(E) Fixed price commitments (open purchases and sales) and forward
contracts which are not covered by an open futures contract or
commodity option--20% of the market value.
    (x) Deduct for undermargined customer commodity futures accounts
the amount of funds required in each such account to meet maintenance
margin requirements of the applicable board of trade or, if there are
no such maintenance margin requirements, clearing organization margin
requirements applicable to such positions, after application of calls
for margin, or other required deposits which are outstanding three
business days or less. If there are no such maintenance margin
requirements or clearing organization margin requirements on such
accounts, then deduct the amount of funds required to provide margin
equal to the amount necessary after application of calls for margin, or
other required deposits outstanding three days or less to restore
original margin when the original margin has been depleted by 50
percent or more. Provided, To the extent a deficit is deducted from net
worth in accordance with paragraph (a)(2)(ii) of this Appendix B, such
amount shall not also be deducted under this paragraph (a)(2)(x). In
the event that an owner of a customer account has deposited an asset
other than cash to margin, guarantee or secure his account, the value
attributable to such asset for purposes of this paragraph shall be the
lesser of (A) the value attributable to such asset pursuant to the
margin rules of the applicable board of trade, or (B) the market value
of such asset after application of the percentage deductions specified
in paragraph (a)(2)(ix) of this Appendix B or, where appropriate,
specified in paragraph (c)(1)(iv), (vi), or (vii) of Sec.  240.18a-1 of
this chapter;
    (xi) Deduct for undermargined non-customer and omnibus commodity
futures accounts the amount of funds required in each such account to
meet maintenance margin requirements of the applicable board of trade
or, if there are no such maintenance margin requirements, clearing
organization margin requirements applicable to such positions, after
application of calls for margin, or other required deposits which are
outstanding two business days or less. If there are no such maintenance
margin requirements or clearing organization margin requirements, then
deduct the amount of funds required to provide margin equal to the
amount necessary after application of calls for margin, or other
required deposits outstanding two days or less to restore original
margin when the original margin has been depleted by 50 percent or
more. Provided, To the extent a deficit is deducted from net worth in
accordance with paragraph (a)(2)(ii) of this Appendix B such amount
shall not also be deducted under this paragraph (a)(2)(xi). In the
event that an owner of a non-customer or omnibus account has deposited
an asset other than cash to margin, guarantee or secure his account,
the value attributable to such asset for purposes of this paragraph
shall be the lesser of (A) the value attributable to such asset
pursuant to the margin rules of the applicable board of trade, or (B)
the market value of such asset after application of the percentage
deductions specified in paragraph (a)(2)(ix) of this Appendix B or,
where appropriate, specified in paragraph (c)(1)(iv), (vi), or (vii) of
Sec.  240.18a-1 of this chapter;
    (xii) In the case of open futures contracts and granted (sold)
commodity options held in proprietary accounts carried by the security-
based swap dealer which are not covered by a position held by the
security-based swap dealer or which are not the result of a ``changer
trade'' made in accordance with the rules of a contract market, deduct:
    (A) For a security-based swap dealer which is a clearing member of
a contract market for the positions on such contract market cleared by
such member, the applicable margin requirement of the applicable
clearing organization; (B) For a security-based swap dealer which is a
member of a self-regulatory organization, 150% of the applicable
maintenance margin requirement of the applicable board of trade or
clearing organization, whichever is greater; or
    (C) For all other security-based swap dealers, 200% of the
applicable maintenance margin requirement of the applicable board of
trade or clearing organization, whichever is greater; or
    (D) For open contracts or granted (sold) commodity options for
which there are no applicable maintenance margin requirements, 200% of
the applicable initial margin requirement; Provided, the equity in any
such proprietary account shall reduce the deduction required by this
paragraph (a)(2)(xii) if such equity is not otherwise includable in net
capital.
    (xiii) In the case of a security-based swap dealer which is a
purchaser of a commodity option which is traded on a contract market,
the deduction shall be the same safety factor as if the security-based
swap dealer were the grantor of such option in accordance with
paragraph (a)(2)(xii), but in no event shall the safety factor be
greater than the market value attributed to such option.
    (xiv) In the case of a security-based swap dealer which is a
purchaser of a commodity option not traded on a contract market which
has value and such value is used to increase net capital, the deduction
is ten percent of the market value of the physical or futures contract
which is the subject of such option but in no event more than the value
attributed to such option.
    (xv) A loan or advance or any other form of receivable shall not be
considered ``secured'' for the purposes of paragraph (a)(2) of this
Appendix B unless the following conditions exist:
    (A) The receivable is secured by readily marketable collateral
which is otherwise unencumbered and which can be readily converted into
cash: Provided, however, That the receivable will be considered secured
only to the extent of the market value of such collateral after
application of the percentage deductions specified in

paragraph (a)(2)(ix) of this Appendix B; and
    (B)(1) The readily marketable collateral is in the possession or
control of the security-based swap dealer; or
    (2) The security-based swap dealer has a legally enforceable,
written security agreement, signed by the debtor, and has a perfected
security interest in the readily marketable collateral within the
meaning of the laws of the State in which the readily marketable
collateral is located.
    (xvi) The term cover for purposes of this Appendix B shall mean
cover as defined in 17 CFR 1.17(j).
    (xvii) The term customer for purposes of this Appendix B shall mean
customer as defined in 17 CFR 1.17(b)(2). The term non-customer for
purposes of this Appendix B shall mean non-customer as defined in 17
CFR 1.17(b)(4).
    (b) Every registered security-based swap dealer in computing net
capital pursuant to Sec.  240.18a-1 shall comply with the following:
    (1) Swaps. Where a swap-related asset or liability is specifically
treated or defined in 17 CFR 1.17 and is not generally or specifically
treated or defined in Sec.  240.15c3-1 or this Appendix B, the
inclusion or exclusion of all or part of such asset or liability for
net capital shall be in accordance with 17 CFR 1.17.
    (i) Credit default swaps referencing broad-based securities
indices. (A) Short positions (selling protection). In the case of a
swap that is a short credit default swap referencing a broad-based
securities index, deducting the percentage of the notional amount based
upon the current basis point spread of the credit default swap and the
maturity of the credit default swap in accordance with the following
table:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Basis point spread
                                                         -----------------------------------------------------------------------------------------------
       Length of time to maturity of  CDS contract          100 or less                                                                     700 or more
                                                                (%)        101-300  (%)    301-400  (%)    401-500  (%)    501-699  (%)         (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
12 months or less.......................................            0.67            1.33            3.33            5.00            6.67           10.00
13 months to 24 months..................................            1.00            2.33            5.00            6.67            8.33           11.67
25 months to 36 months..................................            1.33            3.33            6.67            8.33           10.00           13.33
37 months to 48 months..................................            2.00            4.00            8.33           10.00           11.67           15.00
49 months to 60 months..................................            2.67            4.67           10.00           11.67           13.33           16.67
61 months to 72 months..................................            3.67            5.67           11.67           13.33           15.00           18.33
73 months to 84 months..................................            4.67            6.67           13.33           15.00           16.67           20.00
85 months to 120 months.................................            5.67           10.00           15.00           16.67           18.33           26.67
121 months and longer...................................            6.67           13.33           16.67           18.33           20.00           33.33
--------------------------------------------------------------------------------------------------------------------------------------------------------

