Definitions Contained in Title VII of Dodd-Frank Wall Street Reform and Consumer Protection Act, 51429-51433 [2010-20567]
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Federal Register / Vol. 75, No. 161 / Friday, August 20, 2010 / Proposed Rules
Paper Comments
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 1
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release No. 34–62717; File No. S7–16–10]
RIN 3235–AK65; 3038–AD06
Definitions Contained in Title VII of
Dodd-Frank Wall Street Reform and
Consumer Protection Act
Securities and Exchange
Commission; Commodity Futures
Trading Commission.
ACTION: Advance notice of proposed
rulemaking; request for comments.
AGENCY:
The Dodd-Frank Wall Street
Reform and Consumer Protection Act
(the ‘‘Dodd-Frank Act’’), provides for the
comprehensive regulation of swaps and
security-based swaps. Title VII of the
Dodd-Frank Act (‘‘Title VII’’), provides
that the Securities and Exchange
Commission (‘‘SEC’’) and the
Commodity Futures Trading
Commission (‘‘CFTC’’) (collectively, ‘‘the
Commissions’’), in consultation with the
Board of Governors of the Federal
Reserve System, shall jointly further
define certain key terms (specifically,
‘‘swap’’, ‘‘security-based swap’’, ‘‘swap
dealer’’, ‘‘security-based swap dealer’’,
‘‘major swap participant’’, ‘‘major
security-based swap participant’’,
‘‘eligible contract participant’’, and
‘‘security-based swap agreement’’), and
shall jointly prescribe regulations
regarding ‘‘mixed swaps,’’ as that term is
used in Title VII of the Dodd-Frank Act.
To assist the SEC and CFTC in further
defining such terms, the Commissions
are issuing this Notice and request for
public comment.
DATES: Comments must be in writing
and received by September 20, 2010.
ADDRESSES: Comments may be
submitted by any of the following
methods:
SUMMARY:
SEC
jdjones on DSK8KYBLC1PROD with PROPOSALS-1
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/proposed.shtml);
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–12–10 on the subject line;
or
• Use the Federal eRulemaking Portal
(https://www.regulations.gov). Follow the
instructions for submitting comments.
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• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7—16–10. This file number
should be included on the subject line
if e-mail is used. To help us process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/
proposed.shtml). Comments are also
available for Web site viewing and
copying in the Commission’s Public
Reference Room, 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; we do
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
CFTC
Comments may be submitted by any
of the following methods:
• Mail: David A. Stawick, Secretary,
Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581.
• Hand Delivery/Courier: Same as
mail above.
• Fax: 202–418–5521.
• E-mail: Comments may be
submitted via e-mail at
dfadefinitions@cftc.gov.
• Agency Web Site: Comments may
be submitted to https://www.cftc.gov.
Follow the instructions for submitting
comments on the Web site.
• Federal eRulemaking Portal:
Comments also may be submitted at
https://www.regulations.gov. Follow the
instructions for submitting comments.
‘‘Definitions’’ must be in the subject
field of responses submitted via e-mail,
and clearly indicated on written
submissions. All comments must be
submitted in English, or if not,
accompanied by an English translation.
All comments provided in any
electronic form or on paper will be
published on the CFTC Web site,
without review and without removal of
personally identifying information. All
comments are subject to the CFTC
Privacy Policy.
FOR FURTHER INFORMATION CONTACT: SEC:
Matthew A. Daigler, Senior Special
Counsel, at 202–551–5578, or Cristie L.
March, Attorney Adviser, at 202–551–
5574, Division of Trading and Markets,
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51429
or Michael J. Reedich, Special Counsel,
at 202–551–3279, Office of Chief
Counsel, Division of Corporate Finance,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–7010; CFTC: Terry S. Arbit,
Deputy General Counsel, at 202–418–
5357, tarbit@cftc.gov, Julian E. Hammar,
Assistant General Counsel, at 202–418–
5118, jhammar@cftc.gov, Mark Fajfar,
Assistant General Counsel, at 202–418–
6636, mfajfar@cftc.gov, or David Aron,
Counsel, at 202–418–6621,
daron@cftc.gov, Office of General
Counsel, Commodity Futures Trading
Commission, Three Lafayette Centre,
1155 21st Street, NW., Washington, DC
20581.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act was enacted on
July 21, 2010.1 Title VII of the DoddFrank Act provides for the
comprehensive regulation of swaps and
security-based swaps and includes
definitions of key terms relating to such
regulation.2 Section 712(d) of the DoddFrank Act provides that the SEC and
CFTC, in consultation with the Board of
Governors of the Federal Reserve
System, shall jointly further define the
terms ‘‘swap’’, ‘‘security-based swap’’,
‘‘swap dealer’’, ‘‘security-based swap
dealer’’, ‘‘major swap participant’’,
‘‘major security-based swap participant’’,
‘‘eligible contract participant’’, and
‘‘security-based swap agreement’’
(collectively ‘‘Key Definitions’’).3
Section 712(d) further provides that
such jointly prescribed rules and
regulations shall be comparable to the
maximum extent possible, taking into
consideration differences in instruments
and in the applicable statutory
requirements.
Further, Section 721(c) requires the
CFTC to adopt a rule to further define
the terms ‘‘swap’’, ‘‘swap dealer’’, ‘‘major
swap participant’’, and ‘‘eligible contract
participant’’, and Section 761(b) requires
the SEC to adopt a rule to further define
the terms ‘‘security-based swap’’,
‘‘security-based swap dealer’’, ‘‘major
security-based swap participant’’ and
‘‘eligible contract participant’’, with
regard to security-based swaps, for the
purpose of including transactions and
1 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law No. 111–203, 124 Stat.
1376 (2010).
2 Under Section 701 of the Dodd-Frank Act, Title
VII may be cited as the ‘‘Wall Street Transparency
and Accountability Act of 2010.’’
3 These terms are defined in Sections 721 and 761
of the Dodd-Frank Act and, with respect to the term
‘‘eligible contract participant’’, in Section 1a(18) of
the Commodity Exchange Act, 7 U.S.C. 1a(18), as
re-designated and amended by Section 721 of the
Dodd-Frank Act.
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entities that have been structured to
evade Title VII of the Dodd-Frank Act.
Finally, Section 712(a) of the DoddFrank Act provides that the SEC and
CFTC, after consultation with the Board
of Governors of the Federal Reserve
System, shall jointly prescribe
regulations regarding ‘‘mixed swaps,’’ 4
as may be necessary to carry out the
purposes of Title VII.
To assist the SEC and CFTC in further
defining the Key Definitions specified
above, and to prescribe regulations
regarding ‘‘mixed swaps’’ as may be
necessary to carry out the purposes of
Title VII, the Commissions are seeking
comment from interested parties.
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II. Solicitation for Comments About the
Key Definitions and the Regulation of
‘‘Mixed Swaps’’
The Commissions invite comment
with respect to all aspects of the Key
Definitions, and also the regulation of
‘‘mixed swaps’’ as may be necessary to
carry out the purposes of Title VII.
Commenters are encouraged to address
aspects of the Key Definitions such as
the extent to which the definitions
should be based on qualitative or
quantitative factors and what those
factors should be, any analogous areas
of law, economics, or industry practice,
and any factors specific to the
commenter’s experience. Commenters
also are encouraged to express views on
the regulation of ‘‘mixed swaps’’, as may
be necessary to carry out the purposes
of Title VII. Please comment generally
and specifically, and please include
empirical data and other information in
support of such comments, where
appropriate and available, regarding any
of the Key Definitions described above
and the regulation of ‘‘mixed swaps’’.
When commenting, please also take
into account the statutory definitions of
these terms that have been enacted in
the Dodd-Frank Act. These statutory
definitions are reprinted herein as
follows:
Swap: Section 721(a)(21) of the DoddFrank Act:
‘‘(47) Swap.—
(A) In general.—Except as provided in
subparagraph (B), the term ‘swap’ means any
agreement, contract, or transaction—
(i) That is a put, call, cap, floor, collar, or
similar option of any kind that is for the
purchase or sale, or based on the value, of 1
or more interest or other rates, currencies,
commodities, securities, instruments of
indebtedness, indices, quantitative measures,
or other financial or economic interests or
property of any kind;
4 Sections 721 and 761 of the Dodd-Frank Act
amend the Commodity Exchange Act, 7 U.S.C. 1 et
seq., and the Securities Exchange Act of 1934, 15
U.S.C. 78a et seq., respectively, to define ‘‘mixed
swap’’.
