[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4413 Introduced in House (IH)]
113th CONGRESS
2d Session
H. R. 4413
To reauthorize the Commodity Futures Trading Commission, to better
protect futures customers, to provide end users with market certainty,
to make basic reforms to ensure transparency and accountability at the
Commission, to help farmers, ranchers, and end users manage risks to
help keep consumer costs low, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 7, 2014
Mr. Lucas (for himself, Mr. Peterson, Mr. Conaway, and Mr. David Scott
of Georgia) introduced the following bill; which was referred to the
Committee on Agriculture
_______________________________________________________________________
A BILL
To reauthorize the Commodity Futures Trading Commission, to better
protect futures customers, to provide end users with market certainty,
to make basic reforms to ensure transparency and accountability at the
Commission, to help farmers, ranchers, and end users manage risks to
help keep consumer costs low, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Customer Protection and End User
Relief Act''.
SEC. 2. TABLE OF CONTENTS.
The table of contents of this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
TITLE I--CUSTOMER PROTECTIONS
Sec. 101. Short title.
Sec. 102. Enhanced protections for futures customers.
Sec. 103. Electronic confirmation of customer funds.
Sec. 104. Notice and certifications providing additional customer
protections.
Sec. 105. Futures commission merchant compliance.
Sec. 106. Certainty for futures customers and market participants.
Sec. 107. Study on high-frequency trading.
TITLE II--COMMODITY FUTURES TRADING COMMISSION REFORMS
Sec. 201. Short title.
Sec. 202. Extension of operations.
Sec. 203. Consideration by the Commodity Futures Trading Commission of
the costs and benefits of its regulations
and orders.
Sec. 204. Division directors.
Sec. 205. Office of the Chief Economist.
Sec. 206. Procedures governing actions taken without a commission vote.
Sec. 207. Strategic technology plan.
Sec. 208. Internal risk controls.
Sec. 209. Subpoena duration and renewal.
Sec. 210. Implementation plan for Commission rulemakings.
Sec. 211. Applicability of notice and comment requirements of the
Administrative Procedure Act to guidance
voted on by the Commission.
Sec. 212. Judicial review of Commission rules.
Sec. 213. GAO study on adequacy of CFTC resources.
TITLE III--END-USER RELIEF
Sec. 301. Short title.
Subtitle A--End-User Exemption From Margin Requirements
Sec. 311. End-user margin requirements.
Sec. 312. Implementation.
Subtitle B--Inter-Affiliate Swaps
Sec. 321. Treatment of affiliate transactions.
Subtitle C--Indemnification Requirements Related to Swap Data
Repositories
Sec. 331. Indemnification requirements.
Subtitle D--Relief for Municipal Utilities
Sec. 341. Transactions with utility special entities.
Sec. 342. Utility special entity defined.
Sec. 343. Utility operations-related swap.
Subtitle E--End-User Regulatory Relief
Sec. 351. End users not treated as financial entities.
Sec. 352. Reporting of illiquid swaps so as to not disadvantage certain
non-financial end users.
Sec. 353. Relief for grain elevator operators, farmers, agricultural
counterparties, and commercial market
participants.
Sec. 354. Relief for end users who use physical contracts with
volumetric optionality.
Sec. 355. Commission vote required before automatic change of swap
dealer de minimis level.
Sec. 356. Capital requirements for non-bank swap dealers.
Sec. 357. Harmonization with the Jumpstart Our Business Startups Act.
Sec. 358. Bona fide hedge defined to protect end user risk management
needs.
Sec. 359. Cross-border regulation of derivatives transactions.
Subtitle F--Effective Date
Sec. 371. Effective date.
TITLE I--CUSTOMER PROTECTIONS
SEC. 101. SHORT TITLE.
This title may be cited as the ``Futures Customer Protection Act''.
SEC. 102. ENHANCED PROTECTIONS FOR FUTURES CUSTOMERS.
Section 17 of the Commodity Exchange Act (7 U.S.C. 21) is amended
by adding at the end the following:
``(s) A registered futures association shall--
``(1) require each member of the association that is a
futures commission merchant to maintain written policies and
procedures regarding the maintenance of--
``(A) the residual interest of the member, as
described in section 1.23 of title 17, Code of Federal
Regulations, in any customer segregated funds account
of the member, as identified in section 1.20 of such
title, and in any foreign futures and foreign options
customer secured amount funds account of the member, as
identified in section 30.7 of such title; and
``(B) the residual interest of the member, as
described in section 22.2(e)(4) of such title, in any
cleared swaps customer collateral account of the
member, as identified in section 22.2 of such title;
and
``(2) establish rules to govern the withdrawal, transfer or
disbursement by any member of the association, that is a
futures commission merchant, of the member's residual interest
in customer segregated funds as provided in such section 1.20,
in foreign futures and foreign options customer secured amount
funds, identified as provided in such section 30.7, and from a
cleared swaps customer collateral, identified as provided in
such section 22.2.''.
SEC. 103. ELECTRONIC CONFIRMATION OF CUSTOMER FUNDS.
