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[House Report 113-105]
[From the U.S. Government Printing Office]


113th Congress                                            Rept. 113-105
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================



 
      BUSINESS RISK MITIGATION AND PRICE STABILIZATION ACT OF 2013

                                _______
                                

 June 12, 2013.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Lucas, from the Committee on Agriculture, submitted the following

                              R E P O R T

                        [To accompany H.R. 634]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Agriculture, to whom was referred the bill 
(H.R. 634) to provide end user exemptions from certain 
provisions of the Commodity Exchange Act and the Securities 
Exchange Act of 1934, and for other purposes, having considered 
the same, report favorably thereon without amendment and 
recommend that the bill do pass.

                           Brief Explanation

    The bill amends Section 4s(e) of the Commodity Exchange Act 
(CEA) as added by Section 731 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (P.L. 111-203) (the Dodd-
Frank Act) to provide an explicit exemption from margin 
requirements for swap transactions involving end-users that 
qualify for the clearing exception under 2(h)(7)(A). The bill 
includes mirroring provisions to Section 15F(e) of the 
Securities Exchange Act of 1934 with respect to security-based 
swap transactions.

                            Purpose and Need

    ``End-users'' are thousands of companies across the United 
States who utilize derivatives to hedge risks associated with 
their day-to-day operations, such as fluctuations in the prices 
of raw materials. Because these businesses do not pose systemic 
risk, Congress intended that the Dodd-Frank Act provide certain 
exemptions for end-users to ensure they were not unduly 
burdened by new margin and capital requirements associated with 
their derivatives trades that would hamper their ability to 
expand and create jobs.
    Indeed, Title VII of the Dodd-Frank Act includes an 
exemption for non-financial end-users from centrally clearing 
their derivatives trades. This exemption permits end-users to 
continue trading directly with a counterparty, (also known as 
trading ``bilaterally,'' or over-the-counter (OTC)) which means 
their swaps are negotiated privately between two parties and 
they are not executed and cleared using an exchange or 
clearinghouse. Generally, it is common for non-financial end-
users, such as manufacturers, to avoid posting cash margin for 
their OTC derivative trades. End-users generally will not post 
margin because they are able to negotiate such terms with their 
counterparties due to the strength of their own balance sheet 
or by posting non-cash collateral, such as physical property. 
End-users typically seek to preserve their cash and liquid 
assets for reinvestment in their businesses. In recognition of 
this common practice, the Dodd-Frank Act included an exemption 
from margin requirements for end-users for OTC trades.
    Section 731 of the Dodd-Frank Act (and Section 764 with 
respect to security-based swaps) requires margin requirements 
be applied to swap dealers and major swap participants for 
swaps that are not centrally cleared. For swap dealers and 
major swap participants that are banks, the prudential banking 
regulators (such as the Federal Reserve or Federal Deposit 
Insurance Corporation) are required to set the margin 
requirements. For swap dealers and major swap participants that 
are not banks, the U.S. Commodity Futures Trading Commission 
(CFTC) is required to set the margin requirements. Both the 
CFTC and the banking regulators have issued their own rule 
proposals establishing margin requirements pursuant to Sections 
731 and 764.
    Following the enactment of the Dodd-Frank Act in July of 
2010, uncertainty arose regarding whether this provision 
permitted the regulators to impose margin requirements on swap 
dealers when they trade with end-users, which could then result 
in either a direct or indirect margin requirement on end-users. 
Subsequently, the principal authors of the Dodd-Frank Act, 
Senators Blanche Lincoln and Chris Dodd sent a letter to then-
Chairmen Barney Frank and Collin Peterson to set forth and 
clarify congressional intent, stating:

          The legislation does not authorize the regulators to 
        impose margin on end users, those exempt entities that 
        use swaps to hedge or mitigate commercial risk. If 
        regulators raise the costs of end user transactions, 
        they may create more risk. It is imperative that the 
        regulators do not unnecessarily divert working capital 
        from our economy into margin accounts, in a way that 
        would discourage hedging by end users or impair 
        economic growth. (Available at http://
        agriculture.house.gov/pdf/letters/
        HouseSenateEndUserLetter.pdf)

    In addition, statements in the legislative history of 
sections 731 and 764 suggest that Congress did not intend, in 
enacting these sections, to impose margin requirements on 
nonfinancial end users engaged in hedging activities, even in 
cases where they entered into swaps or security-based swaps 
with swap entities.
    In the CFTC's proposed rule on margin, it does not require 
margin for un-cleared swaps when non-bank swap dealers transact 
with non-financial end-users. However, the prudential banking 
regulators proposed rules would require margin be posted by 
non-financial end-users above certain established thresholds 
when they trade with swap dealers that are banks. Many of end-
users' transactions occur with swap dealers that are banks, so 
the banking regulators' proposed rule is most relevant, and 
therefore of most concern, to end-users.
    By the prudential banking regulators' own terms, their 
proposal to require margin stems directly from what they view 
to be a legal obligation under Title VII. The plain language of 
sections 731 and 764 provides that the Agencies adopt rules for 
covered swap entities imposing margin requirements on all non-
cleared swaps. Despite clear congressional intent, those 
sections do not, by their terms, exclude a swap with a 
counterparty that is a commercial end-user. By providing an 
explicit exemption under Title VII through enactment of H.R. 
634, the Agencies will no longer have a perceived legal 
obligation, and the congressional intent they acknowledge in 
their proposed rule will be implemented.

                           Section-by-Section

    Section 1 is the short title of the bill.
    Section 2(a) amends section 4s(e) (registration and 
regulation of swap dealers and major swap participants) of the 
Commodity Exchange Act (CEA) by adding a new paragraph 
clarifying that the margin and capital requirements do not 
apply to transactions in which one of the parties qualify for 
the end user exemption to the clearing requirement in 
2(h)(7)(A) or treatment of affiliates in 2(h)(7)(D).
    Section 2(b) contains a similar amendment to the Securities 
Exchange Act.
    Section 3 provides for expedited implementation of this 
act.

                        Committee Consideration


                              I. HEARINGS

    In the 113th Congress, the Full Committee held a hearing 
March 14, 2013, to examine legislative improvements to Title 
VII of the Dodd-Frank Act which included H.R. 634, the Business 
Risk Mitigation and Price Stabilization Act of 2013. During the 
hearing, the Committee heard testimony from the Chairman of the 
U.S. Commodity Futures Trading Commission and six additional 
witnesses representing a broad spectrum of participants in the 
derivatives market.
    Included was testimony from Jim Colby, Assistant Treasurer, 
Honeywell International Inc., who testified to the importance 
of the legislation:

          ``Honeywell is truly a global company, with more than 
        50 percent of our sales outside of the United States 
        and we are therefore exposed to market risks from 
        changes in interest rates, foreign exchange rates and 
        commodity prices. When appropriate, we hedge exposures 
        through the use of derivative contracts. The purpose of 
        our hedging activities is to eliminate risks that we 
        cannot control, allowing us to focus on our core 
        strengths, namely delivering high-quality products, on 
        time, to our customers in a manner that not only meets, 
        but exceeds expectations. We do not use derivatives for 
        speculative purposes.
          Today I will focus on the margin bill, as it is of 
        particular interest to Honeywell. In approving the 
        Dodd-Frank Act, Congress made clear that end-users were 
        not to be subject to margin requirements. Nonetheless, 
        regulations proposed by the Prudential Banking 
        Regulators could require end-users to post margin. This 
        stems directly from what they view to be a legal 
        obligation under Title VII. While the regulations 
        proposed by the CFTC are preferable, they do not 
        provide end-users with the certainty that legislation 
        offers. According to a Coalition for Derivatives End 
        Users survey, a 3% initial margin requirement could 
        reduce capital spending by as much as $5.1 to $6.7 
        billion among S&P 500 companies alone and cost 100,000 
        to 130,000 jobs.
          To shed some light on Honeywell's potential exposure 
        to margin requirements, we had approximately $2 billion 
        of hedging contracts outstanding at year-end that would 
        be defined as a swap under Dodd-Frank. Applying 3% 
        initial margin and 10% variation margin implies a 
        potential margin requirement of $260 million. Cash 
        deposited in a margin account cannot be productively 
        deployed in our businesses and therefore detracts from 
        Honeywell's financial performance and ability to 
        promote economic growth and protect American jobs.''

