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

909 

Vol. 78, No. 4 

Monday, January 7, 2013 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (July 21, 2010). 

2 7 U.S.C. 1 et seq. (amended 2010). 

3 7 U.S.C. 2(i). 

4 7 U.S.C. 6s. 

5Examples of section 4s implementing rules that 

become effective for SDs and MSPs at the time of 

their registration include requirements relating to 

swap data reporting (Commission regulation 

23.204) and conflicts of interest (Commission 

regulation 23.605 (c)–(d)). The chief compliance 

officer requirement (Commission regulations 3.1 

and 3.3) is an example of those rules that have 

specific compliance dates. The compliance dates 

are summarized on the Compliance Dates page of 

the Commission’s Web site. (http://www.cftc.gov/ 

LawRegulation/DoddFrankAct/ComplianceDates/ 

index.htm). 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Chapter I 

RIN 3038–AD85 

Further Proposed Guidance Regarding 

Compliance With Certain Swap 

Regulations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Further Proposed Guidance. 

SUMMARY: On July 12, 2012, the 

Commodity Futures Trading 

Commission (‘‘Commission’’ or 

‘‘CFTC’’) published for public comment, 

pursuant to section 4(c) of the 

Commodity Exchange Act (‘‘CEA’’), a 

proposed order (‘‘Proposed Order’’) that 

would grant market participants 

temporary conditional relief from 

certain provisions of the CEA, as 

amended by Title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (‘‘Dodd-Frank Act’’ or 

‘‘Dodd-Frank’’), and the Commission 

also published its proposed interpretive 

guidance and policy statement 

(‘‘Proposed Guidance’’) regarding the 

cross-border application of the swap 

provisions of the CEA as added by Title 

VII of the Dodd-Frank Act. The 

Commission is proposing further 

guidance on certain specific aspects of 

the Proposed Guidance (‘‘Further 

Proposed Guidance’’). The Commission 

has separately determined to finalize the 

Proposed Order. 

DATES: Comments on the Further 

Proposed Guidance must be received on 

or before February 6, 2013. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD85, 

by any of the following methods: 

• Agency Web Site: http:// 

www.cftc.gov. 

• Mail: 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. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow 

instructions for submitting comments. 

All comments must be submitted in 

English, or if not, accompanied by an 

English translation. Comments will be 

posted as received to www.cftc.gov. You 

should submit only information that 

you wish to make available publicly. If 

you wish the Commission to consider 

information that is exempt from 

disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedure established in CFTC 

regulation 145.9 (17 CFR 145.9). 

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 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 Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: 

Carlene S. Kim, Deputy General 

Counsel, (202) 418–5613, 

ckim@cftc.gov, Terry Arbit, Deputy 

General Counsel, (202) 418–5357, 

tarbit@cftc.gov, Mark Fajfar, Assistant 

General Counsel, (202) 418–6636, 

mfajfar@cftc.gov, Office of General 

Counsel; Gary Barnett, Director, 

Division of Swap Dealer and 

Intermediary Oversight, (202) 418–5977, 

gbarnett@cftc.gov; Jacqueline H. Mesa, 

Director, Office of International Affairs, 

(202) 418–5386, jmesa@cftc.gov; 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act,1 which 

amended the CEA 2 to establish a new 

regulatory framework for swaps. The 

legislation was enacted to reduce 

systemic risk, increase transparency, 

and promote market integrity within the 

financial system by, among other things: 

(1) Providing for the registration and 

comprehensive regulation of swap 

dealers (‘‘SDs’’) and major swap 

participants (‘‘MSPs’’); (2) imposing 

clearing and trade execution 

requirements on standardized derivative 

products; (3) creating rigorous 

recordkeeping and data reporting 

regimes with respect to swaps, 

including real-time public reporting; 

and (4) enhancing the Commission’s 

rulemaking and enforcement authorities 

over all registered entities, 

intermediaries, and swap counterparties 

subject to the Commission’s oversight. 

