§ 6c. — Prohibited transactions.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 7USC6c]
TITLE 7--AGRICULTURE
CHAPTER 1--COMMODITY EXCHANGES
Sec. 6c. Prohibited transactions
(a) In general
(1) Prohibition
It shall be unlawful for any person to offer to enter into,
enter into, or confirm the execution of a transaction described in
paragraph (2) involving the purchase or sale of any commodity for
future delivery (or any option on such a transaction or option on a
commodity) if the transaction is used or may be used to--
(A) hedge any transaction in interstate commerce in the
commodity or the product or byproduct of the commodity;
(B) determine the price basis of any such transaction in
interstate commerce in the commodity; or
(C) deliver any such commodity sold, shipped, or received in
interstate commerce for the execution of the transaction.
(2) Transaction
A transaction referred to in paragraph (1) is a transaction
that--
(A)(i) is, of the character of, or is commonly known to the
trade as, a ``wash sale'' or ``accommodation trade''; or
(ii) is a fictitious sale; or
(B) is used to cause any price to be reported, registered,
or recorded that is not a true and bona fide price.
(b) Regulated option trading
No person shall offer to enter into, enter into or confirm the
execution of, any transaction involving any commodity regulated under
this chapter which is of the character of, or is commonly known to the
trade as, an ``option'', ``privilege'', ``indemnity'', ``bid'',
``offer'', ``put'', ``call'', ``advance guaranty'', or ``decline
guaranty'', contrary to any rule, regulation, or order of the Commission
prohibiting any such transaction or allowing any such transaction under
such terms and conditions as the Commission shall prescribe. Any such
order, rule, or regulation may be made only after notice and opportunity
for hearing, and the Commission may set different terms and conditions
for different markets.
(c) Regulations for elimination of pilot status of commodity option
transactions; terms and conditions of options trading
Not later than 90 days after November 10, 1986, the Commission shall
issue regulations--
(1) to eliminate the pilot status of its program for commodity
option transactions involving the trading of options on contract
markets, including any numerical restrictions on the number of
commodities or option contracts for which a contract market may be
designated; and
(2) otherwise to continue to permit the trading of such
commodity options under such terms and conditions that the
Commission from time to time may prescribe.
(d) Dealer options exempt from subsections (b) and (c) prohibitions;
requirements
Notwithstanding the provisions of subsection (c) of this section--
(1) any person domiciled in the United States who on May 1,
1978, was in the business of granting an option on a physical
commodity, other than a commodity specifically set forth in section
2(a) of this title prior to October 23, 1974, and was in the
business of buying, selling, producing, or otherwise using that
commodity, may continue to grant or issue options on that commodity
in accordance with Commission regulations in effect on August 17,
1978, until thirty days after the effective date of regulations
issued by the Commission under clause (2) of this subsection:
Provided, That if such person files an application for registration
under the regulations issued under clause (2) of this subsection
within thirty days after the effective date of such regulations,
that person may continue to grant or issue options pending a final
determination by the Commission on the application; and
(2) the Commission shall issue regulations that permit grantors
and futures commission merchants to offer to enter into, enter into,
or confirm the execution of, any commodity option transaction on a
physical commodity subject to the provisions of subsection (b) of
this section, other than a commodity specifically set forth in
section 2(a) of this title prior to October 23, 1974, if--
(A) the grantor is a person domiciled in the United States
who--
(i) is in the business of buying, selling, producing, or
otherwise using the underlying commodity;
(ii) at all times has a net worth of at least $5,000,000
certified annually by an independent public accountant using
generally accepted accounting principles;
(iii) notifies the Commission and every futures
commission merchant offering the grantor's option if the
grantor knows or has reason to believe that the grantor's
net worth has fallen below $5,000,000;
(iv) segregates daily, exclusively for the benefit of
purchasers, money, exempted securities (within the meaning
of section 78c(a)(12) of title 15), commercial paper,
bankers' acceptances, commercial bills, or unencumbered
warehouse receipts, equal to an amount by which the value of
each transaction exceeds the amount received or to be
received by the grantor for such transaction;
(v) provides an identification number for each
transaction; and
(vi) provides confirmation of all orders for such
transactions executed, including the execution price and a
transaction identification number;
(B) the futures commission merchant is a person who--
(i) has evidence that the grantor meets the requirements
specified in subclause (A) of this clause;
(ii) treats and deals with all money, securities, or
property received from its customers as payment of the
purchase price in connection with such transactions, as
belonging to such customers until the expiration of the term
of the option, or, if the customer exercises the option,
until all rights of the customer under the commodity option
transaction have been fulfilled;
(iii) records each transaction in its customer's name by
the transaction identification number provided by the
grantor;
(iv) provides a disclosure statement to its customers,
under regulations of the Commission, that discloses, among
other things, all costs, including any markups or
commissions involved in such transaction; and
(C) the grantor and futures commission merchant comply with
any additional uniform and reasonable terms and conditions the
Commission may prescribe, including registration with the
Commission.
