[Federal Register Volume 84, Number 53 (Tuesday, March 19, 2019)]
[Rules and Regulations]
[Pages 9940-9950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05012]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 45

[Docket No. OCC-2019-0002]
RIN 1557-0061

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Part 237

[Docket No. R-1654]
RIN 7100-AF42

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 349

RIN 3064-AF00

FARM CREDIT ADMINISTRATION

12 CFR Part 624

RIN 3052-AD34

FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1221

RIN 2590-AB02


Margin and Capital Requirements for Covered Swap Entities

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: Interim final rule and request for comment.

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SUMMARY: The OCC, Board, FDIC, FCA, and FHFA (each an Agency and, 
collectively, the Agencies) are adopting and invite comment on an 
interim final rule amending the Agencies' regulations that require swap 
dealers and security-based swap dealers under the Agencies' respective 
jurisdictions to exchange margin with their counterparties for swaps 
that are not centrally cleared (Swap Margin Rule). The Swap Margin Rule 
takes effect under a phased compliance schedule stretching from 2016 
through 2020, and the dealers covered by the rule continue to hold 
swaps in their portfolios that were entered into before the effective 
dates of the rule. Those swaps are grandfathered from the Swap Margin 
Rule's requirements until they expire according to their terms. There 
are currently financial services firms located within the United 
Kingdom (U.K.) that conduct swap dealing activities subject to the Swap 
Margin Rule. The U.K. has provided formal notice of its intention to 
withdraw from the European Union (E.U.) on March 29, 2019. If this 
transpires without a negotiated agreement between the U.K. and E.U., 
these entities located in the U.K. may not be authorized to provide 
full-scope financial services to swap counterparties located in the 
E.U. The Agencies' policy objective in developing the interim final 
rule is to address one aspect of the scenario likely to ensue, whereby 
entities located in the U.K. might transfer their existing swap 
portfolios that face counterparties located in the E.U. over to an 
affiliate or other related establishment located within the E.U. or the 
United States (U.S.). The Agencies seek to address industry concerns 
about the status of grandfathered swaps in this scenario, so the 
industry can focus on making preparations for swap transfers. These 
transfers, if carried out in accordance with the conditions of the 
interim final rule, will not trigger the application of the Swap Margin 
Rule to grandfathered swaps that were entered into before the 
compliance dates of the Swap Margin Rule.

DATES: The interim final rule is effective March 19, 2019. Comments 
should be received on or before April 18, 2019.

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.
    OCC: You may submit comments to the OCC by any of the methods set 
forth below. 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-2019-0002'' 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-2019-0002'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish the comments 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-2019-0002'' 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 
comments at the OCC, 400 7th Street SW, Washington,

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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 comments.
    Board: You may submit comments, identified by [Docket No. R-1654 
and RIN No. 7100-AF42, 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.
     Email: [email protected]. Include the 
docket number and RIN 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 are available from the Board's website at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006 
between 9 a.m. and 5 p.m. on weekdays.
    FDIC: You may submit comments, identified by RIN 3064-AF00, by any 
of the following methods:
     Agency website: https://www.FDIC.gov/regulations/laws/federal.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street, NW, Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street) on business days 
between 7:00 a.m. and 5:00 p.m.
     Email: [email protected]. Comments submitted must include 
``FDIC'' and ``RIN 3064-AF00--Brexit Amendment: Margin and Capital 
Requirements for Covered Swap Entities.'' Comments received will be 
posted without change to https://www.fdic.gov/regulations/laws/federal, 
including any personal information provided.
    FHFA: You may submit your written comments on the interim final 
rulemaking, identified by regulatory information number: RIN 2590-AB02, 
by any of the following methods:
     Agency website: www.fhfa.gov/open-for-comment-or-input.
     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-AB02'' in the subject line of the message.
     Hand Delivery/Courier: The hand delivery address is: 
Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AB02, 
Federal Housing Finance Agency, Constitution Center (OGC Eighth Floor), 
400 7th St. SW, Washington, DC 20219. Deliver the package to the 
Seventh Street entrance Guard Desk, First Floor, on business days 
between 9:00 a.m. and 5:00 p.m.
     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-AB02, Federal 
Housing Finance Agency, Constitution Center (OGC Eighth Floor), 400 7th 
St. SW, Washington, DC 20219.
    All comments received by the deadline will be posted for public 
inspection without change, including any personal information you 
provide, such as your name, address, email address and telephone number 
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.
    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. Click inside the ``I want 
to . . .'' field near the top of the page; select ``comment on a 
pending regulation'' from the dropdown menu; and click ``Go.'' This 
takes you to an electronic public comment form.
     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 
on the website, click inside the ``I want to . . .'' field near the top 
of the page; select ``find comments on a pending regulation'' from the 
dropdown menu; and click ``Go.'' This will take you to the Comment 
Letters page where you can select the regulation for which you would 
like to read the public comments. We will show your comments as 
submitted, including any 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.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Chris McBride, Director for Market Risk, Treasury and Market 
Risk Policy, (202) 649-6402, or Allison Hester-Haddad, Counsel, Chief 
Counsel's Office, (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: Constance Horsley, Deputy Associate Director, (202) 452-
5239, Peter Clifford, Manager, (202) 785-6057, Lesley Chao, Lead 
Financial Institution Policy Analyst, (202) 974-7063, or John Feid, 
Principal Economist, (202) 452-2385, Division of Supervision and 
Regulation; Jason Shafer, Counsel, (202) 728-5811, or Justyna Bolter, 
Attorney, (202) 452-2686, Legal Division, Board of Governors of the 
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
    FDIC: Irina Leonova, Senior Policy Analyst, [email protected], 
Capital Markets Branch, Division of Risk Management Supervision, (202) 
898-3843; Thomas F. Hearn, Counsel, [email protected], Legal Division, 
Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, 
DC 20429.
    FCA: Jeremy R. Edelstein, Associate Director, Finance & Capital 
Market

[[Page 9942]]

