[House Report 113-103]
[From the U.S. Government Publishing Office]
113th Congress Rept. 113-103
HOUSE OF REPRESENTATIVES
1st Session Part 2
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SWAP JURISDICTION CERTAINTY ACT
_______
June 10, 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. 1256]
[Including cost estimate of the Congressional Budget Office]
The Committee on Agriculture, to whom was referred the bill
(H.R. 1256) to direct the Securities and Exchange Commission
and the Commodity Futures Trading Commission to jointly adopt
rules setting forth the application to cross-border swaps
transactions of certain provisions relating to swaps that were
enacted as part of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
Brief Explanation
H.R. 1256 would require a joint rulemaking from the CFTC
and SEC on cross-border swaps regulation pursuant to Section
722(d) of Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (P.L. 111-203) (the Dodd-Frank Act),
and would presume that all G20 nations would be granted
substituted compliance to regulate institutions operating
within their borders unless the CFTC and SEC jointly determine
otherwise.
Purpose and Need
As the global financial system has evolved, U.S.
institutions have expanded their derivatives operations
overseas to provide services to both U.S. and non-U.S.
customers. At the same time, foreign institutions have
established subsidiaries and branches in the U.S. to offer
derivatives directly to U.S. customers. The growth of this
cross-border activity makes questions regarding the application
of the Dodd-Frank Act to activities that occur outside the U.S.
(known as ``extraterritoriality'') complex and critical.
Section 722(d) of Title VII sets forth that provisions of
the Dodd-Frank Act shall not apply to activities outside the
United States unless those activities: (1) have a direct and
significant connection with activities in, or effect on,
commerce of the United States, or (2) contravene such rules or
regulations as the CFTC prescribes are necessary to prevent
evasion of the Dodd-Frank Act. This is consistent with
historical practice by both the CFTC and the prudential
regulators in their treatment of foreign entities with
operations in the U.S, or of U.S. entities with regard to their
operations in foreign jurisdictions. Generally, the regulatory
agencies have deferred to foreign regulatory authorities for
the supervision of entities located abroad if the agencies
found that those entities were subject to a regulatory regime
comparable to that imposed by the U.S.
However, in April of 2012, the prudential regulators
proposed a rule for the application of margin requirements as
required by Title VII for Major Swap Participants and Swap
Dealers. Under the prudential regulators' proposal, margin
requirements would apply to all transactions of U.S. financial
institutions--whether they involve their U.S. or non-U.S.
customers. For example, a foreign subsidiary of a U.S. bank in
Europe would be subject to the Dodd-Frank Act's margin rules
even when dealing with European customers.
On June 29, 2012, the CFTC issued proposed ``interpretive
guidance'' for the cross-border application of Title VII of the
Dodd-Frank Act.\1\ The release of this guidance, approved by
all five commissioners, was done so without the concurrent
release of similar guidance from the SEC for security-based
swaps and, as it was not in the form of a proposed rule, did
not include a cost-benefit analysis. When the guidance was
released, CFTC Commissioner Jill Sommers stated that ``[CFTC]
staff had been guided by what could only be called the
`Intergalactic Commerce Clause' of the United States
Constitution, in that every single swap a U.S. person enters
into, no matter what the swap or where it was transacted, was
stated to have a direct and significant connection with
activities in, or effect on, commerce of the United States.
This statutory and constitutional analysis of the
extraterritorial application of U.S. law was, in my view,
nothing short of extra-statutory and extra-constitutional.''\2\
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\1\See http://www.cftc.gov/PressRoom/PressReleases/pr6293-12.
\2\See Statement of Concurrence, Commissioner Jill Sommers, Jun.
29, 2012, available at: http://www.cftc.gov/PressRoom/
SpeechesTestimony/sommersstatement062912.
