II
111th CONGRESS
1st Session
S. 447
IN THE SENATE OF THE UNITED STATES
February 13, 2009
Mr. Levin introduced the following bill; which was read twice and referred to the Committee on Agriculture, Nutrition, and Forestry
A BILL
To amend the Commodity Exchange Act to prevent excessive price speculation with respect to energy and agricultural commodities, and for other purposes.
Short title; table of contents
Short title
This Act may be cited
as the Prevent Excessive Speculation
Act
.
Table of contents
The table of contents of this Act is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definition of energy and agricultural commodity.
Sec. 3. Speculative limits and transparency of off-shore trading.
Sec. 4. Authority of Commodity Futures Trading Commission with respect to certain traders.
Sec. 5. Working group of international regulators.
Sec. 6. Position limits for energy and agricultural commodities.
Sec. 7. Over-the-counter transactions.
Sec. 8. Index traders and swap dealers.
Sec. 9. Disaggregation of index funds and other data in energy and agricultural markets.
Sec. 10. Additional Commodity Futures Trading Commission employees for improved enforcement.
Definitions of energy and agricultural commodity
Definition of energy commodity
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended—
by redesignating paragraphs (13) through (34) as paragraphs (14) through (35), respectively; and
by inserting after paragraph (12) the following:
Energy commodity
The term energy commodity means—
crude oil;
natural gas;
coal;
gasoline, heating oil, diesel fuel, and any other source of energy derived from coal, crude oil, or natural gas;
electricity;
ethanol and any other fuel derived from a renewable biomass;
any commodity that results from the management of air emissions, including but not limited to greenhouse gases, sulfur dioxide, and nitrogen oxides; and
any other substance that is used as a source of energy, as the Commission, in its discretion, deems appropriate.
.
Definition of Agricultural Commodity
Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended—
by redesignating paragraphs (1) through (35) as paragraphs (2) through (36), respectively; and
by inserting a new paragraph (1) as follows:
Agricultural commodity
The term agricultural commodity means any commodity specifically described in paragraph (5).
.
Conforming Amendments
Section 2(c)(2)(B)(i)(II)(cc) of the Commodity Exchange Act (7 U.S.C. 2(c)(2)(B)(i)(II)(cc)) is amended—
in subitem (AA),
by striking section 1a(20)
and inserting section
1a(21)
; and
in subitem (BB),
by striking section 1a(20)
and inserting section
1a(21)
.
Section 13106(b)(1) of the Food, Conservation, and Energy Act of 2008 is amended by striking “section 1a(32)” and inserting “section 1a”.
Section 402 of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27) is amended—
in subsection
(a)(7), by striking section 1a(20)
and inserting section
1a
; and
in subsection (d)—
in
paragraph (1)(B), by striking section 1a(33)
and inserting
section 1a
; and
in
paragraph (2)(D), by striking section 1a(13)
and inserting
section 1a
.
Speculative limits and transparency of off-shore trading
Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is amended by adding at the end the following:
Foreign Boards of Trade
In general
The Commission may not permit a foreign board of trade to provide to the members of the foreign board of trade or other participants located in the United States, or otherwise subject to the jurisdiction of the Commission, direct access to the electronic trading and order matching system of the foreign board of trade with respect to an agreement, contract, or transaction in an energy commodity that settles against any price (including the daily or final settlement price) of one or more contracts listed for trading on a registered entity, unless—
the foreign board of trade—
makes public daily trading information regarding the agreement, contract, or transaction that is comparable to the daily trading information published by the registered entity for the one or more contracts against which the agreement, contract or transaction traded on the foreign board of trade settles; and
promptly notifies the Commission of any change regarding—
the information that the foreign board of trade will make publicly available;
the position limits and position accountability provisions that the foreign board of trade will adopt and enforce;
the position reductions required to prevent manipulation; and
any other area of interest expressed by the Commission to the foreign board of trade; and
the foreign board of trade (or the foreign futures authority that oversees the foreign board of trade)—
adopts position limits or position accountability provisions for the agreement, contract, or transaction that are comparable to the position limits or position accountability provisions adopted by the registered entity for the one or more contracts against which the agreement, contract or transaction traded on foreign board of trade settles;
has the authority to require or direct market participants to limit, reduce, or liquidate any position the foreign board of trade (or the foreign futures authority that oversees the foreign board of trade) determines to be necessary to prevent or reduce the threat of price manipulation, excessive speculation, price distortion, or disruption of delivery or the cash settlement process; and
provides information to the Commission that is comparable to the information that the Commission determines to be necessary to publish the commitments of traders report of the Commission for the one or more contracts against which the agreement, contract or transaction traded on the foreign board of trade settles.
