1 PARAGRAPHl

2 FX Swap and Forward Exclusions from "Swap" Definition

4 [Explanation: The provisions below amend the definition ofa "swap" that is subject to

5 regulation under the bill by: 1) deleting the exclusion for foreign exchange swaps and including

6 foreign exchange swaps in the definition ofa "swap"; and 2) limiting eligibility for the exclusion

7 for foreign exchange forwards, andproviding that eligible forwards are subject to the reporting

8 and business conduct standards of the bill.]

10 (a) Page 7, lines 15-16 is amended by inserting "foreign exchange swap," after "currency

11 swap,";

12

13 (b) Page 10, line 18 is amended by striking clause (ix) and re-designating clauses (x)

14 through (xii) as clauses (ix) through (xi), respectively; and

15

16 (c) Page 10, line 19: Section la(35)(B)(ix) (as re-designated in subsection (b)) is amended

17 to read as follows:

18 "(ix) a foreign exchange forward that meets the requirements of

19 subclause (I), but only to the extent described in subclause (11)-

20 "(I) a foreign exchange forward-

21 "(aa) in which all parties to the agreement are

22 eligible contract participants;

23 "(bb) that results in actual delivery of currency; and

CFTC-CREW-0564
 1 "(cc) that is not structured to evade the Over-the-

2 Counter Derivatives Markets Act of 2009 in violation of

3 any rules promulgated by the Commission pursuant to

4 section 711(b)(2) of that Act;

5 "(II) shall not be considered a "swap" except that-

6 (aa) all parties to the agreement (unless the

7 agreement was cleared) shall report such an agreement

8 either to swap repository described in section 21 Of, if

9 there is no repository that would accept the agreement, to

10 the Commission pursuant to section 4r within such time

11 period as the Commission may buy rule or regulation

12 prescribe; and

13 "(bb) any party to the agreement that is a swap

14 dealer or a major swap participant shall conform to the

15 business conduct standards contained in section 4s(h).".

16

17

CFTC-CREW-0565
 1 PARAGRAPH 2

2 Amendment to Mixed Swap Provisions Based on "Primary" Nature of Product

4 [Explanation: Thefollowing amendments wouldprovide that "security-based swaps" are those

5 swaps that are "primarily" based on a single security (or loan) or narrow-based security index.

6 Thus, if a product is "primarily" based on a broad-based security index or other underlying

7 within CFTCjurisdiction (e.g., commodity, interest rate, etc.), the product would be a "swap"

8 and not a "security-based swap." These amendments also would delete the provisions of Title

9 VII providingfor joint CFTC-SEC regulation ofmixed swaps.]

10

11 (a) On page 11, lines 3-5, strike ", other than a security-based swap as described in

12 paragraph 38(C)".

13

14 (b) On page 13, line4, strike "is based" and insert "is primarily based".

15

16 (c) On page 14, strike lines 1 through 17, and in line 18 strike "(D)" and insert "(C)".

17

18 (d) On page 25, lines 8-9, strike ", including any authority to regulate with respect to a

19 security-based swap, as such is described in paragraph 38(C) of section la".

20

CFTC-CREW-0566
 1 PARAGRAPH 16

2 Business Conduct Requirements for Swap Dealers and

3 Major Swap Participants With Respect to Governmental Counterparties

5 [Explanation: Thefollowing amendments provide technical revisions to implement what we

6 understand to be the intent of the standard ofconduct for swap dealers and major swap

7 participants with respect to governmental counterparties by conforming the legislation to

8 existing provisions in the CEA. Parallel provisions also are provided with respect to security-

9 based swap dealers and major security-based swap participants.]

10

11 (a) On page 79:

12

13 a. In line 7, insert "for a swap dealer or major swap participant," after "standard

14 of conduct" .

15

16 b. In lines 9-11, strike "subclause (I) or (II) of section la(13) of this Act, having"

17 and insert "clause (vii)(I) or (II) of section la(13) of this Act, to have".

18

19 c. In lines 18-20, strike "significant security-based derivatives market

20 participant" and insert "swap dealer or major swap participant".

21
22

23 (b) On page 173:

24

CFTC-CREW-0567
 1 a. In line 3, insert "for a security-based swap dealer or major security-based

2 swap participant," after "standard of conduct".

4 b. In lines 5-7, strike "subclause (I) or (II) of section la(13) of the Commodity

5 Exchange Act (7 U.S.C. la(13)), having" and insert "clause (vii)(I) or (II) of

6 section la(13) of the Commodity Exchange Act (7 U.S.C. la(13)), to have".

8 c. In lines 15-17, strike "significant security-based derivatives market

9 participant" and insert "security-based swap dealer or major security-based

10 swap participant".

