2016-12613
[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Notices]
[Pages 34855-34857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12613]
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Notices
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains documents other than rules
or proposed rules that are applicable to the public. Notices of hearings
and investigations, committee meetings, agency decisions and rulings,
delegations of authority, filing of petitions and applications and agency
statements of organization and functions are examples of documents
appearing in this section.
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Federal Register / Vol. 81, No. 104 / Tuesday, May 31, 2016 /
Notices
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COMMODITY FUTURES TRADING COMMISSION
Agency Information Collection Activities: Proposed Collection,
Comment Request: Final Rule, Margin Requirements for Uncleared Swaps
for Swap Dealers and Major Swap Participants--Cross-Border Application
of the Margin Requirements
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is announcing an opportunity for public comment on the
proposed collection of certain information by the agency. Under the
Paperwork Reduction Act (``PRA''), Federal agencies are required to
publish notice in the Federal Register concerning each proposed
collection of information, including proposed extension of an existing
collection of information, and to allow 60 days for public comment.
This notice is being published concurrently with the publication and
adoption of the final rule titled ``Margin Requirements for Uncleared
Swaps for Swap Dealers and Major Swap Participants--Cross-Border
Application of the Margin Requirements'' (``Final Rule''), which
addresses the cross-border application of the Commission's margin
requirements for uncleared swaps of covered swap entities (``CSEs'').
This notice solicits comments on a new information collection that
applies to CSEs that rely on a special provision of the Final Rule
applicable to certain foreign jurisdictions where CSEs are unable to
conclude, with a well-founded basis, that the netting agreement with a
counterparty in that foreign jurisdiction meets the definition of an
``eligible master netting agreement'' set forth in the Commission's
final margin rule (``Final Margin Rule'') (``non-netting
jurisdictions''). This notice also solicits comments on a new
information collection that applies to Foreign Consolidated
Subsidiaries (as defined in the Final Rule) and foreign branches of
U.S. CSEs that rely on a special provision of the Final Rule applicable
to certain foreign jurisdictions where limitations in the legal or
operational infrastructure of the jurisdiction make it impracticable
for the CSE and its counterparty to post initial margin pursuant to
custodial arrangements that comply with the Final Margin Rule (``non-
segregation jurisdictions''). The new information collections covered
by this notice require CSEs that avail themselves of the special
provisions for non-netting jurisdictions and non-segregation
jurisdictions, respectively, to maintain books and records properly
documenting that all of the requirements of the special provision(s)
upon which they rely are satisfied (including policies and procedures
ensuring that they are in compliance with any applicable requirements).
DATES: Comments must be submitted on or before August 1, 2016.
ADDRESSES: You may submit comments, identified by ``Margin Requirements
for Uncleared Swaps for Swap Dealers and Major Swap Participants;
Comparability Determinations with Margin Requirements,'' and ``OMB
Control No. 3038-0111,'' by any of the following methods:
The Agency's Web site, at http://comments.cftc.gov/.
Follow the instructions for submitting comments through the Web site.
Mail: Christopher Kirkpatrick, Secretary of the
Commission, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street NW., Washington, DC 20581.
Hand Delivery/Courier: Same as Mail, above.
Federal eRulemaking Portal: http://www.regulations.gov/.
Follow the instructions for submitting comments through the Portal.
Please submit your comments using only one method.
All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
http://www.cftc.gov.
FOR FURTHER INFORMATION CONTACT: Laura B. Badian, Assistant General
Counsel, (202) 418-5969, [email protected]; Paul Schlichting, Assistant
General Counsel, (202) 418-5884, [email protected]; Elise Bruntel,
Counsel, (202) 418-5577, [email protected]; or Herminio Castro,
Counsel, (202) 418-6705, [email protected]; Office of the General
Counsel, Commodity Futures Trading Commission, Three Lafayette Centre,
1155 21st Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION: Under the PRA, Federal agencies must obtain
approval from the Office of Management and Budget (``OMB'') for each
collection of information they conduct or sponsor. ``Collection of
Information'' is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3 and
includes agency requests or requirements that members of the public
submit reports, keep records, or provide information to a third party.
Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires
Federal agencies to provide a 60-day notice in the Federal Register
concerning each proposed collection of information, including each
proposed extension of an existing collection of information, before
submitting the collection to OMB for approval. To comply with this
requirement, the CFTC is publishing notice of the proposed collection
of information listed below.
