[StBernard] Frank Announces House Offer on Derivatives

[Westley Annis]

Frank Announces House Offer on Derivatives

 

Washington, DC – Chairman Frank, on behalf of the House conferees, released
the House offer on the title listed below.  The title will be subject to
debate when the House-Senate Conference Committee convenes in room SD-106,
Dirksen Senate Office Building, at 9:30 a.m. tomorrow.

 

Title VII: Wall Street Transparency and Accountability (Official legislative
language will be available here
<http://financialservices.house.gov/Key_Issues/Financial_Regulatory_Reform/F
inancial_Regulatory_Reform020210.html>  later this afternoon)

 

 The House proposes the following amendments to the Base text: 

 

*        Amend base text to specifically reference CFTC authority to
interpret definitions (Base text § 711, Page 599, line 3). 

 

*        Strike base text provision on regulatory consultation and replace
with House provision (with minor revisions) and appropriate conforming
changes (Base text §712, page 599, line 5-18; House bill §3002, page 558
through 559 line 18). 

 

*        Strike base text provision regarding mixed swaps regulation (Base
text §712, page 601, lines 12-20; §721, page 648, line 1-16) 

 

*        Strike base text provision allowing futures associations and
national securities associations to enforce rules on advertising (Base text
§712, page 604 lines 1 and 15) 

 

*        Strike base text provision that is duplicated on pages 736 and 950
(Base text §712, page 606, line 22 through page 607, line 17) 

 

*        Add House provision that requires maintenance of records and
information sharing with the CFTC and SEC for all uncleared security based
swap agreements. The provision names the Financial Services Oversight
Council as the resolver of disputes between the CFTC and SEC in joint
rulemaking for security based swap agreements. (Base text § 712, page 607
and House bill § 3002, page 563-564) 

 

*        Replace base text provision regarding portfolio margining for
certain brokers, dealers and futures commission merchants, and appropriate
conforming changes (new §713, page 608 line 17 through page 609 line 2). 

 

*        Add provision that allows the CFTC and SEC to prepare in advance of
the effective date in regards to rules, regulations, studies, etc. (Base
text §712 , page 608, line 16) 

 

*        Add House studies on (1) the effects of position limits on trading
exchanges, (2) the feasibility of requiring the use of standardized
algorithmic descriptions for financial derivatives, (3) international swaps
regulation, and (4) the application of swaps definition to stable value
funds. The provision also adds a memorandum of understanding between the
CFTC and the Federal Energy Regulatory Commission. (House bill §3005, page
566, line 7 through page 569 line 24 and § 3009). 

 

*        Strike base text provision and replace with House provision for
associated person of a swap dealer or major participant (Base text §721,
page 622, line 24 through page 623 line 13) 

 

*        Strike base text provision that excludes employee pension plans
from the definition of major swap participant (Base text §721, page 636) 

 

*        Strikes base text provision and replaces with new provision that
qualifies “highly leveraged financial entities” as those that are not
subject to capital requirements set by a federal banking regulator in
definition of major swap participant. (Base text §721, page 637, line 8) 

 

*        Add House provision requiring CFTC to consider a person’s relative
position in uncleared as opposed to cleared swaps in determining
“substantial position.” Gives the regulator the authority to consider
collateral position of major swap participants. (Base text §721, page 637,
line 20; House bill §3101, page 585 line 10-11). 

 

*        Amend base text provision defining “prudential regulator” with
modified House provision (Base text §721, page 638, line 7 through page 639,
line 15; House bill §3101 page 585, line 24 through page 586, line 21 and
page 703, line 14 through page 704, line 11) 

 

*        Add provision that includes Federal Housing Finance Agency in the
definition of “prudential regulator” (Base text §721, page 639, line 21), 

 

*        Strike base text provision defining mixed swap (Base text §721,
page 648, lines 1-16) 

 

*        Strike base text provision that treats foreign exchange as swaps
and forwards (Base text text §721, page 648 line 17 through page 651, line
11) 

 

*        Amend base text provision for definition of swap data repository
(Base text §721, page 651, line 14-17) 

 

*        Amend base text provision for definition of swap dealer (Base text
§721, page 652, line 1) 

 

*        Amend base text provision definition of “swap dealer”, providing
for a de minimis exception, and appropriate conforming changes (Base text
§721, page 652, line 18). 

