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Start Preamble

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Interim final rule; request for comment.

SUMMARY:

The Commodity Futures Trading Commission (the “Commission”) is amending its primary definitions regulation to make it more user-friendly both to industry and the public. Specifically, the Commission is amending the primary definitions regulation to replace the complex and confusing lettering system with a simple alphabetical list; and replacing all existing cross references to any definition within the primary definitions regulation with a general reference to the revised alphabetical list, rather than to a specific lettered paragraph.

DATES:

Effective Date: This rule is effective February 23, 2018.

Comment date: Comments must be received on or before March 26, 2018.

ADDRESSES:

You may submit comments, identified by RIN 3038-AE70, by one of the following methods:

  • CFTC Website: https://comments.cftc.gov. Follow the instructions to Submit Comments through the website.
  • Mail: Send comments to Christopher Kirkpatrick, Secretary of the Commission, Commodity Futures Trading Commission, Three Lafayette Center, 1155 21st Street NW, Washington, DC 20581.
  • Hand Delivery/Courier: Same as Mail, above.

Please submit your comments using only one method.

All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to https://comments.cftc.gov. You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act (“FOIA”), a petition for confidential treatment of the exempt information may be submitted according to the procedures established in § 145.9 of the Commission's regulations.[1]

The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from https://comments.cftc.gov that it may deem to be inappropriate for publication, such as obscene language. All submissions that have been redacted or removed that contain comments on the merits of the rulemaking will be retained in the public comment file and will be considered as required under the Administrative Procedure Act and other applicable laws, and may be accessible under the FOIA.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Matthew B. Kulkin, Director, (202) 418-5213, mkulkin@cftc.gov; Frank Fisanich, Chief Counsel, (202) 418-5949, ffisanich@cftc.gov; Andrew Chapin, Associate Chief Counsel, (202) 418-5465, achapin@cftc.gov; Scott Lee, Special Counsel, (202) 418-5090, slee@cftc.gov; or C. Barry McCarty, Special Counsel, (202) 418-6627, cmccarty@cftc.gov; Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st Street NW, Washington, DC 20581.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

I. Interim Final Rule

Section 1a of the Commodity Exchange Act (“CEA”) [2] sets forth defined terms referenced throughout the statute. These terms are alphabetized and numbered, currently beginning with “(1) Alternative Trading System” and ending with “(51) Trading Facility.” Whenever defined terms are added by Congress, the new term is placed in the proper location in the alphabetic order and the entire list is renumbered. The alphabetized list makes it relatively easy for an individual completely unfamiliar with the CEA to find a particular term referenced in the statute.

Commission regulation § 1.3 similarly sets forth many definitions referenced throughout the Commission's regulations.[3] Starting in 1938, the defined terms have been identified with an alphabetic designation consistent with the structure set forth in the Code of Federal Regulations (“CFR”).[4] The CFR identifies regulations by “title,” divided into “chapters,” further sub-divided into “parts,” and further sub-divided into “sections” and “paragraphs.” Thus, the definitions in § 1.3 are set forth in Title 17 (Commodity and Securities Exchanges), Chapter I (Commodity Futures Trading Commission), Part 1 (General Regulations Under the Commodity Exchange Act), § 1.3 (Definitions). Each defined term then was originally set forth in paragraphs in alphabetical order, each with an alphabetic designation, starting with “(a) Board of Trade” and continuing through “(u) Person.” [5] Over decades, numerous definitions have been added by simply adding more paragraphs at the end (rather than in alphabetical order) with an ever-growing list of alphabetic designations, starting with “(aa)” after reaching “(z)” and then “(aaa)” after reaching “(zz).” Moreover, certain definitions have been removed, leaving certain paragraphs blank and cited as “reserved.” As of today, the list of definitions in § 1.3 concludes with “(ssss) Trading Facility.” The result of this progression has been that, absent a strong familiarity with the Commission's regulations, it can prove difficult to quickly locate defined terms within § 1.3, either directly or as referred to by another regulation, or even to know if certain terms have been defined.

Accordingly, the Commission has determined to amend § 1.3 to replace the sub-paragraphs currently identified with an alphabetic designation for each defined term with a simple alphabetized list, as is recommended by the Office of the Federal Register.[6] Moving forward, any new defined terms in § 1.3 may be inserted in alphabetical order, rather than appended to the end. The Commission also has determined to amend all cross references to § 1.3—both within § 1.3 and within all other Commission regulations—to refer to the defined term set forth in the revised Start Printed Page 7980alphabetic list, rather than the existing complex and confusing system for subdividing the regulation into paragraphs identified with an alphabetic designation. Further, the Commission has determined to amend certain definitions within § 1.3 to correct certain typographical errors. Collectively, these amendments do not substantively alter any existing definition or other requirement set forth in other Commission regulations.

II. Request for Comment on Interim Final Rule

The Commission invites comments on this interim final rule. For example, the Commission invites comment as to the extent, if any, that the elimination of the paragraph references to particular defined terms in § 1.3 would cause registrants to update or alter existing automated compliance programs and any costs associated with such changes. Comments must be received by the Commission on or before the comment date specified under the DATES heading in this document. Comments on the interim final rule must be submitted pursuant to the instructions provided above.

III. Related Matters

A. Administrative Procedure Act

The Administrative Procedure Act (“APA”) [7] generally requires a Federal agency to publish a notice of proposed rulemaking in the Federal Register. This requirement does not apply, however, when an agency “for good cause finds . . . that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” Moreover, while the APA generally requires that an agency publish an adopted rule in the Federal Register 30 days before it becomes effective, this requirement does not apply if the agency finds good cause to make the rule effective sooner. In this interim final rulemaking the Commission is, by amendment, reorganizing the definitions in § 1.3 into alphabetical order. No substantive changes are being made to the definitions, only reordering in alphabetical order, deleting the alphabetic identification scheme, revising all cross references to existing § 1.3 definitions, and correcting certain typographical errors. Similarly, related regulations which include cross references to § 1.3 will be amended to reflect the elimination of the alphabetic identification scheme. Because the interim final rule does not alter in any way the substantive definitions and related regulations, the advance notice and public comment procedure that is generally required pursuant to the APA is not necessary in the present instance. For good cause, the Commission therefore finds that publication of a notice of proposed rulemaking in the Federal Register is unnecessary. Similarly, since the interim final rule simply reorganizes all definitions into alphabetical order in § 1.3, eliminates the alphabetic identification scheme, harmonizes related regulations, and corrects certain typographical errors, the Commission, for good cause, finds no transitional period, after publication in the Federal Register, is necessary before the amendments made by this interim final rule become effective. Accordingly, this interim final rule shall be effective immediately upon publication in the Federal Register.

B. Paperwork Reduction Act

The Paperwork Reduction Act (“PRA”) imposes certain requirements on Federal agencies in connection with their conducting or sponsoring any collection of information as defined by the PRA.[8] Under the PRA, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number from the Office of Management and Budget (“OMB”). Since this interim final rule serves to clarify, by amendment, the scope of an already existing regulatory provision, the Commission has determined that the interim final rule will not impose any new information collection requirements that require approval of OMB under the PRA.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (“RFA”) requires that Federal agencies consider whether the rules that they issue will have a significant economic impact on a substantial number of small entities and, if so, to provide a regulatory flexibility analysis respecting the impact.[9] By reorganizing the definitions set forth in § 1.3 into alphabetical order and updating all related cross references throughout all Commission regulations, this interim final rule serves to clarify its regulations. Therefore, the Commission has determined that this interim final rule will not have a significant economic impact on a substantial number of small entities.

D. Cost-Benefit Considerations

Section 15(a) of the CEA [10] requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA or issuing certain orders. Section 15(a) further specifies that the costs and benefits shall be evaluated in light of five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of the futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) factors.

The interim final rule does not represent an exercise of Commission discretion that alters substantive rights and obligations imposed by statute and current Commission rules. As discussed earlier, the interim final rule merely reorganizes the existing definitions in § 1.3 into alphabetical order, deletes the outdated lettering scheme, and revises § 1.3 and related regulations to reflect the deleted lettering scheme. As such, substantively, the interim final rule poses no incremental costs or benefits relative to the regulatory requirements that are now in force.

This interim final rule does have a discretionary element. By issuing the interim final rule, the Commission is exercising its discretion to clarify, by amendment, the definitions currently in force. By alphabetizing the definitions, the interim final rule addresses a potential source of uncertainty for market participants, which promotes the public interest in market integrity and regulatory clarity. The Commission recognizes that this discretionary act of clarification may result in some administrative costs to market participants. However, the Commission believes any such costs will not be material.

Start List of Subjects

List of Subjects

17 CFR Part 1

  • Commodity futures
  • Reporting and recordkeeping requirements

17 CFR Part 3

  • Administrative practice and procedure
  • Commodity futures
  • Reporting and recordkeeping requirements

17 CFR Part 4

  • Advertising
  • Brokers
  • Commodity futures
  • Consumer protection
  • Reporting and recordkeeping requirements

17 CFR Part 5

  • Commodity futures
  • Consumer protection
  • Foreign currencies
  • Reporting and recordkeeping requirements
  • Securities
  • Trade practices

17 CFR Part 15

  • Brokers
  • Reporting and recordkeeping requirements

17 CFR Part 18

  • Reporting and recordkeeping requirements

17 CFR Part 19

  • Cotton
  • Grains
  • Reporting and recordkeeping requirements

17 CFR Part 23

  • Swaps

17 CFR Part 30

  • Consumer protection
  • Fraud

17 CFR Part 38

  • Commodity futures
  • Reporting and recordkeeping requirements

17 CFR Part 39

  • Consumer protection
  • Reporting and recordkeeping requirements

17 CFR Part 41

  • Brokers
  • Reporting and recordkeeping requirements
  • Securities

17 CFR Part 50

  • Business and industry
  • Swaps

17 CFR Part 150

  • Cotton
  • Grains

17 CFR Part 151

  • Swaps

17 CFR Part 155

  • Brokers
  • Reporting and recordkeeping requirements

17 CFR Part 166

  • Brokers
  • Commodity futures
  • Consumer protection
  • Reporting and recordkeeping requirements
End List of Subjects

For the reasons set forth in the preamble, the Commodity Futures Trading Commission amends 17 CFR chapter I as follows:

Start Part

PART 1—GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

End Part Start Amendment Part

1. The authority citation for part 1 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24 (2012).

End Authority Start Amendment Part

2. Amend § 1.3 as follows:

End Amendment Part Start Amendment Part

a. Republish the introductory text of § 1.3;

End Amendment Part Start Amendment Part

b. Remove paragraph designations (a) through (ssss) and reorder those definitions paragraphs in correct alphabetical order;

End Amendment Part Start Amendment Part

c. Revise the definitions of “Bona fide hedging transactions and positions for excluded commodities,” “Category of swaps; major swap category,” “Commodity option transaction; commodity option,” “Commodity trading advisor,” “Customer,” “Customer account,” “Eligible contract participant,” “Financial entity; highly leveraged,” “Futures contracts on certain foreign sovereign debt,” “Futures customer,” “Hedging or mitigating commercial risk,” “Major Swap Participant,” “Meaning of `issuers of securities in a narrow-based security index' as used in the definition of `security-based swap' as applied to index credit default swaps,” “Meaning of `narrow-based security index' used in the definition of `security-based swap' as applied to index credit default swaps,” “Narrow-based security index as used in the definition of `security-based swap,' ” “Substantial counterparty exposure,” “Substantial position,” “Swap,” and “Swap Dealer.”

End Amendment Part

The revisions read as follows:

Definitions.

