1 REVISED CORE PRINCIPLE ON POSITION LIMITS FOR SEFs

2 [Note: Allpage and line numbers in this document refer to the House Agriculture Committee

3 bill.]

4 [Explanation: To address concerns regarding the application ofthe Core Principle on position

5 limits for SEFs in the context of voice brokerage, the amendments below would clarify that:

6 1) the requirement to adopt position limits or accountability applies only if the SEF is a trading

7 facility and only to positions in contracts listedfor trading on the facility; 2) where the CFTC or

8 SEC has set a position limit, the SEF need not do so (unless it elects to set a lower limit), and

9 need only monitor trading for compliance with all applicable limits; and 3) a SEF may delegate

10 its functions with respect to position limits to a CFTC-regulated derivatives clearing

11 organization (or, for security-based swaps, to an SEC-regulated clearing agency.]

12

13 (a) On page 77, strike lines 4-19 and insert the following;

14
15 "(6) POSITION LIMITS OR ACCOUNTABILITY.-

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

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

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

19 is a trading facility shall adopt for each of its contracts listed for trading on the

20 trading facility, where necessary and appropriate, position limitations or position

21 accountability for speculators who establish positions in such contract.

22 "(B) For any contract of a swap execution facility that is subject to a

23 position limitation established by the Commission pursuant to section 4a(a), the

24 swap execution facility-

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 1 "(i) may set a position limitation at a level that is lower than the

2 Commission limitation; and

3 "(ii) shall monitor positions established on or through the swap

4 execution facility for compliance with the limit set by the Commission and

5 the limit, if any, set by the swap execution facility.".

7 (b) On pages 100-101-

8 (1) On page 100, line 11 and page 101, line 11, redesignate subsections (b) and (c) as

9 subsections (c) and (d), respectively; and

10 (2) On page 100, line 10, insert after subsection (a) the following:

11 "(b) Section 5c(b) of such Act (7 U.S.C. 7a-2(b)) is amended in paragraphs (1), (2), and

12 (3) by inserting "or swap execution facility" after "contract market" each place that it

13 appears.".

14

15

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 1 DELETION OF CONFIRMATION FACILITY FROM

2 DEFINITION OF SWAP EXECUTION FACILITY

4 [Explanation: The amendment below would delete the term "confirmation facility" from the

5 definition ofa swap execution facility. The term is undefined, and is extremely vague. Further,

6 the Administration's proposal contemplated that a swap execution facility shouldplay some role

7 in executing or facilitating the execution ofswaps. A facility that serves simply to confirm that a

8 swap has been executed would not fit this concept.]

10 On page 21, line 13, strike "or confirmation facility".

11

12

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 1 RELATION TO OTHER LAW, DEPARTMENTS, OR AGENCIES

2 [Explanation: Thefirst set ofamendments below would amend CEA Section 12(e), which

3 provides for preemption ofState law, by: 1) making certain necessary conforming amendments;

4 and 2) providing that swaps may not be regulated as insurance contracts under State law.

5 Separately, a further amendment is needed to the exclusive jurisdiction provisions in CEA

6 Section 2(a)(1)(A) - to delete the existing reference to a derivatives transaction execution facility

7 and replace it with a reference to a swap execution facility instead, as reflected in the second set

8 ofamendments below.]

10 Section 12 of the Commodity Exchange Act (7 U.S.C. 16) is amended-

11 (a) in subsection (e)(I)(B) by inserting "or (3)" after "paragraph (2)"; and

12 (b) in subsection (e)(2) by striking subparagraphs (A) and (B) and inserting the following:

13 "(A) a swap; and

14 "(B) an agreement, contract, or transaction that is excluded from this Act under

15 section 2(c) or 2( f) of this Act or title IV of the Commodity Futures Modernization Act of

16 2000, or exempted under section 4(c) of this Act (regardless of whether any such

17 agreement, contract, or transaction is otherwise subject to this Act).

18 "(3) A swap may not be regulated as an insurance contract under State law.".

19

20 On page 22 of the House Agriculture Committee bill-

21 (a) in line 9, strike "and";

22 (b) in line 11, strike the period and insert"; and"; and

23 (c) after line 11, insert the following:

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1 (3) by striking "derivatives transaction execution facility" and inserting "swap

2 execution facility"; and

3 (4) by striking "5a" and inserting "5h".

