Title: Certainty for End-Users Act
Policy area: Finance and Financial Sector

Summary:
Certainty for End-Users Act
This bill revises provisions regarding exemptions to the clearing requirement for commodity swaps, also known as the end-user exception. Among other things, the bill addresses qualifying financial entities, risk management activities of affiliated nonfinancial entities, margin requirements for certain insurance companies, and major swap participants.

[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4726 Introduced in House (IH)]

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116th CONGRESS
  1st Session
                                H. R. 4726

 To help end-users better utilize derivatives markets by refining the 
 definition of financial entity, clarifying how affiliates can utilize 
the end-user exception, and harmonizing clearing and margin exemptions.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            October 17, 2019

 Mr. Marshall introduced the following bill; which was referred to the 
                        Committee on Agriculture

_______________________________________________________________________

                                 A BILL


 
 To help end-users better utilize derivatives markets by refining the 
 definition of financial entity, clarifying how affiliates can utilize 
the end-user exception, and harmonizing clearing and margin exemptions.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Certainty for End-Users Act''.

SEC. 2. CLARIFYING THE FINANCIAL ENTITY DEFINITION.

    (a) In General.--Section 2(h) of the Commodity Exchange Act (7 
U.S.C. 2(h)) is amended--
            (1) by striking paragraph (1)(A) and inserting the 
        following:
                    ``(A) Standard for clearing.--It shall be unlawful 
                for a financial entity to engage in a swap with another 
                financial entity, unless the swap is submitted for 
                clearing to a derivatives clearing organization 
                registered under this Act or a derivatives clearing 
                organization exempt from registration under this Act if 
                the swap is required to be cleared.''; and
            (2) in paragraph (7)--
                    (A) in the paragraph heading, by striking 
                ``Exceptions'' and inserting ``Application of clearing 
                requirement'';
                    (B) by striking subparagraphs (A) and (B) and 
                redesignating subparagraph (C) as subparagraph (A);
                    (C) in subparagraph (A) (as so redesignated)--
                            (i) by striking clause (i) and inserting 
                        the following:
                            ``(i) In general.--In this subsection, the 
                        term `financial entity' means the following:
                                    ``(I) Institutions not statutorily 
                                exempted.--
                                            ``(aa) A financial 
                                        institution.
                                            ``(bb) A swap dealer.
                                            ``(cc) A security-based 
                                        swap dealer.
                                            ``(dd) A major swap 
                                        participant.
                                            ``(ee) A major security-
                                        based swap participant.
                                            ``(ff) A commodity pool 
                                        that is required to be operated 
                                        by a commodity pool operator 
                                        registered with the Commission, 
                                        or a foreign person that would 
                                        be such a commodity pool if the 
                                        foreign person were organized 
                                        under the laws of the United 
                                        States or any State.
                                            ``(gg) An investment 
                                        company (as defined in section 
                                        3 of the Investment Company Act 
                                        of 1940 (15 U.S.C. 80a-3)), or 
                                        a foreign person that would be 
                                        such an investment company if 
                                        the foreign person were 
                                        organized under the laws of the 
                                        United States or any State.
                                    ``(II) Private funds.--A private 
                                fund as defined in section 202(a) of 
                                the Investment Advisers Act of 1940 (15 
                                U.S.C. 80-b-2(a)), or a foreign person 
                                that would be such a private fund if 
                                the foreign person were organized under 
                                the laws of the United States or any 
                                State.
                                    ``(III) Other persons.--Such other 
                                persons the Commission determines by 
                                rule to be predominantly engaged in 
                                activities that are financial in 
                                nature. In making such a determination, 
                                the Commission may consider section 
                                4(k) of the Bank Holding Company Act of 
                                1956. The Commission shall promulgate 
                                regulations to carry out this 