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On December 13, 2012, the Committee on Agriculture
Subcommittee on General Farm Commodities and Risk Management
held a hearing where Commissioners Sommers and Chilton
testified alongside top regulators from Japan and the European
Commission. Combined, the three regulatory jurisdictions
represented by witnesses at our hearing comprised an
overwhelming majority of the global derivatives marketplace.
Based on testimony the subcommittee received, there appeared to
be a serious lack of coordination between both foreign and
domestic regulators.
For example, Mr. Masamichi Kono with the Financial Services
Agency of Japan (who at the time was Chairman of the
International Organization of Securities Commissions) testified
during the hearing that ``much needs to be done'' by the CFTC
and that ``it is important that the details of the applicable
laws and regulations are made clear as much as possible before
their implementation in order to minimize regulatory
uncertainty.''\3\ Further, with respect to minimizing risk in
the marketplace--a goal central to the creation of the Dodd-
Frank Act--Mr. Kono testified that:
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\3\See Subcommittee on General Farm Commodities and Risk Management
Hearing Report, Dec. 13, 2012; available at http://
agriculture.house.gov/sites/republicans.agriculture.house.gov/files/
transcripts/112/112-35New.pdf.
[s]uch risks need not be addressed by extraterritorial
application of the U.S. laws and regulations; rather, the U.S.
authorities could rely on foreign regulators upon establishing
of course that the foreign regulators have the required
authority and competence to exercise appropriate regulation and
oversight over those entities and activities. This is what we
consider as the most efficient and effective approach, in line
with the principles of international comity between sovereign
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jurisdictions.
On December 13, 2012, Mr. Patrick Pearson with the European
Commission also testified before the Committee about regulatory
conflicts between the United States and 27 member nations of
the European Union. With respect to the risk posed to global
markets if international regulators do not properly coordinate
the regulation of the markets, he stated that:
[T]rades will not be able to be cleared. If they can't be
cleared, they won't take place. This means that firms and users
will not hedge their risks, or firms will hedge their risks but
they will only take place within one jurisdiction, which means
that risk will be concentrated in one jurisdiction on the
planet. That could be the United States. If your firms can't
hedge their risks outside of the United States, they'll have to
hedge them here. The consequences of that is obviously a
fragmented market and a significant concentration of financial
risk in the U.S. system, and this is exactly what we tried to
prevent with our global regulatory reform.
On April 18, 2013, the finance ministers of the European
Commission, France, Germany, United Kingdom, Japan,
Switzerland, Russia, South Africa and Brazil wrote to Treasury
Secretary Jacob Lew stating that ``[w]e are already starting to
see evidence of fragmentation in this vitally important
financial market as a result of lack of regulatory
coordination'' and ``[w]e are concerned that, without clear
direction from global policymakers and regulators, derivatives
markets will recede into localised and less efficient
structures, impairing the ability of business across the globe
to manage risk.''
As of the writing of this Report, global regulators have
yet to harmonize their approach to global derivatives
regulation. On December 21, 2012, the CFTC granted an exemptive
order delaying application of the cross-border swaps provisions
of the Dodd-Frank Act until July 12, 2013. In order to address
the serious concerns voiced by both international and domestic
regulators, H.R. 1256 would require a joint rulemaking from the
CFTC and SEC on cross-border swaps regulation. The bill would
also require that the CFTC and SEC presume that all G20
nations, or other foreign jurisdictions as determined jointly
by the agencies, would be granted substituted compliance to
regulate institutions operating within their borders unless the
CFTC and SEC jointly determine otherwise.
Section-by-Section
Section 1 is the short title of the bill.
Section 2(a) requires the CFTC and the SEC joint rulemaking
setting forth the application of the U.S. swaps requirements
relating to swaps and security-based swaps transacted between
U.S. and non-U.S. persons.
Section 2(b) requires the jointly issued rules to address
the nature of connections to the U.S., which of the U.S. swap
requirements shall apply to the activities of non-U.S. persons,
U.S. persons and their branches, agencies, subsidiaries and
affiliates outside the U.S. that require a non-U.S. person to
register as a swap dealer, security based swap dealer, major
swap participant or [major] security-based swap participant.
