HR 4038 IH

To establish a Securities and Derivatives Oversight Commission in order to combine the functions of the Commodity Futures Trading Commission and the Securities and Exchange Commission in a single independent regulatory commission, and for other purposes.

MARCH 20, 2002

Mr. DEFAZIO (for himself, Mr. FILNER, Ms. MCKINNEY, Mr. SANDERS, Mr. KUCINICH, and Mr. LIPINSKI) introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on Agriculture, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To establish a Securities and Derivatives Oversight Commission in order to combine the functions of the Commodity Futures Trading Commission and the Securities and Exchange Commission in a single independent regulatory commission, 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; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Market Oversight Consolidation and OTC Derivatives Regulation Act'.

(b) Table of Contents-

Sec. 1. Short title; table of contents.

Sec. 2. Purposes.

Sec. 3. Definitions.

Sec. 4. Effect on congressional jurisdiction.

TITLE I--ESTABLISHMENT OF COMMISSION

Sec. 101. Establishment.

Sec. 102. Members: appointment; terms.

Sec. 103. Organization of commission.

Sec. 104. General Counsel.

TITLE II--TRANSFERS OF FUNCTIONS

Sec. 201. Commodity Futures Trading Commission functions.

Sec. 202. Securities and Exchange Commission.

Sec. 203. Jurisdiction of margin authority.

TITLE III--FEDERAL FINANCIAL MARKETS COORDINATING COUNCIL

Sec. 301. Establishment; membership.

Sec. 302. Functions of the Council.

Sec. 303. Staff; administrative support; expenses.

TITLE IV--ADMINISTRATIVE PROVISIONS

Part A--Personnel Provisions

Sec. 401. Officers and employees.

Sec. 402. Experts and consultants.

Part B--General Administrative Provisions

Sec. 411. General authority.

Sec. 412. Delegation.

Sec. 413. Reorganization.

Sec. 414. Rules.

Sec. 415. Contracts.

Sec. 416. Regional and field offices.

Sec. 417. Use of facilities.

Sec. 418. Working capital fund.

Sec. 419. Funds transfer.

Sec. 420. Seal of Commission.

Sec. 421. Annual report.

TITLE V--TRANSITIONAL, SAVINGS, AND CONFORMING PROVISIONS

Sec. 501. Transfer and allocation of appropriations and personnel.

Sec. 502. Effect on personnel.

Sec. 503. Agency terminations.

Sec. 504. Incidental transfers.

Sec. 505. Savings provisions.

Sec. 506. Separability.

Sec. 507. Reference.

Sec. 508. Amendments.

Sec. 509. Transition.

TITLE VI--REGULATION OF OTC DERIVATIVES

Sec. 601. Regulation of over-the-counter derivatives.

TITLE VII--EFFECTIVE DATE

Sec. 701. Effective date.

SEC. 2. PURPOSES.

The purposes of this Act are--

(1) to establish a single Federal regulatory body with jurisdiction over securities and derivatives, including options, futures, swaps, and related markets and instruments and including over-the-counter derivatives;

(2) to consolidate and revise the authority for setting margin requirements on all such instruments;

(3) to coordinate the regulation of all financial markets;

(4) to strengthen investor confidence in United States financial markets; and

(5) to ensure the competitiveness of those markets.

SEC. 3. DEFINITIONS.

As used in this Act--

(1) the term `Commission' means the Securities and Derivatives Oversight Commission established by section 101 of this Act; and

(2) the term `function' includes any duty, obligation, power, authority, responsibility, right, privilege, activity, or program.

SEC. 4. EFFECT ON CONGRESSIONAL JURISDICTION.

It is the sense of Congress that this Act shall not be construed to affect the jurisdiction of any committee or subcommittee of the Congress with respect to any function transferred to the Commission by this Act.

TITLE I--ESTABLISHMENT OF COMMISSION

SEC. 101. ESTABLISHMENT.

There is established an independent regulatory commission to be known as the Securities and Derivatives Oversight Commission.

SEC. 102. MEMBERS: APPOINTMENT; TERMS.

(a) COMPOSITION OF COMMISSION- The Commission shall be composed of five commissioners appointed by the President, by and with the advice and consent of the Senate. One of the commissioners shall be designated by the President as chairman. Not more than three of such members shall be members of the same political party. Each Commissioner shall be selected solely on the basis of integrity and demonstrated knowledge of the operations of the markets subject to the jurisdiction of the Commission.

(b) TERMS- Each commissioner shall be appointed for a term of 5 years, except that--

(1) a commissioner may continue to serve after the expiration of such term until a successor is appointed and has qualified, but may not continue to so serve beyond the expiration of the next session of Congress beginning after the expiration of such term;

(2) the terms of office of the commissioners first taking office after the enactment of this Act shall expire, as designated by the President at the time of their appointment--

(A) 1 at the end of 1 year;

(B) 2 at the end of 3 years; and

(C) 2 at the end of 5 years; and

(3) any member appointed to fill a vacancy occurring prior to the expiration of the term for which the predecessor was appointed shall be appointed for the remainder of such term.

(c) CONFLICTS OF INTEREST-

(1) IN GENERAL- No commissioner shall engage in any other business, vocation, or employment than that of serving as commissioner, nor shall any commissioner participate, directly or indirectly, in any market operations or transactions of a character subject to regulation by the Commission pursuant to this title.

