[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Rules and Regulations]
[Pages 50805-50813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22021]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 /
Rules and Regulations
[[Page 50805]]
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 45
[Docket No. OCC-2018-0003]
RIN 1557-AE29
FEDERAL RESERVE SYSTEM
12 CFR Part 237
[Docket No. R-1596]
RIN 7100-AE96
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 349
RIN 3064-AE70
FARM CREDIT ADMINISTRATION
12 CFR Part 624
RIN 3052-AD28
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1221
RIN 2590-AA92
Margin and Capital Requirements for Covered Swap Entities; Final
Rule
AGENCY: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA);
and the Federal Housing Finance Agency (FHFA).
ACTION: Final rule.
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SUMMARY: The Board, OCC, FDIC, FCA, and FHFA (each an Agency and,
collectively, the Agencies) are adopting amendments to their rules
establishing minimum margin requirements for registered swap dealers,
major swap participants, security-based swap dealers, and major
security-based swap participants (Swap Margin Rule). These amendments
conform the Swap Margin Rule to rules recently adopted by the Board,
the OCC, and the FDIC that impose restrictions on certain qualified
financial contracts, including certain non-cleared swaps subject to the
Swap Margin Rule (the QFC Rules). Specifically, the final amendments to
the Swap Margin Rule conform the definition of ``Eligible Master
Netting Agreement'' to the definition of ``Qualifying Master Netting
Agreement'' in the QFC Rules. The amendment to the Swap Margin Rule
ensures that netting agreements of firms subject to the Swap Margin
Rule are not excluded from the definition of ``Eligible Master Netting
Agreement'' based solely on their compliance with the QFC Rules. The
amendment also ensures that margin amounts required for non-cleared
swaps covered by agreements that otherwise constitute Eligible Master
Netting Agreements can continue to be calculated on a net portfolio
basis, notwithstanding changes to those agreements that will be made in
some instances by firms revising their netting agreements to achieve
compliance with the QFC Rules. In addition, for any non-cleared swaps
that were ``entered into'' before the compliance dates of the Swap
Margin Rules--and which are accordingly grandfathered from application
of the rule's margin requirements--the amendments state that any
changes to netting agreements that are required to conform to the QFC
Rules will not render grandfathered swaps covered by that netting
agreement as ``new'' swaps subject to the Swap Margin Rule.
DATES: The final rule is effective November 9, 2018.
FOR FURTHER INFORMATION CONTACT:
OCC: Allison Hester-Haddad, Counsel, Chief Counsel's Office, (202)
649-5490, for persons who are deaf or hearing impaired, TTY (202) 649-
5597, Office of the Comptroller of the Currency, 400 7th Street SW,
Washington, DC 20219.
Board: Peter Clifford, Manager, 202-785-6057, or Christopher
Powell, Supervisory Financial Analyst, 202-452-3442, or Kelly Tomera,
Financial Analyst, (202) 912-7861, Division of Supervision and
Regulation; Patricia Yeh, Senior Counsel, (202) 452-3089, or Jason
Shafer, Senior Attorney, (202) 728-5811, Legal Division, Board of
Governors of the Federal Reserve System, 20th and C Streets NW,
Washington, DC 20551.
FDIC: Irina Leonova, Senior Policy Analyst, Capital Markets Branch,
Division of Risk Management Supervision, (202) 898-3843,
[email protected]; Phillip E. Sloan, Counsel, Legal Division,
[email protected], (703) 562-6137, Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC 20429.
FCA: J.C. Floyd, Associate Director, Finance & Capital Markets
Team, Timothy T. Nerdahl, Senior Policy Analyst, Jeremy R. Edelstein,
Senior Policy Analyst, Office of Regulatory Policy, (703) 883-4414, TTY
(703) 883-4056, or Richard A. Katz, Senior Counsel, Office of General
Counsel, (703) 883-4020, TTY (703) 883-4056, Farm Credit
Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
FHFA: Ron Sugarman, Principal Policy Analyst, Office of Policy
Analysis and Research, (202) 649-3208, [email protected], or James
Jordan, Assistant General Counsel, Office of General Counsel, (202)
649-3075, [email protected], Federal Housing Finance Agency,
Constitution Center, 400 7th St. SW, Washington, DC 20219. The
telephone number for the Telecommunications Device for the Hearing
Impaired is (800) 877-8339.
I. Background
A. The Swap Margin Rule
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) was enacted on July 21, 2010.\1\ Title VII of the
Dodd-Frank Act established a comprehensive new regulatory framework for
derivatives, which the Dodd-Frank Act generally characterizes as
``swaps'' (swap is defined in section 721 of the Dodd-Frank Act to
include, among other things, an interest rate swap, commodity swap,
equity swap, and credit default swap) and ``security-based swaps''
(security-based swap is defined in section 761 of the Dodd-Frank Act to
include a swap based on a single security or loan or on a narrow-based
[[Page 50806]]
security index).\2\ For the remainder of this preamble, the term
``swaps'' refers to swaps and security-based swaps unless the context
requires otherwise.
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\2\ See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68).
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Sections 731 and 764 of the Dodd-Frank Act required the Office of
the Comptroller of the Currency (OCC); Board of Governors of the
Federal Reserve System (Board); Federal Deposit Insurance Corporation
(FDIC); Farm Credit Administration (FCA); and the Federal Housing
Finance Agency (FHFA) (collectively, the Agencies) to adopt rules
jointly that establish capital and margin requirements for swap
entities \3\ that are prudentially regulated by one of the Agencies
(covered swap entities),\4\ to offset the greater risk to the covered
swap entity and the financial system arising from swaps that are not
cleared by a registered derivatives clearing organization or a
registered clearing agency (non-cleared swaps).\5\ On November 30,
2015, the Agencies published a joint final rule (Swap Margin Rule) to
establish minimum margin and capital requirements for covered swap
entities.\6\
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\3\ See 7 U.S.C. 6s; 15 U.S.C. 78o-10. Sections 731 and 764 of
the Dodd-Frank Act added a new section 4s to the Commodity Exchange
Act of 1936, as amended, and a new section, section 15F, to the
Securities Exchange Act of 1934, as amended, respectively, which
require registration with the Commodity Futures Trading Commission
(CFTC) of swap dealers and major swap participants and the U.S.