Words used in the singular form in the rules and regulations in this chapter shall be deemed to import the plural and vice versa, as the context may require. The following terms, as used in the Commodity Exchange Act, or in the rules and regulations in this chapter, shall have the meanings hereby assigned to them, unless the context otherwise requires:

* * * * *

Bona fide hedging transactions and positions for excluded commodities—(1) General definition. Bona fide hedging transactions and positions shall mean any agreement, contract or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility, where such transactions or positions normally represent a substitute for transactions to be made or positions to be taken at a later time in a physical marketing channel, and where they are economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise, and where they arise from:

(i) The potential change in the value of assets which a person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising,

(ii) The potential change in the value of liabilities which a person owns or anticipates incurring, or

(iii) The potential change in the value of services which a person provides, purchases, or anticipates providing or purchasing.

(iv) Notwithstanding the foregoing, no transactions or positions shall be classified as bona fide hedging unless their purpose is to offset price risks incidental to commercial cash or spot operations and such positions are established and liquidated in an orderly manner in accordance with sound commercial practices and, for transactions or positions on contract markets subject to trading and position limits in effect pursuant to section 4a of the Act, unless the provisions of paragraphs (2) and (3) of this definition have been satisfied.

(2) Enumerated hedging transactions. The definitions of bona fide hedging transactions and positions in paragraph (1) of this definition includes, but is not limited to, the following specific transactions and positions:

(i) Sales of any agreement, contract, or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility which do not exceed in quantity:

(A) Ownership or fixed-price purchase of the same cash commodity by the same person; and

(B) Twelve months' unsold anticipated production of the same commodity by the same person provided that no such position is maintained in any agreement, contract or transaction during the five last trading days.

(ii) Purchases of any agreement, contract or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility which do not exceed in quantity:

(A) The fixed-price sale of the same cash commodity by the same person;

(B) The quantity equivalent of fixed-price sales of the cash products and by-products of such commodity by the same person; and

(C) Twelve months' unfilled anticipated requirements of the same cash commodity for processing, manufacturing, or feeding by the same person, provided that such transactions and positions in the five last trading Start Printed Page 7982days of any agreement, contract or transaction do not exceed the person's unfilled anticipated requirements of the same cash commodity for that month and for the next succeeding month.

(iii) Offsetting sales and purchases in any agreement, contract or transaction in an excluded commodity on a designated contract market or swap execution facility that is a trading facility which do not exceed in quantity that amount of the same cash commodity which has been bought and sold by the same person at unfixed prices basis different delivery months of the contract market, provided that no such position is maintained in any agreement, contract or transaction during the five last trading days.

(iv) Purchases or sales by an agent who does not own or has not contracted to sell or purchase the offsetting cash commodity at a fixed price, provided that the agent is responsible for the merchandising of the cash position that is being offset, and the agent has a contractual arrangement with the person who owns the commodity or has the cash market commitment being offset.

(v) Sales and purchases described in paragraphs (2)(i) through (iv) of this definition may also be offset other than by the same quantity of the same cash commodity, provided that the fluctuations in value of the position for in any agreement, contract or transaction are substantially related to the fluctuations in value of the actual or anticipated cash position, and provided that the positions in any agreement, contract or transaction shall not be maintained during the five last trading days.

(3) Non-Enumerated cases. A designated contract market or swap execution facility that is a trading facility may recognize, consistent with the purposes of this definition, transactions and positions other than those enumerated in paragraph (2) of this definition as bona fide hedging. Prior to recognizing such non-enumerated transactions and positions, the designated contract market or swap execution facility that is a trading facility shall submit such rules for Commission review under section 5c of the Act and part 40 of this chapter.

* * * * *

Category of swaps; major swap category. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of major swap participant in this section, the terms major swap category, category of swaps and any similar terms mean any of the categories of swaps listed below. For the avoidance of doubt, the term swap as it is used in this definition has the meaning set forth in section 1a(47) of the Act, 7 U.S.C. 1a(47), and the rules thereunder.

(1) Rate swaps. Any swap which is primarily based on one or more reference rates, including but not limited to any swap of payments determined by fixed and floating interest rates, currency exchange rates, inflation rates or other monetary rates, any foreign exchange swap, as defined in section 1a(25) of the Act, 7 U.S.C. 1a(25), and any foreign exchange option other than an option to deliver currency.

(2) Credit swaps. Any swap that is primarily based on instruments of indebtedness, including but not limited to any swap primarily based on one or more broad-based indices related to debt instruments or loans, and any swap that is an index credit default swap or total return swap on one or more indices of debt instruments.

(3) Equity swaps. Any swap that is primarily based on equity securities, including but not limited to any swap based on one or more broad-based indices of equity securities and any total return swap on one or more equity indices.

(4) Other commodity swaps. Any swap that is not included in the rate swap, credit swap or equity swap categories.

* * * * *

Commodity option transaction; commodity option. These terms each mean any transaction or agreement in interstate commerce which is or is held out to be of the character of, or is commonly known to the trade as, an “option,” “privilege,” “indemnity,” “bid,” “offer,” “call,” “put,” “advance guaranty,” or “decline guaranty,” and which is subject to regulation under the Act and the regulations in this chapter.

* * * * *

Commodity trading advisor. (1) This term means any person who, for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media, as to the value of or the advisability of trading in any contract of sale of a commodity for future delivery, security futures product, or swap; any agreement, contract or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option authorized under section 4c of the Act; any leverage transaction authorized under section 19 of the Act; any person registered with the Commission as a commodity trading advisor; or any person, who, for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the foregoing. The term does not include:

(i) Any bank or trust company or any person acting as an employee thereof;

(ii) Any news reporter, news columnist, or news editor of the print or electronic media or any lawyer, accountant, or teacher;

(iii) Any floor broker or futures commission merchant;

(iv) The publisher or producer of any print or electronic data of general and regular dissemination, including its employees;

(v) The named fiduciary, or trustee, of any defined benefit plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974, or any fiduciary whose sole business is to advise that plan;

(vi) Any contract market; and

(vii) Such other persons not within the intent of this definition as the Commission may specify by rule, regulation or order: Provided, That the furnishing of such services by the foregoing persons is solely incidental to the conduct of their business or profession: Provided further, That the Commission, by rule or regulation, may include within this definition, any person advising as to the value of commodities or issuing reports or analyses concerning commodities, if the Commission determines that such rule or regulation will effectuate the purposes of this provision.

(2) Client. This term, as it relates to a commodity trading advisor, means any person:

(i) To whom a commodity trading advisor provides advice, for compensation or profit, either directly or through publications, writings, or electronic media, as to the value of, or the advisability of trading in, any contract of sale of a commodity for future delivery, security futures product or swap; any agreement, contract or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) of the Act; any commodity option authorized under section 4c of the Act; any leverage transaction authorized under section 19 of the Act; or

(ii) To whom, for compensation or profit, and as part of a regular business, the commodity trading advisor issues or promulgates analyses or reports concerning any of the activities referred to in the definition of commodity trading advisor in this section. The term client includes, without limitation, any subscriber of a commodity trading advisor.

* * * * *

Customer. This term means any person who uses a futures commission Start Printed Page 7983merchant, introducing broker, commodity trading advisor, or commodity pool operator as an agent in connection with trading in any commodity interest; Provided, however, an owner or holder of a proprietary account as defined in this section shall not be deemed to be a customer within the meaning of section 4d of the Act, the regulations that implement sections 4d and 4f of the Act and § 1.35, and such an owner or holder of such a proprietary account shall otherwise be deemed to be a customer within the meaning of the Act and §§ 1.37 and 1.46 and all other sections of these rules, regulations, and orders which do not implement sections 4d and 4f of the Act.

Customer account. This term references both a Cleared Swaps Customer Account and a Futures Account, as defined in this section.

* * * * *

Eligible contract participant. This term has the meaning set forth in section 1a(18) of the Act, except that:

(1) A major swap participant, as defined in section 1a(33) of the Act and in this section, is an eligible contract participant;

(2) A swap dealer, as defined in section 1a(49) of the Act and in this section, is an eligible contract participant;

(3) A major security-based swap participant, as defined in section 3(a)(67) of the Securities Exchange Act of 1934 and § 240.3a67-1 of this title, is an eligible contract participant;

(4) A security-based swap dealer, as defined in section 3(a)(71) of the Securities Exchange Act of 1934 and § 240.3a71-1 of this title, is an eligible contract participant;

(5)(i) A transaction-level commodity pool with one or more direct participants that is not an eligible contract participant is not itself an eligible contract participant under either section 1a(18)(A)(iv) or section 1a(18)(A)(v) of the Act for purposes of entering into transactions described in sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii) of the Act; and

(ii) In determining whether a commodity pool that is a direct participant in a transaction-level commodity pool is an eligible contract participant for purposes of paragraph (5)(i) of this definition, the participants in the commodity pool that is a direct participant in the transaction-level commodity pool shall not be considered unless the transaction-level commodity pool, any commodity pool holding a direct or indirect interest in such transaction-level commodity pool, or any commodity pool in which such transaction-level commodity pool holds a direct or indirect interest, has been structured to evade subtitle A of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act by permitting persons that are not eligible contract participants to participate in agreements, contracts, or transactions described in section 2(c)(2)(B)(i) or section 2(c)(2)(C)(i) of the Act;

(6) A commodity pool that does not have total assets exceeding $5,000,000 or that is not operated by a person described in subclause (A)(iv)(II) of section 1a(18) of the Act is not an eligible contract participant pursuant to clause (A)(v) of such section;

(7)(i) For purposes of a swap (but not a security-based swap, security-based swap agreement or mixed swap) used to hedge or mitigate commercial risk, an entity may, in determining its net worth for purposes of section 1a(18)(A)(v)(III) of the Act, include the net worth of any owner of such entity, provided that all the owners of such entity are eligible contract participants;

(ii)(A) For purposes of identifying the owners of an entity under paragraph (7)(i) of this definition, any person holding a direct ownership interest in such entity shall be considered to be an owner of such entity; provided, however, that any shell company shall be disregarded, and the owners of such shell company shall be considered to be the owners of any entity owned by such shell company;

(B) For purposes of paragraph (7)(ii)(A) of this definition, the term shell company means any entity that limits its holdings to direct or indirect interests in entities that are relying on this paragraph (7); and

(C) In determining whether an owner of an entity is an eligible contract participant for purposes of paragraph (7)(i) of this definition, an individual may be considered to be a proprietorship eligible contract participant only if the individual—

(1) Has an active role in operating a business other than an entity;

(2) Directly owns all of the assets of the business;

(3) Directly is responsible for all of the liabilities of the business; and

(4) Acquires its interest in the entity seeking to qualify as an eligible contract participant under paragraph (7)(i) of this definition in connection with the operation of the individual's proprietorship or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred by the individual in the operation of the individual's proprietorship; and

(iii) For purposes of paragraph (7)(i) of this definition, a swap is used to hedge or mitigate commercial risk if the swap complies with the conditions in the definition in this section of hedging or mitigating commercial risk; and

(8) Notwithstanding section 1a(18)(A)(iv) of the Act and paragraph (5) of this definition, a commodity pool that enters into an agreement, contract, or transaction described in section 2(c)(2)(B)(i) or section 2(c)(2)(C)(i)(I) of the Act is an eligible contract participant with respect to such agreement, contract, or transaction, regardless of whether each participant in such commodity pool is an eligible contract participant, if all of the following conditions are satisfied:

(i) The commodity pool is not formed for the purpose of evading regulation under section 2(c)(2)(B) or section 2(c)(2)(C) of the Act or related Commission rules, regulations or orders;

(ii) The commodity pool has total assets exceeding $10,000,000; and

(iii) The commodity pool is formed and operated by a registered commodity pool operator or by a commodity pool operator who is exempt from registration as such pursuant to § 4.13(a)(3) of this chapter.

