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U.S. Code as of:
01/03/05
Section 6c. Prohibited transactions
(a) In general
(1) Prohibition
It shall be unlawful for any person to offer to enter into,
enter into, or confirm the execution of a transaction described
in paragraph (2) involving the purchase or sale of any commodity
for future delivery (or any option on such a transaction or
option on a commodity) if the transaction is used or may be used
to -
(A) hedge any transaction in interstate commerce in the
commodity or the product or byproduct of the commodity;
(B) determine the price basis of any such transaction in
interstate commerce in the commodity; or
(C) deliver any such commodity sold, shipped, or received in
interstate commerce for the execution of the transaction.
(2) Transaction
A transaction referred to in paragraph (1) is a transaction
that -
(A)(i) is, of the character of, or is commonly known to the
trade as, a "wash sale" or "accommodation trade"; or
(ii) is a fictitious sale; or
(B) is used to cause any price to be reported, registered, or
recorded that is not a true and bona fide price.
(b) Regulated option trading
No person shall offer to enter into, enter into or confirm the
execution of, any transaction involving any commodity regulated
under this chapter which is of the character of, or is commonly
known to the trade as, an "option", "privilege", "indemnity",
"bid", "offer", "put", "call", "advance guaranty", or "decline
guaranty", contrary to any rule, regulation, or order of the
Commission prohibiting any such transaction or allowing any such
transaction under such terms and conditions as the Commission shall
prescribe. Any such order, rule, or regulation may be made only
after notice and opportunity for hearing, and the Commission may
set different terms and conditions for different markets.
(c) Regulations for elimination of pilot status of commodity option
transactions; terms and conditions of options trading
Not later than 90 days after November 10, 1986, the Commission
shall issue regulations -
(1) to eliminate the pilot status of its program for commodity
option transactions involving the trading of options on contract
markets, including any numerical restrictions on the number of
commodities or option contracts for which a contract market may
be designated; and
(2) otherwise to continue to permit the trading of such
commodity options under such terms and conditions that the
Commission from time to time may prescribe.
(d) Dealer options exempt from subsections (b) and (c)
prohibitions; requirements
Notwithstanding the provisions of subsection (c) of this section
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(1) any person domiciled in the United States who on May 1,
1978, was in the business of granting an option on a physical
commodity, other than a commodity specifically set forth in
section 2(a) of this title prior to October 23, 1974, and was in
the business of buying, selling, producing, or otherwise using
that commodity, may continue to grant or issue options on that
commodity in accordance with Commission regulations in effect on
August 17, 1978, until thirty days after the effective date of
regulations issued by the Commission under clause (2) of this
subsection: Provided, That if such person files an application
for registration under the regulations issued under clause (2) of
this subsection within thirty days after the effective date of
such regulations, that person may continue to grant or issue
options pending a final determination by the Commission on the
application; and
(2) the Commission shall issue regulations that permit grantors
and futures commission merchants to offer to enter into, enter
into, or confirm the execution of, any commodity option
transaction on a physical commodity subject to the provisions of
subsection (b) of this section, other than a commodity
specifically set forth in section 2(a) of this title prior to
October 23, 1974, if -
(A) the grantor is a person domiciled in the United States
who -
(i) is in the business of buying, selling, producing, or
otherwise using the underlying commodity;
(ii) at all times has a net worth of at least $5,000,000
certified annually by an independent public accountant using
generally accepted accounting principles;
(iii) notifies the Commission and every futures commission
merchant offering the grantor's option if the grantor knows
or has reason to believe that the grantor's net worth has
fallen below $5,000,000;
(iv) segregates daily, exclusively for the benefit of
purchasers, money, exempted securities (within the meaning of
section 78c(a)(12) of title 15), commercial paper, bankers'
acceptances, commercial bills, or unencumbered warehouse
receipts, equal to an amount by which the value of each
transaction exceeds the amount received or to be received by
the grantor for such transaction;
(v) provides an identification number for each transaction;
and
(vi) provides confirmation of all orders for such
transactions executed, including the execution price and a
transaction identification number;
(B) the futures commission merchant is a person who -
(i) has evidence that the grantor meets the requirements
specified in subclause (A) of this clause;
(ii) treats and deals with all money, securities, or
property received from its customers as payment of the
purchase price in connection with such transactions, as
belonging to such customers until the expiration of the term
of the option, or, if the customer exercises the option,
until all rights of the customer under the commodity option
transaction have been fulfilled;
(iii) records each transaction in its customer's name by
the transaction identification number provided by the
grantor;
(iv) provides a disclosure statement to its customers,
under regulations of the Commission, that discloses, among
other things, all costs, including any markups or commissions
involved in such transaction; and
(C) the grantor and futures commission merchant comply with
any additional uniform and reasonable terms and conditions the
Commission may prescribe, including registration with the
Commission.
The Commission may permit persons not domiciled in the United
States to grant options under this subsection, other than options
on a commodity specifically set forth in section 2(a) of this title
prior to October 23, 1974, under such additional rules,
regulations, and orders as the Commission may adopt to provide
protection to purchasers that are substantially the equivalent of
those applicable to grantors domiciled in the United States. The
Commission may terminate the right of any person to grant, offer,
or sell options under this subsection only after a hearing,
including a finding that the continuation of such right is contrary
to the public interest: Provided, That pending the completion of
such termination proceedings, the Commission may suspend the right
to grant, offer, or sell options of any person whose activities in
the Commission's judgment present a substantial risk to the public
interest.
(e) Rules and regulations
The Commission may adopt rules and regulations, after public
notice and opportunity for a hearing on the record, prohibiting the
granting, issuance, or sale of options permitted under subsection
(d) of this section if the Commission determines that such options
are contrary to the public interest.
(f) Nonapplicability to foreign currency options
Nothing in this chapter shall be deemed to govern or in any way
be applicable to any transaction in an option on foreign currency
traded on a national securities exchange.
(g) Oral orders
The Commission shall adopt rules requiring that a contemporaneous
written record be made, as practicable, of all orders for execution
on the floor or subject to the rules of each contract market or
derivatives transaction execution facility placed by a member of
the contract market or derivatives transaction execution facility
who is present on the floor at the time such order is placed.
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