End-User Protection Act of 2014

To amend the Commodity Exchange Act to improve futures and swaps trading, and for other purposes. 1. Short title This Act may be cited as the End-User Protection Act of 2014 2. Definitions (a) In general Section 1a of the Commodity Exchange Act ( 7 U.S.C. 1a (1) by redesignating paragraphs (8) through (51) as paragraphs (9) through (52), respectively; (2) by inserting after paragraph (7) the following: (8) Commercial market participant The term commercial market participant ; (3) in subparagraph (B) of paragraph (48) (as so redesignated), by striking clause (ii) and inserting the following: (ii) any purchase or sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled, including any stand-alone or embedded option for which exercise would result in a physical delivery obligation; ; and (4) in paragraph (50) (as redesignated by paragraph (1)), by striking subparagraph (D) and inserting the following: (D) De minimis exception (i) In general The Commission shall exempt from designation as a swap dealer an entity that engages in a de minimis quantity of swap dealing (which shall not be less than $8,000,000,000) in connection with transactions with or on behalf of its customers. (ii) Regulations The Commission shall promulgate regulations to establish the factors to be used in a determination under clause (i) to exempt, including any monetary or other levels established by the Commission, and those levels shall only be amended or changed through an affirmative action of the Commission undertaken by rule or regulation. . (b) Financial entity Section 2(h)(7)(C) of the Commodity Exchange Act ( 7 U.S.C. 2(h)(7)(C) (1) in clause (iii)— (A) by striking an entity whose (I) whose ; (B) by striking the period at the end and inserting a semicolon; and (C) by adding at the end the following: (II) that is— (aa) a commercial market participant; (bb) included in clause (i)(VIII); and (cc) not supervised by a prudential regulator; or (III) that is included in clause (i)(VIII) because— (aa) the entity regularly enters into foreign exchange or derivatives transactions on behalf of, or to hedge or mitigate, whether directly or indirectly, the commercial risk of 1 or more entities within the same commercial enterprise as the entity; or (bb) of the making of loans to 1 or more entities within the same commercial enterprise as the entity. ; and (2) by adding at the end the following: (iv) Same commercial enterprise For purposes of clause (iii)(III), an entity shall be considered to be within the same commercial enterprise as another entity if— (I) 1 of the entities owns, directly or indirectly, at least a majority ownership interest in the other entity and reports its financial statements on a consolidated basis and the consolidated financial statements include the financial results of both entities; or (II) a third party owns at least a majority ownership interest in both entities and reports its financial statements on a consolidated basis and the financial statements of the third party include the financial results of both entities. (v) Predominantly engaged (I) In general Not later than 90 days after the date of enactment of this clause, the Commission shall promulgate regulations defining the term predominantly engaged (II) Minimum revenues The regulations shall provide that an entity shall not be considered to be predominantly engaged in activities that are in the business of banking or financial in nature if the consolidated revenues of the entity derived from the activities constitute less than a percentage (as specified by the Commission in the regulations) of the total consolidated revenues of the entity. (III) Revenues from banking or financial activities In determining the percentage of the revenues of an entity that are derived from activities that are in the business of banking or financial in nature, the regulations shall exclude all revenues that are or result from foreign exchange or derivatives transactions used to hedge or mitigate commercial risk (as defined by the Commission in the regulations). . 3. Reporting of illiquid swaps so as to not disadvantage certain non-financial end users Section 2(a)(13) of the Commodity Exchange Act ( 7 U.S.C. 2(a)(13) (1) in subparagraph (C), by striking The Commission Except as provided in subparagraph (D), the Commission (2) by redesignating subparagraphs (D) through (G) as subparagraphs (E) through (H), respectively; and (3) by inserting after subparagraph (C) the following: (D) Requirements for swap transactions in illiquid markets (i) Definition of illiquid markets In this subparagraph, the term illiquid markets (ii) Requirements Notwithstanding subparagraph (C), the Commission shall— (I) provide by rule for the public reporting of swap transactions, including price and volume data, in illiquid markets that are not cleared and entered into by a nonfinancial entity that is hedging or mitigating commercial risk in accordance with subsection (h)(7)(A); and (II) ensure that the swap transaction information described in subclause (I) is available to the public not sooner than 30 days after the swap transaction has been executed or at such later date as the Commission determines appropriate to protect the identity of participants and positions in illiquid markets and to prevent the elimination or reduction of market liquidity. . 