Title: Margin Requirements for Uncleared Swaps for Swap Dealers and
Major Swap Participants; Comparability Determinations with Margin
Requirements. (OMB Control No. 3038-0111). This is a request for a
revision of a currently approved information collection.
Abstract: Section 731 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (``Dodd-Frank Act''),\1\ amended the Commodity
Exchange Act (``CEA''), to add, as section 4s(e) thereof, provisions
concerning the setting of initial and variation margin requirements for
swap dealers and major swap participants. \2\ Each swap dealer and
major swap participant for which there is a Prudential Regulator, as
defined in section 1a(39) of the CEA,\3\ must meet margin requirements
established by the applicable Prudential
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Regulator, and each CSE must comply with the Commission's margin
requirements. With regard to the cross-border application of the swap
provisions enacted by Title VII of the Dodd-Frank Act, section 2(i) of
the CEA provides the Commission with express authority over activities
outside the United States relating to swaps when certain conditions are
met. Specifically, section 2(i) of the CEA provides that the provisions
of the CEA relating to swaps enacted by Title VII of the Dodd-Frank Act
(including Commission rules and regulations promulgated thereunder)
shall not apply to activities outside the United States unless those
activities (1) have a direct and significant connection with activities
in, or effect on, commerce of the United States or (2) contravene such
rules or regulations as the Commission may prescribe or promulgate as
are necessary or appropriate to prevent the evasion of any provision of
Title VII.\4\ Because margin requirements are critical to ensuring the
safety and soundness of a CSE and supporting the stability of the U.S.
financial markets, the Commission believes that its margin rules should
apply on a cross-border basis in a manner that effectively addresses
risks to the registered CSE and the U.S. financial system.
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\1\ Pub. L. 111-203, 124 Stat. 1376 (2010).
\2\ 7 U.S.C. 6s(e).
\3\ 7 U.S.C. 1a(39).
\4\ 7 U.S.C. 2(i).
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Concurrently with this notice, the Commission published a Final
Rule that establishes margin requirements for uncleared swaps of CSEs
(with substituted compliance available in certain circumstances),
except as to a narrow class of uncleared swaps between a non-U.S. CSE
and a non-U.S. counterparty that fall within a limited exclusion (the
``Exclusion''). As described below, the adopting release for the Final
Rule contained a collection of information regarding requests for
comparability determinations, which was previously included in the
proposing release, and for which the Office of Management and Budget
(``OMB'') assigned OMB control number 3038-0111, titled ``Margin
Requirements for Uncleared Swaps for Swap Dealers and Major Swap
Participants; Comparability Determinations with Margin Requirements.''
In addition, the adopting release included two additional information
collections regarding non-segregation jurisdictions \5\ and non-netting
jurisdictions \6\ that were not previously proposed. Accordingly, the
Commission, through this notice is requesting approval by OMB of this
new information collection under OMB Control Number 3038-0111.
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\5\ As used in the adopting release, a ``non-segregation
jurisdiction'' is a jurisdiction where inherent limitations in the
legal or operational infrastructure of the foreign jurisdiction make
it impracticable for the CSE and its counterparty to post initial
margin pursuant to custodial arrangements that comply with the
Commission's margin rules, as further described in section II.B.4.b
of the adopting release.
\6\ As used in the adopting release, a ``non-netting
jurisdiction'' is a jurisdiction in which a CSE cannot conclude,
with a well-founded basis, that the netting agreement with a
counterparty in that foreign jurisdiction meets the definition of an
``eligible master netting agreement'' set forth in the Final Margin
Rule, as described in section II.B.5.b of the adopting release.
