Federal Register, Volume 76 Issue 143 (Tuesday, July 26, 2011)[Federal Register Volume 76, Number 143 (Tuesday, July 26, 2011)]
[Proposed Rules]
[Pages 44508-44511]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-18763]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter I
SECURITIES AND EXCHANGE COMMISSION
17 CFR Chapter II
[Release No. 34-64926; File No. 4-635]
Acceptance of Public Submissions for a Study on International
Swap Regulation Mandated by Section 719(c) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act
AGENCY: Commodity Futures Trading Commission; Securities and Exchange
Commission.
ACTION: Request for comment.
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SUMMARY: Section 719(c) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) requires the Commodity Futures
Trading Commission (CFTC) and the Securities and Exchange Commission
(SEC and, together with the CFTC, the Commissions) jointly to study and
then report to Congress on swap regulation and clearinghouse regulation
in the United States, Asia, and Europe and to identify areas of
regulation that are similar and other areas of regulation that could be
harmonized. The report also must identify major dealers, exchanges,
clearinghouses, clearing members, and regulators in each geographic
area and describe the major contracts (including trading volumes,
clearing volumes, and notional values), methods for clearing swaps, and
the systems used for setting margin in each geographic area. In
connection with the study and report, the CFTC and SEC are issuing this
request for information through public comment.
DATES: Submit comments on or before September 26, 2011.
ADDRESSES: You may submit comments by any of the following methods:
CFTC
Agency Web site, via its Comments Online process at http://comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Please submit comments using only one method. Comments should be
identified by ``International Swap Regulation Study'' in the subject
line of responses submitted electronically and in paper submissions.
All comments must be submitted in English or, if not, accompanied
by an English translation. Comments will be posted on the CFTC's
Internet Web site at http://www.cftc.gov, without review and without
removal of personally identifying information. You should submit only
information that you wish to make available publicly. If you wish the
CFTC to consider information that may be 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\ The CFTC reserves the right, but shall have no
obligation, to review, pre-screen, filter, redact, refuse, or remove
any or all of your submission from http://www.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
will be retained in the public comment file and may be accessible under
FOIA.
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\1\ CFTC regulations referred to herein are found at 17 CFR Ch.
1 (2010). They are accessible on the Commission's Web site at http://www.cftc.gov.
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SEC
Electronic Comments
Use the agency's Internet comment form at http://www.sec.gov/rules/other.shtml; or
Send an e-mail to [email protected]. Please include
File Number 4-635 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number 4-635. This file number
should be included on the subject line if e-mail is used. To help the
SEC process and review your comments more efficiently, please use only
one method. Comments will be posted on the SEC's Internet Web site at
http://www.sec.gov. Comments also are available for Web site viewing
and printing in the SEC's Public Reference Room, Station Place, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. All comments received will be posted
without change; the SEC does not edit personally identifying
information from submissions. You should submit only information that
you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: CFTC: Natalie Markman Radhakrishnan,
Senior Special Counsel, 202-418-5059, [email protected], Office
of International Affairs, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581; SEC:
Babback Sabahi, Senior Counsel, 202-551-5398, [email protected], Office
of International Affairs, Securities and Exchange Commission, Station
Place, 100 F Street, NE., Washington, DC 20549-1004.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act was enacted on July 21, 2010.\2\ Title VII of
the legislation \3\ amends the Commodity Exchange Act \4\ and the
Securities Exchange Act of 1934 \5\ to establish a comprehensive new
regulatory framework for swaps and security-based swaps to reduce risk,
increase transparency, and promote market integrity within the
financial system. Among other things, Title VII: (1) Provides for the
registration and comprehensive regulation of swap dealers, security-
based swap dealers, major swap participants, and major security-based
swap participants; (2) imposes clearing and trade execution
[[Page 44509]]
requirements on swaps and security-based swaps, subject to certain
exceptions; (3) creates rigorous recordkeeping and real-time reporting
regimes; and (4) enhances the Commissions' rulemaking and enforcement
authorities with respect to certain registered entities and
intermediaries subject to the Commissions' oversight.
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\2\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. 111-203, 124 Stat. 1376 (2010). The text of the Dodd-
Frank Act may be accessed at http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm.
\3\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010''.
\4\ 7 U.S.C. 1 et seq.
\5\ 15 U.S.C. 78a et seq.
