[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Notices]
[Pages 34855-34857]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12613]


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 Notices
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 This section of the FEDERAL REGISTER contains documents other than rules 
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  Federal Register / Vol. 81, No. 104 / Tuesday, May 31, 2016 / 
Notices  

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COMMODITY FUTURES TRADING COMMISSION


Agency Information Collection Activities: Proposed Collection, 
Comment Request: Final Rule, Margin Requirements for Uncleared Swaps 
for Swap Dealers and Major Swap Participants--Cross-Border Application 
of the Margin Requirements

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is announcing an opportunity for public comment on the 
proposed collection of certain information by the agency. Under the 
Paperwork Reduction Act (``PRA''), Federal agencies are required to 
publish notice in the Federal Register concerning each proposed 
collection of information, including proposed extension of an existing 
collection of information, and to allow 60 days for public comment. 
This notice is being published concurrently with the publication and 
adoption of the final rule titled ``Margin Requirements for Uncleared 
Swaps for Swap Dealers and Major Swap Participants--Cross-Border 
Application of the Margin Requirements'' (``Final Rule''), which 
addresses the cross-border application of the Commission's margin 
requirements for uncleared swaps of covered swap entities (``CSEs''). 
This notice solicits comments on a new information collection that 
applies to CSEs that rely on a special provision of the Final Rule 
applicable to certain foreign jurisdictions where CSEs are unable to 
conclude, with a well-founded basis, that the netting agreement with a 
counterparty in that foreign jurisdiction meets the definition of an 
``eligible master netting agreement'' set forth in the Commission's 
final margin rule (``Final Margin Rule'') (``non-netting 
jurisdictions''). This notice also solicits comments on a new 
information collection that applies to Foreign Consolidated 
Subsidiaries (as defined in the Final Rule) and foreign branches of 
U.S. CSEs that rely on a special provision of the Final Rule applicable 
to certain foreign jurisdictions where limitations in the legal or 
operational infrastructure of the jurisdiction make it impracticable 
for the CSE and its counterparty to post initial margin pursuant to 
custodial arrangements that comply with the Final Margin Rule (``non-
segregation jurisdictions''). The new information collections covered 
by this notice require CSEs that avail themselves of the special 
provisions for non-netting jurisdictions and non-segregation 
jurisdictions, respectively, to maintain books and records properly 
documenting that all of the requirements of the special provision(s) 
upon which they rely are satisfied (including policies and procedures 
ensuring that they are in compliance with any applicable requirements).

DATES: Comments must be submitted on or before August 1, 2016.

ADDRESSES: You may submit comments, identified by ``Margin Requirements 
for Uncleared Swaps for Swap Dealers and Major Swap Participants; 
Comparability Determinations with Margin Requirements,'' and ``OMB 
Control No. 3038-0111,'' by any of the following methods:
     The Agency's Web site, at http://comments.cftc.gov/. 
Follow the instructions for submitting comments through the Web site.
     Mail: Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as Mail, above.
     Federal eRulemaking Portal: http://www.regulations.gov/. 
Follow the instructions for submitting comments through the Portal.
    Please submit your comments using only one method.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
http://www.cftc.gov.

FOR FURTHER INFORMATION CONTACT: Laura B. Badian, Assistant General 
Counsel, (202) 418-5969, [email protected]; Paul Schlichting, Assistant 
General Counsel, (202) 418-5884, [email protected]; Elise Bruntel, 
Counsel, (202) 418-5577, [email protected]; or Herminio Castro, 
Counsel, (202) 418-6705, [email protected]; Office of the General 
Counsel, Commodity Futures Trading Commission, Three Lafayette Centre, 
1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: Under the PRA, Federal agencies must obtain 
approval from the Office of Management and Budget (``OMB'') for each 
collection of information they conduct or sponsor. ``Collection of 
Information'' is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3 and 
includes agency requests or requirements that members of the public 
submit reports, keep records, or provide information to a third party. 
Section 3506(c)(2)(A) of the PRA, 44 U.S.C. 3506(c)(2)(A), requires 
Federal agencies to provide a 60-day notice in the Federal Register 
concerning each proposed collection of information, including each 
proposed extension of an existing collection of information, before 
submitting the collection to OMB for approval. To comply with this 
requirement, the CFTC is publishing notice of the proposed collection 
of information listed below.
    Title: Margin Requirements for Uncleared Swaps for Swap Dealers and 
Major Swap Participants; Comparability Determinations with Margin 
Requirements. (OMB Control No. 3038-0111). This is a request for a 
revision of a currently approved information collection.
    Abstract: Section 731 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (``Dodd-Frank Act''),\1\ amended the Commodity 
Exchange Act (``CEA''), to add, as section 4s(e) thereof, provisions 
concerning the setting of initial and variation margin requirements for 
swap dealers and major swap participants. \2\ Each swap dealer and 
major swap participant for which there is a Prudential Regulator, as 
defined in section 1a(39) of the CEA,\3\ must meet margin requirements 
established by the applicable Prudential

