[Federal Register Volume 83, Number 215 (Tuesday, November 6, 2018)]
[Notices]
[Pages 55598-55600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-24209]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities; Information Collection 
Renewal; Comment Request; Margin and Capital Requirements for Covered 
Swap Entities

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice and request for comment.

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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork 
and respondent burden, invites the general public and other federal 
agencies to take this opportunity to comment on a continuing 
information collection as required by the Paperwork Reduction Act of 
1995 (PRA).
    In accordance with the requirements of the PRA, the OCC may not 
conduct or sponsor, and respondents are not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number. The OCC is soliciting 
comment concerning the renewal of its information collection titled 
``Margin and Capital Requirements for Covered Swap Entities.''

DATES: Comments must be received by January 7, 2019.

ADDRESSES: Commenters are encouraged to submit comments by email, if 
possible. You may submit comments by any of the following methods:
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, Attention: 1557-0251, 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 
``1557-0251'' in your comment. In general, the OCC will publish your 
comment on www.reginfo.gov 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 information collection beginning on the date of publication of the 
second notice for this collection \1\ by any of the following methods:
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    \1\ Following the close of the 60-day comment period for this 
notice, the OCC will publish a notice for 30 days of comment for 
this collection.
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     Viewing Comments Electronically: Go to www.reginfo.gov. 
Click on the ``Information Collection Review'' tab. Underneath the 
``Currently under Review'' section heading, from the drop-down menu, 
select ``Department of Treasury'' and then click ``submit''. This 
information collection can be located by searching by OMB control 
number ``1557-0251'' or ``Margin and Capital Requirements for Covered 
Swap Entities.'' Upon finding the appropriate information collection, 
click on the related ``ICR Reference Number.'' On the next screen, 
select ``View Supporting Statement and Other Documents'' and then click 
on the link to any comment listed at the bottom of the screen.
     For assistance in navigating www.reginfo.gov, please 
contact the Regulatory Information Service Center at (202) 482-7340.
     Viewing Comments Personally: You may personally inspect 
comments at the OCC, 400 7th Street SW, Washington, DC. 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 
comments.

FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, Clearance Officer, 
(202) 649-5490 or, for persons who are deaf or hearing impaired, TTY, 
(202) 649-5597, Chief Counsel's Office, Office of the Comptroller of 
the Currency, 400 7th Street SW, Washington, DC 20219.

SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), federal 
agencies must obtain approval from the OMB for each collection of 
information they conduct or sponsor. ``Collection of information'' is 
defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include Agency 
requests or requirements that members of the public submit reports,

[[Page 55599]]

keep records, or provide information to a third party. Section 
3506(c)(2)(A) of title 44 (44 U.S.C. 3506(c)(2)(A)) requires federal 
agencies to provide a 60-day notice in the Federal Register concerning 
each proposed collection of information, including each proposed 
extension of an existing collection of information, before submitting 
the collection to OMB for approval. To comply with this requirement, 
the OCC is publishing notice of the renewal of the collection of 
information set forth in this document.
    Title: Margin and Capital Requirements for Covered Swap Entities.
    OMB Control No.: 1557-0251 (Merging in 1557-0335).
    Description: Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) established a comprehensive 
regulatory framework for derivatives, which are generally characterized 
as swaps and security-based swaps. Sections 731 and 764 of the Dodd-
Frank Act require the registration and regulation of swap dealers and 
major swap participants and security-based swap dealers and major 
security-based swap participants, respectively (collectively, ``swap 
entities''). For certain types of swap entities that are prudentially 
regulated by one of the Agencies,\2\ sections 731 and 764 of the Dodd-
Frank Act required the Agencies to jointly adopt rules for swap 
entities under their respective jurisdictions imposing capital 
requirements and initial and variation margin requirements on all non-
cleared swaps. Swap entities that are prudentially regulated by the 
Agencies and therefore subject to the proposed rule are referred to 
herein as ``covered swap entities.''
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    \2\ The Office of the Comptroller of the Currency, the Board of 
Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation, the Federal Housing Finance Agency, and the 
Farm Credit Administration.
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    Section 302 of the Terrorism Risk Insurance Program Reauthorization 
Act of 2015 (TRIPRA),\3\ amended sections 731 and 764 of the Dodd-Frank 
Act to provide that the initial and variation margin requirements do 
not apply to certain transactions with specified counterparties that 
qualify for an exemption or exception from clearing. Non-cleared swaps 
and non-cleared security-based swaps that are exempt under section 302 
of TRIPRA are not subject to the Agencies' rules implementing margin 
requirements. TRIPRA augmented provisions that would allow swap 
entities to collect no initial or variation margin from certain ``other 
counterparties'' like commercial end-users with a provision that grants 
an exception from the margin requirements for certain swaps with these 
and certain additional counterparties. In addition, swap entities could 
continue with the current practice of collecting initial or variation 
margin at such times and in such forms and amounts (if any) as the 
covered swap entity determines appropriate consistent with its overall 
credit risk management of its exposures to ``other counterparties.''
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    \3\ Pubic Law 114-1, 129 Stat. 3 (2015).
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Section by Section Analysis

