2018-03590
Federal Register, Volume 83 Issue 37 (Friday, February 23, 2018)
[Federal Register Volume 83, Number 37 (Friday, February 23, 2018)]
[Rules and Regulations]
[Pages 7979-7997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03590]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 1, 3, 4, 5, 15, 18, 19, 23, 30, 38, 39, 41, 50, 150,
151, 155, and 166
RIN 3038-AE70
Definitions
AGENCY: Commodity Futures Trading Commission.
ACTION: Interim final rule; request for comment.
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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'')
is amending its primary definitions regulation to make it more user-
friendly both to industry and the public. Specifically, the Commission
is amending the primary definitions regulation to replace the complex
and confusing lettering system with a simple alphabetical list; and
replacing all existing cross references to any definition within the
primary definitions regulation with a general reference to the revised
alphabetical list, rather than to a specific lettered paragraph.
DATES:
Effective Date: This rule is effective February 23, 2018.
Comment date: Comments must be received on or before March 26,
2018.
ADDRESSES: You may submit comments, identified by RIN 3038-AE70, by one
of the following methods:
CFTC Website: https://comments.cftc.gov. Follow the
instructions to Submit Comments through the website.
Mail: Send comments to Christopher Kirkpatrick, Secretary
of the Commission, Commodity Futures Trading Commission, Three
Lafayette Center, 1155 21st Street NW, Washington, DC 20581.
Hand Delivery/Courier: Same as Mail, above.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
https://comments.cftc.gov. You should submit only information that you
wish to make available publicly. If you wish the Commission to consider
information that you believe is exempt from disclosure under the
Freedom of Information Act (``FOIA''), a petition for confidential
treatment of the exempt information may be submitted according to the
procedures established in Sec. 145.9 of the Commission's
regulations.\1\
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\1\ 17 CFR 145.9. Commission regulations referred to herein are
found at 17 CFR chapter I.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from https://comments.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the rulemaking will be retained in the public comment
file and will be considered as required under the Administrative
Procedure Act and other applicable laws, and may be accessible under
the FOIA.
FOR FURTHER INFORMATION CONTACT: Matthew B. Kulkin, Director, (202)
418-5213, [email protected]; Frank Fisanich, Chief Counsel, (202) 418-
5949, [email protected]; Andrew Chapin, Associate Chief Counsel, (202)
418-5465, [email protected]; Scott Lee, Special Counsel, (202) 418-5090,
[email protected]; or C. Barry McCarty, Special Counsel, (202) 418-6627,
[email protected]; Division of Swap Dealer and Intermediary Oversight,
Commodity Futures Trading Commission, 1155 21st Street NW, Washington,
DC 20581.
SUPPLEMENTARY INFORMATION:
I. Interim Final Rule
Section 1a of the Commodity Exchange Act (``CEA'') \2\ sets forth
defined terms referenced throughout the statute. These terms are
alphabetized and numbered, currently beginning with ``(1) Alternative
Trading System'' and ending with ``(51) Trading Facility.'' Whenever
defined terms are added by Congress, the new term is placed in the
proper location in the alphabetic order and the entire list is
renumbered. The alphabetized list makes it relatively easy for an
individual completely unfamiliar with the CEA to find a particular term
referenced in the statute.
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\2\ 7 U.S.C. 1 et seq.
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Commission regulation Sec. 1.3 similarly sets forth many
definitions referenced throughout the Commission's regulations.\3\
Starting in 1938, the defined terms have been identified with an
alphabetic designation consistent with the structure set forth in the
Code of Federal Regulations (``CFR'').\4\ The CFR identifies
regulations by ``title,'' divided into ``chapters,'' further sub-
divided into ``parts,'' and further sub-divided into ``sections'' and
``paragraphs.'' Thus, the definitions in Sec. 1.3 are set forth in
Title 17 (Commodity and Securities Exchanges), Chapter I (Commodity
Futures Trading Commission), Part 1 (General Regulations Under the
Commodity Exchange Act), Sec. 1.3 (Definitions). Each defined term
then was originally set forth in paragraphs in alphabetical order, each
with an alphabetic designation, starting with ``(a) Board of Trade''
and continuing through ``(u) Person.'' \5\ Over decades, numerous
definitions have been added by simply adding more paragraphs at the end
(rather than in alphabetical order) with an ever-growing list of
alphabetic designations, starting with ``(aa)'' after reaching ``(z)''
and then ``(aaa)'' after reaching ``(zz).'' Moreover, certain
definitions have been removed, leaving certain paragraphs blank and
cited as ``reserved.'' As of today, the list of definitions in Sec.
1.3 concludes with ``(ssss) Trading Facility.'' The result of this
progression has been that, absent a strong familiarity with the
Commission's regulations, it can prove difficult to quickly locate
defined terms within Sec. 1.3, either directly or as referred to by
another regulation, or even to know if certain terms have been defined.
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\3\ 17 CFR 1.3. The Commission's regulations are found in Title
17 of the Code of Federal Regulations, 17 CFR chapter I.
\4\ See 17 CFR 1.3 (1938 ed.).
\5\ Id.
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Accordingly, the Commission has determined to amend Sec. 1.3 to
replace the sub-paragraphs currently identified with an alphabetic
designation for each defined term with a simple alphabetized list, as
is recommended by the Office of the Federal Register.\6\ Moving
forward, any new defined terms in Sec. 1.3 may be inserted in
alphabetical order, rather than appended to the end. The Commission
also has determined to amend all cross references to Sec. 1.3--both
within Sec. 1.3 and within all other Commission regulations--to refer
to the defined term set forth in the revised
[[Page 7980]]
alphabetic list, rather than the existing complex and confusing system
for subdividing the regulation into paragraphs identified with an
alphabetic designation. Further, the Commission has determined to amend
certain definitions within Sec. 1.3 to correct certain typographical
errors. Collectively, these amendments do not substantively alter any
existing definition or other requirement set forth in other Commission
regulations.
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\6\ See Document Drafting Handbook, Office of the Federal
Register, National Archives and Records Administration, 2-31
(Revision 5, Oct. 2, 2017), stating, ``[i]n sections or paragraphs
containing only definitions, we recommend that you do not use
paragraph designations if you list the terms in alphabetical order.
Begin the definition paragraph with the term that you are
defining.''
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II. Request for Comment on Interim Final Rule
The Commission invites comments on this interim final rule. For
example, the Commission invites comment as to the extent, if any, that
the elimination of the paragraph references to particular defined terms
in Sec. 1.3 would cause registrants to update or alter existing
automated compliance programs and any costs associated with such
changes. Comments must be received by the Commission on or before the
comment date specified under the DATES heading in this document.
Comments on the interim final rule must be submitted pursuant to the
instructions provided above.
III. Related Matters
A. Administrative Procedure Act
The Administrative Procedure Act (``APA'') \7\ generally requires a
Federal agency to publish a notice of proposed rulemaking in the
Federal Register. This requirement does not apply, however, when an
agency ``for good cause finds . . . that notice and public procedure
thereon are impracticable, unnecessary, or contrary to the public
interest.'' Moreover, while the APA generally requires that an agency
publish an adopted rule in the Federal Register 30 days before it
becomes effective, this requirement does not apply if the agency finds
good cause to make the rule effective sooner. In this interim final
rulemaking the Commission is, by amendment, reorganizing the
definitions in Sec. 1.3 into alphabetical order. No substantive
changes are being made to the definitions, only reordering in
alphabetical order, deleting the alphabetic identification scheme,
revising all cross references to existing Sec. 1.3 definitions, and
correcting certain typographical errors. Similarly, related regulations
which include cross references to Sec. 1.3 will be amended to reflect
the elimination of the alphabetic identification scheme. Because the
interim final rule does not alter in any way the substantive
definitions and related regulations, the advance notice and public
comment procedure that is generally required pursuant to the APA is not
necessary in the present instance. For good cause, the Commission
therefore finds that publication of a notice of proposed rulemaking in
the Federal Register is unnecessary. Similarly, since the interim final
rule simply reorganizes all definitions into alphabetical order in
Sec. 1.3, eliminates the alphabetic identification scheme, harmonizes
related regulations, and corrects certain typographical errors, the
Commission, for good cause, finds no transitional period, after
publication in the Federal Register, is necessary before the amendments
made by this interim final rule become effective. Accordingly, this
interim final rule shall be effective immediately upon publication in
the Federal Register.
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\7\ See 5 U.S.C. 553 et seq.
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B. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') imposes certain requirements
on Federal agencies in connection with their conducting or sponsoring
any collection of information as defined by the PRA.\8\ Under the PRA,
an agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number from the Office of Management and Budget
(``OMB''). Since this interim final rule serves to clarify, by
amendment, the scope of an already existing regulatory provision, the
Commission has determined that the interim final rule will not impose
any new information collection requirements that require approval of
OMB under the PRA.
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\8\ See 44 U.S.C. 3501 et seq.
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C. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') requires that Federal
agencies consider whether the rules that they issue will have a
significant economic impact on a substantial number of small entities
and, if so, to provide a regulatory flexibility analysis respecting the
impact.\9\ By reorganizing the definitions set forth in Sec. 1.3 into
alphabetical order and updating all related cross references throughout
all Commission regulations, this interim final rule serves to clarify
its regulations. Therefore, the Commission has determined that this
interim final rule will not have a significant economic impact on a
substantial number of small entities.
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\9\ See 5 U.S.C. 601 et seq.
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D. Cost-Benefit Considerations
Section 15(a) of the CEA \10\ requires the Commission to consider
the costs and benefits of its actions before promulgating a regulation
under the CEA or issuing certain orders. Section 15(a) further
specifies that the costs and benefits shall be evaluated in light of
five broad areas of market and public concern: (1) Protection of market
participants and the public; (2) efficiency, competitiveness, and
financial integrity of the futures markets; (3) price discovery; (4)
sound risk management practices; and (5) other public interest
considerations. The Commission considers the costs and benefits
resulting from its discretionary determinations with respect to the
section 15(a) factors.
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\10\ 7 U.S.C. 19(a).
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The interim final rule does not represent an exercise of Commission
discretion that alters substantive rights and obligations imposed by
statute and current Commission rules. As discussed earlier, the interim
final rule merely reorganizes the existing definitions in Sec. 1.3
into alphabetical order, deletes the outdated lettering scheme, and
revises Sec. 1.3 and related regulations to reflect the deleted
lettering scheme. As such, substantively, the interim final rule poses
no incremental costs or benefits relative to the regulatory
requirements that are now in force.
This interim final rule does have a discretionary element. By
issuing the interim final rule, the Commission is exercising its
discretion to clarify, by amendment, the definitions currently in
force. By alphabetizing the definitions, the interim final rule
addresses a potential source of uncertainty for market participants,
which promotes the public interest in market integrity and regulatory
clarity. The Commission recognizes that this discretionary act of
clarification may result in some administrative costs to market
participants. However, the Commission believes any such costs will not
be material.
List of Subjects
17 CFR Part 1
Commodity futures, Reporting and recordkeeping requirements.
17 CFR Part 3
Administrative practice and procedure, Commodity futures, Reporting
and recordkeeping requirements.
[[Page 7981]]
17 CFR Part 4
Advertising, Brokers, Commodity futures, Consumer protection,
Reporting and recordkeeping requirements.
17 CFR Part 5
Commodity futures, Consumer protection, Foreign currencies,
Reporting and recordkeeping requirements, Securities, Trade practices.
17 CFR Part 15
Brokers, Reporting and recordkeeping requirements.
17 CFR Part 18
Reporting and recordkeeping requirements.
17 CFR Part 19
Cotton, Grains, Reporting and recordkeeping requirements.
17 CFR Part 23
Swaps.
17 CFR Part 30
Consumer protection, Fraud.
17 CFR Part 38
Commodity futures, Reporting and recordkeeping requirements.
17 CFR Part 39
Consumer protection, Reporting and recordkeeping requirements.
17 CFR Part 41
Brokers, Reporting and recordkeeping requirements, Securities.
17 CFR Part 50
Business and industry, Swaps.
17 CFR Part 150
Cotton, Grains.
17 CFR Part 151
Swaps.
17 CFR Part 155
Brokers, Reporting and recordkeeping requirements.
17 CFR Part 166
Brokers, Commodity futures, Consumer protection, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Commodity Futures
Trading Commission amends 17 CFR chapter I as follows:
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT
0
1. The authority citation for part 1 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g,
6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8,
9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24
(2012).
0
2. Amend Sec. 1.3 as follows:
0
a. Republish the introductory text of Sec. 1.3;
0
b. Remove paragraph designations (a) through (ssss) and reorder those
definitions paragraphs in correct alphabetical order;
0
c. Revise the definitions of ``Bona fide hedging transactions and
positions for excluded commodities,'' ``Category of swaps; major swap
category,'' ``Commodity option transaction; commodity option,''
``Commodity trading advisor,'' ``Customer,'' ``Customer account,''
``Eligible contract participant,'' ``Financial entity; highly
leveraged,'' ``Futures contracts on certain foreign sovereign debt,''
``Futures customer,'' ``Hedging or mitigating commercial risk,''
``Major Swap Participant,'' ``Meaning of `issuers of securities in a
narrow-based security index' as used in the definition of `security-
based swap' as applied to index credit default swaps,'' ``Meaning of
`narrow-based security index' used in the definition of `security-based
swap' as applied to index credit default swaps,'' ``Narrow-based
security index as used in the definition of `security-based swap,' ''
``Substantial counterparty exposure,'' ``Substantial position,''
``Swap,'' and ``Swap Dealer.''
