II 

112TH CONGRESS 

1ST SESSION S. 1650 

To provide for the orderly implementation of the provisions of title VII 

of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

OCTOBER 4, 2011 

Mr. CRAPO (for himself, Mr. JOHANNS, Mr. SHELBY, Mr. VITTER, Mr. 

TOOMEY, Mr. MORAN, and Mr. KIRK) introduced the following bill; which 

was read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

A BILL 

To provide for the orderly implementation of the provisions 

of title VII of the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Dodd-Frank Improve5 ment Act of 2011’’. 


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1 SEC. 2. DODD-FRANK IMPROVEMENTS REGARDING REGU2 LATION OF DERIVATIVES. 

3 (a) ESTABLISHMENT.—Section 4 of the Securities 

4 Exchange Act of 1934 (15 U.S.C. 78d) is amended by 

5 adding at the end the following: 

6 ‘‘(j) OFFICE OF DERIVATIVES.— 

7 ‘‘(1) OFFICE ESTABLISHED.—There is estab8 lished within the Commission the Office of Deriva9 tives (referred to in this subsection as the ‘Office’)— 

10 ‘‘(A) to administer the rules of the Com11 mission with respect to security-based swaps 

12 and, as necessary, to make recommendations to 

13 the Commission for new rules or changes to ex14 isting rules with respect to security-based 

15 swaps; 

16 ‘‘(B) to coordinate oversight of the market 

17 for swaps and security-based swaps, partici18 pants in that market, and infrastructure pro19 viders for that market with other relevant do20 mestic and international regulators; and 

21 ‘‘(C) to monitor developments in the mar22 ket for swaps and security-based swaps. 

23 ‘‘(2) DIRECTOR OF THE OFFICE.—The head of 

24 the Office shall be the Director, who shall report to 

25 the Director of the Division of Trading and Markets 


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1 and the Director of Risk, Strategy, and Financial 

2 Innovation. 

3 ‘‘(3) STAFFING.— 

4 ‘‘(A) IN GENERAL.—The Office shall be 

5 staffed by persons transferred in accordance 

6 with subparagraph (B), including persons hav7 ing knowledge of and expertise in the uses for, 

8 trading in, execution of, and clearing of swaps 

9 and security-based swaps. 

10 ‘‘(B) TRANSFERS.—The Director of the 

11 Office of Derivatives, the Director of the Divi12 sion of Trading and Markets, the Director of 

13 Risk, Strategy, and Financial Innovation, and 

14 the Director of the Office of Compliance, In15 spections, and Examinations shall jointly iden16 tify employees to be transferred from the Divi17 sion of Trading and Markets, the Division of 

18 Risk, Strategy, and Financial Innovation, and 

19 the Office of Compliance, Inspections, and Ex20 aminations, respectively, to the Office of De21 rivatives, in numbers sufficient to carry out 

22 fully the requirements of this subsection. 

23 ‘‘(4) ENFORCEMENT.—The Division of Enforce24 ment shall consult with the Office before presenting 


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1 a recommendation with respect to security-based 

2 swaps to the Commission. 

3 ‘‘(5) INSPECTIONS AND EXAMINATIONS.—A 

4 representative of the Office shall be afforded the op5 portunity to participate in any inspection or exam6 ination of a security-based swap dealer, major secu7 rity-based swap participant, security-based swap 

8 data repository, or clearing agency that clears secu9 rity-based swaps. 

10 ‘‘(6) ANNUAL REPORT.—On or before the date 

11 that is one year after the Office is established and 

12 annually thereafter, the Director shall submit to the 

13 Chairman and publish on the public website of the 

14 Commission a report that describes the activities of 

15 the Office during the preceding year, and the devel16 opments in the swaps and security-based swaps mar17 ket.’’ 

18 (b) ORDERLY IMPLEMENTATION OF DERIVATIVES

19 PROVISIONS.— 

20 (1) REVIEW OF REGULATORY AUTHORITY.— 

21 Section 712 of the Dodd-Frank Wall Street Reform 

22 and Consumer Protection Act (15 U.S.C. 8302) is 

23 amended— 


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1 (A) in each of subsections (a)(3) and (e), 

2 by striking ‘‘360’’ each place that term appears 

3 and inserting ‘‘720’’; and 

4 (B) by adding at the end the following: 

5 ‘‘(g) ORDERLY IMPLEMENTATION SCHEDULE.— 

6 ‘‘(1) IN GENERAL.—Not later than December 

7 31, 2011, the Commodity Futures Trading Commis8 sion, the Securities and Exchange Commission, and 

9 the prudential regulators shall jointly, pursuant to 

10 the notice and comment requirements contained in 

11 title 5, United States Code, adopt an implementation 

12 schedule for this title. 

