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[House Report 113-107]
[From the U.S. Government Publishing Office]

113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    113-107

======================================================================

 
                PUBLIC POWER RISK MANAGEMENT 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. 1038]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Agriculture, to whom was referred the bill 
(H.R. 1038) to provide equal treatment for utility special 
entities using utility operations-related swaps, and for other 
purposes, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                           Brief Explanation

    H.R. 1038 would preserve the ability of government-owned 
utilities, classified in the bill as ``utility special 
entities,'' to have uninterrupted and cost-effective access to 
the customized, non-financial commodity swaps that utility 
special entities have used for years. In effect, the 
counterparties of utility special entities would now be subject 
to the much higher $8 billion de minimis swap dealer 
registration threshold. Importantly, the bill does not include 
an exemption for interest rate, credit, equities, currency 
asset classes, or agriculture commodities, other than 
commodities used for electric energy or natural gas production 
or generation. Instead, the legislation creates a new category 
of swap known as the ``utility operations-related swap'' and 
provides relief to counterparties of utility special entities 
only when those specific types of swaps are used. To ensure 
transparency, the bill still requires all special entity swap 
transactions to be reported to the U.S. Commodity Futures 
Trading Commission (CFTC).

                            Purpose and Need

    On May 23, 2012, the CFTC published a rule further defining 
who is considered a ``swap dealer'' under the Dodd-Frank Act, 
which directly impacted many swap counterparties of government-
owned non-profit utilities. The rule became effective on July 
23, 2012, with registration as a swap dealer not being required 
until on or after October 12, 2012. The CFTC's swap dealer rule 
includes an exception for entities from having to register as a 
swap dealer if their outstanding annual gross notional swap 
positions do not exceed either of the two following thresholds:
         1. $3 billion (subject to an initial three year phase-
        in level of $8 billion), referred to as the ``general 
        de minimis threshold''; and
         2. $25 million with regard to swaps where an entity's 
        counterparty is a ``special entity'' as defined in 
        Section 731 of the Dodd-Frank Act, referred to as the 
        ``special entity de minimis threshold.''
    On October 12, 2012, after several public power groups 
petitioned the CFTC to relieve their counterparties from 
compliance with the much lower registration threshold, CFTC 
staff issued a non-binding ``no-action relief'' letter instead, 
which increased the ``special entity sub-threshold'' to $800 
million from $25 million.
    As mentioned above, a ``special entity'' is broadly defined 
in Section 731 of the Dodd-Frank Act to include any government-
owned enterprise, such as public school boards, state 
governments, and any publicly-owned producer or supplier of 
electricity or natural gas. Casting such a broad net in 
defining ``special entity'' was a policy decision made by the 
drafters of the Dodd-Frank Act which sought to protect 
taxpayers from the use of complex financial swaps by their 
municipality. For example, the use of fixed-for-floating 
interest rate swaps tied to municipal bonds issued by Jefferson 
County, Alabama, contributed to the county's multi-billion 
dollar debt that rapidly expanded during the 2008 financial 
crisis, resulting in the largest municipal bankruptcy filing in 
U.S. history.
    Prior to enactment of the Dodd-Frank Act, however, many 
publicly-owned utilities relied on their non-financial 
counterparties, such as natural gas producers, independent 
power generators, and investor-owned utility companies to enter 
into swaps in order to hedge against operational risks. Many of 
these utilities have heard from numerous counterparties who are 
evaluating their future business plans in light of the final 
CFTC rules. These counterparties are strictly limiting their 
business, or completely cutting all ties with utility special 
entities given the special entity sub-threshold and uncertainty 
surrounding the new regulatory regime for the swaps 
marketplace.
    Unless counterparties can determine with certainty that 
their swap activities with special entities will not result in 
them being classified as a ``swap dealer'' under the Dodd-Frank 
Act, it appears that numerous counterparties may avoid doing 
business with them altogether. This ultimately limits 
competition and forces special entities to do business with 
financial institutions or large swap dealers, which 
concentrates risk and may raise costs for many utility special 
entities eventually leading to increased costs for ratepayers.

                           Section-By-Section

    Section 1 is the short title of the bill.
    Section 2 adds paragraph (E) to the definition of swap 
dealer clarifying that transactions in utility operations-
related swaps shall be reported and counted towards an entity's 
general de minimus calculation established in (D).
    Section 3 amends the responsibilities to special entities 
required by the business conduct standards in 4s(h) of the 
Commodity Exchange Act by defining a ``utility special 
entity.'' A utility special entity is defined as an entity 
established by a state, or political subdivision thereof, which 
owns or operates an electric or natural gas facility; supplies 
natural gas or electric energy to another utility special 
entity, has public service under obligation under federal, 
state or local law or regulation to deliver electric energy or 
natural gas service to customers; or is a Federal power 
marketing agency.
    Section 4 amends the definition of swap in section 1a(47) 
of the Commodity Exchange Act adding a utility operations-
related swap to the list of ``commonly known'' transactions. It 
further amends section 1a to define a utility operations 
related swap as a swap that is entered into to hedge or 
mitigate risk, is not based on an interest rate, credit, 
equity, or currency asset class nor a metal, agriculture 
commodity, or crude oil or gasoline commodity for any grade 
except as used as fuel for electric energy generation, and is 
associated with the generation, production or sale of natural 
gas or electric energy.
    Section 5 sets July 21, 2010 as the effective date.

                        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. 677, the Inter-
Affiliate Swap Clarification Act. 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 Mr. Terrance Naulty, General 
Manager and CEO of Owensboro Municipal Utilities who testified 
to the importance of the legislation:

          ``Specifically, the legislation would provide that 
        the CFTC, in making a determination to exempt a swap 
        dealer under the de minimis exception, shall treat a 
        utility operations-related swap with a utility special 
        entity the same as a utility operations-related swaps 
        with any entity that is not a special entity. Under the 
        current threshold/sub-threshold regulatory regime 
        adopted by the CFTC, this would mean that utility 
        operations-related swaps with a government-owned power 
        or natural gas utility would not be counted in 
        calculating whether swap dealing activity exceeded the 
        $25 million special entity de minimis threshold, but 
        would be counted in calculating whether swap dealing 
        activity exceeded the $8 billion de minimis threshold.

          The legislation carefully defines which entities 
        would qualify as a `utility special entity.' It also 
        specifically defines the types of swaps that could and 
        could not be considered a `utility operations-related 
        swap.' For example, the legislation specifically 
        prohibits interest, credit, equity, and currency swaps 
        from being considered as a utility operations-related 
        swap. Likewise, except in relation to their use as a 
        fuel, commodity swaps in metal, agricultural, crude 
        oil, or gasoline would not qualify either.
          Finally, the legislation also confirms that utility 
        operations-related swaps are fully subject to swap 
        reporting requirements.
          When implemented, this legislation should provide the 
        certainty to nonfinancial entities that they can enter 
        into swap transactions with government-owned utilities 
        without fear of being deemed a swap dealer. It truly 
        levels the playing field. And, it does nothing to 
        otherwise alter the CFTC's implementation of the Dodd-
        Frank Act.
          We wish the legislation were not necessary, but given 
        the realities we face and the ongoing damage being done 
        under the current rules, we urgently request the 
        members of this committee to support this narrow 
        legislative fix.''

                         II. BUSINESS MEETINGS

    The Committee on Agriculture met, pursuant to notice, with 
a quorum present, on March 20, 2013, to consider H.R. 1038, 
Public Power Risk Management Act of 2013, and other pending 
business.
    H.R. 1038 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. Garamendi, and Mr. LaMalfa were recognized for 
statements, and Counsel was then recognized for a brief 
explanation of the bill.
    There being no amendments, Mr. Peterson was recognized to 
offer a motion that the bill H.R. 1038 be reported favorably to 
the House with recommendation that it do pass. The motion was 
subsequently approved by voice vote.
    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. 1038 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 1, 2013.
Hon. Frank D. Lucas,
Chairman, Committee on Agriculture,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1038, the Public 
Power Risk Management Act of 2013.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kathleen 
Gramp.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 1038--Public Power Risk Management Act of 2013

    H.R. 1038 would change the way certain electric and natural 
gas utility contracts are regulated by the Commodity Futures 
Trading Commission (CFTC). Under current law, most firms that 
offer contracts to hedge or mitigate market risks are regulated 
as ``swap dealers'' if the value of their transactions exceeds 
certain thresholds. H.R. 1038 would direct the CFTC to exclude 
certain types of agreements with publicly owned utilities from 
the calculation of the threshold for transactions with 
``special entities,'' which includes governmental or nonprofit 
entities. That change could make it easier for firms to enter 
into hedging arrangements with public utilities without being 
regulated as a swap dealer.
    Pay-as-you-go procedures apply to this bill because it 
could affect direct spending by the Tennessee Valley Authority 
(TVA) and the Bonneville Power Administration (BPA). CBO 
estimates, however, that the net effect on direct spending 
would not be significant in any year. Enacting the legislation 
would not affect revenues. Based on information from the CFTC, 
CBO estimates that implementing the bill would have a 
negligible effect on spending subject to appropriation.
    CBO estimates that implementing H.R. 1038 would have no 
significant effect on the operations of TVA and BPA because 
most of their hedging agreements are with large firms that 
already are regulated as swap dealers by the CFTC. In addition, 
any changes resulting from the bill would have a negligible 
effect on net direct spending because TVA and BPA routinely 
adjust their electricity prices and revenues to account for 
changes in their operating expenses, as required by law.
    H.R. 1038 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 Kathleen Gramp. 
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 
allow producers, utility companies, and other non-financial 
entities to continue entering into energy swaps with 
government-owned utilities without danger of being required to 
register with the CFTC as a ``swap dealer'' solely because of 
their dealings with government-owned utilities.

