Margin and Capital Requirements for Covered Swap Entities; Proposed Rule, 7413-7423 [2018-02560]

Download as PDF daltland on DSKBBV9HB2PROD with PROPOSALS Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules Director orders an enrollment change, a person whose enrollment has been changed from one plan to another, or from one option of a plan to the other option of that plan, and who is confined to a hospital or other institution for care or treatment on the last day of enrollment under the prior plan or option, is entitled to continuation of the benefits of the prior plan or option during the continuance of the confinement. Continuation of benefits shall not extend beyond the 91st day after the last day of enrollment in the prior plan or option. The plan or option to which enrollment has been changed shall not pay benefits with respect to that person while he or she is entitled to any inpatient benefits under the prior plan or option. The gaining plan or option shall begin coverage according to the limits of its FEHB Program contract on the day after the day all inpatient benefits have been exhausted under the prior plan or option or the 92nd day after the last day of enrollment in the prior plan or option, whichever is earlier. For the purposes of this paragraph (b)(2), ‘‘exhausted’’ means paid or provided to the maximum benefit available under the contract. * * * * * (c)(1) The employing agency must notify the enrollee of the termination of the enrollment and of the right to convert to a non-group contract within 15 days after the date the enrollment terminates. (2) The individual whose enrollment terminates must request conversion information from the losing Carrier within 15 days of the date of the agency notice of the termination of the enrollment and of the right to convert. The losing Carrier must provide information to the individual that will assist the individual in enrolling in a non-group contract for which the individual is eligible. (3) When an agency fails to provide the notification required in paragraph (c)(1) of this section within 15 days of the date the enrollment terminates, or the individual fails for other reasons beyond his or her control to request conversion as required in paragraph (c)(2) of this section, he or she may request assistance with conversion to a non-group contract by writing directly to the Carrier. Such a request must be filed within 6 months after the individual became eligible to convert his or her group coverage and must be accompanied by verification of termination of the enrollment; e.g., an SF 50, showing the individual’s separation from the service. In addition, the individual must show that he or she VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 was not notified of the termination of the enrollment and of the right to convert, and was not otherwise aware of it, or that he or she was unable, for cause beyond his or her control, to convert. The Carrier will determine if the individual is eligible to convert; and when the determination is affirmative, the individual may convert within 31 days of the determination. If the determination by the Carrier is negative, the individual may request a review of the Carrier’s determination from OPM. (4) When an individual converts his or her coverage any time after the group coverage has ended, the non-group plan coverage is effective on the date governed by the rules applicable to the non-group plan. (5) An individual who fails to exercise his or her rights to convert to non-group plan during the extension period is deemed to have declined the right to convert unless the Carrier, or, upon review, OPM determines the failure was for cause beyond his or her control. [FR Doc. 2018–03510 Filed 2–20–18; 8:45 am] BILLING CODE 6325–63–P DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 45 [Docket No. OCC–2018–0003] RIN 1557–AE29 FEDERAL RESERVE SYSTEM 12 CFR Part 237 [Docket No. R–1596] RIN 7100–AE96 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 349 RIN 3064–AE70 FARM CREDIT ADMINISTRATION 12 CFR Part 624 RIN 3052–AD28 FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1221 RIN 2590–AA92 Margin and Capital Requirements for Covered Swap Entities; Proposed Rule Office of the Comptroller of the Currency, Treasury (OCC); Board of AGENCY: PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 7413 Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA); and the Federal Housing Finance Agency (FHFA). ACTION: Notice of proposed rulemaking and request for comment. The Board, OCC, FDIC, FCA, and FHFA (each an Agency and, collectively, the Agencies) are seeking comment on proposed amendments to the minimum margin requirements for registered swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants for which one of the Agencies is the prudential regulator (Swap Margin Rule). The Agencies are proposing these amendments in light of the rules recently adopted by the Board, the OCC, and the FDIC that impose restrictions on certain non-cleared swaps and non-cleared security-based swaps and other financial contracts (Covered QFCs) (the QFC Rules). The QFC Rules amend the definition of ‘‘Qualifying Master Netting Agreement’’ in the Federal banking agencies’ regulatory capital and liquidity rules to ensure that a Covered QFC is not prevented from being part of a Qualifying Master Netting Agreement solely because the Covered QFC conforms to the new requirements in the QFC Rules. The FCA also plans to propose amendments to its capital rules, including potential revisions to its regulatory definition of ‘‘Qualifying Master Netter Agreement,’’ which is expected to be identical to the definition used in the Federal banking agencies’ regulatory capital and liquidity rules. The Agencies are proposing to amend the definition of ‘‘Eligible Master Netting Agreement’’ in the Swap Margin Rule so that it remains harmonized with the amended definition of ‘‘Qualifying Master Netting Agreement’’ in the Federal banking agencies’ regulatory capital and liquidity rules, and amendments to the capital rules that the FCA separately plans to propose. This proposed rule would also ensure that netting agreements of firms subject to the Swap Margin Rule are not excluded from the definition of ‘‘Eligible Master Netting Agreement’’ based solely on their compliance with the QFC Rules. The Agencies are also proposing that any legacy non-cleared swap or noncleared security-based swap (i.e., a noncleared swap or non-cleared securitybased swap entered into before the applicable compliance date) that is not subject to the margin requirements of the Swap Margin Rule would not become subject to the provisions of the SUMMARY: E:\FR\FM\21FEP1.SGM 21FEP1 daltland on DSKBBV9HB2PROD with PROPOSALS 7414 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules Swap Margin Rule if the non-cleared swap or non-cleared security-based swap is amended solely to comply with the requirements of the QFC Rules. DATES: Comments should be received by April 23, 2018. ADDRESSES: Interested parties are encouraged to submit written comments jointly to all of the Agencies. Commenters are encouraged to use the title ‘‘Margin and Capital Requirements for Covered Swap Entities’’ to facilitate the organization and distribution of comments among the Agencies. Commenters are also encouraged to identify the number of the specific question for comment to which they are responding. Comments should be directed to: OCC: You may submit comments to the OCC by any of the methods set forth below. Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments through the Federal eRulemaking Portal or email, if possible. Please use the title ‘‘Margin and Capital Requirements for Covered Swap Entities’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘Regulations.gov’’: Go to www.regulations.gov. Enter ‘‘Docket ID OCC–2018–0003’’ in the Search Box and click ‘‘Search.’’ Click on ‘‘Comment Now’’ to submit public comments. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments. • Email: regs.comments@ occ.treas.gov. • Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E–218, Washington, DC 20219. • Hand Delivery/Courier: 400 7th Street SW, Suite 3E–218, Washington, DC 20219. • Fax: (571) 465–4326. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2018–0003’’ in your comment. In general, the OCC will enter all comments received into the docket and publish them on the Regulations.gov website without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this rulemaking action by any of the following methods: • Viewing Comments Electronically: Go to www.regulations.gov. Enter ‘‘Docket ID OCC–2018–003’’ in the Search box and click ‘‘Search.’’ Click on ‘‘Open Docket Folder’’ on the right side of the screen. Comments and supporting materials can be viewed and filtered by clicking on ‘‘View all documents and comments in this docket’’ and then using the filtering tools on the left side of the screen. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov. The docket may be viewed after the close of the comment period in the same manner as during the comment period. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street SW, Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649–6700 or, for persons who are deaf or hearing impaired, TTY, (202) 649–5597. Upon arrival, visitors will be required to present valid governmentissued photo identification and submit to security screening in order to inspect and photocopy comments. Board: You may submit comments, identified by Docket No. R–1596 and RIN 7100 AE–96, by any of the following methods: • Agency website: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Email: regs.comments@ federalreserve.gov. Include the docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Address to Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. All public comments will be made available on the Board’s website at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, comments will not be edited to remove any identifying PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 or contact information. Public comments may also be viewed electronically or in paper form in Room 3515, 1801 K Street NW (between 18th and 19th Streets NW), between 9:00 a.m. and 5:00 p.m. on weekdays. FDIC: You may submit comments, identified by RIN 3064–AE70, by any of the following methods: • Agency website: https:// www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency website. • Email: Comments@FDIC.gov. Include ‘‘RIN 3064–AE70’’ on the subject line of the message. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/RIN 3064–AE70, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. • Hand Delivery/Courier: Comments may be hand delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. All comments received must include the agency name (FDIC) and RIN 3064– AE70 and will be posted without change to https://www.fdic.gov/regulations/laws/ federal, including any personal information provided. FCA: We offer a variety of methods for you to submit your comments. For accuracy and efficiency reasons, commenters are encouraged to submit comments by email or through the FCA’s website. As facsimiles (fax) are difficult for us to process and achieve compliance with section 508 of the Rehabilitation Act, we are no longer accepting comments submitted by fax. Regardless of the method you use, please do not submit your comments multiple times via different methods. You may submit comments by any of the following methods: • Email: Send us an email at regcomm@fca.gov. • FCA website: https://www.fca.gov. Select ‘‘Public Commenters,’’ then ‘‘Public Comments,’’ and follow the directions for ‘‘Submitting a Comment.’’ • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Barry F. Mardock, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102–5090. You may review copies of all comments we receive at our office in McLean, Virginia or on our website at https://www.fca.gov. Once you are in the website, select ‘‘Public Commenters,’’ then ‘‘Public Comments,’’ and follow the directions for ‘‘Reading Submitted Public Comments.’’ We will show your comments as submitted, including any E:\FR\FM\21FEP1.SGM 21FEP1 daltland on DSKBBV9HB2PROD with PROPOSALS Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules supporting data provided, but for technical reasons we may omit items such as logos and special characters. Identifying information that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove email addresses to help reduce internet spam. FHFA: You may submit your written comments on the proposed rulemaking, identified by regulatory information number (RIN) 2590–AA92, by any of the following methods: • Email: Comments to Alfred M. Pollard, General Counsel, may be sent by email at RegComments@fhfa.gov. Please include ‘‘RIN 2590–AA92’’ in the subject line of the message. Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. If you submit your comment to the Federal eRulemaking Portal, please also send it by email to FHFA at RegComments@fhfa.gov to ensure timely receipt by the Agency. Please include ‘‘RIN 2590–AA92’’ in the subject line of the message. • U.S. Mail, United Parcel Service, Federal Express, or Other Mail Service: The mailing address for comments is: Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590–AA45, Federal Housing Finance Agency, Eighth Floor, 400 7th St. SW, Washington, DC 20219. • Hand Delivery/Courier: The hand delivery address is: Alfred M. Pollard, General Counsel, Attention: Comments/ RIN 2590–AA45, Federal Housing Finance Agency, Eighth Floor, 400 7th St. SW, Washington, DC 20219. A handdelivered package should be logged at the Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m. All comments received by the deadline will be posted for public inspection without change, including any personal information you provide, such as your name and address, on the FHFA website at https://www.fhfa.gov. Copies of all comments timely received will be available for public inspection and copying at the address above on government-business days between the hours of 10 a.m. and 3 p.m. To make an appointment to inspect comments please call the Office of General Counsel at (202) 649–3804. FOR FURTHER INFORMATION CONTACT: OCC: Allison Hester-Haddad, Counsel, Legislative and Regulatory Activities Division, (202) 649–5490, for persons who are deaf or hearing impaired, TTY (202) 649–5597, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 Board: Anna M. Harrington, Senior Supervisory Financial Analyst, (202) 452–6406, or Kelly Tomera, Financial Analyst, (202) 912–7861, Division of Supervision and Regulation; Adam Cohen, Counsel, (202) 912–4658, Victoria M. Szybillo, Counsel, (202) 475–6325, or Jason Shafer, Senior Attorney, (202) 728–5811, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. FDIC: Irina Leonova, Senior Policy Analyst, Capital Markets Branch, Division of Risk Management Supervision, (202) 898–3843, ileonova@ fdic.gov; Phillip E. Sloan, Counsel, Legal Division, psloan@fdic.gov, (703) 562– 6137, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. FCA: J.C. Floyd, Associate Director, Finance & Capital Markets Team, Timothy T. Nerdahl, Senior Policy Analyst—Capital Markets, Jeremy R. Edelstein, Senior Policy Analyst, Office of Regulatory Policy, (703) 883–4414, TTY (703) 883–4056, or Richard A. Katz, Senior Counsel, Office of General Counsel, (703) 883–4020, TTY (703) 883–4056, Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102–5090. FHFA: Ron Sugarman, Principal Policy Analyst, Office of Policy Analysis and Research, (202) 649–3208, Ron.Sugarman@fhfa.gov, or James Jordan, Assistant General Counsel, Office of General Counsel, (202) 649– 3075, James.Jordan@fhfa.gov, Federal Housing Finance Agency, Constitution Center, 400 7th St. SW, Washington, DC 20219. The telephone number for the Telecommunications Device for the Hearing Impaired is (800) 877–8339. I. Background A. The Swap Margin Rule The Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act) was enacted on July 21, 2010.1 Title VII of the Dodd-Frank Act established a comprehensive new regulatory framework for derivatives, which the Dodd-Frank Act generally characterizes as ‘‘swaps’’ (swap is defined in section 721 of the DoddFrank Act to include, among other things, an interest rate swap, commodity swap, equity swap, and credit default swap) and ‘‘security-based swaps’’ (security-based swap is defined in section 761 of the Dodd-Frank Act to include a swap based on a single security or loan or on a narrow-based 1 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010). PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 7415 security index).2 For the remainder of this preamble, the term ‘‘swaps’’ refers to swaps and security-based swaps unless the context requires otherwise. Sections 731 and 764 of the DoddFrank Act required the Office of the Comptroller of the Currency (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA); and the Federal Housing Finance Agency (FHFA) (collectively, the Agencies) to adopt rules jointly that establish capital and margin requirements for swap entities 3 that are prudentially regulated by one of the Agencies (covered swap entities),4 to offset the greater risk to the 2 See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68). 