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2010-20567

  • FR Doc 2010-20567[Federal Register: August 20, 2010 (Volume 75, Number 161)]

    [Proposed Rules]

    [Page 51429-51433]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr20au10-17]

    [[Page 51429]]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 1

    SECURITIES AND EXCHANGE COMMISSION

    17 CFR Part 240

    [Release No. 34-62717; File No. S7-16-10]

    RIN 3235-AK65; 3038-AD06

    Definitions Contained in Title VII of Dodd-Frank Wall Street

    Reform and Consumer Protection Act

    AGENCY: Securities and Exchange Commission; Commodity Futures Trading

    Commission.

    ACTION: Advance notice of proposed rulemaking; request for comments.

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    SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act

    (the ``Dodd-Frank Act''), provides for the comprehensive regulation of

    swaps and security-based swaps. Title VII of the Dodd-Frank Act

    (``Title VII''), provides that the Securities and Exchange Commission

    (``SEC'') and the Commodity Futures Trading Commission (``CFTC'')

    (collectively, ``the Commissions''), in consultation with the Board of

    Governors of the Federal Reserve System, shall jointly further define

    certain key terms (specifically, ``swap'', ``security-based swap'',

    ``swap dealer'', ``security-based swap dealer'', ``major swap

    participant'', ``major security-based swap participant'', ``eligible

    contract participant'', and ``security-based swap agreement''), and

    shall jointly prescribe regulations regarding ``mixed swaps,'' as that

    term is used in Title VII of the Dodd-Frank Act. To assist the SEC and

    CFTC in further defining such terms, the Commissions are issuing this

    Notice and request for public comment.

    DATES: Comments must be in writing and received by September 20, 2010.

    ADDRESSES: Comments may be submitted by any of the following methods:

    SEC

    Electronic Comments

    Use the Commission's Internet comment form (http://

    www.sec.gov/rules/proposed.shtml);

    Send an e-mail to rule-comments@sec.gov. Please include

    File Number S7-12-10 on the subject line; or

    Use the Federal eRulemaking Portal (http://

    www.regulations.gov). Follow the instructions for submitting comments.

    Paper Comments

    Send paper comments in triplicate to Elizabeth M. Murphy,

    Secretary, Securities and Exchange Commission, 100 F Street, NE.,

    Washington, DC 20549-1090.

    All submissions should refer to File Number S7--16-10. This file number

    should be included on the subject line if e-mail is used. To help us

    process and review your comments more efficiently, please use only one

    method. The Commission will post all comments on the Commission's

    Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments

    are also available for Web site viewing and copying in the Commission's

    Public Reference Room, 100 F Street, NE., Washington, DC 20549, on

    official business days between the hours of 10 a.m. and 3 p.m. All

    comments received will be posted without change; we do not edit

    personal identifying information from submissions. You should submit

    only information that you wish to make available publicly.

    CFTC

    Comments may be submitted by any of the following methods:

    Mail: David A. Stawick, Secretary, Commodity Futures

    Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,

    Washington, DC 20581.

    Hand Delivery/Courier: Same as mail above.

    Fax: 202-418-5521.

    E-mail: Comments may be submitted via e-mail at

    dfadefinitions@cftc.gov.

    Agency Web Site: Comments may be submitted to http://

    www.cftc.gov. Follow the instructions for submitting comments on the

    Web site.

    Federal eRulemaking Portal: Comments also may be submitted

    at http://www.regulations.gov. Follow the instructions for submitting

    comments.

    ``Definitions'' must be in the subject field of responses submitted

    via e-mail, and clearly indicated on written submissions. All comments

    must be submitted in English, or if not, accompanied by an English

    translation. All comments provided in any electronic form or on paper

    will be published on the CFTC Web site, without review and without

    removal of personally identifying information. All comments are subject

    to the CFTC Privacy Policy.

    FOR FURTHER INFORMATION CONTACT: SEC: Matthew A. Daigler, Senior

    Special Counsel, at 202-551-5578, or Cristie L. March, Attorney

    Adviser, at 202-551-5574, Division of Trading and Markets, or Michael

    J. Reedich, Special Counsel, at 202-551-3279, Office of Chief Counsel,

    Division of Corporate Finance, Securities and Exchange Commission, 100

    F Street, NE., Washington, DC 20549-7010; CFTC: Terry S. Arbit, Deputy

    General Counsel, at 202-418-5357, tarbit@cftc.gov, Julian E. Hammar,

    Assistant General Counsel, at 202-418-5118, jhammar@cftc.gov, Mark

    Fajfar, Assistant General Counsel, at 202-418-6636, mfajfar@cftc.gov,

    or David Aron, Counsel, at 202-418-6621, daron@cftc.gov, Office of

    General Counsel, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581.

