Margin and Capital Requirements for Covered Swap Entities

Published date07 November 2019
Citation84 FR 59970
Record Number2019-23541
SectionProposed rules
CourtFarm Credit Administration,Federal Housing Finance Agency,The Comptroller Of The Currency Office
Federal Register, Volume 84 Issue 216 (Thursday, November 7, 2019)
[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
                [Proposed Rules]
                [Pages 59970-59989]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-23541]
                ========================================================================
                Proposed Rules
                 Federal Register
                ________________________________________________________________________
                This section of the FEDERAL REGISTER contains notices to the public of
                the proposed issuance of rules and regulations. The purpose of these
                notices is to give interested persons an opportunity to participate in
                the rule making prior to the adoption of the final rules.
                ========================================================================
                Federal Register / Vol. 84, No. 216 / Thursday, November 7, 2019 /
                Proposed Rules
                [[Page 59970]]
                DEPARTMENT OF THE TREASURY
                Office of the Comptroller of the Currency
                12 CFR Part 45
                [Docket No. OCC-2019-0023]
                RIN 1557-AE69
                FEDERAL RESERVE SYSTEM
                12 CFR Part 237
                [Docket No. R-1682]
                RIN 7100-AF62
                FEDERAL DEPOSIT INSURANCE CORPORATION
                12 CFR Part 349
                RIN 3064-AF08
                FARM CREDIT ADMINISTRATION
                12 CFR Part 624
                RIN 3052-AD38
                FEDERAL HOUSING FINANCE AGENCY
                12 CFR Part 1221
                RIN 2590-AB03
                Margin and Capital Requirements for Covered Swap Entities
                AGENCY: Office of the Comptroller of the Currency, Treasury (OCC);
                Board of Governors of the Federal Reserve System (Board); Federal
                Deposit Insurance Corporation (FDIC); Farm Credit Administration (FCA);
                and the Federal Housing Finance Agency (FHFA).
                ACTION: Proposed rule and request for comment.
                -----------------------------------------------------------------------
                SUMMARY: The OCC, Board, FDIC, FCA, and FHFA (each, an agency, and
                collectively, the agencies) request comment on a proposed rule that
                would amend the agencies' regulations that require swap dealers and
                security-based swap dealers under the agencies' respective
                jurisdictions to exchange margin with their counterparties for swaps
                that are not centrally cleared (Swap Margin Rule). The Swap Margin Rule
                as adopted in 2015 takes effect under a phased compliance schedule
                spanning from 2016 through 2020, and the dealers covered by the rule
                continue to hold swaps in their portfolios that were entered into
                before the effective dates of the rule. Such swaps are grandfathered
                from the Swap Margin Rule's requirements until they expire according to
                their terms. The proposed rule would permit swaps entered into prior to
                an applicable compliance date (legacy swaps) to retain their legacy
                status in the event that they are amended to replace an interbank
                offered rate (IBOR) or other discontinued rate, repeal the inter-
                affiliate initial margin provisions, introduce an additional compliance
                date for initial margin requirements, clarify the point in time at
                which trading documentation must be in place, permit legacy swaps to
                retain their legacy status in the event that they are amended due to
                technical amendments, notional reductions, or portfolio compression
                exercises, and make technical changes to relocate the provision
                addressing amendments to legacy swaps that are made to comply with the
                Qualified Financial Contract Rules, as defined in the Supplementary
                Information section.
                DATES: Comments should be received on or before December 9, 2019.
                ADDRESSES: Interested parties are encouraged to submit written comments
                jointly to all of the agencies. Commenters are encouraged to use the
                title ``Margin and Capital Requirements for Covered Swap Entities'' to
                facilitate the organization and distribution of comments among the
                agencies.
                 OCC: You may submit comments to the OCC by any of the methods set
                forth below. Commenters are encouraged to submit comments through the
                Federal eRulemaking Portal or email, if possible. Please use the title
                ``Margin and Capital Requirements for Covered Swap Entities'' to
                facilitate the organization and distribution of the comments. You may
                submit comments by any of the following methods:
                 Federal eRulemaking Portal--Regulations.gov Classic or
                Regulations.gov Beta
                 Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
                ``Docket ID OCC-2019-0023'' in the Search Box and click ``Search.''
                Click on ``Comment Now'' to submit public comments. For help with
                submitting effective comments please click on ``View Commenter's
                Checklist.'' Click on the ``Help'' tab on the Regulations.gov home page
                to get information on using Regulations.gov, including instructions for
                submitting public comments.
                 Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
                ``Visit New Regulations.gov Site'' from the Regulations.gov classic
                homepage. Enter ``Docket ID OCC-2019-0023'' in the Search Box and click
                ``Search.'' Public comments can be submitted via the ``Comment'' box
                below the displayed document information or click on the document title
                and click the ``Comment'' box on the top-left side of the screen. For
                help with submitting effective comments please click on ``Commenter's
                Checklist.'' For assistance with the Regulations.gov Beta site please
                call (877) 378-5457 (toll free) or (703) 454-9859 Monday-Friday, 9
                a.m.-5 p.m. ET or email to [email protected].
                 Email: [email protected].
                 Mail: Chief Counsel's Office, Attention: Comment
                Processing, Office of the Comptroller of the Currency, 400 7th Street
                SW, Suite 3E-218, Washington, DC 20219.
                 Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
                Washington, DC 20219.
                 Fax: (571) 465-4326.
                 Instructions: You must include ``OCC'' as the agency name and
                ``Docket ID OCC-2019-0023'' in your comment. In general, the OCC will
                enter all comments received into the docket and publish the comments on
                the Regulations.gov website without change, including any business or
                personal information that you provide such as name and address
                information, email addresses, or phone numbers. Comments received,
                including attachments and other supporting materials, are part of the
                public record and subject to public disclosure. Do not include any
                information in your comment or supporting materials that you consider
                confidential or inappropriate for public disclosure.
                 You may review comments and other related materials that pertain to
                this
                [[Page 59971]]
                rulemaking action by any of the following methods:
                 Viewing Comments Electronically--Regulations.gov Classic
                or Regulations.gov Beta
                 Regulations.gov Classic: Go to https://www.regulations.gov/. Enter
                ``Docket ID OCC-2019-0023'' in the Search box and click ``Search.''
                Click on ``Open Docket Folder'' on the right side of the screen.
                Comments and supporting materials can be viewed and filtered by
                clicking on ``View all documents and comments in this docket'' and then
                using the filtering tools on the left side of the screen. Click on the
                ``Help'' tab on the Regulations.gov home page to get information on
                using Regulations.gov. The docket may be viewed after the close of the
                comment period in the same manner as during the comment period.
                 Regulations.gov Beta: Go to https://beta.regulations.gov/ or click
                ``Visit New Regulations.gov Site'' from the Regulations.gov classic
                homepage. Enter ``Docket ID OCC-2019-0023'' in the Search Box and click
                ``Search.'' Click on the ``Comments'' tab. Comments can be viewed and
                filtered by clicking on the ``Sort By'' drop-down on the right side of
                the screen or the ``Refine Results'' options on the left side of the
                screen. Supporting Materials can be viewed by clicking on the
                ``Documents'' tab and filtered by clicking on the ``Sort By'' drop-down
                on the right side of the screen or the ``Refine Results'' options on
                the left side of the screen. For assistance with the Regulations.gov
                Beta site please call (877)-378-5457 (toll free) or (703) 454-9859
                Monday-Friday, 9 a.m.-5 p.m. ET or email to
                [email protected].
                 The docket may be viewed after the close of the comment period in
                the same manner as during the comment period.
                 Viewing Comments Personally: You may personally inspect
                comments at the OCC, 400 7th Street SW, Washington, DC 20219. For
                security reasons, the OCC requires that visitors make an appointment to
                inspect comments. You may do so by calling (202) 649-6700 or, for
                persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon
                arrival, visitors will be required to present valid government-issued
                photo identification and submit to security screening in order to
                inspect comments.
                 Board: You may submit comments, identified by Docket No. R-1682 and
                RIN No. 7100-AF62, by any of the following methods:
                 Agency Website: http://www.federalreserve.gov. Follow the
                instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
                 Email: [email protected]. Include the
                docket number and RIN number in the subject line of the message.
                 Fax: (202) 452-3819.
                 Mail: Address to Ann E. Misback, Secretary, Board of
                Governors of the Federal Reserve System, 20th Street and Constitution
                Avenue NW, Washington, DC 20551.
                 All public comments are available from the Board's website at
                http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
                submitted, unless modified for technical reasons or to remove
                personally identifiable information at the commenter's request.
