Library / Laws / 113th / hr / H.R. 4413 / Reported in House
IB
Union Calendar No. 348
113th CONGRESS
2d Session
H. R. 4413
[Report No. 113–469]
IN THE HOUSE OF REPRESENTATIVES
April 7, 2014
Mr. Lucas (for himself, Mr. Peterson, Mr. Conaway, and Mr. David Scott of Georgia) introduced the following bill; which was referred to the Committee on Agriculture
June 5, 2014
Committed to the Committee of the Whole House on the State of the Union and ordered to be printed
A BILL
To reauthorize the Commodity Futures Trading Commission, to better protect futures customers, to
provide end users with market certainty, to make basic reforms to ensure
transparency and accountability at the Commission, to help farmers,
ranchers, and end users manage risks to help keep consumer costs low, and
for other purposes.
1.
Short title
This Act may be cited as the Customer Protection and End User Relief Act.
2.
Table of contents
The table of contents of this Act is as follows:
Sec. 1. Short title.
Sec. 2. Table of contents.
Title I—Customer protections
Sec. 101. Short title.
Sec. 102. Enhanced protections for futures customers.
Sec. 103. Electronic confirmation of customer funds.
Sec. 104. Notice and certifications providing additional customer protections.
Sec. 105. Futures commission merchant compliance.
Sec. 106. Certainty for futures customers and market participants.
Sec. 107. Study on high-frequency trading.
Title II—Commodity Futures Trading Commission reforms
Sec. 201. Short title.
Sec. 202. Extension of operations.
Sec. 203. Consideration by the Commodity Futures Trading Commission of the costs and benefits of
its regulations and orders.
Sec. 204. Division directors.
Sec. 205. Office of the Chief Economist.
Sec. 206. Procedures governing actions taken without a commission vote.
Sec. 207. Strategic technology plan.
Sec. 208. Internal risk controls.
Sec. 209. Subpoena duration and renewal.
Sec. 210. Implementation plan for Commission rulemakings.
Sec. 211. Applicability of notice and comment requirements of the Administrative Procedure Act to
guidance voted on by the Commission.
Sec. 212. Judicial review of Commission rules.
Sec. 213. GAO study on adequacy of CFTC resources.
Title III—End-user relief
Sec. 301. Short title.
Subtitle A—End-User exemption from margin requirements
Sec. 311. End-user margin requirements.
Sec. 312. Implementation.
Subtitle B—Inter-Affiliate swaps
Sec. 321. Treatment of affiliate transactions.
Subtitle C—Indemnification requirements related to swap data repositories
Sec. 331. Indemnification requirements.
Subtitle D—Relief for municipal utilities
Sec. 341. Transactions with utility special entities.
Sec. 342. Utility special entity defined.
Sec. 343. Utility operations-related swap.
Subtitle E—End-User regulatory relief
Sec. 351. End users not treated as financial entities.
Sec. 352. Reporting of illiquid swaps so as to not disadvantage certain non-financial end users.
Sec. 353. Relief for grain elevator operators, farmers, agricultural counterparties, and
commercial market participants.
Sec. 354. Relief for end users who use physical contracts with volumetric optionality.
Sec. 355. Commission vote required before automatic change of swap dealer de minimis level.
Sec. 356. Capital requirements for non-bank swap dealers.
Sec. 357. Harmonization with the Jumpstart Our Business Startups Act.
Sec. 358. Bona fide hedge defined to protect end user risk management needs.
Sec. 359. Cross-border regulation of derivatives transactions.
Subtitle F—Effective date
Sec. 371. Effective date.
I
Customer protections
101.
Short title
This title may be cited as the Futures Customer Protection Act.
102.
Enhanced protections for futures customers
Section 17 of the Commodity Exchange Act (7 U.S.C. 21) is amended by adding at the end the
following:
(s) A registered futures association shall—
(1) require each member of the association that is a futures commission merchant to maintain written
policies and procedures regarding the maintenance of—
(A) the residual interest of the member, as described in section 1.23 of title 17, Code of Federal
Regulations, in any customer segregated funds account of the member, as
identified in section 1.20 of such title, and in any foreign futures and
foreign options customer secured amount funds account of the member, as
identified in section 30.7 of such title; and
(B) the residual interest of the member, as described in section 22.2(e)(4) of such title, in any
cleared swaps customer collateral account of the member, as identified in
section 22.2 of such title; and
(2) establish rules to govern the withdrawal, transfer or disbursement by any member of the
association, that is a futures commission merchant, of the member's
residual interest in customer segregated funds as provided in such section
1.20, in foreign futures and foreign options customer secured amount
funds, identified as provided in such section 30.7, and from a cleared
swaps customer collateral, identified as provided in such section 22.2.
.
103.