[[Page 34856]]

Regulator, and each CSE must comply with the Commission's margin 
requirements. With regard to the cross-border application of the swap 
provisions enacted by Title VII of the Dodd-Frank Act, section 2(i) of 
the CEA provides the Commission with express authority over activities 
outside the United States relating to swaps when certain conditions are 
met. Specifically, section 2(i) of the CEA provides that the provisions 
of the CEA relating to swaps enacted by Title VII of the Dodd-Frank Act 
(including Commission rules and regulations promulgated thereunder) 
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 Commission may prescribe or promulgate as 
are necessary or appropriate to prevent the evasion of any provision of 
Title VII.\4\ Because margin requirements are critical to ensuring the 
safety and soundness of a CSE and supporting the stability of the U.S. 
financial markets, the Commission believes that its margin rules should 
apply on a cross-border basis in a manner that effectively addresses 
risks to the registered CSE and the U.S. financial system.
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    \1\ Pub. L. 111-203, 124 Stat. 1376 (2010).
    \2\ 7 U.S.C. 6s(e).
    \3\ 7 U.S.C. 1a(39).
    \4\ 7 U.S.C. 2(i).
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    Concurrently with this notice, the Commission published a Final 
Rule that establishes margin requirements for uncleared swaps of CSEs 
(with substituted compliance available in certain circumstances), 
except as to a narrow class of uncleared swaps between a non-U.S. CSE 
and a non-U.S. counterparty that fall within a limited exclusion (the 
``Exclusion''). As described below, the adopting release for the Final 
Rule contained a collection of information regarding requests for 
comparability determinations, which was previously included in the 
proposing release, and for which the Office of Management and Budget 
(``OMB'') assigned OMB control number 3038-0111, titled ``Margin 
Requirements for Uncleared Swaps for Swap Dealers and Major Swap 
Participants; Comparability Determinations with Margin Requirements.'' 
In addition, the adopting release included two additional information 
collections regarding non-segregation jurisdictions \5\ and non-netting 
jurisdictions \6\ that were not previously proposed. Accordingly, the 
Commission, through this notice is requesting approval by OMB of this 
new information collection under OMB Control Number 3038-0111.
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    \5\ As used in the adopting release, a ``non-segregation 
jurisdiction'' is a jurisdiction where inherent limitations in the 
legal or operational infrastructure of the foreign jurisdiction make 
it impracticable for the CSE and its counterparty to post initial 
margin pursuant to custodial arrangements that comply with the 
Commission's margin rules, as further described in section II.B.4.b 
of the adopting release.
    \6\ As used in the adopting release, a ``non-netting 
jurisdiction'' is a jurisdiction in which a CSE cannot conclude, 
with a well-founded basis, that the netting agreement with a 
counterparty in that foreign jurisdiction meets the definition of an 
``eligible master netting agreement'' set forth in the Final Margin 
Rule, as described in section II.B.5.b of the adopting release.
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    Section 23.160(d) of the Final Rule includes a special provision 
for non-netting jurisdictions. This provision allows CSEs that cannot 
conclude after sufficient legal review with a well-founded basis that 
the netting agreement with a counterparty in a foreign jurisdiction 
meets the definition of an ``eligible master netting agreement'' set 
forth in the Final Margin Rule to nevertheless net uncleared swaps in 
determining the amount of margin that they post, provided that certain 
conditions are met.\7\ In order to avail itself of this special 
provision, the CSE must treat the uncleared swaps covered by the 
agreement on a gross basis in determining the amount of initial and 