Team, Timothy T. Nerdahl, 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 
P. Jordan, Associate 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.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) \1\ required the Agencies to adopt rules jointly that 
establish capital and margin requirements \2\ for swap entities \3\ 
that are prudentially regulated by one of the Agencies (covered swap 
entities).\4\ These capital and margin requirements apply to swaps that 
are not cleared by a registered derivatives clearing organization or a 
registered clearing agency (non-cleared swaps). Swaps are certain types 
of financial derivatives, such as interest rate swaps and commodity 
swaps, that the Dodd-Frank Act generally characterized as ``swaps.'' 
\5\ On November 30, 2015, the Agencies published the Swap Margin Rule 
to establish the minimum margin and capital requirements for the non-
cleared swap portfolios of covered swap entities.\6\
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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. 6s(e)(3)(A); 15 U.S.C. 78o-10(e)(3)(A).
    \3\ See 7 U.S.C. 6s; 15 U.S.C. 78o-10. Sections 731 and 764 of 
the Dodd-Frank Act added 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).
    \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\ A ``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 a 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. See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68). For the 
remainder of this preamble, the term ``non-cleared swaps'' refers to 
non-cleared swaps and non-cleared security-based swaps unless the 
context requires otherwise.
    \6\ 80 FR 74840 (November 30, 2015). The Swap Margin Rule was 
amended to implement a statutory exemption for non-cleared swaps 
entered into for hedging by commercial end users and small financial 
institutions, see 80 FR 74916 (November 30, 2015), and to address 
treatment of qualified financial contracts, see 83 FR 50805 (October 
10, 2018).
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    The Agencies are issuing this interim final rule in connection with 
efforts to assist covered swap entities as they prepare for the event 
commonly described as ``Brexit.'' In particular, this interim final 
rule is intended to address a covered swap entity's ability to service 
its cross-border clients in the event that the U.K. withdraws from the 
E.U. without a Withdrawal Agreement.\7\ Briefly stated, the interim 
final rule amends the Swap Margin Rule to make it clear that in such an 
event, financial entities located in the U.K. may transfer existing 
non-cleared swap portfolios over to a sister establishment of the U.K. 
financial entity that is located in an E.U. Member State or the U.S., 
without concerns of thereby triggering the application of the Swap 
Margin Rule's margin requirements to non-cleared swaps that had been 
grandfathered at the financial entity in the U.K.\8\ The Agencies are 
also requesting public comment whether additional provisions or 
clarifications are needed to achieve the Agencies' objectives and 
provide greater clarity.
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    \7\ See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/759019/25_November_Agreement_on_the_withdrawal_of_the_United_Kingdom_of_Great_Britain_and_Northern_Ireland_from_the_European_Union_and_the_European_Atomic_Energy_Community.pdf (visited February 5, 2019).
    \8\ In this Supplementary Information, the Agencies' references 
to an establishment of a financial entity is intended to be flexible 
as to whether the relationship of the financial entity to the 
business unit in the U.K. or elsewhere is due to an affiliation 
between separately-incorporated entities, branching of a single 
business entity in different jurisdictions, or some other form of 
business establishment through which an arm of the financial entity 
may be legally authorized to conduct business in that location.
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    In issuing the Swap Margin Rule in 2015, the Agencies established 
an effective date of April 1, 2016, with a phased in compliance 
schedule for the initial and variation margin requirements.\9\ On or 
after March 1, 2017, all covered swap entities were 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 with all swap entities.
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    \9\ 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 generally apply only to a non-
cleared swap entered into on or after the applicable compliance 
date.\10\ A non-cleared swap entered into prior to an entity's 
applicable compliance date is essentially ``grandfathered'' by this 
regulatory provision, in that the non-cleared swap is generally not 
subject to the margin requirements in the Swap Margin Rule (legacy 
swap). However, the Agencies explained in the preamble of the Swap 
Margin Rule that a legacy swap that is later amended or novated on or 
after the applicable compliance date should be subject to the 
requirements of the Swap Margin Rule, in the interests of preventing 
evasion of the rule's margin requirements.\11\
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    \10\ See Sec.  __.1(e) of the Swap Margin Rule.
    \11\ 80 FR 74850-51. See also, 83 FR 50805 (October 10, 2018) 
(the Agencies added paragraph (7) to Sec.  __.1(e), to clarify that 
a legacy swap would not lose its legacy status when the covered swap 
entity acceded to changes to the non-cleared swap as necessary to 
implement the QFC Receivership Stay regulations of the Board, the 
FDIC, and the OCC).

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    The Swap Margin Rule has a broad territorial reach. It applies to 
swap dealers and security-based swap dealers that are registered with 
the CFTC or the SEC, respectively, and for which one of the Agencies is 
the prudential regulator, including, for example, certain foreign banks 
and foreign banking organizations, certain entities established abroad 
by U.S. banks, and certain foreign branches of U.S. banks. Typically, 
such firms are registered in the foreign jurisdiction in which they are 
located with the appropriate financial regulatory authorities, but the 
firms may also conduct swap activities with counterparties that have 
significant ties to the U.S. (or the dealer itself may be a branch of a 
U.S. bank) under circumstances that trigger dealer registration 
obligations with the CFTC or SEC. The Agencies included an exemption 
from the requirements of the Swap Margin Rule that applies whenever a 
foreign covered swap entity engages in a foreign non-cleared swap, but 
the rule's margin requirements still apply when the counterparty has 
certain connections to the U.S., such as when the counterparty is a 
foreign branch or office of an entity organized under U.S. federal or 
state law.\12\
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    \12\ See Sec.  __.9(a)-(c) of the Swap Margin Rule.
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    As a result, there are instances in which a covered swap entity 
engages in non-cleared swap activities out of establishments in the 
U.K. that are subject to the requirements of the Swap Margin Rule. The 
same is true in certain instances for a covered swap entity engaging in 
those activities out of an establishment in another E.U. Member State.
    Financial entities, including covered swap entities, in the U.K. 
face uncertainty about the applicable regulatory framework they will 
operate within after a U.K. withdrawal from the E.U. In many instances, 
these firms made a strategic decision decades ago to use a U.K. 
establishment as their base of operations to provide financial services 
to customers across the E.U., consistent with the E.U.'s system of 
cross-border authorizations to engage in regulated financial activities 
(known as ``passporting''). These firms have been mindful that one 
consequence of a U.K. exit from the E.U. absent a Withdrawal Agreement 
will be an inability of the firms to continue providing investment 
services in the E.U. under the current passporting regime. As a result, 
they might not be in a position to perform certain operations in 
relation to derivatives contracts they presently have with E.U. 
clients. In order to address this situation, these firms could transfer 
their derivatives to a related establishment in an E.U. Member State, 
which in turn would benefit from the passporting regime.
    In addition, a covered swap entity that operates an establishment 
located outside the U.K. may be affected if the U.K. exits the E.U. 
without a Withdrawal Agreement. These covered swap entities may have 
entered into non-cleared swaps with financial entities located in the 
U.K. These U.K. counterparties of the covered swap entity may need to 
relocate certain operations, in order to continue providing financial 
services to their own customers in the E.U. Accordingly, a covered swap 
entity's counterparties with establishments in the U.K. may seek to 
transfer their non-cleared swaps to related establishments of their own 
in an E.U. Member State.\13\
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    \13\ See Sec.  __.9(a)-(c) of the As discussed later in this 
SUPPLEMENTARY INFORMATION, the Agencies have designed the interim 
final rule to recognize the need for flexibility on the part of 
financial entities as they attempt to work through the unanticipated 
effects of a U.K. exit from the E.U. absent a Withdrawal Agreement. 
For example, while this discussion illustrates an E.U. establishment 
of a covered swap entity taking on the swap portfolios of the 
entity's related covered swap entity in the U.K., a different 
financial entity's current structure might mean the U.K. portfolio 
is currently held by the financial entity's CFTC-registered non-bank 
subsidiary in the U.K., which is subject to the CFTC's non-cleared 
swap margin rule. As a general matter, the CFTC's rule and the 
Agencies' Swap Margin Rule impose the same requirements and feature 
the same grandfathering. But the portfolio transfer over to the 
financial entity's covered swap entity in the E.U. will, as a legal 
matter, subject them to the Agencies' swap margin rule once they are 
transferred. Or some financial firms that operate a covered swap 
entity through an establishment in the U.S. may make strategic 
decisions to refrain from opening a new E.U. establishment post-
withdrawal, and thus need to pull their U.K. non-cleared swap 
portfolios back to their U.S. covered swap entity.
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    In recent months, some financial entities have initiated processes 
under which a U.K. court sanctions a bulk transfer of their business, 
including derivatives, from the balance sheets of their U.K. 
establishments to a different location established by the dealer in 
another E.U. Member State.\14\ For many months before that, industry 
stakeholders urged E.U. regulators to provide certainty that these 
kinds of portfolio transfers of swaps, entered into before the E.U.'s 
swap margin rule, will not become subject to E.U. swap margin rules by 
virtue of the legal changes associated with novations or other legal 
transfer methods. The European Supervisory Authorities (ESAs) \15\ 
published a final report in November to make a limited exemption in the 
Commission Delegated Regulation under the European Market 
Infrastructure Regulation (EMIR) for bilateral margining requirements. 
The exemption would facilitate novations of these non-cleared swaps by 
ensuring that the regulatory characteristics of the original contracts 
are preserved.\16\
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    \14\ See, e.g., Barclays Bank plc Part VII Business transfer to 
Barclays Bank Ireland plc (2019) EWHC 129 (Ch), at http://www.bailii.org/ew/cases/EWHC/Ch/2019/129.pdf (visited January 29, 
2019); ``Two Banks Begin Moving Swaps out of London, Pre-Brexit,'' 
Risk.net (November 30, 2018), at https://www.risk.net/derivatives/6168671/banks-begin-moving-swaps-out-of-london-pre-brexit (visited 
January 25, 2019); ``UBS Wins Approval for [euro]32bn Brexit Swaps 
Transfer,'' Risk.net (February 6, 2019), at https://www.risk.net/derivatives/6367306/ubs-wins-approval-for-eu32bn-brexit-swaps-transfer.
    \15\ The three ESAs are the European Banking Authority (EBA), 
the European Securities and Markets Authority (ESMA) and the 
European Insurance and Occupational Pensions Authority (EIOPA).
    \16\ ESAs Propose to Amend Bilateral Margin Requirements to 
Assist Brexit Preparations for OTC Derivative Contracts (November 
29, 2018), at https://www.esma.europa.eu/press-news/esma-news/esas-propose-amend-bilateral-margin-requirements-assist-brexit-preparations-otc (visited January 25, 2019).
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    The scheduled date of the U.K. withdrawal is March 29, 2019. The 
Agencies believe it is appropriate to provide clarity, in order to 
facilitate the work of covered swap entities and their counterparties 
to transfer non-cleared swaps in response to a U.K. exit from the E.U. 
absent a Withdrawal Agreement, without thereby converting their legacy 
swaps into covered swaps subject to the Swap Margin Rule. The 
conditions of eligibility for the transfers are described in the next 
section of this SUPPLEMENTARY INFORMATION.