* * * * *

Financial entity; highly leveraged. (1) For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap participant in this section, the term financial entity means:

(i) A security-based swap dealer;

(ii) A major security-based swap participant;

(iii) A commodity pool as defined in section 1a(10) of the Act, 7 U.S.C. 1a(10);

(iv) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940, 15 U.S.C. 80b-2(a);

(v) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002; and

(vi) A person predominantly engaged in activities that are in the business of banking or financial in nature, as defined in section 4(k) of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k).

(2) For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition of a major swap participant in this section, the term highly leveraged means the existence of a ratio of an entity's total liabilities to equity in excess of 12 to 1 as measured at the close of business on the last business day of the applicable fiscal quarter. For Start Printed Page 7984this purpose, liabilities and equity should each be determined in accordance with U.S. generally accepted accounting principles; provided, however, that a person that is an employee benefit plan, as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002, may exclude obligations to pay benefits to plan participants from the calculation of liabilities and substitute the total value of plan assets for equity.

* * * * *

Futures contracts on certain foreign sovereign debt. The term security-based swap as used in section 3(a)(68) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)), as incorporated in section 1a(42) of the Commodity Exchange Act, does not include an agreement, contract, or transaction that is based on or references a qualifying foreign futures contract (as defined in rule 3a12-8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12-8)) on the debt securities of any one or more of the foreign governments enumerated in rule 3a12-8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12-8), provided that such agreement, contract, or transaction satisfies the following conditions:

(1) The futures contract that the agreement, contract, or transaction references or upon which the agreement, contract, or transaction is based is a qualifying foreign futures contract that satisfies the conditions of rule 3a12-8 under the Securities Exchange Act of 1934 (17 CFR 240.3a12-8) applicable to qualifying foreign futures contracts;

(2) The agreement, contract, or transaction is traded on or through a board of trade (as defined in the Commodity Exchange Act);

(3) The debt securities upon which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to paragraph (4) of this definition were not registered under the Securities Act of 1933 (15 U.S.C. 77 et seq.) or the subject of any American depositary receipt registered under the Securities Act of 1933;

(4) The agreement, contract, or transaction may only be cash settled; and

(5) The agreement, contract or transaction is not entered into by the issuer of the debt securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such agreement, contract or transaction), an affiliate (as defined in the Securities Act of 1933 (15 U.S.C. 77 et seq.) and the rules and regulations thereunder) of the issuer, or an underwriter of such issuer's debt securities.

Futures customer. This term means any person who uses a futures commission merchant, introducing broker, commodity trading advisor, or commodity pool operator as an agent in connection with trading in any contract for the purchase of sale of a commodity for future delivery or any option on such contract; Provided, however, an owner or holder of a proprietary account as defined in this section shall not be deemed to be a futures customer within the meaning of sections 4d(a) and 4d(b) of the Act, the regulations in this chapter that implement sections 4d and 4f of the Act and § 1.35, and such an owner or holder of such a proprietary account shall otherwise be deemed to be a futures customer within the meaning of the Act and §§ 1.37 and 1.46 and all other sections of these rules, regulations, and orders which do not implement sections 4d and 4f of the Act.

* * * * *

Hedging or mitigating commercial risk. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33) and the definition of a major swap participant in this section, a swap position is held for the purpose of hedging or mitigating commercial risk when:

(1) Such position:

(i) Is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise (or of a majority-owned affiliate of the enterprise), where the risks arise from:

(A) The potential change in the value of assets that a person owns, produces, manufactures, processes, or merchandises or reasonably anticipates owning, producing, manufacturing, processing, or merchandising in the ordinary course of business of the enterprise;

(B) The potential change in the value of liabilities that a person has incurred or reasonably anticipates incurring in the ordinary course of business of the enterprise; or

(C) The potential change in the value of services that a person provides, purchases, or reasonably anticipates providing or purchasing in the ordinary course of business of the enterprise;

(D) The potential change in the value of assets, services, inputs, products, or commodities that a person owns, produces, manufactures, processes, merchandises, leases, or sells, or reasonably anticipates owning, producing, manufacturing, processing, merchandising, leasing, or selling in the ordinary course of business of the enterprise;

(E) Any potential change in value related to any of the foregoing arising from interest, currency, or foreign exchange rate movements associated with such assets, liabilities, services, inputs, products, or commodities; or

(F) Any fluctuation in interest, currency, or foreign exchange rate exposures arising from a person's current or anticipated assets or liabilities; or

(ii) Qualifies as bona fide hedging for purposes of an exemption from position limits under the Act; or

(iii) Qualifies for hedging treatment under:

(A) Financial Accounting Standards Board Accounting Standards Codification Topic 815, Derivatives and Hedging (formerly known as Statement No. 133); or

(B) Governmental Accounting Standards Board Statement 53, Accounting and Financial Reporting for Derivative Instruments; and

(2) Such position is:

(i) Not held for a purpose that is in the nature of speculation, investing or trading; and

(ii) Not held to hedge or mitigate the risk of another swap or security-based swap position, unless that other position itself is held for the purpose of hedging or mitigating commercial risk as defined by this definition or § 240.3a67-4 of this title.

* * * * *

Major swap participant— (1) In general. The term major swap participant means any person:

(i) That is not a swap dealer; and

(ii)(A) That maintains a substantial position in swaps for any of the major swap categories, excluding both positions held for hedging or mitigating commercial risk, and positions maintained by any employee benefit plan (or any contract held by such a plan) as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974, 29 U.S.C. 1002, for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan;

(B) Whose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets; or

(C) That is a financial entity that:

(1) Is highly leveraged relative to the amount of capital such entity holds and that is not subject to capital Start Printed Page 7985requirements established by an appropriate Federal banking agency (as defined in section 1a(2) of the Act, 7 U.S.C. 1a(2)); and

(2) Maintains a substantial position in outstanding swaps in any major swap category.

(2) Scope of designation. A person that is a major swap participant shall be deemed to be a major swap participant with respect to each swap it enters into, regardless of the category of the swap or the person's activities in connection with the swap. However, if a person makes an application to limit its designation as a major swap participant to specified categories of swaps, the Commission shall determine whether the person's designation as a major swap participant shall be so limited. If the Commission grants such limited designation, such limited designation major swap participant shall be deemed to be a major swap participant with respect to each swap it enters into in the swap category or categories for which it is so designated, regardless of the person's activities in connection with such category or categories of swaps. A person may make such application to limit its designation at the same time as, or after, the person's initial registration as a major swap participant.

(3) Timing requirements. A person that is not registered as a major swap participant, but that meets the criteria in this rule to be a major swap participant as a result of its swap activities in a fiscal quarter, will not be deemed to be a major swap participant until the earlier of the date on which it submits a complete application for registration as a major swap participant pursuant to section 4s(a)(2) of the Act, 7 U.S.C. 6s(a)(2), or two months after the end of that quarter.

(4) Reevaluation period. Notwithstanding paragraph (3) of this definition, if a person that is not registered as a major swap participant meets the criteria in this rule to be a major swap participant in a fiscal quarter, but does not exceed any applicable threshold by more than twenty percent in that quarter:

(i) That person will not be deemed a major swap participant pursuant to the timing requirements specified in paragraph (3) of this definition; but

(ii) That person will be deemed a major swap participant pursuant to the timing requirements specified in paragraph (3) of this definition at the end of the next fiscal quarter if the person exceeds any of the applicable daily average thresholds in that next fiscal quarter.

(5) Termination of status. A person that is deemed to be a major swap participant shall continue to be deemed a major swap participant until such time that its swap activities do not exceed any of the daily average thresholds set forth within this rule for four consecutive fiscal quarters after the date on which the person becomes registered as a major swap participant.

(6) Calculation of status. A person shall not be deemed to be a “major swap participant,” regardless of whether the criteria in paragraph (1) of this definition otherwise would cause the person to be a major swap participant, provided the person meets the conditions set forth in paragraphs (6)(i), (ii) or (iii) of this definition.

(i) Caps on uncollateralized exposure and notional positions— (A) Maximum potential uncollateralized exposure. The express terms of the person's agreements or arrangements relating to swaps with its counterparties at no time would permit the person to maintain a total uncollateralized exposure of more than $100 million to all such counterparties, including any exposure that may result from thresholds or minimum transfer amounts established by credit support annexes or similar arrangements; and

(B) Maximum notional amount of swap positions. The person does not maintain swap positions in a notional amount of more than $2 billion in any major category of swaps, or more than $4 billion in the aggregate across all major categories; or

(ii) Caps on uncollateralized exposure plus monthly calculation— (A) Maximum potential uncollateralized exposure. The express terms of the person's agreements or arrangements relating to swaps with its counterparties at no time would permit the person to maintain a total uncollateralized exposure of more than $200 million to all such counterparties (with regard to swaps and any other instruments by which the person may have exposure to those counterparties), including any exposure that may result from thresholds or minimum transfer amounts established by credit support annexes or similar arrangements; and

(B) Calculation of positions. (1) At the end of each month, the person performs the calculations prescribed by the definition in this section of substantial position with regard to whether the aggregate uncollateralized outward exposure plus aggregate potential outward exposure as of that day constitute a “substantial position” in a major category of swaps, or pose “substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets”; these calculations shall disregard provisions of those rules that provide for the analyses to be determined based on a daily average over a calendar quarter; and

(2) Each such analysis produces thresholds of no more than:

(i) $1 billion in aggregate uncollateralized outward exposure plus aggregate potential outward exposure in any major category of swaps; if the person is subject to the definition in this section of substantial position, by virtue of being a highly leveraged financial entity that is not subject to capital requirements established by an appropriate Federal banking agency, this analysis shall account for all of the person's swap positions in that major category (without excluding hedging positions), otherwise this analysis shall exclude the same hedging and related positions that are excluded from consideration pursuant to paragraph (1)(i) of the definition in this section of substantial position; or

(ii) $2 billion in aggregate uncollateralized outward exposure plus aggregate potential outward exposure (without any positions excluded from the analysis) with regard to all of the person's swap positions.

(iii) Calculations based on certain information. (A)(1) At the end of each month, the person's aggregate uncollateralized outward exposure with respect to its swap positions in each major swap category is less than $1.5 billion with respect to the rate swap category and less than $500 million with respect to each of the other major swap categories; and

(2) At the end of each month, the sum of the amount calculated under paragraph (6)(iii)(A)(1) of this definition with respect to each major swap category and the total notional principal amount of the person's swap positions in each such major swap category, adjusted by the multipliers set forth in paragraph (3)(ii)(1) of the definition in this section of substantial position on a position-by-position basis reflecting the type of swap, is less than $3 billion with respect to the rate swap category and less than $1 billion with respect to each of the other major swap categories; or

(B)(1) At the end of each month, the person's aggregate uncollateralized outward exposure with respect to its swap positions across all major swap categories is less than $500 million; and

(2) The sum of the amount calculated under paragraph (6)(iii)(B)(1) of this definition and the product of the total effective notional principal amount of the person's swap positions in all major swap categories multiplied by 0.15 is less than $1 billion.Start Printed Page 7986

(C) For purposes of the calculations set forth in this paragraph (6)(iii) of the major swap participant definition:

(1) The person's aggregate uncollateralized outward exposure for positions held with swap dealers shall be equal to such exposure reported on the most recent reports of such exposure received from such swap dealers; and

(2) The person's aggregate uncollateralized outward exposure for positions that are not reflected in any report of exposure from a swap dealer (including all swap positions it holds with persons other than swap dealers) shall be calculated in accordance with paragraph (2) of the definition in this section of substantial position.

