This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

75432 

Vol. 75, No. 232 

Friday, December 3, 2010 

1See Dodd-Frank Act, Public Law. 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov./ 

LawRegulation/OTCDERIVATIVES/index.htm. 

2Pursuant to Section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

3 7 U.S.C. 1 et seq. 

4 In this release, the terms ‘‘swap dealer’’ and 

‘‘major swap participant’’ shall have the meanings 

set forth in Section 721(a) of the Dodd-Frank Act, 

which added Sections 1a(49) and (33) of the CEA. 

However, Section 721(c) of the Dodd-Frank Act 

directs the Commission to promulgate rules to 

further define, among other terms, ‘‘swap dealer’’ 

and ‘‘major swap participant.’’ The Commission 

anticipates that such rulemaking will be completed 

by the statutory deadline of July 15, 2011. See, e.g., 

Http://Www.Cftc.Gov/Lawregulation/ 

Otcderivatives/OTC_2_Definitions.Html. 

5Commission regulation (‘‘Regulation’’) 190.01(f) 

defines ‘‘commodity broker’’ as ‘‘any person who is 

registered or required to register as a futures 

commission merchant under the Commodity 

Exchange Act including a person registered as such 

under Parts 32 and 33 of this chapter, and a 

‘commodity options dealer,’ ‘foreign futures 

commission merchant,’ ‘clearing organization,’ and 

‘leverage transaction merchant’ with respect to 

which there is a ‘customer’ as those terms are 

defined in this section, but excluding a person 

registered as a futures commission merchant under 

section 4f(a)(2) of the Commodity Exchange Act.’’ 

Pursuant to the Bankruptcy Code, 11 U.S.C. 101 et 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 23 and 190 

RIN 3038–AD28 

Protection of Collateral of 

Counterparties to Uncleared Swaps; 

Treatment of Securities in a Portfolio 

Margining Account in a Commodity 

Broker Bankruptcy 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (the 

‘‘Commission’’) hereby proposes rules to 

implement new statutory provisions 

enacted by Title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (the ‘‘Dodd-Frank Act’’). 

Specifically, the proposed rules 

contained herein impose requirements 

on swap dealers (‘‘SDs’’) and major swap 

participants (‘‘MSPs’’) with respect to 

the treatment of collateral posted by 

their counterparties to margin, 

guarantee, or secure uncleared swaps. 

Additionally, such proposed rules 

ensure that, for purposes of subchapter 

IV of chapter 7 of the Bankruptcy Code: 

Securities held in a portfolio margining 

account that is a futures account 

constitute ‘‘customer property’’; and 

owners of such account constitute 

‘‘customers’’. 

DATES: Submit comments on or before 

February 1, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD28, 

by any of the following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, 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. 

Please submit your comments by 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. 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 CFTC 

Regulation 145.9, 17 CFR 145.9. 

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 rulemaking 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. 

FOR FURTHER INFORMATION CONTACT: 

Robert B. Wasserman, Associate 

Director, Division of Clearing and 

Intermediary Oversight (DCIO), at 202– 

418–5092 or rwasserman@cftc.gov; 

Martin White, Assistant General 

Counsel, at 202–418–5129 or 

mwhite@cftc.gov; Nancy Liao Schnabel, 

Special Counsel, DCIO, at 202–418– 

5344 or nschnabel@cftc.gov; in each 

case, also at the Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act.1 Title VII of 

the Dodd-Frank Act 2 amended the 

Commodity Exchange Act (‘‘CEA’’) 3 to 

establish a comprehensive new 

regulatory framework for swaps and 

certain security-based swaps. The 

legislation was enacted to reduce risk, 

increase transparency, and promote 

market integrity within the financial 

system by, among other things: (i) 

Providing for the registration and 

comprehensive regulation of SDs and 

MSPs;4 (ii) imposing mandatory clearing 

and trade execution requirements on 

clearable swap contracts; (iii) creating 

robust recordkeeping and real-time 

reporting regimes; and (iv) enhancing 

the rulemaking and enforcement 

authorities of the Commission with 

respect to, among others, all registered 

entities and intermediaries subject to 

the oversight of the Commission. 

Section 724(c) of the Dodd-Frank Act 

amends the CEA to add, as section 4s(l) 

thereof, provisions concerning the rights 

of counterparties to SDs and MSPs with 

respect to the treatment of margin for 

uncleared swaps. As discussed further 

in Part II of this preamble, these changes 

are implemented in proposed new 

Subpart L to Part 23 of Title 17, 

§§ 23.600 through 23.609. 

Section 713(c) of the Dodd-Frank Act 

amends the CEA to add, as section 20(c) 

thereof, a provision that requires the 

Commission to exercise its authority to 

clarify the legal status, in the event of 

a commodity broker 5 bankruptcy, of (i) 


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Federal Register / Vol. 75, No. 232 / Friday, December 3, 2010 / Proposed Rules 75433 

seq., if a commodity broker experiences bankruptcy, 

it must be liquidated in accordance with chapter 7, 

subchapter IV (‘‘Subchapter IV’’). In the event of 

such liquidation, Subchapter IV provides certain 

protections for collateral that customers deposit 

with the commodity broker. Pursuant to its 

authority under Section 20 of the CEA, the 

Commission has interpreted Subchapter IV in 

promulgating Regulation Part 190. 

6Section 761(4) of the Bankruptcy Code, 11 

U.S.C. 761(4), defines ‘‘commodity contract.’’ 

7Regulation 190.01(n) defines ‘‘customer 

property’’ as ‘‘the property subject to pro rata 

distribution in a commodity broker bankruptcy 

which is entitled to the priority set forth in Section 

766(h) of the Bankruptcy Code and includes certain 

cash, securities, and other property as set forth in 

§ 190.08(a).’’ 

8 It should be noted that this rulemaking 

addresses segregation of margin, and does not 

address what amount of margin, if any, a 

counterparty is required to post. 

9Such requirements do not apply to ‘‘variation 

margin payments.’’ Section 724(c) of the DoddFrank Act does not set forth a definition for such 

term. The Commission has proposed such a 

definition below. 

