UNITED STATES OF AMERICA 

COMMODITY FUTURES TRADING COMMISSION

OPEN MEETING ON THE 26TH SERIES OF RULEMAKINGS 

UNDER DODD-FRANK ACT 

Washington, D.C. 

Wednesday, April 18, 2012 
PARTICIPANTS: 

Commission Members:

GARY GENSLER, Chairman 

BART CHILTON, Commissioner 

 JILL E. SOMMERS, Commissioner 

SCOTT D. O'MALIA, Commissioner

 MARK WETJEN, Commissioner 

Presentation 1: Final Rule on Commodity Options 

DON HEITMAN, Division of Market Oversight 

RYNE MILLER, Division of Market Oversight 

DAVE ARON, Office of General Counsel 

RICK SHILTS, Division of Oversight 

STEVE KANE, Office of the Chief Economist

Presentation 2: Final Rule on Further Definition 

of "Swap Dealer", "Security-Based Swap Dealer", 

"Major Swap Participant", and "Eligible Contract 

Participant"

JEFF BURNS, Office of General Counsel 

MARK FAJFAR, Office of General Counsel 

DAVE ARON, Office of General Counsel 

DAN BERKOVITZ, Office of General Counsel 

STEVE KANE, Office of the Chief Economist

* * * * * 
P R O C E E D I N G S

(9:37 a.m.)

CHAIRMAN GENSLER: This meeting will 

come to order. It's a Public Meeting of the 

Commodity Futures Trading Commission to consider 

final rules under the Dodd-Frank Act. I'd like 

to welcome members of the public, market 

participants and members of the media, as well as 

those listening on the webcast. Today is our 

twenty-sixth open meeting on Dodd-Frank rules and 

we will consider two final rules today, one the 

further definitions of entities. This is a joint 

rule with the Securities and Exchange Commission. 

I am very happy to have this meeting happening 

concurrently with the Securities and Exchange 

Commission that is also conducting its meeting 

this morning on this important joint rule. 

Secondly, a rule with regard to commodity options 

which we'll discuss first.

I want to thank Commissioners Sommers, 

Chilton, O'Malia and Wetjen for their significant 

contributions to the rule-writing process and of 

course the very hardworking and dedicated staff 

of the CFTC. I also want to thank the Securities 
and Exchange Commission's five Commissioners, 

Chairman Shapiro, Commissioners Walter, Aguilar, 

Paredes and Gallagher. The two commissions 

worked hand in hand on the entity definitions rule 

and I really want to say it has been a true 

collaborative effort among 10 Commissioners and 

two hardworking and dedicated staffs.

I'm going to go a little long on my 

opening statement because I think this is such an 

important rule, so I ask forgiveness from the 

Commissioners. Today's rules both of them I think 

provide market participants greater clarity 

regarding key terms in the Dodd-Frank Act and the 

regulatory reach of the law. We received 

significant public comment on both of these 

proposals and I think the final rules that we'll 

vote on today greatly benefited from important 

public input.

With regard to the entity definition, 

regulating banks and other firms that deal in 

derivatives is central to financial reform. 

Leading up to the crisis, it was assumed that many 

swap dealers were largely regulated, but the 2008 

crisis revealed the inadequacy of this approach. 
While banks and securities firms are regulated 

for their lending and securities activities, 

there was no comprehensive regulation of their 

swap dealing activity. Furthermore, their 

affiliates trading swaps often had ineffective or 

no oversight. Exhibit 1, AIG, a regulated 

insurance company, but its swap affiliate brought 

down the company and as we all know nearly toppled 

the U.S. economy. The CFTC is well on the way of 

implementing reforms Congress mandated in 

Dodd-Frank to regulate dealers and help prevent 

another AIG and the Commission's finished rules 

with regard to swap dealers and their sales 

practices and their fair dealing with customers 

providing balanced communications and 

disclosures. In addition, the agency has 

finalized rules requiring swap dealers to 

establish policies to manage risk as well as put 

in place firewalls between their trading, 

clearing and research operations. Today's rule 

is critical to define who is a swap dealer and what 

we'll vote on today will further define these 

entities built on the significant progress in 

lowering risk that the swap dealers post to the 
rest of the economy. I think the rule fulfills 

Congress' direction to define the terms swap 

dealer and of course major swap participant and 

eligible contract participant and appropriately 

addresses the many comments we've received. It 

will provide the essential direction to market 

participants on whether they're required to 

register. The final rule gives market 

participants guidance on the definition of swap 

dealer and I'm going to go through six or so things 

that I think were critical.

First, if does to by allowing market 

participants to draw on useful precedents 

developed by the Securities and Exchange 

Commission that distinguishes dealing from 

trading. There are a lot of things that have gone 

before us and I think we've built upon that good 

work over at the SEC. I see Annette Nazareth there 

who was an SEC Commissioner. Hi, Annette. Second, 

it does so by providing further clarity on the 

Dodd-Frank Act terms "makes a market in swaps." 

These five simple words have gotten a lot of 

discussion at this Commission. But by focusing 

these five words on entities that routinely seek 
to profit by accommodating other market 

participant's demands for swaps I think we help 

give clarity.

Third, it does so by clarifying another 

set of key word that the statute uses, this time 

two words, "regular business" by focusing on 

whether a person really has an identifiable swap 

dealing business. Fourth, it does so by 

fulfilling Congress' mandate that swaps entered 

into by an insured depository institution, a/k/a 

bank, in connection with originating a loan are 

not be considered dealing activity. Fifth, it 

does so by proving direction on the distinction 

between hedging and dealing, and within this we 

went a little further where we provide a specific 

rule for swaps that hedge price risk associated 

with a physical commodity. Sixth, I think we 

provide clarity by clarifying that swaps between 

agricultural cooperatives or cooperative 

financial institutions and their members does not 

constitute dealing. Seventh, it does so by 

setting a di minimis threshold for swap dealing 

as directed by Congress. This threshold is $3 

billion total in the final rule across asset 
classes, subject to a phase-in level of $8 billion, 

but as we propose, the final rule would define a 

swap dealer as any entity with more than $25 

million, that's million and not billion, of 

dealing activity with pension funds and 

municipals, so-called special entities. True to 

congressional intent, end users other than those 

genuinely making markets in swaps won't be 

required to register as swap dealers. I repeat. 

If you're not genuinely making a market in swaps, 

you're not going to have to register as a swap 

dealer. I think that's what this rule is about. 

The swap dealer definition benefits from many 

comments. As the dealer market is dominated by 

large entities though, I believe the final swap 

dealer definition will encompass the vast 

majority of swap dealing activity, I focus on the 

word activity more than I do by entities and I 

think this is what Congress intended.

For those who question the level of di 

minimis, we considered the di minimis threshold 

in the context of an overall $300 trillion 

notional swaps market. Further, the statute 

defines swap dealing by referencing making a 
market in swaps, those five key words, and 

conducting a regular business, those two key 

words, in swaps. The $3 billion threshold just 

to put it in context represents $12 million of 

trading a day, and the phase-in number of $8 

billion represents $32 million of notional 

trading a day. Those sound large to the American 

public, but let me put them in perspective if I 

may. The interest rate swap market transacts on 

average over $500 billion notional per day, so the 

di minimis of $32 million a day is in the context 

of a $500 billion notional a day market. As a 

further reference, this year the futures market 

in crude oil trading which of course has gotten 

quite a bit of focus and attention as there should 

be as of late, the crude oil market in futures 

trades $65 billion notional per day to put into 

context the di minimis that we may be voting on 

later.

During this phase-in period the 

commissions will also collect and analyze data to 

evaluate the appropriate di minimis and I think 

we will greatly benefit as we go along from 

learning and seeing how the markets evolve. 
Another question that has been raised is whether 

the swap dealer definition should appropriately 

be activities based or relate to how an entity is 

classified. The final rule is consistent with 

congressional intent that we take up an 

activities-based approach. Though many of these 

large swap dealers are financial entities, 

Congress anticipated that some nonbanks would be 

registered as swap dealers. Congress provided in 

Dodd-Frank the capital margin for instance for 

bank dealers would be set by the bank regulators. 

But they also said that for nonbank swap dealers, 

capital margins would be set by the CFTC. So I 

think Congress already understood this would be 

activities based and there may be some nonbank 

dealers. Instructive further in this regard is 

a list of primary dealers kept by the 

International Swaps and Derivatives 

Association's website which includes a number of 

nonbank dealers. The association describes as 

meeting that designation is an entity that, and 

this is from their website, "deals in derivatives 

as part of its business," so that they include 

some nonbank dealers as well which is instructive. 
I think Congress closed the so-called Enron 

loophole that lets traders evade oversight by 

using electronic trading platforms, but I think 

it's also important to recall that Enron was also 

a swap dealer, the Enron that failed 10 years or 

so ago. I think Congress did not intend to create 

a new type of loophole in its place.

The rule we'll consider today also 

further defines the term major swap participant, 

relying on Congress' three- pronged test. This 

category, I think it was congressional intent 

where we will finalize the rule, clearly is 

limited to only those entities with swaps 

positions that pose a risk large enough to 

threaten the U.S. financial system. The 

definition rule also will further define eligible 

contract participant which provides guidance 

regarding who is eligible to transact swaps off 

of an exchange. And based on the many comments 

received, we incorporated further guidance to 

ensure that small businesses and real estate 

developers can continue to have access to swaps 

to hedge commercial risk. The final rule also 

clarifies how this ECP definition applies to 
certain foreign exchange transactions done by 

commodity pools.

Swap dealers and major swap 

participants registered with the commissions, 

the SEC or CFTC, will also be looking forward to 

seeing us finalize the definition of swap and 

securities-based swaps. As the commissions work 

to complete this rule, the CFTC will issue for 

public comment a proposed extension of the 

temporary exemptive order regarding the 

effective date of certain provisions of 

Dodd-Frank. We've done this twice before. I've 

publicly been committed that we are not doing this 

against the clock. We're doing this against a 

balanced approach to get these rules right. I 

also anticipate that the Commission will 

explicitly seek public input on the cross-border 

application of Title VII and we may look for an 

appropriate approach to phased-in compliance for 

certain requirements for cross-border swap 

dealers. There is a lot of work here at the 

Commission to get this balanced and get it phased 

in appropriately.

I've gone on a long time, but I thought 
these were important matters to cover. We're also 

going to be hearing from this excellent team in 

front of us today. We will consider the final rule 

on commodity options. I want to give a little 

shout out to Don Heitman. Don is completing 30 

years at the CFTC and 37 years in government and 

was set to retire last year and we coaxed and 

convinced him to stay to complete several rules 

with us, so I want to thank you for an excellent 

job not only on this rule but your career here at 

the CFTC.

The Dodd-Frank Act includes commodity 

options with the statutory definition of swap so 

that today's rule has to look and see what to do 

with that, and it confirms that the same rules 

apply to commodity options as applicable to swaps 

just as the law directs. But in addition, we 

thought it appropriate to consider and seek 

comment on an interim final rule to provide that 

a trade option, that's a type of commodity option, 

has an exception from certain of the rules as 

these are physically delivered contracts. We 

received a lot of feedback from commercial market 

participants that commodity options used by 
commercial entities to deliver and receive 

physical commodities in connection with their 

business don't need the same level of oversight 

as swaps. I will say I agree with that. However, 

the trade options will still be subject to certain 

rules, position limits, appropriate reporting 

and recordkeeping and antifraud and 

antimanipulation rules, but we will be seeking 

additional comment as we move forward.

After today we have a lot yet to do. We 

need to complete further rules with the SEC as 

well, but this is the first of the two significant 

definitional rules. I think it is now critical 

that we turn our attention to that which is so 

necessary to get implementation of position 

limits which are also critical to the markets. If 

we are to move forward today on these two rules, 

this will be finalizing 31 of the Dodd- Frank 

financial reforms, and though with today's final 

rules we will be more than halfway done, much work 

needs to be done to complete and fulfill the 

promise of Dodd-Frank reform and to protect the 

American public.

As the G-20 summit comes together here 
in Washington this week, I'm reminded of a 

commitment made in 2009, 3 years ago at the summit 

in Pittsburgh, when the G-20 leaders agreed that 

by the end of this year, 2012, all standardized 

over-the- counter derivative contracts should be 

reported to trade repositories, cleared and 

traded on platforms as appropriate. The goal was 

that these reforms would be in place by the end 

of the year and the CFTC is on track to meet this 

goal that our President made. I thank you and I'm 

going to hand it over to Commissioner Sommers.

COMMISSIONER SOMMERS: Thank you, 

Mister Chairman, and I want to thank the 

rulemaking teams that are before us today for 

their hard work and diligence in crafting these 

rules.

We have before us a final rule on 

commodity options, an interim final rule 

establishing a trade option exemption and the 

critical, long awaited final rules further 

defining swap dealer, major swap participant and 

eligible contract participant. These entity 

definitions along with the upcoming product 

definitions are the key components of the 
foundation upon which this new Dodd-Frank 

regulatory regime is being built. All of the team 

members deserve our gratitude, but I would 

specifically like to recognize the entity 

definition teams from both here and the SEC that 

have worked together over the past 18 months 

through many policy challenges to get this rule 

in a final form as well as being sensitive to the 

concerns of 10 individual commissioners. You've 

all done a tremendous job.

When compared with the December 2010 

proposed rules, the final rules we consider today 

reflect substantial process toward crafting 

sensible, reasonable rules that have built-in 

flexibility where appropriate which at the same 

time providing much-needed certainty to market 

participants without being unnecessarily heavy 

handed. Are these the rules I would have drafted 

if I held the pen from the beginning of the process? 