13 ‘‘(2) SCHEDULE CONTENT.—Such implementa14 tion schedule shall— 

15 ‘‘(A) set forth a schedule for the publica16 tion of final rules required by this title, except 

17 that, unless otherwise specifically provided by a 

18 provision of this title, the rules required by sub19 section (d)(1) shall be adopted before any other 

20 required rules; 

21 ‘‘(B) set forth a schedule for the effective 

22 dates for provisions of this title, including pro23 visions that require a rulemaking and provisions 

24 that do not require a rulemaking; 

25 ‘‘(C) take into consideration— 


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1 ‘‘(i) a quantitative analysis of the ef2 fects of this title on United States eco3 nomic growth and job creation; 

4 ‘‘(ii) the implications of this title for 

5 cross-border activity by, and international 

6 competitiveness of, United States financial 

7 institutions, companies, and investors; 

8 ‘‘(iii) whether and how the defini9 tional, clearing, trading, reporting, record10 keeping, real-time reporting, registration, 

11 capital, margin, business conduct, position 

12 limits and other requirements of this title 

13 work together, and how they affect market 

14 depth and liquidity; and 

15 ‘‘(iv) the implications of any lack of 

16 harmonization by the Securities and Ex17 change Commission, the Commodity Fu18 tures Trading Commission, and the pru19 dential regulators with respect to the tim20 ing and the substance of their rules. 

21 ‘‘(h) ORDERLY IMPLEMENTATION AUTHORITY.— 

22 Notwithstanding any other provision of law, the Com23 modity Futures Trading Commission, the Securities and 

24 Exchange Commission and the prudential regulators, by 

25 rule, regulation, or order, may conditionally or uncondiVerDate Mar 15 2010 03:58 Oct 05, 2011 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1650.IS S1650

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1 tionally exempt any person, swap, security-based swap, ac2 tivity, or transaction, or any class or classes of persons, 

3 swaps, security-based swaps, activities, or transactions, 

4 from any provision or provisions of this title administered 

5 thereby, or any rule or regulation thereunder, to the extent 

6 that such exemption is necessary or appropriate in the 

7 public interest and is in furtherance of the objectives of 

8 this title, such as the orderly implementation and inter9 national harmonization of the timing and substance of de10 rivatives regulatory reform.’’. 

11 (2) EFFECTIVE DATES.—Title VII of the Dodd12 Frank Wall Street Reform and Consumer Protection 

13 Act (Public Law 111–203, 124 Stat. 1641) is 

14 amended— 

15 (A) in section 754 (7 U.S.C. 7a note), by 

16 striking ‘‘the later of’’ and all that follows 

17 through the period and inserting ‘‘the dates 

18 specified in the implementation schedule adopt19 ed pursuant to section 712(g).’’; and 

20 (B) in section 774 (15 U.S.C. 77b note), 

21 by striking ‘‘the later of’’ and all that follows 

22 through the period and inserting ‘‘the dates 

23 specified in the implementation schedule adopt24 ed pursuant to section 712(g).’’. 

25 (c) CLARIFICATION OF END USER STATUS.— 


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1 (1) END USERS OF SWAPS.— 

2 (A) MARGIN REQUIREMENTS.—Section 

3 4s(e) of the Commodity Exchange Act (7 

4 U.S.C. 6s(e)), as added by section 731 of the 

5 Dodd-Frank Wall Street Reform and Consumer 

6 Protection Act, is amended by adding at the 

7 end the following: 

8 ‘‘(4) APPLICABILITY WITH RESPECT TO

9 COUNTERPARTIES.—The margin requirements of 

10 this subsection shall not apply to a swap in which 

11 one of the counterparties is not— 

12 ‘‘(A) a swap dealer or major swap partici13 pant; 

14 ‘‘(B) an investment fund that— 

15 ‘‘(i) has issued securities (other than 

16 debt securities) to more than 5 unaffiliated 

17 persons; 

