[Federal Register Volume 83, Number 35 (Wednesday, February 21, 2018)]
[Proposed Rules]
[Pages 7413-7423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02560]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 45
[Docket No. OCC-2018-0003]
RIN 1557-AE29
FEDERAL RESERVE SYSTEM
12 CFR Part 237
[Docket No. R-1596]
RIN 7100-AE96
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 349
RIN 3064-AE70
FARM CREDIT ADMINISTRATION
12 CFR Part 624
RIN 3052-AD28
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1221
RIN 2590-AA92
Margin and Capital Requirements for Covered Swap Entities;
Proposed Rule
AGENCY: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA);
and the Federal Housing Finance Agency (FHFA).
ACTION: Notice of proposed rulemaking and request for comment.
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SUMMARY: The Board, OCC, FDIC, FCA, and FHFA (each an Agency and,
collectively, the Agencies) are seeking comment on proposed amendments
to the minimum margin requirements for registered swap dealers, major
swap participants, security-based swap dealers, and major security-
based swap participants for which one of the Agencies is the prudential
regulator (Swap Margin Rule). The Agencies are proposing these
amendments in light of the rules recently adopted by the Board, the
OCC, and the FDIC that impose restrictions on certain non-cleared swaps
and non-cleared security-based swaps and other financial contracts
(Covered QFCs) (the QFC Rules). The QFC Rules amend the definition of
``Qualifying Master Netting Agreement'' in the Federal banking
agencies' regulatory capital and liquidity rules to ensure that a
Covered QFC is not prevented from being part of a Qualifying Master
Netting Agreement solely because the Covered QFC conforms to the new
requirements in the QFC Rules. The FCA also plans to propose amendments
to its capital rules, including potential revisions to its regulatory
definition of ``Qualifying Master Netter Agreement,'' which is expected
to be identical to the definition used in the Federal banking agencies'
regulatory capital and liquidity rules.
The Agencies are proposing to amend the definition of ``Eligible
Master Netting Agreement'' in the Swap Margin Rule so that it remains
harmonized with the amended definition of ``Qualifying Master Netting
Agreement'' in the Federal banking agencies' regulatory capital and
liquidity rules, and amendments to the capital rules that the FCA
separately plans to propose. This proposed rule would also ensure that
netting agreements of firms subject to the Swap Margin Rule are not
excluded from the definition of ``Eligible Master Netting Agreement''
based solely on their compliance with the QFC Rules. The Agencies are
also proposing that any legacy non-cleared swap or non-cleared
security-based swap (i.e., a non-cleared swap or non-cleared security-
based swap entered into before the applicable compliance date) that is
not subject to the margin requirements of the Swap Margin Rule would
not become subject to the provisions of the
[[Page 7414]]
Swap Margin Rule if the non-cleared swap or non-cleared security-based
swap is amended solely to comply with the requirements of the QFC
Rules.
DATES: Comments should be received by April 23, 2018.
ADDRESSES: Interested parties are encouraged to submit written comments
jointly to all of the Agencies. Commenters are encouraged to use the
title ``Margin and Capital Requirements for Covered Swap Entities'' to
facilitate the organization and distribution of comments among the
Agencies. Commenters are also encouraged to identify the number of the
specific question for comment to which they are responding. Comments
should be directed to:
OCC: You may submit comments to the OCC by any of the methods set
forth below. Because paper mail in the Washington, DC area and at the
OCC is subject to delay, commenters are encouraged to submit comments
through the Federal eRulemaking Portal or email, if possible. Please
use the title ``Margin and Capital Requirements for Covered Swap
Entities'' to facilitate the organization and distribution of the
comments. You may submit comments by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
www.regulations.gov. Enter ``Docket ID OCC-2018-0003'' in the Search
Box and click ``Search.'' Click on ``Comment Now'' to submit public
comments.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
Email: [email protected].
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2018-0003'' in your comment. In general, the OCC will
enter all comments received into the docket and publish them on the
Regulations.gov website without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not include any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to
www.regulations.gov. Enter ``Docket ID OCC-2018-003'' in the Search box
and click ``Search.'' Click on ``Open Docket Folder'' on the right side
of the screen. Comments and supporting materials can be viewed and
filtered by clicking on ``View all documents and comments in this
docket'' and then using the filtering tools on the left side of the
screen.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov. The docket may be viewed
after the close of the comment period in the same manner as during the
comment period.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 400 7th Street SW, Washington, DC
20219. For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 649-
6700 or, for persons who are deaf or hearing impaired, TTY, (202) 649-
5597. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect and photocopy comments.
Board: You may submit comments, identified by Docket No. R-1596 and
RIN 7100 AE-96, by any of the following methods:
Agency website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Address to Ann E. Misback, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
All public comments will be made available on the Board's website
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, comments
will not be edited to remove any identifying or contact information.
Public comments may also be viewed electronically or in paper form in
Room 3515, 1801 K Street NW (between 18th and 19th Streets NW), between
9:00 a.m. and 5:00 p.m. on weekdays.
FDIC: You may submit comments, identified by RIN 3064-AE70, by any
of the following methods:
Agency website: http://www.fdic.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency
website.
Email: [email protected]. Include ``RIN 3064-AE70'' on the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/RIN 3064-AE70, Federal Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429.
Hand Delivery/Courier: Comments may be hand delivered to
the guard station at the rear of the 550 17th Street Building (located
on F Street) on business days between 7 a.m. and 5 p.m. All comments
received must include the agency name (FDIC) and RIN 3064-AE70 and will
be posted without change to http://www.fdic.gov/regulations/laws/federal, including any personal information provided.
FCA: We offer a variety of methods for you to submit your comments.
For accuracy and efficiency reasons, commenters are encouraged to
submit comments by email or through the FCA's website. As facsimiles
(fax) are difficult for us to process and achieve compliance with
section 508 of the Rehabilitation Act, we are no longer accepting
comments submitted by fax. Regardless of the method you use, please do
not submit your comments multiple times via different methods. You may
submit comments by any of the following methods:
Email: Send us an email at [email protected].
FCA website: http://www.fca.gov.
Select ``Public Commenters,'' then ``Public Comments,'' and follow
the directions for ``Submitting a Comment.''
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Barry F. Mardock, Deputy Director, Office of
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, VA 22102-5090.
