H.R. 3009 — Introduced in House

I 113th CONGRESS 1st Session H. R. 3009 IN THE HOUSE OF REPRESENTATIVES August 2, 2013 Mr. Capuano introduced the following bill; which was referred to the Committee on Agriculture A BILL To protect investors in futures contracts. 1. Short title This Act may be cited as the Futures Investor Protection Act. 2. Futures investors protection fund (a) Futures investor protection corporation (1) Creation and membership (A) Creation There is established a nonprofit corporation to be known as the Futures Investor Protection Corporation (in this Act referred to as the FIPC), which shall not be an agency or establishment of the United States Government. (B) Membership (i) Members of fipc The FIPC shall be a membership corporation the members of which shall be all persons registered under the Commodity Exchange Act with the Commission as a futures commission merchant, other than persons whose principal business, in the determination of the FIPC, taking into account business of affiliated entities, is conducted outside the United States and its territories and possessions. (ii) Commission review; additional members Subparagraphs (B) and (C) of section 3(a)(2) of SIPA shall apply with respect to determinations of the FIPC in the same way the subparagraphs apply with respect to determinations of the SIPC and to brokers and dealers referred to in such subparagraph (D). (iii) Disclosure Section 3(a)(2)(D) of SIPA shall apply to futures commission merchants in the same way the section applies to brokers and dealers referred to in such section. (2) Powers The FIPC shall have all the powers conferred on the SIPC. (3) Board of directors (A) Functions The FIPC shall have a Board of Directors which, subject to the provisions of this Act, shall determine the policies which shall govern the operations of FIPC. (B) Number and appointment The Board of Directors shall consist of 7 persons as follows: (i) 1 director shall be appointed by the Secretary of the Treasury from among the officers and employees of the Department of the Treasury. (ii) 1 director shall be appointed by the Board of Governors of the Federal Reserve System from among the officers and employees of that Board. (iii) 5 directors shall be appointed by the President, by and with the advice and consent of the Senate, as follows: (I) 3 directors shall be selected from among persons who are associated with, and representative of different aspects of, the futures industry, not all of whom shall be from the same geographical area of the United States. (II) 2 directors shall be selected from the general public from among persons who are not associated with a futures commission merchant or a contract market, or similarly associated with any self-regulatory organization or other futures industry group, and who have not had any such association during the 2 years preceding appointment. (C) Chairman and vice chairman The President shall designate a Chairman and Vice Chairman from among those directors appointed under subparagraph (B)(iii)(II). (D) Terms (i) In general Except as provided in clauses (ii) and (iii), each director shall be appointed for a term of 3 years. (ii) Initially appointed members Of the directors first appointed under subparagraph (B)— (I) 2 shall hold office for a term expiring on December 31, 2014; (II) 2 shall hold office for a term expiring on December 31, 2015; and (III) 3 shall hold office for a term expiring on December 31, 2016, as designated by the President at the time they take office. The designation shall be made in a manner which will assure that no 2 persons appointed under the authority of the same subclause of subparagraph (B)(iii) shall have terms which expire simultaneously. (iii) Vacancies A vacancy in the Board shall be filled in the same manner as the original appointment was made. Any director appointed to fill a vacancy occurring prior to the expiration of the term for which the predecessor of the director was appointed shall be appointed only for the remainder of the term. A director may serve after the expiration of the term for which appointed until the successor of the director has taken office. (E) Compensation All matters relating to compensation of directors shall be as provided in the bylaws of the FIPC. (4) Meetings of board; bylaws and rules Subsections (d) and (e) of section 3 of SIPA shall apply with respect to the FIPC and the Commission in the same way the subsections apply with respect to the SIPC and the Securities and Exchange Commission. (b) FIPC fund (1) In general The FIPC shall establish, and make deposits into and payments from, an FIPC fund (in this Act referred to as the fund) in the same manner in which the SIPC has established, and is authorized to make deposits into and payments from, the SIPC fund. (2) Assessments The FIPC shall impose on its members assessments subject to the same rules that apply to the imposition by the SIPC of assessments on the members of the SIPC. (c) Other provisions Sections 5 through 16 of the SIPA shall apply with respect to the FIPC and the members, directors, officers, and employees of the FIPC, the Commission, the FIPC fund, futures commission merchants and