Section 2(c) states that the Commissions may issue no
guidance, memorandum of understanding or any such other
agreement satisfies the requirement to issue a joint rule in
accordance with the APA.
Section 2(d)(1) requires the Commissions to jointly exempt
from U.S. swaps requirements non-U.S. persons that are in
compliance with the swaps regulatory of a G20 member nation or
other foreign jurisdictions, unless the Commissions jointly
determine that the G20 member nation swap regulatory
requirements are not broadly equivalent to the United States
swap requirements.
Section 2(d)(2) sets out a schedule for the exemptions
required by this act. Joint determinations for the 5 largest
combined swap and security-based swap markets by notional
amount are due on the date on which final rules are issued. The
next five largest markets by notional amount are due one year
after the on date final rules are issued. The determination on
the remaining markets is due 18 months after the date the final
rules are issued.
Section 2(d)(3) requires the Commissions to jointly
establish criteria for determining if a foreign jurisdiction is
not ``broadly equivalent'' to U.S. swap regulatory
requirements. The Commissions then jointly determine which U.S.
swaps requirements will apply to persons or transactions
involving that foreign jurisdiction.
Section 2(d)(4) requires that once the final rules are
issued the Commissions shall jointly assess the regulatory
requirements of the G20 members nations to determine if one or
more categories or regulatory requirements of a foreign
jurisdiction is not broadly equivalent to U.S. swaps
requirements.
Section 2(e) requires the Commissions to report to Congress
any determination that a foreign jurisdiction is not broadly
equivalent to the U.S. swaps requirements within 30 days of
that determination.
Section 2(f) are the definitions of the terms ``G20 member
nation'', ``U.S. person'', and ``United States swaps
requirements''.
Section 2(g) are conforming amendments to the Commodity
Exchange Act and the Securities Exchange Act.
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. 1256, Swap
Jurisdiction Certainty 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 is testimony from the Honorable Kenneth E. Bentsen,
Jr., Acting President and CEO, the Securities Industry and
Financial Markets Association:
Though Title VII was signed into law two-and-a-half years
ago, we still do not know which swaps activities will be
subject to U.S. regulation and which will be subject to foreign
regulation. Section 722 of the Dodd-Frank Act limits the CFTC's
jurisdiction over swap transactions outside of the United
States to those that ``have a direct and significant connection
with activities in, or effect on, commerce of the U.S.'' or are
meant to evade Dodd-Frank. Section 772 limits the SEC's
jurisdiction over security-based swap transactions outside of
the United States to those meant to evade Dodd-Frank. However,
the CFTC and SEC have not yet finalized (or, in the SEC's case,
proposed) rules clarifying their interpretation of these
statutory provisions. The result has been significant
uncertainty in the international marketplace and, due to the
aggressive position being taken by the CFTC as described below,
a reluctance of foreign market participants to trade with U.S.
financial institutions until that uncertainty is resolved.
While the CFTC has proposed guidance on the cross-border
impact of their swaps rules, that guidance inappropriately
recasts the restriction that Congress placed on CFTC
jurisdiction over swap transactions outside the United States
into a grant of authority to regulate cross-border trades. The
CFTC primarily does so with a very broad definition of ``U.S.
Person,'' which it applies to persons with even a minimal
jurisdictional nexus to the United States. In addition, the
CFTC has released several differing interim and proposed
definitions of ``U.S. Person'' for varying purposes, resulting
in a great deal of ambiguity and confusion for market
participants. SIFMA supports a final definition of U.S. Person
that focuses on real, rather than nominal, connections to the
United States and that is simple, objective and determinable so
a person can determine its status and the status of its
counterparties. Equally significant, the CFTC has issued its
proposed cross-border release as ``guidance'' rather than as
formal rulemaking process subject to the Administrative
Procedure Act. By doing so, the CFTC avoids the need to conduct
a cost-benefit analysis, which is critical for ensuring that
the CFTC appropriately weighs any costs imposed on market
participants as a result of implementing an overly broad and
complex U.S. person definition against perceived benefits.