Section 17 of the Commodity Exchange Act (7 U.S.C. 21), as amended
by section 102 of this Act, is amended by adding at the end the
following:
``(t) A registered futures association shall require any member of
the association that is a futures commission merchant to--
``(1) use an electronic system or systems to report
financial and operational information to the association,
including information related to customer segregated funds,
foreign futures and foreign options customer secured amount
funds accounts, and cleared swaps customer collateral, in
accordance with such terms, conditions, documentation
standards, and regular time intervals as are established by the
association;
``(2) instruct each depository, including any bank, trust
company, derivatives clearing organization, or futures
commission merchant, holding customer segregated funds under
section 1.20 of title 17, Code of Federal Regulations, foreign
futures and foreign options customer secured amount funds under
section 30.7 of such title, or cleared swap customer funds
under section 22.2 of such title, to report balances in the
futures commission merchant's section 1.20 customer segregated
funds, section 30.7 foreign futures and foreign options
customer secured amount funds, and section 22.2 cleared swap
customer funds, to the registered futures association or
another party designated by the registered futures association,
in the form, manner, and interval prescribed by the registered
futures association; and
``(3) hold section 1.20 customer segregated funds, section
30.7 foreign futures and foreign options customer secured
amount funds and section 22.2 cleared swaps customer funds in a
depository that reports the balances in these accounts of the
futures commission merchant held at the depository to the
registered futures association or another party designated by
the registered futures association in the form, manner, and
interval prescribed by the registered futures association.''.
SEC. 104. NOTICE AND CERTIFICATIONS PROVIDING ADDITIONAL CUSTOMER
PROTECTIONS.
Section 17 of the Commodity Exchange Act (7 U.S.C. 21), as amended
by sections 102 and 103 of this Act, is amended by adding at the end
the following:
``(u) A futures commission merchant that has adjusted net capital
in an amount less than the amount required by regulations established
by the Commission or a self-regulatory organization of which the
futures commission merchant is a member shall immediately notify the
Commission and the self-regulatory organization of this occurrence.
``(v) A futures commission merchant that does not hold a sufficient
amount of funds in segregated accounts for futures customers under
section 1.20 of title 17, Code of Federal Regulations, in foreign
futures and foreign options secured amount accounts for foreign futures
and foreign options secured amount customers under section 30.7 of such
title, or in segregated accounts for cleared swap customers under
section 22.2 of such title, as required by regulations established by
the Commission or a self-regulatory organization of which the futures
commission merchant is a member, shall immediately notify the
Commission and the self-regulatory organization of this occurrence.
``(w) Within such time period established by the Commission after
the end of each fiscal year, a futures commission merchant shall file
with the Commission a report from the chief compliance officer of the
futures commission merchant containing an assessment of the internal
compliance programs of the futures commission merchant.''.
SEC. 105. FUTURES COMMISSION MERCHANT COMPLIANCE.
(a) In General.--Section 4d(a) of the Commodity Exchange Act (7
U.S.C. 6d(a)) is amended--
(1) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B) and by moving the margins of such
subparagraphs two ems to the right;
(2) by inserting ``(1)'' before ``It shall be unlawful'';
and
(3) by adding at the end the following new paragraph:
``(2) Any rules or regulations requiring a futures
commission merchant to maintain a residual interest in accounts
held for the benefit of customers in amounts at least
sufficient to exceed the sum of all uncollected margin deficits
of such customers shall provide that a futures commission
merchant shall meet its residual interest requirement as of the
end of each business day calculated as of the close of business
on the previous business day.''.
(b) Conforming Amendment.--Section 4d(h) of the Commodity Exchange
Act (7 U.S.C. 6d(h)) is amended by striking ``Notwithstanding
subsection (a)(2)'' and inserting ``Notwithstanding subsection
(a)(1)(B)''.
SEC. 106. CERTAINTY FOR FUTURES CUSTOMERS AND MARKET PARTICIPANTS.
Section 20(a) of the Commodity Exchange Act (7 U.S.C. 24(a)) is
amended--
(1) by striking ``and'' at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and
inserting ``; and''; and
(3) by adding at the end the following:
``(6) that cash, securities, or other property of the
estate of a commodity broker, including the trading or
operating accounts of the commodities broker and commodities
held in inventory by the commodity broker, shall be included in
customer property, but only to the extent that the property
that is otherwise customer property is insufficient to satisfy
the net equity claims of public customers (as such term may be
defined by the Commission by rule or regulation) of the
commodity broker.''.
SEC. 107. STUDY ON HIGH-FREQUENCY TRADING.
(a) In General.--Not later than one year after the date of the
enactment of this Act, the Commodity Futures Trading Commission shall
submit to the Committee on Agriculture of the House of Representatives
and the Committee on Agriculture, Nutrition, and Forestry of the Senate
a report examining the effect of the practice commonly referred to as
high-frequency trading on markets under its jurisdiction.
(b) Specific Areas Examined in Report.--In preparing the report
submitted under subsection (a), the Commission shall particularly
examine each of the following areas:
(1) The technology, personnel, or other resources the
Commission may require for purposes of monitoring the effect of
high-frequency trading.
(2) The role such trading plays in providing market
liquidity.
(3) Whether the technology creates discrepancies in the
marketplace between market participants.
(4) Whether the existing authority of the Commission with
respect to such trading is sufficient to meet the Commission's
mission to--
(A) protect market participants and the public from
fraud, manipulation, abusive practices, and systemic
risk related to derivatives; and
(B) foster transparent, open, competitive, and
financially sound markets.
TITLE II--COMMODITY FUTURES TRADING COMMISSION REFORMS
SEC. 201. SHORT TITLE.
This title may be cited as the ``Commodity Futures Trading
Commission Reform Act''.
SEC. 202. EXTENSION OF OPERATIONS.
Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is
amended by striking ``2013'' and inserting ``2018''.
SEC. 203. CONSIDERATION BY THE COMMODITY FUTURES TRADING COMMISSION OF
THE COSTS AND BENEFITS OF ITS REGULATIONS AND ORDERS.
Section 15(a) of the Commodity Exchange Act (7 U.S.C. 19(a)) is
amended by striking paragraphs (1) and (2) and inserting the following:
``(1) In general.--Before promulgating a regulation under
this Act or issuing an order (except as provided in paragraph
(3)), the Commission, through the Office of the Chief
Economist, shall assess and publish in the regulation or order
the costs and benefits, both qualitative and quantitative, of
the proposed regulation or order, and the proposed regulation
or order shall state its statutory justification.