You may review copies of all comments we receive at our office in
McLean, Virginia or on our website at http://www.fca.gov. Once you are
in the website, select ``Public Commenters,'' then ``Public Comments,''
and follow the directions for ``Reading Submitted Public Comments.'' We
will show your comments as submitted, including any
[[Page 7415]]
supporting data provided, but for technical reasons we may omit items
such as logos and special characters. Identifying information that you
provide, such as phone numbers and addresses, will be publicly
available. However, we will attempt to remove email addresses to help
reduce internet spam.
FHFA: You may submit your written comments on the proposed
rulemaking, identified by regulatory information number (RIN) 2590-
AA92, by any of the following methods:
Email: Comments to Alfred M. Pollard, General Counsel, may
be sent by email at [email protected]. Please include ``RIN 2590-
AA92'' in the subject line of the message. Federal eRulemaking Portal:
http://www.regulations.gov. Follow the instructions for submitting
comments. If you submit your comment to the Federal eRulemaking Portal,
please also send it by email to FHFA at [email protected] to ensure
timely receipt by the Agency. Please include ``RIN 2590-AA92'' in the
subject line of the message.
U.S. Mail, United Parcel Service, Federal Express, or
Other Mail Service: The mailing address for comments is: Alfred M.
Pollard, General Counsel, Attention: Comments/RIN 2590-AA45, Federal
Housing Finance Agency, Eighth Floor, 400 7th St. SW, Washington, DC
20219.
Hand Delivery/Courier: The hand delivery address is:
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AA45,
Federal Housing Finance Agency, Eighth Floor, 400 7th St. SW,
Washington, DC 20219. A hand-delivered package should be logged at the
Guard Desk, First Floor, on business days between 9 a.m. and 5 p.m. All
comments received by the deadline will be posted for public inspection
without change, including any personal information you provide, such as
your name and address, on the FHFA website at http://www.fhfa.gov.
Copies of all comments timely received will be available for public
inspection and copying at the address above on government-business days
between the hours of 10 a.m. and 3 p.m. To make an appointment to
inspect comments please call the Office of General Counsel at (202)
649-3804.
FOR FURTHER INFORMATION CONTACT:
OCC: Allison Hester-Haddad, Counsel, Legislative and Regulatory
Activities Division, (202) 649-5490, for persons who are deaf or
hearing impaired, TTY (202) 649-5597, Office of the Comptroller of the
Currency, 400 7th Street SW, Washington, DC 20219.
Board: Anna M. Harrington, Senior Supervisory Financial Analyst,
(202) 452-6406, or Kelly Tomera, Financial Analyst, (202) 912-7861,
Division of Supervision and Regulation; Adam Cohen, Counsel, (202) 912-
4658, Victoria M. Szybillo, Counsel, (202) 475-6325, or Jason Shafer,
Senior Attorney, (202) 728-5811, Legal Division, Board of Governors of
the Federal Reserve System, 20th and C Streets NW, Washington, DC
20551.
FDIC: Irina Leonova, Senior Policy Analyst, Capital Markets Branch,
Division of Risk Management Supervision, (202) 898-3843,
[email protected]; Phillip E. Sloan, Counsel, Legal Division,
[email protected], (703) 562-6137, Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC 20429.
FCA: J.C. Floyd, Associate Director, Finance & Capital Markets
Team, Timothy T. Nerdahl, Senior Policy Analyst--Capital Markets,
Jeremy R. Edelstein, Senior Policy Analyst, Office of Regulatory
Policy, (703) 883-4414, TTY (703) 883-4056, or Richard A. Katz, Senior
Counsel, Office of General Counsel, (703) 883-4020, TTY (703) 883-4056,
Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-
5090.
FHFA: Ron Sugarman, Principal Policy Analyst, Office of Policy
Analysis and Research, (202) 649-3208, [email protected], or James
Jordan, Assistant General Counsel, Office of General Counsel, (202)
649-3075, [email protected], Federal Housing Finance Agency,
Constitution Center, 400 7th St. SW, Washington, DC 20219. The
telephone number for the Telecommunications Device for the Hearing
Impaired is (800) 877-8339.
I. Background
A. The Swap Margin Rule
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) was enacted on July 21, 2010.\1\ Title VII of the
Dodd-Frank Act established a comprehensive new regulatory framework for
derivatives, which the Dodd-Frank Act generally characterizes as
``swaps'' (swap is defined in section 721 of the Dodd-Frank Act to
include, among other things, an interest rate swap, commodity swap,
equity swap, and credit default swap) and ``security-based swaps''
(security-based swap is defined in section 761 of the Dodd-Frank Act to
include a swap based on a single security or loan or on a narrow-based
security index).\2\ For the remainder of this preamble, the term
``swaps'' refers to swaps and security-based swaps unless the context
requires otherwise.
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\2\ See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68).
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Sections 731 and 764 of the Dodd-Frank Act required the Office of
the Comptroller of the Currency (OCC); Board of Governors of the
Federal Reserve System (Board); Federal Deposit Insurance Corporation
(FDIC); Farm Credit Administration (FCA); and the Federal Housing
Finance Agency (FHFA) (collectively, the Agencies) to adopt rules
jointly that establish capital and margin requirements for swap
entities \3\ that are prudentially regulated by one of the Agencies
(covered swap entities),\4\ to offset the greater risk to the
[[Page 7416]]
covered swap entity and the financial system arising from swaps that
are not cleared by a registered derivatives clearing organization or a
registered clearing agency (non-cleared swaps).\5\ On November 30,
2015, the Agencies published a joint final rule (Swap Margin Rule) to
establish minimum margin and capital requirements for covered swap
entities.\6\
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\3\ See 7 U.S.C. 6s; 15 U.S.C. 78o-10. Sections 731 and 764 of
the Dodd-Frank Act add a new section 4s to the Commodity Exchange
Act of 1936, as amended, and a new section, section 15F, to the
Securities Exchange Act of 1934, as amended, respectively, which
require registration with the Commodity Futures Trading Commission
(CFTC) of swap dealers and major swap participants and the U.S.
Securities and Exchange Commission (SEC) of security-based swap
dealers and major security-based swap participants (each a swap
entity and, collectively, swap entities). The CFTC is vested with
primary responsibility for the oversight of the swaps market under
Title VII of the Dodd-Frank Act. The SEC is vested with primary
responsibility for the oversight of the security-based swaps market
under Title VII of the Dodd-Frank Act. Section 712(d)(1) of the
Dodd-Frank Act requires the CFTC and SEC to issue joint rules
further defining the terms swap, security-based swap, swap dealer,
major swap participant, security-based swap dealer, and major
security-based swap participant. The CFTC and SEC issued final joint
rulemakings with respect to these definitions in May 2012 and August
2012, respectively. See 77 FR 30596 (May 23, 2012); 77 FR 39626
(July 5, 2012) (correction of footnote in the Supplementary
Information accompanying the rule); and 77 FR 48207 (August 13,
2012). 17 CFR part 1; 17 CFR parts 230, 240 and 241.