Existing foreign boards of trade
Paragraph (1) shall not be effective with respect to any agreement, contract, or transaction in an energy commodity executed on a foreign board of trade to which the Commission had granted direct access permission prior to the date of enactment of this subsection until the date that is 180 days after the date of enactment of this subsection.
Existing contracts
No contract of sale of a commodity for future delivery traded or executed on or through the facilities of a board of trade, exchange or market located outside the United States for purposes of subsection (a) shall be void, voidable or unenforceable and no party to such contract shall be entitled to rescind or recover any payments made with respect to such contract based upon the failure of the foreign board of trade to comply with any provision of this Act.
.
Authority of commodity futures trading commission with respect to certain traders
In General
Restriction of futures trading to contract markets or derivatives transaction execution facilities
Section 4(b) of the Commodity Exchange Act (7 U.S.C. 6(b)) is amended by inserting after the first sentence the following: “The Commission may adopt rules and regulations requiring the maintenance of books and records by any person that is located within the United States (including the territories and possessions of the United States) or that enters trades directly into the trade matching system of a foreign board of trade from the United States (including the territories and possessions of the United States).”
Commission authority over traders
Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is amended by adding at the end the following:
The Commission shall have authority under this Act to require or direct a person located in the United States, or otherwise subject to the jurisdiction of the Commission, to limit, reduce, or liquidate any position on a foreign board of trade to prevent or reduce the threat of price manipulation, excessive speculation, price distortion, or disruption of delivery or the cash settlement process with respect to any contract listed for trading on a registered entity.
Consultation
Before taking any action under subsection (e), the Commission shall consult with the appropriate—
foreign board of trade; and
foreign futures authority.
.
Violations
Section 9(a) of the Commodity Exchange Act (7 U.S.C. 13(a)) is amended by inserting “(including any person trading on a foreign board of trade)” after “Any person” each place it appears.
Effect
No amendment made by this subsection limits any of the otherwise applicable authorities of the Commodity Futures Trading Commission.
Working group of international regulators
Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) (as amended by section 4(a)(2)(B)) is amended by adding at the end the following:
Working Group of International Regulators
Not later than 90 days after the date of enactment of this subsection, the Commission shall invite regulators of foreign boards of trade to participate in a working group of international regulators to develop uniform international reporting and regulatory standards to ensure the protection of the energy and agricultural futures markets from excessive speculation, manipulation, and other trading practices that may pose systemic risks to energy and agricultural futures markets, countries, and consumers.
.
Position limits for energy and agricultural commodities
Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is amended—
in subsection (a)—
by inserting “(1)” after “(a)”; and
by adding after and below the end the following:
In accordance with the standards set forth in paragraph (1) of this subsection and consistent with the good faith exception cited in subsection (b)(2), with respect to energy and agricultural commodities, the Commission, within 90 days after the date of the enactment of this paragraph, shall issue a proposed rule, and within 180 days after issuance of such proposed rule shall adopt a final rule, after notice and an opportunity for public comment, to establish limits on the amount of positions that may be held by any person with respect to contracts of sale for future delivery or with respect to options on such contracts or commodities traded on or subject to the rules of a contract market or derivatives transaction execution facility, or on an electronic trading facility with respect to a significant price discovery contract.
In establishing the limits required in paragraph (2), the Commission shall set limits—
on the number of positions that may be held by any person for the spot month, each other month, and the aggregate number of positions that may be held by any person for all months; and
to the maximum extent practicable, in its discretion—
to diminish, eliminate, or prevent excessive speculation;
to deter and prevent market manipulation, squeezes, and corners;
to ensure sufficient market liquidity; and
to ensure that the price discovery function of the underlying cash market is not distorted or disrupted.