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 1 BACK OFFICE STANDARDS

3 [Explanation: It does not appear that the reference to "back office" standards in the provisions

4 ofthe legislation regarding swap dealers and major swap participants adds to the list of

5 activities that are specifically identified therein (confirmation, processing, netting,

6 documentation, and valuation ofswaps or security-based swaps). Accordingly, the first set of

7 amendments below would delete the term from these provisions, and clarify that the standards

8 shall apply to the specifically enumerated activities. Alternatively, this subsection could be

9 deleted and its substance moved into the subsection regarding business conduct standards, as

10 reflected in the second set ofamendments belowJ

11

12 First Alternative:

13 (a) On page 69, line 16, strike "AND BACK OFFICE";

14

15 (b) On page 70, line 3, strike "documentation and back office standards" and insert "the

16 standards described in paragraph (1).";

17
18 (c) On page 182, line 1, strike "AND BACK OFFICE"; and

19
20 (d) On page 182, lines 14-15, strike "documentation and back office standards" and insert

21 "the standards described in paragraph (1).".

22
23 Second Alternative:

24

25 (a) On page 68, line 2, strike "and";

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 1

2 (b) On page 68, after line 2, insert the following:

3
4 "(D) timely and accurate confirmation, processing, netting, documentation, and

5 valuation of all swaps.";

7 (c) On page 68, line 3, strike "(D)" and insert "(E)";

9 (d) On page 69, strike line 16 through page 70, line 4;

10
11 (e) On page 70, line 5, strike "(i) and insert "(h)";

12
13 (f) On page 180, line 4, strike "and";

14

15 (g) On page 180, after line 4, insert the following:

16
17 "(D) timely and accurate confirmation, processing, netting, documentation, and

18 valuation of all security-based swaps.";

19

20 (h) On page 180, line 5, strike "(D)" and insert "(E)";

21

22 (i) On page 182, strike lines 1-16;

23
24 0) On page 182, line 17, strike "(i) and insert "(h)"; and

25
26 (k) On page 185, lines 3 and 16, strike "0)" and "(k)" and insert "(i)" and "0)", respectively.

27
7

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 1 UNCONDITIONAL REGISTRATION EXEMPTIONS FOR CLEARINGHOUSES

2 [Explanation: The amendments below are designed to: 1) make the unconditional exemptions

3 applicable to registered DCOs and securities clearing agencies parallel to one another; and

4 2) eliminate the needfor the CFTC and SEC to assess each other's regulatory programs

5 relating to clearing.

6 (1) The House Agriculture Bill provides that a securities clearing agency is

7 unconditionally exempt from DCO registration "under this section." Because the referenced

8 section is the general registration requirement for DCOs, the effect would be to permit a

9 securities clearing agency to clear any swap (including non-security related swaps such as

10 agricultural and energy swaps) - and any futures contract - without obtaining a DCO license.]

11 The amendments below would narrow this exemption to swaps on broad-based security indices.

12 (2) The bill also gives the CFTC and SEC the authority to override this unconditional

13 exemption if the agency finds that the clearinghouse is not subject to "comparable,

14 comprehensive supervision and regulation" by the other agency. An independentfederal agency

15 should not be placed in the position ofpassingjudgment on the adequacy ofanother agency's

16 program. Accordingly, the amendments below would delete these provisions.]

17

18 (a) On page 36, line 12, strike "under this section," and all that follows through line 16 and

19 insert the following:

20

21

1 Because the comparable exemption for DCOs is not placed in the general clearinghouse registration provision of
the securities laws but rather in the new provision for clearing security-based swaps, it is not clear that a similar
amendment is necessary on the securities side of the bill. Nevertheless, for purposes of clarity and parallelism, the
amendments below also would modify that provision.

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1 "solely for the purpose of clearing swaps on a security index that is not a narrow-

2 based security index."

4 (b) On page 150, strike lines 4-8 and insert the following:

5 "solely for the purpose of clearing security-based swaps."

6
7

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 1 AMENDMENT TO DEFINITION OF "SWAP DEALER"

2 [Explanation: The "purchase and resale to customers" wording of the "swap dealer" definition

3 in the House Agriculture Committee may not work well in the swaps context. The amendment

4 below is intended to be technical, not substantive, and to more accurately capture the concept of

5 being willing to accept either side ofa swap transaction. A parallel amendment is providedfor

6 the securities side with respect to security-based swap dealers.]

8 On page 16, strike lines 21-23 and insert the following:

9 "(C) regularly accepts either side of a swap; or".

10

11 On page 126, strike lines 11-13, and insert the following:

12 "(C) regularly accepts either side of a security-based swap; or".

13

10

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