     (B) Long positions (purchasing protection). In the case of a swap
that is a long credit default swap referencing a broad-based securities
index, deducting 50% of the deduction that would be required by
paragraph (b)(1)(i)(A) of this Appendix B if the swap was a short
credit default swap.
    (C) Long and short positions. (1) Long and short credit default
swaps. In the case of swaps that are long and short credit default
swaps referencing the same obligor or obligation, that are in the same
spread category, and that are in the same maturity category or are in
the next maturity category and have a maturity date within three months
of the other maturity category, deducting the percentage of the
notional amount specified in the higher maturity category under
paragraph (b)(1)(i)(A) of this Appendix B on the excess of the long or
short position.
    (2) Long basket of obligors and long credit default swap. In the
case of a swap that is a long credit default swap referencing a broad-
based securities index and the security-based swap dealer is long a
basket on the same underlying obligors, deducting 50% of the amount
specified in Sec.  240.15c3-1(c)(2)(vi) for the components of the
basket, provided the security-based swap dealer can deliver the
components of the basket to satisfy the obligation of the security-
based swap dealer on the credit default swap.
    (3) Short basket of obligors and short credit default swap. In the
case of a swap that is a short credit default swap referencing a broad-
based securities index and the security-based swap dealer is short a
basket on the same underlying obligors, deducting the amount specified
in Sec.  240.15c3-1(c)(2)(vi) for the components of the basket.
    (2) All other swaps. (i) In the case of any swap that is not a
credit default swap, deducting the amount calculated by multiplying the
notional value of the swap by the percentage specified in:
    (A) Sec.  240.15c3-1 applicable to the reference asset if Sec.
240.15c3-1 specifies a percentage deduction for the type of asset;
    (B) 17 CFR 1.17 applicable to the reference asset if 17 CFR 1.17
specifies a percentage deduction for the type of asset and Sec.
240.15c3-1 does not specify a percentage deduction for the type of
asset; or
    (C) In the case of an interest rate swap, Sec.  240.15c3-
1(c)(2)(vi)(A) based on the maturity of the swap, provided that the
percentage deduction must be no less than 1%.
    (ii) A security-based swap dealer may reduce the deduction under
this paragraph (b)(2)(ii) by an amount equal to any reduction
recognized for a comparable long or short position in the reference
asset or interest rate under 17 CFR 1.17 or Sec.  240.15c3-1.
    11. Section 240.18a-1c is added to read as follows:

Sec.  240.18a-1c  Consolidated Computations of Net Capital for Certain
Subsidiaries and Affiliates of Security-Based Swap Dealers (Appendix C
to 17 CFR 240.18a-1).

    Every security-based swap dealer in computing its net capital
pursuant to Sec.  240.18a-1 shall include in its computation all
liabilities or obligations of a subsidiary or affiliate that the
security-based swap dealer guarantees, endorses, or assumes either
directly or indirectly.
    12. Section 240.18a-1d is added to read as follows:

Sec.  240.18a-1d  Satisfactory Subordinated Loan Agreements (Appendix D
to 17 CFR 240.18a-1).

    (a) Introduction. (1) This Appendix sets forth minimum and non-
exclusive requirements for satisfactory subordinated loan agreements.
The Commission may require or the security-based swap dealer may
include such other provisions as deemed necessary or appropriate to the
extent such provisions do not cause the subordinated loan agreement to
fail to meet the minimum requirements of this Appendix D.
    (2) Certain definitions. For purposes of Sec.  240.18a-1 and this
Appendix D:
    (i) The term ``subordinated loan agreement'' shall mean the
agreement or

agreements evidencing or governing a subordinated borrowing of cash.
    (ii) The term ``Payment Obligation'' shall mean the obligation of a
security-based swap dealer to repay cash loaned to the security-based
swap dealer pursuant to a subordinated loan agreement and ``Payment''
shall mean the performance by a security-based swap dealer of a Payment
Obligation.
    (iii) The term ``lender'' shall mean the person who lends cash to a
security-based swap dealer pursuant to a subordinated loan agreement.
    (b) Minimum requirements for subordinated loan agreements. (1)
Subject to paragraph (a) of this section, a subordinated loan agreement
shall mean a written agreement between the security-based swap dealer
and the lender, which has a minimum term of one year, and is a valid
and binding obligation enforceable in accordance with its terms
(subject as to enforcement to applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws) against the
security-based swap dealer and the lender and their respective heirs,
executors, administrators, successors and assigns.
    (2) Specific amount. All subordinated loan agreements shall be for
a specific dollar amount which shall not be reduced for the duration of
the agreement except by installments as specifically provided for
therein and except as otherwise provided in this Appendix D.
    (3) Effective subordination. The subordinated loan agreement shall
effectively subordinate any right of the lender to receive any Payment
with respect thereto, together with accrued interest or compensation,
to the prior payment or provision for payment in full of all claims of
all present and future creditors of the security-based swap dealer
arising out of any matter occurring prior to the date on which the
related Payment Obligation matures consistent with the provisions of
Sec.  240.18a-1 and Sec.  240.18a-1d, except for claims which are the
subject of subordinated loan agreements that rank on the same priority
as or junior to the claim of the lender under such subordinated loan
agreements.
    (4) Proceeds of subordinated loan agreements. The subordinated loan
agreement shall provide that the cash proceeds thereof shall be used
and dealt with by the security-based swap dealer as part of its capital
and shall be subject to the risks of the business.
    (5) Certain rights of the security-based swap dealer. The
subordinated loan agreement shall provide that the security-based swap
dealer shall have the right to deposit any cash proceeds of a
subordinated loan agreement in an account or accounts in its own name
in any bank or trust company;
    (6) Permissive prepayments. A security-based swap dealer at its
option but not at the option of the lender may, if the subordinated
loan agreement so provides, make a Payment of all or any portion of the
Payment Obligation thereunder prior to the scheduled maturity date of
such Payment Obligation (hereinafter referred to as a ``Prepayment''),
but in no event may any Prepayment be made before the expiration of one
year from the date such subordinated loan agreement became effective.
No Prepayment shall be made, if, after giving effect thereto (and to
all Payments of Payment Obligations under any other subordinated loan
agreements then outstanding the maturity or accelerated maturities of
which are scheduled to fall due within six months after the date such
Prepayment is to occur pursuant to this provision or on or prior to the
date on which the Payment Obligation in respect of such Prepayment is
scheduled to mature disregarding this provision, whichever date is
earlier) without reference to any projected profit or loss of the
security-based swap dealer, either its net capital would fall below $24
million, its net capital would fall below 10% of the risk margin amount
under Sec.  240.18a-1, or, if the security-based swap dealer is
approved to calculate net capital under Sec.  240.18a-1(d), its
tentative net capital would fall to an amount below $120 million.
Notwithstanding the above, no Prepayment shall occur without the prior
written approval of the Commission.
    (7) Suspended repayment. The Payment Obligation of the security-
based swap dealer in respect of any subordinated loan agreement shall
be suspended and shall not mature if, after giving effect to Payment of
such Payment Obligation (and to all Payments of Payment Obligations of
such security-based swap dealer under any other subordinated loan
agreement(s) then outstanding that are scheduled to mature on or before
such Payment Obligation) either its net capital would fall below $24
million, its net capital would fall below 10% of the risk margin amount
under Sec.  240.18a-1, or, if the security-based swap dealer is
approved to calculate net capital under Sec.  240.18a-1(d), its
tentative net capital would fall to an amount below $120 million. The
subordinated loan agreement may provide that if the Payment Obligation
of the security-based swap dealer thereunder does not mature and is
suspended as a result of the requirement of this paragraph (b)(7) for a
period of not less than six months, the security-based swap dealer
shall thereupon commence the rapid and orderly liquidation of its
business, but the right of the lender to receive Payment, together with
accrued interest or compensation, shall remain subordinate as required
by the provisions of Sec.  240.18a-1 and Sec.  240.18a-1d.
    (8) Accelerated maturity--obligation to repay to remain
subordinate. (i) Subject to the provisions of paragraph (b)(7) of this
appendix, a subordinated loan agreement may provide that the lender
may, upon prior written notice to the security-based swap dealer and
the Commission given not earlier than six months after the effective
date of such subordinated loan agreement, accelerate the date on which
the Payment Obligation of the security-based swap dealer, together with
accrued interest or compensation, is scheduled to mature to a date not
earlier than six months after the giving of such notice, but the right
of the lender to receive Payment, together with accrued interest or
compensation, shall remain subordinate as required by the provisions of
Sec. Sec.  240.18a-1 and 240.18a-1d.
    (ii) Notwithstanding the provisions of paragraph (b)(7) of this
appendix, the Payment Obligation of the security-based swap dealer with
respect to a subordinated loan agreement, together with accrued
interest and compensation, shall mature in the event of any
receivership, insolvency, liquidation, bankruptcy, assignment for the
benefit of creditors, reorganization whether or not pursuant to the
bankruptcy laws, or any other marshalling of the assets and liabilities
of the security-based swap dealer but the right of the lender to
receive Payment, together with accrued interest or compensation, shall
remain subordinate as required by the provisions of Sec.  240.18a-1 and
Sec.  240.18a-1d.
    (9) Accelerated maturity of subordinated loan agreements on event
of default and event of acceleration--obligation to repay to remain
subordinate. (i) A subordinated loan agreement may provide that the
lender may, upon prior written notice to the security-based swap dealer
and the Commission of the occurrence of any Event of Acceleration (as
hereinafter defined) given no sooner than six months after the
effective date of such subordinated loan agreement, accelerate the date
on which the Payment Obligation of the security-based swap dealer,
together with accrued interest or compensation, is scheduled to mature,