                Accordingly, comments will not be edited to remove any identifying or
                contact information. Public comments may also be viewed electronically
                or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006
                between 9:00 a.m. and 5:00 p.m. on weekdays.
                 FDIC: You may submit comments, identified by RIN 3064-AF08, by any
                of the following methods:
                 Agency Website: https://www.FDIC.gov/regulations/laws/federal.
                 Mail: Robert E. Feldman, Executive Secretary, Attention:
                Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
                Street NW, Washington, DC 20429.
                 Hand Delivered/Courier: The guard station at the rear of
                the 550 17th Street Building (located on F Street) on business days
                between 7:00 a.m. and 5:00 p.m.
                 Email: [email protected]. Comments submitted must include
                ``FDIC'' and ``RIN 3064-AF08--Margin Amendments'': Margin and Capital
                Requirements for Covered Swap Entities.'' Comments received will be
                posted without change to https://www.fdic.gov/regulations/laws/federal,
                including any personal information provided.
                 FCA: We offer a variety of methods for you to submit your comments.
                For accuracy and efficiency reasons, commenters are encouraged to
                submit comments by email or through the FCA's website. As facsimiles
                (fax) are difficult for us to process and achieve compliance with
                section 508 of the Rehabilitation Act, we are no longer accepting
                comments submitted by fax. Regardless of the method you use, please do
                not submit your comments multiple times via different methods. You may
                submit comments by any of the following methods:
                 Email: Send us an email at [email protected].
                 FCA Website: http://www.fca.gov. Click inside the ``I want
                to . . .'' field near the top of the page; select ``comment on a
                pending regulation'' from the dropdown menu; and click ``Go.'' This
                takes you to an electronic public comment form.
                 Federal eRulemaking Portal: http://www.regulations.gov.
                Follow the instructions for submitting comments.
                 Mail: Barry F. Mardock, Deputy Director, Office of
                Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
                McLean, VA 22102-5090.
                 You may review copies of all comments we receive at our office in
                McLean, Virginia or on our website at http://www.fca.gov. Once you are
                on the website, click inside the ``I want to . . .'' field near the top
                of the page; select ``find comments on a pending regulation'' from the
                dropdown menu; and click ``Go.'' This will take you to the Comment
                Letters page where you can select the regulation for which you would
                like to read the public comments. We will show your comments as
                submitted, including any supporting data provided, but for technical
                reasons we may omit items such as logos and special characters.
                Identifying information that you provide, such as phone numbers and
                addresses, will be publicly available. However, we will attempt to
                remove email addresses to help reduce internet spam.
                 FHFA: You may submit your written comments on the proposed
                rulemaking, identified by regulatory information number: (RIN) 2590-
                AB03, by any one of the following methods:
                 Agency Website: www.fhfa.gov/open-for-comment-or-input.
                 Federal eRulemaking Portal: http://www.regulations.gov.
                Follow the instructions for submitting comments. If you submit your
                comment to the Federal eRulemaking Portal, please also send it by email
                to FHFA at [email protected] to ensure timely receipt by the agency.
                Please include ``RIN 2590-AB03'' in the subject line of the message.
                 Hand Delivery/Courier: The hand delivery address is:
                Alfred M. Pollard, General Counsel, Attention: Comments/RIN 2590-AB03,
                Federal Housing Finance Agency, Constitution Center (OGC Eighth Floor),
                400 7th St. SW, Washington, DC 20219. Deliver the package to the
                Seventh Street entrance Guard Desk, First Floor, on business days
                between 9:00 a.m. and 5:00 p.m.
                 U.S. Mail, United Parcel Service, Federal Express, or
                Other Mail Service: The mailing address for comments is: Alfred M.
                Pollard, General Counsel, Attention: Comments/RIN 2590-AB03, Federal
                Housing Finance Agency, Constitution Center (OGC Eighth Floor), 400 7th
                St. SW, Washington, DC 20219.
                [[Page 59972]]
                Please note that all mail sent to FHFA via U.S. Mail is routed through
                a national irradiation facility, a process that may delay delivery by
                approximately two weeks.
                 All comments received by the deadline will be posted for public
                inspection without change, including any personal information you
                provide, such as your name, address, email address and telephone number
                on the FHFA website at http://www.fhfa.gov. In addition, copies of all
                comments received will be available for examination by the public
                through the electronic rulemaking docket for this proposed rule also
                located on the FHFA website.
                FOR FURTHER INFORMATION CONTACT:
                 OCC: Chris McBride, Director for Market Risk, Treasury and Market
                Risk Policy, (202) 649-6402, or Allison Hester-Haddad, Counsel, Chief
                Counsel's Office, (202) 649-5490, for persons who are deaf or hearing
                impaired, TTY (202) 649-5597, Office of the Comptroller of the
                Currency, 400 7th Street SW, Washington, DC 20219.
                 Board: Constance Horsley, Deputy Associate Director, (202) 452-
                5239, Lesley Chao, Lead Financial Institution Policy Analyst, (202)
                974-7063, or John Feid, Principal Economist, (202) 452-2385, Division
                of Supervision and Regulation; Patricia Yeh, Senior Counsel, (202) 452-
                3089, Jason Shafer, Senior Counsel, (202) 728-5811, or Justyna Bolter,
                Senior Attorney, (202) 452-2686, Legal Division; for users of
                Telecommunication Devices for the Deaf (TDD) only, contact 202-263-
                4869; Board of Governors of the Federal Reserve System, 20th and C
                Streets NW, Washington, DC 20551.
                 FDIC: Irina Leonova, Senior Policy Analyst, [email protected],
                Capital Markets Branch, Division of Risk Management Supervision, (202)
                898-3843; Thomas F. Hearn, Counsel, [email protected], Legal Division,
                Federal Deposit Insurance Corporation, 550 17th Street NW, Washington,
                DC 20429.
                 FCA: Jeremy R. Edelstein, Associate Director, Finance & Capital
                Market Team, Timothy T. Nerdahl, Senior Policy Analyst, Clayton D.
                Milburn, Senior Financial Analyst, Office of Regulatory Policy, (703)
                883-4414, TTY (703) 883-4056, or Richard A. Katz, Senior Counsel,
                Office of General Counsel, (703) 883-4020, TTY (703) 883-4056, Farm
                Credit Administration, 1501 Farm Credit Drive, McLean, VA 22102-5090.
                 FHFA: Christopher Vincent, Senior Financial Analyst, Office of
                Financial Analysis, Modeling & Simulations, (202) 649-3685,
                [email protected], or James P. Jordan, Associate General
                Counsel, Office of General Counsel, (202) 649-3075,
                [email protected], Federal Housing Finance Agency, Constitution
                Center, 400 7th St. SW, Washington, DC 20219. The telephone number for
                the Telecommunications Device for the Hearing Impaired is (800) 877-
                8339.
                SUPPLEMENTARY INFORMATION:
                I. Background on the Swap Margin Rule
                 The Dodd-Frank Wall Street Reform and Consumer Protection Act
                (Dodd-Frank Act) required the OCC, Board, FDIC, FCA, and FHFA (each, an
                agency, and collectively, the agencies) to jointly adopt rules that
                establish capital and margin requirements for swap entities that are
                prudentially regulated by one of the agencies (covered swap
                entities).\1\ These capital and margin requirements apply to swaps that
                are not cleared by a registered derivatives clearing organization or a
                registered clearing agency (non-cleared swaps).\2\ For the remainder of
                this preamble, the term ``non-cleared swaps'' refers to non-cleared
                swaps and non-cleared security-based swaps unless the context requires
                otherwise.
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                 \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
                Pub. L. 111-203, 124 Stat. 1376 (2010). See 7 U.S.C. 6s; 15 U.S.C.
                78o-10. Sections 731 and 764 of the Dodd-Frank Act added a new
                section 4s to the Commodity Exchange Act of 1936, as amended, and a
                new section, section 15F, to the Securities Exchange Act of 1934, as
                amended, respectively, which require registration with the Commodity
                Futures Trading Commission (CFTC) of swap dealers and major swap
                participants and the U.S. Securities and Exchange Commission (SEC)
                of security-based swap dealers and major security-based swap
                participants (each a swap entity and, collectively, swap entities).
                Section 1a(39) of the Commodity Exchange Act of 1936, as amended,
                defines the term ``prudential regulator'' for purposes of the margin
                requirements applicable to swap dealers, major swap participants,
                security-based swap dealers and major security-based swap
                participants. See 7 U.S.C. 1a(39).