7 U.S.C. 6s; 15 U.S.C. 78o–10. Sections 731 and 764 of the Dodd-Frank Act add a new section 4s to the Commodity Exchange Act of 1936, as amended, and a new section, section 15F, to the Securities Exchange Act of 1934, as amended, respectively, which require registration with the Commodity Futures Trading Commission (CFTC) of swap dealers and major swap participants and the U.S. Securities and Exchange Commission (SEC) of security-based swap dealers and major securitybased swap participants (each a swap entity and, collectively, swap entities). The CFTC is vested with primary responsibility for the oversight of the swaps market under Title VII of the Dodd-Frank Act. The SEC is vested with primary responsibility for the oversight of the security-based swaps market under Title VII of the Dodd-Frank Act. Section 712(d)(1) of the Dodd-Frank Act requires the CFTC and SEC to issue joint rules further defining the terms swap, security-based swap, swap dealer, major swap participant, security-based swap dealer, and major security-based swap participant. The CFTC and SEC issued final joint rulemakings with respect to these definitions in May 2012 and August 2012, respectively. See 77 FR 30596 (May 23, 2012); 77 FR 39626 (July 5, 2012) (correction of footnote in the Supplementary Information accompanying the rule); and 77 FR 48207 (August 13, 2012). 17 CFR part 1; 17 CFR parts 230, 240 and 241. 4 Section 1a(39) of the Commodity Exchange Act of 1936, as amended, defines the term ‘‘prudential regulator’’ for purposes of the margin requirements applicable to swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. The Board is the prudential regulator for any swap entity that is (i) a state-chartered bank that is a member of the Federal Reserve System, (ii) a state-chartered branch or agency of a foreign bank, (iii) a foreign bank which does not operate an insured branch, (iv) an organization operating under section 25A of the Federal Reserve Act of 1913, as amended, or having an agreement with the Board under section 25 of the Federal Reserve Act, or (v) a bank holding company, a foreign bank that is treated as a bank holding company under section 8(a) of the International Banking Act of 1978, as amended, or a savings and loan holding company (on or after the transfer date established under section 311 of the Dodd-Frank Act), or a subsidiary of such a company or foreign bank (other than a subsidiary for which the OCC or the FDIC is the prudential regulator or that is required to be registered with the CFTC or SEC as a swap dealer or major swap participant or a security-based swap dealer or major securitybased swap participant, respectively). The OCC is the prudential regulator for any swap entity that is (i) a national bank, (ii) a federally chartered branch or agency of a foreign bank, or (iii) a Federal savings association. The FDIC is the prudential regulator for 3 See E:\FR\FM\21FEP1.SGM Continued 21FEP1 7416 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules daltland on DSKBBV9HB2PROD with PROPOSALS covered swap entity and the financial system arising from swaps that are not cleared by a registered derivatives clearing organization or a registered clearing agency (non-cleared swaps).5 On November 30, 2015, the Agencies published a joint final rule (Swap Margin Rule) to establish minimum margin and capital requirements for covered swap entities.6 In the Swap Margin Rule, the Agencies adopted a risk-based approach for initial and variation margin requirements for covered swap entities.7 To implement the risk-based approach, the Agencies established requirements for a covered swap entity to collect and post initial margin for non-cleared swaps with a counterparty that is either: (1) A financial end user with material swaps exposure,8 or (2) a swap entity.9 A covered swap entity must collect and post variation margin for non-cleared swaps with all swap entities and financial end user counterparties, even if such financial end users do not have material swaps exposure.10 Other counterparties, including nonfinancial end users, are not subject to specific, numerical minimum requirements for initial and variation margin.11 The effective date for the Swap Margin Rule was April 1, 2016, but the Agencies established a phase-in compliance schedule for the initial margin and variation margin requirements.12 On or after March 1, any swap entity that is (i) a State-chartered bank that is not a member of the Federal Reserve System, or (ii) a State savings association. The FCA is the prudential regulator for any swap entity that is an institution chartered under the Farm Credit Act of 1971, as amended. The FHFA is the prudential regulator for any swap entity that is a ‘‘regulated entity’’ under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (i.e., the Federal National Mortgage Association and its affiliates, the Federal Home Loan Mortgage Corporation and its affiliates, and the Federal Home Loan Banks). See 7 U.S.C. 1a(39). 5 See 7 U.S.C. 6s(e)(3)(A); 15 U.S.C. 78o– 10(e)(3)(A). 6 80 FR 74840 (November 30, 2015). 7 80 FR 74843. 8 ‘‘Material swaps exposure’’ for an entity means that the entity and its affiliates have an average daily aggregate notional amount of non-cleared swaps, non-cleared security-based swaps, foreign exchange forwards, and foreign exchange swaps with all counterparties for June, July, and August of the previous calendar year that exceeds $8 billion, where such amount is calculated only for business days. See § l.2 of the Swap Margin Rule. 9 See §§ l.3 and l.4 of the Swap Margin Rule. 10 Id. 11 Id. 12 The applicable compliance date for a covered swap entity is based on the average daily aggregate notional amount of non-cleared swaps, foreign exchange forwards and foreign exchange swaps of the covered swap entity and its counterparty (accounting for their respective affiliates) for each business day in March, April and May of that year. The applicable compliance dates for initial margin VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 2017, all covered swap entities are required to comply with the variation margin requirements for transactions with other swap entities and financial end user counterparties. By September 1, 2020, all covered swap entities will be required to comply with the initial margin requirements for non-cleared swaps with all financial end users with a material swaps exposure and all swap entities. The Swap Margin Rule’s requirements apply only to a non-cleared swap entered into on or after the applicable compliance date (covered swap); a noncleared swap entered into prior to a covered swap entity’s applicable compliance date (legacy swap) is generally not subject to the margin requirements in the Swap Margin Rule.13 However, a legacy swap that is later amended or novated on or after the applicable compliance date would be deemed to be a covered swap, and therefore would become subject to the requirements of the Swap Margin Rule.14 Whether a non-cleared swap is deemed to be a legacy swap or a covered swap also affects the treatment of a covered swap entity’s netting portfolios. The Swap Margin Rule permits a covered swap entity to (1) calculate initial margin requirements for covered swaps under an eligible master netting agreement (EMNA) with a counterparty on a portfolio basis in certain circumstances, if it does so using an initial margin model; and (2) calculate variation margin on an aggregate net basis under an EMNA.15 In addition, the Swap Margin Rule permits swap counterparties to identify one or more separate netting portfolios under an EMNA, including netting sets of covered swaps and netting sets of non-cleared swaps that are not subject to margin requirements.16 Specifically, a netting portfolio that contains only legacy swaps is not subject to the margin requirements set out in the Swap Margin Rule.17 However, if a netting portfolio contains any covered swaps, the entire netting portfolio is subject to requirements, and the corresponding average daily notional thresholds, are: September 1, 2016, $3 trillion; September 1, 2017, $2.25 trillion; September 1, 2018, $1.5 trillion; September 1, 2019, $0.75 trillion; and September 1, 2020, all swap entities and counterparties. See § l.1(e) of the Swap Margin Rule. 13 See § l.1(e) of the Swap Margin Rule. 14 80 FR 74850–51. 15 See §§ l.2 and .5 of the Swap Margin Rule. 16 Typically, this is accomplished by using a separate Credit Support Annex for each netting set, subject to the terms of a single master netting agreement. 17 See §§ l.2 and l.5 of the Swap Margin Rule. PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 the margin requirements of the Swap Margin Rule.18 B. The QFC Rules As part of the broader regulatory reform effort following the financial crisis to increase the resolvability and resiliency of U.S. global systemically important banking institutions 19 (U.S. GSIBs) and the U.S. operations of foreign GSIBs (together, GSIBs),20 the Board, the OCC, and the FDIC adopted final rules that establish restrictions on and requirements for certain noncleared swaps and other financial contracts (collectively, Covered QFCs) of GSIBs and their subsidiaries (the QFC Rules).21 Subject to certain exemptions, the QFC Rules require U.S. GSIBs, together with their subsidiaries, and the U.S. operations of foreign GSIBs (each a Covered QFC Entity and, collectively, Covered QFC Entities) to conform Covered QFCs to the requirements of the rules.22 The QFC Rules generally require the Covered QFCs of Covered QFC Entities to contain contractual provisions that opt into the ‘‘temporary stay-and-transfer treatment’’ of the Federal Deposit Insurance Act (FDI Act) 23 and Title II of the Dodd-Frank Act, thereby reducing the risk that the stay-and-transfer treatment would be challenged by a Covered QFC Entity’s counterparty or a court in a foreign jurisdiction.24 The temporary stay-andtransfer treatment is part of the special 18 Id. 19 See 12 CFR 217.402 (defining global systemically important banking institution). The eight firms currently identified as U.S. GSIBs are Bank of America Corporation, The Bank of New York Mellon Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JP Morgan Chase & Co., Morgan Stanley Inc., State Street Corporation, and Wells Fargo & Company. 20 The U.S. operations of 20 foreign GSIBs are currently subject to the Board’s QFC Rule. 21 See 12 CFR 252.82(c) (defining Covered QFC), 382.2(c) (same). See also 82 FR 56630 (November 29, 2017) (for OCC’s QFC Rule). See also 82 FR 50228 (October 30, 2017) (for FDIC’s QFC Rule). See also 82 FR 42882 (September 12, 2017) (for the Board’s QFC Rule). The effective date of the Board’s QFC Rule was November 13, 2017, and the effective date for the substance of the OCC’s and FDIC’s QFC Rules was January 1, 2018. The QFC Rules include a phased-in conformance period for a Covered QFC Entity that varies depending upon the counterparty type of the Covered QFC Entity. The first conformance date is January 1, 2019, and applies to Covered QFCs with GSIBs. The QFC Rules provide Covered QFC Entities an additional six months or one year to conform its Covered QFCs with other types of counterparties. 22 To the extent a U.S. GSIB, any of its subsidiaries, or the U.S. operations of a foreign GSIB include a swap entity for which one of the Agencies is a prudential regulator, a Covered QFC Entity may be a covered swap entity. 23 12 U.S.C. 1811 et. seq. 24 82 FR 42882 (September 12, 2017); 82 FR 50228 (October 30, 2017); 82 FR 56630 (November 29, 2017). E:\FR\FM\21FEP1.SGM 21FEP1 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules resolution framework for failed financial firms created by the FDI Act and Title II of the Dodd-Frank Act. The stay-andtransfer treatment provides that the rights of a failed insured depository institution’s or financial company’s counterparties to terminate, liquidate, or net certain qualified financial contracts on account of the appointment of the FDIC as receiver for the entity (or the insolvency or financial condition of the entity for which the FDIC has been appointed receiver) are temporarily stayed when the entity enters a resolution proceeding to allow for the transfer of the failed firm’s Covered QFCs to a solvent party.25 The QFC Rules also generally prohibit Covered QFCs from allowing the exercise of default rights related, directly or indirectly, to the entry into resolution of an affiliate of the Covered QFC Entity (cross-default rights).26 The Board’s QFC Rule applies to U.S. GSIBs and their subsidiaries, state branches, and state agencies, as well other U.S. operations of foreign GSIBs with the exception of banks regulated by the FDIC or OCC, Federal branches, or Federal agencies.27 The FDIC’s QFC Rule applies to GSIB subsidiaries that are state savings associations and statechartered banks that are not members of the Federal Reserve System.28 The OCC’s QFC Rule applies to national bank subsidiaries and Federal savings association subsidiaries of GSIBs, and Federal branches and agencies of foreign GSIBs.29 daltland on DSKBBV9HB2PROD with PROPOSALS C. The Definitions of Qualifying Master Netting Agreement As part of the QFC Rules, the Federal banking agencies amended the definition of qualifying master netting agreement (QMNA) in their capital and liquidity rules to prevent the QFC Rules from having disruptive effects on the treatment of netting sets of Boardregulated firms, OCC-regulated firms, and FDIC-regulated firms.30 The FCA plans to propose several technical and clarifying amendments to its capital regulations, including a possible revision to the definition of QMNA so 25 12 U.S.C. 1821(e)(10)(B), 5390(c)(10)(B). Title II of the Dodd-Frank Act also provides the FDIC with the power to enforce Covered QFCs (and other contracts) of subsidiaries and affiliates of the financial company for which the FDIC has been appointed receiver. 12 U.S.C. 5390(c)(16); 12 CFR 380.12. 26 82 FR 42882 (September 12, 2017); 82 FR 50228 (October 30, 2017); 82 FR 56630 (November 29, 2017). 27 82 FR 42882 (September 12, 2017). 28 82 FR 50228 (October 30, 2017). 29 82 FR 56630 (November 29, 2017). 30 82 FR 42882, 42915; 82 FR 50228, 50258; 82 FR 56630, 56659. VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 it continues to be identical to the definition in the regulations of the Federal banking agencies’ regulatory capital and liquidity rules.31 The amendments to the Federal banking agencies’ capital and liquidity rules are necessary because the previous QMNA definition did not recognize some of the new close-out restrictions on Covered QFCs imposed by the QFC Rules.32 Pursuant to the previous definition of QMNA, a banking organization’s rights under a QMNA generally could not be stayed or avoided in the event of its counterparty’s default. However, the definition of QMNA permitted certain exceptions to this general prohibition to accommodate certain restrictions on the exercise of default rights that are important to the prudent resolution of a banking organization, including a limited stay under a special resolution regime, such as Title II of the Dodd-Frank Act, the FDI Act, and comparable foreign resolution regimes. The previous QMNA definition did not explicitly recognize all the restrictions on the exercise of cross-default rights.33 Therefore, a master netting agreement that complies with the QFC Rules by limiting the rights of a Covered QFC Entity’s counterparty to close out against the Covered QFC Entity would not meet the previous QMNA definition. Thus, a failure to meet the definition of QMNA would result in a banking organization subject to one of the Federal banking agencies’ capital and liquidity rules losing the ability to net offsetting exposures under its applicable capital and liquidity requirements when its counterparty is a Covered QFC Entity. If netting were not permitted, the banking organization would be required to calculate its capital and liquidity requirements relating to certain Covered QFCs on a gross basis rather than on a net basis, which would typically result in higher capital and liquidity requirements. The Federal banking agencies do not believe that such an outcome would accurately reflect the risks posed by the affected Covered QFCs. The amendments to the QMNA definition maintain the netting treatment for these contracts under the Federal banking agencies’ capital and 31 See FCA’s Fall 2017 Unified Agenda (www.RegInfo.gov). The FCA’s Tier 1/Tier 2 Capital Framework’s existing definition of QMNA is identical to the previous definition of QMNA used in the Federal banking agencies’ capital and liquidity rules. 32 12 CFR 3.2 (2017); 12 CFR 50.3 (2017); 12 CFR 217.2 (2017); 12 CFR 249.3 (2017); 12 CFR 324.2; 12 CFR 329.3. 33 See, e.g., 12 CFR 252.84(b)(1). PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 7417 liquidity rules. The amendments permit a master netting agreement to meet the definition of QMNA even if it limits the banking organization’s right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of a counterparty that is a Covered QFC Entity to the extent necessary for the Covered QFC Entity to comply fully with the QFC Rules. The amended definition of QMNA continues to recognize that default rights may be stayed if the defaulting counterparty is in resolution under the Dodd-Frank Act, the FDI Act, a substantially similar law applicable to government-sponsored enterprises, or a substantially similar foreign law, or where the agreement is subject by its terms to, or incorporates, any of those laws. By recognizing these required restrictions on the ability of a banking organization to exercise closeout rights when its counterparty is a Covered QFC Entity, the amended definition allows a master netting agreement that includes such restrictions to continue to meet the definition of QMNA under the Federal banking agencies’ capital and liquidity rules. II. Proposed Changes to the Swap Margin Rule A. Proposed Amendment to the Definition of Eligible Master Netting Agreement In the Swap Margin Rule, the Agencies explained that the current definition of EMNA was purposefully aligned with the Federal banking agencies’ then-current definition of QMNA in the capital and liquidity rules. This was to ‘‘minimize operational burden for a covered swap entity, which otherwise would have to make a separate determination as to whether its netting agreements meet the requirements of this [Swap Margin Rule] as well as comply with the regulatory capital rules.’’ 