Section 722(d) of the Dodd-Frank Act 

also amended the CEA to add section 

2(i), which provides that the swap 

provisions of the CEA apply to crossborder activities when certain 

conditions are met, namely, when such 

activities have a ‘‘direct and significant 

connection with activities in, or effect 

on, commerce of the United States’’ or 

when they contravene Commission 

rulemaking.3

In the two years since its enactment, 

the Commission has finalized 41 rules 

to implement Title VII of the DoddFrank Act. The finalized rules include 

those promulgated under CEA section 

4s,4 which address registration of SDs 

and MSPs and other substantive 

requirements applicable to SDs and 

MSPs. Notably, many section 4s 

requirements applicable to SDs and 

MSPs are tied to the date on which a 

person is required to register, unless a 

later compliance date is specified.5 A 

number of other rules specifically 


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910 Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Proposed Rules 

6These include rules under CEA section 4s(e), 7 

U.S.C. 6s(e) (governing capital and margin 

requirements for SDs and MSPs). 

7 ‘‘Cross-Border Application of Certain Swaps 

Provisions of the Commodity Exchange Act,’’ 77 FR 

41214, Jul. 12, 2012. 

8 7 U.S.C. 1a(49). 

9See ‘‘Further Definition of ‘Swap Dealer,’ 

‘Security-Based Swap Dealer,’ ‘Major Swap 

Participant,’ ‘Major Security-Based Swap 

Participant’ and ‘Eligible Contract Participant,’ ’’ 77 

FR 30596, May 23, 2012 (‘‘Final Entities Rules’’). 

10 7 U.S.C. 1a(33). 

11 ‘‘Exemptive Order Regarding Compliance With 

Certain Swap Regulations,’’ 77 FR 41110 Jul. 12, 

2012. 

12Some of the commenters submitted a single 

comment letter addressing both the Proposed Order 

and the Proposed Guidance. The comment letters 

submitted in response to the Proposed Order and 

Proposed Guidance may be found on the 

Commission’s Web site at http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=1234. 

Approximately 200 individuals submitted 

substantially identical letters to the effect that 

oversight of the $700 trillion global derivatives 

market is the key to meaningful reform. The letters 

stated that because the market is inherently global, 

risks can be transferred around the world with the 

touch of a button. Further, according to these 

letters, loopholes in the Proposed Guidance could 

allow foreign affiliates of Wall Street banks to 

escape regulation. Lastly, the letters requested that 

the Proposed Guidance be strengthened to ensure 

that the Dodd-Frank derivatives protections will 

directly apply to the full global activities of all 

important participants in the U.S. derivatives 

markets. 

13The records of these meetings and 

communications can be found on the Commission’s 

Web site at: http://cftc.gov/LawRegulation/ 

DoddFrankAct/ExternalMeetings/index.htm. 

14 In addition to differences in the applicable 

statutory provisions, there are also differences in 

the markets and products overseen by each agency, 

which may lead to divergent approaches to crossborder activities. 

15This is one aspect of the Commission’s ongoing bilateral and multilateral efforts to promote 

international coordination of regulatory reform. The 

Commission staff is engaged in consultations with 

Europe, Japan, Hong Kong, Singapore, Switzerland, 

Canada, Australia, Brazil, and Mexico on 

derivatives reform. In addition, the Commission 

staff is participating in several standard-setting 

initiatives, co-chairs the IOSCO Task Force on OTC 

Derivatives, and has created an informal working 

group of derivatives regulators to discuss 

implementation of derivatives reform. See also Joint 

Press Statement of Leaders on Operating Principles 

and Areas of Exploration in the Regulation of the 

Cross-border OTC Derivatives Market, included in 

CFTC Press Release 6439–12, Dec. 4, 2012. 

applicable to SDs and MSPs have been 

proposed but not finalized.6

Further, the Commission published 

for public comment the Proposed 

Guidance,7 which set forth the manner 

in which it proposed to interpret section 

2(i) of the CEA as it applies to the 

requirements under the Dodd-Frank Act 

and the Commission’s regulations 

promulgated thereunder regarding 

cross-border swap activities. 

