[House Report 113-107] [From the U.S. Government Publishing Office] 113th Congress Report HOUSE OF REPRESENTATIVES 1st Session 113-107 ====================================================================== PUBLIC POWER RISK MANAGEMENT ACT OF 2013 _______ June 12, 2013.--Committed to the Committee of the Whole House on the State of the Union and ordered to be printed _______ Mr. Lucas, from the Committee on Agriculture, submitted the following R E P O R T [To accompany H.R. 1038] [Including cost estimate of the Congressional Budget Office] The Committee on Agriculture, to whom was referred the bill (H.R. 1038) to provide equal treatment for utility special entities using utility operations-related swaps, and for other purposes, having considered the same, report favorably thereon without amendment and recommend that the bill do pass. Brief Explanation H.R. 1038 would preserve the ability of government-owned utilities, classified in the bill as ``utility special entities,'' to have uninterrupted and cost-effective access to the customized, non-financial commodity swaps that utility special entities have used for years. In effect, the counterparties of utility special entities would now be subject to the much higher $8 billion de minimis swap dealer registration threshold. Importantly, the bill does not include an exemption for interest rate, credit, equities, currency asset classes, or agriculture commodities, other than commodities used for electric energy or natural gas production or generation. Instead, the legislation creates a new category of swap known as the ``utility operations-related swap'' and provides relief to counterparties of utility special entities only when those specific types of swaps are used. To ensure transparency, the bill still requires all special entity swap transactions to be reported to the U.S. Commodity Futures Trading Commission (CFTC). Purpose and Need On May 23, 2012, the CFTC published a rule further defining who is considered a ``swap dealer'' under the Dodd-Frank Act, which directly impacted many swap counterparties of government- owned non-profit utilities. The rule became effective on July 23, 2012, with registration as a swap dealer not being required until on or after October 12, 2012. The CFTC's swap dealer rule includes an exception for entities from having to register as a swap dealer if their outstanding annual gross notional swap positions do not exceed either of the two following thresholds: 1. $3 billion (subject to an initial three year phase- in level of $8 billion), referred to as the ``general de minimis threshold''; and 2. $25 million with regard to swaps where an entity's counterparty is a ``special entity'' as defined in Section 731 of the Dodd-Frank Act, referred to as the ``special entity de minimis threshold.'' On October 12, 2012, after several public power groups petitioned the CFTC to relieve their counterparties from compliance with the much lower registration threshold, CFTC staff issued a non-binding ``no-action relief'' letter instead, which increased the ``special entity sub-threshold'' to $800 million from $25 million. As mentioned above, a ``special entity'' is broadly defined in Section 731 of the Dodd-Frank Act to include any government- owned enterprise, such as public school boards, state governments, and any publicly-owned producer or supplier of electricity or natural gas. Casting such a broad net in defining ``special entity'' was a policy decision made by the drafters of the Dodd-Frank Act which sought to protect taxpayers from the use of complex financial swaps by their municipality. For example, the use of fixed-for-floating interest rate swaps tied to municipal bonds issued by Jefferson County, Alabama, contributed to the county's multi-billion dollar debt that rapidly expanded during the 2008 financial crisis, resulting in the largest municipal bankruptcy filing in U.S. history. Prior to enactment of the Dodd-Frank Act, however, many publicly-owned utilities relied on their non-financial counterparties, such as natural gas producers, independent power generators, and investor-owned utility companies to enter into swaps in order to hedge against operational risks. Many of these utilities have heard from numerous counterparties who are evaluating their future business plans in light of the final CFTC rules. These counterparties are strictly limiting their business, or completely cutting all ties with utility special entities given the special entity sub-threshold and uncertainty surrounding the new regulatory regime for the swaps marketplace. Unless counterparties can determine with certainty that their swap activities with special entities will not result in them being classified as a ``swap dealer'' under the Dodd-Frank Act, it appears that numerous counterparties may avoid doing business with them altogether. This ultimately limits competition and forces special entities to do business with financial institutions or large swap dealers, which concentrates risk and may raise costs for many utility special entities eventually leading to increased costs for ratepayers. Section-By-Section Section 1 is the short title of the bill. Section 2 adds paragraph (E) to the definition of swap dealer clarifying that transactions in utility operations- related swaps shall be reported and counted towards an entity's general de minimus calculation established in (D). Section 3 amends the responsibilities to special entities required by the business conduct standards in 4s(h) of the Commodity Exchange Act by defining a ``utility special entity.'' A utility special entity is defined as an entity established by a state, or political subdivision thereof, which owns or operates an electric or natural gas facility; supplies natural gas or electric energy to another utility special entity, has public service under obligation under federal, state or local law or regulation to deliver electric energy or natural gas service to customers; or is a Federal power marketing agency. Section 4 amends the definition of swap in section 1a(47) of the Commodity Exchange Act adding a utility operations- related swap to the list of ``commonly known'' transactions. It further amends section 1a to define a utility operations related swap as a swap that is entered into to hedge or mitigate risk, is not based on an interest rate, credit, equity, or currency asset class nor a metal, agriculture commodity, or crude oil or gasoline commodity for any grade except as used as fuel for electric energy generation, and is associated with the generation, production or sale of natural gas or electric energy. Section 5 sets July 21, 2010 as the effective date. Committee Consideration I. HEARINGS In the 113th Congress, the Full Committee held a hearing March 14, 2013, to examine legislative improvements to Title VII of the Dodd-Frank Act which included H.R. 677, the Inter- Affiliate Swap Clarification Act. During the hearing, the Committee heard testimony from the Chairman of the U.S. Commodity Futures Trading Commission and six additional witnesses representing a broad spectrum of participants in the derivatives market. Included was testimony from Mr. Terrance Naulty, General Manager and CEO of Owensboro Municipal Utilities who testified to the importance of the legislation: ``Specifically, the legislation would provide that the CFTC, in making a determination to exempt a swap dealer under the de minimis exception, shall treat a utility operations-related swap with a utility special entity the same as a utility operations-related swaps with any entity that is not a special entity. Under the current threshold/sub-threshold regulatory regime adopted by the CFTC, this would mean that utility operations-related swaps with a government-owned power or natural gas utility would not be counted in calculating whether swap dealing activity exceeded the $25 million special entity de minimis threshold, but would be counted in calculating whether swap dealing activity exceeded the $8 billion de minimis threshold. The legislation carefully defines which entities would qualify as a `utility special entity.' It also specifically defines the types of swaps that could and could not be considered a `utility operations-related swap.' For example, the legislation specifically prohibits interest, credit, equity, and currency swaps from being considered as a utility operations-related swap. Likewise, except in relation to their use as a fuel, commodity swaps in metal, agricultural, crude oil, or gasoline would not qualify either. Finally, the legislation also confirms that utility operations-related swaps are fully subject to swap reporting requirements. When implemented, this legislation should provide the certainty to nonfinancial entities that they can enter into swap transactions with government-owned utilities without fear of being deemed a swap dealer. It truly levels the playing field. And, it does nothing to otherwise alter the CFTC's implementation of the Dodd- Frank Act. We wish the legislation were not necessary, but given the realities we face and the ongoing damage being done under the current rules, we urgently request the members of this committee to support this narrow legislative fix.'' II. BUSINESS MEETINGS The Committee on Agriculture met, pursuant to notice, with a quorum present, on March 20, 2013, to consider H.R. 1038, Public Power Risk Management Act of 2013, and other pending business. H.R. 1038 was placed before the Committee for consideration. Without objection, a first reading of the bill was waived and it was open for amendment at any point. Chairman Lucas, Mr. Garamendi, and Mr. LaMalfa were recognized for statements, and Counsel was then recognized for a brief explanation of the bill. There being no amendments, Mr. Peterson was recognized to offer a motion that the bill H.R. 1038 be reported favorably to the House with recommendation that it do pass. The motion was subsequently approved by voice vote. The Committee then continued with other pending business, and at the conclusion of the meeting, Chairman Lucas advised Members that pursuant to the rules of the House of Representatives Members had 2 calendar days to file any supplemental or minority views with the Committee. Without objection, staff was given permission to make any necessary clerical, technical or conforming changes to reflect the intent of the Committee. Chairman Lucas thanked all the Members and adjourned the meeting. Committee Votes In compliance with clause 3(b) of rule XIII of the House of Representatives, H.R. 1038 was reported by voice vote with a majority quorum present. There was no request for a recorded vote. Committee Oversight Findings Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the Committee on Agriculture's oversight findings and recommendations are reflected in the body of this report. Budget Act Compliance (Sections 308, 402, and 423) The provisions of clause 3(c)(2) of rule XIII of the Rules of the House of Representatives and section 308(a)(1) of the Congressional Budget Act of 1974 (relating to estimates of new budget authority, new spending authority, new credit authority, or increased or decreased revenues or tax expenditures) are not considered applicable. The estimate and comparison required to be prepared by the Director of the Congressional Budget Office under clause 3(c)(3) of rule XIII of the Rules of the House of Representatives and sections 402 and 423 of the Congressional Budget Act of 1974 submitted to the Committee prior to the filing of this report are as follows: U.S. Congress, Congressional Budget Office, Washington, DC, April 1, 2013. Hon. Frank D. Lucas, Chairman, Committee on Agriculture, House of Representatives, Washington, DC. Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1038, the Public Power Risk Management Act of 2013. If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Kathleen Gramp. Sincerely, Douglas W. Elmendorf. Enclosure. H.R. 1038--Public Power Risk Management Act of 2013 H.R. 1038 would change the way certain electric and natural gas utility contracts are regulated by the Commodity Futures Trading Commission (CFTC). Under current law, most firms that offer contracts to hedge or mitigate market risks are regulated as ``swap dealers'' if the value of their transactions exceeds certain thresholds. H.R. 1038 would direct the CFTC to exclude certain types of agreements with publicly owned utilities from the calculation of the threshold for transactions with ``special entities,'' which includes governmental or nonprofit entities. That change could make it easier for firms to enter into hedging arrangements with public utilities without being regulated as a swap dealer. Pay-as-you-go procedures apply to this bill because it could affect direct spending by the Tennessee Valley Authority (TVA) and the Bonneville Power Administration (BPA). CBO estimates, however, that the net effect on direct spending would not be significant in any year. Enacting the legislation would not affect revenues. Based on information from the CFTC, CBO estimates that implementing the bill would have a negligible effect on spending subject to appropriation. CBO estimates that implementing H.R. 1038 would have no significant effect on the operations of TVA and BPA because most of their hedging agreements are with large firms that already are regulated as swap dealers by the CFTC. In addition, any changes resulting from the bill would have a negligible effect on net direct spending because TVA and BPA routinely adjust their electricity prices and revenues to account for changes in their operating expenses, as required by law. H.R. 1038 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would impose no costs on state, local, or tribal governments. The CBO staff contact for this estimate is Kathleen Gramp. The estimate was approved by Theresa Gullo, Deputy Assistant Director for Budget Analysis. Performance Goals and Objectives With respect to the requirement of clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the performance goals and objections of this legislation are to allow producers, utility companies, and other non-financial entities to continue entering into energy swaps with government-owned utilities without danger of being required to register with the CFTC as a ``swap dealer'' solely because of their dealings with government-owned utilities. Committee Cost Estimate Pursuant to clause 3(d)(2) of rule XIII of the Rules of the House of Representatives, the Committee report incorporates the cost estimate prepared by the Director of the Congressional Budget Office pursuant to sections 402 and 423 of the Congressional Budget Act of 1974. Advisory Committee Statement No advisory committee within the meaning of section 5(b) of the Federal Advisory Committee Act was created by this legislation. Applicability to the Legislative Branch The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act (Public Law 104-1). Federal Mandates Statement The Committee adopted as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office pursuant to section 423 of the Unfunded Mandates Reform Act (Public Law 104-4). Earmark Statement Required by Clause 9 of rule XXI of the Rules of House of Representatives H.R. 1038 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(e), 9(f), or 9(g) of rule XXI of the Rules of the House Representatives. Duplication of Federal Programs H.R. 1038 does not establish or reauthorize a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111-139, or any related program identified in the most recent Catalog of Federal Domestic Assistance. Disclosure of Directed Rule Makings The Committee does not believe that the legislation directs an executive branch official to conduct any specific rule making proceedings within the meaning of 5 U.S.C. 551. Changes in Existing Law Made by the Bill, as Reported In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed is shown in roman): COMMODITY EXCHANGE ACT * * * * * * * SEC. 1A. DEFINITIONS. As used in this Act: (1) Alternative trading system.--The term ``alternative trading system'' means an organization, association, or group of persons that-- (A) is registered as a broker or dealer pursuant to section 15(b) of the Securities Exchange Act of 1934 (except paragraph (11) thereof); (B) performs the functions commonly performed by an exchange (as defined in section 3(a)(1) of the Securities Exchange Act of 1934); (C) does not-- (i) set rules governing the conduct of subscribers other than the conduct of such subscribers' trading on the alternative trading system; or (ii) discipline subscribers other than by exclusion from trading; and (D) is exempt from the definition of the term ``exchange'' under such section 3(a)(1) by rule or regulation of the Securities and Exchange Commission on terms that require compliance with regulations of its trading functions. (2) Appropriate federal banking agency.--The term ``appropriate Federal banking agency''-- (A) has the meaning given the term in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); (B) means the Board in the case of a noninsured State bank; and (C) is the Farm Credit Administration for farm credit system institutions. (3) Associated person of a security-based swap dealer or major security-based swap participant.--The term ``associated person of a security-based swap dealer or major security-based swap participant'' has the meaning given the term in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)). (4) Associated person of a swap dealer or major swap participant.-- (A) In general.--The term ``associated person of a swap dealer or major swap participant'' means a person who is associated with a swap dealer or major swap participant as a partner, officer, employee, or agent (or any person occupying a similar status or performing similar functions), in any capacity that involves-- (i) the solicitation or acceptance of swaps; or (ii) the supervision of any person or persons so engaged. (B) Exclusion.--Other than for purposes of section 4s(b)(6), the term ``associated person of a swap dealer or major swap participant'' does not include any person associated with a swap dealer or major swap participant the functions of which are solely clerical or ministerial. (5) Board.--The term ``Board'' means the Board of Governors of the Federal Reserve System. (6) Board of trade.--The term ``board of trade'' means any organized exchange or other trading facility. (7) Cleared swap.--The term ``cleared swap'' means any swap that is, directly or indirectly, submitted to and cleared by a derivatives clearing organization registered with the Commission. (8) Commission.--The term ``Commission'' means the Commodity Futures Trading Commission established under section 2(a)(2). (9) Commodity.--The term ``commodity'' means wheat, cotton, rice, corn, oats, barley, rye, flaxseed, grain sorghums, mill feeds, butter, eggs, Solanum tuberosum (Irish potatoes), wool, wool tops, fats and oils (including lard, tallow, cottonseed oil, peanut oil, soybean oil, and all other fats and oils), cottonseed meal, cottonseed, peanuts, soybeans, soybean meal, livestock, livestock products, and frozen concentrated orange juice, and all other goods and articles, except onions (as provided by the first section of Public Law 85-839 (7 U.S.C. 13-1)) and motion picture box office receipts (or any index, measure, value, or data related to such receipts), and all services, rights, and interests (except motion picture box office receipts, or any index, measure, value or data related to such receipts) in which contracts for future delivery are presently or in the future dealt in. (10) Commodity pool.-- (A) In general.--The term ``commodity pool'' means any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests, including any-- (i) commodity for future delivery, security futures product, or swap; (ii) agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (iii) commodity option authorized under section 4c; or (iv) leverage transaction authorized under section 19. (B) Further definition.--The Commission, by rule or regulation, may include within, or exclude from, the term ``commodity pool'' any investment trust, syndicate, or similar form of enterprise if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (11) Commodity pool operator.-- (A) In general.--The term ``commodity pool operator'' means any person-- (i) engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property, either directly or through capital contributions, the sale of stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests, including any-- (I) commodity for future delivery, security futures product, or swap; (II) agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (III) commodity option authorized under section 4c; or (IV) leverage transaction authorized under section 19; or (ii) who is registered with the Commission as a commodity pool operator. (B) Further definition.--The Commission, by rule or regulation, may include within, or exclude from, the term ``commodity pool operator'' any person engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or similar form of enterprise if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (12) Commodity trading advisor.-- (A) In general.--Except as otherwise provided in this paragraph, the term ``commodity trading advisor'' means any person who-- (i) 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-- (I) any contract of sale of a commodity for future delivery, security futures product, or swap; (II) any agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i) (III) any commodity option authorized under section 4c; or (IV) any leverage transaction authorized under section 19; (ii) for compensation or profit, and as part of a regular business, issues or promulgates analyses or reports concerning any of the activities referred to in clause (i); (iii) is registered with the Commission as a commodity trading advisor; or (iv) the Commission, by rule or regulation, may include if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (B) Exclusions.--Subject to subparagraph (C), the term ``commodity trading advisor'' 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 fiduciary of any defined benefit plan that is subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.); (vi) any contract market or derivatives transaction execution facility; and (vii) such other persons not within the intent of this paragraph as the Commission may specify by rule, regulation, or order. (C) Incidental services.--Subparagraph (B) shall apply only if the furnishing of such services by persons referred to in subparagraph (B) is solely incidental to the conduct of their business or profession. (D) Advisors.--The Commission, by rule or regulation, may include within the term ``commodity trading advisor'', any person advising as to the value of commodities or issuing reports or analyses concerning commodities if the Commission determines that the rule or regulation will effectuate the purposes of this paragraph. (13) Contract of sale.--The term ``contract of sale'' includes sales, agreements of sale, and agreements to sell. (14) Cooperative association of producers.--The term ``cooperative association of producers'' means any cooperative association, corporate, or otherwise, not less than 75 percent in good faith owned or controlled, directly or indirectly, by producers of agricultural products and otherwise complying with the Act of February 18, 1922 (42 Stat. 388, chapter 57; 7 U.S.C. 291 and 292), including any organization acting for a group of such associations and owned or controlled by such associations, except that business done for or with the United States, or any agency thereof, shall not be considered either member or nonmember business in determining the compliance of any such association with this Act. (15) Derivatives clearing organization.