\4\ Section 1a(39) of the Commodity Exchange Act of 1936, as
amended, defines the term ``prudential regulator'' for purposes of
the margin requirements applicable to swap dealers, major swap
participants, security-based swap dealers and major security-based
swap participants. The Board is the prudential regulator for any
swap entity that is (i) a state-chartered bank that is a member of
the Federal Reserve System, (ii) a state-chartered branch or agency
of a foreign bank, (iii) a foreign bank which does not operate an
insured branch, (iv) an organization operating under section 25A of
the Federal Reserve Act of 1913, as amended, or having an agreement
with the Board under section 25 of the Federal Reserve Act, or (v) a
bank holding company, a foreign bank that is treated as a bank
holding company under section 8(a) of the International Banking Act
of 1978, as amended, or a savings and loan holding company (on or
after the transfer date established under section 311 of the Dodd-
Frank Act), or a subsidiary of such a company or foreign bank (other
than a subsidiary for which the OCC or the FDIC is the prudential
regulator or that is required to be registered with the CFTC or SEC
as a swap dealer or major swap participant or a security-based swap
dealer or major security-based swap participant, respectively). The
OCC is the prudential regulator for any swap entity that is (i) a
national bank, (ii) a federally chartered branch or agency of a
foreign bank, or (iii) a Federal savings association. The FDIC is
the prudential regulator for any swap entity that is (i) a State-
chartered bank that is not a member of the Federal Reserve System,
or (ii) a State savings association. The FCA is the prudential
regulator for any swap entity that is an institution chartered under
the Farm Credit Act of 1971, as amended. The FHFA is the prudential
regulator for any swap entity that is a ``regulated entity'' under
the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992, as amended (i.e., the Federal National Mortgage Association
and its affiliates, the Federal Home Loan Mortgage Corporation and
its affiliates, and the Federal Home Loan Banks). See 7 U.S.C.
1a(39).
\5\ See 7 U.S.C. 6s(e)(3)(A); 15 U.S.C. 78o-10(e)(3)(A).
\6\ 80 FR 74840 (November 30, 2015).
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In the Swap Margin Rule, the Agencies adopted a risk-based approach
for initial and variation margin requirements for covered swap
entities.\7\ To implement the risk-based approach, the Agencies
established requirements for a covered swap entity to collect and post
initial margin for non-cleared swaps with a counterparty that is
either: (1) A financial end user with material swaps exposure,\8\ or
(2) a swap entity.\9\ A covered swap entity must collect and post
variation margin for non-cleared swaps with all swap entities and
financial end user counterparties, even if such financial end users do
not have material swaps exposure.\10\ Other counterparties, including
nonfinancial end users, are not subject to specific, numerical minimum
requirements for initial and variation margin.\11\
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\7\ 80 FR 74843.
\8\ ``Material swaps exposure'' for an entity means that the
entity and its affiliates have an average daily aggregate notional
amount of non-cleared swaps, non-cleared security-based swaps,
foreign exchange forwards, and foreign exchange swaps with all
counterparties for June, July, and August of the previous calendar
year that exceeds $8 billion, where such amount is calculated only
for business days. See Sec. _.2 of the Swap Margin Rule.
\9\ See Sec. Sec. _.3 and _.4 of the Swap Margin Rule.
\10\ Id.
\11\ Id.
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The effective date for the Swap Margin Rule was April 1, 2016, but
the Agencies established a phase-in compliance schedule for the initial
margin and variation margin requirements.\12\ On or after March 1,
2017, all covered swap entities are required to comply with the
variation margin requirements for transactions with other swap entities
and financial end user counterparties. By September 1, 2020, all
covered swap entities will be required to comply with the initial
margin requirements for non-cleared swaps with all financial end users
with a material swaps exposure and all swap entities.
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\12\ The applicable compliance date for a covered swap entity is
based on the average daily aggregate notional amount of non-cleared
swaps, foreign exchange forwards and foreign exchange swaps of the
covered swap entity and its counterparty (accounting for their
respective affiliates) for each business day in March, April and May
of that year. The applicable compliance dates for initial margin
requirements, and the corresponding average daily notional
thresholds, are: September 1, 2016, $3 trillion; September 1, 2017,
$2.25 trillion; September 1, 2018, $1.5 trillion; September 1, 2019,
$0.75 trillion; and September 1, 2020, all swap entities and
counterparties. See Sec. _.1(e) of the Swap Margin Rule.
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The Swap Margin Rule's requirements apply only to a non-cleared
swap entered into on or after the applicable compliance date (covered
swap); a non-cleared swap entered into prior to a covered swap entity's
applicable compliance date (legacy swap) is generally not subject to
the margin requirements in the Swap Margin Rule.\13\ However, a legacy
swap that is later amended or novated on or after the applicable
compliance date would be deemed to be a covered swap, and therefore
would become subject to the requirements of the Swap Margin Rule.\14\
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\13\ See Sec. _.1(e) of the Swap Margin Rule.
\14\ 80 FR 74850-51.
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Whether a non-cleared swap is deemed to be a legacy swap or a
covered swap also affects the treatment of a covered swap entity's
netting portfolios. The Swap Margin Rule permits a covered swap entity
to (1) calculate initial margin requirements for covered swaps under an
eligible master netting agreement (EMNA) with a counterparty on a
portfolio basis in certain circumstances, if it does so using an
initial margin model; and (2) calculate variation margin on an
aggregate net basis under an EMNA.\15\ In addition, the Swap Margin
Rule permits swap counterparties to identify one or more separate
netting portfolios under an EMNA, including netting sets of covered
swaps and netting sets of non-cleared swaps that are not subject to
margin requirements.\16\ Specifically, a netting portfolio that
contains only legacy swaps is not subject to the margin requirements
set out in the Swap Margin Rule.\17\ However, if a netting portfolio
contains any covered swaps, the entire netting portfolio is subject to
the margin requirements of the Swap Margin Rule.\18\
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\15\ See Sec. Sec. _.2 and .5 of the Swap Margin Rule.
\16\ Typically, this is accomplished by using a separate Credit
Support Annex for each netting set, subject to the terms of a single
master netting agreement.
\17\ See Sec. Sec. _.2 and _.5 of the Swap Margin Rule.
\18\ Id.