    SUPPLEMENTARY INFORMATION:

    I. Background

    The Dodd-Frank Act was enacted on July 21, 2010.\1\ Title VII of

    the Dodd-Frank Act provides for the comprehensive regulation of swaps

    and security-based swaps and includes definitions of key terms relating

    to such regulation.\2\ Section 712(d) of the Dodd-Frank Act provides

    that the SEC and CFTC, in consultation with the Board of Governors of

    the Federal Reserve System, shall jointly further define the terms

    ``swap'', ``security-based swap'', ``swap dealer'', ``security-based

    swap dealer'', ``major swap participant'', ``major security-based swap

    participant'', ``eligible contract participant'', and ``security-based

    swap agreement'' (collectively ``Key Definitions'').\3\ Section 712(d)

    further provides that such jointly prescribed rules and regulations

    shall be comparable to the maximum extent possible, taking into

    consideration differences in instruments and in the applicable

    statutory requirements.

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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,

    Public Law No. 111-203, 124 Stat. 1376 (2010).

    \2\ Under Section 701 of the Dodd-Frank Act, Title VII may be

    cited as the ``Wall Street Transparency and Accountability Act of

    2010.''

    \3\ These terms are defined in Sections 721 and 761 of the Dodd-

    Frank Act and, with respect to the term ``eligible contract

    participant'', in Section 1a(18) of the Commodity Exchange Act, 7

    U.S.C. 1a(18), as re-designated and amended by Section 721 of the

    Dodd-Frank Act.

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    Further, Section 721(c) requires the CFTC to adopt a rule to

    further define the terms ``swap'', ``swap dealer'', ``major swap

    participant'', and ``eligible contract participant'', and Section

    761(b) requires the SEC to adopt a rule to further define the terms

    ``security-based swap'', ``security-based swap dealer'', ``major

    security-based swap participant'' and ``eligible contract

    participant'', with regard to security-based swaps, for the purpose of

    including transactions and

    [[Page 51430]]

    entities that have been structured to evade Title VII of the Dodd-Frank

    Act. Finally, Section 712(a) of the Dodd-Frank Act provides that the

    SEC and CFTC, after consultation with the Board of Governors of the

    Federal Reserve System, shall jointly prescribe regulations regarding

    ``mixed swaps,'' \4\ as may be necessary to carry out the purposes of

    Title VII.

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    \4\ Sections 721 and 761 of the Dodd-Frank Act amend the

    Commodity Exchange Act, 7 U.S.C. 1 et seq., and the Securities

    Exchange Act of 1934, 15 U.S.C. 78a et seq., respectively, to define

    ``mixed swap''.

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    To assist the SEC and CFTC in further defining the Key Definitions

    specified above, and to prescribe regulations regarding ``mixed swaps''

    as may be necessary to carry out the purposes of Title VII, the

    Commissions are seeking comment from interested parties.

    II. Solicitation for Comments About the Key Definitions and the

    Regulation of ``Mixed Swaps''

    The Commissions invite comment with respect to all aspects of the

    Key Definitions, and also the regulation of ``mixed swaps'' as may be

    necessary to carry out the purposes of Title VII. Commenters are

    encouraged to address aspects of the Key Definitions such as the extent

    to which the definitions should be based on qualitative or quantitative

    factors and what those factors should be, any analogous areas of law,

    economics, or industry practice, and any factors specific to the

    commenter's experience. Commenters also are encouraged to express views

    on the regulation of ``mixed swaps'', as may be necessary to carry out

    the purposes of Title VII. Please comment generally and specifically,

    and please include empirical data and other information in support of

    such comments, where appropriate and available, regarding any of the

    Key Definitions described above and the regulation of ``mixed swaps''.

