provide such a joint interpretation or joint notice of proposed
rulemaking of their own accord.
    Persons would submit requests pursuant to proposed rule 3a68-2 on a
voluntary basis. However, if a person submits a request, all of the
information required under the proposed rule, including any additional
information requested by the Commissions, must be submitted to the
Commission, except to the extent a person withdraws the request
pursuant to the proposed rule.
    For purposes of the PRA, the SEC estimates that the total annual
paperwork burden resulting from proposed rule 3a68-2 would be
approximately 20 hours of internal company or individual time and a
cost of approximately $9,480 for the services of outside professionals
that the SEC believes would consist of services provided by
attorneys.\345\ As discussed further below, these total costs include
all collection burdens associated with the proposed rules, including
burdens related to the initial determination requirements.
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    \345\ For convenience, the estimated PRA hour burdens have been
rounded to the nearest whole dollar. Data from SIFMA's ``Management
& Professional Earnings in the Securities Industry 2009,'' modified
by SEC staff to account for an 1800-hour work-year and multiplied by
5.35 to account for bonuses, firm size, employee benefits, and
overhead, suggest that that the cost of an attorney is $316 per
hour.
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    Second, the SEC is proposing new rule 3a68-4(c), which would allow
persons to submit requests to the Commissions for joint orders
regarding the regulation of a particular mixed swap (or class thereof).
Under proposed rule 3a68-4(c), a person would provide to the
Commissions a copy of all material information regarding the terms of,
and the economic characteristics and purpose of, the specified (or
specified class of) mixed swap. In addition, a person would provide the
specified parallel provisions, and the reasons the person believes such
specified parallel provisions would be appropriate for relevant mixed
swap (or class thereof), and an analysis of: (i) The nature and
purposes of the parallel provisions that are the subject of the
request; (ii) the comparability of such parallel provision; and (iii)
the extent of any conflicts or differences between such parallel
provisions. The Commissions also may request the submitting person to
provide additional information.
    The Commissions may issue in response a joint order, after public
notice and opportunity for comment, providing that the requesting
person (and any other person or persons that subsequently lists,
trades, or clears that mixed swap (or class thereof)) is permitted to
comply, as to parallel provisions only, with the specified parallel
provisions (or another subset of the parallel provisions that are the
subject of the request, as the Commissions determine is appropriate),
instead of being required to comply with parallel provisions of both
the CEA and the Exchange Act. Any joint order will be public and may
discuss the material information regarding the terms of the mixed swap
(or class thereof), as well as any other information the Commissions
deem material to the order. Requesting persons also would be permitted
to withdraw a request made pursuant to proposed rule 3a68-4(c) at any
time before the Commissions have issued a joint order in response to
the request.
    Persons would submit requests pursuant to proposed rule 3a68-4(c)
on a voluntary basis. However, if a person submits a request, all of
the information required under the proposed rule, including any
additional information requested by the Commissions, must be submitted
to the Commission, except to the extent a person withdraws the request
pursuant to the proposed rule.
    For purposes of the PRA, the SEC estimates that the total annual
incremental paperwork burden resulting from proposed rule 3a68-4(c)
would be approximately 30 hours of internal company or individual time
and a cost of approximately $15,800 for the services of outside
professionals, which the SEC believes would consist of services
provided by attorneys.\346\ As discussed further below, these total
costs include all collection burdens associated with the proposed
rules, including burdens related to the initial determination
requirements.
---------------------------------------------------------------------------

    \346\ See supra note 345.
---------------------------------------------------------------------------

3. Proposed Use of Information
    The SEC would use the information collected pursuant to proposed
rule 3a68-2 to evaluate an agreement, contract, or transaction (or
class thereof) in order to provide joint interpretations or joint
notices of proposed rulemaking with the CFTC regarding whether these
agreements, contracts, or transactions (or classes thereof) are swaps,
security-based swaps, or both (i.e., mixed swaps) as defined in the
Dodd-Frank Act. The SEC would use the information collected pursuant to
proposed rule 3a68-4(c) to evaluate a specified, or a specified class
of, mixed swaps in order to provide joint orders or joint notices of
proposed rulemaking with the CFTC regarding the regulation of that
particular mixed swap or class of mixed swap. The information provided
to the SEC pursuant to proposed rules 3a68-2 and 3a68-4(c) also would
allow the SEC to monitor the development of new OTC derivatives
products in the marketplace and determine whether additional rulemaking
or interpretive guidance is necessary or appropriate.
4. Respondents
    It is difficult to calculate the precise number of requests that
would be submitted to the Commissions under proposed rules 3a68-2 and
3a68-4(c), given the historical unregulated state of the OTC
derivatives market. Although any person could submit a request under
proposed rule 3a68-2, the SEC believes as a practical matter that the
relevant categories of such persons would be swap dealers and security-
based swap dealers, major swap participants and major security-based
swap participants, SEFs, security-based SEFs, DCOs clearing swaps, DCMs
trading swaps, SDRs, SBSDRs, and clearing agencies clearing security-
based swaps, and the total number of persons could be 475.\347\
Similarly, although any

person could submit a request under proposed rule 3a68-4(c), the SEC
believes as a practical matter that the relevant categories of such
persons would be SEFs, security-based SEFs, and DCMs trading swaps, and
the total number of persons could be 72.\348\
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    \347\ This total number includes an estimated 250 swap dealers,
50 major swap participants, 50 security-based swap dealers, 10 major
security-based swap participants, 35 SEFs, 20 security-based SEFs,
12 DCOs, 17 DCMs, 15 SDRs, 10 SBSDRs, and 6 clearing agencies, as
set forth by the CFTC and SEC, respectively, in their other Dodd-
Frank Act rulemaking proposals. See Entity Definitions, supra note
12 (regarding security-based swap dealers and major security-based
swap participants); Registration of Swap Dealers and Major Swap
Participants, supra note 330 (regarding swap dealers and major
security-based swap participants); Security-Based Swap Data
Repository Registration, Duties, and Core Principles, supra note 6
(regarding SBSDRs); Swap Data Repositories, supra note 330
(regarding SDRs); Core Principles and Other Requirements for Swap
Execution Facilities, 76 FR 1214, Jan. 7, 2011 (regarding SEFs);
Registration and Regulation of Security-Based Swap Execution
Facilities, 76 FR 10948, Feb. 28, 2011 (regarding security-based
SEFs); Financial Resources Requirements for Derivatives Clearing
Organizations, 75 FR 63113, Oct. 14, 2010 (regarding DCOs);
Information Management Requirements for Derivatives Clearing
Organizations, 75 FR 78185, Dec. 15, 2010 (regarding DCOs); Risk
Management Requirements for Derivatives Clearing Organizations, 76
FR 3698, Jan. 20, 2011 (regarding DCOs); Core Principles and Other
Requirements for Designated Contract Markets, 75 FR 80572, Dec. 22,
2010 (regarding DCMs); Clearing Agency Standards for Operation and
Governance, 76 FR 14472, Mar. 16, 2011 (regarding clearing
agencies).
    \348\ Id.
---------------------------------------------------------------------------

    However, based on the SEC's experience and information received
from commenters to the ANPR \349\ and during meetings with the public
to discuss the Product Definitions generally, including the
interpretation of whether a transaction is a swap, security-based swap,
or both (i.e., a mixed swap), and taking into consideration the
certainty provided by the proposed rules and interpretive guidance in
this release, the SEC believes that the number of requests that would
be submitted by such persons to the Commissions to provide joint
interpretations as to whether a given agreement, contract, or
transaction is a swap, security-based swap, or both (i.e., a mixed
swap), would be small, and therefore expects that only a small number
of requests would be submitted pursuant to proposed rule 3a68-2. With
respect to proposed rule 3a68-4(c), the SEC also estimates the number
of requests for joint orders would be small.\350\ Pursuant to the
Commissions' proposed rules and interpretive guidance, a number of
persons that engage in agreements, contracts, or transactions that are
swaps, security-based swaps, or both (i.e., a mixed swap) would be
certain that their transactions are, indeed, swaps, security-based
swaps, or both, (i.e., a mixed swap) and would not request an
interpretation pursuant to proposed rule 3a68-2. Also, as the
Commissions provide joint interpretations regarding whether agreements,
contracts, or transactions (or classes thereof) are or are not swaps,
security-based swaps, or both (i.e., mixed swaps), the SEC expects that
the number of requests for interpretation will decrease over time. The
SEC believes that the rules and interpretive regarding swaps, security-
based swaps, and mixed swaps the Commissions are proposing, as well as
the additional guidance issues pursuant to joint interpretations and
orders under proposed rules 3a68-2 and 3a68-4 will result in a narrow
pool of potential respondents, approximately 50,\351\ to the collection
of information requirements of proposed rule 3a68-2.
---------------------------------------------------------------------------

    \349\ See supra note 283 and accompanying text.
    \350\ See discussion supra part IV.A.
    \351\ The SEC believes that there would be approximately 50
requests in the first year. See discussion infra part IX.A.5. The
SEC recognizes that one person might submit more than one request,
but for purposes of the PRA is considering each such request as one
person in order to provide a more conservative estimate of the
number of persons that would be subject to paperwork burdens.
---------------------------------------------------------------------------

    Similarly, because the SEC believes that both the category of mixed
swap transactions and the number of market participants that engage in
mixed swap transactions are small, the SEC believes that the pool of
potential persons requesting a joint order regarding the regulation of
a specified, or specified class of, mixed swap pursuant to proposed
rule 3a68-4(c) would be small (approximately 10 \352\). Also, those
requests submitted pursuant to proposed rule 3a68-2 that result in an
interpretation that the agreement, contract, or transaction (or class
thereof) is not a mixed swap would reduce the pool of possible persons
submitting a request regarding the regulation of particular mixed swaps
(or class thereof) pursuant to proposed rule 3a68-4(c). In addition,
not only the requesting party, but also any other person or persons
that subsequently lists, trades, or clears that mixed swap, would be
subject to, and must comply with, the joint order regarding the
regulation of the specified, or specified class of, mixed swap, as
issued by the Commissions. Therefore, the SEC believes that the number
of requests for a joint order regarding the regulation of mixed swaps,
particularly involving specified classes of mixed would decrease over
time.
---------------------------------------------------------------------------

    \352\ See id.
---------------------------------------------------------------------------

    The SEC seeks comment on the number of persons that potentially
would submit requests pursuant to rules 3a68-2 and 3a68-4(c).
5. Paperwork Reduction Act Burden Estimates
    Proposed rules 3a68-2 and 3a68-4(c) would, if adopted, require
submission of certain information to the Commissions to the extent
persons elect to request an interpretation and/or alternative
regulatory treatment. Proposed rules 3a68-2 and 3a68-4(c) each require
the information that a requesting party must include in its request to
the Commissions in order to receive a joint interpretation or order, as
applicable.
(a) Proposed Rule 3a68-2
    Proposed rule 3a68-2 would require any party requesting a joint
interpretation under the rule to include disclosures about the
agreement, contract, or transaction (or class thereof) in question as
well as a statement of economic purpose and the requesting party's
initial determination regarding whether the agreement, contract, or
transaction (or class thereof) is a swap, security-based swap, or both
(i.e., a mixed swap). The proposed rule would apply only to requests
made by persons that desire an interpretation from the Commissions. For
each agreement, contract, or transaction (or class thereof) for which a
person requests the Commissions' joint interpretation, the requesting
person would be required to provide a copy of all material information
regarding the applicable terms; a statement of the economic
characteristics and purpose; and the requesting person's determination
as to whether such agreement, contract, or transaction (or class
thereof) is a swap, security-based swap, or both (i.e., a mixed swap),
including the basis for the requesting person's determination. The
requesting person also would be required to provide such other
information as the Commissions may request.
    As discussed above, the SEC believes the number of persons that
would submit requests pursuant to proposed rule 3a68-2 is quite small
given the proposed rules and interpretive guidance regarding swaps,
security-based swaps, and mixed swaps the Commissions are
providing.\353\ Although the SEC does not have precise figures for the
number of requests that persons would submit, the SEC believes it is
reasonable to estimate that it likely

would be fewer than 50 requests in the first year. For purposes of the
PRA, the SEC estimates the total paperwork burden associated with
preparing and submitting a person's request to the Commissions pursuant
to proposed rule 3a68-2 would be 20 hours per request and associated
costs of $9,480.\354\ Assuming 50 requests in the first year, the SEC
estimates that this would result in an aggregate burden for the first
year of 1000 hours of company time (50 requests x 20 hours/request) and
$474,000 for the services of outside professionals (e.g., attorneys)
(50 requests x 30 hours/request x $316).
---------------------------------------------------------------------------

