This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

44001 

Vol. 83, No. 168 

Wednesday, August 29, 2018 

1Commission regulation 145.9. Commission 

regulations referred to herein are found on the 

Commission’s website at: http://www.cftc.gov/Law

Regulation/CommodityExchangeAct/index.htm. 

2See 82 FR 21494 (May 6, 2017) and 82 FR 23765 

(May 24, 2017). 

3See, e.g., Comment Letter from the Institute of 

International Banking, International Swaps and 

Derivatives Association, Inc., and Securities 

Industry and Financial Markets Association dated 

July 24, 2017, at 2. 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 50 

RIN 3038–AE33 

Amendments to Clearing Exemption 

for Swaps Entered Into by Certain 

Bank Holding Companies, Savings and 

Loan Holding Companies, and 

Community Development Financial 

Institutions 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is proposing rule amendments 

pursuant to its authority under section 

4(c) of the Commodity Exchange Act 

(CEA) to exempt from the clearing 

requirement set forth in section 2(h)(1) 

of the CEA certain swaps entered into 

by certain bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions. 

DATES: Comments must be received on 

or before October 29, 2018. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AE33 

by any of the following methods: 

• CFTC website: http://

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Comments Online process 

on the website. 

• Mail: Christopher Kirkpatrick, 

Secretary of the Commission, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

• Hand Delivery/Courier: Same as 

Mail above. 

Please submit your comments using 

only one method. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to http://

www.cftc.gov. You should submit only 

information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act (FOIA), a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in section 

145.9 of the Commission’s regulations.1

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, such as obscene language. 

All submissions that have been redacted 

or removed that contain comments on 

the merits of the rulemaking will be 

retained in the public comment file and 

will be considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the FOIA. 

FOR FURTHER INFORMATION CONTACT: 

Sarah E. Josephson, Deputy Director, at 

202–418–5684 or sjosephson@cftc.gov; 

Megan A. Wallace, Senior Special 

Counsel, at 202–418–5150 or 

mwallace@cftc.gov; or Melissa D’Arcy, 

Special Counsel, at 202–418–5086 or 

mdarcy@cftc.gov; Division of Clearing 

and Risk or Ayla Kayhan, Office of the 

Chief Economist, at 202–418–5947 or 

akayhan@cftc.gov, in each case at the 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

A. Project KISS 

B. Swap Clearing Requirement 

C. Swaps With Small Banks, Savings 

Associations, Farm Credit System 

Institutions, and Credit Unions in 

Commission Regulation Not Subject to 

the Clearing Requirement 

D. DCR No-Action Letter for Relief From 

the Clearing Requirement for Certain 

Bank Holding Companies and Savings 

and Loan Holding Companies With 

Consolidated Assets of $10 Billion or 

Less 

E. DCR No-Action Letter for Relief From 

the Clearing Requirement for Community 

Development Financial Institutions 

II. Proposed Amendments to Commission 

Regulation 50.5 

A. Proposed Definition of Bank Holding 

Company and Savings and Loan Holding 

Company 

B. Proposed Definition of Community 

Development Financial Institution 

C. Proposed Exemptions From the Clearing 

Requirement for Certain Bank Holding 

Companies, Certain Savings and Loan 

Holding Companies, and Community 

Development Financial Institutions 

1. Certain Bank Holding Companies and 

Savings and Loan Holding Companies 

2. Community Development Financial 

Institutions 

D. The Commission’s Section 4(c) 

Authority 

III. Proposed Rules Do Not Effect Margin 

Requirements for Uncleared Swaps 

IV. Cost-Benefit Considerations 

A. Statutory and Regulatory Background 

B. Consideration of the Costs and Benefits 

of the Commission’s Action 

1. Costs 

2. Benefits 

C. Section 15(a) Factors 

1. Protection of Market Participants and the 

Public 

2. Efficiency, Competitiveness, and 

Financial Integrity of Swap Markets 

3. Price Discovery 

4. Sound Risk Management Practices 

5. Other Public Interest Considerations 

D. General Request for Comment 

E. Antitrust Considerations 

V. Related Matters 

A. Regulatory Flexibility Act 

B. Paperwork Reduction Act 

I. Background 

A. Project KISS 

On May 9, 2017, the Commission 

published in the Federal Register a 

request for information 2 pursuant to the 

Commission’s ‘‘Project K.I.S.S.’’ 

initiative seeking suggestions from the 

public for simplifying the Commission’s 

regulations and practices, removing 

unnecessary burdens, and reducing 

costs. In response, a number of 

commenters asked the Commission to 

adopt certain staff no-action letters and 

codify Commission guidance through 

rulemakings.3 In its review, the 

Commission has identified a number of 


sradovich on DSK3GMQ082PROD with PROPOSALS
44002 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 

4CFTC Letter No. 16–01 (Jan. 8, 2016); CFTC 

Letter No. 16–02 (Jan. 8, 2016). Chatham Financial 

filed a comment letter recognizing the value of 

codifying and refining staff guidance and no-action 

relief where appropriate, and recommending 

codifying no-action letters on which several of 

Chatham’s clients rely, including CFTC Letter No. 

16–01. See Comment Letter from Chatham 

Financial, at 7 (Sept. 29, 2017); see also Comment 

Letter from ISDA, at 12 (Sept. 29, 2017) 

(commenting that the current end-user exception 

applicable to non-financial institutions and to 

banks, savings associations, farm credit institutions, 

and credit unions with total assets of $10 billion or 

less is too narrow and unnecessarily burdensome as 

it fails to cover other types of entities that trade 

minimally and do not pose risks to the U.S. 

financial system, and supporting a shift from an 

asset size-based threshold applicable to certain 

financial institutions to a more risk-based 

threshold). 

5See End-User Exception to the Clearing 

Requirement for Swaps, 77 FR 42560 (Jul. 19, 2012) 

(2012 End-User Exception final rule). 

6Public Law 111–203, 124 Stat. 1376 (2010). 

7Section 2(h)(1)(A) of the CEA. 

8See Sections 2(a)(13)(G), and 4r, and 21(b) of the 

CEA. 

9Section 2(h)(8) of the CEA. 

10Section 2(h)(1)(A) of the CEA. 

11Clearing Requirement Determination Under 

Section 2(h) of the CEA, 77 FR 74284 (Dec. 13, 

2012). 

12Clearing Requirement Determination Under 

Section 2(h) of the CEA for Interest Rate Swaps, 81 

FR 71202 (Oct. 14, 2016). 

13Section 2(h)(7)(A) of the CEA. 

14Section 2(h)(7)(C)(ii) of the CEA. 

15Commission regulation 50.50; see also 2012 

End-User Exception final rule, 77 FR 42560. 

16Commission regulation 50.50(d) exempts for 

the purposes of the Clearing Requirement, a person 

that is a ‘‘financial entity’’ solely because of section 

2(h)(7(C)(i)(VIII) of the CEA if the person: (1) Is 

organized as a bank, as defined in section 3(a) of 

the Federal Deposit Insurance Act, the deposits of 

which are insured by the Federal Deposit Insurance 

Corporation; a savings association, as defined in 

section 3(b) of the Federal Deposit Insurance Act, 

the deposits of which are insured by the Federal 

Deposit Insurance Corporation; a farm credit system 

institution chartered under the Farm Credit Act of 

1971; or an insured Federal credit union or Statechartered credit union under the Federal Credit 

Union Act; and (2) has total assets of 

$10,000,000,000 or less on the last day of such 

person’s most recent fiscal year. Commission 

regulation 50.50(d) does not excuse the affected 

persons from compliance with any other applicable 

requirements of the CEA or in the Commission’s 

regulations. 

17 77 FR at 42578. 

18 Id. The Commission noted that many of these 

loans and the related swaps are not secured by cash 

CFTC staff letters that it preliminarily 

believes should be codified in 

rulemakings, including the no-action 

letters that the Commission’s Division of 

Clearing and Risk (DCR) issued in 2016 4

providing that DCR would not 

recommend the Commission take 

enforcement action against certain small 

bank holding companies, savings and 

loan holding companies, and 

community development financial 

institutions, as such entities were 

described in the letters, for not clearing 

swaps covered by the clearing 

requirement of section 2(h)(1) of the 

CEA (Clearing Requirement), if they 

satisfied the terms and conditions in the 

letters. This proposed rulemaking is 

consistent with those no-action letters. 

Specifically, the Commission is 

proposing to adopt regulatory revisions 

pursuant to its authority in section 4(c) 

of the CEA to exempt from the Clearing 

Requirement certain swaps entered into 

with certain bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions. 