                        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. 1038 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. 1038 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. 1A. DEFINITIONS.

  As used in this Act:
          (1) Alternative trading system.--The term 
        ``alternative trading system'' means an organization, 
        association, or group of persons that--
                  (A) is registered as a broker or dealer 
                pursuant to section 15(b) of the Securities 
                Exchange Act of 1934 (except paragraph (11) 
                thereof);
                  (B) performs the functions commonly performed 
                by an exchange (as defined in section 3(a)(1) 
                of the Securities Exchange Act of 1934);
                  (C) does not--
                          (i) set rules governing the conduct 
                        of subscribers other than the conduct 
                        of such subscribers' trading on the 
                        alternative trading system; or
                          (ii) discipline subscribers other 
                        than by exclusion from trading; and
                  (D) is exempt from the definition of the term 
                ``exchange'' under such section 3(a)(1) by rule 
                or regulation of the Securities and Exchange 
                Commission on terms that require compliance 
                with regulations of its trading functions.
          (2) Appropriate federal banking agency.--The term 
        ``appropriate Federal banking agency''--
                  (A) has the meaning given the term in section 
                3 of the Federal Deposit Insurance Act (12 
                U.S.C. 1813);
                  (B) means the Board in the case of a 
                noninsured State bank; and
                  (C) is the Farm Credit Administration for 
                farm credit system institutions.
          (3) Associated person of a security-based swap dealer 
        or major security-based swap participant.--The term 
        ``associated person of a security-based swap dealer or 
        major security-based swap participant'' has the meaning 
        given the term in section 3(a) of the Securities 
        Exchange Act of 1934 (15 U.S.C. 78c(a)).
          (4) Associated person of a swap dealer or major swap 
        participant.--
                  (A) In general.--The term ``associated person 
                of a swap dealer or major swap participant'' 
                means a person who is associated with a swap 
                dealer or major swap participant as a partner, 
                officer, employee, or agent (or any person 
                occupying a similar status or performing 
                similar functions), in any capacity that 
                involves--
                          (i) the solicitation or acceptance of 
                        swaps; or
                          (ii) the supervision of any person or 
                        persons so engaged.
                  (B) Exclusion.--Other than for purposes of 
                section 4s(b)(6), the term ``associated person 
                of a swap dealer or major swap participant'' 
                does not include any person associated with a 
                swap dealer or major swap participant the 
                functions of which are solely clerical or 
                ministerial.
          (5) Board.--The term ``Board'' means the Board of 
        Governors of the Federal Reserve System.
          (6) Board of trade.--The term ``board of trade'' 
        means any organized exchange or other trading facility.
          (7) Cleared swap.--The term ``cleared swap'' means 
        any swap that is, directly or indirectly, submitted to 
        and cleared by a derivatives clearing organization 
        registered with the Commission.
          (8) Commission.--The term ``Commission'' means the 
        Commodity Futures Trading Commission established under 
        section 2(a)(2).
          (9) Commodity.--The term ``commodity'' means wheat, 
        cotton, rice, corn, oats, barley, rye, flaxseed, grain 
        sorghums, mill feeds, butter, eggs, Solanum tuberosum 
        (Irish potatoes), wool, wool tops, fats and oils 
        (including lard, tallow, cottonseed oil, peanut oil, 
        soybean oil, and all other fats and oils), cottonseed 
        meal, cottonseed, peanuts, soybeans, soybean meal, 
        livestock, livestock products, and frozen concentrated 
        orange juice, and all other goods and articles, except 
        onions (as provided by the first section of Public Law 
        85-839 (7 U.S.C. 13-1)) and motion picture box office 
        receipts (or any index, measure, value, or data related 
        to such receipts), and all services, rights, and 
        interests (except motion picture box office receipts, 
        or any index, measure, value or data related to such 
        receipts) in which contracts for future delivery are 
        presently or in the future dealt in.
          (10) Commodity pool.--
                  (A) In general.--The term ``commodity pool'' 
                means any investment trust, syndicate, or 
                similar form of enterprise operated for the 
                purpose of trading in commodity interests, 
                including any--
                          (i) commodity for future delivery, 
                        security futures product, or swap;
                          (ii) agreement, contract, or 
                        transaction described in section 
                        2(c)(2)(C)(i) or section 2(c)(2)(D)(i);
                          (iii) commodity option authorized 
                        under section 4c; or
                          (iv) leverage transaction authorized 
                        under section 19.
                  (B) Further definition.--The Commission, by 
                rule or regulation, may include within, or 
                exclude from, the term ``commodity pool'' any 
                investment trust, syndicate, or similar form of 
                enterprise if the Commission determines that 
                the rule or regulation will effectuate the 
                purposes of this Act.
          (11) Commodity pool operator.--
                  (A) In general.--The term ``commodity pool 
                operator'' means any person--
                          (i) engaged in a business that is of 
                        the nature of a commodity pool, 
                        investment trust, syndicate, or similar 
                        form of enterprise, and who, in 
                        connection therewith, solicits, 
                        accepts, or receives from others, 
                        funds, securities, or property, either 
                        directly or through capital 
                        contributions, the sale of stock or 
                        other forms of securities, or 
                        otherwise, for the purpose of trading 
                        in commodity interests, including any--
                                  (I) commodity for future 
                                delivery, security futures 
                                product, or swap;
                                  (II) agreement, contract, or 
                                transaction described in 
                                section 2(c)(2)(C)(i) or 
                                section 2(c)(2)(D)(i);
                                  (III) commodity option 
                                authorized under section 4c; or
                                  (IV) leverage transaction 
                                authorized under section 19; or
                          (ii) who is registered with the 
                        Commission as a commodity pool 
                        operator.
                  (B) Further definition.--The Commission, by 
                rule or regulation, may include within, or 
                exclude from, the term ``commodity pool 
                operator'' any person engaged in a business 
                that is of the nature of a commodity pool, 
                investment trust, syndicate, or similar form of 
                enterprise if the Commission determines that 
                the rule or regulation will effectuate the 
                purposes of this Act.
          (12) Commodity trading advisor.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, the term ``commodity trading 
                advisor'' means any person who--
                          (i) for compensation or profit, 
                        engages in the business of advising 
                        others, either directly or through 
                        publications, writings, or electronic 
                        media, as to the value of or the 
                        advisability of trading in--
                                  (I) any contract of sale of a 
                                commodity for future delivery, 
                                security futures product, or 
                                swap;
                                  (II) any agreement, contract, 
                                or transaction described in 
                                section 2(c)(2)(C)(i) or 
                                section 2(c)(2)(D)(i)
                                  (III) any commodity option 
                                authorized under section 4c; or
                                  (IV) any leverage transaction 
                                authorized under section 19;
                          (ii) for compensation or profit, and 
                        as part of a regular business, issues 
                        or promulgates analyses or reports 
                        concerning any of the activities 
                        referred to in clause (i);
                          (iii) is registered with the 
                        Commission as a commodity trading 
                        advisor; or
                          (iv) the Commission, by rule or 
                        regulation, may include if the 
                        Commission determines that the rule or 
                        regulation will effectuate the purposes 
                        of this Act.
                  (B) Exclusions.--Subject to subparagraph (C), 
                the term ``commodity trading advisor'' does not 
                include--
                          (i) any bank or trust company or any 
                        person acting as an employee thereof;
                          (ii) any news reporter, news 
                        columnist, or news editor of the print 
                        or electronic media, or any lawyer, 
                        accountant, or teacher;
                          (iii) any floor broker or futures 
                        commission merchant;
                          (iv) the publisher or producer of any 
                        print or electronic data of general and 
                        regular dissemination, including its 
                        employees;
                          (v) the fiduciary of any defined 
                        benefit plan that is subject to the 
                        Employee Retirement Income Security Act 
                        of 1974 (29 U.S.C. 1001 et seq.);
                          (vi) any contract market or 
                        derivatives transaction execution 
                        facility; and
                          (vii) such other persons not within 
                        the intent of this paragraph as the 
                        Commission may specify by rule, 
                        regulation, or order.
                  (C) Incidental services.--Subparagraph (B) 
                shall apply only if the furnishing of such 
                services by persons referred to in subparagraph 
                (B) is solely incidental to the conduct of 
                their business or profession.
                  (D) Advisors.--The Commission, by rule or 
                regulation, may include within the term 
                ``commodity trading advisor'', any person 
                advising as to the value of commodities or 
                issuing reports or analyses concerning 
                commodities if the Commission determines that 
                the rule or regulation will effectuate the 
                purposes of this paragraph.
          (13) Contract of sale.--The term ``contract of sale'' 
        includes sales, agreements of sale, and agreements to 
        sell.
          (14) Cooperative association of producers.--The term 
        ``cooperative association of producers'' means any 
        cooperative association, corporate, or otherwise, not 
        less than 75 percent in good faith owned or controlled, 
        directly or indirectly, by producers of agricultural 
        products and otherwise complying with the Act of 
        February 18, 1922 (42 Stat. 388, chapter 57; 7 U.S.C. 
        291 and 292), including any organization acting for a 
        group of such associations and owned or controlled by 
        such associations, except that business done for or 
        with the United States, or any agency thereof, shall 
        not be considered either member or nonmember business 
        in determining the compliance of any such association 
        with this Act.
          (15) Derivatives clearing organization.--
                  (A) In general.--The term ``derivatives 
                clearing organization'' means a clearinghouse, 
                clearing association, clearing corporation, or 
                similar entity, facility, system, or 
                organization that, with respect to an 
                agreement, contract, or transaction--
                          (i) enables each party to the 
                        agreement, contract, or transaction to 
                        substitute, through novation or 
                        otherwise, the credit of the 
                        derivatives clearing organization for 
