13a, 13a-1, 16, 16a, 19, 21, 23, and 24, as amended by Title VII of
the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.
L. 111-203, 124 Stat. 1376 (2010).

0
2. Amend Sec.  1.3 by revising paragraph (m) and adding paragraphs
(ggg) through (mmm) to read as follows:

Sec.  1.3  Definitions.

* * * * *
    (m) Eligible contract participant. This term has the meaning set
forth in Section 1a(18) of the Act, except that:
    (1) A major swap participant, as defined in Section 1a(33) of the
Act and paragraph (hhh) of this section, is an eligible contract
participant;
    (2) A swap dealer, as defined in Section 1a(49) of the Act and
paragraph (ggg) of this section, is an eligible contract participant;
    (3) A major security-based swap participant, as defined in Section
3(a)(67) of the Securities Exchange Act

of 1934 and Sec.  240.3a67-1 of this title, is an eligible contract
participant;
    (4) A security-based swap dealer, as defined in Section 3(a)(71) of
the Securities Exchange Act of 1934 and Sec.  240.3a71-1 of this title,
is an eligible contract participant;
    (5)(i) A transaction-level commodity pool with one or more direct
participants that is not an eligible contract participant is not itself
an eligible contract participant under either Section 1a(18)(A)(iv) or
Section 1a(18)(A)(v) of the Act for purposes of entering into
transactions described in Sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii)
of the Act; and
    (ii) In determining whether a commodity pool that is a direct
participant in a transaction-level commodity pool is an eligible
contract participant for purposes of paragraph (m)(5)(i) of this
section, the participants in the commodity pool that is a direct
participant in the transaction-level commodity pool shall not be
considered unless the transaction-level commodity pool, any commodity
pool holding a direct or indirect interest in such transaction-level
commodity pool, or any commodity pool in which such transaction-level
commodity pool holds a direct or indirect interest, has been structured
to evade subtitle A of Title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act by permitting persons that are not eligible
contract participants to participate in agreements, contracts, or
transactions described in Section 2(c)(2)(B)(i) or Section
2(c)(2)(C)(i) of the Act;
    (6) A commodity pool that does not have total assets exceeding
$5,000,000 or that is not operated by a person described in subclause
(A)(iv)(II) of Section 1a(18) of the Act is not an eligible contract
participant pursuant to clause (A)(v) of such Section;
    (7)(i) For purposes of a swap (but not a security-based swap,
security-based swap agreement or mixed swap) used to hedge or mitigate
commercial risk, an entity may, in determining its net worth for
purposes of Section 1a(18)(A)(v)(III) of the Act, include the net worth
of any owner of such entity, provided that all the owners of such
entity are eligible contract participants;
    (ii)(A) For purposes of identifying the owners of an entity under
paragraph (m)(7)(i) of this section, any person holding a direct
ownership interest in such entity shall be considered to be an owner of
such entity; provided, however, that any shell company shall be
disregarded, and the owners of such shell company shall be considered
to be the owners of any entity owned by such shell company;
    (B) For purposes of paragraph (m)(7)(ii)(A) of this section, the
term shell company means any entity that limits its holdings to direct
or indirect interests in entities that are relying on this paragraph
(m)(7); and
    (C) In determining whether an owner of an entity is an eligible
contract participant for purposes of paragraph (m)(7)(i) of this
section, an individual may be considered to be a proprietorship
eligible contract participant only if the individual--
    (1) Has an active role in operating a business other than an
entity;
    (2) Directly owns all of the assets of the business;
    (3) Directly is responsible for all of the liabilities of the
business; and
    (4) Acquires its interest in the entity seeking to qualify as an
eligible contract participant under paragraph (m)(7)(i) of this section
in connection with the operation of the individual's proprietorship or
to manage the risk associated with an asset or liability owned or
incurred or reasonably likely to be owned or incurred by the individual
in the operation of the individual's proprietorship; and
    (iii) For purposes of paragraph (m)(7)(i) of this section, a swap
is used to hedge or mitigate commercial risk if the swap complies with
the conditions in paragraph (kkk) of this section; and
    (8) Notwithstanding Section 1a(18)(A)(iv) of the Act and paragraph
(m)(5) of this section, a commodity pool that enters into an agreement,
contract, or transaction described in Section 2(c)(2)(B)(i) or Section
2(c)(2)(C)(i)(I) of the Act is an eligible contract participant with
respect to such agreement, contract, or transaction, regardless of
whether each participant in such commodity pool is an eligible contract
participant, if all of the following conditions are satisfied:
    (i) The commodity pool is not formed for the purpose of evading
regulation under Section 2(c)(2)(B) or Section 2(c)(2)(C) of the Act or
related Commission rules, regulations or orders;
    (ii) The commodity pool has total assets exceeding $10,000,000; and
    (iii) The commodity pool is formed and operated by a registered
commodity pool operator or by a commodity pool operator who is exempt
from registration as such pursuant to Sec.  4.13(a)(3) of this chapter.
* * * * *
    (ggg) Swap Dealer. (1) In general. The term swap dealer means any
person who:
    (i) Holds itself out as a dealer in swaps;
    (ii) Makes a market in swaps;
    (iii) Regularly enters into swaps with counterparties as an
ordinary course of business for its own account; or
    (iv) Engages in any activity causing it to be commonly known in the
trade as a dealer or market maker in swaps.
    (2) Exception. The term swap dealer does not include a person that
enters into swaps for such person's own account, either individually or
in a fiduciary capacity, but not as a part of regular business.
    (3) Scope of designation. A person who is a swap dealer shall be
deemed to be a swap dealer with respect to each swap it enters into,
regardless of the category of the swap or the person's activities in
connection with the swap. However, if a person makes an application to
limit its designation as a swap dealer to specified categories of swaps
or specified activities of the person in connection with swaps, the
Commission shall determine whether the person's designation as a swap
dealer shall be so limited. If the Commission grants such limited
designation, such limited designation swap dealer shall be deemed to be
a swap dealer with respect to each swap it enters into in the swap
category or categories for which it is so designated, regardless of the
person's activities in connection with such category or categories of
swaps. A person may make such application to limit the categories of
swaps or activities of the person that are subject to its swap dealer
designation at the same time as, or after, the person's initial
registration as a swap dealer.
    (4) De minimis exception. (i) Except as provided in paragraph
(ggg)(4)(vi) of this section, a person that is not currently registered
as a swap dealer shall be deemed not to be a swap dealer as a result of
its swap dealing activity involving counterparties, so long as the swap
positions connected with those dealing activities into which the
person--or any other entity controlling, controlled by or under common
control with the person--enters over the course of the immediately
preceding 12 months (or following the effective date of final rules
implementing Section 1a(47) of the Act, 7 U.S.C. 1a(47), if that period
is less than 12 months) have an aggregate gross notional amount of no
more than $3 billion, subject to a phase in level of an aggregate gross
notional amount of no more than $8 billion applied in accordance with
paragraph (ggg)(4)(ii) of this section, and an aggregate gross notional
amount of no more than $25 million with regard to swaps in which the
counterparty is a ``special entity'' (as that term is defined in
Section 4s(h)(2)(C) of the Act, 7

U.S.C. 6s(h)(2)(C), and Sec.  23.401(c) of this chapter). For purposes
of this paragraph, if the stated notional amount of a swap is leveraged
or enhanced by the structure of the swap, the calculation shall be
based on the effective notional amount of the swap rather than on the
stated notional amount.
    (ii) Phase-in procedure and staff report. (A) Phase-in period. For
purposes of paragraph (ggg)(4)(i) of this section, except as provided
in paragraph (ggg)(4)(vi) of this section, a person that engages in
swap dealing activity that does not exceed the phase-in level set forth
in paragraph (ggg)(4)(i) shall be deemed not to be a swap dealer as a
result of its swap dealing activity until the ``phase-in termination
date'' established as provided in paragraph (ggg)(4)(ii)(C) or (D) of
this section. The Commission shall announce the phase-in termination
date on the Commission Web site and publish such date in the Federal
Register.
    (B) Staff report. No later than 30 months following the date that a
swap data repository first receives swap data in accordance with part
45 of this chapter, the staff of the Commission shall complete and
publish for public comment a report on topics relating to the
definition of the term ``swap dealer'' and the de minimis threshold.
The report should address the following topics, as appropriate, based
on the availability of data and information: the potential impact of
modifying the de minimis threshold, and whether the de minimis
threshold should be increased or decreased; the factors that are useful
for identifying swap dealing activity, including the application of the
dealer-trader distinction for that purpose, and the potential use of
objective tests or safe harbors as part of the analysis; the impact of
provisions in paragraphs (ggg)(5) and (6) of this section excluding
certain swaps from the dealer analysis, and potential alternative
approaches for such exclusions; and any other analysis of swap data and
information relating to swaps that the Commission or staff deem
relevant to this rule.
    (C) Nine months after publication of the report required by
paragraph (ggg)(4)(ii)(B) of this section, and after giving due
consideration to that report and any associated public comment, the
Commission may either:
    (1) Terminate the phase-in period set forth in paragraph
(ggg)(4)(ii)(A) of this section, in which case the phase-in termination
date shall be established by the Commission by order published in the
Federal Register; or
    (2) Determine that it is necessary or appropriate in the public
interest to propose through rulemaking an alternative to the $3 billion
amount set forth in paragraph (ggg)(4)(i) of this section that would
constitute a de minimis quantity of swap dealing in connection with
transactions with or on behalf of customers within the meaning of
section 1(a)(47)(D) of the Act, 7 U.S.C. 1(a)(47)(D), in which case the
Commission shall by order published in the Federal Register provide
notice of such determination, which order shall also establish the
phase-in termination date.
    (D) If the phase-in termination date has not been previously
established pursuant to paragraph (ggg)(4)(ii)(C) of this section, then
in any event the phase-in termination date shall occur five years after
the date that a swap repository first receives swap data in accordance
with part 45 of this chapter.
    (iii) Registration period for persons that can no longer take
advantage of the exception. A person that has not registered as a swap
dealer by virtue of satisfying the requirements of this paragraph
(ggg)(4), but that no longer can take advantage of that de minimis
exception, will be deemed not to be a swap dealer until the earlier of
the date on which it submits a complete application for registration
pursuant to Section 4s(b) of the Act, 7 U.S.C. 6s(b), or two months
after the end of the month in which that person becomes no longer able
to take advantage of the exception.
    (iv) Applicability to registered swap dealers. A person who
currently is registered as a swap dealer may apply to withdraw that
registration, while continuing to engage in swap dealing activity in
reliance on this section, so long as that person has been registered as
a swap dealer for at least 12 months and satisfies the conditions of
paragraph (ggg)(4)(i) of this section.
    (v) Future adjustments to scope of the de minimis exception. The
Commission may by rule or regulation change the requirements of the de
minimis exception described in paragraphs (ggg)(4)(i) through (iv) of
this section.
    (vi) Voluntary registration. Notwithstanding paragraph (ggg)(4)(i)
of this section, a person that chooses to register with the Commission
as a swap dealer shall be deemed to be a swap dealer.
    (5) Insured depository institution swaps in connection with
originating loans to customers. Swaps entered into by an insured
depository institution with a customer in connection with originating a
loan with that customer shall not be considered in determining whether
the insured depository institution is a swap dealer.
    (i) An insured depository institution shall be considered to have
entered into a swap with a customer in connection with originating a
loan, as defined in paragraphs (ggg)(5)(ii) and (iii) of this section,
with that customer only if:
    (A) The insured depository institution enters into the swap with
the customer no earlier than 90 days before and no later than 180 days
after the date of execution of the applicable loan agreement, or no
earlier than 90 days before and no later than 180 days after any
transfer of principal to the customer by the insured depository
institution pursuant to the loan;
    (B)(1) The rate, asset, liability or other notional item underlying
such swap is, or is directly related to, a financial term of such loan,
which includes, without limitation, the loan's duration, rate of
interest, the currency or currencies in which it is made and its
principal amount;
    (2) Such swap is required, as a condition of the loan under the
insured depository institution's loan underwriting criteria, to be in
place in order to hedge price risks incidental to the borrower's
business and arising from potential changes in the price of a commodity
(other than an excluded commodity);
    (C) The duration of the swap does not extend beyond termination of
the loan;
    (D) The insured depository institution is:
    (1) The sole source of funds to the customer under the loan;
    (2) Committed to be, under the terms of the agreements related to
the loan, the source of at least 10 percent of the maximum principal
amount under the loan; or
    (3) Committed to be, under the terms of the agreements related to
the loan, the source of a principal amount that is greater than or
equal to the aggregate notional amount of all swaps entered into by the
insured depository institution with the customer in connection with the
financial terms of the loan;
    (E) The aggregate notional amount of all swaps entered into by the
customer in connection with the financial terms of the loan is, at any
time, not more than the aggregate principal amount outstanding under
the loan at that time; and
    (F) If the swap is not accepted for clearing by a derivatives
clearing organization, the insured depository institution reports the
swap as required by section 4r of the Act, 7 U.S.C. 6r (except as
otherwise provided in section 4r(a)(3)(A), 7 U.S.C. 6r(a)(3)(A), or
section 4r(a)(3)(B), 7 U.S.C. 6r(a)(3)(B) of the Act).