    \353\ This estimate is based on comments from and discussions
with market participants regarding uncertainty concerning whether
certain contracts might be considered swaps, security-based swaps,
or both, i.e., mixed swaps, and the size of the mixed swaps
category, although the SEC has not received data regarding the
specific number of potential transaction types for which there is
uncertainty or that are mixed swaps.
    \354\ This estimate is based on information indicating that the
average burden associated with preparing and submitting a no-action
request to the SEC staff in connection with the identification of
whether certain products were securities, which the SEC believes is
a process similar to the process under proposed rule 3a68-2, was
approximately 20 hours and associated costs of $9,480. Assuming
these costs correspond to legal fees, which we estimate at an hourly
cost of $316, we estimate that this cost is equivalent to
approximately 30 hours ($9,480/$316).
---------------------------------------------------------------------------

    As discussed above, the SEC believes that as the Commissions
provide joint interpretations or joint notices of proposed rulemaking,
the number of requests received will decrease over time. Although the
SEC does not have precise figures for the number of requests that
persons would submit after the first year, the SEC believes it is
reasonable to estimate that it likely would be fewer than 10 requests
on average in ensuing years. Assuming 10 requests in ensuing years, the
SEC estimates that this would result in an aggregate burden in each
ensuing year of 200 hours of company time (10 requests x 20 hours/
request) and $94,800 for the services of outside professionals (e.g.,
attorneys) (10 requests x 30 hours/request x $316).
(b) Proposed Rule 3a68-4(c)
    Proposed rule 3a68-4(c) would require any party requesting a joint
order regarding the regulation of a specified, or specified class of,
mixed swap under the rule to include disclosure about the agreement,
contract, or transaction (or class thereof) that is a mixed swap as
well as a statement of economic purpose for the mixed swap (class
thereof). In addition, a person would provide the specified parallel
provisions that the person believes should apply to the mixed swap (or
class thereof), the reasons the person believes the specified parallel
provisions would be appropriate for the mixed swap, and an analysis of:
(i) The nature and purposes of the parallel provisions that are the
subject of the request; (ii) the comparability of such parallel
provisions; and (iii) the extent of any conflicts or differences
between such parallel provisions. The requesting person also would be
required to provide such other information as the Commissions may
request.
    As discussed above, the SEC believes the number of requests that
persons would submit pursuant to proposed rule 3a68-4(c) is quite small
given the limited types of agreements, contracts, or transactions (or
class thereof) the Commissions believe would constitute mixed
swaps.\355\ In addition, depending on the characteristics of a mixed
swap (or class thereof), a person may choose not to submit a request
pursuant to proposed rule 3a68-4(c). The SEC also notes that any joint
order issued by the Commissions would apply to any person that
subsequently lists, trades, or clears that specified, or specified
class of, mixed swap, so that requests for joint orders could diminish
over time. Also, persons may submit requests for an interpretation
under proposed rule 3a68-4(c) that do not result in an interpretation
that the agreement, contract, or transaction (or class thereof) is a
mixed swap. Therefore, although the SEC does not have precise figures
for the number of requests that persons would submit, the SEC believes
it is reasonable to estimate that it likely would be fewer than 20
requests in the first year. For purposes of the PRA, the SEC estimates
the total paperwork burden associated with preparing and submitting a
party's request to the Commissions pursuant to proposed rule 3a68-4(c)
would be 30 hours and associated costs of $15,800 per request for mixed
swaps for which a request for a joint interpretation pursuant to
proposed rule 3a68-4(c) was not previously made.\356\ Assuming 20
requests in the first year, the SEC estimates that this would result in
an aggregate burden for the first year of 600 hours of company time (20
requests x 30 hours/request) and $316,000 for the services of outside
professionals (20 requests x 50 hours/request x $316).
---------------------------------------------------------------------------

    \355\ See supra note 283 and accompanying text.
    \356\ This estimate is based on information indicating that the
average burden associated with preparing and submitting a no-action
request to the SEC staff in connection with the regulatory treatment
of certain securities products which the SEC believes is a process
similar to the process under proposed rule 3a68-4(c), was
approximately 30 hours and associated costs of $15,800. Assuming
these costs correspond to legal fees, which we estimate at an hourly
cost of $316, we estimate that this cost is equivalent to
approximately 50 hours ($15,800/$316).
---------------------------------------------------------------------------

    For mixed swaps for which a request for a joint interpretation
pursuant to proposed rule 3a68-2 was previously made, the SEC estimates
the total paperwork burden under the PRA associated with preparing and
submitting a party's request to the Commissions pursuant to proposed
rule 3a68-4(c) would be 10 hours fewer and $4,740 less per request than
for mixed swaps for which a request for a joint interpretation pursuant
to proposed rule 3a68-2 was not previously made because certain,
although not all, of the information required to be submitted and
necessary to prepare pursuant to proposed rule 3a68-4(c) would have
been required to be submitted and necessary to prepare pursuant to
proposed rule 3a68-2.\357\ Although certain requests made pursuant to
proposed rule 3a68-4(c) may be made without a previous request for a
joint interpretation pursuant to proposed rule 3a68-2, the SEC believes
that most requests under proposed rule 3a68-2 that result in the
interpretation that an agreement, contract, or transaction (or class
thereof) is a mixed swap will result in a subsequent request for
alternative regulatory treatment pursuant to proposed rule 3a68-4(c).
Assuming, therefore, that 90 percent, or 18 of the estimated 20
requests pursuant to proposed rule 3a68-4(c) in the first year, as
discussed above, would be such ``follow-on'' requests, the SEC
estimates that this would result in an aggregate burden in the first
year of 360 hours of company time (18 requests x 20 hours/request) and
$199,080 for the services of outside professionals (18 requests x 35
hours/request x $316).
---------------------------------------------------------------------------

    \357\ This estimate takes into account that certain information
regarding the mixed swap (or class thereof), namely the material
terms and the economic purpose, will have already been gathered and
prepared as part of the request submitted pursuant to proposed rule
3a68-2. The SEC estimates that these items constitute approximately
10 hours fewer and a reduction in associated costs of $4,740.
Assuming these costs correspond to legal fees, which we estimate at
an hourly cost of $316, we estimate that this cost is equivalent to
approximately 15 hours ($4,740/$316).
---------------------------------------------------------------------------

    As discussed above, the SEC believes that as the Commissions
provide joint orders regarding alternative regulatory treatment, the
number of requests received will decrease over time. The SEC believes
it is reasonable to estimate that it likely would be fewer than 5
requests on average in ensuing years. Assuming 5 requests in ensuing
years, the SEC estimates that this would result in an aggregate burden
in each ensuing year of 150 hours of company time (5 requests x 30
hours/request) and $79,000 for the services of outside professionals (5
requests x 50 hours/request x $316). As discussed above, assuming that
approximately 90 percent, or 4 of the estimated 5 requests pursuant to
proposed rule 3a68-4(c) in

ensuing years would be ``follow-on'' requests to requests for joint
interpretation from the Commissions under proposed rule 3a68-4(c), the
SEC estimates that this would result in an aggregate burden in each
ensuing year of 80 hours of company time (4 requests x 20 hours/
request) and $44,240 for the services of outside professionals (4
requests x 35 hours/request x $316).

Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the SEC solicits comments to:
(i) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility; (ii)
evaluate the accuracy of the SEC's estimate of burden of the proposed
collection of information; (iii) determine whether there are ways to
enhance the quality, utility, and clarity of the information to be
collected; and (iv) evaluate whether there are ways to minimize the
burden of the collection of information on those that are to respond,
including through the use of automated collection techniques or other
forms of information technology. In addition, the SEC requests comment
on the accuracy of the estimates regarding the total paperwork burden.
    In particular, the SEC requests comment for purposes of the PRA on
the following:
    149. How many requests for a joint interpretation from the
Commissions would be submitted pursuant to rule 3a68-2?
    150. How many requests for a joint order from the Commissions would
be submitted pursuant to rule 3a68-4(c)?
    151. How many requests for a joint order from the Commissions would
be submitted pursuant to rule 3a68-4(c) regarding the same agreement,
contract, or transaction (or class thereof) that was the subject of a
request for a joint interpretation from the Commissions submitted
pursuant to rule 3a68-2?
    152. Are the paperwork burden estimates, for both company time and
outside services, as discussed above accurate? Do these estimates
reflect the paperwork burdens and costs associated with requests made
pursuant to proposed rules 3a68-2 and 3a68-4(c)?
    Commenters should, when possible, provide empirical data to support
their views.
    Any member of the public may direct to us or to OMB any comments
concerning the accuracy of these burden estimates and any suggestions
for reducing these burdens. Persons submitting comments on the
collection of information requirements should direct the comments to
the Office of Management and Budget, Attention Desk Officer for the
Securities and Exchange Commission, Office of Information and
Regulatory Affairs, Washington, DC 20503, and should send a copy to
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090, with reference to File No. S7-16-11.
Requests for materials submitted to OMB by the SEC with regard to these
collections of information should be in writing, refer to File No. S7-
16-11, and be submitted to the Securities and Exchange Commission,
Office of Investor Education and Advocacy, 100 F Street NE.,
Washington, DC 20549-0213. OMB is required to make a decision
concerning the collection of information between 30 and 60 days after
publication of this release. Consequently, a comment to OMB is best
ensured of having its full effect if OMB receives it within 30 days of
publication.

B. Cost-Benefit Analysis

1. Background
    Title VII establishes a regulatory framework for OTC derivatives.
As part of that framework, Title VII amends the CEA and the Exchange
Act to broadly categorize covered derivative products as swaps,
security-based swaps, SBSAs, and/or mixed swaps. In particular, section
712(d)(1) of the Dodd-Frank Act provides that the Commissions, in
consultation with the Board, shall jointly further define, among other
things, the terms ``swap,'' ``security-based swap,'' and ``security-
based swap agreement.'' Section 712(a)(8) of the Dodd-Frank Act
provides further that the Commissions shall jointly prescribe such
regulations regarding ``mixed swaps'' as may be necessary to carry out
the purposes of Title VII. In addition, sections 712(d)(2)(B) and (C)
of the Dodd-Frank Act require the Commissions, in consultation with the
Board, to jointly adopt rules governing books and records for SBSAs for
SDRs that are registered under the CEA, swap dealers, major swap
participants, security-based swap dealers, and major security-based
swap participants.
    The Product Definitions and the regulation of mixed swaps are part
of the Dodd-Frank Act's comprehensive framework for regulating the
swaps markets whereby the CFTC is given regulatory authority over
``swaps,'' \358\ the SEC is given regulatory authority over ``security-
based swaps,'' \359\ and the Commissions shall jointly prescribe such
regulations regarding mixed swaps as may be necessary to carry out the
purposes of Title VII.\360\ In addition, the SEC is given antifraud
authority over, and access to information from certain CFTC-regulated
entities (e.g., DCOs, SEFs, and swap dealers) regarding, SBSAs.\361\
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    \358\ See CEA section 1a(47), 7 U.S.C. 1a(47) (cross-referenced
in section 3(a)(69) of the Exchange Act, 15 U.S.C. 78c(a)(69)).
    \359\ See section 3(a)(68) of the Exchange Act, 15 U.S.C.
78c(a)(68) (cross-referenced in CEA section 1a(42), 7 U.S.C.
1a(42)).
    \360\ See CEA section 1a(47)(D), 7 U.S.C. 1a(47)(D); section
3(a)(68)(D) of the Exchange Act, 15 U.S.C. 78c(68)(D).
    \361\ See section 3(a)(78) of the Exchange Act, 15 U.S.C.
78c(a)(78); CEA section 1a(47)(A)(v), 7 U.S.C. 1a(47)(A)(v).
---------------------------------------------------------------------------

    In most instances, the Commissions' proposed rules and guidance
merely clarify the application of the Product Definitions to specific
products as is required by the relevant provisions of the CEA and
Exchange Act, as modified by the Dodd-Frank Act and the regulation of
mixed swaps. However, for some of the rules the Commissions are
proposing, the Commissions are exercising their discretion to further
define the Product Definitions and to regulate mixed swaps, which would
generate costs and benefits to market participants. The Commissions
also are fulfilling the requirement in Dodd-Frank that they establish
requirements regarding books and records with respect to SBSAs, which
also would generate costs and benefits to market participants. The
costs and benefits regarding these rules are discussed below.
2. Proposed Rule 3a68-1a
(a) Benefits
    A security-based swap includes a swap that is based on the
``occurrence, nonoccurrence, or extent of the occurrence of an event
relating to a single issuer of a security or the issuers of securities
in a narrow-based security index, provided that such event directly
affects the financial statements, financial condition, or financial
obligations of the issuer'' (the ``Event Provision'').\362\ Proposed
rule 3a68-1a would provide that, solely for purposes of determining
whether a CDS is a security-based swap under the Event Provision, the
term ``issuers of securities in a narrow-based security index'' would
have the meaning as set forth in proposed rule 3a68-1a.
---------------------------------------------------------------------------