No. Nonetheless, I recognize that the final rules 

are much better than the proposed rules and I am 

pleased that we have worked hard to try to build 

a consensus around these critical foundational 

rules.
Before I discuss the specific elements 

of the rules we consider today, there is a 

footnote in the entities definition rules that 

particularly caught my eye. Footnote 421 states 

in part, "It does not appear possible to 

demonstrate empirically let alone quantify the 

increase or decrease in the possibility that a 

financial crisis would occur at a particular 

future time and with a particular intensity in the 

absence of financial regulation or as a result of 

varying levels of types of financial regulation." 

This statement is an honest reflection of how we 

don't know what impact if any either positive or 

negative our regulations will have relative to a 

future financial crisis. And we certainly have 

not truly considered the possibility that all of 

our regulatory activity here may not prevent a 

future financial crisis. It is clear from this 

footnote that we cannot say with any degree of 

certainty that the American public will be better 

protected after we complete this multiyear 

regulatory exercise.

Two things are certain. We are not sure 

our regulations will result in tangible benefits, 
and we know the costs associated with our 

regulations will be great. Embedded in the 

financial entities rules is an interim final rule 

that excludes from swap dealing activity those 

swaps that are used for hedging. The definition 

of hedging in this interim final rule is 

consistent with although not identical to the 

definition of bona fide hedging in the position 

limits rules and it is not consistent with the 

definition of the end user exemption proposed 

rules and the MSP final rules so that we will have 

at least three different meanings for hedging in 

our new rules. It is not clear to me why the

hedging definition for swap dealers should be 

different than the hedging definition for MSPs 

and end users or diverge from the SEC's hedging 

definition for major security-based swap 

participants. There are a series of questions 

associated with the interim final rule asking for 

comment on the impact of those inconsistent 

hedging definitions. I urge the public to comment 

on this interim final rule and if we have it wrong 

tell us why and provide specific examples and 

analyses.
Two other important issues addressed in 

the swap dealer definition are allowing insured 

depository institutions to exclude from swap 

dealing activity commodity swaps entered into in 

connection with loan origination and the ability 

of proprietary traders who meet specific criteria 

to register as floor traders pursuant to CFTC 

Regulation 3.11 instead of registering as swap 

dealers. Allowing for registration as a floor 

trader recognizes the reality that certain 

proprietary traders with no customers who do not 

negotiate swaps with counterparties and who only 

interact with counterparties on a designated 

contract market or swap execution facility are 

traders and not dealers. Because the Commission 

has an interest in these traders and their market 

activity, requiring registration as a floor 

trader strikes the appropriate balance between 

our regulatory interests and the burdens 

associated with registering as a swap dealer.

I am also very supportive of the 

phase-in period for the di minimis level which 

will initially be set at $8 billion. I think it's 

important for the commissions to review the 
relevant data, to issue a study, receive public 

feedback and then analyze the information before 

setting a final level. This data which is not 

currently available to us will be critical to the 

policy determination of how we define the 

appropriate amount of di minimis trading. With 

regard to commodity options, the final rule on 

trade option exemption interim final rule, I 

believe the final rule permits market 

participants to trade commodity options which are 

now statutorily defined as swaps subject to the 

same rules applicable to every other swap. This 

rule serves to clarify any inconsistency in the 

treatment of options in the pre-Dodd- Frank 

commodity option rules and current Dodd-Frank Act 

provisions. It provides some certainty to market 

participants who rely on commodity options. 

While I support this rule, I would have preferred 

to address this issue once we have tackled the 

product definitions rulemaking and had defined 

the term swap. It is my hope that the final 

product definition rules will sufficiently 

distinguish spot, forward and other transactions 

which may have an aspect of optionality from 
swaps.

With respect to the interim final rule 

which sets out the trade option exemption, I must 

say that I'm pleased that the team took into 

account the public comments and incorporated a 

trade option exemption to ensure hedging 

opportunities for commercial entities regardless 

of their size or sophistication. Again if market 

participants do not think this trade option 

exemption is broad enough, I encourage them to 

comment. That is the purpose of the interim final 

rule. The interim final rule places Part 45 

reporting requirements on parties are otherwise 

obligated to report. For entities that do not 

have Part 45 reporting obligations, the interim 

final rule proposes some recordkeeping and annual 

filing requirements. I do not want to put 

unnecessary administrative burdens on 

hardworking Americans who are trying to hedge 

their commercial activity. I believe that these 

reporting requirements strike an appropriate 

balance between providing the Commission with the 

information it needs and reducing the unnecessary 

burdens for commercial hedgers, but I welcome the 
input and comments on this interim final rule. 

Again I want to thank both of the teams who are 

before us today and look forward to the discussion 

on the rules.

CHAIRMAN GENSLER: Thank you, 

Commissioner Sommers, and I particularly thank 

you for all of your hard effort that your work and 

your team has put into these rules and the joint 

effort we made on those two items that you 

mentioned, I mean all of the items, but 

particularly on the floor trader and the insured 

depository institution points that we did over 

the last, I know it's been a long time, six days 

of really constructive dialogue. Thank you.

COMMISSIONER SOMMERS: I appreciate the 

help and also the help of Commissioner Wetjen on 

all of these issues.

CHAIRMAN GENSLER: Commissioner 

Chilton?

COMMISSIONER CHILTON: May I defer for 

a moment to Commissioner O'Malia?

CHAIRMAN GENSLER: Commissioner 

O'Malia?

COMMISSIONER O'MALIA: Here is my 
opportunity.

CHAIRMAN GENSLER: You're going before 

Commissioner Chilton.

COMMISSIONER WETJEN: Does that mean 

I'm still last?

CHAIRMAN GENSLER: Commissioner 

Chilton wants to be clean-up batter today.

COMMISSIONER O'MALIA: I too would like 

to start my remarks today by personally thanking 

the teams that are present, the great work of all 

the work that they've put in, tireless hours, days, 

months staff is dedicated to writing the rules. 

I am well aware that we have 700 pages of rules 

before us and it takes a lot to produce that, to 

go through that and all the edits. The Lorax would 

not be happy, but it is great work to have all 

their efforts to listen to us, comment and respond 

to us, so I appreciate their work on all of those 

things. They've also been responsive to the 

industry at hundreds of meetings and analyzing 

hundreds of letters is no small feat. Obviously 

SEC's staff deserves compliment as well. This is 

a joint rule, we're working with them so that we 

can't forget to mention their hard on this as 
well.

The final rules that are before us today 

will establish the cornerstone of the Commission 

rules under Title VII. For that reason it's 

paramount that the Commission issue these rules 

in the right way not only in terms of the right 

policy, but in terms of sound legal analysis. One 

set of final and interim rules further defines 

principal participants in swap markets, swap 

dealers, major swap participants and eligible 

contract participants. Given the weakness in 

concentrations of the risks exposed in the 2008 

financial crisis, it is appropriate that the 

Commission adopt final entities rules today. 

Unfortunately, however, I am unable to support 

the rule not because it fails to make positive 

policy choices, but it undertakes several 

unnecessary and astonishing contortions to 

achieve these rules, not to mention it will make 

compliance with these rules extraordinarily 

difficult and costly. I have a number of concerns 

with each definition in the final entities rule, 

but I will focus on the legal analysis described 

on the swap dealer definition.
Simply put, the Commission's rationale 

in the final rules defining swap dealer have 

ignored the basic canons of statutory 

construction by simply not excluding commercial 

end users as swap dealers. Today the Commission 

has erected the final entities rule on an infirm 

scaffold of the proposal. At the proposal stage 

and now, I have supported providing absolute 

certainty to commercial end users that their swap 

activities whether to mitigate financial or 

physical risks, will not deem them to be swap 

dealers. Not only have we misconstrued the 

statute, but we have also ignored congressional 

intent regarding hedging and providing certainty 

to end users who are not dealers. In addition, 

the final rule is silent on the matter in which 

the hedge definition in the interim final rule 

interacts with the end user exemption rulemaking. 

Therefore, if the Commission overreaches in 

defining swap dealer, it may narrow the end user 

exemption in a way that is incongruent with 

congressional intent. More specifically, I would 

have liked to have seen a consistent hedging 

definition in the interim final rule that would 
allow commercial firms trading both financial 

swaps and physical commodity swaps not to have 

counted either in their swap dealing activities. 

The best approach would have been for the 

Commission to permit nonfinancial entities to use 

the same hedging definition as provided for major 

swap participants. The SEC has wisely adopted 

this approach. I think it is important to note 

that a great deal of Commission analysis was 

drafted in the days leading up to today's final 

meeting. Although I have strong concerns 

regarding the Commission's interpretive 

gymnastics, I think the industry can breathe a 

little easier today knowing that the Commission 

finally has seen the light by raising the di 

minimis threshold which masks many of the 

challenges commercial end users would have faced 

if the threshold had remained at a much lower 

level. The Commission has made many positive 

policy changes to today's rules. To enable these 

changes, however, the Commission engages in a 

series of statutory contortions. As a result, 

staff will likely spend several years issuing 

guidance and cleaning up obtrusive, obtuse 
reasoning found in the final definition. Mr. 

Chairman, I have prepared a dissent that I will 

include in the record that will more thoroughly 

explain my views.

The other set of interim final rules 

before the Commission today repeal and replace 

the Commission's current regulations concerning 

commodity options and incorporate the trade 

option exemption for physically settled 

commodity options. Unlike the first set of rules, 

I support the final commodity option rule and 

interim final rule. In particular, I support 

these rules because the Commission, one, has 

accurately interpreted the relevant provisions; 

two, is issuing a rule that will provide 

transparency in the commodity market; and three, 

has taken time to carefully analyze the costs and 

benefits of the final rule and the interim final 

rule. I applaud the work of Don Heitman and Ryne 

Miller and their team to include a thoughtfully 

crafted exemption that will allow end users and 

eligible contract participants to trade options 

on physically -- commodities subject to certain 

conditions. Of significant note in this 
rulemaking is the cost-benefit analysis which 

sets forth a good template for upcoming 

rulemakings to follow. Specifically, it 

identifies alternatives. Second, it includes a 

robust discussion of the Section 15(a) factors. 

Third, it contains an appropriate baseline. 

Although the cost-benefit analysis on the interim 

final rule does not quantify the costs imposed on 

the trade option definition and the conditions to 

this exemption, the team provided an explanation 

of why these costs are not presently quantifiable 

in a series of detailed questions seeking public 

input and data regarding costs and benefits 

resulting from this rule, so I appreciate their 

efforts enormously.

In conclusion, I would like to thank the 

teams for their hard work in putting together 

these two rules, and in particular I'd like to 

single out one staffer for special recognition. 

Nancy Schnabel has been my counsel for the past 

years and has spent the last 3-1/2 years at the 

Commission working in what used to be Division of 

Clearing and Intermediary Oversight. I'm sorry 

to report that Nancy will be leaving the 
Commission. Nancy arrived at the Commission just 

a week before the Lehman bankruptcy and has 

learned the clearing business inside and out. She 

has been rewarded for her excellent work by being 

named the team lead for the governance rulemaking 

which was one of the very first draft proposals 

considered by the Commission. Like her 

colleagues in DCIO, now the Division of Clearing 

and Risk, I have come to appreciate her keen legal 

analysis and depth of understanding of the 

Commission rules. Nancy has been a key resource 

in sorting out the facts as well on the MF Global 

bankruptcy and has untangled the complexity of 

the final entities rulemaking. Nancy is not going 

off to advise some client on the application of 

the end user exemption, but is extending her 

government service and expanding her knowledge on 

clearing and oversight matters with another 

government entity. I've benefited by her sound 

counsel and her friendship and I am sorry to see 

her go. I hope you will join me in wishing her 

the best of luck and her assistance. We wish her 

well going forward. Nancy, thank you very much. 

That's all I have, Mr. Chairman.
CHAIRMAN GENSLER: Thank you, 

Commissioner O'Malia. With regard to Nancy, it's 

been terrific. When I heard this in the last 

couple of days I was sorry, but glad you're ending 

up at another governmental agency. It was always 

a little better when you were on our side doing 

the team lead than when you were with Commissioner 

O'Malia. You're an enormously talented advocate 

for your principle, but I think the rules were 

always better for it and usually we got 

Commissioner O'Malia and me to get to the same 

place. We tried very hard today and we almost got 

there, Commissioner O'Malia, but I appreciate all 

that you've put into this entity rule because I 

think it's better for what you've put into it as 

well even if we didn't get you all the way there. 

Back to you, Commissioner Chilton or Commissioner 

Wetjen.

COMMISSIONER WETJEN: I was joking 

about that, but this is a happy occurrence for me 

not to have to be the last person.

I want to thank the Chairman for all 

your hard work on this rule and your nimbleness 

and flexibility in working with the rest of us 
Commissioners these last few days. In particular, 

it's very, very appreciated and will result in us 

getting to even more consensus than what we had 

and makes the rule better. So I just want to thank 

you for that. I want to thank staff for your 

flexibility as well. There have been a number of 

last-minute changes which can be difficult to 

deal with at the staff level I know, but we 

appreciate it very much.

Congress gave the CFTC a critically 

important task to further define the term swap 

dealer and major swap participant or MSP. 

Congress intended that these entities be subject 

to a new regulatory regime in order to control 

systemic risk and to prevent fraud and other 

market abuses. Accordingly, entities that fall 

within these definitions will be subject to 

capital and margin rules to reduce the risk that 

they posed to the financial system. They will be 

subject to our recently adopted requirements to 

avoid material conflicts of interest, maintain 

proper documentation and ensure proper risk 

management and compliance. And they will be 

subject to standards to ensure fair dealing in 
their transactions with counterparties generally 

and special entities in particular.

