§23.401. Definitions. — Inbound Citations

(8) mean the requirements set forth in §§ 23.400 through 23.451 and 23.700 through 23.704.

(A) (1) Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction;

(2) Requires that loss to occur and to be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest;

(3) Is not traded, separately from the insured interest, on an organized market or over-the-counter; and

(4) With respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer; and

(d) A swap entity may rely on written representations of a counterparty to satisfy the requirements of this section as provided in § 23.402(d). A swap entity will have a reasonable basis to rely on such written representations for purposes of the requirements in paragraphs (a) and (b) of this section if the counterparty specifies in such representations the provision(s) of section 1a(18) of the Act or paragraph(s) of § 1.3 of this chapter that describe its status as an eligible contract participant and, in the case of a Special Entity, the paragraph(s) of the Special Entity definition in § 23.401(h) that define its status as a Special Entity.

(vii) In the case of a Special Entity, as defined in § 23.401(h)(2) or (4), is subject to restrictions on certain political contributions imposed by the Commission, the Securities and Exchange Commission, or a self-regulatory organization subject to the jurisdiction of the Commission or the Securities and Exchange Commission; provided however, that this paragraph (b)(1)(vii) shall not apply if the representative is an employee of the Special Entity.

(3) The term “governmental Special Entity” means any Special Entity defined in § 23.401(h)(2) or (4).

(1) With respect to a Special Entity that is an employee benefit plan as defined in § 23.401(h)(3):

(i) The Special Entity represents in writing that it has a fiduciary as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) that is responsible for representing the Special Entity in connection with the swap transaction;

(ii) The fiduciary represents in writing that it will not rely on recommendations provided by the swap dealer; and

(A) That it will comply in good faith with written policies and procedures reasonably designed to ensure that any recommendation the Special Entity receives from the swap dealer materially affecting a swap transaction is evaluated by a fiduciary before the transaction occurs; or

(B) That any recommendation the Special Entity receives from the swap dealer materially affecting a swap transaction will be evaluated by a fiduciary before that transaction occurs; or

(1) Any swap entity that offers to enter or enters into a swap with a Special Entity, other than a Special Entity defined in § 23.401(h)(3), shall have a reasonable basis to believe that the Special Entity has a 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 entity;

(iv) Undertakes a duty to act in the best interests of the Special Entity it represents;

(v) Makes appropriate and timely disclosures to the Special Entity;

(vi) Evaluates, consistent with any guidelines provided by the Special Entity, fair pricing and the appropriateness of the swap; and

(vii) In the case of a Special Entity, as defined in § 23.401(h)(2) or (4), is subject to restrictions on certain political contributions imposed by the Commission, the Securities and Exchange Commission, or a self-regulatory organization subject to the jurisdiction of the Commission or the Securities and Exchange Commission; provided however, that this paragraph (b)(1)(vii) shall not apply if the representative is an employee of the Special Entity.

(vii) In the case of a Special Entity, as defined in § 23.401(h)(2) or (4), is subject to restrictions on certain political contributions imposed by the Commission, the Securities and Exchange Commission, or a self-regulatory organization subject to the jurisdiction of the Commission or the Securities and Exchange Commission; provided however, that this paragraph (b)(1)(vii) shall not apply if the representative is an employee of the Special Entity.

(3) The term “governmental Special Entity” means any Special Entity defined in § 23.401(h)(2) or (4).

(c) In verifying the eligibility of a counterparty pursuant to paragraph (a) of this section, a swap entity shall verify whether a counterparty is eligible to elect to be a Special Entity under § 23.401(h)(6) and, if so, notify such counterparty of its right to make such an election.

(iii) An ITBC Swap as defined in § 23.401(d).

(d) A swap entity may rely on written representations of a counterparty to satisfy the requirements of this section as provided in § 23.402(d). A swap entity will have a reasonable basis to rely on such written representations for purposes of the requirements in paragraphs (a) and (b) of this section if the counterparty specifies in such representations the provision(s) of section 1a(18) of the Act or paragraph(s) of § 1.3 of this chapter that describe its status as an eligible contract participant and, in the case of a Special Entity, the paragraph(s) of the Special Entity definition in § 23.401(h) that define its status as a Special Entity.

(vii) In the case of a Special Entity, as defined in § 23.401(h)(2) or (4), is subject to restrictions on certain political contributions imposed by the Commission, the Securities and Exchange Commission, or a self-regulatory organization subject to the jurisdiction of the Commission or the Securities and Exchange Commission; provided however, that this paragraph (b)(1)(vii) shall not apply if the representative is an employee of the Special Entity.

(3) The term “governmental Special Entity” means any Special Entity defined in § 23.401(h)(2) or (4).

(1) With respect to a Special Entity that is an employee benefit plan as defined in § 23.401(h)(3):

(i) The Special Entity represents in writing that it has a fiduciary as defined in section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) that is responsible for representing the Special Entity in connection with the swap transaction;

(ii) The fiduciary represents in writing that it will not rely on recommendations provided by the swap dealer; and

(A) That it will comply in good faith with written policies and procedures reasonably designed to ensure that any recommendation the Special Entity receives from the swap dealer materially affecting a swap transaction is evaluated by a fiduciary before the transaction occurs; or

(B) That any recommendation the Special Entity receives from the swap dealer materially affecting a swap transaction will be evaluated by a fiduciary before that transaction occurs; or

(1) Any swap entity that offers to enter or enters into a swap with a Special Entity, other than a Special Entity defined in § 23.401(h)(3), shall have a reasonable basis to believe that the Special Entity has a 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 entity;

(iv) Undertakes a duty to act in the best interests of the Special Entity it represents;

(v) Makes appropriate and timely disclosures to the Special Entity;

(vi) Evaluates, consistent with any guidelines provided by the Special Entity, fair pricing and the appropriateness of the swap; and

(vii) In the case of a Special Entity, as defined in § 23.401(h)(2) or (4), is subject to restrictions on certain political contributions imposed by the Commission, the Securities and Exchange Commission, or a self-regulatory organization subject to the jurisdiction of the Commission or the Securities and Exchange Commission; provided however, that this paragraph (b)(1)(vii) shall not apply if the representative is an employee of the Special Entity.

(vii) In the case of a Special Entity, as defined in § 23.401(h)(2) or (4), is subject to restrictions on certain political contributions imposed by the Commission, the Securities and Exchange Commission, or a self-regulatory organization subject to the jurisdiction of the Commission or the Securities and Exchange Commission; provided however, that this paragraph (b)(1)(vii) shall not apply if the representative is an employee of the Special Entity.

(3) The term “governmental Special Entity” means any Special Entity defined in § 23.401(h)(2) or (4).

(c) In verifying the eligibility of a counterparty pursuant to paragraph (a) of this section, a swap entity shall verify whether a counterparty is eligible to elect to be a Special Entity under § 23.401(h)(6) and, if so, notify such counterparty of its right to make such an election.