# Appendix — CLAYTON BROKERAGEAGE CO. OF ST. LOUIS, INC. v. NEIL LEIST (Nos. 80-895, 80-203, 80-757, 80-936) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1913%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1981 ## Text Supreme Court, U, $, 80-895 FILED DEC 4 1980 i et tn ce In THe Supreme Court of the United States OctToser Term, 1980 CLAYTON BROKERAGE Co, OF St. Louis, INC., Petitioner, vs. Newt Leist, Poitie SMitn and INCOMco, Respondents. APPENDIX TO PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT GERARD K, SANDWEG, JR. One Mercantile Center, Suite 3400 St. Louis, Missouri 63101 (314) 231-7676 Counsel for Petitioner, Clayton Brokerage Co. of Of Counsel: St. Louis, Inc. W. STANLEY WALCH KENTON E, KNICKMEYER THOMPSON & MITCHELL One Mercantile Center, Suite 3400 St. Louis, Missouri 63101 (314) 231-7676 _ St, Louis Law Printing Co., Inc,, 411 No, Tenth Street 63101 314.231.4477 TABLE OF CONTENTS page Appendix A— Opinion of the United States Court of Appeals for the Second Circuit, dated July 8, 1980....... A-l PIED vac civctrccacicoceseccenvesee A-5 - OPPRTETITTITE ELLE ETT ere eee A-91 Appendix B— Opinion of the United States District Court for the Southern District of New York, Dated May 29, POPRETT ERE TEPTTRTTLEE REET eee A-168 Appendix C— Judgment of the Court of Appeals, dated July 8, WO 6.000.00003) 6a0eedscevecndvesecenssa A-186 Appendix D— Order Denying Rehearing ...........6 6660 c ces A-188 Appendix E— Order Denying Rehearing En Banc.............. A-190 Appendix F— Constitutional, Statutory and Regulatory Pro- PED SIN 6.5 6.00000 00000008 8e00ee eae A-192 —_ = APPENDIX A OPINION OF THE J. S. COURT OF APPEALS UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ———_—__~—_-—- -—— Nos. 402, 403, 404—September Term, 1979 (Argued January 16, 1980 Decided July 8, 1980) Docket Nos. 79-7402, 79-7464, 79-7482 — —= --—{>—_--— — NeIL Leist, PHILIP SMITH and INCOMCO, Plaintiffs-Appellants, Vo JOHN RICHARD Simptot, J.R. Simptor & Co,, SIMPLOT Propucts Co., INc., SIMPLOT INDUSTRIES, INC., SIMTAG Farms, INC., PETER J. TAGGARES, P. J. TAGGARES & Co., Henry A. POLLACK, HARVEY B. POLLACK, HARVEY B, POLLACK COMPANY, GERALD RAFFERTY, PRESSNER TRADING CORP., BENJAMIN PRESSNER, STEPHEN SUNDHEIMER, JULES NORDLIGHT, EDELSTEIN & Co., INC., CHARLES EDELSTEIN, ROBERT EDELSTEIN, MURIAL EDELSTEIN, MEIERFELD & Company, INC., GILBERT MEIFRFELD, DAVID MEIERFELD, ROBERT REAR DON, F.J. REARDON, INC., HAROLD COLLINS, CASPAR MAYERSON, LYNNEWOOD EXPORTING COMPANY, ALEX SINCLAIR, MANNING STOLLER, HORNBLOWER & WEEKS- HEMPHILL, Noyes INnc., MFX Commopirigs, INC., DONALD SILVER, DUANE SOUTH, KENNETH RAMM, A & B FARMING INC., HUGH GLENN, GEARHEART FARMING, Inc., EDWARD McKay, “JOHN” HUMPHREYS, FRANK FULLMER, Defendants, = CLAYTON BROKERAGE Co. oF St. Louts, INc., HEINOLD ComMOoDITIES, INC., THOMPSON & MCKINNON, AUCHIN. CLOSS, KOHLMEYER, INC., NEW YORK MERCANTILE EXCHANGE, RICHARD B. LEVINE, HOWARD GABLER, ALFRED PENNISI, Defendants-Appellees. > INCOMCO, Plaintiff-Appellant, —vVvV a WayYNE COUNTY Propuce Co., and HAROLD COLLINS, Defendants, New YorRK MERCANTILE EXCHANGE, De fendant-Appellee. — ee ———— NATIONAL SUPER Spups, INc., WILLIAM R. BUSTER, JR., WILLARD C. CHINER, EUGENE P. WEISMEN, RICHARD WELTs, RAYMOND ROTHBERG, ARTHUR S. ARMSTRONG, THEODORE BRINEK, CAPGAIN HOLDINGS, INC., and HEIZz ROMMINGER, individually and on behalf of all persons similarly situated, Plaintiffs-Appellants, —_—Vi— NeW YORK MERCANTILE EXCHANGE, CLAYTON BROKERAGE Co. oF St. Louis, Inc., PRESSNER TRADING CorP., — « pon JACK RICHARD SIMPLOT, J.R. SimpLot Co., SIMPLOT INDUSTRIES, INC., PETER J. TAGGARES, P.J. TAGGARES Co., C.L. OTTER, SIMTAG FARMS, KENNETH RAMM, A & B Farms, Inc., HUGH V. GLENN. GEARHEART FARMING, INC. and Ep McKay, Defendants, HEINOLD COMMODITIES, INC., THOMPSON & MCKINNON, AUCHINCLOSS, KOHLMEYER, INC., Defendants-Appellees. Before: FRIENDLY, MANSFIELD and KEARSE, Circuit Judges. a Appeal from an order of the District Court for the Southern District of New York, Lloyd F. MacMahon, Judge, 470 F.Supp. 1256 (1979), granting partial summary judgment to the New York Mercantile Exchange and three futures commission merchants, defendants in three consolidated actions wherein plaintiffs claimed damages arising out of the default by sellers of the May 1976 Maine potato futures contracts, on the ground that there is no private cause of action for damages under the Commodity Exchange Act, 7 U.S.C. $§ 1-19. Reversed. — A4— LEONARD TOBOROFF, Esq., New York, N.Y. (Robson & Toboroff, New York, N.Y.), for Plaintiffs-Appellants Neil Leist, Philip Smith and Incomco. POMERANTZ, LEVY, HAUDEK & BLOCK, New York, N.Y. and HOLLINSHEAD and MENDELSON, Pittsburgh, Pa., for Class Plaintiffs-Appellants. WILLIAM E. HEGARTY, Esq., New York, N.Y. (Cahill Gordon & Reindel, New York, N.Y., Charles Platto, Esq. and Peter Leight, Esq., Of Counsel) and REIN, Mounp & Cotton, New York, N.Y (Maurice Mound, Esq., Of Counsel), for Defendants-Appellees New York Mer- cantile Exchange, Richard B. Levine, Howard Gabler and Alfred Pennisi. LAWRENCE H. Hunt, Esq., Chicago, Ill. (Sidley & Austin, Chicago, Ill.) and DEWEY, BALLANTINE, BUSHBY, PALMER & Woop, New York, N.Y. for Defendant- Appellee Heinold Commodities, Inc. W. STANLEY WALCH, Esq., St. Louis, Mis- souri (Thompson & Mitchell, St. Louis, Missouri, Gerard K. Sandweg, Esq. and Kenton E. Knickmeyer, Esq., Of Coun- sel) for Defendant-Appellee Clayton Brokerage Co. of St. Louis, Inc. HALL, MCNICHOL, HAMILTON, CLARK & MUR. RAY, New York, N.Y. for Defendant- Appellee Thomson McKinnon Auchin- closs Kohlmeyer Inc. =. Pe Mark D. YounG, Esq., Washington, D.C. (John G. Gaine, General Counsel, Pat G. Nicolette, Deputy General Counsel, and Gregory C. Glynn, Associate General Counsel, Washington, D.C., Of Counsel), for Amicus Curiae Commodity Futures Trading Commission. —_——_ - —<>- - - -——— FRIENDLY, Circuit Judge: Plaintiffs in three consolidated actions in the District Court for the Southern District of New York appeal from an order of Judge, now Chief Judge, MacMahon, 470 F.Supp. 1256 (1979), granting appellees’ motions for partial summary judgment. The court struck from the complaints all claims based on the Commodity Exchange Act, (CEA), 7 U.S.C. §§ 1-19, as amended in 1974, as distinguished from other claims under the antitrust laws. The actions were to recover damages allegedly suffered by the plaintiffs as a result of what Judge MacMahon characterized as the much publicized default in May 1976 of Maine potato futures contracts, when the sellers of almost 1,000 contracts failed to deliver approximately 50,000,000 pounds of potatoes, resulting in the largest default in the history of commodities futures trading in this country. 470 F.Supp. at 1258 (footnote omitted). The basis for the court’s order was that no private cause of action exists for breach of the CEA. Since this important issue has divided the district courts, including those within our circuit, we feel constrained —S to discuss it in some detail.' We think it desirable, as did the district court, to begin with an explanation of the nature of the commodity futures markets. I. COMMODITY FUTURES MARKETS A commodity futures contract is simply a bilateral executory agreement for the purchase and sale of a particular commodity. The seller of the contract commits himself to deliver the commodity at a fixed date in the future, while the buyer commits himself then to accept delivery and pay the agreed price. 1 Bromberg & Lowenfels, Securities Fraud & Commodi- ties Fraud § 4.6 (4211979); H. R. Rep. No. 93-975, 93d Cong., 2d Sess. 130 (1974). Every aspect of the futures contract is standardized except price. For example, the contract involved in this case, the May 1976 Maine potato futures contract, is for 50,000 pounds of Maine grown potatoes of a specified quality to be delivered at specified points in cars of the Bangor & Aroostook Railroad, between May 7 and May 25, 1976. Since price is the only variable, negotiations can readily proceed and the agreed prices can be speedily disseminated to 1 The length of our treatment, particularly the explanation of the nature of the Commodities Futures Market in Part I and the history of congressional regulation in Part III, is also partly due to the fact that when the case was argued and for some time after the majority opinion was prepared, no court of appeals had passed on the question and we anticipated being the first to do so. However, in a case decided May 12, 1980, a divided panel of the Court of Appeals for the Sixth Circuit reached the issue sua sponte and, in an excellent and succinct opinion, held, as we do, on largely the same reasoning, that there is an implied private right of action under the CEA. Curran v. Merrill Lynch, Pierce, Fenner and Smith, Inc., No. 77- 1300, SRLR (BNA) G-1 (May 12, 1980). Although, as argued in the dissent, Curran involved a suit by a customer against a broker, the court did not limit its reasoning to that situation. pay jpn other traders. Standardization also makes the contracts fungible. Original sellers and buyers can therefore offset their positions by acquiring opposite contracts, either paying or gaining any price differential. H. R. Rep. No. 93-975, supra, at 130. The person who has sold a futures contract, ie., someone committed to deliver the commodity in the future, is said to be in a “short” position. Conversely, someone committed to accept delivery is “long”. It is a rare case, however, in which actual delivery takes place pursuant to a futures contract.’ Save in these rare instances, the short and the long must liquidate their positions prior to the close of trading in the particular futures contract. Although the means by which this is done is routinely referred to as futures trading, futures contracts are not “traded” in the normal sense of that word. Rather they are formed and discharged. Clark, Genealogy and Genetics of “Contract of Sale of a Commodity for Future Delivery” in the Commodity Exchange Act, 27 Emory L. J. 1175, 1176 (1978). A person seeking to liquidate his futures position must 2 See H. R. Rep. No. 93-975, supra, at 129 (less than 3% of all futures contracts culminate in delivery), T. Hieronymus, Economics of Futures Trading 41 (1977) (less than 1%). Neither the speculative investor nor the person using the futures market as a hedge for his position in the market for the actual commodity generally desires delivery. H. R. Rep. N. 93-975, supra, at 129. See Volhart Brothers, Inc. v. Freeman, 311 F.2d 52, 55-56 (5 Cir. 1962), Note, The Delivery Requirement: An Illusory Bar to Regulation of Manipula. tion in Commodity Exchanges 73 Yale L. J 171. 173 (1963) In occasional instances, however, people do use tutures trading as an alternative market for the physical commodity. H. R. Rep. No 93-975, supra, at 132. Delivery is made through the clearing house by transfer of warehouse receipts or rights to loaded freight cars and then transported according to the purchaser's instructions. See Cargill, Inc. v. Hardin, 452 F.2d 1154, 1157 (8 Cir 1971), cert denied, 406 U.S. 932 (1972). 