34 In addition, the Agencies’ rationale for recognizing netting of non-cleared swap exposures pursuant to the Swap Margin Rule is quite similar to the Federal banking agencies’ rationale for recognizing netting of various asset and liability exposures pursuant to their capital and liquidity rules. Therefore, it is appropriate that the corresponding conditions for recognizing a robust 34 80 FR 74861. The Swap Margin Rule used the term EMNA rather than QMNA to avoid confusion with, and to distinguish from, the term used under the Federal banking agencies’ capital and liquidity rules. E:\FR\FM\21FEP1.SGM 21FEP1 7418 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules daltland on DSKBBV9HB2PROD with PROPOSALS netting set under all three rules be the same. Like the definition of QMNA, the definition of EMNA recognizes that default rights of the covered swap entity may be stayed pursuant to a special resolution regime such as Title II of the Dodd-Frank Act, the FDI Act, the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, the Farm Credit Act of 1971, and comparable foreign resolution regimes. However, as was the case with the previous definition of QMNA, the current EMNA definition does not explicitly recognize certain restrictions on the exercise of cross-default rights imposed under the QFC Rules. Therefore, a master netting agreement that is amended in order to address a Covered QFC Entity’s compliance with the QFC Rules will not meet the current definition of EMNA from the standpoint of a Covered QFC Entity’s counterparty that is a covered swap entity. Failure to meet the definition of EMNA would require that covered swap entity to measure its exposures from covered swaps on a gross, rather than net, basis for purposes of the Swap Margin Rule. This outcome would be an unintended consequence of the QFC Rules and would be contrary to the policy decisions expressed in the Swap Margin Rule to permit initial margin to be calculated on a net basis for covered swaps subject to netting agreements. Accordingly, the Agencies are proposing to add a new paragraph to the definition of ‘‘eligible master netting agreement’’ to make clear that a master netting agreement meets the definition under the Swap Margin Rule when the agreement limits ‘‘the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable.’’ This text is identical to the corresponding text used in the amended definition of QMNA in the Federal banking agencies’ capital and liquidity rules. B. Proposed Amendment to the Meaning of ‘‘Swaps Entered Into’’ As discussed above, the Swap Margin Rule’s requirements apply only to covered swaps.35 Legacy swaps will generally not be subject to the Swap Margin Rule’s initial and variation 35 See supra note 13. VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 margin requirements.36 However, in the preamble to the Swap Margin Rule, the Agencies declined to include language extending legacy swap treatment to a swap if it is subsequently novated or amended after the applicable compliance date.37 At the time, the Agencies did not contemplate that legacy swaps might be amended solely to meet other regulatory requirements imposed by one or more of the Agencies, such as the QFC Rules. As discussed above, Covered QFC Entities must conform to the requirements of the QFC Rules Covered QFCs entered into on or after January 1, 2019 and, in some instances, Covered QFCs entered into before that date.38 To comply with the requirements governing the restrictions on Covered QFCs, a Covered QFC Entity may directly amend the contractual provisions of its Covered QFCs, or alternatively, cause its Covered QFCs to be subject to the International Swaps and Derivatives Association 2015 Resolution Stay Protocol (‘‘Universal Protocol’’) or a yet-to-be-developed protocol that is expected to be similar to the Universal Protocol.39 Therefore, in order to provide clarity to market participants as to the effects of an amendment that is required by the QFC Rules to a legacy QFC that is a legacy swap, the Agencies are proposing an amendment to the Swap Margin Rule that makes clear that a legacy swap will not be deemed a covered swap under the Swap Margin Rule if it is amended, either by a direct amendment or a 36 However, a legacy swap may be subject to margin requirements if it is part of a netting set that includes non-cleared swaps that are entered into after the compliance date applicable to the covered swap entity. 37 80 FR 74850–74851. The Agencies articulated concerns about potential evasion of the rule if legacy swaps could be materially amended and remain not subject to the requirements of the Swap Margin Rule, as well as the difficulty of administrating a more complex regulatory approach that attempted to draw distinctions among the materiality of, or the intended purpose of, amendments to legacy swaps. 38 The QFC Rules require a Covered QFC Entity to conform Covered QFCs entered into, executed, or to which it otherwise became a party before January 1, 2019 (legacy QFCs), if the Covered QFC Entity or any affiliate that is a Covered QFC Entity also enters, executes, or otherwise becomes a party to a new Covered QFC with the counterparty to the preexisting Covered QFC or a consolidated affiliate of the counterparty on or after January 1, 2019. See, e.g., 12 CFR 252.82 (2017); 12 CFR 382.2 (2017). 39 The QFC Rules set forth requirements for the yet-to-be developed protocol to be an acceptable alternative protocol for purposes of the QFC Rules, which would cause the new protocol to differ from the Universal Protocol. The QFC Rules also permit the new protocol to include certain other differences from the Universal Protocol. For example, the yet-to-be developed protocol is permitted to allow Covered QFC counterparties to adhere only with respect to Covered QFC Entities. PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 modification causing the legacy swap to be governed by one of the aforementioned protocols, by either counterparty solely to conform to the QFC Rules. This proposal is intended to provide certainty to a covered swap entity and its counterparties about the treatment of legacy swaps and any applicable netting arrangements in light of the QFC Rules. However, if in addition to amendments required to comply with the QFC Rules, any other amendments are contemporaneously entered into, the amended legacy swap will be treated as a covered swap in accordance with the application of the existing Swap Margin Rule. III. Regulatory Analysis A. Paperwork Reduction Act OCC: In accordance with 44 U.S.C. 3512, the OCC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid OMB control number. The OCC reviewed the proposed rule and concluded that it contains no requirements subject to the PRA. Board: In accordance with section 3512 of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3521), the Board may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Board reviewed the proposed rule under the authority delegated to them by OMB. The proposed rule contains no requirements subject to the PRA. FDIC: In accordance with the requirements of the PRA, the FDIC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid OMB control number. The FDIC reviewed the proposed rule and concludes that it contains no requirements subject to the PRA. Therefore, no submission will be made to OMB for review. FCA: The FCA has determined that the proposed rule does not involve a collection of information pursuant to the Paperwork Reduction Act for Farm Credit System institutions because Farm Credit System institutions are Federally chartered instrumentalities of the United States and instrumentalities of the United States are specifically excepted from the definition of ‘‘collection of information’’ contained in 44 U.S.C. 3502(3). FHFA: The proposed rule amendments do not contain any E:\FR\FM\21FEP1.SGM 21FEP1 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules collections of information pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any information to the Office of Management and Budget for review. daltland on DSKBBV9HB2PROD with PROPOSALS B. Initial Regulatory Flexibility Act Analysis OCC: In general, the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) requires that in connection with a rulemaking, an agency prepare and make available for public comment a regulatory flexibility analysis that describes the impact of the rule on small entities. Under section 605(b) of the RFA, this analysis is not required if an agency certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and a brief explanatory statement in the Federal Register along with its rule. The OCC currently supervises approximately 956 small entities.40 None of these entities is a covered swap entity. Moreover, because the OCC assumes that this proposal will be implemented before any OCCsupervised entities are required to comply with the QFC Rules, the OCC believes that the proposal will not result in savings—or more than de minimis costs—for OCC-supervised entities. Therefore, the OCC certifies that the proposed rule will not have a significant economic impact on a substantial number of small OCC-regulated entities. Board: In accordance with section 3(a) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), the Board is publishing an initial regulatory flexibility analysis for the proposed rule. The RFA requires an agency to provide an initial regulatory flexibility analysis with the proposed rule or to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. The Board welcomes comment on all aspects of the initial regulatory flexibility analysis. A final regulatory flexibility analysis will be conducted after consideration of comments 40 The OCC bases its estimate of the number of small entities on the Small Business Association’s size thresholds for commercial banks and savings institutions, and trust companies, which are $550 million and $38.5 million, respectively. Consistent with the General Principles of Affiliation 13 CFR 121.103(a), the OCC counts the assets of affiliated financial institutions when determining if we should classify an OCC-supervised institution a small entity. The OCC used December 31, 2016, to determine size because a ‘‘financial institution’s assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.’’ See footnote 8 of the U.S. Small Business Administration’s Table of Size Standards. VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 received during the public comment period. 1. Description of the reasons why action by the Board is being considered and statement of the objectives of the proposal. The Board is proposing to amend the definition of Eligible Master Netting Agreement in the Swap Margin Rule so that it remains harmonized with the amended definition of ‘‘Qualifying Master Netting Agreement’’ in the Federal banking agencies’ regulatory capital and liquidity rules. The Board is also proposing an amendment that will make clear that a legacy swap (a noncleared swap entered into before the applicable compliance date) that is not subject to the requirements of the Swap Margin Rule will not be deemed a covered swap under the Swap Margin Rule if it is amended solely to conform to the QFC Rules. 2. Small entities affected by the proposal. This proposal would apply to financial institutions that are covered swap entities that are subject to the requirements of the Swap Margin Rule. Under Small Business Administration (SBA) regulations, the finance and insurance sector includes commercial banking, savings institutions, credit unions, other depository credit intermediation and credit card issuing entities (financial institutions). With respect to financial institutions that are covered swap entities under the Swap Margin Rule, a financial institution generally is considered small if it has assets of $550 million or less.41 Covered swap entities would be considered financial institutions for purposes of the RFA in accordance with SBA regulations. The Board does not expect that any covered swap entity is likely to be a small financial institution, because a small financial institution is unlikely to engage in the level of swap activity that would require it to register as a swap dealer or a major swap participant with the CFTC and SEC, respectively.42 None of the current covered swap entities are small entities. 3. Reporting, recordkeeping and compliance requirements. The proposed amendments apply to covered swap 41 See 13 CFR 121.201 (effective December 2, 2014); see also 13 CFR 121.103(a)(6) (noting factors that the SBA considers in determining whether an entity qualifies as a small business, including receipts, employees, and other measures of its domestic and foreign affiliates). 42 The CFTC has published a list of provisionally registered swap dealers as of November 20, 2017 that does not include any small financial institutions. See https://www.cftc.gov/ LawRegulation/DoddFrankAct/registerswapdealer. The SEC has not yet imposed a registration requirement on entities that meet the definition of security-based swap dealer or major security-based swap participant. PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 7419 entities. As a result of the proposals, the economic impact on covered swap entities will be positive as they will continue to be able to enter into netting agreements that allow margin to be calculated on a net basis, rather than a gross basis. In addition, absent this proposal, legacy swaps that are not currently subject to the margin requirements of the Swap Margin Rule would be required to comply with the provisions of the Swap Margin Rule solely because of amendments made to conform to the requirements of the QFC Rules. 4. Other Federal rules. Absent this proposal, the definition of EMNA would conflict with the definition of QMNA in the Federal banking agencies’ regulatory capital and liquidity rules. This would result in additional compliance costs for firms that are subject to both definitions. In addition, absent these amendments, there would be a conflict between what the QFC Rules require in Covered QFCs and the policy determination previously made by the Board about the application of the Swap Margin Rule to legacy swaps. 5. Significant alternatives to the proposed rule. As discussed above, the Agencies have requested comment on the scope of the proposed amendments and have solicited comment on any approaches that would reduce the burden on covered swap entities. The Board welcomes comment on any significant alternatives that would minimize the impact of the proposal on small entities. FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., requires an agency to provide an initial regulatory flexibility analysis with a proposed rule, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined by the Small Business Administration for purposes of the RFA to include banking entities with total assets of $550 million or less). According to the most recent data from the Consolidated Reports of Income and Condition (CALL Report), the FDIC supervised 3,674 institutions. Of those, 2,950 are considered ‘‘small,’’ according to the terms of the Regulatory Flexibility Act. The proposed rule primarily affects covered swap entities. The FDIC believes that FDIC-supervised small entities are unlikely to be a covered swap entity because such entities are unlikely to engage in the level of swap activity that would require them to register as a swap entity. The Swap Margin Rule implements sections 731 and 764 of the Dodd-Frank Act, as amended by the Terrorism Risk Insurance Program Reauthorization Act E:\FR\FM\21FEP1.SGM 21FEP1 daltland on DSKBBV9HB2PROD with PROPOSALS 7420 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules of 2015 (‘‘TRIPRA’’). Because TRIPRA excludes non-cleared swaps entered into for hedging purposes by a financial institution with total assets of $10 billion or less from the requirements of the Swap Margin Rule, when a covered swap entity transacts non-cleared swaps with a small entity supervised by the FDIC, and such swaps are used to hedge a commercial risk of the small entity, those swaps will not be subject to the Swap Margin Rule. The FDIC believes that it is unlikely that any small entity it supervises will engage in non-cleared swaps for purposes other than hedging. Therefore, it is unlikely that the amendments included in the proposed rule would result in a significant economic impact on a substantial number of small entities under its supervisory jurisdiction. For these reasons, the FDIC certifies that the Proposed Rule, if adopted in final form, would not have a significant economic impact on a substantial number of small entities, within the meaning of those terms as used in the RFA. Accordingly, a regulatory flexibility analysis is not required. FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., FCA hereby certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Each of the banks in the Farm Credit System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities; nor does the Federal Agricultural Mortgage Corporation meet the definition of ‘‘small entity.’’ Therefore, System institutions are not ‘‘small entities’’ as defined in the Regulatory Flexibility Act. FHFA: The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations must include an initial regulatory flexibility analysis describing the regulation’s impact on small entities. FHFA need not undertake such an analysis if the agency has certified the regulation will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the proposed rule under the Regulatory Flexibility Act, and certifies that the proposed rule, if adopted as a final rule, would not have a significant economic impact on a substantial number of small entities because the proposed rule is applicable only FHFA’s regulated entities, which are not small VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 entities for purposes of the Regulatory Flexibility Act. E. Riegle Community Development and Regulatory Improvement Act of 1994 C. Solicitation of Comments on the Use of Plain Language The Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA) requires that each Federal banking agency, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. In addition, new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form.44 Each Federal banking agency has determined that the proposed rule would not impose additional reporting, disclosure, or other requirements; therefore the requirements of the RCDRIA do not apply. Section 722 of the Gramm-LeachBliley Act requires the U.S. banking agencies to use plain language in proposed and final rulemakings.43 The Agencies have sought to present the proposed rule in a simple and straightforward manner, and invite comment on the use of plain language in this proposal. Question 1: Have the Agencies organized the proposal in a clear way? If not, how could the proposal be organized more clearly? Question 2: Are the requirements of the proposed rule clearly stated? If not, how could they be stated more clearly? Question 3: Does the proposal contain unclear technical language or jargon? If so, which language requires clarification? Question 4: Would a different format (such as a different grouping and ordering of sections, a different use of section headings, or a different organization of paragraphs) make the regulation easier to understand? If so, what changes would make the proposal clearer? Question 5: What else could the Agencies do to make the proposal clearer and easier to understand? D. OCC Unfunded Mandates Reform Act of 1995 Determination Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded Mandates Act) (2 U.S.C. 1532) requires that the OCC prepare a budgetary impact statement before promulgating a rule that includes any Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires the OCC to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC has determined that the proposed rule does not impose any new mandates and will not result in expenditures by State, local, and Tribal governments, or by the private sector of $100 million or more in any one year. Accordingly, the OCC has not prepared a budgetary impact statement or specifically addressed the regulatory alternatives considered. 43 12 PO 00000 U.S.C. 4809(a). Frm 00010 Fmt 4702 List of Subjects 12 CFR Part 45 Administrative practice and procedure, Capital, Margin requirements, National banks, Federal savings associations, Reporting and recordkeeping requirements, Risk. 12 CFR Part 237 Administrative practice and procedure, Banks and banking, Capital, Foreign banking, Holding companies, Margin requirements, Reporting and recordkeeping requirements, Risk. 12 CFR Part 349 Administrative practice and procedure, Banks, Holding companies, Margin Requirements, Capital, Reporting and recordkeeping requirements, Savings associations, Risk. 12 CFR Part 624 Accounting, Agriculture, Banks, Banking, Capital, Cooperatives, Credit, Margin requirements, Reporting and recordkeeping requirements, Risk, Rural areas, Swaps. 44 12 Sfmt 4702 E:\FR\FM\21FEP1.SGM U.S.C. 4802. 21FEP1 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules 12 CFR Part 1221 Government-sponsored enterprises, Mortgages, Securities. DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Chapter I Authority and Issuance For the reasons stated in the preamble, the Office of the Comptroller of the Currency proposes to amend part 45 of chapter I of title 12, Code of Federal Regulations, as follows: PART 45—MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES 1. The authority citation for part 45 continues to read as follows: ■ Authority: 7 U.S.C. 6s(e), 12 U.S.C. 1 et seq., 12 U.S.C. 93a, 161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o–10(e). 2. Section 45.1 is amended by adding paragraph (e)(7) to read as follows: ■ § 45.1 Authority, purpose, scope, exemptions and compliance dates. * * * * * (e) * * * (7) For purposes of determining the date on which a non-cleared swap or a non-cleared security-based swap was entered into, a Covered Swap Entity will not take into account amendments to the non-cleared swap or the non-cleared security-based swap that were entered into solely to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable. * * * * * ■ 3. Section 45.2 is amended by revising paragraph (2) of the definition of Eligible master netting agreement to read as follows: § 45.2 Definitions. daltland on DSKBBV9HB2PROD with PROPOSALS * * * * * (2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case: (i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than: (A) In receivership, conservatorship, or resolution under the Federal Deposit VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 Insurance Act (12 U.S.C. 1811 et seq.), Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5381 et seq.), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign jurisdictions that are substantially similar to the U.S. laws referenced in this paragraph (2)(i)(A) in order to facilitate the orderly resolution of the defaulting counterparty; or (B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in paragraph (2)(i)(A) of this definition; and (ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable; * * * * * BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 12 CFR Chapter II Authority and Issuance For the reasons set forth in the preamble, the Board of Governors of the Federal Reserve System proposes to amend 12 CFR part 237 to read as follows: PART 237—SWAPS MARGIN AND SWAPS PUSH-OUT 4. The authority citation for part 237 continues to read as follows: ■ Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o– 10(e), 15 U.S.C. 8305, 12 U.S.C. 221 et seq., 12 U.S.C. 343–350, 12 U.S.C. 1818, 12 U.S.C. 1841 et seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq. 5. Section 237.1 paragraph (e)(7) is added to read as follows: ■ Subpart A—Margin and Capital Requirements for Covered Swap Entities (Regulation KK) § 237.1 Authority, purpose, scope, exemptions and compliance dates. * * * * * (e) * * * (7) For purposes of determining the date on which a non-cleared swap or a non-cleared security-based swap was entered into, a Covered Swap Entity will not take into account amendments to the non-cleared swap or the non-cleared security-based swap that were entered into solely to comply with the PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 7421 requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable. * * * * * ■ 6. Section 237.2 is amended by revising paragraph (2) of the definition of ‘‘Eligible master netting agreement’’ to read as follows: § 237.2 Definitions * * * * * (2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, (i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than: (A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5381 et seq.), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign jurisdictions that are substantially similar to the U.S. laws referenced in this paragraph (2)(i)(A) in order to facilitate the orderly resolution of the defaulting counterparty; or (B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in paragraph (2)(i)(A) of this definition; and (ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable; * * * * * FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Chapter III Authority and Issuance For the reasons set forth in the preamble, the Federal Deposit Insurance Corporation proposes to amend 12 CFR part 349 as follows: E:\FR\FM\21FEP1.SGM 21FEP1 7422 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules PART 349—DERIVATIVES Subpart A—Margin and Capital Requirements for Covered Swap Entities 7. The authority citation for Subpart A continues to read as follows: ■ Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o– 10(e) and 12 U.S.C. 1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819, and 3108. 8. Section 349.1 is amended by adding paragraph (e)(7) as follows: ■ § 349.1 Authority, purpose, scope, exemptions and compliance dates. * * * * * (e) * * * (7) For purposes of determining the date on which a non-cleared swap or a non-cleared security-based swap was entered into, a Covered Swap Entity will not take into account amendments to the non-cleared swap or the non-cleared security-based swap that were entered into solely to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable. * * * * * ■ 9. Section 349.2 is amended by revising of the definition of ‘‘Eligible master netting agreement’’ to read as follows: § 349.2 Definitions. daltland on DSKBBV9HB2PROD with PROPOSALS * * * * * Eligible master netting agreement means a written, legally enforceable agreement provided that: (1) The agreement creates a single legal obligation for all individual transactions covered by the agreement upon an event of default following any stay permitted by paragraph (2) of this definition, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty; (2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, (i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than: (A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the Dodd-Frank Wall Street VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 Reform and Consumer Protection Act (12 U.S.C. 5381 et seq.), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign jurisdictions that are substantially similar to the U.S. laws referenced in this paragraph (2)(i)(A) in order to facilitate the orderly resolution of the defaulting counterparty; or (B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in paragraph (2)(i)(A) of this definition; and (ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable; (3) The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting counterparty to make a lower payment than it otherwise would make under the agreement, or no payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate of the defaulter is a net creditor under the agreement); and (4) A covered swap entity that relies on the agreement for purposes of calculating the margin required by this part must: (i) Conduct sufficient legal review to conclude with a well-founded basis (and maintain sufficient written documentation of that legal review) that: (A) The agreement meets the requirements of paragraph (2) of this definition; and (B) In the event of a legal challenge (including one resulting from default or from receivership, conservatorship, insolvency, liquidation, or similar proceeding), the relevant court and administrative authorities would find the agreement to be legal, valid, binding, and enforceable under the law of the relevant jurisdictions; and (ii) Establish and maintain written procedures to monitor possible changes in relevant law and to ensure that the agreement continues to satisfy the requirements of this definition. * * * * * FARM CREDIT ADMINISTRATION Authority and Issuance For the reasons set forth in the preamble, the Farm Credit Administration proposes to amend PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 chapter VI of title 12, Code of Federal Regulations, as follows: PART 624—MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES 10. The authority citation for part 624 continues to read as follows: ■ Authority: 7 U.S.C 6s(e), 15 U.S.C. 78o– 10(e), 12 U.S.C. 2154, 12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb–1. 11. Section 624.1 is amended by adding paragraph (e)(7) to read as follow: ■ § 624.1 Authority, purpose, scope, exemptions and compliance dates. * * * * * (e) * * * (7) For purposes of determining the date on which a non-cleared swap or a non-cleared security-based swap was entered into, a Covered Swap Entity will not take into account amendments to the non-cleared swap or the non-cleared security-based swap that were entered into solely to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable. * * * * * ■ 12. Section 624.2 is amended by revising paragraph (2) of the definition of Eligible master netting agreement to read as follows: § 624.2 Definitions * * * * * (2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, (i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than: (A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5381 et seq.), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign jurisdictions that are substantially similar to the U.S. laws referenced in this paragraph (2)(i)(A) in order to E:\FR\FM\21FEP1.SGM 21FEP1 Federal Register / Vol. 83, No. 35 / Wednesday, February 21, 2018 / Proposed Rules facilitate the orderly resolution of the defaulting counterparty; or (B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in paragraph (2)(i)(A) of this definition; and (ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable; * * * * * FEDERAL HOUSING FINANCE AGENCY Authority and Issuance For the reasons set forth in the preamble, the Federal Housing Finance Agency proposes to amend chapter XII of title 12, Code of Federal Regulations, as follows: PART 1221—MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES 13. The authority citation for part 1221 continues to read as follows: ■ Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o– 10(e), 12 U.S.C. 4513, and 12 U.S.C. 4526(a). 14. Section 1221.1 is amended by adding paragraph (e)(7) to read as follows: ■ § 1221.1 Authority, purpose, and scope, exemptions and compliance dates. * * * * (e) * * * (7) For purposes of determining the date on which a non-cleared swap or a non-cleared security-based swap was entered into, a Covered Swap Entity will not take into account amendments to the non-cleared swap or the non-cleared security-based swap that were entered into solely to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable. * * * * * ■ 15. Section 1221.2 is amended by revising paragraph (2) of the definition of Eligible master netting agreement to read as follows: daltland on DSKBBV9HB2PROD with PROPOSALS * § 1221.2 Definitions. * * * * * (2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of VerDate Sep<11>2014 17:45 Feb 20, 2018 Jkt 244001 default, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, (i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than: (A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5381 et seq.), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign jurisdictions that are substantially similar to the U.S. laws referenced in this paragraph (2)(i)(A) in order to facilitate the orderly resolution of the defaulting counterparty; or (B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in paragraph (2)(i)(A) of this definition; and (ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable; * * * * * Dated: January 29, 2018. Joseph M. Otting, Comptroller of the Currency. By order of the Board of Governors of the Federal Reserve System, January 24, 2018. Ann E. Misback, Secretary of the Board. Dated at Washington, DC, this 25th day of January 2018. Federal Deposit Insurance Corporation. Robert E. Feldman, Executive Secretary. Dated: January 26, 2018. Melvin L. Watt, Director, Federal Housing Finance Agency. Dated: January 25, 2018 Dale L. Aultman, Secretary, Farm Credit Administration Board. [FR Doc. 2018–02560 Filed 2–20–18; 8:45 am] BILLING CODE P PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 7423 DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2017–0619; Product Identifier 2016–SW–093–AD] RIN 2120–AA64 Airworthiness Directives; AgustaWestland S.p.A. Helicopters Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: We propose to adopt a new airworthiness directive (AD) for AgustaWestland S.p.A. (AgustaWestland) Model AW189 helicopters. This proposed AD would require inspecting the tail gearbox (TGB) fitting for a crack. This proposed AD is prompted by a report of a crack on a TGB fitting that was found during a scheduled inspection. The actions of this proposed AD are intended to prevent an unsafe condition on these products. DATES: We must receive comments on this proposed AD by April 23, 2018. ADDRESSES: You may send comments by any of the following methods: • Federal eRulemaking Docket: Go to https://www.regulations.gov. Follow the online instructions for sending your comments electronically. • Fax: 202–493–2251. • Mail: Send comments to the U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE, Washington, DC 20590–0001. • Hand Delivery: Deliver to the ‘‘Mail’’ address between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. SUMMARY: Examining the AD Docket You may examine the AD docket on the internet at https:// www.regulations.gov by searching for and locating Docket No. FAA–2017– 0619; or in person at Docket Operations between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the European Aviation Safety Agency (EASA) AD, the economic evaluation, any comments received, and other information. The street address for Docket Operations (telephone 800–647– 5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. For service information identified in this proposed rule, contact Leonardo E:\FR\FM\21FEP1.SGM 21FEP1