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Section 719(c)(1) of the Dodd-Frank Act requires the CFTC and SEC
jointly to conduct a study on swap regulation and clearinghouse
regulation in the United States, Asia, and Europe and to identify areas
of regulation that are similar and other areas of regulation that could
be harmonized.\6\ Pursuant to Section 719(c)(2) of the Dodd-Frank Act,
the Commissions must submit a report to Congress within 18 months after
the Dodd-Frank Act's enactment (i.e., on or before Monday, January 23,
2012) that describes the results of the study and includes: (1) The
identification of the major dealers, exchanges, clearinghouses, and
regulators in each geographic area; (2) lists of the major swap
contracts (including trading volumes, clearing volumes, and notional
values) in each geographic area; and (3) a description of the methods
for clearing swaps and the systems used for setting margin in each
geographic area.\7\
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\6\ Section 719(c)(1) provides:
(1) IN GENERAL.-The Commodity Futures Trading Commission and the
Securities and Exchange Commission shall jointly conduct a study-
(A) relating to-
(i) swap regulation in the United States, Asia, and Europe; and
(ii) clearing house and clearing agency regulation in the United
States, Asia, and Europe; and
(B) that identifies areas of regulation that are similar in the
United States, Asia and Europe and other areas of regulation that
could be harmonized[.]
\7\ Section 719(c)(2) provides:
(2) REPORT.-Not later than 18 months after the date of enactment
of this Act, the Commodity Futures Trading Commission and the
Securities and Exchange Commission shall submit to the Committee on
Agriculture, Nutrition, and Forestry and the Committee on Banking,
Housing, and Urban Affairs of the Senate and the Committee on
Agriculture and the Committee on Financial Services of the House of
Representatives a report that includes a description of the results
of the study under subsection (a), including-
(A) identification of the major exchanges and their regulator in
each geographic area for the trading of swaps and security-based
swaps including a listing of the major contracts and their trading
volumes and notional values as well as identification of the major
swap dealers participating in such markets;
(B) identification of the major clearing houses and clearing
agencies and their regulator in each geographic area for the
clearing of swaps and security-based swaps, including a listing of
the major contracts and the clearing volumes and notional values as
well as identification of the major clearing members of such
clearing houses and clearing agencies in such markets;
(C) a description of the comparative methods of clearing swaps
in the United States, Asia, and Europe; and
(D) a description of the various systems used for establishing
margin on individual swaps, security-based swaps, and swap
portfolios.
The provision's reference to ``subsection (a)'' presumably
should be replaced with a reference to subsection (1) because no
such subsection (a) applies to this study. Moreover, although
Section 719(c) is entitled ``International Swap Regulation'' and
does not consistently refer to both swaps and security-based swaps
throughout, Congress mandated a joint study and, accordingly, the
Commissions have interpreted the terms ``swap'' and ``swaps'' to
include both swap(s) and security-based swap(s) in the context of
this statutory provision.
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II. Request for Comments
In connection with the study and report required by Section 719(c)
of the Dodd-Frank Act, the CFTC and SEC have determined to issue this
request for information through public comment. Congress has directed
the Commissions to conduct an independent joint study on specific
topics and, in particular, to identify areas of regulation that could
be harmonized.\8\ The Commissions have determined that this request for
public comment will be an effective and transparent means of gathering
information necessary for the study and report from interested parties.
This public comment process will, as needed, be supplemented by other
means of gathering the comprehensive range of information requested by
Congress.\9\
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\8\ In addition to the study and report required by Section
719(c), Congress directed the Commissions (and prudential
regulators) in Section 752(a) of the Dodd-Frank Act to ``as
appropriate * * * consult and coordinate with foreign regulatory
authorities on the establishment of consistent international
standards with respect to the regulation (including fees) of swaps,
security-based swaps, swap entities, and security-based swap
entities'' in order to ``promote effective and consistent global
regulation of swaps and security-based swaps''.
\9\ For example, Commission staff will engage in ongoing
consultation with regulatory authorities and others throughout the
study.
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The Commissions also are mindful of differences in regulatory
development across jurisdictions. In the United States and under the
Dodd-Frank Act, many of the required regulations with regard to swaps
already have been proposed and made available for public comment.\10\
Other jurisdictions, however, are proceeding under different time
frames. For example, the Japanese Diet amended the Financial
Instruments and Exchange Act by adopting legislation on over-the-
counter (OTC) derivatives on July 10, 2009, and on May 12, 2010. These
amendments are expected to be implemented by November 2012. The
European Commission (EC), in turn, proposed legislation on clearing and
trade repositories on September 15, 2010.\11\ This proposed legislation
calls for the European Securities and Markets Authority to propose
technical standards by June 30, 2012.\12\
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\10\ For more information, visit CFTC and SEC Web sites on
implementation of the Dodd-Frank Act, respectively at http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm and http://www.sec.gov/spotlight/dodd-frank.shtml.
