7 U.S.C. § 15b — Cotton futures contracts

(a) Short title — This section can be called the "United States Cotton Futures Act." (b) Omitted — This subsection was left out; it has no content here. (c) Definitions — This part defines five terms used in the section. A "cotton futures contract" is a contract to sell cotton for future delivery, made on an exchange or similar market officially named a "contract market" by the Commodity Futures Trading Commission under the Commodity Exchange Act. "Contract of sale" includes actual sales and agreements to sell. Two kinds of contracts are excluded from this definition and from the whole section: contracts that are settled in cash instead of by delivering cotton, and — only to the extent foreign-grown cotton is actually delivered under it — contracts that allow delivery of cotton grown outside the United States. "Future delivery" does not include a cash sale of cotton for later shipment. "Person" includes an individual, trust, estate, partnership, association, company, or corporation. "Secretary" means the Secretary of Agriculture. "Standards" means the official U.S. cotton standards that the Secretary sets under the United States Cotton Standards Act. (d) Bona fide spot markets and commercial differences — A "bona fide spot market" is only a market the Secretary has investigated and officially designated as one, after giving public notice. In deciding which markets qualify, the Secretary can only consider markets where enough spot cotton is sold, under conditions that accurately reflect the value of middling-grade cotton and the price differences between middling cotton and other established grades. If there aren't enough qualifying markets to name at least five spot markets (as subsection (f)(3) requires), the Secretary must instead use collected sales data to write rules for figuring out the actual commercial value differences between cotton grades; those rules then control how grade-value differences are determined under subsection (f)(1) and (2). Anyone in the business of dealing in cotton must, when the Secretary or the Secretary's agent asks, truthfully answer questions — under oath if required — about the number of bales, classification, price, and other sale terms for any cotton deal they took part in, and must produce related books, letters, papers, or documents. A person who cooperates this way cannot be held liable for any loss or damage that results from cooperating. But anyone who willfully refuses to answer, refuses to produce the documents, or willfully gives a false or misleading answer can be fined up to $500 upon conviction. (e) Form and validity of cotton futures contracts — Every cotton futures contract must be one of three types described in subsections (f), (g), or (h). It must be in writing (or shown by a written memo) stating the contract's terms — including how much cotton is involved and the seller's and buyer's names and addresses — and it must be signed by the party being held to it, or their agent. A cotton futures contract that doesn't meet these requirements cannot be enforced in court by either party or their successors. (f) Basis grade contracts — A "basis grade" contract must meet several conditions. It must follow the section's regulations. It must specify the basis grade of cotton (from the Secretary's established grades, except grades banned under (f)(1)(E)), the price per pound, the date of sale, and the settlement month or months; if no grade is specified, "middling" is treated as the basis grade automatically. It must promise that only cotton of an established, allowed grade will be delivered. It must promise that if a different grade than the basis grade is delivered, the price difference the receiver pays will be the actual commercial difference in value, figured out the way the law describes. It must ban delivery of certain inferior cotton — cotton with defects or extraneous matter that drop it below "low middling," cotton actually below "low middling," tinged cotton below "strict middling," yellow-stained cotton below "good middling," cotton with staple shorter than seven-eighths of an inch, cotton with perished or immature staple, or cotton that is "gin cut," reginned, "repacked," "false packed," "mixed packed," or "water packed." It must require that deliveries cover the full number of bales in the contract (with small weight-based adjustments allowed), that the seller give written notice of the delivery date five business days ahead, and that the seller give the buyer a written certificate identifying the grade of every bale, marked so each bale can be matched to its grade. And it must require that all tenders and settlements follow the official government classification made under the Secretary's regulations, with classification costs charged and credited to a specific government account; the Secretary can also make rules letting the government keep and sell submitted cotton samples, crediting the proceeds to that account, and those samples are exempted from certain federal procurement law chapters. These required terms count as automatically written into the contract if the contract (or its memo) carries the printed phrase "Subject to United States Cotton Futures Act, subsection (f)." For figuring the actual price difference between grades ("delivery allowances"), the law sets the measuring point as the sixth business day before the scheduled delivery day, based on spot cotton sale prices in at least five markets the Secretary has designated, using the Secretary's official grade standards; if one grade's value must be derived from sales of a different grade, the Secretary's rules control how that's calculated. (g) Tendered grade contracts — A "subsection (g) contract" must follow all of subsection (f)'s rules that don't conflict with this subsection, and it must include one extra promise: if cotton of a grade other than the basis grade is tendered, the buyer and seller can agree at that time on a price for it; but if they can't agree, the buyer can instead demand that the seller actually deliver cotton of the basis grade named in the contract, at the basis-grade price. These terms count as written in if the contract carries the phrase "Subject to United States Cotton Futures Act, subsection (g)." This subsection does not allow any contract that tries to set the price of a non-basis grade through a "fixed difference" system, arbitration, or any other method besides the ones this section allows. (h) Specific grade contracts — A "subsection (h) contract" must follow the section's rules, must specify the exact grade, type, sample, or description of the cotton, the price per pound, the sale date, and the shipment or delivery date. It must promise that only cotton matching that exact grade, type, sample, or description will be delivered — nothing else. And it must promise that delivery happens only through an actual transfer of the specified cotton, not through a "setoff" or "ring" settlement (a paper settlement instead of real delivery). These terms count as written in if the contract carries the phrase "Subject to United States Cotton Futures Act, subsection (h)." This subsection does not apply to any contract that already complies with subsection (f) or (g). (i) Liability of principal for acts of agent — When this section is enforced, anything an official, agent, or employee does, fails to do, or messes up — while acting within their job for an association, partnership, or corporation — counts as an act (or failure) of that association, partnership, or corporation, in addition to being the individual's own act. (j) Regulations — The Secretary can write regulations, with the force of law, as needed to carry out this section and the powers it gives. (k) Violations — Anyone who knowingly breaks a regulation issued under this section can, if convicted, be fined between $100 and $500 for each violation, at the court's discretion. Individuals can also be sentenced to between 30 and 90 days in jail for each violation, again at the court's discretion. This penalty subsection does not apply to violations of the information-withholding rule in subsection (d)(3), which has its own $500 fine. (l) Applicability to contracts prior to effective date — This section does not apply to any cotton futures contract made before this section took effect, or to any act or failure to act that happened before then. Those older contracts and actions stay governed by the earlier rules that existed under the Internal Revenue Code of 1954 before this section replaced them. Any spot market designations, or rules and regulations, that the Secretary had already issued under those earlier Internal Revenue Code provisions stay fully in effect under this section, until the Secretary changes, replaces, or ends them. (m) Authorization — Congress can appropriate whatever money is necessary to carry out this section.