§ 15b. — Cotton futures contracts.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 7USC15b]
TITLE 7--AGRICULTURE
CHAPTER 1--COMMODITY EXCHANGES
Sec. 15b. Cotton futures contracts
(a) Short title
This section may be cited as the ``United States Cotton Futures
Act''.
(b) Repeal of tax on cotton futures
Subchapter D of chapter 39 of title 26 (relating to tax on cotton
futures) is repealed.
(c) Definitions
For purposes of this section--
(1) Cotton futures contract
The term ``cotton futures contract'' means any contract of sale
of cotton for future delivery made at, on, or in any exchange, board
of trade, or similar institution or place of business which has been
designated a ``contract market'' by the Commodity Futures Trading
Commission pursuant to the Commodity Exchange Act [7 U.S.C. 1 et
seq.] and the term ``contract of sale'' as so used shall be held to
include sales, agreements of sale, and agreements to sell, except
that any cotton futures contract that, by its terms, is settled in
cash is excluded from the coverage of this paragraph and section.
(2) Future delivery
The term ``future delivery'' shall not include any cash sale of
cotton for deferred shipment or delivery.
(3) Person
The term ``person'' includes an individual, trust, estate,
partnership, association, company, or corporation.
(4) Secretary
The term ``Secretary'' means the Secretary of Agriculture of the
United States.
(5) Standards
The term ``standards'' means the official cotton standards of
the United States established by the Secretary pursuant to the
United States Cotton Standards Act, as amended [7 U.S.C. 51 et
seq.].
(d) Bona fide spot markets and commercial differences
(1) Definition
For purposes of this section, the only markets which shall be
considered bona fide spot markets shall be those which the Secretary
shall, from time to time, after investigation, determine and
designate to be such, and of which he shall give public notice.
(2) Determination
In determining, pursuant to the provisions of this section, what
markets are bona fide spot markets, the Secretary is directed to
consider only markets in which spot cotton is sold in such volume
and under such conditions as customarily to reflect accurately the
value of middling cotton and the differences between the prices or
values of middling cotton and of other grades of cotton for which
standards shall have been established by the Secretary; except that
if there are not sufficient places, in the markets of which are made
bona fide sales of spot cotton of grades for which standards are
established by the Secretary, to enable him to designate at least
five spot markets in accordance with subsection (f)(3) of this
section, he shall, from data as to spot sales collected by him, make
rules and regulations for determining the actual commercial
differences in the value of spot cotton of the grades established by
him as reflected by bona fide sales of spot cotton, of the same or
different grades, in the market selected and designated by him, from
time to time, for that purpose, and in that event differences in
value of cotton of various grades involved in contracts made
pursuant to subsection (f)(1) and (2) of this section shall be
determined in compliance with such rules and regulations. It shall
be the duty of any person engaged in the business of dealing in
cotton, when requested by the Secretary or any agent acting under
his instructions, to answer correctly to the best of his knowledge,
under oath or otherwise, all questions touching his knowledge of the
number of bales, the classification, the price or bona fide price
offered, and other terms of purchase or sale, of any cotton involved
in any transaction participated in by him, or to produce all books,
letters, papers, or documents in his possession or under his control
relating to such matter. A person complying with the preceding
sentence shall not be liable for any loss or damage arising or
resulting from such compliance.
(3) Withholding information
Any person engaged in the business of dealing in cotton who
shall, within a reasonable time prescribed by the Secretary or any
agent acting under his instructions, willfully fail or refuse to
answer questions or to produce books, letters, papers, or documents,
as required under paragraph (2) of this subsection, or who shall
willfully give any answer that is false or misleading, shall, upon
conviction thereof, be fined not more than $500.
(e) Form and validity of cotton futures contracts
Each cotton futures contract shall be a basis grade contract, or a
tendered grade contract, or a specific grade contract as specified in
subsections (f), (g), or (h) of this section and shall be in writing
plainly stating, or evidenced by written memorandum showing, the terms
of such contract, including the quantity of the cotton involved and the
names and addresses of the seller and buyer in such contract, and shall
be signed by the party to be charged, or by his agent in his behalf. No
cotton futures contract which does not conform to such requirements
shall be enforceable by, or on behalf of, any party to such contract or
his privies.