In addition to the position limits for energy and agricultural commodities that the Commission establishes under paragraph (2), the Commission may require or permit a contract market, derivatives transaction execution facility, or electronic trading facility with respect to a significant price discovery contract, to establish and enforce position accountability, as the Commission determines may be necessary and appropriate to accomplish the objectives set forth in paragraph (3)(B), provided that the number of positions that may be authorized under position accountability may not exceed the position limits established under paragraph (2).
Nothing in this section shall require the Commission to revise any position limit for an agricultural commodity that is in effect on the date of enactment of this Act.
.
Over-the-counter transactions
Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is amended by adding at the end the following:
Over-the-Counter Transactions
Definitions
In this subsection:
Covered person
The term ‘covered person’ means a person that enters into an over-the-counter transaction that is required to be reported under paragraph (3)(C).
Over-the-counter transaction
The term ‘over-the-counter transaction’ means a contract, agreement, or transaction in an energy or agricultural commodity that is—
entered into only between persons that are eligible contract participants at the time the persons enter into the agreement, contract, or transaction;
not entered into on a trading facility; and
not a sale of any cash commodity for delivery.
Authority in major market disturbances
In general
In the case of a major market disturbance, as determined by the Commission, the Commission may require any trader subject to the reporting requirements described in paragraph (3) to take such action as the Commission considers to be necessary to maintain or restore orderly trading in any contract listed for trading on a registered entity, including—
the liquidation of any futures contract; and
the fixing of any limit that may apply to a market position involving any over-the-counter transaction acquired in good faith before the date of the determination of the Commission.
Major market disturbance
The term ‘major market disturbance’ means any disturbance in a commodity market that disrupts the liquidity and price discovery function of that market from accurately reflecting the forces of supply and demand for a commodity, including—
a threatened or actual market manipulation or corner;
excessive speculation; and
any action of the United States or a foreign government that affects a commodity.
The term market disturbance shall be interpreted in a manner consistent with section 8a(9).
Judicial review
Any action taken by the Commission under subparagraph (A) shall be subject to judicial review carried out in accordance with section 8a(9).
Reporting; recordkeeping
In general
The Commission shall require each covered person to submit to the Commission a report—
at such time and in such manner as the Commission determines to be appropriate; and
containing the information required under subparagraph (B) to assist the Commission in detecting and preventing potential price manipulation of, or excessive speculation in, any contract listed for trading on a registered entity.
Contents of report
A report required under subparagraph (A) shall contain—
information describing large trading positions of the covered person obtained through one or more over-the-counter transactions that involve—
substantial quantities of a commodity in the cash market; or
substantial positions, investments, or trades in agreements or contracts relating to the commodity; and
any other information relating to over-the-counter transactions required to be reported under subparagraph (C) carried out by the covered person that the Commission determines to be necessary to accomplish the purposes described in subparagraph (A).
Over-the-counter transactions to be reported
In general
The Commission shall identify each large over-the-counter transaction or class of large over-the-counter transactions the reporting of which the Commission determines to be appropriate to assist the Commission in detecting and preventing potential price manipulation of, or excessive speculation in, any contract listed for trading on a registered entity.
Mandatory factors for determinations
In general
In carrying out a determination under clause (i), the Commission shall consider the extent to which each factor described in subclause (II) applies.
Factors
The factors required for carrying out a determination under clause (i) include whether—
a standardized agreement is used to execute the over-the-counter transaction;
the over-the-counter transaction settles against any price (including the daily or final settlement price) of one or more contracts listed for trading on a registered entity;
the price of the over-the-counter transaction is reported to a third party, published, or otherwise disseminated;
the price of the over-the-counter transaction is referenced in any other transaction;
there is a significant volume of the over-the-counter transaction or class of over-the-counter transactions; and
there is any other factor that the Commission determines to be appropriate.
Periodic review
The Commission shall periodically conduct a review, but not less than once every 2 years, to determine whether to initiate a rulemaking to include any additional transactions or classes of transactions or to exclude any transactions or classes of transactions from the reporting requirements of this paragraph.
