41110 Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 

3See 17 CFR 145.9. 

4See 76 FR 23732. 

5The WGMR is comprised of representatives from 

over 25 domestic and international regulatory 

authorities, including the CFTC. 

6The consultative paper is available on the Bank 

for International Settlements (‘‘BIS’’) Web site 

(www.bis.org), the IOSCO Web site (www.iosco.org) 

and the CFTC Web site (www.cftc.gov). 

7Concurrently with the comment period for the 

consultative paper, BCBS and IOSCO also will 

conduct a quantitative impact study (‘‘QIS’’) to 

assess the costs and benefits of margin 

requirements. The results of the QIS will be 

considered along with the comments submitted on 

the consultative paper in formulating a final joint 

proposal on non-centrally cleared derivatives. 

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. If 

you wish the Commission to consider 

information that you believe 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 procedures established in § 145.9 

of the Commission’s regulations.3 The 

Commission reserves the right, but shall 

have no obligation, to review, prescreen, 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 Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: John 

C. Lawton, Deputy Director, 

jlawton@cftc.gov, Division of Clearing 

and Risk, or Jason A. Shafer, Attorney 

Advisor, Division of Swap Dealer and 

Intermediary Oversight, 

jshafer@cftc.gov, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW., 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: On April 

28, 2011, the Commission published in 

the Federal Register a notice of 

proposed rulemaking that would 

establish initial and variation margin 

requirements on uncleared swaps for 

SDs and MSPs.4 In October 2011, BCBS 

and IOSCO established the WGMR to 

develop harmonized international 

standards for uncleared swaps. BCBS 

and IOSCO recently published a 

consultative paper prepared by the 

WGMR that outlines possible margin 

requirements for non-centrally cleared 

derivatives.5 The consultative paper 

addresses a number of topics, including: 

(i) The instruments that would be 

subject to margin requirements; (ii) the 

market participants to be subject to 

margin requirements; (iii) initial margin 

and variation margin methodology; (iv) 

eligible collateral; (v) treatment of 

provided margin; (vi) treatment of interaffiliate transactions; and vii) treatment 

of cross-border transactions.6

BCBS and IOSCO are requesting 

comment on the initial proposals set 

forth in the consultative paper. After 

reviewing and evaluating any comments 

received, the WGMR will issue final 

policy recommendations for margin 

requirements for non-centrally cleared 

derivatives.7 As part of the international 

effort to implement consistent global 

standards for margin requirements for 

non-centrally cleared derivatives, the 

CFTC will consider the final policy 

recommendations set forth by the 

WGMR when adopting its final rules for 

margin for uncleared swaps and may 

adapt its final rules to conform with the 

final policy recommendations set forth 

by BCBS and IOSCO. Accordingly, the 

Commission believes it is appropriate to 

extend the comment period for its 

proposed margin requirements in order 

to give interested parties the 

opportunity to comment on the 

consultative paper and the CFTC’s 

proposed rule concurrently. 

Therefore, the Commission is 

extending the comment period until 

September 14, 2012, for all aspects of its 

proposed margin rules on uncleared 

swaps and specifically requests 

quantitative data and analysis on the 

comparative costs and benefits of the 

CFTC’s proposed rule and the initial 

proposals set forth in the consultative 

paper. 

Issued by the Commission, this 5th day of 

July 2012. 

David Stawick, 

Secretary of the Commission, Commodity 

Futures Trading Commission. 

Note: The following appendix will not 

appear in the Code of Federal Regulations 

Appendix 1—Statement of Chairman 

Gary Gensler 

I support the formal reopening of the 

comment period on the CFTC’s initial margin 

proposal so that we can hear further from 

market participants in light of work being 

done to internationally harmonize an 

approach to margin. 

The CFTC has been working with the 

Federal Reserve, the other U.S. banking 

regulators, the Securities and Exchange 

Commission and international regulators and 

policymakers to align margin requirements 

for uncleared swaps. I think it is essential 

that we align these requirements globally, 

particularly between the major market 

jurisdictions. The international approach to 

margin requirements in the consultative 

paper (sponsored by the Basel Committee on 

Banking Supervision and the International 

Organization of Securities Commissions) 

released today is consistent with the 

approach the CFTC laid out in its margin 

proposal last year. It would lower the risk of 

financial entities, promote clearing and help 

avoid regulatory arbitrage. 

[FR Doc. 2012–16983 Filed 7–11–12; 8:45 am] 

BILLING CODE 6351–01–P 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Chapter I 

RIN 3038–AD85 

Exemptive Order Regarding 

Compliance With Certain Swap 

Regulations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed exemptive 

order and request for comment. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’) is 

proposing to grant, pursuant to section 

4(c) of the Commodity Exchange Act 

(‘‘CEA’’), temporary exemptive relief in 

order to allow non-U.S. swap dealers 

and non-U.S. major swap participants to 

delay compliance with certain entitylevel requirements of the CEA (and 

Commission regulations promulgated 

thereunder), subject to specified 

conditions. Additionally, with respect 

to transaction-level requirements of the 

CEA (and Commission regulations 

promulgated thereunder), the relief 

would allow non-U.S. swap dealers and 

non-U.S. major swap participants, as 

well as foreign branches of U.S. swap 

dealers and major swap participants, to 

comply only with those requirements as 

may be required in the home 

jurisdiction of such non-U.S. swap 

dealers and non-U.S. major swap 

participants (or in the case of foreign 

branches of a U.S. swap dealer or U.S. 

major swap participant, the foreign 

location of the branch) for swaps with 

non-U.S. counterparties. This relief 

would become effective concurrently 

with the date upon which swap dealers 

and major swap participants must first 

apply for registration and expire 12 

months following the publication of this 

proposed order in the Federal Register. 

Finally, U.S. swap dealers and U.S. 

major swap participants may delay 

compliance with certain entity-level 

requirements of the CEA (and 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 41111 

1See 17 CFR 145.9. 

2 5 U.S.C. 551, et seq. 

3 5 U.S.C. 552. 

4See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (July 21, 2010). 

5 7 U.S.C. 6s(a). 

6 7 U.S.C. 6s(j). 

7 7 U.S.C. 6s(e). 

8 7 U.S.C. 6s(i). 

9 [CITE TO THE CB GUIDANCE RELEASE] 

10Section 722(d) of the Dodd-Frank Act, which 

amended the CEA to add a new section 2(i), 

provides that the swaps provisions of the CEA 

apply to cross-border transactions and activities 

when certain conditions are met, namely, when 

such activities have a ‘‘direct and significant’’ 

connection with activities in, or effect on, 

commerce in the United States or when they 

contravene Commission rulemaking. See 7 U.S.C. 

2(i). 

11 7 U.S.C. 1a(49). 

12 7 U.S.C 1a(33). 

13See ‘‘Further Definition of ‘Swap Dealer,’ 

‘Security-Based Swap Dealer,’ ‘Major Swap 

Participant,’ ‘Major Security-Based Swap 

Participant’ and ‘Eligible Contract Participant’; 

Final Rule, 77 FR 30596, May 23, 2012. 

14The Cross-Border Interpretive Guidance does 

not address the scope of the Commission’s authority 

under CEA section 2(i) over non-swap agreements, 

contracts, transactions or markets within the 

Commission’s jurisdiction or persons who 

participate in or operate those markets. 

Commission regulations promulgated 

thereunder) from the date upon which 

swap dealers and major swap 

participants must apply for registration 

until January 1, 2013. 

DATES: Comments must be received on 

or before August 13, 2012. 

ADDRESSES: You may submit comments, 

identified by RIN number 3038–AD85, 

by any of the following methods: 

• The agency’s Web site, at http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, 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 the 

instructions for submitting comments. 

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 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, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedures established in § 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 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 

proposal will be retained in the public 

comment file and will be considered as 

required under the Administrative 

Procedures Act 2 and other applicable 

laws, and may be accessible under the 

Freedom of Information Act.3

FOR FURTHER INFORMATION CONTACT: 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; Carlene S. Kim, 

Assistant General Counsel, Office of 

General Counsel, (202) 418–5613, 

ckim@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 Title VII of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (the ‘‘Dodd-Frank Act’’),4 which 

amended the CEA and established 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 (each, an ‘‘SD’’) and major swap 

participants (each, an ‘‘MSP’’); 

(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. 

To implement the Dodd-Frank Act, 

the Commission has promulgated rules 

pursuant to the various new provisions 

of the CEA, including those specifically 

applicable to SDs and MSPs. Examples 

of such provisions include CEA section 

4s(a) (governing registration of SDs and 

MSPs) 5 and section 4s(j) (requiring SDs 

and MSPs to establish a comprehensive 

internal risk management program).6

Rules to implement other requirements 

in the provisions of the CEA have been 

proposed but not finalized. These 

include CEA section 4s(e) (governing 

capital and margin requirements for SDs 

and MSPs) 7 and CEA section 4s(i) 

(relating to the timely and accurate 

processing and netting of swaps entered 

by SDs and MSPs).8

Further, the Commission approved for 

publication a proposed interpretive 

guidance and policy statement (‘‘CrossBorder Interpretive Guidance’’) on the 

application of the CEA’s swap 

provisions and the implementing 

Commission regulations to cross-border 

activities and transactions.9 A brief 

overview of the Cross-Border 

Interpretive Guidance follows. 