Electronic confirmation of customer funds
Section 17 of the Commodity Exchange Act (7 U.S.C. 21), as amended by section 102 of this Act, is
amended by adding at the end the following:
(t) A registered futures association shall require any member of the association that is a futures
commission merchant to—
(1) use an electronic system or systems to report financial and operational information to the
association, including information related to customer segregated funds,
foreign futures and foreign options customer secured amount funds
accounts, and cleared swaps customer collateral, in accordance with such
terms, conditions, documentation standards, and regular time intervals as
are established by the association;
(2) instruct each depository, including any bank, trust company, derivatives clearing organization, or
futures commission merchant, holding customer segregated funds under
section 1.20 of title 17, Code of Federal Regulations, foreign futures and
foreign options customer secured amount funds under section 30.7 of such
title, or cleared swap customer funds under section 22.2 of such title, to
report balances in the futures commission merchant's section 1.20 customer
segregated funds, section 30.7 foreign futures and foreign options
customer secured amount funds, and section 22.2 cleared swap customer
funds, to the registered futures association or another party designated
by the registered futures association, in the form, manner, and interval
prescribed by the registered futures association; and
(3) hold section 1.20 customer segregated funds, section 30.7 foreign futures and foreign options
customer secured amount funds and section 22.2 cleared swaps customer
funds in a depository that reports the balances in these accounts of the
futures commission merchant held at the depository to the registered
futures association or another party designated by the registered futures
association in the form, manner, and interval prescribed by the registered
futures association.
.
104.
Notice and certifications providing additional customer protections
Section 17 of the Commodity Exchange Act (7 U.S.C. 21), as amended by sections 102 and 103 of this
Act, is amended by adding at the end the following:
(u) A futures commission merchant that has adjusted net capital in an amount less than the amount
required by regulations established by the Commission or a self-regulatory
organization of which the futures commission merchant is a member shall
immediately notify the Commission and the self-regulatory organization of
this occurrence.
(v) A futures commission merchant that does not hold a sufficient amount of funds in segregated
accounts for futures customers under section 1.20 of title 17, Code of
Federal Regulations, in foreign futures and foreign options secured amount
accounts for foreign futures and foreign options secured amount customers
under section 30.7 of such title, or in segregated accounts for cleared
swap customers under section 22.2 of such title, as required by
regulations established by the Commission or a self-regulatory
organization of which the futures commission merchant is a member, shall
immediately notify the Commission and the self-regulatory organization of
this occurrence.
(w) Within such time period established by the Commission after the end of each fiscal year, a futures
commission merchant shall file with the Commission a report from the chief
compliance officer of the futures commission merchant containing an
assessment of the internal compliance programs of the futures commission
merchant.
.
105.
Futures commission merchant compliance
(a)
In general
Section 4d(a) of the Commodity Exchange Act (7 U.S.C. 6d(a)) is amended—
(1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B) and by moving the margins of
such subparagraphs two ems to the right;
(2) by inserting (1) before It shall be unlawful; and
(3) by adding at the end the following new paragraph:
(2) Any rules or regulations requiring a futures commission merchant to maintain a residual interest in
accounts held for the benefit of customers in amounts at least sufficient
to exceed the sum of all uncollected margin deficits of such customers
shall provide that a futures commission merchant shall meet its residual
interest requirement as of the end of each business day calculated as of
the close of business on the previous business day.
.
(b)
Conforming amendment
Section 4d(h) of the Commodity Exchange Act (7 U.S.C. 6d(h)) is amended by striking Notwithstanding subsection (a)(2) and inserting Notwithstanding subsection (a)(1)(B).
106.
Certainty for futures customers and market participants
Section 20(a) of the Commodity Exchange Act (7 U.S.C. 24(a)) is amended—
(1) by striking and at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and inserting ; and; and
(3) by adding at the end the following:
(6) that cash, securities, or other property of the estate of a commodity broker, including the trading
or operating accounts of the commodities broker and commodities held in
inventory by the commodity broker, shall be included in customer property,
but only to the extent that the property that is otherwise customer
property is insufficient to satisfy the net equity claims of public
customers (as such term may be defined by the Commission by rule or
regulation) of the commodity broker.
.
107.
Study on high-frequency trading
(a)
In general
Not later than one year after the date of the enactment of this Act, the Commodity Futures Trading
Commission shall submit to the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture, Nutrition, and Forestry
of the Senate a report examining the effect of the practice commonly
referred to as high-frequency trading on markets under its jurisdiction.
(b)
Specific areas examined in report
In preparing the report submitted under subsection (a), the Commission shall particularly examine
each of the following areas:
(1) The technology, personnel, or other resources the Commission may require for purposes of monitoring
the effect of high-frequency trading.
(2) The role such trading plays in providing market liquidity.
(3) Whether the technology creates discrepancies in the marketplace between market participants.
(4) Whether the existing authority of the Commission with respect to such trading is sufficient to meet
the Commission’s mission to—
(A) protect market participants and the public from fraud, manipulation, abusive practices, and
systemic risk related to derivatives; and
(B) foster transparent, open, competitive, and financially sound markets.
II
Commodity Futures Trading Commission reforms
201.
Short title
This title may be cited as the Commodity Futures Trading Commission Reform Act.
202.
Extension of operations
Section 12(d) of the Commodity Exchange Act (7 U.S.C. 16(d)) is amended by striking 2013 and inserting 2018.
203.