(iv) For purposes of the calculations set forth in paragraph (6) of this definition, the person shall use the effective notional amount of a position rather than the stated notional amount of the position if the stated notional amount is leveraged or enhanced by the structure of the position.

(v) No presumption shall arise that a person is required to perform the calculations needed to determine if it is a major swap participant, solely by reason that the person does not meet the conditions specified in paragraph (6)(i), (ii) or (iii) of this definition.

(7) Exclusions. A person who is registered as a derivatives clearing organization with the Commission pursuant to section 5b of the Act and regulations thereunder, shall not be deemed to be a major swap participant, regardless of whether the criteria in this definition otherwise would cause the person to be a major swap participant.

* * * * *

Meaning of “issuers of securities in a narrow-based security index” as used in the definition of “security-based swap” as applied to index credit default swaps. (1) Notwithstanding paragraph (1) of the definition in this section of narrow-based security index as used in the definition of security-based swap, and solely for purposes of determining whether a credit default swap is a security-based swap under the definition of “security-based swap” in section 3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(III)), as incorporated in section 1a(42) of the Commodity Exchange Act, the term issuers of securities in a narrow-based security index means issuers of securities included in an index (including an index referencing loan borrowers or loans of such borrowers) in which:

(i)(A) There are nine or fewer non-affiliated issuers of securities that are reference entities included in the index, provided that an issuer of securities shall not be deemed a reference entity included in the index for purposes of this definition unless:

(1) A credit event with respect to such reference entity would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such reference entity; or

(2) The fact of such credit event or the calculation in accordance with paragraph (1)(i)(A)(1) of this definition of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events;

(B) The effective notional amount allocated to any reference entity included in the index comprises more than 30 percent of the index's weighting;

(C) The effective notional amount allocated to any five non-affiliated reference entities included in the index comprises more than 60 percent of the index's weighting; or

(D) Except as provided in paragraph (2) of this definition, for each reference entity included in the index, none of the criteria in paragraphs (1)(i)(D)(1) through (8) of this definition is satisfied:

(1) The reference entity included in the index is required to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));

(2) The reference entity included in the index is eligible to rely on the exemption provided in rule 12g3-2(b) under the Securities Exchange Act of 1934 (17 CFR 240.12g3-2(b));

(3) The reference entity included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more;

(4) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) has outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion;

(5) The reference entity included in the index is the issuer of an exempted security as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)));

(6) The reference entity included in the index is a government of a foreign country or a political subdivision of a foreign country;

(7) If the reference entity included in the index is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), such asset-backed security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly available distribution reports; and

(8) For a credit default swap entered into solely between eligible contract participants as defined in section 1a(18) of the Commodity Exchange Act:

(i) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) makes available to the public or otherwise makes available to such eligible contract participant information about the reference entity included in the index pursuant to rule 144A(d)(4) under the Securities Act of 1933 (17 CFR 230.144A(d)(4));

(ii) Financial information about the reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) is otherwise publicly available; or

(iii) In the case of a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), information of the type and level included in publicly available distribution reports for similar asset-backed securities is publicly available about both the reference entity included in the index and such asset-backed security; and

(ii)(A) The index is not composed solely of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982; and

(B) Without taking into account any portion of the index composed of Start Printed Page 7987reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term issuer of securities in a narrow-based security index under (1)(i) of this definition.

(2) Paragraph (1)(i)(D) of this definition will not apply with respect to a reference entity included in the index if:

(i) The effective notional amounts allocated to such reference entity comprise less than five percent of the index's weighting; and

(ii) The effective notional amounts allocated to reference entities included in the index that satisfy paragraph (1)(i)(D) of this definition comprise at least 80 percent of the index's weighting.

(3) For purposes of this definition:

(i) A reference entity included in the index is affiliated with another reference entity included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition) if it controls, is controlled by, or is under common control with, that other reference entity included in the index or other entity, as applicable; provided that each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other reference entity included in the index or any other entity that is an issuing entity of an asset-backed security.

(ii) Control for purposes of this section means ownership of more than 50 percent of the equity of a reference entity included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition), or the ability to direct the voting of more than 50 percent of the voting equity of a reference entity included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition).

(iii) In identifying a reference entity included in the index for purposes of this section, the term reference entity includes:

(A) An issuer of securities;

(B) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)); and

(C) An issuer of securities that is a borrower with respect to any loan identified in an index of borrowers or loans.

(iv) For purposes of calculating the thresholds in paragraphs (1)(i)(A) through (1)(i)(C) of this definition, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated reference entities included in the index as determined in accordance with paragraph (3)(i) of this definition (with each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate reference entity included in the index).

(v) For purposes of determining whether one of the criterion in either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition or paragraphs (1)(iv)(D)(8)(i) and (1)(iv)(D)(8)(ii) of this definition is met, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated entities as determined in accordance with paragraph (3)(i) of this definition (with each issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate entity).

Meaning of “narrow-based security index” used in the definition of “security-based swap” as applied to index credit default swaps. (1) Notwithstanding paragraph (1) of the definition in this section of narrow-based security index as used in the definition of “security-based swap,” and solely for purposes of determining whether a credit default swap is a security-based swap under the definition of “security-based swap” in section 3(a)(68)(A)(ii)(I) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)(ii)(I)), as incorporated in section 1a(42) of the Commodity Exchange Act, the term narrow-based security index means an index in which:

(i)(A) The index is composed of nine or fewer securities or securities that are issued by nine or fewer non-affiliated issuers, provided that a security shall not be deemed a component of the index for purposes of this section unless:

(1) A credit event with respect to the issuer of such security or a credit event with respect to such security would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such security; or

(2) The fact of such credit event or the calculation in accordance with paragraph (1)(i)(A) (1) of this definition of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events;

(B) The effective notional amount allocated to the securities of any issuer included in the index comprises more than 30 percent of the index's weighting;

(C) The effective notional amount allocated to the securities of any five non-affiliated issuers included in the index comprises more than 60 percent of the index's weighting; or

(D) Except as provided in paragraph (2) of this definition, for each security included in the index, none of the criteria in paragraphs (1)(i)(D)(1) through (8) is satisfied if:

(1) The issuer of the security included in the index is required to file reports pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));

(2) The issuer of the security included in the index is eligible to rely on the exemption provided in rule 12g3-2(b) under the Securities Exchange Act of 1934 (17 CFR 240.12g3-2(b));

(3) The issuer of the security included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more;

(4) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) has outstanding notes, bonds, debentures, loans or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion;

(5) The security included in the index is an exempted security as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)));

(6) The issuer of the security included in the index is a government of a foreign country or a political subdivision of a foreign country;

(7) If the security included in the index is an asset-backed security as Start Printed Page 7988defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), the security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly available distribution reports; and

(8) For a credit default swap entered into solely between eligible contract participants as defined in section 1a(18) of the Commodity Exchange Act:

(i) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) makes available to the public or otherwise makes available to such eligible contract participant information about such issuer pursuant to rule 144A(d)(4) of the Securities Act of 1933 (17 CFR 230.144A(d)(4));

(ii) Financial information about the issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) is otherwise publicly available; or

(iii) In the case of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), information of the type and level included in public distribution reports for similar asset-backed securities is publicly available about both the issuing entity and such asset-backed security; and

(ii)(A) The index is not composed solely of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982; and

(B) Without taking into account any portion of the index composed of exempted securities as defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term narrow-based security index under paragraph (1)(i) of this definition.

(2) Paragraph (1)(i)(D) of this definition will not apply with respect to securities of an issuer included in the index if:

(i) The effective notional amounts allocated to all securities of such issuer included in the index comprise less than five percent of the index's weighting; and

(ii) The securities that satisfy paragraph (1)(i)(D) of this definition comprise at least 80 percent of the index's weighting.

(3) For purposes of this definition:

(i) An issuer of securities included in the index is affiliated with another issuer of securities included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition) if it controls, is controlled by, or is under common control with, that other issuer or other entity, as applicable; provided that each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be considered affiliated with any other issuer of securities included in the index or any other entity that is an issuing entity of an asset-backed security.

(ii) Control for purposes of this section means ownership of more than 50 percent of the equity of an issuer of securities included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition), or the ability to direct the voting of more than 50 percent of the voting equity an issuer of securities included in the index (for purposes of paragraph (3)(iv) of this definition) or another entity (for purposes of paragraph (3)(v) of this definition).

(iii) In identifying an issuer of securities included in the index for purposes of this section, the term issuer includes:

(A) An issuer of securities; and

(B) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)).

(iv) For purposes of calculating the thresholds in paragraphs (1)(i)(A) through (1)(i)(C) of the definition of the meaning of issuers of securities in a narrow-based security index as used in the definition of security-based swap as applied to index credit default swaps, the term issuer of the security included in the index or a group of affiliated issuers of securities included in the index as determined in accordance with paragraph (3)(i) of this definition (with each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) being considered a separate issuer of securities included in the index).

(v) For purposes of determining whether one of the criterion in either paragraphs (1)(i)(D)(1) through (1)(i)(D)(4) of this definition or paragraphs (1)(iv)(D) (8)(i) and (1)(iv)(D) (8)(ii) of this definition is met, the term issuer of the security included in the index includes a single issuer of securities included in the index or a group of affiliated entities as determined in accordance with paragraph (3)(i) of this definition (with each issuing entity of an asset-backed security as defined in section 3(a)(77) of the Act (15 U.S.C. 78c(a)(77)) being considered a separate entity).

* * * * *

Narrow-based security index as used in the definition of “security-based swap”— (1) In general. Except as otherwise provided in the definitions in this section for meaning of issuers of securities in a narrow-based security index as used in the definition of security-based swap as applied to index credit default swaps and meaning of narrow-based security index as used in the definition of security-based swap as applied to index credit default swaps, for purposes of section 1a(42) of the Commodity Exchange Act, the term narrow-based security index has the meaning set forth in section 1a(35) of the Commodity Exchange Act, and the rules, regulations and orders of the Commission thereunder.

(2) Tolerance period for swaps traded on designated contract markets, swap execution facilities, and foreign boards of trade. Notwithstanding paragraph (1) of this definition, solely for purposes of swaps traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade, a security index underlying such swaps shall not be considered a narrow-based security index if:

(i)(A) A swap on the index is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade for at least 30 days as a swap on an index that was not a narrow-based security index; or

(B) Such index was not a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a swap on such index on a market described in paragraph (2)(i)(A) of this definition; and

(ii) The index has been a narrow-based security index for no more than Start Printed Page 798945 business days over three consecutive calendar months.

(3) Tolerance period for security-based swaps traded on national securities exchanges or security-based swap execution facilities. Notwithstanding paragraph (1) of this definition, solely for purposes of security-based swaps traded on a national securities exchange or security-based swap execution facility, a security index underlying such security-based swaps shall be considered a narrow-based security index if:

(i)(A) A security-based swap on the index is traded on a national securities exchange or security-based swap execution facility for at least 30 days as a security-based swap on a narrow-based security index; or

(B) Such index was a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a security-based swap on such index on a market described in paragraph (3)(i)(A) of this definition; and

(ii) The index has been a security index that is not a narrow-based security index for no more than 45 business days over three consecutive calendar months.

(4) Grace period. (i) Solely with respect to a swap that is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade, an index that becomes a narrow-based security index under paragraph (2) of this definition solely because it was a narrow-based security index for more than 45 business days over three consecutive calendar months shall not be a narrow-based security index for the following three calendar months.

