6708 Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 

Enterprises means, collectively, the 

Federal National Mortgage Association 

and the Federal Home Loan Mortgage 

Corporation. 

Excepted transfer fee covenant means 

a covenant to pay a private transfer fee 

to a covered association that is used 

exclusively for the direct benefit of the 

real property encumbered by the private 

transfer fee covenants. 

Federal Home Loan Banks or Banks 

mean the Federal Home Loan Banks 

established under section 12 of the 

Federal Home Loan Bank Act (12 U.S.C. 

1432). 

Private transfer fee means a transfer 

fee, including a charge or payment, 

imposed by a covenant, restriction or 

other similar document and required to 

be paid in connection with or as a result 

of a transfer of title to real estate. A 

private transfer fee excludes fees, 

charges, or payments, or other 

obligations— 

(1) Imposed by a court judgment, 

order or decree; 

(2) Imposed by or are payable to the 

Federal government or a State or local 

government; 

(3) Arising out of a mechanic’s lien; 

or 

(4) Arising from an option to purchase 

or for waiver of the right to purchase the 

encumbered real property. 

Private transfer fee covenant means a 

covenant that— 

(1) Purports to run with the land or to 

bind current owners of, and successors 

in title to, such real property; and 

(2) Obligates a transferee or transferor 

of all or part of the property to pay a 

private transfer fee upon transfer of an 

interest in all or part of the property, or 

in consideration for permitting such 

transfer. 

Regulated entities means the Federal 

National Mortgage Association, the 

Federal Home Loan Mortgage 

Corporation, and the Federal Home 

Loan Banks. 

Transfer means with respect to real 

property, the sale, gift, grant, 

conveyance, assignment, inheritance or 

other transfer of an interest in the real 

property. 

§ 1228.2 Restrictions. 

The regulated entities shall not 

purchase or invest in any mortgages on 

properties encumbered by private 

transfer fee covenants, securities backed 

by such mortgages or securities backed 

by the income stream from such 

covenants, unless such covenants are 

excepted transfer fee covenants. The 

Banks shall not accept such mortgages 

or securities as collateral, unless such 

covenants are excepted transfer fee 

covenants. 

§ 1228.3 Prospective application and 

effective date. 

This part shall apply only to 

mortgages on properties encumbered by 

private transfer fee covenants created on 

or after February 8, 2011, and to 

securities backed by such mortgages, 

and to securities issued after that date 

backed by revenue from private transfer 

fees regardless of when the covenants 

were created. The regulated entities 

shall comply with this part not later 

than 120 days following the date of 

publication of the final rule in the 

Federal Register. 

§ 1228.4 State restrictions unaffected. 

This part does not affect State 

restrictions or requirements with respect 

to private transfer fee covenants, such as 

with respect to disclosures or duration. 

Dated: January 28, 2011. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2011–2565 Filed 2–7–11; 8:45 am] 

BILLING CODE 8070–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 23 

RIN 3038–AC96 

Orderly Liquidation Termination 

Provision in Swap Trading 

Relationship Documentation for Swap 

Dealers and Major Swap Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing regulations to 

implement new statutory provisions 

established under Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act). 

Section 731 of the Dodd-Frank Act 

added a new section 4s(i) to the 

Commodity Exchange Act (CEA), which 

requires the Commission to prescribe 

standards for swap dealers and major 

swap participants related to the timely 

and accurate confirmation, processing, 

netting, documentation, and valuation 

of swaps. The proposed rule would set 

forth parameters for the inclusion of an 

orderly liquidation termination 

provision in the swap trading 

relationship documentation for swap 

dealers and major swap participants. 

DATES: Submit comments on or before 

April 11, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AC96 

and Orderly Liquidation Termination 

Provision in Swap Trading Relationship 

Documentation for Swap Dealers and 

Major Swap Participants, by any of the 

following methods: 

• Agency Web site, via its Comments 

Online process at 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 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. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 

under the Freedom of Information Act, 

a petition for confidential treatment of 

the exempt information may be 

submitted according to the established 

procedures in § 145.9 of the 

Commission’s regulations, 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: 

Sarah E. Josephson, Associate Director, 

202–418–5684, sjosephson@cftc.gov; 

Frank N. Fisanich, Special Counsel, 

202–418–5949, ffisanich@cftc.gov; or 

Jocelyn Partridge, Special Counsel, 202– 

418–5926, jpartridge@cftc.gov; Division 

of Clearing and Intermediary Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 6709 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection 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. 

4Section 8a(5) of the CEA authorizes the 

Commission to promulgate such regulations as, in 

the judgment of the Commission, are reasonably 

necessary to effectuate any of the provisions or to 

accomplish any of the purposes of the CEA. 

5This is the seventh rulemaking to be proposed 

regarding internal business conduct standards for 

swap dealers and major swap participants. Prior 

notices of proposed rulemaking are available on the 

Commission’s Web site at http://www.cftc.gov. 

6As proposed, this provision would not apply to 

swaps cleared by a derivatives clearing organization 

(DCO). The Commission does not believe it is 

necessary to address cleared swaps in this 

rulemaking because they are addressed in section 

210(c)(8)(G) of the Dodd-Frank Act, but solicits 

comment on this issue. 

7For example, over two years after the 

bankruptcy process for Lehman Brothers Holding 

Inc. began, it remains ongoing and active. On 

December 15, 2010, creditors filed a plan of 

reorganization by an ad hoc group of Lehman 

creditors despite Lehman’s filing of a plan of 

reorganization on March 15, 2010. By contrast, 

under the special provisions under Commission 

regulation for treatment of cleared futures contracts, 

Lehman’s futures business was resolved within a 

matter of weeks. 

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 regulatory 

framework to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating rigorous recordkeeping and 

real-time reporting regimes; and (4) 

enhancing the Commission’s 

rulemaking and enforcement authorities 

with respect to all registered entities 

and intermediaries subject to the 

Commission’s oversight. 