4023 —_ form an opposite contract for the same quantity, so that his obligations under the two contracts will offset each other. Thus, a short who does not intend to deliver the commodity must purchase an equal number of long contracts; a long must sell an equal number of short contracts. Money is made or lost in the price differential between the original contract and the offsetting transaction. If the price of the future has declined, usually because of market information indi- cating a drop in the price of the commodity, the short will reaiize a profit; if the futures price has risen, the long will realize a profit. See Cargill, Inc. v. Hardin, 452 F.2d 1154, 1157 (8 Cir. 1971), cert. denied, 406 U.S. 932 (1972). Futures trading is a zero-sum game. Since money is made from the change in futures contract prices, and every contract has a long and a short, every gain can be matched with a corresponding loss. See Melamed, The Mechanics of a Commodity Futures Exchange: A Critique of Automation of the Transaction Process, 6 Hofstra L. Rev. 149, 166 & n.39 (1977). The mechanics of the commodity futures market, and the roles of the various participants, can be illustrated by tracing a typical transaction. An individual wishing to invest in the futures market approaches a “futures commission merchant” (FCM). FCM’s are defined in the Commodity Exchange Act as individuals or associations “engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery ... On... any contract market... ,” § 2(aX1), 7 U.S.C. § 2, and they are registered with the Commodity Futures Trading Commission (CFTC). The FCM will demand a “margin” payment from the customer, which is simply a security deposit designed to protect against adverse price movements. The amount of the margin is —* based upon the amount which the customer can lose in a day or two; when the margin is exhausted the FCM will call the customer for additional payment. The margin is generally only a small percentage of the value of the contract. See Melamed, supra, 6 Hofstra L. Rev. at 167 & n.41. FCM’s are paid a commission on their customer's business. The FCM relays its customer's order to one of its “floor brokers” trading on the exchange. The broker stands on the outside of a “pit” or “ring” around which are gathered other persons trading in the same contract. Some of the traders are brokers acting on behalf of customers, while others trade on their own account. Contracts are made by “open outcry”. The broker with an order will indicate his position at the pit by shouting and gesticulating with standardized hand signals. Someone willing to enter the contract responds across the pit in similar fashion, and the deal is made. Observers on raised pulpits alongside the pit record the transaction and feed the information into a communica- tions system, publicizing it to other traders who, in any event, had an opportunity to witness the transaction in the pit. The broker relays the particulars of the deal to the FCM, who informs the customer. When two traders have reached an agreement on the floor of the exchange, the role of the clearinghouse comes into play. The clearinghouse, a key link in the futures trading system, operates as the seller to all buyers and the buyer from all sellers, thus facilitating the interchangeability of the contracts and the cancel- ling of positions. H. R. Rep. No. 93-975, supra, at 149; S. Rep. No. 93-1131, 93d Cong., 2d Sess. 17 (1974); Cargill, Inc. v. Hardin, supra, 452 F.2d at 1156. Not all FCM’s are clearinghouse members; those that are not — A-10 — must deal through one that is. The clearinghouse treats FCM’s as principals in trading transactions and demands margin payments from them. The clearing- house requires FCM’s to “mark to the market” at the close of every trading day. Any net gain or loss which the FCM has sustained in the course of the day’s trading is computed and margin adjustments are made accordingly. Melamed, supra, 6 Hofstra L. Rev. at 167- 68. Generally speaking there are two classes of traders in commodity futures contracts, although, as some of the facts of the instant cases indicate, the distinctions between them are often quite blurred. A “hedger” is a trader with an interest in the cash market for the commodity, who deals in futures contracts as a means of transferring risks he faces in the cash market. See H. R. Rep. No. 93-975, supra, at 131, 133, 162. See also the complicated definition of “bona fide hedging transactions and positions” promulgated by the CFTC, 17 C.F.R. § 1.3(z). The owner of a commodity can hedge against declining prices by entering into equivalent short futures contracts for the month when he expects to be able to sell, and a processor (e.g., a miller) can hedge against increasing prices by going long for the month when he will need the commodity. Losses caused by a decline in prices on the cash market in the former case or an advance in the latter will be offset by profits in the futures transactions. See generally H. R. Rep. No. 93-975, supra, at 130-34; Cargill, Inc. v. Hardin, supra, 452 F.2d at 1157-58; Note, supra, 73 Yale L. J. at 171-73. The benefits of hedging extend beyond the immediate participants in the transactions. “Because hedging of price risks in a futures market enables a merchant to reduce the exposures he has in doing — A-ll — business, he is able to operate on a lower profit margin with consequent lower prices to the consumer.” H. R. Rep. No. 93-975, supra, at 132-33; see also S. Rep. No. 93-1131, supra, at 18; Valdez, Modernizing the Regulation of the Commodity Futures Markets, 13 darv. J. Legis. 35, 40 (1975). The system would not function, however, if only hedgers sold and purchased commodity futures con- tracts.’ While hedging performs an insurance function, it is actually quite different from insurance. The risks faced by those dealing in the “cash” market, the market for the actual commodity, are not spread among those similarly situated, as with insurance, but rather are shifted to others. Bianco, The Mechanics of Futures Trading: Speculation and Manipulation, 6 Hofstra L. Rev. 27, 32 (1977); Cargill, Inc. v. Hardin, supra, 452 F.2d at 1158. The speculative investor, with no underlying interest in the cash market, is essential to take on the risks which the hedgers want to shift. The critical role of the “speculator” was described at some length in the House Report on the 1974 amendments: The principal role of the speculator in the markets is to take the risks that the hedger is unwilling to accept. The opportunity for profit makes the speculator willing to take those risks. The activity of speculators is essential to the operation of a futures market in that the composite bids and 4 Johnston, Understanding the Dynamics of Commodity Trading, 35 Bus. Law. 705, 709 (1980), states that “{ajs a genera! rule, for a market to be broad enough to be efficient and to accomodate the extremely large orders that come in from time to time from dealers and commercial firms, 50 to 75 percent of the open interest and volume of trading must come from speculators—this is essential for there to be a viable market.” — A-12 — offers of large numbers of individuals tend to broaden a market, thus making possible the execution with minimum price disturbance of the larger trade hedging orders. By increasing the number of bids and offers available at any given price level, the speculator usually helps to minimize price fluctuations rather than to intensify them. Without the trading activity of the speculative fraternity, the liquidity, so badly needed in futures markets, simply would not exist. Trading volume would be restricted materially since, without a host of speculative orders in the trading ring, many larger trade orders at limit prices would simply go unfilled due to the floor broker's inability to find an equally large but opposing hedge order at the same price to complete the match. H. R. Rep. No. 93-975, supra, at 138. As commentators have noted, “Congress itself has recognized that the investor—although he is commonly referred to as a speculator in this context—is what makes the commodity futures market work... .” Bromberg & Lowenfels, supra, at § 4.6 (462). Indeed, there is no bright-line difference between hedgers and speculators. Hedgers frequently do not merely balance their cash market risks in the futures market but engage in some speculation as well, buying or selling more or less futures contracts based on price expectations. Note, Abuses in the Commodity Markets: The Need for Change in the Regulatory Structure, 63 Geo. L. J. 751, 768-70 (1975); Valdez, supra, 13 Harv. J. Legis. at 64-65. On the other hand, speculators can become involved in the cash market as the activities of the plaintiff Incomco will demonstrate. — A-13 — I]. THE ALLEGED FACTS AND THE PROCEEDINGS BELOW The facts alleged in the three complaints here before us are broadly as follows:* John Richard Simplot is an Idaho potato entrepre- neur who controls J. R. Simplot and Co., Simplot Products Co., Inc., and Simplot Industries, Inc. These corporations are responsible for ‘the processing of approximately 50% of all Idaho potato products processed and sold in the United States. Peter J. Taggares is a Washington potato entrepreneur. He and his company, P. J. Taggares Co., process approximately 30% of all the Washington potatoes processed and sold in this country. Simplot and Taggares are equal partners in the ownership of Simtag Farms, a large farm in the State of Washington for the growing and warehousing of potatoes. Together Simplot, Taggares, and the companies they control are the largest purchasers of potatoes throughout the western potato region of Washington, Idaho and Oregon. According to the complaints, Simplot, Taggares, and the companies controlled by them, together with numerous co-conspirators, embarked in the spring of 1976 on a conspiracy to depress the price of the May 1976 Maine potato futures contract traded on the floor of the New York Mercantile Exchange (the “short conspiracy”). As stated by one of the complaints, “{bly virtue of their position in the potato processing field and the quantity of potatoes purchased by them, [the 4 We say here once and for all that our statement, in large measure, is simply what the plaintiffs contend to be the facts and is not to be read as one of facts found. Accordingly we will generally dispense with use of words such as “allegedly”, “asserted” and “claimed”. — A-14 — conspirators] would be in a position to control the prices paid for potatoes but for the existence of the Exchange and the activity . . . in buying and selling potato futures contracts.” Simplot had encountered difficulties in the course of his customary negotiations with the Idaho Potato Growers Association, because the IPGA believed that the price of potatoes, including Maine potatoes, would be much higher than what Simplot was offering. Futures prices supported this view. A report issued on April 13, 1976 by the United States Department of Agriculture indicated that total potato stocks were down 11%, and that Maine stocks totalled only 7.4 million cwt. compared with 13.0 million cwt. on hand the previous year. An earlier report issued in August 1975 estimated that national potato acreage would be down 8% from the previous year with an even greater drop in Maine. The effect of this latter report, and other generally available information, was to drive the price of the May 1976 Maine contract from $9.75 per cwt. to a record high of $19.15 per cwt. by October 3, 1975. The activities of the short conspirators were designed to counteract the impact