 

*        Add language to adjust swap execution facility definition (Base
text §721, page 652, line 21 and lines 23-24) 

 

*        Strike base text provision and replace with House provision
regarding CFTC and FERC jurisdiction and replace with House provision
regarding same (Base text §722, page 659, line 16 through page 661, line 13;
House bill §3102, page 591, line 11 through page 592 line 2). 

 

*        Strike base text provision relating to clearing requirements and
replace with House provision with modifications (including treatment for end
users, affiliates, and small institutions) (Base text §721, page 663, line
25 through page 681, line 8; House bill §3103, page 595 line 15 through page
604, line 24). 

 

*        Amend base text provision to recognize that not all issuers will
have audit committees and may rely on the appropriate committee of the
issuer’s board or governing body with appropriate conforming changes (Base
text §723, page 681, lines 20-21). 


 

*        Strike base text provision requiring CFTC registration of
depository institutions and clearing agencies (Base text §725, page 693,
lines 3-12). 

 

*        Add provision to require the SEC to share information with the CFTC
regarding clearing agencies that are deemed to be registered with the CFTC
(Base text §725, page 694, line 9). 

 

*        Amend base text provision regarding derivatives clearing
organizations’ governance arrangements to permit the consideration of the
views of owners and participants (Base text §725, page 710, line 23). 

 

*        Strike base text provision giving CFTC ability to modify core
principles (Base text §725 page 712, lines 12-16). 

 

*        Amend base text to conform statutory references in the Commodity
Exchange Act (Base text §725, page 714, lines 1-2, etc.) 

 

*        Amend base text to make derivatives clearing organization reports
on security-based swap agreements open to inspection and examination by the
SEC. (Base text §725, page 714, line 3) 

 

*        Add provision to clarify that a derivatives clearing organization
will not be compelled to accept the counterparty credit risk of another
clearing organization (Base text §725, page 719, line 9). 

 

*        Strike base text provision that is duplicative with paragraph (7)
on page 728 relating to information sharing by swap data repositories (Base
text §728, page 726, line 17 through page 727, line 3). 

 

*        Amend base text provision to ensure books and records of large swap
reporters are open to inspection and examination by the SEC for swaps (Base
text §730, page 739, line 13) 

 

*        Amend base text provision to give the Commission authority to write
rules for swap dealers and major swap participants except for rule making
and capital and margin (Base text §731, page 741, line 21-24) 

 

*        Amend base text provision to clarify CFTC authority to prescribe
rules relating to registration and regulation of swap dealers and major swap
participants (§731, page 743, lines 19-21). 

 

*        Amend base text provisions on capital and margin requirements for
swap dealers and major swap participants to delete references to “depository
institution” and replace with references to whether or not there is a
Prudential Regulator and appropriate conforming changes (Base text §731,
page 744, lines 2-5 and lines 15-18). 

 

*        Amend base text provisions referring to “appropriate Federal
banking agency” to refer to “Prudential Regulator” (Base text §731, page
744, lines 7-8; page 750, lines 7, 9-10 and 18-19). 

 

*        Strike base text provision that states that capital and margin
requirements will be set to help ensure the safety and soundness of the swap
dealer or major participant (Base text §731, page 744, line 9-10 and line
23-24) 

 

*        Strike base text provision which names the SEC (along with the
CFTC) to set margin and capital for swap dealers and major swap participants
that a not depository institutions in the Commodities and Exchange Act (Base
text §731, page 744, line 20-21) 

 

*        Strike base text and replace with revised House provision regarding
risk-based capital and margin standards with appropriate conforming changes
(Base text §731, page 745, line 1 through page 747, line 16; House bill §
3107, page 634, line 19 through page 637, line 2). 