10See also CEA Section 4s(l)(4) (referring to cases 

where the counterparty ‘‘does not choose to require 

segregation’’ of margin). 

securities in a portfolio margining 

account held as a futures account, and 

(ii) an owner of such account. As 

discussed further in Part III of this 

preamble, these changes are 

implemented in proposed amendments 

to §§ 190.01(k) and 190.08(a)(1)(i). 

Part IV below describes proposed 

technical amendments to Regulation 

part 190 that are not required by the 

Dodd-Frank Act, but rather address the 

changes to 11 U.S.C. 764(b) 

implemented by Public Law 111–16, the 

Statutory Time-Periods Technical 

Amendments Act of 2009. Specifically, 

such act changed the time period (i.e., 

from five (5) business days to seven (7) 

calendar days) during which a transfer 

of ‘‘commodity contracts’’ 6 and 

‘‘customer property’’ 7 becomes not 

avoidable by the trustee in a commodity 

broker bankruptcy. 

The Commission requests comment 

on all aspects of this release. 

II. Segregation of Margin for SD and 

MSP Counterparties With Respect to 

Uncleared Swaps 

New Section 4s(l) of the CEA, enacted 

by Section 724(c) of the Dodd-Frank 

Act, sets forth certain requirements 

concerning the rights of counterparties 

of SDs and MSPs with respect to the 

segregation of collateral supplied for 

margining, guaranteeing, or securing 

uncleared swaps.8 Such requirements 9

include: 

• An SD or MSP must notify each 

counterparty at the beginning of a swap 

transaction that the counterparty has the 

right to require segregation of the funds 

or other property that it supplies to 

margin, guarantee, or secure its 

obligations; and 

• At the request of the counterparty, 

the SD or MSP must segregate such 

funds or other property with an 

independent third party. 

To implement the statute, the 

Commission proposes new subpart L to 

part 23 of title 17. 

A. Regulation 23.600: Definitions 

The Commission proposes to define 

‘‘segregate’’ according to its commonlyunderstood meaning: To keep two or 

more items in separate accounts, and to 

avoid combining them in the same 

transfer between two accounts. 

The Commission has never before 

defined ‘‘initial margin’’ (for which a 

counterparty has the right to segregation 

pursuant to CEA Section 4s(l)) or 

‘‘variation margin’’ (for which a 

counterparty does not have such a right) 

in a regulation. The distinction between 

‘‘initial margin’’ and ‘‘variation margin’’ 

established in proposed § 23.600 is 

temporally-based: 

1. Initial Margin 

‘‘Initial margin’’ is defined as an 

amount calculated based on anticipated 

exposure to future changes in the value 

of a swap. 

2. Variation Margin 

‘‘Variation margin’’ is defined as an 

amount calculated to cover the current 

exposure arising from changes in the 

market value of the position since the 

trade was executed or the previous time 

the position was marked to market. 

The Commission may also consider, 

in a future rulemaking, placing an 

expanded version of these definitions 

(to include initial and variation margin 

with respect to futures and options on 

futures) in Part 1, and incorporating 

those definitions by reference here. 

The Commission seeks comment on 

the appropriateness of these definitions 

in this context, and on the potential use 

of such expanded definitions. 

B. Regulation 23.601: Notification of 

Right to Segregation 

1. Required Notification 

Proposed Regulation 23.601(a) 

incorporates the statutory requirement 

of Section 4s(l)(1)(A) of the CEA that a 

SD or MSP must notify each 

counterparty with respect to an 

uncleared swap that the counterparty 

has the right to require that initial 

margin posted by that counterparty be 

segregated in accordance with these 

rules. The Commission interprets the 

language of Section 4s(l)(1)(A) of the 

CEA that the counterparty must be 

‘‘notified * * * [of a] right to require 

segregation’’ to mean that this right can 

be grasped or renounced, at the election 

of the counterparty.10 Congress’s 

description as a ‘‘right’’ of what would 

otherwise be a simple matter for 

commercial negotiation suggests that 

this decision is an important one, with 

a certain degree of favor given to an 

affirmative election. 

The Commission has not proposed 

any particular disclosure requirements 

with respect to this notification. Should 

the SD or MSP be required to disclose 

the cost of segregation, whether the cost 

of fees to be paid to the custodian (if the 

SD or MSP is aware of the amount of 

such fees), or differences in the terms of 

the swap that the SD or MSP is willing 

to offer to the counterparty (e.g., 

differences in the fixed interest rate for 

an interest rate swap) if the counterparty 

elects or renounces the right to 

segregation? 

2. Limitation of Right—Variation Margin 

Proposed Regulation 23.601(b) 

incorporates the limitation in Section 

4s(l)(2)(B)(i) of the CEA that the right to 

segregation does not apply to variation 

margin. 

3. Counterparty Notification 

The Commission regards the 

inclusion of the term ‘‘right to require 

segregation’’ as requiring that this 

decision is taken at an appropriate level 

of the counterparty organization. 

Proposed Regulation 23.601(c) requires 

that such notification be made to certain 

senior decisionmakers, in descending 

order of preference. Notification is made 

to the Chief Risk Officer, or the Chief 

Executive Officer, or to the highest level 

decisionmaker for the counterparty. The 

Commission seeks comment as to 

whether this list of decision-makers is 

appropriate, in particular, whether it is 

appropriate for ‘‘Special Entities’’ as 

such term is defined in Section 

4s(h)(1)(C) of the CEA (e.g. a 

municipality). 

4. Required Confirmation 

Proposed § 23.601(d) requires that the 

SD or MSP must obtain from the 

counterparty confirmation of receipt of 

such notification by the specified 

decisionmaker, and the election to 

require segregation or not, before the 

terms of the swap are confirmed. The 

SD or MSP must maintain records of 

such confirmation and election as 

business records in accordance with 

Regulation 1.31. 

5. Limitation of Responsibility To Notify 

The requirement in Section 4s(l)(1)(A) 

of the CEA that notification be made ‘‘at 


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75434 Federal Register / Vol. 75, No. 232 / Friday, December 3, 2010 / Proposed Rules 

11 If the SD or MSP and the counterparty were to 

make competing claims to the collateral, and if the 

custodian did not have a means under the 

agreement among the parties to decide between 

such claims without risking legal liability, the 

custodian would likely choose to interplead the 

collateral. 

12See 18 U.S.C. 1621 (Perjury Generally). 