II. Business Meetings
The Committee on Agriculture met, pursuant to notice, with
a quorum present, on March 20, 2013, to consider H.R. 1256,
Swap Jurisdiction Certainty Act, and other pending business.
H.R. 1256 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. Peterson, Mr. David Scott, and Mr. Conaway 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. 1256 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. 1256 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, May 3, 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. 1256, the Swap
Jurisdiction Certainty Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure.
H.R. 1256--Swap Jurisdiction Certainty Act
H.R. 1256 would require the Commodity Futures Trading
Commission (CFTC) and the Securities and Exchange Commission
(SEC) to jointly issue rules that define the application of
United States regulations to swap transactions undertaken
between a U.S. entity and a foreign entity. (A swap is a
contract that calls for the exchange of cash between two
participants based on an underlying rate or index or the
performance of an asset.) Foreign participants in such
transactions that are in compliance with the swap requirements
of a country that is a member of the Group of Twenty Finance
Ministers and Central Bank Governors (G20-member nation) would
be exempt from the new requirements under certain conditions.
Based on information from the agencies, CBO expects that
implementing H.R. 1256 would require the CFTC and the SEC to
develop the new rules and review the regulations of G20-member
nations to determine whether exemptions would apply. CBO
estimates that the costs to both agencies would be roughly
equal--about $4 million each. Under current law, the SEC is
authorized to collect fees sufficient to offset the cost of its
annual appropriation each year. Therefore, we estimate that the
net cost to the SEC would be negligible, assuming appropriation
actions consistent with that authority. CBO estimates that
implementing H.R. 1256 would cost, on net, $4 million for the
CFTC's portion of the total cost, assuming appropriation of the
necessary amounts. Enacting the bill would not affect direct
spending or revenues; therefore, pay-as-you-go procedures do
not apply.
Enactment of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Public Law 111-203) required both the CFTC and
the SEC to develop numerous regulations that affect
participants in swap transactions, including margin, clearing,
and reporting requirements as well as standards of business
conduct. The law did not, however, direct the agencies to
develop regulations specifying when those requirements apply to
swap transactions occurring between a U.S. entity and a foreign
entity. Both agencies have developed proposals to help swap
participants determine whether U.S. regulations would apply to
such transactions.
CBO estimates that implementing H.R. 1256 would increase
the workload of both agencies to undertake a new rulemaking
effort and to perform the assessment of the foreign
regulations. In addition, CBO expects that the agencies would
incur costs to translate the regulations and supporting laws
and reports for G20-member nations where English versions are
not available.
H.R. 1256 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on state, local, or tribal governments. Assuming that the
SEC increases fees to offset the costs of implementing the
additional regulatory activities required by the bill, H.R.
1256 would increase the cost of an existing mandate on private
entities required to pay those fees. Based on information from
the SEC, CBO estimates that the aggregate cost of the mandate
would fall well below the annual threshold for private-sector
mandates established in UMRA ($150 million in 2013, adjusted
annually for inflation).
The CBO staff contacts for this estimate are Susan Willie
(for federal costs) and Paige Piper/Bach (for the private-
sector impact). 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
direct the Commodity Futures Trading Commission and the
Securities and Exchange Commission to adopt a joint rule on how
they will regulate cross-border swaps transactions as part of
the new requirements created in the Dodd-Frank Act.
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. 1256 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. 1256 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
Pursuant to clause 3(c) of rule XIII, the Committee
estimates that H.R. 1256 specifically directs the Commodity
Futures Trading Commission and the Securities Exchange
Commission to conduct 1 joint rule making proceeding 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 (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
SECURITIES EXCHANGE ACT OF 1934
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
SEC. 36. GENERAL EXEMPTIVE AUTHORITY.