                        the credit of the parties;
                          (ii) arranges or provides, on a 
                        multilateral basis, for the settlement 
                        or netting of obligations resulting 
                        from such agreements, contracts, or 
                        transactions executed by participants 
                        in the derivatives clearing 
                        organization; or
                          (iii) otherwise provides clearing 
                        services or arrangements that mutualize 
                        or transfer among participants in the 
                        derivatives clearing organization the 
                        credit risk arising from such 
                        agreements, contracts, or transactions 
                        executed by the participants.
                  (B) Exclusions.--The term ``derivatives 
                clearing organization'' does not include an 
                entity, facility, system, or organization 
                solely because it arranges or provides for--
                          (i) settlement, netting, or novation 
                        of obligations resulting from 
                        agreements, contracts, or transactions, 
                        on a bilateral basis and without a 
                        central counterparty;
                          (ii) settlement or netting of cash 
                        payments through an interbank payment 
                        system; or
                          (iii) settlement, netting, or 
                        novation of obligations resulting from 
                        a sale of a commodity in a transaction 
                        in the spot market for the commodity.
          (16) Electronic trading facility.--The term 
        ``electronic trading facility'' means a trading 
        facility that--
                  (A) operates by means of an electronic or 
                telecommunications network; and
                  (B) maintains an automated audit trail of 
                bids, offers, and the matching of orders or the 
                execution of transactions on the facility.
          (17) Eligible commercial entity.--The term ``eligible 
        commercial entity'' means, with respect to an 
        agreement, contract or transaction in a commodity--
                  (A) an eligible contract participant 
                described in clause (i), (ii), (v), (vii), 
                (viii), or (ix) of paragraph (18)(A) that, in 
                connection with its business--
                          (i) has a demonstrable ability, 
                        directly or through separate 
                        contractual arrangements, to make or 
                        take delivery of the underlying 
                        commodity;
                          (ii) incurs risks, in addition to 
                        price risk, related to the commodity; 
                        or
                          (iii) is a dealer that regularly 
                        provides risk management or hedging 
                        services to, or engages in market-
                        making activities with, the foregoing 
                        entities involving transactions to 
                        purchase or sell the commodity or 
                        derivative agreements, contracts, or 
                        transactions in the commodity;
                  (B) an eligible contract participant, other 
                than a natural person or an instrumentality, 
                department, or agency of a State or local 
                governmental entity, that--
                          (i) regularly enters into 
                        transactions to purchase or sell the 
                        commodity or derivative agreements, 
                        contracts, or transactions in the 
                        commodity; and
                          (ii) either--
                                  (I) in the case of a 
                                collective investment vehicle 
                                whose participants include 
                                persons other than--
                                          (aa) qualified 
                                        eligible persons, as 
                                        defined in Commission 
                                        rule 4.7(a) (17 CFR 
                                        4.7(a));
                                          (bb) accredited 
                                        investors, as defined 
                                        in Regulation D of the 
                                        Securities and Exchange 
                                        Commission under the 
                                        Securities Act of 1933 
                                        (17 CFR 230.501(a)), 
                                        with total assets of 
                                        $2,000,000; or
                                          (cc) qualified 
                                        purchasers, as defined 
                                        in section 2(a)(51)(A) 
                                        of the Investment 
                                        Company Act of 1940;
                                in each case as in effect on 
                                the date of the enactment of 
                                the Commodity Futures 
                                Modernization Act of 2000, has, 
                                or is one of a group of 
                                vehicles under common control 
                                or management having in the 
                                aggregate, $1,000,000,000 in 
                                total assets; or
                                  (II) in the case of other 
                                persons, has, or is one of a 
                                group of persons under common 
                                control or management having in 
                                the aggregate, $100,000,000 in 
                                total assets; or
                  (C) such other persons as the Commission 
                shall determine appropriate and shall designate 
                by rule, regulation, or order.
          (18) Eligible contract participant.--The term 
        ``eligible contract participant'' means--
                  (A) acting for its own account--
                          (i) a financial institution;
                          (ii) an insurance company that is 
                        regulated by a State, or that is 
                        regulated by a foreign government and 
                        is subject to comparable regulation as 
                        determined by the Commission, including 
                        a regulated subsidiary or affiliate of 
                        such an insurance company;
                          (iii) an investment company subject 
                        to regulation under the Investment 
                        Company Act of 1940 (15 U.S.C. 80a-1 et 
                        seq.) or a foreign person performing a 
                        similar role or function subject as 
                        such to foreign regulation (regardless 
                        of whether each investor in the 
                        investment company or the foreign 
                        person is itself an eligible contract 
                        participant);
                          (iv) a commodity pool that--
                                  (I) has total assets 
                                exceeding $5,000,000; and
                                  (II) is formed and operated 
                                by a person subject to 
                                regulation under this Act or a 
                                foreign person performing a 
                                similar role or function 
                                subject as such to foreign 
                                regulation (regardless of 
                                whether each investor in the 
                                commodity pool or the foreign 
                                person is itself an eligible 
                                contract participant) provided, 
                                however, that for purposes of 
                                section 2(c)(2)(B)(vi) and 
                                section 2(c)(2)(C)(vii), the 
                                term ``eligible contract 
                                participant'' shall not include 
                                a commodity pool in which any 
                                participant is not otherwise an 
                                eligible contract participant;
                          (v) a corporation, partnership, 
                        proprietorship, organization, trust, or 
                        other entity--
                                  (I) that has total assets 
                                exceeding $10,000,000;
                                  (II) the obligations of which 
                                under an agreement, contract, 
                                or transaction are guaranteed 
                                or otherwise supported by a 
                                letter of credit or keepwell, 
                                support, or other agreement by 
                                an entity described in 
                                subclause (I), in clause (i), 
                                (ii), (iii), (iv), or (vii), or 
                                in subparagraph (C); or
                                  (III) that--
                                          (aa) has a net worth 
                                        exceeding $1,000,000; 
                                        and
                                          (bb) enters into an 
                                        agreement, contract, or 
                                        transaction in 
                                        connection with the 
                                        conduct of the entity's 
                                        business or to manage 
                                        the risk associated 
                                        with an asset or 
                                        liability owned or 
                                        incurred or reasonably 
                                        likely to be owned or 
                                        incurred by the entity 
                                        in the conduct of the 
                                        entity's business;
                          (vi) an employee benefit plan subject 
                        to the Employee Retirement Income 
                        Security Act of 1974 (29 U.S.C. 1001 et 
                        seq.), a governmental employee benefit 
                        plan, or a foreign person performing a 
                        similar role or function subject as 
                        such to foreign regulation--
                                  (I) that has total assets 
                                exceeding $5,000,000; or
                                  (II) the investment decisions 
                                of which are made by--
                                          (aa) an investment 
                                        adviser or commodity 
                                        trading advisor subject 
                                        to regulation under the 
                                        Investment Advisers Act 
                                        of 1940 (15 U.S.C. 80b-
                                        1 et seq.) or this Act;
                                          (bb) a foreign person 
                                        performing a similar 
                                        role or function 
                                        subject as such to 
                                        foreign regulation;
                                          (cc) a financial 
                                        institution; or
                                          (dd) an insurance 
                                        company described in 
                                        clause (ii), or a 
                                        regulated subsidiary or 
                                        affiliate of such an 
                                        insurance company;
                          (vii)(I) a governmental entity 
                        (including the United States, a State, 
                        or a foreign government) or political 
                        subdivision of a governmental entity;
                          (II) a multinational or supranational 
                        government entity; or
                          (III) an instrumentality, agency, or 
                        department of an entity described in 
                        subclause (I) or (II);
                        except that such term does not include 
                        an entity, instrumentality, agency, or 
                        department referred to in subclause (I) 
                        or (III) of this clause unless (aa) the 
                        entity, instrumentality, agency, or 
                        department is a person described in 
                        clause (i), (ii), or (iii) of paragraph 
                        (17)(A); (bb) the entity, 
                        instrumentality, agency, or department 
                        owns and invests on a discretionary 
                        basis $50,000,000 or more in 
                        investments; or (cc) the agreement, 
                        contract, or transaction is offered by, 
                        and entered into with, an entity that 