13The importance of taking steps to ensure that 

unauthorized withdrawals are not made is 

enhanced by the findings of the Commission’s 

Division of Clearing and Intermediary Oversight in 

Financial and Segregation Interpretation 10–1, 20 

FR 24768, 24770 (May 11, 2005) (‘‘Findings by both 

Commission audit staff and the SROs of actual 

releases of customer funds [from third-party 

custodial accounts], without the required 

knowledge or approval of the FCMs, further 

demonstrate that the risks associated with thirdparty custodial accounts are real and material, not 

merely theoretical.’’). 

14See generally Investment of Customer Funds 

and Funds Held in an Account for Foreign Futures 

and Foreign Options Transactions, 75 FR 67642, 

67652–53 (Nov. 3, 2010) (Release proposing 

amendments to Commission Regulation 1.25). 

the beginning of a swap transaction’’ 

could be read to require such 

notification at the beginning of each 

swap transaction. Such repetitive 

notification could, however, be 

redundant. On the other hand, the 

importance of the decision discussed 

above suggests that some periodic 

reconsideration might be appropriate. 

Proposed § 23.601(e) seeks to balance 

these considerations by providing that 

notification of a particular counterparty 

by a particular SD or MSP need only be 

made once in any calendar year. 

6. Power To Change Election With 

Regard to Segregation 

Proposed § 23.601(f) makes clear that 

a counterparty’s election to require 

segregation of initial margin, or not to 

require such segregation, may be 

changed at the discretion of the 

counterparty upon delivery of written 

notice, and shall be applicable with 

respect to swaps entered into between 

the parties after such delivery. 

The Commission seeks comments on 

the issues referred to in this section I(B). 

C. Regulation 23.602: Requirements for 

Segregated Collateral 

1. Independent Custodian and Separate 

Account 

Pursuant to Section 4s(l)(3) of the 

CEA, proposed Regulation 23.602(a)(1) 

requires initial margin segregated in 

accordance with an election under 

proposed Regulation 23.601 to be 

segregated with a custodian that is 

independent of both the SD or MSP and 

the counterparty. Proposed 

§ 23.602(a)(2) requires the initial margin 

to be held in an account designated as 

a segregated account for and on behalf 

of the counterparty. While, as noted 

above, the right to segregation does not 

apply to variation margin, the regulation 

provides the swap dealer or major swap 

participant and the counterparty may 

agree that variation margin may also be 

held in such an account. 

Proposed § 23.602(a)(1) does not 

require that the initial margin be held in 

an account that is independent of any 

affiliate of the SD or MSP or the 

counterparty, in order to permit parties 

to engage in swaps transactions with 

affiliates of their usual depositories. 

Comment is requested as to whether this 

approach is appropriate. Moreover, the 

proposed regulation does not specify 

which party (the counterparty, or the SD 

or MSP) has the right to designate a 

custodian, thus, by implication, leaving 

the choice to the agreement of the 

parties. Is this approach appropriate? 

Should either party be entitled to 

choose a custodian? If so, what 

restrictions, if any, should be placed on 

that choice? 

2. Requirements for Custody Agreement 

Proposed § 23.602(b) is intended to 

provide a balance between the 

minimum interests of (i) the 

counterparty posting the initial margin, 

(ii) the SD or MSP for whom the initial 

margin is posted, and (iii) the custodian, 

while avoiding the necessity for timeconsuming and expensive interpleader 

proceedings.11 The custody agreement 

applicable to such initial margin must 

be in writing, and must include the 

custodian as a party. To ensure that the 

SD or MSP receives the initial margin 

promptly in case it is entitled to do so, 

and that the initial margin is returned to 

the counterparty in case it is entitled to 

such return, the agreement must provide 

that turnover of control shall be made 

promptly upon presentation of a 

statement in writing, signed by an 

authorized person under penalty of 

perjury, that one party is entitled to 

such turnover pursuant to an agreement 

between the parties. The requirement of 

a signature under oath or under penalty 

of perjury pursuant to 28 U.S.C. 1746 is 

intended to ensure that such statement 

is not lightly made.12 Otherwise, 

withdrawal of collateral may only be 

made pursuant to the agreement of both 

the counterparty and the SD or MSP, 

with the non-withdrawing party also 

receiving immediate notice of such 

withdrawal.13 The Commission requests 

comment on whether the foregoing 

approach is appropriate, including on 

whether a statement under penalty of 

perjury should be required, and on 

whether such a statement, if required, 

should be required to be based on 

personal knowledge. 

D. Regulation 23.603: Investment of 

Segregated Collateral 

1. Limitations on Investments 

Section 4s(l)(2)(B)(ii)(I) of the CEA 

refers to ‘‘commercial arrangements 

regarding the investment of segregated 

funds or other property that may only be 

invested in such investments as the 

Commission may permit by rule or 

regulation.’’ Proposed § 22.603(a) 

accordingly provides that segregated 

initial margin may only be invested 

consistent with the standards for 

investment of customer funds that the 

Commission applies to exchange-traded 

futures, Regulation § 1.25. That 

regulation has been designed to permit 

an appropriate degree of flexibility in 

making investments with segregated 

property, while safeguarding such 

property for the parties who have posted 

it, and decreasing the credit, market, 

and liquidity risk exposures of the 

parties who are relying on that margin.14

This regulation governs only 

investments of initial margin posted by 

the counterparty, and does not govern 

what collateral is eligible to be posted 

as such margin. 

2. Commercial Arrangements Regarding 

Investments and Allocations 

As required by new Section 

4s(l)(2)(B)(ii) of the CEA, proposed 

Regulation 22.603(b) provides that the 

SD or MSP and the counterparty may 

enter into any commercial arrangement, 

in writing, regarding the investment of 

segregated initial margin and the related 

allocation of gains and losses resulting 

from such investment. 

E. Regulation 23.604: Requirements for 

Non-Segregated Collateral 

Section 4s(l)(4) of the CEA mandates 

that, if the counterparty does not choose 

to require segregation, the SD or MSP 

shall report to the counterparty, on a 

quarterly basis, ‘‘that the back office 

procedures of the swap dealer or major 

swap participant relating to margin and 

collateral requirements are in 

compliance with the agreement of the 

counterparties.’’ This provision is 

implemented in proposed § 22.604(a), 

which requires that such reports be 

made no later than the fifteenth (15th) 

business day of each calendar quarter 

for the preceding calendar quarter. 

