Definitions, 7979-7997 [2018-03590]

Download as PDF Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202–741–6030, or go to: https:// www.archives.gov/federal-register/cfr/ibrlocations.html. Issued in Renton, Washington, on February 9, 2018. Michael Kaszycki, Acting Director, System Oversight Division, Aircraft Certification Service. [FR Doc. 2018–03429 Filed 2–22–18; 8:45 am] BILLING CODE 4910–13–P COMMODITY FUTURES TRADING COMMISSION 17 CFR Parts 1, 3, 4, 5, 15, 18, 19, 23, 30, 38, 39, 41, 50, 150, 151, 155, and 166 RIN 3038–AE70 Definitions Commodity Futures Trading Commission. ACTION: Interim final rule; request for comment. AGENCY: The Commodity Futures Trading Commission (the ‘‘Commission’’) is amending its primary definitions regulation to make it more user-friendly both to industry and the public. Specifically, the Commission is amending the primary definitions regulation to replace the complex and confusing lettering system with a simple alphabetical list; and replacing all existing cross references to any definition within the primary definitions regulation with a general reference to the revised alphabetical list, rather than to a specific lettered paragraph. SUMMARY: daltland on DSKBBV9HB2PROD with RULES DATES: Effective Date: This rule is effective February 23, 2018. Comment date: Comments must be received on or before March 26, 2018. ADDRESSES: You may submit comments, identified by RIN 3038–AE70, by one of the following methods: • CFTC Website: https:// comments.cftc.gov. Follow the instructions to Submit Comments through the website. • Mail: Send comments to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Center, 1155 21st Street NW, Washington, DC 20581. • Hand Delivery/Courier: Same as Mail, above. Please submit your comments using only one method. VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to https:// comments.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act (‘‘FOIA’’), a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission’s regulations.1 The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from https://comments.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the FOIA. FOR FURTHER INFORMATION CONTACT: Matthew B. Kulkin, Director, (202) 418– 5213, mkulkin@cftc.gov; Frank Fisanich, Chief Counsel, (202) 418–5949, ffisanich@cftc.gov; Andrew Chapin, Associate Chief Counsel, (202) 418– 5465, achapin@cftc.gov; Scott Lee, Special Counsel, (202) 418–5090, slee@ cftc.gov; or C. Barry McCarty, Special Counsel, (202) 418–6627, cmccarty@ cftc.gov; Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st Street NW, Washington, DC 20581. SUPPLEMENTARY INFORMATION: I. Interim Final Rule Section 1a of the Commodity Exchange Act (‘‘CEA’’) 2 sets forth defined terms referenced throughout the statute. These terms are alphabetized and numbered, currently beginning with ‘‘(1) Alternative Trading System’’ and ending with ‘‘(51) Trading Facility.’’ Whenever defined terms are added by Congress, the new term is placed in the proper location in the alphabetic order and the entire list is renumbered. The alphabetized list makes it relatively easy for an individual completely unfamiliar with the CEA to find a particular term referenced in the statute. Commission regulation § 1.3 similarly sets forth many definitions referenced throughout the Commission’s 1 17 CFR 145.9. Commission regulations referred to herein are found at 17 CFR chapter I. 2 7 U.S.C. 1 et seq. PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 7979 regulations.3 Starting in 1938, the defined terms have been identified with an alphabetic designation consistent with the structure set forth in the Code of Federal Regulations (‘‘CFR’’).4 The CFR identifies regulations by ‘‘title,’’ divided into ‘‘chapters,’’ further subdivided into ‘‘parts,’’ and further subdivided into ‘‘sections’’ and ‘‘paragraphs.’’ Thus, the definitions in § 1.3 are set forth in Title 17 (Commodity and Securities Exchanges), Chapter I (Commodity Futures Trading Commission), Part 1 (General Regulations Under the Commodity Exchange Act), § 1.3 (Definitions). Each defined term then was originally set forth in paragraphs in alphabetical order, each with an alphabetic designation, starting with ‘‘(a) Board of Trade’’ and continuing through ‘‘(u) Person.’’ 5 Over decades, numerous definitions have been added by simply adding more paragraphs at the end (rather than in alphabetical order) with an ever-growing list of alphabetic designations, starting with ‘‘(aa)’’ after reaching ‘‘(z)’’ and then ‘‘(aaa)’’ after reaching ‘‘(zz).’’ Moreover, certain definitions have been removed, leaving certain paragraphs blank and cited as ‘‘reserved.’’ As of today, the list of definitions in § 1.3 concludes with ‘‘(ssss) Trading Facility.’’ The result of this progression has been that, absent a strong familiarity with the Commission’s regulations, it can prove difficult to quickly locate defined terms within § 1.3, either directly or as referred to by another regulation, or even to know if certain terms have been defined. Accordingly, the Commission has determined to amend § 1.3 to replace the sub-paragraphs currently identified with an alphabetic designation for each defined term with a simple alphabetized list, as is recommended by the Office of the Federal Register.6 Moving forward, any new defined terms in § 1.3 may be inserted in alphabetical order, rather than appended to the end. The Commission also has determined to amend all cross references to § 1.3— both within § 1.3 and within all other Commission regulations—to refer to the defined term set forth in the revised 3 17 CFR 1.3. The Commission’s regulations are found in Title 17 of the Code of Federal Regulations, 17 CFR chapter I. 4 See 17 CFR 1.3 (1938 ed.). 5 Id. 6 See Document Drafting Handbook, Office of the Federal Register, National Archives and Records Administration, 2–31 (Revision 5, Oct. 2, 2017), stating, ‘‘[i]n sections or paragraphs containing only definitions, we recommend that you do not use paragraph designations if you list the terms in alphabetical order. Begin the definition paragraph with the term that you are defining.’’ E:\FR\FM\23FER1.SGM 23FER1 7980 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations alphabetic list, rather than the existing complex and confusing system for subdividing the regulation into paragraphs identified with an alphabetic designation. Further, the Commission has determined to amend certain definitions within § 1.3 to correct certain typographical errors. Collectively, these amendments do not substantively alter any existing definition or other requirement set forth in other Commission regulations. II. Request for Comment on Interim Final Rule The Commission invites comments on this interim final rule. For example, the Commission invites comment as to the extent, if any, that the elimination of the paragraph references to particular defined terms in § 1.3 would cause registrants to update or alter existing automated compliance programs and any costs associated with such changes. Comments must be received by the Commission on or before the comment date specified under the DATES heading in this document. Comments on the interim final rule must be submitted pursuant to the instructions provided above. III. Related Matters daltland on DSKBBV9HB2PROD with RULES A. Administrative Procedure Act The Administrative Procedure Act (‘‘APA’’) 7 generally requires a Federal agency to publish a notice of proposed rulemaking in the Federal Register. This requirement does not apply, however, when an agency ‘‘for good cause finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.’’ Moreover, while the APA generally requires that an agency publish an adopted rule in the Federal Register 30 days before it becomes effective, this requirement does not apply if the agency finds good cause to make the rule effective sooner. In this interim final rulemaking the Commission is, by amendment, reorganizing the definitions in § 1.3 into alphabetical order. No substantive changes are being made to the definitions, only reordering in alphabetical order, deleting the alphabetic identification scheme, revising all cross references to existing § 1.3 definitions, and correcting certain typographical errors. Similarly, related regulations which include cross references to § 1.3 will be amended to reflect the elimination of the alphabetic identification scheme. Because the interim final rule does not alter in any way the substantive definitions and related regulations, the advance notice and public comment procedure that is generally required pursuant to the APA is not necessary in the present instance. For good cause, the Commission therefore finds that publication of a notice of proposed rulemaking in the Federal Register is unnecessary. Similarly, since the interim final rule simply reorganizes all definitions into alphabetical order in § 1.3, eliminates the alphabetic identification scheme, harmonizes related regulations, and corrects certain typographical errors, the Commission, for good cause, finds no transitional period, after publication in the Federal Register, is necessary before the amendments made by this interim final rule become effective. Accordingly, this interim final rule shall be effective immediately upon publication in the Federal Register. B. Paperwork Reduction Act The Paperwork Reduction Act (‘‘PRA’’) imposes certain requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA.8 Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number from the Office of Management and Budget (‘‘OMB’’). Since this interim final rule serves to clarify, by amendment, the scope of an already existing regulatory provision, the Commission has determined that the interim final rule will not impose any new information collection requirements that require approval of OMB under the PRA. C. Regulatory Flexibility Act The Regulatory Flexibility Act (‘‘RFA’’) requires that Federal agencies consider whether the rules that they issue will have a significant economic impact on a substantial number of small entities and, if so, to provide a regulatory flexibility analysis respecting the impact.9 By reorganizing the definitions set forth in § 1.3 into alphabetical order and updating all related cross references throughout all Commission regulations, this interim final rule serves to clarify its regulations. Therefore, the Commission has determined that this interim final rule will not have a significant economic impact on a substantial number of small entities. 8 See 7 See 5 U.S.C. 553 et seq. VerDate Sep<11>2014 16:46 Feb 22, 2018 9 See Jkt 244001 PO 00000 44 U.S.C. 3501 et seq. 5 U.S.C. 601 et seq. Frm 00030 Fmt 4700 Sfmt 4700 D. Cost-Benefit Considerations Section 15(a) of the CEA 10 requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders. Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of the futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors. The interim final rule does not represent an exercise of Commission discretion that alters substantive rights and obligations imposed by statute and current Commission rules. As discussed earlier, the interim final rule merely reorganizes the existing definitions in § 1.3 into alphabetical order, deletes the outdated lettering scheme, and revises § 1.3 and related regulations to reflect the deleted lettering scheme. As such, substantively, the interim final rule poses no incremental costs or benefits relative to the regulatory requirements that are now in force. This interim final rule does have a discretionary element. By issuing the interim final rule, the Commission is exercising its discretion to clarify, by amendment, the definitions currently in force. By alphabetizing the definitions, the interim final rule addresses a potential source of uncertainty for market participants, which promotes the public interest in market integrity and regulatory clarity. The Commission recognizes that this discretionary act of clarification may result in some administrative costs to market participants. However, the Commission believes any such costs will not be material. List of Subjects 17 CFR Part 1 Commodity futures, Reporting and recordkeeping requirements. 17 CFR Part 3 Administrative practice and procedure, Commodity futures, Reporting and recordkeeping requirements. 10 7 E:\FR\FM\23FER1.SGM U.S.C. 19(a). 23FER1 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations Advertising, Brokers, Commodity futures, Consumer protection, Reporting and recordkeeping requirements. Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, 12, 12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, and 24 (2012). 17 CFR Part 5 ■ Commodity futures, Consumer protection, Foreign currencies, Reporting and recordkeeping requirements, Securities, Trade practices. ■ 17 CFR Part 4 17 CFR Part 15 Brokers, Reporting and recordkeeping requirements. 17 CFR Part 18 Reporting and recordkeeping requirements. 17 CFR Part 19 Cotton, Grains, Reporting and recordkeeping requirements. 17 CFR Part 23 Swaps. 17 CFR Part 30 Consumer protection, Fraud. 17 CFR Part 38 Commodity futures, Reporting and recordkeeping requirements. 17 CFR Part 39 Consumer protection, Reporting and recordkeeping requirements. 17 CFR Part 41 Brokers, Reporting and recordkeeping requirements, Securities. 17 CFR Part 50 Business and industry, Swaps. 17 CFR Part 150 Cotton, Grains. 17 CFR Part 151 Swaps. 17 CFR Part 155 Brokers, Reporting and recordkeeping requirements. daltland on DSKBBV9HB2PROD with RULES 17 CFR Part 166 Brokers, Commodity futures, Consumer protection, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Commodity Futures Trading Commission amends 17 CFR chapter I as follows: PART 1—GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT 1. The authority citation for part 1 continues to read as follows: ■ VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 2. Amend § 1.3 as follows: a. Republish the introductory text of § 1.3; ■ b. Remove paragraph designations (a) through (ssss) and reorder those definitions paragraphs in correct alphabetical order; ■ c. Revise the definitions of ‘‘Bona fide hedging transactions and positions for excluded commodities,’’ ‘‘Category of swaps; major swap category,’’ ‘‘Commodity option transaction; commodity option,’’ ‘‘Commodity trading advisor,’’ ‘‘Customer,’’ ‘‘Customer account,’’ ‘‘Eligible contract participant,’’ ‘‘Financial entity; highly leveraged,’’ ‘‘Futures contracts on certain foreign sovereign debt,’’ ‘‘Futures customer,’’ ‘‘Hedging or mitigating commercial risk,’’ ‘‘Major Swap Participant,’’ ‘‘Meaning of ‘issuers of securities in a narrow-based security index’ as used in the definition of ‘security-based swap’ as applied to index credit default swaps,’’ ‘‘Meaning of ‘narrow-based security index’ used in the definition of ‘security-based swap’ as applied to index credit default swaps,’’ ‘‘Narrow-based security index as used in the definition of ‘securitybased swap,’ ’’ ‘‘Substantial counterparty exposure,’’ ‘‘Substantial position,’’ ‘‘Swap,’’ and ‘‘Swap Dealer.’’ The revisions read as follows: § 1.3 Definitions. Words used in the singular form in the rules and regulations in this chapter shall be deemed to import the plural and vice versa, as the context may require. The following terms, as used in the Commodity Exchange Act, or in the rules and regulations in this chapter, shall have the meanings hereby assigned to them, unless the context otherwise requires: * * * * * Bona fide hedging transactions and positions for excluded commodities—(1) General definition. Bona fide hedging transactions and positions shall mean any agreement, contract or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility, where such transactions or positions normally represent a substitute for transactions to be made or positions to be taken at a later time in a physical marketing channel, and where they are economically appropriate to the reduction of risks in the conduct and management of a PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 7981 commercial enterprise, and where they arise from: (i) The potential change in the value of assets which a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising, (ii) The potential change in the value of liabilities which a person owns or anticipates incurring, or (iii) The potential change in the value of services which a person provides, purchases, or anticipates providing or purchasing. (iv) Notwithstanding the foregoing, no transactions or positions shall be classified as bona fide hedging unless their purpose is to offset price risks incidental to commercial cash or spot operations and such positions are established and liquidated in an orderly manner in accordance with sound commercial practices and, for transactions or positions on contract markets subject to trading and position limits in effect pursuant to section 4a of the Act, unless the provisions of paragraphs (2) and (3) of this definition have been satisfied. (2) Enumerated hedging transactions. The definitions of bona fide hedging transactions and positions in paragraph (1) of this definition includes, but is not limited to, the following specific transactions and positions: (i) Sales of any agreement, contract, or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility which do not exceed in quantity: (A) Ownership or fixed-price purchase of the same cash commodity by the same person; and (B) Twelve months’ unsold anticipated production of the same commodity by the same person provided that no such position is maintained in any agreement, contract or transaction during the five last trading days. (ii) Purchases of any agreement, contract or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility which do not exceed in quantity: (A) The fixed-price sale of the same cash commodity by the same person; (B) The quantity equivalent of fixedprice sales of the cash products and byproducts of such commodity by the same person; and (C) Twelve months’ unfilled anticipated requirements of the same cash commodity for processing, manufacturing, or feeding by the same person, provided that such transactions and positions in the five last trading E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES 7982 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations days of any agreement, contract or transaction do not exceed the person’s unfilled anticipated requirements of the same cash commodity for that month and for the next succeeding month. (iii) Offsetting sales and purchases in any agreement, contract or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility which do not exceed in quantity that amount of the same cash commodity which has been bought and sold by the same person at unfixed prices basis different delivery months of the contract market, provided that no such position is maintained in any agreement, contract or transaction during the five last trading days. (iv) Purchases or sales by an agent who does not own or has not contracted to sell or purchase the offsetting cash commodity at a fixed price, provided that the agent is responsible for the merchandising of the cash position that is being offset, and the agent has a contractual arrangement with the person who owns the commodity or has the cash market commitment being offset. (v) Sales and purchases described in paragraphs (2)(i) through (iv) of this definition may also be offset other than by the same quantity of the same cash commodity, provided that the fluctuations in value of the position for in any agreement, contract or transaction are substantially related to the fluctuations in value of the actual or anticipated cash position, and provided that the positions in any agreement, contract or transaction shall not be maintained during the five last trading days. (3) Non-Enumerated cases. A designated contract market or swap execution facility that is a trading facility may recognize, consistent with the purposes of this definition, transactions and positions other than those enumerated in paragraph (2) of this definition as bona fide hedging. Prior to recognizing such nonenumerated transactions and positions, the designated contract market or swap execution facility that is a trading facility shall submit such rules for Commission review under section 5c of the Act and part 40 of this chapter. * * * * * Category of swaps; major swap category. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of major swap participant in this section, the terms major swap category, category of swaps and any similar terms mean any of the categories of swaps listed below. For the avoidance of doubt, the term swap as it is used in VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 this definition has the meaning set forth in section 1a(47) of the Act, 7 U.S.C. 1a(47), and the rules thereunder. (1) Rate swaps. Any swap which is primarily based on one or more reference rates, including but not limited to any swap of payments determined by fixed and floating interest rates, currency exchange rates, inflation rates or other monetary rates, any foreign exchange swap, as defined in section 1a(25) of the Act, 7 U.S.C. 1a(25), and any foreign exchange option other than an option to deliver currency. (2) Credit swaps. Any swap that is primarily based on instruments of indebtedness, including but not limited to any swap primarily based on one or more broad-based indices related to debt instruments or loans, and any swap that is an index credit default swap or total return swap on one or more indices of debt instruments. (3) Equity swaps. Any swap that is primarily based on equity securities, including but not limited to any swap based on one or more broad-based indices of equity securities and any total return swap on one or more equity indices. (4) Other commodity swaps. Any swap that is not included in the rate swap, credit swap or equity swap categories. * * * * * Commodity option transaction; commodity option. These terms each mean any transaction or agreement in interstate commerce which is or is held out to be of the character of, or is commonly known to the trade as, an ‘‘option,’’ ‘‘privilege,’’ ‘‘indemnity,’’ ‘‘bid,’’ ‘‘offer,’’ ‘‘call,’’ ‘‘put,’’ ‘‘advance guaranty,’’ or ‘‘decline guaranty,’’ and which is subject to regulation under the Act and the regulations in this chapter. * * * * * Commodity trading advisor. (1) This term means any person who, for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media, as to the value of or the advisability of trading in any contract of sale of a commodity for future delivery, security futures product, or swap; any agreement, contract or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option authorized under section 4c of the Act; any leverage transaction authorized under section 19 of the Act; any person registered with the Commission as a commodity trading advisor; or any person, who, for compensation or profit, and as part of a regular business, issues or promulgates PO 00000 Frm 00032 Fmt 4700 Sfmt 4700 analyses or reports concerning any of the foregoing. The term does not include: (i) Any bank or trust company or any person acting as an employee thereof; (ii) Any news reporter, news columnist, or news editor of the print or electronic media or any lawyer, accountant, or teacher; (iii) Any floor broker or futures commission merchant; (iv) The publisher or producer of any print or electronic data of general and regular dissemination, including its employees; (v) The named fiduciary, or trustee, of any defined benefit plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974, or any fiduciary whose sole business is to advise that plan; (vi) Any contract market; and (vii) Such other persons not within the intent of this definition as the Commission may specify by rule, regulation or order: Provided, That the furnishing of such services by the foregoing persons is solely incidental to the conduct of their business or profession: Provided further, That the Commission, by rule or regulation, may include within this definition, any person advising as to the value of commodities or issuing reports or analyses concerning commodities, if the Commission determines that such rule or regulation will effectuate the purposes of this provision. (2) Client. This term, as it relates to a commodity trading advisor, means any person: (i) To whom a commodity trading advisor provides advice, for compensation or profit, either directly or through publications, writings, or electronic media, as to the value of, or the advisability of trading in, any contract of sale of a commodity for future delivery, security futures product or swap; any agreement, contract or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option authorized under section 4c of the Act; any leverage transaction authorized under section 19 of the Act; or (ii) To whom, for compensation or profit, and as part of a regular business, the commodity trading advisor issues or promulgates analyses or reports concerning any of the activities referred to in the definition of commodity trading advisor in this section. The term client includes, without limitation, any subscriber of a commodity trading advisor. * * * * * Customer. This term means any person who uses a futures commission E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations merchant, introducing broker, commodity trading advisor, or commodity pool operator as an agent in connection with trading in any commodity interest; Provided, however, an owner or holder of a proprietary account as defined in this section shall not be deemed to be a customer within the meaning of section 4d of the Act, the regulations that implement sections 4d and 4f of the Act and § 1.35, and such an owner or holder of such a proprietary account shall otherwise be deemed to be a customer within the meaning of the Act and §§ 1.37 and 1.46 and all other sections of these rules, regulations, and orders which do not implement sections 4d and 4f of the Act. Customer account. This term references both a Cleared Swaps Customer Account and a Futures Account, as defined in this section. * * * * * Eligible contract participant. This term has the meaning set forth in section 1a(18) of the Act, except that: (1) A major swap participant, as defined in section 1a(33) of the Act and in this section, is an eligible contract participant; (2) A swap dealer, as defined in section 1a(49) of the Act and in this section, is an eligible contract participant; (3) A major security-based swap participant, as defined in section 3(a)(67) of the Securities Exchange Act of 1934 and § 240.3a67–1 of this title, is an eligible contract participant; (4) A security-based swap dealer, as defined in section 3(a)(71) of the Securities Exchange Act of 1934 and § 240.3a71–1 of this title, is an eligible contract participant; (5)(i) A transaction-level commodity pool with one or more direct participants that is not an eligible contract participant is not itself an eligible contract participant under either section 1a(18)(A)(iv) or section 1a(18)(A)(v) of the Act for purposes of entering into transactions described in sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii) of the Act; and (ii) In determining whether a commodity pool that is a direct participant in a transaction-level commodity pool is an eligible contract participant for purposes of paragraph (5)(i) of this definition, the participants in the commodity pool that is a direct participant in the transaction-level commodity pool shall not be considered unless the transaction-level commodity pool, any commodity pool holding a direct or indirect interest in such transaction-level commodity pool, or any commodity pool in which such VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 transaction-level commodity pool holds a direct or indirect interest, has been structured to evade subtitle A of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act by permitting persons that are not eligible contract participants to participate in agreements, contracts, or transactions described in section 2(c)(2)(B)(i) or section 2(c)(2)(C)(i) of the Act; (6) A commodity pool that does not have total assets exceeding $5,000,000 or that is not operated by a person described in subclause (A)(iv)(II) of section 1a(18) of the Act is not an eligible contract participant pursuant to clause (A)(v) of such section; (7)(i) For purposes of a swap (but not a security-based swap, security-based swap agreement or mixed swap) used to hedge or mitigate commercial risk, an entity may, in determining its net worth for purposes of section 1a(18)(A)(v)(III) of the Act, include the net worth of any owner of such entity, provided that all the owners of such entity are eligible contract participants; (ii)(A) For purposes of identifying the owners of an entity under paragraph (7)(i) of this definition, any person holding a direct ownership interest in such entity shall be considered to be an owner of such entity; provided, however, that any shell company shall be disregarded, and the owners of such shell company shall be considered to be the owners of any entity owned by such shell company; (B) For purposes of paragraph (7)(ii)(A) of this definition, the term shell company means any entity that limits its holdings to direct or indirect interests in entities that are relying on this paragraph (7); and (C) In determining whether an owner of an entity is an eligible contract participant for purposes of paragraph (7)(i) of this definition, an individual may be considered to be a proprietorship eligible contract participant only if the individual— (1) Has an active role in operating a business other than an entity; (2) Directly owns all of the assets of the business; (3) Directly is responsible for all of the liabilities of the business; and (4) Acquires its interest in the entity seeking to qualify as an eligible contract participant under paragraph (7)(i) of this definition in connection with the operation of the individual’s proprietorship or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred by the individual in the operation of the individual’s proprietorship; and PO 00000 Frm 00033 Fmt 4700 Sfmt 4700 7983 (iii) For purposes of paragraph (7)(i) of this definition, a swap is used to hedge or mitigate commercial risk if the swap complies with the conditions in the definition in this section of hedging or mitigating commercial risk; and (8) Notwithstanding section 1a(18)(A)(iv) of the Act and paragraph (5) of this definition, a commodity pool that enters into an agreement, contract, or transaction described in section 2(c)(2)(B)(i) or section 2(c)(2)(C)(i)(I) of the Act is an eligible contract participant with respect to such agreement, contract, or transaction, regardless of whether each participant in such commodity pool is an eligible contract participant, if all of the following conditions are satisfied: (i) The commodity pool is not formed for the purpose of evading regulation under section 2(c)(2)(B) or section 2(c)(2)(C) of the Act or related Commission rules, regulations or orders; (ii) The commodity pool has total assets exceeding $10,000,000; and (iii) The commodity pool is formed and operated by a registered commodity pool operator or by a commodity pool operator who is exempt from registration as such pursuant to § 4.13(a)(3) of this chapter. * * * * * Financial entity; highly leveraged. (1) For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap participant in this section, the term financial entity means: (i) A security-based swap dealer; (ii) A major security-based swap participant; (iii) A commodity pool as defined in section 1a(10) of the Act, 7 U.S.C. 1a(10); (iv) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940, 15 U.S.C. 80b– 2(a); (v) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002; and (vi) A person predominantly engaged in activities that are in the business of banking or financial in nature, as defined in section 4(k) of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k). (2) For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap participant in this section, the term highly leveraged means the existence of a ratio of an entity’s total liabilities to equity in excess of 12 to 1 as measured at the close of business on the last business day of the applicable fiscal quarter. For E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES 7984 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations this purpose, liabilities and equity should each be determined in accordance with U.S. generally accepted accounting principles; provided, however, that a person that is an employee benefit plan, as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002, may exclude obligations to pay benefits to plan participants from the calculation of liabilities and substitute the total value of plan assets for equity. * * * * * Futures contracts on certain foreign sovereign debt. The term security-based swap as used in section 3(a)(68) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), as incorporated in section 1a(42) of the Commodity Exchange Act, does not include an agreement, contract, or transaction that is based on or references a qualifying foreign futures contract (as defined in rule 3a12–8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12–8)) on the debt securities of any one or more of the foreign governments enumerated in rule 3a12– 8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12–8), provided that such agreement, contract, or transaction satisfies the following conditions: (1) The futures contract that the agreement, contract, or transaction references or upon which the agreement, contract, or transaction is based is a qualifying foreign futures contract that satisfies the conditions of rule 3a12–8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12–8) applicable to qualifying foreign futures contracts; (2) The agreement, contract, or transaction is traded on or through a board of trade (as defined in the Commodity Exchange Act); (3) The debt securities upon which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to paragraph (4) of this definition were not registered under the Securities Act of 1933 (15 U.S.C. 77 et seq.) or the subject of any American depositary receipt registered under the Securities Act of 1933; (4) The agreement, contract, or transaction may only be cash settled; and (5) The agreement, contract or transaction is not entered into by the issuer of the debt securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 agreement, contract or transaction), an affiliate (as defined in the Securities Act of 1933 (15 U.S.C. 77 et seq.) and the rules and regulations thereunder) of the issuer, or an underwriter of such issuer’s debt securities. Futures customer. This term means any person who uses a futures commission merchant, introducing broker, commodity trading advisor, or commodity pool operator as an agent in connection with trading in any contract for the purchase of sale of a commodity for future delivery or any option on such contract; Provided, however, an owner or holder of a proprietary account as defined in this section shall not be deemed to be a futures customer within the meaning of sections 4d(a) and 4d(b) of the Act, the regulations in this chapter that implement sections 4d and 4f of the Act and § 1.35, and such an owner or holder of such a proprietary account shall otherwise be deemed to be a futures customer within the meaning of the Act and §§ 1.37 and 1.46 and all other sections of these rules, regulations, and orders which do not implement sections 4d and 4f of the Act. * * * * * Hedging or mitigating commercial risk. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33) and the definition of a major swap participant in this section, a swap position is held for the purpose of hedging or mitigating commercial risk when: (1) Such position: (i) Is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise (or of a majority-owned affiliate of the enterprise), where the risks arise from: (A) The potential change in the value of assets that a person owns, produces, manufactures, processes, or merchandises or reasonably anticipates owning, producing, manufacturing, processing, or merchandising in the ordinary course of business of the enterprise; (B) The potential change in the value of liabilities that a person has incurred or reasonably anticipates incurring in the ordinary course of business of the enterprise; or (C) The potential change in the value of services that a person provides, purchases, or reasonably anticipates providing or purchasing in the ordinary course of business of the enterprise; (D) The potential change in the value of assets, services, inputs, products, or commodities that a person owns, produces, manufactures, processes, merchandises, leases, or sells, or reasonably anticipates owning, producing, manufacturing, processing, PO 00000 Frm 00034 Fmt 4700 Sfmt 4700 merchandising, leasing, or selling in the ordinary course of business of the enterprise; (E) Any potential change in value related to any of the foregoing arising from interest, currency, or foreign exchange rate movements associated with such assets, liabilities, services, inputs, products, or commodities; or (F) Any fluctuation in interest, currency, or foreign exchange rate exposures arising from a person’s current or anticipated assets or liabilities; or (ii) Qualifies as bona fide hedging for purposes of an exemption from position limits under the Act; or (iii) Qualifies for hedging treatment under: (A) Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging (formerly known as Statement No. 133); or (B) Governmental Accounting Standards Board Statement 53, Accounting and Financial Reporting for Derivative Instruments; and (2) Such position is: (i) Not held for a purpose that is in the nature of speculation, investing or trading; and (ii) Not held to hedge or mitigate the risk of another swap or security-based swap position, unless that other position itself is held for the purpose of hedging or mitigating commercial risk as defined by this definition or § 240.3a67–4 of this title. * * * * * Major swap participant—(1) In general. The term major swap participant means any person: (i) That is not a swap dealer; and (ii)(A) That maintains a substantial position in swaps for any of the major swap categories, excluding both positions held for hedging or mitigating commercial risk, and positions maintained by any employee benefit plan (or any contract held by such a plan) as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002, for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan; (B) Whose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets; or (C) That is a financial entity that: (1) Is highly leveraged relative to the amount of capital such entity holds and that is not subject to capital E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations requirements established by an appropriate Federal banking agency (as defined in section 1a(2) of the Act, 7 U.S.C. 1a(2)); and (2) Maintains a substantial position in outstanding swaps in any major swap category. (2) Scope of designation. A person that is a major swap participant shall be deemed to be a major swap participant with respect to each swap it enters into, regardless of the category of the swap or the person’s activities in connection with the swap. However, if a person makes an application to limit its designation as a major swap participant to specified categories of swaps, the Commission shall determine whether the person’s designation as a major swap participant shall be so limited. If the Commission grants such limited designation, such limited designation major swap participant shall be deemed to be a major swap participant with respect to each swap it enters into in the swap category or categories for which it is so designated, regardless of the person’s activities in connection with such category or categories of swaps. A person may make such application to limit its designation at the same time as, or after, the person’s initial registration as a major swap participant. (3) Timing requirements. A person that is not registered as a major swap participant, but that meets the criteria in this rule to be a major swap participant as a result of its swap activities in a fiscal quarter, will not be deemed to be a major swap participant until the earlier of the date on which it submits a complete application for registration as a major swap participant pursuant to section 4s(a)(2) of the Act, 7 U.S.C. 6s(a)(2), or two months after the end of that quarter. (4) Reevaluation period. Notwithstanding paragraph (3) of this definition, if a person that is not registered as a major swap participant meets the criteria in this rule to be a major swap participant in a fiscal quarter, but does not exceed any applicable threshold by more than twenty percent in that quarter: (i) That person will not be deemed a major swap participant pursuant to the timing requirements specified in paragraph (3) of this definition; but (ii) That person will be deemed a major swap participant pursuant to the timing requirements specified in paragraph (3) of this definition at the end of the next fiscal quarter if the person exceeds any of the applicable daily average thresholds in that next fiscal quarter. (5) Termination of status. A person that is deemed to be a major swap VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 participant shall continue to be deemed a major swap participant until such time that its swap activities do not exceed any of the daily average thresholds set forth within this rule for four consecutive fiscal quarters after the date on which the person becomes registered as a major swap participant. (6) Calculation of status. A person shall not be deemed to be a ‘‘major swap participant,’’ regardless of whether the criteria in paragraph (1) of this definition otherwise would cause the person to be a major swap participant, provided the person meets the conditions set forth in paragraphs (6)(i), (ii) or (iii) of this definition. (i) Caps on uncollateralized exposure and notional positions—(A) Maximum potential uncollateralized exposure. The express terms of the person’s agreements or arrangements relating to swaps with its counterparties at no time would permit the person to maintain a total uncollateralized exposure of more than $100 million to all such counterparties, including any exposure that may result from thresholds or minimum transfer amounts established by credit support annexes or similar arrangements; and (B) Maximum notional amount of swap positions. The person does not maintain swap positions in a notional amount of more than $2 billion in any major category of swaps, or more than $4 billion in the aggregate across all major categories; or (ii) Caps on uncollateralized exposure plus monthly calculation—(A) Maximum potential uncollateralized exposure. The express terms of the person’s agreements or arrangements relating to swaps with its counterparties at no time would permit the person to maintain a total uncollateralized exposure of more than $200 million to all such counterparties (with regard to swaps and any other instruments by which the person may have exposure to those counterparties), including any exposure that may result from thresholds or minimum transfer amounts established by credit support annexes or similar arrangements; and (B) Calculation of positions. (1) At the end of each month, the person performs the calculations prescribed by the definition in this section of substantial position with regard to whether the aggregate uncollateralized outward exposure plus aggregate potential outward exposure as of that day constitute a ‘‘substantial position’’ in a major category of swaps, or pose ‘‘substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 7985 markets’’; these calculations shall disregard provisions of those rules that provide for the analyses to be determined based on a daily average over a calendar quarter; and (2) Each such analysis produces thresholds of no more than: (i) $1 billion in aggregate uncollateralized outward exposure plus aggregate potential outward exposure in any major category of swaps; if the person is subject to the definition in this section of substantial position, by virtue of being a highly leveraged financial entity that is not subject to capital requirements established by an appropriate Federal banking agency, this analysis shall account for all of the person’s swap positions in that major category (without excluding hedging positions), otherwise this analysis shall exclude the same hedging and related positions that are excluded from consideration pursuant to paragraph (1)(i) of the definition in this section of substantial position; or (ii) $2 billion in aggregate uncollateralized outward exposure plus aggregate potential outward exposure (without any positions excluded from the analysis) with regard to all of the person’s swap positions. (iii) Calculations based on certain information. (A)(1) At the end of each month, the person’s aggregate uncollateralized outward exposure with respect to its swap positions in each major swap category is less than $1.5 billion with respect to the rate swap category and less than $500 million with respect to each of the other major swap categories; and (2) At the end of each month, the sum of the amount calculated under paragraph (6)(iii)(A)(1) of this definition with respect to each major swap category and the total notional principal amount of the person’s swap positions in each such major swap category, adjusted by the multipliers set forth in paragraph (3)(ii)(1) of the definition in this section of substantial position on a position-by-position basis reflecting the type of swap, is less than $3 billion with respect to the rate swap category and less than $1 billion with respect to each of the other major swap categories; or (B)(1) At the end of each month, the person’s aggregate uncollateralized outward exposure with respect to its swap positions across all major swap categories is less than $500 million; and (2) The sum of the amount calculated under paragraph (6)(iii)(B)(1) of this definition and the product of the total effective notional principal amount of the person’s swap positions in all major swap categories multiplied by 0.15 is less than $1 billion. E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES 7986 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations (C) For purposes of the calculations set forth in this paragraph (6)(iii) of the major swap participant definition: (1) The person’s aggregate uncollateralized outward exposure for positions held with swap dealers shall be equal to such exposure reported on the most recent reports of such exposure received from such swap dealers; and (2) The person’s aggregate uncollateralized outward exposure for positions that are not reflected in any report of exposure from a swap dealer (including all swap positions it holds with persons other than swap dealers) shall be calculated in accordance with paragraph (2) of the definition in this section of substantial position. (iv) For purposes of the calculations set forth in paragraph (6) of this definition, the person shall use the effective notional amount of a position rather than the stated notional amount of the position if the stated notional amount is leveraged or enhanced by the structure of the position. (v) No presumption shall arise that a person is required to perform the calculations needed to determine if it is a major swap participant, solely by reason that the person does not meet the conditions specified in paragraph (6)(i), (ii) or (iii) of this definition. (7) Exclusions. A person who is registered as a derivatives clearing organization with the Commission pursuant to section 5b of the Act and regulations thereunder, shall not be deemed to be a major swap participant, regardless of whether the criteria in this definition otherwise would cause the person to be a major swap participant. * * * * * Meaning of ‘‘issuers of securities in a narrow-based security index’’ as used in the definition of ‘‘security-based swap’’ as applied to index credit default swaps. (1) Notwithstanding paragraph (1) of the definition in this section of narrowbased security index as used in the definition of security-based swap, and solely for purposes of determining whether a credit default swap is a security-based swap under the definition of ‘‘security-based swap’’ in section 3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(III)), as incorporated in section 1a(42) of the Commodity Exchange Act, the term issuers of securities in a narrow-based security index means issuers of securities included in an index (including an index referencing loan borrowers or loans of such borrowers) in which: (i)(A) There are nine or fewer nonaffiliated issuers of securities that are VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 reference entities included in the index, provided that an issuer of securities shall not be deemed a reference entity included in the index for purposes of this definition unless: (1) A credit event with respect to such reference entity would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such reference entity; or (2) The fact of such credit event or the calculation in accordance with paragraph (1)(i)(A)(1) of this definition of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events; (B) The effective notional amount allocated to any reference entity included in the index comprises more than 30 percent of the index’s weighting; (C) The effective notional amount allocated to any five non-affiliated reference entities included in the index comprises more than 60 percent of the index’s weighting; or (D) Except as provided in paragraph (2) of this definition, for each reference entity included in the index, none of the criteria in paragraphs (1)(i)(D)(1) through (8) of this definition is satisfied: (1) The reference entity included in the index is required to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); (2) The reference entity included in the index is eligible to rely on the exemption provided in rule 12g3–2(b) under the Securities Exchange Act of 1934 (17 CFR 240.12g3–2(b)); (3) The reference entity included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (4) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) has outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion; (5) The reference entity included in the index is the issuer of an exempted security as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))); (6) The reference entity included in the index is a government of a foreign country or a political subdivision of a foreign country; (7) If the reference entity included in the index is an issuing entity of an assetbacked security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), such asset-backed security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly available distribution reports; and (8) For a credit default swap entered into solely between eligible contract participants as defined in section 1a(18) of the Commodity Exchange Act: (i) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) makes available to the public or otherwise makes available to such eligible contract participant information about the reference entity included in the index pursuant to rule 144A(d)(4) under the Securities Act of 1933 (17 CFR 230.144A(d)(4)); (ii) Financial information about the reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) is otherwise publicly available; or (iii) In the case of a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), information of the type and level included in publicly available distribution reports for similar asset-backed securities is publicly available about both the reference entity included in the index and such assetbacked security; and (ii)(A) The index is not composed solely of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982; and (B) Without taking into account any portion of the index composed of E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term issuer of securities in a narrowbased security index under (1)(i) of this definition. (2) Paragraph (1)(i)(D) of this definition will not apply with respect to a reference entity included in the index if: (i) The effective notional amounts allocated to such reference entity comprise less than five percent of the index’s weighting; and (ii) The effective notional amounts allocated to reference entities included in the index that satisfy paragraph (1)(i)(D) of this definition comprise at least 80 percent of the index’s weighting. (3) For purposes of this definition: (i) A reference entity included in the index is affiliated with another reference entity included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition) if it controls, is controlled by, or is under common control with, that other reference entity included in the index or other entity, as applicable; provided that each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other reference entity included in the index or any other entity that is an issuing entity of an asset-backed security. (ii) Control for purposes of this section means ownership of more than 50 percent of the equity of a reference entity included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition), or the ability to direct the voting of more than 50 percent of the voting equity of a reference entity included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition). (iii) In identifying a reference entity included in the index for purposes of this section, the term reference entity includes: (A) An issuer of securities; VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 (B) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)); and (C) An issuer of securities that is a borrower with respect to any loan identified in an index of borrowers or loans. (iv) For purposes of calculating the thresholds in paragraphs (1)(i)(A) through (1)(i)(C) of this definition, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated reference entities included in the index as determined in accordance with paragraph (3)(i) of this definition (with each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate reference entity included in the index). (v) For purposes of determining whether one of the criterion in either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition is met, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated entities as determined in accordance with paragraph (3)(i) of this definition (with each issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate entity). Meaning of ‘‘narrow-based security index’’ used in the definition of ‘‘security-based swap’’ as applied to index credit default swaps. (1) Notwithstanding paragraph (1) of the definition in this section of narrowbased security index as used in the definition of ‘‘security-based swap,’’ and solely for purposes of determining whether a credit default swap is a security-based swap under the definition of ‘‘security-based swap’’ in section 3(a)(68)(A)(ii)(I) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(I)), as incorporated in section 1a(42) of the Commodity Exchange Act, the term narrow-based security index means an index in which: (i)(A) The index is composed of nine or fewer securities or securities that are issued by nine or fewer non-affiliated issuers, provided that a security shall not be deemed a component of the index for purposes of this section unless: (1) A credit event with respect to the issuer of such security or a credit event with respect to such security would PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 7987 result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such security; or (2) The fact of such credit event or the calculation in accordance with paragraph (1)(i)(A)(1) of this definition of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events; (B) The effective notional amount allocated to the securities of any issuer included in the index comprises more than 30 percent of the index’s weighting; (C) The effective notional amount allocated to the securities of any five non-affiliated issuers included in the index comprises more than 60 percent of the index’s weighting; or (D) Except as provided in paragraph (2) of this definition, for each security included in the index, none of the criteria in paragraphs (1)(i)(D)(1) through (8) is satisfied if: (1) The issuer of the security included in the index is required to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); (2) The issuer of the security included in the index is eligible to rely on the exemption provided in rule 12g3–2(b) under the Securities Exchange Act of 1934 (17 CFR 240.12g3–2(b)); (3) The issuer of the security included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (4) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds, debentures, loans or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion; (5) The security included in the index is an exempted security as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))); (6) The issuer of the security included in the index is a government of a foreign country or a political subdivision of a foreign country; (7) If the security included in the index is an asset-backed security as E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES 7988 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), the security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly available distribution reports; and (8) For a credit default swap entered into solely between eligible contract participants as defined in section 1a(18) of the Commodity Exchange Act: (i) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) makes available to the public or otherwise makes available to such eligible contract participant information about such issuer pursuant to rule 144A(d)(4) of the Securities Act of 1933 (17 CFR 230.144A(d)(4)); (ii) Financial information about the issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) is otherwise publicly available; or (iii) In the case of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), information of the type and level included in public distribution reports for similar assetbacked securities is publicly available about both the issuing entity and such asset-backed security; and (ii)(A) The index is not composed solely of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982; and (B) Without taking into account any portion of the index composed of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term narrow-based security index under paragraph (1)(i) of this definition. (2) Paragraph (1)(i)(D) of this definition will not apply with respect to VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 securities of an issuer included in the index if: (i) The effective notional amounts allocated to all securities of such issuer included in the index comprise less than five percent of the index’s weighting; and (ii) The securities that satisfy paragraph (1)(i)(D) of this definition comprise at least 80 percent of the index’s weighting. (3) For purposes of this definition: (i) An issuer of securities included in the index is affiliated with another issuer of securities included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition) if it controls, is controlled by, or is under common control with, that other issuer or other entity, as applicable; provided that each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other issuer of securities included in the index or any other entity that is an issuing entity of an asset-backed security. (ii) Control for purposes of this section means ownership of more than 50 percent of the equity of an issuer of securities included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition), or the ability to direct the voting of more than 50 percent of the voting equity an issuer of securities included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition). (iii) In identifying an issuer of securities included in the index for purposes of this section, the term issuer includes: (A) An issuer of securities; and (B) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)). (iv) For purposes of calculating the thresholds in paragraphs (1)(i)(A) through (1)(i)(C) of the definition of the meaning of issuers of securities in a narrow-based security index as used in the definition of security-based swap as applied to index credit default swaps, the term issuer of the security included in the index or a group of affiliated issuers of securities included in the index as determined in accordance with paragraph (3)(i) of this definition (with each issuer of securities included in the index that is an issuing entity of an PO 00000 Frm 00038 Fmt 4700 Sfmt 4700 asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) being considered a separate issuer of securities included in the index). (v) For purposes of determining whether one of the criterion in either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition is met, the term issuer of the security included in the index includes a single issuer of securities included in the index or a group of affiliated entities as determined in accordance with paragraph (3)(i) of this definition (with each issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate entity). * * * * * Narrow-based security index as used in the definition of ‘‘security-based swap’’—(1) In general. Except as otherwise provided in the definitions in this section for meaning of issuers of securities in a narrow-based security index as used in the definition of security-based swap as applied to index credit default swaps and meaning of narrow-based security index as used in the definition of security-based swap as applied to index credit default swaps, for purposes of section 1a(42) of the Commodity Exchange Act, the term narrow-based security index has the meaning set forth in section 1a(35) of the Commodity Exchange Act, and the rules, regulations and orders of the Commission thereunder. (2) Tolerance period for swaps traded on designated contract markets, swap execution facilities, and foreign boards of trade. Notwithstanding paragraph (1) of this definition, solely for purposes of swaps traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade, a security index underlying such swaps shall not be considered a narrowbased security index if: (i)(A) A swap on the index is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade for at least 30 days as a swap on an index that was not a narrow-based security index; or (B) Such index was not a narrowbased security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a swap on such index on a market described in paragraph (2)(i)(A) of this definition; and (ii) The index has been a narrowbased security index for no more than E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations 45 business days over three consecutive calendar months. (3) Tolerance period for securitybased swaps traded on national securities exchanges or security-based swap execution facilities. Notwithstanding paragraph (1) of this definition, solely for purposes of security-based swaps traded on a national securities exchange or securitybased swap execution facility, a security index underlying such security-based swaps shall be considered a narrowbased security index if: (i)(A) A security-based swap on the index is traded on a national securities exchange or security-based swap execution facility for at least 30 days as a security-based swap on a narrowbased security index; or (B) Such index was a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a security-based swap on such index on a market described in paragraph (3)(i)(A) of this definition; and (ii) The index has been a security index that is not a narrow-based security index for no more than 45 business days over three consecutive calendar months. (4) Grace period. (i) Solely with respect to a swap that is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade, an index that becomes a narrow-based security index under paragraph (2) of this definition solely because it was a narrow-based security index for more than 45 business days over three consecutive calendar months shall not be a narrow-based security index for the following three calendar months. (ii) Solely with respect to a securitybased swap that is traded on a national securities exchange or security-based swap execution facility, an index that becomes a security index that is not a narrow-based security index under paragraph (3) of this definition solely because it was not a narrow-based security index for more than 45 business days over three consecutive calendar months shall be a narrow-based security index for the following three calendar months. * * * * * Substantial counterparty exposure— (1) In general. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this section of major swap participant, the term substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets means a VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 swap position that satisfies either of the following thresholds: (i) $5 billion in daily average aggregate uncollateralized outward exposure; or (ii) $8 billion in: (A) Daily average aggregate uncollateralized outward exposure plus (B) Daily average aggregate potential outward exposure. (2) Calculation methodology. For these purposes, the terms daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall be calculated the same way as is prescribed in the definition in this section of substantial position, except that these amounts shall be calculated by reference to all of the person’s swap positions, rather than by reference to a specific major swap category. Substantial position—(1) In general. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this section of major swap participant, the term ‘‘substantial position’’ means swap positions that equal or exceed any of the following thresholds in the specified major category of swaps: (i) For rate swaps: (A) $3 billion in daily average aggregate uncollateralized outward exposure; or (B) $6 billion in: (1) Daily average aggregate uncollateralized outward exposure plus (2) Daily average aggregate potential outward exposure. (ii) For credit swaps: (A) $1 billion in daily average aggregate uncollateralized outward exposure; or (B) $2 billion in: (1) Daily average aggregate uncollateralized outward exposure plus (2) Daily average aggregate potential outward exposure. (iii) For equity swaps: (A) $1 billion in daily average aggregate uncollateralized outward exposure; or (B) $2 billion in: (1) Daily average aggregate uncollateralized outward exposure plus (2) Daily average aggregate potential outward exposure. (iv) For other commodity swaps: (A) $1 billion in daily average aggregate uncollateralized outward exposure; or (B) $2 billion in: (1) Daily average aggregate uncollateralized outward exposure plus (2) Daily average aggregate potential outward exposure. (2) Aggregate uncollateralized outward exposure—(i) In general. PO 00000 Frm 00039 Fmt 4700 Sfmt 4700 7989 Aggregate uncollateralized outward exposure in general means the sum of the current exposure, obtained by marking-to-market using industry standard practices, of each of the person’s swap positions with negative value in a major swap category, less the value of the collateral the person has posted in connection with those positions. (ii) Calculation of aggregate uncollateralized outward exposure. In calculating this amount the person shall, with respect to each of its swap counterparties in a given major swap category, determine the dollar value of the aggregate current exposure arising from each of its swap positions with negative value (subject to the netting provisions described below) in that major category by marking-to-market using industry standard practices; and deduct from that dollar amount the aggregate value of the collateral the person has posted with respect to the swap positions. The aggregate uncollateralized outward exposure shall be the sum of those uncollateralized amounts across all of the person’s swap counterparties in the applicable major category. (iii) Relevance of netting agreements. (A) If the person has one or more master netting agreement in effect with a particular counterparty, the person may measure the current exposure arising from its swaps in any major category on a net basis, applying the terms of those agreements. Calculation of net current exposure may take into account offsetting positions entered into with that particular counterparty involving swaps (in any swap category) as well as security-based swaps and securities financing transactions (consisting of securities lending and borrowing, securities margin lending and repurchase and reverse repurchase agreements), and other financial instruments that are subject to netting offsets for purposes of applicable bankruptcy law, to the extent these are consistent with the offsets permitted by the master netting agreements. (B) Such adjustments may not take into account any offset associated with positions that the person has with separate counterparties. (iv) Allocation of uncollateralized outward exposure. If a person calculates current exposure with a particular counterparty on a net basis, as provided by paragraph (2)(iii) of this definition, the portion of that current exposure that should be attributed to each ‘‘major’’ category of swaps for purposes of the substantial position analysis should be calculated according to the formula: E:\FR\FM\23FER1.SGM 23FER1 7990 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations Where: ES(MC) equals the amount of aggregate current exposure attributable to the entity’s swap positions in the ‘‘major’’ swap category at issue; Enet total equals the entity’s aggregate current exposure to the counterparty at issue, after accounting for the netting of positions and the posting of collateral; OTMS(MC) equals the exposure associated with the entity’s out-of-the-money positions in swaps in the ‘‘major’’ category at issue, subject to those netting arrangements; and OTMS(O) equals the exposure associated with the entity’s out-of-the-money positions in the other ‘‘major’’ categories of swaps, subject to those netting arrangements; and OTMnon-S equals the exposure associated with the entity’s out-of-themoney positions associated with instruments, other than swaps, that are subject to those netting arrangements. exempt clearing agency or derivatives clearing organization—(A) In general. (1) For positions in swaps that are not subject to daily mark-to-market margining and are not cleared by a registered or exempt clearing agency or a derivatives clearing organization, potential outward exposure equals the total notional principal amount of those positions, multiplied by the following factors on a position-by-position basis reflecting the type of swap. For any swap that does not appropriately fall within any of the specified categories, the ‘‘other commodities’’ conversion factors set forth in the following Table 1 are to be used. If a swap is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the market value of the swap is zero, the remaining maturity equals the time until the next reset date. (2) Use of effective notional amounts. If the stated notional amount on a position is leveraged or enhanced by the structure of the position, the calculation in paragraph (3)(ii)(A)(1) of this definition shall be based on the effective notional amount of the position rather than on the stated notional amount. (3) Exclusion of certain positions. The calculation in paragraph (3)(ii)(A)(1) of this definition shall exclude: (i) Positions that constitute the purchase of an option, if the purchaser has no additional payment obligations under the position; (ii) Other positions for which the person has prepaid or otherwise satisfied all of its payment obligations; and (iii) Positions for which, pursuant to law or a regulatory requirement, the person has assigned an amount of cash or U.S. Treasury securities that is sufficient at all times to pay the person’s maximum possible liability under the position, and the person may not use that cash or those Treasury securities for other purposes. (4) Adjustment for certain positions. Notwithstanding paragraph (3)(ii)(A)(1) of this definition, the potential outward exposure associated with a position by which a person buys credit protection using a credit default swap or index credit default swap, or associated with a position by which a person purchases an option for which the person retains additional payment obligations under the position, is capped at the net present value of the unpaid premiums. (B) Adjustment for netting agreements. Notwithstanding paragraph (3)(ii)(A) of this definition, for positions subject to master netting agreements the potential outward exposure associated with the person’s swaps with each counterparty equals a weighted average of the potential outward exposure for the person’s swaps with that counterparty as calculated under paragraph (3)(ii)(A) of this definition, and that amount reduced by the ratio of net current exposure to gross current exposure, consistent with the following equation as calculated on a counterparty-by-counterparty basis: PNet = 0.4 * PGross + 0.6 * NGR * PGross VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 PO 00000 Frm 00040 Fmt 4700 Sfmt 4700 Where: PNet is the potential outward exposure, adjusted for bilateral netting, of the person’s swaps with a particular counterparty; PGross is the potential outward exposure without adjustment for bilateral netting as calculated pursuant to paragraph (3)(ii)(A) of this definition; and NGR is the ratio of the current exposure arising from its swaps in the major category as calculated on a net basis according to paragraphs (2)(iii) and (iv) of this definition, divided by the current exposure arising from its swaps in the major category as calculated in the absence of those netting procedures. E:\FR\FM\23FER1.SGM 23FER1 ER23FE18.006</GPH> ER23FE18.007</GPH> daltland on DSKBBV9HB2PROD with RULES (3) Aggregate potential outward exposure—(i) In general. Aggregate potential outward exposure in any major swap category means the sum of: (A) The aggregate potential outward exposure for each of the person’s swap positions in a major swap category that are not subject to daily mark-to-market margining and are not cleared by a registered or exempt clearing agency or derivatives clearing organization, as calculated in accordance with paragraph (3)(ii) of this definition; and (B) The aggregate potential outward exposure for each of the person’s swap positions in such major swap category that are either subject to daily mark-tomarket margining or are cleared by a registered or exempt clearing agency or derivatives clearing organization, as calculated in accordance with paragraph (3)(iii) of this definition. (ii) Calculation of potential outward exposure for swaps that are not subject to daily mark-to-market margining and are not cleared by a registered or daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations (iii) Calculation of potential outward exposure for swaps that are either subject to daily mark-to-market margining or are cleared by a registered or exempt clearing agency or derivatives clearing organization. For positions in swaps that are subject to daily mark-tomarket margining or that are cleared by a registered or exempt clearing agency or derivatives clearing organization: (A) Potential outward exposure equals the potential exposure that would be attributed to such positions using the procedures in paragraph (3)(ii) of this definition multiplied by: (1) 0.1, in the case of positions cleared by a registered or exempt clearing agency or derivatives clearing organization; or (2) 0.2, in the case of positions that are subject to daily mark-to-market margining but that are not cleared by a registered or exempt clearing agency or derivatives clearing organization. (B) Solely for purposes of calculating potential outward exposure: (1) A swap shall be considered to be subject to daily mark-to-market margining if, and for so long as, the counterparties follow the daily practice of exchanging collateral to reflect changes in the current exposure arising from the swap (after taking into account any other financial positions addressed by a netting agreement between the counterparties). (2) If the person is permitted by agreement to maintain a threshold for which it is not required to post collateral, the position still will be considered to be subject to daily markto-market margining for purposes of calculating potential outward exposure, but the total amount of that threshold (regardless of the actual exposure at any time), less any initial margin posted up to the amount of that threshold, shall be added to the person’s aggregate uncollateralized outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this definition, as applicable. (3) If the minimum transfer amount under the agreement is in excess of $1 million, the position still will be considered to be subject to daily markto-market margining for purposes of calculating potential outward exposure, but the entirety of the minimum transfer amount shall be added to the person’s aggregate uncollateralized outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this definition, as applicable. (4) A person may, at its discretion, calculate the potential outward exposure of positions in swaps that are subject to daily mark-to-market margining in accordance with paragraph VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 (3)(ii) of this definition in lieu of calculating the potential outward exposure of such swap positions in accordance with paragraph (3)(iii) of this definition. (4) Calculation of daily average. Measures of daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall equal the arithmetic mean of the applicable measure of exposure at the close of each business day, beginning the first business day of each calendar quarter and continuing through the last business day of that quarter. (5) Inter-affiliate activities. In calculating its aggregate uncollateralized outward exposure and its aggregate potential outward exposure, the person shall not consider its swap positions with counterparties that are majorityowned affiliates. For these purposes the counterparties to a swap are majorityowned affiliates if one counterparty directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the swap, where ‘‘majority interest’’ is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership. Swap. (1) In general. The term swap has the meaning set forth in section 1a(47) of the Commodity Exchange Act. (2) Inclusion of particular products. (i) The term swap includes, without limiting the meaning set forth in section 1a(47) of the Commodity Exchange Act, the following agreements, contracts, and transactions: (A) A cross-currency swap; (B) A currency option, foreign currency option, foreign exchange option and foreign exchange rate option; (C) A foreign exchange forward; (D) A foreign exchange swap; (E) A forward rate agreement; and (F) A non-deliverable forward involving foreign exchange. (ii) The term swap does not include an agreement, contract, or transaction described in paragraph (2)(i) of this definition that is otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act. (3) Foreign exchange forwards and foreign exchange swaps. Notwithstanding paragraph (2) of this definition: (i) A foreign exchange forward or a foreign exchange swap shall not be considered a swap if the Secretary of the PO 00000 Frm 00041 Fmt 4700 Sfmt 4700 7991 Treasury makes a determination described in section 1a(47)(E)(i) of the Commodity Exchange Act. (ii) Notwithstanding paragraph (3)(i) of this definition: (A) The reporting requirements set forth in section 4r of the Commodity Exchange Act and regulations promulgated thereunder shall apply to a foreign exchange forward or foreign exchange swap; and (B) The business conduct standards set forth in section 4s(h) of the Commodity Exchange Act and regulations promulgated thereunder shall apply to a swap dealer or major swap participant that is a party to a foreign exchange forward or foreign exchange swap. (iii) For purposes of section 1a(47)(E) of the Commodity Exchange Act and this definition, the term foreign exchange forward has the meaning set forth in section 1a(24) of the Commodity Exchange Act. (iv) For purposes of section 1a(47)(E) of the Commodity Exchange Act and this definition, the term foreign exchange swap has the meaning set forth in