    The reporting requirements found in 12 CFR 45.1(d) refer to other 
statutory provisions that set forth conditions for an exemption from 
clearing. Section 45.1(d)(1) provides an exemption for non-cleared 
swaps if one of the counterparties to the swap is not a financial 
entity, is using swaps to hedge or mitigate commercial risk, and 
notifies the Commodity Futures Trading Commission of how it generally 
meets its financial obligations associated with entering into non-
cleared swaps. Section 45.1(d)(2) provides an exemption for security-
based swaps if the counterparty notifies the Securities and Exchange 
Commission (SEC) of how it generally meets its financial obligations 
associated with entering into non-cleared security-based swaps.
    Section 45.2 defines terms used in part 45, including the 
definition of ``eligible master netting agreement,'' which provides 
that a covered swap entity that relies on the agreement for purpose of 
calculating the required margin must: (1) Conduct sufficient legal 
review of the agreement to conclude with a well-founded basis that the 
agreement meets specified criteria; and (2) establish and maintain 
written procedures for monitoring relevant changes in law and to ensure 
that the agreement continues to satisfy the requirements of this 
section. The term ``eligible master netting agreement'' is used 
elsewhere in part 45 to specify instances in which a covered swap 
entity may: (1) Calculate variation margin on an aggregate basis across 
multiple non-cleared swaps and security-based swaps and (2) calculate 
initial margin requirements under an initial margin model for one or 
more swaps and security-based swaps.
    Section 45.5(c)(2)(i) specifies that a covered swap entity shall 
not be deemed to have violated its obligation to collect or post margin 
from or to a counterparty if the covered swap entity has made the 
necessary efforts to collect or post the required margin, including the 
timely initiation and continued pursuit of formal dispute resolution 
mechanisms, or has otherwise demonstrated upon request to the 
satisfaction of the agency that it has made appropriate efforts to 
collect or post the required margin.
    Section 45.7 generally requires a covered swap entity to ensure 
that any initial margin collateral that it collects or posts is held at 
a third-party custodian. Section 45.7(c) requires the custodian to act 
pursuant to a custody agreement that: (1) Prohibits the custodian from 
rehypothecating, repledging, reusing, or otherwise transferring 
(through securities lending, securities borrowing, repurchase 
agreement, reverse repurchase agreement or other means) the collateral 
held by the custodian, except that cash collateral may be held in a 
general deposit account with the custodian if the funds in the account 
are used to purchase an asset held in compliance with Sec.  45.7, and 
such purchase takes place within a time period reasonably necessary to 
consummate such purchase after the cash collateral is posted as initial 
margin and (2) is a legal, valid, binding, and enforceable agreement 
under the laws of all relevant jurisdictions, including in the event of 
bankruptcy, insolvency, or a similar proceeding. A custody agreement 
may permit the posting party to substitute or direct any reinvestment 
of posted collateral held by the custodian under certain conditions. 
With respect to collateral collected by a covered swap entity pursuant 
to Sec.  45.3(a) or posted by a covered swap entity pursuant to Sec.  
45.3(b), the agreement must require the posting party to substitute 
only funds or other property that would qualify as eligible collateral 
under Sec.  45.6 and for which the amount net of applicable discounts 
described in Appendix B would be sufficient to meet the requirements of 
Sec.  45.3 and direct reinvestment of funds only in assets that would 
qualify as eligible collateral under Sec.  45.6.
    Section 45.8 establishes standards for the use of initial margin 
models. These standards include: (1) A requirement that the covered 
swap entity receive prior approval from the relevant Agency based on 
demonstration that the initial margin model meets specific requirements 
(Sec. Sec.  45.8(c)(1) and 45.8(c)(2)); (2) a requirement that a 
covered swap entity notify the relevant Agency in writing 60 days 
before extending use of the model to additional product types, making 
certain changes to the initial margin model, or making material changes 
to modeling assumptions (Sec.  45.8(c)(3)); and (3) a variety of 
quantitative requirements,