to the last business day of a calendar month which is not less than six
months after notice of acceleration is received by the security-based
swap dealer and the Commission. Any subordinated loan agreement
containing such Events of Acceleration may also provide, that if upon
such accelerated maturity date the Payment Obligation of the security-
based swap dealer is suspended as required by paragraph (b)(7) of this
Appendix D and liquidation of the security-based swap dealer has not
commenced on or prior to such accelerated maturity date, then
notwithstanding paragraph (b)(7) of this appendix the Payment
Obligation of the security-based swap dealer with respect to such
subordinated loan agreement shall mature on the day immediately
following such accelerated maturity date and in any such event the
Payment Obligations of the security-based swap dealer with respect to
all other subordinated loan agreements then outstanding shall also
mature at the same time but the rights of the respective lenders to
receive Payment, together with accrued interest or compensation, shall
remain subordinate as required by the provisions of this Appendix D.
Events of Acceleration which may be included in a subordinated loan
agreement complying with this paragraph (b)(9) shall be limited to:
    (A) Failure to pay interest or any installment of principal on a
subordinated loan agreement as scheduled;
    (B) Failure to pay when due other money obligations of a specified
material amount;
    (C) Discovery that any material, specified representation or
warranty of the security-based swap dealer which is included in the
subordinated loan agreement and on which the subordinated loan
agreement was based or continued was inaccurate in a material respect
at the time made;
    (D) Any specified and clearly measurable event which is included in
the subordinated loan agreement and which the lender and the security-
based swap dealer agree:
    (1) Is a significant indication that the financial position of the
security-based swap dealer has changed materially and adversely from
agreed upon specified norms; or
    (2) Could materially and adversely affect the ability of the
security-based swap dealer to conduct its business as conducted on the
date the subordinated loan agreement was made; or
    (3) Is a significant change in the senior management of the
security-based swap dealer or in the general business conducted by the
security-based swap dealer from that which obtained on the date the
subordinated loan agreement became effective;
    (E) Any continued failure to perform agreed covenants included in
the subordinated loan agreement relating to the conduct of the business
of the security-based swap dealer or relating to the maintenance and
reporting of its financial position; and
    (ii) Notwithstanding the provisions of paragraph (b)(7) of this
appendix, a subordinated loan agreement may provide that, if
liquidation of the business of the security-based swap dealer has not
already commenced, the Payment Obligation of the security-based swap
dealer shall mature, together with accrued interest or compensation,
upon the occurrence of an Event of Default (as hereinafter defined).
Such agreement may also provide that, if liquidation of the business of
the security-based swap dealer has not already commenced, the rapid and
orderly liquidation of the business of the security-based swap dealer
shall then commence upon the happening of an Event of Default. Any
subordinated loan agreement which so provides for maturity of the
Payment Obligation upon the occurrence of an Event of Default shall
also provide that the date on which such Event of Default occurs shall,
if liquidation of the security-based swap dealer has not already
commenced, be the date on which the Payment Obligations of the
security-based swap dealer with respect to all other subordinated loan
agreements then outstanding shall mature but the rights of the
respective lenders to receive Payment, together with accrued interest
or compensation, shall remain subordinate as required by the provisions
of this Appendix (D). Events of Default which may be included in a
subordinated loan agreement shall be limited to:
    (A) The net capital of the security-based swap dealer falling to an
amount below either of $20 million or 8% of the risk margin amount
under Sec.  240.18a-1, or, if the security-based swap dealer is
approved to calculate net capital under Sec.  240.18a-1(d), its
tentative net capital falling below $100 million, throughout a period
of 15 consecutive business days, commencing on the day the security-
based swap dealer first determines and notifies the Commission, or the
Commission first determines and notifies the security-based swap dealer
of such fact;
    (B) The Commission revoking the registration of the security-based
swap dealer;
    (C) The Commission suspending (and not reinstating within 10 days)
the registration of the security-based swap dealer;
    (D) Any receivership, insolvency, liquidation, bankruptcy,
assignment for the benefit of creditors, reorganization whether or not
pursuant to bankruptcy laws, or any other marshalling of the assets and
liabilities of the security-based swap dealer. A subordinated loan
agreement that contains any of the provisions permitted by this
paragraph (b)(9) shall not contain the provision otherwise permitted by
paragraph (b)(8)(i) of this section.
    (c) Miscellaneous provisions. (1) Prohibited cancellation. The
subordinated loan agreement shall not be subject to cancellation by
either party; no Payment shall be made with respect thereto and the
agreement shall not be terminated, rescinded or modified by mutual
consent or otherwise if the effect thereof would be inconsistent with
the requirements of Sec. Sec.  240.18a-1 and 240.18a-1d.
    (2) Every security-based swap dealer shall immediately notify the
Commission if, after giving effect to all Payments of Payment
Obligations under subordinated loan agreements then outstanding that
are then due or mature within the following six months without
reference to any projected profit or loss of the security-based swap
dealer, either its net capital would fall below $24 million, its net
capital would fall below 10% of the risk margin amount under Sec.
240.18a-1, or, if the security-based swap dealer is approved to
calculate net capital under Sec.  240.18a-1(d), its tentative net
capital would fall to an amount below $120 million.
    (3) Certain legends. If all the provisions of a satisfactory
subordinated loan agreement do not appear in a single instrument, then
the debenture or other evidence of indebtedness shall bear on its face
an appropriate legend stating that it is issued subject to the
provisions of a satisfactory subordinated loan agreement which shall be
adequately referred to and incorporated by reference.
    (4) Revolving subordinated loan agreements. A security-based swap
dealer shall be permitted to enter into a revolving subordinated loan
agreement that provides for prepayment within less than one year of all
or any portion of the Payment Obligation thereunder at the option of
the security-based swap dealer upon the prior written approval of the
Commission. The Commission, however, shall not approve any prepayment
if:
    (i) After giving effect thereto (and to all Payments of Payment
Obligations

under any other subordinated loan agreements then outstanding, the
maturity or accelerated maturities of which are scheduled to fall due
within six months after the date such prepayment is to occur pursuant
to this provision or on or prior to the date on which the Payment
Obligation in respect of such prepayment is scheduled to mature
disregarding this provision, whichever date is earlier) without
reference to any projected profit or loss of the security-based swap
dealer, either its net capital would fall below $24 million, its net
capital would fall below 10% of the risk margin amount under Sec.
240.18a-1, or, if the security-based swap dealer is approved to
calculate net capital under Sec.  240.18a-1(d), its tentative net
capital would fall to an amount below $120 million; or
    (ii) Pre-tax losses during the latest three-month period equaled
more than 15% of current excess net capital.
    Any subordinated loan agreement entered into pursuant to this
paragraph (c)(4) shall be subject to all the other provisions of this
Appendix D. Any such subordinated loan agreement shall not be
considered equity for purposes of paragraph (h) of Sec.  240.18a-1,
despite the length of the initial term of the loan.
    (5) Filing. Two copies of any proposed subordinated loan agreement
(including nonconforming subordinated loan agreements) shall be filed
at least 30 days prior to the proposed execution date of the agreement
with the Commission. The security-based swap dealer shall also file
with the Commission a statement setting forth the name and address of
the lender, the business relationship of the lender to the security-
based swap dealer, and whether the security-based swap dealer carried
an account for the lender for effecting transactions in security-based
swaps at or about the time the proposed agreement was so filed. All
agreements shall be examined by the Commission prior to their becoming
effective. No proposed agreement shall be a satisfactory subordinated
loan agreement for the purposes of this section unless and until the
Commission has found the agreement acceptable and such agreement has
become effective in the form found acceptable.
    13. Section 240.18a-2 is added to read as follows:

Sec.  240.18a-2  Capital requirements for major security-based swap
participants for which there is not a prudential regulator.

