(a) Transactions
to which this rule does not apply. The requirements of sections
237.3 through 237.8 and sections 237.10 through 237.12 shall not apply
to any foreign non-cleared swap or foreign non-cleared security-based
swap of a foreign covered swap entity.
(b) For purposes of
this section, a foreign non-cleared swap or foreign non-cleared security-based
swap is any non-cleared swap or non-cleared security-based swap with
respect to which neither the counterparty to the foreign covered swap
entity nor any party that provides a guarantee of either party’s obligations
under the non-cleared swap or non-cleared security-based swap is:
(1) An entity organized under
the laws of the United States or any State (including a U.S. branch,
agency, or subsidiary of a foreign bank) or a natural person who is
a resident of the United States;
(2) A branch or office of an entity organized under the laws of the
United States or any State; or
(3)
A swap entity that is a subsidiary of an entity that is organized
under the laws of the United States or any State.
(c) For purposes of this section, a foreign covered swap entity is
any covered swap entity that is not:
(1) An entity organized under the laws
of the United States or any State, including a U.S. branch, agency,
or subsidiary of a foreign bank;
(2) A branch or office of an entity organized under the laws of the
United States or any State; or
(3)
An entity that is a subsidiary of an entity that is organized under
the laws of the United States or any State.
(d) Transactions
for which substituted compliance determination may apply—
(1) Determinations
and reliance. For non-cleared swaps and non-cleared security-based
swaps entered into by covered swap entities described in paragraph
(d)(3) of this section, a covered swap entity may satisfy the provisions
of this subpart by complying with the foreign regulatory framework
for non-cleared swaps and non-cleared security-based swaps that the
prudential regulators jointly, conditionally or unconditionally, determine
by public order satisfy the corresponding requirements of sections
237.3 through 237.8 and sections 237.10 through 237.12.
(2) Standard. In determining whether to make a determination under paragraph (d)(1)
of this section, the prudential regulators will consider whether the
requirements of such foreign regulatory framework for non-cleared
swaps and non-cleared security-based swaps applicable to such covered
swap entities are comparable to the otherwise applicable requirements
of this subpart and appropriate for the safe and sound operation of
the covered swap entity, taking into account the risks associated
with non-cleared swaps and non-cleared security-based swaps.
(3) Covered swap
entities eligible for substituted compliance. A covered swap
entity may rely on a determination under paragraph (d)(1) of this
section only if:
(i) The covered swap entity’s obligations under the non-cleared swap
or non-cleared security-based swap do not have a guarantee from:
(A) An entity organized under the laws
of the United States or any State (other than a U.S. branch or agency
of a foreign bank) or a natural person who is a resident of the United
States; or
(B) A branch or office of
an entity organized under the laws of the United States or any State;
and
(ii) The covered
swap entity is:
(A) A
foreign covered swap entity;
(B) A
U.S. branch or agency of a foreign bank; or
(C) An entity that is not organized under
the laws of the United States or any State and is a subsidiary of
a depository institution, Edge corporation, or agreement corporation.
(4) Compliance with foreign margin collection requirement. A covered swap entity satisfies its requirement to post initial
margin under section 237.3(b) by posting to its counterparty initial
margin in the form and amount, and at such times, that its counterparty
is required to collect pursuant to a foreign regulatory framework,
provided that the counterparty is subject to the foreign regulatory
framework and the prudential regulators have made a determination
under paragraph (d)(1) of this section, unless otherwise stated in
that determination, and the counterparty’s obligations under the non-cleared
swap or non-cleared security-based swap do not have a guarantee from:
(i) An entity organized
under the laws of the United States or any State (including a U.S.
branch, agency, or subsidiary of a foreign bank) or a natural person
who is a resident of the United States; or
(ii) A branch or office of an entity
organized under the laws of the United States or any State.
(e) Requests for determinations.
(1) A covered swap entity
described in paragraph (d)(3) of this section may request that the
prudential regulators make a determination pursuant to this section.