(2) REIMBURSEMENT FOR TRAVEL- Notwithstanding any other provision of law, in accordance with regulations which the Commission shall prescribe to prevent conflicts of interest, the Commission may accept payment and reimbursement, in cash or in kind, from non-Federal agencies, organizations, and individuals for travel, subsistence, and other necessary expenses incurred by Commission members and employees in attending meetings and conferences concerning the functions or activities of the Commission. Any payment or reimbursement accepted shall be credited to the appropriated funds of the Commission. The amount of travel, subsistence, and other necessary expenses for members and employees paid or reimbursed under this subsection may exceed per diem amounts established in official travel regulations, but the Commission may include in its regulations under this subsection a limitation on such amounts.

(3) PROFESSIONAL FELLOWS- Notwithstanding any other provision of law, former employers of participants in the Commission's professional fellows programs may pay such participants their actual expenses for relocation to Washington, District of Columbia, to facilitate their participation in such programs, and program participants may accept such payments.

(d) FEES- Notwithstanding any other provision of law, whenever any fee is required to be paid to the Commission pursuant to any provision of the securities laws or any other law, the Commission may provide by rule that such fee shall be paid in a manner other than in cash.

SEC. 103. ORGANIZATION OF COMMISSION.

The Commission shall establish the principal divisions and subdivisions of the Commission, except that the Commission shall establish a separate division with responsibility for functions relating to markets in physical commodities.

SEC. 104. GENERAL COUNSEL.

There shall be in the Commission an Office of General Counsel, headed by a General Counsel appointed by the President, by and with the advice and consent of the Senate.

TITLE II--TRANSFERS OF FUNCTIONS

SEC. 201. COMMODITY FUTURES TRADING COMMISSION FUNCTIONS.

There are transferred to the Commission all functions of the Commodity Futures Trading Commission and of any officer or component of the Commodity Futures Trading Commission.

SEC. 202. SECURITIES AND EXCHANGE COMMISSION.

There are transferred to the Commission all functions of the Security and Exchange Commission and of any officer or component of the Securities and Exchange Commission.

SEC. 203. JURISDICTION OF MARGIN AUTHORITY.

(a) MARGIN AUTHORITY WITH RESPECT TO SECURITIES- There is transferred to the Commission the functions of the Board of Governors of the Federal Reserve System under section 7 of the Securities Exchange Act of 1934.

(b) MARGIN AUTHORITY WITH RESPECT TO FUTURES- Notwithstanding section 5a(12) of the Commodity Exchange Act, the Commission may--

(1) by order, direct contract markets to adjust the level of margin required on any contract; or

(2) by regulation, prescribe limits on the level of margin that a contract market may require on any class or category of contract;

as necessary to ensure the financial integrity of such market.

TITLE III--FEDERAL FINANCIAL MARKETS COORDINATING COUNCIL

SEC. 301. ESTABLISHMENT; MEMBERSHIP.

(a) ESTABLISHMENT- There is established in the executive branch a council to be known as the Federal Financial Markets Coordinating Council.

(b) MEMBERSHIP- The Council shall be composed of the heads of the following agencies or their designees for this purpose:

(1) The Board of Governors of the Federal Reserve System.

(2) The Comptroller of the Currency.

(3) The Department of the Treasury.

(4) The Securities and Derivatives Oversight Commission.

(5) The National Credit Union Administration.

(6) The Office of Thrift Supervision.

(7) The Federal Deposit Insurance Corporation.

(c) CHAIRMAN- The Council shall elect one of its members to serve as chairman.

SEC. 302. FUNCTIONS OF THE COUNCIL.

The Federal Financial Markets Coordinating Council shall--

(1) serve as a facility for the coordination of the regulatory operations of each of the agencies represented on the Council;

(2) meet bimonthly and at the call of the chair to discuss issues relating to the safety and effectiveness of the financial services industry and other issues relating to those regulatory operations;

(3) establish an advisory committee of not more than 5 members representative of the futures, commodities, options, and securities exchanges and the banking industry to meet no less than 4 times annually; and

(4) report biennially to the Congress on its functions and activities, including in the first such report such recommendations for legislative action as it considers appropriate.

SEC. 303. STAFF; ADMINISTRATIVE SUPPORT; EXPENSES.

(a) STAFF; ADMINISTRATIVE SUPPORT- The Commission and each agency represented on the Council shall provide to the Council such personnel and administrative

support as the Council may require to carry out its functions under this title.

(b) EXPENSES- There are authorized to be appropriated such sums as may be necessary for the expenses of the Commission in carrying out this title. Funds appropriated under this subsection may be available to reimburse agencies for personnel detailed to the Council and for administrative support provided under subsection (a).

TITLE IV--ADMINISTRATIVE PROVISIONS

PART A--PERSONNEL PROVISIONS

SEC. 401. OFFICERS AND EMPLOYEES.

(a) APPOINTMENT AND COMPENSATION- The Commission is authorized to appoint and fix the compensation of such officers and employees, including attorneys, as may be necessary to carry out the functions of the Commission. Except as otherwise provided by law, such officers and employees shall be appointed in accordance with the civil service laws and their compensation fixed in accordance with title 5 of the United States Code.

(b) SPECIAL PROVISIONS-

(1) CONTINUITY OF SUPERGRADE POSITIONS- At the request of the Commission, the Director of the Office of Personnel Management shall, under section 5108 of title 5, United States Code, provide for the establishment in each of the grade levels GS-16, GS-17, and GS-18 of a number of positions in the Commission equal to the number of positions in that grade level which were used primarily for the performance of functions and offices transferred under this Act and which were assigned and filled on the day before the effective date of this Act.

