[Pages S10600-S10609]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. CHAFEE (for himself and Mr. Rockefeller):
S. 2075. A bill to amend title XVIII of the Social Security Act to
provide additional consumer protections for medicare supplemental
insurance; to the Committee on Finance.

The Medigap Portability Act of 1996

<bullet> Mr. CHAFEE. Mr. President, last month, the President signed
into law bipartisan legislation that provides greater portability of
health insurance for working Americans. Today, I join with my
colleague, Senator Rockefeller, in the introduction of a bipartisan
bill that will provide some of the same guarantees for seniors who buy
Medicare supplemental insurance or Medigap policies.
Of the 37 million Medicare beneficiaries, 80 percent, or nearly 30
million, have some form of Medicare supplemental insurance, whether
covered through a retiree health plan or a private Medigap policy.
Under current law, Medigap insurers must issue these policies without
pre-existing condition limitations during the 6-month period
immediately after the beneficiary becomes eligible for Medicare. Our
bill does three things for seniors who have purchased Medigap
insurance.
First, it guarantees that if their plan goes out of business or the
beneficiary moves out of a plan service area, he or she can buy another
comparable policy. These rules also would apply to a senior who has had
coverage under a retiree health plan if their plan goes out of
business.
Second, it encourages seniors to enroll in Medicare managed care by
guaranteeing that they can return to Medicare fee-for-service and,
during the first year of enrollment, get back their same Medigap policy
if they decide they do not like managed care. Under current law, if a
senior wishes to enroll in a Medicare managed care plan, they have two
options. They may drop their Medigap policy, and hope they can get
another if they go back to fee-for-service, or they can continue paying
their Medigap premiums in the event that they may need the policy again
some day--a very costly option for those on fixed incomes.
Third, it provides a 6-month open enrollment period for those under
65 who become Medicare beneficiaries because they are disabled. Under
current Federal law, Medicare beneficiaries are offered a 6-month open
enrollment period only if they are 65. There are approximately 4
million Americans who are under 65 years of age and are enrolled in the
Medicare Program. Currently, they do not currently have access to
Medigap policies unless State laws require insurers to offer policies
to them.
It is true that this bill does not go as far as some advocacy groups
would like. Our bill leaves to the States more controversial issues,
such as continuous open enrollment and community rating of Medigap
premiums. I believe, however, that this legislation will provide
seniors the same guarantees that we provided to working Americans under
the Kassebaum-Kennedy legislation. Thank you, Mr. President.
I ask unanimous consent that the text of the bill be included in the
Record immediately following my remarks.
There being no objection, the bill was ordered to be printed in the
Record, as follows:

S. 2075

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Medigap Portability Act of
1996''.

SEC. 2. MEDIGAP AMENDMENTS.

(a) Guaranteeing Issue Without Preexisting Conditions for
Continuously Covered Individuals.--Section 1882(s) of the
Social Security Act (42 U.S.C. 1395ss(s)) is amended--
(1) in paragraph (3), by striking ``paragraphs (1) and
(2)'' and inserting ``this subsection'',
(2) by redesignating paragraph (3) as paragraph (4), and
(3) by inserting after paragraph (2) the following new
paragraph:
``(3)(A) The issuer of a medicare supplemental policy--
``(i) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy described in
subparagraph (C);
``(ii) may not discriminate in the pricing of the policy on
the basis of the individual's health status, medical
condition (including both physical and mental illnesses),
claims experience, receipt of health care, medical history,
genetic information, evidence of insurability (including
conditions arising out of acts of domestic violence), or
disability; and
``(iii) may not impose an exclusion of benefits based on a
pre-existing condition,

in the case of an individual described in subparagraph (B)
who seeks to enroll under the policy not later than 63 days
after the date of the termination of enrollment described in
such subparagraph.
``(B) An individual described in this subparagraph is an
individual described in any of the following clauses:
``(i) The individual is enrolled with an eligible
organization under a contract under section 1876 or with an
organization under an agreement under section 1833(a)(1)(A)
and such enrollment ceases either because the individual
moves outside the service area of the organization under the
contract or agreement or because of the termination or
nonrenewal of the contract or agreement.
``(ii) The individual is enrolled with an organization
under a policy described in subsection (t) and such
enrollment ceases either because the individual moves outside
the service area of the organization under the policy,
because of the bankruptcy or insolvency of the insurer, or
because the insurer closes the block of business to new
enrollment.

[[Page S10601]]

``(iii) The individual is covered under a medicare
supplemental policy and such coverage is terminated because
of the bankruptcy or insolvency of the insurer issuing the
policy, because the insurer closes the block of business to
new enrollment, or because the individual changes residence
so that the individual no longer resides in a State in which
the issuer of the policy is licensed.
``(iv) The individual is enrolled under an employee welfare
benefit plan that provides health benefits that supplement
the benefits under this title and the plan terminates or
ceases to provide (or significantly reduces) such
supplemental health benefits to the individual.
``(v)(I) The individual is enrolled with an eligible
organization under a contract under section 1876 or with an
organization under an agreement under section 1833(a)(1)(A)
and such enrollment is terminated by the enrollee during the
first 12 months of such enrollment, but only if the
individual never was previously enrolled with an eligible
organization under a contract under section 1876 or with an
organization under an agreement under section 1833(a)(1)(A).
``(II) The individual is enrolled under a policy described
in subsection (t) and such enrollment is terminated during
the first 12 months of such enrollment, but only if the
individual never was previously enrolled under such a policy
under such subsection.
``(C)(i) Subject to clause (ii), a medicare supplemental
policy described in this subparagraph, with respect to an
individual described in subparagraph (B), is a policy the
benefits under which are comparable or lesser in relation to
the benefits under the enrollment described in subparagraph
(B) (or, in the case of an individual described in clause
(ii), under the most recent medicare supplemental policy
described in clause (ii)(II)).
``(ii) An individual described in this clause is an
individual who--
``(I) is described in subparagraph (B)(v), and
``(II) was enrolled in a medicare supplemental policy
within the 63 day period before the enrollment described in
such subparagraph.
``(iii) As a condition for approval of a State regulatory
program under subsection (b)(1) and for purposes of applying
clause (i) to policies to be issued in the State, the
regulatory program shall provide for the method of
determining whether policy benefits are comparable or lesser
in relation to other benefits. With respect to a State
without such an approved program, the Secretary shall
establish such method.
``(D) At the time of an event described in subparagraph (B)
because of which an individual ceases enrollment or loses
coverage or benefits under a contract or agreement, policy,
or plan, the organization that offers the contract or
agreement, the insurer offering the policy, or the
administrator of the plan, respectively, shall notify the
individual of the rights of the individual, and obligations
of issuers of medicare supplemental policies, under
subparagraph (A).''.
(b) Limitation on Imposition of Preexisting Condition
Exclusion During Initial Open Enrollment Period.--Section
1882(s)(2)(B) of such Act (42 U.S.C. 1395ss(s)(2)(B)) is
amended to read as follows:
``(B) In the case of a policy issued during the 6-month
period described in subparagraph (A), the policy may not
exclude benefits based on a pre-existing condition.''.
(c) Clarifying the Nondiscrimination Requirements During
the 6-Month Initial Enrollment Period.--Section 1882(s)(2)(A)
of such Act (42 U.S.C. 1395ss(s)(2)(A)) is amended to read as
follows:
``(2)(A)(i) In the case of an individual described in
clause (ii), the issuer of a medicare supplemental policy--
``(I) may not deny or condition the issuance or
effectiveness of a medicare supplemental policy, and
``(II) may not discriminate in the pricing of the policy on
the basis of the individual's health status, medical
condition (including both physical and mental illnesses),
claims experience, receipt of health care, medical history,
genetic information, evidence of insurability (including
conditions arising out of acts of domestic violence), or
disability.
``(ii) An individual described in this clause is an
individual for whom an application is submitted before the
end of the 6-month period beginning with the first month as
of the first day on which the individual is 65 years of age
or older and is enrolled for benefits under part B.''.
(d) Extending 6-Month Initial Enrollment Period to Non-
Elderly Medicare Beneficiaries.--Section 1882(s)(2)(A)(ii) of
such Act (42 U.S.C. 1395ss(s)(2)(A)), as amended by
subsection (c), is amended by striking ``is submitted'' and
all that follows and inserting the following: ``is
submitted--
``(I) before the end of the 6-month period beginning with
the first month as of the first day on which the individual
is 65 years of age or older and is enrolled for benefits
under part B; and
``(II) for each time the individual becomes eligible for
benefits under part A pursuant to section 226(b) or 226A and
is enrolled for benefits under part B, before the end of the
6-month period beginning with the first month as of the first
day on which the individual is so eligible and so
enrolled.''.
(e) Effective Dates.--
(1) Guaranteed issue.--The amendment made by subsection (a)
shall take effect on July 1, 1997.
(2) Limit on preexisting condition exclusions.--The
amendment made by subsection (b) shall apply to policies
issued on or after July 1, 1997.
(3) Clarification of nondiscrimination requirements.--The
amendment made by subsection (c) shall apply to policies
issued on or after July 1, 1997.
(4) Extension of enrollment period to disabled
individuals.--
(A) In general.--The amendment made by subsection (d) shall
take effect on July 1, 1997.
(B) Transition rule.--In the case of an individual who
first became eligible for benefits under part A of title
XVIII of the Social Security Act pursuant to section 226(b)
or 226A of such Act and enrolled for benefits under part B of
such title before July 1, 1997, the 6-month period described
in section 1882(s)(2)(A) of such Act shall begin on July 1,
1997. Before July 1, 1997, the Secretary of Health and Human
Services shall notify any individual described in the
previous sentence of their rights in connection with medicare
supplemental policies under section 1882 of such Act, by
reason of the amendment made by subsection (d).
(f) Transition Provisions.--
(1) In general.--If the Secretary of Health and Human
Services identifies a State as requiring a change to its
statutes or regulations to conform its regulatory program to
the changes made by this section, the State regulatory
program shall not be considered to be out of compliance with
the requirements of section 1882 of the Social Security Act
due solely to failure to make such change until the date
specified in paragraph (4).
(2) NAIC standards.--If, within 9 months after the date of
the enactment of this Act, the National Association of
Insurance Commissioners (in this subsection referred to as
the ``NAIC'') modifies its NAIC Model Regulation relating to
section 1882 of the Social Security Act (referred to in such
section as the 1991 NAIC Model Regulation, as modified
pursuant to section 171(m)(2) of the Social Security Act
Amendments of 1994 (Public Law 103-432) and as modified
pursuant to section 1882(d)(3)(A)(vi)(IV) of the Social
Security Act, as added by section 271(a) of the Health Care
Portability and Accountability Act of 1996 (Public Law 104-
191) to conform to the amendments made by this section, such
revised regulation incorporating the modifications shall be
considered to be the applicable NAIC model regulation
(including the revised NAIC model regulation and the 1991
NAIC Model Regulation) for the purposes of such section.
(3) Secretary standards.--If the NAIC does not make the
modifications described in paragraph (2) within the period
specified in such paragraph, the Secretary of Health and
Human Services shall make the modifications described in such
paragraph and such revised regulation incorporating the
modifications shall be considered to be the appropriate
Regulation for the purposes of such section.
(4) Date specified.--
(A) In general.--Subject to subparagraph (B), the date
specified in this paragraph for a State is the earlier of--
(i) the date the State changes its statutes or regulations
to conform its regulatory program to the changes made by this
section, or
(ii) 1 year after the date the NAIC or the Secretary first
makes the modifications under paragraph (2) or (3),
respectively.
(B) Additional legislative action required.--In the case of
a State which the Secretary identifies as--
(i) requiring State legislation (other than legislation
appropriating funds) to conform its regulatory program to the
changes made in this section, but
(ii) having a legislature which is not scheduled to meet in
1998 in a legislative session in which such legislation may
be considered,

