Section 1 Short title
This Act may be cited as the “Protection from Rogue Oil Traders Engaging in Computerized Trading Act” or the “PROTECT Act”.
PROTECT Act
A BILL
To provide for greater regulation of high frequency trading of commodities futures and options and greater protection for derivatives traders and trading facilities, and for other purposes.
Sec. 2 Requirements applicable to high frequency traders of commodity futures and options
In general— The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by inserting after section 4t the following:
“4u. Requirements applicable to high frequency traders
“(a) Registration—It shall be unlawful for any person to engage in an activity that the Commission has defined in regulations as high frequency trading, unless the person has registered with the Commission (in such form, in such manner, and providing such information as the Commission shall prescribe) as a high frequency trader, and the registration has not expired or been suspended or revoked.
“(b) Other requirements—A registered high frequency trader shall—
“(1) test all computer programs and algorithms used by the trader in any high frequency trading activity and determine whether the programs and algorithms are functioning properly, in such manner and with such frequency as the Commission shall prescribe in regulations;
“(2) establish and document high frequency trading system safeguards reasonably designed to ensure the proper function of all programs and algorithms used by the high frequency trader including conditions and parameters relating to the automatic termination, pausing, or cancellation of the trader’s messaging or trading activity, maximum message and trade execution rates and order sizes, intra-day risk position limits, and market and trade monitoring systems that are appropriate for ensuring compliance with the system safeguards, including systems designed to monitor market volatility and the trader’s risk position on an intra-day basis;
“(3) shall not simultaneously purchase and sell through the same or different accounts the same commodity contract, agreement, or transaction, unless the simultaneous purchases and sales are of a de minimis quantity and are reported to the Commission periodically, in a form and manner to be determined by the Commission;
“(4) submit to the Commission semiannual reports on the high frequency trading activities of the trader during the period covered by the report, in such form, in such manner, and containing such information as the Commission may require, signed by the chief executive officer (or equivalent officer) of the trader; and
“(5) conform with such business conduct standards as may be prescribed by the Commission by rule or regulation that relate to—
“(A) fraud, manipulation, and other abusive or disruptive practices, and other practices that may affect market integrity involving high frequency traders (including high frequency trades that are offered but not entered into); and
“(B) such other matters as the Commission may determine are appropriate in the public interest or otherwise in furtherance of the purposes of this Act, including information necessary to develop a classification scheme and public reports relating to high frequency traders and trading activity and sub-categories thereto.”
Deadline for issuance of rules defining high frequency trading— Within 9 months after the date of the enactment of this Act, the Commodity Futures Trading Commission shall prescribe final regulations defining the activities that shall be considered to be high frequency trading for purposes of section 4u of the Commodities Exchange Act.
Sec. 3 Fine for high frequency trading violation required to be based on the duration of the violation
Section 9 of the Commodity Exchange Act (7 U.S.C. 13) is amended by adding at the end the following:
“(f) Fine for high frequency trading violation required To be based on the duration of the violation—The amount of a fine imposed under this Act with respect to a violation of a high frequency trading regulation shall be determined on the basis of the number of seconds, including fractions of seconds, during which the violation continued.”
Sec. 4 Civil penalties under the Commodity Exchange Act
Authority of the Commodity Futures Trading Commission To define meaning of “each violation”— Section 9 of the Commodity Exchange Act (7 U.S.C. 13), as amended by section 3 of this Act, is amended by adding at the end the following:
“(g) Authority To define scope of violation—The Commission may define the scope of any violation for purposes of determining the number of violations involved in any case arising under this Act.”