Section 731 of the Dodd-Frank Act 

amends the CEA by adding a new 

section 4s, which sets forth a number of 

requirements for swap dealers and 

major swap participants. Specifically, 

section 4s(i) of the CEA establishes 

swap documentation standards for those 

registrants. 

Section 4s(i)(1) requires swap dealers 

and major swap participants to 

‘‘conform with such standards as may be 

prescribed by the Commission by rule or 

regulation that relate to timely and 

accurate confirmation, processing, 

netting, documentation, and valuation 

of all swaps.’’ Under section 4s(i)(2), the 

Commission is required to adopt rules 

‘‘governing documentation standards for 

swap dealers and major swap 

participants.’’ 

On January 13, 2011, the Commission 

voted to issue a notice of proposed 

rulemaking entitled, ‘‘Swap Trading 

Relationship Documentation 

Requirements for Swap Dealers and 

Major Swap Participants.’’ This 

proposed regulation supplements that 

proposal and sets forth another element 

of the swap trading relationship 

documentation that swap dealers, major 

swap participants, and their 

counterparties must include in their 

documentation. The Commission is 

proposing the regulation discussed 

below, pursuant to the authority granted 

under sections 4s(h)(1)(D), 4s(h)(3)(D), 

4s(a), 4s(i), and 8a(5) of the CEA.4 The 

Dodd-Frank Act requires the 

Commission to promulgate these 

provisions by July 15, 2011.5

The proposed regulations reflect 

consultation with staff of the following 

agencies: (i) The Securities and 

Exchange Commission; (ii) the Board of 

Governors of the Federal Reserve 

System (Board of Governors); (iii) the 

Office of the Comptroller of the 

Currency; and (iv) the Federal Deposit 

Insurance Corporation (FDIC). Staff from 

each of these agencies has had the 

opportunity to provide comments to the 

proposal, and the proposed regulations 

incorporate elements of the comments 

provided. 

In designing these rules, the 

Commission has taken care to minimize 

the burden on those parties that will not 

be registered with the Commission as 

swap dealers or major swap 

participants. To the extent that market 

participants believe that additional 

measures should be taken to reduce the 

burden or increase the benefits of 

documenting swap transactions, the 

Commission welcomes all comments. 

II. Proposed Regulation 

This proposed rulemaking 

supplements a prior notice of proposed 

rulemaking under which two rules were 

proposed—§§ 23.504 and 23.505. This 

proposal would set forth another 

element of the swap trading relationship 

documentation that swap dealers, major 

swap participants, and their 

counterparties must include in their 

documentation under § 23.504(b). The 

provision would require that swap 

dealers and major swap participants 

include in the documentation with each 

of their counterparties a provision that 

confirms both parties’ understanding of 

how the new orderly liquidation 

authority under the Title II of the DoddFrank Act and the Federal Deposit 

Insurance Act (FDIA) may affect their 

portfolios of uncleared, over-thecounter, bilateral swaps.6

The Commission believes that the 

inclusion of this type of provision in the 

swap trading relationship 

documentation used by swap dealers 

and major swap participants registered 

with the Commission would promote 

legal certainty for market participants 

and lower litigation risk during times of 

significant market stress. In particular, 

the proposal would ensure both 

counterparties to a swap understand 

that under particular, unique 

circumstances, described in detail 

below, if one of the counterparties 

defaults, the non-defaulting party’s 

positions could be transferred to a new, 

solvent counterparty by the FDIC, and 

the non-defaulting party may not be able 

to terminate its claims against the 

defaulting counterparty until 5 p.m. 

(U.S. eastern time) on the business day 

following the day the FDIC is appointed 

receiver. This stay would facilitate the 

FDIC’s orderly liquidation of the 

defaulting counterparty’s swap 

positions. This stay also is critical 

because it would allow the FDIC the 

requisite time to transfer the defaulter’s 

open swap positions, claims, and 

collateral with the objective of avoiding 

widespread market disruption in the 

form of fire sales and contagion risk. 

A. Background 

The recent financial crisis, 

particularly the tumultuous events of 

2008, revealed that U.S. financial 

regulatory authorities lacked an orderly 

resolution mechanism for certain large 

financial companies. The lack of such a 

resolution mechanism led to the need 

for government bail outs of financial 

companies considered ‘‘too big to fail’’ 

and contributed to major financial 

market dislocations resulting from the 

disorderly insolvency of Lehman 

Brothers Inc. and its affiliates under the 

Federal bankruptcy code. 

One of the key lessons of the financial 

crisis is that for systemically important 

institutions, the traditional bankruptcy 

process may be too slow and 

cumbersome to effectively deal with 

defaults that require near instant action 

to diminish their effect on other entities 

and the financial system as a whole.7

This is especially true for financial 

companies with significant derivatives 

positions that require frequent 

adjustments based on trading strategies 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
6710 Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 

8Under Title II, section 201(a)(11), a financial 

company includes, among other things, a bank 

holding company, a nonbank financial company 

supervised by the Board of Governors, or a 

company, or a subsidiary (other than an insured 

depository institution or an insurance company) of 

a company, that is predominantly engaged in 

activities that the Board of Governors has 

determined are financial in nature or incidental 

thereto. 

9Section 204(a) of the Dodd-Frank Act. 

10Section 203(b)(2) of the Dodd-Frank Act. 

11 In general, Chapter 7 allows for the liquidation 

of a debtor entity and Chapter 11 allows a debtor 

entity to reorganize its affairs. 

12Section 113 of the Dodd-Frank Act sets forth 

the process by which U.S. nonbank financial 

companies may be designated as systemically 

important. The term U.S. nonbank financial 

company is defined in section 102(a)(4)(B) of the 

Dodd-Frank Act. 

13Entities that are designated as SIFIs under Title 

I of the Dodd-Frank Act are considered to be 

supervised by the Board of Governors of the Federal 

Reserve System, and thus meet the definition of 

financial company under section 201(a)(11)(B)(ii). 