II. Description of the Interim Final Rule

    As discussed above, legacy swaps are generally grandfathered from 
the Swap Margin Rule's requirements. More specifically, Sec.  __.1(e) 
states that covered swap entities shall comply with the Swap Margin 
Rule's minimum margin requirements for non-cleared swaps entered into 
on or after the compliance date that the rule establishes for separate 
classes of counterparties, depending on the size of their swaps 
portfolios.\17\ However, in the preamble

[[Page 9944]]

to the Swap Margin Rule, in response to comments, the Agencies declined 
to include regulatory language that would extend legacy swap treatment 
to a swap if it is subsequently novated or amended after the applicable 
compliance date, expressing concerns about evasion and 
implementation.\18\
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    \17\ A legacy swap may still be subjected to margin requirements 
if the covered swap entity places the swap into a netting set that 
includes other non-cleared swaps that are entered into after the 
compliance date applicable to the covered swap entity. Swap Margin 
Rule Sec.  .__5(a)(3). Covered swap entities use netting sets to 
calculate their margin requirements for multiple swaps with a single 
counterparty on a portfolio basis, offsetting asset and liability 
exposures in the portfolio to one net exposure, subject to 
conditions contained in the Swap Margin Rule, including an 
enforceable legal netting agreement with the counterparty. See Sec.  
__.5(a).
    \18\ 80 FR 74850-51. The Agencies articulated concerns about the 
potential evasion of the Swap Margin Rule if legacy swaps could be 
materially amended and not become subject to the requirements of the 
Swap Margin Rule, as well as the Agencies' concerns about 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.
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    In the interim final rule, the Agencies are amending Sec.  __.1 to 
add an additional provision, paragraph Sec.  __.1(h). This new 
provision is designed to preserve the status quo for legacy swaps for a 
covered swap entity in the event of a ``no-deal'' U.K. withdrawal, 
regardless of whether that covered swap entity is the swap counterparty 
directly involved in the transfer out of the U.K. or the counterparty 
on the other side of the swap.
    A covered swap entity may, for example, use its establishment in 
the E.U. to take on non-cleared swap portfolios from its swap dealing 
affiliate in the U.K. In a different case, the covered swap entity's 
establishments in the E.U. and the U.K. may both be branches of the 
same swap dealing bank. Alternatively, there may be yet a different 
relationship due to the structure of the specific financial entity 
involved.
    On the other hand, the covered swap entity may not move its 
operations in any way, but it may have existing portfolios of non-
cleared swaps facing counterparties who are themselves relocating out 
of the U.K., to an affiliate, or a branch, or some other type of 
establishment outside of the U.K.
    To be effective, the Agencies believe this interim final rule must 
cover the different scenarios that would trigger the need for a covered 
swap entity to participate in amending a non-cleared swap in order to 
``relocate'' the swap, either on account of its own need to move non-
cleared swaps out of the U.K., or its counterparty's need to do so.\19\
---------------------------------------------------------------------------

    \19\ The Agencies note that, regardless whether the covered swap 
entity is driving the swap relocation, or the covered swap entity's 
counterparty is driving the move, the covered swap entity will need 
to participate in whatever amendments or other legal steps are used 
to reflect the transfer of a bilateral non-cleared swap contract.
---------------------------------------------------------------------------