of these reports and other market information and rumors tending to raise the price of Maine futures. A decline in the price of potato futures would suggest to those dealing in the cash market, such as the IPGA, that supplies of Maine potatoes would be greater than earlier anticipated, and that prices in spot transactions or negotiations for all potatoes should correspondingly recede. The primary means by which the short conspirators sought to depress the futures price was the accumula- tion of a large net short position in the May contract. The conspirators allegedly agreed to sell a large number — A-15 — of contracts short and to refuse to liquidate these shorts at a price higher than that agreed among themselves and, if necessary, to default on the obligation to make delivery on all unliquidated contracts. Such short purchases would give the impression of the existence of a large supply of deliverable Maine potatoes and drive down the price of the contract. Simplot made $1 million available to Simtag Farms, which Simtag used to open a credit balance on March 29, 1976, with Pressner Trading Corp., a member of the New York Mercantile Exchange (the Exchange or NYME), for the purpose of buying and maintaining short positions in the May contract. At the same time, Simplot, Taggares and their other companies also began to accumulate a large number of short contracts. The brokers through which the conspirators acquired their positions included Clayton Brokerage Co. of St. Louis, Inc. (Clayton), Heinold Commodities, Inc. (Heinold), and Thompson & McKinnon, Auchincloss, Kohlmeyer, Inc. (Thompson). These three brokerage firms were, like Pressner Trading, clearing members of the Exchange and appropriately registered with the CFTC. The firms allegedly knew, or should have known, that their customers neither intended to nor would be able to cover the large number of short positions the brokers acquired for them. On May 4, 1976, Simplot and Taggares were warned by the CFTC that it was aware of their large short position and that price manipulation was a violation of the Commodity Exchange Act. The telegram concluded that although this “is not an allegation of price manipulation, if prices of the May 1976 potato future . . Should become artificial during liquidation due to — A-16 — your action or inaction, we will consider whether you and your firm should be charged with price manipula- tion under the Commodity Exchange Act.” In the face of this warning, and the impending close of trading on May 7, the conspirators not only failed to take steps to liquidate their large short position but actually increased it, again with the help and support of the named brokerage firms. On the last day of trading they consolidated all the short positions they controlled in the hands of Pressner. Clayton, Thompson and Heinold knowingly acquiesced in this consolidation designed to concentrate the force of the manipulation. In addition to the accumulation of a large net short position which they refused to liquidate at higher than an agreed price, the conspirators also allegedly manipulated the futures price by shipping large quantities of unsold Idaho potatoes to the Maine markets for immediate sale at the going price. The use of such so-called “roller cars”, railroad cars of potatoes shipped although there is no pre-determined buyer, tends to depress the market price, and thus affect futures prices. Simplot and Taggares were aot the only group manipulating the price of the May future. A second group of eastern conspirators thought they could beat the western producers at their own game. Harold Collins and Casper Mayrsohn are Maine potato merchants and traders in Maine futures. MFX Com- modities, Inc., with Donald Silver as its president, is a foreign corporation engaged in business as a FCM. This group learned of the conspiracy of Simplot and Taggares and conspired to squeeze them. Pursuant to this conspiracy (the “long conspiracy”), the “long” group purchased as many contracts as it could, and then at = &plT = the same time maneuvered to tie up the cash potato market so that the shorts could not make delivery. The longs reasoned that if the shorts had no access to deliverable potatoes, the longs would be able to dictate the price the shorts would have to pay to liquidate their contracts. The main way in which the longs tied up the cash markets was by tying up all of the rail cars of the Bangor & Aroostook Railroad, which alone could deliver potatoes to satisfy May futures contracts This was done by using the cars for phony export shipments and leaving them loaded or only partially unloaded when they reached appropriate destinations. Neither the longs nor the shorts would give in to the other. The shorts refused to liquidate their position by buying offsetting long contracts at higher than the price agreed among them; the longs refused to come down to the unreasonably low price demanded by the shorts. At the end of trading on May 7, the short conspirators controlled 1893 open short positions. The long conspirators controlled 911 open long positions. There are usually only approximately 200 open contracts at the end of trading on the May potato future. The plaintiffs were caught in the middle between these two competing conspiracies. Neil Leist is a duly licensed member of the Exchange engaged in the business of trading commodities and futures for his own account. Incomco, a partnership, is a duly licensed FCM. Philip Smith is Incomco’s managing partner. The class action plaintiffs are traders and dealers represent- ing all persons “who held a net long position in Contracts and who liquidated their long position in said contract between April 13, 1976 and the close of trading on the Exchange on May 7, 1976.” — A-18 — On the basis of the same sort of information which motivated Simplot and Taggares to conspire to depress the price of the contract, plaintiffs believed there was an investment opportunity on the long side of the contract. If there was going to be a shortage of deliverable Maine round whites, those committed to deliver potatoes at a set price might well find this price to be under what the potatoes were worth. The shorts would then have to sustain a loss, either by purchasing potatoes in the cash market for the higher price and delivering them for the lower futures contract price, or by purchasing an offsetting long position. The price of the long position should have gone up due to the shortage, so that the shorts would lose the differential in liquidating. The shorts’ loss would be the longs’ gain, and it is this gain which the plaintiffs sought to realize by their investment. All the plaintiffs invested heavily on the long side of the May contract. In addition, Incomco developed a position in the cash market. It had accepted 1,500,000 pounds of Maine potatoes delivered to it pursuant to the March futures contract, and planned to sell these potatoes to those short the May contract who needed supplies to satisfy their delivery obligations. Anticipat- ing a cash market shortage, Incomco expected to sell its potatoes at a handsome premium. Because of the conspiracies, however, plaintiffs not only did not realize the gains they claim they would have had in an unmanipulated market but suffered losses. The short conspirators continued to accumulate short positions when they should have been trying to liquidate by purchasing long contracts from plaintiffs, and refused to liquidate above a set price. In the face of the unnaturally falling price, the plaintiffs were forced = Al? — out of the market at a loss. Because the long conspirators had successfully tied up all the freight cars of the Bangor & Aroostook, Incomco was unable to deliver its warehoused potatoes to persons seeking delivery to fulfill short contracts. As the warm weather set in, the 1,500,000 pounds of potatoes became rotten, and Incomco’s total investment was lost. The Exchange allegedly figured in this debacle almost from the start. In March, Richard Levine, president of the Exchange, told plaintiff Leist that the Exchange was investigating the large number of open positions in the May contract. On April 28, two members of the CFTC eastern region office, Howard Bodenhamer and Marshall Horn, met with Levine and Howard Gabler, vice-president of the Exchange, to express their concern over the problems developing with the May contract. Levine recognized the problem and expressed the view that Simplot might be trying to create difficulties in the contract. A second meeting took place two days later, at which Bodenhamer told Levine that the Commissioners felt that “the Exchange should take more action than less to bring about orderly liquida- tions of the maturing futures.” Levine did not report these meetings with the CFTC to the Exchange’s Board of Governors until after the close of trading on the May contract. Although the Exchange knew, or should have known, of both the short and the long conspiracies, it took no action to prevent manipulation of the market. The Exchange failed to declare an emergency situation pursuant to its rules to facilitate orderly liquidation, and, once trading had closed, failed to take appropriate steps such as permitting delivery by truck or buying potatoes to cover the default of the shorts. an eR ae The complaint in Leist v. Simplot was filed in the District Court for the Southern District of New York on September 30, 1976. Count I, directed against the short conspirators and their brokers, charged that the activities of the group constituted violations of 7 U.S.C. §§ 1-13 and, more specifically, that the group used and employed manipulative devices and contrivances in violation of 7 U.S.C. § 13, which makes such action a felony, and of rules promulgated by the CFTC. In addition to naming the brokers as conspirators, Count I specifically alleged that they “failed and neglected to enter liquidating orders” for the short conspirators prior to the close of trading “even though they knew that such short positions could not be covered and that there would be a default if the accounts were not closed out”, permitted the short sales to be made and cooperated in making such short sales “although they knew or should have known that the sellers did not intend to and would be unable to cover such short positions.” Count II of the complaint charged various violations of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2, which are not subject to the present appeal. Count III was directed against the long conspirators, describing the facts outlined above and charging that such conduct violated 7 U.S.C. §§ 1-13. Count IV was directed against the Exchange and its officials. After repeating the earlier general allegations against the short conspirators, the complaint charged that these defendants “negligently failed to maintain an orderly market for trading in Maine Futures in violation of the duties imposed upon them under the provisions of the Act.” The Exchange was also charged with failing to report the various violations alleged by the plaintiffs, — A-21 — and with failing to direct the entry of liquidating orders for the account of members with net short positions prior to the close of trading even though the Exchange officials knew or should have known that the sellers would not and could not make delivery if the positions