                        is listed in any of subclauses (I) 
                        through (VI) of section 2(c)(2)(B)(ii);
                          (viii)(I) a broker or dealer subject 
                        to regulation under the Securities 
                        Exchange Act of 1934 (15 U.S.C. 78a et 
                        seq.) or a foreign person performing a 
                        similar role or function subject as 
                        such to foreign regulation, except 
                        that, if the broker or dealer or 
                        foreign person is a natural person or 
                        proprietorship, the broker or dealer or 
                        foreign person shall not be considered 
                        to be an eligible contract participant 
                        unless the broker or dealer or foreign 
                        person also meets the requirements of 
                        clause (v) or (xi);
                          (II) an associated person of a 
                        registered broker or dealer concerning 
                        the financial or securities activities 
                        of which the registered person makes 
                        and keeps records under section 15C(b) 
                        or 17(h) of the Securities Exchange Act 
                        of 1934 (15 U.S.C. 78o-5(b), 78q(h));
                          (III) an investment bank holding 
                        company (as defined in section 17(i) of 
                        the Securities Exchange Act of 1934 (15 
                        U.S.C. 78q(i));
                          (ix) a futures commission merchant 
                        subject to regulation under this Act or 
                        a foreign person performing a similar 
                        role or function subject as such to 
                        foreign regulation, except that, if the 
                        futures commission merchant or foreign 
                        person is a natural person or 
                        proprietorship, the futures commission 
                        merchant or foreign person shall not be 
                        considered to be an eligible contract 
                        participant unless the futures 
                        commission merchant or foreign person 
                        also meets the requirements of clause 
                        (v) or (xi);
                          (x) a floor broker or floor trader 
                        subject to regulation under this Act in 
                        connection with any transaction that 
                        takes place on or through the 
                        facilities of a registered entity 
                        (other than an electronic trading 
                        facility with respect to a significant 
                        price discovery contract) or an exempt 
                        board of trade, or any affiliate 
                        thereof, on which such person regularly 
                        trades; or
                          (xi) an individual who has amounts 
                        invested on a discretionary basis, the 
                        aggregate of which is in excess of--
                                  (I) $10,000,000; or
                                  (II) $5,000,000 and who 
                                enters into the agreement, 
                                contract, or transaction in 
                                order to manage the risk 
                                associated with an asset owned 
                                or liability incurred, or 
                                reasonably likely to be owned 
                                or incurred, by the individual;
                  (B)(i) a person described in clause (i), 
                (ii), (iv), (v), (viii), (ix), or (x) of 
                subparagraph (A) or in subparagraph (C), acting 
                as broker or performing an equivalent agency 
                function on behalf of another person described 
                in subparagraph (A) or (C); or
                  (ii) an investment adviser subject to 
                regulation under the Investment Advisers Act of 
                1940, a commodity trading advisor subject to 
                regulation under this Act, a foreign person 
                performing a similar role or function subject 
                as such to foreign regulation, or a person 
                described in clause (i), (ii), (iv), (v), 
                (viii), (ix), or (x) of subparagraph (A) or in 
                subparagraph (C), in any such case acting as 
                investment manager or fiduciary (but excluding 
                a person acting as broker or performing an 
                equivalent agency function) for another person 
                described in subparagraph (A) or (C) and who is 
                authorized by such person to commit such person 
                to the transaction; or
                  (C) any other person that the Commission 
                determines to be eligible in light of the 
                financial or other qualifications of the 
                person.
          (19) Excluded commodity.--The term ``excluded 
        commodity'' means--
                          (i) an interest rate, exchange rate, 
                        currency, security, security index, 
                        credit risk or measure, debt or equity 
                        instrument, index or measure of 
                        inflation, or other macroeconomic index 
                        or measure;
                          (ii) any other rate, differential, 
                        index, or measure of economic or 
                        commercial risk, return, or value that 
                        is--
                                  (I) not based in substantial 
                                part on the value of a narrow 
                                group of commodities not 
                                described in clause (i); or
                                  (II) based solely on one or 
                                more commodities that have no 
                                cash market;
                          (iii) any economic or commercial 
                        index based on prices, rates, values, 
                        or levels that are not within the 
                        control of any party to the relevant 
                        contract, agreement, or transaction; or
                          (iv) an occurrence, extent of an 
                        occurrence, or contingency (other than 
                        a change in the price, rate, value, or 
                        level of a commodity not described in 
                        clause (i)) that is--
                                  (I) beyond the control of the 
                                parties to the relevant 
                                contract, agreement, or 
                                transaction; and
                                  (II) associated with a 
                                financial, commercial, or 
                                economic consequence.
          (20) Exempt commodity.--The term ``exempt commodity'' 
        means a commodity that is not an excluded commodity or 
        an agricultural commodity.
          (21) Financial institution.--The term ``financial 
        institution'' means--
                  (A) a corporation operating under the fifth 
                undesignated paragraph of section 25 of the 
                Federal Reserve Act (12 U.S.C. 603), commonly 
                known as ``an agreement corporation'';
                  (B) a corporation organized under section 25A 
                of the Federal Reserve Act (12 U.S.C. 611 et 
                seq.), commonly known as an ``Edge Act 
                corporation'';
                  (C) an institution that is regulated by the 
                Farm Credit Administration;
                  (D) a Federal credit union or State credit 
                union (as defined in section 101 of the Federal 
                Credit Union Act (12 U.S.C. 1752));
                  (E) a depository institution (as defined in 
                section 3 of the Federal Deposit Insurance Act 
                (12 U.S.C. 1813));
                  (F) a foreign bank or a branch or agency of a 
                foreign bank (each as defined in section 1(b) 
                of the International Banking Act of 1978 (12 
                U.S.C. 3101(b)));
                  (G) any financial holding company (as defined 
                in section 2 of the Bank Holding Company Act of 
                1956);
                  (H) a trust company; or
                  (I) a similarly regulated subsidiary or 
                affiliate of an entity described in any of 
                subparagraphs (A) through (H).
          (22) Floor broker.--
                  (A) In general.--The term ``floor broker'' 
                means any person--
                          (i) who, in or surrounding any pit, 
                        ring, post, or other place provided by 
                        a contract market for the meeting of 
                        persons similarly engaged, shall 
                        purchase or sell for any other person--
                                  (I) any commodity for future 
                                delivery, security futures 
                                product, or swap; or
                                  (II) any commodity option 
                                authorized under section 4c; or
                          (ii) who is registered with the 
                        Commission as a floor broker.
                  (B) Further definition.--The Commission, by 
                rule or regulation, may include within, or 
                exclude from, the term ``floor broker'' any 
                person in or surrounding any pit, ring, post, 
                or other place provided by a contract market 
                for the meeting of persons similarly engaged 
                who trades for any other person if the 
                Commission determines that the rule or 
                regulation will effectuate the purposes of this 
                Act.
          (23) Floor trader.--
                  (A) In general.--The term ``floor trader'' 
                means any person--
                          (i) who, in or surrounding any pit, 
                        ring, post, or other place provided by 
                        a contract market for the meeting of 
                        persons similarly engaged, purchases, 
                        or sells solely for such person's own 
                        account--
                                  (I) any commodity for future 
                                delivery, security futures 
                                product, or swap; or
                                  (II) any commodity option 
                                authorized under section 4c; or
                          (ii) who is registered with the 
                        Commission as a floor trader.
                  (B) Further definition.--The Commission, by 
                rule or regulation, may include within, or 
                exclude from, the term ``floor trader'' any 
                person in or surrounding any pit, ring, post, 
                or other place provided by a contract market 
                for the meeting of persons similarly engaged 
                who trades solely for such person's own account 
                if the Commission determines that the rule or 
                regulation will effectuate the purposes of this 
                Act.
          (24) Foreign exchange forward.--The term ``foreign 
        exchange forward'' means a transaction that solely 
        involves the exchange of 2 different currencies on a 
        specific future date at a fixed rate agreed upon on the 
        inception of the contract covering the exchange.
          (25) Foreign exchange swap.--The term ``foreign 
        exchange swap'' means a transaction that solely 
        involves--
                  (A) an exchange of 2 different currencies on 
                a specific date at a fixed rate that is agreed 
                upon on the inception of the contract covering 
                the exchange; and
                  (B) a reverse exchange of the 2 currencies 
                described in subparagraph (A) at a later date 
                and at a fixed rate that is agreed upon on the 
                inception of the contract covering the 
                exchange.
          (26) Foreign futures authority.--The term ``foreign 
        futures authority'' means any foreign government, or 
        any department, agency, governmental body, or 
        regulatory organization empowered by a foreign 
        government to administer or enforce a law, rule, or 
        regulation as it relates to a futures or options 
        matter, or any department or agency of a political 
        subdivision of a foreign government empowered to 
        administer or enforce a law, rule, or regulation as it 
        relates to a futures or options matter.
          (27) Future delivery.--The term ``future delivery'' 
        does not include any sale of any cash commodity for 
        deferred shipment or delivery.
          (28) Futures commission merchant.--
                  (A) In general.--The term ``futures 
                commission merchant'' means an individual, 
                association, partnership, corporation, or 
                trust--
                          (i) that--
                                  (I) is--
                                          (aa) engaged in 
                                        soliciting or in 
                                        accepting orders for--
                                                  (AA) the 
                                                purchase or 
                                                sale of a 