4. Treatment of affiliates Section 2(h)(7)(D)(i) of the Commodity Exchange Act ( 7 U.S.C. 2(h)(7)(D)(i) (1) by striking An affiliate A person that is a financial entity and is an affiliate (2) by striking (including affiliate entities predominantly engaged in providing financing for the purchase of the merchandise or manufactured goods of the person) (3) by striking and as an agent 5. Applicability to bona fide hedge transactions or positions Section 4a(c) of the Commodity Exchange Act ( 7 U.S.C. 6a(c) (1) in the second sentence of paragraph (1), by striking into the future for which in the future, to be determined by the Commission, for which either an appropriate swap is available or (2) in paragraph (2)— (A) in the matter preceding subparagraph (A), by striking subsection (a)(2) position that— paragraphs (2) and (5) of subsection (a) for swaps, contracts of sale for future delivery, or options on the contracts or commodities, a bona fide hedging transaction or position is a transaction or position that— (B) in subparagraph (A)(ii), by striking of risks or management of current or anticipated risks (3) by adding at the end the following: (3) Commission definition The Commission may further define, by rule or regulation, what constitutes a bona fide hedging transaction or position so long as the rule or regulation is consistent with the requirements of subparagraphs (A) and (B) of paragraph (2). . 6. Reporting and recordkeeping Section 4g(f) of the Commodity Exchange Act ( 7 U.S.C. 6g(f) (1) by striking (f) Nothing contained in this section (f) Authority of Commission To make separate determinations unimpaired (1) In general Except as provided in paragraph (2), nothing in this section ; and (2) by adding at the end the following: (2) Exception If the Commission imposes any requirement under this section on any person that is not registered, or required to be registered, with the Commission in any capacity, that person shall satisfy the requirements of any rule, order, or regulation under this section by maintaining a written record of each cash or forward transaction related to a reportable or hedging commodity interest transaction, futures contract, option on a futures contract, or swap. (3) Sufficiency A written record described in paragraph (2) shall be sufficient if the written record— (A) memorializes the final agreement between the parties, including the material economic terms of the transaction; and (B) is identifiable and searchable by transaction. . 7. Margin requirements (a) Commodity Exchange Act amendment Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is amended by adding at the end the following: (4) Applicability with respect to counterparties The requirements of paragraphs (2)(A)(ii) and (2)(B)(ii), including the initial and variation margin requirements imposed by rules adopted pursuant to paragraphs (2)(A)(ii) and (2)(B)(ii), shall not apply to a swap in which a counterparty qualifies for an exception under section 2(h)(7)(A) or 2(h)(7)(D), or an exemption issued under section 4(c)(1) from the requirements of section 2(h)(1)(A) for cooperative entities as defined in that exemption. . (b) Securities Exchange Act amendment Section 15F(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78o–10(e)) is amended by adding at the end the following: (4) Applicability with respect to counterparties The requirements of paragraphs (2)(A)(ii) and (2)(B)(ii) shall not apply to a security-based swap in which a counterparty qualifies for an exception under section 3C(g)(1) or satisfies the criteria in section 3C(g)(4). . (c) Implementation The amendments made by this section to the Commodity Exchange Act (1) without regard to— (A) chapter 35 of title 44, United States Code; and (B) the notice and comment provisions of section 553 (2) through the promulgation of an interim final rule, pursuant to which public comment is sought before a final rule is issued; and (3) such that paragraph (1) shall apply solely to changes to rules and regulations, or proposed rules and regulations, that are limited to and directly a consequence of the amendments. 8. Analysis by the Commodity Futures Trading Commission of the costs and benefits of regulations and orders Section 15(a) of the Commodity Exchange Act ( 7 U.S.C. 19(a) (1) In general Before promulgating a regulation under this Act or issuing an order (except as provided in paragraph (3)), the Commission, acting through the Office of the Chief Economist, shall— (A) state a justification for the regulation or order; (B) state the baseline for the cost-benefit analysis and explain how the regulation or order measures costs against the baseline; (C) assess the costs and benefits, both qualitative and quantitative, of the intended regulation or order; (D) measure, and seek to improve, the actual results of regulatory requirements; and (E) propose or adopt a regulation or order only on a reasoned determination that the benefits of the intended regulation or order justify the costs of the intended regulation or order (recognizing that some benefits and