    When commenting, please also take into account the statutory

    definitions of these terms that have been enacted in the Dodd-Frank

    Act. These statutory definitions are reprinted herein as follows:

    Swap: Section 721(a)(21) of the Dodd-Frank Act:

    ``(47) Swap.--

    (A) In general.--Except as provided in subparagraph (B), the

    term `swap' means any agreement, contract, or transaction--

    (i) That is a put, call, cap, floor, collar, or similar option

    of any kind that is for the purchase or sale, or based on the value,

    of 1 or more interest or other rates, currencies, commodities,

    securities, instruments of indebtedness, indices, quantitative

    measures, or other financial or economic interests or property of

    any kind;

    (ii) That provides for any purchase, sale, payment, or delivery

    (other than a dividend on an equity security) that is dependent on

    the occurrence, nonoccurrence, or the extent of the occurrence of an

    event or contingency associated with a potential financial,

    economic, or commercial consequence;

    (iii) That provides on an executory basis for the exchange, on a

    fixed or contingent basis, of 1 or more payments based on the value

    or level of 1 or more interest or other rates, currencies,

    commodities, securities, instruments of indebtedness, indices,

    quantitative measures, or other financial or economic interests or

    property of any kind, or any interest therein or based on the value

    thereof, and that transfers, as between the parties to the

    transaction, in whole or in part, the financial risk associated with

    a future change in any such value or level without also conveying a

    current or future direct or indirect ownership interest in an asset

    (including any enterprise or investment pool) or liability that

    incorporates the financial risk so transferred, including any

    agreement, contract, or transaction commonly known as--

    (I) An interest rate swap;

    (II) A rate floor;

    (III) A rate cap;

    (IV) A rate collar;

    (V) A cross-currency rate swap;

    (VI) A basis swap;

    (VII) A currency swap;

    (VIII) A foreign exchange swap;

    (IX) A total return swap;

    (X) An equity index swap;

    (XI) An equity swap;

    (XII) A debt index swap;

    (XIII) A debt swap;

    (XIV) A credit spread;

    (XV) A credit default swap;

    (XVI) A credit swap;

    (XVII) A weather swap;

    (XVIII) An energy swap;

    (XIX) A metal swap;

    (XX) An agricultural swap;

    (XXI) An emissions swap; and

    (XXII) A commodity swap;

    (iv) That is an agreement, contract, or transaction that is, or

    in the future becomes, commonly known to the trade as a swap;

    (v) Including any security-based swap agreement which meets the

    definition of `swap agreement' as defined in section 206A of the

    Gramm-Leach-Bliley Act (15 U.S.C. 78c note) of which a material term

    is based on the price, yield, value, or volatility of any security

    or any group or index of securities, or any interest therein; or

    (vi) That is any combination or permutation of, or option on,

    any agreement, contract, or transaction described in any of clauses

    (i) through (v).

    (B) Exclusions.--The term `swap' does not include--

    (i) Any contract of sale of a commodity for future delivery (or

    option on such a contract), leverage contract authorized under

    section 19, security futures product, or agreement, contract, or

    transaction described in section 2(c)(2)(C)(i) or section

    2(c)(2)(D)(i);

    (ii) Any sale of a nonfinancial commodity or security for

    deferred shipment or delivery, so long as the transaction is

    intended to be physically settled;

    (iii) Any put, call, straddle, option, or privilege on any

    security, certificate of deposit, or group or index of securities,

    including any interest therein or based on the value thereof, that

    is subject to--

    (I) The Securities Act of 1933 (15 U.S.C. 77a et seq.); and

    (II) The Securities Exchange Act of 1934 (15 U.S.C. 78a et

    seq.);

    (iv) Any put, call, straddle, option, or privilege relating to a

    foreign currency entered into on a national securities exchange

    registered pursuant to section 6(a) of the Securities Exchange Act

    of 1934 (15 U.S.C. 78f(a));

    (v) Any agreement, contract, or transaction providing for the

    purchase or sale of 1 or more securities on a fixed basis that is

    subject to--

    (I) The Securities Act of 1933 (15 U.S.C. 77a et seq.); and

    (II) The Securities Exchange Act of 1934 (15 U.S.C. 78a et

    seq.);

    (vi) Any agreement, contract, or transaction providing for the

    purchase or sale of 1 or more securities on a contingent basis that

    is subject to the Securities Act of 1933 (15 U.S.C. 77a et seq.) and

    the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), unless

    the agreement, contract, or transaction predicates the purchase or

    sale on the occurrence of a bona fide contingency that might

    reasonably be expected to affect or be affected by the

    creditworthiness of a party other than a party to the agreement,

    contract, or transaction;

    (vii) Any note, bond, or evidence of indebtedness that is a

    security, as defined in section 2(a)(1) of the Securities Act of

    1933 (15 U.S.C. 77b(a)(1));

    (viii) Any agreement, contract, or transaction that is--

    (I) Based on a security; and

    (II) Entered into directly or through an underwriter (as defined

    in section 2(a)(11) of the Securities Act of 1933 (15 U.S.C.

