H.R. 4413 — what changed

changed This Act may be cited as the “Customer Protection and End User End-User Relief Act”.

“(2) Any rules or regulations requiring a futures commission merchant to maintain a residual interest in accounts held for the benefit of customers in amounts at least sufficient to exceed the sum of all uncollected margin deficits of such customers shall provide that a futures commission merchant shall meet its residual interest requirement as of the end of each business day calculated as of the close of business on the previous business day.”

Section 20(a) of the Commodity Exchange Act (7 U.S.C. 24(a)) is amended—

changed “(6) that cash, securities, or other property of the estate of a commodity broker, including the trading or operating accounts of the commodities commodity broker and commodities held in inventory by the commodity broker, shall be included in customer property, subject to any otherwise unavoidable security interest, or otherwise unavoidable contractual offset or netting rights of creditors (including rights set forth in a rule or bylaw of a derivatives clearing organization or a clearing agency) in respect of such property, but only to the extent that the property that is otherwise customer property is insufficient to satisfy the net equity claims of public customers (as such term may be defined by the Commission by rule or regulation) of the commodity broker.”

changed Section 15(a) of the Commodity Exchange Act (7 U.S.C. 19(a)) is amended by striking paragraphs (1) and (2) and inserting the following:amended—

added “(1) In general—Before promulgating a regulation under this Act or issuing an order (except as provided in paragraph (3)), the Commission, through the Office of the Chief Economist, shall assess and publish in the regulation or order the costs and benefits, both qualitative and quantitative, of the proposed regulation or order, and the proposed regulation or order shall state its statutory justification.

added “(2) Considerations—In making a reasoned determination of the costs and the benefits, the Commission shall evaluate—

added “(A) considerations of protection of market participants and the public;

added “(B) considerations of the efficiency, competitiveness, and financial integrity of futures and swaps markets;

added “(C) considerations of the impact on market liquidity in the futures and swaps markets;

added “(D) considerations of price discovery;

added “(E) considerations of sound risk management practices;

added “(F) available alternatives to direct regulation;

added “(G) the degree and nature of the risks posed by various activities within the scope of its jurisdiction;

added “(H) the costs of complying with the proposed regulation or order by all regulated entities, including a methodology for quantifying the costs (recognizing that some costs are difficult to quantify);

added “(I) whether the proposed regulation or order is inconsistent, incompatible, or duplicative of other Federal regulations or orders;

added “(J) whether, in choosing among alternative regulatory approaches, those approaches maximize net benefits (including potential economic and other benefits, distributive impacts, and equity); and

added “(K) other public interest considerations.”

added “(4) Judicial review—Notwithstanding section 24(d), a court shall affirm a Commission assessment of costs and benefits under this subsection, unless the court finds the assessment to be an abuse of discretion.”

removed “(1) In general—Before promulgating a regulation under this Act or issuing an order (except as provided in paragraph (3)), the Commission, through the Office of the Chief Economist, shall assess and publish in the regulation or order the costs and benefits, both qualitative and quantitative, of the proposed regulation or order, and the proposed regulation or order shall state its statutory justification.

removed “(2) Considerations—In making a reasoned determination of the costs and the benefits, the Commission shall evaluate—

removed “(A) considerations of protection of market participants and the public;

removed “(B) considerations of the efficiency, competitiveness, and financial integrity of futures and swaps markets;

removed “(C) considerations of the impact on market liquidity in the futures and swaps markets;

removed “(D) considerations of price discovery;

removed “(E) considerations of sound risk management practices;

removed “(F) available alternatives to direct regulation;

removed “(G) the degree and nature of the risks posed by various activities within the scope of its jurisdiction;

removed “(H) the costs of complying with the proposed regulation or order by all regulated entities, including a methodology for quantifying the costs (recognizing that some costs are difficult to quantify);

removed “(I) whether the proposed regulation or order is inconsistent, incompatible, or duplicative of other Federal regulations or orders;

removed “(J) whether, in choosing among alternative regulatory approaches, those approaches maximize net benefits (including potential economic and other benefits, distributive impacts, and equity); and

removed “(K) other public interest considerations.”

“(17) Office of the chief economist

“(A) Establishment—There is established in the Commission the Office of the Chief Economist.

“(B) Head—The Office of the Chief Economist shall be headed by the Chief Economist, who shall be appointed by the Commission and serve at the pleasure of the Commission.