    (ii) An insured depository institution shall be considered to have
originated a loan with a customer if the insured depository
institution:
    (A) Directly transfers the loan amount to the customer;
    (B) Is a part of a syndicate of lenders that is the source of the
loan amount that is transferred to the customer;
    (C) Purchases or receives a participation in the loan; or
    (D) Otherwise is the source of funds that are transferred to the
customer pursuant to the loan or any refinancing of the loan.
    (iii) The term loan shall not include:
    (A) Any transaction that is a sham, whether or not intended to
qualify for the exclusion from the definition of the term swap dealer
in this rule; or
    (B) Any synthetic loan, including, without limitation, a loan
credit default swap or loan total return swap.
    (6) Swaps that are not considered in determining whether a person
is a swap dealer. (i) Inter-affiliate activities. In determining
whether a person is a swap dealer, that person's swaps with majority-
owned affiliates shall not be considered. For these purposes the
counterparties to a swap are majority-owned affiliates if one
counterparty directly or indirectly owns a majority interest in the
other, or if a third party directly or indirectly owns a majority
interest in both counterparties to the swap, where ``majority
interest'' is the right to vote or direct the vote of a majority of a
class of voting securities of an entity, the power to sell or direct
the sale of a majority of a class of voting securities of an entity, or
the right to receive upon dissolution or the contribution of a majority
of the capital of a partnership.
    (ii) Activities of a cooperative. (A) Any swap that is entered into
by a cooperative with a member of such cooperative shall not be
considered in determining whether the cooperative is a swap dealer,
provided that:
    (1) The swap is subject to policies and procedures of the
cooperative requiring that the cooperative monitors and manages the
risk of such swap;
    (2) The cooperative reports the swap as required by Section 4r of
the Act, 7 U.S.C. 6r (except as otherwise provided in Section
4r(a)(3)(A) of the Act, 7 U.S.C. 6r(a)(3)(A) or Section 4r(a)(3)(B) of
the Act, 7 U.S.C. 6r(a)(3)(B)); and
    (3) if the cooperative is a cooperative association of producers,
the swap is primarily based on a commodity that is not an excluded
commodity.
    (B) For purposes of this paragraph (ggg)(6)(ii), the term
cooperative shall mean:
    (1) A cooperative association of producers as defined in section
1a(14) of the Act, 7 U.S.C. 1a(14), or
    (2) A person chartered under Federal law as a cooperative and
predominantly engaged in activities that are financial in nature as
defined in section 4(k) of the Bank Holding Company Act of 1956, 12
U.S.C. 1843(k).
    (C) For purposes of this paragraph (ggg)(6)(ii), a swap shall be
deemed to be entered into by a cooperative association of producers
with a member of such cooperative association of producers when the
swap is between a cooperative association of producers and a person
that is a member of a cooperative association of producers that is
itself a member of the first cooperative association of producers.
    (iii) Swaps entered into for the purpose of hedging physical
positions. In determining whether a person is a swap dealer, a swap
that the person enters into shall not be considered, if:
    (A) The person enters into the swap for the purpose of offsetting
or mitigating the person's price risks that arise from the potential
change in the value of one or several--
    (1) Assets that the person owns, produces, manufactures, processes,
or merchandises or anticipates owning, producing, manufacturing,
processing, or merchandising;
    (2) Liabilities that the person owns or anticipates incurring; or
    (3) Services that the person provides, purchases, or anticipates
providing or purchasing;
    (B) The swap represents a substitute for transactions made or to be
made or positions taken or to be taken by the person at a later time in
a physical marketing channel;
    (C) The swap is economically appropriate to the reduction of the
person's risks in the conduct and management of a commercial
enterprise;
    (D) The swap is entered into in accordance with sound commercial
practices; and
    (E) The person does not enter into the swap in connection with
activity structured to evade designation as a swap dealer.
    (iv) Swaps entered into by floor traders. In determining whether a
person is a swap dealer, each swap that the person enters into in its
capacity as a floor trader as defined by section 1a(23) of the Act or
on or subject to the rules of a swap execution facility shall not be
considered for the purpose of determining whether the person is a swap
dealer if the person:
    (A) Is registered with the Commission as a floor trader pursuant to
Sec.  3.11 of this chapter;
    (B) Enters into swaps with proprietary funds for that trader's own
account solely on or subject to the rules of a designated contract
market or swap execution facility and submits each such swap for
clearing to a derivatives clearing organization;
    (C) Is not an affiliated person of a registered swap dealer;
    (D) Does not directly, or through an affiliated person, negotiate
the terms of swap agreements, other than price and quantity or to
participate in a request for quote process subject to the rules of a
designated contract market or a swap execution facility;
    (E) Does not directly or through an affiliated person offer or
provide swap clearing services to third parties;
    (F) Does not directly or through an affiliated person enter into
swaps that would qualify as hedging physical positions pursuant to
paragraph (ggg)(6)(iii) of this section or hedging or mitigating
commercial risk pursuant to paragraph (kkk) of this section (except for
any such swap executed opposite a counterparty for which the
transaction would qualify as a bona fide hedging transaction);
    (G) Does not participate in any market making program offered by a
designated contract market or swap execution facility; and
    (H) Notwithstanding the fact such person is not registered as a
swap dealer, such person complies with Sec. Sec.  23.201, 23.202,
23.203, and 23.600 of this chapter with respect to each such swap as if
it were a swap dealer.
    (hhh) Major Swap Participant. (1) In general. The term major swap
participant means any person:
    (i) That is not a swap dealer; and
    (ii)(A) That maintains a substantial position in swaps for any of
the major swap categories, excluding both positions held for hedging or
mitigating commercial risk, and positions maintained by any employee
benefit plan (or any contract held by such a plan) as defined in
paragraphs (3) and (32) of Section 3 of the Employee Retirement Income
Security Act of 1974, 29 U.S.C. 1002, for the primary purpose of
hedging or mitigating any risk directly associated with the operation
of the plan;
    (B) Whose outstanding swaps create substantial counterparty
exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial markets; or
    (C) That is a financial entity that:
    (1) Is highly leveraged relative to the amount of capital such
entity holds and that is not subject to capital requirements
established by an

appropriate Federal banking agency (as defined in Section 1a(2) of the
Act, 7 U.S.C. 1a(2)); and
    (2) Maintains a substantial position in outstanding swaps in any
major swap category.
    (2) Scope of designation. A person that is a major swap participant
shall be deemed to be a major swap participant with respect to each
swap it enters into, regardless of the category of the swap or the
person's activities in connection with the swap. However, if a person
makes an application to limit its designation as a major swap
participant to specified categories of swaps, the Commission shall
determine whether the person's designation as a major swap participant
shall be so limited. If the Commission grants such limited designation,
such limited designation major swap participant shall be deemed to be a
major swap participant with respect to each swap it enters into in the
swap category or categories for which it is so designated, regardless
of the person's activities in connection with such category or
categories of swaps. A person may make such application to limit its
designation at the same time as, or after, the person's initial
registration as a major swap participant.
    (3) Timing requirements. A person that is not registered as a major
swap participant, but that meets the criteria in this rule to be a
major swap participant as a result of its swap activities in a fiscal
quarter, will not be deemed to be a major swap participant until the
earlier of the date on which it submits a complete application for
registration as a major swap participant pursuant to Section 4s(a)(2)
of the Act, 7 U.S.C. 6s(a)(2), or two months after the end of that
quarter.
    (4) Reevaluation period. Notwithstanding paragraph (hhh)(3) of this
section, if a person that is not registered as a major swap participant
meets the criteria in this rule to be a major swap participant in a
fiscal quarter, but does not exceed any applicable threshold by more
than twenty percent in that quarter:
    (i) That person will not be deemed a major swap participant
pursuant to the timing requirements specified in paragraph (hhh)(3) of
this section; but
    (ii) That person will be deemed a major swap participant pursuant
to the timing requirements specified in paragraph (hhh)(3) of this
section at the end of the next fiscal quarter if the person exceeds any
of the applicable daily average thresholds in that next fiscal quarter.
    (5) Termination of status. A person that is deemed to be a major
swap participant shall continue to be deemed a major swap participant
until such time that its swap activities do not exceed any of the daily
average thresholds set forth within this rule for four consecutive
fiscal quarters after the date on which the person becomes registered
as a major swap participant.
    (6) Calculation of status. A person shall not be deemed to be a
``major swap participant,'' regardless of whether the criteria
paragraph (hhh)(1) of this section otherwise would cause the person to
be a major swap participant, provided the person meets the conditions
set forth in paragraphs (hhh)(6)(i), (ii) or (iii) of this section.
    (i) Caps on uncollateralized exposure and notional positions.
    (A) Maximum potential uncollateralized exposure. The express terms
of the person's agreements or arrangements relating to swaps with its
counterparties at no time would permit the person to maintain a total
uncollateralized exposure of more than $100 million to all such
counterparties, including any exposure that may result from thresholds
or minimum transfer amounts established by credit support annexes or
similar arrangements; and
    (B) Maximum notional amount of swap positions. The person does not
maintain swap positions in a notional amount of more than $2 billion in
any major category of swaps, or more than $4 billion in the aggregate
across all major categories; or
    (ii) Caps on uncollateralized exposure plus monthly calculation.
    (A) Maximum potential uncollateralized exposure. The express terms
of the person's agreements or arrangements relating to swaps with its
counterparties at no time would permit the person to maintain a total
uncollateralized exposure of more than $200 million to all such
counterparties (with regard to swaps and any other instruments by which
the person may have exposure to those counterparties), including any
exposure that may result from thresholds or minimum transfer amounts
established by credit support annexes or similar arrangements; and
    (B) Calculation of positions. (1) At the end of each month, the
person performs the calculations prescribed by paragraph (jjj) of this
section with regard to whether the aggregate uncollateralized outward
exposure plus aggregate potential outward exposure as of that day
constitute a ``substantial position'' in a major category of swaps, or
pose ``substantial counterparty exposure that could have serious
adverse effects on the financial stability of the United States banking
system or financial markets''; these calculations shall disregard
provisions of those rules that provide for the analyses to be
determined based on a daily average over a calendar quarter; and
    (2) Each such analysis produces thresholds of no more than:
    (i) $1 billion in aggregate uncollateralized outward exposure plus
aggregate potential outward exposure in any major category of swaps; if
the person is subject to paragraph (jjj) of this section, by virtue of
being a highly leveraged financial entity that is not subject to
capital requirements established by an appropriate Federal banking
agency, this analysis shall account for all of the person's swap
positions in that major category (without excluding hedging positions),
otherwise this analysis shall exclude the same hedging and related
positions that are excluded from consideration pursuant to paragraph
(jjj)(1)(i) of this section; or
    (ii) $2 billion in aggregate uncollateralized outward exposure plus
aggregate potential outward exposure (without any positions excluded
from the analysis) with regard to all of the person's swap positions.
    (iii) Calculations based on certain information. (A)(1) At the end
of each month, the person's aggregate uncollateralized outward exposure
with respect to its swap positions in each major swap category is less
than $1.5 billion with respect to the rate swap category and less than
$500 million with respect to each of the other major swap categories;
and
    (2) At the end of each month, the sum of the amount calculated
under paragraph (hhh)(6)(iii)(A)(1) of this section with respect to
each major swap category and the total notional principal amount of the
person's swap positions in each such major swap category, adjusted by
the multipliers set forth in paragraph (jjj)(3)(ii)(1) of this section
on a position-by-position basis reflecting the type of swap, is less
than $3 billion with respect to the rate swap category and less than $1
billion with respect to each of the other major swap categories; or
    (B)(1) At the end of each month, the person's aggregate
uncollateralized outward exposure with respect to its swap positions
across all major swap categories is less than $500 million; and
    (2) The sum of the amount calculated under paragraph
(hhh)(6)(iii)(B)(1) of this section and the product of the total
effective notional principal amount of the person's swap positions in
all major security-based swap categories multiplied by 0.15 is less
than $1 billion.
    (C) For purposes of the calculations set forth in this paragraph
(hhh)(6)(iii):