the date specified in this paragraph is the first day of the
first calendar quarter beginning after the close of the first
legislative session of the State legislature that begins on
or after July 1, 1998. For purposes of the previous sentence,
in the case of a State that has a 2-year legislative session,
each year of such session shall be deemed to be a separate
regular session of the State legislature.

SEC. 3. INFORMATION FOR MEDICARE BENEFICIARIES.

(a) Grant program.--
(1) In general.--The Secretary of Health and Human Services
(in this section referred to as the ``Secretary'') is
authorized to provide grants to--
(A) private, independent, non-profit consumer
organizations, and
(B) State agencies,

to conduct programs to prepare and make available to medicare
beneficiaries comprehensive and understandable information on
enrollment in health plans with a medicare managed care
contract and in medicare supplemental policies in which they
are eligible to enroll. Nothing in this section shall be
construed as preventing the Secretary from making a grant to
an organization under this section to carry out activities
for which a grant may be made under section 4360 of the
Omnibus Budget Reconciliation Act of 1990 (Public Law 101-
508).
(2) Consumer satisfaction surveys.--Any eligible
organization with a medicare managed care contract or any
issuer of a medicare supplemental policy shall--
(A) conduct, in accordance with minimum standards approved
by the Secretary, a

[[Page S10602]]

consumer satisfaction survey of the enrollees under such
contract or such policy; and
(B) make the results of such survey available to the
Secretary and the State Insurance Commissioner of the State
in which the enrollees are so enrolled.

The Secretary shall make the results of such surveys
available to organizations which receive grants under
paragraph (1).
(3) Information.--
(A) Contents.--The information described in paragraph (1)
shall include at least a comparison of such contracts and
policies, including a comparison of the benefits provided,
quality and performance, the costs to enrollees, the results
of consumer satisfaction surveys on such contracts and
policies, as described in subsection (a)(2), and such
additional information as the Secretary may prescribe.
(B) Information standards.--The Secretary shall develop
standards and criteria to ensure that the information
provided to medicare beneficiaries under a grant under this
section is complete, accurate, and uniform.
(C) Review of information.--The Secretary may prescribe the
procedures and conditions under which an organization that
has obtained a grant under this section may furnish
information obtained under the grant to medicare
beneficiaries. Such information shall be submitted to the
Secretary at least 45 days before the date the information is
first furnished to such beneficiaries.
(4) Consultation with other organizations and providers.--
An organization which receives a grant under paragraph (1)
shall consult with private insurers, managed care plan
providers and other health care providers, and public and
private purchasers of health care benefits in order to
provide the information described in paragraph (1).
(5) Terms and conditions.--To be eligible for a grant under
this section, an organization shall prepare and submit to the
Secretary an application at such time, in such form, and
containing such information as the Secretary may require.
Grants made under this section shall be in accordance with
terms and conditions specified by the Secretary.
(b) Cost-Sharing.--
(1) In general.--Each organization which provides a
medicare managed care contract or issues a medicare
supplemental policy (including a medicare select policy)
shall pay to the Secretary its pro rata share (as determined
by the Secretary) of the estimated costs to be incurred by
the Secretary in providing the grants described in subsection
(a).
(2) Limitation.--The total amount required to be paid under
paragraph (1) shall not exceed $35,000,000 in any fiscal
year.
(3) Application of proceeds.--Amounts received under
paragraph (1) are hereby appropriated to the Secretary to
defray the costs described in such paragraph and shall remain
available until expended.
(c) Definitions.--In this section:
(1) Medicare managed care contract.--The term ``medicare
managed care contract'' means a contract under section 1876
or section 1833(a)(1)(A) of the Social Security Act.
(2) Medicare supplemental policy.--The term ``medicare
supplemental policy'' has the meaning given such term in
section 1882(g) of the Social Security Act.<bullet>

Mr. ROCKEFELLER. Mr. President, I join my colleague from Rhode
Island, Senator Chafee, in introducing a bill that aims at taking
another significant step in extending the kind of health care security
we want for all Americans. I believe the recent enactment of the
Kassebaum-Kennedy health reform bill confirms that those of us who want
to expand health care access, coverage, and quality for Americans have
every reason to press on. And the Senator from Rhode Island and I have
very deliberately adopted the same principles of bipartisanship and
pragmatism in crafting this new bill to take the next steps forward in
health reform.
Our bill responds to a clear need among Medicare's beneficiaries,
especially the 4 million disabled Americans who rely on Medicare, to be
able to count on supplemental insurance when they seek it. As important
as Medicare is, it covers less than one-half of beneficiaries' total
health care costs. As a result, almost 80 percent of all Medicare
beneficiaries buy private, supplemental insurance that gives them extra
coverage and financial relief. But it turns out that seniors and the
disabled are having all kinds of difficulties in obtaining or holding
onto this supplemental insurance. Our bill solves some of these
problems, by making Medigap policies portable, more reliable, and more
accessible in different situations.
Specifically, our bill requires insurers to issue a Medigap policy to
a Medicare beneficiary who loses his or her Medigap coverage because he
or she moves out of a plan's service area; because an HMO or managed
care plan goes out of business or withdraws from the market; or because
an employer drops, or substantially cuts back, retiree health benefits.
This legislation responds to changes we are seeing that are hurting
older and disabled Americans, which includes 50,000 disabled West
Virginians. For example, more and more employers are cutting costs by
cutting back on their retirees' health benefits. Between 1993 and 1995,
the number of large employers who provided retiree health benefits
dropped by 5 percent. When retirees lose employer-sponsored health
benefits, they are forced to go to the private market and purchase
individual coverage.
If they have any type of preexisting medical condition, they will be
lucky to find an insurance company who will sell them a Medigap policy
without a lengthy pre-existing condition limitation. Others will not be
so lucky. They won't find an insurer willing to sell them a policy at
any price.
Mr. President, our bill gives Medicare beneficiaries an opportunity
to try a managed care plan without worrying about losing their ability
to return to fee-for-service medicine. Our legislation would give
Medicare beneficiaries a 12-month trial period to try a Medicare
managed care option. Understandably, many seniors are very nervous
about enrolling in a managed care organization if it means losing
access to their lifelong doctor.
Our bill lets Medicare beneficiaries see if a managed health care
plan suits them and gives them a way back to fee-for-service medicine,
if that is their personal preference.

