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U.S. Code as of:
01/03/05
Section 15b. Cotton futures contracts
(a) Short title
This section may be cited as the "United States Cotton Futures
Act".
(b) Repeal of tax on cotton futures
Subchapter D of chapter 39 of title 26 (relating to tax on cotton
futures) is repealed.
(c) Definitions
For purposes of this section -
(1) Cotton futures contract
The term "cotton futures contract" means any contract of sale
of cotton for future delivery made at, on, or in any exchange,
board of trade, or similar institution or place of business which
has been designated a "contract market" by the Commodity Futures
Trading Commission pursuant to the Commodity Exchange Act [7
U.S.C. 1 et seq.] and the term "contract of sale" as so used
shall be held to include sales, agreements of sale, and
agreements to sell, except that any cotton futures contract that,
by its terms, is settled in cash is excluded from the coverage of
this paragraph and section.
(2) Future delivery
The term "future delivery" shall not include any cash sale of
cotton for deferred shipment or delivery.
(3) Person
The term "person" includes an individual, trust, estate,
partnership, association, company, or corporation.
(4) Secretary
The term "Secretary" means the Secretary of Agriculture of the
United States.
(5) Standards
The term "standards" means the official cotton standards of the
United States established by the Secretary pursuant to the United
States Cotton Standards Act, as amended [7 U.S.C. 51 et seq.].
(d) Bona fide spot markets and commercial differences
(1) Definition
For purposes of this section, the only markets which shall be
considered bona fide spot markets shall be those which the
Secretary shall, from time to time, after investigation,
determine and designate to be such, and of which he shall give
public notice.
(2) Determination
In determining, pursuant to the provisions of this section,
what markets are bona fide spot markets, the Secretary is
directed to consider only markets in which spot cotton is sold in
such volume and under such conditions as customarily to reflect
accurately the value of middling cotton and the differences
between the prices or values of middling cotton and of other
grades of cotton for which standards shall have been established
by the Secretary; except that if there are not sufficient places,
in the markets of which are made bona fide sales of spot cotton
of grades for which standards are established by the Secretary,
to enable him to designate at least five spot markets in
accordance with subsection (f)(3) of this section, he shall, from
data as to spot sales collected by him, make rules and
regulations for determining the actual commercial differences in
the value of spot cotton of the grades established by him as
reflected by bona fide sales of spot cotton, of the same or
different grades, in the market selected and designated by him,
from time to time, for that purpose, and in that event
differences in value of cotton of various grades involved in
contracts made pursuant to subsection (f)(1) and (2) of this
section shall be determined in compliance with such rules and
regulations. It shall be the duty of any person engaged in the
business of dealing in cotton, when requested by the Secretary or
any agent acting under his instructions, to answer correctly to
the best of his knowledge, under oath or otherwise, all questions
touching his knowledge of the number of bales, the
classification, the price or bona fide price offered, and other
terms of purchase or sale, of any cotton involved in any
transaction participated in by him, or to produce all books,
letters, papers, or documents in his possession or under his
control relating to such matter. A person complying with the
preceding sentence shall not be liable for any loss or damage
arising or resulting from such compliance.
(3) Withholding information
Any person engaged in the business of dealing in cotton who
shall, within a reasonable time prescribed by the Secretary or
any agent acting under his instructions, willfully fail or refuse
to answer questions or to produce books, letters, papers, or
documents, as required under paragraph (2) of this subsection, or
who shall willfully give any answer that is false or misleading,
shall, upon conviction thereof, be fined not more than $500.
(e) Form and validity of cotton futures contracts
Each cotton futures contract shall be a basis grade contract, or
a tendered grade contract, or a specific grade contract as
specified in subsections (f), (g), or (h) of this section and shall
be in writing plainly stating, or evidenced by written memorandum
showing, the terms of such contract, including the quantity of the
cotton involved and the names and addresses of the seller and buyer
in such contract, and shall be signed by the party to be charged,
or by his agent in his behalf. No cotton futures contract which
does not conform to such requirements shall be enforceable by, or
on behalf of, any party to such contract or his privies.
(f) Basis grade contracts
(1) Conditions
Each basis grade cotton futures contract shall comply with each
of the following conditions:
(A) Conformity with regulations
Conform to the regulations made pursuant to this section.