A request for a determination must include a description of:
(i) The scope and objectives of
the foreign regulatory framework for non-cleared swaps and non-cleared
security-based swaps;
(ii) The
specific provisions of the foreign regulatory framework for non-cleared
swaps and non-cleared security-based swaps that govern:
(A) The scope of transactions covered;
(B) The determination of the amount of
initial margin and variation margin required and how that amount is
calculated;
(C) The timing of margin
requirements;
(D) Any documentation
requirements;
(E) The forms of eligible
collateral;
(F) Any segregation and
rehypothecation requirements; and
(G)
The approval process and standards for models used in calculating
initial margin and variation margin;
(iii) The supervisory compliance program
and enforcement authority exercised by a foreign financial regulatory
authority or authorities in such system to support its oversight of
the application of the non-cleared swap or non-cleared security-based
swap regulatory framework and how that framework applies to the non-cleared
swaps or non-cleared security-based swaps of the covered swap entity;
and
(iv) Any other descriptions
and documentation that the prudential regulators determine are appropriate.
(2) A covered swap entity
described in paragraph (d)(3) of this section may make a request under
this section only if the non-cleared swap or non-cleared security-based
swap activities of the covered swap entity are directly supervised
by the authorities administering the foreign regulatory framework
for non-cleared swaps and non-cleared security-based swaps.
(f) Segregation unavailable. Sections
237.3(b) and 237.7 do not apply to a non-cleared swap or non-cleared
security-based swap entered into by:
(1) A foreign branch of a covered swap
entity that is a depository institution; or
(2) A covered swap entity that is not organized
under the laws of the United States or any State and is a subsidiary
of a depository institution, Edge corporation, or agreement corporation,
if:
(i) Inherent
limitations in the legal or operational infrastructure in the foreign
jurisdiction make it impracticable for the covered swap entity and
the counterparty to post any form of eligible initial margin collateral
recognized pursuant to section 237.6(b) in compliance with the segregation
requirements of section 237.7;
(ii) The covered swap entity is subject to foreign regulatory restrictions
that require the covered swap entity to transact in the non-cleared
swap or non-cleared security-based swap with the counterparty through
an establishment within the foreign jurisdiction and do not accommodate
the posting of collateral for the non-cleared swap or non-cleared
security-based swap outside the jurisdiction;
(iii) The counterparty to the non-cleared
swap or non-cleared security-based swap is not, and the counterparty’s
obligations under the non-cleared swap or non-cleared security-based
swap do not have a guarantee from:
(A) An entity organized under the laws of
the United States or any State (including a U.S. branch, agency, or
subsidiary of a foreign bank) or a natural person who is a resident
of the United States; or
(B) A branch
or office of an entity organized under the laws of the United States
or any State;
(iv) The covered swap entity collects initial margin for the non-cleared
swap or non-cleared security-based swap in accordance with section
237.3(a) in the form of cash pursuant to section 237.6(b)(1), and
posts and collects variation margin in accordance with section 237.4(a)
in the form of cash pursuant to section 237.6(b)(1); and
(v) The Board provides the covered swap
entity with prior written approval for the covered swap entity’s reliance
on this paragraph (f) for the foreign jurisdiction.
(g) Guarantee means an arrangement pursuant to
which one party to a non-cleared swap or non-cleared security-based
swap has rights of recourse against a third-party guarantor, with
respect to its counterparty’s obligations under the non-cleared swap
or non-cleared security-based swap. For these purposes, a party to
a non-cleared swap or non-cleared security-based swap has rights of
recourse against a guarantor if the party has a conditional or unconditional
legally enforceable right to receive or otherwise collect, in whole
or in part, payments from the guarantor with respect to its counterparty’s
obligations under the non-cleared swap or non-cleared security-based
swap. In addition, any arrangement pursuant to which the guarantor
has a conditional or unconditional legally enforceable right to receive
or otherwise collect, in whole or in part, payments from any other
third party guarantor with respect to the counterparty’s obligations
under the non-cleared swap or non-cleared security-based swap, such
arrangement will be deemed a guarantee of the counterparty’s obligations
under the non-cleared swap or non-cleared security-based swap by the
other guarantor.
(h) (1)
A covered swap entity described in paragraphs (d)(3)(i) and (ii) of
this section is not subject to the requirements of section 237.3(a)
or section 237.11(a) for any non-cleared swap or non-cleared security-based
swap executed with an affiliate of the covered swap entity; and
(2) For purposes of paragraph (h)(1)
of this section, “affiliate” has the same meaning provided in 12 CFR
237.11(d).