The revisions read as follows:
Sec. 1.3 Definitions.
Words used in the singular form in the rules and regulations in
this chapter shall be deemed to import the plural and vice versa, as
the context may require. The following terms, as used in the Commodity
Exchange Act, or in the rules and regulations in this chapter, shall
have the meanings hereby assigned to them, unless the context otherwise
requires:
* * * * *
Bona fide hedging transactions and positions for excluded
commodities--(1) General definition. Bona fide hedging transactions and
positions shall mean any agreement, contract or transaction in an
excluded commodity on a designated contract market or swap execution
facility that is a trading facility, where such transactions or
positions normally represent a substitute for transactions to be made
or positions to be taken at a later time in a physical marketing
channel, and where they are economically appropriate to the reduction
of risks in the conduct and management of a commercial enterprise, and
where they arise from:
(i) The potential change in the value of assets which a person
owns, produces, manufactures, processes, or merchandises or anticipates
owning, producing, manufacturing, processing, or merchandising,
(ii) The potential change in the value of liabilities which a
person owns or anticipates incurring, or
(iii) The potential change in the value of services which a person
provides, purchases, or anticipates providing or purchasing.
(iv) Notwithstanding the foregoing, no transactions or positions
shall be classified as bona fide hedging unless their purpose is to
offset price risks incidental to commercial cash or spot operations and
such positions are established and liquidated in an orderly manner in
accordance with sound commercial practices and, for transactions or
positions on contract markets subject to trading and position limits in
effect pursuant to section 4a of the Act, unless the provisions of
paragraphs (2) and (3) of this definition have been satisfied.
(2) Enumerated hedging transactions. The definitions of bona fide
hedging transactions and positions in paragraph (1) of this definition
includes, but is not limited to, the following specific transactions
and positions:
(i) Sales of any agreement, contract, or transaction in an excluded
commodity on a designated contract market or swap execution facility
that is a trading facility which do not exceed in quantity:
(A) Ownership or fixed-price purchase of the same cash commodity by
the same person; and
(B) Twelve months' unsold anticipated production of the same
commodity by the same person provided that no such position is
maintained in any agreement, contract or transaction during the five
last trading days.
(ii) Purchases of any agreement, contract or transaction in an
excluded commodity on a designated contract market or swap execution
facility that is a trading facility which do not exceed in quantity:
(A) The fixed-price sale of the same cash commodity by the same
person;
(B) The quantity equivalent of fixed-price sales of the cash
products and by-products of such commodity by the same person; and
(C) Twelve months' unfilled anticipated requirements of the same
cash commodity for processing, manufacturing, or feeding by the same
person, provided that such transactions and positions in the five last
trading
[[Page 7982]]
days of any agreement, contract or transaction do not exceed the
person's unfilled anticipated requirements of the same cash commodity
for that month and for the next succeeding month.
(iii) Offsetting sales and purchases in any agreement, contract or
transaction in an excluded commodity on a designated contract market or
swap execution facility that is a trading facility which do not exceed
in quantity that amount of the same cash commodity which has been
bought and sold by the same person at unfixed prices basis different
delivery months of the contract market, provided that no such position
is maintained in any agreement, contract or transaction during the five
last trading days.
(iv) Purchases or sales by an agent who does not own or has not
contracted to sell or purchase the offsetting cash commodity at a fixed
price, provided that the agent is responsible for the merchandising of
the cash position that is being offset, and the agent has a contractual
arrangement with the person who owns the commodity or has the cash
market commitment being offset.
(v) Sales and purchases described in paragraphs (2)(i) through (iv)
of this definition may also be offset other than by the same quantity
of the same cash commodity, provided that the fluctuations in value of
the position for in any agreement, contract or transaction are
substantially related to the fluctuations in value of the actual or
anticipated cash position, and provided that the positions in any
agreement, contract or transaction shall not be maintained during the
five last trading days.
(3) Non-Enumerated cases. A designated contract market or swap
execution facility that is a trading facility may recognize, consistent
with the purposes of this definition, transactions and positions other
than those enumerated in paragraph (2) of this definition as bona fide
hedging. Prior to recognizing such non-enumerated transactions and
positions, the designated contract market or swap execution facility
that is a trading facility shall submit such rules for Commission
review under section 5c of the Act and part 40 of this chapter.
* * * * *
Category of swaps; major swap category. For purposes of section
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of major swap
participant in this section, the terms major swap category, category of
swaps and any similar terms mean any of the categories of swaps listed
below. For the avoidance of doubt, the term swap as it is used in this
definition has the meaning set forth in section 1a(47) of the Act, 7
U.S.C. 1a(47), and the rules thereunder.
(1) Rate swaps. Any swap which is primarily based on one or more
reference rates, including but not limited to any swap of payments
determined by fixed and floating interest rates, currency exchange
rates, inflation rates or other monetary rates, any foreign exchange
swap, as defined in section 1a(25) of the Act, 7 U.S.C. 1a(25), and any
foreign exchange option other than an option to deliver currency.
(2) Credit swaps. Any swap that is primarily based on instruments
of indebtedness, including but not limited to any swap primarily based
on one or more broad-based indices related to debt instruments or
loans, and any swap that is an index credit default swap or total
return swap on one or more indices of debt instruments.
(3) Equity swaps. Any swap that is primarily based on equity
securities, including but not limited to any swap based on one or more
broad-based indices of equity securities and any total return swap on
one or more equity indices.
(4) Other commodity swaps. Any swap that is not included in the
rate swap, credit swap or equity swap categories.
* * * * *
Commodity option transaction; commodity option. These terms each
mean any transaction or agreement in interstate commerce which is or is
held out to be of the character of, or is commonly known to the trade
as, an ``option,'' ``privilege,'' ``indemnity,'' ``bid,'' ``offer,''
``call,'' ``put,'' ``advance guaranty,'' or ``decline guaranty,'' and
which is subject to regulation under the Act and the regulations in
this chapter.
* * * * *
Commodity trading advisor. (1) This term means any person who, for
compensation or profit, engages in the business of advising others,
either directly or through publications, writings or electronic media,
as to the value of or the advisability of trading in any contract of
sale of a commodity for future delivery, security futures product, or
swap; any agreement, contract or transaction described in section
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option
authorized under section 4c of the Act; any leverage transaction
authorized under section 19 of the Act; any person registered with the
Commission as a commodity trading advisor; or any person, who, for
compensation or profit, and as part of a regular business, issues or
promulgates analyses or reports concerning any of the foregoing. The
term does not include:
(i) Any bank or trust company or any person acting as an employee
thereof;
(ii) Any news reporter, news columnist, or news editor of the print
or electronic media or any lawyer, accountant, or teacher;
(iii) Any floor broker or futures commission merchant;
(iv) The publisher or producer of any print or electronic data of
general and regular dissemination, including its employees;
(v) The named fiduciary, or trustee, of any defined benefit plan
which is subject to the provisions of the Employee Retirement Income
Security Act of 1974, or any fiduciary whose sole business is to advise
that plan;
(vi) Any contract market; and
(vii) Such other persons not within the intent of this definition
as the Commission may specify by rule, regulation or order: Provided,
That the furnishing of such services by the foregoing persons is solely
incidental to the conduct of their business or profession: Provided
further, That the Commission, by rule or regulation, may include within
this definition, any person advising as to the value of commodities or
issuing reports or analyses concerning commodities, if the Commission
determines that such rule or regulation will effectuate the purposes of
this provision.
(2) Client. This term, as it relates to a commodity trading
advisor, means any person:
(i) To whom a commodity trading advisor provides advice, for
compensation or profit, either directly or through publications,
writings, or electronic media, as to the value of, or the advisability
of trading in, any contract of sale of a commodity for future delivery,
security futures product or swap; any agreement, contract or
transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i)
of the Act; any commodity option authorized under section 4c of the
Act; any leverage transaction authorized under section 19 of the Act;
or
(ii) To whom, for compensation or profit, and as part of a regular
business, the commodity trading advisor issues or promulgates analyses
or reports concerning any of the activities referred to in the
definition of commodity trading advisor in this section. The term
client includes, without limitation, any subscriber of a commodity
trading advisor.
* * * * *
Customer. This term means any person who uses a futures commission
[[Page 7983]]
merchant, introducing broker, commodity trading advisor, or commodity
pool operator as an agent in connection with trading in any commodity
interest; Provided, however, an owner or holder of a proprietary
account as defined in this section shall not be deemed to be a customer
within the meaning of section 4d of the Act, the regulations that
implement sections 4d and 4f of the Act and Sec. 1.35, and such an
owner or holder of such a proprietary account shall otherwise be deemed
to be a customer within the meaning of the Act and Sec. Sec. 1.37 and
1.46 and all other sections of these rules, regulations, and orders
which do not implement sections 4d and 4f of the Act.
Customer account. This term references both a Cleared Swaps
Customer Account and a Futures Account, as defined in this section.
* * * * *
Eligible contract participant. This term has the meaning set forth
in section 1a(18) of the Act, except that:
(1) A major swap participant, as defined in section 1a(33) of the
Act and in this section, is an eligible contract participant;
(2) A swap dealer, as defined in section 1a(49) of the Act and in
this section, is an eligible contract participant;
(3) A major security-based swap participant, as defined in section
3(a)(67) of the Securities Exchange Act of 1934 and Sec. 240.3a67-1 of
this title, is an eligible contract participant;
(4) A security-based swap dealer, as defined in section 3(a)(71) of
the Securities Exchange Act of 1934 and Sec. 240.3a71-1 of this title,
is an eligible contract participant;
(5)(i) A transaction-level commodity pool with one or more direct
participants that is not an eligible contract participant is not itself
an eligible contract participant under either section 1a(18)(A)(iv) or
section 1a(18)(A)(v) of the Act for purposes of entering into
transactions described in sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii)
of the Act; and
(ii) In determining whether a commodity pool that is a direct
participant in a transaction-level commodity pool is an eligible
contract participant for purposes of paragraph (5)(i) of this
definition, the participants in the commodity pool that is a direct
participant in the transaction-level commodity pool shall not be
considered unless the transaction-level commodity pool, any commodity
pool holding a direct or indirect interest in such transaction-level
commodity pool, or any commodity pool in which such transaction-level
commodity pool holds a direct or indirect interest, has been structured
to evade subtitle A of Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act by permitting persons that are not eligible
contract participants to participate in agreements, contracts, or
transactions described in section 2(c)(2)(B)(i) or section
2(c)(2)(C)(i) of the Act;
(6) A commodity pool that does not have total assets exceeding
$5,000,000 or that is not operated by a person described in subclause
(A)(iv)(II) of section 1a(18) of the Act is not an eligible contract
participant pursuant to clause (A)(v) of such section;
(7)(i) For purposes of a swap (but not a security-based swap,
security-based swap agreement or mixed swap) used to hedge or mitigate
commercial risk, an entity may, in determining its net worth for
purposes of section 1a(18)(A)(v)(III) of the Act, include the net worth
of any owner of such entity, provided that all the owners of such
entity are eligible contract participants;
(ii)(A) For purposes of identifying the owners of an entity under
paragraph (7)(i) of this definition, any person holding a direct
ownership interest in such entity shall be considered to be an owner of
such entity; provided, however, that any shell company shall be
disregarded, and the owners of such shell company shall be considered
to be the owners of any entity owned by such shell company;
(B) For purposes of paragraph (7)(ii)(A) of this definition, the
term shell company means any entity that limits its holdings to direct
or indirect interests in entities that are relying on this paragraph
(7); and
(C) In determining whether an owner of an entity is an eligible
contract participant for purposes of paragraph (7)(i) of this
definition, an individual may be considered to be a proprietorship
eligible contract participant only if the individual--
(1) Has an active role in operating a business other than an
entity;
(2) Directly owns all of the assets of the business;
(3) Directly is responsible for all of the liabilities of the
business; and
(4) Acquires its interest in the entity seeking to qualify as an
eligible contract participant under paragraph (7)(i) of this definition
in connection with the operation of the individual's proprietorship or
to manage the risk associated with an asset or liability owned or
incurred or reasonably likely to be owned or incurred by the individual
in the operation of the individual's proprietorship; and
(iii) For purposes of paragraph (7)(i) of this definition, a swap
is used to hedge or mitigate commercial risk if the swap complies with
the conditions in the definition in this section of hedging or
mitigating commercial risk; and
(8) Notwithstanding section 1a(18)(A)(iv) of the Act and paragraph
(5) of this definition, a commodity pool that enters into an agreement,
contract, or transaction described in section 2(c)(2)(B)(i) or section
2(c)(2)(C)(i)(I) of the Act is an eligible contract participant with
respect to such agreement, contract, or transaction, regardless of
whether each participant in such commodity pool is an eligible contract
participant, if all of the following conditions are satisfied:
(i) The commodity pool is not formed for the purpose of evading
regulation under section 2(c)(2)(B) or section 2(c)(2)(C) of the Act or
related Commission rules, regulations or orders;
(ii) The commodity pool has total assets exceeding $10,000,000; and
(iii) The commodity pool is formed and operated by a registered
commodity pool operator or by a commodity pool operator who is exempt
from registration as such pursuant to Sec. 4.13(a)(3) of this chapter.