remained open. ‘the complaint in Incomco v. New York Mercantile Exchange was filed in the District Court for the Southern District of New York on June 16, 1976. This complaint was directed at the long conspirators and the Exchange, “acting separately and also in concert with” the long conspirators, for “blocking the availability of railroad cars, thereby creating an artificial and manipulative railroad car shortage” in violation of the Commodity Exchange Act, and against the Exchange for failing to follow its own regulations requiring it to buy in the cash market for the account of delinquent sellers so that outstanding obligations will be fulfilled. As in Leist v. Simplot, plaintiffs also included an antitrust charge. The complaint in National Super Spuds v. New York Mercantile Exchange was filed in the District Court for the Southern District of New York on May 26, 1976. After consolidation with other actions and amendment, this class action complaint charged that the activities of the short sellers described above “violated the applica- ble provisions of the Commodity Act [and] acted as a manipulative force which artificially lowered the price of the Contract.” Count II charged the short sellers with exceeding position and trading limits set by the CFTC in 17 C.F.R. § 150.10. Count IV was directed against the brokers for the short sellers, charging them — A-22 — with violating Exchange Rule §§ 44.02° by failing to have liquidating orders placed although they knew or should have known that their customers could not deliver potatoes, permitting their customers to exceed position and trading limits imposed by the Act, and failing to report these and other violations of the Act, regulations, and Exchange rules by their customers of which they knew or should have known. Count V generally charged that the brokers, “with knowledge of intent of short Sellers to deflate the price of the Contract acquiesced and/or participated in the acts of Short Sellers.” Count VI was directed at the Exchange, charging that it failed and neglected to report and concealed violations of the Act, regulations, and its own rules; failed and neglected to direct that liquidating orders be entered with respect to members which the Exchange knew or should have known would default; generally failed and neglected to perform its duties as a 5 This reads as follows: 44.02-FINAL DAY OF TRADING (a) On the final day of trading in the delivery month, it shall be the responsibility of each clearinghouse member who is not in a position to fulfill his contractual obligation on any maturing contract by prescribed notice and tender, to have a liquidating order entered on the Exchange floor not later than five minutes before the time established as the official close for such delivery month. All such orders shall be market orders to be executed prior to the expiration of trading. (b) On the final day of trading no stop orders will be accepted; no time limit or contingent orders will be accepted, and brokers will not be expected to assume responsibility for the execution of orders placed later than 15 minutes prior to the close of trading. (c) Cancellations that reach the trading floor after one half ('2) hour prior to the time trading is scheduled to cease on the last day of trading in an expiring future may involve extraordinary problems and hence will be accepted solely at the risk of the customer. — A-23 — contract market; and failed and neglected to exercise due care to halt manipulative practices. The three actions, all claiming extensive compensatory and punitive damages, were consolidated. After answers had been filed and extensive discovery had been had, one phase of which has occupied the attention of this court, see National Super Spuds v. New York Mercantile Exchange, 591 F.2d 174 (2 Cir. 1979), three brokers, Clayton, Heinold and Thompson, and the Exchange and Exchange officials moved in the different actions for judgment on the pleadings under Fed. R. Civ. P. 12(c) or, in the alternative, for partial summary judgment under Fed. R. Civ. P. 56(b). Since he believed that all the parties had submitted factual material outside the pleadings, the judge considered the motions under Rule 56(b), although in fact the dispositive reasons so far as concerned the claims under the Commodity Exchange Act, which were all that were raised by the Exchange, the Exchange officials and Thompson, seem to have been wholly ones of law which could have been raised as well when the complaints had been filed two years earlier. In a thoughtful opinion issued on May 29, 1979, 470 F.Supp. 1256, Judge MacMahon held that there was no private right of action for damages under the Commodity Exchange Act, and granted summary judgment in favor of the moving defendants on those counts seeking recovery under that Act.* Partial final judgment was entered under Fed. R. Civ. P. 54(b) in favor of the moving defendants, and the plaintiffs took the instant appeal. 6 For a precise statement of the motions and their disposition. see 470 F.Supp. at 1257 n.1, 1263-64. = the district wherein the defendant is found or is an inhabitant or transacts business or wherein the act or practice occurred, is occurring, or is about to occur, and process in such cases may be served in any district in which the defendant is an inhabitant or wherever the defen- dant may be found. (5) For purposes of bringing any suit or action under this sec- tion, nothing in this chapter shall prevent the attorney general, the administrator of the State securities laws, or other duly authorized State officials from exercising the powers conferred on them by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence. (6) For purposes of this section, ‘‘State’’ means any State of the United States, the District of Columbia, the Commonwealth — A-257 — of Puerto Rico, or any territory or possession of the United States. (7) Nothing contained in this section shall prohibit an authorized State official from proceeding in State court on the basis of an alleged violation of any general civil or criminal an- tifraud statute of such State. § 13b. Manipulations or other violations; cease and desist orders against persons other than contract markets; punishment; misdemeanor or felony; separate offenses If any person (other than a contract market) is manipulating or attempting to manipulate or has manipulated or attempted to manipulate the market price of any commodity, in interstate commerce, or for future delivery on or subject to the rules of any contract markets, or otherwise is violating or has violated any of the provisions of this chapter or of the rules, regulations, or orders of the Commission thereunder, the Commission may, upon notice and hearing, and subject to appeal as in other cases provided for in section 9 of this title, make and enter an order directing that such person shall cease and desist therefrom and, if such person thereafter and after the lapse of the period allowed for appeal of such order or after the affirmance of such order, shall fail or refuse to obey or comply with such order, such per- son shall be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $100,000, or imprisoned for not less than six months nor more than one year, or both, except that if such failure or refusal to obey or comply with such order involves any offense within paragraph (a) or (b) of section 13 of this title, such person shall be guilty of a felony and, upon conviction thereof, shall be subject to the penalties of said paragraph (a) or (b): Provided, That any such cease and desist order against any respondent in any case of manipulation of, or attempt to manipulate, the price of any commodity shall be issued only in conjunction with an order issued against such respondent under section 9 of this title. Each day during which — A-258 — such failure or refusal to obey or comply with such order con- tinues shall be deemed a separate offense. § 13c. Responsibility as principal; minor violations (a) Any person who commits, or who willfully aids, abets, counsels, commands, induces, or procures the commission of, a violation of any of the provisions of this chapter, or any of the rules, regulations, or orders issued pursuant to this chapter, or who acts in combination or concert with any other person in any such violation, or who willfully causes an act to be done or omitted which if directly performed or omitted by him or another would be a violation of the provisions of this chapter or any of such rules, regulations, or orders may be held responsible in administrative proceedings under this chapter for such viola- tion as a principal. (b) Nothing in this chapter shall be construed as requiring the Commission to report minor violations of this chapter for pro- secution, whenever it appears that the public interest does not require such action. § 14. Omitted § 15. Enforcement powers of Commission For the purpose of securing effective enforcement of the pro- visions of this chapter and for the purpose of any investigation or proceedings under this chapter, any member of the Commis- sion or any Administrative Law Judge or other officer designated by the Commission may administer oaths and affir- mations, subpena witnesses, compel their attendance, take evidence, and require the production of any books, papers, cor- respondence, memoranda, or other records that the Commis- sion deems relevant or material to the inquiry. The attendance of witnesses and the production of any such records may be re- quired from any place in the United States or any State at any designated place of hearing. In case of contumacy by, or refusal — A-259 — to obey a subpena issued to, any person, the Commission may invoke the aid of any court of the United States within the jurisdiction in which the investigation or proceeding is con- ducted, or where such person resides or transacts business, in re- quiring the attendance and testimony of witnesses and the pro- duction of books, papers, correspondence, memoranda, and other records. Such court may issue an order requiring such per- son to appear before the Commission or member or Ad- ministrative Law Judge or other officer designated by the Com- mission, there to produce records, if so ordered, or to give testimony touching the matter under investigation or in ques- tion. Any failure to obey such order of the court may be punished by the court as a contempt thereof. All process in any such case may be served in the judicial district wherein such person is an inhabitant or transacts business or wherever such person may be found. § 15a. Repealed. Pub. L. 95-405, § 24, Sept. 30, 1978, 92 Stat. 877 § 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 cot- ton 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 — A-260 — 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 in- clude sales, agreements of sale, and agreements to sell. (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 stan- dards of the United States established by the Secretary pur- suant 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 in- vestigation, determine and designate to be such, and of which he shall give public notice. — A-261 — (2) Determination In determining, pursuant to the provisions of this sec- tion, 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 cot- ton 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; ex- cept 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. (3) Withholding information — A-262 — 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 convic- tion 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 con- tract which does not conform to such requirements shall be en- forceable 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 settlements.