[House Report 113-103]
[From the U.S. Government Publishing Office]


113th Congress                                            Rept. 113-103
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================



 
                    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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:
---------------------------------------------------------------------------
    \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 
---------------------------------------------------------------------------
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.

           *       *       *       *       *       *       *

                              ----------                              


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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