                 \2\ A ``swap'' is defined in section 721 of the Dodd-Frank Act
                to include, among other things, an interest rate swap, commodity
                swap, equity swap, and credit default swap, and a security-based
                swap is defined in section 761 of the Dodd-Frank Act to include a
                swap based on a single security or loan or on a narrow-based
                security index. See 7 U.S.C. 1a(47); 15 U.S.C. 78c(a)(68).
                ---------------------------------------------------------------------------
                 The Basel Committee on Banking Supervision (BCBS) and the Board of
                the International Organization of Securities Commissions (IOSCO)
                established an international framework for margin requirements on non-
                cleared derivatives in September 2013 (BCBS/IOSCO framework).\3\
                Following the establishment of the BCBS/IOSCO framework, on November
                30, 2015, the agencies published regulations that require swap dealers
                and security-based swap dealers under the agencies' respective
                jurisdictions to exchange margin with their counterparties for swaps
                that are not centrally cleared (Swap Margin Rule or Rule), which
                includes many of the principles and other aspects of the BCBS/IOSCO
                framework.\4\ In particular, the Swap Margin Rule adopted the
                implementation schedule set forth in the BCBS/IOSCO framework,
                including the revised implementation schedule adopted on March 18,
                2015.\5\
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                 \3\ See BCBS and IOSCO ``Margin requirements for non-centrally
                cleared derivatives,'' (September 2013), available at https://www.bis.org/publ/bcbs261.pdf.
                 \4\ 80 FR 74840 (November 30, 2015).
                 \5\ See BCBS and IOSCO ``Margin requirements for non-centrally
                cleared derivatives,'' (March 2015), available at https://www.bis.org/bcbs/publ/d317.pdf.
                ---------------------------------------------------------------------------
                 The Swap Margin Rule established an effective date of April 1,
                2016, with a phased-in compliance schedule for the initial and
                variation margin requirements.\6\ On or after March 1, 2017, all
                covered swap entities were required to comply with the variation margin
                requirements for transactions with other swap entities and financial
                end user counterparties. The Swap Margin Rule presently requires all
                covered swap entities to comply with the initial margin requirements
                for non-cleared swaps with all financial end users with a material
                swaps exposure and with all swap entities by September 1, 2020.
                ---------------------------------------------------------------------------
                 \6\ The applicable compliance date for a covered swap entity is
                based on the average daily aggregate notional amount of non-cleared
                swaps, foreign exchange forwards and foreign exchange swaps of the
                covered swap entity and its counterparty (accounting for their
                respective affiliates) for each business day in March, April, and
                May of that year. The applicable compliance dates for initial margin
                requirements that are currently in place, and the corresponding
                average daily aggregate notional amount thresholds, are: September
                1, 2016, $3 trillion; September 1, 2017, $2.25 trillion; September
                1, 2018, $1.5 trillion; September 1, 2019, $0.75 trillion; and
                September 1, 2020, all swap entities and counterparties. See Sec.
                __.1(e) of the Swap Margin Rule. In this proposed rule, the agencies
                are also proposing to add one additional year to this schedule for
                certain counterparties.
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                 The Swap Margin Rule's requirements generally apply only to a non-
                cleared swap entered into on or after the applicable compliance
                date.\7\ A non-cleared swap entered into prior to an entity's
                applicable compliance date is essentially ``grandfathered'' by this
                regulatory provision, in that the non-cleared swap is generally not
                subject to the margin requirements in the Swap Margin Rule (legacy
                swap). However, the agencies explained in the preamble of the Swap
                Margin Rule that a legacy swap that is later amended or novated on or
                after the applicable compliance
                [[Page 59973]]
                date should be subject to the requirements of the Swap Margin Rule, in
                the interests of preventing evasion of the Rule's margin
                requirements.\8\
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                 \7\ See Sec. _.1(e) of the Swap Margin Rule.
                 \8\ 80 FR 74850-51.
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                 The Swap Margin Rule has recently been amended to (1) provide
                relief to legacy swaps that are amended to achieve compliance with
                final rules that established restrictions on and requirements for
                certain non-cleared swaps and certain other qualified financial
                contracts of U.S. global systemically important banking organizations
                and their subsidiaries and the U.S. operations of foreign global
                systemically important banking organizations (QFC Rules) \9\ and (2)
                subject to certain conditions, provide relief for entities located in
                the United Kingdom to transfer their existing swap portfolios that face
                counterparties located in the European Union to an affiliate or other
                related establishment located within the European Union or the United
                States while maintaining legacy status for such portfolios.\10\ This
                notice of proposed rulemaking would make the following changes to the
                Swap Margin Rule:
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                 \9\ 83 FR 50805 (October 10, 2018). The QFC Rules are codified
                as follows: 12 CFR part 47 (OCC's QFC Rule); 12 CFR part 252,
                subpart I (Board's QFC Rule); 12 CFR part 382 (FDIC's QFC Rule).
                 \10\ 84 FR 9940 (March 19, 2019).
                ---------------------------------------------------------------------------
                 First, the proposal would provide relief by allowing legacy swaps
                to be amended to replace existing interest rate provisions based on
                certain interbank offered rates (IBORs) and other interest rates that
                are reasonably expected to be discontinued or are reasonably determined
                to have lost their relevance as a reliable benchmark due to a
                significant impairment, without such swaps losing their legacy status.
                 Second, the proposal would amend the Swap Margin Rule's
                requirements for inter-affiliate swaps. The proposal would repeal the
                requirement for a covered swap entity to collect initial margin from
                its affiliates, but would retain the requirement that variation margin
                be exchanged for affiliate transactions.
                 Third, the proposal would add an additional initial margin
                compliance period for certain smaller counterparties, and clarify the
                existing trading documentation requirements in Sec. _.10 of the Rule.
                 Fourth, the proposal would amend the Swap Margin Rule to permit
                amendments caused by conducting certain routine life-cycle activities
                that covered swap entities may conduct for legacy swaps, such as
                reduction of notional amounts and portfolio compression exercises,
                without triggering margin requirements.
                 These aspects of the proposal are each discussed in greater detail
                below.
                II. Interbank Offered Rates
                A. Background on IBORs
                 The proposed rule would amend the Swap Margin Rule to permit a
                covered swap entity to amend a legacy swap in order to replace an IBOR
                with an alternative reference rate or rates, without triggering margin
                requirements.
                 An IBOR is a benchmark interest rate that is intended to represent
                banks' cost of unsecured wholesale borrowing. IBORs \11\ have been used
                as the benchmark interest rate for a large volume and broad range of
                existing financial products and contracts, including for an estimated
                $190 trillion US Dollar LIBOR (USD LIBOR) exposure, of which $145
                trillion represents over-the-counter derivatives exposure (as of year-
                end 2016).\12\ However, the discovery of, and numerous regulatory
                actions to seek redress of, market manipulation and false reporting of
                the many IBORs, together with the post-crisis decline in liquidity in
                interbank unsecured funding markets, have undermined confidence in the
                reliability and robustness of IBORs.
                ---------------------------------------------------------------------------
                 \11\ IBORs include the London Interbank Offered Rate (LIBOR),
                the Tokyo Interbank Offered Rate (TIBOR), the Bank Bill Swap Rate
                (BBSW), the Singapore Interbank Offered Rate (SIBOR), the Canadian
                Dollar Offered Rate (CDOR), the Euro Interbank Offered Rate
                (EURIBOR), and the Hong Kong Interbank Offered Rate (HIBOR).
                 \12\ ``Second Report of the Alternative Reference Rates
                Committee'' published in March 2018, available at https://www.newyorkfed.org/medialibrary/Microsites/arrc/files/2018/ARRC-Second-report.
                ---------------------------------------------------------------------------
                 As a result, the Financial Stability Board (FSB) and the U.S.
                Financial Stability Oversight Council (FSOC) requested that government
                and industry stakeholders undertake implementation of new designs and
                methodologies for IBORs, and the identification of viable alternative
                near risk-free rates in their respective currencies (U.S. dollar in the
                case of the United States) with a focus on the feasibility of new rate
                methodologies, including identification of suitable administrators and
                any necessary infrastructure to support these rates.\13\
                ---------------------------------------------------------------------------
                 \13\ ``Reforming Major Interest Rate Benchmarks'' published by
                the Financial Stability Board on July 22, 2014, available at http://www.fsb.org/wp-content/uploads/r_140722.pdf. Several central banks
                responded to this request and convened working groups of market
                participants and official sector representatives, including the
                United Kingdom, Japan, Switzerland, and the Eurozone. The work has
                also been coordinated at the international level by the FSB's
                Official Sector Steering Group (OSSG).