* * * * *
Financial entity; highly leveraged. (1) For purposes of section
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap
participant in this section, the term financial entity means:
(i) A security-based swap dealer;
(ii) A major security-based swap participant;
(iii) A commodity pool as defined in section 1a(10) of the Act, 7
U.S.C. 1a(10);
(iv) A private fund as defined in section 202(a) of the Investment
Advisers Act of 1940, 15 U.S.C. 80b-2(a);
(v) An employee benefit plan as defined in paragraphs (3) and (32)
of section 3 of the Employee Retirement Income Security Act of 1974, 29
U.S.C. 1002; and
(vi) A person predominantly engaged in activities that are in the
business of banking or financial in nature, as defined in section 4(k)
of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k).
(2) For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and
the definition of a major swap participant in this section, the term
highly leveraged means the existence of a ratio of an entity's total
liabilities to equity in excess of 12 to 1 as measured at the close of
business on the last business day of the applicable fiscal quarter. For
[[Page 7984]]
this purpose, liabilities and equity should each be determined in
accordance with U.S. generally accepted accounting principles;
provided, however, that a person that is an employee benefit plan, as
defined in paragraphs (3) and (32) of section 3 of the Employee
Retirement Income Security Act of 1974, 29 U.S.C. 1002, may exclude
obligations to pay benefits to plan participants from the calculation
of liabilities and substitute the total value of plan assets for
equity.
* * * * *
Futures contracts on certain foreign sovereign debt. The term
security-based swap as used in section 3(a)(68) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), as incorporated in section
1a(42) of the Commodity Exchange Act, does not include an agreement,
contract, or transaction that is based on or references a qualifying
foreign futures contract (as defined in rule 3a12-8 under the
Securities Exchange Act of 1934 (17 CFR 240.3a12-8)) on the debt
securities of any one or more of the foreign governments enumerated in
rule 3a12-8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12-
8), provided that such agreement, contract, or transaction satisfies
the following conditions:
(1) The futures contract that the agreement, contract, or
transaction references or upon which the agreement, contract, or
transaction is based is a qualifying foreign futures contract that
satisfies the conditions of rule 3a12-8 under the Securities Exchange
Act of 1934 (17 CFR 240.3a12-8) applicable to qualifying foreign
futures contracts;
(2) The agreement, contract, or transaction is traded on or through
a board of trade (as defined in the Commodity Exchange Act);
(3) The debt securities upon which the qualifying foreign futures
contract is based or referenced and any security used to determine the
cash settlement amount pursuant to paragraph (4) of this definition
were not registered under the Securities Act of 1933 (15 U.S.C. 77 et
seq.) or the subject of any American depositary receipt registered
under the Securities Act of 1933;
(4) The agreement, contract, or transaction may only be cash
settled; and
(5) The agreement, contract or transaction is not entered into by
the issuer of the debt securities upon which the qualifying foreign
futures contract is based or referenced (including any security used to
determine the cash payment due on settlement of such agreement,
contract or transaction), an affiliate (as defined in the Securities
Act of 1933 (15 U.S.C. 77 et seq.) and the rules and regulations
thereunder) of the issuer, or an underwriter of such issuer's debt
securities.
Futures customer. This term means any person who uses a futures
commission merchant, introducing broker, commodity trading advisor, or
commodity pool operator as an agent in connection with trading in any
contract for the purchase of sale of a commodity for future delivery or
any option on such contract; Provided, however, an owner or holder of a
proprietary account as defined in this section shall not be deemed to
be a futures customer within the meaning of sections 4d(a) and 4d(b) of
the Act, the regulations in this chapter that implement sections 4d and
4f of the Act and Sec. 1.35, and such an owner or holder of such a
proprietary account shall otherwise be deemed to be a futures customer
within the meaning of the Act and Sec. Sec. 1.37 and 1.46 and all
other sections of these rules, regulations, and orders which do not
implement sections 4d and 4f of the Act.
* * * * *
Hedging or mitigating commercial risk. For purposes of section
1a(33) of the Act, 7 U.S.C. 1a(33) and the definition of a major swap
participant in this section, a swap position is held for the purpose of
hedging or mitigating commercial risk when:
(1) Such position:
(i) Is economically appropriate to the reduction of risks in the
conduct and management of a commercial enterprise (or of a majority-
owned affiliate of the enterprise), where the risks arise from:
(A) The potential change in the value of assets that a person owns,
produces, manufactures, processes, or merchandises or reasonably
anticipates owning, producing, manufacturing, processing, or
merchandising in the ordinary course of business of the enterprise;
(B) The potential change in the value of liabilities that a person
has incurred or reasonably anticipates incurring in the ordinary course
of business of the enterprise; or
(C) The potential change in the value of services that a person
provides, purchases, or reasonably anticipates providing or purchasing
in the ordinary course of business of the enterprise;
(D) The potential change in the value of assets, services, inputs,
products, or commodities that a person owns, produces, manufactures,
processes, merchandises, leases, or sells, or reasonably anticipates
owning, producing, manufacturing, processing, merchandising, leasing,
or selling in the ordinary course of business of the enterprise;
(E) Any potential change in value related to any of the foregoing
arising from interest, currency, or foreign exchange rate movements
associated with such assets, liabilities, services, inputs, products,
or commodities; or
(F) Any fluctuation in interest, currency, or foreign exchange rate
exposures arising from a person's current or anticipated assets or
liabilities; or
(ii) Qualifies as bona fide hedging for purposes of an exemption
from position limits under the Act; or
(iii) Qualifies for hedging treatment under:
(A) Financial Accounting Standards Board Accounting Standards
Codification Topic 815, Derivatives and Hedging (formerly known as
Statement No. 133); or
(B) Governmental Accounting Standards Board Statement 53,
Accounting and Financial Reporting for Derivative Instruments; and
(2) Such position is:
(i) Not held for a purpose that is in the nature of speculation,
investing or trading; and
(ii) Not held to hedge or mitigate the risk of another swap or
security-based swap position, unless that other position itself is held
for the purpose of hedging or mitigating commercial risk as defined by
this definition or Sec. 240.3a67-4 of this title.
* * * * *
Major swap participant--(1) In general. The term major swap
participant means any person:
(i) That is not a swap dealer; and
(ii)(A) That maintains a substantial position in swaps for any of
the major swap categories, excluding both positions held for hedging or
mitigating commercial risk, and positions maintained by any employee
benefit plan (or any contract held by such a plan) as defined in
paragraphs (3) and (32) of section 3 of the Employee Retirement Income
Security Act of 1974, 29 U.S.C. 1002, for the primary purpose of
hedging or mitigating any risk directly associated with the operation
of the plan;
(B) Whose outstanding swaps create substantial counterparty
exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial markets; or
(C) That is a financial entity that:
(1) Is highly leveraged relative to the amount of capital such
entity holds and that is not subject to capital
[[Page 7985]]
requirements established by an appropriate Federal banking agency (as
defined in section 1a(2) of the Act, 7 U.S.C. 1a(2)); and
(2) Maintains a substantial position in outstanding swaps in any
major swap category.
(2) Scope of designation. A person that is a major swap participant
shall be deemed to be a major swap participant with respect to each
swap it enters into, regardless of the category of the swap or the
person's activities in connection with the swap. However, if a person
makes an application to limit its designation as a major swap
participant to specified categories of swaps, the Commission shall
determine whether the person's designation as a major swap participant
shall be so limited. If the Commission grants such limited designation,
such limited designation major swap participant shall be deemed to be a
major swap participant with respect to each swap it enters into in the
swap category or categories for which it is so designated, regardless
of the person's activities in connection with such category or
categories of swaps. A person may make such application to limit its
designation at the same time as, or after, the person's initial
registration as a major swap participant.
(3) Timing requirements. A person that is not registered as a major
swap participant, but that meets the criteria in this rule to be a
major swap participant as a result of its swap activities in a fiscal
quarter, will not be deemed to be a major swap participant until the
earlier of the date on which it submits a complete application for
registration as a major swap participant pursuant to section 4s(a)(2)
of the Act, 7 U.S.C. 6s(a)(2), or two months after the end of that
quarter.
(4) Reevaluation period. Notwithstanding paragraph (3) of this
definition, if a person that is not registered as a major swap
participant meets the criteria in this rule to be a major swap
participant in a fiscal quarter, but does not exceed any applicable
threshold by more than twenty percent in that quarter:
(i) That person will not be deemed a major swap participant
pursuant to the timing requirements specified in paragraph (3) of this
definition; but
(ii) That person will be deemed a major swap participant pursuant
to the timing requirements specified in paragraph (3) of this
definition at the end of the next fiscal quarter if the person exceeds
any of the applicable daily average thresholds in that next fiscal
quarter.
(5) Termination of status. A person that is deemed to be a major
swap participant shall continue to be deemed a major swap participant
until such time that its swap activities do not exceed any of the daily
average thresholds set forth within this rule for four consecutive
fiscal quarters after the date on which the person becomes registered
as a major swap participant.
(6) Calculation of status. A person shall not be deemed to be a
``major swap participant,'' regardless of whether the criteria in
paragraph (1) of this definition otherwise would cause the person to be
a major swap participant, provided the person meets the conditions set
forth in paragraphs (6)(i), (ii) or (iii) of this definition.
(i) Caps on uncollateralized exposure and notional positions--(A)
Maximum potential uncollateralized exposure. The express terms of the
person's agreements or arrangements relating to swaps with its
counterparties at no time would permit the person to maintain a total
uncollateralized exposure of more than $100 million to all such
counterparties, including any exposure that may result from thresholds
or minimum transfer amounts established by credit support annexes or
similar arrangements; and
(B) Maximum notional amount of swap positions. The person does not
maintain swap positions in a notional amount of more than $2 billion in
any major category of swaps, or more than $4 billion in the aggregate
across all major categories; or
(ii) Caps on uncollateralized exposure plus monthly calculation--
(A) Maximum potential uncollateralized exposure. The express terms of
the person's agreements or arrangements relating to swaps with its
counterparties at no time would permit the person to maintain a total
uncollateralized exposure of more than $200 million to all such
counterparties (with regard to swaps and any other instruments by which
the person may have exposure to those counterparties), including any
exposure that may result from thresholds or minimum transfer amounts
established by credit support annexes or similar arrangements; and
(B) Calculation of positions. (1) At the end of each month, the
person performs the calculations prescribed by the definition in this
section of substantial position with regard to whether the aggregate
uncollateralized outward exposure plus aggregate potential outward
exposure as of that day constitute a ``substantial position'' in a
major category of swaps, or pose ``substantial counterparty exposure
that could have serious adverse effects on the financial stability of
the United States banking system or financial markets''; these
calculations shall disregard provisions of those rules that provide for
the analyses to be determined based on a daily average over a calendar
quarter; and
(2) Each such analysis produces thresholds of no more than:
(i) $1 billion in aggregate uncollateralized outward exposure plus
aggregate potential outward exposure in any major category of swaps; if
the person is subject to the definition in this section of substantial
position, by virtue of being a highly leveraged financial entity that
is not subject to capital requirements established by an appropriate
Federal banking agency, this analysis shall account for all of the
person's swap positions in that major category (without excluding
hedging positions), otherwise this analysis shall exclude the same
hedging and related positions that are excluded from consideration
pursuant to paragraph (1)(i) of the definition in this section of
substantial position; or
(ii) $2 billion in aggregate uncollateralized outward exposure plus
aggregate potential outward exposure (without any positions excluded
from the analysis) with regard to all of the person's swap positions.
(iii) Calculations based on certain information. (A)(1) At the end
of each month, the person's aggregate uncollateralized outward exposure
with respect to its swap positions in each major swap category is less
than $1.5 billion with respect to the rate swap category and less than
$500 million with respect to each of the other major swap categories;
and
(2) At the end of each month, the sum of the amount calculated
under paragraph (6)(iii)(A)(1) of this definition with respect to each
major swap category and the total notional principal amount of the
person's swap positions in each such major swap category, adjusted by
the multipliers set forth in paragraph (3)(ii)(1) of the definition in
this section of substantial position on a position-by-position basis
reflecting the type of swap, is less than $3 billion with respect to
the rate swap category and less than $1 billion with respect to each of
the other major swap categories; or
(B)(1) At the end of each month, the person's aggregate
uncollateralized outward exposure with respect to its swap positions
across all major swap categories is less than $500 million; and
(2) The sum of the amount calculated under paragraph (6)(iii)(B)(1)
of this definition and the product of the total effective notional
principal amount of the person's swap positions in all major swap
categories multiplied by 0.15 is less than $1 billion.