Specifically, in the Proposed Guidance, 

the Commission described the general 

manner in which it proposed to 

consider: (1) Whether a non-U.S. 

person’s swap dealing activities are 

sufficient to require registration as a 

‘‘swap dealer’’,8 as further defined in a 

joint release adopted by the Commission 

and the Securities and Exchange 

Commission (‘‘SEC’’) (collectively, the 

‘‘Commissions’’); 9 (2) whether a nonU.S. person’s swap positions are 

sufficient to require registration as a 

‘‘major swap participant,’’ 10 as further 

defined in the Final Entities Rules; and 

(3) the treatment of foreign branches, 

agencies, affiliates, and subsidiaries of 

U.S. SDs and of U.S. branches of nonU.S. SDs. The Proposed Guidance also 

generally described the policy and 

procedural framework under which the 

Commission may permit compliance 

with a comparable regulatory 

requirement of a foreign jurisdiction to 

substitute for compliance with the 

requirements of the CEA. Last, the 

Proposed Guidance set forth the manner 

in which the Commission proposed to 

interpret section 2(i) of the CEA as it 

applies to the clearing, trading, and 

certain reporting requirements under 

the Dodd-Frank Act with respect to 

swaps between counterparties that are 

not SDs or MSPs. 

Contemporaneously with the 

Proposed Guidance, the Commission 

published the Proposed Order pursuant 

to section 4(c) of the CEA,11 in order to 

foster an orderly transition to the new 

swaps regulatory regime and to provide 

market participants greater certainty 

regarding their obligations with respect 

to cross-border swap activities during 

the pendency of the Proposed Order. 

The Proposed Order would grant 

temporary relief from certain swap 

provisions of Title VII of the DoddFrank Act. 

The public comment periods on the 

Proposed Order and the Proposed 

Guidance ended on August 13, 2012 and 

August 27, 2012, respectively. The 

Commission received approximately 26 

letters on the Proposed Order and 

approximately 288 letters on the 

Proposed Guidance from a variety of 

market participants and other interested 

parties, including major U.S. and nonU.S. banks and financial institutions 

that conduct global swaps business, 

trade associations, clearing 

organizations, law firms (representing 

international banks and dealers), 

individual citizens, and foreign 

regulators.12 The Commission staff also 

held numerous meetings and 

discussions with various market 

participants, domestic bank regulators, 

and other interested parties to discuss 

the Proposed Order and the Proposed 

Guidance.13

Further, the Commission staff closely 

consulted with the staff of the SEC in an 

effort to increase understanding of each 

other’s regulatory approaches and to 

harmonize the cross-border approaches 

of the two agencies to the greatest extent 

possible, consistent with their 

respective statutory mandates.14 The 

Commission expects that this 

consultative process will continue as 

each agency works towards 

implementing its respective crossborder policy. 

The Commission also recognizes the 

critical role of international cooperation 

and coordination in the regulation of 

derivatives in the highly interconnected 

global market, where risks are 

transmitted across national borders and 

market participants operate in multiple 

jurisdictions. Close cooperative 

relationships and coordination with 

other jurisdictions take on even greater 

importance given that, prior to the 

recent reforms, the swaps market has 

largely operated without regulatory 

oversight and many jurisdictions are in 

differing stages of implementing their 

regulatory reform. To this end, the 

Commission staff has actively engaged 

in discussions with their foreign 

counterparts in an effort to better 

understand and develop a more 

harmonized cross-border regulatory 

framework. The Commission expects 

that these discussions will continue as 

it finalizes the cross-border interpretive 

guidance and as other jurisdictions 

develop their own regulatory 

requirements for derivatives.15

The Commission has determined not 

to take further action on the Proposed 

Guidance at this time. The Commission 

believes it will be beneficial to have 

further consultations with other 

domestic and international regulators in 

an effort to harmonize cross-border 

regulatory approaches prior to taking 

action with respect to the Proposed 

Guidance. The Commission also 

believes that further consideration of 

public comments, including the 

comments that may be received on the 

Further Proposed Guidance regarding 

the Commission’s interpretation of the 

term ‘‘U.S. person,’’ and its guidance 

regarding aggregation for purposes of SD 

registration, will be helpful to the 

Commission in issuing final interpretive 

guidance. 

Nonetheless, the Commission has 

separately determined to finalize the 

Proposed Order as a final, time-limited 

exemptive order (‘‘Final Order’’) that is 

substantially similar to the Proposed 

Order, except for the addition of 

provisions regarding registration and 

certain modifications and clarifications 


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Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Proposed Rules 911 

16See ‘‘Final Exemptive Order Regarding 

Compliance with Certain Swap Regulations,’’ Dec. 