section 1a(25) of the Commodity Exchange Act. (v) For purposes of sections 1a(24) and 1a(25) of the Commodity Exchange Act and this definition, the following transactions are not foreign exchange forwards or foreign exchange swaps: (A) A currency swap or a crosscurrency swap; (B) A currency option, foreign currency option, foreign exchange option, or foreign exchange rate option; and (C) A non-deliverable forward involving foreign exchange. (4) Insurance. (i) This paragraph is a non-exclusive safe harbor. The terms swap as used in section 1a(47) of the Commodity Exchange Act and securitybased swap as used in section 1a(42) of the Commodity Exchange Act do not include an agreement, contract, or transaction that: (A) By its terms or by law, as a condition of performance on the agreement, contract, or transaction: (1) Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction; (2) Requires that loss to occur and to be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest; E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES 7992 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations (3) Is not traded, separately from the insured interest, on an organized market or over-the-counter; and (4) With respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer; and (B) Is provided: (1)(i) By a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any State or by the United States or an agency or instrumentality thereof; and (ii) Such agreement, contract, or transaction is regulated as insurance under applicable State law or the laws of the United States; (2)(i) Directly or indirectly by the United States, any State or any of their respective agencies or instrumentalities; or (ii) Pursuant to a statutorily authorized program thereof; or (3) In the case of reinsurance only, by a person to another person that satisfies the conditions set forth in paragraph (4)(i)(B) of this definition, provided that: (i) Such person is not prohibited by applicable State law or the laws of the United States from offering such agreement, contract, or transaction to such person that satisfies the conditions set forth in paragraph (4)(i)(B) of this definition; (ii) The agreement, contract, or transaction to be reinsured satisfies the conditions set forth in paragraph (4)(i)(A) or paragraph (4)(i)(C) of this definition; and (iii) Except as otherwise permitted under applicable State law, the total amount reimbursable by all reinsurers for such agreement, contract, or transaction may not exceed the claims or losses paid by the person writing the risk being ceded or transferred by such person; or (4) In the case of non-admitted insurance, by a person who: (i) Is located outside of the United States and listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners; or (ii) Meets the eligibility criteria for non-admitted insurers under applicable State law; or (C) Is provided in accordance with the conditions set forth in paragraph (4)(i)(B) of this definition and is one of the following types of products: (1) Surety bond; (2) Fidelity bond; (3) Life insurance; (4) Health insurance; VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 (5) Long term care insurance; (6) Title insurance; (7) Property and casualty insurance; (8) Annuity; (9) Disability insurance; (10) Insurance against default on individual residential mortgages; and (11) Reinsurance of any of the foregoing products identified in paragraphs (4)(i)(C)(1) through (10) of this definition; or (ii) The terms swap as used in section 1a(47) of the Commodity Exchange Act and security-based swap as used in section 1a(42) of the Commodity Exchange Act do not include an agreement, contract, or transaction that was entered into on or before the effective date of paragraph (4) of this definition, and that, at such time that it was entered into, was provided in accordance with the conditions set forth in paragraph (4)(i)(B) of this definition. (5) State. For purposes of paragraph (4) of this definition, the term State means any state of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or any other possession of the United States. (6) Anti-Evasion. (i) An agreement, contract, or transaction that is willfully structured to evade any provision of Subtitle A of the Wall Street Transparency and Accountability Act of 2010, including any amendments made to the Commodity Exchange Act thereby (Subtitle A), shall be deemed a swap for purposes of Subtitle A and the rules, regulations, and orders of the Commission promulgated thereunder. (ii) An interest rate swap or currency swap, including but not limited to a transaction identified in paragraph (3)(v) of this definition, that is willfully structured as a foreign exchange forward or foreign exchange swap to evade any provision of Subtitle A shall be deemed a swap for purposes of Subtitle A and the rules, regulations, and orders of the Commission promulgated thereunder. (iii) An agreement, contract, or transaction of a bank that is not under the regulatory jurisdiction of an appropriate Federal banking agency (as defined in section 1a(2) of the Commodity Exchange Act), where the agreement, contract, or transaction is willfully structured as an identified banking product (as defined in section 402 of the Legal Certainty for Bank Products Act of 2000) to evade the provisions of the Commodity Exchange Act, shall be deemed a swap for purposes of the Commodity Exchange Act and the rules, regulations, and orders of the Commission promulgated thereunder. (iv) The form, label, and written documentation of an agreement, PO 00000 Frm 00042 Fmt 4700 Sfmt 4700 contract, or transaction shall not be dispositive in determining whether the agreement, contract, or transaction has been willfully structured to evade as provided in paragraphs (6)(i) through (6)(iii) of this definition. (v) An agreement, contract, or transaction that has been willfully structured to evade as provided in paragraphs (6)(i) through (6)(iii) of this definition shall be considered in determining whether a person that so willfully structured to evade is a swap dealer or major swap participant. (vi) Notwithstanding the foregoing, no agreement, contract, or transaction structured as a security (including a security-based swap) under the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed a swap pursuant to this paragraph (6) or shall be considered for purposes of paragraph (6)(v) of this definition. * * * * * Swap dealer. (1) In general. The term swap dealer means any person who: (i) Holds itself out as a dealer in swaps; (ii) Makes a market in swaps; (iii) Regularly enters into swaps with counterparties as an ordinary course of business for its own account; or (iv) Engages in any activity causing it to be commonly known in the trade as a dealer or market maker in swaps. (2) Exception. The term swap dealer does not include a person that enters into swaps for such person’s own account, either individually or in a fiduciary capacity, but not as a part of regular business. (3) Scope of designation. A person who is a swap dealer shall be deemed to be a swap dealer with respect to each swap it enters into, regardless of the category of the swap or the person’s activities in connection with the swap. However, if a person makes an application to limit its designation as a swap dealer to specified categories of swaps or specified activities of the person in connection with swaps, the Commission shall determine whether the person’s designation as a swap dealer shall be so limited. If the Commission grants such limited designation, such limited designation swap dealer shall be deemed to be a swap dealer with respect to each swap it enters into in the swap category or categories for which it is so designated, regardless of the person’s activities in connection with such category or categories of swaps. A person may make such application to limit the categories of swaps or activities of the person that E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations are subject to its swap dealer designation at the same time as, or after, the person’s initial registration as a swap dealer. (4) De minimis exception—(i)(A) In general. Except as provided in paragraph (4)(vi) of this definition, a person that is not currently registered as a swap dealer shall be deemed not to be a swap dealer as a result of its swap dealing activity involving counterparties, so long as the swap positions connected with those dealing activities into which the person—or any other entity controlling, controlled by or under common control with the person—enters over the course of the immediately preceding 12 months (or following the effective date of final rules implementing section 1a(47) of the Act, 7 U.S.C. 1a(47), if that period is less than 12 months) have an aggregate gross notional amount of no more than $3 billion, subject to a phase in level of an aggregate gross notional amount of no more than $8 billion applied in accordance with paragraph (4)(ii) of this definition, and an aggregate gross notional amount of no more than $25 million with regard to swaps in which the counterparty is a ‘‘special entity’’ (as that term is defined in section 4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 23.401(c) of this chapter), except as provided in paragraph (4)(i)(B) of this definition. For purposes of this definition, if the stated notional amount of a swap is leveraged or enhanced by the structure of the swap, the calculation shall be based on the effective notional amount of the swap rather than on the stated notional amount. (B) Utility special entities. (1) Solely for purposes of determining whether a person’s swap dealing activity has exceeded the $25 million aggregate gross notional amount threshold set forth in paragraph (4)(i)(A) of this definition for swaps in which the counterparty is a special entity, a person may exclude utility operations-related swaps in which the counterparty is a utility special entity. (2) For purposes of this paragraph (4)(i)(B), a utility special entity is a special entity, as that term is defined in section 4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 23.401(c) of this chapter, that: (i) Owns or operates electric or natural gas facilities, electric or natural gas operations or anticipated electric or natural gas facilities or operations; (ii) Supplies natural gas or electric energy to other utility special entities; (iii) Has public service obligations or anticipated public service obligations under Federal, State or local law or VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 regulation to deliver electric energy or natural gas service to utility customers; or (iv) Is a Federal power marketing agency as defined in section 3 of the Federal Power Act, 16 U.S.C. 796(19). (3) For purposes of this paragraph (4)(i)(B), a utility operations-related swap is a swap that meets the following conditions: (i) A party to the swap is a utility special entity; (ii) A utility special entity is using the swap to hedge or mitigate commercial risk as defined in § 50.50(c) of this chapter; (iii) The swap is related to an exempt commodity, as that term is defined in section 1a(20) of the Act, 7 U.S.C. 1a(20), or to an agricultural commodity insofar as such agricultural commodity is used for fuel for generation of electricity or is otherwise used in the normal operations of the utility special entity; and (iv) The swap is an electric energy or natural gas swap, or the swap is associated with: The generation, production, purchase or sale of natural gas or electric energy, the supply of natural gas or electric energy to a utility special entity, or the delivery of natural gas or electric energy service to customers of a utility special entity; fuel supply for the facilities or operations of a utility special entity; compliance with an electric system reliability obligation; or compliance with an energy, energy efficiency, conservation, or renewable energy or environmental statute, regulation, or government order applicable to a utility special entity. (4) A person seeking to rely on the exclusion in paragraph (4)(i)(B)(1) of this definition may rely on the written representations of the utility special entity that it is a utility special entity and that the swap is a utility operationsrelated swap, as such terms are defined in paragraphs (4)(i)(B)(2) and (3) of this definition, respectively, unless it has information that would cause a reasonable person to question the accuracy of the representation. The person must keep such representation in accordance with § 1.31. (ii) Phase-in procedure and staff report—(A) Phase-in period. For purposes of paragraph (4)(i) of this definition, except as provided in paragraph (4)(vi) of this definition, a person that engages in swap dealing activity that does not exceed the phasein level set forth in paragraph (4)(i) of this definition shall be deemed not to be a swap dealer as a result of its swap dealing activity until the phase-in termination date established as provided in paragraph (4)(ii)(C) or (D) of PO 00000 Frm 00043 Fmt 4700 Sfmt 4700 7993 this definition. The Commission shall announce the phase-in termination date on the Commission website and publish such date in the Federal Register. (B) Staff report. No later than 30 months following the date that a swap data repository first receives swap data in accordance with part 45 of this chapter, the staff of the Commission shall complete and publish for public comment a report on topics relating to the definition of the term swap dealer and the de minimis threshold. The report should address the following topics, as appropriate, based on the availability of data and information: The potential impact of modifying the de minimis threshold, and whether the de minimis threshold should be increased or decreased; the factors that are useful for identifying swap dealing activity, including the application of the dealertrader distinction for that purpose, and the potential use of objective tests or safe harbors as part of the analysis; the impact of provisions in paragraphs (5) and (6) of this definition excluding certain swaps from the dealer analysis, and potential alternative approaches for such exclusions; and any other analysis of swap data and information relating to swaps that the Commission or staff deem relevant to this rule. (C) Nine months after publication of the report required by paragraph (4)(ii)(B) of this definition, and after giving due consideration to that report and any associated public comment, the Commission may either: (1) Terminate the phase-in period set forth in paragraph (4)(ii)(A) of this definition, in which case the phase-in termination date shall be established by the Commission by order published in the Federal Register; or (2) Determine that it is necessary or appropriate in the public interest to propose through rulemaking an alternative to the $3 billion amount set forth in paragraph (4)(i) of this definition that would constitute a de minimis quantity of swap dealing in connection with transactions with or on behalf of customers within the meaning of section 1(a)(47)(D) of the Act, 7 U.S.C. 1(a)(47)(D), in which case the Commission shall by order published in the Federal Register provide notice of such determination, which order shall also establish the phase-in termination date. (D) If the phase-in termination date has not been previously established pursuant to paragraph (4)(ii)(C) of this definition, then in any event the phasein termination date shall occur five years after the date that a swap data repository first receives swap data in accordance with part 45 of this chapter. E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES 7994 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations (iii) Registration period for persons that can no longer take advantage of the exception. A person that has not registered as a swap dealer by virtue of satisfying the requirements of this paragraph (4) of the definition of swap dealer, but that no longer can take advantage of that de minimis exception, will be deemed not to be a swap dealer until the earlier of the date on which it submits a complete application for registration pursuant to section 4s(b) of the Act, 7 U.S.C. 6s(b), or two months after the end of the month in which that person becomes no longer able to take advantage of the exception. (iv) Applicability to registered swap dealers. A person who currently is registered as a swap dealer may apply to withdraw that registration, while continuing to engage in swap dealing activity in reliance on this section, so long as that person has been registered as a swap dealer for at least 12 months and satisfies the conditions of paragraph (4)(i) of this definition. (v) Future adjustments to scope of the de minimis exception. The Commission may by rule or regulation change the requirements of the de minimis exception described in paragraphs (4)(i) through (iv) of this definition. (vi) Voluntary registration. Notwithstanding paragraph (4)(i) of this definition, a person that chooses to register with the Commission as a swap dealer shall be deemed to be a swap dealer. (5) Insured depository institution swaps in connection with originating loans to customers. Swaps entered into by an insured depository institution with a customer in connection with originating a loan with that customer shall not be considered in determining whether the insured depository institution is a swap dealer. (i) An insured depository institution shall be considered to have entered into a swap with a customer in connection with originating a loan, as defined in paragraphs (5)(ii) and (iii) of this definition, with that customer only if: (A) The insured depository institution enters into the swap with the customer no earlier than 90 days before and no later than 180 days after the date of execution of the applicable loan agreement, or no earlier than 90 days before and no later than 180 days after any transfer of principal to the customer by the insured depository institution pursuant to the loan; (B)(1) The rate, asset, liability or other notional item underlying such swap is, or is directly related to, a financial term of such loan, which includes, without limitation, the loan’s duration, rate of interest, the currency or currencies in VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 which it is made and its principal amount; (2) Such swap is required, as a condition of the loan under the insured depository institution’s loan underwriting criteria, to be in place in order to hedge price risks incidental to the borrower’s business and arising from potential changes in the price of a commodity (other than an excluded commodity); (C) The duration of the swap does not extend beyond termination of the loan; (D) The insured depository institution is: (1) The sole source of funds to the customer under the loan; (2) Committed to be, under the terms of the agreements related to the loan, the source of at least 10 percent of the maximum principal amount under the loan; or (3) Committed to be, under the terms of the agreements related to the loan, the source of a principal amount that is greater than or equal to the aggregate notional amount of all swaps entered into by the insured depository institution with the customer in connection with the financial terms of the loan; (E) The aggregate notional amount of all swaps entered into by the customer in connection with the financial terms of the loan is, at any time, not more than the aggregate principal amount outstanding under the loan at that time; and (F) If the swap is not accepted for clearing by a derivatives clearing organization, the insured depository institution reports the swap as required by section 4r of the Act, 7 U.S.C. 6r (except as otherwise provided in section 4r(a)(3)(A), 7 U.S.C. 6r(a)(3)(A), or section 4r(a)(3)(B), 7 U.S.C. 6r(a)(3)(B) of the Act). (ii) An insured depository institution shall be considered to have originated a loan with a customer if the insured depository institution: (A) Directly transfers the loan amount to the customer; (B) Is a part of a syndicate of lenders that is the source of the loan amount that is transferred to the customer; (C) Purchases or receives a participation in the loan; or (D) Otherwise is the source of funds that are transferred to the customer pursuant to the loan or any refinancing of the loan. (iii) The term loan shall not include: (A) Any transaction that is a sham, whether or not intended to qualify for the exclusion from the definition of the term swap dealer in this rule; or (B) Any synthetic loan, including, without limitation, a loan credit default swap or loan total return swap. PO 00000 Frm 00044 Fmt 4700 Sfmt 4700 (6) Swaps that are not considered in determining whether a person is a swap dealer—(i) Inter-affiliate activities. In determining whether a person is a swap dealer, that person’s swaps with majority-owned affiliates shall not be considered. For these purposes the counterparties to a swap are majorityowned affiliates if one counterparty directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the swap, where majority interest is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership. (ii) Activities of a cooperative. (A) Any swap that is entered into by a cooperative with a member of such cooperative shall not be considered in determining whether the cooperative is a swap dealer, provided that: (1) The swap is subject to policies and procedures of the cooperative requiring that the cooperative monitors and manages the risk of such swap; (2) The cooperative reports the swap as required by section 4r of the Act, 7 U.S.C. 6r (except as otherwise provided in section 4r(a)(3)(A) of the Act, 7 U.S.C. 6r(a)(3)(A) or section 4r(a)(3)(B) of the Act, 7 U.S.C. 6r(a)(3)(B)); and (3) If the cooperative is a cooperative association of producers, the swap is primarily based on a commodity that is not an excluded commodity. (B) For purposes of this paragraph (6)(ii) of this definition, the term cooperative shall mean: (1) A cooperative association of producers as defined in section 1a(14) of the Act, 7 U.S.C. 1a(14), or (2) A person chartered under Federal law as a cooperative and predominantly engaged in activities that are financial in nature as defined in section 4(k) of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k). (C) For purposes of this paragraph (6)(ii) of this definition, a swap shall be deemed to be entered into by a cooperative association of producers with a member of such cooperative association of producers when the swap is between a cooperative association of producers and a person that is a member of a cooperative association of producers that is itself a member of the first cooperative association of producers. (iii) Swaps entered into for the purpose of hedging physical positions. In determining whether a person is a E:\FR\FM\23FER1.SGM 23FER1 daltland on DSKBBV9HB2PROD with RULES Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations 7995 of this definition or hedging or mitigating commercial risk as defined in § 1.3 (except for any such swap executed opposite a counterparty for which the transaction would qualify as a bona fide hedging transaction); (G) Does not participate in any market making program offered by a designated contract market or swap execution facility; and (H) Notwithstanding the fact such person is not registered as a swap dealer, such person complies with §§ 23.201, 23.202, 23.203, and 23.600 of this chapter with respect to each such swap as if it were a swap dealer. * * * * * Add swap dealer, a swap that the person enters into shall not be considered, if: (A) The person enters into the swap for the purpose of offsetting or mitigating the person’s price risks that arise from the potential change in the value of one or several— (1) Assets that the person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising; (2) Liabilities that the person owns or anticipates incurring; or (3) Services that the person provides, purchases, or anticipates providing or purchasing; (B) The swap represents a substitute for transactions made or to be made or positions taken or to be taken by the person at a later time in a physical marketing channel; (C) The swap is economically appropriate to the reduction of the person’s risks in the conduct and management of a commercial enterprise; (D) The swap is entered into in accordance with sound commercial practices; and (E) The person does not enter into the swap in connection with activity structured to evade designation as a swap dealer. (iv) Swaps entered into by floor traders. In determining whether a person is a swap dealer, each swap that the person enters into in its capacity as a floor trader as defined by section 1a(23) of the Act or on or subject to the rules of a swap execution facility shall not be considered for the purpose of determining whether the person is a swap dealer if the person: (A) Is registered with the Commission as a floor trader pursuant to § 3.11 of this chapter; (B) Enters into swaps with proprietary funds for that trader’s own account solely on or subject to the rules of a designated contract market or swap execution facility and submits each such swap for clearing to a derivatives clearing organization; (C) Is not an affiliated person of a registered swap dealer; (D) Does not directly, or through an affiliated person, negotiate the terms of swap agreements, other than price and quantity or to participate in a request for quote process subject to the rules of a designated contract market or a swap execution facility; (E) Does not directly or through an affiliated person offer or provide swap clearing services to third parties; (F) Does not directly or through an affiliated person enter into swaps that would qualify as hedging physical positions pursuant to paragraph (6)(iii) VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 Paragraph Remove 3.10(c)(1) ........................ 3.10(c)(2)(i) ..................... 3.10(c)(3)(i) ..................... 3.10(c)(3)(i) ..................... 3.10(c)(3)(i) ..................... 3.10(c)(4)(ii) .................... 3.12(h)(1)(iv) ................... 3.21(c)(2)(i) ..................... § 1.3(y) § 1.3(xx) § 1.3(mm) § 1.3(bb) § 1.3(nn) § 1.3(g) § 1.3(aa) § 1.3(yy) § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 PART 4—COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS 6. The authority citation for part 4 continues to read as follows: ■ Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 23. §§ 1.17, 1.33, 1.46, 1.52, 1.55, 1.59, 1.63, 1.64, and 1.69 [Amended] ■ 3. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: § 4.5 Exclusion for certain otherwise regulated persons from the definition of the term ‘‘commodity pool operator.’’ ■ 7. In § 4.5, revise paragraph (c)(2)(iii)(A) and the introductory text of paragraph (c)(2)(iii)(B) introductory text to read as follows: * * * * (c) * * * (2) * * * Paragraph Remove Add (iii) * * * (A) Will use commodity futures or 1.10(j)(3) ......................... § 1.3(mm) § 1.3 commodity options contracts, or swaps 1.17(b)(4)(ii) .................... § 1.3(y) § 1.3 solely for bona fide hedging purposes 1.17(b)(5) ........................ § 1.3(d) § 1.3 1.17(b)(10) ...................... § 1.3(y) § 1.3 within the meaning and intent of the 1.17(c)(5)(xiii)(C) ............. § 1.3(rr) § 1.3 definition of bona fide hedging 1.33(a)(1)(iii) ................... § 1.3(rr) § 1.3 transactions and positions for excluded 1.33(g)(2) ........................ § 1.3(g) § 1.3 commodities in §§ 1.3 and 151.5 of this 1.46(d)(2) ........................ § 1.3(z) § 1.3 chapter; Provided however, That, in 1.52(a)(2) ........................ § 1.3(h) § 1.3 addition, with respect to positions in 1.52(a)(2) ........................ § 1.3(rrrr) § 1.3 commodity futures or commodity 1.55(f) ............................. § 1.3(g) § 1.3 options contracts, or swaps which do 1.59(a)(1) ........................ § 1.3(ee) § 1.3 not come within the meaning and intent 1.59(a)(1) ........................ § 1.3(d) § 1.3 of the definition of bona fide hedging 1.63(a)(1) ........................ § 1.3(ee) § 1.3 transactions and positions for excluded 1.63(a)(1) ........................ § 1.3(d) § 1.3 1.64(a)(1) ........................ § 1.3(ee) § 1.3 commodities in §§ 1.3 and 151.5 of this 1.64(a)(1) ........................ § 1.3(d) § 1.3 chapter, a qualifying entity may 1.69(a)(7) ........................ § 1.3(ee) § 1.3 represent that the aggregate initial 1.69(a)(7) ........................ § 1.3(d) § 1.3 margin and premiums required to establish such positions will not exceed five percent of the liquidation value of PART 3—REGISTRATION the qualifying entity’s portfolio, after taking into account unrealized profits ■ 4. The authority citation for part 3 and unrealized losses on any such continues to read as follows: contracts it has entered into; and, Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, Provided further, That in the case of an 2, 6a, 6b, 6b–1, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, option that is in-the-money at the time 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, of the purchase, the in-the-money 16a, 18, 19, 21, and 23, as amended by Title amount as defined in § 190.01(x) of this VII of Pub. L. 111–203, 124 Stat. 1376. chapter may be excluded in computing such five percent; or §§ 3.10, 3.12, and 3.21 [Amended] (B) The aggregate net notional value of commodity futures, commodity options ■ 5. In the table below, for each contracts, or swaps positions not used paragraph indicated in the left column, solely for bona fide hedging purposes remove the cross-reference indicated in within the meaning and intent of the the middle column from wherever it definition of bona fide hedging appears in the paragraph, and add the transactions and positions for excluded cross-reference indicated in the right commodities in §§ 1.3 and 151.5 of this column: PO 00000 Frm 00045 Fmt 4700 Sfmt 4700 * E:\FR\FM\23FER1.SGM 23FER1 7996 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations chapter determined at the time the most recent position was established, does not exceed 100 percent of the liquidation value of the pool’s portfolio, after taking into account unrealized profits and unrealized losses on any such positions it has entered into. For purposes of this paragraph: * * * * * PART 5—OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS 14. The authority citation for part 19 continues to read as follows: Authority: 7 U.S.C. 6g(a), 6i, and 12a(5). Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, and 23. 15. Revise the part heading for part 19 to read as set forth above. ■ § 19.00 [Amended] 9. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ Paragraph Remove 5.5(a)(1)(ii) ...................... § 1.3(mm) § 1.3 10. The authority citation for part 15 continues to read as follows: 19.00(a)(1) ...................... 19.00(b)(1) ...................... Add § 1.3(z) § 1.3(z) § 1.3 § 1.3 17. The authority citation for part 23 continues to read as follows: [Amended] 11. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ 15.00(e) .......................... 15.00(e) .......................... 15.00(n) .......................... 15.01(d)(1) ...................... Remove ■ Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a, 9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111–203, 124 Stat. 1376 (2010). Remove Paragraph PART 23—SWAP DEALERS AND MAJOR SWAP PARTICIPANTS ■ Paragraph [Amended] 16. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ Add PART 15—REPORTS—GENERAL PROVISIONS §§ 15.00 and 15.01 PART 19—REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS AND BY MERCHANTS AND DEALERS IN COTTON Add § 1.3(k) § 1.3(jj) § 1.3(t) § 1.3(z) § 1.3 § 1.3 § 1.3 § 1.3 PART 18—REPORTS BY TRADERS Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b–1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21. Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 111–203, 124 Stat. 1641 (2010). § 23.22 [Amended] 18. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: Paragraph Remove 23.22(a) .... § 1.3(aa)(6) Add § 1.3 PART 30—FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS 19. The authority citation for part 30 continues to read as follows: daltland on DSKBBV9HB2PROD with RULES ■ Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t, 12a, and 19. Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise noted. Appendix A to Part 18 [Amended] ■ 13. Amend Appendix A to Part 18 as follows: ■ a. In instruction paragraph 15, under the heading Swaps Participation §§ 30.1 and 30.4 Jkt 244001 Remove 30.1(c) ................ paragraph (y) of § 1.3. § 1.3(ss) ............. § 1.3(y) ............... paragraph (y) of § 1.3. 30.1(e) ................ 30.1(f) ................. 30.4(a) ................ Add § 1.3 § 1.3 § 1.3 § 1.3 Appendix B to Part 30 [Amended] 21. Amend Appendix B to Part 30 as follows: ■ a. In paragraph 1, in the second sentence, remove ‘‘Rule 1.3(rr)’’ and add in its place ‘‘§ 1.3’’. ■ b. In footnote 1, in the first sentence, remove ‘‘paragraph (y) of [Rule 1.3]’’ and add in its place ‘‘§ 1.3’’. ■ PART 38—DESIGNATED CONTRACT MARKETS 22. The authority citation for part 38 continues to read as follows: ■ Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j, 6k, 6l, 6m, 6n, 7, 7a–2, 7b, 7b– 1, 7b–3, 8, 9, 15, and 21, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111–203, 124 Stat. 1376. Appendix B to Part 38 [Amended] 23. In Appendix B to Part 38, under the heading Core Principle 16 of section 5(d) of the Act: CONFLICTS OF INTEREST, in paragraph (b)(2)(ii)(B), remove ‘‘1.3(q)’’ and add in its place ‘‘§ 1.3 of this chapter’’. ■ PART 39—DERIVATIVES CLEARING ORGANIZATIONS [Amended] 20. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it ■ PO 00000 Frm 00046 Fmt 4700 Sfmt 4700 24. The authority citation for part 39 continues to read as follows: ■ Authority: 7 U.S.C. 2, 7a–1, and 12a; 12 U.S.C. 5464; 15 U.S.C. 8325. §§ 39.1, 39.2, 39.4, 39.9, 39.30, and 39.37 [Amended] 25. In the table below, for each section or paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the section or paragraph, and add the cross-reference indicated in the right column: ■ 12. The authority citation for part 18 continues to read as follows: 16:46 Feb 22, 2018 Paragraph ■ ■ VerDate Sep<11>2014 appears in the paragraph, and add the cross-reference indicated in the right column: ■ 8. The authority citation for part 5 continues to read as follows: ■ § 5.5 Indicators, remove ‘‘§ 1.3(ppp)’’ and add in its place ‘‘§ 1.3’’; and ■ b. In instruction paragraph 16, under the heading Swaps Participation Indicators, remove ‘‘§ 1.3(qqq)’’ and add in its place ‘‘§ 1.3’’. Section/paragraph 39.1 ................................. 39.2 ................................. 39.4(e) ............................ 39.9 ................................. 39.30(a) .......................... 39.37(d)(1) ...................... 39.37(d)(3) ...................... E:\FR\FM\23FER1.SGM 23FER1 Remove § 1.3(d) § 1.3(d) § 1.3(vv) § 1.3(d) § 1.3(d) § 1.3(jjjj) § 1.3(rr) Add § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 7997 Federal Register / Vol. 83, No. 37 / Friday, February 23, 2018 / Rules and Regulations PART 41—SECURITY FUTURES PRODUCTS Paragraph Remove 150.3(a)(1) ...................... 26. The authority citation for part 41 continues to read as follows: § 1.3(z) Add PART 155—TRADING STANDARDS § 1.3 ■ ■ §§ 41.41 and 41.43 32. In § 150.5, revise paragraph (d)(1) to read as follows: Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, unless otherwise noted. § 150.5 limits. §§ 155.3 and 155.4 ■ Authority: Sections 206, 251 and 252, Pub. L. 106–554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a–2, 12a; 15 U.S.C. 78g(c)(2). [Amended] Exchange-set speculative position PART 50—CLEARING REQUIREMENT AND RELATED RULES * * * * (d) * * * (1) No exchange bylaw, rule, regulation, or resolution adopted pursuant to this section shall apply to bona fide hedging positions as defined by a contract market in accordance with the definition of bona fide hedging transactions and positions for excluded commodities in § 1.3 of this chapter. Provided, however, that the contract market may limit bona fide hedging positions or any other positions which have been exempted pursuant to paragraph (e) of this section which it determines are not in accord with sound commercial practices or exceed an amount which may be established and liquidated in orderly fashion. * * * * * 28. The authority citation for part 50 continues to read as follows: PART 151—POSITION LIMITS FOR FUTURES AND SWAPS 27. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ Paragraph Remove Add 41.41(d) .......................... 41.41(d) .......................... 41.41(e) .......................... 41.41(e) .......................... 41.43(a)(13) .................... 41.43(a)(28) .................... § 1.3(vv) § 1.3(ww) § 1.3(vv) § 1.3(ww) § 1.3(vv) § 1.3(ww) § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 § 1.3 ■ Authority: 7 U.S.C. 2(h) and 7a–1 as amended by Pub. L. 111–203, 124 Stat. 1376. 29. In § 50.51, revise paragraph (b)(1) to read as follows: ■ § 50.51 Exemption for cooperatives. * * * * * (b) * * * (1) Is entered into with a member of the exempt cooperative in connection with originating loan or loans for the member, which means the requirements of paragraphs (5)(i), (ii), and (iii) of the definition of swap dealer in § 1.3 of this chapter are satisfied; provided that, for this purpose, the term ‘‘insured depository institution’’ as used in those paragraphs is replaced with the term ‘‘exempt cooperative’’ and the word ‘‘customer’’ is replaced with the word ‘‘member’’; or * * * * * PART 150—LIMITS ON POSITIONS 30. The authority citation for part 150 continues to read as follows: ■ Authority: 7 U.S.C. 6a, 6c, and 12a(5). daltland on DSKBBV9HB2PROD with RULES § 150.3 [Amended] 31. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ VerDate Sep<11>2014 16:46 Feb 22, 2018 Jkt 244001 35. The authority citation for part 155 continues to read as follows: * 33. The authority citation for part 151 continues to read as follows: [Amended] 36. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ Paragraph 155.3(b)(2)(ii) .................. 155.4(b)(2)(ii) .................. Remove § 1.3(g) § 1.3(g) Add § 1.3 § 1.3 PART 166—CUSTOMER PROTECTION RULES 37. The authority citation for part 166 continues to read as follows: ■ Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7, 12a, 21, and 23, as amended by the Commodity Futures Modernization Act of 2000, appendix E of Pub. L. 106–554, 114 Stat. 2763 (2000). ■ Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111–203, 124 Stat. 1376 (2010). 34. In § 151.11, revise paragraph (f)(1)(ii) to read as follows: ■ § 166.2 38. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column: ■ § 151.11 Designated contract market and swap execution facility position limits and accountability rules. * * * * * (f) * * * (1) * * * (ii) For purposes of excluded commodities, no designated contract market or swap execution facility that is a trading facility by law, rule, regulation, or resolution adopted pursuant to this section shall apply to any transaction or position within the definition of bona fide hedging transactions and positions for excluded commodities in § 1.3 of this chapter; provided, however, that the designated contract market or swap execution facility that is a trading facility may limit bona fide hedging positions that it determines are not in accord with sound commercial practices or exceed an amount which may be established and liquidated in an orderly fashion. * * * * * PO 00000 Frm 00047 Fmt 4700 Sfmt 9990 [Amended] Paragraph 166.2(a) .......................... 166.2(b) .......................... Remove § 1.3(yy) § 1.3(yy) Add § 1.3 § 1.3 Issued in Washington, DC, on February 15, 2018, by the Commission. Christopher J. Kirkpatrick, Secretary of the Commission. Note: The following appendix will not appear in the Code of Federal Regulations. Appendix to Definitions—Commission Voting Summary On this matter, Chairman Giancarlo and Commissioners Quintenz and Behnam voted in the affirmative. No Commissioner voted in the negative. [FR Doc. 2018–03590 Filed 2–22–18; 8:45 am] BILLING CODE 6351–01–P E:\FR\FM\23FER1.SGM 23FER1