Mr. President, my preference would be to allow continuously insured
Medicare beneficiaries to freely switch types of policies--fee-for-
service versus managed care--and insurers, on an annual basis. This
would allow seniors the ability to switch insurers for customer service
reasons or any other personal preference. But because the insurance
companies are especially opposed to any type of continuous or annual
open enrollment policy for Medigap insurance--even for individuals who
are continuously insured--we have to have our bill aim for the more
modest improvements in portability that we think we have a better
chance of enacting.
Our legislation bans insurance companies from imposing any
preexisting condition limitation during the 6-month open enrollment
period for Medigap insurance when a person first qualifies for
Medicare. This makes the rules for Medigap policies consistent with the
recently enacted Kassebaum-Kennedy bill, and with Medicare coverage
which begins immediately, regardless of preexisting conditions.
For the disabled, this bill is a big improvement over current law. In
1990, Congress mandated that insurers must sell a Medigap policy to any
senior wishing to buy coverage when that individual first becomes
eligible for Medicare. The disabled were left out at that time because
of insurance company-generated concerns about potentially huge premium
hikes for current Medigap policyholders.
Since then, at least 10 States went ahead and required insurers to
issue policies to all Medicare beneficiaries in their States, including
the disabled. My staff called those States, and not one State reported
large hikes in premiums as a result of their new laws requiring access
to Medigap for the disabled.
The Health Care Financing Administration [HCFA] has also estimated
that Medicare's average per-person cost for the disabled is actually
less than Medicare's average per-person cost for the aged. So, Mr.
President, I believe we can put concerns about large premium hikes to
rest, and move to guarantee the disabled access to private Medigap
policies.
This bill will help people like a 44-year-old man from Capon Bridge,
WV, who qualifies for Medicare because of a disability. He earns too
much money to qualify for Medicaid and is unable to buy a private
Medigap policy because of a chronic medical condition.
Medigap insurers in West Virginia refuse to sell him a policy because
of his medical condition. A 47-year-old woman from Slanesville, WV, is
in a similar situation. She was uninsured before qualifying for
Medicare because of a chronic kidney disease that requires dialysis.
Her husband and she have too many assets to qualify for Medicaid and
they cannot afford the $300 a month, or $3,600 a year premium for
health insurance provided through

[[Page S10603]]

her husband's job. The average cost of a Medigap policy ranges from
$700 to $1,000 a year. Access to a Medigap policy would be a more
affordable option for this family.
Mr. President, our bill also includes a section to help seniors
choose the right health plan for them by ensuring that they get good
information on what plans are available in their area.
It allows them to compare different health plans based on results of
consumer satisfaction surveys, and will include information on benefits
and costs.
Our bill does not directly address affordability. Just as the
Kassebaum-Kennedy bill was not able to take that step, we leave it to
the States to consider ways to promote affordable Medigap premiums. But
Congress has some history in the Medigap market, with legislation
passed in 1980, and again in 1990, to guarantee at least a minimal
level of value across all Medigap policies. Under the current law that
I helped enact back in 1990, individual and group Medigap policies must
spend at least 65 percent and 75 percent, respectively, of all premium
dollars collected, on benefits. If a Medigap plan fails to meet these
minimum loss ratios, they must issue refunds or credits to their
customers.
Mr. President, while Federal loss ratio standards help assure a
minimum level of value, they do not prevent insurance companies from
annually upping premiums as a senior ages. This practice--known as
attained age-rating--results in the frailest and the lowest income
seniors facing large, annual premium hikes as they age. I would hope
that more States would follow the lead of at least five other States
who have banned attained age-rating. This would vastly improve the
affordability of Medigap for the oldest and frailest of our seniors.
Mr. President, our bill is a targeted, modest bill. But if and when
we enact it, it will provide very real, very significant help to the
seniors who, year in and year out, pay out billions of dollars in
premiums in order to have the extra protection of Medigap protection.
It is wrong and unfair when senior and disabled citizens in West
Virginia and across the country are suddenly dropped by insurers or
denied a Medigap policy just because they move to another State, or
their employer cuts back on promised retiree health benefits, or
because they're disabled.
In the bipartisan and practical spirit of the Kassebaum-Kennedy bill,
we now propose the same kind of commonsense, consumer protections and
reforms, to help over 33 million senior citizens and almost 5 million
disabled Americans. It is a great honor to be presenting this bill with
the Senator from Rhode Island, someone who is responsible for many of
the country's most important achievements in health care. I urge my
colleagues to cosponsor this bill, and to help us extend the health
care peace of mind that older and disabled Americans ask for and
deserve.
______

By Mr. MURKOWSKI:
S. 2076. A bill to increase economic benefits to the United States
from the activities of cruise ships visiting Alaska; to the Committee
on Commerce, Science, and Transportation.

cruise ship legislation

<bullet> Mr. MURKOWSKI. Mr. President, today, I am reintroducing a very
important measure--one that will unlock and open a door that Congress
has kept barred for over 100 years.
Opening that door will create a path to thousands of new jobs, to
hundreds of millions of dollars in new economic activity and to
millions in new Federal, State, and local government revenues.
Furthermore, Mr. President, that door can be opened with no adverse
impact on any existing U.S. industry, labor interest or on the
environment, and it will cost the Government virtually nothing.
There is no magic to this; in fact, it's a very simple matter. My
bill merely allows United States ports to compete for the growing
cruise ship trade to Alaska, and encourages the development of an all-
Alaska cruise business, as well.
The bill amends the Passenger Service Act to allow foreign cruise
ships to operate to and from Alaska, and between Alaska ports. However,
it also very carefully protects all existing U.S. passenger vessels by
using a definition of ``cruise ships'' designed to exclude any foreign-
flag vessels that could conceivably compete in the same market as U.S.-
flag tour boats or ferries. Finally, it provides a mechamism to
guarantee that if a U.S. vessel ever enters this trade in the future,
steps will be taken to ensure an ample pool of potential passengers.
Mr. President, this is a straightforward approach to a vexing
problem, and it deserves the support of this body.
Let us look at the facts. U.S. ports currently are precluded from
competing for the Alaska cruise ship trade by the Passenger Service Act
of 1886, which bars foreign vessels from carrying passengers on one-way
voyages between U.S. ports. However, it isn't 1886 anymore. These days,
no one is building any U.S. passenger ships of this type, and no one
has built one in over 40 years.
Because there are no U.S. vessels in this important trade, the only
real effect of the Passenger Service Act is to force all the vessels
sailing to Alaska to base their operations in an foreign port instead
of a U.S. city.
Mr. President, what we have here is an act of Congress prohibiting
U.S. cities from competing for thousands of jobs and hundreds of
millions in business dollars. That is worse than absurd--in light of
our ever-popular election-year promises to help the economy, it belongs
in Letterman's ``Top Ten Reasons Why Congress Doesn't Know What It's
Doing.''
How, Mr. President, can anyone argue with a straight face for the
continuation of a policy that fails utterly to benefit any identifiable
American interst, while actively discouraging economic growth.
Mr. President, this is not the first time I have introduced this
legislation. When I began, Alaska-bound cruise passengers totaled about
200,000 per year. By last year, almost three times that many people--
most of them American citizens--were making that voyage. Almost 600,000
people joined an Alaska bound vessel in 1995, and almost all those
sailings originated in Vancouver, BC--not because Vancouver is
necessarily a better port, but because our own foolish policy demands
it.
The cash flow generated by this trade is enormous. Most passengers
fly in or out of Seattle-Tacoma International Airport in Washington
State, but because of the law, they spend little time there. Instead,
they spend their pre- and post-sailing time in a Vancouver hotel, at
Vancouver restaurants, and in Vancouver gift shops. And when their
vessel sails, it sails with food, fuel general supplies, repair and
maintenance needs taken care of by Vancouver vendors.
According to some estimates the city of Vancouver receives benefits
of well over $200 million per year. Others provide more modest
estimates, such as a comprehensive study by the International Council
of Cruise Lines, which indicated that in 1992 alone, the Alaska cruise
trade generated over 2,400 jobs for the city of Vancouver, plus
payments to Canadian vendors and employees of over $119 million. If
that business had taken place inside the United States, it would have
been worth additional Federal, State, and local tax revenues of
approximately $60 million.
In addition to the opportunities now being shunted to Vancouver, we
are also missing an opportunity to create entirely new jobs and income
through the potential to develop new cruising routes between Alaska
ports. The city of Ketchikan, AK, was told a few years ago that two
relatively small cruise ships were very interested in establishing
short cruises within southeast Alaska. I'm told such a business could
have contributed $2 million or more to that small community's economy,
and created dozens of new jobs. But, because of the current policy, the
opportunity simply evaporated.
Why, Mr. President, do we allow this to happen? This is a market
almost entirely focused on U.S. citizens going to see one of the United
State's most spectacular places, and yet we force them to go to another
country to do it. We are throwing away both money and jobs--and getting
nothing whatsoever in return.
Why is this allowed to happen? The answer is simple--but it is not
rational. Although the current law is actually a job loser, there are
those who argue that any change would weaken

