Bill 114-S-2917 — Domestic Commerce / Securities & Commodities
Subject: Finance and financial sector

(This measure has not been amended since it was introduced. The summary has been expanded because action occurred on the measure.)

Commodity End-User Relief Act

TITLE I--CONSUMER PROTECTION

(Sec. 101) This bill amends the Commodity Exchange Act to direct each registered futures association (RFA) to submit to the Commodity Futures Trading Commission (CFTC) rules that require each association member that is a futures commission merchant (FCM) to maintain written policies and procedures regarding the maintenance of, as well as govern the member's withdrawal, transfer, or disbursement of:

 the member's residual interest in any of its customer segregated funds, and in any of its foreign futures and foreign options customer secured amount funds; and the member's residual interest in any cleared swaps customer collateral belonging to the member. (Sec. 102) Each RFA shall also submit to the CFTC rules requiring each association member that is a FCM to:

 use an electronic system or systems to report financial and operational information to the RFA (or another designated party); instruct each depository holding customer segregated funds, foreign futures and foreign options customer secured amount funds, or cleared swaps customer collateral to report balances in those accounts to the RFA (or other designated party) in the form, manner, and interval prescribed by the RFA; and hold those funds in a depository that reports their balances to the RFA (or other designated party) in the same RFA-prescribed form, manner, and interval. (Sec. 103) Any FCM that has adjusted net capital in an amount less than the amount required by the CFTC or a self-regulatory organization of which the FCM is a member shall immediately notify the CFTC and the self-regulatory organization of that occurrence.

If the FCM does not hold a sufficient amount of funds in segregated accounts for futures customers, in foreign futures and foreign options secured amount accounts for foreign futures and foreign options secured amount customers, or in segregated accounts for cleared swap customers, as required by CFTC or self-regulatory organization regulations, it shall notify the CFTC and the self-regulatory organization immediately of that situation.

(Sec. 104) The bill declares that any rules or regulations requiring an FCM to maintain a residual interest in accounts held for the benefit of customers in amounts at least sufficient to exceed the sum of all of the customers' uncollected margin deficits shall require that an FCM meet the residual interest requirement as of the end of each business day calculated as of the close of business on the previous business day.

(Sec. 105) The bill authorizes the CFTC, regarding a commodity broker that is a debtor under chapter 7 (Liquidation) of the federal bankruptcy code, to require that cash, securities, or other property of the broker's estate, including trading or operating accounts as well as commodities the broker holds in inventory, be included in customer property, subject to any otherwise unavoidable security interest, or otherwise unavoidable contractual offset or netting rights of creditors (including rights set forth in a rule or bylaw of a derivatives clearing organization or a securities clearing agency) in respect of the property, but only to the extent that the customer property is insufficient to satisfy the net equity claims of the commodity broker's public customers.

TITLE II--COMMODITY FUTURES TRADING COMMISSION REFORMS

(Sec. 201)The bill reauthorizes the Act and the CFTC through FY2019.

(Sec. 202) The CFTC may exempt any swap from specified requirements for futures trading transactions.

The bill also repeals the ban against exempting agreements, contracts, or transactions, or swaps (and so permitting their exemption) from certain requirements and prohibitions of the Wall Street Transparency and Accountability Act of 2010, the Gramm-Leach-Bliley Act, or the Dodd-Frank Wall Street Reform and Consumer Protection Act.

(Sec. 203) The CFTC shall not be considered to have waived any privilege (including any work-product privilege, attorney-client privilege, governmental privilege, or other privilege recognized under federal, state, or foreign law) by transferring information to, or permitting that information to be used by, the CFTC in accordance with specified existing requirements. Nor shall specified entities be considered to have waived any privilege by transferring information to, or permitting information to be used by, the CFTC.

The CFTC shall not be compelled to disclose privileged information obtained from any foreign futures authority, or foreign law enforcement authority, if the authority has in good faith determined and represented to the CFTC that the information is privileged.

(Sec. 204) The bill authorizes any person adversely affected by a CFTC rule to obtain judicial review of the rule in the U.S. Court of Appeals for the District of Columbia Circuit or the U.S. Court of Appeals for the circuit where the party resides or has the principal place of business.

(Sec. 205) The CFTC must: (1) report to specified congressional committees on the status of its review of any application submitted by a metals exchange to register as a foreign board of trade, and (2) take action on any such application by the end of FY2017.

(Sec. 206) The bill addresses:

 one meaning of "financial entity" as a person predominantly engaged in activities that are in the business of banking, or in activities that are financial in nature; and the exemption of a person that is not a financial entity from the general requirement to submit a swap for clearing to a registered derivatives clearing organization or a derivatives clearing organization exempt from registration. The CFTC shall promulgate regulations defining the term "predominantly engaged" for these purposes to provide that an entity will not be considered to be predominantly engaged in activities that are in the business of banking or financial in nature if its consolidated revenues derived from such activities (excluding revenues that are, or result from, transactions used to hedge or mitigate commercial risk) constitute less than 85% of its total consolidated revenues. (Such an entity would then become exempt from the swap clearing requirement.)