                                                commodity for 
                                                future 
                                                delivery;
                                                  (BB) a 
                                                security 
                                                futures 
                                                product;
                                                  (CC) a swap;
                                                  (DD) any 
                                                agreement, 
                                                contract, or 
                                                transaction 
                                                described in 
                                                section 
                                                2(c)(2)(C)(i) 
                                                or section 
                                                2(c)(2)(D)(i);
                                                  (EE) any 
                                                commodity 
                                                option 
                                                authorized 
                                                under section 
                                                4c; or
                                                  (FF) any 
                                                leverage 
                                                transaction 
                                                authorized 
                                                under section 
                                                19; or
                                          (bb) acting as a 
                                        counterparty in any 
                                        agreement, contract, or 
                                        transaction described 
                                        in section 
                                        2(c)(2)(C)(i) or 
                                        section 2(c)(2)(D)(i); 
                                        and
                                  (II) in or in connection with 
                                the activities described in 
                                items (aa) or (bb) of subclause 
                                (I), accepts any money, 
                                securities, or property (or 
                                extends credit in lieu thereof) 
                                to margin, guarantee, or secure 
                                any trades or contracts that 
                                result or may result therefrom; 
                                or
                          (ii) that is registered with the 
                        Commission as a futures commission 
                        merchant.
                  (B) Further definition.--The Commission, by 
                rule or regulation, may include within, or 
                exclude from, the term ``futures commission 
                merchant'' any person who engages in soliciting 
                or accepting orders for, or acting as a 
                counterparty in, any agreement, contract, or 
                transaction subject to this Act, and who 
                accepts any money, securities, or property (or 
                extends credit in lieu thereof) to margin, 
                guarantee, or secure any trades or contracts 
                that result or may result therefrom, if the 
                Commission determines that the rule or 
                regulation will effectuate the purposes of this 
                Act.
          (29) Hybrid instrument.--The term ``hybrid 
        instrument'' means a security having one or more 
        payments indexed to the value, level, or rate of, or 
        providing for the delivery of, one or more commodities.
          (30) Interstate commerce.--The term ``interstate 
        commerce'' means commerce--
                  (A) between any State, territory, or 
                possession, or the District of Columbia, and 
                any place outside thereof; or
                  (B) between points within the same State, 
                territory, or possession, or the District of 
                Columbia, but through any place outside 
                thereof, or within any territory or possession, 
                or the District of Columbia.
          (31) Introducing broker.--
                  (A) In general.--The term ``introducing 
                broker'' means any person (except an individual 
                who elects to be and is registered as an 
                associated person of a futures commission 
                merchant)--
                          (i) who--
                                  (I) is engaged in soliciting 
                                or in accepting orders for--
                                          (aa) the purchase or 
                                        sale of any commodity 
                                        for future delivery, 
                                        security futures 
                                        product, or swap;
                                          (bb) any agreement, 
                                        contract, or 
                                        transaction described 
                                        in section 
                                        2(c)(2)(C)(i) or 
                                        section 2(c)(2)(D)(i);
                                          (cc) any commodity 
                                        option authorized under 
                                        section 4c; or
                                          (dd) any leverage 
                                        transaction authorized 
                                        under section 19; and
                                  (II) does not accept any 
                                money, securities, or property 
                                (or extend credit in lieu 
                                thereof) to margin, guarantee, 
                                or secure any trades or 
                                contracts that result or may 
                                result therefrom; or
                          (ii) who is registered with the 
                        Commission as an introducing broker.
                  (B) Further definition.--The Commission, by 
                rule or regulation, may include within, or 
                exclude from, the term ``introducing broker'' 
                any person who engages in soliciting or 
                accepting orders for any agreement, contract, 
                or transaction subject to this Act, and who 
                does not accept any money, securities, or 
                property (or extend credit in lieu thereof) to 
                margin, guarantee, or secure any trades or 
                contracts that result or may result therefrom, 
                if the Commission determines that the rule or 
                regulation will effectuate the purposes of this 
                Act.
          (32) Major security-based swap participant.--The term 
        ``major security-based swap participant'' has the 
        meaning given the term in section 3(a) of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
          (33) Major swap participant.--
                  (A) In general.--The term ``major swap 
                participant'' means any person who is not a 
                swap dealer, and--
                          (i) maintains a substantial position 
                        in swaps for any of the major swap 
                        categories as determined by the 
                        Commission, excluding--
                                  (I) positions held for 
                                hedging or mitigating 
                                commercial risk; and
                                  (II) positions maintained by 
                                any employee benefit plan (or 
                                any contract held by such a 
                                plan) as defined in paragraphs 
                                (3) and (32) of section 3 of 
                                the Employee Retirement Income 
                                Security Act of 1974 (29 U.S.C. 
                                1002) for the primary purpose 
                                of hedging or mitigating any 
                                risk directly associated with 
                                the operation of the plan;
                          (ii) whose outstanding swaps create 
                        substantial counterparty exposure that 
                        could have serious adverse effects on 
                        the financial stability of the United 
                        States banking system or financial 
                        markets; or
                          (iii)(I) is a financial entity that 
                        is highly leveraged relative to the 
                        amount of capital it holds and that is 
                        not subject to capital requirements 
                        established by an appropriate Federal 
                        banking agency; and
                          (II) maintains a substantial position 
                        in outstanding swaps in any major swap 
                        category as determined by the 
                        Commission.
                  (B) Definition of substantial position.--For 
                purposes of subparagraph (A), the Commission 
                shall define by rule or regulation the term 
                ``substantial position'' at the threshold that 
                the Commission determines to be prudent for the 
                effective monitoring, management, and oversight 
                of entities that are systemically important or 
                can significantly impact the financial system 
                of the United States. In setting the definition 
                under this subparagraph, the Commission shall 
                consider the person's relative position in 
                uncleared as opposed to cleared swaps and may 
                take into consideration the value and quality 
                of collateral held against counterparty 
                exposures.
                  (C) Scope of designation.--For purposes of 
                subparagraph (A), a person may be designated as 
                a major swap participant for 1 or more 
                categories of swaps without being classified as 
                a major swap participant for all classes of 
                swaps.
                  (D) Exclusions.--The definition under this 
                paragraph shall not include an entity whose 
                primary business is providing financing, and 
                uses derivatives for the purpose of hedging 
                underlying commercial risks related to interest 
                rate and foreign currency exposures, 90 percent 
                or more of which arise from financing that 
                facilitates the purchase or lease of products, 
                90 percent or more of which are manufactured by 
                the parent company or another subsidiary of the 
                parent company.
          (34) Member of a registered entity; member of a 
        derivatives transaction execution facility.--The term 
        ``member'' means, with respect to a registered entity 
        or derivatives transaction execution facility, an 
        individual, association, partnership, corporation, or 
        trust--
                  (A) owning or holding membership in, or 
                admitted to membership representation on, the 
                registered entity or derivatives transaction 
                execution facility; or
                  (B) having trading privileges on the 
                registered entity or derivatives transaction 
                execution facility.
        A participant in an alternative trading system that is 
        designated as a contract market pursuant to section 5f 
        is deemed a member of the contract market for purposes 
        of transactions in security futures products through 
        the contract market.
          (35) Narrow-based security index.--
                  (A) The term ``narrow-based security index'' 
                means an index--
                          (i) that has 9 or fewer component 
                        securities;
                          (ii) in which a component security 
                        comprises more than 30 percent of the 
                        index's weighting;
                          (iii) in which the five highest 
                        weighted component securities in the 
                        aggregate comprise more than 60 percent 
                        of the index's weighting; or
                          (iv) in which the lowest weighted 
                        component securities comprising, in the 
                        aggregate, 25 percent of the index's 
                        weighting have an aggregate dollar 
                        value of average daily trading volume 
                        of less than $50,000,000 (or in the 
                        case of an index with 15 or more 
                        component securities, $30,000,000), 
                        except that if there are two or more 
                        securities with equal weighting that 
                        could be included in the calculation of 
                        the lowest weighted component 
                        securities comprising, in the 
                        aggregate, 25 percent of the index's 
                        weighting, such securities shall be 
                        ranked from lowest to highest dollar 
                        value of average daily trading volume 
                        and shall be included in the 
                        calculation based on their ranking 