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B. The QFC Rules
As part of the broader regulatory reform effort following the
financial crisis to increase the resolvability and resiliency of U.S.
global systemically important banking institutions \19\ (U.S. GSIBs)
and the U.S. operations of foreign GSIBs (together, GSIBs),\20\ the
Board, the OCC, and the FDIC adopted final rules that establish
restrictions on and requirements for certain non-cleared swaps and
other financial contracts (collectively, Covered QFCs) of GSIBs and
their subsidiaries (the QFC Rules).\21\
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\19\ See 12 CFR 217.402 (defining global systemically important
banking institution). The eight firms currently identified as U.S.
GSIBs are Bank of America Corporation, The Bank of New York Mellon
Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JP Morgan
Chase & Co., Morgan Stanley Inc., State Street Corporation, and
Wells Fargo & Company.
\20\ The U.S. operations of 20 foreign GSIBs are currently
subject to the Board's QFC Rule.
\21\ See 12 CFR 252.82(c) (defining Covered QFC), 382.2(c)
(same). See also 82 FR 56630 (November 29, 2017) (for OCC's QFC
Rule). See also 82 FR 50228 (October 30, 2017) (for FDIC's QFC
Rule). See also 82 FR 42882 (September 12, 2017) (for the Board's
QFC Rule). The effective date of the Board's QFC Rule was November
13, 2017, and the effective date for the substance of the OCC's and
FDIC's QFC Rules was January 1, 2018. The QFC Rules include a
phased-in conformance period for a Covered QFC Entity that varies
depending upon the counterparty type of the Covered QFC Entity. The
first conformance date is January 1, 2019, and applies to Covered
QFCs with GSIBs. The QFC Rules provide Covered QFC Entities an
additional six months or one year to conform its Covered QFCs with
other types of counterparties.
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Subject to certain exemptions, the QFC Rules require U.S. GSIBs,
together with their subsidiaries, and the U.S. operations of foreign
GSIBs (each a Covered QFC Entity and, collectively, Covered QFC
Entities) to conform Covered QFCs to the requirements of the rules.\22\
The QFC Rules generally require the Covered QFCs of Covered QFC
Entities to contain contractual provisions that opt into the
``temporary stay-and-transfer treatment'' of the Federal Deposit
Insurance Act (FDI Act) \23\ and Title II of the Dodd-Frank Act,
thereby reducing the risk that the stay-and-transfer treatment would be
challenged by a Covered QFC Entity's counterparty or a court in a
foreign jurisdiction.\24\ The temporary stay-and-transfer treatment is
part of the special
[[Page 7417]]
resolution framework for failed financial firms created by the FDI Act
and Title II of the Dodd-Frank Act. The stay-and-transfer treatment
provides that the rights of a failed insured depository institution's
or financial company's counterparties to terminate, liquidate, or net
certain qualified financial contracts on account of the appointment of
the FDIC as receiver for the entity (or the insolvency or financial
condition of the entity for which the FDIC has been appointed receiver)
are temporarily stayed when the entity enters a resolution proceeding
to allow for the transfer of the failed firm's Covered QFCs to a
solvent party.\25\ The QFC Rules also generally prohibit Covered QFCs
from allowing the exercise of default rights related, directly or
indirectly, to the entry into resolution of an affiliate of the Covered
QFC Entity (cross-default rights).\26\
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\22\ To the extent a U.S. GSIB, any of its subsidiaries, or the
U.S. operations of a foreign GSIB include a swap entity for which
one of the Agencies is a prudential regulator, a Covered QFC Entity
may be a covered swap entity.
\23\ 12 U.S.C. 1811 et. seq.
\24\ 82 FR 42882 (September 12, 2017); 82 FR 50228 (October 30,
2017); 82 FR 56630 (November 29, 2017).
\25\ 12 U.S.C. 1821(e)(10)(B), 5390(c)(10)(B). Title II of the
Dodd-Frank Act also provides the FDIC with the power to enforce
Covered QFCs (and other contracts) of subsidiaries and affiliates of
the financial company for which the FDIC has been appointed
receiver. 12 U.S.C. 5390(c)(16); 12 CFR 380.12.
\26\ 82 FR 42882 (September 12, 2017); 82 FR 50228 (October 30,
2017); 82 FR 56630 (November 29, 2017).
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The Board's QFC Rule applies to U.S. GSIBs and their subsidiaries,
state branches, and state agencies, as well other U.S. operations of
foreign GSIBs with the exception of banks regulated by the FDIC or OCC,
Federal branches, or Federal agencies.\27\ The FDIC's QFC Rule applies
to GSIB subsidiaries that are state savings associations and state-
chartered banks that are not members of the Federal Reserve System.\28\
The OCC's QFC Rule applies to national bank subsidiaries and Federal
savings association subsidiaries of GSIBs, and Federal branches and
agencies of foreign GSIBs.\29\
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\27\ 82 FR 42882 (September 12, 2017).
\28\ 82 FR 50228 (October 30, 2017).
\29\ 82 FR 56630 (November 29, 2017).
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C. The Definitions of Qualifying Master Netting Agreement
As part of the QFC Rules, the Federal banking agencies amended the
definition of qualifying master netting agreement (QMNA) in their
capital and liquidity rules to prevent the QFC Rules from having
disruptive effects on the treatment of netting sets of Board-regulated
firms, OCC-regulated firms, and FDIC-regulated firms.\30\ The FCA plans
to propose several technical and clarifying amendments to its capital
regulations, including a possible revision to the definition of QMNA so
it continues to be identical to the definition in the regulations of
the Federal banking agencies' regulatory capital and liquidity
rules.\31\
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\30\ 82 FR 42882, 42915; 82 FR 50228, 50258; 82 FR 56630, 56659.
\31\ See FCA's Fall 2017 Unified Agenda (www.RegInfo.gov). The
FCA's Tier 1/Tier 2 Capital Framework's existing definition of QMNA
is identical to the previous definition of QMNA used in the Federal
banking agencies' capital and liquidity rules.
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The amendments to the Federal banking agencies' capital and
liquidity rules are necessary because the previous QMNA definition did
not recognize some of the new close-out restrictions on Covered QFCs
imposed by the QFC Rules.\32\ Pursuant to the previous definition of
QMNA, a banking organization's rights under a QMNA generally could not
be stayed or avoided in the event of its counterparty's default.