    (a) Every major security-based swap participant for which there is
not a prudential regulator must at all times have and maintain positive
tangible net worth.
    (b) The term tangible net worth means the net worth of the major
security-based swap participant as determined in accordance with
generally accepted accounting principles in the United States,
excluding goodwill and other intangible assets. In determining net
worth, all long and short positions in security-based swaps, swaps, and
related positions must be marked to their market value. A major
security-based swap participant must include in its computation of
tangible net worth all liabilities or obligations of a subsidiary or
affiliate that the participant guarantees, endorses, or assumes either
directly or indirectly.
    (c) Every major security-based swap participant must comply with
Sec.  240.15c3-4 as though it were an OTC derivatives dealer with
respect to its security-based swap and swap activities, except that
paragraphs (c)(5)(xiii) and (xiv) and (d)(8) and (9) of Sec.  240.15c3-
4 shall not apply.
    14. Section 240.18a-3 is added to read as follows:

Sec.  240.18a-3  Non-cleared security-based swap margin requirements
for security-based swap dealers and major security-based swap
participants for which there is not a prudential regulator.

    (a) Every security-based swap dealer and major security-based swap
participant for which there is not a prudential regulator must comply
with this section.
    (b) Definitions. For the purposes of this section:
    (1) The term account means an account carried by a security-based
swap dealer or major security-based swap participant for a counterparty
that holds non-cleared security-based swaps.
    (2) The term commercial end user means any person (other than a
natural person) that:
    (i) Engages primarily in commercial activities that are not
financial in nature and that is not a financial entity as that term is
defined in 3C(g)(3) of the Act (15 U.S.C. 78o-3(g)(3)); and
    (ii) Is using non-cleared security-based swaps to hedge or mitigate
risk relating to the commercial activities.
    (3) The term counterparty means a person with whom the security-
based swap dealer or major security-based swap participant has entered
into a non-cleared security-based swap transaction.
    (4) The term equity means the total current fair market value of
securities positions in an account of a counterparty (excluding the
time value of an over-the-counter option), plus any credit balance and
less any debit balance in the account after applying a qualifying
netting agreement with respect to gross derivatives payables and
receivables.
    (5) The term margin means the amount of positive equity in an
account of a counterparty.
    (6) The term negative equity means equity of less than $0.
    (7) The term positive equity means equity of greater than $0.
    (8) The term non-cleared security-based swap means a security-based
swap that is not, directly or indirectly, cleared by a clearing agency
registered pursuant to section 17A of the Act.
    (9) The term security-based swap legacy account means an account
that holds no security-based swaps entered into after the effective
date of this section and that only is used to hold security-based swaps
entered into prior to the effective date of this section and collateral
for those security-based swaps.
    (c) Margin requirements. (1) Security-based swap dealers. (i)
Calculation required. A security-based swap dealer must calculate with
respect to each account of a counterparty as of the close of each
business day:
    (A) The amount of equity in the account of the counterparty; and
    (B) The margin amount for the account of the counterparty
calculated pursuant to paragraph (d) of this section.
    (ii) Account equity requirements. Except as provided in paragraph
(c)(1)(iii) of this section, a security-based swap dealer must collect
from a counterparty by noon of each business day cash, securities, and/
or money market instruments in an amount at least equal to, as
applicable:
    (A) The negative equity in the account calculated as of the
previous business day; and
    (B) The margin amount calculated under paragraph (c)(1)(i)(B) of
this section as of the previous business day to the extent that amount
is greater than the amount of positive equity in the account on the
previous business day.
    (iii) Exceptions. (A) Commercial end users. The requirements of
paragraph (c)(1)(ii) of this section do not apply to an account of a
counterparty that is a commercial end user.

Alternative A to Sec.  240.18a-3(c)(1)(iii)(B)

    (B) Security-based swap dealers. The requirements of paragraph
(c)(1)(ii)(B) of this section do not apply to an account of a
counterparty that is a security-based swap dealer.

Alternative B to Sec.  240.18a-3(c)(1)(iii)(B)

    (B) Security-based swap dealers. Cash, securities and money market

instruments posted by a counterparty that is a security-based swap
dealer to meet the requirements of paragraph (c)(1)(ii)(B) of this
section must be carried by an independent third-party custodian
pursuant to the requirements of section 3E(f) of the Act.
    (C) Counterparties that require third-party custodians. The
requirements of paragraph (c)(1)(ii)(B) of this section do not apply to
an account of a counterparty that is not a commercial end user and that
requires the cash, securities, and money market instruments delivered
to meet the margin amount to be carried by an independent third-party
custodian pursuant to the requirements of section 3E(f) of the Act,
provided cash, securities, and money market instruments necessary to
meet the requirements of paragraph (c)(1)(ii)(B) of this section are
delivered to the independent third-party custodian.
    (D) Security-based swap legacy accounts. The requirements of
paragraph (c)(1)(ii)(B) of this section do not apply to a legacy
security-based swap account of a counterparty that is not a commercial
end user.
    (2) Major security-based swap participants. (i) Calculation
required. A major security-based swap participant must calculate as of
the close of each business day the amount of equity in the account of
each counterparty.
    (ii) Account equity requirements. Except as provided in paragraph
(c)(2)(iii) of this section, a major security-based swap participant
must by noon of each business day:
    (A) Collect from a counterparty cash, securities and/or money
market instruments in an amount equal to the negative equity in the
account calculated on the previous business day pursuant to paragraph
(c)(2)(i) of this section; and
    (B) Deliver to a counterparty cash, securities and/or money market
instruments in an amount equal to the positive equity in the account
calculated on the previous business day pursuant to paragraph (c)(2)(i)
of this section.
    (iii) Exceptions. (A) Transactions with commercial end users. The
requirements of paragraph (c)(2)(ii)(A) of this section do not apply to
a counterparty that is a commercial end user.
    (B) Transactions with security-based swap dealers. The requirements
of paragraph (c)(2)(ii)(A) of this section do not apply to a
counterparty that is a security-based swap dealer.

    Note to paragraph (c)(2)(iii)(B):  A security-based swap dealer
must collect from a counterparty that is a major security-based swap
participant cash, securities, and/or money market instruments as
required by paragraph (c)(1)(ii) of this section.

    (C) Security-based swap legacy accounts. The requirements of
paragraph (c)(2)(ii) of this section do not apply to a legacy security-
based swap account of a counterparty that is not a commercial end user.
    (3) Deductions for securities held as collateral. The fair market
value of securities and money market instruments held in the account of
a counterparty must be reduced by the amount of the deductions the
security-based swap dealer would apply to the securities and money
market instruments pursuant to Sec.  240.15c3-1 or Sec.  240.18a-1, as
applicable, for the purpose of determining whether the level of equity
in the account meets the requirement of paragraph (c)(1)(ii) of this
section.
    (4) Collateral requirements. A security-based swap dealer and a
major security-based swap participant when calculating the amount of
equity in the account of a counterparty may take into account cash and
the fair market value of securities and money market instruments
pledged and held as collateral in the account provided:
    (i) The collateral is subject to the physical possession or control
of the security-based swap dealer or the major security-based swap
participant;
    (ii) The collateral is liquid and transferable;
    (iii) The collateral may be liquidated promptly by the security-
based swap dealer or the major security-based swap participant without
intervention by any other party;
    (iv) The collateral agreement between the security-based swap
dealer or the major security-based swap participant and the
counterparty is legally enforceable by the security-based swap dealer
or the major security-based swap participant against the counterparty
and any other parties to the agreement;
    (v) The collateral does not consist of securities issued by the
counterparty or a party related to the security-based swap dealer, the
major security-based swap participant, or to the counterparty; and
    (vi) If the Commission has approved the security-based swap
dealer's use of a VaR model to compute net capital, the approval allows
the security-based swap dealer to calculate deductions for market risk
for the type of collateral.
    (5) Qualified netting agreements. A security-based swap dealer or
major security-based swap participant may include the effect of a
netting agreement that allows the security-based swap dealer or major
security-based swap participant to net gross receivables from and gross
payables to a counterparty upon the default of the counterparty, for
the purposes of the calculations required pursuant to paragraphs
(c)(1)(i)(A) and (c)(2)(i) of this section, if:
    (i) The netting agreement is legally enforceable in each relevant
jurisdiction, including in insolvency proceedings;
    (ii) The gross receivables and gross payables that are subject to
the netting agreement with a counterparty can be determined at any
time; and
    (iii) For internal risk management purposes, the security-based
swap dealer or major security-based swap participant monitors and
controls its exposure to the counterparty on a net basis.
    (6) Minimum transfer amount. Notwithstanding any other provision of
this rule, a security-based swap dealer or major security-based swap
participant is not required to collect or deliver cash, securities or
money market instruments pursuant to this section with respect to a
particular counterparty unless and until the total amount of cash,
securities or money market instruments that is required to be collected
or delivered, and has not yet been collected or delivered, with respect
to the counterparty is greater than $100,000.
    (7) Frequency of calculations increased. The calculations required
pursuant to paragraphs (c)(1)(i) and (c)(2)(i) of this section must be
made more frequently than the close of each business day during periods
of extreme volatility and for accounts with concentrated positions.
    (8) Liquidation. A security-based swap dealer and major security-
based swap participant must take prompt steps to liquidate securities
and money market instruments in an account that does not meet the
account equity requirements of this section to the extent necessary to
eliminate the account equity deficiency.
    (d) Calculating margin amount. A security-based swap dealer must
calculate the margin amount required by paragraph (c)(1)(i)(B) of this
section for non-cleared security-based swaps as follows:
    (1) Standardized approach. (i) Credit default swaps. For credit
default swaps, the security-based swap dealer must use the method
specified in Sec.  240.18a-1(c)(1)(vi)(A) or, if the security-based
swap dealer is registered with the Commission as a broker or dealer,
the method specified in Sec.  240.15c3-1(c)(2)(vi)(O)(1).