(2) CONTINUITY OF PROFESSIONAL AND TECHNICAL POSITIONS- At the request of the Commission, the Director of the Office of Personnel Management shall, under section 3104 of title 5, United States Code, provide for the establishment in the Commission of a number of professional and technical positions outside of the General Schedule equal to the number of such positions which were used primarily for the performance of functions and offices transferred under this Act and which were assigned and filled on the day before the effective date of this Act.

(3) APPOINTMENTS TO SPECIAL POSITIONS- Appointments to positions provided for under this subsection may be made without regard to the provisions of section 3324 of title 5 of the United States Code, if the individual appointed in such position is an individual who is transferred in connection with the transfer of functions and offices under this Act and, on the day preceding the effective date of this Act, holds a position and has duties comparable to those of the position to which appointed hereunder.

(4) TERMINATION OF SPECIAL AUTHORITY- The authority under this subsection with respect to any position shall terminate when the person first appointed to fill such position ceases to hold such position.

(5) TECHNICAL PROVISION- For purposes of section 414(a)(3)(A) of the Civil Service Reform Act of 1978, an individual appointed under this subsection shall be deemed to occupy the same position as the individual occupied on the day preceding the effective date of this Act.

(c) ADDITIONAL TECHNICAL AND PROFESSIONAL POSITIONS- The Commission may appoint, without regard to the provisions of title 5, United States Code, governing appointment in the competitive service, up to 100 technical or professional employees of the Commission and may compensate employees so appointed without regard to the provisions of chapter 51 and subchapter III of chapter 53 of such title relating to classification and General Schedule pay rates. The rate of basic compensation for such employees shall not be equal to or in excess of the minimum rate of pay currently paid for GS-16 of the General Schedule under section 5332 of such title.

(d) LIMITED-TERM APPOINTEES- Notwithstanding any other provision of law, the Director of the Office of Personnel Management shall establish positions within the Senior Executive Service for 10 limited-term appointees. The Commission shall appoint individuals to such positions as provided by section 3394 of title 5, United States Code. Such positions shall expire on the later of three years after the effective date of this Act or three years after the initial appointment to each position. Positions in effect under this subsection shall be taken into account in applying the limitations on positions prescribed under section 3134(e) and section 5108 of such title.

SEC. 402. EXPERTS AND CONSULTANTS.

The Commission may as provided in appropriation Acts obtain the services of experts and consultants in accordance with the provisions of section 3109 of title 5, United States Code, and may compensate such experts and consultants at rates not to exceed the daily rate prescribed for GS-18 of the General Schedule under section 5332 of such title.

PART B--GENERAL ADMINISTRATIVE PROVISIONS

SEC. 411. GENERAL AUTHORITY.

In carrying out any function transferred by this Act, the Commission, or any officer or employee of the Commission, may exercise any authority available by law (including appropriation Acts) with respect to such function to the official or agency from which such function is transferred, and the actions of the Commission in exercising such authority shall have the same force and effect as when exercised by such official or agency.

SEC. 412. DELEGATION.

Exception as otherwise provided in this Act, the Commission may delegate any function to such officers and employees of the Commission as the Commission may designate, and may authorize such successive redelegations of such functions within the Commission as may be necessary or appropriate. No delegation of functions by the Commission under this section or under any other provision of this Act shall relieve the Commission of responsibility for the administration of such functions.

SEC. 413. REORGANIZATION.

The Commission is authorized to allocate or reallocate functions among the officers of the Commission, and to establish, consolidate, alter, or discontinue such organizational entities within the Commission as may be necessary or appropriate.

SEC. 414. RULES.

The Commission is authorized to prescribe such rules and regulations as the Commission determines necessary or appropriate to administer and manage the functions of the Commission.

SEC. 415. CONTRACTS.

(a) IN GENERAL- Subject to the provisions of the Federal Property and Administrative Services Act of 1949, the Commission is authorized to make, enter into, and perform such contracts, grants, leases, cooperative agreements, or other similar transactions with Federal or other public agencies (including State and local governments) and private organizations and persons, and to make such payments, by way of advance or reimbursement, as the Commission may determine necessary or appropriate to carry out functions of the Commission.

(b) APPROPRIATIONS REQUIRED- Notwithstanding any other provision of this Act, no authority to enter into contracts or to make payments under this title shall be effective except to such extent or in such amounts as are provided in advance under appropriation Acts.

SEC. 416. REGIONAL AND FIELD OFFICES.

The Commission is authorized to establish, alter, discontinue, or maintain such regional or other field offices as the Commission may find necessary or appropriate to perform functions of the Commission.

SEC. 417. USE OF FACILITIES.

(a) USE BY COMMISSION- With their consent, the Commission may, with or without reimbursement, use the research, equipment, services, and facilities of any agency or instrumentality of the United States, of any State or political subdivision thereof, or of any foreign government, in carrying out any function of the Commission.

(b) USE BY OTHERS- The Commission is authorized to permit public and private agencies, corporations, associations, organizations, or individuals to use any real property, or any facilities, structures, or other improvements thereon, under the custody and control of the Commission for Commission purposes. The Commission shall permit the use of such property, facilities, structures, or improvements under such terms and rates and for such period as may be in the public interest, except that the periods of such uses may not exceed five years. The Commission may require permittees under this section to recondition and maintain, at their own expense, the real property, facilities, structures, and improvements used by such permittees to a standard satisfactory to the Commission. This subsection shall not apply to excess property as defined in section 3(e) of the Federal Property and Administrative Services Act of 1949.

