[Title 17 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2016 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 17
Commodity and Securities Exchanges
________________________
Parts 41 to 199
Revised as of April 1, 2016
Containing a codification of documents of general
applicability and future effect
As of April 1, 2016
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
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[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 17:
Chapter I--Commodity Futures Trading Commission
(Continued) 3
Finding Aids:
Table of CFR Titles and Chapters........................ 509
Alphabetical List of Agencies Appearing in the CFR...... 529
List of CFR Sections Affected........................... 539
[[Page iv]]
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 17 CFR 41.1 refers
to title 17, part 41,
section 1.
----------------------------
[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
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parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
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collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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[[Page vii]]
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Oliver A. Potts,
Director,
Office of the Federal Register.
April 1, 2016.
[[Page ix]]
THIS TITLE
Title 17--Commodity and Securities Exchanges is composed of four
volumes. The first two volumes containing parts 1--40, and 41--199
comprise Chapter I--Commodity Futures Trading Commission. The third
volume contains Chapter II--Securities and Exchange Commission, parts
200--239. The fourth volume, comprising part 240 to end, contains the
remaining regulations of the Securities and Exchange Commission, and
Chapter IV--Department of the Treasury. The contents of these volumes
represent all current regulations issued by the Commodity Futures
Trading Commission, the Securities and Exchange Commission, and the
Department of the Treasury as of April 1, 2016.
The OMB control numbers for the Securities and Exchange Commission
appear in Sec. 200.800 of chapter II. For the convenience of the user,
Sec. 200.800 is reprinted in the Finding Aids section of the volume
containing part 240 to end.
For this volume, Ann Worley was Chief Editor. The Code of Federal
Regulations publication program is under the direction of John Hyrum
Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 17--COMMODITY AND SECURITIES EXCHANGES
(This book contains parts 41 to 199)
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Part
chapter i--Commodity Futures Trading Commission (Continued). 41
[[Page 3]]
CHAPTER I--COMMODITY FUTURES TRADING COMMISSION (CONTINUED)
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Part Page
41 Security futures products................... 5
42 Anti-money laundering, terrorist financing.. 29
43 Real-time public reporting.................. 29
44 Interim final rule for pre-enactment swap
transactions............................ 68
45 Swap data recordkeeping and reporting
requirements............................ 70
46 Swap data recordkeeping and reporting
requirements: pre-enactment and
transition swaps........................ 108
48 Registration of foreign boards of trade..... 125
49 Swap data repositories...................... 158
50 Clearing requirement and related rules...... 190
75 Proprietary trading and certain interests in
and relationships with covered funds.... 199
100 Delivery period required.................... 243
140 Organization, functions, and procedures of
the Commission.......................... 243
141 Salary offset............................... 270
142 Indemnification of CFTC employees........... 274
143 Collection of claims owed the United States
arising from activities under the
Commission's jurisdiction............... 275
144 Procedures regarding the disclosure of
information and the testimony of present
or former officers and employees in
response to subpoenas or other demands
of a court.............................. 278
145 Commission records and information.......... 280
146 Records maintained on individuals........... 295
147 Open Commission meetings.................... 304
148 Implementation of the Equal Access to
Justice Act in covered adjudicatory
proceedings before the Commission....... 311
149 Enforcement of nondiscrimination on the
basis of handicap in programs or
activities conducted by the Commodity
Futures Trading Commission.............. 318
[[Page 4]]
150 Limits on positions......................... 324
151 Position limits for futures and swaps....... 329
155 Trading standards........................... 353
156 Broker Associations......................... 357
160 Privacy of consumer financial information
under Title V of the Gramm-Leach-Bliley
Act..................................... 358
162 Protection of consumer information under the
Fair Credit Reporting Act............... 387
165 Whistleblower rules......................... 404
166 Customer protection rules................... 434
170 Registered futures associations............. 437
171 Rules relating to review of National Futures
Association decisions in disciplinary,
membership denial, registration and
member responsibility actions........... 441
180 Prohibition against manipulation............ 455
190 Bankruptcy.................................. 456
191-199
[Reserved]
[[Page 5]]
PART 41_SECURITY FUTURES PRODUCTS--Table of Contents
Subpart A_General Provisions
Sec.
41.1 Definitions.
41.2 Required records.
41.3 Application for an exemptive order pursuant to section 4f(a)(4)(B)
of the Act.
41.4-41.9 [Reserved]
Subpart B_Narrow-Based Security Indexes
41.11 Method for determining market capitalization and dollar value of
average daily trading volume; application of the definition of
narrow-based security index.
41.12 Indexes underlying futures contracts trading for fewer than 30
days.
41.13 Futures contracts on security indexes trading on or subject to the
rules of a foreign board of trade.
41.14 Transition period for indexes that cease being narrow-based
security indexes.
41.15 Exclusion from definition of narrow-based security index for
indexes composed of debt securities.
Subpart C_Requirements and Standards for Listing Security Futures
Products
41.21 Requirements for underlying securities.
41.22 Required certifications.
41.23 Listing of security futures products for trading.
41.24 Rule amendments to security futures products.
41.25 Additional conditions for trading for security futures products.
41.27 Prohibition of dual trading in security futures products by floor
brokers.
Subpart D_Notice_Designated Contract Markets in Security Futures
Products
41.31 Notice-designation requirements.
41.32 Continuing obligations.
41.33 Applications for exemptive orders.
41.34 Exempt provisions.
Subpart E_Customer Accounts and Margin Requirements
41.41 Security futures products accounts.
41.42 Customer margin requirements for security futures--authority,
purpose, interpretation, and scope.
41.43 Definitions.
41.44 General provisions.
41.45 Required margin.
41.46 Type, form and use of margin.
41.47 Withdrawal of margin.
41.48 Undermargined accounts.
41.49 Filing proposed margin rule changes with the Commission.
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).
Source: 66 FR 44511, Aug. 23, 2001, unless otherwise noted.
Subpart A_General Provisions
Sec. 41.1 Definitions.
For purposes of this part:
(a) Alternative trading system shall have the meaning set forth in
section 1a(1) of the Act.
(b) Board of trade shall have the meaning set forth in section 1a(2)
of the Act.
(c) Broad-based security index means a group or index of securities
that does not constitute a narrow-based security index.
(d) Foreign board of trade means a board of trade located outside of
the United States, its territories or possessions, whether incorporated
or unincorporated, where foreign futures or foreign options are entered
into.
(e) Narrow-based security index has the same meaning as in section
1a(35) of the Commodity Exchange Act.
(f) National securities association means a board of trade
registered with the Securities and Exchange Commission pursuant to
section 15A(a) of the Securities Exchange Act of 1934.
(g) National securities exchange means a board of trade registered
with the Securities and Exchange Commission pursuant to section 6(a) of
the Securities Exchange Act of 1934.
(h) Rule shall have the meaning set forth in Commission regulation
40.1.
(i) Security futures product shall have the meaning set forth in
section 1a(32) of the Act.
(j) Opening price means the price at which a security opened for
trading, or a price that fairly reflects the price at which a security
opened for trading, during the regular trading session of the national
securities exchange or national securities association that lists the
security. If the security is not listed on a national securities
exchange or a national securities association, then opening price shall
mean the price at which a security opened for trading, or a price that
fairly reflects the price at
[[Page 6]]
which a security opened for trading, on the primary market for the
security.
(k) Regular trading session of a security means the normal hours for
business of a national securities exchange or national securities
association that lists the security.
(l) Regulatory halt means a delay, halt, or suspension in the
trading of a security, that is instituted by the national securities
exchange or national securities association that lists the security, as
a result of:
(1) A determination that there are matters relating to the security
or issuer that have not been adequately disclosed to the public, or that
there are regulatory problems relating to the security which should be
clarified before trading is permitted to continue; or
(2) The operation of circuit breaker procedures to halt or suspend
trading in all equity securities trading on that national securities
exchange or national securities association.
[66 FR 44511, Aug. 23, 2001, as amended at 66 FR 44965, Aug. 27, 2001;
67 FR 36761, May 24, 2002; 77 FR 66344, Nov. 2, 2012]
Sec. 41.2 Required records.
A designated contract market that trades a security index or
security futures product shall maintain in accordance with the
requirements of Sec. 1.31 of this chapter books and records of all
activities related to the trading of such products, including: Records
related to any determination under subpart B of this part whether or not
a futures contract on a security index is a narrow-based security index
or a broad-based security index.
[77 FR 66344, Nov. 2, 2012]
Sec. 41.3 Application for an exemptive order pursuant to section
4f(a)(4)(B) of the Act.
(a) Any futures commission merchant or introducing broker registered
in accordance with the notice registration provisions of Sec. 3.10 of
this chapter, or any broker or dealer exempt from floor broker or floor
trader registration pursuant to section 4f(a)(3) of the Act, may apply
to the Commission for an order pursuant to section 4f(a)(4)(B) of the
Act granting exemption to such person from any provision of the Act or
the Commission's regulations other than sections 4c(b), 4c(d), 4c(e),
4c(g), 4d, 4e, 4h, 4f(b), 4f(c), 4j, 4k(1), 4p, 6d, 8(d), 8(g), and 16
of the Act and the rules thereunder.
(b) An application pursuant to this section must set forth in
writing or in an electronic mail message the following information:
(1) The name, main business address and main business telephone
number of the person applying for an order;
(2) The capacity in which the person is registered with the
Securities and Exchange Commission and the person's CRD number (if a
member of the National Association of Securities Dealers, Inc.) or
equivalent self-regulatory organization identification, together with a
certification, if true, that the person's registration is not suspended
pursuant to an order of the Securities and Exchange Commission;
(3) The particular section(s) of the Act and/or provision(s) of the
Commission's regulations with respect to which the person seeks
exemption;
(4) Any provision(s) of the securities laws or rules, or of the
rules of a securities self-regulatory organization analogous to the
provision(s);
(5) A clear explanation of the facts and circumstances under which
the person believes that the requested exemptive relief is necessary or
appropriate in the public interest; and
(6) A clear explanation of the extent to which the requested
exemptive relief is consistent with the protection of investors.
(c) A national securities exchange or other securities industry
self-regulatory organization may submit an application for an order
pursuant to this section on behalf of its members.
(d) An application for an order must be submitted to the Director of
the Division of Swap Dealer and Intermediary Oversight, Commodity
Futures Trading Commission, 1155 21st Street, NW., Washington, DC 20581,
if in paper form, or to [email protected] if submitted via electronic mail.
(e) The Commission may, in its sole discretion, grant the
application, deny the application, decline to entertain
[[Page 7]]
the application, or grant the application subject to one or more
conditions.
[66 FR 43086, Aug. 17, 2001. Redesignated at 67 FR 53171, Aug. 14, 2002,
as amended at 67 FR 62352, Oct. 7, 2002; 78 FR 22419, Apr. 16, 2013]
Sec. Sec. 41.4-41.9 [Reserved]
Subpart B_Narrow-Based Security Indexes
Sec. 41.11 Method for determining market capitalization and dollar
value of average daily trading volume; application of the definition
of narrow-based security index.
(a) Market capitalization. For purposes of section 1a(35)(B) of the
Act (7 U.S.C. 1a(35)(B)):
(1) On a particular day, a security shall be 1 of 750 securities
with the largest market capitalization as of the preceding 6 full
calendar months when it is included on a list of such securities
designated by the Commission and the SEC as applicable for that day.
(2) In the event that the Commission and the SEC have not designated
a list under paragraph (a)(1) of this section:
(i) The method to be used to determine market capitalization of a
security as of the preceding 6 full calendar months is to sum the values
of the market capitalization of such security for each U.S. trading day
of the preceding 6 full calendar months, and to divide this sum by the
total number of such trading days.
(ii) The 750 securities with the largest market capitalization shall
be identified from the universe of all NMS securities as defined in
Sec. 242.600 that are common stock or depositary shares.
(b) Dollar value of ADTV. (1) For purposes of section 1a(35)(A) and
(B) of the Act (7 U.S.C. 1a(35)(A) and (B)):
(i)(A) The method to be used to determine the dollar value of ADTV
of a security is to sum the dollar value of ADTV of all reported
transactions in such security in each jurisdiction as calculated
pursuant to paragraphs (b)(1)(ii) and (iii) of this section.
(B) The dollar value of ADTV of a security shall include the value
of all reported transactions for such security and for any depositary
share that represents such security.
(C) The dollar value of ADTV of a depositary share shall include the
value of all reported transactions for such depositary share and for the
security that is represented by such depositary share.
(ii) For trading in a security in the United States, the method to
be used to determine the dollar value of ADTV as of the preceding 6 full
calendar months is to sum the value of all reported transactions in such
security for each U.S. trading day during the preceding 6 full calendar
months, and to divide this sum by the total number of such trading days.
(iii)(A) For trading in a security in a jurisdiction other than the
United States, the method to be used to determine the dollar value of
ADTV as of the preceding 6 full calendar months is to sum the value in
U.S. dollars of all reported transactions in such security in such
jurisdiction for each trading day during the preceding 6 full calendar
months, and to divide this sum by the total number of trading days in
such jurisdiction during the preceding 6 full calendar months.
(B) If the value of reported transactions used in calculating the
ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a
currency other than U.S. dollars, the total value of each day's
transactions in such currency shall be converted into U.S. dollars on
the basis of a spot rate of exchange for that day obtained from at least
one independent entity that provides or disseminates foreign exchange
quotations in the ordinary course of its business.
(iv) The dollar value of ADTV of the lowest weighted 25% of an index
is the sum of the dollar value of ADTV of each of the component
securities comprising the lowest weighted 25% of such index.
(2) For purposes of section 1a(35)(B)(III)(cc) of the Act (7 U.S.C.
1a(35)(B)(III)(cc)):
(i) On a particular day, a security shall be 1 of 675 securities
with the largest dollar value of ADTV as of the preceding 6 full
calendar months when it is included on a list of such securities
designated by the Commission and the SEC as applicable for that day.
[[Page 8]]
(ii) In the event that the Commission and the SEC have not
designated a list under paragraph (b)(2)(i) of this section:
(A) The method to be used to determine the dollar value of ADTV of a
security as of the preceding 6 full calendar months is to sum the value
of all reported transactions in such security in the United States for
each U.S. trading day during the preceding 6 full calendar months, and
to divide this sum by the total number of such trading days.
(B) The 675 securities with the largest dollar value of ADTV shall
be identified from the universe of all NMS securities as defined in
Sec. 242.600 that are common stock or depositary shares.
(c) Depositary Shares and Section 12 Registration. For purposes of
section 1a(35)(B)(III)(aa) of the Act (7 U.S.C. 1a(35)(B)(III)(aa)), the
requirement that each component security of an index be registered
pursuant to section 12 of the Securities Exchange Act of 1934 (15 U.S.C.
78l) shall be satisfied with respect to any security that is a
depositary share if the deposited securities underlying the depositary
share are registered pursuant to section 12 of the Securities Exchange
Act of 1934 and the depositary share is registered under the Securities
Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36).
(d) Definitions. For purposes of this section:
(1) SEC means the Securities and Exchange Commission.
(2) Closing price of a security means:
(i) If reported transactions in the security have taken place in the
United States, the price at which the last transaction in such security
took place in the regular trading session of the principal market for
the security in the United States.
(ii) If no reported transactions in a security have taken place in
the United States, the closing price of such security shall be the
closing price of any depositary share representing such security divided
by the number of shares represented by such depositary share.
(iii) If no reported transactions in a security or in a depositary
share representing such security have taken place in the United States,
the closing price of such security shall be the price at which the last
transaction in such security took place in the regular trading session
of the principal market for the security. If such price is reported in a
currency other than U.S. dollars, such price shall be converted into
U.S. dollars on the basis of a spot rate of exchange relevant for the
time of the transaction obtained from at least one independent entity
that provides or disseminates foreign exchange quotations in the
ordinary course of its business.
(3) Depositary share has the same meaning as in Sec. 240.12b-2.
(4) Foreign financial regulatory authority has the same meaning as
in Section 3(a)(52) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(52)).
(5) Lowest weighted 25% of an index. With respect to any particular
day, the lowest weighted component securities comprising, in the
aggregate, 25% of an index's weighting for purposes of section
1a(35)(A)(iv) of the Act (7 U.S.C. 1a(35)(A)(iv)) (``lowest weighted 25%
of an index'') means those securities:
(i) That are the lowest weighted securities when all the securities
in such index are ranked from lowest to highest based on the index's
weighting methodology; and
(ii) For which the sum of the weight of such securities is equal to,
or less than, 25% of the index's total weighting.
(6) Market capitalization of a security on a particular day:
(i) If the security is not a depositary share, is the product of:
(A) The closing price of such security on that same day; and
(B) The number of outstanding shares of such security on that same
day.
(ii) If the security is a depositary share, is the product of:
(A) The closing price of the depositary share on that same day
divided by the number of deposited securities represented by such
depositary share; and
(B) The number of outstanding shares of the security represented by
the depositary share on that same day.
(7) Outstanding shares of a security means the number of outstanding
shares of such security as reported on the most recent Form 10-K, Form
10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a,
249.310b,
[[Page 9]]
249.308b, or 249.220f) filed with the Securities and Exchange Commission
by the issuer of such security, including any change to such number of
outstanding shares subsequently reported by the issuer on a Form 8-K (17
CFR 249.308).
(8) Preceding 6 full calendar months means, with respect to a
particular day, the period of time beginning on the same day of the
month 6 months before and ending on the day prior to such day.
(9) Principal market for a security means the single securities
market with the largest reported trading volume for the security during
the preceding 6 full calendar months.
(10) Reported transaction means:
(i) With respect to securities transactions in the United States,
any transaction for which a transaction report is collected, processed,
and made available pursuant to an effective transaction reporting plan,
or for which a transaction report, last sale data, or quotation
information is disseminated through an automated quotation system as
described in Section 3(a)(51)(A)(ii) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(51)(A)(ii)); and
(ii) With respect to securities transactions outside the United
States, any transaction that has been reported to a foreign financial
regulatory authority in the jurisdiction where such transaction has
taken place.
(11) U.S. trading day means any day on which a national securities
exchange is open for trading.
(12) Weighting of a component security of an index means the
percentage of such index's value represented, or accounted for, by such
component security.
[66 FR 44511, Aug. 23, 2001, as amended at 70 FR 43750, July 29, 2005;
77 FR 66344, Nov. 2, 2012]
Sec. 41.12 Indexes underlying futures contracts trading for fewer
than 30 days.
(a) An index on which a contract of sale for future delivery is
trading on a designated contract market or foreign board of trade is not
a narrow-based security index under section 1a(35) of the Act (7 U.S.C.
1a(35)) for the first 30 days of trading, if:
(1) Such index would not have been a narrow-based security index on
each trading day of the preceding 6 full calendar months with respect to
a date no earlier than 30 days prior to the commencement of trading of
such contract;
(2) On each trading day of the preceding 6 full calendar months with
respect to a date no earlier than 30 days prior to the commencement of
trading such contract:
(i) Such index had more than 9 component securities;
(ii) No component security in such index comprised more than 30
percent of the index's weighting;
(iii) The 5 highest weighted component securities in such index did
not comprise, in the aggregate, more than 60 percent of the index's
weighting; and
(iv) The dollar value of the trading volume of the lowest weighted
25% of such index was not less than $50 million (or in the case of an
index with 15 or more component securities, $30 million); or
(3) On each trading day of the 6 full calendar months preceding a
date no earlier than 30 days prior to the commencement of trading such
contract:
(i) Such index had at least 9 component securities;
(ii) No component security in such index comprised more than 30
percent of the index's weighting; and
(iii) Each component security in such index was:
(A) Registered pursuant to Section 12 of the Securities Exchange Act
of 1934 (15 U.S.C. 78) or was a depositary share representing a security
registered pursuant to Section 12 of the Securities Exchange Act of
1934;
(B) 1 of 750 securities with the largest market capitalization that
day; and
(C) 1 of 675 securities with the largest dollar value of trading
volume that day.
(b) An index that is not a narrow-based security index for the first
30 days of trading pursuant to paragraph (a) of this section, shall
become a narrow-based security index if such index has been a narrow-
based security index for more than 45 business days over 3 consecutive
calendar months.
(c) An index that becomes a narrow-based security index solely
because it was a narrow-based security index for
[[Page 10]]
more than 45 business days over 3 consecutive calendar months pursuant
to paragraph (b) of this section shall not be a narrow-based security
index for the following 3 calendar months.
(d) Definitions. For purposes of this section:
(1) Market capitalization has the same meaning as in Sec.
41.11(d)(6) of this chapter.
(2) Dollar value of trading volume of a security on a particular day
is the value in U.S. dollars of all reported transactions in such
security on that day. If the value of reported transactions used in
calculating dollar value of trading volume is reported in a currency
other than U.S. dollars, the total value of each day's transactions
shall be converted into U.S. dollars on the basis of a spot rate of
exchange for that day obtained from at least one independent entity that
provides or disseminates foreign exchange quotations in the ordinary
course of its business.
(3) Lowest weighted 25% of an index has the same meaning as in Sec.
41.11(d)(5) of this chapter.
(4) Preceding 6 full calendar months has the same meaning as in
Sec. 41.11(d)(8) of this chapter.
(5) Reported transaction has the same meaning as in Sec.
41.11(d)(10) of this chapter.
[66 FR 44511, Aug. 23, 2001, as amended at 77 FR 66344, Nov. 2, 2012]
Sec. 41.13 Futures contracts on security indexes trading on or
subject to the rules of a foreign board of trade.
When a contract of sale for future delivery on a security index is
traded on or subject to the rules of a foreign board of trade, such
index shall not be a narrow-based security index if it would not be a
narrow-based security index if a futures contract on such index were
traded on a designated contract market.
[77 FR 66344, Nov. 2, 2012]
Sec. 41.14 Transition period for indexes that cease being
narrow-based security indexes.
(a) Forty-five day tolerance provision. An index that is a narrow-
based security index that becomes a broad-based security index for no
more than 45 business days over 3 consecutive calendar months shall be a
narrow-based security index.
(b) Transition period for indexes that cease being narrow-based
security indexes for more than forty-five days. An index that is a
narrow-based security index that becomes a broad-based security index
for more than 45 business days over 3 consecutive calendar months shall
continue to be a narrow-based security index for the following 3
calendar months.
(c) Trading in months with open interest following transition
period. After the transition period provided for in paragraph (b) of
this section ends, a national securities exchange may continue to trade
only in those months in the security futures product that had open
interest on the date the transition period ended.
(d) Definition of calendar month. Calendar month means, with respect
to a particular day, the period of time beginning on a calendar date and
ending during another month on a day prior to such date.
Sec. 41.15 Exclusion from definition of narrow-based security index
for indexes composed of debt securities.
(a) An index is not a narrow-based security index if:
(1)(i) Each of the securities of an issuer included in the index is
a security, as defined in section 2(a)(1) of the Securities Act of 1933
and section 3 (a)(10) of the Securities Exchange Act of 1934 and the
respective rules promulgated thereunder, that is a note, bond,
debenture, or evidence of indebtedness;
(ii) None of the securities of an issuer included in the index is an
equity security, as defined in section 3(a)(11) of the Securities
Exchange Act of 1934 and the rules promulgated thereunder;
(iii) The index is comprised of more than nine securities that are
issued by more than nine non-affiliated issuers;
(iv) The securities of any issuer included in the index do not
comprise more than 30 percent of the index's weighting;
(v) The securities of any five non-affiliated issuers included in
the index do not comprise more than 60 percent of the index's weighting;
[[Page 11]]
(vi) Except as provided in paragraph (a)(1)(viii) of this section,
for each security of an issuer included in the index one of the
following criteria is satisfied:
(A) The issuer of the security is required to file reports pursuant
to section 13 or section 15(d) of the Securities Exchange Act of 1934;
(B) The issuer of the security has a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more;
(C) The issuer of the security has outstanding securities that are
notes, bonds, debentures, or evidences of indebtedness having a total
remaining principal amount of at least $1 billion;
(D) The security is an exempted security as defined in section
3(a)(12) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder; or
(E) The issuer of the security is a government of a foreign country
or a political subdivision of a foreign country; and
(vii) Except as provided in paragraph (a)(1)(viii) of this section,
for each security of an issuer included in the index one of the
following criteria is satisfied:
(A) The security has a total remaining principal amount of at least
$250,000,000; or
(B) The security is a municipal security (as defined in section
3(a)(29) of the Securities Exchange Act of 1934 and the rules
promulgated thereunder) that has a total remaining principal amount of
at least $200,000,000 and the issuer of such municipal security has
outstanding securities that are notes, bonds, debentures, or evidences
of indebtedness having a total remaining principal amount of at least $1
billion; and
(viii) Paragraphs (a)(1)(vi) and (a)(1)(vii) of this section will
not apply to securities of an issuer included in the index if:
(A) All securities of such issuer included in the index represent
less than five percent of the index's weighting; and
(B) Securities comprising at least 80 percent of the index's
weighting satisfy the provisions of paragraphs (a)(1)(vi) and
(a)(1)(vii) of this section.
(2)(i) The index includes exempted securities, other than municipal
securities as defined in section 3(a)(29) of the Securities Exchange Act
of 1934 and the rules promulgated thereunder, that are:
(A) Notes, bonds, debentures, or evidences of indebtedness; and
(B) Not equity securities, as defined in section 3(a)(11) of the
Securities Exchange Act of 1934 and the rules promulgated thereunder;
and
(ii) Without taking into account any portion of the index composed
of such exempted securities, other than municipal securities, the
remaining portion of the index would not be a narrow-based security
index meeting all the conditions under paragraph (a)(1) of this section.
(b) For purposes of this section:
(1) An issuer is affiliated with another issuer if it controls, is
controlled by, or is under common control with, that issuer.
(2) For purposes of this section, ``control'' means ownership of 20
percent or more of an issuer's equity, or the ability to direct the
voting of 20 percent or more of the issuer's voting equity.
(3) The term ``issuer'' includes a single issuer or group of
affiliated issuers.
[71 FR 39541, July 13, 2006]
Subpart C_Requirements and Standards for Listing Security Futures
Products
Source: 66 FR 55083, Nov. 1, 2001, unless otherwise noted.
Sec. 41.21 Requirements for underlying securities.
(a) Security futures products based on a single security. A futures
contract on a single security is eligible to be traded as a security
futures product only if:
(1) The underlying security is registered pursuant to section 12 of
the Securities Exchange Act of 1934;
(2) The underlying security is:
(i) Common stock,
(ii) Such other equity security as the Commission and the SEC
jointly deem appropriate, or
(iii) A note, bond, debenture, or evidence of indebtedness; and
[[Page 12]]
(3) The underlying security conforms with the listing standards for
the security futures product that the designated contract market has
filed with the SEC under section 19(b) of the Securities Exchange Act of
1934.
(b) Security futures product based on two or more securities. A
futures contract on an index of two or more securities is eligible to be
traded as a security futures product only if:
(1) The index is a narrow-based security index as defined in section
1a(35) of the Act;
(2) The securities in the index are registered pursuant to section
12 of the Securities Exchange Act of 1934;
(3) The securities in the index are:
(i) Common stock,
(ii) Such other equity securities as the Commission and the SEC
jointly deem appropriate, or
(iii) A note, bond, debenture, or evidence of indebtedness; and
(4) The index conforms with the listing standards for the security
futures product that the designated contract market has filed with the
SEC under section 19(b) of the Securities Exchange Act of 1934.
[66 FR 55083, Nov. 1, 2001, as amended at 71 FR 39542, July 13, 2006; 77
FR 66344, Nov. 2, 2012]
Sec. 41.22 Required certifications.
It shall be unlawful for a designated contract market to list for
trading or execution a security futures product unless the designated
contract market has provided the Commission with a certification that
the specific security futures product or products and the designated
contract market meet, as applicable, the following criteria:
(a) The underlying security or securities satisfy the requirements
of Sec. 41.21;
(b) If the security futures product is not cash settled,
arrangements are in place with a clearing agency registered pursuant to
section 17A of the Securities Exchange Act of 1934 for the payment and
delivery of the securities underlying the security futures product;
(c) Common clearing. [Reserved]
(d) Only futures commission merchants, introducing brokers,
commodity trading advisors, commodity pool operators or associated
persons subject to suitability rules comparable to those of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, except to the extent otherwise permitted under the
Securities Exchange Act of 1934 and the rules and regulations
thereunder, may solicit, accept any order for, or otherwise deal in any
transaction in or in connection with security futures products;
(e) If the board of trade is a designated contract market pursuant
to section 5 of the Act, dual trading in these security futures products
is restricted in accordance with Sec. 41.27;
(f) Trading in the security futures products is not readily
susceptible to manipulation of the price of such security futures
product, nor to causing or being used in the manipulation of the price
of any underlying security, option on such security, or option on a
group or index including such securities, consistent with the conditions
for trading of Sec. 41.25;
(g) Procedures are in place for coordinated surveillance among the
board of trade, any market on which any security underlying a security
futures product is traded, and other markets on which any related
security is traded to detect manipulation and insider trading. A board
of trade that is an alternative trading system does not need to make
this certification, provided that:
(1) The alternative trading system is a member of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934; and
(2) The national securities association or national securities
exchange of which the alternative trading system is a member has in
place such procedures;
(h) An audit trail is in place to facilitate coordinated
surveillance among the board of trade, any market on which any security
underlying a security futures product is traded, and any market on which
any related security is traded. A board of trade that is an alternative
trading system does not need to make this certification, provided that:
[[Page 13]]
(1) The alternative trading system is a member of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934; and
(2) The national securities association or national securities
exchange of which the alternative trading system is a member has in
place such procedures;
(i) Procedures are in place to coordinate regulatory trading halts
between the board of trade and markets on which any security underlying
the security futures product is traded and other markets on which any
related security is traded. A board of trade that is an alternative
trading system does not need to make this certification, provided that:
(1) The alternative trading system is a member of a national
securities association registered pursuant to section 15A(a) of the
Securities Exchange Act of 1934 or national securities exchange
registered pursuant to section 6(a) of the Securities Exchange Act of
1934; and
(2) The national securities association or national securities
exchange of which the alternative trading system is a member has in
place such procedures; and
(j) The margin requirements for the security futures product will
comply with the provisions specified in Sec. 41.43 through Sec. 41.48.
[66 FR 44511, Aug. 23, 2001, as amended at 77 FR 66344, Nov. 2, 2012]
Sec. 41.23 Listing of security futures products for trading.
(a) Initial listing of products for trading. To list new security
futures products for trading, a designated contract market shall submit
to the Commission at its Washington, DC headquarters, either in
electronic or hard-copy form, to be received by the Commission no later
than the day prior to the initiation of trading, a filing that:
(1) Is labeled ``Listing of Security Futures Product;''
(2) Includes a copy of the product's rules, including its terms and
conditions;
(3) Includes the certifications required by Sec. 41.22;
(4) Includes a certification that the terms and conditions of the
contract comply with the additional conditions for trading of Sec.
41.25;
(5) If the board of trade is a designated contract market pursuant
to section 5 of the Act, it includes a certification that the security
futures product complies with the Act and rules thereunder; and
(6) Includes a copy of the submission cover sheet in accordance with
the instructions in appendix D of part 40.
(7) Includes a request for confidential treatment as permitted under
the procedures of Sec. 40.8.
(b) Voluntary submission of security futures products for Commission
approval. A designated contract market may request that the Commission
approve any security futures product under the procedures of Sec. 40.5
of this chapter, provided however, that the registered entity shall
include the certification required by Sec. 41.22 with its submission
under Sec. 40.5 of this chapter. Notice designated contract markets may
not request Commission approval of security futures products.
[66 FR 55083, Nov. 1, 2001, as amended at 69 FR 67507, Nov. 18, 2004; 74
FR 17394, Apr. 15, 2009; 77 FR 66344, Nov. 2, 2012]
Sec. 41.24 Rule amendments to security futures products.
(a) Self-certification of rules and rule amendments by designated
contract markets and registered derivatives clearing organizations. A
designated contract market or registered derivatives clearing
organization may implement any new rule or rule amendment relating to a
security futures product by submitting to the Commission at its
Washington, DC headquarters, either in electronic or hard-copy form, to
be received by the Commission no later than the day prior to the
implementation of the rule or rule amendment, a filing that:
(1) Is labeled ``Security Futures Product Rule Submission;'
(2) Includes a copy of the new rule or rule amendment;
[[Page 14]]
(3) Includes a certification that the designated contract market or
registered derivatives clearing organization has filed the rule or rule
amendment with the Securities and Exchange Commission, if such a filing
is required;
(4) If the board of trade is a designated contract market pursuant
to section 5 of the Act or is a registered derivatives clearing
organization pursuant to section 5b of the Act, it includes the
documents and certifications required to be filed with the Commission
pursuant to Sec. 40.6 of this chapter, including a certification that
the security futures product complies with the Act and rules thereunder;
and
(5) Includes a copy of the submission cover sheet in accordance with
the instructions in appendix D of part 40.
(6) Includes a request for confidential treatment as permitted under
the procedures of Sec. 40.8.
(b) Voluntary submission of rules for Commission review and
approval. A designated contract market or a registered derivatives
clearing organization clearing security futures products may request
that the Commission approve any rule or proposed rule or rule amendment
relating to a security futures product under the procedures of Sec.
40.5 of this chapter, provided however, that the registered entity shall
include the certifications required by Sec. 41.22 with its submission
under Sec. 40.5 of this chapter. Notice designated contract markets may
not request Commission approval of rules.
[66 FR 55083, Nov. 1, 2001, as amended at 69 FR 67507, Nov. 18, 2004; 74
FR 17394, Apr. 15, 2009; 77 FR 66344, Nov. 2, 2012]
Sec. 41.25 Additional conditions for trading for security futures
products.
(a) Common provisions--(1) Reporting of data. The designated
contract market shall comply with part 16 of this chapter requiring the
daily reporting of market data.
(2) Regulatory trading halts. The rules of a designated contract
market that lists or trades one or more security futures products must
include the following provisions:
(i) Trading of a security futures product based on a single security
shall be halted at all times that a regulatory halt has been instituted
for the underlying security; and
(ii) Trading of a security futures product based on a narrow-based
security index shall be halted at all times that a regulatory halt has
been instituted for one or more underlying securities that constitute 50
percent or more of the market capitalization of the narrow-based
security index.
(3) Speculative position limits. The designated contract market
shall have rules in place establishing position limits or position
accountability procedures for the expiring futures contract month. The
designated contract market shall:
(i) Adopt a net position limit no greater than 13,500 (100-share)
contracts applicable to positions held during the last five trading days
of an expiring contract month; except where,
(A) For security futures products where the average daily trading
volume in the underlying security exceeds 20 million shares, or exceeds
15 million shares and there are more than 40 million shares of the
underlying security outstanding, the designated contract market may
adopt a net position limit no greater than 22,500 (100-share) contracts
applicable to positions held during the last five trading days of an
expiring contract month; or
(B) For security futures products where the average daily trading
volume in the underlying security exceeds 20 million shares and there
are more than 40 million shares of the underlying security outstanding,
the designated contract market may adopt a position accountability rule.
Upon request by the designated contract market, traders who hold net
positions greater than 22,500 (100-share) contracts, or such lower level
specified by exchange rules, must provide information to the exchange
and consent to halt increasing their positions when so ordered by the
exchange.
(ii) For a security futures product comprised of more than one
security, the criteria in paragraphs (a)(3)(i)(A) and (a)(3)(i)(B) of
this section must apply to the security in the index with the lowest
average daily trading volume.
[[Page 15]]
(iii) Exchanges may approve exemptions from these position limits
pursuant to rules that are consistent with Sec. 150.3 of this chapter.
(iv) For purposes of this section, average daily trading volume
shall be calculated monthly, using data for the most recent six-month
period. If the data justify a higher or lower speculative limit for a
security future, the designated contract market may raise or lower the
position limit for that security future effective no earlier than the
day after it has provided notification to the Commission and to the
public under the submission requirements of Sec. 41.24. If the data
require imposition of a reduced position limit for a security future,
the designated contract market may permit any trader holding a position
in compliance with the previous position limit, but in excess of the
reduced limit, to maintain such position through the expiration of the
security futures contract; provided, that the designated contract market
does not find that the position poses a threat to the orderly expiration
of such contract.
(b) Final settlement prices for security futures products. (1) The
final settlement price of a cash-settled security futures product must
fairly reflect the opening price of the underlying security or
securities;
(2) Notwithstanding paragraph (b)(1) of this section, if an opening
price for one or more securities underlying a security futures product
is not readily available, the final settlement price of the security
futures product shall fairly reflect:
(i) The price of the underlying security or securities during the
most recent regular trading session for such security or securities; or
(ii) The next available opening price of the underlying security or
securities.
(3) Notwithstanding paragraphs (b)(1) or (b)(2) of this section, if
a derivatives clearing organization registered under Section 5b of the
Act or a clearing agency exempt from registration pursuant to Section
5b(a)(2) of the Act, to which the final settlement price of a security
futures product is or would be reported determines, pursuant to its
rules, that such final settlement price is not consistent with the
protection of customers and the public interest, taking into account
such factors as fairness to buyers and sellers of the affected security
futures product, the maintenance of a fair and orderly market in such
security futures product, and consistency of interpretation and
practice, the clearing organization shall have the authority to
determine, under its rules, a final settlement price for such security
futures product.
(c) Special requirements for physical delivery contracts. For
security futures products settled by actual delivery of the underlying
security or securities, payment and delivery of the underlying security
or securities must be effected through a clearing agency that is
registered pursuant to section 17A of the Securities Exchange Act of
1934.
(d) The Commission may exempt a designated contract market from the
provisions of paragraphs (a)(2) and (b) of this section, either
unconditionally or on specified terms and conditions, if the Commission
determines that such exemption is consistent with the public interest
and the protection of customers. An exemption granted pursuant to this
paragraph shall not operate as an exemption from any Securities and
Exchange Commission rules. Any exemption that may be required from such
rules must be obtained separately from the Securities and Exchange
Commission.
[66 FR 55083, Nov. 1, 2001, as amended at 67 FR 36761, May 24, 2002; 77
FR 66345, Nov. 2, 2012]
Sec. 41.27 Prohibition of dual trading in security futures products
by floor brokers.
(a) Definitions. For purposes of this section:
(1) Trading session means hours during which a designated contract
market is scheduled to trade continuously during a trading day, as set
forth in its rules, including any related post settlement trading
session. A designated contract market may have more than one trading
session during a trading day.
(2) Member shall have the meaning set forth in section 1a(24) of the
Act.
(3) Broker association includes two or more designated contract
market members with floor trading privileges
[[Page 16]]
of whom at least one is acting as a floor broker who:
(i) Engage in floor brokerage activity on behalf of the same
employer;
(ii) Have an employer and employee relationship which relates to
floor brokerage activity;
(iii) Share profits and losses associated with their brokerage or
trading activity; or
(iv) Regularly share a deck of orders.
(4) Customer means an account owner for which a trade is executed
other than:
(i) An account in which such floor broker has any interest;
(ii) An account for which a floor broker has discretion;
(iii) An account controlled by a person with whom a floor broker has
a relationship through membership in a broker association;
(iv) A house account of the floor broker's clearing member; or
(v) An account for another member present on the floor of a
designated contract market or an account controlled by such other
member.
(5) Dual trading means the execution of customer orders by a floor
broker through open outcry during the same trading session in which the
floor broker executes directly or by initiating and passing to another
member, either through open outcry or through a trading system that
electronically matches bids and offers pursuant to a predetermined
algorithm, a transaction for the same security futures product on the
same designated contract market for an account described in paragraphs
(a)(4)(i) through (v) of this section.
(b) Dual Trading Prohibition. (1) No floor broker shall engage in
dual trading in a security futures product on a designated contract
market, except as otherwise provided under paragraphs (d), (e), and (f)
of this section.
(2) A designated contract market operating an electronic market or
electronic trading system that provides market participants with a time
or place advantage or the ability to override a predetermined algorithm
must submit an appropriate rule proposal to the Commission consistent
with the procedures set forth in Sec. 40.5. The proposed rule must
prohibit electronic market participants with a time or place advantage
or the ability to override a predetermined algorithm from trading a
security futures product for accounts in which these same participants
have any interest during the same trading session that they also trade
the same security futures product for other accounts. This paragraph,
however, is not applicable with respect to execution priorities or
quantity guarantees granted to market makers who perform that function,
or to market participants who receive execution priorities based on
price improvement activity, in accordance with the rules governing the
designated contract market.
(c) Rules Prohibiting Dual Trading--(1) Designated contract markets.
Prior to listing a security futures product for trading on a trading
floor where bids and offers are executed through open outcry, a
designated contract market:
(i) Must submit to the Commission in accordance with Sec. 40.6, a
rule prohibiting dual trading, together with a written certification
that the rule complies with the Act and the regulations thereunder,
including this section; or
(ii) Must obtain Commission approval of such rule pursuant to Sec.
40.5.
(2) [Reserved]
(d) Specific Permitted Exceptions. Notwithstanding the applicability
of a dual trading prohibition under paragraph (b) of this section, dual
trading may be permitted on a designated contract market pursuant to one
or more of the following specific exceptions:
(1) Correction of errors. To offset trading errors resulting from
the execution of customer orders, provided, that the floor broker must
liquidate the position in his or her personal error account resulting
from that error through open outcry or through a trading system that
electronically matches bids and offers as soon as practicable, but,
except as provided herein, not later than the close of business on the
business day following the discovery of error. In the event that a floor
broker is unable to offset the error trade because the daily price
fluctuation limit is reached, a trading halt is imposed by the
designated contract market, or an emergency is declared pursuant to the
[[Page 17]]
rules of the designated contract market, the floor broker must liquidate
the position in his or her personal error account resulting from that
error as soon as practicable thereafter.
(2) Customer consent. To permit a customer to designate in writing
not less than once annually a specifically identified floor broker to
dual trade while executing orders for such customer's account. An
account controller acting pursuant to a power of attorney may designate
a dual trading broker on behalf of its customer, provided, that the
customer explicitly grants in writing to the individual account
controller the authority to select a dual trading broker.
(3) Spread transactions. To permit a broker who unsuccessfully
attempts to leg into a spread transaction for a customer to take the
executed leg into his or her personal account and to offset such
position, provided, that a record is prepared and maintained to
demonstrate that the customer order was for a spread.
(4) Market emergencies. To address emergency market conditions
resulting in a temporary emergency action as determined by a designated
contract market.
(e) Rules Permitting Specific Exceptions--(1) Designated contract
markets. Prior to permitting dual trading under any of the exceptions
provided in paragraphs (d)(1)-(4) of this section, a designated contract
market:
(i) Must submit to the Commission in accordance with Sec. 40.6, a
rule permitting the exception(s), together with a written certification
that the rule complies with the Act and the regulations thereunder,
including this section; or
(ii) Must obtain Commission approval of such rule pursuant to Sec.
40.5.
(2) [Reserved]
(f) Unique or Special Characteristics of Agreements, Contracts or
Transactions, or of Designated Contract Markets. Notwithstanding the
applicability of a dual trading prohibition under paragraph (b) of this
section, dual trading may be permitted on a designated contract market
to address unique or special characteristics of agreements, contracts,
or transactions, or of the designated contract market as provided
herein. Any rule of a designated contract market that would permit dual
trading when it would otherwise be prohibited, based on a unique or
special characteristic of agreements, contracts, or transactions, or of
the designated contract market must be submitted to the Commission for
prior approval under the procedures set forth in Sec. 40.5. The rule
submission must include a detailed demonstration of why an exception is
warranted.
[67 FR 11227, Mar. 13, 2002, as amended at 77 FR 66345, Nov. 2, 2012]
Subpart D_Notice-Designated Contract Markets in Security Futures
Products
Source: 66 FR 44965, Aug. 27, 2001, unless otherwise noted.
Sec. 41.31 Notice-designation requirements.
(a) Any board of trade that is a national securities exchange, a
national securities association, or an alternative trading system, and
that seeks to operate as a designated contract market in security
futures products under section 5f of the Act, shall so notify the
Commission. Such notification shall be filed with the Secretary of the
Commission at its Washington, D.C. headquarters, in either electronic or
hard copy form, shall be labeled as ``Notice of Designation as a
Contract Market in Security Futures Products,'' and shall include:
(1) The name and address of the board of trade;
(2) The name and telephone number of a contact person designated to
receive communications from the Commission on behalf of the board of
trade;
(3) A description of the security futures products that the board of
trade intends to make available for trading, including an identification
of all facilities that would clear transactions in security futures
products on behalf of the board of trade;
(4) A copy of the current rules of the board of trade; and
(5) A certification that the board of trade--
(i) Will not list or trade any contracts of sale for future
delivery, except for security futures products;
[[Page 18]]
(ii) Is registered with the Securities and Exchange Commission as a
national securities exchange, national securities association, or
alternative trading system, and such registration is not suspended
pursuant to an order by the Securities and Exchange Commission;
(iii) Will meet the criteria specified in subclauses (I) through
(XI) of section 2(a)(1)(D)(i) of the Act, except as otherwise provided
in section 2(a)(1)(D)(vi) of the Act, for each specific security futures
product that the board of trade intends to make available for trading;
(iv) Will comply with the conditions for designation under this
section and section 5f of the Act, including a specific representation
by any alternative trading system that it is a member of a futures
association registered under section 17 of the Act; and
(v) Will comply with the continuing obligations of regulation 41.32.
(b) A board of trade which files notice with the Commission under
this section shall be deemed a designated contract market in security
futures products upon the Commission's receipt of such notice.
Accordingly, the Commission shall send prompt acknowledgment of receipt
to the filer.
(c) Designation as a contract market in security futures products
pursuant to this section shall be deemed suspended if the board of
trade:
(1) Lists or trades any contracts of sale for future delivery,
except for security futures products; or
(2) Has its registration as a national securities exchange, national
securities association, or alternative trading system suspended pursuant
to an order by the Securities and Exchange Commission.
Sec. 41.32 Continuing obligations.
(a)(1) A board of trade designated as a contract market in security
futures products pursuant to Sec. 41.31 of this chapter shall:
(i) Notify the Commission of any change in its regulatory status
with the Securities and Exchange Commission or with a futures
association registered under section 17 of the Act;
(ii) Comply with the filing requirements of section 2(a)(1)(D)(vii)
of the Act each time the board of trade lists a security futures product
for trading;
(iii) Provide the Commission with any new rules or rule amendments
that relate to the trading of security futures products, including both
operational rules and the terms and conditions of products listed for
trading on the facility, promptly after final implementation of such
rules or rule amendments; and
(iv) Upon request, file promptly with the Commission--
(A) Such information related to its business as a designated
contract market in security futures products as the Commission may
request; and
(B) A written demonstration, containing such supporting data and
other information and documents as the Commission may specify, that the
board of trade is in compliance with one or more applicable provisions
of the Act or regulations thereunder as specified in the request.
(2) Any information filed pursuant to paragraph (a) of this section
shall be addressed to the Secretary of the Commission at its Washington,
D.C. headquarters, shall be labeled ``SFPCM Continuing Obligations,''
and may be transmitted in either electronic or hard copy form.
(b) Except as exempted under section 5f(b) of the Act or under
Sec. Sec. 41.33 and 41.34 of this chapter, any board of trade
designated as a contract market in security futures products pursuant to
Sec. 41.31 of this chapter shall be subject to all applicable
requirements of the Act and regulations thereunder. Failure to comply
shall subject the board of trade to Commission action under, among other
provisions, sections 5e and 6(b) of the Act.
Sec. 41.33 Applications for exemptive orders.
(a) Any board of trade designated as a contract market in security
futures products pursuant to Sec. 41.31 of this chapter may apply to
the Commission for an exemption from any provision of the Act or
regulations thereunder. Except as provided in sections 5f(b)(1) and
5f(b)(2) of the Act, the Commission shall have sole discretion to exempt
a board of trade, conditionally or unconditionally, from any provision
of the
[[Page 19]]
Act or regulations thereunder pursuant to this section. The Commission
may issue such an exemptive order in response to an application only to
the extent it finds, after review, that the issuance of an exemptive
order is necessary or appropriate in the public interest and is
consistent with the protection of investors.
(b) Each application for exemptive relief must comply with the
requirements of this section. The Commission may, in its sole
discretion, decline to entertain any application for an exemptive order
under this section without explanation; provided, however, that the
Commission shall notify the board of trade of such a decision in
writing.
(c) Application requirements. (1) Each application for an exemptive
order made pursuant to this section must include:
(i) The name and address of the board of trade requesting relief,
and the name and telephone number of a person whom Commission staff may
contact to obtain additional information regarding the request;
(ii) A certification that the registration of the board of trade is
not suspended pursuant to an order of the Securities and Exchange
Commission;
(iii) The provision(s) of the Act or regulations thereunder from
which the board of trade seeks relief and, if applicable, whether the
board of trade is otherwise subject to similar provisions as a result of
Securities and Exchange Commission jurisdiction; and
(iv) The type of relief requested and the order sought; an
explanation of the need for relief, including all material facts and
circumstances giving rise to the request; and the extent to which such
relief is necessary or appropriate in the public interest and consistent
with the protection of investors.
(2) Each application must be filed with the Secretary of the
Commission at its Washington, D.C. headquarters, in either electronic or
hard copy form, signed by an authorized representative of the board of
trade, and labeled ``Application for an Exemptive Order pursuant to
Commission regulation 41.33.''
(d) Review Period. (1) The Commission shall have 90 days upon
receipt of an application for an exemptive order in which to make a
determination as to whether such relief should be granted or denied.
(2) The Commission may request additional information from the
applicant at any time prior to the end of the review period.
(3) The Commission may stay the review period if it determines that
an application is materially incomplete; provided, however, that this
paragraph (d) does not limit the Commission's authority, under paragraph
(b) of this section, to decline to entertain an application.
(e) Upon conclusion of the review period, the Commission shall issue
an order granting or denying relief, or granting relief subject to
conditions; provided, however, that the Commission's obligations under
this paragraph shall not limit its authority, under paragraph (b) of
this section, to decline to entertain an application. The Commission
shall notify the board of trade in writing of its decision to grant or
deny relief under this paragraph.
(f) An application for an exemptive order may be withdrawn by the
applicant at any time, without explanation, by filing with the Secretary
of the Commission a written request for withdrawal, signed by an
authorized representative of the board of trade.
(g) The Commission hereby delegates, until it orders otherwise, to
the Director of the Division of Division of Market Oversight, with the
concurrence of the General Counsel, authority to make determinations on
applications for exemptive orders pursuant to this section; provided,
however, that:
(1) The Director of the Division of Market Oversight may submit to
the Commission for its consideration any matter which has been delegated
pursuant to paragraph (g) of this section; and
(2) Nothing in this section shall be deemed to prohibit the
Commission, at its election, from exercising the authority delegated to
the Director of the Division of Market Oversight under paragraph (g) of
this section.
[66 FR 44511, Aug. 23, 2001, as amended at 67 FR 62352, Oct. 7, 2002]
[[Page 20]]
Sec. 41.34 Exempt Provisions.
Any board of trade notice-designated as a contract market in
security futures products pursuant to Sec. 41.31 also shall be exempt
from:
(a) The following provisions of the Act, pursuant to section
5f(b)(1) of the Act:
(1) Section 4(c)(c);
(2) Section 4(c)(e);
(3) Section 4(c)(g);
(4) Section 4j;
(5) Section 5;
(6) Section 5c;
(7) Section 6a;
(8) Section 8(d);
(9) Section 9(f);
(10) Section 16 and;
(b) The following provisions, pursuant to section 5f(b)(4) of the
Act:
(1) Section 6(a);
(2) Part 38 of this chapter;
(3) Part 40 of this chapter; and
(4) Section 41.27.
[67 FR 11229, Mar. 13, 2002]
Subpart E_Customer Accounts and Margin Requirements
Source: 67 FR 53171, Aug. 14, 2002, unless otherwise noted.
Sec. 41.41 Security futures products accounts.
(a) Where security futures products may be held. (1) A person
registered with the Commission as a futures commission merchant pursuant
to section 4f(a)(1) of the Commodity Exchange Act (``CEA'') and
registered with the Securities and Exchange Commission (``SEC'') as a
broker or dealer pursuant to section 15(b)(1) of the Securities Exchange
Act of 1934 (``Securities Exchange Act'') (``Full FCM/Full BD'') may
hold all of a customer's security futures products in a futures account,
all of a customer's security futures products in a securities account,
or some of a customer's security futures products in a futures account
and other security futures products of the same customer in a securities
account. A person registered with the Commission as a futures commission
merchant pursuant to section 4f(a)(2) of the CEA (a notice-registered
FCM) may hold a customer's security futures products only in a
securities account. A person registered with the SEC as a broker or
dealer pursuant to section 15(b)(11) of the Securities Exchange Act (a
notice-registered broker-dealer) may hold a customer's security futures
products only in a futures account.
(2) A Full FCM/Full BD shall establish written policies or
procedures for determining whether customer security futures products
will be placed in a futures account and/or a securities account and, if
applicable, the process by which a customer may elect the type or types
of account in which security futures products will be held (including
the procedure to be followed if a customer fails to make an election of
account type).
(b) Disclosure requirements. (1) Except as provided in paragraph
(b)(2), before a futures commission merchant accepts the first order for
a security futures product from or on behalf of a customer, the firm
shall furnish the customer with a disclosure document containing the
following information:
(i) A description of the protections provided by the requirements
set forth under section 4d of the CEA applicable to a futures account;
(ii) A description of the protections provided by the requirements
set forth under Securities Exchange Act Rule 15c3-3 and the Securities
Investor Protection Act of 1970 applicable to a securities account;
(iii) A statement indicating whether the customer's security futures
products will be held in a futures account and/or a securities account,
or whether the firm permits customers to make or change an election of
account type; and
(iv) A statement that, with respect to holding the customer's
security futures products in a securities account or a futures account,
the alternative regulatory scheme is not available to the customer in
connection with that account.
(2) Where a customer account containing an open security futures
product position is transferred to a futures commission merchant, that
futures commission merchant may instead provide the statements described
in paragraphs (b)(1)(iii) and (b)(1)(iv) above no later than ten
business days after the date the account is transferred.
[[Page 21]]
(c) Changes in account type. A Full FCM/Full BD may change the type
of account in which a customer's security futures products will be held;
provided, that:
(1) The firm creates a record of each change in account type,
including the name of the customer, the account number, the date the
firm received the customer's request to change the account type, if
applicable, and the date the change in account type became effective;
and
(2) The firm, at least ten business days before the customer's
account type is changed:
(i) Notifies the customer in writing of the date that the change
will become effective; and
(ii) Provides the customer with the disclosures described in
paragraph (b)(1) above.
(d) Recordkeeping requirements. The Commission's recordkeeping rules
set forth in Sec. Sec. 1.31, 1.32, 1.35, 1.36, 1.37, 4.23, 4.33, 18.05
and 190.06 of this chapter shall apply to security futures product
transactions and positions in a futures account (as that term is defined
in Sec. 1.3(vv) of this chapter). These rules shall not apply to
security futures product transactions and positions in a securities
account (as that term is defined in Sec. 1.3(ww) of this chapter);
provided, that the SEC's recordkeeping rules apply to those transactions
and positions.
(e) Reports to customers. The Commission's reporting requirements
set forth in Sec. Sec. 1.33 and 1.46 of this chapter shall apply to
security futures product transactions and positions in a futures account
(as that term is defined in Sec. 1.3(vv) of this chapter). These rules
shall not apply to security futures product transactions and positions
in a securities account (as that term is defined in Sec. 1.3(ww) of
this chapter); provided, that the SEC's rules set forth in Sec. Sec.
240.10b-10 and 240.15c3-2 of this chapter regarding delivery of
confirmations and account statements apply to those transactions and
positions.
(f) Segregation of customer funds. All money, securities, or
property held to margin, guarantee or secure security futures products
held in a futures account, or accruing to customers as a result of such
products, are subject to the segregation requirements of section 4d of
the CEA and the rules thereunder.
[67 FR 58297, Sept. 13, 2002]
Sec. 41.42 Customer margin requirements for security
futures--authority, purpose, interpretation, and scope.
(a) Authority and purpose. Subpart E, Sec. Sec. 41.42 through
41.49, and 17 CFR 242.400 through 242.406 (``this Regulation'') are
issued by the Commodity Futures Trading Commission (``Commission'')
jointly with the Securities and Exchange Commission (``SEC''), pursuant
to authority delegated by the Board of Governors of the Federal Reserve
System under section 7(c)(2)(A) of the Securities Exchange Act of 1934
(``Exchange Act''). The principal purpose of this Regulation (Subpart E,
Sec. Sec. 41.42 through 41.49) is to regulate customer margin collected
by brokers, dealers, and members of national securities exchanges,
including futures commission merchants required to register as brokers
or dealers under section 15(b)(11) of the Exchange Act, relating to
security futures.
(b) Interpretation. This Regulation (Subpart E, Sec. Sec. 41.42
through 41.49) shall be jointly interpreted by the SEC and the
Commission, consistent with the criteria set forth in clauses (i)
through (iv) of section 7(c)(2)(B) of the Exchange Act and the
provisions of Regulation T (12 CFR part 220).
(c) Scope. (1) This Regulation (Subpart E, Sec. Sec. 41.42 through
41.49) does not preclude a self-regulatory authority, under rules that
are effective in accordance with section 19(b)(2) of the Exchange Act or
section 19(b)(7) of the Exchange Act and, as applicable, section 5c(c)
of the Commodity Exchange Act (``Act''), or a security futures
intermediary from imposing additional margin requirements on security
futures, including higher initial or maintenance margin levels,
consistent with this Regulation (Subpart E, Sec. Sec. 41.42 through
41.49), or from taking appropriate action to preserve its financial
integrity.
(2) This Regulation (Subpart E, Sec. Sec. 41.42 through 41.49) does
not apply to:
[[Page 22]]
(i) Financial relations between a customer and a security futures
intermediary to the extent that they comply with a portfolio margining
system under rules that meet the criteria set forth in section
7(c)(2)(B) of the Exchange Act and that are effective in accordance with
section 19(b)(2) of the Exchange Act and, as applicable, section 5c(c)
of the Act;
(ii) Financial relations between a security futures intermediary and
a foreign person involving security futures traded on or subject to the
rules of a foreign board of trade;
(iii) Margin requirements that clearing agencies registered under
section 17A of the Exchange Act or derivatives clearing organizations
registered under section 5b of the Act impose on their members;
(iv) Financial relations between a security futures intermediary and
a person based on a good faith determination by the security futures
intermediary that such person is an exempted person; and
(v) Financial relations between a security futures intermediary and,
or arranged by a security futures intermediary for, a person relating to
trading in security futures by such person for its own account, if such
person:
(A) Is a member of a national securities exchange or national
securities association registered pursuant to section 15A(a) of the
Exchange Act; and
(B) Is registered with such exchange or such association as a
security futures dealer pursuant to rules that are effective in
accordance with section 19(b)(2) of the Exchange Act and, as applicable,
section 5c(c) of the Act, that:
(1) Require such member to be registered as a floor trader or a
floor broker with the Commission under section 4f(a)(1) of the Act, or
as a dealer with the SEC under section 15(b) of the Exchange Act;
(2) Require such member to maintain records sufficient to prove
compliance with this paragraph (c)(2)(v) and the rules of the exchange
or association of which it is a member;
(3) Require such member to hold itself out as being willing to buy
and sell security futures for its own account on a regular or continuous
basis; and
(4) Provide for disciplinary action, including revocation of such
member's registration as a security futures dealer, for such member's
failure to comply with this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49) or the rules of the exchange or association.
(d) Exemption. The Commission may exempt, either unconditionally or
on specified terms and conditions, financial relations involving any
security futures intermediary, customer, position, or transaction, or
any class of security futures intermediaries, customers, positions, or
transactions, from one or more requirements of this Regulation (Subpart
E, Sec. Sec. 41.42 through 41.49), if the Commission determines that
such exemption is necessary or appropriate in the public interest and
consistent with the protection of customers. An exemption granted
pursuant to this paragraph shall not operate as an exemption from any
SEC rules. Any exemption that may be required from such rules must be
obtained separately from the SEC.
Sec. 41.43 Definitions.
(a) For purposes of this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49) only, the following terms shall have the meanings set
forth in this section.
(1) Applicable margin rules and margin rules applicable to an
account mean the rules and regulations applicable to financial relations
between a security futures intermediary and a customer with respect to
security futures and related positions carried in a securities account
or futures account as provided in Sec. 41.44(a) of this subpart.
(2) Broker shall have the meaning provided in section 3(a)(4) of the
Exchange Act.
(3) Contract multiplier means the number of units of a narrow-based
security index expressed as a dollar amount, in accordance with the
terms of the security future contract.
(4) Current market value means, on any day:
(i) With respect to a security future:
(A) If the instrument underlying such security future is a stock,
the product of the daily settlement price of such security future as
shown by any regularly published reporting or quotation
[[Page 23]]
service, and the applicable number of shares per contract; or
(B) If the instrument underlying such security future is a narrow-
based security index, as defined in section 1a(35)(A) of the Act, the
product of the daily settlement price of such security future as shown
by any regularly published reporting or quotation service, and the
applicable contract multiplier.
(ii) With respect to a security other than a security future, the
most recent closing sale price of the security, as shown by any
regularly published reporting or quotation service. If there is no
recent closing sale price, the security futures intermediary may use any
reasonable estimate of the market value of the security as of the most
recent close of business.
(5) Customer excludes an exempted person and includes:
(i) Any person or persons acting jointly:
(A) On whose behalf a security futures intermediary effects a
security futures transaction or carries a security futures position; or
(B) Who would be considered a customer of the security futures
intermediary according to the ordinary usage of the trade;
(ii) Any partner in a security futures intermediary that is
organized as a partnership who would be considered a customer of the
security futures intermediary absent the partnership relationship; and
(iii) Any joint venture in which a security futures intermediary
participates and which would be considered a customer of the security
futures intermediary if the security futures intermediary were not a
participant.
(6) Daily settlement price means, with respect to a security future,
the settlement price of such security future determined at the close of
trading each day, under the rules of the applicable exchange, clearing
agency, or derivatives clearing organization.
(7) Dealer shall have the meaning provided in section 3(a)(5) of the
Exchange Act.
(8) Equity means the equity or margin equity in a securities or
futures account, as computed in accordance with the margin rules
applicable to the account and subject to adjustment under Sec.
41.46(c), (d) and (e) of this subpart.
(9) Exempted person means:
(i) A member of a national securities exchange, a registered broker
or dealer, or a registered futures commission merchant, a substantial
portion of whose business consists of transactions in securities,
commodity futures, or commodity options with persons other than brokers,
dealers, futures commission merchants, floor brokers, or floor traders,
and includes a person who:
(A) Maintains at least 1000 active accounts on an annual basis for
persons other than brokers, dealers, persons associated with a broker or
dealer, futures commission merchants, floor brokers, floor traders, and
persons affiliated with a futures commission merchant, floor broker, or
floor trader that are effecting transactions in securities, commodity
futures, or commodity options;
(B) Earns at least $10 million in gross revenues on an annual basis
from transactions in securities, commodity futures, or commodity options
with persons other than brokers, dealers, persons associated with a
broker or dealer, futures commission merchants, floor brokers, floor
traders, and persons affiliated with a futures commission merchant,
floor broker, or floor trader; or
(C) Earns at least 10 percent of its gross revenues on an annual
basis from transactions in securities, commodity futures, or commodity
options with persons other than brokers, dealers, persons associated
with a broker or dealer, futures commission merchants, floor brokers,
floor traders, and persons affiliated with a futures commission
merchant, floor broker, or floor trader.
(ii) For purposes of paragraph (a)(9)(i) of this section only,
persons affiliated with a futures commission merchant, floor broker, or
floor trader means any partner, officer, director, or branch manager of
such futures commission merchant, floor broker, or floor trader (or any
person occupying a similar status or performing similar functions), any
person directly or indirectly controlling, controlled by, or under
common control with such futures commission merchant, floor broker, or
floor
[[Page 24]]
trader, or any employee of such a futures commission merchant, floor
broker, or floor trader.
(iii) A member of a national securities exchange, a registered
broker or dealer, or a registered futures commission merchant that has
been in existence for less than one year may meet the definition of
exempted person based on a six-month period.
(10) Exempted security shall have the meaning provided in section
3(a)(12) of the Exchange Act.
(11) Floor broker shall have the meaning provided in section 1a(16)
of the Act.
(12) Floor trader shall have the meaning provided in section 1a(17)
of the Act.
(13) Futures account shall have the meaning provided in Sec.
1.3(vv) of this chapter.
(14) Futures commission merchant shall have the meaning provided in
section 1a(20) of the Act.
(15) Good faith, with respect to making a determination or accepting
a statement concerning financial relations with a person, means that the
security futures intermediary is alert to the circumstances surrounding
such financial relations, and if in possession of information that would
cause a prudent person not to make the determination or accept the
notice or certification without inquiry, investigates and is satisfied
that it is correct.
(16) Listed option means a put or call option that is:
(i) Issued by a clearing agency that is registered under section 17A
of the Exchange Act or cleared and guaranteed by a derivatives clearing
organization that is registered under section 5b of the Act; and
(ii) Traded on or subject to the rules of a self-regulatory
authority.
(17) Margin call means a demand by a security futures intermediary
to a customer for a deposit of cash, securities or other assets to
satisfy the required margin for security futures or related positions or
a special margin requirement.
(18) Margin deficiency means the amount by which the required margin
in an account is not satisfied by the equity in the account, as computed
in accordance with Sec. 41.46 of this subpart.
(19) Margin equity security shall have the meaning provided in
Regulation T.
(20) Margin security shall have the meaning provided in Regulation
T.
(21) Member shall have the meaning provided in section 3(a)(3) of
the Exchange Act, and shall include persons registered under section
15(b)(11) of the Exchange Act that are permitted to effect transactions
on a national securities exchange without the services of another person
acting as executing broker.
(22) Money market mutual fund means any security issued by an
investment company registered under section 8 of the Investment Company
Act of 1940 that is considered a money market fund under Sec. 270.2a-7
of this title.
(23) Persons associated with a broker or dealer shall have the
meaning provided in section 3(a)(18) of the Exchange Act.
(24) Regulation T means Regulation T promulgated by the Board of
Governors of the Federal Reserve System, 12 CFR part 220, as amended
from time to time.
(25) Regulation T collateral value, with respect to a security,
means the current market value of the security reduced by the percentage
of required margin for a position in the security held in a margin
account under Regulation T.
(26) Related position, with respect to a security future, means any
position in an account that is combined with the security future to
create an offsetting position as provided in Sec. 41.45(b)(2) of this
subpart.
(27) Related transaction, with respect to a position or transaction
in a security future, means:
(i) Any transaction that creates, eliminates, increases or reduces
an offsetting position involving a security future and a related
position, as provided in Sec. 41.45(b)(2) of this subpart; or
(ii) Any deposit or withdrawal of margin for the security future or
a related position, except as provided in Sec. 41.47(b) of this
subpart.
(28) Securities account shall have the meaning provided in Sec.
1.3(ww) of this chapter.
(29) Security futures intermediary means any creditor as defined in
Regulation T with respect to its financial
[[Page 25]]
relations with any person involving security futures, including:
(i) Any futures commission merchant;
(ii) Any partner, officer, director, or branch manager (or person
occupying a similar status or performing similar functions) of a futures
commission merchant;
(iii) Any person directly or indirectly controlling, controlled by,
or under common control with (except for business entities controlling
or under common control with) a futures commission merchant; and
(iv) Any employee of a futures commission merchant (except an
employee whose functions are solely clerical or ministerial).
(30) Self-regulatory authority means a national securities exchange
registered under section 6 of the Exchange Act, a national securities
association registered under section 15A of the Exchange Act, or a
contract market registered under section 5 of the Act or section 5f of
the Act.
(31) Special margin requirement shall have the meaning provided in
Sec. 41.46(e)(1)(ii) of this subpart.
(32) Variation settlement means any credit or debit to a customer
account, made on a daily or intraday basis, for the purpose of marking
to market a security future or any other contract that is:
(i) Issued by a clearing agency that is registered under section 17A
of the Exchange Act or cleared and guaranteed by a derivatives clearing
organization that is registered under section 5b of the Act; and
(ii) Traded on or subject to the rules of a self-regulatory
authority.
(b) Terms used in this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49) and not otherwise defined in this section shall have the
meaning set forth in the margin rules applicable to the account.
(c) Terms used in this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49) and not otherwise defined in this section or in the
margin rules applicable to the account shall have the meaning set forth
in the Exchange Act and the Act; if the definitions of a term in the
Exchange Act and the Act are inconsistent as applied in particular
circumstances, such term shall have the meaning set forth in rules,
regulations, or interpretations jointly promulgated by the SEC and the
Commission.
[67 FR 53171, Aug. 14, 2002, as amended at 77 FR 66346, Nov. 2, 2012]
Sec. 41.44 General provisions.
(a) Applicable margin rules. Except to the extent inconsistent with
this Regulation (Subpart E, Sec. Sec. 41.42 through 41.49):
(1) A security futures intermediary that carries a security future
on behalf of a customer in a securities account shall record and conduct
all financial relations with respect to such security future and related
positions in accordance with Regulation T and the margin rules of the
self-regulatory authorities of which the security futures intermediary
is a member.
(2) A security futures intermediary that carries a security future
on behalf of a customer in a futures account shall record and conduct
all financial relations with respect to such security future and related
positions in accordance with the margin rules of the self-regulatory
authorities of which the security futures intermediary is a member.
(b) Separation and consolidation of accounts. (1) The requirements
for security futures and related positions in one account may not be met
by considering items in any other account, except as permitted or
required under paragraph (b)(2) of this section or applicable margin
rules. If withdrawals of cash, securities or other assets deposited as
margin are permitted under this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49), bookkeeping entries shall be made when such cash,
securities, or assets are used for purposes of meeting requirements in
another account.
(2) Notwithstanding paragraph (b)(1) of this section, the security
futures intermediary shall consider all futures accounts in which
security futures and related positions are held that are within the same
regulatory classification or account type and are owned by the same
customer to be a single account for purposes of this Regulation (Subpart
E, Sec. Sec. 41.42 through 41.49). The security futures intermediary
may combine such accounts with other futures accounts that are within
the
[[Page 26]]
same regulatory classification or account type and are owned by the same
customer for purposes of computing a customer's overall margin
requirement, as permitted or required by applicable margin rules.
(c) Accounts of partners. If a partner of the security futures
intermediary has an account with the security futures intermediary in
which security futures or related positions are held, the security
futures intermediary shall disregard the partner's financial relations
with the firm (as shown in the partner's capital and ordinary drawing
accounts) in calculating the margin or equity of any such account.
(d) Contribution to joint venture. If an account in which security
futures or related positions are held is the account of a joint venture
in which the security futures intermediary participates, any interest of
the security futures intermediary in the joint account in excess of the
interest which the security futures intermediary would have on the basis
of its right to share in the profits shall be margined in accordance
with this Regulation (Subpart E, Sec. Sec. 41.42 through 41.49).
(e) Extensions of credit. (1) No security futures intermediary may
extend or maintain credit to or for any customer for the purpose of
evading or circumventing any requirement under this Regulation (Subpart
E, Sec. Sec. 41.42 through 41.49).
(2) A security futures intermediary may arrange for the extension or
maintenance of credit to or for any customer by any person, provided
that the security futures intermediary does not willfully arrange credit
that would constitute a violation of Regulation T, U or X of the Board
of Governors of the Federal Reserve System (12 CFR parts 220, 221, and
224) by such person.
(f) Change in exempted person status. Once a person ceases to
qualify as an exempted person, it shall notify the security futures
intermediary of this fact before entering into any new security futures
transaction or related transaction that would require additional margin
to be deposited under this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49). Financial relations with respect to any such
transactions shall be subject to the provisions of this Regulation
(Subpart E, Sec. Sec. 41.42 through 41.49).
Sec. 41.45 Required margin.
(a) Applicability. Each security futures intermediary shall
determine the required margin for the security futures and related
positions held on behalf of a customer in a securities account or
futures account as set forth in this section.
(b) Required margin--(1) General rule. The required margin for each
long or short position in a security future shall be twenty (20) percent
of the current market value of such security future.
(2) Offsetting positions. Notwithstanding the margin levels
specified in paragraph (b)(1) of this section, a self-regulatory
authority may set the required initial or maintenance margin level for
an offsetting position involving security futures and related positions
at a level lower than the level that would be required under paragraph
(b)(1) of this section if such positions were margined separately,
pursuant to rules that meet the criteria set forth in section 7(c)(2)(B)
of the Exchange Act and are effective in accordance with section
19(b)(2) of the Exchange Act and, as applicable, section 5c(c) of the
Act.
(c) Procedures for certain margin level adjustments. An exchange
registered under section 6(g) of the Exchange Act, or a national
securities association registered under section 15A(k) of the Exchange
Act, may raise or lower the required margin level for a security future
to a level not lower than that specified in this section, in accordance
with section 19(b)(7) of the Exchange Act.
Sec. 41.46 Type, form and use of margin.
(a) When margin is required. Margin is required to be deposited
whenever the required margin for security futures and related positions
in an account is not satisfied by the equity in the account, subject to
adjustment under paragraph (c) of this section.
(b) Acceptable margin deposits. (1) The required margin may be
satisfied by a deposit of cash, margin securities (subject to paragraph
(b)(2) of this section), exempted securities, any other asset
[[Page 27]]
permitted under Regulation T to satisfy a margin deficiency in a
securities margin account, or any combination thereof, each as valued in
accordance with paragraph (c) of this section.
(2) Shares of a money market mutual fund may be accepted as a margin
deposit for purposes of this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49), Provided that:
(i) The customer waives any right to redeem the shares without the
consent of the security futures intermediary and instructs the fund or
its transfer agent accordingly;
(ii) The security futures intermediary (or clearing agency or
derivatives clearing organization with which the shares are deposited as
margin) obtains the right to redeem the shares in cash, promptly upon
request; and
(iii) The fund agrees to satisfy any conditions necessary or
appropriate to ensure that the shares may be redeemed in cash, promptly
upon request.
(c) Adjustments--(1) Futures accounts. For purposes of this section,
the equity in a futures account shall be computed in accordance with the
margin rules applicable to the account, subject to the following:
(i) A security future shall have no value;
(ii) Each net long or short position in a listed option on a
contract for future delivery shall be valued in accordance with the
margin rules applicable to the account;
(iii) Except as permitted in paragraph (e) of this section, each
margin equity security shall be valued at an amount no greater than its
Regulation T collateral value;
(iv) Each other security shall be valued at an amount no greater
than its current market value reduced by the percentage specified for
such security in Sec. 240.15c3-1(c)(2)(vi) of this title;
(v) Freely convertible foreign currency may be valued at an amount
no greater than its daily marked-to-market U.S. dollar equivalent;
(vi) Variation settlement receivable (or payable) by an account at
the close of trading on any day shall be treated as a credit (or debit)
to the account on that day; and
(vii) Each other acceptable margin deposit or component of equity
shall be valued at an amount no greater than its value under Regulation
T.
(2) Securities accounts. For purposes of this section, the equity in
a securities account shall be computed in accordance with the margin
rules applicable to the account, subject to the following:
(i) A security future shall have no value;
(ii) Freely convertible foreign currency may be valued at an amount
no greater than its daily mark-to-market U.S. dollar equivalent; and
(iii) Variation settlement receivable (or payable) by an account at
the close of trading on any day shall be treated as a credit (or debit)
to the account on that day.
(d) Satisfaction restriction. Any transaction, position or deposit
that is used to satisfy the required margin for security futures or
related positions under this Regulation (Subpart E, Sec. Sec. 41.42
through 41.49), including a related position, shall be unavailable to
satisfy the required margin for any other position or transaction or any
other requirement.
(e) Alternative collateral valuation for margin equity securities in
a futures account. (1) Notwithstanding paragraph (c)(1)(iii) of this
section, a security futures intermediary need not value a margin equity
security at its Regulation T collateral value when determining whether
the required margin for the security futures and related positions in a
futures account is satisfied, provided that:
(i) The margin equity security is valued at an amount no greater
than the current market value of the security reduced by the lowest
percentage level of margin required for a long position in the security
held in a margin account under the rules of a national securities
exchange registered pursuant to section 6(a) of the Exchange Act;
(ii) Additional margin is required to be deposited on any day when
the day's security futures transactions and related transactions would
create or increase a margin deficiency in the account if the margin
equity securities were valued at their Regulation T collateral value,
and shall be for the
[[Page 28]]
amount of the margin deficiency so created or increased (a ``special
margin requirement''); and
(iii) Cash, securities, or other assets deposited as margin for the
positions in an account are not permitted to be withdrawn from the
account at any time that:
(A) Additional cash, securities, or other assets are required to be
deposited as margin under this section for a transaction in the account
on the same or a previous day; or
(B) The withdrawal, together with other transactions, deposits, and
withdrawals on the same day, would create or increase a margin
deficiency if the margin equity securities were valued at their
Regulation T collateral value.
(2) All security futures transactions and related transactions on
any day shall be combined to determine the amount of a special margin
requirement. Additional margin deposited to satisfy a special margin
requirement shall be valued at an amount no greater than its Regulation
T collateral value.
(3) If the alternative collateral valuation method set forth in
paragraph (e) of this section is used with respect to an account in
which security futures or related positions are carried:
(i) An account that is transferred from one security futures
intermediary to another may be treated as if it had been maintained by
the transferee from the date of its origin, if the transferee accepts,
in good faith, a signed statement of the transferor (or, if that is not
practicable, of the customer), that any margin call issued under this
Regulation (Subpart E, Sec. Sec. 41.42 through 41.49) has been
satisfied; and
(ii) An account that is transferred from one customer to another as
part of a transaction, not undertaken to avoid the requirements of this
Regulation (Subpart E, Sec. Sec. 41.42 through 41.49), may be treated
as if it had been maintained for the transferee from the date of its
origin, if the security futures intermediary accepts in good faith and
keeps with the transferee account a signed statement of the transferor
describing the circumstances for the transfer.
(f) Guarantee of accounts. No guarantee of a customer's account
shall be given any effect for purposes of determining whether the
required margin in an account is satisfied, except as permitted under
applicable margin rules.
Sec. 41.47 Withdrawal of margin.
(a) By the customer. Except as otherwise provided in Sec.
41.46(e)(1)(ii) of this subpart, cash, securities, or other assets
deposited as margin for positions in an account may be withdrawn,
provided that the equity in the account after such withdrawal is
sufficient to satisfy the required margin for the security futures and
related positions in the account under this Regulation (Subpart E,
Sec. Sec. 41.42 through 41.49).
(b) By the security futures intermediary. Notwithstanding paragraph
(a) of this section, the security futures intermediary, in its usual
practice, may deduct the following items from an account in which
security futures or related positions are held if they are considered in
computing the balance of such account:
(1) Variation settlement payable, directly or indirectly, to a
clearing agency that is registered under section 17A of the Exchange Act
or a derivatives clearing organization that is registered under section
5b of the Act;
(2) Interest charged on credit maintained in the account;
(3) Communication or shipping charges with respect to transactions
in the account;
(4) Payment of commissions, brokerage, taxes, storage and other
charges lawfully accruing in connection with the positions and
transactions in the account;
(5) Any service charges that the security futures intermediary may
impose; or
(6) Any other withdrawals that are permitted from a securities
margin account under Regulation T, to the extent permitted under
applicable margin rules.
Sec. 41.48 Undermargined accounts.
(a) Failure to satisfy margin call. If any margin call required by
this Regulation (Subpart E, Sec. Sec. 41.42 through 41.49) is not met
in full, the security futures intermediary shall take the deduction
required with respect to an undermargined account in computing its net
[[Page 29]]
capital under SEC or Commission rules.
(b) Accounts that liquidate to a deficit. If at any time there is a
liquidating deficit in an account in which security futures are held,
the security futures intermediary shall take steps to liquidate
positions in the account promptly and in an orderly manner.
(c) Liquidation of undermargined accounts not required.
Notwithstanding Sec. 41.44(a)(1) of this subpart, Sec. 220.4(d) of
Regulation T (12 CFR 220.4(d)) respecting liquidation of positions in
lieu of deposit shall not apply with respect to security futures carried
in a securities account.
Sec. 41.49 Filing proposed margin rule changes with the Commission.
(a) Notification requirement for notice-designated contract markets.
Any self-regulatory authority that is registered with the Commission as
a designated contract market under section 5f of the Act shall, when
filing a proposed rule change regarding customer margin for security
futures with the SEC for approval in accordance with section 19(b)(2) of
the Exchange Act, concurrently provide to the Commission a copy of such
proposed rule change and any accompanying documentation filed with the
SEC.
(b) Filing requirements under the Act. Any self-regulatory authority
that is registered with the Commission as a designated contract market
under section 5 of the Act shall, when filing a proposed rule change
regarding customer margin for security futures with the SEC for approval
in accordance with section 19(b)(2) of the Exchange Act, submit such
proposed rule change to the Commission as follows:
(1) If the self-regulatory authority elects to request the
Commission's prior approval for the proposed rule change pursuant to
section 5c(c)(2) of the Act, it shall concurrently file the proposed
rule change with the Commission in accordance with Sec. 40.5 of this
chapter.
(2) If the self-regulatory authority elects to implement a proposed
rule change by written certification pursuant to section 5c(c)(1) of the
Act, it shall concurrently provide to the Commission a copy of the
proposed rule change and any accompanying documentation filed with the
SEC. Promptly after obtaining SEC approval for the proposed rule change,
such self-regulatory authority shall file its written certification with
the Commission in accordance with Sec. 40.6 of this chapter.
[67 FR 53171, Aug. 14, 2002, as amended at 77 FR 66346, Nov. 2, 2012]
PART 42_ANTI-MONEY LAUNDERING, TERRORIST FINANCING--Table of Contents
Subpart A_General Provisions
Sec.
42.1 [Reserved]
42.2 Compliance with Bank Secrecy Act
Authority: 7 U.S.C. 1a, 2, 5, 6, 6b, 6d, 6f, 6g, 7, 7a, 7a-1, 7a-2,
7b, 7b-1, 7b-2, 9, 12, 12a, 12c, 13a, 13a-1, 13c, 16 and 21; 12 U.S.C.
1786(q), 1818, 1829b and 1951-1959; 31 U.S.C. 5311-5314 and 5316-5332;
title III, secs. 312-314, 319, 321, 326, 352, Pub. L. 107-56, 115 Stat.
307.
Source: 68 FR 25159, May 9, 2003, unless otherwise noted.
Subpart A_General Provisions
Sec. 42.1 [Reserved]
Sec. 42.2 Compliance with Bank Secrecy Act.
Every futures commission merchant and introducing broker shall
comply with the applicable provisions of the Bank Secrecy Act and the
regulations promulgated by the Department of the Treasury under that Act
at 31 CFR chapter X, and with the requirements of 31 U.S.C. 5318(l) and
the implementing regulation jointly promulgated by the Commission and
the Department of the Treasury at 31 CFR 1026.220, which require that a
customer identification program be adopted as part of the firm's Bank
Secrecy Act compliance program.
[79 FR 2371, Jan. 14, 2014]
PART 43_REAL-TIME PUBLIC REPORTING--Table of Contents
Sec.
43.1 Purpose, scope, and rules of construction.
43.2 Definitions.
43.3 Method and timing for real-time public reporting.
[[Page 30]]
43.4 Swap transaction and pricing data to be publicly disseminated in
real-time.
43.5 Time delays for public dissemination of swap transaction and
pricing data.
43.6 Block trades and large notional off-facility swaps.
43.7 Delegation of authority.
Appendix A to Part 43--Data Fields for Public Dissemination
Appendix B to Part 43--Enumerated Physical Commodity Contracts and Other
Contracts
Appendix C to Part 43--Time Delays for Public Dissemination
Appendix D to Part 43--Other Commodity Swap Categories
Appendix E to Part 43--Other Commodity Geographic Identification for
Public Dissemination Pursuant to Sec. 43.4(d)(4)(iii)
Appendix F to Part 43--Initial Appropriate Minimum Block Sizes by Asset
Class for Block Trades and Large Notional Off-Facility Swaps
Authority: 7 U.S.C. 2(a), 12a(5) and 24a, as amended by Pub. L. 111-
203, 124 Stat. 1376 (2010).
Source: 76 FR 1243, Jan. 9, 2012, unless otherwise noted.
Sec. 43.1 Purpose, scope, and rules of construction.
(a) Purpose. This part implements rules relating to the reporting
and public dissemination of certain swap transaction and pricing data to
enhance transparency and price discovery pursuant to the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, Pub. L. 111-203, 124
Stat. 1376 (2010).
(b)(1) Scope. The provisions of this part shall apply to all swaps
as defined in Section 1a(47) of the Act and any implementing regulations
thereunder, including:
(i) Swaps subject to the mandatory clearing requirement described in
Section 2(h)(1) of the Act, including those swaps that are excepted from
the requirement pursuant to Section 2(h)(7) of the Act;
(ii) Swaps that are not subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act, but are cleared at
a registered derivatives clearing organization;
(iii) Swaps that are not cleared at a registered derivatives
clearing organization and are reported to a registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time; and
(iv) Swaps that are required to be cleared under Section 2(h)(2) of
the Act, but are not cleared.
(2) This part also shall apply to registered entities as defined in
the Act, as well as to parties to a swap including swap dealers, major
swap participants and U.S.-based market participants in a manner as the
Commission may determine.
(c) Rules of construction. The examples in this part and in appendix
A to this part are not exclusive. Compliance with a particular example
or application of a sample clause, to the extent applicable, shall
constitute compliance with the particular portion of the rule to which
the example relates.
(d) Severability. If any provision of this part, or the application
thereof to any person or circumstance, is held invalid, such invalidity
shall not affect other provisions or application of such provision to
other persons or circumstances which can be given effect without the
invalid provision or application.
Sec. 43.2 Definitions.
As used in this part:
Act means the Commodity Exchange Act, as amended, 7 U.S.C. 1 et seq.
Affirmation means the process by which parties to a swap verify
(orally, in writing, electronically or otherwise) that they agree on the
primary economic terms of a swap (but not necessarily all terms of the
swap). Affirmation may constitute ``execution'' of the swap or may
provide evidence of execution of the swap, but does not constitute
confirmation (or confirmation by affirmation) of the swap.
Appropriate minimum block size means the minimum notional or
principal amount for a category of swaps that qualifies a swap within
such category as a block trade or large notional off-facility swap.
As soon as technologically practicable means as soon as possible,
taking into consideration the prevalence, implementation and use of
technology by comparable market participants.
[[Page 31]]
Asset class means a broad category of commodities including, without
limitation, any ``excluded commodity'' as defined in Section 1a(19) of
the Act, with common characteristics underlying a swap. The asset
classes include interest rate, foreign exchange, credit, equity, other
commodity and such other asset classes as may be determined by the
Commission.
Block trade means a publicly reportable swap transaction that:
(1) Involves a swap that is listed on a registered swap execution
facility or designated contract market;
(2) Occurs away from the registered swap execution facility's or
designated contract market's trading system or platform and is executed
pursuant to the registered swap execution facility's or designated
contract market's rules and procedures;
(3) Has a notional or principal amount at or above the appropriate
minimum block size applicable to such swap; and
(4) Is reported subject to the rules and procedures of the
registered swap execution facility or designated contract market and the
rules described in this part, including the appropriate time delay
requirements set forth in Sec. 43.5 of this part.
Business day means the twenty-four hour day, on all days except
Saturdays, Sundays and legal holidays, in the location of the reporting
party or registered entity reporting data for the swap.
Business hours means the consecutive hours of one or more
consecutive business days.
Cap size means, for each swap category, the maximum notional or
principal amount of a publicly reportable swap transaction that is
publicly disseminated.
