based indices of equities) constituting the primary example of
security-based swaps that are not credit default swaps.
    In particular, according to data published by BIS, the global
notional amount outstanding in equity forwards and swaps as of June
2011 was $2.03 trillion, and the notional amount outstanding in
credit default swaps was approximately $32.4 trillion. See
Statistical Annex, BIS Quarterly Review (December 2011), at A10
(available at http://www.bis.org/publ/qtrpdf/r_qs1112.pdf).
Although the BIS data reflects the global OTC derivatives market,
and not just U.S. market, we have no reason to believe that these
ratios differ significantly in the U.S. market. In fact, OCC data
regarding U.S. entities generally confirms these ratios, in that as
of June 30, 2011, U.S. commercial banks and trust companies held
$15.23 trillion in notional outstanding credit derivative positions
and $677 billion in equity derivative positions, meaning that credit
derivatives accounted for approximately 95 percent of the total
credit and equity derivative positions held by these entities. See
OCC Quarterly Report at tables 1 and 10. Cf. letter from Greenberger
(referencing OCC data as relevant to determining size of swap
market).
    \477\ A person that is engaged in security-based swap dealing
activity, for example, may also engage in proprietary trading
involving security-based swaps that would be reflected in the
transaction data. Even accounting for such possibilities, however,
the SEC believes that the data nonetheless support the broad
conclusion described below that dealing activity within the
security-based swap market is highly concentrated.
---------------------------------------------------------------------------

    As described more fully in the CDS Data Analysis, to ascertain
which entities might be transacting as dealers, and which may not be,
various criteria were employed as indicia of possible dealing activity.
In each case, the results suggest the great extent to which there is
currently a high degree of concentration of potential dealing activity
in the single-name credit default swap market. For example, using the
criterion that dealers are likely to transact with many counterparties
who themselves are not dealers, analysis of 2011 transaction data show
that only 28 out of 1,084 market participants have three or more
counterparties that themselves are not recognized as dealers by
ISDA.\478\ As the data show, 15 of these 28 potential dealers exceeded
a threshold of $100 billion notional transacted in single-name credit
swaps during 2011, which accounts for over 98 percent of the 28
entities' total activity.\479\ At a lower threshold of $10 billion
notional, 21 of the 28 potential dealers are included (representing
99.7 percent of the activity of potential dealers), and at an even
lower threshold of $3 billion notional, 25 potential dealers are
included (representing 99.9 percent).\480\
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    \478\ See CDS Data Analysis at table 3c. The SEC recognizes that
the analysis of this transaction data is imperfect as a tool for
identifying dealing activity, given that the presence or absence of
dealing activity ultimately turns upon the relevant facts and
circumstances of an entity's security-based swap transactions, as
informed by the dealer-trader distinction. Criteria based on the
number of an entity's counterparties that are not recognized as
dealers nonetheless appear to be useful for identifying apparent
dealing activity in the absence of full analysis of the relevant
facts and circumstances, given that engaging in security-based swap
transactions with non-dealers would be consistent with the conduct
of seeking to profit by providing liquidity to others, as
anticipated by the dealer-trader distinction. In emphasizing this
criterion for identifying dealing activity, we are not seeking to
predict with precision how many entities ultimately may register as
security-based swap dealers. The ultimate number of dealers that may
register can also be expected to reflect growth in the market, new
dealing entrants, and in some cases the registration of multiple
dealing entities within an affiliated group.
    \479\ See CDS Data Analysis at table 3c. In particular, those 15
entities engaged in a total of $11.01 trillion in notional single-
name credit default swap transactions over 2011, which reflects 98.5
percent of the total $11.18 trillion in notional transactions over
2011 for the 28 total identified possible dealers.
    \480\ See id. The 21 possible dealers with a 2011 notional in
excess of $10 billion account for a total of $11.15 trillion in
notional single-name credit default swap transactions in 2011, or
over 99.7 percent of the total. The 25 possible dealers in excess of
$3 billion account for almost $11.18 in notional transactions in
2011, or over 99.9 percent of the total.
---------------------------------------------------------------------------

    Other criteria for identifying possible dealing activity based on
the number of an entity's non-dealer counterparties similarly suggest a
high degree of concentration of dealing activity within the current
security-based swap market.\481\ Criteria that consider the number of
an entity's total single-name security-based swap counterparties,\482\
criteria that consider alternative factors for identifying dealing
activity,\483\ and certain combined criteria \484\ further

suggest a high concentration of dealing activity within the security-
based swap market.
---------------------------------------------------------------------------

    \481\ For example, two other criteria consider the number of an
entity's non-dealer counterparties (in those cases identifying as
dealers those persons that have seven or more, or five or more,
counterparties not recognized as dealers by ISDA) also indicate that
potential dealers with notional amounts in excess of $100 billion in
2011 account for over 98 percent of the notional transactions of all
entities meeting the applicable criteria in 2011. Potential dealers
with notional transactions above $10 billion in 2011 (let alone
those with notional transactions above $3 billion) reflect all or
virtually the entire notional amount of all dealers identified by
those criteria. See id. at tables 3a and 3b.
    \482\ The CDS Data Analysis also sought to identify dealing
activity based on the total number of an entity's counterparties.
See id. at tables 2a through 2c. Those criteria similarly suggest a
high degree of concentration of dealing activity within the single-
name credit default swap market:
    i. A criterion that identifies potential dealing activity based
on an entity having twenty or more counterparties in single-name
security-based swaps identified 16 possible dealers. Fourteen of
those entities had notional transactions in excess of $100 billion
in 2011, reflecting over 99 percent of the total associated with all
16. The remaining two identified entities had notional transactions
in excess of $10 billion in 2011. See id. at table 2a.
    ii. A criterion that identifies potential dealing activity based
on an entity having 15 or more counterparties in single-name
security-based swaps identified 33 possible dealers. Fifteen of
those entities had notional transactions in excess of $100 billion
in 2011, reflecting over 97 percent of the total associated with all
33. A total of 27 of those entities had notional transactions in
excess of $10 billion in 2011, and a total of 32 of those entities
had notional transactions in excess of $3 billion in 2011, both
reflecting over 99 percent of the total. See id. at table 2b.
    iii. A criterion that identifies potential dealing activity
based on an entity having 10 or more counterparties in single-name
security-based swaps identified 154 possible dealers. Fifteen of
those exceeded $100 billion in notional transactions in 2011,
reflecting over 90 percent of the total; 49 of those exceeded $10
billion in notional transactions in 2011, reflecting over 97 percent
of the total; and 93 exceeded $3 billion in notional transactions in
2011, reflecting over 99 percent of the total. See id. at table 2c.
    In considering the data we are weighing these criteria less
heavily than we are weighing the criteria based on the number of
counterparties who are not identified by ISDA as dealers. This is
because it is reasonable to foresee a non-dealer making use of
multiple dealers to get the best possible price or to make use of
special expertise possessed by certain dealers, meaning that the
criteria discussed in this footnote are more likely to identify
entities not engaged in dealing activity.
    \483\ Other criteria in the CDS Data Analysis sought to identify
dealing activity based on whether an entity maintains a relatively
flat book. Those criteria also indicated that entities with notional
transactions in excess of $100 billion in 2011 represented over 97
percent of the total for all entities identified by those criteria,
while entities with notional transactions in excess of $10 billion
in 2011 represented over 99 of the total for all entities identified
by those criteria. See id. at tables 4 and 5. We are weighing those
criteria less heavily than we are weighing the counterparty-based
criteria discussed above because an entity that engages in
directional trades could also appear to have a flat book if its
portfolio contained transactions representing various directional
bets, but of similar aggregate notional sizes on both sides of the
market. See id. at 3.
     The analysis also included one criterion that considers
potential dealing activity based on a low propensity to post margin.
See id. at table 6. While we do not believe that this analysis
deserves the same degree of weight as the others, given concerns
about the completeness of the data (see id. at 4), we note that this
criterion nonetheless also indicates a high concentration of dealing
activity in the market. See id. at table 6 (indicating that of the
473 entities identified by this criterion, the 14 entities with
notional transactions in excess of $100 billion in 2011 account for
roughly 94 percent of the total notional transaction activity
associated with all 473 entities over 2011).
    \484\ Finally, the CDS Data Analysis also included criteria that
identified potential dealing activity based on an entity meeting two
or three of the other criteria considered. See id. at tables 7 and
8. These criteria again indicate a high degree of concentration of
dealing activity in the market. The analysis that addressed whether
an entity met two of the other criteria identified 92 possible
dealers, with the 15 entities having notional transactions in excess
of $100 billion in 2011 representing over 96 percent of the total
activity of those 92 entities in 2011. See id. at table 7. The
analysis that addressed whether an entity met three of the other
criteria identified 41 possible dealers, with the 15 entities having
notional transactions in excess of $100 billion in 2011,
representing over 98 percent of the total activity of those 41
entities in 2011. See id. at table 8.
---------------------------------------------------------------------------

    While less data are available in connection with other types of
instruments constituting security-based swaps, such as equity swaps,
the available data similarly suggest a high concentration of positions
in those instruments among potential dealers.\485\
---------------------------------------------------------------------------

    \485\ For example, OCC data shows that, of the five largest bank
or trust companies, four have notional equity derivative positions
of above $1 billion, and that those four entities account for $630
billion in notional positions out of $677 billion for all U.S.
commercial banks or trust companies, which constitutes approximately
93 percent of the total. See OCC Quarterly Report at table 10.
Similarly, a review of the equity swaps positions of the 50 largest
U.S. bank holding companies shows that nine bank holding companies
have notional equity swap positions exceeding $1 billion, and
account for 99.5 percent of the total positions held by such
companies, and 29 have no positions in equity swaps. (Data was
compiled from each bank holding company's FR 9-YC, available at
http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx). Cf. letter
from WGCEF V (referencing swap position data from bank holding
companies' Forms FR Y-9C as relevant to determining size of the swap
market).
---------------------------------------------------------------------------

    Though inspection of the data does not seem to suggest a single
precise de minimis threshold, the above analysis of potential dealing
activity is useful in that it reveals a range of possible thresholds
from $100 billion to $3 billion that would cover anywhere from 98
percent through 99.9 percent of the total activity of all potential
dealers in 2011. However, these thresholds--and their implied market
coverage ratios--only reflect levels of activity that exist in today's
highly concentrated market. In order to further narrow the range of
possible thresholds, and to select an appropriate level for the de
minimis exception, the analysis must consider the potential state of
the market as it might reasonably exist after the implementation of
Title VII.
ii. Avoiding Gaps Resulting From the Regulatory Changes in Conjunction
With the Exception
    Although the overall portion of security-based swap activity that
would appear to be subject to dealer regulation based on current
measures of dealing concentration in the market constitutes an
important factor to consider in balancing the regulatory burdens and
benefits associated with a de minimis exception, analysis of the
current market should not serve as the sole mechanism for setting the
exception.
    In particular, sole reliance on an approach that focuses on current
measures of market concentration would not adequately account for
likely changes to the market associated with the implementation of
regulation. In part, these changes may be a direct result of the full
implementation of Title VII--including enhancements to transparency and
increases in central clearing--as those changes reasonably may be
expected to reduce the concentration of dealing activity within the
market over time.\486\ Also, to the extent implementation of Title VII
permits new dealers to enter the market, the availability of a de
minimis exception would mean those new dealing entrants would fall
outside the ambit of dealer regulation, either for the long term or
until their dealing activity surpasses the applicable notional
threshold.\487\ Accordingly, de minimis thresholds that are based
solely on the current state of the market, including the current
concentration of dealing activity within the market, may reasonably be
expected to fail to account for the amount of dealing activity that in
the future could fall outside of the ambit of dealer regulation due to
the exception.\488\
---------------------------------------------------------------------------

    \486\ Cf. Bessembinder and Maxwell, ``Transparency and the
Corporate Bond Market,'' Journal of Economic Perspectives, Spring
2008, at 217, 226 (noting that after reporting of U.S. OTC bond
transactions through the Trade Reporting and Compliance Engine
(``TRACE'') became mandatory, the portion of trades completed by the
12 largest dealers fell from 56 percent to 44 percent).
    \487\ We understand that large dealers have competitive
advantages under the current market, in light of the desire of
counterparties to engage in security-based swap transactions with
large, well capitalized and highly rated dealers. See, e.g., Craig
Pirrong, Rocket Science, Default Risk and The Organization of
Derivatives Markets, Working Paper, University of Houston (2006)
(available at http://www.cba.uh.edu/spirrong/Derivorg1.pdf). The
lower business costs associated with being unregulated may prove to
partially offset that advantage. At the same time, we reasonably may
expect that informed counterparties will take into account the lower
protections--and higher risks--associated with transactions with
unregulated dealers in determining whether to use regulated or
unregulated dealers as counterparties.
    \488\ We note that there also are benefits to increased
competition and a decrease in concentration of dealer activity, as
contemplated by Title VII, including potentially lower costs for
market participants and a decrease in systemic risk.
---------------------------------------------------------------------------