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(ii) That provides for any purchase, sale,
payment, or delivery (other than a dividend
on an equity security) that is dependent on
the occurrence, nonoccurrence, or the extent
of the occurrence of an event or contingency
associated with a potential financial,
economic, or commercial consequence;
(iii) That provides on an executory basis
for the exchange, on a fixed or contingent
basis, of 1 or more payments based on the
value or level of 1 or more interest or other
rates, currencies, commodities, securities,
instruments of indebtedness, indices,
quantitative measures, or other financial or
economic interests or property of any kind,
or any interest therein or based on the value
thereof, and that transfers, as between the
parties to the transaction, in whole or in part,
the financial risk associated with a future
change in any such value or level without
also conveying a current or future direct or
indirect ownership interest in an asset
(including any enterprise or investment pool)
or liability that incorporates the financial risk
so transferred, including any agreement,
contract, or transaction commonly known
as—
(I) An interest rate swap;
(II) A rate floor;
(III) A rate cap;
(IV) A rate collar;
(V) A cross-currency rate swap;
(VI) A basis swap;
(VII) A currency swap;
(VIII) A foreign exchange swap;
(IX) A total return swap;
(X) An equity index swap;
(XI) An equity swap;
(XII) A debt index swap;
(XIII) A debt swap;
(XIV) A credit spread;
(XV) A credit default swap;
(XVI) A credit swap;
(XVII) A weather swap;
(XVIII) An energy swap;
(XIX) A metal swap;
(XX) An agricultural swap;
(XXI) An emissions swap; and
(XXII) A commodity swap;
(iv) That is an agreement, contract, or
transaction that is, or in the future becomes,
commonly known to the trade as a swap;
(v) Including any security-based swap
agreement which meets the definition of
‘swap agreement’ as defined in section 206A
of the Gramm-Leach-Bliley Act (15 U.S.C.
78c note) of which a material term is based
on the price, yield, value, or volatility of any
security or any group or index of securities,
or any interest therein; or
(vi) That is any combination or
permutation of, or option on, any agreement,
contract, or transaction described in any of
clauses (i) through (v).
(B) Exclusions.—The term ‘swap’ does not
include—
(i) Any contract of sale of a commodity for
future delivery (or option on such a contract),
leverage contract authorized under section
19, security futures product, or agreement,
contract, or transaction described in section
2(c)(2)(C)(i) or section 2(c)(2)(D)(i);
(ii) Any sale of a nonfinancial commodity
or security for deferred shipment or delivery,
so long as the transaction is intended to be
physically settled;
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(iii) Any put, call, straddle, option, or
privilege on any security, certificate of
deposit, or group or index of securities,
including any interest therein or based on the
value thereof, that is subject to—
(I) The Securities Act of 1933 (15 U.S.C.
77a et seq.); and
(II) The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.);
(iv) Any put, call, straddle, option, or
privilege relating to a foreign currency
entered into on a national securities
exchange registered pursuant to section 6(a)
of the Securities Exchange Act of 1934 (15
U.S.C. 78f(a));
(v) Any agreement, contract, or transaction
providing for the purchase or sale of 1 or
more securities on a fixed basis that is subject
to—
(I) The Securities Act of 1933 (15 U.S.C.
77a et seq.); and
(II) The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.);
(vi) Any agreement, contract, or transaction
providing for the purchase or sale of 1 or
more securities on a contingent basis that is
subject to the Securities Act of 1933 (15
U.S.C. 77a et seq.) and the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.),
unless the agreement, contract, or transaction
predicates the purchase or sale on the
occurrence of a bona fide contingency that
might reasonably be expected to affect or be
affected by the creditworthiness of a party
other than a party to the agreement, contract,
or transaction;
(vii) Any note, bond, or evidence of
indebtedness that is a security, as defined in
section 2(a)(1) of the Securities Act of 1933
(15 U.S.C. 77b(a)(1));
(viii) Any agreement, contract, or
transaction that is—
(I) Based on a security; and
(II) Entered into directly or through an
underwriter (as defined in section 2(a)(11) of
the Securities Act of 1933 (15 U.S.C.
77b(a)(11)) by the issuer of such security for
the purposes of raising capital, unless the
agreement, contract, or transaction is entered
into to manage a risk associated with capital
raising;
(ix) Any agreement, contract, or transaction
a counterparty of which is a Federal Reserve
bank, the Federal Government, or a Federal
agency that is expressly backed by the full
faith and credit of the United States; and
(x) Any security-based swap, other than a
security-based swap as described in
subparagraph (D).
(C) Rule of Construction regarding master
agreements.—
(i) In general.—Except as provided in
clause (ii), the term ‘swap’ includes a master
agreement that provides for an agreement,
contract, or transaction that is a swap under
subparagraph (A), together with each
supplement to any master agreement,
without regard to whether the master
agreement contains an agreement, contract,
or transaction that is not a swap pursuant to
subparagraph (A).
(ii) Exception.—For purposes of clause (i),
the master agreement shall be considered to
be a swap only with respect to each
agreement, contract, or transaction covered
by the master agreement that is a swap
pursuant to subparagraph (A).
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(D) Mixed swap.—The term ‘security-based
swap’ includes any agreement, contract, or
transaction that is as described in section
3(a)(68)(A) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(68)(A)) and also is
based on the value of 1 or more interest or
other rates, currencies, commodities,
instruments of indebtedness, indices,
quantitative measures, other financial or
economic interest or property of any kind
(other than a single security or a narrowbased security index), or the occurrence, nonoccurrence, or the extent of the occurrence of
an event or contingency associated with a
potential financial, economic, or commercial
consequence (other than an event described
in subparagraph (A)(iii)).
(E) Treatment of foreign exchange swaps
and forwards.—
(i) In general.—Foreign exchange swaps
and foreign exchange forwards shall be
considered swaps under this paragraph
unless the Secretary makes a written
determination under section 1b that either
foreign exchange swaps or foreign exchange
forwards or both—
(I) Should be not be regulated as swaps
under this Act; and
(II) Are not structured to evade the DoddFrank Wall Street Reform and Consumer
Protection Act in violation of any rule
promulgated by the [Commodity Futures
Trading] Commission pursuant to section
721(c) of that Act.
(ii) Congressional notice; effectiveness.—
The Secretary shall submit any written
determination under clause (i) to the
appropriate committees of Congress,
including the Committee on Agriculture,
Nutrition, and Forestry of the Senate and the
Committee on Agriculture of the House of
Representatives. Any such written
determination by the Secretary shall not be
effective until it is submitted to the
appropriate committees of Congress.
(iii) Reporting.—Notwithstanding a written
determination by the Secretary under clause
(i), all foreign exchange swaps and foreign
exchange forwards shall be reported to either
a swap data repository, or, if there is no swap
data repository that would accept such swaps
or forwards, to the [Commodity Futures
Trading] Commission pursuant to section 4r
within such time period as the [Commodity
Futures Trading] Commission may by rule or
regulation prescribe.
(iv) Business standards.—Notwithstanding
a written determination by the Secretary
pursuant to clause (i), any party to a foreign
exchange swap or forward that is a swap
dealer or major swap participant shall
conform to the business conduct standards
contained in section 4s(h).
(v) Secretary.—For purposes of this
subparagraph, the term ‘Secretary’ means the
Secretary of the Treasury.
(F) Exception for certain foreign exchange
swaps and forwards.—
(i) Registered entities.—Any foreign
exchange swap and any foreign exchange
forward that is listed and traded on or subject
to the rules of a designated contract market
or a swap execution facility, or that is cleared
by a derivatives clearing organization, shall
not be exempt from any provision of this Act
or amendments made by the Wall Street
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Transparency and Accountability Act of 2010
prohibiting fraud or manipulation.