Confirmation means the consummation (electronic or otherwise) of
legally binding documentation (electronic or otherwise) that
memorializes the agreement of the parties to all terms of a swap. A
confirmation shall be in writing (electronic or otherwise) and shall
legally supersede any previous agreement (electronic or otherwise)
relating to the swap.
Confirmation by affirmation means the process by which one party to
a swap acknowledges its assent to the complete swap terms submitted by
the other party to the swap. If the parties to a swap are using a
confirmation service vendor, complete swap terms may be submitted
electronically by a party to such vendor's platform and the other party
may affirm such terms on such platform.
Economically related means a direct or indirect reference to the
same commodity at the same delivery location or locations, or with the
same or a substantially similar cash market price series.
Embedded option means any right, but not an obligation, provided to
one party of a swap by the other party to the swap that provides the
party holding the option with the ability to change any one or more of
the economic terms of the swap as those terms previously were
established at confirmation (or were in effect on the start date).
Executed means the completion of the execution process.
Execution means an agreement by the parties (whether orally, in
writing, electronically, or otherwise) to the terms of a swap that
legally binds the parties to such swap terms under applicable law.
Execution occurs simultaneous with or immediately following the
affirmation of the swap.
Futures-related swap means a swap (as defined in section 1a(47) of
the Act and as further defined by the Commission in implementing
regulations) that is economically related to a futures contract.
Large notional off-facility swap means an off-facility swap that has
a notional or principal amount at or above the appropriate minimum block
size applicable to such publicly reportable swap transaction and is not
a block trade as defined in Sec. 43.2 of the Commission's regulations.
Major currencies means the currencies, and the cross-rates between
the currencies, of Australia, Canada, Denmark, New Zealand, Norway,
South Africa, South Korea, Sweden, and Switzerland.
Non-major currencies means all other currencies that are not super-
major currencies or major currencies.
[[Page 32]]
Novation means the process by which a party to a swap transfers all
of its rights, liabilities, duties and obligations under the swap to a
new legal party other than the counterparty to the swap. The transferee
accepts all of the transferor's rights, liabilities, duties and
obligations under the swap. A novation is valid as long as the
transferor and the remaining party to the swap are given notice, and the
transferor, transferee and remaining party to the swap consent to the
transfer.
Off-facility swap means any publicly reportable swap transaction
that is not executed on or pursuant to the rules of a registered swap
execution facility or designated contract market.
Other commodity means any commodity that is not categorized in the
other asset classes as may be determined by the Commission.
Physical commodity swap means a swap in the other commodity asset
class that is based on a tangible commodity.
Public dissemination and publicly disseminate means to publish and
make available swap transaction and pricing data in a non-discriminatory
manner, through the Internet or other electronic data feed that is
widely published and in machine-readable electronic format.
Publicly reportable swap transaction means:
(1) Unless otherwise provided in this part--
(i) Any executed swap that is an arm's-length transaction between
two parties that results in a corresponding change in the market risk
position between the two parties; or
(ii) Any termination, assignment, novation, exchange, transfer,
amendment, conveyance, or extinguishing of rights or obligations of a
swap that changes the pricing of the swap.
(2) Examples of executed swaps that do not fall within the
definition of publicly reportable swap may include:
(i) Internal swaps between one-hundred percent owned subsidiaries of
the same parent entity; and
(ii) Portfolio compression exercises.
(3) These examples represent swaps that are not at arm's length and
thus are not publicly reportable swap transactions, notwithstanding that
they do result in a corresponding change in the market risk position
between two parties.
Real-time public reporting means the reporting of data relating to a
swap transaction, including price and volume, as soon as technologically
practicable after the time at which the swap transaction has been
executed.
Reference price means a floating price series (including derivatives
contract prices and cash market prices or price indices) used by the
parties to a swap or swaption to determine payments made, exchanged or
accrued under the terms of a swap contract.
Remaining party means a party to a swap that consents to a
transferor's transfer by novation of all of the transferor's rights,
liabilities, duties and obligations under such swap to a transferee.
Reporting party means the party to a swap with the duty to report a
publicly reportable swap transaction in accordance with this part and
section 2(a)(13)(F) of the Act.
Super-major currencies means the currencies of the European Monetary
Union, Japan, the United Kingdom, and United States.
Swaps with composite reference prices means swaps based on reference
prices that are composed of more than one reference price from more than
one swap category.
Transferee means a party to a swap that accepts, by way of novation,
all of a transferor's rights, liabilities, duties and obligations under
such swap with respect to a remaining party.
Transferor means a party to a swap that transfers, by way of
novation, all of its rights, liabilities, duties and obligations under
such swap, with respect to a remaining party, to a transferee.
Trimmed data set means a data set that has had extraordinarily large
notional transactions removed by transforming the data into a logarithm
with a base of 10, computing the mean, and excluding transactions that
are beyond four standard deviations above the mean.
Unique product identifier means a unique identification of a
particular level of the taxonomy of the product in an asset class or
sub-asset class in question, as further described in
[[Page 33]]
Sec. 43.4(f) and appendix A to this part. Such unique product
identifier may combine the information from one or more of the data
fields described in appendix A.
Widely published means to publish and make available through
electronic means in a manner that is freely available and readily
accessible to the public.
[76 FR 1243, Jan. 9, 2012, as amended at 78 FR 32937, May 31, 2013]
Sec. 43.3 Method and timing for real-time public reporting.
(a) Responsibilities of parties to a swap to report swap transaction
and pricing data in real-time--(1) In general. A reporting party shall
report any publicly reportable swap transaction to a registered swap
data repository as soon as technologically practicable after such
publicly reportable swap transaction is executed. For purposes of this
part, a registered swap data repository includes any swap data
repository provisionally registered with the Commission pursuant to part
49 of this chapter.
(2) Swaps executed on or pursuant to the rules of a registered swap
execution facility or designated contract market. A party to a publicly
reportable swap transaction shall satisfy its reporting requirement
under this section by executing a publicly reportable swap transaction
on or pursuant to the rules of a registered swap execution facility or
designated contract market.
(3) Off-facility swaps. All off-facility swaps shall be reported by
the reporting party as soon as technologically practicable following
execution, to a registered swap data repository for the appropriate
asset class in accordance with the rules set forth in this part. Unless
otherwise agreed to by the parties prior to the execution of the
publicly reportable swap transaction, the following persons shall be
reporting parties for off-facility swaps:
(i) If only one party is a swap dealer or major swap participant,
then the swap dealer or major swap participant shall be the reporting
party;
(ii) If one party is a swap dealer and the other party is a major
swap participant, then the swap dealer shall be the reporting party;
(iii) If both parties are swap dealers, then the swap dealers shall
designate which party shall be the reporting party;
(iv) If both parties are major swap participants, then the major
swap participants shall designate which party shall be the reporting
party;
(v) If neither party is a swap dealer or a major swap participant,
then the parties shall designate which party (or its agent) shall be the
reporting party.
(b) Public dissemination of swap transaction and pricing data--(1)
Publicly reportable swap transactions executed on or pursuant to the
rules of a registered swap execution facility or designated contract
market. A registered swap execution facility or designated contract
market shall satisfy the requirements of this subparagraph by
transmitting swap transaction and pricing data to a registered swap data
repository, as soon as technologically practicable after the publicly
reportable swap transaction has been executed on or pursuant to the
rules of such trading platform or facility.
(2) Public dissemination of swap transaction and pricing data by
registered swap data repositories. A registered swap data repository
shall ensure that swap transaction and pricing data is publicly
disseminated, as soon as technologically practicable after such data is
received from a registered swap execution facility, designated contract
market or reporting party, unless such publicly reportable swap
transaction is subject to a time delay described in Sec. 43.5 of this
part, in which case the publicly reportable swap transaction shall be
publicly disseminated in the manner described in Sec. 43.5.
(3) Prohibitions on disclosure of data. (i) If there is a registered
swap data repository for an asset class, a registered swap execution
facility or designated contract market shall not disclose swap
transaction and pricing data relating to publicly reportable swap
transactions in such asset class, prior to the public dissemination of
such data by a registered swap data repository unless:
(A) Such disclosure is made no earlier than the transmittal of such
data to a registered swap data repository for public dissemination;
[[Page 34]]
(B) Such disclosure is only made to market participants on such
registered swap execution facility or designated contract market;
(C) Market participants are provided advance notice of such
disclosure; and
(D) Any such disclosure by the registered swap execution facility or
designated contract market is non-discriminatory.
(ii) If there is a registered swap data repository for an asset
class, a swap dealer or major swap participant shall not disclose swap
transaction and pricing data relating to publicly reportable swap
transactions in such asset class, prior to the public dissemination of
such data by a registered swap data repository unless:
(A) Such disclosure is made no earlier than the transmittal of such
data to a registered swap data repository for public dissemination;
(B) Such disclosure is only made to the customer base of such swap
dealer or major swap participant, including parties who maintain
accounts with or have been swap counterparties with such swap dealer or
major swap participant;
(C) Swap counterparties are provided advance notice of such
disclosure; and
(D) Any such disclosure by the swap dealer or major swap participant
is non-discriminatory.
(c) Requirements for registered swap data repositories in providing
the public dissemination of swap transaction and pricing data in real-
time--(1) Compliance with 17 CFR part 49. Any registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time shall comply with part 49 of this chapter and
shall publicly disseminate swap transaction and pricing data in
accordance with this part as soon as technologically practicable upon
receipt of such data, except as otherwise provided in this part.
(2) Acceptance and public dissemination of all swaps in an asset
class. Any registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time for swaps in
its selected asset class shall accept and publicly disseminate swap
transaction and pricing data in real-time for all publicly reportable
swap transactions within such asset class, unless otherwise prescribed
by the Commission.
(3) Annual independent review. Any registered swap data repository
that accepts and publicly disseminates swap transaction and pricing data
in real-time shall perform, on an annual basis, an independent review in
accordance with established audit procedures and standards of the
registered swap data repository's security and other system controls for
the purposes of ensuring compliance with the requirements in this part.
(d) Availability of swap transaction and pricing data to the public.
(1) Registered swap data repositories shall publicly disseminate swap
transaction and pricing data in a consistent, usable and machine-
readable electronic format that allows the data to be downloaded, saved
and analyzed.
(2) Data that is publicly disseminated pursuant to this part shall
be available from an Internet Web site in a format that is freely
available and readily accessible to the public.
(3) Registered swap data repositories shall provide to the
Commission a hyperlink to the Internet Web site where publicly
disseminated swap transaction and pricing data can be accessed by the
public.
(e) Errors or omissions--(1) In general. Any errors or omissions in
swap transaction and pricing data that were publicly disseminated in
real-time shall be corrected or cancelled in the following manner:
(i) If a party to the swap becomes aware of an error or omission in
the swap transaction and pricing data reported with respect to such
swap, such party shall promptly notify the other party of the error and/
or correction.
(ii) If a reporting party to a swap becomes aware of an error or
omission in the swap transaction or pricing data which it reported to a
registered swap data repository or which was reported by a registered
swap execution facility or designated contract market with respect to
such swap, either through its own initiative or through notice by the
other party to the swap, the reporting party shall promptly submit
corrected data to the same registered swap execution facility,
designated contract
[[Page 35]]
market or registered swap data repository.
(iii) If the registered swap execution facility or designated
contract market becomes aware of an error or omission in the swap
transaction or pricing data reported with respect to such swap, or
receives notification from the reporting party, the registered swap
execution facility or designated contract market shall promptly submit
corrected data to the same registered swap data repository.
(iv) Any registered swap data repository that accepts and publicly
disseminates swap transaction and pricing data in real-time shall
publicly disseminate any cancellations or corrections to such data, as
soon as technologically practicable after receipt or discovery of any
such cancellation or correction.
(2) Improper cancellation or correction. Reporting parties,
registered swap execution facilities, designated contract markets and
registered swap data repositories shall not submit or agree to submit a
cancellation or correction for the purpose of re-reporting swap
transaction and pricing data in order to gain or extend a delay in
public dissemination of accurate swap transaction or pricing data or to
otherwise evade the reporting requirements in this part.
(3) Cancellation. A registered swap data repository shall cancel any
incorrect data that had been publicly disseminated by publicly
disseminating a cancellation of such data, as soon as technologically
practicable, in the manner described in appendix A to this part.
(4) Correction. A registered swap data repository shall correct any
incorrect data that had been publicly disseminated by publicly
disseminating a cancellation of the incorrect swap transaction and
pricing data and then publicly disseminating the correct data, as soon
as technologically practicable, in the manner described in appendix A to
this part.
(f) Hours of operation of registered swap data repositories. Unless
otherwise provided in this subsection, a registered swap data repository
shall have systems in place to continuously receive and publicly
disseminate swap transaction and pricing data in real-time pursuant to
this part.
(1) A registered swap data repository may declare closing hours to
perform system maintenance.
(2) A registered swap data repository shall, to the extent
reasonably possible, avoid scheduling closing hours when, in its
estimation, the U.S. market and major foreign markets are most active.
(3) A registered swap data repository shall comply with the
requirements under part 40 of this chapter in setting closing hours and
shall provide advance notice of its closing hours to market participants
and the public.
(g) Acceptance of data during closing hours. During closing hours, a
registered swap data repository shall have the capability to receive and
hold in queue any data regarding publicly reportable swap transactions
pursuant to this part.
(1) Upon any reopening after closing hours, a registered swap data
repository shall promptly and publicly disseminate the swap transaction
and pricing data of swaps held in queue, in accordance with the
requirements of this part.
(2) If at any time during closing hours a registered swap data
repository is unable to receive and hold in queue swap transaction and
pricing data pursuant to this part, then the registered swap data
repository shall immediately upon reopening issue notice that it has
resumed normal operations. Any registered swap execution facility,
designated contract market or reporting party that is obligated under
this section to report data to the registered swap data repository shall
report the data to the registered swap data repository immediately after
receiving such notice.
(h) Timestamp requirements. In addition to the execution timestamp
described in appendix A to this part, registered entities, swap dealers
and major swap participants shall have the following timestamp
requirements with respect to real-time public reporting of swap
transaction and pricing data for all publicly reportable swap
transactions:
(1) A registered swap execution facility or designated contract
market shall
[[Page 36]]
timestamp swap transaction and pricing data relating to a publicly
reportable swap transaction with the date and time, to the nearest
second of when such registered swap execution facility or designated
contract market:
(i) Receives data from a swap counterparty (if applicable); and
(ii) Transmits such data to a registered swap data repository for
public dissemination.
(2) A registered swap data repository shall timestamp swap
transaction and pricing data relating to a publicly reportable swap
transaction with the date and time, to the nearest second when such
registered swap data repository:
(i) Receives data from a registered swap execution facility,
designated contract market or reporting party; and
(ii) Publicly disseminates such data.
(3) A swap dealer or major swap participant shall timestamp swap
transaction and pricing data relating to an off-facility swap with the
date and time, to the nearest second when such swap dealer or major swap
participant transmits such data to a registered swap data repository for
public dissemination.
(4) Records of all timestamps required by this subsection shall be
maintained for a period of at least five years from the execution of the
publicly reportable swap transaction.
(i) Fees. Any fees or charges assessed on a reporting party,
registered swap execution facility or designated contract market by a
registered swap data repository that accepts and publicly disseminates
swap transaction and pricing data in real-time for the collection of
such data shall be equitable and non-discriminatory. If such registered
swap data repository allows a fee discount based on the volume of data
reported to it for public dissemination, then such discount shall be
made available to all reporting parties, registered swap execution
facilities and designated contract markets in an equitable and non-
discriminatory manner.
Sec. 43.4 Swap transaction and pricing data to be publicly
disseminated in real-time.
(a) In general. Swap transaction and pricing information shall be
reported to a registered swap data repository so that the registered
swap data repository can publicly disseminate swap transaction and
pricing data in real-time in accordance with this part, including the
manner described in this section and appendix A to this part.
(b) Public dissemination of data fields. Any registered swap data
repository that accepts and publicly disseminates swap transaction and
pricing data in real-time shall publicly disseminate the information
described in appendix A to this part, as applicable, for any publicly
reportable swap transaction.
(c) Additional swap information. A registered swap data repository
that accepts and publicly disseminates swap transaction and pricing data
in real-time may require reporting parties, registered swap execution
facilities and designated contract markets to report to such registered
swap data repository, such information that is necessary to compare the
swap transaction and pricing data that was publicly disseminated in
real-time to the data reported to a registered swap data repository
pursuant to Section 2(a)(13)(G) of the Act or to confirm that parties to
a swap have reported in a timely manner pursuant to Sec. 43.3 of this
part. Such additional information shall not be publicly disseminated by
the registered swap data repository.
(d) Anonymity of the parties to a publicly reportable swap
transaction--(1) In general. Swap transaction and pricing data that is
publicly disseminated in real-time shall not disclose the identities of
the parties to the swap or otherwise facilitate the identification of a
party to a swap. A registered swap data repository that accepts and
publicly disseminates swap transaction and pricing data in real-time
shall not publicly disseminate such data in a manner that discloses or
otherwise facilitates the identification of a party to a swap.
(2) Actual product description reported to registered swap data
repository. Reporting parties, registered swap execution facilities and
designated contract
[[Page 37]]
markets shall provide a registered swap data repository with swap
transaction and pricing data that includes an actual description of the
underlying asset(s). This requirement is separate from the requirement
that a reporting party, registered swap execution facility or designated
contract market shall report swap data to a registered swap data
repository pursuant to Section 2(a)(13)(G) of the Act and the
Commission's regulations.
(3) Public dissemination of the actual description of underlying
asset(s). Notwithstanding the anonymity protection for certain swaps in
the other commodity asset class in Sec. 43.4(d)(4)(ii), a registered
swap data repository shall publicly disseminate the actual underlying
asset(s) of all publicly reportable swap transactions in the interest
rate, credit, equity and foreign exchange asset classes.
(4) Public dissemination of the underlying asset(s) for certain
swaps in the other commodity asset class. A registered swap data
repository shall publicly disseminate swap transaction and pricing data
in the other commodity asset class as described in this subsection.
(i) A registered swap data repository shall publicly disseminate
swap transaction and pricing data for publicly reportable swap
transactions in the other commodity asset class in the manner described
in paragraphs (d)(4)(ii) and (d)(4)(iii) of this section.
(ii) The actual underlying asset(s) shall be publicly disseminated
for the following publicly reportable swap transactions in the other
commodity asset class:
(A) Any publicly reportable swap transaction that references one of
the contracts described in appendix B to this part;
(B) Any publicly reportable swap transaction that is economically
related to one of the contracts described in appendix B of this part; or
(iii) The underlying assets of swaps in the other commodity asset
class that are not described in paragraph (d)(4)(ii) of this section
shall be publicly disseminated by limiting the geographic detail of the
underlying assets. The identification of any specific delivery point or
pricing point associated with the underlying asset of such other
commodity swap shall be publicly disseminated pursuant to appendix E of
this part.
(C) Any publicly reportable swap transaction executed on or pursuant
to the rules of a registered swap execution facility or designated
contract market.
(e) Unique product identifier. If a unique product identifier is
developed that sufficiently describes one or more of the swap
transaction and pricing data fields for real-time reporting described in
appendix A to this part, then such unique product identifier may be
publicly disseminated in lieu of the data fields that it describes.
(f) Reporting of notional or principal amounts to a registered swap
data repository--(1) Off-facility swaps. The reporting party shall
report the actual notional or principal amount of any off-facility swap
to a registered swap data repository that accepts and publicly
disseminates such data pursuant to part 43.
(2) Swaps executed on or pursuant to the rules of a registered swap
execution facility or designated contract market. (i) A registered swap
execution facility or designated contract market shall transmit the
actual notional or principal amount for all swaps executed on or
pursuant to the rules of such registered swap execution facility or
designated contract market, to a registered swap data repository that
accepts swaps in the asset class.
(ii) The actual notional or principal amount for any block trade
executed pursuant to the rules of a registered swap execution facility
or designated contract market shall be reported to the registered swap
execution facility or designated contract market pursuant to the rules
of the registered swap execution facility or designated contract market.
(g) Public dissemination of rounded notional or principal amounts.
The notional or principal amount of a publicly reportable swap
transaction, as described in appendix A to this part, shall be rounded
and publicly disseminated by a registered swap data repository as
follows:
(1) If the notional or principal amount is less than one thousand,
round to nearest five, but in no case
[[Page 38]]
shall a publicly disseminated notional or principal amount be less than
five;
(2) If the notional or principal amount is less than ten thousand
but equal to or greater than one thousand, round to nearest one hundred;
(3) If the notional or principal amount is less than 100 thousand
but equal to or greater than ten thousand, round to nearest one
thousand;
(4) If the notional or principal amount is less than one million but
equal to or greater than 100 thousand, round to nearest ten thousand;
(5) If the notional or principal amount is less than 100 million but
equal to or greater than one million, round to the nearest one million;
(6) If the notional or principal amount is less than 500 million but
equal to or greater than 100 million, round to the nearest ten million;
(7) If the notional or principal amount is less than one billion but
equal to or greater than 500 million, round to the nearest 50 million;
(8) If the notional or principal amount is less than 100 billion but
equal to or greater than one billion, round to the nearest one billion;
(9) If the notional or principal amount is greater than 100 billion,
round to the nearest 50 billion.
(h) Cap sizes--(1) Initial cap sizes. Prior to the effective date of
a Commission determination to establish an applicable post-initial cap
size for a swap category as determined pursuant to paragraph (h)(2) of
this section, the initial cap sizes for each swap category shall be
equal to the greater of the initial appropriate minimum block size for
the respective swap category in appendix F of this part or the
respective cap sizes in paragraphs (h)(1)(i) through (h)(1)(v) of this
section. If appendix F of this part does not provide an initial
appropriate minimum block size for a particular swap category, the
initial cap size for such swap category shall be equal to the
appropriate cap size as set forth in paragraphs (h)(1)(i) through
(h)(1)(v) of this section.
(i) For swaps in the interest rate asset class, the publicly
disseminated notional or principal amount for a swap subject to the
rules in this part shall be:
(A) USD 250 million for swaps with a tenor greater than zero up to
and including two years;
(B) USD 100 million for swaps with a tenor greater than two years up
to and including ten years; and
(C) USD 75 million for swaps with a tenor greater than ten years.
(ii) For swaps in the credit asset class, the publicly disseminated
notional or principal amount for a swap subject to the rules in this
part shall be USD 100 million.
(iii) For swaps in the equity asset class, the publicly disseminated
notional or principal amount for a swap subject to the rules in this
part shall be USD 250 million.
(iv) For swaps in the foreign exchange asset class, the publicly
disseminated notional or principal amount for a swap subject to the
rules in this part shall be USD 250 million.
(v) For swaps in the other commodity asset class, the publicly
disseminated notional or principal amount for a swap subject to the
rules in this part shall be USD 25 million.
(2) Post-initial cap sizes. Pursuant to the process described in
Sec. 43.6(f)(1), the Commission shall establish post-initial cap sizes
using reliable data collected by registered swap data repositories, as
determined by the Commission, based on the following:
(i) A one-year window of swap transaction and pricing data
corresponding to each relevant swap category recalculated no less than
once each calendar year; and
(ii) The 75-percent notional amount calculation described in Sec.
43.6(c)(3) applied to the swap transaction and pricing data described in
paragraph (h)(2)(i) of this section.
(3) Commission publication of post-initial cap sizes. The Commission
shall publish post-initial cap sizes on its Web site at http://
www.cftc.gov.
(4) Effective date of post-initial cap sizes. Unless otherwise
indicated on the Commission's Web site, the post-initial cap sizes shall
be effective on the first day of the second month following the date of
publication.
[76 FR 1243, Jan. 9, 2012, as amended at 78 FR 32937, May 31, 2013]
[[Page 39]]
Sec. 43.5 Time delays for public dissemination of swap transaction
and pricing data.
(a) In general. The time delay for the real-time public reporting of
a block trade or large notional off-facility swap begins upon execution,
as defined in Sec. 43.2 of this part. It is the responsibility of the
registered swap data repository that accepts and publicly disseminates
swap transaction and pricing data in real-time to ensure that the block
trade or large notional off-facility swap transaction and pricing data
is publicly disseminated pursuant to this part upon the expiration of
the appropriate time delay described in Sec. 43.5(d) through (h).
(b) Public dissemination of publicly reportable swap transactions
subject to a time delay. A registered swap data repository shall
publicly disseminate swap transaction and pricing data that is subject
to a time delay pursuant to this paragraph, as follows:
(1) No later than the prescribed time delay period described in this
paragraph;
(2) No sooner than the prescribed time delay period described in
this paragraph; and
(3) Precisely upon the expiration of the time delay period described
in this paragraph.
(c) Interim time delay--(1) In general. The public dissemination of
swap transaction and pricing data relating to any publicly reportable
swap transaction shall receive the same time delays for block trades and
large notional off-facility swaps, as described in this subsection,
until such time as an appropriate minimum block size is established with
respect to such publicly reportable swap transaction.
(2) Swaps executed on or pursuant to the rules of a registered swap
execution facility or designated contract market. Any publicly
reportable swap transaction that does not have an appropriate minimum
block size and that is executed on or pursuant to the rules of a
registered swap execution facility or designated contract market shall
follow the time delays set forth in Sec. 43.5(d) until such time that
an appropriate minimum block size is established for such publicly
reportable swap transaction.
(3) Off-facility swaps subject to the mandatory clearing
requirement. Any off-facility swap that does not have an appropriate
minimum block size and that is subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act and Commission
regulations, with the exception of those off-facility swaps that are
either excepted from the mandatory clearing requirement pursuant to
Section 2(h)(7) of the Act and Commission regulations or that are
required to be cleared under Section 2(h)(2) of the Act and Commission
regulations but are not cleared, shall follow the time delays set forth
in Sec. 43.5(e) until such time that an appropriate minimum block size
is established for such off-facility swap.
(4) Off-facility swaps in the interest rate, credit, foreign
exchange and equity asset classes not subject to the mandatory clearing
requirement with at least one swap dealer or major swap participant
counterparty. Any off-facility swap in the interest rate, credit,
foreign exchange or equity asset classes, where at least one party is a
swap dealer or major swap participant, that is not subject to the
mandatory clearing requirement or is excepted from such mandatory
clearing requirement and that does not have an appropriate minimum block
size shall follow the time delays set forth in Sec. 43.5(f) until such
time that an appropriate minimum block size is established for such off-
facility swap.
(5) Off-facility swaps in the other commodity asset class not
subject to the mandatory clearing requirement with at least one swap
dealer or major swap participant counterparty. Any off-facility swap in
the other commodity asset class, where at least one party is a swap
dealer or major swap participant, that is not subject to the mandatory
clearing requirement or is excepted from such mandatory clearing
requirement and that does not have an appropriate minimum block size
shall follow the time delays set forth in Sec. 43.5(g) until such time
that an appropriate minimum block size is established for such off-
facility swap.
(6) Off-facility swaps in all asset classes not subject to the
mandatory clearing requirement in which neither counterparty
[[Page 40]]
is a swap dealer or major swap participant. Any off-facility swap, in
all asset classes, where neither party is a swap dealer or major swap
participant, that is not subject to the mandatory clearing requirement
or is excepted from such mandatory clearing requirement and that does
not have an appropriate minimum block size shall follow the time delays
set forth in Sec. 43.5(h) until such time that an appropriate minimum
block size is established for such off-facility swap.
(7) Time delays for public dissemination upon establishment of an
appropriate minimum block size. After an appropriate minimum block size
is established for a particular swap or category of swaps, all publicly
reportable swap transactions that are below the appropriate minimum
block size shall be publicly disseminated as soon as technologically
practicable after execution pursuant to Sec. 43.3 of this part.
(d) Time delay for block trades executed pursuant to the rules of a
registered swap execution facility or designated contract market. Any
block trade that is executed pursuant to the rules of a registered swap
execution facility or designated contract market shall receive a time
delay in the public dissemination of swap transaction and pricing data
as follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination of
swap transaction and pricing data for all publicly reportable swap
transactions described in Sec. 43.5(d) shall be 30 minutes immediately
after execution of such publicly reportable swap transaction.
(2) Time delay after Year 1. Beginning on the first anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all publicly
reportable swap transactions described in Sec. 43.5(d) shall be 15
minutes immediately after execution of such publicly reportable swap
transaction.
(e) Time delay for large notional off-facility swaps subject to the
mandatory clearing requirement--(1) In general. This subsection shall
not apply to off-facility swaps that are excepted from the mandatory
clearing requirement pursuant to Section 2(h)(7) of the Act and
Commission regulations, and this subsection shall not apply to those
swaps that are required to be cleared under Section 2(h)(2) of the Act
and Commission regulations but are not cleared.
(2) Swaps subject to the mandatory clearing requirement where at
least one party is a swap dealer or major swap participant. Any large
notional off-facility swap that is subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act and Commission
regulations, in which at least one party is a swap dealer or major swap
participant, shall receive a time delay as follows:
(i) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination of
swap transaction and pricing data for all swaps described in Sec.
43.5(e)(2) shall be 30 minutes immediately after execution of such swap.
(ii) Time delay after Year 1. Beginning on the first anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(e)(2) shall be 15 minutes immediately after
execution of such swap.
(3) Swaps subject to the mandatory clearing requirement where
neither party is a swap dealer or major swap participant. Any large
notional off-facility swap that is subject to the mandatory clearing
requirement described in Section 2(h)(1) of the Act and Commission
regulations, in which neither party is a swap dealer or major swap
participant, shall receive a time delay as follows:
(i) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination of
swap transaction and pricing data for all swaps described in Sec.
43.5(e)(3) shall be four hours immediately after execution of such swap.
(ii) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(e)(3) shall be two hours immediately after
execution of such swap.
(iii) Time delay after Year 2. Beginning on the second anniversary
of the compliance date of this part, the time
[[Page 41]]
delay for public dissemination of swap transaction and pricing data for
all swaps described in Sec. 43.5(e)(3) shall be one hour immediately
after execution of such swap.
(f) Time delay for large notional off-facility swaps in the interest
rate, credit, foreign exchange or equity asset classes not subject to
the mandatory clearing requirement with at least one swap dealer or
major swap participant counterparty. Any large notional off-facility
swap in the interest rate, credit, foreign exchange or equity asset
classes where at least one party is a swap dealer or major swap
participant, that is not subject to the mandatory clearing requirement
or is excepted from such mandatory clearing requirement, shall receive a
time delay in the public dissemination of swap transaction and pricing
data as follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination of
swap transaction and pricing data for all swaps described in Sec.
43.5(f) shall be one hour immediately after execution of such swap;
however, any large notional off-facility swap in the interest rate,
credit, foreign exchange or equity asset classes in which one party is
not a swap dealer or major swap participant and such party is not a
financial entity as defined in Section 2(h)(7)(C) of the Act and
Commission regulations, shall receive a time delay of one hour
immediately after execution of such swap; or if such swap transaction or
pricing data is received by the registered swap data repository later
than one hour immediately after execution, the registered swap data
repository shall publicly disseminate such data as soon as
technologically practicable after the data is received.
(2) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(f) shall be 30 minutes immediately after
execution of such swap; however, any large notional off-facility swap in
the interest rate, credit, foreign exchange or equity asset classes in
which one party is not a swap dealer or major swap participant and such
party is not a financial entity as defined in Section 2(h)(7)(C) of the
Act and Commission regulations, shall receive a time delay of 30 minutes
immediately after execution of such swap; or if such swap transaction or
pricing data is received by the registered swap data repository later
than 30 minutes immediately after execution, the registered swap data
repository shall publicly disseminate such data as soon as
technologically practicable after the data is received.
(3) Time delay after Year 2. Beginning on the second anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(f) shall be 30 minutes immediately after
execution of such swap.
(g) Time delay for large notional off-facility swaps in the other
commodity asset class not subject to the mandatory clearing requirement
with at least one swap dealer or major swap participant counterparty.
Any large notional off-facility swap in the other commodity asset class
where at least one party is a swap dealer or major swap participant,
that is not subject to the mandatory clearing requirement or is exempt
from such mandatory clearing requirement, shall receive a time delay in
the public dissemination of swap transaction and pricing data as
follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination of
swap transaction and pricing data for all swaps described in Sec.
43.5(g) shall be four hours immediately after execution of such swap;
however, any large notional off-facility swap in the other commodity
asset class in which only one party is not a swap dealer or major swap
participant and such party is not a financial entity as defined in
Section 2(h)(7)(C) of the Act and Commission regulations, shall receive
a time delay of four hours immediately after execution of such swap, or
if such swap transaction or pricing data is received by the registered
swap data repository later than four hours immediately after execution
of such swap, the registered swap data repository shall publicly
disseminate such data as soon as technologically practicable after the
data is received.
[[Page 42]]
(2) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(g) shall be two hours immediately after
execution of such swap; however, any large notional off-facility swap in
the other commodity asset class in which only one party is not a swap
dealer or major swap participant and such party is not a financial
entity as defined in Section 2(h)(7)(C) of the Act and Commission
regulations, shall receive a time delay of two hours immediately after
execution of such swap, or if such swap transaction or pricing data is
received by the registered swap data repository later than two hours
immediately after execution, the registered swap data repository shall
publicly disseminate such data as soon as technologically practicable
after the data is received.
(3) Time delay after Year 2. Beginning on the second anniversary of
the compliance date of this part, the time delay for public
dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(g) shall be two hours after the execution of
such swap.
(h) Time delay for large notional off-facility swaps in all asset
classes not subject to the mandatory clearing requirement in which
neither counterparty is a swap dealer or a major swap participant. Any
large notional off-facility swap in which neither party is a swap dealer
or a major swap participant, which is not subject to the mandatory
clearing requirement or is exempt from such mandatory clearing
requirement, shall receive a time delay in the public dissemination of
swap transaction and pricing data as follows:
(1) Time delay during Year 1. For one year beginning on the
compliance date of this part, the time delay for public dissemination of
swap transaction and pricing data for all swaps described in Sec.
43.5(h) shall be 48 business hours immediately after execution of such
swap.
(2) Time delay during Year 2. For one year beginning on the first
anniversary of the compliance date of this part, the time delay for
public dissemination of swap transaction and pricing data for all swaps
described in Sec. 43.5(h) shall be 36 business hours immediately after
the execution of such swap.
(3) Time delay after Year 2. Beginning on the second anniversary of
the compliance date of this part, the time delay for public
dissemination transaction and pricing data for all swaps described in
Sec. 43.5(h) shall be 24 business hours immediately after the execution
of such swap.
Sec. 43.6 Block trades and large notional off-facility swaps.
(a) Commission determination. The Commission shall establish the
appropriate minimum block size for publicly reportable swap transactions
based on the swap categories set forth in paragraph (b) of this section
in accordance with the provisions set forth in paragraphs (c), (d), (e),
(f) or (h) of this section, as applicable.
(b) Swap categories. Swap categories shall be established for all
swaps, by asset class, in the following manner:
(1) Interest rates asset class. Interest rate asset class swap
categories shall be based on unique combinations of the following:
(i) Currency by:
(A) Super-major currency;
(B) Major currency; or
(C) Non-major currency; and
(ii) Tenor of swap as follows:
(A) Zero to 46 days;
(B) Greater than 46 days to three months (47 to 107 days);
(C) Greater than three months to six months (108 to 198 days);
(D) Greater than six months to one year (199 to 381 days);
(E) Greater than one to two years (382 to 746 days);
(F) Greater than two to five years (747 to 1,842 days);
(G) Greater than five to ten years (1,843 to 3,668 days);
(H) Greater than ten to 30 years (3,669 to 10,973 days); or
(I) Greater than 30 years (10,974 days and above).
(2) Credit asset class. Credit asset class swap categories shall be
based on unique combinations of the following:
(i) Traded Spread rounded to the nearest basis point (0.01) as
follows:
(A) 0 to 175 points;
(B) 176 to 350 points; or
(C) 351 points and above;
[[Page 43]]
(ii) Tenor of swap as follows:
(A) Zero to two years (0-746 days);
(B) Greater than two to four years (747-1,476 days);
(C) Greater than four to six years (1,477-2,207 days);
(D) Greater than six to eight-and-a-half years (2,208-3,120 days);
(E) Greater than eight-and-a-half to 12.5 years (3,121-4,581 days);
and
(F) Greater than 12.5 years (4,582 days and above).
(3) Equity asset class. There shall be one swap category consisting
of all swaps in the equity asset class.
(4) Foreign exchange asset class. Swap categories in the foreign
exchange asset class shall be grouped as follows:
(i) By the unique currency combinations of one super-major currency
paired with one of the following:
(A) Another super major currency;
(B) A major currency; or
(C) A currency of Brazil, China, Czech Republic, Hungary, Israel,
Mexico, Poland, Russia, and Turkey; or
(ii) By unique currency combinations not included in paragraph
(b)(4)(i) of this section.
(5) Other commodity asset class. Swap contracts in the other
commodity asset class shall be grouped into swap categories as follows:
(i) For swaps that are economically related to contracts in appendix
B of this part, by the relevant contract as referenced in appendix B of
this part; or
(ii) For swaps that are not economically related to contracts in
appendix B of this part, by the following futures-related swaps--
(A) CME Cheese;
(B) CBOT Distillers' Dried Grain;
(C) CBOT Dow Jones-UBS Commodity Index;
(D) CBOT Ethanol;
(E) CME Frost Index;
(F) CME Goldman Sachs Commodity Index (GSCI), (GSCI Excess Return
Index);
(G) NYMEX Gulf Coast Sour Crude Oil;
(H) CME Hurricane Index;
(I) CME Rainfall Index;
(J) CME Snowfall Index;
(K) CME Temperature Index;
(L) CME U.S. Dollar Cash Settled Crude Palm Oil; or
(iii) For swaps that are not covered in paragraphs (b)(5)(i) and
(b)(5)(ii) of this section, the relevant product type as referenced in
appendix D of this part.
(c) Methodologies to determine appropriate minimum block sizes and
cap sizes. In determining appropriate minimum block sizes and cap sizes
for publicly reportable swap transactions, the Commission shall utilize
the following statistical calculations--
(1) 50-percent notional amount calculation. The Commission shall use
the following procedure in determining the 50-percent notional amount
calculation:
(i) Select all of the publicly reportable swap transactions within a
specific swap category using a one-year window of data beginning with a
minimum of one year's worth of data;
(ii) Convert to the same currency or units and use a trimmed data
set;
(iii) Determine the sum of the notional amounts of swaps in the
trimmed data set;
(iv) Multiply the sum of the notional amount by 50 percent;
(v) Rank order the observations by notional amount from least to
greatest;
(vi) Calculate the cumulative sum of the observations until the
cumulative sum is equal to or greater than the 50-percent notional
amount calculated in paragraph (c)(1)(iv) of this section;
(vii) Select the notional amount associated with that observation;
(viii) Round the notional amount of that observation to two
significant digits, or if the notional amount associated with that
observation is already significant to two digits, increase that notional
amount to the next highest rounding point of two significant digits; and
(ix) Set the appropriate minimum block size at the amount calculated
in paragraph (c)(1)(viii) of this section.
(2) 67-percent notional amount calculation. The Commission shall use
the following procedure in determining the 67-percent notional amount
calculation:
(i) Select all of the publicly reportable swap transactions within a
specific swap category using a one-year
[[Page 44]]
window of data beginning with a minimum of one year's worth of data;
(ii) Convert to the same currency or units and use a trimmed data
set;
(iii) Determine the sum of the notional amounts of swaps in the
trimmed data set;
(iv) Multiply the sum of the notional amount by 67 percent;
(v) Rank order the observations by notional amount from least to
greatest;
(vi) Calculate the cumulative sum of the observations until the
cumulative sum is equal to or greater than the 67-percent notional
amount calculated in paragraph (c)(2)(iv) of this section;
(vii) Select the notional amount associated with that observation;
(viii) Round the notional amount of that observation to two
significant digits, or if the notional amount associated with that
observation is already significant to two digits, increase that notional
amount to the next highest rounding point of two significant digits; and
(ix) Set the appropriate minimum block size at the amount calculated
in paragraph (c)(2)(viii) of this section.
(3) 75-percent notional amount calculation. The Commission shall use
the following procedure in determining the 75-percent notional amount
calculation:
(i) Select all of the publicly reportable swap transactions within a
specific swap category using a one-year window of data beginning with a
minimum of one year's worth of data;
(ii) Convert to the same currency or units and use a trimmed data
set;
(iii) Determine the sum of the notional amounts of swaps in the
trimmed data set;
(iv) Multiply the sum of the notional amount by 75 percent;
(v) Rank order the observations by notional amount from least to
greatest;
(vi) Calculate the cumulative sum of the observations until the
cumulative sum is equal to or greater than the 75-percent notional
amount calculated in paragraph (c)(3)(iv) of this section;
(vii) Select the notional amount associated with that observation;
(viii) Round the notional amount of that observation to two
significant digits, or if the notional amount associated with that
observation is already significant to two digits, increase that notional
amount to the next highest rounding point of two significant digits; and
(ix) Set the appropriate minimum block size at the amount calculated
in paragraph (c)(3)(viii) of this section.
(d) No appropriate minimum block sizes for swaps in the equity asset
class. Publicly reportable swap transactions in the equity asset class
shall not be treated as block trades or large notional off-facility
swaps.
(e) Initial appropriate minimum block sizes. Prior to the Commission
making a determination as described in paragraph (f)(1) of this section,
the following initial appropriate minimum block sizes shall apply:
(1) Prescribed appropriate minimum block sizes. Except as otherwise
provided in paragraph (e)(1) of this section, for any publicly
reportable swap transaction that falls within the swap categories
described in paragraphs (b)(1), (b)(2), (b)(4)(i), (b)(5)(i) or
(b)(5)(ii) of this section, the initial appropriate minimum block size
for such publicly reportable swap transaction shall be the appropriate
minimum block size that is in appendix F of this part.
(2) Certain swaps in the foreign exchange and other commodity asset
classes. All swaps or instruments in the swap categories described in
paragraphs (b)(4)(ii) and (b)(5)(iii) of this section shall be eligible
to be treated as a block trade or large notional off-facility swap, as
applicable.
(3) Exception. Publicly reportable swap transactions described in
paragraph (b)(5)(i) of this section that are economically related to a
futures contract in appendix B of this part shall not qualify to be
treated as block trades or large notional off-facility swaps (as
applicable), if such futures contract is not subject to a designated
contract market's block trading rules.
(f) Post-initial process to determine appropriate minimum block
sizes--(1) Post-initial period. After a registered swap data repository
has collected at least one year of reliable data for a particular asset
class, the Commission shall establish, by swap categories, the
[[Page 45]]
post-initial appropriate minimum block sizes as described in paragraphs
(f)(2) through (f)(5) of this section. No less than once each calendar
year thereafter, the Commission shall update the post-initial
appropriate minimum block sizes.
(2) Post-initial appropriate minimum block sizes for certain swaps.
The Commission shall determine post-initial appropriate minimum block
sizes for the swap categories described in paragraphs (b)(1), (b)(2),
(b)(4)(i) and (b)(5) of this section by utilizing a one-year window of
swap transaction and pricing data corresponding to each relevant swap
category reviewed no less than once each calendar year, and by applying
the 67-percent notional amount calculation to such data.
(3) Certain swaps in the foreign exchange asset class. All swaps or
instruments in the swap category described in paragraph (b)(4)(ii) of
this section shall be eligible to be treated as a block trade or large
notional off-facility swap, as applicable.
(4) Commission publication of post-initial appropriate minimum block
sizes. The Commission shall publish the appropriate minimum block sizes
determined pursuant to paragraph (f)(1) of this section on its Web site
at http://www.cftc.gov.
(5) Effective date of post-initial appropriate minimum block sizes.
Unless otherwise indicated on the Commission's Web site, the post-
initial appropriate minimum block sizes described in paragraph (f)(1) of
this section shall be effective on the first day of the second month
following the date of publication.
(g) Required notification--(1) Block trade election. (i) The parties
to a publicly reportable swap transaction that has a notional amount at
or above the appropriate minimum block size shall notify the registered
swap execution facility or designated contract market, as applicable,
pursuant to the rules of such registered swap execution facility or
designated contract market, of its election to have the publicly
reportable swap transaction treated as a block trade.
(ii) The registered swap execution facility or designated contract
market, as applicable, pursuant to the rules of which a block trade is
executed shall notify the registered swap data repository of such a
block trade election when transmitting swap transaction and pricing data
to such swap data repository in accordance with Sec. 43.3(b)(1).
(2) Large notional off-facility swap election. A reporting party who
executes an off-facility swap that has a notional amount at or above the
appropriate minimum block size shall notify the applicable registered
swap data repository that such swap transaction qualifies as a large
notional off-facility swap concurrent with the transmission of swap
transaction and pricing data in accordance with this part.
(h) Special provisions relating to appropriate minimum block sizes
and cap sizes. The following special rules shall apply to the
determination of appropriate minimum block sizes and cap sizes--
(1) Swaps with optionality. The notional amount of a swap with
optionality shall equal the notional amount of the component of the swap
that does not include the option component.
(2) Swaps with composite reference prices. The parties to a swap
transaction with composite reference prices may elect to apply the
lowest appropriate minimum block size or cap size applicable to one
component reference price's swap category of such publicly reportable
swap transaction.
(3) Notional amounts for physical commodity swaps. Unless otherwise
specified in this part, the notional amount for a physical commodity
swap shall be based on the notional unit measure utilized in the related
futures contract market or the predominant notional unit measure used to
determine notional quantities in the cash market for the relevant,
underlying physical commodity.
(4) Currency conversion. Unless otherwise specified in this part,
when the appropriate minimum block size or cap size for a publicly
reportable swap transaction is denominated in a currency other than U.S.
dollars, parties to a swap and registered entities may use a currency
exchange rate that is widely published within the preceding two business
days from the date of execution of the swap transaction in order to
determine such qualification.
[[Page 46]]
(5) Successor currencies. For currencies that succeed a super-major
currency, the appropriate currency classification for such currency
shall be based on the corresponding nominal gross domestic product
classification (in U.S. dollars) as determined in the most recent World
Bank, World Development Indicator at the time of succession. If the
gross domestic product of the country or nation utilizing the successor
currency is:
(i) Greater than $2 trillion, then the successor currency shall be
included among the super-major currencies;
(ii) Greater than $500 billion but less than $2 trillion, then the
successor currency shall be included among the major currencies; or
(iii) Less than $500 billion, then the successor currency shall be
included among the non-major currencies.
(6) Aggregation. Except as otherwise stated in this paragraph, the
aggregation of orders for different accounts in order to satisfy the
minimum block trade size or the cap size requirement is prohibited.
Aggregation is permissible on a designated contract market or swap
execution facility if done by a person who:
(i)(A) Is a commodity trading advisor registered pursuant to Section
4n of the Act, or exempt from registration under the Act, or a principal
thereof, who has discretionary trading authority or directs client
accounts,
(B) Is an investment adviser who has discretionary trading authority
or directs client accounts and satisfies the criteria of Sec.
4.7(a)(2)(v) of this chapter, or
(C) Is a foreign person who performs a similar role or function as
the persons described in paragraphs (h)(6)(i)(A) or (h)(6)(i)(B) of this
section and is subject as such to foreign regulation; and,
(ii) Has more than $25,000,000 in total assets under management.
(i) Eligible Block Trade Parties. (1) Parties to a block trade must
be ``eligible contract participants,'' as defined in Section 1a(18) of
the Act and the Commission's regulations. However, a designated contract
market may allow:
(i) A commodity trading advisor registered pursuant to Section 4n of
the Act, or exempt from registration under the Act, or a principal
thereof, who has discretionary trading authority or directs client
accounts,
(ii) An investment adviser who has discretionary trading authority
or directs client accounts and satisfies the criteria of Sec.
4.7(a)(2)(v) of this chapter, or
(iii) a foreign person who performs a similar role or function as
the persons described in paragraphs (i)(1)(i) or (ii) of this section
and is subject as such to foreign regulation, to transact block trades
for customers who are not eligible contract participants if such
commodity trading advisor, investment adviser or foreign person has more
than $25,000,000 in total assets under management.
(2) A person transacting a block trade on behalf of a customer must
receive prior written instruction or consent from the customer to do so.
Such instruction or consent may be provided in the power of attorney or
similar document by which the customer provides the person with
discretionary trading authority or the authority to direct the trading
in its account.
[78 FR 32938, May 31, 2013]
Sec. 43.7 Delegation of authority.
(a) Authority. The Commission hereby delegates, until it orders
otherwise, to the Director of the Division of Market Oversight or such
other employee or employees as the Director may designate from time to
time, the authority:
(1) To determine whether swaps fall within specific swap categories
as described in Sec. 43.6(b);
(2) To determine and publish post-initial, appropriate minimum block
sizes as described in Sec. 43.6(f); and
(3) To determine post-initial cap sizes as described in Sec.
43.4(h).
(b) Submission for Commission consideration. The Director of the
Division of Market Oversight may submit to the Commission for its
consideration any matter that has been delegated pursuant to this
section.
(c) Commission reserves authority. Nothing in this section prohibits
the
[[Page 47]]
Commission, at its election, from exercising the authority delegated in
this section.
[78 FR 32940, May 31, 2013]
Sec. Appendix A to Part 43--Data Fields for Public Dissemination
The data fields described in Table A1 and Table A2, to the extent
applicable for a particular publicly reportable swap transaction, shall
be publicly disseminated pursuant to part 43. Table A1 and Table A2
provide guidance for compliance with the reporting and public
dissemination of each data field. Reporting parties, registered swap
execution facilities and designated contract markets shall report swap
transaction and pricing data necessary to publicly disseminate such
data, pursuant to part 43 and this appendix A to part 43, to a
registered swap data repository as soon as technologically practicable
after execution of the publicly reportable swap transaction. A
registered swap data repository shall publicly disseminate the
information in Table A1 and A2 in a consistent form and manner for swaps
within the same asset class.
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Sec. Appendix B to Part 43--Enumerated Physical Commodity Contracts and
Other Contracts
Enumerated Physical Commodity Contracts
Agriculture
ICE Futures U.S. Cocoa
ICE Futures U.S. Coffee C
Chicago Board of Trade Corn
ICE Futures U.S. Cotton No. 2
ICE Futures U.S. FCOJ-A
Chicago Mercantile Exchange Live Cattle
Chicago Board of Trade Oats
Chicago Board of Trade Rough Rice
Chicago Board of Trade Soybeans
Chicago Board of Trade Soybean Meal
Chicago Board of Trade Soybean Oil
ICE Futures U.S. Sugar No. 11
ICE Futures U.S. Sugar No. 16
Chicago Board of Trade Wheat
Minneapolis Grain Exchange Hard Red Spring Wheat
Kansas City Board of Trade Hard Winter Wheat
Chicago Mercantile Exchange Class III Milk
Chicago Mercantile Exchange Feeder Cattle
Chicago Mercantile Exchange Lean Hogs
[[Page 62]]
Metals
Commodity Exchange, Inc. Copper
New York Mercantile Exchange Palladium
New York Mercantile Exchange Platinum
Commodity Exchange, Inc. Gold
Commodity Exchange, Inc. Silver
Energy
New York Mercantile Exchange Light Sweet Crude Oil
New York Mercantile Exchange New York Harbor Gasoline Blendstock
New York Mercantile Exchange Henry Hub Natural Gas
New York Mercantile Exchange New York Harbor Heating Oil
ICE Futures SP-15 Day-Ahead Peak Fixed Price
ICE Futures SP-15 Day-Ahead Off-Peak Fixed Price
ICE Futures PJM Western Hub Real Time Peak Fixed Price
ICE Futures PJM Western Hub Real Time Off-Peak Fixed Price
ICE Futures Mid-Columbia Day-Ahead Peak Fixed Price
ICE Futures Mid-Columbia Day-Ahead Off-Peak Fixed Price
Chicago Basis
HSC Basis
Socal Border Basis
Waha Basis
ICE Futures AB NIT Basis
NWP Rockies Basis
PG&E Citygate Basis
Other Contracts
Brent Crude Oil (ICE)
[76 FR 1243, Jan. 9, 2012, as amended at 78 FR 32940, May 31, 2013]
Sec. Appendix C to Part 43--Time Delays for Public Dissemination
The tables below provide clarification of the time delays for public
dissemination set forth in Sec. 43.5. The first row of each table
describes the asset classes to which each chart applies. The column
entitled ``Yearly Phase-In'' indicates the periods beginning on the
compliance date of this part and beginning on the anniversary of the
compliance date thereafter. The column entitled ``Time Delay for Public
Dissemination'' indicates the precise length of time delay, starting
upon execution, for the public dissemination of such swap transaction
and pricing data by a registered swap data repository.
Table C1. Block Trades Executed on or Pursuant to the Rules of a
Registered Swap Execution Facility or Designated Contract Market
(Illustrating Sec. Sec. 43.5(d)(1) and (d)(2))
Table C1 also designates the interim time delays for swaps described
in Sec. 43.5(c)(2).
All Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 30 minutes.
After Year 1..................................................... 15 minutes.
----------------------------------------------------------------------------------------------------------------
Table C2. Large Notional Off-Facility Swaps Subject to the Mandatory
Clearing Requirement With at Least One Swap Dealer or Major Swap
Participant Counterparty (Illustrating Sec. Sec. 43.5(e)(2)(A) and
(e)(2)(B))
Table C2 excludes off-facility swaps that are excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act
and Commission regulations and those off-facility swaps that are
required to be cleared under Section 2(h)(2) of the Act and Commission
regulations but are not cleared.
Table C2 also designates the interim time delays for swaps described
in Sec. 43.5(c)(3).
All Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 30 minutes.
After Year 1..................................................... 15 minutes.
----------------------------------------------------------------------------------------------------------------
[[Page 63]]
Table C3. Large Notional Off-Facility Swaps Subject to the Mandatory
Clearing Requirement in Which Neither Counterparty Is a Swap Dealer or
Major Swap Participant (Illustrating Sec. Sec. 43.5(e)(3)(A),
(e)(3)(B), and (e)(3)(C))
Table C3 excludes off-facility swaps that are excepted from the
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act
and Commission regulations and those swaps that are required to be
cleared under Section 2(h)(2) of the Act and Commission regulations but
are not cleared.
Table C3 also designates the interim time delays for swaps described
in Sec. 43.5(c)(3).
All Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 4 hours.
Year 2........................................................... 2 hours.
After Year 2..................................................... 1 hour.
----------------------------------------------------------------------------------------------------------------
Table C4. Large Notional Off-Facility Swaps Not Subject to the Mandatory
Clearing Requirement With at Least One Swap Dealer or Major Swap
Participant Counterparty (Illustrating Sec. Sec. 43.5(f)(1), (f)(2) and
(f)(3))
Table C4 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are exempt from such
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act
and Commission regulations.
Table C4 also designates the interim time delays for swaps described
in Sec. 43.5(c)(4).
Interest Rates, Credit, Foreign Exchange, Equity Asset Classes
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 1 hour.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then one hour
immediately after execution; or if received
later than one hour by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
Year 2........................................................... 30 minutes.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then 30 minutes
immediately after execution; or if received
later than 30 minutes by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
After Year 2..................................................... 30 minutes.
----------------------------------------------------------------------------------------------------------------
Table C5. Large Notional Off-Facility Swaps Not Subject to the Mandatory
Clearing Requirement With at Least One Swap Dealer or Major Swap
Participant Counterparty (Illustrating Sec. Sec. 43.5(g)(1), (g)(2),
and (g)(3))
Table C5 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are excepted from such
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act
and Commission regulations.
Table C5 also designates the interim time delays for swaps described
in Sec. 43.5(c)(5).
Other Commodity Asset Class
----------------------------------------------------------------------------------------------------------------
Yearly phase-in Time delay for public dissemination
----------------------------------------------------------------------------------------------------------------
Year 1........................................................... 4 hours.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then four hours
immediately after execution; or if received
later than four hours by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
[[Page 64]]
Year 2........................................................... 2 hours.
However, if such swap includes a non-swap
dealer/non-major swap participant
counterparty that is not a financial entity
as defined in Section 2(h)(7)(C) of the Act
and Commission regulations, then two hours
immediately after execution; or if received
later than two hours by the registered swap
data repository, then public dissemination
shall occur as soon as technologically
practicable after the data is received.
After Year 2..................................................... 2 hours.
----------------------------------------------------------------------------------------------------------------
Table C6. Large Notional Off-Facility Swaps Not Subject to the Mandatory
Clearing Requirement in Which Neither Counterparty Is a Swap Dealer or
Major Swap Participant (Illustrating Sec. Sec. 43.5(h)(1), (h)(2) and
(h)(3))
Table C6 includes large notional off-facility swaps that are not
subject to the mandatory clearing requirement or are exempt from such
mandatory clearing requirement pursuant to Section 2(h)(7) of the Act
and Commission regulations.
Table C6 also designates the interim time delays for swaps described
in Sec. 43.5(c)(6).
All Asset Classes
------------------------------------------------------------------------
Time delay for
Yearly phase-in public dissemination
------------------------------------------------------------------------
Year 1............................................ 48 business hours.
Year 2............................................ 36 business hours.
After Year 2...................................... 24 business hours.
------------------------------------------------------------------------
Sec. Appendix D to Part 43--Other Commodity Swap Categories
Other Commodity Group
Individual Other Commodity
Grains
Oats
Wheat
Corn
Rice
Grains--Other
Livestock/Meat Products
Live Cattle
Pork Bellies
Feeder Cattle
Lean Hogs
Livestock/Meat Products--Other
Dairy Products
Milk
Butter
Cheese
Dairy Products--Other
Oilseed and Products
Soybean Oil
Soybean Meal
Soybeans
Oilseed and Products--Other
Fiber
Cotton
Fiber--Other
Foodstuffs/Softs
Coffee
Frozen Concentrated Orange Juice
Sugar
Cocoa
Foodstuffs/Softs--Other
Petroleum and Products
Jet Fuel
Ethanol
Biodiesel
Fuel Oil
Heating Oil
Gasoline
Naphtha
Crude Oil
Diesel
Petroleum and Products--Other
Natural Gas and Related Products
Natural Gas Liquids
Natural Gas
Natural Gas and Related Products--Other
Electricity and Sources
Coal
Electricity
Uranium
Electricity and Sources--Other
Precious Metals
Palladium
Platinum
Silver
Gold
Precious Metals--Other
Base Metals
Steel
Copper
Base Metals--Other
Wood Products
Lumber
Pulp
[[Page 65]]
Wood Products--Other
Real Estate
Real Estate
Chemicals
Chemicals
Plastics
Plastics
Emissions
Emissions
Weather
Weather
Multiple Commodity Index
Multiple Commodity Index
Other Agricultural
Other Agricultural
Other Non-Agricultural
Other Non-Agricultural
[78 FR 32941, May 31, 2013]
Sec. Appendix E to Part 43--Other Commodity Geographic Identification
for Public Dissemination Pursuant to Sec. 43.4(d)(4)(iii)
Registered swap data repositories are required by Sec.
43.4(d)(4)(iii) to publicly disseminate any specific delivery point or
pricing point associated with publicly reportable swap transactions in
the ``other commodity'' asset class pursuant to Tables E1 and E2 in this
appendix. If the underlying asset of a publicly reportable swap
transaction described in Sec. 43.4(d)(4)(iii) has a delivery or pricing
point that is located in the United States, such information shall be
publicly disseminated pursuant to the regions described in Table E1 in
this appendix. If the underlying asset of a publicly reportable swap
transaction described in Sec. 43.4(d)(4)(iii) has a delivery or pricing
point that is not located in the United States, such information shall
be publicly disseminated pursuant to the countries or sub-regions, or if
no country or sub-region, by the other commodity region, described in
Table E2 in this appendix.
Table E1. U.S. Delivery or Pricing Points
Other Commodity Group
Region
Natural Gas and Related Products
Midwest
Northeast
Gulf
Southeast
Western
Other--U.S.
Petroleum and Products
New England (PADD 1A)
Central Atlantic (PADD 1B)
Lower Atlantic (PADD 1C)
Midwest (PADD 2)
Gulf Coast (PADD 3)
Rocky Mountains (PADD 4)
West Coast (PADD 5)
Other--U.S.
Electricity and Sources
Florida Reliability Coordinating Council (FRCC)
Midwest Reliability Organization (MRO)
Northeast Power Coordinating Council (NPCC)
Reliability First Corporation (RFC)
SERC Reliability Corporation (SERC)
Southwest Power Pool, RE (SPP)
Texas Regional Entity (TRE)
Western Electricity Coordinating Council (WECC)
Other--U.S.
All Remaining Other Commodities (Publicly disseminate the region. If
pricing or delivery point is not region-specific, indicate ``U.S.'')
Region 1--(Includes Connecticut, Maine, Massachusetts, New
Hampshire, Rhode Island, Vermont)
Region 2--(Includes New Jersey, New York)
Region 3--(Includes Delaware, District of Columbia, Maryland,
Pennsylvania, Virginia, West Virginia)
Region 4--(Includes Alabama, Florida, Georgia, Kentucky,
Mississippi, North Carolina, South Carolina, Tennessee)
Region 5--(Includes Illinois, Indiana, Michigan, Minnesota, Ohio,
Wisconsin)
Region 6--(Includes Arkansas, Louisiana, New Mexico, Oklahoma,
Texas)
Region 7--(Includes Iowa, Kansas, Missouri, Nebraska)
Region 8--(Includes Colorado, Montana, North Dakota, South Dakota,
Utah, Wyoming)
Region 9--(Includes Arizona, California, Hawaii, Nevada)
Region 10--(Includes Alaska, Idaho, Oregon, Washington)
Table E2. Non-U.S. Delivery or Pricing Points
Other Commodity Regions
Country or Sub-Region
North America (Other than U.S.)
Canada
Mexico
Central America
South America
Brazil
Other South America
Europe
Western Europe
Northern Europe
Southern Europe
Eastern Europe (excluding Russia)
Russia
Africa
Northern Africa
Western Africa
Eastern Africa
Central Africa
Southern Africa
Asia-Pacific
Northern Asia (excluding Russia)
Central Asia
Eastern Asia
Western Asia
Southeast Asia
[[Page 66]]
Australia/New Zealand/Pacific Islands
[78 FR 32941, May 31, 2013]
Sec. Appendix F to Part 43--Initial Appropriate Minimum Block Sizes by
Asset Class for Block Trades and Large Notional Off-Facility Swaps
------------------------------------------------------------------------
Currency group Currencies
------------------------------------------------------------------------
Super-Major Currencies.......................... United States dollar
(USD), European Union
Euro Area euro (EUR),
United Kingdom pound
sterling (GBP), and
Japan yen (JPY).
Major Currencies................................ Australia dollar
(AUD), Switzerland
franc (CHF), Canada
dollar (CAD),
Republic of South
Africa rand (ZAR),
Republic of Korea won
(KRW), Kingdom of
Sweden krona (SEK),
New Zealand dollar
(NZD), Kingdom of
Norway krone (NOK),
and Denmark krone
(DKK).
Non-Major Currencies............................ All other currencies.
------------------------------------------------------------------------
Interest Rate Swaps
----------------------------------------------------------------------------------------------------------------
Tenor less than or 50% Notional (in
Currency group Tenor greater than equal to millions)
----------------------------------------------------------------------------------------------------------------
Super-Major.................................... ...................... 46 days.............. 6,400
Super-Major.................................... 46 days............... Three months (107 2,100
days).
Super-Major.................................... Three months (107 Six months (198 days) 1,200
days).
Super-Major.................................... Six months (198 days). One year (381 days).. 1,100
Super-Major.................................... One year (381 days)... Two years (746 days). 460
Super-Major.................................... Two years (746 days).. Five years (1,842 240
days).
Super-Major.................................... Five years (1,842 Ten years (3,668 170
days). days).
Super-Major.................................... Ten years (3,668 days) 30 years (10,973 120
days).
Super-Major.................................... 30 years (10,973 days) ..................... 67
Major.......................................... ...................... 46 days.............. 2,200
Major.......................................... 46 days............... Three months (107 580
days).
Major.......................................... Three months (107 Six months (198 days) 440
days).
Major.......................................... Six months (198 days). One year (381 days).. 220
Major.......................................... One year (381 days)... Two years (746 days). 130
Major.......................................... Two years (746 days).. Five years (1,842 88
days).
Major.......................................... Five years (1,842 Ten years (3,668 49
days). days).
Major.......................................... Ten years (3,668 days) 30 years (10,973 37
days).
Major.......................................... 30 years (10,973 days) ..................... 15
Non-Major...................................... ...................... 46 days.............. 230
Non-Major...................................... 46 days............... Three months (107 230
days).
Non-Major...................................... Three months (107 Six months (198 days) 150
days).
Non-Major...................................... Six months (198 days). One year (381 days).. 110
Non-Major...................................... One year (381 days)... Two years (746 days). 54
Non-Major...................................... Two years (746 days).. Five years (1,842 27
days).
Non-Major...................................... Five years (1,842 Ten years (3,668 15
days). days).
Non-Major...................................... Ten years (3,668 days) 30 years (10,973 16
days).
Non-Major...................................... 30 years (10,973 days) ..................... 15
----------------------------------------------------------------------------------------------------------------
Credit Swaps
----------------------------------------------------------------------------------------------------------------
Traded tenor less than or 50% Notional (in
Spread group (basis points) Traded tenor greater than equal to millions)
----------------------------------------------------------------------------------------------------------------
Less than or equal to 175.............. .......................... Two years (746 days)..... 320
Less than or equal to 175.............. Two years (746 days)...... Four years (1,477 days).. 200
Less than or equal to 175.............. Four years (1,477 days)... Six years (2,207 days)... 110
Less than or equal to 175.............. Six years (2,207 days).... Eight years and six 110
months (3,120 days).
Less than or equal to 175.............. Eight years and six months Twelve years and six 130
(3,120 days). months (4,581 days).
Less than or equal to 175.............. Twelve years and six ......................... 46
months (4,581 days).
Greater than 175 and less than or equal .......................... Two years (746 days)..... 140
to 350.
Greater than 175 and less than or equal Two years (746 days)...... Four years (1,477 days).. 82
to 350.
Greater than 175 and less than or equal Four years (1,477 days)... Six years (2,207 days)... 32
to 350.
Greater than 175 and less than or equal Six years (2,207 days).... Eight years and six 20
to 350. months (3,120 days).
[[Page 67]]
Greater than 175 and less than or equal Eight years and six months Twelve years and six 26
to 350. (3,120 days). months (4,581 days).
Greater than 175 and less than or equal Twelve years and six ......................... 63
to 350. months (4,581 days).
Greater than 350....................... .......................... Two years (746 days)..... 66
Greater than 350....................... Two years (746 days)...... Four years (1,477 days).. 41
Greater than 350....................... Four years (1,477 days)... Six years (2,207 days)... 26
Greater than 350....................... Six years (2,207 days).... Eight years and six 13
months (3,120 days).
Greater than 350....................... Eight years and six months Twelve years and six 13
(3,120 days. months (4,581 days).
Greater than 350....................... Twelve years and six ......................... 41
months (4,581 days).
----------------------------------------------------------------------------------------------------------------
Foreign Exchange Swaps
----------------------------------------------------------------------------------------------------------------
Super-major currencies
-----------------------------------------------------------------------
GBP (British JPY (Japanese USD (U.S.
EUR (Euro) pound) yen) dollar)
----------------------------------------------------------------------------------------------------------------
Super-major currencies...... EUR....... ................ 6,250,000 6,250,000 18,750,000
GBP....... * 6,250,000 ................ 6,250,000 6,250,000
JPY....... * 6,250,000 * 6,250,000 ................ 1,875,000,000
USD....... * 18,750,000 * 6,250,000 * 1,875,000,000 ................
Major currencies............ AUD....... * 6,250,000 0 10,000,000 10,000,000
CAD....... * 6,250,000 0 10,000,000 10,000,000
CHF....... * 6,250,000 * 6,250,000 12,500,000 12,500,000
DKK....... 0 0 0 0
KRW....... 0 0 0 6,250,000,000
SEK....... * 6,250,000 0 0 100,000,000
NOK....... * 6,250,000 0 0 100,000,000
NZD....... 0 0 0 5,000,000
ZAR....... 0 0 0 25,000,000
Non-major currencies........ BRL....... 0 0 0 5,000,000
CZK....... 200,000,000 0 0 200,000,000
HUF....... 1,500,000,000 0 0 1,500,000,000
ILS....... 0 0 0 50,000,000
MXN....... 0 0 0 50,000,000
PLN....... 25,000,000 0 0 25,000,000
RMB....... 50,000,000 0 50,000,000 50,000,000
RUB....... 0 0 0 125,000,000
TRY....... * 6,250,000 0 0 * 10,000,000
----------------------------------------------------------------------------------------------------------------
All values that do not have an asterisk are denominated in the currency of the left hand side.
All values that have an asterisk (*) are denominated in the currency indicated on the top of the table.
Other Commodity Swaps
------------------------------------------------------------------------
Initial
appropriate
Related futures contract minimum block Units
size
------------------------------------------------------------------------
AB NIT Basis (ICE)........... 62,500.......... MMBtu.
Brent Crude (ICE and NYMEX).. 25,000.......... bbl.
Cheese (CME)................. 400,000......... lbs.
Class III Milk (CME)......... NO BLOCKS. .......................
Cocoa (ICE and NYSE LIFFE and 1,000........... metric tons.
NYMEX).
Coffee (ICE and NYMEX)....... 3,750,000....... lbs.
Copper (COMEX)............... 625,000......... lbs.
Corn (CBOT).................. NO BLOCKS....... bushels.
Cotton No. 2 (ICE and NYMEX). 5,000,000....... lbs.
Distillers' Dried Grain 1,000........... short tons.
(CBOT).
Dow Jones-UBS Commodity Index 30,000 times dollars.
(CBOT). index.
Ethanol (CBOT)............... 290,000......... gallons.
Feeder Cattle (CME).......... NO BLOCKS. .......................
Frost Index (CME)............ 200,000 times euros.
index.
Frozen Concentrated Orange NO BLOCKS. .......................
Juice (ICE).
Gold (COMEX and NYSE Liffe).. 2,500........... troy oz.
[[Page 68]]
Goldman Sachs Commodity Index 5,000 times dollars.
(GSCI), GSCI Excess Return index.
Index (CME).
Gulf Coast Sour Crude Oil 5,000........... bbl.
(NYMEX).
Hard Red Spring Wheat (MGEX). NO BLOCKS. .......................
Hard Winter Wheat (KCBT)..... NO BLOCKS. .......................
Henry Hub Natural Gas (NYMEX) 500,000......... MMBtu.
HSC Basis (ICE and NYMEX).... 62,500.......... MMBtu.
Hurricane Index (CME)........ 20,000 times dollars.
index.
Chicago Basis (ICE and NYMEX) 62,500.......... MMBtu.
Lean Hogs (CME).............. NO BLOCKS. .......................
Light Sweet Crude Oil (NYMEX) 50,000.......... bbl.
Live Cattle (CME)............ NO BLOCKS. .......................
Mid-Columbia Day-Ahead Off- 625............. Mwh.
Peak Fixed Price (ICE).
Mid-Columbia Day-Ahead Peak 4,000........... Mwh.
Fixed Price (ICE).
New York Harbor RBOB 1,050,000....... gallons.
(Blendstock) Gasoline
(NYMEX).
New York Harbor No. 2 Heating 1,050,000....... gallons.
Oil (NYMEX).
NWP Rockies Basis (ICE and 62,500.......... MMBtu.
NYMEX).
Oats (CBOT).................. NO BLOCKS. .......................
Palladium (NYMEX)............ 1,000........... troy oz.
PG&E Citygate Basis (ICE and 62,500.......... MMBtu.
NYMEX).
PJM Western Hub Real Time Off- 3,900........... Mwh.
Peak Fixed Price (ICE).
PJM Western Hub Real Time 8,000........... Mwh.
Peak Fixed Price (ICE).
Platinum (NYMEX)............. 500............. troy oz.
Rainfall Index (CME)......... 10,000 times dollars.
index.
Rough Rice (CBOT)............ NO BLOCKS. .......................
Silver (COMEX and NYSE Liffe) 125,000......... troy oz.
Snowfall Index (CME)......... 10,000 times dollars.
index.
Socal Border Basis (ICE and 62,500.......... MMBtu.
NYMEX).
Soybean (CBOT)............... NO BLOCKS. .......................
Soybean Meal (CBOT).......... NO BLOCKS. .......................
Soybean Oil (CBOT)........... NO BLOCKS. .......................
SP-15 Day-Ahead Peak Fixed 4,000........... Mwh.
Price (ICE).
SP-15 Day-Ahead Off-Peak 625............. Mwh.
Fixed Price (ICE).
Sugar 11 (ICE and NYMEX).... 5,000........... metric tons.
Sugar 16 (ICE).............. NO BLOCKS. .......................
Temperature Index (CME)...... 400 times index. currency units.
U.S. Dollar Cash Settled 250............. metric tons.
Crude Palm Oil (CME).
Waha Basis (ICE and NYMEX)... 62,500.......... MMBtu.
Wheat (CBOT)................. NO BLOCKS. .......................
------------------------------------------------------------------------
[78 FR 32942, May 31, 2013; 78 FR 42436, July 16, 2013]
PART 44_INTERIM FINAL RULE FOR PRE-ENACTMENT SWAP
TRANSACTIONS--Table of Contents
Sec.
44.00 Definition of terms used in part 44 of this chapter.
44.01 Effective date.
44.02 Reporting pre-enactment swaps to a swap data repository or the
Commission.
44.03 Reporting transition swaps to a swap data repository or to the
Commission.
Authority: 7 U.S.C. 2(h)(5), 4r, and 12a(5), as amended by Title VII
of the Wall Street Reform and Consumer Protection Act (Dodd-Frank Act of
2010), Pub. L. 111-203, 124 Stat. 1376 (2010).
Source: 75 FR 63084, Oct. 14, 2010, unless otherwise noted.
Sec. 44.00 Definition of terms used in part 44 of this chapter.
(a) Major swap participant shall have the meaning provided in
Section 1a(33) of the Commodity Exchange Act, as
[[Page 69]]
amended, and any rules or regulations thereunder.
(b) Pre-enactment unexpired swap means any swap entered into prior
to the enactment of the Dodd-Frank Act of 2010 (July 21, 2010) the terms
of which had not expired as of the date of enactment of that Act;
(c) Transition swap means any swap entered into after the enactment
of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the effective
date of the swap data reporting and recordkeeping rule implemented under
Section 2(h)(5)(B) of the CEA.
(d) Reporting entity, when used in this part, means any counterparty
referenced or identified in Section 4r(a)(3)(A)-(C) of the Commodity
Exchange Act, as amended;
(e) Swap Data Repository shall have the meaning provided in Section
1a(48) of the Commodity Exchange Act, as amended, and any rules or
regulations thereunder;
(f) Swap Dealer shall have the meaning provided in Section 1(a)(49)
of the Commodity Exchange Act, as amended, and any rules or regulations
thereunder;
[75 FR 63084, Oct. 14, 2010, as amended at 75 FR 78896, Dec. 17, 2010]
Sec. 44.01 Effective date.
The provisions of this part are effective immediately on publication
in the Federal Register.
Sec. 44.02 Reporting pre-enactment swaps to a swap data repository
or the Commission.
(a) A counterparty to a pre-enactment unexpired swap transaction
shall:
(1) Report to a registered swap data repository or the Commission by
the compliance date established in the reporting rules required under
Section 2(h)(5) of the Commodity Exchange Act, or within 60 days after a
swap data repository becomes registered with the Commission and
commences operations to receive and maintain data related to such swap,
whichever occurs first, the following information with respect to the
swap transaction:
(i) A copy of the transaction confirmation, in electronic form if
available, or in written form if there is no electronic copy; and
(ii) The time, if available, that the transaction was executed; and
(2) Report to the Commission on request, in a form and manner
prescribed by the Commission, any information relating to the swap
transaction.
Note to paragraphs (a)(1) and (a)(2): In order to comply with the
reporting requirements contained in paragraph (a)(1) and (a)(2) of this
section, each counterparty to a pre-enactment unexpired swap transaction
that may be required to report such transaction should retain, in its
existing format, all information and documents, to the extent and in
such form as they presently exist, relating to the terms of a swap
transaction, including but not limited to any information necessary to
identify and value the transaction; the date and time of execution of
the transaction; information relevant to the price of the transaction;
whether the transaction was accepted for clearing and, if so, the
identity of such clearing organization; any modification(s) to the terms
of the transaction; and the final confirmation of the transaction.
(b) Reporting party. The counterparties to a swap transaction shall
report the information required under paragraph (a) of this section as
follows:
(1) Where only one counterparty to a swap transaction is a swap
dealer or a major swap participant, the swap dealer or major swap
participant shall report the transaction;
(2) Where one counterparty to a swap transaction is a swap dealer
and the other counterparty is a major swap participant, the swap dealer
shall report the transaction; and
(3) Where neither counterparty to a swap transaction is a swap
dealer or a major swap participant, the counterparties to the
transaction shall select the counterparty who will report the
transaction.
Sec. 44.03 Reporting transition swaps to a swap data repository
or to the Commission.
(a) A counterparty to a post-enactment pre-effective swap
transaction shall:
(1) As required by the reporting rules required to be adopted
pursuant to Section 2(h)(5)(B) of the Commodity Exchange Act, report
data related to a transition swap to a registered swap data repository
or the Commission by the compliance date established in such reporting
rules or within 60 days
[[Page 70]]
after an appropriate swap data repository becomes registered with the
Commission and commences operations to receive and maintain data related
to such swap, whichever occurs first, the following information with
respect to the swap transaction:
(i) A copy of the transaction confirmation, in electronic form if
available, or in written form if there is no electronic copy;
(ii) The time, if available, that the transaction was executed; and
(2) Report to the Commission on request, in the form and manner
prescribed by the Commission, any information relating to the swap
transaction.
Note to paragraph (a). In order to comply with the reporting
requirements contained in paragraphs (a)(1) and (a)(2) of this section,
each counterparty to a post-enactment pre-effective swap transaction
that may be required to report such transaction should retain, in its
existing format, all information and documents, to the extent and in
such form as they exist on the effective date of this section, relating
to: the terms of a swap transaction, including but not limited to any
information necessary to identify and value the transaction (e.g.,
underlying asset and tenor); the date and time of execution of the
transaction; volume (e.g., notional or principal amount); information
relevant to the price and payment for the transaction until the swap is
terminated, reaches maturity or is novated; whether the transaction was
accepted for clearing and, if so, the identity of such clearing
organization; any modification(s) to the terms of the transaction; and
the final confirmation of the transaction.
(b) Reporting party. The counterparties to a swap transaction shall
report the information required under paragraph (a) of this section as
follows:
(1) Where only one counterparty to a swap transaction is a swap
dealer or a major swap participant, the swap dealer or major swap
participant shall report the transaction;
(2) Where one counterparty to a swap transaction is a swap dealer
and the other counterparty is a major swap participant, the swap dealer
shall report the transaction; and
(3) Where neither counterparty to a swap transaction is a swap
dealer or a major swap participant, the counterparties to the
transaction shall select the counterparty who will report the
transaction.
[75 FR 78896, Dec. 17, 2010]
PART 45_SWAP DATA RECORDKEEPING AND REPORTING
REQUIREMENTS--Table of Contents
Sec.
45.1 Definitions.
45.2 Swap recordkeeping.
45.3 Swap data reporting: Creation data.
45.4 Swap data reporting: Continuation data.
45.5 Unique swap identifiers.
45.6 Legal entity identifiers.
48.7 Unique product identifiers.
45.8 Determination of which counterparty must report.
45.9 Third-party facilitation of data reporting.
45.10 Reporting to a single swap data repository.
45.11 Data reporting for swaps in a swap asset class not accepted by any
swap data repository.
45.12 Voluntary supplemental reporting.
45.13 Required data standards.
45.14 Reporting of errors and omissions in previously reported data.
Appendix 1 to Part 45--Tables of minimum primary economic terms data.
Authority: 7 U.S.C. 6r, 7, 7a-1, 7b-3, 12a and 24, as amended by
Title VII of the Wall Street Reform and Consumer Protection Act of 2010,
Pub. L. 111-203, 124 Stat. 1376 (2010), unless otherwise noted.
Source: 77 FR 2197, Jan. 13, 2012, unless otherwise noted.
Sec. 45.1 Definitions.
As used in this part:
Asset class means the broad category of goods, services or
commodities, including any ``excluded commodity'' as defined in CEA
section 1a(19), with common characteristics underlying a swap. The asset
classes include credit, equity, foreign exchange (excluding cross-
currency), interest rate (including cross-currency), other commodity,
and such other asset classes as may be determined by the Commission.
Business day means the twenty-four hour day, on all days except
Saturdays, Sundays, and legal holidays, in the location of the reporting
counterparty or registered entity reporting data for the swap.
[[Page 71]]
Business hours means consecutive hours during one or more
consecutive business days.
Compliance date means the applicable date on which a registered
entity or swap counterparty subject to the jurisdiction of the
Commission is required to commence full compliance with all provisions
of this part, as set forth in the preamble to this part.
Confirmation (``confirming'') means the consummation (electronically
or otherwise) of legally binding documentation (electronic or otherwise)
that memorializes the agreement of the parties to all terms of a swap. A
confirmation must be in writing (whether electronic or otherwise) and
must legally supersede any previous agreement (electronically or
otherwise).
Confirmation data means all of the terms of a swap matched and
agreed upon by the counterparties in confirming the swap. For cleared
swaps, confirmation data also includes the internal identifiers assigned
by the automated systems of the derivatives clearing organization to the
two transactions resulting from novation to the clearing house.
Credit swap means any swap that is primarily based on instruments of
indebtedness, including, without limitation: Any swap primarily based on
one or more broad-based indices related to instruments of indebtedness;
and any swap that is an index credit swap or total return swap on one or
more indices of debt instruments.
Derivatives clearing organization has the meaning set forth in CEA
section 1a(9), and any Commission regulation implementing that Section,
including, without limitation, Sec. 39.5 of this chapter.
Designated contract market has the meaning set forth in CEA section
5, and any Commission regulation implementing that Section.
Electronic confirmation (confirmation ``occurs electronically'')
means confirmation that is done by means of automated electronic
systems.
Electronic reporting (``report electronically'') means the reporting
of data normalized in data fields as required by the data standard or
standards used by the swap data repository to which the data is
reported. Except where specifically otherwise provided in this chapter,
electronic reporting does not include submission of an image of a
document or text file.
Electronic verification (verification ``occurs electronically'')
means verification that is done by means of automated electronic
systems.
Financial entity has the meaning set forth in CEA section
2(h)(7)(C).
Foreign exchange forward has the meaning set forth in CEA section
1a(24).
Foreign exchange instrument means an instrument that is both defined
as a swap in part 1 of this chapter and included in the foreign exchange
asset class. Instruments in the foreign exchange asset class include:
Any currency option, foreign currency option, foreign exchange option,
or foreign exchange rate option; any foreign exchange forward as defined
in CEA section 1a(24); any foreign exchange swap as defined in CEA
section 1a(25); and any non-deliverable forward involving foreign
exchange.
Foreign exchange swap has the meaning set forth in CEA section
1a(25). It does not include swaps primarily based on rates of exchange
between different currencies, changes in such rates, or other aspects of
such rates (sometimes known as ``cross-currency swaps'').
Interest rate swap means any swap which is primarily based on one or
more interest rates, such as swaps of payments determined by fixed and
floating interest rates; or any swap which is primarily based on rates
of exchange between different currencies, changes in such rates, or
other aspects of such rates (sometimes known as ``cross-currency
swaps'').
International swap means a swap required by U.S. law and the law of
another jurisdiction to be reported both to a swap data repository and
to a different trade repository registered with the other jurisdiction.
Life cycle event means any event that would result in either a
change to a primary economic term of a swap or to any primary economic
terms data previously reported to a swap data repository in connection
with a swap. Examples of such events include, without
[[Page 72]]
limitation, a counterparty change resulting from an assignment or
novation; a partial or full termination of the swap; a change to the end
date for the swap; a change in the cash flows or rates originally
reported; availability of a legal entity identifier for a swap
counterparty previously identified by name or by some other identifier;
or a corporate action affecting a security or securities on which the
swap is based (e.g., a merger, dividend, stock split, or bankruptcy).
Life cycle event data means all of the data elements necessary to
fully report any life cycle event.
Major swap participant has the meaning set forth in CEA section
1a(33) and in part 1 of this chapter.
Mixed swap has the meaning set forth in CEA section 1a(47)(D), and
refers to an instrument that is in part a swap subject to the
jurisdiction of the Commission, and in part a security-based swap
subject to the jurisdiction of the SEC.
Multi-asset swap means a swap that does not have one easily
identifiable primary underlying notional item, but instead involves
multiple underlying notional items within the Commission's jurisdiction
that belong to different asset classes.
Non-electronic confirmation (confirmation ``does not occur
electronically'') means confirmation that is done manually rather than
by means of automated electronic systems.
Non-electronic verification (verification ``does not occur
electronically'') means verification that is done manually rather than
by means of automated electronic systems.
Non-SD/MSP counterparty means a swap counterparty that is neither a
swap dealer nor a major swap participant.
Off-facility swap means a swap not executed on or pursuant to the
rules of a swap execution facility or designated contract market.
Other commodity swap means any swap not included in the credit,
equity, foreign exchange, or interest rate asset classes, including,
without limitation, any swap for which the primary underlying item is a
physical commodity or the price or any other aspect of a physical
commodity.
Primary economic terms means all of the terms of a swap matched or
affirmed by the counterparties in verifying the swap, including at a
minimum each of the terms included in the most recent Federal Register
release by the Commission listing minimum primary economic terms for
swaps in the swap asset class in question. The Commission's current
lists of minimum primary economic terms for swaps in each swap asset
class are found in appendix 1 to part 45.
Primary economic terms data means all of the data elements necessary
to fully report all of the primary economic terms of a swap in the swap
asset class of the swap in question.
Quarterly reporting (``reported quarterly'') means reporting four
times each fiscal year, following the end of each fiscal year quarter,
making each quarterly report within 30 calendar days of the end of the
fiscal year quarter.
Reporting counterparty means the counterparty required to report
swap data pursuant to this part, selected as provided in Sec. 45.8.
Required swap continuation data means all of the data elements that
must be reported during the existence of a swap to ensure that all data
concerning the swap in the swap data repository remains current and
accurate, and includes all changes to the primary economic terms of the
swap occurring during the existence of the swap. For this purpose,
required swap continuation data includes:
(1) All life cycle event data for the swap if the swap is reported
using the life cycle reporting method, or all state data for the swap if
the swap is reported using the snapshot reporting method; and
(2) All valuation data for the swap.
Required swap creation data means all primary economic terms data
for a swap in the swap asset class in question, and all confirmation
data for the swap.
State data means all of the data elements necessary to provide a
snapshot view, on a daily basis, of all of the primary economic terms of
a swap in the
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swap asset class of the swap in question, including any change to any
primary economic term or to any previously-reported primary economic
terms data since the last snapshot. At a minimum, state data must
include each of the terms included in the most recent Federal Register
release by the Commission listing minimum primary economic terms for
swaps in the swap asset class in question. The Commission's current
lists of minimum primary economic terms for swaps in each swap asset
class are found in appendix 1 to part 45.
Swap data repository has the meaning set forth in CEA section
1a(48), and in part 49 of this chapter.
Swap dealer has the meaning set forth in CEA section 1a(49), and in
part 1 of this chapter.
Swap execution facility has the meaning set forth in CEA section
1a(50) and in part 37 of this chapter.
Valuation data means all of the data elements necessary to fully
describe the daily mark of the transaction, pursuant to CEA section
4s(h)(3)(B)(iii), and to Sec. 23.431 of this chapter if applicable.