Consideration by the Commodity Futures Trading Commission of the costs and benefits of its
regulations and orders
Section 15(a) of the Commodity Exchange Act (7 U.S.C. 19(a)) is amended by striking paragraphs (1)
and (2) and inserting the following:
(1)
In general
Before promulgating a regulation under this Act or issuing an order (except as provided in
paragraph (3)), the Commission, through the Office of the Chief Economist,
shall assess and publish in the regulation or order the costs and
benefits, both qualitative and quantitative, of the proposed regulation or
order, and the proposed regulation or order shall state its statutory
justification.
(2)
Considerations
In making a reasoned determination of the costs and the benefits, the Commission shall evaluate—
(A) considerations of protection of market participants and the public;
(B) considerations of the efficiency, competitiveness, and financial integrity of futures and swaps
markets;
(C) considerations of the impact on market liquidity in the futures and swaps markets;
(D) considerations of price discovery;
(E) considerations of sound risk management practices;
(F) available alternatives to direct regulation;
(G) the degree and nature of the risks posed by various activities within the scope of its
jurisdiction;
(H) the costs of complying with the proposed regulation or order by all regulated entities, including a
methodology for quantifying the costs (recognizing that some costs are
difficult to quantify);
(I) whether the proposed regulation or order is inconsistent, incompatible, or duplicative of other
Federal regulations or orders;
(J) whether, in choosing among alternative regulatory approaches, those approaches maximize net
benefits (including potential economic and other benefits, distributive
impacts, and equity); and
(K) other public interest considerations.
.
204.
Division directors
Section 2(a)(6)(C) of the Commodity Exchange Act (7 U.S.C. 2(a)(6)(C)) is amended by inserting , and the heads of the units shall serve at the pleasure of the Commission, report directly to the
Commission, and perform such functions and duties as the Commission may
prescribe before the period.
205.
Office of the Chief Economist
(a)
In general
Section 2(a) of the Commodity Exchange Act (7 U.S.C. 2(a)) is amended by adding at the end the
following:
(17)
Office of the chief economist
(A)
Establishment
There is established in the Commission the Office of the Chief Economist.
(B)
Head
The Office of the Chief Economist shall be headed by the Chief Economist, who shall be appointed by
the Commission and serve at the pleasure of the Commission.
(C)
Functions
The Chief Economist shall report directly to the Commission and perform such functions and duties
as the Commission may prescribe.
(D)
Professional staff
The Commission shall appoint such other economists as may be necessary to assist the Chief
Economist in performing such economic analysis, regulatory cost-benefit
analysis, or research the Commission may direct.
.
(b)
Conforming amendment
Section 2(a)(6)(A) of such Act (7 U.S.C. 2(a)(6)(A)) is amended by striking (4) and (5) and inserting (4), (5), and (17).
206.
Procedures governing actions taken without a commission vote
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)) is amended—
(1) by striking (12) The and inserting the following:
(12)
Rules and regulations
(A)
In general
Subject to the other provisions of this paragraph, the
; and
(2) by adding after and below the end the following new subparagraph:
(B)
Notice to commission
(i)
General rule
A division or office of the Commission may not issue an interpretive rule of general applicability,
a statement of general policy, a response to a formal, written request or
petition from any member of the public for guidance, or an exemptive, a
no-action, or an interpretive letter, unless, at least 7 calendar days
before the issuance, the division or office has provided the Commission
with a copy of the matter to be issued.
(ii)
Opportunity for meeting required
After receiving a copy of the matter provided in accordance with clause (i), any member of the
Commission may request that the Commission hold a meeting to review the
matter, and the Chairman shall immediately put any such request for a
meeting before the Commission, and if the Commission decides to hold the
meeting by a majority vote, the matter may not be issued until the
Commission has concluded the meeting.
(iii)
Limitations on applicability
By a majority vote, the Commission may waive the 7-day prior notice requirement of clause (i) when
the Commission finds that requiring such a notice would be impracticable,
unnecessary, or contrary to the public interest.
.
207.
Strategic technology plan
Section 2(a) of the Commodity Exchange Act (7 U.S.C. 2(a)), as amended by section 204(a) of this
Act, is amended by adding at the end the following:
(18)
Strategic technology plan
(A)
In general
Every 5 years, the Commission shall develop and submit to the Committee on Agriculture of the House
of Representatives and the Committee on Agriculture, Nutrition, and
Forestry of the Senate a detailed plan focused on the acquisition and use
of technology by the Commission.
(B)
Contents
The plan shall—
(i) include for each related division or office a detailed technology strategy focused exclusively on
market surveillance and risk detection, market data collection,
aggregation, interpretation, standardization, harmonization, streamlining,
and internal management and protection of data collected by the
Commission, including a detailed accounting of how the funds provided for
technology will be used and the priorities that will apply in the use of
the funds; and
(ii) set forth annual goals to be accomplished and annual budgets needed to accomplish the goals.
.
208.
Internal risk controls
(a)
In general
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)), as amended by section 206 of
this Act, is amended by adding at the end the following:
(C)
Internal risk controls
The Commission staff and the Chief Economist shall develop comprehensive internal risk control
mechanisms to safeguard and govern the storage of all market data by the
Commission, all market data sharing agreements of the Commission, and all
academic research performed at the Commission using market data.
.