(B) Specification of grade, price, and dates of sale and
settlement
Specify the basis grade for the cotton involved in the
contract, which shall be one of the grades for which standards
are established by the Secretary, except grades prohibited from
being delivered on a contract made under this subsection by
subparagraph (E), the price per pound at which the cotton of
such basis grade is contracted to be bought or sold, the date
when the purchase or sale was made, and the month or months in
which the contract is to be fulfilled or settled; except that
middling shall be deemed the basis grade incorporated into the
contract if no other basis grade be specified either in the
contract or in the memorandum evidencing the same.
(C) Provision for delivery of standard grades only
Provide that the cotton dealt with therein or delivered
thereunder shall be of or within the grades for which standards
are established by the Secretary except grades prohibited from
being delivered on a contract made under this subsection by
subparagraph (E) and no other grade or grades.
(D) Provision for settlement on basis of actual commercial
differences
Provide that in case cotton of grade other than the basis
grade be tendered or delivered in settlement of such contract,
the differences above or below the contract price which the
receiver shall pay for such grades other than the basis grade
shall be the actual commercial differences, determined as
here-inafter provided.
(E) Prohibition of delivery of inferior cotton
Provide that cotton that, because of the presence of
extraneous matter of any character, or irregularities or
defects, is reduced in value below that of low middling, or
cotton that is below the grade of low middling, or, if tinged,
cotton that is below the grade of strict middling, or, if
yellow stained, cotton that is below the grade of good
middling, the grades mentioned being of the official cotton
standards of the United States, or cotton that is less than
seven-eighths of an inch in length of staple, or cotton of
perished staple, or of immature staple, or cotton that is "gin
cut" or reginned, or cotton that is "repacked" or "false
packed" or "mixed packed" or "water packed", shall not be
delivered on, under, or in settlement of such contract.
(F) Provisions for tender in full, notice of delivery date, and
certificate of grade
Provide that all tenders of cotton under such contract shall
be the full number of bales involved therein, except that such
variations of the number of bales may be permitted as is
necessary to bring the total weight of the cotton tendered
within the provisions of the contract as to weight; that, on
the fifth business day prior to delivery, the person making the
tender shall give to the person receiving the same written
notice of the date of delivery, and that, on or prior to the
date so fixed for delivery, and in advance of final settlement
of the contract, the person making the tender shall furnish to
the person receiving the same a written notice or certificate
stating the grade of each individual bale to be delivered and,
by means of marks or numbers, identifying each bale with its
grade.
(G) Provision for tender and settlement in accordance with
Government classification
Provide that all tenders of cotton and settlements therefor
under such contract shall be in accordance with the
classification thereof made under the regulations of the
Secretary by such officer or officers of the Government as
shall be designated for the purpose, and the costs of such
classification shall be fixed, assessed, collected, and paid as
provided in such regulations and shall be credited to the
account referred to in section 55 of this title. The Secretary
may provide by regulation conditions under which cotton samples
submitted or used in the performance of services authorized by
this act shall become the property of the United States and may
be sold and the proceeds credited to the foregoing account:
Provided, That such cotton samples shall not be subject to the
provisions of the Federal Property and Administrative Services
Act of 1949.(!1) The Secretary is authorized to prescribe
regulations for carrying out the purposes of this subparagraph
and the certificates of the officers of the Government as to
the classification of any cotton for the purposes of this
subparagraph shall be accepted in the courts of the United
States in all suits between the parties to such contract, or
their privies, as prima facie evidence of the true
classification of the cotton involved.
(2) Incorporation of conditions in contracts
The provisions of paragraphs (1)(C), (D), (E), (F), and (G)
shall be deemed fully incorporated into any such contract if
there be written or printed thereon, or on the memorandums
evidencing the same, at or prior to the time the same is signed,
the phrase "Subject to United States Cotton Futures Act,
subsection (f)."
(3) Delivery allowances
For the purpose of this subsection, the differences above or
below the contract price which the receiver shall pay for cotton
of grades above or below the basic (!2) grade in the settlement
of a contract of sale for the future delivery of cotton shall be
determined by the actual commercial differences in value thereof
upon the sixth business day prior to the day fixed, in accordance
with paragraph (1)(F), for the delivery of cotton on the
contract, established by the sale of spot cotton in the spot
markets of not less than five places designated for the purpose
from time to time by the Secretary, as such values were
established by the sales of spot cotton, in such designated five
or more markets. For purposes of this paragraph, such values in
the such spot markets shall be based upon the standards for
grades of cotton established by the Secretary. Whenever the value
of one grade is to be determined from the sale or sales of spot
cotton of another grade or grades, such value shall be fixed in
accordance with rules and regulations which shall be prescribed
for the purpose by the Secretary.