14Financial activities are defined by reference to 

section 4(k) of the Bank Holding Company Act, 12 

U.S.C. 1843(k), which includes activities such as 

dealing in or making a market in securities and any 

other activity that may be identified under rules or 

orders issued by the Board of Governors. See 12 

U.S.C. 1843(k)(4) and 12 CFR 225.28. 

15Section 201(a)(11)(B)(iii) or (iv) and section 

201(b) of the Dodd Frank Act. 

16The phrase ‘‘default or in danger of default’’ is 

defined in Title II, section 203(c)(4), to include 

situations where an entity has, or likely will 

promptly, be subject to a bankruptcy action; the 

entity has incurred losses that have or are likely to 

deplete all of its capital and there is no reasonable 

prospect of avoiding such a depletion; the entity’s 

assets are less than its obligations to creditors and 

others; and the entity is, or is likely to be, unable 

to make its payments in the normal course of 

business. See also 12 U.S.C. 1813(x)(2) (providing 

a similar definition under the FDIA). 

17Section 203(b) of the Dodd-Frank Act. 

Additional factors the Secretary must consider 

include: (1) Any action under the liquidation 

authority would avoid or mitigate such adverse 

effects on the financial system, the cost to the 

general fund of the Treasury, and the potential to 

increase excessive risk taking on the part of 

creditors, counterparties, and shareholders in the 

financial company; (2) a Federal regulatory agency 

has ordered the covered financial company to 

convert all of its convertible debt instruments that 

are subject to a regulatory order; and (3) the 

company satisfies the definition of ‘‘financial 

company’’ in section 201(a)(11) of the Dodd-Frank 

Act. 

18 12 U.S.C. 1813(c). 

and the need to manage exposure to 

market risk. 

With the passage of the Dodd-Frank 

Act, Congress sought to address these 

problems though the enactment of Title 

II, which establishes an ‘‘orderly 

liquidation authority’’ under which 

systemically important financial 

companies can be resolved in an orderly 

manner. This authority is separate from, 

but consistent with, the Federal 

bankruptcy and State dissolution laws. 

B. Orderly Liquidation Under Title II of 

Dodd-Frank 

Under Title II of the Dodd-Frank Act, 

Congress provided ‘‘the necessary 

authority to liquidate failing financial 

companies 8 that pose a significant risk 

to the financial stability of the United 

States in a manner that mitigates such 

risk and minimizes moral hazard.’’ 9 To 

this end, Title II establishes a process 

under which, upon the recommendation 

of the FDIC and the Board of Governors, 

and after consultation with the 

President, the Secretary of the Treasury 

appoints the FDIC as the receiver to 

wind down the affairs of, and liquidate 

the assets of, the financial company 

whose default may pose a systemic risk 

to the financial markets. Accordingly, 

the decision to act under Title II would 

be taken under conditions that would 

have ‘‘serious adverse effects on 

financial stability in the United 

States.’’ 10

1. Entities Eligible for Liquidation 

Under Title II 

Title II provides certain Federal 

financial regulatory authorities with the 

power, but not the obligation, to 

conduct an orderly wind down of a 

financial company. If the authorities 

decide not to act, the regular insolvency 

processes under the Federal bankruptcy 

code or banking laws would apply. For 

instance, non-bank swap dealers and 

major swap participants would be 

subject to the bankruptcy code’s chapter 

7 or chapter 11 proceedings.11

Title II applies to a class of business 

entities, referred as ‘‘covered financial 

companies,’’ that meet certain criteria as 

determined by the Secretary of the 

Treasury under a process described in 

the next section. This class potentially 

could include swap dealers and major 

swap participants registered with the 

Commission. For example, under Title 

II, any company that is registered as a 

swap dealer or major swap participant 

with the Commission and designated as 

a systemically important financial 

institution (SIFI) by the Financial 

Stability Oversight Council (FSOC) 

under a process laid out in Title I of the 

Dodd-Frank Act,12 could be deemed to 

be a ‘‘covered financial company’’ under 

Title II.13

It also is possible that a swap dealer 

or a major swap participant might be 

deemed to be a ‘‘covered financial 

company’’ independent of Title I’s FSOC 

designation process. Under Title II, such 

a company could be deemed to be a 

‘‘financial company’’ if that entity is (1) 

predominantly engaged in financial 

activities 14 and (2) those financial 

activities generate 85% or more of the 

company’s revenues.15 A ‘‘covered 

financial company’’ is a financial 

company for which a determination has 

been made under section 203(b) of the 

Dodd-Frank Act by the Secretary of the 

Treasury. A prerequisite to that 

determination process is the written 

recommendation of both the FDIC and 

the Board of Governors. 

2. Process for Determining Whether 

Title II Authority Should Be Invoked 

In making a determination to act 

under Title II, the Secretary of the 

Treasury (in consultation with the 

President) must determine that, among 

other things: (1) The financial company 

is in default or in danger of default; 16

(2) the default of the financial company 

would have a serious adverse effect on 

the financial stability of the United 

States; and (3) no viable private sector 

alternative is available to prevent the 

default. The Secretary must make a 

specific determination that any effect on 

the claims or interests of creditors, 

counterparties, and shareholders is 

appropriate.17

In order to meet each of these criteria, 

it is likely that a financial company 

would have to have a significant level 

of market and credit exposure and its 

default would be likely to pose a grave 

risk to financial markets. Only after 

these determinations have been made 

would the FDIC be granted resolution 

authority under Title II. 

C. Resolution by the FDIC Under FDIA. 

Before describing the FDIC’s 

resolution authority under Title II, it is 

important to note that the FDIC also 

may have resolution authority over a 

swap dealer or major swap participant 

that is an insured depository institution. 

Generally speaking, an insured 

depository institution is defined under 

section 3(c) of the Federal Deposit 

Insurance Act (FDIA) as any bank or 

savings association the deposits of 

which are insured by the FDIC.18 Under 

the FDIA, the FDIC has the authority to 

liquidate or wind up the affairs of an 

insured depository institution. Some 

swap dealers and major swap 

participants registered with the 

Commission may be insured depository 

institutions. 