(b)
Reports to the Congress
(1)
Content
The Commission shall submit to the Committee on Agriculture of the House of Representatives and the
Committee on Agriculture, Nutrition, and Forestry of the Senate 2 reports
on the progress made in implementing the internal risk controls provided
for in section 2(a)(12)(C) of the Commodity Exchange Act.
(2)
Timing
The Commission shall submit the 1st report required by paragraph (1) within 60 days after the date
of the enactment of this Act, and the 2nd such report within 120 days
after such date of enactment.
209.
Subpoena duration and renewal
Section 6(c)(5) of the Commodity Exchange Act (7 U.S.C. 9(5)) is amended—
(1) by striking (5) Subpoena.—For and inserting the following:
(5)
Subpoena
(A)
In general
For
; and
(2) by adding after and below the end the following:
(B)
Content of subpoena order
An order of the Commission authorizing the issuance of a subpoena—
(i) shall state in good faith the purpose of the investigation;
(ii) shall require only the provision of information reasonably relevant to that purpose; and
(iii) shall not be for an indefinite duration.
(C)
Renewal
An order issued under this paragraph may be renewed only by Commission action.
.
210.
Implementation plan for Commission rulemakings
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)), as amended by sections 206 and
208(a) of this Act, is amended by adding at the end the following:
(E)
Requirement to publish implementation plan for Commission rules
The Commission shall direct its staff to develop and publish in any proposed rule a plan for—
(i) when and for how long the proposed rule will be subject to public comment; and
(ii) by when compliance with the final rule will be required.
.
211.
Applicability of notice and comment requirements of the Administrative Procedure Act to guidance
voted on by the Commission
Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)), as amended by sections 206,
208(a), and 210 of this Act, is amended by adding at the end the
following:
(F)
Applicability of notice and comment rules to guidance voted on by the Commission
The notice and comment requirements of chapter 5 of title 5, United States Code, shall also apply
with respect to any guidance issued by the Commission after being voted on
by the Commission.
.
212.
Judicial review of Commission rules
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by adding at the end the following:
24.
Judicial review of commission rules
(a) A person aggrieved by a final rule of the Commission under this Act may obtain review of the rule
in the United States Court of Appeals for the District of Columbia Circuit
or the United States Court of Appeals for the circuit where the party
resides, by filing in the court, within 60 days after publication in the
Federal Register of the entry of the rule, a written petition requesting
that the rule be modified or set aside in whole or in part.
(b) A copy of the petition shall be transmitted forthwith by the clerk of the court to an officer
designated by the Commission for that purpose. Thereupon the Commission
shall file in the court the record on which the rule complained of is
entered, as provided in section 2112 of title 28, United States Code, and
the Federal Rules of Appellate Procedure.
(c) On the filing of the petition, the court has jurisdiction, which becomes exclusive on the filing of
the record, to affirm or modify and enforce or to set aside the rule in
whole or in part.
(d) The findings of the Commission as to the facts identified by the Commission as the basis, in whole
or in part, of the rule, if supported by substantial evidence, are
conclusive. The court shall affirm and enforce the rule unless the
Commission's action in promulgating the rule is found to be arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with
law; contrary to constitutional right, power, privilege, or immunity; in
excess of statutory jurisdiction, authority, or limitations, or short of
statutory right; or without observance of procedure required by law.
(e) If either party applies to the court for leave to adduce additional evidence and shows to the
satisfaction of the court that the additional evidence is material and
that there was reasonable ground for failure to adduce it before the
Commission, the court may remand the case to the Commission for further
proceedings, in whatever manner and on whatever conditions the court
considers appropriate. If the case is remanded to the Commission, it shall
file in the court a supplemental record containing any new evidence, any
further or modified findings, and any new order.
.
213.
GAO study on adequacy of CFTC resources
(a)
Study
The Comptroller General of the United States shall conduct a study of the resources of the
Commodity Futures Trading Commission that—
(1) assesses whether the resources of the Commission are sufficient to enable the Commission to
effectively carry out the duties of the Commission; and
(2) examines the prior expenditures of the Commission on hardware, software, and analytical processes
designed to protect customers in the areas of—
(A) market surveillance and risk detection; and
(B) market data collection, aggregation, interpretation, standardization, harmonization, and
streamlining.
(b)
Report
Not later than 180 days after the date of the enactment of this Act, the Comptroller General of the
United States shall submit to the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture, Nutrition, and Forestry
of the Senate a report that contains the results of the study.
III
End-user relief
301.
Short title
This title may be cited as the End-User Relief and Market Certainty Act.
A
End-User exemption from margin requirements
311.
End-user margin requirements
Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is amended by adding at the end the
following new paragraph:
(4)
Applicability with respect to counterparties
The requirements of paragraphs (2)(A)(ii) and (2)(B)(ii), including the initial and variation
margin requirements imposed by rules adopted pursuant to paragraphs
(2)(A)(ii) and (2)(B)(ii), shall not apply to a swap in which a
counterparty qualifies for an exception under section 2(h)(7)(A), or an
exemption issued under section 4(c)(1) from the requirements of section
2(h)(1)(A) for cooperative entities as defined in such exemption, or
satisfies the criteria in section 2(h)(7)(D).
.
312.