These new requirements address serious 

problems that have occurred in the 

over-the-counter markets and are designed to 

serve the public good. Yet if the final 

definitional rules sweep too broadly, some 

entities may conclude that they cannot run the 

risk of being a swap dealer or MSP and therefore 

determine to reduce their activities in the swap 

markets. The resulting decrease in liquidity 

could make it more difficult for commercial end 

users to manage the risks and this in turn could 

well mean higher prices to consumers for food and 

energy.

It is therefore imperative that the 

Commission together with our colleagues at the 

SEC strike the right balance in these definitions. 

Under Dodd-Frank the statutory definition of a 

swap dealer is activities based. The 

Commission's proposal identified a number of 

activities that in general would constitute swap 

dealing, but as many commenters told us, these 

activities frequently are undertaken by entities 
that are considered in other contexts to be 

traders or commercial end users. One person 

compared our task of defining swap dealers to 

understanding the wave particle duality present 

in visible light. In other words, just as light 

exhibits both wave and particle characteristics, 

those with a significant present in the markets 

often exhibit both dealer and trader 

characteristics. While certainly not as weighty 

as quantum physics, determining where the 

activities of end users and traders end and those 

of swap dealer being is difficult. In answering 

that challenge, I believe the Commission should 

be guided by the following three principles. 

First, we must provide clarity. Granted, it is 

not possible to come up with a bright-line test 

that easily addresses all circumstances and is 

not susceptible to abuse or evasion, but the line 

we draw much be bright enough. The businesses 

that do not come anywhere that line must be 

assured they are not swap dealers. In short, 

compliance should not a guessing game.

Second, we would err on the side of 

caution. We cannot predict how the swap markets 
will evolve in a world of clearing requirements, 

exchange trading and mandatory reporting. In 

these circumstances and given the Commission's 

limited resources, it is prudent and responsible 

policymaking to cast the net in a carefully 

measured way.

Third, we should keep our attention 

focused on those activities that were the focus 

of Congress' attention. Among other things, 

Congress acted to protect our markets to make sure 

commercial firms can continue using them to 

manage risk and finance their businesses. But the 

focus of Dodd-Frank was not on regulating as 

dealers those commercial firms that only use 

swaps in connection with their manufacturing, 

producing or transporting of physical goods or 

commodities. Our focus therefore should be on 

regulating as dealers those firms whose 

activities pose risk to the uses of our markets 

and pose systemic risk to our financial system as 

a whole.

I believe the final rulemaking before 

us today adheres to these principles. It provides 

further guidance to market participants 
concerning what is and what is not dealing 

activity. As a general matter, the rule makes 

clear that entering into a swap solely to serve 

an entity's own investment, liquidity or 

risk-management need is not swap dealing even if 

that swap also happens to serve the business needs 

of the counterparty. This general guidance is 

supplemented in two specific ways. First, the 

Commission is adopting an interim final rule that 

will exclude bona fide hedging activities from 

the swap dealer definition. A firm that enters 

into swaps to hedge its price risks in the 

physical markets will have clarity on the 

following point. These hedging activities will 

not be considered in determining whether that 

firm is engaged in dealing activity. The rule 

text explicitly permits anticipatory hedging of 

physical price risk, and the preamble also 

provides that portfolio and dynamic hedging are 

contemplated by the definition. But we are also 

seeking comment on this interim final rule and I 

look forward to hearing from the public on the 

application of the rule's hedging exclusion 

including whether it should be expanded to cover 
other types of hedging activity as well.

Second, our final rule clarifies that 

the so-called dealer-trader distinction provides 

a useful framework for identifying swap dealers. 

The dealer-trader distinction has developed over 

the course of several decades as courts and the 

SEC have endeavored to define the term dealer 

under the securities laws. The public comments 

indicate that market participants are 

comfortable that they understand the contours of 

the dealer-trader distinction. To be sure, it is 

not a perfect fit for the swap markets, and in fact, 

the release notes that it is not a perfect fit for 

the security-based swap markets either. But it 

does inform our interpretation of all four prongs 

of the swap dealer definition and it provides a 

starting point for each person's analysis of its 

swap activities that are not explicitly excluded 

under the final rule. These activities could 

include, for example, other hedging that does not 

neatly fall into the rule's hedging definition. 

The rule's treatment of the statutory di minimis 

and IDI exclusions from the swap dealer 

definition also reflect the guiding principles 
mentioned earlier. I have stated before my belief 

that the Commission should reexamine its rules on 

an ongoing basis and consider adjustments as 

additional data is obtained and the markets 

evolve. Consistent with this view, an initial di 

minimis threshold is set while the Commission

collects comprehensive data on the swap markets. 

Staff will then analyze that data and recommend 

thresholds for the Commission's consideration. 

For now, I believe this is a sensible means of 

implementing this exclusion. It is appropriate 

to consider these thresholds once the Commission 

has a more informed basis to do so.

Importantly, the final rule provides a 

much lower notional di minimis threshold for 

swaps with special entities. This avoids 

undermining the Commission's protections for 

governmental entities, pension plans and 

endowments. Regarding the IDI exclusion in 

Dodd-Frank, we received extensive comments 

regarding the timing, purposes and scope of the 

exclusion. The final rule makes several 

adjustments to the proposal that I believe are 

appropriate and consistent with congressional 
intent. I am aware that some would like the 

Commission to narrow the swap dealer definition 

and other areas, but our duty is to implement the 

statute that Congress enacted based on the words 

that Congress used in addressing the role that 

swaps and swap dealers played in contributing to 

the financial crisis. Further attempts to narrow 

or otherwise clarify this rule were by and large 

prevented due to the constraints of the statute, 

not necessarily disagreements on policy. I 

believe the swap dealer rule is faithful to the 

guiding principles I stated at the outset, are 

remaining true to the statute and therefore I will 

be supporting staff's recommendations.

I also will be supporting the MSP 

definition in this rule. In the interests of time 

I will now discuss each aspect of it, but a number 

of important changes have been made to the 

proposed MSP definition including a change to 

reduce the clearing discount factor which is 

consistent with Congress' focus on clearing as a 

means to reduce systemic risk. The final MSP rule 

also will ensure that firms having the potential 

to affect the stability of the financial system 
due to their risk exposures or use of leverage do 

not escape appropriate oversight. We do not 

expect there to be many MSPs, but the final rule 

assures that there is no corner of the markets 

where extremely large positions can be held 

without safeguards.

The rule before us today also further 

defines the term "eligible contract participant" 

which will close a loophole that operators of 

foreign exchange Ponzi schemes could use to 

operate outside of the Commission's jurisdiction. 

Under the final ECP definition, fraudsters will 

not be able to combine funds into a large 

commodity pool in order to evade our retail Forex 

regime. At the same time, the final rule 

appropriately includes changes from the proposal 

to prevent untended consequences for the many 

funds that operate well within the law and that 

provide valuable foreign currency trading 

opportunities for investors and hedgers.

The final commodity options rule 

permits such options to trade like any other swap. 

We have heard the nearly unanimous view of 

commenters who stress the need for an exemption 
for physically settled trade options which 

historically has been available for nonag 

commodities. The Commission is adopting a trade 

option exemption that retains certain 

requirements to enhance market oversight. It is 

an interim final rule in which the Commission is 

seeking comment and I look forward to receiving 

further public input on the availability and 

conditions of the exemption. To be clear, the 

Commission's final products rule will address 

whether a commodity option or other transaction 

with optionality such as a volumetric option 

meets the swap definition in Dodd-Frank. Today's 

rule applies only to option contracts that are 

swaps under our forthcoming definitions rule. 

Thank you again to the professional staff and my 

fellow Commissioners both here and at the SEC and 

I will address the few remaining issues through 

my questions. Thanks very much.

CHAIRMAN GENSLER: Thank you very much, 

Commissioner Wetjen for those thoughtful 

comments and for all the hard work that you've put 

in, always looking out for those three concepts 

that you mentioned which are very good concepts. 
Commissioner Chilton? You're going last.

COMMISSIONER CHILTON: Thanks, Mr. 

Chairman and thanks for the indulgent 

Commissioner O'Malia and Commissioner Wetjen.

Both of these rules are good rules and 

I intend to support them both. The commodity 

options rule is good and I thank the team for that, 

and the entities rule is really part of the 

underlying architecture of our whole overview 

into the over-the-counter markets. The entities 

rule and our products rule are really the two 

pillars of that architectural foundation and I 

hope as you said that we get to that products 

definition rule sooner rather than later.

CHAIRMAN GENSLER: Absolutely 

committed.

COMMISSIONER CHILTON: Thank you. When 

I first came to Washington my wife and I took one 

of these tour mobile things and they talked about 

how no building could be higher than the 

Washington Monument, 555 feet. It turns out 

that's not true. It's an urban myth. There was 

something in the "Post" recently about it, that 

it's just the building code, that it's not the 
Washington Monument. But if it were true that no 

building could be higher than 555 feet, it would 

really be arbitrary, an arbitrary architectural 

constraint. That's what we've tried to avoid in 

these rules, arbitrary constrains, that can say 

to a market participant you can't be taller than 

this. We've tried to avoid that and I think we've 

done a good job in general and particularly on the 

entities rule. What we've done is we've I think 

set out a rule that will actually help markets 

flourish and help grow the economic engine of our 

democracy. So essentially as my colleague said, 

we've defined what the entities are, we've got 

certain handholds on them, but they're not 

arbitrary. They're very thoughtful and we've 

worked hard to make them thoughtful.

Secondly, we've also said that we 

understand that there are some market 

participants who actually don't fit squarely into 

a definition like proprietary HFT cheetahs that 

are using their own money, that maybe they have 

a separate sort of definition. So those guys who 

I've called for and others have and I've worked 

with Commissioner O'Malia on this, those guys I 
think also need to be registered, but maybe 

they're not a swaps dealer. Maybe they don't have 

sort of the same -- they don't look the same, so 

I'll have some questions when we get to the rule 

about that, Mr. Chairman. But I think we've 

devised a detailed and thorough blueprint to set 

up this architectural regulatory structure. I 

thank staff, I thank all of my Commissioners 

particularly the Chairman who worked over the 

weekend with us, with all of the Commissioners, 

trying to do everything he can, and I thank 

Chairman Shapiro and colleagues at the SEC. And 

I also thank the public and the market 

participants who have been coming in to us for 

months and months and months telling us their 

views about this. Thank you very much, Mr. 

Chairman.

CHAIRMAN GENSLER: Thank you. It was 

as lovely weekend. It worked. I think it was good. 

With that, we've spoken so much about entities, 

that was just the warm-up act for commodity 

options. Don, your service to this Commission and 

to the American public is remarkable, but since 

this is an interim final, you might actually serve 
us a little longer if that's all right when we get 

those comments. Don Heitman, Dave Aron who will 

be here again on the entities rule, Ryne Miller, 

Rick Shilts from the Division of Market Oversight 

and Steve Kane who is from our Office of Chief 

Economist and has been ever present on this and 

other rules on cost-benefit considerations. Don?

MR. HEITMAN: I feel a little bit like 

the under card before the heavyweight 

championship match. I'd like to thank the other 

members of the swaps and options team 

particularly Steven Kane our economist and David 

Aron who is our OGC guy who is also doing double 

duty for the entities team, and Ryne Miller who 

does most of the real heavy lifting for the team. 

This is the sixth time we've come before the 

Commission. The previous five documents, one 

advance notice of proposed rulemaking, two 

proposed rules and two final rules were all 

approved unanimously and we're hoping to maintain 

our perfect record. I've done my part by wearing 

the same lucky tie as at all five previous 

meetings and the rest is up to Ryne Miller who will 

be briefing the Commission.
MR. MILLER: As Don mentioned, we had 

a strong team working on this rule and I also want 

to thank each of them for their contributions. 

I'll mention Christa Lachenmayr, Martin Murray 

and John DeBord who are also on the team, and then 

Mark Higgins who contributed to our cost-benefit 

considerations.

Today we present for your consideration 

a final rule and an interim final rule for 

commodity options. As you know, the Dodd-Frank 

Act's swap definition includes an option of any 

kind for one or more commodities. Consistent with 

that provision, in February 2011 the Commission 

proposed rules that would replace the 

Commission's pre-Dodd-Frank options rules with a 

rule generally permitting commodity options to 

trade pursuant to the same rules applicable to

every other swap.

The rulemaking proposal also requested 

comment on the appropriate treatment of trade 

options which are generally commodity options 

used by commercial entities to deliver or receive 

physical commodities in connection with their 

business. We received multiple comments on the 
proposal and after reviewing the comments 

received, the team presents for the Commission's 

consideration this final rule and interim final 

rule.

Our final rule largely adopts the 

February 2011 proposal which would align the 

Commission's general commodity options rules 

with the Dodd-Frank Act. It does so by 

authorizing commodity options to transact 

subject to the same rules applicable to every 

other swap. The final rule also streamlines and 

simplifies the options rules by deleting several 

obsolete provisions including the outdated 

dealer option provisions and the no longer relied 

upon agricultural trade option provisions.