``(2) Considerations.--In making a reasoned determination
of the costs and the benefits, the Commission shall evaluate--
``(A) considerations of protection of market
participants and the public;
``(B) considerations of the efficiency,
competitiveness, and financial integrity of futures and
swaps markets;
``(C) considerations of the impact on market
liquidity in the futures and swaps markets;
``(D) considerations of price discovery;
``(E) considerations of sound risk management
practices;
``(F) available alternatives to direct regulation;
``(G) the degree and nature of the risks posed by
various activities within the scope of its
jurisdiction;
``(H) the costs of complying with the proposed
regulation or order by all regulated entities,
including a methodology for quantifying the costs
(recognizing that some costs are difficult to
quantify);
``(I) whether the proposed regulation or order is
inconsistent, incompatible, or duplicative of other
Federal regulations or orders;
``(J) whether, in choosing among alternative
regulatory approaches, those approaches maximize net
benefits (including potential economic and other
benefits, distributive impacts, and equity); and
``(K) other public interest considerations.''.
SEC. 204. DIVISION DIRECTORS.
Section 2(a)(6)(C) of the Commodity Exchange Act (7 U.S.C.
2(a)(6)(C)) is amended by inserting ``, and the heads of the units
shall serve at the pleasure of the Commission, report directly to the
Commission, and perform such functions and duties as the Commission may
prescribe'' before the period.
SEC. 205. OFFICE OF THE CHIEF ECONOMIST.
(a) In General.--Section 2(a) of the Commodity Exchange Act (7
U.S.C. 2(a)) is amended by adding at the end the following:
``(17) Office of the chief economist.--
``(A) Establishment.--There is established in the
Commission the Office of the Chief Economist.
``(B) Head.--The Office of the Chief Economist
shall be headed by the Chief Economist, who shall be
appointed by the Commission and serve at the pleasure
of the Commission.
``(C) Functions.--The Chief Economist shall report
directly to the Commission and perform such functions
and duties as the Commission may prescribe.
``(D) Professional staff.--The Commission shall
appoint such other economists as may be necessary to
assist the Chief Economist in performing such economic
analysis, regulatory cost-benefit analysis, or research
the Commission may direct.''.
(b) Conforming Amendment.--Section 2(a)(6)(A) of such Act (7 U.S.C.
2(a)(6)(A)) is amended by striking ``(4) and (5)'' and inserting ``(4),
(5), and (17)''.
SEC. 206. PROCEDURES GOVERNING ACTIONS TAKEN WITHOUT A COMMISSION VOTE.
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12))
is amended--
(1) by striking ``(12) The'' and inserting the following:
``(12) Rules and regulations.--
``(A) In general.--Subject to the other provisions
of this paragraph, the''; and
(2) by adding after and below the end the following new
subparagraph:
``(B) Notice to commission.--
``(i) General rule.--A division or office
of the Commission may not issue an interpretive
rule of general applicability, a statement of
general policy, a response to a formal, written
request or petition from any member of the
public for guidance, or an exemptive, a no-
action, or an interpretive letter, unless, at
least 7 calendar days before the issuance, the
division or office has provided the Commission
with a copy of the matter to be issued.
``(ii) Opportunity for meeting required.--
After receiving a copy of the matter provided
in accordance with clause (i), any member of
the Commission may request that the Commission
hold a meeting to review the matter, and the
Chairman shall immediately put any such request
for a meeting before the Commission, and if the
Commission decides to hold the meeting by a
majority vote, the matter may not be issued
until the Commission has concluded the meeting.
``(iii) Limitations on applicability.--By a
majority vote, the Commission may waive the 7-
day prior notice requirement of clause (i) when
the Commission finds that requiring such a
notice would be impracticable, unnecessary, or
contrary to the public interest.''.
SEC. 207. STRATEGIC TECHNOLOGY PLAN.
Section 2(a) of the Commodity Exchange Act (7 U.S.C. 2(a)), as
amended by section 204(a) of this Act, is amended by adding at the end
the following:
``(18) Strategic technology plan.--
``(A) In general.--Every 5 years, the Commission
shall develop and submit to the Committee on
Agriculture of the House of Representatives and the
Committee on Agriculture, Nutrition, and Forestry of
the Senate a detailed plan focused on the acquisition
and use of technology by the Commission.
``(B) Contents.--The plan shall--
``(i) include for each related division or
office a detailed technology strategy focused
exclusively on market surveillance and risk
detection, market data collection, aggregation,
interpretation, standardization, harmonization,
streamlining, and internal management and
protection of data collected by the Commission,
including a detailed accounting of how the
funds provided for technology will be used and
the priorities that will apply in the use of
the funds; and
``(ii) set forth annual goals to be
accomplished and annual budgets needed to
accomplish the goals.''.
SEC. 208. INTERNAL RISK CONTROLS.
(a) In General.--Section 2(a)(12) of the Commodity Exchange Act (7
U.S.C. 2(a)(12)), as amended by section 206 of this Act, is amended by
adding at the end the following:
``(C) Internal risk controls.--The Commission staff
and the Chief Economist shall develop comprehensive
internal risk control mechanisms to safeguard and
govern the storage of all market data by the
Commission, all market data sharing agreements of the
Commission, and all academic research performed at the
Commission using market data.''.
(b) Reports to the Congress.--
(1) Content.--The Commission shall submit to the Committee
on Agriculture of the House of Representatives and the
Committee on Agriculture, Nutrition, and Forestry of the Senate
2 reports on the progress made in implementing the internal
risk controls provided for in section 2(a)(12)(C) of the
Commodity Exchange Act.
