109th CONGRESS
1st Session
H. R. 4473
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.
This Act may be cited as the `CFTC Reauthorization Act of 2005'.
TITLE I--GENERAL PROVISIONS
SEC. 101. COMMISSION AUTHORITY OVER AGREEMENTS, CONTRACTS OR TRANSACTIONS
IN FOREIGN CURRENCY.
(a) In General- 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:
`(B) AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN RETAIL FOREIGN CURRENCY-
`(i) 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 of a commodity 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
(15 U.S.C. 78f(a))); 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--
`(aa) a financial institution;
`(bb)(AA) a broker or dealer registered under section 15(b) (except
paragraph (11) thereof) or 15C of the Securities Exchange Act of 1934 (15
U.S.C. 78o(b), 78o-5); or
`(BB) an associated person of a broker or dealer registered under
section 15(b) (except paragraph (11) thereof) or 15C of the Securities Exchange
Act of 1934 (15 U.S.C. 78o(b), 78o-5) concerning the financial or securities
activities of which the broker or dealer 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));
`(cc) a futures commission merchant registered under this Act
(that is not also a person described in item (bb)), or an affiliated person
of such a futures commission merchant (that is not also a person described
in item (bb)) if such futures commission merchant makes and keeps records
under section 4f(c)(2)(B) of this Act concerning the futures and other financial
activities of such affiliated person;
`(dd) an insurance company described in section 1a(12)(A)(ii)
of this Act, or a regulated subsidiary or affiliate of such an insurance
company;
`(ee) a financial holding company (as defined in section 2 of
the Bank Holding Company Act of 1956); or
`(ff) an investment bank holding company (as defined in section
17(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(i))).
`(ii) Notwithstanding item (cc) of clause (i)(II) of this subparagraph,
agreements, contracts, or transactions described in clause (i) of
this subparagraph shall be subject to subsection (a)(1)(B) of this
section 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 or an affiliated person of a futures commission
merchant registered under this Act that is not also a person described
in any of item (aa), (bb), (dd), (ee), or (ff) of clause (i) of this
subparagraph.
`(iii)(I) Notwithstanding item (cc) of clause (i)(II), a particular
person shall not participate in the solicitation or recommendation
of any agreement, contract, or transaction described in clause (i)
entered into with or to be entered into with a person described in
such item, unless the particular person--
`(aa) is registered in such capacity as the Commission by rule,
regulation, or order shall determine; and
`(bb) is a member of a futures association registered under section
17.
`(II) Subclause (I) shall not apply to--
`(aa) any person described in any of item (aa), (bb), (dd), (ee),
or (ff) of subparagraph (B)(i)(II); or
`(bb) any such person's associated persons.
`(C)(i)(I) This subparagraph shall apply to any agreement, contract,
or transaction in foreign currency that is--
`(aa) offered to, or entered into with, a person that is not an
eligible contract participant (except that this subparagraph 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 person described in any of item (aa), (bb), (dd), (ee), or
(ff) of subparagraph (B)(i)(II)); and
`(bb) offered, or entered into, on a leveraged or margined basis,
or financed by the offeror, the counterparty, or a person acting
in concert with the offeror or counterparty on a similar basis.
`(II) Subclause (I) shall not apply to--
`(aa) a security that is not a security futures product; or
`(bb) a contract of sale that--
`(AA) results in actual delivery within 2 days; or
`(BB) creates an enforceable obligation to deliver between a seller
and buyer that have the ability to deliver and accept delivery,
respectively, in connection with their line of business.
`(ii)(I) Agreements, contracts, or transactions described in clause
(i) of this subparagraph shall be subject to subsection (a)(1)(B) of
this section 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).
`(II) Subclause (I) of this clause shall not apply to--
`(aa) any person described in any of item (aa), (bb), (dd), (ee),
or (ff) of subparagraph (B)(i)(II); or
`(bb) any such person's associated persons.
`(iii)(I) A person shall not participate in the solicitation or recommendation
of any agreement, contract, or transaction described in clause (i) of
this subparagraph unless the person is registered in such capacity as
the Commission by rule, regulation or order shall determine, and is
a member of a futures association registered under section 17.
`(II) Subclause (I) shall not apply to any person--
`(aa) any person described in any of item (aa), (bb), (dd), (ee),
or (ff) of subparagraph (B)(i)(II); or
`(bb) any such person's associated persons.
`(iv) Sections 4(b) and 4b shall apply to any agreement, contract, or
transaction described in clause (i) of this subparagraph as if the agreement,
contract, or transaction were a contract of sale of a commodity for
future delivery.
`(v) This subparagraph shall not be construed to limit any jurisdiction
that the Commission may otherwise have under any other provision of
this Act over an agreement, contract, or transaction that is a contract
of sale of a commodity for future delivery.
`(vi) This subparagraph shall not be construed to limit any jurisdiction
that the Commission or the Securities and Exchange Commission may otherwise
have under any other provision of this Act with respect to security
futures products and persons effecting transactions in security futures
products.'.