(c) PROCEEDS FROM REIMBURSEMENTS- Proceeds from reimbursements under this section may be credited to the appropriation of funds that bear or will bear all or part of the cost of such equipment or facilities provided or to refund excess sums when necessary.

(d) TITLE TO PROPERTY- Any interest in real property acquired pursuant to this Act shall be acquired in the name of the United States Government.

SEC. 418. WORKING CAPITAL FUND.

(a) AUTHORITY AND USE- The Commission, with the approval of the Director of the Office of Management and Budget, is authorized to establish for the Commission a working capital fund, to be available without fiscal year limitation, for expenses necessary for the maintenance and operation of such common administrative services as the Commission shall find to be desirable in the interests of economy and efficiency, including such services as--

(1) a central supply service for stationery and other supplies and equipment for which adequate stocks may be maintained to meet in whole or in part the requirements of the Commission and its components;

(2) central messenger, mail, telephone, and other communications services;

(3) office space, central services for document reproduction, and for graphics and visual aids; and

(4) a central library service.

(b) CONTENTS AND MANAGEMENT OF FUND- The capital of the fund shall consist of any appropriations made for the purpose of providing working capital and the fair and reasonable value of such stocks of supplies, equipment, and other assets and inventories on order as the Commission may transfer to the fund, less the related liabilities and unpaid obligations. Such funds shall be reimbursed in advance from available funds of agencies and offices in the Commission, or from other sources, for supplies and services at rates that will approximate the expense of operation, including the accrual of annual leave and the depreciation of equipment. The fund shall also be credited with receipts from sale or exchange of property and receipts in payment for loss or damage to property owned by the fund. There shall be covered into the Treasury as miscellaneous receipts any surplus of the fund (all assets, liabilities, and prior losses considered) above the amounts transferred or appropriated to establish and maintain such fund. There shall be transferred to the fund the stocks of supplies, equipment, other assets, liabilities, and unpaid obligations relating to the services which the Commission determines, with the approval of the Director of the Office of Management and Budget, will be performed.

SEC. 419. FUNDS TRANSFER.

The Commission may, when authorized in an appropriation Act in any fiscal year, transfer funds from one appropriation to another within the Commission, except that no appropriation for any fiscal year shall be either increased or decreased pursuant to this section by more than 5 percent and no such transfer shall result in increasing any such appropriation above the amount authorized to be appropriated therefor.

SEC. 420. SEAL OF COMMISSION.

The Commission shall cause a seal of office to be made for the Commission of such design as the Commission shall approve. Judicial notice shall be taken of such seal.

SEC. 421. ANNUAL REPORT.

(a) CONTENTS- The Commission shall, as soon as practicable after the close of each fiscal year, make a single, comprehensive report to the President for transmission to the Congress on the activities of the Commission during such fiscal year. The report shall include a statement of goals, priorities, and plans for the Commission together with an assessment of the progress made toward--

(1) the attainment of such goals, priorities, and plans; and

(2) the more effective and efficient management of the Commission and the coordination of its functions;

accompanied where necessary by recommendations for proposed legislation for the achievement of such objectives.

(b) CONTRACTING-OUT ESTIMATE- The report required by subsection (a) shall also include an estimate of the extent of the non-Federal personnel employed pursuant to contracts entered into by the Commission under section 415 or under any other authority (including any subcontract thereunder), the number of such contracts and subcontracts pursuant to which non-Federal personnel are employed, and the total cost of those contracts and subcontracts.

TITLE V--TRANSITIONAL, SAVINGS, AND CONFORMING PROVISIONS

SEC. 501. TRANSFER AND ALLOCATION OF APPROPRIATIONS AND PERSONNEL.

(a) IN GENERAL- Except as otherwise provided in this Act, the personnel employed in connection with, and

the assets, liabilities, contracts, property, records, and unexpended balance of appropriations, authorizations, allocations, and other funds employed, held, used, arising from, available to, or to be made available in connection with the functions and offices, or portions thereof transferred by this Act, subject to section 202 of the Budget and Accounting Procedures Act of 1950, shall be transferred to the Commission for appropriate allocation. Unexpended funds transferred pursuant to this subsection shall be used only for the purposes for which the funds were originally authorized and appropriated.

(b) EXCEPTION- Positions expressly specified by statute or reorganization plan to carry out functions or offices transferred by this Act, personnel occupying those positions on the effective date of this Act, and personnel authorized to receive compensation in such positions at the rate prescribed for offices and positions at level IV or V of the Executive Schedule (5 U.S.C. 5315-5316) on the effective date of this Act, shall be subject to the provisions of section 503.

SEC. 502. EFFECT ON PERSONNEL.

(a) PROTECTION AGAINST REDUCTION IN GRADE OR COMPENSATION- Except as otherwise provided in this Act, the transfer pursuant to this title of full-time personnel (except special Government employees) and part-time personnel holding permanent positions shall not cause any such employee to be separated or reduced in grade or compensation for one year after the date of transfer to the Commission.

(b) EXECUTIVE LEVEL APPOINTEES- Any person who, on the day preceding the effective date of this Act, held a position compensated in accordance with the Executive Schedule prescribed in chapter 53 of title 5, United States Code, and who, without a break in service, is appointed in the Commission to a position having duties comparable to the duties performed immediately preceding such appointment shall continue to be compensated in such new position at not less than the rate provided for such previous position, for the duration of the service of such person in such new position.