    77b(a)(11)) by the issuer of such security for the purposes of

    raising capital, unless the agreement, contract, or transaction is

    entered into to manage a risk associated with capital raising;

    (ix) Any agreement, contract, or transaction a counterparty of

    which is a Federal Reserve bank, the Federal Government, or a

    Federal agency that is expressly backed by the full faith and credit

    of the United States; and

    (x) Any security-based swap, other than a security-based swap as

    described in subparagraph (D).

    (C) Rule of Construction regarding master agreements.--

    (i) In general.--Except as provided in clause (ii), the term

    `swap' includes a master agreement that provides for an agreement,

    contract, or transaction that is a swap under subparagraph (A),

    together with each supplement to any master agreement, without

    regard to whether the master agreement contains an agreement,

    contract, or transaction that is not a swap pursuant to subparagraph

    (A).

    (ii) Exception.--For purposes of clause (i), the master

    agreement shall be considered to be a swap only with respect to each

    agreement, contract, or transaction covered by the master agreement

    that is a swap pursuant to subparagraph (A).

    [[Page 51431]]

    (D) Mixed swap.--The term `security-based swap' includes any

    agreement, contract, or transaction that is as described in section

    3(a)(68)(A) of the Securities Exchange Act of 1934 (15 U.S.C.

    78c(a)(68)(A)) and also is based on the value of 1 or more interest

    or other rates, currencies, commodities, instruments of

    indebtedness, indices, quantitative measures, other financial or

    economic interest or property of any kind (other than a single

    security or a narrow-based security index), or the occurrence, non-

    occurrence, or the extent of the occurrence of an event or

    contingency associated with a potential financial, economic, or

    commercial consequence (other than an event described in

    subparagraph (A)(iii)).

    (E) Treatment of foreign exchange swaps and forwards.--

    (i) In general.--Foreign exchange swaps and foreign exchange

    forwards shall be considered swaps under this paragraph unless the

    Secretary makes a written determination under section 1b that either

    foreign exchange swaps or foreign exchange forwards or both--

    (I) Should be not be regulated as swaps under this Act; and

    (II) Are not structured to evade the Dodd-Frank Wall Street

    Reform and Consumer Protection Act in violation of any rule

    promulgated by the [Commodity Futures Trading] Commission pursuant

    to section 721(c) of that Act.

    (ii) Congressional notice; effectiveness.--The Secretary shall

    submit any written determination under clause (i) to the appropriate

    committees of Congress, including the Committee on Agriculture,

    Nutrition, and Forestry of the Senate and the Committee on

    Agriculture of the House of Representatives. Any such written

    determination by the Secretary shall not be effective until it is

    submitted to the appropriate committees of Congress.

    (iii) Reporting.--Notwithstanding a written determination by the

    Secretary under clause (i), all foreign exchange swaps and foreign

    exchange forwards shall be reported to either a swap data

    repository, or, if there is no swap data repository that would

    accept such swaps or forwards, to the [Commodity Futures Trading]

    Commission pursuant to section 4r within such time period as the

    [Commodity Futures Trading] Commission may by rule or regulation

    prescribe.

    (iv) Business standards.--Notwithstanding a written

    determination by the Secretary pursuant to clause (i), any party to

    a foreign exchange swap or forward that is a swap dealer or major

    swap participant shall conform to the business conduct standards

    contained in section 4s(h).

    (v) Secretary.--For purposes of this subparagraph, the term

    `Secretary' means the Secretary of the Treasury.

    (F) Exception for certain foreign exchange swaps and forwards.--

    (i) Registered entities.--Any foreign exchange swap and any

    foreign exchange forward that is listed and traded on or subject to

    the rules of a designated contract market or a swap execution

    facility, or that is cleared by a derivatives clearing organization,

    shall not be exempt from any provision of this Act or amendments

    made by the Wall Street Transparency and Accountability Act of 2010

    prohibiting fraud or manipulation.

    (ii) Retail transactions.--Nothing in subparagraph (E) shall

    affect, or be construed to affect, the applicability of this Act or

    the jurisdiction of the [Commodity Futures Trading] Commission with

    respect to agreements, contracts, or transactions in foreign

    currency pursuant to section 2(c)(2).''