                                subclause.'';
                            (ii) in clause (iii), by striking ``Such 
                        definition'' and inserting ``The term''; and
                            (iii) by adding at the end the following:
                            ``(iv) De minimis exclusion.--
                                    ``(I) Amounts.--A person described 
                                in subclause (III), and not subclause 
                                (I) or (II), of clause (i) shall not be 
                                considered a financial entity for 
                                purposes of this subsection if the 
                                total swaps activity of the person, 
                                when calculated with those of all other 
                                affiliated persons who are so 
                                described, amount to less than--
                                            ``(aa) $1,000,000,000 in 
                                        gross notional swaps 
                                        transactions calculated on the 
                                        basis of a rolling 12-month 
                                        period; or
                                            ``(bb) an alternative de 
                                        minimis amount of swaps 
                                        activity, exposure, 
                                        transactions, or other 
                                        measurement, as determined by 
                                        the Commission. At least every 
                                        5 years, the Commission shall 
                                        consider modifying the 
                                        alternative de minimis amount 
                                        due to inflation or other 
                                        market factors.
                                    ``(II) Calculation.--The 
                                calculation under subclause (I) shall 
                                not include--
                                            ``(aa) swaps used to hedge 
                                        or mitigate risk associated 
                                        with an asset owned or 
                                        liability incurred or 
                                        reasonably likely to be owned 
                                        or incurred by an entity in the 
                                        conduct of such entity's 
                                        business; or
                                            ``(bb) swaps used by an 
                                        insurance company for asset 
                                        replication if they are 
                                        expressly permitted by State 
                                        insurance regulators to be 
                                        entered into in conjunction 
                                        with other investments in order 
                                        to replicate the investment 
                                        characteristics of otherwise 
                                        permissible investments.
                                    ``(III) Requirements of entities 
                                relying on the de minimis exclusion.--
                                An entity that relies on the de minimis 
                                exception in this clause to avoid 
                                clearing swaps transactions that the 
                                Commission requires a financial entity 
                                to clear pursuant to paragraph (1)(A) 
                                and Commission regulations shall, with 
                                respect to the swaps, report or cause 
                                to be reported, to a registered swap 
                                data repository the reliance of the 
                                entity on the de minimis exclusion.''; 
                                and
                    (D) by inserting after subparagraph (A) (as amended 
                by the preceding provisions of this paragraph) the 
                following:
                    ``(B) Additional definitions.--In this subsection:
                            ``(i) Affiliate status.--2 entities are 
                        affiliated if--
                                    ``(I) 1 of the entities, directly 
                                or indirectly, holds a majority 
                                ownership interest in the other entity; 
                                or
                                    ``(II) a third party, directly or 
                                indirectly, holds a majority ownership 
                                interest in both entities.
                            ``(ii) Non-financial entity.--The term 
                        `non-financial entity' means--
                                    ``(I) a person not described in 
                                subparagraph (A)(i); or
                                    ``(II) a person described in clause 
                                (ii), (iii), or (iv) of subparagraph 
                                (A).
                    ``(C) Requirements of non-financial entities.--A 
                non-financial entity that engages in swaps transactions 
                that the Commission requires a financial entity to 
                clear pursuant to paragraph (1)(A) and Commission 
                regulations shall, with respect to the swaps, report or 
                cause to be reported, to a registered swap data 
                repository their status as a non-financial entity.''.