D. Role of the FDIC in the Orderly 

Liquidation of Swap Dealers and Major 

Swap Participants Under Either Title II 

or the FDIA 

In many ways, the Title II resolution 

approach is modeled upon the FDIA. 

Indeed, as discussed below, certain Title 

II provisions are identical to provisions 

in FDIA. Consequently, the FDIC would 

be able to exercise similar powers with 

regard to swap dealers and major swap 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 6711 

19The FDIC also would have the authority to 

merge the covered financial company with another 

company under section 210(a)(1)(G) of the DoddFrank Act. 20Qualified financial contracts include any 

securities contract, commodity contract, forward 

contract, repurchase agreement, swap agreement, 

and any similar agreement as determined by the 

FDIC. Section 210(c)(8)(D) of the Dodd-Frank Act 

and section 11(e)(8)(D) of FDIA. 

21Section 210(c) applies to contracts entered into 

before the appointment of a receiver under Title II. 

There is an analogous provision under the FDIA. 

See section 210(c)(8)(D) of the Dodd-Frank Act and 

section 11(e)(8)(D) of FDIA. 

22Under this definition, futures contracts subject 

to the Commission’s jurisdiction are considered to 

be qualified financial contracts. 

23Section 204(a)(3) of the Dodd-Frank Act. 

24Section 204(c)(1) and (3) of the Dodd-Frank 

Act. 

25Sections 11(e)(9) and (10) of the FDIA; codified 

at 12 U.S.C. 1821(e)(9) and (10). 

26The counterparties may be able to specify in 

their individual documentation that only Title II 

would apply if neither counterparty would be 

subject to resolution under the FDIA, i.e. neither 

party is an insured depository institution. 

participants regardless of whether the 

FDIC was acting under Title II or FDIA. 

Under either statutory authority, it is 

likely that the orderly wind-down and 

liquidation of those large firms whose 

demise may have systemic implications 

would have similar characteristics. For 

example, under both Title II and the 

FDIA, the FDIC would have the 

authority to transfer open positions, 

claims, and collateral to a receiving 

entity in an effort to move quickly to 

stabilize what could be deteriorating 

market conditions.19

As part of the resolution authority in 

Title II and in the existing provisions of 

the FDIA for insured depository 

institutions, the FDIC is given a one 

business day period in which to transfer 

swaps and certain other contracts to a 

solvent third party financial institution. 

For this transfer authority to be 

effective, a brief stay on the ability of 

counterparties to terminate, liquidate, or 

net is necessary. 

Specifically, under section 210(c)(10) 

of Dodd-Frank or 11(e)(10) of FDIA, 

parties to qualified financial contracts 20

are prohibited from terminating, 

liquidating, or netting out positions 

solely by reason of the appointment of 

the FDIC as receiver or the financial 

condition of the insured depository 

institution, covered financial company, 

or covered subsidiary in receivership 

until the close of the next business day 

following the date of appointment of the 

FDIC as receiver. A party is also 

precluded from exercising any such 

contractual rights after it has received 

notice that its qualified financial 

contract has been transferred to another 

financial institution—including a bridge 

financial company. The effect of these 

provisions is to provide the FDIC one 

day after its appointment as receiver to 

consummate a transfer of a qualified 

financial contract to either a private 

acquirer or to a newly created bridge 

bank or financial company. Absent one 

of these two types of transfers within 

the allotted time frame, parties may 

exercise their contractual rights. 

E. Application to Swaps 

Swaps subject to the Commission’s 

jurisdiction under Title VII of the DoddFrank Act would appear to be subject to 

orderly liquidation under either Title II 

or the FDIA by virtue of the fact that 

they fall under the definition of 

‘‘qualified financial contract’’ under 

those two statutes.21 The definition of 

qualified financial contract is identical 

under both Title II and FDIA and 

includes securities contracts, 

commodity contracts,22 forward 

contracts, repurchase agreements, swap 

agreements, and any other contract 

determined by the FDIC to be a qualified 

financial contract. 

The Commission recognizes the 

potential for regulatory arbitrage if the 

definition of qualified financial contract 

does not apply to swaps under Title VII. 

Moreover, the Commission believes that 

should the need for an orderly 

liquidation of any systemically 

important swap dealer or major swap 

participant arise, it would be most 

appropriate and practicable for all 

swaps held on the books of those 

entities to be considered to be part of a 

comprehensive and orderly resolution 

process. 

F. Commission Involvement in an 

Orderly Liquidation 

While the Commission is not granted 

explicit authority under Title II, that 

section does recognize the need for all 

U.S. financial authorities to work 

together and to ‘‘take all steps necessary 

and appropriate to assure that all parties 

* * * having responsibility for the 

condition of the financial company bear 

losses consistent with their 

responsibility * * *.’’ 23 In addition, if 

the FDIC is appointed receiver of a swap 

dealer or major swap participant for 

which the Commission is the primary 

regulator, the FDIC is required to 

consult with the Commission ‘‘for 

purposes of ensuring an orderly 

liquidation of the entity.’’ 24 As part of 

its consultative role, the Commission 

might have information on defaulting 

swap dealers or major swap participants 

that is relevant to the resolution process. 

Moreover, the Commission may have 

responsibility for potential transferees, 

i.e., firms to which open swap positions 

might be transferred. 

G. Proposed Regulation § 23.504(b)(5) 

Previously proposed § 23.504(a) 

would require that swap dealers and 

major swap participants establish, 

maintain, and enforce written policies 

and procedures reasonably designed to 

ensure that each swap dealer or major 

swap participant and its counterparties 

have agreed in writing to all of the terms 

governing their swap trading 

relationship. Under previously 

proposed § 23.504(b), swap trading 

relationship documentation would 

include written agreement by the parties 

on certain terms, including general 

provisions on payment obligations, 

netting of payments, events of default or 

other termination events, transfer of 

rights and obligations, and governing 

law. 