Securities and Exchange Commission (SEC) of security-based swap
dealers and major security-based swap participants (each a swap
entity and, collectively, swap entities). The CFTC is vested with
primary responsibility for the oversight of the swaps market under
Title VII of the Dodd-Frank Act. The SEC is vested with primary
responsibility for the oversight of the security-based swaps market
under Title VII of the Dodd-Frank Act. Section 712(d)(1) of the
Dodd-Frank Act requires the CFTC and SEC to issue joint rules
further defining the terms swap, security-based swap, swap dealer,
major swap participant, security-based swap dealer, and major
security-based swap participant. The CFTC and SEC issued final joint
rulemakings with respect to these definitions in May 2012 and August
2012, respectively. See 77 FR 30596 (May 23, 2012); 77 FR 39626
(July 5, 2012) (correction of footnote in the Supplementary
Information accompanying the rule); and 77 FR 48207 (August 13,
2012). 17 CFR part 1; 17 CFR parts 230, 240 and 241.
\4\ Section 1a(39) of the Commodity Exchange Act of 1936, as
amended, defines the term ``prudential regulator'' for purposes of
the margin requirements applicable to swap dealers, major swap
participants, security-based swap dealers and major security-based
swap participants. The Board is the prudential regulator for any
swap entity that is (i) a state-chartered bank that is a member of
the Federal Reserve System, (ii) a state-chartered branch or agency
of a foreign bank, (iii) a foreign bank which does not operate an
insured branch, (iv) an organization operating under section 25A of
the Federal Reserve Act of 1913, as amended, or having an agreement
with the Board under section 25 of the Federal Reserve Act, or (v) a
bank holding company, a foreign bank that is treated as a bank
holding company under section 8(a) of the International Banking Act
of 1978, as amended, or a savings and loan holding company (on or
after the transfer date established under section 311 of the Dodd-
Frank Act), or a subsidiary of such a company or foreign bank (other
than a subsidiary for which the OCC or the FDIC is the prudential
regulator or that is required to be registered with the CFTC or SEC
as a swap dealer or major swap participant or a security-based swap
dealer or major security-based swap participant, respectively). The
OCC is the prudential regulator for any swap entity that is (i) a
national bank, (ii) a federally chartered branch or agency of a
foreign bank, or (iii) a Federal savings association. The FDIC is
the prudential regulator for any swap entity that is (i) a State-
chartered bank that is not a member of the Federal Reserve System,
or (ii) a State savings association. The FCA is the prudential
regulator for any swap entity that is an institution chartered under
the Farm Credit Act of 1971, as amended. The FHFA is the prudential
regulator for any swap entity that is a ``regulated entity'' under
the Federal Housing Enterprises Financial Safety and Soundness Act
of 1992, as amended (i.e., the Federal National Mortgage Association
and its affiliates, the Federal Home Loan Mortgage Corporation and
its affiliates, and the Federal Home Loan Banks). See 7 U.S.C.
1a(39).
\5\ See 7 U.S.C. 6s(e)(3)(A); 15 U.S.C. 78o-10(e)(3)(A).
\6\ 80 FR 74840 (November 30, 2015).
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In the Swap Margin Rule, the Agencies adopted a risk-based approach
for initial and variation margin requirements for covered swap
entities.\7\ To implement the risk-based approach, the Agencies
established requirements for a covered swap entity to collect and post
initial margin for non-cleared swaps with a counterparty that is
either: (1) A financial end user with material swaps exposure,\8\ or
(2) a swap entity.\9\ A covered swap entity must collect and post
variation margin for non-cleared swaps with all swap entities and
financial end user counterparties, even if such financial end users do
not have material swaps exposure.\10\ Other counterparties, including
nonfinancial end users, are not subject to specific, numerical minimum
requirements for initial and variation margin.\11\
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\7\ 80 FR 74843.
\8\ ``Material swaps exposure'' for an entity means that the
entity and its affiliates have an average daily aggregate notional
amount of non-cleared swaps, non-cleared security-based swaps,
foreign exchange forwards, and foreign exchange swaps with all
counterparties for June, July, and August of the previous calendar
year that exceeds $8 billion, where such amount is calculated only
for business days. See Sec. __.2 of the Swap Margin Rule.
\9\ See Sec. Sec. __.3 and __.4 of the Swap Margin Rule.
\10\ Id.
\11\ Id.
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The effective date for the Swap Margin Rule was April 1, 2016, but
the Agencies established a phase-in compliance schedule for the initial
margin and variation margin requirements.\12\ On or after March 1,
2017, all covered swap entities were required to comply with the
variation margin requirements for non-cleared swaps with other swap
entities and financial end user counterparties. By September 1, 2020,
all covered swap entities will be required to comply with the initial
margin requirements for non-cleared swaps with all financial end users
with a material swaps exposure and all swap entities.
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\12\ The applicable compliance date for a covered swap entity is
based on the average daily aggregate notional amount of non-cleared
swaps, foreign exchange forwards and foreign exchange swaps of the
covered swap entity and its counterparty (accounting for their
respective affiliates) for each business day in March, April and May
of that year. The applicable compliance dates for initial margin
requirements, and the corresponding average daily notional
thresholds, are: September 1, 2016, $3 trillion; September 1, 2017,
$2.25 trillion; September 1, 2018, $1.5 trillion; September 1, 2019,
$0.75 trillion; and September 1, 2020, all swap entities and
counterparties. See Sec. __.1(e) of the Swap Margin Rule.
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The Swap Margin Rule's requirements apply only to a non-cleared
swap entered into on or after the applicable compliance date (covered
swap); a non-cleared swap entered into prior to a covered swap entity's
applicable compliance date (legacy swap) is generally not subject to
the margin requirements in the Swap Margin Rule.\13\ However, the
compliance date provisions of the Swap Margin Rule contain no safe
harbor from the rule's application to a legacy swap that is later
amended or novated on or after the applicable compliance date.\14\
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\13\ See Sec. __.1(e) of the Swap Margin Rule.