II. Cross-Border Interpretive Guidance 

To provide greater clarity to market 

participants regarding their obligations 

under the Dodd-Frank Act, the 

Commission has published the CrossBorder Interpretive Guidance. Broadly 

speaking, the Cross-Border Interpretive 

Guidance sets forth the manner in 

which the Commission proposes to 

interpret section 2(i) of the CEA 10 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 Cross-Border 

Interpretive Guidance, the Commission 

described the general manner in which 

it proposes to consider: (1) Whether a 

non-U.S. person’s swap dealing 

activities are sufficient to require 

registration as a ‘‘swap dealer’’,11 as 

further defined in a joint release 

adopted by the Commission and the 

SEC (collectively, the ‘‘Commissions’’); 

(2) whether a non-U.S. person’s swap 

positions are sufficient to require 

registration as a ‘‘major swap 

participant’’,12 as further defined in a 

joint release adopted by the 

Commissions; 13 and (3) the treatment of 

foreign branches, agencies, affiliates, 

and subsidiaries of U.S. SDs and of U.S. 

branches of non-U.S. SDs. The CrossBorder Interpretive Guidance also 

proposes, in certain circumstances, to 

permit a non-U.S. SD or non-U.S. MSP 

to comply with comparable and 

comprehensive foreign regulatory 

requirements in order to satisfy 

applicable statutory and regulatory 

requirements under Title VII of the 

Dodd-Frank Act.14 Finally, the CrossBorder Interpretive Guidance sets forth 

the manner in which the Commission 

proposes to interpret section 2(i) of the 

CEA as it applies to the clearing, 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
41112 Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 

15See Letter from Securities Industry and 

Financial Markets Association and Institute of 

International Bankers, dated, April 25, 2012, 

available on the Commission’s Web site at http:// 

www.cftc.gov/LawRegulation/DoddFrankAct/ 

ExternalMeetings/index.htm. 

16 7 U.S.C. 6(c). 

17As used in this proposed exemptive order, the 

term ‘‘non-U.S. swap dealer’’ refers to swap dealers 

that are non-U.S.-based as well as those that are 

foreign affiliates of a U.S. person. Similarly, the 

term ‘‘non-U.S. MSP’’ refers to MSPs that are nonU.S.-based, as well as foreign affiliates of a U.S. 

person. 

18See 7 U.S.C. 2(a)(13)(G). The Commission 

believes that the data reported to, and collected by, 

SDRs will be important to its ability to effectively 

monitor and address the risk exposures of 

individual market participants (including SDs and 

MSPs) and the concentration of risk within the 

swaps market more generally. 

19Under the proposed Cross-Border Interpretive 

Guidance and for purposes of this order, a foreign 

branch of a U.S. person is deemed a U.S. person. 

Accordingly, swaps entered between a foreign 

branch of a U.S. person with another foreign branch 

of a U.S. person would be subject to the Dodd-Frank 

Transaction-Level Requirements. The Commission 

solicits comments on whether, for purposes of this 

order, substituted compliance should be permitted 

for such swaps, which effectively would allow 

foreign branches to comply only with the 

regulations as may be required in the foreign 

location of the branches. 

20This relief does not cover swaps between nonSDs and non-MSPs. Any such swaps involving a 

U.S. counterparty would be subject to applicable 

Dodd-Frank Act requirements as set forth in the 

Cross-Border Interpretive Guidance. 

trading, and certain reporting 

requirements under the Dodd-Frank Act 

with respect to swaps between 

counterparties that are not SDs or MSPs. 

III. Proposed Relief 

A. Scope of Relief 

In order to ensure an orderly 

transition to the Dodd-Frank Act’s 

regulatory regime and to provide 

certainty to market participants and in 

response to commenters’ requests,15 the 

Commission is proposing to provide 

temporary exemptive relief pursuant to 

section 4(c) of the CEA.16 Specifically, 

the relief would allow non-U.S. SDs and 

non-U.S. MSPs 17 to delay compliance 

with certain Entity-Level Requirements 

(as defined below) under the DoddFrank Act (and the Commission’s 

regulations thereunder), subject to 

specified conditions described herein. 

Under the proposed relief, non-U.S. SDs 

and non-U.S. MSPs would be afforded 

additional time to prepare for the 

application of the Entity-Level 

Requirements with assurances that they 

would not be in violation of the CEA as 

a result. This would, in turn, facilitate 

an orderly transition to the Entity-Level 

Requirements of the Dodd-Frank Act 

regulatory regime, while minimizing 

undue disruptions to current market 

operations. 

An exception to the foregoing relief 

from the Entity-Level Requirements 

relates to the Swap Data Repository 

(‘‘SDR’’) reporting requirement 18 and 

part 20 of the Commission’s regulations 

(‘‘Large Trader Reporting’’). Specifically, 

non-U.S. SDs and non-U.S.MSPs would 

be required to comply with the SDR 

reporting requirement for all swaps with 

U.S. person counterparties (‘‘U.S. 

counterparties’’), upon its compliance 

date. Under the proposed exemptive 

order, the reporting obligations of an SD 

under the Large Trader Reporting 

regulations would apply (or not apply) 

in the same manner as the SDR 

reporting requirements would apply (or 

not apply) to such SD. 

However, under the proposed 

exemptive order, non-U.S. SDs and nonU.S. MSPs that are not affiliates or 

subsidiaries of a SD would be permitted 

to delay compliance with the SDR 

reporting requirement for swaps with 

non-U.S. counterparties. The 

Commission believes that this approach 

would facilitate such registrants’ 

phasing in of their compliance with the 

SDR reporting requirement, without 

substantially undermining the 

regulatory objectives of SDR reporting. 

The Commission is not proposing to 

extend similar relief to non-U.S. SDs 

and non-U.S. MSPs that are affiliates or 

subsidiaries of a U.S. SD given the 

Commission’s supervisory interest in 

data related to the swap activities of 

non-U.S. SDs and non-U.S. MSPs that 

are part of a U.S.-based affiliated group. 

The Commission also proposes to 

grant, with respect to Transaction-Level 

Requirements (as defined below), 

temporary relief to non-U.S. SDs and 

non-U.S. MSPs, as well as foreign 

branches of U.S. SDs and U.S. MSPs, for 

swaps with a non-U.S. counterparty in 

order that they comply only with the 

regulations as may be required in the 

home jurisdiction of the non-U.S. SD or 

non-U.S. MSP (or in the case of foreign 

branches of a U.S. SD or a U.S. MSP, the 

foreign location of the branch).19 With 

respect to swaps with a U.S. 

counterparty, however, these registrants 

would be required to comply with all 

applicable Transaction-Level 

Requirements that are in effect. Given 

the nature of these requirements (i.e., 

they may be applied on a transactionby-transaction basis) and their 

importance to the protection of U.S. 

counterparties, the Commission would 

require non-U.S. SDs and non-U.S. 

MSPs, as well as foreign branches of 

U.S. SDs and U.S. MSPs, to comply with 

all applicable Transaction-Level 

Requirements with respect to such 

counterparties.20

The relief for non-U.S. SDs and nonU.S. MSPs (and foreign branches of U.S. 

SDs and U.S. MSPs with respect to 

Transaction-Level Requirements) would 

become effective on the compliance date 

for registration of SDs and MSPs and 

expire 12 months following the 

publication of this proposed order in the 

Federal Register. The Commission is 

committed to an orderly transition to 

the Dodd-Frank Act’s regulatory regime. 

In furtherance of that objective, the 

Commission intends to consider 

extending the effectiveness of this 

exemptive relief at its expiration based 

on, among other things, whether and 

when substituted compliance with 

foreign regulatory requirements for nonU.S. persons is available. 

With respect to U.S. SDs and U.S. 

MSPs, the Commission proposes to 

permit such registrants to delay 

compliance with certain Entity-Level 

Requirements under the Dodd-Frank 

Act (and the Commission’s regulations 

thereunder) until January 1, 2013. 

Under the proposed relief, U.S. SDs and 

U.S. MSPs would be afforded additional 

time to prepare for the application of the 

Entity-Level Requirements so as to 

ensure an orderly transition, while 

minimizing undue disruptions to 

current market operations. This relief 

with respect to Entity-Level 

Requirements, however, does not extend 

to swap data recordkeeping, SDR 

reporting or Large Trader Reporting 

requirements. That is, U.S. SDs and U.S. 

MSPs would be required to comply with 

the swap data recordkeeping, SDR and 

Large Trader Reporting requirements for 

all swaps. Finally, the Commission 

reiterates that a U.S. person would be 

expected to apply for registration as an 

SD or MSP by the effective date of the 

Swap Definitional Rule. 

Finally, the relief for U.S. SDs and 

U.S. MSPs (with respect to Entity-Level 

Requirements) would be effective until 

January 1, 2013. The Commission 

believes that allowing U.S. registrants 

additional time as specified is 

appropriate in light of the importance of 

implementing the Dodd-Frank Act 

regulatory regime as expeditiously as 

possible while taking due consideration 

of the need for U.S. registrants to effect 

an orderly transition to the new 

regulatory regime. 

B. Conditions to Relief 

Under this proposal, a non-U.S. SD or 

non-U.S. MSP seeking relief from the 

specified Entity-Level Requirements 

must satisfy certain conditions. First, 

the non-U.S. person that is required to 

register as an SD or MSP must apply to 

become registered as such when 

registration is required. Second, within 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 41113 

21Additionally, a U.S. SD or U.S. MSP whose 

foreign branch seeks to rely on the exemptive relief 

with respect to swaps with non-U.S. counterparties 

must submit a compliance plan addressing how it 

plans to comply, in good faith, with all applicable 

Transaction-Level Requirements under the CEA 

upon the expiration of this proposed exemptive 

order. 