(ii) Retail transactions.—Nothing in
subparagraph (E) shall affect, or be construed
to affect, the applicability of this Act or the
jurisdiction of the [Commodity Futures
Trading] Commission with respect to
agreements, contracts, or transactions in
foreign currency pursuant to section 2(c)(2).’’
Security-Based Swap: Section
761(a)(6) of the Dodd-Frank Act:
‘‘(68) Security-Based Swap.—
(A) In general.—Except as provided in
subparagraph (B), the term ‘security-based
swap’ means any agreement, contract, or
transaction that—
(i) Is a swap, as that term is defined under
section 1a of the Commodity Exchange Act
(without regard to paragraph (47)(B)(x) of
such section); and
(ii) Is based on—
(I) An index that is a narrow-based security
index, including any interest therein or on
the value thereof;
(II) A single security or loan, including any
interest therein or on the value thereof; or
(III) The occurrence, nonoccurrence, or
extent of the occurrence of an event relating
to a single issuer of a security or the issuers
of securities in a narrow-based security
index, provided that such event directly
affects the financial statements, financial
condition, or financial obligations of the
issuer.
(B) Rule of construction regarding master
agreements.—The term ‘security-based swap’
shall be construed to include a master
agreement that provides for an agreement,
contract, or transaction that is a securitybased swap pursuant to subparagraph (A),
together with all supplements to any such
master agreement, without regard to whether
the master agreement contains an agreement,
contract, or transaction that is not a securitybased swap pursuant to subparagraph (A),
except that the master agreement shall be
considered to be a security-based swap only
with respect to each agreement, contract, or
transaction under the master agreement that
is a security-based swap pursuant to
subparagraph (A).
(C) Exclusions.—The term ‘security-based
swap’ does not include any agreement,
contract, or transaction that meets the
definition of a security-based swap only
because such agreement, contract, or
transaction references, is based upon, or
settles through the transfer, delivery, or
receipt of an exempted security under
paragraph (12), as in effect on the date of
enactment of the Futures Trading Act of 1982
(other than any municipal security as defined
in paragraph (29) as in effect on the date of
enactment of the Futures Trading Act of
1982), unless such agreement, contract, or
transaction is of the character of, or is
commonly known in the trade as, a put, call,
or other option.
(D) Mixed swap.—The term ‘security-based
swap’ includes any agreement, contract, or
transaction that is as described in
subparagraph (A) and also is based on the
value of 1 or more interest or other rates,
currencies, commodities, instruments of
indebtedness, indices, quantitative measures,
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other financial or economic interest or
property of any kind (other than a single
security or a narrow-based security index), or
the occurrence, non-occurrence, or the extent
of the occurrence of an event or contingency
associated with a potential financial,
economic, or commercial consequence (other
than an event described in subparagraph
(A)(ii)(III)).
(E) Rule of construction regarding use of
the term index.—The term ‘index’ means an
index or group of securities, including any
interest therein or based on the value
thereof.’’
Swap Dealer: Section 721(a)(21) of the
Dodd-Frank Act:
‘‘(49) Swap dealer.—
(A) 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 the
person to be commonly known in the trade
as a dealer or market maker in swaps,
provided however, in no event shall an
insured depository institution be considered
to be a swap dealer to the extent it offers to
enter into a swap with a customer in
connection with originating a loan with that
customer.
(B) Inclusion.—A person may be
designated as a swap dealer for a single type
or single class or category of swap or
activities and considered not to be a swap
dealer for other types, classes, or categories
of swaps or activities.
(C) 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 a regular business.
(D) De minimis exception.—The
[Commodity Futures Trading] Commission
shall exempt from designation as a swap
dealer an entity that engages in a de minimis
quantity of swap dealing in connection with
transactions with or on behalf of its
customers. The [Commodity Futures Trading]
Commission shall promulgate regulations to
establish factors with respect to the making
of this determination to exempt.’’
Security-Based Swap Dealer: Section
761(a)(6) of the Dodd-Frank Act:
‘‘(71) Security-Based Swap Dealer.—
(A) In general.—The term ‘security-based
swap dealer’ means any person who—
(i) Holds themself out as a dealer in
security-based swaps;
(ii) Makes a market in security-based
swaps;
(iii) Regularly enters into security-based
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 security-based swaps.
(B) Designation by type or class.—A person
may be designated as a security-based swap
dealer for a single type or single class or
category of security-based swap or activities
and considered not to be a security-based
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swap dealer for other types, classes, or
categories of security based swaps or
activities.
(C) Exception.—The term ‘security-based
swap dealer’ does not include a person that
enters into security-based swaps for such
person’s own account, either individually or
in a fiduciary capacity, but not as a part of
regular business.
(D) De minimis exception.—The [Securities
and Exchange] Commission shall exempt
from designation as a security-based swap
dealer an entity that engages in a de minimis
quantity of security-based swap dealing in
connection with transactions with or on
behalf of its customers. The [Securities and
Exchange] Commission shall promulgate
regulations to establish factors with respect
to the making of any determination to
exempt.’’
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Major Swap Participant: Section
721(a)(16) of the Dodd-Frank Act:
‘‘(33) Major Swap Participant.—
(A) In general.—The term ‘major swap
participant’ means any person who is not a
swap dealer, and—
(i) Maintains a substantial position in
swaps for any of the major swap categories
as determined by the [Commodity Futures
Trading] Commission, excluding—
(I) Positions held for hedging or mitigating
commercial risk; and
(II) 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;
(ii) 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
(iii)(I) Is a financial entity that is highly
leveraged relative to the amount of capital it
holds and that is not subject to capital
requirements established by an appropriate
Federal banking agency; and
(II) Maintains a substantial position in
outstanding swaps in any major swap
category as determined by the [Commodity
Futures Trading] Commission.
(B) Definition of substantial position.—For
purposes of subparagraph (A), the
[Commodity Futures Trading] Commission
shall define by rule or regulation the term
‘substantial position’ at the threshold that the
[Commodity Futures Trading] Commission
determines to be prudent for the effective
monitoring, management, and oversight of
entities that are systemically important or
can significantly impact the financial system
of the United States. In setting the definition
under this subparagraph, the [Commodity
Futures Trading] Commission shall consider
the person’s relative position in uncleared as
opposed to cleared swaps and may take into
consideration the value and quality of
collateral held against counterparty
exposures.
(C) Scope of designation.—For purposes of
subparagraph (A), a person may be
designated as a major swap participant for 1
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or more categories of swaps without being
classified as a major swap participant for all
classes of swaps.
(D) Exclusions.—The definition under this
paragraph shall not include an entity whose
primary business is providing financing, and
uses derivatives for the purpose of hedging
underlying commercial risks related to
interest rate and foreign currency exposures,
90 percent or more of which arise from
financing that facilitates the purchase or
lease of products, 90 percent or more of
which are manufactured by the parent
company or another subsidiary of the parent
company.’’
Major Security-Based Swap
Participant: Section 761(a)(6) of the
Dodd-Frank Act:
‘‘(67) Major Security–Based Swap
Participant.—
(A) In general.—The term ‘major securitybased swap participant’ means any person—
(i) Who is not a security-based swap dealer;
and
(ii)(I) Who maintains a substantial position
in security-based swaps for any of the major
security-based swap categories, as such
categories are determined by the [Securities
and Exchange] Commission, 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;
(II) Whose outstanding security-based
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
(III) That is a financial entity that—
(aa) Is highly leveraged relative to the
amount of capital such entity holds and that
is not subject to capital requirements
established by an appropriate Federal
banking agency; and
(bb) Maintains a substantial position in
outstanding security-based swaps in any
major security-based swap category, as such
categories are determined by the [Securities
and Exchange] Commission.
(B) Definition of substantial position.—For
purposes of subparagraph (A), the [Securities
and Exchange] Commission shall define, by
rule or regulation, the term ‘substantial
position’ at the threshold that the [Securities
and Exchange] Commission determines to be
prudent for the effective monitoring,
management, and oversight of entities that
are systemically important or can
significantly impact the financial system of
the United States. In setting the definition
under this subparagraph, the [Securities and
Exchange] Commission shall consider the
person’s relative position in uncleared as
opposed to cleared security-based swaps and
may take into consideration the value and
quality of collateral held against counterparty
exposures.