Proposed Regulation 22.604(a) makes 

the Chief Compliance Officer of the SD 

or MSP required by Section 4s(k) of the 

CEA responsible for such report. 


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15See 11 U.S.C. 544, 545, 547, 548, 724(a). 

16See supra note 6. 

17See supra note 7. 

18See supra note 5. 

19 5 U.S.C. 601 et seq. 

20 5 U.S.C. 603, 604. 

21 47 FR 18618 (Apr. 30, 1982). 

22 Id. at 18619. 

23 Id. at 18620. 

24 Id. 

Proposed § 22.604(b) provides that this 

obligation shall apply no earlier than 

the 90th calendar day after the first 

swap is transacted between the 

counterparties. 

F. Effective Date 

The Commission requests comment 

on the appropriate timing of 

effectiveness for the final rules for Part 

23. Specifically, is six months after the 

promulgation of final rules sufficient? If 

not, please specify a recommended time 

period, and explain in detail the reasons 

why a shorter period will not be 

sufficient. 

III. Portfolio Margining Accounts 

Section 713(c) of the Dodd-Frank Act 

added Section 20(c) of the CEA, which 

specifies that the Commission ‘‘shall 

exercise its authority to ensure that 

securities held in a portfolio margining 

account carried as a futures account are 

customer property and the owners of 

those accounts are customers for the 

purposes of’’ Subchapter IV. To 

implement this provision, the 

Commission proposes changes to 

§§ 190.01(k) and 190.08(a)(1)(i). 

A. Regulation 190.01(k): Definition of 

Customer 

The ‘‘customer’’ portion of this 

provision is implemented in the 

proposed amendment to § 190.01(k), 

which adds to the definition of 

‘‘customer’’ the sentence ‘‘To the extent 

not otherwise included, customer shall 

include the owner of a portfolio 

margining account carried as a futures 

account.’’ 

B. Regulation 190.08(a)(1)(i)(F): 

Definition of Customer Property 

The ‘‘customer property’’ portion of 

this provision is implemented in 

proposed § 190.08(a)(1)(i)(F), which 

adds to the definition of ‘‘customer 

property’’ the sentence ‘‘To the extent 

not otherwise included, securities held 

in a portfolio margining account carried 

as a futures account.’’ 

C. Effective Date of Proposal 

The Commission believes that these 

rule amendments clarify existing law, 

and thus may be made effective 

immediately upon promulgation of a 

final rule. Comment is solicited with 

respect to these conclusions. 

IV. Statutory Time-Periods Technical 

Amendments Act of 2009 

The purpose of this portion of the 

rulemaking is to implement Public Law 

111–16, the Statutory Time-Periods 

Technical Amendments Act of 2009, 

which (in relevant part) changed the 

time period in 11 U.S.C. 764(b), 

discussed below, from five (business) 

days to seven (calendar) days. As noted 

above, these changes are not related to 

the Dodd-Frank Act. 

Certain sections of the Bankruptcy 

Code 15 provide the trustee of a debtor 

the power to avoid (i.e., retract) certain 

transfers of property from the debtor, 

whether shortly before or after the 

bankruptcy filing, that would otherwise 

allow a creditor to obtain more than that 

creditor would in a bankruptcy 

distribution. Section 764(b) of the 

Bankruptcy Code provides that a trustee 

may not avoid a transfer of ‘‘commodity 

contracts’’ 16 or ‘‘customer property’’ 17

that is authorized by the Commission, 

whether before or after the transfer, 

before the specified time period after the 

bankruptcy ‘‘order for relief.’’ 

The change in the statutory deadline 

should be reflected in the relevant 

Commission regulations. Moreover, 

under current business and legal 

practice, emergency matters (such as 

transfers during a bankruptcy) may be 

accomplished outside of business hours. 

Accordingly, the words ‘‘the close of 

business on the fourth business day 

after the order for relief’’ are replaced by 

the words ‘‘11:59 P.M. on the seventh 

day after the order for relief’’ in 

proposed § 190.02(e)(1) (trustee to use 

best efforts to effect transfer before this 

time), § 190.02(f)(1) (deadline for 

transfer of dealer option contracts), 

§ 190.06(g)(2)(i)(A) (prohibition of 

avoidance of transfers of which the 

Commission is notified prior to the 

transfer pursuant to § 190.02(a)(2) and 

does not disapprove), and 

§ 190.06(g)(2)(ii) (prohibition of 

avoidance of transfers at the direction of 

the Commission). 

These amendments would only affect 

‘‘commodity brokers ’’18 in bankruptcy, 

and are meant to make Part 190 

consistent with amendments to the 

Bankruptcy Code. Accordingly, the 

Commission proposes to make the 

foregoing amendments to part 190 

effective immediately upon 

promulgation of a final rule. 

V. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) was adopted to address the 

concerns that government regulations 

may have a significant and/or 

disproportionate effect on small 

businesses. To mitigate this risk, the 

RFA requires agencies to conduct an 

initial and final regulatory flexibility 

analysis for each rule of general 

applicability for which the agency 

issues a general notice of proposed 

rulemaking.19 These analyses must 

describe the impact of the proposed rule 

on small entities, including a statement 

of the objectives and the legal bases for 

the rulemaking; an estimate of the 

number of small entities to be affected; 

identification of federal rules that may 

duplicate, overlap, or conflict with the 

proposed rules; and a description of any 

significant alternatives to the proposed 

rule that would minimize any 

significant impacts on small entities.20

The proposed Regulations will 

impose regulatory obligations on SDs 

and MSPs. The Commission has already 

established certain definitions of ‘‘small 

entities’’ to be used in evaluating the 

impact of its rules on such small entities 

in accordance with the RFA.21 SDs and 

MSPs are new categories of registrant. 

Accordingly, the Commission has not 

previously decided whether such 

persons are, in fact, small entities for 

purposes of the RFA. 