—-Specify the basis grade for the cot- ton involved in the contract, which shall be one of the grades for which standards are established by the Secretary, except grades prohibited from being — A-263 — 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 con- tract 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 dif- ferences 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 hereinafter provided. (E) Prohibition of delivery of inferior cotton.—Provide that cotton that, because of the presence of extraneous matter of any character, or ir- regularities 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- — A-264 — eights 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 ‘‘repaced’”’ or ‘‘false packed’’ or ‘‘mixed packed’’ or ‘‘water packed’’, shall not be delivered on, under, or in set- tlement 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 in- dividual bale to be delivered and, by means of marks or numbers, identifying each bale with its grade. (G) Provision for tender and settlement in accor- dance 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. The Secretary is authorized to prescribe regulations for carrying out the purposes of this sub- paragraph and the certificates of the officers of the — A-265 — Government as to the classification of any cotton for the purposes of this subparagraph shall be accepted in the courts of the United States in all suits between the parties to such contract, or their privies, as prima facie evidence of the true classification of the cotton involved. (2) Incorporation of conditions in contracts The provisions of paragraphs (1)(C), (D), (E), (F), and (G) shall be deemed fully incorporated into any such con- tract 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 grade' in the set- tlement of a contract of sale for the future delivery of cot- ton shall be determined by the actual commercial dif- ferences 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. ' So in original. — A-266 — (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 con- tract, 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 — A-267 — in respect to which, any device or arrangement whatever is resorted to, or any agreement is made, for the determina- tion or adjustment of the price of the grade or grades tendered other than the basis grade specified in the con- tract 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. —Con- form 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 soid, the date of the purchase or sale, and the time when shipment or delivery of such cot- ton 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’’ set- — A-268 — tlement, 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 per- son 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 fin- ed not less than $100 nor more than $500, for each violation — A-269 — 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, (1) 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 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 which were in effect on the effective date of this section, shall remain fully effective as designations and regula- tions under this section until superseded, amended, or ter- minated by the Secretary. (m) Authorization There are authorized to be appropriated such sums as may be necessary to carry Out this section, § 16. Commission operations (a) Cooperation with other agencies The Commission may cooperate with any Department or agency of the Government, any State, territory, district, or possession, or department, agency, or political subdivision thereof, or any person. (b) Employment of investigators, experts, Administrative Law Judges, consultants, clerks, and other personnel; contracts — A-270 — The Commission shall have the authority to employ such in- vestigators, special experts, Administrative Law Judges, clerks, and other employees as it may from time to time find necessary for the proper performance of its duties and as may be from time to time appropriated for by Congress. The Commission may employ experts and consultants in accordance with section 3109 of title 5, and compensate such persons at rates not in ex- cess of the maximum daily rate prescribed for GS-18 under sec- tion 5332 of title 5, The Commission shall also have authority to make and enter into contracts with respect to all matters which in the judgment of the Commission are necessary and ap- propriate to effectuate the purposes and provisions of this chapter, including, but not limited to, the rental of necessary space at the seat of Government and elsewhere, (c) Expenses All of the expenses of the Commissioners, including all necessary expenses for transportation incurred by them while on official business of the Commission, shall be allowed and paid on the presentation of itemized vouchers therefor approved by the Commission, (d) Authorization of appropriations There are authorized to be appropriated to carry out the pro- visions of this chapter such sums as may be required for each of the fiscal years during the period beginning October 1, 1978, and ending September 30, 1982. § 16a. Development and implementation of plan for user fees; report to and approval by congressional committees Notwithstanding any other provision of law, the Commodity Futures Trading Commission may develop and implement a plan to charge and collect reasonable fees to cover the estimated cost of regulating transactions under the jurisdiction of the Commission. However, prior to implementing such a plan, the — A-271 — Commission shall report its intention to do so to the House Committee on Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry. The Commission shall in- clude in its report the feasibility and desirability of collecting such fees. Any plan developed under this section shall not be implemented until approved by the House Committee on Agriculture and the Senate Committee on Agriculture, Nutri- tion, and Forestry. Fees collected under any plan approved under this section shall be deposited in the Treasury of the United States as miscellaneous receipts. § 17, Separability of provisions If any provision of this chapter or the application thereof to any person or circumstances is held invalid, the validity of the remainder of the chapter and of the application of such provi- sion to other persons and circumstances shall not be affected thereby. § 17a, Separability of 1936 amendment If any provision of the act of June 15, 1936, ch. 545, 49 Stat. 1491, which amends this chapter, or the application thereof to any person or circumstances is held invalid, the provisions of the section of this chapter which is amended by such provision of said act shall apply to such person or circumstances. No pro- ceeding shall be abated by reason of any amendment to this chapter made by said act but shall be disposed of pursuant to said act. § 17b. Separability of 1968 amendment If any provision of this Act or the application thereof to any person or circumstances is held invalid, the validity of the re- mainder of the Act and the application of such provision to other persons or circumstances shall not be affected thereby, and the provisions of the section of this chapter which is amend- ed by such provision of this Act shall apply to such person or — A-272 — circumstances. Pending proceedings shall not be abated by reason of any provision of this Act but shall be disposed of pur- suant to the provisions of this chapter, in effect prior to the ef- fective date of this Act. § 18. Complaints against registered persons (a) Petition Any person complaining of any violation of any provision of this chapter or any rule, regulation, or order thereunder by any person who is registered or required to be registered under sec- tion 6d, 6e, 6j or 6m of this title may, at any time within two years after the cause of action accrues, apply to the Commission by petition, which shall briefly state the facts, whereupon, if, in the opinion of the Commission, the facts therein contained war- rant such action, a copy of the complaint thus made shall be forwarded by the Commission to the respondent, who shall be called upon to satisfy the complaint, or to answer it in writing, within a reasonable time to be prescribed by the Commission. (b) Investigation and hearing If there appear to be, in the opinion of the Commission, any reasonable grounds for investigating any complaint made under this section, the Commission shall investigate such complaint and may, if in its opinion the facts warrant such action, have said complaint served by registered mail or by certified mail or otherwise on the respondent and afford such person an oppor- tunity for a hearing thereon before an Administrative Law Judge designated by the Commission in any place in which the said person is engaged in business: Provided, That in complaints wherein the amount claimed as damages does not exceed the sum of $5,000, a hearing need not be held and proof in support of the complaint and in support of the respondent’s answer may be supplied in the form of depositions or verified statements of fact. - ban — (c) Determination After opportunity for hearing on complaints where the damages claimed exceed the sum of $5,000 has been provided or waived and on complaints where damages claimed do not ex- ceed the sum of $5,000 not requiring hearing as provided herein, the Commission shall determine whether or not the respondent has violated any provision of this chapter or any rule, regula- tion, or order thereunder. (d) Bond requirement when complainant is nonresident; waiver In case a complaint is made by a nonresident of the United States, the complainant shall be required, before any formal ac- tion is taken on his complaint, to furnish a bond in double the amount of the claim conditioned upon the payment of costs, in- cluding a reasonable attorney’s fee for the respondent if the respondent shall prevail, and any reparation award that may be issued by the Commission against the complainant on any counterclaim by respondent: Provided, That the Commission shall have authority to waive the furnishing of a bond by a com- plainant who is a resident of a country which permits the filing of a complaint by a resident of the United States without the furnishing of a bond. (e) Reparations If after a hearing on a complaint made by any person under paragraph (a) of this section, or without hearing as provided in paragraphs (b) and (c) of this section, or upon failure of the par- ty complained against to answer a complaint duly served within the time prescribed, or to appear at a hearing after being duly notified, the Commission determines that the respondent has violated any provision of this chapter, or any rule, regulation, or order thereunder, the Commission shall, unless the offender has already made reparation to the person complaining, deter- mine the amount of damage, if any, to which such person is en- titled as a result of such violation and shall make an order direc- — ting the