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Calendar No. 766
106th CONGRESS
2d Session
S. 2697
[Report No. 106-390]
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.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
June 8, 2000
Mr. Lugar (for himself, Mr. Gramm, and Mr. Fitzgerald) introduced the
following bill; which was read twice and referred to the Committee on
Agriculture, Nutrition, and Forestry
August 25, 2000
Reported under authority of the order of the Senate of July 26, 2000,
by Mr. Lugar, with an amendment
[Strike out all after the enacting clause and insert the part printed
in italic]
_______________________________________________________________________
A BILL
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,
<DELETED>SECTION 1. SHORT TITLE; TABLE OF CONTENTS.</DELETED>
<DELETED> (a) Short Title.--This Act may be cited as the ``Commodity
Futures Modernization Act of 2000''.</DELETED>
<DELETED> (b) Table of Contents.--The table of contents of this Act
is as follows:</DELETED>
<DELETED>Sec. 1. Short title; table of contents.
<DELETED>Sec. 2. Purposes.
<DELETED>Sec. 3. Definitions.
<DELETED>Sec. 4. Agreements, contracts, and transactions in foreign
currency, government securities, and
certain other commodities.
<DELETED>Sec. 5. Legal certainty for excluded derivative transactions.
<DELETED>Sec. 6. Electronic trading facilities.
<DELETED>Sec. 7. Hybrid instruments.
<DELETED>Sec. 8. Futures on securities.
<DELETED>Sec. 9. Finding and purposes.
<DELETED>Sec. 10. Prohibited transactions.
<DELETED>Sec. 11. Designation of boards of trade as contract markets.
<DELETED>Sec. 12. Derivatives transaction execution facilities.
<DELETED>Sec. 13. Derivatives clearing organizations.
<DELETED>Sec. 14. Common provisions applicable to registered entities.
<DELETED>Sec. 15. Exempt boards of trade.
<DELETED>Sec. 16. Suspension or revocation of designation as contract
market.
<DELETED>Sec. 17. Authorization of appropriations.
<DELETED>Sec. 18. Preemption.
<DELETED>Sec. 19. Predispute resolution agreements for institutional
customers.
<DELETED>Sec. 20. Consideration of costs and benefits and antitrust
laws.
<DELETED>Sec. 21. Contract enforcement between eligible counterparties.
<DELETED>Sec. 22. Legal certainty for swap agreements.
<DELETED>Sec. 23. Technical and conforming amendments.
<DELETED>Sec. 24. Effective date.
<DELETED>SEC. 2. PURPOSES.</DELETED>
<DELETED> The purposes of this Act are--</DELETED>
<DELETED> (1) to reauthorize the Commodity Exchange Act (7
U.S.C. 1 et seq.);</DELETED>
<DELETED> (2) to streamline and eliminate unnecessary
regulation for the commodity futures exchanges and other
entities regulated under the Commodity Exchange Act;</DELETED>
<DELETED> (3) to transform the role of the Commodity Futures
Trading Commission in its oversight of the futures
markets;</DELETED>
<DELETED> (4) to provide a legislative and regulatory
framework for allowing the trading of futures on
securities;</DELETED>
<DELETED> (5) to clarify the jurisdiction of the Commission
over certain retail foreign exchange transactions and bucket
shops that are not otherwise regulated;</DELETED>
<DELETED> (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;</DELETED>
<DELETED> (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</DELETED>
<DELETED> (8) to enhance the competitive position of United
States financial institutions and financial markets.</DELETED>
<DELETED>SEC. 3. DEFINITIONS.</DELETED>
<DELETED> Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is
amended--</DELETED>
<DELETED> (1) by redesignating paragraphs (8) through (12),
(13) through (15), and (16) as paragraphs (17) through (21),
(23) through (25), and (29), respectively;</DELETED>
<DELETED> (2) by inserting after paragraph (7) the
following:</DELETED>
<DELETED> ``(8) Derivatives clearing organization.--
</DELETED>
<DELETED> ``(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
a derivative agreement, contract, or transaction (other
than a security)--</DELETED>
<DELETED> ``(i) enables each party to the
derivative agreement, contract, or transaction
to substitute, through novation or otherwise,
the credit of the derivatives clearing