                ---------------------------------------------------------------------------
                 The Federal Reserve Board and Federal Reserve Bank of New York
                convened the Alternative Reference Rates Committee (ARRC) \14\ in 2014
                to identify an alternative reference rate for USD LIBOR and create an
                implementation plan to promote the use of the selected alternative on a
                voluntary basis. In 2017, the ARRC selected the Secured Overnight
                Funding Rate (SOFR), which is designed to be representative of general
                funding conditions in the overnight Treasury repo market. The ARRC has
                noted that use of SOFR is voluntary and that other benchmarks can also
                be considered as potential alternatives for USD LIBOR. For example, the
                American Financial Exchange is offering Ameribor as a potential USD
                LIBOR replacement rate.\15\ In addition, benchmarks such as an
                Overnight Bank Funding Rate were suggested by some market participants
                as a potential alternative.
                ---------------------------------------------------------------------------
                 \14\ The voting members of the 2014 ARRC were Bank of America,
                Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank,
                Goldman Sachs, HSBC, JP Morgan Chase & Co., Morgan Stanley, Nomura,
                RBS, Soci[eacute]t[eacute] G[eacute]n[eacute]rale, UBS, and Wells
                Fargo; the non-voting members were Bank of New York Mellon, CME,
                DTCC, ISDA and LCH.Clearnet; the ex officio members were Board of
                Governors of the Federal Reserve System, Federal Reserve Bank of New
                York, U.S. Commodity Futures Trading Commission, U.S. Treasury
                Department and Office of Financial Research. The ARRC's membership
                has changed over time. For a list of the latest members, see https://www.newyorkfed.org/arrc.
                 \15\ See https://ameribor.net/.
                ---------------------------------------------------------------------------
                 In July 2017, the U.K. Financial Conduct Authority (UKFCA), which
                regulates ICE Benchmark Administration, the administrator of LIBOR,
                announced that it has sought commitments from LIBOR panel banks to
                continue to contribute to LIBOR through the end of 2021, but that the
                UKFCA will not use its powers to compel or persuade contributions
                beyond that date. The UKFCA has also warned that it may judge LIBOR to
                no longer be representative of its underlying market should it persist
                past this date. Thus, it is possible that LIBOR will cease to be
                published at the end of 2021. Consequently, it is likely that
                derivatives contracts that reference LIBOR will need to be amended to
                replace LIBOR.
                 In consideration of this uncertainty, the International Swaps and
                Derivatives Association, Inc. (ISDA), which produces standard
                documentation used by parties to derivatives contracts, indicated that
                it plans to amend its documentation to ``include fallbacks that would
                apply upon the permanent discontinuation of certain key
                [[Page 59974]]
                IBORs.'' \16\ For new non-cleared swaps, market participants will have
                an option to amend their documentation via an ISDA benchmark
                supplement. For non-cleared swaps that are already in place, market
                participants will have the option to utilize an ISDA protocol that will
                specify amended definitions, triggers, and other adjustments.\17\
                ---------------------------------------------------------------------------
                 \16\ ISDA Consultation on Pre-Cessation Issues for LIBOR and
                Certain Other Interbank Offered Rates (IBORs), May 16, 2019,
                available at https://www.isda.org/a/md6ME/FINAL-Pre-cessation-issues-Consultation.pdf.
                 \17\ ISDA Supplemental Consultation on Spread and Term
                Adjustments for Fallbacks in Derivatives Referencing USD LIBOR, CDOR
                and HIBOR and Certain Aspects of Fallbacks for Derivatives
                Referencing SOR, May 16, 2019, available at https://www.isda.org/a/n6tME/Supplemental-Consultation-on-USD-LIBOR-CDOR-HIBOR-and-SOR.pdf.
                ---------------------------------------------------------------------------
                 Due to the potential discontinuation of LIBOR at the end of 2021,
                covered swap entities face uncertainty about the way their swap
                contracts based on LIBOR and other IBORs will operate after the
                permanent discontinuation date without a reliable benchmark rate. A
                benchmark rate is a critical term for calculating payments under a swap
                contract. In many instances, these firms may decide to amend existing
                swap contracts to replace an IBOR before the IBOR becomes discontinued.
                Such amendments may also trigger follow-on amendments \18\ that the
                counterparties determine are necessary to maintain the economics of the
                contract. Absent the proposed revisions to the Swap Margin Rule, one or
                more of these amendments could affect the legacy status of a non-
                cleared swap and make it subject to the requirements of the Rule. In
                order to enable covered swap entities and their counterparties to avoid
                the risk of future financial instability, the agencies believe it is
                appropriate to permit covered swap entities to amend the reference
                rates in a legacy swap contract and to adopt necessary follow-on
                amendments without converting the legacy swap into a swap subject to
                the Swap Margin Rule. The conditions of eligibility for the amendments
                are described in the next section of this SUPPLEMENTARY INFORMATION.
                ---------------------------------------------------------------------------
                 \18\ Follow-on amendments may include a variety of spread
                adjustments resulting from the move from a term rate to an overnight
                rate, from unsecured to secured, or could result from a change in
                tenor, among others.
                ---------------------------------------------------------------------------
                B. Proposed Rule on IBORs
                 In recognition of the ongoing efforts to transition away from key
                IBORs due to their potential discontinuation, the agencies are
                proposing to amend the Swap Margin Rule to remove impediments that
                would limit the ability of covered swap entities to replace certain
                rates in their legacy non-cleared swaps. Specifically, the agencies
                propose to amend Sec. _.1(h) to preserve the legacy status of a non-
                cleared swap after a covered swap entity replaces certain reference
                rates. Proposed Sec. _.1(h) recognizes that these replacements could
                be carried out using a variety of legal mechanisms by permitting
                amendments accomplished by the parties': Adherence to a protocol;
                contractual amendment of an agreement or confirmation; or execution of
                a new contract in replacement of and immediately upon termination of an
                existing contract (i.e., tear-up), subject to the limitations discussed
                below.
                 The proposed rule is intended to be flexible with respect to the
                method of amendment. The proposal would permit amendments to be
                executed with respect to an individual non-cleared swap or on a netting
                set level, as long as the other proposed criteria are met.
                 The proposed rule describes the type of rate that can be replaced
                and the accompanying changes that would be permitted. Proposed section
                Sec. _.1(h)(3)(i) would permit amendments that are made solely to
                accommodate the replacement of an IBOR or a replacement of any other
                non-IBOR interest rate that a covered swap entity reasonably expects to
                be discontinued or reasonably determines has lost its relevance as a
                reliable benchmark due to a significant impairment with an alternate
                reference rate.\19\ For example, if a benchmark administrator
                materially changes the inputs in the benchmark calculation because an
                input is no longer available, a covered swap entity may determine that
                the benchmark has lost its relevance as a reliable benchmark due to a
                significant impairment.
                ---------------------------------------------------------------------------
                 \19\ Under the EU Benchmark Regulation (Regulation (EU) 2016/
                1011 (June 8, 2016)), a benchmark administrator is expected to
                regularly assess whether a critical benchmark measures the
                underlying market or economic reality. In certain circumstances, a
                regulatory authority of a benchmark administrator may complete its
                own assessment of a benchmark's representativeness as well. Covered
                swap entities may refer to such assessments or other public
                statements by benchmark administrators or regulatory authorities in
                order to inform their expectations about whether a benchmark will be
                discontinued or continues to be reliable. In addition, covered swap
                entities may consult the IOSCO Principles for Financial Benchmarks
                (July 2013), to assist in determining whether a benchmark has lost
                its relevance as a reliable benchmark, available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf.
                ---------------------------------------------------------------------------
                 The proposed rule lists the IBORs that could be replaced, including
                LIBOR, TIBOR, BBSW, SIBOR, CDOR, EURIBOR, and HIBOR. Although the
                current uncertainty surrounding reference rates is tied to IBORs, the
                agencies are also proposing a second, more qualitative standard that
                would be applicable to other categories of reference rates, should the
                need arise in the future. This forward-looking standard is designed to
                encourage covered swap entities to resolve critical uncertainties
                before an interest rate benchmark is discontinued, or loses its market
                relevance, in order to minimize disturbance to the markets.