SEC. 503. AGENCY TERMINATIONS.

(a) TERMINATED AGENCIES- On the effective date of this Act, the following entities shall terminate:

(A) The Commodity Futures Trading Commission.

(B) The Securities and Exchange Commission.

(b) TERMINATED POSITIONS- Each position which was expressly authorized by law, or the incumbent of which was authorized to receive compensation at the rate prescribed for level III, IV, or V of the Executive Schedule (5 U.S.C. 5315-5316), in an office terminated pursuant to this Act shall also terminate.

SEC. 504. INCIDENTAL TRANSFERS.

(a) GENERAL AUTHORITY OF OMB- The Director of the Office of Management and Budget, at such time or times as the Director shall provide, is authorized and directed to make such determinations as may be necessary with regard to the functions, offices, or portions thereof transferred by this Act, and to make such additional incidental dispositions of personnel, assets, liabilities, grants, contracts, property, records, and unexpended balances of appropriations, authorizations, allocations, and other funds held, used, arising from, available to, or to be made available in connection with such functions, offices, or portions thereof, as may be necessary to carry out the provisions of this Act. The Director shall provide for the termination of the affairs of all entities terminated by this Act and for such further measures and dispositions as may be necessary to effectuate the purposes of this Act.

(b) SES POSITIONS- After consultation with the Director of the Office of Personnel Management, the Director of the Office of Management and Budget is authorized, at such time as the Director of the Office of Management and Budget provides, to make such determinations as may be necessary with regard to the transfer of positions within the Senior Executive Service in connection with functions and offices transferred by this Act.

SEC. 505. SAVINGS PROVISIONS.

(a) CONTINUITY OF LEGAL INSTRUMENTS- All orders, determinations, rules, regulations, permits, grants, contracts, certificates, licenses, and privileges--

(1) which have been issued, made, granted, or allowed to become effective by the President, any Federal department or agency or official thereof, or by a court of competent jurisdiction, in the performance of functions which are transferred under this Act to the Commission, and

(2) which are in effect at the time this Act takes effect,

shall continue in effect according to their terms until modified, terminated, superseded, set aside, or revoked in accordance with the law by the President, the Commission, or other authorized official, a court of competent jurisdiction, or by operation of law.

(b) CONTINUITY OF PROCEEDINGS-

(1) IN GENERAL- The provisions of this Act shall not affect any proceedings, including notices of proposed rulemaking, or any application for any license, permit, certificate, or financial assistance pending on the effective date of this Act before any department, agency, commission, or component thereof, functions of which are transferred by this Act; but such proceedings and applications, to the extent that they relate to functions so transferred, shall be continued. Orders shall be issued in such proceedings, appeals shall be taken therefrom, and payments shall be made pursuant to such orders, as if this Act had not been enacted; and orders issued in any such proceedings shall continue in effect until modified, terminated, superseded, or revoked by the Commission, by a court of competent jurisdiction, or by operation of law. Nothing in this subsection shall be deemed to prohibit the discontinuance or modification of any such proceeding under the same terms and conditions and to the same extent that such proceeding could have been discontinued or modified if this Act had not been enacted.

(2) REGULATIONS CONCERNING TRANSFERS- The Commission is authorized to promulgate regulations providing for the orderly transfer of proceedings continued under paragraph (1) to the Commission.

(c) PENDING LITIGATION- Except as provided in subsection (e)--

(1) the provisions of this Act shall not affect suits commenced prior to the effective date of this Act, and

(2) in all such suits, proceedings shall be had, appeals taken, and judgments rendered in the same manner and effect as if this Act had not been enacted.

(d) NONABATEMENT- No suit, action, or other proceeding commenced by or against any officer in the official capacity of such individual as an officer of any department or agency, functions of which are transferred by this Act, shall abate by reason of the enactment of this Act. No cause of action by or against any department or agency, functions of which are transferred by this Act, or by or against any officer thereof in the official capacity of such officer shall abate by reason of the enactment of this Act.

(e) SUBSTITUTION OF PARTIES- If, before the date on which this Act takes effect, any department or agency, or officer thereof in the official capacity of such officer, is a party to a suit, and under this Act any function of such department, agency, or officer is transferred to the Commission or any other official of the Commission, then such suit shall be continued with the Commission or other appropriate official of the Commission substituted or added as a party.

(f) JUDICIAL REVIEW AS REQUIRED BY EXISTING LAW- Orders and actions of the Commission in the exercise of functions transferred under this Act shall be subject to judicial review to the same extent and in the same manner as if such orders and actions had been by the agency or office, or part thereof, exercising such functions immediately preceding their transfer. Any statutory requirements relating to notice, hearings, action upon the record, or administrative review that apply to any function transferred by this Act shall apply to the exercise of such function by the Commission.

SEC. 506. SEPARABILITY.

If any provision of this Act or the application thereof to any person or circumstance is held invalid, neither the remainder of this Act nor the application of such provision to other persons or circumstances shall be affected thereby.

SEC. 507. REFERENCE.

With respect to any function transferred by this Act and exercised on or after the effective date of this Act, reference in any other Federal law to any department, commission, or agency or any officer or office the functions of which are so transferred shall be deemed to refer to the Commission, other official, or component of the Commission to which this Act transfers such functions.

SEC. 508. AMENDMENTS.