(2) Timing.--The Commission shall submit the 1st report
required by paragraph (1) within 60 days after the date of the
enactment of this Act, and the 2nd such report within 120 days
after such date of enactment.
SEC. 209. SUBPOENA DURATION AND RENEWAL.
Section 6(c)(5) of the Commodity Exchange Act (7 U.S.C. 9(5)) is
amended--
(1) by striking ``(5) Subpoena.--For'' and inserting the
following:
``(5) Subpoena.--
``(A) In general.--For''; and
(2) by adding after and below the end the following:
``(B) Content of subpoena order.--An order of the
Commission authorizing the issuance of a subpoena--
``(i) shall state in good faith the purpose
of the investigation;
``(ii) shall require only the provision of
information reasonably relevant to that
purpose; and
``(iii) shall not be for an indefinite
duration.
``(C) Renewal.--An order issued under this
paragraph may be renewed only by Commission action.''.
SEC. 210. IMPLEMENTATION PLAN FOR COMMISSION RULEMAKINGS.
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)),
as amended by sections 206 and 208(a) of this Act, is amended by adding
at the end the following:
``(E) Requirement to publish implementation plan
for commission rules.--The Commission shall direct its
staff to develop and publish in any proposed rule a
plan for--
``(i) when and for how long the proposed
rule will be subject to public comment; and
``(ii) by when compliance with the final
rule will be required.''.
SEC. 211. APPLICABILITY OF NOTICE AND COMMENT REQUIREMENTS OF THE
ADMINISTRATIVE PROCEDURE ACT TO GUIDANCE VOTED ON BY THE
COMMISSION.
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)),
as amended by sections 206, 208(a), and 210 of this Act, is amended by
adding at the end the following:
``(F) Applicability of notice and comment rules to
guidance voted on by the commission.--The notice and
comment requirements of chapter 5 of title 5, United
States Code, shall also apply with respect to any
guidance issued by the Commission after being voted on
by the Commission.''.
SEC. 212. JUDICIAL REVIEW OF COMMISSION RULES.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
adding at the end the following:
``SEC. 24. JUDICIAL REVIEW OF COMMISSION RULES.
``(a) A person aggrieved by a final rule of the Commission under
this Act may obtain review of the rule in the United States Court of
Appeals for the District of Columbia Circuit or the United States Court
of Appeals for the circuit where the party resides, by filing in the
court, within 60 days after publication in the Federal Register of the
entry of the rule, a written petition requesting that the rule be
modified or set aside in whole or in part.
``(b) A copy of the petition shall be transmitted forthwith by the
clerk of the court to an officer designated by the Commission for that
purpose. Thereupon the Commission shall file in the court the record on
which the rule complained of is entered, as provided in section 2112 of
title 28, United States Code, and the Federal Rules of Appellate
Procedure.
``(c) On the filing of the petition, the court has jurisdiction,
which becomes exclusive on the filing of the record, to affirm or
modify and enforce or to set aside the rule in whole or in part.
``(d) The findings of the Commission as to the facts identified by
the Commission as the basis, in whole or in part, of the rule, if
supported by substantial evidence, are conclusive. The court shall
affirm and enforce the rule unless the Commission's action in
promulgating the rule is found to be arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law; contrary to
constitutional right, power, privilege, or immunity; in excess of
statutory jurisdiction, authority, or limitations, or short of
statutory right; or without observance of procedure required by law.
``(e) If either party applies to the court for leave to adduce
additional evidence and shows to the satisfaction of the court that the
additional evidence is material and that there was reasonable ground
for failure to adduce it before the Commission, the court may remand
the case to the Commission for further proceedings, in whatever manner
and on whatever conditions the court considers appropriate. If the case
is remanded to the Commission, it shall file in the court a
supplemental record containing any new evidence, any further or
modified findings, and any new order.''.
SEC. 213. GAO STUDY ON ADEQUACY OF CFTC RESOURCES.
(a) Study.--The Comptroller General of the United States shall
conduct a study of the resources of the Commodity Futures Trading
Commission that--
(1) assesses whether the resources of the Commission are
sufficient to enable the Commission to effectively carry out
the duties of the Commission; and
(2) examines the prior expenditures of the Commission on
hardware, software, and analytical processes designed to
protect customers in the areas of--
(A) market surveillance and risk detection; and
(B) market data collection, aggregation,
interpretation, standardization, harmonization, and
streamlining.
(b) Report.--Not later than 180 days after the date of the
enactment of this Act, the Comptroller General of the United States
shall submit to the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture, Nutrition, and
Forestry of the Senate a report that contains the results of the study.
TITLE III--END-USER RELIEF
SEC. 301. SHORT TITLE.
This title may be cited as the ``End-User Relief and Market
Certainty Act''.
Subtitle A--End-User Exemption From Margin Requirements
SEC. 311. END-USER MARGIN REQUIREMENTS.
Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is
amended by adding at the end the following new paragraph:
``(4) Applicability with respect to counterparties.--The
requirements of paragraphs (2)(A)(ii) and (2)(B)(ii), including
the initial and variation margin requirements imposed by rules
adopted pursuant to paragraphs (2)(A)(ii) and (2)(B)(ii), shall
not apply to a swap in which a counterparty qualifies for an
exception under section 2(h)(7)(A), or an exemption issued
under section 4(c)(1) from the requirements of section
2(h)(1)(A) for cooperative entities as defined in such
exemption, or satisfies the criteria in section 2(h)(7)(D).''.
SEC. 312. IMPLEMENTATION.