Agencies

Commodity Futures Trading Commission

[Federal Register Volume 83, Number 37 (Friday, February 23, 2018)]
[Rules and Regulations]
[Pages 7979-7997]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-03590]


=======================================================================
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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 3, 4, 5, 15, 18, 19, 23, 30, 38, 39, 41, 50, 150, 
151, 155, and 166

RIN 3038-AE70


Definitions

AGENCY: Commodity Futures Trading Commission.

ACTION: Interim final rule; request for comment.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'') 
is amending its primary definitions regulation to make it more user-
friendly both to industry and the public. Specifically, the Commission 
is amending the primary definitions regulation to replace the complex 
and confusing lettering system with a simple alphabetical list; and 
replacing all existing cross references to any definition within the 
primary definitions regulation with a general reference to the revised 
alphabetical list, rather than to a specific lettered paragraph.

DATES: 
    Effective Date: This rule is effective February 23, 2018.
    Comment date: Comments must be received on or before March 26, 
2018.

ADDRESSES: You may submit comments, identified by RIN 3038-AE70, by one 
of the following methods:
     CFTC Website: https://comments.cftc.gov. Follow the 
instructions to Submit Comments through the website.
     Mail: Send comments to Christopher Kirkpatrick, Secretary 
of the Commission, Commodity Futures Trading Commission, Three 
Lafayette Center, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Same as Mail, above.
    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://comments.cftc.gov. You should submit only information that you 
wish to make available publicly. If you wish the Commission to consider 
information that you believe is exempt from disclosure under the 
Freedom of Information Act (``FOIA''), a petition for confidential 
treatment of the exempt information may be submitted according to the 
procedures established in Sec.  145.9 of the Commission's 
regulations.\1\
---------------------------------------------------------------------------

    \1\ 17 CFR 145.9. Commission regulations referred to herein are 
found at 17 CFR chapter I.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from https://comments.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the FOIA.

FOR FURTHER INFORMATION CONTACT: Matthew B. Kulkin, Director, (202) 
418-5213, [email protected]; Frank Fisanich, Chief Counsel, (202) 418-
5949, [email protected]; Andrew Chapin, Associate Chief Counsel, (202) 
418-5465, [email protected]; Scott Lee, Special Counsel, (202) 418-5090, 
[email protected]; or C. Barry McCarty, Special Counsel, (202) 418-6627, 
[email protected]; Division of Swap Dealer and Intermediary Oversight, 
Commodity Futures Trading Commission, 1155 21st Street NW, Washington, 
DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Interim Final Rule

    Section 1a of the Commodity Exchange Act (``CEA'') \2\ sets forth 
defined terms referenced throughout the statute. These terms are 
alphabetized and numbered, currently beginning with ``(1) Alternative 
Trading System'' and ending with ``(51) Trading Facility.'' Whenever 
defined terms are added by Congress, the new term is placed in the 
proper location in the alphabetic order and the entire list is 
renumbered. The alphabetized list makes it relatively easy for an 
individual completely unfamiliar with the CEA to find a particular term 
referenced in the statute.
---------------------------------------------------------------------------

    \2\ 7 U.S.C. 1 et seq.
---------------------------------------------------------------------------

    Commission regulation Sec.  1.3 similarly sets forth many 
definitions referenced throughout the Commission's regulations.\3\ 
Starting in 1938, the defined terms have been identified with an 
alphabetic designation consistent with the structure set forth in the 
Code of Federal Regulations (``CFR'').\4\ The CFR identifies 
regulations by ``title,'' divided into ``chapters,'' further sub-
divided into ``parts,'' and further sub-divided into ``sections'' and 
``paragraphs.'' Thus, the definitions in Sec.  1.3 are set forth in 
Title 17 (Commodity and Securities Exchanges), Chapter I (Commodity 
Futures Trading Commission), Part 1 (General Regulations Under the 
Commodity Exchange Act), Sec.  1.3 (Definitions). Each defined term 
then was originally set forth in paragraphs in alphabetical order, each 
with an alphabetic designation, starting with ``(a) Board of Trade'' 
and continuing through ``(u) Person.'' \5\ Over decades, numerous 
definitions have been added by simply adding more paragraphs at the end 
(rather than in alphabetical order) with an ever-growing list of 
alphabetic designations, starting with ``(aa)'' after reaching ``(z)'' 
and then ``(aaa)'' after reaching ``(zz).'' Moreover, certain 
definitions have been removed, leaving certain paragraphs blank and 
cited as ``reserved.'' As of today, the list of definitions in Sec.  
1.3 concludes with ``(ssss) Trading Facility.'' The result of this 
progression has been that, absent a strong familiarity with the 
Commission's regulations, it can prove difficult to quickly locate 
defined terms within Sec.  1.3, either directly or as referred to by 
another regulation, or even to know if certain terms have been defined.
---------------------------------------------------------------------------

    \3\ 17 CFR 1.3. The Commission's regulations are found in Title 
17 of the Code of Federal Regulations, 17 CFR chapter I.
    \4\ See 17 CFR 1.3 (1938 ed.).
    \5\ Id.
---------------------------------------------------------------------------

    Accordingly, the Commission has determined to amend Sec.  1.3 to 
replace the sub-paragraphs currently identified with an alphabetic 
designation for each defined term with a simple alphabetized list, as 
is recommended by the Office of the Federal Register.\6\ Moving 
forward, any new defined terms in Sec.  1.3 may be inserted in 
alphabetical order, rather than appended to the end. The Commission 
also has determined to amend all cross references to Sec.  1.3--both 
within Sec.  1.3 and within all other Commission regulations--to refer 
to the defined term set forth in the revised

[[Page 7980]]

alphabetic list, rather than the existing complex and confusing system 
for subdividing the regulation into paragraphs identified with an 
alphabetic designation. Further, the Commission has determined to amend 
certain definitions within Sec.  1.3 to correct certain typographical 
errors. Collectively, these amendments do not substantively alter any 
existing definition or other requirement set forth in other Commission 
regulations.
---------------------------------------------------------------------------

    \6\ See Document Drafting Handbook, Office of the Federal 
Register, National Archives and Records Administration, 2-31 
(Revision 5, Oct. 2, 2017), stating, ``[i]n sections or paragraphs 
containing only definitions, we recommend that you do not use 
paragraph designations if you list the terms in alphabetical order. 
Begin the definition paragraph with the term that you are 
defining.''
---------------------------------------------------------------------------

II. Request for Comment on Interim Final Rule

    The Commission invites comments on this interim final rule. For 
example, the Commission invites comment as to the extent, if any, that 
the elimination of the paragraph references to particular defined terms 
in Sec.  1.3 would cause registrants to update or alter existing 
automated compliance programs and any costs associated with such 
changes. Comments must be received by the Commission on or before the 
comment date specified under the DATES heading in this document. 
Comments on the interim final rule must be submitted pursuant to the 
instructions provided above.

