[Title 17 CFR 35]
[Code of Federal Regulations (annual edition) - April 1, 2003 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter I - COMMODITY FUTURES TRADING COMMISSION]
[Part 35 - EXEMPTION OF SWAP AGREEMENTS]
[From the U.S. Government Printing Office]


17COMMODITY AND SECURITIES EXCHANGES12003-04-012003-04-01false35PART 35COMMODITY AND SECURITIES EXCHANGESCOMMODITY FUTURES TRADING COMMISSION
PART 35--EXEMPTION OF SWAP AGREEMENTS--Table of Contents




Sec.
35.1  Definitions.
35.2  Exemption.

    Authority: 7 U.S.C. 2, 6, 6c, and 12a.

    Source: 58 FR 5594, Jan. 22, 1993, unless otherwise noted.



Sec. 35.1  Definitions.

    (a) Scope. The provisions of this part shall apply to any swap 
agreement which may be subject to the Act, and which has been entered 
into on or after October 23, 1974.
    (b) Definitions. As used in this part:
    (1) Swap agreement means:
    (i) An agreement (including terms and conditions incorporated by 
reference therein) which is a rate swap agreement, basis swap, forward 
rate agreement, commodity swap, interest rate option, forward foreign 
exchange agreement, rate cap agreement, rate floor agreement, rate 
collar agreement, currency swap agreement, cross-currency rate swap 
agreement, currency option, any other similar agreement (including any 
option to enter into any of the foregoing);
    (ii) Any combination of the foregoing; or
    (iii) A master agreement for any of the foregoing together with all 
supplements thereto.
    (2) Eligible swap participant means, and shall be limited to the 
following persons or classes of persons:

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    (i) A bank or trust company (acting on its own behalf or on behalf 
of another eligible swap participant);
    (ii) A savings association or credit union;
    (iii) An insurance company;
    (iv) An investment company subject to regulation under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a foreign 
person performing a similar role or function subject as such to foreign 
regulation, Provided That such investment company or foreign person is 
not formed solely for the specific purpose of constituting an eligible 
swap participant;
    (v) A commodity pool formed and operated by a person subject to 
regulation under the Act or a foreign person performing a similar role 
or function subject as such to foreign regulation, provided that such 
commodity pool or foreign person is not formed solely for the specific 
purpose of constituting an eligible swap participant and has total 
assets exceeding $5,000,000;
    (vi) A corporation, partnership, proprietorship, organization, 
trust, or other entity not formed solely for the specific purpose of 
constituting an eligible swap participant (A) which has total assets 
exceeding $10,000,000, or (B) the obligations of which under the swap 
agreement are guaranteed or otherwise supported by a letter of credit or 
keepwell, support, or other agreement by any such entity referenced in 
this paragraph (b)(2)(vi)(A) of this section or by an entity referred to 
in paragraph (b)(2) (i), (ii), (iii), (iv), (v), (vi) or (viii) of this 
section; or (C) which has a net worth of $1,000,000 and enters into the 
swap agreement in connection with the conduct of its business; or which 
has a net worth of $1,000,000 and enters into the swap agreement to 
manage the risk of an asset or liability owned or incurred in the 
conduct of its business or reasonably likely to be owned or incurred in 
the conduct of its business;
    (vii) An employee benefit plan subject to the Employee Retirement 
Income Security Act of 1974 or a foreign person performing a similar 
role or function subject as such to foreign regulation with total assets 
exceeding $5,000,000, or whose investment decisions are made by a bank, 
trust company, insurance company, investment adviser subject to 
regulation under the Investment Advisers Act of 1940 (15 U.S.C. 80a-1 et 
seq.), or a commodity trading adviser subject to regulation under the 
Act;
    (viii) Any governmental entity (including the United States, any 
state, or any foreign government) or political subdivision thereof, or 
any multinational or supranational entity or any instrumentality, 
agency, or department of any of the foregoing;
    (ix) A broker-dealer subject to regulation under the Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) or a foreign person 
performing a similar role or function subject as such to foreign 
regulation, acting on its own behalf or on behalf of another eligible 
swap participant: Provided, however, That if such broker-dealer is a 
natural person or proprietorship, the broker-dealer must also meet the 
requirements of either paragraph (b)(2) (vi) or (xi) of this section;
    (x) A futures commission merchant, floor broker, or floor trader 
subject to regulation under the Act or a foreign person performing a 
similar role or function subject as such to foreign regulation, acting 
on its own behalf or on behalf of another eligible swap participant: 
Provided, however, that if such futures commission merchant, floor 
broker, or floor trader is a natural person or proprietorship, the 
futures commission merchant, floor broker, or floor trader must also 
meet the requirements of paragraph (b)(2) (vi) or (xi) of this section; 
or
    (xi) Any natural person with total assets exceeding at least 
$10,000,000.



Sec. 35.2  Exemption.

    A swap agreement is exempt from all provisions of the Act and any 
person or class of persons offering, entering into, rendering advice, or 
rendering other services with respect to such agreement, is exempt for 
such activity from all provisions of the Act (except in each case the 
provisions of sections 2(a)(1)(B), 4b, and 4o of the Act and Sec. 32.9 
of this chapter as adopted under section 4c(b) of the Act, and the 
provisions of sections 6(c) and 9(a)(2) of the Act to the extent these 
provisions prohibit manipulation of the market price

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of any commodity in interstate commerce or for future delivery on or 
subject to the rules of any contract market), provided the following 
terms and conditions are met:
    (a) The swap agreement is entered into solely between eligible swap 
participants at the time such persons enter into the swap agreement;
    (b) The swap agreement is not part of a fungible class of agreements 
that are standardized as to their material economic terms;
    (c) The creditworthiness of any party having an actual or potential 
obligation under the swap agreement would be a material consideration in 
entering into or determining the terms of the swap agreement, including 
pricing, cost, or credit enhancement terms of the swap agreement; and
    (d) The swap agreement is not entered into and traded on or through 
a multilateral transaction execution facility;

Provided, however, That paragraphs (b) and (d) of Rule 35.2 shall not be 
deemed to preclude arrangements or facilities between parties to swap 
agreements, that provide for netting of payment obligations resulting 
from such swap agreements nor shall these subsections be deemed to 
preclude arrangements or facilities among parties to swap agreements, 
that provide for netting of payments resulting from such swap 
agreements; Provided further, That any person may apply to the 
Commission for exemption from any of the provisions of the Act (except 
2(a)(1)(B)) for other arrangements or facilities, on such terms and 
conditions as the Commission deems appropriate, including but not 
limited thereto, the applicability of other regulatory regimes.