S Amdt 3816 - Derivatives Regulation Modifications - National Key Vote

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Title: Derivatives Regulation Modifications

Vote Smart's Synopsis:

Vote to adopt an amendment to S Amdt 3739 to S 3217 that makes various modifications related to regulation of derivatives.


  • Requires any person that effects a transaction in a non-security based swap to report the transaction through a derivatives clearing organization or through a non-security-based swap data repository registered with the Commodity Futures Trading Commission, and provides that if no registered repository accepts the swap, the person must report the transaction directly through the Commission (Sec. 726).
  • Requires each transaction report to disclose whether the transaction is a 'bona fide hedging swap transaction' (Sec. 726).
  • Allows the Commodity Futures Trading Commission to require that particular non-security-based swaps (or groups/types of swaps) must be cleared if (Sec. 723):
  • Both counterparties are swap participants;
    • The transaction was entered into after the establishment of applicable swap clearing rules or the effective date of the requirement, whichever is later; and
    • One counterparty directly or indirectly controls, is controlled by, or is under common control with the other counterparty.
  • Requires each swap participant to register with the Commodity Futures Trading Commission, unless it is exempt pursuant to a rule or order that exempts swap participants that engage primarily in security-based swap transactions and are registered with the Securities and Exchange Commission or all of its outstanding swaps transactions are cleared swaps, in which cases it must file a notice registration (Sec. 729).
  • Defines a 'swap participant' as a person who engages in the business of purchasing or selling swaps for such persons account or for others, a person who is making a market in swaps, or a person who engages in transactions in swaps (Sec. 721).
  • Exempts swap end users from the definition of 'swap participants,' thus exempting them from requirements that apply specifically to swap participants (Sec. 721).
  • Defines a 'swap end user' as a person with swaps of a gross aggregate notional value that includes the following (Sec. 721):
    • 5 percent or less of outstanding swaps that do not qualify as 'bona fide hedging swap transactions'; or 
    • 7 percent or less of outstanding swaps and security-based swaps that do not qualify as 'bona fide hedging swap transactions', provided that the aggregate notional value of such swaps that do not qualify as 'bona fide hedging transactions' and were executed in connection with the person's commercial transactions is 2 percent or more of the gross notional value of outstanding swaps.
  • Specifies that the term 'swap end user' shall include investment companies registered under 15 U.S.C. 80a-1 et. Seq. and employee benefit plans as defined in 29 U.S.C. 1002 (3), and specifies that the term shall not include entities defined in 12 U.S.C. 4502 (20) or investment funds that would be investment companies (in accordance with 15 U.S.C. 80a-3) but for paragraph (1) or (7) of 15 U.S.C. 80a-3(c) and are not partnerships, entities, or subsidiaries that are primarily invested in physical assets directly or through interests in partnerships or limited liability companies (Sec. 721).
  • Defines 'bona fide hedging swap transaction' as a purchase or sale of a 'bona fide' swap that is 'economically appropriate' to the reduction or offsetting of risks arising from one of the following (Sec. 721):
    • The potential change in the value of assets that the person owns, produces, manufactures, processes, or merchandises (or anticipates doing any of the aforementioned things);
    • The potential change in the cost or value of liabilities that the person owns or anticipates incurring; or
    • The potential change in the cost or value of goods or services that the person provides, purchases, or anticipates providing or purchasing.
  • Removes a provision that allows a commercial end user (a person who as its primary business activity owns, uses, produces, processes, manufactures, distributes, merchandises, or markets goods, services, or commodities individually or in a fiduciary capacity, and excluding specified financial entities) to elect not to clear a swap or to choose which derivatives clearing organization shall clear a swap, if the swap is being used to hedge commercial risk (and replaces this provision with new provisions on this subject which are discussed in previous highlights) (Sec. 723).
  • Removes a provision that provides incentives for 'whistleblowers' who voluntarily provide information to the Commodity Futures Trading Commission that leads to the 'successful enforcement' of an action relating to a violation of this Act that results in monetary sanctions of more than $1 million, and specifies that the aggregate amount of the incentives shall be no less than 10 percent and no more than 30 percent of what has been collected of the monetary sanctions (Sec. 748).
  • Removes provisions which require the following entities to designate individuals to serve as chief compliance officers (Secs. 725, 728, 731, 732, 733, 763, and 764):
    • swap data repositories;
    • swap dealers and major swap participants;
    • futures commission merchants;
    • swap execution facilities;
    • derivatives clearing organizations;
    • security-based swap dealers;
    • registered clearing agencies;
    • security-based swap execution facilities; and
    • security-based swap data repositories.