§6j. Regulation of trades and executions

(a) Dual trading prohibited; exemptions

(1) The Commission shall issue regulations to prohibit the privilege of dual trading on each contract market which has not been exempted from such regulations under paragraph (3). The regulations issued by the Commission under this paragraph-

(A) shall provide that the prohibition of dual trading thereunder shall take effect not less than thirty days after the issuance of the regulations;

(B) shall provide for exceptions, as the Commission determines necessary and appropriate, to ensure fairness and orderly trading in affected contract markets, including-

(i) transition measures and a reasonable phase-in period,

(ii) exceptions for spread transactions and the correction of trading errors,

(iii) allowance for a customer to designate in writing not less than once annually a named floor broker to execute orders for such customer, notwithstanding the regulations to prohibit the privilege of dual trading required under this paragraph, and

(iv) other measures reasonably designed to accommodate unique or special characteristics of individual boards of trade or contract markets, to address emergency or unusual market conditions, or otherwise to further the public interest;

(C) shall establish procedures for the application for and issuance of exemptions under paragraph (3) which, among other things, shall specify the relevant data required to be submitted by the board of trade with each application;

(D) shall specify the methodology by which it shall determine the average daily trading volume on a contract market for purposes of paragraph (4) based on a moving daily average of either six or twelve months; and

(E) shall establish an expeditious procedure to revoke an exemption granted under paragraph (3) providing sufficient notice, opportunity for hearing, and findings to assure fundamental fairness.

(2) As used in this section, the term "dual trading" means the execution of customer orders by a floor broker during any trading session in which the floor broker executes any trade in the same contract market for-

(A) the account of such floor broker;

(B) an account for which such floor broker has trading discretion; or

(C) an account controlled by a person with whom such floor broker is subject to trading restrictions under subsection (d) of this section.

(3) The Commission shall exempt a contract market from the regulations issued under paragraph (1), either unconditionally or on stated conditions (including stated periods of time) relevant to the attainment or maintenance of compliance with the standards in subparagraphs (A) and (B), upon finding that-

(A) the trade monitoring system in place at the contract market satisfies the requirements of section 7a(b) of this title with regard to violations attributable to dual trading at such contract market; or

(B)(i) there is a substantial likelihood that a dual trading suspension would harm the public interest in hedging or price basing at such contract market, and

(ii) other corrective actions, such as those described in section 12e of this title, are sufficient and appropriate to bring the contract market into compliance with the standard in subparagraph (A).

(4)(A) The regulations issued by the Commission under paragraph (1) shall not apply to any contract market in which the Commission determines that the average daily trading volume is less than the threshold trading level established for the contract market under this paragraph.

(B) The threshold trading level shall be set initially at eight thousand contracts.

(C) The Commission may, by rule or order-

(i) increase, or

(ii) at any time following the date three years after October 28, 1992, decrease,

the threshold trading level for specific contract markets after taking into consideration the actual or potential effects of a dual trading ban on the public interest in hedging or price basing at the affected contract market.

(D) The Commission shall provide the affected contract market with adequate notice of any such increase or decrease.

(5) Before the Commission denies an application for an exemption under paragraph (3) or exempts a contract market subject to conditions, it shall-

(A) provide the affected board of trade with notice of the reason or reasons that the application was not approved as submitted, including-

(i) any reason the Commission has to believe that the trade monitoring system in place at the contract market does not satisfy the requirements of paragraph (3)(A) and the basis for such reason;

(ii) any corrective action or actions, such as those described in section 12e of this title, that the Commission believes the affected contract market must take to satisfy the requirements of paragraph (3)(A), and an acceptable timetable for such corrective action; and

(iii) any conditions or limitations that the Commission proposes to attach to the exemption under paragraph (3);

(B) provide the affected board of trade with an opportunity for a hearing through submission of written data, views, or arguments and, under terms set by the Commission at the request of the board of trade, through an oral presentation of views and comments to the Commission, in order to make the demonstration required under paragraph (3) or otherwise to petition the Commission with respect to its application; and

(C) make findings, based on the information, views, and arguments placed before it in connection with the application, as to whether-

(i) the standard in either paragraph (3)(A) or (3)(B) applies, and

(ii) any conditions or limitations which the Commission proposes to attach under paragraph (3) are appropriate in light of the purposes of this subsection.

The Commission shall publish in the Federal Register notice of any exemptive petitions filed under paragraph (3) and any proposed or final actions the Commission may take on such petitions. Unless the Commission determines that more immediate action is appropriate in the public interest, any Commission order denying an application or exempting a contract market conditionally shall not take effect for at least twenty days following the issuance of the order.

(6) Violation of an order issued under this subsection shall be considered a violation of an order of the Commission for purposes of-

(i) establishing liability and assessing penalties against a contract market or any director, officer, agent, or employee thereof under section 13a or 13a–1 of this title; or

(ii) initiating proceedings under section 7b or 8(a) of this title.

(7) Any board of trade which has applied to the Commission to exempt a contract market from the regulations issued under paragraph (1) may obtain judicial review of any final action of the Commission to deny such application, to issue an exemption subject to conditions, or to revoke an exemption, only in the United States Court of Appeals for the circuit in which the party seeking review resides or has its principal place of business, or in the United States Court of Appeals for the District of Columbia Circuit, under the standards applicable to rulemaking proceedings under section 553 of title 5.