The Commission previously has 

determined that FCMs should not be 

considered to be small entities for 

purposes of the RFA. The Commission’s 

determination was based in part upon 

their obligation to meet the minimum 

financial requirements established by 

the Commission to enhance the 

protection of customers’ segregated 

funds and protect the financial 

condition of FCMs generally.22 Like 

FCMs, SDs will be subject to minimum 

capital and margin requirements, and 

are expected to comprise the largest 

global financial firms. The Commission 

is required to exempt from designation 

entities that engage in a de minimis 

level of swaps dealing in connection 

with transactions with or on behalf of 

customers. Accordingly, for purposes of 

the RFA, the Commission is hereby 

determining that SDs not be considered 

‘‘small entities’’ for essentially the same 

reasons that FCMs have previously been 

determined not to be small entities. 

The Commission has also previously 

determined that large traders are not 

‘‘small entities’’ for RFA purposes.23 The 

Commission considered the size of a 

trader’s position to be the only 

appropriate test for purposes of large 

trader reporting.24 MSPs maintain 

substantial positions in swaps, creating 

substantial counterparty exposure that 


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25 44 U.S.C. 3501 et seq. 

26 Id. 

27See generally 75 FR 66014, Notice of Proposed 

Rulemaking, Privacy of Consumer Financial 

Information; Conforming Amendments Under 

Dodd-Frank Act (October 27, 2010). 

28This estimate is based on the assumption that 

there will be about 250 SDs and 50 MSPs. 

29The estimate of the number of counterparties 

receiving disclosure from each swap dealer or major 

swap participant takes into consideration the 

possibility that a single counterparty may deal with 

more than one swap dealer or major swap 

participant in a year. Thus, the total number of 

required disclosures may exceed the total number 

of counterparties making use of uncleared swaps 

subject to the disclosure requirement. 

30The time and level of personnel required for 

the disclosure required by proposed § 23.604 in 

particular transactions will depend, to some extent, 

on the specifics of the agreement of the parties with 

regard to the back-office procedures of the SD 

relating to margin and collateral requirements, and 

the extent to which such agreements with regard to 

procedures are standardized at a particular SD. The 

average burden figure thus reflects a varying level 

of burden in particular transactions. 

could have serious adverse effects on 

the financial stability of the United 

States banking system or financial 

markets. Accordingly, for purposes of 

the RFA, the Commission is hereby 

determining that MSPs not be 

considered ‘‘small entities’’ for 

essentially the same reasons that large 

traders have previously been 

determined not to be small entities. 

Accordingly, the Chairman, on behalf 

of the Commission, hereby certifies 

pursuant to 5 U.S.C. 605(b) that the 

proposed rules will not have a 

significant economic impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

Provisions of proposed new 

Regulation Part 23 include new 

information disclosure and 

recordkeeping requirements that 

constitute the collection of information 

within the meaning of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’).25 The 

Commission therefore is submitting this 

proposed collection of information to 

the Office of Management and Budget 

(‘‘OMB’’) for review in accordance with 

44 U.S.C. 3507(d) and 5 CFR 1320.11. 

Under the PRA, 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 control number.26 The 

title for this collection of information is 

‘‘Disclosure and Retention of Certain 

Information Relating to Swaps Customer 

Collateral,’’ OMB Control Number 3038– 

NEW. The collection of information will 

be mandatory. The information in 

question will be held by private entities 

and, to the extent it involves consumer 

financial information, may be protected 

under Title V of the Gramm-LeachBliley Act as amended by the DoddFrank Act.27 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. 

This collection of information has not 

yet been assigned an OMB control 

number. 

1. Information Provided by Reporting 

Entities 

Proposed § 23.601 requires SDs and/ 

or MSPs to notify each counterparty to 

an uncleared swap transaction that the 

counterparty may require that the 

counterparty’s initial margin be held in 

a segregated account. The notification 

must be provided at the beginning of 

each swap transaction. However, 

notification need only be given once a 

year to any particular counterparty. The 

SD or MSP must provide the 

notification to the chief risk officer of 

the counterparty, if such an officer 

exists; and otherwise to another 

appropriate official of the counterparty 

as specified in the regulation. The SD or 

MSP must obtain a receipt of the 

notification and maintain it as a 

business record. The purpose of 

proposed § 23.601 is to implement 

Section 4s(l)(1)(A) of the CEA which 

requires SDs and MSPs in uncleared 

swaps transactions to notify 

counterparties that they have the right 

to require segregation of their initial 

margin deposits. 

Proposed § 23.604 requires the chief 

compliance officer of each SD or MSP 

to report on a quarterly basis to each 

counterparty that does not choose to 

require segregation of initial margin on 

whether or not the back-office 

procedures of the SD or MSP relating to 

margin and collateral requirements 

were, at any point during the previous 

quarter, not in compliance with the 

agreement of the counterparties. The 

purpose of this requirement is to 

implement Section 4s(1)(4) of the CEA, 

which requires these reports. 

The disclosure requirement of 

proposed § 23.601 is expected to apply 

to about 300 entities.28 Each such entity 

will be required to make the required 

disclosure once each year to each of its 

counterparties in uncleared swaps 

transactions. It is expected that each 

disclosure would require approximately 

0.3 hours of staff time by staff with a 

salary level of approximately $20 per 

hour. Because of the absence of 

experience under the new requirements 

of the Dodd-Frank Act, it is uncertain 

what average number of uncleared 

swaps counterparties will be dealt with 

annually by swap dealers and major 

swap participants. Assuming that each 

of 14 major swap dealers or major swap 

participants makes the required 

disclosure to 5,000–10,000 

counterparties per year, and each of the 

286 remaining swap dealers or major 

swap participants makes the required 

disclosure to 200 counterparties per 

year, there would be a total of 

approximately 130,000–200,000 

disclosures per year, and thus the 

estimated total annual burden would be 

approximately 40,000–60,000 hours and 

$800,000–$1,200,000.29

The disclosure requirement of 

proposed Regulation 23.604 will apply 

to the same 300 entities as the 

requirement of proposed Regulation 

23.601. Each such entity will be 

required to make the required disclosure 

four times each year to each of its 

uncleared swaps counterparties that 

does not choose to require segregation of 

capital. Because there is as yet no 

experience with the effect of the 

disclosure of the right to segregation of 

collateral and other requirements of the 

Dodd-Frank Act, it is uncertain how 

many uncleared swaps counterparties 

will decline such segregation. Assuming 

that half of all uncleared swaps 

counterparties do not choose 

segregation of collateral, proposed 

§ 23.604 would require a total of 

approximately 260,000–400,000 

disclosures annually. It is expected that 

each disclosure would, on average, 

require approximately 0.3 hours of staff 

time by staff with a salary level of about 

$30 per hour.30 The estimated total 

annual burden would be approximately 

80,000–120,000 hours and $2,400,000– 

$3,500,000. 