As discussed more fully below, the 

proposed revisions to Commission 

regulation 50.5 would exempt from the 

Clearing Requirement a swap entered 

into to hedge or mitigate commercial 

risk if one of the counterparties to the 

swap is either (a) a bank holding 

company or savings and loan holding 

company, each having no more than $10 

billion in consolidated assets, or (b) a 

community development financial 

institution transacting in certain types 

and quantities of swaps. The 

Commission believes that this proposal 

would be consistent with the exemption 

from the Clearing Requirement the 

Commission granted for transactions 

entered into with small banks, savings 

associations, farm credit institutions, 

and credit unions.5

B. Swap Clearing Requirement 

The CEA, as amended by Title VII of 

the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank 

Act),6 establishes a comprehensive 

regulatory framework for swaps. The 

CEA requires a swap: (1) To be cleared 

through a derivatives clearing 

organization (DCO) that is registered 

under the CEA, or a DCO that is exempt 

from registration under the CEA, if the 

Commission has determined that the 

swap is required to be cleared, unless an 

exception to the Clearing Requirement 

applies; 7 (2) to be reported to a swap 

data repository (SDR) or the 

Commission; 8 and (3) if the swap is 

subject to the Clearing Requirement, to 

be executed on a designated contract 

market (DCM), or swap execution 

facility (SEF) that is registered with the 

Commission pursuant to section 5h of 

the CEA or a SEF that has been 

exempted from registration pursuant to 

section 5h(g) of the CEA, unless no DCM 

or SEF has made the swap available to 

trade.9

Pursuant to section 2(h)(1)(A) of the 

CEA, if a swap is subject to the Clearing 

Requirement, it shall be unlawful for 

any person to engage in a swap unless 

that person submits such swap for 

clearing to a DCO that is registered 

under the CEA or a DCO that is exempt 

from registration under the CEA.10 In 

2012, the Commission issued its first 

clearing requirement determination, 

pertaining to four classes of interest rate 

swaps and two classes of credit default 

swaps.11 In 2016, the Commission 

expanded the classes of interest rate 

swaps subject to the Clearing 

Requirement to cover fixed-to-floating 

interest rate swaps denominated in nine 

additional currencies, as well as certain 

additional basis swaps, forward rate 

agreements, and overnight index 

swaps.12

C. Swaps With Small Banks, Savings 

Associations, Farm Credit System 

Institutions, and Credit Unions Not 

Subject to the Clearing Requirement 

Section 2(h)(7)(A) of the CEA 

provides that the Clearing Requirement 

of section 2(h)(1)(A) of the CEA shall 

not apply to a swap if one of the 

counterparties to the swap: (i) Is not a 

financial entity; (ii) is using swaps to 

hedge or mitigate commercial risk; and 

(iii) notifies the Commission, in a 

manner set forth by the Commission, 

how it generally meets its financial 

obligations associated with entering into 

non-cleared swaps.13 Section 

2(h)(7)(C)(ii) of the CEA further directed 

the Commission to consider whether to 

exempt from the definition of ‘‘financial 

entity’’ small banks, savings 

associations, farm credit system 

institutions, and credit unions, 

including: (I) Depository institutions 

with total assets of $10 billion or less; 

(II) farm credit system institutions with 

total assets of $10 billion or less; or (III) 

credit unions with total assets of $10 

billion or less.14

In the 2012, End-User Exception final 

rule implementing sections 2(h)(7)(A) 

and 2(h)(7)(C) of the CEA,15 the 

Commission adopted Commission 

regulation 50.50(d) which allows a 

counterparty to elect not to clear swaps 

used to hedge or mitigate commercial 

risk if entered into with small banks, 

savings associations, farm credit system 

institutions, and credit unions with total 

assets of $10 billion or less (small 

financial institutions).16

In adopting Commission regulation 

50.50(d), the Commission noted that 

these small financial institutions tend to 

serve smaller, local markets and are well 

situated to provide swaps to the 

customers in their markets for the 

purpose of hedging commercial risk.17

The Commission also acknowledged 

that, as indicated by commenters, a 

large portion of the swaps executed by 

small financial institutions with 

customers likely hedge interest rate risk 

associated with commercial loans.18


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 44003 

or other highly liquid collateral, but by less liquid 

assets of the customer such as the property or 

inventory purchased with the loan proceeds. Id. 

19See id. 

20 Id. 

21 Id. The Commission noted that because the 

End-User Exception only applies to a swap if one 

of the counterparties to the swap is using swaps to 

hedge or mitigate commercial risk small financial 

institutions are not exempt from the Clearing 

Requirement for speculative trades. Id. n.79. 

22Under CFTC Letter No. 16–01, the limitation of 

no more than $10 billion in consolidated assets 

means that the aggregate value of all the assets of 

all the bank holding company’s or savings and loan 

holding company’s subsidiaries on the last day of 

each subsidiary’s most recent fiscal year, do not 

exceed $10 billion. CFTC Letter No. 16–01, at 4. 

23CFTC Letter No. 16–01. Those requirements are 

that the small bank holding company or small 

savings and loan holding company is using swaps 

to hedge or mitigate commercial risk and notifies 

the Commission how it generally meets the 

obligations associated with entering into noncleared swaps. 

24CFTC Letter No. 16–01, at 3. 

25 Id. 

26 Id. 

27 Id. (highlighting the Commission’s statements 

that small financial institutions ‘‘may incur initial 

and annual fixed clearing fees and other expenses 

that may be incrementally higher relative to the 

small number of swaps they execute over a given 

period of time’’ and that ‘‘given the relatively low 

notional volume [of] swap books held by small 

section 2(h)(7)(C)(ii) institutions and the 

commercial customer purposes these swaps satisfy, 

the Commission believes that swaps executed by 

small section 2(h)(7)(C)(ii) institutions are what 

Congress was considering when it directed the 

Commission to consider an exemption from the 

‘financial entity’ definition for small financial 

institutions. . . .’’). Letter No. 16–01 also noted 

that the letter did not excuse the affected persons 

from compliance with any other applicable 

requirements contained in the CEA or in the 

Commission’s regulations. Id. at 4. 

28See CFTC Letter No. 16–02. 

29See Certification as a Community Development 

Financial Institution, 12 CFR 1805.201. 

30CFTC Letter No. 16–02, at 3. 

31 Id. 

32Community development financial institutions 

are small in scale and tend to serve smaller, local 

markets. They operate under an organizational 

mission of providing financial and community 

development services to underserved target 

markets. Community development financial 

institutions are entities that must apply for, and 

receive, certification from the CDFI Fund. The CDFI 

Fund was created by section 104 of the Community 

Development Banking and Financial Institutions 

Act of 1994 (CDFI Act), which is contained in Title 

I of the Riegle Community Development and 

Regulatory Improvement Act of 1994 (Riegle Act). 

See Public Law 103–325, 108 Stat. 2160 (1994). 

The Commission also noted that small 

financial institutions typically hedge 

customer swaps by entering into 

matching swaps, and if those swaps had 

to be cleared, small financial 

institutions would have to post margin 

to satisfy the requirements of the DCO— 

which could raise the costs for small 

financial institutions of hedging the 

risks related to these types of customer 

swaps to the extent they need to fund 

the cost of the margin posted.19 The 

Commission acknowledged that some of 

these small financial institutions may 

incur initial and annual fixed clearing 

fees and other expenses that may be 

incrementally higher relative to the 

number of swaps executed over a given 

period of time.20 Finally, the 

Commission stated that given the 

relatively low notional volume swap 

books held by these small institutions, 

and the commercial customer purposes 

these swaps satisfy, the Commission 

believed that the swaps executed by 

these entities were what Congress was 

considering when it directed the 

Commission to consider an exemption 

from the definition of ‘‘financial entity,’’ 

thereby allowing these entities to elect 

not to clear swaps that are otherwise 

eligible for the End-User Exception.21

D. DCR No-Action Letter for Relief From 

the Clearing Requirement for Certain 

Bank Holding Companies and Savings 

and Loan Holding Companies With 

Consolidated Assets of $10 Billion or 

Less 

In 2016, in response to a request from 

the American Bankers Association 

(ABA), DCR issued a no-action letter 

stating that DCR would not recommend 

that the Commission take enforcement 

action against bank holding companies 

and savings and loan holding 

companies with no more than $10 

billion in consolidated assets 22 for 

failure to comply with the Clearing 

Requirement if they elect not to clear a 

swap in accordance with the 

requirements of Commission regulation 

50.50.23 Because section 2(h)(7)(C)(ii) of 

the CEA and Commission regulation 

50.50(d) only apply to depository 

institutions and savings associations 

themselves and not to bank holding 

companies and savings and loan 

holding companies, bank holding 

companies and savings and loan 

holding companies are not eligible to 

use the End-User Exception. 

DCR was persuaded by the ABA’s 

representation that many bank holding 

companies and savings and loan 

holding companies enter into interest 

rate swaps to hedge interest rate risk 

that they incur as a result of issuing debt 

securities or making loans to finance 

their subsidiary banks or savings 

associations.24 DCR accepted the ABA’s 

further representation that these swaps 

generally have a notional amount of $10 

million or less, and that these bank 

holding companies and savings and 

loan holding companies enter into 

swaps less frequently than other swap 

counterparties.25 The ABA also 

represented that the swaps need to be 

entered into by the bank holding 

company or savings and loan holding 

company, rather than by the subsidiary 

bank or savings association, in order to 

gain hedge accounting treatment.26 DCR 

believed bank holding companies and 

savings and loan holding companies 

having no more than $10 billion in 

consolidated assets should be treated 

like small financial institutions, and 

issued a no-action letter.27

E. DCR No-Action Letter for Relief From 

the Clearing Requirement for 

Community Development Financial 

Institutions 

Also in 2016, in response to a request 

from a coalition of community 

development financial institutions 

(Coalition), DCR issued a no-action 

letter stating DCR would not 

recommend that the Commission take 

enforcement action against a community 

development financial institution for 

failure to comply with the Clearing 

Requirement, provided the entity elects 

not to clear a swap in accordance with 

the requirements of Commission 

regulation 50.50 and meets the terms 

and conditions of the letter.28 Some 

community development financial 

institutions are not eligible for the EndUser Exception because they are not 

depository institutions.29

DCR accepted the Coalition’s 

representation that there are public 

interest benefits that may be served by 

permitting community development 

financial institutions to engage in 

tailored and limited swaps to pursue 

their public interest goals without the 

expense of posting margin to a DCO, 

and the cost of initial and annual fixed 

clearing fees and other expenses.30 The 

Coalition further represented that 

community development financial 

institutions do not provide swaps 

directly to customers, but there is a 

public interest benefit in having 

institutions that are able to serve 

smaller, local markets.31 DCR was 

persuaded that status as a community 

development financial institution 

pursuant to certification by the U.S. 