Moving to the interim final rule, the 

interim final rule responded to comments and 

implements a trade option exemption that exempts 

trade options from most but not all of the rules 

otherwise applicable to swaps. There are three 

requirements in the interim final rule for a 

transaction to be considered a trade option. One, 

the offeror or seller of the trade option must be 

either an eligible contract participant or a 
commercial. Two, the offeree or the buyer of a 

trade option must be a commercial entity just as 

was required under the pre-Dodd-Frank trade 

option exemption. And three, the trade option if 

exercised must result in the sale of an exempt or 

agricultural, that is a nonfinancial commodity, 

for immediate or deferred shipment or delivery so 

that the trade option if exercised must result in 

a spot or a forward transaction.

The trade option exemption as mentioned 

will be subject to a few conditions including 

appropriate recordkeeping and reporting 

requirements, or in the alternative for 

unreported trade options, an annual notice filing 

requirement for anyone who is a counterparty to 

an unreported trade option. Two, the interim 

final rule retains the Commission's position 

limits and large trader reporting swaps rules. 

Three, the interim final rule retains certain 

swap risk-management and reporting and 

recordkeeping duties for swap dealers and major 

swap participants that are engaging in trade 

options. And finally, for all trade options as 

with any commodity option generally, the interim 
final rule retains the Commission's antifraud, 

antimanipulation and enforcement authorities. 

The interim final rule includes a list of 

questions and requests for public comment. 

Comments will be due 60 days after the publication 

of the interim final rule in the Federal Register. 

The effective date for both the final rule and the 

interim final rule will be 60 days after their 

publication in the Federal Register. However, 

the compliance date will not be until 60 days 

after the term swap has been further defined by 

the CFTC and the SEC and then published in the 

Federal Register. We'll be happy to answer any 

questions that you may have on this rule.

CHAIRMAN GENSLER: I think I'd like to 

consider a motion on the staff recommendation on 

the final rule and interim final rule on commodity 

options.

COMMISSIONER SOMMERS: So moved.

COMMISSIONER CHILTON: Second.

CHAIRMAN GENSLER: As I said earlier, 

I support this final rule and interim final rule 

and I'm going to let you off the hook. I don't 

have any questions, Ryne.
MR. MILLER: Thank you.

CHAIRMAN GENSLER: Commissioner 

Sommers?

COMMISSIONER SOMMERS: Thank you, Mr. 

Chairman. Just as a quick comment as I said in 

my opening remarks, I think we could have provided 

more clarity with regard to this rule if we would 

have paired it with the product definitions 

instead of with the entity definitions, but I 

wanted to get your comments with regard to that. 

We've heard from a lot of different market 

participants who use transactions that have not 

historically been considered options but 

nonetheless have some element of optionality. 

Those market participants have asked us for 

clarification on whether or not those 

transactions will be deemed options. So if you 

could give us comments about what kind of clarity 

we hope to give those market participants.

MR. MILLER: As Commissioner Wetjen 

noted in his opening remarks, this rule is for 

commodity options that are not excluded from the 

swap definition. If you go to footnote 6 of our 

rule, I'll read the last sentence of it which is 
the guidance we're sending out. It says, "If a 

commodity option or a transaction with 

optionality is excluded from the scope of the swap 

definition as to be further defined by the two 

agencies, this final rule and the interim final 

rule do not apply to that transaction." That's 

the guidance we're sending out. I might ask Dave 

Aron if he has any further comments because we did 

coordinate with the product definitions team on 

this rule.

MR. ARON: I'm also on the products rule, 

Commissioners, and Julian and I have been working 

over the last few weeks to do just what you're 

saying, to give more guidance on transactions 

with optionality in the past. There were a number 

of exemptions that people could rely on so they 

didn't really have to think about it, but now 

because options are swaps it's more important. We 

talk about a number of transactions in the 

products rule and we thought it was more 

appropriate to do it there because that's a 

definitional rule here, we're not defining it, so 

there should be quite a bit of guidance in there 

and of course we'll be available afterwards if 
it's still not clear in a particular transaction.

COMMISSIONER SOMMERS: Thank you.

MR. HEITMAN: I'd also like to point out 

that through the process our team has coordinated 

with the products definition team. We've had 

joint meetings. We've had joint meetings with 

outside people. We've shared relevant comments 

across the teams. So we are closely in synch on 

this.

COMMISSIONER SOMMERS: That's 

encouraging. For the record, I'm very supportive 

in the product rule of being as clear as we can 

be about the definitions of these products that 

contain optionality. Thank you.

CHAIRMAN GENSLER: Commissioner 

Sommers, I would say because I've been in a lot 

of meetings that it's often the electricity 

companies but it's not always with electricity 

companies about volumetric options and I think 

we'll get it right in the product rule, but if you 

and your staff, and I say this to all the 

Commissioners, have thoughts now, if you can get 

them in to Julian Hammer, Lee Ann Duffy and Dave 

Aron, because it's two commissions, if we can get 
this in now into this draft working arrangement 

with the SEC -- it was a lovely weekend, by the 

way. But I think it would be helpful because I 

think the volumetric option, I hope there's a 

meeting of the minds around this Commission, but 

sometimes the devil is in the details and the 

earlier we get to it the better. I do want to say 

for market participants that if there is a real 

intent to deliver something, that's historically 

been a forward is not a future and Congress was 

very clear that a forward would not be a swap. I 

think that's what we've put out in the proposal 

and the challenge here is when it has come 

optionality in what is effectively a forward for 

electricity, sometimes it's natural gas, 

sometimes it's other products as well. Sorry that 

I went off script. Bart, you're next. 

Commissioner O'Malia?

COMMISSIONER O'MALIA: Thank you. I 

want to thank the team for your cooperation in 

helping get some alternative reporting 

requirements that lower the burden on commercial 

end users that provides an alternative to Part 45. 

I appreciate your help on that. Thanks.
CHAIRMAN GENSLER: Commissioner 

Wetjen?

COMMISSIONER WETJEN: I have one 

question. It's mostly for the benefit of the 

public, but this rule requires some transactional 

reporting that has not been required in the past 

with respect to trade options so I would ask staff 

if you could go over some of the reasons or 

rationale why we're requiring the reporting here 

in this rule.

MR. MILLER: There are two tiers of 

reporting in the trade option exemption. The 

rationale behind the reporting is that we went for 

the most minimally burdensome approach we could 

which was if an entity is already reporting their 

swaps to the extent they're going to engage in 

trade options, they also have to report their 

trade options. SDR connectivity which is where 

swaps are reported is sometimes the cost cited as 

the major barrier or the high cost so that if that 

is already involved with an entity in its other 

transactions, they can report their trade options 

as well. If a trade option involves two entities 

neither of which are reporting swaps otherwise, 
as Commissioner O'Malia mentioned, the interim 

final rule only requires an annual notice filing. 

What that does is it provides the Commission with 

a kind of database or a who to call list in the 

event that market circumstances warrant looking 

into a particular commodity class or commodity 

category and what type of trade options activity 

is occurring. As it stands with the 

pre-Dodd-Frank trade option exemption, there is 

no annual notice filing, no visibility whatsoever 

so we wanted to take this opportunity to address 

that.

COMMISSIONER WETJEN: I'll add that 

under this, while I'd like to give Commissioner 

O'Malia a lot of the credit for getting this 

change made to the final that provides for this 

tiered reporting regime, Commissioner O'Malia 

was able to find consensus pretty quickly on that 

among the Commissioners and I think it's a great 

improvement to the rule.

CHAIRMAN GENSLER: I too think it as a 

great improvement. I think that what we were 

challenged with here is that Congress included 

commodity options, expressly included commodity 
options, in the definition of swaps, so keeping 

with Commissioner Wetjen's principles of 

following congressional intent in the statute it 

was winding their way through and also doing what 

all five of us thought was appropriate for 

physically settled options on physical 

commodities. Did I get the physicals right?

MR. MILLER: That's right.

CHAIRMAN GENSLER: Mr. Stawick?

MR. STAWICK: Commissioner Wetjen?

COMMISSIONER WETJEN: Aye.

MR. STAWICK: Commissioner Wetjen aye. 

Commissioner O'Malia?

COMMISSIONER O'MALIA: Aye.

MR. STAWICK: Commissioner O'Malia aye. 

Commissioner Chilton?

COMMISSIONER CHILTON: Aye.

MR. STAWICK: Commissioner Chilton aye. 

Commissioner Sommers?

COMMISSIONER SOMMERS: Aye.

MR. STAWICK: Commissioner Sommers aye. 

Mr. Chairman?

CHAIRMAN GENSLER: Aye.

MR. STAWICK: Mr. Chairman aye. On this 
question the yeas are five and the nays are zero.

CHAIRMAN GENSLER: Thank you, Mr. 

Stawick. The ayes having it unanimously, we'll 

be sending the staff recommendation to the 

Federal Register. I guess I'm supposed to also 

now do a unanimous consent to allow staff to make 

technical changes. Absent objection, we'll do 

that. So ordered. Thank you all. Don, you're 

not off the hook when that IFR comes, and stick 

around for products and help us on that too.

Now we will have the team come up on the 

much talked about further definition of entities' 

joint rule. Dan Berkovitz our General Counsel, 

I don't see him here. Jeff Burns, Mark Fajfar and 

Dave Aron. I don't know if they have their buttons 

on, but Dave Aron is Mr. ECP, Mark Fajfar is Mr. 

Swap dealer and Jeff Burns is Mr. major swap 

participant. Do you have your button, Mr. ECP? 

He does. All from the Office of General Counsel 

as well as Steve Kane from the Office of Chief 

Economist and I know that there are probably 

dozens of other people in the agency who have 

worked on this collaboratively with their 

counterparts at the SEC. To whom do I have the 
pleasure to turn it over? Jeff.

MR. BURNS: Good morning, Mr. Chairman 

and Commissioners. Before I begin I would like 

to thank my co- lead Mark Fajfar as well as David 

Aron, Cam Nunnery, Steven Kane and the other 

fellow team members as well as our counterparts 

at the SEC for their efforts in finalizing the 

joint entities definitions rulemaking that we are 

about to present.

Today staff is recommending that the 

Commission approve final rules further defining 

the terms swap dealer, major swap participant and 

eligible contract participant, as well as an 

interim final rule excluding certain swaps from 

the swap dealer determination if entered into for 

hedging physical positions.

As the Commission is aware, an entity 

that meets the definition of a swap dealer and 

major swap participant will be required to 

register with the Commission and be subject to 

various substantive regulatory requirements that 

are the subject of separate rulemakings. In 

connection with the term eligible contract 

participant, the Dodd-Frank Act makes it unlawful 
for persons who are not eligible contract 

participants to enter into a swap other than on 

or subject to the rules of a designated contract 

market. As a result, a person cannot engage in 

swap transactions with persons who are not ECPs 

on swap execution facilities or on a bilateral 

off- exchange basis. The ECP definition also 

provides guidance regarding who is subject to the 

retail Forex regime.

Staff in connection with the final rule 

also consulted and coordinated with staffs from 

the Fed, the OCC, the FDIC and the Department of 

the Treasury. We have incorporated the input 

received by all parties to the extent possible 

within our statutory framework. During the 

comment period of the rulemaking, the Commission 

received over 968 comment letters and staff 

participated in over 145 meetings with interested 

parties. In addition, the Commission jointly 

with the SEC held a public roundtable in June 2011. 

Commenters provided staff with invaluable input. 

As a result of the comments and additional staff 

review, we have recommended a number of changes 

to the proposal that are detailed in the final 
rules and will be discussed in turn.

The effective date for the entity 

definitions will be 60 days after publication in 

the Federal Register. However, mandatory 

compliance with the registration and other 

substantive requirements is contingent on the 

effective date of the definition of the term swap. 

Generally, compliance with the ECP retail Forex 

regime will be December 31, 2012. Mark Fajfar 

will now discuss the definition of swap dealer.

MR. FAJFAR: Good morning. The 

Dodd-Frank Act defines the term swap dealer in 

terms of whether a person engages in certain 

activities, holding oneself out as a dealer in 

swaps, making a market in swaps, regularly 

entering into swaps as an ordinary course of 

business or being commonly known in the trade as 

a dealer or market maker in swaps. The final rule 

follows the statutory definition.

To determine whether a person is 

covered by the definition of swap dealer, one 

would start with the statutory definition and 

then apply the rules and the interpretative 

guidance in the release. We expect that this 
would proceed as follows. First, the person would 

review the rules which implement the four 

statutory tests and the exclusion for swap 

activities that are not part of a regular business. 

The person would apply the interpretative 

guidance in the release which provides for 

consideration of all the relevant facts and 

circumstances. As part of this consideration, 

the person could apply the SEC's dealer-trader 

distinction. This review would determine if the 

person is engaged in swap dealing activity.

The rule allows the person to exclude 

certain swaps from this determination. The 

person may exclude swaps entered into by an 

insured depository institution, with a customer 

in connection with originating a loan with that 

customer, swaps between majority owned 

affiliates, swaps between an agricultural 

cooperative or financial cooperative and its 

members, swaps with floor traders that was 

mentioned this morning and swaps entered into to 

hedge price risks related to physical commodities. 

It is important to note that while the list of 

swaps that are specifically excluded is limited 
and narrowly drawn. This does not necessarily

mean that every other swap is indicative of swap 

dealer. Rather, those other swaps are part of an 

overall multifactored determination of whether 

the person has engaged in the activities that the 

statute defines as swap dealing. If this review 

shows that the person has engaged in swap dealing, 

the next step is to determine if the person has 

engaged in more than a di minimis quantity of swap 

dealing. The final rule provides that the 

threshold for this is to enter into swaps 

resulting from dealing activity with a notional 

amount of $3 billion or more over a 12-month 

period subject to the phase-in amount of $8 

billion. The phase-in amount permits an orderly 

implementation of the swap dealer requirements. 