 

*        Strike base text provision for margin to eliminate redundancy (Base
text §731, page 748, line 25 through page 750, line 2) 

 

*        Amend base text provision to require regulators to permit the use
of non-cash collateral to meet margin requirements (§731, page 750, line 9).


 

*        Strikes base text provision for requested margin (Base text §731,
page 751, line 10 through page 752, line 4) 

 

*        Add provision that each swap dealer and major swap participant
shall keep books and records related to open to inspection and examination
by the SEC (Base text §731, page 753, line 4) 

 

*        Amend Base text provision to establish a standard of conduct for
swap dealers and major swap participants when providing advice to state
entities and pension funds. The provision also establishes business conduct
and disclosure standards for counterparties. (Base text §731 page 754, line
8) 

 

*        Add provision requiring the Commission to prescribe rules governing
the duties of swap dealers and major swap participants (Base text § 731,
page 761, line 11). 

 

*        Amend base text provision Requiring futures commission merchants to
have a Chief Compliance Officer responsible for performing duties and
responsibilities set forth in regulation to be adopted by the CFTC or a
futures association registered under 17 (Base text §732, page 765, line 1
through page 767, line 19). 

 

*        Add provision preventing swap execution facilities from listing
agricultural swaps outside the current regulatory structure with appropriate
conforming changes (Base text §733, page 768, line 16). 

 

*        Add provision clarifying that a swap execution facility is
responsible for enforcing position limits on the swap execution facility
only (not across all swap execution facilities), whether self- or
Commission-imposed, with appropriate conforming changes (§733, page 773,
line 6). 

 

*        Strike base text provision regarding position enforcement for swap
execution facilities. (Base text §733, page 773, line 7-16) 

 

*        Add provision that each swap execution facility shall keep books
and records open to inspection and examination by the SEC (Base text §733,
page 775, line 6) 

 

*        Add provision to provide a transition period for exempt boards of
trade to permit them to continue operating subject to 5d of the Commodity
Exchange Act for up to 1 year after the effective date of the subtitle (Base
text §734, page 781, line 12). 

 

*        Add provision to core principles for designated contract markets to
require publicly traded boards of trade to endeavor to recruit diverse
boards of directors (Base text §735, page 791, line 17). 

 

*        Add House provision, with modifications, setting position limits
(Base text §737, page 793, line 15 through page 796, line 13; House bill
§3113, page 664, line 15 through 671, line 9). 

 

*        Add House provision that requires the Commission to define a bona
fide hedge for exemption from trading positions when determining when
excessive speculation is a burden (Base text §737, page 796, line 24; House
Bill § 3113, page 671, line 20 through page 673, line 8) 

 

*        Add House provision that states that a person can not be liable
under the Act for a transaction with a Foreign Board of Trade if the person
has reason to believe a number of factors, including the FBOT is legally
organized under the laws of a foreign country. (House Bill § 742 page 679,
line 20 through page 680, line 7) 

 

*        Amend base text enforcement authority provision to grant exclusive
authority to the CFTC and Prudential regulator, respectively. (Base text
§741, page 806, line 12-25) 

 

*        Amend Base text provision by replacing “shall” with “may” in
regards to the prudential regulators’ role in notifying the Commission that
a swap dealer or major swap participant may have violated a nonprudential
requirement of the Act (Base text § 741, page 807, line 11) 

 

*        Amend Base text provision and strike a provision to limit the
CFTC’s ability to make shorter delivery requirements and remove a limitation
on the term ‘actual delivery’ (Base text § 742, page 815, line 22 and page
817, line 11-16) 

 

*        Amend Base text provision to provide for a 90-day transition period
for the CFTC to complete its rulemaking in regard to retail foreign
exchange. (House Bill §742, page 819, line 17) 

 

*        Amend Base text provision to require registered entities to provide
notice of certification to its members regarding a new contract or
instrument listed for clearing or accepted for trading (Base text § 745,
page 822, line 21) 

 

*        Add Base text provision to add a public comment period during a
stay of certification for rules. (Base text §745, page 823, line 25) 

 

*        Amend Base text provision to include ‘civil’ actions in the
definition of ‘covered judicial or administrative action.’ (Base text § 748,
page 834, line 13, etc.) 