Department of the Treasury’s (Treasury 

Department) Community Development 

Financial Institutions Fund (CDFI 

Fund) 32 would ensure that community 

development financial institutions 

operate under a specific community 

development organizational mission 

and provide financial and community 

development services to a target 


sradovich on DSK3GMQ082PROD with PROPOSALS
44004 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 

33See CFTC Letter No. 16–02, at 3. 

34 Id. 

35 Id. at 4. DCR also required community 

development financial institutions to file a notice 

of election and additional information as described 

in Commission regulation 50.50(b), and limited the 

election of the exception to swaps entered into for 

the sole purpose of hedging or mitigating 

commercial risk as described in Commission 

regulation 50.50(c). Id. Letter No. 16–02 also noted 

that the letter did not excuse the affected persons 

from compliance with any other applicable 

requirements contained in the CEA or in the 

Commission’s regulations. Id. 

36See Section 2(h)(7)(C)(ii) of the CEA. 

37 12 U.S.C. 1811 et seq. Section 3(w) of the 

Federal Deposit Insurance Act states that a ‘‘bank 

holding company’’ has the meaning given to such 

term in section 2 of the Bank Holding Company Act 

of 1956. 12 U.S.C. 1813(w)(2). Section 3(w)(3) of the 

Federal Deposit Insurance Act states that a ‘‘savings 

and loan holding company’’ has the meaning given 

to such term in section 10 of the Home Owners’ 

Loan Act. 12 U.S.C. 1813(w)(3). 

38Commission regulation 50.50(d) provides that 

for the purposes of section 2(h)(7)(A) of the Act, a 

person that is a ‘‘financial entity’’ solely because of 

section 2(h)(7)(C)(i)(VIII) shall be exempt from the 

definition of ‘financial entity’ if such person: (1) Is 

organized as a bank, as defined in section 3(a) of 

the Federal Deposit Insurance Act, the deposits of 

which are insured by the Federal Deposit Insurance 

Corporation; a savings association, as defined in 

section 3(b) of the Federal Deposit Insurance Act, 

the deposits of which are insured by the Federal 

Deposit Insurance Corporation; a farm credit system 

institution chartered under the Farm Credit Act of 

1971; or an insured Federal credit union or Statechartered credit union under the Federal Credit 

Union Act; and (2) Has total assets of 

$10,000,000,000 or less on the last day of such 

person’s most recent fiscal year. 

39 12 U.S.C. 1841(a)(1) (subject to exceptions 

described in paragraph (5) therein). 

40 12 U.S.C. 1467(a)(1)(D)(i) (subject to exclusions 

described in clause (ii)). 

41 12 U.S.C. 4702(5). 

42 Id. 

43The criteria are: (1) It has a primary mission of 

community development; (2) its predominant 

business activity is the provision of financial 

products or financial services; (3) it serves one or 

more target markets such as an investment area or 

target population; (4) it has a track record of 

market.33 Additionally, DCR believed 

the costs of clearing for community 

development financial institutions are 

similar to those faced by small financial 

institutions, and the benefits that 

community development financial 

institutions bring to communities may 

be the same or greater than those 

contributed by small financial 

institutions.34

DCR limited the letter to community 

development financial institutions 

certified as such by the Treasury 

Department that only engage in swaps 

within specific product classes that 

meet certain criteria, and required that 

each community development financial 

institution enter into no more than 10 

swaps per year, with an aggregate 

notional value cap of $200 million per 

year.35

II. Proposed Amendments to 

Commission Regulation 50.5 

The Commission proposes to exempt 

from the Clearing Requirement certain 

swap transactions entered into with 

bank holding companies and savings 

and loan holding companies with no 

more than $10 billion in consolidated 

assets, and community development 

financial institutions certified by the 

CDFI Fund. Although these entities are 

not eligible for the End-User Exception, 

the Commission believes that the same 

policy reasons that the Commission 

considered when exempting small 

financial institutions from the definition 

of a ‘‘financial entity’’ for purposes of 

the End-User Exception support an 

exemption for swap transactions entered 

into with certain bank holding 

companies, savings and loan association 

holding companies, and community 

development financial institutions.36

The Commission notes that the 

proposed exemptions are intended to be 

consistent with the Commission’s policy 

set forth in the 2012 End-User Exception 

final rule and would not limit the 

applicability of any CEA provision or 

Commission regulation to any person or 

transaction except as provided in the 

proposed rulemaking. 

A. Proposed Definition of Bank Holding 

Company and Savings and Loan 

Holding Company 

The Commission proposes to adopt 

the definitions for ‘‘bank holding 

company’’ and ‘‘savings and loan 

holding company’’ referenced in the 

Federal Deposit Insurance Act.37 These 

definitions represent the accepted 

meaning for ‘‘bank holding company’’ 

and ‘‘savings and loan holding 

company.’’ The Commission used the 

Federal Deposit Insurance Act 

definitions for the banks and savings 

associations eligible for an exemption 

from the definition of ‘‘financial entity’’ 

in Commission regulation 50.50(d)(1).38

Proposed revised regulation 50.5(a) 

would define ‘‘bank holding company’’ 

to mean an entity that is organized as a 

bank holding company, as defined in 

section 2 of the Bank Holding Company 

Act of 1956. Section 2 of the Bank 

Holding Company Act generally defines 

a ‘‘bank holding company,’’ subject to 

limited exceptions, as any company 

which has control over any bank or over 

any company that is or becomes a bank 

holding company.39

Proposed revised regulation 50.5(a) 

would define ‘‘savings and loan holding 

company’’ to mean an entity that is 

organized as a savings and loan holding 

company, as defined in section 10 of the 

Home Owners’ Loan Act of 1933. 

Section 10 of the Home Owners’ Loan 

Act generally defines a ‘‘savings and 

loan holding company,’’ subject to 

limited exceptions, as any company that 

directly or indirectly controls a savings 

association or that controls any other 

company that is a savings and loan 

company.40

Request for Comment. The 

Commission seeks comment on the 

proposed definitions. 

B. Proposed Definition of Community 

Development Financial Institution 

Proposed revised regulation 50.5(a) 

would define community development 

financial institution to mean a 

community development financial 

institution, as defined in section 103(5) 

of the Community Development 

Banking and Financial Institutions Act 

of 1994, that is certified by the U.S. 

Department of the Treasury’s 

Community Development Financial 

Institution Fund under the requirements 

set forth in 12 CFR 180.201(b). The 

proposed definition limits the entities 

that are eligible for the exemption. The 

Commission is proposing to limit the 

scope of entities that may qualify for an 

exemption from the Clearing 

Requirement as a community 

development financial institution to 

institutions that meet the definition of a 

‘‘community development financial 

institution’’ in section 103 of the CDFI 

Act.41 Under section 103, a ‘‘community 

development financial institution’’ 

means a person (other than an 

individual) that: (i) Has a primary 

mission of promoting community 

development; (ii) serves an investment 

area or targeted population; (iii) 

provides development services in 

conjunction with equity investments or 

loans, directly or through a subsidiary 

or affiliate; (iv) maintains, through 

representation on its governing board or 

otherwise, accountability to residents of 

its investment area or targeted 

population; and (v) is not an agency or 

instrumentality of the United States, or 

of any State or political subdivision of 

a State.42

The Commission believes that it is 

appropriate to require all community 

development financial institutions 

included in the proposed exemption 

from the Clearing Requirement to have 

received and maintained certification by 

the CDFI Fund. Certification is a formal 

acknowledgment from the CDFI Fund 

that a financial institution meets certain 

community development finance 

criteria.43 In the event certification is 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 44005 

providing development services to borrowers in 

conjunction with financing activities; (5) it 

maintains accountability to the residents of its 

target market; and (6) it is a non-government entity. 

See Certification as a Community Development 

Financial Institution, 12 CFR 1805.201(b)(1)–(6). 

44As of May 31, 2018, there were 1094 certified 

community development financial funds consisting 

of 138 banks, 16 venture capital funds, 297 credit 

unions, 90 depository institution holding 

companies, and 553 loan funds. See list available 

at: https://www.cdfifund.gov/programs-training/ 

certification/cdfi/Pages/default.aspx. 

45See supra n.27; see also Community 

Development Financial Institutions Fund, Notice of 

Funds Availability, 83 FR 4750 (Feb. 1, 2018) 

(stating the priorities of the CDFI Fund). 

46See 68 FR 5704 (Feb. 4, 2003). Additional 

information is available at the CDFI Fund’s website: 

https://www.cdfifund.gov/about/Pages/ 

default.aspx. 

47The proposed exemptions would not excuse 

the affected persons from compliance with any 

other applicable requirements contained in the CEA 

or the Commission’s regulations. The Commission 

notes that uncleared swaps with a counterparty that 

is subject to the CEA and Commission regulations 

with regard to that transaction must still comply 

with the CEA and Commission regulations as they 

pertain to uncleared swaps. 

48CFTC Letter No. 16–01, at 3. 

49 Id. 

50Under the Bank Holding Company Act, a bank 

holding company may elect to be a financial 

holding company. Although CFTC Letter No. 16–01 

does not include no-action relief for financial 

holding companies, we are including these entities 

as they believe they are eligible for an exception 

and indicated they may claim the exception. 

Another entity indicated it was electing the enduser exception as a captive finance company rather 

than a small bank or other entity according to its 

DDR reporting form. 

51The nine entities included the five bank 

holding companies, three domestic financial 

holding companies, and one entity electing the 

exception as a captive finance company. 52 In the preamble to the 2012 End-User 

Exception final rule, the Commission determined 

that small banks and small savings associations 

were not ‘‘financial entities’’ for purposes of the 

Clearing Requirement. 77 FR at 42578. 53See CFTC Letter No. 16–01, at 3. 54 77 FR at 42578. 55 Id. 

not maintained, a community 

development financial institution would 

no longer meet the definition and would 

no longer be able to rely on the 

exemption from the Clearing 

Requirement being proposed herein. 