Agencies

[Federal Register Volume 83, Number 35 (Wednesday, February 21, 2018)]
[Proposed Rules]
[Pages 7413-7423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02560]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 45

[Docket No. OCC-2018-0003]
RIN 1557-AE29

FEDERAL RESERVE SYSTEM

12 CFR Part 237

[Docket No. R-1596]
RIN 7100-AE96

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 349

RIN 3064-AE70

FARM CREDIT ADMINISTRATION

12 CFR Part 624

RIN 3052-AD28

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1221
RIN 2590-AA92


Margin and Capital Requirements for Covered Swap Entities; 
Proposed Rule

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); Federal 
Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA); 
and the Federal Housing Finance Agency (FHFA).

ACTION: Notice of proposed rulemaking and request for comment.

-----------------------------------------------------------------------

SUMMARY: The Board, OCC, FDIC, FCA, and FHFA (each an Agency and, 
collectively, the Agencies) are seeking comment on proposed amendments 
to the minimum margin requirements for registered swap dealers, major 
swap participants, security-based swap dealers, and major security-
based swap participants for which one of the Agencies is the prudential 
regulator (Swap Margin Rule). The Agencies are proposing these 
amendments in light of the rules recently adopted by the Board, the 
OCC, and the FDIC that impose restrictions on certain non-cleared swaps 
and non-cleared security-based swaps and other financial contracts 
(Covered QFCs) (the QFC Rules). The QFC Rules amend the definition of 
``Qualifying Master Netting Agreement'' in the Federal banking 
agencies' regulatory capital and liquidity rules to ensure that a 
Covered QFC is not prevented from being part of a Qualifying Master 
Netting Agreement solely because the Covered QFC conforms to the new 
requirements in the QFC Rules. The FCA also plans to propose amendments 
to its capital rules, including potential revisions to its regulatory 
definition of ``Qualifying Master Netter Agreement,'' which is expected 
to be identical to the definition used in the Federal banking agencies' 
regulatory capital and liquidity rules.
    The Agencies are proposing to amend the definition of ``Eligible 
Master Netting Agreement'' in the Swap Margin Rule so that it remains 
harmonized with the amended definition of ``Qualifying Master Netting 
Agreement'' in the Federal banking agencies' regulatory capital and 
liquidity rules, and amendments to the capital rules that the FCA 
separately plans to propose. This proposed rule would also ensure that 
netting agreements of firms subject to the Swap Margin Rule are not 
excluded from the definition of ``Eligible Master Netting Agreement'' 
based solely on their compliance with the QFC Rules. The Agencies are 
also proposing that any legacy non-cleared swap or non-cleared 
security-based swap (i.e., a non-cleared swap or non-cleared security-
based swap entered into before the applicable compliance date) that is 
not subject to the margin requirements of the Swap Margin Rule would 
not become subject to the provisions of the

[[Page 7414]]

Swap Margin Rule if the non-cleared swap or non-cleared security-based 
swap is amended solely to comply with the requirements of the QFC 
Rules.

DATES: Comments should be received by April 23, 2018.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to all of the Agencies. Commenters are encouraged to use the 
title ``Margin and Capital Requirements for Covered Swap Entities'' to 
facilitate the organization and distribution of comments among the 
Agencies. Commenters are also encouraged to identify the number of the 
specific question for comment to which they are responding. Comments 
should be directed to:
    OCC: You may submit comments to the OCC by any of the methods set 
forth below. Because paper mail in the Washington, DC area and at the 
OCC is subject to delay, commenters are encouraged to submit comments 
through the Federal eRulemaking Portal or email, if possible. Please 
use the title ``Margin and Capital Requirements for Covered Swap 
Entities'' to facilitate the organization and distribution of the 
comments. You may submit comments by any of the following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0003'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2018-0003'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov website without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not include any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-003'' in the Search box 
and click ``Search.'' Click on ``Open Docket Folder'' on the right side 
of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW, Washington, DC 
20219. For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700 or, for persons who are deaf or hearing impaired, TTY, (202) 649-
5597. Upon arrival, visitors will be required to present valid 
government-issued photo identification and submit to security screening 
in order to inspect and photocopy comments.
    Board: You may submit comments, identified by Docket No. R-1596 and 
RIN 7100 AE-96, by any of the following methods:
     Agency website: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Ann E. Misback, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    All public comments will be made available on the Board's website 
at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper form in 
Room 3515, 1801 K Street NW (between 18th and 19th Streets NW), between 
9:00 a.m. and 5:00 p.m. on weekdays.
    FDIC: You may submit comments, identified by RIN 3064-AE70, by any 
of the following methods:
     Agency website: https://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency 
website.
     Email: [email protected]. Include ``RIN 3064-AE70'' on the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/RIN 3064-AE70, Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.
     Hand Delivery/Courier: Comments may be hand delivered to 
the guard station at the rear of the 550 17th Street Building (located 
on F Street) on business days between 7 a.m. and 5 p.m. All comments 
received must include the agency name (FDIC) and RIN 3064-AE70 and will 
be posted without change to https://www.fdic.gov/regulations/laws/federal, including any personal information provided.
    FCA: We offer a variety of methods for you to submit your comments. 
For accuracy and efficiency reasons, commenters are encouraged to 
submit comments by email or through the FCA's website. As facsimiles 
(fax) are difficult for us to process and achieve compliance with 
section 508 of the Rehabilitation Act, we are no longer accepting 
comments submitted by fax. Regardless of the method you use, please do 
not submit your comments multiple times via different methods. You may 
submit comments by any of the following methods:
     Email: Send us an email at [email protected].
     FCA website: https://www.fca.gov.
    Select ``Public Commenters,'' then ``Public Comments,'' and follow 
the directions for ``Submitting a Comment.''
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Barry F. Mardock, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
    You may review copies of all comments we receive at our office in 
McLean, Virginia or on our website at https://www.fca.gov. Once you are 
in the website, select ``Public Commenters,'' then ``Public Comments,'' 
and follow the directions for ``Reading Submitted Public Comments.'' We 
will show your comments as submitted, including any

[[Page 7415]]

supporting data provided, but for technical reasons we may omit items 
such as logos and special characters. Identifying information that you 
provide, such as phone numbers and addresses, will be publicly 
available. However, we will attempt to remove email addresses to help 
reduce internet spam.
    FHFA: You may submit your written comments on the proposed 
rulemaking, identified by regulatory information number (RIN) 2590-
AA92, by any of the following methods:
     Email: Comments to Alfred M. Pollard, General Counsel, may 
be sent by email at [email protected]. Please include ``RIN 2590-
AA92'' in the subject line of the message. Federal eRulemaking Portal: 
https://www.regulations.gov. Follow the instructions for submitting 
comments. If you submit your comment to the Federal eRulemaking Portal, 
please also send it by email to FHFA at [email protected] to ensure 
timely receipt by the Agency. Please include ``RIN 2590-AA92'' in the 
subject line of the message.
     U.S. Mail, United Parcel Service, Federal Express, or 
Other Mail Service: The mailing address for comments is: Alfred M. 
Pollard, General Counsel, Attention: Comments/RIN 2590-AA45, Federal 
Housing Finance Agency, Eighth Floor, 400 7th St. SW, Washington, DC 
20219.
     Hand Delivery/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA45, 
Federal Housing Finance Agency, Eighth Floor, 400 7th St. SW, 
Washington, DC 20219. A hand-delivered package should be logged at the 
Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m. All 
comments received by the deadline will be posted for public inspection 
without change, including any personal information you provide, such as 
your name and address, on the FHFA website at https://www.fhfa.gov. 
Copies of all comments timely received will be available for public 
inspection and copying at the address above on government-business days 
between the hours of 10 a.m. and 3 p.m. To make an appointment to 
inspect comments please call the Office of General Counsel at (202) 
649-3804.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Allison Hester-Haddad, Counsel, Legislative and Regulatory 
Activities Division, (202) 649-5490, for persons who are deaf or 
hearing impaired, TTY (202) 649-5597, Office of the Comptroller of the 
Currency, 400 7th Street SW, Washington, DC 20219.
    Board: Anna M. Harrington, Senior Supervisory Financial Analyst, 
(202) 452-6406, or Kelly Tomera, Financial Analyst, (202) 912-7861, 
Division of Supervision and Regulation; Adam Cohen, Counsel, (202) 912-
4658, Victoria M. Szybillo, Counsel, (202) 475-6325, or Jason Shafer, 
Senior Attorney, (202) 728-5811, Legal Division, Board of Governors of 
the Federal Reserve System, 20th and C Streets NW, Washington, DC 
20551.
    FDIC: Irina Leonova, Senior Policy Analyst, Capital Markets Branch, 
Division of Risk Management Supervision, (202) 898-3843, 
[email protected]; Phillip E. Sloan, Counsel, Legal Division, 
[email protected], (703) 562-6137, Federal Deposit Insurance Corporation, 
550 17th Street NW, Washington, DC 20429.
    FCA: J.C. Floyd, Associate Director, Finance & Capital Markets 
Team, Timothy T. Nerdahl, Senior Policy Analyst--Capital Markets, 
Jeremy R. Edelstein, Senior Policy Analyst, Office of Regulatory 
Policy, (703) 883-4414, TTY (703) 883-4056, or Richard A. Katz, Senior 
Counsel, Office of General Counsel, (703) 883-4020, TTY (703) 883-4056, 
Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-
5090.
    FHFA: Ron Sugarman, Principal Policy Analyst, Office of Policy 
Analysis and Research, (202) 649-3208, [email protected], or James 
Jordan, Assistant General Counsel, Office of General Counsel, (202) 
649-3075, [email protected], Federal Housing Finance Agency, 
Constitution Center, 400 7th St. SW, Washington, DC 20219. The 
telephone number for the Telecommunications Device for the Hearing 
Impaired is (800) 877-8339.

I. Background

A. The Swap Margin Rule

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) was enacted on July 21, 2010.\1\ Title VII of the 
Dodd-Frank Act established a comprehensive new regulatory framework for 
derivatives, which the Dodd-Frank Act generally characterizes as 
``swaps'' (swap is defined in section 721 of the Dodd-Frank Act to 
include, among other things, an interest rate swap, commodity swap, 
equity swap, and credit default swap) and ``security-based swaps'' 
(security-based swap is defined in section 761 of the Dodd-Frank Act to 
include a swap based on a single security or loan or on a narrow-based 
security index).\2\ For the remainder of this preamble, the term 
``swaps'' refers to swaps and security-based swaps unless the context 
requires otherwise.
---------------------------------------------------------------------------

    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68).
---------------------------------------------------------------------------

    Sections 731 and 764 of the Dodd-Frank Act required the Office of 
the Comptroller of the Currency (OCC); Board of Governors of the 
Federal Reserve System (Board); Federal Deposit Insurance Corporation 
(FDIC); Farm Credit Administration (FCA); and the Federal Housing 
Finance Agency (FHFA) (collectively, the Agencies) to adopt rules 
jointly that establish capital and margin requirements for swap 
entities \3\ that are prudentially regulated by one of the Agencies 
(covered swap entities),\4\ to offset the greater risk to the

[[Page 7416]]

covered swap entity and the financial system arising from swaps that 
are not cleared by a registered derivatives clearing organization or a 
registered clearing agency (non-cleared swaps).\5\ On November 30, 
2015, the Agencies published a joint final rule (Swap Margin Rule) to 
establish minimum margin and capital requirements for covered swap 
entities.\6\
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    \3\ See 7 U.S.C. 6s; 15 U.S.C. 78o-10. Sections 731 and 764 of 
the Dodd-Frank Act add a new section 4s to the Commodity Exchange 
Act of 1936, as amended, and a new section, section 15F, to the 
Securities Exchange Act of 1934, as amended, respectively, which 
require registration with the Commodity Futures Trading Commission 
(CFTC) of swap dealers and major swap participants and the U.S. 
Securities and Exchange Commission (SEC) of security-based swap 
dealers and major security-based swap participants (each a swap 
entity and, collectively, swap entities). The CFTC is vested with 
primary responsibility for the oversight of the swaps market under 
Title VII of the Dodd-Frank Act. The SEC is vested with primary 
responsibility for the oversight of the security-based swaps market 
under Title VII of the Dodd-Frank Act. Section 712(d)(1) of the 
Dodd-Frank Act requires the CFTC and SEC to issue joint rules 
further defining the terms swap, security-based swap, swap dealer, 
major swap participant, security-based swap dealer, and major 
security-based swap participant. The CFTC and SEC issued final joint 
rulemakings with respect to these definitions in May 2012 and August 
2012, respectively. See 77 FR 30596 (May 23, 2012); 77 FR 39626 
(July 5, 2012) (correction of footnote in the Supplementary 
Information accompanying the rule); and 77 FR 48207 (August 13, 
2012). 17 CFR part 1; 17 CFR parts 230, 240 and 241.
    \4\ Section 1a(39) of the Commodity Exchange Act of 1936, as 
amended, defines the term ``prudential regulator'' for purposes of 
the margin requirements applicable to swap dealers, major swap 
participants, security-based swap dealers and major security-based 
swap participants. The Board is the prudential regulator for any 
swap entity that is (i) a state-chartered bank that is a member of 
the Federal Reserve System, (ii) a state-chartered branch or agency 
of a foreign bank, (iii) a foreign bank which does not operate an 
insured branch, (iv) an organization operating under section 25A of 
the Federal Reserve Act of 1913, as amended, or having an agreement 
with the Board under section 25 of the Federal Reserve Act, or (v) a 
bank holding company, a foreign bank that is treated as a bank 
holding company under section 8(a) of the International Banking Act 
of 1978, as amended, or a savings and loan holding company (on or 
after the transfer date established under section 311 of the Dodd-
Frank Act), or a subsidiary of such a company or foreign bank (other 
than a subsidiary for which the OCC or the FDIC is the prudential 
regulator or that is required to be registered with the CFTC or SEC 
as a swap dealer or major swap participant or a security-based swap 
dealer or major security-based swap participant, respectively). The 
OCC is the prudential regulator for any swap entity that is (i) a 
national bank, (ii) a federally chartered branch or agency of a 
foreign bank, or (iii) a Federal savings association. The FDIC is 
the prudential regulator for any swap entity that is (i) a State-
chartered bank that is not a member of the Federal Reserve System, 
or (ii) a State savings association. The FCA is the prudential 
regulator for any swap entity that is an institution chartered under 
the Farm Credit Act of 1971, as amended. The FHFA is the prudential 
regulator for any swap entity that is a ``regulated entity'' under 
the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992, as amended (i.e., the Federal National Mortgage Association 
and its affiliates, the Federal Home Loan Mortgage Corporation and 
its affiliates, and the Federal Home Loan Banks). See 7 U.S.C. 
1a(39).
    \5\ See 7 U.S.C. 6s(e)(3)(A); 15 U.S.C. 78o-10(e)(3)(A).
    \6\ 80 FR 74840 (November 30, 2015).
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    In the Swap Margin Rule, the Agencies adopted a risk-based approach 
for initial and variation margin requirements for covered swap 
entities.\7\ To implement the risk-based approach, the Agencies 
established requirements for a covered swap entity to collect and post 
initial margin for non-cleared swaps with a counterparty that is 
either: (1) A financial end user with material swaps exposure,\8\ or 
(2) a swap entity.\9\ A covered swap entity must collect and post 
variation margin for non-cleared swaps with all swap entities and 
financial end user counterparties, even if such financial end users do 
not have material swaps exposure.\10\ Other counterparties, including 
nonfinancial end users, are not subject to specific, numerical minimum 
requirements for initial and variation margin.\11\
---------------------------------------------------------------------------