\11\ On December 8, 2010, the EC also issued a public
consultation to solicit views on revisions to the Markets in
Financial Instruments Directive that are designed, among other
things, to increase transparency for OTC derivatives and other
instruments by setting requirements for trading venues and
investment firms, and to enhance business conduct standards
applicable to all investment firms. The EC is expected to publish a
proposal further to this consultation during summer 2011.
\12\ See various provisions of the EC's proposed European
Markets Infrastructure Regulation, available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0484:FIN:EN:PDF.
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In order to strike a balance between meeting the statutory deadline
for the study and report and providing timely information to Congress,
the Commissions have determined to publish the request at this time and
to provide for a 60-day comment period. Given the pace of developments
in the regulation of OTC derivatives here in the United States and in
other jurisdictions, the Commissions plan to conduct the study based
upon information received and collected by the last day of the comment
period.\13\ Comments should be submitted during the open comment
period, but staff may consider comments filed after the deadline and
may consult with interested and/or relevant parties after the comment
period closes in order to obtain additional or clarifying information.
The Commissions welcome public comment on all aspects of the study.\14\
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\13\ The Commissions may, however, in their discretion and
depending on the significance of the developments, decide to address
certain legislative or regulatory developments that take place after
the comment period has ended.
\14\ In light of the statutory deadline established in Section
719(c) of the Dodd-Frank Act, the Commissions request comment on how
best to ensure that the study reflects the latest state of
regulatory implementation in Asia and Europe. Commenters are
encouraged to submit information regarding significant relevant
legislative or regulatory developments occurring after the end of
the comment period and prior to the submission of the report to
Congress.
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The Commissions have developed the following requests for comment
to gather information in support of the study mandated by Section
719(c) and request that commenters include a description, either in
English or accompanied by an English translation, of the underlying
source material used in composing each submitted response. Commenters
may also provide any additional relevant information beyond that
specifically requested. Because
[[Page 44510]]
Section 719(c) requires the Commissions to prepare a report relating to
the swap markets of the United States, Asia, and Europe, commenters are
specifically asked to provide information about markets in those
jurisdictions. Commenters also may provide any relevant information on
other jurisdictions. If regulatory requirements in a jurisdiction are
under consideration but not yet enacted or effective, commenters should
make note of this in their answer and provide as much relevant
information as possible on recent and anticipated developments.
While all commenters are welcome to respond to the items below in
their entirety, in order to provide more focus, the requests for
comment have been divided into three groups. The first group, items A-
E, inquires about information to which foreign regulators may have the
most efficient access. Item F, by contrast, inquires about information
that may be available to a wider range of commenters, while item G
inquires about information that exchanges and clearinghouses might be
uniquely positioned to provide.
A. Status of Regulation
1. For each jurisdiction on which comment is being provided, please
provide the name of the jurisdiction being commented upon.
2. Does the jurisdiction have a legal definition of the term
``swap'', ``security-based swap'', or other similar term or terms
(hereinafter referred to as a ``Swap'' or ``Swaps'')? If so, please
provide such definition(s).\15\
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\15\ These terms may include, but may not be limited to, OTC
derivatives. The Dodd-Frank Act includes definitions of the terms
``swap'' and ``security-based swap''.
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3. Are Swaps included within the scope of any statute, regulation,
or other legal requirement in the jurisdiction?
a. If not, is the jurisdiction planning to or considering whether
to regulate, or to modify regulation of, Swaps?
b. Please further describe the present status of regulatory efforts
and the anticipated timeline for such efforts.
4. What type of counterparty may enter into a Swap? Do any
limitations apply?
5. Are certain types or classes of Swaps prohibited, or are certain
entities prohibited from entering into certain types or classes of
Swaps?
6. If Swaps are regulated:
a. Who determines which instruments, transactions, or agreements
should be regulated as Swaps?
b. Which Swaps, if any, are required to be executed on an organized
market, on an electronic execution facility, or on any other type of
market?
c. Which Swaps, if any, are required to be cleared by a central
counterparty and, for those required to be cleared, how are the trades
of non-clearing participants cleared? \16\
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\16\ If applicable, how does the mandatory clearing requirement
work, e.g., who decides which Swaps are required to be cleared, what
criteria are applied, does the requirement apply to existing Swaps
or to those entered into at a certain point in time, are any
entities exempt from the clearing requirement?