    For example, as discussed above, when possible dealers in single-
name credit default swaps are identified by an entity having three or
more counterparties that are not recognized by ISDA as being dealers,
entities with notional transactions in excess of $100 billion over a 12
month period represent over 98 percent of the total activity of all
such possible dealers over that period, leaving two percent of possible
dealing activity below that level.\489\ However, a de minimis threshold
of $100 billion would allow new entrants to commence engaging in
unregulated dealing in competition with persons who are regulated as
dealers pursuant to Title VII, which, depending on the number and size
of such entrants, could significantly decrease the portion of dealing
activity in the market done by registered dealers (at least until the
point that new entrants cross the de minimis threshold, if they do at
all). For example, if 15 new entrants \490\ were to engage in security-
based swap dealing activity up to a $100 billion threshold, the result
could be that nearly 15 percent of dealing activity within the single-
name credit default swap market would be left outside of the ambit of
dealer regulation.\491\
---------------------------------------------------------------------------

    \489\ See CDS Data Analysis at table 3c; see also note 479,
supra. As noted above, these amounts may not only reflect dealing
activity by an entity. Thus, even putting aside the possibility of
new unregulated entrants into the market, the portion of dealing
activity in the market that is represented by entities whose
trailing notional dealing activity exceeds $100 billion may in fact
be less than 98 percent.
    \490\ The illustrative use of new entrants for purposes of this
discussion is intended to reflect the potential that new entrants to
the market could take advantage of a de minimis threshold in a way
that leads to a higher level of unregulated dealing activity within
the market. In using this illustration we are not seeking to
explicitly predict how many new entrants may come into the market in
response to any particular de minimis threshold, nor are we seeking
to predict how many new entrants may seek to stay under the de
minimis thresholds and how many instead would seek to use the
exception as a step on the way to eventually registering as a
security-based swap dealer. Rather, we simply are illustrating why
it is important to account for market changes in connection with
setting the de minimis threshold.
    The OTC Derivatives Supervisors Group--a group chaired by the
Federal Reserve Bank of New York and consisting of the CFTC and SEC
as well as other international supervisors and major over-the-
counter derivatives market participants--currently recognizes 15
major OTC derivatives dealers. Accordingly, as an illustrative
example, we have assumed that this number of significant security-
based swap dealers would approximately double--i.e., include 15 new
dealers--in the wake of the various regulatory changes contemplated
by the Dodd-Frank Act, many of which may result in increased access
and competition in the security-based swap market (e.g., enhanced
priced transparency and increased access to central clearing).
However, we emphasize that this number has been selected as an
illustrative example, and have accordingly provided similar examples
assuming ten and five new entrants.
    \491\ Fifteen new entities that each engage in $100 billion in
dealing activity would reflect $1.5 trillion in additional dealing
activity outside the ambit of dealer regulation, which could lead to
roughly 14.9 percent of total dealing activity being outside the
ambit of dealing regulation (with that $1.5 trillion being added to
the existing $168 billion reflected by entities that fall below the
$100 billion threshold, and that sum divided by $11.18 trillion,
under the assumption that the new entrants displace business from
the fifteen entities above the de minimis threshold). To further
illustrate, under the same assumptions and analysis, the implied
unregulated market share would be roughly 10.4 percent for ten new
entities and 6.0 percent for five new entities.
    In certain regards these illustrations, on the one hand, may
overestimate the effect of new entrants because of the assumption
that such entrants engage in dealing activities up to, but not
surpassing, the de minimis threshold. While it is not impossible
that some entities may seek to use the de minimis exception to
conduct business as an unregulated niche dealer, it also is
plausible that entities generally may seek to use the exception to
commence engaging in dealing activity, with the goal of ultimately
becoming registered dealers that are not constrained by the de
minimis threshold.
    On the other hand, these illustrations in certain respects may
underestimate the amount of dealing activity that can fall outside
of the regulatory ambit. For example, the amounts of security-based
swap activity of persons identified in the analysis as dealers may
not exclusively constitute dealing activity, meaning that persons
whose notional transactions over a 12-month period exceed a
particular threshold in fact may not be engaged in that amount of
dealing activity, and hence may still be able to take advantage of
the de minimis exception. Also, these illustrations do not seek to
reflect increased activity by existing dealers that already fall
below the assumed threshold.

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

    Similarly, a de minimis threshold of $25 billion may also lead to a
material reduction in the portion of the market covered by registered
dealers. For example, using the same assumptions as above, 15 new
entrants up to a $25 billion threshold could leave over four percent of
dealing activity in the market outside of the ambit of dealing
regulation.\492\ When other metrics are used to identify possible
dealing activity, the possibility of a significant regulatory gap
remains.\493\
---------------------------------------------------------------------------

    \492\ Fifteen new entities each engaged in $25 billion in
dealing activity would reflect $375 billion in additional dealing
activity outside the ambit of dealer regulation, which could lead to
4.1 percent of total dealing activity being outside the ambit of
dealing regulation (with that $375 billion being added to the
existing $80.2 billion reflected by entities that fall below the $25
billion threshold, and that sum divided by $11.18 trillion, under
the assumption that the new entrants displace business from the
seventeen entities above the de minimis threshold). To further
illustrate, under the same assumptions and analysis, the implied
unregulated market share would be 3.0 percent for 10 new entities
and 1.8 percent for 5 new entities. Obviously, these illustrations
are subject to the same limitations as are discussed above in the
context of the $100 million threshold illustration.
    \493\ For example, similar results are obtained when possible
dealing activity is identified based on whether an entity passes at
least three of the other metrics discussed above. See CDS Data
Analysis at table 8. Using the same types of assumptions as are
discussed above, with fifteen new entities, a de minimis threshold
of $100 billion could lead to 15.0 percent of dealing activity
falling outside the ambit of dealer regulation, while a de minimis
threshold of $25 billion could lead to 4.2 percent of dealing
activity falling outside of regulation.
---------------------------------------------------------------------------

    Overall, it is reasonable to conclude that the higher the de
minimis threshold, the greater the likelihood that the exception,
combined with other changes resulting from the implementation of Title
VII that may encourage new entrants, will lead to a proportionately
larger amount of unregulated (except with respect to antifraud and
anti-manipulation prohibitions) dealing activity.\494\ We believe that
it is reasonable to interpret the statutory language of the de minimis
exception in a way that prevents a proportionately large amount of
dealing activity within the security-based swap market from falling
outside the ambit of dealer regulation. Accordingly, choosing to set a
lower de minimis threshold from among the range of potential thresholds
would limit the amount of potential future dealing activity that could
be transacted without being subject to dealer rules and
regulations.\495\
---------------------------------------------------------------------------

    \494\ As noted above, encouraging new entrants also has benefits
flowing from increased competition and a decrease in concentration
of dealer activity. See note 488, supra.
    \495\ For example, 15 new dealer entrants engaged in up to $3
billion in dealing activity would account for up to $45 billion in
dealing activity. This result would mean approximately 0.4 percent
of total potential future dealing activity could be transacted by
unregistered dealers, as opposed to the potential for approximately
15 percent of potential future dealing activity to be transacted by
unregistered dealers if the de minimis were set to $100 billion. See
CDS Data Analysis at table 3c. As with the illustrative examples
above, these calculations assume that the new entrants displace
business from the entities above the de minimis threshold.
---------------------------------------------------------------------------

iii. Promoting Statutory Counterparty Protections
    Sole reliance on an approach based on overall market coverage in
balancing regulatory burdens and benefits would also threaten to unduly
discount important counterparty protection interests, as discussed
above and highlighted in the proposal.\496\ For example, in light of
data indicating that $5 million constitutes a common notional size for
a single-name credit default swap position,\497\ a de minimis notional
threshold of $25 billion annually would permit an unregistered dealer
to engage in as many as 5000 trades of that size. The counterparties to
these unregistered dealers would not receive the benefit of the
protections that Title VII affords to the counterparties of registered
dealers. These include, among others, the segregation protections
afforded to persons who post margin to dealers in connection with over-
the-counter security-based swap transactions.\498\ Accordingly, this
consideration also suggests that choosing a de minimis threshold closer
to the lower end of the range of potential thresholds would better
preserve the counterparty protections contemplated by Title VII.
---------------------------------------------------------------------------

    \496\ See part II.D.3.a, supra; see also Proposing Release at
80180 (highlighting ``customer protection issues raised by swaps and
security-based swaps--including risks that counterparties may not
fully appreciate when entering into swaps and security-based
swaps'').
    \497\ See Federal Reserve Bank of New York staff report, ``An
Analysis of CDS Transactions: Implications for Public Reporting''
(2011) at 8 (stating that for dollar-denominated single name CDS on
corporate or sovereign reference entities, $5 million represented
the most common notional size) (available at http://www.newyorkfed.org/research/staff_reports/sr517.pdf); see also
Proposing Release at 80180 (noting ``that in general the notional
seize of a small swap or security-based swap is $5 million or
less'').
    We note, by comparison, that Congress has determined that a de
minimis amount of securities broker activity by banks entails 500
trades annually. See Exchange Act section 3(a)(4)(B)(xi) (excluding
from the ``broker'' definition a bank that annually effects no more
than 500 securities transactions, other than transactions subject to
certain other exceptions, so long as the transaction is not effected
by a bank employee that also is a broker-dealer employee).
    We further note that, while the number of counterparties or
transactions potentially implicated by unregistered dealing activity
is an important consideration in establishing an initial de minimis
level, it does not alter our view, described above, that a single de
minimis standard based on notional value--rather than the proposal's
framework of three distinct standards based on notional value,
number of counterparties, and number of transactions--is an
appropriate choice in light of concerns expressed by commenters that
a standard based on the number of transactions or counterparties can
produce arbitrary results. See part II.D.3.b.ii, supra.
    \498\ Exchange Act section 3E, which was added by section 763(d)
of the Dodd-Frank Act, provides a series of requirements in
connection with the segregation of assets held as collateral in
security-based swap transactions. These include requirements that
security-based swap dealers and major security-based swap
participants provide their counterparties with notice that they have
the right to require segregation, and that such segregation must be
at an independent third-party custodian.
---------------------------------------------------------------------------

c. Balancing Reflected in the Final Rules--Credit Default Swaps That
Constitute Security-Based Swaps
    The final thresholds that implement the de minimis exception (and
corresponding phase-in levels) address security-based swaps that are
credit default swaps separately from other types of security-based
swaps, in light of differences in the respective markets.
i. General Threshold for Credit Default Swaps That Constitute Security-
Based Swaps
    We conclude that $3 billion over the prior 12 months constitutes an
appropriate notional threshold for applying the de minimis exception in
connection with dealing activity involving credit default swaps that
constitute security-based swaps.