(C) Scope of designation.—For purposes of
subparagraph (A), a person may be
PO 00000
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Fmt 4702
Sfmt 4702
designated as a major security-based swap
participant for 1 or more categories of
security-based swaps without being classified
as a major security-based swap participant
for all classes of security-based swaps.’’
Eligible Contract Participant: Section
1a(18) of the Commodity Exchange Act,
7 U.S.C. 1a(18), as re-designated and
amended by Sections 721(a)(9) and
741(b)(10) 5 of the Dodd-Frank Act:
‘‘(18) Eligible Contract Participant.—The
term ‘eligible contract participant’ means—
(A) Acting for its own account—
(i) A financial institution;
(ii) An insurance company that is regulated
by a State, or that is regulated by a foreign
government and is subject to comparable
regulation as determined by the [Commodity
Futures Trading] Commission, including a
regulated subsidiary or affiliate of such an
insurance company;
(iii) An investment company subject to
regulation under the Investment Company
Act of 1940 (15 U.S.C. 80a–1 et seq.) or a
foreign person performing a similar role or
function subject as such to foreign regulation
(regardless of whether each investor in the
investment company or the foreign person is
itself an eligible contract participant);
(iv) A commodity pool that—
(I) Has total assets exceeding $5,000,000;
and
(II) Is formed and operated by a person
subject to regulation under this Act or a
foreign person performing a similar role or
function subject as such to foreign regulation
(regardless of whether each investor in the
commodity pool or the foreign person is itself
an eligible contract participant) provided,
however, that for purposes of section
2(c)(2)(B)(vi) and section 2(c)(2)(C)(vii), the
term ‘eligible contract participant’ shall not
include a commodity pool in which any
participant is not otherwise an eligible
contract participant;
(v) A corporation, partnership,
proprietorship, organization, trust, or other
entity—
(I) That has total assets exceeding
$10,000,000;
(II) The obligations of which under an
agreement, contract, or transaction are
guaranteed or otherwise supported by a letter
of credit or keepwell, support, or other
agreement by an entity described in
subclause (I), in clause (i), (ii), (iii), (iv), or
(vii), or in subparagraph (C); or
(III) That—
(aa) Has a net worth exceeding $1,000,000;
and
(bb) Enters into an agreement, contract, or
transaction in connection with the conduct of
5 Section 741(b)(10) of the Dodd-Frank Act
provides that ‘‘Section 1a(19)(A)(iv)(II) of the
Commodity Exchange Act (7 U.S.C.
1a(19)(A)(iv)(II)) (as redesignated by section
721(a)(1)) is amended by inserting before the
semicolon at the end the following: ‘‘provided,
however, that for purposes of section 2(c)(2)(B)(vi)
and section 2(c)(2)(C)(vii), the term ‘eligible
contract participant’ shall not include a commodity
pool in which any participant is not otherwise an
eligible contract participant’’. The probable intent of
Congress was to amend the definition of ‘‘eligible
contract participant’’, which is in paragraph
(18)(A)(iv)(II), not paragraph (19)(A)(iv)(II).
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Federal Register / Vol. 75, No. 161 / Friday, August 20, 2010 / Proposed Rules
the entity’s business or to manage the risk
associated with an asset or liability owned or
incurred or reasonably likely to be owned or
incurred by the entity in the conduct of the
entity’s business;
(vi) An employee benefit plan subject to
the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1001 et seq.), a
governmental employee benefit plan, or a
foreign person performing a similar role or
function subject as such to foreign
regulation—
(I) That has total assets exceeding
$5,000,000; or
(II) The investment decisions of which are
made by—
(aa) An investment adviser or commodity
trading advisor subject to regulation under
the Investment Advisers Act of 1940 (15
U.S.C. 80b–1 et seq.) or this Act;
(bb) A foreign person performing a similar
role or function subject as such to foreign
regulation;
(cc) A financial institution; or
(dd) An insurance company described in
clause (ii), or a regulated subsidiary or
affiliate of such an insurance company;
(vii)(I) A governmental entity (including
the United States, a State, or a foreign
government) or political subdivision of a
governmental entity;
(II) A multinational or supranational
government entity; or
(III) An instrumentality, agency, or
department of an entity described in
subclause (I) or (II);
except that such term does not include an
entity, instrumentality, agency, or
department referred to in subclause (I) or (III)
of this clause unless (aa) the entity,
instrumentality, agency, or department is a
person described in clause (i), (ii), or (iii) of
paragraph (17)(A); (bb) the entity,
instrumentality, agency, or department owns
and invests on a discretionary basis
$50,000,000 or more in investments; or (cc)
the agreement, contract, or transaction is
offered by, and entered into with, an entity
that is listed in any of subclauses (I) through
(VI) of section 2(c)(2)(B)(ii);
(viii)(I) A broker or dealer subject to
regulation under the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.) or a foreign
person performing a similar role or function
subject as such to foreign regulation, except
that, if the broker or dealer or foreign person
is a natural person or proprietorship, the
broker or dealer or foreign person shall not
be considered to be an eligible contract
participant unless the broker or dealer or
foreign person also meets the requirements of
clause (v) or (xi);
(II) An associated person of a registered
broker or dealer concerning the financial or
securities activities of which the registered
person makes and keeps records under
section 15C(b) or 17(h) of the Securities
Exchange Act of 1934 (15 U.S.C. 78o–5(b),
78q(h));
(III) An investment bank holding company
(as defined in section 17(i) of the Securities
Exchange Act of 1934 (15 U.S.C. 78q(i));
(ix) A futures commission merchant
subject to regulation under this Act or a
foreign person performing a similar role or
function subject as such to foreign regulation,
VerDate Mar<15>2010
14:10 Aug 19, 2010
Jkt 220001
except that, if the futures commission
merchant or foreign person is a natural
person or proprietorship, the futures
commission merchant or foreign person shall
not be considered to be an eligible contract
participant unless the futures commission
merchant or foreign person also meets the
requirements of clause (v) or (xi);
(x) A floor broker or floor trader subject to
regulation under this Act in connection with
any transaction that takes place on or through
the facilities of a registered entity (other than
an electronic trading facility with respect to
a significant price discovery contract) or an
exempt board of trade, or any affiliate
thereof, on which such person regularly
trades; or
(xi) An individual who has amounts
invested on a discretionary basis, the
aggregate of which is in excess of—
(I) $10,000,000; or
(II) $5,000,000 and who enters into the
agreement, contract, or transaction in order to
manage the risk associated with an asset
owned or liability incurred, or reasonably
likely to be owned or incurred, by the
individual;
(B)(i) A person described in clause (i), (ii),
(iv), (v), (viii), (ix), or (x) of subparagraph (A)
or in subparagraph (C), acting as broker or
performing an equivalent agency function on
behalf of another person described in
subparagraph (A) or (C); or
(ii) An investment adviser subject to
regulation under the Investment Advisers Act
of 1940, a commodity trading advisor subject
to regulation under this Act, a foreign person
performing a similar role or function subject
as such to foreign regulation, or a person
described in clause (i), (ii), (iv), (v), (viii),
(ix), or (x) of subparagraph (A) or in
subparagraph (C), in any such case acting as
investment manager or fiduciary (but
excluding a person acting as broker or
performing an equivalent agency function)
for another person described in subparagraph
(A) or (C) and who is authorized by such
person to commit such person to the
transaction; or
(C) Any other person that the [Commodity
Futures Trading] Commission determines to
be eligible in light of the financial or other
qualifications of the person.’’
Security-Based Swap Agreement:
Section 761(a)(6) of the Dodd-Frank Act:
‘‘(78) Security-Based Swap Agreement.—
(A) In general.—For purposes of sections 9,
10, 16, 20, and 21A of this Act, and section
17 of the Securities Act of 1933 (15 U.S.C.
77q), the term ‘security-based swap
agreement’ means a swap agreement as
defined in section 206A of the Gramm-LeachBliley Act (15 U.S.C. 78c note) of which a
material term is based on the price, yield,
value, or volatility of any security or any
group or index of securities, or any interest
therein.
(B) Exclusions.—The term ‘security-based
swap agreement’ does not include any
security-based swap.’’