The Commission believes that this 

definition is appropriate because 

community development financial 

institutions are certified under the 

auspices of the Treasury Department’s 

CDFI Fund to promote economic 

revitalization and community 

development in low-income 

communities.44 Community 

development financial institutions 

certified by the CDFI Fund serve rural 

and urban low-income people and 

communities across the nation that lack 

adequate access to affordable financial 

products and services.45 Through 

financial assistance and grants from the 

CDFI Fund, community development 

financial institutions are able to make 

loans and investments, and to provide 

related services for the benefit of 

designated investment areas, target 

populations, or both.46 The Commission 

believes that certification by the CDFI 

Fund is an appropriate definition for the 

entities whose transactions may be 

exempt from the Clearing Requirement. 

Request for Comment. The 

Commission seeks comment on this 

definition. 

C. Proposed Exemptions From the 

Clearing Requirement for Certain Bank 

Holding Companies, Certain Savings 

and Loan Holding Companies and 

Community Development Financial 

Institutions 

The Commission proposes to exempt 

from the Clearing Requirement swaps 

entered into with bank holding 

companies, savings and loan holding 

companies, and community 

development financial institutions as 

defined in proposed Commission 

regulation 50.5(a) from the Clearing 

Requirement.47

1. Certain Bank Holding Companies and 

Savings and Loan Holding Companies 

The Commission proposes to add a 

new paragraph (e) to Commission 

regulation 50.5 exempting certain swaps 

entered into with bank holding 

companies or savings and loan holding 

companies from the Clearing 

Requirement under regulation 50.2. The 

Commission believes these entities 

generally enter into interest rate swaps 

to hedge interest rate risk that they incur 

as a result of making loans or issuing 

debt securities, the proceeds of which 

are generally used to finance their 

subsidiaries, which are themselves 

small financial institutions.48

The Commission believes that the 

bank holding companies and savings 

and loan holding companies that meet 

the conditions of CFTC Letter No. 16– 

01, and which would meet the 

requirements of proposed Commission 

regulation 50.5(e), enter into swaps to 

hedge risk from financing transactions 

infrequently and have relatively low 

notional volume swap books.49 Since 

the issuance of CFTC Letter No. 16–01, 

five bank holding companies and two 

domestic financial holding companies 50

submitted forms to the Depository Trust 

& Clearing Corporation’s (DTCC’s) swap 

data repository, DTCC Data Repository 

(DDR), indicating they would elect the 

end-user exception for interest rate 

swaps between June 2016 and June 

2018. Between January 1, 2017 and 

December 31, 2017, one bank holding 

company executed ten interest rate 

swaps with an aggregate notional value 

of $43.6 million, and a second bank 

holding company executed one interest 

rate swap with a notional value of $25 

million. Nine entities submitted an enduser form to DDR between June 2016 

and June 2018 indicating they would be 

electing the end-user exception for 

credit default swaps.51 However, the 

data indicates that no credit default 

swaps were executed between January 

1, 2017 and December 31, 2017. 

The Commission believes that bank 

holding companies and savings and 

loan holding companies with 

consolidated assets of no more than $10 

billion should be considered to be 

sufficiently similar to the type of nonfinancial entity Congress was 

considering when it directed the 

Commission to consider an exemption 

from the Clearing Requirement for small 

banks and savings associations.52

Accordingly, the Commission is 

proposing to require in new regulation 

(e)(1) that bank holding companies and 

savings and loan holding companies be 

subject to the same asset cap as small 

financial institutions. New paragraph 

(e)(1) would require that a bank holding 

company or savings and loan holding 

company have aggregated assets, 

including the assets of all its 

subsidiaries, not exceeding $10 billion 

according to the value of assets of each 

subsidiary on the last day of each 

subsidiary’s most recent fiscal year. 

The Commission preliminarily 

believes there is less counterparty risk 

with transactions entered into with bank 

holding companies and savings and 

loan holding companies that have no 

more than $10 billion in consolidated 

assets because the Commission 

understands that these entities generally 

enter into swaps with a notional amount 

of $10 million or less.53 The 

Commission believes it is appropriate to 

adopt the same limitation on asset size 

for bank holding companies and savings 

and loan holding companies as the 

Commission determined was 

appropriate for small financial 

institutions in the 2012 End-User 

Exception final rule.54 Congress 

determined that the Commission should 

base its determination of whether a bank 

or savings association is ‘‘small’’ on a 

$10 billion asset level.55 In adopting the 

cap of $10 billion for small banks and 

savings associations, the Commission 

made the policy decision not to exempt 

institutions with substantially higher 

total asset amounts, such as $30 billion, 

$50 billion, or higher levels because it 

believed that Congress has identified 


sradovich on DSK3GMQ082PROD with PROPOSALS
44006 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 

56 Id. 

57 Id. 

58See CFTC Letter No. 16–01, at 3. 

59See Section 2(h)(7)(A) of the CEA. 

60See CFTC Letter No. 16–02, at 2. 

61 Id. 62 77 FR at 42578. 

large financial institutions as more 

likely to cause systemic risk and 

directed prudential regulators to 

consider prudential standards for 

‘‘large’’ institutions having assets of $50 

billion or more.56 The Commission 

rejected the $30 billion asset level since 

it was three times greater than the level 

Congress identified as indicative of a 

‘‘small’’ financial institution.57

Therefore, the proposed exemption is 

would apply to bank holding companies 

and savings and loan holding 

companies with no more than $10 

billion in consolidated assets, meaning 

that the aggregate value of the assets of 

all of the bank holding company’s or 

savings and loan holding company’s 

subsidiaries on the last day of each 

subsidiary’s most recent fiscal year, do 

not exceed $10 billion. 

As with other exemptions under 

Commission regulation 50.5, the 

Commission is proposing in new 

regulation 50.5(e)(2) that the exemption 

be available only if the swap is reported 

to an SDR pursuant to regulations 45.3 

and 45.4 of this chapter. The 

Commission is additionally proposing 

that the bank holding companies and 

savings and loan holding companies 

subject to this proposal be required to 

report the information described in 

regulation 50.50(b) to an SDR. 

Commission regulation 50.50(b) requires 

a counterparty to notify the Commission 

that a swap is not subject to the Clearing 

Requirement and to indicate how the 

electing counterparty generally meets its 

financial obligations associated with its 

non-cleared swaps. The Commission 

believes that the reporting requirements 

are appropriate so it can verify that the 

exemption from the Clearing 

Requirement is being used in the way 

the Commission intended and track the 

entities using the Clearing Requirement 

exemption. 

The Commission also proposes in 

new 50.5(e)(3) that only swaps used to 

hedge or mitigate commercial risk, as 

defined under regulation 50.50(c) of this 

part, may be exempt from the Clearing 

Requirement. The Commission believes 

this limitation appropriately reflects 

how these entities use swaps.58

Moreover, it reflects the Commission’s 

2012 policy determination and 

Congress’s determination that 

transactions with similar entities (such 

as those entered into by small banks, 

savings associations, farm credit system 

institutions, and credit unions) should 

be exempt from the Clearing 

Requirement if the transactions are used 

for hedging and not speculation, as long 

as the swap is reported to an SDR.59 In 

that regard, the Commission believes 

that the extension of that policy to bank 

holding companies and savings and 

loan holding companies subject to the 

proposed regulation is appropriate and 

consistent with Congressional intent. 

Request for Comment. The 

Commission requests comment on the 

proposed exemption from the Clearing 

Requirement for swaps entered into by 

certain bank holding companies and 

savings and loan holding companies 

with total consolidated assets of no 

more than $10 billion. Is such an 

exemption appropriate? Does such an 

exemption pose any risks to the swap 

markets or the financial system, and if 

so, what are those risks? Should the 

Commission clarify or modify the 

definitions included in the proposed 

rules? If so, what specific modifications 

are appropriate or necessary? 

2. Community Development Financial 

Institutions 

Proposed regulation 50.5(f) would 

exempt swap transactions entered into 

with a community development 

financial institution from the Clearing 

Requirement. The Commission believes 

that these entities only enter into 

limited interest rate swaps in the fixedto-floating swap class and forward rate 

agreement class to hedge interest rate 

risk incurred as a result of issuing debt 

securities or making loans in pursuit of 

their organizational missions.60 As 

such, the Commission believes there are 

public interest benefits that may be 

served by permitting community 

development financial institutions to 

engage in tailored and limited swaps to 

pursue their public interest goals 

without the expense of posting margin 

to a DCO, and the cost of initial and 

annual fixed clearing fees and other 

expenses. The Commission believes that 

the community development financial 

institutions that meet the conditions of 

CFTC Letter No. 16–02, and which 

would meet the requirements of 

proposed Commission regulation 

50.5(f), enter into swaps to hedge risk 

from financing transactions infrequently 

and have relatively low notional volume 

swap books.61

Since the issuance of CFTC Letter No. 

16–02, five community development 

financial institutions submitted forms to 

DTCC’s swap data repository, DDR, 

indicating they would elect the end-user 

exception for interest rate swaps 

between June 2016 and June 2018. 

Between January 1, 2017 and June 29, 

2018, three community development 

financial institutions executed interest 

rate swaps: One executed two swaps 

with an aggregate notional value of $5.6 

million; another executed three swaps 

with an aggregate notional value of $116 

million; and another executed three 

swaps with an aggregate notional value 

of $130 million. 

The Commission believes that 

community development financial 

institutions should be considered to be 

sufficiently similar to the type of nonfinancial entities Congress was 

considering when it directed the 

Commission to consider an exemption 

from the Clearing Requirement for small 

banks and savings associations.62

As with the proposed exemptions 

discussed above for bank holding 

companies and savings and loan 

holding companies, the Commission is 

proposing in new regulation 50.5(f)(1) 

that the exemption be available only if 

the swap is reported to an SDR pursuant 

to regulations 45.3 and 45.4 of this 

chapter, and if all information in 

regulation 50.50(b) is reported to an 

SDR. Commission regulation 50.50(b) 

requires a counterparty to notify the 

Commission that a swap is not subject 

to the Clearing Requirement and to 

indicate how the electing counterparty 

generally meets its financial obligations 

associated with its non-cleared swaps. 