The amendment made by this subtitle shall be implemented--
(1) without regard to--
(A) chapter 35 of title 44, United States Code; and
(B) the notice and comment provisions of section
553 of title 5, United States Code;
(2) through the promulgation of an interim final rule,
pursuant to which public comment will be sought before a final
rule is issued; and
(3) such that paragraph (1) shall apply solely to changes
to rules and regulations, or proposed rules and regulations,
that are limited to and directly a consequence of the
amendment.
Subtitle B--Inter-Affiliate Swaps
SEC. 321. TREATMENT OF AFFILIATE TRANSACTIONS.
(a) In General.--Section 2(h)(7)(D)(i) of the Commodity Exchange
Act (7 U.S.C. 2(h)(7)(D)(i)) is amended to read as follows:
``(i) In general.--An affiliate of a person
that qualifies for an exception under
subparagraph (A) (including affiliate entities
predominantly engaged in providing financing
for the purchase of the merchandise or
manufactured goods of the person) may qualify
for the exception only if the affiliate enters
into the swap to hedge or mitigate the
commercial risk of the person or other
affiliate of the person that is not a financial
entity, provided that if the transfer of
commercial risk is addressed by entering into a
swap with a swap dealer or major swap
participant, a credit support measure or other
mechanism is utilized.''.
(b) Applicability of Credit Support Measure Requirement.--
Notwithstanding section 371 of this Act, the requirement in section
2(h)(7)(D)(i) of the Commodity Exchange Act, as amended by subsection
(a), requiring that a credit support measure or other mechanism be
utilized if the transfer of commercial risk referred to in such section
is addressed by entering into a swap with a swap dealer or major swap
participant, shall not apply with respect to swaps entered into before
the date of the enactment of this Act.
Subtitle C--Indemnification Requirements Related to Swap Data
Repositories
SEC. 331. INDEMNIFICATION REQUIREMENTS.
(a) Derivatives Clearing Organizations.--Section 5b(k)(5) of the
Commodity Exchange Act (7 U.S.C. 7a-1(k)(5)) is amended to read as
follows:
``(5) Confidentiality agreement.--Before the Commission may
share information with any entity described in paragraph (4),
the Commission shall receive a written agreement from each
entity stating that the entity shall abide by the
confidentiality requirements described in section 8 relating to
the information on swap transactions that is provided.''.
(b) Swap Data Repositories.--Section 21(d) of such Act (7 U.S.C.
24a(d)) is amended to read as follows:
``(d) Confidentiality Agreement.--Before the swap data repository
may share information with any entity described in subsection (c)(7),
the swap data repository shall receive a written agreement from each
entity stating that the entity shall abide by the confidentiality
requirements described in section 8 relating to the information on swap
transactions that is provided.''.
Subtitle D--Relief for Municipal Utilities
SEC. 341. TRANSACTIONS WITH UTILITY SPECIAL ENTITIES.
Section 1a(49) of the Commodity Exchange Act (7 U.S.C. 1a(49)) is
amended by adding at the end the following:
``(E) Certain transactions with a utility special
entity.--
``(i) Transactions in utility operations-
related swaps shall be reported pursuant to
section 4r.
``(ii) In making a determination to exempt
pursuant to subparagraph (D), the Commission
shall treat a utility operations-related swap
entered into with a utility special entity, as
defined in section 4s(h)(2)(D), as if it were
entered into with an entity that is not a
special entity, as defined in section
4s(h)(2)(C).''.
SEC. 342. UTILITY SPECIAL ENTITY DEFINED.
Section 4s(h)(2) of the Commodity Exchange Act (7 U.S.C. 6s(h)(2))
is amended by adding at the end the following:
``(D) Utility special entity.--For purposes of this
Act, the term `utility special entity' means a special
entity, or any instrumentality, department, or
corporation of or established by a State or political
subdivision of a State, that--
``(i) owns or operates an electric or
natural gas facility or an electric or natural
gas operation;
``(ii) supplies natural gas and or electric
energy to another utility special entity;
``(iii) has public service obligations
under Federal, State, or local law or
regulation to deliver electric energy or
natural gas service to customers; or
``(iv) is a Federal power marketing agency,
as defined in section 3 of the Federal Power
Act.''.
SEC. 343. UTILITY OPERATIONS-RELATED SWAP.
(a) Swap Further Defined.--Section 1a(47)(A)(iii) of the Commodity
Exchange Act (7 U.S.C. 1a(47)(A)(iii)) is amended--
(1) by striking ``and'' at the end of subclause (XXI);
(2) by adding ``and'' at the end of subclause (XXII); and
(3) by adding at the end the following:
``(XXIII) a utility operations-
related swap;''.
(b) Utility Operations-related Swap Defined.--Section 1a of such
Act (7 U.S.C. 1a) is amended by adding at the end the following:
``(52) Utility operations-related swap.--The term `utility
operations-related swap' means a swap that--
``(A) is entered into to hedge or mitigate a
commercial risk;
``(B) is not a contract, agreement, or transaction
based on, derived on, or referencing--
``(i) an interest rate, credit, equity, or
currency asset class; or
``(ii) a metal, agricultural commodity, or
crude oil or gasoline commodity of any grade,
except as used as fuel for electric energy
generation; and
``(C) is associated with--
``(i) the generation, production, purchase,
or sale of natural gas or electric energy, the
supply of natural gas or electric energy to a
utility, or the delivery of natural gas or
electric energy service to utility customers;
``(ii) all fuel supply for the facilities
or operations of a utility;
``(iii) compliance with an electric system
reliability obligation;
``(iv) compliance with an energy, energy
efficiency, conservation, or renewable energy
or environmental statute, regulation, or
government order applicable to a utility; or
``(v) any other electric energy or natural
gas swap to which a utility is a party.''.