However, the definition of QMNA permitted certain exceptions to this
general prohibition to accommodate certain restrictions on the exercise
of default rights that are important to the prudent resolution of a
banking organization, including a limited stay under a special
resolution regime, such as Title II of the Dodd-Frank Act, the FDI Act,
and comparable foreign resolution regimes. The previous QMNA definition
did not explicitly recognize all the restrictions on the exercise of
cross-default rights.\33\ Therefore, a master netting agreement that
complies with the QFC Rules by limiting the rights of a Covered QFC
Entity's counterparty to close out against the Covered QFC Entity would
not meet the previous QMNA definition. Thus, a failure to meet the
definition of QMNA would result in a banking organization subject to
one of the Federal banking agencies' capital and liquidity rules losing
the ability to net offsetting exposures under its applicable capital
and liquidity requirements when its counterparty is a Covered QFC
Entity. If netting were not permitted, the banking organization would
be required to calculate its capital and liquidity requirements
relating to certain Covered QFCs on a gross basis rather than on a net
basis, which would typically result in higher capital and liquidity
requirements. The Federal banking agencies do not believe that such an
outcome would accurately reflect the risks posed by the affected
Covered QFCs.
---------------------------------------------------------------------------
\32\ 12 CFR 3.2 (2017); 12 CFR 50.3 (2017); 12 CFR 217.2 (2017);
12 CFR 249.3 (2017); 12 CFR 324.2; 12 CFR 329.3.
\33\ See, e.g., 12 CFR 252.84(b)(1).
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The amendments to the QMNA definition maintain the netting
treatment for these contracts under the Federal banking agencies'
capital and liquidity rules. The amendments permit a master netting
agreement to meet the definition of QMNA even if it limits the banking
organization's right to accelerate, terminate, and close-out on a net
basis all transactions under the agreement and to liquidate or set-off
collateral promptly upon an event of default of a counterparty that is
a Covered QFC Entity to the extent necessary for the Covered QFC Entity
to comply fully with the QFC Rules. The amended definition of QMNA
continues to recognize that default rights may be stayed if the
defaulting counterparty is in resolution under the Dodd-Frank Act, the
FDI Act, a substantially similar law applicable to government-sponsored
enterprises, or a substantially similar foreign law, or where the
agreement is subject by its terms to, or incorporates, any of those
laws. By recognizing these required restrictions on the ability of a
banking organization to exercise close-out rights when its counterparty
is a Covered QFC Entity, the amended definition allows a master netting
agreement that includes such restrictions to continue to meet the
definition of QMNA under the Federal banking agencies' capital and
liquidity rules.
II. Proposed Changes to the Swap Margin Rule
A. Proposed Amendment to the Definition of Eligible Master Netting
Agreement
In the Swap Margin Rule, the Agencies explained that the current
definition of EMNA was purposefully aligned with the Federal banking
agencies' then-current definition of QMNA in the capital and liquidity
rules. This was to ``minimize operational burden for a covered swap
entity, which otherwise would have to make a separate determination as
to whether its netting agreements meet the requirements of this [Swap
Margin Rule] as well as comply with the regulatory capital rules.''
\34\ In addition, the Agencies' rationale for recognizing netting of
non-cleared swap exposures pursuant to the Swap Margin Rule is quite
similar to the Federal banking agencies' rationale for recognizing
netting of various asset and liability exposures pursuant to their
capital and liquidity rules. Therefore, it is appropriate that the
corresponding conditions for recognizing a robust
[[Page 7418]]
netting set under all three rules be the same.
---------------------------------------------------------------------------
\34\ 80 FR 74861. The Swap Margin Rule used the term EMNA rather
than QMNA to avoid confusion with, and to distinguish from, the term
used under the Federal banking agencies' capital and liquidity
rules.
---------------------------------------------------------------------------
Like the definition of QMNA, the definition of EMNA recognizes that
default rights of the covered swap entity may be stayed pursuant to a
special resolution regime such as Title II of the Dodd-Frank Act, the
FDI Act, the Federal Housing Enterprises Financial Safety and Soundness
Act of 1992, the Farm Credit Act of 1971, and comparable foreign
resolution regimes. However, as was the case with the previous
definition of QMNA, the current EMNA definition does not explicitly
recognize certain restrictions on the exercise of cross-default rights
imposed under the QFC Rules. Therefore, a master netting agreement that
is amended in order to address a Covered QFC Entity's compliance with
the QFC Rules will not meet the current definition of EMNA from the
standpoint of a Covered QFC Entity's counterparty that is a covered
swap entity. Failure to meet the definition of EMNA would require that
covered swap entity to measure its exposures from covered swaps on a
gross, rather than net, basis for purposes of the Swap Margin Rule.
This outcome would be an unintended consequence of the QFC Rules and
would be contrary to the policy decisions expressed in the Swap Margin
Rule to permit initial margin to be calculated on a net basis for
covered swaps subject to netting agreements.
Accordingly, the Agencies are proposing to add a new paragraph to
the definition of ``eligible master netting agreement'' to make clear
that a master netting agreement meets the definition under the Swap
Margin Rule when the agreement limits ``the right to accelerate,
terminate, and close-out on a net basis all transactions under the
agreement and to liquidate or set-off collateral promptly upon an event
of default of the counterparty to the extent necessary for the
counterparty to comply with the requirements of part 47, Subpart I of
part 252 or part 382 of Title 12, as applicable.'' This text is
identical to the corresponding text used in the amended definition of
QMNA in the Federal banking agencies' capital and liquidity rules.
B. Proposed Amendment to the Meaning of ``Swaps Entered Into''
As discussed above, the Swap Margin Rule's requirements apply only
to covered swaps.\35\ Legacy swaps will generally not be subject to the
Swap Margin Rule's initial and variation margin requirements.\36\
However, in the preamble to the Swap Margin Rule, the Agencies declined
to include language extending legacy swap treatment to a swap if it is
subsequently novated or amended after the applicable compliance
date.\37\ At the time, the Agencies did not contemplate that legacy
swaps might be amended solely to meet other regulatory requirements
imposed by one or more of the Agencies, such as the QFC Rules.
---------------------------------------------------------------------------
\35\ See supra note 13.
\36\ However, a legacy swap may be subject to margin
requirements if it is part of a netting set that includes non-
cleared swaps that are entered into after the compliance date
applicable to the covered swap entity.
\37\ 80 FR 74850-74851. The Agencies articulated concerns about
potential evasion of the rule if legacy swaps could be materially
amended and remain not subject to the requirements of the Swap
Margin Rule, as well as the difficulty of administrating a more
complex regulatory approach that attempted to draw distinctions
among the materiality of, or the intended purpose of, amendments to
legacy swaps.