The Commission believes that the 

additional reporting requirement is 

appropriate so it can verify that the 

exemption from the Clearing 

Requirement is being used in the way 

the Commission intended and track 

which entities are using the Clearing 

Requirement exemption. 

The Commission proposes to require 

in new regulation 50.5(f)(2)–(5) four 

additional requirements for swaps 

entered into with a community 

development financial institution: (1) 

The swap is an interest rate swap in the 

fixed-to-floating swap class or the 

forward rate agreement class, 

denominated in U.S. dollars, that would 

otherwise be subject to the Clearing 

Requirement; (2) the total aggregate 

notional value of the interest rate swaps 

and forward rate agreements entered 

into by each community development 

financial institution is no more than 

$200 million per year; (3) a community 

development financial institution may 

enter into no more than ten swap 

transactions as outlined above per year; 

and (4) the swap is used to hedge or 

mitigate commercial risk, as defined 

under Commission regulation 50.50(c). 

These conditions generally track the 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 44007 

63Between June 2016 and June 2018, five 

community development financial institutions 

submitted a form to DTTC’s SDR indicating they 

would elect the end-user exception. Three 

community development financial institutions 

entered into eight interest rate swaps using the 

exception. 

64See CDFI Program and NACA Program 

Awardees: A Snapshot in 2015, slide 4, ‘‘Asset Size 

by Institution Type in 2015,’’ prepared by the CDFI 

Fund (August 2017), available at: https://

www.cdfifund.gov/news-events/news/Pages/newsdetail.aspx?NewsID=271&Category=

Press%20Releases. 

65Section 4(c)(1) of the CEA, provides that in 

order to promote responsible economic or financial 

innovation and fair competition, the Commission 

by rule, regulation, or order, after notice and 

opportunity for hearing, may (on its own initiative 

or on application of any person) exempt any 

agreement, contract, or transaction (or class thereof) 

that is otherwise subject to section 4(a) either 

unconditionally or on stated terms or conditions or 

for stated periods and either retroactively or 

prospectively, or both, from any of the requirements 

of section 4(a), or from any other provision of the 

CEA. The Commission is proposing to promulgate 

the proposed exemptive rule pursuant to sections 

4(c)(1) and 8a(5) of the CEA. 

66H.R. Rep. No. 102–978, 102d Cong. 2d Sess. At 

81 (Oct. 2, 1992), reprinted in 1992 U.S.C.C.A.N. 

3179, 3213. 

67See Section 2(h)(7)(C)(ii) of the CEA. 

68While some community development financial 

institutions may be depository institutions, for 

purposes of the proposed exemption, these entities 

are acting under the auspices of their CDFI Fund 

certification. 

69See 2012 End-User Exception final rule, 77 FR 

at 42578. 

70See CFTC Letter No. 16–01, at 3; CFTC Letter 

No. 16–02, at 2. 

conditions in CFTC Letter No. 16–02, 

including that the exempted swaps are 

used to hedge or mitigate commercial 

risk. 

The Commission believes the 

requirements in proposed regulation 

50.5(f)(2)–(5) properly circumscribe the 

transactions into which these 

community development financial 

institutions may enter while providing 

these institutions with the flexibility to 

enter into swaps that will contribute to 

their ability to carry on their mission.63

By limiting the product scope to U.S. 

dollar interest rate swaps in the fixedto-floating swap class and forward rate 

agreement class, the Commission is 

recognizing the need to hedge or 

mitigate the interest rate risk of the 

loans, investments, and financial 

services provided by community 

development financial institutions to 

the target populations. In addition, the 

Commission preliminarily believes that 

limiting the total aggregate notional 

value of all interest rate swaps and 

forward rate agreements entered into 

during the twelve-month calendar year 

to less than or equal to $200 million is 

consistent with its policy that the swaps 

be used to hedge or mitigate commercial 

risk. In that same regard, the 

Commission believes the limitation of 

no more than 10 swaps per year that 

meet the other criteria also prevents 

these entities from arbitrarily increasing 

the number of swap transactions into 

which they enter. 

Request for Comment. The 

Commission requests comment on 

whether it is in the public interest to 

exempt swap transactions entered into 

by community development financial 

institutions from the Clearing 

Requirement. The Commission is not 

proposing an asset cap at this time 

because the Commission believes that 

no community development financial 

institution certified by the CDFI Fund 

has consolidated assets greater than $10 

billion.64 Should the Commission 

consider an asset cap such that 

transactions entered into with a 

community development financial 

institution would not be exempt from 

the Clearing Requirement if the 

community development financial 

institution had aggregated assets in 

excess of the cap? Why or why not? If 

yes, should the cap be $10 billion, as 

with certain bank holding companies 

and savings and loan holding 

companies, or another amount? The 

Commission also requests comment on 

the proposed limitations and proposed 

alternatives, if any. 

D. The Commission’s Section 4(c) 

Authority 

Section 4(c)(1) of the CEA empowers 

the Commission to promote responsible 

economic or financial innovation and 

fair competition by exempting any 

transaction or class of transactions, 

including swaps, from any of the 

provisions of the CEA (subject to 

exceptions not relevant here).65 In 

enacting CEA section 4(c)(1), Congress 

noted that the goal of the provision ‘‘is 

to give the Commission a means of 

providing certainty and stability to 

existing and emerging markets so that 

financial innovation and market 

development can proceed in an effective 

and competitive manner.’’ 66 Section 

4(c)(2) of the CEA further provides that 

the Commission may not grant 

exemptive relief unless it determines 

that: (A) The exemption is consistent 

with the public interest and purposes of 

the CEA; and (B) the transaction will be 

entered into solely between 

‘‘appropriate persons’’ and the 

exemption will not have a material 

adverse effect on the ability of the 

Commission or any contract market to 

discharge its regulatory or selfregulatory responsibilities under the 

CEA. 

The Commission believes that it 

would be consistent with the public 

interest and the purposes of the CEA to 

exempt from the Clearing Requirement 

swap transactions entered into with 

certain bank holding companies, savings 

and loan holding companies, and 

community development financial 

institutions as discussed above. In 

enacting the Dodd-Frank Act, Congress 

recognized that it may be appropriate 

for the Commission to exempt 

transactions entered into with certain 

small financial institutions from the 

Clearing Requirement. The Commission 

was directed to consider whether to 

exempt these small financial 

institutions from the definition of 

‘‘financial entity’’ for purposes of the 

End-User Exception.67

Because they are not depository 

institutions, bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions are not eligible for the 

exemption from the financial entity 

definition.68 The Commission believes, 

however, that the same policy reasons 

that Congress considered in directing 

the Commission to consider exempting 

swaps entered into with small financial 

institutions from the ‘‘financial entity’’ 

definition, making them eligible for the 

End-User Exception, support an 

exemption for certain swap transactions 

entered into with certain bank holding 

companies, savings and loan association 

holding companies, and community 

development financial institutions. The 

Commission preliminarily believes 

these entities tend to serve smaller, local 

markets and that the swaps executed by 

these entities likely hedge interest rate 

risk associated with financing in the 

same way as small financial institutions 

use swaps exempt from the Clearing 

Requirement through the End-User 

Exception to hedge the interest rate risk 

of commercial loans.69

Based on the representations of 

market participants, the Commission 

also believes the bank holding 

companies, savings and loan holding 

companies, and community 

development financial institutions 

subject to the proposed regulation 

would tend to enter into swaps that 

have smaller notional amounts.70 While 

the Commission believes these entities 

use swaps infrequently, the Commission 

recognizes that these entities may 

choose to enter into more swaps to 

hedge against rising interest rates. The 

Commission believes that swaps are an 

important risk management tool and 

that these small entities should be 

afforded the means to hedge their 

capital costs economically in order to 

promote the public interest objectives of 


sradovich on DSK3GMQ082PROD with PROPOSALS
44008 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 

71The 2012 End-User Exception final rule’s cost 

estimate for clearing related costs pursuant to the 

End-User Exemption (‘‘institutions will spend 

between $2,500 and $25,000 in legal fees related to 

reviewing and negotiating clearing-related 

documentation, and . . . a minimum of between 

$75,000 and $125,000 per year on fees paid to each 

[futures commission merchant] with which it 

maintains a relationship’’). See 77 FR at 42577 n.74. 

72CFTC Letter No. 16–01, at 3. 

73Section 2(e) of the CEA limits non-ECPs to 

executing swaps transactions on DCMs and section 

5(d)(11)(A) of the CEA requires all DCM 

transactions to be cleared. Accordingly, the two 

provisions read together only permit ECPs to 

execute uncleared swap transactions. 

74Commission regulation 23.150(b)(1). 

75Public Law 114–1, 129 Stat. 3. 

76Commission regulation 23.150(b)(2) provides 

that certain cooperative entities that are exempt 

from the Commission’s clearing requirement 

pursuant to section 4(c)(1) authority also are exempt 

from the initial and variation margin requirements. 

None of the entities included in this proposal is a 

cooperative that would meet the conditions in 

Commission regulation 23.150(b)(2). In addition, 

the regulation 23.150(b)(3), which pertains to 

affiliated entities, does not apply in this context. 

smaller financial institutions serving 

smaller, local markets. The Commission 

believes that an exemption from the 

Clearing Requirement may promote 

responsible economic or financial 

innovation and fair competition because 

there appears to be substantial fixed 

costs associated with clearing swaps. 