    In reaching this conclusion, we recognize the significance of
comments that supported the proposed $100 million threshold,\499\ and
that urged caution in raising that proposed threshold,\500\ as well as
commenters who supported increases to the threshold.\501\ We further
recognize the importance of applying the de minimis exception in a way
that promotes regulatory efficiency. We also recognize the range of
potential thresholds suggested by the data currently available. Based
on the competing factors described above, we believe that $3 billion
reflects a reasonable notional threshold--though not necessarily the
only such threshold.
---------------------------------------------------------------------------

    \499\ See letters from Better Markets I and AFR.
    \500\ See letter from Greenberger.
    \501\ See, e.g., letter from COPE I.
---------------------------------------------------------------------------

    In our view, the currently available data regarding the single-name
credit default swap market indicates that a notional threshold of $3
billion would be expected to result in the regulation, as dealers, of
persons responsible for the vast majority of dealing activity within
that market, both as of today and, as described above, in the future as
the benefits of the other Title VII rules are implemented and new
dealer entrants come to market.\502\
---------------------------------------------------------------------------

    \502\ Of the 28 market participants that have three or more
security-based swap counterparties that themselves are not
recognized by dealers by ISDA, 25 had notional single-name credit
default swap positions in excess of $3 billion in 2011. The
remaining three entities in total accounted for only $3.59 billion
in notional transactions in 2011, reflecting less than 0.1 percent
of the $11.18 trillion total for those 28 market participants. See
CDS Data Analysis at table 3c.
    The other criteria set forth in the analysis for identifying
possible dealing activity in general similarly indicate that
entities with notional transactions in excess of $3 billion in 2011
account for more than 99 percent of the total notional transactions
of all identified entities in 2011. See id. at tables 2a-c, 3a-b, 4,
5, 7 and 8. While the criterion based on the posting of initial
margin only indicates 98 percent coverage for all of the 473
identified entities, see id. at table 6, as discussed above we
believe it is appropriate to provide less weight to that criterion,
which is based on voluntary reporting.
    As noted above, see note 478, supra, we recognize that the
underlying market data encompasses all of the security-based swap
activity of persons identified as dealers, not only their dealing
activity. Because the thresholds that implement the de minimis
exception address only a person's dealing activity, this raises the
possibility that the analysis overstates the extent to which a $3
billion threshold would encompass persons responsible for dealing
activity within the single-name security-based swap market. Even
with that possibility, however, we believe that the data indicates
such a high concentration of dealing activity within the market that
it is reasonable to conclude that a $3 billion threshold likely
would encompass persons responsible for the vast majority of dealing
activity within the market.
---------------------------------------------------------------------------

    In providing for a $3 billion notional threshold, we also recognize
the threshold would permit an unregistered dealer annually to engage in
up to 600 security-based swaps (as opposed to 20 transactions under the
proposed threshold, assuming a $5 million average notional size). In
this regard, we note that Congress, in another statutory de minimis
exception within the Exchange Act, determined that 500 securities
transactions annually constituted a de minimis amount of transactions
for banks under the ``broker'' definition.\503\ We further believe that
a $3 billion threshold appropriately addresses commenter concerns
regarding the de minimis exception being unduly narrow.\504\
---------------------------------------------------------------------------

    \503\ See Exchange Act section 3(a)(4)(B)(xi); see also letter
from SIFMA--Regional Dealers (supporting a threshold of 500 trades
consistent with the statutory de minimis exception in connection
with bank brokerage activity).
    \504\ For example, $3 billion is equal to the threshold
suggested by many commenters in the context of the swap market,
which is much larger than the security-based swap market. See letter
from COPE (supporting a 0.001 percent notional threshold based on
the overall swaps market, which would amount to $3 billion). Indeed,
this $3 billion threshold appears to reflect roughly 0.024 percent
of the overall market for single-name credit default swaps, a
percentage that is much greater than the 0.001 percent multiplier
that a number of commenters (see, e.g., letters cited in note 382,
supra) suggested in the swap market context. See CDS Data Analysis
at table 1 (indicating that participants in the single-name credit
default swap market engage in a total of $12.6 trillion in single-
name credit default swap transactions in 2011).
---------------------------------------------------------------------------

    In adopting this $3 billion threshold, we have carefully considered
one commenter's view that the CDS Data Analysis suggests that the
proposed $100 million threshold in fact is too high, and that any
increase in that proposed $100 million threshold would be arbitrary and
capricious.\505\ In reaching these conclusions, the commenter focused
on the number of entities that potentially are engaged in dealing
activity but that could be excluded based on particular de minimis
thresholds. For example, the commenter indicated that pursuant to one
of the CDS Data Analysis's combined metrics for identifying dealing
activity, a de minimis threshold of $3 billion could lead to the
exclusion of up to 58 percent of all persons engaged in possible
dealing activity. The commenter further suggested that some entities
engaged in dealing activity may reduce their activities to take
advantage of the de minimis exception and hence reduce liquidity, and
argued that there would be no basis for the exception to be based on a
market participant's percentage of total security-based swap
activity.\506\
---------------------------------------------------------------------------

    \505\ See letter from Better Markets III.
    \506\ The letter also raised issues regarding the ``customer''
language of the exception and argued that the de minimis exception
should not represent a risk-based test. We address those issues
elsewhere. See parts II.D.3.c (regarding ``customer'' language) and
II.D.3.e (regarding rejection of risk-based and proportionality
tests), infra.
    In addition, the letter expressed the view that a percentage-
based formula would be difficult to implement, by requiring market
participants to repeatedly calculate the ratio of their activity to
total market activity. We concur. The $3 billion threshold we are
adopting reflects a fixed dollar amount, and does not share the
complications that would arise from an approach based on a
particular percentage of the market.
---------------------------------------------------------------------------

    It is important to recognize that while the commenter focused on
the number of entities that might be excluded pursuant to the
exception, and suggested that higher notional dollar amount thresholds
could lead to the exclusion of a larger number of entities, the
statutory provision for the de minimis exception does not require the
exemption of a ``de minimis number'' of dealers. The statute instead
requires the exemption of persons engaged in a ``de minimis quantity''
of dealing activity.\507\ The statutory language therefore indicates
that the focus of the rule implementing the exception should be the
amount of an entity's dealing activity, not how many entities
ultimately may be able to take advantage of the exception.
---------------------------------------------------------------------------

    \507\ See Exchange Act section 3(a)(71)(D).
---------------------------------------------------------------------------

    Also, although the commenter implied that there would be no basis
for the rule implementing the exception to take into account a market
participant's security-based swap dealing activity compared to total
dealing activity in the market, for the reasons discussed in this
section we believe that such an approach can appropriately provide for
the regulatory coverage of the vast majority of dealing activity in a
way that promotes regulatory efficiency, without leading to unwarranted
regulatory gaps. In contrast, in our view the commenter did not
persuasively articulate a strong rationale for adopting the alternative
approach proposed in the letter, which would appear to lead to the
registration of a number of dealers that proportionately engage in a
very small amount of dealing activity.\508\
---------------------------------------------------------------------------

    \508\ The commenter correctly pointed out that the regulatory
requirements applicable to registered dealers encompass counterparty
protection requirements, and that the de minimis exception should
not defeat those requirements. We recognize that the implementation
of the exception should take those counterparty protections into
account, and we have sought to do so. We do not believe, however,
that those important counterparty protection goals require a de
minimis approach that focuses on the number of entities that would
be excluded, in lieu of the statutory focus on whether a particular
entity engages in a de minimis quantity of dealing activity.
---------------------------------------------------------------------------

    In support of its approach, the commenter emphasized data regarding
persons who meet certain combined criteria outlined in the CDS Data

Analysis. As discussed above, we believe that criteria based on the
number of an entity's counterparties that are not recognized as dealers
deserve special weight due to the potential consistency of those
criteria with the dealer-trader distinction.\509\ Identifying dealer
activity using those criteria does not support the view that a $3
billion threshold would lead to the exclusion of a large number of
entities engaged in dealing activity.\510\
---------------------------------------------------------------------------

    \509\ See notes 478, 482, and 483, supra.
    \510\ For example, the CDS Data Analysis identifies:
     Three possible dealers with notional transactions below
$3 billion in 2011--out of a total of 28 possible dealers--when
possible dealing activity is based on having three or more
counterparties that themselves are not identified as dealers;
     One possible dealer with notional transactions below $3
billion in 2011- out of a total of 20 possible dealers--when
possible dealing activity is based on having five or more
counterparties that themselves are not identified as dealers; and
     Zero possible dealers with notional transactions below
$3 billion in 2011--out of a total of 16 possible dealers--when
possible dealing activity is based on having seven or more
counterparties that themselves are not identified as dealers.
    See CDS Data analysis at tables 3c, 3b and 3a.
    In addition, as described above, an approach focused on the
quantity of activity is supported by relatively consistent results
depending on which criterion from the CDS Data Analysis is applied--
i.e., each criterion shows a high amount of concentration and a
commensurately low quantity of activity below the $3 billion
threshold. By contrast, applying different criteria results in very
different numbers of entities excluded under any specified
threshold, suggesting that an approach focused on the number of
entities may be highly dependent on how the possible dealing
activity of those entities is defined.
---------------------------------------------------------------------------

    Finally, we also are not persuaded by the commenter's suggestion
that a number of entities engaged in dealing activity would reduce
those activities to take advantage of a $3 billion de minimis
threshold, and hence reduce liquidity in the market by five percent. To
reach that figure, the commenter needed to exclude the vast majority of
dealing activity in the market.\511\ While we recognize that it is
possible that current market participants may adjust their dealing
activity in light of the de minimis threshold, and that this
potentially could reduce the liquidity provided by certain entities, we
also recognize that the de minimis exception has the potential to
promote liquidity by facilitating new entrants into the market.
---------------------------------------------------------------------------

    \511\ In particular, in arguing that this incentive would reduce
liquidity by five percent, the commenter excluded all business done
by entities within the top two brackets (i.e., above $100 billion
notional), on the grounds that those entities ``are assumed to
transact mostly with larger entities.'' Based on the criteria on
which the commenter relied, those 15 entities are responsible for
over 96 percent of the activity of all possible dealers. See CDS
Data Analysis at tables 7 and 8. Absent that exclusion, the
estimated reduction of liquidity would amount to a small fraction of
a percent.
---------------------------------------------------------------------------

ii. Phase-in Period in Connection With Dealing Activity Involving
Credit Default Swaps That Constitute Security-Based Swaps
    The final rules further provide that persons with notional dealing
activity of $8 billion or less over the prior 12 months involving
credit default swaps that constitute security-based swaps would be able
to avail themselves of a phase-in period.\512\ Those persons would not
be subject to the generally applicable compliance date that occurs no
later than 60 days following publication of these final rules in the
Federal Register.\513\
---------------------------------------------------------------------------

    \512\ Exchange Act rule 3a71-2(a)(2).
    \513\ Even with the general 60 day compliance period, however,
market participants will not necessarily be security-based swap
dealers at the end of 60 days. In particular, for the first year
following the effective date of the final rules implementing the
definition of ``security-based swap'' pursuant to the Exchange Act
section 3(a)(68), the de minimis analysis would only address
security-based swap dealing activity following that effective date.
See Exchange Act rule 3a71-2(a)(1). Among other things, this means
that until the rules defining ``security-based swap'' are effective,
no market participants would be deemed to be security-based swap
dealers.
---------------------------------------------------------------------------

    The use of a phase-in period--in connection with a person's status
as a security-based swap dealer and in connection with the other
regulatory requirements that are appurtenant to dealer status--is
intended to facilitate the orderly implementation of Title VII. In
addition, the phase-in period will afford the SEC additional time to
study the security-based swap market as it evolves in the new
regulatory framework and will allow potential dealers that engage in
smaller amounts of activity (relative to the current size of the
market) additional time to adjust their business practices, while at
the same time preserving the focus of the regulation on the largest and
most significant dealers. The SEC also recognizes that the data
informing its current view of the de minimis threshold is based on the
market as it exists today, and that the market will evolve over the
coming years in light of the new regulatory framework and other
developments.
    Accordingly, while the SEC believes that a $3 billion notional
threshold reflects an appropriate long-term standard based on the
currently available data,\514\ it also is appropriate to provide for a
phase-in period for those entities with $8 billion or less in dealing
activity, because subsequent developments in the market or the
evaluation of new data from the security-based swap reporting
facilities contemplated by the Dodd-Frank Act may suggest that the
threshold should be increased or decreased. In particular, the
implementation of security-based swap data reporting under the Dodd-
Frank Act will result in significant new data and afford an opportunity
to review the Commission's determination to establish a $3 billion
threshold.
---------------------------------------------------------------------------

    \514\ See note 502, supra.
---------------------------------------------------------------------------

    For these reasons, an important part of the report that the SEC is
directing its staff conduct with regard to the definitions of
``security-based swap dealer'' and ``major security-based swap
participant'' (described in detail below) will be a consideration of
the operation of the de minimis exception following the full
implementation of Section 15F under Title VII.\515\ The SEC will take
into account this report, along with public comment on the report, in
determining whether to propose any changes to the rule implementing the
de minimis exception, including any increases or decreases to the $3
billion threshold. The report will be linked to the availability of
data regarding the activity of regulated security-based swap market
participants in that it must be completed no later than three years
\516\ following a ``data collection initiation 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 Exchange Act; 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.\517\
---------------------------------------------------------------------------

    \515\ See Exchange Act rule 3a71-2A(a)(1); see also part V,
infra.
    \516\ See Exchange Act rule 3a71-2A(b).
    \517\ The SEC will announce the data collection initiation date
on its Web site and publish it in the Federal Register. See Exchange
Act rule 3a71-1(a)(2)(iii).
---------------------------------------------------------------------------

    In light of the available data--and the limitations of that data in
predicting how the full implementation of Title VII will affect dealing
activity in the security-based swap market--the SEC believes that $8
billion constitutes an appropriate level for the availability of the
phase-in period. The available data indicate that such a level
generally comports with the balance of interests that informed the
determination of the appropriate long-term threshold of $3 billion
described above. In particular, the $8 billion level should still lead
to the regulation of persons responsible for the vast majority of
dealing activity

within the market.\518\ In addition, we do not believe that providing a
phase-in period for persons with notional dealing activity over the
prior 12 months of less than $8 billion would lead to a risk of an
undue portion of the market falling outside of the ambit of dealer
regulation, even after considering the potential entry of unregulated
new dealers into the market.\519\
---------------------------------------------------------------------------