    Accordingly, the text of the interim final rule is intended to be 
flexible as to the nature of the financial entity's establishment--
covered swap entity or counterparty--maintained in the U.K., be it an 
entity organized under U.K. law, or a branch or other authorized office 
maintained in the U.K. by a firm that is legally organized elsewhere. 
This flexibility extends to the establishment to which the non-cleared 
swaps are transferred, so long as the transferring establishment in the 
U.K. is related to the receiving establishment outside the U.K.\20\ The 
interim final rule is also intended to be flexible as to the manner in 
which that establishment in the U.K held its non-cleared swaps, either 
because the financial entity booked the swap at the U.K. establishment, 
or as determined by other business or account criteria the financial 
entity consistently employs in assigning a particular non-cleared swap 
to a particular establishment. \21\
---------------------------------------------------------------------------

    \20\ See Sec.  __.1(h)(2)(ii), referring to non-cleared swaps an 
entity in the U.K. arranges to amend in order to transfer it to one 
of its affiliates, or a branch or other authorized form of 
establishment, located in an E.U. Member State.
    \21\ See Sec.  __.1(h)(2)(i), referring to non-cleared swap 
originally entered into before the relevant compliance date under 
the Swap Margin Rule, when one party to the swap booked it at, or 
otherwise held it at, an entity (including a branch or other 
authorized form of establishment) located in the U.K.
---------------------------------------------------------------------------

    To benefit from the treatment of this new legacy swap provision, 
the financial entity located in the U.K. must arrange to make the 
amendments to the non-cleared swap solely for the purpose of 
transferring the non-cleared swap to an affiliate or other related 
establishment that is located in an E.U. Member State (once the U.K. 
has withdrawn from the E.U., as further discussed below). This purpose 
test also contains a requirement that the transfer be made in 
connection with the U.K. entity's planning for the possibility that the 
U.K. might exit the E.U. without a Withdrawal Agreement, or the U.K. 
entity's response to such event.\22\
---------------------------------------------------------------------------

    \22\ See Sec.  __.1(h)(2)(ii), requiring the amendments to be 
for the sole purpose of transferring the non-cleared it to one of 
its affiliates, or a branch or other authorized form of 
establishment, located in an E.U. Member State, in connection with 
the entity's planning for or response to U.K. withdrawal.
---------------------------------------------------------------------------

    The interim final rule is intended to be flexible as to whether the 
relationship aspect of the purpose test is due to affiliation between 
separately-incorporated entities, branching of a single business entity 
in different jurisdictions, or some other form of business 
establishment through which an arm of the financial entity may be 
legally authorized to conduct business in the E.U. Member State. The 
Agencies have similarly included transfers to an affiliate, or branch 
or other authorized form of establishment, that the financial entity 
maintains in the U.S. to provide additional flexibility for financial 
entities with U.S. headquarters or other U.S. establishments.
    For compliance purposes, the interim final rule makes one 
distinction between a transfer initiated by the financial entity 
standing as the covered swap entity at the completion of the 
transaction, versus a transfer initiated by the covered swap entity's 
counterparty. For the latter, the counterparty must make a 
representation to the covered swap entity that the counterparty carried 
out the swap in accordance with both elements of the purpose test.
    The interim final rule is designed to permit such amendments as 
financial entities find necessary to relocate non-cleared swap 
portfolios out of the U.K. under the purpose test. These changes may be 
carried out using any of the methods typically employed for effecting 
non-cleared swap transfers, including industry protocols, contractual 
amendments, or contractual tear-up and replacement. To the extent they 
would otherwise trigger margin requirements, judicially-supervised 
changes that result in a non-cleared swap being booked at or held by a 
related establishment in the E.U., including by means of the court-
sanctioned process available under Part VII of the U.K.'s Financial 
Services and Markets Act of 2000, are similarly within the scope of the 
interim final rule.
    However, the Agencies do not believe the relief being provided for 
relocation purposes should be expansively applied to encompass economic 
changes to a legacy swap. Accordingly, the rule text makes legacy swap 
status unavailable if the amendments to a non-cleared swap modify the 
payment amount calculation methods, the maturity date, or the notional 
amount of the non-cleared swap. Thus, for example, if the day count 
convention of a non-cleared swap changes as a consequence of re-
locating a non-cleared interest rate swap several time zones away from 
the U.K., the parties to the swap would not be changing the payment 
amount calculation methods. On the other hand, a change to one of the 
payment amount calculation economic factors (e.g., an interest rate 
margin or base rate) would be a change outside the scope of the interim 
final rule and would trigger application of the margin requirements.
    The Agencies also seek to establish a reasonable period of time for 
the necessary work to achieve the transfers to be performed. The 
interim final rule permits transfers for a period of one year after a 
U.K. withdrawal. The 1-year

[[Page 9945]]

period commences at the point at which the law of the European Union 
ceases to apply in the U.K. pursuant to Article 50(3) of the Treaty on 
European Union, without conclusion of a Withdrawal Agreement between 
the U.K. and E.U. pursuant to Article 50(2).\23\ If the present 
withdrawal date is extended, and withdrawal later occurs at the end of 
that extension without a Withdrawal Agreement, the interim final rule's 
1-year period would begin at that time. The Agencies contemplate that, 
if the withdrawal date is extended, financial entities may negotiate 
and document their desired transfers during the intervening period, 
under terms that delay consummation of any transfer until withdrawal 
takes place without an agreement and the interim final rule's 
substantive provisions are thereby triggered.
---------------------------------------------------------------------------

    \23\ For an overview of the process by which an E.U. Member 
State may withdraw from the E.U., see the European Parliament 
Briefing, Article 50 TEU: Withdrawal of a Member State from the E.U. 
(February 2016), available at http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/577971/EPRS_BRI(2016)577971_EN.pdf (visited January 
25th, 2019).
---------------------------------------------------------------------------

    The Agencies believe that a provision enabling entities to transfer 
non-cleared swaps while retaining legacy status would be most effective 
if the timeframe allowed takes into account the timeframe under 
corresponding E.U. legislation. As noted above, the ESAs have submitted 
novation amendments for their margin rules in proposed form to the 
European Commission, but the relief that would be afforded thereby has 
not yet been finalized under the E.U. process.\24\ The ESAs' draft 
Regulatory Technical Standards provides relief for one year after the 
amendments are finalized by official publication, after parliamentary 
approval. If the E.U. amendments are not yet finalized at the time of a 
U.K. withdrawal, affected financial entities may delay consummation of 
their non-cleared swap transfers until the ESAs' proposed amendments 
apply. The Agencies anticipate some transferring financial entities 
will operate under both sets of regulations and will accordingly seek 
to coordinate their transfer operations for compliance purposes under 
both sets of amendments. To facilitate this, the Agencies' interim 
final rule has a ``tacking'' provision that will extend the Agencies' 
1-year period by the amount of any additional time available under the 
ESAs' 1-year period.
---------------------------------------------------------------------------

    \24\ See Final Report on EMIR RTS on the novation of bilateral 
contracts not subject to bilateral margins, ESAs 2018 25 (November 
27, 2018), at https://eiopa.europa.eu/Publications/Reports/ESAs%202018%2025%20-%20Final%20Report%20-%20Bilateral%20margining%20%28novation%29.pdf (visited January 25, 
2019).
---------------------------------------------------------------------------

    The interim final rule differs from the ESAs' proposed amendments 
to the extent that the legacy status protection afforded under the 
ESAs' approach is unavailable to derivatives entered into after the 
official, final publication of the amendments (which establishes the 
legal effective date of the rule). The Agencies have provided legacy 
status protection to any swap entered into before the applicable 
compliance date--of which there are two still upcoming, on September 1, 
2019 and September 1, 2020--with no cutoff for swaps executed before 
those dates but after issuance of this interim final rule. The Agencies 
believe the marginal volume of additional legacy swaps that will be 
protected by the Agencies' approach is not likely to be substantial, 
and the additional time granted could facilitate a more organized 
transition for the affected counterparties.