\14\ See 80 FR 74850-51 (discussing commenters' requests for
addition of three safe-harbors to the Swap Margin Rule and the
Agencies' rationale for rejecting those requests).
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Whether a non-cleared swap is deemed to be a legacy swap or a
covered swap also affects the treatment of a covered swap entity's
netting portfolios. The Swap Margin Rule permits a covered swap entity
to (1) calculate initial margin requirements for covered swaps under an
eligible master netting agreement (EMNA) with a counterparty on a
portfolio basis in certain circumstances, if it does so using an
initial margin model; and (2) calculate variation margin on an
aggregate net basis under an EMNA.\15\ In addition, the Swap Margin
Rule permits swap counterparties to identify one or more separate
netting portfolios under an EMNA, including netting sets of covered
swaps and netting sets of non-cleared swaps that are not subject to
margin requirements.\16\ Specifically, a netting portfolio that
contains only legacy swaps is not subject to the margin requirements
set out in the Swap Margin Rule.\17\ However, if a netting
[[Page 50807]]
portfolio contains any covered swaps, the entire netting portfolio is
subject to the margin requirements of the Swap Margin Rule.\18\
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\15\ See Sec. Sec. _.2 and _.5 of the Swap Margin Rule.
\16\ Typically, this is accomplished by using a separate Credit
Support Annex for each netting set, subject to the terms of a single
master netting agreement.
\17\ See Sec. Sec. __.2 and __.5 of the Swap Margin Rule.
\18\ Id.
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B. The QFC Rules
As part of the broader regulatory reform effort following the
financial crisis to increase the resolvability and resiliency of U.S.
global systemically important banking institutions \19\ (U.S. GSIBs)
and the U.S. operations of foreign GSIBs (together, GSIBs),\20\ the
Board, the OCC, and the FDIC adopted final rules that establish
restrictions on and requirements for certain non-cleared swaps and
other financial contracts (collectively, Covered QFCs) of GSIBs and
their subsidiaries (the QFC Rules).\21\
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\19\ See 12 CFR 217.402 (defining global systemically important
banking institution). The eight firms currently identified as U.S.
GSIBs are Bank of America Corporation, The Bank of New York Mellon
Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JP Morgan
Chase & Co., Morgan Stanley Inc., State Street Corporation, and
Wells Fargo & Company.
\20\ The U.S. operations of 21 foreign GSIBs are currently
subject to the Board's QFC Rule.
\21\ The QFC Rules are codified as follows: 12 CFR part 47
(OCC's QFC Rule); 12 CFR part 252, subpart I (Board's QFC Rule); 12
CFR part 382 (FDIC's QFC Rule). The QFC Rules include a phased-in
conformance period for a Covered QFC Entity that varies depending
upon the counterparty type of the Covered QFC Entity. The first
conformance date is January 1, 2019, and applies to Covered QFCs
with GSIBs. The QFC Rules provide Covered QFC Entities an additional
six months or one year to conform its Covered QFCs with other types
of counterparties.
The Board's QFC Rule applies to U.S. GSIBs and their
subsidiaries, as well as other U.S. operations of foreign GSIBs,
with the exception of banks regulated by the FDIC or OCC, Federal
branches, or Federal agencies. The FDIC's QFC Rule applies to GSIB
subsidiaries that are state savings associations and state-chartered
banks that are not members of the Federal Reserve System. The OCC's
QFC Rule applies to national bank subsidiaries and Federal savings
association subsidiaries of GSIBs, and Federal branches and agencies
of foreign GSIBs.
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Subject to certain exemptions, the QFC Rules require U.S. GSIBs,
together with their subsidiaries, and the U.S. operations of foreign
GSIBs (each a Covered QFC Entity and, collectively, Covered QFC
Entities) to conform Covered QFCs to the requirements of the rules.\22\
The QFC Rules generally require the Covered QFCs of Covered QFC
Entities to contain contractual provisions that opt into the
``temporary stay-and-transfer treatment'' of the Federal Deposit
Insurance Act (FDI Act) \23\ and title II of the Dodd-Frank Act,
thereby reducing the risk that the stay-and-transfer treatment would be
challenged by a Covered QFC Entity's counterparty or a court in a
foreign jurisdiction.\24\ The temporary stay-and-transfer treatment is
part of the special resolution framework for failed financial firms
created by the FDI Act and title II of the Dodd-Frank Act. The stay-
and-transfer treatment provides that the rights of a failed insured
depository institution's or financial company's counterparties to
terminate, liquidate, or net certain qualified financial contracts on
account of the appointment of the FDIC as receiver for the entity (or
the insolvency or financial condition of the entity for which the FDIC
has been appointed receiver) are temporarily stayed when the entity
enters a resolution proceeding to allow for the transfer of the failed
firm's Covered QFCs to a solvent party.\25\ The QFC Rules also
generally prohibit Covered QFCs from allowing the exercise of default
rights related, directly or indirectly, to the entry into resolution of
an affiliate of the Covered QFC Entity (cross-default rights).\26\
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\22\ To the extent a U.S. GSIB, any of its subsidiaries, or the
U.S. operations of a foreign GSIB include a swap entity for which
one of the Agencies is a prudential regulator, a Covered QFC Entity
may be a covered swap entity.
\23\ 12 U.S.C. 1811 et seq.
\24\ 12 CFR part 47; 12 CFR part 252, subpart I; 12 CFR part
382.
\25\ 12 U.S.C. 1821(e)(10)(B), 5390(c)(10)(B). Title II of the
Dodd-Frank Act also provides the FDIC with the power to enforce
Covered QFCs (and other contracts) of subsidiaries and affiliates of
the financial company for which the FDIC has been appointed
receiver. 12 U.S.C. 5390(c)(16); 12 CFR 380.12.
\26\ See supra note 24.