18 ‘‘(ii) would be an investment company 

19 (as defined in section 3 of the Investment 

20 Company Act of 1940 (15 U.S.C. 80a–3)) 

21 but for paragraph (1) or (7) of subsection 

22 (c) of that section; and 

23 ‘‘(iii) is not primarily invested in 

24 physical assets (including commercial real 


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1 estate) directly or through an interest in 

2 an affiliate that owns the physical assets; 

3 ‘‘(C) a regulated entity, as defined in sec4 tion 1303 of the Federal Housing Enterprises 

5 Financial Safety and Soundness Act of 1992 

6 (12 U.S.C. 4502); or 

7 ‘‘(D) a commodity pool that is predomi8 nantly invested in any combination of commod9 ities, commodity swaps, commodity options, or 

10 commodity futures. 

11 ‘‘(5) MARGIN TRANSITION RULES.—Swaps en12 tered into before the date on which final rules under 

13 section 712(e) of the Dodd-Frank Wall Street Re14 form and Consumer Protection Act (15 U.S.C. 

15 8302(e)) become effective shall be exempt from the 

16 margin requirements under this subsection.’’. 

17 (B) MAJOR SWAP PARTICIPANT.—Section 

18 1a(33)(A) of the Commodity Exchange Act (7 

19 U.S.C. 1a(33)(A)) is amended by striking 

20 clause (ii) and inserting the following: 

21 ‘‘(ii) whose outstanding swaps create 

22 substantial net uncollateralized counterpar23 ty exposure that could have serious adverse 

24 effects on the financial stability of the 


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1 United States banking system or financial 

2 markets; or’’. 

3 (C) EFFECTIVE DATE.—The amendments 

4 made by subsection (a) shall have the same ef5 fective date as provided in section 754 of the 

6 Dodd-Frank Wall Street Reform and Consumer 

7 Protection Act, as amended by section 1(b) of 

8 this Act. 

9 (2) END USERS OF SECURITY-BASED SWAPS.— 

10 (A) MARGIN REQUIREMENTS.—Section 

11 15F(e) of the Securities Exchange Act of 1934 

12 (15 U.S.C. 780–10(e)), as added by section 764 

13 of the Dodd-Frank Wall Street Reform and 

14 Consumer Protection Act, is amended by add15 ing at the end the following: 

16 ‘‘(4) APPLICABILITY WITH RESPECT TO

17 COUNTERPARTIES.—The margin requirements of 

18 this subsection shall not apply to a security-based 

19 swap in which one of the counterparties is not— 

20 ‘‘(A) a security-based swap dealer or major 

21 security-based swap participant; 

22 ‘‘(B) an investment fund that would be an 

23 investment company (as defined in section 3 of 

24 the Investment Company Act of 1940 (15 

25 U.S.C. 80a–3)), but for paragraph (1) or (7) of 


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1 section 3(c) of that Act (15 U.S.C. 80a–3(c)), 

2 that is not primarily invested in physical assets 

3 (including commercial real estate) directly or 

4 through interest in its affiliates that own such 

5 assets; 

6 ‘‘(C) a regulated entity, as defined in sec7 tion 1303 of the Federal Housing Enterprises 

8 Financial Safety and Soundness Act of 1992 

9 (12 U.S.C. 4502); or 

10 ‘‘(D) a commodity pool that is predomi11 nantly invested in any combination of commod12 ities, commodity swaps, commodity options or 

13 commodity futures. 

14 ‘‘(5) MARGIN TRANSITION RULES.—Security15 based swaps entered into before the date on which 

16 final rules under section 712(e) of the Dodd-Frank 

17 Wall Street Reform and Consumer Protection Act 

18 become effective are exempt from the margin re19 quirements of this subsection.’’. 

20 (B) MAJOR SECURITY-BASED SWAP PAR21 TICIPANT.—Section 3(a)(67)(A)(ii)(II) of the 

22 Securities Exchange Act of 1934 (15 U.S.C. 

23 78c(a)(67)(A)(ii)(II)), is amended to read as 

24 follows: 


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1 ‘‘(II) whose outstanding security2 based swaps create substantial net 

3 uncollateralized counterparty exposure 

4 that could have serious adverse effects 

5 on the financial stability of the United 

6 States banking system or financial 

7 markets;’’. 