22The Commission anticipates that compliance 

plans would be updated on a periodic basis as new 

regulations are adopted and come into effect. Such 

updates should be submitted to NFA. Any such 

submission should identify the name of the 

registrant, the fact that the submission is made in 

reliance upon and pursuant to this exemptive relief, 

and contact name and information. 

23 7 U.S.C. 6(c)(1). 

24CEA section 4(c)(3), 7 U.S.C. 6(c)(3), includes 

within the term ‘‘appropriate persons’’ a number of 

specified categories of persons deemed appropriate 

under the CEA for entering into swaps exempted by 

the Commission under section 4(c). This includes 

persons the Commission determines to be 

appropriate in light of their financial or other 

qualifications, or the applicability of appropriate 

regulatory protections. 

25CEA Section 4(c)(2), 7 U.S.C. 6(c)(2). 

26See ‘‘Notice Regarding the Treatment of 

Petitions Seeking Grandfather Relief for Trading 

Activity Done in Reliance Upon Section 2(h)(1)–(2) 

of the Commodity Exchange Act,’’ 75 FR 56512, 

56513, Sept. 16, 2010. 

27See section 752(a) of the Dodd-Frank Act. 

28CEA Section 4(c)(3)(K), 7 U.S.C. 6(c)(3)(K) 

(appropriate persons may include 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’’). 

29United States would mean the United States, its 

states, the District of Columbia, Puerto Rico, the 

U.S. Virgin Islands, and any other territories or 

possessions of the United States government, its 

agencies or instrumentalities. 

60 days of applying for registration, the 

non-U.S. applicant would be required to 

submit to the National Futures 

Association (‘‘NFA’’) a compliance plan 

addressing how it plans to comply, in 

good faith, with all applicable 

requirements under the CEA and related 

rules and regulations upon the effective 

date of the Cross-Border Interpretive 

Guidance.21

At a minimum, such plan would 

provide, for each Entity-Level and 

Transaction-Level Requirement, a 

description of: (1) Whether the non-U.S. 

SD or non-U.S. MSP plans to comply 

with each of the Entity-Level and 

Transaction-Level Requirements that are 

in effect at such time or plans to seek 

a comparability determination and rely 

on compliance with one or more of the 

requirements of the home jurisdiction, 

as applicable; and (2) to the extent that 

the non-U.S. SD or non-U.S. MSP would 

seek to comply with one or more of the 

requirement(s) of the home jurisdiction, 

a description of such requirement(s). 

The Commission notes that such person 

may modify or alter the compliance 

plan as appropriate, provided that they 

submit any such amended plan to 

NFA.22

The Commission further notes that 

the proposed relief does not limit the 

applicability of any CEA provision or 

Commission regulation to any person, 

entity or transaction except as provided 

in the proposed order. In addition, the 

proposed relief would not affect any 

effective date or compliance date set out 

in any specific Dodd-Frank Act 

rulemaking by the Commission. 

IV. Section 4(c) of the Commodity 

Exchange Act 

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

the Commission to ‘‘promote 

responsible economic or financial 

innovation and fair competition’’ by 

exempting any transaction or class of 

transaction from any of the provisions of 

the CEA (subject to certain exceptions) 

where the Commission determines that 

the exemption would be consistent with 

the public interest.23 Under section 

4(c)(2) of the CEA, the Commission may 

not grant exemptive relief unless it 

determines that: (1) The exemption is 

appropriate for the transaction and 

consistent with the public interest; (2) 

the exemption is consistent with the 

purposes of the CEA; (3) the transaction 

will be entered into solely between 

‘‘appropriate persons’’; 24 and (4) 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.25 The Commission may grant such 

an exemption by rule, regulation or 

order, after notice and opportunity for 

hearing, and may do so on application 

of any person or on its own initiative. 

In enacting section 4(c), 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.26

As noted earlier, the Commission is 

proposing to issue this relief in order to 

ensure an orderly transition to the 

Dodd-Frank Act regulatory regime and 

to provide greater legal certainty to 

market participants regarding their 

obligations under the CEA with respect 

to their cross-border activities. The 

proposed relief also would advance the 

congressional mandate concerning 

harmonization of international 

standards, consistent with section 

752(a) of the Dodd-Frank Act. In that 

section, Congress directed that, in order 

to ‘‘promote effective and consistent 

global regulation of swaps and securitybased swaps,’’ the Commission, ‘‘as 

appropriate, shall consult and 

coordinate with foreign regulatory 

authorities on the establishment of 

consistent international standards with 

respect to the regulation’’ of swaps and 

security-based swaps.27 The proposed 

relief, by providing U.S. and non-U.S. 

registrants the latitude necessary to 

develop and modify their compliance 

plans as the regulatory structure in their 

home jurisdiction changes, would 

promote greater regulatory consistency 

and coordination with international 

regulators. 

The Commission emphasizes that the 

proposed order is temporary in duration 

and reserves the Commission’s antifraud and anti-manipulation 

enforcement authority. As such, the 

Commission believes that the proposed 

order would be consistent with the 

public interest and purposes of the CEA. 

For similar reasons, the Commission 

believes that the proposed order would 

not have a material adverse effect on the 

ability of the Commission or any 

contract market to discharge its 

regulatory or self-regulatory duties 

under the CEA. Finally, the Commission 

believes that the order would be limited 

to appropriate persons within the 

meaning of section 4c(3)(K) since the 

SDs and MSPs eligible for the relief are 

likely to be financial institutions active 

in the swaps market.28 The Commission 

seeks comment on whether the 

proposed temporary exemptive order is 

consistent with the public interest and 

the other requirements of CEA section 

4(c). 

V. Terms ‘‘U.S. Person,’’ ‘‘Entity-Level 

Requirements,’’ and ‘‘Transaction-Level 

Requirements’’ 

A. U.S. Person 

In the Cross-Border Interpretive 

Guidance, the Commission proposes to 

interpret the term ‘‘U.S. person’’ by 

reference to the extent to which swap 

activities or transactions involving one 

or more such persons have the relevant 

effect on U.S. commerce. Specifically, as 

proposed, the term ‘‘U.S. person’’ would 

include, but not be limited to: (1) Any 

natural person who is a resident of the 

United States; (2) any 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 either (A) 

organized or incorporated under the 

laws of the United States 29 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 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
41114 Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 

30By way of illustration, consistent with the 

purpose of the capital requirement, which is to 

reduce the likelihood and cost of an SD’s default 

by requiring a financial cushion, an SD’s or MSP’s 

capital requirements would be set on the basis of 

its overall portfolio of assets and liabilities. 

31See 7 U.S.C. 6s(e)(3)(A). Section 4s(e) of the 

CEA explicitly requires the adoption of rules 

establishing capital and margin requirements for 

SDs and MSPs, and applies a bifurcated approach 

that requires each SD and MSP for which there is 

a prudential regulator to meet the capital and 

margin requirements established by the applicable 

prudential regulator, and each SD and MSP for 

which there is no prudential regulator to comply 

with the Commission’s capital and margin 

regulations. See 7 U.S.C. 6s(e). Further, systemically 

important financial institutions (‘‘SIFIs’’) that are 

not futures commission merchants (‘‘FCMs’’) would 

be exempt from the Commission’s capital 

requirements, and would comply instead with 

Federal Reserve Board requirements applicable to 

SIFIs, while non-bank (and non-FCM) subsidiaries 

of U.S. bank holding companies would calculate 

their Commission capital requirement using the 

same methodology specified in Federal Reserve 

Board regulations applicable to the bank holding 

company, as if the subsidiary itself were a bank 

holding company. The term ‘‘prudential regulator’’ 

is defined in CEA section 1a(39) as the Board of 

Governors of the Federal Reserve System, the Office 

of the Comptroller of the Currency, the Federal 

Deposit Insurance Corporation, the Farm Credit 

Administration, and the Federal Housing Finance 

Agency. See 7 U.S.C. 1a(39). 

32See 7 U.S.C. 6s(e). See also 76 FR 27802, May 

12, 2011, available at http://www.cftc.gov/ucm/

groups/public/@lrfederalregister/documents/file/

2011-10881a.pdf. ‘‘The Commission’s capital 

proposal for [SDs] and MSPs includes a minimum 

dollar level of $20 million. A non-bank [SD] or MSP 

that is part of a U.S. bank holding company would 

be required to maintain a minimum of $20 million 

of Tier 1 capital as measured under the capital rules 

of the Federal Reserve Board. [An SD] or MSP that 

also is registered as an FCM would be required to 

maintain a minimum of $20 million of adjusted net 

capital as defined under [proposed] § 1.17. In 

addition, an [SD] or MSP that is not part of a U.S. 

bank holding company or registered as an FCM 

would be required to maintain a minimum of $20 

million of tangible net equity, plus the amount of 

the [SD’s] or MSP’s market risk exposure and OTC 

counterparty credit risk exposure.’’ See id. at 27817. 

33See 7 U.S.C. 6s(k). 

34See 17 CFR 3.3. 

owners is a U.S. person; (3) any 

individual account (discretionary or 

not) where the beneficial owner is a U.S. 

person; (4) 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 or equity 

interest is held, directly or indirectly, by 

a U.S. person(s); (5) 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; (6) a pension plan for the 

employees, officers, or principals of a 

legal entity with its principal place of 

business inside the United States; and 

(7) an estate or trust, the income of 

which is subject to United States 

income tax regardless of source. 