[[Page S10604]]

U.S. maritime interests. I submit, Mr. President, that is not the case.
For some inexplicable reason, paranoia runs deep among those who
oppose this bill. They seem to feel that amending the Passenger Service
Act so that it makes sense for the United States would create a threat
to Jones Act vessels hauling freight between U.S. ports. Mr. President,
there simply is no connection whatsoever between the two. I have
repeatedly made clear that I have no intention of using this bill to
create cracks in the Jones Act.
This bill would actually enhance--not impede--opportunities for U.S.
workers. Both shipyard workers and longshoremen--not to mention hotel
and restaurant workers and many others--would have a great deal to gain
from this legislation, and the bill has been carefully written to
prevent the loss of any existing jobs in other trades.
Finally, let me dispose of any suggestion that this bill might farm
smaller U.S. tour or excursion boats. The industry featuring these
smaller vessels is thriving, but it simply does not cater to the same
client base as large cruise ships. For one thing, the tour boats
operating in Alaska are all much smaller--under 1,000 tons compared to
the 5,000 ton minimum for cruise ships in this bill. The larger vessels
can offer unmatched luxury and personal service, on-board shopping,
entertainment, and so forth. The smaller vessels offer more flexible
routes, the ability to get closer to Alaska's natural attractions, and
other benefits. There is no significant competition between the two
types of vessel, because the passengers inclined to one are not likely
to be inclined to the other.
Mr. President, I cannot claim that this legislation would immediately
lead to increased earnings for U.S. ports. I can only say that it would
allow them to compete fairly, instead of being anchored by a rule that
is actively harmful to U.S. interests. It is, as I said at the
beginning of this statement, only a way to open the door.
We have heard a lot of talk about growing the economy and creating
jobs during the last few years, and we are bound to keep hearing those
phrases even more often over the next few months. But we all know, Mr.
President, that such changes are easier to talk about than they are to
accomplish. Well, Mr. President, here is a bill that opens the door to
thousands of jobs and hundreds of millions of new dollars, and does it
without one red cent of taxpayer money.
It has been 110 years since the current law was enacted, and it's
time for a change.<bullet>
______

By Mr. LUGAR (for himself and Mr. Leahy):
S. 2077. A bill to amend the Commodity Exchange Act to improve the
act, and for other purposes; to the Committee on Agriculture,
Nutrition, and Forestry.

The Commodity Exchange Act Amendments of 1996

<bullet> Mr. LUGAR. Mr. President, today Senator Leahy and I are
introducing legislation to amend the Commodity Exchange Act. This bill
follows several months of hearings and informal consultations with
industry, academics and regulators. The legislation streamlines U.S.
futures trading law, conforming it to changing competitive realities.
In many ways, regulation has benefited the U.S. futures industry.
Prudent regulation enhances customer protection, prevents and punishes
fraud and other abuses, and makes futures markets better able to
provide risk management, price discovery and investment opportunity.
Regulation, however, also has its costs. U.S. futures markets face
competition that is, in some cases, less regulated or differently
regulated. In the years ahead, our challenge is to balance the need for
adequate regulation with the need to offer cost-competitive products.
This bill tries to strike such a balance. It requires the Commodity
Futures Trading Commission to consider the costs for industry of the
regulations it imposes. The bill streamlines the process of introducing
new futures contracts, reducing the time that is required to begin
trading these new products. It makes similar reforms to the process by
which exchanges' rules are reviewed by the CFTC.
Where additional authority for the CFTC is needed, the bill provides
it. The CFTC will have the authority to require delivery points for
overseas futures markets to provide information that is also regularly
demanded of American market participants. This is eminently reasonable,
and may assist the CFTC and other regulators in the future if
situations similar to the current copper market scandal recur.
The bill will also provide greater legal certainty for swaps, over-
the-counter products that are of increasing importance to many
businesses. It is important that these contracts' enforceability be
made more certain, so that legal risk does not compound the other risks
inherent in any financial transaction.
The bill contains a number of other provisions. I have provided a
descriptive summary which may be helpful to our colleagues. Mr.
President, I ask unanimous consent that this document and the text of
the introduced bill be printed in the Record.
It is late in the session, and I do not expect the Commodity Exchange
Act Amendments of 1996 to become law this year. Senator Leahy and I
wanted to introduce it to spur discussion and debate, so that early in
the next Congress we can again introduce the bill, with any refinements
that may be developed in the interim. We both intend that the bill will
be a major focus of attention for the Committee on Agriculture,
Nutrition, and Forestry next year.
As usual, I am indebted to Senator Leahy for his bipartisan
cooperation in this as in so many other endeavors. I am honored that he
is an original co-sponsor of the bill.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 2077

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Commodity Exchange
Amendments Act of 1996''.

SEC. 2. HEDGING.

The fourth sentence of section 3 of the Commodity Exchange
Act (7 U.S.C. 5) is amended by striking ``through
fluctuations in price''.

SEC. 3. DELIVERY POINTS FOR FOREIGN FUTURES CONTRACTS.

Section 4(b) of the Commodity Exchange Act (7 U.S.C. 6(b))
is amended--
(1) in the third sentence--
(A) by striking ``(1)'' and ``(2)'' and inserting ``(A)''
and ``(B)'', respectively; and
(B) by striking ``No rule'' and inserting ``Except as
provided in paragraph (2), no rule'';
(2) by inserting ``(1)'' after ``(b)''; and
(3) by adding at the end the following:
``(2)(A) The Commission shall consult with a foreign
government, foreign futures authority, or department, agency,
governmental body, or regulatory organization empowered by a
foreign government to regulate a board of trade, exchange, or
market located outside the United States, or a territory or
possession of the United States, that has 1 or more
established delivery points in the United States, or a
territory or possession of the United States, for a contract
of sale of a commodity for future delivery that is made or
will be made on or subject to the rules of the board of
trade, exchange, or market.
``(B) In the consultations, the Commission shall endeavor
to secure adequate assurances, through memoranda of
understanding or any other means the Commission considers
appropriate, that the presence of the delivery points will
not create the potential for manipulation of the price, or
any other disruption in trading, of a contract of sale of a
commodity for future delivery traded on or subject to the
rules of a contract market, or a commodity, in interstate
commerce.
``(C) Any warehouse or other facility housing an
established delivery point in the United States, or a
territory or possession of the United States, described in
subparagraph (A) shall--
``(i) keep books, records, and other information specified
by the Commission pertaining to all transactions and
positions in all contracts made or carried on the foreign
board of trade, exchange, or market in such form and manner
and for such period as may be required by the Commission;
``(ii) file such reports regarding the transactions and
positions with the Commission as the Commission may specify;
and
``(iii) keep the books and records open to inspection by a
representative of the Commission or the United States
Department of Justice.''.

SEC. 4. EXEMPTION AUTHORITY AND SWAP EXEMPTION.

(a) In General.--Section 4(c) of the Commodity Exchange Act
(7 U.S.C. 6(c)) is amended by adding at the end the
following:
``(6)(A) An agreement, contract, or transaction (or class
thereof) that is otherwise subject to this Act shall be
exempt from all

[[Page S10605]]

provisions of this Act and any person or class of persons
offering, entering into, rendering advice, or rendering other
services with respect to the agreement, contract, or
transaction (or class thereof) shall be exempt for the
activity from all provisions of this Act (except in each case
the provisions of sections 2(a)(1)(B), 4b, and 4o, any
antifraud provision adopted by the Commission pursuant to
section 4c(b), and the provisions of section 6(c) and 9(a)(2)
to the extent the provisions prohibit manipulation of the
market price of any commodity in interstate commerce or for
future delivery on or subject to the rules of any contract
market): Provided, That prior to, on, or after the date of
enactment of this paragraph, the agreement, contract, or
transaction (or class thereof) satisfies the eligibility
conditions for an exemption under the regulations of the
Commission published in the Federal Register on January 22,
1993, and codified in sections 35.1(b)(2) and 35.2 of part 35
of title 17, Code of Federal Regulations.
``(B) This paragraph shall not restrict the authority of
the Commission to grant exemptions under this subsection that
are in addition to or independent of the exemption provided
in this paragraph. No such exemption shall be applied in a
manner that restricts an exemption provided under this
paragraph.
``(7)(A) The Commission may exempt an agreement, contract,
or transaction (or class thereof) under this subsection to
the extent that the agreement, contract, or transaction (or
class thereof) may be subject to this Act.
``(B) An exemption under this subsection shall not create a
presumption that the exempted agreement, contract, or
transaction (or class thereof) is subject to this Act.''.
(b) Review.--Not later than 1 year after the date of
enactment of this Act, the Commodity Futures Trading
Commission shall complete a reconsideration of the
regulations contained in part 36 of title 17, Code of Federal
Regulations, with the goal of establishing exemptive
provisions that are consistent with subsection (c).
(c) Sense of Congress.--It is the sense of Congress that--
(1) the exemption provided under section 4(c) of the
Commodity Exchange Act (7 U.S.C. 6(c)), and codified in part
36 of title 17, Code of Federal Regulations, does not yet
sufficiently promote fair competition by affording exchange-
traded instruments fair and even-handed treatment with
similar products traded over-the-counter among institutions
and professionals; and
(2) the Commodity Futures Trading Commission should provide
for such fair competition by granting instruments traded on
or subject to the facilities of exchanges, exemptive
flexibility that is equitable in comparison to the exemptive
flexibility the Commission has granted to over-the-counter
transactions, while ensuring the protection of market
participants and financial and market integrity.
(d) Report.--On completion of the review required by
subsection (b), the Commodity Futures Trading Commission
shall report on the results of the review to the Committee on
Agriculture of the House of Representatives and the Committee
on Agriculture, Nutrition, and Forestry of the Senate.