Alternate reporting
The Commission may permit any report required to be reported under paragraph (A) by—
a member of a derivatives clearing organization; or
only one of the persons entering into the transaction, provided that each person entering into the transaction or transactions has notified the Commission, in the manner specified by the Commission, that one of the persons to the transaction or transactions has assumed, on behalf of the other person to the transaction, the legal obligations for such other person to submit reports under this section, including liabilities for failure to file such reports in accordance with the Commission’s regulations. Any notification provided under this paragraph shall be effective in imposing such legal obligations and liabilities upon such person.
Recordkeeping
The Commission, by rule, shall require each covered person—
in accordance with section 4i, to maintain such records as directed by the Commission for a period of 5 years, or longer, if directed by the Commission; and
to provide such records upon request to the Commission or the Department of Justice.
Position limits for over-the-counter transactions
Upon review of the information reported to the Commission under paragraph (3), or following a major market disturbance as determined by the Commission under paragraph (2), the Commission may establish, after due notice and opportunity for hearing, by rule, regulation, or order, such limits on the amount of trading in over-the-counter transactions as the Commission determines are necessary and appropriate to accomplish one or more of the following objectives with respect to any contract listed for trading on a registered entity—
diminish, eliminate, or prevent excessive speculation;
deter and prevent market manipulation, squeezes, and corners;
ensure sufficient market liquidity; and
ensure that the price discovery function of the underlying cash market is not distorted or disrupted.
Protection of proprietary information
In carrying out this subsection, the Commission may not—
require the publication of any proprietary information;
prohibit the commercial sale or licensing of any proprietary information; and
except as provided in section 8, publicly disclose any information relating to any market position, business transaction, trade secret, or name of any customer of a covered person.
Applicability
Notwithstanding subsections (g) and (h), and any exemption issued by the Commission for any energy or agricultural commodity, each over-the-counter transaction shall be subject to this subsection.
Savings clause
Nothing in this subsection modifies or alters—
the guidance of the Commission; or
any applicable requirements with respect the disclosure of proprietary information.
Bona fide hedging transaction review
In general
The Commission shall review and revise the definition of bona fide hedging transaction in subsection (c) of Section 4a of the Commodity Exchange Act (7 U.S.C 2(h)(2)(A)) as the Commission determines is necessary and appropriate to ensure that the commodity markets effectively perform their risk management and price discovery functions.
.
Index traders and swap dealers
Section 4 of the Commodity Exchange Act (7 U.S.C. 6) (as amended by section 3) is amended by adding at the end the following:
Index Traders and Swap Dealers
Not later than 60 days after the date of enactment of this subsection, the Commission shall—
routinely require detailed reporting from index traders and swap dealers in markets under the jurisdiction of the Commission;
reclassify the types of traders for regulatory and reporting purposes to distinguish between index traders and swaps dealers; and
review the trading practices for index traders in markets under the jurisdiction of the Commission—
to ensure that index trading is not adversely impacting the price discovery process; and
to determine whether different practices or regulations should be implemented.
.
Disaggregation of index funds and other data in energy and agricultural markets
Section 4 of the Commodity Exchange Act (7 U.S.C. 6) (as amended by section 8) is amended by adding at the end the following:
Disaggregation of Index Funds and Other Data in Energy and Agricultural Markets
The Commission shall disaggregate and make public monthly—
the number of positions and total value of index funds and other passive, long-only positions in energy and agricultural markets; and
data on speculative positions relative to bona fide physical hedgers in those markets.
.
Additional commodity futures trading commission employees for improved enforcement
Section 2(a)(7) of the Commodity Exchange Act (7 U.S.C. 2(a)(7)) is amended by adding at the end the following:
Additional employees
As soon as practicable after the date of enactment of this subparagraph, the Commission shall appoint at least 100 full-time employees (in addition to the employees employed by the Commission as of the date of enactment of this subparagraph)—
to increase the public transparency of operations in energy futures markets;
to improve the enforcement of this Act in those markets; and
to carry out such other duties as are prescribed by the Commission.
.