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Section 23.160(d) of the Final Rule includes a special provision
for non-netting jurisdictions. This provision allows CSEs that cannot
conclude after sufficient legal review with a well-founded basis that
the netting agreement with a counterparty in a foreign jurisdiction
meets the definition of an ``eligible master netting agreement'' set
forth in the Final Margin Rule to nevertheless net uncleared swaps in
determining the amount of margin that they post, provided that certain
conditions are met.\7\ In order to avail itself of this special
provision, the CSE must treat the uncleared swaps covered by the
agreement on a gross basis in determining the amount of initial and
variation margin that it must collect, but may net those uncleared
swaps in determining the amount of initial and variation margin it must
post to the counterparty, in accordance with the netting provisions of
the Final Margin Rule.\8\ A CSE that enters into uncleared swaps in
``non-netting'' jurisdictions in reliance on this provision must have
policies and procedures ensuring that it is in compliance with the
special provision's requirements, and maintain books and records
properly documenting that all of the requirements of this exception are
satisfied.\9\
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\7\ The Final Margin Rule permits offsets in relation to either
initial margin or variation margin calculation when (among other
things), the offsets related to swaps are subject to the same
eligible master netting agreement. This ensures that CSEs can
effectively foreclose on the margin in the event of a counterparty
default, and avoids the risk that the administrator of an insolvent
counterparty will ``cherry-pick'' from posted collateral to be
returned.
\8\ In the event that the special provision for non-segregation
jurisdictions applies to a CSE, then the special provision for non-
netting jurisdictions would not apply to the CSE even if the
relevant jurisdiction is also a ``non-netting jurisdiction.'' In
this circumstance, the CSE must collect the gross amount of initial
margin in cash (but would not be required to post initial margin),
and post and collect variation margin in cash in accordance with the
requirements of the special provision for non-segregation
jurisdictions, as discussed in section II.B.4.b.
\9\ See Sec. 23.160(d) of the Final Rule.
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Section 23.160(e) of the Final Rule includes a special provision
for non-segregation jurisdictions that allows non-U.S. CSEs that are
Foreign Consolidated Subsidiaries (as defined in the Final Rule) and
foreign branches of U.S. CSEs to engage in swaps in foreign
jurisdictions where inherent limitations in the legal or operational
infrastructure make it impracticable for the CSE and its counterparty
to post collateral in compliance with the custodial arrangement
requirements of the Commission's margin rules, subject to certain
conditions. In order to rely on this special provision, a Foreign
Consolidated Subsidiary or foreign branch of a U.S. CSE is required to
satisfy all of the conditions of the rule, including that (1) inherent
limitations in the legal or operational infrastructure of the foreign
jurisdiction make it impracticable for the CSE and its counterparty to
post any form of eligible initial margin collateral for the uncleared
swap pursuant to custodial arrangements that comply with the
Commission's margin rules; (2) foreign regulatory restrictions require
the CSE to transact in uncleared swaps with the counterparty through an
establishment within the foreign jurisdiction and do not permit the
posting of collateral for the swap in compliance with the custodial
arrangements of section 23.157 of the Final Margin Rule in the United
States or a jurisdiction for which the Commission has issued a
comparability determination under the Final Rule with respect to
section 23.157; (3) the CSE's counterparty is not a U.S. person and is
not a CSE, and the counterparty's obligations under the uncleared swap
are not guaranteed by a U.S. person; \10\ (4) the CSE collects initial
margin in cash on a gross basis, in cash, and posts and collects
variation margin in cash, for the uncleared swap in accordance with the
Final Margin Rule; (5) for each broad risk category, as set out in
Sec. 23.154(b)(2)(v) of the Final Margin Rule, the total outstanding
notional value of all uncleared swaps in that broad risk category, as
to which the CSE is relying on Sec. 23.160 (e), may not exceed 5
percent of the CSE's total outstanding notional value for all uncleared
swaps in the same broad risk category; (6) the CSE has policies and
procedures ensuring that it is in compliance with the requirements of
this provision; and (7) the CSE
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maintains books and records properly documenting that all of the
requirements of this provision are satisfied.\11\ The new information
collections covered by this notice require CSEs to have policies and
procedures ensuring that they are in compliance with all of the
requirements of the special provisions for non-netting jurisdictions
and non-segregation provisions, respectively, and to maintain books and
records properly documenting that all of the requirements of the
special provisions for non-netting jurisdictions and non-segregation
jurisdictions, respectively, are satisfied. Both information
collections are necessary as a means for the Commission to be able to
determine that CSEs relying on these special provisions are entitled to
do so and are complying with the special provisions' requirements. Both
information collections are also necessary to implement sections 4s(e)
of the CEA, which mandates that the Commission adopt rules establishing
minimum initial and variation margin requirements for CSEs on all swaps
that are not cleared by a registered derivatives clearing organization,
and section 2(i) of the CEA, which provides that the provisions of the
CEA relating to swaps that were enacted by Title VII of the Dodd-Frank
Act (including any rule prescribed or regulation promulgated
thereunder) apply to activities outside the United States that have a
direct and significant connection with activities in, or effect on,
commerce of the United States. An agency may not conduct or sponsor,
and a person is not required to respond to, a collection of information
unless it displays a currently valid OMB control number.