[[Page 7986]]
(C) For purposes of the calculations set forth in this paragraph
(6)(iii) of the major swap participant definition:
(1) The person's aggregate uncollateralized outward exposure for
positions held with swap dealers shall be equal to such exposure
reported on the most recent reports of such exposure received from such
swap dealers; and
(2) The person's aggregate uncollateralized outward exposure for
positions that are not reflected in any report of exposure from a swap
dealer (including all swap positions it holds with persons other than
swap dealers) shall be calculated in accordance with paragraph (2) of
the definition in this section of substantial position.
(iv) For purposes of the calculations set forth in paragraph (6) of
this definition, the person shall use the effective notional amount of
a position rather than the stated notional amount of the position if
the stated notional amount is leveraged or enhanced by the structure of
the position.
(v) No presumption shall arise that a person is required to perform
the calculations needed to determine if it is a major swap participant,
solely by reason that the person does not meet the conditions specified
in paragraph (6)(i), (ii) or (iii) of this definition.
(7) Exclusions. A person who is registered as a derivatives
clearing organization with the Commission pursuant to section 5b of the
Act and regulations thereunder, shall not be deemed to be a major swap
participant, regardless of whether the criteria in this definition
otherwise would cause the person to be a major swap participant.
* * * * *
Meaning of ``issuers of securities in a narrow-based security
index'' as used in the definition of ``security-based swap'' as applied
to index credit default swaps. (1) Notwithstanding paragraph (1) of the
definition in this section of narrow-based security index as used in
the definition of security-based swap, and solely for purposes of
determining whether a credit default swap is a security-based swap
under the definition of ``security-based swap'' in section
3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(68)(A)(ii)(III)), as incorporated in section 1a(42) of the
Commodity Exchange Act, the term issuers of securities in a narrow-
based security index means issuers of securities included in an index
(including an index referencing loan borrowers or loans of such
borrowers) in which:
(i)(A) There are nine or fewer non-affiliated issuers of securities
that are reference entities included in the index, provided that an
issuer of securities shall not be deemed a reference entity included in
the index for purposes of this definition unless:
(1) A credit event with respect to such reference entity would
result in a payment by the credit protection seller to the credit
protection buyer under the credit default swap based on the related
notional amount allocated to such reference entity; or
(2) The fact of such credit event or the calculation in accordance
with paragraph (1)(i)(A)(1) of this definition of the amount owed with
respect to such credit event is taken into account in determining
whether to make any future payments under the credit default swap with
respect to any future credit events;
(B) The effective notional amount allocated to any reference entity
included in the index comprises more than 30 percent of the index's
weighting;
(C) The effective notional amount allocated to any five non-
affiliated reference entities included in the index comprises more than
60 percent of the index's weighting; or
(D) Except as provided in paragraph (2) of this definition, for
each reference entity included in the index, none of the criteria in
paragraphs (1)(i)(D)(1) through (8) of this definition is satisfied:
(1) The reference entity included in the index is required to file
reports pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
(2) The reference entity included in the index is eligible to rely
on the exemption provided in rule 12g3-2(b) under the Securities
Exchange Act of 1934 (17 CFR 240.12g3-2(b));
(3) The reference entity included in the index has a worldwide
market value of its outstanding common equity held by non-affiliates of
$700 million or more;
(4) The reference entity included in the index (other than a
reference entity included in the index that is an issuing entity of an
asset-backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) has outstanding notes,
bonds, debentures, loans, or evidences of indebtedness (other than
revolving credit facilities) having a total remaining principal amount
of at least $1 billion;
(5) The reference entity included in the index is the issuer of an
exempted security as defined in section 3(a)(12) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal
security as defined in section 3(a)(29) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(29)));
(6) The reference entity included in the index is a government of a
foreign country or a political subdivision of a foreign country;
(7) If the reference entity included in the index is an issuing
entity of an asset-backed security as defined in section 3(a)(77) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), such asset-
backed security was issued in a transaction registered under the
Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly
available distribution reports; and
(8) For a credit default swap entered into solely between eligible
contract participants as defined in section 1a(18) of the Commodity
Exchange Act:
(i) The reference entity included in the index (other than a
reference entity included in the index that is an issuing entity of an
asset-backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) makes available to the
public or otherwise makes available to such eligible contract
participant information about the reference entity included in the
index pursuant to rule 144A(d)(4) under the Securities Act of 1933 (17
CFR 230.144A(d)(4));
(ii) Financial information about the reference entity included in
the index (other than a reference entity included in the index that is
an issuing entity of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))
is otherwise publicly available; or
(iii) In the case of a reference entity included in the index that
is an issuing entity of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)),
information of the type and level included in publicly available
distribution reports for similar asset-backed securities is publicly
available about both the reference entity included in the index and
such asset-backed security; and
(ii)(A) The index is not composed solely of reference entities that
are issuers of exempted securities as defined in section 3(a)(12) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in
effect on the date of enactment of the Futures Trading Act of 1982
(other than any municipal security as defined in section 3(a)(29) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in
effect on the date of enactment of the Futures Trading Act of 1982; and
(B) Without taking into account any portion of the index composed
of
[[Page 7987]]
reference entities that are issuers of exempted securities as defined
in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(12)), as in effect on the date of enactment of the Futures
Trading Act of 1982 (other than any municipal security as defined in
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(29))), the remaining portion of the index would be within the
term issuer of securities in a narrow-based security index under (1)(i)
of this definition.
(2) Paragraph (1)(i)(D) of this definition will not apply with
respect to a reference entity included in the index if:
(i) The effective notional amounts allocated to such reference
entity comprise less than five percent of the index's weighting; and
(ii) The effective notional amounts allocated to reference entities
included in the index that satisfy paragraph (1)(i)(D) of this
definition comprise at least 80 percent of the index's weighting.
(3) For purposes of this definition:
(i) A reference entity included in the index is affiliated with
another reference entity included in the index (for purposes of
paragraph (3)(iv) of this definition) or another entity (for purposes
of paragraph (3)(v) of this definition) if it controls, is controlled
by, or is under common control with, that other reference entity
included in the index or other entity, as applicable; provided that
each reference entity included in the index that is an issuing entity
of an asset-backed security as defined in section 3(a)(77) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be
considered affiliated with any other reference entity included in the
index or any other entity that is an issuing entity of an asset-backed
security.
(ii) Control for purposes of this section means ownership of more
than 50 percent of the equity of a reference entity included in the
index (for purposes of paragraph (3)(iv) of this definition) or another
entity (for purposes of paragraph (3)(v) of this definition), or the
ability to direct the voting of more than 50 percent of the voting
equity of a reference entity included in the index (for purposes of
paragraph (3)(iv) of this definition) or another entity (for purposes
of paragraph (3)(v) of this definition).
(iii) In identifying a reference entity included in the index for
purposes of this section, the term reference entity includes:
(A) An issuer of securities;
(B) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)); and
(C) An issuer of securities that is a borrower with respect to any
loan identified in an index of borrowers or loans.
(iv) For purposes of calculating the thresholds in paragraphs
(1)(i)(A) through (1)(i)(C) of this definition, the term reference
entity included in the index includes a single reference entity
included in the index or a group of affiliated reference entities
included in the index as determined in accordance with paragraph (3)(i)
of this definition (with each reference entity included in the index
that is an issuing entity of an asset-backed security as defined in
section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a
separate reference entity included in the index).
(v) For purposes of determining whether one of the criterion in
either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition
or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition
is met, the term reference entity included in the index includes a
single reference entity included in the index or a group of affiliated
entities as determined in accordance with paragraph (3)(i) of this
definition (with each issuing entity of an asset-backed security as
defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being
considered a separate entity).
Meaning of ``narrow-based security index'' used in the definition
of ``security-based swap'' as applied to index credit default swaps.
(1) Notwithstanding paragraph (1) of the definition in this section of
narrow-based security index as used in the definition of ``security-
based swap,'' and solely for purposes of determining whether a credit
default swap is a security-based swap under the definition of
``security-based swap'' in section 3(a)(68)(A)(ii)(I) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(I)), as incorporated
in section 1a(42) of the Commodity Exchange Act, the term narrow-based
security index means an index in which:
(i)(A) The index is composed of nine or fewer securities or
securities that are issued by nine or fewer non-affiliated issuers,
provided that a security shall not be deemed a component of the index
for purposes of this section unless:
(1) A credit event with respect to the issuer of such security or a
credit event with respect to such security would result in a payment by
the credit protection seller to the credit protection buyer under the
credit default swap based on the related notional amount allocated to
such security; or
(2) The fact of such credit event or the calculation in accordance
with paragraph (1)(i)(A)(1) of this definition of the amount owed with
respect to such credit event is taken into account in determining
whether to make any future payments under the credit default swap with
respect to any future credit events;
(B) The effective notional amount allocated to the securities of
any issuer included in the index comprises more than 30 percent of the
index's weighting;
(C) The effective notional amount allocated to the securities of
any five non-affiliated issuers included in the index comprises more
than 60 percent of the index's weighting; or
(D) Except as provided in paragraph (2) of this definition, for
each security included in the index, none of the criteria in paragraphs
(1)(i)(D)(1) through (8) is satisfied if:
(1) The issuer of the security included in the index is required to
file reports pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
(2) The issuer of the security included in the index is eligible to
rely on the exemption provided in rule 12g3-2(b) under the Securities
Exchange Act of 1934 (17 CFR 240.12g3-2(b));
(3) The issuer of the security included in the index has a
worldwide market value of its outstanding common equity held by non-
affiliates of $700 million or more;
(4) The issuer of the security included in the index (other than an
issuer of the security that is an issuing entity of an asset-backed
security as defined in section 3(a)(77) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds,
debentures, loans or evidences of indebtedness (other than revolving
credit facilities) having a total remaining principal amount of at
least $1 billion;
(5) The security included in the index is an exempted security as
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(12)) (other than any municipal security as defined in
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(29)));
(6) The issuer of the security included in the index is a
government of a foreign country or a political subdivision of a foreign
country;
(7) If the security included in the index is an asset-backed
security as
[[Page 7988]]
defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(77)), the security was issued in a transaction registered
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has
publicly available distribution reports; and
(8) For a credit default swap entered into solely between eligible
contract participants as defined in section 1a(18) of the Commodity
Exchange Act:
(i) The issuer of the security included in the index (other than an
issuer of the security that is an issuing entity of an asset-backed
security as defined in section 3(a)(77) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(77))) makes available to the public or
otherwise makes available to such eligible contract participant
information about such issuer pursuant to rule 144A(d)(4) of the
Securities Act of 1933 (17 CFR 230.144A(d)(4));
(ii) Financial information about the issuer of the security
included in the index (other than an issuer of the security that is an
issuing entity of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)))
is otherwise publicly available; or
(iii) In the case of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)),
information of the type and level included in public distribution
reports for similar asset-backed securities is publicly available about
both the issuing entity and such asset-backed security; and
(ii)(A) The index is not composed solely of exempted securities as
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(12)), as in effect on the date of enactment of the
Futures Trading Act of 1982 (other than any municipal security as
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(29))), as in effect on the date of enactment of the
Futures Trading Act of 1982; and
(B) Without taking into account any portion of the index composed
of exempted securities as defined in section 3(a)(12) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date
of enactment of the Futures Trading Act of 1982 (other than any
municipal security as defined in section 3(a)(29) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of
the index would be within the term narrow-based security index under
paragraph (1)(i) of this definition.
(2) Paragraph (1)(i)(D) of this definition will not apply with
respect to securities of an issuer included in the index if:
(i) The effective notional amounts allocated to all securities of
such issuer included in the index comprise less than five percent of
the index's weighting; and
(ii) The securities that satisfy paragraph (1)(i)(D) of this
definition comprise at least 80 percent of the index's weighting.
(3) For purposes of this definition:
(i) An issuer of securities included in the index is affiliated
with another issuer of securities included in the index (for purposes
of paragraph (3)(iv) of this definition) or another entity (for
purposes of paragraph (3)(v) of this definition) if it controls, is
controlled by, or is under common control with, that other issuer or
other entity, as applicable; provided that each issuer of securities
included in the index that is an issuing entity of an asset-backed
security as defined in section 3(a)(77) of the Securities Exchange Act
of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with
any other issuer of securities included in the index or any other
entity that is an issuing entity of an asset-backed security.
(ii) Control for purposes of this section means ownership of more
than 50 percent of the equity of an issuer of securities included in
the index (for purposes of paragraph (3)(iv) of this definition) or
another entity (for purposes of paragraph (3)(v) of this definition),
or the ability to direct the voting of more than 50 percent of the
voting equity an issuer of securities included in the index (for
purposes of paragraph (3)(iv) of this definition) or another entity
(for purposes of paragraph (3)(v) of this definition).
(iii) In identifying an issuer of securities included in the index
for purposes of this section, the term issuer includes:
(A) An issuer of securities; and
(B) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)).
(iv) For purposes of calculating the thresholds in paragraphs
(1)(i)(A) through (1)(i)(C) of the definition of the meaning of issuers
of securities in a narrow-based security index as used in the
definition of security-based swap as applied to index credit default
swaps, the term issuer of the security included in the index or a group
of affiliated issuers of securities included in the index as determined
in accordance with paragraph (3)(i) of this definition (with each
issuer of securities included in the index that is an issuing entity of
an asset-backed security as defined in section 3(a)(77) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) being considered
a separate issuer of securities included in the index).