III. Related Matters

A. Administrative Procedure Act

    The Administrative Procedure Act (``APA'') \7\ generally requires a 
Federal agency to publish a notice of proposed rulemaking in the 
Federal Register. This requirement does not apply, however, when an 
agency ``for good cause finds . . . that notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest.'' Moreover, while the APA generally requires that an agency 
publish an adopted rule in the Federal Register 30 days before it 
becomes effective, this requirement does not apply if the agency finds 
good cause to make the rule effective sooner. In this interim final 
rulemaking the Commission is, by amendment, reorganizing the 
definitions in Sec.  1.3 into alphabetical order. No substantive 
changes are being made to the definitions, only reordering in 
alphabetical order, deleting the alphabetic identification scheme, 
revising all cross references to existing Sec.  1.3 definitions, and 
correcting certain typographical errors. Similarly, related regulations 
which include cross references to Sec.  1.3 will be amended to reflect 
the elimination of the alphabetic identification scheme. Because the 
interim final rule does not alter in any way the substantive 
definitions and related regulations, the advance notice and public 
comment procedure that is generally required pursuant to the APA is not 
necessary in the present instance. For good cause, the Commission 
therefore finds that publication of a notice of proposed rulemaking in 
the Federal Register is unnecessary. Similarly, since the interim final 
rule simply reorganizes all definitions into alphabetical order in 
Sec.  1.3, eliminates the alphabetic identification scheme, harmonizes 
related regulations, and corrects certain typographical errors, the 
Commission, for good cause, finds no transitional period, after 
publication in the Federal Register, is necessary before the amendments 
made by this interim final rule become effective. Accordingly, this 
interim final rule shall be effective immediately upon publication in 
the Federal Register.
---------------------------------------------------------------------------

    \7\ See 5 U.S.C. 553 et seq.
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') imposes certain requirements 
on Federal agencies in connection with their conducting or sponsoring 
any collection of information as defined by the PRA.\8\ Under the PRA, 
an agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid control number from the Office of Management and Budget 
(``OMB''). Since this interim final rule serves to clarify, by 
amendment, the scope of an already existing regulatory provision, the 
Commission has determined that the interim final rule will not impose 
any new information collection requirements that require approval of 
OMB under the PRA.
---------------------------------------------------------------------------

    \8\ See 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires that Federal 
agencies consider whether the rules that they issue will have a 
significant economic impact on a substantial number of small entities 
and, if so, to provide a regulatory flexibility analysis respecting the 
impact.\9\ By reorganizing the definitions set forth in Sec.  1.3 into 
alphabetical order and updating all related cross references throughout 
all Commission regulations, this interim final rule serves to clarify 
its regulations. Therefore, the Commission has determined that this 
interim final rule will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \9\ See 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

D. Cost-Benefit Considerations

    Section 15(a) of the CEA \10\ requires the Commission to consider 
the costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders. Section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
five broad areas of market and public concern: (1) Protection of market 
participants and the public; (2) efficiency, competitiveness, and 
financial integrity of the futures markets; (3) price discovery; (4) 
sound risk management practices; and (5) other public interest 
considerations. The Commission considers the costs and benefits 
resulting from its discretionary determinations with respect to the 
section 15(a) factors.
---------------------------------------------------------------------------

    \10\ 7 U.S.C. 19(a).
---------------------------------------------------------------------------

    The interim final rule does not represent an exercise of Commission 
discretion that alters substantive rights and obligations imposed by 
statute and current Commission rules. As discussed earlier, the interim 
final rule merely reorganizes the existing definitions in Sec.  1.3 
into alphabetical order, deletes the outdated lettering scheme, and 
revises Sec.  1.3 and related regulations to reflect the deleted 
lettering scheme. As such, substantively, the interim final rule poses 
no incremental costs or benefits relative to the regulatory 
requirements that are now in force.
    This interim final rule does have a discretionary element. By 
issuing the interim final rule, the Commission is exercising its 
discretion to clarify, by amendment, the definitions currently in 
force. By alphabetizing the definitions, the interim final rule 
addresses a potential source of uncertainty for market participants, 
which promotes the public interest in market integrity and regulatory 
clarity. The Commission recognizes that this discretionary act of 
clarification may result in some administrative costs to market 
participants. However, the Commission believes any such costs will not 
be material.

List of Subjects

17 CFR Part 1

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 3

    Administrative practice and procedure, Commodity futures, Reporting 
and recordkeeping requirements.

[[Page 7981]]

17 CFR Part 4

    Advertising, Brokers, Commodity futures, Consumer protection, 
Reporting and recordkeeping requirements.

17 CFR Part 5

    Commodity futures, Consumer protection, Foreign currencies, 
Reporting and recordkeeping requirements, Securities, Trade practices.

17 CFR Part 15

    Brokers, Reporting and recordkeeping requirements.

17 CFR Part 18

    Reporting and recordkeeping requirements.

17 CFR Part 19

    Cotton, Grains, Reporting and recordkeeping requirements.

17 CFR Part 23

    Swaps.

17 CFR Part 30

    Consumer protection, Fraud.

17 CFR Part 38

    Commodity futures, Reporting and recordkeeping requirements.

17 CFR Part 39

    Consumer protection, Reporting and recordkeeping requirements.

17 CFR Part 41

    Brokers, Reporting and recordkeeping requirements, Securities.

17 CFR Part 50

    Business and industry, Swaps.

17 CFR Part 150

    Cotton, Grains.

17 CFR Part 151

    Swaps.

17 CFR Part 155

    Brokers, Reporting and recordkeeping requirements.

17 CFR Part 166

    Brokers, Commodity futures, Consumer protection, Reporting and 
recordkeeping requirements.

    For the reasons set forth in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR chapter I as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

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

    Authority:  7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 
6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 
9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24 
(2012).

0
2. Amend Sec.  1.3 as follows:
0
a. Republish the introductory text of Sec.  1.3;
0
b. Remove paragraph designations (a) through (ssss) and reorder those 
definitions paragraphs in correct alphabetical order;
0
c. Revise the definitions of ``Bona fide hedging transactions and 
positions for excluded commodities,'' ``Category of swaps; major swap 
category,'' ``Commodity option transaction; commodity option,'' 
``Commodity trading advisor,'' ``Customer,'' ``Customer account,'' 
``Eligible contract participant,'' ``Financial entity; highly 
leveraged,'' ``Futures contracts on certain foreign sovereign debt,'' 
``Futures customer,'' ``Hedging or mitigating commercial risk,'' 
``Major Swap Participant,'' ``Meaning of `issuers of securities in a 
narrow-based security index' as used in the definition of `security-
based swap' as applied to index credit default swaps,'' ``Meaning of 
`narrow-based security index' used in the definition of `security-based 
swap' as applied to index credit default swaps,'' ``Narrow-based 
security index as used in the definition of `security-based swap,' '' 
``Substantial counterparty exposure,'' ``Substantial position,'' 
``Swap,'' and ``Swap Dealer.''
    The revisions read as follows:


Sec.  1.3  Definitions.

    Words used in the singular form in the rules and regulations in 
this chapter shall be deemed to import the plural and vice versa, as 
the context may require. The following terms, as used in the Commodity 
Exchange Act, or in the rules and regulations in this chapter, shall 
have the meanings hereby assigned to them, unless the context otherwise 
requires:
* * * * *
    Bona fide hedging transactions and positions for excluded 
commodities--(1) General definition. Bona fide hedging transactions and 
positions shall mean any agreement, contract or transaction in an 
excluded commodity on a designated contract market or swap execution 
facility that is a trading facility, where such transactions or 
positions normally represent a substitute for transactions to be made 
or positions to be taken at a later time in a physical marketing 
channel, and where they are economically appropriate to the reduction 
of risks in the conduct and management of a commercial enterprise, and 
where they arise from:
    (i) The potential change in the value of assets which a person 
owns, produces, manufactures, processes, or merchandises or anticipates 
owning, producing, manufacturing, processing, or merchandising,
    (ii) The potential change in the value of liabilities which a 
person owns or anticipates incurring, or
    (iii) The potential change in the value of services which a person 
provides, purchases, or anticipates providing or purchasing.
    (iv) Notwithstanding the foregoing, no transactions or positions 
shall be classified as bona fide hedging unless their purpose is to 
offset price risks incidental to commercial cash or spot operations and 
such positions are established and liquidated in an orderly manner in 
accordance with sound commercial practices and, for transactions or 
positions on contract markets subject to trading and position limits in 
effect pursuant to section 4a of the Act, unless the provisions of 
paragraphs (2) and (3) of this definition have been satisfied.
    (2) Enumerated hedging transactions. The definitions of bona fide 
hedging transactions and positions in paragraph (1) of this definition 
includes, but is not limited to, the following specific transactions 
and positions:
    (i) Sales of any agreement, contract, or transaction in an excluded 
commodity on a designated contract market or swap execution facility 
that is a trading facility which do not exceed in quantity:
    (A) Ownership or fixed-price purchase of the same cash commodity by 
the same person; and
    (B) Twelve months' unsold anticipated production of the same 
commodity by the same person provided that no such position is 
maintained in any agreement, contract or transaction during the five 
last trading days.
    (ii) Purchases of any agreement, contract or transaction in an 
excluded commodity on a designated contract market or swap execution 
facility that is a trading facility which do not exceed in quantity:
    (A) The fixed-price sale of the same cash commodity by the same 
person;
    (B) The quantity equivalent of fixed-price sales of the cash 
products and by-products of such commodity by the same person; and
    (C) Twelve months' unfilled anticipated requirements of the same 
cash commodity for processing, manufacturing, or feeding by the same 
person, provided that such transactions and positions in the five last 
trading

[[Page 7982]]

days of any agreement, contract or transaction do not exceed the 
person's unfilled anticipated requirements of the same cash commodity 
for that month and for the next succeeding month.
    (iii) Offsetting sales and purchases in any agreement, contract or 
transaction in an excluded commodity on a designated contract market or 
swap execution facility that is a trading facility which do not exceed 
in quantity that amount of the same cash commodity which has been 
bought and sold by the same person at unfixed prices basis different 
delivery months of the contract market, provided that no such position 
is maintained in any agreement, contract or transaction during the five 
last trading days.
    (iv) Purchases or sales by an agent who does not own or has not 
contracted to sell or purchase the offsetting cash commodity at a fixed 
price, provided that the agent is responsible for the merchandising of 
the cash position that is being offset, and the agent has a contractual 
arrangement with the person who owns the commodity or has the cash 
market commitment being offset.
    (v) Sales and purchases described in paragraphs (2)(i) through (iv) 
of this definition may also be offset other than by the same quantity 
of the same cash commodity, provided that the fluctuations in value of 
the position for in any agreement, contract or transaction are 
substantially related to the fluctuations in value of the actual or 
anticipated cash position, and provided that the positions in any 
agreement, contract or transaction shall not be maintained during the 
five last trading days.
    (3) Non-Enumerated cases. A designated contract market or swap 
execution facility that is a trading facility may recognize, consistent 
with the purposes of this definition, transactions and positions other 
than those enumerated in paragraph (2) of this definition as bona fide 
hedging. Prior to recognizing such non-enumerated transactions and 
positions, the designated contract market or swap execution facility 
that is a trading facility shall submit such rules for Commission 
review under section 5c of the Act and part 40 of this chapter.
* * * * *
    Category of swaps; major swap category. For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of major swap 
participant in this section, the terms major swap category, category of 
swaps and any similar terms mean any of the categories of swaps listed 
below. For the avoidance of doubt, the term swap as it is used in this 
definition has the meaning set forth in section 1a(47) of the Act, 7 
U.S.C. 1a(47), and the rules thereunder.
    (1) Rate swaps. Any swap which is primarily based on one or more 
reference rates, including but not limited to any swap of payments 
determined by fixed and floating interest rates, currency exchange 
rates, inflation rates or other monetary rates, any foreign exchange 
swap, as defined in section 1a(25) of the Act, 7 U.S.C. 1a(25), and any 
foreign exchange option other than an option to deliver currency.
    (2) Credit swaps. Any swap that is primarily based on instruments 
of indebtedness, including but not limited to any swap primarily based 
on one or more broad-based indices related to debt instruments or 
loans, and any swap that is an index credit default swap or total 
return swap on one or more indices of debt instruments.
    (3) Equity swaps. Any swap that is primarily based on equity 
securities, including but not limited to any swap based on one or more 
broad-based indices of equity securities and any total return swap on 
one or more equity indices.
    (4) Other commodity swaps. Any swap that is not included in the 
rate swap, credit swap or equity swap categories.
* * * * *
    Commodity option transaction; commodity option. These terms each 
mean any transaction or agreement in interstate commerce which is or is 
held out to be of the character of, or is commonly known to the trade 
as, an ``option,'' ``privilege,'' ``indemnity,'' ``bid,'' ``offer,'' 
``call,'' ``put,'' ``advance guaranty,'' or ``decline guaranty,'' and 
which is subject to regulation under the Act and the regulations in 
this chapter.
* * * * *
    Commodity trading advisor. (1) This term means any person who, for 
compensation or profit, engages in the business of advising others, 
either directly or through publications, writings or electronic media, 
as to the value of or the advisability of trading in any contract of 
sale of a commodity for future delivery, security futures product, or 
swap; any agreement, contract or transaction described in section 
2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option 
authorized under section 4c of the Act; any leverage transaction 
authorized under section 19 of the Act; any person registered with the 
Commission as a commodity trading advisor; or any person, who, for 
compensation or profit, and as part of a regular business, issues or 
promulgates analyses or reports concerning any of the foregoing. The 
term does not include:
    (i) Any bank or trust company or any person acting as an employee 
thereof;
    (ii) Any news reporter, news columnist, or news editor of the print 
or electronic media or any lawyer, accountant, or teacher;
    (iii) Any floor broker or futures commission merchant;
    (iv) The publisher or producer of any print or electronic data of 
general and regular dissemination, including its employees;
    (v) The named fiduciary, or trustee, of any defined benefit plan 
which is subject to the provisions of the Employee Retirement Income 
Security Act of 1974, or any fiduciary whose sole business is to advise 
that plan;
    (vi) Any contract market; and
    (vii) Such other persons not within the intent of this definition 
as the Commission may specify by rule, regulation or order: Provided, 
That the furnishing of such services by the foregoing persons is solely 
incidental to the conduct of their business or profession: Provided 
further, That the Commission, by rule or regulation, may include within 
this definition, any person advising as to the value of commodities or 
issuing reports or analyses concerning commodities, if the Commission 
determines that such rule or regulation will effectuate the purposes of 
this provision.
    (2) Client. This term, as it relates to a commodity trading 
advisor, means any person:
    (i) To whom a commodity trading advisor provides advice, for 
compensation or profit, either directly or through publications, 
writings, or electronic media, as to the value of, or the advisability 
of trading in, any contract of sale of a commodity for future delivery, 
security futures product or swap; any agreement, contract or 
transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) 
of the Act; any commodity option authorized under section 4c of the 
Act; any leverage transaction authorized under section 19 of the Act; 
or
    (ii) To whom, for compensation or profit, and as part of a regular 
business, the commodity trading advisor issues or promulgates analyses 
or reports concerning any of the activities referred to in the 
definition of commodity trading advisor in this section. The term 
client includes, without limitation, any subscriber of a commodity 
trading advisor.
* * * * *
    Customer. This term means any person who uses a futures commission

[[Page 7983]]

merchant, introducing broker, commodity trading advisor, or commodity 
pool operator as an agent in connection with trading in any commodity 
interest; Provided, however, an owner or holder of a proprietary 
account as defined in this section shall not be deemed to be a customer 
within the meaning of section 4d of the Act, the regulations that 
implement sections 4d and 4f of the Act and Sec.  1.35, and such an 
owner or holder of such a proprietary account shall otherwise be deemed 
to be a customer within the meaning of the Act and Sec. Sec.  1.37 and 
1.46 and all other sections of these rules, regulations, and orders 
which do not implement sections 4d and 4f of the Act.
    Customer account. This term references both a Cleared Swaps 
Customer Account and a Futures Account, as defined in this section.
* * * * *
    Eligible contract participant. This term has the meaning set forth 
in section 1a(18) of the Act, except that:
    (1) A major swap participant, as defined in section 1a(33) of the 
Act and in this section, is an eligible contract participant;
    (2) A swap dealer, as defined in section 1a(49) of the Act and in 
this section, is an eligible contract participant;
    (3) A major security-based swap participant, as defined in section 
3(a)(67) of the Securities Exchange Act of 1934 and Sec.  240.3a67-1 of 
this title, is an eligible contract participant;
    (4) A security-based swap dealer, as defined in section 3(a)(71) of 
the Securities Exchange Act of 1934 and Sec.  240.3a71-1 of this title, 
is an eligible contract participant;
    (5)(i) A transaction-level commodity pool with one or more direct 
participants that is not an eligible contract participant is not itself 
an eligible contract participant under either section 1a(18)(A)(iv) or 
section 1a(18)(A)(v) of the Act for purposes of entering into 
transactions described in sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii) 
of the Act; and
    (ii) In determining whether a commodity pool that is a direct 
participant in a transaction-level commodity pool is an eligible 
contract participant for purposes of paragraph (5)(i) of this 
definition, the participants in the commodity pool that is a direct 
participant in the transaction-level commodity pool shall not be 
considered unless the transaction-level commodity pool, any commodity 
pool holding a direct or indirect interest in such transaction-level 
commodity pool, or any commodity pool in which such transaction-level 
commodity pool holds a direct or indirect interest, has been structured 
to evade subtitle A of Title VII of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act by permitting persons that are not eligible 
contract participants to participate in agreements, contracts, or 
transactions described in section 2(c)(2)(B)(i) or section 
2(c)(2)(C)(i) of the Act;
    (6) A commodity pool that does not have total assets exceeding 
$5,000,000 or that is not operated by a person described in subclause 
(A)(iv)(II) of section 1a(18) of the Act is not an eligible contract 
participant pursuant to clause (A)(v) of such section;
    (7)(i) For purposes of a swap (but not a security-based swap, 
security-based swap agreement or mixed swap) used to hedge or mitigate 
commercial risk, an entity may, in determining its net worth for 
purposes of section 1a(18)(A)(v)(III) of the Act, include the net worth 
of any owner of such entity, provided that all the owners of such 
entity are eligible contract participants;
    (ii)(A) For purposes of identifying the owners of an entity under 
paragraph (7)(i) of this definition, any person holding a direct 
ownership interest in such entity shall be considered to be an owner of 
such entity; provided, however, that any shell company shall be 
disregarded, and the owners of such shell company shall be considered 
to be the owners of any entity owned by such shell company;
    (B) For purposes of paragraph (7)(ii)(A) of this definition, the 
term shell company means any entity that limits its holdings to direct 
or indirect interests in entities that are relying on this paragraph 
(7); and
    (C) In determining whether an owner of an entity is an eligible 
contract participant for purposes of paragraph (7)(i) of this 
definition, an individual may be considered to be a proprietorship 
eligible contract participant only if the individual--
    (1) Has an active role in operating a business other than an 
entity;
    (2) Directly owns all of the assets of the business;
    (3) Directly is responsible for all of the liabilities of the 
business; and
    (4) Acquires its interest in the entity seeking to qualify as an 
eligible contract participant under paragraph (7)(i) of this definition 
in connection with the operation of the individual's proprietorship or 
to manage the risk associated with an asset or liability owned or 
incurred or reasonably likely to be owned or incurred by the individual 
in the operation of the individual's proprietorship; and
    (iii) For purposes of paragraph (7)(i) of this definition, a swap 
is used to hedge or mitigate commercial risk if the swap complies with 
the conditions in the definition in this section of hedging or 
mitigating commercial risk; and
    (8) Notwithstanding section 1a(18)(A)(iv) of the Act and paragraph 
(5) of this definition, a commodity pool that enters into an agreement, 
contract, or transaction described in section 2(c)(2)(B)(i) or section 
2(c)(2)(C)(i)(I) of the Act is an eligible contract participant with 
respect to such agreement, contract, or transaction, regardless of 
whether each participant in such commodity pool is an eligible contract 
participant, if all of the following conditions are satisfied:
    (i) The commodity pool is not formed for the purpose of evading 
regulation under section 2(c)(2)(B) or section 2(c)(2)(C) of the Act or 
related Commission rules, regulations or orders;
    (ii) The commodity pool has total assets exceeding $10,000,000; and
    (iii) The commodity pool is formed and operated by a registered 
commodity pool operator or by a commodity pool operator who is exempt 
from registration as such pursuant to Sec.  4.13(a)(3) of this chapter.
* * * * *
    Financial entity; highly leveraged. (1) For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap 
participant in this section, the term financial entity means:
    (i) A security-based swap dealer;
    (ii) A major security-based swap participant;
    (iii) A commodity pool as defined in section 1a(10) of the Act, 7 
U.S.C. 1a(10);
    (iv) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940, 15 U.S.C. 80b-2(a);
    (v) An employee benefit plan as defined in paragraphs (3) and (32) 
of section 3 of the Employee Retirement Income Security Act of 1974, 29 
U.S.C. 1002; and
    (vi) A person predominantly engaged in activities that are in the 
business of banking or financial in nature, as defined in section 4(k) 
of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k).
    (2) For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and 
the definition of a major swap participant in this section, the term 
highly leveraged means the existence of a ratio of an entity's total 
liabilities to equity in excess of 12 to 1 as measured at the close of 
business on the last business day of the applicable fiscal quarter. For

[[Page 7984]]

this purpose, liabilities and equity should each be determined in 
accordance with U.S. generally accepted accounting principles; 
provided, however, that a person that is an employee benefit plan, as 
defined in paragraphs (3) and (32) of section 3 of the Employee 
Retirement Income Security Act of 1974, 29 U.S.C. 1002, may exclude 
obligations to pay benefits to plan participants from the calculation 
of liabilities and substitute the total value of plan assets for 
equity.
* * * * *
    Futures contracts on certain foreign sovereign debt. The term 
security-based swap as used in section 3(a)(68) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), as incorporated in section 
1a(42) of the Commodity Exchange Act, does not include an agreement, 
contract, or transaction that is based on or references a qualifying 
foreign futures contract (as defined in rule 3a12-8 under the 
Securities Exchange Act of 1934 (17 CFR 240.3a12-8)) on the debt 
securities of any one or more of the foreign governments enumerated in 
rule 3a12-8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12-
8), provided that such agreement, contract, or transaction satisfies 
the following conditions:
    (1) The futures contract that the agreement, contract, or 
transaction references or upon which the agreement, contract, or 
transaction is based is a qualifying foreign futures contract that 
satisfies the conditions of rule 3a12-8 under the Securities Exchange 
Act of 1934 (17 CFR 240.3a12-8) applicable to qualifying foreign 
futures contracts;
    (2) The agreement, contract, or transaction is traded on or through 
a board of trade (as defined in the Commodity Exchange Act);
    (3) The debt securities upon which the qualifying foreign futures 
contract is based or referenced and any security used to determine the 
cash settlement amount pursuant to paragraph (4) of this definition 
were not registered under the Securities Act of 1933 (15 U.S.C. 77 et 
seq.) or the subject of any American depositary receipt registered 
under the Securities Act of 1933;
    (4) The agreement, contract, or transaction may only be cash 
settled; and
    (5) The agreement, contract or transaction is not entered into by 
the issuer of the debt securities upon which the qualifying foreign 
futures contract is based or referenced (including any security used to 
determine the cash payment due on settlement of such agreement, 
contract or transaction), an affiliate (as defined in the Securities 
Act of 1933 (15 U.S.C. 77 et seq.) and the rules and regulations 
thereunder) of the issuer, or an underwriter of such issuer's debt 
securities.
    Futures customer. This term means any person who uses a futures 
commission merchant, introducing broker, commodity trading advisor, or 
commodity pool operator as an agent in connection with trading in any 
contract for the purchase of sale of a commodity for future delivery or 
any option on such contract; Provided, however, an owner or holder of a 
proprietary account as defined in this section shall not be deemed to 
be a futures customer within the meaning of sections 4d(a) and 4d(b) of 
the Act, the regulations in this chapter that implement sections 4d and 
4f of the Act and Sec.  1.35, and such an owner or holder of such a 
proprietary account shall otherwise be deemed to be a futures customer 
within the meaning of the Act and Sec. Sec.  1.37 and 1.46 and all 
other sections of these rules, regulations, and orders which do not 
implement sections 4d and 4f of the Act.
* * * * *
    Hedging or mitigating commercial risk. For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33) and the definition of a major swap 
participant in this section, a swap position is held for the purpose of 
hedging or mitigating commercial risk when:
    (1) Such position:
    (i) Is economically appropriate to the reduction of risks in the 
conduct and management of a commercial enterprise (or of a majority-
owned affiliate of the enterprise), where the risks arise from:
    (A) The potential change in the value of assets that a person owns, 
produces, manufactures, processes, or merchandises or reasonably 
anticipates owning, producing, manufacturing, processing, or 
merchandising in the ordinary course of business of the enterprise;
    (B) The potential change in the value of liabilities that a person 
has incurred or reasonably anticipates incurring in the ordinary course 
of business of the enterprise; or
    (C) The potential change in the value of services that a person 
provides, purchases, or reasonably anticipates providing or purchasing 
in the ordinary course of business of the enterprise;
    (D) The potential change in the value of assets, services, inputs, 
products, or commodities that a person owns, produces, manufactures, 
processes, merchandises, leases, or sells, or reasonably anticipates 
owning, producing, manufacturing, processing, merchandising, leasing, 
or selling in the ordinary course of business of the enterprise;
    (E) Any potential change in value related to any of the foregoing 
arising from interest, currency, or foreign exchange rate movements 
associated with such assets, liabilities, services, inputs, products, 
or commodities; or
    (F) Any fluctuation in interest, currency, or foreign exchange rate 
exposures arising from a person's current or anticipated assets or 
liabilities; or
    (ii) Qualifies as bona fide hedging for purposes of an exemption 
from position limits under the Act; or
    (iii) Qualifies for hedging treatment under:
    (A) Financial Accounting Standards Board Accounting Standards 
Codification Topic 815, Derivatives and Hedging (formerly known as 
Statement No. 133); or
    (B) Governmental Accounting Standards Board Statement 53, 
Accounting and Financial Reporting for Derivative Instruments; and
    (2) Such position is:
    (i) Not held for a purpose that is in the nature of speculation, 
investing or trading; and
    (ii) Not held to hedge or mitigate the risk of another swap or 
security-based swap position, unless that other position itself is held 
for the purpose of hedging or mitigating commercial risk as defined by 
this definition or Sec.  240.3a67-4 of this title.
* * * * *
    Major swap participant--(1) In general. The term major swap 
participant means any person:
    (i) That is not a swap dealer; and
    (ii)(A) That maintains a substantial position in swaps for any of 
the major swap categories, excluding both positions held for hedging or 
mitigating commercial risk, and positions maintained by any employee 
benefit plan (or any contract held by such a plan) as defined in 
paragraphs (3) and (32) of section 3 of the Employee Retirement Income 
Security Act of 1974, 29 U.S.C. 1002, for the primary purpose of 
hedging or mitigating any risk directly associated with the operation 
of the plan;
    (B) Whose outstanding swaps create substantial counterparty 
exposure that could have serious adverse effects on the financial 
stability of the United States banking system or financial markets; or
    (C) That is a financial entity that:
    (1) Is highly leveraged relative to the amount of capital such 
entity holds and that is not subject to capital