(ii) Solely with respect to a security-based swap that is traded on a national securities exchange or security-based swap execution facility, an index that becomes a security index that is not a narrow-based security index under paragraph (3) of this definition solely because it was not a narrow-based security index for more than 45 business days over three consecutive calendar months shall be a narrow-based security index for the following three calendar months.

* * * * *

Substantial counterparty exposure— (1) In general. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this section of major swap participant, the term substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets means a swap position that satisfies either of the following thresholds:

(i) $5 billion in daily average aggregate uncollateralized outward exposure; or

(ii) $8 billion in:

(A) Daily average aggregate uncollateralized outward exposure plus

(B) Daily average aggregate potential outward exposure.

(2) Calculation methodology. For these purposes, the terms daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall be calculated the same way as is prescribed in the definition in this section of substantial position, except that these amounts shall be calculated by reference to all of the person's swap positions, rather than by reference to a specific major swap category.

Substantial position—(1) In general. For purposes of section 1a(33) of the Act, 7 U.S.C. 1a(33), and the definition in this section of major swap participant, the term “substantial position” means swap positions that equal or exceed any of the following thresholds in the specified major category of swaps:

(i) For rate swaps:

(A) $3 billion in daily average aggregate uncollateralized outward exposure; or

(B) $6 billion in:

(1) Daily average aggregate uncollateralized outward exposure plus

(2) Daily average aggregate potential outward exposure.

(ii) For credit swaps:

(A) $1 billion in daily average aggregate uncollateralized outward exposure; or

(B) $2 billion in:

(1) Daily average aggregate uncollateralized outward exposure plus

(2) Daily average aggregate potential outward exposure.

(iii) For equity swaps:

(A) $1 billion in daily average aggregate uncollateralized outward exposure; or

(B) $2 billion in:

(1) Daily average aggregate uncollateralized outward exposure plus

(2) Daily average aggregate potential outward exposure.

(iv) For other commodity swaps:

(A) $1 billion in daily average aggregate uncollateralized outward exposure; or

(B) $2 billion in:

(1) Daily average aggregate uncollateralized outward exposure plus

(2) Daily average aggregate potential outward exposure.

(2) Aggregate uncollateralized outward exposure—(i) In general. Aggregate uncollateralized outward exposure in general means the sum of the current exposure, obtained by marking-to-market using industry standard practices, of each of the person's swap positions with negative value in a major swap category, less the value of the collateral the person has posted in connection with those positions.

(ii) Calculation of aggregate uncollateralized outward exposure. In calculating this amount the person shall, with respect to each of its swap counterparties in a given major swap category, determine the dollar value of the aggregate current exposure arising from each of its swap positions with negative value (subject to the netting provisions described below) in that major category by marking-to-market using industry standard practices; and deduct from that dollar amount the aggregate value of the collateral the person has posted with respect to the swap positions. The aggregate uncollateralized outward exposure shall be the sum of those uncollateralized amounts across all of the person's swap counterparties in the applicable major category.

(iii) Relevance of netting agreements. (A) If the person has one or more master netting agreement in effect with a particular counterparty, the person may measure the current exposure arising from its swaps in any major category on a net basis, applying the terms of those agreements. Calculation of net current exposure may take into account offsetting positions entered into with that particular counterparty involving swaps (in any swap category) as well as security-based swaps and securities financing transactions (consisting of securities lending and borrowing, securities margin lending and repurchase and reverse repurchase agreements), and other financial instruments that are subject to netting offsets for purposes of applicable bankruptcy law, to the extent these are consistent with the offsets permitted by the master netting agreements.

(B) Such adjustments may not take into account any offset associated with positions that the person has with separate counterparties.

(iv) Allocation of uncollateralized outward exposure. If a person calculates current exposure with a particular counterparty on a net basis, as provided by paragraph (2)(iii) of this definition, the portion of that current exposure that should be attributed to each “major” category of swaps for purposes of the substantial position analysis should be calculated according to the formula:

Start Printed Page 7990

Where:

ES(MC) equals the amount of aggregate current exposure attributable to the entity's swap positions in the “major” swap category at issue; Enet total equals the entity's aggregate current exposure to the counterparty at issue, after accounting for the netting of positions and the posting of collateral; OTMS(MC) equals the exposure associated with the entity's out-of-the-money positions in swaps in the “major” category at issue, subject to those netting arrangements; and OTMS(O) equals the exposure associated with the entity's out-of-the-money positions in the other “major” categories of swaps, subject to those netting arrangements; and OTMnon-S equals the exposure associated with the entity's out-of-the-money positions associated with instruments, other than swaps, that are subject to those netting arrangements.

(3) Aggregate potential outward exposure—(i) In general. Aggregate potential outward exposure in any major swap category means the sum of:

(A) The aggregate potential outward exposure for each of the person's swap positions in a major swap category that are not subject to daily mark-to-market margining and are not cleared by a registered or exempt clearing agency or derivatives clearing organization, as calculated in accordance with paragraph (3)(ii) of this definition; and

(B) The aggregate potential outward exposure for each of the person's swap positions in such major swap category that are either subject to daily mark-to-market margining or are cleared by a registered or exempt clearing agency or derivatives clearing organization, as calculated in accordance with paragraph (3)(iii) of this definition.

(ii) Calculation of potential outward exposure for swaps that are not subject to daily mark-to-market margining and are not cleared by a registered or exempt clearing agency or derivatives clearing organization—(A) In general. (1) For positions in swaps that are not subject to daily mark-to-market margining and are not cleared by a registered or exempt clearing agency or a derivatives clearing organization, potential outward exposure equals the total notional principal amount of those positions, multiplied by the following factors on a position-by-position basis reflecting the type of swap. For any swap that does not appropriately fall within any of the specified categories, the “other commodities” conversion factors set forth in the following Table 1 are to be used. If a swap is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the market value of the swap is zero, the remaining maturity equals the time until the next reset date.

(2) Use of effective notional amounts. If the stated notional amount on a position is leveraged or enhanced by the structure of the position, the calculation in paragraph (3)(ii)(A)(1) of this definition shall be based on the effective notional amount of the position rather than on the stated notional amount.

(3) Exclusion of certain positions. The calculation in paragraph (3)(ii)(A)(1) of this definition shall exclude:

(i) Positions that constitute the purchase of an option, if the purchaser has no additional payment obligations under the position;

(ii) Other positions for which the person has prepaid or otherwise satisfied all of its payment obligations; and

(iii) Positions for which, pursuant to law or a regulatory requirement, the person has assigned an amount of cash or U.S. Treasury securities that is sufficient at all times to pay the person's maximum possible liability under the position, and the person may not use that cash or those Treasury securities for other purposes.

(4) Adjustment for certain positions. Notwithstanding paragraph (3)(ii)(A)(1) of this definition, the potential outward exposure associated with a position by which a person buys credit protection using a credit default swap or index credit default swap, or associated with a position by which a person purchases an option for which the person retains additional payment obligations under the position, is capped at the net present value of the unpaid premiums.

(B) Adjustment for netting agreements. Notwithstanding paragraph (3)(ii)(A) of this definition, for positions subject to master netting agreements the potential outward exposure associated with the person's swaps with each counterparty equals a weighted average of the potential outward exposure for the person's swaps with that counterparty as calculated under paragraph (3)(ii)(A) of this definition, and that amount reduced by the ratio of net current exposure to gross current exposure, consistent with the following equation as calculated on a counterparty-by-counterparty basis:

PNet= 0.4 * PGross+ 0.6 * NGR * PGross

Where:

PNet is the potential outward exposure, adjusted for bilateral netting, of the person's swaps with a particular counterparty; PGross is the potential outward exposure without adjustment for bilateral netting as calculated pursuant to paragraph (3)(ii)(A) of this definition; and NGR is the ratio of the current exposure arising from its swaps in the major category as calculated on a net basis according to paragraphs (2)(iii) and (iv) of this definition, divided by the current exposure arising from its swaps in the major category as calculated in the absence of those netting procedures.

Start Printed Page 7991

(iii) Calculation of potential outward exposure for swaps that are either subject to daily mark-to-market margining or are cleared by a registered or exempt clearing agency or derivatives clearing organization. For positions in swaps that are subject to daily mark-to-market margining or that are cleared by a registered or exempt clearing agency or derivatives clearing organization:

(A) Potential outward exposure equals the potential exposure that would be attributed to such positions using the procedures in paragraph (3)(ii) of this definition multiplied by:

(1) 0.1, in the case of positions cleared by a registered or exempt clearing agency or derivatives clearing organization; or

(2) 0.2, in the case of positions that are subject to daily mark-to-market margining but that are not cleared by a registered or exempt clearing agency or derivatives clearing organization.

(B) Solely for purposes of calculating potential outward exposure:

(1) A swap shall be considered to be subject to daily mark-to-market margining if, and for so long as, the counterparties follow the daily practice of exchanging collateral to reflect changes in the current exposure arising from the swap (after taking into account any other financial positions addressed by a netting agreement between the counterparties).

(2) If the person is permitted by agreement to maintain a threshold for which it is not required to post collateral, the position still will be considered to be subject to daily mark-to-market margining for purposes of calculating potential outward exposure, but the total amount of that threshold (regardless of the actual exposure at any time), less any initial margin posted up to the amount of that threshold, shall be added to the person's aggregate uncollateralized outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this definition, as applicable.

(3) If the minimum transfer amount under the agreement is in excess of $1 million, the position still will be considered to be subject to daily mark-to-market margining for purposes of calculating potential outward exposure, but the entirety of the minimum transfer amount shall be added to the person's aggregate uncollateralized outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this definition, as applicable.

(4) A person may, at its discretion, calculate the potential outward exposure of positions in swaps that are subject to daily mark-to-market margining in accordance with paragraph (3)(ii) of this definition in lieu of calculating the potential outward exposure of such swap positions in accordance with paragraph (3)(iii) of this definition.

(4) Calculation of daily average. Measures of daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall equal the arithmetic mean of the applicable measure of exposure at the close of each business day, beginning the first business day of each calendar quarter and continuing through the last business day of that quarter.

(5) Inter-affiliate activities. In calculating its aggregate uncollateralized outward exposure and its aggregate potential outward exposure, the person shall not consider its swap positions with counterparties that are majority-owned affiliates. For these purposes the counterparties to a swap are majority-owned affiliates if one counterparty directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the swap, where “majority interest” is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership.

Swap. (1) In general. The term swap has the meaning set forth in section 1a(47) of the Commodity Exchange Act.

(2) Inclusion of particular products. (i) The term swap includes, without limiting the meaning set forth in section 1a(47) of the Commodity Exchange Act, the following agreements, contracts, and transactions:

(A) A cross-currency swap;

(B) A currency option, foreign currency option, foreign exchange option and foreign exchange rate option;

(C) A foreign exchange forward;

(D) A foreign exchange swap;

(E) A forward rate agreement; and

(F) A non-deliverable forward involving foreign exchange.

(ii) The term swap does not include an agreement, contract, or transaction described in paragraph (2)(i) of this definition that is otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.

(3) Foreign exchange forwards and foreign exchange swaps. Notwithstanding paragraph (2) of this definition:

(i) A foreign exchange forward or a foreign exchange swap shall not be considered a swap if the Secretary of the Treasury makes a determination described in section 1a(47)(E)(i) of the Commodity Exchange Act.

(ii) Notwithstanding paragraph (3)(i) of this definition:

(A) The reporting requirements set forth in section 4r of the Commodity Exchange Act and regulations promulgated thereunder shall apply to a foreign exchange forward or foreign exchange swap; and

(B) The business conduct standards set forth in section 4s(h) of the Commodity Exchange Act and regulations promulgated thereunder shall apply to a swap dealer or major swap participant that is a party to a foreign exchange forward or foreign exchange swap.