(v) For purposes of determining whether one of the criterion in
either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition
or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition
is met, the term issuer of the security included in the index includes
a single issuer of securities included in the index or a group of
affiliated entities as determined in accordance with paragraph (3)(i)
of this definition (with each issuing entity of an asset-backed
security as defined in section 3(a)(77) of the Act (15 U.S.C.
78c(a)(77)) being considered a separate entity).
* * * * *
Narrow-based security index as used in the definition of
``security-based swap''--(1) In general. Except as otherwise provided
in the definitions in this section for meaning of issuers of securities
in a narrow-based security index as used in the definition of security-
based swap as applied to index credit default swaps and meaning of
narrow-based security index as used in the definition of security-based
swap as applied to index credit default swaps, for purposes of section
1a(42) of the Commodity Exchange Act, the term narrow-based security
index has the meaning set forth in section 1a(35) of the Commodity
Exchange Act, and the rules, regulations and orders of the Commission
thereunder.
(2) Tolerance period for swaps traded on designated contract
markets, swap execution facilities, and foreign boards of trade.
Notwithstanding paragraph (1) of this definition, solely for purposes
of swaps traded on or subject to the rules of a designated contract
market, swap execution facility, or foreign board of trade, a security
index underlying such swaps shall not be considered a narrow-based
security index if:
(i)(A) A swap on the index is traded on or subject to the rules of
a designated contract market, swap execution facility, or foreign board
of trade for at least 30 days as a swap on an index that was not a
narrow-based security index; or
(B) Such index was not a narrow-based security index during every
trading day of the six full calendar months preceding a date no earlier
than 30 days prior to the commencement of trading of a swap on such
index on a market described in paragraph (2)(i)(A) of this definition;
and
(ii) The index has been a narrow-based security index for no more
than
[[Page 7989]]
45 business days over three consecutive calendar months.
(3) Tolerance period for security-based swaps traded on national
securities exchanges or security-based swap execution facilities.
Notwithstanding paragraph (1) of this definition, solely for purposes
of security-based swaps traded on a national securities exchange or
security-based swap execution facility, a security index underlying
such security-based swaps shall be considered a narrow-based security
index if:
(i)(A) A security-based swap on the index is traded on a national
securities exchange or security-based swap execution facility for at
least 30 days as a security-based swap on a narrow-based security
index; or
(B) Such index was a narrow-based security index during every
trading day of the six full calendar months preceding a date no earlier
than 30 days prior to the commencement of trading of a security-based
swap on such index on a market described in paragraph (3)(i)(A) of this
definition; and
(ii) The index has been a security index that is not a narrow-based
security index for no more than 45 business days over three consecutive
calendar months.
(4) Grace period. (i) Solely with respect to a swap that is traded
on or subject to the rules of a designated contract market, swap
execution facility, or foreign board of trade, an index that becomes a
narrow-based security index under paragraph (2) of this definition
solely because it was a narrow-based security index for more than 45
business days over three consecutive calendar months shall not be a
narrow-based security index for the following three calendar months.
(ii) Solely with respect to a security-based swap that is traded on
a national securities exchange or security-based swap execution
facility, an index that becomes a security index that is not a narrow-
based security index under paragraph (3) of this definition solely
because it was not a narrow-based security index for more than 45
business days over three consecutive calendar months shall be a narrow-
based security index for the following three calendar months.
* * * * *
Substantial counterparty exposure--(1) In general. For purposes of
section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this
section of major swap participant, the term substantial counterparty
exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial markets
means a swap position that satisfies either of the following
thresholds:
(i) $5 billion in daily average aggregate uncollateralized outward
exposure; or
(ii) $8 billion in:
(A) Daily average aggregate uncollateralized outward exposure plus
(B) Daily average aggregate potential outward exposure.
(2) Calculation methodology. For these purposes, the terms daily
average aggregate uncollateralized outward exposure and daily average
aggregate potential outward exposure shall be calculated the same way
as is prescribed in the definition in this section of substantial
position, except that these amounts shall be calculated by reference to
all of the person's swap positions, rather than by reference to a
specific major swap category.
Substantial position--(1) In general. For purposes of section
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this section
of major swap participant, the term ``substantial position'' means swap
positions that equal or exceed any of the following thresholds in the
specified major category of swaps:
(i) For rate swaps:
(A) $3 billion in daily average aggregate uncollateralized outward
exposure; or
(B) $6 billion in:
(1) Daily average aggregate uncollateralized outward exposure plus
(2) Daily average aggregate potential outward exposure.
(ii) For credit swaps:
(A) $1 billion in daily average aggregate uncollateralized outward
exposure; or
(B) $2 billion in:
(1) Daily average aggregate uncollateralized outward exposure plus
(2) Daily average aggregate potential outward exposure.
(iii) For equity swaps:
(A) $1 billion in daily average aggregate uncollateralized outward
exposure; or
(B) $2 billion in:
(1) Daily average aggregate uncollateralized outward exposure plus
(2) Daily average aggregate potential outward exposure.
(iv) For other commodity swaps:
(A) $1 billion in daily average aggregate uncollateralized outward
exposure; or
(B) $2 billion in:
(1) Daily average aggregate uncollateralized outward exposure plus
(2) Daily average aggregate potential outward exposure.
(2) Aggregate uncollateralized outward exposure--(i) In general.
Aggregate uncollateralized outward exposure in general means the sum of
the current exposure, obtained by marking-to-market using industry
standard practices, of each of the person's swap positions with
negative value in a major swap category, less the value of the
collateral the person has posted in connection with those positions.
(ii) Calculation of aggregate uncollateralized outward exposure. In
calculating this amount the person shall, with respect to each of its
swap counterparties in a given major swap category, determine the
dollar value of the aggregate current exposure arising from each of its
swap positions with negative value (subject to the netting provisions
described below) in that major category by marking-to-market using
industry standard practices; and deduct from that dollar amount the
aggregate value of the collateral the person has posted with respect to
the swap positions. The aggregate uncollateralized outward exposure
shall be the sum of those uncollateralized amounts across all of the
person's swap counterparties in the applicable major category.
(iii) Relevance of netting agreements. (A) If the person has one or
more master netting agreement in effect with a particular counterparty,
the person may measure the current exposure arising from its swaps in
any major category on a net basis, applying the terms of those
agreements. Calculation of net current exposure may take into account
offsetting positions entered into with that particular counterparty
involving swaps (in any swap category) as well as security-based swaps
and securities financing transactions (consisting of securities lending
and borrowing, securities margin lending and repurchase and reverse
repurchase agreements), and other financial instruments that are
subject to netting offsets for purposes of applicable bankruptcy law,
to the extent these are consistent with the offsets permitted by the
master netting agreements.
(B) Such adjustments may not take into account any offset
associated with positions that the person has with separate
counterparties.
(iv) Allocation of uncollateralized outward exposure. If a person
calculates current exposure with a particular counterparty on a net
basis, as provided by paragraph (2)(iii) of this definition, the
portion of that current exposure that should be attributed to each
``major'' category of swaps for purposes of the substantial position
analysis should be calculated according to the formula:
[[Page 7990]]
[GRAPHIC] [TIFF OMITTED] TR23FE18.006
Where:
ES(MC) equals the amount of aggregate current exposure
attributable to the entity's swap positions in the ``major'' swap
category at issue; Enet total equals the entity's
aggregate current exposure to the counterparty at issue, after
accounting for the netting of positions and the posting of
collateral; OTMS(MC) equals the exposure associated with
the entity's out-of-the-money positions in swaps in the ``major''
category at issue, subject to those netting arrangements; and
OTMS(O) equals the exposure associated with the entity's
out-of-the-money positions in the other ``major'' categories of
swaps, subject to those netting arrangements; and
OTMnon-S equals the exposure associated with the entity's
out-of-the-money positions associated with instruments, other than
swaps, that are subject to those netting arrangements.
(3) Aggregate potential outward exposure--(i) In general. Aggregate
potential outward exposure in any major swap category means the sum of:
(A) The aggregate potential outward exposure for each of the
person's swap positions in a major swap category that are not subject
to daily mark-to-market margining and are not cleared by a registered
or exempt clearing agency or derivatives clearing organization, as
calculated in accordance with paragraph (3)(ii) of this definition; and
(B) The aggregate potential outward exposure for each of the
person's swap positions in such major swap category that are either
subject to daily mark-to-market margining or are cleared by a
registered or exempt clearing agency or derivatives clearing
organization, as calculated in accordance with paragraph (3)(iii) of
this definition.
(ii) Calculation of potential outward exposure for swaps that are
not subject to daily mark-to-market margining and are not cleared by a
registered or exempt clearing agency or derivatives clearing
organization--(A) In general. (1) For positions in swaps that are not
subject to daily mark-to-market margining and are not cleared by a
registered or exempt clearing agency or a derivatives clearing
organization, potential outward exposure equals the total notional
principal amount of those positions, multiplied by the following
factors on a position-by-position basis reflecting the type of swap.
For any swap that does not appropriately fall within any of the
specified categories, the ``other commodities'' conversion factors set
forth in the following Table 1 are to be used. If a swap is structured
such that on specified dates any outstanding exposure is settled and
the terms are reset so that the market value of the swap is zero, the
remaining maturity equals the time until the next reset date.
[GRAPHIC] [TIFF OMITTED] TR23FE18.007
(2) Use of effective notional amounts. If the stated notional
amount on a position is leveraged or enhanced by the structure of the
position, the calculation in paragraph (3)(ii)(A)(1) of this definition
shall be based on the effective notional amount of the position rather
than on the stated notional amount.
(3) Exclusion of certain positions. The calculation in paragraph
(3)(ii)(A)(1) of this definition shall exclude:
(i) Positions that constitute the purchase of an option, if the
purchaser has no additional payment obligations under the position;
(ii) Other positions for which the person has prepaid or otherwise
satisfied all of its payment obligations; and
(iii) Positions for which, pursuant to law or a regulatory
requirement, the person has assigned an amount of cash or U.S. Treasury
securities that is sufficient at all times to pay the person's maximum
possible liability under the position, and the person may not use that
cash or those Treasury securities for other purposes.
(4) Adjustment for certain positions. Notwithstanding paragraph
(3)(ii)(A)(1) of this definition, the potential outward exposure
associated with a position by which a person buys credit protection
using a credit default swap or index credit default swap, or associated
with a position by which a person purchases an option for which the
person retains additional payment obligations under the position, is
capped at the net present value of the unpaid premiums.
(B) Adjustment for netting agreements. Notwithstanding paragraph
(3)(ii)(A) of this definition, for positions subject to master netting
agreements the potential outward exposure associated with the person's
swaps with each counterparty equals a weighted average of the potential
outward exposure for the person's swaps with that counterparty as
calculated under paragraph (3)(ii)(A) of this definition, and that
amount reduced by the ratio of net current exposure to gross current
exposure, consistent with the following equation as calculated on a
counterparty-by-counterparty basis:
PNet = 0.4 * PGross + 0.6 * NGR *
PGross
Where:
PNet is the potential outward exposure, adjusted for
bilateral netting, of the person's swaps with a particular
counterparty; PGross is the potential outward exposure
without adjustment for bilateral netting as calculated pursuant to
paragraph (3)(ii)(A) of this definition; and NGR is the ratio of the
current exposure arising from its swaps in the major category as
calculated on a net basis according to paragraphs (2)(iii) and (iv)
of this definition, divided by the current exposure arising from its
swaps in the major category as calculated in the absence of those
netting procedures.
[[Page 7991]]
(iii) Calculation of potential outward exposure for swaps that are
either subject to daily mark-to-market margining or are cleared by a
registered or exempt clearing agency or derivatives clearing
organization. For positions in swaps that are subject to daily mark-to-
market margining or that are cleared by a registered or exempt clearing
agency or derivatives clearing organization:
(A) Potential outward exposure equals the potential exposure that
would be attributed to such positions using the procedures in paragraph
(3)(ii) of this definition multiplied by:
(1) 0.1, in the case of positions cleared by a registered or exempt
clearing agency or derivatives clearing organization; or
(2) 0.2, in the case of positions that are subject to daily mark-
to-market margining but that are not cleared by a registered or exempt
clearing agency or derivatives clearing organization.
(B) Solely for purposes of calculating potential outward exposure:
(1) A swap shall be considered to be subject to daily mark-to-
market margining if, and for so long as, the counterparties follow the
daily practice of exchanging collateral to reflect changes in the
current exposure arising from the swap (after taking into account any
other financial positions addressed by a netting agreement between the
counterparties).
(2) If the person is permitted by agreement to maintain a threshold
for which it is not required to post collateral, the position still
will be considered to be subject to daily mark-to-market margining for
purposes of calculating potential outward exposure, but the total
amount of that threshold (regardless of the actual exposure at any
time), less any initial margin posted up to the amount of that
threshold, shall be added to the person's aggregate uncollateralized
outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B)
or (iv)(B) of this definition, as applicable.
(3) If the minimum transfer amount under the agreement is in excess
of $1 million, the position still will be considered to be subject to
daily mark-to-market margining for purposes of calculating potential
outward exposure, but the entirety of the minimum transfer amount shall
be added to the person's aggregate uncollateralized outward exposure
for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of
this definition, as applicable.