-- (A) In general.--The term ``derivatives clearing organization'' means a clearinghouse, clearing association, clearing corporation, or similar entity, facility, system, or organization that, with respect to an agreement, contract, or transaction-- (i) enables each party to the agreement, contract, or transaction to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties; (ii) arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such agreements, contracts, or transactions executed by participants in the derivatives clearing organization; or (iii) otherwise provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such agreements, contracts, or transactions executed by the participants. (B) Exclusions.--The term ``derivatives clearing organization'' does not include an entity, facility, system, or organization solely because it arranges or provides for-- (i) settlement, netting, or novation of obligations resulting from agreements, contracts, or transactions, on a bilateral basis and without a central counterparty; (ii) settlement or netting of cash payments through an interbank payment system; or (iii) settlement, netting, or novation of obligations resulting from a sale of a commodity in a transaction in the spot market for the commodity. (16) Electronic trading facility.--The term ``electronic trading facility'' means a trading facility that-- (A) operates by means of an electronic or telecommunications network; and (B) maintains an automated audit trail of bids, offers, and the matching of orders or the execution of transactions on the facility. (17) Eligible commercial entity.--The term ``eligible commercial entity'' means, with respect to an agreement, contract or transaction in a commodity-- (A) an eligible contract participant described in clause (i), (ii), (v), (vii), (viii), or (ix) of paragraph (18)(A) that, in connection with its business-- (i) has a demonstrable ability, directly or through separate contractual arrangements, to make or take delivery of the underlying commodity; (ii) incurs risks, in addition to price risk, related to the commodity; or (iii) is a dealer that regularly provides risk management or hedging services to, or engages in market- making activities with, the foregoing entities involving transactions to purchase or sell the commodity or derivative agreements, contracts, or transactions in the commodity; (B) an eligible contract participant, other than a natural person or an instrumentality, department, or agency of a State or local governmental entity, that-- (i) regularly enters into transactions to purchase or sell the commodity or derivative agreements, contracts, or transactions in the commodity; and (ii) either-- (I) in the case of a collective investment vehicle whose participants include persons other than-- (aa) qualified eligible persons, as defined in Commission rule 4.7(a) (17 CFR 4.7(a)); (bb) accredited investors, as defined in Regulation D of the Securities and Exchange Commission under the Securities Act of 1933 (17 CFR 230.501(a)), with total assets of $2,000,000; or (cc) qualified purchasers, as defined in section 2(a)(51)(A) of the Investment Company Act of 1940; in each case as in effect on the date of the enactment of the Commodity Futures Modernization Act of 2000, has, or is one of a group of vehicles under common control or management having in the aggregate, $1,000,000,000 in total assets; or (II) in the case of other persons, has, or is one of a group of persons under common control or management having in the aggregate, $100,000,000 in total assets; or (C) such other persons as the Commission shall determine appropriate and shall designate by rule, regulation, or order. (18) Eligible contract participant.--The term ``eligible contract participant'' means-- (A) acting for its own account-- (i) a financial institution; (ii) an insurance company that is regulated by a State, or that is regulated by a foreign government and is subject to comparable regulation as determined by the Commission, including a regulated subsidiary or affiliate of such an insurance company; (iii) an investment company subject to regulation under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or a foreign person performing a similar role or function subject as such to foreign regulation (regardless of whether each investor in the investment company or the foreign person is itself an eligible contract participant); (iv) a commodity pool that-- (I) has total assets exceeding $5,000,000; and (II) is formed and operated by a person subject to regulation under this Act or a foreign person performing a similar role or function subject as such to foreign regulation (regardless of whether each investor in the commodity pool or the foreign person is itself an eligible contract participant) provided, however, that for purposes of section 2(c)(2)(B)(vi) and section 2(c)(2)(C)(vii), the term ``eligible contract participant'' shall not include a commodity pool in which any participant is not otherwise an eligible contract participant; (v) a corporation, partnership, proprietorship, organization, trust, or other entity-- (I) that has total assets exceeding $10,000,000; (II) the obligations of which under an agreement, contract, or transaction are guaranteed or otherwise supported by a letter of credit or keepwell, support, or other agreement by an entity described in subclause (I), in clause (i), (ii), (iii), (iv), or (vii), or in subparagraph (C); or (III) that-- (aa) has a net worth exceeding $1,000,000; and (bb) enters into an agreement, contract, or transaction in connection with the conduct of the entity's business or to manage the risk associated with an asset or liability owned or incurred or reasonably likely to be owned or incurred by the entity in the conduct of the entity's business; (vi) an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001 et seq.), a governmental employee benefit plan, or a foreign person performing a similar role or function subject as such to foreign regulation-- (I) that has total assets exceeding $5,000,000; or (II) the investment decisions of which are made by-- (aa) an investment adviser or commodity trading advisor subject to regulation under the Investment Advisers Act of 1940 (15 U.S.C. 80b- 1 et seq.) or this Act; (bb) a foreign person performing a similar role or function subject as such to foreign regulation; (cc) a financial institution; or (dd) an insurance company described in clause (ii), or a regulated subsidiary or affiliate of such an insurance company; (vii)(I) a governmental entity (including the United States, a State, or a foreign government) or political subdivision of a governmental entity; (II) a multinational or supranational government entity; or (III) an instrumentality, agency, or department of an entity described in subclause (I) or (II); except that such term does not include an entity, instrumentality, agency, or department referred to in subclause (I) or (III) of this clause unless (aa) the entity, instrumentality, agency, or department is a person described in clause (i), (ii), or (iii) of paragraph (17)(A); (bb) the entity, instrumentality, agency, or department owns and invests on a discretionary basis $50,000,000 or more in investments; or (cc) the agreement, contract, or transaction is offered by, and entered into with, an entity that is listed in any of subclauses (I) through (VI) of section 2(c)(2)(B)(ii); (viii)(I) a broker or dealer subject to regulation under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or a foreign person performing a similar role or function subject as such to foreign regulation, except that, if the broker or dealer or foreign person is a natural person or proprietorship, the broker or dealer or foreign person shall not be considered to be an eligible contract participant unless the broker or dealer or foreign person also meets the requirements of clause (v) or (xi); (II) an associated person of a registered broker or dealer concerning the financial or securities activities of which the registered person makes and keeps records under section 15C(b) or 17(h) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-5(b), 78q(h)); (III) an investment bank holding company (as defined in section 17(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78q(i)); (ix) a futures commission merchant subject to regulation under this Act or a foreign person performing a similar role or function subject as such to foreign regulation, except that, if the futures commission merchant or foreign person is a natural person or proprietorship, the futures commission merchant or foreign person shall not be considered to be an eligible contract participant unless the futures commission merchant or foreign person also meets the requirements of clause (v) or (xi); (x) a floor broker or floor trader subject to regulation under this Act in connection with any transaction that takes place on or through the facilities of a registered entity (other than an electronic trading facility with respect to a significant price discovery contract) or an exempt board of trade, or any affiliate thereof, on which such person regularly trades; or (xi) an individual who has amounts invested on a discretionary basis, the aggregate of which is in excess of-- (I) $10,000,000; or (II) $5,000,000 and who enters into the agreement, contract, or transaction in order to manage the risk associated with an asset owned or liability incurred, or reasonably likely to be owned or incurred, by the individual; (B)(i) a person described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or in subparagraph (C), acting as broker or performing an equivalent agency function on behalf of another person described in subparagraph (A) or (C); or (ii) an investment adviser subject to regulation under the Investment Advisers Act of 1940, a commodity trading advisor subject to regulation under this Act, a foreign person performing a similar role or function subject as such to foreign regulation, or a person described in clause (i), (ii), (iv), (v), (viii), (ix), or (x) of subparagraph (A) or in subparagraph (C), in any such case acting as investment manager or fiduciary (but excluding a person acting as broker or performing an equivalent agency function) for another person described in subparagraph (A) or (C) and who is authorized by such person to commit such person to the transaction; or (C) any other person that the Commission determines to be eligible in light of the financial or other qualifications of the person. (19) Excluded commodity.--The term ``excluded commodity'' means-- (i) an interest rate, exchange rate, currency, security, security index, credit risk or measure, debt or equity instrument, index or measure of inflation, or other macroeconomic index or measure; (ii) any other rate, differential, index, or measure of economic or commercial risk, return, or value that is-- (I) not based in substantial part on the value of a narrow group of commodities not described in clause (i); or (II) based solely on one or more commodities that have no cash market; (iii) any economic or commercial index based on prices, rates, values, or levels that are not within the control of any party to the relevant contract, agreement, or transaction; or (iv) an occurrence, extent of an occurrence, or contingency (other than a change in the price, rate, value, or level of a commodity not described in clause (i)) that is-- (I) beyond the control of the parties to the relevant contract, agreement, or transaction; and (II) associated with a financial, commercial, or economic consequence. (20) Exempt commodity.--The term ``exempt commodity'' means a commodity that is not an excluded commodity or an agricultural commodity. (21) Financial institution.