                 The agencies also anticipate that a reference rate may need to be
                replaced more than one time. For example, an IBOR may first be replaced
                with fallback provisions at a time when a permanent alternative rate is
                not yet available or amendment documentation has not yet been
                developed. Subsequently, fallback provisions may be replaced with
                permanent alternative rates. If the original rate that is being
                replaced is an IBOR or any other non-IBOR interest rate benchmark that
                otherwise meets the requirements of the proposed rule that a covered
                swap entity reasonably expects it to be discontinued or reasonably
                determines that it has lost its relevance as a reliable benchmark due
                to a significant impairment, the non-cleared swap may be amended more
                than once to accommodate ongoing developments toward a permanent
                replacement rate. There is no limit to the number of amendments that
                can take place, as long as the rate that was originally present in the
                non-cleared swap met the criteria in either Sec. _.1(h)(3)(i)(A) or
                Sec. _.1(h)(3)(i)(B). The proposed approach of permitting subsequent
                amendments takes into account that any subsequent changes to the
                reference rate will be the subject of negotiations among counterparties
                that are incentivized to agree to a reasonable rate. The proposed rule
                would not permit subsequent amendments that change rates or other terms
                of the non-cleared swap for any purpose other than for those purposes
                explicitly set out in Sec. _.1(h), without triggering application of
                the margin requirements.
                 To benefit from the treatment of this new legacy swap provision, a
                covered swap entity must make the amendments to the non-cleared swap
                solely to accommodate the replacement of a rate described in the
                proposed rule. The proposed rule is flexible as to the incoming
                replacement rate by leaving it up to the counterparties to select a
                mutually agreeable replacement rate. The agencies expect that any
                replacement rate, including any subsequent replacement rate, would be
                agreed upon by the parties after assessing its complexity, safety and
                soundness, and taking into
                [[Page 59975]]
                consideration associated risk management practices.\20\
                ---------------------------------------------------------------------------
                 \20\ The replacement rate is also expected to be consistent with
                international standards, such as the IOSCO Principles for Financial
                Benchmarks. See https://www.iosco.org/library/pubdocs/pdf/IOSCOPD415.pdf.
                ---------------------------------------------------------------------------
                 The agencies also acknowledge that replacing a reference rate could
                require other contractual changes to maintain the economics of the non-
                cleared swap and to preserve the relative values to the parties after
                incorporating changes in the reference rate. The proposed rule would
                permit changes that incorporate spreads and other adjustments that
                accompany and implement the replacement rate amendment. The rule would
                also permit other, more administrative and technical changes necessary
                to operationalize the determination of payments or other exchanges of
                economic value using the replacement rate, including changes to
                determination dates, calculation agents, and payment dates. These types
                of administrative changes may be necessary to adjust computations and
                operational provisions to reflect the differences between an IBOR and
                the replacement rate or rates.
                 The agencies envision that a number of contractual changes could be
                necessary to maintain the economics of the non-cleared swap, and for
                this reason, have drafted the proposed rule so it permits these
                changes. For example, legacy swaps that contain USD LIBOR may be
                referencing 1-day LIBOR, 1-week LIBOR, 1-month LIBOR, 2-month LIBOR, 3-
                month LIBOR, 6-month LIBOR or 12-month LIBOR. In these cases, a
                replacement rate that could be overnight and could be based, for
                example, on a fully secured funding rate (e.g., SOFR) may need to
                incorporate a market risk (term structure) spread to substitute for the
                market risk component of LIBOR that is of a longer maturity than
                overnight. Similarly, because LIBOR is unsecured and therefore includes
                an element of bank credit risk, it is likely that a replacement rate
                that could be overnight and could be based, for example, on a fully
                secured funding rate (e.g., SOFR) would need a credit spread to adjust
                the new reference rate to a comparable legacy LIBOR rate. This may also
                be the case for non-USD IBORs that could be replaced by overnight
                funding rates.
                 The proposed rule would also permit administrative and technical
                changes necessary for operational purposes. For example, for an
                overnight rate, interest on financial instruments that pay periodically
                (e.g., quarterly) may be set in arrears by compounding or averaging the
                daily observations over the relevant period. To offer flexibility in
                the transition to a new reference rate, the proposed rule would permit
                the replacement of an IBOR or other discontinued reference rate in the
                floating leg of a fixed-floating rate swap, and would also permit the
                interest rate in the fixed leg to be modified in order to maintain the
                economics of the non-cleared swap.
                 However, the agencies do not believe that the relief being provided
                for rate replacement purposes should be expansively applied to
                encompass all changes to a legacy swap. Accordingly, the proposed rule
                text clarifies that the proposed safe harbor for legacy swaps would be
                unavailable if the amendments extend the maturity or increase the total
                effective notional amount of the non-cleared swap. For example, a one
                time, lump-sum compensatory payment in lieu of a spread adjustment
                would not increase the total effective notional amount and would be
                permitted. On the other hand, extending the maturity date to allow for
                additional payments to be made under the non-cleared swap would be a
                change outside the scope of the proposed rule.
                 The agencies envision that covered swap entities may carry out
                certain amendments, including those executed by method of termination
                and replacement, for the purpose of implementing changes that might
                qualify for more than one exemption provided under Sec. _.1(h). When a
                legacy swap is replaced with a new contract that reflects more than one
                exemption, each of the provisions in the replacement contract that
                differs from the terminated contract must be permitted under the
                respective subsection of Sec. _.1(h). For example, a covered swap
                entity and its counterparty may decide to replace an IBOR with a
                different reference rate and, at the same time, make changes to comply
                with the QFC Rules. The IBOR-related changes must comply with Sec.
                _.1(h)(3) and the QFC Rules changes must comply with Sec. _.1(h)(1)
                for the replacement contract to meet the ``solely to comply'' standard
                and, in the case of Sec. _.1(h)(3), the ``solely to accommodate''
                standard.
                III. Non-Cleared Swaps Between CSEs and an Affiliate
                 The proposal would amend the treatment of affiliate transactions in
                the Swap Margin Rule by creating an exemption from the initial margin
                requirements for non-cleared swaps between affiliates.\21\ The proposal
                would, however, retain the requirement that affiliates exchange
                variation margin.
                ---------------------------------------------------------------------------
                 \21\ Under the BCBS/IOSCO framework, no common standard was set
                for inter-affiliate transactions, in recognition of the existing and
                varied approaches to the topic across jurisdictions.
                ---------------------------------------------------------------------------
                 Currently, Sec. _.11 of the Swap Margin Rule establishes special
                rules for transactions between a covered swap entity and an
                ``affiliate,'' generally defined in the Swap Margin Rule as an entity
                that is consolidated with the dealer on an accounting basis, or
                consolidated on a common basis by another entity.\22\ The rules
                applicable to transactions with affiliates differ from the rules
                applicable to transactions with non-affiliates. For example, a covered
                swap entity is not required to post initial margin to an affiliate or
                use an independent custodian for most forms of initial margin collected
                from an affiliate. In addition, the covered swap entity does not need
                to apply a $50 million initial margin threshold amount to the covered
                swap entity's affiliates on an aggregate basis, and the covered swap
                entity is not required to use the ten-day holding period for
                calculating initial margin using an initial margin model under Sec.
                _.8(d)(1).\23\ Consistent with the requirements for non-cleared swaps
                between non-affiliated counterparties, current Sec. _.11 requires the
                exchange of variation margin for affiliate transactions. As discussed
                in the preamble to the final Swap Margin Rule, the initial and
                variation margin requirements applicable to affiliate transactions were
                intended to advance the mandate under the Dodd-Frank Act to ``offset
                the greater risk to swap entities from the use of swaps that are not
                cleared and help ensure the safety and soundness of the covered swap
                entity and are appropriate for the risk associated with the non-cleared
                swap entity.'' \24\ The agencies noted that the requirement to collect
                initial margin from, but not post initial margin to, affiliates
                ``should help to protect the safety and soundness of covered swap
                entities in the event of an affiliated counterparty default.'' \25\
                Furthermore, by requiring that inter-affiliate swaps be margined, the
                requirement was intended
                [[Page 59976]]
                to prevent unmargined swaps from posing a risk to systemic
                stability.\26\
                ---------------------------------------------------------------------------
                 \22\ Section _.2 provides that two companies are ``affiliates''
                if either company consolidates the other on financial statements
                prepared in accordance with U.S. Generally Accepted Accounting
                Principles, the International Financial Reporting Standards, or
                other similar standards, or if both companies are consolidated with
                a third company.
                 \23\ For a description of the application of this set of
                exemptions, see the preamble to the final rule, 80 FR at 74887.
                 \24\ 80 FR at 74889.
                 \25\ Id.
                 \26\ 80 FR at 74889.