---------------------------------------------------------------------------
As discussed above, Covered QFC Entities must conform to the
requirements of the QFC Rules Covered QFCs entered into on or after
January 1, 2019 and, in some instances, Covered QFCs entered into
before that date.\38\ To comply with the requirements governing the
restrictions on Covered QFCs, a Covered QFC Entity may directly amend
the contractual provisions of its Covered QFCs, or alternatively, cause
its Covered QFCs to be subject to the International Swaps and
Derivatives Association 2015 Resolution Stay Protocol (``Universal
Protocol'') or a yet-to-be-developed protocol that is expected to be
similar to the Universal Protocol.\39\ Therefore, in order to provide
clarity to market participants as to the effects of an amendment that
is required by the QFC Rules to a legacy QFC that is a legacy swap, the
Agencies are proposing an amendment to the Swap Margin Rule that makes
clear that a legacy swap will not be deemed a covered swap under the
Swap Margin Rule if it is amended, either by a direct amendment or a
modification causing the legacy swap to be governed by one of the
aforementioned protocols, by either counterparty solely to conform to
the QFC Rules.
---------------------------------------------------------------------------
\38\ The QFC Rules require a Covered QFC Entity to conform
Covered QFCs entered into, executed, or to which it otherwise became
a party before January 1, 2019 (legacy QFCs), if the Covered QFC
Entity or any affiliate that is a Covered QFC Entity also enters,
executes, or otherwise becomes a party to a new Covered QFC with the
counterparty to the preexisting Covered QFC or a consolidated
affiliate of the counterparty on or after January 1, 2019. See,
e.g., 12 CFR 252.82 (2017); 12 CFR 382.2 (2017).
\39\ The QFC Rules set forth requirements for the yet-to-be
developed protocol to be an acceptable alternative protocol for
purposes of the QFC Rules, which would cause the new protocol to
differ from the Universal Protocol. The QFC Rules also permit the
new protocol to include certain other differences from the Universal
Protocol. For example, the yet-to-be developed protocol is permitted
to allow Covered QFC counterparties to adhere only with respect to
Covered QFC Entities.
---------------------------------------------------------------------------
This proposal is intended to provide certainty to a covered swap
entity and its counterparties about the treatment of legacy swaps and
any applicable netting arrangements in light of the QFC Rules. However,
if in addition to amendments required to comply with the QFC Rules, any
other amendments are contemporaneously entered into, the amended legacy
swap will be treated as a covered swap in accordance with the
application of the existing Swap Margin Rule.
III. Regulatory Analysis
A. Paperwork Reduction Act
OCC: In accordance with 44 U.S.C. 3512, the OCC may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid OMB control number. The
OCC reviewed the proposed rule and concluded that it contains no
requirements subject to the PRA.
Board: In accordance with section 3512 of the Paperwork Reduction
Act of 1995 (PRA) (44 U.S.C. 3501-3521), the Board may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The Board reviewed the proposed rule
under the authority delegated to them by OMB. The proposed rule
contains no requirements subject to the PRA.
FDIC: In accordance with the requirements of the PRA, the FDIC may
not conduct or sponsor, and a respondent is not required to respond to,
an information collection unless it displays a currently valid OMB
control number. The FDIC reviewed the proposed rule and concludes that
it contains no requirements subject to the PRA. Therefore, no
submission will be made to OMB for review.
FCA: The FCA has determined that the proposed rule does not involve
a collection of information pursuant to the Paperwork Reduction Act for
Farm Credit System institutions because Farm Credit System institutions
are Federally chartered instrumentalities of the United States and
instrumentalities of the United States are specifically excepted from
the definition of ``collection of information'' contained in 44 U.S.C.
3502(3).
FHFA: The proposed rule amendments do not contain any
[[Page 7419]]
collections of information pursuant to the Paperwork Reduction Act of
1995 (44 U.S.C. 3501 et seq.). Therefore, FHFA has not submitted any
information to the Office of Management and Budget for review.
B. Initial Regulatory Flexibility Act Analysis
OCC: In general, the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
et seq.) requires that in connection with a rulemaking, an agency
prepare and make available for public comment a regulatory flexibility
analysis that describes the impact of the rule on small entities. Under
section 605(b) of the RFA, this analysis is not required if an agency
certifies that the rule will not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a brief explanatory statement in the Federal Register along with
its rule.
The OCC currently supervises approximately 956 small entities.\40\
None of these entities is a covered swap entity. Moreover, because the
OCC assumes that this proposal will be implemented before any OCC-
supervised entities are required to comply with the QFC Rules, the OCC
believes that the proposal will not result in savings--or more than de
minimis costs--for OCC-supervised entities. Therefore, the OCC
certifies that the proposed rule will not have a significant economic
impact on a substantial number of small OCC-regulated entities.
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\40\ The OCC bases its estimate of the number of small entities
on the Small Business Association's size thresholds for commercial
banks and savings institutions, and trust companies, which are $550
million and $38.5 million, respectively. Consistent with the General
Principles of Affiliation 13 CFR 121.103(a), the OCC counts the
assets of affiliated financial institutions when determining if we
should classify an OCC-supervised institution a small entity. The
OCC used December 31, 2016, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
---------------------------------------------------------------------------
Board: In accordance with section 3(a) of the Regulatory
Flexibility Act, 5 U.S.C. 601 et seq. (RFA), the Board is publishing an
initial regulatory flexibility analysis for the proposed rule. The RFA
requires an agency to provide an initial regulatory flexibility
analysis with the proposed rule or to certify that the proposed rule
will not have a significant economic impact on a substantial number of
small entities. The Board welcomes comment on all aspects of the
initial regulatory flexibility analysis. A final regulatory flexibility
analysis will be conducted after consideration of comments received
during the public comment period.
1. Description of the reasons why action by the Board is being
considered and statement of the objectives of the proposal. The Board
is proposing to amend the definition of Eligible Master Netting
Agreement in the Swap Margin Rule so that it remains harmonized with
the amended definition of ``Qualifying Master Netting Agreement'' in
the Federal banking agencies' regulatory capital and liquidity rules.
The Board is also proposing an amendment that will make clear that a
legacy swap (a non-cleared swap entered into before the applicable
compliance date) that is not subject to the requirements of the Swap
Margin Rule will not be deemed a covered swap under the Swap Margin
Rule if it is amended solely to conform to the QFC Rules.