                         II. BUSINESS MEETINGS

    The Committee on Agriculture met, pursuant to notice, with 
a quorum present, on March 20, 2013, to consider H.R. 634, the 
Business Risk Mitigation and Price Stabilization Act of 2013, 
and other pending business.
    By unanimous consent, the Subcommittee on General Farm 
Commodities and Risk Management was discharged from further 
consideration of H.R. 634, and the bill was placed before the 
Committee for consideration. Without objection, a first reading 
of the bill was waived and it was open for amendment at any 
point.
    Chairman Lucas, Mr. Peterson, Mr. Austin Scott and Mr. 
McIntyre were recognized for statements, and then Counsel was 
recognized for a brief explanation of the bill. Following, Mr. 
Fincher was recognized to offer an amendment to H.R. 634 and 
Mr. McIntyre reserved a point of order against the amendment. 
Mr. Fincher then explained his amendment requiring the 
Financial Stability Oversight Committee to conduct a study of 
the impact of implementation of the Credit Valuation Adjustment 
capital requirement on U.S. customers, end users, and U.S. 
financial institutions. However, Mr. Fincher ultimately 
withdrew the amendment and Mr. McIntyre withdrew his point of 
order.
    There being no other amendments, Mr. Peterson was 
recognized to offer a motion. By voice vote, the Peterson 
motion that the bill H.R. 634 be reported favorably to the 
House with recommendation that it do pass, was approved.
    The Committee then continued with other pending business, 
and at the conclusion of the meeting, Chairman Lucas advised 
Members that pursuant to the rules of the House of 
Representatives Members had 2 calendar days to file any 
supplemental or minority views with the Committee.
    Without objection, staff was given permission to make any 
necessary clerical, technical or conforming changes to reflect 
the intent of the Committee. Chairman Lucas thanked all the 
Members and adjourned the meeting.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the House of 
Representatives, H.R. 634 was reported by voice vote with a 
majority quorum present. There was no request for a recorded 
vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee on Agriculture's 
oversight findings and recommendations are reflected in the 
body of this report.

           Budget Act Compliance (Sections 308, 402, and 423)

    The provisions of clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives and section 308(a)(1) of the 
Congressional Budget Act of 1974 (relating to estimates of new 
budget authority, new spending authority, new credit authority, 
or increased or decreased revenues or tax expenditures) are not 
considered applicable. The estimate and comparison required to 
be prepared by the Director of the Congressional Budget Office 
under clause 3(c)(3) of rule XIII of the Rules of the House of 
Representatives and sections 402 and 423 of the Congressional 
Budget Act of 1974 submitted to the Committee prior to the 
filing of this report are as follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 11, 2013.
Hon. Frank D. Lucas,
Chairman, Committee on Agriculture,
House of Representatives, Washignton, DC.
    Dear Mr. Chairman: The Congressonal Budget Office has 
prepared the enclosed cost estimate for H.R. 634, the Business 
Risk Mitigation and Price Stabilization Act of 2013.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 634--Business Risk Mitigation and Price Stabilization Act of 2013

    H.R. 634 would exempt nonfinancial entities that enter into 
a swap or a security-based swap transaction from meeting 
certain margin requirements when the transaction is designed to 
offset losses or gains in other investments. (A swap is a 
contract that calls for an exchange of cash between two 
participants, based on an underlying rate or index or on the 
performance of an asset.)
    Both the Commodity Futures Trading Commission (CFTC) and 
the Securities and Exchange Commission (SEC) are developing 
regulations relating to margin requirements (minimum amounts of 
collateral that must be deposited, often with a broker or 
exchange, to cover some or all of the risk of a counterparty) 
in swap transactions as the result of the enactment of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Public Law 111-203). In addition, other financial regulators, 
including the Federal Reserve System, the Office of the 
Comptroller of the Currency (OCC), and the Federal Deposit 
Insurance Corporation (FDIC) among others, are also developing 
margin requirements that would apply to the entities they 
regulate. Final regulations have not been completed by any 
agency.
    Based on information from several of the affected agencies, 
CBO expects that incorporating the provisions of H.R. 634 at 
this point in the regulatory process would not require a 
significant increase in the workload of any agency. CBO 
estimates that any change in discretionary spending by the SEC 
and CFTC to implement the legislation would not be significant. 
Further, under current law, the SEC is authorized to collect 
fees sufficient to offset its appropriation each year. 
Therefore, we estimate that the net cost to the SEC would be 
negligible, assuming appropriation actions consistent with that 
authority.
    Enacting H.R. 634 would affect direct spending and 
revenues; therefore, pay-as-you-go procedures apply. CBO 
expects that workloads for affected financial regulators (the 
Federal Reserve System, FDIC, and OCC among others) would not 
be significantly affected by the new requirements, and thus, we 
estimate that the effect on direct spending and revenues would 
be insignificant.
    H.R. 634 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                    Performance Goals and Objectives

    With respect to the requirement of clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives, the 
performance goals and objections of this legislation are to 
clarify congressional intent by providing an explicit exemption 
from margin requirements for swap transactions involving end-
users that qualify for the end-user clearing exemption.

                        Committee Cost Estimate

    Pursuant to clause 3(d)(2) of rule XIII of the Rules of the 
House of Representatives, the Committee report incorporates the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to sections 402 and 423 of the 
Congressional Budget Act of 1974.

                      Advisory Committee Statement

    No advisory committee within the meaning of section 5(b) of 
the Federal Advisory Committee Act was created by this 
legislation.

                Applicability to the Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act (Public Law 
104-1).

                       Federal Mandates Statement

    The Committee adopted as its own, the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act (Public Law 104-4).

  Earmark Statement Required by Clause 9 of Rule XXI of the Rules of 
                        House of Representatives

    H.R. 634 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9(e), 9(f), or 9(g) of rule XXI of the Rules of the 
House Representatives.

                    Duplication of Federal Programs

    H.R. 634 does not establish or reauthorize a program of the 
Federal Government known to be duplicative of another Federal 
program, a program that was included in any report from the 
Government Accountability Office to Congress pursuant to 
section 21 of Public Law 111-139, or any related program 
identified in the most recent Catalog of Federal Domestic 
Assistance.

                  Disclosure of Directed Rule Makings

    The Committee does not believe that the legislation directs 
an executive branch official to conduct any specific rule 
making proceedings within the meaning of 5 U.S.C. 551.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                         COMMODITY EXCHANGE ACT




           *       *       *       *       *       *       *
SEC. 4S. REGISTRATION AND REGULATION OF SWAP DEALERS AND MAJOR SWAP 
                    PARTICIPANTS.