Termination of the phase-in period relates to a 

study that Commission's staff will prepare 

examining among other things the di minimis 

thresholds. The study will be due 2-1/2 years 

after data starts to be reported to swap data 

repositories so that the study can consider this 

data. Nine months after the study, the Commission 

may end the phase-in period or propose new rules 
to change the di minimis threshold either up or 

down. If the Commission does not take action to 

end the phase-in period, it will terminate 

automatically 5 years after data starts to be 

reported to swap data repositories.

In reviewing the hundreds of comments 

we received on the proposed swap dealer 

definition and considering the alternatives they 

suggested, we focused especially on how the final 

rule would affect persons on the margin of the 

definition. That is, while a very large majority 

of swap users will not be covered by the 

definition and a few swap users will be clearly 

within it, the rule will have its greatest effect 

on the firms at the boundary between those two 

groups. We thought carefully about the potential 

for increased costs if the final rules are 

overbroad and the potential that if the final 

rules are too narrow, the benefits of Title VII 

would be dampened. We also considered whether 

specific provisions of the rule and the ways that 

swap users would respond to them would have 

distortive effects. With all this in mind, we 

expect that the final rules will help swap users 
to apply the statutory definition of swap dealer 

efficiently and uniformly.

For example, the final release provides 

further interpretive guidance on concepts from 

the proposing release. This guidance says that 

market making is appropriately described as 

routinely standing ready to enter into swaps at 

the request or demand of a counterparty. On 

whether a person's swap activity constitutes a 

regular business, the guidance focuses on 

activities that are usual and normal in the 

person's course of business and identifiable as 

a swap dealing business. An example of that is 

to enter into swaps to satisfy the business or 

risk-management needs of the counterparty. Also 

the release explains that even though the CFTC is 

not formally adopting the SEC's dealer-trader 

precedents, those precedents may be usefully 

applied as appropriate as we've noted.

Many commenters addressed whether 

swaps used for hedging could be indicative of 

dealing. Although the statutory definition does 

not have any provisions specifically about 

hedging, we agree that in certain circumstances 
of persons entering into swaps for the purpose of 

hedging price risk related to physical positions 

is not swap dealing. The rule text specifies when 

this is the case. The release then explains that 

other swaps used for hedging may or may not be 

indicative of swap dealing depending on the 

particular facts and circumstances. As I said, 

this is an interim final rule and we're looking 

forward to comments.

The rule provides specificity on when 

a swap is considered to be in connection with the 

origination of a loan. We balanced the need for 

flexibility in matching such swaps to the 

particular circumstances of the borrower and the 

lender against the limited scope of the statutory 

exclusion. The final rule provides that the swap 

must be entered into within 90 days before or 180 

after the loan agreement or any draw of principal 

under the loan. Also the swap must relate to the 

financial terms of the loan or it must be a 

condition of the loan agreement that the borrower 

enter into the swap to hedge its commodity price 

risks.

Last, the rule provides that if a person 
is required to register as a swap dealer, it may 

apply to limit its designation as a swap dealer 

to specified categories of swaps or specified 

activities based on the considerations that are 

relevant in the person's particular situation. 

Thank you, and I welcome your questions.

CHAIRMAN GENSLER: I will entertain a 

motion to adopt the staff recommendation on 

entity definitions.

COMMISSIONER SOMMERS: So moved.

COMMISSIONER CHILTON: Second.

CHAIRMAN GENSLER: I guess my first 

question is one I as trying to figure out back here 

so I'll ask where in the document because I worked 

so closely with Jackie Mesa on the international 

side and with my fellow Commissioners, 

particularly Commissioner Sommers, on the 

international reach of this to central banks and 

sovereign banks. What page and which section did 

we tuck that into?

MR. BURNS: It's in one of the MSP 

sections.

CHAIRMAN GENSLER: Could you turn me to 

the page? I'm now being whispered to that it's 
in the 360s.

MR. ARON: There is also a discussion 

in the ECP section briefly about one aspect of 

cross-border.

CHAIRMAN GENSLER: Thank you because I 

now see it and I remember working on the language 

just to confirm the approach and if Dan Berkovitz 

you want to talk about international comity maybe 

you could give a little shout out to thank Jackie 

Mesa. If I would have remembered I would have put 

this in my opening statement. This is mostly for 

market participants and those central bankers 

around the globe listening. Dan?

MR. BERKOVITZ: The release provides 

that the CFTC does not believe that foreign 

governments, foreign central banks and 

international financial institutions should be 

required to register as swap dealers or major swap 

participants. This is based on our reading of 

congressional intent that Congress in enacting 

this did not intend to apply the Act in a way that 

would be inconsistent with principles of 

international comity so that we interpreted not 

to require dealer registration for those 
categories.

CHAIRMAN GENSLER: I'm not entirely 

sure how we would have told a central bank how to 

have capital and margin and so forth in any event. 

Could you walk through a little bit more because 

I think this is absolutely the right thing about 

the concepts of international comity?

MR. BERKOVITZ: Section 2(i) of the 

Commodity Exchange Act which was added by Section 

722(d) of the Dodd- Frank Act provides that the 

provisions of the Commodity Exchange Act, the 

swaps provisions of the CEA, shall not apply to 

activities outside the United States unless such 

activities have a direct and significant 

connection with activities in or affect commerce 

of the United States. In interpreting the scope 

of Section 2(i), the CFTC is guided by the Supreme 

Court in case law and principles of statutory 

construction which generally provide that 

agencies and courts are to interpret statutes 

with extraterritorial application as the 

Commodity Exchange Act is through Section 2(i) in 

a manner consistent with principles of 

international comity, and principles of 
international comity take into account the 

concerns of foreign regulators, foreign 

jurisdictions and construing the statute in a way 

that does not unduly interfere or present 

conflicts with foreign jurisdictions. Clearly 

one government trying to regulate the activities 

of other foreign governments such as -- asserting 

jurisdiction over activities that other foreign 

governments have a clear jurisdictional interest 

in presents these types of issues and that's why 

we considered the effect of applying Dodd-Frank 

in requiring dealer registration where major swap 

participant registration to activities of 

foreign governments. Along with requirements, 

the CFTC having certain enforcement authorities, 

so taking into account that this will be applied 

to foreign governments as a matter of 

international comity we believe the better 

interpretation of the statute is that Congress 

did not intend to apply those activities.

CHAIRMAN GENSLER: You end up wanting 

to read footnote 1184 for the list of 

multinational development banks and 

international financial institutions. It ties 
into the list that comes straight out of statute 

and straight out of Basel. I have another 

question in another area, hedging, and this will 

be my last question. As I said in my opening 

statement, I think that we've addressed the 

distinctions between dealing and trading, 

between hedging and dealing, market making and 

not market making. So I think end users unless 

they're genuinely market making ad not going to 

be caught up in this swap dealer definition. But 

some people have raised the question why are we 

putting into rule text a specific setoff words 

around the physical markets and does that in some 

way limit other hedging? If a company enters into 

a loan, borrows money and in connection with that 

also enters into a swap, is that swap dealing?

MR. FAJFAR: No, that wouldn't be swap 

dealing because as we say in the release, swap 

dealing requires you to engage in the activities 

that are set out in the statute with swap dealing 

being a point of connection to the market.

CHAIRMAN GENSLER: By hedging your 

loans, hedging your currency risk, hedging other 

risks, are also not dealing.
MR. FAJFAR: That's correct because 

you're not accommodating others' demand for 

swaps.

CHAIRMAN GENSLER: But we happen to have 

taken the added step that Congress didn't ask to 

take to give even further clarity when it related 

to hedging physical commodities in this interim 

final rule. Is that correct?

MR. FAJFAR: That's correct.

CHAIRMAN GENSLER: Thanks. 

Commissioner Sommers?

COMMISSIONER SOMMERS: I'm going to 

stick with that same theme and ask with regard to 

the hedging definition in the swap dealer 

provisions and ask why it's different from the 

hedging definition in MSP.

MR. FAJFAR: We address that topic on 

pages 71 to 21 and there are two primary reasons. 

First, the common-sense reason that this 

exclusion that we're putting in rule text as 

compared to the multifactor analysis that applies 

also is it's in the nature of a safe harbor and 

so we have to be careful when we draw that 

distinction and apply rules that we have 
experience applying and I think Commissioner 

Wetjen made a very good point about the difficulty 

of distinguishing the two.

The second reason is more technical but 

is very important, that the swap dealer 

definition and the major swap participant 

definition where we use different hedging tests 

serve two different purposes and they're 

structured in the statute to be effectively 

applied at two different times. The major swap 

participant definition applies to anybody who is 

not a swap dealer, so it presumes that swap 

dealers are identified first, they're sorted out 

and they're picked out and they're identified as 

swap dealer. Then the major swap participant test 

comes in for a different purpose and says all 

these people who are not swap dealers, which one 

of those are posing this very high level of risk? 

So since you're only trying to identify in that 

second step, the subsequent step, who is a very 

high level of risk, you want a rule that excludes 

swaps that don't pose a high level of risk and a 

lot of hedging swaps don't pose a high level of 

risk. But if you were to take that second rule 
and put it into the first step and say I'm going 

to do that first, I'm going to exclude all of the 

hedging swaps, all the swaps hedging or 

mitigating commercial risk, that wouldn't be 

correct because what the statute requires is that 

first you identify swap dealers by their activity 

and you say which activities are swap dealing.

COMMISSIONER SOMMERS: Can you give 

examples of transactions that you think qualify 

under the MSP definition that wouldn't qualify 

for hedging under the swap dealer definition of 

hedging?

MR. FAJFAR: I think in trying to think 

about it on the spot, the definition of the 

exclusion in the major swap participant 

definition would exclude the swap that the 

Chairman mentioned where I'm borrowing money and 

I'm hedging my risk for borrowing that money and 

it's a pure and simple interest rate swap. That 

would be excluded under the major swap 

participant test, but you were to limit yourself 

and look at just the rule text in the swap dealer 

definition, you would see there that it's talking 

about physical commodity price risk. One of the 
reasons is under the multifactor test you know as 

we just discussed that swap hedging and interest 

rate risk is not dealing activity so you don't 

need the additional bright-line rule to assure 

yourself of that.

COMMISSIONER SOMMERS: What kind of 

comments are you looking for in the interim final 

rule that would persuade you that we didn't get 

this right with the definition for swap dealer?

MR. FAJFAR: We talk in the release 

about certain questions and two in particular are, 

first, whether the two definitions should be 

consistent. Is it consistent or do we say because 

these are two different situations that 

consistency requires treating different 

situations differently? Or is it the case that 

they should be consistent? The other, so address 

Commissioner Wetjen's point again, how do you 

identify hedging swaps as opposed to dealing 

swaps? The commenters were unanimous that 

hedging swaps are not dealing swaps. They weren't 

so unanimous on how you identify a hedging swap 

versus a dealing swap.

COMMISSIONER SOMMERS: I now have a 
couple of questions about the ECPs, so I'll switch 

to the man with the ECP button on and I must say 

that it's nice to see that you were all able to 

keep your sense of humor throughout this very --

MR. BURNS: David was going to present 

a short presentation on ECPs but we could do 

questions and answers if you'd like.

COMMISSIONER SOMMERS: So you want me 

to wait?

MR. BURNS: It's up to the Commission.

MR. ARON: I'm happy not to do it so that 

you can just answer questions.

CHAIRMAN GENSLER: Why don't you just 

let Commissioner Sommers just ask her questions? 

Do you want to do one?

MR. ARON: It's nothing special. It was 

funny before, but I cut the funny part so it's just 

dry.

CHAIRMAN GENSLER: By unanimous consent 

does everybody want him to do it with his funny 

part? You're on.

MR. ARON: All right.

COMMISSIONER O'MALIA: Without 

objection.
MR. ARON: Do you want me to do the 

presentation? I don't have the funny part anymore, 

but there might still be one remnant. I guess I 

can wing that one. Basically, 2(c)(ii) which a 

lot of the ECP rules are based on is hell. If you 

have any sway with Congress the next time they 

reauthorize, maybe they can start from scratch 

with 2(c)(ii). It's very complicated which is why 

the ECP section is very dense. I liken it to "The 

Shining." It's kind of like a maze, the big 

topiary out in front of the hotel, and if you spend 

too much time thinking about 2(c)(ii) you might 

end up like Jack Nicholson did at the end of "The 

Shining." That was the funny part.

COMMISSIONER O'MALIA: That's not 

reserved to this part of the rule though.

MR. ARON: Fair enough. There are two 

main reasons that commenters were interested in 

regarding the impact of the ECP regs. Dodd-Frank 

added to the CEA new Section 2(e) which provides 

that a non-ECP can enter into a swap except on or 

subject to the rules of a designated contract 

market. Dodd- Frank also amended the ECP 

definition by providing that for purposes of 
certain foreign exchange transactions listed in 

2(c)(ii)(B) and (C) which we all retail Forex 

transactions, I should say that maybe that wasn't 

the perfect choice of terms, it's a little 

confusing because depending on the outcome of the 

analysis, if you fall within one of the relief 

parts of the regs, it might be within a retail 

Forex regime, but for simplicity we used that term. 

A commodity pool is not an ECP if any pool 

participant is not an ECP in its own right and this 

is what's known affectionately as the 

look-through provision.