III. Request for Comments

    The Agencies request comment on all aspects of the interim final 
rule as well as on the following specific questions.
    (1) The interim final rule permits amendments to non-cleared swaps 
in order to transfer swaps in response to the scenario in which the 
U.K. exits the E.U. in the absence of a Withdrawal Agreement. As 
explained above, the Agencies seek to encompass changes through a 
variety of methods, including industry protocols, contractual 
amendments, transfers permitted by judicial proceedings, and 
contractual tear-up and replacement. What, if any, additional 
clarification in the rule as to types of permissible amendments should 
the Agencies provide? What specifically should be added or clarified, 
and why is it necessary in order to achieve the Agencies' policy 
objectives in the context of a U.K. withdrawal from the E.U.?
    (2) The relief provided by the interim final rule applies to the 
transfer of swaps from a financial entity's establishment in the U.K. 
to an establishment in the E.U. or the U.S. What, if any, other types 
of relief should be considered for swaps that are transferred from the 
E.U. to the U.K.? Please provide a description of the circumstances 
creating this need, including the frequency of its occurrence.
    (3) The transfers that are accommodated by the interim final rule 
are available only between affiliates or other related establishments. 
The Agencies do not intend the relief provided by the interim final 
rule to provide an opportunity for financial entities to seek out a new 
dealer relationship and retain legacy swap treatment. However, the 
Agencies request comment on whether there may be financial entities 
that are unable to arrange a transfer of legacy swaps unless the 
transfer is to an unrelated entity outside the U.K. and are thus not 
covered under the terms of the interim final rule. Commenters should 
provide descriptions of the factual circumstances, including the 
frequency of its occurrence.

IV. Administrative Law Matters

A. Administrative Procedure Act

    The Agencies are issuing the interim final rule without prior 
notice and the opportunity for public comment and without the 30-day 
delayed effective date ordinarily prescribed by the Administrative 
Procedure Act (APA).\25\ Pursuant to section 553(b)(B) of the APA, 
general notice and the opportunity for public comment are not required 
with respect to a rulemaking when an ``agency for good cause finds (and 
incorporates the finding and a brief statement of reasons therefor in 
the rules issued) that notice and public procedure thereon are 
impracticable, unnecessary, or contrary to the public interest.'' \26\
---------------------------------------------------------------------------

    \25\ 5 U.S.C. 553.
    \26\ 5 U.S.C. 553(b)(B).
---------------------------------------------------------------------------

    As discussed above, the interim final rule addresses a potential 
impact of the scenario in which the U.K. exits from the E.U. in the 
absence of a Withdrawal Agreement. The U.K.'s exit is expected to occur 
on March 29, 2019. The interim final rule facilitates the ability of a 
financial entity with non-cleared swaps located in the U.K. to relocate 
existing swap portfolios over to affiliates or other related entities 
located within the E.U. or U.S., without the ``grandfathered'' legacy 
swaps in the portfolios becoming subject to the Swap Margin Rule. As 
such, the interim final rule benefits covered swap entities subject to 
the Swap Margin Rule by removing an impediment to the transfers and 
maintaining the status quo of a legacy swap. The interim final rule 
does not impose any requirements or mandatory burden on any covered 
swap entity.
    The Agencies believe that the public interest is best served by 
making the interim final rule effective as soon as possible as a result 
of the expected timing of events in the U.K. The Agencies believe that 
issuing the interim final rule will provide the certainty necessary to 
facilitate the industry's efforts to begin arranging their transfers 
immediately upon the

[[Page 9946]]

U.K.'s withdrawal. In addition, the Agencies believe that providing a 
notice and comment period prior to issuance of the interim final rule 
is impracticable given the need for relief to begin on March 29, 2019. 
For these reasons, the Agencies find there is good cause consistent 
with the public interest to issue the interim final rule without 
advance notice and comment.\27\
---------------------------------------------------------------------------

    \27\ 5 U.S.C. 553(b)(B); 553(d)(3).
---------------------------------------------------------------------------

    The APA also requires a 30-day delayed effective date, except for 
(1) substantive rules which grant or recognize an exemption or relieve 
a restriction; (2) interpretative rules and statements of policy; or 
(3) as otherwise provided by the agency for good cause.\28\ The 
Agencies find good cause to publish the interim final rule with an 
immediate effective date for the same reasons set forth above under the 
discussion of section 553(b)(B) of the APA.
---------------------------------------------------------------------------

    \28\ 5 U.S.C. 553(d).
---------------------------------------------------------------------------

    While the Agencies believe there is good cause to issue the interim 
final rule without advance notice and comment and with an immediate 
effective date, the Agencies are requesting comment on all aspects of 
the interim final rule.

B. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, sec. 
722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the OCC, Board and 
FDIC to use plain language in all proposed and final rules published 
after January 1, 2000. The OCC, Board and FDIC invite your comments on 
how to make this proposal easier to understand. For example:
     Have we organized the material to suit your needs? If not, 
how could this material be better organized?
     Are the requirements in the regulation clearly stated? If 
not, how could the regulation be more clearly stated?
     Does the regulation contain language or jargon that is not 
clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes to the format would make the regulation 
easier to understand?
     What else could we do to make the regulation easier to 
understand?

