1 CFTC Staff Technical Assistance: Differences Between CEA and Securities Subtitles

2
3 [Explanation: Listed below are instances where the Senate Bill, as passed, provides inconsistent
4 treatment in parallel provisions ofthe Commodity Exchange Act (CEA) Subtitle and the
5 Securities Subtitle ofthe bill. Page and line references refer to the Senate Bill, as passed J
6

7 A. Capital and Margin

8 • The Senate Bill provides for SEC participation in prescribing minimum capital and initial

9 and variation margin requirements for CFTC-registered swap dealers and major swap

10 participants that are not depository institutions. See:

11 o 1) Page 638, line 14 through page 639, line 2; and

12 o 2) Page 642, line 23 through page 643, line 12.

13

14 • The parallel provisions in the Senate Bill do not provide for CFTC participation in

15 prescribing minimum capital and initial and variation margin requirements for SEC-

16 registered security-based swap dealers and major security-based swap participants that

17 are not depository institutions. See:

18 o 1) Page 852, lines 3-16; and

19 o 2) Page 856, lines 12-24.

20

21

22 B. Backstop Enforcement Authority

23 • The Senate Bill provides for "backstop" enforcement authority whereby the CFTC or a

24 prudential regulator may bring an enforcement action against certain swap dealers and

25 major swap participants if the other does not act in response to a request to do so. See

26 page 700, line 15 through page 701, line 4.

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2 • The securities subtitle does not contain parallel "backstop" enforcement authority

3 provisions with respect to the SEC and prudential regulators, which presumably would

4 appear after page 874, line 9.

7 C. Segregation of Funds for Uncleared Swaps

8 • The Senate Bill provides for segregating funds for uncleared swaps at page 583, line 23,

9 through page 586, line 13.

10

11 • The securities subtitle does not contain parallel provisions for segregating funds for

12 uncleared security-based swaps, which presumably would appear after page 827, line 18.

13

14

15 D. Definition of "Major Security-Based Swap Participant"

16 • On page 531, lines 8-13, the third prong of the definition of a "major swap

17 participant" in the Senate Bill reads as follows:

18 "(iii)(I) is a financial entity, [other than an entity predominantly

19 engaged in providing financing for the purchase of an affiliate's

20 merchandise or manufactured goods,] that is highly leveraged relative to

21 the amount of capital it holds;"

22

23

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 1 • The bracketed language does not appear in the parallel definition of a "major

2 security-based swap participant" on page 766, lines 15-18, which reads as follows:

3 "(III) that is financial entity that-

4
5 "(aa) is highly leveraged relative to the amount of

6 capital such entity holds;"

9 E. Definition of "(Security-Based) Swap Execution Facility"

10 • On page 547, lines 12-18, the definition ofa "swap execution facility" in the Senate

11 Bill reads as follows: "... by accepting bids and offers made by other participants

12 that are open to multiple participants in the facility or system, [through any means of

13 interstate commerce, including any trading facility,] ..."

14

15 • The parallel definition of a "swap execution facility" in the securities subtitle (which,

16 as noted in separate CFTC staff technical corrections, should be a definition of the

17 term "security-based swap execution facility") on page 774, lines 11-17, does not

18 include the bracketed language, but instead retains a reference to a "confirmation

19 facility." It reads as follows: "... by accepting bids and offers made by other

20 participants that are open to multiple participants in the facility or system, or

21 confirmation facility, ..."

22
23 The definition ofsecurity-based swap execution facility in the securities subtitle should be

24 conformed to the definition ofswap execution facility in the CEA subtitle.

25

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 1 F. Core Principle (13) for Security-Based Swap Execution Facilities

2 • A portion of this Core Principle on Financial Resources - on page 819, lines 12-18-

3 appears to be derived from Core Principle (B) for derivatives clearing organizations (see

4 page 593, line 19 through page 594, line 2), but is inapplicable in this context of a

5 security-based swap execution facility. Note that Core Principle (13) for swap execution

6 facilities - on page 669, lines 6-18) in the CEA subtitle does not contain this language.

7 Core Principle (13) for security-based swap execution facilities should delete the

8 language drawn from a Core Principle for clearinghouses, and should otherwise be

9 conformed to Core Principle (13) for swap execution facilities.

10

11

12 G. Commercial End User Clearing Exception

13 • The definition of a "commercial end user" in the CEA subtitle of the Senate Bill on page

14 571, lines 7-20, refers, among other things, to a person who owns, uses, etc., [goods,]

15 services or commodities (which shall include [but not be limited to] coal, natural gas,

16 electricity, ethanol, crude oil, [gasoline, propane,] distillates, ..."

17

18 • The parallel definition in the securities subtitle on page 794, lines 11-23, is slightly

19 different in that it omits the bracketed words, referring instead to a person who owns,

20 uses, etc., "services or commodities (which shall include coal, natural gas, electricity,

21 ethanol, crude oil, distillates, ..."

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