(Sec. 207) The public interest exemption from futures trading and foreign transactions regulations of certain agreements, contracts, or transactions entered into pursuant to an approved or permitted tariff or rate schedule must include an exemption from civil liability, especially to private rights of action.

TITLE III--END-USER RELIEF

Sec. 301. A "utility special entity" shall mean a special entity, or any instrumentality, department, or corporation of or established by a state or local government, that:

 owns or operates, or anticipates owning or operating, an electric or natural gas facility or an electric or natural gas operation; supplies, or anticipates supplying, natural gas and or electric energy to another utility special entity; has, or anticipates having, public service obligations under federal, state, or local law (including regulations) to deliver electric energy or natural gas service to customers; or is a federal power marketing agency A "utility operations-related swap" shall mean a swap entered into by a utility to hedge or mitigate a commercial risk, but which is not a contract, agreement, or transaction based on, derived on, or referencing:

 an interest rate, credit, equity, or currency asset class; (except as used for fuel for electric energy generation) a metal, agricultural commodity, or crude oil or gasoline commodity of any grade; or any other commodity or category of commodities identified for this purpose in a CFTC rule or order adopted in consultation with the appropriate federal and state regulatory commissions. A "utility operations-related swap" must also be associated with:

 the generation, production, purchase, or sale of natural gas or electric energy, the supply of natural gas or electric energy to a utility, or the delivery of natural gas or electric energy service to utility customers; fuel supply for the facilities or operations of a utility; compliance with an electric system reliability obligation; compliance with an energy, energy efficiency, conservation, or renewable energy or environmental law, regulation, or government order applicable to a utility; or any other electric energy or natural gas swap to which a utility is a party. When deciding whether to exempt from designation as a swap dealer an entity that engages in a de minimis quantity of swap dealing in connection with transactions with or on behalf of its customers, the CFTC shall treat a utility operations-related swap entered into with a utility special entity as if the swap were entered into with an entity that is not a special entity to which specified requirements apply (e.g. a federal, state, or local agency, an employee benefit plan, a governmental plan, or a certain kind of endowment).

A swap dealer and/or a major swap participant shall report any transactions in any utility operations-related swaps in which they participate.

(Sec. 302) A member of a designated contract market or a swap execution facility that is not registered with the CFTC, and not required to be so registered in any capacity, shall satisfy the recordkeeping requirements of the Act, and any recordkeeping rule, order, or regulation under it, by maintaining a written record of each transaction in a contract for future delivery, option on a future, swap, swaption (option granting its owner the right but not the obligation to enter into an underlying swap), trade option, and related cash or forward transactions.

(Sec. 303) Swaps subject to the Act shall not include:

 any option in a nonfinancial commodity for which exercise is intended to result in a physical delivery obligation; and any advance by a Federal Home Loan Bank. (Sec. 304) The CFTC shall study the appropriate de minimis exemption level of swap dealing and, based on the information gathered, promulgate a regulation that sets an appropriate level.

(Sec. 305) When adopting rules for swap dealers and major swap participants regarding activities for which no prudential regulator is imposing capital and margin requirements on all swaps not cleared by a registered derivatives clearing organization, the CFTC must consult with the prudential regulators and the Securities and Exchange Commission (SEC).

To the extent that swap dealers and major swap participants that are banks are permitted to use financial models approved by the prudential regulators or the SEC to calculate minimum capital requirements and minimum initial and variation margin requirements, including the use of noncash collateral, the CFTC shall, in consultation with the prudential regulators and the SEC and to the maximum extent practicable, permit the use of comparable financial models by non-bank swap dealers and non-bank major swap participants.

(Sec. 306) The bill revises requirements for bona fide hedging transactions or positions exempt from specified limitations on the amount of positions that may be held by any person regarding contracts of sale for future delivery or options on the contracts or commodities traded on or subject to the rules of a designated contract market.

"Bona fide hedging transactions or positions" shall (currently, may) be defined to permit producers, purchasers, sellers, middlemen, and users of a commodity or a derivative product to hedge their legitimate anticipated business needs for that period of time into the future, as determined by the CFTC, for which an appropriate futures contract is open and available on an exchange.

Specified CFTC definitions of what constitutes a bona fide hedging transaction or position shall also apply to swaps that are economically equivalent to contracts of sale for future delivery or to options on the contracts or commodities traded on or subject to the rules of a designated contract market.

The CFTC may further define what constitutes a bona fide hedging transaction if the defining rule or regulation is consistent with the limitations and requirements for such sales and option contracts and economically equivalent contracts.

(Sec. 307) The bill excludes from designation and regulation as commodity pool operators any investment trusts, syndicates, or similar forms of enterprise excluded from the meaning of investment company under the Investment Company Act of 1940 (namely, qualified charitable organizations exempt from federal income tax under the Internal Revenue Code).

The bill also exempts such qualified charitable organizations which are commodity trading advisors from the prohibition against use of instrumentalities of interstate commerce by unregistered commodity trading advisors.

TITLE IV--TECHNICAL CORRECTIONS

(Sec. 401-417) The bill makes numerous technical corrections to the Act and to the Futures Trading Act of 1978.