    Security-Based Swap: Section 761(a)(6) of the Dodd-Frank Act:

    ``(68) Security-Based Swap.--

    (A) In general.--Except as provided in subparagraph (B), the

    term `security-based swap' means any agreement, contract, or

    transaction that--

    (i) Is a swap, as that term is defined under section 1a of the

    Commodity Exchange Act (without regard to paragraph (47)(B)(x) of

    such section); and

    (ii) Is based on--

    (I) An index that is a narrow-based security index, including

    any interest therein or on the value thereof;

    (II) A single security or loan, including any interest therein

    or on the value thereof; or

    (III) The occurrence, nonoccurrence, or extent of the occurrence

    of an event relating to a single issuer of a security or the issuers

    of securities in a narrow-based security index, provided that such

    event directly affects the financial statements, financial

    condition, or financial obligations of the issuer.

    (B) Rule of construction regarding master agreements.--The term

    `security-based swap' shall be construed to include a master

    agreement that provides for an agreement, contract, or transaction

    that is a security-based swap pursuant to subparagraph (A), together

    with all supplements to any such master agreement, without regard to

    whether the master agreement contains an agreement, contract, or

    transaction that is not a security-based swap pursuant to

    subparagraph (A), except that the master agreement shall be

    considered to be a security-based swap only with respect to each

    agreement, contract, or transaction under the master agreement that

    is a security-based swap pursuant to subparagraph (A).

    (C) Exclusions.--The term `security-based swap' does not include

    any agreement, contract, or transaction that meets the definition of

    a security-based swap only because such agreement, contract, or

    transaction references, is based upon, or settles through the

    transfer, delivery, or receipt of an exempted security under

    paragraph (12), as in effect on the date of enactment of the Futures

    Trading Act of 1982 (other than any municipal security as defined in

    paragraph (29) as in effect on the date of enactment of the Futures

    Trading Act of 1982), unless such agreement, contract, or

    transaction is of the character of, or is commonly known in the

    trade as, a put, call, or other option.

    (D) Mixed swap.--The term `security-based swap' includes any

    agreement, contract, or transaction that is as described in

    subparagraph (A) and also is based on the value of 1 or more

    interest or other rates, currencies, commodities, instruments of

    indebtedness, indices, quantitative measures, other financial or

    economic interest or property of any kind (other than a single

    security or a narrow-based security index), or the occurrence, non-

    occurrence, or the extent of the occurrence of an event or

    contingency associated with a potential financial, economic, or

    commercial consequence (other than an event described in

    subparagraph (A)(ii)(III)).

    (E) Rule of construction regarding use of the term index.--The

    term `index' means an index or group of securities, including any

    interest therein or based on the value thereof.''

    Swap Dealer: Section 721(a)(21) of the Dodd-Frank Act:

    ``(49) Swap dealer.--

    (A) In general.--The term `swap dealer' means any person who--

    (i) Holds itself out as a dealer in swaps;

    (ii) Makes a market in swaps;

    (iii) Regularly enters into swaps with counterparties as an

    ordinary course of business for its own account; or

    (iv) Engages in any activity causing the person to be commonly

    known in the trade as a dealer or market maker in swaps, provided

    however, in no event shall an insured depository institution be

    considered to be a swap dealer to the extent it offers to enter into

    a swap with a customer in connection with originating a loan with

    that customer.

    (B) Inclusion.--A person may be designated as a swap dealer for

    a single type or single class or category of swap or activities and

    considered not to be a swap dealer for other types, classes, or

    categories of swaps or activities.

    (C) Exception.--The term `swap dealer' does not include a person

    that enters into swaps for such person's own account, either

    individually or in a fiduciary capacity, but not as a part of a

    regular business.

    (D) De minimis exception.--The [Commodity Futures Trading]

    Commission shall exempt from designation as a swap dealer an entity

    that engages in a de minimis quantity of swap dealing in connection

    with transactions with or on behalf of its customers. The [Commodity

    Futures Trading] Commission shall promulgate regulations to

    establish factors with respect to the making of this determination

    to exempt.''

    Security-Based Swap Dealer: Section 761(a)(6) of the Dodd-Frank

    Act:

    ``(71) Security-Based Swap Dealer.--

    (A) In general.--The term `security-based swap dealer' means any

    person who--

    (i) Holds themself out as a dealer in security-based swaps;

    (ii) Makes a market in security-based swaps;

    (iii) Regularly enters into security-based swaps with

    counterparties as an ordinary course of business for its own

    account; or

    (iv) Engages in any activity causing it to be commonly known in

    the trade as a dealer or market maker in security-based swaps.