  (a) Registration.--
          (1) Swap dealers.--It shall be unlawful for any 
        person to act as a swap dealer unless the person is 
        registered as a swap dealer with the Commission.
          (2) Major swap participants.--It shall be unlawful 
        for any person to act as a major swap participant 
        unless the person is registered as a major swap 
        participant with the Commission.
  (b) Requirements.--
          (1) In general.--A person shall register as a swap 
        dealer or major swap participant by filing a 
        registration application with the Commission.
          (2) Contents.--
                  (A) In general.--The application shall be 
                made in such form and manner as prescribed by 
                the Commission, and shall contain such 
                information, as the Commission considers 
                necessary concerning the business in which the 
                applicant is or will be engaged.
                  (B) Continual reporting.--A person that is 
                registered as a swap dealer or major swap 
                participant shall continue to submit to the 
                Commission reports that contain such 
                information pertaining to the business of the 
                person as the Commission may require.
          (3) Expiration.--Each registration under this section 
        shall expire at such time as the Commission may 
        prescribe by rule or regulation.
          (4) Rules.--Except as provided in subsections (d) and 
        (e), the Commission may prescribe rules applicable to 
        swap dealers and major swap participants, including 
        rules that limit the activities of swap dealers and 
        major swap participants.
          (5) Transition.--Rules under this section shall 
        provide for the registration of swap dealers and major 
        swap participants not later than 1 year after the date 
        of enactment of the Wall Street Transparency and 
        Accountability Act of 2010.
          (6) Statutory disqualification.--Except to the extent 
        otherwise specifically provided by rule, regulation, or 
        order, it shall be unlawful for a swap dealer or a 
        major swap participant to permit any person associated 
        with a swap dealer or a major swap participant who is 
        subject to a statutory disqualification to effect or be 
        involved in effecting swaps on behalf of the swap 
        dealer or major swap participant, if the swap dealer or 
        major swap participant knew, or in the exercise of 
        reasonable care should have known, of the statutory 
        disqualification.
  (c) Dual Registration.--
          (1) Swap dealer.--Any person that is required to be 
        registered as a swap dealer under this section shall 
        register with the Commission regardless of whether the 
        person also is a depository institution or is 
        registered with the Securities and Exchange Commission 
        as a security-based swap dealer.
          (2) Major swap participant.--Any person that is 
        required to be registered as a major swap participant 
        under this section shall register with the Commission 
        regardless of whether the person also is a depository 
        institution or is registered with the Securities and 
        Exchange Commission as a major security-based swap 
        participant.
  (d) Rulemakings.--
          (1) In general.--The Commission shall adopt rules for 
        persons that are registered as swap dealers or major 
        swap participants under this section.
          (2) Exception for prudential requirements.--
                  (A) In general.--The Commission may not 
                prescribe rules imposing prudential 
                requirements on swap dealers or major swap 
                participants for which there is a prudential 
                regulator.
                  (B) Applicability.--Subparagraph (A) does not 
                limit the authority of the Commission to 
                prescribe rules as directed under this section.
  (e) Capital and Margin Requirements.--
          (1) In general.--
                  (A) Swap dealers and major swap participants 
                that are banks.--Each registered swap dealer 
                and major swap participant for which there is a 
                prudential regulator shall meet such minimum 
                capital requirements and minimum initial and 
                variation margin requirements as the prudential 
                regulator shall by rule or regulation prescribe 
                under paragraph (2)(A).
                  (B) Swap dealers and major swap participants 
                that are not banks.--Each registered swap 
                dealer and major swap participant for which 
                there is not a prudential regulator shall meet 
                such minimum capital requirements and minimum 
                initial and variation margin requirements as 
                the Commission shall by rule or regulation 
                prescribe under paragraph (2)(B).
          (2) Rules.--
                  (A) Swap dealers and major swap participants 
                that are banks.--The prudential regulators, in 
                consultation with the Commission and the 
                Securities and Exchange Commission, shall 
                jointly adopt rules for swap dealers and major 
                swap participants, with respect to their 
                activities as a swap dealer or major swap 
                participant, for which there is a prudential 
                regulator imposing--
                          (i) capital requirements; and
                          (ii) both initial and variation 
                        margin requirements on all swaps that 
                        are not cleared by a registered 
                        derivatives clearing organization.
                  (B) Swap dealers and major swap participants 
                that are not banks.--The Commission shall adopt 
                rules for swap dealers and major swap 
                participants, with respect to their activities 
                as a swap dealer or major swap participant, for 
                which there is not a prudential regulator 
                imposing--
                          (i) capital requirements; and
                          (ii) both initial and variation 
                        margin requirements on all swaps that 
                        are not cleared by a registered 
                        derivatives clearing organization.
                  (C) Capital.--In setting capital requirements 
                for a person that is designated as a swap 
                dealer or a major swap participant for a single 
                type or single class or category of swap or 
                activities, the prudential regulator and the 
                Commission shall take into account the risks 
                associated with other types of swaps or classes 
                of swaps or categories of swaps engaged in and 
                the other activities conducted by that person 
                that are not otherwise subject to regulation 
                applicable to that person by virtue of the 
                status of the person as a swap dealer or a 
                major swap participant.
          (3) Standards for capital and margin.--
                  (A) In general.--To offset the greater risk 
                to the swap dealer or major swap participant 
                and the financial system arising from the use 
                of swaps that are not cleared, the requirements 
                imposed under paragraph (2) shall--
                          (i) help ensure the safety and 
                        soundness of the swap dealer or major 
                        swap participant; and
                          (ii) be appropriate for the risk 
                        associated with the non-cleared swaps 
                        held as a swap dealer or major swap 
                        participant.
                  (B) Rule of construction.--
                          (i) In general.--Nothing in this 
                        section shall limit, or be construed to 
                        limit, the authority--
                                  (I) of the Commission to set 
                                financial responsibility rules 
                                for a futures commission 
                                merchant or introducing broker 
                                registered pursuant to section 
                                4f(a) (except for section 
                                4f(a)(3)) in accordance with 
                                section 4f(b); or
                                  (II) of the Securities and 
                                Exchange Commission to set 
                                financial responsibility rules 
                                for a broker or dealer 
                                registered pursuant to section 
                                15(b) of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78o(b)) (except for section 
                                15(b)(11) of that Act (15 
                                U.S.C. 78o(b)(11)) in 
                                accordance with section 
                                15(c)(3) of the Securities 
                                Exchange Act of 1934 (15 U.S.C. 
                                78o(c)(3)).
                          (ii) Futures commission merchants and 
                        other dealers.--A futures commission 
                        merchant, introducing broker, broker, 
                        or dealer shall maintain sufficient 
                        capital to comply with the stricter of 
                        any applicable capital requirements to 
                        which such futures commission merchant, 
                        introducing broker, broker, or dealer 
                        is subject to under this Act or the 
                        Securities Exchange Act of 1934 (15 
                        U.S.C. 78a et seq.).
                  (C) Margin requirements.--In prescribing 
                margin requirements under this subsection, the 
                prudential regulator with respect to swap 
                dealers and major swap participants for which 
                it is the prudential regulator and the 
                Commission with respect to swap dealers and 
                major swap participants for which there is no 
                prudential regulator shall permit the use of 
                noncash collateral, as the regulator or the 
                Commission determines to be consistent with--
                          (i) preserving the financial 
                        integrity of markets trading swaps; and
                          (ii) preserving the stability of the 
                        United States financial system.
                  (D) Comparability of capital and margin 
                requirements.--
                          (i) In general.--The prudential 
                        regulators, the Commission, and the 
                        Securities and Exchange Commission 
                        shall periodically (but not less 
                        frequently than annually) consult on 
                        minimum capital requirements and 
                        minimum initial and variation margin 
                        requirements.
                          (ii) Comparability.--The entities 
                        described in clause (i) shall, to the 
                        maximum extent practicable, establish 
                        and maintain comparable minimum capital 
                        requirements and minimum initial and 
                        variation margin requirements, 
                        including the use of non cash 