    \362\ Section 3(a)(68)(A)(ii)(III) of the Exchange Act, 15
U.S.C. 78c(a)(68)(A)(ii)(III).
---------------------------------------------------------------------------

    Because index CDS typically are written on indexes of entity names,
not on indexes of the specific securities of those entities, the
Commissions are

concerned that the application of the Event Provision, without further
clarification, may cause uncertainty about whether certain index CDS
would be security-based swaps or swaps. Therefore, proposed rule 3a68-
1a would eliminate the potential uncertainty of the treatment of index
CDS as either security-based swaps or swaps by setting forth clear and
objective criteria for meeting the definition of ``issuers of
securities in a narrow-based security index'' and therefore being a
security-based swap.
    The SEC requests comments, data, and estimates regarding the
benefits associated with proposed rule 3a68-1a. The SEC also requests
comments, data, and estimates regarding any additional benefits that
could be realized with proposed rule 3a68-1a.
(b) Costs
    In complying with proposed rule 3a68-1a, a market participant will
need to ascertain whether an index CDS is a security-based swap or swap
according to the criteria set forth for meeting the definition of
``issuers of securities in a narrow-based security index.'' This
analysis will have to be performed by market participants upon entering
into an index CDS to determine whether the index CDS is subject to the
SEC's regulatory regime for security-based swaps or the CFTC's
regulatory regime for swaps. The SEC notes, however, that any such
costs would be in lieu of the costs of doing the same analysis under
the statutory security-based swap definition. Because the statutory
security-based swap definition lacks the specificity provided by
proposed rule 3a68-1a, the SEC believes analysis of an index CDS would
under proposed rule 3a68-1a would lead to less uncertainty than would
the same analysis under the statutory security-based swap definition.
Providing a clear rule to persons to determine whether an index CDS is
a security-based swap under section 3(a)(68)(A)(ii)(III) of the
Exchange Act \363\ could alleviate additional costs to persons of
inquiring with the Commissions about whether an index CDS is a swap or
security-based swap under that provision, as well as costs of obtaining
an opinion of counsel regarding the applicability of that provision to
a particular index CDS.
---------------------------------------------------------------------------

    \363\ 15 U.S.C. 78c(a)(68)(A)(ii)(III).
---------------------------------------------------------------------------

    In addition, proposed rule 3a68-1a is generally consistent with the
definition of ``narrow-based security index'' that exists in section
3(a)(55)(B) of the Exchange Act, as modified to address debt securities
in the context of security futures.\364\ Because some market
participants are familiar with this definition, as well as with
performing analyses of products in the security futures context based
on this definition, the SEC believes that the proposed definition of
``issuers of securities in a narrow-based security index'' will
mitigate uncertainty for those market participants regarding the
treatment of index CDS. In addition, because such market participants
would be familiar with many of the criteria in proposed rule 3a68-1a,
such market participants would require less time and effort, and thus
incur less cost, in determining the scope and applicability of such
criteria to the determination of whether an index CDS is a swap or
security-based swap.
---------------------------------------------------------------------------

    \364\ See July 2006 Rules, supra note 199.
---------------------------------------------------------------------------

    The SEC requests comment as to the costs that determinations under
proposed rule 3a68-1a would impose on market participants, as well as
estimates and empirical data to support these costs. In addition, the
SEC requests comment on any other costs associated with proposed rule
3a68-1a that have not been considered and what the extent of those
costs would be.
3. Proposed Rule 3a68-1b
(a) Benefits
    A security-based swap includes a swap that is based on ``an index
that is a narrow-based security index, including any interest therein
or on the value thereof.'' \365\ Proposed rule 3a68-1b would provide
that, solely for purposes of determining whether a CDS is a security-
based swap under section 3(a)(68)(A)(ii)(I) of the Exchange Act,\366\
the term ``narrow-based security index'' would have the meaning as set
forth in proposed rule 3a68-1b.
---------------------------------------------------------------------------

    \365\ Section 3(a)(68)(A)(ii)(I) of the Exchange Act, 15 U.S.C.
78c(a)(68)(A)(ii)(I).
    \366\ 15 U.S.C. 78c(a)(68)(A)(ii)(I).
---------------------------------------------------------------------------

    Because index CDS may be written in indexes of the specific
securities of entities as well as on indexes of entity names, the
Commissions are concerned that the application of section
3(a)(68)(A)(ii)(I) of the Exchange Act,\367\ without further
clarification, may cause uncertainty about whether certain index CDS
would be security-based swaps or swaps. Therefore, proposed rule 3a68-
1b would eliminate the potential uncertainty of the treatment of index
CDS as either security-based swaps or swaps by setting forth clear and
objective criteria for meeting the definition of ``narrow-based
security index'' and therefore being a security-based swap.
---------------------------------------------------------------------------

    \367\ 15 U.S.C. 78c(a)(68)(A)(ii)(I).
---------------------------------------------------------------------------

    The SEC requests comments, data, and estimates regarding the
benefits associated with proposed rule 3a68-1b. The SEC also requests
comments, data, and estimates regarding any additional benefits that
could be realized with proposed rule 3a68-1b.
(b) Costs
    In complying with proposed rule 3a68-1b, a market participant will
need to ascertain whether an index CDS is a security-based swap or swap
according to the criteria set forth for meeting the definition of
``narrow-based security index.'' This analysis will have to be
performed by market participants upon entering into an index CDS to
determine whether the index CDS is subject to the SEC's regulatory
regime for security-based swaps or the CFTC's regulatory regime for
swaps. The SEC notes, however, that any such costs would be in lieu of
the costs of doing the same analysis under the statutory security-based
swap definition. Because the statutory security-based swap definition
lacks the specificity provided by proposed rule 3a68-1b, the SEC
believes analysis of an index CDS would under proposed rule 3a68-1b
lead to less uncertainty than would the same analysis under the
statutory security-based swap definition. Providing a clear rule to
persons to determine whether an index CDS is a security-based swap
under section 3(a)(68)(A)(ii)(I) of the Exchange Act \368\ could
alleviate additional costs to persons of inquiring with the Commissions
about whether an index CDS is a swap or security-based swap under that
provision, as well as costs of obtaining an opinion of counsel
regarding the applicability of that provision to a particular index
CDS.
---------------------------------------------------------------------------

    \368\ 15 U.S.C. 78c(a)(68)(A)(ii)(I).
---------------------------------------------------------------------------

    In addition, proposed rule 3a68-1b is generally consistent with the
definition of ``narrow-based security index'' that exists in section
3(a)(55)(B) of the Exchange Act, as modified to address debt securities
in the context of security futures.\369\ Because some market
participants are familiar with this definition, as well as with
performing analyses of products in the security futures context based
on this definition, the SEC believes that the proposed definition of
``narrow-based security index'' will mitigate uncertainty for those
market participants regarding the treatment of index CDS. In addition,
because such market participants would be familiar with many of the
criteria in proposed rule 3a68-1b, such market

participants would require less time and effort, and thus incur less
cost, in determining the scope and applicability of such criteria to
the determination of whether an index CDS is a swap or security-based
swap.
---------------------------------------------------------------------------

    \369\ See July 2006 Rules, supra note 199.
---------------------------------------------------------------------------

    The SEC requests comment as to the costs that determinations under
proposed rule 3a68-1a would impose on market participants, as well as
estimates and empirical data to support these costs. In addition, the
SEC requests comment on any other costs associated with proposed rule
3a68-1a that have not been considered and what the extent of those
costs would be.
4. Proposed Rule 3a68-2
(a) Benefits
    Proposed rule 3a68-2 would establish a process for persons to
request an interpretation of whether an agreement, contract, or
transaction (or class of agreements, contracts, or transactions) is a
swap, security-based swap, or both (i.e., a mixed swap).
    Proposed rule 3a68-2 would afford persons with the opportunity to
obtain greater certainty from the Commissions regarding whether certain
products are swaps, security-based swaps, or both, i.e., mixed swaps.
The SEC believes that this provision would decrease the possibility
that market participants inadvertently might violate regulatory
requirements regarding products that may constitute swaps, security-
based swaps, or mixed swaps, which could lead to enforcement action. It
also would decrease the likelihood that products might fall into
regulatory gaps by providing a method for market participants to seek
interpretations regarding the status of products for which the
applicable regulatory regime might otherwise remain uncertain. In
addition, the SEC believes the proposed rule will provide the
opportunity for financial innovation by providing a flexible structure
that will allow for the development of new products that otherwise
might be hindered by the lack of regulatory certainty.
(b) Costs
    Under proposed rule 3a68-2, a person could request the Commissions
to provide an interpretation of whether an agreement, contract, or
transaction (or class thereof) is a swap, security-based swap, or mixed
swap. The SEC estimates that the cost of requesting this interpretation
for a particular agreement, contract, or transaction (or class thereof)
would be approximately 20 hours of internal company or individual time
and a cost of approximately $9,480 for the services of outside
professionals.\370\ The SEC notes, however, that any such costs are in
lieu of the costs of doing the same analysis without requesting the
Commissions to provide an interpretation. In addition, as noted above,
if the Commissions provide an interpretation pursuant to a request
under proposed rule 3a68-2, a market participant, and other market
participants that desire to transact in the same (or same class of)
agreement, contract, or transaction, would have regulatory certainty
about whether that agreement, contract, or transaction (or class
thereof) is a swap, security-based swap, or both (i.e., a mixed swap).
---------------------------------------------------------------------------

    \370\ See discussion supra part VIII.
---------------------------------------------------------------------------

    Also, the SEC believes that as persons make requests for
interpretations about whether agreements, contracts, or transactions
(or classes thereof agreements) are swaps, security-based swaps, or
both, i.e., mixed swaps, pursuant to proposed rule 3a68-2, the
subsequent costs for persons transacting in those products for which
the Commissions have provided interpretations should be reduced.
    The SEC requests comment as to the costs that proposed rule 3a68-2
would impose on market participants, as well as estimates and empirical
data to support these costs. In addition, the SEC requests comment on
any other costs associated with proposed rule 3a68-2 that have not been
considered herein and what the extent of those costs would be.
5. Proposed Rule 3a68-3
(a) Benefits
    Proposed rule 3a68-3 would provide that, except as otherwise
provided in proposed rule 3a68-3, for purposes of section 3(a)(68) of
the Exchange Act,\371\ the term ``narrow-based security index'' has the
meaning set forth in section 3(a)(55) of the Exchange Act,\372\ and the
rules, regulations, and orders of the SEC thereunder. This definition
would eliminate potential uncertainty regarding the treatment of a
narrow-based security index to which section 3(a)(55) of the Exchange
Act also applies.\373\
---------------------------------------------------------------------------

    \371\ 15 U.S.C. 78c(a)(68).
    \372\ 15 U.S.C. 78c(a)(55).
    \373\ 15 U.S.C. 78c(a)(55).
---------------------------------------------------------------------------

    Proposed rule 3a68-3 also would provide a tolerance period for the
definition of ``narrow-based security index'' to ensure that, under
certain conditions, a security index underlying a swap will not be
considered a narrow-based security index and a security index
underlying a security-based swap will be considered a narrow-based
security index, even when the security index underlying the swap or
security-based swap temporarily assumes characteristics that would
render it a narrow-based security index or not a narrow-based security
index, respectively. In addition, proposed rule 3a68-3 would provide
for an additional 3-month grace period applicable to a security index
that becomes narrow-based, or broad-based, as applicable, for more than
45 business days over 3 consecutive calendar months.
    Because security indexes underlying Title VII instruments may
migrate from narrow-based to broad-based, or vice versa, the
Commissions are concerned that application of the narrow-based security
index definition, without further clarification, may cause uncertainty
regarding treatment of Title VII instruments traded on trading
platforms when such migration has occurred. Therefore, proposed rule
3a68-3 would eliminate the potential uncertainty of the treatment of
such Title VII instruments by setting forth clear and objective
criteria regarding the application of the narrow-based security index
definition to security indexes that have migrated from narrow-based to
broad-based or from broad-based to narrow-based.
    The SEC requests comments, data, and estimates regarding the
benefits associated with proposed rule 3a68-3. The SEC also requests
comments, data, and estimates regarding any additional benefits that
could be realized with proposed rule 3a68-3.
(b) Costs
    In complying with proposed rule 3a68-3, a market participant will
need to ascertain whether a security index underlying a Title VII
instrument is narrow-based or broad-based according to the criteria set
forth for the tolerance periods and grace periods in the proposed rule.
This analysis would be performed upon entering into Title VII
instrument on a security index to ensure compliance with proposed rule
3a68-3. The SEC notes, however, that any such costs would be in lieu of
the costs of doing the same analysis under the narrow-based security
index definition, which the SEC believes would be more difficult and
lead to greater uncertainty, rather than the clarity provided under
proposed rule 3a68-3. Providing a clear rule to market participants to
determine whether a Title VII instrument traded on a trading platform
where the underlying security index has so migrated could alleviate
additional costs to persons of inquiring with the Commissions about
whether a Title VII instrument is a swap or a security-based swap, as
well as costs of obtaining an opinion of counsel

regarding a particular Title VII instrument.
    In addition, proposed rule 3a68-3 is generally consistent with the
tolerance period and grace period that exist in section 3(a)(55) of the
Exchange Act for futures contracts.\374\ Because market participants
are familiar with such tolerance period and grace period as well as
with performing analyses of products in the futures context based on
these provisions, the SEC believes that the proposed tolerance period
and grace period in proposed rule 3a68-3 will mitigate uncertainty for
market participants regarding the treatment of these Title VII
instruments. Proposed rule 3a68-3 also would allow market participants
to minimize the costs of determining whether a security index
underlying a Title VII instrument is considered narrow-based or not by
providing a test that is substantially similar to a test with which
they are familiar in the futures context. In addition, the tolerance
period under proposed rule 3a68-3 mitigates uncertainty for market
participants trading Title VII instruments on trading platforms by
allowing temporary migration of an underlying security index within
certain specifications without disrupting the status of Title VII
instruments based on that security index. Similarly, the grace period
under proposed rule 3a68-3 mitigates uncertainty for market
participants trading Title VII instruments on trading platforms by
allowing time for any necessary actions to be made to accommodate the
non-temporary migration of a security index underlying Title VII
instruments.
---------------------------------------------------------------------------