                        starting with the lowest ranked 
                        security.
                  (B) Notwithstanding subparagraph (A), an 
                index is not a narrow-based security index if--
                          (i)(I) it has at least 9 component 
                        securities;
                          (II) no component security comprises 
                        more than 30 percent of the index's 
                        weighting; and
                          (III) each component security is--
                                  (aa) registered pursuant to 
                                section 12 of the Securities 
                                Exchange Act of 1934;
                                  (bb) one of 750 securities 
                                with the largest market 
                                capitalization; and
                                  (cc) one of 675 securities 
                                with the largest dollar value 
                                of average daily trading 
                                volume;
                          (ii) a board of trade was designated 
                        as a contract market by the Commodity 
                        Futures Trading Commission with respect 
                        to a contract of sale for future 
                        delivery on the index, before the date 
                        of the enactment of the Commodity 
                        Futures Modernization Act of 2000;
                          (iii)(I) a contract of sale for 
                        future delivery on the index traded on 
                        a designated contract market or 
                        registered derivatives transaction 
                        execution facility for at least 30 days 
                        as a contract of sale for future 
                        delivery on an index that was not a 
                        narrow-based security index; and
                          (II) it has been a narrow-based 
                        security index for no more than 45 
                        business days over 3 consecutive 
                        calendar months;
                          (iv) a contract of sale for future 
                        delivery on the index is traded on or 
                        subject to the rules of a foreign board 
                        of trade and meets such requirements as 
                        are jointly established by rule or 
                        regulation by the Commission and the 
                        Securities and Exchange Commission;
                          (v) no more than 18 months have 
                        passed since the date of the enactment 
                        of the Commodity Futures Modernization 
                        Act of 2000 and--
                                  (I) it is traded on or 
                                subject to the rules of a 
                                foreign board of trade;
                                  (II) the offer and sale in 
                                the United States of a contract 
                                of sale for future delivery on 
                                the index was authorized before 
                                the date of the enactment of 
                                the Commodity Futures 
                                Modernization Act of 2000; and
                                  (III) the conditions of such 
                                authorization continue to be 
                                met; or
                          (vi) a contract of sale for future 
                        delivery on the index is traded on or 
                        subject to the rules of a board of 
                        trade and meets such requirements as 
                        are jointly established by rule, 
                        regulation, or order by the Commission 
                        and the Securities and Exchange 
                        Commission.
                  (C) Within 1 year after the date of the 
                enactment of the Commodity Futures 
                Modernization Act of 2000, the Commission and 
                the Securities and Exchange Commission jointly 
                shall adopt rules or regulations that set forth 
                the requirements under subparagraph (B)(iv).
                  (D) An index that is a narrow-based security 
                index solely because it was a narrow-based 
                security index for more than 45 business days 
                over 3 consecutive calendar months pursuant to 
                clause (iii) of subparagraph (B) shall not be a 
                narrow-based security index for the 3 following 
                calendar months.
                  (E) For purposes of subparagraphs (A) and 
                (B)--
                          (i) the dollar value of average daily 
                        trading volume and the market 
                        capitalization shall be calculated as 
                        of the preceding 6 full calendar 
                        months; and
                          (ii) the Commission and the 
                        Securities and Exchange Commission 
                        shall, by rule or regulation, jointly 
                        specify the method to be used to 
                        determine market capitalization and 
                        dollar value of average daily trading 
                        volume.
          (36) Option.--The term ``option'' means an agreement, 
        contract, or transaction that is of the character of, 
        or is commonly known to the trade as, an ``option'', 
        ``privilege'', ``indemnity'', ``bid'', ``offer'', 
        ``put'', ``call'', ``advance guaranty'', or ``decline 
        guaranty''.
          (37) Organized exchange.--The term ``organized 
        exchange'' means a trading facility that--
                  (A) permits trading--
                          (i) by or on behalf of a person that 
                        is not an eligible contract 
                        participant; or
                          (ii) by persons other than on a 
                        principal-to-principal basis; or
                  (B) has adopted (directly or through another 
                nongovernmental entity) rules that--
                          (i) govern the conduct of 
                        participants, other than rules that 
                        govern the submission of orders or 
                        execution of transactions on the 
                        trading facility; and
                          (ii) include disciplinary sanctions 
                        other than the exclusion of 
                        participants from trading.
          (38) Person.--The term ``person'' imports the plural 
        or singular, and includes individuals, associations, 
        partnerships, corporations, and trusts.
          (39) Prudential regulator.--The term ``prudential 
        regulator'' means--
                  (A) the Board in the case of a swap dealer, 
                major swap participant, security-based swap 
                dealer, or major security-based swap 
                participant that is--
                          (i) a State-chartered bank that is a 
                        member of the Federal Reserve System;
                          (ii) a State-chartered branch or 
                        agency of a foreign bank;
                          (iii) any foreign bank which does not 
                        operate an insured branch;
                          (iv) any organization operating under 
                        section 25A of the Federal Reserve Act 
                        or having an agreement with the Board 
                        under section 225 of the Federal 
                        Reserve Act;
                          (v) any bank holding company (as 
                        defined in section 2 of the Bank 
                        Holding Company Act of 1965 (12 U.S.C. 
                        1841)), any foreign bank (as defined in 
                        section 1(b)(7) of the International 
                        Banking Act of 1978 (12 U.S.C. 
                        3101(b)(7)) that is treated as a bank 
                        holding company under section 8(a) of 
                        the International Banking Act of 1978 
                        (12 U.S.C. 3106(a)), and any subsidiary 
                        of such a company or foreign bank 
                        (other than a subsidiary that is 
                        described in subparagraph (A) or (B) or 
                        that is required to be registered with 
                        the Commission as a swap dealer or 
                        major swap participant under this Act 
                        or with the Securities and Exchange 
                        Commission as a security-based swap 
                        dealer or major security-based swap 
                        participant);
                          (vi) after the transfer date (as 
                        defined in section 311 of the Dodd-
                        Frank Wall Street Reform and Consumer 
                        Protection Act), any savings and loan 
                        holding company (as defined in section 
                        10 of the Home Owners' Loan Act (12 
                        U.S.C. 1467a)) and any subsidiary of 
                        such company (other than a subsidiary 
                        that is described in subparagraph (A) 
                        or (B) or that is required to be 
                        registered as a swap dealer or major 
                        swap participant with the Commission 
                        under this Act or with the Securities 
                        and Exchange Commission as a security-
                        based swap dealer or major security-
                        based swap participant); or
                          (vii) any organization operating 
                        under section 25A of the Federal 
                        Reserve Act (12U.S.C. 611 et seq.) or 
                        having an agreement with the Board 
                        under section 25 of the Federal Reserve 
                        Act (12 U.S.C. 601 et seq.);
                  (B) the Office of the Comptroller of the 
                Currency in the case of a swap dealer, major 
                swap participant, security-based swap dealer, 
                or major security-based swap participant that 
                is--
                          (i) a national bank;
                          (ii) a federally chartered branch or 
                        agency of a foreign bank; or
                          (iii) any Federal savings 
                        association;
                  (C) the Federal Deposit Insurance Corporation 
                in the case of a swap dealer, major swap 
                participant, security-based swap dealer, or 
                major security-based swap participant that is--
                          (i) a State-chartered bank that is 
                        not a member of the Federal Reserve 
                        System; or
                          (ii) any State savings association;
                  (D) the Farm Credit Administration, in the 
                case of a swap dealer, major swap participant, 
                security-based swap dealer, or major security-
                based swap participant that is an institution 
                chartered under the Farm Credit Act of 1971 (12 
                U.S.C. 2001 et seq.); and
                  (E) the Federal Housing Finance Agency in the 
                case of a swap dealer, major swap participant, 
                security-based swap dealer, or major security-
                based swap participant that is a regulated 
                entity (as such term is defined in section 1303 
                of the Federal Housing Enterprises Financial 
                Safety and Soundness Act of 1992).
          (40) Registered entity.--The term ``registered 
        entity'' means--
                  (A) a board of trade designated as a contract 
                market under section 5;
                  (B) a derivatives clearing organization 
                registered under section 5b;
                  (C) a board of trade designated as a contract 
                market under section 5f;
                  (D) a swap execution facility registered 
                under section 5h;
                  (E) a swap data repository registered under 
                section 21; and
                  (F) with respect to a contract that the 
                Commission determines is a significant price 
                discovery contract, any electronic trading 
                facility on which the contract is executed or 
                traded.
          (41) Security.--The term ``security'' means a 
        security as defined in section 2(a)(1) of the 
        Securities Act of 1933 (15 U.S.C. 77b(a)(1)) or section 
        3(a)(10) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78c(a)(10)).
          (42) Security-based swap.--The term ``security-based 
        swap'' has the meaning given the term in section 3(a) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 
        78c(a)).
          (43) Security-based swap dealer.--The term 
        ``security-based swap dealer'' has the meaning given 
        the term in section 3(a) of the Securities Exchange Act 
        of 1934 (15 U.S.C. 78c(a)).
          (44) Security future.--The term ``security future'' 
        means a contract of sale for future delivery of a 
        single security or of a narrow-based security index, 
        including any interest therein or based on the value 
        thereof, except an exempted security under section 
        3(a)(12) of the Securities Exchange Act of 1934 as in 
        effect on the date of the enactment of the Futures 