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C. The Definitions of Qualifying Master Netting Agreement
As part of the QFC Rules, the Federal banking agencies amended the
definition of qualifying master netting agreement (QMNA) in their
capital and liquidity rules to prevent the QFC Rules from having
disruptive effects on the treatment of netting sets of Board-regulated
firms, OCC-regulated firms, and FDIC-regulated firms.\27\ The FCA plans
to propose several technical and clarifying amendments to its capital
regulations, including a revision to the definition of QMNA so it
continues to be identical to both the definition in the regulations of
the Federal banking agencies' regulatory capital and liquidity rules,
and the amended definition of EMNA in this rulemaking.\28\
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\27\ 82 FR 42882, 42915; 82 FR 50228, 50258; 82 FR 56630, 56659.
\28\ See FCA's Fall 2018 Unified Agenda (www.RegInfo.gov). The
FCA's Tier 1/Tier 2 Capital Framework's existing definition of QMNA
is identical to the previous definition of QMNA used in the Federal
banking agencies' capital and liquidity rules.
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The amendments to the Federal banking agencies' capital and
liquidity rules were necessary because the previous QMNA definition did
not recognize some of the new close-out restrictions on Covered QFCs
imposed by the QFC Rules.\29\ Pursuant to the previous definition of
QMNA, a banking organization's rights under a QMNA generally could not
be stayed or avoided in the event of its counterparty's default.
However, the definition of QMNA permitted certain exceptions to this
general prohibition to accommodate certain restrictions on the exercise
of default rights that are important to the prudent resolution of a
banking organization, including a limited stay under a special
resolution regime, such as title II of the Dodd-Frank Act, the FDI Act,
and comparable foreign resolution regimes. The previous QMNA definition
did not explicitly recognize all the restrictions on the exercise of
cross-default rights.\30\ Therefore, a master netting agreement that
complies with the QFC Rules by limiting the rights of a Covered QFC
Entity's counterparty to close out against the Covered QFC Entity would
not meet the previous QMNA definition. A failure to meet the definition
of QMNA would result in a banking organization subject to one of the
Federal banking agencies' capital and liquidity rules losing the
ability to net offsetting exposures under its applicable capital and
liquidity requirements when its counterparty is a Covered QFC Entity.
If netting were not permitted, the banking organization would be
required to calculate its capital and liquidity requirements relating
to certain Covered QFCs on a gross basis rather than on a net basis,
which would typically result in higher capital and liquidity
requirements. The Federal banking agencies do not believe that such an
outcome would accurately reflect the risks posed by the affected
Covered QFCs.
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\29\ 12 CFR 3.2 (2017); 12 CFR 50.3 (2017); 12 CFR 217.2 (2017);
12 CFR 249.3 (2017); 12 CFR 324.2; 12 CFR 329.3.
\30\ See, e.g., 12 CFR 252.84(b)(1).
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The amendments to the QMNA definition maintain the netting
treatment for these contracts under the Federal banking agencies'
capital and liquidity rules. The amendments permit a master netting
agreement to meet the definition of QMNA even if it limits the banking
organization's right to accelerate, terminate, and close-out on a net
basis all transactions under the agreement and to liquidate or set-off
collateral promptly upon an event of default of a counterparty that is
a Covered QFC Entity to the extent necessary for the Covered QFC Entity
to comply fully with the QFC Rules. The amended definition of QMNA
continues
[[Page 50808]]
to recognize that default rights may be stayed if the defaulting
counterparty is in resolution under the Dodd-Frank Act, the FDI Act, a
substantially similar law applicable to government-sponsored
enterprises, or a substantially similar foreign law, or where the
agreement is subject by its terms to, or incorporates, any of those
laws. By recognizing these required restrictions on the ability of a
banking organization to exercise close-out rights when its counterparty
is a Covered QFC Entity, the amended definition allows a master netting
agreement that includes such restrictions to continue to meet the
definition of QMNA under the Federal banking agencies' capital and
liquidity rules.
II. Discussion of the Final Rule
On February 21, 2018, the Agencies published a request for comment
on a proposed rule to amend the definition of EMNA in the Swap Margin
Rule and to clarify the impact of the amendment on legacy swaps.\31\
The Agencies are adopting the proposed rule as final without change.
The final amendment clarifies that a master netting agreement meets the
definition of EMNA under the Swap Margin Rule when the agreement limits
the right to accelerate, terminate, and close-out on a net basis all
transactions under the agreement and to liquidate or set-off collateral
promptly upon an event of default of the counterparty to the extent
necessary for the counterparty to comply with the requirements of the
QFC Rules. This final rule text is identical to the corresponding text
used in the amended definition of QMNA in the Federal banking agencies'
capital and liquidity rules.
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\31\ 83 FR 7413 (February 21, 2018).
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In addition, the Agencies are adopting as proposed the amendment to
the Swap Margin Rule that provides that amendments made to an EMNA that
a firm enters into solely to comply with the QFC Rules will not be
taken into account for purposes of determining the date on which swaps
subject to that agreement were entered into. This amendment establishes
that a legacy swap will not be deemed a covered swap under the Swap
Margin Rule if it is amended solely to comply with one of the QFC
Rules. For example, to comply with the restrictions on Covered QFCs, a
Covered QFC Entity may directly amend the contractual provisions of its
Covered QFCs or, alternatively, cause its Covered QFCs to be subject to
the International Swaps and Derivatives Association 2015 Resolution
Stay Protocol (Universal Protocol) or the U.S. Protocol, as defined in
the QFC Rules. The Swap Margin Rule amendment will provide certainty to
a covered swap entity and its counterparties about the treatment of
legacy swaps and any applicable netting arrangements in light of the
QFC Rules.
The Agencies received five substantive comments on the proposal.
All five substantive comments generally supported the proposed
amendment clarifying the treatment of legacy swaps, while two of the
comments also specifically expressed support for the proposed amendment
to the definition of EMNA. Two comments raised issues unrelated to the
proposal.\32\
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\32\ A comment urging a change to the inter-affiliate provisions
of the Swap Margin Rule and a comment requesting that the Agencies
clarify that a legacy swap that is amended or novated not be subject
to margin requirements if it is entered into by special purpose
vehicles for purposes of a certain securitization transaction are
outside the scope of the proposal.