                ---------------------------------------------------------------------------
                 Since the Swap Margin Rule was implemented, supervisory experience
                has shown that inter-affiliate swaps are used by covered swap entities
                for internal risk management purposes whereby a banking organization
                transfers risk to a centralized risk management function, which is
                considered to be a prudent risk management practice. As more covered
                swap entities have come into scope, the amount of inter-affiliate
                initial margin collected by covered swap entities has increased. This
                has led the affected banking organizations to borrow increasing amounts
                of cash in the debt markets to fund eligible collateral, placing
                additional demands on their asset-liability management structure and
                increasing their liability exposure to depositors and other creditors
                in the market. The removal of the inter-affiliate initial margin
                requirement would provide these banking organizations with additional
                flexibility for internal allocation of collateral. The agencies believe
                that such risk management practices often improve the safety and
                soundness of a covered swap entity, and therefore, to encourage such
                prudent risk management, propose to exempt inter-affiliate swaps from
                the Rule's initial margin requirements. The proposal does not remove
                the requirement that covered swap entities must collect and post
                initial margin with other non-affiliate covered swap entities.
                 The agencies also note that because other jurisdictions (as well as
                the U.S. market regulators) do not consistently apply swap margin rules
                to inter-affiliate swaps, the Rule's imposition of initial margin
                requirements for inter-affiliate swaps may have provided limited
                systemic risk benefits and put U.S. banking firms at a competitive
                disadvantage. For example, many covered swap entities subject to the
                Swap Margin Rule are banking organizations that are typically
                internationally active with operations in many jurisdictions that may
                exempt or not impose initial margin requirements on inter-affiliate
                transactions.\27\ In addition, the imposition of initial margin
                requirements may depend on the banking organization's home country,
                presence in the United States, corporate organization, or business
                strategy. For example, internationally active banking organizations
                that have a cross-border organizational structure that relies on
                separate legal entities must currently use inter-affiliate swaps to
                centralize risk management of the overall banking organization's
                outward-facing derivatives exposures, whereas other internationally
                active banks that operate cross-border through branching structures do
                not have a comparable risk management need for such inter-affiliate
                swaps. The agencies do not believe this difference in corporate
                organization justifies different initial margin requirements under the
                Swap Margin Rule.
                ---------------------------------------------------------------------------
                 \27\ Under the BCBS/IOSCO framework, no common standard was set
                for inter-affiliate swap transactions, in recognition of these
                existing and varied approaches to the topic of inter-affiliate
                transactions generally. 79 FR at 57353; Article 6 of the BCBS and
                IOSCO ``Margin Requirements for Non-Centrally Cleared Derivatives''
                (September 2013), available at https://www.bis.org/publ/bcbs261.pdf.
                ---------------------------------------------------------------------------
                 The agencies are not proposing to alter the Rule's uniform
                requirements for covered swap entities to exchange variation margin
                with their affiliates. The agencies note it has become routine in
                recent years for covered swap entities to exchange variation margin on
                non-cleared swaps with their affiliates. As a best practice for risk
                management, the exchange of variation margin serves to reflect ongoing
                economic transfers of current exposure for assets and liabilities
                between the various parts of the banking organization over the life of
                each non-cleared swap. This in turn contributes to the safety and
                soundness of the covered swap entity, and the larger banking
                organization as a whole. The exchange of variation margin will remain a
                requirement under the general rules of Sec. _.4 and will continue to
                be applicable to inter-affiliate swaps.
                 The proposal would also supplement the definition of ``affiliate''
                for purposes of Sec. _.11 to include not only the definition of
                ``affiliate'' found in Sec. _.2 of the Swap Margin Rule, focusing on
                consolidation under applicable accounting rules, but also the
                established ``catch-all'' legal standard for affiliation in banking
                focusing on the direct or indirect exercise of controlling influence
                over the management or policies of the controlled company. Absent this
                change, the Swap Margin Rule would, by its general provisions, require
                covered swap entities to post initial margin to, and collect initial
                margin from, unconsolidated entities that are treated as affiliates of
                the covered swap entity for other legal or regulatory purposes.
                 Finally, the agencies note that certain affiliate transactions are
                subject to the requirements of sections 23A and 23B of the Federal
                Reserve Act as implemented by the Federal Reserve's Regulation W, as
                these requirements continue to apply to affiliate transactions with an
                insured depository institution.\28\ Currently, almost all U.S. covered
                swap entities are insured depository institutions that would be subject
                to Sections 23A, 23B, and Regulation W. These provisions are
                specifically tailored to address risks arising from transactions,
                including non-cleared swaps, between affiliates. As such, the agencies
                believe that they are the more effective tools to address risks arising
                from transactions between affiliates. The Board continues to consider
                how inter-affiliate non-cleared swaps can be addressed under Regulation
                W.
                ---------------------------------------------------------------------------
                 \28\ 12 U.S.C. 371c and 371c-1; 12 CFR part 223. In adopting the
                Swap Margin Rule, the agencies noted that transactions between banks
                and their affiliates have long been subject to their own special set
                of regulatory restrictions, particularly in the case of U.S. banks
                pursuant to sections 23A and 23B of the Federal Reserve Act. See 80
                FR at 74889 (noting the obligation of banks that are covered swap
                entities to comply with additional regulatory restrictions on inter-
                affiliate swap transactions, such as those required by sections 23A
                and 23B).
                ---------------------------------------------------------------------------
                IV. Additional Compliance Date for Initial Margin Requirements
                 The agencies are proposing to give covered swap entities an
                additional year to implement initial margin requirements for certain
                smaller counterparties. The implementation of both initial and
                variation margin requirements started on September 1, 2016. With
                respect to initial margin requirements, the requirements in the Swap
                Margin Rule are implemented in five phases from September 1, 2016,
                through September 1, 2020, depending on the size of the covered swap
                entity's portfolio of non-cleared swaps and the counterparty's
                portfolio of non-cleared swaps. Variation margin requirements for all
                covered swap entities and counterparties were completely phased in by
                March 1, 2017. This schedule was consistent with BCBS/IOSCO framework
                when the Swap Margin Rule was adopted in 2015.
                 The phase-in schedule for initial margin is based on the average
                daily aggregate notional amount (AANA) of non-cleared swaps held in
                each party's market-wide portfolio, measured separately from the
                standpoint of the covered swap entity and the standpoint of the
                counterparty.\29\ With the recent
                [[Page 59977]]
                occurrence of the fourth phase of initial margin compliance obligations
                on September 1, 2019--for covered swap entities and counterparties with
                an AANA of $750 billion to $1.5 trillion--the group currently scheduled
                for the fifth phase of compliance in the upcoming year includes all
                remaining entities within the scope of the initial margin requirements,
                spanning AANAs from $8 billion up to $750 billion.\30\
                ---------------------------------------------------------------------------
                 \29\ As noted above, the AANA is determined based on the non-
                cleared swaps, foreign exchange forwards and foreign exchange swaps
                of each of the covered swap entity and its counterparty (accounting
                for their respective affiliates) for each business day in March,
                April and May of that year. The corresponding average daily notional
                thresholds for each compliance date currently are: September 1,
                2016, $3 trillion; September 1, 2017, $2.25 trillion; September 1,
                2018, $1.5 trillion; September 1, 2019, $0.75 trillion; and
                September 1, 2020, all covered swap entities and their
                counterparties. See Sec. _.1(e) of the Swap Margin Rule.
                 \30\ The Swap Margin Rule does not require initial margin to be
                exchanged with any counterparty whose AANA is less than $8 billion
                as of the previous June, July, and August. See Sec. _.3 and the
                definition of ``material swaps exposure'' in Sec. _.1.
                ---------------------------------------------------------------------------
                 The industry's implementation work to execute new trading
                documentation to meet variation margin compliance obligations by 2017
                largely excluded any rule-compliant documentation for initial margin,
                due to the greater operational complexity associated with ``T+1''
                portfolio reconciliation of internally-modeled initial margin amounts
                and third-party segregation of initial margin collateral. The industry
                has raised significant concerns about the operational and other
                difficulties associated with beginning to exchange initial margin with
                the large number of relatively small counterparties encompassed in the
                Swap Margin Rule's fifth phase. In recognition of these difficulties,
                the BCBS/IOSCO framework was recently revised to permit an additional
                phase for smaller counterparties, and the agencies believe it is
                appropriate to amend the Swap Margin Rule in a similar manner. \31\
                Accordingly, the agencies are proposing to amend the compliance
                schedule to add a sixth phase of compliance for certain smaller
                entities that are currently subject to the ``phase five'' compliance
                deadline. The proposed amendments would require compliance by September
                1, 2020, for counterparties with an AANA ranging from $50 billion up to
                $750 billion, while the compliance date for all other counterparties
                (with an AANA ranging from a ``material swaps exposure'' of $8 billion
                up to $50 billion) would be extended to September 1, 2021.