(b) Effective Date- Clause (iii) of section 2(c)(2)(B) and clause (iii)
of section 2(c)(2)(C) of the Commodity Exchange Act, as amended by subsection
(a) of this section, shall be effective 120 days after the date of the enactment
of this Act or such other time as the Commodity Futures Trading Commission
shall determine.
SEC. 102. ANTIFRAUD AUTHORITY.
Section 4b of the Commodity Exchange Act (7 U.S.C. 6b) is amended--
(1) by redesignating subsections (b) and (c) as subsections (c) and (d),
respectively; and
(2) by striking `SEC. 4b.' and all that follows through the end of subsection
(a) and inserting the following:
`SEC. 4b. CONTRACTS DESIGNED TO DEFRAUD OR MISLEAD.
`(a) Unlawful Actions- It shall be unlawful--
`(1) 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
`(2) 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--
`(A) to cheat or defraud or attempt to cheat or defraud the other person;
`(B) willfully to make or cause to be made to the other person any false
report or statement or willfully to enter or cause to be entered for
the other person any false record;
`(C) willfully to deceive or attempt to deceive the 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 the other person; or
`(D)(i) to bucket an order if the order is represented by the 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
`(ii) 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 the other person to become the buyer in respect to any selling order
of the other person, or become the seller in respect to any buying order
of the other person, if the order is represented by the 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 the order is executed
in accordance with the rules of the designated contract market.
`(b) Clarification- Subsection (a)(2) of this section 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 the other person nonpublic information that may be material
to the market price, rate, or level of the commodity or transaction, except
as necessary to make any statement made to the other person in or in connection
with the transaction, not misleading in any material respect.'.
SEC. 103. PORTFOLIO MARGINING AND SECURITY INDEX ISSUES.
(a) The agencies represented on the President's Working Group on Financial
Markets shall work to ensure that the Securities and Exchange Commission
(SEC), the Commodity Futures Trading Commission (CFTC), or both, as appropriate,
have taken the actions required under subsection (b).
(b) The SEC, the CFTC, or both, as appropriate, shall take action under
their existing authorities to permit--
(1) by September 30, 2006, risk-based portfolio margining for security
options and security futures products; and
(2) by June 30, 2006, the trading of futures on certain security indexes
by resolving issues related to debt security indexes and foreign security
indexes.
SEC. 104. AUTHORIZATION OF APPROPRIATIONS.
Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is amended
to read as follows:
`(d) There are authorized to be appropriated such sums as are necessary
to carry out this Act for each of the fiscal years 2006 through 2010.'
SEC. 105. TECHNICAL AND CONFORMING AMENDMENTS.
(a) Section 4a(e) of the Commodity Exchange Act (7 U.S.C 6a(e)) is amended
in the last proviso by striking `section 9(c)' and inserting `section 9(a)(5)'.
(b) Section 4f(c)(4)(B)(i) of such Act (7 U.S.C. 6f(c)(4)(B)(i)) is amended
by striking `compiled' and inserting `complied'.
(c) Section 4k of such Act (7 U.S.C. 6k) is amended by redesignating the
second paragraph (5) as paragraph (6).
(d) The Commodity Exchange Act is amended--
(1) by redesignating the first section 4p (7 U.S.C. 6o-1), as added by
section 121 of the Commodity Futures Modernization Act of 2000, as section
4q; and
(2) by moving such section to after the second section 4p, as added by
section 206 of Public Law 93-446.
(e) Subsections (a)(1) and (d)(1) of section 5c of such Act (7 U.S.C. 7a-2(a)(1),
(d)(1)) are each amended by striking `5b(d)(2)' and inserting `5b(c)(2)'.
(f) Sections 5c(f) and 17(r) of such Act (7 U.S.C. 7a-2(f), 21(r)) are each
amended by striking `4d(3)' and inserting `4d(c)'.
(g) Section 8(a)(1) of such Act (7 U.S.C. 12(a)(1)) is amended in the matter
following subparagraph (B)--
(1) by striking `commenced' the 2nd place it appears; and
(2) by inserting `commenced' after `in a judicial proceeding'.
(h) Section 22(a)(2) of such Act (7 U.S.C. 25(a)(2)) is amended by striking
`5b(b)(1)(E)' and inserting `5b(c)(2)(H)'.
TITLE II--NATURAL GAS PRICE TRANSPARENCY
SEC. 201. MARKET SURVEILLANCE.
(a) In General- The Commodity Futures Trading Commission (in this section
referred to as the `Commission') shall detect and deter manipulation and
attempted manipulation and increase the transparency of the pricing of natural
gas by conducting surveillance of trading in contracts for natural gas.