Verification (``verify,'' ``verified,'' or ``verifying'') means the
matching by the counterparties to a swap of each of the primary economic
terms of a swap, at or shortly after the time the swap is executed.
Sec. 45.2 Swap recordkeeping.
(a) Recordkeeping by swap execution facilities, designated contract
markets, derivatives clearing organizations, swap dealers, and major
swap participants. Each swap execution facility, designated contract
market, derivatives clearing organization, swap dealer, and major swap
participant subject to the jurisdiction of the Commission shall keep
full, complete, and systematic records, together with all pertinent data
and memoranda, of all activities relating to the business of such entity
or person with respect to swaps, as prescribed by the Commission. Such
records shall include, without limitation, the following:
(1) For swap execution facilities, all records required by part 37
of this chapter.
(2) For designated contract markets, all records required by part 38
of this chapter.
(3) For derivatives clearing organizations, all records required by
part 39 of this chapter.
(4) For swap dealers and major swap participants, all records
required by part 23 of this chapter, and all records demonstrating that
they are entitled, with respect to any swap, to elect the clearing
requirement exception pursuant to CEA section 2(h)(7).
(b) Recordkeeping by non-SD/MSP counterparties. All non-SD/MSP
counterparties subject to the jurisdiction of the Commission shall keep
full, complete, and systematic records, together with all pertinent data
and memoranda, with respect to each swap in which they are a
counterparty, including, without limitation, all records demonstrating
that they are entitled, with respect to any swap, to elect the clearing
requirement exception in CEA section 2(h)(7).
(c) Record retention. All records required to be kept pursuant to
this section shall be retained with respect to each swap throughout the
life of the swap and for a period of at least five years following the
final termination of the swap.
(d) Retention form. Records required to be kept pursuant to this
section must be kept as required by paragraph (d)(1) or (2) of this
section, as applicable.
(1) Records required to be kept by swap execution facilities,
designated contract markets, derivatives clearing organizations, swap
dealers, or major swap participants may be kept in electronic form, or
kept in paper form if originally created and exclusively maintained in
paper form, so long as they are retrievable, and information in them is
reportable, as required by this section.
(2) Records required to be kept by non-SD/MSP counterparties may be
kept in either electronic or paper form, so long as they are
retrievable, and information in them is reportable, as required by this
section.
(e) Record retrievability. Records required to be kept by swap
execution facilities, designated contract markets, derivatives clearing
organizations, or
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swap counterparties pursuant to this section shall be retrievable as
provided in paragraphs (e)(1) and (2) of this section, as applicable.
(1) Each record required by this section or any other section of the
CEA to be kept by a swap execution facility, designated contract market,
derivatives clearing organization, swap dealer, or major swap
participant shall be readily accessible via real time electronic access
by the registrant throughout the life of the swap and for two years
following the final termination of the swap, and shall be retrievable by
the registrant within three business days through the remainder of the
period following final termination of the swap during which it is
required to be kept.
(2) Each record required by this section or any other section of the
CEA to be kept by a non-SD/MSP counterparty shall be retrievable by that
counterparty within five business days throughout the period during
which it is required to be kept.
(f) Recordkeeping by swap data repositories. Each swap data
repository registered with the Commission shall keep full, complete, and
systematic records, together with all pertinent data and memoranda, of
all activities relating to the business of the swap data repository and
all swap data reported to the swap data repository, as prescribed by the
Commission. Such records shall include, without limitation, all records
required by part 49 of this chapter.
(g) Record retention and retrievability by swap data repositories.
All records required to be kept by a swap data repository pursuant to
this section must be kept by the swap data repository both:
(1) Throughout the existence of the swap and for five years
following final termination of the swap, during which time the records
must be readily accessible by the swap data repository and available to
the Commission via real time electronic access; and
(2) Thereafter, for a period of at least ten additional years in
archival storage from which they are retrievable by the swap data
repository within three business days.
(h) Record inspection. All records required to be kept pursuant to
this section by any registrant or its affiliates or by any non-SD/MSP
counterparty subject to the jurisdiction of the Commission shall be open
to inspection upon request by any representative of the Commission, the
United States Department of Justice, or the Securities and Exchange
Commission, or by any representative of a prudential regulator as
authorized by the Commission. Copies of all such records shall be
provided, at the expense of the entity or person required to keep the
record, to any representative of the Commission upon request. Copies of
records required to be kept by any registrant shall be provided either
by electronic means, in hard copy, or both, as requested by the
Commission, with the sole exception that copies of records originally
created and exclusively maintained in paper form may be provided in hard
copy only. Copies of records required to be kept by any non-SD/MSP
counterparty subject to the jurisdiction of the Commission that is not a
Commission registrant shall be provided in the form, whether electronic
or paper, in which the records are kept.
Sec. 45.3 Swap data reporting: creation data.
Registered entities and swap counterparties must report required
swap creation data electronically to a swap data repository as set forth
in this Section. This obligation commences on the applicable compliance
date set forth in the preamble to this part. The reporting obligations
of swap counterparties with respect to swaps executed prior to the
applicable compliance date and in existence on or after July 21, 2010,
the date of enactment of the Dodd-Frank Act, are set forth in part 46 of
this chapter. This section and Sec. 45.4 establish the general swap
data reporting obligations of swap dealers, major swap participants,
non-SD/MSP counterparties, swap execution facilities, designated
contract markets, and derivatives clearing organizations to report swap
data to a swap data repository. In addition to the reporting obligations
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set forth in this section and Sec. 45.4, registered entities and swap
counterparties are subject to other reporting obligations set forth in
this chapter, including, without limitation, the following: Swap
dealers, major swap participants, and non-SD/MSP counterparties are also
subject to the reporting obligations with respect to corporate
affiliations reporting set forth in Sec. 45.6; swap execution
facilities, designated contract markets, swap dealers, major swap
participants, and non-SD/MSP counterparties are subject to the reporting
obligations with respect to real time reporting of swap data set forth
in part 43 of this chapter; counterparties to a swap for which the
clearing requirement exception in CEA section 2(h)(7) has been elected
are subject to the reporting obligations set forth in part 39 of this
chapter; and, where applicable, swap dealers, major swap participants,
and non-SD/MSP counterparties are subject to the reporting obligations
with respect to large traders set forth in parts 17 and 18 of this
chapter.
(a) Swaps executed on or pursuant to the rules of a swap execution
facility or designated contract market. (1) For each swap executed on or
pursuant to the rules of a swap execution facility or designated
contract market, the swap execution facility or designated contract
market must report all required swap creation data, as soon as
technologically practicable after execution of the swap. This report
must include all confirmation data for the swap, as defined in part 23
and in Sec. 45.1, and all primary economic terms data for the swap, as
defined in Sec. 45.1.
(2) If such a swap is accepted for clearing by a derivatives
clearing organization, the derivatives clearing organization must report
all confirmation data for the swap, as defined in part 39 and in Sec.
45.1, as soon as technologically practicable after clearing. The
derivatives clearing organization shall fulfill this requirement by
reporting all confirmation data for the swap, as defined in part 39 and
in this Sec. 45.1, which must include all primary economic terms data
for the swap as defined in Sec. 45.1, and must include the internal
identifiers assigned by the automated systems of the derivatives
clearing organization to the two transactions resulting from novation to
the clearing house.
(b) Off-facility swaps subject to mandatory clearing. For all off-
facility swaps subject to the mandatory clearing requirement, except for
those off-facility swaps excepted from that requirement pursuant to CEA
section 2(h)(7) and those off-facility swaps covered by CEA section
2(a)(13)(C)(iv), required swap creation data must be reported as
provided in paragraph (b) of this section.
(1) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, within
the applicable reporting deadline set forth in paragraph (b)(1)(i) or
(ii) of this section. However, if the swap is voluntarily submitted for
clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in
paragraphs (b)(1)(i) or (ii) of this section, and if the swap is
accepted for clearing before the reporting counterparty reports any
primary economic terms data to a swap data repository, then the
reporting counterparty is excused from reporting required swap creation
data for the swap.
(i) If the reporting counterparty is a swap dealer or a major swap
participant, the reporting counterparty must report all primary economic
terms data for the swap as soon as technologically practicable after
execution, but no later than: 30 minutes after execution during the
first year following the compliance date; and 15 minutes after execution
thereafter.
(ii) If the reporting counterparty is a non-SD/MSP counterparty, the
reporting counterparty must report all primary economic terms data for
the swap as soon as technologically practicable after execution, but no
later than: four business hours after execution during the first year
following the compliance date; two business hours after execution during
the second year following the compliance date; and one business hour
after execution thereafter.
(2) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec. 45.1,
as soon as technologically
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practicable after clearing. The derivatives clearing organization shall
fulfill this requirement by reporting all confirmation data for the
swap, as defined in part 39 and in this Sec. 45.1, which must include
all primary economic terms data for the swap as defined in Sec. 45.1,
and must include the internal identifiers assigned by the automated
systems of the derivatives clearing organization to the two transactions
resulting from novation to the clearing house.
(3) If the swap is not accepted for clearing, the reporting
counterparty must report all confirmation data for the swap, as defined
in Sec. 45.1, within the applicable reporting deadline set forth in
paragraph (b)(3)(i) or (ii) of this section. During the first 180
calendar days following the compliance date, if reporting confirmation
data normalized in data fields is not yet technologically practicable
for the reporting counterparty, the reporting counterparty may report
confirmation data to the swap data repository by transmitting to the
swap data repository an image of the document or documents constituting
the confirmation, until such time as electronic reporting of
confirmation data is technologically practicable for the reporting
counterparty. Beginning 180 days after the compliance date, the
reporting counterparty must report all confirmation data to the swap
data repository electronically.
(i) If the reporting counterparty is a swap dealer or major swap
participant, the reporting counterparty must report all confirmation
data as soon as technologically practicable following confirmation, but
no later than: 30 minutes after confirmation if confirmation occurs
electronically; or 24 business hours after confirmation if confirmation
does not occur electronically.
(ii) If the reporting counterparty is a non-SD/MSP counterparty, the
reporting counterparty must report all confirmation data as soon as
technologically practicable following confirmation, but no later than:
the end of the second business day after the date of confirmation during
the first year following the compliance date; and the end of the first
business day after the date of confirmation thereafter.
(c) Off-facility swaps not subject to mandatory clearing, with a
swap dealer or major swap participant reporting counterparty. For all
off-facility swaps not subject to the mandatory clearing requirement set
forth in CEA section 2(h), all off-facility swaps for which the clearing
requirement exception in CEA section 2(h)(7) has been elected, and all
off-facility swaps covered by CEA section 2(a)(13)(C)(iv), for which a
swap dealer or major swap participant is the reporting counterparty,
required swap creation data must be reported as provided in paragraph
(c) of this section.
(1) Credit, equity, foreign exchange, and interest rate swaps. For
each such credit swap, equity swap, foreign exchange instrument, or
interest rate swap:
(i) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, within
the applicable reporting deadline set forth in paragraph (c)(1)(i)(A) or
(B) of this section. However, if the swap is voluntarily submitted for
clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in
paragraphs (c)(1)(i)(A) or (B) of this section, and if the swap is
accepted for clearing before the reporting counterparty reports any
primary economic terms data to a swap data repository, then the
reporting counterparty is excused from reporting required swap creation
data for the swap.
(A) If the non-reporting counterparty is a swap dealer, a major swap
participant, or a non-SD/MSP counterparty that is a financial entity as
defined in CEA section 2(h)(7)(C), or if the non-reporting counterparty
is a non-SD/MSP counterparty that is not a financial entity as defined
in CEA section 2(h)(7)(C) and verification of primary economic terms
occurs electronically, then the reporting counterparty must report all
primary economic terms data for the swap as soon as technologically
practicable after execution, but no later than: one hour after execution
during the first year following the compliance date; and 30 minutes
after execution thereafter.
(B) If the non-reporting counterparty is a non-SD/MSP counterparty
that is not a financial entity as defined in CEA
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section 2(h)(7)(C), and if verification of primary economic terms does
not occur electronically, then the reporting counterparty must report
all primary economic terms data for the swap as soon as technologically
practicable after execution, but no later than: 24 business hours after
execution during the first year following the compliance date; 12
business hours after execution during the second year following the
compliance date; and 30 minutes after execution thereafter.
(ii) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec. 45.1,
as soon as technologically practicable after clearing. The derivatives
clearing organization shall fulfill this requirement by reporting all
confirmation data for the swap, as defined in part 39 and in this Sec.
45.1, which must include all primary economic terms data for the swap as
defined in Sec. 45.1, and must include the internal identifiers
assigned by the automated systems of the derivatives clearing
organization to the two transactions resulting from novation to the
clearing house.
(iii) If the swap is not voluntarily submitted for clearing, the
reporting counterparty must report all confirmation data for the swap,
as defined in Sec. 45.1, as soon as technologically practicable after
confirmation, but no later than: 30 minutes after confirmation if
confirmation occurs electronically; or 24 business hours after
confirmation if confirmation does not occur electronically. During the
first 180 calendar days following the compliance date, if reporting
confirmation data normalized in data fields is not yet technologically
practicable for the reporting counterparty, the reporting counterparty
may report confirmation data to the swap data repository by transmitting
to the swap data repository an image of the document or documents
constituting the confirmation, until such time as electronic reporting
of confirmation data is technologically practicable for the reporting
counterparty. Beginning 180 days after the compliance date, the
reporting counterparty must report all confirmation data to the swap
data repository electronically.
(2) Other commodity swaps. For each such other commodity swap:
(i) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, within
the applicable reporting deadline set forth in paragraph (c)(2)(i)(A) or
(B) of this section. However, if the swap is voluntarily submitted for
clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in
paragraphs (c)(2)(i)(A) or (B) of this section, and if the swap is
accepted for clearing before the reporting counterparty reports any
primary economic terms data to a swap data repository, then the
reporting counterparty is excused from reporting required swap creation
data for the swap.
(A) If the non-reporting counterparty is a swap dealer, a major swap
participant, or a non-SD/MSP counterparty that is a financial entity as
defined in CEA section 2(h)(7)(C), or if the non-reporting counterparty
is a non-SD/MSP counterparty that is not a financial entity as defined
in CEA section 2(h)(7)(C) and verification of primary economic terms
occurs electronically, then the reporting counterparty must report all
primary economic terms data for the swap as soon as technologically
practicable after execution, but no later than: four hours after
execution during the first year following the compliance date; and two
hours after execution thereafter.
(B) If the non-reporting counterparty is a non-SD/MSP counterparty
that is not a financial entity as defined in CEA section 2(h)(7)(C), and
if verification of primary economic terms does not occur electronically,
then the reporting counterparty must report all primary economic terms
data for the swap as soon as technologically practicable after
execution, but no later than: 48 business hours after execution during
the first year following the compliance date; 24 business hours after
execution during the second year following the compliance date; and two
hours after execution thereafter.
[[Page 78]]
(ii) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec. 45.1,
as soon as technologically practicable after clearing. The derivatives
clearing organization shall fulfill this requirement by reporting all
confirmation data for the swap, as defined in part 39 and in this Sec.
45.1, which must include all primary economic terms data for the swap as
defined in Sec. 45.1, and must include the internal identifiers
assigned by the automated systems of the derivatives clearing
organization to the two transactions resulting from novation to the
clearing house.
(iii) If the swap is not voluntarily submitted for clearing, the
reporting counterparty must report all confirmation data for the swap,
as defined in Sec. 45.1, as soon as technologically practicable after
confirmation, but no later than: 30 minutes after confirmation if
confirmation occurs electronically; or 24 business hours after
confirmation if confirmation does not occur electronically. During the
first 180 calendar days following the compliance date, if reporting
confirmation data normalized in data fields is not yet technologically
practicable for the reporting counterparty, the reporting counterparty
may report confirmation data to the swap data repository by transmitting
to the swap data repository an image of the document or documents
constituting the confirmation, until such time as electronic reporting
of confirmation data is technologically practicable for the reporting
counterparty. Beginning 180 days after the compliance date, the
reporting counterparty must report all confirmation data to the swap
data repository electronically.
(d) Off-facility swaps not subject to mandatory clearing, with a
non-SD/MSP reporting counterparty. For all off-facility swaps not
subject to the mandatory clearing requirement set forth in CEA section
2(h), all off-facility swaps for which the clearing requirement
exception in CEA section 2(h)(7) has been elected, and all off-facility
swaps covered by CEA section 2(a)(13)(C)(iv), in all asset classes, for
which a non-SD/MSP counterparty is the reporting counterparty, required
swap creation data must be reported as provided in this paragraph (d).
(1) The reporting counterparty, as determined pursuant to Sec.
45.8, must report all primary economic terms data for the swap, as soon
as technologically practicable after execution, but no later than: 48
business hours after execution during the first year following the
compliance date; 36 business hours after execution during the second
year following the compliance date; and 24 business hours after
execution thereafter. However, if the swap is voluntarily submitted for
clearing and accepted for clearing by a derivatives clearing
organization before the applicable reporting deadline set forth in this
paragraph (d)(1), and if the swap is accepted for clearing before the
reporting counterparty reports any primary economic terms data to a swap
data repository, then the reporting counterparty is excused from
reporting required swap creation data for the swap.
(2) If the swap is accepted for clearing by a derivatives clearing
organization, the derivatives clearing organization must report all
confirmation data for the swap, as defined in part 39 and in Sec. 45.1,
as soon as technologically practicable after clearing. The derivatives
clearing organization shall fulfill this requirement by reporting all
confirmation data for the swap, as defined in part 39 and in this Sec.
45.1, which must include all primary economic terms data for the swap as
defined in Sec. 45.1, and must include the internal identifiers
assigned by the automated systems of the derivatives clearing
organization to the two transactions resulting from novation to the
clearing house.
(3) If the swap is not voluntarily submitted for clearing, the
reporting counterparty must report all confirmation data for the swap,
as defined in Sec. 45.1, as soon as technologically practicable after
confirmation, but no later than: 48 business hours after confirmation
during the first year following the compliance date; 36 business hours
after confirmation during the second year following the compliance date;
[[Page 79]]
and 24 business hours after confirmation thereafter. During the first
180 calendar days following the compliance date, if reporting
confirmation data normalized in data fields is not yet technologically
practicable for the reporting counterparty, the reporting counterparty
may report confirmation data to the swap data repository by transmitting
to the swap data repository an image of the document or documents
constituting the confirmation, until such time as electronic reporting
of confirmation data is technologically practicable for the reporting
counterparty. Beginning 180 days after the compliance date, the
reporting counterparty must report all confirmation data to the swap
data repository electronically.
(e) Allocations. For swaps involving allocation, required swap
creation data shall be reported to a single swap data repository as
follows.
(i) Initial swap between reporting counterparty and agent. The
initial swap transaction between the reporting counterparty and the
agent shall be reported as required by Sec. 45.3(a) through (d) of this
part. A unique swap identifier for the initial swap transaction must be
created as provided in Sec. 45.5 of this part.
(ii) Post-allocation swaps. (A) Duties of the agent. In accordance
with this section, the agent shall inform the reporting counterparty of
the identities of the reporting counterparty's actual counterparties
resulting from allocation, as soon as technologically practicable after
execution, but not later than eight business hours after execution.
(B) Duties of the reporting counterparty. The reporting counterparty
must report all required swap creation data for each swap resulting from
allocation, to the same swap data repository to which the initial swap
transaction is reported, as soon as technologically practicable after it
is informed by the agent of the identities of its actual counterparties.
The reporting counterparty must create a unique swap identifier for each
such swap as required in Sec. 45.5 of this part.
(C) Duties of the swap data repository. The swap data repository to
which the initial swap transaction and the post-allocation swaps are
reported must map together the unique swap identifiers of the original
swap transaction and of each of the post-allocation swaps.
(f) Multi-asset swaps. For each multi-asset swap, required swap
creation data and required swap continuation data shall be reported to a
single swap data repository that accepts swaps in the asset class
treated as the primary asset class involved in the swap by the swap
execution facility, designated contract market, or reporting
counterparty making the first report of required swap creation data
pursuant to this section. The registered entity or reporting
counterparty making the first report of required swap creation data
pursuant to this section shall report all primary economic terms for
each asset class involved in the swap.
(g) Mixed swaps. (1) For each mixed swap, required swap creation
data and required swap continuation data shall be reported to a swap
data repository registered with the Commission and to a security-based
swap data repository registered with the Securities and Exchange
Commission. This requirement may be satisfied by reporting the mixed
swap to a swap data repository or security-based swap data repository
registered with both Commissions.
(2) The registered entity or reporting counterparty making the first
report of required swap creation data pursuant to this section shall
ensure that the same unique swap identifier is recorded for the swap in
both the swap data repository and the security-based swap data
repository.
(h) International swaps. For each international swap, the reporting
counterparty shall report as soon as practicable to the swap data
repository the identity of the non-U.S. trade repository not registered
with the Commission to which the swap is also reported and the swap
identifier used by the non-U.S. trade repository to identify the swap.
If necessary, the reporting counterparty shall obtain this information
from the non-reporting counterparty.
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Sec. 45.4 Swap data reporting: continuation data.
Registered entities and swap counterparties must report required
swap continuation data electronically to a swap data repository as set
forth in this section. This obligation commences on the applicable
compliance date set forth in the preamble to this part. The reporting
obligations of registered entities and swap counterparties with respect
to swaps executed prior to the applicable compliance date and in
existence on or after July 21, 2010, the date of enactment of the Dodd-
Frank Act, are set forth in part 46 of this chapter. This section and
Sec. 45.3 establish the general swap data reporting obligations of swap
dealers, major swap participants, non-SD/MSP counterparties, swap
execution facilities, designated contract markets, and derivatives
clearing organizations to report swap data to a swap data repository. In
addition to the reporting obligations set forth in this section and
Sec. 45.3, registered entities and swap counterparties are subject to
other reporting obligations set forth in this chapter, including,
without limitation, the following: Swap dealers, major swap
participants, and non-SD/MSP counterparties are also subject to the
reporting obligations with respect to corporate affiliations reporting
set forth in Sec. 45.6; swap execution facilities, designated contract
markets, swap dealers, major swap participants, and non-SD/MSP
counterparties are subject to the reporting obligations with respect to
real time reporting of swap data set forth in part 43 of this chapter;
and, where applicable, swap dealers, major swap participants, and non-
SD/MSP counterparties are subject to the reporting obligations with
respect to large traders set forth in parts 17 and 18 of this chapter.
(a) Continuation data reporting method. For each swap, regardless of
asset class, reporting counterparties and derivatives clearing
organizations required to report swap continuation data must do so in a
manner sufficient to ensure that all data in the swap data repository
concerning the swap remains current and accurate, and includes all
changes to the primary economic terms of the swap occurring during the
existence of the swap. Reporting entities and counterparties fulfill
this obligation by reporting either life cycle event data or state data
for the swap within the applicable deadlines set forth in this section.
Reporting counterparties and derivatives clearing organizations required
to report swap continuation data for a swap may fulfill their obligation
to report either life cycle event data or state data by reporting:
(1) Life cycle event data to a swap data repository that accepts
only life cycle event data reporting;
(2) State data to a swap data repository that accepts only state
data reporting; or
(3) Either life cycle event data or state data to a swap data
repository that accepts both life cycle event data and state data
reporting.
(b) Continuation data reporting for cleared swaps. For all swaps
cleared by a derivatives clearing organization, required continuation
data must be reported as provided in this section.
(1) Life cycle event data or state data reporting. The derivatives
clearing organization must report to the swap data repository either:
(i) All life cycle event data for the swap, reported on the same day
that any life cycle event occurs with respect to the swap; or
(ii) All state data for the swap, reported daily.
(2) Valuation data reporting. Valuation data for the swap must be
reported as follows:
(i) By the derivatives clearing organization, daily; and
(ii) If the reporting counterparty is a swap dealer or major swap
participant, by the reporting counterparty, daily. Non-SD/MSP reporting
counterparties are not required to report valuation data for cleared
swaps.
(c) Continuation data reporting for uncleared swaps. For all swaps
that are not cleared by a derivatives clearing organization, the
reporting counterparty must report all required swap continuation data
as provided in this section.
(1) Life cycle event data or state data reporting. The reporting
counterparty for the swap must report to the swap data repository either
all life cycle event data for the swap or all state
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data for the swap, within the applicable deadline set forth in
paragraphs (c)(1)(i) or (ii) of this section.
(i) If the reporting counterparty is a swap dealer or major swap
participant:
(A) Life cycle event data must be reported on the same day that any
life cycle event occurs, with the sole exception that life cycle event
data relating to a corporate event of the non-reporting counterparty
must be reported no later than the second business day after the day on
which such event occurs.
(B) State data must be reported daily.
(ii) If the reporting counterparty is a non-SD/MSP counterparty:
(A) Life cycle event data must be reported no later than: the end of
the second business day following the date of any life cycle event
during the first year after the applicable compliance date; and the end
of the first business day following the date of any life cycle event
thereafter; with the sole exception that life cycle event data relating
to a corporate event of the non-reporting counterparty must be reported
no later than the end of the third business day following the date of
such event during the first year after the compliance date, and no later
than the end of the second business day following such event thereafter.
(B) State data must be reported daily.
(2) Valuation data reporting. Valuation data for the swap must be
reported by the reporting counterparty for the swap as follows:
(i) If the reporting counterparty is a swap dealer or major swap
participant, the reporting counterparty must report all valuation data
for the swap, daily.
(ii) If the reporting counterparty is a non-SD/MSP counterparty, the
reporting counterparty must report the current daily mark of the
transaction as of the last day of each fiscal quarter. This report must
be transmitted to the swap data repository within 30 calendar days of
the end of each fiscal quarter. If a daily mark of the transaction is
not available for the swap, the reporting counterparty satisfies this
requirement by reporting the current valuation of the swap recorded on
its books in accordance with applicable accounting standards.
Sec. 45.5 Unique swap identifiers.
Each swap subject to the jurisdiction of the Commission shall be
identified in all recordkeeping and all swap data reporting pursuant to
this part by the use of a unique swap identifier, which shall be
created, transmitted, and used for each swap as provided in paragraphs
(a) through (c) of this section.
(a) Swaps executed on a swap execution facility or designated
contract market. For each swap executed on a swap execution facility or
designated contract market, the swap execution facility or designated
contract market shall create and transmit a unique swap identifier as
provided in paragraphs (a)(1) and (2) of this section.
(1) Creation. The swap execution facility or designated contract
market shall generate and assign a unique swap identifier at, or as soon
as technologically practicable following, the time of execution of the
swap, and prior to the reporting of required swap creation data. The
unique swap identifier shall consist of a single data field that
contains two components:
(i) The unique alphanumeric code assigned to the swap execution
facility or designated contract market by the Commission for the purpose
of identifying the swap execution facility or designated contract market
with respect to unique swap identifier creation; and
(ii) An alphanumeric code generated and assigned to that swap by the
automated systems of the swap execution facility or designated contract
market, which shall be unique with respect to all such codes generated
and assigned by that swap execution facility or designated contract
market.
(2) Transmission. The swap execution facility or designated contract
market shall transmit the unique swap identifier electronically as
follows:
(i) To the swap data repository to which the swap execution facility
or designated contract market reports required swap creation data for
the swap, as part of that report;
(ii) To each counterparty to the swap, as soon as technologically
practicable after execution of the swap;
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(iii) To the derivatives clearing organization, if any, to which the
swap is submitted for clearing, as part of the required swap creation
data transmitted to the derivatives clearing organization for clearing
purposes.
(b) Off-facility swaps with a swap dealer or major swap participant
reporting counterparty. For each off-facility swap where the reporting
counterparty is a swap dealer or major swap participant, the reporting
counterparty shall create and transmit a unique swap identifier as
provided in paragraphs (b)(1) and (2) of this section.
(1) Creation. The reporting counterparty shall generate and assign a
unique swap identifier as soon as technologically practicable after
execution of the swap and prior to both the reporting of required swap
creation data and the transmission of data to a derivatives clearing
organization if the swap is to be cleared. The unique swap identifier
shall consist of a single data field that contains two components:
(i) The unique alphanumeric code assigned to the swap dealer or
major swap participant by the Commission at the time of its registration
as such, for the purpose of identifying the swap dealer or major swap
participant with respect to unique swap identifier creation; and
(ii) An alphanumeric code generated and assigned to that swap by the
automated systems of the swap dealer or major swap participant, which
shall be unique with respect to all such codes generated and assigned by
that swap dealer or major swap participant.
(2) Transmission. The reporting counterparty shall transmit the
unique swap identifier electronically as follows:
(i) To the swap data repository to which the reporting counterparty
reports required swap creation data for the swap, as part of that
report;
(ii) To the non-reporting counterparty to the swap, as soon as
technologically practicable after execution of the swap; and
(iii) To the derivatives clearing organization, if any, to which the
swap is submitted for clearing, as part of the required swap creation
data transmitted to the derivatives clearing organization for clearing
purposes.
(c) Off-facility swaps with a non-SD/MSP reporting counterparty. For
each off-facility swap for which the reporting counterparty is a non-SD/
MSP counterparty, the swap data repository to which primary economic
terms data is reported shall create and transmit a unique swap
identifier as provided in paragraphs (c)(1) and (2) of this section.
(1) Creation. The swap data repository shall generate and assign a
unique swap identifier as soon as technologically practicable following
receipt of the first report of required swap creation data concerning
the swap. The unique swap identifier shall consist of a single data
field that contains two components:
(i) The unique alphanumeric code assigned to the swap data
repository by the Commission at the time of its registration as such,
for the purpose of identifying the swap data repository with respect to
unique swap identifier creation; and
(ii) An alphanumeric code generated and assigned to that swap by the
automated systems of the swap data repository, which shall be unique
with respect to all such codes generated and assigned by that swap data
repository.
(2) Transmission. The swap data repository shall transmit the unique
swap identifier electronically as follows:
(i) To the counterparties to the swap, as soon as technologically
practicable following creation of the unique swap identifier; and
(ii) To the derivatives clearing organization, if any, to which the
swap is submitted for clearing, as soon as technologically practicable
following creation of the unique swap identifier.
(d) Allocations. For swaps involving allocation, unique swap
identifiers shall be created and transmitted as follows.
(1) Initial swap between reporting counterparty and agent. The
unique swap identifier for the initial swap transaction between the
reporting counterparty and the agent shall be created as required by
paragraph (a) through (c) of this section, and shall be transmitted as
follows:
(i) If the unique swap identifier is created by a swap execution
facility or designated contract market, the swap
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execution facility or designated contract market must include the unique
swap identifier in its swap creation data report to the swap data
repository, and must transmit the unique identifier to the reporting
counterparty and to the agent.
(ii) If the unique swap identifier is created by the reporting
counterparty, the reporting counterparty must include the unique swap
identifier in its swap creation data report to the swap data repository,
and must transmit the unique identifier to the agent.
(2) Post-allocation swaps. The reporting counterparty must create a
unique swap identifier for each of the individual swaps resulting from
allocation, as soon as technologically practicable after it is informed
by the agent of the identities of its actual counterparties, and must
transmit each such unique swap identifier to:
(i) The non-reporting counterparty for the swap in question.
(ii) The agent.
(iii) The derivatives clearing organization, if any, to which the
swap is submitted for clearing, as part of the required swap creation
data transmitted to the derivatives clearing organization for clearing
purposes.
(iv) The same swap data repository to which the initial swap
transaction is reported, as part of the report of required swap creation
data to the swap data repository.
(e) Use. Each registered entity or swap counterparty subject to the
jurisdiction of the Commission shall include the unique swap identifier
for a swap in all of its records and all of its swap data reporting
concerning that swap, from the time it creates or receives the unique
swap identifier as provided in this section, throughout the existence of
the swap and for as long as any records are required by the CEA or
Commission regulations to be kept by that registered entity or
counterparty concerning the swap, regardless of any life cycle events or
any changes to state data concerning the swap, including, without
limitation, any changes with respect to the counterparties to or the
ownership of the swap. This requirement shall not prohibit the use by a
registered entity or swap counterparty in its own records of any
additional identifier or identifiers internally generated by the
automated systems of the registered entity or swap counterparty, or the
reporting to a swap data repository, the Commission, or another
regulator of such internally generated identifiers in addition to the
reporting of the unique swap identifier.
Sec. 45.6 Legal entity identifiers
Each counterparty to any swap subject to the jurisdiction of the
Commission shall be identified in all recordkeeping and all swap data
reporting pursuant to this part by means of a single legal entity
identifier as specified in this section.
(a) Definitions. As used in this section:
Control (``controlling,'' ``controlled by,'' ``under common control
with'') means, for the purposes of Sec. 45.6, the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting interest, by contract, or otherwise. A person is presumed to
control another person if the person: is a director, general partner or
officer exercising executive responsibility (or having similar status or
functions); directly or indirectly has the right to vote 25 percent or
more of a class of voting interest or has the power to sell or direct
the sale of 25 percent or more of a class of voting interest; or, in the
case of a partnership, has the right to receive upon dissolution, or has
contributed, 25 percent or more of the capital.
Legal identifier system means an LEI utility conforming with the
requirements of this section that issues or is capable of issuing an LEI
conforming with the requirements of this section, and is capable of
maintaining LEI reference data as required by this section.
Level one reference data means the minimum information needed to
identify, on a verifiable basis, the legal entity to which a legal
entity identifier is assigned. Level one reference data shall include,
without limitation, all of the data elements included in ISO Standard
17442. Examples of level one reference data include, without limitation,
a legal entity's official legal
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name, its place of incorporation, and the address and contact
information of its corporate headquarters.
Level two reference data means information concerning the corporate
affiliations or company hierarchy relationships of the legal entity to
which a legal entity identifier is assigned. Examples of level two
reference data include, without limitation, the identity of the legal
entity's ultimate parent.
Parent means, for the purposes of Sec. 45.6, a legal person that
controls a counterparty to a swap required to be reported pursuant to
this section, or that controls a legal entity identified or to be
identified by a legal entity identifier provided by the legal identifier
system designated by the Commission pursuant to this section.
Self-registration means submission by a legal entity of its own
level one or level two reference data, as applicable.
Third-party registration means submission of level one or level two
reference data, as applicable, for a legal entity that is or may become
a swap counterparty, made by an entity or organization other than the
legal entity identified by the submitted reference data. Examples of
third-party registration include, without limitation, submission by a
swap dealer or major swap participant of level one or level two
reference data for its swap counterparties, and submission by a national
numbering agency, national registration agency, or data service provider
of level one or level two reference data concerning legal entities with
respect to which the agency or service provider maintains information.
Ultimate parent means, for the purposes of Sec. 45.6, a legal
person that controls a counterparty to a swap required to be reported
pursuant to this section, or that controls a legal entity identified or
to be identified by a legal entity identifier provided by the legal
identifier system designated by the Commission pursuant to this section,
and that itself has no parent.
(b) International standard for the legal entity identifier. The
legal entity identifier used in all recordkeeping and all swap data
reporting required by this part, following designation of the legal
entity identifier system as provided in paragraph (c)(2) of this
section, shall be issued under, and shall conform to, ISO Standard
17442, Legal Entity Identifier (LEI), issued by the International
Organisation for Standardisation.
(b) Technical principles for the legal entity identifier. The legal
entity identifier used in all recordkeeping and all swap data reporting
required by this part shall conform to the technical principles set
forth in paragraphs (b)(1) through (6) of this section.
(1) Uniqueness. Only one legal entity identifier shall be assigned
to any legal entity, and no legal entity identifier shall ever be
reused. Each entity within a corporate organization or group structure
that acts as a counterparty in any swap shall have its own legal entity
identifier.
(2) Neutrality. To ensure the persistence of the legal entity
identifier, it shall have a format consisting of a single data field,
and shall contain either no embedded intelligence or as little embedded
intelligence as practicable. Entity characteristics of swap
counterparties identified by legal entity identifiers shall constitute
separate elements within a reference data system as set forth in
paragraphs (a), (c)(2), (d), and (e) of this section.
(3) Reliability. The legal entity identifier shall be supported by a
trusted and auditable method of verifying the identity of the legal
entity to which it is assigned, both initially and at appropriate
intervals thereafter. The issuer of legal entity identifiers shall
maintain minimum reference or identification data sufficient to verify
that a user has been correctly identified. Issuance and maintenance of
the legal entity identifier, and storage and maintenance of all
associated data, shall involve robust quality assurance practices and
system safeguards. At a minimum, such system safeguards shall include
the system safeguards applied to swap data repositories by part 49 of
this chapter.
(4) Open Source. The schema for the legal entity identifier shall
have an open standard that ensures to the greatest extent practicable
that the legal entity identifier is compatible with existing automated
systems of financial market infrastructures, market participants, and
regulators.
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(5) Extensibility. The legal entity identifier shall be capable of
becoming the single international standard for unique identification of
legal entities across the financial sector on a global basis. Therefore,
it shall be sufficiently extensible to cover all existing and potential
future legal entities of all types that may be counterparties to swap,
OTC derivative, or other financial transactions; that may be involved in
any aspect of the financial issuance and transactions process; or that
may be subject to required due diligence by financial sector entities.
(6) Persistence. The legal entity identifier assigned to an entity
shall persist despite all corporate events. When a corporate event
results in a new entity, the new entity shall receive a new legal entity
identifier, while the previous legal entity identifier or identifiers
continue to identify the predecessor entity or entities in the record.
(c) Governance principles for the legal entity identifier. The legal
entity identifier used in all recordkeeping and all swap data reporting
required by this part shall conform to the governance principles set
forth in paragraphs (c)(1) through (4) of this section.
(1) International governance. The issuance of the legal entity
identifier used pursuant to this section, and any legal entity
identifier utility formed for the purpose of issuing legal entity
identifiers that are used pursuant to this section, shall be subject to
international supervision as follows:
(i) With respect to operations, by a governance structure that
includes the Commission and other financial regulators in any
jurisdiction requiring use of the legal entity identifier pursuant to
applicable law. The governance structure shall have authority sufficient
to ensure, and shall ensure, that issuance and maintenance of the legal
entity identifier system adheres on an ongoing basis to the principles
set forth in this section.
(ii) With respect to adherence to ISO Standard 17442, by the
International Organisation for Standardisation.
(2) Reference data access. Access to reference data associated with
the legal entity identifier shall enable use of the legal entity
identifier as a public good, while respecting applicable law regarding
data confidentiality. Accordingly:
(i) Reference data associated with the legal entity identifier that
is public under applicable law shall be available publicly and free of
charge. Such data shall include, without limitation, level one reference
data (i.e., the minimum reference data needed to verify the identity of
the legal entity receiving each legal entity identifier), and a current
directory of all issued legal entity identifiers.
(ii) Collection and maintenance of, and access to, reference data
associated with the legal entity identifier shall comply with applicable
laws on data protection and confidentiality.
(3) Non-profit operation and funding. Funding of both start-up and
ongoing operation of the legal entity identifier system, including,
without limitation, any legal entity identifier utility formed for the
purpose of issuing legal entity identifiers that are used pursuant to
this section, shall be conducted on a non-profit, reasonable cost-
recovery basis, and shall be subject to international governance as
provided in paragraph (c)(1) of this section.
(4) Unbundling and non-restricted use. Issuance of the legal entity
identifier shall not be tied to other services, if any, offered by the
issuer, and information concerning the issuance process for new legal
entity identifiers must be available publicly and free of charge.
Restrictions shall not be imposed on use of the legal entity identifier
by any person in its own products and services, or on use of the legal
entity identifier and associated reference data by any financial
regulator. Any intellectual property created as part of the legal entity
identifier system shall be treated in a manner consistent with open
source principles.
(5) Commercial advantage prohibition. The legal entity identifier
utility providing legal entity identifiers for use in compliance with
this part shall not make any commercial or business use (other than the
operation of the utility) of any reference data associated with the
legal entity identifier that is not available to the public free of
charge. This restriction shall also apply to any entity or person that
participates in the utility, that is legally
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or otherwise affiliated or associated with the utility, or that provides
third-party services to the utility or to any component, partner,
affiliate, or associate thereof.
(e) Designation of the legal entity identifier system. (1) The
Commission shall determine, as provided in paragraphs (e)(1)(i) through
(iii) of this section, whether a legal entity identifier system that
satisfies the requirements set forth in this section is available to
provide legal entity identifiers for registered entities and swap
counterparties required to comply with this part.
(i) In making this determination, the Commission shall consider,
without limitation, the following factors:
(A) Whether the LEI provided by the LEI utility is issued under, and
conforms to, ISO Standard 17442, Legal Entity Identifier (LEI).
(B) Whether the LEI provided by the LEI utility complies with all of
the technical principles set forth in this rule.
(C) Whether the LEI utility complies with all of the governance
principles set forth in this rule.
(D) Whether the LEI utility has demonstrated that it in fact can
provide LEIs complying with this section for identification of swap
counterparties in swap data reporting commencing as of the compliance
dates set forth in Sec. 45.5.
(E) The acceptability of the LEI utility to industry participants
required to use the LEI in complying with this part.
(ii) In making this determination, the Commission shall consider all
candidates meeting the criteria set forth in paragraph (e)(1)(i) of this
section, but shall not consider any candidate that does not demonstrate
that it in fact can provide LEIs for identification of swap
counterparties in swap data reporting commencing as of the compliance
dates set forth in this part.
(iii) The Commission shall make this determination at a time it
believes is sufficiently prior to the compliance dates set forth this
part to enable issuance of LEIs far enough in advance of those
compliance dates to enable compliance with this part.
(2) If the Commission determines pursuant to paragraph (e)(1) of
this section that such a legal entity identifier system is available,
the Commission shall designate the legal entity identifier system as the
provider of legal entity identifiers to be used in recordkeeping and
swap data reporting pursuant to this part, by means of a Commission
order that is published in the Federal Register and on the Web site of
the Commission, as soon as practicable after such determination is made.
The order shall include notice of this designation, the contact
information of the LEI utility, and information concerning the procedure
and requirements for obtaining legal entity identifiers.
(3) If the Commission determines pursuant to paragraph (e)(1) of
this section that such a legal entity identifier system is not yet
available, the Commission shall publish notice of the determination in
the Federal Register and on the Web site of the Commission, as soon as
practicable after the determination is made. If the Commission later
determines, pursuant to paragraphs (e)(1)(i) and (ii) of this section,
that such a legal entity identifier system has become available, the
Commission shall designate the legal entity identifier system as the
provider of legal entity identifiers to be used in recordkeeping and
swap data reporting pursuant to this part, by means of a Commission
order that is published in the Federal Register and on the Web site of
the Commission, as soon as practicable after such determination is made.
The order shall include notice of this designation, the contact
information of the LEI utility, and information concerning the procedure
and requirements for obtaining legal entity identifiers.
(e) Reference data reporting--(1) Reporting of level one reference
data. Level one reference data for each counterparty to any swap subject
to the jurisdiction of the Commission shall be reported, by means of
self-registration, third-party registration, or both, into a public
level one reference database maintained by the issuer of the legal
entity identifier designated by the Commission pursuant to paragraph (d)
of this section. Such level one reference data shall be reported at a
time sufficient to ensure that the
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counterparty's legal entity identifier is available for inclusion in
recordkeeping and swap data reporting as required by this section. All
subsequent changes and corrections to level one reference data
previously reported shall be reported to the issuer, by means of self-
registration, third-party registration, or both, as soon as
technologically practicable following occurrence of any such change or
discovery of the need for a correction.
(2) Reporting of level two reference data. (i) Level two reference
data for each counterparty to any swap subject to the jurisdiction of
the Commission, consisting of the identity of the counterparty's
ultimate parent, shall be reported, by means of self-registration,
third-party registration, or both, into a level two reference database.
Where applicable law forbids such reporting, that fact and the citation
of the law in question shall be reported in place of the data to which
such law applies.
(ii) All non-public level two reference data reported to the level
two reference database shall be confidential, non-public, and available
only to financial regulators in any jurisdiction requiring use of the
legal entity identifier pursuant to applicable law.
(iii) The Commission shall determine the location of the level two
reference database by means of a Commission order that is published in
the Federal Register and on the Web site of the Commission, as soon as
practicable after such determination is made. The order shall include
notice of the location of the level two reference database, and
information concerning the procedure and requirements for reporting
level two reference data to the database.
(iv) The obligation to report level two reference data does not
apply until the Commission has determined the location of the level two
reference database as provided in paragraph (e)(2)(iii) of this section.
(v) After the Commission determines the location of the level two
reference database pursuant to paragraph (e)(2)(iii) of this section,
required level two reference data shall be reported at a time sufficient
to ensure that it is included in the database when the counterparty's
legal entity identifier is included in recordkeeping and swap data
reporting as required by this section.
(vi) All subsequent changes and corrections to required level two
reference data previously reported shall be reported into the level two
reference database, by means of self-registration, third-party
registration, or both, as soon as technologically practicable following
occurrence of any such change or discovery of the need for a correction.
(f) Use of the legal entity identifier system by registered entities
and swap counterparties. (1) When a legal entity identifier system has
been designated by the Commission pursuant to paragraph (e) of this
section, each registered entity and swap counterparty shall use the
legal entity identifier provided by that system in all recordkeeping and
swap data reporting pursuant to this part.
(2) Before a legal entity identifier system has been designated by
the Commission, each registered entity and swap counterparty shall use a
substitute counterparty identifier created and assigned by a swap data
repository in all recordkeeping and swap data reporting pursuant to this
part, as follows:
(i) When a swap involving one or more counterparties for which no
substitute counterparty identifier has yet been created and assigned is
reported to a swap data repository, the swap data repository shall
create a substitute counterparty identifier for each such counterparty
as provided in paragraph (f)(2)(ii) of this section, and assign the
substitute counterparty identifier to that counterparty, as soon as
technologically practicable after that swap is first reported to the
swap data repository. In lieu of creating a substitute identifier as
provided in paragraph (f)(2)(ii), the swap data repository may assign a
unique substitute identifier provided by a third party service provider,
if such identifier complies with all of the principles for LEIs set
forth in this part.
(ii) Each such substitute counterparty identifier created by a swap
data repository shall consist of a
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single data field that contains two components, including:
(A) The unique alphanumeric code assigned to the swap data
repository by the Commission for the purpose of identifying the swap
data repository; and
(B) An alphanumeric code generated and assigned to that counterparty
by the automated systems of the swap data repository, which shall be
unique with respect to all such substitute counterparty identifier codes
generated and assigned by that swap data repository.
(iii) The swap data repository shall transmit each substitute
counterparty identifier thus created to each counterparty to the swap,
to each other registered entity associated with the swap, to each
registered entity or swap counterparty who has made any report of any
swap data to the swap data repository, and to each swap data repository
registered with the Commission, as soon as technologically practicable
after creation and assignment of the substitute counterparty identifier.
(iv) Once any swap data repository has created and assigned such a
substitute counterparty identifier to a swap counterparty and has
transmitted it as required by paragraph (f)(2)(iii) of this section, all
registered entities and swap counterparties shall use that substitute
counterparty identifier to identify that counterparty in all swap data
recordkeeping and reporting, until such time as the Commission
designates a legal entity identifier system pursuant to paragraph (e) of
this section.
(3) For swaps reported pursuant to this part prior to Commission
designation of a legal entity identifier system, after such designation
each swap data repository shall map the legal entity identifiers for the
counterparties to the substitute counterparty identifiers in the record
for each such swap.
(4) Prior to October 15, 2012, if a legal entity identifier system
has been designated by the Commission as provided in this section, but a
reporting counterparty's automated systems are not yet prepared to
include legal entity identifiers in recordkeeping and swap data
reporting pursuant to this part, the counterparty shall be excused from
complying with paragraph (f)(1) of this section, and shall instead
comply with paragraph (f)(2) of this section, until its automated
systems are prepared with respect to legal entity identifiers, at which
time it must commence compliance with paragraph (f)(1) of this section.
This paragraph shall have no effect on or after October 15, 2012.
Sec. 45.7 Unique product identifiers.
Each swap subject to the jurisdiction of the Commission shall be
identified in all recordkeeping and all swap data reporting pursuant to
this part by means of a unique product identifier and product
classification system as specified in this section. Each swap
sufficiently standardized to receive a unique product identifier shall
be identified by a unique product identifier. Each swap not sufficiently
standardized for this purpose shall be identified by its description
using the product classification system.
(a) Requirements for the unique product identifier and product
classification system. The unique product identifier and product
classification system shall identify and describe the swap asset class
and the sub-type within that asset class to which the swap belongs, and
the underlying product for the swap, with sufficient distinctiveness and
specificity to enable the Commission and other financial regulators to
fulfill their regulatory responsibilities and to assist in real time
reporting of swaps as provided in the Act and part 43 of this chapter.
The level of distinctiveness and specificity which the unique product
identifier will provide shall be determined separately for each swap
asset class.
(b) Designation of the unique product identifier and product
classification system. (1) The Commission shall determine when a unique
product identifier and product classification system that is acceptable
to the Commission and satisfies the requirements set forth in this
section is available for use in compliance with this section.
(2) When the Commission determines that such a unique product
identifier and product classification system is available, the
Commission shall designate the unique product identifier
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and product classification system to be used in recordkeeping and swap
data reporting pursuant to this part, by means of a Commission order
that is published in the Federal Register and on the Web site of the
Commission, as soon as practicable after such determination is made. The
order shall include notice of this designation, the contact information
of the issuer of such unique product identifiers, and information
concerning the procedure and requirements for obtaining unique product
identifiers and using the product classification system.
(c) Use of the unique product identifier and product classification
system by registered entities and swap counterparties. (1) When a unique
product identifier and product classification system has been designated
by the Commission pursuant to paragraph (b) of this section, each
registered entity and swap counterparty shall use the unique product
identifier and product classification system in all recordkeeping and
swap data reporting pursuant to this part.
(2) Before a unique product identifier and product classification
system has been designated by the Commission, each registered entity and
swap counterparty shall use the internal product identifier or product
description used by the swap data repository to which a swap is reported
in all recordkeeping and swap data reporting pursuant to this part.
Sec. 45.8 Determination of which counterparty must report.
The determination of which counterparty is the reporting
counterparty for a swap shall be made as provided in this section.
(a) If only one counterparty is a swap dealer, the swap dealer shall
be the reporting counterparty.
(b) If neither counterparty is a swap dealer, and only one
counterparty is a major swap participant, the major swap participant
shall be the reporting counterparty.
(c) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a financial entity as defined in CEA section
2(h)(7)(C), the counterparty that is a financial entity shall be the
reporting counterparty.
(d) If both counterparties are swap dealers, or both counterparties
are major swap participants, or both counterparties are non-SD/MSP
counterparties that are financial entities as defined in CEA section
2(h)(7)(C), or both counterparties are non-SD/MSP counterparties and
neither counterparty is a financial entity as defined in CEA section
2(h)(7)(C):
(1) For a swap executed on or pursuant to the rules of a swap
execution facility or designated contract market, the counterparties
shall agree which counterparty shall be the reporting counterparty. The
counterparties shall make this agreement after the swap execution
facility or designated contract market notifies the counterparties, as
provided in paragraph (h)(2) of this section, that paragraph (d) of this
section applies to them, and not later than the end of the first
business day following the date of execution of the swap. After this
agreement is reached, the reporting counterparty shall report to the
swap data repository that it is the reporting counterparty.
(2) For an off-facility swap, the counterparties shall agree as one
term of their swap which counterparty shall be the reporting
counterparty.
(e) Notwithstanding the provisions of paragraphs (a) through (d) of
this section, if both counterparties to a swap are non-SD/MSP
counterparties and only one counterparty is a U.S. person, that
counterparty shall be the reporting counterparty.
(f) Notwithstanding the provisions of paragraphs (a) through (e) of
this section, if neither counterparty to a swap is a U.S. person, but
the swap is executed on a swap execution facility or designated contract
market or otherwise executed in the United States, or is cleared by a
derivatives clearing organization:
(1) For such a swap executed on or pursuant to the rules of a swap
execution facility or designated contract market, the counterparties
shall agree which counterparty shall be the reporting counterparty. The
counterparties shall make this agreement after the swap execution
facility or designated contract market notifies the counterparties, as
provided in paragraph (h)(2) of this section, that neither
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counterparty is a U.S. person, and not later than the end of the first
business day following the date of execution of the swap. After this
agreement is reached, the reporting counterparty shall report to the
swap data repository that it is the reporting counterparty.
(2) For an off-facility swap, the counterparties shall agree as one
term of their swap which counterparty shall be the reporting
counterparty.
(g) If a reporting counterparty selected pursuant to paragraphs (a)
through (f) of this section ceases to be a counterparty to a swap due to
an assignment or novation, the reporting counterparty for reporting of
required swap continuation data following the assignment or novation
shall be selected from the two current counterparties as provided in
paragraphs (g)(1) through (4) of this section.
(1) If only one counterparty is a swap dealer, the swap dealer shall
be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(2) If neither counterparty is a swap dealer, and only one
counterparty is a major swap participant, the major swap participant
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(3) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a U.S. person, that counterparty shall be the
reporting counterparty and shall fulfill all counterparty reporting
obligations.
(4) In all other cases, the counterparty that replaced the previous
reporting counterparty by reason of the assignment or novation shall be
the reporting counterparty, unless otherwise agreed by the
counterparties.
(h) For all swaps executed on or pursuant to the rules of a swap
execution facility or designated contract market, the rules of the swap
execution facility or designated contract market must require each swap
counterparty to provide sufficient information to the swap execution
facility or designated contract market to enable the swap execution
facility or designated contract market to report all swap creation data
as provided in this part.
(1) To achieve this, the rules of the swap execution facility or
designated contract market must require each market participant placing
an order with respect to any swap traded on the swap execution facility
or designated contract market to include in the order, without
limitation:
(i) The legal entity identifier of the market participant placing
the order, if available.
(ii) A yes/no indication of whether the market participant is a swap
dealer with respect to the product with respect to which the order is
placed.
(iii) A yes/no indication of whether the market participant is a
major swap participant with respect to the product with respect to which
the order is placed.
(iv) A yes/no indication of whether the market participant is a
financial entity as defined in CEA section (2)(h)(7)(C).
(v) A yes/no indication of whether the market participant is a U.S.
person.
(vi) If applicable, an indication that the market participant will
elect the clearing requirement exception in CEA section (2)(h)(7) for
any swap resulting from the order.
(vii) If the swap will be allocated:
(A) An indication that the swap will be allocated.
(B) The legal entity identifier of the agent.
(C) An indication of whether the swap is a post-allocation swap.
(D) If the swap is a post-allocation swap, the unique swap
identifier of the original transaction between the reporting
counterparty and the agent.
(2) To achieve this, the swap execution facility or designated
contract market must use the information obtained pursuant to paragraph
(h)(1) of this section to identify the counterparty that is the
reporting counterparty pursuant to the CEA and this section, wherever
possible. If the swap execution facility or designated contract market
cannot identify the reporting counterparty from the information
available to it as specified in paragraph (h) of this section, the swap
execution facility or designated contract market shall:
(i) Notify each counterparty, as soon as technologically practicable
after execution of the swap, that it cannot identify whether that
counterparty is
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the reporting counterparty, and, if applicable, that neither
counterparty is a U.S. person; and
(ii) Transmit to each counterparty the LEI (or substitute identifier
as provided in this section) of the other counterparty.
Sec. 45.9 Third-party facilitation of data reporting.
Registered entities and swap counterparties required by this part to
report required swap creation data or required swap continuation data,
while remaining fully responsible for reporting as required by this
part, may contract with third-party service providers to facilitate
reporting.
Sec. 45.10 Reporting to a single swap data repository.
All swap data for a given swap must be reported to a single swap
data repository, which shall be the swap data repository to which the
first report of required swap creation data is made pursuant to this
part.
(a) Swaps executed on a swap execution facility or designated
contract market. To ensure that all swap data for a swap executed on or
pursuant to the rules of a swap execution facility or designated
contract market is reported to a single swap data repository:
(1) The swap execution facility or designated contract market that
reports required swap creation data as required by Sec. 45.3 shall
report all such data to a single swap data repository. As soon as
technologically practicable after execution, the swap execution facility
or designated contract market shall transmit to both counterparties to
the swap, and to the derivatives clearing organization, if any, that
will clear the swap, both:
(i) The identity of the swap data repository to which required swap
creation data is reported by the swap execution facility or designated
contract market; and
(ii) The unique swap identifier for the swap, created pursuant to
Sec. 45.5.
(2) Thereafter, all required swap creation data and all required
swap continuation data reported for the swap reported by any registered
entity or counterparty shall be reported to that same swap data
repository (or to its successor in the event that it ceases to operate,
as provided in part 49 of this chapter).
(b) Off-facility swaps with a swap dealer or major swap participant
reporting counterparty. To ensure that all swap data for such swaps is
reported to a single swap data repository:
(1) If the reporting counterparty reports primary economic terms
data to a swap data repository as required by Sec. 45.3:
(i) The reporting counterparty shall report primary economic terms
data to a single swap data repository.
(ii) As soon as technologically practicable after execution, but no
later than as required pursuant to Sec. 45.3, the reporting
counterparty shall transmit to the other counterparty to the swap both
the identity of the swap data repository to which primary economic terms
data is reported by the reporting counterparty, and the unique swap
identifier for the swap created pursuant to Sec. 45.5.
(iii) If the swap will be cleared, the reporting counterparty shall
transmit to the derivatives clearing organization at the time the swap
is submitted for clearing both the identity of the swap data repository
to which primary economic terms data is reported by the reporting
counterparty, and the unique swap identifier for the swap created
pursuant to Sec. 45.5.
(2) If the reporting counterparty is excused from reporting primary
economic terms data as provided in Sec. 45.3(b) or (c):
(i) Paragraph (b)(1) of this section shall not apply.
(ii) At the time the swap is submitted for clearing, the reporting
counterparty shall transmit to the derivatives clearing organization the
unique swap identifier for the swap created pursuant to Sec. 45.5, and
notify the derivatives clearing organization that the reporting
counterparty has not reported any required swap creation data for the
swap to a swap data repository.
(iii) The derivatives clearing organization shall report all
required swap creation data for the swap to a single swap data
repository. As soon as technologically practicable after clearing, the
derivatives clearing organization shall transmit to both counterparties
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to the swap the identity of the swap data repository to which required
swap creation data is reported by the derivatives clearing organization,
and shall transmit to the non-reporting counterparty the unique swap
identifier for the swap.
(3) Thereafter, all required swap creation data and all required
swap continuation data reported for the swap, by any registered entity
or counterparty, shall be reported to the swap data repository to which
swap data has been reported pursuant to paragraph (b)(1) or (b)(2) of
this section (or to its successor in the event that it ceases to
operate, as provided in part 49 of this chapter).
(c) Off-facility swaps with a non-SD/MSP reporting counterparty. To
ensure that all swap data for such swaps is reported to a single swap
data repository:
(1) If the reporting counterparty reports primary economic terms
data to a swap data repository as required by Sec. 45.3:
(i) The reporting counterparty shall report primary economic terms
data to a single swap data repository.
(ii) As soon as technologically practicable after execution, but no
later than as required pursuant to Sec. 45.3, the reporting
counterparty shall transmit to the other counterparty to the swap the
identity of the swap data repository to which primary economic terms
data was reported by the reporting counterparty.
(iii) If the swap will be cleared, the reporting counterparty shall
transmit to the derivatives clearing organization at the time the swap
is submitted for clearing the identity of the swap data repository to
which primary economic terms data was reported by the reporting
counterparty.
(2) If the reporting counterparty will be excused from reporting
primary economic terms data as provided in Sec. 45.3(b) or (c):
(i) Paragraph (c)(1) of this section shall not apply.
(ii) At the time the swap is submitted for clearing, the reporting
counterparty shall notify the derivatives clearing organization that the
reporting counterparty has not reported any required swap creation data
for the swap to a swap data repository.
(iii) The derivatives clearing organization shall report all
required swap creation data for the swap to a single swap data
repository. As soon as technologically practicable after clearing, the
derivatives clearing organization shall transmit to both counterparties
to the swap the identity of the swap data repository to which required
swap creation data is reported by the derivatives clearing organization.
(3) The swap data repository to which the swap is reported as
provided in paragraph (c) of this section shall transmit the unique swap
identifier created pursuant to Sec. 45.5 to both counterparties and to
the derivatives clearing organization, if any, as soon as
technologically practicable after creation of the unique swap
identifier.
(4) Thereafter, all required swap creation data and all required
swap continuation data reported for the swap, by any registered entity
or counterparty, shall be reported to the swap data repository to which
swap data has been reported pursuant to paragraph (c)(1) or (2) of this
section (or to its successor in the event that it ceases to operate, as
provided in part 49 of this chapter).
Sec. 45.11 Data reporting for swaps in a swap asset class not
accepted by any swap data repository.
(a) Should there be a swap asset class for which no swap data
repository registered with the Commission currently accepts swap data,
each registered entity or counterparty required by this part to report
any required swap creation data or required swap continuation data with
respect to a swap in that asset class must report that same data to the
Commission.
(b) Data reported to the Commission pursuant to this section shall
be reported at times announced by the Commission and in an electronic
file in a format acceptable to the Commission.
(c) Delegation of authority to the Chief Information Officer: The
Commission hereby delegates to its Chief Information Officer, until the
Commission orders otherwise, the authority set forth in paragraph (c) of
this section, to be exercised by the Chief Information Officer or by
such other employee or employees of the Commission
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as may be designated from time to time by the Chief Information Officer.
The Chief Information Officer may submit to the Commission for its
consideration any matter which has been delegated in this paragraph.
Nothing in this paragraph prohibits the Commission, at its election,
from exercising the authority delegated in this paragraph. The authority
delegated to the Chief Information Officer by paragraph (c) of this
section shall include:
(1) The authority to determine the manner, format, coding structure,
and electronic data transmission standards and procedures acceptable to
the Commission for the purposes of paragraphs (a) and (b) of this
section.
(2) The authority to determine whether the Commission may permit or
require use by reporting entities or counterparties in reporting
pursuant to this section of one or more particular data standards (such
as FIX, FpML, ISO 20022, or some other standard), in order to
accommodate the needs of different communities of users.
(3) The dates and times at which required swap creation data or
required swap continuation data shall be reported pursuant to this
section.
(d) The Chief Information Officer shall publish from time to time in
the Federal Register and on the Web site of the Commission the format,
data schema, electronic data transmission methods and procedures, and
dates and times for reporting acceptable to the Commission with respect
to swap data reporting pursuant to this section.
Sec. 45.12 Voluntary supplemental reporting
(a) For purposes of this section, the term voluntary, supplemental
report means any report of swap data to a swap data repository that is
not required to be made pursuant to this part or any other part in this
chapter.
(b) A voluntary, supplemental report may be made only by a
counterparty to the swap in connection with which the voluntary,
supplemental report is made, or by a third-party service provider acting
on behalf of a counterparty to the swap.
(c) A voluntary, supplemental report may be made either to the swap
data repository to which all required swap creation data and all
required swap continuation data is reported for the swap pursuant to
Sec. Sec. 45.3 and 45.10, or to a different swap data repository.
(d) A voluntary, supplemental report must contain:
(1) An indication that the report is a voluntary, supplemental
report.
(2) The unique swap identifier created pursuant to Sec. Sec. 45.5
and 45.9. Therefore, no voluntary, supplemental report may be made until
after the unique swap identifier has been created pursuant to Sec. Sec.
45.5 and 45.9 and has been transmitted to the counterparty making the
voluntary, supplemental report.
(3) The identity of the swap data repository to which all required
swap creation data and all required swap continuation data is reported
for the swap pursuant to Sec. Sec. 45.3 and 45.10, if the voluntary
supplemental report is made to a different swap data repository.
(4) The legal entity identifier (or substitute identifier) required
by Sec. 45.6 for the counterparty making the voluntary, supplemental
report.
(5) If applicable, an indication that the voluntary, supplemental
report is made pursuant to the laws or regulations of any jurisdiction
outside the United States.
(e) If a counterparty that has made a voluntary, supplemental report
discovers any errors in the swap data included in the voluntary,
supplemental report, the counterparty must report a correction of each
such error to the swap data repository to which the voluntary,
supplemental report was made, as soon as technologically practicable
after discovery of any such error.
Sec. 45.13 Required data standards.
(a) Data maintained and furnished to the commission by swap data
repositories. A swap data repository shall maintain all swap data
reported to it in a format acceptable to the Commission, and shall
transmit all swap data requested by the Commission to the Commission in
an electronic file in a format acceptable to the Commission.
(b) Data reported to swap data repositories. In reporting swap data
to a swap data repository as required by this part, each reporting
entity or counterparty shall use the facilities, methods, or data
standards provided or
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required by the swap data repository to which the entity or counterparty
reports the data. A swap data repository may permit reporting entities
and counterparties to use various facilities, methods, or data
standards, provided that its requirements in this regard enable it to
meet the requirements of paragraph (a) of this section with respect to
maintenance and transmission of swap data.
(c) Delegation of authority to the Chief Information Officer. The
Commission hereby delegates to its Chief Information Officer, until the
Commission orders otherwise, the authority set forth in this paragraph
(c), to be exercised by the Chief Information Officer or by such other
employee or employees of the Commission as may be designated from time
to time by the Chief Information Officer. The Chief Information Officer
may submit to the Commission for its consideration any matter which has
been delegated in this paragraph (c). Nothing in this paragraph
prohibits the Commission, at its election, from exercising the authority
delegated in this paragraph. The authority delegated to the Chief
Information Officer by this paragraph (c) shall include:
(1) The authority to determine the manner, format, coding structure,
and electronic data transmission standards and procedures acceptable to
the Commission for the purposes of paragraph (a) of this section.
(2) The authority to determine whether the Commission may permit or
require use by reporting entities or counterparties, or by swap data
repositories, of one or more particular data standards (such as FIX,
FpML, ISO 20022, or some other standard), in order to accommodate the
needs of different communities of users, or to enable swap data
repositories to comply with paragraph (a) of this section.
(d) The Chief Information Officer shall publish from time to time in
the Federal Register and on the Web site of the Commission the format,
data schema, and electronic data transmission methods and procedures
acceptable to the Commission.
Sec. 45.14 Reporting of errors and omissions in previously
reported data.
(a) Each registered entity and swap counterparty required by this
part to report swap data to a swap data repository, to any other
registered entity or swap counterparty, or to the Commission shall
report any errors and omissions in the data so reported. Corrections of
errors or omissions shall be reported as soon as technologically
practicable after discovery of any such error or omission. With respect
to swaps for which required swap continuation data is reported using the
snapshot reporting method, reporting counterparties fulfill the
requirement to report errors or omissions in state data previously
reported by making appropriate corrections in their next daily report of
state data as required by this part.
(b) Each counterparty to a swap that is not the reporting
counterparty as determined pursuant to Sec. 45.8, and that discovers
any error or omission with respect to any swap data reported to a swap
data repository for that swap, shall promptly notify the reporting
counterparty of each such error or omission. Upon receiving such notice,
the reporting counterparty shall report a correction of each such error
or omission to the swap data repository as provided in paragraph (a) of
this section.
(c) Unless otherwise approved by the Commission, or by the Chief
Information Officer pursuant to Sec. 45.13, each registered entity or
swap counterparty reporting corrections to errors or omissions in data
previously reported as required by this section shall report such
corrections in the same format as it reported the erroneous or omitted
data. Unless otherwise approved by the Commission, or by the Chief
Information Officer pursuant to Sec. 45.13, a swap data repository
shall transmit corrections to errors or omission in data previously
transmitted to the Commission in the same format as it transmitted the
erroneous or omitted data.
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PART 46_SWAP DATA RECORDKEEPING AND REPORTING REQUIREMENTS:
PRE-ENACTMENT AND TRANSITION SWAPS--Table of Contents
Sec.
46.1 Definitions.
46.2 Recordkeeping for pre-enactment swaps and transition swaps.
46.3 Swap data reporting for pre-enactment swaps and transition swaps.
46.4 Unique identifiers.
46.5 Determination of which counterparty must report.
46.6 Third-party facilitation of data reporting.
46.7 Reporting to a single swap data repository.
46.8 Data reporting for swaps in a swap asset class not accepted by any
swap data repository.
46.9 Voluntary supplemental reporting
46.10 Required data standards.
46.11 Reporting of errors and omissions in previously reported data.
Appendix 1 to Part 46--Tables of Minimum Primary Economic Terms Data for
Pre-Enactment and Transition Swaps
Authority: Title VII, sections 723 and 729, Pub. L. 111-203, 124
Stat. 1738.
Source: 77 FR 35226, June 12, 2012, unless otherwise noted.
Sec. 46.1 Definitions.
Terms used in this part are defined as follows:
Asset class means the broad category of goods, services or
commodities, including any ``excluded commodity'' as defined in CEA
section 1a(19), with common characteristics underlying a swap. The asset
classes include credit, equity, foreign exchange (excluding cross-
currency), interest rate (including cross-currency), other commodity,
and such other asset classes as may be determined by the Commission.
Compliance date means the applicable date, as specified in part 45
of this chapter, on which a registered entity or swap counterparty
subject to the jurisdiction of the Commission is required to commence
full compliance with all provisions of this part and with all applicable
provisions of part 45 of this chapter, as set forth in the preamble to
this part.
Confirmation (confirming) means the consummation (electronically or
otherwise) of legally binding documentation (electronic or otherwise)
that memorializes the agreement of the parties to all terms of a swap. A
confirmation must be in writing (whether electronic or otherwise) and
must legally supersede any previous agreement (electronically or
otherwise).
Confirmation data means all of the terms of a swap matched and
agreed upon by the counterparties in confirming the swap.
Credit swap means any swap that is primarily based on instruments of
indebtedness, including, without limitation: any swap primarily based on
one or more broad-based indices related to instruments of indebtedness;
and any swap that is an index credit swap or total return swap on one or
more indices of debt instruments.
Electronic reporting (``report electronically'') means the reporting
of data normalized in data fields as required by the data standard or
standards used by the swap data repository to which the data is
reported. Except where specifically otherwise provided in this chapter,
electronic reporting does not include submission of an image of a
document or text file.
Equity swap means any swap that is primarily based on equity
securities, including, without limitation: any swap primarily based on
one or more broad-based indices of equity securities; and any total
return swap on one or more equity indices.
Financial entity has the meaning set forth in CEA section
2(h)(7)(C).
Foreign exchange forward has the meaning set forth in CEA section
1a(24).
Foreign exchange instrument means an instrument that is both defined
as a swap in part 1 of this chapter and included in the foreign exchange
asset class. Instruments in the foreign exchange asset class include:
any currency option, foreign currency option, foreign exchange option,
or foreign exchange rate option; any foreign exchange forward as defined
in CEA section 1a(24); any foreign exchange swap as defined in CEA
section 1a(25); and any non-deliverable forward involving foreign
exchange.
Foreign exchange swap has the meaning set forth in CEA section
1a(25). It does not include swaps primarily based
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on rates of exchange between different currencies, changes in such
rates, or other aspects of such rates (sometimes known as ``cross-
currency swaps'').
Interest rate swap means any swap which is primarily based on one or
more interest rates, such as swaps of payments determined by fixed and
floating interest rates; or any swap which is primarily based on rates
of exchange between different currencies, changes in such rates, or
other aspects of such rates (sometimes known as ``cross-currency
swaps'').
International swap means a swap required by U.S. law and the law of
another jurisdiction to be reported both to a swap data repository and
to a different trade repository registered with the other jurisdiction.
Major swap participant has the meaning set forth in CEA section
1a(33) and in part 1 of this chapter.
Minimum primary economic terms means, with respect to a historical
swap, the terms included in the list of minimum primary economic terms
for swaps in each swap asset class found in appendix 1 to this part.
Minimum primary economic terms data means all of the data elements
necessary to fully report all of the minimum primary economic terms
required by this part to be reported for a swap in the swap asset class
of the swap in question.
Mixed swap has the meaning set forth in CEA section 1a(47)(D), and
refers to an instrument that is in part a swap subject to the
jurisdiction of the Commission, and in part a security-based swap
subject to the jurisdiction of the SEC.
Multi-asset swap means a swap that does not have one easily
identifiable primary underlying notional item, but instead involves
multiple underlying notional items within the Commission's jurisdiction
that belong to different asset classes.
Non-SD/MSP counterparty means a swap counterparty that is neither a
swap dealer nor a major swap participant.
Other commodity swap means any swap not included in the credit,
equity, foreign exchange, or interest rate asset classes, including,
without limitation, any swap for which the primary underlying item is a
physical commodity or the price or any other aspect of a physical
commodity.
Pre-enactment swap means any swap entered into prior to enactment of
the Dodd-Frank Act of 2010 (July 21, 2010), the terms of which have not
expired as of the date of enactment of that Act.
Reporting counterparty means the counterparty required to report
swap data pursuant to this part, selected as provided in Sec. 46.5.
Required swap continuation data means all of the data elements that
must be reported during the existence of a swap as required by part 45
of this chapter.
Swap data repository has the meaning set forth in CEA section
1a(48), and in part 49 of this chapter.
Swap dealer has the meaning set forth in CEA section 1a(49), and in
part 1 of this chapter.
Transition swap means any swap entered into on or after the
enactment of the Dodd-Frank Act of 2010 (July 21, 2010) and prior to the
applicable compliance date on which a registered entity or swap
counterparty subject to the jurisdiction of the Commission is required
to commence full compliance with all provisions of this part, as set
forth in the preamble to this part.
Sec. 46.2 Recordkeeping for pre-enactment swaps and transition swaps.
(a) Recordkeeping for pre-enactment and transition swaps in
existence on or after April 25, 2011. Each counterparty subject to the
jurisdiction of the Commission that is a counterparty to any pre-
enactment swap or transition swap that is in existence on or after April
25, 2011 shall keep the following records concerning each such swap:
(1) Minimum records required. Each counterparty shall keep records
of all of the minimum primary economic terms data specified in appendix
1 to this part.
(2) Additional records required to be kept if possessed by a
counterparty. In addition to the minimum records required pursuant to
paragraph (a)(1) of this part, a counterparty that is in possession at
any time on or after April 25, 2011 of any of the following
documentation shall keep copies thereof:
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(i) Any confirmation of the swap executed by the counterparties.
(ii) Any master agreement governing the swap, and any modification
or amendment thereof.
(iii) Any credit support agreement, or other agreement between the
counterparties having the same function as a credit support agreement,
relating to the swap, and any modification or amendment thereof.
(3) Records created or available after the compliance date. In
addition to the records required to be kept pursuant to paragraphs
(a)(1) and (2) of this section, each counterparty to any pre-enactment
swap or transition swap that remains in existence on the compliance date
shall keep for each such swap, from the compliance date forward, all of
the records required to be kept by section 45.2 of this chapter, to the
extent that any such records are created by or become available to the
counterparty on or after the compliance date.
(4) Retention form. Records required to be kept pursuant to this
section with respect to historical swaps in existence on or after April
25, 2011, must be kept as required by paragraph (a)(4)(i) or (ii) of
this section, as applicable.
(i) Records required to be kept by swap dealers or major swap
participants may be kept in electronic form, or kept in paper form if
originally created and exclusively maintained in paper form, so long as
they are retrievable, and information in them is reportable as required
by this part.
(ii) Records required to be kept by non-SD/MSP counterparties may be
kept in either electronic or paper form, so long as they are
retrievable, and information in them is reportable, as required by this
part.
(b) Recordkeeping for pre-enactment and transition swaps expired or
terminated prior to April 25, 2011. Each counterparty subject to the
jurisdiction of the Commission that is a counterparty to any pre-
enactment swap or transition swap that is expired or terminated prior to
April 25, 2011 shall keep the following records concerning each such
swap:
(1) Pre-enactment swaps expired prior to April 25, 2011. Each
counterparty to any pre-enactment swap that expired or was terminated
prior to April 25, 2011 shall retain the information and documents
relating to the terms of the transaction that were possessed by the
counterparty on or after October 14, 2010 (17 CFR 44.00 through 44.02).
Such information may be retained in the format in which it existed on or
after October 14, 2010, or in such other format as the counterparty
chooses to retain it. This paragraph (b)(1) does not require the
counterparty to create or retain records of information not in its
possession on or after October 14, 2010, or to alter the format, i.e.,
the method by which the information is organized and stored.
(2) Transition swaps expired prior to April 25, 2011. Each
counterparty to any transition swap that expired or was terminated prior
to April 25, 2011 shall retain the information and documents relating to
the terms of the transaction that were possessed by the counterparty on
or after December 17, 2010 (17 CFR 44.03). Such information may be
retained in the format in which it existed on or after December 17,
2010, or in such other format as the counterparty chooses to retain it.
This paragraph (b)(2) does not require the counterparty to create or
retain records of information not in its possession on or after December
17, 2010, or to alter the format, i.e., the method by which the
information is organized and stored.
(c) Retention period. All records required to be kept by this
section shall be kept from the applicable dates specified in paragraphs
(a) or (b) of this section through the life of the swap, and for a
period of at least five years from the final termination of the swap.
(d) Retrieval. Records required to be kept pursuant to this section
shall be retrievable as follows.
(1) Retrieval for pre-enactment and transition swaps in existence on
or after April 25, 2011. Records concerning pre-enactment and transition
swaps in existence on or after April 25, 2011, shall be retrievable as
follows:
(i) Each record required to be kept by a counterparty that is a swap
dealer or major swap participant shall be readily accessible via real
time electronic access by the counterparty throughout
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the life of the swap and for two years following the final termination
of the swap, and shall be retrievable by the registrant or its
affiliates within three business days through the remainder of the
period following final termination of the swap during which it is
required to be kept.
(ii) Each record required to be kept by a non-SD/MSP counterparty
shall be retrievable by the counterparty within five business days
throughout the period during which it is required to be kept.
(2) Retrieval for pre-enactment and transition swaps expired or
terminated prior to April 25, 2011. Records concerning pre-enactment and
transition swaps expired or terminated prior to April 25, 2011, shall be
retrievable by the counterparty within five business days throughout the
period during which they are required to be kept.
(e) Inspection. All records required to be kept pursuant to this
section by any registrant or its affiliates or by any counterparty
subject to the jurisdiction of the Commission shall be open to
inspection upon request by any representative of the Commission, the
United States Department of Justice, or the Securities and Exchange
Commission, or by any representative of a prudential regulator as
authorized by the Commission. Copies of all such records shall be
provided, at the expense of the entity or person required to keep the
record, to any representative of the Commission upon request. With
respect to historical swaps in existence on or after April 25, 2011,
copies of records required to be kept by any swap dealer or major swap
participant shall be provided either by electronic means, in hard copy,
or both, as requested by the Commission, with the sole exception that
copies of records originally created and exclusively maintained in paper
form may be provided in hard copy only; and copies of records required
to be kept by any non-SD/MSP counterparty shall be provided in the form,
whether electronic or paper, in which the records are kept. With respect
to historical swaps expired or terminated prior to April 25, 2011,
records shall be provided in the form, whether electronic or paper, in
which the records are kept.
Sec. 46.3 Swap data reporting for pre-enactment swaps and
transition swaps.
(a) Reporting for pre-enactment and transition swaps in existence on
or after April 25, 2011--(1) Initial data report. For each pre-enactment
swap or transition swap in existence on or after April 25, 2011, the
reporting counterparty shall report electronically to a swap data
repository (or to the Commission if no swap data repository for swaps in
the asset class in question is available), on the compliance date, the
following:
(i) All of the minimum primary economic terms data specified in
appendix 1 to this part that were in the possession of the reporting
counterparty on or after April 25, 2011;
(ii) The legal entity identifier of the reporting counterparty
required pursuant to Sec. 46.4; and
(iii) The following additional identifiers:
(A) The internal counterparty identifier or legal entity identifier
used by the reporting counterparty to identify the non-reporting
counterparty; and
(B) The internal transaction identifier used by the reporting
counterparty to identify the swap.
(2) Reporting of required swap continuation data. (i) For each
uncleared pre-enactment or transition swap in existence on or after
April 25, 2011, throughout the existence of the swap following the
compliance date, the reporting counterparty must report all required
swap continuation data required to be reported pursuant to part 45 of
this chapter, with the exception that when a reporting counterparty
reports changes to minimum primary economic terms for a pre-enactment or
transition swap, the reporting counterparty is required to report only
changes to the minimum primary economic terms listed in appendix 1 to
this part and reported in the initial data report made pursuant to
paragraph (a)(1) of this section, rather than changes to all minimum
primary economic terms listed in appendix 1 to part 45.
(ii) Swap continuation data reporting is not required for a pre-
enactment or transition swap in existence on or after April 25, 2011,
that has been cleared by a designated clearing organization.
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(3) Data reporting for multi-asset swaps and mixed swaps. (i) For
each pre-enactment or transition swap in existence on or after April 25,
2011, that is a multi-asset swap, all data required to be reported by
this part shall be reported to a single swap data repository that
accepts swaps in the asset class treated as the primary asset class
involved in the swap by the reporting counterparty making the first
report of required swap creation data pursuant to this section.
(ii) For each pre-enactment or transition swap in existence on or
after April 25, 2011, that is a mixed swap, all data required to be
reported pursuant to this part shall be reported to a swap data
repository registered with the Commission and to a security-based swap
data repository registered with the Securities and Exchange Commission.
This requirement may be satisfied by reporting the mixed swap to a swap
data repository or security-based swap data repository registered with
both Commissions.
(b) Reporting for pre-enactment and transition swaps expired or
terminated prior to April 25, 2011--(1) Pre-enactment swaps expired or
terminated prior to April 25, 2011. For each pre-enactment swap which
expired or was terminated prior to April 25, 2011, the reporting
counterparty shall report to a swap data repository (or to the
Commission if no swap data repository for swaps in the asset class in
question is available), on the compliance date, such information
relating to the terms of the transaction as was in the reporting
counterparty's possession on or after October 14, 2010 (17 CFR 44.00
through 44.02). This information may be reported via any method selected
by the reporting counterparty.
(2) Transition swaps expired or terminated prior to April 25, 2011.
For each transition swap which expired or was terminated prior to April
25, 2011, the reporting counterparty shall report to a swap data
repository (or to the Commission if no swap data repository for swaps in
the asset class in question is available), on the compliance date, such
information relating to the terms of the transaction as was in the
reporting counterparty's possession on or after December 17, 2010 (17
CFR 44.03). This information may be reported via any method selected by
the reporting counterparty.
(c) Voluntary early submission of initial data report. For all pre-
enactment and transition swaps required to be reported pursuant to this
part, the reporting counterparty may make the initial data report
required by paragraph (a)(1) of this section, or the data report
required by paragraph (b) of this section, prior to the applicable
compliance date, if a swap data repository accepting swaps in the asset
class in question is prepared to accept the report. The obligation to
report continuation data as required by paragraph (a)(2) of this section
with respect to a swap for which a voluntary early submission is made
commences on the applicable compliance date. However, the reporting
counterparty may submit continuation data at any time after a voluntary
early submission made pursuant to this paragraph, if the swap data
repository is prepared to accept such continuation data, and if that
repository has registered with the Commission as a swap data repository
as of the applicable compliance date.
(d) Non-duplication of previous reporting. If the reporting
counterparty for a pre-enactment or transition swap has reported any of
the information required as paragraphs (a) or (b) of this section to a
trade repository prior to the compliance date, and if as of the
compliance date that repository has registered with the Commission as a
swap data repository, then:
(1) The counterparty shall not be required to report such previously
reported information to the swap data repository again;
(2) The counterparty shall be required to report to the swap data
repository on the compliance date any information required as part of
the initial data report by paragraph (a) of this section that has not
been reported prior to the compliance date: and
(3) In the case of pre-enactment and transition swaps in existence
on or after April 25, 2011, the initial data report required by
paragraph (a) of this section and all subsequent data reporting
concerning the swap shall be made to the same swap data repository to
which data concerning the swap was
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first reported prior to the compliance date (or to its successor in the
event that it ceases to operate, as provided in part 49 of this
chapter).
Sec. 46.4 Unique identifiers.
The unique identifier requirements for swap data reporting with
respect to pre-enactment or transition swaps shall be as follows:
(a) By the compliance date, the reporting counterparty (as defined
by part 45 of this chapter) for each pre-enactment or transition swap in
existence on or after April 25, 2011, for which an initial data report
is required by this part 46, shall obtain for itself a legal entity
identifier as provided in Sec. 45.6 of this chapter (or if the
Commission has not yet designated a legal entity identifier system, a
substitute counterparty identifier as provided in Sec. 45.6(f) of this
chapter), and shall include its own legal entity identifier (or
substitute counterparty identifier) in the initial data report
concerning the swap. With respect to the legal entity identifier (or
substitute counterparty identifier) of the reporting counterparty, the
reporting counterparty and the swap data repository to which the swap is
reported shall comply thereafter with all unique identifier requirements
of Sec. 45.6 of this chapter.
(b) Within 180 days after the compliance date, the non-reporting
counterparty for each pre-enactment or transition swap in existence on
or after April 25, 2011, for which an initial data report is required by
this part 46, shall obtain a legal entity identifier as provided in
Sec. 45.6 of this chapter (or if the Commission has not yet designated
a legal entity identifier system, a substitute counterparty identifier
as provided in Sec. 45.6(f) of this chapter), and shall provide its
legal entity identifier (or substitute counterparty identifier) to the
reporting counterparty. Upon receipt of the non-reporting counterparty's
legal entity identifier (or substitute counterparty identifier), the
reporting counterparty shall provide it to the swap data repository to
which swap data for the swap was reported. Thereafter, with respect to
the legal entity identifier (or substitute counterparty identifier) of
the non-reporting counterparty, the counterparties to the swap and the
swap data repository to which it is reported shall comply with all
requirements of Sec. 45.6 of this chapter.
(c) The legal entity identifier requirements of parts 46 and 45 of
this chapter shall not apply to pre-enactment or transition swaps
expired or terminated prior to April 25, 2011.
(d) The unique swap identifier and unique product identifier
requirements of part 45 of this chapter shall not apply to pre-enactment
or transition swaps.
Sec. 46.5 Determination of which counterparty must report.
(a) Determination of which counterparty must report swap data
concerning each pre-enactment or transition swap shall be made as
follows:
(1) If only one counterparty is a swap dealer, the swap dealer shall
fulfill all counterparty reporting obligations.
(2) If neither party is an swap dealer, and only one counterparty is
an major swap participant, the major swap participant shall fulfill all
counterparty reporting obligations.
(3) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a financial entity as defined in CEA section
2(h)(7)(C), the counterparty that is a financial entity shall be the
reporting counterparty.
(4) For each pre-enactment swap or transition swap for which both
counterparties are swap dealers, or both counterparties are major swap
participants, or both counterparties are non-SD/MSP counterparties that
are financial entities as defined in CEA section 2(h)(7)(C), or both
counterparties are non-SD/MSP counterparties and neither counterparty is
a financial entity as defined in CEA section 2(h)(7)(C), the
counterparties shall agree which counterparty shall fulfill reporting
obligations with respect to that swap; and the counterparty so selected
shall fulfill all counterparty reporting obligations.
(5) Notwithstanding the provisions of paragraphs (a)(1) through (3)
of this section, for pre-enactment or transition swaps for which both
counterparties are non-SD/MSP counterparties, if
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only one counterparty is a U.S. person, that counterparty shall be the
reporting counterparty and shall fulfill all counterparty reporting
obligations.
(b) For pre-enactment and transition swaps in existence as of the
compliance date, determination of the reporting counterparty shall be
made by applying the provisions of paragraph (a) of this section with
respect to the current counterparties to the swap as of the compliance
date, regardless of whether either or both were original counterparties
to the swap when it was first executed.
(c) For pre-enactment and transition swaps for which reporting is
required, but which have expired or been terminated prior to the
compliance date, determination of the reporting counterparty shall be
made by applying the provisions of paragraph (a) of this section to the
counterparties to the swap as of the date of its expiration or
termination (except for determination of a counterparty's status as an
SD or MSP, which shall be made as of the compliance date), regardless of
whether either or both were original counterparties to the swap when it
was first executed.