21, 2012. 

17See CFTC Division of Swap Dealer and 

Intermediary Oversight, Re: Time-Limited NoAction Relief: Swaps Only With Certain Persons to 

be Included in Calculation of Aggregate Gross 

Notional Amount for Purposes of Swap Dealer De 

Minimis Exception and Calculation of Whether a 

Person is a Major Swap Participant, No-Action 

Letter No. 12–22, Oct. 12, 2012 (‘‘CFTC Letter No. 

12–22’’). 

18The Commission intends that the Final Order 

is in addition to any no-action relief issued or to 

be issued by the Commission staff. Unless 

specifically provided in any letter providing noaction relief, the Final Order does not limit the 

availability of any no-action relief. 

19 17 CFR 1.3(ggg)(4). 

20Proposed Guidance, 77 FR at 41218–41220. 

Further, where the potential non-U.S. SD’s swap 

obligations are guaranteed by a U.S. person, the 

non-U.S. person would be required to register with 

the Commission as an SD when the aggregate 

notional value of its swap dealing activities (along 

with the swap dealing activities of its non-U.S. 

affiliates that are under common control and also 

guaranteed by a U.S. person) with U.S. persons and 

non-U.S. persons exceeds the de minimis threshold. 

Additionally, the Proposed Guidance clarified that 

a non-U.S. person without a guarantee from a U.S. 

person would not be required to register as an SD 

if it does not engage in swap dealing with U.S. 

persons as part of ‘‘a regular business’’ with U.S. 

persons, even if the non-U.S. person engages in 

dealing with non-U.S. persons. 

21See Final Order paragraph (3). For this purpose, 

the Commission construes ‘‘affiliates’’ to include 

persons under common control as stated in the 

Final Entities Rules with respect to the term ‘‘swap 

dealer,’’ which defines control as ‘‘the possession, 

direct or indirect, of the power to direct or cause 

the direction of the management and policies of a 

person, whether through the ownership of voting 

securities, by contract or otherwise.’’ See Final 

Entities Rules, 77 FR at 30631, fn. 437. 

22Also, under this alternative, a non-U.S. person 

would not be required to include the aggregate 

notional value of swap dealing transactions of any 

of its non-U.S. affiliates under common control 

where the counterparty to such affiliate is also a 

non-U.S. person. 

addressing public comments.16 Under 

the Final Order, a non-U.S. person that 

registers as an SD or MSP may delay 

compliance with certain entity-level 

requirements of the CEA (and 

Commission regulations promulgated 

thereunder), and non-U.S. SDs and 

MSPs and foreign branches of U.S. SDs 

and MSPs may delay compliance with 

certain transaction-level requirements of 

the CEA (and Commission regulations 

promulgated thereunder), subject to 

specified conditions. Recently, the 

Commission staff granted time-limited, 

no-action relief to promote continuity in 

the application of Dodd-Frank 

requirements and facilitate the 

transition to those requirements by 

enabling swap market participants to 

apply a uniform and readily 

ascertainable standard regarding which 

swaps must be included in the 

calculations under the SD and MSP 

definitions.17 The Final Order continues 

that process and furthers the same 

purposes.18

This release sets forth the Further 

Proposed Guidance. 

II. Further Proposed Guidance 

The Commission continues to review 

and consider the comments received on 

the Proposed Guidance, and to discuss 

these issues with domestic and foreign 

regulators. In this process, the 

Commission is considering several 

approaches that may further the 

purposes of the Proposed Guidance, 

which include enabling swap market 

participants to apply a uniform and 

readily ascertainable standard regarding 

which swaps must be included in the 

calculations under the SD and MSP 

definitions. In order to facilitate the 

Commission’s further consideration of 

these issues, the Commission seeks 

comment on the following proposed 

interpretations. 