For these entities, the Commission 

believes that the cost of clearing may be 

particularly costly (on a per-swap basis) 

in light of the small number of trades.71

The Commission requests updated 

information on the clearing related costs 

for small entities. 

Based on the discussion above, the 

Commission preliminarily believes that 

an exemption from the Clearing 

Requirement for these small entities 

should lower the cost of financing 

which, in turn, should enable these 

entities to better manage their financing 

risks and provide cost-effective loans to 

their subsidiaries, and small and middle 

market businesses. Additionally, the 

Commission also believes that the 

interest rate swaps may need to be 

entered into by the bank holding 

company or savings and loan holding 

company, rather than the subsidiary, in 

order to gain hedge accounting 

treatment which may promote 

efficiencies to benefit their 

subsidiaries.72 Accordingly, while bank 

holding companies and savings and 

loan holding companies are not 

depository institutions and do not 

themselves issue commercial loans, the 

Commission preliminarily believes that 

the exemption would ultimately support 

the commercial lending and depository 

activities of their subsidiaries. 

The Commission believes that the 

proposed amendments to the Clearing 

Requirement would be available only to 

‘‘appropriate persons.’’ Section 4(c)(3) of 

the CEA includes within the term 

‘‘appropriate person’’ a number of 

specified categories of persons, 

including among others, banks, savings 

associations and such other persons that 

the Commission determines to be 

appropriate in light of their financial or 

other qualifications, or the applicability 

of appropriate regulatory protections. 

Sections 2(e) and 5(d)(11)(A) of the CEA 

provide that only eligible contract 

participants (ECPs) may enter into 

uncleared swaps.73 The Commission 

believes the bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions subject to this proposed 

regulation are ECPs pursuant to section 

1a(18)(A)(i) of the CEA. Because the ECP 

definition is generally more restrictive 

than the comparable elements of the 

enumerated ‘‘appropriate person’’ 

definition, the Commission believes that 

the class of persons eligible to rely on 

the proposed exemptions will be limited 

to ‘‘appropriate persons’’ within the 

scope of section 4(c) of the CEA. 

The Commission notes that certain 

bank holding companies, savings and 

loan holding companies, and 

community development financial 

institutions have not been clearing 

certain swaps covered by the Clearing 

Requirement in reliance on the DCR no 

action letters. The Commission is not 

aware of any increase in counterparty 

risk attributable to the affected entities’ 

reliance on the no-action letters. The 

proposed exemptions from the Clearing 

Requirement are limited in scope and, 

as described further below, the 

Commission will continue to have 

access to information regarding the 

swaps subject to this exemption because 

they will be reported to an SDR as 

required by existing Commission 

regulation 50.50. In addition, the 

Commission retains its special call, antifraud, and anti-evasion authorities, 

which will enable it to adequately 

discharge its regulatory responsibilities 

under the CEA. The Commission 

therefore preliminarily believes the 

exemption would not have a material 

adverse effect on the ability of the 

Commission to discharge its regulatory 

responsibilities under the CEA. 

For the reasons described in this 

proposal, the Commission believes it 

would be appropriate and consistent 

with the public interest to amend 

Commission regulation 50.5 as 

proposed. 

Request for Comment. The 

Commission requests general comments 

regarding the proposal and on whether 

the proposed amendments to regulation 

50.5 would be an appropriate exercise of 

the Commission’s authority under CEA 

section 4(c), including whether the 

proposed exemptions promote the 

public interest. Are there any entities 

covered by this proposed rulemaking 

that would not be ‘‘appropriate persons’’ 

under section 4(c)(3) of the CEA? 

Additionally, the Commission requests 

comment on whether the proposed 

exemptions provide certainty and 

stability to existing and emerging 

markets so that financial innovation and 

market development can proceed in an 

effective and competitive manner. 

III. Proposed Rules Do Not Effect 

Margin Requirements for Uncleared 

Swaps 

Under Commission regulation 

23.150(b)(1), the margin requirements 

for uncleared swaps under Part 23 of the 

Commission’s regulations do not apply 

to a swap if the counterparty qualifies 

for an exception from clearing under 

section 2(h)(7)(A) and implementing 

regulations.74 Commission regulation 

23.150(b) was added to the final margin 

rules after the Terrorism Risk Insurance 

Program Reauthorization Act of 2015 

(TRIPRA) 75 amended section 731 of the 

Dodd-Frank Act by adding section 

4s(e)(4) to the CEA to provide that the 

initial and variation margin 

requirements will not apply to an 

uncleared swap in which a nonfinancial entity (including a small 

financial institution and a captive 

finance company) qualifies for an 

exception under section 2(h)(7)(A) of 

the CEA, as well as two exemptions 

from the clearing requirement that are 

not relevant in this context.76

The proposed rules are not 

implementing section 2(h)(7)(A) of the 

CEA. The Commission, pursuant to its 

4(c) authority (as discussed above), is 

proposing to exempt swaps entered into 

by certain bank holding companies, 

savings and loan holding companies 

and community development financial 

institutions from the Clearing 

Requirement. The Commission is not 

proposing to exclude these entities from 

the ‘‘financial entity’’ definition of 

section 2(h)(7)(C) of the CEA. Therefore, 

the bank holding companies, savings 

and loan holding companies, and 

community development financial 

institutions under the proposed rules 

are not eligible to elect the End-User 

Exception under Commission regulation 

50.50, and they remain financial entities 

under the definition of section 2(h)(7)(C) 

of the CEA. 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 44009 

77The Commission also preliminarily believes 

that the proposed rules do not affect the margin 

rules for entities that are supervised by the 

prudential regulators. The prudential regulators’ 

rules contain provisions that are identical to 

Commission regulation 23.150. See Margin and 

Capital Requirements for Covered Swap Entities, 80 

FR 74916, 74923 (Nov. 20, 2015). 

78Section 15(a) of the CEA. 

79See Commission regulation 50.50(d). 80Section 2(i) of the CEA. 

For the reasons stated above, the 

proposed rules do not implicate any of 

the provisions of section 4s(e)(4) of the 

CEA or Commission regulation 

23.150.77

IV. Cost-Benefit Considerations 

A. Statutory and Regulatory Background 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders.78 Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of the 

following five broad areas of market and 

public concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations (collectively referred to 

herein as the Section 15(a) Factors). 

The baseline for the Commission’s 

consideration of the costs and benefits 

of this proposed rulemaking is the 

market as it exists under section 2(h)(1) 

of the CEA and existing Commission 

Regulation 50.5. The effect of the 

proposing release is the exemption of 

certain swaps with certain bank holding 

companies, savings and loan holding 

companies, and community 

development financial institutions from 

the Clearing Requirement through new 

proposed regulations 50.5(e) and (f). The 

Commission believes the entities whose 

transactions will be exempted by this 

proposing release are similar to the 

entities that are already exempt by 

Commission regulation 50.50(d) both in 

terms of their operational and business 

practices and their participation in the 

swaps markets.79 Consequently, the 

Commission preliminarily expects the 

effects of the proposed amendments and 

the resulting costs and benefits will 

parallel the considerations of the 2012 

End-User Exception final rule. The 

Commission recognizes that, to the 

extent that market participants have 

relied on CFTC Letter Nos. 16–01 and 

16–02, the actual costs and benefits of 

the proposed rule as realized in the 

market may not be as significant as 

compared to the baseline. The 

Commission has endeavored to assess 

the expected costs and benefits of the 

proposed rule in quantitative terms 

where possible. Where estimation or 

quantification is not feasible, the 

Commission has provided its discussion 

in qualitative terms. 

The Commission notes that the 

consideration of costs and benefits 

below is based on the understanding 

that the markets function 

internationally, with many transactions 

involving U.S. firms taking place across 

international boundaries; with some 

Commission registrants being organized 

outside of the United States; with 

leading industry members typically 

conducting operations both within and 

outside the United States; and with 

industry members commonly following 

substantially similar business practices 

wherever located. Where the 

Commission does not specifically refer 

to matters of location, the below 

discussion of costs and benefits refers to 

the effects of the proposed rule on all 

activity subject to the proposed and 

amended regulations, whether by virtue 

of the activity’s physical location in the 

United States or by virtue of the 

activity’s connection with or effect on 

U.S. commerce under section 2(i) of the 

CEA.80 In particular, the Commission 

notes that some entities affected by this 

proposed rulemaking may be located 

outside of the United States. 

In the sections that follow, the 

Commission considers: (1) The costs 

and benefits of the proposed exemptions 

for certain bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions from the Clearing 

Requirement in Commission Regulation 

50.5, and (2) the impact of the 

exemptions on the Section 15(a) Factors. 

B. Consideration of the Costs and 

Benefits of the Commission’s Action 

1. Costs 

Proposed regulations 50.5(e) and (f) 

would exempt certain swap transactions 

entered into with certain bank holding 

companies, savings and loan holding 

companies, and community 

development financial institutions from 

the Clearing Requirement. By exempting 

transactions with these entities from the 

Clearing Requirement, the Commission 

recognizes that the benefits of central 

clearing will not accrue to swaps 

entered into by these entities. The 

primary cost of the proposed 

exemptions from the Clearing 

Requirement is, therefore, that 

transactions with certain bank holding 

companies and savings and loan 

holding companies, and community 

development financial institutions 

would not be subject to the Clearing 

Requirement. 

In general, the principal risk to the 

financial system that central clearing 

seeks to address is counterparty credit 

risk. A DCO manages this risk by 

collecting initial and variation margin 

from its clearing members. DCOs set 

margin levels and calculate and collect 

variation margin daily as prices move. 

This allows DCOs to mitigate the 

possibility of its default, and to cover 

the losses due to default of a clearing 

member. By exempting transactions 

with these entities from the Clearing 

Requirement, the Commission 

recognizes that the risk-mitigating 

benefits of clearing will not attach to 

those transactions. 

