[Federal Register Volume 81, Number 148 (Tuesday, August 2, 2016)]
[Notices]
[Pages 50690-50692]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18213]


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COMMODITY FUTURES TRADING COMMISSION


Agency Information Collection Activities Under OMB Review

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice.

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SUMMARY: In compliance with the Paperwork Reduction Act of 1995, (PRA), 
this notice announces that the Information Collection Request (ICR) 
abstracted below has been forwarded to the Office of Management and 
Budget (OMB) for review and comment. The ICR describes the nature of 
the information collection and its expected costs and burden.

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

ADDRESSES: Comments regarding the burden estimated or any other aspect 
of the information collection, including suggestions on reducing the 
burden, may be submitted directly to the Office of Information and 
Regulatory Affairs (OIRA) in OMB, within 30 days of the notice's 
publication, by email at [email protected]. Please identify 
the comments by OMB Control No. 3038-0111. Please provide the 
Commission with a copy of all submitted comments at the address listed 
below. Please refer to OMB Reference No. 3038-0111, found on http://reginfo.gov. Comments may also be mailed to the Office of Information 
and Regulatory Affairs, Office of Management and Budget, Attention: 
Desk Officer for the Commodity Futures Trading Commission, 725 17th 
Street NW., Washington, DC 20503; or through the Agency's Web site at 
http://comments.cftc.gov. Follow the instructions for submitting 
comments through the Web site.
    Comments may also be mailed to: Christopher Kirkpatrick, Secretary 
of the Commission, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street NW., Washington, DC 20581 or by Hand 
Delivery/Courier at the same address.
    A copy of the supporting statements for the collection of 
information discussed above may be obtained by visiting http://
RegInfo.gov. 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 or a Copy Contact: Laura B. Badian, 
Assistant General Counsel, 202-418-5969, [email protected]; Paul 
Schlichting, Assistant General Counsel, 202-418-5884, 
[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. Please refer to OMB Control No. 3038-0111 in any 
correspondence.

SUPPLEMENTARY INFORMATION:
    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 an 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 establishment 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 Regulator, and 
each swap dealer and major swap participant for which there is no 
Prudential Regulator (collectively, ``Covered Swap Entities'' or 
``CSEs'') 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 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 a 
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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    On May 31, 2016, the Commission published a Final Rule addressing 
the cross-border application of its 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'').\5\ 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 \6\ and non-netting jurisdictions \7\ that were

[[Page 50691]]

not previously proposed. Accordingly, the Commission is requesting 
approval by OMB of the revised information collection under OMB Control 
Number 3038-0111.
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    \5\ 81 FR 34818 (May 31, 2016).
    \6\ 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.
    \7\ 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 Commission's final margin rule (``Final Margin Rule'') \8\ 
to nevertheless net uncleared swaps in determining the amount of margin 
that they post, provided that certain conditions are met.\9\ 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.\10\ 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.\11\
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    \8\ See Margin Requirements for Uncleared Swaps for Swap Dealers 
and Major Swap Participants, 81 FR 636 (Jan. 6, 2016). The Final 
Margin Rule, which became effective April 1, 2016, is codified in 
part 23 of the Commission's regulations. See 17 CFR 23.150-159, 161.
    \9\ 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.
    \10\ 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.
    \11\ 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; \12\ (4) the CSE collects initial 
margin in cash on a gross basis, 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 section 
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 section 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 maintains books and records properly 
documenting that all of the requirements of this provision are 
satisfied.\13\
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    \12\ 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.
    \13\ See 17 CFR 23.160(e).
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    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. The Commission did not receive any 
comments on the 60-day Federal Register notice, 81 FR 34855, dated May 
31, 2016.
     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.\14\ 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

[[Page 50692]]

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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    \14\ 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, or for purposes of the PRA estimate, an average of 
7.5 non-segregation jurisdictions. The Commission estimates that 
approximately 12 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 
Foreign Consolidated Subsidiary or foreign branch of a U.S. CSE relying 
on this provision would incur an average of 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. Thus, 
based on the average of 7.5 non-segregation jurisdictions, the 
Commission estimates that each of the approximately 12 Foreign 
Consolidated Subsidiaries and foreign branches of U.S. CSEs that may 
rely on this provision will incur an estimated 150 average burden hours 
per year (i.e., 20 average burden hours per jurisdiction multiplied by 
7.5). 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: July 27, 2016.
Christopher J. Kirkpatrick,
Secretary of the Commission.
[FR Doc. 2016-18213 Filed 8-1-16; 8:45 am]
 BILLING CODE 6351-01-P