    \7\ 80 FR 74843.
    \8\ ``Material swaps exposure'' for an entity means that the 
entity and its affiliates have an average daily aggregate notional 
amount of non-cleared swaps, non-cleared security-based swaps, 
foreign exchange forwards, and foreign exchange swaps with all 
counterparties for June, July, and August of the previous calendar 
year that exceeds $8 billion, where such amount is calculated only 
for business days. See Sec.  _.2 of the Swap Margin Rule.
    \9\ See Sec. Sec.  _.3 and _.4 of the Swap Margin Rule.
    \10\ Id.
    \11\ Id.
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    The effective date for the Swap Margin Rule was April 1, 2016, but 
the Agencies established a phase-in compliance schedule for the initial 
margin and variation margin requirements.\12\ On or after March 1, 
2017, all covered swap entities are required to comply with the 
variation margin requirements for transactions with other swap entities 
and financial end user counterparties. By September 1, 2020, all 
covered swap entities will be required to comply with the initial 
margin requirements for non-cleared swaps with all financial end users 
with a material swaps exposure and all swap entities.
---------------------------------------------------------------------------

    \12\ The applicable compliance date for a covered swap entity is 
based on the average daily aggregate notional amount of non-cleared 
swaps, foreign exchange forwards and foreign exchange swaps of the 
covered swap entity and its counterparty (accounting for their 
respective affiliates) for each business day in March, April and May 
of that year. The applicable compliance dates for initial margin 
requirements, and the corresponding average daily notional 
thresholds, are: September 1, 2016, $3 trillion; September 1, 2017, 
$2.25 trillion; September 1, 2018, $1.5 trillion; September 1, 2019, 
$0.75 trillion; and September 1, 2020, all swap entities and 
counterparties. See Sec.  _.1(e) of the Swap Margin Rule.
---------------------------------------------------------------------------

    The Swap Margin Rule's requirements apply only to a non-cleared 
swap entered into on or after the applicable compliance date (covered 
swap); a non-cleared swap entered into prior to a covered swap entity's 
applicable compliance date (legacy swap) is generally not subject to 
the margin requirements in the Swap Margin Rule.\13\ However, a legacy 
swap that is later amended or novated on or after the applicable 
compliance date would be deemed to be a covered swap, and therefore 
would become subject to the requirements of the Swap Margin Rule.\14\
---------------------------------------------------------------------------

    \13\ See Sec.  _.1(e) of the Swap Margin Rule.
    \14\ 80 FR 74850-51.
---------------------------------------------------------------------------

    Whether a non-cleared swap is deemed to be a legacy swap or a 
covered swap also affects the treatment of a covered swap entity's 
netting portfolios. The Swap Margin Rule permits a covered swap entity 
to (1) calculate initial margin requirements for covered swaps under an 
eligible master netting agreement (EMNA) with a counterparty on a 
portfolio basis in certain circumstances, if it does so using an 
initial margin model; and (2) calculate variation margin on an 
aggregate net basis under an EMNA.\15\ In addition, the Swap Margin 
Rule permits swap counterparties to identify one or more separate 
netting portfolios under an EMNA, including netting sets of covered 
swaps and netting sets of non-cleared swaps that are not subject to 
margin requirements.\16\ Specifically, a netting portfolio that 
contains only legacy swaps is not subject to the margin requirements 
set out in the Swap Margin Rule.\17\ However, if a netting portfolio 
contains any covered swaps, the entire netting portfolio is subject to 
the margin requirements of the Swap Margin Rule.\18\
---------------------------------------------------------------------------

    \15\ See Sec. Sec.  _.2 and .5 of the Swap Margin Rule.
    \16\ Typically, this is accomplished by using a separate Credit 
Support Annex for each netting set, subject to the terms of a single 
master netting agreement.
    \17\ See Sec. Sec.  _.2 and _.5 of the Swap Margin Rule.
    \18\ Id.
---------------------------------------------------------------------------

B. The QFC Rules

    As part of the broader regulatory reform effort following the 
financial crisis to increase the resolvability and resiliency of U.S. 
global systemically important banking institutions \19\ (U.S. GSIBs) 
and the U.S. operations of foreign GSIBs (together, GSIBs),\20\ the 
Board, the OCC, and the FDIC adopted final rules that establish 
restrictions on and requirements for certain non-cleared swaps and 
other financial contracts (collectively, Covered QFCs) of GSIBs and 
their subsidiaries (the QFC Rules).\21\
---------------------------------------------------------------------------

    \19\ See 12 CFR 217.402 (defining global systemically important 
banking institution). The eight firms currently identified as U.S. 
GSIBs are Bank of America Corporation, The Bank of New York Mellon 
Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JP Morgan 
Chase & Co., Morgan Stanley Inc., State Street Corporation, and 
Wells Fargo & Company.
    \20\ The U.S. operations of 20 foreign GSIBs are currently 
subject to the Board's QFC Rule.
    \21\ See 12 CFR 252.82(c) (defining Covered QFC), 382.2(c) 
(same). See also 82 FR 56630 (November 29, 2017) (for OCC's QFC 
Rule). See also 82 FR 50228 (October 30, 2017) (for FDIC's QFC 
Rule). See also 82 FR 42882 (September 12, 2017) (for the Board's 
QFC Rule). The effective date of the Board's QFC Rule was November 
13, 2017, and the effective date for the substance of the OCC's and 
FDIC's QFC Rules was January 1, 2018. The QFC Rules include a 
phased-in conformance period for a Covered QFC Entity that varies 
depending upon the counterparty type of the Covered QFC Entity. The 
first conformance date is January 1, 2019, and applies to Covered 
QFCs with GSIBs. The QFC Rules provide Covered QFC Entities an 
additional six months or one year to conform its Covered QFCs with 
other types of counterparties.
---------------------------------------------------------------------------

    Subject to certain exemptions, the QFC Rules require U.S. GSIBs, 
together with their subsidiaries, and the U.S. operations of foreign 
GSIBs (each a Covered QFC Entity and, collectively, Covered QFC 
Entities) to conform Covered QFCs to the requirements of the rules.\22\ 
The QFC Rules generally require the Covered QFCs of Covered QFC 
Entities to contain contractual provisions that opt into the 
``temporary stay-and-transfer treatment'' of the Federal Deposit 
Insurance Act (FDI Act) \23\ and Title II of the Dodd-Frank Act, 
thereby reducing the risk that the stay-and-transfer treatment would be 
challenged by a Covered QFC Entity's counterparty or a court in a 
foreign jurisdiction.\24\ The temporary stay-and-transfer treatment is 
part of the special

[[Page 7417]]

resolution framework for failed financial firms created by the FDI Act 
and Title II of the Dodd-Frank Act. The stay-and-transfer treatment 
provides that the rights of a failed insured depository institution's 
or financial company's counterparties to terminate, liquidate, or net 
certain qualified financial contracts on account of the appointment of 
the FDIC as receiver for the entity (or the insolvency or financial 
condition of the entity for which the FDIC has been appointed receiver) 
are temporarily stayed when the entity enters a resolution proceeding 
to allow for the transfer of the failed firm's Covered QFCs to a 
solvent party.\25\ The QFC Rules also generally prohibit Covered QFCs 
from allowing the exercise of default rights related, directly or 
indirectly, to the entry into resolution of an affiliate of the Covered 
QFC Entity (cross-default rights).\26\
---------------------------------------------------------------------------

    \22\ To the extent a U.S. GSIB, any of its subsidiaries, or the 
U.S. operations of a foreign GSIB include a swap entity for which 
one of the Agencies is a prudential regulator, a Covered QFC Entity 
may be a covered swap entity.
    \23\ 12 U.S.C. 1811 et. seq.
    \24\ 82 FR 42882 (September 12, 2017); 82 FR 50228 (October 30, 
2017); 82 FR 56630 (November 29, 2017).
    \25\ 12 U.S.C. 1821(e)(10)(B), 5390(c)(10)(B). Title II of the 
Dodd-Frank Act also provides the FDIC with the power to enforce 
Covered QFCs (and other contracts) of subsidiaries and affiliates of 
the financial company for which the FDIC has been appointed 
receiver. 12 U.S.C. 5390(c)(16); 12 CFR 380.12.
    \26\ 82 FR 42882 (September 12, 2017); 82 FR 50228 (October 30, 
2017); 82 FR 56630 (November 29, 2017).
---------------------------------------------------------------------------

    The Board's QFC Rule applies to U.S. GSIBs and their subsidiaries, 
state branches, and state agencies, as well other U.S. operations of 
foreign GSIBs with the exception of banks regulated by the FDIC or OCC, 
Federal branches, or Federal agencies.\27\ The FDIC's QFC Rule applies 
to GSIB subsidiaries that are state savings associations and state-
chartered banks that are not members of the Federal Reserve System.\28\ 
The OCC's QFC Rule applies to national bank subsidiaries and Federal 
savings association subsidiaries of GSIBs, and Federal branches and 
agencies of foreign GSIBs.\29\
---------------------------------------------------------------------------

    \27\ 82 FR 42882 (September 12, 2017).
    \28\ 82 FR 50228 (October 30, 2017).
    \29\ 82 FR 56630 (November 29, 2017).
---------------------------------------------------------------------------

C. The Definitions of Qualifying Master Netting Agreement

    As part of the QFC Rules, the Federal banking agencies amended the 
definition of qualifying master netting agreement (QMNA) in their 
capital and liquidity rules to prevent the QFC Rules from having 
disruptive effects on the treatment of netting sets of Board-regulated 
firms, OCC-regulated firms, and FDIC-regulated firms.\30\ The FCA plans 
to propose several technical and clarifying amendments to its capital 
regulations, including a possible revision to the definition of QMNA so 
it continues to be identical to the definition in the regulations of 
the Federal banking agencies' regulatory capital and liquidity 
rules.\31\
---------------------------------------------------------------------------

    \30\ 82 FR 42882, 42915; 82 FR 50228, 50258; 82 FR 56630, 56659.
    \31\ See FCA's Fall 2017 Unified Agenda (www.RegInfo.gov). The 
FCA's Tier 1/Tier 2 Capital Framework's existing definition of QMNA 
is identical to the previous definition of QMNA used in the Federal 
banking agencies' capital and liquidity rules.
---------------------------------------------------------------------------

    The amendments to the Federal banking agencies' capital and 
liquidity rules are necessary because the previous QMNA definition did 
not recognize some of the new close-out restrictions on Covered QFCs 
imposed by the QFC Rules.\32\ Pursuant to the previous definition of 
QMNA, a banking organization's rights under a QMNA generally could not 
be stayed or avoided in the event of its counterparty's default. 
However, the definition of QMNA permitted certain exceptions to this 
general prohibition to accommodate certain restrictions on the exercise 
of default rights that are important to the prudent resolution of a 
banking organization, including a limited stay under a special 
resolution regime, such as Title II of the Dodd-Frank Act, the FDI Act, 
and comparable foreign resolution regimes. The previous QMNA definition 
did not explicitly recognize all the restrictions on the exercise of 
cross-default rights.\33\ Therefore, a master netting agreement that 
complies with the QFC Rules by limiting the rights of a Covered QFC 
Entity's counterparty to close out against the Covered QFC Entity would 
not meet the previous QMNA definition. Thus, a failure to meet the 
definition of QMNA would result in a banking organization subject to 
one of the Federal banking agencies' capital and liquidity rules losing 
the ability to net offsetting exposures under its applicable capital 
and liquidity requirements when its counterparty is a Covered QFC 
Entity. If netting were not permitted, the banking organization would 
be required to calculate its capital and liquidity requirements 
relating to certain Covered QFCs on a gross basis rather than on a net 
basis, which would typically result in higher capital and liquidity 
requirements. The Federal banking agencies do not believe that such an 
outcome would accurately reflect the risks posed by the affected 
Covered QFCs.
---------------------------------------------------------------------------

    \32\ 12 CFR 3.2 (2017); 12 CFR 50.3 (2017); 12 CFR 217.2 (2017); 
12 CFR 249.3 (2017); 12 CFR 324.2; 12 CFR 329.3.
    \33\ See, e.g., 12 CFR 252.84(b)(1).
---------------------------------------------------------------------------

    The amendments to the QMNA definition maintain the netting 
treatment for these contracts under the Federal banking agencies' 
capital and liquidity rules. The amendments permit a master netting 
agreement to meet the definition of QMNA even if it limits the banking 
organization's right to accelerate, terminate, and close-out on a net 
basis all transactions under the agreement and to liquidate or set-off 
collateral promptly upon an event of default of a counterparty that is 
a Covered QFC Entity to the extent necessary for the Covered QFC Entity 
to comply fully with the QFC Rules. The amended definition of QMNA 
continues to recognize that default rights may be stayed if the 
defaulting counterparty is in resolution under the Dodd-Frank Act, the 
FDI Act, a substantially similar law applicable to government-sponsored 
enterprises, or a substantially similar foreign law, or where the 
agreement is subject by its terms to, or incorporates, any of those 
laws. By recognizing these required restrictions on the ability of a 
banking organization to exercise close-out rights when its counterparty 
is a Covered QFC Entity, the amended definition allows a master netting 
agreement that includes such restrictions to continue to meet the 
definition of QMNA under the Federal banking agencies' capital and 
liquidity rules.