(b) Certain Events Required to Be Reviewed-
(1) REQUIREMENT- In the event of a significant and highly unusual change
in the settlement price of any physically delivered natural gas futures
contract traded on a contract market (within the meaning of section 5
of the Commodity Exchange Act) or derivatives transaction execution facility
(within the meaning of section 5a of such Act), the Commission shall conduct
a review of the factors that caused the price movement in order to determine
if manipulation or attempted manipulation in violation of such Act has
occurred.
(2) CERTAIN FACTORS REQUIRED TO BE CONSIDERED- The Commission shall consider
in its review, among other things and as appropriate to the circumstances,
the following:
(A) Prices and price relationships in the futures and cash markets.
(B) Market information, and cash market supply and demand factors which
may be relevant to the price event.
(C) Large futures and options market positions and large futures and
options market transactions on the contract market or derivatives transaction
execution facility.
(D) Any related contract, agreement or transaction in natural gas.
SEC. 202. REPORTING OF LARGE POSITIONS INVOLVING NATURAL GAS.
(a) In General- Section 4a of the Commodity Exchange Act (7 U.S.C. 6a) is
amended--
(1) in subsection (e), by striking the last sentence; and
(2) by adding at the end the following:
`(f) Reporting of Large Positions Involving Natural Gas-
`(1) IN GENERAL- The Commission, by rule, shall require any person holding,
maintaining, or controlling any position in a contract of sale of natural
gas for future delivery, or option thereon, on or subject to the rules
of any contract market or derivatives transaction execution facility,
at or in excess of such limits as the Commission may specify as reportable,
to maintain for a period of 5 years and provide on request to the Commission,
records of the person regarding the position and any related contract,
agreement, or transaction in natural gas to which the person is a party.
`(2) NO DUPLICATE REPORTS- Except as otherwise provided in this paragraph,
the rules prescribed under paragraph (1) shall not apply to any position
that otherwise is required to be reported to any agency of the United
States if the report would otherwise satisfy the requirements under this
subsection and the report of the position is available to the Commission
at the request of the Commission. Notwithstanding the preceding sentence,
any report of any such position to any agency of the United States shall
constitute a statement, report, or document required for the purposes
of section 9.
`(A) IN GENERAL- In prescribing rules required by paragraph (1), the
Commission shall consider--
`(i) the purposes for monitoring large positions in any contract for
future delivery of natural gas;
`(ii) the effect of the reporting requirements on the efficiency and
liquidity of the market for any agreement, contract, or transaction
made in connection with any contract for the future delivery of natural
gas; and
`(iii) the costs and burden on the persons that would be required
to file the reports.
`(B) FREQUENCY- The Commission shall require the provision of records
under paragraph (1) only in circumstances where manipulation is suspected,
except that the Commission may prescribe rules requiring regular or
continuous reporting if the Commission finds that such reporting would
help to deter or to detect manipulation in any market for any agreement,
contract, or transaction made in connection with any contract for the
future delivery of natural gas.
`(C) FILING REQUIREMENTS- Records required to be provided under paragraph
(1) shall be required to be filed with the Commission in accordance
with such requirements regarding the form, timing, and manner of filing
such reports, as the Commission may prescribe by rule.
`(5) OTHER RULES NOT AFFECTED- This subsection shall not be interpreted
to prohibit or impair the adoption by any board of trade licensed, designated,
or registered by the Commission of any bylaw, rule, regulation, or resolution
requiring reports of positions in any agreement, contract, or transaction
made in connection with a contract of sale for future delivery of natural
gas (including such a contract of sale), including any bylaw, rule, regulation,
or resolution pertaining to filing or recordkeeping, which may be held
by any person subject to the rules of the board of trade, except that
any bylaw, rule, regulation, or resolution established by the board of
trade shall not be inconsistent with any requirement prescribed by the
Commission under this subsection.'.
SEC. 203. CRIMINAL AND CIVIL PENALTIES.
(a) Enforcement Powers of the Commission- Section 6(c) of the Commodity
Exchange Act (7 U.S.C. 9, 15) is amended in clause (3) of the 10th sentence--
(1) by inserting `(A)' after `assess such person'; and
(2) by inserting after `each such violation' the following: `or (B) in
any case of manipulation of, or attempt to manipulate under section 9(a)(2),
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,'.
(b) Nonenforcement of Rules of Government or Other Violations- Section 6b
of such Act (7 U.S.C. 13a) is amended--
(1) in the 1st sentence, by inserting `, 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' before the period;
and
(2) in the 2nd sentence, by inserting `, 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(f)' before the period.
(c) Action to Enjoin or Restrain Violations- Section 6c(d) of such 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:
`(d) Civil Penalties- (1) 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) 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
`(B) 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.'.
(d) Violations Generally- Section 9(a) of such Act (7 U.S.C. 13(a)) is amended--
(1) by striking `(or $500,000 in the case of a person who is an individual)';
and
(2) by striking `five years' and inserting `10 years'.
Passed the House of Representatives December 14, 2005.
Attest:
Clerk.
END