2. Information Collection Comments 

The Commission invites the public 

and other federal agencies to comment 

on any aspect of the reporting and 

recordkeeping burdens discussed above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (i) Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (iii) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information to 

be collected; and (iv) minimize the 

burden of the collection of information 

on those who are to respond, including 

through the use of automated collection 

techniques or other forms of information 

technology. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS-1
Federal Register / Vol. 75, No. 232 / Friday, December 3, 2010 / Proposed Rules 75437 

31 7 U.S.C. 19(a). 

Comments may be submitted directly 

to the OMB Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that all 

comments can be summarized and 

addressed in the final rule preamble. 

Refer to the ADDRESSES section of this 

notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this release. 

Consequently, a comment to OMB is 

most assured of being fully effective if 

received by OMB (and the Commission) 

within 30 days after publication of this 

notice of proposed rulemaking. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 31 requires 

the Commission to consider the costs 

and benefits of its actions before issuing 

a rulemaking under the CEA. By its 

terms, Section 15(a) of the CEA does not 

require the Commission to quantify the 

costs and benefits of a rule or to 

determine whether the benefits of the 

rulemaking outweigh its costs; rather, it 

requires that the Commission ‘‘consider’’ 

the costs and benefits of its actions. 

Section 15(a) of the CEA further 

specifies that the costs and benefits 

shall be evaluated in light of five broad 

areas of market and public concern: (1) 

Protection of market participants and 

the public; (2) efficiency, 

competitiveness, and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Commission may in 

its discretion give greater weight to any 

one of the five enumerated areas and 

could in its discretion determine that, 

notwithstanding its costs, a particular 

rule is necessary or appropriate to 

protect the public interest or to 

effectuate any of the provisions or 

accomplish any of the purposes of the 

CEA. 

1. Cost-Benefit Analysis of Proposed 

Part 23 

a. Summary of Proposed Requirements 

Proposed Part 23 of the Commission’s 

regulations implements the requirement 

of newly-enacted Section 4s(l) of the 

CEA that counterparties to uncleared 

swaps transactions with SDs and MSPs 

be given the right to require to require 

segregation of their initial margin in an 

account separate from those of the SD or 

MSP. Proposed Part 23 also implements 

the statutory requirement that SDs and 

MSPs notify their counterparties of this 

right. Additionally, amendments are 

being made to Part 190 of the 

Commission’s regulations that would 

clarify existing law, particularly that (i) 

‘‘customer property,’’ for purposes of 

Regulation Part 190, includes securities 

held in a portfolio margining account 

carried as a futures account, and (ii) 

‘‘customers,’’ for purposes of Regulation 

part 190, includes owners of such a 

portfolio margining account. Technical 

amendments also are being proposed for 

part 190. These amendments would 

change the deadline for certain actions 

in bankruptcy proceedings to conform 

with recent amendments to the 

Bankruptcy Code, as well as current 

business and legal practice. 

b. Costs 

The costs directly imposed by 

proposed part 23 and the amendments 

to Part 190 relate to the protection of 

market participants, the risk 

management practices of market 

participants, and the efficiency of 

bankruptcy proceedings. If proposed 

part 23 and the proposed amendments 

to Part 190 are not implemented, it will 

be less likely that a market participant 

will be informed of their option to 

require segregation of their initial 

margin from the assets of the SD or MSP 

opposite which the market participant 

will be transacting swaps. The 

segregation option is intended to 

preserve the assets of the market 

participant in the event of an insolvency 

of the SD or MSP. 

c. Benefits 

The benefits of proposed part 23 

relate to the protection of market 

participants and the financial integrity 

of the futures and swap markets. The 

proposed regulatons would ensure that 

segregated accounts for initial margin 

are available in all uncleared swaps 

transactions involving SDs or MSPs and 

that counterparties are informed of their 

availability. This could result in the 

increased use of segregated accounts 

with resulting reduced risk of loss of 

collateral by counterparties in the event 

of the insolvency of an SD or MSP and 

reduced chance of counterparty assets 

being intentionally or inadvertently 

misused. In addition proposed 

Regulation Part 23 can be expected to 

increase the likelihood that any lack of 

use of segregated collateral accounts by 

uncleared swaps counterparties is the 

result of genuine choices by 

counterparties and reduce the 

likelihood that it is the result of inertia, 

market power, or other market 

imperfections. 

The definitions and technical 

amendments being proposed for Part 

190 similarly are intended to relate to 

the protection of market participants, as 

well as to efficiency associated with 

bankruptcy proceedings. The 

definitional changes are expected to 

increase legal certainty in some 

circumstances. The technical 

amendments are intended to increase 

the efficiency with which certain acts in 

bankruptcy proceedings of commodity 

brokers are carried out by insuring 

consistency between the Regulations, 

the Bankruptcy Code, and current 

bankruptcy practice. 

3. Public Comment 

The Commission invites public 

comment on its cost-benefit 

considerations. Commenters are also are 

invited to submit any data or other 

information that they may have 

quantifying or qualifying the costs and 

benefits of the proposal with their 

comment letters. 

List of Subjects 

17 CFR Part 23 

Consumer protection, Reporting and 

recordkeeping requirements, Swaps. 

17 CFR Part 190 

Bankruptcy, Brokers, Commodity 

futures, Reporting and recordkeeping 

requirements, Swaps. 

For the reasons stated in this release, 

the Commission hereby proposes to 

amend 17 CFR part 23 as previously 

proposed in FR Doc. 2010–29024, 

published on November 23, 2010 (75 FR 

71379) and part 190 as follows: 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

1. The authority citation for Part 23 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6p, 

6s, 9, 9a, 13b, 13c, 16a, 18, 19, 21 as amended 

by Pub. L. 111–203, 124 Stat. 1376 (Jul. 21, 

2010). 

2. Add subpart L to read as follows: 

Subpart L—Segregation of Assets Held as 

Collateral in Uncleared Swap Transactions 

Sec. 