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d. Which Swap transactions, if any, are required to be reported to
a data repository or other entity, the public, or regulatory
authorities?
e. Is regulatory oversight of the Swap market conducted by one
single regulatory authority or divided among different regulatory
authorities? If the latter, please identify each relevant regulatory
authority and describe its responsibilities and jurisdiction.
f. How does the regulatory framework regulate potential systemic
risk created by Swaps? Does it, for example, create a new oversight
body or designate certain entities as systemically important?
g. Does the regulatory authority, or regulatory authorities if more
than one regulator has oversight responsibilities over the Swap market,
have the ability to share information related to Swaps with domestic
and foreign regulatory authorities? \17\
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\17\ In particular, are there any legal or other barriers to the
collection of information or to the sharing of information, e.g.,
client confidentiality protection or data privacy safeguards?
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h. How are cross-border Swap transactions regulated? Does the Swap
regulatory framework apply to persons located outside of the
jurisdiction doing business with persons located within the
jurisdiction, and, more generally, to cross-border Swap activities?
i. What enforcement authority exists over Swaps, and who may
exercise such authority?
B. Regulatory Requirements for Market Participants
1. How does the regulatory framework address participants in the
Swap market? What are the registration or licensing requirements for
Swap-related dealers, market participants, intermediaries, or others
(individually and collectively, ``Participants'')?
2. Are any types of Participants in the Swap market excluded or
exempted from Swap-related registration or licensing requirements?
3. What is the process for updating, withdrawing, or terminating
Swap-related registration or an exemption from Swap-related
registration?
4. What are the Swap-related prudential regulatory requirements
(e.g., capital, liquidity, margin, risk management, segregation,
collateral)?
5. What are the requirements related to insolvency or bankruptcy in
regard to Participants?
6. What are the Swap-related business conduct requirements (e.g.,
interaction with counterparties, disclosure, supervision, reporting,
recordkeeping, documentation, confirmation, valuation, conflicts of
interest, avoidance of fraud and other abusive practices)?
7. Do Participants have the ability to share information with
domestic and/or foreign regulatory authorities?
8. How are foreign Participants treated (e.g., a special
recognition category, an exclusion or an exemption from registration)?
C. Regulatory Requirements for Organized Markets, Electronic Execution
Facilities, and Other Types of Markets
1. Does the regulatory framework include requirements for organized
markets, electronic execution facilities, and/or other types of markets
for Swaps (hereinafter referred to as ``Markets'')?
2. What are the registration or licensing requirements for such
Markets?
3. Are any Markets excluded or exempted from such registration or
licensing requirements?
4. What is the process for updating, withdrawing, or terminating
such registration or exempting from such registration?
5. What are the ongoing regulatory responsibilities of such Markets
(e.g., access, surveillance, transparency, compliance, recordkeeping)?
6. Do Markets have the ability to share information with domestic
and/or foreign regulatory authorities?
7. How are foreign Markets treated (e.g., a special recognition
category, an exclusion or an exemption from registration)?
D. Regulatory Requirements for Central Counterparties
1. Does the regulatory framework include requirements for central
counterparties that provide clearing and settlement services for Swaps?
2. What are the registration or licensing requirements for such
central counterparties?
3. Who is excluded or exempted from such registration or licensing
requirements?
4. What is the process for updating, withdrawing, or terminating
such registration or exempting from such registration?
[[Page 44511]]
5. What are the ongoing regulatory responsibilities of such central
counterparties (e.g., financial resources, risk management, safeguards
against member or participant default, authority in the event of a
default, recordkeeping)? \18\
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\18\ The Recommendations for Central Counterparties were
published in November 2004 (and currently are being revised) by the
Committee on Payment & Settlement Systems of the Bank for
International Settlements and the Technical Committee of IOSCO.
Links to this standard, as well as related standards and the
consultative report for revising them, are available at http://www.bis.org/publ/cpss94.htm.
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6. Do such central counterparties have the ability to share
information with domestic and/or foreign regulatory authorities?
7. How are foreign central counterparties treated (e.g., a special
recognition category, an exclusion or an exemption from registration)?
E. Regulatory Requirements for Data Repositories
1. Does the regulatory framework include requirements for data
repositories for Swaps? \19\
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\19\ If entities other than data repositories can fulfill this
function, please describe the jurisdiction's requirements for such
activity and provide the relevant information for each question on
this topic.
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2. What are the registration or licensing requirements for such
data repositories?
3. Who is excluded or exempted from such registration or licensing
requirements?
4. What is the process for updating, withdrawing, or terminating
such registration or exempting from such registration?