offender to pay to such person complaining such amount on or before the date fixed in the order. If, after the respondent has filed his answer to the complaint, it appears therein that the respondent has admitted liability for a portion of the amount claimed in the complaint as damages, the Com- mission under such rules and regulations as it shall prescribe, unless the respondent has already made reparation to the person complaining, may issue an order directing the respondent to pay to the complainant the undisputed amount on or before the date fixed in the order, leaving the respondent's liability for the disputed amount for subsequent determination. The remaining disputed amount shall be determined in the same manner and under the same procedure as it would have been determined if no order had been issued by the Commission with respect to the undisputed sum. (f) Enforcement of reparation award If any person against whom an award has been made does not pay the reparation award within the time specified in the Com- mission’s order, the complainant, or any person for whose benefit such order was made, within three years of the date of the order, may file a certified copy of the order of the Commis- sion, in the district court of the United States for the district in which he resides or in which is located the principal place of business of the respondent, for enforcement of such reparation award by appropriate orders. The orders, writs, and processes of such district court may in such case run, be served, and be returnable anywhere in the United States. The petitioner shall not be liable for costs in the district court, nor for costs at any subsequent state of the proceedings, unless they accrue upon his appeal. If the petitioner finally prevails, he shall be allowed a reasonable attorney’s fee, to be taxed and collected as a part of the costs of the suit. Subject to the right of appeal under paragraph (g) of this section, an order of the Commission awar- ding reparations shall be final and conclusive. A213 — (g) Review Any order of the Commission entered hereunder shall be reviewable on petition of any party aggrieved thereby, by the United States Court of Appeals for any circuit in which a hear- ing was held, or if no hearing was held, any circuit in which the appellee is located, under the procedure provided in section 9 of this title. Such appeal shall not be effective unless within 30 days from and after the date of the reparation order the appellant also files with the clerk of the court a bond in double the amount of the reparation awarded against the appellant condi- tioned upon the payment of the judgment entered by the court, plus interest and costs, including a reasonable attorney’s fee for the appellee, if the appellee siiall prevail. Such bond shall be in the form of cash, negotiable securities having a market value at least equivalent to the amount of bond prescribed, or the under- taking of a surety company on the approved list of sureties issued by the Treasury Department of the United States. The appellee shall not be liable for costs in said court. If the appellee prevails, he shall be allowed a reasonable attorney’s fee to be taxed and collected as a part of his costs. (h) Penalty Unless the registrant against whom a reparation order has been issued shows to the satisfaction of the Commission within fifteen days from the expiration of the period allowed for com- pliance with such order that he has either taken an appeal as herein authorized or has made payment in full as required by such order, he shall be prohibited from trading on all contract markets and his registration shall be suspended automatically at the expiration of such fifteen-day period until he shows to the satisfaction of the Commission that he has paid the amount therein specified with interest thereon to date of payment: Pro- vided, That if on appeal the appellee prevails or if the appeal is dismissed the automatic prohibition against trading and suspen- sion of registration shall become effective at the expiration of — A-276 — thirty days from the date of judgment on the appeal, but if the judgment is stayed by a court of competent jurisdiction the suspension shall become effective ten days after the expiration of such stay, unless prior thereto the judgment of the court has been satisfied. (i) Effective date The provisions of this section shall not become effective until fifteen months after October 23, 1974: Provided, That claims which arise within one year immediately prior to the effective date of this section may be heard by the Commission after such fifteen months period. § 19. Antitrust laws; anticompetitive means The commission shall take into consideration the public in- terest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of this chapter, as well as the policies and purposes of this chapter, in issuing any order or adopting any Commission rule or regula- tion, or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association establish-" ed pursuant to section 21 of this title. § 20. Market reports (a) Information The Commission may conduct regular investigations of the markets for goods, articles, services, rights, and interests which are the subject of futures contracts, and furnish reports of the findings of these investigations to the public on a regular basis. These market reports shall, where appropriate, include informa- tion on the supply, demand, prices, and other conditions in the United States and other countries with respect to such goods, articles, services, rights, interests, and information respecting the futures markets. an eT = (b) Avoidance of duplication The Commission shall cooperate with the Department of Agriculture and any other Department or Federal agency which makes market investigations to avoid unnecessary duplication of information-gathering activities. (c) Furnishing of information; confidentiality The Department of Agriculture and any other Department or Federal agency which has market information sought by the Commission shall furnish it to the Commission upon the request of any authorized employee of the Commission. The Commis- sion shall abide by any rules of confidentiality applying to such information. (d) Disclosure of business transactions, trade secrets, or names of customers The Commission shall not disclose in such reports data and information which would separately disclose the business tran- sactions of any person and trade secrets or names of customers except as provided in section 12 of this title. § 21. Registered futures associations (a) Registration statement Any association of persons may be registered with the Com- mission as a registered futures association pursuant to paragraph (b) of this section, under the terms and conditions nereinafter provided in this section, by filing with the Commis- sion for review and approval a registration statement in such form as the Commission may prescribe, setting forth the infor- mation, and accompanied by the documents, below specified: (1) Data as to its organization, membership, and rules of procedure, and such other information as the Commission may by rules and regulations require as necessary or ap- propriate in the public interest; and — A-278 — (2) Copies of its constitution, charter, or articles of in- corporation or association, with all amendments thereto, and of its bylaws, and of any rules or instruments cor- responding to the foregoing, whatever the name, hereinafter in this section collectively referred to as the ‘rules of the association’’. (b) Standards for registration; Commission findings An applicant association shall not be registered as a futures association unless the Commission finds, under standards established by the Commission, that— (1) such association is in the public interest and that it will be able to comply with the provisions of this section and the rules and regulations thereunder and to carry out the purposes of this section; (2) the rules of the association provide that any person registered under this chapter, contract market, or any other person designated pursuant to the rules of the Com- mission as eligible for membership may become a member of such association, except such as are excluded pursuant to subparagraph (3) and (4) of this paragraph, or a rule of the association permitted under this subparagraph. The rules of the association may restrict membership in such association on such specified basis relating to the type of business done by its members, or on such other specified and appropriate basis, as appears to the Commission to be necessary or appropriate in the public interest and to car- ryout the purpose of this section. Rules adopted by the association may provide that the association may, unless the Commission directs otherwise in cases in which the Commission finds it appropriate in the public interest so to direct, deny admission to, or refuse to continue in such association any person if (i) such person, whether prior or subsequent to becoming registered as such, or (ii) any per- son associated with in the meaning of ‘‘associated person”’ — A-279)— as set forth in section 6k of this title, whether prior or subsequent to becoming so associated, has been and is suspended or expelled from a contract market or has been and is barred or suspended from being associated with all members of such contract market, for violation of any rule of such contract market; (3) the rules of the association provide that, except with the approval or at the direction of the Commission in cases in which the Commission finds it appropriate in the public interest so to approve or direct, no person shall be admit- ted to or continued in membership in such association, if such person— (A) has been and is suspended or expelled from a registered futures association or from a contract market or has been and is barred or suspended from being associated with all members of such contract market, for violation of any rule of such association or contract market which prohibits any act or transac- tion constituting conduct inconsistent with just and equitable principles of trade, or requires any act the omission of which constitutes conduct inconsistent with just and equitable principles of trade; or (B) is subject to an order of the Commission deny- ing, suspending, or revoking his registration pursuant to section 9 of this title, or expelling or suspending him from membership in a registered futures associa- tion or a contract market, or barring or suspending him from being associated with a futures commission merchant; or (C) whether prior or subsequent to becoming a member, by his conduct while associated with a member, was a cause of any suspension, expulsion, or order of the character described in clause (A) or (B) which is in effect with respect to such member, and in — A-280 — entering such a suspension, expulsion, or order, the Commission or any such contract market or associa- tion shall have jurisdiction to determine whether or not any person was a cause thereof, or (D) has associated with him any person who is known, or in the exercise of reasonable care should be known, to him to be a person who would be ineligible for admission to or continuance in membership under clause (A), (B), or (C) of this subparagraph. (4) the rules of the association provide that, except with