(d) After the initial report required by Sec. 46.3 is made, if a
reporting counterparty selected pursuant to this section ceases to be a
counterparty to a swap due to an assignment or novation, the reporting
counterparty for reporting of required swap continuation data following
the assignment or novation shall be selected from the two current
counterparties as provided in paragraphs (d)(1) through (4) of this
section.
(1) If only one counterparty is a swap dealer, the swap dealer shall
be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(2) If neither counterparty is a swap dealer, and only one
counterparty is a major swap participant, the major swap participant
shall be the reporting counterparty and shall fulfill all counterparty
reporting obligations.
(3) If both counterparties are non-SD/MSP counterparties, and only
one counterparty is a U.S. person, that counterparty shall be the
reporting counterparty and shall fulfill all counterparty reporting
obligations.
(4) In all other cases, the counterparty that replaced the previous
reporting counterparty by reason of the assignment or novation shall be
the reporting counterparty, unless otherwise agreed by the
counterparties.
Sec. 46.6 Third-party facilitation of data reporting.
Counterparties required by this part 46 to report swap data for any
pre-enactment or transition swap, while remaining fully responsible for
reporting as required by this part 46, may contract with third-party
service providers to facilitate reporting.
Sec. 46.7 Reporting to a single swap data repository.
All data reported for each pre-enactment or transition swap pursuant
to this part 46, and all corrections of errors and omissions in
previously reported data for the swap, shall be reported to the same
swap data repository to which the initial data report concerning the
swap is made (or to its successor in the event that it ceases to
operate, as provided in part 49 of this chapter).
Sec. 46.8 Data reporting for swaps in a swap asset class not
accepted by any swap data repository.
(a) Should there be a swap asset class for which no swap data
repository registered with the Commission currently accepts swap data,
each registered entity or counterparty required by this part to report
any required swap creation data or required swap continuation data with
respect to a swap in that asset class must report that same data to the
Commission.
(b) Data reported to the Commission pursuant to this section shall
be reported at times announced by the Commission. Data reported to the
Commission pursuant to this section with respect to pre-enactment and
transition swaps in existence on or after April 25, 2011 shall be
reported in an electronic format acceptable to the Commission.
(c) Delegation of authority to the Chief Information Officer: The
Commission hereby delegates to its Chief Information Officer, until the
Commission orders otherwise, the authority
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set forth in paragraph (c) of this section, to be exercised by the Chief
Information Officer or by such other employee or employees of the
Commission as may be designated from time to time by the Chief
Information Officer. The Chief Information Officer may submit to the
Commission for its consideration any matter which has been delegated in
this paragraph. Nothing in this paragraph prohibits the Commission, at
its election, from exercising the authority delegated in this paragraph.
The authority delegated to the Chief Information Officer by paragraph
(c) of this section shall include:
(1) With respect to all pre-enactment and transition swaps required
to be reported by this part, the authority to determine the dates and
times at which data concerning such swaps shall be reported pursuant to
this part.
(2) With respect to all pre-enactment swaps or transition swaps in
existence on or after April 25, 2011:
(i) The authority to determine the manner, format, coding structure,
and electronic data transmission standards and procedures acceptable to
the Commission for the purposes of paragraphs (a) and (b) of this
section; and
(ii) The authority to determine whether the Commission may permit or
require use by reporting entities or counterparties in reporting pre-
enactment or transition swaps in existence on or after April 25, 2011,
of one or more particular data standards (such as FIX, FpML, ISO 20022,
or some other standard), in order to accommodate the needs of different
communities of users.
(d) The Chief Information Officer shall publish from time to time in
the Federal Register and on the Web site of the Commission the dates and
times, format, data schema, and electronic data transmission methods and
procedures for reporting acceptable to the Commission with respect to
swap data reporting pursuant to this section.
Sec. 46.9 Voluntary supplemental reporting.
(a) For purposes of this section, the term voluntary, supplemental
report means any report of swap data for a pre-enactment or transition
swap to a swap data repository that is not required to be made pursuant
to this part or any other part in this chapter.
(b) A voluntary, supplemental report for a pre-enactment or
transition swap may be made only by a counterparty to the swap in
connection with which the voluntary, supplemental report is made, or by
a third-party service provider acting on behalf of a counterparty to the
swap.
(c) A voluntary, supplemental report for a pre-enactment or
transition swap may be made only after the initial data report for the
swap required by section 46.3(a) or the report required by section
46.3(b), as applicable, has been made.
(d) A voluntary, supplemental report for a pre-enactment or
transition swap may be made either to the swap data repository to which
the initial data report for the swap required by section 46.3(a) or the
report required by section 46.3(b), as applicable, has been made, or to
a different swap data repository.
(e) A voluntary, supplemental report for a pre-enactment or
transition swap must contain:
(1) An indication that the report is a voluntary, supplemental
report.
(2) The swap data repository identifier created for the swap by the
automated systems of the swap data repository to which the initial data
report required by section 46.3(a) or the report required by section
46.3(b), as applicable, has been made.
(3) An indication of the identity of the swap data repository to
which the initial data report required by section 46.3(a) or the report
required by section 46.3(b), as applicable, has been made, if the
voluntary supplemental report is made to a different swap data
repository.
(4) If the pre-enactment or transition swap was in existence on or
after April 25, 2011, the legal entity identifier (or substitute
identifier) of the counterparty making the voluntary, supplemental
report.
(5) If applicable, an indication that the voluntary, supplemental
report is made pursuant to the laws or regulations of any jurisdiction
outside the United States.
(f) If a counterparty that has made a voluntary, supplemental report
discovers any errors in the swap data included in the voluntary,
supplemental
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report, the counterparty must report a correction of each such error to
the swap data repository to which the voluntary, supplemental report was
made, as soon as technologically practicable after discovery of any such
error.
Sec. 46.10 Required data standards.
In reporting swap data to a swap data repository as required by this
part 46, each reporting counterparty shall use the facilities, methods,
or data standards provided or required by the swap data repository to
which counterparty reports the data.
Sec. 46.11 Reporting of errors and omissions in previously
reported data.
(a) Each swap counterparty required by this part 46 to report swap
data shall report any errors and omissions in the data so reported.
Corrections of errors or omissions shall be reported as soon as
technologically practicable after discovery of any such error or
omission.
(b) For pre-enactment or transition swaps for which this part
requires reporting of continuation data, reporting counterparties
reporting state data as provided in part 45 of this chapter may fulfill
the requirement to report errors or omissions by making appropriate
corrections in their next daily report of state data pursuant to part 45
of this chapter.
(c) Each counterparty to a pre-enactment or transition swap that is
not the reporting counterparty as determined pursuant to Sec. 46.5, and
that discovers any error or omission with respect to any swap data
reported to a swap data repository for that swap, shall promptly notify
the reporting counterparty of each such error or omission. As soon as
technologically practicable after receiving such notice, the reporting
counterparty shall report a correction of each such error or omission to
the swap data repository.
(d) Each swap counterparty reporting corrections to errors or
omissions in data previously reported as required by this part shall
report such corrections in the same format as it reported the erroneous
or omitted data.
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Data For Pre-Enactment and Transition Swaps
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PART 48_REGISTRATION OF FOREIGN BOARDS OF TRADE--Table of Contents
Sec.
48.1 Scope.
48.2 Definitions.
48.3 Registration required.
48.4 Registration eligibility and scope.
48.5 Registration procedures.
48.6 Foreign boards of trade providing direct access pursuant to
existing no-action relief.
48.7 Requirements for registration.
48.8 Conditions of registration.
48.9 Revocation of registration.
48.10 Additional contracts.
Appendix to Part 48--Form FBOT
Authority: 7 U.S.C. 5, 6 and 12a, unless otherwise noted.
Source: 76 FR 80698, Dec. 23, 2011, unless otherwise noted.
Sec. 48.1 Scope.
The provisions of this part apply to any foreign board of trade that
is registered, required to be registered, or applying to become
registered with the Commission in order to provide its identified
members or other participants located in the United States with direct
access to its electronic trading and order matching system.
Sec. 48.2 Definitions.
For purposes of this part:
(a) Foreign board of trade. Foreign board of trade means any board
of trade, exchange or market located outside the United States, its
territories or possessions, whether incorporated or unincorporated.
(b) Foreign board of trade eligible to be registered. A foreign
board of trade eligible to be registered means a foreign board of trade
that satisfies the requirements for registration specified in Sec. 48.7
and:
(1) Possesses the attributes of an established, organized exchange,
[[Page 126]]
(2) Adheres to appropriate rules prohibiting abusive trading
practices,
(3) Enforces appropriate rules to maintain market and financial
integrity,
(4) Has been authorized by a regulatory process that examines
customer and market protections, and
(5) Is subject to continued oversight by a regulator that has power
to intervene in the market and the authority to share information with
the Commission.
(c) Direct access. Direct access means an explicit grant of
authority by a foreign board of trade to an identified member or other
participant located in the United States to enter trades directly into
the trade matching system of the foreign board of trade.
(d) Linked contract. Linked contract means a futures, option or swap
contract that is made available for trading by direct access by a
registered foreign board of trade that settles against any price
(including the daily or final settlement price) of one or more contracts
listed for trading on a registered entity as defined in section 1a(40)
of the Act.
(e) Communications. Communications means any written or electronic
documentation or correspondence issued by or on behalf of the
Commission, the United States Department of Justice, or the National
Futures Association.
(f) Material change. Material change means a material change in the
information provided to the Commission in support of an application for
registration under this part. Subsequent to registration, material
change also includes a material change in the operations of the foreign
board of trade or its clearing organization and, without limitation, a
change in any of the following: The membership or participant criteria
of the foreign board of trade or its clearing organization; the location
of the management, personnel or operations of the foreign board of trade
or its clearing organization; the structure, nature, or operation of the
trading or clearing systems; the regulatory or self-regulatory regime
applicable to the foreign board of trade, its clearing organization, or
their respective members and other participants; the authorization,
licensure, registration or recognition of the foreign board of trade or
clearing organization; and the ability of the clearing organization to
observe the Recommendations for Central Counterparties.
(g) Clearing organization. Clearing organization means the foreign
board of trade, affiliate of the foreign board of trade or any third
party clearing house, clearing association, clearing corporation or
similar entity, facility or organization that, with respect to any
agreement, contract or transaction executed on or through the foreign
board of trade, would be:
(1) Defined as a derivatives clearing organization under section
1a(15) of the Act; or
(2) Defined as a central counterparty by the Recommendations for
Central Counterparties.
(h) Existing no-action relief. Existing no-action relief means a no-
action letter issued by a division of the Commission to the foreign
board of trade in which the division informs the foreign board of trade
that it will not recommend that the Commission institute enforcement
action against the foreign board of trade if the foreign board of trade
does not seek designation as either a designated contract market
pursuant to section 5 of the Act or a derivatives transaction execution
facility pursuant to section 5a of the Act in connection with the
granting of direct access.
(i) Swap. Swap means a swap as defined in section 1a(47) of the Act
and any Commission regulation further defining the term adopted
thereunder.
(j) Recommendations for Central Counterparties. Recommendations for
Central Counterparties means:
(1) The current Recommendations for Central Counterparties issued
jointly by the Committee on Payment and Settlement Systems and the
Technical Committee of the International Organization of Securities
Commissions as updated, revised or otherwise amended; or
(2) Successor standards, principles and guidance for central
counterparties or financial market infrastructures adopted jointly by
the Technical Committee of the International Organization of Securities
Commissions and the Committee on Payment and Settlement Systems.
[[Page 127]]
(k) Affiliate. An affiliate of a registered foreign board of trade
member or other participant means any person, as that term is defined in
section 1a(38) of the Act, that:
(1) Owns 50% or more of the member or other participant;
(2) Is owned 50% or more by the member or other participant; or
(3) Is owned 50% or more by a third person that also owns 50% or
more of the member or other participant.
(l) Member or other participant. Member or other participant means a
member or other participant of a foreign board of trade that is
registered under this part and any affiliate thereof that has been
granted direct access by the foreign board of trade.
Sec. 48.3 Registration required.
(a) Except as specified in this part, it shall be unlawful for a
foreign board of trade to permit direct access to its electronic trading
and order matching system unless and until the Commission has issued a
valid and current Order of Registration to the foreign board of trade
pursuant to the provisions of this part.
(b) It shall be unlawful for a foreign board of trade or the
clearing organization to make false or misleading statements in or in
connection with any application for registration under this part.
Sec. 48.4 Registration eligibility and scope.
(a) Only foreign boards of trade eligible to be registered, as
defined in Sec. 48.2(b) of this part, are eligible for registration
with the Commission pursuant to this part.
(b) A foreign board of trade may apply for registration under this
part in order to permit the members and other participants of the
foreign board of trade that are located in the United States to enter
trades directly into the trading and order matching system of the
foreign board of trade, to the extent that such members or other
participants are:
(1) Entering orders for the member's or other participant's
proprietary accounts;
(2) Registered with the Commission as futures commission merchants
and are submitting customer orders to the trading system for execution;
or
(3) Registered with the Commission as a commodity pool operator or
commodity trading advisor, or are exempt from such registration pursuant
to Sec. 4.13 or Sec. 4.14 of this chapter, and are submitting orders
for execution on behalf of a United States pool that the member or other
participant operates or an account of a United States customer for which
the member or other participant has discretionary authority,
respectively, provided that a futures commission merchant or a firm
exempt from such registration pursuant to Sec. 30.10 of this chapter
acts as clearing firm and guarantees, without limitation, all such
trades of the commodity pool operator or commodity trading advisor
effected through submission of orders to the trading system.
Sec. 48.5 Registration procedures.
(a) A foreign board of trade seeking registration with the
Commission pursuant to this part must electronically file an application
for registration with the Secretary of the Commission at its Washington
DC headquarters at [email protected].
(b) A complete application for registration must include:
(1) A completed Form FBOT and Form Supplement S-1, as set forth in
the appendix to this part, or any successor forms, and all information
and documentation described in such forms; and
(2) Any additional information and documentation necessary, in the
discretion of the Commission, to supplement the application including,
but not limited to, documentation and information provided during the
course of an on-site visit, as applicable, to the foreign board of
trade, the clearing organization and the regulatory authority or
authorities, to effectively demonstrate that the foreign board of trade
and its clearing organization satisfy the registration requirements set
forth in Sec. 48.7.
(c) An applicant for registration must identify with particularity
any information in the application that will be subject to a request for
confidential treatment and must provide
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support for any request for confidential treatment pursuant to the
procedures set forth in Sec. 145.9 of this chapter.
(d) If, upon review, the Commission finds the application for
registration to be complete, the Commission may approve or deny the
application. In reviewing the application, the Commission will consider,
among other things:
(1) Whether the foreign board of trade is eligible to be registered
as defined in Sec. 48.2(b) and;
(2) Whether the foreign board of trade and its clearing organization
are subject to comprehensive supervision and regulation by the
appropriate governmental authorities in their home country or countries
that is comparable to the comprehensive supervision and regulation to
which designated contract markets and derivatives clearing organizations
are respectively subject under the Act, Commission regulations, and
other applicable United States laws and regulations, if any, and;
(3) Any previous Commission findings that the foreign board of trade
and its clearing organization are subject to comprehensive supervision
and regulation by the appropriate government authorities in their home
country or countries that is comparable to the comprehensive supervision
and regulation to which designated contract markets and derivatives
clearing organizations are subject under the Act, Commission
regulations, and other applicable United States laws and regulations, if
any; and
(4) Whether the foreign board of trade and its clearing organization
have adequately demonstrated that they meet the requirements for
registration specified in Sec. 48.7.
(5) The Commission's determination that the foreign board of trade
and its clearing organization are subject to comprehensive supervision
and regulation by the appropriate government authorities in their home
country or countries that is comparable to the comprehensive supervision
and regulation to which designated contract markets and derivatives
clearing organizations are subject will be based upon a principles-based
review conducted in a manner consistent with this part 48 pursuant to
which the Commission will look to determine if the government
authorities support and enforce regulatory objectives in the oversight
of the foreign board of trade and the clearing organization that are
substantially equivalent to the regulatory objectives supported and
enforced by the Commission in its oversight of designated contract
markets and derivatives clearing organizations.
(e) If the Commission approves the application, the Commission will
issue an Order of Registration. If the Commission does not approve the
application, the Commission will, after appropriate notice and an
opportunity to respond, issue a Notice of Action specifying that the
application was not approved and setting forth the reasons therefor. The
Commission, in its discretion, may impose conditions in the Order of
Registration and may, after appropriate notice and an opportunity to
respond, amend, suspend, or otherwise restrict the terms of an issued
Order of Registration or issue an Order revoking registration.
(f) A foreign board of trade whose application is not approved may
reapply for registration 360 days after the issuance of the Notice of
Action if the foreign board of trade has addressed any deficiencies in
its original application or facts and circumstances relevant to the
Commission's review of the application have changed.
Sec. 48.6 Foreign boards of trade providing direct access pursuant
to existing no-action relief.
(a) A foreign board of trade operating pursuant to existing no-
action relief as of the effective date of this part 48 must register
with the Commission pursuant to this part in order to continue to
provide direct access to its electronic trading and order matching
system from the United States.
(b)(1) The application of a foreign board of trade operating
pursuant to existing no-action relief must include a complete Form FBOT
and Supplement S-1, as set forth in the appendix to this part. If the
foreign board of trade, as part of its application for registration,
wishes to rely on information and documentation previously submitted
electronically in connection with its request for no-action relief in
order to
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demonstrate that it satisfies the registration requirements set forth in
Sec. 48.7, (limited application) the foreign board of trade must:
(i) Specifically identify the information or documentation
previously submitted;
(ii) Identify the specific registration requirements set forth in
Sec. 48.7 that are satisfied by such information or documentation; and
(iii) Certify that the information remains accurate and current.
(2) If the foreign board of trade wishes to rely on information and
documentation previously submitted in hard copy in connection with its
application for no-action relief, the foreign board of trade must also
resubmit the identified information or documentation. A foreign board of
trade that has submitted a complete application for no-action relief
that is pending as of February 21, 2012 may also apply for registration
pursuant to these limited application procedures.
(c) A foreign board of trade operating pursuant to existing no-
action relief must submit a limited application for registration,
determined in good faith by the applicant to be complete, within 180
days of February 21, 2012. If, at any time after August 20, 2012 but
before a limited application is approved or disapproved, the Commission
determines that the application is materially incomplete, the Commission
may, after providing the foreign board of trade with notice and an
opportunity to respond to the determination of incompleteness, withdraw
the existing no-action relief if the Commission determines that the
application cannot be made complete in a timely manner. The foreign
board of trade may continue to operate pursuant to the existing no-
action relief, subject to the terms and conditions contained therein,
August 20, 2012, while the Commission is reviewing its application, and
until the Commission approves or disapproves the application or
otherwise withdraws the existing no-action relief. The no-action relief
is automatically withdrawn upon issuance of an Order of Registration or
upon disapproval.
Sec. 48.7 Requirements for registration.
An applicant for registration must demonstrate that it and, where
applicable, its clearing organization meet the following requirements.
The registration requirements applicable to clearing organizations may
alternatively be met by demonstrating that the clearing organization is
registered and in good standing with the Commission as a derivatives
clearing organization. The Commission, in its discretion, may request
additional information and documentation in connection with an
application for registration and an applicant for registration must
provide promptly any such additional information or documentation. The
Commission, in its discretion, also may impose additional registration
requirements that the Commission deems necessary after appropriate
notice and opportunity to respond.
(a) Foreign Board of Trade and Clearing Membership:
(1) The members and other participants of the foreign board of trade
and its clearing organization are fit and proper and meet appropriate
financial and professional standards;
(2) The foreign board of trade and its clearing organization have
and enforce provisions to minimize and resolve conflicts of interest;
and
(3) The foreign board of trade and its clearing organization have
and enforce rules prohibiting the disclosure, both during and subsequent
to service on a board or committee, of material non-public information
obtained as a result of a member's or other participant's performance of
duties as a member of their respective governing boards and significant
committees.
(b) The Automated Trading System:
(1) The trading system complies with Principles for the Oversight of
Screen-Based Trading Systems for Derivative Products developed by the
Technical Committee of the International Organization of Securities
Commissions,
(2) The trade matching algorithm matches trades fairly and timely,
(3) The audit trail captures all relevant data, including changes to
orders, and audit trail data is securely maintained and available for an
adequate time period,
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(4) Adequate and appropriate trade data is made available to users
and the public,
(5) The trading system has demonstrated reliability,
(6) Access to the trading system is secure and protected,
(7) There are adequate provisions for emergency operations and
disaster recovery,
(8) Trading data is backed up to prevent loss of data, and
(9) Only those futures, option or swap contracts that have been
identified to the Commission in the foreign board of trade's application
for registration or permitted to be made available for trading by direct
access pursuant to the procedures set forth in Sec. 48.10 of this part
are made available for trading by direct access.
(c) Terms and Conditions of Contracts to Be Made Available in the
United States.
(1) Contracts must meet the following standards:
(i) Contracts must be futures, option or swap contracts that would
be eligible to be traded on a designated contract market;
(ii) Contracts must be cleared;
(iii) Contracts must not be prohibited from being traded by United
States persons; and
(iv) Contracts must not be readily susceptible to manipulation.
(2) Foreign futures and option contracts on non-narrow-based
security indexes must have been certified by the Commission pursuant to
the procedures set forth in Sec. 30.13 of this chapter.
(3) Contracts that have the following characteristics must be
specifically identified as having such characteristics:
(i) Contracts that are linked to a contract listed for trading on a
registered entity as defined in section 1a(40) of the Act, and
(ii) Contracts that have any other relationship with a contract
listed for trading on a registered entity (for example, if both the
foreign board of trade's and the registered entity's contract settle to
the price of the same third party-constructed index).
(d) Settlement and Clearing:
(1) The clearing organization observes the Recommendations for
Central Counterparties or is registered with the Commission as a
derivatives clearing organization, and
(2) The clearing organization is in good regulatory standing in its
home country jurisdiction.
(e) The Regulatory Regimes Governing the Foreign Board of Trade and
the Clearing Organization:
(1) The regulatory authorities provide comprehensive supervision and
regulation of the foreign board of trade, the clearing organization, and
the type of contracts to be made available through direct access that is
comparable to the comprehensive supervision and regulation provided by
the Commission to designated contract markets, derivatives clearing
organizations and such contracts. That is, the regulatory authorities
support and enforce regulatory objectives in the oversight of the
foreign board of trade, clearing organization and the type of contracts
that the foreign board of trade wishes to make available through direct
access that are substantially equivalent to the regulatory objectives
supported and enforced by the Commission in its oversight of designated
contract markets, derivatives clearing organizations, and such products.
(2) The regulatory authorities engage in ongoing regulatory
supervision and oversight of the foreign board of trade and its trading
system, the clearing organization and its clearing system, and the
members, intermediaries and other participants of the foreign board of
trade and clearing organization, with respect to, among other things,
market integrity, customer protection, clearing and settlement and the
enforcement of the rules of the foreign board of trade and the clearing
organization.
(3) The regulatory authorities have the power to share information
directly with the Commission, upon request, including information
necessary to evaluate the continued eligibility of the foreign board of
trade for registration and to audit for compliance with the terms and
conditions of the registration.
(4) The regulatory authorities have the power to intervene in the
market.
(f) The Rules of the Foreign Board of Trade and the Clearing
Organization and Enforcement Thereof:
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(1) The foreign board of trade and its clearing organization have
implemented and enforce rules to ensure compliance with the requirements
of registration contained in this part;
(2) The foreign board of trade and its clearing organization have
the capacity to detect, investigate, and sanction persons who violate
their respective rules;
(3) The foreign board of trade and the clearing organization (or
their respective regulatory authorities) have implemented and enforce
disciplinary procedures that empower them to recommend and prosecute
disciplinary actions for suspected rule violations, impose adequate
sanctions for such violations, and provide adequate protections to
charged parties pursuant to fair and clear standards;
(4) The foreign board of trade and its clearing organization are
authorized by rule or by contractual agreement to obtain, from members
and other participants, any information and cooperation necessary to
conduct investigations, to effectively enforce their respective rules,
and to ensure compliance with the conditions of registration;
(5) The foreign board of trade and its clearing organization have
sufficient compliance staff and resources, including by delegation and/
or outsourcing to a third party, to fulfill their respective regulatory
responsibilities, including appropriate trade practice surveillance,
real time market monitoring, market surveillance, financial
surveillance, protection of customer funds, enforcement of clearing and
settlement provisions and other compliance and regulatory
responsibilities;
(6) The foreign board of trade has implemented and enforces rules
with respect to access to the trading system and the means by which the
connection thereto is accomplished;
(7) The foreign board of trade's audit trail captures and retains
sufficient order and trade-related data to allow its compliance staff to
detect trading and market abuses and to reconstruct all transactions
within a reasonable period of time;
(8) The foreign board of trade has implemented and enforces rules
prohibiting fraud and abusive trading practices including, but not
limited to, wash sales and trading ahead;
(9) The foreign board of trade has the capacity to detect and deter,
and has implemented and enforces rules relating to, market manipulation,
attempted manipulation, price distortion, and other disruptions of the
market; and
(10) The foreign board of trade has and enforces rules and
procedures that ensure a competitive, open and efficient market and
mechanism for executing transactions.
(g) Information Sharing:
(1) The regulatory authorities governing the activities of the
foreign board of trade and the clearing organization are signatories to
the International Organization of Securities Commissions Multilateral
Memorandum of Understanding, or otherwise ensure that substitute
information sharing arrangements that are satisfactory to the Commission
are in place;
(2) The regulatory authorities governing the activities of the
foreign board of trade and the clearing organization are signatories to
the Declaration on Cooperation and Supervision of International Futures
Exchanges and Clearing Organizations or otherwise commit, in writing, to
share the types of information contemplated by the International
Information Sharing Memorandum of Understanding and Agreement with the
Commission;
(3) The foreign board of trade has executed the International
Information Sharing Memorandum of Understanding and Agreement; and
(4) Pursuant to the conditions described in Sec. 48.8(a)(6), the
foreign board of trade and clearing organization agree to provide
directly to the Commission, upon request, any information necessary, in
the discretion of the Commission, to evaluate the continued eligibility
and appropriateness of the foreign board of trade and the clearing
organization, or their respective members or other participants for
registration, to audit for and enforce compliance with the requirements
and conditions of the registration, or to enable the Commission to carry
out its duties under the Act and Commission regulations.
[[Page 132]]
Sec. 48.8 Conditions of registration.
Upon registration under this part, and on an ongoing basis
thereafter, the foreign board of trade and the clearing organization
shall comply with the applicable conditions of registration set forth in
this section and any additional conditions that the Commission deems
necessary and may impose, in its discretion, and after appropriate
notice and opportunity to respond. Such conditions could include, but
are not limited to, additional conditions applicable to the listing of
swap contracts. Continued registration is expressly conditioned upon
satisfaction of these conditions.
(a) Specified Conditions for Maintaining Registration
(1) Registration Requirements: The foreign board of trade and its
clearing organization shall continue to satisfy all of the requirements
for registration set forth in Sec. 48.7.
(2) Regulatory Regime:
(i) The foreign board of trade will continue to satisfy the criteria
for a regulated market or licensed exchange pursuant to the regulatory
regime described in its application and will continue to be subject to
oversight by the regulatory authorities described in its application.
(ii) The clearing organization will continue to satisfy the criteria
for a regulated clearing organization pursuant to the regulatory regime
described in the application for registration and will continue to be in
good standing with the relevant regulatory authority.
(iii) The laws, systems, rules, and compliance mechanisms of the
regulatory regime applicable to the foreign board of trade will continue
to require the foreign board of trade to maintain fair and orderly
markets; prohibit fraud, abuse, and market manipulation and other
disruptions of the market; and provide that such requirements are
subject to the oversight of appropriate regulatory authorities.
(3) Satisfaction of International Standards:
(i) The foreign board of trade will continue to comply with the
Principles for the Oversight of Screen-Based Trading Systems for
Derivative Products developed by the Technical Committee of the
International Organization of Securities Commissions, as updated,
revised, or otherwise amended, to the extent such principles do not
contravene United States law.
(ii) The clearing organization will continue to:
(A) Be registered with the Commission as a derivatives clearing
organization and be in compliance with the laws and regulations related
thereto; or
(B) Observe the Recommendations for Central Counterparties.
(4) Restrictions on Direct Access:
(i) Only the foreign board of trade's identified members or other
participants will have direct access to the foreign board of trade's
trading system from the United States and the foreign board of trade
will not provide, and will take reasonable steps to prevent, third
parties from providing direct access to persons other than the
identified members or other participants.
(ii) All orders that are transmitted to the foreign board of trade's
trading system by a foreign board of trade's identified member or other
participant that is operating pursuant to the foreign board of trade's
registration will be solely for the member's or trading participant's
own account unless such member or other participant is registered with
the Commission as a futures commission merchant or such member or other
participant is registered with the Commission as a commodity pool
operator or commodity trading advisor, or is exempt from such
registration pursuant to Sec. 4.13 or Sec. 4.14 of this chapter,
provided that a futures commission merchant or a firm exempt from such
registration pursuant to Sec. 30.10 of this chapter acts as clearing
firm and guarantees, without limitation, all such trades of the
commodity pool operator or commodity trading advisor effected through
submission of orders on the trading system.
(5) Submission to Commission Jurisdiction:
(i) Prior to operating pursuant to registration under this part and
on a continuing basis thereafter, a registered foreign board of trade
will require that each current and prospective member or other
participant that is granted direct access to the foreign board of
trade's trading system and
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that is not registered with the Commission as a futures commission
merchant, a commodity trading advisor or a commodity pool operator, file
with the foreign board of trade a written representation, executed by a
person with the authority to bind the member or other participant,
stating that as long as the member or other participant is authorized to
enter orders directly into the trade matching system of the foreign
board of trade, the member or other participant agrees to and submits to
the jurisdiction of the Commission with respect to activities conducted
pursuant to the registration.
(ii) The foreign board of trade and its clearing organization will
file with the Commission a valid and binding appointment of an agent for
service of process in the United States pursuant to which the agent is
authorized to accept delivery and service of communications, as defined
in Sec. 48.2(e) issued by or on behalf of the Commission, the United
States Department of Justice, or the National Futures Association.
(iii) The foreign board of trade, clearing organization, and each
current and prospective member or other participant that is granted
direct access to the foreign board of trade's trading system and that is
not registered with the Commission as a futures commission merchant, a
commodity trading advisor, or a commodity pool operator will maintain
with the foreign board of trade written representations, executed by
persons with the authority to bind the entity making them, stating that
as long as the foreign board of trade is registered under this
regulation, the foreign board of trade, the clearing organization or
member of either or other participant granted direct access pursuant to
this regulation will provide, upon the request of the Commission, the
United States Department of Justice and, if appropriate, the National
Futures Association, prompt access to the entity's, member's, or other
participant's original books and records or, at the election of the
requesting agency, a copy of specified information containing such books
and records, as well as access to the premises where the trading system
is available in the United States.
(iv) The foreign board of trade will maintain all representations
required pursuant to Sec. 48.8(a)(5) as part of its books and records
and make them available to the Commission upon request.
(6) Information Sharing:
(i) Information-sharing arrangements satisfactory to the Commission,
including but not limited to those set forth in Sec. 48.7(g), are in
effect between the Commission and the regulatory authorities that govern
the activities of both the foreign board of trade and the clearing
organization.
(ii) The Commission is, in fact, able to obtain sufficient
information regarding the foreign board of trade, the clearing
organization, their respective members and participants and the
activities related to the foreign board of trade's registration.
(iii) The foreign board of trade and its clearing organization, as
applicable, will provide directly to the Commission any information
necessary to evaluate the continued eligibility and appropriateness of
the foreign board of trade for registration, the capability and
determination to enforce compliance with the requirements and conditions
of the registration, or to enable the Commission to carry out its duties
under the Act and Commission regulations and to provide adequate
protection to the public or United States registered entities.
(iv) In the event that the foreign board of trade and the clearing
organization are separate entities, the foreign board of trade will
require the clearing organization to enter into a written agreement in
which the clearing organization is contractually obligated to promptly
provide any and all information and documentation that may be required
of the clearing organization under this regulation and such agreement
shall be made available to the Commission, upon request.
(7) Monitoring for Compliance: The foreign board of trade and the
clearing organization will employ reasonable procedures for monitoring
and enforcing compliance with the specified conditions of its
registration.
(8) On-Site Visits: The foreign board of trade and the clearing
organization will permit and will cooperate with
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Commission staff with respect to on-site visits for the purpose of
overseeing ongoing compliance of the foreign board of trade and the
clearing organization with registration requirements and conditions of
registration.
(9) Conditions Applicable to Swap Trading:
(i) The foreign board of trade will ensure that all transaction data
relating to each swap transaction, including price and volume, are
reported as soon as technologically practicable after execution of the
swap transaction to a swap data repository that is either registered
with the Commission or has an information sharing arrangement with the
Commission.
(ii) The foreign board of trade will agree to coordinate with the
Commission with respect to arrangements established to address cross
market oversight issues involving swap trading, including surveillance,
emergency actions and the monitoring of trading.
(b) Other Continuing Obligations.
(1) Registered foreign boards of trade and their clearing
organizations will continue to comply with the following obligations on
an ongoing basis:
(i) The foreign board of trade will maintain the following updated
information and submit such information to the Commission on at least a
quarterly basis, not later than 30 days following the end of the
quarter, and at any time promptly upon the request of a Commission
representative, computed based upon separating buy sides and sell sides,
in a format as determined by the Commission:
(A) For each contract available to be traded through the foreign
board of trade's trading system;
(1) The total trade volume originating from electronic trading
devices providing direct access;
(2) The total trade volume for such contracts traded through the
trading system worldwide;
(3) The total trade volume for such contracts traded on the foreign
board of trade generally; and
(B) A listing of the names, National Futures Association
identification numbers (if applicable), and main business addresses in
the United States of all members and other participants that have direct
access.
(ii) The foreign board of trade will promptly provide to the
Commission written notice of the following:
(A) Any material change to the information provided in the foreign
board of trade's registration application.
(B) Any material change in the rules of the foreign board of trade
or clearing organization or the laws, rules, or regulations in the home
country jurisdictions of the foreign board of trade or clearing
organization relevant to futures, option or swap contracts made
available by direct access.
(C) Any matter known to the foreign board of trade, the clearing
organization or its representatives that, in the judgment of the foreign
board of trade or clearing organization, may affect the financial or
operational viability of the foreign board of trade or its clearing
organization with respect to contracts traded by direct access,
including, but not limited to, any significant system failure or
interruption.
(D) Any default, insolvency, or bankruptcy of any foreign board of
trade member or other participant that is or should be known to the
foreign board of trade or its representatives or the clearing
organization or its representatives that may have a material, adverse
impact upon the condition of the foreign board of trade as it relates to
trading by direct access, its clearing organization or upon any United
States customer or firm or any default, insolvency or bankruptcy of any
member of the foreign board of trade's clearing organization.
(E) Any violation of any specified conditions of the foreign board
of trade's registration or failure to satisfy the requirements for
registration under this part that is known or should be known by the
foreign board of trade, the clearing organization or any of their
respective members or participants.
(F) Any disciplinary action by the foreign board of trade or its
clearing organization, or any regulatory authority that governs their
respective activities, taken against any of their respective members or
participants with respect to any contract available to be traded by
direct access that involves any market manipulation,
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abuse, fraud, deceit, or conversion or that results in suspension or
expulsion.
(iii) The foreign board of trade and the clearing organization, or
their respective regulatory authorities, as applicable, will provide the
following to the Commission annually as of June 30 and not later than
July 31.
(A) A certification from the foreign board of trade's regulatory
authority confirming that the foreign board of trade retains its
authorization, licensure or registration, as applicable, as a regulated
market and/or exchange under the authorization, licensing, recognition
or other registration methodology used by the foreign board of trade's
regulatory authority and that the foreign board of trade is in continued
good standing.
(B) If the clearing organization is not a derivatives clearing
organization registered with the Commission, a certification from the
clearing organization's regulatory authority confirming that the
clearing organization retains its authorization, licensure or
registration, as applicable, as a clearing organization under the
authorization, licensing or other registration methodology used by the
clearing organization's regulatory authority and is in continued good
standing.
(C) If the clearing organization is not a derivatives clearing
organization registered with the Commission, a recertification of the
clearing organization's observance of the Recommendations for Central
Counterparties.
(D) A certification that affiliates, as defined in Sec. 48.2(k),
continue to be required to comply with the rules of the foreign board of
trade and clearing organization and that the members or other
participants to which they are affiliated remain responsible to the
foreign board of trade for ensuring their affiliates' compliance.
(E) A description of any material changes regarding the foreign
board of trade or clearing organization that have not been previously
disclosed, in writing, to the Commission, or a certification that no
such material changes have occurred.
(F) A description of any significant disciplinary or enforcement
actions that have been instituted by or against the foreign board of
trade or the clearing organization or the senior officers of either
during the prior year.
(G) A written description of any material changes to the regulatory
regime to which the foreign board of trade or the clearing organization
are subject that have not been previously disclosed, in writing, to the
Commission, or a certification that no material changes have occurred.
(2) The above-referenced annual reports must be signed by an officer
of the foreign board of trade or the clearing organization who maintains
the authority to bind the foreign board of trade or clearing
organization, as applicable, and must be based on the officer's personal
knowledge.
(c) Additional Specified Conditions for Foreign Boards of Trade with
Linked Contacts. If a registered foreign board of trade grants members
or other participants direct access and makes available for trading a
linked contract, the following additional conditions apply:
(1) Statutory Conditions.
(i) The foreign board of trade will make public daily trading
information regarding the linked contract that is comparable to the
daily trading information published by the registered entity for the
contract to which the foreign board of trade's contract is linked, and
(ii) The foreign board of trade (or its regulatory authority) will:
(A) Adopt position limits (including related hedge exemption
provisions) applicable to all market participants for the linked
contract that are comparable to the position limits (including related
hedge exemption provisions) adopted by the registered entity for the
contract to which it is linked;
(B) Have the authority to require or direct any market participant
to limit, reduce, or liquidate any position the foreign board of trade
(or its regulatory authority) determines to be necessary to prevent or
reduce the threat of price manipulation, excessive speculation as
described in section 4a of the Act, price distortion, or disruption of
delivery on the cash settlement process;
(C) Agree to promptly notify the Commission, with regard to the
linked contract, of any change regarding--
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(1) The information that the foreign board of trade will make
publicly available,
(2) The position limits that foreign board of trade or its
regulatory authority will adopt and enforce,
(3) The position reductions required to prevent manipulation,
excessive speculation as described in section 4a of the Act, price
distortion, or disruption of delivery or the cash settlement process,
and
(4) Any other area of interest expressed by the Commission to the
foreign board of trade or its regulatory authority;
(D) Provide information to the Commission regarding large trader
positions in the linked contract that is comparable to the large trader
position information collected by the Commission for the contract to
which it is linked; and
(E) Provide the Commission such information as is necessary to
publish reports on aggregate trader positions for the linked contract
that are comparable to such reports on aggregate trader positions for
the contract to which it is linked.
(2) Other Conditions on Linked Contracts.
(i) The foreign board of trade will inform the Commission in a
quarterly report of any member that had positions in a linked contract
above the applicable foreign board of trade position limit, whether a
hedge exemption was granted, and if not, whether a disciplinary action
was taken.
(ii) The foreign board of trade will provide the Commission, either
directly or through its agent, with trade execution and audit trail data
for the Commission's Trade Surveillance System on a trade-date plus one
basis and in a form, content and manner acceptable to the Commission for
all linked contracts.
(iii) The foreign board of trade will provide to the Commission, at
least one day prior to the effective date thereof, except in the event
of an emergency market situation, copies of, or hyperlinks to, all
rules, rule amendments, circulars and other notices published by the
foreign board of trade with respect to all linked contracts.
(iv) The foreign board of trade will provide to the Commission
copies of all reports of disciplinary action involving the foreign board
of trade's linked contracts upon closure of the action. Such reports
should include the reason the action was undertaken, the results of the
investigation that led to the disciplinary action, and any sanctions
imposed.
(v) In the event that the Commission, pursuant to its emergency
powers authority, directs that the registered entity which lists the
contract to which the foreign board of trade's contract is linked to
take emergency action with respect to a linked contract (for example, to
cease trading in the contract), the foreign board of trade, subject to
information-sharing arrangements between the Commission and its
regulatory authority, will promptly take similar action with respect to
the its linked contract.
Sec. 48.9 Revocation of registration.
(a) Failure to Satisfy Registration Requirements or Conditions:
(1) If the Commission determines that a registered foreign board of
trade or the clearing organization has failed to satisfy any
registration requirements or conditions for registration, the Commission
shall notify the foreign board of trade of such determination, including
the particular requirements or conditions that are not being satisfied,
and shall afford the foreign board of trade or clearing organization an
opportunity to make appropriate changes to bring it into compliance.
(2) If, not later than 30 days after receiving a notification under
paragraph (a)(1) of this section, the foreign board of trade or clearing
organization fails to make changes that, in the opinion of the
Commission, are necessary to comply with the registration requirements
or conditions of registration, the Commission may revoke the foreign
board of trade's registration, after appropriate notice and an
opportunity to respond, by issuing an Order Revoking Registration which
sets forth the reasons therefor.
(3) A foreign board of trade whose registration has been revoked for
failure to satisfy a registration requirement or condition of
registration may
[[Page 137]]
apply for re-registration 360 days after the issuance of the Order
Revoking Registration if the deficiency causing the revocation has been
cured or relevant facts and circumstances have changed.
(b) Other Events that Could Result in Revocation. Notwithstanding
Sec. 48.9(a), revocation under these circumstances will be handled by
the Commission as relevant facts or circumstances warrant.
(1) The Commission may revoke a foreign board of trade's
registration, after appropriate notice and an opportunity to respond, if
the Commission determines that a representation made in the foreign
board of trade's application for registration is found to be untrue or
materially misleading or if the foreign board of trade failed to include
information in the application that would have been material to the
Commission's determination as to whether to issue an Order of
Registration.
(2) The Commission may revoke a foreign board of trade's
registration, after appropriate notice and an opportunity to respond, if
there is a material change in the regulatory regime applicable to the
foreign board of trade or clearing organization such that the regulatory
regime no longer satisfies any registration requirement or condition for
registration applicable to the regulatory regime.
(3) The Commission may revoke a foreign board of trade's
registration in the event of an emergency or in a circumstance where the
Commission determines that revocation would be necessary or appropriate
in the public interest. Following revocation, the Commission will
provide notice and an opportunity to respond.
(4) The Commission may revoke a foreign board of trade's
registration in the event the foreign board of trade or the clearing
organization is no longer authorized, licensed or registered, as
applicable, as a regulated market and/or exchange or clearing
organization or ceases to operate as a foreign board of trade or
clearing organization, subject to notice and an opportunity to respond.
(c) Upon request by the Commission, a registered foreign board of
trade must file with the Commission a written demonstration, containing
such supporting data, information, and documents, in such form and
manner and within such timeframe as the Commission may specify, that the
foreign board of trade or clearing organization is in compliance with
the registration requirements and/or conditions for registration.
Sec. 48.10 Additional contracts.
(a) Generally. A registered foreign board of trade that wishes to
make an additional futures, option or swap contract available for
trading by identified members or other participants located in the
United States with direct access to its electronic trading and order
matching system must submit a written request prior to offering the
contracts from within the United States. Such a written request must
include the terms and conditions of the additional futures, option or
swap contracts and a certification that the additional contracts meet
the requirements of Sec. 48.8(c), if applicable, and that the foreign
board of trade and the clearing organization continue to satisfy the
requirements and conditions of registration. The foreign board of trade
can make available for trading by direct access the additional contracts
ten business days after the date of receipt by the Commission of the
written request, unless the Commission notifies the foreign board of
trade that additional time is needed to complete its review of policy or
other issues pertinent to the additional contracts. A registered foreign
board of trade may list for trading by direct access an additional
futures or option contract on a non-narrow-based security index pursuant
to the Commission certification procedures set forth in Sec. 30.13(d)
and appendix D to part 30 of this chapter.
(b) Option contracts on previously approved futures contracts. (1)
If the option is on a futures contract that is not a linked contract,
the option contract may be made available for trading by direct access
by filing with the Commission no later than the business day preceding
the initial listing of the contract:
(i) A copy of the terms and conditions of the additional contract
and
[[Page 138]]
(ii) A certification that the foreign board of trade and the
clearing organization continue to satisfy the conditions of its
registration.
(2) If the option is on a futures contract that is a linked
contract, the option contract may be made available for trading by
direct access by filing with the Commission no later than the business
day preceding the initial listing of the contract:
(i) A copy of the terms and conditions of the additional contract;
and
(ii) A certification that the foreign board of trade and the
clearing organization continue to satisfy the conditions of its
registration, including the conditions specifically applicable to linked
contracts set forth in Sec. 48.8(c).
(3) If the option is on a non-narrow-based security index futures
contract which may be offered or sold in the United States pursuant to a
Commission certification issued pursuant to Sec. 30.13 of this chapter,
the option contract may be listed for trading by direct access without
further action by either the registered foreign board of trade or the
Commission.
Sec. Appendix to Part 48--Form FBOT
COMMODITY FUTURES TRADING COMMISSION
FORM FBOT
FOREIGN BOARD OF TRADE APPLICATION FOR REGISTRATION (IN ORDER TO PERMIT
DIRECT ACCESS TO MEMBERS AND OTHER PARTICIPANTS)
APPLICATION INSTRUCTIONS
DEFINITIONS
1. Unless the context requires otherwise, all terms used in this
application have the same meaning as in the Commodity Exchange Act, as
amended (CEA or Act),\1\ and in the regulations of the Commodity Futures
Trading Commission (Commission or CFTC).\2\
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\1\ 7 U.S.C. 1 et seq.
\2\ 17 CFR chapter I.
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2. For the purposes of this Form FBOT, the term ``applicant'' refers
to the foreign board of trade applying for registration pursuant to CEA
section 4(b) and part 48 of the Commission's regulations. The term
``clearing organization'' refers to the clearing organization that will
be clearing trades executed on the trading system of such foreign board
of trade.
GENERAL INSTRUCTIONS
1. A Form FBOT (including exhibits) shall be completed by any
foreign board of trade applying for registration with the Commission
pursuant to CEA section 4(b) and part 48 of the Commission's
regulations.
2. Form FBOT (including exhibits and any supplement thereto)
(collectively, the ``application'' or ``application for registration'')
must be filed electronically with the Secretary of the Commission at
[email protected]. Applicants may prepare their own Form FBOT,
but must follow the format prescribed herein.
3. The name of any individual listed in Form FBOT shall be provided
in full (Last Name, First Name and Middle Name or Initial).
4. Form FBOT must be signed by the Chief Executive Officer (or the
functional equivalent) of the foreign board of trade who must possess
the authority to bind the foreign board of trade.
5. If this Form FBOT is being filed as a new application for
registration, all applicable items on the Form FBOT must be answered in
full. Non-applicable items should be indicated by marking ``none'' or
``N/A.''
6. Submission of a complete Form FBOT (including all information,
documentation and exhibits requested therein, and any required
supplement) is mandatory and must be received by the Commission before
it will begin to process a foreign board of trade's application for
registration. The information provided with a Form FBOT (including
exhibits and any supplement thereto) will be used to determine whether
the Commission should approve or deny registration to an applicant.
Pursuant to its regulations, the Commission may determine that
information and/or documentation in addition to that requested in the
Form FBOT is required from the applicant in order to process the
application for registration or to determine whether registration is
appropriate.
7. Pursuant to Commission regulations, an applicant or its clearing
organization must identify with particularity any information in the
application (including, but not limited to, any information contained in
this Form FBOT) that will be the subject of a request for confidential
treatment and must provide support for any request for confidential
treatment pursuant to the procedures set forth in Commission regulation
145.9.\3\ Except in cases where confidential treatment is granted by the
Commission pursuant to the Freedom of Information Act and Commission
regulations, information supplied in the Form FBOT (including exhibits
and any supplement thereto) will be included routinely in the public
files of the Commission and
[[Page 139]]
will be available for inspection and comment by any interested person.
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\3\ 17 CFR 145.9.
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8. A Form FBOT that is not prepared and executed in compliance with
applicable requirements and instructions may be returned as not
acceptable for filing.\4\ Acceptance of a Form FBOT by the Commission,
however, shall not constitute a finding that the Form FBOT has been
filed as required or that the information submitted is verified to be
true, current, or complete. The Commission may revoke a foreign board of
trade's registration, after appropriate notice and an opportunity to
respond, if the Commission determines that a representation made in this
Form FBOT is found to be untrue or materially misleading or if the
foreign board of trade failed to include information in this Form FBOT
that would have been material to the Commission's determination as to
whether to issue an Order of Registration.
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\4\ Applicants and their clearing organizations are encouraged to
correspond with the Commission's Division of Market Oversight regarding
any content, procedural, or formatting questions encountered in
connection with the preparation of a Form FBOT, or any exhibits or
supplements thereto, prior to formally submitting those documents to the
Commission. When appropriate, potential applicants and clearing
organizations, as applicable, may provide a complete draft Form FBOT
(including exhibits and any required supplement) to the Division of
Market Oversight for early review to minimize the risk of having a
submission returned or otherwise denied as not acceptable for filing.
Review of draft submissions by any division of the Commission and any
comments provided by a division of the Commission are for consultation
purposes only and do not bind the Commission. To obtain instructions for
submitting drafts, please contact the Division of Market Oversight.
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9. In addition to this Form FBOT, the clearing organization
associated with the foreign board of trade must complete and submit
Supplement S-1 to this Form FBOT in accordance with the instructions
thereto. To the extent a single document or description is responsive to
more than one request for the same information in either the Form FBOT
or the Supplement S-1, the document or description need only be provided
once and may be cross-referenced elsewhere.
10. All documents submitted as part of this Form FBOT (or exhibits
thereto) must be written in English or accompanied by a certified
English translation.
UPDATING INFORMATION ON THE FORM FBOT
Pursuant to the Commission's regulations, if any information or
documentation contained in this Form FBOT (including exhibits or any
supplement or amendment thereto) is or becomes inaccurate for any reason
prior to the issuance of an Order of Registration, an amendment
correcting such information must be filed promptly with the Commission.
A registered foreign board of trade also may submit an amendment to this
Form FBOT to correct information that has become inaccurate subsequent
to the receipt of an Order of Registration.
[[Page 140]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 141]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 142]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[[Page 143]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
INSTRUCTIONS FOR EXHIBITS TO FORM FBOT
1. The following exhibits must be filed with the Commission by any
foreign board of trade (1) seeking registration for purposes of granting
direct access to its members and other participants or (2) amending a
previously submitted application, pursuant to
[[Page 144]]
CEA section 4(b) and part 48 of the Commission's regulations. The
information and documentation requested relates to the activities of the
foreign board of trade, unless otherwise stated.
2. The exhibits should be filed in accordance with the General
Instructions to this Form FBOT and labeled as specified herein. If any
exhibit is not applicable, please specify the exhibit letter and number
and indicate by marking ``none'' or ``N/A.'' If any exhibit may be
satisfied by documentation or information submitted in a different
exhibit, the documentation or information need not be submitted more
than once--please use internal cross-references where appropriate.
GENERAL REQUIREMENTS
A foreign board of trade applying for registration must submit
sufficient information and documentation to successfully demonstrate to
Commission staff that the foreign board of trade and its clearing
organization satisfy all of the requirements of Commission regulation
48.7. With respect to its review of the foreign board of trade, the
Commission anticipates that such information and documentation would
necessarily include, but not be limited to, the following:
EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION
Attach, as Exhibit A-1, a description of the following for the
foreign board of trade: Location, history, size, ownership and corporate
structure, governance and committee structure, current or anticipated
presence of offices or staff in the United States, and anticipated
volume of business emanating from members and other participants that
will be provided direct access to the foreign board of trade's trading
system.
Attach, as Exhibit A-2, the following:
Articles of association, constitution, or other similar
organizational documents.
Attach, as Exhibit A-3, the following:
(1) Membership and trading participant agreements.
(2) Clearing agreements.
Attach, as Exhibit A-4, the following:
Terms and conditions of contracts to be available through direct
access (as specified in Exhibit E).
Attach, as Exhibit A-5, the following:
The national statutes, laws and regulations governing the activities
of the foreign board of trade and its respective participants.
Attach, as Exhibit A-6, the following:
The current rules, regulations, guidelines and bylaws of the foreign
board of trade.
Attach, as Exhibit A-7, the following:
Evidence of the authorization, licensure or registration of the
foreign board of trade pursuant to the regulatory regime in its home
country jurisdiction and a representation by its regulator(s) that it is
in good regulatory standing in the capacity in which it is authorized,
licensed or registered.
Attach, as Exhibit A-8, the following document:
A summary of any disciplinary or enforcement actions or proceedings
that have been brought against the foreign board of trade, or any of the
senior officers thereof, in the past five years and the resolution of
those actions or proceedings.
Attach, as Exhibit A-9, the following document:
An undertaking by the chief executive officer(s) (or functional
equivalent[s]) of the foreign board of trade to notify Commission staff
promptly if any of the representations made in connection with or
related to the foreign board of trade's application for registration
cease to be true or correct, or become incomplete or misleading.
EXHIBIT B--MEMBERSHIP CRITERIA
Attach, as Exhibit B, the following, separately labeling each
description:
(1) A description of the categories of membership and participation
in the foreign board of trade and the access and trading privileges
provided by the foreign board of trade. The description should include
any restrictions applicable to members and other participants to which
the foreign board of trade intends to grant direct access to its trading
system.
(2) A description of all requirements for each category of
membership and participation on the trading system and the manner in
which members and other participants are required to demonstrate their
compliance with these requirements. The description should include, but
not be limited to, the following:
(i) Professional Qualification. A description of the specific
professional requirements, qualifications, and/or competencies required
of members or other participants and/or their staff and a description of
the process by which the foreign board of trade confirms compliance with
such requirements.
(ii) Authorization, Licensure and Registration. A description of any
regulatory and self-regulatory authorization, licensure or registration
requirements that the foreign board of trade imposes upon, or enforces
against, its members and other participants including, but not limited
to any authorization, licensure or registration requirements imposed by
the regulatory regime/authority in the home country jurisdiction(s) of
the foreign board of trade. Please also include a description of the
process by which the foreign board of trade confirms compliance with
such requirements.
(iii) Financial Integrity. A description of the following:
[[Page 145]]
(A) The financial resource requirements, standards, guides or
thresholds required of members and other participants.
(B) The manner in which the foreign board of trade evaluates the
financial resources/holdings of its members or participants.
(C) The process by which applicants demonstrate compliance with
financial requirements for membership or participation including, as
applicable:
(i) Working capital and collateral requirements, and
(ii) Risk management mechanisms for members allowing customers to
place orders.
(iv) Fit and Proper Standards. A description of how the foreign
board of trade ensures that potential members/other participants meet
fit and proper standards.
EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP
Attach, as Exhibit C, the following:
(1) A description of the requirements applicable to membership on
the governing board and significant committees of the foreign board of
trade.
(2) A description of the process by which the foreign board of trade
ensures that potential governing board and committee members/other
participants meet these standards.
(3) A description of the provisions to minimize and resolve
conflicts of interest with respect to membership on the governing board
and significant committees of the foreign board of trade.
(4) A description of the rules with respect to the disclosure of
material non-public information obtained as a result of a member's or
other participant's performance on the governing board or significant
committee.
EXHIBIT D--THE AUTOMATED TRADING SYSTEM
Attach, as Exhibit D-1, a description of (or where appropriate,
documentation addressing) the following, separately labeling each
description:
(1) The order matching/trade execution system, including a complete
description of all permitted ways in which members or other participants
(or their customers) may connect to the trade matching/execution system
and the related requirements (for example, authorization agreements).
(2) The architecture of the systems, including hardware and
distribution network, as well as any pre- and post-trade risk-management
controls that are made available to system users.
(3) The security features of the systems.
(4) The length of time such systems have been operating.
(5) Any significant system failures or interruptions.
(6) The nature of any technical review of the order matching/trade
execution system performed by the foreign board of trade, the home
country regulator, or a third party.
(7) Trading hours.
(8) Types and duration of orders accepted.
(9) Information that must be included on orders.
(10) Trade confirmation and error trade procedures.
(11) Anonymity of participants.
(12) Trading system connectivity with clearing system.
(13) Response time.
(14) Ability to determine depth of market.
(15) Market continuity provisions.
(16) Reporting and recordkeeping requirements.
Attach, as Exhibit D-2, a description of the manner in which the
foreign board of trade assures the following with respect to the trading
system, separately labeling each description:
(1) Algorithm. The trade matching algorithm matches trades fairly
and timely.
(2) IOSCO Principles. The trading system complies with the
Principles for the Oversight of Screen-Based Trading Systems for
Derivative Products developed by the Technical Committee of the
International Organization of Securities Commissions (IOSCO Principles).
Provide a copy of any independent certification received or self-
certification performed and identify any system deficiencies with
respect to the IOSCO Principles.
(3) Audit Trail.
(i) The audit trail timely captures all relevant data, including
changes to orders.
(ii) Audit trail data is securely maintained and available for an
adequate time period.
(4) Public Data. Adequate and appropriate trade data is available to
users and the public.
(5) Reliability. The trading system has demonstrated reliability.
(6) Secure Access. Access to the trading system is secure and
protected.
(7) Emergency Provisions. There are adequate provisions for
emergency operations and disaster recovery.
(8) Data Loss Prevention. Trading data is backed up to prevent loss
of data.
(9) Contracts Available. Mechanisms are available to ensure that
only those futures, option or swap contracts that have been identified
to the Commission as part of the application or permitted to be made
available for trading by direct access pursuant to the procedures set
forth in Sec. 48.10 are made available for trading by direct access.
(10) Predominance of the Centralized Market. Mechanisms are
available that ensure a competitive, open, and efficient market and
mechanism for executing transactions.
[[Page 146]]
EXHIBIT E--THE TERMS AND CONDITIONS OF CONTRACTS PROPOSED TO BE MADE
AVAILABLE IN THE UNITED STATES
Attach, as Exhibit E-1, a description of the terms and conditions of
futures, option or swap contracts intended to be made available for
direct access. With respect to each contract, indicate whether the
contract is regulated or otherwise treated as a futures, option or swap
contract in the regulatory regime(s) of the foreign board of trade's
home country.
As Exhibit E-2, demonstrate that the contracts are not prohibited
from being traded by United States persons, i.e., the contracts are not
prohibited security futures or single stock contracts or narrow-based
index contracts. For non-narrow based stock index futures contracts,
demonstrate that the contracts have received Commission certification
pursuant to the procedures set forth in Sec. 30.13 and appendix D to
part 30 of this chapter.
As Exhibit E-3, demonstrate that the contracts are required to be
cleared.
As Exhibit E-4, identify any contracts that are linked to a contract
listed for trading on a United States-registered entity, as defined in
section 1a(40) of the Act. A linked contract is a contract that settles
against any price (including the daily or final settlement price) of one
or more contracts listed for trading on such registered entity.
As Exhibit E-5, identify any contracts that have any other
relationship with a contract listed for trading on a registered entity,
i.e., both the foreign board of trade's and the registered entity's
contract settle to the price of the same third party-constructed index.
As Exhibit E-6, demonstrate that the contracts are not readily
susceptible to manipulation. In addition, for each contract to be
listed, describe each investigation, action, proceeding or case
involving manipulation and involving such contract in the three years
preceding the application date, whether initiated by the foreign board
of trade, a regulatory or self-regulatory authority or agency or other
government or prosecutorial agency. For each such action, proceeding or
case, describe the alleged manipulative activity and the current status
or resolution thereof.
EXHIBIT F--THE REGULATORY REGIME GOVERNING THE FOREIGN BOARD OF TRADE IN
ITS HOME COUNTRY \5\ OR COUNTRIES
With respect to each relevant regulatory regime or authority
governing the foreign board of trade, attach, as Exhibit F, the
following (including, where appropriate, an indication as to whether the
applicable regulatory regime is dependent on the home country's
classification of the product being traded on the foreign board of trade
as a future, option, swap, or otherwise, and a description of any
difference between the applicable regulatory regime for each product
classification type):
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\5\ Where multiple foreign boards of trade subject to the same
regulatory regime/authority and are similarly regulated are applying for
registration at the same time, a single Exhibit E-1 may be submitted as
part of the application for all such foreign boards of trade either by
one of the applicant foreign boards of trade or by the regulatory
regime/authority with responsibility to oversee each of the multiple
foreign boards of trade applying for registration. Where an FBOT
applying for registration is located in the same jurisdiction and
subject to the same regulatory regime as a registered FBOT, the FBOT
applying for registration may include by reference, as part of its
application, information about the regulatory regime that is posted on
the Commission's Web site. The FBOT applying for registration must
certify that the information thus included in the application is
directly applicable to it and remains current and valid.
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(1) A description of the regulatory regime/authority's structure,
resources, staff, and scope of authority; the regulatory regime/
authority's authorizing statutes, including the source of its authority
to supervise the foreign board of trade; the rules and policy statements
issued by the regulator with respect to the authorization and continuing
oversight of markets, electronic trading systems, and clearing
organizations; and the financial protections afforded customer funds.
(2) A description of and, where applicable, copies of the laws,
rules, regulations and policies applicable to: \6\
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\6\ To the extent that any such laws, rules, regulations or policies
were provided as part of Exhibit A-5, they need not be duplicated. They
may be cross-referenced.
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(i) The authorization, licensure or registration of the foreign
board of trade.
(ii) The regulatory regime/authority's program for the ongoing
supervision and oversight of the foreign board of trade and the
enforcement of its trading rules.
(iii) The financial resource requirements applicable to the
authorization, licensure or registration of the foreign board of trade
and the continued operations thereof.
(iv) The extent to which the IOSCO Principles are used or applied by
the regulatory regime/authority in its supervision and oversight of the
foreign board of trade or are incorporated into its rules and
regulations and the extent to which the regulatory regime/authority
reviews the applicable trading systems for compliance therewith.
[[Page 147]]
(v) The extent to which the regulatory regime/authority reviews and/
or approves the trading rules of the foreign board of trade prior to
their implementation.
(vi) The extent to which the regulatory regime/authority reviews
and/or approves futures, option or swap contracts prior to their being
listed for trading.
(vii) The regulatory regime/authority's approach to the detection
and deterrence of abusive trading practices, market manipulation, and
other unfair trading practices or disruptions of the market.
(3) A description of the laws, rules, regulations and policies that
govern the authorization and ongoing supervision and oversight of market
intermediaries who may deal with members and other participants located
in the United States participants, including:
(i) Recordkeeping requirements.
(ii) The protection of customer funds.
(iii) Procedures for dealing with the failure of a market
intermediary in order to minimize damage and loss to investors and to
contain systemic risk.
(4) A description of the regulatory regime/authority's inspection,
investigation and surveillance powers; and the program pursuant to which
the regulatory regime/authority uses those powers to inspect,
investigate, and enforce rules applicable to the foreign board of trade.
(5) For both the foreign board of trade and the clearing
organization (unless addressed in Supplement S-1), a report confirming
that the foreign board of trade and clearing organization are in
regulatory good standing, which report should be prepared subsequent to
consulting with the regulatory regime/authority governing the activities
of the foreign board of trade and any associated clearing organization.
The report should include:
(i) Confirmation of regulatory status (including proper
authorization, licensure and registration) of the foreign board of trade
and clearing organization.
(ii) Any recent oversight reports generated by the regulatory
regime/authority that are, in the judgment of the regulatory regime/
authority, relevant to the foreign board of trade's status as a
registered foreign board of trade.
(iii) Disclosure of any significant regulatory concerns, inquiries
or investigations by the regulatory regime/authority, including any
concerns, inquiries or investigations with regard to the foreign board
of trade's arrangements to monitor trading by members or other
participants located in the United States or the adequacy of the risk
management controls of the trading or of the clearing system.
(iv) A description of any investigations (formal or informal) or
disciplinary actions initiated by the regulatory regime/authority or any
other self-regulatory, regulatory or governmental entity against the
foreign board of trade, the clearing organization or any of their
respective senior officers during the past year.
(6) For both the foreign board of trade and the clearing
organization (unless addressed in Supplement S-1), a confirmation that
the regulatory regime/authority governing the activities of the foreign
board of trade and the clearing organization agree to cooperate with a
Commission staff visit subsequent to submission of the application on an
``as needed basis,'' the objectives of which will be to, among other
things, familiarize Commission staff with supervisory staff of the
regulatory regime/authority; discuss the laws, rules and regulations
that formed the basis of the application and any changes thereto;
discuss the cooperation and coordination between the authorities,
including, without limitation, information sharing arrangements; and
discuss issues of concern as they may develop from time to time (for
example, linked contracts or unusual trading that may be of concern to
Commission surveillance staff).
EXHIBIT G--THE RULES OF THE FOREIGN BOARD OF TRADE AND ENFORCEMENT
THEREOF
Attach, as Exhibit G-1, the following:
A description of the foreign board of trade's regulatory or
compliance department, including its size, experience level,
competencies, duties and responsibilities.
Attach, as Exhibit G-2, the following:
A description of the foreign board of trade's trade practice rules,
including but not limited to rules that address the following--
(1) Capacity of the foreign board of trade to detect, investigate,
and sanction persons who violate foreign board of trade rules.
(2) Prohibition of fraud and abuse, as well as abusive trading
practices including, but not limited to, wash sales and trading ahead,
and other market abuses.
(3) A trade surveillance system appropriate to the foreign board of
trade and capable of detecting and investigating potential trade
practice violations.
(4) An audit trail that captures and retains sufficient order and
trade-related data to allow the compliance staff to detect trading and
market abuses and to reconstruct all transactions within a reasonable
period of time.
(5) Appropriate resources to conduct real-time supervision of
trading.
(6) Sufficient compliance staff and resources, including those
outsourced or delegated to third parties, to fulfill regulatory
responsibilities.
(7) Rules that authorize compliance staff to obtain, from market
participants, information and cooperation necessary to conduct effective
rule enforcement and investigations.
[[Page 148]]
(8) Staff investigations and investigation reports demonstrating
that the compliance staff investigates suspected rule violations and
prepares reports of their finding and recommendations.
(9) Rules determining access requirements with respect to the
persons that may trade on the foreign board of trade, and the means by
which they connect to it.
(10) The requirement that market participants submit to the foreign
board of trade's jurisdiction as a condition of access to the market.
Attach, as Exhibit G-3, the following:
A description of the foreign board of trade's disciplinary rules,
including but not limited to rules that address the following--
(1) Disciplinary authority and procedures that empower staff to
recommend and prosecute disciplinary actions for suspected rule
violations and that provide the authority to fine, suspend, or expel any
market participant pursuant to fair and clear standards.
(2) The issuance of warning letters and/or summary fines for
specified rule violations.
(3) The review of investigation reports by a disciplinary panel or
other authority for issuance of charges or instructions to investigate
further, or findings that an insufficient basis exists to issue charges.
(4) Disciplinary committees of the foreign board of trade that take
disciplinary action via formal disciplinary processes.
(5) Whether and how the foreign board of trade articulates its
rationale for disciplinary decisions.
(6) The sanctions for particular violations and a discussion of the
adequacy of sanctions with respect to the violations committed and their
effectiveness as a deterrent to future violations.
Attach, as Exhibit G-4, the following:
A description of the market surveillance program (and any related
rules), addressing the following--
The dedicated market surveillance department or the delegation or
outsourcing of that function, including a general description of the
staff; the data collected on traders' market activity; data collected to
determine whether prices are responding to supply and demand; data on
the size and ownership of deliverable supplies; a description of the
manner in which the foreign board of trade detects and deters market
manipulation; for cash-settled contracts, methods of monitoring the
settlement price or value; and any foreign board of trade position
limit, position management, large trader or other position reporting
system.
EXHIBIT H--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE
FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT
REGULATORY AUTHORITIES
Attach, as Exhibit H, the following:
(1) A description of the arrangements among the Commission, the
foreign board of trade, the clearing organization, and the relevant
foreign regulatory authorities that govern the sharing of information
regarding the transactions that will be executed pursuant to the foreign
board of trade's registration with the Commission and the clearing and
settlement of those transactions. This description should address or
identify whether and how the foreign board of trade, clearing
organization, and the regulatory authorities governing the activities of
the foreign board of trade and clearing organization agree to provide
directly to the Commission information and documentation requested by
Commission staff that Commission staff determines is needed:
(i) To evaluate the continued eligibility of the foreign board of
trade for registration.
(ii) To enforce compliance with the specified conditions of the
registration.
(iii) To enable the CFTC to carry out its duties under the Act and
Commission regulations and to provide adequate protection to the public
or registered entities.
(iv) To respond to potential market abuse associated with trading by
direct access on the registered foreign board of trade.
(v) To enable Commission staff to effectively accomplish its
surveillance responsibilities with respect to a registered entity where
Commission staff, in its discretion, determines that a contract traded
on a registered foreign board of trade may affect such ability.
(2) A statement as to whether and how the foreign board of trade has
executed the International Information Sharing Memorandum of
Understanding and Agreement.
(3) A statement as to whether the regulatory authorities governing
the activities of the foreign board of trade and clearing organization
are signatories to the International Organization of Securities
Commissions Multilateral Memorandum of Understanding. If not, describe
any substitute information-sharing arrangements that are in place.
(4) A statement as to whether the regulatory authorities governing
the activities of the foreign board of trade and clearing organization
are signatories to the Declaration on Cooperation and Supervision of
International Futures Exchanges and Clearing Organizations. If not, a
statement as to whether and how they have committed to share the types
of information contemplated by the International Information Sharing
[[Page 149]]
Memorandum of Understanding and Agreement with the Commission, whether
pursuant to an existing memorandum of understanding or some other
arrangement.
EXHIBIT I--ADDITIONAL INFORMATION AND DOCUMENTATION
Attach, as Exhibit I, any additional information or documentation
necessary to demonstrate that the requirements for registration
applicable to the foreign board of trade set forth in Commission
regulation 48.7 are satisfied.
Continuation of Appendix to Part 48--Supplement S-1 to Form FBOT
COMMODITY FUTURES TRADING COMMISSION
SUPPLEMENT S-1 to FORM FBOT
CLEARING ORGANIZATION SUPPLEMENT TO FOREIGN BOARD OF TRADE APPLICATION
FOR REGISTRATION
SUPPLEMENT INSTRUCTIONS
DEFINITIONS
1. Unless the context requires otherwise, all terms used in this
supplement have the same meaning as in the Commodity Exchange Act, as
amended (CEA or Act),\7\ and in the regulations of the Commodity Futures
Trading Commission (Commission or CFTC).\8\
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\7\ 7 U.S.C. 1 et seq.
\8\ 17 CFR chapter I.
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2. For the purposes of this Supplement S-1, the term ``applicant''
refers to the foreign board of trade applying for registration pursuant
to CEA section 4(b) and part 48 of the Commission's regulations. The
term ``clearing organization'' refers to the clearing organization that
will be clearing trades executed on the trading system of such foreign
board of trade.
GENERAL INSTRUCTIONS
1. A Supplement S-1 (including exhibits) shall be completed by each
clearing organization that will be clearing trades executed on the
trading system of a foreign board of trade applying for registration
with the Commission pursuant to CEA section 4(b) and part 48 of the
Commission's regulations. Each clearing organization shall submit a
separate Supplement S-1.
2. In the event that the clearing functions of the foreign board of
trade applying for registration will be performed by the foreign board
of trade itself, the foreign board of trade shall complete this
Supplement S-1, but need not duplicate information provided on its Form
FBOT. Specific reference to or incorporation of information or
documentation (including exhibits) on the associated Form FBOT, where
appropriate, is acceptable. To the extent a singular document or
description is responsive to more than one request for information in
this Supplement S-1, the document or description need only be provided
once and may be cross-referenced elsewhere.
3. Supplement S-1, including exhibits, should accompany the foreign
board of trade's Form FBOT and must be filed electronically with the
Secretary of the Commission at [email protected]. Clearing
organizations may prepare their own Supplement S-1, but must follow the
format prescribed herein.
4. The name of any individual listed in Supplement S-1 shall be
provided in full (Last Name, First Name and Middle Name or Initial).
5. Supplement S-1 must be signed by the Chief Executive Officer (or
the functional equivalent) of the clearing organization who must possess
the authority to bind the clearing organization.
6. If this Supplement S-1 is being filed in connection with a new
application for registration, all applicable items must be answered in
full. If any item is not applicable, indicate by marking ``none'' or
``N/A.''
7. Submission of a complete Form FBOT and Supplement S-1 (including
all information, documentation and exhibits requested therein) is
mandatory and must be received by the Commission before it will begin to
process a foreign board of trade's application for registration. The
information provided with a Form FBOT and Supplement S-1 will be used to
determine whether the Commission should approve or deny registration to
an applicant. Pursuant to its regulations, the Commission may determine
that information and/or documentation in addition to that requested in
the Form FBOT and Supplement S-1 is required from the applicant and/or
its clearing organization(s) in order to process the application for
registration or to determine whether registration is appropriate.
8. Pursuant to Commission regulations, an applicant or its clearing
organization must identify with particularity any information in the
application (including, but not limited to, any information contained in
this Supplement S-1), that will be the subject of a request for
confidential treatment and must provide support for any request for
confidential treatment pursuant to the procedures set forth in
Commission regulation 145.9.\9\ Except in cases where confidential
treatment is granted by the Commission, pursuant to the Freedom of
Information Act and Commission regulations, information supplied in the
Supplement S-1 will be included
[[Page 150]]
routinely in the public files of the Commission and will be available
for inspection by any interested person.
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\9\ 17 CFR 145.9.
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9. A Supplement S-1 that is not prepared and executed in compliance
with applicable requirements and instructions may be returned as not
acceptable for filing.\10\ Acceptance of either a Form FBOT or
Supplement S-1 by the Commission, however, shall not constitute a
finding that the either have been filed as required or that the
information submitted is verified to be true, current, or complete. The
Commission may revoke a foreign board of trade's registration, after
appropriate notice and an opportunity to respond, if the Commission
determines that a representation made in this Supplement S-1 is found to
be untrue or materially misleading or if the foreign board of trade and/
or clearing organization failed to include information in this
Supplement S-1 that would have been material to the Commission's
determination as to whether to issue an Order of Registration.
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\10\ Applicants and their clearing organizations are encouraged to
correspond with the Commission's Division of Market Oversight regarding
any content, procedural, or formatting questions encountered in
connection with the preparation of a Form FBOT, Supplement S-1, or
exhibits thereto prior to formally submitting those documents to the
Commission. When appropriate, potential applicants and clearing
organizations, as applicable, may provide a complete draft Form FBOT and
Supplement S-1 to the Division of Market Oversight for early review to
minimize the risk of having a submission returned or otherwise denied as
not acceptable for filing. Review of draft submissions by any division
of the Commission and any comments provided by a division of the
Commission are for consultation purposes only and do not bind the
Commission. To obtain instructions for submitting drafts, please contact
the Division of Market Oversight.
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10. All documents submitted as part of this Supplement S-1 (or
exhibits thereto) must be written in English or accompanied by a
certified English translation.
UPDATING INFORMATION
Pursuant to the Commission's regulations, if any information or
documentation contained in this Supplement S-1 (including exhibits) is
or becomes inaccurate for any reason prior to the issuance of an Order
of Registration, an amendment correcting such information must be filed
promptly with the Commission. A clearing organization also may submit an
amendment to this Supplement S-1 to correct information that has become
inaccurate subsequent to the issuance of an Order of Registration.
[[Page 151]]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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INSTRUCTIONS FOR EXHIBITS TO SUPPLEMENT S-1
1. The following exhibits must be filed with the Commission by the
clearing organization(s) that will be clearing trades executed on the
trading system of a foreign board of trade applying for registration
with the Commission pursuant to CEA section 4(b) and part 48 of
Commission's regulations. The information and documentation requested
relates to the activities of the clearing organization.
[[Page 156]]
2. The exhibits should be filed in accordance with the General
Instructions to this Supplement S-1 and labeled as specified herein. If
any exhibit is not applicable, please specify the exhibit letter and
number and indicate by marking ``none'' or ``N/A.'' If any exhibit may
be satisfied by documentation or information submitted in a different
exhibit, the documentation or information need not be submitted more
than once--please use internal cross-references where appropriate.
GENERAL REQUIREMENTS
A foreign board of trade applying for registration must submit
sufficient information and documentation to successfully demonstrate to
Commission staff that the foreign board of trade and its clearing
organization satisfy all of the requirements of Commission regulation
48.7. With respect to its review of the foreign board of trade's
clearing organization, the Commission anticipates that such information
and documentation would necessarily include, but not be limited to, the
following:
EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION
Attach, as Exhibit A-1, a description of the following for the
clearing organization:
Location, history, size, ownership and corporate structure,
governance and committee structure, and current or anticipated presence
of staff in the United States.
Attach, as Exhibit A-2, the following:
Articles of association, constitution, or other similar
organizational documents.
Attach, as Exhibit A-3, the following:
(1) Membership and participation agreements.
(2) Clearing agreements.
Attach, as Exhibit A-4, the following:
The national statutes, laws and regulations governing the activities
of the clearing organization and its members.
Attach, as Exhibit A-5, the following:
The current rules, regulations, guidelines and bylaws of the
clearing organization.
Attach, as Exhibit A-6, the following:
Evidence of the authorization, licensure or registration of the
clearing organization pursuant to the regulatory regime in its home
country jurisdiction(s) and a representation by its regulator(s) that it
is in good regulatory standing in the capacity in which it is
authorized, licensed or registered.
Attach, as Exhibit A-7, the following document:
A summary of any disciplinary or enforcement actions or proceedings
that have been brought against the clearing organization, or any of the
senior officers thereof, in the past five years and the resolution of
those actions or proceedings.
Attach, as Exhibit A-8, the following document:
An undertaking by the chief executive officer(s) (or functional
equivalent[s]) of the clearing organization to notify Commission staff
promptly if any of the representations made in connection with this
supplement cease to be true or correct, or become incomplete or
misleading.
EXHIBIT B--MEMBERSHIP CRITERIA
Attach, as Exhibit B, the following, separately labeling each
description:
(1) A description of the categories of membership and participation
in the clearing organization and the access and clearing privileges
provided to each by the clearing organization.
(2) A description of all requirements for each category of
membership and participation and the manner in which members and other
participants are required to demonstrate their compliance with these
requirements. The description should include, but not be limited to, the
following:
(i) Professional Qualification. A description of the specific
professional requirements, qualifications, and/or competencies required
of members or other participants and/or their staff and a description of
the process by which the clearing organization confirms compliance with
such requirements.
(ii) Authorization, Licensure and Registration. A description of any
regulatory or self-regulatory authorization, licensure or registration
requirements that the clearing organization imposes upon, or enforces
against, its members and other participants including, but not limited
to any authorization, licensure or registration requirements imposed by
the regulatory regime/authority in the home country jurisdiction(s) of
the clearing organization, and a description of the process by which the
clearing organization confirms compliance with such requirements.
(iii) Financial Integrity. A description of the following:
(A) The financial resource requirements, standards, guides or
thresholds required of members and other participants.
(B) The manner in which the clearing organization evaluates the
financial resources/holdings of its members or other participants.
(C) The process by which applicants for clearing membership or
participation demonstrate compliance with financial requirements
including:
(1) Working capital and collateral requirements, and
(2) Risk management mechanisms.
(iv) Fit and Proper Standards. A description of any other ways in
which the clearing
[[Page 157]]
organization ensures that potential members/other participants meet fit
and proper standards.
EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP
Attach, as Exhibit C, the following:
(1) A description of the requirements applicable to membership on
the governing board and significant committees of the clearing
organization.
(2) A description of how the clearing organization ensures that
potential governing board and committee members meet these standards.
(3) A description of the clearing organization's provisions to
minimize and resolve conflicts of interest with respect to membership on
the governing board and significant committees of the clearing
organization.
(4) A description of the clearing organization's rules with respect
to the disclosure of material non-public information obtained as a
result of a member's performance on the governing board or on a
significant committee.
EXHIBIT D--SETTLEMENT AND CLEARING
Attach, as Exhibit D-1, the following:
A description of the clearing and settlement systems, including, but
not limited to, the manner in which such systems interface with the
foreign board of trade's trading system and its members and other
participants.
Attach, as Exhibit D-2, the following:
A certification, signed by the chief executive offer (or functional
equivalent) of the clearing organization, that the clearing system
observes (1) the current Recommendations for Central Counterparties that
have been issued jointly by the Committee on Payment and Settlement
Systems and the Technical Committee of the International Organization of
Securities Commissions, as updated, revised or otherwise amended, or (2)
successor standards, principles and guidance for central counterparties
or financial market infrastructures adopted jointly by the Committee on
Payment and Settlement Systems or the International Organization of
Securities Commissions (RCCPs).
Attach, as Exhibit D-3, the following:
A detailed description of the manner in which the clearing
organization observes each of the RCCPs or successor standards and
documentation supporting the representations made, including any
relevant rules or written policies or procedures of the clearing
organization. Each RCCP should be addressed separately within the
exhibit.
EXHIBIT E--THE REGULATORY REGIME GOVERNING THE CLEARING ORGANIZATION IN
ITS HOME COUNTRY OR COUNTRIES
With respect to each relevant regulatory regime or authority
governing the clearing organization, attach, as Exhibit E, the
following:
(1) A description of the regulatory regime/authority's structure,
resources, staff and scope of authority.
(2) The regulatory regime/authority's authorizing statutes,
including the source of its authority to supervise the clearing
organization.
(3) A description of and, where applicable, copies of the laws,
rules, regulations and policies applicable to: \11\
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\11\ To the extent that any such laws, rules, regulations or
policies were provided as part of Exhibit A-4, they need not be
duplicated. They may be cross-referenced.
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(i) The authorization, licensure or registration of the clearing
organization.
(ii) The financial resource requirements applicable to the
authorization, licensure or registration of the clearing organization
and the continued operations thereof.
(iii) The regulatory regime/authority's program for the ongoing
supervision and oversight of the clearing organization and the
enforcement of its clearing rules.
(iv) The extent to which the current RCCPs are used or applied by
the regulatory regime/authority in its supervision and oversight of the
clearing organization or are incorporated into its rules and regulations
and the extent to which the regulatory regime/authority reviews the
clearing systems for compliance therewith.
(v) The extent to which the regulatory regime/authority reviews and/
or approves the rules of the clearing organization prior to their
implementation.
(vi) The regulatory regime/authority's inspection, investigation and
surveillance powers; and the program pursuant to which the regulatory
regime/authority uses those powers to inspect, investigate, sanction,
and enforce rules applicable to the clearing organization.
(vii) The financial protection afforded customer funds.
EXHIBIT F--THE RULES OF THE CLEARING ORGANIZATION AND ENFORCEMENT
THEREOF
Attach, as Exhibit F-1, the following:
A description of the clearing organization's regulatory or
compliance department, including its size, experience level,
competencies, duties and responsibilities of staff.
Attach, as Exhibit F-2, the following:
[[Page 158]]
A description of the clearing organization's rules and how they are
enforced, with reference to any rules provided as part of Exhibit A-5
that require the clearing organization to comply with one or more of the
RCCPs.
Attach, as Exhibit F-3, the following, to the extent not included in
Exhibit F-2:
A description of the clearing organization's disciplinary rules,
including but not limited to rules that address the following--
(1) Disciplinary authority and procedures that empower staff to
recommend and prosecute disciplinary actions for suspected rule
violations and that provide the authority to fine, suspend, or expel any
clearing participant pursuant to fair and clear standards.
(2) The issuance of warning letters and/or summary fines for
specified rule violations.
(3) The review of investigation reports by a disciplinary panel or
other authority for issuance of charges or instructions to investigate
further, or findings that an insufficient basis exists to issue charges.
(4) Disciplinary committees of the clearing organization that take
disciplinary action via formal disciplinary processes.
(5) Whether and how the clearing organization articulates its
rationale for disciplinary decisions.
(6) The sanctions for particular violations and a discussion of the
adequacy of sanctions with respect to the violations committed and their
effectiveness as deterrents to future violations.
Attach, as Exhibit F-4, the following, to the extent not provided in
Exhibit F-2:
A demonstration that the clearing organization is authorized by rule
or contractual agreement to obtain, from members and other participants,
any information and cooperation necessary to conduct investigations, to
effectively enforce its rules, and to ensure compliance with the
conditions of registration.
EXHIBIT G--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE
FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT
REGULATORY AUTHORITIES
Attach, as Exhibit G, the following:
(1) A description of the arrangements among the Commission, the
foreign board of trade, the clearing organization, and the relevant
foreign regulatory authorities that govern the sharing of information
regarding the transactions that will be executed pursuant to the foreign
board of trade's registration with the Commission and the clearing and
settlement of those transactions. This description should address or
identify whether and how the foreign board of trade, clearing
organization, and the regulatory authorities governing the activities of
the foreign board of trade and clearing organization agree to provide
directly to the Commission information and documentation requested by
Commission staff that Commission staff determines is needed:
(i) To evaluate the continued eligibility of the foreign board of
trade for registration.
(ii) To enforce compliance with the specified conditions of the
registration.
(iii) To enable the CFTC to carry out its duties under the Act and
Commission regulations and to provide adequate protection to the public
or registered entities.
(iv) To respond to potential market abuse associated with trading by
direct access on the registered foreign board of trade.
(v) To enable Commission staff to effectively accomplish its
surveillance responsibilities with respect to a registered entity where
Commission staff, in its discretion, determines that a contract traded
on a registered foreign board of trade may affect such ability.
(2) A statement as to whether the regulatory authorities governing
the activities of the foreign board of trade and clearing organization
are signatories to the International Organization of Securities
Commissions Multilateral Memorandum of Understanding. If not, describe
any substitute information-sharing arrangements that are in place.
(3) A statement as to whether the regulatory authorities governing
the activities of the foreign board of trade and clearing organization
are signatories to the Declaration on Cooperation and Supervision of
International Futures Exchanges and Clearing Organizations. If not, a
statement as to whether and how they have committed to share the types
of information contemplated by the International Information Sharing
Memorandum of Understanding and Agreement with the Commission, whether
pursuant to an existing memorandum of understanding or some other
arrangement.
EXHIBIT H--ADDITIONAL INFORMATION AND DOCUMENTATION
Attach, as EXHIBIT H, any additional information or documentation
necessary to demonstrate that the requirements for registration
applicable to the clearing organization or clearing system set forth in
Commission regulation 48.7 are satisfied.
PART 49_SWAP DATA REPOSITORIES--Table of Contents
Sec.
49.1 Scope.
49.2 Definitions.
49.3 Procedures for registration.
49.4 Withdrawal from registration.
49.5 Equity interest transfers.
49.6 Registration of successor entities.
49.7 Swap data repositories located in foreign jurisdictions.
[[Page 159]]
49.8 Procedures for implementing registered swap data repository rules.
49.9 Duties of registered swap data repositories.
49.10 Acceptance of data.
49.11 Confirmation of data accuracy.
49.12 Swap data repository recordkeeping requirements.
49.13 Monitoring, screening and analyzing swap data.
49.14 Monitoring, screening and analyzing end-user clearing exemption
claims by individual and affiliated entities.
49.15 Real-time public reporting of swap data.
49.16 Privacy and confidentiality requirements of swap data
repositories.
49.17 Access to SDR data.
49.18 Confidentiality and indemnification agreement.
49.19 Core principles applicable to registered swap data repositories.
49.20 Governance arrangements (Core Principle 2).
49.21 Conflicts of interest (Core Principle 3).
49.22 Chief compliance officer.
49.23 Emergency policies and procedures.
49.24 System safeguards.
49.25 Financial resources.
49.26 Disclosure requirements of swap data repositories.
49.27 Access and fees.
Appendix A to Part 49--Form SDR
Authority: 7 U.S.C. 12a and 24a, as amended by Title VII of the Wall
Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124
Stat. 1376 (2010), unless otherwise noted.