    (ii) All other security-based swaps. For security-based swaps other
than credit default swaps, the security-based swap dealer must use the
method specified in Sec.  240.18a-1(c)(1)(vi)(B) or, if the security-
based swap dealer is registered with the Commission as a broker or
dealer, the method specified in Sec.  240.15c3-1(c)(2)(vi)(O)(2).
    (2) Model approach. For security-based swaps other than equity
security-based swaps, a security-based swap dealer authorized by the
Commission to compute net capital pursuant to Sec.  240.18a-1(d) or
Sec.  240.15c3-1e may use its internal market risk model subject to the
requirements in Sec.  240.18a-1(d) or Sec.  240.15c3-1e in lieu of
using the methods required in paragraphs (d)(1)(i) and (ii) of this
section.
    (e) Risk monitoring and procedures. A security-based swap dealer
must monitor the risk of each account and establish, maintain, and
document procedures and guidelines for monitoring the risk of accounts
as part of the risk management control system required by Sec.
240.15c3-4. The security-based swap dealer must review, in accordance
with written procedures, at reasonable periodic intervals, its non-
cleared security-based swap activities for consistency with the risk
monitoring procedures and guidelines required by this section. The
security-based swap dealer also must determine whether information and
data necessary to apply the risk monitoring procedures and guidelines
required by this section are accessible on a timely basis and whether
information systems are available to adequately capture, monitor,
analyze, and report relevant data and information. The risk monitoring
procedures and guidelines must include, at a minimum, procedures and
guidelines for:
    (1) Obtaining and reviewing account documentation and financial
information necessary for assessing the amount of current and potential
future exposure to a given counterparty permitted by the security-based
swap dealer;
    (2) Determining, approving, and periodically reviewing credit
limits for each counterparty, and across all counterparties;
    (3) Monitoring credit risk exposure to the security-based swap
dealer from non-cleared security-based swaps, including the type,
scope, and frequency of reporting to senior management;
    (4) Using stress tests to monitor potential future exposure to a
single counterparty and across all counterparties over a specified
range of possible market movements over a specified time period;
    (5) Managing the impact of credit exposure related to non-cleared
security-based swaps on the security-based swap dealer's overall risk
exposure;
    (6) Determining the need to collect collateral from a particular
counterparty, including whether that determination was based upon the
creditworthiness of the counterparty and/or the risk of the specific
non-cleared security-based swap contracts with the counterparty;
    (7) Monitoring the credit exposure resulting from concentrated
positions with a single counterparty and across all counterparties, and
during periods of extreme volatility; and
    (8) Maintaining sufficient equity in the account of each
counterparty to protect against the largest individual potential future
exposure of a non-cleared security-based swap carried in the account of
the counterparty as measured by computing the largest maximum possible
loss that could result from the exposure.
    15. Section 240.18a-4 is added to read as follows:

Sec.  240.18a-4  Segregation requirements for security-based swap
dealers and major security-based swap participants.

    (a) Definitions. For the purposes of this section:
    (1) The term cleared security-based swap means any security-based
swap that is, directly or indirectly, submitted to and cleared by a
clearing agency registered with the Commission pursuant to section 17A
of the Act (15 U.S.C. 78q-1);
    (2) The term excess securities collateral means securities and
money market instruments carried for the account of a security-based
swap customer that have a market value in excess of the current
exposure of the security-based swap dealer to the customer, excluding:
    (i) Securities and money market instruments held in a qualified
clearing agency account but only to the extent the securities and money
market instruments are being used to meet a margin requirement of the
clearing agency resulting from a security-based swap transaction of the
customer; and
    (ii) Securities and money market instruments held in a qualified
registered security-based swap dealer account but only to the extent
the securities and money market instruments are being used to meet a
margin requirement of the other security-based swap dealer resulting
from the security-based swap dealer entering into a non-cleared
security-based swap transaction with the other security-based swap
dealer to offset the risk of a non-cleared security-based swap
transaction between the security-based swap dealer and the customer.
    (3) The term qualified clearing agency account means an account of
a security-based swap dealer at a clearing agency established to hold
funds and other property in order to purchase, margin, guarantee,
secure, adjust, or settle cleared security-based swap transactions for
the security-based swap customers of the security-based swap dealer
that meets the following conditions:
    (i) The account is designated ``Special Clearing Account for the
Exclusive Benefit of the Cleared Security-Based Swap Customers of [name
of security-based swap dealer]'';
    (ii) The clearing agency has acknowledged in a written notice
provided to and retained by the security-based swap dealer that the
funds and other property in the account are being held by the clearing
agency for the exclusive benefit of the security-based swap customers
of the security-based swap dealer in accordance with the regulations of
the Commission and are being kept separate from any other accounts
maintained by the security-based swap dealer with the clearing agency;
and
    (iii) The account is subject to a written contract between the
security-based swap dealer and the clearing agency which provides that
the funds and other property in the account shall be subject to no
right, charge, security interest, lien, or claim of any kind in favor
of the clearing agency or any person claiming through the clearing
agency, except a right, charge, security interest, lien, or claim
resulting from a cleared security-based swap transaction effected in
the account.
    (4) The term qualified registered security-based swap dealer
account means an account at another security-based swap dealer
registered with the Commission pursuant to section 15F of the Act that
is not an affiliate of the security-based swap dealer and that meets
the following conditions:
    (i) The account is designated ``Special Account for the Exclusive
Benefit of the Security-Based Swap Customers of [name of security-based
swap dealer]'';
    (ii) The account is subject to a written acknowledgement by the
other security-based dealer provided to and retained by the security-
based swap dealer that the funds and other property held in the account
are being held by the other security-based swap dealer for the
exclusive benefit of the security-based