Proposed § 23.504(b)(5) would 

supplement the prior proposal by 

requiring the inclusion of a written 

agreement by the parties to comply with 

the FDIC’s transfer authority under 

section 210(c)(9) and (10) of the DoddFrank Act and with the nearly identical 

sections under the FDIA.25 This 

provision under the swap trading 

relationship documentation could be 

invoked only if a party to the 

documentation is deemed to be a 

‘‘covered financial company’’ under 

Title II or is an insured depository 

institution and the FDIC is appointed as 

a receiver. Under either scenario, the 

proposed rule refers to this party as the 

‘‘covered party.’’ 

The language of proposed 

§ 23.504(b)(5)(i) very closely tracks the 

statutory language of section 

210(c)(10)(B) of the Dodd-Frank Act and 

section 11(e)(10)(B) of the FDIA. Under 

this provision, counterparties will 

acknowledge in their trading 

relationship documentation that neither 

will exercise any right to terminate a 

swap due to the appointment of the 

FDIC as a receiver under Title II or the 

FDIA 26 until the close of the next 

business day after such appointment, or 

it receives notice that the FDIC has 

transferred its swaps to a performing 

third party (including a bridge bank, 

bridge financial institution, or other 

government-run financial institution). 

This stay provision would expire at 5 

p.m. on the business day after the FDIC 

is appointed as receiver or as soon as 

the non-defaulting party receives notice 

that the FDIC has transferred the 

defaulting party’s swaps positions, 

claims, and property supporting the 

positions pursuant to section 

210(c)(9)(A) of the Dodd-Frank Act or 

section 11(e)(9)(A) of the FDIA. 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
6712 Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 

27Section 202(f) of the Dodd-Frank Act. 

28 5 U.S.C. 601 et seq. 

29 47 FR 18618, Apr. 30, 1982. 

30 Id. at 18619. 

31 Id. 

32 Id. at 18620. 

Proposed § 23.504(b)(5)(ii) would 

track the language of section 

210(c)(9)(A) of the Dodd-Frank Act and 

section 11(e)(9)(A) of the FDIA and 

would require the parties to agree that 

if the FDIC decides to transfer swaps of 

the party in receivership, the FDIC will 

transfer all swaps between the parties to 

one financial institution, along with all 

claims and credit support related to 

such swaps. 

Proposed § 23.504(b)(5)(iii) would 

require each party to consent to any 

transfer described in § 23.504(b)(5)(ii). 

Including an agreement to consent to 

the transfer of swaps to a solvent entity 

under the strict requirements of Title II 

or FDIA will facilitate the orderly winddown of the defaulting firm and 

promote the prompt resolution of 

market uncertainty and allow a return to 

regular trading strategy for nondefaulting counterparties. 

The Commission believes that the 

proposed regulation is important insofar 

as it will ensure that counterparties to 

swap transactions are on notice that, 

under particular, unique circumstances, 

their swap positions, claims, and the 

property supporting those positions may 

be transferred and that there may be a 

brief stay on their ability to terminate a 

swap. As described above, the provision 

would only be applicable in situations 

where the counterparties are financial 

institutions that could be designated 

covered financial companies under Title 

II or are insured depository institutions 

under FDIA. 

The Commission also believes that 

this provision would facilitate the 

resolution process by minimizing the 

potential litigation when such 

resolution authority is exercised. 

Minimizing litigation risk is important 

for facilitating a quick and effective 

resolution process; particularly when 

the alternative, the sudden collapse of 

the covered financial company, poses 

systemic risk. 

It is also worth noting that the 

inclusion of this provision in swap 

trading relationship documentation may 

help bring about broad equivalence with 

regard to the treatment of swaps 

globally. This is relevant because 

Congress recognized the need for greater 

international coordination relating to 

the orderly liquidation of financial 

companies by directing the Comptroller 

General of the United States to study 

ways to increase effective international 

coordination.27

H. Comment Requested 

The Commission requests comment 

on all aspects of proposed 

§ 23.504(b)(5). In particular, the 

Commission requests comment on the 

following questions: 

• Are there any swaps as defined 

under Title VII of the Dodd-Frank Act 

that should not be considered to be 

qualified financial contracts as that term 

is defined under Title II of the DoddFrank Act and FDIA? 

• Under what circumstances could 

the requirements of § 23.504(b)(5) allow 

for recognition of non-US authorities 

operating under legal provisions similar 

to that provided under Title II of the 

Dodd-Frank Act? Would inclusion of 

non-US authorities be useful with 

respect to financial companies that may 

have global operations through multiple 

subsidiaries and branches, including 

insured depository institutions? 

• What steps can be taken to 

encourage standard documentation 

templates developed by industry 

groups, such as ISDA, to recognize the 

need to include termination stay 

provisions similar to those provided for 

under Title II and FDIA? 

• Are there any anticompetitive 

implications to the proposed rules? If 

so, how could the proposed rules be 

implemented to achieve the purposes of 

the CEA in a less anticompetitive 

manner? 

• Given the use in swaps of cross 

default provisions referencing 

agreements with affiliates, should 

‘‘covered party’’, as defined in 

§ 23.504(b)(5), also include affiliates of 

entities that may be designated as 

covered financial companies under Title 

II or that are insured depository 

institutions under FDIA? 

• Does the Commission have legal 

authority to include affiliates in this 

way? 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires that agencies consider whether 

the rules they propose will have a 

significant economic impact on a 

substantial number of small entities.28

The Commission previously has 

established certain definitions of ‘‘small 

entities’’ to be used in evaluating the 

impact of its regulations on small 

entities in accordance with the RFA.29

The proposed rules would affect swap 

dealers and major swap participants. 