    \374\ See supra note 261 and accompanying text.
---------------------------------------------------------------------------

    The SEC requests comment as to the costs that determinations under
proposed rule 3a68-3 would impose on market participants, as well as
estimates and empirical data to support these costs. In addition, the
SEC requests comment on any other costs associated with proposed rule
3a68-3 that have not been considered, and what the extent of those
costs would be.
6. Proposed Rule 3a68-4
(a) Benefits
    A mixed swap is both a security-based swap and a swap, subject to
dual regulation by the Commissions, and proposed rule 3a68-4 would
define the term ``mixed swap'' in the same manner as the term is
defined in both the Exchange Act.\375\ Proposed rule 3a68-4 would also
provide that a mixed swap that is not executed on or subject to the
rules of a DCM, SEF, FBOT, NSE, or security-based SEF and that will not
be submitted to a DCO or registered or exempt clearing agency to be
cleared (``bilateral uncleared mixed swap''), and where at least one
party to the mixed swap is registered with the SEC as a security-based
swap dealer or major security-based swap participant and also with the
CFTC as a swap dealer or major swap participant, shall be subject to
the provisions of the Securities Act and the rules and regulations
promulgated thereunder and only to certain provisions of the CEA and
the rules and regulations promulgated thereunder. In addition, proposed
rule 3a68-4 would establish a process for persons to request that such
persons be permitted to comply, as to parallel provisions only, with
the specified parallel provisions, instead of being required to comply
with parallel provisions of both the CEA and the Exchange Act.
---------------------------------------------------------------------------

    \375\ Section 3(a)(68)(D) of the Exchange Act, 15 U.S.C.
78c(a)(68)(D); CEA section 1(a)(47)(D), 7 U.S.C. 1(a)(47)(D).
---------------------------------------------------------------------------

    Because, as noted above, mixed swaps are both swaps and security-
based swaps, and thus are subject to regulation as both swaps and
security-based swaps, the Commissions are concerned that, without
further clarification, there may be uncertainty as to the scope of, and
the requirements applicable to, transactions that fall within the
definition of the term ``mixed swap.''
    Proposed rule 3a68-4(a) would define the term ``mixed swap'' in the
same manner as the term is defined in the Exchange Act. This rule,
coupled with guidance regarding mixed swaps provided by the
Commissions, further clarifies whether a security-based swap is a mixed
swap and could eliminate the need to obtain an opinion of counsel
regarding a particular security-based swap.
    The Commissions are proposing rule 3a68-4(b) to eliminate
potentially duplicative and conflicting regulation in the context of
mixed swaps by providing that a bilateral uncleared mixed swap, where
at least one party to the mixed swap is dually-registered with the SEC
as a security-based swap dealer or major security-based swap
participant and also with the CFTC as a swap dealer or major swap
participant, would be subject to all applicable provisions of the
securities laws (and SEC rules and regulations promulgated thereunder)
but would be subject only to certain CEA provisions (and CFTC rules and
regulations promulgated thereunder). Therefore, proposed rule 3a68-4(a)
would reduce both the number of and potential uncertainty regarding
which requirements of each Commission will apply to bilateral uncleared
mixed swaps entered into by dually-registered dealers and major
participants.
    Proposed rule 3a68-4(c) also would afford persons with an
opportunity to seek alternative regulatory treatment of a specified, or
specified class of, mixed swap. Absent such alternative regulatory
treatment, a person that desires or intends to list, trade, or clear a
mixed swap would be required to comply with all the statutory
provisions of Title VII, including all the rules and regulations
thereunder, that are applicable to both security-based swaps and swaps.
The SEC believes that such a requirement could pose practical
difficulties for mixed swap transactions \376\ and that permitting
persons to request alternative regulatory treatment of a specified, or
specified class of, mixed swaps would allow the Commissions to address
the potential for duplicative or contradictory regulatory requirements
regarding a particular mixed swap.
---------------------------------------------------------------------------

    \376\ See discussion supra part IV.
---------------------------------------------------------------------------

    The information submitted by persons pursuant to proposed rule
3a68-4(c) would assist the Commissions in more quickly identifying and
addressing the relevant issues involved in providing alternative
regulatory treatment.
    The SEC requests comments, data, and estimates regarding the
benefits associated with proposed rule 3a68-4. The SEC also requests
comments, data, and estimates regarding any additional benefits that
could be realized with proposed rule 3a68-4.
(b) Costs
    Providing a clear rule for persons who engage in bilateral
uncleared mixed swaps would reduce the potential for duplicative or
contradictory regulatory requirements that apply to such bilateral
uncleared mixed swaps.
    Under proposed rule 3a68-4(c), a person also could request the
Commissions to provide alternative regulatory treatment of a specified,
or specified class of, mixed swap. The SEC estimates that the cost of
requesting alternative regulatory treatment for a particular mixed swap
(or class thereof) would be approximately 30 hours of internal company
or individual time and a cost of approximately $15,800 for the services
of outside professionals.\377\ The SEC notes, however, that any such
costs are in lieu of the costs of complying with all the statutory
provisions in Title VII, including all the rules and regulations
thereunder, that are applicable to both security-based swaps and swaps,
which the SEC

believes would be more costly than requesting alternative regulatory
treatment, and which potentially could pose practical
difficulties.\378\
---------------------------------------------------------------------------

    \377\ See discussion supra part VIII.
    \378\ See discussion supra part IV.B.
---------------------------------------------------------------------------

    Also, the SEC believes that as persons make requests for
alternative regulatory treatment of specified, or specified classes of,
mixed swaps pursuant to proposed rule 3a68-4, the subsequent costs for
persons transacting in those products for which the Commissions have
provided for alternative regulatory treatment should be reduced.
    The SEC requests comment as to the costs that proposed rule 3a68-4
would impose on market participants, as well as estimates and empirical
data to support these costs. In addition, the SEC requests comment on
any other costs associated with proposed rule 3a68-4 that have not been
considered herein, and what the extent of those costs would be.
7. Proposed Rule 3a69-1
(a) Benefits
    Proposed rule 3a69-1 would clarify that state or Federally
regulated insurance products provided by state or Federally regulated
insurance companies, or by certain reinsurers, provided such insurance
products meet certain other requirements, would not be swaps.
Specifically, proposed rule 3a69-1 would define the term ``swap'' so
that it would not include an agreement, contract, or transaction that,
by its terms or by law, as a condition of performance on the agreement,
contract, or transaction: (i) Requires the beneficiary of the
agreement, contract, or transaction to have an insurable interest that
is the subject of the agreement, contract, or transaction and thereby
carry the risk of loss with respect to that interest continuously
throughout the duration of the agreement, contract, or transaction;
(ii) requires that loss to occur and to be proved, and that any payment
or indemnification therefor be limited to the value of the insurable
interest; (iii) is not traded, separately from the insured interest, on
an organized market or over-the-counter; and (iv) with respect to
financial guarantee insurance only, in the event of payment default or
insolvency of the obligor, any acceleration of payments under the
policy is at the sole discretion of the insurer. Proposed rule 3a69-1
also would require that the agreement, contract, or transaction: (i) Be
provided by a company that is organized as an insurance company whose
primary and predominant business activity is the writing of insurance
or the reinsuring of risks underwritten by insurance companies and that
is subject to supervision by the insurance commissioner, or similar
official or agency, of a state, as defined under section 3(a)(16) of
the Exchange Act,\379\ or by the United States or an agency or
instrumentality thereof, and be regulated as insurance under the laws
of such state or the United States; (ii) be provided by the United
States or any of its agents or instrumentalities, or pursuant to a
statutorily authorized program thereof; or (iii) in the case of
reinsurance only, be provided by a person located outside the United
States to an insurance company that meets the above requirements,
provided that such person is not prohibited by the law of any state or
the United States from offering such agreement, contract, or
transaction to such insurance company, the product to be reinsured
meets the requirements above for insurance products, and the total
amount reimbursable by all reinsurers for such insurance product cannot
exceed the claims or losses paid by the cedant. An agreement, contract,
or transaction would have to meet all of these criteria in order to
qualify as an insurance product that falls outside of the swap and
security-based swap definitions pursuant to the proposed rules.
---------------------------------------------------------------------------

    \379\ 15 U.S.C. 78c(a)(16).
---------------------------------------------------------------------------

    The SEC is concerned that, without further clarification, market
participants may be uncertain about whether an agreement, contract, or
transaction is an insurance product that is not subject to regulation
as a swap or security-based swap. Therefore, proposed rule 3a69-1 would
eliminate the potential uncertainty of what constitutes an insurance
product by setting forth clear and objective criteria for meeting the
definition of an insurance product that is not subject to regulation as
a swap or security-based swap.
    The SEC requests comments, data, and estimates regarding the
benefits associated with proposed rule 3a69-1. The SEC also requests
comments, data, and estimates regarding any additional benefits that
could be realized with proposed rule 3a69-1.
(b) Costs
    In complying with proposed rule 3a69-1, a market participant will
need to analyze its agreements, contracts, and transactions that are
insurance products under the provisions of the proposed rule to
determine whether such insurance products fall outside the definitions
of the terms ``swaps'' and ``security-based swap.'' This analysis will
have to be performed upon entering into the agreement, contract, or
transaction to ensure compliance with proposed rule 3a69-1. The SEC
notes, however, that any such costs would be in lieu of the costs of
doing the same analysis absent proposed rule 3a69-1, which the SEC
believes would be more difficult and lead to greater uncertainty than
if the analysis were done under proposed rule 3a69-1. Providing an
objective rule to determine whether an agreement, contract, or
transaction is an insurance product could alleviate additional costs of
inquiring with the Commissions about whether an agreement, contract, or
transaction is an insurance product or a swap, or costs of obtaining an
opinion of counsel regarding a particular agreement, contract, or
transaction.
    To the extent that the criteria under proposed rule 3a69-1 lead to
the inadvertent omission of certain types of insurance products, these
omissions could lead to costs for market participants entering into
agreements, contracts, or transactions that might be omitted because
these agreements, contracts, or transactions would be regulated as
swaps and not as insurance products. Similarly, to the extent that the
criteria under proposed rule 3a69-1 lead to the inadvertent inclusion
of certain types of swaps or security-based swaps, these inclusions
could lead to costs for market participants entering into agreements,
contracts, or transactions that are regulated as insurance products and
not as swaps or security-based swaps. The SEC has requested comment on
whether the criteria under proposed rule 3a69-1 inadvertently omits
certain types of insurance products or includes certain types of swaps
in order to minimize these potential costs. The SEC believes that,
pursuant to comments on the proposed criteria, any subsequent
modifications the Commissions make to proposed rule 3a69-1 would
significantly curtail the potential for inadvertent omissions or
inclusions.
    The SEC requests comment as to the costs that determinations under
proposed rule 3a69-1 would impose on market participants, as well as
estimates and empirical data to support these costs. In addition, the
SEC requests comment on any other costs associated with proposed rule
3a69-1 that have not been considered, and what the extent of those
costs would be.
8. Proposed Rule 3a69-2
(a) Benefits
    Proposed rule 3a69-2 provides that the term ``swap'' has the
meaning set forth in section 3(a)(69) of the Exchange