        Trading Act of 1982 (other than any municipal security 
        as defined in section 3(a)(29) of the Securities 
        Exchange Act of 1934 as in effect on the date of the 
        enactment of the Futures Trading Act of 1982). The term 
        ``security future'' does not include any agreement, 
        contract, or transaction excluded from this Act under 
        section 2(c), 2(d), 2(f), or 2(g) of this Act (as in 
        effect on the date of the enactment of the Commodity 
        Futures Modernization Act of 2000) or title IV of the 
        Commodity Futures Modernization Act of 2000.
          (45) Security futures product.--The term ``security 
        futures product'' means a security future or any put, 
        call, straddle, option, or privilege on any security 
        future.
          (46) Significant price discovery contract.--The term 
        ``significant price discovery contract'' means an 
        agreement, contract, or transaction subject to section 
        2(h)(5).
          (47) Swap.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the term ``swap'' means any 
                agreement, contract, or transaction--
                          (i) that is a put, call, cap, floor, 
                        collar, or similar option of any kind 
                        that is for the purchase or sale, or 
                        based on the value, of 1 or more 
                        interest or other rates, currencies, 
                        commodities, securities, instruments of 
                        indebtedness, indices, quantitative 
                        measures, or other financial or 
                        economic interests or property of any 
                        kind;
                          (ii) that provides for any purchase, 
                        sale, payment, or delivery (other than 
                        a dividend on an equity security) that 
                        is dependent on the occurrence, 
                        nonoccurrence, or the extent of the 
                        occurrence of an event or contingency 
                        associated with a potential financial, 
                        economic, or commercial consequence;
                          (iii) that provides on an executory 
                        basis for the exchange, on a fixed or 
                        contingent basis, of 1 or more payments 
                        based on the value or level of 1 or 
                        more interest or other rates, 
                        currencies, commodities, securities, 
                        instruments of indebtedness, indices, 
                        quantitative measures, or other 
                        financial or economic interests or 
                        property of any kind, or any interest 
                        therein or based on the value thereof, 
                        and that transfers, as between the 
                        parties to the transaction, in whole or 
                        in part, the financial risk associated 
                        with a future change in any such value 
                        or level without also conveying a 
                        current or future direct or indirect 
                        ownership interest in an asset 
                        (including any enterprise or investment 
                        pool) or liability that incorporates 
                        the financial risk so transferred, 
                        including any agreement, contract, or 
                        transaction commonly known as--
                                  (I) an interest rate swap;
                                  (II) a rate floor;
                                  (III) a rate cap;
                                  (IV) a rate collar;
                                  (V) a cross-currency rate 
                                swap;
                                  (VI) a basis swap;
                                  (VII) a currency swap;
                                  (VIII) a foreign exchange 
                                swap;
                                  (IX) a total return swap;
                                  (X) an equity index swap;
                                  (XI) an equity swap;
                                  (XII) a debt index swap;
                                  (XIII) a debt swap;
                                  (XIV) a credit spread;
                                  (XV) a credit default swap;
                                  (XVI) a credit swap;
                                  (XVII) a weather swap;
                                  (XVIII) an energy swap;
                                  (XIX) a metal swap;
                                  (XX) an agricultural swap;
                                  (XXI) an emissions swap; 
                                [and]
                                  (XXII) a commodity swap; and
                                  (XXIII) a utility operations-
                                related swap;
                          (iv) that is an agreement, contract, 
                        or transaction that is, or in the 
                        future becomes, commonly known to the 
                        trade as a swap;
                          (v) including any security-based swap 
                        agreement which meets the definition of 
                        ``swap agreement'' as defined in 
                        section 206A of the Gramm-Leach-Bliley 
                        Act (15 U.S.C. 78c note) of which a 
                        material term is based on the price, 
                        yield, value, or volatility of any 
                        security or any group or index of 
                        securities, or any interest therein; or
                          (vi) that is any combination or 
                        permutation of, or option on, any 
                        agreement, contract, or transaction 
                        described in any of clauses (i) through 
                        (v).
                  (B) Exclusions.--The term ``swap'' does not 
                include--
                          (i) any contract of sale of a 
                        commodity for future delivery (or 
                        option on such a contract), leverage 
                        contract authorized under section 19, 
                        security futures product, or agreement, 
                        contract, or transaction described in 
                        section 2(c)(2)(C)(i) or section 
                        2(c)(2)(D)(i);
                          (ii) any sale of a nonfinancial 
                        commodity or security for deferred 
                        shipment or delivery, so long as the 
                        transaction is intended to be 
                        physically settled;
                          (iii) any put, call, straddle, 
                        option, or privilege on any security, 
                        certificate of deposit, or group or 
                        index of securities, including any 
                        interest therein or based on the value 
                        thereof, that is subject to--
                                  (I) the Securities Act of 
                                1933 (15 U.S.C. 77a et seq.); 
                                and
                                  (II) the Securities Exchange 
                                Act of 1934 (15 U.S.C. 78a et 
                                seq.);
                          (iv) any put, call, straddle, option, 
                        or privilege relating to a foreign 
                        currency entered into on a national 
                        securities exchange registered pursuant 
                        to section 6(a) of the Securities 
                        Exchange Act of 1934 (15 U.S.C. 
                        78f(a));
                          (v) any agreement, contract, or 
                        transaction providing for the purchase 
                        or sale of 1 or more securities on a 
                        fixed basis that is subject to--
                                  (I) the Securities Act of 
                                1933 (15 U.S.C. 77a et seq.); 
                                and
                                  (II) the Securities Exchange 
                                Act of 1934 (15 U.S.C. 78a et 
                                seq.);
                          (vi) any agreement, contract, or 
                        transaction providing for the purchase 
                        or sale of 1 or more securities on a 
                        contingent basis that is subject to the 
                        Securities Act of 1933 (15 U.S.C. 77a 
                        et seq.) and the Securities Exchange 
                        Act of 1934 (15 U.S.C. 78a et seq.), 
                        unless the agreement, contract, or 
                        transaction predicates the purchase or 
                        sale on the occurrence of a bona fide 
                        contingency that might reasonably be 
                        expected to affect or be affected by 
                        the creditworthiness of a party other 
                        than a party to the agreement, 
                        contract, or transaction;
                          (vii) any note, bond, or evidence of 
                        indebtedness that is a security, as 
                        defined in section 2(a)(1) of the 
                        Securities Act of 1933 (15 U.S.C. 
                        77b(a)(1));
                          (viii) any agreement, contract, or 
                        transaction that is--
                                  (I) based on a security; and
                                  (II) entered into directly or 
                                through an underwriter (as 
                                defined in section 2(a)(11) of 
                                the Securities Act of 1933 (15 
                                U.S.C. 77b(a)(11)) by the 
                                issuer of such security for the 
                                purposes of raising capital, 
                                unless the agreement, contract, 
                                or transaction is entered into 
                                to manage a risk associated 
                                with capital raising;
                          (ix) any agreement, contract, or 
                        transaction a counterparty of which is 
                        a Federal Reserve bank, the Federal 
                        Government, or a Federal agency that is 
                        expressly backed by the full faith and 
                        credit of the United States; and
                          (x) any security-based swap, other 
                        than a security-based swap as described 
                        in subparagraph (D).
                  (C) Rule of construction regarding master 
                agreements.--
                          (i) In general.--Except as provided 
                        in clause (ii), the term ``swap'' 
                        includes a master agreement that 
                        provides for an agreement, contract, or 
                        transaction that is a swap under 
                        subparagraph (A), together with each 
                        supplement to any master agreement, 
                        without regard to whether the master 
                        agreement contains an agreement, 
                        contract, or transaction that is not a 
                        swap pursuant to subparagraph (A).
                          (ii) Exception.--For purposes of 
                        clause (i), the master agreement shall 
                        be considered to be a swap only with 
                        respect to each agreement, contract, or 
                        transaction covered by the master 
                        agreement that is a swap pursuant to 
                        subparagraph (A).
                  (D) Mixed swap.--The term ``security-based 
                swap'' includes any agreement, contract, or 
                transaction that is as described in section 
                3(a)(68)(A) of the Securities Exchange Act of 
                1934 (15 U.S.C. 78c(a)(68)(A)) and also is 
                based on the value of 1 or more interest or 
                other rates, currencies, commodities, 
                instruments of indebtedness, indices, 
                quantitative measures, other financial or 
                economic interest or property of any kind 
                (other than a single security or a narrow-based 
                security index), or the occurrence, non-
                occurrence, or the extent of the occurrence of 
                an event or contingency associated with a 
                potential financial, economic, or commercial 
                consequence (other than an event described in 
                subparagraph (A)(iii)).
                  (E) Treatment of foreign exchange swaps and 
                forwards.--
                          (i) In general.--Foreign exchange 
                        swaps and foreign exchange forwards 
                        shall be considered swaps under this 
                        paragraph unless the Secretary makes a 
                        written determination under section 1b 
                        that either foreign exchange swaps or 
                        foreign exchange forwards or both--
                                  (I) should be not be 
                                regulated as swaps under this 
                                Act; and
                                  (II) are not structured to 
                                evade the Dodd-Frank Wall 
                                Street Reform and Consumer 
                                Protection Act in violation of 
                                any rule promulgated by the 