(4) A person may, at its discretion, calculate the potential
outward exposure of positions in swaps that are subject to daily mark-
to-market margining in accordance with paragraph (3)(ii) of this
definition in lieu of calculating the potential outward exposure of
such swap positions in accordance with paragraph (3)(iii) of this
definition.
(4) Calculation of daily average. Measures of daily average
aggregate uncollateralized outward exposure and daily average aggregate
potential outward exposure shall equal the arithmetic mean of the
applicable measure of exposure at the close of each business day,
beginning the first business day of each calendar quarter and
continuing through the last business day of that quarter.
(5) Inter-affiliate activities. In calculating its aggregate
uncollateralized outward exposure and its aggregate potential outward
exposure, the person shall not consider its swap positions with
counterparties that are majority-owned affiliates. For these purposes
the counterparties to a swap are majority-owned affiliates if one
counterparty directly or indirectly owns a majority interest in the
other, or if a third party directly or indirectly owns a majority
interest in both counterparties to the swap, where ``majority
interest'' is the right to vote or direct the vote of a majority of a
class of voting securities of an entity, the power to sell or direct
the sale of a majority of a class of voting securities of an entity, or
the right to receive upon dissolution or the contribution of a majority
of the capital of a partnership.
Swap. (1) In general. The term swap has the meaning set forth in
section 1a(47) of the Commodity Exchange Act.
(2) Inclusion of particular products. (i) The term swap includes,
without limiting the meaning set forth in section 1a(47) of the
Commodity Exchange Act, the following agreements, contracts, and
transactions:
(A) A cross-currency swap;
(B) A currency option, foreign currency option, foreign exchange
option and foreign exchange rate option;
(C) A foreign exchange forward;
(D) A foreign exchange swap;
(E) A forward rate agreement; and
(F) A non-deliverable forward involving foreign exchange.
(ii) The term swap does not include an agreement, contract, or
transaction described in paragraph (2)(i) of this definition that is
otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.
(3) Foreign exchange forwards and foreign exchange swaps.
Notwithstanding paragraph (2) of this definition:
(i) A foreign exchange forward or a foreign exchange swap shall not
be considered a swap if the Secretary of the Treasury makes a
determination described in section 1a(47)(E)(i) of the Commodity
Exchange Act.
(ii) Notwithstanding paragraph (3)(i) of this definition:
(A) The reporting requirements set forth in section 4r of the
Commodity Exchange Act and regulations promulgated thereunder shall
apply to a foreign exchange forward or foreign exchange swap; and
(B) The business conduct standards set forth in section 4s(h) of
the Commodity Exchange Act and regulations promulgated thereunder shall
apply to a swap dealer or major swap participant that is a party to a
foreign exchange forward or foreign exchange swap.
(iii) For purposes of section 1a(47)(E) of the Commodity Exchange
Act and this definition, the term foreign exchange forward has the
meaning set forth in section 1a(24) of the Commodity Exchange Act.
(iv) For purposes of section 1a(47)(E) of the Commodity Exchange
Act and this definition, the term foreign exchange swap has the meaning
set forth in section 1a(25) of the Commodity Exchange Act.
(v) For purposes of sections 1a(24) and 1a(25) of the Commodity
Exchange Act and this definition, the following transactions are not
foreign exchange forwards or foreign exchange swaps:
(A) A currency swap or a cross-currency swap;
(B) A currency option, foreign currency option, foreign exchange
option, or foreign exchange rate option; and
(C) A non-deliverable forward involving foreign exchange.
(4) Insurance. (i) This paragraph is a non-exclusive safe harbor.
The terms swap as used in section 1a(47) of the Commodity Exchange Act
and security-based swap as used in section 1a(42) of the Commodity
Exchange Act do not include an agreement, contract, or transaction
that:
(A) By its terms or by law, as a condition of performance on the
agreement, contract, or transaction:
(1) Requires the beneficiary of the agreement, contract, or
transaction to have an insurable interest that is the subject of the
agreement, contract, or transaction and thereby carry the risk of loss
with respect to that interest continuously throughout the duration of
the agreement, contract, or transaction;
(2) Requires that loss to occur and to be proved, and that any
payment or indemnification therefor be limited to the value of the
insurable interest;
[[Page 7992]]
(3) Is not traded, separately from the insured interest, on an
organized market or over-the-counter; and
(4) With respect to financial guaranty insurance only, in the event
of payment default or insolvency of the obligor, any acceleration of
payments under the policy is at the sole discretion of the insurer; and
(B) Is provided:
(1)(i) By a person that is subject to supervision by the insurance
commissioner (or similar official or agency) of any State or by the
United States or an agency or instrumentality thereof; and
(ii) Such agreement, contract, or transaction is regulated as
insurance under applicable State law or the laws of the United States;
(2)(i) Directly or indirectly by the United States, any State or
any of their respective agencies or instrumentalities; or
(ii) Pursuant to a statutorily authorized program thereof; or
(3) In the case of reinsurance only, by a person to another person
that satisfies the conditions set forth in paragraph (4)(i)(B) of this
definition, provided that:
(i) Such person is not prohibited by applicable State law or the
laws of the United States from offering such agreement, contract, or
transaction to such person that satisfies the conditions set forth in
paragraph (4)(i)(B) of this definition;
(ii) The agreement, contract, or transaction to be reinsured
satisfies the conditions set forth in paragraph (4)(i)(A) or paragraph
(4)(i)(C) of this definition; and
(iii) Except as otherwise permitted under applicable State law, the
total amount reimbursable by all reinsurers for such agreement,
contract, or transaction may not exceed the claims or losses paid by
the person writing the risk being ceded or transferred by such person;
or
(4) In the case of non-admitted insurance, by a person who:
(i) Is located outside of the United States and listed on the
Quarterly Listing of Alien Insurers as maintained by the International
Insurers Department of the National Association of Insurance
Commissioners; or
(ii) Meets the eligibility criteria for non-admitted insurers under
applicable State law; or
(C) Is provided in accordance with the conditions set forth in
paragraph (4)(i)(B) of this definition and is one of the following
types of products:
(1) Surety bond;
(2) Fidelity bond;
(3) Life insurance;
(4) Health insurance;
(5) Long term care insurance;
(6) Title insurance;
(7) Property and casualty insurance;
(8) Annuity;
(9) Disability insurance;
(10) Insurance against default on individual residential mortgages;
and
(11) Reinsurance of any of the foregoing products identified in
paragraphs (4)(i)(C)(1) through (10) of this definition; or
(ii) The terms swap as used in section 1a(47) of the Commodity
Exchange Act and security-based swap as used in section 1a(42) of the
Commodity Exchange Act do not include an agreement, contract, or
transaction that was entered into on or before the effective date of
paragraph (4) of this definition, and that, at such time that it was
entered into, was provided in accordance with the conditions set forth
in paragraph (4)(i)(B) of this definition.
(5) State. For purposes of paragraph (4) of this definition, the
term State means any state of the United States, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands, or any other possession
of the United States.
(6) Anti-Evasion. (i) An agreement, contract, or transaction that
is willfully structured to evade any provision of Subtitle A of the
Wall Street Transparency and Accountability Act of 2010, including any
amendments made to the Commodity Exchange Act thereby (Subtitle A),
shall be deemed a swap for purposes of Subtitle A and the rules,
regulations, and orders of the Commission promulgated thereunder.
(ii) An interest rate swap or currency swap, including but not
limited to a transaction identified in paragraph (3)(v) of this
definition, that is willfully structured as a foreign exchange forward
or foreign exchange swap to evade any provision of Subtitle A shall be
deemed a swap for purposes of Subtitle A and the rules, regulations,
and orders of the Commission promulgated thereunder.
(iii) An agreement, contract, or transaction of a bank that is not
under the regulatory jurisdiction of an appropriate Federal banking
agency (as defined in section 1a(2) of the Commodity Exchange Act),
where the agreement, contract, or transaction is willfully structured
as an identified banking product (as defined in section 402 of the
Legal Certainty for Bank Products Act of 2000) to evade the provisions
of the Commodity Exchange Act, shall be deemed a swap for purposes of
the Commodity Exchange Act and the rules, regulations, and orders of
the Commission promulgated thereunder.
(iv) The form, label, and written documentation of an agreement,
contract, or transaction shall not be dispositive in determining
whether the agreement, contract, or transaction has been willfully
structured to evade as provided in paragraphs (6)(i) through (6)(iii)
of this definition.
(v) An agreement, contract, or transaction that has been willfully
structured to evade as provided in paragraphs (6)(i) through (6)(iii)
of this definition shall be considered in determining whether a person
that so willfully structured to evade is a swap dealer or major swap
participant.
(vi) Notwithstanding the foregoing, no agreement, contract, or
transaction structured as a security (including a security-based swap)
under the securities laws (as defined in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed
a swap pursuant to this paragraph (6) or shall be considered for
purposes of paragraph (6)(v) of this definition.
* * * * *
Swap dealer. (1) In general. The term swap dealer means any person
who:
(i) Holds itself out as a dealer in swaps;
(ii) Makes a market in swaps;
(iii) Regularly enters into swaps with counterparties as an
ordinary course of business for its own account; or
(iv) Engages in any activity causing it to be commonly known in the
trade as a dealer or market maker in swaps.
(2) Exception. The term swap dealer does not include a person that
enters into swaps for such person's own account, either individually or
in a fiduciary capacity, but not as a part of regular business.
(3) Scope of designation. A person who is a swap dealer shall be
deemed to be a swap dealer with respect to each swap it enters into,
regardless of the category of the swap or the person's activities in
connection with the swap. However, if a person makes an application to
limit its designation as a swap dealer to specified categories of swaps
or specified activities of the person in connection with swaps, the
Commission shall determine whether the person's designation as a swap
dealer shall be so limited. If the Commission grants such limited
designation, such limited designation swap dealer shall be deemed to be
a swap dealer with respect to each swap it enters into in the swap
category or categories for which it is so designated, regardless of the
person's activities in connection with such category or categories of
swaps. A person may make such application to limit the categories of
swaps or activities of the person that
[[Page 7993]]
are subject to its swap dealer designation at the same time as, or
after, the person's initial registration as a swap dealer.
(4) De minimis exception--(i)(A) In general. Except as provided in
paragraph (4)(vi) of this definition, a person that is not currently
registered as a swap dealer shall be deemed not to be a swap dealer as
a result of its swap dealing activity involving counterparties, so long
as the swap positions connected with those dealing activities into
which the person--or any other entity controlling, controlled by or
under common control with the person--enters over the course of the
immediately preceding 12 months (or following the effective date of
final rules implementing section 1a(47) of the Act, 7 U.S.C. 1a(47), if
that period is less than 12 months) have an aggregate gross notional
amount of no more than $3 billion, subject to a phase in level of an
aggregate gross notional amount of no more than $8 billion applied in
accordance with paragraph (4)(ii) of this definition, and an aggregate
gross notional amount of no more than $25 million with regard to swaps
in which the counterparty is a ``special entity'' (as that term is
defined in section 4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and
23.401(c) of this chapter), except as provided in paragraph (4)(i)(B)
of this definition. For purposes of this definition, if the stated
notional amount of a swap is leveraged or enhanced by the structure of
the swap, the calculation shall be based on the effective notional
amount of the swap rather than on the stated notional amount.
(B) Utility special entities. (1) Solely for purposes of
determining whether a person's swap dealing activity has exceeded the
$25 million aggregate gross notional amount threshold set forth in
paragraph (4)(i)(A) of this definition for swaps in which the
counterparty is a special entity, a person may exclude utility
operations-related swaps in which the counterparty is a utility special
entity.
(2) For purposes of this paragraph (4)(i)(B), a utility special
entity is a special entity, as that term is defined in section
4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 23.401(c) of this
chapter, that:
(i) Owns or operates electric or natural gas facilities, electric
or natural gas operations or anticipated electric or natural gas
facilities or operations;
(ii) Supplies natural gas or electric energy to other utility
special entities;
(iii) Has public service obligations or anticipated public service
obligations under Federal, State or local law or regulation to deliver
electric energy or natural gas service to utility customers; or
(iv) Is a Federal power marketing agency as defined in section 3 of
the Federal Power Act, 16 U.S.C. 796(19).
(3) For purposes of this paragraph (4)(i)(B), a utility operations-
related swap is a swap that meets the following conditions:
(i) A party to the swap is a utility special entity;
(ii) A utility special entity is using the swap to hedge or
mitigate commercial risk as defined in Sec. 50.50(c) of this chapter;
(iii) The swap is related to an exempt commodity, as that term is
defined in section 1a(20) of the Act, 7 U.S.C. 1a(20), or to an
agricultural commodity insofar as such agricultural commodity is used
for fuel for generation of electricity or is otherwise used in the
normal operations of the utility special entity; and
(iv) The swap is an electric energy or natural gas swap, or the
swap is associated with: The generation, production, purchase or sale
of natural gas or electric energy, the supply of natural gas or
electric energy to a utility special entity, or the delivery of natural
gas or electric energy service to customers of a utility special
entity; fuel supply for the facilities or operations of a utility
special entity; compliance with an electric system reliability
obligation; or compliance with an energy, energy efficiency,
conservation, or renewable energy or environmental statute, regulation,
or government order applicable to a utility special entity.