Implementation
The amendment made by this subtitle shall be implemented—
(1) without regard to—
(A) chapter 35 of title 44, United States Code; and
(B) the notice and comment provisions of section 553 of title 5, United States Code;
(2) through the promulgation of an interim final rule, pursuant to which public comment will be sought
before a final rule is issued; and
(3) such that paragraph (1) shall apply solely to changes to rules and regulations, or proposed rules
and regulations, that are limited to and directly a consequence of the
amendment.
B
Inter-Affiliate swaps
321.
Treatment of affiliate transactions
(a)
In general
Section 2(h)(7)(D)(i) of the Commodity Exchange Act (7 U.S.C. 2(h)(7)(D)(i)) is amended to read as
follows:
(i)
In general
An affiliate of a person that qualifies for an exception under subparagraph (A) (including
affiliate entities predominantly engaged in providing financing for the
purchase of the merchandise or manufactured goods of the person) may
qualify for the exception only if the affiliate enters into the swap to
hedge or mitigate the commercial risk of the person or other affiliate of
the person that is not a financial entity, provided that if the transfer
of commercial risk is addressed by entering into a swap with a swap dealer
or major swap participant, a credit support measure or other mechanism is
utilized.
.
(b)
Applicability of credit support measure requirement
Notwithstanding section 371 of this Act, the requirement in section 2(h)(7)(D)(i) of the Commodity
Exchange Act, as amended by subsection (a), requiring that a credit
support measure or other mechanism be utilized if the transfer of
commercial risk referred to in such section is addressed by entering into
a swap with a swap dealer or major swap participant, shall not apply with
respect to swaps entered into before the date of the enactment of this
Act.
C
Indemnification requirements related to swap data repositories
331.
Indemnification requirements
(a)
Derivatives clearing organizations
Section 5b(k)(5) of the Commodity Exchange Act (7 U.S.C. 7a–1(k)(5)) is amended to read as follows:
(5)
Confidentiality agreement
Before the Commission may share information with any entity described in paragraph (4), the
Commission shall receive a written agreement from each entity stating that
the entity shall abide by the confidentiality requirements described in
section 8 relating to the information on swap transactions that is
provided.
.
(b)
Swap data repositories
Section 21(d) of such Act (7 U.S.C. 24a(d)) is amended to read as follows:
(d)
Confidentiality agreement
Before the swap data repository may share information with any entity described in subsection
(c)(7), the swap data repository shall receive a written agreement from
each entity stating that the entity shall abide by the confidentiality
requirements described in section 8 relating to the information on swap
transactions that is provided.
.
D
Relief for municipal utilities
341.
Transactions with utility special entities
Section 1a(49) of the Commodity Exchange Act (7 U.S.C. 1a(49)) is amended by adding at the end the
following:
(E)
Certain transactions with a utility special entity
(i) Transactions in utility operations-related swaps shall be reported pursuant to section 4r.
(ii) In making a determination to exempt pursuant to subparagraph (D), the Commission shall treat a
utility operations-related swap entered into with a utility special
entity, as defined in section 4s(h)(2)(D), as if it were entered into with
an entity that is not a special entity, as defined in section 4s(h)(2)(C).
.
342.
Utility special entity defined
Section 4s(h)(2) of the Commodity Exchange Act (7 U.S.C. 6s(h)(2)) is amended by adding at the end
the following:
(D)
Utility special entity
For purposes of this Act, the term utility special entity means a special entity, or any instrumentality, department, or corporation of or established by a
State or political subdivision of a State, that—
(i) owns or operates an electric or natural gas facility or an electric or natural gas operation;
(ii) supplies natural gas and or electric energy to another utility special entity;
(iii) has public service obligations under Federal, State, or local law or regulation to deliver electric
energy or natural gas service to customers; or
(iv) is a Federal power marketing agency, as defined in section 3 of the Federal Power Act.
.
343.
Utility operations-related swap
(a)
Swap further defined
Section 1a(47)(A)(iii) of the Commodity Exchange Act (7 U.S.C. 1a(47)(A)(iii)) is amended—
(1) by striking and at the end of subclause (XXI);
(2) by adding and at the end of subclause (XXII); and
(3) by adding at the end the following:
(XXIII) a utility operations-related swap;
.
(b)
Utility operations-related swap defined
Section 1a of such Act (7 U.S.C. 1a) is amended by adding at the end the following:
(52)
Utility operations-related swap
The term utility operations-related swap means a swap that—
(A) is entered into to hedge or mitigate a commercial risk;
(B) is not a contract, agreement, or transaction based on, derived on, or referencing—
(i) an interest rate, credit, equity, or currency asset class; or
(ii) a metal, agricultural commodity, or crude oil or gasoline commodity of any grade, except as used as
fuel for electric energy generation; and
(C) is associated with—
(i) the generation, production, purchase, or sale of natural gas or electric energy, the supply of
natural gas or electric energy to a utility, or the delivery of natural
gas or electric energy service to utility customers;
(ii) all fuel supply for the facilities or operations of a utility;
(iii) compliance with an electric system reliability obligation;
(iv) compliance with an energy, energy efficiency, conservation, or renewable energy or environmental
statute, regulation, or government order applicable to a utility; or
(v) any other electric energy or natural gas swap to which a utility is a party.
.
E
End-User regulatory relief
351.