(a) EXECUTIVE SCHEDULE SALARIES-

(1) CHAIRMAN- Section 5314 of title 5, United States Code, is amended--

(A) by striking `Chairman, Securities and Exchange Commission.' and inserting `Chairman, Markets and Trading Commission.'; and

(B) by striking `Chairman, Commodity Futures Trading Commission.'.

(2) MEMBERS- Section 5315 of title 5, United States Code, is amended--

(A) by striking `Members, Securities and Exchange Commission' and inserting `Members, Markets and Trading Commission'; and

(B) by striking `Members, Commodity Futures Trading Commission.'.

(b) CONFORMING AMENDMENTS-

(1) SECURITIES EXCHANGE ACT- Sections 4 and 35 of the Securities Exchange Act of 1934 are repealed.

(2) COMMODITY EXCHANGE ACT- Section 2(a) of the Commodity Exchange Act is amended by striking paragraphs (2), (3), and (4).

SEC. 509. TRANSITION.

With the consent of the appropriate department or agency head concerned, the Commission is authorized to utilize the services of such officers, employees, and other personnel of the departments and agencies from which functions or offices have been transferred to the Commission, and funds appropriated to such functions or offices for such period of time as may reasonably be needed to facilitate the orderly implementation of this Act.

TITLE VI--REGULATION OF OTC DERIVATIVES

SEC. 601. REGULATION OF OVER-THE-COUNTER DERIVATIVES.

(a) IN GENERAL- The Commission shall prescribe such rules and regulations governing over-the-counter derivatives dealers and over-the-counter derivatives transactions as may be necessary and appropriate in the public interest and for the protection of investors to ensure the safety and soundness of financial markets and the Nation's economy as a whole, including rules and regulations with respect to--

(1) the eligibility of persons to trade over-the-counter derivatives;

(2) registration requirements for over-the-counter derivatives dealers, institutions employing over-the-counter derivatives dealers, and facilities on which over-the-counter derivatives transactions are executed, which shall be similar to the registration requirements prescribed under the Securities Exchange Act of 1934 for securities dealers, for institutions employing securities dealers, and for securities exchanges;

(3) adequate capital requirements for over-the-counter derivatives dealers, that are similar to the net capital requirements applicable to securities dealers under section 15(c)(3) of the Securities Exchange Act of 1934;

(4) adequate collateral or margin for over-the-counter derivatives transactions, which rules and regulations shall be prescribed in consultation with the Board of Governors of the Federal Reserve System;

(5) registration and approval of facilities for the execution of over-the-counter derivatives transactions;

(6) sales practices, including sales licensing and training;

(7) self-regulation;

(8) internal risk control;

(9) disciplinary procedures;

(10) violations and enforcement; and

(11) standardized reporting and recordkeeping requirements.

(b) REPORTING REQUIREMENTS-

(1) IN GENERAL- An over-the-counter derivatives dealer shall submit to the Commission, in such form and manner as the Commission may prescribe--

(A) a daily report on price, volume of transactions, open interest, implied volatility of options contracts, and the positions of large traders in the over-the-counter derivatives market; and

(B) a quarterly report on the over-the-counter derivatives in the dealer's own account, and for each type of over-the-counter derivative, the currency, maturity, and the underlying basis for pricing.

(2) DATA ELEMENTS- The Commission shall prescribe how each feature of an over-the-counter derivatives transaction is to be reported to the Commission pursuant to paragraph (1).

(3) RETROACTIVE APPLICABILITY- On registration of an over-the-counter derivatives dealer under this section, the dealer shall file with the Commission a report of the type described in paragraph (1)(B) covering the calendar quarter most recently ending before the registration date.

(c) DEFINITIONS- In this section:

(1) OVER-THE-COUNTER DERIVATIVES DEALER- The term `over-the-counter derivatives dealer' means--

(A) any person engaged in the business of buying, selling, trading, and clearing over-the-counter derivatives for the person's own account, as an intermediary for others, through an intermediary, or otherwise; and

(B) any counter party to the transaction whose exposure to over-the-counter derivatives exceeds such threshold as the Commission shall prescribe by regulation.

(2) OVER-THE-COUNTER DERIVATIVE- The term `over-the-counter derivative' means--

(A)(i) any agreement, contract, or transaction that is not subject to regulation--

(I) under the Securities Exchange Act of 1934 as a security (as defined in section 3(a)(10) of the such Act) or a security future product (as defined in section 3(a)(56) of such Act); or

(II) as a financial instrument traded on a board of trade which, before December 21, 2000, was designated by the Commission as a contract market; or

(ii) any condition incorporated by reference in any such agreement, contract, or transaction; and

(B) the value of which agreement, contract, transaction, or condition depends on--

(i) an interest rate, exchange rate, currency, security, security index, credit risk or measure, debt or equity instrument, index or measure of inflation or other macroeconomic index;

(ii) any other rate, differential, index or measure of economic or commercial risk, return, or value;

(iii) any economic or commercial index based on prices, rates, value or levels that are beyond the control of any party to the relevant contract, agreement or transaction; or

(iv) an occurrence, extent of an occurrence, or contingency that is beyond the control of the parties to the relevant contract, agreement, or transaction.

