```

[Federal Register Volume 78, Number 4 (Monday, January 7, 2013)]
[Proposed Rules]
[Pages 909-913]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31734]

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

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.

========================================================================


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

[[Page 909]]

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.

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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 cross-border 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\
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    \1\ See 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).
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    In the two years since its enactment, the Commission has finalized 
41 rules to implement Title VII of the Dodd-Frank 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

[[Page 910]]

applicable to SDs and MSPs have been proposed but not finalized.\6\
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    \4\ 7 U.S.C. 6s.
    \5\ Examples 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).
    \6\ These include rules under CEA section 4s(e), 7 U.S.C. 6s(e) 
(governing capital and margin requirements for SDs and MSPs).
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    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 non-U.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 non-
U.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.
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    \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).
    \9\ See ``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).
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    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 Dodd-
Frank Act.
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    \11\ ``Exemptive Order Regarding Compliance With Certain Swap 
Regulations,'' 77 FR 41110 Jul. 12, 2012.
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    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 non-U.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\
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    \12\ Some 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.
    \13\ The records of these meetings and communications can be 
found on the Commission's Web site at: http://cftc.gov/LawRegulation/DoddFrankAct/ExternalMeetings/index.htm.
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    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 cross-border policy.
---------------------------------------------------------------------------

    \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 
cross-border activities.
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    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\
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    \15\ This is one aspect of the Commission's on-going 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.
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    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

[[Page 911]]

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\
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    \16\ See ``Final Exemptive Order Regarding Compliance with 
Certain Swap Regulations,'' Dec. 21, 2012.
    \17\ See CFTC Division of Swap Dealer and Intermediary 
Oversight, Re: Time-Limited No-Action 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'').
    \18\ The 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 no-
action relief, the Final Order does not limit the availability of 
any no-action relief.
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    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 non-U.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 non-U.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\
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    \19\ 17 CFR 1.3(ggg)(4).
    \20\ Proposed 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.
    \21\ See 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.
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    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\
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    \22\ Also, 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.
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    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 non-U.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 non-U.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

[[Page 912]]

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 non-U.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?
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    \23\ See ``Further Definition of `Swap,' `Security-Based Swap,' 
and `Security-Based Swap Agreement'; Mixed Swaps; Security-Based 
Swap Agreement Recordkeeping,'' 77 FR 48207, 48225 fn. 185, Aug. 13, 
2012.
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    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.
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    \24\ See 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, 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 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.
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    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 
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, 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 majority-ownership 
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\
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    \25\ Unlimited 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 Sec.  
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 Sec.  15.04[5]).
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    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 
``look-through'' 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

[[Page 913]]

(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\
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    \26\ See Letter from Security Industry and Financial Markets 
Association (Aug. 27, 2012) at A-20.
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    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
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