organization for the credit of the
parties;</DELETED>
<DELETED> ``(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</DELETED>
<DELETED> ``(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.</DELETED>
<DELETED> ``(B) Exclusions.--The term `derivatives
clearing organization' does not include an entity,
facility, system, or organization solely because it
arranges or provides for--</DELETED>
<DELETED> ``(i) settlement, netting, or
novation of obligations resulting from
agreements, contracts, or transactions, on a
bilateral basis and without a centralized
counterparty;</DELETED>
<DELETED> ``(ii) settlement or netting of
cash payments through an interbank payment
system; or</DELETED>
<DELETED> ``(iii) settlement, netting, or
novation of obligations resulting from a sale
of a commodity in a transaction in the spot
market for the commodity.</DELETED>
<DELETED> ``(9) Designated future on a security.--The term
`designated future on a security' means a contract of sale (or
option on such a contract) for future delivery of--</DELETED>
<DELETED> ``(A) a single nonexempted
security;</DELETED>
<DELETED> ``(B) an index based on fewer than 5
nonexempted securities; or</DELETED>
<DELETED> ``(C) an index in which a single
nonexempted security accounts for 30 percent or more of
the value of the index.</DELETED>
<DELETED> ``(10) Electronic trading facility.--The term
`electronic trading facility' means a trading facility that--
</DELETED>
<DELETED> ``(A) operates by means of an electronic
network; and</DELETED>
<DELETED> ``(B) maintains a real-time audit trail of
bids, offers, and the matching of orders or the
execution of transactions.</DELETED>
<DELETED> ``(11) Eligible contract participant.--The term
`eligible contract participant' means--</DELETED>
<DELETED> ``(A) acting for its own account--
</DELETED>
<DELETED> ``(i) a financial
institution;</DELETED>
<DELETED> ``(ii) an insurance company (as
defined in section 2 of the Bank Holding
Company Act of 1956 (12 U.S.C.
1841));</DELETED>
<DELETED> ``(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);</DELETED>
<DELETED> ``(iv) a commodity pool that--
</DELETED>
<DELETED> ``(I) has total assets
exceeding $5,000,000; and</DELETED>
<DELETED> ``(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);</DELETED>
<DELETED> ``(v) a corporation, partnership,
proprietorship, organization, trust, or other
entity--</DELETED>
<DELETED> ``(I) that has total
assets exceeding $10,000,000;</DELETED>
<DELETED> ``(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</DELETED>
<DELETED> ``(III) that--</DELETED>
<DELETED> ``(aa) has a net
worth exceeding $1,000,000;
and</DELETED>
<DELETED> ``(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;</DELETED>
<DELETED> ``(vi) an employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1001 et seq.)
or a foreign person performing a similar role
or function subject as such to foreign
regulation--</DELETED>
<DELETED> ``(I) that has total
assets exceeding $5,000,000;
or</DELETED>
<DELETED> ``(II) the investment
decisions of which are made by--
</DELETED>
<DELETED> ``(aa) an
investment adviser subject to
regulation under the Investment
Advisers Act of 1940 (15 U.S.C.
80b-1 et seq.) or a commodity
trading advisor subject to
regulation under this
Act;</DELETED>
<DELETED> ``(bb) a foreign
person performing a role or
function similar to that of
such an investment adviser or
commodity trading advisor
subject to foreign regulation
in the performance of that role
or function;</DELETED>
<DELETED> ``(cc) a financial
institution; or</DELETED>
<DELETED> ``(dd) an
insurance company (as defined
in section 2 of the Bank
Holding Company Act of 1956 (12
U.S.C. 1841));</DELETED>
<DELETED> ``(vii)(I) a governmental entity
(including the United States, a State, or a
foreign government) or political subdivision of
a governmental entity;</DELETED>
<DELETED> ``(II) a multinational or
supranational government entity; or</DELETED>
<DELETED> ``(III) an instrumentality,
agency, or department of an entity described in
subclause (I) or (II);</DELETED>
<DELETED> ``(viii) 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
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