                        collateral, for--
                                  (I) swap dealers; and
                                  (II) major swap participants.
          (4) Applicability with respect to counterparties.--
        The requirements of paragraphs (2)(A)(ii) and 
        (2)(B)(ii) shall not apply to a swap in which a 
        counterparty qualifies for an exception under section 
        2(h)(7)(A) or satisfies the criteria in section 
        2(h)(7)(D).
  (f) Reporting and Recordkeeping.--
          (1) In general.--Each registered swap dealer and 
        major swap participant--
                  (A) shall make such reports as are required 
                by the Commission by rule or regulation 
                regarding the transactions and positions and 
                financial condition of the registered swap 
                dealer or major swap participant;
                  (B)(i) for which there is a prudential 
                regulator, shall keep books and records of all 
                activities related to the business as a swap 
                dealer or major swap participant in such form 
                and manner and for such period as may be 
                prescribed by the Commission by rule or 
                regulation; and
                  (ii) for which there is no prudential 
                regulator, shall keep books and records in such 
                form and manner and for such period as may be 
                prescribed by the Commission by rule or 
                regulation;
                  (C) shall keep books and records described in 
                subparagraph (B) open to inspection and 
                examination by any representative of the 
                Commission; and
                  (D) shall keep any such books and records 
                relating to swaps defined in section 
                1a(47)(A)(v) open to inspection and examination 
                by the Securities and Exchange Commission.
          (2) Rules.--The Commission shall adopt rules 
        governing reporting and recordkeeping for swap dealers 
        and major swap participants.
  (g) Daily Trading Records.--
          (1) In general.--Each registered swap dealer and 
        major swap participant shall maintain daily trading 
        records of the swaps of the registered swap dealer and 
        major swap participant and all related records 
        (including related cash or forward transactions) and 
        recorded communications, including electronic mail, 
        instant messages, and recordings of telephone calls, 
        for such period as may be required by the Commission by 
        rule or regulation.
          (2) Information requirements.--The daily trading 
        records shall include such information as the 
        Commission shall require by rule or regulation.
          (3) Counterparty records.--Each registered swap 
        dealer and major swap participant shall maintain daily 
        trading records for each counterparty in a manner and 
        form that is identifiable with each swap transaction.
          (4) Audit trail.--Each registered swap dealer and 
        major swap participant shall maintain a complete audit 
        trail for conducting comprehensive and accurate trade 
        reconstructions.
          (5) Rules.--The Commission shall adopt rules 
        governing daily trading records for swap dealers and 
        major swap participants.
  (h) Business Conduct Standards.--
          (1) In general.--Each registered swap dealer and 
        major swap participant shall conform with such business 
        conduct standards as prescribed in paragraph (3) and as 
        may be prescribed by the Commission by rule or 
        regulation that relate to--
                  (A) fraud, manipulation, and other abusive 
                practices involving swaps (including swaps that 
                are offered but not entered into);
                  (B) diligent supervision of the business of 
                the registered swap dealer and major swap 
                participant;
                  (C) adherence to all applicable position 
                limits; and
                  (D) such other matters as the Commission 
                determines to be appropriate.
          (2) Responsibilities with respect to special 
        entities.--
                  (A) Advising special entities.--A swap dealer 
                or major swap participant that acts as an 
                advisor to a special entity regarding a swap 
                shall comply with the requirements of 
                subparagraph (4) with respect to such Special 
                Entity.
                  (B) Entering of swaps with respect to special 
                entities.--A swap dealer that enters into or 
                offers to enter into swap with a Special Entity 
                shall comply with the requirements of 
                subparagraph (5) with respect to such Special 
                Entity.
                  (C) Special entity defined.--For purposes of 
                this subsection, the term ``special entity'' 
                means--
                          (i) a Federal agency;
                          (ii) a State, State agency, city, 
                        county, municipality, or other 
                        political subdivision of a State;
                          (iii) any employee benefit plan, as 
                        defined in section 3 of the Employee 
                        Retirement Income Security Act of 1974 
                        (29 U.S.C. 1002);
                          (iv) any governmental plan, as 
                        defined in section 3 of the Employee 
                        Retirement Income Security Act of 1974 
                        (29 U.S.C. 1002); or
                          (v) any endowment, including an 
                        endowment that is an organization 
                        described in section 501(c)(3) of the 
                        Internal Revenue Code of 1986.
          (3) Business conduct requirements.--Business conduct 
        requirements adopted by the Commission shall--
                  (A) establish a duty for a swap dealer or 
                major swap participant to verify that any 
                counterparty meets the eligibility standards 
                for an eligible contract participant;
                  (B) require disclosure by the swap dealer or 
                major swap participant to any counterparty to 
                the transaction (other than a swap dealer, 
                major swap participant, security-based swap 
                dealer, or major security-based swap 
                participant) of--
                          (i) information about the material 
                        risks and characteristics of the swap;
                          (ii) any material incentives or 
                        conflicts of interest that the swap 
                        dealer or major swap participant may 
                        have in connection with the swap; and
                          (iii)(I) for cleared swaps, upon the 
                        request of the counterparty, receipt of 
                        the daily mark of the transaction from 
                        the appropriate derivatives clearing 
                        organization; and
                          (II) for uncleared swaps, receipt of 
                        the daily mark of the transaction from 
                        the swap dealer or the major swap 
                        participant;
                  (C) establish a duty for a swap dealer or 
                major swap participant to communicate in a fair 
                and balanced manner based on principles of fair 
                dealing and good faith; and
                  (D) establish such other standards and 
                requirements as the Commission may determine 
                are appropriate in the public interest, for the 
                protection of investors, or otherwise in 
                furtherance of the purposes of this Act.
          (4) Special requirements for swap dealers acting as 
        advisors.--
                  (A) In general.--It shall be unlawful for a 
                swap dealer or major swap participant--
                          (i) to employ any device, scheme, or 
                        artifice to defraud any Special Entity 
                        or prospective customer who is a 
                        Special Entity;
                          (ii) to engage in any transaction, 
                        practice, or course of business that 
                        operates as a fraud or deceit on any 
                        Special Entity or prospective customer 
                        who is a Special Entity; or
                          (iii) to engage in any act, practice, 
                        or course of business that is 
                        fraudulent, deceptive or manipulative.
                  (B) Duty.--Any swap dealer that acts as an 
                advisor to a Special Entity shall have a duty 
                to act in the best interests of the Special 
                Entity.
                  (C) Reasonable efforts.--Any swap dealer that 
                acts as an advisor to a Special Entity shall 
                make reasonable efforts to obtain such 
                information as is necessary to make a 
                reasonable determination that any swap 
                recommended by the swap dealer is in the best 
                interests of the Special Entity, including 
                information relating to--
                          (i) the financial status of the 
                        Special Entity;
                          (ii) the tax status of the Special 
                        Entity;
                          (iii) the investment or financing 
                        objectives of the Special Entity; and
                          (iv) any other information that the 
                        Commission may prescribe by rule or 
                        regulation.
          (5) Special requirements for swap dealers as 
        counterparties to special entities.--
                  (A) Any swap dealer or major swap participant 
                that offers to enter or enters into a swap with 
                a Special Entity shall--
                          (i) comply with any duty established 
                        by the Commission for a swap dealer or 
                        major swap participant, with respect to 
                        a counterparty that is an eligible 
                        contract participant within the meaning 
                        of subclause (I) or (II) of clause 
                        (vii) of section 1a(18) of this Act, 
                        that requires the swap dealer or major 
                        swap participant to have a reasonable 
                        basis to believe that the counterparty 
                        that is a Special Entity has an 
                        independent representative that--
                                  (I) has sufficient knowledge 
                                to evaluate the transaction and 
                                risks;
                                  (II) is not subject to a 
                                statutory disqualification;
                                  (III) is independent of the 
                                swap dealer or major swap 
                                participant;
                                  (IV) undertakes a duty to act 
                                in the best interests of the 
                                counterparty it represents;
                                  (V) makes appropriate 
                                disclosures;
                                  (VI) will provide written 
                                representations to the Special 