    \518\ Of the 28 market participants that have three or more
security-based swap counterparties that themselves are not
recognized by dealers by ISDA, 23 had notional single-name credit
default swap transactions in excess of $8 billion in 2011. The
remaining five entities in total accounted for only $12.3 billion in
notional transactions in 2011, reflecting roughly 0.1 percent of the
$11.18 total for the 28 market participants. See CDS Data Analysis
at table 3c. Only two of the 28 entities identified as possible
dealers by that criterion had annual notional transactions between
$3 billion and $8 billion in 2011.
    Most of the other criteria set forth in the analysis for
identifying possible dealing activity in general similarly indicate
that entities with notional transactions in excess of $8 billion in
2011 account for more than 99 percent of the total notional
transactions of all identified entities that year. See id. at tables
2a-b, 3a-b, 4 and 5. While the criterion based on an entity having
10 or more counterparties only indicates 98 percent coverage for all
of the 154 identified entities at an $8 billion transaction level,
see id. at table 2c, as noted above this criterion may identify
persons who in reality are not engaged in dealing activity. See note
482, supra. Also, while the criterion based on the posting of
initial margin only indicates 97 percent coverage for all of the 473
identified entities at an $8 billion transaction level, see id. at
table 6, as discussed above that criterion is based on voluntary
reporting.
    \519\ For example, 15 new dealer entrants up to $8 billion in
annual notional dealing activity would account for $120 billion in
dealing activity. This would amount to roughly 1.2 percent of the
total notional single-name security-based swap activity over 12
months of entities identified as possible dealers by virtue of
having three or more counterparties that are not recognized by
dealers by ISDA. See CDS Data Analysis at table 2c.
---------------------------------------------------------------------------

    The final rule provides that the phase-in period will continue
until the ``phase-in termination date'' that the SEC will publish on
its Web site and in the Federal Register.\520\ In particular, the rule
provides that nine months following publication of that report, and
after giving due consideration of the report and associated public
comment, the SEC may either: (1) Terminate the phase-in period and by
order establish and publish the phase-in termination date; or (2)
determine that it is necessary or appropriate in the public interest to
propose an alternative de minimis threshold, in which case the SEC, by
order published in the Federal Register, will provide notice of that
determination and establish the phase-in termination date.\521\ If the
SEC does not establish the phase-in termination date in either of those
ways, the phase-in termination date shall automatically occur in any
event on what would be a date certain, which will be five years
following the data collection initiation date.\522\
---------------------------------------------------------------------------

    \520\ Exchange Act rule 3a71-2(a)(2)(i).
    \521\ Exchange Act rule 3a71-2(a)(2)(iii)(A).
    \522\ Exchange Act rule 3a71-2(a)(2)(iii)(B).
---------------------------------------------------------------------------

    These provisions should allow sufficient time for the staff to
complete its report, for the SEC to receive and review public comment
on the report, and for the SEC to draw conclusions regarding
establishing the phase-in termination date or proposing potential
changes to the rule implementing the de minimis exception, in a way
that also promotes the orderly and predictable termination of the
phase-in period.\523\
---------------------------------------------------------------------------

    \523\ This approach balances the fact that the SEC believes that
its $3 billion and $150 million de minimis thresholds are
appropriate in light of the currently available data and the
market's need for a degree of certainty as to the length of this
phase-in period, on the one hand, against the possibility that the
staff report and the accompanying public comment may demonstrate
that revision to these thresholds is necessary, on the other hand.
---------------------------------------------------------------------------

    This phase-in period will not be available in connection with the
$25 million threshold for dealing activity involving special entities,
discussed below. In addition, the final rule provides that this phase-
in period will not be available in connection with security-based swap
dealing activities involving natural persons, other than natural
persons who qualify as ECPs by virtue of CEA section 1a(18)(A)(xi)(II),
which addresses natural persons who have $5 million or more invested on
a discretionary basis and who enter into a security-based swap to
manage the risk associated with their assets and liabilities.\524\
These limitations to the availability of the phase-in period are
consistent with the Dodd-Frank Act's goal of helping special entities
be in a position to benefit from the counterparty protections
associated with the regulation of registered security-based swap
dealers under Title VII, as well as the SEC's mandate to protect
participants in the securities markets.
---------------------------------------------------------------------------

    \524\ See Exchange Act rule 3a71-2(a)(2)(i). In other words, the
phase-in period will still be available in connection with dealing
activities with natural persons who are ECPs because they have
entered into a security-based swap for hedging purposes. While we
recognize the importance of Title VII protections to natural persons
who engage in security-based swap activity, we also recognize the
benefit of facilitating such persons' use of security-based swaps as
hedges. Accordingly, persons who engage in dealing activity with
natural persons who are ECPs under other provisions of the ECP
definition will be subject to the applicable de minimis threshold
for all of their dealing activity, without the availability of the
phase-in period.
    Persons who engage in dealing activity with natural persons who
are not ECPs will fall within the Exchange Act definition of
``dealer,'' which has no de minimis exception. See Exchange Act
section 3(a)(5)(A) (generally excluding dealers in security-based
swaps from the Exchange Act definition of ``dealer,'' unless the
counterparty is not an ECP).
---------------------------------------------------------------------------

    Persons who are able to avail themselves of the phase-in period, of
course, will not be required to do so. Any person that chooses to
register with the SEC as a security-based swap dealer shall be deemed
to be a security-based swap dealer subject to all applicable regulatory
requirements for such registrants, regardless of whether the person
engages in security-based swap dealing activity in an amount that is
below the applicable de minimis threshold or phase-in level.\525\
---------------------------------------------------------------------------

    \525\ See Exchange Act rule 3a71-2(e).
---------------------------------------------------------------------------

d. Balancing Reflected in the Final Rules--Other Types of Security-
Based Swaps
    The final rule provides that the de minimis exception for dealing
activity involving security-based swaps other than credit default swaps
will be based on a threshold of $150 million notional over the prior 12
months.\526\ In addition, a phase-in period will be available in
connection with persons whose dealing activity involving those
instruments is $400 million or less in notional amount over the prior
12 months.
---------------------------------------------------------------------------

    \526\ Exchange Act rule 3a71-2(a)(1)(ii). The proposal requested
comment on whether different segments of the security-based swap
market should be treated differently. See Proposing Release at 80101
(``Commenters further are requested to address * * * whether the [de
minimis] exemption's factors should vary depending on the type of
swap or security-based swap at issue.'').
---------------------------------------------------------------------------

    These amounts reflect roughly one-twentieth of the corresponding
amounts associated with the exception for credit default swaps that
constitute security-based swaps. As discussed above, while less data is
available regarding other types of security-based swaps than is
available regarding single-name credit default swaps, the available
data is consistent in indicating that those other types of security-
based swaps on a notional basis currently comprise roughly one-
twentieth of the total amount of instruments that will be expected to
constitute security-based swaps.\527\ In light of this significantly
smaller market, we believe that a $3 billion notional threshold would
threaten to cause an overly large portion of dealing activity within
the market to fall outside the ambit of dealer regulation.
---------------------------------------------------------------------------

    \527\ See note 476, supra.
---------------------------------------------------------------------------

    In this regard, we note that it is likely that there are fewer
barriers to entry in connection with acting as a dealer in security-
based swaps such as equity swaps and total return swaps on debt than
there are in connection with acting as a dealer in single-name credit
default

swaps.\528\ We also note that because equity swaps and total return
swaps on debt can serve as close economic proxies for equity and debt
securities, an overly broad de minimis threshold in connection with
such instruments could threaten to undermine the Exchange Act framework
for regulating persons who act as dealers in equity and debt.
---------------------------------------------------------------------------

    \528\ For example, persons registered with the SEC as broker-
dealers in connection with other types of securities would appear to
be well positioned to act as dealers in connection with equity
swaps, as such broker-dealers already would be expected to have
systems in place to enter into equity positions to hedge their
equity swap dealing positions.
---------------------------------------------------------------------------

    At the same time--notwithstanding the smaller scope of this market
and the lesser availability of data regarding dealing activity within
the market--we do not believe that it is necessary to make the de
minimis exception unavailable in connection with dealing activity
involving security-based swaps that are not credit default swaps. In
this regard we particularly note that the limited available data
regarding equity swaps suggests a high degree of concentration in
dealing activity involving those instruments,\529\ which indicates that
an appropriately sized de minimis threshold can be expected to promote
regulatory efficiency.
---------------------------------------------------------------------------

    \529\ As noted above, four commercial banks and trust companies
accounted for 93 percent of all equity positions held by such
companies as of June 30, 2011, and nine bank holding companies
accounted for over 99 percent of all equity positions held by the
fifty largest such companies as of December 2011. See note 485,
supra.
---------------------------------------------------------------------------

    Balancing those factors, we conclude that a $150 million annual
notional threshold is appropriate to implement the de minimis exception
in connection with security-based swaps that are not credit default
swaps, consistent with our understanding of the comparative size of
that market as applied to the threshold applicable to credit default
swap dealing activity. For reasons similar to those described above, we
conclude that there should be a phase-in period available to persons
whose annual notional dealing activity in connection with security-
based swaps that are not credit default swaps is no more than $400
million in annual 12-month notional amount. This phase-in period is
subject to the same limitations regarding transactions involving
special entities and natural persons as apply to the phase-in period
for credit default swaps. It also will be subject to the same
provisions regarding the termination of the phase-in period as apply in
connection with credit default swaps.\530\ The comparative lack of data
involving these markets--in contrast to the market for single-name
credit default swaps--particularly highlights how the use of a phase-in
period that is linked to the availability of post-implementation data
is appropriate.\531\
---------------------------------------------------------------------------

    \530\ See Exchange Act rule 3a71-2(a)(2); see also notes 520
through 522, supra, and accompanying text.
    \531\ The SEC expects that the staff report should be especially
helpful for providing data regarding dealing activity in connection
with those other types of security-based swaps to consider the
impact of the termination of the phase-in period, as well as
potential changes to the de minimis exception in connection with
these instruments.
---------------------------------------------------------------------------

    As above, a person who is eligible to take advantage of the phase-
in period in connection with these types of security-based swaps may
nonetheless register as a security-based swap dealer.
e. Dealing Activity Involving Special Entities
    Consistent with the proposal, the final rules in general will cap
an entity's dealing activity involving security-based swaps at no more
than $25 million notional amount over the prior 12 months when the
counterparty to the security-based swap is a special entity.\532\ There
will be no phase-in period in connection with transactions involving
special entities. In adopting this threshold, we recognize the serious
concerns raised by commenters that stated that the de minimis exception
should not permit any dealing activities involving special entities in
light of losses that special entities have incurred in the financial
markets,\533\ as well as the special protection that Title VII affords
special entities.\534\
---------------------------------------------------------------------------

    \532\ Exchange Act rule 3a71-2(a)(1)(iii).
    \533\ See letters from AFR and Better Markets I.
    \534\ In this regard we note that Title VII authorizes the SEC
to impose special business conduct requirements when a security-
based swap dealer is counterparty to a special entity. See Exchange
Act section 15F(h)(5). In proposing rules to implement these
requirements, the SEC requested comment regarding the scope of the
``special entity'' definition, including, for example, regarding
whether the SEC should interpret ``special entity'' to exclude a
collective investment vehicle in which one or more special entities
have invested. See Exchange Act Release No. 64766 (June 29, 2011),
76 FR 42396, 42422 (July 18, 2011). For purposes of interpreting
this special entity threshold to the de minimis exception--
particularly with regard to when a special entity would be a
counterparty to a person that is engaged in dealing activity--the
SEC believes that it will be appropriate to be guided by final
interpretations regarding when a dealer will be a counterparty to a
special entity for purposes of those business conduct requirements.
---------------------------------------------------------------------------