A. Aggregation of Affiliates’ Swaps for 

Purposes of the De Minimis Test 

Commission regulation 1.3(ggg)(4) 

requires that a person include, in 

determining whether its swap dealing 

activities exceed the de minimis 

threshold, the aggregate notional value 

of swap dealing transactions entered by 

its affiliates under common control.19

Under the Proposed Guidance, a nonU.S. person, in determining whether its 

swap dealing transactions exceed the de 

minimis threshold, would include the 

aggregate notional value of swap dealing 

transactions entered into by its non-U.S. 

affiliates under common control but 

would not include the aggregate 

notional value of swap dealing 

transactions entered into by its U.S. 

affiliates.20 The Final Order provides 

that a non-U.S. person is not required to 

include, in its determination of whether 

it exceeds the de minimis threshold, the 

swap dealing transactions of any of its 

U.S. affiliates, and a non-U.S. person 

that is an affiliate of a person that is 

registered as an SD is not required to 

include in such determination the swap 

dealing transactions of any of its nonU.S. affiliates that engage in swap 

dealing activities, so long as such 

excluded affiliates are either (1) engaged 

in swap dealing activities with U.S. 

persons as of the effective date of the 

Final Order or (2) registered as an SD.21

The Commission also is proposing an 

alternative interpretation of the 

aggregation requirement in Commission 

regulation 1.3(ggg)(4). Under this 

alternative, a non-U.S. person would be 

required, in determining whether its 

swap dealing transactions exceed the de 

minimis threshold, to include the 

aggregate notional value of swap dealing 

transactions entered into by all its 

affiliates under common control (i.e., 

both non-U.S. affiliates and U.S. 

affiliates), but would not be required to 

include in such determination the 

aggregate notional value of swap dealing 

transactions of any non-U.S. affiliate 

under common control that is registered 

as an SD.22

Under the aggregation rule stated in 

Commission regulation 1.3(ggg)(4), any 

affiliate of a person that is registered as 

an SD will also have to register if it 

engages in any swap dealing 

transactions, even if the aggregate 

amount of such swap dealing 

transactions among all the unregistered 

affiliates is below the de minimis 

threshold. Based on comments received, 

the Commission understands that the 

application of this requirement to nonU.S. affiliates of non-U.S. SDs may, in 

certain circumstances, impose 

significant burdens on such non-U.S. 

affiliates without advancing significant 

regulatory interests of the Commission. 

Because the conduct of swap dealing 

business through locally-organized 

affiliates may in some cases be required 

in order to comply with legal 

requirements or business practices in 

foreign jurisdictions, such non-U.S. 

affiliates may be numerous and it would 

be impractical to require all such nonU.S. affiliates to register as SDs. Further, 

the Commission’s interest in registration 

may be reduced for a non-U.S. affiliate 

of a registered non-U.S. SD where the 

non-U.S. affiliate (or group of such 

affiliates) engages in only a small 

amount of swap dealing activity with 

U.S. persons. 

On the other hand, the Commission 

has also considered that given the 

borderless nature of swap dealing 

activities, an SD may conduct swap 

dealing activities through various 

affiliates in different jurisdictions, 

which suggests that its interpretation 

should take into account the applicable 

swap dealing transactions entered by all 

of a non-U.S. person’s affiliates under 

common control worldwide. Otherwise, 

affiliated persons may not be required to 

register solely because their swap 

dealing activities are divided, such that 

each affiliate falls below the de minimis 

level. The Commission is concerned 

that permitting such affiliates whose 

swap dealing activities individually fall 

below the de minimis level, but whose 

swap dealing activities in the aggregate 

exceed the de minimis level, to avoid 

registration as SDs would provide an 

incentive for firms to spread their swap 

dealing activities among several 

unregistered affiliates rather than 

centralize their swap dealing in 


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23See ‘‘Further Definition of ‘Swap,’ ‘SecurityBased Swap,’ and ‘Security-Based Swap 

Agreement’; Mixed Swaps; Security-Based Swap 

Agreement Recordkeeping,’’ 77 FR 48207, 48225 fn. 

185, Aug. 13, 2012. 

24See Proposed Guidance, 77 FR at 41218. 