the approval or at the direction of the Commission in cases in which the Commission finds it appropriate in the public interest so to approve or direct, no person shall become a member and no natural person shall become a person associated with a member, unless such person is qualified to become a member or a person associated with a member in conformity with specified and appropriate standards with respect to the training, experience, and such other qualifications of such person as the association finds necessary or desirable, and in the case of a member, the financial responsibility of such a member. For the purpose of defining such standards and the application thereof, such rules may— (A) appropriately classify prospective members (taking into account relevant matters, including type or nature of business done) and persons proposed to be associated with members. (B) specify that all or any portion of such standard shall be applicable to any such class. (C) require persons in any such class to pass ex- aminations prescribed in accordance with such rules. (D) provide that persons in any such class other than prospective members and partners, officers and — A-281 — supervisory employees (which latter term may be defined by such rules and as so defined shall include branch managers of members) of members, may be qualified solely on the basis of compliance with specified standards of training and such other qualifications as the association finds appropriate. (E) provide that applications to become a member or a person associated with a member shall set forth such facts as the association may prescribe as to the training, experience, and other qualifications (in- cluding, in the case of an applicant for membership, financial responsibility) of the applicant and that the association shall adopt procedures for verification of qualifications of the applicant. (F) require any class of persons associated with a member to be registered with the association in accor- dance with procedures specified by such rules (and any application or document supplemental thereto re- quired by such rules of a person seeking to be registered with such association shall, for the pur- poses of section 9 of this title, be deemed an applica- tion required to be filed under this section). (5) the rules of the association assure a fair representa- tion of its members in the adoption of any rule of the association or amendment thereto, the selection of its of- ficers and directors, and in all other phases of the ad- ministration of its affairs. (6) the rules of the association provide for the equitable allocation of dues among its members, to defray reasonable expenses of administration. (7) the rules of the association are designed to prevent fraudulent and manipulative acts and practices, to pro- mote just and equitable principles of trade, in general, to — A-282 — protect the public interest, and to remove impediments to and perfect the mechanism of free and open futures trading. (8) the rules of the association provide that its members and persons associated with its members shall be ap- propriately disciplined, by expulsion, suspension, fine, censure, or being suspended or barred from being associated with all members, or any other fitting penalty, for any violation of its rules, (9) the rules of the association provide a fair and orderly procedure with respect to the disciplining of members and persons associated with members and the denial of membership to any person seeking membership therein or the barring of any person from being associated with a member. In any proceeding to determine whether any member or other person shall be disciplined, such rules shall require that specific charges be brought; that such member or person shall be notified of, and be given an op- portunity to defend against, such charges; that a record shall be kept; and that the determination shall include— (A) a statement setting forth any act or practice in which such member or other person may be found to have engaged, or which such member or other person may be found to have omitted. (B) a statement setting forth the specific rule or rules of the association of which any such act or prac- tice, or omission to act, is deemed to be in violation, (C) a statement whether the acts or practices pro- hibited by such rule or rules, or the omission of any act required thereby, are deemed to constitute con- duct inconsistent with just and equitable principles of trade, (D) a statement setting forth the penalty imposed. — A-283 — In any proceeding to determine whether a person shall be denied membership or whether any person shall be barred from being associated with a member, such rules shall pro- vide that the person shall be notified of, and be given an opportunity to be heard upon, the specific grounds for denial or bar which are under consideration; that a record shall be kept; and that the determination shall set forth the specific grounds upon which the denial or bar is based. (10) the rules of the association provide for a fair and equitable procedure through arbitration or otherwise for the settlement of a customer's claims and grievances against any member or employee thereof: Provided, That (i) the use of such procedure by a customer shall be volun- tary, (ii) the procedure shall not be applicable to any claim in excess of $15,000, (iii) the procedure shall not result in any compulsory payment except as agreed upon between the parties, and (iv) the term ‘‘customer’’ as used in this paragraph shall not include a futures commission mer- chant or a floor broker. (c) Suspension of registration The Commission may, after notice and opportunity for hear- ing, suspend the registration of any futures association if it finds that the rules thereof do not conform to the requirements of the Commission, and any such suspension shall remain in effect un- til the Commission issues an order determining that such rules have been modified to conform with such requirements, (d) Fees and charges In addition to the fees and charges authorized by section 12a(4) of this title, each person registered under this chapter, who is not a member of a futures association registered pur- suant to this section, shall pay to the Commission such reasonable fees and charges as may be necessary to defray the costs of additional regulatory duties required to be performed — A-284 — by the Commission because such person is not a member of a registered futures association, The Commission shall establish such additional fees and charges by rules.and regulations. (c) Registered persons not members of registered associations Any person registered under this chapter, who is not a member of a futures association registered pursuant to this see- tion, in addition to the other requirements and obligations of this chapter and the regulations thereunder shall be subject to such other rules and regulations as the Commission may find necessary to protect the public interest and promote just and equitable principles of trade. (f) Denial of registration Upon filing of an application for registration pursuant to paragraph (a) of this section, the Commission may by order grant such registration if the requirements of this section are satisfied. If, after appropriate notice and opportunity for hear- ing, it appears to the Commission that any requirement of this section is not satisfied, the Commission shall by order deny such registration, (g) Withdrawal from registration; notice of withdrawal A registered futures association may, upon such reasonable notice as the Commission may deem necessary in the public in- terest, withdraw from registration by filing with the Commis- sion a written notice of withdrawal in such form as the Commis- sion may by rules and regulations prescribe. (h) Commission review of disciplinary actions taken by registered futures associations If any registered futures association takes any disciplinary ac- tion against any member thereof or any person associated with such a member of denies admission to any person seeking membership therein, or bars any person from being associated with a member, such action shall be subject to review by the — A-285 — Commission, on its own motion, or upon application by any person aggrieved thereby filed within thirty days after such ac- tion has been taken or within such longer period as the Commis- sion may determine. Application to the Commission for review, or the institution of review by the Commission on its own mo- tion, shall operate as a stay of such action until an order is issued upon such review pursuant to paragraph (k) of this sec- tion unless the Commission otherwise orders, after notice and opportunity for hearing on the question of a stay (which hearing may consist solely of affidavits and oral arguments). (i) Notice; hearing; findings; cancellation, reduction, or remis- sion of penalties (1) In a proceeding to review disciplinary action taken by a registered futures association against a member thereof or a per- son associated with a member, if the Commission, after ap- propriate notice and opportunity for hearing, upon considera- tion of the record before the association and such other evidence as it may deem relevant— (A) finds that such member or person has engaged in such acts or practices, or has omitted such act, as the association has found him to have engaged in or omitted, and (B) determines that such acts or practices or omission to act, are in violation of such rules of the association as have been designated in the determination of the association, the Commission shall by order dismiss the proceeding, unless it appears to the Commission that such action should be modified in accordance with subparagraph (2) of this paragraph. The Commission shall likewise de :rmine whether the acts or practices prohibited, or the omission of any act required, by any such rule constitute conduct in- consistent with just and equitable principles of trade, and shall so declare, If it appears to the Commission that the evidence does not warrant the finding required in clause — A-286 — (A), or if the Commission determines that such acts or practices as are found to have been engaged in are not pro- hibited by the designated rule or rules of the association, or that such act as is found to have been omitted is not re- quired by such designated rule or rules, the Commission shall by order set aside the action of the association. (2) If, after appropriate notice and opportunity for hearing, the Commission finds that any penalty imposed upon a member or person associated with a member is excessive or oppressive, having due regard to the public interest, the Commission shall by order cancel, reduce, or require the remission of such penalty. (3) In any proceeding to review the denial of membership in a registered futures association or the barring of any person from being associated with a member, if the Commission, after ap- propriate notice and hearing, and upon consideration of the record before the association and such other evidence as it may deem relevant, determines that the specific grounds on which such denial or bar is based exist in fact and are valid under this section, the Commission shall by order dismiss the proceeding; otherwise, the Commission shall by order set aside the action of the association and require it