(iii) For purposes of section 1a(47)(E) of the Commodity Exchange Act and this definition, the term foreign exchange forward has the meaning set forth in section 1a(24) of the Commodity Exchange Act.

(iv) For purposes of section 1a(47)(E) of the Commodity Exchange Act and this definition, the term foreign exchange swap has the meaning set forth in section 1a(25) of the Commodity Exchange Act.

(v) For purposes of sections 1a(24) and 1a(25) of the Commodity Exchange Act and this definition, the following transactions are not foreign exchange forwards or foreign exchange swaps:

(A) A currency swap or a cross-currency swap;

(B) A currency option, foreign currency option, foreign exchange option, or foreign exchange rate option; and

(C) A non-deliverable forward involving foreign exchange.

(4) Insurance. (i) This paragraph is a non-exclusive safe harbor. The terms swap as used in section 1a(47) of the Commodity Exchange Act and security-based swap as used in section 1a(42) of the Commodity Exchange Act do not include an agreement, contract, or transaction that:

(A) By its terms or by law, as a condition of performance on the agreement, contract, or transaction:

(1) Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction;

(2) Requires that loss to occur and to be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest;Start Printed Page 7992

(3) Is not traded, separately from the insured interest, on an organized market or over-the-counter; and

(4) With respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer; and

(B) Is provided:

(1)(i) By a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any State or by the United States or an agency or instrumentality thereof; and

(ii) Such agreement, contract, or transaction is regulated as insurance under applicable State law or the laws of the United States;

(2)(i) Directly or indirectly by the United States, any State or any of their respective agencies or instrumentalities; or

(ii) Pursuant to a statutorily authorized program thereof; or

(3) In the case of reinsurance only, by a person to another person that satisfies the conditions set forth in paragraph (4)(i)(B) of this definition, provided that:

(i) Such person is not prohibited by applicable State law or the laws of the United States from offering such agreement, contract, or transaction to such person that satisfies the conditions set forth in paragraph (4)(i)(B) of this definition;

(ii) The agreement, contract, or transaction to be reinsured satisfies the conditions set forth in paragraph (4)(i)(A) or paragraph (4)(i)(C) of this definition; and

(iii) Except as otherwise permitted under applicable State law, the total amount reimbursable by all reinsurers for such agreement, contract, or transaction may not exceed the claims or losses paid by the person writing the risk being ceded or transferred by such person; or

(4) In the case of non-admitted insurance, by a person who:

(i) Is located outside of the United States and listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners; or

(ii) Meets the eligibility criteria for non-admitted insurers under applicable State law; or

(C) Is provided in accordance with the conditions set forth in paragraph (4)(i)(B) of this definition and is one of the following types of products:

(1) Surety bond;

(2) Fidelity bond;

(3) Life insurance;

(4) Health insurance;

(5) Long term care insurance;

(6) Title insurance;

(7) Property and casualty insurance;

(8) Annuity;

(9) Disability insurance;

(10) Insurance against default on individual residential mortgages; and

(11) Reinsurance of any of the foregoing products identified in paragraphs (4)(i)(C)(1) through (10) of this definition; or

(ii) The terms swap as used in section 1a(47) of the Commodity Exchange Act and security-based swap as used in section 1a(42) of the Commodity Exchange Act do not include an agreement, contract, or transaction that was entered into on or before the effective date of paragraph (4) of this defin i tion, and that, at such time that it was entered into, was provided in accordance with the conditions set forth in paragraph (4)(i)(B) of this definition.

(5) State. For purposes of paragraph (4) of this definition, the term State means any state of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, or any other possession of the United States.

(6) Anti-Evasion. (i) An agreement, contract, or transaction that is willfully structured to evade any provision of Subtitle A of the Wall Street Transparency and Accountability Act of 2010, including any amendments made to the Commodity Exchange Act thereby (Subtitle A), shall be deemed a swap for purposes of Subtitle A and the rules, regulations, and orders of the Commission promulgated thereunder.

(ii) An interest rate swap or currency swap, including but not limited to a transaction identified in paragraph (3)(v) of this definition, that is willfully structured as a foreign exchange forward or foreign exchange swap to evade any provision of Subtitle A shall be deemed a swap for purposes of Subtitle A and the rules, regulations, and orders of the Commission promulgated thereunder.

(iii) An agreement, contract, or transaction of a bank that is not under the regulatory jurisdiction of an appropriate Federal banking agency (as defined in section 1a(2) of the Commodity Exchange Act), where the agreement, contract, or transaction is willfully structured as an identified banking product (as defined in section 402 of the Legal Certainty for Bank Products Act of 2000) to evade the provisions of the Commodity Exchange Act, shall be deemed a swap for purposes of the Commodity Exchange Act and the rules, regulations, and orders of the Commission promulgated thereunder.

(iv) The form, label, and written documentation of an agreement, contract, or transaction shall not be dispositive in determining whether the agreement, contract, or transaction has been willfully structured to evade as provided in paragraphs (6)(i) through (6)(iii) of this definition.

(v) An agreement, contract, or transaction that has been willfully structured to evade as provided in paragraphs (6)(i) through (6)(iii) of this definition shall be considered in determining whether a person that so willfully structured to evade is a swap dealer or major swap participant.

(vi) Notwithstanding the foregoing, no agreement, contract, or transaction structured as a security (including a security-based swap) under the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed a swap pursuant to this paragraph (6) or shall be considered for purposes of paragraph (6)(v) of this definition.

* * * * *

Swap dealer. (1) In general. The term swap dealer means any person who:

(i) Holds itself out as a dealer in swaps;

(ii) Makes a market in swaps;

(iii) Regularly enters into swaps with counterparties as an ordinary course of business for its own account; or

(iv) Engages in any activity causing it to be commonly known in the trade as a dealer or market maker in swaps.

(2) Exception. The term swap dealer does not include a person that enters into swaps for such person's own account, either individually or in a fiduciary capacity, but not as a part of regular business.

(3) Scope of designation. A person who is a swap dealer shall be deemed to be a swap dealer with respect to each swap it enters into, regardless of the category of the swap or the person's activities in connection with the swap. However, if a person makes an application to limit its designation as a swap dealer to specified categories of swaps or specified activities of the person in connection with swaps, the Commission shall determine whether the person's designation as a swap dealer shall be so limited. If the Commission grants such limited designation, such limited designation swap dealer shall be deemed to be a swap dealer with respect to each swap it enters into in the swap category or categories for which it is so designated, regardless of the person's activities in connection with such category or categories of swaps. A person may make such application to limit the categories of swaps or activities of the person that Start Printed Page 7993are subject to its swap dealer designation at the same time as, or after, the person's initial registration as a swap dealer.

(4) De minimis exception— (i)(A) In general. Except as provided in paragraph (4)(vi) of this definition, a person that is not currently registered as a swap dealer shall be deemed not to be a swap dealer as a result of its swap dealing activity involving counterparties, so long as the swap positions connected with those dealing activities into which the person—or any other entity controlling, controlled by or under common control with the person—enters over the course of the immediately preceding 12 months (or following the effective date of final rules implementing section 1a(47) of the Act, 7 U.S.C. 1a(47), if that period is less than 12 months) have an aggregate gross notional amount of no more than $3 billion, subject to a phase in level of an aggregate gross notional amount of no more than $8 billion applied in accordance with paragraph (4)(ii) of this definition, and an aggregate gross notional amount of no more than $25 million with regard to swaps in which the counterparty is a “special entity” (as that term is defined in section 4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 23.401(c) of this chapter), except as provided in paragraph (4)(i)(B) of this definition. For purposes of this definition, if the stated notional amount of a swap is leveraged or enhanced by the structure of the swap, the calculation shall be based on the effective notional amount of the swap rather than on the stated notional amount.

(B) Utility special entities. (1) Solely for purposes of determining whether a person's swap dealing activity has exceeded the $25 million aggregate gross notional amount threshold set forth in paragraph (4)(i)(A) of this definition for swaps in which the counterparty is a special entity, a person may exclude utility operations-related swaps in which the counterparty is a utility special entity.

(2) For purposes of this paragraph (4)(i)(B), a utility special entity is a special entity, as that term is defined in section 4s(h)(2)(C) of the Act, 7 U.S.C. 6s(h)(2)(C), and 23.401(c) of this chapter, that:

(i) Owns or operates electric or natural gas facilities, electric or natural gas operations or anticipated electric or natural gas facilities or operations;

(ii) Supplies natural gas or electric energy to other utility special entities;

(iii) Has public service obligations or anticipated public service obligations under Federal, State or local law or regulation to deliver electric energy or natural gas service to utility customers; or

(iv) Is a Federal power marketing agency as defined in section 3 of the Federal Power Act, 16 U.S.C. 796(19).

(3) For purposes of this paragraph (4)(i)(B), a utility operations-related swap is a swap that meets the following conditions:

(i) A party to the swap is a utility special entity;

(ii) A utility special entity is using the swap to hedge or mitigate commercial risk as defined in § 50.50(c) of this chapter;

(iii) The swap is related to an exempt commodity, as that term is defined in section 1a(20) of the Act, 7 U.S.C. 1a(20), or to an agricultural commodity insofar as such agricultural commodity is used for fuel for generation of electricity or is otherwise used in the normal operations of the utility special entity; and

(iv) The swap is an electric energy or natural gas swap, or the swap is 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 special entity, or the delivery of natural gas or electric energy service to customers of a utility special entity; fuel supply for the facilities or operations of a utility special entity; compliance with an electric system reliability obligation; or compliance with an energy, energy efficiency, conservation, or renewable energy or environmental statute, regulation, or government order applicable to a utility special entity.

(4) A person seeking to rely on the exclusion in paragraph (4)(i)(B)(1) of this definition may rely on the written representations of the utility special entity that it is a utility special entity and that the swap is a utility operations-related swap, as such terms are defined in paragraphs (4)(i)(B)(2) and (3) of this definition, respectively, unless it has information that would cause a reasonable person to question the accuracy of the representation. The person must keep such representation in accordance with § 1.31.

(ii) Phase-in procedure and staff report—(A) Phase-in period. For purposes of paragraph (4)(i) of this definition, except as provided in paragraph (4)(vi) of this definition, a person that engages in swap dealing activity that does not exceed the phase-in level set forth in paragraph (4)(i) of this definition shall be deemed not to be a swap dealer as a result of its swap dealing activity until the phase-in termination date established as provided in paragraph (4)(ii)(C) or (D) of this definition. The Commission shall announce the phase-in termination date on the Commission website and publish such date in the Federal Register.

(B) Staff report. No later than 30 months following the date that a swap data repository first receives swap data in accordance with part 45 of this chapter, the staff of the Commission shall complete and publish for public comment a report on topics relating to the definition of the term swap dealer and the de minimis threshold. The report should address the following topics, as appropriate, based on the availability of data and information: The potential impact of modifying the de minimis threshold, and whether the de minimis threshold should be increased or decreased; the factors that are useful for identifying swap dealing activity, including the application of the dealer-trader distinction for that purpose, and the potential use of objective tests or safe harbors as part of the analysis; the impact of provisions in paragraphs (5) and (6) of this definition excluding certain swaps from the dealer analysis, and potential alternative approaches for such exclusions; and any other analysis of swap data and information relating to swaps that the Commission or staff deem relevant to this rule.