SEC. 5. CONTRACT DESIGNATION.

(a) In General.--Section 5 of the Commodity Exchange Act (7
U.S.C. 7) is amended--
(1) by striking the matter preceding paragraph (1) and
inserting the following:

``SEC. 5. DESIGNATION OF A BOARD OF TRADE AS A CONTRACT
MARKET.

``(a) In General.--The Commission shall designate a board
of trade as a contract market if the board of trade complies
with and carries out the following conditions and
requirements:'';
(2) by striking paragraph (7);
(3) by redesignating paragraph (8) as paragraph (7); and
(4) by adding at the end the following:
``(b) Existing and Future Designations.--
``(1) In general.--If a board of trade is designated as a
contract market by the Commission under subsection (a) and
section 6, the board of trade shall retain the designation
for all existing or future contracts, unless the Commission
suspends or revokes the designation or the board of trade
relinquishes the designation.
``(2) Existing designations.--A board of trade that has
been designated as a contract market as of the date of
enactment of this subsection shall retain the designation
unless the Commission finds that a violation of this Act or a
rule, regulation, or order of the Commission by the contract
market justifies suspension or revocation of the designation
under section 6(b), or the board of trade relinquishes the
designation.
``(c) New Contract Submissions.--Except as provided in
subsection (e), a board of trade that has been designated as
a contract market under subsection (a) shall submit to the
Commission all rules that establish the terms and conditions
of a new contract of sale in accordance with subsection (d)
(referred to in this section as a `new contract'), other than
a rule relating to the setting of levels of margin and other
rules that the Commission may specify by regulation.
``(d) Procedures for New Contracts.--
``(1) Required submission to commission.--Except as
provided in subsection (e), a contract market shall submit
new contracts to the Commission in accordance with subsection
(c).
``(2) Effectiveness of new contracts.--A contract market
may make effective a new contract and may implement trading
in the new contract--
``(A) not earlier than 10 business days after the receipt
of the new contract by the Commission; or
``(B) earlier if authorized by the Commission by rule,
regulation, order, or written notice.
``(3) Notice to contract market.--The new contract shall
become effective and may be traded on the contract market,
unless, within the 10-business-day period beginning on the
date of the receipt of the new contract by the Commission,
the Commission notifies the contract market in writing--
``(A) of the determination of the Commission that the
proposed new contract appears to--
``(i) violate a specific provision of this Act (including
paragraphs (1) through (7) of section 5(a)) or a rule,
regulation, or order of the Commission; or
``(ii) be contrary to the public interest; and
``(B) that the Commission intends to review the new
contract.
``(4) Notice in the federal register.--Notwithstanding the
determination of the Commission to review a new contract
under paragraph (3) and except as provided in subsection (e),
the contract market may make the new contract effective, and
may implement trading in the new contract, on a date that is
not earlier than 15 business days after the determination of
the Commission to review the new contract unless within the
period of 15 business days the Commission institutes
proceedings to disapprove the new contract by providing
notice in the Federal Register of the information required
under paragraph (5)(A).
``(5) Disapproval proceedings.--
``(A) Notice of proposed violations.--If the Commission
institutes proceedings to determine whether to disapprove a
new contract under this subsection, the Commission shall
provide the contract market with written notice, including an
explanation and analysis of the substantive basis for the
proposed grounds for disapproval, of what the Commission has
reason to believe are the grounds for disapproval, including,
as applicable--
``(i) the 1 or more specific provisions of this Act or a
rule, regulation, or order of the Commission that the
Commission has reason to believe the new contract violates
or, if the new contract became effective, would violate; or
``(ii) the 1 or more specific public interests to which the
Commission has reason to believe the new contract is
contrary, or if the new contract became effective would be
contrary.
``(B) Disapproval proceedings and determination.--
``(i) Opportunity to participate; hearing.--Before deciding
to disapprove a new contract, the Commission shall give
interested persons (including the board of trade) an
opportunity to participate in the disapproval proceedings
through the submission of written data, views, or arguments
following appropriate notice and an opportunity for a hearing
on the record before the Commission.
``(ii) Determination of disapproval.--At the conclusion of
the disapproval proceeding, the Commission shall determine
whether to disapprove the new contract.
``(iii) Grounds for disapproval.--The Commission shall
disapprove the new contract if the Commission determines that
the new contract--

``(I) violates this Act or a rule, regulation, or order of
the Commission; or
``(II) is contrary to public interest.

``(iv) Specifications for disapproval.--Each disapproval
determination shall specify, as applicable--

``(I) the 1 or more specific provisions of this Act or a
rule, regulation, or order of the Commission, that the
Commission determines the new contract violates or, if the
new contract became effective, would violate; or
``(II) the 1 or more specific public interests to which the
Commission determines the new contract is contrary, or if the
new contract became effective would be contrary.

``(C) Failure to timely complete disapproval
determination.--If the Commission does not conclude a
disapproval proceeding as provided in subparagraph (B) for a
new contract by the date that is 120 calendar days after the
Commission institutes the proceeding, the new contract may be
made effective, and trading in the new contract may be
implemented, by the contract market until such time as the
Commission disapproves the new contract in accordance with
this paragraph.
``(D) Appeals.--A board of trade that has been subject to
disapproval of a new contract by the Commission under this
subsection shall have the right to an appeal of the
disapproval to the court of appeals as provided in section
6(b).
``(6) Contract market deemed designated.--A board of trade
shall be deemed to be designated a contract market for a new
contract of sale for future delivery when the new contract
becomes effective and trading in the new contract begins.
``(e) Required Interagency Review.--Notwithstanding
subsection (d), no board of trade may make effective a new
contract (or option on the contract) that is subject to the
requirements and procedures of clauses (ii) through (v) of
paragraph (1)(B), and paragraph (8)(B)(ii), of section 2(a)
until the requirements and procedures are satisfied and
carried out.''.

[[Page S10606]]

(b) Conforming Amendment.--The first sentence of section
6(a) of the Commodity Exchange Act (7 U.S.C. 8(a)) is amended
by striking ``Any board of trade desiring'' and inserting ``A
board of trade that has not obtained any designation as a
contract market for a contract of sale for a commodity under
section 5 that desires''.

SEC. 6. DELIVERY BY FEDERALLY LICENSED WAREHOUSES.

Section 5a(a) of the Commodity Exchange Act (7 U.S.C.
7a(a)) is amended by striking paragraph (7) and inserting the
following:
``(7) Repealed;''.

SEC. 7. SUBMISSION OF RULES TO COMMISSION.