[[Page 7985]]

requirements established by an appropriate Federal banking agency (as 
defined in section 1a(2) of the Act, 7 U.S.C. 1a(2)); and
    (2) Maintains a substantial position in outstanding swaps in any 
major swap category.
    (2) Scope of designation. A person that is a major swap participant 
shall be deemed to be a major swap participant with respect to each 
swap it enters into, regardless of the category of the swap or the 
person's activities in connection with the swap. However, if a person 
makes an application to limit its designation as a major swap 
participant to specified categories of swaps, the Commission shall 
determine whether the person's designation as a major swap participant 
shall be so limited. If the Commission grants such limited designation, 
such limited designation major swap participant shall be deemed to be a 
major swap participant with respect to each swap it enters into in the 
swap category or categories for which it is so designated, regardless 
of the person's activities in connection with such category or 
categories of swaps. A person may make such application to limit its 
designation at the same time as, or after, the person's initial 
registration as a major swap participant.
    (3) Timing requirements. A person that is not registered as a major 
swap participant, but that meets the criteria in this rule to be a 
major swap participant as a result of its swap activities in a fiscal 
quarter, will not be deemed to be a major swap participant until the 
earlier of the date on which it submits a complete application for 
registration as a major swap participant pursuant to section 4s(a)(2) 
of the Act, 7 U.S.C. 6s(a)(2), or two months after the end of that 
quarter.
    (4) Reevaluation period. Notwithstanding paragraph (3) of this 
definition, if a person that is not registered as a major swap 
participant meets the criteria in this rule to be a major swap 
participant in a fiscal quarter, but does not exceed any applicable 
threshold by more than twenty percent in that quarter:
    (i) That person will not be deemed a major swap participant 
pursuant to the timing requirements specified in paragraph (3) of this 
definition; but
    (ii) That person will be deemed a major swap participant pursuant 
to the timing requirements specified in paragraph (3) of this 
definition at the end of the next fiscal quarter if the person exceeds 
any of the applicable daily average thresholds in that next fiscal 
quarter.
    (5) Termination of status. A person that is deemed to be a major 
swap participant shall continue to be deemed a major swap participant 
until such time that its swap activities do not exceed any of the daily 
average thresholds set forth within this rule for four consecutive 
fiscal quarters after the date on which the person becomes registered 
as a major swap participant.
    (6) Calculation of status. A person shall not be deemed to be a 
``major swap participant,'' regardless of whether the criteria in 
paragraph (1) of this definition otherwise would cause the person to be 
a major swap participant, provided the person meets the conditions set 
forth in paragraphs (6)(i), (ii) or (iii) of this definition.
    (i) Caps on uncollateralized exposure and notional positions--(A) 
Maximum potential uncollateralized exposure. The express terms of the 
person's agreements or arrangements relating to swaps with its 
counterparties at no time would permit the person to maintain a total 
uncollateralized exposure of more than $100 million to all such 
counterparties, including any exposure that may result from thresholds 
or minimum transfer amounts established by credit support annexes or 
similar arrangements; and
    (B) Maximum notional amount of swap positions. The person does not 
maintain swap positions in a notional amount of more than $2 billion in 
any major category of swaps, or more than $4 billion in the aggregate 
across all major categories; or
    (ii) Caps on uncollateralized exposure plus monthly calculation--
(A) Maximum potential uncollateralized exposure. The express terms of 
the person's agreements or arrangements relating to swaps with its 
counterparties at no time would permit the person to maintain a total 
uncollateralized exposure of more than $200 million to all such 
counterparties (with regard to swaps and any other instruments by which 
the person may have exposure to those counterparties), including any 
exposure that may result from thresholds or minimum transfer amounts 
established by credit support annexes or similar arrangements; and
    (B) Calculation of positions. (1) At the end of each month, the 
person performs the calculations prescribed by the definition in this 
section of substantial position with regard to whether the aggregate 
uncollateralized outward exposure plus aggregate potential outward 
exposure as of that day constitute a ``substantial position'' in a 
major category of swaps, or pose ``substantial counterparty exposure 
that could have serious adverse effects on the financial stability of 
the United States banking system or financial markets''; these 
calculations shall disregard provisions of those rules that provide for 
the analyses to be determined based on a daily average over a calendar 
quarter; and
    (2) Each such analysis produces thresholds of no more than:
    (i) $1 billion in aggregate uncollateralized outward exposure plus 
aggregate potential outward exposure in any major category of swaps; if 
the person is subject to the definition in this section of substantial 
position, by virtue of being a highly leveraged financial entity that 
is not subject to capital requirements established by an appropriate 
Federal banking agency, this analysis shall account for all of the 
person's swap positions in that major category (without excluding 
hedging positions), otherwise this analysis shall exclude the same 
hedging and related positions that are excluded from consideration 
pursuant to paragraph (1)(i) of the definition in this section of 
substantial position; or
    (ii) $2 billion in aggregate uncollateralized outward exposure plus 
aggregate potential outward exposure (without any positions excluded 
from the analysis) with regard to all of the person's swap positions.
    (iii) Calculations based on certain information. (A)(1) At the end 
of each month, the person's aggregate uncollateralized outward exposure 
with respect to its swap positions in each major swap category is less 
than $1.5 billion with respect to the rate swap category and less than 
$500 million with respect to each of the other major swap categories; 
and
    (2) At the end of each month, the sum of the amount calculated 
under paragraph (6)(iii)(A)(1) of this definition with respect to each 
major swap category and the total notional principal amount of the 
person's swap positions in each such major swap category, adjusted by 
the multipliers set forth in paragraph (3)(ii)(1) of the definition in 
this section of substantial position on a position-by-position basis 
reflecting the type of swap, is less than $3 billion with respect to 
the rate swap category and less than $1 billion with respect to each of 
the other major swap categories; or
    (B)(1) At the end of each month, the person's aggregate 
uncollateralized outward exposure with respect to its swap positions 
across all major swap categories is less than $500 million; and
    (2) The sum of the amount calculated under paragraph (6)(iii)(B)(1) 
of this definition and the product of the total effective notional 
principal amount of the person's swap positions in all major swap 
categories multiplied by 0.15 is less than $1 billion.

[[Page 7986]]

    (C) For purposes of the calculations set forth in this paragraph 
(6)(iii) of the major swap participant definition:
    (1) The person's aggregate uncollateralized outward exposure for 
positions held with swap dealers shall be equal to such exposure 
reported on the most recent reports of such exposure received from such 
swap dealers; and
    (2) The person's aggregate uncollateralized outward exposure for 
positions that are not reflected in any report of exposure from a swap 
dealer (including all swap positions it holds with persons other than 
swap dealers) shall be calculated in accordance with paragraph (2) of 
the definition in this section of substantial position.
    (iv) For purposes of the calculations set forth in paragraph (6) of 
this definition, the person shall use the effective notional amount of 
a position rather than the stated notional amount of the position if 
the stated notional amount is leveraged or enhanced by the structure of 
the position.
    (v) No presumption shall arise that a person is required to perform 
the calculations needed to determine if it is a major swap participant, 
solely by reason that the person does not meet the conditions specified 
in paragraph (6)(i), (ii) or (iii) of this definition.
    (7) Exclusions. A person who is registered as a derivatives 
clearing organization with the Commission pursuant to section 5b of the 
Act and regulations thereunder, shall not be deemed to be a major swap 
participant, regardless of whether the criteria in this definition 
otherwise would cause the person to be a major swap participant.
* * * * *
    Meaning of ``issuers of securities in a narrow-based security 
index'' as used in the definition of ``security-based swap'' as applied 
to index credit default swaps. (1) Notwithstanding paragraph (1) of the 
definition in this section of narrow-based security index as used in 
the definition of security-based swap, and solely for purposes of 
determining whether a credit default swap is a security-based swap 
under the definition of ``security-based swap'' in section 
3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(68)(A)(ii)(III)), as incorporated in section 1a(42) of the 
Commodity Exchange Act, the term issuers of securities in a narrow-
based security index means issuers of securities included in an index 
(including an index referencing loan borrowers or loans of such 
borrowers) in which:
    (i)(A) There are nine or fewer non-affiliated issuers of securities 
that are reference entities included in the index, provided that an 
issuer of securities shall not be deemed a reference entity included in 
the index for purposes of this definition unless:
    (1) A credit event with respect to such reference entity would 
result in a payment by the credit protection seller to the credit 
protection buyer under the credit default swap based on the related 
notional amount allocated to such reference entity; or
    (2) The fact of such credit event or the calculation in accordance 
with paragraph (1)(i)(A)(1) of this definition of the amount owed with 
respect to such credit event is taken into account in determining 
whether to make any future payments under the credit default swap with 
respect to any future credit events;
    (B) The effective notional amount allocated to any reference entity 
included in the index comprises more than 30 percent of the index's 
weighting;
    (C) The effective notional amount allocated to any five non-
affiliated reference entities included in the index comprises more than 
60 percent of the index's weighting; or
    (D) Except as provided in paragraph (2) of this definition, for 
each reference entity included in the index, none of the criteria in 
paragraphs (1)(i)(D)(1) through (8) of this definition is satisfied:
    (1) The reference entity included in the index is required to file 
reports pursuant to section 13 or section 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
    (2) The reference entity included in the index is eligible to rely 
on the exemption provided in rule 12g3-2(b) under the Securities 
Exchange Act of 1934 (17 CFR 240.12g3-2(b));
    (3) The reference entity included in the index has a worldwide 
market value of its outstanding common equity held by non-affiliates of 
$700 million or more;
    (4) The reference entity included in the index (other than a 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) has outstanding notes, 
bonds, debentures, loans, or evidences of indebtedness (other than 
revolving credit facilities) having a total remaining principal amount 
of at least $1 billion;
    (5) The reference entity included in the index is the issuer of an 
exempted security as defined in section 3(a)(12) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal 
security as defined in section 3(a)(29) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(29)));
    (6) The reference entity included in the index is a government of a 
foreign country or a political subdivision of a foreign country;
    (7) If the reference entity included in the index is an issuing 
entity of an asset-backed security as defined in section 3(a)(77) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), such asset-
backed security was issued in a transaction registered under the 
Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly 
available distribution reports; and
    (8) For a credit default swap entered into solely between eligible 
contract participants as defined in section 1a(18) of the Commodity 
Exchange Act:
    (i) The reference entity included in the index (other than a 
reference entity included in the index that is an issuing entity of an 
asset-backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) makes available to the 
public or otherwise makes available to such eligible contract 
participant information about the reference entity included in the 
index pursuant to rule 144A(d)(4) under the Securities Act of 1933 (17 
CFR 230.144A(d)(4));
    (ii) Financial information about the reference entity included in 
the index (other than a reference entity included in the index that is 
an issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) 
is otherwise publicly available; or
    (iii) In the case of a reference entity included in the index that 
is an issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), 
information of the type and level included in publicly available 
distribution reports for similar asset-backed securities is publicly 
available about both the reference entity included in the index and 
such asset-backed security; and
    (ii)(A) The index is not composed solely of reference entities that 
are issuers of exempted securities as defined in section 3(a)(12) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in 
effect on the date of enactment of the Futures Trading Act of 1982 
(other than any municipal security as defined in section 3(a)(29) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in 
effect on the date of enactment of the Futures Trading Act of 1982; and
    (B) Without taking into account any portion of the index composed 
of

[[Page 7987]]

reference entities that are issuers of exempted securities as defined 
in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(12)), as in effect on the date of enactment of the Futures 
Trading Act of 1982 (other than any municipal security as defined in 
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(29))), the remaining portion of the index would be within the 
term issuer of securities in a narrow-based security index under (1)(i) 
of this definition.
    (2) Paragraph (1)(i)(D) of this definition will not apply with 
respect to a reference entity included in the index if:
    (i) The effective notional amounts allocated to such reference 
entity comprise less than five percent of the index's weighting; and
    (ii) The effective notional amounts allocated to reference entities 
included in the index that satisfy paragraph (1)(i)(D) of this 
definition comprise at least 80 percent of the index's weighting.
    (3) For purposes of this definition:
    (i) A reference entity included in the index is affiliated with 
another reference entity included in the index (for purposes of 
paragraph (3)(iv) of this definition) or another entity (for purposes 
of paragraph (3)(v) of this definition) if it controls, is controlled 
by, or is under common control with, that other reference entity 
included in the index or other entity, as applicable; provided that 
each reference entity included in the index that is an issuing entity 
of an asset-backed security as defined in section 3(a)(77) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be 
considered affiliated with any other reference entity included in the 
index or any other entity that is an issuing entity of an asset-backed 
security.
    (ii) Control for purposes of this section means ownership of more 
than 50 percent of the equity of a reference entity included in the 
index (for purposes of paragraph (3)(iv) of this definition) or another 
entity (for purposes of paragraph (3)(v) of this definition), or the 
ability to direct the voting of more than 50 percent of the voting 
equity of a reference entity included in the index (for purposes of 
paragraph (3)(iv) of this definition) or another entity (for purposes 
of paragraph (3)(v) of this definition).
    (iii) In identifying a reference entity included in the index for 
purposes of this section, the term reference entity includes:
    (A) An issuer of securities;
    (B) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)); and
    (C) An issuer of securities that is a borrower with respect to any 
loan identified in an index of borrowers or loans.
    (iv) For purposes of calculating the thresholds in paragraphs 
(1)(i)(A) through (1)(i)(C) of this definition, the term reference 
entity included in the index includes a single reference entity 
included in the index or a group of affiliated reference entities 
included in the index as determined in accordance with paragraph (3)(i) 
of this definition (with each reference entity included in the index 
that is an issuing entity of an asset-backed security as defined in 
section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a 
separate reference entity included in the index).
    (v) For purposes of determining whether one of the criterion in 
either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition 
or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition 
is met, the term reference entity included in the index includes a 
single reference entity included in the index or a group of affiliated 
entities as determined in accordance with paragraph (3)(i) of this 
definition (with each issuing entity of an asset-backed security as 
defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being 
considered a separate entity).
    Meaning of ``narrow-based security index'' used in the definition 
of ``security-based swap'' as applied to index credit default swaps. 
(1) Notwithstanding paragraph (1) of the definition in this section of 
narrow-based security index as used in the definition of ``security-
based swap,'' and solely for purposes of determining whether a credit 
default swap is a security-based swap under the definition of 
``security-based swap'' in section 3(a)(68)(A)(ii)(I) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(I)), as incorporated 
in section 1a(42) of the Commodity Exchange Act, the term narrow-based 
security index means an index in which:
    (i)(A) The index is composed of nine or fewer securities or 
securities that are issued by nine or fewer non-affiliated issuers, 
provided that a security shall not be deemed a component of the index 
for purposes of this section unless:
    (1) A credit event with respect to the issuer of such security or a 
credit event with respect to such security would result in a payment by 
the credit protection seller to the credit protection buyer under the 
credit default swap based on the related notional amount allocated to 
such security; or
    (2) The fact of such credit event or the calculation in accordance 
with paragraph (1)(i)(A)(1) of this definition of the amount owed with 
respect to such credit event is taken into account in determining 
whether to make any future payments under the credit default swap with 
respect to any future credit events;
    (B) The effective notional amount allocated to the securities of 
any issuer included in the index comprises more than 30 percent of the 
index's weighting;
    (C) The effective notional amount allocated to the securities of 
any five non-affiliated issuers included in the index comprises more 
than 60 percent of the index's weighting; or
    (D) Except as provided in paragraph (2) of this definition, for 
each security included in the index, none of the criteria in paragraphs 
(1)(i)(D)(1) through (8) is satisfied if:
    (1) The issuer of the security included in the index is required to 
file reports pursuant to section 13 or section 15(d) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
    (2) The issuer of the security included in the index is eligible to 
rely on the exemption provided in rule 12g3-2(b) under the Securities 
Exchange Act of 1934 (17 CFR 240.12g3-2(b));
    (3) The issuer of the security included in the index has a 
worldwide market value of its outstanding common equity held by non-
affiliates of $700 million or more;
    (4) The issuer of the security included in the index (other than an 
issuer of the security that is an issuing entity of an asset-backed 
security as defined in section 3(a)(77) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds, 
debentures, loans or evidences of indebtedness (other than revolving 
credit facilities) having a total remaining principal amount of at 
least $1 billion;
    (5) The security included in the index is an exempted security as 
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(12)) (other than any municipal security as defined in 
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)(29)));
    (6) The issuer of the security included in the index is a 
government of a foreign country or a political subdivision of a foreign 
country;
    (7) If the security included in the index is an asset-backed 
security as

[[Page 7988]]

defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(77)), the security was issued in a transaction registered 
under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has 
publicly available distribution reports; and
    (8) For a credit default swap entered into solely between eligible 
contract participants as defined in section 1a(18) of the Commodity 
Exchange Act:
    (i) The issuer of the security included in the index (other than an 
issuer of the security that is an issuing entity of an asset-backed 
security as defined in section 3(a)(77) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(77))) makes available to the public or 
otherwise makes available to such eligible contract participant 
information about such issuer pursuant to rule 144A(d)(4) of the 
Securities Act of 1933 (17 CFR 230.144A(d)(4));
    (ii) Financial information about the issuer of the security 
included in the index (other than an issuer of the security that is an 
issuing entity of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) 
is otherwise publicly available; or
    (iii) In the case of an asset-backed security as defined in section 
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), 
information of the type and level included in public distribution 
reports for similar asset-backed securities is publicly available about 
both the issuing entity and such asset-backed security; and
    (ii)(A) The index is not composed solely of exempted securities as 
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(12)), as in effect on the date of enactment of the 
Futures Trading Act of 1982 (other than any municipal security as 
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(29))), as in effect on the date of enactment of the 
Futures Trading Act of 1982; and
    (B) Without taking into account any portion of the index composed 
of exempted securities as defined in section 3(a)(12) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date 
of enactment of the Futures Trading Act of 1982 (other than any 
municipal security as defined in section 3(a)(29) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of 
the index would be within the term narrow-based security index under 
paragraph (1)(i) of this definition.
    (2) Paragraph (1)(i)(D) of this definition will not apply with 
respect to securities of an issuer included in the index if:
    (i) The effective notional amounts allocated to all securities of 
such issuer included in the index comprise less than five percent of 
the index's weighting; and
    (ii) The securities that satisfy paragraph (1)(i)(D) of this 
definition comprise at least 80 percent of the index's weighting.
    (3) For purposes of this definition:
    (i) An issuer of securities included in the index is affiliated 
with another issuer of securities included in the index (for purposes 
of paragraph (3)(iv) of this definition) or another entity (for 
purposes of paragraph (3)(v) of this definition) if it controls, is 
controlled by, or is under common control with, that other issuer or 
other entity, as applicable; provided that each issuer of securities 
included in the index that is an issuing entity of an asset-backed 
security as defined in section 3(a)(77) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with 
any other issuer of securities included in the index or any other 
entity that is an issuing entity of an asset-backed security.
    (ii) Control for purposes of this section means ownership of more 
than 50 percent of the equity of an issuer of securities included in 
the index (for purposes of paragraph (3)(iv) of this definition) or 
another entity (for purposes of paragraph (3)(v) of this definition), 
or the ability to direct the voting of more than 50 percent of the 
voting equity an issuer of securities included in the index (for 
purposes of paragraph (3)(iv) of this definition) or another entity 
(for purposes of paragraph (3)(v) of this definition).
    (iii) In identifying an issuer of securities included in the index 
for purposes of this section, the term issuer includes:
    (A) An issuer of securities; and
    (B) An issuer of securities that is an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)).
    (iv) For purposes of calculating the thresholds in paragraphs 
(1)(i)(A) through (1)(i)(C) of the definition of the meaning of issuers 
of securities in a narrow-based security index as used in the 
definition of security-based swap as applied to index credit default 
swaps, the term issuer of the security included in the index or a group 
of affiliated issuers of securities included in the index as determined 
in accordance with paragraph (3)(i) of this definition (with each 
issuer of securities included in the index that is an issuing entity of 
an asset-backed security as defined in section 3(a)(77) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) being considered 
a separate issuer of securities included in the index).
    (v) For purposes of determining whether one of the criterion in 
either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition 
or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition 
is met, the term issuer of the security included in the index includes 
a single issuer of securities included in the index or a group of 
affiliated entities as determined in accordance with paragraph (3)(i) 
of this definition (with each issuing entity of an asset-backed 
security as defined in section 3(a)(77) of the Act (15 U.S.C. 
78c(a)(77)) being considered a separate entity).
* * * * *
    Narrow-based security index as used in the definition of 
``security-based swap''--(1) In general. Except as otherwise provided 
in the definitions in this section for meaning of issuers of securities 
in a narrow-based security index as used in the definition of security-
based swap as applied to index credit default swaps and meaning of 
narrow-based security index as used in the definition of security-based 
swap as applied to index credit default swaps, for purposes of section 
1a(42) of the Commodity Exchange Act, the term narrow-based security 
index has the meaning set forth in section 1a(35) of the Commodity 
Exchange Act, and the rules, regulations and orders of the Commission 
thereunder.
    (2) Tolerance period for swaps traded on designated contract 
markets, swap execution facilities, and foreign boards of trade. 
Notwithstanding paragraph (1) of this definition, solely for purposes 
of swaps traded on or subject to the rules of a designated contract 
market, swap execution facility, or foreign board of trade, a security 
index underlying such swaps shall not be considered a narrow-based 
security index if:
    (i)(A) A swap on the index is traded on or subject to the rules of 
a designated contract market, swap execution facility, or foreign board 
of trade for at least 30 days as a swap on an index that was not a 
narrow-based security index; or
    (B) Such index was not a narrow-based security index during every 
trading day of the six full calendar months preceding a date no earlier 
than 30 days prior to the commencement of trading of a swap on such 
index on a market described in paragraph (2)(i)(A) of this definition; 
and
    (ii) The index has been a narrow-based security index for no more 
than

[[Page 7989]]

45 business days over three consecutive calendar months.
    (3) Tolerance period for security-based swaps traded on national 
securities exchanges or security-based swap execution facilities. 
Notwithstanding paragraph (1) of this definition, solely for purposes 
of security-based swaps traded on a national securities exchange or 
security-based swap execution facility, a security index underlying 
such security-based swaps shall be considered a narrow-based security 
index if:
    (i)(A) A security-based swap on the index is traded on a national 
securities exchange or security-based swap execution facility for at 
least 30 days as a security-based swap on a narrow-based security 
index; or
    (B) Such index was a narrow-based security index during every 
trading day of the six full calendar months preceding a date no earlier 
than 30 days prior to the commencement of trading of a security-based 
swap on such index on a market described in paragraph (3)(i)(A) of this 
definition; and
    (ii) The index has been a security index that is not a narrow-based 
security index for no more than 45 business days over three consecutive 
calendar months.
    (4) Grace period. (i) Solely with respect to a swap that is traded 
on or subject to the rules of a designated contract market, swap 
execution facility, or foreign board of trade, an index that becomes a 
narrow-based security index under paragraph (2) of this definition 
solely because it was a narrow-based security index for more than 45 
business days over three consecutive calendar months shall not be a 
narrow-based security index for the following three calendar months.
    (ii) Solely with respect to a security-based swap that is traded on 
a national securities exchange or security-based swap execution 
facility, an index that becomes a security index that is not a narrow-
based security index under paragraph (3) of this definition solely 
because it was not a narrow-based security index for more than 45 
business days over three consecutive calendar months shall be a narrow-
based security index for the following three calendar months.
* * * * *
    Substantial counterparty exposure--(1) In general. For purposes of 
section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this 
section of major swap participant, the term substantial counterparty 
exposure that could have serious adverse effects on the financial 
stability of the United States banking system or financial markets 
means a swap position that satisfies either of the following 
thresholds:
    (i) $5 billion in daily average aggregate uncollateralized outward 
exposure; or
    (ii) $8 billion in:
    (A) Daily average aggregate uncollateralized outward exposure plus
    (B) Daily average aggregate potential outward exposure.
    (2) Calculation methodology. For these purposes, the terms daily 
average aggregate uncollateralized outward exposure and daily average 
aggregate potential outward exposure shall be calculated the same way 
as is prescribed in the definition in this section of substantial 
position, except that these amounts shall be calculated by reference to 
all of the person's swap positions, rather than by reference to a 
specific major swap category.
    Substantial position--(1) In general. For purposes of section 
1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this section 
of major swap participant, the term ``substantial position'' means swap 
positions that equal or exceed any of the following thresholds in the 
specified major category of swaps:
    (i) For rate swaps:
    (A) $3 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $6 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (ii) For credit swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (iii) For equity swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (iv) For other commodity swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward 
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (2) Aggregate uncollateralized outward exposure--(i) In general. 
Aggregate uncollateralized outward exposure in general means the sum of 
the current exposure, obtained by marking-to-market using industry 
standard practices, of each of the person's swap positions with 
negative value in a major swap category, less the value of the 
collateral the person has posted in connection with those positions.
    (ii) Calculation of aggregate uncollateralized outward exposure. In 
calculating this amount the person shall, with respect to each of its 
swap counterparties in a given major swap category, determine the 
dollar value of the aggregate current exposure arising from each of its 
swap positions with negative value (subject to the netting provisions 
described below) in that major category by marking-to-market using 
industry standard practices; and deduct from that dollar amount the 
aggregate value of the collateral the person has posted with respect to 
the swap positions. The aggregate uncollateralized outward exposure 
shall be the sum of those uncollateralized amounts across all of the 
person's swap counterparties in the applicable major category.
    (iii) Relevance of netting agreements. (A) If the person has one or 
more master netting agreement in effect with a particular counterparty, 
the person may measure the current exposure arising from its swaps in 
any major category on a net basis, applying the terms of those 
agreements. Calculation of net current exposure may take into account 
offsetting positions entered into with that particular counterparty 
involving swaps (in any swap category) as well as security-based swaps 
and securities financing transactions (consisting of securities lending 
and borrowing, securities margin lending and repurchase and reverse 
repurchase agreements), and other financial instruments that are 
subject to netting offsets for purposes of applicable bankruptcy law, 
to the extent these are consistent with the offsets permitted by the 
master netting agreements.
    (B) Such adjustments may not take into account any offset 
associated with positions that the person has with separate 
counterparties.
    (iv) Allocation of uncollateralized outward exposure. If a person 
calculates current exposure with a particular counterparty on a net 
basis, as provided by paragraph (2)(iii) of this definition, the 
portion of that current exposure that should be attributed to each 
``major'' category of swaps for purposes of the substantial position 
analysis should be calculated according to the formula:

[[Page 7990]]

[GRAPHIC] [TIFF OMITTED] TR23FE18.006

Where:

ES(MC) equals the amount of aggregate current exposure 
attributable to the entity's swap positions in the ``major'' swap 
category at issue; Enet total equals the entity's 
aggregate current exposure to the counterparty at issue, after 
accounting for the netting of positions and the posting of 
collateral; OTMS(MC) equals the exposure associated with 
the entity's out-of-the-money positions in swaps in the ``major'' 
category at issue, subject to those netting arrangements; and 
OTMS(O) equals the exposure associated with the entity's 
out-of-the-money positions in the other ``major'' categories of 
swaps, subject to those netting arrangements; and 
OTMnon-S equals the exposure associated with the entity's 
out-of-the-money positions associated with instruments, other than 
swaps, that are subject to those netting arrangements.

