(b)
Requirements
(1)
In general
A person shall register as a swap dealer or major swap participant by filing a registration application with the Commission.
(2)
Contents
(A)
In general
The application shall be made in such form and manner as prescribed by the Commission, and shall contain such information, as the Commission considers necessary concerning the business in which the applicant is or will be engaged.
(B)
Continual reporting
A person that is registered as a swap dealer or major swap participant shall continue to submit to the Commission reports that contain such information pertaining to the business of the person as the Commission may require.
(3)
Expiration
Each registration under this section shall expire at such time as the Commission may prescribe by rule or regulation.
(4)
Rules
Except as provided in subsections (d) and (e), the Commission may prescribe rules applicable to swap dealers and major swap participants, including rules that limit the activities of swap dealers and major swap participants.
(5)
Transition
Rules under this section shall provide for the registration of swap dealers and major swap participants not later than 1 year after July 21, 2010.
(6)
Statutory disqualification
Except to the extent otherwise specifically provided by rule, regulation, or order, it shall be unlawful for a swap dealer or a major swap participant to permit any person associated with a swap dealer or a major swap participant who is subject to a statutory disqualification to effect or be involved in effecting swaps on behalf of the swap dealer or major swap participant, if the swap dealer or major swap participant knew, or in the exercise of reasonable care should have known, of the statutory disqualification.
(g)
Daily trading records
(1)
In general
Each registered swap dealer and major swap participant shall maintain daily trading records of the swaps of the registered swap dealer and major swap participant and all related records (including related cash or forward transactions) and recorded communications, including electronic mail, instant messages, and recordings of telephone calls, for such period as may be required by the Commission by rule or regulation.
(2)
Information requirements
The daily trading records shall include such information as the Commission shall require by rule or regulation.
(3)
Counterparty records
Each registered swap dealer and major swap participant shall maintain daily trading records for each counterparty in a manner and form that is identifiable with each swap transaction.
(4)
Audit trail
Each registered swap dealer and major swap participant shall maintain a complete audit trail for conducting comprehensive and accurate trade reconstructions.
(5)
Rules
The Commission shall adopt rules governing daily trading records for swap dealers and major swap participants.
(h)
Business conduct standards
(1)
In general
Each registered swap dealer and major swap participant shall conform with such business conduct standards as prescribed in paragraph (3) and as may be prescribed by the Commission by rule or regulation that relate to—
(A)
fraud, manipulation, and other abusive practices involving swaps (including swaps that are offered but not entered into);
(B)
diligent supervision of the business of the registered swap dealer and major swap participant;
(C)
adherence to all applicable position limits; and
(D)
such other matters as the Commission determines to be appropriate.
(2)
Responsibilities with respect to special entities
(A)
Advising special entities
A swap dealer or major swap participant that acts as an advisor to a special entity regarding a swap shall comply with the requirements of subparagraph (4) with respect to such Special Entity.
(B)
Entering of swaps with respect to special entities
A swap dealer that enters into or offers to enter into swap with a Special Entity shall comply with the requirements of subparagraph (5) with respect to such Special Entity.
(C)
Special entity defined
For purposes of this subsection, the term “special entity” means—
(ii)
a State, State agency, city, county, municipality, or other political subdivision of a State;
(iii)
any employee benefit plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002);
(iv)
any governmental plan, as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002); or
(v)
any endowment, including an endowment that is an organization described in section
501
(c)(3) of title
26.
(3)
Business conduct requirements
Business conduct requirements adopted by the Commission shall—
(A)
establish a duty for a swap dealer or major swap participant to verify that any counterparty meets the eligibility standards for an eligible contract participant;
(B)
require disclosure by the swap dealer or major swap participant to any counterparty to the transaction (other than a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant) of—
(i)
information about the material risks and characteristics of the swap;
(ii)
any material incentives or conflicts of interest that the swap dealer or major swap participant may have in connection with the swap; and
(iii)
(I)
for cleared swaps, upon the request of the counterparty, receipt of the daily mark of the transaction from the appropriate derivatives clearing organization; and
(II)
for uncleared swaps, receipt of the daily mark of the transaction from the swap dealer or the major swap participant;
(C)
establish a duty for a swap dealer or major swap participant to communicate in a fair and balanced manner based on principles of fair dealing and good faith; and
(D)
establish such other standards and requirements as the Commission may determine are appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter.
(4)
Special requirements for swap dealers acting as advisors
(A)
In general
It shall be unlawful for a swap dealer or major swap participant—
(i)
to employ any device, scheme, or artifice to defraud any Special Entity or prospective customer who is a Special Entity;
(ii)
to engage in any transaction, practice, or course of business that operates as a fraud or deceit on any Special Entity or prospective customer who is a Special Entity; or
(iii)
to engage in any act, practice, or course of business that is fraudulent, deceptive or manipulative.
(B)
Duty
Any swap dealer that acts as an advisor to a Special Entity shall have a duty to act in the best interests of the Special Entity.
(C)
Reasonable efforts
Any swap dealer that acts as an advisor to a Special Entity shall make reasonable efforts to obtain such information as is necessary to make a reasonable determination that any swap recommended by the swap dealer is in the best interests of the Special Entity, including information relating to—
(i)
the financial status of the Special Entity;
(ii)
the tax status of the Special Entity;
(iii)
the investment or financing objectives of the Special Entity; and
(iv)
any other information that the Commission may prescribe by rule or regulation.