Swap dealers and major swap 

participants are new categories of 

registrants. Accordingly, the 

Commission has not previously 

addressed the question of whether such 

persons are, in fact, small entities for 

purposes of the RFA. The Commission 

previously has determined, however, 

that futures commission merchants 

should not be considered to be small 

entities for purposes of the RFA.30 The 

Commission’s determination was based, 

in part, upon the obligation of futures 

commission merchants to meet the 

minimum financial requirements 

established by the Commission to 

enhance the protection of customers’ 

segregated funds and protect the 

financial condition of futures 

commission merchants generally.31 Like 

futures commission merchants, swap 

dealers 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 swap dealer 

designation any entities that engage in 

a de minimis level of swaps dealing in 

connection with transactions with or on 

behalf of customers. The Commission 

anticipates that this exemption would 

tend to exclude small entities from 

registration. Accordingly, for purposes 

of the RFA for this rulemaking, the 

Commission is hereby proposing that 

swap dealers not be considered ‘‘small 

entities’’ for essentially the same reasons 

that futures commission merchants have 

previously been determined not to be 

small entities and in light of the 

exemption from the definition of swap 

dealer for those engaging in a de 

minimis level of swap dealing. 

The Commission also has previously 

determined that large traders are not 

‘‘small entities’’ for RFA purposes.32 In 

that determination, the Commission 

considered that a large trading position 

was indicative of the size of the 

business. Major swap participants, by 

statutory definition, maintain 

substantial positions in swaps or 

maintain outstanding swap positions 

that create substantial counterparty 

exposure that could have serious 

adverse effects on the financial stability 

of the United States banking system or 

financial markets. Accordingly, for 

purposes of the RFA for this 

rulemaking, the Commission is hereby 

proposing that major swap participants 

not be considered ‘‘small entities’’ for 

essentially the same reasons that large 

traders have previously been 

determined not to be small entities. 

Moreover, the Commission is carrying 

out Congressional mandates by 

proposing this regulation. Specifically, 

the Commission is proposing these 

regulations to comply with the DoddVerDate Mar<15>2010 17:16 Feb 07, 2011 Jkt 223001 PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 E:\FR\FM\08FEP1.SGM 08FEP1

emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 6713 

33 44 U.S.C. 3501 et seq. 

34The Commission notes that swap dealers and 

major swap participants also would be required to 

develop written policies and procedures to 

maintain the obligatory agreements as part of their 

swaps trading relationship documentation. The 

costs associated with these policies and procedures 

have been accounted for in the Commission’s prior 

proposal of the rest of regulation § 23.504. 

Frank Act, the aim of which is to reduce 

systemic risk presented by swap dealers 

and swap market participants through 

comprehensive regulation. The 

Commission does not believe that there 

are regulatory alternatives to those being 

proposed that would be consistent with 

the statutory mandate. 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 

The Paperwork Reduction Act 

(PRA) 33 imposes certain requirements 

on Federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

This proposed rulemaking would result 

in new collection of information 

requirements within the meaning of the 

PRA. The Commission therefore is 

submitting this proposal to the Office of 

Management and Budget (OMB) for 

review in accordance with 44 U.S.C. 

3507(d) and 5 CFR 1320.11. The title for 

this collection of information is 

‘‘Orderly Liquidation Termination 

Provision in Swap Trading Relationship 

Documentation for Swap Dealers and 

Major Swap Participants.’’ 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. The OMB has not yet assigned 

this collection a control number. 

The collection of information under 

this proposed regulation is necessary to 

implement new section 4s(i) of the CEA, 

which expressly requires the 

Commission to adopt rules governing 

documentation standards for swap 

dealers and major swap participants and 

explicitly obligates such registrants to 

conform to the documentation standards 

established by the Commission. The 

documentation required to be executed 

and maintained would be an important 

part of the Commission’s regulatory 

program for swap dealers and major 

swap participants. Specifically, the 

required recordkeeping is essential to 

ensuring that swap dealers and major 

swap participants include in their 

trading relationship documentation 

certain agreements that are designed to 

enhance the consistent treatment of 

swaps in the event the FDIC is 

appointed receiver under Title II of the 

Dodd-Frank Act or the FDIA. The 

records required to be preserved would 

be used by representatives of the 

Commission and any examining 

authority responsible for reviewing the 

activities of the swap dealer or major 

swap participant to ensure compliance 

with the CEA and applicable 

Commission regulations. 

If the proposed regulations are 

adopted, responses to this collection of 

information would be mandatory. The 

Commission will protect proprietary 

information according to the Freedom of 

Information Act and 17 CFR part 145, 

‘‘Commission Records and Information.’’ 

In addition, section 8(a)(1) of the CEA 

strictly prohibits the Commission, 

unless specifically authorized by the 

CEA, from making public ‘‘data and 

information that would separately 

disclose the business transactions or 

market positions of any person and 

trade secrets or names of customers.’’ 

The Commission also is required to 

protect certain information contained in 

a government system of records 

according to the Privacy Act of 1974, 5 

U.S.C. 552a. 

1. Information Provided By Reporting 

Entities/Persons 

Proposed § 23.504(b)(5) supplements 

previously proposed regulations that 

would establish trading swap 

relationship documentation 

requirements for swap dealers and 

major swap participants. Specifically, 

proposed § 23.504(b)(5) would require 

swap dealers and major swap 

participants to include in the 

documentation they execute with each 

counterparty a written agreement about 

events that will transpire if the FDIC is 

appointed as receiver under Title II of 

the Dodd-Frank Act or the FDIA. 

The information collection burden 

associated with drafting and 

maintaining the agreements required by 

the proposed regulation is estimated to 

be 270 hours per year, at an initial 

annual cost of $27,000 for each swap 

dealer and major swap participant. The 

aggregate information collection burden 

is estimated to be 81,000 hours per year, 

at an initial annual aggregate cost of 

$8,100,000. Burden means the total 

time, effort or financial resources 

expended by persons to generate, 

maintain, retain, disclose, or provide 

information to or for a Federal agency. 