                ---------------------------------------------------------------------------
                 \31\ See BCBS and IOSCO ``Margin requirements for non-centrally
                cleared derivatives,'' (July 2019), available at https://www.bis.org/bcbs/publ/d475.pdf.
                ---------------------------------------------------------------------------
                V. Documentation Requirements
                 Complying with initial margin requirements creates regulatory
                obligations for covered swap entities and implications for their
                counterparties.\32\ Covered swap entities must calculate initial margin
                to be collected and posted to determine if and when collection or
                posting of initial margin is required. Under Sec. _.3, a covered swap
                entity must collect or post initial margin when it calculates an
                initial margin amount that, after subtracting the initial margin
                threshold amount (not including any portion of the initial margin
                threshold amount already applied by the covered swap entity or its
                affiliates to other non-cleared swaps or non-cleared security-based
                swaps with the counterparty or its affiliates), exceeds zero. It is
                only at the time at which the covered swap entity is required to
                collect or post initial margin pursuant to Sec. _.3 that it is
                required to have completed the initial margin trading documentation
                required by Sec. _.10. For the avoidance of doubt, the agencies are
                proposing to amend Sec. _.10 to expressly state that a covered swap
                entity is not required to execute initial margin trading documentation
                with a counterparty prior to the time that it is required to collect or
                post initial margin pursuant to Sec. _.3.\33\
                ---------------------------------------------------------------------------
                 \32\ See Sec. _.1(f) (providing that once a covered swap entity
                must comply with the margin requirements for non-cleared swaps and
                non-cleared security-based swaps with respect to a particular
                counterparty, the covered swap entity remains subject to the
                requirements of the Swap Margin Rule with respect to that
                counterparty).
                 \33\ Section _.10 has parallel requirements for covered swap
                entities to execute trading documentation providing the covered swap
                entity with the contractual right to collect and post variation
                margin in such amounts, in such form, and under such circumstances
                as are required by the Swap Margin Rule. There is no threshold
                margin amount for variation margin pursuant to Sec. _.4, and Sec.
                _.10 requires covered swap entities to execute variation margin
                trading documentation no later than the time the covered swap entity
                commences trading non-cleared swaps with any swap entity or
                financial end user covered by the Swap Margin Rule.
                ---------------------------------------------------------------------------
                 As discussed in the Swap Margin Rule, a covered swap entity must
                execute trading documentation with each counterparty that falls within
                the scope of the Rule's definition of a swap entity or a financial end
                user regarding credit support arrangements unless the swap entity or
                financial end user is explicitly exempt from the Rule pursuant to Sec.
                _.1(d).\34\ The documentation must provide the covered swap entity the
                contractual rights and obligations to collect and post initial and
                variation margin in such amounts, in such form, and under such
                circumstances as are required by the Rule. The documentation must also
                specify the methods, procedures, rules, and inputs for determining the
                value of each non-cleared swap for purposes of calculating variation
                margin and the procedures by which any disputes concerning the
                valuation of non-cleared swaps or the valuation of assets collected or
                posted as initial margin or variation margin may be resolved. Finally,
                the documentation must also describe the methods, procedures, rules,
                and inputs used to calculate initial margin for non-cleared swaps
                entered into between the covered swap entity and the counterparty.\35\
                ---------------------------------------------------------------------------
                 \34\ 80 FR 74886-74887 (describing the trading documentation
                requirements of Sec. _.10).
                 \35\ Id.
                ---------------------------------------------------------------------------
                 The custody agreement requirements in Sec. _.7 of the Swap Margin
                Rule require such agreements to be in place only after initial margin
                is required to be collected or posted pursuant to Sec. _.3, or when
                initial margin is posted by a covered swap entity beyond an amount
                required by the Rule. The agencies expect that covered swap entities
                will closely monitor their exposures and take appropriate steps to
                ensure that trading documentation is in place at such time as initial
                margin is required to be exchanged pursuant to Sec. _.3. The agencies
                note that this view is consistent with statements of the BCBS and IOSCO
                with respect to internationally agreed standards for margin
                requirements for non-centrally cleared derivatives.\36\
                ---------------------------------------------------------------------------
                 \36\ BCBS/IOSCO statement on the final implementation phases of
                the Margin requirements for non-centrally cleared derivatives, March
                5, 2019, available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD624.pdf, stating that ``the framework does not specify
                documentation, custodial or operational requirements if the
                bilateral initial margin amount does not exceed the framework's
                [euro]50 million initial margin threshold. It is expected, however,
                that covered entities will act diligently when their exposures
                approach the threshold to ensure that the relevant arrangements
                needed are in place if the threshold is exceeded.''
                ---------------------------------------------------------------------------
                VI. Portfolio Compression Exercises and Other Amendments
                 The Swap Margin Rule applies to non-cleared swaps entered into on
                or after the applicable compliance date. As discussed above, the
                agencies have also expressed concerns about amendments to a swap that
                was entered into before the applicable compliance date if the
                amendments would have the effect of allowing covered swap entities and
                their counterparties to evade or otherwise artificially delay
                implementation of margin requirements. In particular, the agencies have
                been concerned whether market participants would amend legacy swaps,
                rather than entering into new ones and exchanging margin pursuant to
                the Rule once the legacy swaps expire according to their original
                terms. The industry has raised concerns whether certain amendments,
                particularly non-material amendments to non-economic terms, as well as
                amendments that are made to reduce operational or counterparty risk,
                such as notional reductions and portfolio
                [[Page 59978]]
                compressions, could be executed while still allowing those amended
                legacy swaps to remain exempt from the Swap Margin Rule.
                 The agencies are proposing amendments to clarify the agencies'
                implementation of the legacy swaps provisions of the Swap Margin Rule
                since its adoption in 2015. These amendments are intended to permit
                amendments to legacy swaps arising from certain routine industry
                practices over the life-cycle of a non-cleared swap that are carried
                out for logistical reasons or risk-management purposes. The proposed
                amendments are those that do not raise concerns that the covered swap
                entity is seeking to evade or otherwise delay the application of margin
                requirements for non-cleared swaps.
                 One of these proposed amendments recognizes the legacy status of a
                non-cleared swap that has been amended to reflect technical changes,
                such as addresses, the identities of parties for delivery of formal
                notices, and other administrative or operational provisions of the non-
                cleared swap that do not alter the non-cleared swap's underlying asset
                or indicator, such as a security, currency, interest rate, commodity,
                or price index, the remaining maturity, or the total effective notional
                amount. The types of technical changes described are necessary to
                reflect changes in a counterparty's circumstances, but are not
                associated with a desire by either party to increase or decrease its
                exposure to market risk factors. While the technical changes listed
                above would be permitted, a change in the non-cleared swap's underlying
                index would not be a technical change.
                 The second proposed amendment recognizes the legacy status of a
                non-cleared swap that has been amended solely to reduce the notional
                amount of the non-cleared swap, without altering other terms of the
                original non-cleared swap. For these purposes, a reduction in notional
                amount may be achieved through a partial termination of the original
                non-cleared swap, with the remaining non-terminated non-cleared swap
                being able to retain its legacy status. A reduction in notional amount
                could also be achieved by novating a portion of the original non-
                cleared swap's notional amount to a third party. The original non-
                cleared swap, with a lower notional amount, would retain legacy status,
                but the novated portion would not retain legacy status.
                 The third proposed amendment recognizes the legacy status of non-
                cleared swaps that have been modified as part of certain portfolio
                compression exercises used as a risk management tool. In compression,
                offsetting trades between two or more parties are amended or torn up
                and replaced, which reduces the size of gross derivatives exposures and
                generally reduces the number or frequency of payments between parties,
                thus maintaining or reducing the overall risk profile of the portfolio.
                In general, these compression exercises make use of third party service
                providers to assist in the choice of trades to be modified and the risk
                composition of the resulting portfolios.