swap customers of the security-based swap dealer in accordance with the
regulations of the Commission and are being kept separate from any
other accounts maintained by the security-based swap dealer with the
other security-based swap dealer;
    (iii) The account is subject to a written contract between the
security-based swap dealer and the other security-based swap dealer
which provides that the funds and other property in the account shall
be subject to no right, charge, security interest, lien, or claim of
any kind in favor of the other security-based swap dealer or any person
claiming through the other security-based swap dealer, except a right,
charge, security interest, lien, or claim resulting from a non-cleared
security-based swap transaction effected in the account; and
    (iv) The account and the assets in the account are not subject to
any type of subordination agreement between the security-based swap
dealer and the other security-based swap dealer.
    (5) The term qualified security means:
    (i) Obligations of the United States;
    (ii) Obligations fully guaranteed as to principal and interest by
the United States; and
    (iii) General obligations of any State or subdivision of a State
that:
    (A) Are not traded flat and are not in default;
    (B) Were part of an initial offering of $500 million or greater;
and
    (C) Were issued by an issuer that has published audited financial
statements within 120 days of its most recent fiscal year-end.
    (6) The term security-based swap customer means any person from
whom or on whose behalf the security-based swap dealer has received or
acquired or holds funds or other property for the account of the person
with respect to a cleared or non-cleared security-based swap
transaction. The term does not include a person to the extent that
person has a claim for funds or other property which by contract,
agreement or understanding, or by operation of law, is part of the
capital of the security-based swap dealer or is subordinated to all
claims of security-based swap customers of the security-based swap
dealer.
    (7) The term special account for the exclusive benefit of security-
based swap customers means an account at a bank that is not the
security-based swap dealer or an affiliate of the security-based swap
dealer and that meets the following conditions:
    (i) The account is designated ``Special Account for the Exclusive
Benefit of the Security-Based Swap Customers of [name of security-based
swap dealer]'';
    (ii) The account is subject to a written acknowledgement by the
bank provided to and retained by the security-based swap dealer that
the funds and other property held in the account are being held by the
bank for the exclusive benefit of the security-based swap customers of
the security-based swap dealer in accordance with the regulations of
the Commission and are being kept separate from any other accounts
maintained by the security-based swap dealer with the bank; and
    (iii) The account is subject to a written contract between the
security-based swap dealer and the bank which provides that the funds
and other property in the account shall at no time be used directly or
indirectly as security for a loan or other extension of credit to the
security-based swap dealer by the bank and, shall be subject to no
right, charge, security interest, lien, or claim of any kind in favor
of the bank or any person claiming through the bank.
    (b) Physical possession or control of excess securities collateral.
(1) A security-based swap dealer must promptly obtain and thereafter
maintain physical possession or control of all excess securities
collateral carried for the accounts of security-based swap customers.
    (2) A security-based swap dealer has control of excess securities
collateral only if the securities and money market instruments:
    (i) Are represented by one or more certificates in the custody or
control of a clearing corporation or other subsidiary organization of
either national securities exchanges, or of a custodian bank in
accordance with a system for the central handling of securities
complying with the provisions of Sec. Sec.  240.8c-1(g) and 240.15c2-
1(g) the delivery of which certificates to the security-based swap
dealer does not require the payment of money or value, and if the books
or records of the security-based swap dealer identify the security-
based swap customers entitled to receive specified quantities or units
of the securities so held for such security-based swap customers
collectively;
    (ii) Are the subject of bona fide items of transfer; provided that
securities and money market instruments shall be deemed not to be the
subject of bona fide items of transfer if, within 40 calendar days
after they have been transmitted for transfer by the security-based
swap dealer to the issuer or its transfer agent, new certificates
conforming to the instructions of the security-based swap dealer have
not been received by the security-based swap dealer, the security-based
swap dealer has not received a written statement by the issuer or its
transfer agent acknowledging the transfer instructions and the
possession of the securities or money market instruments, or the
security-based swap dealer has not obtained a revalidation of a window
ticket from a transfer agent with respect to the certificate delivered
for transfer;
    (iii) Are in the custody or control of a bank as defined in section
3(a)(6) of the Act, the delivery of which securities or money market
instruments to the security-based swap dealer does not require the
payment of money or value and the bank having acknowledged in writing
that the securities and money market instruments in its custody or
control are not subject to any right, charge, security interest, lien
or claim of any kind in favor of a bank or any person claiming through
the bank;
    (iv)(A) Are held in or are in transit between offices of the
security-based swap dealer; or
    (B) Are held by a corporate subsidiary if the security-based swap
dealer owns and exercises a majority of the voting rights of all of the
voting securities of such subsidiary, assumes or guarantees all of the
subsidiary's obligations and liabilities, operates the subsidiary as a
branch office of the security-based swap dealer, and assumes full
responsibility for compliance by the subsidiary and all of its
associated persons with the provisions of the Federal securities laws
as well as for all of the other acts of the subsidiary and such
associated persons; or
    (v) Are held in such other locations as the Commission shall upon
application from a security-based swap dealer find and designate to be
adequate for the protection of customer securities.
    (3) Each business day the security-based swap dealer must determine
from its books and records the quantity of excess securities collateral
in its possession and control as of the close of the previous business
day and the quantity of excess securities collateral not in its
possession and control as of the previous business day. If the
security-based swap dealer did not obtain possession or control of all
excess securities collateral on the previous business day as required
by this section and there are securities or money market instruments of
the same issue and class in any of the following non-control locations:
    (i) Securities or money market instruments subject to a lien
securing an obligation of the security-based swap dealer, then the
security-based swap dealer, not later than the next business

day on which the determination is made, must issue instructions for the
release of the securities or money market instruments from the lien and
must obtain physical possession or control of the securities or money
market instruments within two business days following the date of the
instructions;
    (ii) Securities or money market instruments held in a qualified
clearing agency account, then the security-based swap dealer, not later
than the next business day on which the determination is made, must
issue instructions for the release of the securities or money market
instruments by the clearing agency and must obtain physical possession
or control of the securities or money market instruments within two
business days following the date of the instructions;
    (iii) Securities or money market instruments held in a qualified
registered security-based swap dealer account maintained by another
security-based swap dealer, then the security-based swap dealer, not
later than the next business day on which the determination is made,
must issue instructions for the release of the securities or money
market instruments by the other security-based swap dealer and must
obtain physical possession or control of the securities or money market
instruments within two business days following the date of the
instructions;
    (iv) Securities or money market instruments loaned by the security-
based swap dealer, then the security-based swap dealer, not later than
the next business day on which the determination is made, must issue
instructions for the return of the loaned securities or money market
instruments and must obtain physical possession or control of the
securities or money market instruments within five business days
following the date of the instructions;
    (v) Securities or money market instruments failed to receive more
than 30 calendar days, then the security-based swap dealer, not later
than the next business day on which the determination is made, must
take prompt steps to obtain physical possession or control of the
securities or money market instruments through a buy-in procedure or
otherwise;
    (vi) Securities or money market instruments receivable by the
security-based swap dealer as a security dividend, stock split or
similar distribution for more than 45 calendar days, then the security-
based swap dealer, not later than the next business day on which the
determination is made, must take prompt steps to obtain physical
possession or control of the securities or money market instruments
through a buy-in procedure or otherwise; or
    (vii) Securities or money market instruments included on the books
or records of the security-based swap dealer as a proprietary short
position or as a short position for another person more than 10
business days (or more than 30 calendar days if the security-based swap
dealer is a market maker in the securities), then the security-based
swap dealer must, not later than the business day following the day on
which the determination is made, take prompt steps to obtain physical
possession or control of such securities or money market instruments.
    (c) Deposit requirement for special account for the exclusive
benefit of security-based swap customers. (1) A security-based swap
dealer must maintain a special account for the exclusive benefit of
security-based swap customers that is separate from any other bank
account of the security-based swap dealer. The security-based swap
dealer must at all times maintain in the special account for the
exclusive benefit of security-based swap customers, through deposits
into the account, cash and/or qualified securities in amounts computed
in accordance with the formula set forth in Sec.  240.18a-4a. In
determining the amount maintained in a special account for the
exclusive benefit of security-based swap customers, the security-based
swap dealer must deduct:
    (i) The percentage of the value of a general obligation of a State
or subdivision of a State specified in Sec.  240.15c3-1(c)(2)(vi);
    (ii) The aggregate value of general obligations of a State or
subdivision of a State to the extent the amount of the obligations of a
single issuer exceeds 2% of the amount required to be maintained in the
special account for the exclusive benefit of security-based swap
customers;
    (iii) The aggregate value of all general obligations of a State or
subdivision of a State to the extent the amount of the obligations
exceeds 10% of the amount required to be maintained in the special
account for the exclusive benefit of security-based swap customers; and
    (iv) The amount of funds held at a single bank to the extent the
amount exceeds 10% of the equity capital of the bank as reported by the
bank in its most recent Consolidated Reports of Condition and Income.
    (2) It is unlawful for a security-based swap dealer to accept or
use credits identified in the items of the formula set forth in Sec.
240.18a-4a except to establish debits for the specified purposes in the
items of the formula.
    (3) The computations necessary to determine the amount required to
be maintained in the special account for the exclusive benefit of
security-based swap customers must be made daily as of the close of the
previous business day and any deposit required to be made into the
account must be made on the next business day following the computation
no later than 1 hour after the opening of the bank that maintains the
account. The security-based swap dealer may make a withdrawal from the
special account for the exclusive benefit of security-based swap
customers only if the amount remaining in the account after the
withdrawal is equal to or exceeds the amount required to be maintained
in the account pursuant to paragraph (c)(1) of this section.
    (4) A security-based swap dealer must promptly deposit into a
special account for the exclusive benefit of security-based swap
customers funds or qualified securities of the security-based swap
dealer if the amount of funds and/or qualified securities in one or
more special accounts for the exclusive benefit of security-based swap
customers falls below the amount required to be maintained pursuant to
this section.
    (d) Requirements for non-cleared security-based swaps. (1) Notice.
A security-based dealer and a major security-based swap participant
must provide the notice required pursuant to section 3E(f)(1)(A) of the
Act (15 U.S.C. 78c-5(f)) to a counterparty in writing prior to the
execution of the first non-cleared security-based swap transaction with
the counterparty occurring after the effective date of this section.
    (2) Subordination. (i) Counterparty that elects to have individual
segregation at an independent third-party custodian. A security-based
swap dealer must obtain an agreement from a counterparty that chooses
to require segregation of funds or other property pursuant to section
3E(f) of the Act (15 U.S.C. 78c-5(f)) in which the counterparty agrees
to subordinate all of its claims against the security-based swap dealer
to the claims of security-based swap customers of the security-based
swap dealer but only to the extent that funds or other property
provided by the counterparty to the independent third-party custodian
are not treated as customer property as that term is defined in 11
U.S.C. 741 in a liquidation of the security-based swap dealer.
    (ii) Counterparty that elects to have no segregation. A security-
based swap dealer must obtain an agreement from a