Source: 76 FR 54575, Sept. 1, 2011, unless otherwise noted.
Sec. 49.1 Scope.
The provisions of this part apply to any swap data repository as
defined under Section 1a(48) of the Act which is registered or is
required to register as such with the Commission pursuant to Section
21(a) of the Act.
Sec. 49.2 Definitions.
(a) As used in this part:
(1) Affiliate. The term ``affiliate'' means a person that directly,
or indirectly, controls, is controlled by, or is under common control
with, the swap data repository.
(2) Asset Class. The term ``asset class'' means the particular broad
category of goods, services or commodities underlying a swap. The asset
classes include credit, equity, interest rates, foreign exchange, other
commodities, and such other asset classes as may be determined by the
Commission.
(3) Commercial Use. The term ``commercial use'' means the use of
swap data held and maintained by a registered swap data repository for a
profit or business purposes. The use of swap data for regulatory
purposes and/or responsibilities by a registered swap data repository
would not be considered a commercial use regardless of whether the
registered swap data repository charges a fee for reporting such swap
data.
(4) Control. The term ``control'' (including the terms ``controlled
by'' and ``under common control with'') means the possession, direct or
indirect, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, by contract, or otherwise.
(5) Foreign Regulator. The term ``foreign regulator'' means a
foreign futures authority as defined in Section 1a(26) of the Act,
foreign financial supervisors, foreign central banks and foreign
ministries.
(6) Independent Perspective. The term ``independent perspective''
means a viewpoint that is impartial regarding competitive, commercial,
or industry concerns and contemplates the effect of a decision on all
constituencies involved.
(7) Market Participant. The term ``market participant'' means any
person participating in the swap market, including, but not limited to,
designated contract markets, derivatives clearing organizations, swaps
execution facilities, swap dealers, major swap participants, and any
other counterparties to a swap transaction.
(8) Non-affiliated third party. The term ``non-affiliated third
party'' means any person except:
(i) The swap data repository;
(ii) The swap data repository's affiliate; or
(iii) A person employed by a swap data repository and any entity
that is not the swap data repository's affiliate (and ``non-affiliated
third party'' includes such entity that jointly employs the person).
(9) Person Associated with a Swap Data Repository. The term ``person
associated with a swap data repository'' means:
[[Page 160]]
(i) Any partner, officer, or director of such swap data repository
(or any person occupying a similar status or performing similar
functions);
(ii) Any person directly or indirectly controlling, controlled by,
or under common control with such swap data repository; or
(iii) Any person employed by such swap data repository.
(10) Position. The term ``position'' means the gross and net
notional amounts of open swap transactions aggregated by one or more
attributes, including, but not limited to, the:
(i) Underlying instrument;
(ii) Index, or reference entity;
(iii) Counterparty;
(iv) Asset class;
(v) Long risk of the underlying instrument, index, or reference
entity; and
(vi) Short risk of the underlying instrument, index, or reference
entity.
(11) Registered Swap Data Repository. The term ``registered swap
data repository'' means a swap data repository that is registered under
Section 21 of the Act.
(12) Reporting Entity. The term ``reporting entity'' means those
entities that are required to report swap data to a registered swap data
repository. These reporting entities include designated contract
markets, swaps execution facilities, derivatives clearing organizations,
swap dealers, major swap participants and certain non-swap dealers/non-
major swap participant counterparties.
(13) SDR Information. The term ``SDR Information'' means any
information that the swap data repository receives or maintains.
(14) Section 8 Material. The term ``Section 8 Material'' means the
business transactions, trade data, or market positions of any person and
trade secrets or names of customers.
(15) Swap Data. The term ``swap data'' means the specific data
elements and information set forth in part 45 of this chapter that is
required to be reported by a reporting entity to a registered swap data
repository.
(b) Defined Terms. Capitalized terms not defined in this part shall
have the meanings assigned to them in Sec. 1.3 of this chapter.
Sec. 49.3 Procedures for registration.
(a) Application procedures. (1) An applicant, person or entity
desiring to be registered as a swap data repository shall file
electronically an application for registration on Form SDR provided in
appendix A to this part, with the Secretary of the Commission at its
headquarters in Washington, DC in a format and in the manner specified
by the Secretary of the Commission in accordance with the instructions
contained therein.
(2) The application shall include information sufficient to
demonstrate compliance with core principles specified in Section 21 of
the Act and the regulations thereunder. Form SDR consists of
instructions, general questions and a list of Exhibits (documents,
information and evidence) required by the Commission in order to
determine whether an applicant is able to comply with the core
principles. An application will not be considered to be materially
complete unless the applicant has submitted, at a minimum, the exhibits
as required in Form SDR. If the application is not materially complete,
the Commission shall notify the applicant that the application will not
be deemed to have been submitted for purposes of the 180-day review
procedures.
(3) 180-Day review procedures. The Commission will review the
application for registration as a swap data repository within 180 days
of the date of the filing of such application. In considering an
application for registration as a swap data repository, the staff of the
Commission shall include in its review, an applicant's past relevant
submissions and compliance history. At or prior to the conclusion of the
180-day period, the Commission will either by order grant registration;
extend, by order, the 180-day review period for good cause; or deny the
application for registration as a swap data repository. The 180-day
review period shall commence once a completed submission on Form SDR is
submitted to the Commission. The determination of when such submission
on Form SDR is complete shall be at the sole discretion of the
Commission. If deemed appropriate, the Commission may grant registration
as a swap data repository subject to conditions. If the Commission
[[Page 161]]
denies an application for registration as a swap data repository, it
shall specify the grounds for such denial. In the event of a denial of
registration for a swap data repository, any person so denied shall be
afforded an opportunity for a hearing before the Commission.
(4) Standard for approval. The Commission shall grant the
registration of a swap data repository if the Commission finds that such
swap data repository is appropriately organized, and has the capacity:
to ensure the prompt, accurate and reliable performance of its functions
as a swap data repository; comply with any applicable provisions of the
Act and regulations thereunder; carry out its functions in a manner
consistent with the purposes of Section 21 of the Act and the
regulations thereunder; and operate in a fair, equitable and consistent
manner. The Commission shall deny registration of a swap data repository
if it appears that the application is materially incomplete; fails in
form or substance to meet the requirements of Section 21 of the Act and
part 49; or is amended or supplemented in a manner that is inconsistent
with this Sec. 49.3. The Commission shall notify the applicant seeking
registration that the Commission is denying the application setting
forth the deficiencies in the application, and/or the manner in which
the application fails to meet the requirements of this part.
(5) Amendments and annual filing. If any information reported on
Form SDR or in any amendment thereto is or becomes inaccurate for any
reason, whether before or after the application for registration has
been granted, the swap data repository shall promptly file an amendment
on Form SDR updating such information. In addition, the swap data
repository shall annually file an amendment on Form SDR within 60 days
after the end of each fiscal year.
(6) Service of process. Each swap data repository shall designate
and authorize on Form SDR an agent in the United States, other than a
Commission official, who shall accept any notice or service of process,
pleadings, or other documents in any action or proceedings brought
against the swap data repository to enforce the Act and the regulations
thereunder.
(b) Provisional registration. The Commission, upon the request of an
applicant, may grant provisional registration of a swap data repository
if such applicant is in substantial compliance with the standards set
forth in paragraph (a)(4) of this section and is able to demonstrate
operational capability, real-time processing, multiple redundancy and
robust security controls. Such provisional registration of a swap data
repository shall expire on the earlier of: the date that the Commission
grants or denies registration of the swap data repository; or the date
that the Commission rescinds the temporary registration of the swap data
repository. This paragraph (b) shall terminate within such time as
determined by the Commission. A provisional registration granted by the
Commission does not affect the right of the Commission to grant or deny
permanent registration as provided under paragraph (a)(3) of this
section.
(c) Withdrawal of application for registration. An applicant for
registration may withdraw its application submitted pursuant to
paragraph (a) of this section by filing with the Commission such a
request. Withdrawal of an application for registration shall not affect
any action taken or to be taken by the Commission based upon actions,
activities, or events occurring during the time that the application for
registration was pending with the Commission, and shall not prejudice
the filing of a new application by such applicant.
(d) Reinstatement of dormant registration. Before accepting or re-
accepting swap transaction data, a dormant registered swap data
repository as defined in Sec. 40.1(e) of this chapter shall reinstate
its registration under the procedures set forth in paragraph (a) of this
section; provided, however, that an application for reinstatement may
rely upon previously submitted materials that still pertain to, and
accurately describe, current conditions.
(e) Delegation of authority. (1) The Commission hereby delegates,
until it orders otherwise, to the Director of the
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Division of Market Oversight or the Director's delegates, with the
consultation of the General Counsel or the General Counsel's delegates,
the authority to notify an applicant seeking registration as a swap data
repository pursuant to Section 21 of the Act that the application is
materially incomplete and the 180-day period review period is extended.
(2) The Director of the Division of Market Oversight may submit to
the Commission for its consideration any matter which has been delegated
in this paragraph.
(3) Nothing in this paragraph prohibits the Commission, at its
election, from exercising the authority delegated in paragraph (e)(1) of
this section.
(f) Request for confidential treatment. An applicant for
registration may request confidential treatment for materials submitted
in its application as set forth in Sec. Sec. 40.8 and 145.9 of this
chapter. The applicant shall identify with particularity information in
the application that will be subject to a request for confidential
treatment.
Sec. 49.4 Withdrawal from registration.
(a)(1) A registered swap data repository may withdraw its
registration by giving notice in writing to the Commission requesting
that its registration as a swap data repository be withdrawn, which
notice shall be served at least sixty days prior to the date named
therein as the date when the withdrawal of registration shall take
effect. The request to withdraw shall be made by a person duly
authorized by the registrant and shall specify:
(i) The name of the registrant for which withdrawal of registration
is being requested;
(ii) The name, address and telephone number of the swap data
repository that will have custody of data and records of the registrant;
(iii) The address where such data and records will be located; and
(iv) A statement that the custodial swap data repository is
authorized to make such data and records available in accordance with
Sec. 1.44.
(2) Prior to filing a request to withdraw, a registered swap data
repository shall file an amended Form SDR to update any inaccurate
information. A withdrawal of registration shall not affect any action
taken or to be taken by the Commission based upon actions, activities or
events occurring during the time that the facility was designated by the
Commission.
(b) A notice of withdrawal from registration filed by a swap data
repository shall become effective for all matters (except as provided in
this paragraph (b)) on the 60th day after the filing thereof with the
Commission, within such longer period of time as to which such swap data
repository consents or which the Commission, by order, may determine as
necessary or appropriate in the public interest.
(c) Revocation of Registration for False Application. If, after
notice and opportunity for hearing, the Commission finds that any
registered swap data repository has obtained its registration by making
any false or misleading statements with respect to any material fact or
has violated or failed to comply with any provision of the Act and
regulations thereunder, the Commission, by order, may revoke the
registration. Pending final determination whether any registration shall
be revoked, the Commission, by order, may suspend such registration, if
such suspension appears to the Commission, after notice and opportunity
for hearing, to be necessary or appropriate and in the public interest.
Sec. 49.5 Equity interest transfers.
(a) Equity transfer notification. Upon entering into any
agreement(s) that could result in an equity interest transfer of ten
percent or more in the swap data repository, the swap data repository
shall file a notification of the equity interest transfer with the
Secretary of the Commission at its headquarters in Washington, DC in a
format and in the manner specified by the Secretary of the Commission,
no later than the business day, as defined in Sec. 40.1 of this
chapter, following the date on which the swap data repository enters
into a firm obligation to transfer the equity interest. The swap data
repository shall also amend any information that is no longer accurate
on Form SDR consistent with the procedures set forth in Sec. 49.3 of
this part.
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(b) Required information. The notification must include and be
accompanied by: any relevant agreement(s), including any preliminary
agreements; any associated changes to relevant corporate documents; a
chart outlining any new ownership or corporate or organizational
structure; a brief description of the purpose and any impact of the
equity interest transfer; and a representation from the swap data
repository that it meets all of the requirements of Section 21 of the
Act and Commission regulations adopted thereunder. The swap data
repository shall keep the Commission apprised of the projected date that
the transaction resulting in the equity interest transfer will be
consummated, and must provide to the Commission any new agreements or
modifications to the original agreement(s) filed pursuant to this
section. The swap data repository shall notify the Commission of the
consummation of the transaction on the day in which it occurs.
(c) Certification. (1) Upon a transfer of an equity interest of ten
percent or more in a registered swap data repository, the registered
swap data repository shall file with the Secretary of the Commission at
its headquarters in Washington, DC in a format and in the manner
specified by the Secretary of the Commission, a certification that the
registered swap data repository meets all of the requirements of Section
21 of the Act and Commission regulations adopted thereunder, no later
than two business days, as defined in Sec. 40.1 of this chapter,
following the date on which the equity interest of ten percent or more
was acquired. Such certification shall state whether changes to any
aspects of the swap data repository's operations were made as a result
of such change in ownership, and include a description of any such
change(s).
(2) The certification required under this paragraph may rely on and
be supported by reference to an application for registration as a swap
data repository or prior filings made pursuant to a rule submission
requirement, along with any necessary new filings, including new filings
that provide any and all material updates of prior submissions.
Sec. 49.6 Registration of successor entities.
(a) In the event of a corporate transaction, such as a re-
organization, merger, acquisition, bankruptcy or other similar corporate
event, that creates a new entity, in which the swap data repository
continues to operate, the swap data repository shall request a transfer
of the registration, rules, and other matters, no later than 30 days
after the succession. The registration of the predecessor shall be
deemed to remain effective as the registration of the successor if the
successor, within 30 days after such succession, files an application
for registration on Form SDR, and the predecessor files a request for
vacation of registration on Form SDR provided, however, that the
registration of the predecessor swap data repository shall cease to be
effective 90 days after the application for registration on Form SDR is
filed by the successor swap data repository.
(b) If the succession is based solely on a change in the
predecessor's date or state of incorporation, form of organization, or
composition of a partnership, the successor may, within 30 days after
the succession, amend the registration of the predecessor swap data
repository on Form SDR to reflect these changes. This amendment shall be
an application for registration filed by the predecessor and adopted by
the successor.
Sec. 49.7 Swap data repositories located in foreign jurisdictions.
Any swap data repository located outside of the United States
applying for registration pursuant to Sec. 49.3 of this part shall
certify on Form SDR and provide an opinion of counsel that the swap data
repository, as a matter of law, is able to provide the Commission with
prompt access to the books and records of such swap data repository and
that the swap data repository can submit to onsite inspection and
examination by the Commission.
Sec. 49.8 Procedures for implementing registered swap data
repository rules.
(a) Request for Commission approval of rules. An applicant for
registration as a swap data repository may request that
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the Commission approve under Section 5c(c) of the Act, any or all of its
rules and subsequent amendments thereto, prior to their implementation
or, notwithstanding the provisions of Section 5c(c)(2) of the Act, at
anytime thereafter, under the procedures of Sec. 40.5 of this chapter.
(b) Notwithstanding the timeline under Sec. 40.5(c) of this
chapter, the rules of a swap data repository that have been submitted
for Commission approval at the same time as an application for
registration under Sec. 49.3 of this part or to reinstate the
registration of a dormant registered swap data repository, as defined in
Sec. 40.1 of this chapter, will be deemed approved by the Commission no
earlier than when the swap data repository is deemed to be registered or
reinstated.
(c) Self-certification of rules. Rules of a registered swap data
repository not voluntarily submitted for prior Commission approval
pursuant to paragraph (a) of this section must be submitted to the
Commission with a certification that the rule or rule amendment complies
with the Act or rules thereunder pursuant to the procedures of Sec.
40.6 of this chapter, as applicable.
Sec. 49.9 Duties of registered swap data repositories.
(a) Duties. To be registered, and maintain registration, as a swap
data repository, a registered swap data repository shall:
(1) Accept swap data as prescribed in Sec. 49.10 for each swap;
(2) Confirm, as prescribed in Sec. 49.11, with both counterparties
to the swap the accuracy of the swap data that was submitted;
(3) Maintain, as prescribed in Sec. 49.12, the swap data described
in part 45 of the Commission's Regulations in such form and manner as
provided therein and in the Act and the rules and regulations
thereunder;
(4) Provide direct electronic access to the Commission (or any
designee of the Commission, including another registered entity) as
prescribed in Sec. 49.17;
(5) Provide the information set forth in Sec. 49.15 to comply with
the public reporting requirements set forth in Section 2(a)(13) of the
Act;
(6) Establish automated systems for monitoring, screening, and
analyzing swap data as prescribed in Sec. 49.13;
(7) Establish automated systems for monitoring, screening and
analyzing end-user clearing exemption claims as prescribed in Sec.
49.14;
(8) Maintain the privacy of any and all swap data and any other
related information that the swap data repository receives from a
reporting entity as prescribed in Sec. 49.16;
(9) Upon request of certain appropriate domestic and foreign
regulators, provide access to swap data and information held and
maintained by the swap data repository as prescribed in Sec. 49.17;
(10) Adopt and establish appropriate emergency policies and
procedures, including business continuity and disaster recovery plans,
as prescribed in Sec. 49.23 and Sec. 49.24.
(11) Designate an individual to serve as a chief compliance officer
who shall comply with Sec. 49.22; and
(12) Subject itself to inspection and examination by the Commission.
(b) This Regulation is not intended to limit, or restrict, the
applicability of other provisions of the Act, including, but not limited
to, Section 2(a)(13) of the Act and rules and regulations promulgated
thereunder.
Sec. 49.10 Acceptance of data.
(a) A registered swap data repository shall establish, maintain, and
enforce policies and procedures for the reporting of swap data to the
registered swap data repository and shall accept and promptly record all
swap data in its selected asset class and other regulatory information
that is required to be reported pursuant to part 45 and part 43 of this
chapter by designated contract markets, derivatives clearing
organizations, swap execution facilities, swap dealers, major swap
participants and/or non-swap dealer/non-major swap participant
counterparties.
(1) Electronic connectivity. For the purpose of accepting all swap
data as required by part 45 and part 43, the registered swap data
repository shall adopt policies and procedures, including technological
protocols, which provide for electronic connectivity between the swap
data repository and
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designated contract markets, derivatives clearing organizations, swaps
execution facilities, swap dealers, major swap participants and/or
certain other non-swap dealer/non-major swap participant counterparties
who report such data. The technological protocols established by a swap
data repository shall provide for the receipt of swap creation data,
swap continuation data, real-time public reporting data, and all other
data and information required to be reported to such swap data
repository. The swap data repository shall ensure that its mechanisms
for swap data acceptance are reliable and secure.
(b) A registered swap data repository shall set forth in its
application for registration as described in Sec. 49.3 the specific
asset class or classes for which it will accept swaps data. If a swap
data repository accepts swap data of a particular asset class, then it
shall accept data from all swaps of that asset class, unless otherwise
prescribed by the Commission.
(c) A registered swap data repository shall establish policies and
procedures reasonably designed to prevent any provision in a valid swap
from being invalidated or modified through the confirmation or recording
process of the swap data repository. The policies and procedures must
ensure that the swap data repository's user agreements are designed to
prevent any such invalidation or modification.
(d) A registered swap data repository shall establish procedures and
provide facilities for effectively resolving disputes over the accuracy
of the swap data and positions that are recorded in the registered swap
data repository.
Sec. 49.11 Confirmation of data accuracy.
(a) A registered swap data repository shall establish policies and
procedures to ensure the accuracy of swap data and other regulatory
information required to be reported by part 45 that it receives from
reporting entities or certain third-party service providers acting on
their behalf, such as confirmation or matching service providers.
(b) A registered swap data repository shall confirm the accuracy of
all swap data that is submitted pursuant to part 45. (1) Confirmation of
data accuracy for swap creation data as defined in part 45.
(i) A registered swap data repository has confirmed the accuracy of
swap creation data that was submitted directly by a counterparty if the
swap data repository has notified both counterparties of the data that
was submitted and received from both counterparties acknowledgement of
the accuracy of the swap data and corrections for any errors.
(ii) A registered swap data repository has confirmed the accuracy of
swap creation data that was submitted by a swap execution facility,
designated contract market, derivatives clearing organization, or third-
party service provider who is acting on behalf of a counterparty, if the
swap data repository has complied with each of the following:
(A) The swap data repository has formed a reasonable belief that the
swap data is accurate;
(B) The swap data that was submitted, or any accompanying
information, evidences that both counterparties agreed to the data; and
(C) The swap data repository has provided both counterparties with a
48 hour correction period after which a counterparty is assumed to have
acknowledged the accuracy of the swap data.
(2) Confirmation of data accuracy for swap continuation data as
defined in part 45. (i) A registered swap data repository has confirmed
the accuracy of the swap continuation data that was submitted directly
by a counterparty if the swap data repository has notified both
counterparties of the data that was submitted and provided both
counterparties with a 48 hour correction period after which a
counterparty is assumed to have acknowledged the accuracy of the data.
(ii) A registered swap data repository has confirmed the accuracy of
swap continuation data that was submitted by a swap execution facility,
designated contract market, derivatives clearing organization, or third-
party service provider who is acting on behalf of a counterparty, if the
swap data repository has complied with each of the following:
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(A) The swap data repository has formed a reasonable belief that the
swap data is accurate; and
(B) The swap data repository has provided both counterparties with a
48 hour correction period after which a counterparty is assumed to have
acknowledged the accuracy of the swap data.
(c) A registered swap data repository shall keep a record of
corrected errors that is available upon request to the Commission.
Sec. 49.12 Swap data repository recordkeeping requirements.
(a) A registered swap data repository shall maintain its books and
records in accordance with the requirements of part 45 of this chapter
regarding the swap data required to be reported to the swap data
repository.
(b) A registered swap data repository shall maintain swap data
(including all historical positions) throughout the existence of the
swap and for five years following final termination of the swap, during
which time the records must be readily accessible by the swap data
repository and available to the Commission via real-time electronic
access; and in archival storage for which such swap data is retrievable
by the swap data repository within three business days.
(c) All records required to be kept pursuant to this Regulation
shall be open to inspection upon request by any representative of the
Commission and the United States Department of Justice. Copies of all
such records shall be provided, at the expense of the swap data
repository or person required to keep the record, to any representative
of the Commission upon request, either by electronic means, in hard
copy, or both, as requested by the Commission.
(d) A registered swap data repository shall comply with the real
time public reporting and recordkeeping requirements prescribed in Sec.
49.15 and part 43 of this chapter.
(e) A registered swap data repository shall establish policies and
procedures to calculate positions for position limits and any other
purpose as required by the Commission, for all persons with swaps that
have not expired maintained by the registered swap data repository.
Sec. 49.13 Monitoring, screening and analyzing swap data.
(a) Duty to monitor, screen and analyze data. A registered swap data
repository shall monitor, screen, and analyze all swap data in its
possession in such a manner as the Commission may require. A swap data
repository shall routinely monitor, screen, and analyze swap data for
the purpose of any standing swap surveillance objectives which the
Commission may establish as well as perform specific monitoring,
screening, and analysis tasks based on ad hoc requests by the
Commission.
(b) Capacity to monitor, screen and analyze data. A registered swap
data repository shall establish and maintain sufficient information
technology, staff, and other resources to fulfill the requirements in
this Sec. 49.13 in a manner prescribed by the Commission. A swap data
repository shall monitor the sufficiency of such resources at least
annually, and adjust its resources as its responsibilities, or the
volume of swap transactions subject to monitoring, screening, and
analysis, increase.
Sec. 49.14 Monitoring, screening and analyzing end-user clearing
exemption claims by individual and affiliated entities.
A registered swap data repository shall have automated systems
capable of identifying, aggregating, sorting, and filtering all swap
transactions that are reported to it which are exempt from clearing
pursuant to Section 2(h)(7) of the Act. Such capabilities shall be
applicable to any information provided to a swap data repository by or
on behalf of an end user regarding how such end user meets the
requirements of Sections 2(h)(7)(A)(i), 2(h)(7)(A)(ii), and
2(h)(7)(A)(iii) of the Act and any Commission regulations thereunder.
Sec. 49.15 Real-time public reporting of swap data.
(a) Scope. The provisions of this Sec. 49.15 apply to real-time
public reporting of swap data, as defined in part 43 of this chapter.
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(b) Systems to accept and disseminate swap data in connection with
real-time public reporting. A registered swap data repository shall
establish such electronic systems as are necessary to accept and
publicly disseminate real-time swap data submitted to meet the real-time
public reporting obligations of part 43 of this chapter. Any electronic
systems established for this purpose must be capable of accepting and
ensuring the public dissemination of all data fields required by part 43
of this chapter.
(c) Duty to notify the commission of untimely data. A registered
swap data repository must notify the Commission of any swap transaction
for which the real-time swap data was not received by the swap data
repository in accordance with part 43 of this chapter.
Sec. 49.16 Privacy and confidentiality requirements of swap data
repositories.
(a) Each swap data repository shall:
(1) Establish, maintain, and enforce written policies and procedures
reasonably designed to protect the privacy and confidentiality of any
and all SDR Information that is not subject to real-time public
reporting set forth in part 43 of this chapter. Such policies and
procedures shall include, but are not limited to, policies and
procedures to protect the privacy and confidentiality of any and all SDR
Information (except for swap data disseminated under part 43) that the
swap data repository shares with affiliates and non-affiliated third
parties; and
(2) Establish and maintain safeguards, policies, and procedures
reasonably designed to prevent the misappropriation or misuse, directly
or indirectly, of:
(i) Section 8 Material;
(ii) Other SDR Information; and/or
(iii) Intellectual property, such as trading strategies or portfolio
positions, by the swap data repository or any person associated with the
swap data repository. Such safeguards, policies, and procedures shall
include, but are not limited to,
(A) limiting access to such Section 8 Material, other SDR
Information, and intellectual property,
(B) standards controlling persons associated with the swap data
repository trading for their personal benefit or the benefit of others,
and
(C) adequate oversight to ensure compliance with this subparagraph.
(b) Swap data repositories shall not, as a condition of accepting
swap data from reporting entities, require the waiver of any privacy
rights by such reporting entities.
(c) Subject to Section 8 of the Act, swap data repositories may
disclose aggregated swap data on a voluntary basis or as requested, in
the form and manner, prescribed by the Commission.
Sec. 49.17 Access to SDR data.
(a) Purpose. This Section provides a procedure by which the
Commission, other domestic regulators and foreign regulators may obtain
access to the swaps data held and maintained by registered swap data
repositories. Except as specifically set forth in this Regulation, the
Commission's duties and obligations regarding the confidentiality of
business transactions or market positions of any person and trade
secrets or names of customers identified in Section 8 of the Act are not
affected.
(b) Definitions. For purposes of this Sec. 49.17, the following
terms shall be defined as follows:
(1) Appropriate Domestic Regulator. The term ``Appropriate Domestic
Regulator'' shall mean:
(i) The Securities and Exchange Commission;
(ii) Each prudential regulator identified in Section 1a(39) of the
Act with respect to requests related to any of such regulator's
statutory authorities, without limitation to the activities listed for
each regulator in Section 1a(39);
(iii) The Financial Stability Oversight Council;
(iv) The Department of Justice;
(v) Any Federal Reserve Bank;
(vi) The Office of Financial Research; and
(vii) Any other person the Commission deems appropriate.
(2) Appropriate Foreign Regulator. The term ``Appropriate Foreign
Regulator'' shall mean those Foreign Regulators
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with an existing memorandum of understanding or other similar type of
information sharing arrangement executed with the Commission and/or
Foreign Regulators without an MOU as determined on a case-by-case basis
by the Commission.
(i) Filing requirements. For those Foreign Regulators who do not
currently have a memorandum of understanding with the Commission, the
Commission has determined to provide the following filing process for
those Foreign Regulators that may require swap data or information
maintained by a registered swap data repository. The filing requirement
set forth in this Sec. 49.17 will assist the Commission in its analysis
of whether a specific Foreign Regulator should be considered
``appropriate'' for purposes of Section 21(c)(7) of the Act.
(A) The Foreign Regulator is required to file an application in the
form and manner prescribed by the Commission.
(B) The Foreign Regulator in its application is required to provide
sufficient facts and procedures to permit the Commission to analyze
whether the Foreign Regulator employs appropriate confidentiality
procedures and to satisfy itself that the information will be disclosed
only as permitted by Section 8(e) of the Act.
(ii) The Commission in its analysis of Foreign Regulator
applications shall be satisfied that any information potentially
provided by a registered swap data repository will not be disclosed
except in limited circumstances, such as an adjudicatory action or
proceeding involving the Foreign Regulator, as identified in Section 8
of the Act.
(iii) The Commission reserves the right in connection with any
determination of an ``Appropriate Foreign Regulator'' to revisit or
reassess a prior determination consistent with the Act.
(3) Direct electronic access. For the purposes of this regulation,
the term ``direct electronic access'' shall mean an electronic system,
platform or framework that provides Internet or Web-based access to
real-time swap transaction data and also provides scheduled data
transfers to Commission electronic systems.
(c) Commission access--(1) Direct electronic access. A registered
swap data repository shall provide direct electronic access to the
Commission or the Commission's designee, including another registered
entity, in order for the Commission to carry out its legal and statutory
responsibilities under the Act and related regulations.
(2) Monitoring tools. A registered swap data repository is required
to provide the Commission with proper tools for the monitoring,
screening and analyzing of swap transaction data, including, but not
limited to, Web-based services, services that provide automated transfer
of data to Commission systems, various software and access to the staff
of the swap data repository and/or third-party service providers or
agents familiar with the operations of the registered swap data
repository, which can provide assistance to the Commission regarding
data structure and content. These monitoring tools shall be
substantially similar in analytical capability as those provided to the
compliance staff and the Chief Compliance Officer of the swap data
repository.
(3) Authorized users. The swap transaction data provided to the
Commission by a registered swap data repository shall be accessible only
by authorized users. The swap data repository shall maintain and provide
a list of authorized users in the manner and frequency determined by the
Commission.
(d) Other regulators--(1) General Procedure for Gaining Access to
Registered Swap Data Repository Data. Appropriate Domestic Regulators
and Appropriate Foreign Regulators seeking to gain access to the swap
data maintained by a swap data repository are required to apply for
access by filing a request for access with the registered swap data
repository and certifying that it is acting within the scope of its
jurisdiction.
(2) Appropriate domestic regulator with regulatory responsibility
over a swap data repository. An Appropriate Domestic Regulator that has
regulatory jurisdiction over a swap data repository registered with it
pursuant to a separate statutory authority that is also registered with
the Commission pursuant to this chapter is not subject to this
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paragraph (d) and Sec. 49.18(b) as long as the following conditions are
met:
(i) The appropriate domestic regulator executes a memorandum of
understanding or similar information sharing arrangement with the
Commission; and
(ii) The Commission, consistent with Section 21(c)(4)(A) of the Act,
designates the Appropriate Domestic Regulator to receive direct
electronic access.
(3) Appropriate foreign regulator with regulatory responsibility
over a swap data repository. An Appropriate Foreign Regulator that has
supervisory authority over a swap data repository registered with it
pursuant to foreign law and/or regulation that is also registered with
the Commission pursuant to this chapter is not otherwise subject to this
paragraph (d) and Sec. 49.18(b).
(4) Obligations of the registered swap data repository in connection
with appropriate domestic regulator or appropriate foreign regulator
requests for data access.
(i) A registered swap data repository shall promptly notify the
Commission regarding any request received by an Appropriate Domestic
Regulator or Appropriate Foreign Regulator to gain access to the swaps
transaction data maintained by such swap data repository.
(ii) The registered swap data repository shall notify the Commission
electronically in a format specified by the Secretary of the Commission.
(5) Timing. Once the swap data repository provides the Commission
with notification of a request for data access by an Appropriate
Domestic Regulator or Appropriate Foreign Regulator as required by
paragraph (d)(2) of this section, such swap data repository shall
provide access to the requested swap data.
(6) Confidentiality and indemnification agreement. Consistent with
Sec. 49.18 of this part, the Appropriate Domestic Regulator or
Appropriate Foreign Regulator prior to receipt of any requested data or
information shall execute a ``Confidentiality and Indemnification
Agreement'' with the registered swap data repository as set forth in
Section 21(d) of the Act.
(e) Third-party service providers to a registered swap data
repository. Access to the data and information maintained by a
registered swap data repository may be necessary for certain third
parties that provide various technology and data-related services to a
registered swap data repository. Third-party access to the swap data
maintained by a swap data repository is permissible subject to the
following conditions:
(1) Both the registered swap data repository and the third party
service provider shall have strict confidentiality procedures that
protect data and information from improper disclosure.
(2) Prior to swap data access, the third-party service provider and
the registered swap data repository shall execute a ``Confidentiality
Agreement'' setting forth minimum confidentiality procedures and
permissible uses of the information maintained by the swap data
repository that are equivalent to the privacy procedures for swap data
repositories outlined in Sec. 49.16.
(f) Access by market participants--(1) General. Access of swap data
maintained by the registered swap data repository to market participants
is generally prohibited.
(2) Exception. Data and information related to a particular swap
that is maintained by the registered swap data repository may be
accessed by either counterparty to that particular swap. However, the
data and information maintained by the registered swap data repository
that may be accessed by either counterparty to a particular swap shall
not include the identity or the legal entity identifier (as such term is
used in part 45 of this chapter) of the other counterparty to the swap,
or the other counterparty's clearing member for the swap, if the swap is
executed anonymously on a swap execution facility or designated contract
market, and cleared in accordance with Commission regulations in
Sec. Sec. 1.74, 23.610, and 37.12(b)(7) of this chapter.
(g) Commercial uses of data accepted and maintained by the
registered swap data repository prohibited. Swap data accepted and
maintained by the swap data repository generally may not be used for
commercial or business purposes by the swap data repository or any of
its affiliated entities.
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(1) The registered swap data repository is required to adopt and
implement adequate ``firewalls'' or controls to protect the reported
swap data required to be maintained under Sec. 49.12 of this part and
Section 21(b) of the Act from any improper commercial use.
(2) Exception. (A) The swap dealer, counterparty or any other
registered entity that submits the swap data maintained by the
registered swap data repository may permit the commercial or business
use of that data by express written consent.
(B) Swap data repositories shall not as a condition of the reporting
of swap transaction data require a reporting party to consent to the use
of any reported data for commercial or business purposes.
(3) Swap data repositories responsible for the public dissemination
of real-time swap data shall not make commercial use of such data prior
to its public dissemination.
[76 FR 54575, Sept. 1, 2011, as amended at 79 FR 16675, Mar. 26, 2014]
Sec. 49.18 Confidentiality and indemnification agreement.
(a) Purpose. This section sets forth the obligations of registered
swap data repositories to execute a ``Confidentiality and
Indemnification Agreement'' in connection with providing access to swap
data to certain domestic and foreign regulators.
(b) Confidentiality and indemnification agreement. Prior to the
registered swap data repository providing access to the swap data with
any Appropriate Domestic Regulator or Appropriate Foreign Regulator as
defined in Sec. 49.17(b), the swap data repository shall receive a
written agreement from each such entity stating that the entity shall
abide by the confidentiality requirements described in Section 8 of the
Act relating to the swap data that is provided; and each such entity
shall agree to indemnify the swap data repository and the Commission for
any expenses arising from litigation relating to the information
provided under Section 8 of the Act.
(c) Certain appropriate domestic and foreign regulators with
regulatory responsibility over a swap data repository. The requirements
set forth above in paragraph (b) shall not apply to certain Appropriate
Domestic and Foreign Regulators with regulatory responsibility over a
swap data repository as described in Sec. 49.17(d)(2) and (3). The swap
data repository and such Appropriate Domestic or Foreign Regulator in
each case is required to comply with Section 8 of the Act and any other
relevant statutory confidentiality provisions.
Sec. 49.19 Core principles applicable to registered swap data
repositories.
(a) Compliance with core principles. To be registered, and maintain
registration, a swap data repository shall comply with the core
principles as described in this paragraph. Unless otherwise determined
by the Commission by rule or regulation, a swap data repository shall
have reasonable discretion in establishing the manner in which the swap
data repository complies with the core principles described in this
paragraph.
(b) Antitrust considerations (Core Principle 1). Unless necessary or
appropriate to achieve the purposes of the Act, a registered swap data
repository shall avoid adopting any rule or taking any action that
results in any unreasonable restraint of trade; or imposing any material
anticompetitive burden on trading, clearing or reporting swaps.
(c) Governance arrangements (Core Principle 2). Registered swap data
repositories shall establish governance arrangements as set forth in
Sec. 49.20.
(d) Conflicts of interest (Core Principle 3). Registered swap data
repositories shall manage and minimize conflicts of interest and
establish processes for resolving such conflicts of interest as set
forth in Sec. 49.21.
(e) Additional duties (Core Principle 4). Registered swap data
repositories shall also comply with the following additional duties:
(1) Financial resources. Registered swap data repositories shall
maintain sufficient financial resources as set forth in Sec. 49.25;
(2) Disclosure requirements of registered swap data repositories.
Registered swap data repositories shall furnish an appropriate
disclosure document setting forth the risks and costs of swap data
repository services as detailed in Sec. 49.26; and
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(3) Access and Fees. Registered swap data repositories shall adhere
to Commission requirements regarding fair and open access and the
charging of any fees, dues or other similar type charges as detailed in
Sec. 49.27.
Sec. 49.20 Governance arrangements (Core Principle 2).
(a) General. (1) Each registered swap data repository shall
establish governance arrangements that are transparent to fulfill public
interest requirements, and to support the objectives of the Federal
Government, owners, and participants.
(2) Each registered swap data repository shall establish governance
arrangements that are well-defined and include a clear organizational
structure with consistent lines of responsibility and effective internal
controls, including with respect to administration, accounting, and the
disclosure of confidential information. Sec. 49.22 of this part
contains rules on internal controls applicable to administration and
accounting. Sec. 49.16 of this part contains rules on internal controls
applicable to the disclosure of confidential information.
(b) Transparency of Governance Arrangements. (1) Each registered
swap data repository shall state in its charter documents that its
governance arrangements are transparent to support, among other things,
the objectives of the Federal Government pursuant to Section 21(f)(2) of
the Act.
(2) Each registered swap data repository shall, at a minimum, make
the following information available to the public and relevant
authorities, including the Commission:
(i) The mission statement of the registered swap data repository;
(ii) The mission statement and/or charter of the board of directors,
as well as of each committee of the registered swap data repository that
has:
(A) The authority to act on behalf of the board of directors or
(B) The authority to amend or constrain actions of the board of
directors;
(iii) The board of directors nomination process for the registered
swap data repository, as well as the process for assigning members of
the board of directors or other persons to any committee referenced in
paragraph (b)(2)(ii) of this section;
(iv) For the board of directors and each committee referenced in
paragraph (b)(2)(ii) of this section, the names of all members;
(v) A description of the manner in which the board of directors, as
well as any committee referenced in paragraph (b)(2)(ii) of this
section, considers an Independent Perspective in its decision-making
process, as Sec. 49.2(a)(14) of this part defines such term;
(vi) The lines of responsibility and accountability for each
operational unit of the registered swap data repository to any committee
thereof and/or the board of directors; and
(vii) Summaries of significant decisions implicating the public
interest, the rationale for such decisions, and the process for reaching
such decisions. Such significant decisions shall include decisions
relating to pricing of repository services, offering of ancillary
services, access to swap data, and use of Section 8 Material, other SDR
Information, and intellectual property (as referenced in Sec. 49.16 of
this part). Such summaries of significant decisions shall not require
the registered swap data repository to disclose Section 8 Material or,
where appropriate, information that the swap data repository received on
a confidential basis from a reporting entity.
(3) The registered swap data repository shall ensure that the
information specified in paragraph (b)(2)(i) to (vii) of this section is
current, accurate, clear, and readily accessible, for example, on its
Web site. The swap data repository shall set forth such information in a
language commonly used in the commodity futures and swap markets and at
least one of the domestic language(s) of the jurisdiction in which the
swap data repository is located.
(4) Furthermore, the registered swap data repository shall disclose
the information specified in paragraph (b)(2)(vii) of this section in a
sufficiently comprehensive and detailed fashion so as to permit the
public and relevant authorities, including the Commission, to understand
the policies or procedures of the swap data repository implicated and
the manner in which the decision implements or
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amends such policies or procedures. A swap data repository shall not
disclose minutes from meetings of its board of directors or committees
to the public, although it shall disclose such minutes to the Commission
upon request.
(c) The board of directors--(1) General. (i) Each registered swap
data repository shall establish, maintain, and enforce (including,
without limitation, pursuant to paragraph (c)(4) of this Regulation)
written policies or procedures:
(A) To ensure that its board of directors, as well as any committee
that has:
(1) Authority to act on behalf of its board of directors or
(2) Authority to amend or constrain actions of its board of
directors, adequately considers an Independent Perspective in its
decision-making process;
(B) To ensure that the nominations process for such board of
directors, as well as the process for assigning members of the board of
directors or other persons to such committees, adequately incorporates
an Independent Perspective; and
(C) To clearly articulate the roles and responsibilities of such
board of directors, as well as such committees, especially with respect
to the manner in which they ensure that a registered swap data
repository complies with all statutory and regulatory responsibilities
under the Act and the regulations promulgated thereunder.
(ii) Each registered swap data repository shall submit to the
Commission, within thirty days after each election of its board of
directors:
(A) For the board of directors, as well as each committee referenced
in paragraph (c)(1)(i)(A) of this section, a list of all members;
(B) A description of the relationship, if any, between such members
and the registered swap data repository or any reporting entity thereof
(or, in each case, affiliates thereof, as Sec. 49.2(a)(1) of this part
defines such term); and
(C) Any amendments to the written policies and procedures referenced
in paragraph (c)(1)(i) of this section.
(2) Compensation. The compensation of non-executive members of the
board of directors of a registered swap data repository shall not be
linked to the business performance of such swap data repository.
(3) Annual self-review. The board of directors of a registered swap
data repository shall review its performance and that of its individual
members annually. It should consider periodically using external
facilitators for such reviews.
(4) Board member removal. A registered swap data repository shall
have procedures to remove a member from the board of directors, where
the conduct of such member is likely to be prejudicial to the sound and
prudent management of the swap data repository.
(5) Expertise. Each registered swap data repository shall ensure
that members of its board of directors, members of any committee
referenced in paragraph (c)(1)(i)(A) of this Regulation, and its senior
management, in each case, are of sufficiently good repute and possess
the requisite skills and expertise to fulfill their responsibilities in
the management and governance of the swap data repository, to have a
clear understanding of such responsibilities, and to exercise sound
judgment about the affairs of the swap data repository.
(d) Compliance with core principle. The chief compliance officer of
the registered swap data repository shall review the compliance of the
swap data repository with this core principle.
Sec. 49.21 Conflicts of interest (Core Principle 3).
(a) General. (1) Each registered swap data repository shall
establish and enforce rules to minimize conflicts of interest in the
decision-making process of the swap data repository, and establish a
process for resolving such conflicts of interest.
(2) Nothing in this section shall supersede any requirement
applicable to the swap data repository pursuant to Sec. 49.20 of this
part.
(b) Policies and procedures. (1) Each registered swap data
repository shall establish, maintain, and enforce written procedures to:
(i) Identify, on an ongoing basis, existing and potential conflicts
of interest; and
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(ii) Make decisions in the event of a conflict of interest. Such
procedures shall include rules regarding the recusal, in applicable
circumstances, of parties involved in the making of decisions.
(2) As further described in Sec. 49.20 of this part, the chief
compliance officer of the registered swap data repository shall, in
consultation with the board of directors or a senior officer of the swap
data repository, as applicable, resolve any such conflicts of interest.
(c) Compliance with core principle. The chief compliance officer of
the registered swap data repository shall review the compliance of the
swap data repository with this core principle.
Sec. 49.22 Chief compliance officer.
(a) Definition of Board of Directors. For purposes of this part 49,
the term ``board of directors'' means the board of directors of a
registered swap data repository, or for those swap data repositories
whose organizational structure does not include a board of directors, a
body performing a function similar to that of a board of directors.
(b) Designation and qualifications of chief compliance officer --(1)
Chief Compliance Officer required. Each registered swap data repository
shall establish the position of chief compliance officer, and designate
an individual to serve in that capacity.
(i) The position of chief compliance officer shall carry with it the
authority and resources to develop and enforce policies and procedures
necessary to fulfill the duties set forth for chief compliance officers
in the Act and Commission regulations.
(ii) The chief compliance officer shall have supervisory authority
over all staff acting at the direction of the chief compliance officer.
(2) Qualifications of Chief Compliance Officer. The individual
designated to serve as chief compliance officer shall have the
background and skills appropriate for fulfilling the responsibilities of
the position and shall be subject to the following requirements:
(i) No individual disqualified from registration pursuant to
Sections 8a(2) or 8a(3) of the Act may serve as a chief compliance
officer.
(ii) The chief compliance officer may not be a member of the swap
data repository's legal department or serve as its general counsel.
(c) Appointment, supervision, and removal of chief compliance
officer--(1) Appointment and Compensation of Chief Compliance Officer
Determined by Board of Directors. A registered swap data repository's
chief compliance officer shall be appointed by its board of directors.
The board of directors shall also approve the compensation of the chief
compliance officer and shall meet with the chief compliance officer at
least annually. The appointment of the chief compliance officer and
approval of the chief compliance officer's compensation shall require
the approval of the board of directors. The senior officer of the swap
data repository may fulfill these responsibilities. A swap data
repository shall notify the Commission of the appointment of a new chief
compliance officer within two business days of such appointment.
(2) Supervision of chief compliance officer. A registered swap data
repository's chief compliance officer shall report directly to the board
of directors or to the senior officer of the swap data repository, at
the swap data repository's discretion.
(3) Removal of chief compliance officer by board of directors. (i)
Removal of a registered swap data repository's chief compliance officer
shall require the approval of the swap data repository's board of
directors. If the swap data repository does not have a board of
directors, then the chief compliance officer may be removed by the
senior officer of the swap data repository;
(ii) The swap data repository shall notify the Commission of such
removal within two business days; and
(iii) The swap data repository shall notify the Commission within
two business days of appointing any new chief compliance officer,
whether interim or permanent.
(d) Duties of chief compliance officer. The chief compliance
officer's duties shall include, but are not limited to, the following:
(1) Overseeing and reviewing the swap data repository's compliance
with Section 21 of the Act and any related rules adopted by the
Commission;
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(2) In consultation with the board of directors, a body performing a
function similar to the board, or the senior officer of the swap data
repository, resolving any conflicts of interest that may arise
including:
(i) Conflicts between business considerations and compliance
requirements;
(ii) Conflicts between business considerations and the requirement
that the registered swap data repository provide fair and open access as
set forth in Sec. 49.27 of this part; and
(iii) Conflicts between a registered swap data repository's
management and members of the board of directors;
(3) Establishing and administering written policies and procedures
reasonably designed to prevent violation of the Act and any rules
adopted by the Commission;
(4) Taking reasonable steps to ensure compliance with the Act and
Commission regulations relating to agreements, contracts, or
transactions, and with Commission regulations under Section 21 of the
Act, including confidentiality and indemnification agreements entered
into with foreign or domestic regulators pursuant to Section 21(d) of
the Act;
(5) Establishing procedures for the remediation of noncompliance
issues identified by the chief compliance officer through a compliance
office review, look-back, internal or external audit finding, self-
reported error, or validated complaint;
(6) Establishing and following appropriate procedures for the
handling, management response, remediation, retesting, and closing of
noncompliance issues; and
(7) Establishing and administering a written code of ethics designed
to prevent ethical violations and to promote honesty and ethical
conduct.
(e) Annual compliance report prepared by chief compliance officer.
The chief compliance officer shall, not less than annually, prepare and
sign an annual compliance report, that at a minimum, contains the
following information covering the time period since the date on which
the swap data repository became registered with the Commission or since
the end of the period covered by a previously filed annual compliance
report, as applicable:
(1) A description of the registered swap data repository's written
policies and procedures, including the code of ethics and conflict of
interest policies;
(2) A review of applicable Commission regulations and each
subsection and core principle of Section 21 of the Act, that, with
respect to each:
(i) Identifies the policies and procedures that are designed to
ensure compliance with each subsection and core principle, including
each duty specified in Section 21(c);
(ii) Provides a self-assessment as to the effectiveness of these
policies and procedures; and
(iii) Discusses areas for improvement, and recommends potential or
prospective changes or improvements to its compliance program and
resources;
(3) A list of any material changes to compliance policies and
procedures since the last annual compliance report;
(4) A description of the financial, managerial, and operational
resources set aside for compliance with respect to the Act and
Commission regulations;
(5) A description of any material compliance matters, including
noncompliance issues identified through a compliance office review,
look-back, internal or external audit finding, self-reported error, or
validated complaint, and explains how they were resolved; and
(6) A certification by the chief compliance officer that, to the
best of his or her knowledge and reasonable belief, and under penalty of
law, the annual compliance report is accurate and complete.
(f) Submission of annual compliance report by chief compliance
officer to the commission. (1) Prior to submission of the annual
compliance report to the Commission, the chief compliance officer shall
provide the annual compliance report to the board of the registered swap
data repository for its review. If the swap data repository does not
have a board, then the annual compliance report shall be provided to the
senior officer for their review. Members of the board and the senior
officer may not require the chief compliance
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officer to make any changes to the report. Submission of the report to
the board or senior officer, and any subsequent discussion of the
report, shall be recorded in board minutes or similar written record, as
evidence of compliance with this requirement.
(2) The annual compliance report shall be provided electronically to
the Commission not more than 60 days after the end of the registered
swap data repository's fiscal year, concurrently with the filing of the
annual amendment to Form SDR that must be submitted to the Commission
pursuant to Sec. 49.3(a)(5) of this part.
(3) Promptly upon discovery of any material error or omission made
in a previously filed compliance report, the chief compliance officer
shall file an amendment with the Commission to correct any material
error or omission. An amendment shall contain the oath or certification
required under paragraph (e)(67) of this section.
(4) A registered swap data repository may request the Commission for
an extension of time to file its compliance report based on substantial,
undue hardship. Extensions for the filing deadline may be granted at the
discretion of the Commission.
(g) Recordkeeping. (1) The registered swap data repository shall
maintain:
(i) A copy of the written policies and procedures, including the
code of ethics and conflicts of interest policies adopted in furtherance
of compliance with the Act and Commission regulations;
(ii) Copies of all materials, including written reports provided to
the board of directors or senior officer in connection with the review
of the annual compliance report under paragraph (f)(1) of this section
and the board minutes or similar written record of such review, that
record the submission of the annual compliance report to the board of
directors or senior officer; and
(iii) Any records relevant to the registered swap data repository's
annual compliance report, including, but not limited to, work papers and
other documents that form the basis of the report, and memoranda,
correspondence, other documents, and records that are:
(A) Created, sent or received in connection with the annual
compliance report and
(B) Contain conclusions, opinions, analyses, or financial data
related to the annual compliance report.
(2) The registered swap data repository shall maintain records in
accordance with Sec. 1.31 of this chapter.
Sec. 49.23 Emergency authority policies and procedures.
(a) Emergency policies and procedures required. A registered swap
data repository shall establish policies and procedures for the exercise
of emergency authority in the event of any emergency, including but not
limited to natural, man-made, and information technology emergencies.
Such policies and procedures shall also require a swap data repository
to exercise its emergency authority upon request by the Commission. A
swap data repository's policies and procedures for the exercise of
emergency authority shall be transparent to the Commission and to market
participants whose swap transaction data resides at the swap data
repository.
(b) Invocation of emergency authority. A registered swap data
repository's policies and procedures for the exercise of emergency
authority shall enumerate the circumstances under which the swap data
repository is authorized to invoke its emergency authority and the
procedures that it shall follow to declare an emergency. Such policies
and procedures shall also address the range of measures that it is
authorized to take when exercising such emergency authority.
(c) Designation of persons authorized to act in an emergency. A
registered swap data repository shall designate one or more officials of
the swap data repository as persons authorized to exercise emergency
authority on its behalf. A swap data repository shall also establish a
chain of command to be used in the event that the designated person(s)
is unavailable. A swap data repository shall notify the Commission of
the person(s) designated to exercise emergency authority.
(d) Conflicts of interest. A registered swap data repository's
policies and procedures for the exercise of emergency authority shall
include provisions to
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avoid conflicts of interest in any decisions made pursuant to emergency
authority. Such policies and procedures shall also include provisions to
consult the swap data repository's chief compliance officer in any
emergency decision that may raise potential conflicts of interest.
(e) Notification to the commission. A registered swap data
repository's policies and procedures for the exercise of emergency
authority shall include provisions to notify the Commission as soon as
reasonably practicable regarding any invocation of emergency authority.
When notifying the Commission of any exercise of emergency authority, a
swap data repository shall explain the reasons for taking such emergency
action, explain how conflicts of interest were minimized, and document
the decision-making process. Underlying documentation shall be made
available to the Commission upon request.
Sec. 49.24 System safeguards.
(a) Each registered swap data repository shall, with respect to all
swap data in its custody:
(1) Establish and maintain a program of risk analysis and oversight
to identify and minimize sources of operational risk through the
development of appropriate controls and procedures and the development
of automated systems that are reliable, secure, and have adequate
scalable capacity;
(2) Establish and maintain emergency procedures, backup facilities,
and a business continuity-disaster recovery plan that allow for the
timely recovery and resumption of operations and the fulfillment of the
duties and obligations of the swap data repository; and
(3) Periodically conduct tests to verify that backup resources are
sufficient to ensure continued fulfillment of all duties of the swap
data repository established by the Act or the Commission's regulations.
(b) A registered swap data repository's program of risk analysis and
oversight with respect to its operations and automated systems shall
address each of the following categories of risk analysis and oversight:
(1) Information security;
(2) Business continuity--disaster recovery planning and resources;
(3) Capacity and performance planning;
(4) Systems operations;
(5) Systems development and quality assurance; and
(6) Physical security and environmental controls.
(c) In addressing the categories of risk analysis and oversight
required under paragraph (b) of this section, a registered swap data
repository should follow generally accepted standards and best practices
with respect to the development, operation, reliability, security, and
capacity of automated systems.
(d) A registered swap data repository shall maintain a business
continuity--disaster recovery plan and business continuity--disaster
recovery resources, emergency procedures, and backup facilities
sufficient to enable timely recovery and resumption of its operations
and resumption of its ongoing fulfillment of its duties and obligations
as a swap data repository following any disruption of its operations.
Such duties and obligations include, without limitation, the duties set
forth in Sec. 49.9 and the core principles set forth in Sec. 49.19;
and maintenance of a comprehensive audit trail. The swap data
repository's business continuity--disaster recovery plan and resources
generally should enable resumption of the swap data repository's
operations and resumption of ongoing fulfillment of the swap data
repository's duties and obligations during the next business day
following the disruption.
(e) Registered swap data repositories determined by the Commission
to be critical swap data repositories are subject to more stringent
requirements as set forth below.
(1) Each swap data repository that the Commission determines is
critical must maintain a disaster recovery plan and business continuity
and disaster recovery resources, including infrastructure and personnel,
sufficient to enable it to achieve a same-day recovery time objective in
the event that its normal capabilities become temporarily inoperable for
any reason up to and including a wide-scale disruption.
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(2) A same-day recovery time objective is a recovery time objective
within the same business day on which normal capabilities become
temporarily inoperable for any reason up to and including a wide-scale
disruption.
(3) To ensure its ability to achieve a same-day recovery time
objective in the event of a wide-scale disruption, each swap data
repository that the Commission determines is critical must maintain a
degree of geographic dispersal of both infrastructure and personnel such
that:
(i) Infrastructure sufficient to enable the swap data repository to
meet a same-day recovery time objective after interruption is located
outside the relevant area of the infrastructure the entity normally
relies upon to conduct activities necessary to the reporting,
recordkeeping and/or dissemination of swap data, and does not rely on
the same critical transportation, telecommunications, power, water, or
other critical infrastructure components the entity normally relies upon
for such activities; and
(ii) Personnel sufficient to enable the swap data repository to meet
a same-day recovery time objective, after interruption of normal swap
data reporting, recordkeeping and/or dissemination by a wide-scale
disruption affecting the relevant area in which the personnel the entity
normally relies upon to engage in such activities are located, live and
work outside that relevant area.
(4) Each swap data repository that the Commission determines is
critical must conduct regular, periodic tests of its business continuity
and disaster recovery plans and resources and its capacity to achieve a
same-day recovery time objective in the event of a wide-scale
disruption. The swap data repository shall keep records of the results
of such tests, and make the results available to the Commission upon
request.
(f) A registered swap data repository that is not determined by the
Commission to be a critical swap data repository satisfies the
requirement to be able to resume operations and resume ongoing
fulfillment of the swap data repository's duties and obligations during
the next business day following a disruption by maintaining either:
(1) Infrastructure and personnel resources of its own that are
sufficient to ensure timely recovery and resumption of its operations,
duties and obligations as a registered swap data repository following
any disruption of its operations; or
(2) Contractual arrangements with other registered swap data
repositories or disaster recovery service providers, as appropriate,
that are sufficient to ensure continued fulfillment of all of the swap
data repository's duties and obligations following any disruption of its
operations, both with respect to all swaps reported to the swap data
repository and with respect to all swap data contained in the swap data
repository.
(g) A registered swap data repository shall notify Commission staff
promptly of all:
(1) Systems malfunctions;
(2) Cyber security incidents or targeted threats that actually or
potentially jeopardize automated system operation, reliability,
security, or capacity; and
(3) Any activation of the swap data repository's business
continuity-disaster recovery plan.
(h) A registered swap data repository shall give Commission staff
timely advance notice of all:
(1) Planned changes to automated systems that may impact the
reliability, security, or adequate scalable capacity of such systems;
and
(2) Planned changes to the swap data repository's program of risk
analysis and oversight.
(i) A registered swap data repository shall provide to the
Commission upon request current copies of its business continuity and
disaster recovery plan and other emergency procedures, its assessments
of its operational risks, and other documents requested by Commission
staff for the purpose of maintaining a current profile of the swap data
repository's automated systems.
(j) A registered swap data repository shall conduct regular,
periodic, objective testing and review of its automated systems to
ensure that they are reliable, secure, and have adequate scalable
capacity. It shall also conduct regular, periodic testing and review of
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its business continuity-disaster recovery capabilities. Both types of
testing should be conducted by qualified, independent professionals.
Such qualified independent professionals may be independent contractors
or employees of the swap data repository, but should not be persons
responsible for development or operation of the systems or capabilities
being tested. Pursuant to Sec. Sec. 1.31, 49.12 and 45.2 of the
Commission's Regulations, the swap data repository shall keep records of
all such tests, and make all test results available to the Commission
upon request.
(k) To the extent practicable, a registered swap data repository
should:
(1) Coordinate its business continuity-disaster recovery plan with
those of swap execution facilities, designated contract markets,
derivatives clearing organizations, swap dealers, and major swap
participants who report swap data to the swap data repository, and with
those regulators identified in Section 21(c)(7) of the Act, in a manner
adequate to enable effective resumption of the registered swap data
repository's fulfillment of its duties and obligations following a
disruption causing activation of the swap data repository's business
continuity and disaster recovery plan;
(2) Participate in periodic, synchronized testing of its business
continuity--disaster recovery plan and the business continuity--disaster
recovery plans of swap execution facilities, designated contract
markets, derivatives clearing organizations, swap dealers, and major
swap participants who report swap data to the registered swap data
repository, and the business continuity--disaster recovery plans
required by the regulators identified in Section 21(c)(7) of the Act;
and
(3) Ensure that its business continuity--disaster recovery plan
takes into account the business continuity--disaster recovery plans of
its telecommunications, power, water, and other essential service
providers.
Sec. 49.25 Financial resources.
(a) General rule. (1) A registered swap data repository shall
maintain sufficient financial resources to perform its statutory duties
set forth in Sec. 49.9 and the core principles set forth in Sec.
49.19.
(2) An entity that operates as both a swap data repository and a
derivatives clearing organization shall also comply with the financial
resource requirements applicable to derivatives clearing organizations
under Sec. 39.11 of this chapter.
(3) Financial resources shall be considered sufficient if their
value is at least equal to a total amount that would enable the swap
data repository, or applicant for registration, to cover its operating
costs for a period of at least one year, calculated on a rolling basis.
(4) The financial resources described in this paragraph (a) must be
independent and separately dedicated to ensure that assets and capital
are not used for multiple purposes.
(b) Types of financial resources. Financial resources available to
satisfy the requirements of paragraph (a) of this section may include:
(1) The swap data repository's own capital; and
(2) Any other financial resource deemed acceptable by the
Commission.
(c) Computation of financial resource requirement. A registered swap
data repository shall, on a quarterly basis, based upon its fiscal year,
make a reasonable calculation of its projected operating costs over a
12-month period in order to determine the amount needed to meet the
requirements of paragraph (a) of this section. The swap data repository
shall have reasonable discretion in determining the methodology used to
compute such projected operating costs. The Commission may review the
methodology and require changes as appropriate.
(d) Valuation of financial resources. At appropriate intervals, but
not less than quarterly, a registered swap data repository shall compute
the current market value of each financial resource used to meet its
obligations under paragraph (a) of this section. Reductions in value to
reflect market and credit risk (haircuts) shall be applied as
appropriate.
(e) Liquidity of financial resources. The financial resources
allocated by the registered swap data repository to meet the
requirements of paragraph (a) shall include unencumbered, liquid
financial assets (i.e., cash and/or highly
[[Page 179]]
liquid securities) equal to at least six months' operating costs. If any
portion of such financial resources is not sufficiently liquid, the swap
data repository may take into account a committed line of credit or
similar facility for the purpose of meeting this requirement.
(f) Reporting requirements. (1) Each fiscal quarter, or at any time
upon Commission request, a registered swap data repository shall report
to the Commission the amount of financial resources necessary to meet
the requirements of paragraph (a), the value of each financial resource
available, computed in accordance with the requirements of paragraph
(d); and provide the Commission with a financial statement, including
the balance sheet, income statement, and statement of cash flows of the
swap data repository or of its parent company. Financial statements
shall be prepared in conformity with generally accepted accounting
principles (GAAP) applied on a basis consistent with that of the
preceding financial statement.
(2) The calculations required by this paragraph shall be made as of
the last business day of the swap data repository's fiscal quarter.
(3) The report shall be filed not later than 17 business days after
the end of the swap data repository's fiscal quarter, or at such later
time as the Commission may permit, in its discretion, upon request by
the swap data repository.
Sec. 49.26 Disclosure requirements of swap data repositories.
Before accepting any swap data from a reporting entity or upon a
reporting entity's request, a registered swap data repository shall
furnish to the reporting entity a disclosure document that contains the
following written information, which shall reasonably enable the
reporting entity to identify and evaluate accurately the risks and costs
associated with using the services of the swap data repository:
(a) The registered swap data repository's criteria for providing
others with access to services offered and swap data maintained by the
swap data repository;
(b) The registered swap data repository's criteria for those seeking
to connect to or link with the swap data repository;
(c) A description of the registered swap data repository's policies
and procedures regarding its safeguarding of swap data and operational
reliability to protect the confidentiality and security of such data, as
described in Sec. 49.24;
(d) The registered swap data repository's policies and procedures
reasonably designed to protect the privacy of any and all swap data that
the swap data repository receives from a reporting entity, as described
in Sec. 49.16;
(e) The registered swap data repository's policies and procedures
regarding its non-commercial and/or commercial use of the swap data that
it receives from a market participant, any registered entity, or any
other person;
(f) The registered swap data repository's dispute resolution
procedures;
(g) A description of all the registered swap data repository's
services, including any ancillary services;
(h) The registered swap data repository's updated schedule of any
fees, rates, dues, unbundled prices, or other charges for all of its
services, including any ancillary services; any discounts or rebates
offered; and the criteria to benefit from such discounts or rebates; and
(i) A description of the registered swap data repository's
governance arrangements.
Sec. 49.27 Access and fees.
(a) Fair, open and equal access. (1) A registered swap data
repository, consistent with Section 21 of the Act, shall provide its
services to market participants, including but not limited to designated
contract markets, swap execution facilities, derivatives clearing
organizations, swap dealers, major swap participants and any other
counterparties, on a fair, open and equal basis. For this purpose, a
swap data repository shall not provide access to its services on a
discriminatory basis but is required to provide its services to all
market participants for swaps it accepts in an asset class.
(2) Consistent with the principles of open access set forth in
paragraph (a)(1) of this Regulation, a registered swap data repository
shall not tie or
[[Page 180]]
bundle the offering of mandated regulatory services with other ancillary
services that a swap data repository may provide to market participants.
(b) Fees. (1) Any fees or charges imposed by a registered swap data
repository in connection with the reporting of swap data and any other
supplemental or ancillary services provided by such swap data repository
shall be equitable and established in a uniform and non-discriminatory
manner. Fees or charges shall not be used as an artificial barrier to
access to the swap data repository. Swap data repositories shall not
offer preferential pricing arrangements to any market participant on any
basis, including volume discounts or reductions unless such discounts or
reductions apply to all market participants uniformly and are not
otherwise established in a manner that would effectively limit the
application of such discount or reduction to a select number of market
participants.
(2) All fees or charges are to be fully disclosed and transparent to
market participants. At a minimum, the registered swap data repository
shall provide a schedule of fees and charges that is accessible by all
market participants on its Web site.
(3) The Commission notes that it will not specifically approve the
fees charged by registered swap data repositories. However, any and all
fees charged by swap data repositories must be consistent with the
principles set forth in paragraph (b)(1) of this section.
Sec. Appendix A to Part 49--Form SDR
COMMODITY FUTURES TRADING COMMISSION
FORM SDR
SWAP DATA REPOSITORY APPLICATION OR AMENDMENT TO APPLICATION FOR
REGISTRATION REGISTRATION INSTRUCTIONS
Intentional misstatements or omissions of material fact may constitute
federal criminal violations (7 U.S.C. Sec. 13 and 18 U.S.C. Sec. 1001)
or grounds for disqualification from registration.
DEFINITIONS
Unless the context requires otherwise, all terms used in this Form
SDR have the same meaning as in the Commodity Exchange Act, as amended,
and in the Regulations of the Commission thereunder.
For the purposes of this Form SDR, the term ``Applicant'' shall
include any applicant for registration as a swap data repository or any
registered swap data repository that is amending Form SDR.
GENERAL INSTRUCTIONS
1. Form SDR and Exhibits thereto are to be filed with the Commodity
Futures Trading Commission by Applicants for registration as a swap data
repository, or by a registered swap data repository amending such
registration, pursuant to Section 21 of the Commodity Exchange Act and
the regulations thereunder. Upon the filing of an application for
registration, the Commission will publish notice of the filing and
afford interested persons an opportunity to submit written data, views
and arguments concerning such application. No application for
registration shall be effective unless the Commission, by order, grants
such registration.
2. Individuals' names shall be given in full (Last Name, First Name,
Middle Name).
3. Signatures must accompany each copy of the Form SDR filed with
the Commission. If this Form SDR is filed by a corporation, it must be
signed in the name of the corporation by a principal officer duly
authorized; if filed by a limited liability company, this Form SDR must
be signed in the name of the limited liability company by a member duly
authorized to sign on the limited liability company's behalf; if filed
by a partnership, this Form SDR must be signed in the name of the
partnership by a general partner authorized; if filed by an
unincorporated organization or association which is not a partnership,
it must be signed in the name of the organization or association by the
managing agent, i.e., a duly authorized person who directs, manages or
who participates in the directing or managing of its affairs.
4. If Form SDR is being filed as an initial application for
registration, all applicable items must be answered in full. If any item
is not applicable, indicate by ``none,'' ``not applicable,'' or ``N/A''
as appropriate.
5. Under Section 21 of the Commodity Exchange Act and the
regulations thereunder, the Commission is authorized to solicit the
information required to be supplied by this form from Applicants for
registration as a swap data repository and from registered swap data
repositories amending their registration. Disclosure of the information
specified on this form is mandatory prior to processing of an
application for registration as a swap data repository. The information
will be used for the principal purpose of determining whether the
Commission should grant or deny registration to an Applicant. The
Commission may determine that additional information is required from
the Applicant in order to process its application.
[[Page 181]]
An Applicant is therefore encouraged to supplement this Form SDR with
any additional information that may be significant to its operation as a
swap data repository and to the Commission's review of its application.
A Form SDR which is not prepared and executed in compliance with
applicable requirements and instructions may be returned as not
acceptable for filing. Acceptance of this Form SDR, however, shall not
constitute any finding that the Form SDR has been filed as required or
that the information submitted is true, current or complete.
6. Except in cases where confidential treatment is requested by the
Applicant and granted by the Commission pursuant to the Freedom of
Information Act and Commission Regulation Sec. 145.9, information
supplied on this form will be included routinely in the public files of
the Commission and will be available for inspection by any interested
person. The Applicant must identify with particularity the information
in these exhibits that will be subject to a request for confidential
treatment and supporting documentation for such request pursuant to
Commission Regulations Sec. 40.8, and Sec. 145.9.
UPDATING INFORMATION ON THE FORM SDR
1. Section 21 requires that if any information contained in Items 1
through 17, 23, 29, and Item 53 of this application, or any supplement
or amendment thereto, is or becomes inaccurate for any reason, an
amendment must be filed promptly, unless otherwise specified, on Form
SDR correcting such information.
2. Registrants filing Form SDR as an amendment (other than an annual
amendment) need file only the first page of Form SDR, the signature page
(Item 13), and any pages on which an answer is being amended, together
with such exhibits as are being amended. The submission of an amendment
represents that all unamended items and exhibits remain true, current
and complete as previously filed.
ANNUAL AMENDMENT ON THE FORM SDR
Annual amendments on the Form SDR shall be submitted within 60 days
of the end of the Applicant's fiscal year. Applicants must complete the
first page and provide updated information or exhibits.
An Applicant may request an extension of time for submitting the
annual amendment with the Secretary of the Commission based on
substantial, undue hardship. Extensions for filing annual amendments may
be granted at the discretion of the Commission.
WHERE TO FILE
File registration application and appropriate exhibits
electronically with the Commission at the Washington, D.C. headquarters
in a format and in the manner specified by the Secretary of the
Commission.
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PART 50_CLEARING REQUIREMENT AND RELATED RULES--Table of Contents
Subpart A_Definitions and Clearing Requirement
Sec.
50.1 Definitions.
50.2 Treatment of swaps subject to a clearing requirement.
50.3 Notice to the public.
50.4 Classes of swaps required to be cleared.
50.5 Swaps exempt from a clearing requirement.
50.6 Delegation of authority.
50.7-50.9 [Reserved]
50.10 Prevention of evasion of the clearing requirement and abuse of an
exception or exemption to the clearing requirement.
50.11-50.24 [Reserved]
Subpart B_Compliance Schedule
50.25 Clearing requirement compliance schedule.
50.26-50.49 [Reserved]
Subpart C_Exceptions and Exemptions to Clearing Requirement
50.50 Exceptions to the clearing requirement.
50.51 Exemption for cooperatives.
50.52 Exemption for swaps between affiliates.
Authority: 7 U.S.C. 2(h) and 7a-1 as amended by Pub. L. 111-203, 124
Stat. 1376.
Source: 77 FR 44455, July 30, 2012, unless otherwise noted.
Subpart A_Definitions and Clearing Requirement
Source: 77 FR 74335, Dec. 13, 2012, unless otherwise noted.
Sec. 50.1 Definitions.
For the purposes of this part,
Business day means any day other than a Saturday, Sunday, or legal
holiday.
Day of execution means the calendar day of the party to the swap
that ends latest, provided that if a swap is:
(1) Entered into after 4:00 p.m. in the location of a party; or
(2) Entered into on a day that is not a business day in the location
of a party, then such swap shall be deemed to have been entered into by
that party on the immediately succeeding business day of that party, and
the day of
[[Page 191]]
execution shall be determined with reference to such business day.
Sec. 50.2 Treatment of swaps subject to a clearing requirement.
(a) All persons executing a swap that:
(1) Is not subject to an exception under section 2(h)(7) of the Act
or Sec. 50.50 of this part; and
(2) Is included in a class of swaps identified in Sec. 50.4 of this
part, shall submit such swap to any eligible derivatives clearing
organization that accepts such swap for clearing as soon as
technologically practicable after execution, but in any event by the end
of the day of execution.
(b) Each person subject to the requirements of paragraph (a) of this
section shall undertake reasonable efforts to verify whether a swap is
required to be cleared.
(c) For purposes of paragraph (a) of this section, persons that are
not clearing members of an eligible derivatives clearing organization
shall be deemed to have complied with paragraph (a) of this section upon
submission of such swap to a futures commission merchant or clearing
member of a derivatives clearing organization, provided that submission
occurs as soon as technologically practicable after execution, but in
any event by the end of the day of execution.
Sec. 50.3 Notice to the public.
(a) In addition to its obligations under Sec. 39.21(c)(1), each
derivatives clearing organization shall make publicly available on its
Web site a list of all swaps that it will accept for clearing and
identify which swaps on the list are required to be cleared under
section 2(h)(1) of the Act and this part.
(b) The Commission shall maintain a current list of all swaps that
are required to be cleared and all derivatives clearing organizations
that are eligible to clear such swaps on its Web site.
Sec. 50.4 Classes of swaps required to be cleared.
(a) Interest rate swaps. Swaps that have the following
specifications are required to be cleared under section 2(h)(1) of the
Act, and shall be cleared pursuant to the rules of any derivatives
clearing organization eligible to clear such swaps under Sec. 39.5(a)
of this chapter.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Specification Fixed-to-floating swap class
----------------------------------------------------------------------------------------------------------------
Currency........................ U.S. dollar (USD). Euro (EUR)........ Sterling (GBP).... Yen (JPY).
Floating Rate Indexes........... LIBOR............. EURIBOR........... LIBOR............. LIBOR.
Stated Termination Date Range... 28 days to 50 28 days to 50 28 days to 50 28 days to 30
years. years. years. years.
Optionality..................... No................ No................ No................ No.
Dual Currencies................. No................ No................ No................ No.
Conditional Notional Amounts.... No................ No................ No................ No.
----------------------------------------------------------------------------------------------------------------
Specification Basis swap class
----------------------------------------------------------------------------------------------------------------
Currency........................ U.S. dollar (USD). Euro (EUR)........ Sterling (GBP).... Yen (JPY).
Floating Rate Indexes........... LIBOR............. EURIBOR........... LIBOR............. LIBOR.
Stated Termination Date Range... 28 days to 50 28 days to 50 28 days to 50 28 days to 30
years. years. years. years.
Optionality..................... No................ No................ No................ No.
Dual Currencies................. No................ No................ No................ No.
Conditional Notional Amounts.... No................ No................ No................ No.
----------------------------------------------------------------------------------------------------------------
Specification Forward rate agreement class
----------------------------------------------------------------------------------------------------------------
Currency........................ U.S. dollar (USD). Euro (EUR)........ Sterling (GBP).... Yen (JPY).
Floating Rate Indexes........... LIBOR............. EURIBOR........... LIBOR............. LIBOR.
Stated Termination Date Range... 3 days to 3 years. 3 days to 3 years. 3 days to 3 years. 3 days to 3 years.
Optionality..................... No................ No................ No................ No.
Dual Currencies................. No................ No................ No................ No.
[[Page 192]]
6. Conditional Notional Amounts. No................ No................ No................ No.
----------------------------------------------------------------------------------------------------------------
Specification Overnight index swap class
----------------------------------------------------------------------------------------------------------------
Currency........................ U.S. dollar (USD). Euro (EUR)........ Sterling (GBP).
Floating Rate Indexes........... FedFunds.......... EONIA............. SONIA.
Stated Termination Date Range... 7 days to 2 years. 7 days to 2 years. 7 days to 2 years.
Optionality..................... No................ No................ No.
Dual Currencies................. No................ No................ No.
Conditional Notional Amounts.... No................ No................ No.
----------------------------------------------------------------------------------------------------------------
(b) Credit default swaps. Swaps that have the following
specifications are required to be cleared under section 2(h)(1) of the
Act, and shall be cleared pursuant to the rules of any derivatives
clearing organization eligible to clear such swaps under Sec. 39.5(a)
of this chapter.
----------------------------------------------------------------------------------------------------------------
Specification North American untranched CDS indices class
----------------------------------------------------------------------------------------------------------------
Reference Entities............................................... Corporate.
Region........................................................... North America.
Indices.......................................................... CDX.NA.IG; CDX.NA.HY.
Tenor............................................................ CDX.NA.IG: 3Y, 5Y, 7Y, 10Y; CDX.NA.HY: 5Y.
Applicable Series................................................ CDX.NA.IG 3Y: Series 15 and all subsequent
Series, up to and including the current
Series.
CDX.NA.IG 5Y: Series 11 and all subsequent
Series, up to and including the current
Series.
CDX.NA.IG 7Y: Series 8 and all subsequent
Series, up to and including the current
Series.
CDX.NA.IG 10Y: Series 8 and all subsequent
Series, up to and including the current
Series.
CDX.NA.HY 5Y: Series 11 and all subsequent
Series, up to and including the current
Series.
Tranched......................................................... No.
----------------------------------------------------------------------------------------------------------------
Specification European untranched CDS indices class
----------------------------------------------------------------------------------------------------------------
Reference Entities............................................... Corporate.
Region........................................................... Europe.
Indices.......................................................... iTraxx Europe.
iTraxx Europe Crossover.
iTraxx Europe HiVol.
Tenor............................................................ iTraxx Europe: 5Y, 10Y.
iTraxx Europe Crossover: 5Y.
iTraxx Europe HiVol: 5Y.
Applicable Series................................................ iTraxx Europe 5Y: Series 10 and all
subsequent Series, up to and including the
current Series.
iTraxx Europe 10Y: Series 7 and all
subsequent Series, up to and including the
current Series.
iTraxx Europe Crossover 5Y: Series 10 and all
subsequent Series, up to and including the
current Series.
iTraxx Europe HiVol 5Y: Series 10 and all
subsequent Series, up to and including the
current Series.
Tranched......................................................... No.
----------------------------------------------------------------------------------------------------------------
Sec. 50.5 Swaps exempt from a clearing requirement.
(a) Swaps entered into before July 21, 2010 shall be exempt from the
clearing requirement under Sec. 50.2 of this part if reported to a swap
data repository pursuant to section 2(h)(5)(A) of the Act and Sec.
46.3(a) of this chapter.
(b) Swaps entered into before the application of the clearing
requirement for a particular class of swaps under Sec. Sec. 50.2 and
50.4 of this part shall be exempt from the clearing requirement if
reported to a swap data repository pursuant to section 2(h)(5)(B) of the
Act and either Sec. 46.3(a) or Sec. Sec. 45.3 and 45.4 of this
chapter, as appropriate.
[[Page 193]]
Sec. 50.6 Delegation of Authority.
(a) The Commission hereby delegates to the Director of the Division
of Clearing and Risk or such other employee or employees as the Director
may designate from time to time, with the consultation of the General
Counsel or such other employee or employees as the General Counsel may
designate from time to time, the authority:
(1) After prior notice to the Commission, to determine whether one
or more swaps submitted by a derivatives clearing organization under
Sec. 39.5 falls within a class of swaps as described in Sec. 50.4,
provided that inclusion of such swaps is consistent with the
Commission's clearing requirement determination for that class of swaps;
and
(2) To notify all relevant derivatives clearing organizations of
that determination.
(b) The Director of the Division of Clearing and Risk may submit to
the Commission for its consideration any matter which has been delegated
in this section. Nothing in this section prohibits the Commission, at
its election, from exercising the authority delegated in this section.
Sec. 50.7-50.9 [Reserved]
Sec. 50.10 Prevention of evasion of the clearing requirement and
abuse of an exception or exemption to the clearing requirement.
(a) It shall be unlawful for any person to knowingly or recklessly
evade or participate in or facilitate an evasion of the requirements of
section 2(h) of the Act or any Commission rule or regulation promulgated
thereunder.
(b) It shall be unlawful for any person to abuse the exception to
the clearing requirement as provided under section 2(h)(7) of the Act or
an exception or exemption under this chapter.
(c) It shall be unlawful for any person to abuse any exemption or
exception to the requirements of section 2(h) of the Act, including any
exemption or exception as the Commission may provide by rule,
regulation, or order.
Sec. 50.11-50.24 [Reserved]
Subpart B_Compliance Schedule
Sec. 50.25 Clearing requirement compliance schedule.
(a) Definitions. For the purposes of this paragraph:
Active fund means any private fund as defined in section 202(a) of
the Investment Advisers Act of 1940, that is not a third-party
subaccount and that executes 200 or more swaps per month based on a
monthly average over the 12 months preceding the Commission issuing a
clearing requirement determination under section 2(h)(2) of the Act.
Category 1 Entity means a swap dealer, a security-based swap dealer;
a major swap participant; a major security-based swap participant; or an
active fund.
Category 2 Entity means a commodity pool; a private fund as defined
in section 202(a) of the Investment Advisers Act of 1940 other than an
active fund; or a person predominantly engaged in activities that are in
the business of banking, or in activities that are financial in nature
as defined in section 4(k) of the Bank Holding Company Act of 1956,
provided that, in each case, the entity is not a third-party subaccount.
Third-party Subaccount means an account that is managed by an
investment manager that is independent of and unaffiliated with the
account's beneficial owner or sponsor, and is responsible for the
documentation necessary for the account's beneficial owner to clear
swaps.
(b) Upon issuing a clearing requirement determination under section
2(h)(2) of the Act, the Commission may determine, based on the group,
category, type, or class of swaps subject to such determination, that
the following schedule for compliance with the requirements of section
2(h)(1)(A) of the Act shall apply:
(1) A swap between a Category 1 Entity and another Category 1
Entity, or any other entity that desires to clear the transaction, must
comply with the requirements of section 2(h)(1)(A) of the Act no later
than ninety (90) days from the date of publication of such
[[Page 194]]
clearing requirement determination in the Federal Register.
(2) A swap between a Category 2 Entity and a Category 1 Entity,
another Category 2 Entity, or any other entity that desires to clear the
transaction, must comply with the requirements of section 2(h)(1)(A) of
the Act no later than one hundred and eighty (180) days from the date of
publication of such clearing requirement determination in the Federal
Register.
(3) All other swaps for which neither of the parties to the swap is
eligible to claim the exception from the clearing requirement set forth
in section 2(h)(7) of the Act and Sec. 39.6, must comply with the
requirements of section 2(h)(1)(A) of the Act no later than two hundred
and seventy (270) days from the date of publication of such clearing
requirement determination in the Federal Register.
(c) Nothing in this rule shall be construed to prohibit any person
from voluntarily complying with the requirements of section 2(h)(1)(A)
of the Act sooner than the implementation schedule provided under
paragraph (b).
[77 FR 44455, July 30, 2012]
Sec. Sec. 50.26-50.49 [Reserved]
Subpart C_Exceptions and Exemptions to Clearing Requirement
Source: 77 FR 74337, Dec. 13, 2012, unless otherwise noted.
Sec. 50.50 Exceptions to the clearing requirement.
(a) Non-financial entities. (1) A counterparty to a swap may elect
the exception to the clearing requirement under section 2(h)(7)(A) of
the Act if the counterparty:
(i) Is not a ``financial entity'' as defined in section
2(h)(7)(C)(i) of the Act;
(ii) Is using the swap to hedge or mitigate commercial risk as
provided in paragraph (c) of this section; and
(iii) Provides, or causes to be provided, the information specified
in paragraph (b) of this section to a registered swap data repository
or, if no registered swap data repository is available to receive the
information from the reporting counterparty, to the Commission. A
counterparty that satisfies the criteria in this paragraph (a)(1) and
elects the exception is an ``electing counterparty.''
(2) If there is more than one electing counterparty to a swap, the
information specified in paragraph (b) of this section shall be provided
with respect to each of the electing counterparties.
(b) Reporting. (1) When a counterparty elects the exception to the
clearing requirement under section 2(h)(7)(A) of the Act, one of the
counterparties to the swap (the ``reporting counterparty,'' as
determined in accordance with Sec. 45.8 of this part) shall provide, or
cause to be provided, the following information to a registered swap
data repository or, if no registered swap data repository is available
to receive the information from the reporting counterparty, to the
Commission, in the form and manner specified by the Commission:
(i) Notice of the election of the exception;
(ii) The identity of the electing counterparty to the swap; and
(iii) The following information, unless such information has
previously been provided by the electing counterparty in a current
annual filing pursuant to paragraph (b)(2) of this section:
(A) Whether the electing counterparty is a ``financial entity'' as
defined in section 2(h)(7)(C)(i) of the Act, and if the electing
counterparty is a financial entity, whether it is:
(1) Electing the exception in accordance with section
2(h)(7)(C)(iii) or section 2(h)(7)(D) of the Act; or
(2) Exempt from the definition of ``financial entity'' as described
in paragraph (d) of this section;
(B) Whether the swap or swaps for which the electing counterparty is
electing the exception are used by the electing counterparty to hedge or
mitigate commercial risk as provided in paragraph (c) of this section;
(C) How the electing counterparty generally meets its financial
obligations associated with entering into non-cleared swaps by
identifying one or more of the following categories, as applicable:
[[Page 195]]
(1) A written credit support agreement;
(2) Pledged or segregated assets (including posting or receiving
margin pursuant to a credit support agreement or otherwise);
(3) A written third-party guarantee;
(4) The electing counterparty's available financial resources; or
(5) Means other than those described in paragraphs
(b)(1)(iii)(C)(1), (2), (3) or (4) of this section; and
(D) Whether the electing counterparty is an entity that is an issuer
of securities registered under section 12 of, or is required to file
reports under section 15(d) of, the Securities Exchange Act of 1934, and
if so:
(1) The relevant SEC Central Index Key number for that counterparty;
and
(2) Whether an appropriate committee of that counterparty's board of
directors (or equivalent body) has reviewed and approved the decision to
enter into swaps that are exempt from the requirements of sections
2(h)(1) and 2(h)(8) of the Act.
(2) An entity that qualifies for an exception to the clearing
requirement under this section may report the information listed in
paragraph (b)(1)(iii) of this section annually in anticipation of
electing the exception for one or more swaps. Any such reporting under
this paragraph shall be effective for purposes of paragraph (b)(1)(iii)
of this section for swaps entered into by the entity for 365 days
following the date of such reporting. During such period, the entity
shall amend such information as necessary to reflect any material
changes to the information reported.
(3) Each reporting counterparty shall have a reasonable basis to
believe that the electing counterparty meets the requirements for an
exception to the clearing requirement under this section.
(c) Hedging or mitigating commercial risk. For purposes of section
2(h)(7)(A)(ii) of the Act and paragraph (b)(1)(iii)(B) of this section,
a swap is used to hedge or mitigate commercial risk if:
(1) Such swap:
(i) Is economically appropriate to the reduction of risks in the
conduct and management of a commercial 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;
(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 swap is:
(i) Not used for a purpose that is in the nature of speculation,
investing, or trading; and
(ii) Not used to hedge or mitigate the risk of another swap or
security-based swap position, unless that other position itself is used
to hedge or mitigate
[[Page 196]]
commercial risk as defined by this rule or Sec. 240.3a67-4 of this
title.
(d) For purposes of section 2(h)(7)(A) of the Act, a person that is
a ``financial entity'' solely because of section 2(h)(7)(C)(i)(VIII)
shall be exempt from the definition of ``financial entity'' if such
person:
(1) Is organized as a bank, as defined in section 3(a) of the
Federal Deposit Insurance Act, the deposits of which are insured by the
Federal Deposit Insurance Corporation; a savings association, as defined
in section 3(b) of the Federal Deposit Insurance Act, the deposits of
which are insured by the Federal Deposit Insurance Corporation; a farm
credit system institution chartered under the Farm Credit Act of 1971;
or an insured Federal credit union or State-chartered credit union under
the Federal Credit Union Act; and
(2) Has total assets of $10,000,000,000 or less on the last day of
such person's most recent fiscal year.