11

12

CFTC-CREW-0568
 1 PARAGRAPH 18

2 Amendments to the Bankruptcy Code and Corresponding Amendments to the

3 Commodity Exchange Act Relating to Bankruptcy Issues

5 [Explanation: Set forth below are draft amendments to the Bankruptcy Code, which extend to

6 swap dealers, their counterparties (with respect to non-cleared OTC contracts), and their

7 customers (with respect to cleared OTC contracts), the special protections (i.e., transfer and

8 preferential distribution) that Subchapter IV of Chapter 7 of the Bankruptcy Code ("Subchapter

9 IV'') provides to customers ofcommodity brokers. Proposed Subchapter VI could, by adding a

10 few analogous provisions, be extended to cover non-cleared security-based swaps. Also set forth

11 below are proposed amendments to the Commodity Exchange Act (the "CEA ''), which

12 amendments define certain entities within the jurisdiction of the CFTC, which entities are

13 therefore properly afforded special protections similar to those that Subchapter IV affords.]

14

15 Page 121, line 20: After Section 734, insert the following:

16

17 SEC. 735. DEFINITIONS.-Section la of the Commodity Exchange Act (7 US.c. la) is further

18 amended by adding after paragraph (50) the following:

19 "(51) NON-CLEARED SWAP.-The term "non-cleared swap" means a swap that is not

20 cleared, as set forth in section 20), and for which at least one counterparty is a non-cleared swap

21 dealer.

22 "(52) NON-CLEARED SWAP DEALER.-The term "non-cleared swap dealer" means an

23 entity registered pursuant to Section 4s, which is party to a non-cleared swap.

CFTC-CREW-0569
 1 "(53) NON-CLEARED SWAP PARTICIPANT.-The term "non-cleared swap participant"

2 means an entity that-

3 "(A) is a counterparty to a non-cleared swap with a non-cleared swap dealer; and

4 "(B) is not itself a non-cleared swap dealer.".

5 SEC. 736. DEBToRs.-Section 20 of the Commodity Exchange Act (7 US.c. 24) is amended-

6 (a) in subsection (a) in the matter preceding paragraph (1) by inserting "subchapter IV of'

7 after "under"; and

8 (b) by inserting after subsection (b) the following:

9 "(c) NON-CLEARED SWAP PROVISIONS.-

10 "(1) Notwithstanding title 11 of the United States Code, the Commission may provide,

11 with respect to a non-cleared swap dealer or a non-cleared swap participant that is a

12 debtor under subchapter VI of chapter 7 of title 11, by rule or regulation-

13 "(A) that certain cash, securities, or other property are to be included in or

14 excluded from the property that-

15 "(i) secures non-cleared swaps; and

16 "(ii) is to be

17 "(I) distributed to the counterparty of the debtor; or

18 "(II) transferred, along with the non-cleared swaps that such

19 property secures, to another person, under section 795 of title 11;

20 "(B) if the debtor is a non-cleared swap dealer, the method by which the

21 business of such debtor is to be conducted or liquidated after the date of the filing

22 of the petition under subchapter VI of chapter 7 of title 11;

CFTC-CREW-0570
 1 "(C) any persons to which non-cleared swaps, and property securing such non-

2 cleared swaps, may be transferred under section 795 of title 11; and

3 "(D) the manner in which net equity of a counterparty to the debtor will be

4 calculated.

5 "(2) As used in this section, the term "net equity" shall have the meaning assigned to

6 such term under subchapter VI of chapter 7 of title 11.

7 SEC. 737. CHAPTER 1 OF THE BANKRUPTCY CODE.-

8 (a) Section 101(6) of chapter 1 of title 11 of the United States Code is amended by inserting

9 "swap clearer," after "means".

10 (b) Section 109( d) of chapter 1 of title 11 of the United States Code is amended by striking

11 "or a commodity broker" and inserting ", a commodity broker, or a non-cleared swap dealer as

12 defined in section la of the Commodity Exchange Act (7 U.S.C. la)".

13 SEC. 738. SUBCHAPTER IV OF CHAPTER 7 OF THE BANKRUPTCY CODE.-

14 (a) Section 761 of subchapter IV of chapter 7 of title 11 of the United States Code is amended

15 by-

16 (1) in paragraph (4) by-

17 (A) amending subparagraph (A) to read as follows:

18 "(A) with respect to a futures commission merchant, contract for the purchase

19 or sale of a commodity for future delivery on, or subject to, the rules of a contract

20 market;";

21 (B) redesignating subparagraphs (B) through (1) as subparagraphs (C) through

22 (K);

23 (C) inserting after subparagraph (A) the following:

CFTC-CREW-0571
 1 "(B) with respect to a swap clearer, a swap that is submitted to a derivatives

2 clearing organization for clearing;"; and

3 (D) amending subparagraph (E) (as redesignated by subparagraph (B)) to read

4 as follows:

5 "(E) with respect to a clearing organization, a contract for the purchase or sale

6 of a commodity for future delivery on, or subject to the rules of a contract market

7 that is cleared by such clearing organization, or a commodity option traded on, or

8 subject to the rules of, a contract market that is cleared by such clearing

9 organization, or a swap that is cleared by such clearing organization.";

10 (2) amending paragraph (7) to read as follows:

11 "(7) "contract market" means a board of trade designated as a contract market under

12 Section 5 of the Act, including a board of trade designated as a contract market under

13 Section 5f of the Act;";

14 (3) in paragraph (8) by striking ", 'future delivery', 'board of trade' , 'registered

15 entity', and 'futures commission merchant" and inserting ", 'future delivery', 'board of

16 trade' and 'swap"';

17 (4) in paragraph (9) by-

18 (A) redesignating subparagraphs (B) through (E) as subparagraphs (C) through

19 (F); and

20 (B) inserting after subparagraph (A) the following:

21 "(B) with respect to a swap clearer-

22 "(i) entity for or with whom such swap clearer deals and that holds a

23 claim against such swap clearer on account of a commodity contract made,

CFTC-CREW-0572
 1 received, acquired, or held by or through such swap clearer in the ordinary

2 course of such swap clearer's business as swap clearer from or for the

3 account of such entity, which account pertains to swaps that are submitted

4 to a derivatives clearing organization for clearing; or

5 "(ii) entity that holds a claim against a swap clearer arising out of-

6 "(I) the making, liquidation, or change in the value of a

7 commodity contract;

8 "(II) a deposit or payment of cash, a security, or other property

9 with such swap dealer for the purpose of making or margining

10 such a commodity contract; or

11 "(III) the liquidation or other termination of such a commodity

12 contract.";

13 (5) adding at the end the following:

14 "(18) "futures commission merchant" means an entity registered or required to be

15 registered pursuant to section 4d of the Act;

16 "(19) "swap clearer" means a swap dealer, futures commission merchant, foreign

17 futures commission merchant, leverage transaction merchant, or commodity options

18 dealer that, directly or indirectly, submits a swap to a derivatives clearing organization

19 for clearing; and

20 "(20) "swap dealer" means an entity registered or required to be registered pursuant to

21 section 4s of the Act.".

22 (b) Section 762 of subchapter IV of chapter 7 of title 11 of the United States Code is

23 amended by-

10

CFTC-CREW-0573
 1 (1) striking the title and inserting "Notice to the Commission, right to be heard,

2 appointment of trustee, and responsibilities of trustee";

3 (2) inserting after subsection (b) the following:

4 "( c) In a case under this chapter, the court shall appoint, as trustee for the liquidation of the

5 business of the debtor, such person as the Commission, in its sole discretion, specifies. Chapter

6 3 and sections 704 and 705 of this title shall apply to the Commission in the same way and to the

7 same extent that they apply to a United States trustee. This subsection shall not apply to a debtor

8 that is a stockbroker or an insured depository institution as such term is defined in section 3(c) of

9 the Federal Deposit Insurance Act.

10 "( d) To the extent that any commodity broker may also be a non-cleared swap counterparty,

11 as such term is defined in section 791 of this title, then such commodity broker may be a debtor

12 only under this subchapter, and may not be a debtor under subchapter VI of this chapter.

13 However, to the extent consistent with this subchapter or as otherwise ordered by the court or the

14 Commission, a trustee in a case under this chapter shall be subject to the same duties as a trustee

15 in a case under subchapter VI of this chapter.".

16 SEC. 739. SUBCHAPTER VOF CHAPTER 7 OF THE BANKRUPTCY CODE.-Section 783(a) of

17 subchapter V of chapter 7 of title 11 of the United States Code is amended by striking

18 "subchapters III and IV" and inserting "subchapters III, IV and VI".

19 SEC. 740. SUBCHAPTER VI OF CHAPTER 7 OF THE BANKRUPTCY CODE.-Chapter 7 of title 11 of

20 the United States Code is amended by inserting after subchapter V the following:

21 "SUBCHAPTER VI-SWAPS

22 "11 USC § 791. Definitions

23 "In this subchapter-

11

CFTC-CREW-0574
 1 "(1) 'Commission" means Commodity Futures Trading Commission;

2 "(2) 'net equity' means, subject to such rules and regulations as the Commission promulgates

3 under the Commodity Exchange Act, with respect to the aggregate of all accounts held by the

4 debtor for a particular non-cleared swap counterparty in the same capacity, the balance

5 remaining in such accounts immediately after-

6 "(A) the transfer or liquidation of all non-cleared swaps to which such non-cleared swap

7 counterparty in such capacity is party; and

8 "(B) the offset of all obligations that the non-cleared swap counterparty in such capacity

9 owes to the debtor;

10 "(3) 'non-cleared swap', 'non-cleared swap dealer', and 'non-cleared swap participant' shall

11 have the meanings assigned to those terms in section 1a of the Commodity Exchange Act.

12 "(4) 'non-cleared swap counterparty' means-

13 "(A) a non-cleared swap dealer; or

14 "(B) a non-cleared swap participant;

15 "(5) 'non-cleared margin property' means the margin that has been set aside by a non-cleared

16 swap counterparty in accordance with section 4s of the Commodity Exchange Act.