“(C) Functions—The Chief Economist shall report directly to the Commission and perform such functions and duties as the Commission may prescribe.

changed “(D) Professional staff—The Commission shall appoint such other economists as may be necessary to assist the Chief Economist in performing such economic analysis, regulatory cost-benefit analysis, or research as the Commission may direct.”

Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)) is amended—

“(12) Rules and regulations

“(A) In general—Subject to the other provisions of this paragraph, the”

changed “(B) Notice to commissioncommission—The Commission shall develop and publish internal procedures governing the issuance by any division or office of the Commission of any response to a formal, written request or petition from any member of the public for an exemptive, a no-action, or an interpretive letter and such procedures shall provide that the Commission be provided with the final version of the matter to be issued with sufficient notice to thoroughly review the matter prior to its issuance.”

removed “(i) General rule—A division or office of the Commission may not issue an interpretive rule of general applicability, a statement of general policy, a response to a formal, written request or petition from any member of the public for guidance, or an exemptive, a no-action, or an interpretive letter, unless, at least 7 calendar days before the issuance, the division or office has provided the Commission with a copy of the matter to be issued.

removed “(ii) Opportunity for meeting required—After receiving a copy of the matter provided in accordance with clause (i), any member of the Commission may request that the Commission hold a meeting to review the matter, and the Chairman shall immediately put any such request for a meeting before the Commission, and if the Commission decides to hold the meeting by a majority vote, the matter may not be issued until the Commission has concluded the meeting.

removed “(iii) Limitations on applicability—By a majority vote, the Commission may waive the 7-day prior notice requirement of clause (i) when the Commission finds that requiring such a notice would be impracticable, unnecessary, or contrary to the public interest.”

Section 2(a) of the Commodity Exchange Act (7 U.S.C. 2(a)), as amended by section 204(a) of this Act, is amended by adding at the end the following:

“(18) Strategic technology plan

“(A) In general—Every 5 years, the Commission shall develop and submit to the Committee on Agriculture of the House of Representatives and the Committee on Agriculture, Nutrition, and Forestry of the Senate a detailed plan focused on the acquisition and use of technology by the Commission.

“(B) Contents—The plan shall—

changed “(i) include for each related division or office a detailed technology strategy focused exclusively on market surveillance and risk detection, market data collection, aggregation, interpretation, standardization, harmonization, streamlining, normalization, validation, streamlining or other data analytic processes, and internal management and protection of data collected by the Commission, including a detailed accounting of how the funds provided for technology will be used and the priorities that will apply in the use of the funds; and

“(ii) set forth annual goals to be accomplished and annual budgets needed to accomplish the goals.”

changed “(C) Internal risk controls—The Commission staff and Commission, in consultation with the Chief Economist Economist, shall develop comprehensive internal risk control mechanisms to safeguard and govern the storage of all market data by the Commission, all market data sharing agreements of the Commission, and all academic research performed at the Commission using market data.”

Section 6(c)(5) of the Commodity Exchange Act (7 U.S.C. 9(5)) is amended—

“(5) Subpoena

“(A) In general—For”

changed “(B) Content of subpoena order—An order of the Commission authorizing the issuance of a subpoena—subpoena in an investigation shall state in good faith—

changed “(i) shall state in good faith the legitimate purpose of the investigation;investigation; and

changed “(ii) shall require only the provision of information sought by any subpoena order that will be reasonably relevant to that purpose; andpurpose.

changed “(iii) “(C) Duration and renewal—An order issued under this paragraph shall not be for an indefinite duration.duration and may be renewed only by Commission action.”

removed “(C) Renewal—An order issued under this paragraph may be renewed only by Commission action.”

Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)), as amended by sections 206 and 208(a) of this Act, is amended by adding at the end the following:

changed “(E) “(D) Requirement to publish implementation plan for Commission rules—The Commission shall direct its staff to develop and publish in any proposed rule a plan for—

“(i) when and for how long the proposed rule will be subject to public comment; and

“(ii) by when compliance with the final rule will be required.”

Section 2(a)(12) of the Commodity Exchange Act (7 U.S.C. 2(a)(12)), as amended by sections 206, 208(a), and 210 of this Act, is amended by adding at the end the following:

changed “(F) “(E) Applicability of notice and comment rules to guidance voted on by the Commission—The notice and comment requirements of chapter 5 of title 5, United States Code, shall also apply with respect to any guidance issued by the Commission after being voted on by the Commission.”

The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended by adding at the end the following:

“24. Judicial review of commission rules

changed “(a) A person aggrieved adversely affected by a final rule of the Commission promulgated under this Act may obtain review of the rule in the United States Court of Appeals for the District of Columbia Circuit or the United States Court of Appeals for the circuit where the party resides, resides or has the principal place of business, by filing in the court, within 60 days after publication in the Federal Register of the entry of the rule, a written petition requesting that the rule be modified or set aside in whole or in part.aside.