                                Commission pursuant to section 
                                721(c) of that Act.
                          (ii) Congressional notice; 
                        effectiveness.--The Secretary shall 
                        submit any written determination under 
                        clause (i) to the appropriate 
                        committees of Congress, including the 
                        Committee on Agriculture, Nutrition, 
                        and Forestry of the Senate and the 
                        Committee on Agriculture of the House 
                        of Representatives. Any such written 
                        determination by the Secretary shall 
                        not be effective until it is submitted 
                        to the appropriate committees of 
                        Congress.
                          (iii) Reporting.--Notwithstanding a 
                        written determination by the Secretary 
                        under clause (i), all foreign exchange 
                        swaps and foreign exchange forwards 
                        shall be reported to either a swap data 
                        repository, or, if there is no swap 
                        data repository that would accept such 
                        swaps or forwards, to the Commission 
                        pursuant to section 4r within such time 
                        period as the Commission may by rule or 
                        regulation prescribe.
                          (iv) Business standards.--
                        Notwithstanding a written determination 
                        by the Secretary pursuant to clause 
                        (i), any party to a foreign exchange 
                        swap or forward that is a swap dealer 
                        or major swap participant shall conform 
                        to the business conduct standards 
                        contained in section 4s(h).
                          (v) Secretary.--For purposes of this 
                        subparagraph, the term ``Secretary'' 
                        means the Secretary of the Treasury.
                  (F) Exception for certain foreign exchange 
                swaps and forwards.--
                          (i) Registered entities.--Any foreign 
                        exchange swap and any foreign exchange 
                        forward that is listed and traded on or 
                        subject to the rules of a designated 
                        contract market or a swap execution 
                        facility, or that is cleared by a 
                        derivatives clearing organization, 
                        shall not be exempt from any provision 
                        of this Act or amendments made by the 
                        Wall Street Transparency and 
                        Accountability Act of 2010 prohibiting 
                        fraud or manipulation.
                          (ii) Retail transactions.--Nothing in 
                        subparagraph (E) shall affect, or be 
                        construed to affect, the applicability 
                        of this Act or the jurisdiction of the 
                        Commission with respect to agreements, 
                        contracts, or transactions in foreign 
                        currency pursuant to section 2(c)(2).
          (48) Swap data repository.--The term ``swap data 
        repository'' means any person that collects and 
        maintains information or records with respect to 
        transactions or positions in, or the terms and 
        conditions of, swaps entered into by third parties for 
        the purpose of providing a centralized recordkeeping 
        facility for swaps.
          (49) Swap dealer.--
                  (A) In general.--The term ``swap dealer'' 
                means any person who--
                          (i) holds itself out as a dealer in 
                        swaps;
                          (ii) makes a market in swaps;
                          (iii) regularly enters into swaps 
                        with counterparties as an ordinary 
                        course of business for its own account; 
                        or
                          (iv) engages in any activity causing 
                        the person to be commonly known in the 
                        trade as a dealer or market maker in 
                        swaps,
                provided however, in no event shall an insured 
                depository institution be considered to be a 
                swap dealer to the extent it offers to enter 
                into a swap with a customer in connection with 
                originating a loan with that customer.
                  (B) Inclusion.--A person may be designated as 
                a swap dealer for a single type or single class 
                or category of swap or activities and 
                considered not to be a swap dealer for other 
                types, classes, or categories of swaps or 
                activities.
                  (C) Exception.--The term ``swap dealer'' does 
                not include a person that enters into swaps for 
                such person's own account, either individually 
                or in a fiduciary capacity, but not as a part 
                of a regular business.
                  (D) De minimis exception.--The Commission 
                shall exempt from designation as a swap dealer 
                an entity that engages in a de minimis quantity 
                of swap dealing in connection with transactions 
                with or on behalf of its customers. The 
                Commission shall promulgate regulations to 
                establish factors with respect to the making of 
                this determination to exempt.
                  (E) Certain transactions with a utility 
                special entity.--
                          (i) Transactions in utility 
                        operations-related swaps shall be 
                        reported pursuant to section 4r.
                          (ii) In making a determination to 
                        exempt pursuant to subparagraph (D), 
                        the Commission shall treat a utility 
                        operations-related swap entered into 
                        with a utility special entity, as 
                        defined in section 4s(h)(2)(D), as if 
                        it were entered into with an entity 
                        that is not a special entity, as 
                        defined in section 4s(h)(2)(C).
          (50) Swap execution facility.--The term ``swap 
        execution facility'' means a trading system or platform 
        in which multiple participants have the ability to 
        execute or trade swaps by accepting bids and offers 
        made by multiple participants in the facility or 
        system, through any means of interstate commerce, 
        including any trading facility, that--
                  (A) facilitates the execution of swaps 
                between persons; and
                  (B) is not a designated contract market.
          (51) Trading facility.--
                  (A) In general.--The term ``trading 
                facility'' means a person or group of persons 
                that constitutes, maintains, or provides a 
                physical or electronic facility or system in 
                which multiple participants have the ability to 
                execute or trade agreements, contracts, or 
                transactions--
                          (i) by accepting bids or offers made 
                        by other participants that are open to 
                        multiple partipants in the facility or 
                        system; or
                          (ii) through the interaction of 
                        multiple bids or multiple offers within 
                        a system with a pre-determined non-
                        discretionary automated trade matching 
                        and execution algorithm.
                  (B) Exclusions.--The term ``trading 
                facility'' does not include--
                          (i) a person or group of persons 
                        solely because the person or group of 
                        persons constitutes, maintains, or 
                        provides an electronic facility or 
                        system that enables participants to 
                        negotiate the terms of and enter into 
                        bilateral transactions as a result of 
                        communications exchanged by the parties 
                        and not from interaction of multiple 
                        bids and multiple offers within a 
                        predetermined, nondiscretionary 
                        automated trade matching and execution 
                        algorithm;
                          (ii) a government securities dealer 
                        or government securities broker, to the 
                        extent that the dealer or broker 
                        executes or trades agreements, 
                        contracts, or transactions in 
                        government securities, or assists 
                        persons in communicating about, 
                        negotiating, entering into, executing, 
                        or trading an agreement, contract, or 
                        transaction in government securities 
                        (as the terms ``government securities 
                        dealer'', ``government securities 
                        broker'', and ``government securities'' 
                        are defined in section 3(a) of the 
                        Securities Exchange Act of 1934 (15 
                        U.S.C. 78c(a))); or
                          (iii) facilities on which bids and 
                        offers, and acceptances of bids and 
                        offers effected on the facility, are 
                        not binding.
                Any person, group of persons, dealer, broker, 
                or facility described in clause (i) or (ii) is 
                excluded from the meaning of the term ``trading 
                facility'' for the purposes of this Act without 
                any prior specific approval, certification, or 
                other action by the Commission.
                  (C) Special rule.--A person or group of 
                persons that would not otherwise constitute a 
                trading facility shall not be considered to be 
                a trading facility solely as a result of the 
                submission to a derivatives clearing 
                organization of transactions executed on or 
                through the person or group of persons.
          (52) Utility operations-related swap.--The term 
        ``utility operations-related swap'' means a swap that--
                  (A) is entered into to hedge or mitigate a 
                commercial risk;
                  (B) is not a contract, agreement, or 
                transaction based on, derived on, or 
                referencing--
                          (i) an interest rate, credit, equity, 
                        or currency asset class; or
                          (ii) a metal, agricultural commodity, 
                        or crude oil or gasoline commodity of 
                        any grade, except as used as fuel for 
                        electric energy generation; and
                  (C) is associated with--
                          (i) the generation, production, 
                        purchase, or sale of natural gas or 
                        electric energy, the supply of natural 
                        gas or electric energy to a utility, or 
                        the delivery of natural gas or electric 
                        energy service to utility customers;
                          (ii) all fuel supply for the 
                        facilities or operations of a utility;
                          (iii) compliance with an electric 
                        system reliability obligation;
                          (iv) compliance with an energy, 
                        energy efficiency, conservation, or 
                        renewable energy or environmental 
                        statute, regulation, or government 
                        order applicable to a utility; or
                          (v) any other electric energy or 
                        natural gas swap to which a utility is 
                        a party.

           *       *       *       *       *       *       *

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.
  (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.
                  (D) Utility special entity.--For purposes of 
                this Act, the term ``utility special entity'' 
                means a special entity, or any instrumentality, 
                department, or corporation of or established by 
                a State or political subdivision of a State, 
                that--
                          (i) owns or operates an electric or 
                        natural gas facility or an electric or 
                        natural gas operation;
                          (ii) supplies natural gas and or 
                        electric energy to another utility 
                        special entity;
                          (iii) has public service obligations 
                        under Federal, State, or local law or 
                        regulation to deliver electric energy 
                        or natural gas service to customers; or
                          (iv) is a Federal power marketing 
                        agency, as defined in section 3 of the 
                        Federal Power Act.
          (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.

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