(a) Authority.--
(1) In general.--Except as provided in subsection
(b), but notwithstanding any other provision of this
title, the Commission, by rule, regulation, or order,
may conditionally or unconditionally exempt any person,
security, or transaction, or any class or classes of
persons, securities, or transactions, from any
provision or provisions of this title or of any rule or
regulation thereunder, to the extent that such
exemption is necessary or appropriate in the public
interest, and is consistent with the protection of
investors.
(2) Procedures.--The Commission shall, by rule or
regulation, determine the procedures under which an
exemptive order under this section shall be granted and
may, in its sole discretion, decline to entertain any
application for an order of exemption under this
section.
(b) Limitation.--The Commission may not, under this section,
exempt any person, security, or transaction, or any class or
classes of persons, securities, or transactions from section
15C or the rules or regulations issued thereunder or (for
purposes of section 15C and the rules and regulations issued
thereunder) from any definition in paragraph (42), (43), (44),
or (45) of section 3(a).
(c) Derivatives.--Unless the Commission is expressly
authorized by any provision described in this subsection to
grant exemptions, or except as necessary to effectuate the
purposes of the Swap Jurisdiction Certainty Act, the Commission
shall not grant exemptions, with respect to amendments made by
subtitle B of the Wall Street Transparency and Accountability
Act of 2010, with respect to paragraphs (65), (66), (68), (69),
(70), (71), (72), (73), (74), (75), (76), and (79) of section
3(a), and sections 10B(a), 10B(b), 10B(c), 13A, 15F, 17A(g),
17A(h), 17A(i), 17A(j), 17A(k), and 17A(l); provided that the
Commission shall have exemptive authority under this title with
respect to security-based swaps as to the same matters that the
Commodity Futures Trading Commission has under the Wall Street
Transparency and Accountability Act of 2010 with respect to
swaps, including under section 4(c) of the Commodity Exchange
Act.
* * * * * * *
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COMMODITY EXCHANGE ACT
* * * * * * *
Sec. 4. (a) Unless exempted by the Commission pursuant to
subsection (c) or by subsection (e), it shall be unlawful for
any person to offer to enter into, to enter into, to execute,
to confirm the execution of, or to conduct any office or
business anywhere in the United States, its territories or
possessions, for the purpose of soliciting, or accepting any
order for, or otherwise dealing in, any transaction in, or in
connection with, a contract for the purchase or sale of a
commodity for future delivery (other than a contract which is
made on or subject to the rules of a board of trade, exchange,
or market located outside the United States, its territories or
possessions) unless--
(1) such transaction is conducted on or subject to
the rules of a board of trade which has been designated
or registered by the Commission as a contract market or
derivatives transaction execution facility for such
commodity;
(2) such contract is executed or consummated by or
through a contract market; and
(3) such contract is evidenced by a record in writing
which shows the date, the parties to such contract and
their addresses, the property covered and its price,
and the terms of delivery: Provided, That each contract
market or derivatives transaction execution facility
member shall keep such record for a period of three
years from the date thereof, or for a longer period if
the Commission shall so direct, which record shall at
all times be open to the inspection of any
representative of the Commission or the Department of
Justice.
(b)
(1) Foreign boards of trade.--
(A) Registration.--The Commission may adopt
rules and regulations requiring registration
with the Commission for a foreign board of
trade that provides the members of the foreign
board of trade or other participants located in
the United States with direct access to the
electronic trading and order matching system of
the foreign board of trade, including rules and
regulations prescribing procedures and
requirements applicable to the registration of
such foreign boards of trade. For purposes of
this paragraph, ``direct access'' refers to an
explicit grant of authority by a foreign board
of trade to an identified member or other
participant located in the United States to
enter trades directly into the trade matching
system of the foreign board of trade. In
adopting such rules and regulations, the
commission shall consider--
(i) whether any such foreign board of
trade is subject to comparable,
comprehensive supervision and
regulation by the appropriate
governmental authorities in the foreign
board of trade's home country; and
(ii) any previous commission findings
that the foreign board of trade is
subject to comparable comprehensive
supervision and regulation by the
appropriate government authorities in
the foreign board of trade's home
country.