17 "11 USC §792. Notice to the Commission, right to be heard, appointment of trustee

18 "(a) The clerk shall give the notice required by section 342 of this title to the Commission in a

19 case under this chapter or chapter 11 involving a non-cleared swap counterparty.

20 "(b) The Commission may, on its own motion, file notice of its appearance in any case under this

21 chapter or chapter 11 involving a non-cleared swap counterparty, and may thereafter raise and

22 appear and be heard on any issue in such a case, and may appeal from any judgment, order or

12

CFTC-CREW-0575
 1 decree in such a case that concerns the timing, amount, or recipients of any disposition of non-

2 cleared margin property.

3 "(c) In a case under this chapter involving a non-cleared swap dealer, the court shall appoint, as

4 trustee for the liquidation of the business of the debtor, such person as the Commission, in its

5 sole discretion, specifies. Chapter 3 and sections 704 and 705 of this title shall apply to the

6 Commission in the same way and to the same extent that they apply to a United States trustee.

7 This subsection shall not apply to a debtor that is (1) a stockbroker or (2) an insured depository

8 institution, as such term is defined in section 3(c) of the Federal Deposit Insurance Act.

9 "11 USC § 793. Treatment of Margin Accounts

10 "(a) Accounts held by the debtor for a particular non-cleared swap counterparty in separate

11 capacities shall be treated as accounts of separate non-cleared swap counterparties.

12 "(b) The net equity in a non-cleared swap counterparty's account may not be offset against the

13 net equity in the account of any other non-cleared swap counterparty.

14 "11 USC § 794. Voidable Transfers

15 "(a) Except as otherwise provided in this section, any transfer by the debtor of property that, but

16 for such transfer, would have been non-cleared margin property, may be avoided by the trustee,

17 and such property shall be treated as non-cleared margin property, if and to the extent that the

18 trustee avoids such transfer under section 544, 545, 547, 548, 549, or 724(a) of this title. For the

19 purpose of such sections, the property so transferred shall be deemed to have been property of

20 the debtor, and, if such transfer was made to a non-cleared swap counterparty or for a non-

21 cleared swap counterparty's benefit, such non-cleared swap counterparty shall be deemed, for the

22 purposes of this section, to have been a creditor.

13

CFTC-CREW-0576
 1 "(b) Notwithstanding sections 544,545,547,548,549, and 724(a) of this title, the trustee may

2 not avoid a transfer made before [seven] days after the order for relief, if such transfer is

3 approved by the Commission by rule or order, either before or after such transfer, and if such

4 transfer is-

5 "( 1) a transfer of a non-cleared swap and of any non-cleared margin property securing

6 such non-cleared swap; or

7 "(2) the liquidation of a non-cleared swap.

8 "11 USC § 795. Treatment of Non-Cleared Margin Property

9 "(a) The trustee shall distribute non-cleared margin property ratably to non-cleared swap

10 counterparties on the basis and to the extent of such nonOcleared swap counterparties' allowed

11 net equity claims, and in priority to all other claims, except claims of a kind specified in section

12 507(a)(2) of this title that are attributable to the administration of non-cleared margin property.

13 Such distribution shall be in the form of-

14 "(1) cash; or

15 "(2) the return or transfer of securities.

16 "(b)( 1) The trustee shall distribute non-cleared margin property in excess of that distributed

17 under subsection (a) of this section in accordance with section 726 of this title.

18 "(2) Except as provided in section 510 of this title, if a non-cleared swap counterparty is

19 not paid the full amount of such non-cleared swap counterparty's allowed net equity

20 claim from non-cleared margin property, the unpaid portion of such claim is a claim

21 entitled to distribution under section 726 of this title.

14

CFTC-CREW-0577
 1 "(c)(I) The trustee shall endeavor to transfer non-cleared swaps and associated non-cleared

2 margin property to one or more solvent substitute counterparties as soon as practicable, but in

3 any event shall do so within [seven] days of the order for relief.

4 "(2) The trustee shall, as soon as practicable, but in any event within [thirty] days of the

5 order for relief-

6 "(A) liquidate any nonOcleared swap that has not been transferred;

7 "(B) calculate the net equity claim for each non-cleared swap counterparty; and

8 "(C) distribute non-cleared margin property in accordance with subsection (a) of

9 this section.

10 "(3) The court may increase the period specified in paragraph (2) only upon a

11 demonstration by the trustee that distribution within such period is impracticable, and

12 then only to the extent necessary to make such distribution practicable.".

13
14

15

CFTC-CREW-0578
 1 PARAGRAPH 19

2 Combining Registration Criteria and Core Principles for

3 Designated Contract Markets into a Single Set of Core Principles

5 [Explanation: The provisions below strengthen the Commodity Exchange Act's ("CEA 's '')

6 "principles-based" regulatory regime for registeredfutures exchanges ("designated contract

7 markets ''). Specifically, these provisions combine the existing registration criteria and core

8 principles into a comprehensive and unified set ofcore principles for designated contract

9 markets, clarify ambiguities in the existing core principles, and re-state them in more specific

10 terms.]