I'll now quickly describe the final ECP 

regulations. There are eight parts. It's in 

1.3(m) and one through eight. Some of them say 

you are an ECP, some of them say they're not and 

they give some further detail. The first four 

state that SDs, MSPs and securities analogues are 

ECPs based solely on their status as such. Then 

there is the retail Forex commodity pool look 

through. Prong five of the regulation states that 

a pool that's a party to a retail Forex 

transaction which we call a transaction level 

pool and that has one or more non-ECP participants 
is not itself an ECP for purposes of the CFTC's 

retail Forex regime under either prong four of the 

statutory definition which is the pool prong or 

prong five which is the general entity prong. 

With certain exemptions discussed in the shining 

section of the preamble, non-ECP pools and their 

counterparties are subject to the CFTC's retail 

Forex regime. Regulation 1.3(m)(ii) mitigates 

the impact of the look through, however, by 

limiting it to looking through only the 

transaction level pool unless any level of the 

pool structure has been structured to evade the 

retail Forex regime and we give some guidance on 

when that's not the case in the preamble, in other 

words, not structured to evade.

The impact of the look through is 

further mitigated by delaying the effective date 

until the end of this year consistent with the 

compliance date for CPOs affected by the recent 

withdrawal of 413(a)(iv) and deeming pools with 

no U.S. Participants operated by CPOs located 

outside the U.S. to be ECPs. There's also an 

alternative to the retail Forex look through, 

notwithstanding the look-through language in the 
statute and the regulation that tracks the 

statute for the most part. A commodity pool that 

enters into a retail Forex transaction is an ECP 

regardless of whether each participant in the 

pool is an ECP if it satisfies three conditions, 

it's not formed to evade the retail Forex regime, 

it's got total assets exceeding $10 million and 

it's formed and operated by a registered CPO or 

by a CPO exempt from registration pursuant to our 

regulation 413(a)(iii). Because many pools will 

have been formed by CPOs exempt from 

registration -- formed by registered 413(a)(iii) 

exempt CPO element of prong eight will not be a 

requirement for pools formed before the end of 

this year. Related to prong eight of the further 

definition, I think I mentioned this, the 

offshore, the Commission will consider a pool 

whose participants are limited solely to non- U.S. 

persons as defined in current CFTC regulation 47 

with one modification, the new CPO is offshore to 

be an ECP for purposes of the look through. 

1.3(m)(vi) provides that a pool not satisfying, 

this is a pool specific prong of the CEA's ECP 

definition, that it's total assets are $5 million 
or less or because it's not formed and operated 

by a person subject to CEA regulation or foreign 

equivalent, cannot be an ECP pursuant to the 

general entity prong of the CEA's ECP definition. 

Unlike 1.3(m)(v), (m)(vi) does not have a look 

through but does apply to swaps. As I said before, 

the impact of that is mitigated by delaying the 

effective date until the end of the year. Then 

we've got the line of business ECP prong. I'm 

winding up here. Is this too long? This is a lot 

longer than the other guys. Should I keep going?

MR. FAJFAR: It's ECP. It's going to 

be long.

MR. ARON: I'm longwinded by nature.

CHAIRMAN GENSLER: But you did say 

you're winding up.

MR. ARON: Yes. There are only two more. 

There's line of business and the incorrect 

cross-reference.

The seventh prong preserves our line of 

business concept from our 1989 swap policy 

statement subject to certain conditions. An 

entity that does not qualify as an ECP on its own 

can now qualify as an ECP with respect to a swap 
used to hedge or mitigate its commercial risk if 

all of its owners are ECPs based any prong of the 

ECP definition and any owner has a net worth of 

more than $1 million. Mark advises that I can stop 

here and we can return to questions.

COMMISSIONER SOMMERS: Unfortunately I 

still have questions after all of that. My 

questions begin with the bank common funds and 

collective investment vehicles, the issue that 

the OCC brought up in their comment letter. Would 

these be considered ECPs under this rule?

MR. ARON: I think the answer is it 

depends. We had a call with them and the SEC 

during the process and it wasn't clear, but there 

did seem to be a couple of ways to interpret it 

that way. But as you know, there's a footnote in 

the preamble that says the Commission may in 

future consider a number of the comments received 

and we list a few. I don't think this is one we 

listed, but certainly you can consider that if the 

Commission takes that up in another round of 

guidance.

COMMISSIONER SOMMERS: Should they be 

considered on part with mutual funds?
MR. ARON: It depends. We haven't 

thought about it in depth but we did start talking 

about it at the staff level and we didn't get 

enough information about the regulatory scheme 

that applies and we're not certain that it is as 

protective as the mutual fund regulatory regime, 

so there may be a reason that Congress didn't add 

those funds specifically to the ECP list so we 

think it needs further consideration and we'd be 

happy to --

COMMISSIONER SOMMERS: Will there be a 

follow-up ECP proposal?

MR. ARON: I sure hope so because I 

drafted about 40 extra pages and I'd love to keep 

doing it, but it depends.

COMMISSIONER SOMMERS: We would not 

want that to be for nothing. Right?

MR. ARON: Right.

COMMISSIONER SOMMERS: Are there other 

issues that that follow-up proposal will include 

that you haven't talked about here?

MR. ARON: I could just list the things 

that are in the footnote in the preamble. The 

meaning of amounts invested on a discretionary 
basis in the individual prong of the ECP 

definition because it used to be total assets so 

we got comment asking what the new language should 

mean. We had a comment asking whether bond

proceeds also would count toward that same 

language in the governmental ECP context. There 

were various permutations of how credit support 

is given by the owners of entities to the entity 

guarantees and joint and -- liability. A number 

of banks asked about that, can these permutations 

result in ECP status if the entity itself is not 

an ECP depending on the credit support providers. 

The proprietorship definition generally in 

anticipatory ECPs are the ones we list.

COMMISSIONER SOMMERS: Thank you, David. 

I don't have any other questions.

CHAIRMAN GENSLER: Thank you, Mr. ECP. 

Commissioner Chilton?

COMMISSIONER CHILTON: Thanks, Mr. 

Chairman. The di minimis provision here, we 

struck a good balance but my initial thought, and 

I appreciate Mr. Chairman your remarks talking 

about the notional size of markets and what it 

really meant, but my first thought was how do you 
even say di minimis and then the figure $8 billion 

without laughing? It seems such a huge number 

when you consider that we started at $100 million. 

Really? Like everything, it's a compromise and 

we got there and I'm okay with it. But the reason 

that I'm okay with it is, one, we really don't have 

enough information. It's sort of the problem with 

what we are doing in the OTC world to begin with. 

We don't know what's out there and so we have to 

find it out. So I think we've done the best we 

can given what we have. But I'm okay with it 

because of what happens if there's not another 

action and I just want to make sure I'm clear about 

that. There is a study in 30 months as I recall 

and then there may or may not be a rulemaking or 

an order or some other action that the commissions 

may in their discretion decide to take. But if 

nothing is done, when you get to 5 years we could 

all get a car right now and pay off a car in 5 years, 

but when we get to 5 years, the di minimis goes 

back down to $3 billion. It's sort of a hard stop. 

So absent anything else by the commissions, it 

goes down to 3 years. Is that correct? Or goes 

down to $3 billion. Correct?
MR. FAJFAR: That's correct. It's 

automatic.

COMMISSIONER CHILTON: I think that 

keeps us all honest, that people who think it 

should be higher and they may be right as we're 

learning more and more about these numbers, or 

people who think that it should be lower, we'll 

have the study and we can if we do the right thing, 

both commissions, we can come up with a more 

appropriate or fine-tuned, recalibrated level. 

But I think we're erred way on the high side with 

the 8 and I'm glad that we go to the 3.

I do have one question, and maybe this 

is for the Chairman if you like. We're going to 

do this study and we're going to look at who's 

under $3 billion and we'll look at under $8 

billion, but they're not required to provide 

information here to us. So how are we going to 

look at that and figure out what this appropriate 

level is?

CHAIRMAN GENSLER: I think that's an 

excellent question, Commissioner Chilton. I 

think we'll benefit because swap data reporting 

will have begun actually 60 days after we finish 
the product rule, so sometime this year, later 

this summer in fact I would anticipate that you'd 

start to have data reporting in the markets. That 

study that we do in 30 months would benefit, and 

what we've expressly said is it would be based on 

the first 2 years of market information that's in 

those swap data repositories. We of course 

already also have folks registered that are over 

$8 billion and if we've gotten it wrong, for 

instance, if there was no one who was registered 

in a certain category, that would be illustrative. 

If there was nobody in the cotton or corn or wheat 

markets that's registered --

COMMISSIONER CHILTON: That would tell 

us something.

CHAIRMAN GENSLER: That would tell us 

something in that regard as well. On the other 

hand, if we had folks who had been knocking on our 

door saying we're over $8 billion and we're not 

out because of dealer-trader and we're not out 

because of hedging and we're not out because of 

market making and we looked at it together and 

said that doesn't feel like a dealer. So I think 

we're going to hear on both sides, one from the 
swap data repository, two from people who if you 

just look at and you say this kind of looks 

underinclusive or in fact over this 30 months if 

somebody that we've collectively said feels 

overinclusive.

COMMISSIONER CHILTON: Thank you. I 

have to put on my glasses for this one. I don't 

know about the copy that other people have, but 

the one that we have has important footnotes that 

I want to refer to which happens to on my copy be 

about four-point types so I apologize. In my 

opening comments I discussed how there were folks 

who we defined who were in and folks that we 

defined who were out and I want to talk 

specifically about these prop traders and HFTs. 

First of all I refer to the law, we expressed how 

Jeff, I think it was you, Jeff, you talking about 

the four criteria of being a swap dealer. One of 

them is if you engage in any activity, the fourth 

one, that they would be commonly known in the 

trade as a dealer or market maker in swaps. That's 

the law. So if somebody, even a prop trader, is 

involved in a market maker program, they're going 

to be a swaps dealer. We don't have the discretion 
to say whether or not --

CHAIRMAN GENSLER: That's certainly how 

I've read the law and I think staff has read the 

law, that the fourth as you say prong says if 

you're commonly known in the trade as a market 

maker in swaps, you might be out for a di minimis, 

so if in the future -- there's not necessary 

electronic trading of swaps today, but if in the 

future somebody is the equivalent of a floor 

trader, we've provided for that. Those floor 

traders could sign up as floor traders, the 

equivalent and Commissioner Sommers -- many 

people raised this, but I attribute Commissioner 

Sommers saying with locals, we don't want to 

capture a bunch of locals in the pit and the ring 

who happen to do $8 billion of activity. We can 

register those as floor traders, and then you get 

to this question. But if somebody -- I think the 

statue is the statute and we have to be consistent 

with Congress and I believe because we've also 

addressed an issue if you are a swap dealer who 

is solely doing cleared swaps and you're doing 

those cleared swaps guaranteed by a futures 

commission merchant, that our capital rules 
should take -- that when we finalize the capital 

rules that we should take that into consideration 

and I think that's the important footnote that 

you're probably --

COMMISSIONER CHILTON: That's the 

footnote. Let me tease it out just a little bit 

more. So if they're using only their money and 

it's cleared and it's guaranteed by an FCM, and 

I know you're not prejudging the rule or what will 

be ultimately in our capital rule, but it's your 

view that there shouldn't be a capital 

requirement whatsoever.

CHAIRMAN GENSLER: The question that's 

raised actually is not whether there's a capital 

requirement. The question was if there had to be 

a minimum.

COMMISSIONER CHILTON: The 

question -- there has to be a capital requirement.

CHAIRMAN GENSLER: I think the question 

the commenters have raised is whether there needs 

to be a minimum capital requirement particularly 

because how they organize themselves might be in 

multiple entities and I think if I recall that's 

what the footnote spoke to.
COMMISSIONER CHILTON: What I was 

asking about was, and if you don't want to -- I 

was asking your personal opinion about 

proprietary traders. You obviously have a little 

more than a fifth of the input of what a final rule 

looks like. So I'm curious as to your --

CHAIRMAN GENSLER: Sometimes only a 

tenth.

COMMISSIONER CHILTON: That is true. 

But I'm curious as to your personal view about a 

proprietary trader who has cleared, is only doing 

cleared and doing it through an FCM that's 

guaranteeing it. Would there be any reason why 

they would --

CHAIRMAN GENSLER: Yes. I think that 

the risk of the system still is that somebody has 

come capital standing behind their trades so the 

capital rule has a minimum that we proposed of $20 

million and it also says as our rules have in the 

past that you have 8 parent of your margin, that 

it's a relationship. Like if you have a lot of 

margin at the clearinghouse, you in essence have 

sort of an 8 percent cushion; 8 percent of the 

margin you have at the clearinghouse, you have an 
8 percent cushion back at home so that it's all 

scaled to how much you have at the clearinghouse. 

And what I understand the commenters have come in 

on is why do they have to have a minimum because 

most of these folks don't have open positions at 

the end of the day. Most of these folks don't have 

risk at the end of the day, so it would be a pretty 

small amount of capital, this 8 percent, but they 

said why are you forcing us to have $20 million 

when we don't really have many open positions? 

That's the nature of these high-frequency 

traders.

COMMISSIONER CHILTON: We'll get to it 

when we get to the capital rule and I'll be keenly 

interested in it. The last thing I had was these 

folks, the prop traders, unless they are mandated 

to fit in because we don't have discretion under 

the law or they chose to be a market maker and then 

they're a swap dealer if they choose to be a market 

maker that we can deal with in the capital rule 

what additional requirements are. But if they're 

not a market maker, they're not either in the law 

or in the rule, our intent is to put out another 

rule that would allow them to register as a floor 
trader?

CHAIRMAN GENSLER: In here there's a 

whole floor trader thing right in here.