 

*        Amend Base text provision to make clear that ‘monetary sanctions’
relate only to ‘covered’ judicial or administrative proceedings. (Base text
§ 748, page 834, line 20) 

 

*        Amend base text provision to clarify appellate review of
determination of whistleblower awards (Base text §748, page 840, line 9) 

 

*        Amend Base text provision to provide that appeals of whistleblower
awards are made to the U.S. district court, not to the court of appeals.
(Base text § 748, page 840, line 16) 

 

*        Amend Base text provision to remove an unnecessary reference to the
Administrative Procedure Act (Base text bill § 748, page 840, lines 19-21) 

 

*        Replace Base text provision on confidentiality to provide that only
information revealing a whistleblower’s identity is subject to
confidentiality restrictions, not all information a whistleblower provides.
(Base text bill § 748, page 846, line 10, through page 847, line 8) 

 

*        Amend Base text provision to remove an unnecessary reference to
‘privileged’ (Base text bill § 748, page 848, line 24) 

 

*        Amend Base text provision to remove reference to the United States
criminal code. (Base text § 748, page 850, line 16-17) 

 

*        Amend Base text provision to add swaps to private rights of action
under the Commodities Exchange Act (Base text § 749, page 854 lines 1-3) 

 

*        Strike Base text provision and add House provision for
international harmonization which requires consultation and cooperation
among the CFTC, SEC and Prudential regulators. The CFTC is required to
consult and coordinate with foreign regulatory authorities for standards on
futures. (Base text bill § 752, page 858, lines 5-19 and House bill § 3004,
page 565) 

 

*        Add provision that states that in prohibiting manipulation no rule
shall restrict the ability of a person to hedge or require the disclosure of
non-public information. (Base text § 753, page 859, after line 14) 

 

*        Add provision to clarify that mistakenly transmitting false,
misleading or inaccurate information about a swap to a price reporting
service does not constitute “manipulation” (Base text §753, page 861, line
2) 

 

*        Amend Base text provision to clarify jurisdiction of federal
district courts (Base text §753, page 867, lines 6-7, 11) 

 

*        Strike Base text provision stating that findings of the Commission
shall be conclusive (Base text §753, page 868, lines 11-12) 

 

*        Amend Base text provision to insert “knowingly” before fail to
clarify mens rea standard. (Base text bill § 753, pages 868 and 869) 

 

*        Strike Base text provision automatically making a person guilty of
a misdemeanor for failure to obey or comply with an order of the Commission
(Base text §753, page 869, line 1) 

 

*        Strike Base text provision of “less than 6 months” to remove the
mandatory prison sentence for failing to or refusing to obey or comply with
a cease and desist order. (Base text bill § 753, page 869) 

 

*        Strike Base text provision automatically making a person guilty of
a felony for failure to obey or comply with an order of the Commission (Base
text §753, page 869, line 8) 

 

*        Add provision regarding conflicts of interest and beneficial
ownership of derivatives clearing organizations (Base text §753, page 870,
line 23) 

 

*        Amend base text provision to revise the definition of major
securitiy-based swap participant to delete exclusion for pension funds (§761
page 873, line 21 through page 874, line 8) 

 

*        Strikes base text provision and replaces with new provision that
qualifies “highly leveraged financial entities” as those that are not
subject to capital requirements set by a federal banking regulator in
definition of major swap participant. (Base text §761, page 874, line 18). 

 

*        Add House provision requiring CFTC to consider a person’s relative
position in uncleared as opposed to cleared swaps in determining
“substantial position.” Gives the regulator the authority to consider
collateral position of major swap participants. (Base text §721, page 637,
line 20; House bill §3101, page 585 line 10-11). 