(8)(A) The Commission shall issue the regulations required under paragraph (1) not later than two hundred and seventy days after October 28, 1992. If, prior to the effective date of the prohibition on dual trading under such regulations, a board of trade submits to the Commission an application for an exemption for a contract market under paragraph (3), the Commission shall not apply the prohibition against dual trading under paragraph (1) to the contract market until the Commission has approved or denied the application.

(B) The Commission shall approve or deny any application for an exemption under paragraph (3) within seventy-five days after receipt of the application, or as soon as practicable.

(b) Trades and executions by floor brokers

If, in addition to the regulations issued pursuant to subsection (a) of this section, the Commission has reason to believe that dual trading-related or facilitated abuses are not being or cannot be effectively addressed by subsection (a) of this section, the Commission shall make a determination, after notice and opportunity for hearing, whether or not a floor broker may trade for his own account or any account in which such broker has trading discretion, and also execute a customer's order for future delivery and, if the Commission determines that such trades and such executions shall be permitted, the Commission shall further determine the terms, conditions, and circumstances under which such trades and such executions shall be conducted: Provided, That any such determination shall, at a minimum, take into account the effect upon the liquidity of trading of each market: And provided further, That nothing herein shall be construed to prohibit the Commission from making separate determinations for different contract markets when such are warranted in the judgment of the Commission, or to prohibit contract markets from setting terms and conditions more restrictive than those set by the Commission.

(c) Trades by futures commission merchants

The Commission shall within nine months after the effective date of the Commodity Futures Trading Commission Act of 1974, and subsequently when it determines that changes are required, make a determination, after notice and opportunity for hearing, whether or not a futures commission merchant may trade for its own account or any proprietary account, as defined by the Commission, and if the Commission determines that such trades shall be permitted, the Commission shall further determine the terms, conditions, and circumstances under which such trades shall be conducted: Provided, That any such determination, at a minimum, shall take into account the effect upon the liquidity of trading of each market: And provided further, That nothing herein shall be construed to prohibit the Commission from making separate determinations for different contract markets when such are warranted in the judgment of the Commission, or to prohibit contract markets from setting terms and conditions more restrictive than those set by the Commission.

(d) Restrictions on trading among members of broker associations

(1) Except as provided in paragraph (2), a floor broker may not execute an order of a customer if such floor broker knows the opposite party to the transaction to be a floor broker or floor trader with whom such trader or broker has a relationship involving trading on such contract market as-

(A) a partner in a partnership;

(B) an employer or employee; or

(C) Such ¹ other affiliation as the Commission may specify by rule.

(2) Paragraph (1) shall not apply-

(A) if the Commission has adopted rules that the Commission certifies to Congress require procedures and standards designed to prevent violations of this chapter attributable to the trading described in paragraph (1); or

(B) to any contract market that has implemented rules designed to prevent violations of this chapter attributable to the trading described in paragraph (1), except that, if the Commission determines, by rule or order, that such rules are not adequate to prevent such violations, paragraph (1) shall become effective with respect to such contract market after a reasonable period determined by the Commission.

(Sept. 21, 1922, ch. 369, §4j, as added Pub. L. 93–463, title II, §203, Oct. 23, 1974, 88 Stat. 1396 ; amended Pub. L. 94–16, §2, Apr. 16, 1975, 89 Stat. 77 ; Pub. L. 102–546, title I, §§101, 102(a), Oct. 28, 1992, 106 Stat. 3591 , 3594.)

References in Text

For the effective date of the Commodity Futures Trading Commission Act of 1974, referred to in subsec. (c), see section 418 of Pub. L. 93–463, set out as an Effective Date of 1974 Amendment note under section 2 of this title.

Amendments

1992-Subsec. (a). Pub. L. 102–546, §101(a)(3), added subsec. (a).

Subsec. (b). Pub. L. 102–546, §101(a)(1), (2), redesignated par. (1) as subsec. (b) and substituted "If, in addition to the regulations issued pursuant to subsection (a) of this section, the Commission has reason to believe that dual trading-related or facilitated abuses are not being or cannot be effectively addressed by subsection (a) of this section, the Commission shall" for "The Commission shall within nine months after the effective date of the Commodity Futures Trading Commission Act of 1974, and subsequently when it determines that changes are required,".

Subsec. (c). Pub. L. 102–546, §101(a)(1), redesignated par. (2) as subsec. (c).

Subsec. (d). Pub. L. 102–546, §102(a), added subsec. (d).

1975-Pub. L. 94–16 substituted "nine months" for "six months" in pars. (1) and (2).

Effective Date of 1992 Amendment

Section 102(b) of Pub. L. 102–546 provided that: "The amendment made by subsection (a) [amending this section] shall become effective two hundred and seventy days after the date of enactment of this Act [Oct. 28, 1992]."

Effective Date

For effective date of section, see section 418 of Pub. L. 93–463, set out as an Effective Date of 1974 Amendment note under section 2 of this title.

Section Referred to in Other Sections

This section is referred to in sections 7a, 12e of this title.

¹ So in original. Probably should not be capitalized.