“(b) A copy of the petition shall be transmitted forthwith by the clerk of the court to an officer designated by the Commission for that purpose. Thereupon the Commission shall file in the court the record on which the rule complained of is entered, as provided in section 2112 of title 28, United States Code, and the Federal Rules of Appellate Procedure.

changed “(c) On the filing of the petition, the court has jurisdiction, which becomes exclusive on the filing of the record, to affirm or modify and enforce or to set aside the rule in whole or in part.rule.

changed “(d) The findings of the Commission as to the facts identified by the Commission as the basis, in whole or in part, of the rule, if supported by substantial evidence, are conclusive. The court shall affirm and enforce the rule unless the Commission's action in promulgating the rule is found to be arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; or without observance of procedure required by law.law.”

removed “(e) If either party applies to the court for leave to adduce additional evidence and shows to the satisfaction of the court that the additional evidence is material and that there was reasonable ground for failure to adduce it before the Commission, the court may remand the case to the Commission for further proceedings, in whatever manner and on whatever conditions the court considers appropriate. If the case is remanded to the Commission, it shall file in the court a supplemental record containing any new evidence, any further or modified findings, and any new order.”

added “(4) Applicability with respect to counterparties—The requirements of paragraphs (2)(A)(ii) and (2)(B)(ii), including the initial and variation margin requirements imposed by rules adopted pursuant to paragraphs (2)(A)(ii) and (2)(B)(ii), shall not apply to a swap in which a counterparty qualifies for an exception under section 2(h)(7)(A), or an exemption issued under section 4(c)(1) from the requirements of section 2(h)(1)(A) for cooperative entities as defined in such exemption, or satisfies the criteria in section 2(h)(7)(D).”

added “(4) Applicability with respect to counterparties—The requirements of paragraphs (2)(A)(ii) and (2)(B)(ii) shall not apply to a security-based swap in which a counterparty qualifies for an exception under section 3C(g)(1) or satisfies the criteria in section 3C(g)(4).”

removed Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is amended by adding at the end the following new paragraph:

removed “(4) Applicability with respect to counterparties—The requirements of paragraphs (2)(A)(ii) and (2)(B)(ii), including the initial and variation margin requirements imposed by rules adopted pursuant to paragraphs (2)(A)(ii) and (2)(B)(ii), shall not apply to a swap in which a counterparty qualifies for an exception under section 2(h)(7)(A), or an exemption issued under section 4(c)(1) from the requirements of section 2(h)(1)(A) for cooperative entities as defined in such exemption, or satisfies the criteria in section 2(h)(7)(D).”

changed The amendment made to the Commodity Exchange Act by this subtitle shall be implemented—

added “(i) In general—An affiliate of a person that qualifies for an exception under subparagraph (A) (including affiliate entities predominantly engaged in providing financing for the purchase of the merchandise or manufactured goods of the person) may qualify for the exception only if the affiliate enters into the swap to hedge or mitigate the commercial risk of the person or other affiliate of the person that is not a financial entity, provided that if the transfer of commercial risk is addressed by entering into a swap with a swap dealer or major swap participant, an appropriate credit support measure or other mechanism is utilized.”

added “(A) In general—An affiliate of a person that qualifies for an exception under paragraph (1) (including affiliate entities predominantly engaged in providing financing for the purchase of the merchandise or manufactured goods of the person) may qualify for the exception only if the affiliate enters into the security-based swap to hedge or mitigate the commercial risk of the person or other affiliate of the person that is not a financial entity, provided that if the transfer of commercial risk is addressed by entering into a security-based swap with a security-based swap dealer or major security-based swap participant, an appropriate credit support measure or other mechanism is utilized.”

removed “(i) In general—An affiliate of a person that qualifies for an exception under subparagraph (A) (including affiliate entities predominantly engaged in providing financing for the purchase of the merchandise or manufactured goods of the person) may qualify for the exception only if the affiliate enters into the swap to hedge or mitigate the commercial risk of the person or other affiliate of the person that is not a financial entity, provided that if the transfer of commercial risk is addressed by entering into a swap with a swap dealer or major swap participant, a credit support measure or other mechanism is utilized.”

“(5) Confidentiality agreement—Before the Commission may share information with any entity described in paragraph (4), the Commission shall receive a written agreement from each entity stating that the entity shall abide by the confidentiality requirements described in section 8 relating to the information on swap transactions that is provided.”