Act and that, without limiting the definition of ``swap'' in section
3(a)(69) of the Exchange Act, an agreement, contract, or transaction
that is a cross-currency swap, currency option, foreign currency
option, foreign exchange option, foreign exchange rate option, foreign
exchange forward, foreign exchange swap, FRA, or NDF would fall within
the meaning of the term ``swap'', unless such agreement, contract, or
transaction is otherwise excluded by section 1a(47)(B) of the CEA.\380\
Proposed rule 3a69-2 also provides that a foreign exchange forward or a
foreign exchange swap shall not be considered a swap if the Secretary
of the Treasury makes a determination described in section 1a(47)(E)(i)
of the CEA\381\ and that, notwithstanding such provision, certain
provisions of the CEA will apply to such foreign exchange forward or
foreign exchange swap, namely the reporting requirements in section 4r
of the CEA,\382\ and regulations thereunder, and, in the case of a swap
dealer or major swap participant that is a party to a foreign exchange
swap or foreign exchange forward, the business conduct standards in
section 4s of the CEA,\383\ and regulations thereunder. In addition,
proposed rule 3a69-2 provides that the terms ``foreign exchange
forward'' and ``foreign exchange swap'' have the meanings set forth in
the CEA and that a currency swap, cross-currency swap, currency option,
foreign currency option, foreign exchange option, foreign exchange rate
option, and NDF is not a foreign exchange forward or foreign exchange
swap for purposes of sections 1a(24) and 1a(25) of the CEA.\384\
---------------------------------------------------------------------------

    \380\ 15 U.S.C. 78c(a)(69); 7 U.S.C. 1a(47)(B).
    \381\ 7 U.S.C. 1a(47)(E)(i).
    \382\ 7 U.S.C. 6r.
    \383\ 7 U.S.C. 6s.
    \384\ 7 U.S.C. 1a(24) and 1a(25).
---------------------------------------------------------------------------

    Proposed rule 3a69-2 would restate portions of the statutory
definition of ``swap'' and enumerate certain types of agreements,
contracts, and transactions that are swaps in order to consolidate
parts of the definition and related interpretations for ease of
reference. Proposed rule 3a69-2 would also specify certain reporting
and business conduct requirements that are applicable to foreign
exchange forwards and foreign exchange swaps, and provide definitions
for such terms.
    Because the statutory definition of the term ``swap,'' though
broadly worded and specific regarding the status of certain agreements,
contracts, and transactions, does not explicitly mention every
agreement, contract, or transaction that would fall within the
definition, the Commissions are concerned that application of the
definition, without further clarification, may cause uncertainty about
whether certain agreements, contracts, or transactions would be swaps.
Proposed rule 3a69-2 would eliminate the potential uncertainty of the
treatment of such agreements, contracts, and transactions as swaps by
setting forth clear and objective criteria for certain agreements,
contracts, and transactions without limiting the scope of the statutory
definition of the term ``swap.'' Proposed rule 3a69-2 also would
eliminate the potential uncertainty regarding the reporting and
business conduct requirements applicable to foreign exchange forwards
and foreign exchange swaps by specifying the provisions for which
compliance is required.
(b) Costs
    In complying with proposed rule 3a69-2, a market participant will
need to analyze its agreements, contracts, and transactions under the
provisions of the proposed rule to determine whether such agreements,
contracts, and transactions are swaps according to the criteria set
forth in the proposed rule. This analysis will have to be performed
upon entering into the agreement, contract, or transaction to ensure
compliance with proposed rule 3a69-2. The SEC notes, however, that any
such costs would be in lieu of the costs of doing the same analysis
absent proposed rule 3a69-2, which the SEC believes would be more
difficult and lead to greater uncertainty than if the analysis were
done under proposed rule 3a69-2.
    Providing an objective rule to market participants to determine
whether certain types of agreements, contracts, or transactions are
swaps could alleviate additional costs to persons of inquiring with the
Commissions about whether such agreements, contracts, or transactions
are swaps, as well as costs of obtaining an opinion of counsel
regarding a particular agreement, contract, or transaction. In
addition, an objective rule regarding reporting and business conduct
requirements could alleviate additional costs to persons of inquiring
with the Commissions about which reporting and business conduct
requirements are applicable to foreign exchange forwards and foreign
exchange swaps, and could reduce the costs of obtaining an opinion of
counsel regarding a particular foreign exchange forward or foreign
exchange swap.
    To the extent that the criteria under proposed rule 3a69-2 lead to
the inadvertent inclusion of certain types of agreements, contracts,
and transactions or additional reporting or business conduct
obligations for certain swaps, these inclusions and additional
requirements could lead to costs for market participants entering into
agreements, contracts, or transactions to which proposed rule 3a69-2
applies. The SEC has requested comment on whether the criteria under
proposed rule 3a69-2 provide sufficient clarity regarding the specific
products included in the rule and whether the criteria should clarify
the applicability of reporting and business conduct requirements in
order to minimize these potential costs. The SEC believes that,
pursuant to comments on the proposed criteria, any subsequent
modifications the Commissions make to proposed rule 3a69-2 would
significantly curtail the potential for inadvertent inclusions or
additional reporting or business conduct requirements.
    The SEC requests comment as to the costs that determinations under
and compliance with proposed rule 3a69-2 would impose on market
participants, as well as estimates and empirical data to support these
costs. In addition, the SEC requests comment on any other costs
associated with proposed rule 3a69-2 that have not been considered, and
what the extent of those costs would be.
9. Proposed Rule 3a69-3
(a) Benefits
    Proposed rule 3a69-3 would provide that the term ``security-based
swap agreement'' has the meaning set forth in section 3(a)(78) of the
Exchange Act.\385\ Proposed rule 3a69-3 also would provide that
registered SDRs, swap dealers, major swap participants, security-based
swap dealers, and major security-based swap participants are not
required to maintain additional books and records, or, in the case of
registered SDRs, collect and maintain additional information regarding,
SBSAs other than the books and records (and, in the case of registered
SDRs, information) required to be kept (or collected) and maintained
regarding swaps pursuant to the CEA and the CFTC rules and regulations
promulgated thereunder.
---------------------------------------------------------------------------

    \385\ 15 U.S.C. 78c(a)(78).
---------------------------------------------------------------------------

    Because, as noted above, security-based swap agreements are subject
the CFTC's regulatory and enforcement authority and the SEC's antifraud
and certain other authority, the Commissions are concerned that,
without further clarification, there may be uncertainty as to the scope
of transactions that fall within the definition of the term ``security-
based

swap agreement.'' Proposed rule 3a69-3(c) would define the term
``security-based swap agreement'' in the same manner as the term is
defined in the Exchange Act. This rule, coupled with guidance regarding
security-based swap agreements provided by the Commissions, further
clarifies whether a swap is a security-based swap agreement and could
eliminate the need to obtain an opinion of counsel regarding a
particular security-based swap agreement.
    Section 712(d)(2)(B) and (C) of the Dodd-Frank Act requires the
Commissions to engage in joint rulemaking regarding books and records
requirements for SBSAs. Providing that persons required to keep and
maintain books and records regarding, or collect and maintain data
regarding, swaps are not required to keep or maintain additional books
and records regarding, or collect and maintain additional data
regarding, SBSAs alleviates any additional books and records or
information costs to such persons.
(b) Costs
    The SEC believes that, because proposed rule 3a69-3 includes within
the definition of SBSA no agreements, contracts, or transactions that
would not be an SBSA in the absence of the proposed rule, proposed rule
3a69-3 would impose no costs other than those that are required with
respect to swaps in the absence of proposed rule 3a69-3. In addition,
the SEC believes that, because proposed rule 3a69-3 imposes no
requirements with respect to SBSAs other than those that exist for
swaps, proposed rule 3a69-3 would impose no costs other than those that
are required with respect to swaps in the absence of proposed rule
3a69-3.
    To the extent that the criteria under proposed rule 3a69-3
inadvertently lead to additional requirements with respect to SBSAs,
these additional requirements could lead to costs for market
participants entering into the SBSAs to which proposed rule 3a69-3
applies. The SEC has requested comment regarding whether the
requirements under proposed rule 3a69-3 are sufficient. The SEC
believes that, pursuant to comments on the proposed rule, any
subsequent modifications the Commissions make to proposed rule 3a69-3
would significantly curtail the potential for inadvertent additional
requirements.
    The SEC requests comment as to the costs that compliance with
proposed rule 3a69-3 would impose on market participants, as well as
estimates and empirical data to support these costs. In addition, the
SEC requests comment on any other costs associated with proposed rule
3a69-3 that have not been considered, and what the extent of those
costs would be.

Request for Comment

    153. The SEC has considered the costs and benefits of the proposed
rules and clarifications regarding the Product Definitions, the
regulation of mixed swaps, and the books and records requirements for
SBSAs. The SEC is sensitive to these costs and benefits, and encourages
commenters to discuss any additional costs or benefits beyond those
discussed here, as well as any reductions in costs. In particular, the
SEC requests comment on the potential costs, as well as any potential
benefits, resulting from the proposed rules and clarifications
regarding the Product Definitions, the regulation of mixed swaps, and
the books and records requirements for SBSAs for issuers, investors,
broker-dealers, security-based swap dealers, major security-based swap
participants, persons associated with a security-based swap dealer or a
major security-based swap participant, other security-based swap
industry professionals, regulators, and other market participants. The
SEC also seeks comment on the accuracy of any of the benefits
identified and also welcomes comment on any of the costs identified
here. In addition, the SEC encourages commenters to identify, discuss,
analyze, and supply relevant data, information, or statistics regarding
any such costs or benefits, including estimates and views regarding
these costs and benefits for particular types of market participants,
as well as any other costs or benefits that may result from the
adoption of the proposed rules, as well as the clarifications provided.

C. Consideration of Burden on Competition, and Promotion of Efficiency,
Competition, and Capital Formation

    Section 3(f) of the Exchange Act \386\ requires the SEC, whenever
it engages in rulemaking and is required to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider whether the action would promote efficiency, competition,
and capital formation. In addition, section 23(a)(2) of the Exchange
Act \387\ requires the SEC, when adopting rules under the Exchange Act,
to consider the impact such rules would have on competition. Section
23(a)(2) of the Exchange Act also prohibits the SEC from adopting any
rule that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\388\
---------------------------------------------------------------------------

    \386\ 15 U.S.C. 78c(f).
    \387\ 15 U.S.C. 78w(a)(2).
    \388\ Id.
---------------------------------------------------------------------------

1. Proposed Rule 3a68-1a
    The SEC believes that proposed rule 3a68-1a would create an
efficient process for a market participant to determine whether an
index CDS is a swap or a security-based swap by setting forth clear
methods and guidelines, thereby reducing potential uncertainty. Because
swaps and security-based swaps both are regulated pursuant to the Dodd-
Frank Act by either the CFTC or the SEC, and an index CDS would be
either a swap or a security-based swap, regardless of whether the SEC
proposed rule 3a68-1a, the SEC believes that the proposed rule would
not have an adverse effect on capital formation.
    Similarly, the SEC believes that proposed rule 3a68-1a would not
impose any significant burdens on competition because an index CDS
would be regulated as a swap or security-based swap regardless of
whether the SEC proposed rule 3a68-1a. The proposed rule is a means of
providing greater clarity for market participants on whether a specific
index CDS is a swap or a security-based swap.
2. Proposed Rule 3a68-1b
    The SEC believes that proposed rule 3a68-1b would create an
efficient process for a market participant to determine whether an
index CDS is a swap or a security-based swap by setting forth clear
methods and guidelines, thereby reducing potential uncertainty. Because
swaps and security-based swaps both are regulated pursuant to the Dodd-
Frank Act by either the CFTC or the SEC, and an index CDS would be
either a swap or a security-based swap, regardless of whether the SEC
proposed rule 3a68-1b, the SEC believes that the proposed rule would
not have an adverse effect on capital formation.
    Similarly, the SEC believes that proposed rule 3a68-1b would not
impose any significant burdens on competition because an index CDS
would be regulated as a swap or security-based swap regardless of
whether the SEC proposed rule 3a68-1b. The proposed rule is a means of
providing greater clarity for market participants on whether a specific
index CDS is a swap or a security-based swap.
3. Proposed Rule 3a68-2
    The SEC believes that proposed rule 3a68-2 would create an
efficient process for a market participant to request the Commissions
to determine whether an