    (1) The person's aggregate uncollateralized outward exposure for
positions held with swap dealers shall be equal to such exposure
reported on the most recent reports of such exposure received from such
swap dealers; and
    (2) The person's aggregate uncollateralized outward exposure for
positions that are not reflected in any report of exposure from a swap
dealer (including all swap positions it holds with persons other than
swap dealers) shall be calculated in accordance with paragraph (jjj)(2)
of this section.
    (iv) For purposes of the calculations set forth in this paragraph
(hhh)(6), the person shall use the effective notional amount of a
position rather than the stated notional amount of the position if the
stated notional amount is leveraged or enhanced by the structure of the
position.
    (v) No presumption shall arise that a person is required to perform
the calculations needed to determine if it is a major swap participant,
solely by reason that the person does not meet the conditions specified
in paragraph (hhh)(6)(i), (ii) or (iii) of this section.
    (7) Exclusions. A person who is registered as a derivatives
clearing organization with the Commission pursuant to section 5b of the
Act and regulations thereunder, shall not be deemed to be a major swap
participant, regardless of whether the criteria in this paragraph (hhh)
otherwise would cause the person to be a major swap participant.
    (iii) Category of swaps; major swap category. For purposes of
Section 1a(33) the Act, 7 U.S.C. 1a(33), and paragraph (hhh) of this
section, the terms major swap category, category of swaps and any
similar terms mean any of the categories of swaps listed below. For the
avoidance of doubt, the term swap as it is used in this paragraph (iii)
has the meaning set forth in Section 1a(47) of the Act, 7 U.S.C.
1a(47), and the rules thereunder.
    (1) Rate swaps. Any swap which is primarily based on one or more
reference rates, including but not limited to any swap of payments
determined by fixed and floating interest rates, currency exchange
rates, inflation rates or other monetary rates, any foreign exchange
swap, as defined in Section 1a(25) of the Act, 7 U.S.C. 1a(25), and any
foreign exchange option other than an option to deliver currency.
    (2) Credit swaps. Any swap that is primarily based on instruments
of indebtedness, including but not limited to any swap primarily based
on one or more broad-based indices related to debt instruments or
loans, and any swap that is an index credit default swap or total
return swap on one or more indices of debt instruments.
    (3) Equity swaps. Any swap that is primarily based on equity
securities, including but not limited to any swap based on one or more
broad-based indices of equity securities and any total return swap on
one or more equity indices.
    (4) Other commodity swaps. Any swap that is not included in the
rate swap, credit swap or equity swap categories.
    (jjj) Substantial position. (1) In general. For purposes of Section
1a(33) of the Act, 7 U.S.C. 1a(33), and paragraph (hhh) of this
section, the term ``substantial position'' means swap positions that
equal or exceed any of the following thresholds in the specified major
category of swaps:
    (i) For rate swaps:
    (A) $3 billion in daily average aggregate uncollateralized outward
exposure; or
    (B) $6 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (ii) For credit swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (iii) For equity swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (iv) For other commodity swaps:
    (A) $1 billion in daily average aggregate uncollateralized outward
exposure; or
    (B) $2 billion in:
    (1) Daily average aggregate uncollateralized outward exposure plus
    (2) Daily average aggregate potential outward exposure.
    (2) Aggregate uncollateralized outward exposure. (i) In general.
Aggregate uncollateralized outward exposure in general means the sum of
the current exposure, obtained by marking-to-market using industry
standard practices, of each of the person's swap positions with
negative value in a major swap category, less the value of the
collateral the person has posted in connection with those positions.
    (ii) Calculation of aggregate uncollateralized outward exposure. In
calculating this amount the person shall, with respect to each of its
swap counterparties in a given major swap category, determine the
dollar value of the aggregate current exposure arising from each of its
swap positions with negative value (subject to the netting provisions
described below) in that major category by marking-to-market using
industry standard practices; and deduct from that dollar amount the
aggregate value of the collateral the person has posted with respect to
the swap positions. The aggregate uncollateralized outward exposure
shall be the sum of those uncollateralized amounts across all of the
person's swap counterparties in the applicable major category.
    (iii) Relevance of netting agreements. (A) If the person has one or
more master netting agreement in effect with a particular counterparty,
the person may measure the current exposure arising from its swaps in
any major category on a net basis, applying the terms of those
agreements. Calculation of net current exposure may take into account
offsetting positions entered into with that particular counterparty
involving swaps (in any swap category) as well as security-based swaps
and securities financing transactions (consisting of securities lending
and borrowing, securities margin lending and repurchase and reverse
repurchase agreements), and other financial instruments that are
subject to netting offsets for purposes of applicable bankruptcy law,
to the extent these are consistent with the offsets permitted by the
master netting agreements.
    (B) Such adjustments may not take into account any offset
associated with positions that the person has with separate
counterparties.
    (iv) Allocation of uncollateralized outward exposure. If a person
calculates current exposure with a particular counterparty on a net
basis, as provided by paragraph (jjj)(2)(iii) of this section, the
portion of that current exposure that should be attributed to each
``major'' category of swaps for purposes of the substantial position
analysis should be calculated according to the formula:

[GRAPHIC] [TIFF OMITTED] TR23MY12.000

    Where: ES(MC) equals the amount of aggregate current exposure
attributable to the entity's swap positions in the ``major'' swap
category at issue; Enet total equals the entity's aggregate current
exposure to the counterparty at issue, after accounting for the
netting of positions and the posting of collateral; OTMS(MC) equals
the exposure associated with the entity's out-of-the-money positions
in swaps in the ``major'' category at issue, subject to those
netting arrangements; and OTMS(O) equals the exposure associated
with the entity's out-of-the-money positions in the other ``major''
categories of swaps, subject to those netting arrangements; and
OTMnon-S equals the exposure associated with the entity's out-of-
the-money positions associated with instruments, other than swaps,
that are subject to those netting arrangements.

    (3) Aggregate potential outward exposure. (i) In general. Aggregate
potential outward exposure in any major swap category means the sum of:
    (A) The aggregate potential outward exposure for each of the
person's swap positions in a major swap category that are not subject
to daily mark-to-market margining and are not cleared by a registered
or exempt clearing agency or derivatives clearing organization, as
calculated in accordance with paragraph (jjj)(3)(ii) of this section;
and
    (B) The aggregate potential outward exposure for each of the
person's swap positions in such major swap category that are either
subject to daily mark-to-market margining or are cleared by a
registered or exempt clearing agency or derivatives clearing
organization, as calculated in accordance with paragraph (jjj)(3)(iii)
of this section.
    (ii) Calculation of potential outward exposure for swaps that are
not subject to daily mark-to-market margining and are not cleared by a
registered or exempt clearing agency or derivatives clearing
organization. (A) In general. (1) For positions in swaps that are not
subject to daily mark-to-market margining and are not cleared by a
registered or exempt clearing agency or a derivatives clearing
organization, potential outward exposure equals the total notional
principal amount of those positions, multiplied by the following
factors on a position-by-position basis reflecting the type of swap.
For any swap that does not appropriately fall within any of the
specified categories, the ``other commodities'' conversion factors set
forth in the following Table 1 are to be used. If a swap is structured
such that on specified dates any outstanding exposure is settled and
the terms are reset so that the market value of the swap is zero, the
remaining maturity equals the time until the next reset date.

                                                       Table 1--Conversion Factor Matrix for Swaps
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Foreign exchange      Precious metals
                         Residual maturity                              Interest rate         rate and gold        (except gold)      Other commodities
--------------------------------------------------------------------------------------------------------------------------------------------------------
One year or less..................................................                 0.00                  0.01                  0.07                 0.10
Over one to five years............................................                 0.005                 0.05                  0.07                 0.12
Over five years...................................................                 0.015                 0.075                 0.08                 0.15
--------------------------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------
                   Residual maturity                     Credit   Equity
------------------------------------------------------------------------
One year or less......................................     0.10     0.06
Over one to five years................................     0.10     0.08
Over five years.......................................     0.10     0.10
------------------------------------------------------------------------

    (2) Use of effective notional amounts. If the stated notional
amount on a position is leveraged or enhanced by the structure of the
position, the calculation in paragraph (jjj)(3)(ii)(A)(1) of this
section shall be based on the effective notional amount of the position
rather than on the stated notional amount.
    (3) Exclusion of certain positions. The calculation in paragraph
(jjj)(3)(ii)(A)(1) of this section shall exclude:
    (i) Positions that constitute the purchase of an option, if the
purchaser has no additional payment obligations under the position;
    (ii) Other positions for which the person has prepaid or otherwise
satisfied all of its payment obligations; and
    (iii) Positions for which, pursuant to law or a regulatory
requirement, the person has assigned an amount of cash or U.S. Treasury
securities that is sufficient at all times to pay the person's maximum
possible liability under the position, and the person may not use that
cash or those Treasury securities for other purposes.
    (4) Adjustment for certain positions. Notwithstanding paragraph
(jjj)(3)(ii)(A)(1) of this section, the potential outward exposure
associated with a position by which a person buys credit protection
using a credit default swap or index credit default swap, or associated
with a position by which a person purchases an option for which the
person retains additional payment obligations under the position, is
capped at the net present value of the unpaid premiums.
    (B) Adjustment for netting agreements. Notwithstanding paragraph
(jjj)(3)(ii)(A) of this section, for positions subject to master
netting agreements the potential outward exposure associated with the
person's swaps with each counterparty equals a weighted average of the
potential outward exposure for the person's swaps with that
counterparty as calculated under paragraph (jjj)(3)(ii)(A) of this
section, and that amount reduced by the ratio of net current exposure
to gross current exposure, consistent with the following equation as
calculated on a counterparty-by-counterparty basis:

PNet = 0.4 * PGross + 0.6 * NGR * PGross

    Where: PNet is the potential outward exposure, adjusted for
bilateral netting, of the person's swaps with a particular
counterparty; PGross is the potential outward exposure without
adjustment for bilateral netting as calculated pursuant to paragraph
(jjj)(3)(ii)(A) of this section; and NGR is the ratio of the current
exposure arising from its swaps in the major category as calculated
on a net basis according to paragraphs (jjj)(2)(iii) and (iv) of
this section, divided by the current exposure arising from its swaps
in the major category as calculated in the absence of those netting
procedures.

    (iii) Calculation of potential outward exposure for swaps that are
either subject to daily mark-to-market margining or are cleared by a
registered or exempt clearing agency or derivatives clearing
organization. For positions in swaps that are subject to daily mark-to-
market margining or that are cleared by a registered or exempt clearing
agency or derivatives clearing organization:
    (A) Potential outward exposure equals the potential exposure that
would be attributed to such positions using the procedures in paragraph
(jjj)(3)(ii) of this section multiplied by:
    (1) 0.1, in the case of positions cleared by a registered or exempt
clearing agency; or

