1.This Act may be cited as the
Dodd-Frank Improvement Act of
2011
.
2.Dodd-Frank
improvements regarding regulation of derivatives
(a)Section 4 of the Securities Exchange Act of
1934 (15 U.S.C. 78d) is amended by adding at the end the following:
(j)
(1)There is established within the Commission the Office
of Derivatives (referred to in this subsection as the
Office)—
(A)to administer the
rules of the Commission with respect to security-based swaps and, as necessary,
to make recommendations to the Commission for new rules or changes to existing
rules with respect to security-based swaps;
(B)to coordinate
oversight of the market for swaps and security-based swaps, participants in
that market, and infrastructure providers for that market with other relevant
domestic and international regulators; and
(C)to monitor
developments in the market for swaps and security-based swaps.
(2)The head of the Office shall be the Director, who shall
report to the Director of the Division of Trading and Markets and the Director
of Risk, Strategy, and Financial Innovation.
(3)
(A)The Office shall be staffed by persons transferred in
accordance with subparagraph (B), including persons having knowledge of and
expertise in the uses for, trading in, execution of, and clearing of swaps and
security-based swaps.
(B)The
Director of the Office of Derivatives, the Director of the Division of Trading
and Markets, the Director of Risk, Strategy, and Financial Innovation, and the
Director of the Office of Compliance, Inspections, and Examinations shall
jointly identify employees to be transferred from the Division of Trading and
Markets, the Division of Risk, Strategy, and Financial Innovation, and the
Office of Compliance, Inspections, and Examinations, respectively, to the
Office of Derivatives, in numbers sufficient to carry out fully the
requirements of this subsection.
(4)The
Division of Enforcement shall consult with the Office before presenting a
recommendation with respect to security-based swaps to the Commission.
(5)Inspections and
examinationsA representative of the Office shall be afforded the
opportunity to participate in any inspection or examination of a security-based
swap dealer, major security-based swap participant, security-based swap data
repository, or clearing agency that clears security-based swaps.
(6)On or before the date that is one year after the Office is
established and annually thereafter, the Director shall submit to the Chairman
and publish on the public website of the Commission a report that describes the
activities of the Office during the preceding year, and the developments in the
swaps and security-based swaps market.
(b)Orderly
implementation of derivatives provisions
(1)Review of
regulatory authoritySection
712 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C.
8302) is amended—
(A)in each of
subsections (a)(3) and (e), by striking 360
each place that term
appears and inserting 720
; and
(B)by adding at the
end the following:
(g)Orderly
implementation schedule
(1)Not later than December 31, 2011, the Commodity Futures
Trading Commission, the Securities and Exchange Commission, and the prudential
regulators shall jointly, pursuant to the notice and comment requirements
contained in title 5, United States Code, adopt an implementation schedule for
this title.
(2)Such implementation schedule shall—
(A)set forth a
schedule for the publication of final rules required by this title, except
that, unless otherwise specifically provided by a provision of this title, the
rules required by subsection (d)(1) shall be adopted before any other required
rules;
(B)set forth a
schedule for the effective dates for provisions of this title, including
provisions that require a rulemaking and provisions that do not require a
rulemaking;
(C)take into
consideration—
(i)a
quantitative analysis of the effects of this title on United States economic
growth and job creation;
(ii)the implications
of this title for cross-border activity by, and international competitiveness
of, United States financial institutions, companies, and investors;
(iii)whether and how
the definitional, clearing, trading, reporting, recordkeeping, real-time
reporting, registration, capital, margin, business conduct, position limits and
other requirements of this title work together, and how they affect market
depth and liquidity; and
(iv)the implications
of any lack of harmonization by the Securities and Exchange Commission, the
Commodity Futures Trading Commission, and the prudential regulators with
respect to the timing and the substance of their rules.
(h)Orderly
implementation authorityNotwithstanding any other provision of
law, the Commodity Futures Trading Commission, the Securities and Exchange
Commission and the prudential regulators, by rule, regulation, or order, may
conditionally or unconditionally exempt any person, swap, security-based swap,
activity, or transaction, or any class or classes of persons, swaps,
security-based swaps, activities, or transactions, from any provision or
provisions of this title administered thereby, or any rule or regulation
thereunder, to the extent that such exemption is necessary or appropriate in
the public interest and is in furtherance of the objectives of this title, such
as the orderly implementation and international harmonization of the timing and
substance of derivatives regulatory
reform.
.
(2)Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Public Law 111–203, 124 Stat. 1641) is amended—
(A)in section 754 (7
U.S.C. 7a note), by striking the later of
and all that follows
through the period and inserting the dates specified in the
implementation schedule adopted pursuant to section 712(g).
; and
(B)in section 774
(15 U.S.C. 77b note), by striking the later of
and all that
follows through the period and inserting the dates specified in the
implementation schedule adopted pursuant to section 712(g).
.
(c)Clarification
of end user status
(1)
(A)Section 4s(e) of the Commodity Exchange Act (7
U.S.C. 6s(e)), as added by section 731 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, is amended by adding at the end the following:
(4)Applicability
with respect to counterpartiesThe margin requirements of this
subsection shall not apply to a swap in which one of the counterparties is
not—
(A)a swap dealer or
major swap participant;
(B)an investment
fund that—
(i)has issued
securities (other than debt securities) to more than 5 unaffiliated
persons;
(ii)would be an
investment company (as defined in section 3 of the Investment Company Act of
1940 (15 U.S.C. 80a–3)) but for paragraph (1) or (7) of subsection (c) of that
section; and
(iii)is not
primarily invested in physical assets (including commercial real estate)
directly or through an interest in an affiliate that owns the physical
assets;
(C)a regulated
entity, as defined in section 1303 of the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 (12 U.S.C. 4502); or
(D)a commodity pool
that is predominantly invested in any combination of commodities, commodity
swaps, commodity options, or commodity futures.