23.600 Definitions. 

23.601 Notification of right to segregation. 

23.602 Requirements for segregated margin. 

23.603 Investment of segregated initial 

margin. 

23.604 Requirements for non-segregated 

margin. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS-1
75438 Federal Register / Vol. 75, No. 232 / Friday, December 3, 2010 / Proposed Rules 

Subpart L—Segregation of Assets Held 

as Collateral in Uncleared Swap 

Transactions 

§ 23.600 Definitions. 

‘‘Initial Margin’’ means money, 

securities, or property posted by a party 

to a swap as performance bond to cover 

potential future exposures arising from 

changes in the market value of the 

position. 

‘‘Margin’’ means both Initial Margin 

and Variation Margin. 

‘‘Segregate.’’ To segregate two or more 

items is to keep them in separate 

accounts, and to avoid combining them 

in the same transfer between two 

accounts. 

‘‘Variation Margin’’ means a payment 

made by a party to a swap to cover the 

current exposure arising from changes 

in the market value of the position since 

the trade was executed or the previous 

time the position was marked to market. 

§ 23.601 Notification of right to 

segregation. 

(a) At the beginning of each swap 

transaction that is not submitted for 

clearing, a swap dealer or major swap 

participant shall notify each 

counterparty to such transaction that the 

counterparty has the right to require that 

any Initial Margin the counterparty 

provides in connection with such 

transaction be segregated in accordance 

with §§ 23.602 and 23.603 of this part. 

(b) The right referred to in paragraph 

(a) of this section does not extend to 

Variation Margin. 

(c) The notification referred to in 

paragraph (a) of this section shall be 

made to the Chief Risk Officer, or, if 

there is no such Officer, the Chief 

Executive Officer, or if none, the 

highest-level decisionmaker for the 

counterparty. 

(d) Prior to confirming the terms of 

any such swap, the swap dealer or major 

swap participant shall obtain from the 

counterparty confirmation of receipt by 

the person specified in paragraph (c) of 

this section of the notification specified 

in paragraph (a) of this section, and an 

election to require such segregation or 

not. The swap dealer or major swap 

participant shall maintain such 

confirmation and such election as 

business records pursuant to § 1.31 of 

this chapter. 

(e) Notification pursuant to paragraph 

(a) of this section to a particular 

counterparty by a particular swap dealer 

or major swap participant need only be 

made once in any calendar year. 

(f) A counterparty’s election to require 

segregation of initial margin, or not to 

require such segregation, may be 

changed at the discretion of the 

counterparty upon written notice 

delivered to the swap dealer or major 

swap participant, which changed 

election shall be applicable to all swaps 

entered into between the parties after 

such delivery. 

§ 23.602 Requirements for segregated 

margin. 

(a) Initial margin that is segregated 

pursuant to an election under § 23.601 

of this part must be: 

(1) Segregated with a custodian that is 

independent of both the swap dealer or 

major swap participant and the 

counterparty, and 

(2) Held in an account segregated, and 

designated as such, for and on behalf of 

the counterparty. Such an account may, 

if the swap dealer or major swap 

participant and the counterparty agree, 

also hold Variation Margin. 

(b) Any agreement for the segregation 

of Margin pursuant to this section shall 

be in writing, shall include the 

custodian as a party, and shall provide 

that: 

(1) Turnover of control of such 

margin, either to the counterparty or to 

the swap dealer or major swap 

participant, shall be made promptly 

upon presentation to the custodian of a 

statement in writing, made under oath 

or under penalty of perjury as specified 

in 28 U.S.C. 1746, by an authorized 

representative of either such party, 

stating that such party is entitled to 

such control pursuant to an agreement 

between such parties. The other party 

shall be immediately notified of such 

turnover, and 

(2) Any withdrawal of such margin, 

other than pursuant to paragraph (b)(1) 

of this section, shall only be made 

pursuant to the agreement of both the 

counterparty and the swap dealer or 

major swap participant, and notification 

of such withdrawal shall be given 

immediately to the non-withdrawing 

party. 

§ 23.603 Investment of segregated initial 

margin. 

(a) Initial Margin that is segregated 

pursuant to an election under § 23.601 

may only be invested consistent with 

§ 1.25 of this chapter. 

(b) Subject to paragraph (a) of this 

section, the swap dealer or major swap 

participant and the counterparty may 

enter into any commercial arrangement, 

in writing, regarding the investment of 

such Initial Margin, and the related 

allocation of gains and losses resulting 

from such investment. 

§ 23.604 Requirements for non-segregated 

margin. 

(a) The chief compliance officer of 

each swap dealer or major swap 

participant shall report to each 

counterparty that does not choose to 

require segregation of Initial Margin 

pursuant to § 23.601(a), no later than the 

fifteenth business day of each calendar 

quarter, on whether or not the back 

office procedures of the swap dealer or 

major swap participant relating to 

margin and collateral requirements 

were, at any point during the previous 

calendar quarter, not in compliance 

with the agreement of the 

counterparties. 

(b) The obligation specified in 

paragraph (a) of this section shall apply 

with respect to each counterparty no 

earlier than the 90th calendar day after 

the date on which the first swap is 

transacted between the counterparty 

and the swap dealer or major swap 

participant. 

PART 190—BANKRUPTCY 

3. The authority citation for Part 190 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 4a, 6c, 6d, 6g, 7a, 

12, 19, and 24, and 11 U.S.C. 362, 546, 548, 

556, and 761–766, unless otherwise noted. 

4. Amend § 190.01(k) to read as 

follows: 

§ 190.01 Definitions. 

* * * * * 

(k) Customer shall have the same 

meaning as that set forth in section 

761(9) of the Bankruptcy Code. To the 

extent not otherwise included, customer 

shall include the owner of a portfolio 

margining account carried as a futures 

account. 

* * * * * 

§ 190.02 [Amended] 

5. In § 190.02, amend paragraphs 

(e)(1) and (f)(1)(i) by removing the 

words ‘‘the close of business on the 

fourth business day after the order for 

relief’’ and adding, in their place, the 

words ‘‘11:59 P.M. on the seventh day 

after the order for relief.’’ 