--The term ``financial institution'' means-- (A) a corporation operating under the fifth undesignated paragraph of section 25 of the Federal Reserve Act (12 U.S.C. 603), commonly known as ``an agreement corporation''; (B) a corporation organized under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.), commonly known as an ``Edge Act corporation''; (C) an institution that is regulated by the Farm Credit Administration; (D) a Federal credit union or State credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)); (E) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)); (F) a foreign bank or a branch or agency of a foreign bank (each as defined in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101(b))); (G) any financial holding company (as defined in section 2 of the Bank Holding Company Act of 1956); (H) a trust company; or (I) a similarly regulated subsidiary or affiliate of an entity described in any of subparagraphs (A) through (H). (22) Floor broker.-- (A) In general.--The term ``floor broker'' means any person-- (i) who, in or surrounding any pit, ring, post, or other place provided by a contract market for the meeting of persons similarly engaged, shall purchase or sell for any other person-- (I) any commodity for future delivery, security futures product, or swap; or (II) any commodity option authorized under section 4c; or (ii) who is registered with the Commission as a floor broker. (B) Further definition.--The Commission, by rule or regulation, may include within, or exclude from, the term ``floor broker'' any person in or surrounding any pit, ring, post, or other place provided by a contract market for the meeting of persons similarly engaged who trades for any other person if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (23) Floor trader.-- (A) In general.--The term ``floor trader'' means any person-- (i) who, in or surrounding any pit, ring, post, or other place provided by a contract market for the meeting of persons similarly engaged, purchases, or sells solely for such person's own account-- (I) any commodity for future delivery, security futures product, or swap; or (II) any commodity option authorized under section 4c; or (ii) who is registered with the Commission as a floor trader. (B) Further definition.--The Commission, by rule or regulation, may include within, or exclude from, the term ``floor trader'' any person in or surrounding any pit, ring, post, or other place provided by a contract market for the meeting of persons similarly engaged who trades solely for such person's own account if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (24) Foreign exchange forward.--The term ``foreign exchange forward'' means a transaction that solely involves the exchange of 2 different currencies on a specific future date at a fixed rate agreed upon on the inception of the contract covering the exchange. (25) Foreign exchange swap.--The term ``foreign exchange swap'' means a transaction that solely involves-- (A) an exchange of 2 different currencies on a specific date at a fixed rate that is agreed upon on the inception of the contract covering the exchange; and (B) a reverse exchange of the 2 currencies described in subparagraph (A) at a later date and at a fixed rate that is agreed upon on the inception of the contract covering the exchange. (26) Foreign futures authority.--The term ``foreign futures authority'' means any foreign government, or any department, agency, governmental body, or regulatory organization empowered by a foreign government to administer or enforce a law, rule, or regulation as it relates to a futures or options matter, or any department or agency of a political subdivision of a foreign government empowered to administer or enforce a law, rule, or regulation as it relates to a futures or options matter. (27) Future delivery.--The term ``future delivery'' does not include any sale of any cash commodity for deferred shipment or delivery. (28) Futures commission merchant.-- (A) In general.--The term ``futures commission merchant'' means an individual, association, partnership, corporation, or trust-- (i) that-- (I) is-- (aa) engaged in soliciting or in accepting orders for-- (AA) the purchase or sale of a commodity for future delivery; (BB) a security futures product; (CC) a swap; (DD) any agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (EE) any commodity option authorized under section 4c; or (FF) any leverage transaction authorized under section 19; or (bb) acting as a counterparty in any agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); and (II) in or in connection with the activities described in items (aa) or (bb) of subclause (I), accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom; or (ii) that is registered with the Commission as a futures commission merchant. (B) Further definition.--The Commission, by rule or regulation, may include within, or exclude from, the term ``futures commission merchant'' any person who engages in soliciting or accepting orders for, or acting as a counterparty in, any agreement, contract, or transaction subject to this Act, and who accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom, if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (29) Hybrid instrument.--The term ``hybrid instrument'' means a security having one or more payments indexed to the value, level, or rate of, or providing for the delivery of, one or more commodities. (30) Interstate commerce.--The term ``interstate commerce'' means commerce-- (A) between any State, territory, or possession, or the District of Columbia, and any place outside thereof; or (B) between points within the same State, territory, or possession, or the District of Columbia, but through any place outside thereof, or within any territory or possession, or the District of Columbia. (31) Introducing broker.-- (A) In general.--The term ``introducing broker'' means any person (except an individual who elects to be and is registered as an associated person of a futures commission merchant)-- (i) who-- (I) is engaged in soliciting or in accepting orders for-- (aa) the purchase or sale of any commodity for future delivery, security futures product, or swap; (bb) any agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (cc) any commodity option authorized under section 4c; or (dd) any leverage transaction authorized under section 19; and (II) does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom; or (ii) who is registered with the Commission as an introducing broker. (B) Further definition.--The Commission, by rule or regulation, may include within, or exclude from, the term ``introducing broker'' any person who engages in soliciting or accepting orders for any agreement, contract, or transaction subject to this Act, and who does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom, if the Commission determines that the rule or regulation will effectuate the purposes of this Act. (32) Major security-based swap participant.--The term ``major security-based swap participant'' has the meaning given the term in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)). (33) Major swap participant.-- (A) In general.--The term ``major swap participant'' means any person who is not a swap dealer, and-- (i) maintains a substantial position in swaps for any of the major swap categories as determined by the Commission, excluding-- (I) positions held for hedging or mitigating commercial risk; and (II) 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; (ii) 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 (iii)(I) is a financial entity that is highly leveraged relative to the amount of capital it holds and that is not subject to capital requirements established by an appropriate Federal banking agency; and (II) maintains a substantial position in outstanding swaps in any major swap category as determined by the Commission. (B) Definition of substantial position.--For purposes of subparagraph (A), the Commission shall define by rule or regulation the term ``substantial position'' at the threshold that the Commission determines to be prudent for the effective monitoring, management, and oversight of entities that are systemically important or can significantly impact the financial system of the United States. In setting the definition under this subparagraph, the Commission shall consider the person's relative position in uncleared as opposed to cleared swaps and may take into consideration the value and quality of collateral held against counterparty exposures. (C) Scope of designation.--For purposes of subparagraph (A), a person may be designated as a major swap participant for 1 or more categories of swaps without being classified as a major swap participant for all classes of swaps. (D) Exclusions.--The definition under this paragraph shall not include an entity whose primary business is providing financing, and uses derivatives for the purpose of hedging underlying commercial risks related to interest rate and foreign currency exposures, 90 percent or more of which arise from financing that facilitates the purchase or lease of products, 90 percent or more of which are manufactured by the parent company or another subsidiary of the parent company. (34) Member of a registered entity; member of a derivatives transaction execution facility.--The term ``member'' means, with respect to a registered entity or derivatives transaction execution facility, an individual, association, partnership, corporation, or trust-- (A) owning or holding membership in, or admitted to membership representation on, the registered entity or derivatives transaction execution facility; or (B) having trading privileges on the registered entity or derivatives transaction execution facility. A participant in an alternative trading system that is designated as a contract market pursuant to section 5f is deemed a member of the contract market for purposes of transactions in security futures products through the contract market. (35) Narrow-based security index.-- (A) The term ``narrow-based security index'' means an index-- (i) that has 9 or fewer component securities; (ii) in which a component security comprises more than 30 percent of the index's weighting; (iii) in which the five highest weighted component securities in the aggregate comprise more than 60 percent of the index's weighting; or (iv) in which the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting have an aggregate dollar value of average daily trading volume of less than $50,000,000 (or in the case of an index with 15 or more component securities, $30,000,000), except that if there are two or more securities with equal weighting that could be included in the calculation of the lowest weighted component securities comprising, in the aggregate, 25 percent of the index's weighting, such securities shall be ranked from lowest to highest dollar value of average daily trading volume and shall be included in the calculation based on their ranking starting with the lowest ranked security. (B) Notwithstanding subparagraph (A), an index is not a narrow-based security index if-- (i)(I) it has at least 9 component securities; (II) no component security comprises more than 30 percent of the index's weighting; and (III) each component security is-- (aa) registered pursuant to section 12 of the Securities Exchange Act of 1934; (bb) one of 750 securities with the largest market capitalization; and (cc) one of 675 securities with the largest dollar value of average daily trading volume; (ii) a board of trade was designated as a contract market by the Commodity Futures Trading Commission with respect to a contract of sale for future delivery on the index, before the date of the enactment of the Commodity Futures Modernization Act of 2000; (iii)(I) a contract of sale for future delivery on the index traded on