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2012-19664

  • Federal Register, Volume 77 Issue 156 (Monday, August 13, 2012)[Federal Register Volume 77, Number 156 (Monday, August 13, 2012)]

    [Rules and Regulations]

    [Pages 48060-48061]

    From the Federal Register Online via the Government Printing Office [www.gpo.gov]

    [FR Doc No: 2012-19664]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 43

    RIN 3038-AD08

    Real-Time Public Reporting of Swap Transaction Data; Correction

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Final rule; correction.

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    [[Page 48061]]

    SUMMARY: The Commodity Futures Trading Commission (``CFTC'' or

    ``Commission'') published the Real-Time Public Reporting of Swap

    Transaction Data (``Real-Time Public Reporting'') rule and an

    accompanying preamble in the Federal Register on Monday, January 9,

    2012 (77 FR 1182). This document makes an editorial correction to

    language of the preamble that conflicted with the rule text of the

    final rule.

    DATES: Effective Date: These corrections are effective August 13, 2012.

    FOR FURTHER INFORMATION CONTACT: Nancy Markowitz, Deputy Director, 202-

    418-5453, nmarkowitz@cftc.gov, Laurie Gussow, Attorney-Advisor, 202-

    418-7623, lgussow@cftc.gov, Division of Market Oversight, Commodity

    Futures Trading Commission, Three Lafayette Center, 1155 21st Street

    NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    The Commission published the final rule entitled Real-Time Public

    Reporting of Swap Transaction Data (``Final Rule'') in the Federal

    Register on January 9, 2012, (77 FR 1182), adopting rules to implement

    a framework for the real-time public reporting of swap transactions and

    pricing data for all swap transactions. The final rule, which became

    effective on March 9, 2012, contains a sentence in a footnote that

    created an inconsistency as to the type of swap transactions that may

    be considered ``publicly reportable swap transactions'' under the Final

    Rule. The sentence is corrected in this release to eliminate the

    inconsistent language in the footnote and, thus, make clear that

    certain, and not all, covered transactions as described in Sections 23A

    and 23B of the Federal Reserve Act may be considered ``publicly-

    reportable swap transactions.''

    II. Summary of the Correction to the Real-Time Public Reporting Rule

    The Commission received inquiries whether it considered all

    ``covered transactions'' between affiliates, as defined in Sections 23A

    and 23B of the Federal Reserve Act \1\ to be ``publicly reportable swap

    transactions.'' As published, the last sentence of footnote 44 of the

    Final Rule reads: ``The Commission considers any covered transaction

    between affiliates as described in Sections 23A and 23B of the Federal

    Reserve Act to be publicly reportable swap transactions.'' This

    sentence unintentionally conflicts with the text of Sec. 43.2 defining

    ``publicly reportable swap transaction,'' and with the preamble of the

    Final Rule.

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    \1\ Section 608 of the Dodd-Frank Act adds to paragraph 7 of the

    definition of ``covered transaction'' in Section 23A of the Federal

    Reserve Act (12 U.S.C. 371(c)): ``A derivative transaction, as

    defined in paragraph (3) of section 5200(b) of the Revised Statutes

    of the United States (12 U.S.C. 84(b)), with an affiliate, to the

    extent that the transaction causes a member bank or a subsidiary to

    have credit exposure to the affiliate.'' Hence, all derivatives

    transactions will be subjected to Section 23A of the Federal Reserve

    Act to the extent that they cause the bank to have credit exposure

    to the affiliate. Section 23B of the Federal Reserve Act contains an

    arm's-length requirement stating that a member bank and its

    subsidiaries may engage in any covered transaction with an affiliate

    only ``on terms and under circumstances, including credit standards,

    that are substantially the same, or at least as favorable to such

    bank or its subsidiary, as those prevailing at the time for

    comparable transactions with or involving other nonaffiliated

    companies, or in the absence of comparable transactions, on terms

    and under circumstances, including credit standards, that in good

    faith would be offered to, or would apply to, nonaffiliated

    companies.''

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    Section 43.2 defines the term ``publicly reportable swap

    transaction,'' and also provides an example of certain swap

    transactions that do not fall within the definition. Under Sec. 43.2,

    in paragraph (2)(i) of the definition of ``publicly reportable swap

    transaction,'' certain inter-affiliate trades may not be reportable as

    the rule excludes from the definition of reportable swap transactions:

    ``Internal swaps between one hundred percent owned subsidiaries of the

    same parent entity.'' Paragraph (3) of the definition states that the

    examples of transactions set forth paragraph (2) of the definition that

    do not fall within the publicly reportable swap transaction definition

    ``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.'' Indeed, there may be covered transactions as defined in

    Sections 23A and 23B of the Federal Reserve Act that are not at ``arm's

    length'' transactions under Part 43, but which nevertheless result in a

    corresponding change in market risk between the two parties. Under

    Sec. 43.2, those types of covered transactions would not be ``publicly

    reportable swap transactions.''

    Further, correction of the footnote 44 sentence will remove any

    conflict with the preamble language. The preamble language immediately

    preceding the footnote states: ``As adopted, the definition of a

    publicly reportable swap transaction also provides, by way of example,

    that internal transactions to move risk between wholly-owned

    subsidiaries of the same parent, without having credit exposure to the

    other party would not presently require public dissemination because

    such swaps are not arm's-length transactions.'' Again, there may be

    covered transactions as defined in Sections 23A and 23B of the Federal

    Reserve Act that may be internal transactions to move risk between

    wholly-owned subsidiaries of the same parent, without having credit

    exposure to the other party. Those transactions thus do not require

    public dissemination because they are not arm's-length transactions.

    Accordingly, this document revises the language of the last

    sentence of footnote 44 on page 1187 of the Federal Register to read as

    follows: ``Certain covered transactions between affiliates as described

    in Sections 23A and 23B of the Federal Reserve Act may be considered to

    be publicly reportable swap transactions.''

    For compliance purposes, this correction of the footnote sentence

    will result in a more accurate reflection of the regulatory language

    that the determination of whether a covered transaction under Section

    23A or 23B of the Federal Reserve Act is a publicly reportable swap

    transaction should be made by the parties to the swap, rather than the

    Commission. In turn, the Commission's review of such determination will

    be based upon the standards as set forth in Sec. 43.2.

    III. Correction

    In FR Doc. 2011-33173 appearing on page 1182 in the Federal

    Register on Monday, January 9, 2012, the following correction is made:

    On page 1187, revise the last sentence of footnote 44 to read,

    ``Certain covered transactions between affiliates as described in

    Sections 23A and 23B of the Federal Reserve Act may be considered to be

    publicly reportable swap transactions.''

    Dated: August 7, 2012.

    Sauntia S. Warfield,

    Assistant Secretary of the Commission.

    [FR Doc. 2012-19664 Filed 8-10-12; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: August 13, 2012