    At this time, the final rule does not fully exclude such dealing
activity from the exception, in light of the potential benefits that
may arise from a de minimis exception. In this way, the threshold would
not completely foreclose the availability of security-based swaps to
special entities from unregistered dealers--as $25 million would
annually accommodate up to five single-name credit default swaps of a
$5 million notional size--but the threshold would limit the financial
and other risks associated with those positions for a special entity,
which would in turn limit the possibility of inappropriately
undermining the special protections that Title VII provides to special
entities.
    In reaching this conclusion we recognize that special entities do
participate in the single-name credit default swap market, given that
an analysis of market data indicates that in 2011 special entities were
parties to over $40 billion in single-name credit default swap
transactions.\535\ At the same time, the impact of this $25 million
threshold--particularly concerns that the threshold may foreclose the
ability of special entities to access dealers in the market--appears to
be mitigated by the fact that the counterparties to those special
entities tend to engage in notional transactions in single-name credit
default swap well in excess of the general de minimis standards.\536\
In light of the underlying counterparty protection issues, we see no
basis to distinguish between types of security-based swaps in setting
this special entity threshold.
---------------------------------------------------------------------------

    \535\ See CDS Data Analysis at table 9.
    \536\ See id. at n.8 (noting that the average notional activity
of those 16 counterparties was $680 billion, with the lowest being
approximately $9 billion).
---------------------------------------------------------------------------

    For similar reasons, in the future as we consider whether to amend
the de minimis exception we expect to pay particular attention to
whether the threshold for transactions involving special entities
should further be lowered.
f. Future Revisions to the Rule
    As noted above and described in detail below in part V, the SEC is
directing its staff to report on whether changes are warranted to the
rules and interpretations implementing the security-based swap dealer
definition, including the rule implementing the de minimis
exception.\537\ The SEC will take the report and associated public
comment into account in determining whether to propose any changes to
the rule implementing the exception.\538\ Consistent with that
possibility, the final rule provides that the SEC may change the
requirements of the de minimis exception by rule or regulation.\539\
Through this mechanism,

the SEC may revisit the rule implementing the exception and potentially
change that rule, for example, if data regarding the security-based
swap market following the implementation of Section 15F under Title VII
suggests that different de minimis thresholds would be
appropriate.\540\ In determining whether to revisit the thresholds, the
SEC intends to pay particular attention to whether the de minimis
exception results in a dealer definition that encompasses too many
entities whose activities are not significant enough to warrant full
regulation under Title VII, or, alternatively, whether the de minimis
exception leads an undue amount of dealing activity to fall outside of
the ambit of the Title VII regulatory framework, or leads to
inappropriate reductions in counterparty protections (including
protections for special entities). The SEC also intends to pay
particular attention to whether alternative approaches would more
effectively promote the regulatory goals that may be associated with a
de minimis exception.
---------------------------------------------------------------------------

    \537\ See Exchange Act rule 3a71-2A(a)(1).
    \538\ See notes 520 through 522, supra, and accompanying text.
    \539\ Exchange Act rule 3a71-2(d). Exchange Act section
3(a)(71)(D) particularly states that the ``Commission''--meaning the
SEC--may exempt de minimis dealers and promulgate related
regulations. We do not interpret the joint rulemaking provisions of
section 712(d) of the Dodd-Frank Act to require joint rulemaking
here, because such an interpretation would read the term
``Commission'' out of Exchange Act section 3(a)(71)(D), which itself
was added by the Dodd-Frank Act.
    \540\ See letter from Greenberger (stating that the dynamic
nature of the derivatives sector of the financial markets should
counsel caution, and that the de minimis threshold should be
reevaluated on an ongoing basis).
---------------------------------------------------------------------------

6. Registration Period for Entities That Exceed the De Minimis Factors
    The de minimis exception raises implementation issues akin to those
associated with the major participant definition, in that both
provisions use tests that have retrospective elements to determine
whether an entity must register and be subject to future regulation. As
a result, some commenters have suggested that entities that surpass the
de minimis thresholds should be able to take advantage of a grace
period to undertake the process of registering as swap dealers or
security-based swap dealers.\541\ Otherwise, absent such a ``roll-in''
period, entities whose dealing activities surpass the relevant de
minimis factors would immediately be in violation of dealer
registration requirements. In light of these concerns, and the interest
of avoiding undue market disruptions, the Commissions believe that it
is appropriate to provide entities that exceed applicable the de
minimis factors a period of time to register as dealers.
---------------------------------------------------------------------------

    \541\ See letters from Northland Energy and WGCEF I.
---------------------------------------------------------------------------

    Accordingly, the final rules have been revised from the proposal to
provide for a timing standard that is similar to what we are using in
connection with the major participant definition.\542\ That is, if an
entity that has relied on the de minimis exception no longer is able to
rely on the exception because its dealing activity exceeds a relevant
threshold, the entity would have two months, following the end of the
month in which it no longer is able to take advantage of the exception,
to submit a completed application to register as a swap dealer or
security-based swap dealer.\543\
---------------------------------------------------------------------------

    \542\ Compare CFTC Regulation Sec.  1.3(hhh)(3); Exchange Act
rule 3a67-8(a) (providing that persons who meet the criteria to be
major participants will have two months to submit a completed
registration application).
    \543\ See CFTC Regulation Sec.  1.3(ggg)(4)(ii); Exchange Act
rule 3a71-2(b). As discussed below with regard to the implementation
period for the major participant definitions, persons will have
additional time to comply with the applicable requirements following
the submission of a completed application. See part IV.L.3, infra.
---------------------------------------------------------------------------

    Also, akin to the major participant definitions,\544\ a person
registered as a swap dealer or security-based swap dealer may apply to
withdraw that registration, while continuing to engage in a limited
amount of dealing activity in reliance on the de minimis exception, if
that person has been registered as a dealer for at least 12
months.\545\ This should help ensure that persons do not rapidly move
in and out of dealer status based on short-term fluctuations in their
swap or security-based swap activities.
---------------------------------------------------------------------------

    \544\ Compare CFTC Regulation Sec.  1.3(hhh)(5); Exchange Act
rule 3a67-8(c) (providing that a major participant may be deemed to
no longer be a major participant if its swap or security-based swap
positions are below the relevant thresholds for four quarters).
    \545\ See CFTC Regulation Sec.  1.3(ggg)(4)(ii); Exchange Act
rule 3a71-2(c). Consistent with this approach, moreover, the final
rule has been revised from the proposal to clarify that the de
minimis exception in general is not available to a registered swap
dealer or security-based swap dealer. See CFTC Regulation Sec.
1.3(hhh)(1)(i); Exchange Act rule 3a71-2(a)(1) (revised language
clarifying availability of exception to a person that is not a swap
dealer or security-based swap dealer).
---------------------------------------------------------------------------

    The final rules implementing the de minimis exception do not
provide any reevaluation period for entities that engage in a level of
dealing activity above the de minimis thresholds, in contrast to the
major participant definitions.\546\ We do not believe that there is an
appropriate basis for such a provision, particularly given that dealer
regulation addresses customer protection and market operation and
transparency concerns apart from risk concerns.
---------------------------------------------------------------------------

    \546\ Compare CFTC Regulation Sec.  1.3(hhh)(4); Exchange Act
rule 3a67-8(b) (providing for a reevaluation period in connection
with the major participant definitions when a person does not exceed
any applicable threshold by more than 20 percent in a calendar
quarter).
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E. Limited Purpose Designation as a Dealer

1. Proposed Approach
    The definitions of the terms ``swap dealer'' and ``security-based
swap dealer'' provide that the Commissions may designate a person as a
dealer for one type, class or category of swap or security-based swap,
or specified swap or security-based swap activities, without the person
being considered a dealer for other types, classes, categories or
activities.\547\
---------------------------------------------------------------------------

    \547\ CEA section 1a(49)(B); Exchange Act section 3(a)(71)(B).
---------------------------------------------------------------------------

    In the Proposing Release, we noted that these provisions represent
permissive grants of authority that do not require the Commissions to
provide limited designations.\548\ We further stated that a person that
is covered by the definitions of the terms ``swap dealer'' or
``security-based swap dealer'' would be considered a dealer for all
types, classes or categories of the person's swaps or security-based
swaps, or activities involving swaps or security-based swaps, in light
of the difficulty of seeking to separate a person's dealing activities
from their non-dealing activities involving swaps or security-based
swaps, unless such person sought and received designation as a dealer
for only specified categories of swaps or security-based swaps, or
specified activities.\549\ We explained that this would provide persons
the opportunity to seek a limited designation based on applicable facts
and circumstances, and that we anticipated that a dealer could seek a
limited designation at the time of its initial registration or
later.\550\
---------------------------------------------------------------------------

    \548\ See Proposing Release, 75 FR at 80182.
    \549\ See id.; see also proposed CFTC Regulation Sec.
1.3(ggg)(3); proposed Exchange Act rule 3a71-1(c).
    \550\ See Proposing Release, 75 FR at 80182.
---------------------------------------------------------------------------

    In the Proposing Release, the CFTC further noted that non-financial
entities such as physical commodity firms potentially may conduct
dealing activity through a division rather than through a separately
incorporated subsidiary, and that such an entity's swap dealing
activity would not be a core component of its overall business. The
CFTC added that if this type of entity registered as a dealer, certain
swap dealer requirements would apply to the dealing activities of the
division, but not necessarily to the swap activities of other parts of
the entity.\551\
---------------------------------------------------------------------------

    \551\ See id.

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

2. Commenters' Views
    A number of commenters addressed the limited designation of dealers
in conjunction with the limited designation of major participants. Many
of the issues those commenters raised thus are relevant to both sets of
definitions.
a. Presumption of Full Designation
    A number of commenters objected to the proposed presumption that an
entity would be designated as a dealer (or major participant) for all
categories of swaps or security-based swaps and all of the person's
activities connected to swaps or security-based swaps. Several
commenters argued that this approach would be contrary to Congressional
intent,\552\ conflict with the statutory language,\553\ or conflict
with underlying policy concerns.\554\ One commenter suggested that the
Commissions lack the statutory authority to apply swap dealer
requirements to an entity's non-swap dealing activities.\555\
---------------------------------------------------------------------------

    \552\ See letters from Cargill Incorporated (``Cargill''), CDEU
and Investment Company Institute (``ICI'') dated February 22, 2011
(``ICI I'').
    \553\ See letters from MetLife and WGCEF I.
    \554\ See letter from Cargill (stating that limited designation
promotes the policy of encouraging non-financial firms that
primarily are engaged in non-dealing businesses to continue to
conduct limited dealing activities, adding that such firms ``do not
present the potential systemic risks of financial firms,'' and that
their full designation as dealers would discourage them from
providing risk management products).
    \555\ See letter from EDF Trading.
---------------------------------------------------------------------------

b. Potential Types of Limited Designations
    A number of commenters addressed potential types of limited
designations. One expressed support for limited swap dealer
designations for particularized business units and for particular swap
categories,\556\ while another requested that limited swap dealer
designations be available based on any reasonable commercial
groupings.\557\ Some commenters urged that limited dealer designations
should be available for the branches or business units of foreign swap
dealers and security-based swap dealers with U.S.-based customers or
U.S. business lines.\558\
---------------------------------------------------------------------------

    \556\ See letter from Capital One.
    \557\ See letters from NCGA/NGSA II (particularly referring to
groupings based on individual physical commodities) and WGCEF dated
June 9, 2011 (``WGCEF VII'') (limited designation should permit
firms to structure organization of limited purpose registrans as
appropriate in particular circumstances).
    \558\ See letters cited in note 148, supra.
---------------------------------------------------------------------------

c. Applications for Limited Designations
    A number of commenters addressed issues relating to the application
process for limited designations. Some commenters supported the ability
of a person to apply for limited designations at the time of initial
registration,\559\ while one commenter sought clarification on how and
when a person could apply for limited swap dealer status.\560\ Some
commenters suggested that entities should be considered to have a
provisional limited designation upon the filing of a completed
application for limited dealer designation.\561\
---------------------------------------------------------------------------

    \559\ See letters from MFA I (specifically requesting that the
rules provide that an entity can receive a limited purpose
designation at the time of their initial registration) and FSR I.
    \560\ See letter from National Futures Association (``NFA'').
    \561\ See letters from Capital One, Farm Credit Council I and
FHLB I.
---------------------------------------------------------------------------

    Some commenters requested further clarification as to what factors
or criteria would be considered relevant to limited designation
determinations.\562\ One commenter stated that non-financial companies
should have a presumption of limited swap dealer designation under
certain circumstances.\563\ Another commenter took the view that
commercial firms should be able to determine whether to register a
legal entity or a division as a dealer.\564\ One commenter suggested
the analysis consider the complexity of an entity's dealing and non-
dealing activities, and further suggested that limited designations
should automatically be available if an entity's dealing activities do
not exceed 50 percent of its total swap activities.\565\ Commenters
also raised issues related to how a person's status as a financial or a
non-financial entity affects a person's eligibility for limited
designations.\566\
---------------------------------------------------------------------------