By the Securities and Exchange
Commission.
PO 00000
Frm 00011
Fmt 4702
Sfmt 4702
51433
Dated: August 13, 2010.
Elizabeth M. Murphy,
Secretary.
By the Commodity Futures Trading
Commission.
Dated: August 13, 2010.
David A. Stawick,
Secretary.
[FR Doc. 2010–20567 Filed 8–19–10; 8:45 am]
BILLING CODE P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–106750–10]
RIN 1545–BJ30
Modifications of Debt Instruments;
Hearing Cancellation
Internal Revenue Service (IRS),
Treasury.
ACTION: Cancellation of notice of public
hearing on proposed rulemaking.
AGENCY:
This document cancels a
public hearing on proposed rulemaking
relating to the modification of debt
instruments.
SUMMARY:
The public hearing, originally
scheduled for Wednesday, September 8,
2010, at 10 a.m., is cancelled.
FOR FURTHER INFORMATION CONTACT:
Richard A. Hurst of the Publications and
Regulations Branch, Legal Processing
Division, Associate Chief Counsel
(Procedure and Administration), at
Richard.A.Hurst@irscounsel.treas.gov.
DATES:
A notice
of public hearing that appeared in the
Federal Register on Friday, June 4, 2010
(75 FR 31736), announced that a public
hearing was scheduled for September 8,
2010, at 10 a.m., in the auditorium,
Internal Revenue Building, 1111
Constitution Avenue, NW., Washington,
DC. The subject of the public hearing is
under section 1001 of the Internal
Revenue Code.
The public comment period for these
regulations expired on Tuesday, August
3, 2010. Outlines of topics to be
discussed at the hearing were due on
Wednesday, August 11, 2010. The
notice of proposed rulemaking and
notice of public hearing instructed those
interested in testifying at the public
hearing to submit an outline of the
topics to be addressed. As of Tuesday,
August 17, 2010, no one has requested
to speak. Therefore, the public hearing
SUPPLEMENTARY INFORMATION:
E:\FR\FM\20AUP1.SGM
20AUP1
]]>Agencies
[Federal Register Volume 75, Number 161 (Friday, August 20, 2010)]
[Proposed Rules]
[Pages 51429-51433]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-20567]
[[Page 51429]]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-62717; File No. S7-16-10]
RIN 3235-AK65; 3038-AD06
Definitions Contained in Title VII of Dodd-Frank Wall Street
Reform and Consumer Protection Act
AGENCY: Securities and Exchange Commission; Commodity Futures Trading
Commission.
ACTION: Advance notice of proposed rulemaking; request for comments.
-----------------------------------------------------------------------
SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(the ``Dodd-Frank Act''), provides for the comprehensive regulation of
swaps and security-based swaps. Title VII of the Dodd-Frank Act
(``Title VII''), provides that the Securities and Exchange Commission
(``SEC'') and the Commodity Futures Trading Commission (``CFTC'')
(collectively, ``the Commissions''), in consultation with the Board of
Governors of the Federal Reserve System, shall jointly further define
certain key terms (specifically, ``swap'', ``security-based swap'',
``swap dealer'', ``security-based swap dealer'', ``major swap
participant'', ``major security-based swap participant'', ``eligible
contract participant'', and ``security-based swap agreement''), and
shall jointly prescribe regulations regarding ``mixed swaps,'' as that
term is used in Title VII of the Dodd-Frank Act. To assist the SEC and
CFTC in further defining such terms, the Commissions are issuing this
Notice and request for public comment.
DATES: Comments must be in writing and received by September 20, 2010.
ADDRESSES: Comments may be submitted by any of the following methods:
SEC
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/proposed.shtml);
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-12-10 on the subject line; or
Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7--16-10. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and copying in the Commission's
Public Reference Room, 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; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
CFTC
Comments may be submitted by any of the following methods:
Mail: David A. Stawick, Secretary, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,
Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Fax: 202-418-5521.
E-mail: Comments may be submitted via e-mail at
dfadefinitions@cftc.gov.
Agency Web Site: Comments may be submitted to https://www.cftc.gov. Follow the instructions for submitting comments on the
Web site.
Federal eRulemaking Portal: Comments also may be submitted
at https://www.regulations.gov. Follow the instructions for submitting
comments.
``Definitions'' must be in the subject field of responses submitted
via e-mail, and clearly indicated on written submissions. All comments
must be submitted in English, or if not, accompanied by an English
translation. All comments provided in any electronic form or on paper
will be published on the CFTC Web site, without review and without
removal of personally identifying information. All comments are subject
to the CFTC Privacy Policy.
FOR FURTHER INFORMATION CONTACT: SEC: Matthew A. Daigler, Senior
Special Counsel, at 202-551-5578, or Cristie L. March, Attorney
Adviser, at 202-551-5574, Division of Trading and Markets, or Michael
J. Reedich, Special Counsel, at 202-551-3279, Office of Chief Counsel,
Division of Corporate Finance, Securities and Exchange Commission, 100
F Street, NE., Washington, DC 20549-7010; CFTC: Terry S. Arbit, Deputy
General Counsel, at 202-418-5357, tarbit@cftc.gov, Julian E. Hammar,
Assistant General Counsel, at 202-418-5118, jhammar@cftc.gov, Mark
Fajfar, Assistant General Counsel, at 202-418-6636, mfajfar@cftc.gov,
or David Aron, Counsel, at 202-418-6621, daron@cftc.gov, Office of
General Counsel, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act was enacted on July 21, 2010.\1\ Title VII of
the Dodd-Frank Act provides for the comprehensive regulation of swaps
and security-based swaps and includes definitions of key terms relating
to such regulation.\2\ Section 712(d) of the Dodd-Frank Act provides
that the SEC and CFTC, in consultation with the Board of Governors of
the Federal Reserve System, shall jointly further define the terms
``swap'', ``security-based swap'', ``swap dealer'', ``security-based
swap dealer'', ``major swap participant'', ``major security-based swap
participant'', ``eligible contract participant'', and ``security-based
swap agreement'' (collectively ``Key Definitions'').\3\ Section 712(d)
further provides that such jointly prescribed rules and regulations
shall be comparable to the maximum extent possible, taking into
consideration differences in instruments and in the applicable
statutory requirements.
---------------------------------------------------------------------------
\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law No. 111-203, 124 Stat. 1376 (2010).
\2\ Under Section 701 of the Dodd-Frank Act, Title VII may be
cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\3\ These terms are defined in Sections 721 and 761 of the Dodd-
Frank Act and, with respect to the term ``eligible contract
participant'', in Section 1a(18) of the Commodity Exchange Act, 7
U.S.C. 1a(18), as re-designated and amended by Section 721 of the
Dodd-Frank Act.
---------------------------------------------------------------------------
Further, Section 721(c) requires the CFTC to adopt a rule to
further define the terms ``swap'', ``swap dealer'', ``major swap
participant'', and ``eligible contract participant'', and Section
761(b) requires the SEC to adopt a rule to further define the terms
``security-based swap'', ``security-based swap dealer'', ``major
security-based swap participant'' and ``eligible contract
participant'', with regard to security-based swaps, for the purpose of
including transactions and
[[Page 51430]]
entities that have been structured to evade Title VII of the Dodd-Frank
Act. Finally, Section 712(a) of the Dodd-Frank Act provides that the
SEC and CFTC, after consultation with the Board of Governors of the
Federal Reserve System, shall jointly prescribe regulations regarding
``mixed swaps,'' \4\ as may be necessary to carry out the purposes of
Title VII.
---------------------------------------------------------------------------
\4\ Sections 721 and 761 of the Dodd-Frank Act amend the
Commodity Exchange Act, 7 U.S.C. 1 et seq., and the Securities
Exchange Act of 1934, 15 U.S.C. 78a et seq., respectively, to define
``mixed swap''.
---------------------------------------------------------------------------
To assist the SEC and CFTC in further defining the Key Definitions
specified above, and to prescribe regulations regarding ``mixed swaps''
as may be necessary to carry out the purposes of Title VII, the
Commissions are seeking comment from interested parties.