(f) Basis grade contracts
(1) Conditions
Each basis grade cotton futures contract shall comply with each
of the following conditions:
(A) Conformity with regulations
Conform to the regulations made pursuant to this section.
(B) Specification of grade, price, and dates of sale and
settlement
Specify the basis grade for the cotton involved in the
contract, which shall be one of the grades for which standards
are established by the Secretary, except grades prohibited from
being delivered on a contract made under this subsection by
subparagraph (E), the price per pound at which the cotton of
such basis grade is contracted to be bought or sold, the date
when the purchase or sale was made, and the month or months in
which the contract is to be fulfilled or settled; except that
middling shall be deemed the basis grade incorporated into the
contract if no other basis grade be specified either in the
contract or in the memorandum evidencing the same.
(C) Provision for delivery of standard grades only
Provide that the cotton dealt with therein or delivered
thereunder shall be of or within the grades for which standards
are established by the Secretary except grades prohibited from
being delivered on a contract made under this subsection by
subparagraph (E) and no other grade or grades.
(D) Provision for settlement on basis of actual commercial
differences
Provide that in case cotton of grade other than the basis
grade be tendered or delivered in settlement of such contract,
the differences above or below the contract price which the
receiver shall pay for such grades other than the basis grade
shall be the actual commercial differences, determined as here-
inafter provided.
(E) Prohibition of delivery of inferior cotton
Provide that cotton that, because of the presence of
extraneous matter of any character, or irregularities or
defects, is reduced in value below that of low middling, or
cotton that is below the grade of low middling, or, if tinged,
cotton that is below the grade of strict middling, or, if yellow
stained, cotton that is below the grade of good middling, the
grades mentioned being of the official cotton standards of the
United States, or cotton that is less than seven-eighths of an
inch in length of staple, or cotton of perished staple, or of
immature staple, or cotton that is ``gin cut'' or reginned, or
cotton that is ``repacked'' or ``false packed'' or ``mixed
packed'' or ``water packed'', shall not be delivered on, under,
or in settlement of such contract.
(F) Provisions for tender in full, notice of delivery date, and
certificate of grade
Provide that all tenders of cotton under such contract shall
be the full number of bales involved therein, except that such
variations of the number of bales may be permitted as is
necessary to bring the total weight of the cotton tendered
within the provisions of the contract as to weight; that, on the
fifth business day prior to delivery, the person making the
tender shall give to the person receiving the same written
notice of the date of delivery, and that, on or prior to the
date so fixed for delivery, and in advance of final settlement
of the contract, the person making the tender shall furnish to
the person receiving the same a written notice or certificate
stating the grade of each individual bale to be delivered and,
by means of marks or numbers, identifying each bale with its
grade.
(G) Provision for tender and settlement in accordance with
Government classification
Provide that all tenders of cotton and settlements therefor
under such contract shall be in accordance with the
classification thereof made under the regulations of the
Secretary by such officer or officers of the Government as shall
be designated for the purpose, and the costs of such
classification shall be fixed, assessed, collected, and paid as
provided in such regulations and shall be credited to the
account referred to in section 55 of this title. The Secretary
may provide by regulation conditions under which cotton samples
submitted or used in the performance of services authorized by
this act shall become the property of the United States and may
be sold and the proceeds credited to the foregoing account:
Provided, That such cotton samples shall not be subject to the
provisions of the Federal Property and Administrative Services
Act of 1949.\1\ The Secretary is authorized to prescribe
regulations for carrying out the purposes of this subparagraph
and the certificates of the officers of the Government as to the
classification of any cotton for the purposes of this
subparagraph shall be accepted in the courts of the United
States in all suits between the parties to such contract, or
their privies, as prima facie evidence of the true
classification of the cotton involved.
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\1\ See References in Text note below.
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(2) Incorporation of conditions in contracts
The provisions of paragraphs (1)(C), (D), (E), (F), and (G)
shall be deemed fully incorporated into any such contract if there
be written or printed thereon, or on the memorandums evidencing the
same, at or prior to the time the same is signed, the phrase
``Subject to United States Cotton Futures Act, subsection (f).''