Subtitle E--End-User Regulatory Relief
SEC. 351. END USERS NOT TREATED AS FINANCIAL ENTITIES.
(a) In General.--Section 2(h)(7)(C)(iii) of the Commodity Exchange
Act (7 U.S.C. 2(h)(7)(C)(iii)) is amended to read as follows:
``(iii) Limitation.--Such definition shall
not include an entity--
``(I) whose primary business is
providing financing, and who uses
derivatives for the purpose of hedging
underlying commercial risks related to
interest rate and foreign currency
exposures, 90 percent or more of which
arise from financing that facilitates
the purchase or lease of products, 90
percent or more of which are
manufactured by the parent company or
another subsidiary of the parent
company; or
``(II) who is not supervised by a
prudential regulator, and is not
described in any of subclauses (I)
through (VII) of clause (i), and--
``(aa) is a commercial
market participant and is
considered a financial entity
under clause (i)(VIII) because
the entity predominantly
engages in physical delivery
contracts; or
``(bb) enters into swaps,
contracts for future delivery,
and other derivatives on behalf
of, or to hedge or mitigate the
commercial risk of, whether
directly or in the aggregate,
affiliates that are not so
supervised or described.''.
(b) Commercial Market Participant Defined.--
(1) In general.--Section 1a of such Act (7 U.S.C. 1a) is
amended by redesignating paragraphs (8) through (51) as
paragraphs (9) through (52), respectively, and by inserting
after paragraph (6) the following:
``(7) Commercial market participant.--The term `commercial
market participant' means any producer, processor, merchant, or
commercial user of an exempt or agricultural commodity, or the
products or byproducts of such a commodity.''.
(2) Conforming amendments.--
(A) Section 1a of such Act (7 U.S.C. 1a) is
amended--
(i) in subparagraph (A) of paragraph (18)
(as so redesignated by paragraph (1) of this
subsection), in the matter preceding clause
(i), by striking ``(18)(A)'' and inserting
``(19)(A)''; and
(ii) in subparagraph (A)(vii) of paragraph
(19) (as so redesignated by paragraph (1) of
this subsection), in the matter following
subclause (III), by striking ``(17)(A)'' and
inserting ``(18)(A)''.
(B) Section 4(c)(1)(A)(i)(I) of such Act (7 U.S.C.
6(c)(1)(A)(i)(I)) is amended by striking ``(7),
paragraph (18)(A)(vii)(III), paragraphs (23), (24),
(31), (32), (38), (39), (41), (42), (46), (47), (48),
and (49)'' and inserting ``(8), paragraph
(19)(A)(vii)(III), paragraphs (24), (25), (32), (33),
(39), (40), (42), (43), (47), (48), (49), and (50)''.
(C) Section 4q(a)(1) of such Act (7 U.S.C. 6o-
1(a)(1)) is amended by striking ``1a(9)'' and inserting
``1a(10)''.
(D) Section 4s(f)(1)(D) of such Act (7 U.S.C.
6s(f)(1)(D)) is amended by striking ``1a(47)(A)(v)''
and inserting ``1a(48)(A)(v)''.
(E) Section 4s(h)(5)(A)(i) of such Act (7 U.S.C.
6s(h)(5)(A)(i)) is amended by striking ``1a(18)'' and
inserting ``1a(19)''.
(F) Section 4t(b)(1)(C) of such Act (7 U.S.C.
6t(b)(1)(C)) is amended by striking ``1a(47)(A)(v)''
and inserting ``1a(48)(A)(v)''.
(G) Section 5(d)(23) of such Act (7 U.S.C.
7(d)(23)) is amended by striking ``1a(47)(A)(v)'' and
inserting ``1a(48)(A)(v)''.
(H) Section 5(e)(1) of such Act (7 U.S.C. 7(e)(1))
is amended by striking ``1a(9)'' and inserting
``1a(10)''.
(I) Section 5b(k)(3)(A) of such Act (7 U.S.C. 7a-
1(k)(3)(A)) is amended by striking ``1a(47)(A)(v)'' and
inserting ``1a(48)(A)(v)''.
(J) Section 5c(c)(4)(B) of such Act (7 U.S.C. 7a-
2(c)(4)(B)) is amended by striking ``1a(10)'' and
inserting ``1a(11)''.
(K) Section 5h(f)(10)(A)(iii) of such Act (7 U.S.C.
7b-3(f)(10)(A)(iii)) is amended by striking
``1a(47)(A)(v)'' and inserting ``1a(48)(A)(v)''.
(L) Section 21(f)(4)(C) of such Act (7 U.S.C.
24a(f)(4)(C)) is amended by striking ``1a(48)'' and
inserting ``1a(49)''.
SEC. 352. REPORTING OF ILLIQUID SWAPS SO AS TO NOT DISADVANTAGE CERTAIN
NON-FINANCIAL END USERS.
Section 2(a)(13) of the Commodity Exchange Act (7 U.S.C. 2(a)(13))
is amended--
(1) in subparagraph (C), by striking ``The Commission'' and
inserting ``Except as provided in subparagraph (D), the
Commission''; and
(2) by redesignating subparagraphs (D) through (G) as
subparagraphs (E) through (H), respectively, and inserting
after subparagraph (C) the following:
``(D) Requirements for swap transactions in
illiquid markets.--Notwithstanding subparagraph (C):
``(i) The Commission shall provide by rule
for the public reporting of swap transactions,
including price and volume data, in illiquid
markets that are not cleared and entered into
by a non-financial entity that is hedging or
mitigating commercial risk in accordance with
subsection (h)(7)(A).