    (2) 0.2, in the case of positions that are subject to daily mark-
to-market margining but that are not cleared by a registered or exempt
clearing agency.
    (B) Solely for purposes of calculating potential outward exposure:
    (1) A swap shall be considered to be subject to daily mark-to-
market margining if, and for so long as, the counterparties follow the
daily practice of exchanging collateral to reflect changes in the
current exposure arising from the swap (after taking into account any
other financial positions addressed by a netting agreement between the
counterparties).
    (2) If the person is permitted by agreement to maintain a threshold
for which it is not required to post collateral, the position still
will be considered to be subject to daily mark-to-market margining for
purposes of calculating potential outward exposure, but the total
amount of that threshold (regardless of the actual exposure at any
time), less any initial margin posted up to the amount of that
threshold, shall be added to the person's aggregate uncollateralized
outward exposure for purposes of paragraph (jjj)(1)(i)(B), (ii)(B),
(iii)(B) or (iv)(B) of this section, as applicable.
    (3) If the minimum transfer amount under the agreement is in excess
of $1 million, the position still will be considered to be subject to
daily mark-to-market margining for purposes of calculating potential
outward exposure, but the entirety of the minimum transfer amount shall
be added to the person's aggregate uncollateralized outward exposure
for purposes of paragraph (jjj)(1)(i)(B), (ii)(B), (iii)(B) or (iv)(B)
of this section, as applicable.
    (4) A person may, at its discretion, calculate the potential
outward exposure of positions in swaps that are subject to daily mark-
to-market margining in accordance with paragraph (jjj)(3)(ii) of this
section in lieu of calculating the potential outward exposure of such
swap positions in accordance with this paragraph (jjj)(3)(iii).
    (4) Calculation of daily average. Measures of daily average
aggregate uncollateralized outward exposure and daily average aggregate
potential outward exposure shall equal the arithmetic mean of the
applicable measure of exposure at the close of each business day,
beginning the first business day of each calendar quarter and
continuing through the last business day of that quarter.
    (5) Inter-affiliate activities. In calculating its aggregate
uncollateralized outward exposure and its aggregate potential outward
exposure, the person shall not consider its swap positions with
counterparties that are majority-owned affiliates. For these purposes
the counterparties to a swap are majority-owned affiliates if one
counterparty directly or indirectly owns a majority interest in the
other, or if a third party directly or indirectly owns a majority
interest in both counterparties to the swap, where ``majority
interest'' is the right to vote or direct the vote of a majority of a
class of voting securities of an entity, the power to sell or direct
the sale of a majority of a class of voting securities of an entity, or
the right to receive upon dissolution or the contribution of a majority
of the capital of a partnership.
    (kkk) Hedging or mitigating commercial risk. For purposes of
Section 1a(33) of the Act, 7 U.S.C. 1a(33) and paragraph (hhh) of this
section, a swap position is held for the purpose of hedging or
mitigating commercial risk when:
    (1) Such position:
    (i) Is economically appropriate to the reduction of risks in the
conduct and management of a commercial enterprise (or of a majority-
owned affiliate of the enterprise), where the risks arise from:
    (A) The potential change in the value of assets that a person owns,
produces, manufactures, processes, or merchandises or reasonably
anticipates owning, producing, manufacturing, processing, or
merchandising in the ordinary course of business of the enterprise;
    (B) The potential change in the value of liabilities that a person
has incurred or reasonably anticipates incurring in the ordinary course
of business of the enterprise; or
    (C) The potential change in the value of services that a person
provides, purchases, or reasonably anticipates providing or purchasing
in the ordinary course of business of the enterprise;
    (D) The potential change in the value of assets, services, inputs,
products, or commodities that a person owns, produces, manufactures,
processes, merchandises, leases, or sells, or reasonably anticipates
owning, producing, manufacturing, processing, merchandising, leasing,
or selling in the ordinary course of business of the enterprise;
    (E) Any potential change in value related to any of the foregoing
arising from interest, currency, or foreign exchange rate movements
associated with such assets, liabilities, services, inputs, products,
or commodities; or
    (F) Any fluctuation in interest, currency, or foreign exchange rate
exposures arising from a person's current or anticipated assets or
liabilities; or
    (ii) Qualifies as bona fide hedging for purposes of an exemption
from position limits under the Act; or
    (iii) Qualifies for hedging treatment under:
    (A) Financial Accounting Standards Board Accounting Standards
Codification Topic 815, Derivatives and Hedging (formerly known as
Statement No. 133); or
    (B) Governmental Accounting Standards Board Statement 53,
Accounting and Financial Reporting for Derivative Instruments; and
    (2) Such position is:
    (i) Not held for a purpose that is in the nature of speculation,
investing or trading; and
    (ii) Not held to hedge or mitigate the risk of another swap or
security-based swap position, unless that other position itself is held
for the purpose of hedging or mitigating commercial risk as defined by
this rule or Sec.  240.3a67-4 of this title.
    (lll) Substantial counterparty exposure. (1) In general. For
purposes of Section 1a(33) of the Act, 7 U.S.C. 1a(33), and paragraph
(hhh) of this section, the term substantial counterparty exposure that
could have serious adverse effects on the financial stability of the
United States banking system or financial markets means a swap position
that satisfies either of the following thresholds:
    (i) $5 billion in daily average aggregate uncollateralized outward
exposure; or
    (ii) $8 billion in:
    (A) Daily average aggregate uncollateralized outward exposure plus
    (B) Daily average aggregate potential outward exposure.
    (2) Calculation methodology. For these purposes, the terms daily
average aggregate uncollateralized outward exposure and daily average
aggregate potential outward exposure shall be calculated the same way
as is prescribed in paragraph (jjj) of this section, except that these
amounts shall be calculated by reference to all of the person's swap
positions, rather than by reference to a specific major swap category.
    (mmm) Financial entity; highly leveraged. (1) For purposes of
Section 1a(33) of the Act, 7 U.S.C. 1a(33), and paragraph (hhh) of this
section, the term financial entity means:
    (i) A security-based swap dealer;
    (ii) A major security-based swap participant;
    (iii) A commodity pool as defined in Section 1a(10) of the Act, 7
U.S.C. 1a(10);
    (iv) A private fund as defined in Section 202(a) of the Investment

Advisers Act of 1940, 15 U.S.C. 80b-2(a);
    (v) An employee benefit plan as defined in paragraphs (3) and (32)
of Section 3 of the Employee Retirement Income Security Act of 1974, 29
U.S.C. 1002; and
    (vi) A person predominantly engaged in activities that are in the
business of banking or financial in nature, as defined in Section 4(k)
of the Bank Holding Company Act of 1956, 12 U.S.C. 1843(k).
    (2) For purposes of Section 1a(33) of the Act, 7 U.S.C. 1a(33), and
paragraph (hhh) of this section, the term highly leveraged means the
existence of a ratio of an entity's total liabilities to equity in
excess of 12 to 1 as measured at the close of business on the last
business day of the applicable fiscal quarter. For this purpose,
liabilities and equity should each be determined in accordance with
U.S. generally accepted accounting principles; provided, however, that
a person that is an employee benefit plan, as defined in paragraphs (3)
and (32) of Section 3 of the Employee Retirement Income Security Act of
1974, 29 U.S.C. 1002, may exclude obligations to pay benefits to plan
participants from the calculation of liabilities and substitute the
total value of plan assets for equity.

Securities and Exchange Commission

    Pursuant to the Exchange Act, 15 U.S.C. 78a et seq., and
particularly, Sections 3 and 23 thereof, and Sections 712 and 761(b) of
the Dodd-Frank Act, the SEC is adopting Rules 3a67-1, 3a67-2, 3a67-3,
3a67-4, 3a67-5, 3a67-6, 3a67-7, 3a71-1, and 3a71-2 under the Exchange
Act.
    For the reasons stated in the preamble, the SEC is amending Title
17, Chapter II, of the Code of the Federal Regulations, as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
3. The authority citation for part 240 is amended by adding the
following citation in numerical order:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77jjj, 77kkk, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q,
78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37,
80b-3, 80b-4, 80b-11, and 7201 et seq., 18 U.S.C. 1350; 12 U.S.C.
5221(e)(3), and Pub. L. 111-203, Sec.  939A, 124 Stat. 1376 (2010),
unless otherwise noted.
* * * * *
    Sections 3a67-1 through 3a67-9 and 3a71-1 and 3a71-2 are also
issued under Pub. L. 111-203, Sec. Sec.  712, 761(b), 124 Stat. 1841
(2010).
* * * * *
0
4. Add an undesignated center heading and Sec. Sec.  240.3a67-1 through
240.3a67-9 and Sec. Sec.  240.3a71-1 and 240.3a71-2 to read as follows:

Security-Based Swap Dealer and Participant Definitions

Sec.
240.3a67-1 Definition of ``major security-based swap participant.''
240.3a67-2 Categories of security-based swaps.
240.3a67-3 Definition of ``substantial position.''
240.3a67-4 Definition of ``hedging or mitigating commercial risk.''
240.3a67-5 Definition of ``substantial counterparty exposure.''
240.3a67-6 Definition of ``financial entity.''
240.3a67-7 Definition of ``highly leveraged.''
240.3a67-8 Timing requirements, reevaluation period and termination
of status.
240.3a67-9 Calculation of major participant status by certain
persons.
240.3a71-1 Definition of ``security-based swap dealer.''
240.3a71-2 De minimis exception.
240.3a71-2A Report regarding the ``security-based swap dealer'' and
``major security-based swap participant'' definitions (Appendix A to
17 CFR 240.3a71-2).
* * * * *

Sec.  240.3a67-1  Definition of ``major security-based swap
participant.''

    (a) General. Major security-based swap participant means any
person:
    (1) That is not a security-based swap dealer; and
    (2)(i) That maintains a substantial position in security-based
swaps for any of the major security-based swap categories, excluding
both positions held for hedging or mitigating commercial risk, and
positions maintained by any employee benefit plan (or any contract held
by such a plan) as defined in paragraphs (3) and (32) of section 3 of
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002)
for the primary purpose of hedging or mitigating any risk directly
associated with the operation of the plan;
    (ii) Whose outstanding security-based swaps create substantial
counterparty exposure that could have serious adverse effects on the
financial stability of the United States banking system or financial
markets; or
    (iii) That is a financial entity that:
    (A) Is highly leveraged relative to the amount of capital such
entity holds and that is not subject to capital requirements
established by an appropriate Federal banking agency (as defined in 15
U.S.C. 78c(a)(72)); and
    (B) Maintains a substantial position in outstanding security-based
swaps in any major security-based swap category.
    (b) Scope of designation. A person that is a major security-based
swap participant in general shall be deemed to be a major security-
based swap participant with respect to each security-based swap it
enters into, regardless of the category of the security-based swap or
the person's activities in connection with the security-based swap,
unless the Commission limits the person's designation as a major
security-based swap participant to specified categories of security-
based swaps.

Sec.  240.3a67-2  Categories of security-based swaps.

    For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67),
and the rules thereunder, the terms major security-based swap category,
category of security-based swaps and any similar terms mean either of
the following categories of security-based swaps:
    (a) Debt security-based swaps. Any security-based swap that is
based, in whole or in part, on one or more instruments of indebtedness
(including loans), or on a credit event relating to one or more issuers
or securities, including but not limited to any security-based swap
that is a credit default swap, total return swap on one or more debt
instruments, debt swap, debt index swap, or credit spread.
    (b) Other security-based swaps. Any security-based swap not
described in paragraph (a) of this section.

Sec.  240.3a67-3  Definition of ``substantial position.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C.
78c(a)(67), and Sec.  240.3a67-1, the term substantial position means
security-based swap positions that equal or exceed either of the
following thresholds in any major category of security-based swaps:
    (1) $1 billion in daily average aggregate uncollateralized outward
exposure; or
    (2) $2 billion in:
    (i) Daily average aggregate uncollateralized outward exposure; plus
    (ii) Daily average aggregate potential outward exposure.
    (b) Aggregate uncollateralized outward exposure. (1) General.
Aggregate uncollateralized outward exposure in general means the sum of
the current exposure, obtained by marking-to-market using industry
standard practices, of each of the person's security-based swap
positions

with negative value in a major security-based swap category, less the
value of the collateral the person has posted in connection with those
positions.
    (2) Calculation of aggregate uncollateralized outward exposure. In
calculating this amount the person shall, with respect to each of its
security-based swap counterparties in a given major security-based swap
category:
    (i) Determine the dollar value of the aggregate current exposure
arising from each of its security-based swap positions with negative
value (subject to the netting provisions described below) in that major
category by marking-to-market using industry standard practices; and
    (ii) Deduct from that dollar amount the aggregate value of the
collateral the person has posted with respect to the security-based
swap positions.
    (iii) The aggregate uncollateralized outward exposure shall be the
sum of those uncollateralized amounts across all of the person's
security-based swap counterparties in the applicable major category.
    (3) Relevance of netting agreements. (i) If a person has one or
more master netting agreements with a counterparty, the person may
measure the current exposure arising from its security-based swaps in
any major category on a net basis, applying the terms of those
agreements. Calculation of current exposure may take into account
offsetting positions entered into with that particular counterparty
involving security-based swaps (in any security-based swap category) as
well as swaps and securities financing transactions (consisting of
securities lending and borrowing, securities margin lending and
repurchase and reverse repurchase agreements), and other financial
instruments that are subject to netting offsets for purposes of
applicable bankruptcy law, to the extent these are consistent with the
offsets permitted by the master netting agreements.
    (ii) Such adjustments may not take into account any offset
associated with positions that the person has with separate
counterparties.
    (4) Allocation of uncollateralized outward exposure. If a person
calculates current exposure with a particular counterparty on a net
basis, as provided by paragraph (b)(3) of this section, the amount of
current uncollateralized exposure attributable to each ``major''
category of security-based swaps should be calculated according to the
following formula:
[GRAPHIC] [TIFF OMITTED] TR23MY12.001

    Note to paragraph (b)(4).  Where: ESBS(MC) equals the
amount of aggregate current exposure attributable to the entity's
security-based swap positions in the ``major'' category at issue
(either security-based credit derivatives or other security-based
swaps); Enet total equals the entity's aggregate current
exposure to the counterparty at issue, after accounting for the
netting of positions and the posting of collateral;
OTMSBS(MC) equals the current exposure associated with
the entity's out-of-the-money positions in security-based swaps in
the ``major'' category at issue, subject to those netting
arrangements; and OTMSBS(O) equals the current exposure
associated with the entity's out-of-the-money positions in the other
``major'' category of security-based swaps, subject to those netting
arrangements; and OTMnon-SBS equals the current exposure
associated with the entity's out-of-the-money positions associated
with instruments, other than security-based swaps, that are subject
to those netting arrangements.