§ 190.06 [Amended] 

6. In § 190.06, amend paragraph 

(g)(2)(i)(A) by removing the words ‘‘the 

close of business on the fourth business 

day after the entry of the order for relief’’ 

and adding, in their place, the words 

‘‘11:59 P.M. on the seventh day after the 

order for relief’’; and amend paragraph 

(g)(2)(ii) by removing the words ‘‘the 

close of business on the fourth business 

day after the order for relief’’ and 

adding, in their place, the words ‘‘11:59 

P.M. on the seventh day after the order 

for relief’’. 

7. Amend § 190.08 by redesignating 

paragraph (a)(1)(i)(F) as 


emcdonald on DSK2BSOYB1PROD with PROPOSALS-1
Federal Register / Vol. 75, No. 232 / Friday, December 3, 2010 / Proposed Rules 75439 

§ 190.08(a)(1)(i)(G), and by adding a new 

paragraph (a)(1)(i)(F): 

§ 190.08 Allocation of property and 

allowance of claims. 

* * * * * 

(a) * * * 

(1) * * * 

(i) * * * 

(F) To the extent not otherwise 

included, securities held in a portfolio 

margining account carried as a futures 

account; 

* * * * * 

Issued in Washington, DC, on November 

19, 2010, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Statement of Chairman Gary Gensler 

Protection of Collateral of 

Counterparties to Uncleared Swaps; 

Treatment of Securities in a Portfolio 

Margining Account in a Commodity 

Broker Bankruptcy 

I support the proposed rulemaking 

concerning protection of collateral of 

counterparties to uncleared swaps. The 

proposal includes important protections for 

end-users when entering into bilateral or 

customized swaps. The proposal follows the 

Congressional direction that end-users must 

have a choice to have any initial margin that 

they post with a swap dealer to be kept in 

a segregated account and with a third party 

custodian. The proposed rules would protect 

market participants while promoting the 

financial integrity of the marketplace. The 

proposal also includes necessary 

housekeeping details with regard to the 

Bankruptcy code. 

[FR Doc. 2010–29831 Filed 12–2–10; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 301 

[REG–100194–10] 

RIN 1545–BJ52 

Specified Tax Return Preparers 

Required To File Individual Income Tax 

Returns Using Magnetic Media 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations relating to the 

requirement for ‘‘specified tax return 

preparers,’’ generally tax return 

preparers who reasonably expect to file 

more than 10 individual income tax 

returns in a calendar year, to file 

individual income tax returns using 

magnetic media pursuant to section 

6011(e)(3) of the Internal Revenue Code 

(Code). The proposed regulations reflect 

changes to the law made by the Worker, 

Homeownership, and Business 

Assistance Act of 2009. The proposed 

regulations affect specified tax return 

preparers who prepare and file 

individual income tax returns, as 

defined in section 6011(e)(3)(C). For 

calendar year 2011, the proposed 

regulations define a specified tax return 

preparer as a tax return preparer who 

reasonably expects to file (or if the 

preparer is a member of a firm, the 

firm’s members in the aggregate 

reasonably expect to file) 100 or more 

individual income tax returns during 

the year, while beginning January 1, 

2012 a specified tax return preparer is 

a tax return preparer who reasonably 

expects to file (or if the preparer is a 

member of a firm, the firm’s members in 

the aggregate reasonably expect to file) 

11 or more individual income tax 

returns in a calendar year. The proposed 

regulations are unrelated to and are not 

intended to address the requirements for 

obtaining a preparer tax identification 

number (PTIN) under section 6109. See 

the final regulations under section 6109 

published in the Federal Register (75 

FR 60309–01). This document also 

provides a notice of a public hearing on 

these proposed regulations. 

DATES: Written or electronic comments 

must be received by January 3, 2011. 

Outlines of topics to be discussed at the 

public hearing scheduled for January 7, 

2011 must be received by January 3, 

2011. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–100194–10), room 

5205, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand-delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to CC:PA:LPD:PR (REG–100194– 

10), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue, 

NW., Washington, DC 20224, or sent 

electronically via the Federal 

eRulemaking Portal at http:// 

www.regulations.gov (IRS—REG– 

100194–10). The public hearing will be 

held in the auditorium, Internal 

Revenue Building, 1111 Constitution 

Avenue, NW., Washington, DC 20224. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Keith L. Brau, (202) 622–4940; 

concerning submissions of comments, 

the hearing, and/or to be placed on the 

building access list to attend the 

hearing, Oluwafunmilayo Taylor of the 

Publications and Regulations Branch at 

(202) 622–7180 (not toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget for 

review in accordance with the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3507(d)). Comments on the 

collection of information should be sent 

to the Office of Management and 

Budget, Attn: Desk Officer for the 

Department of the Treasury, Office of 

Information and Regulatory Affairs, 

Washington, DC 20503, with copies to 

the Internal Revenue Service, Attn: IRS 

Reports Clearance Officer, 

SE:CAR:MP:T:T:SP, Washington, DC 

20224. Comments on the collection of 

information should be received by 

January 3, 2011. Comments are 

specifically requested concerning: 

Whether the proposed collection of 

information is necessary for the proper 

performance of the Internal Revenue 

Service, including whether the 

information will have practical utility; 

The accuracy of the estimated burden 

associated with the proposed collection 

of information (see below) or of the 

certification contained under the 

heading ‘‘Special Analyses’’; 

How the quality, utility, and clarity of 

the information to be collected may be 

enhanced; 

How the burden of complying with 

the proposed collection of information 

may be minimized; and 

Estimates of capital or start-up costs 

and costs of operation, maintenance, 

and purchases of service to provide 

information. 

The collection of information in this 

proposed regulation is in § 301.6011– 

6(a)(4)(ii). This information can be used 

by tax return preparers and specified tax 

return preparers, if necessary, to 

demonstrate to the IRS that the related 

individual income tax returns filed in 

paper format were not required to be 

filed electronically pursuant to section 

6011(e)(3) and § 301.6011–6. The 

collection of information is voluntary to 

obtain a benefit. The likely respondents 

are the individuals and small businesses 

who prepare individual income tax 

returns in exchange for compensation. It 

is estimated that 5 minutes of 

preparation time is needed for a tax 

return preparer to explain the purpose 

of the information and obtain it from the 

taxpayer in the manner prescribed by 

the IRS and 6 minutes for 

recordkeeping, consisting of 

maintaining a copy of the information 

submitted for the respondent’s records. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS-1