                                Entity regarding fair pricing 
                                and the appropriateness of the 
                                transaction; and
                                  (VII) in the case of employee 
                                benefit plans subject to the 
                                Employee Retirement Income 
                                Security act of 1974, is a 
                                fiduciary as defined in section 
                                3 of that Act (29 U.S.C. 1002); 
                                and
                          (ii) before the initiation of the 
                        transaction, disclose to the Special 
                        Entity in writing the capacity in which 
                        the swap dealer is acting; and
                  (B) the Commission may establish such other 
                standards and requirements as the Commission 
                may determine are appropriate in the public 
                interest, for the protection of investors, or 
                otherwise in furtherance of the purposes of 
                this Act.
          (6) Rules.--The Commission shall prescribe rules 
        under this subsection governing business conduct 
        standards for swap dealers and major swap participants.
          (7) Applicability.--This section shall not apply with 
        respect to a transaction that is--
                  (A) initiated by a Special Entity on an 
                exchange or swap execution facility; and
                  (B) one in which the swap dealer or major 
                swap participant does not know the identity of 
                the counterparty to the transaction.
  (i) Documentation Standards.--
          (1) In general.--Each registered swap dealer and 
        major swap participant shall 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.
          (2) Rules.--The Commission shall adopt rules 
        governing documentation standards for swap dealers and 
        major swap participants.
  (j) Duties.--Each registered swap dealer and major swap 
participant at all times shall comply with the following 
requirements:
          (1) Monitoring of trading.--The swap dealer or major 
        swap participant shall monitor its trading in swaps to 
        prevent violations of applicable position limits.
          (2) Risk management procedures.--The swap dealer or 
        major swap participant shall establish robust and 
        professional risk management systems adequate for 
        managing the day-to-day business of the swap dealer or 
        major swap participant.
          (3) Disclosure of general information.--The swap 
        dealer or major swap participant shall disclose to the 
        Commission and to the prudential regulator for the swap 
        dealer or major swap participant, as applicable, 
        information concerning--
                  (A) terms and conditions of its swaps;
                  (B) swap trading operations, mechanisms, and 
                practices;
                  (C) financial integrity protections relating 
                to swaps; and
                  (D) other information relevant to its trading 
                in swaps.
          (4) Ability to obtain information.--The swap dealer 
        or major swap participant shall--
                  (A) establish and enforce internal systems 
                and procedures to obtain any necessary 
                information to perform any of the functions 
                described in this section; and
                  (B) provide the information to the Commission 
                and to the prudential regulator for the swap 
                dealer or major swap participant, as 
                applicable, on request.
          (5) Conflicts of interest.--The swap dealer and major 
        swap participant shall implement conflict-of-interest 
        systems and procedures that--
                  (A) establish structural and institutional 
                safeguards to ensure that the activities of any 
                person within the firm relating to research or 
                analysis of the price or market for any 
                commodity or swap or acting in a role of 
                providing clearing activities or making 
                determinations as to accepting clearing 
                customers are separated by appropriate 
                informational partitions within the firm from 
                the review, pressure, or oversight of persons 
                whose involvement in pricing, trading, or 
                clearing activities might potentially bias 
                their judgment or supervision and contravene 
                the core principles of open access and the 
                business conduct standards described in this 
                Act; and
                  (B) address such other issues as the 
                Commission determines to be appropriate.
          (6) Antitrust considerations.--Unless necessary or 
        appropriate to achieve the purposes of this Act, a swap 
        dealer or major swap participant shall not--
                  (A) adopt any process or take any action that 
                results in any unreasonable restraint of trade; 
                or
                  (B) impose any material anticompetitive 
                burden on trading or clearing.
          (7) Rules.--The Commission shall prescribe rules 
        under this subsection governing duties of swap dealers 
        and major swap participants.
  (k) Designation of Chief Compliance Officer.--
          (1) In general.--Each swap dealer and major swap 
        participant shall designate an individual to serve as a 
        chief compliance officer.
          (2) Duties.--The chief compliance officer shall--
                  (A) report directly to the board or to the 
                senior officer of the swap dealer or major swap 
                participant;
                  (B) review the compliance of the swap dealer 
                or major swap participant with respect to the 
                swap dealer and major swap participant 
                requirements described in this section;
                  (C) in consultation with the board of 
                directors, a body performing a function similar 
                to the board, or the senior officer of the 
                organization, resolve any conflicts of interest 
                that may arise;
                  (D) be responsible for administering each 
                policy and procedure that is required to be 
                established pursuant to this section;
                  (E) ensure compliance with this Act 
                (including regulations) relating to swaps, 
                including each rule prescribed by the 
                Commission under this section;
                  (F) establish procedures for the remediation 
                of noncompliance issues identified by the chief 
                compliance officer through any--
                          (i) compliance office review;
                          (ii) look-back;
                          (iii) internal or external audit 
                        finding;
                          (iv) self-reported error; or
                          (v) validated complaint; and
                  (G) establish and follow appropriate 
                procedures for the handling, management 
                response, remediation, retesting, and closing 
                of noncompliance issues.
          (3) Annual reports.--
                  (A) In general.--In accordance with rules 
                prescribed by the Commission, the chief 
                compliance officer shall annually prepare and 
                sign a report that contains a description of--
                          (i) the compliance of the swap dealer 
                        or major swap participant with respect 
                        to this Act (including regulations); 
                        and
                          (ii) each policy and procedure of the 
                        swap dealer or major swap participant 
                        of the chief compliance officer 
                        (including the code of ethics and 
                        conflict of interest policies).
                  (B) Requirements.--A compliance report under 
                subparagraph (A) shall--
                          (i) accompany each appropriate 
                        financial report of the swap dealer or 
                        major swap participant that is required 
                        to be furnished to the Commission 
                        pursuant to this section; and
                          (ii) include a certification that, 
                        under penalty of law, the compliance 
                        report is accurate and complete.
  (l) Segregation Requirements.--
          (1) Segregation of assets held as collateral in 
        uncleared swap transactions.--
                  (A) Notification.--A swap dealer or major 
                swap participant shall be required to notify 
                the counterparty of the swap dealer or major 
                swap participant at the beginning of a swap 
                transaction that the counterparty has the right 
                to require segregation of the funds or other 
                property supplied to margin, guarantee, or 
                secure the obligations of the counterparty.
                  (B) Segregation and maintenance of funds.--At 
                the request of a counterparty to a swap that 
                provides funds or other property to a swap 
                dealer or major swap participant to margin, 
                guarantee, or secure the obligations of the 
                counterparty, the swap dealer or major swap 
                participant shall--
                          (i) segregate the funds or other 
                        property for the benefit of the 
                        counterparty; and
                          (ii) in accordance with such rules 
                        and regulations as the Commission may 
                        promulgate, maintain the funds or other 
                        property in a segregated account 
                        separate from the assets and other 
                        interests of the swap dealer or major 
                        swap participant.
          (2) Applicability.--The requirements described in 
        paragraph (1) shall--
                  (A) apply only to a swap between a 
                counterparty and a swap dealer or major swap 
                participant that is not submitted for clearing 
                to a derivatives clearing organization; and
                  (B)(i) not apply to variation margin 
                payments; or
                  (ii) not preclude any commercial arrangement 
                regarding--
                          (I) 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; and
                          (II) the related allocation of gains 
                        and losses resulting from any 
                        investment of the segregated funds or 
                        other property.
          (3) Use of independent third-party custodians.--The 
        segregated account described in paragraph (1) shall 
        be--
                  (A) carried by an independent third-party 
                custodian; and
                  (B) designated as a segregated account for 
                and on behalf of the counterparty.
          (4) Reporting requirement.--If the counterparty does 
        not choose to require segregation of the funds or other 
        property supplied to margin, guarantee, or secure the 
        obligations of the counterparty, the swap dealer or 
        major swap participant shall report to the counterparty 
        of the swap dealer or major swap participant 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.