    (B) Designation by type or class.--A person may be designated as

    a security-based swap dealer for a single type or single class or

    category of security-based swap or activities and considered not to

    be a security-based

    [[Page 51432]]

    swap dealer for other types, classes, or categories of security

    based swaps or activities.

    (C) Exception.--The term `security-based swap dealer' does not

    include a person that enters into security-based swaps for such

    person's own account, either individually or in a fiduciary

    capacity, but not as a part of regular business.

    (D) De minimis exception.--The [Securities and Exchange]

    Commission shall exempt from designation as a security-based swap

    dealer an entity that engages in a de minimis quantity of security-

    based swap dealing in connection with transactions with or on behalf

    of its customers. The [Securities and Exchange] Commission shall

    promulgate regulations to establish factors with respect to the

    making of any determination to exempt.''

    Major Swap Participant: Section 721(a)(16) of the Dodd-Frank Act:

    ``(33) Major Swap Participant.--

    (A) In general.--The term `major swap participant' means any

    person who is not a swap dealer, and--

    (i) Maintains a substantial position in swaps for any of the

    major swap categories as determined by the [Commodity Futures

    Trading] Commission, excluding--

    (I) Positions held for hedging or mitigating commercial risk;

    and

    (II) Positions maintained by any employee benefit plan (or any

    contract held by such a plan) as defined in paragraphs (3) and (32)

    of section 3 of the Employee Retirement Income Security Act of 1974

    (29 U.S.C. 1002) for the primary purpose of hedging or mitigating

    any risk directly associated with the operation of the plan;

    (ii) Whose outstanding swaps create substantial counterparty

    exposure that could have serious adverse effects on the financial

    stability of the United States banking system or financial markets;

    or

    (iii)(I) Is a financial entity that is highly leveraged relative

    to the amount of capital it holds and that is not subject to capital

    requirements established by an appropriate Federal banking agency;

    and

    (II) Maintains a substantial position in outstanding swaps in

    any major swap category as determined by the [Commodity Futures

    Trading] Commission.

    (B) Definition of substantial position.--For purposes of

    subparagraph (A), the [Commodity Futures Trading] Commission shall

    define by rule or regulation the term `substantial position' at the

    threshold that the [Commodity Futures Trading] Commission determines

    to be prudent for the effective monitoring, management, and

    oversight of entities that are systemically important or can

    significantly impact the financial system of the United States. In

    setting the definition under this subparagraph, the [Commodity

    Futures Trading] Commission shall consider the person's relative

    position in uncleared as opposed to cleared swaps and may take into

    consideration the value and quality of collateral held against

    counterparty exposures.

    (C) Scope of designation.--For purposes of subparagraph (A), a

    person may be designated as a major swap participant for 1 or more

    categories of swaps without being classified as a major swap

    participant for all classes of swaps.

    (D) Exclusions.--The definition under this paragraph shall not

    include an entity whose primary business is providing financing, and

    uses derivatives for the purpose of hedging underlying commercial

    risks related to interest rate and foreign currency exposures, 90

    percent or more of which arise from financing that facilitates the

    purchase or lease of products, 90 percent or more of which are

    manufactured by the parent company or another subsidiary of the

    parent company.''

    Major Security-Based Swap Participant: Section 761(a)(6) of the

    Dodd-Frank Act:

    ``(67) Major Security-Based Swap Participant.--

    (A) In general.--The term `major security-based swap

    participant' means any person--

    (i) Who is not a security-based swap dealer; and

    (ii)(I) Who maintains a substantial position in security-based

    swaps for any of the major security-based swap categories, as such

    categories are determined by the [Securities and Exchange]

    Commission, excluding both positions held for hedging or mitigating

    commercial risk and positions maintained by any employee benefit

    plan (or any contract held by such a plan) as defined in paragraphs

    (3) and (32) of section 3 of the Employee Retirement Income Security

    Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or

    mitigating any risk directly associated with the operation of the

    plan;

    (II) Whose outstanding security-based swaps create substantial

    counterparty exposure that could have serious adverse effects on the

    financial stability of the United States banking system or financial

    markets; or

    (III) That is a financial entity that--

    (aa) Is highly leveraged relative to the amount of capital such

    entity holds and that is not subject to capital requirements

    established by an appropriate Federal banking agency; and

    (bb) Maintains a substantial position in outstanding security-

    based swaps in any major security-based swap category, as such

    categories are determined by the [Securities and Exchange]

    Commission.