Specifically, as set forth in the Proposed Guidance, 

the definition of the term ‘‘U.S. person’’ would 

include, but not be limited to: 

(i) Any natural person who is a resident of the 

United States; 

(ii) Any corporation, partnership, limited liability 

company, business or other trust, association, jointstock company, fund or any form of enterprise 

similar to any of the foregoing, in each case that is 

either (A) organized or incorporated under the laws 

of the United States or having its principal place of 

business in the United States (legal entity) or (B) in 

which the direct or indirect owners thereof are 

responsible for the liabilities of such entity and one 

or more of such owners is a U.S. person; 

(iii) Any individual account (discretionary or not) 

where the beneficial owner is a U.S. person; 

(iv) Any commodity pool, pooled account or 

collective investment vehicle (whether or not it is 

organized or incorporated in the United States) of 

which a majority ownership is held, directly or 

indirectly, by a U.S. person(s); 

(v) Any commodity pool, pooled account or 

collective investment vehicle the operator of which 

would be required to register as a commodity pool 

operator under the CEA; 

(vi) A pension plan for the employees, officers or 

principals of a legal entity with its principal place 

of business inside the United States; and 

(vii) An estate or trust, the income of which is 

subject to U.S. income tax regardless of source. 

25Unlimited liability corporations include, solely 

by way of example, entities such as an unlimited 

company formed in the U.K. (see Brian Stewart, 

Doing Business in the United Kingdom 

§ 18.02[2][c]) or an unlimited liability company 

formed under the law of Alberta, British Columbia 

or Nova Scotia (see Richard E. Johnston, Doing 

Business in Canada § 15.04[5]). 

registered firms. Such a result would 

increase systemic risks to U.S. market 

participants and impede the 

Commission’s ability to protect U.S. 

markets. 

The Commission requests comment 

on all aspects of this proposed 

alternative approach. In particular, 

should this interpretation apply to nonU.S. persons that are guaranteed by a 

U.S. person with respect to their swap 

obligations in the same way that it 

applies to non-U.S. persons that are not 

so guaranteed? If so, should the 

Commission continue to construe the 

term ‘‘guarantee’’ for this purpose to 

mean any collateral promise by a 

guarantor to answer for the debt or 

obligation of an obligor under a swap? 23

Should the term ‘‘guarantee’’ include 

arrangements such as keepwells and 

liquidity puts? 

Would it be appropriate that non-U.S. 

persons are not required to include in 

the de minimis calculation the swap 

dealing transactions of their U.S. 

affiliates under common control? 

Alternatively, should non-U.S. persons 

be permitted to exclude from the de 

minimis calculation the swap dealing 

transactions of their U.S. affiliates under 

common control that are registered as 

SDs? 

To the extent that the Commission 

adopts a final interpretation that does 

not require a person to include the swap 

dealing activities of one or more of its 

affiliates under common control in its 

determination of whether its swap 

dealing activity exceeds the de minimis 

threshold, the Commission is interested 

in commenters’ views as to whether a 

person engaged in swap dealing 

activities could take advantage of such 

an interpretation to spread its swap 

dealing activities into multiple affiliates, 

each under the de minimis threshold, 

and therefore avoid the registration 

requirement, even though its aggregate 

level of swap dealing by the affiliates 

exceeds the de minimis threshold. 

Accordingly, if the Commission were to 

adopt such an interpretation with 

respect to aggregation, should the 

Commission include any conditions or 

limits in any such interpretation on the 

overall amount of swap dealing engaged 

in by unregistered persons within an 

affiliated group? 

B. Definition of ‘‘U.S. Person’’ 

As noted above, in the Proposed 

Guidance the term ‘‘U.S. person’’ would 

be defined by reference to the extent to 

which swap activities or transactions 

involving one or more such persons 

have the relevant connection with 

activities in, or effect on, U.S. 

commerce.24 That is, the term ‘‘U.S. 

person’’ identifies those persons whose 

swap activities—either individually or 

in the aggregate—satisfy the 

jurisdictional nexus under section 2(i) 

of the CEA. 

The Commission is proposing 

alternatives for two ‘‘prongs’’ of the 

proposed definition of the term ‘‘U.S. 

person’’ in the Proposed Guidance: 

Prong (ii)(B), which relates to U.S. 

owners that are responsible for the 

liabilities of a non-U.S. entity; and 

prong (iv), which relates to commodity 

pools and funds with majority-U.S. 

ownership. 

The Commission’s proposed 

alternative version of prong (ii)(B) 

would limit its scope to a legal entity 

that is directly or indirectly majorityowned by one or more natural persons 

or legal entities that meet prong (i) or (ii) 

of the definition of the term ‘‘U.S. 

person’’ in the Final Order, in which 

such U.S. person(s) bears unlimited 

responsibility for the obligations and 

liabilities of the legal entity. This 

alternative prong (ii)(B) would not 

include an entity that is a limited 

liability company or limited liability 

partnership where partners have limited 

liability. Further, the majorityownership criterion would avoid 

capturing those legal entities that have 

negligible U.S. ownership interests. 