Sec. 50.51 Exemption for cooperatives.
Exemption for cooperatives. Exempt cooperatives may elect not to
clear certain swaps identified in paragraph (b) of this section that are
otherwise subject to the clearing requirement of section 2(h)(1)(A) of
the Act if the following requirements are satisfied.
(a) For the purposes of this paragraph, an exempt cooperative means
a cooperative:
(1) Formed and existing pursuant to Federal or state law as a
cooperative;
(2) That is a ``financial entity,'' as defined in section
2(h)(7)(C)(i) of the Act, solely because of section 2(h)(7)(C)(i)(VIII)
of the Act; and
(3) Each member of which is not a ``financial entity,'' as defined
in section 2(h)(7)(C)(i) of the Act, or if any member is a financial
entity solely because of section 2(h)(7)(C)(i)(VIII) of the Act, such
member is:
(i) Exempt from the definition of ``financial entity'' pursuant to
Sec. 50.50(d); or
(ii) A cooperative formed under Federal or state law as a
cooperative and each member thereof is either not a ``financial
entity,'' as defined in section 2(h)(7)(C)(i) of the Act, or is exempt
from the definition of ``financial entity'' pursuant to Sec. 50.50(d).
(b) An exempt cooperative may elect not to clear a swap that is
subject to the clearing requirement of section 2(h)(1)(A) of the Act if
the swap:
(1) Is entered into with a member of the exempt cooperative in
connection with originating a loan or loans for the member, which means
the requirements of Sec. 1.3(ggg)(5)(i), (ii), and (iii) are satisfied;
provided that, for this purpose, the term ``insured depository
institution'' as used in those sections is replaced with the term
``exempt cooperative'' and the word ``customer'' is replaced with the
word ``member;'' or
(2) Hedges or mitigates commercial risk, in accordance with Sec.
50.50(c), related to loans to members or arising from a swap or swaps
that meet the requirements of paragraph (b)(1) of this section.
(c) An exempt cooperative that elects the exemption provided in this
section shall comply with the requirements of Sec. 50.50(b). For this
purpose, the exempt cooperative shall be the ``electing counterparty,''
as such term is used in Sec. 50.50(b), and for purposes of Sec.
50.50(b)(1)(iii)(A), the reporting counterparty, as determined pursuant
to Sec. 45.8, shall report that an exemption is being elected in
accordance with this section.
[78 FR 52307, Aug. 22, 2013]
Sec. 50.52 Exemption for swaps between affiliates.
(a) Eligible affiliate counterparty status. Subject to the
conditions in paragraph (b) of this section:
(1) Counterparties to a swap may elect not to clear a swap subject
to the clearing requirement of section 2(h)(1)(A) of the Act and this
part if:
(i) One counterparty, directly or indirectly, holds a majority
ownership interest in the other counterparty, and the counterparty that
holds the majority interest in the other counterparty reports its
financial statements on a consolidated basis under Generally Accepted
Accounting Principles or International Financial Reporting Standards,
and such consolidated financial statements include the financial results
of the majority-owned counterparty; or
[[Page 197]]
(ii) A third party, directly or indirectly, holds a majority
ownership interest in both counterparties, and the third party reports
its financial statements on a consolidated basis under Generally
Accepted Accounting Principles or International Financial Reporting
Standards, and such consolidated financial statements include the
financial results of both of the swap counterparties.
(2) For purposes of this section:
(i) A counterparty or third party directly or indirectly holds a
majority ownership interest if it directly or indirectly holds a
majority of the equity securities of an entity, or the right to receive
upon dissolution, or the contribution of, a majority of the capital of a
partnership; and
(ii) The term ``eligible affiliate counterparty'' means an entity
that meets the requirements of this paragraph.
(b) Additional conditions. Eligible affiliate counterparties to a
swap may elect the exemption described in paragraph (a) of this section
if:
(1) Both counterparties elect not to clear the swap;
(2)(i) A swap dealer or major swap participant that is an eligible
affiliate counterparty to the swap satisfies the requirements of Sec.
23.504 of this chapter; or
(ii) If neither eligible affiliate counterparty is a swap dealer or
major swap participant, the terms of the swap are documented in a swap
trading relationship document that shall be in writing and shall include
all terms governing the trading relationship between the eligible
affiliate counterparties;
(3) The swap is subject to a centralized risk management program
that is reasonably designed to monitor and manage the risks associated
with the swap. If at least one of the eligible affiliate counterparties
is a swap dealer or major swap participant, this centralized risk
management requirement shall be satisfied by complying with the
requirements of Sec. 23.600 of this chapter; and
(4)(i) Each eligible affiliate counterparty that enters into a swap,
which is included in a class of swaps identified in Sec. 50.4, with an
unaffiliated counterparty shall:
(A) Comply with the requirements for clearing the swap in section
2(h) of the Act and this part;
(B) Comply with the requirements for clearing the swap under a
foreign jurisdiction's clearing mandate that is comparable, and
comprehensive but not necessarily identical, to the clearing requirement
of section 2(h) of the Act and this part, as determined by the
Commission;
(C) Comply with an exception or exemption under section 2(h)(7) of
the Act or this part;
(D) Comply with an exception or exemption under a foreign
jurisdiction's clearing mandate, provided that:
(1) The foreign jurisdiction's clearing mandate is comparable, and
comprehensive but not necessarily identical, to the clearing requirement
of section 2(h) of the Act and this part, as determined by the
Commission; and
(2) The foreign jurisdiction's exception or exemption is comparable
to an exception or exemption under section 2(h)(7) of the Act or this
part, as determined by the Commission; or
(E) Clear such swap through a registered derivatives clearing
organization or a clearing organization that is subject to supervision
by appropriate government authorities in the home country of the
clearing organization and has been assessed to be in compliance with the
Principles for Financial Market Infrastructures.
(ii)(A) Except as provided in paragraph (b)(4)(ii)(B) of this
section, if one of the eligible affiliate counterparties is located in
the European Union, Japan, or Singapore, the following may satisfy the
requirements of paragraph (b)(4)(i) of this section until March 11,
2014:
(1) Each eligible affiliate counterparty, or a third party that
directly or indirectly holds a majority interest in both eligible
affiliate counterparties, pays and collects full variation margin daily
on all swaps entered into between the eligible affiliate counterparty
located in the European Union, Japan, or Singapore and an unaffiliated
counterparty; or
[[Page 198]]
(2) Each eligible affiliate counterparty, or a third party that
directly or indirectly holds a majority interest in both eligible
affiliate counterparties, pays and collects full variation margin daily
on all of the eligible affiliate counterparties' swaps with other
eligible affiliate counterparties.
(B) If one of the eligible affiliate counterparties is located in
the European Union, Japan, or Singapore, the requirements of paragraph
(b)(4)(i) of this section shall not apply to the eligible affiliate
counterparty located in the European Union, Japan, or Singapore until
March 11, 2014, provided that:
(1) The one counterparty that directly or indirectly holds a
majority ownership interest in the other counterparty or the third party
that directly or indirectly holds a majority ownership interest in both
counterparties is not a ``financial entity'' as defined in section
2(h)(7)(C)(i) of the Act; and
(2) Neither eligible affiliate counterparty is affiliated with an
entity that is a swap dealer or major swap participant, as defined in
Sec. 1.3.
(iii) If an eligible affiliate counterparty located in the United
States enters into swaps, which are included in a class of swaps
identified in Sec. 50.4, with eligible affiliate counterparties located
in jurisdictions other than the United States, the European Union,
Japan, and Singapore, and the aggregate notional value of such swaps,
which are included in a class of swaps identified in Sec. 50.4, does
not exceed five percent of the aggregate notional value of all swaps,
which are included in a class of swaps identified in Sec. 50.4, in each
instance the notional value as measured in U.S. dollar equivalents and
calculated for each calendar quarter, entered into by the eligible
affiliate counterparty located in the United States, then such swaps
shall be deemed to satisfy the requirements of paragraph (b)(4)(i) of
this section until March 11, 2014, provided that:
(A) Each eligible affiliate counterparty, or a third party that
directly or indirectly holds a majority interest in both eligible
affiliate counterparties, pays and collects full variation margin daily
on all swaps entered into between the eligible affiliate counterparties
located in jurisdictions other than the United States, the European
Union, Japan, and Singapore and an unaffiliated counterparty; or
(B) Each eligible affiliate counterparty, or a third party that
directly or indirectly holds a majority interest in both eligible
affiliate counterparties, pays and collects full variation margin daily
on all of the eligible affiliate counterparties' swaps with other
eligible affiliate counterparties.
(c) Reporting requirements. When the exemption described in
paragraph (a) of this section is elected, the reporting counterparty, as
determined in accordance with Sec. 45.8 of this chapter, shall provide
or cause to be provided the following information to a registered swap
data repository or, if no registered swap data repository is available
to receive the information from the reporting counterparty, to the
Commission, in the form and manner specified by the Commission:
(1) Confirmation that both eligible affiliate counterparties to the
swap are electing not to clear the swap and that each of the electing
eligible affiliate counterparties satisfies the requirements in
paragraph (b) of this section applicable to it;
(2) For each electing eligible affiliate counterparty, how the
counterparty generally meets its financial obligations associated with
entering into non-cleared swaps by identifying one or more of the
following categories, as applicable:
(i) A written credit support agreement;
(ii) Pledged or segregated assets (including posting or receiving
margin pursuant to a credit support agreement or otherwise);
(iii) A written guarantee from another party;
(iv) The electing counterparty's available financial resources; or
(v) Means other than those described in paragraphs (c)(2)(i), (ii),
(iii) or (iv) of this section; and
(3) If an electing eligible affiliate counterparty is an entity that
is an issuer of securities registered under
[[Page 199]]
section 12 of, or is required to file reports under section 15(d) of,
the Securities Exchange Act of 1934:
(i) The relevant SEC Central Index Key number for that counterparty;
and
(ii) Acknowledgment that an appropriate committee of the board of
directors (or equivalent body) of the eligible affiliate counterparty
has reviewed and approved the decision to enter into swaps that are
exempt from the requirements of section 2(h)(1) and 2(h)(8) of the Act.
(d) Annual reporting. An eligible affiliate counterparty that
qualifies for the exemption described in paragraph (a) of this section
may report the information listed in paragraphs (c)(2) and (3) of this
section annually in anticipation of electing the exemption for one or
more swaps. Any such reporting by a reporting counterparty under this
paragraph will be effective for purposes of paragraphs (c)(2) and (3) of
this section for 365 days following the date of such reporting. During
the 365-day period, the reporting counterparty shall amend the report as
necessary to reflect any material changes to the information reported.
Each reporting counterparty shall have a reasonable basis to believe
that the eligible affiliate counterparties meet the requirements for the
exemption under this section.
[78 FR 21783, Apr. 11, 2013]
PART 75_PROPRIETARY TRADING AND CERTAIN INTERESTS IN AND RELATIONSHIPS
WITH COVERED FUNDS--Table of Contents
Subpart A_Authority and Definitions
Sec.
75.1 Authority, purpose, scope, and relationship to other authorities.
75.2 Definitions.
Subpart B_Proprietary Trading
75.3 Prohibition on proprietary trading.
75.4 Permitted underwriting and market making-related activities.
75.5 Permitted risk-mitigating hedging activities.
75.6 Other permitted proprietary trading activities.
75.7 Limitations on permitted proprietary trading activities.
75.8-75.9 [Reserved]
Subpart C_Covered Fund Activities and Investments
75.10 Prohibition on acquiring or retaining an ownership interest in and
having certain relationships with a covered fund.
75.11 Permitted organizing and offering, underwriting, and market making
with respect to a covered fund.
75.12 Permitted investment in a covered fund.
75.13 Other permitted covered fund activities and investments.
75.14 Limitations on relationships with a covered fund.
75.15 Other limitations on permitted covered fund activities.
75.16 Ownership of interests in and sponsorship of issuers of certain
collateralized debt obligations backed by trust-preferred
securities.
75.17-75.19 [Reserved]
Subpart D_Compliance Program Requirement; Violations
75.20 Program for compliance; reporting.
75.21 Termination of activities or investments; penalties for
violations.
Appendix A to Part 75--Reporting and Recordkeeping Requirements for
Covered Trading Activities
Appendix B to Part 75--Enhanced Minimum Standards for Compliance
Programs
Authority: 12 U.S.C. 1851.
Subpart A_Authority and Definitions
Sec. 75.1 Authority, purpose, scope, and relationship to other
authorities.
(a) Authority. This part is issued by the Commission under section
13 of the Bank Holding Company Act of 1956, as amended (12 U.S.C. 1851).
(b) Purpose. Section 13 of the Bank Holding Company Act establishes
prohibitions and restrictions on proprietary trading by, and investments
in or relationships with covered funds by, certain banking entities.
This part implements section 13 of the Bank Holding Company Act by
defining terms used in the statute and related terms, establishing
prohibitions and restrictions on proprietary trading and investments in
or relationships with covered funds, and further explaining the
statute's requirements.
(c) Scope. This part implements section 13 of the Bank Holding
Company Act with respect to banking entities
[[Page 200]]
for which the CFTC is the primary financial regulatory agency, as
defined in section 2(12) of the Dodd-Frank Act.
(d) Relationship to other authorities. Except as otherwise provided
under section 13 of the BHC Act, and notwithstanding any other provision
of law, the prohibitions and restrictions under section 13 of the BHC
Act shall apply to the activities of an applicable banking entity, even
if such activities are authorized for the applicable banking entity
under other applicable provisions of law.
Sec. 75.2 Definitions.
Unless otherwise specified, for purposes of this part:
(a) Affiliate has the same meaning as in section 2(k) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(k)).
(b) Bank holding company has the same meaning as in section 2 of the
Bank Holding Company Act of 1956 (12 U.S.C. 1841).
(c) Banking entity. (1) Except as provided in paragraph (c)(2) of
this section, banking entity means:
(i) Any insured depository institution;
(ii) Any company that controls an insured depository institution;
(iii) Any company that is treated as a bank holding company for
purposes of section 8 of the International Banking Act of 1978 (12
U.S.C. 3106); and
(iv) Any affiliate or subsidiary of any entity described in
paragraphs (c)(1)(i), (ii), or (iii) of this section.
(2) Banking entity does not include:
(i) A covered fund that is not itself a banking entity under
paragraphs (c)(1)(i), (ii), or (iii) of this section;
(ii) A portfolio company held under the authority contained in
section 4(k)(4)(H) or (I) of the BHC Act (12 U.S.C. 1843(k)(4)(H), (I)),
or any portfolio concern, as defined under 13 CFR 107.50, that is
controlled by a small business investment company, as defined in section
103(3) of the Small Business Investment Act of 1958 (15 U.S.C. 662), so
long as the portfolio company or portfolio concern is not itself a
banking entity under paragraphs (c)(1)(i), (ii), or (iii) of this
section; or
(iii) The FDIC acting in its corporate capacity or as conservator or
receiver under the Federal Deposit Insurance Act or Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
(d) Board means the Board of Governors of the Federal Reserve
System.
(e) CFTC or Commission means the Commodity Futures Trading
Commission.
(f) Dealer has the same meaning as in section 3(a)(5) of the
Exchange Act (15 U.S.C. 78c(a)(5)).
(g) Depository institution has the same meaning as in section 3(c)
of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(h) Derivative. (1) Except as provided in paragraph (h)(2) of this
section, derivative means:
(i) Any swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act (7 U.S.C. 1a(47)), or security-based swap, as
that term is defined in section 3(a)(68) of the Exchange Act (15 U.S.C.
78c(a)(68));
(ii) Any purchase or sale of a commodity, that is not an excluded
commodity, for deferred shipment or delivery that is intended to be
physically settled;
(iii) Any foreign exchange forward (as that term is defined in
section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)) or
foreign exchange swap (as that term is defined in section 1a(25) of the
Commodity Exchange Act (7 U.S.C. 1a(25));
(iv) Any agreement, contract, or transaction in foreign currency
described in section 2(c)(2)(C)(i) of the Commodity Exchange Act (7
U.S.C. 2(c)(2)(C)(i));
(v) Any agreement, contract, or transaction in a commodity other
than foreign currency described in section 2(c)(2)(D)(i) of the
Commodity Exchange Act (7 U.S.C. 2(c)(2)(D)(i)); and
(vi) Any transaction authorized under section 19 of the Commodity
Exchange Act (7 U.S.C. 23(a) or (b));
(2) A derivative does not include:
(i) Any consumer, commercial, or other agreement, contract, or
transaction that the CFTC and SEC have further defined by joint
regulation, interpretation, guidance, or other action as not within the
definition of swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act (7 U.S.C.
[[Page 201]]
1a(47)), or security-based swap, as that term is defined in section
3(a)(68) of the Exchange Act (15 U.S.C. 78c(a)(68)); or
(ii) Any identified banking product, as defined in section 402(b) of
the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)), that
is subject to section 403(a) of that Act (7 U.S.C. 27a(a)).
(i) Employee includes a member of the immediate family of the
employee.
(j) Exchange Act means the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.).
(k) Excluded commodity has the same meaning as in section 1a(19) of
the Commodity Exchange Act (7 U.S.C. 1a(19)).
(l) FDIC means the Federal Deposit Insurance Corporation.
(m) Federal banking agencies means the Board, the Office of the
Comptroller of the Currency, and the FDIC.
(n) Foreign banking organization has the same meaning as in section
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)), but does not
include a foreign bank, as defined in section 1(b)(7) of the
International Banking Act of 1978 (12 U.S.C. 3101(7)), that is organized
under the laws of the Commonwealth of Puerto Rico, Guam, American Samoa,
the United States Virgin Islands, or the Commonwealth of the Northern
Mariana Islands.
(o) Foreign insurance regulator means the insurance commissioner, or
a similar official or agency, of any country other than the United
States that is engaged in the supervision of insurance companies under
foreign insurance law.
(p) General account means all of the assets of an insurance company
except those allocated to one or more separate accounts.
(q) Insurance company means a company that is organized as an
insurance company, primarily and predominantly engaged in writing
insurance or reinsuring risks underwritten by insurance companies,
subject to supervision as such by a state insurance regulator or a
foreign insurance regulator, and not operated for the purpose of evading
the provisions of section 13 of the BHC Act (12 U.S.C. 1851).
(r) Insured depository institution has the same meaning as in
section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)),
but does not include an insured depository institution that is described
in section 2(c)(2)(D) of the BHC Act (12 U.S.C. 1841(c)(2)(D)).
(s) Loan means any loan, lease, extension of credit, or secured or
unsecured receivable that is not a security or derivative.
(t) Primary financial regulatory agency has the same meaning as in
section 2(12) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (12 U.S.C. 5301(12)).
(u) Purchase includes any contract to buy, purchase, or otherwise
acquire. For security futures products, purchase includes any contract,
agreement, or transaction for future delivery. With respect to a
commodity future, purchase includes any contract, agreement, or
transaction for future delivery. With respect to a derivative, purchase
includes the execution, termination (prior to its scheduled maturity
date), assignment, exchange, or similar transfer or conveyance of, or
extinguishing of rights or obligations under, a derivative, as the
context may require.
(v) Qualifying foreign banking organization means a foreign banking
organization that qualifies as such under Sec. 211.23(a), (c) or (e) of
the Board's Regulation K (12 CFR 211.23(a), (c), or (e)).
(w) SEC means the Securities and Exchange Commission.
(x) Sale and sell each include any contract to sell or otherwise
dispose of. For security futures products, such terms include any
contract, agreement, or transaction for future delivery. With respect to
a commodity future, such terms include any contract, agreement, or
transaction for future delivery. With respect to a derivative, such
terms include the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar transfer or conveyance
of, or extinguishing of rights or obligations under, a derivative, as
the context may require.
(y) Security has the meaning specified in section 3(a)(10) of the
Exchange Act (15 U.S.C. 78c(a)(10)).
(z) Security-based swap dealer has the same meaning as in section
3(a)(71) of the Exchange Act (15 U.S.C. 78c(a)(71)).
[[Page 202]]
(aa) Security future has the meaning specified in section 3(a)(55)
of the Exchange Act (15 U.S.C. 78c(a)(55)).
(bb) Separate account means an account established and maintained by
an insurance company in connection with one or more insurance contracts
to hold assets that are legally segregated from the insurance company's
other assets, under which income, gains, and losses, whether or not
realized, from assets allocated to such account, are, in accordance with
the applicable contract, credited to or charged against such account
without regard to other income, gains, or losses of the insurance
company.
(cc) State means any State, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, American Samoa, the United States
Virgin Islands, and the Commonwealth of the Northern Mariana Islands.
(dd) Subsidiary has the same meaning as in section 2(d) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(d)).
(ee) State insurance regulator means the insurance commissioner, or
a similar official or agency, of a State that is engaged in the
supervision of insurance companies under State insurance law.
(ff) Swap dealer has the same meaning as in section 1(a)(49) of the
Commodity Exchange Act (7 U.S.C. 1a(49)).
Subpart B_Proprietary Trading
Sec. 75.3 Prohibition on proprietary trading.
(a) Prohibition. Except as otherwise provided in this subpart, a
banking entity may not engage in proprietary trading. Proprietary
trading means engaging as principal for the trading account of the
banking entity in any purchase or sale of one or more financial
instruments.
(b) Definition of trading account. (1) Trading account means any
account that is used by a banking entity to:
(i) Purchase or sell one or more financial instruments principally
for the purpose of:
(A) Short-term resale;
(B) Benefitting from actual or expected short-term price movements;
(C) Realizing short-term arbitrage profits; or
(D) Hedging one or more positions resulting from the purchases or
sales of financial instruments described in paragraphs (b)(1)(i)(A),
(B), or (C) of this section;
(ii) Purchase or sell one or more financial instruments that are
both market risk capital rule covered positions and trading positions
(or hedges of other market risk capital rule covered positions), if the
banking entity, or any affiliate of the banking entity, is an insured
depository institution, bank holding company, or savings and loan
holding company, and calculates risk-based capital ratios under the
market risk capital rule; or
(iii) Purchase or sell one or more financial instruments for any
purpose, if the banking entity:
(A) Is licensed or registered, or is required to be licensed or
registered, to engage in the business of a dealer, swap dealer, or
security-based swap dealer, to the extent the instrument is purchased or
sold in connection with the activities that require the banking entity
to be licensed or registered as such; or
(B) Is engaged in the business of a dealer, swap dealer, or
security-based swap dealer outside of the United States, to the extent
the instrument is purchased or sold in connection with the activities of
such business.
(2) Rebuttable presumption for certain purchases and sales. The
purchase (or sale) of a financial instrument by a banking entity shall
be presumed to be for the trading account of the banking entity under
paragraph (b)(1)(i) of this section if the banking entity holds the
financial instrument for fewer than sixty days or substantially
transfers the risk of the financial instrument within sixty days of the
purchase (or sale), unless the banking entity can demonstrate, based on
all relevant facts and circumstances, that the banking entity did not
purchase (or sell) the financial instrument principally for any of the
purposes described in paragraph (b)(1)(i) of this section.
(c) Financial instrument--(1) Financial instrument means:
(i) A security, including an option on a security;
[[Page 203]]
(ii) A derivative, including an option on a derivative; or
(iii) A contract of sale of a commodity for future delivery, or
option on a contract of sale of a commodity for future delivery.
(2) A financial instrument does not include:
(i) A loan;
(ii) A commodity that is not:
(A) An excluded commodity (other than foreign exchange or currency);
(B) A derivative;
(C) A contract of sale of a commodity for future delivery; or
(D) An option on a contract of sale of a commodity for future
delivery; or
(iii) Foreign exchange or currency.
(d) Proprietary trading does not include:--(1) Any purchase or sale
of one or more financial instruments by a banking entity that arises
under a repurchase or reverse repurchase agreement pursuant to which the
banking entity has simultaneously agreed, in writing, to both purchase
and sell a stated asset, at stated prices, and on stated dates or on
demand with the same counterparty;
(2) Any purchase or sale of one or more financial instruments by a
banking entity that arises under a transaction in which the banking
entity lends or borrows a security temporarily to or from another party
pursuant to a written securities lending agreement under which the
lender retains the economic interests of an owner of such security, and
has the right to terminate the transaction and to recall the loaned
security on terms agreed by the parties;
(3) Any purchase or sale of a security by a banking entity for the
purpose of liquidity management in accordance with a documented
liquidity management plan of the banking entity that:
(i) Specifically contemplates and authorizes the particular
securities to be used for liquidity management purposes, the amount,
types, and risks of these securities that are consistent with liquidity
management, and the liquidity circumstances in which the particular
securities may or must be used;
(ii) Requires that any purchase or sale of securities contemplated
and authorized by the plan be principally for the purpose of managing
the liquidity of the banking entity, and not for the purpose of short-
term resale, benefitting from actual or expected short-term price
movements, realizing short-term arbitrage profits, or hedging a position
taken for such short-term purposes;
(iii) Requires that any securities purchased or sold for liquidity
management purposes be highly liquid and limited to securities the
market, credit, and other risks of which the banking entity does not
reasonably expect to give rise to appreciable profits or losses as a
result of short-term price movements;
(iv) Limits any securities purchased or sold for liquidity
management purposes, together with any other instruments purchased or
sold for such purposes, to an amount that is consistent with the banking
entity's near-term funding needs, including deviations from normal
operations of the banking entity or any affiliate thereof, as estimated
and documented pursuant to methods specified in the plan;
(v) Includes written policies and procedures, internal controls,
analysis, and independent testing to ensure that the purchase and sale
of securities that are not permitted under Sec. 75.6(a) or (b) are for
the purpose of liquidity management and in accordance with the liquidity
management plan described in paragraph (d)(3) of this section; and
(vi) Is consistent with the Commission's supervisory requirements,
guidance, and expectations regarding liquidity management;
(4) Any purchase or sale of one or more financial instruments by a
banking entity that is a derivatives clearing organization or a clearing
agency in connection with clearing financial instruments;
(5) Any excluded clearing activities by a banking entity that is a
member of a clearing agency, a member of a derivatives clearing
organization, or a member of a designated financial market utility;
(6) Any purchase or sale of one or more financial instruments by a
banking entity, so long as:
(i) The purchase (or sale) satisfies an existing delivery obligation
of the
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banking entity or its customers, including to prevent or close out a
failure to deliver, in connection with delivery, clearing, or settlement
activity; or
(ii) The purchase (or sale) satisfies an obligation of the banking
entity in connection with a judicial, administrative, self-regulatory
organization, or arbitration proceeding;
(7) Any purchase or sale of one or more financial instruments by a
banking entity that is acting solely as agent, broker, or custodian;
(8) Any purchase or sale of one or more financial instruments by a
banking entity through a deferred compensation, stock-bonus, profit-
sharing, or pension plan of the banking entity that is established and
administered in accordance with the law of the United States or a
foreign sovereign, if the purchase or sale is made directly or
indirectly by the banking entity as trustee for the benefit of persons
who are or were employees of the banking entity; or
(9) Any purchase or sale of one or more financial instruments by a
banking entity in the ordinary course of collecting a debt previously
contracted in good faith, provided that the banking entity divests the
financial instrument as soon as practicable, and in no event may the
banking entity retain such instrument for longer than such period
permitted by the Commission.
(e) Definition of other terms related to proprietary trading. For
purposes of this subpart:
(1) Anonymous means that each party to a purchase or sale is unaware
of the identity of the other party(ies) to the purchase or sale.
(2) Clearing agency has the same meaning as in section 3(a)(23) of
the Exchange Act (15 U.S.C. 78c(a)(23)).
(3) Commodity has the same meaning as in section 1a(9) of the
Commodity Exchange Act (7 U.S.C. 1a(9)), except that a commodity does
not include any security;
(4) Contract of sale of a commodity for future delivery means a
contract of sale (as that term is defined in section 1a(13) of the
Commodity Exchange Act (7 U.S.C. 1a(13)) for future delivery (as that
term is defined in section 1a(27) of the Commodity Exchange Act (7
U.S.C. 1a(27))).
(5) Derivatives clearing organization means:
(i) A derivatives clearing organization registered under section 5b
of the Commodity Exchange Act (7 U.S.C. 7a-1);
(ii) A derivatives clearing organization that, pursuant to CFTC
regulation, is exempt from the registration requirements under section
5b of the Commodity Exchange Act (7 U.S.C. 7a-1); or
(iii) A foreign derivatives clearing organization that, pursuant to
CFTC regulation, is permitted to clear for a foreign board of trade that
is registered with the CFTC.
(6) Exchange, unless the context otherwise requires, means any
designated contract market, swap execution facility, or foreign board of
trade registered with the CFTC, or, for purposes of securities or
security-based swaps, an exchange, as defined under section 3(a)(1) of
the Exchange Act (15 U.S.C. 78c(a)(1)), or security-based swap execution
facility, as defined under section 3(a)(77) of the Exchange Act (15
U.S.C. 78c(a)(77)).
(7) Excluded clearing activities means:
(i) With respect to customer transactions cleared on a derivatives
clearing organization, a clearing agency, or a designated financial
market utility, any purchase or sale necessary to correct trading errors
made by or on behalf of a customer provided that such purchase or sale
is conducted in accordance with, for transactions cleared on a
derivatives clearing organization, the Commodity Exchange Act, CFTC
regulations, and the rules or procedures of the derivatives clearing
organization, or, for transactions cleared on a clearing agency, the
rules or procedures of the clearing agency, or, for transactions cleared
on a designated financial market utility that is neither a derivatives
clearing organization nor a clearing agency, the rules or procedures of
the designated financial market utility;
(ii) Any purchase or sale in connection with and related to the
management of a default or threatened imminent default of a customer
provided that such purchase or sale is conducted
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in accordance with, for transactions cleared on a derivatives clearing
organization, the Commodity Exchange Act, CFTC regulations, and the
rules or procedures of the derivatives clearing organization, or, for
transactions cleared on a clearing agency, the rules or procedures of
the clearing agency, or, for transactions cleared on a designated
financial market utility that is neither a derivatives clearing
organization nor a clearing agency, the rules or procedures of the
designated financial market utility;
(iii) Any purchase or sale in connection with and related to the
management of a default or threatened imminent default of a member of a
clearing agency, a member of a derivatives clearing organization, or a
member of a designated financial market utility;
(iv) Any purchase or sale in connection with and related to the
management of the default or threatened default of a clearing agency, a
derivatives clearing organization, or a designated financial market
utility; and
(v) Any purchase or sale that is required by the rules or procedures
of a clearing agency, a derivatives clearing organization, or a
designated financial market utility to mitigate the risk to the clearing
agency, derivatives clearing organization, or designated financial
market utility that would result from the clearing by a member of
security-based swaps that reference the member or an affiliate of the
member.
(8) Designated financial market utility has the same meaning as in
section 803(4) of the Dodd-Frank Act (12 U.S.C. 5462(4)).
(9) Issuer has the same meaning as in section 2(a)(4) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(4)).
(10) Market risk capital rule covered position and trading position
means a financial instrument that is both a covered position and a
trading position, as those terms are respectively defined:
(i) In the case of a banking entity that is a bank holding company,
savings and loan holding company, or insured depository institution,
under the market risk capital rule that is applicable to the banking
entity; and
(ii) In the case of a banking entity that is affiliated with a bank
holding company or savings and loan holding company, other than a
banking entity to which a market risk capital rule is applicable, under
the market risk capital rule that is applicable to the affiliated bank
holding company or savings and loan holding company.
(11) Market risk capital rule means the market risk capital rule
that is contained in subpart F of 12 CFR part 3, 12 CFR parts 208 and
225, or 12 CFR part 324, as applicable.
(12) Municipal security means a security that is a direct obligation
of or issued by, or an obligation guaranteed as to principal or interest
by, a State or any political subdivision thereof, or any agency or
instrumentality of a State or any political subdivision thereof, or any
municipal corporate instrumentality of one or more States or political
subdivisions thereof.
(13) Trading desk means the smallest discrete unit of organization
of a banking entity that purchases or sells financial instruments for
the trading account of the banking entity or an affiliate thereof.
Sec. 75.4 Permitted underwriting and market making-related
activities.
(a) Underwriting activities--(1) Permitted underwriting activities.
The prohibition contained in Sec. 75.3(a) does not apply to a banking
entity's underwriting activities conducted in accordance with paragraph
(a) of this section.
(2) Requirements. The underwriting activities of a banking entity
are permitted under paragraph (a)(1) of this section only if:
(i) The banking entity is acting as an underwriter for a
distribution of securities and the trading desk's underwriting position
is related to such distribution;
(ii) The amount and type of the securities in the trading desk's
underwriting position are designed not to exceed the reasonably expected
near term demands of clients, customers, or counterparties, and
reasonable efforts are made to sell or otherwise reduce the underwriting
position within a reasonable period, taking into account the liquidity,
maturity, and depth of the market for the relevant type of security;
(iii) The banking entity has established and implements, maintains,
and
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enforces an internal compliance program required by subpart D of this
part that is reasonably designed to ensure the banking entity's
compliance with the requirements of paragraph (a) of this section,
including reasonably designed written policies and procedures, internal
controls, analysis and independent testing identifying and addressing:
(A) The products, instruments or exposures each trading desk may
purchase, sell, or manage as part of its underwriting activities;
(B) Limits for each trading desk, based on the nature and amount of
the trading desk's underwriting activities, including the reasonably
expected near term demands of clients, customers, or counterparties, on
the:
(1) Amount, types, and risk of its underwriting position;
(2) Level of exposures to relevant risk factors arising from its
underwriting position; and
(3) Period of time a security may be held;
(C) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
(D) Authorization procedures, including escalation procedures that
require review and approval of any trade that would exceed a trading
desk's limit(s), demonstrable analysis of the basis for any temporary or
permanent increase to a trading desk's limit(s), and independent review
of such demonstrable analysis and approval;
(iv) The compensation arrangements of persons performing the
activities described in paragraph (a) of this section are designed not
to reward or incentivize prohibited proprietary trading; and
(v) The banking entity is licensed or registered to engage in the
activity described in paragraph (a) of this section in accordance with
applicable law.
(3) Definition of distribution. For purposes of paragraph (a) of
this section, a distribution of securities means:
(i) An offering of securities, whether or not subject to
registration under the Securities Act of 1933, that is distinguished
from ordinary trading transactions by the presence of special selling
efforts and selling methods; or
(ii) An offering of securities made pursuant to an effective
registration statement under the Securities Act of 1933.
(4) Definition of underwriter. For purposes of paragraph (a) of this
section, underwriter means:
(i) A person who has agreed with an issuer or selling security
holder to:
(A) Purchase securities from the issuer or selling security holder
for distribution;
(B) Engage in a distribution of securities for or on behalf of the
issuer or selling security holder; or
(C) Manage a distribution of securities for or on behalf of the
issuer or selling security holder; or
(ii) A person who has agreed to participate or is participating in a
distribution of such securities for or on behalf of the issuer or
selling security holder.
(5) Definition of selling security holder. For purposes of paragraph
(a) of this section, selling security holder means any person, other
than an issuer, on whose behalf a distribution is made.
(6) Definition of underwriting position. For purposes of paragraph
(a) of this section, underwriting position means the long or short
positions in one or more securities held by a banking entity or its
affiliate, and managed by a particular trading desk, in connection with
a particular distribution of securities for which such banking entity or
affiliate is acting as an underwriter.
(7) Definition of client, customer, and counterparty. For purposes
of paragraph (a) of this section, the terms client, customer, and
counterparty, on a collective or individual basis, refer to market
participants that may transact with the banking entity in connection
with a particular distribution for which the banking entity is acting as
underwriter.
(b) Market making-related activities--(1) Permitted market making-
related activities. The prohibition contained in Sec. 75.3(a) does not
apply to a banking entity's market making-related activities conducted
in accordance with paragraph (b) of this section.
(2) Requirements. The market making-related activities of a banking
entity are permitted under paragraph (b)(1) of this section only if:
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(i) The trading desk that establishes and manages the financial
exposure routinely stands ready to purchase and sell one or more types
of financial instruments related to its financial exposure and is
willing and available to quote, purchase and sell, or otherwise enter
into long and short positions in those types of financial instruments
for its own account, in commercially reasonable amounts and throughout
market cycles on a basis appropriate for the liquidity, maturity, and
depth of the market for the relevant types of financial instruments;
(ii) The amount, types, and risks of the financial instruments in
the trading desk's market-maker inventory are designed not to exceed, on
an ongoing basis, the reasonably expected near term demands of clients,
customers, or counterparties, based on:
(A) The liquidity, maturity, and depth of the market for the
relevant types of financial instrument(s); and
(B) Demonstrable analysis of historical customer demand, current
inventory of financial instruments, and market and other factors
regarding the amount, types, and risks, of or associated with financial
instruments in which the trading desk makes a market, including through
block trades;
(iii) The banking entity has established and implements, maintains,
and enforces an internal compliance program required by subpart D of
this part that is reasonably designed to ensure the banking entity's
compliance with the requirements of paragraph (b) of this section,
including reasonably designed written policies and procedures, internal
controls, analysis and independent testing identifying and addressing:
(A) The financial instruments each trading desk stands ready to
purchase and sell in accordance with paragraph (b)(2)(i) of this
section;
(B) The actions the trading desk will take to demonstrably reduce or
otherwise significantly mitigate promptly the risks of its financial
exposure consistent with the limits required under paragraph
(b)(2)(iii)(C) of this section; the products, instruments, and exposures
each trading desk may use for risk management purposes; the techniques
and strategies each trading desk may use to manage the risks of its
market making-related activities and inventory; and the process,
strategies, and personnel responsible for ensuring that the actions
taken by the trading desk to mitigate these risks are and continue to be
effective;
(C) Limits for each trading desk, based on the nature and amount of
the trading desk's market making-related activities, that address the
factors prescribed by paragraph (b)(2)(ii) of this section, on:
(1) The amount, types, and risks of its market-maker inventory;
(2) The amount, types, and risks of the products, instruments, and
exposures the trading desk may use for risk management purposes;
(3) The level of exposures to relevant risk factors arising from its
financial exposure; and
(4) The period of time a financial instrument may be held;
(D) Internal controls and ongoing monitoring and analysis of each
trading desk's compliance with its limits; and
(E) Authorization procedures, including escalation procedures that
require review and approval of any trade that would exceed a trading
desk's limit(s), demonstrable analysis that the basis for any temporary
or permanent increase to a trading desk's limit(s) is consistent with
the requirements of paragraph (b) of this section, and independent
review of such demonstrable analysis and approval;
(iv) To the extent that any limit identified pursuant to paragraph
(b)(2)(iii)(C) of this section is exceeded, the trading desk takes
action to bring the trading desk into compliance with the limits as
promptly as possible after the limit is exceeded;
(v) The compensation arrangements of persons performing the
activities described in paragraph (b) of this section are designed not
to reward or incentivize prohibited proprietary trading; and
(vi) The banking entity is licensed or registered to engage in
activity described in paragraph (b) of this section in accordance with
applicable law.
(3) Definition of client, customer, and counterparty. For purposes
of paragraph
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(b) of this section, the terms client, customer, and counterparty, on a
collective or individual basis refer to market participants that make
use of the banking entity's market making-related services by obtaining
such services, responding to quotations, or entering into a continuing
relationship with respect to such services, provided that:
(i) A trading desk or other organizational unit of another banking
entity is not a client, customer, or counterparty of the trading desk if
that other entity has trading assets and liabilities of $50 billion or
more as measured in accordance with Sec. 75.20(d)(1), unless:
(A) The trading desk documents how and why a particular trading desk
or other organizational unit of the entity should be treated as a
client, customer, or counterparty of the trading desk for purposes of
paragraph (b)(2) of this section; or
(B) The purchase or sale by the trading desk is conducted
anonymously on an exchange or similar trading facility that permits
trading on behalf of a broad range of market participants.
(ii) [Reserved]
(4) Definition of financial exposure. For purposes of paragraph (b)
of this section, financial exposure means the aggregate risks of one or
more financial instruments and any associated loans, commodities, or
foreign exchange or currency, held by a banking entity or its affiliate
and managed by a particular trading desk as part of the trading desk's
market making-related activities.
(5) Definition of market-maker inventory. For the purposes of
paragraph (b) of this section, market-maker inventory means all of the
positions in the financial instruments for which the trading desk stands
ready to make a market in accordance with paragraph (b)(2)(i) of this
section that are managed by the trading desk, including the trading
desk's open positions or exposures arising from open transactions.
Sec. 75.5 Permitted risk-mitigating hedging activities.
(a) Permitted risk-mitigating hedging activities. The prohibition
contained in Sec. 75.3(a) does not apply to the risk-mitigating hedging
activities of a banking entity in connection with and related to
individual or aggregated positions, contracts, or other holdings of the
banking entity and designed to reduce the specific risks to the banking
entity in connection with and related to such positions, contracts, or
other holdings.
(b) Requirements. The risk-mitigating hedging activities of a
banking entity are permitted under paragraph (a) of this section only
if:
(1) The banking entity has established and implements, maintains and
enforces an internal compliance program required by subpart D of this
part that is reasonably designed to ensure the banking entity's
compliance with the requirements of this section, including:
(i) Reasonably designed written policies and procedures regarding
the positions, techniques and strategies that may be used for hedging,
including documentation indicating what positions, contracts or other
holdings a particular trading desk may use in its risk-mitigating
hedging activities, as well as position and aging limits with respect to
such positions, contracts or other holdings;
(ii) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
(iii) The conduct of analysis, including correlation analysis, and
independent testing designed to ensure that the positions, techniques
and strategies that may be used for hedging may reasonably be expected
to demonstrably reduce or otherwise significantly mitigate the specific,
identifiable risk(s) being hedged, and such correlation analysis
demonstrates that the hedging activity demonstrably reduces or otherwise
significantly mitigates the specific, identifiable risk(s) being hedged;
(2) The risk-mitigating hedging activity:
(i) Is conducted in accordance with the written policies,
procedures, and internal controls required under this section;
(ii) At the inception of the hedging activity, including, without
limitation, any adjustments to the hedging activity, is designed to
reduce or otherwise
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significantly mitigate and demonstrably reduces or otherwise
significantly mitigates one or more specific, identifiable risks,
including market risk, counterparty or other credit risk, currency or
foreign exchange risk, interest rate risk, commodity price risk, basis
risk, or similar risks, arising in connection with and related to
identified positions, contracts, or other holdings of the banking
entity, based upon the facts and circumstances of the identified
underlying and hedging positions, contracts or other holdings and the
risks and liquidity thereof;
(iii) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section;
(iv) Is subject to continuing review, monitoring and management by
the banking entity that:
(A) Is consistent with the written hedging policies and procedures
required under paragraph (b)(1) of this section;
(B) Is designed to reduce or otherwise significantly mitigate and
demonstrably reduces or otherwise significantly mitigates the specific,
identifiable risks that develop over time from the risk-mitigating
hedging activities undertaken under this section and the underlying
positions, contracts, and other holdings of the banking entity, based
upon the facts and circumstances of the underlying and hedging
positions, contracts and other holdings of the banking entity and the
risks and liquidity thereof; and
(C) Requires ongoing recalibration of the hedging activity by the
banking entity to ensure that the hedging activity satisfies the
requirements set out in paragraph (b)(2) of this section and is not
prohibited proprietary trading; and
(3) The compensation arrangements of persons performing risk-
mitigating hedging activities are designed not to reward or incentivize
prohibited proprietary trading.
(c) Documentation requirement. (1) A banking entity must comply with
the requirements of paragraphs (c)(2) and (c)(3) of this section with
respect to any purchase or sale of financial instruments made in
reliance on this section for risk-mitigating hedging purposes that is:
(i) Not established by the specific trading desk establishing or
responsible for the underlying positions, contracts, or other holdings
the risks of which the hedging activity is designed to reduce;
(ii) Established by the specific trading desk establishing or
responsible for the underlying positions, contracts, or other holdings
the risks of which the purchases or sales are designed to reduce, but
that is effected through a financial instrument, exposure, technique, or
strategy that is not specifically identified in the trading desk's
written policies and procedures established under paragraph (b)(1) of
this section or under Sec. 75.4(b)(2)(iii)(B) as a product, instrument,
exposure, technique, or strategy such trading desk may use for hedging;
or
(iii) Established to hedge aggregated positions across two or more
trading desks.
(2) In connection with any purchase or sale identified in paragraph
(c)(1) of this section, a banking entity must, at a minimum, and
contemporaneously with the purchase or sale, document:
(i) The specific, identifiable risk(s) of the identified positions,
contracts, or other holdings of the banking entity that the purchase or
sale is designed to reduce;
(ii) The specific risk-mitigating strategy that the purchase or sale
is designed to fulfill; and
(iii) The trading desk or other business unit that is establishing
and responsible for the hedge.
(3) A banking entity must create and retain records sufficient to
demonstrate compliance with the requirements of paragraph (c) of this
section for a period that is no less than five years in a form that
allows the banking entity to promptly produce such records to the
Commission on request, or such longer period as required under other law
or this part.
Sec. 75.6 Other permitted proprietary trading activities.
(a) Permitted trading in domestic government obligations. The
prohibition contained in Sec. 75.3(a) does not apply to
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the purchase or sale by a banking entity of a financial instrument that
is:
(1) An obligation of, or issued or guaranteed by, the United States;
(2) An obligation, participation, or other instrument of, or issued
or guaranteed by, an agency of the United States, the Government
National Mortgage Association, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, a Federal Home
Loan Bank, the Federal Agricultural Mortgage Corporation or a Farm
Credit System institution chartered under and subject to the provisions
of the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.);
(3) An obligation of any State or any political subdivision thereof,
including any municipal security; or
(4) An obligation of the FDIC, or any entity formed by or on behalf
of the FDIC for purpose of facilitating the disposal of assets acquired
or held by the FDIC in its corporate capacity or as conservator or
receiver under the Federal Deposit Insurance Act or Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
(b) Permitted trading in foreign government obligations--(1)
Affiliates of foreign banking entities in the United States. The
prohibition contained in Sec. 75.3(a) does not apply to the purchase or
sale of a financial instrument that is an obligation of, or issued or
guaranteed by, a foreign sovereign (including any multinational central
bank of which the foreign sovereign is a member), or any agency or
political subdivision of such foreign sovereign, by a banking entity, so
long as:
(i) The banking entity is organized under or is directly or
indirectly controlled by a banking entity that is organized under the
laws of a foreign sovereign and is not directly or indirectly controlled
by a top-tier banking entity that is organized under the laws of the
United States;
(ii) The financial instrument is an obligation of, or issued or
guaranteed by, the foreign sovereign under the laws of which the foreign
banking entity referred to in paragraph (b)(1)(i) of this section is
organized (including any multinational central bank of which the foreign
sovereign is a member), or any agency or political subdivision of that
foreign sovereign; and
(iii) The purchase or sale as principal is not made by an insured
depository institution.
(2) Foreign affiliates of a U.S. banking entity. The prohibition
contained in Sec. 75.3(a) does not apply to the purchase or sale of a
financial instrument that is an obligation of, or issued or guaranteed
by, a foreign sovereign (including any multinational central bank of
which the foreign sovereign is a member), or any agency or political
subdivision of that foreign sovereign, by a foreign entity that is owned
or controlled by a banking entity organized or established under the
laws of the United States or any State, so long as:
(i) The foreign entity is a foreign bank, as defined in Sec.
211.2(j) of the Board's Regulation K (12 CFR 211.2(j)), or is regulated
by the foreign sovereign as a securities dealer;
(ii) The financial instrument is an obligation of, or issued or
guaranteed by, the foreign sovereign under the laws of which the foreign
entity is organized (including any multinational central bank of which
the foreign sovereign is a member), or any agency or political
subdivision of that foreign sovereign; and
(iii) The financial instrument is owned by the foreign entity and is
not financed by an affiliate that is located in the United States or
organized under the laws of the United States or of any State.
(c) Permitted trading on behalf of customers--(1) Fiduciary
transactions. The prohibition contained in Sec. 75.3(a) does not apply
to the purchase or sale of financial instruments by a banking entity
acting as trustee or in a similar fiduciary capacity, so long as:
(i) The transaction is conducted for the account of, or on behalf
of, a customer; and
(ii) The banking entity does not have or retain beneficial ownership
of the financial instruments.
(2) Riskless principal transactions. The prohibition contained in
Sec. 75.3(a) does not apply to the purchase or sale of financial
instruments by a banking entity acting as riskless principal in a
transaction in which the banking entity, after receiving an order to
purchase
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(or sell) a financial instrument from a customer, purchases (or sells)
the financial instrument for its own account to offset a contemporaneous
sale to (or purchase from) the customer.
(d) Permitted trading by a regulated insurance company. The
prohibition contained in Sec. 75.3(a) does not apply to the purchase or
sale of financial instruments by a banking entity that is an insurance
company or an affiliate of an insurance company if:
(1) The insurance company or its affiliate purchases or sells the
financial instruments solely for:
(i) The general account of the insurance company; or
(ii) A separate account established by the insurance company;
(2) The purchase or sale is conducted in compliance with, and
subject to, the insurance company investment laws, regulations, and
written guidance of the State or jurisdiction in which such insurance
company is domiciled; and
(3) The appropriate Federal banking agencies, after consultation
with the Financial Stability Oversight Council and the relevant
insurance commissioners of the States and foreign jurisdictions, as
appropriate, have not jointly determined, after notice and comment, that
a particular law, regulation, or written guidance described in paragraph
(d)(2) of this section is insufficient to protect the safety and
soundness of the covered banking entity, or the financial stability of
the United States.
(e) Permitted trading activities of foreign banking entities. (1)
The prohibition contained in Sec. 75.3(a) does not apply to the
purchase or sale of financial instruments by a banking entity if:
(i) The banking entity is not organized or directly or indirectly
controlled by a banking entity that is organized under the laws of the
United States or of any State;
(ii) The purchase or sale by the banking entity is made pursuant to
paragraph (9) or (13) of section 4(c) of the BHC Act; and
(iii) The purchase or sale meets the requirements of paragraph
(e)(3) of this section.
(2) A purchase or sale of financial instruments by a banking entity
is made pursuant to paragraph (9) or (13) of section 4(c) of the BHC Act
for purposes of paragraph (e)(1)(ii) of this section only if:
(i) The purchase or sale is conducted in accordance with the
requirements of paragraph (e) of this section; and
(ii)(A) With respect to a banking entity that is a foreign banking
organization, the banking entity meets the qualifying foreign banking
organization requirements of Sec. 211.23(a), (c) or (e) of the Board's
Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
(B) With respect to a banking entity that is not a foreign banking
organization, the banking entity is not organized under the laws of the
United States or of any State and the banking entity, on a fully-
consolidated basis, meets at least two of the following requirements:
(1) Total assets of the banking entity held outside of the United
States exceed total assets of the banking entity held in the United
States;
(2) Total revenues derived from the business of the banking entity
outside of the United States exceed total revenues derived from the
business of the banking entity in the United States; or
(3) Total net income derived from the business of the banking entity
outside of the United States exceeds total net income derived from the
business of the banking entity in the United States.
(3) A purchase or sale by a banking entity is permitted for purposes
of paragraph (e) of this section only if:
(i) The banking entity engaging as principal in the purchase or sale
(including any personnel of the banking entity or its affiliate that
arrange, negotiate or execute such purchase or sale) is not located in
the United States or organized under the laws of the United States or of
any State;
(ii) The banking entity (including relevant personnel) that makes
the decision to purchase or sell as principal is not located in the
United States or organized under the laws of the United States or of any
State;
(iii) The purchase or sale, including any transaction arising from
risk-mitigating hedging related to the instruments purchased or sold, is
not accounted for as principal directly or on a consolidated basis by
any branch or
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affiliate that is located in the United States or organized under the
laws of the United States or of any State;
(iv) No financing for the banking entity's purchases or sales is
provided, directly or indirectly, by any branch or affiliate that is
located in the United States or organized under the laws of the United
States or of any State; and
(v) The purchase or sale is not conducted with or through any U.S.
entity, other than:
(A) A purchase or sale with the foreign operations of a U.S. entity
if no personnel of such U.S. entity that are located in the United
States are involved in the arrangement, negotiation, or execution of
such purchase or sale;
(B) A purchase or sale with an unaffiliated market intermediary
acting as principal, provided the purchase or sale is promptly cleared
and settled through a clearing agency or derivatives clearing
organization acting as a central counterparty; or
(C) A purchase or sale through an unaffiliated market intermediary
acting as agent, provided the purchase or sale is conducted anonymously
on an exchange or similar trading facility and is promptly cleared and
settled through a clearing agency or derivatives clearing organization
acting as a central counterparty,
(4) For purposes of paragraph (e) of this section, a U.S. entity is
any entity that is, or is controlled by, or is acting on behalf of, or
at the direction of, any other entity that is, located in the United
States or organized under the laws of the United States or of any State.
(5) For purposes of paragraph (e) of this section, a U.S. branch,
agency, or subsidiary of a foreign banking entity is considered to be
located in the United States; however, the foreign bank that operates or
controls that branch, agency, or subsidiary is not considered to be
located in the United States solely by virtue of operating or
controlling the U.S. branch, agency, or subsidiary.
(6) For purposes of paragraph (e) of this section, unaffiliated
market intermediary means an unaffiliated entity, acting as an
intermediary, that is:
(i) A broker or dealer registered with the SEC under section 15 of
the Exchange Act or exempt from registration or excluded from regulation
as such;
(ii) A swap dealer registered with the CFTC under section 4s of the
Commodity Exchange Act or exempt from registration or excluded from
regulation as such;
(iii) A security-based swap dealer registered with the SEC under
section 15F of the Exchange Act or exempt from registration or excluded
from regulation as such; or
(iv) A futures commission merchant registered with the CFTC under
section 4f of the Commodity Exchange Act or exempt from registration or
excluded from regulation as such.
Sec. 75.7 Limitations on permitted proprietary trading activities.
(a) No transaction, class of transactions, or activity may be deemed
permissible under Sec. Sec. 75.4 through 75.6 if the transaction, class
of transactions, or activity would:
(1) Involve or result in a material conflict of interest between the
banking entity and its clients, customers, or counterparties;
(2) Result, directly or indirectly, in a material exposure by the
banking entity to a high-risk asset or a high-risk trading strategy; or
(3) Pose a threat to the safety and soundness of the banking entity
or to the financial stability of the United States.
(b) Definition of material conflict of interest. (1) For purposes of
this section, a material conflict of interest between a banking entity
and its clients, customers, or counterparties exists if the banking
entity engages in any transaction, class of transactions, or activity
that would involve or result in the banking entity's interests being
materially adverse to the interests of its client, customer, or
counterparty with respect to such transaction, class of transactions, or
activity, and the banking entity has not taken at least one of the
actions in paragraph (b)(2) of this section.
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(2) Prior to effecting the specific transaction or class or type of
transactions, or engaging in the specific activity, the banking entity:
(i) Timely and effective disclosure. (A) Has made clear, timely, and
effective disclosure of the conflict of interest, together with other
necessary information, in reasonable detail and in a manner sufficient
to permit a reasonable client, customer, or counterparty to meaningfully
understand the conflict of interest; and
(B) Such disclosure is made in a manner that provides the client,
customer, or counterparty the opportunity to negate, or substantially
mitigate, any materially adverse effect on the client, customer, or
counterparty created by the conflict of interest; or
(ii) Information barriers. Has established, maintained, and enforced
information barriers that are memorialized in written policies and
procedures, such as physical separation of personnel, or functions, or
limitations on types of activity, that are reasonably designed, taking
into consideration the nature of the banking entity's business, to
prevent the conflict of interest from involving or resulting in a
materially adverse effect on a client, customer, or counterparty. A
banking entity may not rely on such information barriers if, in the case
of any specific transaction, class or type of transactions or activity,
the banking entity knows or should reasonably know that, notwithstanding
the banking entity's establishment of information barriers, the conflict
of interest may involve or result in a materially adverse effect on a
client, customer, or counterparty.
(c) Definition of high-risk asset and high-risk trading strategy.
For purposes of this section:
(1) High-risk asset means an asset or group of related assets that
would, if held by a banking entity, significantly increase the
likelihood that the banking entity would incur a substantial financial
loss or would pose a threat to the financial stability of the United
States.
(2) High-risk trading strategy means a trading strategy that would,
if engaged in by a banking entity, significantly increase the likelihood
that the banking entity would incur a substantial financial loss or
would pose a threat to the financial stability of the United States.
Sec. Sec. 75.8-75.9 [Reserved]
Subpart C_Covered Fund Activities and Investments
Sec. 75.10 Prohibition on acquiring or retaining an ownership
interest in and having certain relationships with a covered fund.
(a) Prohibition. (1) Except as otherwise provided in this subpart, a
banking entity may not, as principal, directly or indirectly, acquire or
retain any ownership interest in or sponsor a covered fund.
(2) Paragraph (a)(1) of this section does not include acquiring or
retaining an ownership interest in a covered fund by a banking entity:
(i) Acting solely as agent, broker, or custodian, so long as;
(A) The activity is conducted for the account of, or on behalf of, a
customer; and
(B) The banking entity and its affiliates do not have or retain
beneficial ownership of such ownership interest;
(ii) Through a deferred compensation, stock-bonus, profit-sharing,
or pension plan of the banking entity (or an affiliate thereof) that is
established and administered in accordance with the law of the United
States or a foreign sovereign, if the ownership interest is held or
controlled directly or indirectly by the banking entity as trustee for
the benefit of persons who are or were employees of the banking entity
(or an affiliate thereof);
(iii) In the ordinary course of collecting a debt previously
contracted in good faith, provided that the banking entity divests the
ownership interest as soon as practicable, and in no event may the
banking entity retain such ownership interest for longer than such
period permitted by the Commission; or
(iv) On behalf of customers as trustee or in a similar fiduciary
capacity for a customer that is not a covered fund, so long as:
(A) The activity is conducted for the account of, or on behalf of,
the customer; and
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(B) The banking entity and its affiliates do not have or retain
beneficial ownership of such ownership interest.
(b) Definition of covered fund. (1) Except as provided in paragraph
(c) of this section, covered fund means:
(i) An issuer that would be an investment company, as defined in the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), but for
section 3(c)(1) or 3(c)(7) of that Act (15 U.S.C. 80a-3(c)(1) or (7));
(ii) Any commodity pool under section 1a(10) of the Commodity
Exchange Act (7 U.S.C. 1a(10)) for which:
(A) The commodity pool operator has claimed an exemption under Sec.
4.7 of this chapter; or
(B) (1) A commodity pool operator is registered with the CFTC as a
commodity pool operator in connection with the operation of the
commodity pool;
(2) Substantially all participation units of the commodity pool are
owned by qualified eligible persons under Sec. 4.7(a)(2) and (3) of
this chapter; and
(3) Participation units of the commodity pool have not been publicly
offered to persons who are not qualified eligible persons under Sec.
4.7(a)(2) and (3) of this chapter; or
(iii) For any banking entity that is, or is controlled directly or
indirectly by a banking entity that is, located in or organized under
the laws of the United States or of any State, an entity that:
(A) Is organized or established outside the United States and the
ownership interests of which are offered and sold solely outside the
United States;
(B) Is, or holds itself out as being, an entity or arrangement that
raises money from investors primarily for the purpose of investing in
securities for resale or other disposition or otherwise trading in
securities; and
(C) (1) Has as its sponsor that banking entity (or an affiliate
thereof); or
(2) Has issued an ownership interest that is owned directly or
indirectly by that banking entity (or an affiliate thereof).
(2) An issuer shall not be deemed to be a covered fund under
paragraph (b)(1)(iii) of this section if, were the issuer subject to
U.S. securities laws, the issuer could rely on an exclusion or exemption
from the definition of ``investment company'' under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.) other than the exclusions
contained in section 3(c)(1) and 3(c)(7) of that Act.
(3) For purposes of paragraph (b)(1)(iii) of this section, a U.S.
branch, agency, or subsidiary of a foreign banking entity is located in
the United States; however, the foreign bank that operates or controls
that branch, agency, or subsidiary is not considered to be located in
the United States solely by virtue of operating or controlling the U.S.
branch, agency, or subsidiary.
(c) Notwithstanding paragraph (b) of this section, unless the
appropriate Federal banking agencies, the SEC, and the CFTC jointly
determine otherwise, a covered fund does not include:
(1) Foreign public funds. (i) Subject to paragraphs (c)(1)(ii) and
(iii) of this section, an issuer that:
(A) Is organized or established outside of the United States;
(B) Is authorized to offer and sell ownership interests to retail
investors in the issuer's home jurisdiction; and
(C) Sells ownership interests predominantly through one or more
public offerings outside of the United States.
(ii) With respect to a banking entity that is, or is controlled
directly or indirectly by a banking entity that is, located in or
organized under the laws of the United States or of any State and any
issuer for which such banking entity acts as sponsor, the sponsoring
banking entity may not rely on the exemption in paragraph (c)(1)(i) of
this section for such issuer unless ownership interests in the issuer
are sold predominantly to persons other than:
(A) Such sponsoring banking entity;
(B) Such issuer;
(C) Affiliates of such sponsoring banking entity or such issuer; and
(D) Directors and employees of such entities.
(iii) For purposes of paragraph (c)(1)(i)(C) of this section, the
term public offering means a distribution (as defined in Sec.
75.4(a)(3)) of securities in any jurisdiction outside the United States
to investors, including retail investors, provided that:
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(A) The distribution complies with all applicable requirements in
the jurisdiction in which such distribution is being made;
(B) The distribution does not restrict availability to investors
having a minimum level of net worth or net investment assets; and
(C) The issuer has filed or submitted, with the appropriate
regulatory authority in such jurisdiction, offering disclosure documents
that are publicly available.
(2) Wholly-owned subsidiaries. An entity, all of the outstanding
ownership interests of which are owned directly or indirectly by the
banking entity (or an affiliate thereof), except that:
(i) Up to five percent of the entity's outstanding ownership
interests, less any amounts outstanding under paragraph (c)(2)(ii) of
this section, may be held by employees or directors of the banking
entity or such affiliate (including former employees or directors if
their ownership interest was acquired while employed by or in the
service of the banking entity); and
(ii) Up to 0.5 percent of the entity's outstanding ownership
interests may be held by a third party if the ownership interest is
acquired or retained by the third party for the purpose of establishing
corporate separateness or addressing bankruptcy, insolvency, or similar
concerns.
(3) Joint ventures. A joint venture between a banking entity or any
of its affiliates and one or more unaffiliated persons, provided that
the joint venture:
(i) Is comprised of no more than 10 unaffiliated co-venturers;
(ii) Is in the business of engaging in activities that are
permissible for the banking entity or affiliate, other than investing in
securities for resale or other disposition; and
(iii) Is not, and does not hold itself out as being, an entity or
arrangement that raises money from investors primarily for the purpose
of investing in securities for resale or other disposition or otherwise
trading in securities.
(4) Acquisition vehicles. An issuer:
(i) Formed solely for the purpose of engaging in a bona fide merger
or acquisition transaction; and
(ii) That exists only for such period as necessary to effectuate the
transaction.
(5) Foreign pension or retirement funds. A plan, fund, or program
providing pension, retirement, or similar benefits that is:
(i) Organized and administered outside the United States;
(ii) A broad-based plan for employees or citizens that is subject to
regulation as a pension, retirement, or similar plan under the laws of
the jurisdiction in which the plan, fund, or program is organized and
administered; and
(iii) Established for the benefit of citizens or residents of one or
more foreign sovereigns or any political subdivision thereof.
(6) Insurance company separate accounts. A separate account,
provided that no banking entity other than the insurance company
participates in the account's profits and losses.
(7) Bank owned life insurance. A separate account that is used
solely for the purpose of allowing one or more banking entities to
purchase a life insurance policy for which the banking entity or
entities is beneficiary, provided that no banking entity that purchases
the policy:
(i) Controls the investment decisions regarding the underlying
assets or holdings of the separate account; or
(ii) Participates in the profits and losses of the separate account
other than in compliance with applicable supervisory guidance regarding
bank owned life insurance.
(8) Loan securitizations--(i) Scope. An issuing entity for asset-
backed securities that satisfies all the conditions of paragraph (c)(8)
of this section and the assets or holdings of which are comprised solely
of:
(A) Loans as defined in Sec. 75.2(s);
(B) Rights or other assets designed to assure the servicing or
timely distribution of proceeds to holders of such securities and rights
or other assets that are related or incidental to purchasing or
otherwise acquiring and holding the loans, provided that each asset
meets the requirements of paragraph (c)(8)(iii) of this section;
(C) Interest rate or foreign exchange derivatives that meet the
requirements
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of paragraph (c)(8)(iv) of this section; and
(D) Special units of beneficial interest and collateral certificates
that meet the requirements of paragraph (c)(8)(v) of this section.
(ii) Impermissible assets. For purposes of paragraph (c)(8) of this
section, the assets or holdings of the issuing entity shall not include
any of the following:
(A) A security, including an asset-backed security, or an interest
in an equity or debt security other than as permitted in paragraph
(c)(8)(iii) of this section;
(B) A derivative, other than a derivative that meets the
requirements of paragraph (c)(8)(iv) of this section; or
(C) A commodity forward contract.
(iii) Permitted securities. Notwithstanding paragraph (c)(8)(ii)(A)
of this section, the issuing entity may hold securities if those
securities are:
(A) Cash equivalents for purposes of the rights and assets in
paragraph (c)(8)(i)(B) of this section; or
(B) Securities received in lieu of debts previously contracted with
respect to the loans supporting the asset-backed securities.
(iv) Derivatives. The holdings of derivatives by the issuing entity
shall be limited to interest rate or foreign exchange derivatives that
satisfy all of the following conditions:
(A) The written terms of the derivative directly relate to the
loans, the asset-backed securities, or the contractual rights of other
assets described in paragraph (c)(8)(i)(B) of this section; and
(B) The derivatives reduce the interest rate and/or foreign exchange
risks related to the loans, the asset-backed securities, or the
contractual rights or other assets described in paragraph (c)(8)(i)(B)
of this section.
(v) Special units of beneficial interest and collateral
certificates. The assets or holdings of the issuing entity may include
collateral certificates and special units of beneficial interest issued
by a special purpose vehicle, provided that:
(A) The special purpose vehicle that issues the special unit of
beneficial interest or collateral certificate meets the requirements in
paragraph (c)(8) of this section;
(B) The special unit of beneficial interest or collateral
certificate is used for the sole purpose of transferring to the issuing
entity for the loan securitization the economic risks and benefits of
the assets that are permissible for loan securitizations under paragraph
(c)(8) of this section and does not directly or indirectly transfer any
interest in any other economic or financial exposure;
(C) The special unit of beneficial interest or collateral
certificate is created solely to satisfy legal requirements or otherwise
facilitate the structuring of the loan securitization; and
(D) The special purpose vehicle that issues the special unit of
beneficial interest or collateral certificate and the issuing entity are
established under the direction of the same entity that initiated the
loan securitization.
(9) Qualifying asset-backed commercial paper conduits. (i) An
issuing entity for asset-backed commercial paper that satisfies all of
the following requirements:
(A) The asset-backed commercial paper conduit holds only:
(1) Loans and other assets permissible for a loan securitization
under paragraph (c)(8)(i) of this section; and
(2) Asset-backed securities supported solely by assets that are
permissible for loan securitizations under paragraph (c)(8)(i) of this
section and acquired by the asset-backed commercial paper conduit as
part of an initial issuance either directly from the issuing entity of
the asset-backed securities or directly from an underwriter in the
distribution of the asset-backed securities;
(B) The asset-backed commercial paper conduit issues only asset-
backed securities, comprised of a residual interest and securities with
a legal maturity of 397 days or less; and
(C) A regulated liquidity provider has entered into a legally
binding commitment to provide full and unconditional liquidity coverage
with respect to all of the outstanding asset-backed securities issued by
the asset-backed commercial paper conduit (other than any residual
interest) in the event that funds are required to redeem maturing asset-
backed securities.
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(ii) For purposes of this paragraph (c)(9) of this section, a
regulated liquidity provider means:
(A) A depository institution, as defined in section 3(c) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(c));
(B) A bank holding company, as defined in section 2(a) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(a)), or a subsidiary
thereof;
(C) A savings and loan holding company, as defined in section 10a of
the Home Owners' Loan Act (12 U.S.C. 1467a), provided all or
substantially all of the holding company's activities are permissible
for a financial holding company under section 4(k) of the Bank Holding
Company Act of 1956 (12 U.S.C. 1843(k)), or a subsidiary thereof;
(D) A foreign bank whose home country supervisor, as defined in
Sec. 211.21(q) of the Board's Regulation K (12 CFR 211.21(q)), has
adopted capital standards consistent with the Capital Accord for the
Basel Committee on Banking Supervision, as amended, and that is subject
to such standards, or a subsidiary thereof; or
(E) The United States or a foreign sovereign.
(10) Qualifying covered bonds--(i) Scope. An entity owning or
holding a dynamic or fixed pool of loans or other assets as provided in
paragraph (c)(8) of this section for the benefit of the holders of
covered bonds, provided that the assets in the pool are comprised solely
of assets that meet the conditions in paragraph (c)(8)(i) of this
section.
(ii) Covered bond. For purposes of paragraph (c)(10) of this
section, a covered bond means:
(A) A debt obligation issued by an entity that meets the definition
of foreign banking organization, the payment obligations of which are
fully and unconditionally guaranteed by an entity that meets the
conditions set forth in paragraph (c)(10)(i) of this section; or
(B) A debt obligation of an entity that meets the conditions set
forth in paragraph (c)(10)(i) of this section, provided that the payment
obligations are fully and unconditionally guaranteed by an entity that
meets the definition of foreign banking organization and the entity is a
wholly-owned subsidiary, as defined in paragraph (c)(2) of this section,
of such foreign banking organization.
(11) SBICs and public welfare investment funds. An issuer:
(i) That is a small business investment company, as defined in
section 103(3) of the Small Business Investment Act of 1958 (15 U.S.C.
662), or that has received from the Small Business Administration notice
to proceed to qualify for a license as a small business investment
company, which notice or license has not been revoked; or
(ii) The business of which is to make investments that are:
(A) Designed primarily to promote the public welfare, of the type
permitted under paragraph (11) of section 5136 of the Revised Statutes
of the United States (12 U.S.C. 24), including the welfare of low- and
moderate-income communities or families (such as providing housing,
services, or jobs); or
(B) Qualified rehabilitation expenditures with respect to a
qualified rehabilitated building or certified historic structure, as
such terms are defined in section 47 of the Internal Revenue Code of
1986 or a similar State historic tax credit program.
(12) Registered investment companies and excluded entities. An
issuer:
(i) That is registered as an investment company under section 8 of
the Investment Company Act of 1940 (15 U.S.C. 80a-8), or that is formed
and operated pursuant to a written plan to become a registered
investment company as described in Sec. 75.20(e)(3) and that complies
with the requirements of section 18 of the Investment Company Act of
1940 (15 U.S.C. 80a-18);
(ii) That may rely on an exclusion or exemption from the definition
of ``investment company'' under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.) other than the exclusions contained in section
3(c)(1) and 3(c)(7) of that Act; or
(iii) That has elected to be regulated as a business development
company pursuant to section 54(a) of that Act (15 U.S.C. 80a-53) and has
not withdrawn its election, or that is formed and operated pursuant to a
written plan to become a business development company as described in
Sec. 75.20(e)(3) and that
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complies with the requirements of section 61 of the Investment Company
Act of 1940 (15 U.S.C. 80a-60).
(13) Issuers in conjunction with the FDIC's receivership or
conservatorship operations. An issuer that is an entity formed by or on
behalf of the FDIC for the purpose of facilitating the disposal of
assets acquired in the FDIC's capacity as conservator or receiver under
the Federal Deposit Insurance Act or Title II of the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
(14) Other excluded issuers. (i) Any issuer that the appropriate
Federal banking agencies, the SEC, and the CFTC jointly determine the
exclusion of which is consistent with the purposes of section 13 of the
BHC Act.
(ii) A determination made under paragraph (c)(14)(i) of this section
will be promptly made public.
(d) Definition of other terms related to covered funds. For purposes
of this subpart:
(1) Applicable accounting standards means U.S. generally accepted
accounting principles, or such other accounting standards applicable to
a banking entity that the Commission determines are appropriate and that
the banking entity uses in the ordinary course of its business in
preparing its consolidated financial statements.
(2) Asset-backed security has the meaning specified in section
3(a)(79) of the Exchange Act (15 U.S.C. 78c(a)(79)).
(3) Director has the same meaning as provided in Sec. 215.2(d)(1)
of the Board's Regulation O (12 CFR 215.2(d)(1)).
(4) Issuer has the same meaning as in section 2(a)(22) of the
Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(22)).
(5) Issuing entity means with respect to asset-backed securities the
special purpose vehicle that owns or holds the pool assets underlying
asset-backed securities and in whose name the asset-backed securities
supported or serviced by the pool assets are issued.
(6) Ownership interest--(i) Ownership interest means any equity,
partnership, or other similar interest. An ``other similar interest''
means an interest that:
(A) Has the right to participate in the selection or removal of a
general partner, managing member, member of the board of directors or
trustees, investment manager, investment adviser, or commodity trading
advisor of the covered fund (excluding the rights of a creditor to
exercise remedies upon the occurrence of an event of default or an
acceleration event);
(B) Has the right under the terms of the interest to receive a share
of the income, gains or profits of the covered fund;
(C) Has the right to receive the underlying assets of the covered
fund after all other interests have been redeemed and/or paid in full
(excluding the rights of a creditor to exercise remedies upon the
occurrence of an event of default or an acceleration event);
(D) Has the right to receive all or a portion of excess spread (the
positive difference, if any, between the aggregate interest payments
received from the underlying assets of the covered fund and the
aggregate interest paid to the holders of other outstanding interests);
(E) Provides under the terms of the interest that the amounts
payable by the covered fund with respect to the interest could be
reduced based on losses arising from the underlying assets of the
covered fund, such as allocation of losses, write-downs or charge-offs
of the outstanding principal balance, or reductions in the amount of
interest due and payable on the interest;
(F) Receives income on a pass-through basis from the covered fund,
or has a rate of return that is determined by reference to the
performance of the underlying assets of the covered fund; or
(G) Any synthetic right to have, receive, or be allocated any of the
rights in paragraphs (d)(6)(i)(A) through (d)(6)(i)(F) of this section.
(ii) Ownership interest does not include restricted profit interest,
which is an interest held by an entity (or an employee or former
employee thereof) in a covered fund for which the entity (or employee
thereof) serves as investment manager, investment adviser, commodity
trading advisor, or other service provider so long as:
(A) The sole purpose and effect of the interest is to allow the
entity (or employee or former employee thereof) to share in the profits
of the covered fund as performance compensation for the
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investment management, investment advisory, commodity trading advisory,
or other services provided to the covered fund by the entity (or
employee or former employee thereof), provided that the entity (or
employee or former employee thereof) may be obligated under the terms of
such interest to return profits previously received;
(B) All such profit, once allocated, is distributed to the entity
(or employee or former employee thereof) promptly after being earned or,
if not so distributed, is retained by the covered fund for the sole
purpose of establishing a reserve amount to satisfy contractual
obligations with respect to subsequent losses of the covered fund and
such undistributed profit of the entity (or employee or former employee
thereof) does not share in the subsequent investment gains of the
covered fund;
(C) Any amounts invested in the covered fund, including any amounts
paid by the entity (or employee or former employee thereof) in
connection with obtaining the restricted profit interest, are within the
limits of Sec. 75.12; and
(D) The interest is not transferable by the entity (or employee or
former employee thereof) except to an affiliate thereof (or an employee
of the banking entity or affiliate), to immediate family members, or
through the intestacy, of the employee or former employee, or in
connection with a sale of the business that gave rise to the restricted
profit interest by the entity (or employee or former employee thereof)
to an unaffiliated party that provides investment management, investment
advisory, commodity trading advisory, or other services to the fund.
(7) Prime brokerage transaction means any transaction that would be
a covered transaction, as defined in section 23A(b)(7) of the Federal
Reserve Act (12 U.S.C. 371c(b)(7)), that is provided in connection with
custody, clearance and settlement, securities borrowing or lending
services, trade execution, financing, or data, operational, and
administrative support.
(8) Resident of the United States means a person that is a ``U.S.
person'' as defined in rule 902(k) of the SEC's Regulation S (17 CFR
230.902(k)).
(9) Sponsor means, with respect to a covered fund:
(i) To serve as a general partner, managing member, or trustee of a
covered fund, or to serve as a commodity pool operator with respect to a
covered fund as defined in (b)(1)(ii) of this section;
(ii) In any manner to select or to control (or to have employees,
officers, or directors, or agents who constitute) a majority of the
directors, trustees, or management of a covered fund; or
(iii) To share with a covered fund, for corporate, marketing,
promotional, or other purposes, the same name or a variation of the same
name.
(10) Trustee. (i) For purposes of paragraph (d)(9) of this section
and Sec. 75.11, a trustee does not include:
(A) A trustee that does not exercise investment discretion with
respect to a covered fund, including a trustee that is subject to the
direction of an unaffiliated named fiduciary who is not a trustee
pursuant to section 403(a)(1) of the Employee's Retirement Income
Security Act (29 U.S.C. 1103(a)(1)); or
(B) A trustee that is subject to fiduciary standards imposed under
foreign law that are substantially equivalent to those described in
paragraph (d)(10)(i)(A) of this section;
(ii) Any entity that directs a person described in paragraph
(d)(10)(i) of this section, or that possesses authority and discretion
to manage and control the investment decisions of a covered fund for
which such person serves as trustee, shall be considered to be a trustee
of such covered fund.
Sec. 75.11 Permitted organizing and offering, underwriting, and
market making with respect to a covered fund.
(a) Organizing and offering a covered fund in general.
Notwithstanding Sec. 75.10(a), a banking entity is not prohibited from
acquiring or retaining an ownership interest in, or acting as sponsor
to, a covered fund in connection with, directly or indirectly,
organizing and offering a covered fund, including serving as a general
partner, managing member, trustee, or commodity pool operator of the
covered fund and in any manner selecting or controlling (or having
employees, officers, directors, or agents who constitute) a majority of
the directors, trustees, or management of the covered
[[Page 220]]
fund, including any necessary expenses for the foregoing, only if:
(1) The banking entity (or an affiliate thereof) provides bona fide
trust, fiduciary, investment advisory, or commodity trading advisory
services;
(2) The covered fund is organized and offered only in connection
with the provision of bona fide trust, fiduciary, investment advisory,
or commodity trading advisory services and only to persons that are
customers of such services of the banking entity (or an affiliate
thereof), pursuant to a written plan or similar documentation outlining
how the banking entity or such affiliate intends to provide advisory or
similar services to its customers through organizing and offering such
fund;
(3) The banking entity and its affiliates do not acquire or retain
an ownership interest in the covered fund except as permitted under
Sec. 75.12;
(4) The banking entity and its affiliates comply with the
requirements of Sec. 75.14;
(5) The banking entity and its affiliates do not, directly or
indirectly, guarantee, assume, or otherwise insure the obligations or
performance of the covered fund or of any covered fund in which such
covered fund invests;
(6) The covered fund, for corporate, marketing, promotional, or
other purposes:
(i) Does not share the same name or a variation of the same name
with the banking entity (or an affiliate thereof); and
(ii) Does not use the word ``bank'' in its name;
(7) No director or employee of the banking entity (or an affiliate
thereof) takes or retains an ownership interest in the covered fund,
except for any director or employee of the banking entity or such
affiliate who is directly engaged in providing investment advisory,
commodity trading advisory, or other services to the covered fund at the
time the director or employee takes the ownership interest; and
(8) The banking entity:
(i) Clearly and conspicuously discloses, in writing, to any
prospective and actual investor in the covered fund (such as through
disclosure in the covered fund's offering documents):
(A) That ``any losses in [such covered fund] will be borne solely by
investors in [the covered fund] and not by [the banking entity] or its
affiliates; therefore, [the banking entity's] losses in [such covered
fund] will be limited to losses attributable to the ownership interests
in the covered fund held by [the banking entity] and any affiliate in
its capacity as investor in the [covered fund] or as beneficiary of a
restricted profit interest held by [the banking entity] or any
affiliate'';
(B) That such investor should read the fund offering documents
before investing in the covered fund;
(C) That the ``ownership interests in the covered fund are not
insured by the FDIC, and are not deposits, obligations of, or endorsed
or guaranteed in any way, by any banking entity'' (unless that happens
to be the case); and
(D) The role of the banking entity and its affiliates and employees
in sponsoring or providing any services to the covered fund; and
(ii) Complies with any additional rules of the appropriate Federal
banking agencies, the SEC, or the CFTC, as provided in section 13(b)(2)
of the BHC Act, designed to ensure that losses in such covered fund are
borne solely by investors in the covered fund and not by the covered
banking entity and its affiliates.
(b) Organizing and offering an issuing entity of asset-backed
securities. (1) Notwithstanding Sec. 75.10(a), a banking entity is not
prohibited from acquiring or retaining an ownership interest in, or
acting as sponsor to, a covered fund that is an issuing entity of asset-
backed securities in connection with, directly or indirectly, organizing
and offering that issuing entity, so long as the banking entity and its
affiliates comply with all of the requirements of paragraphs (a)(3)
through (a)(8) of this section.
(2) For purposes of paragraph (b) of this section, organizing and
offering a covered fund that is an issuing entity of asset-backed
securities means acting as the securitizer, as that term is used in
section 15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)) of the
issuing entity, or acquiring or retaining an ownership interest in the
issuing entity as required by section
[[Page 221]]
15G of that Act (15 U.S.C. 78o-11) and the implementing regulations
issued thereunder.
(c) Underwriting and market making in ownership interests of a
covered fund. The prohibition contained in Sec. 75.10(a) does not apply
to a banking entity's underwriting activities or market making-related
activities involving a covered fund so long as:
(1) Those activities are conducted in accordance with the
requirements of Sec. 75.4(a) or (b), respectively;
(2) With respect to any banking entity (or any affiliate thereof)
that acts as a sponsor, investment adviser or commodity trading advisor
to a particular covered fund or otherwise acquires and retains an
ownership interest in such covered fund in reliance on paragraph (a) of
this section; acquires and retains an ownership interest in such covered
fund and is either a securitizer, as that term is used in section
15G(a)(3) of the Exchange Act (15 U.S.C. 78o-11(a)(3)), or is acquiring
and retaining an ownership interest in such covered fund in compliance
with section 15G of that Act (15 U.S.C. 78o-11) and the implementing
regulations issued thereunder each as permitted by paragraph (b) of this
section; or, directly or indirectly, guarantees, assumes, or otherwise
insures the obligations or performance of the covered fund or of any
covered fund in which such fund invests, then in each such case any
ownership interests acquired or retained by the banking entity and its
affiliates in connection with underwriting and market making related
activities for that particular covered fund are included in the
calculation of ownership interests permitted to be held by the banking
entity and its affiliates under the limitations of Sec. 75.12(a)(2)(ii)
and (d); and
(3) With respect to any banking entity, the aggregate value of all
ownership interests of the banking entity and its affiliates in all
covered funds acquired and retained under Sec. 75.11, including all
covered funds in which the banking entity holds an ownership interest in
connection with underwriting and market making related activities
permitted under paragraph (c) of this section, are included in the
calculation of all ownership interests under Sec. 75.12(a)(2)(iii) and
(d).
Sec. 75.12 Permitted investment in a covered fund.
(a) Authority and limitations on permitted investments in covered
funds. (1) Notwithstanding the prohibition contained in Sec. 75.10(a),
a banking entity may acquire and retain an ownership interest in a
covered fund that the banking entity or an affiliate thereof organizes
and offers pursuant to Sec. 75.11, for the purposes of:
(i) Establishment. Establishing the fund and providing the fund with
sufficient initial equity for investment to permit the fund to attract
unaffiliated investors, subject to the limits contained in paragraphs
(a)(2)(i) and (a)(2)(iii) of this section; or
(ii) De minimis investment. Making and retaining an investment in
the covered fund subject to the limits contained in paragraphs
(a)(2)(ii) and (a)(2)(iii) of this section.
(2) Investment limits--(i) Seeding period. With respect to an
investment in any covered fund made or held pursuant to paragraph
(a)(1)(i) of this section, the banking entity and its affiliates:
(A) Must actively seek unaffiliated investors to reduce, through
redemption, sale, dilution, or other methods, the aggregate amount of
all ownership interests of the banking entity in the covered fund to the
amount permitted in paragraph (a)(2)(i)(B) of this section; and
(B) Must, no later than 1 year after the date of establishment of
the fund (or such longer period as may be provided by the Board pursuant
to paragraph (e) of this section), conform its ownership interest in the
covered fund to the limits in paragraph (a)(2)(ii) of this section;
(ii) Per-fund limits. (A) Except as provided in paragraph
(a)(2)(ii)(B) of this section, an investment by a banking entity and its
affiliates in any covered fund made or held pursuant to paragraph
(a)(1)(ii) of this section may not exceed 3 percent of the total number
or value of the outstanding ownership interests of the fund.
(B) An investment by a banking entity and its affiliates in a
covered fund that is an issuing entity of asset-backed securities may
not exceed 3 percent of the total fair market value of
[[Page 222]]
the ownership interests of the fund measured in accordance with
paragraph (b)(3) of this section, unless a greater percentage is
retained by the banking entity and its affiliates in compliance with the
requirements of section 15G of the Exchange Act (15 U.S.C. 78o-11) and
the implementing regulations issued thereunder, in which case the
investment by the banking entity and its affiliates in the covered fund
may not exceed the amount, number, or value of ownership interests of
the fund required under section 15G of the Exchange Act and the
implementing regulations issued thereunder.
(iii) Aggregate limit. The aggregate value of all ownership
interests of the banking entity and its affiliates in all covered funds
acquired or retained under this section may not exceed 3 percent of the
tier 1 capital of the banking entity, as provided under paragraph (c) of
this section, and shall be calculated as of the last day of each
calendar quarter.
(iv) Date of establishment. For purposes of this section, the date
of establishment of a covered fund shall be:
(A) In general. The date on which the investment adviser or similar
entity to the covered fund begins making investments pursuant to the
written investment strategy for the fund;
(B) Issuing entities of asset-backed securities. In the case of an
issuing entity of asset-backed securities, the date on which the assets
are initially transferred into the issuing entity of asset-backed
securities.
(b) Rules of construction--(1) Attribution of ownership interests to
a covered banking entity. (i) For purposes of paragraph (a)(2) of this
section, the amount and value of a banking entity's permitted investment
in any single covered fund shall include any ownership interest held
under Sec. 75.12 directly by the banking entity, including any
affiliate of the banking entity.
(ii) Treatment of registered investment companies, SEC-regulated
business development companies and foreign public funds. For purposes of
paragraph (b)(1)(i) of this section, a registered investment company,
SEC-regulated business development companies or foreign public fund as
described in Sec. 75.10(c)(1) will not be considered to be an affiliate
of the banking entity so long as the banking entity:
(A) Does not own, control, or hold with the power to vote 25 percent
or more of the voting shares of the company or fund; and
(B) Provides investment advisory, commodity trading advisory,
administrative, and other services to the company or fund in compliance
with the limitations under applicable regulation, order, or other
authority.
(iii) Covered funds. For purposes of paragraph (b)(1)(i) of this
section, a covered fund will not be considered to be an affiliate of a
banking entity so long as the covered fund is held in compliance with
the requirements of this subpart.