(g) Tendered grade contracts
(1) Conditions
Each tendered grade cotton future contract shall comply with
each of the following conditions:
(A) Compliance with subsection (f)
Comply with all the terms and conditions of subsection (f) of
this section not inconsistent with this subsection; and
(B) Provision for contingent specific performance
Provide that, in case cotton of grade or grades other than
the basis grade specified in the contract shall be tendered in
performance of the contract, the parties to such contract may
agree, at the time of the tender, as to the price of the grade
or grades so tendered, and that if they shall not then agree as
to such price, then, and in that event, the buyer of said
contract shall have the right to demand the specific
fulfillment of such contract by the actual delivery of cotton
of the basis grade named therein and at the price specified for
such basis grade in said contract.
(2) Incorporation of conditions in contract
Contracts made in compliance with this subsection shall be
known as "subsection (g) Contracts". The provisions of this
subsection shall be deemed fully incorporated into any such
contract if there be written or printed thereon, or on the
memorandum evidencing the same, at or prior to the time the same
is signed, the phrase "Subject to United States Cotton Futures
Act, subsection (g)".
(3) Application of subsection
Nothing in this subsection shall be so construed as to
authorize any contract in which, or in the settlement of or in
respect to which, any device or arrangement whatever is resorted
to, or any agreement is made, for the determination or adjustment
of the price of the grade or grades tendered other than the basis
grade specified in the contract by any "fixed difference" system,
or by arbitration, or by any other method not provided for by
this section.
(h) Specific grade contracts
(1) Conditions
Each specific grade cotton futures contract shall comply with
each of the following conditions:
(A) Conformity with rules and regulations
Conform to the rules and regulations made pursuant to this
section.
(B) Specification of grade, price, dates of sale and delivery
Specify the grade, type, sample, or description of the cotton
involved in the contract, the price per pound at which such
cotton is contracted to be bought or sold, the date of the
purchase or sale, and the time when shipment or delivery of
such cotton is to be made.
(C) Prohibition of delivery of other than specified grade
Provide that cotton of or within the grade or of the type, or
according to the sample or description, specified in the
contract shall be delivered thereunder, and that no cotton
which does not conform to the type, sample, or description, or
which is not of or within the grade specified in the contract
shall be tendered or delivered thereunder.
(D) Provision for specific performance
Provide that the delivery of cotton under the contract shall
not be effected by means of "setoff" or "ring" settlement, but
only by the actual transfer of the specified cotton mentioned
in the contract.
(2) Incorporation of conditions in contract
The provisions of paragraphs (1)(A), (C), and (D) shall be
deemed fully incorporated into any such contract if there be
written or printed thereon, or on the document or memorandum
evidencing the same, at or prior to the time the same is entered
into, the words "Subject to United States Cotton Futures Act,
subsection (h)".
(3) Application of subsection
This subsection shall not be construed to apply to any contract
of sale made in compliance with subsection (f) or (g) of this
section.
(i) Liability of principal for acts of agent
When construing and enforcing the provisions of this section, the
act, omission, or failure of any official, agent, or other person
acting for or employed by any association, partnership, or
corporation within the scope of his employment or office shall, in
every case, also be deemed the act, omission, or failure of such
association, partnership, or corporation, as well as that of the
person.
(j) Regulations
The Secretary is authorized to make such regulations with the
force and effect of law as he determines may be necessary to carry
out the provisions of this section and the powers vested in him by
this section.
(k) Violations
Any person who knowingly violates any regulation made in
pursuance of this section, shall, upon conviction thereof, be fined
not less than $100 nor more than $500, for each violation thereof,
in the discretion of the court, and, in case of natural persons,
may, in addition be punished by imprisonment for not less than 30
days nor more than 90 days, for each violation, in the discretion
of the court except that this subsection shall not apply to
violations subject to subsection (d)(3) of this section.
(l) Applicability to contracts prior to effective date
The provisions of this section shall not apply to any cotton
futures contract entered into prior to the effective date of this
section or to any act or failure to act by any person prior to such
effective date and all such prior contracts, acts or failure to act
shall continue to be governed by the applicable provisions of the
Internal Revenue Code of 1954 (!1) as in effect prior to the
enactment of this section. All designations of bona fide spot
markets and all rules and regulations issued by the Secretary
pursuant to the applicable provisions of the Internal Revenue Code
of 1954 (!1) which were in effect on the effective date of this
section, shall remain fully effective as designations and
regulations under this section until superseded, amended, or
terminated by the Secretary.
(m) Authorization
There are authorized to be appropriated such sums as may be
necessary to carry out this section.
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