    \562\ See letters from BG LNG I and ISDA I.
    \563\ See letter from Cargill (arguing that a firm should be
presumptively entitled to limited swap dealer status if: it is a
non-financial company; its non-dealing activities include (but need
not be limited to) production, merchandising or processing of
physical commodities; the firm's dealing activities take place in a
separately identifiable division or business unit with separate
management; and dealing revenues are less than 30 percent of the
firm's total revenues in the firm's most recent fiscal year).
    \564\ See letter from WGCEF VII (stating that so long as a
registered swap dealer bears the onus of demonstrating compliance
with regulatory requirements, regulators ``should not dictate''
whether the firm registers a legal entity or a division as a dealer;
also requesting guidance as to how applicable regulatory
requirements may apply to a subdivision of a legal entity that
registers as a dealer, and requesting a safe harbor from enforcement
action when a decision to register only a particular desk or
division as a dealer is made in good faith).
    \565\ See letter from Capital One.
    \566\ Compare letter from Capital One (stating that all market
participants, including financial institutions, should be allowed to
apply for limited swap dealer designations) with letter from Cargill
(suggesting that an entity's status as a financial company should be
relevant to limited dealer determinations).
---------------------------------------------------------------------------

d. Application of Regulatory Requirements to Limited Dealers
    Commenters also addressed issues related to the application of
regulatory requirements to limited dealers. One commenter recommended
that dealer regulatory requirements generally should apply only to a
division undertaking limited dealing activities; that commenter further
stated that capital requirements should be calculated based only on the
activities of that division, while recognizing that capital must be
held by the entity as a whole.\567\ Other commenters argued that
capital and margin requirements should only be applied to an entity on
a limited basis.\568\
---------------------------------------------------------------------------

    \567\ See letter from Cargill.
    \568\ See letter from FSR I (recommending that to the extent
that capital requirements are tied to swap activity or exposures,
that only activities or exposures in the designated category be
reflected in the calculation).
---------------------------------------------------------------------------

e. Miscellaneous Issues
    One commenter recommended that non-financial entities that are
deemed to be limited dealers (or major participants) be permitted to be
treated as end-users for the aspects of their businesses that are not
subject to the limited designation.\569\ The commenter further
suggested that the swaps ``push-out'' rule requirements of section 716
of the Dodd-Frank Act be interpreted so that an insured depository
institution that is a limited purpose dealer would only have to push
out the dealing portion of its swap business, and be allowed to retain
the other aspects of its swaps business.\570\ One commenter requested
clarification as to whether a person that is a limited purpose dealer
in connection with one category of swap could be a major participant in
connection with another category (in light of the statutory language
excluding dealers from the major participant definitions).\571\
---------------------------------------------------------------------------

    \569\ See id. (recommending that the corporate treasurer of an
entity with a limited designation as a swap dealer for ``other
commodity swaps'' as a result of its energy derivatives activity be
able to hedge the entity's interest rate and currency risk without
being subject to the business conduct, reporting, recordkeeping or
other rules applicable to dealers and major participants).
    \570\ See id.
    \571\ See letter from NFA. As discussed below, see 752, infra, a
person who is designated as a dealer in connection with particular
types of swaps or security-based swaps may be major participants
with regard to other types.
---------------------------------------------------------------------------

3. Final Rules and General Principles
    Consistent with the proposal, the final rules retain the
presumption that a

person who meets one of the dealer definitions will be deemed to be a
dealer with regard to all of its swaps or security-based swaps
activities, unless the CFTC or SEC exercises its authority to limit the
person's designation as a dealer to specified categories of swaps or
security-based swaps, or specified activities.\572\ As discussed in the
Proposing Release, moreover, a person may apply for a limited
designation when it submits a registration application, or at a later
time.\573\ The final rules also contain a technical change from the
proposed rules to clarify that limited designations may be based on a
particular type, class or category of swap or security-based-swap.\574\
---------------------------------------------------------------------------

    \572\ CFTC RegulationSec.  1.3(ggg)(3); Exchange Act rule 3a71-
1(c).
    \573\ The SEC expects to address the process for submitting an
application for limited designation as a security-based swap dealer,
along with principles to be used by the SEC in analyzing such
applications, as part of separate rulemakings.
    \574\ The rules particularly have been revised from the proposal
to add ``type'' and ``class'' language to supplement the use of the
term ``category.'' This change is consistent with the statutory
language. In addition, the final rules related to limited
designations for ``security-based swap dealers'' corrects an
erroneous reference to major participant designation.
---------------------------------------------------------------------------

a. Default Presumption of Full Designation
    Consistent with the proposal, the final rules retain the standard
that a person that satisfies the ``swap dealer'' or ``security-based
swap dealer'' definition in general would be considered a dealer for
all types, classes or categories of the person's swaps or security-
based swaps, or all activities involving swaps or security-based swaps.
    The Commissions are not persuaded by the suggestion that this
presumption is inconsistent with the statute, legislative intent or
underlying policy. Not only is the relevant statutory language written
as a grant of authority rather than a specific mandate to designate
certain entities as limited purpose dealers, but the presumption also
reasonably reflects the difficulty of separating a dealer's dealing
activities from its non-dealing activities, and the challenges of
applying dealer regulatory requirements to only a portion of a dealer's
swap or security-based swap activities.\575\
---------------------------------------------------------------------------

    \575\ This approach also is consistent with the treatment of
dealers of other types of securities under the Exchange Act. When a
person's securities activities cause them to be a ``dealer'' for
purposes of the Exchange Act, the statutory requirements and
regulations applicable to dealers will apply to all of that person's
securities activities, regardless of whether particular activities
would not have caused the entity to fall within the ``dealer''
definition. For example, Exchange Act section 15(c)(3)(A) prohibits
brokers and dealers from engaging in certain securities-related
activity in contravention of SEC-prescribed rules with respect to
financial responsibility or related practices. This provision does
not distinguish between those activities that cause a person to fall
within the ``broker'' or ``dealer'' definitions, and other
activities that themselves do not cause that person to be a broker
or dealer. The SEC's authority extends to all securities activities
by those brokers or dealers.
---------------------------------------------------------------------------

    We similarly are not persuaded by the view that the Commissions
lack the authority to apply dealer regulation to non-dealing activities
of a registered swap dealer or security-based swap dealer.\576\ Certain
of the statutory requirements applicable to swap dealers and security-
based swap dealers--such as capital requirements--simply do not
distinguish between a person's dealing activities and their non-dealing
activities.\577\ In other words, absent a limited designation, the
statutory requirements applicable to dealers address the regulation of
all of a dealer's swap or security-based swap activities.\578\
---------------------------------------------------------------------------

    \576\ See letter from EDF Trading.
    \577\ See, e.g., CEA section 4s(e); Exchange Act section 15F(e).
    \578\ The substantive regulations applicable to dealers, of
course, can account for the nature of a dealer's particular swap or
security-based swap activities.
     The SEC also intends to address limited designation issues in
the context of a separate release addressing the application of
Title VII to non-U.S. entities.
---------------------------------------------------------------------------

b. Demonstration of Compliance With Dealer Requirements
    The Commissions will consider limited purpose applications on an
individual basis through analysis of the unique circumstances of each
applicant, given that the types of entities that engage in swap or
security-based swap dealing are diverse and their organization and
activities are varied.\579\
---------------------------------------------------------------------------

    \579\ Consistent with this approach, applications to limit a
person's dealer designation to ``specified categories'' of swaps or
security-based swaps (see CFTC Regulation Sec.  1.3(ggg)(3);
Exchange Act rule 3a71-1(c)), would not be required to interpret the
term ``category'' consistently with the use of that term in
connection with the major participant definitions. CFTC Regulation
Sec.  1.3(iii) and Exchange Act rule 3a67-2, defining the terms
``major swap category'' and ``major security-based swap category,''
respectively, do not apply for this purpose.
---------------------------------------------------------------------------

    Regardless of the type of limited designation being requested, the
Commissions will not designate a person as a limited purpose dealer
unless it can demonstrate that it can fully comply with the
requirements applicable to dealers.
    Certain of the statutory requirements applicable to dealers
particularly focus on the entity's swap or security-based swap
activities and positions. These include, among other aspects,
requirements related to trading records, documentation and
confirmations.\580\ An applicant for a limited purpose designation
would have to demonstrate how it would satisfy those transaction-
specific requirements in the context of a limited designation.
---------------------------------------------------------------------------

    \580\ See, e.g., CEA section 4s(h)(3), Exchange Act section
15F(h)(3) (business conduct standards, including disclosure
requirements, for dealers); CEA section 4s(g), Exchange Act section
15F(g) (daily trading record requirements for dealers); CEA section
4s(i); Exchange Act section 15F(i) (documentation requirements for
dealers).
---------------------------------------------------------------------------

    Other statutory requirements applicable to dealers particularly
focus on the entity itself. These include requirements related to
registration, capital, risk management, supervision, and chief
compliance officers.\581\ Here too, an applicant for a limited purpose
designation would have to demonstrate how it would satisfy those
requirements in the context of limited designations.
---------------------------------------------------------------------------

    \581\ See, e.g., CEA section 4s(a)(1), Exchange Act section
15F(a)(1) (registration requirements for dealers); CEA section
4s(e), Exchange Act section 15F(e) (capital and margin requirements
for dealers). The Dodd-Frank Act provides that in setting the
capital requirements for swap dealers and security-based swap
dealers (as well as major participants) that are subject to a
limited designation, the Commissions and the prudential regulators
must take into account the risks associated with other types,
classes, or categories of swaps or security-based swaps engaged in,
and the other swap or security-based swap activities conducted by,
that person ``that are not otherwise subject to regulation
applicable to that person by virtue of the status of the person'' as
a dealer or major participant. See CEA section 4s(e)(2)(C); Exchange
Act section 15F(e)(2)(C). In the case of a commercial agricultural
or energy company that obtains a limited purpose designation for a
particular business unit, the CFTC does not expect that this
provision will generally require the limited purpose designee to
calculate its required capital on the basis of swaps engaged in, or
activities conducted by, other business units within the company, to
the extent those swaps or activities do not generate risk beyond the
agricultural or energy company's ordinary commercial line of
business.
---------------------------------------------------------------------------

    A limited purpose designation might be appropriate, for example,
where a commercial agricultural company is a dealer in swaps related to
a thinly-traded commodity, such as a particular fertilizer, but is not
a dealer in, and does not wish to be subject to the swap dealer
requirements with respect to its swaps that relate to broadly-traded
commodities like corn or wheat (or where, say, a commercial energy
company is a dealer in swaps involving a commodity to be delivered at a
particular location and does not wish to be subject to the swap dealer
requirements for its swaps involving that commodity to be delivered at
other locations, for which it is not a swap dealer). A limited
designation might also be appropriate so that the swap dealer
requirements do not apply to interest rate or currency swaps that the
agricultural or energy company enters into in managing its financial
risk.

    A limited purpose designee could be a particular business unit
within a company. Additionally, a limited designation might be
considered to ``split the desk'' by applying the swap dealer
requirements solely to the designee's limited activities involving
swaps not entered into for the purpose of hedging a physical position
as defined in CFTC Regulation Sec.  1.3(ggg)(6)(iii). Any particular
limited purpose application will be analyzed in light of the unique
circumstances presented by the applicant.
    A key challenge that any applicant to a limited dealer designation
will face is the need to demonstrate full compliance with the
requirements that apply to the type, class or category of swap or
security-based swap, or the activities involving swaps or security-
based swaps, that fall within the swap dealer designation.