counterparty that does not choose to require segregation of funds or
other property pursuant to section 3E(f) of the Act (15 U.S.C. 78c-
5(f)) or paragraph (c)(3) of this section in which the counterparty
agrees to subordinate all of its claims against the security-based swap
dealer to the claims of security-based swap customers of the security-
based swap dealer.
    16. Section 240.18a-4a is added to read as follows:

 Rule 18a-4a--Formula for Determining the Amount To Be Maintained in the
    Special Account for the Exclusive Benefit of Security-Based Swap
                                Customers
------------------------------------------------------------------------
                                         Credits             Debits
------------------------------------------------------------------------
1. Free credit balances and other  $--------.........  .................
 credit balances in the accounts
 carried for security-based swap
 customers.
2. Monies borrowed collateralized  $--------.........  .................
 by securities in accounts
 carried for security-based swap
 customers.
3. Monies payable against          $--------.........  .................
 security-based swap customers'
 securities loaned.
4. Security-based swap customers'  $--------.........  .................
 securities failed to receive.
5. Credit balances in firm         $--------.........  .................
 accounts which are attributable
 to principal sales to security-
 based swap customers.
6. Market value of stock           $--------.........  .................
 dividends, stock splits and
 similar distributions receivable
 outstanding over 30 calendar
 days.
7. Market value of short security  $--------.........  .................
 count differences over 30
 calendar days old.
8. Market value of short           $--------.........  .................
 securities and credits (not to
 be offset by longs or by debits)
 in all suspense accounts over 30
 calendar days.
9. Market value of securities      $--------.........  .................
 which are in transfer in excess
 of 40 calendar days and have not
 been confirmed to be in transfer
 by the transfer agent or the
 issuer during the 40 days.
10. Debit balances in accounts     ..................  $--------
 carried for security-based swap
 customers, excluding unsecured
 accounts and accounts doubtful
 of collection.
11. Securities borrowed to         ..................  $--------
 effectuate short sales by
 security-based swap customers
 and securities borrowed to make
 delivery on security-based swap
 customers' securities failed to
 deliver.
12. Failed to deliver of security- ..................  $--------
 based swap customers' securities
 not older than 30 calendar days.
13. Margin required and on         ..................  $--------
 deposit with the Options
 Clearing Corporation for all
 option contracts written or
 purchased in accounts carried
 for security-based swap
 customers.
14. Margin related to security     ..................  $--------
 future products written,
 purchased or sold in accounts
 carried for security-based swap
 customers required and on
 deposit in a qualified clearing
 agency account at a clearing
 agency registered with the
 Commission under section 17A of
 the Act (15 U.S.C. 78q-1) or a
 derivatives clearing
 organization registered with the
 Commodity Futures Trading
 Commission under section 5b of
 the Commodity Exchange Act (7
 U.S.C. 7a-1).
15. Margin related to cleared      ..................  $--------
 security-based swap transactions
 in accounts carried for security-
 based swap customers required
 and on deposit in a qualified
 clearing agency account at a
 clearing agency registered with
 the Commission pursuant to
 section 17A of the Act (15
 U.S.C. 78q-1).
16. Margin related to non-cleared  ..................  $--------
 security-based swap transactions
 in accounts carried for security-
 based swap customers required
 and held in a qualified
 registered security-based swap
 dealer account at another
 security-based swap dealer.
    Total Credits................  $--------.........  .................
    Total Debits.................  ..................  $--------
    Excess of Credits over Debits  $--------.........  .................
------------------------------------------------------------------------

    Note A. Item 1 shall include all outstanding drafts payable to
security-based swap customers which have been applied against free
credit balances or other credit balances and shall also include
checks drawn in excess of bank balances per the records of the
security-based swap dealer.
    Note B. Item 2 shall include the amount of options-related or
security futures product-related Letters of Credit obtained by a
member of a registered clearing agency or a derivatives clearing
organization which are collateralized by security-based swap
customers' securities, to the extent of the member's margin
requirement at the registered clearing agency or derivatives
clearing organization.
    Note C. Item 3 shall include in addition to monies payable
against security-based swap customer's securities loaned the amount
by which the market value of securities loaned exceeds the
collateral value received from the lending of such securities.
    Note D. Item 4 shall include in addition to security-based swap
customers' securities failed to receive the amount by which the
market value of securities failed to receive and outstanding more
than thirty (30) calendar days exceeds their contract value.
    Note E. (1) Debit balances in accounts shall be reduced by the
amount by which a specific security (other than an exempted
security) which is collateral for margin requirements exceeds in
aggregate value 15 percent of the aggregate value of all securities
which collateralize all accounts receivable; provided, however, the
required reduction shall not be in excess of the amount of the debit
balance required to be excluded because of this concentration rule.
A specified security is deemed to be collateral for an account only
to the extent it is not an excess margin security.
    (2) Debit balances in special omnibus accounts, maintained in
compliance with the requirements of section 4(b) of Regulation T
under the Act (12 CFR 220.4(b)) or similar accounts carried on
behalf of another security-based swap dealer, shall be reduced by
any deficits in such accounts (or if a credit, such credit shall be
increased) less any calls for margin, marks to the market, or other
required deposits which are outstanding 5 business days or less.
    (3) Debit balances in security-based swap customers' accounts
included in the formula under item 10 shall be reduced by an amount
equal to 1 percent of their aggregate value.
    (4) Debit balances in accounts of household members and other
persons related to principals of a security-based swap dealer and
debit balances in cash and margin accounts of affiliated persons of
a security-based swap dealer shall be excluded from the Reserve
Formula, unless the security-based swap dealer can demonstrate that
such debit balances are directly related to credit items in the
formula.
    (5) Debit balances in accounts (other than omnibus accounts)
shall be reduced by the amount by which any single security-based
swap customer's debit balance exceeds 25% (to the extent such amount
is greater than $50,000) of the broker-dealer's tentative net
capital (i.e., net capital prior to securities haircuts) unless the
security-based swap dealer can demonstrate that the debit balance is
directly related to credit items in the Reserve Formula. Related
accounts (e.g., the separate accounts of an individual, accounts
under common control or subject to cross guarantees) shall be deemed
to be a single security-based swap customer's accounts for purposes
of this provision.
    If the Commission is satisfied, after taking into account the
circumstances of the concentrated account including the quality,
diversity, and marketability of the collateral securing the debit
balances in accounts subject to this provision, that the
concentration of debit balances is appropriate, then the Commission
may, by order, grant a partial or plenary exception from this
provision.
    The debit balance may be included in the reserve formula
computation for five