The Commission has characterized 

the annual cost as an initial cost as the 

Commission anticipates that the 

agreements required by the proposed 

regulation generally would not require 

significant bilateral negotiation and, 

therefore, are likely to become 

standardized within the industry rather 

rapidly. Moreover, the Commission 

expects that there would be little need 

to modify the agreements on an ongoing 

basis. Accordingly, once a swap dealer 

or major swap participant has drafted 

the required agreements and 

incorporated them into its swaps trading 

documentation, the annual burden 

associated with the proposed regulation 

would be quite minimal.34

The hour burden calculation set forth 

below is based upon certain variables 

such as the number of swap dealers and 

major swap participants in the 

marketplace, the average number of 

counterparties of each of these 

registrants, and the average hourly wage 

of the employees that would be 

responsible for satisfying the obligation 

established by the proposed regulation. 

Swap dealers and major swap 

participants are new categories of 

registrants. Accordingly, it is not 

currently known how many swap 

dealers and major swap participants 

will become subject to these rules, and 

this will not be known to the 

Commission until the registration 

requirements for these entities become 

effective after July 16, 2011, the date on 

which the Dodd-Frank Act becomes 

effective. While the Commission 

believes that there will be 

approximately 200 swap dealers and 50 

major swap participants, it has taken a 

conservative approach, for PRA 

purposes, in estimating that there will 

be a combined number of 300 swap 

dealers and major swap participants 

who will be required to comply with the 

recordkeeping requirements of the 

proposed rules. The Commission 

estimated the number of affected 

entities based on industry data. 

Similarly, due to the absence of prior 

experience in regulating swap dealers 

and major swap participants and with 

regulations similar to the proposed 

rules, the actual, average number of 

counterparties that a swap dealer or 

major swap participant is likely to have 

is uncertain. Consistent with other 

proposed rulemakings, the Commission 

has estimated that each of the 14 major 

swap dealers has an average 7,500 

counterparties and the other 286 swap 

dealers and major swap participants 

have an average of 200 counterparties 

per year, for an average of 540 total 

counterparties per registrant. 

The Commission anticipates that 

agreements required by the proposed 

regulations typically would be drafted 

and maintained by a swap dealer or 

major swap participant’s in-house 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
6714 Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 

35http://www.bls.gov/oes/2099/ 

mayowe23.1011.htm. 

36http://www.bls.gov/oes/current/oes113031.htm. 37 7 U.S.C. 19(a). 

counsel or by financial or operational 

managers within the firm. According to 

the Bureau of Labor Statistics findings, 

the mean hourly wage of an employee 

under occupation code 23–1011, 

‘‘Lawyers,’’ that is employed by the 

‘‘Securities and Commodity Contracts 

Intermediation and Brokerage Industry’’ 

is $82.22.35 The mean hourly wage of an 

employee under occupation code 11– 

3031, ‘‘Financial Managers,’’ (which 

includes operations managers) in the 

same industry is $74.41.36 Because swap 

dealers and major swap participants 

include large financial institutions 

whose employees’ salaries may exceed 

the mean wage, however, the 

Commission has estimated the cost 

burden of the proposed regulations 

based upon an average salary of $100 

per hour. 

Based upon the above, the estimated 

hour burden was calculated as follows: 

Agreement to Orderly Liquidation 

Termination Provision. 

Number of registrants: 300. 

Frequency of collection: At least once 

per counterparty. 

Estimated number of annual 

responses per registrant: 540 [one per 

counterparty]. 

Estimated aggregate number of 

annual responses: 162,000 [300 

registrants × 540 counterparties]. 

Estimated annual hour burden per 

registrant: 270 [540 counterparties × .5 

hours per counterparty]. 

Estimated aggregate annual hour 

burden: 81,000 [300 registrants × 270 

hours per registrant]. 

As stated above, the agreements 

required by proposed § 23.504(b)(5) 

would be required to be incorporated 

into the swaps trading relationship 

documentation obligations established 

by previously proposed subsections of 

§ 23.504(b). The Commission does not 

anticipate that swap dealers and major 

swap participants would incur any startup costs in connection with the 

proposed recordkeeping obligations, 

other than those previously noted and 

accounted for in the prior proposal. 

2. Information Collection Comments 

The Commission invites the public 

and other Federal agencies to comment 

on any aspect of the recordkeeping 

burden 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. 

Comments may be submitted directly 

to the 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 

document in the Federal Register. 

Therefore, a comment is best assured of 

having its full effect if OMB receives it 

within 30 days of publication. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 37 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) does not require the 

Commission to quantify the costs and 

benefits of a new regulation or to 

determine whether the benefits of the 

rule outweigh its costs; rather, it 

requires that the Commission ‘‘consider’’ 

the costs and benefits of its actions. 

Section 15(a) further specifies that 

costs and benefits of a proposed 

rulemaking 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 considerations and could, 

in its discretion, determine that, 

notwithstanding its costs, a particular 

regulation was necessary or appropriate 

to protect the public interest or to 

effectuate any of the provisions or to 

accomplish any of the purposes of the 

CEA. 

Summary of proposed requirements. 

The proposed regulation would 

implement new section 4s(i) of the CEA, 

which was added by section 731 of the 

Dodd-Frank Act. The proposed 

regulation would establish certain swap 

trading relationship documentation 

requirements applicable to swap dealers 

and major swap participants and related 

recordkeeping obligations. 

Costs. With respect to costs, the 

Commission has determined that the 

cost that would be borne by swap 

dealers and major swap participants to 

satisfy the new regulatory requirement 

is far outweighed by the benefits that 

would accrue to the financial system as 

a whole as a result of the 

implementation of the rule. The 

Commission believes that the annual 

cost burden per registrant ultimately 

would be quite minimal as the 

agreements it requires are likely to 

become standardized and applicable to 

most counterparties, thereby negating 

the need for individual negotiation and 

drafting. They also would be able to be 

maintained using a registrant’s preexisting recordkeeping mechanisms. 