However, the Commission believes 

that the entities covered by the 

proposed exemptions tend to be entities 

that would have relatively modest 

contributions to systemic risk. For 

instance, the Commission believes that 

the bank holding companies and savings 

and loan holding companies subject to 

the proposed regulation generally enter 

into swaps with a notional amount of 

$10 million or less and enter into swaps 

less frequently that other counterparties. 

Under the proposed rule, the exemption 

would only extend to swaps with 

community development financial 

institutions to the extent that they 

engage in swaps within specific product 

classes and the total aggregate notional 

value of all interest rate swaps and 

forward rate agreements entered into 

during a calendar year is less than $200 

million. 

The Commission proposes to require 

counterparties using the proposed 

exemption to comply with Commission 

regulation 50.50(b). Commission 

regulation 50.50(b) requires a 

counterparty to notify the Commission 

that the swap is not subject to the 

Clearing Requirement and to indicate 

how the electing counterparty generally 

meets its financial obligations 

associated with its non-cleared swaps. 

In general, the Commission believes the 

notification will be made by the swap 

dealer (SD). The bank holding 

companies, savings and loan holding 

companies, and community 

development financial institutions 

subject to this proposed regulation 

would provide the notification only for 

those swaps that are not entered into 

with a SD as the counterparty. While the 

Commission anticipates that the number 

of such swaps would be small, there is 

a lack of specific quantitative evidence 

regarding that number. As a practical 

matter, the procedure in proposed 

regulation 50.5 is the same as that 


sradovich on DSK3GMQ082PROD with PROPOSALS
44010 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 

81While the Commission is not proposing a size 

threshold for community development financial 

institutions, the Commission believes, as discussed 

above, that community development financial 

institutions generally fall under the same $10 

billion size threshold. 

82 Id. at 3. 

83 Id. 84See Section 2(h)(7)(C)(ii) of the CEA. 

required under the DCR no-action letter 

currently in effect. For this reason, the 

Commission believes that the practical 

effect of the rule change will not impose 

substantial additional compliance costs 

on these entities. 

The $10 billion cap applied to certain 

bank holding companies and savings 

and loan holding companies is a bright 

line. Due to the nature of using a bright 

line as a threshold, it is possible that 

some entities with attributes similar to 

those exempted entities may not be 

eligible for the exemption.81 It is also 

possible that some bank holding 

companies or savings and loan holding 

companies could make operational and 

business decisions that would allow 

them to qualify for the exemption from 

the Clearing Requirement. However, the 

Commission does not expect that an 

entity will limit its potential revenue in 

order to maintain a smaller size thereby 

permitting it to rely on this proposed 

exemption. 

For these reasons, the costs associated 

with the proposed rule are likely to be 

low. 

Request for Comment. The 

Commission requests comment on 

whether the proposed exemptions for 

certain bank holding companies, savings 

and loan holding companies, and 

community development financial 

institutions from the Clearing 

Requirement would contribute to 

systemic risk. The Commission requests 

comment, including any analysis, on the 

number of bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions would rely on the proposed 

exemption. The Commission also 

requests comment, including any 

analysis, on the number of bank holding 

companies, savings and loan holding 

companies, and community 

development financial institutions that 

have exercised an election not to clear 

swaps pursuant to the DCR no-action 

letters. The Commission requests 

comment, including any available 

quantitative data and analysis, of the 

swap trading behavior of these entities. 

2. Benefits 

Certain bank holding companies, 

savings and loan holding companies, 

and community development financial 

institutions would benefit from an 

exemption from the Clearing 

Requirement for their transactions used 

to hedge interest rate risk because 

project financing and risk management 

transactions with these entities would 

not be subject to the Clearing 

Requirement or have the added expense 

of required clearing. The Commission 

believes the financial system benefits 

from having the bank holding 

companies and savings and loan 

holding companies subject to this 

proposal enter into interest rate swaps 

to hedge interest rate risk they incur as 

a result of issuing debt securities or 

making loans to finance their subsidiary 

banks or savings associations. The 

Commission also preliminarily believes 

that the interest rate swaps may need to 

be entered into by the bank holding 

company or savings and loan holding 

company, rather than the subsidiary, in 

order to gain hedge accounting 

treatment that may promote efficiencies 

to benefit their subsidiaries.82 The 

Commission preliminarily believes that 

costs of clearing for community 

development financial institutions are 

similar to those faced by small financial 

institutions and the benefits that 

community development financial 

institutions bring to communities may 

be significant.83 The Commission 

believes that small communities and 

certain target populations will benefit 

from the proposed exemptions through 

cost savings by not having to clear a 

swap. 

Request for Comment. The 

Commission requests comment on the 

benefits of providing an exemption from 

the Clearing Requirement to certain 

bank holding companies, savings and 

loan holding companies, and 

community development financial 

institutions as discussed above. In 

particular, the Commission is interested 

in quantitative data on the magnitude of 

the costs savings from the exemption, 

and how these lower costs might affect 

the entities’ behavior. 

C. Section 15(a) Factors 

The discussion that follows 

supplements the related costs and 

benefit considerations addressed in the 

preceding section and addresses the 

overall effect of the proposed rule in 

terms of the factors set forth in section 

15(a) of the CEA. 

1. Protection of Market Participants and 

the Public 

Section 15(a)(2)(A) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of considerations of 

protection of market participants and 

the public. In developing the proposed 

rule, the Commission was cognizant that 

in enacting the Dodd-Frank Act, 

Congress directed the Commission to 

consider an exemption from the 

definition of ‘‘financial entity,’’ and 

therefore an exemption from the 

Clearing Requirement, for small banks, 

savings associations, farm credit system 

institutions, and credit unions.84 The 

extension of similar regulatory 

treatment to swaps entered into by 

certain bank holding companies, savings 

and loan holding companies, and 

community development financial 

institutions makes the Commission’s 

policy consistent with the existing 

exemption granted for small depository 

institutions by section 2(h)(7)(C)(ii) and 

Commission regulation 50.50(d). 

Like the financial institutions listed in 

section 2(h)(7)(C)(ii), the Commission 

believes these entities are likely to have 

limited swap exposure, both in terms of 

value and number. As such, the 

Commission preliminarily believes the 

exemption will have a minimal impact 

on market participants. In addition, 

counterparties to a swap entered into 

with a bank holding company, savings 

and loan holding company, or 

community development financial 

institution subject to this proposed 

regulation will have some degree of 

protection against default because the 

electing entity is required to indicate 

how it generally meets the financial 

obligations associated with its noncleared swaps as required by 

Commission regulation 50.50(b). This 

will ensure that counterparties are 

aware of the potential exposure each 

transaction may have on the overall risk 

profile of the entities. 

The Commission also preliminarily 

believes that the asset cap for bank 

holding companies and savings and 

loan holding companies whose 

transactions will be subject to an 

exemption from the Clearing 

Requirement, combined with the 

required adherence to the requirements 

of Commission regulation 50.50(b) and 

(c) means the proposed exemptions are 

not likely to pose systemic or significant 

counterparty risk. Therefore, the 

Commission believes the proposed 

exemptions are not likely to have a 

negative impact on market participants 

or the public. 

2. Efficiency, Competitiveness, and 

Financial Integrity of Swap Markets 

Section 15(a)(2)(B) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of efficiency, 

competitiveness, and financial integrity 


sradovich on DSK3GMQ082PROD with PROPOSALS
Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 44011 

85Section 15(b) of the CEA. 

86 5 U.S.C. 601 et seq. 

87 47 FR 18618 (Apr. 30, 1982). 

88See 66 FR 20740, 20743 (Apr. 25, 2001). 

considerations. As noted above, the 

Commission preliminarily believes that 

the proposed amendments to 

Commission regulation 50.5 would 

lower the cost of using swaps for the 

bank holding companies, savings and 

loan holding companies, and 

community development financial 

institutions subject to this proposal, and 

in that sense, make trading more 

efficient. The Commission preliminarily 

believes that because of the small 

number of anticipated entities falling 

under the exemption and the low 

notional value of the swaps they 

execute, there would be a minimal 

impact on the efficiency of the swap 

marketplaces they operate in and the 

financial integrity of the swap markets. 

Consequently, the Commission believes 

the impact of the proposed exemptions 

on the efficiency, competitiveness, and 

financial integrity of the swap markets 

to be negligible. 

3. Price Discovery 

Section 15(a)(2)(C) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of price discovery 

considerations. The Commission 

preliminarily believes that the proposed 

rule will not have a significant impact 

on price discovery. Swap transactions, 

regardless of the counterparty, are 

required by section 2(a)(13)(G) of the 

CEA to be reported to an SDR. 

Moreover, the proposed regulation 

maintains this reporting requirement; 

the price discovery function of the 

reporting requirement to an SDR is 

therefore unchanged. 

4. Sound Risk Management Practices 

Section 15(a)(2)(D) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of sound risk 

management practices. These proposed 

exemptions reflect the Commission’s 

determination that sound public policy 

supports the finding that certain swaps 

entered into by certain bank holding 

companies and savings and loan 

holding companies, and community 

development financial institutions 

subject to this proposal should not be 

subject to the Clearing Requirement. 

This preliminary conclusion is based on 

the Commission’s determination that 

swaps entered into by these entities are 

similar to swaps entered into by the 

small financial institutions set out in 

section 2(h)(7)(C)(ii) of the CEA and 

should be treated in a similar manner. 

The Commission believes that the 

proposed exemptions therefore should 

better serve the financial markets by 

enabling these entities to use swaps for 

hedging purposes at a potentially lower 

cost. Furthermore, the Commission does 

not believe that swap transactions with 

these entities pose risk to the U.S. 

financial markets. As discussed earlier, 

the Commission believes that these 

entities generally use swaps to mitigate 

the interest rate risk exposure associate 

with their financing activities. 