(d) CRIMINAL PROVISIONS-

(1) It shall be a felony punishable by a fine of not more than $1,000,000 (or $500,000, in the case of a person who is an individual), imprisonment for not more than 5 years, or both, together with the costs of prosecution, for:

(A) Any person registered or required to be registered under this section, or any employee or agent thereof, to embezzle, steal, purloin, or with criminal intent convert to the person's use or to the use of another, any money, securities, or property having a value in excess of $100, which was received by the person or any employee or agent thereof to margin, guarantee, or secure the trades or contracts of any customer or accruing to the customer as a result of the trades or contracts or which otherwise was received from any customer, client, or pool participant in connection with the business of the person. In this subparagraph, the term `value' means face, par, or market value, or cost price, either wholesale or retail, whichever is greater.

(B) Any person to manipulate or attempt to manipulate the price of any over-the-counter derivative in interstate commerce, or for future delivery on or subject to the rules of any entity registered under this section, or to corner or attempt to corner any such derivative or knowingly to deliver or cause to be delivered for transmission through the mails or interstate commerce by telegraph, telephone, wireless, or other means of communication false or misleading or knowingly inaccurate reports concerning market information or conditions that affect or tend to affect the price of any derivative in interstate commerce.

(C) Any person knowingly to make, or cause to be made, any statement in any application, report, or document required to be filed under this section or any rule or regulation under this section or any undertaking contained in a registration statement required under this section, which statement was false or misleading with respect to any material fact, or knowingly to omit any material fact required to be stated in the statement or necessary to make the statements in the statement not misleading.

(D) Any person willfully to falsify, conceal, or cover up by any trick, scheme, or artifice a material fact, make any false, fictitious, or

fraudulent statements or representations, or make or use any false writing or document knowing the same to contain any false, fictitious, or fraudulent statement or entry to an entity registered under this section acting in furtherance of its official duties under this section.

(E) Any person willfully to violate any other provision of this section, or any rule or regulation under this section, the violation of which is made unlawful or the observance of which is required under this section, but a person shall not be subject to imprisonment under this subparagraph for the violation of any rule or regulation if the person proves that the person had no knowledge of the rule or regulation.

(2) Any person convicted of a felony under this subsection shall be suspended from registration under this section and shall be denied registration or reregistration for 5 years or such longer period as the Commission may determine, and barred from using, or participating in any manner in, any market regulated by the Commission for 5 years or such longer period as the Commission shall determine, on such terms and conditions as the Commission may prescribe, unless the Commission determines that the imposition of the suspension, denial of registration or reregistration, or market bar is not required to protect the public interest. The Commission may upon petition later review the disqualification and market bar and for good cause shown reduce the period of the disqualification.

(3) It shall be a felony punishable by a fine of not more than $500,000, imprisonment for not more than 5 years, or both, together with the costs of prosecution, for any Commissioner of the Commission or any employee or agent of the Commission, to participate, directly or indirectly, in any over-the-counter derivatives transaction, or any transaction for the delivery of any over-the-counter derivative under a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leverage contract, or under any contract, account, arrangement, scheme, or device that the Commission determines serves the same function or functions as such a standardized contract, or is marketed or managed in substantially the same manner as such a standardized contract, or for any such person to participate, directly or indirectly, in any investment transaction in an over-the-counter derivative if nonpublic information is used in the investment transaction, if the investment transaction is prohibited by rule or regulation of the Commission, or if the investment transaction is effected by means of any instrument regulated by the Commission. The foregoing prohibitions shall not apply to any transaction or class of transactions that the Commission, by rule or regulation, has determined would not be contrary to the public interest or otherwise inconsistent with the purposes of this paragraph.

(4) It shall be a felony punishable by a fine of not more than $500,000, imprisonment for not more than 5 years, or both, together with the costs of prosecution for:

(A) Any Commissioner of the Commission or any employee or agent of the Commission who, by virtue of his employment or position, acquires information which may affect or tend to affect the price of any over-the-counter derivatives transaction and which information has not been made public to impart such information with intent to assist another person, directly or indirectly, to participate in any over-the-counter derivatives transaction or in any transaction for the delivery of any over-the-counter derivative under a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leverage contract, or under any contract, account, arrangement, scheme, or device that the Commission determines serves the same function or functions as such a standardized contract, or is marketed or managed in substantially the same manner as such a standardized contract.

(B) Any person to acquire such information from any Commissioner of the Commission or any employee or agent of the Commission and to use such information in any over-the-counter derivatives transaction or in any transaction for the delivery of any over-the-counter derivative under a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leverage contract, or under any contract, account, arrangement, scheme, or device that the Commission determines serves the same function or functions as such a standardized contract, or is marketed or managed in substantially the same manner as such a standardized contract.

(5)(A) It shall be a felony for any person--

(i) who is an employee, member of the governing board, or member of any entity registered under this section, in violation of a regulation issued by the Commission, willfully and knowingly to trade for the person's own account, or for or on behalf of any other account, in over-the-counter derivatives transactions on the basis of, or willfully and knowingly to disclose for any purpose inconsistent with the performance of such person's official duties as an employee or member, any material nonpublic information obtained through special access related to the performance of such duties; or

(ii) willfully and knowingly to trade for the person's own account, or for or on behalf of any other account, in over-the-counter derivatives transactions on the basis of any material nonpublic information that the person knows was obtained in violation of clause (i) from an employee, member of the governing board, or member of any committee of an entity registered under this section.

(B) The felony shall be punishable by a fine of not more than $500,000, plus the amount of any profits realized from the trading or disclosure made in violation of this paragraph, or imprisonment for not more than 5 years, or both, together with the costs of prosecution.