    (c) Aggregate potential outward exposure. (1) General. Aggregate
potential outward exposure means the sum of:
    (i) The aggregate potential outward exposure for each of the
person's security-based swap positions in a major security-based swap
category that are neither cleared by a registered or exempt clearing
agency nor subject to daily mark-to-market margining, as calculated in
accordance with paragraph (c)(2) of this section; and
    (ii) The aggregate potential outward exposure for each of the
person's security-based swap positions in a major security-based swap
category that are either cleared by a registered or exempt clearing
agency or subject to daily mark-to-market margining, as calculated in
accordance with paragraph (c)(3) of this section.
    (2) Calculation of potential outward exposure for security-based
swaps that are not cleared by a registered or exempt clearing agency or
subject to daily mark-to-market margining. (i) General. (A)(1) For
positions in security-based swaps that are not cleared by a registered
or exempt clearing agency or subject to daily mark-to-market margining,
potential outward exposure equals the total notional principal amount
of those positions, multiplied by the following factors on a position-
by-position basis reflecting the type of security-based swap. For any
security-based swap that is not of the ``debt'' type, the ``equity and
other'' conversion factors are to be used:

------------------------------------------------------------------------
                                                                  Equity
                   Residual maturity                      Debt     and
                                                                  other
------------------------------------------------------------------------
One year or less......................................     0.10     0.06
Over one to five years................................     0.10     0.08
Over five years.......................................     0.10     0.10
------------------------------------------------------------------------

     (2) If a security-based swap is structured such that on specified
dates any outstanding exposure is settled and the terms are reset so
that the market value of the security-based swap is zero, the remaining
maturity equals the time until the next reset date.
    (B) Use of effective notional amounts. If the stated notional
amount on a position is leveraged or enhanced by the structure of the
position, the calculation in paragraph (c)(2)(i)(A) of this section
shall be based on the effective notional amount of the position rather
than on the stated notional amount.
    (C) Exclusion of certain positions. The calculation in paragraph
(c)(2)(i)(A) of this section shall exclude:
    (1) Positions that constitute the purchase of an option, such that
the person has no additional payment obligations under the position;
    (2) Other positions for which the person has prepaid or otherwise
satisfied all of its payment obligations; and
    (3) Positions for which, pursuant to regulatory requirement, the
person has assigned an amount of cash or U.S. Treasury securities that
is sufficient to pay the person's maximum possible liability under the
position, and the person may not use that cash or those Treasury
securities for other purposes.
    (D) Adjustment for certain positions. Notwithstanding paragraph
(c)(2)(i)(A) of this section, the potential outward exposure associated
with a position by which a person buys credit protection using a credit
default swap, or associated with a position by which a person purchases
an option for which the person retains additional payment obligations
under the position, is capped at the net present value of the unpaid
premiums.
    (ii) Adjustment for netting agreements. Notwithstanding paragraph
(c)(2)(i) of this section, for positions subject to master netting
agreements the

potential outward exposure associated with the person's security-based
swaps with each counterparty equals a weighted average of the potential
outward exposure for the person's security-based swaps with that
counterparty as calculated under paragraph (c)(2)(i) of this section,
and that amount reduced by the ratio of net current exposure to gross
current exposure, consistent with the following equation as calculated
on a counterparty-by-counterparty basis:

PNet = 0.4 x PGross + 0.6 x NGR x PGross

    Note to paragraph (c)(2)(ii): Where: PNet is the potential
outward exposure, adjusted for bilateral netting, of the person's
security-based swaps with a particular counterparty; PGross is the
potential outward exposure without adjustment for bilateral netting,
as calculated pursuant to paragraph (c)(2)(i) of this section; and
NGR is the ratio of:
    1. The current exposure arising from its security-based swaps in
the major category as calculated on a net basis according to
paragraphs (b)(3) and (4) of this section, divided by
    2. The current exposure arising from its security-based swaps in
the major category as calculated in the absence of those netting
procedures.

    (3) Calculation of potential outward exposure for security-based
swaps that are either cleared by a registered or exempt clearing agency
or subject to daily mark-to-market margining. For positions in
security-based swaps that are cleared by a registered or exempt
clearing agency or subject to daily mark-to-market margining:
    (i) Potential outward exposure equals the potential outward
exposure that would be attributed to such positions using the
procedures in paragraph (c)(2) of this section, multiplied by:
    (A) 0.1, in the case of positions cleared by a registered or exempt
clearing agency; or
    (B) 0.2, in the case of positions that are subject to daily mark-
to-market margining but that are not cleared by a registered or exempt
clearing agency.
    (ii) Solely for purposes of calculating potential outward exposure:
    (A) A security-based swap shall be considered to be subject to
daily mark-to-market margining if, and for as long as, the
counterparties follow the daily practice of exchanging collateral to
reflect changes in the current exposure arising from the security-based
swap (after taking into account any other financial positions addressed
by a netting agreement between the counterparties).
    (B) If the person is permitted by agreement to maintain a threshold
for which it is not required to post collateral, the position still
will be considered to be subject to daily mark-to-market margining for
purposes of calculating potential outward exposure, but the total
amount of that threshold (regardless of the actual exposure at any
time) less any initial margin posted up to the amount of that
threshold, shall be added to the person's aggregate uncollateralized
outward exposure for purposes of paragraph (a)(2) of this section.
    (C) If the minimum transfer amount under the agreement is in excess
of $1 million, the position still will be considered to be subject to
daily mark-to-market margining for purposes of calculating potential
outward exposure, but the entirety of the minimum transfer amount shall
be added to the person's aggregate uncollateralized outward exposure
for purposes of paragraph (a)(2) of this section.
    (D) A person may, at its discretion, calculate the potential
outward exposure of positions in security-based swaps that are subject
to daily mark-to-market margining in accordance with paragraph (c)(2)
of this section in lieu of calculating the potential outward exposure
of such positions in accordance with this paragraph (c)(3).
    (d) Calculation of daily average. Measures of daily average
aggregate uncollateralized outward exposure and daily average aggregate
potential outward exposure shall equal the arithmetic mean of the
applicable measure of exposure at the close of each business day,
beginning the first business day of each calendar quarter and
continuing through the last business day of that quarter.
    (e) Inter-affiliate activities. In calculating its aggregate
uncollateralized outward exposure and its aggregate potential outward
exposure, a person shall not consider its security-based swap positions
with counterparties that are majority-owned affiliates. For these
purposes the parties are majority-owned affiliates if one party
directly or indirectly owns a majority interest in the other, or if a
third party directly or indirectly owns a majority interest in both
counterparties to the security-based swap, where ``majority interest''
is the right to vote or direct the vote of a majority of a class of
voting securities of an entity, the power to sell or direct the sale of
a majority of a class of voting securities of an entity, or the right
to receive upon dissolution or the contribution of a majority of the
capital of a partnership.

Sec.  240.3a67-4  Definition of ``hedging or mitigating commercial
risk.''

    For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67),
and Sec.  240.3a67-1, a security-based swap position shall be deemed to
be held for the purpose of hedging or mitigating commercial risk when:
    (a)(1) Such position is economically appropriate to the reduction
of risks that are associated with the present conduct and management of
a commercial enterprise (or of a majority owned affiliate of the
enterprise), or are reasonably expected to arise in the future conduct
and management of the commercial enterprise, where such risks arise
from:
    (i) The potential change in the value of assets that a person owns,
produces, manufactures, processes, or merchandises or reasonably
anticipates owning, producing, manufacturing, processing, or
merchandising in the ordinary course of business of the enterprise (or
of an affiliate under common control with the enterprise);
    (ii) The potential change in the value of liabilities that a person
has incurred or reasonably anticipates incurring in the ordinary course
of business of the enterprise (or of an affiliate under common control
with the enterprise); or
    (iii) The potential change in the value of services that a person
provides, purchases, or reasonably anticipates providing or purchasing
in the ordinary course of business of the enterprise (or of an
affiliate under common control with the enterprise);
    (2) Depending on the applicable facts and circumstances, the
security-based swap positions described in paragraph (a)(1) of this
section may be expected to encompass, among other positions:
    (i) Positions established to manage the risk posed by a customer's,
supplier's or counterparty's potential default in connection with:
Financing provided to a customer in connection with the sale of real
property or a good, product or service; a customer's lease of real
property or a good, product or service; a customer's agreement to
purchase real property or a good, product or service in the future; or
a supplier's commitment to provide or sell a good, product or service
in the future;
    (ii) Positions established to manage the default risk posed by a
financial counterparty (different from the counterparty to the hedging
position at issue) in connection with a separate transaction (including
a position involving a credit derivative, equity swap, other security-
based swap, interest rate swap, commodity swap, foreign exchange swap
or other swap, option, or future that itself is for the purpose of
hedging or mitigating commercial risk pursuant to this section or 17
CFR 1.3(kkk));

    (iii) Positions established to manage equity or market risk
associated with certain employee compensation plans, including the risk
associated with market price variations in connection with stock-based
compensation plans, such as deferred compensation plans and stock
appreciation rights;
    (iv) Positions established to manage equity market price risks
connected with certain business combinations, such as a corporate
merger or consolidation or similar plan or acquisition in which
securities of a person are exchanged for securities of any other person
(unless the sole purpose of the transaction is to change an issuer's
domicile solely within the United States), or a transfer of assets of a
person to another person in consideration of the issuance of securities
of such other person or any of its affiliates;
    (v) Positions established by a bank to manage counterparty risks in
connection with loans the bank has made; and
    (vi) Positions to close out or reduce any of the positions
described in paragraphs (a)(2)(i) through (a)(2)(v) of this section;
and
    (b) Such position is:
    (1) Not held for a purpose that is in the nature of speculation or
trading; and
    (2) Not held to hedge or mitigate the risk of another security-
based swap position or swap position, unless that other position itself
is held for the purpose of hedging or mitigating commercial risk as
defined by this section or 17 CFR 1.3(kkk).

Sec.  240.3a67-5  Definition of ``substantial counterparty exposure.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C.
78c(a)(67), and Sec.  240.3a67-1, the term substantial counterparty
exposure that could have serious adverse effects on the financial
stability of the United States banking system or financial markets
means a security-based swap position that satisfies either of the
following thresholds:
    (1) $2 billion in daily average aggregate uncollateralized outward
exposure; or
    (2) $4 billion in:
    (i) Daily average aggregate uncollateralized outward exposure; plus
    (ii) Daily average aggregate potential outward exposure.
    (b) Calculation. For these purposes, daily average aggregate
uncollateralized outward exposure and daily average aggregate potential
outward exposure shall be calculated the same way as is prescribed in
Sec.  240.3a67-3, except that these amounts shall be calculated by
reference to all of the person's security-based swap positions, rather
than by reference to a specific major security-based swap category.

Sec.  240.3a67-6  Definition of ``financial entity.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C.
78c(a)(67), and Sec.  240.3a67-1, the term financial entity means:
    (1) A swap dealer;
    (2) A major swap participant;
    (3) A commodity pool as defined in section 1a(10) of the Commodity
Exchange Act (7 U.S.C. 1a(10));
    (4) A private fund as defined in section 202(a) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-2(a));
    (5) An employee benefit plan as defined in paragraphs (3) and (32)
of section 3 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1002); and
    (6) A person predominantly engaged in activities that are in the
business of banking or financial in nature, as defined in section 4(k)
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843k).
    (b) Exclusion for centralized hedging facilities. (1) General.
Notwithstanding paragraph (a) of this section, for purposes of this
section the term financial entity shall not encompass a person that
would be a financial entity solely as a result of the person's
activities that facilitate hedging and/or treasury functions on behalf
of one or more majority-owned affiliates that themselves do not
constitute a financial entity.
    (2) Meaning of majority-owned. For these purposes the
counterparties to a security-based swap are majority-owned affiliates
if one counterparty directly or indirectly owns a majority interest in
the other, or if a third party directly or indirectly owns a majority
interest in both counterparties to the security-based swap, where
``majority interest'' includes, but is not limited to, the right to
vote or direct the vote of a majority of a class of voting securities
of an entity, the power to sell or direct the sale of a majority of a
class of voting securities of an entity, or the right to receive upon
dissolution or the contribution of a majority of the capital of a
partnership.

Sec.  240.3a67-7  Definition of ``highly leveraged.''

    (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C.
78c(a)(67), and Sec.  240.3a67-1, the term highly leveraged means the
existence of a ratio of an entity's total liabilities to equity in
excess of 12 to 1 as measured at the close of business on the last
business day of the applicable fiscal quarter.
    (b) Measurement of liabilities and equity. For purposes of this
section, liabilities and equity generally should each be determined in
accordance with U.S. generally accepted accounting principles;
provided, however, that a person that is an employee benefit plan, as
defined in paragraphs (3) and (32) of section 3 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1002), may, for
purposes of this paragraph (b):
    (1) Exclude obligations to pay benefits to plan participants from
the calculation of liabilities; and
    (2) Substitute the total value of plan assets for equity.