5. Other Public Interest Considerations 

Section 15(a)(2)(E) of the CEA 

requires the Commission to evaluate the 

costs and benefits of a proposed 

regulation in light of other public 

interest considerations. The 

Commission has not identified any 

public interest considerations relevant 

to this proposed rule beyond those 

already noted above. 

D. General Request for Comment 

The Commission requests comment 

on all aspects of the costs and benefits 

relating to the proposed exemption of 

swaps entered into by certain bank 

holding companies, savings and loan 

holding companies, and community 

development financial institutions from 

the Clearing Requirement. The 

Commission requests that commenters 

provide any data or other information 

that would be useful in estimating the 

quantifiable costs and benefits of this 

proposed rulemaking. 

E. Antitrust Considerations 

Section 15(b) of the CEA requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of the CEA, in 

issuing any order or adopting any 

Commission rule or regulation 

(including any exemption under section 

4(c) or 4c(b)), or in requiring or 

approving any bylaw, rule, or regulation 

of a contract market or registered futures 

association established pursuant to 

section 17 of the CEA.85

The Commission believes that the 

public interest to be protected by the 

antitrust laws is generally to protect 

competition. The Commission requests 

comment on whether the proposed rule 

implicates any other specific public 

interest to be protected by the antitrust 

laws. 

The Commission has considered the 

proposed rule to determine whether it is 

anticompetitive and does not anticipate 

that the proposed rule will have any 

anticompetitive effects or result in 

anticompetitive behavior. The 

Commission nevertheless encourages 

comments from the public on any aspect 

of the proposal that may be inconsistent 

with the antitrust laws or 

anticompetitive in nature. For example, 

the Commission is generally interested 

in whether providing this exemption to 

certain bank holding companies, savings 

and loan holding companies, and 

community development financial 

institutions could have anticompetitive 

effects. Accordingly, the Commission 

requests comment on whether the 

proposal in total, or its individual parts, 

could be deemed anticompetitive. 

Because the Commission has 

preliminarily determined that the 

proposed rule is not anticompetitive 

and has no anticompetitive effects, the 

Commission has not identified any less 

anticompetitive means of achieving the 

purposes of the CEA. The Commission 

requests comment on whether there are 

less anticompetitive means of achieving 

the relevant purposes of the CEA that 

would otherwise be served by adopting 

the proposed rule. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires federal agencies to consider 

whether the regulations they propose 

will have a significant impact on a 

substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis on the impact.86 The 

Commission previously has established 

certain definitions of small entities to be 

used in evaluating the impact of its 

regulations on small entities in 

accordance with the RFA.87 The 

proposed regulations will not affect any 

small entities as that term is used in the 

RFA. The proposed rule would affect 

specific counterparties to an uncleared 

swap: Bank holding companies, savings 

and loan holding companies, and 

community development financial 

institutions subject to the proposed 

regulations. Pursuant to sections 2(e) 

and 5(d)(11)(A) of the CEA, only ECPs 

may enter into uncleared swaps. As 

financial institutions, these bank 

holding companies, savings and loan 

holding companies, and community 

development financial institutions are 

ECPs pursuant to CEA section 

1a(18)(A)(i). The Commission 

previously determined that ECPs are not 

small entities for RFA purposes.88

Because ECPs are not small entities, and 

persons not meeting the definition of 

ECP may not conduct transactions in 

uncleared swaps, the Commission need 

not conduct a regulatory flexibility 


sradovich on DSK3GMQ082PROD with PROPOSALS
44012 Federal Register / Vol. 83, No. 168 / Wednesday, August 29, 2018 / Proposed Rules 

89 44 U.S.C. 3507(d). 

90The applicable collections of information are 

‘‘Regulations 45.2. 45.3, and 45.4—Swap Data 

Recordkeeping and Reporting Requirement,’’ OMB 

control number 3038–0086; ‘‘Rule 50.50 End-User 

Notification of Non-Cleared Swaps,’’ OMB control 

number 3038–0085. 

analysis respecting the effect of these 

proposed rules on ECPs. 

Accordingly, this proposed rule will 

not have a significant economic effect of 

any small entity. Therefore, the 

Chairman, on behalf of the Commission, 

hereby certifies pursuant to 5 U.S.C. 

605(b) that the proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 89 imposes certain requirements 

on Federal agencies, including the 

Commission, in connection with their 

conducting or sponsoring any collection 

of information, as defined by the PRA. 

This proposed rulemaking would not 

result in a new collection of information 

from these entities within the meaning 

of the PRA.90

List of Subjects in 17 CFR Part 50 

Business and industry; Swaps. 

For the reasons set for in the 

preamble, the Commodity Futures 

Trading Commission proposes to amend 

part 50 of title 17 of the Code of Federal 

Regulations as follows: 

PART 50—CLEARING REQUIREMENT 

AND RELATED RULES 

■ 1. The authority citation for part 50 is 

revised to read as follows: 

Authority: 7 U.S.C. 2(h), 6(c), and 7a–1 as 

amended by Pub. L. 111–203, 124 Stat. 1376. 

■ 2. In § 50.5, 

■ a. Redesignate paragraphs (a) and (b) 

as paragraphs (b) and (c); 

■ b. Add new paragraph (a); 

■ c. Add and reserve paragraph (d); and 

■ d. Add paragraphs (e) and (f). 

The additions read as follows: 

§ 50.5 Swaps exempt from a clearing 

requirement. 

(a) Definitions. For the purposes of 

§ 50.5: 

Bank holding company means an 

entity that is organized as a bank 

holding company, as defined in section 

2 of the Bank Holding Company Act of 

1956; 

Community development financial 

institution means a community 

development financial institution, as 

defined in section 103(5) of the 

Community Development Banking and 

Financial Institutions Act of 1994, and 

is certified by the U.S. Department of 

the Treasury’s Community Development 

Financial Institution Fund as meeting 

the requirements set forth in 12 CFR 

1805.201(b); 

Savings and loan holding company 

means an entity that is organized as a 

savings and loan holding company, as 

defined in section 10 of the Home 

Owners’ Loan Act of 1933. 

* * * * * 

(d) [Reserved] 

(e) Swaps entered into by a bank 

holding company or savings and loan 

holding company shall be exempt from 

the clearing requirement under § 50.2, 

provided that: 

(1) The bank holding company or 

savings and loan holding company has 

aggregated assets, including the assets of 

all its subsidiaries, that do not exceed 

$10,000,000,000 according to the value 

of assets of each subsidiary on the last 

day of each subsidiary’s most recent 

fiscal year; 

(2) The bank holding company or 

savings and loan holding company 

reports the swap to a swap data 

repository pursuant to §§ 45.3 and 45.4 

of this chapter, and reports all 

information described under § 50.50(b) 

to a swap data repository; and 

(3) The swap is used to hedge or 

mitigate commercial risk, as defined 

under § 50.50(c). 

(f) Swaps entered into by a 

community development financial 

institution shall be exempt from the 

clearing requirement under § 50.2 

provided, that: 

(1) The community development 

financial institution reports the swap to 

a swap data repository pursuant to 

§§ 45.3 and 45.4 of this chapter, and 

reports all information described under 

§ 50.50(b) to a swap data repository; and 

(2) The swap is a U.S. dollar 

denominated interest rate swap in the 

fixed-to-floating class or the forward 

rate agreement class of swaps that 

would otherwise be subject to the 

clearing requirement under § 50.2; 

(3) The total aggregate notional value 

of the interest rate swaps and forward 

rate agreements entered into during the 

twelve-month calendar year is less than 

or equal to $200,000,000; 

(4) The swap is one of ten or fewer 

swap transactions that the community 

development financial institution enters 

into within a twelve-month calendar 

year; and 

(5) The swap is used to hedge or 

mitigate commercial risk, as defined 

under § 50.50(c). 

Issued in Washington, DC, on August 23, 

2018, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Amendments to Clearing 

Exemption for Swaps Entered Into by 

Certain Bank Holding Companies, 

Savings and Loan Holding Companies, 

and Community Development Financial 

Institutions 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Giancarlo and 

Commissioners Quintenz and Behnam voted 

in the affirmative. No commissioner voted in 

the negative. 

Appendix 2—Statement of Chairman J. 

Christopher Giancarlo 

Consistent with the overall goals of Project 

KISS, this proposal would codify 

Commission policy laid out in the preamble 

to the 2012 End-User Exception final rule 

and several staff no-action letters. It will also 

provide clarity and reduce unnecessary 

burdens on bank holding companies and 

savings and loan holding companies with 

consolidated assets of $10 billion or less, and 

certain community development financial 

institutions. 

I want to thank Commission staff for their 

intelligent work on this proposal. I am 

grateful to Commissioners Quintenz and 

Behnam and for their thoughtful input and 

unanimous support. 

[FR Doc. 2018–18618 Filed 8–28–18; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE INTERIOR 

Office of Surface Mining Reclamation 

and Enforcement 

30 CFR Part 943 

[SATS No. TX–068–FOR; Docket ID: OSM– 

2018–0002; S1D1S SS08011000 SX064A000 

189S180110; S2D2S SS08011000 

SX064A000 18XS501520] 

Texas Regulatory Program 

AGENCY: Office of Surface Mining 

Reclamation and Enforcement, Interior. 

ACTION: Proposed rule; public comment 

period and opportunity for public 

hearing on proposed amendment. 

SUMMARY: We, the Office of Surface 

Mining Reclamation and Enforcement 

(OSMRE), are announcing receipt of a 

proposed amendment to the Texas 

regulatory program (Texas program) 

under the Surface Mining Control and 

Reclamation Act of 1977 (SMCRA or the 

Act). Texas proposes revisions to its 

regulations regarding annual permit fees 


sradovich on DSK3GMQ082PROD with PROPOSALS