to admit the applicant to member- ship therein, or to permit such person to be associated with a member. (j) Changes or additions to association rules Every registered futures association shall file with the Com- mission in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest, copies of any changes in or additions to the rules of the association, and such other information and documents as the Commission may require to keep current or to supple- ment the registration statement and documents filed pursuant to paragraph (a) of this section. Any change in or addition to the rules of a registered futures association shall be submitted to the Commission for approval and shall take effect upon the thir- ~ hat — tieth day after such approval by the Commission, or upon such earlier date as the Commission may determine, unless the Com- mission shall enter an order disapproving such change or addi- tion; and the Commission shall enter such an order unless such change or addition appears to the Commission to be consistent with the requirements of this section and the provisions of this chapter. (k) Abrogation of association rules; requests to associations by Commission to alter or supplement rules (1) The Commission is authorized by order to abrogate any rule of a resgistered futures association, if after appropriate notice and opportunity for hearing, it appears to the Commis- sion that such abrogation is necessary or appropriate to assure fair dealing by the members of such association, to assure a fair representation of its members in the administration of its affairs or effectuate the purposes of this section. (2) The Commission may in writing request any registered futures association to adopt any specified alteration or supple- ment to its rules with respect to any of the matters hereinafter enumerated. If such association fails to adopt such alteration or supplement within a reasonable time, the Commission is authorized by order to alter or supplement the rules of such association in the manner theretofore requested, or with such modifications of such alteration or supplement as it deems newessary it, after approriate notice and opportunity for hear- ing, it appears to the Commission that such alteration or supple- ment is necessary or appropriate in the public interest or to ef- fectuate the purposes of this section, with respect to— (A) the basis for, and procedure in connection with, the denial of membership or the barring from being associated with a member or the disciplining of members or persons associated with members, or the qualifications required for members or natural persons associated with members or any class thereof; — A-288 — (B) the method for adoption of an change in or addition to the rules of the association; (C) the method of choosing officers and directors. (1) Suspension and revocation of registration; expulsion of members; removal of association officers or directors The Commission is authorized, if such action appears to it to be necessary or appropriate in the public interest or to carry out the purposes of this section— (1) after appropratie notice and opportunity for hearing, by order to suspend for a period not exceeding twelve mon- ths or to revoke the registration of a registered futures association, if the Commission finds that such association has violated any provisions of this chapter or any rule or regulation thereunder, or has failed to enforce compliance with its own rules, or has engaged in any other activity ten- ding to defeat the purposes of this chapter; (2) after appropriate notice and opportunity for hearing, by order to suspend for a period not exceeding twelve mon- ths or to expel from a registered futures association any member thereof, or to suspend for a period not exceeding twelve months or to bar any person from being associated with a member thereof, if the Commission finds that such member or person— (A) has violated any provision of this chapter or any rule or regulation thereunder, or has effected any transaction for any other person who, he had reason to believe, was violating with respect to such transac- tion any provision of this chapter of any rule or regulation thereunder; or (B) has willfully violated any provision of this chapter, or of any rule, regulation, or order thereunder, or has effected any transaction for any — A-289 — other person who, he had reason to believe, was willfully violating with respect to such transaction any provision of this chapter or rule, regulation, or order. (3) after appropriate notice and opportunity for hearing, by order to remove from office any officer or director of a registered futures association who, the Commission finds, has willfully failed to enforce the rules of the association, or has willfully abused his authority. (m) Rules requiring membership in associations Notwithstanding any other provision of law, the Commission may approve rules of futures associations that, directly or in- directly, require persons eligible for membership in such associations to become members of at least one such associa- tion, upon a determination by the Commission that such rules are necessary or appropriate to achieve the purposes and objec- tives of this chapter. (n) Repor .: to Congress The Commission shall include in its annual reports to Con- gress information concerning any futures associations registered pursuant to this section and the effectiveness of such associa- tions in regulating the practices of the members. § 22. Research and information programs; reports to Congress (a) The Commission shall establish and maintain, as part of its ongoing operations, research and information programs to (1) determine the feasibility of trading by computer, and the ex- panded use of modern information system technology, elec- tronic data processing, and modern communication systems by commodity exchanges, boards of trade, and by the Commission itself for purposes of improving, strengthening, facilitating, or regulating futures trading operation; (2) assist in the develop- ment of educational and other informational material regarding futures trading for dissemination and use among producers, — A-290 — market users, and the general public; and (3) carry out the general purposes of this chapter. (b) The Commission shall include in its annual reports to Congress plans and findings with respect to implementing this section. § 23. Standardized contracts for certain commodities prohibited (a) Margin accounts, margin contracts, arrangements, etc. No person shall offer to enter into, enter into, or confirm the execution of, any transaction for the delivery of any commodity specifically set forth in section 2 of this title prior to October 23, 1974, under a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leverage contract, or under any contract, account, arrange- ment, scheme, or device that the Commission determines serves the same function or functions as such a standardized contract, or is marketed or managed in substantially the same manner as such a standardized contract. (b) Contracts for delivery of silver and gold bullion, bulk silver and gold coins; rules and regulations No person shall offer to enter into, enter into, or confirm the execution of any transaction for the delivery of silver bullion, gold bullion, or bulk silver coins or bulk gold coins, under a standardized contract described in subsection (a) of this section, contrary to any rule, regulation, or order of the Commission designed to ensure the financial solvency of the transaction or prevent manipulation or fraud: Provided, That such rule, regulation, or order may be made only after notice and oppor- tunity for hearing. (c) Regulation of other commodities under standardized con- tracts The Commission may prohibit or regulate any transactions, under a standardized contract described in subsection (a) of this — A-291 — section, involving any other conditions as the Commission shall initially prescribe by October 1, 1979: Provided, That any such order, rule, or regulation may be made only after notice and op- portunity for hearing: Provided further, That the Commission may set different terms and conditions for such transactions in- volving different commodities. (d) Application of provisions to transactions determined to be contracts for future delivery If the Commission determines that any transaction under subsections (b) and (c) of this section is a contract for future delivery within the meaning of this chapter, such transaction shall be regulated in accordance with the applicable provisions of this chapter. § 24. Regulations respecting commodity broker debtors; defini- tion (a) Notwithstanding title 11, the Commission may provide, with respect to a commodity broker that is a debtor under chapter 7 of title 11, by rule or regulation— (1) that certain cash, securities, other property, or com- modity contracts are to be included in or excluded from customer property or member property; (2) that certain cash, securities, other property, or com- modity contracts are to be specifically identifiable to a par- ticular customer in a specific capacity; (3) the method by which the business of such commodity broker is to be conducted or liquidated after the date of the filing of the petition under such chapter; (4) any persons to which customer property and com- modity contracts may be transferred under section 766 of title 11, and (5) how the net equity of a customer is to be determined. — A-292 — (b) As used in this section, the terms ‘‘commodity broker’, ‘commodity contract’, ‘‘customer’’, ‘‘customer property’, ‘*member property’’, ‘‘net equity’’, and ‘“‘security’’ have the meanings assigned such terms for the purposes of subchapter IV of chapter 7 of title 11. Commodity Futures Trading Commission Reg. 150.10, 17 C.F.R. §150.10 § 150.10 Limits on position in potatoes for fuiure delivery. (a) Position limit. The limit on the maximum net long or net short position which any one person may hold or control under contracts for future delivery for each separate type of potato, i.e., Round White of Russett Burbank, on or subject to the rules of any one contract market is 300 carlots in any one future and 350 carlots in all futures combined. (1) However, no person may hold or control a net long or net short position in any one type of potato contract in excess of (i) 150 carlots in the March potato future, (ii) 150 carlots in the April potato future, or (iii) 150 carlots in the May potato future. (b) Bona fide hedging. The foregoing limits upon position shall not be construed to apply to bona fide hedging transactions as defined in § 1.3(z) of this chapter. (c) Manipulation: corners; responsibility of contract market. Nothing contained in this section shall be construed to affect any manipulation or corners, nor to relieve any contract market or its governing board from responsibility under section 5(d) of the Act to prevent manipulation and corners. (d) Application of limits. The foregoing limits upon position shall be construed to apply to positions held by two or more per- sons acting pursuant to an expressed or implied agreement or understanding, the same as if the positions were held by, or the trading of the positions were done by, a single individual. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1913%3A3. Public record. Not legal advice.