11

12 Page 96, line 2 through page 98, line 12 is stricken and replaced with the following:

13

14 (a) Section 5(b) of the Commodity Exchange Act (7 U.S.C. 7(b)) is repealed.

15 (b) Section 5(d) of the Commodity Exchange Act (7 U.S.C. 7(d)) is amended to read as

16 follows:

17 "(d) CORE PRINCIPLES FOR CONTRACT MARKETS.-

18 "(1) INGENERAL.-To be designated as, and to maintain the designation ofa board of

19 trade as a contract market, the board of trade shall comply with the core principles

20 specified in this subsection and any requirement that the Commission may impose by rule

21 or regulation pursuant to section 8a(5). Except where the Commission determines

22 otherwise by rule or regulation, the board of trade shall have reasonable discretion in

23 establishing the manner in which it complies with the core principles.

16

CFTC-CREW-0579
 1 "(2) COMPLIANCE WITH RULES.-

2 "(A) The board of trade shall monitor and enforce compliance with the rules of

3 the contract market, including access requirements, the terms and conditions of

4 any contracts to be traded on the contract market and the contract market's

5 abusive trade practice prohibitions.

6 "(B) The board of trade shall have the capacity to detect, investigate, and apply

7 appropriate sanctions to, any person or entity that violates the rules.

8 "(C) The rules shall provide the board of trade with the ability and authority to

9 obtain any necessary information to perform any of the functions described in this

10 subsection, including the capacity to carry out such international information-

11 sharing agreements as the Commission may require.

12 "(3) CONTRACTS NOT READILY SUBJECT TO MANIPULATION.-The board of trade shall

13 list on the contract market only contracts that are not readily susceptible to manipulation.

14 "(4) PREVENTION OF MARKET DISRUPTION.-The board of trade shall have the capacity

15 and responsibility to prevent manipulation, price distortion, and disruptions of the

16 delivery or cash-settlement process through market surveillance, compliance, and

17 enforcement practices and procedures, including methods for conducting real-time

18 monitoring of trading and comprehensive and accurate trade reconstructions.

19 "(5) POSITION LIMITATIONS ORACCOUNTABILITY.-

20 "(A) To reduce the potential threat of market manipulation or congestion,

21 especially during trading in the delivery month, and to eliminate or prevent

22 excessive speculation as described in section 4a(a), the board of trade shall adopt

17

CFTC-CREW-0580
 1 for each of its contracts, where necessary and appropriate, position limitations or

2 position accountability for speculators.

3 "(B) For any contract that is subject to a position limitation established by the

4 Commission pursuant to section 4a(a), the board of trade shall set its position

5 limitation at a level no higher than the Commission-established limitation.

6 "(6) EMERGENCY AUTHORITY.-The board of trade shall adopt rules to provide for the

7 exercise of emergency authority, in consultation or cooperation with the Commission,

8 where necessary and appropriate, including the authority to-

9 "(A) liquidate or transfer open positions in any contract;

10 "(B) suspend or curtail trading in any contract; and

11 "(C) require market participants in any contract to meet special margin

12 requirements.

13 "(7) AVAILABILITY OF GENERAL INFORMATION.-The board of trade shall make

14 available to market authorities, market participants, and the public accurate information

15 concermng-

16 "(A) the terms and conditions of the contracts of the contract market; and

17 "(B) the rules, regulations and mechanisms for executing transactions on or

18 through the facilities of the contract market, and the rules and specifications

19 describing the operation of the board of trade's electronic matching platform or

20 other trade execution facility.

18

CFTC-CREW-0581
 1 "(8) DAILY PUBLICATION OF TRADING INFORMATION.-The board of trade shall make

2 public daily information on settlement prices, volume, open interest, and opening and

3 closing ranges for actively traded contracts on the contract market.

4 "(9) EXECUTION OF TRANSACTIONS.-

5 "(A) The board of trade shall provide a competitive, open, and efficient market

6 and mechanism for executing transactions that protects the price discovery

7 process of trading in the board of trade's centralized market.

8 "(B) The rules may authorize, for bona fide business purposes-

9 "(i) transfer trades or office trades;

10 "(ii) an exchange of-

11 "(I) futures in connection with a cash commodity transaction;

12 "(II) futures for cash commodities; or

13 "(III) futures for swaps; or

14 "(iii) a futures commission merchant, acting as principal or agent, to

15 enter into or confirm the execution of a contract for the purchase or sale of

16 a commodity for future delivery if the contract is reported, recorded, or

17 cleared in accordance with the rules of the contract market or a derivatives

18 clearing organization.

19 "(10) TRADE INFORMATION.-The board of trade shall maintain rules and procedures

20 to provide for the recording and safe storage of all identifying trade information in a

21 manner that enables the contract market to use the information for purposes of assisting

19

CFTC-CREW-0582
 1 in the prevention of customer and market abuses and providing evidence of any

2 violations of the rules of the contract market.