(iv) Treatment of employee and director investments financed by the
banking entity. For purposes of paragraph (b)(1)(i) of this section, an
investment by a director or employee of a banking entity who acquires an
ownership interest in his or her personal capacity in a covered fund
sponsored by the banking entity will be attributed to the banking entity
if the banking entity, directly or indirectly, extends financing for the
purpose of enabling the director or employee to acquire the ownership
interest in the fund and the financing is used to acquire such ownership
interest in the covered fund.
(2) Calculation of permitted ownership interests in a single covered
fund. Except as provided in paragraphs (b)(3) or (4) of this section,
for purposes of determining whether an investment in a single covered
fund complies with the restrictions on ownership interests under
paragraphs (a)(2)(i)(B) and (ii)(A) of this section:
(i) The aggregate number of the outstanding ownership interests held
by the banking entity shall be the total number of ownership interests
held under this section by the banking entity in a covered fund divided
by the total number of ownership interests held by all entities in that
covered fund, as of the last day of each calendar quarter (both measured
without regard to committed funds not yet called for investment);
(ii) The aggregate value of the outstanding ownership interests held
by
[[Page 223]]
the banking entity shall be the aggregate fair market value of all
investments in and capital contributions made to the covered fund by the
banking entity, divided by the value of all investments in and capital
contributions made to that covered fund by all entities, as of the last
day of each calendar quarter (all measured without regard to committed
funds not yet called for investment). If fair market value cannot be
determined, then the value shall be the historical cost basis of all
investments in and contributions made by the banking entity to the
covered fund;
(iii) For purposes of the calculation under paragraph (b)(2)(ii) of
this section, once a valuation methodology is chosen, the banking entity
must calculate the value of its investment and the investments of all
others in the covered fund in the same manner and according to the same
standards.
(3) Issuing entities of asset-backed securities. In the case of an
ownership interest in an issuing entity of asset-backed securities, for
purposes of determining whether an investment in a single covered fund
complies with the restrictions on ownership interests under paragraphs
(a)(2)(i)(B) and (a)(2)(ii)(B) of this section:
(i) For securitizations subject to the requirements of section 15G
of the Exchange Act (15 U.S.C. 78o-11), the calculations shall be made
as of the date and according to the valuation methodology applicable
pursuant to the requirements of section 15G of the Exchange Act (15
U.S.C. 78o-11) and the implementing regulations issued thereunder; or
(ii) For securitization transactions completed prior to the
compliance date of such implementing regulations (or as to which such
implementing regulations do not apply), the calculations shall be made
as of the date of establishment as defined in paragraph (a)(2)(iv)(B) of
this section or such earlier date on which the transferred assets have
been valued for purposes of transfer to the covered fund, and thereafter
only upon the date on which additional securities of the issuing entity
of asset-backed securities are priced for purposes of the sales of
ownership interests to unaffiliated investors.
(iii) For securitization transactions completed prior to the
compliance date of such implementing regulations (or as to which such
implementing regulations do not apply), the aggregate value of the
outstanding ownership interests in the covered fund shall be the fair
market value of the assets transferred to the issuing entity of the
securitization and any other assets otherwise held by the issuing entity
at such time, determined in a manner that is consistent with its
determination of the fair market value of those assets for financial
statement purposes.
(iv) For purposes of the calculation under paragraph (b)(3)(iii) of
this section, the valuation methodology used to calculate the fair
market value of the ownership interests must be the same for both the
ownership interests held by a banking entity and the ownership interests
held by all others in the covered fund in the same manner and according
to the same standards.
(4) Multi-tier fund investments--(i) Master-feeder fund investments.
If the principal investment strategy of a covered fund (the ``feeder
fund'') is to invest substantially all of its assets in another single
covered fund (the ``master fund''), then for purposes of the investment
limitations in paragraphs (a)(2)(i)(B) and (a)(2)(ii) of this section,
the banking entity's permitted investment in such funds shall be
measured only by reference to the value of the master fund. The banking
entity's permitted investment in the master fund shall include any
investment by the banking entity in the master fund, as well as the
banking entity's pro-rata share of any ownership interest of the master
fund that is held through the feeder fund; and
(ii) Fund-of-funds investments. If a banking entity organizes and
offers a covered fund pursuant to Sec. 75.11 for the purpose of
investing in other covered funds (a ``fund of funds'') and that fund of
funds itself invests in another covered fund that the banking entity is
permitted to own, then the banking entity's permitted investment in that
other fund shall include any investment by the banking entity in that
[[Page 224]]
other fund, as well as the banking entity's pro-rata share of any
ownership interest of the fund that is held through the fund of funds.
The investment of the banking entity may not represent more than 3
percent of the amount or value of any single covered fund.
(c) Aggregate permitted investments in all covered funds. (1) For
purposes of paragraph (a)(2)(iii) of this section, the aggregate value
of all ownership interests held by a banking entity shall be the sum of
all amounts paid or contributed by the banking entity in connection with
acquiring or retaining an ownership interest in covered funds (together
with any amounts paid by the entity (or employee thereof) in connection
with obtaining a restricted profit interest under Sec.
75.10(d)(6)(ii)), on a historical cost basis.
(2) Calculation of tier 1 capital. For purposes of paragraph
(a)(2)(iii) of this section:
(i) Entities that are required to hold and report tier 1 capital. If
a banking entity is required to calculate and report tier 1 capital, the
banking entity's tier 1 capital shall be equal to the amount of tier 1
capital of the banking entity as of the last day of the most recent
calendar quarter, as reported to its primary financial regulatory
agency; and
(ii) If a banking entity is not required to calculate and report
tier 1 capital, the banking entity's tier 1 capital shall be determined
to be equal to:
(A) In the case of a banking entity that is controlled, directly or
indirectly, by a depository institution that calculates and reports tier
1 capital, be equal to the amount of tier 1 capital reported by such
controlling depository institution in the manner described in paragraph
(c)(2)(i) of this section;
(B) In the case of a banking entity that is not controlled, directly
or indirectly, by a depository institution that calculates and reports
tier 1 capital:
(1) Bank holding company subsidiaries. If the banking entity is a
subsidiary of a bank holding company or company that is treated as a
bank holding company, be equal to the amount of tier 1 capital reported
by the top-tier affiliate of such covered banking entity that calculates
and reports tier 1 capital in the manner described in paragraph
(c)(2)(i) of this section; and
(2) Other holding companies and any subsidiary or affiliate thereof.
If the banking entity is not a subsidiary of a bank holding company or a
company that is treated as a bank holding company, be equal to the total
amount of shareholders' equity of the top-tier affiliate within such
organization as of the last day of the most recent calendar quarter that
has ended, as determined under applicable accounting standards.
(iii) Treatment of foreign banking entities--(A) Foreign banking
entities. Except as provided in paragraph (c)(2)(iii)(B) of this
section, with respect to a banking entity that is not itself, and is not
controlled directly or indirectly by, a banking entity that is located
or organized under the laws of the United States or of any State, the
tier 1 capital of the banking entity shall be the consolidated tier 1
capital of the entity as calculated under applicable home country
standards.
(B) U.S. affiliates of foreign banking entities. With respect to a
banking entity that is located or organized under the laws of the United
States or of any State and is controlled by a foreign banking entity
identified under paragraph (c)(2)(iii)(A) of this section, the banking
entity's tier 1 capital shall be as calculated under paragraphs
(c)(2)(i) or (ii) of this section.
(d) Capital treatment for a permitted investment in a covered fund.
For purposes of calculating compliance with the applicable regulatory
capital requirements, a banking entity shall deduct from the banking
entity's tier 1 capital (as determined under paragraph (c)(2) of this
section) the greater of:
(1) The sum of all amounts paid or contributed by the banking entity
in connection with acquiring or retaining an ownership interest
(together with any amounts paid by the entity (or employee thereof) in
connection with obtaining a restricted profit interest under Sec.
75.10(d)(6)(ii)), on a historical cost basis, plus any earnings
received; and
(2) The fair market value of the banking entity's ownership
interests in the covered fund as determined under paragraph (b)(2)(ii)
or (3) of this section (together with any amounts paid by the entity (or
employee thereof) in
[[Page 225]]
connection with obtaining a restricted profit interest under Sec.
75.10(d)(6)(ii)), if the banking entity accounts for the profits (or
losses) of the fund investment in its financial statements.
(e) Extension of time to divest an ownership interest. (1) Upon
application by a banking entity, the Board may extend the period under
paragraph (a)(2)(i) of this section for up to 2 additional years if the
Board finds that an extension would be consistent with safety and
soundness and not detrimental to the public interest. An application for
extension must:
(i) Be submitted to the Board at least 90 days prior to the
expiration of the applicable time period;
(ii) Provide the reasons for application, including information that
addresses the factors in paragraph (e)(2) of this section; and
(iii) Explain the banking entity's plan for reducing the permitted
investment in a covered fund through redemption, sale, dilution or other
methods as required in paragraph (a)(2) of this section.
(2) Factors governing Board determinations. In reviewing any
application under paragraph (e)(1) of this section, the Board may
consider all the facts and circumstances related to the permitted
investment in a covered fund, including:
(i) Whether the investment would result, directly or indirectly, in
a material exposure by the banking entity to high-risk assets or high-
risk trading strategies;
(ii) The contractual terms governing the banking entity's interest
in the covered fund;
(iii) The date on which the covered fund is expected to have
attracted sufficient investments from investors unaffiliated with the
banking entity to enable the banking entity to comply with the
limitations in paragraph (a)(2)(i) of this section;
(iv) The total exposure of the covered banking entity to the
investment and the risks that disposing of, or maintaining, the
investment in the covered fund may pose to the banking entity and the
financial stability of the United States;
(v) The cost to the banking entity of divesting or disposing of the
investment within the applicable period;
(vi) Whether the investment or the divestiture or conformance of the
investment would involve or result in a material conflict of interest
between the banking entity and unaffiliated parties, including clients,
customers or counterparties to which it owes a duty;
(vii) The banking entity's prior efforts to reduce through
redemption, sale, dilution, or other methods its ownership interests in
the covered fund, including activities related to the marketing of
interests in such covered fund;
(viii) Market conditions; and
(ix) Any other factor that the Board believes appropriate.
(3) Authority to impose restrictions on activities or investment
during any extension period. The Board may impose such conditions on any
extension approved under paragraph (e)(1) of this section as the Board
determines are necessary or appropriate to protect the safety and
soundness of the banking entity or the financial stability of the United
States, address material conflicts of interest or other unsound banking
practices, or otherwise further the purposes of section 13 of the BHC
Act and this part.
(4) Consultation. In the case of a banking entity that is primarily
regulated by another Federal banking agency, the SEC, or the CFTC, the
Board will consult with such agency prior to acting on an application by
the banking entity for an extension under paragraph (e)(1) of this
section.
Sec. 75.13 Other permitted covered fund activities and investments.
(a) Permitted risk-mitigating hedging activities. (1) The
prohibition contained in Sec. 75.10(a) does not apply with respect to
an ownership interest in a covered fund acquired or retained by a
banking entity that is designed to demonstrably reduce or otherwise
significantly mitigate the specific, identifiable risks to the banking
entity in connection with a compensation arrangement with an employee of
the banking entity or an affiliate thereof that directly provides
investment advisory, commodity trading advisory or other services to the
covered fund.
[[Page 226]]
(2) Requirements. The risk-mitigating hedging activities of a
banking entity are permitted under paragraph (a) of this section only
if:
(i) The banking entity has established and implements, maintains and
enforces an internal compliance program required by subpart D of this
part that is reasonably designed to ensure the banking entity's
compliance with the requirements of this section, including:
(A) Reasonably designed written policies and procedures; and
(B) Internal controls and ongoing monitoring, management, and
authorization procedures, including relevant escalation procedures; and
(ii) The acquisition or retention of the ownership interest:
(A) Is made in accordance with the written policies, procedures and
internal controls required under this section;
(B) At the inception of the hedge, is designed to reduce or
otherwise significantly mitigate and demonstrably reduces or otherwise
significantly mitigates one or more specific, identifiable risks arising
in connection with the compensation arrangement with the employee that
directly provides investment advisory, commodity trading advisory, or
other services to the covered fund;
(C) Does not give rise, at the inception of the hedge, to any
significant new or additional risk that is not itself hedged
contemporaneously in accordance with this section; and
(D) Is subject to continuing review, monitoring and management by
the banking entity.
(iii) The compensation arrangement relates solely to the covered
fund in which the banking entity or any affiliate has acquired an
ownership interest pursuant to this paragraph and such compensation
arrangement provides that any losses incurred by the banking entity on
such ownership interest will be offset by corresponding decreases in
amounts payable under such compensation arrangement.
(b) Certain permitted covered fund activities and investments
outside of the United States. (1) The prohibition contained in Sec.
75.10(a) does not apply to the acquisition or retention of any ownership
interest in, or the sponsorship of, a covered fund by a banking entity
only if:
(i) The banking entity is not organized or directly or indirectly
controlled by a banking entity that is organized under the laws of the
United States or of one or more States;
(ii) The activity or investment by the banking entity is pursuant to
paragraph (9) or (13) of section 4(c) of the BHC Act;
(iii) No ownership interest in the covered fund is offered for sale
or sold to a resident of the United States; and
(iv) The activity or investment occurs solely outside of the United
States.
(2) An activity or investment by the banking entity is pursuant to
paragraph (9) or (13) of section 4(c) of the BHC Act for purposes of
paragraph (b)(1)(ii) of this section only if:
(i) The activity or investment is conducted in accordance with the
requirements of this section; and
(ii)(A) With respect to a banking entity that is a foreign banking
organization, the banking entity meets the qualifying foreign banking
organization requirements of Sec. 211.23(a), (c) or (e) of the Board's
Regulation K (12 CFR 211.23(a), (c) or (e)), as applicable; or
(B) With respect to a banking entity that is not a foreign banking
organization, the banking entity is not organized under the laws of the
United States or of one or more States and the banking entity, on a
fully-consolidated basis, meets at least two of the following
requirements:
(1) Total assets of the banking entity held outside of the United
States exceed total assets of the banking entity held in the United
States;
(2) Total revenues derived from the business of the banking entity
outside of the United States exceed total revenues derived from the
business of the banking entity in the United States; or
(3) Total net income derived from the business of the banking entity
outside of the United States exceeds total net income derived from the
business of the banking entity in the United States.
(3) An ownership interest in a covered fund is not offered for sale
or sold to a resident of the United States for
[[Page 227]]
purposes of paragraph (b)(1)(iii) of this section only if it is sold or
has been sold pursuant to an offering that does not target residents of
the United States.
(4) An activity or investment occurs solely outside of the United
States for purposes of paragraph (b)(1)(iv) of this section only if:
(i) The banking entity acting as sponsor, or engaging as principal
in the acquisition or retention of an ownership interest in the covered
fund, is not itself, and is not controlled directly or indirectly by, a
banking entity that is located in the United States or organized under
the laws of the United States or of any State;
(ii) The banking entity (including relevant personnel) that makes
the decision to acquire or retain the ownership interest or act as
sponsor to the covered fund is not located in the United States or
organized under the laws of the United States or of any State;
(iii) The investment or sponsorship, including any transaction
arising from risk-mitigating hedging related to an ownership interest,
is not accounted for as principal directly or indirectly on a
consolidated basis by any branch or affiliate that is located in the
United States or organized under the laws of the United States or of any
State; and
(iv) No financing for the banking entity's ownership or sponsorship
is provided, directly or indirectly, by any branch or affiliate that is
located in the United States or organized under the laws of the United
States or of any State.
(5) For purposes of this section, a U.S. branch, agency, or
subsidiary of a foreign bank, or any subsidiary thereof, is located in
the United States; however, a foreign bank of which that branch, agency,
or subsidiary is a part is not considered to be located in the United
States solely by virtue of operation of the U.S. branch, agency, or
subsidiary.
(c) Permitted covered fund interests and activities by a regulated
insurance company. The prohibition contained in Sec. 75.10(a) does not
apply to the acquisition or retention by an insurance company, or an
affiliate thereof, of any ownership interest in, or the sponsorship of,
a covered fund only if:
(1) The insurance company or its affiliate acquires and retains the
ownership interest solely for the general account of the insurance
company or for one or more separate accounts established by the
insurance company;
(2) The acquisition and retention of the ownership interest is
conducted in compliance with, and subject to, the insurance company
investment laws, regulations, and written guidance of the State or
jurisdiction in which such insurance company is domiciled; and
(3) The appropriate Federal banking agencies, after consultation
with the Financial Stability Oversight Council and the relevant
insurance commissioners of the States and foreign jurisdictions, as
appropriate, have not jointly determined, after notice and comment, that
a particular law, regulation, or written guidance described in paragraph
(c)(2) of this section is insufficient to protect the safety and
soundness of the banking entity, or the financial stability of the
United States.
Sec. 75.14 Limitations on relationships with a covered fund.
(a) Relationships with a covered fund. (1) Except as provided for in
paragraph (a)(2) of this section, no banking entity that serves,
directly or indirectly, as the investment manager, investment adviser,
commodity trading advisor, or sponsor to a covered fund, that organizes
and offers a covered fund pursuant to Sec. 75.11, or that continues to
hold an ownership interest in accordance with Sec. 75.11(b), and no
affiliate of such entity, may enter into a transaction with the covered
fund, or with any other covered fund that is controlled by such covered
fund, that would be a covered transaction as defined in section 23A of
the Federal Reserve Act (12 U.S.C. 371c(b)(7)), as if such banking
entity and the affiliate thereof were a member bank and the covered fund
were an affiliate thereof.
(2) Notwithstanding paragraph (a)(1) of this section, a banking
entity may:
(i) Acquire and retain any ownership interest in a covered fund in
accordance with the requirements of Sec. Sec. 75.11, 75.12, or 75.13;
and
[[Page 228]]
(ii) Enter into any prime brokerage transaction with any covered
fund in which a covered fund managed, sponsored, or advised by such
banking entity (or an affiliate thereof) has taken an ownership
interest, if:
(A) The banking entity is in compliance with each of the limitations
set forth in Sec. 75.11 with respect to a covered fund organized and
offered by such banking entity (or an affiliate thereof);
(B) The chief executive officer (or equivalent officer) of the
banking entity certifies in writing annually to the Commission (with a
duty to update the certification if the information in the certification
materially changes) that the banking entity does not, directly or
indirectly, guarantee, assume, or otherwise insure the obligations or
performance of the covered fund or of any covered fund in which such
covered fund invests; and
(C) The Board has not determined that such transaction is
inconsistent with the safe and sound operation and condition of the
banking entity.
(b) Restrictions on transactions with covered funds. A banking
entity that serves, directly or indirectly, as the investment manager,
investment adviser, commodity trading advisor, or sponsor to a covered
fund, or that organizes and offers a covered fund pursuant to Sec.
75.11, or that continues to hold an ownership interest in accordance
with Sec. 75.11(b), shall be subject to section 23B of the Federal
Reserve Act (12 U.S.C. 371c-1), as if such banking entity were a member
bank and such covered fund were an affiliate thereof.
(c) Restrictions on prime brokerage transactions. A prime brokerage
transaction permitted under paragraph (a)(2)(ii) of this section shall
be subject to section 23B of the Federal Reserve Act (12 U.S.C. 371c-1)
as if the counterparty were an affiliate of the banking entity.
Sec. 75.15 Other limitations on permitted covered fund activities.
(a) No transaction, class of transactions, or activity may be deemed
permissible under Sec. Sec. 75.11 through 75.13 if the transaction,
class of transactions, or activity would:
(1) Involve or result in a material conflict of interest between the
banking entity and its clients, customers, or counterparties;
(2) Result, directly or indirectly, in a material exposure by the
banking entity to a high-risk asset or a high-risk trading strategy; or
(3) Pose a threat to the safety and soundness of the banking entity
or to the financial stability of the United States.
(b) Definition of material conflict of interest. (1) For purposes of
this section, a material conflict of interest between a banking entity
and its clients, customers, or counterparties exists if the banking
entity engages in any transaction, class of transactions, or activity
that would involve or result in the banking entity's interests being
materially adverse to the interests of its client, customer, or
counterparty with respect to such transaction, class of transactions, or
activity, and the banking entity has not taken at least one of the
actions in paragraph (b)(2) of this section.
(2) Prior to effecting the specific transaction or class or type of
transactions, or engaging in the specific activity, the banking entity:
(i) Timely and effective disclosure. (A) Has made clear, timely, and
effective disclosure of the conflict of interest, together with other
necessary information, in reasonable detail and in a manner sufficient
to permit a reasonable client, customer, or counterparty to meaningfully
understand the conflict of interest; and
(B) Such disclosure is made in a manner that provides the client,
customer, or counterparty the opportunity to negate, or substantially
mitigate, any materially adverse effect on the client, customer, or
counterparty created by the conflict of interest; or
(ii) Information barriers. Has established, maintained, and enforced
information barriers that are memorialized in written policies and
procedures, such as physical separation of personnel, or functions, or
limitations on types of activity, that are reasonably designed, taking
into consideration the nature of the banking entity's business, to
prevent the conflict of interest
[[Page 229]]
from involving or resulting in a materially adverse effect on a client,
customer, or counterparty. A banking entity may not rely on such
information barriers if, in the case of any specific transaction, class
or type of transactions or activity, the banking entity knows or should
reasonably know that, notwithstanding the banking entity's establishment
of information barriers, the conflict of interest may involve or result
in a materially adverse effect on a client, customer, or counterparty.
(c) Definition of high-risk asset and high-risk trading strategy.
For purposes of this section:
(1) High-risk asset means an asset or group of related assets that
would, if held by a banking entity, significantly increase the
likelihood that the banking entity would incur a substantial financial
loss or would pose a threat to the financial stability of the United
States.
(2) High-risk trading strategy means a trading strategy that would,
if engaged in by a banking entity, significantly increase the likelihood
that the banking entity would incur a substantial financial loss or
would pose a threat to the financial stability of the United States.
Sec. 75.16 Ownership of interests in and sponsorship of issuers of
certain collateralized debt obligations backed by trust-preferred
securities.
(a) The prohibition contained in Sec. 75.10(a)(1) does not apply to
the ownership by a banking entity of an interest in, or sponsorship of,
any issuer if:
(1) The issuer was established, and the interest was issued, before
May 19, 2010;
(2) The banking entity reasonably believes that the offering
proceeds received by the issuer were invested primarily in Qualifying
TruPS Collateral; and
(3) The banking entity acquired such interest on or before December
10, 2013 (or acquired such interest in connection with a merger with or
acquisition of a banking entity that acquired the interest on or before
December 10, 2013).
(b) For purposes of this Sec. 75.16, Qualifying TruPS Collateral
shall mean any trust preferred security or subordinated debt instrument
issued prior to May 19, 2010 by a depository institution holding company
that, as of the end of any reporting period within 12 months immediately
preceding the issuance of such trust preferred security or subordinated
debt instrument, had total consolidated assets of less than
$15,000,000,000 or issued prior to May 19, 2010 by a mutual holding
company.
(c) Notwithstanding paragraph (a)(3) of this section, a banking
entity may act as a market maker with respect to the interests of an
issuer described in paragraph (a) of this section in accordance with the
applicable provisions of Sec. Sec. 75.4 and 75.11.
(d) Without limiting the applicability of paragraph (a) of this
section, the Board, the FDIC and the OCC will make public a non-
exclusive list of issuers that meet the requirements of paragraph (a). A
banking entity may rely on the list published by the Board, the FDIC and
the OCC.
[79 FR 5228, Jan. 31, 2014]
Sec. Sec. 75.17-75.19 [Reserved]
Subpart D_Compliance Program Requirement; Violations
Sec. 75.20 Program for compliance; reporting.
(a) Program requirement. Each banking entity shall develop and
provide for the continued administration of a compliance program
reasonably designed to ensure and monitor compliance with the
prohibitions and restrictions on proprietary trading and covered fund
activities and investments set forth in section 13 of the BHC Act and
this part. The terms, scope and detail of the compliance program shall
be appropriate for the types, size, scope and complexity of activities
and business structure of the banking entity.
(b) Contents of compliance program. Except as provided in paragraph
(f) of this section, the compliance program required by paragraph (a) of
this section, at a minimum, shall include:
(1) Written policies and procedures reasonably designed to document,
describe, monitor and limit trading activities subject to subpart B of
this part (including those permitted under
[[Page 230]]
Sec. Sec. 75.3 to 75.6), including setting, monitoring and managing
required limits set out in Sec. Sec. 75.4 and 75.5, and activities and
investments with respect to a covered fund subject to subpart C of this
part (including those permitted under Sec. Sec. 75.11 through 75.14)
conducted by the banking entity to ensure that all activities and
investments conducted by the banking entity that are subject to section
13 of the BHC Act and this part comply with section 13 of the BHC Act
and this part;
(2) A system of internal controls reasonably designed to monitor
compliance with section 13 of the BHC Act and this part and to prevent
the occurrence of activities or investments that are prohibited by
section 13 of the BHC Act and this part;
(3) A management framework that clearly delineates responsibility
and accountability for compliance with section 13 of the BHC Act and
this part and includes appropriate management review of trading limits,
strategies, hedging activities, investments, incentive compensation and
other matters identified in this part or by management as requiring
attention;
(4) Independent testing and audit of the effectiveness of the
compliance program conducted periodically by qualified personnel of the
banking entity or by a qualified outside party;
(5) Training for trading personnel and managers, as well as other
appropriate personnel, to effectively implement and enforce the
compliance program; and
(6) Records sufficient to demonstrate compliance with section 13 of
the BHC Act and this part, which a banking entity must promptly provide
to the Commission upon request and retain for a period of no less than 5
years or such longer period as required by the Commission.
(c) Additional standards. In addition to the requirements in
paragraph (b) of this section, the compliance program of a banking
entity must satisfy the requirements and other standards contained in
appendix B of this part, if:
(1) The banking entity engages in proprietary trading permitted
under subpart B of this part and is required to comply with the
reporting requirements of paragraph (d) of this section;
(2) The banking entity has reported total consolidated assets as of
the previous calendar year end of $50 billion or more or, in the case of
a foreign banking entity, has total U.S. assets as of the previous
calendar year end of $50 billion or more (including all subsidiaries,
affiliates, branches and agencies of the foreign banking entity
operating, located or organized in the United States); or
(3) The Commission notifies the banking entity in writing that it
must satisfy the requirements and other standards contained in appendix
B of this part.
(d) Reporting requirements under appendix A of this part. (1) A
banking entity engaged in proprietary trading activity permitted under
subpart B of this part shall comply with the reporting requirements
described in appendix A of this part, if:
(i) The banking entity (other than a foreign banking entity as
provided in paragraph (d)(1)(ii) of this section) has, together with its
affiliates and subsidiaries, trading assets and liabilities (excluding
trading assets and liabilities involving obligations of or guaranteed by
the United States or any agency of the United States) the average gross
sum of which (on a worldwide consolidated basis) over the previous
consecutive four quarters, as measured as of the last day of each of the
four prior calendar quarters, equals or exceeds the threshold
established in paragraph (d)(2) of this section;
(ii) In the case of a foreign banking entity, the average gross sum
of the trading assets and liabilities of the combined U.S. operations of
the foreign banking entity (including all subsidiaries, affiliates,
branches and agencies of the foreign banking entity operating, located
or organized in the United States and excluding trading assets and
liabilities involving obligations of or guaranteed by the United States
or any agency of the United States) over the previous consecutive four
quarters, as measured as of the last day of each of the four prior
calendar quarters, equals or exceeds the threshold established in
paragraph (d)(2) of this section; or
(iii) The Commission notifies the banking entity in writing that it
must
[[Page 231]]
satisfy the reporting requirements contained in appendix A of this part.
(2) The threshold for reporting under paragraph (d)(1) of this
section shall be $50 billion beginning on June 30, 2014; $25 billion
beginning on April 30, 2016; and $10 billion beginning on December 31,
2016.
(3) Frequency of reporting. Unless the Commission notifies the
banking entity in writing that it must report on a different basis, a
banking entity with $50 billion or more in trading assets and
liabilities (as calculated in accordance with paragraph (d)(1) of this
section) shall report the information required by appendix A of this
part for each calendar month within 30 days of the end of the relevant
calendar month; beginning with information for the month of January
2015, such information shall be reported within 10 days of the end of
each calendar month. Any other banking entity subject to appendix A of
this part shall report the information required by appendix A of this
part for each calendar quarter within 30 days of the end of that
calendar quarter unless the Commission notifies the banking entity in
writing that it must report on a different basis.
(e) Additional documentation for covered funds. Any banking entity
that has more than $10 billion in total consolidated assets as reported
on December 31 of the previous two calendar years shall maintain records
that include:
(1) Documentation of the exclusions or exemptions other than
sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940
relied on by each fund sponsored by the banking entity (including all
subsidiaries and affiliates) in determining that such fund is not a
covered fund;
(2) For each fund sponsored by the banking entity (including all
subsidiaries and affiliates) for which the banking entity relies on one
or more of the exclusions from the definition of covered fund provided
by Sec. 75.10(c)(1), (5), (8), (9), or (10), documentation supporting
the banking entity's determination that the fund is not a covered fund
pursuant to one or more of those exclusions;
(3) For each seeding vehicle described in Sec. 75.10(c)(12)(i) or
(iii) that will become a registered investment company or SEC-regulated
business development company, a written plan documenting the banking
entity's determination that the seeding vehicle will become a registered
investment company or SEC-regulated business development company; the
period of time during which the vehicle will operate as a seeding
vehicle; and the banking entity's plan to market the vehicle to third-
party investors and convert it into a registered investment company or
SEC-regulated business development company within the time period
specified in Sec. 75.12(a)(2)(i)(B);
(4) For any banking entity that is, or is controlled directly or
indirectly by a banking entity that is, located in or organized under
the laws of the United States or of any State, if the aggregate amount
of ownership interests in foreign public funds that are described in
Sec. 75.10(c)(1) owned by such banking entity (including ownership
interests owned by any affiliate that is controlled directly or
indirectly by a banking entity that is located in or organized under the
laws of the United States or of any State) exceeds $50 million at the
end of two or more consecutive calendar quarters, beginning with the
next succeeding calendar quarter, documentation of the value of the
ownership interests owned by the banking entity (and such affiliates) in
each foreign public fund and each jurisdiction in which any such foreign
public fund is organized, calculated as of the end of each calendar
quarter, which documentation must continue until the banking entity's
aggregate amount of ownership interests in foreign public funds is below
$50 million for two consecutive calendar quarters; and
(5) For purposes of paragraph (e)(4) of this section, a U.S. branch,
agency, or subsidiary of a foreign banking entity is located in the
United States; however, the foreign bank that operates or controls that
branch, agency, or subsidiary is not considered to be located in the
United States solely by virtue of operating or controlling the U.S.
branch, agency, or subsidiary.
(f) Simplified programs for less active banking entities--(1)
Banking entities with no covered activities. A banking entity that does
not engage in activities or investments pursuant to subpart B
[[Page 232]]
or subpart C of this part (other than trading activities permitted
pursuant to Sec. 75.6(a)) may satisfy the requirements of this section
by establishing the required compliance program prior to becoming
engaged in such activities or making such investments (other than
trading activities permitted pursuant to Sec. 75.6(a)).
(2) Banking entities with modest activities. A banking entity with
total consolidated assets of $10 billion or less as reported on December
31 of the previous two calendar years that engages in activities or
investments pursuant to subpart B or subpart C of this part (other than
trading activities permitted under Sec. 75.6(a)) may satisfy the
requirements of this section by including in its existing compliance
policies and procedures appropriate references to the requirements of
section 13 of the BHC Act and this part and adjustments as appropriate
given the activities, size, scope and complexity of the banking entity.
Sec. 75.21 Termination of activities or investments; penalties
for violations.
(a) Any banking entity that engages in an activity or makes an
investment in violation of section 13 of the BHC Act or this part, or
acts in a manner that functions as an evasion of the requirements of
section 13 of the BHC Act or this part, including through an abuse of
any activity or investment permitted under subparts B or C of this part,
or otherwise violates the restrictions and requirements of section 13 of
the BHC Act or this part, shall, upon discovery, promptly terminate the
activity and, as relevant, dispose of the investment.
(b) Whenever the Commission finds reasonable cause to believe any
banking entity has engaged in an activity or made an investment in
violation of section 13 of the BHC Act or this part, or engaged in any
activity or made any investment that functions as an evasion of the
requirements of section 13 of the BHC Act or this part, the Commission
may take any action permitted by law to enforce compliance with section
13 of the BHC Act and this part, including directing the banking entity
to restrict, limit, or terminate any or all activities under this part
and dispose of any investment.
Sec. Appendix A to Part 75--Reporting and Recordkeeping Requirements for
Covered Trading Activities
I. Purpose
a. This appendix sets forth reporting and recordkeeping requirements
that certain banking entities must satisfy in connection with the
restrictions on proprietary trading set forth in subpart B of this part
(``proprietary trading restrictions''). Pursuant to Sec. 75.20(d), this
appendix generally applies to a banking entity that, together with its
affiliates and subsidiaries, has significant trading assets and
liabilities. These entities are required to (i) furnish periodic reports
to the Commission regarding a variety of quantitative measurements of
their covered trading activities, which vary depending on the scope and
size of covered trading activities, and (ii) create and maintain records
documenting the preparation and content of these reports. The
requirements of this appendix must be incorporated into the banking
entity's internal compliance program under Sec. 75.20 and Appendix B of
this part.
b. The purpose of this appendix is to assist banking entities and
the Commission in:
(i) Better understanding and evaluating the scope, type, and profile
of the banking entity's covered trading activities;
(ii) Monitoring the banking entity's covered trading activities;
(iii) Identifying covered trading activities that warrant further
review or examination by the banking entity to verify compliance with
the proprietary trading restrictions;
(iv) Evaluating whether the covered trading activities of trading
desks engaged in market making-related activities subject to Sec.
75.4(b) are consistent with the requirements governing permitted market
making-related activities;
(v) Evaluating whether the covered trading activities of trading
desks that are engaged in permitted trading activity subject to Sec.
75.4, 75.5, or 75.6(a) and (b) (i.e., underwriting and market making-
related related activity, risk-mitigating hedging, or trading in certain
government obligations) are consistent with the requirement that such
activity not result, directly or indirectly, in a material exposure to
high-risk assets or high-risk trading strategies;
(vi) Identifying the profile of particular covered trading
activities of the banking entity, and the individual trading desks of
the banking entity, to help establish the appropriate frequency and
scope of examination by the Commission of such activities; and
(vii) Assessing and addressing the risks associated with the banking
entity's covered trading activities.
[[Page 233]]
c. The quantitative measurements that must be furnished pursuant to
this appendix are not intended to serve as a dispositive tool for the
identification of permissible or impermissible activities.
d. In order to allow banking entities and the Agencies to evaluate
the effectiveness of these metrics, banking entities must collect and
report these metrics for all trading desks beginning on the dates
established in Sec. 75.20. The Agencies will review the data collected
and revise this collection requirement as appropriate based on a review
of the data collected prior to September 30, 2015.
e. In addition to the quantitative measurements required in this
appendix, a banking entity may need to develop and implement other
quantitative measurements in order to effectively monitor its covered
trading activities for compliance with section 13 of the BHC Act and
this part and to have an effective compliance program, as required by
Sec. 75.20 and Appendix B of this part. The effectiveness of particular
quantitative measurements may differ based on the profile of the banking
entity's businesses in general and, more specifically, of the particular
trading desk, including types of instruments traded, trading activities
and strategies, and history and experience (e.g., whether the trading
desk is an established, successful market maker or a new entrant to a
competitive market). In all cases, banking entities must ensure that
they have robust measures in place to identify and monitor the risks
taken in their trading activities, to ensure that the activities are
within risk tolerances established by the banking entity, and to monitor
and examine for compliance with the proprietary trading restrictions in
this part.
f. On an ongoing basis, banking entities must carefully monitor,
review, and evaluate all furnished quantitative measurements, as well as
any others that they choose to utilize in order to maintain compliance
with section 13 of the BHC Act and this part. All measurement results
that indicate a heightened risk of impermissible proprietary trading,
including with respect to otherwise-permitted activities under
Sec. Sec. 75.4 through 75.6(a) and (b), or that result in a material
exposure to high-risk assets or high-risk trading strategies, must be
escalated within the banking entity for review, further analysis,
explanation to the Commission, and remediation, where appropriate. The
quantitative measurements discussed in this appendix should be helpful
to banking entities in identifying and managing the risks related to
their covered trading activities.
II. Definitions
The terms used in this appendix have the same meanings as set forth
in Sec. Sec. 75.2 and 75.3. In addition, for purposes of this appendix,
the following definitions apply:
Calculation period means the period of time for which a particular
quantitative measurement must be calculated.
Comprehensive profit and loss means the net profit or loss of a
trading desk's material sources of trading revenue over a specific
period of time, including, for example, any increase or decrease in the
market value of a trading desk's holdings, dividend income, and interest
income and expense.
Covered trading activity means trading conducted by a trading desk
under Sec. 75.4, 75.5, or 75.6(a) or (b). A banking entity may include
trading under Sec. 75.3(d) or 75.6(c), (d) or (e).
Measurement frequency means the frequency with which a particular
quantitative metric must be calculated and recorded.
Trading desk means the smallest discrete unit of organization of a
banking entity that purchases or sells financial instruments for the
trading account of the banking entity or an affiliate thereof.
III. Reporting and Recordkeeping of Quantitative Measurements
a. Scope of Required Reporting
General scope. Each banking entity made subject to this part by
Sec. 75.20 must furnish the following quantitative measurements for
each trading desk of the banking entity, calculated in accordance with
this appendix:
Risk and Position Limits and Usage;
Risk Factor Sensitivities;
Value-at-Risk and Stress VaR;
Comprehensive Profit and Loss Attribution;
Inventory Turnover;
Inventory Aging; and
Customer Facing Trade Ratio
b. Frequency of Required Calculation and Reporting
A banking entity must calculate any applicable quantitative
measurement for each trading day. A banking entity must report each
applicable quantitative measurement to the Commission on the reporting
schedule established in Sec. 75.20 unless otherwise requested by the
Commission. All quantitative measurements for any calendar month must be
reported within the time period required by Sec. 75.20.
c. Recordkeeping
A banking entity must, for any quantitative measurement furnished to
the Commission pursuant to this appendix and Sec. 75.20(d), create and
maintain records documenting the preparation and content of these
reports, as well as such information as is necessary to permit the
Commission to verify the accuracy of such reports, for a period of 5
years from the end of the calendar year for which the measurement was
taken.
[[Page 234]]
IV. Quantitative Measurements
a. Risk-Management Measurements
1. Risk and Position Limits and Usage
i. Description: For purposes of this appendix, Risk and Position
Limits are the constraints that define the amount of risk that a trading
desk is permitted to take at a point in time, as defined by the banking
entity for a specific trading desk. Usage represents the portion of the
trading desk's limits that are accounted for by the current activity of
the desk. Risk and position limits and their usage are key risk
management tools used to control and monitor risk taking and include,
but are not limited, to the limits set out in Sec. Sec. 75.4 and 75.5.
A number of the metrics that are described below, including ``Risk
Factor Sensitivities'' and ``Value-at-Risk and Stress Value-at-Risk,''
relate to a trading desk's risk and position limits and are useful in
evaluating and setting these limits in the broader context of the
trading desk's overall activities, particularly for the market making
activities under Sec. 75.4(b) and hedging activity under Sec. 75.5.
Accordingly, the limits required under Sec. Sec. 75.4(b)(2)(iii) and
75.5(b)(1)(i) must meet the applicable requirements under Sec. Sec.
75.4(b)(2)(iii) and 75.5(b)(1)(i) and also must include appropriate
metrics for the trading desk limits including, at a minimum, the ``Risk
Factor Sensitivities'' and ``Value-at-Risk and Stress Value-at-Risk''
metrics except to the extent any of the ``Risk Factor Sensitivities'' or
``Value-at-Risk and Stress Value-at-Risk'' metrics are demonstrably
ineffective for measuring and monitoring the risks of a trading desk
based on the types of positions traded by, and risk exposures of, that
desk.
ii. General Calculation Guidance: Risk and Position Limits must be
reported in the format used by the banking entity for the purposes of
risk management of each trading desk. Risk and Position Limits are often
expressed in terms of risk measures, such as VaR and Risk Factor
Sensitivities, but may also be expressed in terms of other observable
criteria, such as net open positions. When criteria other than VaR or
Risk Factor Sensitivities are used to define the Risk and Position
Limits, both the value of the Risk and Position Limits and the value of
the variables used to assess whether these limits have been reached must
be reported.
iii. Calculation Period: One trading day.
iv. Measurement Frequency: Daily.
2. Risk Factor Sensitivities
i. Description: For purposes of this appendix, Risk Factor
Sensitivities are changes in a trading desk's Comprehensive Profit and
Loss that are expected to occur in the event of a change in one or more
underlying variables that are significant sources of the trading desk's
profitability and risk.
ii. General Calculation Guidance: A banking entity must report the
Risk Factor Sensitivities that are monitored and managed as part of the
trading desk's overall risk management policy. The underlying data and
methods used to compute a trading desk's Risk Factor Sensitivities will
depend on the specific function of the trading desk and the internal
risk management models employed. The number and type of Risk Factor
Sensitivities that are monitored and managed by a trading desk, and
furnished to the Commission, will depend on the explicit risks assumed
by the trading desk. In general, however, reported Risk Factor
Sensitivities must be sufficiently granular to account for a
preponderance of the expected price variation in the trading desk's
holdings.
A. Trading desks must take into account any relevant factors in
calculating Risk Factor Sensitivities, including, for example, the
following with respect to particular asset classes:
Commodity derivative positions: risk factors with
respect to the related commodities set out in Sec. 20.2 of this
chapter, the maturity of the positions, volatility and/or correlation
sensitivities (expressed in a manner that demonstrates any significant
non-linearities), and the maturity profile of the positions;
Credit positions: risk factors with respect to
credit spreads that are sufficiently granular to account for specific
credit sectors and market segments, the maturity profile of the
positions, and risk factors with respect to interest rates of all
relevant maturities;
Credit-related derivative positions: risk factor
sensitivities, for example credit spreads, shifts (parallel and non-
parallel) in credit spreads--volatility, and/or correlation
sensitivities (expressed in a manner that demonstrates any significant
non-linearities), and the maturity profile of the positions;
Equity derivative positions: risk factor
sensitivities such as equity positions, volatility, and/or correlation
sensitivities (expressed in a manner that demonstrates any significant
non-linearities), and the maturity profile of the positions;
Equity positions: risk factors for equity prices
and risk factors that differentiate between important equity market
sectors and segments, such as a small capitalization equities and
international equities;
Foreign exchange derivative positions: risk
factors with respect to major currency pairs and maturities, exposure to
interest rates at relevant maturities, volatility, and/or correlation
sensitivities (expressed in a manner that demonstrates any significant
non-linearities), as well as the maturity profile of the positions; and
Interest rate positions, including interest rate
derivative positions: risk factors with respect to major interest rate
categories and maturities and volatility and/or correlation
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sensitivities (expressed in a manner that demonstrates any significant
non-linearities), and shifts (parallel and non-parallel) in the interest
rate curve, as well as the maturity profile of the positions.
B. The methods used by a banking entity to calculate sensitivities
to a common factor shared by multiple trading desks, such as an equity
price factor, must be applied consistently across its trading desks so
that the sensitivities can be compared from one trading desk to another.
iii. Calculation Period: One trading day.
iv. Measurement Frequency: Daily.
3. Value-at-Risk and Stress Value-at-Risk
i. Description: For purposes of this appendix, Value-at-Risk
(``VaR'') is the commonly used percentile measurement of the risk of
future financial loss in the value of a given set of aggregated
positions over a specified period of time, based on current market
conditions. For purposes of this appendix, Stress Value-at-Risk
(``Stress VaR'') is the percentile measurement of the risk of future
financial loss in the value of a given set of aggregated positions over
a specified period of time, based on market conditions during a period
of significant financial stress.
ii. General Calculation Guidance: Banking entities must compute and
report VaR and Stress VaR by employing generally accepted standards and
methods of calculation. VaR should reflect a loss in a trading desk that
is expected to be exceeded less than one percent of the time over a one-
day period. For those banking entities that are subject to regulatory
capital requirements imposed by a Federal banking agency, VaR and Stress
VaR must be computed and reported in a manner that is consistent with
such regulatory capital requirements. In cases where a trading desk does
not have a standalone VaR or Stress VaR calculation but is part of a
larger aggregation of positions for which a VaR or Stress VaR
calculation is performed, a VaR or Stress VaR calculation that includes
only the trading desk's holdings must be performed consistent with the
VaR or Stress VaR model and methodology used for the larger aggregation
of positions.
iii. Calculation Period: One trading day.
iv. Measurement Frequency: Daily.
b. Source-of-Revenue Measurements
1. Comprehensive Profit and Loss Attribution
i. Description: For purposes of this appendix, Comprehensive Profit
and Loss Attribution is an analysis that attributes the daily
fluctuation in the value of a trading desk's positions to various
sources. First, the daily profit and loss of the aggregated positions is
divided into three categories: (i) Profit and loss attributable to a
trading desk's existing positions that were also positions held by the
trading desk as of the end of the prior day (``existing positions'');
(ii) profit and loss attributable to new positions resulting from the
current day's trading activity (``new positions''); and (iii) residual
profit and loss that cannot be specifically attributed to existing
positions or new positions. The sum of (i), (ii), and (iii) must equal
the trading desk's comprehensive profit and loss at each point in time.
In addition, profit and loss measurements must calculate volatility of
comprehensive profit and loss (i.e., the standard deviation of the
trading desk's one-day profit and loss, in dollar terms) for the
reporting period for at least a 30-, 60- and 90-day lag period, from the
end of the reporting period, and any other period that the banking
entity deems necessary to meet the requirements of the rule.
A. The comprehensive profit and loss associated with existing
positions must reflect changes in the value of these positions on the
applicable day. The comprehensive profit and loss from existing
positions must be further attributed, as applicable, to changes in (i)
the specific Risk Factors and other factors that are monitored and
managed as part of the trading desk's overall risk management policies
and procedures; and (ii) any other applicable elements, such as cash
flows, carry, changes in reserves, and the correction, cancellation, or
exercise of a trade.
B. The comprehensive profit and loss attributed to new positions
must reflect commissions and fee income or expense and market gains or
losses associated with transactions executed on the applicable day. New
positions include purchases and sales of financial instruments and other
assets/liabilities and negotiated amendments to existing positions. The
comprehensive profit and loss from new positions may be reported in the
aggregate and does not need to be further attributed to specific
sources.
C. The portion of comprehensive profit and loss that cannot be
specifically attributed to known sources must be allocated to a residual
category identified as an unexplained portion of the comprehensive
profit and loss. Significant unexplained profit and loss must be
escalated for further investigation and analysis.
ii. General Calculation Guidance: The specific categories used by a
trading desk in the attribution analysis and amount of detail for the
analysis should be tailored to the type and amount of trading activities
undertaken by the trading desk. The new position attribution must be
computed by calculating the difference between the prices at which
instruments were bought and/or sold and the prices at which those
instruments are marked to market at the close of business on that day
multiplied by the notional or principal amount of each purchase or sale.
Any
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fees, commissions, or other payments received (paid) that are associated
with transactions executed on that day must be added (subtracted) from
such difference. These factors must be measured consistently over time
to facilitate historical comparisons.
iii. Calculation Period: One trading day.
iv. Measurement Frequency: Daily.
c. Customer-Facing Activity Measurements
1. Inventory Turnover
i. Description: For purposes of this appendix, Inventory Turnover is
a ratio that measures the turnover of a trading desk's inventory. The
numerator of the ratio is the absolute value of all transactions over
the reporting period. The denominator of the ratio is the value of the
trading desk's inventory at the beginning of the reporting period.
ii. General Calculation Guidance: For purposes of this appendix, for
derivatives, other than options and interest rate derivatives, value
means gross notional value, for options, value means delta adjusted
notional value, and for interest rate derivatives, value means 10-year
bond equivalent value.
iii. Calculation Period: 30 days, 60 days, and 90 days.
iv. Measurement Frequency: Daily.
2. Inventory Aging
i. Description: For purposes of this appendix, Inventory Aging
generally describes a schedule of the trading desk's aggregate assets
and liabilities and the amount of time that those assets and liabilities
have been held. Inventory Aging should measure the age profile of the
trading desk's assets and liabilities.
ii. General Calculation Guidance: In general, Inventory Aging must
be computed using a trading desk's trading activity data and must
identify the value of a trading desk's aggregate assets and liabilities.
Inventory Aging must include two schedules, an asset-aging schedule and
a liability-aging schedule. Each schedule must record the value of
assets or liabilities held over all holding periods. For derivatives,
other than options, and interest rate derivatives, value means gross
notional value, for options, value means delta adjusted notional value
and, for interest rate derivatives, value means 10-year bond equivalent
value.
iii. Calculation Period: One trading day.
iv. Measurement Frequency: Daily.
3. Customer-Facing Trade Ratio--Trade Count Based and Value Based
i. Description: For purposes of this appendix, the Customer-Facing
Trade Ratio is a ratio comparing (i) the transactions involving a
counterparty that is a customer of the trading desk to (ii) the
transactions involving a counterparty that is not a customer of the
trading desk. A trade count based ratio must be computed that records
the number of transactions involving a counterparty that is a customer
of the trading desk and the number of transactions involving a
counterparty that is not a customer of the trading desk. A value based
ratio must be computed that records the value of transactions involving
a counterparty that is a customer of the trading desk and the value of
transactions involving a counterparty that is not a customer of the
trading desk.
ii. General Calculation Guidance: For purposes of calculating the
Customer-Facing Trade Ratio, a counterparty is considered to be a
customer of the trading desk if the counterparty is a market participant
that makes use of the banking entity's market making-related services by
obtaining such services, responding to quotations, or entering into a
continuing relationship with respect to such services. However, a
trading desk or other organizational unit of another banking entity
would not be a client, customer, or counterparty of the trading desk if
the other entity has trading assets and liabilities of $50 billion or
more as measured in accordance with Sec. 75.20(d)(1) unless the trading
desk documents how and why a particular trading desk or other
organizational unit of the entity should be treated as a client,
customer, or counterparty of the trading desk. Transactions conducted
anonymously on an exchange or similar trading facility that permits
trading on behalf of a broad range of market participants would be
considered transactions with customers of the trading desk. For
derivatives, other than options, and interest rate derivatives, value
means gross notional value, for options, value means delta adjusted
notional value, and for interest rate derivatives, value means 10-year
bond equivalent value.
iii. Calculation Period: 30 days, 60 days, and 90 days.
iv. Measurement Frequency: Daily.
Sec. Appendix B to Part 75--Enhanced Minimum Standards for Compliance
Programs
I. Overview
Section 75.20(c) requires certain banking entities to establish,
maintain, and enforce an enhanced compliance program that includes the
requirements and standards in this Appendix as well as the minimum
written policies and procedures, internal controls, management
framework, independent testing, training, and recordkeeping provisions
outlined in Sec. 75.20. This Appendix sets forth additional minimum
standards with respect to the establishment, oversight, maintenance, and
enforcement by these banking entities of an enhanced internal compliance
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program for ensuring and monitoring compliance with the prohibitions and
restrictions on proprietary trading and covered fund activities and
investments set forth in section 13 of the BHC Act and this part.
a. This compliance program must:
1. Be reasonably designed to identify, document, monitor, and report
the permitted trading and covered fund activities and investments of the
banking entity; identify, monitor and promptly address the risks of
these covered activities and investments and potential areas of
noncompliance; and prevent activities or investments prohibited by, or
that do not comply with, section 13 of the BHC Act and this part;
2. Establish and enforce appropriate limits on the covered
activities and investments of the banking entity, including limits on
the size, scope, complexity, and risks of the individual activities or
investments consistent with the requirements of section 13 of the BHC
Act and this part;
3. Subject the effectiveness of the compliance program to periodic
independent review and testing, and ensure that the entity's internal
audit, corporate compliance and internal control functions involved in
review and testing are effective and independent;
4. Make senior management, and others as appropriate, accountable
for the effective implementation of the compliance program, and ensure
that the board of directors and chief executive officer (or equivalent)
of the banking entity review the effectiveness of the compliance
program; and
5. Facilitate supervision and examination by the Agencies of the
banking entity's permitted trading and covered fund activities and
investments.
II. Enhanced Compliance Program
a. Proprietary Trading Activities
A banking entity must establish, maintain and enforce a compliance
program that includes written policies and procedures that are
appropriate for the types, size, and complexity of, and risks associated
with, its permitted trading activities. The compliance program may be
tailored to the types of trading activities conducted by the banking
entity, and must include a detailed description of controls established
by the banking entity to reasonably ensure that its trading activities
are conducted in accordance with the requirements and limitations
applicable to those trading activities under section 13 of the BHC Act
and this part, and provide for appropriate revision of the compliance
program before expansion of the trading activities of the banking
entity. A banking entity must devote adequate resources and use
knowledgeable personnel in conducting, supervising and managing its
trading activities, and promote consistency, independence and rigor in
implementing its risk controls and compliance efforts. The compliance
program must be updated with a frequency sufficient to account for
changes in the activities of the banking entity, results of independent
testing of the program, identification of weaknesses in the program, and
changes in legal, regulatory or other requirements.
1. Trading Desks: The banking entity must have written policies and
procedures governing each trading desk that include a description of:
i. The process for identifying, authorizing and documenting
financial instruments each trading desk may purchase or sell, with
separate documentation for market making-related activities conducted in
reliance on Sec. 75.4(b) and for hedging activity conducted in reliance
on Sec. 75.5;
ii. A mapping for each trading desk to the division, business line,
or other organizational structure that is responsible for managing and
overseeing the trading desk's activities;
iii. The mission (i.e., the type of trading activity, such as
market-making, trading in sovereign debt, etc.) and strategy (i.e.,
methods for conducting authorized trading activities) of each trading
desk;
iv. The activities that the trading desk is authorized to conduct,
including (i) authorized instruments and products, and (ii) authorized
hedging strategies, techniques and instruments;
v. The types and amount of risks allocated by the banking entity to
each trading desk to implement the mission and strategy of the trading
desk, including an enumeration of material risks resulting from the
activities in which the trading desk is authorized to engage (including
but not limited to price risks, such as basis, volatility and
correlation risks, as well as counterparty credit risk). Risk
assessments must take into account both the risks inherent in the
trading activity and the strength and effectiveness of controls designed
to mitigate those risks;
vi. How the risks allocated to each trading desk will be measured;
vii. Why the allocated risks levels are appropriate to the
activities authorized for the trading desk;
viii. The limits on the holding period of, and the risk associated
with, financial instruments under the responsibility of the trading
desk;
ix. The process for setting new or revised limits, as well as
escalation procedures for granting exceptions to any limits or to any
policies or procedures governing the desk, the analysis that will be
required to support revising limits or granting exceptions, and the
process for independently reviewing and documenting those exceptions and
the underlying analysis;
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x. The process for identifying, documenting and approving new
products, trading strategies, and hedging strategies;
xi. The types of clients, customers, and counterparties with whom
the trading desk may trade; and
xii. The compensation arrangements, including incentive
arrangements, for employees associated with the trading desk, which may
not be designed to reward or incentivize prohibited proprietary trading
or excessive or imprudent risk-taking.
2. Description of risks and risk management processes: The
compliance program for the banking entity must include a comprehensive
description of the risk management program for the trading activity of
the banking entity. The compliance program must also include a
description of the governance, approval, reporting, escalation, review
and other processes the banking entity will use to reasonably ensure
that trading activity is conducted in compliance with section 13 of the
BHC Act and this part. Trading activity in similar financial instruments
should be subject to similar governance, limits, testing, controls, and
review, unless the banking entity specifically determines to establish
different limits or processes and documents those differences.
Descriptions must include, at a minimum, the following elements:
i. A description of the supervisory and risk management structure
governing all trading activity, including a description of processes for
initial and senior-level review of new products and new strategies;
ii. A description of the process for developing, documenting,
testing, approving and reviewing all models used for valuing,
identifying and monitoring the risks of trading activity and related
positions, including the process for periodic independent testing of the
reliability and accuracy of those models;
iii. A description of the process for developing, documenting,
testing, approving and reviewing the limits established for each trading
desk;
iv. A description of the process by which a security may be
purchased or sold pursuant to the liquidity management plan, including
the process for authorizing and monitoring such activity to ensure
compliance with the banking entity's liquidity management plan and the
restrictions on liquidity management activities in this part;
v. A description of the management review process, including
escalation procedures, for approving any temporary exceptions or
permanent adjustments to limits on the activities, positions,
strategies, or risks associated with each trading desk; and
vi. The role of the audit, compliance, risk management and other
relevant units for conducting independent testing of trading and hedging
activities, techniques and strategies.
3. Authorized risks, instruments, and products. The banking entity
must implement and enforce limits and internal controls for each trading
desk that are reasonably designed to ensure that trading activity is
conducted in conformance with section 13 of the BHC Act and this part
and with the banking entity's written policies and procedures. The
banking entity must establish and enforce risk limits appropriate for
the activity of each trading desk. These limits should be based on
probabilistic and non-probabilistic measures of potential loss (e.g.,
Value-at-Risk and notional exposure, respectively), and measured under
normal and stress market conditions. At a minimum, these internal
controls must monitor, establish and enforce limits on:
i. The financial instruments (including, at a minimum, by type and
exposure) that the trading desk may trade;
ii. The types and levels of risks that may be taken by each trading
desk; and
iii. The types of hedging instruments used, hedging strategies
employed, and the amount of risk effectively hedged.
4. Hedging policies and procedures. The banking entity must
establish, maintain, and enforce written policies and procedures
regarding the use of risk-mitigating hedging instruments and strategies
that, at a minimum, describe:
i. The positions, techniques and strategies that each trading desk
may use to hedge the risk of its positions;
ii. The manner in which the banking entity will identify the risks
arising in connection with and related to the individual or aggregated
positions, contracts or other holdings of the banking entity that are to
be hedged and determine that those risks have been properly and
effectively hedged;
iii. The level of the organization at which hedging activity and
management will occur;
iv. The manner in which hedging strategies will be monitored and the
personnel responsible for such monitoring;
v. The risk management processes used to control unhedged or
residual risks; and
vi. The process for developing, documenting, testing, approving and
reviewing all hedging positions, techniques and strategies permitted for
each trading desk and for the banking entity in reliance on Sec. 75.5.
5. Analysis and quantitative measurements. The banking entity must
perform robust analysis and quantitative measurement of its trading
activities that is reasonably designed to ensure that the trading
activity of each trading desk is consistent with the banking entity's
compliance program; monitor and assist in the identification of
potential and actual prohibited proprietary trading activity; and
prevent the occurrence of prohibited proprietary trading. Analysis and
models used to determine, measure and limit
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risk must be rigorously tested and be reviewed by management responsible
for trading activity to ensure that trading activities, limits,
strategies, and hedging activities do not understate the risk and
exposure to the banking entity or allow prohibited proprietary trading.
This review should include periodic and independent back-testing and
revision of activities, limits, strategies and hedging as appropriate to
contain risk and ensure compliance. In addition to the quantitative
measurements reported by any banking entity subject to Appendix A of
this part, each banking entity must develop and implement, to the extent
appropriate to facilitate compliance with this part, additional
quantitative measurements specifically tailored to the particular risks,
practices, and strategies of its trading desks. The banking entity's
analysis and quantitative measurements must incorporate the quantitative
measurements reported by the banking entity pursuant to Appendix A of
this part (if applicable) and include, at a minimum, the following:
i. Internal controls and written policies and procedures reasonably
designed to ensure the accuracy and integrity of quantitative
measurements;
ii. Ongoing, timely monitoring and review of calculated quantitative
measurements;
iii. The establishment of numerical thresholds and appropriate
trading measures for each trading desk and heightened review of trading
activity not consistent with those thresholds to ensure compliance with
section 13 of the BHC Act and this part, including analysis of the
measurement results or other information, appropriate escalation
procedures, and documentation related to the review; and
iv. Immediate review and compliance investigation of the trading
desk's activities, escalation to senior management with oversight
responsibilities for the applicable trading desk, timely notification to
the Commission, appropriate remedial action (e.g., divesting of
impermissible positions, cessation of impermissible activity,
disciplinary actions), and documentation of the investigation findings
and remedial action taken when quantitative measurements or other
information, considered together with the facts and circumstances, or
findings of internal audit, independent testing or other review suggest
a reasonable likelihood that the trading desk has violated any part of
section 13 of the BHC Act or this part.
6. Other Compliance Matters. In addition to the requirements
specified above, the banking entity's compliance program must:
i. Identify activities of each trading desk that will be conducted
in reliance on exemptions contained in Sec. Sec. 75.4 through 75.6,
including an explanation of:
A. How and where in the organization the activity occurs; and
B. Which exemption is being relied on and how the activity meets the
specific requirements for reliance on the applicable exemption;
ii. Include an explanation of the process for documenting, approving
and reviewing actions taken pursuant to the liquidity management plan,
where in the organization this activity occurs, the securities
permissible for liquidity management, the process for ensuring that
liquidity management activities are not conducted for the purpose of
prohibited proprietary trading, and the process for ensuring that
securities purchased as part of the liquidity management plan are highly
liquid and conform to the requirements of this part;
iii. Describe how the banking entity monitors for and prohibits
potential or actual material exposure to high-risk assets or high-risk
trading strategies presented by each trading desk that relies on the
exemptions contained in Sec. Sec. 75.3(d)(3) and 75.4 through 75.6,
which must take into account potential or actual exposure to:
A. Assets whose values cannot be externally priced or, where
valuation is reliant on pricing models, whose model inputs cannot be
externally validated;
B. Assets whose changes in value cannot be adequately mitigated by
effective hedging;
C. New products with rapid growth, including those that do not have
a market history;
D. Assets or strategies that include significant embedded leverage;
E. Assets or strategies that have demonstrated significant
historical volatility;
F. Assets or strategies for which the application of capital and
liquidity standards would not adequately account for the risk; and
G. Assets or strategies that result in large and significant
concentrations to sectors, risk factors, or counterparties;
iv. Establish responsibility for compliance with the reporting and
recordkeeping requirements of subpart B of this part and Sec. 75.20;
and
v. Establish policies for monitoring and prohibiting potential or
actual material conflicts of interest between the banking entity and its
clients, customers, or counterparties.
7. Remediation of violations. The banking entity's compliance
program must be reasonably designed and established to effectively
monitor and identify for further analysis any trading activity that may
indicate potential violations of section 13 of the BHC Act and this part
and to prevent actual violations of section 13 of the BHC Act and this
part. The compliance program must describe procedures for identifying
and remedying violations of section 13 of the BHC Act and this part, and
must include, at a minimum, a requirement to promptly document, address
and remedy any violation of section 13 of the
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BHC Act or this part, and document all proposed and actual remediation
efforts. The compliance program must include specific written policies
and procedures that are reasonably designed to assess the extent to
which any activity indicates that modification to the banking entity's
compliance program is warranted and to ensure that appropriate
modifications are implemented. The written policies and procedures must
provide for prompt notification to appropriate management, including
senior management and the board of directors, of any material weakness
or significant deficiencies in the design or implementation of the
compliance program of the banking entity.
b. Covered Fund Activities or Investments
A banking entity must establish, maintain and enforce a compliance
program that includes written policies and procedures that are
appropriate for the types, size, complexity and risks of the covered
fund and related activities conducted and investments made, by the
banking entity.
1. Identification of covered funds. The banking entity's compliance
program must provide a process, which must include appropriate
management review and independent testing, for identifying and
documenting covered funds that each unit within the banking entity's
organization sponsors or organizes and offers, and covered funds in
which each such unit invests. In addition to the documentation
requirements for covered funds, as specified under Sec. 75.20(e), the
documentation must include information that identifies all pools that
the banking entity sponsors or has an interest in and the type of
exemption from the Commodity Exchange Act (whether or not the pool
relies on Sec. 4.7 of the regulations under the Commodity Exchange Act
(Sec. 4.7 of this chapter)), and the amount of ownership interest the
banking entity has in those pools.
2. Identification of covered fund activities and investments. The
banking entity's compliance program must identify, document and map each
unit within the organization that is permitted to acquire or hold an
interest in any covered fund or sponsor any covered fund and map each
unit to the division, business line, or other organizational structure
that will be responsible for managing and overseeing that unit's
activities and investments.
3. Explanation of compliance. The banking entity's compliance
program must explain how:
i. The banking entity monitors for and prohibits potential or actual
material conflicts of interest between the banking entity and its
clients, customers, or counterparties related to its covered fund
activities and investments;
ii. The banking entity monitors for and prohibits potential or
actual transactions or activities that may threaten the safety and
soundness of the banking entity related to its covered fund activities
and investments; and
iii. The banking entity monitors for and prohibits potential or
actual material exposure to high-risk assets or high-risk trading
strategies presented by its covered fund activities and investments,
taking into account potential or actual exposure to:
A. Assets whose values cannot be externally priced or, where
valuation is reliant on pricing models, whose model inputs cannot be
externally validated;
B. Assets whose changes in values cannot be adequately mitigated by
effective hedging;
C. New products with rapid growth, including those that do not have
a market history;
D. Assets or strategies that include significant embedded leverage;
E. Assets or strategies that have demonstrated significant
historical volatility;
F. Assets or strategies for which the application of capital and
liquidity standards would not adequately account for the risk; and
G. Assets or strategies that expose the banking entity to large and
significant concentrations with respect to sectors, risk factors, or
counterparties;
4. Description and documentation of covered fund activities and
investments. For each organizational unit engaged in covered fund
activities and investments, the banking entity's compliance program must
document:
i. The covered fund activities and investments that the unit is
authorized to conduct;
ii. The banking entity's plan for actively seeking unaffiliated
investors to ensure that any investment by the banking entity conforms
to the limits contained in Sec. 75.12 or registered in compliance with
the securities laws and thereby exempt from those limits within the time
periods allotted in Sec. 75.12; and
iii. How it complies with the requirements of subpart C of this
part.
5. Internal Controls. A banking entity must establish, maintain, and
enforce internal controls that are reasonably designed to ensure that
its covered fund activities or investments comply with the requirements
of section 13 of the BHC Act and this part and are appropriate given the
limits on risk established by the banking entity. These written internal
controls must be reasonably designed and established to effectively
monitor and identify for further analysis any covered fund activity or
investment that may indicate potential violations of section 13 of the
BHC Act or this part. The internal controls must, at a minimum require:
i. Monitoring and limiting the banking entity's individual and
aggregate investments in covered funds;
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ii. Monitoring the amount and timing of seed capital investments for
compliance with the limitations under subpart C of this part (including
but not limited to the redemption, sale or disposition requirements of
Sec. 75.12), and the effectiveness of efforts to seek unaffiliated
investors to ensure compliance with those limits;
iii. Calculating the individual and aggregate levels of ownership
interests in one or more covered fund required by Sec. 75.12;
iv. Attributing the appropriate instruments to the individual and
aggregate ownership interest calculations above;
v. Making disclosures to prospective and actual investors in any
covered fund organized and offered or sponsored by the banking entity,
as provided under Sec. 75.11(a)(8);
vi. Monitoring for and preventing any relationship or transaction
between the banking entity and a covered fund that is prohibited under
Sec. 75.14, including where the banking entity has been designated as
the sponsor, investment manager, investment adviser, or commodity
trading advisor to a covered fund by another banking entity; and
vii. Appropriate management review and supervision across legal
entities of the banking entity to ensure that services and products
provided by all affiliated entities comply with the limitation on
services and products contained in Sec. 75.14.
6. Remediation of violations. The banking entity's compliance
program must be reasonably designed and established to effectively
monitor and identify for further analysis any covered fund activity or
investment that may indicate potential violations of section 13 of the
BHC Act or this part and to prevent actual violations of section 13 of
the BHC Act and this part. The banking entity's compliance program must
describe procedures for identifying and remedying violations of section
13 of the BHC Act and this part, and must include, at a minimum, a
requirement to promptly document, address and remedy any violation of
section 13 of the BHC Act or this part, including Sec. 75.21, and
document all proposed and actual remediation efforts. The compliance
program must include specific written policies and procedures that are
reasonably designed to assess the extent to which any activity or
investment indicates that modification to the banking entity's
compliance program is warranted and to ensure that appropriate
modifications are implemented. The written policies and procedures must
provide for prompt notification to appropriate management, including
senior management and the board of directors, of any material weakness
or significant deficiencies in the design or implementation of the
compliance program of the banking entity.
III. Responsibility and Accountability for the Compliance Program
a. A banking entity must establish, maintain, and enforce a
governance and management framework to manage its business and employees
with a view to preventing violations of section 13 of the BHC Act and
this part. A banking entity must have an appropriate management
framework reasonably designed to ensure that: Appropriate personnel are
responsible and accountable for the effective implementation and
enforcement of the compliance program; a clear reporting line with a
chain of responsibility is delineated; and the compliance program is
reviewed periodically by senior management. The board of directors (or
equivalent governance body) and senior management should have the
appropriate authority and access to personnel and information within the
organizations as well as appropriate resources to conduct their
oversight activities effectively.
1. Corporate governance. The banking entity must adopt a written
compliance program approved by the board of directors, an appropriate
committee of the board, or equivalent governance body, and senior
management.
2. Management procedures. The banking entity must establish,
maintain, and enforce a governance framework that is reasonably designed
to achieve compliance with section 13 of the BHC Act and this part,
which, at a minimum, provides for:
i. The designation of appropriate senior management or committee of
senior management with authority to carry out the management
responsibilities of the banking entity for each trading desk and for
each organizational unit engaged in covered fund activities;
ii. Written procedures addressing the management of the activities
of the banking entity that are reasonably designed to achieve compliance
with section 13 of the BHC Act and this part, including:
A. A description of the management system, including the titles,
qualifications, and locations of managers and the specific
responsibilities of each person with respect to the banking entity's
activities governed by section 13 of the BHC Act and this part; and
B. Procedures for determining compensation arrangements for traders
engaged in underwriting or market making-related activities under Sec.
75.4 or risk-mitigating hedging activities under Sec. 75.5 so that such
compensation arrangements are designed not to reward or incentivize
prohibited proprietary trading and appropriately balance risk and
financial results in a manner that does not encourage employees to
expose the banking entity to excessive or imprudent risk.
3. Business line managers. Managers with responsibility for one or
more trading desks of the banking entity are accountable for the
[[Page 242]]
effective implementation and enforcement of the compliance program with
respect to the applicable trading desk(s).
4. Board of directors, or similar corporate body, and senior
management. The board of directors, or similar corporate body, and
senior management are responsible for setting and communicating an
appropriate culture of compliance with section 13 of the BHC Act and
this part and ensuring that appropriate policies regarding the
management of trading activities and covered fund activities or
investments are adopted to comply with section 13 of the BHC Act and
this part. The board of directors or similar corporate body (such as a
designated committee of the board or an equivalent governance body) must
ensure that senior management is fully capable, qualified, and properly
motivated to manage compliance with this part in light of the
organization's business activities and the expectations of the board of
directors. The board of directors or similar corporate body must also
ensure that senior management has established appropriate incentives and
adequate resources to support compliance with this part, including the
implementation of a compliance program meeting the requirements of this
appendix into management goals and compensation structures across the
banking entity.
5. Senior management. Senior management is responsible for
implementing and enforcing the approved compliance program. Senior
management must also ensure that effective corrective action is taken
when failures in compliance with section 13 of the BHC Act and this part
are identified. Senior management and control personnel charged with
overseeing compliance with section 13 of the BHC Act and this part
should review the compliance program for the banking entity periodically
and report to the board, or an appropriate committee thereof, on the
effectiveness of the compliance program and compliance matters with a
frequency appropriate to the size, scope, and risk profile of the
banking entity's trading activities and covered fund activities or
investments, which shall be at least annually.
6. CEO attestation. Based on a review by the CEO of the banking
entity, the CEO of the banking entity must, annually, attest in writing
to the Commission that the banking entity has in place processes to
establish, maintain, enforce, review, test and modify the compliance
program established under this appendix and Sec. 75.20 in a manner
reasonably designed to achieve compliance with section 13 of the BHC Act
and this part. In the case of a U.S. branch or agency of a foreign
banking entity, the attestation may be provided for the entire U.S.
operations of the foreign banking entity by the senior management
officer of the United States operations of the foreign banking entity
who is located in the United States.
IV. Independent Testing
a. Independent testing must occur with a frequency appropriate to
the size, scope, and risk profile of the banking entity's trading and
covered fund activities or investments, which shall be at least
annually. This independent testing must include an evaluation of:
1. The overall adequacy and effectiveness of the banking entity's
compliance program, including an analysis of the extent to which the
program contains all the required elements of this appendix;
2. The effectiveness of the banking entity's internal controls,
including an analysis and documentation of instances in which such
internal controls have been breached, and how such breaches were
addressed and resolved; and
3. The effectiveness of the banking entity's management procedures.
b. A banking entity must ensure that independent testing regarding
the effectiveness of the banking entity's compliance program is
conducted by a qualified independent party, such as the banking entity's
internal audit department, compliance personnel or risk managers
independent of the organizational unit being tested, outside auditors,
consultants, or other qualified independent parties. A banking entity
must promptly take appropriate action to remedy any significant
deficiencies or material weaknesses in its compliance program and to
terminate any violations of section 13 of the BHC Act or this part.
V. Training
Banking entities must provide adequate training to personnel and
managers of the banking entity engaged in activities or investments
governed by section 13 of the BHC Act or this part, as well as other
appropriate supervisory, risk, independent testing, and audit personnel,
in order to effectively implement and enforce the compliance program.
This training should occur with a frequency appropriate to the size and
the risk profile of the banking entity's trading activities and covered
fund activities or investments.
VI. Recordkeeping
Banking entities must create and retain records sufficient to
demonstrate compliance and support the operations and effectiveness of
the compliance program. A banking entity must retain these records for a
period that is no less than 5 years or such longer period as required by
the Commission in a form that allows it to promptly produce such records
to the Commission on request.
[[Page 243]]
PART 100_DELIVERY PERIOD REQUIRED--Table of Contents
Authority: 7 U.S.C. 7a(a)(4) and 12a.
Sec. 100.1 Delivery period required with respect to certain grains.
A period of seven business days is required during which contracts
for future delivery in the current delivery month of wheat, corn, oats,
barley, rye, or flaxseed may be settled by delivery of the actual cash
commodity after trading in such contracts has ceased, for each delivery
month after May 1938, on all contract markets on which there is trading
in futures in any of such commodities, and such contract markets, and
each of them, are directed to provide therefor.
[41 FR 3211, Jan. 21, 1976]
PART 140_ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE
COMMISSION--Table of Contents
Subpart A_Organization
Sec.
140.1 Headquarters office.
140.2 Regional office--regional coordinators.
Subpart B_Functions
140.10 The Commission.
140.11 Emergency action by the senior Commissioner available.
140.12 Disposition of business by seriatim Commission consideration.
140.13 Vacancy in position of Chairman.
140.14 Delegation of authority to the Secretary of the Commission.
140.20 Designation of senior official to oversee Commission use of
national security information.
140.21 Definitions.
140.22 Procedures.
140.23 General access requirements.
140.24 Control and accountability procedures.
140.61 [Reserved]
140.72 Delegation of authority to disclose confidential information to a
registered entity, swap execution facility, swap data
repository, registered futures association or self-regulatory
organization.
140.73 Delegation of authority to disclose information to United States,
States, and foreign government agencies and foreign futures
authorities.
140.74 Delegation of authority to issue special calls for Series 03
Reports and Form 40.
140.75 Delegation of authority to the Director of the Division of Swap
Dealer and Intermediary Oversight.
140.76 Delegation of authority to disclose information in a receivership
or bankruptcy proceeding.
140.77 Delegation of authority to determine that applications for
contract market designation, swap execution facility
registration, or swap data repository registration are
materially incomplete.
140.80 Disclosure of information pursuant to a subpoena or summons.
140.81 [Reserved]
140.91 Delegation of authority to the Director of the Division of
Clearing and Risk and to the Director of the Division of Swap
Dealer and Intermediary Oversight.
140.92 Delegation of authority to grant registrations and renewals
thereof.
140.93 Delegation of authority to the Director of the Division of Swap
Dealer and Intermediary Oversight.
140.94 Delegation of authority to the Director of the Division of Swap
Dealer and Intermediary Oversight and the Director of the
Division of Clearing and Risk.
140.95 Delegation of authority with respect to withdrawals from
registration.
140.96 Delegation of authority to publish in the Federal Register.
140.97 Delegation of authority regarding requests for classification of
positions as bona fide hedging.
140.98 Publication of no-action, interpretative and exemption letters
and other written communications.
140.99 Requests for exemptive, no-action and interpretative letters.
Subpart C_Regulation Concerning Conduct of Members and Employees and
Former Members and Employees of the Commission
140.735-1 Authority and purpose.
140.735-2 Prohibited transactions.
140.735-2a Prohibited interests.
140.735-3 Non-governmental employment and other outside activity.
140.735-4 Receipt and disposition of foreign gifts and decorations.
140.735-5 Disclosure of information.
140.735-6 Practice by former members and employees of the Commission.
140.735-7 Statutory violations applicable to conduct of Commission
members and employees.
140.735-8 Interpretative and advisory service.
Authority: 7 U.S.C. 2(a)(12), 12a, 13(c), 13(d), 13(e), and 16(b).
[[Page 244]]
Subpart A_Organization
Sec. 140.1 Headquarters office.
(a) General. The headquarters office of the Commission is located at
Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.
(b) [Reserved]
[48 FR 2734, Jan. 21, 1983, as amended at 60 FR 49335, Sept. 25, 1995]
Sec. 140.2 Regional office--regional coordinators.
Each of the Regional offices described herein functions as set forth
in this section under the direction of a Regional Coordinator who, as a
collateral duty, oversees the administration of the office and
represents the Commission in negotiations with employee union officials
and in interactions with external parties. Each regional office has
delegated authority for the enforcement of the Act and administration of
the programs of the Commission in the particular regions.
(a) The Eastern Regional Office is located at 140 Broadway, New
York, New York, 10005 and is responsible for enforcement of the Act and
administration of programs of the Commission in the States of Alabama,
Connecticut, Delaware, Florida, Georgia, Kentucky, Maine, Maryland,
Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North
Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Vermont, Virginia, and West Virginia.
(b) The Central Regional Office is located at 525 West Monroe
Street, Suite 1100, Chicago, Illinois 60661 and is responsible for
enforcement of the Act and administration of programs of the Commission
in the States of Illinois, Indiana, Michigan, Ohio and Wisconsin.
(c) The Southwestern Regional Office is located at Two Emanuel
Cleaver II Blvd., Suite 300, Kansas City, Missouri 64112, and is
responsible for enforcement of the Act and administration of the
programs of the Commission in the States of Alaska, Arizona, Arkansas,
California, Colorado, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota,
Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma,
Oregon, South Dakota, Texas, Utah, Washington, and Wyoming.
[69 FR 41426, July 9, 2004, as amended at 72 FR 16269, Apr. 4, 2007]
Subpart B_Functions
Sec. 140.10 The Commission.
The Commission is composed of a Chairman and four other
Commissioners, not more than three of whom may be members of the same
political party, who are appointed by the President, with the advice and
consent of the Senate, for 5-year terms, one term ending each year. The
Commission is assisted by a staff, which includes lawyers, economists,
accountants, investigators and examiners, as well as administrative and
clerical employees.
[41 FR 28474, July 12, 1976]
Sec. 140.11 Emergency action by the senior Commissioner available.
(a) Authority of senior Commissioner. When it is not feasible to
convene a quorum of the Commission, the Senior Commissioner present at
the principal offices of the Commission (or, during non-business hours,
available in the Washington, DC area) may take emergency action on
behalf of and in the name of the Commission in accordance with the
procedures set forth in this section. Members of the Commission shall be
considered senior in the following order: The Chairman, the Vice-
Chairman, and other Commissioners in order of their length of service on
the Commission. Where two or more Commissioners have commenced their
service on the same date, the Commissioner whose unexpired term in
office is the longest will be considered senior.
(b) Exercise of authority. Subject to the right of the Commission to
review any emergency action taken as hereinafter provided, the Senior
Commissioner may act on behalf of and in the name of the Commission with
respect to all of the functions of the Commission except general
rulemaking functions: Provided, however, That the Senior Commissioner
shall not exercise any authority on behalf of the Commission (1) without
consultation with such other member of the Commission as
[[Page 245]]
may at the time be present at the Commission's offices in Washington,
DC, and without a reasonable attempt to consult, by telephone, with
other members of the Commission; and (2) unless, in the opinion of the
Senior Commissioner (after consulting with the General Counsel or his
deputy or associate, and such other members of the Commission staff as
the Senior Commissioner deems appropriate) the public interest requires
that action be taken prior to the next scheduled meeting of the
Commission.
(c) Report to the Commission. The exercise of Senior Commissioner
authority shall be reported to the Commission within one business day
thereafter either by the Senior Commissioner or at his direction, and
shall be recorded by the Secretariat in the Minute Record of all
official actions of the Commission. The Secretariat shall promptly
notify any directly affected person of the action taken and that it was
the Senior Commissioner available, rather than the Commission as a
whole, who took the action.
(d) Review by the Commission. The Commission may, in the following
circumstances, review any action taken under Senior Commissioner
authority and may affirm, modify, alter or set aside the decision:
(1) Upon the request of any member of the Commission, any action
taken by a Senior Commissioner shall be reviewed by the Commission.
(2) In the event action by a Senior Commissioner suspends, denies or
revokes or otherwise directly and adversely affects any license, right
or privilege of any person, that person may in writing request review by
the Commission and shall be entitled to have the action of the Senior
Commissioner reviewed by the Commission.
(3) The Commission may, in its discretion, review any action taken
by a Senior Commissioner upon petition by any other person.
(e) Final effect of action by Senior Commissioner. In any matter,
the action taken under Senior Commissioner authority shall be deemed the
action of the Commission unless and until the Commission shall otherwise
direct.
[41 FR 28474, July 12, 1976]
Sec. 140.12 Disposition of business by seriatim Commission
consideration.
(a) Whenever the Chairman of the Commission is of the opinion that
joint deliberation among the members of the Commission upon any matter
is unnecessary in light of the nature of the matter, impracticable, or
would impede the orderly disposition of agency business, but is of the
view that such matter should be the subject of a vote of the Commission,
such matter may be disposed of by circulation of any relevant materials
concerning the matter. The relevant materials shall be circulated to
each member of the Commission, unless a member is unavailable or has
determined not to participate in the matter. A written record of the
vote of each participating Commission member shall be reported to the
Secretariat who shall retain it in the records of the Commission.
(b) Whenever any member of the Commission so requests, any matter
circulated for disposition pursuant to paragraph (a) of this section
shall be withdrawn from circulation and scheduled instead for a
Commission meeting.
[43 FR 43452, Sept. 26, 1978]
Sec. 140.13 Vacancy in position of Chairman.
At any time that a vacancy exists in the position of Chairman of the
Commission the remaining members of the Commission shall elect a member
to serve as acting Chairman who shall exercise the executive and
administrative functions of the Commission that would otherwise be
exercised by a Chairman in accordance with section 2(a)(6) of the
Commodity Exchange Act, as amended, until a new Chairman has been
appointed by the President and confirmed by the Senate: Provided,
however, That if the President shall appoint a new Chairman from among
the existing members of the Commission, that Commissioner shall serve as
acting Chairman for these purposes until such time as his appointment as
Chairman has been confirmed or rejected by the Senate.
[43 FR 50167, Oct. 27, 1978]
[[Page 246]]
Sec. 140.14 Delegation of authority to the Secretary of the Commission.
After the Commission has formally reached a decision or taken other
action on a matter, has agreed upon the language of the document which
embodies the Commission decision or other action, including, but not
limited to, a rule, regulation or order, and has directed that the
document be issued, the Secretary of the Commission (or a person
designated in writing by the Secretary) shall sign the document on
behalf of the Commission. Signature by the Secretary shall be a
ministerial function and shall not be discretionary. The delegation to
the Secretary of the authority to sign documents on the Commission's
behalf shall not affect any other delegation which the Commission has
made, or may make, which authorizes any other officer or employee of the
Commission to take action and to sign documents on the Commission's
behalf. In addition, the Commission reserves the authority to provide
for signature on its behalf by the Chairman or any other member of the
Commission in particular circumstances.
[44 FR 33677, June 12, 1979]
Sec. 140.20 Designation of senior official to oversee Commission
use of national security information.
(a) The Executive Director is hereby designated to oversee the
Commission's program to ensure the safeguarding of national security
information received by the Commission from other agencies, to chair a
Commission committee composed of members of the staff selected by him
with authority to act on all suggestions and complaints with respect to
the Commission administration of its information security program, and,
in conjunction with the Security Officer of the Commission, to ensure
that practices for safeguarding national security information are
systematically reviewed and that those practices which are duplicative
or unnecessary are eliminated.
(b) The Executive Director may submit any matter for which he has
been designated under paragraph (a) of this section to the Commission
for its consideration.
[44 FR 65736, Nov. 15, 1979, as amended at 61 FR 21955, May 13, 1996]
Sec. 140.21 Definitions.
(a) Classified information. Information or material that is:
(1) Owned by, produced for or by, or under control of the United
States Government, and
(2) Determined pursuant to Executive Order 12356 or prior or
succeeding orders to require protection against unauthorized disclosure,
and
(3) So designated.
(b) Compromise. The disclosure of classified information to persons
not authorized access thereto.
(c) Custodians. An individual who has possession of or is otherwise
charged with the responsibility for safeguarding or accounting for
classified information.
(d) Classification levels. Refers to Top Secret ``(TS)'', Secret
``(S)'', and Confidential ``(C)'' levels used to identify national
security information. Markings ``For Official Use Only,'' and ``Limited
Official Use'' shall not be used to identify national security
information.
[48 FR 15464, Apr. 11, 1983]
Sec. 140.22 Procedures.
(a) Original classification. The Commodity Futures Trading
Commission has no original classification authority.
(b) Derivative classification. Personnel of the Commission shall
respect the original classification markings assigned to information
they receive from other agencies.
(c) Declassification and downgrading. Since the Commission does no
original classification of material, declassification and downgrading of
sensitive material is not applicable.
(d) Dissemination. All classified national security information
which the Commission receives from any agency will be cared for and
returned in accordance with the particular agency's policy guidelines
and may not be disseminated to any other agency without the consent of
the originating agency.
[48 FR 15464, Apr. 11, 1983]
[[Page 247]]
Sec. 140.23 General access requirements.
(a) Determination of trustworthiness. No person shall be given
access to classified information unless a favorable determination has
been made as to the person's trustworthiness. The determination of
eligibility, referred to as a security clearance, shall be based on such
investigations as the Commission may require in accordance with the
applicable Office of Personnel Management standards and criteria.
(b) Determination of need-to-know. A person is not entitled to
receive classified information solely by virtue of having been granted a
security clearance. A person must also have a need for access to the
particular classified information sought in connection with the
performance of official government duties or contractual obligations.
The determination of that need shall be made by officials having
responsibility for the classified information.
[48 FR 15464, Apr. 11, 1983]
Sec. 140.24 Control and accountability procedures.
Persons entrusted with classified information shall be responsible
for providing protection and accountability for such information at all
times and for locking classified information in approved security
equipment whenever it is not in use or under direct supervision of
authorized persons.
(a) General safeguards. (1) Classified material must not be left in
unoccupied rooms or be left inadequately protected in an occupied
office, or one occupied by other than security cleared employees. Under
no circumstances shall classified material be placed in desk drawers or
anywhere other than in approved storage containers.
(2) Employees using classified material shall take every precaution
to prevent deliberate or casual inspection of it by unauthorized
persons. Classified material shall be kept under constant surveillance
and face down or covered when not in use.