Unlimited liability corporations where 

U.S. persons have majority ownership 

and where such U.S. persons have 

unlimited liability for the obligations 

and liabilities of the entity would be 

covered under this alternative to prong 

(ii)(B).25

The alternative prong (ii)(B) would be 

as follows: 

(ii) A corporation, partnership, limited 

liability company, business or other trust, 

association, joint-stock company, fund or any 

form of enterprise similar to any of the 

foregoing, in each case that is either (A) 

organized or incorporated under the laws of 

a state or other jurisdiction in the United 

States or having its principal place of 

business in the United States or (B) directly 

or indirectly majority-owned by one or more 

persons described in prong (i) or (ii)(A) and 

in which such person(s) bears unlimited 

responsibility for the obligations and 

liabilities of the legal entity (other than a 

limited liability company or limited liability 

partnership where partners have limited 

liability); 

This alternative proposed prong 

would treat an entity as a U.S. person 

if one or more of its U.S. majority 

owners has unlimited responsibility for 

losses of, or nonperformance by, the 

entity. This would reflect that when the 

structure of an entity is such that the 

U.S. direct or indirect owners are 

ultimately liable for the entity’s 

obligations and liabilities, the 

connection to activities in, or effect on, 

U.S. commerce satisfies the requisite 

jurisdictional nexus. This ‘‘lookthrough’’ requirement also would serve 

to prevent persons from creating such 

indirect ownership structures for the 

purpose of evading the Dodd-Frank 

regulatory regime. However, this 

alternative proposed prong would not 

cover a legal entity organized or 

domiciled in a foreign jurisdiction 

simply because the entity’s swap 

obligations are guaranteed by a U.S. 

person. 

The Commission requests comment 

on all aspects of this alternative prong 

(ii)(B). 

With respect to prong (iv) of the 

definition of the term ‘‘U.S. person’’ in 

the Proposed Guidance, which relates to 

majority direct- or indirect-owned 

commodity pools, pooled accounts, or 

collective investment vehicles, the 

Commission is proposing an alternative 

under which any commodity pool, 

pooled account, investment fund or 

other collective investment vehicle 

would be deemed a U.S. person if it is 


wreier-aviles on DSK7SPTVN1PROD with 
Federal Register / Vol. 78, No. 4 / Monday, January 7, 2013 / Proposed Rules 913 

26See Letter from Security Industry and Financial 

Markets Association (Aug. 27, 2012) at A–20. 

(directly or indirectly) majority-owned 

by one or more natural persons or legal 

entities that meet prong (i) or (ii) of the 

definition of the term ‘‘U.S. person’’ in 

the Final Order. For purposes of this 

alternative prong (iv), majority-owned 

would mean the beneficial ownership of 

50 percent or more of the equity or 

voting interests in the collective 

investment vehicle. The alternative 

prong (iv) would include a minor 

modification to clarify that it applies 

regardless of whether the collective 

investment vehicle is organized or 

incorporated in the United States. 

Similar to the alternative prong (ii)(B) 

discussed above, the collective 

investment vehicle’s place of 

organization or incorporation would not 

be determinative of its status as a U.S. 

person. 

The alternative prong (iv) would 

clarify that a pool, fund, or other 

collective investment vehicle that is 

publicly traded will be deemed a U.S. 

person only if it is offered, directly or 

indirectly, to U.S. persons. This would 

address concerns expressed by 

commenters that ownership verification 

is particularly difficult for pools, funds, 

and other collective investment vehicles 

that are publicly traded.26

The alternative prong (iv) would be as 

follows: 

(iv) A commodity pool, pooled account, 

investment fund, or other collective 

investment vehicle that is not described in 

prong (ii) and that is directly or indirectly 

majority-owned by one or more persons 

described in prong (i) or (ii), except any 

commodity pool, pooled account, investment 

fund, or other collective investment vehicle 

that is publicly-traded but not offered, 

directly or indirectly, to U.S. persons. 