    (3) Aggregate potential outward exposure--(i) In general. Aggregate 
potential outward exposure in any major swap category means the sum of:
    (A) The aggregate potential outward exposure for each of the 
person's swap positions in a major swap category that are not subject 
to daily mark-to-market margining and are not cleared by a registered 
or exempt clearing agency or derivatives clearing organization, as 
calculated in accordance with paragraph (3)(ii) of this definition; and
    (B) The aggregate potential outward exposure for each of the 
person's swap positions in such major swap category that are either 
subject to daily mark-to-market margining or are cleared by a 
registered or exempt clearing agency or derivatives clearing 
organization, as calculated in accordance with paragraph (3)(iii) of 
this definition.
    (ii) Calculation of potential outward exposure for swaps that are 
not subject to daily mark-to-market margining and are not cleared by a 
registered or exempt clearing agency or derivatives clearing 
organization--(A) In general. (1) For positions in swaps that are not 
subject to daily mark-to-market margining and are not cleared by a 
registered or exempt clearing agency or a derivatives clearing 
organization, potential outward exposure equals the total notional 
principal amount of those positions, multiplied by the following 
factors on a position-by-position basis reflecting the type of swap. 
For any swap that does not appropriately fall within any of the 
specified categories, the ``other commodities'' conversion factors set 
forth in the following Table 1 are to be used. If a swap is structured 
such that on specified dates any outstanding exposure is settled and 
the terms are reset so that the market value of the swap is zero, the 
remaining maturity equals the time until the next reset date.
[GRAPHIC] [TIFF OMITTED] TR23FE18.007

    (2) Use of effective notional amounts. If the stated notional 
amount on a position is leveraged or enhanced by the structure of the 
position, the calculation in paragraph (3)(ii)(A)(1) of this definition 
shall be based on the effective notional amount of the position rather 
than on the stated notional amount.
    (3) Exclusion of certain positions. The calculation in paragraph 
(3)(ii)(A)(1) of this definition shall exclude:
    (i) Positions that constitute the purchase of an option, if the 
purchaser has no additional payment obligations under the position;
    (ii) Other positions for which the person has prepaid or otherwise 
satisfied all of its payment obligations; and
    (iii) Positions for which, pursuant to law or a regulatory 
requirement, the person has assigned an amount of cash or U.S. Treasury 
securities that is sufficient at all times to pay the person's maximum 
possible liability under the position, and the person may not use that 
cash or those Treasury securities for other purposes.
    (4) Adjustment for certain positions. Notwithstanding paragraph 
(3)(ii)(A)(1) of this definition, the potential outward exposure 
associated with a position by which a person buys credit protection 
using a credit default swap or index credit default swap, or associated 
with a position by which a person purchases an option for which the 
person retains additional payment obligations under the position, is 
capped at the net present value of the unpaid premiums.
    (B) Adjustment for netting agreements. Notwithstanding paragraph 
(3)(ii)(A) of this definition, for positions subject to master netting 
agreements the potential outward exposure associated with the person's 
swaps with each counterparty equals a weighted average of the potential 
outward exposure for the person's swaps with that counterparty as 
calculated under paragraph (3)(ii)(A) of this definition, and that 
amount reduced by the ratio of net current exposure to gross current 
exposure, consistent with the following equation as calculated on a 
counterparty-by-counterparty basis:

PNet = 0.4 * PGross + 0.6 * NGR * 
PGross

Where:

PNet is the potential outward exposure, adjusted for 
bilateral netting, of the person's swaps with a particular 
counterparty; PGross is the potential outward exposure 
without adjustment for bilateral netting as calculated pursuant to 
paragraph (3)(ii)(A) of this definition; and NGR is the ratio of the 
current exposure arising from its swaps in the major category as 
calculated on a net basis according to paragraphs (2)(iii) and (iv) 
of this definition, divided by the current exposure arising from its 
swaps in the major category as calculated in the absence of those 
netting procedures.


[[Page 7991]]


    (iii) Calculation of potential outward exposure for swaps that are 
either subject to daily mark-to-market margining or are cleared by a 
registered or exempt clearing agency or derivatives clearing 
organization. For positions in swaps that are subject to daily mark-to-
market margining or that are cleared by a registered or exempt clearing 
agency or derivatives clearing organization:
    (A) Potential outward exposure equals the potential exposure that 
would be attributed to such positions using the procedures in paragraph 
(3)(ii) of this definition multiplied by:
    (1) 0.1, in the case of positions cleared by a registered or exempt 
clearing agency or derivatives clearing organization; or
    (2) 0.2, in the case of positions that are subject to daily mark-
to-market margining but that are not cleared by a registered or exempt 
clearing agency or derivatives clearing organization.
    (B) Solely for purposes of calculating potential outward exposure:
    (1) A swap shall be considered to be subject to daily mark-to-
market margining if, and for so long as, the counterparties follow the 
daily practice of exchanging collateral to reflect changes in the 
current exposure arising from the swap (after taking into account any 
other financial positions addressed by a netting agreement between the 
counterparties).
    (2) If the person is permitted by agreement to maintain a threshold 
for which it is not required to post collateral, the position still 
will be considered to be subject to daily mark-to-market margining for 
purposes of calculating potential outward exposure, but the total 
amount of that threshold (regardless of the actual exposure at any 
time), less any initial margin posted up to the amount of that 
threshold, shall be added to the person's aggregate uncollateralized 
outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) 
or (iv)(B) of this definition, as applicable.
    (3) If the minimum transfer amount under the agreement is in excess 
of $1 million, the position still will be considered to be subject to 
daily mark-to-market margining for purposes of calculating potential 
outward exposure, but the entirety of the minimum transfer amount shall 
be added to the person's aggregate uncollateralized outward exposure 
for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of 
this definition, as applicable.
    (4) A person may, at its discretion, calculate the potential 
outward exposure of positions in swaps that are subject to daily mark-
to-market margining in accordance with paragraph (3)(ii) of this 
definition in lieu of calculating the potential outward exposure of 
such swap positions in accordance with paragraph (3)(iii) of this 
definition.
    (4) Calculation of daily average. Measures of daily average 
aggregate uncollateralized outward exposure and daily average aggregate 
potential outward exposure shall equal the arithmetic mean of the 
applicable measure of exposure at the close of each business day, 
beginning the first business day of each calendar quarter and 
continuing through the last business day of that quarter.
    (5) Inter-affiliate activities. In calculating its aggregate 
uncollateralized outward exposure and its aggregate potential outward 
exposure, the person shall not consider its swap positions with 
counterparties that are majority-owned affiliates. For these purposes 
the counterparties to a swap are majority-owned affiliates if one 
counterparty directly or indirectly owns a majority interest in the 
other, or if a third party directly or indirectly owns a majority 
interest in both counterparties to the swap, where ``majority 
interest'' is the right to vote or direct the vote of a majority of a 
class of voting securities of an entity, the power to sell or direct 
the sale of a majority of a class of voting securities of an entity, or 
the right to receive upon dissolution or the contribution of a majority 
of the capital of a partnership.
    Swap. (1) In general. The term swap has the meaning set forth in 
section 1a(47) of the Commodity Exchange Act.
    (2) Inclusion of particular products. (i) The term swap includes, 
without limiting the meaning set forth in section 1a(47) of the 
Commodity Exchange Act, the following agreements, contracts, and 
transactions:
    (A) A cross-currency swap;
    (B) A currency option, foreign currency option, foreign exchange 
option and foreign exchange rate option;
    (C) A foreign exchange forward;
    (D) A foreign exchange swap;
    (E) A forward rate agreement; and
    (F) A non-deliverable forward involving foreign exchange.
    (ii) The term swap does not include an agreement, contract, or 
transaction described in paragraph (2)(i) of this definition that is 
otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.
    (3) Foreign exchange forwards and foreign exchange swaps. 
Notwithstanding paragraph (2) of this definition:
    (i) A foreign exchange forward or a foreign exchange swap shall not 
be considered a swap if the Secretary of the Treasury makes a 
determination described in section 1a(47)(E)(i) of the Commodity 
Exchange Act.
    (ii) Notwithstanding paragraph (3)(i) of this definition:
    (A) The reporting requirements set forth in section 4r of the 
Commodity Exchange Act and regulations promulgated thereunder shall 
apply to a foreign exchange forward or foreign exchange swap; and
    (B) The business conduct standards set forth in section 4s(h) of 
the Commodity Exchange Act and regulations promulgated thereunder shall 
apply to a swap dealer or major swap participant that is a party to a 
foreign exchange forward or foreign exchange swap.
    (iii) For purposes of section 1a(47)(E) of the Commodity Exchange 
Act and this definition, the term foreign exchange forward has the 
meaning set forth in section 1a(24) of the Commodity Exchange Act.
    (iv) For purposes of section 1a(47)(E) of the Commodity Exchange 
Act and this definition, the term foreign exchange swap has the meaning 
set forth in section 1a(25) of the Commodity Exchange Act.
    (v) For purposes of sections 1a(24) and 1a(25) of the Commodity 
Exchange Act and this definition, the following transactions are not 
foreign exchange forwards or foreign exchange swaps:
    (A) A currency swap or a cross-currency swap;
    (B) A currency option, foreign currency option, foreign exchange 
option, or foreign exchange rate option; and
    (C) A non-deliverable forward involving foreign exchange.
    (4) Insurance. (i) This paragraph is a non-exclusive safe harbor. 
The terms swap as used in section 1a(47) of the Commodity Exchange Act 
and security-based swap as used in section 1a(42) of the Commodity 
Exchange Act do not include an agreement, contract, or transaction 
that:
    (A) By its terms or by law, as a condition of performance on the 
agreement, contract, or transaction:
    (1) Requires the beneficiary of the agreement, contract, or 
transaction to have an insurable interest that is the subject of the 
agreement, contract, or transaction and thereby carry the risk of loss 
with respect to that interest continuously throughout the duration of 
the agreement, contract, or transaction;
    (2) Requires that loss to occur and to be proved, and that any 
payment or indemnification therefor be limited to the value of the 
insurable interest;

[[Page 7992]]

    (3) Is not traded, separately from the insured interest, on an 
organized market or over-the-counter; and
    (4) With respect to financial guaranty insurance only, in the event 
of payment default or insolvency of the obligor, any acceleration of 
payments under the policy is at the sole discretion of the insurer; and
    (B) Is provided:
    (1)(i) By a person that is subject to supervision by the insurance 
commissioner (or similar official or agency) of any State or by the 
United States or an agency or instrumentality thereof; and
    (ii) Such agreement, contract, or transaction is regulated as 
insurance under applicable State law or the laws of the United States;
    (2)(i) Directly or indirectly by the United States, any State or 
any of their respective agencies or instrumentalities; or
    (ii) Pursuant to a statutorily authorized program thereof; or
    (3) In the case of reinsurance only, by a person to another person 
that satisfies the conditions set forth in paragraph (4)(i)(B) of this 
definition, provided that:
    (i) Such person is not prohibited by applicable State law or the 
laws of the United States from offering such agreement, contract, or 
transaction to such person that satisfies the conditions set forth in 
paragraph (4)(i)(B) of this definition;
    (ii) The agreement, contract, or transaction to be reinsured 
satisfies the conditions set forth in paragraph (4)(i)(A) or paragraph 
(4)(i)(C) of this definition; and
    (iii) Except as otherwise permitted under applicable State law, the 
total amount reimbursable by all reinsurers for such agreement, 
contract, or transaction may not exceed the claims or losses paid by 
the person writing the risk being ceded or transferred by such person; 
or
    (4) In the case of non-admitted insurance, by a person who:
    (i) Is located outside of the United States and listed on the 
Quarterly Listing of Alien Insurers as maintained by the International 
Insurers Department of the National Association of Insurance 
Commissioners; or
    (ii) Meets the eligibility criteria for non-admitted insurers under 
applicable State law; or
    (C) Is provided in accordance with the conditions set forth in 
paragraph (4)(i)(B) of this definition and is one of the following 
types of products:
    (1) Surety bond;
    (2) Fidelity bond;
    (3) Life insurance;
    (4) Health insurance;
    (5) Long term care insurance;
    (6) Title insurance;
    (7) Property and casualty insurance;
    (8) Annuity;
    (9) Disability insurance;
    (10) Insurance against default on individual residential mortgages; 
and
    (11) Reinsurance of any of the foregoing products identified in 
paragraphs (4)(i)(C)(1) through (10) of this definition; or
    (ii) The terms swap as used in section 1a(47) of the Commodity 
Exchange Act and security-based swap as used in section 1a(42) of the 
Commodity Exchange Act do not include an agreement, contract, or 
transaction that was entered into on or before the effective date of 
paragraph (4) of this definition, and that, at such time that it was 
entered into, was provided in accordance with the conditions set forth 
in paragraph (4)(i)(B) of this definition.
    (5) State. For purposes of paragraph (4) of this definition, the 
term State means any state of the United States, the District of 
Columbia, Puerto Rico, the U.S. Virgin Islands, or any other possession 
of the United States.
    (6) Anti-Evasion. (i) An agreement, contract, or transaction that 
is willfully structured to evade any provision of Subtitle A of the 
Wall Street Transparency and Accountability Act of 2010, including any 
amendments made to the Commodity Exchange Act thereby (Subtitle A), 
shall be deemed a swap for purposes of Subtitle A and the rules, 
regulations, and orders of the Commission promulgated thereunder.
    (ii) An interest rate swap or currency swap, including but not 
limited to a transaction identified in paragraph (3)(v) of this 
definition, that is willfully structured as a foreign exchange forward 
or foreign exchange swap to evade any provision of Subtitle A shall be 
deemed a swap for purposes of Subtitle A and the rules, regulations, 
and orders of the Commission promulgated thereunder.
    (iii) An agreement, contract, or transaction of a bank that is not 
under the regulatory jurisdiction of an appropriate Federal banking 
agency (as defined in section 1a(2) of the Commodity Exchange Act), 
where the agreement, contract, or transaction is willfully structured 
as an identified banking product (as defined in section 402 of the 
Legal Certainty for Bank Products Act of 2000) to evade the provisions 
of the Commodity Exchange Act, shall be deemed a swap for purposes of 
the Commodity Exchange Act and the rules, regulations, and orders of 
the Commission promulgated thereunder.
    (iv) The form, label, and written documentation of an agreement, 
contract, or transaction shall not be dispositive in determining 
whether the agreement, contract, or transaction has been willfully 
structured to evade as provided in paragraphs (6)(i) through (6)(iii) 
of this definition.
    (v) An agreement, contract, or transaction that has been willfully 
structured to evade as provided in paragraphs (6)(i) through (6)(iii) 
of this definition shall be considered in determining whether a person 
that so willfully structured to evade is a swap dealer or major swap 
participant.
    (vi) Notwithstanding the foregoing, no agreement, contract, or 
transaction structured as a security (including a security-based swap) 
under the securities laws (as defined in section 3(a)(47) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed 
a swap pursuant to this paragraph (6) or shall be considered for 
purposes of paragraph (6)(v) of this definition.
* * * * *
    Swap dealer. (1) In general. The term swap dealer means any person 
who:
    (i) Holds itself out as a dealer in swaps;
    (ii) Makes a market in swaps;
    (iii) Regularly enters into swaps with counterparties as an 
ordinary course of business for its own account; or
    (iv) Engages in any activity causing it to be commonly known in the 
trade as a dealer or market maker in swaps.
    (2) Exception. The term swap dealer does not include a person that 
enters into swaps for such person's own account, either individually or 
in a fiduciary capacity, but not as a part of regular business.
    (3) Scope of designation. A person who is a swap dealer shall be 
deemed to be a swap dealer with respect to each swap it enters into, 
regardless of the category of the swap or the person's activities in 
connection with the swap. However, if a person makes an application to 
limit its designation as a swap dealer to specified categories of swaps 
or specified activities of the person in connection with swaps, the 
Commission shall determine whether the person's designation as a swap 
dealer shall be so limited. If the Commission grants such limited 
designation, such limited designation swap dealer shall be deemed to be 
a swap dealer with respect to each swap it enters into in the swap 
category or categories for which it is so designated, regardless of the 
person's activities in connection with such category or categories of 
swaps. A person may make such application to limit the categories of 
swaps or activities of the person that

[[Page 7993]]

are subject to its swap dealer designation at the same time as, or 
after, the person's initial registration as a swap dealer.
    (4) De minimis exception--(i)(A) In general. Except as provided in 
paragraph (4)(vi) of this definition, a person that is not currently 
registered as a swap dealer shall be deemed not to be a swap dealer as 
a result of its swap dealing activity involving counterparties, so long 
as the swap positions connected with those dealing activities into 
which the person--or any other entity controlling, controlled by or 
under common control with the person--enters over the course of the 
immediately preceding 12 months (or following the effective date of 
final rules implementing section 1a(47) of the Act, 7 U.S.C. 1a(47), if 
that period is less than 12 months) have an aggregate gross notional 
amount of no more than $3 billion, subject to a phase in level of an 
aggregate gross notional amount of no more than $8 billion applied in 
accordance with paragraph (4)(ii) of this definition, and an aggregate 
gross notional amount of no more than $25 million with regard to swaps 
in which the counterparty is a ``special entity'' (as that term is 
defined in section 4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 
23.401(c) of this chapter), except as provided in paragraph (4)(i)(B) 
of this definition. For purposes of this definition, if the stated 
notional amount of a swap is leveraged or enhanced by the structure of 
the swap, the calculation shall be based on the effective notional 
amount of the swap rather than on the stated notional amount.
    (B) Utility special entities. (1) Solely for purposes of 
determining whether a person's swap dealing activity has exceeded the 
$25 million aggregate gross notional amount threshold set forth in 
paragraph (4)(i)(A) of this definition for swaps in which the 
counterparty is a special entity, a person may exclude utility 
operations-related swaps in which the counterparty is a utility special 
entity.
    (2) For purposes of this paragraph (4)(i)(B), a utility special 
entity is a special entity, as that term is defined in section 
4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 23.401(c) of this 
chapter, that:
    (i) Owns or operates electric or natural gas facilities, electric 
or natural gas operations or anticipated electric or natural gas 
facilities or operations;
    (ii) Supplies natural gas or electric energy to other utility 
special entities;
    (iii) Has public service obligations or anticipated public service 
obligations under Federal, State or local law or regulation to deliver 
electric energy or natural gas service to utility customers; or
    (iv) Is a Federal power marketing agency as defined in section 3 of 
the Federal Power Act, 16 U.S.C. 796(19).
    (3) For purposes of this paragraph (4)(i)(B), a utility operations-
related swap is a swap that meets the following conditions:
    (i) A party to the swap is a utility special entity;
    (ii) A utility special entity is using the swap to hedge or 
mitigate commercial risk as defined in Sec.  50.50(c) of this chapter;
    (iii) The swap is related to an exempt commodity, as that term is 
defined in section 1a(20) of the Act, 7 U.S.C. 1a(20), or to an 
agricultural commodity insofar as such agricultural commodity is used 
for fuel for generation of electricity or is otherwise used in the 
normal operations of the utility special entity; and
    (iv) The swap is an electric energy or natural gas swap, or the 
swap is associated with: The generation, production, purchase or sale 
of natural gas or electric energy, the supply of natural gas or 
electric energy to a utility special entity, or the delivery of natural 
gas or electric energy service to customers of a utility special 
entity; fuel supply for the facilities or operations of a utility 
special entity; compliance with an electric system reliability 
obligation; or compliance with an energy, energy efficiency, 
conservation, or renewable energy or environmental statute, regulation, 
or government order applicable to a utility special entity.
    (4) A person seeking to rely on the exclusion in paragraph 
(4)(i)(B)(1) of this definition may rely on the written representations 
of the utility special entity that it is a utility special entity and 
that the swap is a utility operations-related swap, as such terms are 
defined in paragraphs (4)(i)(B)(2) and (3) of this definition, 
respectively, unless it has information that would cause a reasonable 
person to question the accuracy of the representation. The person must 
keep such representation in accordance with Sec.  1.31.
    (ii) Phase-in procedure and staff report--(A) Phase-in period. For 
purposes of paragraph (4)(i) of this definition, except as provided in 
paragraph (4)(vi) of this definition, a person that engages in swap 
dealing activity that does not exceed the phase-in level set forth in 
paragraph (4)(i) of this definition shall be deemed not to be a swap 
dealer as a result of its swap dealing activity until the phase-in 
termination date established as provided in paragraph (4)(ii)(C) or (D) 
of this definition. The Commission shall announce the phase-in 
termination date on the Commission website and publish such date in the 
Federal Register.
    (B) Staff report. No later than 30 months following the date that a 
swap data repository first receives swap data in accordance with part 
45 of this chapter, the staff of the Commission shall complete and 
publish for public comment a report on topics relating to the 
definition of the term swap dealer and the de minimis threshold. The 
report should address the following topics, as appropriate, based on 
the availability of data and information: The potential impact of 
modifying the de minimis threshold, and whether the de minimis 
threshold should be increased or decreased; the factors that are useful 
for identifying swap dealing activity, including the application of the 
dealer-trader distinction for that purpose, and the potential use of 
objective tests or safe harbors as part of the analysis; the impact of 
provisions in paragraphs (5) and (6) of this definition excluding 
certain swaps from the dealer analysis, and potential alternative 
approaches for such exclusions; and any other analysis of swap data and 
information relating to swaps that the Commission or staff deem 
relevant to this rule.
    (C) Nine months after publication of the report required by 
paragraph (4)(ii)(B) of this definition, and after giving due 
consideration to that report and any associated public comment, the 
Commission may either:
    (1) Terminate the phase-in period set forth in paragraph (4)(ii)(A) 
of this definition, in which case the phase-in termination date shall 
be established by the Commission by order published in the Federal 
Register; or
    (2) Determine that it is necessary or appropriate in the public 
interest to propose through rulemaking an alternative to the $3 billion 
amount set forth in paragraph (4)(i) of this definition that would 
constitute a de minimis quantity of swap dealing in connection with 
transactions with or on behalf of customers within the meaning of 
section 1(a)(47)(D) of the Act, 7 U.S.C. 1(a)(47)(D), in which case the 
Commission shall by order published in the Federal Register provide 
notice of such determination, which order shall also establish the 
phase-in termination date.
    (D) If the phase-in termination date has not been previously 
established pursuant to paragraph (4)(ii)(C) of this definition, then 
in any event the phase-in termination date shall occur five years after 
the date that a swap data repository first receives swap data in 
accordance with part 45 of this chapter.