2. Small entities affected by the proposal. This proposal would
apply to financial institutions that are covered swap entities that are
subject to the requirements of the Swap Margin Rule. Under Small
Business Administration (SBA) regulations, the finance and insurance
sector includes commercial banking, savings institutions, credit
unions, other depository credit intermediation and credit card issuing
entities (financial institutions). With respect to financial
institutions that are covered swap entities under the Swap Margin Rule,
a financial institution generally is considered small if it has assets
of $550 million or less.\41\ Covered swap entities would be considered
financial institutions for purposes of the RFA in accordance with SBA
regulations. The Board does not expect that any covered swap entity is
likely to be a small financial institution, because a small financial
institution is unlikely to engage in the level of swap activity that
would require it to register as a swap dealer or a major swap
participant with the CFTC and SEC, respectively.\42\ None of the
current covered swap entities are small entities.
---------------------------------------------------------------------------
\41\ See 13 CFR 121.201 (effective December 2, 2014); see also
13 CFR 121.103(a)(6) (noting factors that the SBA considers in
determining whether an entity qualifies as a small business,
including receipts, employees, and other measures of its domestic
and foreign affiliates).
\42\ The CFTC has published a list of provisionally registered
swap dealers as of November 20, 2017 that does not include any small
financial institutions. See http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer. The SEC has not yet imposed a
registration requirement on entities that meet the definition of
security-based swap dealer or major security-based swap participant.
---------------------------------------------------------------------------
3. Reporting, recordkeeping and compliance requirements. The
proposed amendments apply to covered swap entities. As a result of the
proposals, the economic impact on covered swap entities will be
positive as they will continue to be able to enter into netting
agreements that allow margin to be calculated on a net basis, rather
than a gross basis. In addition, absent this proposal, legacy swaps
that are not currently subject to the margin requirements of the Swap
Margin Rule would be required to comply with the provisions of the Swap
Margin Rule solely because of amendments made to conform to the
requirements of the QFC Rules.
4. Other Federal rules. Absent this proposal, the definition of
EMNA would conflict with the definition of QMNA in the Federal banking
agencies' regulatory capital and liquidity rules. This would result in
additional compliance costs for firms that are subject to both
definitions. In addition, absent these amendments, there would be a
conflict between what the QFC Rules require in Covered QFCs and the
policy determination previously made by the Board about the application
of the Swap Margin Rule to legacy swaps.
5. Significant alternatives to the proposed rule. As discussed
above, the Agencies have requested comment on the scope of the proposed
amendments and have solicited comment on any approaches that would
reduce the burden on covered swap entities. The Board welcomes comment
on any significant alternatives that would minimize the impact of the
proposal on small entities.
FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires an agency to provide an initial regulatory flexibility
analysis with a proposed rule, unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities (defined by the Small Business Administration
for purposes of the RFA to include banking entities with total assets
of $550 million or less).
According to the most recent data from the Consolidated Reports of
Income and Condition (CALL Report), the FDIC supervised 3,674
institutions. Of those, 2,950 are considered ``small,'' according to
the terms of the Regulatory Flexibility Act. The proposed rule
primarily affects covered swap entities. The FDIC believes that FDIC-
supervised small entities are unlikely to be a covered swap entity
because such entities are unlikely to engage in the level of swap
activity that would require them to register as a swap entity. The Swap
Margin Rule implements sections 731 and 764 of the Dodd-Frank Act, as
amended by the Terrorism Risk Insurance Program Reauthorization Act
[[Page 7420]]
of 2015 (``TRIPRA''). Because TRIPRA excludes non-cleared swaps entered
into for hedging purposes by a financial institution with total assets
of $10 billion or less from the requirements of the Swap Margin Rule,
when a covered swap entity transacts non-cleared swaps with a small
entity supervised by the FDIC, and such swaps are used to hedge a
commercial risk of the small entity, those swaps will not be subject to
the Swap Margin Rule. The FDIC believes that it is unlikely that any
small entity it supervises will engage in non-cleared swaps for
purposes other than hedging. Therefore, it is unlikely that the
amendments included in the proposed rule would result in a significant
economic impact on a substantial number of small entities under its
supervisory jurisdiction.
For these reasons, the FDIC certifies that the Proposed Rule, if
adopted in final form, would not have a significant economic impact on
a substantial number of small entities, within the meaning of those
terms as used in the RFA. Accordingly, a regulatory flexibility
analysis is not required.
FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act,
5 U.S.C. 601 et seq., FCA hereby certifies that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. Each of the banks in the Farm Credit System, considered
together with its affiliated associations, has assets and annual income
in excess of the amounts that would qualify them as small entities; nor
does the Federal Agricultural Mortgage Corporation meet the definition
of ``small entity.'' Therefore, System institutions are not ``small
entities'' as defined in the Regulatory Flexibility Act.
FHFA: The Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
requires that a regulation that has a significant economic impact on a
substantial number of small entities, small businesses, or small
organizations must include an initial regulatory flexibility analysis
describing the regulation's impact on small entities. FHFA need not
undertake such an analysis if the agency has certified the regulation
will not have a significant economic impact on a substantial number of
small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the
proposed rule under the Regulatory Flexibility Act, and certifies that
the proposed rule, if adopted as a final rule, would not have a
significant economic impact on a substantial number of small entities
because the proposed rule is applicable only FHFA's regulated entities,
which are not small entities for purposes of the Regulatory Flexibility
Act.
C. Solicitation of Comments on the Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the U.S. banking
agencies to use plain language in proposed and final rulemakings.\43\
The Agencies have sought to present the proposed rule in a simple and
straightforward manner, and invite comment on the use of plain language
in this proposal.
---------------------------------------------------------------------------
\43\ 12 U.S.C. 4809(a).
---------------------------------------------------------------------------
Question 1: Have the Agencies organized the proposal in a clear
way? If not, how could the proposal be organized more clearly?
Question 2: Are the requirements of the proposed rule clearly
stated? If not, how could they be stated more clearly?
Question 3: Does the proposal contain unclear technical language or
jargon? If so, which language requires clarification?
Question 4: Would a different format (such as a different grouping
and ordering of sections, a different use of section headings, or a
different organization of paragraphs) make the regulation easier to
understand? If so, what changes would make the proposal clearer?
Question 5: What else could the Agencies do to make the proposal
clearer and easier to understand?
D. OCC Unfunded Mandates Reform Act of 1995 Determination
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act) (2 U.S.C. 1532) requires that the OCC prepare a budgetary
impact statement before promulgating a rule that includes any Federal
mandate that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires the
OCC to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. The OCC has determined that
the proposed rule does not impose any new mandates and will not result
in expenditures by State, local, and Tribal governments, or by the
private sector of $100 million or more in any one year. Accordingly,
the OCC has not prepared a budgetary impact statement or specifically
addressed the regulatory alternatives considered.