(B) Linked contracts.--The Commission may not
permit a foreign board of trade to provide to
the members of the foreign board of trade or
other participants located in the United States
direct access to the electronic trading and
order-matching system of the foreign board of
trade with respect to an agreement, contract,
or transaction that settles against any price
(including the daily or final settlement price)
of 1 or more contracts listed for trading on a
registered entity, unless the Commission
determines that--
(i) the foreign board of trade makes
public daily trading information
regarding the agreement, contract, or
transaction that is comparable to the
daily trading information published by
the registered entity for the 1 or more
contracts against which the agreement,
contract, or transaction traded on the
foreign board of trade settles; and
(ii) the foreign board of trade (or
the foreign futures authority that
oversees the foreign board of trade)--
(I) adopts position limits
(including related hedge
exemption provisions) for the
agreement, contract, or
transaction that are comparable
to the position limits
(including related hedge
exemption provisions) adopted
by the registered entity for
the 1 or more contracts against
which the agreement, contract,
or transaction traded on the
foreign board of trade settles;
(II) has the authority to
require or direct market
participants to limit, reduce,
or liquidate any position the
foreign board of trade (or the
foreign futures authority that
oversees the foreign board of
trade) determines to be
necessary to prevent or reduce
the threat of price
manipulation, excessive
speculation as described in
section 4a, price distortion,
or disruption of delivery or
the cash settlement process;
(III) agrees to promptly
notify the Commission, with
regard to the agreement,
contract, or transaction that
settles against any price
(including the daily or final
settlement price) of 1 or more
contracts listed for trading on
a registered entity, of any
change regarding--
(aa) the information
that the foreign board
of trade will make
publicly available;
(bb) the position
limits that the foreign
board of trade or
foreign futures
authority will adopt
and enforce;
(cc) the position
reductions required to
prevent manipulation,
excessive speculation
as described in section
4a, price distortion,
or disruption of
delivery or the cash
settlement process; and
(dd) any other area
of interest expressed
by the Commission to
the foreign board of
trade or foreign
futures authority;
(IV) provides information to
the Commission regarding large
trader positions in the
agreement, contract, or
transaction that is comparable
to the large trader position
information collected by the
Commission for the 1 or more
contracts against which the
agreement, contract, or
transaction traded on the
foreign board of trade settles;
and
(V) provides the Commission
such information as is
necessary to publish reports on
aggregate trader positions for
the agreement, contract, or
transaction traded on the
foreign board of trade that are
comparable to such reports on
aggregate trader positions for
the 1 or more contracts against
which the agreement, contract,
or transaction traded on the
foreign board of trade settles.
(C) Existing foreign boards of trade.--
Subparagraphs (A) and (B) shall not be
effective with respect to any foreign board of
trade to which, prior to the date of enactment
of this paragraph, the Commission granted
direct access permission until the date that is
180 days after that date of enactment.
(2) Persons located in the united states.--
(A) In general.--The Commission may adopt
rules and regulations proscribing fraud and
requiring minimum financial standards, the
disclosure of risk, the filing of reports, the
keeping of books and records, the safeguarding
of customers' funds, and registration with the
Commission by any person located in the United
States, its territories or possessions, who
engages in the offer or sale of any contract of
sale of a commodity for future delivery that is
made or to be made on or subject to the rules
of a board of trade, exchange, or market
located outside the United States, its
territories or possessions.
(B) Different requirements.--Rules and
regulations described in subparagraph (A) may
impose different requirements for such persons
depending upon the particular foreign board of
trade, exchange, or market involved.