(4) A person seeking to rely on the exclusion in paragraph
(4)(i)(B)(1) of this definition may rely on the written representations
of the utility special entity that it is a utility special entity and
that the swap is a utility operations-related swap, as such terms are
defined in paragraphs (4)(i)(B)(2) and (3) of this definition,
respectively, unless it has information that would cause a reasonable
person to question the accuracy of the representation. The person must
keep such representation in accordance with Sec. 1.31.
(ii) Phase-in procedure and staff report--(A) Phase-in period. For
purposes of paragraph (4)(i) of this definition, except as provided in
paragraph (4)(vi) of this definition, a person that engages in swap
dealing activity that does not exceed the phase-in level set forth in
paragraph (4)(i) of this definition shall be deemed not to be a swap
dealer as a result of its swap dealing activity until the phase-in
termination date established as provided in paragraph (4)(ii)(C) or (D)
of this definition. The Commission shall announce the phase-in
termination date on the Commission website and publish such date in the
Federal Register.
(B) Staff report. No later than 30 months following the date that a
swap data repository first receives swap data in accordance with part
45 of this chapter, the staff of the Commission shall complete and
publish for public comment a report on topics relating to the
definition of the term swap dealer and the de minimis threshold. The
report should address the following topics, as appropriate, based on
the availability of data and information: The potential impact of
modifying the de minimis threshold, and whether the de minimis
threshold should be increased or decreased; the factors that are useful
for identifying swap dealing activity, including the application of the
dealer-trader distinction for that purpose, and the potential use of
objective tests or safe harbors as part of the analysis; the impact of
provisions in paragraphs (5) and (6) of this definition excluding
certain swaps from the dealer analysis, and potential alternative
approaches for such exclusions; and any other analysis of swap data and
information relating to swaps that the Commission or staff deem
relevant to this rule.
(C) Nine months after publication of the report required by
paragraph (4)(ii)(B) of this definition, and after giving due
consideration to that report and any associated public comment, the
Commission may either:
(1) Terminate the phase-in period set forth in paragraph (4)(ii)(A)
of this definition, in which case the phase-in termination date shall
be established by the Commission by order published in the Federal
Register; or
(2) Determine that it is necessary or appropriate in the public
interest to propose through rulemaking an alternative to the $3 billion
amount set forth in paragraph (4)(i) of this definition that would
constitute a de minimis quantity of swap dealing in connection with
transactions with or on behalf of customers within the meaning of
section 1(a)(47)(D) of the Act, 7 U.S.C. 1(a)(47)(D), in which case the
Commission shall by order published in the Federal Register provide
notice of such determination, which order shall also establish the
phase-in termination date.
(D) If the phase-in termination date has not been previously
established pursuant to paragraph (4)(ii)(C) of this definition, then
in any event the phase-in termination date shall occur five years after
the date that a swap data repository first receives swap data in
accordance with part 45 of this chapter.
[[Page 7994]]
(iii) Registration period for persons that can no longer take
advantage of the exception. A person that has not registered as a swap
dealer by virtue of satisfying the requirements of this paragraph (4)
of the definition of swap dealer, but that no longer can take advantage
of that de minimis exception, will be deemed not to be a swap dealer
until the earlier of the date on which it submits a complete
application for registration pursuant to section 4s(b) of the Act, 7
U.S.C. 6s(b), or two months after the end of the month in which that
person becomes no longer able to take advantage of the exception.
(iv) Applicability to registered swap dealers. A person who
currently is registered as a swap dealer may apply to withdraw that
registration, while continuing to engage in swap dealing activity in
reliance on this section, so long as that person has been registered as
a swap dealer for at least 12 months and satisfies the conditions of
paragraph (4)(i) of this definition.
(v) Future adjustments to scope of the de minimis exception. The
Commission may by rule or regulation change the requirements of the de
minimis exception described in paragraphs (4)(i) through (iv) of this
definition.
(vi) Voluntary registration. Notwithstanding paragraph (4)(i) of
this definition, a person that chooses to register with the Commission
as a swap dealer shall be deemed to be a swap dealer.
(5) Insured depository institution swaps in connection with
originating loans to customers. Swaps entered into by an insured
depository institution with a customer in connection with originating a
loan with that customer shall not be considered in determining whether
the insured depository institution is a swap dealer.
(i) An insured depository institution shall be considered to have
entered into a swap with a customer in connection with originating a
loan, as defined in paragraphs (5)(ii) and (iii) of this definition,
with that customer only if:
(A) The insured depository institution enters into the swap with
the customer no earlier than 90 days before and no later than 180 days
after the date of execution of the applicable loan agreement, or no
earlier than 90 days before and no later than 180 days after any
transfer of principal to the customer by the insured depository
institution pursuant to the loan;
(B)(1) The rate, asset, liability or other notional item underlying
such swap is, or is directly related to, a financial term of such loan,
which includes, without limitation, the loan's duration, rate of
interest, the currency or currencies in which it is made and its
principal amount;
(2) Such swap is required, as a condition of the loan under the
insured depository institution's loan underwriting criteria, to be in
place in order to hedge price risks incidental to the borrower's
business and arising from potential changes in the price of a commodity
(other than an excluded commodity);
(C) The duration of the swap does not extend beyond termination of
the loan;
(D) The insured depository institution is:
(1) The sole source of funds to the customer under the loan;
(2) Committed to be, under the terms of the agreements related to
the loan, the source of at least 10 percent of the maximum principal
amount under the loan; or
(3) Committed to be, under the terms of the agreements related to
the loan, the source of a principal amount that is greater than or
equal to the aggregate notional amount of all swaps entered into by the
insured depository institution with the customer in connection with the
financial terms of the loan;
(E) The aggregate notional amount of all swaps entered into by the
customer in connection with the financial terms of the loan is, at any
time, not more than the aggregate principal amount outstanding under
the loan at that time; and
(F) If the swap is not accepted for clearing by a derivatives
clearing organization, the insured depository institution reports the
swap as required by section 4r of the Act, 7 U.S.C. 6r (except as
otherwise provided in section 4r(a)(3)(A), 7 U.S.C. 6r(a)(3)(A), or
section 4r(a)(3)(B), 7 U.S.C. 6r(a)(3)(B) of the Act).
(ii) An insured depository institution shall be considered to have
originated a loan with a customer if the insured depository
institution:
(A) Directly transfers the loan amount to the customer;
(B) Is a part of a syndicate of lenders that is the source of the
loan amount that is transferred to the customer;
(C) Purchases or receives a participation in the loan; or
(D) Otherwise is the source of funds that are transferred to the
customer pursuant to the loan or any refinancing of the loan.
(iii) The term loan shall not include:
(A) Any transaction that is a sham, whether or not intended to
qualify for the exclusion from the definition of the term swap dealer
in this rule; or
(B) Any synthetic loan, including, without limitation, a loan
credit default swap or loan total return swap.
(6) Swaps that are not considered in determining whether a person
is a swap dealer--(i) Inter-affiliate activities. In determining
whether a person is a swap dealer, that person's swaps with majority-
owned affiliates shall not be considered. For these purposes the
counterparties to a swap are majority-owned affiliates if one
counterparty directly or indirectly owns a majority interest in the
other, or if a third party directly or indirectly owns a majority
interest in both counterparties to the swap, where majority interest is
the right to vote or direct the vote of a majority of a class of voting
securities of an entity, the power to sell or direct the sale of a
majority of a class of voting securities of an entity, or the right to
receive upon dissolution or the contribution of a majority of the
capital of a partnership.
(ii) Activities of a cooperative. (A) Any swap that is entered into
by a cooperative with a member of such cooperative shall not be
considered in determining whether the cooperative is a swap dealer,
provided that:
(1) The swap is subject to policies and procedures of the
cooperative requiring that the cooperative monitors and manages the
risk of such swap;
(2) The cooperative reports the swap as required by section 4r of
the Act, 7 U.S.C. 6r (except as otherwise provided in section
4r(a)(3)(A) of the Act, 7 U.S.C. 6r(a)(3)(A) or section 4r(a)(3)(B) of
the Act, 7 U.S.C. 6r(a)(3)(B)); and
(3) If the cooperative is a cooperative association of producers,
the swap is primarily based on a commodity that is not an excluded
commodity.
(B) For purposes of this paragraph (6)(ii) of this definition, the
term cooperative shall mean:
(1) A cooperative association of producers as defined in section
1a(14) of the Act, 7 U.S.C. 1a(14), or
(2) A person chartered under Federal law as a cooperative and
predominantly engaged in activities that are financial in nature as
defined in section 4(k) of the Bank Holding Company Act of 1956, 12
U.S.C. 1843(k).
(C) For purposes of this paragraph (6)(ii) of this definition, a
swap shall be deemed to be entered into by a cooperative association of
producers with a member of such cooperative association of producers
when the swap is between a cooperative association of producers and a
person that is a member of a cooperative association of producers that
is itself a member of the first cooperative association of producers.
(iii) Swaps entered into for the purpose of hedging physical
positions. In determining whether a person is a
[[Page 7995]]
swap dealer, a swap that the person enters into shall not be
considered, if:
(A) The person enters into the swap for the purpose of offsetting
or mitigating the person's price risks that arise from the potential
change in the value of one or several--
(1) Assets that the person owns, produces, manufactures, processes,
or merchandises or anticipates owning, producing, manufacturing,
processing, or merchandising;
(2) Liabilities that the person owns or anticipates incurring; or
(3) Services that the person provides, purchases, or anticipates
providing or purchasing;
(B) The swap represents a substitute for transactions made or to be
made or positions taken or to be taken by the person at a later time in
a physical marketing channel;
(C) The swap is economically appropriate to the reduction of the
person's risks in the conduct and management of a commercial
enterprise;
(D) The swap is entered into in accordance with sound commercial
practices; and
(E) The person does not enter into the swap in connection with
activity structured to evade designation as a swap dealer.
(iv) Swaps entered into by floor traders. In determining whether a
person is a swap dealer, each swap that the person enters into in its
capacity as a floor trader as defined by section 1a(23) of the Act or
on or subject to the rules of a swap execution facility shall not be
considered for the purpose of determining whether the person is a swap
dealer if the person:
(A) Is registered with the Commission as a floor trader pursuant to
Sec. 3.11 of this chapter;
(B) Enters into swaps with proprietary funds for that trader's own
account solely on or subject to the rules of a designated contract
market or swap execution facility and submits each such swap for
clearing to a derivatives clearing organization;
(C) Is not an affiliated person of a registered swap dealer;
(D) Does not directly, or through an affiliated person, negotiate
the terms of swap agreements, other than price and quantity or to
participate in a request for quote process subject to the rules of a
designated contract market or a swap execution facility;
(E) Does not directly or through an affiliated person offer or
provide swap clearing services to third parties;
(F) Does not directly or through an affiliated person enter into
swaps that would qualify as hedging physical positions pursuant to
paragraph (6)(iii) of this definition or hedging or mitigating
commercial risk as defined in Sec. 1.3 (except for any such swap
executed opposite a counterparty for which the transaction would
qualify as a bona fide hedging transaction);
(G) Does not participate in any market making program offered by a
designated contract market or swap execution facility; and
(H) Notwithstanding the fact such person is not registered as a
swap dealer, such person complies with Sec. Sec. 23.201, 23.202,
23.203, and 23.600 of this chapter with respect to each such swap as if
it were a swap dealer.
* * * * *
Sec. Sec. 1.17, 1.33, 1.46, 1.52, 1.55, 1.59, 1.63, 1.64, and
1.69 [Amended]
0
3. In the table below, for each paragraph indicated in the left column,
remove the cross-reference indicated in the middle column from wherever
it appears in the paragraph, and add the cross-reference indicated in
the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
1.10(j)(3)........................................... Sec. Sec.
1.3(mm) 1.3
1.17(b)(4)(ii)....................................... Sec. Sec.
1.3(y) 1.3
1.17(b)(5)........................................... Sec. Sec.
1.3(d) 1.3
1.17(b)(10).......................................... Sec. Sec.
1.3(y) 1.3
1.17(c)(5)(xiii)(C).................................. Sec. Sec.
1.3(rr) 1.3
1.33(a)(1)(iii)...................................... Sec. Sec.
1.3(rr) 1.3
1.33(g)(2)........................................... Sec. Sec.
1.3(g) 1.3
1.46(d)(2)........................................... Sec. Sec.
1.3(z) 1.3
1.52(a)(2)........................................... Sec. Sec.
1.3(h) 1.3
1.52(a)(2)........................................... Sec. Sec.
1.3(rrrr) 1.3
1.55(f).............................................. Sec. Sec.
1.3(g) 1.3
1.59(a)(1)........................................... Sec. Sec.
1.3(ee) 1.3
1.59(a)(1)........................................... Sec. Sec.
1.3(d) 1.3
1.63(a)(1)........................................... Sec. Sec.
1.3(ee) 1.3
1.63(a)(1)........................................... Sec. Sec.
1.3(d) 1.3
1.64(a)(1)........................................... Sec. Sec.
1.3(ee) 1.3
1.64(a)(1)........................................... Sec. Sec.