Section 5a(a) of the Commodity Exchange Act (7 U.S.C.
7a(a)(12)) is amended by striking paragraph (12) and
inserting the following:
``(12)(A)(i) except as otherwise provided in this
paragraph, submit to the Commission all bylaws, rules,
regulations, and resolutions (collectively referred to in
this subparagraph as `rules') made or issued by the contract
market, or by the governing board or committee of the
contract market (except those relating to the setting of
levels of margin, those submitted pursuant to section 5 or
6(a), and those the Commission may specify by regulation) and
may make a rule effective not earlier than 10 business days
after the receipt of the submission by the Commission or
earlier, if approved by the Commission by rule, regulation,
order, or written notice, unless, within the 10-business-day
period, the Commission notifies the contract market in
writing of its determination to review such rules for
disapproval and of the specific sections of this Act or the
regulations of the Commission that the Commission determines
the rule would violate. The determination to review such
rules for disapproval shall not be delegable to any employee
of the Commission. Not later than 45 calendar days before
disapproving a rule of major economic significance (as
determined by the Commission), the Commission shall publish a
notice of the rule in the Federal Register. The Commission
shall give interested persons an opportunity to participate
in the disapproval process through the submission of written
data, views, or arguments. The determination by the
Commission whether a rule is of major economic significance
shall be final and not subject to judicial review. The
Commission shall disapprove, after appropriate notice and
opportunity for hearing (including an opportunity for the
contract market to have a hearing on the record before the
Commission), a rule only if the Commission determines the
rule at any time to be in violation of this Act or a
regulation of the Commission. If the Commission institutes
proceedings to determine whether a rule should be disapproved
pursuant to this paragraph, the Commission shall provide the
contract market with written notice of the proposed grounds
for disapproval, including the specific sections of this Act
or the regulations of the Commission that would be violated.
At the conclusion of the proceedings, the Commission shall
determine whether to disapprove the rule. Any disapproval
shall specify the sections of this Act or the regulations of
the Commission that the Commission determines the rule has
violated or, if effective, would violate. If the Commission
does not institute disapproval proceedings with respect to a
rule within 45 calendar days after receipt of the rule by the
Commission, or if the Commission does not conclude a
disapproval proceeding with respect to a rule within 120
calendar days after receipt of the rule by the Commission,
the rule may be made effective by the contract market until
such time as the Commission disapproves the rule in
accordance with this paragraph.
``(B)(i) The Commission shall issue regulations to specify
the terms and conditions under which, in an emergency as
defined by the Commission, a contract market may, by a \2/3\-
vote of the governing board of the contract market, make a
rule (referred to in this subparagraph as an `emergency
rule') immediately effective without compliance with the 10-
day notice requirement under subparagraph (A), if the
contract market makes every effort practicable to notify the
Commission of the emergency rule, and provide a complete
explanation of the emergency involved, prior to making the
emergency rule effective.
``(ii) If the contract market does not provide the
Commission with the requisite notification and explanation
before making the emergency rule effective, the contract
market shall provide the Commission with the notification and
explanation at the earliest practicable date.
``(iii) The Commission may delegate the power to receive
the notification and explanation to such individuals as the
Commission determines necessary and appropriate.
``(iv) Not later than 10 days after the receipt from a
contract market of notification of such an emergency rule and
an explanation of the emergency involved, or as soon as
practicable, the Commission shall determine whether to
suspend the effect of the rule pending review by the
Commission under the procedures of subparagraph (A).
``(v)(I) The Commission shall submit a report on the
determination of the Commission on the emergency rule under
clause (iv), and the basis for the determination, to the
affected contract market, the Committee on Agriculture of the
House of Representatives, and the Committee on Agriculture,
Nutrition, and Forestry of the Senate.
``(II) If the report is submitted more than 10 days after
the Commission's receipt of notification of the emergency
rule from a contract market, the report shall explain why
submission within the 10-day period was not practicable.
``(III) A determination by the Commission to suspend the
effect of a rule under this subparagraph shall be subject to
judicial review on the same basis as an emergency
determination under section 8a(9).
``(IV) Nothing in this paragraph limits the authority of
the Commission under section 8a(9);''.

SEC. 8. AUDIT TRAIL.

Section 5a(b) of the Commodity Exchange Act (7 U.S.C.
7a(b)) is amended--
(1) in paragraph (3), by inserting ``selected by the
contract market'' after ``means'' each place it appears; and
(2) by adding at the end the following:
``(7) The requirements of this subsection establish
performance standards and do not mandate the use of a
specific technology to satisfy the requirements.''.

SEC. 9. MISCELLANEOUS TECHNICAL AMENDMENTS.

Section 8a of the Commodity Exchange Act (7 U.S.C. 12a) is
amended--
(1) in paragraph (2)--
(A) in subparagraph (B), by inserting ``this paragraph or''
after ``the provisions of''; and
(B) in subparagraph (D), by inserting ``pleaded guilty to
or'' after ``such person has''; and
(2) in paragraph (3)(H), by striking ``or has been
convicted in a State court,'' and inserting ``or has pleaded
guilty to, or has been convicted, in a State court,''.

SEC. 10. CONSIDERATION OF EFFICIENCY, COMPETITION, RISK
MANAGEMENT, AND ANTITRUST LAWS.

Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is
amended--
(1) by striking ``Sec. 15. The Commission'' and inserting
the following:
``Sec. 15. (a)(1) Prior to adopting a rule or regulation
authorized by this Act or adopting an order (except as
provided in subsection (b)), the Commission shall consider
the costs and benefits of the action of the Commission.
``(2) The costs and benefits of the proposed Commission
action shall be evaluated in light of considerations of
protection of market participants, the efficiency,
competitiveness, and financial integrity of futures markets,
price discovery, sound risk management practices, and other
appropriate factors, as determined by the Commission.
``(b) Subsection (a) shall not apply to the following
actions of the Commission:
``(1) An order that initiates, is part of, or is the result
of an adjudicatory or investigative process of the
Commission.
``(2) An emergency action.
``(3) A finding of fact regarding compliance with a
requirement of the Commission.
``(c) The Commission''; and
(2) by striking ``requiring or approving'' and inserting
``requiring, reviewing, or disapproving''.

SEC. 11. DISCIPLINARY AND ENFORCEMENT ACTIVITIES.

(a) In General.--It is the sense of Congress that the
Commodity Futures Trading Commission should--
(1) to the extent practicable, avoid unnecessary
duplication of effort in pursuing disciplinary and
enforcement actions if adequate self-regulatory actions have
been taken by contract markets and registered futures
associations; and
(2) retain an oversight and disciplinary role over the
self-regulatory activities by contract markets and registered
futures associations in a manner that is sufficient to
safeguard financial and market integrity and the public
interest.
(b) Report.--Not later than 1 year after the date of
enactment of this Act, the Commission shall submit a report
to the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture, Nutrition,
and Forestry of the Senate that evaluates the effectiveness
of the enforcement activities of the Commission, including an
evaluation of the experience of the Commission in preventing,
deterring, and disciplining violations of the Commodity
Exchange Act (7 U.S.C. 1 et seq.) and Commission regulations
involving fraud against the public through the bucketing of
orders and similar abuses.

SEC. 12. DELEGATION OF FUNCTIONS BY THE COMMISSION.

(a) In General.--It is the sense of Congress that the
Commodity Futures Trading Commission should--
(1) review its rules and regulations that delegate any of
its duties or authorities under the Commodity Exchange Act (7
U.S.C. 1 et seq.) to contract markets or registered futures
associations;
(2) consistent with the public interest and law, determine
which additional functions, if any, performed by the
Commission should be delegated to contract markets or
registered futures associations; and
(3) establish procedures (such as spot checks, random
audits, reporting requirements, pilot projects, or other
means) to ensure adequate performance of the additional
functions that are delegated to contract markets or
registered futures associations.
(b) Report.--Not later than 1 year after the date of
enactment of this Act, the Commission shall report the
results of its review and actions under subsection (a) to the
Committee on Agriculture of the House of Representatives and
the Committee on Agriculture, Nutrition, and Forestry of the
Senate.
____

[[Page S10607]]

