29–006 

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). 


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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 governmentowned 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. 


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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/subthreshold 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. 


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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. 


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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 


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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. 


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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 ‘‘asVerDate Mar 15 2010 09:40 Jun 14, 2013 Jkt 029006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6601 E:\HR\OC\HR107.XXX HR107

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sociated 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); 


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(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 


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(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. 


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(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 marketmaking activities with, the foregoing entities involving 

transactions to purchase or sell the commodity or derivative agreements, contracts, or transactions in the 

commodity; 


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(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) 


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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); 


emcdonald on DSK67QTVN1PROD with HEARING
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(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 


emcdonald on DSK67QTVN1PROD with HEARING
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(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; 


emcdonald on DSK67QTVN1PROD with HEARING
16 

(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. 


emcdonald on DSK67QTVN1PROD with HEARING
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(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 


emcdonald on DSK67QTVN1PROD with HEARING
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(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 


emcdonald on DSK67QTVN1PROD with HEARING
19 

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 


emcdonald on DSK67QTVN1PROD with HEARING
20 

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; 


emcdonald on DSK67QTVN1PROD with HEARING
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(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 


emcdonald on DSK67QTVN1PROD with HEARING
22 

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 securitybased 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 


emcdonald on DSK67QTVN1PROD with HEARING
23 

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, securitybased 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, securitybased 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. 


emcdonald on DSK67QTVN1PROD with HEARING
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(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 ‘‘securitybased 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 


emcdonald on DSK67QTVN1PROD with HEARING
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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; øand¿ 

(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; 


emcdonald on DSK67QTVN1PROD with HEARING
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(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 securitybased 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 


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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. 


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(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. 


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(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 ENTI- TY.— (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 

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cuting, 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. 


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(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.— 


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(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.— 


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(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 

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tablish 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.— 


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(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 ENTI- TIES.—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; 


emcdonald on DSK67QTVN1PROD with HEARING
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(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.— 


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(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. 


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(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-today 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.— 


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(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.— 


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(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. 

* * * * * * * 

Æ 


emcdonald on DSK67QTVN1PROD with HEARING