(5)
Special requirements for swap dealers as counterparties to special entities
(A)
Any swap dealer or major swap participant that offers to enter or enters into a swap with a Special Entity shall—
(i)
comply with any duty established by the Commission for a swap dealer or major swap participant, with respect to a counterparty that is an eligible contract participant within the meaning of subclause (I) or (II) of clause (vii) of section
1a
(18) of this title, that requires the swap dealer or major swap participant to have a reasonable basis to believe that the counterparty that is a Special Entity has an independent representative that—
(I)
has sufficient knowledge to evaluate the transaction and risks;
(II)
is not subject to a statutory disqualification;
(III)
is independent of the swap dealer or major swap participant;
(IV)
undertakes a duty to act in the best interests of the counterparty it represents;
(V)
makes appropriate disclosures;
(VI)
will provide written representations to the Special Entity regarding fair pricing and the appropriateness of the transaction; and
(VII)
in the case of employee benefit plans subject to the Employee Retirement Income Security act of 1974 [29 U.S.C. 1001 et seq.], is a fiduciary as defined in section 3 of that Act (29 U.S.C. 1002); and
(ii)
before the initiation of the transaction, disclose to the Special Entity in writing the capacity in which the swap dealer is acting; and
(B)
the Commission may establish such other standards and requirements as the Commission may determine are appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this chapter.
(6)
Rules
The Commission shall prescribe rules under this subsection governing business conduct standards for swap dealers and major swap participants.
(7)
Applicability
This section shall not apply with respect to a transaction that is—
(A)
initiated by a Special Entity on an exchange or swap execution facility; and
(B)
one in which the swap dealer or major swap participant does not know the identity of the counterparty to the transaction.
(i)
Documentation standards
(1)
In general
Each registered swap dealer and major swap participant shall conform with such standards as may be prescribed by the Commission by rule or regulation that relate to timely and accurate confirmation, processing, netting, documentation, and valuation of all swaps.
(2)
Rules
The Commission shall adopt rules governing documentation standards for swap dealers and major swap participants.
(j)
Duties
Each registered swap dealer and major swap participant at all times shall comply with the following requirements:
(1)
Monitoring of trading
The swap dealer or major swap participant shall monitor its trading in swaps to prevent violations of applicable position limits.
(2)
Risk management procedures
The swap dealer or major swap participant shall establish robust and professional risk management systems adequate for managing the day-to-day business of the swap dealer or major swap participant.
(3)
Disclosure of general information
The swap dealer or major swap participant shall disclose to the Commission and to the prudential regulator for the swap dealer or major swap participant, as applicable, information concerning—
(A)
terms and conditions of its swaps;
(B)
swap trading operations, mechanisms, and practices;
(C)
financial integrity protections relating to swaps; and
(D)
other information relevant to its trading in swaps.
(4)
Ability to obtain information
The swap dealer or major swap participant shall—
(A)
establish and enforce internal systems and procedures to obtain any necessary information to perform any of the functions described in this section; and
(B)
provide the information to the Commission and to the prudential regulator for the swap dealer or major swap participant, as applicable, on request.
(5)
Conflicts of interest
The swap dealer and major swap participant shall implement conflict-of-interest systems and procedures that—
(A)
establish structural and institutional safeguards to ensure that the activities of any person within the firm relating to research or analysis of the price or market for any commodity or swap or acting in a role of providing clearing activities or making determinations as to accepting clearing customers are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of persons whose involvement in pricing, trading, or clearing activities might potentially bias their judgment or supervision and contravene the core principles of open access and the business conduct standards described in this chapter; and
(B)
address such other issues as the Commission determines to be appropriate.
(6)
Antitrust considerations
Unless necessary or appropriate to achieve the purposes of this chapter, a swap dealer or major swap participant shall not—
(A)
adopt any process or take any action that results in any unreasonable restraint of trade; or
(B)
impose any material anticompetitive burden on trading or clearing.
(7)
Rules
The Commission shall prescribe rules under this subsection governing duties of swap dealers and major swap participants.
(l)
Segregation requirements
(1)
Segregation of assets held as collateral in uncleared swap transactions
(A)
Notification
A swap dealer or major swap participant shall be required to notify the counterparty of the swap dealer or major swap participant at the beginning of a swap transaction that the counterparty has the right to require segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty.
(B)
Segregation and maintenance of funds
At the request of a counterparty to a swap that provides funds or other property to a swap dealer or major swap participant to margin, guarantee, or secure the obligations of the counterparty, the swap dealer or major swap participant shall—
(i)
segregate the funds or other property for the benefit of the counterparty; and
(ii)
in accordance with such rules and regulations as the Commission may promulgate, maintain the funds or other property in a segregated account separate from the assets and other interests of the swap dealer or major swap participant.
(2)
Applicability
The requirements described in paragraph (1) shall—
(A)
apply only to a swap between a counterparty and a swap dealer or major swap participant that is not submitted for clearing to a derivatives clearing organization; and
(B)
(i)
not apply to variation margin payments; or
(ii)
not preclude any commercial arrangement regarding—
(I)
the investment of segregated funds or other property that may only be invested in such investments as the Commission may permit by rule or regulation; and
(II)
the related allocation of gains and losses resulting from any investment of the segregated funds or other property.
(3)
Use of independent third-party custodians
The segregated account described in paragraph (1) shall be—
(A)
carried by an independent third-party custodian; and
(B)
designated as a segregated account for and on behalf of the counterparty.
(4)
Reporting requirement
If the counterparty does not choose to require segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty, the swap dealer or major swap participant shall report to the counterparty of the swap dealer or major swap participant on a quarterly basis that the back office procedures of the swap dealer or major swap participant relating to margin and collateral requirements are in compliance with the agreement of the counterparties.