a designated contract market or registered derivatives transaction execution facility for at least 30 days as a contract of sale for future delivery on an index that was not a narrow-based security index; and (II) it has been a narrow-based security index for no more than 45 business days over 3 consecutive calendar months; (iv) a contract of sale for future delivery on the index is traded on or subject to the rules of a foreign board of trade and meets such requirements as are jointly established by rule or regulation by the Commission and the Securities and Exchange Commission; (v) no more than 18 months have passed since the date of the enactment of the Commodity Futures Modernization Act of 2000 and-- (I) it is traded on or subject to the rules of a foreign board of trade; (II) the offer and sale in the United States of a contract of sale for future delivery on the index was authorized before the date of the enactment of the Commodity Futures Modernization Act of 2000; and (III) the conditions of such authorization continue to be met; or (vi) a contract of sale for future delivery on the index is traded on or subject to the rules of a board of trade and meets such requirements as are jointly established by rule, regulation, or order by the Commission and the Securities and Exchange Commission. (C) Within 1 year after the date of the enactment of the Commodity Futures Modernization Act of 2000, the Commission and the Securities and Exchange Commission jointly shall adopt rules or regulations that set forth the requirements under subparagraph (B)(iv). (D) An index that is a narrow-based security index solely because it was a narrow-based security index for more than 45 business days over 3 consecutive calendar months pursuant to clause (iii) of subparagraph (B) shall not be a narrow-based security index for the 3 following calendar months. (E) For purposes of subparagraphs (A) and (B)-- (i) the dollar value of average daily trading volume and the market capitalization shall be calculated as of the preceding 6 full calendar months; and (ii) the Commission and the Securities and Exchange Commission shall, by rule or regulation, jointly specify the method to be used to determine market capitalization and dollar value of average daily trading volume. (36) Option.--The term ``option'' means an agreement, contract, or transaction that is of the character of, or is commonly known to the trade as, an ``option'', ``privilege'', ``indemnity'', ``bid'', ``offer'', ``put'', ``call'', ``advance guaranty'', or ``decline guaranty''. (37) Organized exchange.--The term ``organized exchange'' means a trading facility that-- (A) permits trading-- (i) by or on behalf of a person that is not an eligible contract participant; or (ii) by persons other than on a principal-to-principal basis; or (B) has adopted (directly or through another nongovernmental entity) rules that-- (i) govern the conduct of participants, other than rules that govern the submission of orders or execution of transactions on the trading facility; and (ii) include disciplinary sanctions other than the exclusion of participants from trading. (38) Person.--The term ``person'' imports the plural or singular, and includes individuals, associations, partnerships, corporations, and trusts. (39) Prudential regulator.--The term ``prudential regulator'' means-- (A) the Board in the case of a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant that is-- (i) a State-chartered bank that is a member of the Federal Reserve System; (ii) a State-chartered branch or agency of a foreign bank; (iii) any foreign bank which does not operate an insured branch; (iv) any organization operating under section 25A of the Federal Reserve Act or having an agreement with the Board under section 225 of the Federal Reserve Act; (v) any bank holding company (as defined in section 2 of the Bank Holding Company Act of 1965 (12 U.S.C. 1841)), any foreign bank (as defined in section 1(b)(7) of the International Banking Act of 1978 (12 U.S.C. 3101(b)(7)) that is treated as a bank holding company under section 8(a) of the International Banking Act of 1978 (12 U.S.C. 3106(a)), and any subsidiary of such a company or foreign bank (other than a subsidiary that is described in subparagraph (A) or (B) or that is required to be registered with the Commission as a swap dealer or major swap participant under this Act or with the Securities and Exchange Commission as a security-based swap dealer or major security-based swap participant); (vi) after the transfer date (as defined in section 311 of the Dodd- Frank Wall Street Reform and Consumer Protection Act), any savings and loan holding company (as defined in section 10 of the Home Owners' Loan Act (12 U.S.C. 1467a)) and any subsidiary of such company (other than a subsidiary that is described in subparagraph (A) or (B) or that is required to be registered as a swap dealer or major swap participant with the Commission under this Act or with the Securities and Exchange Commission as a security- based swap dealer or major security- based swap participant); or (vii) any organization operating under section 25A of the Federal Reserve Act (12U.S.C. 611 et seq.) or having an agreement with the Board under section 25 of the Federal Reserve Act (12 U.S.C. 601 et seq.); (B) the Office of the Comptroller of the Currency in the case of a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant that is-- (i) a national bank; (ii) a federally chartered branch or agency of a foreign bank; or (iii) any Federal savings association; (C) the Federal Deposit Insurance Corporation in the case of a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant that is-- (i) a State-chartered bank that is not a member of the Federal Reserve System; or (ii) any State savings association; (D) the Farm Credit Administration, in the case of a swap dealer, major swap participant, security-based swap dealer, or major security- based swap participant that is an institution chartered under the Farm Credit Act of 1971 (12 U.S.C. 2001 et seq.); and (E) the Federal Housing Finance Agency in the case of a swap dealer, major swap participant, security-based swap dealer, or major security- based swap participant that is a regulated entity (as such term is defined in section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992). (40) Registered entity.--The term ``registered entity'' means-- (A) a board of trade designated as a contract market under section 5; (B) a derivatives clearing organization registered under section 5b; (C) a board of trade designated as a contract market under section 5f; (D) a swap execution facility registered under section 5h; (E) a swap data repository registered under section 21; and (F) with respect to a contract that the Commission determines is a significant price discovery contract, any electronic trading facility on which the contract is executed or traded. (41) Security.--The term ``security'' means a security as defined in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(10)). (42) Security-based swap.--The term ``security-based swap'' has the meaning given the term in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)). (43) Security-based swap dealer.--The term ``security-based swap dealer'' has the meaning given the term in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)). (44) Security future.--The term ``security future'' means a contract of sale for future delivery of a single security or of a narrow-based security index, including any interest therein or based on the value thereof, except an exempted security under section 3(a)(12) of the Securities Exchange Act of 1934 as in effect on the date of the 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 as in effect on the date of the enactment of the Futures Trading Act of 1982). The term ``security future'' does not include any agreement, contract, or transaction excluded from this Act under section 2(c), 2(d), 2(f), or 2(g) of this Act (as in effect on the date of the enactment of the Commodity Futures Modernization Act of 2000) or title IV of the Commodity Futures Modernization Act of 2000. (45) Security futures product.--The term ``security futures product'' means a security future or any put, call, straddle, option, or privilege on any security future. (46) Significant price discovery contract.--The term ``significant price discovery contract'' means an agreement, contract, or transaction subject to section 2(h)(5). (47) Swap.-- (A) In general.--Except as provided in subparagraph (B), the term ``swap'' means any agreement, contract, or transaction-- (i) that is a put, call, cap, floor, collar, or similar option of any kind that is for the purchase or sale, or based on the value, of 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind; (ii) that provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence; (iii) that provides on an executory basis for the exchange, on a fixed or contingent basis, of 1 or more payments based on the value or level of 1 or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and that transfers, as between the parties to the transaction, in whole or in part, the financial risk associated with a future change in any such value or level without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred, including any agreement, contract, or transaction commonly known as-- (I) an interest rate swap; (II) a rate floor; (III) a rate cap; (IV) a rate collar; (V) a cross-currency rate swap; (VI) a basis swap; (VII) a currency swap; (VIII) a foreign exchange swap; (IX) a total return swap; (X) an equity index swap; (XI) an equity swap; (XII) a debt index swap; (XIII) a debt swap; (XIV) a credit spread; (XV) a credit default swap; (XVI) a credit swap; (XVII) a weather swap; (XVIII) an energy swap; (XIX) a metal swap; (XX) an agricultural swap; (XXI) an emissions swap; [and] (XXII) a commodity swap; and (XXIII) a utility operations- related swap; (iv) that is an agreement, contract, or transaction that is, or in the future becomes, commonly known to the trade as a swap; (v) including any security-based swap agreement which meets the definition of ``swap agreement'' as defined in section 206A of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note) of which a material term is based on the price, yield, value, or volatility of any security or any group or index of securities, or any interest therein; or (vi) that is any combination or permutation of, or option on, any agreement, contract, or transaction described in any of clauses (i) through (v). (B) Exclusions.--The term ``swap'' does not include-- (i) any contract of sale of a commodity for future delivery (or option on such a contract), leverage contract authorized under section 19, security futures product, or agreement, contract, or transaction described in section 2(c)(2)(C)(i) or section 2(c)(2)(D)(i); (ii) any sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled; (iii) any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities, including any interest therein or based on the value thereof, that is subject to-- (I) the Securities Act of 1933 (15 U.S.C. 77a et seq.); and (II) the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); (iv) any put, call, straddle, option, or privilege relating to a foreign currency entered into on a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); (v) any agreement, contract, or transaction providing for the purchase or sale of 1 or more securities on a fixed basis that is subject to-- (I) the Securities Act of 1933 (15 U.S.C. 77a et seq.); and (II) the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); (vi) any agreement, contract, or transaction providing for the purchase or sale of 1 or more securities on a contingent basis that is subject to the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), unless the agreement, contract, or transaction predicates the purchase or sale on the occurrence of a bona fide contingency that might reasonably be expected to affect or be affected by the creditworthiness of a party other than a party to the agreement, contract, or transaction; (vii) any note, bond, or evidence of indebtedness that is a security, as defined in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)); (viii) any agreement, contract, or transaction that is-- (I) based on a security; and (II) entered into directly or through an underwriter (as defined in section 2(a)(11) of the Securities Act of 1933 (15 U.S.C. 77b(a)(11)) by the issuer of such security for the purposes of raising capital, unless the agreement, contract, or transaction is entered into to manage a risk associated with capital raising; (ix) any agreement, contract, or transaction a counterparty of which is a Federal Reserve bank, the Federal Government, or a Federal agency that is expressly backed by the full faith and credit of the United States; and (x) any security-based swap, other than a security-based swap as described in subparagraph (D). (C) Rule of construction regarding master agreements.