II. Solicitation for Comments About the Key Definitions and the
Regulation of ``Mixed Swaps''
The Commissions invite comment with respect to all aspects of the
Key Definitions, and also the regulation of ``mixed swaps'' as may be
necessary to carry out the purposes of Title VII. Commenters are
encouraged to address aspects of the Key Definitions such as the extent
to which the definitions should be based on qualitative or quantitative
factors and what those factors should be, any analogous areas of law,
economics, or industry practice, and any factors specific to the
commenter's experience. Commenters also are encouraged to express views
on the regulation of ``mixed swaps'', as may be necessary to carry out
the purposes of Title VII. Please comment generally and specifically,
and please include empirical data and other information in support of
such comments, where appropriate and available, regarding any of the
Key Definitions described above and the regulation of ``mixed swaps''.
When commenting, please also take into account the statutory
definitions of these terms that have been enacted in the Dodd-Frank
Act. These statutory definitions are reprinted herein as follows:
Swap: Section 721(a)(21) of the Dodd-Frank Act:
``(47) Swap.--
(A) In general.--Except as provided in subparagraph (B), the
term `swap' means any agreement, contract, or transaction--
(i) That is a put, call, cap, floor, collar, or similar option
of any kind that is for the purchase or sale, or based on the value,
of 1 or more interest or other rates, currencies, commodities,
securities, instruments of indebtedness, indices, quantitative
measures, or other financial or economic interests or property of
any kind;
(ii) That provides for any purchase, sale, payment, or delivery
(other than a dividend on an equity security) that is dependent on
the occurrence, nonoccurrence, or the extent of the occurrence of an
event or contingency associated with a potential financial,
economic, or commercial consequence;
(iii) That provides on an executory basis for the exchange, on a
fixed or contingent basis, of 1 or more payments based on the value
or level of 1 or more interest or other rates, currencies,
commodities, securities, instruments of indebtedness, indices,
quantitative measures, or other financial or economic interests or
property of any kind, or any interest therein or based on the value
thereof, and that transfers, as between the parties to the
transaction, in whole or in part, the financial risk associated with
a future change in any such value or level without also conveying a
current or future direct or indirect ownership interest in an asset
(including any enterprise or investment pool) or liability that
incorporates the financial risk so transferred, including any
agreement, contract, or transaction commonly known as--
(I) An interest rate swap;
(II) A rate floor;
(III) A rate cap;
(IV) A rate collar;
(V) A cross-currency rate swap;
(VI) A basis swap;
(VII) A currency swap;
(VIII) A foreign exchange swap;
(IX) A total return swap;
(X) An equity index swap;
(XI) An equity swap;
(XII) A debt index swap;
(XIII) A debt swap;
(XIV) A credit spread;
(XV) A credit default swap;
(XVI) A credit swap;
(XVII) A weather swap;
(XVIII) An energy swap;
(XIX) A metal swap;
(XX) An agricultural swap;
(XXI) An emissions swap; and
(XXII) A commodity swap;
(iv) That is an agreement, contract, or transaction that is, or
in the future becomes, commonly known to the trade as a swap;
(v) Including any security-based swap agreement which meets the
definition of `swap agreement' as defined in section 206A of the
Gramm-Leach-Bliley Act (15 U.S.C. 78c note) of which a material term
is based on the price, yield, value, or volatility of any security
or any group or index of securities, or any interest therein; or
(vi) That is any combination or permutation of, or option on,
any agreement, contract, or transaction described in any of clauses
(i) through (v).
(B) Exclusions.--The term `swap' does not include--
(i) Any contract of sale of a commodity for future delivery (or
option on such a contract), leverage contract authorized under
section 19, security futures product, or agreement, contract, or
transaction described in section 2(c)(2)(C)(i) or section
2(c)(2)(D)(i);
(ii) Any sale of a nonfinancial commodity or security for
deferred shipment or delivery, so long as the transaction is
intended to be physically settled;
(iii) Any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities,
including any interest therein or based on the value thereof, that
is subject to--
(I) The Securities Act of 1933 (15 U.S.C. 77a et seq.); and
(II) The Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.);
(iv) Any put, call, straddle, option, or privilege relating to a
foreign currency entered into on a national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act
of 1934 (15 U.S.C. 78f(a));
(v) Any agreement, contract, or transaction providing for the
purchase or sale of 1 or more securities on a fixed basis that is
subject to--
(I) The Securities Act of 1933 (15 U.S.C. 77a et seq.); and
(II) The Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.);
(vi) Any agreement, contract, or transaction providing for the
purchase or sale of 1 or more securities on a contingent basis that
is subject to the Securities Act of 1933 (15 U.S.C. 77a et seq.) and
the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), unless
the agreement, contract, or transaction predicates the purchase or
sale on the occurrence of a bona fide contingency that might
reasonably be expected to affect or be affected by the
creditworthiness of a party other than a party to the agreement,
contract, or transaction;
(vii) Any note, bond, or evidence of indebtedness that is a
security, as defined in section 2(a)(1) of the Securities Act of
1933 (15 U.S.C. 77b(a)(1));
(viii) Any agreement, contract, or transaction that is--
(I) Based on a security; and
(II) Entered into directly or through an underwriter (as defined
in section 2(a)(11) of the Securities Act of 1933 (15 U.S.C.
77b(a)(11)) by the issuer of such security for the purposes of
raising capital, unless the agreement, contract, or transaction is
entered into to manage a risk associated with capital raising;
(ix) Any agreement, contract, or transaction a counterparty of
which is a Federal Reserve bank, the Federal Government, or a
Federal agency that is expressly backed by the full faith and credit
of the United States; and
(x) Any security-based swap, other than a security-based swap as
described in subparagraph (D).
(C) Rule of Construction regarding master agreements.--
(i) In general.--Except as provided in clause (ii), the term
`swap' includes a master agreement that provides for an agreement,
contract, or transaction that is a swap under subparagraph (A),
together with each supplement to any master agreement, without
regard to whether the master agreement contains an agreement,
contract, or transaction that is not a swap pursuant to subparagraph
(A).
(ii) Exception.--For purposes of clause (i), the master
agreement shall be considered to be a swap only with respect to each
agreement, contract, or transaction covered by the master agreement
that is a swap pursuant to subparagraph (A).
[[Page 51431]]
(D) Mixed swap.--The term `security-based swap' includes any
agreement, contract, or transaction that is as described in section
3(a)(68)(A) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(68)(A)) and also is based on the value of 1 or more interest
or other rates, currencies, commodities, instruments of
indebtedness, indices, quantitative measures, other financial or
economic interest or property of any kind (other than a single
security or a narrow-based security index), or the occurrence, non-
occurrence, or the extent of the occurrence of an event or
contingency associated with a potential financial, economic, or
commercial consequence (other than an event described in
subparagraph (A)(iii)).
(E) Treatment of foreign exchange swaps and forwards.--
(i) In general.--Foreign exchange swaps and foreign exchange
forwards shall be considered swaps under this paragraph unless the
Secretary makes a written determination under section 1b that either
foreign exchange swaps or foreign exchange forwards or both--
(I) Should be not be regulated as swaps under this Act; and
(II) Are not structured to evade the Dodd-Frank Wall Street
Reform and Consumer Protection Act in violation of any rule
promulgated by the [Commodity Futures Trading] Commission pursuant
to section 721(c) of that Act.
(ii) Congressional notice; effectiveness.--The Secretary shall
submit any written determination under clause (i) to the appropriate
committees of Congress, including the Committee on Agriculture,
Nutrition, and Forestry of the Senate and the Committee on
Agriculture of the House of Representatives. Any such written
determination by the Secretary shall not be effective until it is
submitted to the appropriate committees of Congress.
(iii) Reporting.--Notwithstanding a written determination by the
Secretary under clause (i), all foreign exchange swaps and foreign
exchange forwards shall be reported to either a swap data
repository, or, if there is no swap data repository that would
accept such swaps or forwards, to the [Commodity Futures Trading]
Commission pursuant to section 4r within such time period as the
[Commodity Futures Trading] Commission may by rule or regulation
prescribe.
(iv) Business standards.--Notwithstanding a written
determination by the Secretary pursuant to clause (i), any party to
a foreign exchange swap or forward that is a swap dealer or major
swap participant shall conform to the business conduct standards
contained in section 4s(h).
