From: Riley, John <JRiley@CFTC.

gov>
Sent: Tuesday, December 1, 2009 12:10 PM
To: Ogilvie, Clark <Clark.Ogilvie@mai1.house.gov>
Cc: Leslie, Douglass <dleslie@CFTC.gov>; Arbit, Terry <tarbit@CFTC.gov>
Subject: CFTC Staff Technical Assistance regarding SBSA

Clark -

Below is previously prepared CFTC Staff Technical Assistance regarding the "security based swap
agreement." Though I believe I failed to send it to you, the notions may look familiar from discussions.

Page 128, lines 1-5: We understand that if a compromise is reached with respect to the SEC's enforcement
authority over security-based swap agreements, there will no longer be a need for a definition of the term
"broad-based security index swap" in the securities-side provisions. However, as part of any such
compromise, CFTC staff urges that the following changes be made to the way in which security-based swap
agreements are addressed in the version of the bill reported by the House Financial Services Committee:

a. On page 105, line 20 through page 106, line 8, the Financial Services Committee bill
effectively moves the definition of a "security-based swap agreement" from the Gramm-
Leach-Bliley Act into the securities statutes. It does so by defining a security-based swap
agreement as a "swap agreement" as defined in section 206A of the Gramm-Leach-Bliley
Act "of which a material term is based on the price, yield, value, or volatility of any
security or any group or index of securities, or any interest therein." Since security-based
swap agreements are "swaps" as defined in the Commodity Exchange Act under the bill,
instead of incorporating the definition into the securities laws, the bill should adhere to
current law by defining "security-based swap agreement" as it is defined in section 206B
Gramm-Leach-Bliley. That is, the bill's definition ofa "security-based swap agreement"
should provide simply that the term security-based swap agreement "has the same meaning
as in section 206B of the Gramm-Leach-Bliley Act." (We note that this will require
changes to other provisions of the Financial Services Committee bill which removed all
references to section 206B of the Gramm-Leach-Bliley Act from the securities laws.)

b. The bill should provide that the SEC and CFTC shall prescribe rules to further define the
term "security-based swap agreement." This will prevent the scope of this term from being
determined solely by the SEC. The CFTC should be involved in that process since the term
has the potential to bleed into CFTC jurisdiction over interest rate swaps if it is defined too
broadly.

c. If possible, it would be helpful to call these instruments something other than "security-
based swap agreement," which is likely to generate substantial confusion given its
similarity to the term "security-based swap." These transactions could be given a name
that is more descriptive, such as perhaps "SEC enforcement agreement," with the definition
providing, as urged above, that the term have the same meaning as "security-based swap
agreement" in section 206B of the Gramm-Leach-Bliley Act. (Note, though, that this is
much less important than comments (a) and (b) immediately above.)

CFTC-CREW-0417
Some additional CFTC staffthoughts surrounding this issue:

-- If SEC is now going to have some regulatory authority over CFTC-regulated swaps (e.g, the right to inspect and
demand records from CFTC-regulated entities - even contract markets! - on a real-time basis), based on the
SEC's theory that this is necessary to fully effectuate their enforcement authority over "security-based swap
agreements," shouldn't the CFTC have equivalent authority over securities trading that is occurring in ETFs in
gold, silver, oil, and natural gas as CFTC has authority over futures, options, and swaps on these commodities?

--This may sound like it's just turf, and a tit-for-tat in response (or retaliation) for what SEC is demanding reo
security-based swap agreements. However, there is a case to be made that, for the same reasons the SEC is
making its demands on security-based swap agreements, we need the same authorities with respect to ETFs in
order to properly discharge our responsibilities.

More than you asked but let us know if you have questions or need anything further.

John P. Riley
Director of Legislative Affairs
Office ofthe Chairman
u.s. Connnodity Futures Trading Connnission
115521 51 St., NW
Washington, DC 20581
(202) 418-5383
JRi1ey@CFTC.gov

CFTC-CREW-0418