agreement, contract, or transaction (or class thereof) is a swap,
security-based swap, or both (i.e., a mixed swap) by setting forth
clear methods and guidelines, thereby reducing potential uncertainty.
Because swaps, security-based swaps, and mixed swaps all are regulated
pursuant to the Dodd-Frank Act by either the CFTC, the SEC, or both the
CFTC and SEC, and because market participants still would need to
determine whether an agreement, contract, or transaction (or class
thereof) is a swap, security-based swap, or mixed swap regardless of
whether the SEC proposed rule 3a68-2, the SEC believes that the
proposed rule would not have an adverse effect on capital formation.
    In addition, the SEC believes the proposed rule will provide the
opportunity for financial innovation by providing a flexible structure
that will allow for the development of new products, which may promote
capital formation.
    Similarly, the SEC believes that proposed rule 3a68-2 would not
impose any significant burdens on competition because, to the extent an
agreement, contract, or transaction (or class thereof) is a swap,
security-based swap, or both (i.e., a mixed swap), that agreement,
contract, or transaction (or class thereof) would be regulated as a
swap, security-based swap, or mixed swap regardless of whether the SEC
proposed rule 3a68-2. The proposed rule is a means of providing a
process for market participants to request clarity regarding whether a
specific agreement, contract, or transaction (or class thereof) is a
swap, security-based swap, or mixed swap.
4. Proposed Rule 3a68-3
    The SEC believes that proposed rule 3a68-3 would create an
efficient process for a market participant to determine whether a
security index underlying a Title VII instrument is narrow-based or
broad-based, and therefore whether the Title VII instrument is a swap
or a security-based swap, by setting forth clear methods and
guidelines, thereby reducing potential uncertainty. Because swaps and
security-based swaps both are regulated pursuant to the Dodd-Frank Act
by either the CFTC or the SEC, and a Title VII instrument on a security
index would be either a swap or a security-based swap regardless of
whether the SEC proposed rule 3a68-3, the SEC believes that the
proposed rule would not have an adverse effect on capital formation.
    Similarly, the SEC believes that proposed rule 3a68-3 would not
impose any significant burdens on competition because a Title VII
instrument on a security index would be regulated as a swap or
security-based swap regardless of whether the SEC proposed rule 3a68-3.
The proposed rule is a means of providing greater clarity for market
participants regarding whether a specific Title VII instrument on a
security index is a swap or a security-based swap.
5. Proposed Rule 3a68-4
    The SEC believes that proposed rule 3a68-4 would create an
efficient process for a market participant to request alternative
regulatory treatment regarding a specified, or specified class of,
mixed swap by setting forth clear methods and guidelines, thereby
reducing potential uncertainty and dual regulatory requirements.
Because a mixed swap is regulated pursuant to the Dodd-Frank Act, and,
absent proposed rule 3a68-4, persons that desire or intend to list,
trade, or clear a mixed swap would be required to comply with all the
statutory provisions in Title VII, including all the rules and
regulations thereunder, that are applicable to both swaps and security-
based swaps, the SEC believes that the proposed rule would not have an
adverse effect on capital formation. Proposed rule 3a68-4 would permit
such persons to request a joint order permitting themto comply with an
alternative regulatory regime that would address the potential dual
regulatory requirements applicable to transactions in mixed swaps under
Title VII.
    Similarly, the SEC believes that proposed rule 3a68-4 would not
impose any significant burdens on competition because to the extent an
agreement, contract, or transaction (or class thereof) is a mixed swap,
transactions in that mixed swap would be subject to all of the
statutory provisions of Title VII, including all the rules and
regulations thereunder, that are applicable to both swaps and security-
based swaps, if the Commissions were not to provide alternative
regulatory treatment pursuant to proposed rule 3a68-4.
6. Proposed Rule 3a69-1
    The SEC believes that proposed rule 3a69-1 would create an
efficient process for a market participant to determine whether an
agreement, contract, or transaction is an insurance product and is not
a swap by setting forth clear methods and guidelines, thereby reducing
potential uncertainty. Because insurance products and insurance
companies currently are regulated pursuant to state insurance law, and
would continue to be so regardless of whether the SEC proposed rule
3a69-1, the SEC believes that the proposed rule would not have an
adverse effect on capital formation.
    Similarly, the SEC believes that proposed rule 3a69-1 would not
impose any significant burdens on competition because insurance
products and insurance companies currently are regulated pursuant to
state insurance law and would continue to be so regardless of whether
the SEC proposed rule 3a69-1. The proposed rule is a means of providing
greater clarity for market participants on whether a specific
agreement, contract, or transaction is an insurance product and is not
a swap.
7. Proposed Rule 3a69-2
    The SEC believes that proposed rule 3a69-2 would create an
efficient process for a market participant to determine whether an
agreement, contract, or transaction is a swap, a foreign exchange
forward, or a foreign exchange swap or is subject to certain reporting
and business conduct requirements, by setting forth clear methods and
guidelines, thereby reducing potential uncertainty. Because agreements,
contracts, and transactions that are swaps, foreign exchange forwards,
or foreign exchange swaps under proposed rule 3a69-2 would be swaps,
foreign exchange forwards, or foreign exchange swaps and, in the case
of foreign exchange forwards and foreign exchange swaps, would be
subject to reporting and business conduct requirements under the CEA,
in the absence of proposed rule 3a69-2, the SEC believes that the
proposed rule would not have an adverse effect on capital formation.
    Similarly, the SEC believes that proposed rule 3a69-2 would not
impose any significant burdens on competition because swaps, foreign
exchange swaps, and foreign exchange forwards continue to be regulated
as such regardless of whether the SEC proposed rule 3a69-2. The
proposed rule is a means of providing greater clarity for market
participants on whether a specific agreement, contract, or transaction
is a swap, foreign exchange forward, or foreign exchange swap and
whether certain reporting and business conduct requirements apply in
the case of foreign exchange forwards and foreign exchange swaps.
8. Proposed Rule 3a69-3
    The SEC believes that proposed rule 3a69-3 would create an
efficient process for registered SDRs, SDs, MSPs, security-based swap
dealers, and major security-based swap participants to determine the
books and records requirements for SBSAs by setting forth

clear guidelines, thereby reducing potential uncertainty. Proposed rule
3a69-3(c) also would define the term ``security-based swap agreement''
in the same manner as the term is defined in the Exchange Act. Because
SBSAs are swaps, they are subject to certain books and records
requirements under the CEA (and CFTC rules and regulations promulgated
thereunder) that are applicable to swaps and would continue to be so
regardless of whether the SEC proposed rule 3a69-3. The SEC believes
that the proposed rule would thus not have an adverse effect on capital
formation.
    Similarly, the SEC believes that proposed rule 3a69-3 would not
impose any significant burdens on competition because SBSAs would be
regulated as swaps regardless of whether the SEC proposed rule 3a69-3.
The proposed rule is a means of providing greater clarity for market
participants regarding SBSAs, including the books and records
requirements for SBSAs.

Request for Comment

    154. The SEC requests comment on the possible effects of the
proposed rules under the Exchange Act regarding efficiency,
competition, and capital formation. The SEC requests that commenters
provide views and supporting information regarding any such effects.
The SEC notes that such effects are difficult to quantify. The SEC
seeks comment on possible anti-competitive effects of the proposed
rules under the Exchange Act not already identified. The SEC also
requests comment regarding the competitive effects of pursuing
alternative regulatory approaches that are consistent with section
712(a) and 712(d) of the Dodd-Frank Act. In addition, the SEC requests
comment on how the other provisions of the Dodd-Frank Act for which SEC
rulemaking is required will interact with and influence the competitive
effects of the proposed rules and clarifications under the Exchange
Act.

D. Consideration of Impact on the Economy

    For purposes of SBREFA the SEC must advise the OMB as to whether
the proposed rules and interpretive guidance under the Exchange Act
constitute ``major'' rules. Under SBREFA, a rule is considered
``major'' where, if adopted, it results or is likely to result in: (1)
An annual effect on the economy of $100 million or more (either in the
form of an increase or a decrease); (2) a major increase in costs or
prices for consumers or individual industries; or (3) significant
adverse effect on competition, investment or innovation. If a rule is
``major,'' its effectiveness will generally be delayed for 60 days
pending Congressional review.
    The SEC requests comment on the potential impact of the proposed
rules and interpretive guidance under the Exchange Act on the economy
on an annual basis, on the costs or prices for consumers or individual
industries, and on competition, investment, or innovation. Commenters
are requested to provide empirical data and other factual support for
their view to the extent possible.

E. Initial Regulatory Flexibility Act Certification

    The RFA requires Federal agencies, in promulgating rules, to
consider the impact of those rules on small entities. Section 603(a)
\389\ of the Administrative Procedure Act,\390\ as amended by the RFA,
generally requires the SEC to undertake a regulatory flexibility
analysis of all proposed rules, or proposed rule amendments, to
determine the impact of such rulemaking on ``small entities.'' \391\
Section 605(b) of the RFA states that this requirement shall not apply
to any proposed rule or proposed rule amendment, that, if adopted,
would not have a significant economic impact on a substantial number of
small entities.\392\
---------------------------------------------------------------------------

    \389\ 5 U.S.C. 603(a).
    \390\ 5 U.S.C. 551 et seq.
    \391\ Although section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The SEC has adopted definitions for the term small
entity for the purposes of SEC rulemaking in accordance with the
RFA. Those definitions, as relevant to this proposed rulemaking, are
set forth in rule 0-10, 17 CFR 240.0-10. See Statement of Management
on Internal Accounting Control, 47 FR 5215, Feb. 4, 1982.
    \392\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    For purposes of SEC rulemaking in connection with the RFA, a small
entity includes: (i) When used with reference to an ``issuer'' or a
``person,'' other than an investment company, an ``issuer'' or
``person'' that, on the last day of its most recent fiscal year, had
total assets of $5 million or less,\393\ or (ii) a broker-dealer with
total capital (net worth plus subordinated liabilities) of less than
$500,000 on the date in the prior fiscal year as of which its audited
financial statements were prepared pursuant to rule 17a-5(d) under the
Exchange Act,\394\ or, if not required to file such statements, a
broker-dealer with total capital (net worth plus subordinated
liabilities) of less than $500,000 on the last day of the preceding
fiscal year (or in the time that it has been in business, if shorter);
and is not affiliated with any person (other than a natural person)
that is not a small business or small organization.\395\ Under the
standards adopted by the Small Business Administration, small entities
in the finance and insurance industry include the following: (i) For
entities in credit intermediation and related activities, entities with
$175 million or less in assets or, for non-depository credit
intermediation and certain other activities, $7 million or less in
annual receipts; (ii) for entities in financial investments and related
activities, entities with $7 million or less in annual receipts; (iii)
for insurance carriers and entities in related activities, entities
with $7 million or less in annual receipts; and (iv) for funds, trusts,
and other financial vehicles, entities with $7 million or less in
annual receipts.\396\
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    \393\ See 17 CFR 240.0-10(a).
    \394\ See 17 CFR 240.17a-5(d).
    \395\ See 17 CFR 240.0-10(c).
    \396\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    Based on the SEC's existing information about the swap markets, the
SEC believes that the swap markets, while broad in scope, are largely
dominated by entities such as those that would be covered by the ``swap
dealer,'' ``security-based swap dealer,'' ``major swap participant,''
and ``major security-based swap participant'' definitions.\397\ The SEC
believes that such entities exceed the thresholds defining ``small
entities'' set out above. Moreover, although it is possible that other
persons may engage in swap and security-based swap transactions, the
SEC does not believe that any of these entities would be ``small
entities'' as defined in rule 0-10 under the Exchange Act.\398\
Feedback from industry participants about the swap markets indicates
that only persons or entities with assets significantly in excess of $5
million (or with annual receipts significantly in excess of $7 million)
participate in the swap markets.
---------------------------------------------------------------------------

    \397\ See, e.g., CEA section 1a(49), 7 U.S.C. 1a(49) (defining
``swap dealer''); section 3(a)(71)(A) of the Exchange Act, 15 U.S.C.
78c(a)(71)(A) (defining ``security-based swap dealer''); CEA section
1a(33), 7 U.S.C. 1a(33) (defining ``major swap participant'');
section 3(a)(67)(A) of the Exchange Act, 15 U.S.C. 78c(a)(67)(A)
(defining ``major security-based swap participant''). Such entities
also would include commercial entities that may use swaps to hedge
or mitigate commercial risk.
    \398\ See 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    To the extent that a small number of transactions did have a
counterparty that was defined as a ``small entity'' under SEC rule 0-
10, the SEC believes it is unlikely that the proposed rules and
clarifications regarding the Product Definitions, the regulation of
mixed swaps, and the books and records requirements for SBSAs would
have a significant economic impact on that

entity. The proposed rules and clarifications simply would address
whether certain products fall within the swap definition, address
whether certain products are swaps, security-based swaps, SBSAs, or
mixed swaps, provide a process for requesting interpretations of
whether agreements, contracts, and transactions are swaps, security-
based swaps, and mixed swaps, provide a process for requesting
alternative regulatory treatment for mixed swaps, and establish books
and records requirements for SBSAs, which are applicable to all
entities.
    For the foregoing reasons, the SEC certifies that the proposed
rules and clarifications regarding the Product Definitions, the
regulation of mixed swaps, and the books and records requirements for
SBSAs would not have a significant economic impact on a substantial
number of small entities for purposes of the RFA. The SEC encourages
written comments regarding this certification. The SEC requests that
commenters describe the nature of any impact on small entities and
provide empirical data to support the extent of the impact.