(3) Delivery allowances
For the purpose of this subsection, the differences above or
below the contract price which the receiver shall pay for cotton of
grades above or below the basic \2\ grade in the settlement of a
contract of sale for the future delivery of cotton shall be
determined by the actual commercial differences in value thereof
upon the sixth business day prior to the day fixed, in accordance
with paragraph (1)(F), for the delivery of cotton on the contract,
established by the sale of spot cotton in the spot markets of not
less than five places designated for the purpose from time to time
by the Secretary, as such values were established by the sales of
spot cotton, in such designated five or more markets. For purposes
of this paragraph, such values in the such spot markets shall be
based upon the standards for grades of cotton established by the
Secretary. Whenever the value of one grade is to be determined from
the sale or sales of spot cotton of another grade or grades, such
value shall be fixed in accordance with rules and regulations which
shall be prescribed for the purpose by the Secretary.
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\2\ So in original. Probably should be ``basis''.
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(g) Tendered grade contracts
(1) Conditions
Each tendered grade cotton future contract shall comply with
each of the following conditions:
(A) Compliance with subsection (f)
Comply with all the terms and conditions of subsection (f)
of this section not inconsistent with this subsection; and
(B) Provision for contingent specific performance
Provide that, in case cotton of grade or grades other than
the basis grade specified in the contract shall be tendered in
performance of the contract, the parties to such contract may
agree, at the time of the tender, as to the price of the grade
or grades so tendered, and that if they shall not then agree as
to such price, then, and in that event, the buyer of said
contract shall have the right to demand the specific fulfillment
of such contract by the actual delivery of cotton of the basis
grade named therein and at the price specified for such basis
grade in said contract.
(2) Incorporation of conditions in contract
Contracts made in compliance with this subsection shall be known
as ``subsection (g) Contracts''. The provisions of this subsection
shall be deemed fully incorporated into any such contract if there
be written or printed thereon, or on the memorandum evidencing the
same, at or prior to the time the same is signed, the phrase
``Subject to United States Cotton Futures Act, subsection (g)''.
(3) Application of subsection
Nothing in this subsection shall be so construed as to authorize
any contract in which, or in the settlement of or in respect to
which, any device or arrangement whatever is resorted to, or any
agreement is made, for the determination or adjustment of the price
of the grade or grades tendered other than the basis grade specified
in the contract by any ``fixed difference'' system, or by
arbitration, or by any other method not provided for by this
section.
(h) Specific grade contracts
(1) Conditions
Each specific grade cotton futures contract shall comply with
each of the following conditions:
(A) Conformity with rules and regulations
Conform to the rules and regulations made pursuant to this
section.
(B) Specification of grade, price, dates of sale and delivery
Specify the grade, type, sample, or description of the
cotton involved in the contract, the price per pound at which
such cotton is contracted to be bought or sold, the date of the
purchase or sale, and the time when shipment or delivery of such
cotton is to be made.
(C) Prohibition of delivery of other than specified grade
Provide that cotton of or within the grade or of the type,
or according to the sample or description, specified in the
contract shall be delivered thereunder, and that no cotton which
does not conform to the type, sample, or description, or which
is not of or within the grade specified in the contract shall be
tendered or delivered thereunder.
(D) Provision for specific performance
Provide that the delivery of cotton under the contract shall
not be effected by means of ``setoff'' or ``ring'' settlement,
but only by the actual transfer of the specified cotton
mentioned in the contract.
(2) Incorporation of conditions in contract
The provisions of paragraphs (1)(A), (C), and (D) shall be
deemed fully incorporated into any such contract if there be written
or printed thereon, or on the document or memorandum evidencing the
same, at or prior to the time the same is entered into, the words
``Subject to United States Cotton Futures Act, subsection (h)''.
(3) Application of subsection
This subsection shall not be construed to apply to any contract
of sale made in compliance with subsection (f) or (g) of this
section.
(i) Liability of principal for acts of agent
When construing and enforcing the provisions of this section, the
act, omission, or failure of any official, agent, or other person acting
for or employed by any association, partnership, or corporation within
the scope of his employment or office shall, in every case, also be
deemed the act, omission, or failure of such association, partnership,
or corporation, as well as that of the person.
(j) Regulations
The Secretary is authorized to make such regulations with the force
and effect of law as he determines may be necessary to carry out the
provisions of this section and the powers vested in him by this section.