[[Page 55600]]

including requirements that the covered swap entity validate and 
demonstrate the reasonableness of its process for modeling and 
measuring hedging benefits, demonstrate to the satisfaction of the 
relevant Agency that the omission of any risk factor from the 
calculation of its initial margin is appropriate, demonstrate to the 
satisfaction of the relevant Agency that incorporation of any proxy or 
approximation used to capture the risks of the covered swap entity's 
non-cleared swaps or non-cleared security-based swaps is appropriate, 
periodically review and, as necessary, revise the data used to 
calibrate the initial margin model to ensure that the data incorporate 
an appropriate period of significant financial stress (Sec. Sec.  
45.8(d)(5), 45.8(d)(10), 45.8(d)(11), 45.8(d)(12), and 45.8(d)(13)). 
Also, if the validation process reveals any material problems with the 
initial margin model, the covered swap entity must promptly notify the 
Agency of the problems, describe to the Agency any remedial actions 
being taken, and adjust the initial margin model to ensure an 
appropriately conservative amount of required initial margin is being 
calculated (Sec.  45.8(f)(3)).
    Section 45.8 also establishes requirements for the ongoing review 
and documentation of initial margin models. These standards include: 
(1) A requirement that a covered swap entity review its initial margin 
model annually (Sec.  45.8(e)); (2) a requirement that the covered swap 
entity validate its initial margin model at the outset and on an 
ongoing basis, describe to the relevant Agency any remedial actions 
being taken, and report internal audit findings regarding the 
effectiveness of the initial margin model to the covered swap entity's 
board of directors or a committee thereof (Sec. Sec.  45.8(f)(2), 
45.8(f)(3), and 45.8(f)(4)); (3) a requirement that the covered swap 
entity adequately document all material aspects of its initial margin 
model (Sec.  45.8(g)); and (4) that the covered swap entity must 
adequately document internal authorization procedures, including 
escalation procedures, that require review and approval of any change 
to the initial margin calculation under the initial margin model, 
demonstrable analysis that any basis for any such change is consistent 
with the requirements of this section, and independent review of such 
demonstrable analysis and approval (Sec.  45.8(h)).
    Section 45.9 addresses the treatment of cross-border transactions 
and, in certain limited situations, will permit a covered swap entity 
to comply with a foreign regulatory framework for non-cleared swaps (as 
a substitute for compliance with the prudential regulators' rule) if 
the prudential regulators jointly determine that the foreign regulatory 
framework is comparable to the requirements in the prudential 
regulators' rule. Section 45.9(e) allows a covered swap entity to 
request that the prudential regulators make a substituted compliance 
determination and must provide the reasons therefore and other required 
supporting documentation. A request for a substituted compliance 
determination must include: (1) A description of the scope and 
objectives of the foreign regulatory framework for non-cleared swaps 
and non-cleared security-based swaps; (2) the specific provisions of 
the foreign regulatory framework for non-cleared swaps and security-
based swaps (scope of transactions covered; determination of the amount 
of initial and variation margin required; timing of margin 
requirements; documentation requirements; forms of eligible collateral; 
segregation and re-hypothecation requirements; and approval process and 
standards for models); (3) the supervisory compliance program and 
enforcement authority exercised by a foreign financial regulatory 
authority or authorities in such system to support its oversight of the 
application of the non-cleared swap and security-based swap regulatory 
framework; and (4) any other descriptions and documentation that the 
prudential regulators determine are appropriate. A covered swap entity 
may make a request under this section only if directly supervised by 
the authorities administering the foreign regulatory framework for non-
cleared swaps and non-cleared security-based swaps.
    Section 45.10 requires a covered swap entity to execute trading 
documentation with each counterparty that is either a swap entity or 
financial end user regarding credit support arrangements that: (1) 
Provides the contractual right to collect and post initial margin and 
variation margin in such amounts, in such form, and under such 
circumstances as are required and (2) specifies the methods, 
procedures, rules, and inputs for determining the value of each non-
cleared swap or non-cleared security-based swap for purposes of 
calculating variation margin requirements and the procedures for 
resolving any disputes concerning valuation.
    Section 45.11(b)(1) provides that the requirement for a covered 
swap entity to post initial margin under Sec.  45.3(b) does not apply 
with respect to any non-cleared swap or non-cleared security-based swap 
with a counterparty that is an affiliate. A covered swap entity shall 
calculate the amount of initial margin that would be required to be 
posted to an affiliate that is a financial end user with material swaps 
exposure pursuant to Sec.  45.3(b) and provide documentation of such 
amount to each affiliate on a daily basis.
    Type of Review: Extension of a currently approved collection.
    Affected Public: Individuals; Businesses or other for-profit.
    Frequency of Response: On occasion.
    Estimated Number of Respondents: 10.
    Estimated Total Annual Burden: 17,390 hours.
    Comments submitted in response to this notice will be summarized 
and included in the submission to OMB. Comments are requested on:
    (a) Whether the information collections are necessary for the 
proper performance of the OCC's functions, including whether the 
information has practical utility;
    (b) The accuracy of the OCC's estimates of the burden of the 
information collections, including the validity of the methodology and 
assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

    Dated: October 31, 2018.
Theodore J. Dowd,
Deputy Chief Counsel, Office of the Comptroller of the Currency.
[FR Doc. 2018-24209 Filed 11-5-18; 8:45 am]
 BILLING CODE 4810-33-P