[[Page 7994]]

    (iii) Registration period for persons that can no longer take 
advantage of the exception. A person that has not registered as a swap 
dealer by virtue of satisfying the requirements of this paragraph (4) 
of the definition of swap dealer, but that no longer can take advantage 
of that de minimis exception, will be deemed not to be a swap dealer 
until the earlier of the date on which it submits a complete 
application for registration pursuant to section 4s(b) of the Act, 7 
U.S.C. 6s(b), or two months after the end of the month in which that 
person becomes no longer able to take advantage of the exception.
    (iv) Applicability to registered swap dealers. A person who 
currently is registered as a swap dealer may apply to withdraw that 
registration, while continuing to engage in swap dealing activity in 
reliance on this section, so long as that person has been registered as 
a swap dealer for at least 12 months and satisfies the conditions of 
paragraph (4)(i) of this definition.
    (v) Future adjustments to scope of the de minimis exception. The 
Commission may by rule or regulation change the requirements of the de 
minimis exception described in paragraphs (4)(i) through (iv) of this 
definition.
    (vi) Voluntary registration. Notwithstanding paragraph (4)(i) of 
this definition, a person that chooses to register with the Commission 
as a swap dealer shall be deemed to be a swap dealer.
    (5) Insured depository institution swaps in connection with 
originating loans to customers. Swaps entered into by an insured 
depository institution with a customer in connection with originating a 
loan with that customer shall not be considered in determining whether 
the insured depository institution is a swap dealer.
    (i) An insured depository institution shall be considered to have 
entered into a swap with a customer in connection with originating a 
loan, as defined in paragraphs (5)(ii) and (iii) of this definition, 
with that customer only if:
    (A) The insured depository institution enters into the swap with 
the customer no earlier than 90 days before and no later than 180 days 
after the date of execution of the applicable loan agreement, or no 
earlier than 90 days before and no later than 180 days after any 
transfer of principal to the customer by the insured depository 
institution pursuant to the loan;
    (B)(1) The rate, asset, liability or other notional item underlying 
such swap is, or is directly related to, a financial term of such loan, 
which includes, without limitation, the loan's duration, rate of 
interest, the currency or currencies in which it is made and its 
principal amount;
    (2) Such swap is required, as a condition of the loan under the 
insured depository institution's loan underwriting criteria, to be in 
place in order to hedge price risks incidental to the borrower's 
business and arising from potential changes in the price of a commodity 
(other than an excluded commodity);
    (C) The duration of the swap does not extend beyond termination of 
the loan;
    (D) The insured depository institution is:
    (1) The sole source of funds to the customer under the loan;
    (2) Committed to be, under the terms of the agreements related to 
the loan, the source of at least 10 percent of the maximum principal 
amount under the loan; or
    (3) Committed to be, under the terms of the agreements related to 
the loan, the source of a principal amount that is greater than or 
equal to the aggregate notional amount of all swaps entered into by the 
insured depository institution with the customer in connection with the 
financial terms of the loan;
    (E) The aggregate notional amount of all swaps entered into by the 
customer in connection with the financial terms of the loan is, at any 
time, not more than the aggregate principal amount outstanding under 
the loan at that time; and
    (F) If the swap is not accepted for clearing by a derivatives 
clearing organization, the insured depository institution reports the 
swap as required by section 4r of the Act, 7 U.S.C. 6r (except as 
otherwise provided in section 4r(a)(3)(A), 7 U.S.C. 6r(a)(3)(A), or 
section 4r(a)(3)(B), 7 U.S.C. 6r(a)(3)(B) of the Act).
    (ii) An insured depository institution shall be considered to have 
originated a loan with a customer if the insured depository 
institution:
    (A) Directly transfers the loan amount to the customer;
    (B) Is a part of a syndicate of lenders that is the source of the 
loan amount that is transferred to the customer;
    (C) Purchases or receives a participation in the loan; or
    (D) Otherwise is the source of funds that are transferred to the 
customer pursuant to the loan or any refinancing of the loan.
    (iii) The term loan shall not include:
    (A) Any transaction that is a sham, whether or not intended to 
qualify for the exclusion from the definition of the term swap dealer 
in this rule; or
    (B) Any synthetic loan, including, without limitation, a loan 
credit default swap or loan total return swap.
    (6) Swaps that are not considered in determining whether a person 
is a swap dealer--(i) Inter-affiliate activities. In determining 
whether a person is a swap dealer, that person's swaps with majority-
owned affiliates shall not be considered. For these purposes the 
counterparties to a swap are majority-owned affiliates if one 
counterparty directly or indirectly owns a majority interest in the 
other, or if a third party directly or indirectly owns a majority 
interest in both counterparties to the swap, where majority interest is 
the right to vote or direct the vote of a majority of a class of voting 
securities of an entity, the power to sell or direct the sale of a 
majority of a class of voting securities of an entity, or the right to 
receive upon dissolution or the contribution of a majority of the 
capital of a partnership.
    (ii) Activities of a cooperative. (A) Any swap that is entered into 
by a cooperative with a member of such cooperative shall not be 
considered in determining whether the cooperative is a swap dealer, 
provided that:
    (1) The swap is subject to policies and procedures of the 
cooperative requiring that the cooperative monitors and manages the 
risk of such swap;
    (2) The cooperative reports the swap as required by section 4r of 
the Act, 7 U.S.C. 6r (except as otherwise provided in section 
4r(a)(3)(A) of the Act, 7 U.S.C. 6r(a)(3)(A) or section 4r(a)(3)(B) of 
the Act, 7 U.S.C. 6r(a)(3)(B)); and
    (3) If the cooperative is a cooperative association of producers, 
the swap is primarily based on a commodity that is not an excluded 
commodity.
    (B) For purposes of this paragraph (6)(ii) of this definition, the 
term cooperative shall mean:
    (1) A cooperative association of producers as defined in section 
1a(14) of the Act, 7 U.S.C. 1a(14), or
    (2) A person chartered under Federal law as a cooperative and 
predominantly engaged in activities that are financial in nature as 
defined in section 4(k) of the Bank Holding Company Act of 1956, 12 
U.S.C. 1843(k).
    (C) For purposes of this paragraph (6)(ii) of this definition, a 
swap shall be deemed to be entered into by a cooperative association of 
producers with a member of such cooperative association of producers 
when the swap is between a cooperative association of producers and a 
person that is a member of a cooperative association of producers that 
is itself a member of the first cooperative association of producers.
    (iii) Swaps entered into for the purpose of hedging physical 
positions. In determining whether a person is a

[[Page 7995]]

swap dealer, a swap that the person enters into shall not be 
considered, if:
    (A) The person enters into the swap for the purpose of offsetting 
or mitigating the person's price risks that arise from the potential 
change in the value of one or several--
    (1) Assets that the person owns, produces, manufactures, processes, 
or merchandises or anticipates owning, producing, manufacturing, 
processing, or merchandising;
    (2) Liabilities that the person owns or anticipates incurring; or
    (3) Services that the person provides, purchases, or anticipates 
providing or purchasing;
    (B) The swap represents a substitute for transactions made or to be 
made or positions taken or to be taken by the person at a later time in 
a physical marketing channel;
    (C) The swap is economically appropriate to the reduction of the 
person's risks in the conduct and management of a commercial 
enterprise;
    (D) The swap is entered into in accordance with sound commercial 
practices; and
    (E) The person does not enter into the swap in connection with 
activity structured to evade designation as a swap dealer.
    (iv) Swaps entered into by floor traders. In determining whether a 
person is a swap dealer, each swap that the person enters into in its 
capacity as a floor trader as defined by section 1a(23) of the Act or 
on or subject to the rules of a swap execution facility shall not be 
considered for the purpose of determining whether the person is a swap 
dealer if the person:
    (A) Is registered with the Commission as a floor trader pursuant to 
Sec.  3.11 of this chapter;
    (B) Enters into swaps with proprietary funds for that trader's own 
account solely on or subject to the rules of a designated contract 
market or swap execution facility and submits each such swap for 
clearing to a derivatives clearing organization;
    (C) Is not an affiliated person of a registered swap dealer;
    (D) Does not directly, or through an affiliated person, negotiate 
the terms of swap agreements, other than price and quantity or to 
participate in a request for quote process subject to the rules of a 
designated contract market or a swap execution facility;
    (E) Does not directly or through an affiliated person offer or 
provide swap clearing services to third parties;
    (F) Does not directly or through an affiliated person enter into 
swaps that would qualify as hedging physical positions pursuant to 
paragraph (6)(iii) of this definition or hedging or mitigating 
commercial risk as defined in Sec.  1.3 (except for any such swap 
executed opposite a counterparty for which the transaction would 
qualify as a bona fide hedging transaction);
    (G) Does not participate in any market making program offered by a 
designated contract market or swap execution facility; and
    (H) Notwithstanding the fact such person is not registered as a 
swap dealer, such person complies with Sec. Sec.  23.201, 23.202, 
23.203, and 23.600 of this chapter with respect to each such swap as if 
it were a swap dealer.
* * * * *


Sec. Sec.  1.17, 1.33, 1.46, 1.52, 1.55, 1.59, 1.63, 1.64, and 
1.69  [Amended]

0
3. In the table below, for each paragraph indicated in the left column, 
remove the cross-reference indicated in the middle column from wherever 
it appears in the paragraph, and add the cross-reference indicated in 
the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
1.10(j)(3)...........................................       Sec.    Sec.
                                                         1.3(mm)     1.3
1.17(b)(4)(ii).......................................       Sec.    Sec.
                                                          1.3(y)     1.3
1.17(b)(5)...........................................       Sec.    Sec.
                                                          1.3(d)     1.3
1.17(b)(10)..........................................       Sec.    Sec.
                                                          1.3(y)     1.3
1.17(c)(5)(xiii)(C)..................................       Sec.    Sec.
                                                         1.3(rr)     1.3
1.33(a)(1)(iii)......................................       Sec.    Sec.
                                                         1.3(rr)     1.3
1.33(g)(2)...........................................       Sec.    Sec.
                                                          1.3(g)     1.3
1.46(d)(2)...........................................       Sec.    Sec.
                                                          1.3(z)     1.3
1.52(a)(2)...........................................       Sec.    Sec.
                                                          1.3(h)     1.3
1.52(a)(2)...........................................       Sec.    Sec.
                                                       1.3(rrrr)     1.3
1.55(f)..............................................       Sec.    Sec.
                                                          1.3(g)     1.3
1.59(a)(1)...........................................       Sec.    Sec.
                                                         1.3(ee)     1.3
1.59(a)(1)...........................................       Sec.    Sec.
                                                          1.3(d)     1.3
1.63(a)(1)...........................................       Sec.    Sec.
                                                         1.3(ee)     1.3
1.63(a)(1)...........................................       Sec.    Sec.
                                                          1.3(d)     1.3
1.64(a)(1)...........................................       Sec.    Sec.
                                                         1.3(ee)     1.3
1.64(a)(1)...........................................       Sec.    Sec.
                                                          1.3(d)     1.3
1.69(a)(7)...........................................       Sec.    Sec.
                                                         1.3(ee)     1.3
1.69(a)(7)...........................................       Sec.    Sec.
                                                          1.3(d)     1.3
------------------------------------------------------------------------

PART 3--REGISTRATION

0
4. The authority citation for part 3 continues to read as follows:

    Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 6c, 
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 
13b, 13c, 16a, 18, 19, 21, and 23, as amended by Title VII of Pub. 
L. 111-203, 124 Stat. 1376.


Sec. Sec.  3.10, 3.12, and 3.21  [Amended]

0
5. In the table below, for each paragraph indicated in the left column, 
remove the cross-reference indicated in the middle column from wherever 
it appears in the paragraph, and add the cross-reference indicated in 
the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
3.10(c)(1)...........................................       Sec.    Sec.
                                                          1.3(y)     1.3
3.10(c)(2)(i)........................................       Sec.    Sec.
                                                         1.3(xx)     1.3
3.10(c)(3)(i)........................................       Sec.    Sec.
                                                         1.3(mm)     1.3
3.10(c)(3)(i)........................................       Sec.    Sec.
                                                         1.3(bb)     1.3
3.10(c)(3)(i)........................................       Sec.    Sec.
                                                         1.3(nn)     1.3
3.10(c)(4)(ii).......................................       Sec.    Sec.
                                                          1.3(g)     1.3
3.12(h)(1)(iv).......................................       Sec.    Sec.
                                                         1.3(aa)     1.3
3.21(c)(2)(i)........................................       Sec.    Sec.
                                                         1.3(yy)     1.3
------------------------------------------------------------------------

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

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

    Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, 
and 23.


0
7. In Sec.  4.5, revise paragraph (c)(2)(iii)(A) and the introductory 
text of paragraph (c)(2)(iii)(B) introductory text to read as follows:


Sec.  4.5  Exclusion for certain otherwise regulated persons from the 
definition of the term ``commodity pool operator.''

* * * * *
    (c) * * *
    (2) * * *
    (iii) * * *
    (A) Will use commodity futures or commodity options contracts, or 
swaps solely for bona fide hedging purposes within the meaning and 
intent of the definition of bona fide hedging transactions and 
positions for excluded commodities in Sec. Sec.  1.3 and 151.5 of this 
chapter; Provided however, That, in addition, with respect to positions 
in commodity futures or commodity options contracts, or swaps which do 
not come within the meaning and intent of the definition of bona fide 
hedging transactions and positions for excluded commodities in 
Sec. Sec.  1.3 and 151.5 of this chapter, a qualifying entity may 
represent that the aggregate initial margin and premiums required to 
establish such positions will not exceed five percent of the 
liquidation value of the qualifying entity's portfolio, after taking 
into account unrealized profits and unrealized losses on any such 
contracts it has entered into; and, Provided further, That in the case 
of an option that is in-the-money at the time of the purchase, the in-
the-money amount as defined in Sec.  190.01(x) of this chapter may be 
excluded in computing such five percent; or
    (B) The aggregate net notional value of commodity futures, 
commodity options contracts, or swaps positions not used solely for 
bona fide hedging purposes within the meaning and intent of the 
definition of bona fide hedging transactions and positions for excluded 
commodities in Sec. Sec.  1.3 and 151.5 of this

[[Page 7996]]

chapter determined at the time the most recent position was 
established, does not exceed 100 percent of the liquidation value of 
the pool's portfolio, after taking into account unrealized profits and 
unrealized losses on any such positions it has entered into. For 
purposes of this paragraph:
* * * * *

PART 5--OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS

0
8. The authority citation for part 5 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 
6i, 6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, 
and 23.


Sec.  5.5  [Amended]

0
9. In the table below, for each paragraph indicated in the left column, 
remove the cross-reference indicated in the middle column from wherever 
it appears in the paragraph, and add the cross-reference indicated in 
the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
5.5(a)(1)(ii)........................................       Sec.    Sec.
                                                         1.3(mm)     1.3
------------------------------------------------------------------------

PART 15--REPORTS--GENERAL PROVISIONS

0
10. The authority citation for part 15 continues to read as follows:

    Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a, 
9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 
Stat. 1376 (2010).


Sec. Sec.  15.00 and 15.01  [Amended]

0
11. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
15.00(e).............................................       Sec.    Sec.
                                                          1.3(k)     1.3
15.00(e).............................................       Sec.    Sec.
                                                         1.3(jj)     1.3
15.00(n).............................................       Sec.    Sec.
                                                          1.3(t)     1.3
15.01(d)(1)..........................................       Sec.    Sec.
                                                          1.3(z)     1.3
------------------------------------------------------------------------

PART 18--REPORTS BY TRADERS

0
12. The authority citation for part 18 continues to read as follows:

    Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t, 
12a, and 19.

Appendix A to Part 18 [Amended]

0
13. Amend Appendix A to Part 18 as follows:
0
a. In instruction paragraph 15, under the heading Swaps Participation 
Indicators, remove ``Sec.  1.3(ppp)'' and add in its place ``Sec.  
1.3''; and
0
b. In instruction paragraph 16, under the heading Swaps Participation 
Indicators, remove ``Sec.  1.3(qqq)'' and add in its place ``Sec.  
1.3''.

PART 19--REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS AND 
BY MERCHANTS AND DEALERS IN COTTON

0
14. The authority citation for part 19 continues to read as follows:

    Authority: 7 U.S.C. 6g(a), 6i, and 12a(5).


0
15. Revise the part heading for part 19 to read as set forth above.


Sec.  19.00  [Amended]

0
16. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
19.00(a)(1)..........................................       Sec.    Sec.
                                                          1.3(z)     1.3
19.00(b)(1)..........................................       Sec.    Sec.
                                                          1.3(z)     1.3
------------------------------------------------------------------------

PART 23--SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

0
17. The authority citation for part 23 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 
9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
    Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), 
Pub. L. 111-203, 124 Stat. 1641 (2010).


Sec.  23.22   [Amended]

0
18. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                Paragraph                     Remove            Add
------------------------------------------------------------------------
23.22(a)................................            Sec.      Sec.   1.3
                                              1.3(aa)(6)
------------------------------------------------------------------------

PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

0
19. The authority citation for part 30 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise 
noted.


Sec. Sec.  30.1 and 30.4  [Amended]

0
20. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
               Paragraph                         Remove             Add
------------------------------------------------------------------------
30.1(c)...............................  paragraph (y) of Sec.       Sec.
                                         1.3.                        1.3
30.1(e)...............................  Sec.   1.3(ss)..........    Sec.
                                                                     1.3
30.1(f)...............................  Sec.   1.3(y)...........    Sec.
                                                                     1.3
30.4(a)...............................  paragraph (y) of Sec.       Sec.
                                         1.3.                        1.3
------------------------------------------------------------------------

Appendix B to Part 30 [Amended]

0
21. Amend Appendix B to Part 30 as follows:
0
a. In paragraph 1, in the second sentence, remove ``Rule 1.3(rr)'' and 
add in its place ``Sec.  1.3''.
0
b. In footnote 1, in the first sentence, remove ``paragraph (y) of 
[Rule 1.3]'' and add in its place ``Sec.  1.3''.

PART 38--DESIGNATED CONTRACT MARKETS

0
22. The authority citation for part 38 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j, 
6k, 6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as 
amended by the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Pub. L. 111-203, 124 Stat. 1376.

Appendix B to Part 38 [Amended]

0
23. In Appendix B to Part 38, under the heading Core Principle 16 of 
section 5(d) of the Act: CONFLICTS OF INTEREST, in paragraph 
(b)(2)(ii)(B), remove ``1.3(q)'' and add in its place ``Sec.  1.3 of 
this chapter''.

PART 39--DERIVATIVES CLEARING ORGANIZATIONS

0
24. The authority citation for part 39 continues to read as follows:

    Authority: 7 U.S.C. 2, 7a-1, and 12a; 12 U.S.C. 5464; 15 U.S.C. 
8325.


Sec. Sec.  39.1, 39.2, 39.4, 39.9, 39.30, and 39.37  [Amended]

0
25. In the table below, for each section or paragraph indicated in the 
left column, remove the cross-reference indicated in the middle column 
from wherever it appears in the section or paragraph, and add the 
cross-reference indicated in the right column:

------------------------------------------------------------------------
                  Section/paragraph                      Remove     Add
------------------------------------------------------------------------
39.1.................................................       Sec.    Sec.
                                                          1.3(d)     1.3
39.2.................................................       Sec.    Sec.
                                                          1.3(d)     1.3
39.4(e)..............................................       Sec.    Sec.
                                                         1.3(vv)     1.3
39.9.................................................       Sec.    Sec.
                                                          1.3(d)     1.3
39.30(a).............................................       Sec.    Sec.
                                                          1.3(d)     1.3
39.37(d)(1)..........................................       Sec.    Sec.
                                                       1.3(jjjj)     1.3
39.37(d)(3)..........................................       Sec.    Sec.
                                                         1.3(rr)     1.3
------------------------------------------------------------------------


[[Page 7997]]

PART 41--SECURITY FUTURES PRODUCTS

0
26. The authority citation for part 41 continues to read as follows:

    Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 
2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).


Sec. Sec.  41.41 and 41.43  [Amended]

0
27. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
41.41(d).............................................       Sec.    Sec.
                                                         1.3(vv)     1.3
41.41(d).............................................       Sec.    Sec.
                                                         1.3(ww)     1.3
41.41(e).............................................       Sec.    Sec.
                                                         1.3(vv)     1.3
41.41(e).............................................       Sec.    Sec.
                                                         1.3(ww)     1.3
41.43(a)(13).........................................       Sec.    Sec.
                                                         1.3(vv)     1.3
41.43(a)(28).........................................       Sec.    Sec.
                                                         1.3(ww)     1.3
------------------------------------------------------------------------

PART 50--CLEARING REQUIREMENT AND RELATED RULES

0
28. The authority citation for part 50 continues to read as follows:

    Authority: 7 U.S.C. 2(h) and 7a-1 as amended by Pub. L. 111-203, 
124 Stat. 1376.


0
29. In Sec.  50.51, revise paragraph (b)(1) to read as follows:


Sec.  50.51  Exemption for cooperatives.

* * * * *
    (b) * * *
    (1) Is entered into with a member of the exempt cooperative in 
connection with originating loan or loans for the member, which means 
the requirements of paragraphs (5)(i), (ii), and (iii) of the 
definition of swap dealer in Sec.  1.3 of this chapter are satisfied; 
provided that, for this purpose, the term ``insured depository 
institution'' as used in those paragraphs is replaced with the term 
``exempt cooperative'' and the word ``customer'' is replaced with the 
word ``member''; or
* * * * *

PART 150--LIMITS ON POSITIONS

0
30. The authority citation for part 150 continues to read as follows:

    Authority: 7 U.S.C. 6a, 6c, and 12a(5).


Sec.  150.3  [Amended]

0
31. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
150.3(a)(1)..........................................       Sec.    Sec.
                                                          1.3(z)     1.3
------------------------------------------------------------------------


0
32. In Sec.  150.5, revise paragraph (d)(1) to read as follows:


Sec.  150.5  Exchange-set speculative position limits.

* * * * *
    (d) * * * (1) No exchange bylaw, rule, regulation, or resolution 
adopted pursuant to this section shall apply to bona fide hedging 
positions as defined by a contract market in accordance with the 
definition of bona fide hedging transactions and positions for excluded 
commodities in Sec.  1.3 of this chapter. Provided, however, that the 
contract market may limit bona fide hedging positions or any other 
positions which have been exempted pursuant to paragraph (e) of this 
section which it determines are not in accord with sound commercial 
practices or exceed an amount which may be established and liquidated 
in orderly fashion.
* * * * *

PART 151--POSITION LIMITS FOR FUTURES AND SWAPS

0
33. The authority citation for part 151 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as 
amended by Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

0
34. In Sec.  151.11, revise paragraph (f)(1)(ii) to read as follows:


Sec.  151.11  Designated contract market and swap execution facility 
position limits and accountability rules.

* * * * *
    (f) * * *
    (1) * * *
    (ii) For purposes of excluded commodities, no designated contract 
market or swap execution facility that is a trading facility by law, 
rule, regulation, or resolution adopted pursuant to this section shall 
apply to any transaction or position within the definition of bona fide 
hedging transactions and positions for excluded commodities in Sec.  
1.3 of this chapter; provided, however, that the designated contract 
market or swap execution facility that is a trading facility may limit 
bona fide hedging positions that it determines are not in accord with 
sound commercial practices or exceed an amount which may be established 
and liquidated in an orderly fashion.
* * * * *

PART 155--TRADING STANDARDS

0
35. The authority citation for part 155 continues to read as follows:

    Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, unless otherwise 
noted.


Sec. Sec.  155.3 and 155.4  [Amended]

0
36. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
155.3(b)(2)(ii)......................................       Sec.    Sec.
                                                          1.3(g)     1.3
155.4(b)(2)(ii)......................................       Sec.    Sec.
                                                          1.3(g)     1.3
------------------------------------------------------------------------

PART 166--CUSTOMER PROTECTION RULES

0
37. The authority citation for part 166 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7, 
12a, 21, and 23, as amended by the Commodity Futures Modernization 
Act of 2000, appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).


Sec.  166.2  [Amended]

0
38. In the table below, for each paragraph indicated in the left 
column, remove the cross-reference indicated in the middle column from 
wherever it appears in the paragraph, and add the cross-reference 
indicated in the right column:

------------------------------------------------------------------------
                      Paragraph                          Remove     Add
------------------------------------------------------------------------
166.2(a).............................................       Sec.    Sec.
                                                         1.3(yy)     1.3
166.2(b).............................................       Sec.    Sec.
                                                         1.3(yy)     1.3
------------------------------------------------------------------------


    Issued in Washington, DC, on February 15, 2018, by the 
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix to Definitions--Commission Voting Summary

    On this matter, Chairman Giancarlo and Commissioners Quintenz 
and Behnam voted in the affirmative. No Commissioner voted in the 
negative.

[FR Doc. 2018-03590 Filed 2-22-18; 8:45 am]
BILLING CODE 6351-01-P

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