Enforcement powers of the commission— Section 6 of such Act is amended—
in paragraph (10) of subsection (c) (7 U.S.C. 9), by striking subparagraph (C) and inserting the following:
“(C) assess such person—
“(i) a civil penalty of not more than an amount equal to the greater of—
“(I) $1,000,000, in the case of a person who is an individual, for each violation;
“(II) $10,000,000, in the case of any person other than an individual, for each violation;
“(III) triple the monetary gain to the person and all other persons acting in concert with the person, for each such violation; or
“(IV) triple the total amount of losses to persons proximately caused by each such violation; or
“(ii) a civil penalty of triple the maximum amount otherwise available under clause (i) if the person, within 5 years preceding the violation, has been—
“(I) found in a proceeding brought by the Commission, or by agreement of settlement to which the Commission is a party, to have recklessly or willfully violated any provision of this Act or of the rules, regulations, or orders of the Commission thereunder; or
“(II) convicted of any criminal offense that involves a violation of this Act or of the rules, regulations, or orders of the Commission thereunder; and”
in subsection (d) (7 U.S.C. 13b)—
by inserting “(1)” after “(d)”;
by striking “$140,000 or triple the monetary gain to such person,” and inserting “(A) $1,000,000, in the case of a person who is an individual, for each violation, (B) $10,000,000, in the case of any person other than an individual, for each violation, (C) triple the monetary gain to the person and all other persons acting in concert with the person, for each such violation, or (D) triple the total amount of losses to persons proximately caused by each such violation,”; and
by striking the period and inserting “; and”; and
by adding after and below the end the following:
“(2)
“(A) A person shall be held liable for a civil penalty in triple the amount otherwise available for a violation under this subsection if the person, within 5 years preceding such violation, has been—
“(i) found in a proceeding brought by the Commission, or by agreement of settlement to which the Commission is a party, to have recklessly or willfully violated any provision of this Act or the rules, regulations, or orders of the Commission thereunder; or
“(ii) convicted of any criminal offense that involves violation of this Act or the rules, regulations, or orders of the Commission thereunder.”
Nonenforcement of rules of government or other violations— Section 6b of such Act (7 U.S.C. 13a) is amended in the 1st sentence—
by striking “$500,000 for each such violation, or, in any case of manipulation or attempted manipulation in violation of section 6(c), 6(d), or 9(a)(2), a civil penalty of not more than $1,000,000 for each such violation” and inserting “(A) $1,000,000, in the case of a person who is an individual, for each violation, (B) $10,000,000, in the case of any person other than an individual, for each violation, (C) triple the monetary gain to the person and all other persons acting in concert with the person, for each such violation, or (D) triple the total amount of losses to persons proximately caused by each such violation, and such civil penalty shall be assessed for each violation on which a failure to enforce or other violation occurs or has occurred; provided that a registered entity, director, officer, agent, or employee shall be assessed a civil penalty of triple the amount otherwise available if the person, within 5 years of such violation, has been found in a proceeding brought by the Commission, or by agreement of settlement to which the Commission is a party, to have recklessly or willfully violated any provision of this Act or the rules, regulations, or orders of the Commission thereunder, or convicted of any criminal offense that involves a violation of this Act or the rules, regulations, or orders of the Commission thereunder”.
Action To enjoin or restrain violations— Section 6c(d) of such Act (7 U.S.C. 13a–1(d)) is amended—
in paragraph (1), by inserting “a civil penalty in the amount of” after “violation”; and
by striking subparagraphs (A) and (B) of paragraph (1) and inserting the following:
“(A) not more than the greater of—
“(i) “$1,000,000, in the case of a person who is an individual, for each violation;
“(ii) $10,000,000, in the case of any person other than an individual, for each violation;
“(iii) triple the monetary gain to the person and all other persons acting in concert with the person, for each such violation; or
“(iv) triple the total amount of losses by persons proximately caused by each such violation; or
“(B) triple the maximum amount otherwise available under subparagraph (A) if the person, within 5 years preceding the violation, has been—
“(i) found in a proceeding brought by the Commission, or by agreement of settlement to which the Commission is a party, to have recklessly or willfully violated any provision of this Act or of the rules, regulations, or orders of the Commission thereunder; or
“(ii) convicted of any criminal offense that involves a violation of this Act or of the rules, regulations, or orders of the Commission thereunder.”
Criminal penalties— Section 9(a) of such Act (7 U.S.C. 13(a)) is amended by inserting “in the case of an individual or $10,000,000 in the case of any person other than an individual, for each violation,” after “$1,000,000”.
Statute of limitations— Section 9 of such Act (7 U.S.C. 13) is amended by adding at the end the following:
“(f) Statute of limitations—An action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within 10 years after the date when the claim first accrued if, within the same period, the offender or the property is found within the United States in order that proper service may be made thereon.”
Sec. 5 Effective dates
Requirements applicable to high frequency traders— The amendment made by section 2(a) shall take effect on the date that is 9 months after the date of the enactment of this Act.
Penalties provisions— The amendments made by sections 3 and 4 shall take effect on the date that is 15 days after the date of the enactment of this Act.