``(ii) The Commission shall ensure that the
swap transaction information referred to in
clause (i) of this subparagraph is available to
the public no sooner than 30 days after the
swap transaction has been executed or at such
later date as the Commission determines
appropriate to protect the identity of
participants and positions in illiquid markets
and to prevent the elimination or reduction of
market liquidity.
``(iii) In this subparagraph, the term
`illiquid markets' means any market in which
the volume and frequency of trading in swaps is
at such a level as to allow identification of
individual market participants.''.
SEC. 353. RELIEF FOR GRAIN ELEVATOR OPERATORS, FARMERS, AGRICULTURAL
COUNTERPARTIES, AND COMMERCIAL MARKET PARTICIPANTS.
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by
inserting after section 4t the following:
``SEC. 4U. RECORDKEEPING REQUIREMENTS APPLICABLE TO NON-REGISTERED
MEMBERS OF CERTAIN REGISTERED ENTITIES.
``Except as provided in section 4(a)(3), a member of a designated
contract market or a swap execution facility that is not registered
with the Commission and not required to be registered with the
Commission in any capacity shall satisfy the recordkeeping requirements
of this Act and any recordkeeping rule, order, or regulation under this
Act by maintaining a written record of each transaction in a contract
for future delivery, option on a future, swap, swaption, trade option,
or related cash or forward transaction. The written record shall be
sufficient if it includes the final agreement between the parties and
the material economic terms of the transaction and is identifiable and
searchable by transaction.''.
SEC. 354. RELIEF FOR END USERS WHO USE PHYSICAL CONTRACTS WITH
VOLUMETRIC OPTIONALITY.
Section 1a(47)(B)(ii) of the Commodity Exchange Act (7 U.S.C.
1a(47)(B)(ii)) is amended to read as follows:
``(ii) any purchase or sale of a
nonfinancial commodity or security for deferred
shipment or delivery, so long as the
transaction is intended to be physically
settled, including any stand-alone or embedded
option for which--
``(I) exercise results in a
physical delivery obligation;
``(II) cannot be severed or
marketed separately from the overall
transaction for the purpose of
financial settlement; and
``(III) both parties are commercial
market participants.''.
SEC. 355. COMMISSION VOTE REQUIRED BEFORE AUTOMATIC CHANGE OF SWAP
DEALER DE MINIMIS LEVEL.
Section 1a(49)(D) of the Commodity Exchange Act (7 U.S.C.
1a(49)(D)) is amended--
(1) by striking all that precedes ``shall exempt'' and
inserting the following:
``(D) De minimis exception.--
``(i) In general.--The Commission''; and
(2) by adding after and below the end the following new
clause:
``(ii) The de minimis quantity of swap
dealing as described in clause (i) that is
currently set at a quantity of $8,000,000,000
shall only be amended or reduced through a new
affirmative action of the Commission undertaken
by rule or regulation.''.
SEC. 356. CAPITAL REQUIREMENTS FOR NON-BANK SWAP DEALERS.
Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is
amended--
(1) in paragraph (2)(B), by inserting ``, in consultation
with the prudential regulators and the Securities and Exchange
Commission,'' before ``shall''; and
(2) in paragraph (3)(D)--
(A) in clause (ii), by striking ``shall, to the
maximum extent practicable,'' and inserting ``shall'';
and
(B) by adding at the end the following:
``(iii) Financial models.--To the extent
that swap dealers and major swap participants
that are banks are permitted to use financial
models approved by the prudential regulators or
the Securities and Exchange Commission to
calculate minimum capital requirements and
minimum initial and variation margin
requirements, including the use of non-cash
collateral, the Commission shall, in
consultation with the prudential regulators and
the Securities and Exchange Commission, permit
the use of comparable financial models by swap
dealers and major swap participants that are
not banks.''.
SEC. 357. HARMONIZATION WITH THE JUMPSTART OUR BUSINESS STARTUPS ACT.
Within 90 days after the date of the enactment of this Act, the
Commodity Futures Trading Commission shall--
(1) revise section 4.7(b) of title 17, Code of Federal
Regulations, in the matter preceding paragraph (1), to read as
follows:
``(b) Relief available to commodity pool operators. Upon filing the
notice required by paragraph (d) of this section, and subject to
compliance with the conditions specified in paragraph (d) of this
section, any registered commodity pool operator who sells
participations in a pool solely to qualified eligible persons in an
offering which qualifies for exemption from the registration
requirements of the Securities Act pursuant to section 4(2) of that Act
or pursuant to Regulation S, 17 CFR 230.901 et seq., and any bank
registered as a commodity pool operator in connection with a pool that
is a collective trust fund whose securities are exempt from
registration under the Securities Act pursuant to section 3(a)(2) of
that Act and are sold solely to qualified eligible persons, may claim
any or all of the following relief with respect to such pool:''; and
(2) revise section 4.13(a)(3)(i) of such title to read as
follows:
``(i) Interests in the pool are exempt from registration under the
Securities Act of 1933, and such interests are offered and sold
pursuant to section 4 of the Securities Act of 1933 and the regulations
thereunder;''.
SEC. 358. BONA FIDE HEDGE DEFINED TO PROTECT END USER RISK MANAGEMENT
NEEDS.
Section 4a(c) of the Commodity Exchange Act (7 U.S.C. 6a(c)) is
amended--
(1) in paragraph (1)--
(A) by striking ``may'' and inserting ``shall'';
and
(B) by striking ``future for which'' and inserting
``future, to be determined by the Commission, for which
either an appropriate swap is available or'';
(2) in paragraph (2)--
(A) in the matter preceding subparagraph (A), by
striking ``subsection (a)(2)'' and all that follows
through ``position as'' and inserting ``paragraphs (2)
and (5) of subsection (a) for swaps, contracts of sale
for future delivery, or options on the contracts or
commodities, a bona fide hedging transaction or
position is''; and
(B) in subparagraph (A)(ii), by striking ``of
risks'' and inserting ``or management of current or
anticipated risks''; and
(3) by adding at the end the following:
``(3) The Commission may further define, by rule or
regulation, what constitutes a bona fide hedging transaction,
provided that the rule or regulation is consistent with the
requirements of subparagraphs (A) and (B) of paragraph (2).''.