Summary and Discussion--The Commodity Exchange Act Amendments of 1996

Section 1. Short title.
The bill is entitled ``The Commodity Exchange Act
Amendments of 1996.''
Section 2. Hedging.
The CEA does not directly define the term ``hedging.'' In
Section 3 of the CEA, which contains various legislative
findings that justify regulation of futures markets, the
statute speaks of business operators ``hedging themselves
against possible loss through fluctuations in price.''
Questions have been raised whether hedging can occur against
risks other than price risks--for instance, in new futures
contracts that are based on yields of specified crops in
particular states. The bill deletes the phrase ``through
fluctuations in price.'' It makes clear that risks to be
hedged may be risks other than those directly resulting from
price changes. This change will not affect the authority to
establish speculative limits, require reporting of large
trader positions and otherwise ensure market integrity.
Section 3. Delivery Points for Foreign Futures Contracts.
In recent years, some overseas futures exchanges have
established delivery points in the U.S. The implications of
making and taking delivery of a physical commodity that is
priced on a foreign exchange may differ, depending on the
comparability of price discovery on that exchange and on U.S.
exchanges, as well as other factors. Serious questions have
been raised, as the current scandal in the copper markets has
unfolded, about what role, if any, delivery points for
foreign futures contracts may have played in that affair.
These questions are not yet answered. However, the
legislation makes changes that will be appropriate regardless
of the outcome of specific investigations.
The bill directs the CFTC to consult with overseas
regulators and other appropriate parties in countries where
futures exchanges have established U.S. delivery points. The
aim of the consultations will be to secure adequate
assurances against any adverse effect on U.S. markets because
of these delivery points. Such assurances could take the form
of changes to regulations or trading rules in the overseas
market.
The bill also gives the CFTC authority to obtain
information from warehouses that are delivery points for
foreign exchanges. This information would be similar to that
which the CFTC may already require of persons making trades
on overseas futures markets, and will assist the CFTC in
ensuring market integrity, preventing abuses and otherwise
discharging its responsibilities.
Section 4. Exemption Authority and Swap Exemption.
The Act gives the CFTC authority to exempt transactions
from its regulatory requirements, either completely or on
stated terms. In 1993, the CFTC used this authority to exempt
swap agreements from most, but not all, portions of the Act.
This exemption generally seems to have worked well,
facilitating a climate in which swaps, which offer numerous
benefits to their users if properly and prudently employed,
could trade with secure legal status. (It was the lack of
such legal certainty which, in part, prompted Congress to
enact the exemptive authority.)
The bill will provide additional legal certainty for swaps
transactions in two ways. First, the bill codifies the
present exemption from regulation for transactions that meet
its requirements, either now or in future. For these
qualifying instruments, a statutory change would be required
in order for the exemption to become more restrictive than it
now is. The codification does not affect the CFTC's power to
grant additional exemptions that would be less restrictive
than the current exemption. Nor does it limit the CFTC's
ability to enforce anti-manipulation or anti-fraud provisions
of the CEA as they may apply to these transactions or as the
present exemptions may be conditioned on compliance with
their provisions.
Second, the bill codifies two important elements of the
present swaps exemptive authority, again to enhance legal
certainty. The legislation clarifies that the CFTC may issue
an exemption that is applicable to the extent the exempted
transaction may have been subject to the Act--i.e., without
requiring a prior decision on whether the transaction
actually was, in fact, subject to the Act. Relatedly, the
legislation states that the mere fact that a transaction was
exempted from the Act does not, in itself, create a
presumption that the transaction was one that would have
fallen under the Act's regulatory requirements had it not
been exempted. Both these clarifications are consistent with
present regulations for exemptions.
This section of the bill also directs the CFTC to review
rules that permit futures exchanges, under narrowly defined
conditions, to operate less-regulated markets that are
restricted to professional and institutional participants.
These so-called ``Part 36'' rules have not, so far, resulted
in the active operation of such markets. The issue is an
especially important one because of the competitive
challenges futures exchanges face, both from overseas markets
and from over-the-counter products in the U.S. The
legislation does not contemplate greater regulation of the
latter markets, and indeed strives to achieve greater legal
certainty for O-T-C products. But it does express the view of
Congress that futures exchanges need to be able to compete in
today's financial marketplace, in a way that reduces
regulatory costs of doing business while assuring customer
protection. To this end, the CFTC is directed to re-examine
the Part 36 rules and report, within a year, to Congress on
what if any changes may be appropriate. This broad mandate,
as opposed to requirements for specific changes in the
current regulations, reflects a view that the CFTC should be
better able than Congress to assess necessary reforms. The
report will afford an opportunity for Congress to judge the
adequacy of any changes, and to contemplate any additional
statutory changes that may be required.
Section 5. Contract Designation.
The Act now requires futures exchanges to be ``designated''
as a ``contract market'' for each futures contract they
trade. This process has been streamlined by the CFTC in
recent years, but the statute continues to reflect a rather
elaborate process in which, in many ways, the burden of proof
is placed on exchanges to demonstrate why they should be able
to offer new products for trading. Even for a regulated
financial sector like the futures industry, this implicit
presumption against new product development is out of date.
The bill streamlines the process of introducing new futures
contracts, both by compressing the time available for agency
review and by creating a presumption that products developed
by exchanges should be permitted to trade unless the CFTC
finds compellingly why they should not. The legislation
treats new contract applications as rules, albeit under
somewhat different procedures from other exchange rules.
Under the new procedure, an exchange submits a new contract
to the CFTC. The new contract may trade after 10 business
days, unless the CFTC states an intention to review it for
possible disapproval. After a further 15 business days, the
new contract can be traded unless the CFTC institutes
proceedings to disapprove it. These proceedings are to be
completed within 120 days; if not, the new contract can trade
until and unless it is finally disapproved. In contrast to
the present burden on an exchange to show that a contract is
in ``the public interest,'' the CFTC could only disapprove a
contract by showing that it was ``contrary to the public
interest'' (or by showing that it violated law or
regulations). The philosophy is a fairly simple one: Subject
to prudent regulatory limits, private futures exchanges can
more appropriately and efficiently decide which new products
are ripe for trading than can the government. The exchanges
may sometimes err in these judgments, but that is the way
markets work.
Section 6. Delivery by Federally Licensed Warehouses.
An obscure provision of the Act now allows any federally
licensed grain warehouse to make delivery against a futures
contract, on giving reasonable notice. Though seldom used,
this provision appears to conflict with the ability of
exchanges to establish their own trading procedures,
including delivery points. In an extremely tight market, the
current provision could in some circumstances facilitate
market manipulation. The bill repeals this provision.
Section 7. Submission of Rules to Commission.
The bill revises current requirements for submitting
exchange rules to the CFTC. These rules affect the everyday
procedures for doing business on the exchange, as well as the
ground rules for trading. They run the gamut from major to
minor. As with the procedures for approving new contracts,
the legislation compresses the time available for federal
review and generally streamlines procedures. Rules are to be
submitted to the CFTC and can become effective in 10 business
days unless the CFTC notifies the exchange that it will
review them for possible disapproval. If the CFTC does not
institute disapproval proceedings within 45 days of receiving
the proposed rule, or conclude its proceedings within 120
days, the rule can become effective until and unless
disapproved.
The authors of the bill intend that its legislative history
will also discuss the implementation of statutory
requirements for the composition of exchange boards of
directors. The CFTC will be directed to report, on an ongoing
basis, its evaluation of how fully these requirements are
being met. The report language will provide further
clarification of Congressional intent with regard to the
qualification of individuals to satisfy particular
requirements for board representation.
Section 8. Audit Trail.
Futures exchanges are subject to audit trail requirements
that are intended to ensure market integrity, and to deter
and detect abuse. The bill clarifies these requirements in
one respect. It states--consistent with testimony by the CFTC
before Congress in 1995--that the audit trail requirements
establish a performance standard, not a mandate for any
particular technological means of achieving the standard. In
further support of this clarification, the bill speaks of the
``means selected by the contract market'' for meeting audit
trail standards. The authors of the bill intend that its
legislative history will also note further CFTC testimony
that, in assessing the ``practicability'' of various
components of the audit trail standards, the cost to
exchanges of meeting the standards is one factor to be taken
into account.
Section 9. Miscellaneous Technical Amendments.
The bill makes several technical changes to correct
omissions in the current statute.
Section 10. Consideration of Efficiency, Competition, Risk
Management, and Antitrust Laws.
The bill requires the CFTC, in issuing rules, regulations
or some types of orders, to

[[Page S10608]]

take into account the costs and benefits of the action it
contemplates. The requirement is not for a quantitative cost-
benefit analysis, but a mandate to consider both costs and
benefits, as well as other enumerated factors. The authors of
the bill believe that in establishing its policies and giving
direction to market participants, the CFTC should weigh how
its actions may effect the participants' costs of doing
business, as well as what benefits may accrue from the
action.
Some activities of the CFTC, of course, do not call for
this kind of approach, and indeed applying a cost-benefit
requirement to them would be inappropriate. Thus, the bill
exempts the CFTC's adjudicatory and investigative processes,
emergency actions and certain findings of fact that are
objective, quantitative or otherwise unsuitable for a cost-
benefit approach. The bill's eventual legislative history
will further discuss Congressional intent in enacting this
requirement.
Section 11. Disciplinary and enforcement activities.
Enforcement is a priority for the CFTC. Like other
financial regulators, the CFTC is assisted in its enforcement
activities by the complementary rules, surveillance and
disciplinary actions of self-regulatory organizations (SROs).
These include both the futures exchanges themselves and the
National Futures Association. The bill provides guidance to
the CFTC on the deployment of enforcement resources, and
requires a report in 1 year on the overall enforcement
program. The legislation expresses the sense of Congress that
the CFTC should avoid unnecessary duplication of effort
where SROs have taken adequate action to deter abuse and
ensure customer protection. It further states that the
CFTC's oversight and disciplinary role should be
sufficient to safeguard market integrity and protect
public confidence in markets.
Section 12. Delegation of functions by the Commission.
The CFTC, under current law, has delegated some limited
duties to the National Futures Association. Today's austere
budget climate makes it prudent for the commission to assess
whether other functions could appropriately be delegated. The
bill calls on the CFTC to determine which, if any, additional
functions should be delegated to SROs, suggesting the use of
procedures like spot checks and random audits to ensure that
any delegated functions are adequately performed, and
requires a report in one year with the results of the review.
The authors intend that the bill's legislative history will
cite several current CFTC activities that could be considered
for delegation.
____