II. Proposed Changes to the Swap Margin Rule

A. Proposed Amendment to the Definition of Eligible Master Netting 
Agreement

    In the Swap Margin Rule, the Agencies explained that the current 
definition of EMNA was purposefully aligned with the Federal banking 
agencies' then-current definition of QMNA in the capital and liquidity 
rules. This was to ``minimize operational burden for a covered swap 
entity, which otherwise would have to make a separate determination as 
to whether its netting agreements meet the requirements of this [Swap 
Margin Rule] as well as comply with the regulatory capital rules.'' 
\34\ In addition, the Agencies' rationale for recognizing netting of 
non-cleared swap exposures pursuant to the Swap Margin Rule is quite 
similar to the Federal banking agencies' rationale for recognizing 
netting of various asset and liability exposures pursuant to their 
capital and liquidity rules. Therefore, it is appropriate that the 
corresponding conditions for recognizing a robust

[[Page 7418]]

netting set under all three rules be the same.
---------------------------------------------------------------------------

    \34\ 80 FR 74861. The Swap Margin Rule used the term EMNA rather 
than QMNA to avoid confusion with, and to distinguish from, the term 
used under the Federal banking agencies' capital and liquidity 
rules.
---------------------------------------------------------------------------

    Like the definition of QMNA, the definition of EMNA recognizes that 
default rights of the covered swap entity may be stayed pursuant to a 
special resolution regime such as Title II of the Dodd-Frank Act, the 
FDI Act, the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992, the Farm Credit Act of 1971, and comparable foreign 
resolution regimes. However, as was the case with the previous 
definition of QMNA, the current EMNA definition does not explicitly 
recognize certain restrictions on the exercise of cross-default rights 
imposed under the QFC Rules. Therefore, a master netting agreement that 
is amended in order to address a Covered QFC Entity's compliance with 
the QFC Rules will not meet the current definition of EMNA from the 
standpoint of a Covered QFC Entity's counterparty that is a covered 
swap entity. Failure to meet the definition of EMNA would require that 
covered swap entity to measure its exposures from covered swaps on a 
gross, rather than net, basis for purposes of the Swap Margin Rule. 
This outcome would be an unintended consequence of the QFC Rules and 
would be contrary to the policy decisions expressed in the Swap Margin 
Rule to permit initial margin to be calculated on a net basis for 
covered swaps subject to netting agreements.
    Accordingly, the Agencies are proposing to add a new paragraph to 
the definition of ``eligible master netting agreement'' to make clear 
that a master netting agreement meets the definition under the Swap 
Margin Rule when the agreement limits ``the right to accelerate, 
terminate, and close-out on a net basis all transactions under the 
agreement and to liquidate or set-off collateral promptly upon an event 
of default of the counterparty to the extent necessary for the 
counterparty to comply with the requirements of part 47, Subpart I of 
part 252 or part 382 of Title 12, as applicable.'' This text is 
identical to the corresponding text used in the amended definition of 
QMNA in the Federal banking agencies' capital and liquidity rules.

B. Proposed Amendment to the Meaning of ``Swaps Entered Into''

    As discussed above, the Swap Margin Rule's requirements apply only 
to covered swaps.\35\ Legacy swaps will generally not be subject to the 
Swap Margin Rule's initial and variation margin requirements.\36\ 
However, in the preamble to the Swap Margin Rule, the Agencies declined 
to include language extending legacy swap treatment to a swap if it is 
subsequently novated or amended after the applicable compliance 
date.\37\ At the time, the Agencies did not contemplate that legacy 
swaps might be amended solely to meet other regulatory requirements 
imposed by one or more of the Agencies, such as the QFC Rules.
---------------------------------------------------------------------------

    \35\ See supra note 13.
    \36\ However, a legacy swap may be subject to margin 
requirements if it is part of a netting set that includes non-
cleared swaps that are entered into after the compliance date 
applicable to the covered swap entity.
    \37\ 80 FR 74850-74851. The Agencies articulated concerns about 
potential evasion of the rule if legacy swaps could be materially 
amended and remain not subject to the requirements of the Swap 
Margin Rule, as well as the difficulty of administrating a more 
complex regulatory approach that attempted to draw distinctions 
among the materiality of, or the intended purpose of, amendments to 
legacy swaps.
---------------------------------------------------------------------------

    As discussed above, Covered QFC Entities must conform to the 
requirements of the QFC Rules Covered QFCs entered into on or after 
January 1, 2019 and, in some instances, Covered QFCs entered into 
before that date.\38\ To comply with the requirements governing the 
restrictions on Covered QFCs, a Covered QFC Entity may directly amend 
the contractual provisions of its Covered QFCs, or alternatively, cause 
its Covered QFCs to be subject to the International Swaps and 
Derivatives Association 2015 Resolution Stay Protocol (``Universal 
Protocol'') or a yet-to-be-developed protocol that is expected to be 
similar to the Universal Protocol.\39\ Therefore, in order to provide 
clarity to market participants as to the effects of an amendment that 
is required by the QFC Rules to a legacy QFC that is a legacy swap, the 
Agencies are proposing an amendment to the Swap Margin Rule that makes 
clear that a legacy swap will not be deemed a covered swap under the 
Swap Margin Rule if it is amended, either by a direct amendment or a 
modification causing the legacy swap to be governed by one of the 
aforementioned protocols, by either counterparty solely to conform to 
the QFC Rules.
---------------------------------------------------------------------------

    \38\ The QFC Rules require a Covered QFC Entity to conform 
Covered QFCs entered into, executed, or to which it otherwise became 
a party before January 1, 2019 (legacy QFCs), if the Covered QFC 
Entity or any affiliate that is a Covered QFC Entity also enters, 
executes, or otherwise becomes a party to a new Covered QFC with the 
counterparty to the preexisting Covered QFC or a consolidated 
affiliate of the counterparty on or after January 1, 2019. See, 
e.g., 12 CFR 252.82 (2017); 12 CFR 382.2 (2017).
    \39\ The QFC Rules set forth requirements for the yet-to-be 
developed protocol to be an acceptable alternative protocol for 
purposes of the QFC Rules, which would cause the new protocol to 
differ from the Universal Protocol. The QFC Rules also permit the 
new protocol to include certain other differences from the Universal 
Protocol. For example, the yet-to-be developed protocol is permitted 
to allow Covered QFC counterparties to adhere only with respect to 
Covered QFC Entities.
---------------------------------------------------------------------------

    This proposal is intended to provide certainty to a covered swap 
entity and its counterparties about the treatment of legacy swaps and 
any applicable netting arrangements in light of the QFC Rules. However, 
if in addition to amendments required to comply with the QFC Rules, any 
other amendments are contemporaneously entered into, the amended legacy 
swap will be treated as a covered swap in accordance with the 
application of the existing Swap Margin Rule.

III. Regulatory Analysis

A. Paperwork Reduction Act

    OCC: In accordance with 44 U.S.C. 3512, the OCC may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid OMB control number. The 
OCC reviewed the proposed rule and concluded that it contains no 
requirements subject to the PRA.
    Board: In accordance with section 3512 of the Paperwork Reduction 
Act of 1995 (PRA) (44 U.S.C. 3501-3521), the Board may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The Board reviewed the proposed rule 
under the authority delegated to them by OMB. The proposed rule 
contains no requirements subject to the PRA.
    FDIC: In accordance with the requirements of the PRA, the FDIC may 
not conduct or sponsor, and a respondent is not required to respond to, 
an information collection unless it displays a currently valid OMB 
control number. The FDIC reviewed the proposed rule and concludes that 
it contains no requirements subject to the PRA. Therefore, no 
submission will be made to OMB for review.
    FCA: The FCA has determined that the proposed rule does not involve 
a collection of information pursuant to the Paperwork Reduction Act for 
Farm Credit System institutions because Farm Credit System institutions 
are Federally chartered instrumentalities of the United States and 
instrumentalities of the United States are specifically excepted from 
the definition of ``collection of information'' contained in 44 U.S.C. 
3502(3).
    FHFA: The proposed rule amendments do not contain any

[[Page 7419]]

collections of information pursuant to the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any 
information to the Office of Management and Budget for review.

B. Initial Regulatory Flexibility Act Analysis

    OCC: In general, the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
et seq.) requires that in connection with a rulemaking, an agency 
prepare and make available for public comment a regulatory flexibility 
analysis that describes the impact of the rule on small entities. Under 
section 605(b) of the RFA, this analysis is not required if an agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities and publishes its certification 
and a brief explanatory statement in the Federal Register along with 
its rule.
    The OCC currently supervises approximately 956 small entities.\40\ 
None of these entities is a covered swap entity. Moreover, because the 
OCC assumes that this proposal will be implemented before any OCC-
supervised entities are required to comply with the QFC Rules, the OCC 
believes that the proposal will not result in savings--or more than de 
minimis costs--for OCC-supervised entities. Therefore, the OCC 
certifies that the proposed rule will not have a significant economic 
impact on a substantial number of small OCC-regulated entities.
---------------------------------------------------------------------------

    \40\ The OCC bases its estimate of the number of small entities 
on the Small Business Association's size thresholds for commercial 
banks and savings institutions, and trust companies, which are $550 
million and $38.5 million, respectively. Consistent with the General 
Principles of Affiliation 13 CFR 121.103(a), the OCC counts the 
assets of affiliated financial institutions when determining if we 
should classify an OCC-supervised institution a small entity. The 
OCC used December 31, 2016, to determine size because a ``financial 
institution's assets are determined by averaging the assets reported 
on its four quarterly financial statements for the preceding year.'' 
See footnote 8 of the U.S. Small Business Administration's Table of 
Size Standards.
---------------------------------------------------------------------------

    Board: In accordance with section 3(a) of the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq. (RFA), the Board is publishing an 
initial regulatory flexibility analysis for the proposed rule. The RFA 
requires an agency to provide an initial regulatory flexibility 
analysis with the proposed rule or to certify that the proposed rule 
will not have a significant economic impact on a substantial number of 
small entities. The Board welcomes comment on all aspects of the 
initial regulatory flexibility analysis. A final regulatory flexibility 
analysis will be conducted after consideration of comments received 
during the public comment period.
    1. Description of the reasons why action by the Board is being 
considered and statement of the objectives of the proposal. The Board 
is proposing to amend the definition of Eligible Master Netting 
Agreement in the Swap Margin Rule so that it remains harmonized with 
the amended definition of ``Qualifying Master Netting Agreement'' in 
the Federal banking agencies' regulatory capital and liquidity rules. 
The Board is also proposing an amendment that will make clear that a 
legacy swap (a non-cleared swap entered into before the applicable 
compliance date) that is not subject to the requirements of the Swap 
Margin Rule will not be deemed a covered swap under the Swap Margin 
Rule if it is amended solely to conform to the QFC Rules.
    2. Small entities affected by the proposal. This proposal would 
apply to financial institutions that are covered swap entities that are 
subject to the requirements of the Swap Margin Rule. Under Small 
Business Administration (SBA) regulations, the finance and insurance 
sector includes commercial banking, savings institutions, credit 
unions, other depository credit intermediation and credit card issuing 
entities (financial institutions). With respect to financial 
institutions that are covered swap entities under the Swap Margin Rule, 
a financial institution generally is considered small if it has assets 
of $550 million or less.\41\ Covered swap entities would be considered 
financial institutions for purposes of the RFA in accordance with SBA 
regulations. The Board does not expect that any covered swap entity is 
likely to be a small financial institution, because a small financial 
institution is unlikely to engage in the level of swap activity that 
would require it to register as a swap dealer or a major swap 
participant with the CFTC and SEC, respectively.\42\ None of the 
current covered swap entities are small entities.
---------------------------------------------------------------------------

    \41\ See 13 CFR 121.201 (effective December 2, 2014); see also 
13 CFR 121.103(a)(6) (noting factors that the SBA considers in 
determining whether an entity qualifies as a small business, 
including receipts, employees, and other measures of its domestic 
and foreign affiliates).
    \42\ The CFTC has published a list of provisionally registered 
swap dealers as of November 20, 2017 that does not include any small 
financial institutions. See https://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer. The SEC has not yet imposed a 
registration requirement on entities that meet the definition of 
security-based swap dealer or major security-based swap participant.
---------------------------------------------------------------------------

    3. Reporting, recordkeeping and compliance requirements. The 
proposed amendments apply to covered swap entities. As a result of the 
proposals, the economic impact on covered swap entities will be 
positive as they will continue to be able to enter into netting 
agreements that allow margin to be calculated on a net basis, rather 
than a gross basis. In addition, absent this proposal, legacy swaps 
that are not currently subject to the margin requirements of the Swap 
Margin Rule would be required to comply with the provisions of the Swap 
Margin Rule solely because of amendments made to conform to the 
requirements of the QFC Rules.
    4. Other Federal rules. Absent this proposal, the definition of 
EMNA would conflict with the definition of QMNA in the Federal banking 
agencies' regulatory capital and liquidity rules. This would result in 
additional compliance costs for firms that are subject to both 
definitions. In addition, absent these amendments, there would be a 
conflict between what the QFC Rules require in Covered QFCs and the 
policy determination previously made by the Board about the application 
of the Swap Margin Rule to legacy swaps.
    5. Significant alternatives to the proposed rule. As discussed 
above, the Agencies have requested comment on the scope of the proposed 
amendments and have solicited comment on any approaches that would 
reduce the burden on covered swap entities. The Board welcomes comment 
on any significant alternatives that would minimize the impact of the 
proposal on small entities.
    FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires an agency to provide an initial regulatory flexibility 
analysis with a proposed rule, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities (defined by the Small Business Administration 
for purposes of the RFA to include banking entities with total assets 
of $550 million or less).
    According to the most recent data from the Consolidated Reports of 
Income and Condition (CALL Report), the FDIC supervised 3,674 
institutions. Of those, 2,950 are considered ``small,'' according to 
the terms of the Regulatory Flexibility Act. The proposed rule 
primarily affects covered swap entities. The FDIC believes that FDIC-
supervised small entities are unlikely to be a covered swap entity 
because such entities are unlikely to engage in the level of swap 
activity that would require them to register as a swap entity. The Swap 
Margin Rule implements sections 731 and 764 of the Dodd-Frank Act, as 
amended by the Terrorism Risk Insurance Program Reauthorization Act