Sec.  240.3a67-8  Timing requirements, reevaluation period, and
termination of status.

    (a) Timing requirements. A person that is not registered as a major
security-based swap participant, but that meets the criteria in Sec.
240.3a67-1 to be a major security-based swap participant as a result of
its security-based swap activities in a fiscal quarter, will not be
deemed to be a major security-based swap participant until the earlier
of the date on which it submits a complete application for registration
pursuant to section 15F of the Act (15 U.S.C. 78o-10) or two months
after the end of that quarter.
    (b) Reevaluation period. Notwithstanding paragraph (a) of this
section, if a person that is not registered as a major security-based
swap participant meets the criteria in Sec.  240.3a67-1 to be a major
security-based swap participant in a fiscal quarter, but does not
exceed any applicable threshold by more than twenty percent in that
quarter:
    (1) That person will not immediately be deemed a major security-
based swap participant pursuant to the timing requirements specified in
paragraph (a) of this section; but
    (2) That person will be deemed a major security-based swap
participant pursuant to the timing requirements specified in paragraph
(a) of this section at the end of the next fiscal quarter if the person
exceeds any of the applicable daily average thresholds in that next
fiscal quarter.
    (c) Termination of status. A person that is deemed to be a major
security-based swap participant shall continue to be deemed a major
security-based swap participant until such time that its security-based
swap activities do not exceed any of the daily average thresholds set
forth within Sec.  240.3a67-

1 for four consecutive fiscal quarters after the date on which the
person becomes registered as a major security-based swap participant.

Sec.  240.3a67-9  Calculation of major participant status by certain
persons.

    A person shall not be deemed to be a major security-based swap
participant, regardless of whether the criteria in Sec.  240.3a67-1
otherwise would cause the person to be a major security-based swap
participant, provided the person meets the conditions set forth in
paragraph (a) of this section.
    (a) Conditions. (1) Caps on uncollateralized exposure and notional
positions. (i) Maximum potential uncollateralized exposure. The express
terms of the person's agreements or arrangements relating to security-
based swaps with its counterparties at no time would permit the person
to maintain a total uncollateralized exposure of more than $100 million
to all such counterparties, including any exposure that may result from
thresholds or minimum transfer amounts established by credit support
annexes or similar arrangements; and
    (ii) Maximum notional amount of security-based swap positions. The
person does not maintain security-based swap positions in an effective
notional amount of more than $2 billion in any major category of
security-based swaps, or more than $4 billion in aggregate; or
    (2) Caps on uncollateralized exposure plus monthly calculation. (i)
Maximum potential uncollateralized exposure. The express terms of the
person's agreements or arrangements relating to security-based swaps
with its counterparties at no time would permit the person to maintain
a total uncollateralized exposure of more than $200 million to all such
counterparties (with regard to security-based swaps and any other
instruments by which the person may have exposure to those
counterparties), including any exposure that may result from thresholds
or minimum transfer amounts established by credit support annexes or
similar arrangements; and
    (ii) Calculation of positions. (A) At the end of each month, the
person performs the calculations prescribed by Sec. Sec.  240.3a67-3
and 240.3a67-5 with regard to whether the aggregate uncollateralized
outward exposure plus aggregate potential outward exposure as of that
day constitute a substantial position in a major category of security-
based swaps, or pose substantial counterparty exposure that could have
serious adverse effects on the financial stability of the United States
banking system or financial markets; these calculations shall disregard
provisions of those rules that provide for the analyses to be
determined based on a daily average over a calendar quarter; and
    (B) Each such analysis produces thresholds of no more than:
    (1) $1 billion in aggregate uncollateralized outward exposure plus
aggregate potential outward exposure in any major category of security-
based swaps; if the person is subject to Sec.  240.3a67-3(a)(2)(iii),
by virtue of being a highly leveraged financial entity that is not
subject to capital requirements established by an appropriate Federal
banking agency, this analysis shall account for all of the person's
security-based swap positions in that major category (without excluding
hedging positions), otherwise this analysis shall exclude the same
hedging and related positions that are excluded from consideration
pursuant to Sec.  240.3a67-3(a)(2)(i); or
    (2) $2 billion in aggregate uncollateralized outward exposure plus
aggregate potential outward exposure (without any positions excluded
from the analysis) with regard to all of the person's security-based
swap positions.
    (3) Calculations based on certain information. (i) At the end of
each month:
    (A)(1) The person's aggregate uncollateralized outward exposure
with respect to its security-based swap positions is less than $500
million with respect to each of the major security-based swap
categories; and
    (2) The sum of the amount calculated under paragraph
(a)(3)(i)(A)(1) of this section with respect to each major security-
based swap category and the total notional principal amount of the
person's security-based swap positions in each such major security-
based swap category, adjusted by the multipliers set forth in Sec.
240.3a67-3(c)(2)(i)(A) on a position-by-position basis reflecting the
type of security-based swap, is less than $1 billion with respect to
each of the major security-based swap categories; or
    (B)(1) The person's aggregate uncollateralized outward exposure
with respect to its security-based swap positions across all major
security-based swap categories is less than $500 million; and
    (2) The sum of the amount calculated under paragraph
(a)(3)(i)(B)(1) of this section and the product of the total effective
notional principal amount of the person's security-based swap positions
in all major security-based swap categories multiplied by 0.10 is less
than $1 billion.
    (ii) For purposes of the calculations set forth in paragraph
(a)(3)(i) of this section:
    (A) The person's aggregate uncollateralized outward exposure for
positions held with security-based swap dealers shall be equal to such
exposure reported on the most recent reports of such exposure received
from such security-based swap dealers; and
    (B) The person's aggregate uncollateralized outward exposure for
positions that are not reflected in any report of exposure from a
security-based swap dealer (including all security-based swap positions
it holds with persons other than security-based swap dealers) shall be
calculated in accordance with Sec.  240.3a67-3(b)(2).
    (b) For purposes of the calculations set forth by this section, the
person shall use the effective notional amount of a position rather
than the stated notional amount of the position if the stated notional
amount is leveraged or enhanced by the structure of the position.
    (c) No presumption shall arise that a person is required to perform
the calculations needed to determine if it is a major security-based
swap participant, solely by reason that the person does not meet the
conditions specified in paragraph (a) of this section.

Sec.  240.3a71-1  Definition of ``security-based swap dealer.''

    (a) General. The term security-based swap dealer in general means
any person who:
    (1) Holds itself out as a dealer in security-based swaps;
    (2) Makes a market in security-based swaps;
    (3) Regularly enters into security-based swaps with counterparties
as an ordinary course of business for its own account; or
    (4) Engages in any activity causing it to be commonly known in the
trade as a dealer or market maker in security-based swaps.
    (b) Exception. The term security-based swap dealer does not include
a person that enters into security-based swaps for such person's own
account, either individually or in a fiduciary capacity, but not as a
part of regular business.
    (c) Scope of designation. A person that is a security-based swap
dealer in general shall be deemed to be a security-based swap dealer
with respect to each security-based swap it enters into, regardless of
the type, class, or category of the security-based swap or the person's
activities in connection with the security-based swap, unless the
Commission limits the person's

designation as a security-based swap dealer to specified types,
classes, or categories of security-based swaps or specified activities
of the person in connection with security-based swaps.
    (d) Inter-affiliate activities. (1) General. In determining whether
a person is a security-based swap dealer, that person's security-based
swaps with majority-owned affiliates shall not be considered.
    (2) Meaning of majority-owned. For these purposes the
counterparties to a security-based swap are majority-owned affiliates
if one counterparty directly or indirectly owns a majority interest in
the other, or if a third party directly or indirectly owns a majority
interest in both counterparties to the security-based swap, where
``majority interest'' is the right to vote or direct the vote of a
majority of a class of voting securities of an entity, the power to
sell or direct the sale of a majority of a class of voting securities
of an entity, or the right to receive upon dissolution or the
contribution of a majority of the capital of a partnership.

Sec.  240.3a71-2  De minimis exception.

    (a) Requirements. For purposes of section 3(a)(71) of the Act (15
U.S.C. 78c(a)(71)) and Sec.  240.3a71-1, a person that is not currently
registered as a security-based swap dealer shall be deemed not to be a
security-based swap dealer, and, therefore, shall not be subject to
section 15F of the Act (15 U.S.C. 78o-10) and the rules, regulations
and interpretations issued thereunder, as a result of security-based
swap dealing activity that meets the following conditions:
    (1) Notional thresholds. The security-based swap positions
connected with the dealing activity in which the person--or any other
entity controlling, controlled by or under common control with the
person--engages over the course of the immediately preceding 12 months
(or following the effective date of final rules implementing section
3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) if that period is less than
12 months) have:
    (i) An aggregate gross notional amount of no more than $3 billion,
subject to a phase-in level of an aggregate gross notional amount of no
more than $8 billion applied in accordance with paragraph (a)(2)(i) of
this section, with regard to credit default swaps that constitute
security-based swaps;
    (ii) An aggregate gross notional amount of no more than $150
million, subject to a phase-in level of an aggregate gross notional
amount of no more than $400 million applied in accordance with
paragraph (a)(2)(i) of this section, with regard to security-based
swaps not described in paragraph (a)(1)(i) of this section; and
    (iii) An aggregate gross notional amount of no more than $25
million with regard to all security-based swaps in which the
counterparty is a special entity (as that term is defined in section
15F(h)(2)(C) of the Act (15 U.S.C. 78o-10(h)(2)(C)).
    (2) Phase-in procedure. (i) Phase-in period. For purposes of
paragraphs (a)(1)(i) and (ii) of this section, a person that engages in
security-based swap dealing activity that does not exceed either of the
phase-in levels set forth in paragraphs (a)(1)(i) and (ii) of this
section, as applicable, shall be deemed not to be a security-based swap
dealer, and, therefore, shall not be subject to Section 15F of the Act
(15 U.S.C. 78o-10) and the rules, regulations and interpretations
issued thereunder, as a result of its security-based swap dealing
activity, until the ``phase-in termination date'' established as
provided in paragraph (a)(2)(ii) of this section; provided, however,
that this phase-in period shall not be available to the extent that a
person engages in security-based swap dealing activity with
counterparties that are natural persons, other than natural persons who
qualify as eligible contract participants by virtue of section
1a(18)(A)(xi)(II) of the Commodity Exchange Act, (7 U.S.C.
1a(18)(A)(xi)(II)). The Commission shall announce the phase-in
termination date on the Commission Web site and publish such date in
the Federal Register.
    (ii) Establishment of phase-in termination date. (A) Nine months
after the publication of the staff report described in Appendix A of
this section, and after giving due consideration to that report and any
associated public comment, the Commission may either:
    (1) Terminate the phase-in period set forth in paragraph (a)(2)(i)
of this section, in which case the phase-in termination date shall be
established by the Commission by order published in the Federal
Register; or
    (2) Determine that it is necessary or appropriate in the public
interest to propose through rulemaking an alternative to the $3 billion
and $150 million amounts set forth in paragraphs (a)(1)(i) and (ii) of
this section, as applicable, that would constitute a de minimis
quantity of security-based swap dealing in connection with transactions
with or on behalf of customers within the meaning of section
3(a)(71)(D) of the Act, (15 U.S.C. 78c(a)(71)(D)), in which case the
Commission shall by order published in the Federal Register provide
notice of such determination to propose through rulemaking an
alternative, which order shall also establish the phase-in termination
date.
    (B) If the phase-in termination date has not been previously
established pursuant to paragraph (a)(2)(ii)(A) of this section, then
in any event the phase-in termination date shall occur five years after
the data collection initiation date defined in paragraph (a)(2)(iii) of
this section.
    (iii) Data collection initiation date. The term ``data collection
initiation date'' shall mean the date that is the later of: the last
compliance date for the registration and regulatory requirements for
security-based swap dealers and major security-based swap participants
under Section 15F of the Act (15 U.S.C. 78o-10); or the first date on
which compliance with the trade-by-trade reporting rules for credit-
related and equity-related security-based swaps to a registered
security-based swap data repository is required. The Commission shall
announce the data collection initiation date on the Commission Web site
and publish such date in the Federal Register.
    (3) Use of effective notional amounts. For purposes of paragraph
(a)(1) of this section, if the stated notional amount of a security-
based swap is leveraged or enhanced by the structure of the security-
based swap, the calculation shall be based on the effective notional
amount of the security-based swap rather than on the stated notional
amount.
    (b) Registration period for persons that no longer can take
advantage of the exception. A person that has not registered as a
security-based swap dealer by virtue of satisfying the requirements of
paragraph (a) of this section, but that no longer can take advantage of
the de minimis exception provided for in paragraph (a) of this section,
will be deemed not to be a security-based swap dealer under section
3(a)(71) of the Act (15 U.S.C. 78c(a)(71)) and subject to the
requirements of section 15F of the Act (15 U.S.C. 78o-10) and the
rules, regulations and interpretations issued thereunder until the
earlier of the date on which it submits a complete application for
registration pursuant to section 15F(b) (15 U.S.C. 78o-10(b)) or two
months after the end of the month in which that person becomes no
longer able to take advantage of the exception.
    (c) Applicability to registered security-based swap dealers. A
person who currently is registered as a security-based swap dealer may
apply to withdraw that registration, while continuing to engage in
security-based swap dealing activity in reliance on this

section, so long as that person has been registered as a security-based
swap dealer for at least 12 months and satisfies the conditions of
paragraph (a) of this section.
    (d) Future adjustments to scope of the de minimis exception. The
Commission may by rule or regulation change the requirements of the de
minimis exception described in paragraphs (a) through (c) of this
section.
    (e) Voluntary registration. Notwithstanding paragraph (a) of this
section, a person that chooses to register with the Commission as a
security-based swap dealer shall be deemed to be a security-based swap
dealer, and, therefore, shall be subject to Section 15F of the Act (15
U.S.C 78o-10) and the rules, regulations and interpretations issued
thereunder.