III. Amendments to the Definition of Eligible Contract Participant

A. Background

    The Dodd-Frank Act makes it unlawful for a person that is not an
eligible contract participant (``ECP'') to enter into a swap other than
on, or subject to the rules of, a DCM.\582\ In addition, section 763(e)
of the Dodd-Frank Act makes it unlawful for a person to effect a
transaction in a security-based swap with or for a person that is not
an ECP unless the transaction is effected on a national securities
exchange registered with the SEC.\583\ Moreover, section 768(b) of the
Dodd-Frank Act makes it unlawful for a person to offer to sell, offer
to buy or purchase, or sell a security-based swap to a person that is
not an ECP unless a registration statement under the Securities Act of
1933 (``Securities Act'') \584\ is in effect with respect to that
security-based swap.\585\ These provisions mean that persons can engage
in neither swaps nor security-based swaps transactions with persons
that are not ECPs on SEFs, on security-based SEFs, or on a bilateral,
off-exchange basis.
---------------------------------------------------------------------------

    \582\ In particular, section 723(a)(2) of the Dodd-Frank Act
adds new subsection (e) to CEA section 2 (7 U.S.C. 2(e)), providing
that ``[i]t shall be unlawful for any person, other than an eligible
contract participant, to enter into a swap unless the swap is
entered into on, or subject to the rules of, a board of trade
designated as a contract market under section 5.''
    \583\ In particular, section 763(e) of the Dodd-Frank Act adds
paragraph (l) to Exchange Act section 6 (15 U.S.C. 78f(l)),
providing that ``[i]t shall be unlawful for any person to effect a
transaction in a security-based swap with or for a person that is
not an eligible contract participant, unless such transaction is
effected on a national securities exchange registered pursuant to
subsection (b).''
    \584\ 15 U.S.C. 77a et seq.
    \585\ In particular, section 768(b) of the Dodd-Frank Act adds
paragraph (d) to Securities Act section 5 (15 U.S.C. 77e(d)),
providing that ``[n]otwithstanding the provisions of section 3 or 4,
unless a registration statement meeting the requirements of section
10(a) is in effect as to a security-based swap, it shall be unlawful
for any person, directly or indirectly, to make use of any means or
instruments of transportation or communication in interstate
commerce or of the mails to offer to sell, offer to buy or purchase
or sell a security-based swap to any person who is not an eligible
contract participant as defined in section 1a(18) of the Commodity
Exchange Act (7 U.S.C. 1a(18)).'' The Commissions note that market
participants must make the determination of ECP status with respect
to the parties to transactions in security-based swaps and mixed
swaps prior to the offer to sell or the offer to buy or purchase the
security-based swap or mixed swap.
---------------------------------------------------------------------------

    The Dodd-Frank Act also amended the ECP definition by: \586\ (i)
Providing that, for purposes of CEA sections 2(c)(2)(B)(vi) and
2(c)(2)(C)(vii), the term ECP does not include a commodity pool in
which any participant is not itself an ECP; (ii) raising the monetary
threshold that governmental entities may use to qualify as ECPs, in
certain situations, from $25 million in investments owned and invested
on a discretionary basis to $50 million in investments owned and
invested on a discretionary basis; \587\ and (iii) replacing the
``total asset'' standard for individuals to qualify as ECPs with an
``amounts invested on a discretionary basis'' standard.\588\
---------------------------------------------------------------------------

    \586\ See Sections 741(b)(10) and 721(a)(9) of the Dodd-Frank
Act; see also Financial Regulatory Reform, A New Foundation:
Rebuilding Financial Supervision and Regulation, available at http://www.treasury.gov/initiatives/Documents/FinalReport_web.pdf, at 48-
49 (June 17, 2009).
    \587\ See CEA section 1a(18)(A)(vii), 7 U.S.C. 1a(18)(A)(vii).
    \588\ See CEA section 1a(18)(A)(xi), 7 U.S.C. 1a(18)(A)(xi). The
Dodd-Frank Act did not amend the monetary thresholds for individuals
to qualify as ECPs. As such, an individual can qualify as an ECP if
such individual has amounts invested on a discretionary basis, the
aggregate of which is in excess of (i) $10,000,000, or (ii)
$5,000,000 if such individual also enters into the agreement,
contract, or transaction in order to manage the risk associated with
an asset owned or liability incurred, or reasonably likely to be
owned or incurred, by such individual.
---------------------------------------------------------------------------

    Commodity pools may, among other things, enter into transactions
involving foreign currency. ECP status is important for commodity pools
that enter into the following types of foreign currency transactions
(such commodity pools, ``Forex Pools''): (i) Off-exchange foreign
currency futures; (ii) off-exchange options on foreign currency
futures; (iii) off-exchange options on foreign currency; (iv) leveraged
or margined foreign currency transactions; and (v) foreign currency
transactions that are financed by the offeror, the counterparty or a
person acting in concert with the offeror or counterparty on a similar
basis.\589\ In some cases, discussed below in detail, if a Forex Pool
does not satisfy the ECP definition applicable to commodity pools
engaging in the types of foreign currency transactions noted above
\590\ and it engages in these types of foreign currency transactions
(such transactions, ``retail forex transactions'' and such commodity
pools, ``Retail Forex Pools''), the transactions will be subject to a
regulatory regime that imposes certain requirements and restrictions on
the counterparties to the Retail Forex Pool, and, if the Retail Forex
Pool engages in retail forex transactions other than with certain
counterparties, on the commodity pool operator (``CPO'') who operates
the Retail Forex Pool. These requirements and restrictions do not apply
if the Forex Pool satisfies the ECP definition applicable to commodity
pools engaging in the types of foreign currency transactions noted
above.
---------------------------------------------------------------------------

    \589\ See CEA sections 2(c)(2)(B)(vi) and 2(c)(2)(C)(vii), 7
U.S.C. 2(c)(2)(B)(vi) and 7 U.S.C. 2(c)(2)(C)(vii). In this context,
the term ``off-exchange'' means other than on or subject to the
rules of an organized exchange, as defined in CEA section 1a(37), 7
U.S.C. 1a(37).
    \590\ See CEA section 1a(18)(A)(iv), 7 U.S.C. 1a(18)(A)(iv); see
also CFTC Regulation Sec.  1.3(m)(5) (exporting the look-through
language of CEA section 1a(18)(A)(iv) to CEA section 1a(18)(A)(v)).
The Dodd-Frank Act amended the ECP definition to include a provision
that specifically applies to Forex Pools engaging in these types of
foreign currency transactions. See Section 741(b)(10) of the Dodd-
Frank Act (adding a provision to CEA section 1a(18)(A)(iv), 7 U.S.C.
1a(18)(A)(iv), stating ``provided, however, that for purposes of
section 2(c)(2)(B)(vi) and section 2(c)(2)(C)(vii), the term
`eligible contract participant' shall not include a commodity pool
in which any participant is not otherwise an eligible contract
participant.''). See part III.B below for a discussion of this
provision. This provision applies only with respect to retail forex
transactions. This means that a Retail Forex Pool, as defined above,
that is not an ECP for retail forex transaction purposes could be an
ECP for other transactions it enters into that are not retail forex
transactions.
---------------------------------------------------------------------------

    The Commissions are adopting further definitions of the term
``eligible contract participant'' in the following six respects: (i)
Generally prohibiting a Forex Pool from qualifying as an ECP if such
Forex Pool directly enters into retail forex transactions \591\ and has
one or more direct participants that are not ECPs; \592\ (ii)
clarifying that, in determining whether a direct participant in a Forex
Pool is an ECP, the indirect participants in the Forex Pool will not be
considered unless such Forex Pool, a commodity pool holding a direct or
indirect (through one or more intermediate tiers of pools) interest in

such Forex Pool, or any commodity pool in which such Forex Pool holds a
direct or indirect interest has been structured to evade Subtitle A of
Title VII of the Dodd-Frank Act; \593\ (iii) prohibiting a commodity
pool from qualifying as an ECP unless it has total assets exceeding $5
million and is operated by a person described in CEA section
1a(18)(A)(iv)(II);\594\ (iv) explicitly including swap dealers,
security-based swap dealers, major swap participants, and major
security-based swap participants in the definition of ECP; (v)
permitting a non-ECP to qualify as an ECP, with respect to certain
swaps, based on the collective net worth of its owners, subject to
several conditions, including that the owners are ECPs; and (vi)
permitting a Forex Pool to qualify as an ECP notwithstanding that it
has one or more direct participants that are not ECPs if the Forex Pool
(a) is not formed for the purpose of evading regulation under CEA
sections 2(c)(2)(B) or (C) or related rules, regulations or orders, (b)
has total assets exceeding $10 million and (c) is formed and operated
by a registered CPO or by a CPO who is exempt from registration as such
pursuant to Sec.  4.13(a)(3). In addition, the Commissions are issuing
interpretive guidance regarding the definition of ECP to correct an
inaccurate statutory cross-reference with respect to the ability of
government entities to qualify as ECPs under CEA section
1a(18)(A)(vii).\595\ The Commissions also are issuing interpretive
guidance with respect to the ECP status of Forex Pools whose
participants are limited solely to non-U.S. persons and which are
operated by CPOs located outside the United States, its territories or
possessions.
---------------------------------------------------------------------------

    \591\ In many commodity pool structures, this is the master fund
alone.
    \592\ But see note 652, infra, with respect to single level
Forex Pools using retail forex transactions solely to hedge.
    \593\ Section 721(c) of the Dodd-Frank Act requires the CFTC to
adopt a rule to further define the terms ``swap,'' ``swap dealer,''
``major swap participant,'' and ``eligible contract participant,''
in order ``[t]o include transactions and entities that have been
structured to evade'' subtitle A of Title VII (or an amendment to
the CEA made by subtitle A).
    \594\ 7 U.S.C. 1a(18)(A)(iv)(II).
    \595\ 7 U.S.C. 1a(18)(A)(vii).
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    The Commissions note that commenters raised interpretive and other
issues related to the ECP definition that the Commissions may consider
in the future.\596\
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    \596\ These issues include: (i) The ECP status of jointly and
severally liable borrowers and counterparties, non-ECPs guaranteed
by ECPs, and non-ECP swap collateral providers; (ii) whether bond
proceeds count toward the ``owns and invests on a discretionary
basis $50,000,000 or more in investments'' element of the
governmental ECP prong (CEA section 1a(18)(A)(vii), 7 U.S.C.
1a(18)(A)(vii)); (iii) the relationship between the ECP and eligible
commercial entity definitions for purposes of CEA section
1a(18)(A)(vii), 7 U.S.C. 1a(18)(A)(vii); (iv) the scope of the
``proprietorship'' element of the entity prong of the ECP definition
in CEA section 1a(18)(A)(v), 7 U.S.C. 1a(18)(A)(v) (which the
Commissions are addressing to a limited extent in the discussion of
the new line of business ECP category in part III.F, infra, and in
Regulation Sec.  1.3(m)(7)(ii)(C) under the CEA); (v) the meaning of
the new ``amounts invested on a discretionary basis'' element of the
individual prong of the ECP definition (CEA section 1a(18)(A)(xi), 7
U.S.C. 1a(18)(A)(xi)); (vi) whether persons can be ECPs in
anticipation of receiving, but before they have, the necessary
assets; and (vii) that swap dealers are not among the entities
listed in CEA section 2(c)(2)(B)(i)(II), 7 U.S.C. 2(c)(2)(B)(i)(II),
as acceptable counterparties to non-ECPs engaging in retail forex
transactions.
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B. Commodity Pool Look-Through for Retail Forex Transactions

1. Statutory Provisions
    Prior to the Dodd-Frank Act, clause (A)(iv) of the ECP definition
provided that a commodity pool was an ECP if it had $5 million in total
assets and was operated by a person regulated under the CEA, regardless
of whether each participant in the commodity pool was itself an
ECP.\597\ Section 741(b)(10) of the Dodd-Frank Act added a proviso to
clause (A)(iv) \598\ stating that a Forex Pool will not qualify as an
ECP, solely for purposes of CEA sections 2(c)(2)(B)(vi) or
2(c)(2)(C)(vii) (i.e., retail forex transactions) if any participant in
the Forex Pool is itself not an ECP.\599\
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    \597\ Clause (A)(iv) of the pre-Dodd-Frank Act ECP definition
also included a commodity pool operated by a foreign person
performing a similar role or function as a person regulated under
the CEA and subject as such to foreign regulation (regardless of
whether the foreign person was itself an ECP).
    \598\ The proviso states ``provided, however, that for purposes
of section 2(c)(2)(B)(vi) and section 2(c)(2)(C)(vii), the term
`eligible contract participant' shall not include a commodity pool
in which any participant is not otherwise an eligible contract
participant.'' CEA section 1a(18)(A)(iv); 7 U.S.C. 1a(18)(A)(iv).
    \599\ See CEA section 1a(18)(A)(iv), 7 U.S.C. 1a(18)(A)(iv). In
other words, the proviso in section 1a(18)(A)(iv) does not reference
or implicate ECP status for purposes of (i) CEA section 2(e), 7
U.S.C. 2(e) (which, as discussed above, permits non-ECPs to trade
swaps only on or subject to the rules of a DCM); (ii) Securities Act
section 5(d) (which, as discussed above, makes it unlawful for a
person to offer to sell, offer to buy or purchase, or sell a
security-based swap to a person that is not an ECP unless a
registration statement under the Securities Act is in effect with
respect to that security-based swap); or (iii) Exchange Act section
6(l) (which as discussed above, makes it unlawful for a person to
effect a transaction in a security-based swap with or for a person
that is not an ECP unless the transaction is effected on a national
securities exchange registered with the SEC). The look-through
proviso does not expressly state that indirect participants, as well
as direct participants, in the Forex Pool must be ECPs for the Forex
Pool to be an ECP. But see notes 636 and 638, infra (discussing the
authority for such an approach).
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    Thus, for purposes of retail forex transactions, the Dodd-Frank Act
imposed a requirement to ``look through'' a Forex Pool--meaning that
ECP status would be limited to Forex Pools in which each participant is
itself an ECP. This is important for two reasons. First, a Forex Pool
that does not qualify as an ECP can enter into a retail forex
transaction described in CEA section 2(c)(2)(B)(i)(I) only with one of
the federally-regulated counterparties enumerated in CEA sections
2(c)(2)(B)(i)(II)(aa) (U.S. financial institutions),\600\ (bb) (certain
brokers, dealers and their associated persons),\601\ (cc) (certain
futures commission merchants (``FCMs'') and their affiliated
persons),\602\ (dd) (certain financial holding companies) \603\ or (ff)
(certain retail foreign exchange dealers (``RFEDs'')) \604\ (each an
``Enumerated Counterparty'' and collectively ``Enumerated
Counterparties''); the counterparty restriction does not apply to
retail forex transactions described in CEA section 2(c)(2)(C)(i)(I)(bb)
\605\ entered into by a Forex Pool that does not qualify as an ECP,
though such transactions are subject to antifraud protections and
related enforcement provisions if entered into with a