[[Page 7420]]

of 2015 (``TRIPRA''). Because TRIPRA excludes non-cleared swaps entered 
into for hedging purposes by a financial institution with total assets 
of $10 billion or less from the requirements of the Swap Margin Rule, 
when a covered swap entity transacts non-cleared swaps with a small 
entity supervised by the FDIC, and such swaps are used to hedge a 
commercial risk of the small entity, those swaps will not be subject to 
the Swap Margin Rule. The FDIC believes that it is unlikely that any 
small entity it supervises will engage in non-cleared swaps for 
purposes other than hedging. Therefore, it is unlikely that the 
amendments included in the proposed rule would result in a significant 
economic impact on a substantial number of small entities under its 
supervisory jurisdiction.
    For these reasons, the FDIC certifies that the Proposed Rule, if 
adopted in final form, would not have a significant economic impact on 
a substantial number of small entities, within the meaning of those 
terms as used in the RFA. Accordingly, a regulatory flexibility 
analysis is not required.
    FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act, 
5 U.S.C. 601 et seq., FCA hereby certifies that the proposed rule will 
not have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets and annual income 
in excess of the amounts that would qualify them as small entities; nor 
does the Federal Agricultural Mortgage Corporation meet the definition 
of ``small entity.'' Therefore, System institutions are not ``small 
entities'' as defined in the Regulatory Flexibility Act.
    FHFA: The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
requires that a regulation that has a significant economic impact on a 
substantial number of small entities, small businesses, or small 
organizations must include an initial regulatory flexibility analysis 
describing the regulation's impact on small entities. FHFA need not 
undertake such an analysis if the agency has certified the regulation 
will not have a significant economic impact on a substantial number of 
small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the 
proposed rule under the Regulatory Flexibility Act, and certifies that 
the proposed rule, if adopted as a final rule, would not have a 
significant economic impact on a substantial number of small entities 
because the proposed rule is applicable only FHFA's regulated entities, 
which are not small entities for purposes of the Regulatory Flexibility 
Act.

C. Solicitation of Comments on the Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the U.S. banking 
agencies to use plain language in proposed and final rulemakings.\43\ 
The Agencies have sought to present the proposed rule in a simple and 
straightforward manner, and invite comment on the use of plain language 
in this proposal.
---------------------------------------------------------------------------

    \43\ 12 U.S.C. 4809(a).
---------------------------------------------------------------------------

    Question 1: Have the Agencies organized the proposal in a clear 
way? If not, how could the proposal be organized more clearly?
    Question 2: Are the requirements of the proposed rule clearly 
stated? If not, how could they be stated more clearly?
    Question 3: Does the proposal contain unclear technical language or 
jargon? If so, which language requires clarification?
    Question 4: Would a different format (such as a different grouping 
and ordering of sections, a different use of section headings, or a 
different organization of paragraphs) make the regulation easier to 
understand? If so, what changes would make the proposal clearer?
    Question 5: What else could the Agencies do to make the proposal 
clearer and easier to understand?

D. OCC Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act) (2 U.S.C. 1532) requires that the OCC prepare a budgetary 
impact statement before promulgating a rule that includes any Federal 
mandate that may result in the expenditure by State, local, and Tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires the 
OCC to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. The OCC has determined that 
the proposed rule does not impose any new mandates and will not result 
in expenditures by State, local, and Tribal governments, or by the 
private sector of $100 million or more in any one year. Accordingly, 
the OCC has not prepared a budgetary impact statement or specifically 
addressed the regulatory alternatives considered.

E. Riegle Community Development and Regulatory Improvement Act of 1994

    The Riegle Community Development and Regulatory Improvement Act of 
1994 (RCDRIA) requires that each Federal banking agency, in determining 
the effective date and administrative compliance requirements for new 
regulations that impose additional reporting, disclosure, or other 
requirements on insured depository institutions, consider, consistent 
with principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions, as well as the benefits of such regulations. 
In addition, new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on insured 
depository institutions generally must take effect on the first day of 
a calendar quarter that begins on or after the date on which the 
regulations are published in final form.\44\ Each Federal banking 
agency has determined that the proposed rule would not impose 
additional reporting, disclosure, or other requirements; therefore the 
requirements of the RCDRIA do not apply.
---------------------------------------------------------------------------

    \44\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 45

    Administrative practice and procedure, Capital, Margin 
requirements, National banks, Federal savings associations, Reporting 
and recordkeeping requirements, Risk.

12 CFR Part 237

    Administrative practice and procedure, Banks and banking, Capital, 
Foreign banking, Holding companies, Margin requirements, Reporting and 
recordkeeping requirements, Risk.

12 CFR Part 349

    Administrative practice and procedure, Banks, Holding companies, 
Margin Requirements, Capital, Reporting and recordkeeping requirements, 
Savings associations, Risk.

12 CFR Part 624

    Accounting, Agriculture, Banks, Banking, Capital, Cooperatives, 
Credit, Margin requirements, Reporting and recordkeeping requirements, 
Risk, Rural areas, Swaps.

[[Page 7421]]

12 CFR Part 1221

    Government-sponsored enterprises, Mortgages, Securities.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons stated in the preamble, the Office of the 
Comptroller of the Currency proposes to amend part 45 of chapter I of 
title 12, Code of Federal Regulations, as follows:

PART 45--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES

0
1. The authority citation for part 45 continues to read as follows:

    Authority:  7 U.S.C. 6s(e), 12 U.S.C. 1 et seq., 12 U.S.C. 93a, 
161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o-10(e).

0
2. Section 45.1 is amended by adding paragraph (e)(7) to read as 
follows:


Sec.  45.1  Authority, purpose, scope, exemptions and compliance dates.

* * * * *
    (e) * * *
    (7) For purposes of determining the date on which a non-cleared 
swap or a non-cleared security-based swap was entered into, a Covered 
Swap Entity will not take into account amendments to the non-cleared 
swap or the non-cleared security-based swap that were entered into 
solely to comply with the requirements of part 47, Subpart I of part 
252 or part 382 of Title 12, as applicable.
* * * * *
0
3. Section 45.2 is amended by revising paragraph (2) of the definition 
of Eligible master netting agreement to read as follows:


Sec.  45.2  Definitions.

* * * * *
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case:
    (i) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (2)(i)(A) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this 
definition; and
    (ii) The agreement may limit the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and 
to liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable;
* * * * *

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, the Board of Governors 
of the Federal Reserve System proposes to amend 12 CFR part 237 to read 
as follows:

PART 237--SWAPS MARGIN AND SWAPS PUSH-OUT

0
4. The authority citation for part 237 continues to read as follows:

    Authority:  7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305, 
12 U.S.C. 221 et seq., 12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C. 
1841 et seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.

0
5. Section 237.1 paragraph (e)(7) is added to read as follows:

Subpart A--Margin and Capital Requirements for Covered Swap 
Entities (Regulation KK)


Sec.  237.1  Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (e) * * *
    (7) For purposes of determining the date on which a non-cleared 
swap or a non-cleared security-based swap was entered into, a Covered 
Swap Entity will not take into account amendments to the non-cleared 
swap or the non-cleared security-based swap that were entered into 
solely to comply with the requirements of part 47, Subpart I of part 
252 or part 382 of Title 12, as applicable.
* * * * *
0
6. Section 237.2 is amended by revising paragraph (2) of the definition 
of ``Eligible master netting agreement'' to read as follows:


Sec.  237.2  Definitions

* * * * *
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case,
    (i) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (2)(i)(A) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this 
definition; and
    (ii) The agreement may limit the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and 
to liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable;
* * * * *

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend 12 CFR part 349 as follows:

[[Page 7422]]

PART 349--DERIVATIVES

Subpart A--Margin and Capital Requirements for Covered Swap 
Entities

0
7. The authority citation for Subpart A continues to read as follows:

    Authority:  7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e) and 12 U.S.C. 
1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819, 
and 3108.

0
8. Section 349.1 is amended by adding paragraph (e)(7) as follows:


Sec.  349.1  Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (e) * * *
    (7) For purposes of determining the date on which a non-cleared 
swap or a non-cleared security-based swap was entered into, a Covered 
Swap Entity will not take into account amendments to the non-cleared 
swap or the non-cleared security-based swap that were entered into 
solely to comply with the requirements of part 47, Subpart I of part 
252 or part 382 of Title 12, as applicable.
* * * * *
0
9. Section 349.2 is amended by revising of the definition of ``Eligible 
master netting agreement'' to read as follows:


Sec.  349.2  Definitions.

* * * * *
    Eligible master netting agreement means a written, legally 
enforceable agreement provided that:
    (1) The agreement creates a single legal obligation for all 
individual transactions covered by the agreement upon an event of 
default following any stay permitted by paragraph (2) of this 
definition, including upon an event of receivership, conservatorship, 
insolvency, liquidation, or similar proceeding, of the counterparty;
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case,
    (i) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (2)(i)(A) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this 
definition; and
    (ii) The agreement may limit the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and 
to liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable;
    (3) The agreement does not contain a walkaway clause (that is, a 
provision that permits a non-defaulting counterparty to make a lower 
payment than it otherwise would make under the agreement, or no payment 
at all, to a defaulter or the estate of a defaulter, even if the 
defaulter or the estate of the defaulter is a net creditor under the 
agreement); and
    (4) A covered swap entity that relies on the agreement for purposes 
of calculating the margin required by this part must:
    (i) Conduct sufficient legal review to conclude with a well-founded 
basis (and maintain sufficient written documentation of that legal 
review) that:
    (A) The agreement meets the requirements of paragraph (2) of this 
definition; and
    (B) In the event of a legal challenge (including one resulting from 
default or from receivership, conservatorship, insolvency, liquidation, 
or similar proceeding), the relevant court and administrative 
authorities would find the agreement to be legal, valid, binding, and 
enforceable under the law of the relevant jurisdictions; and
    (ii) Establish and maintain written procedures to monitor possible 
changes in relevant law and to ensure that the agreement continues to 
satisfy the requirements of this definition.
* * * * *

FARM CREDIT ADMINISTRATION

Authority and Issuance

    For the reasons set forth in the preamble, the Farm Credit 
Administration proposes to amend chapter VI of title 12, Code of 
Federal Regulations, as follows:

PART 624--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES

0
10. The authority citation for part 624 continues to read as follows:

    Authority:  7 U.S.C 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 2154, 
12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb-1.

0
11. Section 624.1 is amended by adding paragraph (e)(7) to read as 
follow:


Sec.  624.1  Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (e) * * *
    (7) For purposes of determining the date on which a non-cleared 
swap or a non-cleared security-based swap was entered into, a Covered 
Swap Entity will not take into account amendments to the non-cleared 
swap or the non-cleared security-based swap that were entered into 
solely to comply with the requirements of part 47, Subpart I of part 
252 or part 382 of Title 12, as applicable.
* * * * *
0
12. Section 624.2 is amended by revising paragraph (2) of the 
definition of Eligible master netting agreement to read as follows:


Sec.  624.2  Definitions

* * * * *
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case,
    (i) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (2)(i)(A) in order to

[[Page 7423]]

facilitate the orderly resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this 
definition; and
    (ii) The agreement may limit the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and 
to liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable;
* * * * *

FEDERAL HOUSING FINANCE AGENCY

Authority and Issuance

    For the reasons set forth in the preamble, the Federal Housing 
Finance Agency proposes to amend chapter XII of title 12, Code of 
Federal Regulations, as follows:

PART 1221--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP 
ENTITIES

0
13. The authority citation for part 1221 continues to read as follows:

    Authority:  7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513, 
and 12 U.S.C. 4526(a).

0
14. Section 1221.1 is amended by adding paragraph (e)(7) to read as 
follows:


Sec.  1221.1  Authority, purpose, and scope, exemptions and compliance 
dates.

* * * * *
    (e) * * *
    (7) For purposes of determining the date on which a non-cleared 
swap or a non-cleared security-based swap was entered into, a Covered 
Swap Entity will not take into account amendments to the non-cleared 
swap or the non-cleared security-based swap that were entered into 
solely to comply with the requirements of part 47, Subpart I of part 
252 or part 382 of Title 12, as applicable.
* * * * *
0
15. Section 1221.2 is amended by revising paragraph (2) of the 
definition of Eligible master netting agreement to read as follows:


Sec.  1221.2  Definitions.

* * * * *
    (2) The agreement provides the covered swap entity the right to 
accelerate, terminate, and close-out on a net basis all transactions 
under the agreement and to liquidate or set-off collateral promptly 
upon an event of default, including upon an event of receivership, 
conservatorship, insolvency, liquidation, or similar proceeding, of the 
counterparty, provided that, in any such case,
    (i) Any exercise of rights under the agreement will not be stayed 
or avoided under applicable law in the relevant jurisdictions, other 
than:
    (A) In receivership, conservatorship, or resolution under the 
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5381 et seq.), the Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit 
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign 
jurisdictions that are substantially similar to the U.S. laws 
referenced in this paragraph (2)(i)(A) in order to facilitate the 
orderly resolution of the defaulting counterparty; or
    (B) Where the agreement is subject by its terms to, or 
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this 
definition; and
    (ii) The agreement may limit the right to accelerate, terminate, 
and close-out on a net basis all transactions under the agreement and 
to liquidate or set-off collateral promptly upon an event of default of 
the counterparty to the extent necessary for the counterparty to comply 
with the requirements of part 47, Subpart I of part 252 or part 382 of 
Title 12, as applicable;
* * * * *

    Dated: January 29, 2018.
Joseph M. Otting,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, January 24, 2018.
Ann E. Misback,
Secretary of the Board.

    Dated at Washington, DC, this 25th day of January 2018.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.

    Dated: January 26, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.

    Dated: January 25, 2018
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2018-02560 Filed 2-20-18; 8:45 am]
 BILLING CODE P

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