-- (i) In general.--Except as provided in clause (ii), the term ``swap'' includes a master agreement that provides for an agreement, contract, or transaction that is a swap under subparagraph (A), together with each supplement to any master agreement, without regard to whether the master agreement contains an agreement, contract, or transaction that is not a swap pursuant to subparagraph (A). (ii) Exception.--For purposes of clause (i), the master agreement shall be considered to be a swap only with respect to each agreement, contract, or transaction covered by the master agreement that is a swap pursuant to subparagraph (A). (D) Mixed swap.--The term ``security-based swap'' includes any agreement, contract, or transaction that is as described in section 3(a)(68)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(68)(A)) and also is based on the value of 1 or more interest or other rates, currencies, commodities, instruments of indebtedness, indices, quantitative measures, other financial or economic interest or property of any kind (other than a single security or a narrow-based security index), or the occurrence, non- occurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence (other than an event described in subparagraph (A)(iii)). (E) Treatment of foreign exchange swaps and forwards.-- (i) In general.--Foreign exchange swaps and foreign exchange forwards shall be considered swaps under this paragraph unless the Secretary makes a written determination under section 1b that either foreign exchange swaps or foreign exchange forwards or both-- (I) should be not be regulated as swaps under this Act; and (II) are not structured to evade the Dodd-Frank Wall Street Reform and Consumer Protection Act in violation of any rule promulgated by the Commission pursuant to section 721(c) of that Act. (ii) Congressional notice; effectiveness.--The Secretary shall submit any written determination under clause (i) to the appropriate committees of Congress, including the Committee on Agriculture, Nutrition, and Forestry of the Senate and the Committee on Agriculture of the House of Representatives. Any such written determination by the Secretary shall not be effective until it is submitted to the appropriate committees of Congress. (iii) Reporting.--Notwithstanding a written determination by the Secretary under clause (i), all foreign exchange swaps and foreign exchange forwards shall be reported to either a swap data repository, or, if there is no swap data repository that would accept such swaps or forwards, to the Commission pursuant to section 4r within such time period as the Commission may by rule or regulation prescribe. (iv) Business standards.-- Notwithstanding a written determination by the Secretary pursuant to clause (i), any party to a foreign exchange swap or forward that is a swap dealer or major swap participant shall conform to the business conduct standards contained in section 4s(h). (v) Secretary.--For purposes of this subparagraph, the term ``Secretary'' means the Secretary of the Treasury. (F) Exception for certain foreign exchange swaps and forwards.-- (i) Registered entities.--Any foreign exchange swap and any foreign exchange forward that is listed and traded on or subject to the rules of a designated contract market or a swap execution facility, or that is cleared by a derivatives clearing organization, shall not be exempt from any provision of this Act or amendments made by the Wall Street Transparency and Accountability Act of 2010 prohibiting fraud or manipulation. (ii) Retail transactions.--Nothing in subparagraph (E) shall affect, or be construed to affect, the applicability of this Act or the jurisdiction of the Commission with respect to agreements, contracts, or transactions in foreign currency pursuant to section 2(c)(2). (48) Swap data repository.--The term ``swap data repository'' means any person that collects and maintains information or records with respect to transactions or positions in, or the terms and conditions of, swaps entered into by third parties for the purpose of providing a centralized recordkeeping facility for swaps. (49) Swap dealer.-- (A) 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 the person to be commonly known in the trade as a dealer or market maker in swaps, provided however, in no event shall an insured depository institution be considered to be a swap dealer to the extent it offers to enter into a swap with a customer in connection with originating a loan with that customer. (B) Inclusion.--A person may be designated as a swap dealer for a single type or single class or category of swap or activities and considered not to be a swap dealer for other types, classes, or categories of swaps or activities. (C) 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 a regular business. (D) De minimis exception.--The Commission shall exempt from designation as a swap dealer an entity that engages in a de minimis quantity of swap dealing in connection with transactions with or on behalf of its customers. The Commission shall promulgate regulations to establish factors with respect to the making of this determination to exempt. (E) Certain transactions with a utility special entity.-- (i) Transactions in utility operations-related swaps shall be reported pursuant to section 4r. (ii) In making a determination to exempt pursuant to subparagraph (D), the Commission shall treat a utility operations-related swap entered into with a utility special entity, as defined in section 4s(h)(2)(D), as if it were entered into with an entity that is not a special entity, as defined in section 4s(h)(2)(C). (50) Swap execution facility.--The term ``swap execution facility'' means a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility, that-- (A) facilitates the execution of swaps between persons; and (B) is not a designated contract market. (51) Trading facility.-- (A) In general.--The term ``trading facility'' means a person or group of persons that constitutes, maintains, or provides a physical or electronic facility or system in which multiple participants have the ability to execute or trade agreements, contracts, or transactions-- (i) by accepting bids or offers made by other participants that are open to multiple partipants in the facility or system; or (ii) through the interaction of multiple bids or multiple offers within a system with a pre-determined non- discretionary automated trade matching and execution algorithm. (B) Exclusions.--The term ``trading facility'' does not include-- (i) a person or group of persons solely because the person or group of persons constitutes, maintains, or provides an electronic facility or system that enables participants to negotiate the terms of and enter into bilateral transactions as a result of communications exchanged by the parties and not from interaction of multiple bids and multiple offers within a predetermined, nondiscretionary automated trade matching and execution algorithm; (ii) a government securities dealer or government securities broker, to the extent that the dealer or broker executes or trades agreements, contracts, or transactions in government securities, or assists persons in communicating about, negotiating, entering into, executing, or trading an agreement, contract, or transaction in government securities (as the terms ``government securities dealer'', ``government securities broker'', and ``government securities'' are defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))); or (iii) facilities on which bids and offers, and acceptances of bids and offers effected on the facility, are not binding. Any person, group of persons, dealer, broker, or facility described in clause (i) or (ii) is excluded from the meaning of the term ``trading facility'' for the purposes of this Act without any prior specific approval, certification, or other action by the Commission. (C) Special rule.--A person or group of persons that would not otherwise constitute a trading facility shall not be considered to be a trading facility solely as a result of the submission to a derivatives clearing organization of transactions executed on or through the person or group of persons. (52) Utility operations-related swap.--The term ``utility operations-related swap'' means a swap that-- (A) is entered into to hedge or mitigate a commercial risk; (B) is not a contract, agreement, or transaction based on, derived on, or referencing-- (i) an interest rate, credit, equity, or currency asset class; or (ii) a metal, agricultural commodity, or crude oil or gasoline commodity of any grade, except as used as fuel for electric energy generation; and (C) is associated with-- (i) the generation, production, purchase, or sale of natural gas or electric energy, the supply of natural gas or electric energy to a utility, or the delivery of natural gas or electric energy service to utility customers; (ii) all fuel supply for the facilities or operations of a utility; (iii) compliance with an electric system reliability obligation; (iv) compliance with an energy, energy efficiency, conservation, or renewable energy or environmental statute, regulation, or government order applicable to a utility; or (v) any other electric energy or natural gas swap to which a utility is a party. * * * * * * * SEC. 4S. REGISTRATION AND REGULATION OF SWAP DEALERS AND MAJOR SWAP PARTICIPANTS. (a) Registration.-- (1) Swap dealers.--It shall be unlawful for any person to act as a swap dealer unless the person is registered as a swap dealer with the Commission. (2) Major swap participants.--It shall be unlawful for any person to act as a major swap participant unless the person is registered as a major swap participant with the Commission. (b) Requirements.-- (1) In general.--A person shall register as a swap dealer or major swap participant by filing a registration application with the Commission. (2) Contents.-- (A) In general.--The application shall be made in such form and manner as prescribed by the Commission, and shall contain such information, as the Commission considers necessary concerning the business in which the applicant is or will be engaged. (B) Continual reporting.--A person that is registered as a swap dealer or major swap participant shall continue to submit to the Commission reports that contain such information pertaining to the business of the person as the Commission may require. (3) Expiration.--Each registration under this section shall expire at such time as the Commission may prescribe by rule or regulation. (4) Rules.--Except as provided in subsections (d) and (e), the Commission may prescribe rules applicable to swap dealers and major swap participants, including rules that limit the activities of swap dealers and major swap participants. (5) Transition.