(C) Prohibition.--Except as provided in
paragraphs (1) and (2), no rule or regulation
may be adopted by the Commission under this
subsection that--
(i) requires Commission approval of
any contract, rule, regulation, or
action of any foreign board of trade,
exchange, or market, or clearinghouse
for such board of trade, exchange, or
market; or
(ii) governs in any way any rule or
contract term or action of any foreign
board of trade, exchange, or market, or
clearinghouse for such board of trade,
exchange, or market.
(c)(1) In order to promote responsible economic or financial
innovation and fair competition, the Commission by rule,
regulation, or order, after notice and opportunity for hearing,
may (on its own initiative or on application of any person,
including any board of trade designated or registered as a
contract market or derivatives transaction execution facility
for transactions for future delivery in any commodity under
section 5 of this Act) exempt any agreement, contract, or
transaction (or class thereof) that is otherwise subject to
subsection (a) (including any person or class of persons
offering, entering into, rendering advice or rendering other
services with respect to, the agreement, contract, or
transaction), either unconditionally or on stated terms or
conditions or for stated periods and either retroactively or
prospectively, or both, from any of the requirements of
subsection (a), or from any other provision of this Act (except
subparagraphs (C)(ii) and (D) of section 2(a)(1), except that--
(A) unless the Commission is expressly authorized by
any provision described in this subparagraph to grant
exemptions, or except as necessary to effectuate the
purposes of the Swap Jurisdiction Certainty Act, with
respect to amendments made by subtitle A of the Wall
Street Transparency and Accountability Act of 2010--
(i) with respect to--
(I) paragraphs (2), (3), (4), (5),
and (7), paragraph (18)(A)(vii)(III),
paragraphs (23), (24), (31), (32),
(38), (39), (41), (42), (46), (47),
(48), and (49) of section 1a, and
sections 2(a)(13), 2(c)(1)(D), 4a(a),
4a(b), 4d(c), 4d(d), 4r, 4s, 5b(a),
5b(b), 5(d), 5(g), 5(h), 5b(c), 5b(i),
8e, and 21; and
(II) section 206(e) of the Gramm-
Leach-Bliley Act (Public Law 106-102;
15 U.S.C. 78c note); and
(ii) in sections 721(c) and 742 of the Dodd-
Frank Wall Street Reform and Consumer
Protection Act; and
(B) the Commission and the Securities and Exchange
Commission may by rule, regulation, or order jointly
exclude any agreement, contract, or transaction from
section 2(a)(1)(D)) if the Commissions determine that
the exemption would be consistent with the public
interest.
(2) The Commission shall not grant any exemption under
paragraph (1) from any of the requirements of subsection (a)
unless the Commission determines that--
(A) the requirement should not be applied to the
agreement, contract, or transaction for which the
exemption is sought and that the exemption would be
consistent with the public interest and the purposes of
this Act; and
(B) the agreement, contract, or transaction--
(i) will be entered into solely between
appropriate persons; and
(ii) will not have a material adverse effect
on the ability of the Commission or any
contract market or derivatives transaction
execution facility to discharge its regulatory
or self-regulatory duties under this Act.
(3) For purposes of this subsection, the term ``appropriate
person'' shall be limited to the following persons or classes
thereof:
(A) A bank or trust company (acting in an individual
or fiduciary capacity).
(B) A savings association.
(C) An insurance company.
(D) An investment company subject to regulation under
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.).
(E) A commodity pool formed or operated by a person
subject to regulation under this Act.
(F) A corporation, partnership, proprietorship,
organization, trust, or other business entity with a
net worth exceeding $1,000,000 or total assets
exceeding $5,000,000, or the obligations of which under
the agreement, contract or transaction are guaranteed
or otherwise supported by a letter of credit or
keepwell, support, or other agreement by any such
entity or by an entity referred to in subparagraph (A),
(B), (C), (H), (I), or (K) of this paragraph.