The Commission may permit persons not domiciled in the United States to
grant options under this subsection, other than options on a commodity
specifically set forth in section 2(a) of this title prior to October
23, 1974, under such additional rules, regulations, and orders as the
Commission may adopt to provide protection to purchasers that are
substantially the equivalent of those applicable to grantors domiciled
in the United States. The Commission may terminate the right of any
person to grant, offer, or sell options under this subsection only after
a hearing, including a finding that the continuation of such right is
contrary to the public interest: Provided, That pending the completion
of such termination proceedings, the Commission may suspend the right to
grant, offer, or sell options of any person whose activities in the
Commission's judgment present a substantial risk to the public interest.
(e) Rules and regulations
The Commission may adopt rules and regulations, after public notice
and opportunity for a hearing on the record, prohibiting the granting,
issuance, or sale of options permitted under subsection (d) of this
section if the Commission determines that such options are contrary to
the public interest.
(f) Nonapplicability to foreign currency options
Nothing in this chapter shall be deemed to govern or in any way be
applicable to any transaction in an option on foreign currency traded on
a national securities exchange.
(g) Oral orders
The Commission shall adopt rules requiring that a contemporaneous
written record be made, as practicable, of all orders for execution on
the floor or subject to the rules of each contract market or derivatives
transaction execution facility placed by a member of the contract market
or derivatives transaction execution facility who is present on the
floor at the time such order is placed.
(Sept. 21, 1922, ch. 369, Sec. 4c, as added June 15, 1936, ch. 545,
Sec. 5, 49 Stat. 1494; amended Pub. L. 93-463, title I, Sec. 103(a),
title IV, Sec. 402, Oct. 23, 1974, 88 Stat. 1392, 1412; Pub. L. 95-405,
Sec. 3, Sept. 30, 1978, 92 Stat. 867; Pub. L. 97-444, title I, Sec. 102,
title II, Sec. 206, Jan. 11, 1983, 96 Stat. 2296, 2301; Pub. L. 99-641,
title I, Sec. 102, Nov. 10, 1986, 100 Stat. 3557; Pub. L. 102-546, title
II, Sec. 203(a), title IV, Sec. 402(4), Oct. 28, 1992, 106 Stat. 3600,
3624; Pub. L. 106-554, Sec. 1(a)(5) [title I, Secs. 109, 123(a)(6)],
Dec. 21, 2000, 114 Stat. 2763, 2763A-383, 2763A-407.)
Amendments
2000--Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 109], inserted
section catchline.
Subsec. (a). Pub. L. 106-554, Sec. 1(a)(5) [title I, Sec. 109],
added subsec. (a) and struck out former subsec. (a) which read as
follows: ``It shall be unlawful for any person to offer to enter into,
enter into, or confirm the execution of, any transaction involving any
commodity, which is or may be used for (1) hedging any transaction in
interstate commerce in such commodity or the products or byproducts
thereof, or (2) determining the price basis of any such transaction in
interstate commerce in such commodity, or (3) delivering any such
commodity sold, shipped, or received in interstate commerce for the
fulfillment thereof--
``(A) if such transaction is, is of the character of, or is
commonly known to the trade as, a `wash sale,' `cross trade,' or
`accommodation trade,' or is a fictitious sale; or
``(B) if such transaction is used to cause any price to be
reported, registered, or recorded which is not a true and bona fide
price.
Nothing in this section shall be construed to prevent the exchange of
futures in connection with cash commodity transactions or of futures for
cash commodities, or of transfer trades or office trades if made in
accordance with board of trade rules applying to such transactions and
such rules shall have been approved by the Commission.''
Subsec. (g). Pub. L. 106-554, Sec. 1(a)(5) [title I,
Sec. 123(a)(6)], inserted ``or derivatives transaction execution
facility'' after ``contract market'' in two places.
1992--Subsec. (d)(2). Pub. L. 102-546, Sec. 402(4), made technical
amendments to references to section 78c(a)(12) of title 15 in subpar.
(A)(iv) and to section 2(a) of this title in concluding provisions.
Subsec. (g). Pub. L. 102-546, Sec. 203(a), added subsec. (g).
1986--Subsec. (c). Pub. L. 99-641, amended subsec. (c) generally,
substituting provisions relating to regulations to eliminate pilot
status of program for commodity option transactions for provisions
relating to commodity option transactions, pilot program and permanent
authorization, conditions ending prohibition, and excepted persons.
1983--Subsec. (a)(B), (C). Pub. L. 97-444, Sec. 206(1), redesignated
par. (C) as (B). Former par. (B), relating to transactions involving any
commodity specifically set forth in section 2(a) of this title, prior to
October 23, 1974, if such transactions were of the character of, or were
commonly known to the trade as, an ``option'', ``privilege'',
``indemnity'', ``bid'', ``offer'', ``put'', ``call'', ``advance
guaranty'', or ``decline guaranty'', was struck out.