their affiliates, futures contracts, futures transactions, customers, and debtors in the same way the sections apply with respect to the SIPC and the members, directors, officers, and employees of the SIPC, the Securities and Exchange Commission, the SIPC fund, persons registered as brokers or dealers (as defined in section 16(12) of the SIPA) and their affiliates, securities, securities transactions, customers (as defined in section 16(2) of the SIPA), and debtors (as defined in section 16(5) of the SIPA), respectively. (d) Definitions In this section: (1) Commission The term Commission means the Commodity Futures Trading Commission. (2) Contract market The term contract market means a board of trade designated as a contract market under the Commodity Exchange Act. (3) Futures contract The term futures contract means a contract of sale of a commodity for future delivery, within the meaning of the Commodity Exchange Act. (4) Futures commission merchant The term futures commission merchant has the meaning given the term in section 1a(28) of the Commodity Exchange Act. (5) SIPA The term SIPA means the Security Investors Protection Act of 1970. (6) SIPC The term SIPC means the Security Investors Protection Corporation. (7) SIPC fund The term SIPC fund means the fund established under section 4(a)(1) of the SIPA. 3. Suitability rules (a) In general The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by inserting after section 4t the following: 4u. Suitability rules (a) In general (1) Recommendations must be suitable for the customer A futures commission merchant shall not recommend a transaction or investment strategy involving a contract of sale of a commodity for future delivery, unless the futures commission merchant has a reasonable basis to believe that the transaction or investment strategy is suitable for the customer, based on the information obtained through the reasonable diligence of the futures commission merchant to ascertain the customer's investment profile. A customer's investment profile includes, but is not limited to, the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the futures commission merchant in connection with the recommendation. (2) Safe harbor in certain cases A futures commission merchant is deemed to comply with paragraph (1) in the case of a customer with an institutional account, if— (A) the futures commission merchant has a reasonable basis to believe that the customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a contract of sale of a commodity for future delivery; and (B) the customer affirmatively indicates that it is exercising independent judgment in evaluating the recommendations of the futures commission merchant. (b) Applicability with respect to certain agents If a customer with an institutional account has delegated decisionmaking authority to an agent, subsection (a) shall be applied with respect to the agent. (c) Institutional account defined In this section, the term institutional account means the account of— (1) a bank, savings and loan association, insurance company or registered investment company; (2) an investment adviser registered with the Securities and Exchange Commission under section 203 of the Investment Advisers Act or with a State securities commission (or any agency or office performing like functions); or (3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50,000,000. (d) Penalties The Commission may impose 1 or more of the following sanctions on a person found by the Commission to have violated this section or to have neglected or refused to comply with an order issued by the Commission under this section: (1) Censure. (2) A fine. (3) Expulsion of the person from, or revocation of the membership of the person in, a registered entity. (4) Suspension for a definite period or a period contingent on the performance of a particular act, or revocation, of the registration of the person under this Act with the Commission as a futures commission merchant. (5) Suspension or bar of the person from association with any other futures commission merchant. (6) A temporary or permanent cease and desist order against the person. (7) Any other fitting sanction. . (b) Effective date Within 6 months after the date of the enactment of this Act, the Commodity Futures Trading Commission shall issue regulations for the implementation of the amendment made by subsection (a). 4. Review of proof of claims rules (a) In general The Commodity Futures Trading Commission shall review the guidelines for establishing account classes and determining the basis for pro rata shares under, and the sample claim form set forth in, part 190 of title 17, Code of Federal Regulations, and consider the desirability of allowing use of a set date for valuation purposes rather than the date of actual liquidation of positions. (b) Report to the Congress Within 1 year after the date of the enactment of this Act, the Commodity Futures Trading Commission shall submit to the Congress a written report that contains the findings of the Commission with respect to the matters referred to in subsection (a), and includes such changes to the regulations in such part as the Commission deems appropriate.