Sec.  240.3a71-2A  Report regarding the ``security-based swap dealer''
and ``major security-based swap participant'' definitions (Appendix A
to 17 CFR 240.3a71-2).

    Appendix A to Sec.  240.3a71-2 sets forth guidelines applicable to
a report that the Commission has directed its staff to make in
connection with the rules and interpretations further defining the
Act's definitions of the terms ``security-based swap dealer''
(including the de minimis exception to that definition) and ``major
security-based swap participant.'' The Commission intends to consider
this report in reviewing the effect and application of these rules
based on the evolution of the security-based swap market following the
implementation of the registration and regulatory requirements of
Section 15F of the Act (15 U.S.C. 78o-10). The report may also be
informative as to potential changes to the rules further defining those
terms. In producing this report, the staff shall consider security-
based swap data collected by the Commission pursuant to other Title VII
rules, as well as any other applicable information as the staff may
determine to be appropriate for its analysis.
    (a) Report topics. As appropriate, based on the availability of
data and information, the report should address the following topics:
    (1) De minimis exception. In connection with the de minimis
exception to the definition of ``security-based swap dealer,'' the
report generally should assess whether any of the de minimis thresholds
set forth in paragraph (a)(1) of Sec.  240.3a71-2 should be increased
or decreased;
    (2) General security-based swap dealer analysis. In connection with
the definition of ``security-based swap dealer,'' the report generally
should consider the factors that are useful for identifying security-
based swap dealing activity, including the application of the dealer-
trader distinction for that purpose, and the potential use of more
objective tests or safe harbors as part of the analysis;
    (3) General major security-based swap participant analysis. In
connection with the definition of ``major security-based swap
participant,'' the report generally should consider the tests used to
identify the presence of a ``substantial position'' in a major category
of security-based swaps, and the tests used to identify persons whose
security-based swap positions create ``substantial counterparty
exposure,'' including the potential use of alternative tests or
thresholds;
    (4) Commercial risk hedging exclusion. In connection with the
definition of ``major security-based swap participant,'' the report
generally should consider the definition of ``hedging or mitigating
commercial risk,'' including whether that latter definition
inappropriately permits certain positions to be excluded from the
``substantial position'' analysis, and whether the continued
availability of the exclusion for such hedging positions should be
conditioned on a person assessing and documenting the hedging
effectiveness of those positions;
    (5) Highly leveraged financial entities. In connection with the
definition of ``major security-based swap participant,'' the report
generally should consider the definition of ``highly leveraged,''
including whether alternative approaches should be used to identify
highly leveraged financial entities;
    (6) Inter-affiliate exclusions. In connection with the definitions
of ``security-based swap dealer'' and ``major security-based swap
participant,'' the report generally should consider the impact of rule
provisions excluding inter-affiliate transactions from the relevant
analyses, and should assess potential alternative approaches for such
exclusions; and
    (7) Other topics. Any other analysis of security-based swap data
and information the Commission or the staff deem relevant to this rule.
    (b) Timing of report. The report shall be completed no later than
three years following the data collection initiation date, established
pursuant to Sec.  240.3a71-2(a)(2)(iii).
    (c) Public comment on the report. Following completion of the
report, the report shall be published in the Federal Register for
public comment.

    Dated: April 27, 2012.

    By the Commodity Futures Trading Commission.
David A. Stawick,
Secretary.
    Dated: April 27, 2012.

    By the Securities and Exchange Commission.
Elizabeth M. Murphy,
Secretary.

    Note:  The following appendices will not appear in the Code of
Federal Regulations:

Appendices by the Commodity Futures Trading Commission to Joint Final
Rule Entitled ``Further Definition of `Swap Dealer,' `Security-Based
Swap Dealer,' `Major Swap Participant,' `Major Security-Based Swap
Participant' and `Eligible Contract Participant.' ''--Commission Voting
Summary and Statements of Commissioners

Appendix 1--Commodity Futures Trading Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Sommers,
Chilton and Wetjen voted in the affirmative; Commissioner O'Malia
voted in the negative.

Appendix 2--Statement of Chairman Gensler

    I support the final rule to further define entities, which is
pivotal to lowering risk that swap dealers may pose to the rest of
the economy. The entities rule fulfills Congress' direction to
further define the terms ``swap dealer,'' ``major swap participant''
and ``eligible contract participant'' and appropriately addresses
the many comments we received. It will provide essential direction
to market participants on whether they will be required to register.
    Regulating banks and other firms that deal in derivatives as
swap dealers is central to financial reform. Leading up to the
financial crisis, it was assumed by many that swap dealers were
largely regulated. The 2008 crisis revealed the inadequacy of this
approach: While banks were regulated for safety and soundness,
including their lending activities, there was no comprehensive
regulation of their swap dealing activity. Similarly, bank
affiliates dealing in swaps, and subsidiaries of insurance and
investment bank holding companies dealing in swaps, were not subject
to specific regulation of their swap dealing activities under U.S.
law, and thus often had ineffective or no oversight.
    A prime example of this fact was AIG. AIG was a holding company
with a number of regulated insurance companies, but its unregulated
swaps subsidiary brought down the company and helped to nearly
topple the U.S. economy.
    The final rule gives market participants guidance on the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act) definition of swap dealer:
     First, it does so by allowing market participants to
draw on useful precedents developed by the SEC in the traditional

securities market to help distinguish between dealing and trading.
     Second, it does so by providing further clarity on the
Dodd-Frank Act's term ``makes a market in swaps'' by focusing on
entities that routinely seek to profit by accommodating other market
participants' demand for swaps.
     Third, it does so by clarifying another key term
``regular business,'' focusing on whether a person has an
identifiable swap dealing business.
     Fourth, it does so by fulfilling Congress' mandate that
swaps entered into by an insured depository institution in
connection with originating a loan are not to be considered dealing
activity.
     Fifth, it does so by providing direction on the
distinction between hedging and dealing and within this provides a
specific rule for swaps that hedge price risk associated with a
physical commodity.
     Sixth, it does so by clarifying that a swap between an
agricultural cooperative or a cooperative financial institution and
its members does not constitute dealing.
     Seventh, it does so by setting a de minimis threshold
for swap dealing, as directed by Congress. The threshold is $3
billion total, across all asset classes, subject to a phase in level
of $8 billion. As we proposed, the final rule would define as a swap
dealer any entity with more than $25 million of dealing activity
with pension funds and municipals--so-called ``special entities.''
    True to congressional intent, end-users other than those
genuinely making markets in swaps won't be required to register as
swap dealers. The swap dealer definition benefited from the many
comments from end-users who use swaps to hedge their risk.
    As the swap dealing market is dominated by large entities,
though, I believe that the final swap dealer definition will
encompass the vast majority of swap dealing activity, as Congress
had intended. For those who question the level of the de minimis, we
considered the threshold in the context of an overall $300 trillion
notional amount U.S. swaps market. Further, the statute defines swap
dealing by referencing ``making a market in swaps'' and conducting a
``regular business'' in swaps. The $3 billion threshold in the rule
represents, on average, $12 million a trading day, with the phase-in
of $8 billion representing, on average, $32 million notional amount
per trading day. Putting this in perspective, the interest rate swap
market, transacts, on average, over $500 billion notional amount per
day. As further reference, the futures markets for crude oil traded
this year, on average, $65 billion of notional amount per day.
    During this phase-in period the Commissions will collect and
analyze data to evaluate the appropriate de minimis threshold.
    Another question that has been raised is whether the swap dealer
definition should appropriately be activities-based or relate to how
an entity is classified. The final rule is consistent with
Congressional intent that we take an activities-based approach.
    Though many of these large swap dealers are financial entities,
Congress anticipated that some non-banks would be registered as swap
dealers. Congress provided in Dodd-Frank that capital and margin for
bank swap dealers would be set by the bank regulators, but for non-
bank swap dealers, by the CFTC. Instructive in this regard is the
list of primary dealers on the International Swaps and Derivatives
Association's (ISDA) Web site, which includes a number of non-bank
dealers. The Association describes as meeting that designation an
entity ``that deals in derivatives as part of its business.''
Congress closed the so-called ``Enron loophole,'' which let traders
evade oversight by using electronic trading platforms. But it is
important to recall that Enron was also a swap dealer. Congress did
not intend to create a new type of loophole in its place.
    Congress drafted the swap dealer definition recognizing the fact
that some entities are involved in swap dealing activities, as well
as other lines of business. Section 1a(49)(C) provides that an
entity is a swap dealer only if it engages in swap dealing as ``a
regular business.'' But it does not say that swap dealing must be
its only regular business. Further, section 1a(49)(B) specifically
provides for the regulation of a single entity as a swap dealer for
one part of its business and not for the other part of its business.
Given the business realities reflected in the statutory language,
there is no compelling reason to think that an entities-based
approach would better interpret the statute or that it would, in
practice, be simpler than an approach based on what a business
actually does.
    The rule also further defines the term ``major swap
participant.'' Relying on Congress' three-prong test, this category
is clearly limited to only those entities with swaps positions that
pose a risk large enough to threaten the U.S. financial system.
    The further definition of the term ``eligible contract
participant'' provides guidance regarding who is eligible to
transact swaps off of an exchange. Based upon the many comments
received, we incorporated further guidance to ensure that small
businesses and real estate developers can continue to have access to
swaps to hedge commercial risks. The final rule also clarifies how
the eligible contract participant definition applies to certain
foreign exchange transactions conducted by commodity pools.

Appendix 3--Statement of Commissioner O'Malia

In General

    I respectfully dissent from the Commodity Futures Trading
Commission's (the ``Commission'' or ``CFTC'') approval today of the
Entities Rule,\1\ which is a joint final and interim final rule with
the Securities and Exchange Commission (``SEC'') under the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act'').\2\ I have a number of concerns with each definition in
the CFTC Entities Rule. However, this dissent focuses on the ``swap
dealer'' definition.
---------------------------------------------------------------------------

    \1\ Further Definition of ``Swap Dealer,'' ``Security-Based Swap
Dealer,'' ``Major Swap Participant,'' ``Major Security-Based Swap
Participant,'' and ``Eligible Contract Participant;'' Final Rule,
(to be codified at 17 CFR part 1), available at [------------]. As
stated below, this final rule and interim final rule is joint
between the Commission and the SEC. Therefore, within this dissent,
(i) the term ``Entities Rule'' refers to the entire rule, (ii) the
term ``CFTC Entities Rule'' refers to only the CFTC portion of such
rule, and (iii) the term ``SEC Entities Rule'' refers to the SEC
portion of such rule.
    \2\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
---------------------------------------------------------------------------

    Preliminarily, in its proposal,\3\ the Commission ignored basic
canons of statutory construction \4\ in defining ``swap dealer.''
\5\ Specifically, the statutory definition has four clauses,
lettered (A) through (D). As discussed below, the Commission defined
``swap dealer'' as encompassed only within CEA section 1a(49)(A).
Thus, the Commission advanced a definition focusing on activities,
rather than

the entities conducting these activities.\6\ The Commission then
minimized the other clauses of the definition. Specifically, the
Commission characterized CEA section 1a(49)(C) as an ``exception''
for certain activities. The Commission also characterized CEA
section 1a(49)(B) as only authorizing ``limited designation.'' \7\
---------------------------------------------------------------------------