End users not treated as financial entities
(a)
In general
Section 2(h)(7)(C)(iii) of the Commodity Exchange Act (7 U.S.C. 2(h)(7)(C)(iii)) is amended to read
as follows:
(iii)
Limitation
Such definition shall not include an entity—
(I) whose primary business is providing financing, and who uses derivatives for the purpose of hedging
underlying commercial risks related to interest rate and foreign currency
exposures, 90 percent or more of which arise from financing that
facilitates the purchase or lease of products, 90 percent or more of which
are manufactured by the parent company or another subsidiary of the parent
company; or
(II) who is not supervised by a prudential regulator, and is not described in any of subclauses (I)
through (VII) of clause (i), and—
(aa) is a commercial market participant and is considered a financial entity under clause (i)(VIII)
because the entity predominantly engages in physical delivery contracts;
or
(bb) enters into swaps, contracts for future delivery, and other derivatives on behalf of, or to hedge
or mitigate the commercial risk of, whether directly or in the aggregate,
affiliates that are not so supervised or described.
.
(b)
Commercial market participant defined
(1)
In general
Section 1a of such Act (7 U.S.C. 1a) is amended by redesignating paragraphs (8) through (51) as
paragraphs (9) through (52), respectively, and by inserting after
paragraph (6) the following:
(7)
Commercial market participant
The term commercial market participant means any producer, processor, merchant, or commercial user of an exempt or agricultural
commodity, or the products or byproducts of such a commodity.
.
(2)
Conforming amendments
(A) Section 1a of such Act (7 U.S.C. 1a) is amended—
(i) in subparagraph (A) of paragraph (18) (as so redesignated by paragraph (1) of this subsection), in
the matter preceding clause (i), by striking (18)(A) and inserting (19)(A); and
(ii) in subparagraph (A)(vii) of paragraph (19) (as so redesignated by paragraph (1) of this
subsection), in the matter following subclause (III), by striking (17)(A) and inserting (18)(A).
(B) Section 4(c)(1)(A)(i)(I) of such Act (7 U.S.C. 6(c)(1)(A)(i)(I)) is amended by striking (7), paragraph (18)(A)(vii)(III), paragraphs (23), (24), (31), (32), (38), (39), (41), (42), (46),
(47), (48), and (49) and inserting (8), paragraph (19)(A)(vii)(III), paragraphs (24), (25), (32), (33), (39), (40), (42), (43), (47),
(48), (49), and (50).
(C) Section 4q(a)(1) of such Act (7 U.S.C. 6o–1(a)(1)) is amended by striking 1a(9) and inserting 1a(10).
(D) Section 4s(f)(1)(D) of such Act (7 U.S.C. 6s(f)(1)(D)) is amended by striking 1a(47)(A)(v) and inserting 1a(48)(A)(v).
(E) Section 4s(h)(5)(A)(i) of such Act (7 U.S.C. 6s(h)(5)(A)(i)) is amended by striking 1a(18) and inserting 1a(19).
(F) Section 4t(b)(1)(C) of such Act (7 U.S.C. 6t(b)(1)(C)) is amended by striking 1a(47)(A)(v) and inserting 1a(48)(A)(v).
(G) Section 5(d)(23) of such Act (7 U.S.C. 7(d)(23)) is amended by striking 1a(47)(A)(v) and inserting 1a(48)(A)(v).
(H) Section 5(e)(1) of such Act (7 U.S.C. 7(e)(1)) is amended by striking 1a(9) and inserting 1a(10).
(I) Section 5b(k)(3)(A) of such Act (7 U.S.C. 7a–1(k)(3)(A)) is amended by striking 1a(47)(A)(v) and inserting 1a(48)(A)(v).
(J) Section 5c(c)(4)(B) of such Act (7 U.S.C. 7a–2(c)(4)(B)) is amended by striking 1a(10) and inserting 1a(11).
(K) Section 5h(f)(10)(A)(iii) of such Act (7 U.S.C. 7b–3(f)(10)(A)(iii)) is amended by striking 1a(47)(A)(v) and inserting 1a(48)(A)(v).
(L) Section 21(f)(4)(C) of such Act (7 U.S.C. 24a(f)(4)(C)) is amended by striking 1a(48) and inserting 1a(49).
352.
Reporting of illiquid swaps so as to not disadvantage certain non-financial end users
Section 2(a)(13) of the Commodity Exchange Act (7 U.S.C. 2(a)(13)) is amended—
(1) in subparagraph (C), by striking The Commission and inserting Except as provided in subparagraph (D), the Commission; and
(2) by redesignating subparagraphs (D) through (G) as subparagraphs (E) through (H), respectively, and
inserting after subparagraph (C) the following:
(D)
Requirements for swap transactions in illiquid markets
Notwithstanding subparagraph (C):
(i) The Commission shall provide by rule for the public reporting of swap transactions, including price
and volume data, in illiquid markets that are not cleared and entered into
by a non-financial entity that is hedging or mitigating commercial risk in
accordance with subsection (h)(7)(A).
(ii) The Commission shall ensure that the swap transaction information referred to in clause (i) of this
subparagraph is available to the public no sooner than 30 days after the
swap transaction has been executed or at such later date as the Commission
determines appropriate to protect the identity of participants and
positions in illiquid markets and to prevent the elimination or reduction
of market liquidity.