8 (C) EFFECTIVE DATE.—The amendments 

9 made by this paragraph shall have the same ef10 fective date as provided in section 774 of the 

11 Dodd-Frank Wall Street Reform and Consumer 

12 Protection Act, as amended by this Act. 

13 (d) TREATMENT OF AFFILIATE TRANSACTIONS.— 

14 Title VII of the Dodd-Frank Wall Street Reform and Con15 sumer Protection Act (15 U.S.C. 8301 et seq.) is amended 

16 by inserting after section 713 (15 U.S.C. the following 

17 new section: 

18 ‘‘SEC. 713A. TREATMENT OF AFFILIATE TRANSACTIONS. 

19 ‘‘(a) IN GENERAL.—An agreement, contract, or 

20 transaction that would otherwise be a swap or security21 based swap, and that is entered into by a party that is 

22 controlling, controlled by, or under common control with 

23 its counterparty shall not be deemed to be a ‘swap’ or ‘se24 curity-based swap’ for purposes of this Act. 


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1 ‘‘(b) REPORTING.—All agreements, contracts, or 

2 transactions described in subsection (a) shall be reported 

3 to either a swap data repository, or, if there is no swap 

4 data repository that would accept such transaction re5 ports, to the Commission pursuant to sections 729 and 

6 766. within such time period as the Commission may pre7 scribe by rule or regulation.’’. 

8 (e) INTERNATIONAL COMPETITIVENESS AND HARMO9 NIZATION.— 

10 (1) STUDY ON INTERNATIONAL SWAP REGULA11 TION.—Section 719(c)(2) of the Dodd-Frank Wall 

12 Street Reform and Consumer Protection Act (15 

13 U.S.C. 8307(c)(2)) is amended— 

14 (A) by striking ‘‘18’’ and inserting ‘‘30’’; 

15 (B) in subparagraph (C), by striking 

16 ‘‘and’’ at the end; 

17 (C) in subparagraph (D), by striking the 

18 period at the end and inserting ‘‘; and’’; and 

19 (D) by adding at the end the following: 

20 ‘‘(E) an analysis of the progress of mem21 bers of the Group of 20 and other countries to22 ward implementing derivatives regulatory re23 form, including material differences in the 

24 schedule for implementation (as well as mate25 rial differences in definitions, clearing, trading, 


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1 reporting, registration, capital, margin, business 

2 conduct, and position limits) and their possible 

3 and likely effects on United States competitive4 ness, market liquidity, and financial stability.’’. 

5 (2) APPLICABILITY.—The Dodd-Frank Wall 

6 Street Reform and Consumer Protection Act is 

7 amended by inserting after section 719 the following 

8 new section: 

9 ‘‘SEC. 719A. APPLICABILITY. 

10 ‘‘(a) IN GENERAL.—Subject to subsections (b) and 

11 (c), and notwithstanding any other provision of this title, 

12 no activities conducted outside of the United States be13 tween counterparties established under the laws of any ju14 risdiction outside of the United States (including a non15 United States branch of a United States entity licensed 

16 and recognized under local law outside of the United 

17 States) shall be considered— 

18 ‘‘(1) to have a direct and significant connection 

19 with activities in, or effect on, commerce of the 

20 United States; 

21 ‘‘(2) to constitute a business within the jurisdic22 tion of the United States; or 

23 ‘‘(3) to constitute evasion of any provision of 

24 this title, unless those activities contravene such 

25 rules as may be adopted by the Commodity Futures 


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1 Trading Commission and the Securities and Ex2 change Commission pursuant to subsection (b). 

3 ‘‘(b) RULEMAKING.—After completing the report re4 quired by section 719(c)(2), the Commodity Futures 

5 Trading Commission and the Securities and Exchange 

6 Commission may jointly issue such rules as are necessary 

7 to prohibit transactions or activities, or classes of trans8 actions or activities conducted outside of the United States 

9 that the agencies find— 

10 ‘‘(1) have no valid business purpose; 

11 ‘‘(2) are structured with the sole purpose of 

12 evading the requirements of this title; and 

13 ‘‘(3) might reasonably be expected to have a se14 rious adverse effect on the stability of the United 

15 States financial system. 

16 ‘‘(c) EXCEPTION.—Subsection (a) shall not apply to 

17 any provision of this title prohibiting fraud or manipula18 tion or any rule or regulation thereunder.’’. 

Æ 


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