3 "(11) FINANCIAL INTEGRITY OF TRANSACTIONs.-The board of trade shall establish

4 and enforce rules and procedures for ensuring the financial integrity of transactions

5 entered into on or through the facilities of the contract market (including the clearance

6 and settlement of the transactions with a derivatives clearing organization), and rules to

7 ensure the financial integrity of any futures commission merchants and introducing

8 brokers and the protection of customer funds.

9 "(12) PROTECTION OF MARKETS AND MARKET PARTICIPANTs.-The board of trade shall

10 establish and enforce rules to protect markets and market participants from abusive

11 practices committed by any party, including abusive practices committed by a party

12 acting as an agent for a participant, and to promote fair and equitable trading on the

13 contract market.

14 "(13) DISCIPLINARY PROCEDUREs.-The board of trade shall establish and enforce

15 disciplinary procedures that authorize the board of trade to discipline, suspend, or expel

16 members or market participants that violate the rules of the board of trade, or similar

17 methods for performing the same functions, including delegation of the functions to third

18 parties.

19 "(14) DISPUTERESOLUTION.-The board of trade shall establish and enforce rules

20 regarding and provide facilities for alternative dispute resolution as appropriate for

21 market participants and any market intermediaries.

20

CFTC-CREW-0583
 1 "(15) GoVERNANCE FITNESS STANDARDs.-The board of trade shall establish and

2 enforce appropriate fitness standards for directors, members of any disciplinary

3 committee, members of the contract market, and any other persons with direct access to

4 the facility (including any parties affiliated with any of the persons described in this

5 paragraph).

6 "(16) CONFLICTS OF INTEREsT.-The board of trade shall establish and enforce rules to

7 minimize conflicts of interest in the decision-making process of the contract market and

8 establish a process for resolving such conflicts of interest.

9 "(17) COMPOSITION OF GoVERNING BOARDS OF CONTRACT MARKETs.-The

10 governance arrangements of the board of trade shall be designed to promote the

11 objectives of market participants.

12 "(18) RECORDKEEPING.-The board of trade shall maintain records of all activities

13 related to the business of the contract market in a form and manner acceptable to the

14 Commission for a period of 5 years.

15 "(19) ANTITRUST CONSIDERATIONS.-Unless appropriate to achieve the purposes of

16 this chapter, the board of trade shall avoid-

17 "(A) adopting any rules or taking any actions that result in any unreasonable

18 restraints of trade; or

19 "(B) imposing any material anticompetitive burden on trading on the contract

20 market.

21 "(20) SYSTEM SAFEGuARDs.-The board of trade shall-

21

CFTC-CREW-0584
 1 "(A) establish and maintain a program of risk analysis and oversight to identify

2 and minimize sources of operational risk, through the development of appropriate

3 controls and procedures, and the development of automated systems, that are reliable,

4 secure, and have adequate scalable capacity;

5 "(B) establish and maintain emergency procedures, backup facilities, and a plan

6 for disaster recovery that allow for the timely recovery and resumption of operations and

7 the fulfillment of the board of trade's responsibilities and obligations; and

8 "(C) periodically conduct tests to verify that backup resources are sufficient to

9 ensure continued order processing and trade matching, price reporting, market

10 surveillance, and maintenance of a comprehensive and accurate audit trail.

11 "(21) FINANCIAL RESOURCES.-

12 "(A) The board of trade shall have adequate financial, operational, and

13 managerial resources to discharge its responsibilities.

14 "(B) The board of trade's financial resources shall be considered adequate if

15 their value exceeds the total amount that would enable the contract market to

16 cover its operating costs for a period of one year, calculated on a rolling basis.".

17

22

CFTC-CREW-0585
 1 PARAGRAPH 20

2 Combining Registration Criteria and Core Principles for

3 ASEFs into a Single Set of Core Principles (Similar to Contract Markets)

5 [Explanation: The Administration's proposed OTC legislation based the new provisions for

6 ASEFs on the existing provisions for designated contract markets under the CEA. Thus, as is

7 currently the case for designated contract markets, the Administration proposal includes both a

8 set ofregistration criteria and a separate set ofcore principles for ASEFs. Just as the

9 amendments immediately above would consolidate and streamline the provisions for contract

10 markets, the amendments below would do the same thing with respect to ASEFs.]

11

12 (a) Page 87, line 5 through 95, line 3, is stricken and replaced with the following:

13 "(d) CORE PRINCIPLES FOR AL TERNATIVE SWAP EXECUTION FACILITIES.-

14 "(1) IN GENERAL.-To be registered as, and to maintain its registration as, an

15 alternative swap execution facility, the facility shall comply with the core principles

16 specified in this subsection and any requirement that the Commission may impose by rule

17 or regulation pursuant to section 8a(5). Except where the Commission determines

18 otherwise by rule or regulation, the facility shall have reasonable discretion in

19 establishing the manner in which it complies with these core principles.