(iii) In this subparagraph, the term illiquid markets means any market in which the volume and frequency of trading in swaps is at such a level as to
allow identification of individual market participants.
.
353.
Relief for grain elevator operators, farmers, agricultural counterparties, and commercial market
participants
The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by inserting after section 4t the
following:
4u.
Recordkeeping requirements applicable to non-registered members of certain registered entities
Except as provided in section 4(a)(3), a member of a designated contract market or a swap execution
facility that is not registered with the Commission and not required to be
registered with the Commission in any capacity shall satisfy the
recordkeeping requirements of this Act and any recordkeeping rule, order,
or regulation under this Act by maintaining a written record of each
transaction in a contract for future delivery, option on a future, swap,
swaption, trade option, or related cash or forward transaction. The
written record shall be sufficient if it includes the final agreement
between the parties and the material economic terms of the transaction and
is identifiable and searchable by transaction.
.
354.
Relief for end users who use physical contracts with volumetric optionality
Section 1a(47)(B)(ii) of the Commodity Exchange Act (7 U.S.C. 1a(47)(B)(ii)) is amended to read as
follows:
(ii) any purchase or sale of a nonfinancial commodity or security for deferred shipment or delivery, so
long as the transaction is intended to be physically settled, including
any stand-alone or embedded option for which—
(I) exercise results in a physical delivery obligation;
(II) cannot be severed or marketed separately from the overall transaction for the purpose of financial
settlement; and
(III) both parties are commercial market participants.
.
355.
Commission vote required before automatic change of swap dealer de minimis level
Section 1a(49)(D) of the Commodity Exchange Act (7 U.S.C. 1a(49)(D)) is amended—
(1) by striking all that precedes shall exempt and inserting the following:
(D)
De minimis exception
(i)
In general
The Commission
; and
(2) by adding after and below the end the following new clause:
(ii) The de minimis quantity of swap dealing as described in clause (i) that is currently set at a
quantity of $8,000,000,000 shall only be amended or reduced through a new
affirmative action of the Commission undertaken by rule or regulation.
.
356.
Capital requirements for non-bank swap dealers
Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is amended—
(1) in paragraph (2)(B), by inserting , in consultation with the prudential regulators and the Securities and Exchange Commission, before shall; and
(2) in paragraph (3)(D)—
(A) in clause (ii), by striking shall, to the maximum extent practicable, and inserting shall; and
(B) by adding at the end the following:
(iii)
Financial models
To the extent that swap dealers and major swap participants that are banks are permitted to use
financial models approved by the prudential regulators or the Securities
and Exchange Commission to calculate minimum capital requirements and
minimum initial and variation margin requirements, including the use of
non-cash collateral, the Commission shall, in consultation with the
prudential regulators and the Securities and Exchange Commission, permit
the use of comparable financial models by swap dealers and major swap
participants that are not banks.
.
357.
Harmonization with the Jumpstart Our Business Startups Act
Within 90 days after the date of the enactment of this Act, the Commodity Futures Trading
Commission shall—
(1) revise section 4.7(b) of title 17, Code of Federal Regulations, in the matter preceding paragraph
(1), to read as follows:
(b) Relief available to commodity pool operators. Upon filing the notice required by paragraph (d) of this section, and subject to compliance with
the conditions specified in paragraph (d) of this section, any registered
commodity pool operator who sells participations in a pool solely to
qualified eligible persons in an offering which qualifies for exemption
from the registration requirements of the Securities Act pursuant to
section 4(2) of that Act or pursuant to Regulation S, 17 CFR 230.901 et seq., and any bank registered as a commodity pool operator in connection with a pool that is a
collective trust fund whose securities are exempt from registration under
the Securities Act pursuant to section 3(a)(2) of that Act and are sold
solely to qualified eligible persons, may claim any or all of the
following relief with respect to such pool:
; and
(2) revise section 4.13(a)(3)(i) of such title to read as follows:
(i) Interests in the pool are exempt from registration under the Securities Act of 1933, and such
interests are offered and sold pursuant to section 4 of the Securities Act
of 1933 and the regulations thereunder;
.
358.
Bona fide hedge defined to protect end user risk management needs
Section 4a(c) of the Commodity Exchange Act (7 U.S.C. 6a(c)) is amended—
(1) in paragraph (1)—
(A) by striking may and inserting shall; and
(B) by striking future for which and inserting future, to be determined by the Commission, for which either an appropriate swap is available or;
(2) in paragraph (2)—
(A) in the matter preceding subparagraph (A), by striking subsection (a)(2) and all that follows through position as and inserting paragraphs (2) and (5) of subsection (a) for swaps, contracts of sale for future delivery, or
options on the contracts or commodities, a bona fide hedging transaction
or position is; and
(B) in subparagraph (A)(ii), by striking of risks and inserting or management of current or anticipated risks; and
(3) by adding at the end the following:
(3) The Commission may further define, by rule or regulation, what constitutes a bona fide hedging
transaction, provided that the rule or regulation is consistent with the
requirements of subparagraphs (A) and (B) of paragraph (2).