COMMISSIONER CHILTON: With regard to 

that, what would be required in addition to in the

other things that we're doing, for example, would 

they be required to deal -- and I could ask staff, 

would they be required to deal with external 

business conduct standards?

MR. FAJFAR: For people registered as 

floor traders, there are certain specified 

external business conduct standards that they 

would have to comply with.

COMMISSIONER CHILTON: Would it be the 

external business conduct standards that we 

passed in our external business conduct standards 

rule?

CHAIRMAN GENSLER: I ought to clear it 

up. There is no external business conducts in 

there. It's just risk management.

MR. FAJFAR: Right. I stand corrected.

COMMISSIONER CHILTON: What about 

internal business conduct standards?

CHAIRMAN GENSLER: Do you want to go 
through the list? And Frank Fisanich is here too 

I thought as well. You're waving. You don't want 

to come up to the table?

MR. FAJFAR: There are specific 

references to rules in Section 23 that would 

apply.

CHAIRMAN GENSLER: I'll help out. It's 

what we finalized 6 weeks ago, that within those 

rules there are some risk-management and 

recordkeeping, that they'd have to be registered 

with the CFTC as a floor trader, a local or floor 

trader as the term goes, and then be willing to 

comply with some risk-management and 

recordkeeping, not chief compliance officer or 

firewalls or anything, and not external business 

conduct, not any of the whole regime.

COMMISSIONER CHILTON: The last thing, 

and I appreciate the patience of staff or anybody 

else.

CHAIRMAN GENSLER: This is an open 

meeting. We're deliberating.

COMMISSIONER CHILTON: With regard to 

recordkeeping, one of the things that has been 

heretofore ungettable for us with the HFTs are 
things like their change books. Mr. Berkovitz, 

did you want to comment?

MR. BERKOVITZ: Excuse me. I didn't 

want to interrupt. I wanted to clarify in terms 

of external business conduct standards. One of 

the conditions that the Chairman was referring to 

in terms of these floor traders is they do not 

directly or through an affiliated person 

negotiate the terms of swap agreements other than 

price or quantity or to participate in a request 

for quote process subject to the rules of a 

designated contract market. So they're not 

negotiating. They're only doing price and 

quantity. They're not negotiating other terms of 

the swap.

COMMISSIONER CHILTON: Thank you. My 

question was whether or not the section that calls 

for records would extend to their change logs. 

The change logs are what the HFTs do when they 

change their algorithms so you can track what 

they're doing. Commissioner O'Malia has heard a 

lot about this. You have the algorithms in place 

but then they morph as they trade and as they go 

on and unless we know what they're doing, and I 
don't know how we'd actually analyze all of this 

yet without the technology, but the ability for 

us to get the books and records is a key reason 

why I thought these traders, these market 

participants, do need to be registered. We need 

to have access if there is a problem. It puts them 

on our radar screen. Could we get the change log? 

Would that include their records?

CHAIRMAN GENSLER: Frank, you are being 

brought up to the table. I can have it by 

unanimous consent if you want, but this would be 

a question on the rule that was passed for swap 

dealers as well.

MR. FISANICH: The risk-management rule 

includes a section that requires them to have 

policies and procedures for testing and review of 

any programmatic trading program so that there 

would be some written policies and procedures 

surrounding change logs and that kind of thing. 

The daily trading records rule would also require 

the recording of execution times and all of those 

things would apply as well.

CHAIRMAN GENSLER: That's daily trading 

records, to be clear, that may not have addressed 
Commissioner Chilton's question. Do we require 

swap dealers to keep -- I'm not familiar with this 

term.

COMMISSIONER CHILTON: Change log.

CHAIRMAN GENSLER: Change log. I'm not 

familiar with the term.

COMMISSIONER CHILTON: It's a trading 

algorithm.

MR. FISANICH: Not specifically and not 

in recordkeeping rule, but the risk-management 

rule does have a requirement that they have 

written policies and procedures surrounding the 

use of trading systems, the testing of trading 

systems and the review of those trading systems. 

I would think that would cover things like change 

logs.

COMMISSIONER CHILTON: Thank you. 

That's what I was getting at. You answered 

perfectly. I appreciate you coming up. Thank you. 

I don't have anything else on that unless there's 

something you needed to add.

CHAIRMAN GENSLER: No.

COMMISSIONER CHILTON: There is no 

other additional rule we'll need to do to make 
these guys traders?

CHAIRMAN GENSLER: There may be 

whatever it's called, technical or conforming 

things that the SEC and we are doing on this 

document.

COMMISSIONER CHILTON: To get these 

guys registered, these traders, these market 

participants, I want to make sure there's not an 

additional rulemaking we have to do.

CHAIRMAN GENSLER: Eric Juzenas is 

reminding me. We have proposed and not finalized 

conforming amendments. We have to finalize 

conforming amendments because they're very 

critical to the conforming amendments.

COMMISSIONER CHILTON: Is it a 

rulemaking? Is it something that goes out for 

public comment?

CHAIRMAN GENSLER: It's already out for 

public comment. We last June proposed conforming 

amendments to the terms floor trader and floor 

broker to include for the first time the word swap 

because of course prior to Dodd-Frank that was not 

the case. So working among all of us, we have to 

finalize those conforming -- the definition of 
floor trader has to be finalized to include swaps 

for people to benefit from this.

COMMISSIONER CHILTON: Thank you for 

your patience. Is this something, and I know 

we've got another 20 or so rules to go, but is this 

something that as far as you know, and you may not 

know, that is on a faster track than other things 

or is it months away?

CHAIRMAN GENSLER: The conforming rules, 

actually to the credit of staff we're in really 

good shape. I haven't served them up to the ninth 

floor partly because of the capacity issues of the 

ninth floor and I think some Commissioners have 

had a view, I think that I generally agree with 

it, they're sort of a little bit better as 

everything else comes together. Now we'll have 

done 31 and maybe we'll peel some off, but they 

could be done quite soon. But I've held them off 

just to see, just like here, we have a new approach 

to floor trader, we want to make sure these 

conforming amendments incorporate, that they 

benefit from, so I was sort of thinking maybe if 

we got closer not to the full end but a little bit 

closer it would be a better time for everybody to 
weigh in on the conforming finals. Do I have that 

right, Eric?

COMMISSIONER CHILTON: My only thing is 

that we -- essentially we figured these guys, 

these prop traders, are not going to be in here 

like we proposed and I think that's a good thing. 

I think we struck a reasonable balance. But I want 

them registered. I want to have them on our radar 

screen. My personal preference is this isn't 

something that goes on for another 6 or 7 months.

CHAIRMAN GENSLER: No, no. With your 

encouragement we'll try to get maybe some of the 

conforming stuff up during the springtime.

COMMISSIONER CHILTON: Thank you. And 

thanks again for your patience.

CHAIRMAN GENSLER: Commissioner 

Sommers? No, we're with Commissioner O'Malia 

now.

COMMISSIONER O'MALIA: Commissioner 

Sommers raised a good point, several good points, 

about the hedging definition and some of the 

uncertainty. I'm sure I have the wrong draft, but 

there is a line in the definition that says, "a 

per se exclusion," referring to the hedge 
definition, "is not appropriate because it is 

possible that in some circumstances a person that 

might enter into swaps that are connected to the 

physical commodity business but also serve market 

function characteristics of the function served 

by swap dealers" which obviously raises questions. 

Some of the questioning that went back and forth 

is that there a more definitive hedging is not 

dealing. This seems to say that in some cases 

hedging isn't necessarily excluded. Could you 

explain that a little bit and how we're going to 

understand that and provide the certainty that 

everybody has claimed in this rule?

MR. FAJFAR: I think a good place to 

start is one of the comments made at the 

roundtable that swaps by their nature are hedges. 

A swap serves to hedge things. Every swap that 

you enter into hedges something else. So a person 

could be entering into a swap that has the 

consequence of hedging their exposure that they 

have somewhere else, but that doesn't tell you 

whether or not they're holding themselves out as 

a swap dealer.

COMMISSIONER O'MALIA: Let me say that 
that is part of my rub on this rule and frustration. 

It isn't very clear. It is going to be facts and 

circumstances and there's going to be a lot of 

instances where people are confused. What will 

be the process if people are confused? How will 

they appeal to the Commission for certainty? Do 

we have a process, a standards and exemptive 

process that we're considering? Are you guys 

going to set up a hotline?

MR. BERKOVITZ: We've had a process for 

a number of the rules, for example, the Office of 

General Counsel or the other appropriate 

divisions depending on the particular rule. 

We're available to answer questions about the 

rules. In this particular rule we've been 

discussing we haven't put it into place yet a more 

established interdivisional process where the 

Office of General Counsel or Division of Swap 

Intermediary Oversight. What we want to is both 

be available to answer questions and provide 

guidance and at the same time make sure it's 

consistent and communicated and we're 

considering exactly how to do that.

COMMISSIONER O'MALIA: That's very 
helpful. Thank you. What category would Fannie 

and Freddie fall into in this dealer MSP 

definition?

MR. FAJFAR: The dealer or the MSP? Are 

you asking whether it would be a dealer or an MSP?

COMMISSIONER O'MALIA: Which one. Yes.

MR. FAJFAR: From what I know about 

Fannie Mae and Freddie, they don't hold 

themselves out as swap dealers. I think then we 

would have to have the question of whether they 

have -- we talk about factors like if they have 

a staff and resources dedicated to 

customer -- collateral management and so forth. 

As far as I know, I don't think they have that but 

that would be the question they would have. Then 

they would ask whether they're routinely standing 

ready to enter into swaps at the request or demand 

of a counterparty. Are they doing that with an 

intention of profiting from providing liquidity 

to the market? That's one of the keystones of the 

dealer-trader distinction. If they say we're not 

running a market making operation, then they 

wouldn't be a dealer. And then as I said, the 

subsequent determination is to run their swaps to 
see if they pose a level of a high degree of risk 

that's under the MSP test.

MR. BURNS: And we always thought the 

analysis for those entities would be MSP and 

whether they met the thresholds or not under the 

MSP definition.

COMMISSIONER O'MALIA: So we don't know? 

We put in the rule 125 dealers and six MSPs.

MR. FAJFAR: I think your question is 

whether we know now who is a swap dealer and who 

is an MSP and there are a lot of different factors 

to consider in answering that. First of all, the 

basis of this rule is that we set out rules and 

guidance to the public and they apply those rules 

and guidance and they decide if they need to come 

in and register or not. Second of all, just to 

cut to the chase, there are many other factors, 

but we didn't write the rule to achieve a certain 

result. I think an interesting comparison and 

analogy would be to think about a city board 

saying if we drop the speed limit on this street 

from 25 to 20, how many tickets would we write? 

We didn't think that was the question. We thought 

the question was what's a prudent rule that can 
be applied efficiently and uniformly and 

appropriately considering all of these factors? 

We have to estimate, and there are estimates in 

the document, for various purposes how many 

people do we think it's reasonable to think would 

be captured by the different definitions and 

those numbers appear in the back. Those are 

estimates for a purpose of trying to talk about 

the effect of the rule and some of those estimates 

in the back were for budgetary purposes we refer 

to.

COMMISSIONER O'MALIA: Fair enough, but 

when we do the forensics on the financial meltdown, 

they are the smoldering heap that people always 

point to and I'm wondering where they fall in this 

rule. I have no further questions.

CHAIRMAN GENSLER: May I ask who is the 

"they" at the end there in the smoldering heap?

COMMISSIONER O'MALIA: Fannie and 

Freddie.

CHAIRMAN GENSLER: I don't know. From 

the little bit I know, it's the question of 

whether they'd come over the major swap 

participant category rather than the dealer 
category. Commissioner Wetjen?

COMMISSIONER WETJEN: Thanks, Ms. 

Chairman. Thanks again to staff for your work on 

this. I've enjoyed our multiple conversations 

over the last few months trying to sort all this 

out. Real briefly, I wanted to try and clarify 

a point that I think has already been made by staff 

in response to other questions. There are a lot 

of different factors that could go into the 

determination any one of which by itself wouldn't 

be dispositive. Isn't that generally correct?

MR. FAJFAR: That's correct. It's a 

multifactor test.

COMMISSIONER WETJEN: For example, if 

you fall on some trade association's list of 

members, that could be indicative but not 

necessarily dispositive. Correct?

MR. FAJFAR: Correct. Clearly that's 

true.

COMMISSIONER WETJEN: And the same 

holds true with accommodating demand. Correct? 

Just because an entity does swaps that 

accommodate demand, it's not necessarily the case 

that it's a dealing type of swap that would render 
the entity a dealer.

MR. FAJFAR: Exactly. You have to 

consider the other factors.

COMMISSIONER WETJEN: I have another 

question related to compliance which I'd like to 

loop the Chairman in on as well. Do we say 

anything in this rule with respect to when a 

dealer would have to register as a dealer if they 

believe they are one?

MR. FAJFAR: We talked about the 

effective date, effectively the registration 

compliance date, being 60 days after the swap 

definition is completed.

COMMISSIONER WETJEN: Obviously our 

swap rule is going to come later, but 60 days after 

that would be the trigger for an entity 

registering. Correct?

MR. FAJFAR: That's correct.

COMMISSIONER WETJEN: Mr. Chairman, you 

alluded to this in your opening statement, but we 

have a number of entities who are not necessarily 

located in the U.S. who have questions about 

whether they could be required to register as 

dealers. I think you indicated in your statement 
that there is additional work by the Commission 

to address that question and I wondered if you 

could share with us the latest thinking on how the 

Commission might take that up.