C. Paperwork Reduction Act Analysis

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), 44 U.S.C. 3501-3521, the Agencies 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 OCC, Board, and FDIC have reviewed 
this interim final rule and determined that it introduces a new 
collection of information pursuant to the PRA and the OCC and FDIC have 
submitted it to OMB for review under section 3507(d) of the PRA (44 
U.S.C. 3507(d)) and section 1320.11 of the OMB's implementing 
regulations (5 CFR 1320). The Board has reviewed the information 
collection under its delegated authority. The OMB Control Numbers are: 
1557-0251 (OCC), 3064-0204 (FDIC), and 7100-0364 (Board).\29\ The FCA 
has determined the rule will not introduce any collection of 
information 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). The FHFA has determined 
that the interim final rule does not contain any collection of 
information for which the agency must obtain clearance under the PRA.
---------------------------------------------------------------------------

    \29\ The agencies may be required to request new control 
numbers.
---------------------------------------------------------------------------

    Section __.1(h) specifies that transfers of legacy swaps initiated 
by a covered swap entity's counterparty require a representation to the 
covered swap entity that the counterparty carried out the swap in 
accordance with both elements of the purpose test \30\ in order to 
remain outside the scope of the rule. The agencies estimate that the 
burden for this representation is de minimis. Therefore, they are 
estimating minimal burden for this requirement.
---------------------------------------------------------------------------

    \30\ The purpose test requires that the financial entity located 
in the U.K. arrange to make the amendments to the non-cleared swap 
solely for the purpose of transferring the non-cleared swap to an 
affiliate or other related establishment that is located in an E.U. 
Member State. This purpose test also contains a requirement that the 
transfer be made in connection with the U.K. entity's planning for 
the possibility that the U.K. might exit the E.U. without a 
Withdrawal Agreement, or the U.K. entity's response to such an 
event.
---------------------------------------------------------------------------

    OCC:
    Estimated Number of Respondents: 10.
    Estimated Burden per Response: 1 hour.
    Total Estimated Burden: 10 hour.
    FRB:
    Estimated Number of Respondents: 41.
    Estimated Burden per Response: 1 hour.
    Total Estimated Burden: 41 hours.
    FDIC:
    Estimated Number of Respondents: 1.\31\
---------------------------------------------------------------------------

    \31\ The FDIC's estimates zero entities, but is estimating one 
here as a placeholder.
---------------------------------------------------------------------------

    Estimated Burden per Response: 1 hour.
    Total Estimated Burden: 1 hour.
    Comments are invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    b. The accuracy or the estimate 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 the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this notice that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to the 
addresses listed in the ADDRESSES section of this document. A copy of 
the comments may also be submitted to the OMB desk officer by mail to 
U.S. Office of Management and Budget, 725 17th Street NW, #10235, 
Washington, DC 20503; facsimile to (202) 395-6974; or email to 
[email protected], Attention, Federal Banking Agency Desk 
Officer.

D. Regulatory Flexibility Act Analysis

    OCC: The Regulatory Flexibility Act (RFA) does not apply to a 
rulemaking when a general notice of proposed rulemaking is not 
required. 5 U.S.C. 603 and 604. As noted previously, the Agencies have 
determined for good cause that it is impracticable and contrary to the 
public interest to publish a general notice of proposed rulemaking for 
this joint final rule. Accordingly, the RFA's requirements relating to 
an initial and final regulatory flexibility analysis do not apply.
    Board: The Regulatory Flexibility Act (RFA) requires an agency to 
consider whether the rules it proposes will have a significant economic 
impact on a substantial number of small entities. The RFA applies only 
to rules for which an agency publishes a general notice of

[[Page 9947]]

proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed 
previously, consistent with section 553(b)(B) of the APA, the Board has 
determined for good cause that general notice and opportunity for 
public comment is impracticable and contrary to the public's interest, 
and therefore the Board is not issuing a notice of proposed rulemaking. 
Accordingly, the Board has concluded that the RFA's requirements 
relating to initial and final regulatory flexibility analysis do not 
apply. Further, the Board notes that no small entities, as defined by 
the Small Business Administration's rules implementing the RFA, will be 
affected by the interim final rule.
    FDIC: The Regulatory Flexibility Act (RFA) \32\ requires an agency 
to consider whether the rules it proposes will have a significant 
economic impact on a substantial number of small entities.\33\ The RFA 
applies only to rules for which an agency publishes a general notice of 
proposed rulemaking pursuant to 5 U.S.C. 553(b). As discussed in the 
joint interim final rule, consistent with section 553(b)(B) of the APA, 
the FDIC determined for good cause that general notice and opportunity 
for public comment was unnecessary, and therefore the FDIC did not 
issue a notice of proposed rulemaking. Accordingly, the FDIC has 
concluded that the RFA's requirements relating to initial and final 
regulatory flexibility analysis do not apply. Further, the FDIC 
supervises 3,533 depository institutions,\34\ of which 2,726 are 
defined as small banking entities by the terms of the RFA.\35\ This 
interim final rule directly applies to covered swap entities (which 
includes persons registered with the CFTC as swap dealers or major swap 
participants pursuant to the Commodity Exchange Act of 1936 and persons 
registered with the SEC as security-based swap dealers and major 
security-based swap participants under the Securities Exchange Act of 
1934) that are subject to the requirements of the Swap Margin Rule. The 
FDIC has identified 104 swap dealers that, as of February 12, 2019, 
have registered as swap entities.\36\ None of these institutions are 
supervised by the FDIC. Therefore, no small FDIC-supervised entities, 
as defined by the Small Business Administration's rules implementing 
the RFA, will be affected by the interim final rule.
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    \32\ 5 U.S.C. 601 et seq.
    \33\ The SBA defines a small banking organization as having $550 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' 13 CFR 
121.201 n.8 (2018). ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates. . . .'' 13 CFR 121.103(a)(6) 
(2018). Following these regulations, the FDIC uses a covered 
entity's affiliated and acquired assets, averaged over the preceding 
four quarters, to determine whether the covered entity is ``small'' 
for the purposes of RFA.
    \34\ FDIC-supervised institutions are set forth in 12 U.S.C. 
1813(q)(2).
    \35\ FDIC Call Report, September 30, 2018.
    \36\ In identifying the 104 entities referred to in the text, 
the Agencies used the list of swap dealers set forth, on February 
12, 2019 (providing data as of February 12, 2019) at https://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer.html. 
While the CFTC has adopted a registration requirement for entities 
that meet the definition of major swap participants, as of February 
12, 2019, the CFTC's website does not indicate that any entities are 
currently registered as major swap participants. Major swap 
participants are required to apply for registration through a filing 
with the National Futures Association. Accordingly, the Agencies 
reviewed the National Futures Association https://www.nfa.futures.org/members/sd/index.html to determine whether there 
were registered major swap participants. As of February 11, 2019, 
there were no Major Swaps Participants listed on this link. The SEC 
has not yet imposed a registration requirement for security-based 
swap dealers or major security-based swap participants.
---------------------------------------------------------------------------

    FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.), the FCA hereby certifies that the interim final 
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 more than the amounts that would qualify them as small 
entities. Nor does the Federal Agricultural Mortgage Corporation meet 
the definition of a ``small entity.'' Therefore, Farm Credit System 
institutions are not ``small entities'' as defined in the Regulatory 
Flexibility Act.
    FHFA: The RFA applies only to rules for which an agency is required 
to publish a general notice of proposed rulemaking pursuant to 5 U.S.C. 
553(b). As discussed in the joint interim final rule, consistent with 
section 553(b)(B) of the APA, FHFA determined for good cause that 
general notice and opportunity for public comment was impracticable and 
contrary to the public interest, and therefore FHFA did not issue a 
notice of proposed rulemaking. Accordingly, FHFA has concluded that the 
RFA's requirements relating to initial and final regulatory flexibility 
analysis do not apply. This interim final rule directly applies to 
covered swap entities (which includes persons registered with the CFTC 
as swap dealers or major swap participants pursuant to the Commodity 
Exchange Act of 1936 and persons registered with the SEC as security-
based swap dealers and major security-based swap participants under the 
Securities Exchange Act of 1934) that are subject to the requirements 
of the Swap Margin Rule. No FHFA-regulated entity is a covered swap 
entity, nor is any FHFA-regulated entity a small entity, as defined by 
the Small Business Administration's rules implementing the RFA. 
Therefore, no small FHFA-regulated entity will be affected by the 
interim final rule.

E. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded 
Mandates Act), 2 U.S.C. 1532, requires the OCC to prepare a budgetary 
impact statement before promulgating any final rule for which a general 
notice of proposed rulemaking was published. As discussed above, the 
OCC has determined for good cause that the publication of a general 
notice of proposed rulemaking is impracticable and contrary to the 
public interest. Accordingly, this joint final rule is not subject to 
section 202 of the Unfunded Mandates Act.

F. 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.\37\ Each Federal banking 
agency has determined that the final rule would not impose additional 
reporting, disclosure, or other requirements; therefore the 
requirements of the RCDRIA do not apply.
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 4802.

---------------------------------------------------------------------------

[[Page 9948]]

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, Banking, Foreign 
banking, Holding companies, Reporting and recordkeeping requirements, 
Swaps.

 12 CFR Part 349

    Administrative practice and procedure, Banks, Banking, Holding 
companies, Capital, Margin Requirements, Reporting and recordkeeping 
requirements, Savings associations, Risk, Swaps.

12 CFR Part 624

    Accounting, Agriculture, Banks, Banking, Capital, Cooperatives, 
Credit, Margin requirements, Reporting and recordkeeping requirements, 
Risk, Rural areas, Swaps.

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 set forth in the common preamble and under the 
authority of 12 U.S.C. 93a and 5412(b)(2)(B), the Office of the 
Comptroller of the Currency amends 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 (h) to read as follows:


Sec.  45.1   Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (h) Legacy swaps. Covered swaps entities are required to comply 
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant 
compliance dates for variation margin and for initial margin 
established in paragraph (e) of this section. Any non-cleared swap or 
non-cleared security-based swap entered into before such relevant date 
shall remain outside the scope of this part if changes are made to it 
as follows:
    (1) [Reserved]
    (2) The non-cleared swap or non-cleared security based swap was 
amended under the following conditions:
    (i) The swap was originally entered into before the relevant 
compliance date established in paragraph (e) of this section and one 
party to the swap booked it at, or otherwise held it at, an entity 
(including a branch or other authorized form of establishment) located 
in the United Kingdom;
    (ii) The entity in the United Kingdom subsequently arranged to 
amend the swap, solely for the purpose of transferring it to an 
affiliate, or a branch or other authorized form of establishment, 
located in any European Union member state or the United States, in 
connection with the entity's planning for or response to the event 
described in paragraph (h)(2)(iii) of this section, and the transferee 
is:
    (A) A covered swap entity, or
    (B) A covered swap entity's counterparty to the swap, and the 
counterparty represents to the covered swap entity that the 
counterparty performed the transfer in compliance with the requirements 
of paragraphs (h)(2)(i) and (ii) of this section;
    (iii) The law of the European Union ceases to apply to the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a Withdrawal Agreement between the United Kingdom 
and the European Union pursuant to Article 50(2);
    (iv) The amendments do not modify any of the following: The payment 
amount calculation methods, the maturity date, or the notional amount 
of the swap;
    (v) The amendments cause the transfer to take effect on or after 
the date of the event described in paragraph (h)(2)(iii) of this 
section transpires; and
    (iv) The amendments cause the transfer to take effect by the later 
of:
    (A) The date that is one year after the date of the event described 
in paragraph (h)(2)(iii); or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as 
amended.

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 amends 12 CFR part 237 to read as 
follows:

PART 237--SWAPS MARGIN AND SWAPS PUSH-OUT

0
3. 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.

Subpart A--Margin and Capital Requirements for Covered Swap 
Entities (Regulation KK)

0
4. Section 237.1 is amended by adding paragraph (h) to read as follows:


Sec.  237.1   Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (h) Legacy swaps. Covered swaps entities are required to comply 
with the requirements of this subpart for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant 
compliance dates for variation margin and for initial margin 
established in paragraph (e) of this section. Any non-cleared swap or 
non-cleared security-based swap entered into before such relevant date 
shall remain outside the scope of this subpart if changes are made to 
it as follows:
    (1) [Reserved]
    (2) The non-cleared swap or non-cleared security based swap was 
amended under the following conditions:
    (i) The swap was originally entered into before the relevant 
compliance date established in paragraph (e) of this section and one 
party to the swap booked it at, or otherwise held it at, an entity 
(including a branch or other authorized form of establishment) located 
in the United Kingdom;
    (ii) The entity in the United Kingdom subsequently arranged to 
amend the swap, solely for the purpose of transferring it to an 
affiliate, or a branch or other authorized form of establishment, 
located in any European Union member state or the United States, in 
connection with the entity's planning for or response to the event 
described in paragraph (h)(2)(iii) of this section, and the transferee 
is:
    (A) A covered swap entity, or

[[Page 9949]]

    (B) A covered swap entity's counterparty to the swap, and the 
counterparty represents to the covered swap entity that the 
counterparty performed the transfer in compliance with the requirements 
of paragraphs (h)(2)(i) and (ii) of this section;
    (iii) The law of the European Union ceases to apply to the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a Withdrawal Agreement between the United Kingdom 
and the European Union pursuant to Article 50(2);
    (iv) The amendments do not modify any of the following: The payment 
amount calculation methods, the maturity date, or the notional amount 
of the swap;
    (v) The amendments cause the transfer to take effect on or after 
the date of the event described in paragraph (h)(2)(iii) of this 
section transpires; and
    (vi) The amendments cause the transfer to take effect by the later 
of:
    (A) The date that is one year after the date of the event described 
in paragraph (h)(2)(iii) of this section; or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as 
amended.