Under the interpretation of the term 

‘‘U.S. person’’ in the Cross-Border 

Interpretive Guidance, a foreign branch 

or agency of a U.S. person would be 

covered by virtue of the fact that it is an 

extension of a U.S. person. By contrast, 

a foreign affiliate or subsidiary of a U.S. 

person would be considered a non-U.S. 

person. Solely for purposes of the 

temporary exemptive relief provided in 

the proposed order, the Commission 

adopts the interpretation of the term 

‘‘U.S. person’’ as set forth in the CrossBorder Interpretive Guidance. 

B. Entity-Level and Transaction-Level 

Requirements 

Solely for purposes of the temporary 

exemptive relief provided in the 

proposed order, the Commission 

incorporates the proposed categories of 

Entity-Level and Transaction-Level 

Requirements, as set forth in the CrossBorder Interpretive Guidance. 

1. Entity-Level Requirements 

In the Cross-Border Interpretive 

Guidance, the Commission proposes to 

divide the Dodd-Frank Act requirements 

that would apply to SDs and MSPs into 

those that: (1) Apply to an SD or MSP 

at an entity level (i.e., to the firm as a 

whole); and (2) apply at a transactional 

level (i.e., to specific transactions). 

Specifically, the entity-level 

requirements under Title VII of the 

Dodd-Frank Act and the Commission’s 

regulations promulgated thereunder 

relate to: (1) Capital adequacy; (2) chief 

compliance officer; (3) risk 

management; (4) swap data 

recordkeeping; (5) reporting to an SDR; 

and (6) physical commodity swaps 

reporting (collectively, the foregoing 

requirements are referred to herein as 

‘‘Entity-Level Requirements’’). The first 

subcategory of Entity-Level 

Requirements relating to capital 

adequacy, chief compliance officer, risk 

management, and swap data 

recordkeeping relate to risks to a firm as 

a whole. These requirements address 

and manage risks that arise from a firm’s 

operation as an SD or MSP. 

Individually, they represent a key 

component of a firm’s internal risk 

controls. Collectively, they constitute a 

firm’s first line of defense against 

financial, operational, and compliance 

risks that could lead to a firm’s default 

or failure. In short, these requirements 

relate to risks to a firm as a whole. 

At the core of a robust internal risk 

controls system is the firm’s capital— 

and particularly, how the firm identifies 

and manages its risk exposure arising 

from its portfolio of activities.30 Equally 

foundational to the financial integrity of 

a firm is an effective internal risk 

management process, which must be 

comprehensive in scope and reliant on 

timely and accurate data regarding its 

swap activities. To be effective, such 

system must be under the supervision of 

a strong and independent function. 

These internal controls-related 

requirements—namely, the 

requirements relating to chief 

compliance officer, risk management, 

swap data recordkeeping—are designed 

to serve that end. 

No less important to the financial 

integrity of a firm is the SDR reporting 

requirement. SDR reporting ensures the 

Commission access to the information it 

needs to effectively supervise the risk 

exposure of its registrants and, thus, 

serves to lower their risk of failure. 

Given the functions of these reporting 

requirements, each must be applied on 

a firm-wide basis, across all swaps, in 

order to ensure that the Commission has 

a comprehensive and accurate picture of 

its activities. Otherwise, the intended 

benefits of these Entity-Level 

Requirements would be significantly 

compromised, if not undermined. 

Each of the Entity-Level Requirements 

is summarized below. 

i. Capital requirements 

Section 4s(e)(3)(A) of the CEA 

specifically directs the Commission to 

set capital requirements for SDs and 

MSPs that are not subject to the capital 

requirements of prudential regulators 

(hereinafter referred to as ‘‘non-bank 

SDs and MSPs’’).31 Pursuant to section 

4s(e)(3), the Commission proposed 

regulations, which would require nonbank SDs and MSPs to hold a minimum 

level of adjusted net capital (i.e., 

‘‘regulatory capital’’) based on whether 

the non-bank SD or MSP is: (1) Also a 

futures commission merchant (‘‘FCM’’); 

(2) not an FCM, but is a non-bank 

subsidiary of a bank holding company; 

or (3) neither an FCM nor a non-bank 

subsidiary of a bank holding 

company.32

ii. Chief Compliance Officer 

Section 4s(k) requires that each SD 

and MSP designate an individual to 

serve as its chief compliance officer 

(‘‘CCO’’) and specifies certain duties of 

the CCO.33 Pursuant to section 4s(k), the 

Commission recently adopted § 3.3, 

which requires SDs and MSPs to 

designate a CCO who would be 

responsible for administering the firm’s 

compliance policies and procedures, 

reporting directly to the board of 

directors or a senior officer of the SD or 

MSP, as well as preparing and filing 

(with the Commission) a certified report 

of compliance with the CEA.34


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 41115 

35 7 U.S.C. 6s(j). 

36 17 CFR 23.600, 23.601, 23.602, 23.603, 23.605, 

23.606, and 23.607; ‘‘Margin Requirements for 

Uncleared Swaps for Swap Dealers and Major Swap 

Participants,’’ 77 FR 20128, Apr. 3, 2012 (relating 

to risk management program, monitoring of position 

limits, business continuity and disaster recovery, 

conflicts of interest policies and procedures, general 

information availability, and antitrust 

considerations, respectively). 

37 17 CFR 23.609, ‘‘Customer Clearing 

Documentation, Timing of Acceptance for Clearing, 

and Clearing Member Risk Management,’’ 77 FR 

21278 (Apr. 9, 2012). In the same release, the 

Commission also adopted § 23.608, which prohibits 

SDs providing clearing services to customers from 

entering into agreements that would: (1) Disclose 

the identity of a customer’s original executing 

counterparty; (2) limit the number of counterparties 

a customer may trade with; (3) impose 

counterparty-based position limits; (4) impair a 

customer’s access to execution of a trade on terms 

that have a reasonable relationship to the best terms 

available; or (5) prevent compliance with specified 

time frames for acceptance of trades into clearing. 

38 7 U.S.C. 6s(f)(1)(B). 

39 7 U.S.C. 6s(g)(1). 

40 17 CFR. 23.201and 23.203; ‘‘Margin 

Requirements for Uncleared Swaps for Swap 

Dealers and Major Swap Participants,’’ 77 FR 

20128, Apr. 3, 2012. These requirements also 

require an SD to provide the Commission with 

regular updates concerning its financial status, as 

well as information concerning internal corporate 

procedures. 

41 17 CFR 46.1 et seq.; ‘‘Swap Data Recordkeeping 

and Reporting Requirements: Pre-Enactment and 

Transition Swaps,’’ 76 FR 22833, Apr. 25, 2011. 

42 7 U.S.C. 2(a)(13)(G). 

43 7 U.S.C. 24a. 

44 7 U.S.C. 6t. 

45 7 U.S.C. 6a. 

46 ‘‘Large Trader Reporting for Physical 

Commodity Swaps,’’ 76 FR 43851, July 22, 2011. 

47See 76 FR 43851, 43852. 

48 7 U.S.C. 2(h)(1), (7). 

49 17 CFR 23.506, 23.610 and ‘‘Customer Clearing 

Documentation, Timing of Acceptance for Clearing, 

and Clearing Member Risk Management,’’ 77 FR 

21278, Apr. 9, 2012. 

50See 7 U.S.C. 6s(e). See also ‘‘Margin 

Requirements for Uncleared Swaps for Swap 

Dealers and Major Swap Participants,’’ 76 FR 

23732, 23733–40, Apr. 28, 2011. Section 4s(e) 

explicitly requires the adoption of rules establishing 

margin requirements for SDs and MSPs, and applies 

a bifurcated approach that requires each SD and 

MSP for which there is a prudential regulator to 

meet the margin requirements established by the 

applicable prudential regulator, and each SD and 

MSP for which there is no prudential regulator to 

comply with the Commission’s margin regulations. 

In contrast, the segregation requirements in section 

4s(1) do not use a bifurcated approach—that is, all 

SDs and MSPs are subject to the Commission’s rule 

regarding notice and third party custodians for 

margin collected for uncleared swaps. 

iii. Risk Management 

Section 4s(j) of the CEA requires each 

SD and MSP to establish internal 

policies and procedures designed to, 

among other things, address risk 

management, monitor compliance with 

position limits, prevent conflicts of 

interest, and promote diligent 

supervision, as well as maintain 

business continuity and disaster 

recovery programs.35 The Commission 

recently adopted implementing 

regulations (§§ 23.600, 23.601, 23.602, 

23.603, 23.605, 23.606, and 23.607).36

The Commission also recently adopted 

§ 23.609, which requires certain risk 

management procedures for SDs or 

MSPs that are clearing members of a 

derivatives clearing organization 

(‘‘DCO’’).37

iv. Swap Data Recordkeeping 

CEA section 4s(f)(1)(B) requires SDs 

and MSPs to keep books and records for 

all activities related to their business.38

Section 4s(g)(1) requires SDs and MSPs 

to maintain trading records for each 

swap and all related records, as well as 

a complete audit trail for comprehensive 

trade reconstructions.39 Pursuant to 

these provisions, the Commission 

adopted §§ 23.201 and 23.203, which 

require SDs and MSPs to keep records 

including complete transaction and 

position information for all swap 

activities, including documentation on 

which trade information is originally 

recorded.40 SDs and MSPs also must 

comply with part 46 of the 

Commission’s regulations, which 

addresses the recordkeeping 

requirements for swaps entered into 

before the date of enactment of the 

Dodd-Frank Act (‘‘pre-enactment 

swaps’’) and data relating to swaps 

entered into on or after the date of 

enactment but prior to the compliance 

date of the SDR reporting rules 

(‘‘transition swaps’’).41

v. Swap Data Reporting 

CEA section 2(a)(13)(G) requires all 

swaps, whether cleared or uncleared, to 

be reported to a registered SDR.42 CEA 

section 21 requires SDRs to collect and 

maintain data related to swaps as 

prescribed by the Commission, and to 

make such data electronically available 

to regulators.43 SDs and MSPs would be 

required to comply with part 45 of the 

Commission’s regulations, which set 

forth the specific transaction data that 

reporting counterparties and registered 

entities must report to a registered SDR; 

and part 46, which addresses the 

recordkeeping requirements for preenactment swaps and data relating to 

transition swaps. 

vi. Physical Commodity Swaps 

Reporting (Large Trader Reporting) 

CEA section 4t 44 authorizes the 

Commission to establish a large trader 

reporting system for significant price 

discovery swaps (of which economically 

equivalent swaps subject to part 20 

reporting are a subset) in order to 

implement the statutory mandate in 

CEA section 4a 45 for the Commission to 

establish position limits, as appropriate, 

for physical commodity swaps. 