(C) Nine months after publication of the report required by paragraph (4)(ii)(B) of this definition, and after giving due consideration to that report and any associated public comment, the Commission may either:

(1) Terminate the phase-in period set forth in paragraph (4)(ii)(A) of this definition, in which case the phase-in termination date shall be established by the Commission by order published in the Federal Register; or

(2) Determine that it is necessary or appropriate in the public interest to propose through rulemaking an alternative to the $3 billion amount set forth in paragraph (4)(i) of this definition that would constitute a de minimis quantity of swap dealing in connection with transactions with or on behalf of customers within the meaning of section 1(a)(47)(D) of the Act, 7 U.S.C. 1(a)(47)(D), in which case the Commission shall by order published in the Federal Register provide notice of such determination, which order shall also establish the phase-in termination date.

(D) If the phase-in termination date has not been previously established pursuant to paragraph (4)(ii)(C) of this definition, then in any event the phase-in termination date shall occur five years after the date that a swap data repository first receives swap data in accordance with part 45 of this chapter.Start Printed Page 7994

(iii) Registration period for persons that can no longer take advantage of the exception. A person that has not registered as a swap dealer by virtue of satisfying the requirements of this paragraph (4) of the definition of swap dealer, but that no longer can take advantage of that de minimis exception, will be deemed not to be a swap dealer until the earlier of the date on which it submits a complete application for registration pursuant to section 4s(b) of the Act, 7 U.S.C. 6s(b), or two months after the end of the month in which that person becomes no longer able to take advantage of the exception.

(iv) Applicability to registered swap dealers. A person who currently is registered as a swap dealer may apply to withdraw that registration, while continuing to engage in swap dealing activity in reliance on this section, so long as that person has been registered as a swap dealer for at least 12 months and satisfies the conditions of paragraph (4)(i) of this definition.

(v) Future adjustments to scope of the de minimis exception. The Commission may by rule or regulation change the requirements of the de minimis exception described in paragraphs (4)(i) through (iv) of this definition.

(vi) Voluntary registration. Notwithstanding paragraph (4)(i) of this definition, a person that chooses to register with the Commission as a swap dealer shall be deemed to be a swap dealer.

(5) Insured depository institution swaps in connection with originating loans to customers. Swaps entered into by an insured depository institution with a customer in connection with originating a loan with that customer shall not be considered in determining whether the insured depository institution is a swap dealer.

(i) An insured depository institution shall be considered to have entered into a swap with a customer in connection with originating a loan, as defined in paragraphs (5)(ii) and (iii) of this definition, with that customer only if:

(A) The insured depository institution enters into the swap with the customer no earlier than 90 days before and no later than 180 days after the date of execution of the applicable loan agreement, or no earlier than 90 days before and no later than 180 days after any transfer of principal to the customer by the insured depository institution pursuant to the loan;

(B)(1) The rate, asset, liability or other notional item underlying such swap is, or is directly related to, a financial term of such loan, which includes, without limitation, the loan's duration, rate of interest, the currency or currencies in which it is made and its principal amount;

(2) Such swap is required, as a condition of the loan under the insured depository institution's loan underwriting criteria, to be in place in order to hedge price risks incidental to the borrower's business and arising from potential changes in the price of a commodity (other than an excluded commodity);

(C) The duration of the swap does not extend beyond termination of the loan;

(D) The insured depository institution is:

(1) The sole source of funds to the customer under the loan;

(2) Committed to be, under the terms of the agreements related to the loan, the source of at least 10 percent of the maximum principal amount under the loan; or

(3) Committed to be, under the terms of the agreements related to the loan, the source of a principal amount that is greater than or equal to the aggregate notional amount of all swaps entered into by the insured depository institution with the customer in connection with the financial terms of the loan;

(E) The aggregate notional amount of all swaps entered into by the customer in connection with the financial terms of the loan is, at any time, not more than the aggregate principal amount outstanding under the loan at that time; and

(F) If the swap is not accepted for clearing by a derivatives clearing organization, the insured depository institution reports the swap as required by section 4r of the Act, 7 U.S.C. 6r (except as otherwise provided in section 4r(a)(3)(A), 7 U.S.C. 6r(a)(3)(A), or section 4r(a)(3)(B), 7 U.S.C. 6r(a)(3)(B) of the Act).

(ii) An insured depository institution shall be considered to have originated a loan with a customer if the insured depository institution:

(A) Directly transfers the loan amount to the customer;

(B) Is a part of a syndicate of lenders that is the source of the loan amount that is transferred to the customer;

(C) Purchases or receives a participation in the loan; or

(D) Otherwise is the source of funds that are transferred to the customer pursuant to the loan or any refinancing of the loan.

(iii) The term loan shall not include:

(A) Any transaction that is a sham, whether or not intended to qualify for the exclusion from the definition of the term swap dealer in this rule; or

(B) Any synthetic loan, including, without limitation, a loan credit default swap or loan total return swap.

(6) Swaps that are not considered in determining whether a person is a swap dealer—(i) Inter-affiliate activities. In determining whether a person is a swap dealer, that person's swaps with majority-owned affiliates shall not be considered. For these purposes the counterparties to a swap are majority-owned affiliates if one counterparty directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the swap, where majority interest is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership.

(ii) Activities of a cooperative. (A) Any swap that is entered into by a cooperative with a member of such cooperative shall not be considered in determining whether the cooperative is a swap dealer, provided that:

(1) The swap is subject to policies and procedures of the cooperative requiring that the cooperative monitors and manages the risk of such swap;

(2) The cooperative reports the swap as required by section 4r of the Act, 7 U.S.C. 6r (except as otherwise provided in section 4r(a)(3)(A) of the Act, 7 U.S.C. 6r(a)(3)(A) or section 4r(a)(3)(B) of the Act, 7 U.S.C. 6r(a)(3)(B)); and

(3) If the cooperative is a cooperative association of producers, the swap is primarily based on a commodity that is not an excluded commodity.

(B) For purposes of this paragraph (6)(ii) of this definition, the term cooperative shall mean:

(1) A cooperative association of producers as defined in section 1a(14) of the Act, 7 U.S.C. 1a(14), or

(2) A person chartered under Federal law as a cooperative and predominantly engaged in activities that are financial in nature as defined in section 4(k) of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k).

(C) For purposes of this paragraph (6)(ii) of this definition, a swap shall be deemed to be entered into by a cooperative association of producers with a member of such cooperative association of producers when the swap is between a cooperative association of producers and a person that is a member of a cooperative association of producers that is itself a member of the first cooperative association of producers.

(iii) Swaps entered into for the purpose of hedging physical positions. In determining whether a person is a Start Printed Page 7995swap dealer, a swap that the person enters into shall not be considered, if:

(A) The person enters into the swap for the purpose of offsetting or mitigating the person's price risks that arise from the potential change in the value of one or several—

(1) Assets that the person owns, produces, manufactures, processes, or merchandises or anticipates owning, producing, manufacturing, processing, or merchandising;

(2) Liabilities that the person owns or anticipates incurring; or

(3) Services that the person provides, purchases, or anticipates providing or purchasing;

(B) The swap represents a substitute for transactions made or to be made or positions taken or to be taken by the person at a later time in a physical marketing channel;

(C) The swap is economically appropriate to the reduction of the person's risks in the conduct and management of a commercial enterprise;

(D) The swap is entered into in accordance with sound commercial practices; and

(E) The person does not enter into the swap in connection with activity structured to evade designation as a swap dealer.

(iv) Swaps entered into by floor traders. In determining whether a person is a swap dealer, each swap that the person enters into in its capacity as a floor trader as defined by section 1a(23) of the Act or on or subject to the rules of a swap execution facility shall not be considered for the purpose of determining whether the person is a swap dealer if the person:

(A) Is registered with the Commission as a floor trader pursuant to § 3.11 of this chapter;

(B) Enters into swaps with proprietary funds for that trader's own account solely on or subject to the rules of a designated contract market or swap execution facility and submits each such swap for clearing to a derivatives clearing organization;

(C) Is not an affiliated person of a registered swap dealer;

(D) Does not directly, or through an affiliated person, negotiate the terms of swap agreements, other than price and quantity or to participate in a request for quote process subject to the rules of a designated contract market or a swap execution facility;

(E) Does not directly or through an affiliated person offer or provide swap clearing services to third parties;

(F) Does not directly or through an affiliated person enter into swaps that would qualify as hedging physical positions pursuant to paragraph (6)(iii) of this definition or hedging or mitigating commercial risk as defined in § 1.3 (except for any such swap executed opposite a counterparty for which the transaction would qualify as a bona fide hedging transaction);

(G) Does not participate in any market making program offered by a designated contract market or swap execution facility; and

(H) Notwithstanding the fact such person is not registered as a swap dealer, such person complies with §§ 23.201, 23.202, 23.203, and 23.600 of this chapter with respect to each such swap as if it were a swap dealer.

* * * * *
Start Amendment Part

3. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
1.10(j)(3)§ 1.3(mm)§ 1.3
1.17(b)(4)(ii)§ 1.3(y)§ 1.3
1.17(b)(5)§ 1.3(d)§ 1.3
1.17(b)(10)§ 1.3(y)§ 1.3
1.17(c)(5)(xiii)(C)§ 1.3(rr)§ 1.3
1.33(a)(1)(iii)§ 1.3(rr)§ 1.3
1.33(g)(2)§ 1.3(g)§ 1.3
1.46(d)(2)§ 1.3(z)§ 1.3
1.52(a)(2)§ 1.3(h)§ 1.3
1.52(a)(2)§ 1.3(rrrr)§ 1.3
1.55(f)§ 1.3(g)§ 1.3
1.59(a)(1)§ 1.3(ee)§ 1.3
1.59(a)(1)§ 1.3(d)§ 1.3
1.63(a)(1)§ 1.3(ee)§ 1.3
1.63(a)(1)§ 1.3(d)§ 1.3
1.64(a)(1)§ 1.3(ee)§ 1.3
1.64(a)(1)§ 1.3(d)§ 1.3
1.69(a)(7)§ 1.3(ee)§ 1.3
1.69(a)(7)§ 1.3(d)§ 1.3
Start Part

PART 3—REGISTRATION

End Part Start Amendment Part

4. The authority citation for part 3 continues to read as follows:

End Amendment Part Start Authority

Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 6c, 6d, 6e, 6f, 6g, 6h, 6 i, 6k, 6m, 6n, 6 o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, and 23, as amended by Title VII of Pub. L. 111-203, 124 Stat. 1376.

End Authority Start Amendment Part

5. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
3.10(c)(1)§ 1.3(y)§ 1.3
3.10(c)(2)(i)§ 1.3(xx)§ 1.3
3.10(c)(3)(i)§ 1.3(mm)§ 1.3
3.10(c)(3)(i)§ 1.3(bb)§ 1.3
3.10(c)(3)(i)§ 1.3(nn)§ 1.3
3.10(c)(4)(ii)§ 1.3(g)§ 1.3
3.12(h)(1)(iv)§ 1.3(aa)§ 1.3
3.21(c)(2)(i)§ 1.3(yy)§ 1.3
Start Part

PART 4—COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

End Part Start Amendment Part

6. The authority citation for part 4 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 23.

End Authority Start Amendment Part

7. In § 4.5, revise paragraph (c)(2)(iii)(A) and the introductory text of paragraph (c)(2)(iii)(B) introductory text to read as follows:

End Amendment Part
Exclusion for certain otherwise regulated persons from the definition of the term “commodity pool operator.”
* * * * *

(c) * * *

(2) * * *

(iii) * * *

(A) Will use commodity futures or commodity options contracts, or swaps solely for bona fide hedging purposes within the meaning and intent of the definition of bona fide hedging transactions and positions for excluded commodities in §§ 1.3 and 151.5 of this chapter; Provided however, That, in addition, with respect to positions in commodity futures or commodity options contracts, or swaps which do not come within the meaning and intent of the definition of bona fide hedging transactions and positions for excluded commodities in §§ 1.3 and 151.5 of this chapter, a qualifying entity may represent that the aggregate initial margin and premiums required to establish such positions will not exceed five percent of the liquidation value of the qualifying entity's portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; and, Provided further, That in the case of an option that is in-the-money at the time of the purchase, the in-the-money amount as defined in § 190.01(x) of this chapter may be excluded in computing such five percent; or

(B) The aggregate net notional value of commodity futures, commodity options contracts, or swaps positions not used solely for bona fide hedging purposes within the meaning and intent of the definition of bona fide hedging transactions and positions for excluded commodities in §§ 1.3 and 151.5 of this Start Printed Page 7996chapter determined at the time the most recent position was established, does not exceed 100 percent of the liquidation value of the pool's portfolio, after taking into account unrealized profits and unrealized losses on any such positions it has entered into. For purposes of this paragraph:

* * * * *
Start Part

PART 5—OFF-EXCHANGE FOREIGN CURRENCY TRANSACTIONS

End Part Start Amendment Part

8. The authority citation for part 5 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 8, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21, and 23.