Outline of the Commodity Exchange Act Amendments of 1996

The Commodity Exchange Act has benefited the American
economy. It has helped encourage a dynamic, world-class
futures trading industry that allows farmers, ranchers and
other business operators to manage risk, provides investment
opportunities and offers protection to consumers of its
services. From time to time, Congress has re-examined the Act
to bring it up to date with changing markets. Such an update
is now opportune.
On June 5, the Committee on Agriculture, Nutrition, and
Forestry heard testimony on the need to update the Commodity
Exchange Act. Since then, committee staff have consulted
extensively with federal agencies and private industry,
seeking to explore the implications of legislative proposals
by various groups.
As a result of this thorough process, we announced on
August 2, 1996, our intention to introduce legislation to
amend the Commodity Exchange Act. Today we are introducing
that legislation. Because it is late in the legislative
session, we do not intend that the bill become law this year.
We intend it to spark discussion, so that the Congress can
make comprehensive revisions to the Act in 1997.
There is a public interest in a strong, competitive U.S.
futures industry because of its critical role in price
discovery and business risk management. This public interest
implies, and requires, a degree of regulation. In recent
years, U.S. futures exchanges have also faced increasing
competition from foreign exchanges and from over-the-counter
derivative products.
U.S. exchanges face some regulatory costs that are not
borne by their competitors. The Act, and the Commodity
Futures Trading Commission's actions to implement its
requirements, must strike an appropriate balance between
prudent regulation and the need for a cost-competitive
industry.
In our August 2 statement, we noted the importance of a
provision of the Act called the ``Treasury amendment.'' This
amendment excludes interbank foreign exchange transactions
and some other enumerated transactions from the CFTC's
jurisdiction. It has been the subject of much more frequent
litigation than other sections of the Act. It was written, in
some haste, in 1974 at a time when many financial markets and
instruments were different or less fully developed than
today. The case for Congress to revisit, reassess and clarify
the Treasury amendment is compelling.
We asked the CFTC and the Treasury Department to conclude
discussions which they had begun some months before, and
report their progress around Labor Day. Unfortunately, these
discussions have so far produced some points of agreement but
no overall consensus among the two agencies or among the
other members of the President's working group on financial
markets.
We are disappointed that an agreement on the Treasury
amendment has not yet been forged. The issues raised by the
amendment seem to us substantial but not insurmountable. In
fairness to the Administration, there is not yet a consensus
in the private sector either about the appropriate scope of
the amendment's exclusions from the Act.
With some reluctance, we have been persuaded to defer
addressing the Treasury amendment in this bill. The
Administration asserts that given furhter time, it will be
able to reach internal agreement. We are today informing the
Administration that, in our view, an agreement by the end of
this year is necessary so that the issue can be presented to
our colleagues at the beginning of the 105th Congress. If the
Administration is not able to present its ideas by the end of
1996, we will reluctantly conclude that no consensus in the
executive branch is likely, and not await further agency
deliberations.
Deferring a provision of the Treasury amendment does not
diminish its importance. Since today's legislation will have
to be reintroduced in January 1997, we believe this course of
action is prudent, since not only the Administration but also
various interested private groups will have the opportunity
to confer between now and the end of the year. We urge them
to do so. Independent of both efforts, we are considering a
variety of specific reforms to the Treasury amendment, and
will be interested to compare these ideas to those of the
private sector and the Administration. We intend that the
reintroduced version of today's bill will propose a solution
to the Treasury amendment problem.
We invite public comment on the Commodity Exchange Act
Amendments. We believe this bill represents sound policies.
We want to take full account, however, of other views. As we
said in August, the bill is neither an opening gambit nor a
least common denominator. It represents our best judgment of
how the Act should prudently be changed, but our minds remain
open.
The Agriculture Committee's work on the Commodity Exchange
Act has been bipartisan and collegial. Like the 1996 farm
bill, the landmark new food safety law and other important
laws originated by the committee, this legislative effort is
one on which we have worked together. Our cooperation will
continue.<bullet>

<bullet> Mr. LEAHY. Mr. President, today Senator Lugar and I are
introducing legislation to amend the Commodity Exchange Act. This
legislation updates and streamlines U.S. futures trading law.
There is a strong interest in maintaining a viable futures market.
Senator Lugar's and my review of committee testimony combined with the
informal meetings with the industry, regulators, and interested
academics has convinced us that it is appropriate to make these
revisions to the CEA.
I do not expect that this bill will become law during this session.
But introducing it now will afford an opportunity to engage in an
active public discussion and debate over the changes that we propose
here today.
It is my experience that such a dialog helps develop solid bipartisan
legislation. As with most issues, there are many interests that must be
balanced. And, Senator Lugar and I have strived to strike the right
balance between these interests. But we will profit from the dicussions
that this bill is sure to prompt.
I am pleased to join my colleague in offering this bill. Senator
Lugar and I have worked together on futures issues since we came to the
Agriculture Committee. We did the same on this bill--working to ensure
that these markets remain competitive while still maintaining effective
provisions on customer protection and market integrity such as the 1992
audit trail provisions.
I look forward to continuing our discussions.<bullet>
______

By Mr. BINGAMAN (for himself, Mr. Kempthorne, and Mr. Craig):
S. 2078. A bill to authorize the sale of excess Department of Defense
aircraft to facilitate the suppression of wildfire; to the Committee on
Armed Services.

the wildfire suppression aircraft transfer act

<bullet> Mr. BINGAMAN. Mr. President, this Nation has had a very severe
fire season this year. So far almost 6 million acres have burned. The
average amount burned over the last 6 years is a little over 2 million
acres per year. Airplanes, known as airtankers, play a critical role in
fighting wildfires. Airtankers are used in the initial attack of
wildfires in support of firefighters on the ground and, on large
wildfires, to aid in the protection of lives and structures from
rapidly advancing fires.

[[Page S10609]]

Today, I and my colleagues, Senators Kempthorne and Craig, are
introducing legislation that will help ensure that Federal firefighters
continue to have access to airtanker services. The Wildfire Suppression
Aircraft Transfer Act of 1996 will help facilitate the sale of former
military aircraft to contractors who provide firefighting services to
the Forest Service and the Department of the Interior. The existing
fleet of available airtankers is aging rapidly and fleet modernization
is critical to the continued success of the firefighting program.
Currently, legislative authority does not exist for the transfer or
sale of excess turbine-powered military aircraft, suitable for
conversion to airtankers, to private operators. This greatly hampers
efforts to modernize the airtanker fleet. This bill will require that
the aircraft be used only for firefighting activities.
Time is very short, but it is critical that this bill become law in
this Congress. If we fail to pass this law, airtanker operators will
not have access to the planes they need to update the aging airtanker
fleet.
I urge my colleagues to support our efforts to ensure that Federal
firefighters have the resources they need to protect the public and
their property from the threat of wildfires.<bullet>
______

By Mr. MOYNIHAN:
S. 2079. A bill to repeal the prohibition against State restrictions
on communications between government agencies and the INS; to the
Committee on the Judiciary.

alien information provision repeal legislation

<bullet> Mr. MOYNIHAN. Mr. President, on Wednesday, September 11, Mayor
Rudolph W. Giuliani of New York City delivered an address at Georgetown
University Law School about an obscure provision in the recently passed
welfare legislation. The provision, section 434 of the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996, states:

Notwithstanding any other provision of Federal, State, or
local law, no State or local government entity may be
prohibited, or in any way restricted, from sending to or
receiving from the Immigration and Naturalization Service
(INS) information regarding the immigration status, lawful or
unlawful, of an alien in the United States.

Mayor Giuliani said it would ``create chaos in New York City.'' I agree
with him that this provision is ill-advised and threatens the public
health and safety of residents of New York City. It conflicts with a
1985 executive order issued by then-Mayor Edward I. Koch prohibiting
city employees from reporting suspected illegal aliens to the INS
unless the alien was charged with a crime. That executive order, which
is similar to local laws in other States and cities, was intended to
ensure that fear of deportation does not deter illegal aliens from
seeking emergency medical attention, reporting crimes, and so on.
An earlier version of this provision was first introduced in welfare
legislation during the 103d Congress as a part of H.R. 3500, the
Responsibility and Empowerment Support Program Providing Employment,
Child Care, and Training Act, sponsored by Representatives Michel,
Gingrich, and Santorum. On September 8, 1995, during Senate
consideration of H.R. 4, the Work Opportunity Act of 1995, Senator
Santorum, along with Senator Nickles, offered a similar amendment. The
amendment was adopted by the Senate by a vote of 91 to 6, but H.R. 4
was later vetoed by President Clinton.
This year, the provision was included in S. 1795, the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996, which
was signed by President Clinton on August 22, 1996.
Because this provision poses a threat to health and safety in New
York City and elsewhere, I am today introducing legislation to repeal
section 434 of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996. I ask unanimous consent that the text of
the bill be printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:

S. 2079

Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,

SECTION 1. REPEAL OF THE PROHIBITION AGAINST STATE
RESTRICTIONS ON COMMUNICATIONS BETWEEN
GOVERNMENT AGENCIES AND THE INS.

Section 434 of the Personal Responsibility and Work
Opportunity Act of 1996 (Public Law 104-193) is
repealed.<bullet>

____________________