(G) An employee benefit plan with assets exceeding
$1,000,000, or whose investment decisions are made by a
bank, trust company, insurance company, investment
adviser registered under the Investment Advisers Act of
1940 (15 U.S.C. 80a-1 et seq.), or a commodity trading
advisor subject to regulation under this Act.
(H) Any governmental entity (including the United
States, any state, or any foreign government) or
political subdivision thereof, or any multinational or
supranational entity or any instrumentality, agency, or
department of any of the foregoing.
(I) A broker-dealer subject to regulation under the
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
acting on its own behalf or on behalf of another
appropriate person.
(J) A futures commission merchant, floor broker, or
floor trader subject to regulation under this Act
acting on its own behalf or on behalf of another
appropriate person.
(K) Such other persons that the Commission determines
to be appropriate in light of their financial or other
qualifications, or the applicability of appropriate
regulatory protections.
(4) During the pendency of an application for an order
granting an exemption under paragraph (1), the Commission may
limit the public availability of any information received from
the applicant if the applicant submits a written request to
limit disclosure contemporaneous with the application, and the
Commission determines that--
(A) the information sought to be restricted
constitutes a trade secret; or
(B) public disclosure of the information would result
in material competitive harm to the applicant.
(5) The Commission may--
(A) promptly following the enactment of this
subsection, or upon application by any person, exercise
the exemptive authority granted under paragraph (1)
with respect to classes of hybrid instruments that are
predominantly securities or depository instruments, to
the extent that such instruments may be regarded as
subject to the provisions of this Act; or
(B) promptly following the enactment of this
subsection, or upon application by any person, exercise
the exemptive authority granted under paragraph (1)
effective as of October 23, 1974, with respect to
classes of swap agreements (as defined in section 101
of title 11, United States Code) that are not part of a
fungible class of agreements that are standardized as
to their material economic terms, to the extent that
such agreements may be regarded as subject to the
provisions of this Act.
Any exemption pursuant to this paragraph shall be subject to
such terms and conditions as the Commission shall determine to
be appropriate pursuant to paragraph (1).
(6) If the Commission determines that the exemption
would be consistent with the public interest and the
purposes of this Act, the Commission shall, in
accordance with paragraphs (1) and (2), exempt from the
requirements of this Act an agreement, contract, or
transaction that is entered into--
(A) pursuant to a tariff or rate schedule
approved or permitted to take effect by the
Federal Energy Regulatory Commission;
(B) pursuant to a tariff or rate schedule
establishing rates or charges for, or protocols
governing, the sale of electric energy approved
or permitted to take effect by the regulatory
authority of the State or municipality having
jurisdiction to regulate rates and charges for
the sale of electric energy within the State or
municipality; or
(C) between entities described in section
201(f) of the Federal Power Act (16 U.S.C.
824(f)).
(d) The granting of an exemption under this section shall not
affect the authority of the Commission under any other
provision of this Act to conduct investigations in order to
determine compliance with the requirements or conditions of
such exemption or to take enforcement action for any violation
of any provision of this Act or any rule, regulation or order
thereunder caused by the failure to comply with or satisfy such
conditions or requirements.
(e) Liability of Registered Persons Trading on a Foreign
Board of Trade.--
(1) In general.--A person registered with the
Commission, or exempt from registration by the
Commission, under this Act may not be found to have
violated subsection (a) with respect to a transaction
in, or in connection with, a contract of sale of a
commodity for future delivery if the person--
(A) has reason to believe that the
transaction and the contract is made on or
subject to the rules of a foreign board of
trade that is--
(i) legally organized under the laws
of a foreign country;
(ii) authorized to act as a board of
trade by a foreign futures authority;
and
(iii) subject to regulation by the
foreign futures authority; and
(B) has not been determined by the Commission
to be operating in violation of subsection (a).
(2) Rule of construction.--Nothing in this subsection
shall be construed as implying or creating any
presumption that a board of trade, exchange, or market
is located outside the United States, or its
territories or possessions, for purposes of subsection
(a).
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