.
359.
Cross-border regulation of derivatives transactions
(a)
Rules required
Within 180 days after the date of the enactment of this Act, the Commodity Futures Trading
Commission shall issue rules that address—
(1) the nature of the connections to the United States that require a non-U.S. person to register as a
swap dealer or major swap participant under the Commodity Exchange Act and
the regulations issued under such Act;
(2) which of the United States swaps requirements shall apply to the swap activities of non-U.S.
persons, U.S. persons, and their branches, agencies, subsidiaries, and
affiliates outside of the United States and the extent to which such
requirements shall apply; and
(3) the circumstances under which a non-U.S. person in compliance with the regulatory requirements of a
foreign jurisdiction shall be exempt from United States swaps
requirements.
(b)
Rule in accordance with APA required
No guidance, memorandum of understanding, or any such other agreement may satisfy the requirement
to issue a rule from the Commission in accordance with section 553 of
title 5, United States Code.
(c)
General application to countries or administrative regions having 9 largest markets
(1)
General application
In issuing rules under this section, the Commission shall provide that a non-U.S. person in
compliance with the swaps regulatory requirements of a country or
administrative region that has 1 of the 9 largest swap markets by notional
amount in the calendar year preceding issuance of such rules, or other
foreign jurisdiction as determined by the Commission, shall be exempt from
United States swaps requirements in accordance with the schedule set forth
in paragraph (2), unless the Commission determines that the regulatory
requirements of the country or administrative region or other foreign
jurisdiction are not broadly equivalent to United States swaps
requirements.
(2)
Effective date schedule
The exemption described in paragraph (1) and set forth under the rules required by this section
shall apply to persons or transactions relating to or involving—
(A) countries or administrative regions described in such paragraph, or any other foreign jurisdiction
as determined by the Commission, accounting for the 5 largest swap markets
by notional amount in the calendar year preceding issuance of such rules,
on the date on which final rules are issued under this section; and
(B) the remaining countries or administrative regions described in such paragraph, and any other
foreign jurisdiction as determined by the Commission, 1 year after the
date on which such rules are issued.
(3)
Criteria
In such rules, the Commission shall establish criteria for determining that 1 or more categories of
regulatory requirements of a country or administrative region described in
paragraph (1) or other foreign jurisdiction is not broadly equivalent to
United States swaps requirements and shall determine the appropriate
application of certain United States swap requirements to persons or
transactions relating to or involving the country or administrative region
or other foreign jurisdiction. The criteria shall include the scope and
objectives of the regulatory requirements of a country or administrative
region described in paragraph (1) or other foreign jurisdiction as well as
the effectiveness of the supervisory compliance program administered, and
the enforcement authority exercised, by the country or administrative
region or other foreign jurisdiction, and such other factors as the
Commission, by rule, determines to be necessary or appropriate in the
public interest.
(4)
Required assessment
Beginning on the date on which final rules are issued under this section, the Commission shall
begin to assess the regulatory requirements of countries or administrative
regions described in paragraph (1), as the Commission determines
appropriate, in accordance with the criteria established pursuant to this
subsection, to determine if 1 or more categories of regulatory
requirements of such a country or administrative region or other foreign
jurisdiction is not broadly equivalent to United States swaps
requirements.
(d)
Report to Congress
If the Commission makes the determination described in subsection (c)(1) that the regulatory
requirements of a country or administrative region described in such
subsection or other foreign jurisdiction are not broadly equivalent to
United States swaps requirements, the Commission shall articulate the
basis for the determination in a written report transmitted to the
Committee on Agriculture of the House of Representatives and the Committee
on Agriculture, Nutrition, and Forestry of the Senate within 30 days of
the determination. The determination shall not be effective until the
transmission of the report.
(e)
Definitions
As used in this section and for purposes of the rules issued pursuant to this section, the
following definitions apply:
(1) The term U.S. person—
(A) means—
(i) any natural person resident in the United States;
(ii) any partnership, corporation, trust, or other legal person organized or incorporated under the laws
of the United States or having its principal place of business in the
United States;
(iii) any account (whether discretionary or non-discretionary) of a U.S. person; and
(iv) any other person as the Commission may further define to more effectively carry out the purposes of
this section; and
(B) does not include the International Monetary Fund, the International Bank for Reconstruction and
Development, the Inter-American Development Bank, the Asian Development
Bank, the African Development Bank, the United Nations, their agencies and
pension plans, and any other similar international organizations and their
agencies and pension plans.
(2) The term United States swaps requirements means the provisions relating to swaps contained in the Commodity Exchange Act (7 U.S.C. 1a et
seq.) that were added by title VII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, and any rules or regulations prescribed by
the Commodity Futures Trading Commission pursuant to such provisions.
(f)
Conforming amendment
Section 4(c)(1)(A) of the Commodity Exchange Act (7 U.S.C. 6(c)(1)(A)) is amended by inserting or except as necessary to effectuate section 361 of the Customer Protection and End User Relief
Act, after to grant exemptions,.
F
Effective date
371.
Effective date
The amendments made by this title shall take effect as if enacted on July 21, 2010.
June 5, 2014
Committed to the Committee of the Whole House on the State of the Union and ordered to be printed