           *       *       *       *       *       *       *

                              ----------                              


                    SECURITIES EXCHANGE ACT OF 1934

TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *


SEC. 15F. REGISTRATION AND REGULATION OF SECURITY-BASED SWAP DEALERS 
                    AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.

  (a) Registration.--
          (1) Security-based swap dealers.--It shall be 
        unlawful for any person to act as a security-based swap 
        dealer unless the person is registered as a security-
        based swap dealer with the Commission.
          (2) Major security-based swap participants.--It shall 
        be unlawful for any person to act as a major security-
        based swap participant unless the person is registered 
        as a major security-based swap participant with the 
        Commission.
  (b) Requirements.--
          (1) In general.--A person shall register as a 
        security-based swap dealer or major security-based swap 
        participant by filing a registration application with 
        the Commission.
          (2) Contents.--
                  (A) In general.--The application shall be 
                made in such form and manner as prescribed by 
                the Commission, and shall contain such 
                information, as the Commission considers 
                necessary concerning the business in which the 
                applicant is or will be engaged.
                  (B) Continual reporting.--A person that is 
                registered as a security-based swap dealer or 
                major security-based swap participant shall 
                continue to submit to the Commission reports 
                that contain such information pertaining to the 
                business of the person as the Commission may 
                require.
          (3) Expiration.--Each registration under this section 
        shall expire at such time as the Commission may 
        prescribe by rule or regulation.
          (4) Rules.--Except as provided in subsections (d) and 
        (e), the Commission may prescribe rules applicable to 
        security-based swap dealers and major security-based 
        swap participants, including rules that limit the 
        activities of non-bank security-based swap dealers and 
        major security-based swap participants.
          (5) Transition.--Not later than 1 year after the date 
        of enactment of the Wall Street Transparency and 
        Accountability Act of 2010, the Commission shall issue 
        rules under this section to provide for the 
        registration of security-based swap dealers and major 
        security-based swap participants.
          (6) Statutory disqualification.--Except to the extent 
        otherwise specifically provided by rule, regulation, or 
        order of the Commission, it shall be unlawful for a 
        security-based swap dealer or a major security-based 
        swap participant to permit any person associated with a 
        security-based swap dealer or a major security-based 
        swap participant who is subject to a statutory 
        disqualification to effect or be involved in effecting 
        security-based swaps on behalf of the security-based 
        swap dealer or major security-based swap participant, 
        if the security-based swap dealer or major security-
        based swap participant knew, or in the exercise of 
        reasonable care should have known, of the statutory 
        disqualification.
  (c) Dual Registration.--
          (1) Security-based swap dealer.--Any person that is 
        required to be registered as a security-based swap 
        dealer under this section shall register with the 
        Commission, regardless of whether the person also is 
        registered with the Commodity Futures Trading 
        Commission as a swap dealer.
          (2) Major security-based swap participant.--Any 
        person that is required to be registered as a major 
        security-based swap participant under this section 
        shall register with the Commission, regardless of 
        whether the person also is registered with the 
        Commodity Futures Trading Commission as a major swap 
        participant.
  (d) Rulemaking.--
          (1) In general..-- The Commission shall adopt rules 
        for persons that are registered as security-based swap 
        dealers or major security-based swap participants under 
        this section.
          (2) Exception for prudential requirements.--
                  (A) In general.--The Commission may not 
                prescribe rules imposing prudential 
                requirements on security-based swap dealers or 
                major security-based swap participants for 
                which there is a prudential regulator.
                  (B) Applicability.--Subparagraph (A) does not 
                limit the authority of the Commission to 
                prescribe rules as directed under this section.
  (e) Capital and Margin Requirements.--
          (1) In general.--
                  (A) Security-based swap dealers and major 
                security-based swap participants that are 
                banks.--Each registered security-based swap 
                dealer and major security-based swap 
                participant for which there is not a prudential 
                regulator shall meet such minimum capital 
                requirements and minimum initial and variation 
                margin requirements as the prudential regulator 
                shall by rule or regulation prescribe under 
                paragraph (2)(A).
                  (B) Security-based swap dealers and major 
                security-based swap participants that are not 
                banks.--Each registered security-based swap 
                dealer and major security-based swap 
                participant for which there is not a prudential 
                regulator shall meet such minimum capital 
                requirements and minimum initial and variation 
                margin requirements as the Commission shall by 
                rule or regulation prescribe under paragraph 
                (2)(B).
          (2) Rules.--
                  (A) Security-based swap dealers and major 
                security-based swap participants that are 
                banks.--The prudential regulators, in 
                consultation with the Commission and the 
                Commodity Futures Trading Commission, shall 
                adopt rules for security-based swap dealers and 
                major security-based swap participants, with 
                respect to their activities as a swap dealer or 
                major swap participant, for which there is a 
                prudential regulator imposing--
                          (i) capital requirements; and
                          (ii) both initial and variation 
                        margin requirements on all security-
                        based swaps that are not cleared by a 
                        registered clearing agency.
                  (B) Security-based swap dealers and major 
                security-based swap participants that are not 
                banks.--The Commission shall adopt rules for 
                security-based swap dealers and major security-
                based swap participants, with respect to their 
                activities as a swap dealer or major swap 
                participant, for which there is not a 
                prudential regulator imposing--
                          (i) capital requirements; and
                          (ii) both initial and variation 
                        margin requirements on all swaps that 
                        are not cleared by a registered 
                        clearing agency.
                  (C) Capital.--In setting capital requirements 
                for a person that is designated as a security-
                based swap dealer or a major security-based 
                swap participant for a single type or single 
                class or category of security-based swap or 
                activities, the prudential regulator and the 
                Commission shall take into account the risks 
                associated with other types of security-based 
                swaps or classes of security-based swaps or 
                categories of security-based swaps engaged in 
                and the other activities conducted by that 
                person that are not otherwise subject to 
                regulation applicable to that person by virtue 
                of the status of the person.
          (3) Standards for capital and margin.--
                  (A) In general.--To offset the greater risk 
                to the security-based swap dealer or major 
                security-based swap participant and the 
                financial system arising from the use of 
                security-based swaps that are not cleared, the 
                requirements imposed under paragraph (2) shall 
                --
                          (i) help ensure the safety and 
                        soundness of the security-based swap 
                        dealer or major security-based swap 
                        participant; and
                          (ii) be appropriate for the risk 
                        associated with the non-cleared 
                        security-based swaps held as a 
                        security-based swap dealer or major 
                        security-based swap participant.
                  (B) Rule of construction.--
                          (i) In general.--Nothing in this 
                        section shall limit, or be construed to 
                        limit, the authority--
                                  (I) of the Commission to set 
                                financial responsibility rules 
                                for a broker or dealer 
                                registered pursuant to section 
                                15(b) (except for section 
                                15(b)(11) thereof) in 
                                accordance with section 
                                15(c)(3); or
                                  (II) of the Commodity Futures 
                                Trading Commission to set 
                                financial responsibility rules 
                                for a futures commission 
                                merchant or introducing broker 
                                registered pursuant to section 
                                4f(a) of the Commodity Exchange 
                                Act (except for section 
                                4f(a)(3) thereof) in accordance 
                                with section 4f(b) of the 
                                Commodity Exchange Act.
                          (ii) Futures commission merchants and 
                        other dealers.--A futures commission 
                        merchant, introducing broker, broker, 
                        or dealer shall maintain sufficient 
                        capital to comply with the stricter of 
                        any applicable capital requirements to 
                        which such futures commission merchant, 
                        introducing broker, broker, or dealer 
                        is subject to under this title or the 
                        Commodity Exchange Act.
                  (C) Margin requirements.--In prescribing 
                margin requirements under this subsection, the 
                prudential regulator with respect to security-
                based swap dealers and major security-based 
                swap participants that are depository 
                institutions, and the Commission with respect 
                to security-based swap dealers and major 
                security-based swap participants that are not 
                depository institutions shall permit the use of 
                noncash collateral, as the regulator or the 
                Commission determines to be consistent with--
                          (i) preserving the financial 
                        integrity of markets trading security-
                        based swaps; and
                          (ii) preserving the stability of the 
                        United States financial system.
                  (D) Comparability of capital and margin 
                requirements.--
                          (i) In general.--The prudential 
                        regulators, the Commission, and the 
                        Securities and Exchange Commission 
                        shall periodically (but not less 
                        frequently than annually) consult on 
                        minimum capital requirements and 
                        minimum initial and variation margin 
                        requirements.
                          (ii) Comparability.--The entities 
                        described in clause (i) shall, to the 
                        maximum extent practicable, establish 
                        and maintain comparable minimum capital 
                        requirements and minimum initial and 
                        variation margin requirements, 
                        including the use of noncash 
                        collateral, for--
                                  (I) security-based swap 
                                dealers; and
                                  (II) major security-based 
                                swap participants.
          (4) Applicability with respect to counterparties.--
        The requirements of paragraphs (2)(A)(ii) and 
        (2)(B)(ii) shall not apply to a security-based swap in 
        which a counterparty qualifies for an exception under 
        section 3C(g)(1) or satisfies the criteria in section 
        3C(g)(4).
  (f) Reporting and Recordkeeping.--
          (1) In general.--Each registered security-based swap 
        dealer and major security-based swap participant--
                  (A) shall make such reports as are required 
                by the Commission, by rule or regulation, 
                regarding the transactions and positions and 
                financial condition of the registered security-
                based swap dealer or major security-based swap 
                participant;
                  (B)(i) for which there is a prudential 
                regulator, shall keep books and records of all 
                activities related to the business as a 
                security-based swap dealer or major security-
                based swap participant in such form and manner 
                and for such period as may be prescribed by the 
                Commission by rule or regulation; and
                  (ii) for which there is no prudential 
                regulator, shall keep books and records in such 
                form and manner and for such period as may be 
                prescribed by the Commission by rule or 
                regulation; and
                  (C) shall keep books and records described in 
                subparagraph (B) open to inspection and 
                examination by any representative of the 
                Commission.
          (2) Rules.--The Commission shall adopt rules 