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As described below, three of the comments also recommended
alternative approaches to clarify the treatment of legacy swaps. One
comment stated that it supported the proposed amendment on the
treatment of a legacy swap after it is amended to comply with a QFC
Rule because such an amendment does not change the economic nature of
the original transaction and therefore would not require such legacy
swap to become subject to margin requirements.
The three comments that recommended alternatives to the proposed
amendment on the treatment of legacy swaps urged the Agencies to issue
guidance that clarifies certain ``non-material'' amendments will not
result in a legacy swap becoming subject to margin requirements rather
than adopting the proposed amendment. Specifically, a comment requested
that the Agencies, in consultation with global authorities, issue
guidance that provides clarity on the circumstances under which a
legacy swap is considered a new swap. This comment also recommended
that such guidance should make clear that non-material amendments
(i.e., administrative amendments, contract-intrinsic events, risk-
reducing amendments, and amendments required by regulation or
legislation) would not cause a legacy swap to be treated as a new swap
subject to the Swap Margin Rule. This same commenter also recommended
that in the near term the Agencies should clarify the effect of
amendments to legacy swaps related to: (i) Ring fencing of derivative
transactions into non-bank entities; (ii) interest rate benchmark
reform, such as the movement away from LIBOR; and (iii) novations or
other amendments necessitated by the United Kingdom leaving the
European Union. Another comment recommended that, instead of adopting
the proposal as a final rule, the Agencies issue principles-based
guidance that clarifies that certain amendments to legacy swaps,
including risk-reducing amendments and amendments made to satisfy other
regulatory requirements, do not require such legacy swap to become a
covered swap, and therefore, subject to margin requirements. This
comment requested that, if the Agencies decide to adopt the proposed
amendments to the Swap Margin Rule, the amendment should be described
as a ``safe harbor'' that is intended to provide clarity to the
industry and, thus, should not imply that other immaterial amendments
would cause a legacy swap to become subject to margin requirements.
The Agencies are adopting the amendment to the Swap Margin Rule as
proposed. Under the final rule, revisions to a master netting agreement
that comply with the QFC Rules will not cause the agreement to fall out
of the Swap Margin Rule's EMNA definition. The Agencies' approach
provides clarity and certainty to swap market participants as to the
effect of changes required by the QFC Rules. Further changes requested
by the commenters are not within the scope of the Agencies' proposal,
so the Agencies are not making revisions to address those comments. As
explained in the preamble to the Swap Margin Rule, the Agencies
declined to include language requested by commenters in the rule that
would classify certain new swap transactions as being ``entered into
prior to the compliance date.'' The Agencies noted that doing so could
create significant incentives to engage in amendments and novations for
the purpose of evading the margin requirement. The Agencies further
explained that limiting the extension to ``material'' amendments or
``legitimate'' novations would be difficult to effect within the final
rule because the specific motivation for an amendment or novation is
generally not observable, and such classifications would make the
process of identifying those swaps to which the rule applies overly
complex and non-transparent.\33\
---------------------------------------------------------------------------
\33\ See 80 FR 78450-51.
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As the Agencies continue to assess industry developments such as
interest rate benchmark reform, the Agencies will take into account any
associated implementation ramifications
[[Page 50809]]
surrounding the treatment of legacy swaps under the Swap Margin Rule.
III. Regulatory Analysis
A. Paperwork Reduction Act
OCC: In accordance with 44 U.S.C. 3512, the OCC may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid OMB control number. The
OCC reviewed the final rule and concluded that it contains no
requirements subject to the PRA.
Board: In accordance with section 3512 of the Paperwork Reduction
Act of 1995 (PRA) (44 U.S.C. 3501-3521), the Board may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The Board reviewed the final rule
under the authority delegated to it by OMB. The rule contained no
requirements subject to the PRA, and the Board received no comments on
its PRA analysis in the proposed rule. The final rule adopts the
proposed rule as proposed, and contains no requirements subject to the
PRA.
FDIC: In accordance with the requirements of the PRA, the FDIC may
not conduct or sponsor, and a respondent is not required to respond to,
an information collection unless it displays a currently valid OMB
control number. The FDIC reviewed the final rule and concludes that it
contains no requirements subject to the PRA. Therefore, no submission
will be made to OMB for review.
FCA: The FCA has determined that the final rule does not involve a
collection of information pursuant to the Paperwork Reduction Act for
Farm Credit System institutions because Farm Credit System institutions
are Federally chartered instrumentalities of the United States and
instrumentalities of the United States are specifically excepted from
the definition of ``collection of information'' contained in 44 U.S.C.
3502(3).
FHFA: The final rule amendments do not contain any collections of
information pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.). Therefore, FHFA has not submitted any information to the
Office of Management and Budget for review.
B. Final Regulatory Flexibility Analysis
OCC: In general, the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
et seq.) requires that in connection with a rulemaking, an agency
prepare and make available for public comment a regulatory flexibility
analysis that describes the impact of the rule on small entities. Under
section 605(b) of the RFA, this analysis is not required if an agency
certifies that the rule will not have a significant economic impact on
a substantial number of small entities and publishes its certification
and a brief explanatory statement in the Federal Register along with
its rule.
The OCC currently supervises approximately 886 small entities.\34\
Among these 886 small entities, 61 might be affected by the final rule
if the small entities are a party to a QFC that falls within the scope
of the QFC Rules and must be amended to comply with those rules.
Because the OCC assumes that the standards set forth in the final rule
will be implemented by OCC-supervised small entities before any of them
are required to comply with the QFC Rules, the OCC believes that the
final rule will not result in savings--or more than de minimis costs--
for OCC-supervised entities. Therefore, the OCC certifies that the
final rule will not have a significant economic impact on a substantial
number of small OCC-regulated entities.