“(d) Confidentiality agreement—Before the swap data repository may share information with any entity described in subsection (c)(7), the swap data repository shall receive a written agreement from each entity stating that the entity shall abide by the confidentiality requirements described in section 8 relating to the information on swap transactions that is provided.”

added “(H) Confidentiality agreement—Before the security-based swap data repository may share information with any entity described in subparagraph (G), the security-based swap data repository shall receive a written agreement from each entity stating that the entity shall abide by the confidentiality requirements described in section 24 relating to the information on security-based swap transactions that is provided.”

“(XXIII) a utility operations-related swap;”

“(52) Utility operations-related swap—The term utility operations-related swap means a swap that—

“(A) is entered into to hedge or mitigate a commercial risk;

“(B) is not a contract, agreement, or transaction based on, derived on, or referencing—

“(i) an interest rate, credit, equity, or currency asset class; or

“(ii) a metal, agricultural commodity, or crude oil or gasoline commodity of any grade, except as used as fuel for electric energy generation; and

“(C) is associated with—

“(i) the generation, production, purchase, or sale of natural gas or electric energy, the supply of natural gas or electric energy to a utility, or the delivery of natural gas or electric energy service to utility customers;

“(ii) all fuel supply for the facilities or operations of a utility;

“(iii) compliance with an electric system reliability obligation;

“(iv) compliance with an energy, energy efficiency, conservation, or renewable energy or environmental statute, regulation, or government order applicable to a utility; or

“(v) any other electric energy or natural gas swap to which a utility is a party.”

“(iii) Limitation—Such definition shall not include an entity—

“(I) whose primary business is providing financing, and who uses derivatives for the purpose of hedging underlying commercial risks related to interest rate and foreign currency exposures, 90 percent or more of which arise from financing that facilitates the purchase or lease of products, 90 percent or more of which are manufactured by the parent company or another subsidiary of the parent company; or

“(II) who is not supervised by a prudential regulator, and is not described in any of subclauses (I) through (VII) of clause (i), and—

“(aa) is a commercial market participant and is considered a financial entity under clause (i)(VIII) because the entity predominantly engages in physical delivery contracts; or

“(bb) enters into swaps, contracts for future delivery, and other derivatives on behalf of, or to hedge or mitigate the commercial risk of, whether directly or in the aggregate, affiliates that are not so supervised or described.”

“(7) Commercial market participant—The term commercial market participant means any producer, processor, merchant, or commercial user of an exempt or agricultural commodity, or the products or byproducts of such a commodity.”

Section 1a(47)(B)(ii) of the Commodity Exchange Act (7 U.S.C. 1a(47)(B)(ii)) is amended to read as follows:

changed “(ii) any purchase or sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled, including any stand-alone or embedded option for which—option—

changed “(I) for which exercise results in a physical delivery obligation;

changed “(II) that cannot be severed or marketed separately from the overall transaction for the purpose of financial settlement; and

changed “(III) for which both parties are commercial market participants.”participants;”

Section 1a(49)(D) of the Commodity Exchange Act (7 U.S.C. 1a(49)(D)) is amended—

“(D) De minimis exception

“(i) In general—The Commission”

changed “(ii) The Special rule—The de minimis quantity of swap dealing as described in clause (i) that is currently set at a quantity of $8,000,000,000 shall only be amended or reduced through a new affirmative action of the Commission undertaken by rule or regulation.”

removed Section 4s(e) of the Commodity Exchange Act (7 U.S.C. 6s(e)) is amended—

“(iii) Financial models—To the extent that swap dealers and major swap participants that are banks are permitted to use financial models approved by the prudential regulators or the Securities and Exchange Commission to calculate minimum capital requirements and minimum initial and variation margin requirements, including the use of non-cash collateral, the Commission shall, in consultation with the prudential regulators and the Securities and Exchange Commission, permit the use of comparable financial models by swap dealers and major swap participants that are not banks.”

added “(iii) Financial models—To the extent that security-based swap dealers and major security-based swap participants that are banks are permitted to use financial models approved by the prudential regulators or the Commodity Futures Trading Commission to calculate minimum capital requirements and minimum initial and variation margin requirements, including the use of non-cash collateral, the Commission shall, in consultation with the Commodity Futures Trading Commission, permit the use of comparable financial models by security-based swap dealers and major security-based swap participants that are not banks.”

changed The Except as otherwise provided in this title, the amendments made by this title shall take effect as if enacted on July 21, 2010.