        governing reporting and recordkeeping for security-
        based swap dealers and major security-based swap 
        participants.
  (g) Daily Trading Records.--
          (1) In general.--Each registered security-based swap 
        dealer and major security-based swap participant shall 
        maintain daily trading records of the security-based 
        swaps of the registered security-based swap dealer and 
        major security-based swap participant and all related 
        records (including related cash or forward 
        transactions) and recorded communications, including 
        electronic mail, instant messages, and recordings of 
        telephone calls, for such period as may be required by 
        the Commission by rule or regulation.
          (2) Information requirements.--The daily trading 
        records shall include such information as the 
        Commission shall require by rule or regulation.
          (3) Counterparty records.--Each registered security-
        based swap dealer and major security-based swap 
        participant shall maintain daily trading records for 
        each counterparty in a manner and form that is 
        identifiable with each security-based swap transaction.
          (4) Audit trail.--Each registered security-based swap 
        dealer and major security-based swap participant shall 
        maintain a complete audit trail for conducting 
        comprehensive and accurate trade reconstructions.
          (5) Rules.--The Commission shall adopt rules 
        governing daily trading records for security-based swap 
        dealers and major security-based swap participants.
  (h) Business Conduct Standards.--
          (1) In general.--Each registered security-based swap 
        dealer and major security-based swap participant shall 
        conform with such business conduct standards as 
        prescribed in paragraph (3) and as may be prescribed by 
        the Commission by rule or regulation that relate to--
                  (A) fraud, manipulation, and other abusive 
                practices involving security-based swaps 
                (including security-based swaps that are 
                offered but not entered into);
                  (B) diligent supervision of the business of 
                the registered security-based swap dealer and 
                major security-based swap participant;
                  (C) adherence to all applicable position 
                limits; and
                  (D) such other matters as the Commission 
                determines to be appropriate.
          (2) Responsibilities with respect to special 
        entities.--
                  (A) Advising special entities.--A security-
                based swap dealer or major security-based swap 
                participant that acts as an advisor to special 
                entity regarding a security-based swap shall 
                comply with the requirements of paragraph (4) 
                with respect to such special entity.
                  (B) Entering of security-based swaps with 
                respect to special entities.--A security-based 
                swap dealer that enters into or offers to enter 
                into security-based swap with a special entity 
                shall comply with the requirements of paragraph 
                (5) with respect to such special entity.
                  (C) Special entity defined.--For purposes of 
                this subsection, the term ``special entity'' 
                means--
                          (i) a Federal agency;
                          (ii) a State, State agency, city, 
                        county, municipality, or other 
                        political subdivision of a State or;
                          (iii) any employee benefit plan, as 
                        defined in section 3 of the Employee 
                        Retirement Income Security Act of 1974 
                        (29 U.S.C. 1002);
                          (iv) any governmental plan, as 
                        defined in section 3 of the Employee 
                        Retirement Income Security Act of 1974 
                        (29 U.S.C. 1002); or
                          (v) any endowment, including an 
                        endowment that is an organization 
                        described in section 501(c)(3) of the 
                        Internal Revenue Code of 1986.
          (3) Business conduct requirements.--Business conduct 
        requirements adopted by the Commission shall--
                  (A) establish a duty for a security-based 
                swap dealer or major security-based swap 
                participant to verify that any counterparty 
                meets the eligibility standards for an eligible 
                contract participant;
                  (B) require disclosure by the security-based 
                swap dealer or major security-based swap 
                participant to any counterparty to the 
                transaction (other than a security-based swap 
                dealer, major security-based swap participant, 
                security-based swap dealer, or major security-
                based swap participant) of--
                          (i) information about the material 
                        risks and characteristics of the 
                        security-based swap;
                          (ii) any material incentives or 
                        conflicts of interest that the 
                        security-based swap dealer or major 
                        security-based swap participant may 
                        have in connection with the security-
                        based swap; and
                          (iii)(I) for cleared security-based 
                        swaps, upon the request of the 
                        counterparty, receipt of the daily mark 
                        of the transaction from the appropriate 
                        derivatives clearing organization; and
                          (II) for uncleared security-based 
                        swaps, receipt of the daily mark of the 
                        transaction from the security-based 
                        swap dealer or the major security-based 
                        swap participant;
                  (C) establish a duty for a security-based 
                swap dealer or major security-based swap 
                participant to communicate in a fair and 
                balanced manner based on principles of fair 
                dealing and good faith; and
                  (D) establish such other standards and 
                requirements as the Commission may determine 
                are appropriate in the public interest, for the 
                protection of investors, or otherwise in 
                furtherance of the purposes of this Act.
          (4) Special requirements for security-based swap 
        dealers acting as advisors.--
                  (A) In general.--It shall be unlawful for a 
                security-based swap dealer or major security-
                based swap participant--
                          (i) to employ any device, scheme, or 
                        artifice to defraud any special entity 
                        or prospective customer who is a 
                        special entity;
                          (ii) to engage in any transaction, 
                        practice, or course of business that 
                        operates as a fraud or deceit on any 
                        special entity or prospective customer 
                        who is a special entity; or
                          (iii) to engage in any act, practice, 
                        or course of business that is 
                        fraudulent, deceptive, or manipulative.
                  (B) Duty.--Any security-based swap dealer 
                that acts as an advisor to a special entity 
                shall have a duty to act in the best interests 
                of the special entity.
                  (C) Reasonable efforts.--Any security-based 
                swap dealer that acts as an advisor to a 
                special entity shall make reasonable efforts to 
                obtain such information as is necessary to make 
                a reasonable determination that any security-
                based swap recommended by the security-based 
                swap dealer is in the best interests of the 
                special entity, including information relating 
                to--
                          (i) the financial status of the 
                        special entity;
                          (ii) the tax status of the special 
                        entity;
                          (iii) the investment or financing 
                        objectives of the special entity; and
                          (iv) any other information that the 
                        Commission may prescribe by rule or 
                        regulation.
          (5) Special requirements for security-based swap 
        dealers as counterparties to special entities.--
                  (A) In general.--Any security-based swap 
                dealer or major security-based swap participant 
                that offers to or enters into a security-based 
                swap with a special entity shall--
                          (i) comply with any duty established 
                        by the Commission for a security-based 
                        swap dealer or major security-based 
                        swap participant, with respect to a 
                        counterparty that is an eligible 
                        contract participant within the meaning 
                        of subclause (I) or (II) of clause 
                        (vii) of section 1a(18) of the 
                        Commodity Exchange Act, that requires 
                        the security-based swap dealer or major 
                        security-based swap participant to have 
                        a reasonable basis to believe that the 
                        counterparty that is a special entity 
                        has an independent representative 
                        that--
                                  (I) has sufficient knowledge 
                                to evaluate the transaction and 
                                risks;
                                  (II) is not subject to a 
                                statutory disqualification;
                                  (III) is independent of the 
                                security-based swap dealer or 
                                major security-based swap 
                                participant;
                                  (IV) undertakes a duty to act 
                                in the best interests of the 
                                counterparty it represents;
                                  (V) makes appropriate 
                                disclosures;
                                  (VI) will provide written 
                                representations to the special 
                                entity regarding fair pricing 
                                and the appropriateness of the 
                                transaction; and
                                  (VII) in the case of employee 
                                benefit plans subject to the 
                                Employee Retirement Income 
                                Security act of 1974, is a 
                                fiduciary as defined in section 
                                3 of that Act (29 U.S.C. 1002); 
                                and
                          (ii) before the initiation of the 
                        transaction, disclose to the special 
                        entity in writing the capacity in which 
                        the security-based swap dealer is 
                        acting.
                  (B) Commission authority.--The Commission may 
                establish such other standards and requirements 
                under this paragraph as the Commission may 
                determine are appropriate in the public 
                interest, for the protection of investors, or 
                otherwise in furtherance of the purposes of 
                this Act.
          (6) Rules.--The Commission shall prescribe rules 
        under this subsection governing business conduct 
        standards for security-based swap dealers and major 
        security-based swap participants.
          (7) Applicability.--This subsection shall not apply 
        with respect to a transaction that is--
                  (A) initiated by a special entity on an 
                exchange or security-based swaps execution 
                facility; and
                  (B) the security-based swap dealer or major 
                security-based swap participant does not know 
                the identity of the counterparty to the 
                transaction.''
  (i) Documentation Standards.--
          (1) In general.--Each registered security-based swap 
        dealer and major security-based swap participant shall 
        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 security-based 
        swaps.
          (2) Rules.--The Commission shall adopt rules 
        governing documentation standards for security-based 
        swap dealers and major security-based swap 
        participants.
  (j) Duties.--Each registered security-based swap dealer and 
major security-based swap participant shall, at all times, 
comply with the following requirements:
          (1) Monitoring of trading.--The security-based swap 
        dealer or major security-based swap participant shall 
        monitor its trading in security-based swaps to prevent 
        violations of applicable position limits.
          (2) Risk management procedures.--The security-based 
        swap dealer or major security-based swap participant 
        shall establish robust and professional risk management 
        systems adequate for managing the day-to-day business 
        of the security-based swap dealer or major security-
        based swap participant.
          (3) Disclosure of general information.--The security-
        based swap dealer or major security-based swap 
        participant shall disclose to the Commission and to the 
        prudential regulator for the security-based swap dealer 
        or major security-based swap participant, as 
        applicable, information concerning--
                  (A) terms and conditions of its security-
                based swaps;
                  (B) security-based swap trading operations, 
                mechanisms, and practices;
                  (C) financial integrity protections relating 
                to security-based swaps; and
                  (D) other information relevant to its trading 
                in security-based swaps.
          (4) Ability to obtain information.--The security-
        based swap dealer or major security-based swap 
        participant shall--
                  (A) establish and enforce internal systems 
                and procedures to obtain any necessary 
                information to perform any of the functions 
                described in this section; and
                  (B) provide the information to the Commission 