SEC. 359. CROSS-BORDER REGULATION OF DERIVATIVES TRANSACTIONS.
(a) Rules Required.--Within 180 days after the date of the
enactment of this Act, the Commodity Futures Trading Commission shall
issue rules that address--
(1) the nature of the connections to the United States that
require a non-U.S. person to register as a swap dealer or major
swap participant under the Commodity Exchange Act and the
regulations issued under such Act;
(2) which of the United States swaps requirements shall
apply to the swap activities of non-U.S. persons, U.S. persons,
and their branches, agencies, subsidiaries, and affiliates
outside of the United States and the extent to which such
requirements shall apply; and
(3) the circumstances under which a non-U.S. person in
compliance with the regulatory requirements of a foreign
jurisdiction shall be exempt from United States swaps
requirements.
(b) Rule in Accordance With APA Required.--No guidance, memorandum
of understanding, or any such other agreement may satisfy the
requirement to issue a rule from the Commission in accordance with
section 553 of title 5, United States Code.
(c) General Application to Countries or Administrative Regions
Having 9 Largest Markets.--
(1) General application.--In issuing rules under this
section, the Commission shall provide that a non-U.S. person in
compliance with the swaps regulatory requirements of a country
or administrative region that has 1 of the 9 largest swap
markets by notional amount in the calendar year preceding
issuance of such rules, or other foreign jurisdiction as
determined by the Commission, shall be exempt from United
States swaps requirements in accordance with the schedule set
forth in paragraph (2), unless the Commission determines that
the regulatory requirements of the country or administrative
region or other foreign jurisdiction are not broadly equivalent
to United States swaps requirements.
(2) Effective date schedule.--The exemption described in
paragraph (1) and set forth under the rules required by this
section shall apply to persons or transactions relating to or
involving--
(A) countries or administrative regions described
in such paragraph, or any other foreign jurisdiction as
determined by the Commission, accounting for the 5
largest swap markets by notional amount in the calendar
year preceding issuance of such rules, on the date on
which final rules are issued under this section; and
(B) the remaining countries or administrative
regions described in such paragraph, and any other
foreign jurisdiction as determined by the Commission, 1
year after the date on which such rules are issued.
(3) Criteria.--In such rules, the Commission shall
establish criteria for determining that 1 or more categories of
regulatory requirements of a country or administrative region
described in paragraph (1) or other foreign jurisdiction is not
broadly equivalent to United States swaps requirements and
shall determine the appropriate application of certain United
States swap requirements to persons or transactions relating to
or involving the country or administrative region or other
foreign jurisdiction. The criteria shall include the scope and
objectives of the regulatory requirements of a country or
administrative region described in paragraph (1) or other
foreign jurisdiction as well as the effectiveness of the
supervisory compliance program administered, and the
enforcement authority exercised, by the country or
administrative region or other foreign jurisdiction, and such
other factors as the Commission, by rule, determines to be
necessary or appropriate in the public interest.
(4) Required assessment.--Beginning on the date on which
final rules are issued under this section, the Commission shall
begin to assess the regulatory requirements of countries or
administrative regions described in paragraph (1), as the
Commission determines appropriate, in accordance with the
criteria established pursuant to this subsection, to determine
if 1 or more categories of regulatory requirements of such a
country or administrative region or other foreign jurisdiction
is not broadly equivalent to United States swaps requirements.
(d) Report to Congress.--If the Commission makes the determination
described in subsection (c)(1) that the regulatory requirements of a
country or administrative region described in such subsection or other
foreign jurisdiction are not broadly equivalent to United States swaps
requirements, the Commission shall articulate the basis for the
determination in a written report transmitted to the Committee on
Agriculture of the House of Representatives and the Committee on
Agriculture, Nutrition, and Forestry of the Senate within 30 days of
the determination. The determination shall not be effective until the
transmission of the report.
(e) Definitions.--As used in this section and for purposes of the
rules issued pursuant to this section, the following definitions apply:
(1) The term ``U.S. person''--
(A) means--
(i) any natural person resident in the
United States;
(ii) any partnership, corporation, trust,
or other legal person organized or incorporated
under the laws of the United States or having
its principal place of business in the United
States;
(iii) any account (whether discretionary or
non-discretionary) of a U.S. person; and
(iv) any other person as the Commission may
further define to more effectively carry out
the purposes of this section; and
(B) does not include the International Monetary
Fund, the International Bank for Reconstruction and
Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank,
the United Nations, their agencies and pension plans,
and any other similar international organizations and
their agencies and pension plans.
(2) The term ``United States swaps requirements'' means the
provisions relating to swaps contained in the Commodity
Exchange Act (7 U.S.C. 1a et seq.) that were added by title VII
of the Dodd-Frank Wall Street Reform and Consumer Protection
Act, and any rules or regulations prescribed by the Commodity
Futures Trading Commission pursuant to such provisions.
(f) Conforming Amendment.--Section 4(c)(1)(A) of the Commodity
Exchange Act (7 U.S.C. 6(c)(1)(A)) is amended by inserting ``or except
as necessary to effectuate section 361 of the Customer Protection and
End User Relief Act,'' after ``to grant exemptions,''.
Subtitle F--Effective Date
SEC. 371. EFFECTIVE DATE.
The amendments made by this title shall take effect as if enacted
on July 21, 2010.
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