    (B) Definition of substantial position.--For purposes of

    subparagraph (A), the [Securities and Exchange] Commission shall

    define, by rule or regulation, the term `substantial position' at

    the threshold that the [Securities and Exchange] Commission

    determines to be prudent for the effective monitoring, management,

    and oversight of entities that are systemically important or can

    significantly impact the financial system of the United States. In

    setting the definition under this subparagraph, the [Securities and

    Exchange] Commission shall consider the person's relative position

    in uncleared as opposed to cleared security-based swaps and may take

    into consideration the value and quality of collateral held against

    counterparty exposures.

    (C) Scope of designation.--For purposes of subparagraph (A), a

    person may be designated as a major security-based swap participant

    for 1 or more categories of security-based swaps without being

    classified as a major security-based swap participant for all

    classes of security-based swaps.''

    Eligible Contract Participant: Section 1a(18) of the Commodity

    Exchange Act, 7 U.S.C. 1a(18), as re-designated and amended by Sections

    721(a)(9) and 741(b)(10) \5\ of the Dodd-Frank Act:

    ---------------------------------------------------------------------------

    \5\ Section 741(b)(10) of the Dodd-Frank Act provides that

    ``Section 1a(19)(A)(iv)(II) of the Commodity Exchange Act (7 U.S.C.

    1a(19)(A)(iv)(II)) (as redesignated by section 721(a)(1)) is amended

    by inserting before the semicolon at the end the following:

    ``provided, however, that for purposes of section 2(c)(2)(B)(vi) and

    section 2(c)(2)(C)(vii), the term `eligible contract participant'

    shall not include a commodity pool in which any participant is not

    otherwise an eligible contract participant''. The probable intent of

    Congress was to amend the definition of ``eligible contract

    participant'', which is in paragraph (18)(A)(iv)(II), not paragraph

    (19)(A)(iv)(II).

    ``(18) Eligible Contract Participant.--The term `eligible

    contract participant' means--

    (A) Acting for its own account--

    (i) A financial institution;

    (ii) An insurance company that is regulated by a State, or that

    is regulated by a foreign government and is subject to comparable

    regulation as determined by the [Commodity Futures Trading]

    Commission, including a regulated subsidiary or affiliate of such an

    insurance company;

    (iii) An investment company subject to regulation under the

    Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a

    foreign person performing a similar role or function subject as such

    to foreign regulation (regardless of whether each investor in the

    investment company or the foreign person is itself an eligible

    contract participant);

    (iv) A commodity pool that--

    (I) Has total assets exceeding $5,000,000; and

    (II) Is formed and operated by a person subject to regulation

    under this Act or a foreign person performing a similar role or

    function subject as such to foreign regulation (regardless of

    whether each investor in the commodity pool or the foreign person is

    itself an eligible contract participant) provided, however, that for

    purposes of section 2(c)(2)(B)(vi) and section 2(c)(2)(C)(vii), the

    term `eligible contract participant' shall not include a commodity

    pool in which any participant is not otherwise an eligible contract

    participant;

    (v) A corporation, partnership, proprietorship, organization,

    trust, or other entity--

    (I) That has total assets exceeding $10,000,000;

    (II) The obligations of which under an agreement, contract, or

    transaction are guaranteed or otherwise supported by a letter of

    credit or keepwell, support, or other agreement by an entity

    described in subclause (I), in clause (i), (ii), (iii), (iv), or

    (vii), or in subparagraph (C); or

    (III) That--

    (aa) Has a net worth exceeding $1,000,000; and

    (bb) Enters into an agreement, contract, or transaction in

    connection with the conduct of

    [[Page 51433]]

    the entity's business or to manage the risk associated with an asset

    or liability owned or incurred or reasonably likely to be owned or

    incurred by the entity in the conduct of the entity's business;

    (vi) An employee benefit plan subject to the Employee Retirement

    Income Security Act of 1974 (29 U.S.C. 1001 et seq.), a governmental

    employee benefit plan, or a foreign person performing a similar role

    or function subject as such to foreign regulation--

    (I) That has total assets exceeding $5,000,000; or

    (II) The investment decisions of which are made by--

    (aa) An investment adviser or commodity trading advisor subject

    to regulation under the Investment Advisers Act of 1940 (15 U.S.C.