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the Supplementary Information section, 
the Federal Deposit Insurance Corporation amends 12 CFR chapter III as 
follows:

PART 349--DERIVATIVES

0
5. The authority citation for subpart A of part 349 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
6. Section 349.1 is amended by adding paragraph (h) to read as follows:


Sec.  349.1  Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (h) Legacy swaps. Covered swaps entities are required to comply 
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant 
compliance dates for variation margin and for initial margin 
established in paragraph (e) of this section. Any non-cleared swap or 
non-cleared security-based swap entered into before such relevant date 
shall remain outside the scope of this part if changes are made to the 
non-cleared swap or non-cleared security-based swap it as follows:
    (1) [Reserved]
    (2) The non-cleared swap or non-cleared security based swap was 
amended under the following conditions:
    (i) The swap was originally entered into, booked at, or otherwise 
held at, an entity located in the United Kingdom before the relevant 
compliance date established in paragraph (e) of this section and one 
party to the swap booked it at, or otherwise held it at, an entity 
(including a branch or other authorized form of establishment) located 
in the United Kingdom;
    (ii) The entity in the United Kingdom subsequently arranged to 
amend the swap, solely for the purpose of transferring it to an 
affiliate, or a branch or other authorized form of establishment, 
located in any European Union member state or the United States, in 
connection with the entity's planning for or response to the event 
described in paragraph (h)(2)(iii) of this section, and the transferee 
is:
    (A) A covered swap entity, or
    (B) A covered swap entity's counterparty to the swap, and the 
counterparty represents to the covered swap entity that the 
counterparty performed the transfer in compliance with the requirements 
of paragraphs (h)(2)(i) and (ii) of this section; subject to the 
following conditions:
    (iii) The law of the European Union ceases to apply [to] the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a Withdrawal Agreement between the United Kingdom 
and the European Union pursuant to Article 50(2);
    (iv) The amendments do not modify any of the following: The payment 
amount calculation methods, the maturity date, or the notional amount 
of the swap or non-cleared swap;
    (v) The amendments cause the transfer to take effect on or after 
the date of the event described in paragraph (h)(2)(iii) of this 
section transpires; and
    (vi) The amendments cause the transfer to take effect by the later 
of:
    (A) The date that is one year after the date of the event described 
in paragraph (h)(2)(iii) of this section; or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as 
amended.

FARM CREDIT ADMINISTRATION

Authority and Issuance

    For the reasons set forth in the preamble, the Farm Credit 
Administration amends chapter VI of title 12, Code of Federal 
Regulations, as follows:

PART 624--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES

0
1. 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
2. Section 624.1 is amended by adding paragraph (h) to read as follows:


Sec.  624.1   Authority, purpose, scope, exemptions and compliance 
dates.

* * * * *
    (h) Legacy swaps. Covered swaps entities are required to comply 
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant 
compliance dates for variation margin and for initial margin 
established in paragraph (e) of this section. Any non-cleared swap or 
non-cleared security-based swap entered into before such relevant date 
shall remain outside the scope of this part if changes are made to it 
as follows:
    (1) [Reserved]
    (2) The non-cleared swap or non-cleared security-based swap was 
amended under the following conditions:
    (i) The swap was originally entered into before the relevant 
compliance date established in paragraph (e) of this section and one 
party to the swap booked it at, or otherwise held it at, an entity 
(including a branch or other authorized form of establishment) located 
in the United Kingdom;
    (ii) The entity in the United Kingdom subsequently arranged to 
amend the swap, solely for the purpose of transferring it to an 
affiliate, or a branch or other authorized form of establishment, 
located in any European Union member state or the United States, in 
connection with the entity's planning for or response to the event 
described in paragraph (h)(2)(iii) of this section, and the transferee 
is:
    (A) A covered swap entity, or
    (B) A covered swap entity's counterparty to the swap, and the 
counterparty represents to the covered swap entity that the 
counterparty performed the transfer in compliance with the requirements 
of paragraphs (h)(2)(i) and (ii) of this section;
    (iii) The law of the European Union ceases to apply to the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a Withdrawal Agreement between the

[[Page 9950]]

United Kingdom and the European Union pursuant to Article 50(2);
    (iv) The amendments do not modify any of the following: The payment 
amount calculation methods, the maturity date, or the notional amount 
of the swap;
    (v) The amendments cause the transfer to take effect on or after 
the date of the event described in paragraph (h)(2)(iii) of this 
section transpires; and
    (iv) The amendments cause the transfer to take effect by the later 
of:
    (A) The date that is one year after the date of the event described 
in paragraph (h)(2)(iii) of this section; or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as 
amended.

FEDERAL HOUSING FINANCE AGENCY

Authority and Issuance

    For the reasons set forth in the preamble, the Federal Housing 
Finance Agency amends chapter XII of title 12, Code of Federal 
Regulations, as follows:

PART 1221--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP 
ENTITIES

0
1. 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
2. Section 1221.1 is amended by adding paragraph (h) to read as 
follows:


Sec.  1221.1   Authority, purpose, scope, exemptions, and compliance 
dates.

* * * * *
    (h) Legacy swaps. Covered swaps entities are required to comply 
with the requirements of this part for non-cleared swaps and non-
cleared security-based swaps entered into on or after the relevant 
compliance dates for variation margin and for initial margin 
established in paragraph (e) of this section. Any non-cleared swap or 
non-cleared security-based swap entered into before such relevant date 
shall remain outside the scope of this part if changes are made to it 
as follows:
    (1) [Reserved]
    (2) The non-cleared swap or non-cleared security based swap was 
amended under the following conditions:
    (i) The swap was originally entered into before the relevant 
compliance date established in paragraph (e) of this section and one 
party to the swap booked it at, or otherwise held it at, an entity 
(including a branch or other authorized form of establishment) located 
in the United Kingdom;
    (ii) The entity in the United Kingdom subsequently arranged to 
amend the swap, solely for the purpose of transferring it to an 
affiliate, or a branch or other authorized form of establishment, 
located in any European Union member state or the United States, in 
connection with the entity's planning for or response to the event 
described in paragraph (h)(2)(iii) of this section, and the transferee 
is:
    (A) A covered swap entity, or
    (B) A covered swap entity's counterparty to the swap, and the 
counterparty represents to the covered swap entity that the 
counterparty performed the transfer in compliance with the requirements 
of paragraphs (h)(2)(i) and (ii) of this section;
    (iii) The law of the European Union ceases to apply to the United 
Kingdom pursuant to Article 50(3) of the Treaty on European Union, 
without conclusion of a Withdrawal Agreement between the United Kingdom 
and the European Union pursuant to Article 50(2);
    (iv) The amendments do not modify any of the following: The payment 
amount calculation methods, the maturity date, or the notional amount 
of the swap;
    (v) The amendments cause the transfer to take effect on or after 
the date of the event described in paragraph (h)(2)(iii) of this 
section transpires; and
    (vi) The amendments cause the transfer to take effect by the later 
of:
    (A) The date that is one year after the date of the event described 
in paragraph (h)(2)(iii) of this section; or
    (B) Such other date permitted by transitional provisions under 
Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as 
amended.

    Dated: March 7, 2019.
Joseph M. Otting,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, March 12, 2019.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.

    Dated at Washington, DC, on March 8, 2019.

Federal Deposit Insurance Corporation.
Valerie J. Best,
Assistant Executive Secretary.
    By order of the Board of the Farm Credit Administration.

    Dated at McLean, VA, this 5th day of March 2019.
Dale L. Aultman,
Secretary.

    Dated: March 7, 2019.
Joseph M. Otting,
Acting Director, Federal Housing Finance Agency.
[FR Doc. 2019-05012 Filed 3-18-19; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P, 6714-01-P, 8070-01-P, 6705-01-P