This alternative proposed prong (iv) is 

intended to capture collective 

investment vehicles that are created for 

the purpose of pooling assets from U.S. 

investors and channeling these assets to 

trade or invest in line with the 

objectives of the U.S. investors, 

regardless of the place of the vehicle’s 

organization or incorporation. These 

collective investment vehicles may 

serve as a means to achieve the 

investment objectives of their beneficial 

owners, rather than being separate, 

active operating businesses. As such, 

the beneficial owners would be directly 

exposed to the risks created by the 

swaps that their collective investment 

vehicles enter into. The Commission 

requests comment on all aspects of this 

alternative prong (iv). 

Issued in Washington, DC, on December 

21, 2012, by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

Appendices to Further Proposed 

Guidance Regarding Compliance With 

Certain Swap Regulations— 

Commission Voting Summary 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Chilton, O’Malia and Wetjen 

voted in the affirmative; Commissioner 

Sommers voted in the negative. 

[FR Doc. 2012–31734 Filed 1–4–13; 8:45 am] 

BILLING CODE 6351–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1 and 301 

[REG–148873–09] 

RIN 1545–BJ16 

IRS Truncated Taxpayer Identification 

Numbers 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document contains 

proposed regulations that create a new 

taxpayer identifying number known as 

an IRS truncated taxpayer identification 

number, a TTIN. As an alternative to 

using a social security number (SSN), 

IRS individual taxpayer identification 

number (ITIN), or IRS adoption taxpayer 

identification number (ATIN), the filer 

of certain information returns may use 

a TTIN on the corresponding payee 

statements to identify the individual 

being furnished a statement. The TTIN 

displays only the last four digits of an 

individual’s identifying number and is 

shown in the format XXX–XX–1234 or 

***–**–1234. These proposed 

regulations affect filers of certain 

information returns who will be 

permitted to identify an individual 

payee by use of a TTIN on the payee 

statement furnished to the individual, 

and those individuals who receive 

payee statements containing a TTIN. 

DATES: Written or electronic comments 

must be received by February 21, 2013. 

Outlines of topics to be discussed at the 

public hearing scheduled for March 12, 

2013 must be received by February 20, 

2013. 

ADDRESSES: Send submissions to: 

CC:PA:LPD:PR (REG–148873–09), Room 

5203, Internal Revenue Service, PO Box 

7604, Ben Franklin Station, Washington, 

DC 20044. Submissions may be hand 

delivered Monday through Friday 

between the hours of 8 a.m. and 4 p.m. 

to: CC:PA:LPD:PR (REG–148873–09), 

Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC 20224 or sent 

electronically, via the Federal 

eRulemaking Portal at http:// 

www.regulations.gov (IRS REG–148873– 

09). The public hearing will be held in 

the Internal Revenue Service 

Auditorium, Internal Revenue Service, 

1111 Constitution Avenue NW., 

Washington, DC 20224. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Tammie A. Geier, (202) 622–3620; 

concerning submissions of comments, 

the public hearing, and/or to be placed 

on the building access list to attend the 

public hearing, Oluwafunmilayo Taylor 

of the Publications and Regulations 

Branch at (202) 622–7180 (not toll-free 

numbers). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR Part 1) and the 

Procedure and Administration 

Regulations (26 CFR Part 301). These 

amendments implement the pilot 

program announced in Notice 2009–93 

(2009–51 IRB 863), extended and 

modified in Notice 2011–38 (2011–20 

IRB 785), which together authorized 

filers of certain information returns to 

truncate an individual payee’s ninedigit identifying number on specified 

paper payee statements furnished for 

calendar years 2009 through 2012. See 

§ 601.601(d)(2). 

The pilot program was implemented 

in response to concerns about the risk 

of identity theft stemming from the 

inclusion of a taxpayer identifying 

number on a payee statement. In 

particular, the risks of misappropriation 

and subsequent misuse of that number 

were reported to be greatest with respect 

to paper payee statements. 

I. Information Reporting 

Information returns are returns, 

statements, forms, or other documents 

that must be filed with the IRS to report 

transactions (for example, payments, 

distributions, or transfers) with another 

person in a calendar year. Section 

6724(d)(1); Treas. Reg. § 301.6721– 

1(g)(1). Persons required to file 

information returns with the IRS are 


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