(5)Swaps entered into before the date on which
final rules under section 712(e) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (15 U.S.C. 8302(e)) become effective shall be exempt
from the margin requirements under this
subsection.
.
(B)Section 1a(33)(A) of the Commodity Exchange Act (7
U.S.C. 1a(33)(A)) is amended by striking clause (ii) and inserting the
following:
(ii)whose
outstanding swaps create substantial net uncollateralized counterparty
exposure that could have serious adverse effects on the financial stability of
the United States banking system or financial markets;
or
.
(C)The amendments made by subsection (a) shall have the same
effective date as provided in section 754 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, as amended by section 1(b) of this Act.
(2)End users of
security-based swaps
(A)Section 15F(e) of the Securities Exchange Act of
1934 (15 U.S.C. 780–10(e)), as added by section 764 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, is amended by adding at the end the
following:
(4)Applicability
with respect to counterpartiesThe margin requirements of this
subsection shall not apply to a security-based swap in which one of the
counterparties is not—
(A)a security-based
swap dealer or major security-based swap participant;
(B)an investment
fund that would be an investment company (as defined in section 3 of the
Investment Company Act of 1940 (15 U.S.C. 80a–3)), but for paragraph (1) or (7)
of section 3(c) of that Act (15 U.S.C. 80a–3(c)), that is not primarily
invested in physical assets (including commercial real estate) directly or
through interest in its affiliates that own such assets;
(C)a regulated
entity, as defined in section 1303 of the Federal Housing Enterprises Financial
Safety and Soundness Act of 1992 (12 U.S.C. 4502); or
(D)a commodity pool
that is predominantly invested in any combination of commodities, commodity
swaps, commodity options or commodity futures.
(5)Security-based swaps entered into before the
date on which final rules under section 712(e) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act become effective are exempt from the margin
requirements of this
subsection.
.
(B)Major
security-based swap participantSection 3(a)(67)(A)(ii)(II) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(67)(A)(ii)(II)), is
amended to read as follows:
(II)whose
outstanding security-based swaps create substantial net uncollateralized
counterparty exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial
markets;
.
(C)The amendments made by this paragraph shall have the same
effective date as provided in section 774 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, as amended by this Act.
(d)Treatment of
affiliate transactionsTitle
VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C.
8301 et seq.) is amended by inserting after section 713 (15 U.S.C. the
following new section:
713A.Treatment of
affiliate transactions
(a)An agreement, contract, or transaction that would
otherwise be a swap or security-based swap, and that is entered into by a party
that is controlling, controlled by, or under common control with its
counterparty shall not be deemed to be a swap or
security-based swap for purposes of this Act.
(b)All
agreements, contracts, or transactions described in subsection (a) shall be
reported to either a swap data repository, or, if there is no swap data
repository that would accept such transaction reports, to the Commission
pursuant to sections 729 and 766. within such time period as the Commission may
prescribe by rule or
regulation.
.
(e)International
competitiveness and harmonization
(1)Study on
international swap regulationSection 719(c)(2) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (15 U.S.C. 8307(c)(2)) is
amended—
(A)by striking
18
and inserting 30
;
(B)in subparagraph
(C), by striking and
at the end;
(C)in subparagraph
(D), by striking the period at the end and inserting ; and
;
and
(D)by adding at the
end the following:
(E)an analysis of
the progress of members of the Group of 20 and other countries toward
implementing derivatives regulatory reform, including material differences in
the schedule for implementation (as well as material differences in
definitions, clearing, trading, reporting, registration, capital, margin,
business conduct, and position limits) and their possible and likely effects on
United States competitiveness, market liquidity, and financial
stability.
.
(2)The
Dodd-Frank Wall Street Reform and Consumer Protection Act is amended by
inserting after section 719 the following new section:
719A.
(a)Subject to
subsections (b) and (c), and notwithstanding any other provision of this title,
no activities conducted outside of the United States between counterparties
established under the laws of any jurisdiction outside of the United States
(including a non-United States branch of a United States entity licensed and
recognized under local law outside of the United States) shall be
considered—
(1)to have a direct and significant connection
with activities in, or effect on, commerce of the United States;
(2)to constitute a business within the
jurisdiction of the United States; or
(3)to constitute evasion of any provision of
this title, unless those activities contravene such rules as may be adopted by
the Commodity Futures Trading Commission and the Securities and Exchange
Commission pursuant to subsection (b).
(b)After
completing the report required by section 719(c)(2), the Commodity Futures
Trading Commission and the Securities and Exchange Commission may jointly issue
such rules as are necessary to prohibit transactions or activities, or classes
of transactions or activities conducted outside of the United States that the
agencies find—
(1)have no valid
business purpose;
(2)are structured
with the sole purpose of evading the requirements of this title; and
(3)might reasonably
be expected to have a serious adverse effect on the stability of the United
States financial system.
(c)Subsection
(a) shall not apply to any provision of this title prohibiting fraud or
manipulation or any rule or regulation
thereunder.
.