Page 1 1 of 1 DOCUMENT Commodity Futures Trading Commission COMMODITY FUTURES TRADING COMMISSION ACT OF 1974 TITLE: COMMODITY FUTURES TRADING COMMISSION ACT OF 1974 DOCUMENT TYPE: HOUSE REPORT DOCUMENT NUMBER: 93-975 DATE: APRIL 4, 1974 LEGISLATIVE HISTORY: COMMODITY FUTURES TRADING COMMISSION ACT OF 1974 93D CONGRESS 2d Session HOUSE OF REPRESENTATIVES REPORT No. 93-975 COMMODITY FUTURES TRADING COMMISSION ACT OF 1974 REPORT Together With MINORITY VIEWS AND ADDITIONAL MINORITY VIEWS ON H.R. 13113 A BILL TO AMEND THE COMMODITY EXCHANGE ACT TO STRENGTHEN THE REGULATION OF FUTURES TRADING, TO BRING ALL AGRICULTURAL AND OTHER COMMODITIES TRADED ON EX- CHANGES UNDER REGULATION, AND FOR OTHER PURPOSES APRIL 4, 1974. -- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1974 30-443 See original document-page 1 COMMITTEE ON AGRICULTURE W. R. POAGE, Texas, Chairman Page 2 FRANK A. STUBBLEFIELD, Kentucky, Vice Chairman THOMAS S. FOLEY, Washington E DE LA GARZA, Texas JOSEPH P. VIGORITO, Pennsylvania WALTER B. JONES, North Carolina B. F. SISK, California BILL ALEXANDER, Arkansas JOHN R. RARICK, Louisiana ED JONES, Tennessee JOHN MELCHER, Montana DAWSON MATHIS, Georgia BOB BERGLAND, Minnesota FRANK E. DENHOLM, South Dakota SPARK M. MATSUNAGA, Hawaii GEORGE E. BROWN, JR., California DAVID R. BOWEN, Mississippi CHARLES ROSE, North Carolina JERRY LITTON, Missouri BILL GUNTER, Florida WILLIAM C. WAMPLER, Virginia Ranking Minority Member GEORGE A. GOODLING, Pennsylvania ROBERT B. MATHIAS, California WILEY MAYNE, Iowa JOHN M. ZWACH, Minnesota ROBERT D. PRICE, Texas KEITH G. SEBELIUS, Kansas WILMER D. MIZELL, North Carolina PAUL FINDLEY, Illinois LAMAR BAKER, Tennessee CHARLES THONE, Nebraska STEVEN D. SYMMS, Idaho EDWARD YOUNG, South Carolina JAMES P. JOHNSON, Colorado EDWARD R. MADIGAN, Illinois FOWLER C. WEST, Staff Director JOHN F. O'NEAL, General Counsel HYDE H. MURRAY, Associate Counsel JOHN RAINBOLT, Associate Counsel L. T. EASLEY, Press Assistant See original document-page 2 "The exchanges in many parts of the country which deal in securities and commodities conduct, of course, a na- tional business because their customers live in every part of the country. The managers of these exchanges have it is true, often taken steps to correct certain obvious abuses. We must be certain that abuses are eliminated, and to this end a broad policy of national regulation is required. "It is my belief that exchanges for dealing in securities and commodities are necessary and of definite value to our commercial and agricultural life. Nevertheless, it should be our national policy to restrict, as far as possible, the use of these exchanges for purely speculative operations." Franklin D. Roosevelt Page 3 78 Cong. Rec. 2264 (1934.) (Message from the President) See original document-page 3 TABLE OF CONTENTS Page Purpose ................................................................. 1 Summary of H.R. 13113 .................................................. 2 Section by Section ..................................................... 5 Committee Intent ...................................................... 19 Need ................................................................... 33 I Background .......................................................... 33 II Federal Regulation of Futures Trading 34 III Inadequacy of Existing Law 36 Specific Problem Areas ............................................... 39 Committee Consideration ................................................ 53 Departmental Position .................................................. 72 Current and Five Subsequent Year Cost Estimate ......................... 85 Changes in Existing Law ................................................ 86 Appendix I -- The Trading of Futures .................................. 129 Appendix II -- Additional Data Relating to the Commodity Futures Trading .............................................................. 157 Commission ............................................................ 158 Appendix III -- Glossary of Industry Terms ............................ 161 Minority Views of Mr. Price (Tex.), Mr. Baker (Tenn.), Mr. Symms (Idaho), and Mr. Young (S.C.) ........................................ 165 Additional Minority Views of Mr. Goodling (Pa.) and Mr. Baker (Tenn.) .. 