(e) PRIVATE RIGHTS OF ACTION-

(1)(A) Any person (other than an entity registered under this section) who violates this section or a regulation prescribed under this section or who willfully aids, abets, counsels, induces, or procures the commission of a violation of this section or of such a regulation shall be liable for actual damages caused by the violation to any other person--

(i) who received trading advice from such person for a fee;

(ii) who purchased or sold an over-the-counter derivative if the violation constitutes a manipulation of the price of any such derivative or of a rate, currency, index, measure, value, or level on which such a derivative is based;

(iii) who made through the person any contract of sale of any over-the-counter derivative for future delivery (or option on such a contract or derivative), or who deposited with or paid to

the person money, securities, or property (or incurred debt in lieu thereof) in connection with any order to make such a contract; or

(iv) who purchased or sold a contract referred to in clause (iii) if the violation constitutes a manipulation of the price of any such contract or the price of any derivative underlying the contract.

(B) Except as provided in paragraph (2), the rights of action authorized by this paragraph shall be the exclusive remedies under this section available to any person who sustains loss as a result of any alleged violation of this section. This paragraph shall not be construed to limit or abridge the rights of the parties to agree in advance of a dispute on any forum for resolving claims under this subsection, including arbitration.

(C) In an action arising from a violation in the execution of an order on the floor of an entity registered under this section, the person referred to in subparagraph (A) shall be liable for--

(i) actual damages proximately caused by the violation; and

(ii) if the violation is willful and intentional, punitive or exemplary damages equal to no more than twice the amount of the actual damages.

(2)(A)(i) A entity registered under this section that fails to enforce any bylaw, rule, regulation, or resolution that the entity is required under this section to enforce, or that in enforcing any such bylaw, rule, regulation, or resolution violates this section or any Commission rule, regulation, or order issued under this section, shall be liable for actual damages sustained by a person who engaged in any transaction on or subject to the rules of the entity to the extent of the person's actual losses that resulted from the transaction and were caused by the failure to enforce or by enforcement of the bylaws, rules, regulations, or resolutions.

(B) An individual who, in the capacity as an officer, director, governor, committee member, or employee of an entity registered under this section willfully aids, abets, counsels, induces, or procures any failure by any such entity to enforce (or any violation of this section in enforcing) any bylaw, rule, regulation, or resolution referred to in subparagraph (A) of this paragraph, shall be liable for actual damages sustained by a person who engaged in any transaction specified in paragraph (1) of this subsection on, or subject to the rules of, the entity, to the extent of the person's actual losses that resulted from the transaction and were caused by the failure or violation.

(C) A person seeking to enforce liability under this subsection must establish that the entity, officer, director, governor, committee member, or employee acted in bad faith in failing to take action or in taking the action as was taken, and that the failure or action caused the loss.

(D) The rights of action authorized by this paragraph shall be the exclusive remedy under this section available to any person who sustains a loss as a result of--

(i) the alleged failure by an entity registered under this section or by any officer, director, governor, committee member, or employee to enforce any bylaw, rule, regulation, or resolution referred to in subparagraph (A) of this paragraph, or

(ii) the taking of action in enforcing any bylaw, rule, regulation, or resolution referred to in this paragraph that is alleged to have violated this section, or any Commission rule, regulation, or order issued under this section.

(3) The United States district courts shall have exclusive jurisdiction of actions brought under this subsection. Any such action shall be brought not later than 2 years after the date the cause of action arises. Any action brought under paragraph (1) may be brought in any judicial district in which the defendant is found, resides, or transacts business, or in the judicial district in which any act or transaction constituting the violation occurs. Process in such action may be served in any judicial district of which the defendant is an inhabitant or wherever the defendant may be found.

(f) SUPERIORITY TO COMMODITY EXCHANGE ACT AND THE COMMODITY FUTURES MODERNIZATION ACT OF 2000- In the event of any conflict between any provision of, or regulation prescribed under, this section and any provision of, or regulation prescribed under, the Commodity Exchange Act or the Commodity Futures Modernization Act of 2000, the provison of, or regulation prescribed under, this section shall control.

(g) CONFORMING AMENDMENTS- The Commodity Exchange Act is amended--

(1) in section 1a (7 U.S.C. 1a)--

(A) by striking paragraph (13); and

(B) in paragraph (14), by striking `an excluded commodity or'; and

(2) in section 2 (7 U.S.C. 2)--

(A) in subsection (c)(1)--

(i) by adding `or' at the end of subparagraph (E); and

(ii) by striking subparagraph (F) and redesignating subparagraph (G) as subparagraph (F); and

(B) in subsection (i)(1)(A), by striking `2(d),'.

TITLE VII--EFFECTIVE DATE

SEC. 701. EFFECTIVE DATE.

(a) IN GENERAL- The provisions of this Act shall take effect 180 days after the first Commissioner takes office, or on any later date on or before October 1, 2003, as the President may prescribe and publish in the Federal Register, except that at any time on or after the date of enactment of this Act--

(1) any of the officers provided for in title II of this Act may be nominated and appointed, as provided in such title; and

(2) the Commission may promulgate regulations pursuant to section 505(b)(2) of this Act.

(b) TRANSITION EXPENSES- Funds available to any department or agency (or any official department or agency or any official or component thereof), the functions or offices of which are transferred to the Commission by this Act, may, with the approval of the Director of the Office of Management and Budget, be used to pay the compensation and expenses of any officer appointed pursuant to this title and other transitional and planning expenses associated with the establishment of the Commission or transfer of functions or offices thereto until such time as funds for such purposes are otherwise available.

END