counterparty other than an Enumerated Counterparty described in CEA
section 2(c)(2)(B)(i)(II)(aa), (bb) or (dd).\606\ Second, the operator
of a Retail Forex Pool engaging in retail forex transactions with an
Enumerated Counterparty that is an FCM, specified affiliated person of
an FCM or RFED must register with the CFTC as a CPO,\607\ unless the
CPO also is an Enumerated Counterparty under 2(c)(2)(B)(i)(II)(aa),
(bb) or (dd) \608\ or an exemption from CPO registration applies.\609\
Moreover, CEA section 2(c)(2)(E)(ii)(I),\610\ which was added by
section 742(c)(2) of the Dodd-Frank Act, prohibits an Enumerated
Counterparty from entering into retail forex transactions described in
CEA section 2(c)(2)(B)(i)(I) with a person that is not an ECP ``except
pursuant to a rule or regulation of [the appropriate Federal regulator
of such Enumerated Counterparty allowing such transactions] under such
terms and conditions as [such regulator] shall prescribe.'' CEA section
2(c)(2)(E)(iii)(II) \611\ requires that such rules or regulations treat
similarly all agreements, contracts, and transactions in foreign
currency that are functionally or economically similar to CEA section
2(c)(2)(B)(i)(I) agreements, contracts, and transactions.
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    \600\ 7 U.S.C. 2(c)(2)(B)(i)(II)(aa). The term ``financial
institution'' is defined in CEA Section 1a(21), 7 U.S.C. 1a(21).
    \601\ 7 U.S.C. 2(c)(2)(B)(i)(II)(bb). This category is comprised
of each:
    (AA) [] broker or dealer registered under section 15(b) (except
paragraph (11) thereof) or 15C of the Securities Exchange Act of
1934 (15 U.S.C. 78o(b), 78o-5); [and] (BB) [ ] associated person of
a broker or dealer registered under section 15(b) (except paragraph
(11) thereof) or 15C of the Securities Exchange Act of 1934 (15
U.S.C. 78o(b), 78o-5) concerning the financial or securities
activities of which the broker or dealer makes and keeps records
under section 15C(b) or 17(h) of the Securities Exchange Act of 1934
(15 U.S.C. 78o-5(b), 78q(h)).
    \602\ 7 U.S.C. 2(c)(2)(B)(i)(II)(cc). This category is comprised
of each:
    (cc)(AA) []futures commission merchant that is primarily or
substantially engaged in the business activities described in
section 1a of this Act, is registered under this Act, is not a
person described in item (bb) of this subclause, and maintains
adjusted net capital equal to or in excess of the dollar amount that
applies for purposes of clause (ii) of this subparagraph; [and] (BB)
[ ] affiliated person of a futures commission merchant that is
primarily or substantially engaged in the business activities
described in section 1a of this Act, is registered under this Act,
and is not a person described in item (bb) of this subclause, if the
affiliated person maintains adjusted net capital equal to or in
excess of the dollar amount that applies for purposes of clause (ii)
of this subparagraph and is not a person described in such item
(bb), and the futures commission merchant makes and keeps records
under section 4f(c)(2)(B) of this Act concerning the futures and
other financial activities of the affiliated person.
    \603\ 7 U.S.C. 2(c)(2)(B)(i)(II)(dd). The enumerated
counterparty in this category is ``a financial holding company (as
defined in section 2 of the Bank Holding Company Act of 1956).''
    \604\ 7 U.S.C. 2(c)(2)(B)(i)(II)(ff). This category is comprised
of each:
    retail foreign exchange dealer that maintains adjusted net
capital equal to or in excess of the dollar amount that applies for
purposes of clause (ii) of this subparagraph and is registered in
such capacity with the [CFTC], subject to such terms and conditions
as the [CFTC] shall prescribe, and is a member of a futures
association registered under section 17 [of the CEA].
    \605\ 7 U.S.C. 2(c)(2)(C)(i)(I)(bb).
    \606\ The counterparty limitation with respect to CEA section
2(c)(2)(B)(i)(I) retail forex transactions is a function of the fact
that the CEA's exchange-trading requirement generally applies with
respect to foreign currency futures, foreign currency options on
futures, and foreign currency options. See CEA section 4(a), 7
U.S.C. 6(a) (generally requiring futures contracts to be traded on
or subject to the rules of a DCM); CEA section 4c(b), 7 U.S.C. 6c(b)
(prohibiting trading options subject to the CEA contrary to CFTC
rules, regulations or orders permitting such trading); Part 32 of
the CFTC's rules, 17 CFR part 32 (generally prohibiting entering
into options subject to the CEA) and CFTC Regulation Sec.  33.3(a),
17 CFR 33.3(a) (prohibiting entering into options on futures other
than on or subject to the rules of a DCM). Because CEA section 4(a)
would render an off-exchange futures contract illegal but for CEA
section 2(c)(2)(B) permitting such transactions with an Enumerated
Counterparty, it would be illegal for a non-Enumerated Counterparty
to enter into a futures contract described in 2(c)(2)(B)(i)(I) with
a non-ECP. Similarly, because options can be conducted only pursuant
to CFTC authority and the CFTC has proposed to treat commodity
options within its jurisdiction as swaps, CEA section 2(e) would
prohibit such options, if on foreign exchange and entered into with
a non-ECP, but for the fact that 2(c)(2)(B) permits them if traded
with an Enumerated Counterparty.
    The lack of a counterparty limitation with respect to CEA
section 2(c)(2)(C)(i)(I)(bb) retail forex transactions is a function
of the different structures of CEA sections 2(c)(2)(B) and (C).
Whereas CEA section 2(c)(2)(B)(i) covers transactions that would be
illegal but for compliance with CEA section 2(c)(2)(B) (due to such
section's incorporation of the entire CEA, including, for example,
the exchange-trading requirement discussed above), falling within
CEA section 2(c)(2)(C)(i)(I), by that section's own terms, merely
brings a covered transaction within the scope of CEA section
2(c)(2)(C), which does not include the exchange-trading requirement
of CEA section 4(a). Because CEA section 2(c)(2)(C)(i)(I) covers
transactions that may or may not also be transactions described in
section 2(c)(2)(B)(i)(I) and the far fewer requirements imposed by
CEA section 2(c)(2)(C) invite characterization of such difficult-to-
categorize transactions as falling solely within CEA section
2(c)(2)(C), the CFTC will interpret such dually characterizable
transactions as governed by CEA section 2(c)(2)(B). If such
transactions fall only within CEA section 2(c)(2)(C), however,
because they would be subject to neither the exchange-trading
requirement of CEA section 4(a) nor the CFTC's plenary options
authority under CEA section 4c(b) (while CEA section
2(c)(2)(C)(ii)(I), 7 U.S.C. 2(c)(2)(C)(ii)(I), reserves the CFTC's
section 4c(b) authority, in this scenario, the contract in question
is not an option), a person other than an Enumerated Counterparty
may act as counterparty to a non-ECP. Such contracts would, however,
be subject to two of the CEA's antifraud provisions, sections 4(b)
and 4b, 7 U.S.C 6(b) and 7 U.S.C 6b, respectively, as if they were
futures contracts. See CEA section 2(c)(2)(C)(iv), 7 U.S.C.
2(c)(2)(C)(iv). Such contracts also would be subject to related
enforcement provisions. See CEA section 2(c)(2)(C)(ii)(I), 7 U.S.C.
2(c)(2)(C)(ii)(I).
    \607\ See CEA sections 2(c)(2)(B)(iv)(I) and (C)(iii)(I)
(requiring registration for CPOs of Retail Forex Pools entering into
retail forex transactions with FCMs, specified affiliated persons
thereof or RFEDs). By contrast, those sections exclude from the CPO
registration requirement CPOs of Retail Forex Pools engaging in
retail forex transactions with Enumerated Counterparties described
in CEA section 2(c)(2)(B)(i)(II)(aa), (bb), (ee) and (ff). While the
cited CEA sections refer to counterparties not described in ``any of
item (aa), (bb), (ee), or (ff)'' of subparagraph (B)(i)(II), the
CFTC Reauthorization Act of 2008 (``CRA''), included as Title XIII
of the Food, Conservation and Energy Act of 2008, Pub.L. 110-246,
122 Stat. 1651 changed item (ee) to item (dd) (a financial holding
company as defined in section 2 of the Bank Holding Company Act of
1956) and removed item (ff) (formerly an investment bank holding
company (as defined in section 17(i) of the Exchange Act (15 U.S.C.
78q(i))). Therefore, the Commissions interpret the reference in CEA
sections 2(c)(2)(B)(iv)(I)(cc) and 2(c)(2)(C)(iii)(I)(cc) to items
(aa), (bb), (ee), or (ff) to be references to items (aa), (bb) and
(dd). Cf. Retail Foreign Exchange Transactions; Conforming Changes
to Existing Regulations in Response to the Dodd-Frank Wall Street
Reform and Consumer Protection Act, 76 FR 56103 (Sept. 12, 2011)
(providing background on related incorrect internal references in
CEA sections 2(c)(2)(B) and (C)). See also CFTC Regulation Sec.
5.3(a)(2)(i), 17 CFR 5.3(a)(2)(i), which requires a CPO, as defined
in CFTC Regulation Sec.  5.1(d)(1), 17 CFR 5.1(d)(1), to register as
such. CFTC Regulation Sec.  5.1(d)(1), in turn, defines a CPO, for
purposes of Part 5 of the CFTC's Regulations, 17 CFR part 5, as
``any person who operates or solicits funds, securities or property
for a pooled investment vehicle that is not an [ECP] as defined in
section 1a(18) of the Act, and that engages in retail forex
transactions.'' The CFTC interprets the references in Regulation
Sec.  5.1(d)(1) to ECPs as defined in CEA section 1a(18) to include
the ECP definition as further defined or interpreted by the
Commissions under authority conferred by the Dodd-Frank Act or
otherwise amended or interpreted by the Commissions or a court.
While the statutory CPO definition in CEA section 1a(11)(A), 7
U.S.C. 1a(11)(A), does not include transactions described in CEA
section 2(c)(2)(B)(i), the Commissions believe this was an
oversight. In any case, CEA section 1a(11)(B), 7 U.S.C. 1a(11)(B),
grants the CFTC the authority to further define the term CPO, which
the CFTC has done in CFTC Regulation Sec.  5.1(d)(1). Therefore, a
person operating a commodity pool engaging in transactions described
in CEA section 2(c)(2)(B)(i) is a CPO.
    \608\ See CEA sections 2(c)(2)(B)(iv)(II) and
2(c)(2)(C)(iii)(II). While CEA sections 2(c)(2)(B)(iv)(II) and
2(c)(2)(C)(iii)(II) refer to counterparties described in item (aa),
(bb), (ee), or (ff) of subparagraph (B)(i)(II), the CFTC
Reauthorization Act of 2008 changed item (ee) to item (dd) and
removed item (ff). Therefore, the Commissions interpret the
reference in CEA sections 2(c)(2)(B)(iv)(II) and 2(c)(2)(C)(iii)(II)
to items (aa), (bb), (ee), or (ff) to be references to items (aa),
(bb) and (dd). Cf. Retail Foreign Exchange Transactions; Conforming
Changes to Existing Regulations in Response to the Dodd-Frank Wall
Street Reform and Consumer Protection Act, 76 FR 56103 (Sept. 12,
2011) (providing background on related incorrect internal references
in 2(c)(2)(B) and (C)).