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\10\ The Commission would expect the CSE's counterparty to be a
local financial end user that is required to comply with the foreign
jurisdiction's laws and that is prevented by regulatory restrictions
in the foreign jurisdiction from posting collateral for the
uncleared swap in the United States or a jurisdiction for which the
Commission has issued a comparability determination under the Final
Rule, even using an affiliate.
\11\ See 17 CFR 23.160(e).
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With respect to each new collection of information, the CFTC
invites comments on:
Whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
The accuracy of the Commission's estimate of the burden of
the proposed collection of information, including the validity of the
methodology and assumptions used;
Ways to enhance the quality, usefulness, and clarity of
the information to be collected; and
Ways to minimize the burden of collection of information
on those who are to respond, including through the use of appropriate
automated electronic, mechanical, or other technological collection
techniques or other forms of information technology; e.g., permitting
electronic submission of responses.
You should submit only information that you wish to make available
publicly. If you wish the Commission to consider information that you
believe is exempt from disclosure under the Freedom of Information Act,
a petition for confidential treatment of the exempt information may be
submitted according to the procedures established in Sec. 145.9 of the
Commission's regulations.\12\
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\12\ 17 CFR 145.9.
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The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the ICR will be retained in the public comment file and
will be considered as required under the Administrative Procedure Act
and other applicable laws, and may be accessible under the Freedom of
Information Act.
Burden Statement--Information Collection for Non-Netting
Jurisdictions: The Commission estimates that approximately 54 CSEs may
rely on section 23.160(d) of the Final Rule.\13\ Furthermore, the
Commission estimates that these CSEs would incur an average of 10
annual burden hours to maintain books and records properly documenting
that all of the requirements of this exception are satisfied (including
policies and procedures ensuring that they are in compliance). Based
upon the above, the estimated hour burden for collection is calculated
as follows:
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\13\ Currently, there are approximately 106 swap entities
provisionally registered with the Commission. The Commission
estimates that of the approximately 106 swap entities that are
provisionally registered, approximately 54 are CSEs that are subject
to the Commission's margin rules as they are not subject to a
Prudential Regulator. Because all of these CSEs are eligible to use
the special provision for non-netting jurisdictions, the Commission
estimates that 54 CSEs may rely on section 23.160(d) of the Final
Rule.
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Estimated number of respondents per year: 54.
Estimated burden hours per registrant: 10.
Estimated total annual burden hours: 540.
Frequency of collection: Once; As needed.
Burden Statement--Information Collection for Non-Segregation
Jurisdictions: The Commission currently estimates that there are
between five and ten jurisdictions for which the first two conditions
specified above for non-segregation jurisdictions are satisfied and
where Foreign Consolidated Subsidiaries and foreign branches of U.S.
CSEs that are subject to the Commission's margin rules may engage in
swaps. The Commission estimates that approximately12 Foreign
Consolidated Subsidiaries and foreign branches of U.S. CSEs may rely on
section 23.160(e) of the Final Rule in some or all of these
jurisdiction(s). The Commission estimates that each FCS or foreign
branch of a U.S. CSE relying on this provision would incur an average
20 annual burden hours to maintain books and records properly
documenting that all of the requirements of this provision are
satisfied (including policies and procedures ensuring that they are in
compliance) with respect to each jurisdiction as to which they rely on
the special provision. The Commission further estimates that each FCS
or foreign branch of a U.S. CSE relying on this provision would incur
an average of 150 additional burden hours per year for all
jurisdictions as to which they rely on the provision. Based upon the
above, the estimated hour burden for collection is calculated as
follows:
Estimated number of respondents per year: 12.
Estimated burden hours per registrant: 150.
Estimated total annual burden hours: 1,800 hours.
Frequency of collection: Once; As needed.
There are no capital costs or operating and maintenance costs
associated with this collection.
Authority: 44 U.S.C. 3501 et seq.
Dated: May 24, 2016.
Christopher J. Kirkpatrick,
Secretary of the Commission.
[FR Doc. 2016-12613 Filed 5-27-16; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: May 31, 2016