variation margin that it must collect, but may net those uncleared 
swaps in determining the amount of initial and variation margin it must 
post to the counterparty, in accordance with the netting provisions of 
the Final Margin Rule.\8\ A CSE that enters into uncleared swaps in 
``non-netting'' jurisdictions in reliance on this provision must have 
policies and procedures ensuring that it is in compliance with the 
special provision's requirements, and maintain books and records 
properly documenting that all of the requirements of this exception are 
satisfied.\9\
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    \7\ The Final Margin Rule permits offsets in relation to either 
initial margin or variation margin calculation when (among other 
things), the offsets related to swaps are subject to the same 
eligible master netting agreement. This ensures that CSEs can 
effectively foreclose on the margin in the event of a counterparty 
default, and avoids the risk that the administrator of an insolvent 
counterparty will ``cherry-pick'' from posted collateral to be 
returned.
    \8\ In the event that the special provision for non-segregation 
jurisdictions applies to a CSE, then the special provision for non-
netting jurisdictions would not apply to the CSE even if the 
relevant jurisdiction is also a ``non-netting jurisdiction.'' In 
this circumstance, the CSE must collect the gross amount of initial 
margin in cash (but would not be required to post initial margin), 
and post and collect variation margin in cash in accordance with the 
requirements of the special provision for non-segregation 
jurisdictions, as discussed in section II.B.4.b.
    \9\ See Sec.  23.160(d) of the Final Rule.
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    Section 23.160(e) of the Final Rule includes a special provision 
for non-segregation jurisdictions that allows non-U.S. CSEs that are 
Foreign Consolidated Subsidiaries (as defined in the Final Rule) and 
foreign branches of U.S. CSEs to engage in swaps in foreign 
jurisdictions where inherent limitations in the legal or operational 
infrastructure make it impracticable for the CSE and its counterparty 
to post collateral in compliance with the custodial arrangement 
requirements of the Commission's margin rules, subject to certain 
conditions. In order to rely on this special provision, a Foreign 
Consolidated Subsidiary or foreign branch of a U.S. CSE is required to 
satisfy all of the conditions of the rule, including that (1) inherent 
limitations in the legal or operational infrastructure of the foreign 
jurisdiction make it impracticable for the CSE and its counterparty to 
post any form of eligible initial margin collateral for the uncleared 
swap pursuant to custodial arrangements that comply with the 
Commission's margin rules; (2) foreign regulatory restrictions require 
the CSE to transact in uncleared swaps with the counterparty through an 
establishment within the foreign jurisdiction and do not permit the 
posting of collateral for the swap in compliance with the custodial 
arrangements of section 23.157 of the Final Margin Rule in the United 
States or a jurisdiction for which the Commission has issued a 
comparability determination under the Final Rule with respect to 
section 23.157; (3) the CSE's counterparty is not a U.S. person and is 
not a CSE, and the counterparty's obligations under the uncleared swap 
are not guaranteed by a U.S. person; \10\ (4) the CSE collects initial 
margin in cash on a gross basis, in cash, and posts and collects 
variation margin in cash, for the uncleared swap in accordance with the 
Final Margin Rule; (5) for each broad risk category, as set out in 
Sec.  23.154(b)(2)(v) of the Final Margin Rule, the total outstanding 
notional value of all uncleared swaps in that broad risk category, as 
to which the CSE is relying on Sec.  23.160 (e), may not exceed 5 
percent of the CSE's total outstanding notional value for all uncleared 
swaps in the same broad risk category; (6) the CSE has policies and 
procedures ensuring that it is in compliance with the requirements of 
this provision; and (7) the CSE