--Rules under this section shall provide for the registration of swap dealers and major swap participants not later than 1 year after the date of enactment of the Wall Street Transparency and Accountability Act of 2010. (6) Statutory disqualification.--Except to the extent otherwise specifically provided by rule, regulation, or order, it shall be unlawful for a swap dealer or a major swap participant to permit any person associated with a swap dealer or a major swap participant who is subject to a statutory disqualification to effect or be involved in effecting swaps on behalf of the swap dealer or major swap participant, if the swap dealer or major swap participant knew, or in the exercise of reasonable care should have known, of the statutory disqualification. (c) Dual Registration.-- (1) Swap dealer.--Any person that is required to be registered as a swap dealer under this section shall register with the Commission regardless of whether the person also is a depository institution or is registered with the Securities and Exchange Commission as a security-based swap dealer. (2) Major swap participant.--Any person that is required to be registered as a major swap participant under this section shall register with the Commission regardless of whether the person also is a depository institution or is registered with the Securities and Exchange Commission as a major security-based swap participant. (d) Rulemakings.-- (1) In general.--The Commission shall adopt rules for persons that are registered as swap dealers or major swap participants under this section. (2) Exception for prudential requirements.-- (A) In general.--The Commission may not prescribe rules imposing prudential requirements on swap dealers or major swap participants for which there is a prudential regulator. (B) Applicability.--Subparagraph (A) does not limit the authority of the Commission to prescribe rules as directed under this section. (e) Capital and Margin Requirements.-- (1) In general.-- (A) Swap dealers and major swap participants that are banks.--Each registered swap dealer and major swap participant for which there is a prudential regulator shall meet such minimum capital requirements and minimum initial and variation margin requirements as the prudential regulator shall by rule or regulation prescribe under paragraph (2)(A). (B) Swap dealers and major swap participants that are not banks.--Each registered swap dealer and major swap participant for which there is not a prudential regulator shall meet such minimum capital requirements and minimum initial and variation margin requirements as the Commission shall by rule or regulation prescribe under paragraph (2)(B). (2) Rules.-- (A) Swap dealers and major swap participants that are banks.--The prudential regulators, in consultation with the Commission and the Securities and Exchange Commission, shall jointly adopt rules for swap dealers and major swap participants, with respect to their activities as a swap dealer or major swap participant, for which there is a prudential regulator imposing-- (i) capital requirements; and (ii) both initial and variation margin requirements on all swaps that are not cleared by a registered derivatives clearing organization. (B) Swap dealers and major swap participants that are not banks.--The Commission shall adopt rules for swap dealers and major swap participants, with respect to their activities as a swap dealer or major swap participant, for which there is not a prudential regulator imposing-- (i) capital requirements; and (ii) both initial and variation margin requirements on all swaps that are not cleared by a registered derivatives clearing organization. (C) Capital.--In setting capital requirements for a person that is designated as a swap dealer or a major swap participant for a single type or single class or category of swap or activities, the prudential regulator and the Commission shall take into account the risks associated with other types of swaps or classes of swaps or categories of swaps engaged in and the other activities conducted by that person that are not otherwise subject to regulation applicable to that person by virtue of the status of the person as a swap dealer or a major swap participant. (3) Standards for capital and margin.-- (A) In general.--To offset the greater risk to the swap dealer or major swap participant and the financial system arising from the use of swaps that are not cleared, the requirements imposed under paragraph (2) shall-- (i) help ensure the safety and soundness of the swap dealer or major swap participant; and (ii) be appropriate for the risk associated with the non-cleared swaps held as a swap dealer or major swap participant. (B) Rule of construction.-- (i) In general.--Nothing in this section shall limit, or be construed to limit, the authority-- (I) of the Commission to set financial responsibility rules for a futures commission merchant or introducing broker registered pursuant to section 4f(a) (except for section 4f(a)(3)) in accordance with section 4f(b); or (II) of the Securities and Exchange Commission to set financial responsibility rules for a broker or dealer registered pursuant to section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) (except for section 15(b)(11) of that Act (15 U.S.C. 78o(b)(11)) in accordance with section 15(c)(3) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(c)(3)). (ii) Futures commission merchants and other dealers.--A futures commission merchant, introducing broker, broker, or dealer shall maintain sufficient capital to comply with the stricter of any applicable capital requirements to which such futures commission merchant, introducing broker, broker, or dealer is subject to under this Act or the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). (C) Margin requirements.--In prescribing margin requirements under this subsection, the prudential regulator with respect to swap dealers and major swap participants for which it is the prudential regulator and the Commission with respect to swap dealers and major swap participants for which there is no prudential regulator shall permit the use of noncash collateral, as the regulator or the Commission determines to be consistent with-- (i) preserving the financial integrity of markets trading swaps; and (ii) preserving the stability of the United States financial system. (D) Comparability of capital and margin requirements.-- (i) In general.--The prudential regulators, the Commission, and the Securities and Exchange Commission shall periodically (but not less frequently than annually) consult on minimum capital requirements and minimum initial and variation margin requirements. (ii) Comparability.--The entities described in clause (i) shall, to the maximum extent practicable, establish and maintain comparable minimum capital requirements and minimum initial and variation margin requirements, including the use of non cash collateral, for-- (I) swap dealers; and (II) major swap participants. (f) Reporting and Recordkeeping.-- (1) In general.--Each registered swap dealer and major swap participant-- (A) shall make such reports as are required by the Commission by rule or regulation regarding the transactions and positions and financial condition of the registered swap dealer or major swap participant; (B)(i) for which there is a prudential regulator, shall keep books and records of all activities related to the business as a swap dealer or major swap participant in such form and manner and for such period as may be prescribed by the Commission by rule or regulation; and (ii) for which there is no prudential regulator, shall keep books and records in such form and manner and for such period as may be prescribed by the Commission by rule or regulation; (C) shall keep books and records described in subparagraph (B) open to inspection and examination by any representative of the Commission; and (D) shall keep any such books and records relating to swaps defined in section 1a(47)(A)(v) open to inspection and examination by the Securities and Exchange Commission. (2) Rules.--The Commission shall adopt rules governing reporting and recordkeeping for swap dealers and major swap participants. (g) Daily Trading Records.-- (1) In general.--Each registered swap dealer and major swap participant shall maintain daily trading records of the swaps of the registered swap dealer and major swap participant and all related records (including related cash or forward transactions) and recorded communications, including electronic mail, instant messages, and recordings of telephone calls, for such period as may be required by the Commission by rule or regulation. (2) Information requirements.--The daily trading records shall include such information as the Commission shall require by rule or regulation. (3) Counterparty records.--Each registered swap dealer and major swap participant shall maintain daily trading records for each counterparty in a manner and form that is identifiable with each swap transaction. (4) Audit trail.--Each registered swap dealer and major swap participant shall maintain a complete audit trail for conducting comprehensive and accurate trade reconstructions. (5) Rules.--The Commission shall adopt rules governing daily trading records for swap dealers and major swap participants. (h) Business Conduct Standards.-- (1) In general.--Each registered swap dealer and major swap participant shall conform with such business conduct standards as prescribed in paragraph (3) and as may be prescribed by the Commission by rule or regulation that relate to-- (A) fraud, manipulation, and other abusive practices involving swaps (including swaps that are offered but not entered into); (B) diligent supervision of the business of the registered swap dealer and major swap participant; (C) adherence to all applicable position limits; and (D) such other matters as the Commission determines to be appropriate. (2) Responsibilities with respect to special entities.-- (A) Advising special entities.--A swap dealer or major swap participant that acts as an advisor to a special entity regarding a swap shall comply with the requirements of subparagraph (4) with respect to such Special Entity. (B) Entering of swaps with respect to special entities.--A swap dealer that enters into or offers to enter into swap with a Special Entity shall comply with the requirements of subparagraph (5) with respect to such Special Entity. (C) Special entity defined.--For purposes of this subsection, the term ``special entity'' means-- (i) a Federal agency; (ii) a State, State agency, city, county, municipality, or other political subdivision of a State; (iii) any employee benefit plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002); (iv) any governmental plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002); or (v) any endowment, including an endowment that is an organization described in section 501(c)(3) of the Internal Revenue Code of 1986. (D) Utility special entity.--For purposes of this Act, the term ``utility special entity'' means a special entity, or any instrumentality, department, or corporation of or established by a State or political subdivision of a State, that-- (i) owns or operates an electric or natural gas facility or an electric or natural gas operation; (ii) supplies natural gas and or electric energy to another utility special entity; (iii) has public service obligations under Federal, State, or local law or regulation to deliver electric energy or natural gas service to customers; or (iv) is a Federal power marketing agency, as defined in section 3 of the Federal Power Act. (3) Business conduct requirements.