, notwithstanding any other provision of law, shall not be subject to any other approval or review requirements.
Report
Not later than 2 years after the date of enactment of this item, the Board of Governors of the Federal Reserve System, after consultation with the Commission and the Securities and Exchange 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 describing the results of the pilot program for margining security futures products.
Continuation of pilot program
The pilot program for margining security futures products shall continue to apply unless the report under item (ff) concludes that the pilot program has resulted in undue risks to the financial integrity of the relevant contract markets or derivatives transaction execution facilities, or to their respective clearing systems, or has resulted in systemic risk to financial markets or undue risk to customers.
.
Broad-based index definitions
In general
Not later than 180
days after the date of enactment of this Act, the Commodity Futures Trading
Commission and the Securities and Exchange Commission shall exercise the
authority described in section 1a(25)(B)(vi) of the Commodity Exchange Act (7
U.S.C. 1a(25)(B)(vi)) and section 3(a)(55)(C)(vi) of the Securities Exchange
Act of 1934 (15 U.S.C. 78c(a)(55)(C)(vi)) jointly to promulgate a final rule,
regulation, or order to exclude from the definition of the term
narrow-based security index
indexes based on—
United States debt instruments;
other United States securities;
foreign equities; and
foreign debt instruments.
Requirements
The final rule, regulation, or order established under subsection (a) shall—
be consistent with the capitalization, trading patterns, and trade reporting conditions in the market for securities described in subsection (a); and
exclude from the
definition of the term narrow-based security index
indexes that
include a representative sample of a class of securities in the relevant market
if the index is not readily susceptible to manipulation.
July 29, 2005
Read twice and placed on the calendar