SEC. 3. SIMPLIFYING THE END-USER AFFILIATE PROCESS.

    Section 2(h)(7) of the Commodity Exchange Act (7 U.S.C. 2(h)(7)), 
as amended by section 2 of this Act, is amended--
            (1) by striking subparagraph (D) and inserting the 
        following:
                    ``(D) Risk management through affiliates.--
                            ``(i) Exception.--The requirements of 
                        paragraph (1)(A) shall not apply to a swap 
                        entered into by a risk management entity if the 
                        swap is--
                                    ``(I) used to hedge or mitigate 
                                eligible risk originating from one or 
                                more affiliated non-financial entities; 
                                and
                                    ``(II) not netted, combined, or 
                                consolidated with any other swap to 
                                which the requirements of paragraph 
                                (1)(A) apply.
                            ``(ii) Risk management entity defined.--In 
                        this subparagraph, the term `risk management 
                        entity' means--
                                    ``(I) an entity described in 
                                subclause (II), and not subclause (I), 
                                of subparagraph (A)(i), that enters 
                                only into transactions related to the 
                                management of eligible risk;
                                    ``(II) an entity described in only 
                                subclause (III) of subparagraph (A)(i); 
                                or
                                    ``(III) a non-financial entity.
                            ``(iii) Eligible risk defined.--In this 
                        subparagraph, the term `eligible risk' means 
                        risk that--
                                    ``(I) originates from a non-
                                financial entity;
                                    ``(II) is associated with an asset 
                                owned or liability incurred or 
                                reasonably likely to be owned or 
                                incurred by the non-financial entity in 
                                the conduct of the business of the non-
                                financial entity;
                                    ``(III) is not netted, combined, or 
                                consolidated with risk originating from 
                                any affiliated financial entity; and
                                    ``(IV) if transferred, is 
                                transferred only to or through one or 
                                more affiliated risk management 
                                entities.
                            ``(iv) Requirements of risk management 
                        entities.--A risk management entity that 
                        engages in swaps which utilize the exception in 
                        this subparagraph shall--
                                    ``(I) notify the Commission, in a 
                                manner prescribed by the Commission, 
                                how the risk management entity 
                                generally meets the financial 
                                obligations of the risk management 
                                entity associated with entering into 
                                non-cleared swaps;
                                    ``(II) identify those swaps used to 
                                hedge or mitigate eligible risk 
                                originating from one or more affiliated 
                                non-financial entities; and
                                    ``(III) maintain books and records 
                                of the swaps which utilize the 
                                exception in this subparagraph and the 
                                related eligible risk in such form and 
                                manner and for such period as may be 
                                required by the Commission.
                            ``(v) No effect on non-financial 
                        entities.--Nothing in this subparagraph shall 
                        be interpreted to limit the ability of any non-
                        financial entity to engage in a swap to which 
                        the requirements of paragraph (1)(A) do not 
                        apply.''; and
            (2) by striking subparagraph (F) and inserting the 
        following:
                    ``(F) Abuse of exception.--The Commission may 
                prescribe such rules or issue such interpretations of 
                the rules as the Commission determines to be necessary 
                to prevent abuse of the exceptions described in this 
                paragraph. The Commission may request information from 
                a person claiming to be a non-financial entity as 
                necessary to prevent evasion of the rules or abuse of 
                the exceptions described in this paragraph.''.

SEC. 4. ALIGNMENT OF MARGIN REQUIREMENTS.

    Section 4s(e)(4) of the Commodity Exchange Act (7 U.S.C. 6s(e)(4)) 
is amended to read as follows:
            ``(4) Exceptions to margin requirements.--
                    ``(A) In general.--Paragraphs (2)(A)(ii) and 
                (2)(B)(ii), including the initial and variation margin 
                requirements imposed under such paragraphs, shall not 
                apply to a swap--
                            ``(i) in which a counterparty is a non-
                        financial entity (as defined in section 
                        2(h)(7)(B)(ii)), regardless of whether the swap 
                        is required to be cleared;
                            ``(ii) that qualifies for the exception 
                        provided in subparagraph (D) of section 
                        2(h)(7), or that would so qualify if the swap 
                        were required to be cleared; or
                            ``(iii) that qualifies for an exception or 
                        exemption from the requirements of section 
                        2(h)(1)(A) pursuant to any Commission rule, 
                        regulation, or order.
                    ``(B) Preservation of variation margin exchange 
                requirement applicable to certain insurance 
                companies.--Notwithstanding subparagraph (A) of this 
                paragraph, if an insurance company would be a financial 
                entity for purposes of section 2(h) if the swaps 
                described in section 2(h)(7)(A)(iv)(II)(bb) of the 
                insurance company were not excluded from the de minimis 
                calculation under section 2(h)(7)(A)(iv), then all 
                swaps of the insurance company shall be subject to the 
                variation margin requirements of paragraphs (2)(A)(ii) 
                and (2)(B)(ii) of this subsection.''.

SEC. 5. MODIFICATION OF DEFINITION OF MAJOR SWAP PARTICIPANT.

    Section 1a(33)(A)(iii)(I) of the Commodity Exchange Act (7 U.S.C. 
1a(33)(A)(iii)(I)) is amended by inserting ``, or a non-financial 
entity that would be considered to be a financial entity for purposes 
of section 2(h) but for the application of the de minimis exclusion 
provided for in section 2(h)(7)(A)(iv),'' before ``that is highly''.
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