---------------------------------------------------------------------------
\34\ The OCC bases its estimate of the number of small entities
on the SBA's size thresholds for commercial banks and savings
institutions, and trust companies, which are $550 million and $38.5
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR 121.103(a), the OCC counts the assets of
affiliated financial institutions when determining if we should
classify an OCC-supervised institution as a small entity. The OCC
uses December 31, 2017, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See footnote 8 of the U.S. Small Business Administration's Table of
Size Standards.
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Board: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (the
``RFA''), generally requires that an agency prepare and make available
for public comment an initial regulatory flexibility analysis in
connection with a notice of proposed rulemaking.\35\ The Board
solicited public comment on this rule in a notice of proposed
rulemaking \36\ and has since considered the potential impact of this
final rule on small entities in accordance with section 604 of the RFA.
Based on the Board's analysis, and for the reasons stated below, the
Board certifies that the final rule will not have a significant
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------
\35\ See 5 U.S.C. 603(a).
\36\ See 83 FR 7413 (February 21, 2018).
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1. Statement of the need for, and objectives of, the final rule. As
described above, the final rule amends the definition of Eligible
Master Netting Agreement in the Swap Margin Rule so that it remains
harmonized with the amended definition of ``Qualifying Master Netting
Agreement'' in the Federal banking agencies' regulatory capital and
liquidity rules. The final rule also makes clear that a legacy swap
(i.e., a non-cleared swap entered into before the applicable compliance
date) that is not subject to the requirements of the Swap Margin Rule
will not be deemed a covered swap under the Swap Margin Rule if it is
amended solely to conform to the QFC Rules.
2. Summary of the significant issues raised by public comment on
the Board's initial analysis, the Board's assessment of such issues,
and a statement of any changes made as a result of such comments.
Commenters did not raise any issues in response to the initial RFA
analysis. The Chief Counsel for the Advocacy of the Small Business
Administration (``SBA'') did not file any comments in response to the
proposed rule.
3. Description and estimate of number of small entities to which
the final rule will apply. This final rule applies to financial
institutions that are covered swap entities (CSEs) that are subject to
the requirements of the Swap Margin Rule. Under SBA regulations, the
finance and insurance sector includes commercial banking, savings
institutions, credit unions, other depository credit intermediation and
credit card issuing entities (financial institutions). With respect to
financial institutions that are CSEs under the Swap Margin Rule, a
financial institution generally is considered small if it has assets of
$550 million or less.\37\ CSEs would be considered financial
institutions for purposes of the RFA in accordance with SBA
regulations. The Board does not expect that any CSE is likely to be a
small financial institution, because a small financial institution is
unlikely to engage in the level of swap activity that would require it
to register as a swap dealer or a major swap participant with the CFTC
or a security-based swap dealer or security-based major swap
participant with the SEC.\38\ None of the current Board-regulated CSEs
are small entities.
---------------------------------------------------------------------------
\37\ See 13 CFR 121.201 (effective December 2, 2014); see also
13 CFR 121.103(a)(6) (noting factors that the SBA considers in
determining whether an entity qualifies as a small business,
including receipts, employees, and other measures of its domestic
and foreign affiliates).
\38\ The CFTC has published a list of provisionally registered
swap dealers as of October 17, 2017 that does not include any small
financial institutions. See http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer. The SEC has not yet imposed a
registration requirement on entities that meet the definition of
security-based swap dealer or major security-based swap participant.
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[[Page 50810]]
4. Description of the projected reporting, recordkeeping and other
compliance requirements of the final rule. The Board does not believe
the final rule will result in any new reporting, recordkeeping or other
compliance requirements.
5. Significant alternatives to the final rule. In light of the
foregoing, the Board does not believe that this final rule would have a
significant economic impact on a substantial number of small entities
and therefore there are no significant alternatives to the final rule
that would reduce the impact on small entities.
FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires an agency to provide a final regulatory flexibility analysis
with a final rule, unless the agency certifies that the rule will not
have a significant economic impact on a substantial number of small
entities (defined by the Small Business Administration for purposes of
the RFA to include banking entities with total assets of $550 million
or less).
According to data from recent Consolidated Reports of Income and
Condition (CALL Report),\39\ the FDIC supervised 3,603 institutions. Of
those, 2,885 are considered ``small,'' according to the terms of the
Regulatory Flexibility Act. This final rule directly applies to covered
swap entities (which includes persons registered with the CFTC as swap
dealers or major swap participants pursuant to the Commodity Exchange
Act of 1936 and persons registered with the SEC as security-based swap
dealers and major security-based swap participants under the Securities
Exchange Act of 1934) that are subject to the requirements of the Swap
Margin Rule. The FDIC has identified 101 swap dealers and major swap
participants that, as of May 17, 2018, have registered as swap
entities.\40\ None of these institutions are supervised by the FDIC.
---------------------------------------------------------------------------
\39\ FDIC CALL Reports, March 31, 2018.
\40\ While the SEC had adopted a regulation that would require
registration of security-based swap dealers and major security-based
swap participants, as of June 18, 2018, there was no date
established as the compliance date and no SEC-published list of any
such entities that so registered. Accordingly, no security-based
swap dealers and major security-based swap participants have been
identified as swap entities by the FDIC. In identifying the 101
institutions referred to in the text, the FDIC used the list of swap
dealers set forth, on June 18, 2018 (providing data as of May 17,
2018) at https://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer.html. Major swap participants, among others, are
required to apply for registration through a filing with the
National Futures Association. Accordingly, the FDIC reviewed the
National Futures Association https://www.nfa.futures.org/members/sd/index.html to determine whether there were registered major swap
participants. As of June 18, 2018, there were no Major Swaps
Participants listed on this link.
---------------------------------------------------------------------------
As discussed previously, the final rule clarifies that a master
netting agreement meets the definition of EMNA under the Swap Margin
Rule when the agreement limits the right to accelerate, terminate, and
close-out on a net basis all transactions under the agreement and to
liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of the QFC Rules. Without adoption of the final
rule, covered entities would be required to calculate capital and
liquidity requirements relating to certain Covered QFCs on a gross
basis rather than on a net basis, which would typically result in
higher capital and liquidity requirements. Therefore, this rule is
expected to benefit any potential covered swap entity.
