SENATE BILL REPORT

ESB 5178

BYSenators Moore, Metcalf, Bender, Johnson, Smitherman, Pullen, Newhouse and Fleming

Authorizing limited commodity brokers license and providing additional exceptions to RCW 21.30.020.

Senate Committee on Financial Institutions

Senate Hearing Date(s):January 22, 1987; February 5, 1987

Majority Report:  Do pass.

      Signed by Senators Moore, Chairman; Bender, Vice Chairman; Bottiger, Fleming, Metcalf, Pullen, von Reichbauer.

Senate Staff:Stephanie Yates (786-7416)

                  April 15, 1987

AS PASSED SENATE, MARCH 6, 1987

BACKGROUND:

The 1986 Commodities Act authorizes the Securities Administrator to regulate all transactions in precious metals which constitute commodities contracts.  A commodities contract exists if physical delivery of precious metals occurs beyond 28 days of payment of any portion of the purchase price.  A seller of precious metals engaging in commodities contracts is regulated as a commodities broker-dealer and is subject to registration and compliance provisions which include minimum net capital requirements, surety bond requirements, and detailed reporting requirements.

Representatives of the precious metals industry in Washington have expressed serious concern that the cost of registration and compliance is disproportionate to the earnings of the average precious metals dealer and could force dealers to quit the business or alter selling procedures to avoid the purview of the act.  Additional concern has been expressed that the statutory definition of a commodities contract does not account for delays in the primary or wholesale markets, over which the seller has no control, but that may affect the date on which the buyer is able to take physical delivery.

Although regulations have been adopted which reduce the cost of registration and compliance for qualifying precious metals dealers, statutory relief is sought in this area, as well as that of delivery dates and fee structures.

SUMMARY:

An exemption from registration is created.  A person claiming the exemption must file notice and must meet the following criteria: (1) 100 percent of the purchase price for transactions in commodities must be received within ten days from the contract of sale; (2) only 25 percent of commodity transactions in a single year may constitute commodity contracts or commodity options; and (3) gross profits on commodity contracts or commodity options may not exceed $500,000 in the year immediately preceding the year in which the exemption is claimed, or $1,000,000 in the two years immediately preceding the year in which the exemption is claimed.

Revenue:    yes

Fiscal Note:      none requested

Senate Committee - Testified: Deborah Bortner, Securities Division; Linda Strout, Washington State Coin and Bullion Dealers; Craig Rhyne, Washington State Coin and Bullion Dealers; Lee Sanders, Washington State Coin and Bullion Dealers

HOUSE AMENDMENTS:

A provision is added which requires a person to renew his or her claim of exemption every two years.

A provision is added which requires any person claiming exemption from registration to maintain property and casualty insurance in an amount sufficient to cover the value of commodities stored for customers.