Pursuant thereto, the Commission 

adopted part 20 rules requiring SDs, 

among other entities, to submit routine 

position reports on certain physical 

commodity swaps and swaptions.46 Just 

as with SDR reporting, part 20 reporting 

serves the Dodd-Frank Act’s objective to 

enhance regulatory oversight of the 

swaps market. In fact, a stated reason for 

the Commission’s adoption of part 20 

was its ability to, in effect, perform the 

function of physical commodity SDRs 

until such time as such entities are 

operational and have the ability to 

convert swaps into positions.47

2. Transaction-Level Requirements 

The transaction-level requirements 

under Title VII of the Dodd-Frank Act 

and the Commission’s regulations 

(proposed or adopted) include: (1) 

Clearing and swap processing; (2) 

margining (and segregation) for 

uncleared swaps; (3) trade execution; (4) 

trade confirmation; (5) swap trading 

relationship documentation; (6) realtime public reporting; (7) portfolio 

reconciliation and compression; (8) 

daily trading records; and (9) external 

business conduct standards 

(collectively, the foregoing requirements 

are referred to herein as ‘‘TransactionLevel Requirements’’). Broadly 

speaking, the Transaction-Level 

Requirements closely relate to the 

financial protection of SDs, MSPs and 

their counterparties, pre- and post-trade 

transparency, and other market-oriented 

regulatory safeguards. 

i. Clearing and Swap Processing 

Section 2(h)(1) of the CEA requires a 

swap to be submitted for clearing to a 

DCO if the Commission has determined 

that the swap is required to be cleared, 

unless one of the parties to the swap is 

eligible for an exception from the 

clearing requirement and elects not to 

clear the swap.48 Closely interlocked 

with the clearing requirement are the 

following swap processing 

requirements: (1) The recently finalized 

§ 23.506, which requires SDs and MSPs 

to submit swaps promptly for clearing; 

and (2) § 23.610, which establishes 

certain standards for swap processing by 

SDs and MSPs that are clearing 

members of a DCO.49

ii. Margin (and Segregation) 

Requirements for Uncleared Swaps 

Section 4s(e) of the CEA requires the 

Commission to set margin requirements 

for SDs and MSPs that trade in swaps 

that are not cleared.50 In addition, with 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
41116 Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 

51See 7 U.S.C. 2(h)(8). 

52See ‘‘Swap Trading Relationship 

documentation Requirements for Swap Dealers and 

Major Swap Participants, 76 FR 6715,’’ Feb. 8, 2011. 

53The requirements under section 4s(i) relating to 

trade confirmations is a Transaction-Level 

Requirement. Accordingly, proposed § 23.504(b)(2), 

which requires an SD’s and MSP’s swap trading 

relationship documentation to include all 

confirmations of swaps, will apply on a transactionby-transaction basis. 

54See ‘‘Confirmation, Portfolio Reconciliation, 

and Portfolio Compression Requirements for Swap 

Dealers and Major Swap Participants,’’ 75 FR 

81519, Dec. 28, 2010. 

55See 17 CFR 23.503(c), 75 FR 81519, Dec. 28, 

2010. 

56See 7 U.S.C. 2(a)(13). See also ‘‘Real-Time 

Public Reporting of Swap Transaction Data,’’ 77 FR 

1182, 1183, Jan. 9, 2012. 

57Part 43 defines a ‘‘publicly reportable swap 

transaction’’ as (1) any swap that is an arm’s-length 

transaction between two parties that results in a 

corresponding change in the market risk position 

between the two parties; or (2) any termination, 

assignment, novation, exchange, transfer, 

amendment, conveyance, or extinguishing of rights 

or obligations of a swap that changes the pricing of 

a swap. See Real-Time Public Reporting of Swap 

Transaction Data, 77 FR 1182, Jan. 9, 2012. 

58 7 U.S.C. 6s(i). 

59See 17 CFR 23.501; ‘‘Confirmation, Portfolio 

Reconciliation, and Portfolio Compression 

Requirements for Swap Dealers and Major Swap 

Participants,’’ 75 FR 81519, Dec. 28, 2010. 

60See ‘‘Swap Dealer and Major Swap Participant 

Recordkeeping, Reporting, and Duties Rules; 

Futures Commission Merchant and Introducing 

Broker Conflicts of Interest Rules; and Chief 

Compliance Officer Rules for Swap Dealers, Major 

Swap Participants, and Futures Commission 

Merchants,’’ 77 FR 20128, Apr. 3, 2012. 

61See 7 U.S.C. 6s(h). See also 77 FR 9734, 9822– 

29. 

62 44 U.S.C. 3501 et seq. 

respect to swaps that are not submitted 

for clearing, section 4s(l) requires that 

an SD or MSP notify the counterparty of 

its right to require segregation of funds 

provided as margin, and upon such 

request, to segregate the funds with a 

third-party custodian for the benefit of 

the counterparty. 

iii. Trade Execution Requirement 

Integrally linked to the clearing 

requirement is the trade execution 

requirement, which is intended to bring 

the trading of mandatorily cleared 

swaps onto regulated exchanges. 

Specifically, section 2(h)(8) of the CEA 

provides that unless a clearing 

exception applies and is elected, a swap 

that is subject to a clearing requirement 

must be traded on a designated contract 

market (‘‘DCM’’) or swap execution 

facility (‘‘SEF’’), unless no DCM or SEF 

makes the swap available to trade.51

iv. Swap Trading Relationship 

Documentation 

CEA Section 4s(i) requires each SD 

and MSP to conform to Commission 

standards for the timely and accurate 

confirmation, processing, netting, 

documentation and valuation of swaps. 

Pursuant thereto, the Commission has 

proposed § 23.504(a), which would 

require SDs and MSPs to ‘‘establish, 

maintain and enforce written policies 

and procedures’’ to ensure that the SD 

or MSP executes written swap trading 

relationship documentation.52 Under 

proposed §§ 23.505(b)(1), 23.504(b)(3), 

and 23.504(b)(4), the swap trading 

relationship documentation must 

include, among other things: all terms 

governing the trading relationship 

between the SD or MSP and its 

counterparty; credit support 

arrangements; investment and 

rehypothecation terms for assets used as 

margin for uncleared swaps; and 

custodial arrangements.53 Further, the 

swap trading relationship 

documentation requirement applies to 

all swaps with registered SDs and MSPs. 

v. Portfolio Reconciliation and 

Compression 

CEA section 4s(i) directs the 

Commission to prescribe regulations for 

the timely and accurate processing and 

netting of all swaps entered into by SDs 

and MSPs. Pursuant to CEA section 

4s(i), the Commission proposed 

regulations §§ 23.502 and 23.503, which 

would require SDs and MSPs to perform 

portfolio reconciliation and 

compression, respectively, for all 

swaps.54 Proposed § 23.503(c) would 

require all SDs and MSPs to participate 

in bilateral compression exercises and/ 

or multilateral portfolio compression 

exercises conducted by their selfregulatory organizations or DCOs of 

which they are members.55 Further, 

participation in multilateral portfolio 

compression exercises is mandatory for 

dealer-to-dealer trades. 

vi. Real-Time Public Reporting 

Section 2(a)(13) of the CEA directs the 

Commission to promulgate rules 

providing for the public availability of 

swap transaction data on a real-time 

basis.56 In accordance with this 

mandate, the Commission promulgated 

part 43 rules on December 20, 2011, 

which provide that all ‘‘publicly 

reportable swap transactions’’ must be 

reported and publicly disseminated.57

vii. Trade Confirmation 

Section 4s(i) of the CEA 58 requires 

that each SD and MSP must comply 

with the Commission’s regulations 

prescribing timely and accurate 

confirmation of swaps. The Commission 

has proposed § 23.501, which requires, 

among other things, a timely and 

accurate confirmation of all swaps and 

life cycle events for existing swaps.59

viii. Daily Trading Records 

Pursuant to CEA section 4s(g)(1), the 

Commission adopted § 23.202, which 

requires SDs and MSPs to maintain 

daily trading records, including records 

of trade information related to preexecution, execution, and postexecution data that is needed to conduct 

a comprehensive and accurate trade 

reconstruction for each swap. The final 

rule also requires that records be kept of 

cash or forward transactions used to 

hedge, mitigate the risk of, or offset any 

swap held by the SD or MSP.60

ix. External Business Conduct Standards 

Pursuant to CEA section 4s(h), the 

Commission has adopted external 

business conduct rules, which establish 

business conduct standards governing 

the conduct of SDs and MSPs in dealing 

with their counterparties in entering 

into swaps.61

VI. Request for Comment 

The Commission requests comment 

on all aspects of this proposed 

exemptive order. 