The Swap Margin Rule implements sections 731 and 764 of the Dodd-
Frank Act, as amended by the Terrorism Risk Insurance Program
Reauthorization Act of 2015 (``TRIPRA''). TRIPRA excludes non-cleared
swaps entered into for hedging purposes by a financial institution with
total assets of $10 billion or less from the requirements of the Swap
Margin Rule. Given this exclusion, a non-cleared swap between a covered
swap entity and a small FDIC-supervised entity that is used to hedge a
commercial risk of the small entity will not be subject to the Swap
Margin Rule. The FDIC believes that it is unlikely that any small
entity it supervises will engage in non-cleared swaps for purposes
other than hedging.
Given that no FDIC-supervised small entities are covered swap
entities, that the potential effects are expected to be beneficial to
covered swap entities, and that it is unlikely that FDIC-supervised
small entities enter into non-cleared swaps for purposes other than
hedging, this final rule is not expected to have a significant economic
impact on a substantial number of small entities supervised by the
FDIC. For these reasons, the FDIC certifies that the final rule will
not have a significant economic impact on a substantial number of small
entities, within the meaning of those terms as used in the RFA.
Accordingly, a regulatory flexibility analysis is not required.
FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.), FCA hereby certifies that the final rule will
not have a significant economic impact on a substantial number of small
entities. Each of the banks in the Farm Credit System, considered
together with its affiliated associations, has assets and annual income
in excess of the amounts that would qualify them as small entities; nor
does the Federal Agricultural Mortgage Corporation meet the definition
of ``small entity.'' Therefore, Farm Credit System institutions are not
``small entities'' as defined in the Regulatory Flexibility Act.
FHFA: The Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
requires that a regulation that has a significant economic impact on a
substantial number of small entities, small businesses, or small
organizations must include an initial regulatory flexibility analysis
describing the regulation's impact on small entities. FHFA need not
undertake such an analysis if the agency has certified the regulation
will not have a significant economic impact on a substantial number of
small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the
final rule under the Regulatory Flexibility Act, and certifies that the
final rule does not have a significant economic impact on a substantial
number of small entities because the final rule is applicable only to
FHFA's regulated entities, which are not small entities for purposes of
the Regulatory Flexibility Act.
C. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the U.S. banking
agencies to use plain language in proposed and final rulemakings.\41\
The Agencies received no comment on these matters and believe that the
final rule is written plainly and clearly.
---------------------------------------------------------------------------
\41\ 12 U.S.C. 4809(a).
---------------------------------------------------------------------------
D. OCC Unfunded Mandates Reform Act of 1995 Determination
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act) (2 U.S.C. 1532) requires that the OCC prepare a budgetary
impact statement before promulgating a rule that includes any Federal
mandate that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. If a budgetary impact statement is
required, section 205 of the Unfunded Mandates Act also requires the
OCC to identify and consider a reasonable number of regulatory
alternatives before promulgating a rule. The OCC has determined that
the proposed rule does not impose any new mandates and will not result
in expenditures by State, local, and Tribal governments, or by the
private sector of $100 million or more in any one year. Accordingly,
the OCC has not prepared a budgetary impact statement or
[[Page 50811]]
specifically addressed the regulatory alternatives considered.
E. Riegle Community Development and Regulatory Improvement Act of 1994
The Riegle Community Development and Regulatory Improvement Act of
1994 (RCDRIA) requires that each Federal banking agency, in determining
the effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, consider, consistent
with principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such regulations.
In addition, new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on insured
depository institutions generally must take effect on the first day of
a calendar quarter that begins on or after the date on which the
regulations are published in final form.\42\ Each Federal banking
agency has determined that the final rule would not impose additional
reporting, disclosure, or other requirements; therefore the
requirements of the RCDRIA do not apply.
---------------------------------------------------------------------------
\42\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
List of Subjects
12 CFR Part 45
Administrative practice and procedure, Capital, Margin
Requirements, National banks, Federal savings associations, Reporting
and recordkeeping requirements, Risk.
12 CFR Part 237
Administrative practice and procedure, Banks and banking, Capital,
Foreign banking, Holding companies, Margin requirements, Reporting and
recordkeeping requirements, Risk.
12 CFR Part 349
Administrative practice and procedure, Banks, Holding companies,
Margin Requirements, Capital, Reporting and recordkeeping requirements,
Savings associations, Risk.
12 CFR Part 624
Accounting, Agriculture, Banks, Banking, Capital, Cooperatives,
Credit, Margin requirements, Reporting and recordkeeping requirements,
Risk, Rural areas, Swaps.
12 CFR Part 1221
Government-sponsored enterprises, Mortgages, Securities.
DEPARTMENT OF THE TREASURY
OFFICE OF THE COMPTROLLER OF THE CURRENCY
12 CFR Chapter I
Authority and Issuance
For the reasons stated in the preamble, the Office of the
Comptroller of the Currency amends part 45 of chapter I of title 12,
Code of Federal Regulations, as follows:
PART 45--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
0
1. The authority citation for part 45 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 12 U.S.C. 1 et seq., 12 U.S.C. 93a,
161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o-10(e).
0
2. Section 45.1 is amended by adding paragraph (e)(7) to read as
follows:
Sec. 45.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
3. Section 45.2 is amended by revising paragraph (2) of the definition
of Eligible master netting agreement to read as follows:
Sec. 45.2 Definitions.
* * * * *
Eligible master netting agreement * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case:
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
BOARD OF GOVENORS OF THE FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board of Governors
of the Federal Reserve System amends 12 CFR part 237 to read as
follows:
PART 237--SWAPS MARGIN AND SWAPS PUSH-OUT
0
4. The authority citation for part 237 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305,
12 U.S.C. 221 et seq., 12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C.
1841 et seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.