(3) All copies of classified documents and any informal material
such as memoranda, rough drafts, shorthand notes, carbon copies, carbon
paper, typewriter ribbons, recording discs, spools and tapes shall be
given the same classification and secure handling as the classified
information they contain.
(4) Commission personnel authorized to use classified materials will
obtain them from the Executive Director or his delegee on the day
required and return them to the Executive Director or his delegee before
the close of business on the same day.
(5) Classified information shall not be revealed in telephone or
telecommunications conversations.
(6) Any person who has knowledge of the loss or possible compromise
of classified information shall immediately report the circumstances
either to the Security Officer or to the Executive Director or his
delegee. The Executive Director or his delegee shall initiate a
preliminary inquiry to determine the circumstances surrounding an actual
or possible compromise, and to determine what corrective measures and
administrative, disciplinary, or legal action is necessary.
(b) Reproduction controls. (1) The number of copies of documents
containing classified information must be kept to the minimum required
by operational necessity to decrease the risk of compromise and reduce
storage costs.
(2) Top Secret documents, except for the controlled initial
distribution of information processed or received electrically, shall
not be reproduced without the consent of the originator.
(3) Unless restricted by the originating agency, Secret and
Confidential documents may be reproduced to the extent required by
operational needs.
(4) Reproduced copies of classified documents shall be subject to
the same accountability and controls as the original documents.
(5) Classified reproduction shall be controlled by persons with the
proper level of security clearance.
(6) Records shall be maintained to show the number and distribution
of reproduced copies to all Top Secret documents, of all classified
documents covered by special access programs distributed outside the
originating agency, and of all Secret and Confidential documents which
are marked with special dissemination and reproduction limitations.
[[Page 248]]
(7) Unauthorized reproduction of classified material will be subject
to appropriate disciplinary action.
(c) Storage of classified material. (1) All classified material in
the custody of the Commission will be stored in accordance with the
guidelines set forth in 32 CFR 2001.43.
(2) In addition, the Commission remains subject to the provisions of
32 CFR part 2001, et seq., insofar as they are applicable to classified
materials held by the Commission.
[48 FR 15464, Apr. 11, 1983, as amended at 61 FR 21955, May 13, 1996]
Sec. 140.61 [Reserved]
Sec. 140.72 Delegation of authority to disclose confidential
information to a registered entity, swap execution facility,
swap data repository, registered futures association or
self-regulatory organization.
(a) Pursuant to the authority granted under sections 2(a)(11), 8a(5)
and 8a(6) of the Act, the Commission hereby delegates, until such time
as the Commission orders otherwise, to the Executive Director, the
Deputy Executive Director, the Special Assistant to the Executive
Director, Director of the Division of Swap Dealer and Intermediary
Oversight, the Chief Counsel of the Division of Swap Dealer and
Intermediary Oversight, each Deputy Director of the Division of Swap
Dealer and Intermediary Oversight, the Director of the Division of
Clearing and Risk, the Chief Counsel of the Division of Clearing and
Risk, each Deputy Director of the Division of Clearing and Risk, the
Chief Accountant, the General Counsel, each Deputy General Counsel, the
Director of the Division of Market Oversight, each Deputy Director of
the Division of Market Oversight, the Deputy Director of the Market and
Trade Practice Surveillance Branch, the Director of the Division of
Enforcement, each Deputy Director of the Division of Enforcement, each
Associate Director of the Division of Enforcement, the Chief Counsel of
the Division of Enforcement, each Regional Counsel of the Division of
Enforcement, each of the Regional Administrators, the Chief Economist of
the Office of the Chief Economist, the Deputy Chief Economist of the
Office of the Chief Economist, the Director of the Office of
International Affairs, and the Deputy Director of the Office of
International Affairs, the authority to disclose to an official of any
registered entity, swap execution facility, swap data repository,
registered futures association, or self-regulatory organization as
defined in section 3(a)(26) of the Securities Exchange Act of 1934, any
information necessary or appropriate to effectuate the purposes of the
Act, including, but not limited to, the full facts concerning any
transaction or market operation, including the names of the parties
thereto. This authority to disclose shall be based on a determination
that the transaction or market operation disrupts or tends to disrupt
any market or is otherwise harmful or against the best interests of
producers, consumers, or investors or that disclosure is necessary or
appropriate to effectuate the purposes of the Act. The authority to make
such a determination is also delegated by the Commission to the
Commission employees identified in this section. A Commission employee
delegated authority under this section may exercise that authority on
his or her own initiative or in response to a request by an official of
a registered entity, swap execution facility, swap data repository,
registered futures association or self-regulatory organization.
(b) Disclosure under this section shall only be made to a registered
entity, swap execution facility, swap data repository, registered
futures association or self-regulatory organization official who is
named in a list filed with the Commission by the chief executive officer
of the registered entity, swap execution facility, swap data repository,
registered futures association or self-regulatory organization, which
sets forth the official's name, business address and telephone number.
The chief executive officer shall thereafter notify the Commission of
any deletions or additions to the list of officials authorized to
receive disclosures under this section. The original list and any
supplemental list required by this paragraph shall be filed with the
Secretary of the Commission, and a copy thereof shall also be filed with
the Regional Coordinator for the region in
[[Page 249]]
which the registered entity, swap execution facility, or swap data
repository is located or in which the registered futures association or
self-regulatory organization has its principal office.
(c) Notwithstanding the provisions of paragraph (a) of this section,
in any case in which a Commission employee delegated authority under
this section believes it appropriate, he or she may submit to the
Commission for its consideration the question of whether disclosure of
information should be made.
(d) For purposes of this section, the term ``official'' shall mean
any officer or member of a committee of a registered entity, swap
execution facility, swap data repository, registered futures association
or self-regulatory organization who is specifically charged with market
surveillance or audit or investigative responsibilities, or their duly
authorized representative or agent, who is named on the list filed
pursuant to paragraph (b) of this section or any supplement thereto.
(e) For the purposes of this section, the term ``self-regulatory
organization'' shall mean the same as that defined in section 3(a) (26)
of the Securities Exchange Act of 1934.
(f) Any registered entity, swap execution facility, swap data
repository, registered futures association or self-regulatory
organization receiving information from the Commission under these
provisions shall not disclose such information except that disclosure
may be made in any self-regulatory action or proceeding.
[48 FR 22134, May 17, 1983, as amended at 57 FR 20638, May 14, 1992; 61
FR 1709, Jan. 23, 1996; 66 FR 1576, Jan. 9, 2001; 67 FR 62352, Oct. 7,
2002; 73 FR 79609, Dec. 30, 2008; 77 FR 66346, Nov. 2, 2012; 78 FR
21523, Apr. 11, 2013; 78 FR 22419, Apr. 16, 2013]
Sec. 140.73 Delegation of authority to disclose information to
United States, States, and foreign government agencies and foreign
futures authorities.
(a) Pursuant to sections 2(a)(11), 8a(5) and 8(e) of the Act, the
Commission hereby delegates, until such time as the Commission orders
otherwise, to the General Counsel or, in his or her absence, to each
Deputy General Counsel, the Director of the Division of Enforcement,
each Deputy Director of the Division of Enforcement, the Chief Counsel
of the Division of Enforcement, each Associate Director of the Division
of Enforcement, each Regional Counsel of the Division of Enforcement,
the Director of the Division of Market Oversight or, in his or her
absence, each Deputy Director of the Division of Market Oversight, the
Director of the Market Surveillance Section, Director of the Division of
Swap Dealer and Intermediary Oversight or, in his or her absence, the
Chief Counsel of the Division of Swap Dealer and Intermediary Oversight,
each Deputy Director of the Division of Swap Dealer and Intermediary
Oversight, the Director of the Division of Clearing and Risk or, in his
or her absence, the Chief Counsel of the Division of Clearing and Risk,
each Deputy Director of the Division of Clearing and Risk., the Chief
Economist of the Office of the Chief Economist, the Deputy Chief
Economist of the Office of the Chief Economist, and the Director of the
Office of International Affairs or, in his or her absence, the Deputy
Director of the Office of International Affairs, the authority to
furnish information in the possession of the Commission obtained in
connection with the administration of the Act, upon written request, to:
(1) Any department or agency of the United States, including for
this purpose an independent regulatory agency, acting within the scope
of its jurisdiction;
(2) Any department or agency of any State or any political
subdivision thereof, acting within the scope of its jurisdiction; or
(3) Any foreign futures authority, as defined in section 1a(10) of
the Act, or any department or agency of any foreign government or
political subdivision thereof, acting within the scope of its
jurisdiction, provided that the Commission official making the
disclosure is satisfied that the information will not be disclosed
except in connection with an adjudicatory action or proceeding brought
under the laws of such foreign government or political subdivision to
which such foreign government or political subdivision or any department
or agency thereof, or foreign futures authority is a party.
[[Page 250]]
(b) Any disclosure made pursuant to paragraph (a) of this section
shall be made with the concurrence of the Director of the Division of
Enforcement or in his or her absence a Deputy Director of the Division
of Enforcement. Provided, however, that no such concurrence is necessary
for the Director of the Division of Market Oversight or in his or her
absence each Deputy Director of the Division or for the Director of the
Market Surveillance Section to release information under paragraph
(a)(1) of this section concerning current or on-going market
transactions or operations.
(c) In furnishing information under this delegation pursuant to
paragraphs (a)(1) and (2) of this section, the Commission official
making the disclosure shall remind the department or agency involved
that section 8(e) of the Act prohibits the disclosure by such department
or agency of information that would separately disclose the business
transactions or market positions of any person and trade secrets or
names of customers except in an action or proceeding under the laws of
the United States, the State, or a political subdivision thereof to
which the department or the agency of either the state or political
subdivision, the Commission, or the United States is a party.
(d) This delegation shall not affect any other delegation which the
Commission has made or may make, which authorizes any other officer or
employee of the Commission to furnish information to governmental bodies
on the Commission's behalf.
(e) Notwithstanding the provisions of paragraph (a) of this section,
in any case in which any employee delegated authority therein believes
it appropriate the matter may be submitted to the Commission for its
consideration. Nothing in this section shall prohibit the Commission
from exercising the authority delegated in paragraph (a) of this
section.
[48 FR 22135, May 17, 1983, as amended at 57 FR 20638, May 14, 1992; 61
FR 1709, Jan. 23, 1996; 66 FR 1576, Jan. 9, 2001; 67 FR 62352, Oct. 7,
2002; 73 FR 79609, Dec. 30, 2008; 78 FR 22419, Apr. 16, 2013]
Sec. 140.74 Delegation of authority to issue special calls for
Series 03 Reports and Form 40.
(a) The Commodity Futures Trading Commission hereby delegates, until
such time as the Commission orders otherwise, to the Director of the
Division of Market Oversight, or the Director's designee, the authority
to issue special calls under Commission Rule 18.00 for series 03
reports, and under Commission Rule 18.04 for a Form 40.
(b) The Director of the Division of Market Oversight may submit any
matter which has been delegated to the Director under paragraph (a) of
this section to the Commission for its consideration.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Market Oversight under paragraph (a) of this section.
[50 FR 47530, Nov. 19, 1985, as amended at 67 FR 62352, Oct. 7, 2002]
Sec. 140.75 Delegation of authority to the Director of the Division of
Clearing and Risk and Division of Swap Dealer and Intermediary Oversight.
Pursuant to sections 2(a)(11), 8a(5) and 8(g) of the Act, the
Commission hereby delegates to the Director of the Division of Clearing
and Risk and Division of Swap Dealer and Intermediary Oversight and to
such members of the Commission's staff acting under his or her direction
as the Director may designate from time to time, the authority to
disclose any registration information contained in the registration
applications filed by Commission registrants or any compilation of such
information maintained by the Commission to any department or agency of
any State or any political subdivision thereof. Disclosure under this
section may be made upon reasonable request made to the Commission or
without request whenever the Director of Trading and Markets or any
Commission employee designated by the Director to make disclosures under
this section determines that such information may be appropriate for use
by any department or agency of a State or political subdivision thereof.
Notwithstanding the provisions of this section, in any case
[[Page 251]]
in which the Director of Division of Clearing and Risk and Division of
Swap Dealer and Intermediary Oversight deems it appropriate, or in any
case in which the Commission so requests, the Director may submit matter
to the Commission for its consideration.
[48 FR 22136, May 17, 1983, as amended at 67 FR 62352, Oct. 7, 2002; 78
FR 22419, Apr. 16, 2013]
Sec. 140.76 Delegation of authority to disclose information in a
receivership or bankruptcy proceeding.
(a) Pursuant to sections 2(a)(11) and 8(b) of the Act, the
Commission hereby delegates, until such time as the Commission orders
otherwise, to the Director of the Division of Enforcement, the Director
of the Division of Clearing and Risk and Division of Swap Dealer and
Intermediary Oversight, the General Counsel or any Commission employee
under their direction as they may designate, the authority to disclose
data and information that would separately disclose the business
transactions or market positions of any person and trade secrets or
names of customers, when such disclosure is made in any receivership
proceeding involving a receiver appointed in a judicial proceeding
brought under the Act, or in any bankruptcy proceeding in which the
Commission has intervened or in which the Commission has the right to
appear and be heard under title 11 of the United States Code.
(b) Notwithstanding the provisions of paragraph (a), in any case in
which the Director of the Division of Enforcement, the Director of the
Division of Clearing and Risk and Division of Swap Dealer and
Intermediary Oversight, the General Counsel, or any employee designated
by them to make disclosures pursuant to this section believes it
appropriate, the matter may be submitted to the Commission for
consideration. In addition, the Commission reserves to itself the
authority to determine whether to grant a request for information in any
particular case.
[49 FR 4464, Feb. 7, 1984, as amended at 67 FR 62352, Oct. 7, 2002; 78
FR 22419, Apr. 16, 2013]
Sec. 140.77 Delegation of authority to determine that applications
for contract market designation, swap execution facility registration,
or swap data repository registration are materially incomplete.
(a) The Commodity Futures Trading Commission hereby delegates, until
such time as the Commission orders otherwise, to the Director of the
Division of Market Oversight or the Director's designees, the authority
to determine that an application for contract market designation, swap
execution facility registration, or swap data repository registration is
materially incomplete under section 6 of the Commodity Exchange Act and
to so notify the applicant.
(b) The Director of the Division of Market Oversight may submit any
matter which has been delegated to the director under paragraph (a) of
this section to the Commission for its consideration.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Market Oversight under paragraph (a) of this section.
[48 FR 34946, Aug. 2, 1983, as amended at 57 FR 20638, May 14, 1992; 67
FR 62353, Oct. 7, 2002; 77 FR 66347, Nov. 2, 2012]
Sec. 140.80 Disclosure of information pursuant to a subpoena or
summons.
The Commission shall provide notice to any person who has submitted
information to the Commission when a summons or subpoena seeking the
submitted information is received by the Commission. Notice ordinarily
will be provided by mailing a copy of the summons or subpoena to the
last known home or business address of the person who submitted the
information. However, under circumstances which would make notice by
mail unduly burdensome or costly, notice of the existence of the summons
or subpoena may be affected by alternative means such as publication in
the Federal Register. The Commission will not disclose such information
until the expiration of at least fourteen days from the date of mailing,
or such other notice as is given. This section shall not apply to
[[Page 252]]
(a) Congressional subpoenas or Congressional requests for information,
(b) information which is considered by the Commission to be public
information, or (c) information as to which the submitter has waived the
notice provision of this section.
[49 FR 4464, Feb. 7, 1984]
Sec. 140.81 [Reserved]
Sec. 140.91 Delegation of authority to the Director of the Division of
Clearing and Risk and to the Director of the Division of Swap Dealer
and Intermediary Oversight.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, the following functions to the Director of
the Division of Clearing and Risk and Division of Swap Dealer and
Intermediary Oversight and to such members of the Commission's staff
acting under his direction as he may designate from time to time:
(1) All functions reserved to the Commission in Sec. 1.10 of this
chapter, except for those relating to nonpublic treatment of reports set
forth in Sec. 1.10(g) of this chapter;
(2) All functions reserved to the Commission in Sec. 1.12 of this
chapter;
(3) All functions reserved to the Commission in Sec. 1.14 of this
chapter;
(4) All functions reserved to the Commission in Sec. 1.15 of this
chapter;
(5) All functions reserved to the Commission in Sec. 1.16 of this
chapter; and
(6) All functions reserved to the Commission in Sec. 1.17 of this
chapter, except for those relating to non-enumerated cover cases set
forth in Sec. 1.17(j)(3) of this chapter.
(7) All functions reserved to the Commission in Sec. 1.20 of this
chapter.
(8) All functions reserved to the Commission in Sec. 1.25 of this
chapter.
(9) All functions reserved to the Commission in Sec. 1.26 of this
chapter.
(10) All functions reserved to the Commission in Sec. 1.52 of this
chapter.
(11) All functions reserved to the Commission in Sec. 30.7 of this
chapter.
(12) All functions reserved to the Commission in Sec. 41.41 of this
chapter. Any action taken pursuant to the delegation of authority under
this paragraph (a)(12) shall be made with the concurrence of the General
Counsel or, in his or her absence, a Deputy General Counsel.
(b) The Director of the Division of Clearing and Risk and the
Director of the Division of Swap Dealer and Intermediary Oversight may
submit any matter which has been delegated to him or her under paragraph
(a) of this section to the Commission for its consideration.
[44 FR 13460, Mar. 12, 1979, as amended at 60 FR 8195, Feb. 13, 1995; 66
FR 43087, Aug. 17, 2001; 66 FR 53523, Oct. 23, 2001; 67 FR 62353, Oct.
7, 2002; 78 FR 22419, Apr. 16, 2013; 78 FR 68655, Nov. 14, 2013; 79 FR
44126, July 30, 2014]
Sec. 140.92 Delegation of authority to grant registrations and
renewals thereof.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, to the Director of the Division of Clearing
and Risk and Division of Swap Dealer and Intermediary Oversight and to
such members of the Commission's staff acting under his direction as he
may designate, the authority to grant registrations and renewals
thereof.
(b) The Director of the Division of Clearing and Risk and Division
of Swap Dealer and Intermediary Oversight may submit any matter which
has been delegated to him under paragraph (a) of this section to the
Commission for its consideration.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Clearing and Risk and Division of Swap Dealer and
Intermediary Oversight under paragraph (a) of this section.
[45 FR 20785, Mar. 31, 1980, as amended at 67 FR 62353, Oct. 7, 2002; 78
FR 22419, Apr. 16, 2013]
Sec. 140.93 Delegation of authority to the Director of the Division
of Swap Dealer and Intermediary Oversight.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, the following functions to the Director of
the Division of Clearing and Risk and Division
[[Page 253]]
of Swap Dealer and Intermediary Oversight and to such members of the
Commission's staff acting under his direction as he may designate from
time to time:
(1) All functions reserved to the Commission in Sec. 4.12(a) of
this chapter.
(2) All functions reserved to the Commission in Sec. 4.22(g)(3) of
this chapter.
(3) All functions reserved to the Commission in Sec. 4.20(a) of
this chapter.
(4) All functions reserved to the Commission in Sec. 4.5(c)(2)(ii)
of this chapter.
(5) All functions reserved to the Commission in Sec. 4.6(b) of this
chapter.
(6) All functions reserved to the Commission in Sec. Sec. 23.150
through 23.161 of this chapter.
(b) The Director of the Division of Clearing and Risk and Division
of Swap Dealer and Intermediary Oversight may submit any matter which
has been delegated to him under paragraph (a) of this section to the
Commission for its consideration.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Clearing and Risk and Division of Swap Dealer and
Intermediary Oversight under paragraph (a) of this section.
[46 FR 26023, May 8, 1981, as amended at 46 FR 34311, July 1, 1981; 50
FR 15884, Apr. 23, 1985; 52 FR 41986, Nov. 2, 1987; 67 FR 62353, Oct. 7,
2002; 70 FR 2566, Jan. 14, 2005; 78 FR 22419, Apr. 16, 2013; 81 FR 704,
Jan. 6, 2016]
Sec. 140.94 Delegation of authority to the Director of the Division
of Swap Dealer and Intermediary Oversight and the Director of the
Division of Clearing and Risk.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, the following functions to the Director of
the Division of Swap Dealer and Intermediary Oversight and to such
members of the Commission's staff acting under his or her direction as
he or she may designate from time to time:
(1) All functions reserved to the Commission in Sec. 5.7 of this
chapter;
(2) All function reserved to the Commission in Sec. 5.10 of this
chapter;
(3) All functions reserved to the Commission in Sec. 5.11 of this
chapter;
(4) All functions reserved to the Commission in Sec. 5.12 of this
chapter, except for those relating to nonpublic treatment of reports set
forth in Sec. 5.12(i) of this chapter; and
(5) All functions reserved to the Commission in Sec. 5.14 of this
chapter.
(b) The Director of the Division of Swap Dealer and Intermediary
Oversight may submit any matter which has been delegated to him or her
under paragraph (a) of this section to the Commission for its
consideration.
(c) The Commission hereby delegates, until such time as the
Commission orders otherwise, the following function to the Director of
the Division of Clearing and Risk and to such members of the
Commission's staff acting under his or her direction as he or she may
designate from time to time:
(1) All functions reserved to the Commission in Sec. Sec.
39.3(a)(1), (a)(2), (a)(3), 39.3(b)(1), and 39.3(f)(4) of this chapter;
(2) All functions reserved to the Commission in Sec. 39.4(a) of
this chapter;
(3) All functions reserved to the Commission in Sec. 39.5(b)(2),
(b)(3)(ix), (c)(1), and (d)(3) of this chapter;
(4) All functions reserved to the Commission in Sec.
39.10(c)(4)(iv) of this chapter;
(5) All functions reserved to the Commission in Sec.
39.11(b)(1)(vi), (b)(2)(ii), (c)(1), (c)(2), (f)(1), and (f)(4) of this
chapter;
(6) All functions reserved to the Commission in Sec.
39.12(a)(5)(i)(B) of this chapter;
(7) All functions reserved to the Commission in Sec.
39.13(g)(8)(ii), (h)(1)(i)(C), (h)(1)(ii), (h)(3)(i), (h)(3)(ii), and
(h)(5)(i)(A) of this chapter;
(8) The authority to request additional information in support of a
rule submission under Sec. 39.15(b)(2)(iii)(A) of this chapter and in
support of a petition pursuant to section 4d of the Act under Sec.
39.15(b)(2)(iii)(B) of this chapter;
(9) All functions reserved to the Commission in Sec.
39.19(c)(3)(iv), (c)(5)(i), (c)(5)(ii), and (c)(5)(iii) of this chapter;
(10) All functions reserved to the Commission in Sec. 39.20(a)(5);
and
(11) All functions reserved to the Commission in Sec. 39.21(d) of
this chapter.
(12) All functions reserved to the Commission in Sec. 39.31 of this
chapter; and
[[Page 254]]
(13) The authority to approve the requests described in Sec. Sec.
39.34(d) and 39.39(f) of this chapter.
(d) The Director of Clearing and Risk may submit any matter which
has been delegated to him or her under paragraph (c) of this section to
the Commission for its consideration.
(e) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Swap Dealers and Intermediary Oversight under paragraph (a)
or to the Director of the Division of Clearing and Risk under paragraph
(c) of this section.
[78 FR 22420, Apr. 16, 2013, as amended at 78 FR 72514, Dec. 2, 2013]
Sec. 140.95 Delegation of authority with respect to withdrawals
from registration.
(a) The Commission hereby delegates, until such time as the
Commission orders otherwise, to the Director of the Division of Clearing
and Risk and Division of Swap Dealer and Intermediary Oversight. and to
such members of the Commission's staff acting under his direction as he
may designate, the authority to review, postpone, condition, deny, or
otherwise act upon a request for withdrawal from registration.
(b) The Director of the Division of Clearing and Risk and Division
of Swap Dealer and Intermediary Oversight. may submit any matter which
has been delegated to him under paragraph (a) of this section to the
Commission for its consideration.
(c) Nothing in this section shall prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Clearing and Risk and Division of Swap Dealer and
Intermediary Oversight. under paragraph (a) of this section.
[46 FR 48918, Oct. 5, 1981, as amended at 67 FR 62353, Oct. 7, 2002; 78
FR 22419, Apr. 16, 2013]
Sec. 140.96 Delegation of authority to publish in the Federal Register.
(a) The Commodity Futures Trading Commission hereby delegates, until
such time as the Commission orders otherwise, to the Director of the
Division of Market Oversight or the Director's designee, with the
concurrence of the General Counsel or the General Counsel's designee,
the authority to publish in the Federal Register notice of the
availability for comment of the proposed terms and conditions of
applications for contract market designation, swap execution facility
and swap data repository registration, and to determine to publish, and
to publish, requests for public comment on proposed exchange, swap
execution facility, or swap data repository rules, and rule amendments,
when there exists novel or complex issues that require additional time
to analyze, an inadequate explanation by the submitting registered
entity, or a potential inconsistency with the Act, including regulations
under the Act.
(b) The Commodity Futures Trading Commission hereby delegates, until
such time as the Commission orders otherwise, to the Director of the
Division of Market Oversight or the Director's designee, and to the
Director of the Director of Swap Dealer and Intermediary Oversight or
the Director's designee, and to the Director of the Division of Clearing
and Risk or the Director's designee or the Director's designee, with the
concurrence of the General Counsel or the General Counsel's designee,
the authority to determine to publish, and to publish, in the Federal
Register, requests for public comment on proposed exchange and self-
regulatory organization rule amendments when publication of the proposed
rule amendment is in the public interest and will assist the Commission
in considering the views of interested persons.
(c) The Director of the Division of Market Oversight or the Director
of the Division of Swap Dealer and Intermediary Oversight or the
Director of the Division of Clearing and Risk may submit any matter
which has been delegated to such Director under paragraphs (a) or (b) of
this section to the Commission for its consideration.
(d) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Market Oversight and to the Director of the Division of Swap
Dealer and Intermediary Oversight or the Director
[[Page 255]]
of the Division of Clearing and Risk under paragraphs (a) and (b) of
this section.
[50 FR 47532, Nov. 19, 1985, as amended at 55 FR 35897, Sept. 4, 1990;
57 FR 20638, May 14, 1992; 67 FR 62353, Oct. 7, 2002; 7 FR 66347, Nov.
2, 2012; 78 FR 22419, Apr. 16, 2013]
Sec. 140.97 Delegation of authority regarding requests for
classification of positions as bona fide hedging.
(a) The Commodity Futures Trading Commission hereby delegates, until
such time as the Commission orders otherwise, to the Director of the
Division of Market Oversight, or the Director's designee, all functions
reserved to the Commission in Sec. Sec. 1.47 and 1.48 of this chapter.
(b) The Director of the Division of Market Oversight may submit any
matter which has been delegated to the Director under paragraph (a) of
this section to the Commission for its consideration.
(c) Nothing in this section may prohibit the Commission, at its
election, from exercising the authority delegated to the Director of the
Division of Market Oversight under paragraph (a) of this section.
[57 FR 12874, Apr. 14, 1992, as amended at 67 FR 62353, Oct. 7, 2002]
Sec. 140.98 Publication of no-action, interpretative and exemption
letters and other written communications.
(a) Except as provided in paragraphs (b) and (c) of this section,
and except for applications for orders granting exemptions submitted
pursuant to section 4(c) of the Commodity Exchange Act and any written
responses thereto, each written response by the Commission or its staff
to a letter or other written communication requesting:
(1) Interpretative legal advice with respect to the Commodity
Exchange Act or any rule, regulation or order issued or adopted by the
Commission thereunder;
(2) A statement that, on the basis of the facts stated in such
letter or other communication, the staff would not recommend that the
Commission take any enforcement action; or
(3) An exemption, on the basis of the facts stated in such letter or
other communication, from the provisions of the Commodity Exchange Act
or any rules, or regulations or orders issued or adopted by the
Commission thereunder; shall be made available, together with the letter
or other written communication making the request, for inspection and
copying by any person as soon as practicable after the response has been
sent or given to the person requesting it.
(b) Any person submitting a letter or other written communication
making such a request may also submit therewith a request that the
letter or other written communication, as well as any Commission or
staff response thereto, be accorded confidential treatment for a
specified period of time, not exceeding 120 days from the date of the
response thereto, together with a statement setting forth the
considerations upon which the request for such treatment is based. If
the staff determines that the request is reasonable and appropriate it
will be granted and the letter or other written communication as well as
the response thereto will not be made available for public inspection or
copying until the expiration of the specified period. If it appears to
the staff that the request for confidential treatment should be denied,
the staff shall so advise the person making the request and such person
may withdraw the letter or other written communication within 30 days
thereafter. In such case, no response will be sent or given and the
letter or other written communication shall remain in the Commission's
files but will not be made public pursuant to this section. If such
letter or other written communication is not so withdrawn, it shall be
deemed to be available for public inspection and copying together with
any written response thereto.
(c) Notwithstanding the provisions of paragraphs (a) and (b) of this
section, no portion of a letter or other written communication received
by the Commission or its staff of the type described in paragraph (a) of
this section, or any written response thereto, shall be made available
for inspection and copying or otherwise published which would separately
disclose the business transactions or market positions of any person and
trade secrets or names of customers, except in accordance
[[Page 256]]
with the provisions of section 8 of the Commodity Exchange Act.
[57 FR 61291, Dec. 24, 1992]
Sec. 140.99 Requests for exemptive, no-action and interpretative
letters.
(a) Definitions. For the purpose of this section:
(1) Exemptive letter means a written grant of relief issued by the
staff of a Division of the Commission from the applicability of a
specific provision of the Act or of a rule, regulation or order issued
thereunder by the Commission. An exemptive letter may only be issued by
staff of a Division when the Commission itself has exemptive authority
and that authority has been delegated by the Commission to the Division
in question. An exemptive letter binds the Commission and its staff with
respect to the relief provided therein. Only the Beneficiary may rely
upon the exemptive letter.
(2) No-action letter means a written statement issued by the staff
of a Division of the Commission or of the Office of the General Counsel
that it will not recommend enforcement action to the Commission for
failure to comply with a specific provision of the Act or of a
Commission rule, regulation or order if a proposed transaction is
completed or a proposed activity is conducted by the Beneficiary. A no-
action letter represents the position only of the Division that issued
it, or the Office of the General Counsel if issued thereby. A no-action
letter binds only the issuing Division or the Office of the General
Counsel, as applicable, and not the Commission or other Commission
staff. Only the Beneficiary may rely upon the no-action letter.
(3) Interpretative letter means written advice or guidance issued by
the staff of a Division of the Commission or the Office of the General
Counsel. An interpretative letter binds only the issuing Division or the
Office of the General Counsel, as applicable, and does not bind the
Commission or other Commission staff. An interpretative letter may be
relied upon by persons in addition to the Beneficiary.
(4) Letter means an exemptive, no-action or interpretative letter.
(5) Division means the Division of Swap Dealer and Intermediary
Oversight, the Division of Clearing and Risk or the Division of Market
Oversight.
(b) General requirements. (1) Issuance of a Letter is entirely
within the discretion of Commission staff.
(2) Each request for a Letter must comply with the requirements of
this section. Commission staff may reject or decline to respond to a
request that does not comply with the requirements of this section.
(3) The request must relate to a proposed transaction or a proposed
activity. Absent extraordinary circumstances, Commission staff will not
issue a Letter based upon transactions or activities that have been
completed or activities that have been conducted prior to the date upon
which the request is filed with the Commission.
(4) The request must be made by or on behalf of the person whose
activities or transactions are the subject of the request. Commission
staff will not respond to a request for a Letter that is made by or on
behalf of an unidentified person.
(5)(i) The request must set forth as completely as possible all
material facts and circumstances giving rise to the request.
(ii) Commission staff will not respond to a request based on a
hypothetical situation. However, a requester may set forth one or more
alternative structures or fact situations for a proposed transaction or
activity; Provided, That the request complies with this section with
respect to each alternative structure or fact situation.
(c) Information requirements. Each request for a Letter must comply
with the following information requirements:
(1)(i) A request made by the person on whose behalf the Letter is
sought must contain:
(A) The name, main business address, main telephone number and, if
applicable, the National Futures Association registration identification
number of such person; and
(B) The name and, if applicable, the National Futures Association
registration identification number of each other person for whose
benefit the person is seeking the Letter.
(ii) When made by a requester other than the person on whose behalf
the
[[Page 257]]
Letter is sought, the request must contain:
(A) The name, main business address and main business telephone
number of the requester;
(B) The name and, if applicable, the National Futures Association
registration identification number of the person on whose behalf the
Letter is sought; and
(C) The name and, if applicable, the National Futures Association
registration identification number of each other person for whose
benefit the requester is seeking the Letter.
(iii) The request must provide the name, address and telephone
number of a contact person from whom Commission staff may obtain
additional information if necessary.
(2) The section number of the particular provision of the Act and/or
Commission rules, regulations or orders to which the request relates
must be set forth in the upper right-hand corner of the first page of
the request.
(3) The request must be accompanied by:
(i) A certification by a person with knowledge of the facts that the
material facts as represented in the request are true and complete. The
following form of certification is sufficient for this purpose:
I hereby certify that the material facts set forth in the attached
letter dated ____ are true and complete to the best of my knowledge.
(name and title)________________________________________________________
and
(ii) An undertaking made by the person on whose behalf the Letter is
sought or by that person's authorized representative that, if at any
time prior to issuance of a Letter, any material representation made in
the request ceases to be true and complete, the person who made the
undertaking will ensure that Commission staff is informed promptly in
writing of all materially changed facts and circumstances. If a material
change in facts or circumstances occurs subsequent to issuance of a
Letter, the person on whose behalf the Letter is sought (or that
person's authorized representative at the time of the change) must
promptly so inform Commission staff.
(4) The request must identify the type of relief requested and
Letter sought and must clearly state why a Letter is needed. The request
must identify all relevant legal and factual issues and discuss the
legal and public policy bases supporting issuance of the Letter.
(5) The request must contain references to all relevant authorities,
including applicable provisions of the Act, Commission rules,
regulations and orders, judicial decisions, administrative decisions,
relevant statutory interpretations and policy statements. Adverse
authority must be cited and discussed.
(6) The request must identify prior publicly available Letters
issued by Commission staff in response to circumstances similar to those
surrounding the request (including adverse Letters), and must identify
any conditions imposed by prior Letters as prerequisites for the
issuance of those Letters. Citation of a representative sample of prior
Letters is sufficient where a comprehensive recitation of prior Letters
on a given topic would be repetitious or would not assist the staff in
considering the request.
(7) Requests may ask that, if the requested exemptive relief, no-
action position or interpretative guidance is denied, the staff consider
granting alternative relief or adopting an alternative position.
(d) Filing requirements. Each request for a Letter must comply with
the following filing requirements:
(1) The request must be in writing and signed.
(2)(i) A request for a Letter relating to the provisions of the Act
or the Commission's rules, regulations or orders governing designated
contract markets, registered swap execution facilities, registered swap
data repositories, registered foreign boards of trade, the nature of
particular transactions and whether they are exempt or excluded from
being required to be traded on one of the foregoing entities, made
available for trading determinations, position limits, hedging
exemptions, position aggregation treatment or the reporting of market
positions shall be filed with the Director, Division of Market
Oversight, Commodity
[[Page 258]]
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street
NW., Washington, DC 20581.
(ii) A request for a Letter relating to the provisions of the Act or
the Commission's rules, regulations or orders governing or related to
derivatives clearing organizations and other central counterparties, the
clearing process, the clearing requirement determination, Commission
regulation 1.25 jointly with the Director of the Division of Swap Dealer
and Intermediary Oversight, risk assessment, financial surveillance, the
end user exemption, and bankruptcy shall be filed with the Director,
Division of Clearing and Risk, Commodity Futures Trading Commission,
Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.
(iii) A request for a Letter relating to all other provisions of the
Act or Commission rules, including Commission regulation 1.25 jointly
with the Director of the Division of Clearing and Risk, shall be filed
with the Director, Division of Swap Dealer and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
(iv) The requests described in paragraphs (d)(2)(i) through (iii) of
this section must be submitted electronically using the email address
[email protected] (for a request filed with the Division of Market
Oversight), [email protected] (for a request filed with the Division
of Clearing and Risk), or [email protected] (for a request filed with
the Division of Swap Dealer and Intermediary Oversight), as appropriate,
and a properly signed paper copy of the request must be provided to the
Division of Market Oversight, the Division of Clearing and Risk, or the
Division of Swap Dealer and Intermediary Oversight, as appropriate,
within ten days for purposes of verification of the electronic
submission.
(e) Form of staff response. No response to any request governed by
this section is effective unless it is in writing, signed by appropriate
Commission staff, and transmitted in final form to the recipient.
Failure by Commission staff to respond to a request for a Letter does
not constitute approval of the request. Nothing in this section shall
preclude Commission staff from responding to a request for a Letter by
way of endorsement or any other abbreviated, written form of response.
(f) Withdrawal of requests. (1) A request for a Letter may be
withdrawn by filing with Commission staff a written request for
withdrawal, signed by the person on whose behalf the Letter was sought
or by that person's authorized representative, that states whether the
person on whose behalf the Letter was sought will proceed with the
proposed transaction or activity.
(2) Where a request has been submitted by an authorized
representative of the person on whose behalf a Letter is sought, the
authorized representative may withdraw from representation at any time
without explanation, Provided, That Commission staff is promptly so
notified.
(g) Failure to pursue a request. In the event that Commission staff
requests additional information or analysis from a requester and the
requester does not provide that information or analysis within thirty
calendar days, Commission staff generally will issue a denial of the
request; Provided, however, that Commission staff in its discretion may
issue an extension of time to provide the information and or analysis.
(h) Confidential treatment. Confidential treatment of a request for
a Letter must be requested separately in accordance with Sec. 140.98 or
Sec. 145.9 of this chapter, as applicable.
(i) Applicability to other sections. The provisions of this section
shall not affect the requirements of, or otherwise be applicable to:
(1) Notice filings required to be made to claim relief from the Act
or from a Commission rule, regulation, or order including, without
limitations, Sec. Sec. 4.5, 4.7(a), 4.7(b), 4.12(b), 4.13(b) and
4.14(a)(8) of this chapter;
(2) Requests for exemption pursuant to section 4(c) of the Act; or
(3) Requests for exemption pursuant to Sec. 41.33 of this chapter.
[63 FR 68181, Dec. 10, 1998, as amended at 65 FR 47859, Aug. 4, 2000; 66
FR 44967, Aug. 27, 2001; 67 FR 62353, Oct. 7, 2002; 69 FR 41426, July 9,
2004; 77 FR 66347, Nov. 2, 2012; 78 FR 22419, Apr. 16, 2013; 80 FR
59578, Oct. 2, 2015]
[[Page 259]]
Subpart C_Regulation Concerning Conduct of Members and Employees and
Former Members and Employees of the Commission
Authority: 7 U.S.C. 4a(f) and (j), 12a(5), and 13, as amended by the
Commodity Futures Modernization Act of 2000, Appendix E of Pub. L. 106-
554, 114 Stat. 2763 (2000).
Source: 41 FR 27511, July 2, 1976, unless otherwise noted.
Sec. 140.735-1 Authority and purpose.
This subpart sets forth specific standards of conduct required of
Commission members, employees of the Commission, and special government
employees as well as regulations concerning former Commissioners,
employees, and special government employees of the Commodity Futures
Trading Commission. These rules are separate from and in addition to the
Office of Government Ethics' conduct rules, Standards of Ethical Conduct
for Employees of the Executive Branch, 5 CFR part 2635. In addition,
this subpart contains references to various statutes governing employee
conduct in order to aid Commission members, employees of the Commission
and others in their understanding of statutory restrictions and
requirements. \1\ Absent compelling countervailing reasons, all
Commission members and employees are subject to all the terms of this
section.
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\1\ These references, however, do not purport to cover all
restrictions and requirements, and paraphrased restatements of statutory
provisions are not intended to be, and should not be construed as,
verbatim quotations of the law. Statutory text should be consulted in
any situation in which it might apply.
[67 FR 5939, Feb. 8, 2002]
Sec. 140.735-2 Prohibited transactions.
(a) Application. This section applies to all transactions effected
by or on behalf of a Commission member or employee of the Commission,
including transactions for the account of other persons effected by the
member or employee, directly or indirectly under a power of attorney or
otherwise. A member or employee shall be deemed to have a sufficient
interest in the transactions of his or her spouse, minor child, or other
relative who is a resident of the immediate household of the member or
employee so that such transactions must be reported and are subject to
all the terms of this section.
(b) Prohibitions. Except as otherwise provided in this subsection,
no member or employee of the Commission shall:
(1) Participate, directly or indirectly, in any transaction:
(i) In swaps;
(ii) In commodity futures;
(iii) In retail forex transactions, as that term is defined in Sec.
5.1(m) of this chapter;
(iv) Involving any commodity that is of the character of or which is
commonly known to the trade as an option, privilege, indemnity, bid,
offer, put, call, advance guaranty, or decline guaranty; or
(v) For the delivery of any commodity under a standardized contract
commonly known to the trade as a margin account, margin contract,
leverage account, or leverage contract, or under any contract, account,
arrangement, scheme, or device that the Commission determines serves the
same function or functions as such a standardized contract, or is
marketed or managed in substantially the same manner as such a
standardized contract;
(2) Effect any purchase or sale of a commodity option, futures
contract, or swap involving a security or group of securities;
(3) Sell a security which he or she does not own or consummate a
sale by the delivery of a security borrowed by or for his or her
account;
(4) Participate, directly or indirectly, in any investment
transaction in an actual commodity if:
(i) Nonpublic information is used in the investment transaction;
(ii) It is prohibited by rule or regulation of the Commission; or
(iii) It is effected by means of any instrument regulated by the
Commission and is not otherwise permitted by an exception under this
section;
(5) Purchase or sell any securities of a company which, to his or
her knowledge, is involved in any:
[[Page 260]]
(i) Pending investigation by the Commission;
(ii) Proceeding before the Commission or to which the Commission is
a party;
(iii) Other matter under consideration by the Commission that could
have a direct and predictable effect upon the company; or
(6) Recommend or suggest to another person any transaction in which
the member or employee is not permitted to participate in any
circumstance where the member or employee could reasonably expect to
benefit or where the member or employee has or may have control or
substantial influence over such person.
(c) Exception for farming, ranching, and natural resource
operations. The prohibitions in paragraphs (b)(1)(i), (ii), and (iv) of
this section shall not apply to a transaction in connection with any
farming, ranching, oil and gas, mineral rights, or other natural
resource operation in which the member or employee has a financial
interest, if he or she is not involved in the decision to engage in, and
does not have prior knowledge of, the actual futures, commodity option,
or swap transaction and has previously notified the General Counsel \2\
in writing of the nature of the operation, the extent of the member's or
employee's interest, the types of transactions in which the operation
may engage, and the identity of the person or persons who will make
trading decisions for the operation; \3\ or
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\2\ As used in this subpart, ``General Counsel'' refers to the
General Counsel in his or her capacity as counselor for the Commission
and designated agency ethics official for the Commission, and includes
his or her designee and the alternate designated agency ethics official
appointed by the agency head pursuant to 5 CFR 2638.202.
\3\ Although not required, if they choose to do so, members or
employees may use powers of attorney or other arrangements in order to
meet the notice requirements of, and to assure that they have no control
or knowledge of, futures, commodity option, or swap transactions
permitted under paragraph (c) of this section. A member or employee
considering such arrangements should consult with the Office of General
Counsel in advance for approval. Should a member or employee gain
knowledge of an actual futures, commodity option, or swap transaction
entered into by an operation described in paragraph (c) of this section
that has already taken place and the market position represented by that
transaction remains open, he or she should promptly report that fact and
all other details to the General Counsel and seek advice as to what
action, including recusal from any particular matter that will have a
direct and predictable effect on the financial interest in question, may
be appropriate.
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(d) Other exceptions. The prohibitions in paragraphs (b)(1), (2) and
(3) of this section shall not apply to:
(1) A transaction entered into by any publicly-available pooled
investment vehicle (such as a mutual fund or exchange-traded fund) other
than one operated by a person who is a commodity pool operator with
respect to such entity if the direct or indirect ownership interest of
the member or employee neither exercises control nor has the ability to
exercise control over the transactions entered into by such vehicle; \4\
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\4\ Section 9(c) of the Commodity Exchange Act makes it a felony for
any member or employee, or agent thereof, to participate, directly or
indirectly in, inter alia, any transaction in commodity futures, option,
leverage transaction, or other arrangement that the Commission
determines serves the same function, unless authorized to do so by
Commission rule or regulation. 17 CFR 4.5 excludes certain otherwise
regulated persons from the definition of ``commodity pool operator''
with respect to operation of specific investment entities enumerated in
the regulation.
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(2) The acceptance or exercise of any stock option or similar right
granted by an employer as part of a compensation package to a spouse or
minor child or other related member of the immediate household of a
member or employee, or to the exercise of any stock option or similar
right granted to the member or employee by a previous employer prior to
commencement of the member's or employee's tenure with the Commission as
part of such member's or employee's compensation package from such
previous employer;
(3) A transaction by any trust or estate of which the member or
employee or the spouse, minor child, or other related member of the
immediate household of the member or employee is solely a beneficiary,
has no power to control, and does not in fact control or
[[Page 261]]
advise with respect to the investments of the trust or estate;
(4) The exercise of any privilege to convert or exchange securities,
of rights accruing unconditionally by virtue of ownership of other
securities (as distinguished from a contingent right to acquire
securities not subscribed for by others), or of rights in order to round
out fractional shares in securities;
(5) The acceptance of stock dividends on securities already owned,
the reinvestment of cash dividends on a security already owned, or the
participation in a periodic investment plan when the original purchase
was otherwise consistent with this rule; or
(6) Investment in any fund established pursuant to the Federal
Employees Retirement System.
(e) No prohibition on stocks or funds. Nothing in paragraph (b)(1)
or (2) of this section shall prohibit a member or employee from
purchasing, selling, or retaining any share that represents ownership of
a publicly-owned corporation or interest in a publicly-available pooled
investment vehicle containing any such shares (such as a mutual fund or
exchange-traded fund) other than one operated by a person who is a
commodity pool operator with respect to such pooled investment vehicle,
regardless of whether any security futures product may at any time be or
have been based upon shares of such corporation or pooled investment
vehicle, and regardless of whether such pooled investment vehicle may,
by design or effect, track or follow any group of securities that also
underlies a futures contract.
(f) Exception applicable to legally separated employees. This
section shall not apply to transactions of a legally separated spouse of
a member or employee, including transactions for the benefit of a minor
child, if the member or employee has no power to control, and does not,
in fact, advise or control with respect to such transactions. If the
member or employee has actual or constructive knowledge of such
transactions of a legally separated spouse or for the benefit of a minor
child, the disqualification provisions of Sec. 140.735-2a(d)(2)(i)-
(iii) and 18 U.S.C. 208 are applicable.
[67 FR 5939, Feb. 8, 2002, as amended at 77 FR 66347, Nov. 2, 2012]
Sec. 140.735-2a Prohibited interests.
(a) Application. This section applies to all financial interests of
a Commission member or employee of the Commission, including financial
interests held by the member or employee for the account of other
persons. A member or employee shall be deemed to have a sufficient
interest in the financial interests of his or her spouse, minor child,
or other relative who is a resident of the immediate household of the
member or employee, so that such financial interests must be reported
and are subject to all the terms of this section.
(b) Prohibitions. Except as otherwise provided in this subsection,
no member or employee of the Commission shall:
(1) Have a financial interest, through ownership of securities or
otherwise, in any person \5\ registered with the Commission (including
futures commission merchants, associated persons and agents of futures
commission merchants, floor brokers, commodity trading advisors and
commodity pool operators, and any other persons required to be
registered in a fashion similar to any of the above under the Commodity
Exchange Act or pursuant to any rule or regulation promulgated by the
Commission), or any contract market, swap execution facility, swap data
repository, board of trade, or other trading facility, or any
derivatives clearing organization subject to regulation or oversight by
the Commission; \6\
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\5\ As defined in section 1a(38) of the Commodity Exchange Act and
17 CFR 1.3(u) thereunder, a ``person'' includes an individual,
association, partnership, corporation and a trust.
\6\ Attention is directed to 18 U.S.C. 208.
\7\ [Reserved]
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(c) Exceptions. The prohibitions in paragraph (b) of this section
shall not apply to:
(1) A financial interest in any publicly-available pooled investment
vehicle (such as a mutual fund or exchange-traded fund) other than one
operated by a person who is a commodity pool
[[Page 262]]
operator with respect to such entity if such vehicle does not have
invested, or indicate in its prospectus the intent to invest, ten
percent or more of its assets in securities of persons described in
paragraph (b) of this section and the member or employee neither
exercises control nor has the ability to exercise control over the
financial interests held in such vehicle;
(2) A financial interest in any corporate parent or affiliate of a
person described in paragraph (b)(1) of this section if the operations
of such person provide less than ten percent of the gross revenues of
the corporate parent or affiliate; \8\
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\8\ It is the member's or employee's responsibility to monitor his
or her financial interests and those of a spouse or minor child or other
related member of his or her immediate household, to promptly report
relevant changes to the General Counsel in writing, and to seek the
advice of the General Counsel as to what action may be appropriate. In
this regard, attention is directed to 18 U.S.C. 208, which bars an
employee from participating in any particular matter that will have a
direct and predictable effect on the financial interest in question.
---------------------------------------------------------------------------
(3) A financial interest in any trust or estate of which the member
or employee is solely a beneficiary, has no power to control, and does
not in fact control or advise with respect to the investments of the
trust or estate; except that such interest is subject to the provisions
of paragraphs (d) and (f) of this section.
(d) Retention or passive acquisition of prohibited financial
interests. Nothing in this section shall prohibit a member or employee,
or a spouse or minor child or other related member of the immediate
household of the member or employee, from:
(1) Retaining a financial interest that was permitted to be retained
by the member or employee prior to the adoption of this regulation, was
obtained prior to the commencement of employment with the Commission, or
was acquired by a spouse prior to marriage to the member or employee; or
(2) Acquiring, retaining, or controlling an otherwise prohibited
financial interest, including but not limited to any security or option
on a security (but not a security futures product), where the financial
interest was acquired by inheritance, gift, stock split, involuntary
stock dividend, merger, acquisition, or other change in corporate
ownership, exercise of preemptive right, or otherwise without specific
intent to acquire the financial interest, or by a spouse or minor child
or other related member of the immediate household of the member or
employee as part of an employment compensation package; provided,
however, that retention of any interest allowed by paragraph (c)(3) or
(d) of this section is permitted only where the employee:
(i) Makes full disclosure of any such interest on his or her annual
financial disclosure (Standard Form 278 or Standard Form 450);
(ii) Makes full written disclosure to the General Counsel within 30
days of commencing employment or, for incumbents, within twenty days of
his or her receipt of actual or constructive notice that the interest
has been acquired; \9\ and
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\9\ Changes in holdings, other than by purchase, which do not affect
disqualification, such as those resulting from the automatic
reinvestment of dividends, stock splits, stock dividends or
reclassifications, may be reported on the annual statement, SF 278 or SF
450, rather than when notification of the transaction is received.
Acquisition by, for example, gifts, inheritance, or spinoffs, which may
result in additional disqualifications pursuant to paragraph (d)(2)(iii)
of this section and 18 U.S.C. 208 shall be reported to the General
Counsel within 20 days of the receipt of actual or constructive notice
thereof.
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(iii) Will be disqualified in accordance with 5 CFR part 2635,
subpart D, and 18 U.S.C. 208 from participating in any particular matter
that will have a direct and predictable effect on the financial interest
in question. Any Commission member or employee affected by this section
may, pursuant to 18 U.S.C. 208(b)(1) and 5 CFR 2640.301-303, request a
waiver of the disqualification requirement.
Note: With respect to any financial interest retained under
paragraph (c)(3) or (d) of this section, Commission members and
employees are reminded of their obligations under 18 U.S.C. 208 and 5
CFR part 2635, subpart D, to disqualify themselves from participating in
any particular matter in which
[[Page 263]]
they, their spouses or minor children have a financial interest.
(e) Exception applicable to legally separated employees. This
section shall not apply to the financial interests of a legally
separated spouse of a Commission member or employee, including
transactions for the benefit of a minor child, if the member or employee
has no power to control and does not, in fact, advise or control with
respect to such transactions. If the member or employee has actual or
constructive knowledge of such financial interests held by a legally
separated spouse or for the benefit of a minor child, the
disqualification provisions of paragraphs (d)(2)(i)-(iii) of this
section and 18 U.S.C. 208 are applicable.
(f) Divestiture. Based upon a determination of substantial conflict
under 5 CFR 2635.403(b) and 18 U.S.C. 208, the Commission, or its
designee, may require in writing that a member or employee, or the
spouse or minor child or other related member of the immediate household
of a member or employee, divest a financial interest that he or she is
otherwise authorized to retain under this section. \10\
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\10\ Any evidence of a violation of 18 U.S.C. 208 must be reported
by the General Counsel to the Commission, which may refer the matter to
the Criminal Division of the Department of Justice and the United States
Attorney in whose venue the violations lie. See 28 U.S.C. 535.
[67 FR 5940, Feb. 8, 2002, as amended at 67 FR 62353, Oct. 7, 2002; 77
FR 66348, Nov. 2, 2012]
Sec. 140.735-3 Non-governmental employment and other outside activity.
A Commission member or employee shall not accept employment or
compensation from any person, exchange, swap execution facility, swap
data repository or derivatives clearing organization subject to
regulation by the Commission. For purposes of this section, a person
subject to regulation by the Commission includes but is not limited to a
contract market, swap execution facility, swap data repository or
derivatives clearing organization or member thereof, a registered
futures commission merchant, any person associated with a futures
commission merchant or with any agent of a futures commission merchant,
floor broker, commodity trading advisor, commodity pool operator or any
person required to be registered in a fashion similar to any of the
above or file reports under the Act or pursuant to any rule or
regulation promulgated by the Commission.\11\
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\11\ Attention is directed to section 2(a)(8) of the Commodity
Exchange Act, which provides, among other things, that no Commission
member or employee shall accept employment or compensation from any
person, exchange or derivatives clearing organization
(``clearinghouse'') subject to regulation by the Commission, or
participate, directly or indirectly, in any contract market operations
or transactions of a character subject to regulation by the Commission.
[ 77 FR 66348, Nov. 2, 2012]
Sec. 140.735-4 Receipt and disposition of foreign gifts and
decorations.
(a) For purposes of this section only:
(1) Commission member or employee means any Commission member or any
person employed by or who occupies an office or a position in the
Commission; an expert or consultant under contract with the Commission,
or in the case of an organization performing services under such
contract, any individual involved in the performance of such service;
and the spouse, unless the individual and his or her spouse are
separated, and any dependent, as defined by section 152 of the Internal
Revenue Code of 1954, of any such person.
(2) Foreign government means:
(A) Any unit of foreign governmental authority, including any
foreign national, state, local, and municipal government;
(B) Any international or multinational organization whose membership
is composed of any unit of foreign government described in paragraph
(a)(2)(A) of this section; and
(C) Any agent or representative of any such unit or such
organization, while acting as such.
(3) Gift means a tangible or intangible present (other than a
decoration) tendered by, or received from, a foreign government, except
grants and other forms of assistance to which section 108A of the Mutual
Educational and Cultural Exchange Act of 1961 applies.
[[Page 264]]
(4) Decoration means an order, device, medal, badge, insignia,
emblem, or award tendered by, or received from, a foreign government.
(5) Minimal value means a retail value in the United States at the
time of acceptance of $140 or less, except as redefined to reflect
changes in the consumer price index at three year intervals by the
Administrator of General Services pursuant to authority granted in 5
U.S.C. 7342(a)(5)(A).
(b) Commission members and employees shall not:
(1) Request or otherwise encourage the tender of a gift or
decoration;
(2) Accept a gift of currency, except that which has an historical
or numismatic value;
(3) Accept gifts of travel or gifts of expenses for travel, such as
transportation, food and lodging, from foreign governments, other than
those authorized in paragraph (c)(5) of this section; or
(4) Accept any gift or decoration, except as authorized by this
section.
(c) Gifts which may be accepted:
(1) Commission members and employees may accept and retain gifts of
minimal value tendered or received as a souvenir or mark of courtesy
from a foreign government without further approval. If the value of a
gift is uncertain, the recipient shall be responsible for establishing
that it is of minimal value, as defined in this section. Documentary
evidence may be required in support of the valuation.
(2) Commission members and employees may accept, on behalf of the
United States, gifts of more than minimal value tendered or received
from a foreign government when it appears that to refuse the gift would
likely cause offense or embarrassment or otherwise adversely affect the
foreign relations of the United States. When a tangible gift of more
than minimal value is accepted on behalf of the United States, it
becomes the property of the United States.
(3) Commission members and employees may accept a gift of more than
minimal value where such gift is in the nature of an educational
scholarship or medical treatment.
(4) Within 60 days after accepting a tangible gift of more than
minimal value, other than a gift described in paragraph (c)(5) of this
section, a Commission member or employee shall file a statement with the
Executive Director of the Commission which shall include the following
information:
(A) The name and position of the Commission member or employee;
(B) A brief description of the gift and the circumstances justify
acceptance;
(C) The identity, if known, of the foreign government and the name
and position of the individual who presented the gift;
(D) The date of acceptance of the gift;
(E) The estimated value in the United States of the gift at the time
of acceptance; and
(F) The disposition or current location of the gift.
(5) Commission members and employees are authorized to accept from a
foreign government gifts of travel or gifts of expenses for travel
taking place entirely outside the United States, such as transportation,
food and lodging, of more than minimal value if the acceptance is
approved by the Executive Director, upon a finding that it is consistent
with the interests of the Commission. Either prior to or within 30 days
after accepting each gift of travel or gift of travel expenses pursuant
to this paragraph, the Commission member or employee concerned shall
file a statement with the Executive Director containing the following
information:
(A) The name and position of the Commission member or employee;
(B) A brief description of the gift and the circumstances justifying
acceptance;
(C) The identity, if known, of the foreign government and the name
and position of the individual who presented the gift; and
(D) The date of acceptance.
(6) Not later than January 31 of each year the Executive Director
shall compile a listing of all statements filed during the preceding
year by Commission members and employees pursuant to paragraphs (c)(4)
and (c)(5) of this section and shall transmit the listing to the
Secretary of State.
[[Page 265]]
(d) Commission members or employees may accept, retain and wear
decorations tendered by a foreign government in recognition of active
field service in time of combat operations or awarded for other
outstanding or unusually meritorious performance, subject to the
approval of the Executive Director. Without this approval, the
decoration is deemed to have been accepted on behalf of the United
States, shall become the property of the United States, and shall be
deposited by the employee, within 60 days of acceptance, with the
Executive Director for official use or forwarding to the Administrator
of General Services for disposal in accordance with paragraph (g) of
this section. Under normal circumstances, it can be expected that a
Commission member or employee will be notified of the intent of a
foreign government to award him or her or a spouse or dependent a
decoration for outstanding or unusually meritorious service sufficiently
in advance so that the approval required can be sought prior to its
acceptance. A request for the approval of the Executive Director shall
be submitted in writing, stating the nature of the decoration and the
reason why it is being awarded. Whenever possible, the request should
also be accompanied by a statement from the foreign government,
preferably in the form of the citation, which shows the basis for the
tender of the award, whether it is in recognition of active field
service in time of combat operations or for other outstanding or
unusually meritorious performance.
(e) Within 60 days after acceptance of a tangible gift of more than
minimal value or a decoration for which the Executive Director has not
given approval, a Commission member or employee shall:
(1) Deposit the gift or decoration for disposal with the Executive
Director; or
(2) Subject to the approval of the Commission, upon the
recommendation of the Executive Director, deposit the gift or decoration
with the Commission for official use.
A gift or decoration may be retained for official use if the Commission
determines that it can be properly displayed in an area accessible to
employees and members of the public. Within 30 days after termination of
the official use of a gift, the Executive Director shall forward the
gift to the Administrator of General Services in accordance with
paragraph (g) of this section.
(f) Whenever possible, gifts and decorations that have been
deposited with the Executive Director for disposal shall be returned to
the donor. The Executive Director, in coordination with the Office of
the General Counsel, shall examine the circumstances surrounding the
donation, assessing whether any adverse effect on the foreign relations
of the United States might result from the return of the gift or
decoration to the donor. The appropriate Department of State officials
shall be consulted if a question of adverse effect on United States
foreign relations arises.
(g) Gifts and decorations that have not been returned to the donor,
retained for official use, or for which official use has terminated,
shall be forwarded by the Executive Director to the Administrator of
General Services for transfer, donation, or other disposal in accordance
with the provisions of the Federal Property and Administrative Services
Act of 1949, as amended, and 5 U.S.C. 7342.
(h) In accordance with 5 U.S.C. 7342(h), the U.S. Attorney General
may bring a civil action in any United States district court against any
Commission member or employee who knowingly solicits or accepts a gift
from a foreign government not consented to by the Congress of the United
States in 5 U.S.C. 7342, or who fails to deposit or report such gift as
required by 5 U.S.C. 7342. The court may assess a penalty against such
Commission member or employee in any amount not exceeding the retail
value of the gift improperly solicited or received plus $5,000.
(i) A violation of the requirements set forth in this section by a
Commission employee may be cause for appropriate disciplinary action
which may be in addition to any penalty prescribed by law.
(j)(1) The burden of proving minimal value shall be on the
recipient. In the event of a dispute over the value of a
[[Page 266]]
gift, the Executive Director shall arrange for an outside appraiser to
determine whether the gift is of more or less than minimal value.
(2) When requested by the Administrator of Government Services, the
Executive Director shall arrange for an appraisal of a gift or
decoration.
(k) No appropriated funds of the Commission may be used to buy any
tangible gift of more than minimal value for any foreign individual,
unless the gift has been approved by Congress.
[47 FR 24115, June 3, 1982. Redesignated at 58 FR 52658, Oct. 12, 1993;
63 FR 32733, June 16, 1998]
Sec. 140.735-5 Disclosure of information.
A Commission employee or former employee shall not divulge, or cause
or allow to be divulged, confidential or non-public commercial, economic
or official information to any unauthorized person, or release such
information in advance of authorization for its release. \9\ Except as
directed by the Commission or its General Counsel as provided in these
regulations, no Commission employee or former employee is authorized to
accept service of any subpoena for documentary information contained in
or relating to the files of the Commission. Any employee or former
employee who is served with a subpoena requiring testimony regarding
non-public information or documents shall, unless the Commission
authorizes the disclosure of such information, respectfully decline to
disclose the information or produce the documents called for, basing his
refusal on these regulations. \10\ Any employee or former employee who
is served with a subpoena calling for information regarding the
Commission's business shall promptly advise the General Counsel of the
service of such subpoena, the nature of the information or documents
sought, and any circumstances which may bear upon the desirability of
making such information or document available in the public interest.
\11\ In any proceeding in which the Commission is not a party, no
employee of the Commission shall testify concerning matters related to
the business of the Commission unless authorized to do so by the
Commission.
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\9\ Attention is directed to section 9(d) of the Commodity Exchange
Act, which provides that it shall be a felony punishable by a fine of
not more than $500,000 or imprisonment for not more than five years, or
both, together with the costs of prosecution--(1) for any Commissioner
of the Commission or any employee or agent thereof who, by virtue of his
employment or position, acquires information which may affect or tend to
affect the price of any commodity future or commodity and which
information has not been promptly made public, to impart such
information with intent to assist another person, directly or
indirectly, to participate in any transaction in commodity futures, any
transaction in an actual commodity, or in any transaction of the
character of or which is commonly known to the trade as an option,
privilege, indemnity, bid, offer, put, call, advance guaranty or decline
guaranty, or in any transaction for the delivery of any commodity under
a standardized contract commonly known to the trade as a margin account,
margin contract, leverage account or leverage contract, or under any
contract or other arrangement that the Commission determines to serve
the same function or is marketed in the same manner as such standardized
contract, and (2) for any person to acquire such information from any
Commissioner of the Commission or any employee or agent thereof and to
use such information in any of the foregoing transactions.
\10\ No employee shall disclose such information unless directed to
do so by the Commission.
\11\ The prohibitions regarding confidential or nonpublic
information stated above are intended to cover the matters addressed in
sections 4(c), 8, and 9(d) of the Commodity Exchange Act as well as
nonpublic information under the Freedom of Information Act, 5 U.S.C.
552, the rules of the Commission thereunder, 17 CFR part 145, the
Privacy Act, 5 U.S.C. 552a, the rules of the Commission thereunder, 17
CFR part 146, and cases where, apart from specific prohibitions in any
statute or rule, the disclosure or use of such information would be
unethical.
[58 FR 52658, Oct. 12, 1993]
Sec. 140.735-6 Practice by former members and employees of the
Commission.
(a) Personal and substantial participation or nonpublic knowledge of
a particular matter. No person who has been a member or employee of the
Commission shall ever knowingly make, with the intent to influence, any
communication to or appearance before the
[[Page 267]]
Commission in connection with any particular matter involving a specific
party or parties \12\ in which such person, or one participating with
him or her in the particular matter, participated personally and
substantially, or gained nonpublic knowledge of facts thereof, while
with the Commission. \13\
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\12\ The phrase ``particular matter involving a specific party or
parties'' does not apply to general rulemaking, general policy and
standards formulation or other similar matters. See Sec. 2637.201(c)(1)
of the regulations of the Office of Government Ethics, 5 CFR
2637.201(c)(1); cf., memorandum of the Attorney General dealing with the
conflict-of-interest provisions prior to amendment by the Ethics in
Government Act (reproduced following 18 U.S.C. 201).
\13\ Attention is directed to 18 U.S.C. 207(a)(1), as amended, which
generally prohibits former Federal officers and employees permanently
from knowingly making, with the intent to influence, any communication
to or appearance before any Federal (or District of Columbia)
department, agency or court, or court martial, or any officer or
employee thereof, in connection with any particular matter involving a
specific party or parties in which the United States (or the District of
Columbia) is a party or has a direct and substantial interest and in
which the former officer or employee participated personally and
substantially while with the government.
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(b) Particular matter under an individual's official responsibility.
No person who has been a member or employee of the Commission shall,
within two years after that employment has ceased, knowingly make, with
the intent to influence, any communication to or appearance before the
Commission in connection with a particular matter involving a specific
party or parties which was actually pending under his official
responsibility as a member or employee of the Commission at any time
within one year prior to the termination of government service. \14\
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\14\ Attention is directed to 18 U.S.C. 207(a)(2), as amended.
Section 207(a)(2) generally prohibits former Federal officers and
employees, within two years after their Federal employment has ceased,
from knowingly making, with the intent to influence, any communication
to or appearance before any Federal (or District of Columbia)
department, agency or court, or court martial, or any officer or
employee thereof, in connection with any particular matter involving a
specific party or parties in which the United States (or the District of
Columbia) is a party or has a direct and substantial interest and which
was actually pending under the official responsibility of the former
officer or employee within one year prior to the termination of
government service.
As used in paragraph (b) of this section, the term ``official
responsibility'' has the meaning assigned to it in 18 U.S.C. 202(b),
namely, the ``direct administrative or operating authority, whether
intermediate or final, and either exercisable alone or with others, and
either personally or through subordinates, to approve, disapprove, or
otherwise direct Government action.''
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(c) Restrictions on former members and senior employees. A former
member or employee of the Commission who occupied a ``senior'' position
specified in 18 U.S.C. 207(c)(2), as amended, shall not within one year
after such ``senior'' employment has ceased, knowingly make, with the
intent to influence, any communication to or appearance before the
Commission on behalf of any other person in connection with any matter
in which such person seeks official action by the Commission. \15\
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\15\ Attention is directed to 18 U.S.C. 207(c), as amended, which
places restrictions on the representational activities of certain senior
officers and employees after their departure from a senior position.
Section 207(c) generally makes it unlawful for one year after service in
a ``senior'' position terminates for a former ``senior'' Federal
employee to knowingly make, with the intent to influence, any
communication to or appearance before an employee of a department or
agency in which he served in any capacity during the one year period
prior to termination from ``senior'' service, if that communication or
appearance is on behalf of any other person (except the United States),
in connection with any matter concerning which he seeks official action
by that employee.
Note that the one year period is measured from the date when the
employee ceases to be a senior employee, not from the termination of
Government service, unless the two occur simultaneously. This provision
prohibits communications to or appearances before the Government and
does not prohibit ``behind-the-scenes'' assistance. The restriction does
not require that the former employee have ever been in any way involved
in the matter that is the subject of the communication or appearance.
The restriction applies with respect to any matter, whether or not
involving a specific party.
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(d) Exceptions. The prohibitions contained in paragraphs (a), (b),
and (c) of
[[Page 268]]
this section do not apply to communications solely for the purpose of
furnishing scientific or technological information if approved by the
Commission or generally to giving testimony under oath or making a
statement which is subject to penalty or perjury. Further, the
prohibition contained in paragraph (c) of this section does not apply to
an uncompensated statement in a particular area within the special
knowledge of the former Commission member or employee. \16\
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\16\ Attention is directed to 18 U.S.C. 207(j), as amended (listing
other exceptions). Self-representation is not prohibited under section
207.
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(e) Reporting requirement. Any former member or employee of the
Commission who, within two years after ceasing to be such, is employed
or retained as the representative of any person (except the United
States) in connection with a matter in which it is contemplated that he
will appear before or communicate with the Commission shall, within ten
days of such retainer or employment, or of the time when appearance
before or communication with the Commission is first contemplated, file
with the General Counsel of the Commission a statement as to the nature
thereof together with any desired explanation as to why it is deemed
consistent with this section. Employment of a recurrent character may be
covered by a single comprehensive statement. Each such statement should
include an appropriate caption indicating that it is filed pursuant to
this section. The reporting requirement of this paragraph does not apply
to communications incidental to court appearances in litigation
involving the Commission.
(f) Definitions. As used in this section, the phrase ``appearance
before the Commission'' means any formal or informal appearance on
behalf of any person (except the United States) before the Commission,
or any member or employee thereof with an intent to influence. As used
in this section, the phrase ``communication with the Commission'' means
any oral or written communication made to the Commission, or any member
or employee thereof, on behalf of any person (except the United States)
with an intent to influence.
(g) Advisory ruling. Persons in doubt as to the applicability of
this section may apply for an advisory ruling by addressing a letter
requesting such a ruling to the General Counsel.
(h) Procedures for administrative enforcement of statutory
restrictions on post-government employment conflicts of interest \17\--
(1) Scope. The provisions of this paragraph prescribe procedures for
administrative enforcement of the restrictions which 18 U.S.C. 207 (a),
(b), and (c), as amended, place on appearances before or communications
with Federal (and District of Columbia) departments, agencies and
courts, and other enumerated entities, as well as the officers and
employees thereof, by former Commission members and employees.
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\17\ This section does not apply to employees who leave service
after December 31, 1990.
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(2) Investigations. The General Counsel of the Commission, or his or
her designee, shall conduct such investigations as he or she deems
appropriate to determine whether any former Commission member or
employee have violated 18 U.S.C. 207 (a), (b) or (c), as amended. The
General Counsel shall report the results of his or her investigations to
the Commission and shall recommend to the Commission such action as he
or she deems appropriate.
(3) Hearings. Hearings required to be held under the provisions of
this section shall be held before an Administrative Law Judge, utilizing
the procedures prescribed by the Commission's rules of practice for
adjudicatory proceedings (17 CFR part 10), except to the extent that
those rules are inconsistent with the provisions of this section. Any
proceeding brought under the provisions of this section shall be
prosecuted by the General Counsel or his or her designee.
(4) Sanctions. If the Commission finds, after notice and opportunity
for a hearing, that a former Commission member or employee has violated
18 U.S.C. 207 (a), (b) or (c), as amended, the Commission may prohibit
that person from making, on behalf of any other person (except the
United States), any formal or informal appearance before, or with
[[Page 269]]
the intent to influence any oral or written communication to, the
Commission on a pending matter of business for a period not to exceed
five years, or may take other appropriate disciplinary action.
[58 FR 52658, Oct. 12, 1993; 58 FR 58593, Nov. 2, 1993]
Sec. 140.735-7 Statutory violations applicable to conduct of
Commission members and employees.
A violation of section 2(a)(7), 8 or 9 (c) or (d) of the Commodity
Exchange Act, as amended, shall be deemed to be a violation of this
subpart as well.
[58 FR 52660, Oct. 12, 1993]
Sec. 140.735-8 Interpretative and advisory service.
(a) Counselor for the Commission. The General Counsel, or his or her
designee, will serve as Counselor for the Commission and as the
Commission's representative to the Office of Government Ethics, on
matters covered by this subpart. The General Counsel will also serve as
the Commission's designated agency ethics official to review the
financial reports filed by high-level Commission officials under title
II of the Ethics in Government Act, as well as otherwise to coordinate
and manage the Commission's ethics program.
(b) Duties of the Counselor. The Counselor shall:
(1) Coordinate the agency's counseling services and assure that
counseling and interpretations on questions of conflict of interests and
other matters covered by the regulations in this subpart are available
as needed to Regional Deputy Counselors, who shall be appointed by the
General Counsel, in coordination with the Chairman of the Commission,
for each Regional Office of the Commission;
(2) Render authoritative advice and guidance on matters covered by
the regulations in this subpart which are presented to him or her by
employees in the Washington, DC headquarters office; and
(3) Receive information on, and resolve or forward to the Commission
for consideration, any conflict of interests or apparent conflict of
interests which appears in the annual financial disclosure (Standard
Form 278 or Standard Form 450), or is disclosed to the General Counsel
by a member or employee pursuant to Sec. 140.735-2a(d) of this part, or
otherwise is made known to the General Counsel.
(i) A conflict of interests or apparent conflict of interests is
considered resolved by the General Counsel when the affected member or
employee has executed an ethics agreement pursuant to 5 CFR 2634.801 et
seq. to undertake specific actions in order to resolve the actual or
apparent conflict.
(ii) If, after advice and guidance from the General Counsel, a
member or employee does not execute an ethics agreement, the conflict of
interests is considered unresolved and must be referred to the
Commission for resolution or further action consistent with 18 U.S.C.
208 and 28 U.S.C. 535.
(iii) Where an unresolved conflict of interests or apparent conflict
of interests is to be forwarded to the Commission by the General
Counsel, the General Counsel will promptly notify the affected member or
employee in writing of his or her intent to forward the matter to the
Commission. Any member or employee so affected will be afforded an
opportunity to be heard by the Commission through written submission.
(c) Regional Deputy Counselors. Regional Deputy Counselors shall:
(1) Give advice and guidance as requested to the employees assigned
to their respective Regional Offices; and
(2) Receive information on and refer to the Director of Human
Resources, any conflict of interests or appearance of conflict of
interests in Statements of Employment and Financial Interests submitted
by employees to whom they are required to give advice and guidance.
(d) Confidentiality of communications. Communications between the
Counselor and Regional Deputy Counselors and an employee shall be
confidential, except as deemed necessary by the Commission or the
Counselor to carry out the purposes of this subpart and of the laws of
the United States. \18\
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\18\ No attorney-client privilege, however, attaches to such
communications since the Counselors are counsel to the Commission, not
to the employee. Thus, any evidence of criminal law violations divulged
by an employee to the Counselor must be reported by the latter to the
Commission, which may refer the matter to the Criminal Division of the
Department of Justice and the United States Attorney in whose venue the
violations lie.
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[[Page 270]]
(e) Furnishing of conduct regulations. The Director of Human
Resources shall furnish a copy of this Conduct Regulation to each
member, employee, and special government employee immediately upon his
or her entrance on duty and shall thereafter, annually, and at such
other times as circumstances warrant, bring to the attention of each
member and employee this Conduct Regulation and all revisions thereof.
(f) Availability of counseling services. The Director of Human
Resources shall notify each member, employee, and special government
employee of the availability of counseling services and of how and where
these services are available at the time of entrance on duty and
periodically thereafter.
[58 FR 52660, Oct. 12, 1993, as amended at 61 FR 21955, May 13, 1996; 62
FR 13302, Mar. 20, 1997; 67 FR 5941, Feb. 8, 2002]
PART 141_SALARY OFFSET--Table of Contents
Sec.
141.1 Purpose and scope.
141.2 Definitions.
141.3 Applicability.
141.4 Notice requirements.
141.5 Hearing.
141.6 Written decision.
141.7 Coordinating offset with another Federal agency.
141.8 Procedures for salary offset.
141.9 Refunds.
141.10 Statute of limitations.
141.11 Non-waiver of rights.
141.12 Interest, penalties, and administrative costs.
Authority: 5 U.S.C. 5514, E.O. 11609 (redesignated E.O. 12197), 5
CFR part 550, subpart K, and 7 U.S.C. 4a(j), unless otherwise noted.
Source: 55 FR 5207, Feb. 14, 1990, unless otherwise noted.
Sec. 141.1 Purpose and scope.
(a) This regulation provides procedures for the collection by
administrative offset of a federal employee's salary without his/her
consent to satisfy certain debts owed to the federal government. These
regulations apply to employees of other federal agencies and current
employees of the Commission who owe debts to the Commission and to
current employees of the Commission who owe debts to other federal
agencies. This regulation does not apply when the employee consents to
recovery from his/her current pay account.
(b) This regulation does not apply to debts or claims arising under:
(1) The Internal Revenue Code of 1954, as amended, 26 U.S.C. 1 et
seq.;
(2) The Social Security Act, 42 U.S.C. 301 et seq.;
(3) The tariff laws of the United States; or
(4) Any case where a collection of a debt by salary offset is
explicitly provided for or prohibited by another statute.
(c) This regulation does not apply to any adjustment to pay arising
out of an employee's selection of coverage or a change in coverage under
a federal benefits program requiring periodic deductions from pay if the
amount to be recovered was accumulated over four pay periods or less.
(d) This regulation does not preclude the compromise, suspension, or
termination of collection action where appropriate under the standards
implementing the Federal Claims Collection Act, 31 U.S.C. 3711 et seq.,
4 CFR parts 101 through 105, 45 CFR part 1177.
(e) This regulation does not preclude an employee from requesting
waiver of an overpayment under 5 U.S.C. 5584, 10 U.S.C. 2774 or 32
U.S.C. 716 or in any way questioning the amount or validity of the debt
by submitting a subsequent claim to the General Accounting Office in
accordance with General Accounting Office procedures. This regulation
does not preclude an employee from requesting a waiver pursuant to other
statutory provisions applicable to the particular debt being collected.
Neither the requesting of a waiver nor the filing of a claim with the
General Accounting Office will affect the amount or validity of the debt
being collected until a waiver has been granted or the debt has been
determined to be for an incorrect amount or invalid.
[[Page 271]]
(f) Matters not addressed in these regulations should be reviewed in
accordance with the Federal Claims Collection Standards at 4 CFR 101.1
et seq.
Sec. 141.2 Definitions.
For the purposes of this part the following definitions will apply:
Agency means an executive agency as defined at 5 U.S.C. 105
including the U.S. Postal Service, the U.S. Postal Commission, a
military department as defined at 5 U.S.C. 102, an agency or court in
the judicial branch, an agency of the legislative branch including the
U.S. Senate and House of Representatives and other independent
establishments that are entities of the Federal government.
Creditor agency means the agency to which the debt is owed.
Debt means an amount owed to the United States from sources which
include loans insured or guaranteed by the United States and all other
amounts due the United States from fees, leases, rents, royalties,
services, sales of real or personal property, overpayments, penalties,
damages, interests, fines, forfeitures (except those arising under the
Uniform Code of Military Justice), and all other similar sources.
Disposable pay means the amount that remains from an employee's
federal pay after required deductions for social security, federal,
state or local income tax, health insurance premiums, retirement
contributions, life insurance premiums, federal employment taxes, and
any other deductions that are required to be withheld by law.
Hearing official means an individual responsible for conducting any
hearing with respect to the existence or amount of a debt claimed, and
who renders a decision on the basis of such hearing. A hearing official
shall be an impartial member of the Office of the Executive Director not
under the supervision or control of the head of the Commission.
Paying agency means the agency that employs the individual who owes
the debt and authorizes the payment of his/her current pay.
Salary offset means an administrative offset to collect a debt
pursuant to 5 U.S.C. 5514 by deduction(s) at one or more officially
established pay intervals from the current pay account of an employee
without his/her consent.
Sec. 141.3 Applicability.
These regulations are to be followed when:
(a) The Commission is owed a debt by an individual currently
employed by another federal agency;
(b) The Commission is owed a debt by an individual who is a current
employee of the Commission;
(c) The Commission employs an individual who owes a debt to another
federal agency.
Sec. 141.4 Notice requirements.
(a) Deductions shall not be made unless the employee is provided
with written notice of the debt at least 30 days before salary offset
commences.
(b) The written notice shall contain:
(1) A statement that the debt is owed and an explanation of its
nature, and amount;
(2) The agency's intention to collect the debt by deducting from the
employee's current disposable pay account;
(3) The amount, frequency, proposed beginning date, and duration of
the intended deduction(s);
(4) An explanation of interest, penalties, and administrative
charges, including a statement that such charges will be assessed unless
excused in accordance with the Federal Claims Collections Standards at 4
CFR 101.1 et seq.;
(5) The employee's right to inspect, request, and receive a copy of
government records relating to the debt;
(6) The opportunity to establish a written schedule for the
voluntary repayment of the debt;
(7) The right to a hearing conducted by an impartial hearing
official;
(8) The methods and time period for petitioning for hearings;
(9) A statement that the timely filing of a petition for a hearing
will stay the commencement of collection proceedings;
(10) A statement that a final decision on the hearing will be issued
not later than 60 days after the filing of the petition requesting the
hearing unless the
[[Page 272]]
employee requests and the hearing official grants a delay in the
proceedings;
(11) A statement that knowingly false or frivolous statements,
representations, or evidence may subject the employee to:
(i) Disciplinary procedures appropriate under chapter 75 of 5
U.S.C., 5 CFR part 752, or any other applicable statutes or regulations;
(ii) Penalties under the False Claims Act, 31 U.S.C. 3729-3731, or
any other applicable statutory authority; or
(iii) Criminal penalties under 18 U.S.C. 286, 287, 1001, and 1002 or
any other applicable statutory authority.
(12) A statement of other rights and remedies available to the
employee under statutes or regulations governing the program for which
the collection is being made; and
(13) Unless there are contractual or statutory provisions to the
contrary, a statement that amounts paid on or deducted for the debt
which are later waived or found not owed to the United States will be
promptly refunded to the employee.
Sec. 141.5 Hearing.
(a) Request for hearing. (1) An employee must file a petition for a
hearing in accordance with the instructions outlined in the Commission's
notice to offset.
(2) A hearing may be requested by filing a written petition
addressed to the Executive Director stating why the employee disputes
the existence or amount of the debt. The petition for a hearing must be
received by the Executive Director no later than fifteen (15) calendar
days after the date of the notice to offset unless the employee can show
good cause for failing to meet the deadline date.
(b) Hearing procedures. (1) The hearing will be presided over by an
impartial hearing official.
(2) The hearing shall conform to procedures contained in the Federal
Claims Collection Standards 4 CFR 102.3(c). The burden shall be on the
employee to demonstrate that the existence or the amount of the debt is
in error.
Sec. 141.6 Written decision.
(a) The hearing official shall issue a written opinion no later than
60 days after the hearing.
(b) The written opinion will include a statement of the facts
presented to demonstrate the nature and origin of the alleged debt; the
hearing official's analysis, findings and conclusions; the amount and
validity of the debt, and the repayment schedule.
Sec. 141.7 Coordinating offset with another Federal agency.
(a) The Commission as the creditor agency. When the Commission
determines that an employee of another federal agency owes a delinquent
debt to the Commission, the Commission shall as appropriate:
(1) Arrange for a hearing upon the proper petitioning by the
employee;
(2) Certify to the paying agency in writing that the employee owes
the debt, the amount and basis of the debt, the date on which payment is
due, the date the Government's right to collect the debt accrued, and
that Commission regulations for salary offset have been approved by the
Office of Personnel Management;
(3) If collection must be made in installments, the Commission must
advise the paying agency of the amount or percentage of disposable pay
to be collected in each installment;
(4) Advise the paying agency of the actions taken under 5 U.S.C.
5514(b) and provide the dates on which action was taken unless the
employee has consented to salary offset in writing or signed a statement
acknowledging that the Commission has complied with the procedures
required by law. The written consent or acknowledgment must be sent to
the paying agency;
(5) If the employee is in the process of separating, the Commission
must submit its debt claim to the paying agency as provided in this
part. The paying agency must certify any amounts already collected,
notify the employee, and send a copy of the certification and notice of
the employee's separation to the Commission. If the paying agency is
aware that the employee is entitled to payments from the Civil Service
Retirement and Disability Fund or similar payments, it
[[Page 273]]
must certify to the agency responsible for making such payments the
amount of the debt and that the provisions of 5 CFR 550.1108 have been
followed; and
(6) If the employee has already separated and all payments due from
the paying agency have been paid, the Commission may request, unless
otherwise prohibited, that money payable to the employee from the Civil
Service Retirement and Disability Fund or other similar funds be
collected by administrative offset.
(b) The Commission as the paying agency. (1) Upon receipt of a
properly certified debt claim from another agency, deductions will be
scheduled to begin at the next established pay interval. The employee
must receive written notice from the Commission that the Commission has
received a certified debt claim from the creditor agency, the amount of
the debt, the date salary offset will begin, and the amount of the
deduction(s). The Commission shall not review the merits of the creditor
agency's determination of the validity or the amount of the certified
claim.
(2) If the employee transfers to another agency after the creditor
agency has submitted its debt claim to the Commission and before the
debt is collected completely, the Commission must certify the total
amount collected. One copy of the certification must be furnished to the
employee. A copy must be furnished the creditor agency with notice of
the employee's transfer.
Sec. 141.8 Procedures for salary offset.
(a) Deductions to liquidate an employee's debt will be by the method
and in the amount stated in the Commission's notice of intention to
offset as provided in Sec. 141.4. Debts will be collected in one lump
sum where possible. If the employee is financially unable to pay in one
lump sum, collection must be made in installments.
(b) Debts will be collected by deduction at officially established
pay intervals from an employee's current pay account unless alternative
arrangements for repayment are made.
(c) Installment deductions will be made over a period not greater
than the anticipated period of employment. The size of installment
deductions must bear a reasonable relationship to the size of the debt
and the employee's ability to pay. The deduction for the pay intervals
for any period must not exceed 15% of disposable pay unless the employee
has agreed in writing to a deduction of a greater amount.
(d) Unliquidated debts may be offset against any financial payment
due to a separated employee including but not limited to final salary or
leave payments in accordance with 31 U.S.C. 3716.
Sec. 141.9 Refunds.
(a) The Commission will refund promptly any amounts deducted to
satisfy debts owed to the Commission when the debt is waived, found not
owed to the Commission or when directed by an administrative or judicial
order.
(b) The creditor agency will promptly return any amounts deducted by
the Commission to satisfy debts owed to the creditor agency when the
debt is waived, found not owed, or when directed by an administrative or
judicial order.
(c) Unless required by law, refunds under this subsection shall not
bear interest.
Sec. 141.10 Statute of limitations.
If a debt has been outstanding for more than 10 years after the
agency's right to collect the debt first accrued, the agency may not
collect by salary offset unless facts material to the Government's right
to collect were not known and could not reasonably have been known by
the official or officials who were charged with the responsibility for
discovery and collection of such debts.
Sec. 141.11 Non-waiver of rights.
An employee's involuntary payment of all or any part of a debt
collected under these regulations will not be construed as a waiver of
any rights that employee may have under 5 U.S.C. 5514 or any other
provision of contract or law unless there are statutes or contract(s) to
the contrary.
[[Page 274]]
Sec. 141.12 Interest, penalties, and administrative costs.
Charges may be assessed for interest, penalties, and administrative
costs in accordance with the Federal Claims Collection Standards, 4 CFR
102.13.