--Business conduct requirements adopted by the Commission shall-- (A) establish a duty for a swap dealer or major swap participant to verify that any counterparty meets the eligibility standards for an eligible contract participant; (B) require disclosure by the swap dealer or major swap participant to any counterparty to the transaction (other than a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant) of-- (i) information about the material risks and characteristics of the swap; (ii) any material incentives or conflicts of interest that the swap dealer or major swap participant may have in connection with the swap; and (iii)(I) for cleared swaps, upon the request of the counterparty, receipt of the daily mark of the transaction from the appropriate derivatives clearing organization; and (II) for uncleared swaps, receipt of the daily mark of the transaction from the swap dealer or the major swap participant; (C) establish a duty for a swap dealer or major swap participant to communicate in a fair and balanced manner based on principles of fair dealing and good faith; and (D) establish such other standards and requirements as the Commission may determine are appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act. (4) Special requirements for swap dealers acting as advisors.-- (A) In general.--It shall be unlawful for a swap dealer or major swap participant-- (i) to employ any device, scheme, or artifice to defraud any Special Entity or prospective customer who is a Special Entity; (ii) to engage in any transaction, practice, or course of business that operates as a fraud or deceit on any Special Entity or prospective customer who is a Special Entity; or (iii) to engage in any act, practice, or course of business that is fraudulent, deceptive or manipulative. (B) Duty.--Any swap dealer that acts as an advisor to a Special Entity shall have a duty to act in the best interests of the Special Entity. (C) Reasonable efforts.--Any swap dealer that acts as an advisor to a Special Entity shall make reasonable efforts to obtain such information as is necessary to make a reasonable determination that any swap recommended by the swap dealer is in the best interests of the Special Entity, including information relating to-- (i) the financial status of the Special Entity; (ii) the tax status of the Special Entity; (iii) the investment or financing objectives of the Special Entity; and (iv) any other information that the Commission may prescribe by rule or regulation. (5) Special requirements for swap dealers as counterparties to special entities.-- (A) Any swap dealer or major swap participant that offers to enter or enters into a swap with a Special Entity shall-- (i) comply with any duty established by the Commission for a swap dealer or major swap participant, with respect to a counterparty that is an eligible contract participant within the meaning of subclause (I) or (II) of clause (vii) of section 1a(18) of this Act, that requires the swap dealer or major swap participant to have a reasonable basis to believe that the counterparty that is a Special Entity has an independent representative that-- (I) has sufficient knowledge to evaluate the transaction and risks; (II) is not subject to a statutory disqualification; (III) is independent of the swap dealer or major swap participant; (IV) undertakes a duty to act in the best interests of the counterparty it represents; (V) makes appropriate disclosures; (VI) will provide written representations to the Special Entity regarding fair pricing and the appropriateness of the transaction; and (VII) in the case of employee benefit plans subject to the Employee Retirement Income Security act of 1974, is a fiduciary as defined in section 3 of that Act (29 U.S.C. 1002); and (ii) before the initiation of the transaction, disclose to the Special Entity in writing the capacity in which the swap dealer is acting; and (B) the Commission may establish such other standards and requirements as the Commission may determine are appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act. (6) Rules.--The Commission shall prescribe rules under this subsection governing business conduct standards for swap dealers and major swap participants. (7) Applicability.--This section shall not apply with respect to a transaction that is-- (A) initiated by a Special Entity on an exchange or swap execution facility; and (B) one in which the swap dealer or major swap participant does not know the identity of the counterparty to the transaction. (i) Documentation Standards.-- (1) In general.--Each registered swap dealer and major swap participant shall conform with such standards as may be prescribed by the Commission by rule or regulation that relate to timely and accurate confirmation, processing, netting, documentation, and valuation of all swaps. (2) Rules.--The Commission shall adopt rules governing documentation standards for swap dealers and major swap participants. (j) Duties.--Each registered swap dealer and major swap participant at all times shall comply with the following requirements: (1) Monitoring of trading.--The swap dealer or major swap participant shall monitor its trading in swaps to prevent violations of applicable position limits. (2) Risk management procedures.--The swap dealer or major swap participant shall establish robust and professional risk management systems adequate for managing the day-to-day business of the swap dealer or major swap participant. (3) Disclosure of general information.--The swap dealer or major swap participant shall disclose to the Commission and to the prudential regulator for the swap dealer or major swap participant, as applicable, information concerning-- (A) terms and conditions of its swaps; (B) swap trading operations, mechanisms, and practices; (C) financial integrity protections relating to swaps; and (D) other information relevant to its trading in swaps. (4) Ability to obtain information.--The swap dealer or major swap participant shall-- (A) establish and enforce internal systems and procedures to obtain any necessary information to perform any of the functions described in this section; and (B) provide the information to the Commission and to the prudential regulator for the swap dealer or major swap participant, as applicable, on request. (5) Conflicts of interest.--The swap dealer and major swap participant shall implement conflict-of-interest systems and procedures that-- (A) establish structural and institutional safeguards to ensure that the activities of any person within the firm relating to research or analysis of the price or market for any commodity or swap or acting in a role of providing clearing activities or making determinations as to accepting clearing customers are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of persons whose involvement in pricing, trading, or clearing activities might potentially bias their judgment or supervision and contravene the core principles of open access and the business conduct standards described in this Act; and (B) address such other issues as the Commission determines to be appropriate. (6) Antitrust considerations.--Unless necessary or appropriate to achieve the purposes of this Act, a swap dealer or major swap participant shall not-- (A) adopt any process or take any action that results in any unreasonable restraint of trade; or (B) impose any material anticompetitive burden on trading or clearing. (7) Rules.--The Commission shall prescribe rules under this subsection governing duties of swap dealers and major swap participants. (k) Designation of Chief Compliance Officer.-- (1) In general.--Each swap dealer and major swap participant shall designate an individual to serve as a chief compliance officer. (2) Duties.--The chief compliance officer shall-- (A) report directly to the board or to the senior officer of the swap dealer or major swap participant; (B) review the compliance of the swap dealer or major swap participant with respect to the swap dealer and major swap participant requirements described in this section; (C) in consultation with the board of directors, a body performing a function similar to the board, or the senior officer of the organization, resolve any conflicts of interest that may arise; (D) be responsible for administering each policy and procedure that is required to be established pursuant to this section; (E) ensure compliance with this Act (including regulations) relating to swaps, including each rule prescribed by the Commission under this section; (F) establish procedures for the remediation of noncompliance issues identified by the chief compliance officer through any-- (i) compliance office review; (ii) look-back; (iii) internal or external audit finding; (iv) self-reported error; or (v) validated complaint; and (G) establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues. (3) Annual reports.-- (A) In general.--In accordance with rules prescribed by the Commission, the chief compliance officer shall annually prepare and sign a report that contains a description of-- (i) the compliance of the swap dealer or major swap participant with respect to this Act (including regulations); and (ii) each policy and procedure of the swap dealer or major swap participant of the chief compliance officer (including the code of ethics and conflict of interest policies). (B) Requirements.--A compliance report under subparagraph (A) shall-- (i) accompany each appropriate financial report of the swap dealer or major swap participant that is required to be furnished to the Commission pursuant to this section; and (ii) include a certification that, under penalty of law, the compliance report is accurate and complete. (l) Segregation Requirements.-- (1) Segregation of assets held as collateral in uncleared swap transactions.-- (A) Notification.--A swap dealer or major swap participant shall be required to notify the counterparty of the swap dealer or major swap participant at the beginning of a swap transaction that the counterparty has the right to require segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty. (B) Segregation and maintenance of funds.--At the request of a counterparty to a swap that provides funds or other property to a swap dealer or major swap participant to margin, guarantee, or secure the obligations of the counterparty, the swap dealer or major swap participant shall-- (i) segregate the funds or other property for the benefit of the counterparty; and (ii) in accordance with such rules and regulations as the Commission may promulgate, maintain the funds or other property in a segregated account separate from the assets and other interests of the swap dealer or major swap participant. (2) Applicability.--The requirements described in paragraph (1) shall-- (A) apply only to a swap between a counterparty and a swap dealer or major swap participant that is not submitted for clearing to a derivatives clearing organization; and (B)(i) not apply to variation margin payments; or (ii) not preclude any commercial arrangement regarding-- (I) the investment of segregated funds or other property that may only be invested in such investments as the Commission may permit by rule or regulation; and (II) the related allocation of gains and losses resulting from any investment of the segregated funds or other property. (3) Use of independent third-party custodians.--The segregated account described in paragraph (1) shall be-- (A) carried by an independent third-party custodian; and (B) designated as a segregated account for and on behalf of the counterparty. (4) Reporting requirement.--If the counterparty does not choose to require segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty, the swap dealer or major swap participant shall report to the counterparty of the swap dealer or major swap participant on a quarterly basis that the back office procedures of the swap dealer or major swap participant relating to margin and collateral requirements are in compliance with the agreement of the counterparties. * * * * * * *