VII. Related Matters 

A. Paperwork Reduction Act 

1. Overview 

The Paperwork Reduction Act 

(‘‘PRA’’) 62 imposes certain 

requirements on Federal agencies in 

connection with their conducting or 

sponsoring any collection of 

information as defined by the PRA. An 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number. Part of this proposed 

rulemaking would result in new 

collection of information requirements 

within the meaning of the PRA. The 

Commission therefore is required to 

submit this proposal to the Office of 

Management and Budget (‘‘OMB’’) for 

review and approval in accordance with 

44 U.S.C. 3507(d) and 5 CFR 1320.11. 

Under this proposal, certain registrants 

claiming relief from the specified EntityLevel Requirements and TransactionLevel Requirements would be required 

to satisfy certain conditions that have 

PRA implications. The Commission 

will, by separate action, publish in the 

Federal Register a notice and request for 

comments on the paperwork burden 

associated with this exemptive order in 

accordance with 5 CFR 1320.8. If 

approved, this new collection of 

information will be mandatory. 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 41117 

63 7 U.S.C. 19(a). 

64The Commission currently estimates that 

approximately 125 entities will be covered by the 

definitions of the terms ‘‘swap dealer’’ and ‘‘major 

swap participant.’’ See ‘‘Further Definition of ‘Swap 

Dealer,’ ‘Security-Based Swap Dealer,’ ‘Major Swap 

Participant,’ ‘Major Security-Based Swap 

Participant’ and ‘Eligible Contract Participant’ ’’; 

Final Rule, 77 FR 30596, 30713, May 23, 2012. 

However, not all of these entities are eligible for or 

will seek exemptive relief. 

65Although different registrants may choose to 

staff preparation of the compliance plan with 

different personnel, Commission staff estimates 

that, on average, an initial compliance plan could 

be prepared and submitted with 70 hours of 

attorney time, as follows: 10 hours for a senior 

attorney at $830/hour, 30 hours for a mid-level 

attorney at $418/hour, and 30 hours for a junior 

attorney at $345/hour. To estimate the hourly cost 

of senior and junior-level attorney time, 

Commission staff consulted with a law firm that has 

substantial expertise in advising clients on similar 

regulations. For the hourly cost of the mid-level 

attorney, Commission staff reviewed data contained 

in Securities Industry and Financial Markets 

Association (‘‘SIFMA’’), Report on Management and 

Professional Earnings in the Securities Industry, 

Oct. 2011, for New York, and adjusted by a factor 

for overhead and other benefits, which the 

Commission has estimated to be 1.3. 

66Although different registrants may choose to 

staff preparation of the compliance plan with 

different personnel, Commission staff estimates 

that, on average, an initial compliance plan could 

be prepared and submitted with 42 hours of 

attorney time, as follows: 6 hours for a senior 

attorney at $830/hour, 18 hours for a mid-level 

attorney at $418/hour, and 18 hours for a junior 

attorney at $345/hour. To estimate the hourly cost 

of senior and junior-level attorney time, 

Commission staff consulted with a law firm that has 

substantial expertise in advising clients on similar 

regulations. For the hourly cost of the mid-level 

attorney, Commission staff reviewed data contained 

in Securities Industry and Financial Markets 

Association (‘‘SIFMA’’), Report on Management and 

Professional Earnings in the Securities Industry, 

Oct. 2011, for New York, and adjusted by a factor 

for overhead and other benefits, which the 

Commission has estimated to be 1.3. 

B. Consideration of Costs and Benefits 

Section 15(a) of the CEA 63 requires 

the Commission to consider the costs 

and benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its own 

discretionary determinations with 

respect to the section 15(a) factors. 

Summary of the Proposed Exemption 

As discussed above, for a non-U.S. SD 

or non-U.S. MSP (or U.S. applicant 

relating to transaction-level 

requirements in the case of a branch of 

a U.S. SD) that has submitted a 

compliance plan describing how it will 

come into compliance with the swap 

requirements of the CEA as they become 

effective, the proposed exemptive order 

would delay the compliance date for 

certain Entity-Level Requirements and, 

to a more limited extent, TransactionLevel Requirements. An important 

exception to the foregoing is compliance 

with the CEA requirement regarding 

SDR reporting and the Large Trader 

Reporting requirement. For those 

requirements, non-U.S. SDs and nonU.S. MSPs must comply without delay 

with respect to transactions with U.S. 

counterparties. 

With respect to transactions with a 

U.S. counterparty, non-U.S. registrants 

would be required to comply with all 

Transaction-Level Requirements that are 

in effect. With respect to transactions 

with a non-U.S. counterparty, the nonU.S. SD or non-U.S. MSP, as well as 

foreign branches of U.S. SDs and U.S. 

MSPs, need only comply with such 

regulations as may be required by the 

home jurisdiction of such non-U.S. 

registrant (or in the case of a branch, the 

foreign location of the branch). U.S. SDs 

and U.S. MSPs would be permitted to 

delay compliance with Entity-Level 

Requirements, except the swap data 

recordkeeping, SDR reporting and Large 

Trader Reporting requirements. 

Costs 

As discussed above, the proposed 

order is exemptive in that it would 

provide eligible persons with relief in 

the form of additional time with which 

to comply with certain regulatory 

requirements. As with any exemptive 

order, the proposed order is 

permissive—eligible persons are not 

required to avail themselves of the 

exemptive relief provided. Accordingly, 

the Commission assumes that an entity 

will rely on the proposed exemption 

only if the anticipated benefits warrant 

the costs attendant to the condition that 

requires the filing of a compliance plan. 

Although there is significant uncertainty 

in the number of swap entities that will 

seek to register as SDs and MSPs, as 

well as the number of swap entities that 

will submit a compliance plan in order 

to obtain exemptive relief, the 

Commission believes it is reasonable to 

estimate that between 40 and 80 nonU.S. SDs and MSPs will submit 

compliance plans.64 The average cost of 

preparing and submitting the required 

compliance plan for such non-U.S. SDs 

and MSPs initially is estimated to be 

approximately $31,190 per registrant, or 

a total aggregate cost of between 

$1,247,600 (assuming that 40 SDs and 

MSPs submit a compliance plan) and 

$2,495,200 (assuming that 80 SDs and 

MSPs submit a compliance plan). This 

estimate is based on the hourly cost of 

personnel that are capable of evaluating 

both Commission and home country 

regulations in light of the non-U.S. 

persons’ operations.65 Further, the 

condition that requires the filing of a 

compliance plan is not static—that is, 

the condition requires that the non-U.S. 

person submit, if necessary, a revised 

plan to account for any material changes 

since the filing of the initial plan. The 

Commission estimates that in most 

cases the cost of submitting a revised 

plan or plans will be the same as the 

cost of preparing and submitting the 

initial plan. 

In addition, the Commission estimates 

that an additional 20 to 45 U.S. SDs or 

U.S. MSPs whose foreign branch seeks 

to rely on the exemptive relief with 

respect to swaps with non-U.S. 

counterparties will submit a compliance 

plan. In this case, the compliance plan 

must only address how the registrant 

plans to comply, in good faith, with all 

applicable Transaction-Level 

Requirements under the CEA upon the 

expiration of this proposed exemptive 

order. The average cost of preparing and 

submitting the required compliance 

plan for such non-U.S. SDs and MSPs 

initially is estimated to be 

approximately $18,714 per U.S. 

registrant, or a total aggregate cost of 

between $374,280 (assuming that 20 

U.S. SDs and MSPs submit a 

compliance plan) and $842,130 

(assuming that 45 SDs and MSPs submit 

a compliance plan). This estimate is 

based on the hourly cost of personnel 

that are capable of evaluating both 

Commission and home country 

regulations in light of the U.S. persons’ 

foreign branch operations.66 Further, the 

condition that requires the filing of a 

compliance plan by a U.S. person is not 

static—that is, the condition requires 

that the U.S. person submit, if 

necessary, a revised plan to account for 

any material changes since the filing of 

the initial plan. The Commission 

estimates that in most cases the cost of 

submitting a revised plan or plans will 

be the same as the cost of preparing and 

submitting the initial plan. 

Apart from the direct costs discussed 

above, the Commission proposes that 

the exemptive order may result in 

indirect costs to the public, including 

the costs of delayed compliance with 

the Entity-Level Requirements and, to a 

more limited extent, Transaction-Level 

Requirements of the Dodd-Frank Act. 

The Commission proposes that these 

costs are not, however, susceptible to 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
41118 Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 

67As used in this order, the terms ‘‘U.S. person,’’ 

‘‘Entity-Level Requirements,’’ and ‘‘TransactionLevel Requirements’’ have the same meanings as 

provided in the Cross-Border Interpretive Guidance. 

meaningful quantification due to a lack 

of data regarding several key variables, 

including the probability of a significant 

market disturbance, the impact of that 

disturbance on the U.S. public and U.S. 

entities, and the role of entities subject 

to the order in creating or propagating 

such a disturbance. Nevertheless, the 

Commission seeks comment on any 

such indirect costs, including empirical 

data from which to quantify the same. 