X. Statutory Basis and Rule Text

List of Subjects

17 CFR Part 1

    Definitions, General swap provisions.

17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Commodity Futures Trading Commission

    Pursuant to the Commodity Exchange Act, 7 U.S.C. 1 et seq., as
amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111-203, 124 Stat. 1376 (2010) (``Dodd-Frank
Act''), and sections 712(a)(8), 712(d), 721(a), 721(b), 721(c), 722(d),
and 725(g) of the Dodd-Frank Act, the CFTC is proposing to adopt rules
1.3(xxx) through 1.3(aaaa) and 1.6 through 1.9 under the Commodity
Exchange Act.

Text of Proposed Rules

    For the reasons stated in the preamble, the CFTC is proposing to
further amend Title 17, Chapter I, of the Code of Federal Regulations,
as amended at 75 FR 63732, October 18, 2010, 75 FR 65586, Oct. 26,
2010, 75 FR 77576, Dec. 13, 2010, 75 FR 80174, Dec. 21, 2010, and 76 FR
722, Jan. 6, 2011, as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

    1. The authority citation for part 1 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6c, 6e, 6f, 6g, 6h,
6i, 6j, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 7, 7a, 7b, 8, 9, 10, 12, 12a,
12c, 13a, 13a-1, 16, 16a, 21, 23, and 24.

    2. Amend Sec.  1.3 by adding paragraphs (xxx), (yyy), (zzz), and
(aaaa) to read as follows:

Sec.  1.3  Definitions.

* * * * *
    (xxx) Swap. (1) In general. The term swap has the meaning set forth
in section 1a(47) of the Commodity Exchange Act.
    (2) Inclusion of particular products. (i) The term swap includes,
without limiting the meaning set forth in section 1a(47) of the
Commodity Exchange Act, the following agreements, contracts, and
transactions:
    (A) A cross-currency swap;
    (B) A currency option, foreign currency option, foreign exchange
option and foreign exchange rate option;
    (C) A foreign exchange forward;
    (D) A foreign exchange swap;
    (E) A forward rate agreement; and
    (F) A non-deliverable forward involving foreign exchange.
    (ii) The term swap does not include an agreement, contract, or
transaction described in paragraph (xxx)(2)(i) of this section that is
otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act.
    (3) Foreign exchange forwards and foreign exchange swaps.
Notwithstanding paragraph (xxx)(2) of this section:
    (i) A foreign exchange forward or a foreign exchange swap shall not
be considered a swap if the Secretary of the Treasury makes a
determination described in section 1a(47)(E)(i) of the Commodity
Exchange Act.
    (ii) Notwithstanding paragraph (xxx)(3)(i) of this section:
    (A) The reporting requirements set forth in section 4r of the
Commodity Exchange Act and regulations promulgated thereunder shall
apply to a foreign exchange forward or foreign exchange swap; and
    (B) The business conduct standards set forth in section 4s of the
Commodity Exchange Act and regulations promulgated thereunder shall
apply to a swap dealer or major swap participant that is a party to a
foreign exchange forward or foreign exchange swap.
    (iii) For purposes of section 1a(47)(E) of the Commodity Exchange
Act and this Sec.  1.3(xxx), the term foreign exchange forward has the
meaning set forth in section 1a(24) of the Commodity Exchange Act.
    (iv) For purposes of section 1a(47)(E) of the Commodity Exchange
Act and this Sec.  1.3(xxx), the term foreign exchange swap has the
meaning set forth in section 1a(25) of the Commodity Exchange Act.
    (v) For purposes of sections 1a(24) and 1a(25) of the Commodity
Exchange Act and this Sec.  1.3(xxx), the following transactions are
not foreign exchange forwards or foreign exchange swaps:
    (A) A currency swap or a cross-currency swap;
    (B) A currency option, foreign currency option, foreign exchange
option, or foreign exchange rate option; and
    (C) A non-deliverable forward involving foreign exchange.
    (4) Insurance. The term swap as used in section 1a(47) of the
Commodity Exchange Act does not include an agreement, contract, or
transaction that:
    (i) By its terms or by law, as a condition of performance on the
agreement, contract, or transaction:
    (A) Requires the beneficiary of the agreement, contract, or
transaction to have an insurable interest that is the subject of the
agreement, contract, or transaction and thereby carry the risk of loss
with respect to that interest continuously throughout the duration of
the agreement, contract, or transaction;
    (B) Requires that loss to occur and to be proved, and that any
payment or indemnification therefor be limited to the value of the
insurable interest;
    (C) Is not traded, separately from the insured interest, on an
organized market or over-the-counter; and
    (D) With respect to financial guaranty insurance only, in the event
of payment default or insolvency of the obligor, any acceleration of
payments under the policy is at the sole discretion of the insurer; and
    (ii) Is provided:
    (A) By a company that is organized as an insurance company whose
primary and predominant business activity is the writing of insurance
or the reinsuring of risks underwritten by insurance companies and that
is subject to supervision by the insurance commissioner (or similar
official or agency) of any State or by the United States or an agency
or instrumentality thereof, and such agreement, contract, or
transaction is regulated as insurance under the laws of such State or
of the United States;
    (B) By the United States or any of its agencies or
instrumentalities, or pursuant to a statutorily authorized program
thereof; or

    (C) In the case of reinsurance only, by a person located outside
the United States to an insurance company that is eligible under
paragraph (xxx)(4)(ii) of this section, provided that:
    (1) Such person is not prohibited by any law of any State or of the
United States from offering such agreement, contract, or transaction to
such an insurance company;
    (2) The product to be reinsured meets the requirements under
paragraph (xxx)(4)(i) of this section to be insurance; and
    (3) The total amount reimbursable by all reinsurers for such
insurance product cannot exceed the claims or losses paid by the
cedant.
    (5) State. For purposes of paragraph (xxx)(4) of this section, the
term State means any state of the United States, the District of
Columbia, Puerto Rico, the U.S. Virgin Islands, or any other possession
of the United States.
    (6) Anti-evasion. (i) An agreement, contract, or transaction that
is willfully structured to evade any provision of Subtitle A of the
Wall Street Transparency and Accountability Act of 2010, including any
amendments made to the Commodity Exchange Act thereby (Subtitle A),
shall be deemed a swap for purposes of Subtitle A and the rules,
regulations, and orders of the Commission promulgated thereunder.
    (ii) An interest rate swap or currency swap, including but not
limited to a transaction identified in paragraph (xxx)(3)(v) of this
section, that is willfully structured as a foreign exchange forward or
foreign exchange swap to evade any provision of Subtitle A shall be
deemed a swap for purposes of Subtitle A and the rules, regulations,
and orders of the Commission promulgated thereunder.
    (iii) An agreement, contract, or transaction of a bank that is not
under the regulatory jurisdiction of an appropriate Federal banking
agency (as defined in section 1a(2) of the Commodity Exchange Act),
where the agreement, contract, or transaction is willfully structured
as an identified banking product (as defined in section 402 of the
Legal Certainty for Bank Products Act of 2000) to evade the provisions
of the Commodity Exchange Act, shall be deemed a swap for purposes of
the Commodity Exchange Act and the rules, regulations, and orders of
the Commission promulgated thereunder.
    (iv) The form, label, and written documentation of an agreement,
contract, or transaction shall not be dispositive in determining
whether the agreement, contract, or transaction has been willfully
structured to evade as provided in paragraphs (xxx)(6)(i) through
(xxx)(6)(iii) of this section.
    (v) An agreement, contract, or transaction that has been willfully
structured to evade as provided in paragraphs (xxx)(6)(i) through
(xxx)(6)(iii) of this section shall be considered in determining
whether a person is a swap dealer or major swap participant.
    (vi) Notwithstanding the foregoing, no agreement, contract, or
transaction structured as a security (including a security-based swap)
under the securities laws (as defined in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed
a swap pursuant to this Sec.  1.3(xxx)(6) or shall be considered for
purposes of paragraph (xxx)(6)(v) of this section.
    (yyy) Narrow-based security index as used in the definition of
``security-based swap.''
    (1) In general. Except as otherwise provided in paragraphs (zzz)
and (aaaa) of this section, for purposes of section 1a(42) of the
Commodity Exchange Act, the term narrow-based security index has the
meaning set forth in section 1a(35) of the Commodity Exchange Act, and
the rules, regulations and orders of the Commission thereunder.
    (2) Tolerance period for swaps traded on designated contract
markets, swap execution facilities, and foreign boards of trade.
Notwithstanding paragraph (yyy)(1) of this section, solely for purposes
of swaps traded on or subject to the rules of a designated contract
market, swap execution facility, or foreign board of trade, a security
index underlying such swaps shall not be considered a narrow-based
security index if:
    (i)(A) A swap on the index is traded on or subject to the rules of
a designated contract market, swap execution facility, or foreign board
of trade for at least 30 days as a swap on an index that was not a
narrow-based security index; or
    (B) Such index was not a narrow-based security index during every
trading day of the six full calendar months preceding a date no earlier
than 30 days prior to the commencement of trading of a swap on such
index on a market described in paragraph (yyy)(2)(i)(A) of this
section; and
    (ii) The index has been a narrow-based security index for no more
than 45 business days over three consecutive calendar months.
    (3) Tolerance period for security-based swaps traded on national
securities exchanges or security-based swap execution facilities.
Notwithstanding paragraph (yyy)(1) of this section, solely for purposes
of security-based swaps traded on a national securities exchange or
security-based swap execution facility, a security index underlying
such security-based swaps shall be considered a narrow-based security
index if:
    (i)(A) A security-based swap on the index is traded on a national
securities exchange or security-based swap execution facility for at
least 30 days as a security-based swap on a narrow-based security
index; or
    (B) Such index was a narrow-based security index during every
trading day of the six full calendar months preceding a date no earlier
than 30 days prior to the commencement of trading of a security-based
swap on such index on a market described in paragraph (yyy)(3)(i)(A) of
this section; and
    (ii) The index has been a security index that is not a narrow-based
security index for no more than 45 business days over three consecutive
calendar months.
    (4) Grace period. (i) Solely with respect to a swap that is traded
on or subject to the rules of a designated contract market, swap
execution facility, or foreign board of trade, an index that becomes a
narrow-based security index under paragraph (yyy)(2) of this section
solely because it was a narrow-based security index for more than 45
business days over three consecutive calendar months shall not be a
narrow-based security index for the following three calendar months.
    (ii) Solely with respect to a security-based swap that is traded on
a national securities exchange or security-based swap execution
facility, an index that becomes a security index that is not a narrow-
based security index under paragraph (yyy)(3) of this section solely
because it was not a narrow-based security index for more than 45
business days over three consecutive calendar months shall be a narrow-
based security index for the following three calendar months.
    (zzz) Meaning of ``issuers of securities in a narrow-based security
index'' as used in the definition of ``security-based swap'' as applied
to index credit default swaps.
    (1) Notwithstanding paragraph (yyy)(1) of this section, and solely
for purposes of determining whether a credit default swap is a
security-based swap under the definition of ``security-based swap'' in
section 3(a)(68)(A)(ii)(III) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(68)(A)(ii)(III), as incorporated in section 1a(42) of the
Commodity Exchange Act, the term issuers of securities in a narrow-
based security index means issuers of