costs are difficult to quantify). (2) Considerations In making a reasoned determination of costs and benefits under paragraph (1), the Commission shall consider— (A) the protection of market participants and the public; (B) the efficiency, competitiveness, and financial integrity of futures and swaps markets; (C) the impact on market liquidity in the futures and swaps markets; (D) price discovery; (E) sound risk management practices; (F) the cost of available alternatives to direct regulation; (G) the degree and nature of the risks posed by various activities within the scope of the jurisdiction of the Commission; (H) whether, consistent with obtaining regulatory objectives, the regulation or order is tailored to impose the least burden on society, including market participants, individuals, businesses of differing sizes, and other entities (including small communities and governmental entities), taking into account, to the extent practicable, the cumulative costs of regulations and orders; (I) whether the regulation or order is inconsistent, incompatible, or duplicative of other Federal regulations and orders; and (J) whether, in choosing among alternative regulatory approaches, those approaches maximize net benefits (including potential economic, environmental, and other benefits, distributive impacts, and equity). .

Summary: End-User Protection Act of 2014 - Amends the Commodity Exchange Act with respect to exceptions to the requirement that any swap be cleared by a derivatives clearing organization either registered under that Act, or exempted from registration, if the swap is required to be cleared. Revises the definition of a financial entity subject to such requirement to exclude one that: (1) is a commercial market participant predominantly engaged in activities in the business of banking, or in activities that are financial in nature, but is not supervised by a prudential regulator; or (2) is considered as predominantly engaged in activities in the business of banking or in financial activities because it regularly enters into foreign exchange or derivatives transactions on behalf of, or to hedge or mitigate the commercial risk of, one or more other entities within the entity's same commercial enterprise, or because of making loans to one or more of such other entities. Directs the Commodity Futures Trading Commission (CFTC) to provide by rule for the public reporting of swap transactions, including price and volume data, in illiquid markets that are not cleared and entered into by a nonfinancial entity that is hedging or mitigating commercial risk. Defines "illiquid" as any market in which the volume and frequency of trading in swaps is at such a level as to allow identification of individual market participants. Requires the CFTC to ensure that such swap transaction information is not available to the public until 30 days after the transaction has been executed, or at an appropriate later date, in order to: (1) protect the identity of participants and positions in illiquid markets, and (2) prevent the elimination or reduction of market liquidity. Accords financial entities exempt from swap-clearing requirements the same treatment as exempted affiliates. Revises the exemption of bona fide hedge transactions or positions from certain trading limitations to set criteria for CFTC rules or regulations treating swaps, contracts of sale for future delivery, or options on the contracts or commodities as bona fide hedge transactions or positions also exempt from those limitations. Declares that, if the CFTC imposes any reporting and recordkeeping requirement on any person that is not registered, or required to be registered, with the CFTC, that person shall satisfy the requirements of any pertinent rule, order, or regulation by maintaining a written record of each cash or forward transaction related to a reportable or hedging commodity interest transaction, futures contract, option on a futures contract, or swap. Makes such a written record sufficient if it: (1) memorializes the final agreement between the parties, including the transaction's material economic terms; and (2) is identifiable and searchable by transaction. States that certain requirements for adoption of rules governing capital and margin requirements for swap dealers and major swap participants, including the initial and variation margin requirements imposed by rules adopted according to such requirements, shall not apply to a swap in which a counterparty qualifies for specified exceptions or exemptions. Revises requirements for a CFTC cost-benefit analysis made before an order is issued. Requires the CFTC, acting through the Office of the Chief Economist, among other things to: state a justification for the regulation or order; state the baseline for the cost-benefit analysis and explain how the regulation or order measures costs against the baseline; assess the costs and benefits, both qualitative and quantitative, of the intended regulation or order; measure, and seek to improve, the actual results of regulatory requirements; and propose or adopt a regulation or order only on a reasoned determination that the benefits of the intended regulation or order justify its costs.