Benefits 

The proposed exemptive order 

provides a benefit in that it would allow 

affected entities additional time to 

transition into the new regulatory 

regime in a more orderly manner, which 

promotes stability in the markets as that 

transition occurs. This, in turn, 

promotes the integrity and efficiency of 

the swap markets during the transition 

period. The phased-in process would 

eliminate the need for affected persons 

to file individual applications for 

exemptive relief and/or no-action relief, 

and reduces compliance costs related to 

the exempted transactions that occur 

during the transition period. Another 

benefit will be increased international 

harmonization because the proposed 

relief provides U.S. and non-U.S. 

registrants the latitude necessary to 

develop and modify their compliance 

plans as the regulatory structure in their 

home jurisdiction changes, which 

would promote greater regulatory 

consistency and coordination with 

international regulators. 

The primary benefit of the proposed 

compliance plan condition is that it 

ensures that non-U.S. persons claiming 

the exemption would be actively and 

demonstrably considering and planning 

for compliance with the Entity-Level 

and Transaction-Level Requirements 

under the CEA, as may be applicable. 

Absent such a condition and the 

requirement, a non-U.S. person could 

simply claim the exemption, without 

making a good-faith effort to comply 

with the Dodd-Frank Act. Further, the 

requirement that the plan be updated to 

reflect any material change in the 

information initially submitted ensures 

that the planning for compliance is 

performed in a thoughtful and 

continuous manner. Finally, the 

compliance plan also would assist NFA 

and Commission staff in preparing for 

the registration of non-U.S. SDs and 

non-U.S. MSPs as they develop 

familiarity with the regulatory regimes 

of foreign jurisdictions. 

In addition, the relief would allow 

foreign branches of U.S. SDs and MSPs 

to comply only with those requirements 

as may be required in the jurisdiction 

where the foreign branch is located for 

swaps with non-U.S. counterparties, 

effective concurrently with the date 

upon which such SDs and MSPs must 

first apply for registration until 12 

months following the publication of the 

proposed order in the Federal Register. 

In addition, U.S. SDs and U.S. MSPs 

may delay compliance with certain 

entity-level requirements of the CEA 

(and Commission regulations 

promulgated thereunder) from the date 

upon which SDs and MSPs must apply 

for registration until January 1, 2013. 

The Commission requests comments 

on all aspects of the consideration of 

costs and benefits of the proposed 

exemptive order discussed in this 

Notice and any alternatives to the same. 

Commenters should submit estimates of 

any costs and benefits perceived, 

together with any supporting empirical 

evidence available. 

Section 15(a) Factors 

Protection of Market Participants and 

the Public 

The Commission expects that the 

exemptive relief provided in this 

proposed order would protect market 

participants and the public by 

facilitating a more orderly transition to 

the new regulatory regime than might 

otherwise occur in the absence of this 

proposed order. In particular, non-U.S. 

persons would be afforded additional 

time to come into compliance than 

would otherwise be the case, which 

contributes to greater stability and 

reliability of the swap markets during 

the transition process. 

As discussed above, to the extent that 

non-U.S. persons submit a plan for 

compliance regarding Entity-Level and 

Transaction-Level Requirements, such 

persons would experience savings 

during the interim period. Reduced 

costs may occur as the result of delaying 

decisions about new systems, 

operational patterns, legal agreements, 

or other business arrangements until 

such time as a non-U.S. person knows 

what its obligations will be with respect 

to the cross-border application of Title 

VII of the Dodd-Frank Act, as well as by 

reducing the period of time during 

which ongoing costs associated with 

Entity-Level Requirements are borne by 

that entity. 

As discussed above, non-U.S. SDs and 

non-U.S. MSPs taking advantage of this 

exemption would have to file a 

compliance plan with NFA and, if 

necessary, update the same. The costs of 

the compliance plan are discussed 

above. 

Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

The proposed order would promote 

efficiency by providing additional time 

in which eligible persons may 

implement compliance controls and 

new technologies, and adjust 

operational patterns and legal 

agreements, if necessary. This 

additional time would minimize the risk 

that certain entities would withdraw 

from the market in order to avoid taking 

steps necessary for compliance. 

Price Discovery 

The Commission has not identified 

any costs or benefits of the proposed 

order with respect to price discovery. 

Risk Management 

Entity level risk-management and 

capital requirements could be delayed 

by operation of the exemptive order, 

which could weaken risk management. 

However, such potential risk is limited 

by the fact that the proposed exemptive 

order is finite in the additional time it 

provides eligible persons. 

Other Public Interest Considerations 

The Commission has not identified 

any other public interest costs or 

benefits of the proposed order. 

VIII. Proposed Order 

The Commission, in order to provide 

for an orderly implementation of Title 

VII of the Dodd-Frank Act, and 

consistent with the determinations set 

forth above, which are incorporated in 

the Final Order by reference, hereby 

grants, pursuant to section 4(c) of the 

CEA, temporary relief to non-U.S. swap 

dealers (‘‘SDs’’) and non-U.S. major 

swaps participants (‘‘MSPs’’), and to 

U.S. SDs and U.S. MSPs, including their 

foreign branches, from certain swap 

provisions of the CEA, subject to the 

terms and conditions below.67

(1) Non-U.S. Person: A non-U.S. 

person may delay compliance with 

respect to Entity-Level Requirements 

(subject to the condition in paragraph 

(2) below); provided, however, that: (A) 

such person shall file with National 

Futures Association (‘‘NFA’’) an 

application to register as an SD or MSP, 

as applicable, pursuant to Commission 

Regulation part 3 by the date for which 

such person must apply for registration; 

(B) within 60 days of filing its 

application for registration, such person 

shall file with NFA a compliance plan 

addressing how it plans to comply, in 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 41119 

good faith, with the applicable EntityLevel and Transaction-Level 

Requirements under the CEA. At a 

minimum, such plan would provide, for 

each Entity-Level Requirement and 

Transaction-Level Requirement, a 

description of: (i) whether such person 

would comply with the Entity-Level and 

Transaction-Level requirements that are 

in effect or whether they would seek a 

comparability determination and rely on 

compliance with one or more of the 

requirements of the home jurisdiction; 

and (ii) to the extent that such person 

would comply with one or more of the 

requirement(s) of the home jurisdiction, 

a description of such requirement(s). 

Such persons may modify or alter the 

compliance plans as appropriate, 

provided that they submit any such 

amended plan to NFA. 

(2) Notwithstanding paragraph (1), 

non-U.S. SDs and non-U.S. MSPs shall 

be required to comply with the SDR 

reporting and Large Trader Reporting 

requirements for all swaps with U.S. 

counterparties, upon its compliance 

date. However, during the pendency of 

this Order, non-U.S. SDs and non-U.S. 

MSPs that are not affiliates or 

subsidiaries of a U.S. SD may delay 

compliance with the SDR reporting and 

Large Trader Reporting requirements for 

swaps with non-U.S. counterparties. 

(3) With respect to Transaction-Level 

Requirements as applied to transactions 

with a non-U.S. counterparty, non-U.S. 

SDs and non-U.S. MSPs may comply 

with such regulations only as may be 

required by the home jurisdiction of 

such registrants; provided, however, 

that such registrants shall comply with 

such requirements that are in effect for 

all swaps with U.S. counterparties. 

(4) The relief provided to non-U.S. 

SDs and non-U.S. MSPs in this order 

shall be effective concurrently with the 

date upon which SDs and MSPs must 

first apply for registration and expire 12 

months following the publication of the 

proposed order in the Federal Register. 

(5) U.S Person: A U.S. person shall 

apply to register as an SD or MSP by the 

date such registration is required and 

shall comply with all applicable EntityLevel and Transaction-Level 

Requirements that are in effect, except 

as provided: (A) such person may delay 

compliance with the Entity-Level 

Requirements until January 1, 2013, 

except with respect to swap data 

recordkeeping, SDR reporting, and Large 

Trader Reporting requirements. 

Nevertheless, with respect to 

Transaction-Level Requirements as 

applied to swaps with a non-U.S. 

counterparty, a foreign branch of a U.S. 

SD or U.S. MSP may comply with those 

requirements only as may be required 

by the foreign location of such branches. 

(6) A U.S. SD or U.S. MSP whose 

foreign branch seeks to rely on the 

exemptive relief with respect to swaps 

with non-U.S. counterparties must 

submit a compliance plan (as described 

in paragraph (1) herein) addressing how 

it plans to comply, in good faith, with 

all applicable Transaction-Level 

Requirements under the CEA upon the 

expiration of this proposed exemptive 

order. 

(7) Scope of Relief: The temporary 

relief provided in this Order: (A) shall 

not affect, with respect to any swap 

within the scope of this Order, the 

applicability of any other CEA provision 

or Commission regulation (i.e., those 

outside the Entity-Level and 

Transaction-Level Requirements); (B) 

shall not limit the applicability of any 

CEA provision or Commission 

regulation to any person, entity or 

transaction except as provided in this 

Order; (C) shall not affect the 

applicability of any provision of the 

CEA or Commission regulation to 

futures contracts, or options on future 

contracts; and (D) shall not affect any 

effective or compliance date set out in 

any specific Dodd-Frank Act rulemaking 

by the Commission. 

Finally, the Commission may, in its 

discretion, condition, suspend, 

terminate, or otherwise modify this 

Order, as appropriate, on its own 

motion. 

Issued in Washington, DC, on June 29, 

2012, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Exemptive Order 

Regarding Compliance With Certain 

Swap Regulations—Commission Voting 

Summary and Statements of 

Commissioners 

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 Sommers, Chilton, O’Malia 

and Wetjen voted in the affirmative; no 

Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the exemptive order regarding the 

effective dates of certain Dodd-Frank Wall 

Street Reform and Consumer Protection Act 

(Dodd-Frank Act) provisions. 