securities identified in an index in which:
    (i)(A) There are 9 or fewer non-affiliated issuers of securities
that are reference entities in the index, provided that an issuer of
securities shall not be deemed a reference entity for purposes of this
section unless:
    (1) A credit event with respect to such reference entity would
result in a payment by the credit protection seller to the credit
protection buyer under the credit default swap based on the related
notional amount allocated to such reference entity; or
    (2) The fact of such credit event or the calculation in accordance
with paragraph (zzz)(1)(i)(A)(1) of this section of the amount owed
with respect to such credit event is taken into account in determining
whether to make any future payments under the credit default swap with
respect to any future credit events;
    (B) The effective notional amount allocated to any reference entity
included in the index comprises more than 30 percent of the index's
weighting;
    (C) The effective notional amount allocated to any five non-
affiliated reference entities included in the index comprises more than
60 percent of the index's weighting; or
    (D) Except as provided in paragraph (zzz)(2) of this section, for
each reference entity included in the index, none of the following
criteria is satisfied:
    (1) The reference entity is required to file reports pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. 78m or 78o(d));
    (2) The reference entity is eligible to rely on the exemption
provided in rule 12g3-2(b) under the Securities Exchange Act of 1934
(17 CFR 240.12g3-2(b));
    (3) The reference entity has a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more;
    (4) The reference entity (other than an issuing entity of an asset-
backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) has outstanding securities
that are notes, bonds, debentures, or evidences of indebtedness having
a total remaining principal amount of at least $1 billion;
    (5) The reference entity is the issuer of an exempted security as
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(12)) (other than any municipal security as defined in
section 3(a)(29) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(29)));
    (6) The reference entity is a government of a foreign country or a
political subdivision of a foreign country;
    (7) If the reference entity is an issuer of asset-backed securities
as defined in section 3(a)(77) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(77)), such asset-based securities were issued in a
transaction registered under the Securities Act of 1933 (15 U.S.C. 77a
et seq.) and have publicly available distribution reports; and
    (8) For a credit default swap entered into solely between eligible
contract participants as defined in section 1a(18) of the Commodity
Exchange Act:
    (i) The reference entity (other than a reference entity that is an
issuing entity of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)))
provides to the public or to such eligible contract participant
information about the reference entity pursuant to rule 144A(d)(4)
under the Securities Act of 1933 (17 CFR 230.144A(d)(4));
    (ii) Financial information about the reference entity (other than a
reference entity that is an issuing entity of an asset-backed security
as defined in section 3(a)(77) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(77))) is otherwise publicly available; or
    (iii) In the case of a reference entity that is an issuing entity
of asset-backed securities as defined in section 3(a)(77) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)), information of
the type and level included in public distribution reports for similar
asset-backed securities is publicly available about both the reference
entity and such asset-backed securities; and
    (ii)(A) The index is not composed solely of reference entities that
are issuers of exempted securities as defined in section 3(a)(12) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in
effect on the date of enactment of the Futures Trading Act of 1982
(other than any municipal security as defined in section 3(a)(29) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), as in
effect on the date of enactment of the Futures Trading Act of 1982);
and
    (B) Without taking into account any portion of the index composed
of reference entities that are issuers of exempted securities as
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(12)), as in effect on the date of enactment of the
Futures Trading Act of 1982 (other than any municipal security as
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(29))), the remaining portion of the index would be a
narrow-based security index under paragraph (zzz)(1)(i) of this
section.
    (2) Paragraph (zzz)(1)(i)(D) of this section will not apply with
respect to a reference entity included in the index if:
    (i) The effective notional amounts allocated to such reference
entity comprise less than five percent of the index's weighting; and
    (ii) The effective notional amounts allocated to reference entities
that satisfy paragraph (zzz)(1)(i)(D) of this section comprise at least
80 percent of the index's weighting.
    (3) For purposes of this paragraph (zzz):
    (i) A reference entity is affiliated with another entity if it
controls, is controlled by, or is under common control with, that
entity; provided that each reference entity that is an issuing entity
of an asset-backed security as defined in section 3(a)(77) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)) will not be
considered affiliated with any other issuing entity of an asset-backed
security.
    (ii) Control means ownership of 20 percent or more of an entity's
equity, or the ability to direct the voting of 20 percent or more of
the entity's voting equity.
    (iii) The term reference entity includes:
    (A) An issuer of securities;
    (B) An issuing entity of an asset-based security as defined in
section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(77)); and
    (C) A single reference entity or a group of affiliated entities;
provided that each issuing entity of an asset-backed security as
defined in section 3(a)(77) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(77)) is a separate reference entity.
    (aaaa) Meaning of ``narrow-based security index'' as used in the
definition of ``security-based swap'' as applied to index credit
default swaps.
    (1) Notwithstanding paragraph (yyy)(1) of this section, and solely
for purposes of determining whether a credit default swap is a
security-based swap under the definition of ``security-based swap'' in
section 3(a)(68)(A)(ii)(I) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(68)(A)(ii)(I), as incorporated in section 1a(42) of the
Commodity Exchange Act, the term narrow-based security index means an
index in which:
    (i)(A) The index is composed of 9 or fewer securities or securities
that are issued by 9 or fewer non-affiliated issuers, provided that a
security shall

not be deemed a component of the index for purposes of this section
unless:
    (1) A credit event with respect to the issuer of such security or a
credit event with respect to such security would result in a payment by
the credit protection seller to the credit protection buyer under the
credit default swap based on the related notional amount allocated to
such security; or
    (2) The fact of such credit event or the calculation in accordance
with paragraph (aaaa)(1)(i)(A)(1) of this section of the amount owed
with respect to such credit event is taken into account in determining
whether to make any future payments under the credit default swap with
respect to any future credit events;
    (B) The effective notional amount allocated to the securities of
any issuer included in the index comprises more than 30 percent of the
index's weighting;
    (C) The effective notional amount allocated to the securities of
any five non-affiliated issuers included in the index comprises more
than 60 percent of the index's weighting; or
    (D) Except as provided in paragraph (aaaa)(2) of this section, for
each security included in the index, none of the following criteria is
satisfied:
    (1) The issuer of the security is required to file reports pursuant
to section 13 or section 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m or 78o(d));
    (2) The issuer of the security is eligible to rely on the exemption
provided in rule 12g3-2(b) under the Securities Exchange Act of 1934
(17 CFR 240.12g3-2(b));
    (3) The issuer of the security has a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more;
    (4) The issuer of the security (other than an issuing entity of an
asset-backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) has outstanding securities
that are notes, bonds, debentures, or evidences of indebtedness having
a total remaining principal amount of at least $1 billion;
    (5) The security is an exempted security as defined in section
3(a)(12) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(12))
(other than any municipal security as defined in section 3(a)(29) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)));
    (6) The issuer of the security is a government of a foreign country
or a political subdivision of a foreign country;
    (7) If the security is an asset-backed security as defined in
section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(77)), the security was issued in a transaction registered under
the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly
available distribution reports; and
    (8) For a credit default swap entered into solely between eligible
contract participants as defined in section 1a(18) of the Commodity
Exchange Act:
    (i) The issuer of the security (other than an issuing entity of an
asset-backed security as defined in section 3(a)(77) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) provides to the public or
to such eligible contract participant information about such issuer
pursuant to rule 144A(d)(4) of the Securities Act of 1933 (17 CFR
230.144A(d)(4));
    (ii) Financial information about the issuer of the security (other
than an asset-backed security as defined in section 3(a)(77) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))) is otherwise
publicly available; or
    (iii) In the case of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77)),
information of the type and level included in public distribution
reports for similar asset-backed securities is publicly available about
both the issuing entity and such asset-backed security; and
    (ii)(A) The index is not composed solely of exempted securities as
defined in section 3(a)(12) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(12)), as in effect on the date of enactment of the
Futures Trading Act of 1982 (other than any municipal security as
defined in section 3(a)(29) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(29))), as in effect on the date of enactment of the
Futures Trading Act of 1982); and
    (B) Without taking into account any portion of the index composed
of exempted securities as defined in section 3(a)(12) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(12)), as in effect on the date
of enactment of the Futures Trading Act of 1982 (other than any
municipal security as defined in section 3(a)(29) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)(29))), the remaining portion of
the index would be a narrow-based security index under paragraph
(aaaa)(1)(i) of this section.
    (2) Paragraph (aaaa)(1)(i)(D) of this section will not apply with
respect to securities of an issuer included in the index if:
    (i) The effective notional amounts allocated to all securities of
such issuer included in the index comprise less than five percent of
the index's weighting; and
    (ii) The securities that satisfy paragraph (aaaa)(1)(i)(D) of this
section comprise at least 80 percent of the index's weighting.
    (3) For purposes of this paragraph (aaaa):
    (i) An issuer is affiliated with another issuer if it controls, is
controlled by, or is under common control with, that issuer; provided
that each issuing entity of an asset-backed security as defined in
section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(77)) will not be considered affiliated with any other issuing
entity of an asset-backed security.
    (ii) Control means ownership of 20 percent or more of an issuer's
equity, or the ability to direct the voting of 20 percent or more of
the issuer's voting equity.
    (iii) The term issuer includes:
    (A) An issuer of securities;
    (B) An issuing entity of an asset-based security as defined in
section 3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(77)); and
    (C) A single issuer or a group of affiliated issuers; provided that
each issuing entity of an asset-backed security as defined in section
3(a)(77) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(77))
is a separate issuer.
    3. Add Sec. Sec.  1.6 through 1.9 to read as follows:
Sec.
1.6 Anti-evasion.
1.7 Books and records requirements for security-based swap
agreements.
1.8 Interpretation of swaps, security-based swaps, and mixed swaps.
1.9 Regulation of mixed swaps.
* * * * *

Sec.  1.6  Anti-evasion.

    (a) It shall be unlawful to conduct activities outside the United
States, including entering into agreements, contracts, and transactions
and structuring entities, to willfully evade or attempt to evade any
provision of the Commodity Exchange Act as enacted by Subtitle A of the
Wall Street Transparency and Accountability Act of 2010 or the rules,
regulations, and orders of the Commission promulgated thereunder
(Subtitle A).
    (b) The form, label, and written documentation of an agreement,
contract, or transaction, or an entity, shall not be dispositive in
determining whether the agreement, contract, or transaction, or entity,
has been entered into or structured to willfully evade as

provided in paragraph (a) of this section.
    (c) An activity conducted outside the United States to evade as
provided in paragraph (a) of this section shall be subject to the
provisions of Subtitle A.
    (d) Notwithstanding the foregoing, no agreement, contract, or
transaction structured as a security (including a security-based swap)
under the securities laws (as defined in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed
a swap pursuant to this Sec.  1.6.
    5. Add Sec.  1.7 to read as follows:

Sec.  1.7  Books and records requirements for security-based swap
agreements.

    (a) A person registered as a swap data repository under section 21
of the Commodity Exchange Act and the rules and regulations thereunder:
    (1) Shall not be required to keep and maintain additional books and
records regarding security-based swap agreements other than the books
and records regarding swaps required to be kept and maintained pursuant
to section 21 of the Commodity Exchange Act and the rules and
regulations thereunder; and
    (2) Shall not be required to collect and maintain additional data
regarding security-based swap agreements other than the data regarding
swaps required to be collected and maintained by such persons pursuant
to section 21 of the Commodity Exchange Act and the rules and
regulations thereunder.
    (b) A person shall not be required to keep and maintain additional
books and records, including daily trading records, regarding security-
based swap agreements other than the books and records regarding swaps
required to be kept and maintained by such persons pursuant to section
4s of the Commodity Exchange Act and the rules and regulations
thereunder if such person is registered as:
    (1) A swap dealer under section 4s(a)(1) of the Commodity Exchange
Act and the rules and regulations thereunder;
    (2) A major swap participant under section 4s(a)(2) of the
Commodity Exchange Act and the rules and regulations thereunder;
    (3) A security-based swap dealer under section 15F(a)(1) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-10(a)(1)) and the rules
and regulations thereunder; or
    (4) A major security-based swap participant under section 15F(a)(2)
of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(a)(2)) and the
rules and regulations thereunder.
    (c) The term security-based swap agreement has the meaning set
forth in section 1a(47)(A)(v) of the Commodity Exchange Act.
    6. Add Sec.  1.8 to read as follows:

Sec.  1.8  Interpretation of swaps, security-based swaps, and mixed
swaps.

    (a) In general. Any person may submit a request to the Commission
and the Securities and Exchange Commission to provide a joint
interpretation of whether a particular agreement, contract, or
transaction (or class thereof) is:
    (1) A swap, as that term is defined in section 1a(47) of the
Commodity Exchange Act and the rules and regulations promulgated
thereunder;
    (2) A security-based swap, as that term is defined in section
1a(42) of the Commodity Exchange Act and the rules and regulations
promulgated thereunder; or
    (3) A mixed swap, as that term is defined in section 1a(47)(D) of
the Commodity Exchange Act and the rules and regulations promulgated
thereunder.
    (b) Request process. In making a request pursuant to paragraph (a)
of this section, the requesting person must provide the Commission and
the Securities and Exchange Commission with the following:
    (1) All material information regarding the terms of the agreement,
contract, or transaction (or class thereof);
    (2) A statement of the economic characteristics and purpose of the
agreement, contract, or transaction (or class thereof);
    (3) The requesting person's determination as to whether the
agreement, contract, or transaction (or class thereof) should be
characterized as a swap, a security-based swap, or both, (i.e., a mixed
swap), including the basis for such determination; and
    (4) Such other information as may be requested by the Commission or
the Securities and Exchange Commission.
    (c) Request withdrawal. A person may withdraw a request made