7 U.S.C. § 6c — Prohibited transactions

(a) In general. This subsection has several parts. (1) Prohibition: It's illegal to offer, enter into, or confirm a "wash sale" type transaction (described in paragraph (2)) in a futures contract, option, or swap, if that transaction is used, or could be used, to fake a hedge, to set a false price basis for a real interstate commodity deal, or to fake delivery of a commodity actually sold or shipped in interstate commerce. (2) Transaction: The banned transaction type is one that is, or is known in the trade as, a "wash sale" or "accommodation trade," or that's a fictitious sale, or one used to report, register, or record a price that isn't real and bona fide. (3) Contract of sale: It's illegal for a federal government employee or agent, a Member of Congress or congressional employee, or a judicial officer or employee, who — because of their job — learns information that could affect a commodity's price (in interstate commerce, futures, or swaps), where that information hasn't yet been made public by the government, Congress, or the courts, or disclosed at a hearing, report, audit, or investigation, to use that information personally, for personal gain, to enter or offer to enter a futures contract, an option (other than one traded on a registered national securities exchange), or a swap. (4) Nonpublic information: Building on paragraph (3), it's also illegal for such a government insider to pass along that same kind of nonpublic information to someone else, personally and for personal gain, intending to help that person trade on it; it's illegal for anyone who receives that tipped information to knowingly use it to trade; and it's illegal for anyone to steal, convert, or misappropriate this kind of government, congressional, or judicial information and use it (or pass it along intending someone else to use it) to trade — though this last ban doesn't stop someone from using information about their own operations that they themselves gave to the government, Congress, or the courts, whether voluntarily or because the law required it. (5) Disruptive practices: It's illegal to trade on a registered entity in a way that violates bids or offers, that shows intentional or reckless disregard for orderly trading during the market's closing period, or that amounts to "spoofing" — bidding or offering with the intent to cancel before the trade executes. (6) Rulemaking authority: The Commission can write rules to prohibit the disruptive practices in paragraph (5), plus any other trading practice that disrupts fair and orderly trading. (7) Use of swaps to defraud: It's illegal to enter a swap knowing, or recklessly disregarding the fact, that the other party will use it as part of a scheme to defraud a third party. (b) Regulated option trading. No one can offer, enter into, or confirm a transaction that is, or is known in the trade as, an "option," "privilege," "indemnity," "bid," "offer," "put," "call," "advance guaranty," or "decline guaranty" on a regulated commodity, unless it follows a Commission rule, regulation, or order — which the Commission can only issue after notice and a hearing, and which can set different terms for different markets. (c) Regulations for eliminating pilot status of commodity option transactions. Within 90 days after November 10, 1986, the Commission had to write regulations to end the "pilot" status of its commodity-options trading program (including removing any cap on how many commodities or option contracts could be authorized), while continuing to allow trading of these options under whatever terms the Commission sets from time to time. (d) Dealer options exempt from subsections (b) and (c) prohibitions. Certain "dealer options" can be offered outside the usual option rules. A person based in the U.S. who, as of May 1, 1978, was already granting options on a physical commodity (other than ones already regulated before October 23, 1974) and was actually in the business of dealing in that commodity, may keep granting those options under the Commission's 1978 rules, until 30 days after the Commission issues new regulations — and even longer if that person applies for registration under the new rules within that 30-day window. The Commission must write regulations letting option grantors and futures commission merchants offer these commodity options, if: the grantor is U.S.-based, is in the business of dealing in the underlying commodity, keeps a net worth of at least $5,000,000 (certified yearly by an independent accountant), notifies the Commission and each futures commission merchant if net worth drops below that, segregates money and approved securities daily to cover the excess value of each option transaction, and provides an identification number and confirmation for each transaction; and the futures commission merchant has evidence the grantor meets those standards, treats customer money and property as belonging to the customer until the option's term ends or is exercised, records each transaction by its ID number, and gives customers a disclosure statement covering all costs, markups, and commissions. Both the grantor and the futures commission merchant must also follow whatever additional uniform, reasonable terms the Commission sets, including registering with the Commission. The Commission may let non-U.S. persons grant these options too, under comparable protective rules, and may terminate anyone's right to grant, offer, or sell these options — but only after a hearing finding that continuing to let them do so would hurt the public interest, though the Commission can suspend that right immediately, before the hearing finishes, if it believes the person's activities pose a substantial risk to the public. (e) Rules and regulations. The Commission can adopt rules, after public notice and a hearing on the record, banning the granting, issuing, or selling of the dealer options permitted under subsection (d), if it decides those options are against the public interest. (f) Nonapplicability to foreign currency options. Nothing in this chapter governs, or applies to, an option on foreign currency that trades on a national securities exchange. (g) Oral orders. The Commission must write rules requiring that, as much as practical, a written record be made at the time an order is placed for execution on the floor of a contract market or derivatives transaction execution facility, by a member of that market who is physically on the floor when the order is placed.