167 See original document-page 4 93D CONGRESS 2d Session HOUSE OF REPRESENTATIVES REPORT No. 93-975 COMMODITY FUTURES TRADING COMMISSION ACT OF 1974 APRIL 4, 1974. -- Committed to the Committee of the While House on the State of the Union and ordered to be printed Mr. POAGE, from the Committee on Agriculture, submitted the following REPORT together with MINORITY VIEWS AND ADDITONAL MINORITY VIEWS [To accompany H.R. 13113] The Committee on Agriculture to which was referred the bill (H.R. 13113) to amend the Commodity Exchange Act to strengthen the regulation of futures trading, to bring all agricultural and other commodities traded on exchanges un- Page 4 der regulation, and for other purposes, having considered the same, reports favorably thereon without amendment and recommends that the bill do pass. PURPOSE OF THE LEGISLATION H.R. 13113 is major legislation strengthening the federal regulation of the nation's 400 billion dollar commodity futures trading industry. It provides the first complete overhaul of the Commodity Exchange Act since its inception, and proposes a comprehensive regulatory structure to oversee the volatile and esoteric futures trading complex. H.R. 13113 is a considered approach toward solving both immediate and readily perceivable problems besetting futures markets, and makes several major changes in the role of the Federal Government in regulating all futures trading enterprises. H.R. 13113 is the result of a labor by the Committee on Agriculture that began in August 1973, proceeded through two complete sets of Committee hearings, and the formation of a special ad hoc subcommittee for the drafting of a pre- decessor bill (H.R. 11955). H.R. 13113 is a so-called "clean" bill, embodying the more than fifty changes made by the Committee in H.R. 11955. The Committee believes that, properly implemented, the bill will provide the basis for a stronger futures industry and a stronger economy, See original document-page 5 where producer, merchant, trader, businessman and ultimate consumer of commodities will have access to or benefit from a powerful and responsible economic phenomena that commands deserved respect for the role it plays in the lives of businessmen, producers and consumers in every nation of the world. SUMMARY OF THE MAJOR PROVISIONS OF H.R. 13113, A BILL TO AMEND THE COMMODITY EX- CHANGE ACT, MARCH 1974 The bill is drafted in the form of amendments to the Commodity Exchange Act (7 U.S.C. 1 et seq.) and contains four titles. Title I creates a new five man regulatory commission with certain administrative ties to the Department of Agricul- ture to be called the "Commodity Futures Trading Commission" -- consisting of four public members and the Secretary of Agriculture or his designee. The four public members of the Commission will be appointed by the President from the general public and confirmed by the Senate. Any of the five members of the Commission can be separately nomi- nated by the President as Chairman of the Commission, although such nomination would be subject to separate Senate approval. No more than two of the public members shall be of the same political party. The public members will be appointed for staggered five-year terms and will be compensated at Executive Level IV on a per diem basis for the time they spend in the performance of their official activities. Commission members and staff of the Commission are pro- hibited from participating directly or indirectly in any market operation or transaction subject to regulation by the Commission. The Commission will be allowed to utilize the facilities and services of the Department of Agriculture, at cost, including adequate office space if available. The Commission will be required to meet as often as necessary but not less than one regular meeting per month. Additional meetings may be called by the Chairman or any two members of the Commission. All existing authority under the Commodity Exchange Act presently delegated to the Secretary of Agriculture and the Commodity Exchange Commission will be transferred to the new CFTC. All existing personnel of the CEA will be transferred to and become employees of the CFTC. Provision is made for a Secretary to the Commission, who will be responsible directly to the Commission members. The CFTC is authorized to hire consultants and to contract on its own authority with respect to matters necessary to effectuate the purposes and provisions of the Act. Certain responsi- bilities of the Commission may be delegated to CFTC staff, including an Executive Director who will perform the day to day functions of the operation of the Commission under the direction of the members of the Commission. In addi- tion, the Commission will have its own General Counsel and legal staff as well as independent budgeting capability and its own Administrative Law Judges. Commission budgets are to be independent products of the Commission (subject to OMB) but will be forwarded to the Secretary of Agriculture for transmittal purposes only in the Department of Agri- culture's budget requests. Provision is made for GAO access to books and records of the Commission. Page 5 A customer reparation