1.3(d) 1.3
1.69(a)(7)........................................... Sec. Sec.
1.3(ee) 1.3
1.69(a)(7)........................................... Sec. Sec.
1.3(d) 1.3
------------------------------------------------------------------------
PART 3--REGISTRATION
0
4. The authority citation for part 3 continues to read as follows:
Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 6c,
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a,
13b, 13c, 16a, 18, 19, 21, and 23, as amended by Title VII of Pub.
L. 111-203, 124 Stat. 1376.
Sec. Sec. 3.10, 3.12, and 3.21 [Amended]
0
5. In the table below, for each paragraph indicated in the left column,
remove the cross-reference indicated in the middle column from wherever
it appears in the paragraph, and add the cross-reference indicated in
the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
3.10(c)(1)........................................... Sec. Sec.
1.3(y) 1.3
3.10(c)(2)(i)........................................ Sec. Sec.
1.3(xx) 1.3
3.10(c)(3)(i)........................................ Sec. Sec.
1.3(mm) 1.3
3.10(c)(3)(i)........................................ Sec. Sec.
1.3(bb) 1.3
3.10(c)(3)(i)........................................ Sec. Sec.
1.3(nn) 1.3
3.10(c)(4)(ii)....................................... Sec. Sec.
1.3(g) 1.3
3.12(h)(1)(iv)....................................... Sec. Sec.
1.3(aa) 1.3
3.21(c)(2)(i)........................................ Sec. Sec.
1.3(yy) 1.3
------------------------------------------------------------------------
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
0
6. The authority citation for part 4 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a,
and 23.
0
7. In Sec. 4.5, revise paragraph (c)(2)(iii)(A) and the introductory
text of paragraph (c)(2)(iii)(B) introductory text to read as follows:
Sec. 4.5 Exclusion for certain otherwise regulated persons from the
definition of the term ``commodity pool operator.''
* * * * *
(c) * * *
(2) * * *
(iii) * * *
(A) Will use commodity futures or commodity options contracts, or
swaps solely for bona fide hedging purposes within the meaning and
intent of the definition of bona fide hedging transactions and
positions for excluded commodities in Sec. Sec. 1.3 and 151.5 of this
chapter; Provided however, That, in addition, with respect to positions
in commodity futures or commodity options contracts, or swaps which do
not come within the meaning and intent of the definition of bona fide
hedging transactions and positions for excluded commodities in
Sec. Sec. 1.3 and 151.5 of this chapter, a qualifying entity may
represent that the aggregate initial margin and premiums required to
establish such positions will not exceed five percent of the
liquidation value of the qualifying entity's portfolio, after taking
into account unrealized profits and unrealized losses on any such
contracts it has entered into; and, Provided further, That in the case
of an option that is in-the-money at the time of the purchase, the in-
the-money amount as defined in Sec. 190.01(x) of this chapter may be
excluded in computing such five percent; or
(B) The aggregate net notional value of commodity futures,
commodity options contracts, or swaps positions not used solely for
bona fide hedging purposes within the meaning and intent of the
definition of bona fide hedging transactions and positions for excluded
commodities in Sec. Sec. 1.3 and 151.5 of this
[[Page 7996]]
chapter determined at the time the most recent position was
established, does not exceed 100 percent of the liquidation value of
the pool's portfolio, after taking into account unrealized profits and
unrealized losses on any such positions it has entered into. For
purposes of this paragraph:
* * * * *
PART 5--OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS
0
8. The authority citation for part 5 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h,
6i, 6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21,
and 23.
Sec. 5.5 [Amended]
0
9. In the table below, for each paragraph indicated in the left column,
remove the cross-reference indicated in the middle column from wherever
it appears in the paragraph, and add the cross-reference indicated in
the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
5.5(a)(1)(ii)........................................ Sec. Sec.
1.3(mm) 1.3
------------------------------------------------------------------------
PART 15--REPORTS--GENERAL PROVISIONS
0
10. The authority citation for part 15 continues to read as follows:
Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a,
9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124
Stat. 1376 (2010).
Sec. Sec. 15.00 and 15.01 [Amended]
0
11. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
15.00(e)............................................. Sec. Sec.
1.3(k) 1.3
15.00(e)............................................. Sec. Sec.
1.3(jj) 1.3
15.00(n)............................................. Sec. Sec.
1.3(t) 1.3
15.01(d)(1).......................................... Sec. Sec.
1.3(z) 1.3
------------------------------------------------------------------------
PART 18--REPORTS BY TRADERS
0
12. The authority citation for part 18 continues to read as follows:
Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t,
12a, and 19.
Appendix A to Part 18 [Amended]
0
13. Amend Appendix A to Part 18 as follows:
0
a. In instruction paragraph 15, under the heading Swaps Participation
Indicators, remove ``Sec. 1.3(ppp)'' and add in its place ``Sec.
1.3''; and
0
b. In instruction paragraph 16, under the heading Swaps Participation
Indicators, remove ``Sec. 1.3(qqq)'' and add in its place ``Sec.
1.3''.
PART 19--REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS AND
BY MERCHANTS AND DEALERS IN COTTON
0
14. The authority citation for part 19 continues to read as follows:
Authority: 7 U.S.C. 6g(a), 6i, and 12a(5).
0
15. Revise the part heading for part 19 to read as set forth above.
Sec. 19.00 [Amended]
0
16. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
19.00(a)(1).......................................... Sec. Sec.
1.3(z) 1.3
19.00(b)(1).......................................... Sec. Sec.
1.3(z) 1.3
------------------------------------------------------------------------
PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS
0
17. The authority citation for part 23 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t,
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b),
Pub. L. 111-203, 124 Stat. 1641 (2010).
Sec. 23.22 [Amended]
0
18. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
23.22(a)................................ Sec. Sec. 1.3
1.3(aa)(6)
------------------------------------------------------------------------
PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS
0
19. The authority citation for part 30 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise
noted.
Sec. Sec. 30.1 and 30.4 [Amended]
0
20. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
30.1(c)............................... paragraph (y) of Sec. Sec.
1.3. 1.3
30.1(e)............................... Sec. 1.3(ss).......... Sec.
1.3
30.1(f)............................... Sec. 1.3(y)........... Sec.
1.3
30.4(a)............................... paragraph (y) of Sec. Sec.
1.3. 1.3
------------------------------------------------------------------------
Appendix B to Part 30 [Amended]
0
21. Amend Appendix B to Part 30 as follows:
0
a. In paragraph 1, in the second sentence, remove ``Rule 1.3(rr)'' and
add in its place ``Sec. 1.3''.
0
b. In footnote 1, in the first sentence, remove ``paragraph (y) of
[Rule 1.3]'' and add in its place ``Sec. 1.3''.
PART 38--DESIGNATED CONTRACT MARKETS
0
22. The authority citation for part 38 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j,
6k, 6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as
amended by the Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. 111-203, 124 Stat. 1376.
Appendix B to Part 38 [Amended]
0
23. In Appendix B to Part 38, under the heading Core Principle 16 of
section 5(d) of the Act: CONFLICTS OF INTEREST, in paragraph
(b)(2)(ii)(B), remove ``1.3(q)'' and add in its place ``Sec. 1.3 of
this chapter''.
PART 39--DERIVATIVES CLEARING ORGANIZATIONS
0
24. The authority citation for part 39 continues to read as follows:
Authority: 7 U.S.C. 2, 7a-1, and 12a; 12 U.S.C. 5464; 15 U.S.C.
8325.
Sec. Sec. 39.1, 39.2, 39.4, 39.9, 39.30, and 39.37 [Amended]
0
25. In the table below, for each section or paragraph indicated in the
left column, remove the cross-reference indicated in the middle column
from wherever it appears in the section or paragraph, and add the
cross-reference indicated in the right column:
------------------------------------------------------------------------
Section/paragraph Remove Add
------------------------------------------------------------------------
39.1................................................. Sec. Sec.
1.3(d) 1.3
39.2................................................. Sec. Sec.
1.3(d) 1.3
39.4(e).............................................. Sec. Sec.
1.3(vv) 1.3
39.9................................................. Sec. Sec.
1.3(d) 1.3
39.30(a)............................................. Sec. Sec.
1.3(d) 1.3
39.37(d)(1).......................................... Sec. Sec.
1.3(jjjj) 1.3
39.37(d)(3).......................................... Sec. Sec.
1.3(rr) 1.3
------------------------------------------------------------------------
[[Page 7997]]
PART 41--SECURITY FUTURES PRODUCTS
0
26. The authority citation for part 41 continues to read as follows:
Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat.
2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).
Sec. Sec. 41.41 and 41.43 [Amended]
0
27. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
41.41(d)............................................. Sec. Sec.
1.3(vv) 1.3
41.41(d)............................................. Sec. Sec.
1.3(ww) 1.3
41.41(e)............................................. Sec. Sec.
1.3(vv) 1.3
41.41(e)............................................. Sec. Sec.
1.3(ww) 1.3
41.43(a)(13)......................................... Sec. Sec.
1.3(vv) 1.3
41.43(a)(28)......................................... Sec. Sec.
1.3(ww) 1.3
------------------------------------------------------------------------
PART 50--CLEARING REQUIREMENT AND RELATED RULES
0
28. The authority citation for part 50 continues to read as follows:
Authority: 7 U.S.C. 2(h) and 7a-1 as amended by Pub. L. 111-203,
124 Stat. 1376.
0
29. In Sec. 50.51, revise paragraph (b)(1) to read as follows:
Sec. 50.51 Exemption for cooperatives.
* * * * *
(b) * * *
(1) Is entered into with a member of the exempt cooperative in
connection with originating loan or loans for the member, which means
the requirements of paragraphs (5)(i), (ii), and (iii) of the
definition of swap dealer in Sec. 1.3 of this chapter are satisfied;
provided that, for this purpose, the term ``insured depository
institution'' as used in those paragraphs is replaced with the term
``exempt cooperative'' and the word ``customer'' is replaced with the
word ``member''; or
* * * * *
PART 150--LIMITS ON POSITIONS
0
30. The authority citation for part 150 continues to read as follows:
Authority: 7 U.S.C. 6a, 6c, and 12a(5).
Sec. 150.3 [Amended]
0
31. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
150.3(a)(1).......................................... Sec. Sec.
1.3(z) 1.3
------------------------------------------------------------------------
0
32. In Sec. 150.5, revise paragraph (d)(1) to read as follows:
Sec. 150.5 Exchange-set speculative position limits.
* * * * *
(d) * * * (1) No exchange bylaw, rule, regulation, or resolution
adopted pursuant to this section shall apply to bona fide hedging
positions as defined by a contract market in accordance with the
definition of bona fide hedging transactions and positions for excluded
commodities in Sec. 1.3 of this chapter. Provided, however, that the
contract market may limit bona fide hedging positions or any other
positions which have been exempted pursuant to paragraph (e) of this
section which it determines are not in accord with sound commercial
practices or exceed an amount which may be established and liquidated
in orderly fashion.
* * * * *
PART 151--POSITION LIMITS FOR FUTURES AND SWAPS
0
33. The authority citation for part 151 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as
amended by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).
0
34. In Sec. 151.11, revise paragraph (f)(1)(ii) to read as follows:
Sec. 151.11 Designated contract market and swap execution facility
position limits and accountability rules.
* * * * *
(f) * * *
(1) * * *
(ii) For purposes of excluded commodities, no designated contract
market or swap execution facility that is a trading facility by law,
rule, regulation, or resolution adopted pursuant to this section shall
apply to any transaction or position within the definition of bona fide
hedging transactions and positions for excluded commodities in Sec.
1.3 of this chapter; provided, however, that the designated contract
market or swap execution facility that is a trading facility may limit
bona fide hedging positions that it determines are not in accord with
sound commercial practices or exceed an amount which may be established
and liquidated in an orderly fashion.
* * * * *
PART 155--TRADING STANDARDS
0
35. The authority citation for part 155 continues to read as follows:
Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, unless otherwise
noted.
Sec. Sec. 155.3 and 155.4 [Amended]
0
36. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
155.3(b)(2)(ii)...................................... Sec. Sec.
1.3(g) 1.3
155.4(b)(2)(ii)...................................... Sec. Sec.
1.3(g) 1.3
------------------------------------------------------------------------
PART 166--CUSTOMER PROTECTION RULES
0
37. The authority citation for part 166 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7,
12a, 21, and 23, as amended by the Commodity Futures Modernization
Act of 2000, appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).
Sec. 166.2 [Amended]
0
38. In the table below, for each paragraph indicated in the left
column, remove the cross-reference indicated in the middle column from
wherever it appears in the paragraph, and add the cross-reference
indicated in the right column:
------------------------------------------------------------------------
Paragraph Remove Add
------------------------------------------------------------------------
166.2(a)............................................. Sec. Sec.
1.3(yy) 1.3
166.2(b)............................................. Sec. Sec.
1.3(yy) 1.3
------------------------------------------------------------------------
Issued in Washington, DC, on February 15, 2018, by the
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Definitions--Commission Voting Summary
On this matter, Chairman Giancarlo and Commissioners Quintenz
and Behnam voted in the affirmative. No Commissioner voted in the
negative.
[FR Doc. 2018-03590 Filed 2-22-18; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: February 23, 2018