Today’s exemptive order makes five 

changes to the exemptive order issued on 

December 19, 2011. 

First, the proposed exemptive order 

extends the sunset date from July 16, 2012, 

to December 31, 2012. 

Second, the Commodity Futures Trading 

Commission (CFTC) and the Securities and 

Exchange Commission (SEC) have now 

completed the rule further defining the term 

‘‘swap dealer’’ and ‘‘securities-based swap 

dealer.’’ Thus, the exemptive order no longer 

provides relief as it once did until those 

terms were further defined. 

The Commissions are also mandated by the 

Dodd-Frank Act to further define the term 

‘‘swap’’ and ‘‘securities-based swap.’’ The 

staffs are making great progress, and I 

anticipate the Commissions will take up this 

final definitions rule in the near term. Until 

that rule is finalized, the exemptive order 

appropriately provides relief from the 

effective dates of certain Dodd-Frank 

provisions. 

Third, in advance of the completion of the 

definitions rule, market participants 

requested clarity regarding transacting in 

agricultural swaps. The exemptive order 

allows agricultural swaps cleared through a 

derivatives clearing organization or traded on 

a designated contract market to be transacted 

and cleared as any other swap. This is 

consistent with the agricultural swaps rule 

the Commission already finalized, which 

allows farmers, ranchers, packers, processors 

and other end-users to manage their risk. 

Fourth, unregistered trading facilities that 

offer swaps for trading were required under 

Dodd-Frank to register as swap execution 

facilities (SEFs) or designated contract 

markets (DCM) by July of this year. These 

facilities include exempt boards of trade, 

exempt commercial markets and markets 

excluded from regulation under section 

2(d)(2). Given the Commission has yet to 

finalize rules on SEFs, this order gives these 

platforms additional time for such a 

transition. 

Fifth, the Commission is providing 

guidance regarding enforcement of rules that 

require that certain off-exchange swap 

transactions only be entered into by eligible 

contract participants (ECPs). The guidance 

provides that if a person takes reasonable 

steps to verify that its counterparty is an ECP, 

but the counterparty turns out not to be an 

ECP based on subsequent Commission 

guidance, absent other material factors, the 

CFTC will not bring an enforcement action 

against the person. 

Phased Compliance 

I support the proposed release on phased 

compliance for foreign swap dealers. The 

release provides phased compliance for 

foreign swap dealers (including overseas 

affiliates of U.S. swap dealers) of certain 

requirements of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (DoddFrank Act). 

Such phased compliance would enable 

market participants to comply with the 

Dodd-Frank Act in an orderly fashion. It 

would allow time for the CFTC to receive 

public comment on interpretive guidance on 

the cross-border application of the DoddFrank Act. 

Under the interpretive guidance, in certain 

circumstances, market participants may 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
41120 Federal Register / Vol. 77, No. 134 / Thursday, July 12, 2012 / Proposed Rules 

comply with certain Dodd-Frank 

requirements by complying with comparable 

and comprehensive foreign regulatory 

requirements, or what we call ‘‘substituted 

compliance.’’ The release on phased 

compliance also allows time for the CFTC, 

foreign regulators and market participants to 

continue to consult and coordinate on 

regulation of cross-border swaps activity, as 

well as the appropriate implementation of 

substituted compliance. 

In this period, foreign swap dealers must 

file a plan demonstrating how they will 

eventually comply with Dodd-Frank, which 

in certain circumstances could be through 

substituted compliance. 

The release provides for phased 

compliance in the following manner: 

• Foreign swap dealers would be required 

to register with the CFTC upon the 

compliance date of the registration 

requirement; 

• U.S. and foreign swap dealers must 

comply with transaction-level requirements 

with U.S. persons, including branches of U.S. 

persons; 

• For transaction-level requirements, 

foreign swap dealers, as well as overseas 

branches of U.S. swap dealers, transacting 

with non-U.S. persons is phased for one year. 

• Entity-level requirements (other than 

reporting to SDRs and large trader reporting) 

that might come under substituted 

compliance is phased for one year; and 

• For foreign swap dealers, swaps with 

U.S. persons, including branches of U.S. 

persons, would be required to be reported to 

a SDR or the CFTC. 

In addition, U.S. swap dealers’ compliance 

with certain internal business conduct 

requirements is phased until January 1, 2013. 

The release addresses comments from U.S. 

and international market participants, and I 

look forward to additional input on the 

proposal. 

[FR Doc. 2012–16498 Filed 7–11–12; 8:45 am] 

BILLING CODE P 

INTERNATIONAL TRADE 

COMMISSION 

19 CFR Parts 201 and 210 

Rules of General Application, 

Adjudication, and Enforcement 

AGENCY: International Trade 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The United States 

International Trade Commission 

(‘‘Commission’’) proposes to amend its 

Rules of Practice and Procedure 

concerning rules of general application, 

adjudication, and enforcement. The 

amendments are necessary to make 

certain technical corrections, to clarify 

certain provisions, to harmonize 

different parts of the Commission’s 

rules, and to address concerns that have 

arisen in Commission practice. The 

intended effect of the proposed 

amendments is to facilitate compliance 

with the Commission’s Rules and 

improve the administration of agency 

proceedings. 

DATES: To be assured of consideration, 

written comments must be received by 

5:15 p.m. on September 10, 2012. 

ADDRESSES: You may submit comments, 

identified by docket number MISC–040, 

by any of the following methods: 

—Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

—Agency Web Site: http:// 

www.usitc.gov. Follow the 

instructions for submitting comments 

on the Web site at http:// 

www.usitc.gov/secretary/edis.htm. 

—Email: james.worth@usitc.gov. Include 

docket number MISC–040 in the 

subject line of the message. 

—Mail: For paper submission. U.S. 

International Trade Commission, 500 

E Street SW., Room 112, Washington, 

DC 20436. 

—Hand Delivery/Courier: U.S. 

International Trade Commission, 500 

E Street SW., Room 112, Washington, 

DC 20436. From the hours of 8:45 a.m. 

to 5:15 p.m. 

Instructions: All submissions received 

must include the agency name and 

docket number (MISC–040), along with 

a cover letter stating the nature of the 

commenter’s interest in the proposed 

rulemaking. All comments received will 

be posted without change to http:// 

www.usitc.gov, including any personal 

information provided. For paper copies, 

a signed original and 14 copies of each 

set of comments should be submitted to 

Lisa R. Barton, Acting Secretary, U.S. 

International Trade Commission, 500 E 

Street SW., Room 112, Washington, DC 

20436. 

Docket: For access to the docket to 

read background documents or 

comments received, go to http:// 

www.usitc.gov and/or the U.S. 

International Trade Commission, 500 E 

Street SW., Room 112, Washington, DC 

20436. 

FOR FURTHER INFORMATION CONTACT: 

James Worth, telephone 202–205–3065, 

Office of the General Counsel, United 

States International Trade Commission. 

Hearing-impaired individuals are 

advised that information on this matter 

can be obtained by contacting the 

Commission’s TDD terminal at 202– 

205–1810. General information 

concerning the Commission may also be 

obtained by accessing its Internet server 

at http://www.usitc.gov. 

SUPPLEMENTARY INFORMATION: The 

preamble below is designed to assist 

readers in understanding these 

proposed amendments to the 

Commission Rules. This preamble 

provides background information, a 

regulatory analysis of the proposed 

amendments, a section-by-section 

explanation of the proposed 

amendments to parts 201 and 210, and 

a description of the proposed 

amendments to the rules. The 

Commission encourages members of the 

public to comment on whether the 

language of the proposed amendments 

is sufficiently clear for users to 

understand, in addition to any other 

comments they wish to make on the 

proposed amendments. 

If the Commission decides to proceed 

with this rulemaking after reviewing the 

comments filed in response to this 

notice, the proposed rule revisions will 

be promulgated in accordance with the 

applicable requirements of the 

Administrative Procedure Act (‘‘APA’’) 

(5 U.S.C. 553), and will be codified in 

19 CFR Parts 201 and 210. 

Background 

Section 335 of the Tariff Act of 1930 

(19 U.S.C. 1335) authorizes the 

Commission to adopt such reasonable 

procedures, rules, and regulations as it 

deems necessary to carry out its 

functions and duties. This rulemaking 

seeks to improve provisions of the 

Commission’s existing Rules of Practice 

and Procedure. The Commission 

proposes amendments to its rules 

covering investigations under section 

337 of the Tariff Act of 1930 (19 U.S.C. 

1337) (‘‘section 337’’) in order to 

increase the efficiency of its section 337 

investigations. 

This rulemaking was undertaken to 

make certain technical corrections, to 

clarify certain provisions, to harmonize 

different parts of the Commission’s 

rules, and to address concerns that have 

arisen in Commission practice. The 

intended effect of the proposed 

amendments is to facilitate compliance 

with the Commission’s Rules and 

improve the administration of agency 

proceedings. 

On February 14, 2012, at 77 FR 8114, 

the Commission published a Plan for 

Retrospective Analysis of Existing 

Rules. This plan was issued in response 

to Executive Order 13579 of July 11, 

2011, and established a process under 

which the Commission will periodically 

review its significant regulations to 

determine whether any such regulations 

should be modified, streamlined, 

expanded, or repealed so as to make the 

agency’s regulatory program more 

effective or less burdensome in 

achieving regulatory objectives. During 

the two years following the publication 

of the plan, the Commission expects to 


pmangrum on DSK3VPTVN1PROD with PROPOSALS-1