    80b-1 et seq.) or this Act;

    (bb) A foreign person performing a similar role or function

    subject as such to foreign regulation;

    (cc) A financial institution; or

    (dd) An insurance company described in clause (ii), or a

    regulated subsidiary or affiliate of such an insurance company;

    (vii)(I) A governmental entity (including the United States, a

    State, or a foreign government) or political subdivision of a

    governmental entity;

    (II) A multinational or supranational government entity; or

    (III) An instrumentality, agency, or department of an entity

    described in subclause (I) or (II);

    except that such term does not include an entity, instrumentality,

    agency, or department referred to in subclause (I) or (III) of this

    clause unless (aa) the entity, instrumentality, agency, or

    department is a person described in clause (i), (ii), or (iii) of

    paragraph (17)(A); (bb) the entity, instrumentality, agency, or

    department owns and invests on a discretionary basis $50,000,000 or

    more in investments; or (cc) the agreement, contract, or transaction

    is offered by, and entered into with, an entity that is listed in

    any of subclauses (I) through (VI) of section 2(c)(2)(B)(ii);

    (viii)(I) A broker or dealer subject to regulation under the

    Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or a foreign

    person performing a similar role or function subject as such to

    foreign regulation, except that, if the broker or dealer or foreign

    person is a natural person or proprietorship, the broker or dealer

    or foreign person shall not be considered to be an eligible contract

    participant unless the broker or dealer or foreign person also meets

    the requirements of clause (v) or (xi);

    (II) An associated person of a registered broker or dealer

    concerning the financial or securities activities of which the

    registered person makes and keeps records under section 15C(b) or

    17(h) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5(b),

    78q(h));

    (III) An investment bank holding company (as defined in section

    17(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(i));

    (ix) A futures commission merchant subject to regulation under

    this Act or a foreign person performing a similar role or function

    subject as such to foreign regulation, except that, if the futures

    commission merchant or foreign person is a natural person or

    proprietorship, the futures commission merchant or foreign person

    shall not be considered to be an eligible contract participant

    unless the futures commission merchant or foreign person also meets

    the requirements of clause (v) or (xi);

    (x) A floor broker or floor trader subject to regulation under

    this Act in connection with any transaction that takes place on or

    through the facilities of a registered entity (other than an

    electronic trading facility with respect to a significant price

    discovery contract) or an exempt board of trade, or any affiliate

    thereof, on which such person regularly trades; or

    (xi) An individual who has amounts invested on a discretionary

    basis, the aggregate of which is in excess of--

    (I) $10,000,000; or

    (II) $5,000,000 and who enters into the agreement, contract, or

    transaction in order to manage the risk associated with an asset

    owned or liability incurred, or reasonably likely to be owned or

    incurred, by the individual;

    (B)(i) A person described in clause (i), (ii), (iv), (v),

    (viii), (ix), or (x) of subparagraph (A) or in subparagraph (C),

    acting as broker or performing an equivalent agency function on

    behalf of another person described in subparagraph (A) or (C); or

    (ii) An investment adviser subject to regulation under the

    Investment Advisers Act of 1940, a commodity trading advisor subject

    to regulation under this Act, a foreign person performing a similar

    role or function subject as such to foreign regulation, or a person

    described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of

    subparagraph (A) or in subparagraph (C), in any such case acting as

    investment manager or fiduciary (but excluding a person acting as

    broker or performing an equivalent agency function) for another

    person described in subparagraph (A) or (C) and who is authorized by

    such person to commit such person to the transaction; or

    (C) Any other person that the [Commodity Futures Trading]

    Commission determines to be eligible in light of the financial or

    other qualifications of the person.''

    Security-Based Swap Agreement: Section 761(a)(6) of the Dodd-Frank

    Act:

    ``(78) Security-Based Swap Agreement.--

    (A) In general.--For purposes of sections 9, 10, 16, 20, and 21A

    of this Act, and section 17 of the Securities Act of 1933 (15 U.S.C.

    77q), the term `security-based swap agreement' means a swap

    agreement as defined in section 206A of the Gramm-Leach-Bliley Act

    (15 U.S.C. 78c note) of which a material term is based on the price,

    yield, value, or volatility of any security or any group or index of

    securities, or any interest therein.

    (B) Exclusions.--The term `security-based swap agreement' does

    not include any security-based swap.''

    By the Securities and Exchange Commission.

    Dated: August 13, 2010.

    Elizabeth M. Murphy,

    Secretary.

    By the Commodity Futures Trading Commission.

    Dated: August 13, 2010.

    David A. Stawick,

    Secretary.

    [FR Doc. 2010-20567 Filed 8-19-10; 8:45 am]

    BILLING CODE P

    Last Updated: August 20, 2010