(v) Secretary.--For purposes of this subparagraph, the term
`Secretary' means the Secretary of the Treasury.
(F) Exception for certain foreign exchange swaps and forwards.--
(i) Registered entities.--Any foreign exchange swap and any
foreign exchange forward that is listed and traded on or subject to
the rules of a designated contract market or a swap execution
facility, or that is cleared by a derivatives clearing organization,
shall not be exempt from any provision of this Act or amendments
made by the Wall Street Transparency and Accountability Act of 2010
prohibiting fraud or manipulation.
(ii) Retail transactions.--Nothing in subparagraph (E) shall
affect, or be construed to affect, the applicability of this Act or
the jurisdiction of the [Commodity Futures Trading] Commission with
respect to agreements, contracts, or transactions in foreign
currency pursuant to section 2(c)(2).''
Security-Based Swap: Section 761(a)(6) of the Dodd-Frank Act:
``(68) Security-Based Swap.--
(A) In general.--Except as provided in subparagraph (B), the
term `security-based swap' means any agreement, contract, or
transaction that--
(i) Is a swap, as that term is defined under section 1a of the
Commodity Exchange Act (without regard to paragraph (47)(B)(x) of
such section); and
(ii) Is based on--
(I) An index that is a narrow-based security index, including
any interest therein or on the value thereof;
(II) A single security or loan, including any interest therein
or on the value thereof; or
(III) The occurrence, nonoccurrence, or extent of the occurrence
of an event relating to a single issuer of a security or the issuers
of securities in a narrow-based security index, provided that such
event directly affects the financial statements, financial
condition, or financial obligations of the issuer.
(B) Rule of construction regarding master agreements.--The term
`security-based swap' shall be construed to include a master
agreement that provides for an agreement, contract, or transaction
that is a security-based swap pursuant to subparagraph (A), together
with all supplements to any such master agreement, without regard to
whether the master agreement contains an agreement, contract, or
transaction that is not a security-based swap pursuant to
subparagraph (A), except that the master agreement shall be
considered to be a security-based swap only with respect to each
agreement, contract, or transaction under the master agreement that
is a security-based swap pursuant to subparagraph (A).
(C) Exclusions.--The term `security-based swap' does not include
any agreement, contract, or transaction that meets the definition of
a security-based swap only because such agreement, contract, or
transaction references, is based upon, or settles through the
transfer, delivery, or receipt of an exempted security under
paragraph (12), as in effect on the date of enactment of the Futures
Trading Act of 1982 (other than any municipal security as defined in
paragraph (29) as in effect on the date of enactment of the Futures
Trading Act of 1982), unless such agreement, contract, or
transaction is of the character of, or is commonly known in the
trade as, a put, call, or other option.
(D) Mixed swap.--The term `security-based swap' includes any
agreement, contract, or transaction that is as described in
subparagraph (A) and also is based on the value of 1 or more
interest or other rates, currencies, commodities, instruments of
indebtedness, indices, quantitative measures, other financial or
economic interest or property of any kind (other than a single
security or a narrow-based security index), or the occurrence, non-
occurrence, or the extent of the occurrence of an event or
contingency associated with a potential financial, economic, or
commercial consequence (other than an event described in
subparagraph (A)(ii)(III)).
(E) Rule of construction regarding use of the term index.--The
term `index' means an index or group of securities, including any
interest therein or based on the value thereof.''
Swap Dealer: Section 721(a)(21) of the Dodd-Frank Act:
``(49) Swap dealer.--
(A) 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 the person to be commonly
known in the trade as a dealer or market maker in swaps, provided
however, in no event shall an insured depository institution be
considered to be a swap dealer to the extent it offers to enter into
a swap with a customer in connection with originating a loan with
that customer.
(B) Inclusion.--A person may be designated as a swap dealer for
a single type or single class or category of swap or activities and
considered not to be a swap dealer for other types, classes, or
categories of swaps or activities.
(C) 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 a
regular business.
(D) De minimis exception.--The [Commodity Futures Trading]
Commission shall exempt from designation as a swap dealer an entity
that engages in a de minimis quantity of swap dealing in connection
with transactions with or on behalf of its customers. The [Commodity
Futures Trading] Commission shall promulgate regulations to
establish factors with respect to the making of this determination
to exempt.''
Security-Based Swap Dealer: Section 761(a)(6) of the Dodd-Frank
Act:
``(71) Security-Based Swap Dealer.--
(A) In general.--The term `security-based swap dealer' means any
person who--
(i) Holds themself out as a dealer in security-based swaps;
(ii) Makes a market in security-based swaps;
(iii) Regularly enters into security-based 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 security-based swaps.
(B) Designation by type or class.--A person may be designated as
a security-based swap dealer for a single type or single class or
category of security-based swap or activities and considered not to
be a security-based
[[Page 51432]]
swap dealer for other types, classes, or categories of security
based swaps or activities.
(C) Exception.--The term `security-based swap dealer' does not
include a person that enters into security-based swaps for such
person's own account, either individually or in a fiduciary
capacity, but not as a part of regular business.
(D) De minimis exception.--The [Securities and Exchange]
Commission shall exempt from designation as a security-based swap
dealer an entity that engages in a de minimis quantity of security-
based swap dealing in connection with transactions with or on behalf
of its customers. The [Securities and Exchange] Commission shall
promulgate regulations to establish factors with respect to the
making of any determination to exempt.''
Major Swap Participant: Section 721(a)(16) of the Dodd-Frank Act:
``(33) Major Swap Participant.--
(A) In general.--The term `major swap participant' means any
person who is not a swap dealer, and--
(i) Maintains a substantial position in swaps for any of the
major swap categories as determined by the [Commodity Futures
Trading] Commission, excluding--
(I) Positions held for hedging or mitigating commercial risk;
and
(II) 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;
(ii) 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
(iii)(I) Is a financial entity that is highly leveraged relative
to the amount of capital it holds and that is not subject to capital
requirements established by an appropriate Federal banking agency;
and
(II) Maintains a substantial position in outstanding swaps in
any major swap category as determined by the [Commodity Futures
Trading] Commission.
(B) Definition of substantial position.--For purposes of
subparagraph (A), the [Commodity Futures Trading] Commission shall
define by rule or regulation the term `substantial position' at the
threshold that the [Commodity Futures Trading] Commission determines
to be prudent for the effective monitoring, management, and
oversight of entities that are systemically important or can
significantly impact the financial system of the United States. In
setting the definition under this subparagraph, the [Commodity
Futures Trading] Commission shall consider the person's relative
position in uncleared as opposed to cleared swaps and may take into
consideration the value and quality of collateral held against
counterparty exposures.
(C) Scope of designation.--For purposes of subparagraph (A), a
person may be designated as a major swap participant for 1 or more
categories of swaps without being classified as a major swap
participant for all classes of swaps.
(D) Exclusions.--The definition under this paragraph shall not
include an entity whose primary business is providing financing, and
uses derivatives for the purpose of hedging underlying commercial
risks related to interest rate and foreign currency exposures, 90
percent or more of which arise from financing that facilitates the
purchase or lease of products, 90 percent or more of which are
manufactured by the parent company or another subsidiary of the
parent company.''
Major Security-Based Swap Participant: Section 761(a)(6) of the
Dodd-Frank Act:
``(67) Major Security-Based Swap Participant.--
(A) In general.--The term `major security-based swap
participant' means any person--
(i) Who is not a security-based swap dealer; and
(ii)(I) Who maintains a substantial position in security-based
swaps for any of the major security-based swap categories, as such
categories are determined by the [Securities and Exchange]
Commission, 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;
(II) Whose outstanding security-based 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
(III) That is a financial entity that--
(aa) Is highly leveraged relative to the amount of capital such
entity holds and that is not subject to capital requirements
established by an appropriate Federal banking agency; and
(bb) Maintains a substantial position in outstanding security-
based swaps in any major security-based swap category, as such
categories are determined by the [Securities and Exchange]
Commission.