 

*        Amend base text provision to clarify the definition of
security-based swap (Base text §761, page 875, line 23) 

 

*        Strikes base text provision defining mixed swap (Base text §761,
page 877, lien 23 through page 878, line 12) 

 

*        Amend base text provision for definition of swap dealer (Base text
§761, page 880, lines 5-7) 

 

*        Amend base text provision definition of “swap dealer”, providing
for a de minimis exception, and appropriate conforming changes (Base text
§761, page 880, lines 5-7) 

 

*        Amend Base text provision defining “prudential regulator” with
modified House provision (Base text §761, page 881, line 13-16) 

 

*        Amend base text provision that defines of security-based swap data
repository to clarify it applies to entities that are providing a
centralized recordkeeping facility (§ page 881, lines 19-23) 

 

*        Add language to adjust swap execution facility definition (Base
text §761, page 882, line 6 and 8-9) 

 

*        Add provision to permit the SEC to define the term “commercial
risk” and other terms under the Securities Exchange Act (Base text §761,
page 883, line 6) 

 

*        Strike Base text provision incorporating additional terms by
reference (Base text §761, page 883, line 14 through page 884, line 2) 

 

*        Strike base text provision relating to clearing requirements and
replace with House provision with modifications (including treatment for end
users, affiliates, and small institutions) (Base text §763, page 890, line
18 through page 908, line 3) 


 

*        Amend base text provision to recognize that not all issuers will
have audit committees and may rely on the appropriate committee of the
issuer’s board or governing body with appropriate conforming changes (Base
text §763 page 908, lines 10-11) 

 

*        Strike base text provision requiring automatic registration
exemption for derivatives clearing organizations (Base text §763, page 918,
lines 9-24) 

 

*        Add provision to deem as registered with the SEC existing
depository institutions and derivatives clearing organizations already
registered under the CFTC (Base text §763 page 918, line 25) 

 

*        Strike Base text provision which removes the security-based swap
Swap Execution Facility (SEF) position limit core principle (Base text §763,
page 923, line 22 through page 924, line 25) 

 

*        Add provision regarding the segregation requirements for uncleared
swaps to confirm the Commodity Exchange Act and Securities Exchange Act in
the bill. (Base text §763, page 936) 

 

*        Amend base text provision to clarify Commission authority to write
rules for swap dealers and major swap participants (Base text §731, page
741, line 21-24) 

 

*        Amend base text provisions on capital and margin requirements for
swap dealers and major swap participants to delete references to “depository
institution” and replace with references to whether or not there is a
Prudential Regulator and appropriate conforming changes (Base text §764,
page 960, lines 8-11 and lines 8-10). 

 

*        Amend base text provisions referring to “appropriate Federal
banking agency” to refer to “Prudential Regulator” (Base text §764, page
967, lines 5-6, 12, and 21-22. 

 

*        Strike base text and replace with revised House provision regarding
risk-based capital and margin standards with appropriate conforming changes
(Base text §764, page 962, line 2 through page 964, line 22) 

 

*        Strike base text provision for margin to eliminate redundancy (Base
text §764, page 966, line 4 through page 967, line 3) 

 

*        Amend base text provision to require regulators to permit the use
of non-cash collateral to meet margin requirements (Base text §764, page
967, line 11) 

 

*        Strikes base text provision for requested margin (Base text §764,
page 968, line 13 through page 969, line 8) 

 

*        Amend Base text provision to establish a standard of conduct for
swap dealers and major swap participants when providing advice to state
entities and pension funds. The provision also establishes business conduct
and disclosure standards for counterparties. (Base text §764 page 971, line
19 through page 976, line 6) 

 

*        Add provision requiring the Commission to prescribe rules governing
the duties of swap dealers and major swap participants (Base text § 764,
page 979, line 17) 

 

*        Add provision establishing parameters for exemptive authority (Base
text §772, page 1001 lines 8-12 and page 1002, lines 7-10) 

 

*        Amend provision to revise effective dates for the Title to be 360
days (Page 871, lines 2-4 and page 1002, lines 7-10). 

 

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