20 "(2) COMPLIANCE WITH RULES.-The swap execution facility shall -

21 (A) monitor and enforce compliance with any of the rules of the facility,

22 including the terms and conditions of the swaps traded on or through the facility and any

23 limitations on access to the facility; and

23

CFTC-CREW-0586
 1 (B) establish and enforce trading and participation rules that will deter

2 abuses and have the capacity to detect, investigate, and enforce those rules, including

3 means to-

4 "(i) provide market participants with impartial access to the

5 market; and

6 "(ii) capture information that may be used in establishing whether

7 rule violations have occurred.

8 "(3) SWAPS NOT READILY SUSCEPTIBLE TOMANIPULATION.-The swap execution

9 facility shall permit trading only in swaps that are not readily susceptible to manipulation.

10 "(4) MONITORING OF TRADING.-The swap execution facility shall-

11 (A) establish and enforce rules or terms and conditions defining, or

12 specifications detailing, trading procedures to be used in entering and executing orders

13 traded on or through its facilities; and

14 (B) monitor trading in swaps to prevent manipulation, price distortion, and

15 disruptions of the delivery or cash settlement process through surveillance, compliance,

16 and disciplinary practices and procedures, including methods for conducting real-time

17 monitoring of trading and comprehensive and accurate trade reconstructions.

18 "(5) ABILITY TO OBTAIN INFORMATION.-The swap execution facility shall-

19 "(A) establish and enforce rules that will allow the facility to obtain any

20 necessary information to perform any of the functions described in this section;

21 "(B) provide the information to the Commission upon request; and

22 "(C) have the capacity to carry out such international information-sharing

23 agreements as the Commission may require.

24

CFTC-CREW-0587
 1 "(6) POSITION LIMITS ORACCOUNTABILITY.-

2 "(A) To reduce the potential threat of market manipulation or congestion,

3 especially during trading in the delivery month, and to eliminate or prevent

4 excessive speculation as described in section 4a(a), the swap execution facility

5 shall adopt for each of its contracts, where necessary and appropriate, position

6 limitations or position accountability for speculators.

7 "(B) For any contract that is subject to a position limitation established by

8 the Commission pursuant to section 4a(a), the swap execution facility shall set its

9 position limitation at a level no higher than the Commission limitation.

10 "(7) FINANCIAL INTEGRITY OF TRANSACTIONS.-The swap execution facility shall

11 establish and enforce rules and procedures for ensuring the financial integrity of swaps

12 entered on or through its facilities, including the clearance and settlement of the swaps

13 pursuant to section 20)(1).

14 "(8) EMERGENCY AUTHORITY.-The swap execution facility shall adopt rules to

15 provide for the exercise of emergency authority, in consultation or cooperation with the

16 Commission, where necessary and appropriate, including the authority to liquidate or

17 transfer open positions in any swap or to suspend or curtail trading in a swap.

18 "(9) TIMELY PUBLICATION OF TRADING INFORMATION.-The swap execution

19 facility shall make public timely information on price, trading volume, and other trading

20 data on swaps to the extent prescribed by the Commission.

21 "(10) RECORDKEEPING AND REPORTING.-The swap execution facility shall

22 maintain records of all activities related to the business of the facility, including a

23 complete audit trail, in a form and manner acceptable to the Commission for a period of 5

25

CFTC-CREW-0588
 1 years, and report to the Commission all information determined by the Commission to be

2 necessary or appropriate for the Commission to perform its responsibilities under this Act

3 in a form and manner acceptable to the Commission. The Commission shall adopt data

4 collection and reporting requirements for alternative swap execution facilities that are

5 comparable to corresponding requirements for derivatives clearing organizations and

6 swap repositories.

7 "(11) ANTITRUST CONSIDERATIONS.-Unless necessary or appropriate to achieve

8 the purposes of this Act, the swap execution facility shall avoid-

9 "(A) adopting any rules or taking any actions that result in any

10 unreasonable restraint of trade; or

11 "(B) imposing any material anticompetitive burden on trading on the swap

12 execution facility.

13 "(12) CONFLICTS OF INTEREST.-The swap execution facility shall-

14 "(A) establish and enforce rules to minimize conflicts of interest in its

15 decision-making process; and

16 "(B) establish a process for resolving the conflicts of interest.

17 "(12) CONFLICTS OF INTEREST.-The swap execution facility shall-

18 "(A) establish and enforce rules to minimize conflicts of interest in its

19 decision-making process; and

20 "(B) establish a process for resolving the conflicts of interest.

21 "(13) FINANCIAL RESOURCES.-

22 "(A) The swap execution facility shall have adequate financial,

23 operational, and managerial resources to discharge its responsibilities.

26

CFTC-CREW-0589
 1 "(B) The swap execution facility's financial resources shall be considered

2 adequate if their value exceeds the total amount that would enable the facility to

3 cover its operating costs for a period of one year, calculated on a rolling basis.