Subpart A--Margin and Capital Requirements for Covered Swap
Entities (Regulation KK)
0
5. Section 237.1 paragraph (e)(7) is added to read as follows:
Sec. 237.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared
[[Page 50812]]
security-based swap that were entered into solely to comply with the
requirements of part 47, Subpart I of part 252 or part 382 of Title 12,
as applicable.
* * * * *
0
6. Section 237.2 is amended by revising paragraph (2) of the definition
of Eligible master netting agreement to read as follows:
Sec. 237.2 Definitions
* * * * *
Eligible master netting agreement * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the preamble, the Federal Deposit
Insurance Corporation amends 12 CFR part 349 as follows:
PART 349--DERIVATIVES
Subpart A--Margin and Capital Requirements for Covered Swap
Entities
0
7. The authority citation for subpart A continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e) and 12 U.S.C.
1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819,
and 3108.
0
8. Section 349.1 is amended by adding paragraph (e)(7) as follows:
Sec. 349.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
9. Section 349.2 is amended by revising of the definition of Eligible
master netting agreement to read as follows:
Sec. 349.2 Definitions.
* * * * *
Eligible master netting agreement means a written, legally
enforceable agreement provided that:
(1) The agreement creates a single legal obligation for all
individual transactions covered by the agreement upon an event of
default following any stay permitted by paragraph (2) of this
definition, including upon an event of receivership, conservatorship,
insolvency, liquidation, or similar proceeding, of the counterparty;
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
(3) The agreement does not contain a walkaway clause (that is, a
provision that permits a non-defaulting counterparty to make a lower
payment than it otherwise would make under the agreement, or no payment
at all, to a defaulter or the estate of a defaulter, even if the
defaulter or the estate of the defaulter is a net creditor under the
agreement); and
(4) A covered swap entity that relies on the agreement for purposes
of calculating the margin required by this part must:
(i) Conduct sufficient legal review to conclude with a well-founded
basis (and maintain sufficient written documentation of that legal
review) that:
(A) The agreement meets the requirements of paragraph (2) of this
definition; and
(B) In the event of a legal challenge (including one resulting from
default or from receivership, conservatorship, insolvency, liquidation,
or similar proceeding), the relevant court and administrative
authorities would find the agreement to be legal, valid, binding, and
enforceable under the law of the relevant jurisdictions; and
(ii) Establish and maintain written procedures to monitor possible
changes in relevant law and to ensure that the agreement continues to
satisfy the requirements of this definition.
* * * * *
FARM CREDIT ADMINISTRATION
Authority and Issuance
For the reasons set forth in the preamble, the Farm Credit
[[Page 50813]]
Administration amends chapter VI of title 12, Code of Federal
Regulations, as follows:
PART 624--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
0
10. The authority citation for part 624 continues to read as follows:
Authority: 7 U.S.C 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 2154,
12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb-1.
0
11. Section 624.1 is amended by adding paragraph (e)(7) to read as
follow:
Sec. 624.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
12. Section 624.2 is amended by revising paragraph (2) of the
definition of Eligible master netting agreement to read as follows:
Sec. 624.2 Definitions.
* * * * *
Eligible master netting agreement * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
FEDERAL HOUSING FINANCE AGENCY
Authority and Issuance
For the reasons set forth in the preamble, the Federal Housing
Finance Agency amends chapter XII of title 12, Code of Federal
Regulations, as follows:
PART 1221--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP
ENTITIES
0
13. The authority citation for part 1221 continues to read as follows:
Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513,
and 12 U.S.C. 4526(a).
0
14. Section 1221.1 is amended by adding paragraph (e)(7) to read as
follows:
Sec. 1221.1 Authority, purpose, scope, exemptions and compliance
dates.
* * * * *
(e) * * *
(7) For purposes of determining the date on which a non-cleared
swap or a non-cleared security-based swap was entered into, a Covered
Swap Entity will not take into account amendments to the non-cleared
swap or the non-cleared security-based swap that were entered into
solely to comply with the requirements of part 47, Subpart I of part
252 or part 382 of Title 12, as applicable.
* * * * *
0
15. Section 1221.2 is amended by revising paragraph (2) of the
definition of Eligible master netting agreement to read as follows:
Sec. 1221.2 Definitions.
* * * * *
Eligible master netting agreement * * *
(2) The agreement provides the covered swap entity the right to
accelerate, terminate, and close-out on a net basis all transactions
under the agreement and to liquidate or set-off collateral promptly
upon an event of default, including upon an event of receivership,
conservatorship, insolvency, liquidation, or similar proceeding, of the
counterparty, provided that, in any such case,
(i) Any exercise of rights under the agreement will not be stayed
or avoided under applicable law in the relevant jurisdictions, other
than:
(A) In receivership, conservatorship, or resolution under the
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), Title II of the
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C.
5381 et seq.), the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992, as amended (12 U.S.C. 4617), or the Farm Credit
Act of 1971, as amended (12 U.S.C. 2183 and 2279cc), or laws of foreign
jurisdictions that are substantially similar to the U.S. laws
referenced in this paragraph (2)(i)(A) in order to facilitate the
orderly resolution of the defaulting counterparty; or
(B) Where the agreement is subject by its terms to, or
incorporates, any of the laws referenced in paragraph (2)(i)(A) of this
definition; and
(ii) The agreement may limit the right to accelerate, terminate,
and close-out on a net basis all transactions under the agreement and
to liquidate or set-off collateral promptly upon an event of default of
the counterparty to the extent necessary for the counterparty to comply
with the requirements of part 47, Subpart I of part 252 or part 382 of
Title 12, as applicable;
* * * * *
Dated: September 18, 2018.
Joseph M. Otting,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, September 19, 2018.
Ann E. Misback,
Secretary of the Board.
Dated at Washington, DC, on September 19, 2018.
Federal Deposit Insurance Corporation.
Valerie Jean Best,
Assistant Executive Secretary.
Dated: September 11, 2018.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
Dated: September 17, 2018.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2018-22021 Filed 10-9-18; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 8070-01--P; 6705-01-P