CHAIRMAN GENSLER: I do think it's a 

very critical point. We've worked in partnership 

here and with the SEC in this remarkable effort, 

but also with international regulators. And in 

Europe, let me at least publicly congratulate 

them because I've done it privately, but the last 

month they finished their key legislation on 

clearing and risk management and data reporting 

EMIR for derivatives. They still have some work 

to do on posttrade and pretrade transparency, on 

some sales practices and on position management, 

what we call position limits. Those four areas 

are still to be done in MIFID review. They've made 

tremendous strides. It's not identical to where 

we are, but it's largely consistent on the 

clearing regime with end users and so forth.

I anticipate that the Commission will 

expressly seek public input on cross-border 

application of Title VII. We've still been 

working on that and the documentation has 
benefited from a lot of input from the Securities 

and Exchange Commission, Treasury, the Federal 

Reserve and they still don't give me a draft. Dan 

keeps saying I can't read it yet. I kind of 

substantively know what they're working on with 

Carlene Kim who's the head of that team. I also 

believe that it would be appropriate through an 

order to think about a phased-in compliance for 

certain requirements of this cross- border swap 

circumstance. Frankly speaking, if you're a swap 

dealer, you're located in New York and you're 

dealing with U.S. persons, I think it's pretty 

clear with the cross-border unless they worry 

about cross-border from New York to Kansas.

COMMISSIONER WETJEN: Those entities 

likely know what their dealers --

CHAIRMAN GENSLER: That's a different 

type of cross- border issue. As it relates to 

certain requirements on the real cross-border 

stuff, I think we can do that. Dan, we could do 

that if we wanted to through some order as I 

understand it.

MR. BERKOVITZ: That's correct. We 

could address that in exemptive order.
CHAIRMAN GENSLER: I envision that 

we've got a lot of things on our plate in the next 

month or two, get this product rule done, get a 

cross-border release out for public comment, 

consider an exemptive of what we'll call the Dunn 

set. That's we call it for Mike Dunn. Consider 

a couple of rules that are in the hopper. There 

are at least two that are pens down with the 

Commissioners, the designated contract market 

and the end user. There are now some pens down 

versions of non-Dodd-Frank, the ownership and 

control reporting rule that I know many 

Commissioners care deeply about as it's a really 

good way to get more transparency for us. But then 

also working through these questions of the 

appropriate approach for phased-in compliance 

and we've had some good dialogue with Adair Turner 

who runs the Financial Services Authority, the 

FSA, and I had some good dialogue. I've had good 

dialogue with Michel Barnier and with industry 

representatives.

COMMISSIONER WETJEN: I think that's 

reassuring and I'm sure a lot of folks listening 

will be reassured by that too. We'll in other 
words provide legally binding certainty to these 

firms so they'll know -- I guess in the first 

instance they'll know that they don't necessarily 

have to register right away even within 60 days.

CHAIRMAN GENSLER: Or if they register 

there's a phased-in compliance.

COMMISSIONER WETJEN: Right.

CHAIRMAN GENSLER: So I have long felt 

that we want to get these rules done right, not 

against a clock and that we want to provide market 

participants appropriate, balanced phase-in 

periods. We're doing a big phase-in today on this 

di minimis. It's just another form of it.

COMMISSIONER WETJEN: Thank you. I have 

one other subject I wanted to cover with a few 

questions, and that is the section of our release 

that deals with limited designations. As I 

mentioned in the statement, there are a lot of 

these firms that do a lot of different swaps some 

of which might fall within the bona fide hedging 

definition in this rule, some of which might not, 

some of which clearly firms have acknowledged are 

dealing swaps. But I think our rule takes into 

account the fact that if they are dealing swaps 
among a larger pod of other swaps, the 

Commission's regulatory interest is mostly in

those dealing types of swaps which is why we've 

laid out this limited designation regime. I 

wonder if you could give me a few examples of what 

might be appropriate as limited designations.

MR. FAJFAR: Yes, I could. One area 

where this comes up especially is in the 

agricultural area where there can be a wide 

difference in how different types of swaps on 

different agricultural products can be traded. 

Some can be very liquid and others less liquid. 

So it's possible that somebody could be a swap 

dealer with respect to a very liquid commodity but 

not others. Another example would be the point 

we just talked about where an institution has a 

variety of different activities, they're using 

swaps some for hedging and then others where 

they're having a profit motive of providing 

liquidity to the market and so forth and so those 

two activities could be split and the flatter 

activity would be registered.

COMMISSIONER WETJEN: With a firm that 

has part of its business that is registered as a 
swap dealer under a limited designation, how 

would the swap dealer requirements, the whole 

panoply of swap dealer requirements, apply to the 

firm as a whole or would it just apply to the 

limited designee?

MR. FAJFAR: The definitional rule 

provides that only the portion that is designated 

as a swap dealer, whether it's a unit or whatever 

the designation is, the swap dealer requirements 

would apply to that unit.

COMMISSIONER WETJEN: And that also 

would hold true with respect to our capital 

requirements. Correct?

MR. FAJFAR: To the extent that I'm 

familiar with the capital rule, I've been 

concentrating on this one, that is generally the 

way the capital rule would work.

COMMISSIONER WETJEN: That's all I 

have.

CHAIRMAN GENSLER: Thank you, 

Commissioner Wetjen. I wanted to come back to one 

thing that Commissioner Chilton and I were going 

back and forth deliberating earlier on. Among 

three sets of conforming rules that we proposed, 
they're in pretty good shape. I didn't do it for 

this meeting, but I think all three sets' comment 

summaries and staff recommendations have been to 

the Commissioner, there is no pens down, but two 

of them are in my office. I haven't felt like 

flooding the system with conforming rules. What 

I'm encouraged about by this is I'm going to go 

back and ask staff what could we maybe do as an 

early package including what is the definition of 

floor trader in 1.3(x). Given where we've come 

to and with today maybe 30 rules finished, there 

are some conforming rules we should 

just -- because it lowers market uncertainty, it 

lowers uncertainty for a lot of participants 

rather than holding them all, so I think that was 

a good suggestion.

COMMISSIONER CHILTON: Thanks, Mr. 

Chairman.

MR. BERKOVITZ: If I could add a 

clarification to Commissioner Wetjen's last 

question on limited designation and the 

requirement like capital requirement which would 

I believe apply to the whole firm. One of the 

things that I think if somebody comes in, and this 
is explained in the preamble, and applies for a 

limited designation, the way it's structured we 

have flexibility in terms of we're looking for the 

applicants to demonstrate how they would apply or 

comply with for example the capital requirement 

in the limited designation context. So if certain 

of their activities were only swap dealing of 

these activities, they would still be required to 

show and to demonstrate how they could satisfy the 

capital requirement because that would generally 

be applied across the firm so that we would look 

for them to show us how they could comply with a 

requirement like that.

COMMISSIONER WETJEN: I think the point 

you're also making, Dan, is that it's not 

necessarily the case that -- I'd like to make an 

even stronger statement than that. It's not the 

case that of the swaps that any company does if 

it happens to have part of its business as a 

limited designee, it's still not the case that all 

of those swaps will automatically determine what 

the capital requirements would be of the limited 

designee. That's my understanding.

MR. BERKOVITZ: I'm not sure of the 
answer to that right now.

COMMISSIONER WETJEN: We'll have to 

continue discussing that and the capital rule 

perhaps.

CHAIRMAN GENSLER: Yes. Before you call 

the roll, Mr. Stawick, I thought that I would 

thank the Securities and Exchange Commission 

which I have been informed has actually voted on 

this joint rule and they voted unanimously some 

moments ago, so I do sincerely thank the five 

Commissioners all of whom have weighed in on this, 

four of whom I've personally been talking to about 

it, probably all five of us have been talking to 

probably all five of them and their staffs and 

their excellent work. Mr. Stawick, I guess you 

call the roll and we'll find out over here.

MR. STAWICK: Commissioner Wetjen?

COMMISSIONER WETJEN: Aye.

MR. STAWICK: Commissioner Wetjen aye. 

Commissioner O'Malia?

COMMISSIONER O'MALIA: No.

MR. STAWICK: Commissioner O'Malia no. 

Commissioner Chilton?

COMMISSIONER CHILTON: Aye.
MR. STAWICK: Commissioner Chilton aye. 

Commissioner Sommers?

COMMISSIONER SOMMERS: Aye.

MR. STAWICK: Commissioner Sommers aye. 

Mr. Chairman?

CHAIRMAN GENSLER: Aye.

MR. STAWICK: Mr. Chairman aye. On this 

question the yeas are four, the nays are one.

CHAIRMAN GENSLER: A majority having it 

or the ayes having it, the staff recommendation 

is accepted and apparently since the Securities 

and Exchange Commission did so also today, it will 

be sent to the Federal Register in the appropriate 

way. At this point I ask for unanimous consent 

to allow staffs of the CFTC and SEC to make 

technical corrections to the document voted on 

today prior to sending it to the Federal Register. 

Without objection, so ordered. Let me see if 

there is anything else.

COMMISSIONER O'MALIA: Mr. Chairman, 

this is usually where you lay out the schedule.

CHAIRMAN GENSLER: Here we go. This is 

also usually when I make Mr. Adamske nervous. I 

think that as we all know, there are two matters, 
reporting of historical swaps in Part 46 which is 

greatly benefited from all five Commissioners' 

efforts is ready and we might end up just doing 

that by notational vote because it's a matter that 

I think everybody has weighed on and the document 

is in good shape. The other thing is this approach 

to an interpretive guidance on indemnification 

which I think also now everybody has weighed in 

for swap data repositories. We'll probably put 

that into notational. That will seek public 

comment and will benefit from public comment. The 

two rules that have been in pens down version for 

final consideration, designated contract markets 

and the end user exception, I'm hoping to get 

everybody's feedback from staff whatever changes, 

consensus, let's try to move on those in a 

thoughtful but prompt way. In terms of the next 

op (?), and there is a pens down version for the 

ownership and control which I'm certainly willing 

to do in a public meeting or notational, whichever 

way folks desire because that's a pretty 

important rule and we could do it either way. Is 

there another pens down? There may be something 

non-Dodd-Frank. There is. There's the 
consideration of the petition on aggregation and 

position limits that went pens down in the last 

day or two. So if you can all give feedback on 

that, that would be excellent. That's a proposal 

but it's in reaction to an important petition on 

aggregation and position limits. That's what I 

think is in your offices.

What I think is next up very importantly 

is this product definition rule. We've made 

excellent progress with the SEC. It's not quite 

ready to give to the 10 Commissioners' offices, 

but any feedback particularly on the volumetric 

options or the borderline between forwards and 

swaps would be -- and you know Julian Hammers's 

and Lee Ann Duffy's phone numbers. Then it's 

these orders that we're talking about, 

cross-border, exemptive and some approach to 

phased possible implementation of compliance 

dates. I think the other two things that are 

pretty near, and I see Sarah Josephson here and 

Frank or Frank left because he doesn't want -- the 

other two that are pretty close to come onto the 

ninth floor are the phased implementation of the 

clearing mandate as well as documentation, 
netting and portfolio compression. To the rest, 

internal business conduct and phased 

implementation, are pretty close to getting to 

the ninth floor. Dan you'll have to help me with 

what it's called, 4(c) relief on regional 

transmission organizations, RTOs.

MR. BERKOVITZ: That's correct.

CHAIRMAN GENSLER: Bob Wasserman, Laura 

Estrada and others are pretty close to getting to 

the ninth floor. I don't have a list doing this. 

Dan, is there something? Always make Adamske 

nervous.

COMMISSIONER O'MALIA: Anything on MF 

Global policy reforms?

CHAIRMAN GENSLER: You're talking about 

broad customer protection. Is Gary Burnett here? 

I don't see him. If somebody can have Gary 

follow-up.

COMMISSIONER CHILTON: I thought we 

were going to do a roundtable or hearing on those 

customer protection things. 

CHAIRMAN GENSLER: Again Gary would 

have to give us an update. Maybe he can give us 

all an update.
COMMISSIONER CHILTON: To follow-up on 

Commissioner O'Malia's to tease it out, are we 

going to have a meeting on a certain date that 

you're contemplating?

CHAIRMAN GENSLER: No, I don't have a 

date to announce.

COMMISSIONER CHILTON: So not May 10 yet. 

Not sure about it. We'll wait to hear.

CHAIRMAN GENSLER: Is there anything 

else? Then I'll consider a motion to adjourn the 

meeting.

COMMISSIONER SOMMERS: So moved.

COMMISSIONER CHILTON: Second.

CHAIRMAN GENSLER: All in favor? Aye. 

Thank you all very, very much.

(Whereupon, at 11:58 a.m. the 

PROCEEDINGS were adjourned.)

* * * * *
CERTIFICATE OF NOTARY PUBLIC 

DISTRICT OF COLUMBIA 

I, Irene Gray, notary public in and for the 

District of Columbia, do hereby certify that the 

forgoing PROCEEDING was duly recorded and 

thereafter reduced to print under my direction; 

that the witnesses were sworn to tell the truth 

under penalty of perjury; that said transcript is 

a true record of the testimony given by witnesses; 

that I am neither counsel for, related to, nor 

employed by any of the parties to the action in 

which this proceeding was called; and, furthermore, 

that I am not a relative or employee of any attorney 

or counsel employed by the parties hereto, nor 

financially or otherwise interested in the outcome 

of this action.

(Signature and Seal on File)

-----------------------------------

Notary Public in and for the District of Columbia

My Commission Expires: April 30, 2016