4 "(14) SYSTEM SAFEGUARDs.-The swap execution facility shall-

5 "(A) establish and maintain a program of risk analysis and oversight to

6 identify and minimize sources of operational risk, through the development of

7 appropriate controls and procedures, and the development of automated systems,

8 that are reliable, secure, and have adequate scalable capacity;

9 "(B) establish and maintain emergency procedures, backup facilities, and a

10 plan for disaster recovery that allow for the timely recovery and resumption of

11 operations and the fulfillment of the swap execution facility's responsibilities and

12 obligation; and

13 "(C) periodically conduct tests to verify that backup resources are

14 sufficient to ensure continued order processing and trade matching, price

15 reporting, market surveillance, and maintenance of a comprehensive and accurate

16 audit trail.

17 "(15) DESIGNATION OF COMPLIANCE OFFICER.-

18 "(A) IN GENERAL.-Each alternative swap execution facility shall

19 designate an individual to serve as a compliance officer.

20 "(B) DUTIEs.-The compliance officer-

21 "(i) shall report directly to the board or to the senior officer of the

22 facility; and

23 "(ii) shall-

27

CFTC-CREW-0590
 1 "(I) review compliance with the core principles in section

2 5h(d).

3 "(II) in consultation with the board of the facility, a body

4 performing a function similar to that of a board, or the senior

5 officer of the facility, resolve any conflicts of interest that may

6 anse;

7 "(III) be responsible for administering the policies and

8 procedures required to be established pursuant to this section; and

9 "(IV) ensure compliance with commodity laws and the

10 rules and regulations issued thereunder, including rules prescribed

11 by the Commission pursuant to this section.

12 "(iii) The compliance officer shall establish procedures for

13 remediation of non-compliance issues found during compliance office

14 reviews, look backs, internal or external audit findings, self-reported

15 errors, or through validated complaints. Procedures will establish the

16 handling, management response, remediation, re-testing, and closing of

17 non-compliant issues.

18 "(C) ANNuAL REpORTS REQUIRED.-The compliance officer shall

19 annually prepare and sign a report on the compliance of the facility with the

20 commodity laws and its policies and procedures, including its code of ethics and

21 conflict of interest policies, in accordance with rules prescribed by the

22 Commission. Such compliance report shall accompany the financial reports of

23 the facility that are required to be furnished to the Commission pursuant to this

28

CFTC-CREW-0591
1 section and shall include a certification that, under penalty of laws, the report is

2 accurate and complete.".

4 (b) On page 95, re-designate subsections paragraphs (f) and (g), as (e) and (f), respectively.

29

CFTC-CREW-0592
 1 PARAGRAPH 23

2 Repeal of FDICIA Provisions Regarding Clearing of

3 Over-the-Counter Derivative Instruments

5 [Explanation: Thefollowing amendment would repeal Sections 408 and 409 ofthe Federal

6 Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), which address clearing of

7 "over-the-counter derivative instruments" as defined therein, and which were enacted as part of

8 the CFMA. These provisions are no longer necessary in light ofthe regulatory scheme

9 contained in the legislation. Further, retaining them would at best create uncertainty, and could

10 at worst create a loophole, through the interplay between "swaps" and "security-based swaps"

11 as defined in this legislation on the one hand, and "over-the-counter derivative instruments" as

12 defined in FDICIA on the other handJ

13

14 Page Ill, line 23 through page 112, line 11 are stricken and replaced with the following:

15

16 Sections 408 and 409 of the Federal Deposit Insurance Corporation Improvement Act of

17 1991 (12 US.c. 4421-4422) are repealed.

18

19

30

CFTC-CREW-0593
 1 PARAGRAPH 25

2 Retail Off-Exchange Commodity Transactions

4 [Explanation: Despite the recent amendments to the CEA enacted as part oflast year's Farm

5 Bill, retail off-exchange foreign currency ("forex '') trading continues to be a fertile area offraud

6 and trading abuse ofretail customers. What is more, the CFTC has started to see these

7 problems migrate to other commodities as well. The legislation continues in place the Farm

8 Bill's fraudfix for "futures look-alike" contracts in foreign currency, and extends that fix to

9 contracts in all other commodities. It also reaffirms that such retail "futures look-alike"

10 contracts must be traded on designated contract markets (except for retail foreign currency

11 trading, which is permitted under the CFMA). The amendments below, in addition to making

12 some technical corrections, would tighten these provisions by narrowing the timing element for

13 the forward exclusion from 28 to 2 days and clarifying the application of these provisions to a

14 financed transaction where the commodity is held as collateral.}

15

16 (a) On page 115, line 19, insert "Sa" before "(to the extent".

17

18 (b) On page 116, line 18, strike "described in" and insert "that is subject to".

19
20 (c) On page 117, line 2, strike "28" and insert "2".

21
22 (d) On page 118, line 3, strike "described in" and insert "that is subject to".

23
24 (e) On page 119, after clause (vi), insert the following:

31

CFTC-CREW-0594
1 "(vii) For the purposes of clause (ii)(III)(aa), the term "actual delivery"

2 shall not include delivery to a third party in a financed transaction where the

3 commodity is held as collateral."

32

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