Subsec. (b). Pub. L. 97-444, Sec. 206(2), in revising section
generally, struck out references to any transaction subject to
provisions of subsection (a) of this section and to any commodity not
specifically set forth in section 2(a) of this title, prior to October
23, 1974, and struck out ``within one year after the effective date of
the Commodity Futures Trading Commission Act of 1974 unless the
Commission determines and notifies the Senate Committee on Agriculture,
Nutrition, and Forestry and the House Committee on Agriculture that it
is unable to prescribe such terms and conditions within such period of
time:'' after ``such terms and conditions as the Commission shall
prescribe''.
Subsec. (c). Pub. L. 97-444, Sec. 206(3), inserted ``With respect to
any commodity regulated under this chapter and specifically set forth in
section 2(a) of this title prior to October 23, 1974, the Commission
may, pursuant to the procedures set forth in this subsection, establish
a pilot program for a period not to exceed three years to permit such
commodity option transactions. The Commission may authorize commodity
option transactions during the pilot program in as many commodities as
will provide an adequate test of the trading of such option
transactions. After completion of the pilot program, the Commission may
authorize commodity option transactions without regard to the
restrictions in the pilot program after the Commission transmits to the
House Committee on Agriculture and the Senate Committee on Agriculture,
Nutrition, and Forestry the documentation required under clause (1) of
the first sentence of this subsection and the expiration of thirty
calendar days of continuous session of Congress after the date of such
transmittal.''
Subsec. (d)(1). Pub. L. 97-444, Sec. 206(4)(A), inserted ``, other
than a commodity specifically set forth in section 2(a) of this title
prior to October 23, 1974,'' after ``physical commodity''.
Subsec. (d)(2). Pub. L. 97-444, Sec. 206(4)(B), inserted ``, other
than a commodity specifically set forth in section 2(a) of this title
prior to October 23, 1974,'' after ``subsection (b) of this section'' in
provisions preceding subpar. (A).
Pub. L. 97-444, Sec. 206(4)(C), inserted ``, other than options on a
commodity specifically set forth in section 2(a) of this title prior to
October 23, 1974,'' after ``The Commission may permit persons not
domiciled in the United States to grant options under this subsection''
in provisions following par. (2).
Subsec. (f). Pub. L. 97-444, Sec. 102, added subsec. (f).
1978--Subsec. (a). Pub. L. 95-405, Sec. 3(1), in provisions
following par. (C) substituted ``have been approved'' for ``not have
been disapproved''.
Subsec. (b). Pub. L. 95-405, Sec. 3(2), substituted ``Senate
Committee on Agriculture, Nutrition, and Forestry'' for ``Senate
Committee on Agriculture and Forestry''.
Subsecs. (c) to (e). Pub. L. 95-405, Sec. 3(3), added subsecs. (c)
to (e).
1974--Subsec. (a). Pub. L. 93-463, Secs. 103(a), 402(a), (b), (d),
designated existing provisions as subsec. (a), in par. (B) of subsec.
(a) as so designated inserted ``if such transaction involves any
commodity specifically set forth in section 2(a) of this title, prior to
the enactment of the Commodity Futures Trading Commission Act of 1974,
and'' and ``option'', and in provisions following par. (C), struck out
provisions prohibiting a construction of this section or section 6b of
this title which would impair any State law applicable to any
transaction enumerated or described in this section or section 6b of
this title and substituted ``Commission'' for ``Secretary of
Agriculture''.
Subsec. (b). Pub. L. 93-463, Sec. 402(c), added subsec. (b).
Effective Date of 1992 Amendment
Section 203(b) of Pub. L. 102-546 provided that: ``The Commission
shall adopt the rules required by the amendment made under subsection
(a) [amending this section] within two hundred and seventy days after
the date of enactment of this Act [Oct. 28, 1992].''
Effective Date of 1983 Amendment
Amendment by Pub. L. 97-444 effective Jan. 11, 1983, see section 239
of Pub. L. 97-444, set out as a note under section 2 of this title.
Effective Date of 1978 Amendment
Amendment by Pub. L. 95-405 effective Oct. 1, 1978, see section 28
of Pub. L. 95-405, set out as a note under section 2 of this title.
Effective Date of 1974 Amendment
For effective date of amendment by Pub. L. 93-463, see section 418
of Pub. L. 93-463, set out as a note under section 2 of this title.
Effective Date
For effective date of section, see section 13 of act June 15, 1936,
set out as an Effective Date of 1936 Amendment note under section 1 of
this title.
Section Referred to in Other Sections
This section is referred to in sections 1a, 2, 6a, 6f, 6k, 7a-3, 7b-
1, 12a, 13, 16, 19, 25 of this title; title 11 section 761.