End Authority
[Amended]
Start Amendment Part

9. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
5.5(a)(1)(ii)§ 1.3(mm)§ 1.3
Start Part

PART 15—REPORTS—GENERAL PROVISIONS

End Part Start Amendment Part

10. The authority citation for part 15 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 7, 7a, 9, 12a, 19, and 21, as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

End Authority Start Amendment Part

11. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
15.00(e)§ 1.3(k)§ 1.3
15.00(e)§ 1.3(jj)§ 1.3
15.00(n)§ 1.3(t)§ 1.3
15.01(d)(1)§ 1.3(z)§ 1.3
Start Part

PART 18—REPORTS BY TRADERS

End Part Start Amendment Part

12. The authority citation for part 18 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 2, 4, 5, 6a, 6c, 6f, 6g, 6i, 6k, 6m, 6n, 6t, 12a, and 19.

End Authority

Appendix A to Part 18 [Amended]

Start Amendment Part

13. Amend Appendix A to Part 18 as follows:

End Amendment Part Start Amendment Part

a. In instruction paragraph 15, under the heading Swaps Participation Indicators, remove “§ 1.3(ppp)” and add in its place “§ 1.3”; and

End Amendment Part Start Amendment Part

b. In instruction paragraph 16, under the heading Swaps Participation Indicators, remove “§ 1.3(qqq)” and add in its place “§ 1.3”.

End Amendment Part Start Part

PART 19—REPORTS BY PERSONS HOLDING BONA FIDE HEDGE POSITIONS AND BY MERCHANTS AND DEALERS IN COTTON

End Part Start Amendment Part

14. The authority citation for part 19 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 6g(a), 6i, and 12a(5).

End Authority Start Amendment Part

15. Revise the part heading for part 19 to read as set forth above.

End Amendment Part
[Amended]
Start Amendment Part

16. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
19.00(a)(1)§ 1.3(z)§ 1.3
19.00(b)(1)§ 1.3(z)§ 1.3
Start Part

PART 23—SWAP DEALERS AND MAJOR SWAP PARTICIPANTS

End Part Start Amendment Part

17. The authority citation for part 23 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1, 6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.

End Authority

Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 111-203, 124 Stat. 1641 (2010).

[Amended]
Start Amendment Part

18. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
23.22(a)§ 1.3(aa)(6)§ 1.3
Start Part

PART 30—FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

End Part Start Amendment Part

19. The authority citation for part 30 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise noted.

End Authority Start Amendment Part

20. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
30.1(c)paragraph (y) of § 1.3§ 1.3
30.1(e)§ 1.3(ss)§ 1.3
30.1(f)§ 1.3(y)§ 1.3
30.4(a)paragraph (y) of § 1.3§ 1.3

Appendix B to Part 30 [Amended]

Start Amendment Part

21. Amend Appendix B to Part 30 as follows:

End Amendment Part Start Amendment Part

a. In paragraph 1, in the second sentence, remove “Rule 1.3(rr)” and add in its place “§ 1.3”.

End Amendment Part Start Amendment Part

b. In footnote 1, in the first sentence, remove “paragraph (y) of [Rule 1.3]” and add in its place “§ 1.3”.

End Amendment Part Start Part

PART 38—DESIGNATED CONTRACT MARKETS

End Part Start Amendment Part

22. The authority citation for part 38 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, 6f, 6g, 6i, 6j, 6k, 6l, 6m, 6n, 7, 7a-2, 7b, 7b-1, 7b-3, 8, 9, 15, and 21, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376.

End Authority

Appendix B to Part 38 [Amended]

Start Amendment Part

23. In Appendix B to Part 38, under the heading Core Principle 16 of section 5(d) of the Act: CONFLICTS OF INTEREST, in paragraph (b)(2)(ii)(B), remove “1.3(q)” and add in its place “§ 1.3 of this chapter”.

End Amendment Part Start Part

PART 39—DERIVATIVES CLEARING ORGANIZATIONS

End Part Start Amendment Part

24. The authority citation for part 39 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 2, 7a-1, and 12a; 12 U.S.C. 5464; 15 U.S.C. 8325.

End Authority Start Amendment Part

25. In the table below, for each section or paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the section or paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
Section/paragraphRemoveAdd
39.1§ 1.3(d)§ 1.3
39.2§ 1.3(d)§ 1.3
39.4(e)§ 1.3(vv)§ 1.3
39.9§ 1.3(d)§ 1.3
39.30(a)§ 1.3(d)§ 1.3
39.37(d)(1)§ 1.3(jjjj)§ 1.3
39.37(d)(3)§ 1.3(rr)§ 1.3
Start Part Start Printed Page 7997

PART 41—SECURITY FUTURES PRODUCTS

End Part Start Amendment Part

26. The authority citation for part 41 continues to read as follows:

End Amendment Part Start Authority

Authority: Sections 206, 251 and 252, Pub. L. 106-554, 114 Stat. 2763, 7 U.S.C. 1a, 2, 6f, 6j, 7a-2, 12a; 15 U.S.C. 78g(c)(2).

End Authority Start Amendment Part

27. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
41.41(d)§ 1.3(vv)§ 1.3
41.41(d)§ 1.3(ww)§ 1.3
41.41(e)§ 1.3(vv)§ 1.3
41.41(e)§ 1.3(ww)§ 1.3
41.43(a)(13)§ 1.3(vv)§ 1.3
41.43(a)(28)§ 1.3(ww)§ 1.3
Start Part

PART 50—CLEARING REQUIREMENT AND RELATED RULES

End Part Start Amendment Part

28. The authority citation for part 50 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 2(h) and 7a-1 as amended by Pub. L. 111-203, 124 Stat. 1376.

End Authority Start Amendment Part

29. In § 50.51, revise paragraph (b)(1) to read as follows:

End Amendment Part
Exemption for cooperatives.
* * * * *

(b) * * *

(1) Is entered into with a member of the exempt cooperative in connection with originating loan or loans for the member, which means the requirements of paragraphs (5)(i), (ii), and (iii) of the definition of swap dealer in § 1.3 of this chapter are satisfied; provided that, for this purpose, the term “insured depository institution” as used in those paragraphs is replaced with the term “exempt cooperative” and the word “customer” is replaced with the word “member”; or

* * * * *
Start Part

PART 150—LIMITS ON POSITIONS

End Part Start Amendment Part

30. The authority citation for part 150 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 6a, 6c, and 12a(5).

End Authority
[Amended]
Start Amendment Part

31. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
150.3(a)(1)§ 1.3(z)§ 1.3
Start Amendment Part

32. In § 150.5, revise paragraph (d)(1) to read as follows:

End Amendment Part
Exchange-set speculative position limits.
* * * * *

(d) * * * (1) No exchange bylaw, rule, regulation, or resolution adopted pursuant to this section shall apply to bona fide hedging positions as defined by a contract market in accordance with the definition of bona fide hedging transactions and positions for excluded commodities in § 1.3 of this chapter. Provided, however, that the contract market may limit bona fide hedging positions or any other positions which have been exempted pursuant to paragraph (e) of this section which it determines are not in accord with sound commercial practices or exceed an amount which may be established and liquidated in orderly fashion.

* * * * *
Start Part

PART 151—POSITION LIMITS FOR FUTURES AND SWAPS

End Part Start Amendment Part

33. The authority citation for part 151 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, 6g, 6t, 12a, 19, as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010).

End Authority Start Amendment Part

34. In § 151.11, revise paragraph (f)(1)(ii) to read as follows:

End Amendment Part
Designated contract market and swap execution facility position limits and accountability rules.
* * * * *

(f) * * *

(1) * * *

(ii) For purposes of excluded commodities, no designated contract market or swap execution facility that is a trading facility by law, rule, regulation, or resolution adopted pursuant to this section shall apply to any transaction or position within the definition of bona fide hedging transactions and positions for excluded commodities in § 1.3 of this chapter; provided, however, that the designated contract market or swap execution facility that is a trading facility may limit bona fide hedging positions that it determines are not in accord with sound commercial practices or exceed an amount which may be established and liquidated in an orderly fashion.

* * * * *
Start Part

PART 155—TRADING STANDARDS

End Part Start Amendment Part

35. The authority citation for part 155 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 6b, 6c, 6g, 6j and 12a, unless otherwise noted.

End Authority Start Amendment Part

36. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
155.3(b)(2)(ii)§ 1.3(g)§ 1.3
155.4(b)(2)(ii)§ 1.3(g)§ 1.3
Start Part

PART 166—CUSTOMER PROTECTION RULES

End Part Start Amendment Part

37. The authority citation for part 166 continues to read as follows:

End Amendment Part Start Authority

Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6d, 6g, 6h, 6k, 6l, 6o, 7, 12a, 21, and 23, as amended by the Commodity Futures Modernization Act of 2000, appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).

End Authority
[Amended]
Start Amendment Part

38. In the table below, for each paragraph indicated in the left column, remove the cross-reference indicated in the middle column from wherever it appears in the paragraph, and add the cross-reference indicated in the right column:

End Amendment Part
ParagraphRemoveAdd
166.2(a)§ 1.3(yy)§ 1.3
166.2(b)§ 1.3(yy)§ 1.3
Start Signature

Issued in Washington, DC, on February 15, 2018, by the Commission.

Christopher J. Kirkpatrick,

Secretary of the Commission.

End Signature

Note:

The following appendix will not appear in the Code of Federal Regulations.

Appendix to Definitions—Commission Voting Summary

On this matter, Chairman Giancarlo and Commissioners Quintenz and Behnam voted in the affirmative. No Commissioner voted in the negative.

End Supplemental Information

Footnotes

1.  17 CFR 145.9. Commission regulations referred to herein are found at 17 CFR chapter I.

Back to Citation

3.  17 CFR 1.3. The Commission's regulations are found in Title 17 of the Code of Federal Regulations, 17 CFR chapter I.

Back to Citation

4.  See 17 CFR 1.3 (1938 ed.).

Back to Citation

6.  See Document Drafting Handbook, Office of the Federal Register, National Archives and Records Administration, 2-31 (Revision 5, Oct. 2, 2017), stating, “[i]n sections or paragraphs containing only definitions, we recommend that you do not use paragraph designations if you list the terms in alphabetical order. Begin the definition paragraph with the term that you are defining.”

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[FR Doc. 2018-03590 Filed 2-22-18; 8:45 am]

BILLING CODE 6351-01-P