E. Riegle Community Development and Regulatory Improvement Act of 1994
The Riegle Community Development and Regulatory Improvement Act of
1994 (RCDRIA) requires that each Federal banking agency, in determining
the effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, consider, consistent
with principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such regulations.
In addition, new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on insured
depository institutions generally must take effect on the first day of
a calendar quarter that begins on or after the date on which the
regulations are published in final form.\44\ Each Federal banking
agency has determined that the proposed rule would not impose
additional reporting, disclosure, or other requirements; therefore the
requirements of the RCDRIA do not apply.
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\44\ 12 U.S.C. 4802.
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List of Subjects
12 CFR Part 45
Administrative practice and procedure, Capital, Margin
requirements, National banks, Federal savings associations, Reporting
and recordkeeping requirements, Risk.
12 CFR Part 237
Administrative practice and procedure, Banks and banking, Capital,
Foreign banking, Holding companies, Margin requirements, Reporting and
recordkeeping requirements, Risk.
12 CFR Part 349
Administrative practice and procedure, Banks, Holding companies,
Margin Requirements, Capital, Reporting and recordkeeping requirements,
Savings associations, Risk.
12 CFR Part 624
Accounting, Agriculture, Banks, Banking, Capital, Cooperatives,
Credit, Margin requirements, Reporting and recordkeeping requirements,
Risk, Rural areas, Swaps.
[[Page 7421]]
12 CFR Part 1221
Government-sponsored enterprises, Mortgages, Securities.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the preamble, the Office of the
Comptroller of the Currency proposes to amend part 45 of chapter I of
title 12, Code of Federal Regulations, as follows:
PART 45--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
0
1. The authority citation for part 45 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 12 U.S.C. 1 et seq., 12 U.S.C. 93a,
161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o-10(e).
0
2. Section 45.1 is amended by adding paragraph (e)(7) to read as
follows:
Sec. 45.1 Authority, purpose, scope, exemptions and compliance dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
3. Section 45.2 is amended by revising paragraph (2) of the definition
of Eligible master netting agreement to read as follows:
Sec. 45.2 Definitions.
* * * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case:
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board of Governors
of the Federal Reserve System proposes to amend 12 CFR part 237 to read
as follows:
PART 237--SWAPS MARGIN AND SWAPS PUSH-OUT
0
4. The authority citation for part 237 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305,
12 U.S.C. 221 et seq., 12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C.
1841 et seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.
0
5. Section 237.1 paragraph (e)(7) is added to read as follows:
Subpart A--Margin and Capital Requirements for Covered Swap
Entities (Regulation KK)
Sec. 237.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
6. Section 237.2 is amended by revising paragraph (2) of the definition
of ``Eligible master netting agreement'' to read as follows:
Sec. 237.2 Definitions
* * * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the preamble, the Federal Deposit
Insurance Corporation proposes to amend 12 CFR part 349 as follows:
[[Page 7422]]
PART 349--DERIVATIVES
Subpart A--Margin and Capital Requirements for Covered Swap
Entities
0
7. The authority citation for Subpart A continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e) and 12 U.S.C.
1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819,
and 3108.
0
8. Section 349.1 is amended by adding paragraph (e)(7) as follows:
Sec. 349.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
9. Section 349.2 is amended by revising of the definition of ``Eligible
master netting agreement'' to read as follows:
Sec. 349.2 Definitions.
* * * * *
Eligible master netting agreement means a written, legally
enforceable agreement provided that:
(1) The agreement creates a single legal obligation for all
individual transactions covered by the agreement upon an event of
default following any stay permitted by paragraph (2) of this
definition, including upon an event of receivership, conservatorship,
insolvency, liquidation, or similar proceeding, of the counterparty;
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
(3) The agreement does not contain a walkaway clause (that is, a
provision that permits a non-defaulting counterparty to make a lower
payment than it otherwise would make under the agreement, or no payment
at all, to a defaulter or the estate of a defaulter, even if the
defaulter or the estate of the defaulter is a net creditor under the
agreement); and
(4) A covered swap entity that relies on the agreement for purposes
of calculating the margin required by this part must:
(i) Conduct sufficient legal review to conclude with a well-founded
basis (and maintain sufficient written documentation of that legal
review) that:
(A) The agreement meets the requirements of paragraph (2) of this
definition; and
(B) In the event of a legal challenge (including one resulting from
default or from receivership, conservatorship, insolvency, liquidation,
or similar proceeding), the relevant court and administrative
authorities would find the agreement to be legal, valid, binding, and
enforceable under the law of the relevant jurisdictions; and
(ii) Establish and maintain written procedures to monitor possible
changes in relevant law and to ensure that the agreement continues to
satisfy the requirements of this definition.
* * * * *
FARM CREDIT ADMINISTRATION
Authority and Issuance
For the reasons set forth in the preamble, the Farm Credit
Administration proposes to amend chapter VI of title 12, Code of
Federal Regulations, as follows:
PART 624--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
0
10. The authority citation for part 624 continues to read as follows:
Authority: 7 U.S.C 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 2154,
12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb-1.
0
11. Section 624.1 is amended by adding paragraph (e)(7) to read as
follow:
Sec. 624.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
12. Section 624.2 is amended by revising paragraph (2) of the
definition of Eligible master netting agreement to read as follows:
Sec. 624.2 Definitions
* * * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to
[[Page 7423]]
facilitate the orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
FEDERAL HOUSING FINANCE AGENCY
Authority and Issuance
For the reasons set forth in the preamble, the Federal Housing
Finance Agency proposes to amend chapter XII of title 12, Code of
Federal Regulations, as follows:
PART 1221--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP
ENTITIES
0
13. The authority citation for part 1221 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513,
and 12 U.S.C. 4526(a).
0
14. Section 1221.1 is amended by adding paragraph (e)(7) to read as
follows:
Sec. 1221.1 Authority, purpose, and scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
15. Section 1221.2 is amended by revising paragraph (2) of the
definition of Eligible master netting agreement to read as follows:
Sec. 1221.2 Definitions.
* * * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
Dated: January 29, 2018.
Joseph M. Otting,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, January 24, 2018.
Ann E. Misback,
Secretary of the Board.
Dated at Washington, DC, this 25th day of January 2018.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: January 26, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
Dated: January 25, 2018
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2018-02560 Filed 2-20-18; 8:45 am]
BILLING CODE P