                and to the prudential regulator for the 
                security-based swap dealer or major security-
                based swap participant, as applicable, on 
                request.
          (5) Conflicts of interest.--The security-based swap 
        dealer and major security-based swap participant shall 
        implement conflict-of-interest systems and procedures 
        that--
                  (A) establish structural and institutional 
                safeguards to ensure that the activities of any 
                person within the firm relating to research or 
                analysis of the price or market for any 
                security-based swap or acting in a role of 
                providing clearing activities or making 
                determinations as to accepting clearing 
                customers are separated by appropriate 
                informational partitions within the firm from 
                the review, pressure, or oversight of persons 
                whose involvement in pricing, trading, or 
                clearing activities might potentially bias 
                their judgment or supervision and contravene 
                the core principles of open access and the 
                business conduct standards described in this 
                title; and
                  (B) address such other issues as the 
                Commission determines to be appropriate.
          (6) Antitrust considerations.--Unless necessary or 
        appropriate to achieve the purposes of this title, the 
        security-based swap dealer or major security-based swap 
        participant shall not--
                  (A) adopt any process or take any action that 
                results in any unreasonable restraint of trade; 
                or
                  (B) impose any material anticompetitive 
                burden on trading or clearing.
          (7) Rules.--The Commission shall prescribe rules 
        under this subsection governing duties of security-
        based swap dealers and major security-based swap 
        participants.
  (k) Designation of Chief Compliance Officer.--
          (1) In general.--Each security-based swap dealer and 
        major security-based swap participant shall designate 
        an individual to serve as a chief compliance officer.
          (2) Duties.--The chief compliance officer shall--
                  (A) report directly to the board or to the 
                senior officer of the security-based swap 
                dealer or major security-based swap 
                participant;
                  (B) review the compliance of the security-
                based swap dealer or major security-based swap 
                participant with respect to the security-based 
                swap dealer and major security-based swap 
                participant requirements described in this 
                section;
                  (C) in consultation with the board of 
                directors, a body performing a function similar 
                to the board, or the senior officer of the 
                organization, resolve any conflicts of interest 
                that may arise;
                  (D) be responsible for administering each 
                policy and procedure that is required to be 
                established pursuant to this section;
                  (E) ensure compliance with this title 
                (including regulations) relating to security-
                based swaps, including each rule prescribed by 
                the Commission under this section;
                  (F) establish procedures for the remediation 
                of noncompliance issues identified by the chief 
                compliance officer through any--
                          (i) compliance office review;
                          (ii) look-back;
                          (iii) internal or external audit 
                        finding;
                          (iv) self-reported error; or
                          (v) validated complaint; and
                  (G) establish and follow appropriate 
                procedures for the handling, management 
                response, remediation, retesting, and closing 
                of noncompliance issues.
          (3) Annual reports.--
                  (A) In general.--In accordance with rules 
                prescribed by the Commission, the chief 
                compliance officer shall annually prepare and 
                sign a report that contains a description of--
                          (i) the compliance of the security-
                        based swap dealer or major swap 
                        participant with respect to this title 
                        (including regulations); and
                          (ii) each policy and procedure of the 
                        security-based swap dealer or major 
                        security-based swap participant of the 
                        chief compliance officer (including the 
                        code of ethics and conflict of interest 
                        policies).
                  (B) Requirements.--A compliance report under 
                subparagraph (A) shall--
                          (i) accompany each appropriate 
                        financial report of the security-based 
                        swap dealer or major security-based 
                        swap participant that is required to be 
                        furnished to the Commission pursuant to 
                        this section; and
                          (ii) include a certification that, 
                        under penalty of law, the compliance 
                        report is accurate and complete.
  (l) Enforcement and Administrative Proceeding Authority.--
          (1) Primary enforcement authority.--
                  (A) Securities and exchange commission.--
                Except as provided in subparagraph (B), (C), or 
                (D), the Commission shall have primary 
                authority to enforce subtitle B, and the 
                amendments made by subtitle B of the Wall 
                Street Transparency and Accountability Act of 
                2010, with respect to any person.
                  (B) Prudential regulators.--The prudential 
                regulators shall have exclusive authority to 
                enforce the provisions of subsection (e) and 
                other prudential requirements of this title 
                (including risk management standards), with 
                respect to security-based swap dealers or major 
                security-based swap participants for which they 
                are the prudential regulator.
                  (C) Referral.--
                          (i) Violations of nonprudential 
                        requirements.--If the appropriate 
                        Federal banking agency for security-
                        based swap dealers or major security-
                        based swap participants that are 
                        depository institutions has cause to 
                        believe that such security-based swap 
                        dealer or major security-based swap 
                        participant may have engaged in conduct 
                        that constitutes a violation of the 
                        nonprudential requirements of this 
                        section or rules adopted by the 
                        Commission thereunder, the agency may 
                        recommend in writing to the Commission 
                        that the Commission initiate an 
                        enforcement proceeding as authorized 
                        under this title. The recommendation 
                        shall be accompanied by a written 
                        explanation of the concerns giving rise 
                        to the recommendation.
                          (ii) Violations of prudential 
                        requirements.--If the Commission has 
                        cause to believe that a securities-
                        based swap dealer or major securities-
                        based swap participant that has a 
                        prudential regulator may have engaged 
                        in conduct that constitute a violation 
                        of the prudential requirements of 
                        subsection (e) or rules adopted 
                        thereunder, the Commission may 
                        recommend in writing to the prudential 
                        regulator that the prudential regulator 
                        initiate an enforcement proceeding as 
                        authorized under this title. The 
                        recommendation shall be accompanied by 
                        a written explanation of the concerns 
                        giving rise to the recommendation.
                  (D) Backstop enforcement authority.--
                          (i) Initiation of enforcement 
                        proceeding by prudential regulator.--If 
                        the Commission does not initiate an 
                        enforcement proceeding before the end 
                        of the 90-day period beginning on the 
                        date on which the Commission receives a 
                        written report under subsection (C)(i), 
                        the prudential regulator may initiate 
                        an enforcement proceeding.
                          (ii) Initiation of enforcement 
                        proceeding by commission.--If the 
                        prudential regulator does not initiate 
                        an enforcement proceeding before the 
                        end of the 90-day period beginning on 
                        the date on which the prudential 
                        regulator receives a written report 
                        under subsection (C)(ii), the 
                        Commission may initiate an enforcement 
                        proceeding.
          (2) Censure, denial, suspension; notice and 
        hearing.--The Commission, by order, shall censure, 
        place limitations on the activities, functions, or 
        operations of, or revoke the registration of any 
        security-based swap dealer or major security-based swap 
        participant that has registered with the Commission 
        pursuant to subsection (b) if the Commission finds, on 
        the record after notice and opportunity for hearing, 
        that such censure, placing of limitations, or 
        revocation is in the public interest and that such 
        security-based swap dealer or major security-based swap 
        participant, or any person associated with such 
        security-based swap dealer or major security-based swap 
        participant effecting or involved in effecting 
        transactions in security-based swaps on behalf of such 
        security-based swap dealer or major security-based swap 
        participant, whether prior or subsequent to becoming so 
        associated--
                  (A) has committed or omitted any act, or is 
                subject to an order or finding, enumerated in 
                subparagraph (A), (D), or (E) of paragraph (4) 
                of section 15(b);
                  (B) has been convicted of any offense 
                specified in subparagraph (B) of such paragraph 
                (4) within 10 years of the commencement of the 
                proceedings under this subsection;
                  (C) is enjoined from any action, conduct, or 
                practice specified in subparagraph (C) of such 
                paragraph (4);
                  (D) is subject to an order or a final order 
                specified in subparagraph (F) or (H), 
                respectively, of such paragraph (4); or
                  (E) has been found by a foreign financial 
                regulatory authority to have committed or 
                omitted any act, or violated any foreign 
                statute or regulation, enumerated in 
                subparagraph (G) of such paragraph (4).
          (3) Associated persons.--With respect to any person 
        who is associated, who is seeking to become associated, 
        or, at the time of the alleged misconduct, who was 
        associated or was seeking to become associated with a 
        security-based swap dealer or major security-based swap 
        participant for the purpose of effecting or being 
        involved in effecting security-based swaps on behalf of 
        such security-based swap dealer or major security-based 
        swap participant, the Commission, by order, shall 
        censure, place limitations on the activities or 
        functions of such person, or suspend for a period not 
        exceeding 12 months, or bar such person from being 
        associated with a security-based swap dealer or major 
        security-based swap participant, if the Commission 
        finds, on the record after notice and opportunity for a 
        hearing, that such censure, placing of limitations, 
        suspension, or bar is in the public interest and that 
        such person--
                  (A) has committed or omitted any act, or is 
                subject to an order or finding, enumerated in 
                subparagraph (A), (D), or (E) of paragraph (4) 
                of section 15(b);
                  (B) has been convicted of any offense 
                specified in subparagraph (B) of such paragraph 
                (4) within 10 years of the commencement of the 
                proceedings under this subsection;
                  (C) is enjoined from any action, conduct, or 
                practice specified in subparagraph (C) of such 
                paragraph (4);
                  (D) is subject to an order or a final order 
                specified in subparagraph (F) or (H), 
                respectively, of such paragraph (4); or
                  (E) has been found by a foreign financial 
                regulatory authority to have committed or 
                omitted any act, or violated any foreign 
                statute or regulation, enumerated in 
                subparagraph (G) of such paragraph (4).
          (4) Unlawful conduct.--It shall be unlawful--
                  (A) for any person as to whom an order under 
                paragraph (3) is in effect, without the consent 
                of the Commission, willfully to become, or to 
                be, associated with a security-based swap 
                dealer or major security-based swap participant 
                in contravention of such order; or
                  (B) for any security-based swap dealer or 
                major security-based swap participant to permit 
                such a person, without the consent of the 
                Commission, to become or remain a person 
                associated with the security-based swap dealer 
                or major security-based swap participant in 
                contravention of such order, if such security-
                based swap dealer or major security-based swap 
                participant knew, or in the exercise of 
                reasonable care should have known, of such 
                order.

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