(B) Definition of substantial position.--For purposes of
subparagraph (A), the [Securities and Exchange] Commission shall
define, by rule or regulation, the term `substantial position' at
the threshold that the [Securities and Exchange] Commission
determines to be prudent for the effective monitoring, management,
and oversight of entities that are systemically important or can
significantly impact the financial system of the United States. In
setting the definition under this subparagraph, the [Securities and
Exchange] Commission shall consider the person's relative position
in uncleared as opposed to cleared security-based swaps and may take
into consideration the value and quality of collateral held against
counterparty exposures.
(C) Scope of designation.--For purposes of subparagraph (A), a
person may be designated as a major security-based swap participant
for 1 or more categories of security-based swaps without being
classified as a major security-based swap participant for all
classes of security-based swaps.''
Eligible Contract Participant: Section 1a(18) of the Commodity
Exchange Act, 7 U.S.C. 1a(18), as re-designated and amended by Sections
721(a)(9) and 741(b)(10) \5\ of the Dodd-Frank Act:
---------------------------------------------------------------------------
\5\ Section 741(b)(10) of the Dodd-Frank Act provides that
``Section 1a(19)(A)(iv)(II) of the Commodity Exchange Act (7 U.S.C.
1a(19)(A)(iv)(II)) (as redesignated by section 721(a)(1)) is amended
by inserting before the semicolon at the end the following:
``provided, however, that for purposes of section 2(c)(2)(B)(vi) and
section 2(c)(2)(C)(vii), the term `eligible contract participant'
shall not include a commodity pool in which any participant is not
otherwise an eligible contract participant''. The probable intent of
Congress was to amend the definition of ``eligible contract
participant'', which is in paragraph (18)(A)(iv)(II), not paragraph
(19)(A)(iv)(II).
``(18) Eligible Contract Participant.--The term `eligible
contract participant' means--
(A) Acting for its own account--
(i) A financial institution;
(ii) An insurance company that is regulated by a State, or that
is regulated by a foreign government and is subject to comparable
regulation as determined by the [Commodity Futures Trading]
Commission, including a regulated subsidiary or affiliate of such an
insurance company;
(iii) An investment company subject to regulation under the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a
foreign person performing a similar role or function subject as such
to foreign regulation (regardless of whether each investor in the
investment company or the foreign person is itself an eligible
contract participant);
(iv) A commodity pool that--
(I) Has total assets exceeding $5,000,000; and
(II) Is formed and operated by a person subject to regulation
under this Act or a foreign person performing a similar role or
function subject as such to foreign regulation (regardless of
whether each investor in the commodity pool or the foreign person is
itself an eligible contract participant) provided, however, that for
purposes of section 2(c)(2)(B)(vi) and section 2(c)(2)(C)(vii), the
term `eligible contract participant' shall not include a commodity
pool in which any participant is not otherwise an eligible contract
participant;
(v) A corporation, partnership, proprietorship, organization,
trust, or other entity--
(I) That has total assets exceeding $10,000,000;
(II) The obligations of which under an agreement, contract, or
transaction are guaranteed or otherwise supported by a letter of
credit or keepwell, support, or other agreement by an entity
described in subclause (I), in clause (i), (ii), (iii), (iv), or
(vii), or in subparagraph (C); or
(III) That--
(aa) Has a net worth exceeding $1,000,000; and
(bb) Enters into an agreement, contract, or transaction in
connection with the conduct of
[[Page 51433]]
the entity's business or to manage the risk associated with an asset
or liability owned or incurred or reasonably likely to be owned or
incurred by the entity in the conduct of the entity's business;
(vi) An employee benefit plan subject to the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1001 et seq.), a governmental
employee benefit plan, or a foreign person performing a similar role
or function subject as such to foreign regulation--
(I) That has total assets exceeding $5,000,000; or
(II) The investment decisions of which are made by--
(aa) An investment adviser or commodity trading advisor subject
to regulation under the Investment Advisers Act of 1940 (15 U.S.C.
80b-1 et seq.) or this Act;
(bb) A foreign person performing a similar role or function
subject as such to foreign regulation;
(cc) A financial institution; or
(dd) An insurance company described in clause (ii), or a
regulated subsidiary or affiliate of such an insurance company;
(vii)(I) A governmental entity (including the United States, a
State, or a foreign government) or political subdivision of a
governmental entity;
(II) A multinational or supranational government entity; or
(III) An instrumentality, agency, or department of an entity
described in subclause (I) or (II);
except that such term does not include an entity, instrumentality,
agency, or department referred to in subclause (I) or (III) of this
clause unless (aa) the entity, instrumentality, agency, or
department is a person described in clause (i), (ii), or (iii) of
paragraph (17)(A); (bb) the entity, instrumentality, agency, or
department owns and invests on a discretionary basis $50,000,000 or
more in investments; or (cc) the agreement, contract, or transaction
is offered by, and entered into with, an entity that is listed in
any of subclauses (I) through (VI) of section 2(c)(2)(B)(ii);
(viii)(I) A broker or dealer subject to regulation under the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or a foreign
person performing a similar role or function subject as such to
foreign regulation, except that, if the broker or dealer or foreign
person is a natural person or proprietorship, the broker or dealer
or foreign person shall not be considered to be an eligible contract
participant unless the broker or dealer or foreign person also meets
the requirements of clause (v) or (xi);
(II) An associated person of a registered broker or dealer
concerning the financial or securities activities of which the
registered person makes and keeps records under section 15C(b) or
17(h) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5(b),
78q(h));
(III) An investment bank holding company (as defined in section
17(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(i));
(ix) A futures commission merchant subject to regulation under
this Act or a foreign person performing a similar role or function
subject as such to foreign regulation, except that, if the futures
commission merchant or foreign person is a natural person or
proprietorship, the futures commission merchant or foreign person
shall not be considered to be an eligible contract participant
unless the futures commission merchant or foreign person also meets
the requirements of clause (v) or (xi);
(x) A floor broker or floor trader subject to regulation under
this Act in connection with any transaction that takes place on or
through the facilities of a registered entity (other than an
electronic trading facility with respect to a significant price
discovery contract) or an exempt board of trade, or any affiliate
thereof, on which such person regularly trades; or
(xi) An individual who has amounts invested on a discretionary
basis, the aggregate of which is in excess of--
(I) $10,000,000; or
(II) $5,000,000 and who enters into the agreement, contract, or
transaction in order to manage the risk associated with an asset
owned or liability incurred, or reasonably likely to be owned or
incurred, by the individual;
(B)(i) A person described in clause (i), (ii), (iv), (v),
(viii), (ix), or (x) of subparagraph (A) or in subparagraph (C),
acting as broker or performing an equivalent agency function on
behalf of another person described in subparagraph (A) or (C); or
(ii) An investment adviser subject to regulation under the
Investment Advisers Act of 1940, a commodity trading advisor subject
to regulation under this Act, a foreign person performing a similar
role or function subject as such to foreign regulation, or a person
described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of
subparagraph (A) or in subparagraph (C), in any such case acting as
investment manager or fiduciary (but excluding a person acting as
broker or performing an equivalent agency function) for another
person described in subparagraph (A) or (C) and who is authorized by
such person to commit such person to the transaction; or
(C) Any other person that the [Commodity Futures Trading]
Commission determines to be eligible in light of the financial or
other qualifications of the person.''
Security-Based Swap Agreement: Section 761(a)(6) of the Dodd-Frank
Act:
``(78) Security-Based Swap Agreement.--
(A) In general.--For purposes of sections 9, 10, 16, 20, and 21A
of this Act, and section 17 of the Securities Act of 1933 (15 U.S.C.
77q), the term `security-based swap agreement' means a swap
agreement as defined in section 206A of the Gramm-Leach-Bliley Act
(15 U.S.C. 78c note) of which a material term is based on the price,
yield, value, or volatility of any security or any group or index of
securities, or any interest therein.
(B) Exclusions.--The term `security-based swap agreement' does
not include any security-based swap.''
By the Securities and Exchange Commission.
Dated: August 13, 2010.
Elizabeth M. Murphy,
Secretary.
By the Commodity Futures Trading Commission.
Dated: August 13, 2010.
David A. Stawick,
Secretary.
[FR Doc. 2010-20567 Filed 8-19-10; 8:45 am]
BILLING CODE P