Benefits. With respect to benefits, the 

Commission believes that the proposed 

regulation would ensure that swaps are 

treated consistently in the event of an 

appointment of the FDIC under either 

Title II of the Dodd-Frank Act or the 

FDIA. Providing the opportunity for 

swap dealers, major swap participants, 

and their counterparties to reach a 

written agreement about events that will 

transpire if the FDIC is appointed as 

receiver under Title II of the DoddFrank Act or the FDIA, will promote 

legal certainty and lower litigation risk 

at crucial times of market stress. 

Therefore, the Commission believes it is 

prudent to prescribe this proposed 

regulation. 

Public Comment. The Commission 

invites public comment on its costbenefit considerations. Commentators 

are also invited to submit any data or 

other information that they may have 

quantifying or qualifying the costs and 

benefits of the proposed rules with their 

comment letters. 

List of Subjects in 17 CFR Part 23 

Antitrust, Commodity futures, 

Conduct standards, Conflict of Interests, 

Major swap participants, Reporting and 

recordkeeping, Swap dealers, Swaps. 

For the reasons stated in this release, 

the Commission proposes to amend 17 

CFR part 23, as proposed to be added in 

FR Doc. 2010–29024, published in the 


emcdonald on DSK2BSOYB1PROD with PROPOSALS
Federal Register / Vol. 76, No. 26 / Tuesday, February 8, 2011 / Proposed Rules 6715 

Federal Register on November 23, 2010 

(75 FR 71379), and as proposed to be 

amended elsewhere in this issue of the 

Federal Register, as follows: 

PART 23—SWAP DEALERS AND 

MAJOR SWAP PARTICIPANTS 

1. The authority citation for part 23 is 

revised to read as follows: 

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

6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a, 

18, 19, 21. 

2. Amend proposed § 23.504 by 

adding paragraph (b)(5) to read as 

follows: 

§ 23.504 Swap trading relationship 

documentation. 

* * * * * 

(b) * * * 

(5) The swap trading relationship 

documentation shall include written 

documentation in which the 

counterparties agree that in the event a 

counterparty is a covered financial 

company (as defined in section 201(a)(8) 

of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act) or an 

insured depository institution (as 

defined in 12 U.S.C. 1813) for which the 

Federal Deposit Insurance Corporation 

(FDIC) has been appointed as a receiver 

(the ‘‘covered party’’): 

(i) The counterparty that is not the 

covered party may not exercise any right 

that such counterparty that is not the 

covered party has to terminate, 

liquidate, or net any swap solely by 

reason of the appointment of the FDIC 

as receiver for the covered party (or the 

insolvency or financial condition of the 

covered party): 

(A) Until 5 p.m. (U.S. eastern time) on 

the business day following the date of 

the such appointment; or 

(B) After the counterparty that is not 

the covered party has received notice 

that the swap has been transferred 

pursuant to section 210(c)(9)(A) of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act or 12 U.S.C. 

1821(e)(9)(A); 

(ii) A transfer pursuant to section 

210(c)(9)(A) of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act or 12 U.S.C. 1821(e)(9)(A) may 

include: 

(A) All swaps between a counterparty 

that is not a covered party, or any 

affiliate of such counterparty that is not 

a covered party, and the covered party; 

(B) All claims of a counterparty that 

is not a covered party, or any affiliate of 

such counterparty that is not a covered 

party, against the covered party under 

any such swap (other than any claim 

which, under the terms of any such 

swap, is subordinated to the claims of 

general unsecured creditors of such 

covered party); 

(C) All claims of the covered party 

against a counterparty that is not a 

covered party, or any affiliate of such 

counterparty that is not a covered party, 

under any such swap; and 

(D) All property securing or any other 

credit enhancement for any swap 

described in paragraph (b)(5)(i)(A) of 

this section or any claim described in 

paragraphs (b)(5)(i)(B) or (C) of this 

section under any such swap; and 

(iii) The counterparty that is not the 

covered party consents to any transfer 

described in paragraph (b)(5)(ii) of this 

section. 

* * * * * 

Issued in Washington, DC, on January 20, 

2011 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices To Swap Trading 

Relationship Documentation 

Requirements for Swap Dealers and 

Major Swap Participants— 

Commissioners Voting Summary and 

Statements of Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commissioners Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Sommers and Chilton 

voted in the affirmative; Commissioner 

O’Malia voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed rulemaking that 

establishes documentation requirements for 

swap dealers and major swap participants, 

ensuring consistency with statutory 

provisions in the event of an orderly 

liquidation of a swap dealer or major swap 

participant. The proposed regulation requires 

the inclusion of a provision in the swap 

trading relationship documentation that 

would inform counterparties that, if a swap 

dealer or major swap participant becomes a 

covered financial company subject to the 

resolution authority of the Federal Deposit 

Insurance Corporation, there may be a oneday stay on the ability of its counterparties 

to terminate, liquidate or net their uncleared 

swaps. The proposed rulemaking should 

lower litigation risk during times of 

significant market stress and promote an 

orderly and effective resolution process for 

large financial entities. 

[FR Doc. 2011–2642 Filed 2–7–11; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 23 

RIN 3038–AC96 

Swap Trading Relationship 

Documentation Requirements for 

Swap Dealers and Major Swap 

Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing regulations to 

implement new statutory provisions 

established under Title VII of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act). 

Section 731 of the Dodd-Frank Act 

added a new section 4s(i) to the 

Commodity Exchange Act (CEA), which 

requires the Commission to prescribe 

standards for swap dealers and major 

swap participants related to the timely 

and accurate confirmation, processing, 

netting, documentation, and valuation 

of swaps. The proposed rules would 

establish requirements for swap trading 

relationship documentation for swap 

dealers and major swap participants. 

DATES: Submit comments on or before 

April 11, 2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AC96 

and Swap Trading Relationship 

Documentation Requirements for Swap 

Dealers and Major Swap Participants, by 

any of the following methods: 

• Agency Web site, via its Comments 

Online process at 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 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. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that may be exempt from disclosure 


emcdonald on DSK2BSOYB1PROD with PROPOSALS