business days from the day the request is made.
    (6) Debit balances of joint accounts, custodian accounts,
participations in hedge funds or limited partnerships or similar
type accounts or arrangements of a person who would be excluded from
the definition of security-based swap customer (``non-security-based
swap customer'') which persons includible in the definition of
security-based swap customer shall be included in the Reserve
Formula in the following manner: if the percentage ownership of the
non-security-based swap customer is less than 5 percent then the
entire debit balance shall be included in the formula; if such
percentage ownership is between 5 percent and 50 percent then the
portion of the debit balance attributable to the non-security-based
swap customer shall be excluded from the formula unless the
security-based swap dealer can demonstrate that the debit balance is
directly related to credit items in the formula; if such percentage
ownership is greater than 50 percent, then the entire debit balance
shall be excluded from the formula unless the security-based swap
dealer can demonstrate that the debit balance is directly related to
credit items in the formula.
    Note F. Item 13 shall include the amount of margin required and
on deposit with Options Clearing Corporation to the extent such
margin is represented by cash, proprietary qualified securities, and
letters of credit collateralized by security-based swap customers'
securities.
    Note G. (a) Item 14 shall include the amount of margin required
and on deposit with a clearing agency registered with the Commission
under section 17A of the Act (15 U.S.C. 78q-1) or a derivatives
clearing organization registered with the Commodity Futures Trading
Commission under section 5b of the Commodity Exchange Act (7 U.S.C.
7a-1) for security-based swap customer accounts to the extent that
the margin is represented by cash, proprietary qualified securities,
and letters of credit collateralized by security-based swap
customers' securities.
    (b) Item 14 shall apply only if the security-based swap dealer
has the margin related to security futures products on deposit with:
    (1) A registered clearing agency or derivatives clearing
organization that:
    (i) Maintains security deposits from clearing members in
connection with regulated options or futures transactions and
assessment power over member firms that equal a combined total of at
least $2 billion, at least $500 million of which must be in the form
of security deposits. For purposes of this Note G, the term
``security deposits'' refers to a general fund, other than margin
deposits or their equivalent, that consists of cash or securities
held by a registered clearing agency or derivative clearing
organization;
    (ii) Maintains at least $3 billion in margin deposits; or
    (iii) Does not meet the requirements of paragraphs (b)(1)(i)
through (b)(1)(ii) of this Note G, if the Commission has determined,
upon a written request for exemption by or for the benefit of the
security-based swap dealer, that the security-based swap dealer may
utilize such a registered clearing agency or derivatives clearing
organization. The Commission may, in its sole discretion, grant such
an exemption subject to such conditions as are appropriate under the
circumstances, if the Commission determines that such conditional or
unconditional exemption is necessary or appropriate in the public
interest, and is consistent with the protection of investors; and
    (2) A registered clearing agency or derivatives clearing
organization that, if it holds funds or securities deposited as
margin for security futures products in a bank, as defined in
section 3(a)(6) of the Act (15 U.S.C. 78c(a)(6)), obtains and
preserves written notification from the bank at which it holds such
funds and securities or at which such funds and securities are held
on its behalf. The written notification shall state that all funds
and/or securities deposited with the bank as margin (including
security-based swap customer security futures products margin), or
held by the bank and pledged to such registered clearing agency or
derivatives clearing agency as margin, are being held by the bank
for the exclusive benefit of clearing members of the registered
clearing agency or derivatives clearing organization (subject to the
interest of such registered clearing agency or derivatives clearing
organization therein), and are being kept separate from any other
accounts maintained by the registered clearing agency or derivatives
clearing organization with the bank. The written notification also
shall provide that such funds and/or securities shall at no time be
used directly or indirectly as security for a loan to the registered
clearing agency or derivatives clearing organization by the bank,
and shall be subject to no right, charge, security interest, lien,
or claim of any kind in favor of the bank or any person claiming
through the bank. This provision, however, shall not prohibit a
registered clearing agency or derivatives clearing organization from
pledging security-based swap customer funds or securities as
collateral to a bank for any purpose that the rules of the
Commission or the registered clearing agency or derivatives clearing
organization otherwise permit; and
    (3) A registered clearing agency or derivatives clearing
organization that establishes, documents, and maintains:
    (i) Safeguards in the handling, transfer, and delivery of cash
and securities;
    (ii) Fidelity bond coverage for its employees and agents who
handle security-based swap customer funds or securities. In the case
of agents of a registered clearing agency or derivatives clearing
organization, the agent may provide the fidelity bond coverage; and
    (iii) Provisions for periodic examination by independent public
accountants; and
    (4) A derivatives clearing organization that, if it is not
otherwise registered with the Commission, has provided the
Commission with a written undertaking, in a form acceptable to the
Commission, executed by a duly authorized person at the derivatives
clearing organization, to the effect that, with respect to the
clearance and settlement of the security-based swap customer
security futures products of the broker-dealer, the derivatives
clearing organization will permit the Commission to examine the
books and records of the derivatives clearing organization for
compliance with the requirements set forth in Sec.  240.15c3-3a,
Note G. (b)(1) through (3).
    (c) Item 14 shall apply only if a security-based swap dealer
determines, at least annually, that the registered clearing agency
or derivatives clearing organization with which the security-based
swap dealer has on deposit margin related to security futures
products meets the conditions of this Note G.

    By the Commission.

    Dated: October 18, 2012.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-26164 Filed 11-21-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: August 10, 2007 (Volume 72, Number 154)]
[Notices]
[Page 45027]
[DOCID:fr10au07-57]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. RP07-558-000]

Maritimes & Northeast Pipeline, LLC.; Notice of Proposed Changes
in FERC Gas Tariff

August 6, 2007.
    Take notice that on August 2, 2007, Maritimes & Northeast Pipeline,
LLC. (Maritimes) tendered for filing as part of its FERC Gas Tariff,
First Revised Volume No. 1, the tariff sheets listed in Appendix A of
the filing to be effective September 1, 2007.
    Maritimes states that the purpose of this filing is to modify the
Maritimes Tariff to: (i) Update the nomination, scheduling, curtailment
and OFO provisions in the general terms and conditions, and (ii) make
certain minor, non-substantive revisions.
    Maritimes states that copies of its filing have been mailed to all
affected customers and interested state commissions.
    Any person desiring to intervene or to protest this filing must
file in accordance with Rules 211 and 214 of the Commission's Rules of
Practice and Procedure (18 CFR 385.211 and 385.214). Protests will be
considered by the Commission in determining the appropriate action to
be taken, but will not serve to make protestants parties to the
proceeding. Any person wishing to become a party must file a notice of
intervention or motion to intervene, as appropriate. Such notices,
motions, or protests must be filed in accordance with the provisions of
Section 154.210 of the Commission's regulations (18 CFR 154.210).
Anyone filing an intervention or protest must serve a copy of that
document on the Applicant. Anyone filing an intervention or protest on
or before the intervention or protest date need not serve motions to
intervene or protests on persons other than the Applicant.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper using the ``eFiling'' link at http://www.ferc.gov.
 Persons unable to file electronically should submit an

original and 14 copies of the protest or intervention to the Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426.
    This filing is accessible on-line at http://www.ferc.gov, using the

``eLibrary'' link and is available for review in the Commission's
Public Reference Room in Washington, DC. There is an ``eSubscription''
link on the Web site that enables subscribers to receive e-mail
notification when a document is added to a subscribed docket(s). For
assistance with any FERC Online service, please e-mail
<EMAIL_ADDRESS>or call<PHONE_NUMBER> (toll free). For

TTY, call<PHONE_NUMBER>.

Kimberly D. Bose,
Secretary.
[FR Doc. E7-15655 Filed 8-9-07; 8:45 am]

BILLING CODE 6717-01-P