Title XIII: Commodity Futures

Commodity Exchange Act (CEA) provided Commodity Futures Trading Commission (CFTC) administrative authority over futures contacts and foreign currency options executed or traded on an organized exchange.

Clarifies CFTC's anti-fraud authority over retail off-exchange foreign currency transactions by futures commission merchants who are leveraged, margined, or financed as if the transaction involved commodity contract of sale for future delivery.

CEA granted CFTC jurisdiction over an agreement, contract, or transaction (off-exchange) in retail foreign currency that involved a commodity future or option unless person or counterparty to person involved in a transaction is already regulated by another financial regulator.

Prohibits certain persons from participating in solicitations or recommendations relative to retail foreign currency futures and similar transactions unless such persons are 1) members of a futures association or 2) already regulated by another financial regulator.

Provides for a new category of dealer, "retail foreign exchange dealer" (RFED). RFEDs must maintain a minimum of $20 million in net capital to be a lawful counterparty for a retail off-exchange foreign transaction.

These agreements, contracts, and transactions were subject to CFTC anti-fraud authorities.

Provides greater authority to CFTC to address fraudulent or deceptive practices by participants in off-exchange foreign currency transactions who are not actual counterparty to the transaction.

CEA prohibited fraudulent transactions by any member of a registered entity (or associated person) or any person in, or in connection with, any contract of sale of any commodity for future delivery.

Establishes that fraudulent actions in off-exchange principal-to-principal futures transactions are subject to CEA anti-fraud provisions.

Does not require persons trading excluded and exempt commodities on a derivatives transaction execution facility to disclose nonpublic information that may be material to market price, rate, or level of commodity or transaction except as necessary to avoid misleading other person in any material respect.

CEA imposed civil penalties for manipulation of market prices of any commodity, subject to rules, regulations, or orders of CFTC, in amount not more than higher of $100,000 or triple monetary gain to person for each violation.

Increases civil penalties for manipulation of market prices to not more than greater of $1 million or triple monetary gain to each person for each such violation.

CFTC given authority to make and enter an order directing registered entity, director, officer, agent, or employee to cease and desist from any violations or face civil penalties. If party failed or refused to obey or comply with such order, it would have been guilty of a misdemeanor and face a fine of not more than $500,000 or imprisonment for not less than 6 months but not more than 1 year.

Increases civil penalty for registered entities that fail to enforce rules to $1 million. Also increases criminal penalty for officers of registered entity who fail to comply with cease and desist orders in connection with manipulation from a misdemeanor to a felony.

CFTC given authority to impose civil penalties of not more than higher of $100,000 or triple monetary gain for any person in any action.

Increases civil penalties for violations of injunctions or restraining orders involving manipulation to $1 million or triple monetary gain.

Felony declared, punishable by a fine of not more than $1 million ($500,000 for individual person) or imprisonment for not more than 5 years, or both, for any person under CEA to:

• embezzle or steal money, securities, or property having a value in excess of $100
• manipulate price of any commodity in interstate commerce, or for future delivery, to corner any such commodity, or to deliver inaccurate information that affects price of any commodity
• knowingly make a false or misleading statement in any application, report, or document required to be filed under the Act or any rule or regulation there under
• willfully falsify information to a registered entity, board of trade, or futures association registered under the Act
• willfully violate any other provision of the Act, or any rule or regulation there under

Increases criminal penalty for violations of the Act in general from 5 to 10 years and increases civil penalty for individual persons to $1 million.

Authorized appropriations for the Act.

Authorizes necessary sums to carry out the Act for fiscal years (FY) 2008-13.

In general, "trading facility" referred to a person or group of persons that constituted, maintained, or provided physical or electronic facility or system in which multiple participants had ability to execute or trade agreements, contracts, or transactions by accepting bids and offers made by other participants that were open to multiple participants in the facility or system.

Amends definition of "trading facility" to anticipate and include markets that use automated trade matching and execution algorithms.

Was a violation of the CEA for any person to violate a speculative-limit rule of designated contract market, derivatives transaction execution facility, or other board of trade if that rule had been approved by CFTC. CEA permitted exchanges to certify such rules rather than submit them for prior CFTC approval.

Harmonizes CEA provisions regarding certification of exchange rules. Specifically, it is a violation of CEA, for which CFTC may bring an enforcement action, for any person to violate a speculative-limit rule that has been certified by a registered entity.

Board of Governors of Federal Reserve System (FRS) or, if so delegated; Securities Exchange Commission (SEC) and CFTC, required to prescribe rules and regulations for margin requirements for security futures.

Requires Secretary of Treasury, Chairman of FRS Board of Governors, SEC Chairman, and CFTC Chairman to work with SEC, CFTC, or both, to permit risk-based portfolio margining for securities by Sept 30, 2008, and trading of futures on security indexes by June 30, 2008.

An exempt commercial market is an electronic trading facility that trades exempt commodities on a principal-to-principal basis solely between eligible commercial entities.

No similar provision.

Defines contract traded on an electronic facility as significant price-discovery contract if it competes with futures contract in discovering price.

Provides standards applicable to significant price-discovery contracts:

• specifies that if CFTC determines that any agreement, contract, or transaction performs significant price-discovery function, it will be subject to standards of significant price-discovery contracts
• specifies factors CFTC will consider in determining whether agreement, contract, or transaction performs significant price-discovery function, including price linkage, arbitrage, material price reference, material liquidity, and other material factors
• specifies core principles applicable to an electronic facility on which significant price-discovery contracts are traded or executed, including those relating to contracts not readily susceptible to manipulation, monitoring of trading, ability to obtain information, position limitations or accountability, emergency authority, daily publication of trading information, compliance with rules, and conflict of interest
• gives electronic trading facility discretion to take into account differences between cleared and uncleared significant price-discovery contracts in applying core principles and directs CFTC to take such differences into consideration when reviewing implementation of such principles by electronic trading facility
• requires electronic trading facility to notify CFTC whenever it has reason to believe that agreement, contract, or transaction displays any of the factors relating to significant price-discovery function; directs CFTC to conduct evaluation at least once a year to determine whether any agreement, contract, or transaction conducted on electronic trading facility performs significant price-discovery function.

CEA required persons registered as futures commission merchants, introducing brokers, floor brokers, or floor traders to keep books and records pertaining to transactions and positions in such form and manner and for such period as may be required by CFTC.

Amends CEA to require reporting and recordkeeping of every person registered with CFTC regarding transactions and positions of such person in any significant price-discovery contract traded or executed on electronic trading facility.

Amends CEA to make any person buying or selling commodities in significant price-discovery contract on electronic trading facility subject to trading limits set by CFTC and to require such person to report and keep records on transactions or positions equal to or in excess of such CFTC trading limits.

No similar provision.

Requires subtitle to become effective on date of enactment of this Act.

Requires CFTC to issue a proposed rule regarding significant price-discovery standards within 180 days of date of enactment and final rule within 270 days.

Requires CFTC to complete a review of agreements, contracts, and transactions of any electronic trading facility operating on effective date of final rule within 180 days after that effective date to determine whether such agreement, contract, or transaction performs a significant price-discovery function.