(k) Violations
Any person who knowingly violates any regulation made in pursuance
of this section, shall, upon conviction thereof, be fined not less than
$100 nor more than $500, for each violation thereof, in the discretion
of the court, and, in case of natural persons, may, in addition be
punished by imprisonment for not less than 30 days nor more than 90
days, for each violation, in the discretion of the court except that
this subsection shall not apply to violations subject to subsection
(d)(3) of this section.
(l) Applicability to contracts prior to effective date
The provisions of this section shall not apply to any cotton futures
contract entered into prior to the effective date of this section or to
any act or failure to act by any person prior to such effective date and
all such prior contracts, acts or failure to act shall continue to be
governed by the applicable provisions of the Internal Revenue Code of
1954 \1\ as in effect prior to the enactment of this section. All
designations of bona fide spot markets and all rules and regulations
issued by the Secretary pursuant to the applicable provisions of the
Internal Revenue Code of 1954 \1\ which were in effect on the effective
date of this section, shall remain fully effective as designations and
regulations under this section until superseded, amended, or terminated
by the Secretary.
(m) Authorization
There are authorized to be appropriated such sums as may be
necessary to carry out this section.
(Pub. L. 94-455, title XIX, Sec. 1952(a)-(m), Oct. 4, 1976, 90 Stat.
1841-1846; Pub. L. 97-35, title I, Sec. 156(c), Aug. 13, 1981, 95 Stat.
374; Pub. L. 102-237, title I, Sec. 123, Dec. 13, 1991, 105 Stat. 1844;
Pub. L. 106-472, title III, Sec. 311, Nov. 9, 2000, 114 Stat. 2076.)
References in Text
The Commodity Exchange Act, referred to in subsec. (c)(1), is act
Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended, which is classified
generally to chapter 1 (Sec. 1 et seq.) of this title. For complete
classification of this Act to the Code, see section 1 of this title and
Tables.
The United States Cotton Standards Act, as amended, referred to in
subsec. (c)(5), is act Mar. 4, 1923, ch. 288, 42 Stat. 1517, as amended,
which is classified generally to chapter 2 (Sec. 51 et seq.) of this
title. For complete classification of this Act to the Code, see section
51 of this title and Tables.
The Federal Property and Administrative Services Act of 1949,
referred to in subsec. (f)(1)(G), is act June 30, 1949, ch. 288, 63
Stat. 377, as amended. Except for title III of the Act, which is
classified generally to subchapter IV (Sec. 251 et seq.) of chapter 4 of
Title 41, Public Contracts, the Act was repealed and reenacted by Pub.
L. 107-217, Secs. 1, 6(b), Aug. 21, 2002, 116 Stat. 1062, 1304, as
chapters 1 to 11 of Title 40, Public Buildings, Property, and Works.
The Internal Revenue Code of 1954, referred to in subsec. (l), was
redesignated the Internal Revenue Code of 1986 by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, and is classified to Title 26,
Internal Revenue Code.
Codification
Section was enacted as part of the Tax Reform Act of 1976, and not
as part of the Commodity Exchange Act which comprises this chapter.
This section, referred to in subsec. (c)(1), was in the original a
reference to this ``Act'', meaning the United States Cotton Futures Act,
which comprises this section.
Amendments
2000--Subsec. (d)(2). Pub. L. 106-472 inserted at end ``A person
complying with the preceding sentence shall not be liable for any loss
or damage arising or resulting from such compliance.''
1991--Subsec. (c)(1). Pub. L. 102-237 inserted before period at end
``, except that any cotton futures contract that, by its terms, is
settled in cash is excluded from the coverage of this paragraph and
section''.
1981--Subsec. (f)(1)(G). Pub. L. 97-35 inserted provisions relating
to crediting to account referred to in section 55 of this title and
provisions respecting cotton samples submitted or used becoming the
property of the United States.
Effective Date of 1981 Amendment
Amendment by Pub. L. 97-35 effective Oct. 1, 1981, see section
156(e) of Pub. L. 97-35, set out as an Effective Date note under section
61a of this title.
Effective Date
Section 1952(o) of Pub. L. 94-455 provided that: ``The provisions of
this section [enacting this section, amending section 6808 of Title 26,
Internal Revenue Code, and repealing sections 7233 and 7263, subchapter
D of chapter 39, and subchapter E of chapter 76 of Title 26] shall take
effect on the 90th day after the date of enactment of this Act [Oct. 4,
1976].''
Section Referred to in Other Sections
This section is referred to in section 55 of this title.