[[Page 34857]]

maintains books and records properly documenting that all of the 
requirements of this provision are satisfied.\11\ The new information 
collections covered by this notice require CSEs to have policies and 
procedures ensuring that they are in compliance with all of the 
requirements of the special provisions for non-netting jurisdictions 
and non-segregation provisions, respectively, and to maintain books and 
records properly documenting that all of the requirements of the 
special provisions for non-netting jurisdictions and non-segregation 
jurisdictions, respectively, are satisfied. Both information 
collections are necessary as a means for the Commission to be able to 
determine that CSEs relying on these special provisions are entitled to 
do so and are complying with the special provisions' requirements. Both 
information collections are also necessary to implement sections 4s(e) 
of the CEA, which mandates that the Commission adopt rules establishing 
minimum initial and variation margin requirements for CSEs on all swaps 
that are not cleared by a registered derivatives clearing organization, 
and section 2(i) of the CEA, which provides that the provisions of the 
CEA relating to swaps that were enacted by Title VII of the Dodd-Frank 
Act (including any rule prescribed or regulation promulgated 
thereunder) apply to activities outside the United States that have a 
direct and significant connection with activities in, or effect on, 
commerce of the United States. An agency may not conduct or sponsor, 
and a person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
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    \10\ The Commission would expect the CSE's counterparty to be a 
local financial end user that is required to comply with the foreign 
jurisdiction's laws and that is prevented by regulatory restrictions 
in the foreign jurisdiction from posting collateral for the 
uncleared swap in the United States or a jurisdiction for which the 
Commission has issued a comparability determination under the Final 
Rule, even using an affiliate.
    \11\ See 17 CFR 23.160(e).
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    With respect to each new collection of information, the CFTC 
invites comments on:
     Whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have a practical 
use;
     The accuracy of the Commission's estimate of the burden of 
the proposed collection of information, including the validity of the 
methodology and assumptions used;
     Ways to enhance the quality, usefulness, and clarity of 
the information to be collected; and
     Ways to minimize the burden of collection of information 
on those who are to respond, including through the use of appropriate 
automated electronic, mechanical, or other technological collection 
techniques or other forms of information technology; e.g., permitting 
electronic submission of responses.
    You should submit only information that you wish to make available 
publicly. If you wish the Commission to consider information that you 
believe is exempt from disclosure under the Freedom of Information Act, 
a petition for confidential treatment of the exempt information may be 
submitted according to the procedures established in Sec.  145.9 of the 
Commission's regulations.\12\
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    \12\ 17 CFR 145.9.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from http://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the ICR will be retained in the public comment file and 
will be considered as required under the Administrative Procedure Act 
and other applicable laws, and may be accessible under the Freedom of 
Information Act.
    Burden Statement--Information Collection for Non-Netting 
Jurisdictions: The Commission estimates that approximately 54 CSEs may 
rely on section 23.160(d) of the Final Rule.\13\ Furthermore, the 
Commission estimates that these CSEs would incur an average of 10 
annual burden hours to maintain books and records properly documenting 
that all of the requirements of this exception are satisfied (including 
policies and procedures ensuring that they are in compliance). Based 
upon the above, the estimated hour burden for collection is calculated 
as follows:
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    \13\ Currently, there are approximately 106 swap entities 
provisionally registered with the Commission. The Commission 
estimates that of the approximately 106 swap entities that are 
provisionally registered, approximately 54 are CSEs that are subject 
to the Commission's margin rules as they are not subject to a 
Prudential Regulator. Because all of these CSEs are eligible to use 
the special provision for non-netting jurisdictions, the Commission 
estimates that 54 CSEs may rely on section 23.160(d) of the Final 
Rule.
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    Estimated number of respondents per year: 54.
    Estimated burden hours per registrant: 10.
    Estimated total annual burden hours: 540.
    Frequency of collection: Once; As needed.
    Burden Statement--Information Collection for Non-Segregation 
Jurisdictions: The Commission currently estimates that there are 
between five and ten jurisdictions for which the first two conditions 
specified above for non-segregation jurisdictions are satisfied and 
where Foreign Consolidated Subsidiaries and foreign branches of U.S. 
CSEs that are subject to the Commission's margin rules may engage in 
swaps. The Commission estimates that approximately12 Foreign 
Consolidated Subsidiaries and foreign branches of U.S. CSEs may rely on 
section 23.160(e) of the Final Rule in some or all of these 
jurisdiction(s). The Commission estimates that each FCS or foreign 
branch of a U.S. CSE relying on this provision would incur an average 
20 annual burden hours to maintain books and records properly 
documenting that all of the requirements of this provision are 
satisfied (including policies and procedures ensuring that they are in 
compliance) with respect to each jurisdiction as to which they rely on 
the special provision. The Commission further estimates that each FCS 
or foreign branch of a U.S. CSE relying on this provision would incur 
an average of 150 additional burden hours per year for all 
jurisdictions as to which they rely on the provision. Based upon the 
above, the estimated hour burden for collection is calculated as 
follows:
    Estimated number of respondents per year: 12.
    Estimated burden hours per registrant: 150.
    Estimated total annual burden hours: 1,800 hours.
    Frequency of collection: Once; As needed.
    There are no capital costs or operating and maintenance costs 
associated with this collection.

    Authority:  44 U.S.C. 3501 et seq.

    Dated: May 24, 2016.
Christopher J. Kirkpatrick,
Secretary of the Commission.
[FR Doc. 2016-12613 Filed 5-27-16; 8:45 am]
 BILLING CODE 6351-01-P