    \3\ See Further Definition of ``Swap Dealer,'' ``Security-Based
Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based
Swap Participant,'' and ``Eligible Contract Participant;'' Proposed
Rule, 75 FR 80174 (Dec. 21, 2010) (the ``Proposal'').
    \4\ The canons of statutory construction are ``important rules
and conventions'' that the judiciary applies to determine the
meaning of statutory provisions. Congressional Research Service,
Report for Congress, Statutory Interpretation: General Principles
and Recent Trends, updated August 31, 2008 (the ``CRS Report'')
(Summary). In general, it behooves agencies (such as the Commission)
to adhere to such canons so that its regulations, if subject to
legal challenge, would be more likely to survive judicial scrutiny.
In the CFTC Entities Rule, the Commission acknowledges the
importance of canons of statutory construction, since it cites to
certain canons in determining the application of its ``eligible
contract participant'' definition. See Section III(B)(4) of the CFTC
Entities Rule.
    \5\ The statutory definition of ``swap dealer'' can be found in
section 1a(49) of the Commodity Exchange Act (the ``CEA''), 7 U.S.C.
1a(49). For purposes of reference, the text of CEA section 1a(49) is
as follows:
    ``(49) SWAP DEALER.--
    ``(A) IN GENERAL.--The term `swap dealer' means any person who--
    ``(i) holds itself out as a dealer in swaps;
    ``(ii) makes a market in swaps;
    ``(iii) regularly enters into swaps with counterparties as an
ordinary course of business for its own account; or
    ``(iv) engages in any activity causing the person to be commonly
known in the trade as a dealer or market maker in swaps, provided
however, in no event shall an insured depository institution be
considered to be a swap dealer to the extent it offers to enter into
a swap with a customer in connection with originating a loan with
that customer.
    ``(B) INCLUSION.--A person may be designated as a swap dealer
for a single type or single class or category of swap or activities
and considered not to be a swap dealer for other types, classes, or
categories of swaps or activities.
    ``(C) EXCEPTION.--The term `swap dealer' does not include a
person that enters into swaps for such person's own account, either
individually or in a fiduciary capacity, but not as a part of a
regular business.
    ``(D) DE MINIMIS EXCEPTION.--The Commission shall exempt from
designation as a swap dealer an entity that engages in a de minimis
quantity of swap dealing in connection with transactions with or on
behalf of its customers.
    The Commission shall promulgate regulations to establish factors
with respect to the making of this determination to exempt.''
    \6\ See Proposed Rule; 75 FR at 80175, 80179 (stating that ``The
Dodd-Frank Act defines the terms `swap dealer' * * * in terms of
whether a person engages in certain types of activities involving
swaps or security-based swaps * * * Based on the plain meaning of
the statutory definition, so long as a person engages in dealing
activity that is not de minimis, as discussed below, the person is a
swap dealer * * *'').
    \7\ The following example illustrates the difference between (i)
an ``exception'' and (ii) an ``exclusion.'' Imagine a circle
entitled ``swap dealer.'' ``Exceptions'' are circles within the
``swap dealer'' circle. In essence, entities within those circles
are subcategories of ``swap dealer'' permitted special treatment.
``Exclusions'' are circles entirely separate from the ``swap
dealer'' circle. In essence, entities within those circles are not
``swap dealers'' in the first instance. As described below, CEA
section 1a(49)(C), 7 U.S.C. 1a(49)(C), provides a mandatory
``exclusion'' from the ``swap dealer'' definition for--at a
minimum--non-financial entities that do not have ``a regular
business'' of entering into swap transactions. To be clear, this
``exclusion'' applies to entities, and not solely to their
activities. Similarly, CEA section 1a(49)(B), 7 U.S.C. 1a(49)(B),
provides a discretionary ``exclusion'' from the ``swap dealer''
definition (rather than just ``limited designation,'' as the
Commission contends).
---------------------------------------------------------------------------

    I have always disagreed with the Proposal. By focusing on the
activities in CEA section 1a(49)(A), the Commission essentially used
the ``swap dealer'' definition to capture commercial end-users.\8\
Congress clearly precluded this result. As described below, CEA
section 1a(49)(C) provides a mandatory exclusion for commercial end-
users.\9\ Alternatively, CEA section 1a(49)(B) permits the
Commission to exercise its discretion to exclude commercial end-
users, so long as the Commission articulates a rational basis for
such differential treatment.\10\ The Commission has many reasons for
exercising its discretion, including certain statutory reasons.
---------------------------------------------------------------------------

    \8\ See, e.g., Opening Statement, Sixth Series of Proposed
Rulemakings under the Dodd-Frank Act, Dec. 1, 2010, available at
http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement120110; and Jobs on Main Street vs. Wall Street: The
Choice Should be Clear, 2011 Futures Industry Association Energy
Forum, New York, Keynote Address, Sept. 14, 2011, available at
http://www.cftc.gov/PressRoom/SpeechesTestimony/opaomalia-8.
    \9\ See supra note 5 for the exact text of CEA section
1a(49)(C), 7 U.S.C. 1a(49)(C). See also supra note 7 for an
explanation of the difference between (i) an ``exception'' and (ii)
an ``exclusion.'' The collapse of CEA section 1a(49)(C) (referencing
``a regular business'') into CEA section 1a(49)(A)(iii), 7 U.S.C.
1a(49)(A)(iii) (referencing ``an ordinary course of business''),
illustrates that the Commission still considers entities within CEA
section 1a(49)(C) as subcategories of ``swap dealers,'' absent
Commission largesse.
    \10\ Id. for the exact text of CEA section 1a(49)(B), 7 U.S.C.
1a(49)(B).
---------------------------------------------------------------------------

    Today, the Commission has erected the CFTC Entities Rule on the
infirm scaffold of the Proposal. To be sure, the Commission has
performed astonishing contortions to afford greater certainty to
commercial end-users.\11\ However, the Commission could have
provided equivalent or superior certainty by properly construing CEA
sections 1a(49)(C) and (B), either initially or in a re-proposal. By
preserving and furthering the statutory misconstructions in the
Proposal, the CFTC Entities Rule may ultimately provide illusory
comfort. Therefore, I cannot support the CFTC Entities Rule.
---------------------------------------------------------------------------

    \11\ In the CFTC Entities Rule, the Commission departs from the
Proposal in the following ways, among others: (i) acknowledging that
there is a difference between dealing, trading, and hedging; (ii)
setting forth an explicit exception for swaps that an entity enters
into in its capacity as a floor trader (as defined in CEA section
1a(23), 7 U.S.C. 1a(23)); (iii) providing another explicit exception
for certain hedging activities; (iv) providing an exception for
swaps between majority-owned affiliates; and (iv) setting forth a
phase-in period with a higher de minimis threshold.
---------------------------------------------------------------------------

The ``Swap Dealer'' Definition: Fundamental Misconstruction

 CEA section 1a(49)(A): Not the Entire ``Swap Dealer''
Definition

    A statute should be read as a ``harmonious whole.'' \12\ This
statement is a basic canon of statutory construction.\13\ The
Commission has failed to follow such canon in defining ``swap
dealer.''
---------------------------------------------------------------------------

    \12\ See, e.g., the CRS Report, p. CRS-2.
    \13\ Id.
---------------------------------------------------------------------------

    As mentioned above, in the CFTC Entities Rule (as in the
Proposal), the Commission insists that CEA section 1a(49)(A) is the
entirety of the ``swap dealer'' definition. According to the
Commission, any entity engaged in any activity enumerated in CEA
section 1a(49)(A) is a ``swap dealer'' \14\ (unless otherwise
``excepted'').\15\ Specifically, the Commission states: ``The Dodd-
Frank Act definitions of the term `swap dealer' * * * focus on
whether a person engages in particular types of activities involving
swaps * * *.'' \16\ Also, the Commission states: ``The CEA * * *
[definition] in general encompass persons that engage in any of the
[activities in CEA section 1a(49)(A)].'' \17\ Finally, the
Commission characterizes the activities in CEA section 1a(49)(A) as
``dealer activities.'' \18\
---------------------------------------------------------------------------

    \14\ As mentioned above, CEA section 1a(49)(A), 7 U.S.C.
1a(49)(A), states that the term ``swap dealer'' means ``any person
who--(i) holds itself out as a dealer in swaps; (ii) makes a market
in swaps; (iii) regularly enters into swaps with counterparties as
an ordinary course of business for its own account; or (iv) engages
in any activity causing the person to be commonly known in the trade
as a dealer or market maker in swaps.''
    \15\ See supra note 9.
    \16\ Section II of the CFTC Entities Rule.
    \17\ Id.
    \18\ Id.
---------------------------------------------------------------------------

 CEA section 1a(49)(C): Mandatory Exclusion for Entities

    CEA section 1a(49) contradicts in both its language and
structure the Commission's focus on the activities of CEA section
1a(49)(A). Specifically, CEA section 1a(49)(C), when properly
construed, sets forth a mandatory exclusion that focuses on the
characteristics of an entity, and not exclusively on its activities.
CEA section 1a(49)(C) states: ``The term `swap dealer' does not
include a person that enters into swaps for such person's own
account, either individually or in a fiduciary capacity, but not as
part of a regular business.''
    First, CEA section 1a(49)(C) is as central to the ``swap
dealer'' definition as CEA section 1a(49)(A). CEA section 1a(49)(C)
begins with ``The term `swap dealer' does not include * * *''. In
comparison, CEA section 1a(49)(A) begins with ``The term `swap
dealer' means * * *''. Therefore, according to their plain language,
CEA section 1a(49)(C) and CEA section 1a(49)(A) are equal and
opposite of each other. In essence, CEA section 1a(49)(C) sets forth
the exclusion criteria for the ``swap dealer'' definition, whereas
CEA section 1a(49)(A) sets forth the inclusion criteria.
    Second, CEA section 1a(49)(C) focuses on the characteristics of
entities, and not solely on their activities. CEA section 1a(49)(C)
states that ``[t]he term `swap dealer' does not include a person
that enters into swaps * * * not as part of a regular business.'' In
contrast, CEA section 1a(49)(A)(iii) states that the ``swap dealer''
definition encompasses any person that ``regularly enters into swaps
with counterparties as an ordinary course of business for its own
account.'' If the Commission is correct in presuming that CEA
section 1a(49)(A) focuses on activities, then the phrase ``regularly
enters into swaps * * * as an ordinary course of business'' must
refer to an activity. However, Congress used different words in CEA
section 1a(49)(C). According to a basic canon of statutory
construction, when Congress uses different words, it intends
different meanings. In other words, a court should strive to give
effect to every word of a statute.\19\
---------------------------------------------------------------------------

    \19\ The CRS Report, p. CRS-14 (stating that ``A basic principle
of statutory construction is that courts should `give effect, if
possible to every clause and word of a statute, avoiding, if it may
be, any construction which implies that the legislature was ignorant
of the meaning of the language it employed.'' (quoting Montclair v.
Ramsdell, 107 U.S. 147, 152 (1883)). See also the CRS Report, CRS-
12, footnote 62 (discussing the ``modern variant'' of this canon).
---------------------------------------------------------------------------

    The Commission could have easily given effect to every word of
CEA section 1a(49)(C), while according the same respect to CEA
section 1a(49)(A)(iii). Juxtaposing CEA section 1a(49)(C) and CEA
section 1a(49)(A)(iii), the following construction emerges: a
``person'' (i.e., an entity) is not a ``swap dealer'' if it enters
into swaps for ``its own account'' (i.e., as principal) in the
``ordinary course of business'' (i.e., normally while conducting
business), provided that entering into these swaps is not its
``regular business'' (i.e., entering into swaps is ancillary to its
core business).\20\
---------------------------------------------------------------------------

    \20\ As mentioned below, certain financial entities may also
satisfy these criteria, such as ``special entities'' (as defined in
CEA section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C) (e.g., certain
employee benefit plans covered by the Employee Retirement Income
Security Act of 1974 (``ERISA'')). If the Commission wanted to
prevent other financial entities from abusing CEA section 1a(49)(C),
7 U.S.C. 1a(49)(C), the Commission could have preliminarily limited
the exclusion to commercial end-users (or other entities that the
Commission determines could be excluded based on a holistic reading
of the Dodd-Frank Act and the CEA, including small financial
institutions as delineated in CEA section 2(h)(7)(C), 7 U.S.C.
2(h)(7)(C)). Additionally, if the Commission wanted to prevent
commercial end-users (or such other entities) from abusing CEA
section 1a(49)(C) (by, e.g., entering into non-ancillary
transactions in swaps), the Commission has anti-evasion authority
under section 721(c) of the Dodd-Frank Act.
    The regulations that the Commission promulgates under the Dodd-
Frank Act will irrevocably change the structure of the swap markets.
Such changes have benefits and costs. To properly weigh the benefits