5. What are the ongoing regulatory responsibilities of such data
repositories (e.g., timing of reporting to the public, recordkeeping)?
6. Are such data repositories required to use a specified data
standard when they provide data to regulatory authorities and, if so,
what standard is required?
7. Do such data repositories have the ability to share information
with domestic and/or foreign regulatory authorities?
8. How are foreign data repositories treated (e.g., a special
recognition category, an exclusion or an exemption from registration)?
9. What are the regulatory requirements in connection with data
reporting for entities participating in the Swap market, such as
counterparties or Participants (e.g., maintaining records, reporting
data to a repository, real-time reporting to the public, providing
information to domestic and foreign regulatory authorities)?
F. Regulatory Comparison
1. Across jurisdictions, for any or all items listed above, which
areas of regulation are similar and which areas are different?
2. In viewing the existing laws, institutions, and enforcement
mechanisms of each respective jurisdiction as a whole, are such
similarities and differences appropriate and desirable for regulatory
purposes, or do certain aspects of a particular jurisdiction's Swap
market warrant a different regulatory approach?
3. What are the potential costs and benefits (in terms of investor
protection, market efficiency, competition, or other factors) that may
arise from further consistency/harmonization of regulations across
borders?
4. How should consistency in regulation across jurisdictions be
measured and are there factors other than the harmonized text of a
regulation that should be taken into consideration when assessing the
degree to which cross-border regulatory harmonization has been
implemented in practice?
5. Assuming that a theoretically ``optimal'' set of regulations for
a particular jurisdiction might take into consideration elements unique
to a specific market in ways that might make cross-border harmonization
difficult, to what extent do the benefits of greater regulatory
harmonization across borders outweigh the costs associated with having
regulations that might be less tailored to a particular market's
circumstances? In what areas do you believe the benefits of
harmonization most outweigh any potential downsides? \20\ Are there any
areas where you believe the likely benefits of ``optimal'' market-
specific regulation outweigh the likely benefits of harmonization?
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\20\ In particular, please identify any potential opportunities
for regulatory arbitrage or impediments to the achievement of
consistent regulatory standards across jurisdictions.
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6. In the United States, what steps should or could be taken to
better harmonize statutory requirements under the Dodd-Frank Act with
statutory requirements implemented in other jurisdictions?
7. In the United States, what steps could be taken to harmonize
CFTC or SEC regulations with regulations promulgated by authorities in
other jurisdictions?
G. Swap Market Information
1. Please identify major organized markets and electronic execution
facilities (and the Swaps-related regulator(s) for each) for the
trading of Swaps.
a. For each market or facility, please provide a listing and
description of the major contract classes and subclasses, such as
credit default swaps (CDS),\21\ equity swaps, currency swaps, interest
rate swaps (IRS),\22\ and commodity swaps;
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\21\ For CDS, include: corporate single name, sovereign single
name, multi-name, index; CDS on domestic and non-domestic reference
assets (classified by country, in the latter case); and CDS between
domestic and non-domestic participants (classified by country, in
the latter case).
\22\ For IRS, include: underlying currency, structure, and
maturity.
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b. For classes and subclasses of contracts identified in paragraph
a above, please provide:
i. The trading volumes in 2009, 2010, and year-to-date; and
ii. The outstanding notional values at year-end 2008, 2009, 2010,
and the most recent available.
2. Please identify major dealers participating in Swap markets (and
the Swap-related regulator(s) for each).
3. Please identify major central counterparties (and the Swap-
related regulator(s) for each) for the clearing of Swaps.
a. For each central counterparty, please provide a listing and
description of the major classes and subclasses of cleared Swap
contracts, such as CDS, equity swaps, currency swaps, IRS, and
commodity swaps;
b. For classes and subclasses of contracts identified in paragraph
a above, please provide:
i. The clearing volumes for 2009, 2010, and year-to-date; and
ii. The outstanding notional values at year-end 2008, 2009, 2010,
and the most recent available;
c. For each central counterparty, please provide:
i. A description of the method used to clear Swaps;
ii. A description of the systems used to establish margin on
individual Swaps and on Swap portfolios; and
iii. The name of each major clearing member of the central
counterparty (and the Swap-related regulator(s) for each).
Issued in Washington, DC, on July 20, 2011, by the Commodity
Futures Trading Commission.
David A. Stawick,
Secretary.
Issued in Washington, DC, on July 20, 2011, by the Securities
and Exchange Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-18763 Filed 7-25-11; 8:45 am]
BILLING CODE 8011-01-P; 6351-01-P
Last Updated: July 26, 2011