                 In a simple bilateral form of compression between two
                counterparties, the dealer agrees with another dealer to compress
                trades so that offsetting positions are cancelled and only the net
                amount remains, without any change to the overall market exposures. The
                resulting net position is documented by amending one of the original
                swaps. This ``amended swap'' method is the predominant method used in
                compressions of non-cleared interest rate swaps. Compression can also
                be done on a multilateral basis among more than two counterparties, and
                is often even more efficient, as trades across multiple dealers
                involved in a compression exercise can be offset, reducing the risk in
                each relationship across the various counterparties involved in the
                compression. The resulting net position is documented by creating a
                replacement swap reflecting the net position. This ``replacement swap''
                method is predominantly used in compression exercises for non-cleared
                credit default swaps, but it can also be used for interest rate swap
                compression. Compression often results in the cancellation of
                offsetting positions, but it could also result in new trades being
                booked into an existing non-cleared portfolio to reflect the netted-
                down risk of the original portfolio.
                 One reason that the agencies are permitting amendments resulting
                from compression exercises is to reduce the operational burden
                associated with IBOR replacements. While protocols to amend non-cleared
                swaps that reference an IBOR or another discontinued rate are in
                development, there is a possibility that counterparties may choose to
                replace portfolios of IBOR-based non-cleared swaps with replacement
                swaps generated through compression exercises.
                 In recognition of the value of risk-reducing compression exercises,
                the agencies are proposing to amend the Swap Margin Rule to expressly
                recognize the benefits of amending or replacing non-cleared swaps
                solely to accomplish risk-reducing or risk-neutral portfolio
                compression between or among covered swap entities and their
                counterparties, without converting the legacy swap into a swap subject
                to the Swap Margin Rule.
                 Under the proposed rule, amended swaps that reflect the outcome of
                a compression exercise are treated slightly differently than
                replacement swaps that are issued as a result of the compression
                exercise. If a non-cleared swap is amended solely as a result of a
                compression exercise, the amendments cannot extend the remaining
                maturity of the amended non-cleared swap or increase the total
                effective notional amount of the non-cleared swap.
                 Example 1: The limitations on remaining maturity and total
                effective notional amount in a compression exercise resulting in a
                replacement swap are different. For example, if swap 1 entered into
                by a covered swap entity and counterparty A has a total effective
                notional amount of $10 (long position) and a remaining maturity of 5
                years, and swap 2 entered into by the same covered swap entity and
                the same counterparty A has a total effective notional amount of $5
                (short position) and a remaining maturity of 4 years, the
                compression exercise might result in a cancellation of swap 2 and an
                amendment to swap 1 such that the total effective notional amount
                would become $5 (long position) and the remaining maturity would
                remain at 5 years. This amendment would be permitted under the
                proposed rule since the maturity of the amended swap is not longer
                than the maturity of swap 1 (5 years) and the total effective
                notional amount of the amended swap is not greater than the total
                effective notional amount of swap 1 ($10 long position). However, an
                amendment to swap 1 that extends the remaining maturity of the
                amended swap beyond the original 5 years or increases the total
                effective notional amount higher than the original $10 would not be
                able to take advantage of the proposed safe harbor.
                 A replacement swap cannot extend the longest remaining maturity
                of all of the swaps in the compression exercise and cannot have a
                total effective notional amount that exceeds the total effective
                notional amount of that longest remaining maturity swap.
                 Example 2: Using the terms of swap 1 in the example above,
                assume that swap 2 has a total effective notional amount of $5
                (short position) and a remaining maturity of 3 years. The two swaps
                could be in a compression exercise in which both swaps are
                terminated and replaced with a new swap. The replacement swap must
                have a remaining maturity that does not extend the longest remaining
                maturity of swaps 1 and 2 (swap 1 has the longer remaining maturity
                of 5 years). The replacement swap must also have a total effective
                notional amount that does not exceed the total effective notional
                amount of the swap with the longest remaining maturity (swap 1 has
                the longer remaining maturity of 5 years, so the replacement swap
                cannot exceed swap 1's total effective notional amount of $10 long
                position).
                [[Page 59979]]
                 Example 3: Assume that the following swaps are part of a
                compression exercise:
                ------------------------------------------------------------------------
                 Total effective Remaining
                 Swap contract No. notional amount maturity
                ------------------------------------------------------------------------
                1................................. 10 (long)........... 5
                2................................. 4 (short)........... 4
                3................................. 7 (long)............ 3
                4................................. 3 (short)........... 2
                5................................. 17 (short).......... 1
                ------------------------------------------------------------------------
                 If a compression exercise terminates all the swaps listed above
                and replaces them with a new replacement swap, the total effective
                notional amount of the replacement swap cannot exceed the sum of the
                total effective notional amounts for all swaps with the same or
                longer remaining maturity than the replacement swap. Therefore, if
                one assumes the compression exercise results in a remaining maturity
                of 3 years for the replacement swap, the replacement swap with a
                remaining maturity of 3 years could have a maximum total effective
                notional amount of the sum of the total effective notional amounts
                of the 5 year swap, the 4 year swap, and the 3 year swap, or 10 + 4
                + 7 = $21.\37\ Alternatively, if one assumes the compression
                exercise results in a remaining maturity of 2 years for the
                replacement swap, the replacement swap with a remaining maturity of
                2 years could have a maximum total effective notional amount of the
                sum of the total effective notional amounts of the 5 year swap, the
                4 year swap, the 3 year swap, and the 2 year swap or 10 + 4 + 7 + 3
                = $24.
                ---------------------------------------------------------------------------
                 \37\ Note, however, that a replacement swap with a total
                effective notional amount of $21 would only be acceptable if the
                result is also risk-neutral or risk-reducing based on the long or
                short positions of each swap's total effective notional amount. The
                overall effect of the compression exercise must be either risk-
                neutral or risk-reducing.
                 The agencies are also concerned about clarifying the legacy status
                of swaptions that are entered into before the applicable compliance
                date but exercised after that compliance date. As a general matter, a
                swaption is created when a covered swap entity and its counterparty
                enter into a derivative transaction granting one party an option to, at
                a later time, call for the transaction to be converted into a non-
                cleared swap between the two parties, the terms of which are set out in
                the derivative contract itself. The agencies believe it is not
                necessary to propose rule text to address the legacy status of
                swaptions that become non-cleared swaps once exercised. Although the
                exchange of payments under the non-cleared swap does not commence until
                after the applicable compliance date, the terms of that non-cleared
                swap were established and entered into during the original creation of
                the swaption contract, which was entered into before the applicable
                compliance date and therefore the resulting non-cleared swap retains
                legacy status. The exercise of the option under the derivative is not
                an amendment of the contract, but rather a second phase that
                operationalizes the original contract.
                VII. Technical Changes
                 The proposed rule would delete Sec. _.1(e)(7), which includes an
                amendment relating to the QFC Rules. The text of Sec. _.1(e)(7), with
                slight modifications, would be moved to Sec. _.1(h)(1), so that it
                would reside in the section of the Swap Margin Rule dedicated to legacy
                swap amendments. The methods of amendment listed in Sec. _.1(h) would
                apply not only to IBOR replacements, but also to any other contractual
                modifications permitted under Sec. _.1(h), including amendments
                relating to the QFC Rules.
                VIII. Request for Comments
                A. IBORs
                 The agencies request comment on all aspects of the proposed rule as
                well as on the following specific questions.
                 (1) The proposed rule permits amendments to non-cleared swaps by
                method of adherence to a protocol, contractual amendment of an
                agreement or confirmation, or execution of a new contract in
                replacement of and immediately upon termination of an existing contract
                (i.e., tear-up). Should the agencies provide additional clarification
                in the rule as to types of permissible amendments to better reflect
                established or emerging industry practices? What specifically should be
                added or clarified, and why?
                 (2) Does the proposed rule provide sufficient flexibility regarding
                contract-by-contract, netting set, and compression amendments to the
                reference rate? What, if any, additional flexibility is needed, and
                why?
                 (3) The agencies have listed a number of IBORs as examples of rates
                that would be permitted to be replaced. To what extent should this list
                be revised to remove or to include any additional rates, such as the
                Swap Offer Rate of Singapore?
                 (4) The relief provided by the proposed rule would apply to the
                replacement of an IBOR. The agencies are also proposing to allow
                replacement of other non-IBOR reference rates if the covered swap
                entity reasonably expects that the rate will be discontinued or
                reasonably determines has lost its relevance as a reliable benchmark
                due to a significant impairment. Is there a need to provide relief for
                replacement of rates under other circumstances? What potential criteria
                could the agencies impose on non-IBOR interest rate benchmarks in order
                for such a benchmark to be considered to have lost its relevance as a
                reliable benchmark due to a significant impairment? If so, please
                provide a description of the circumstances creating this need and a
                description of the rates that may need to be replaced, either now or in
                the future.
                 (5) The proposed rule anticipates that a reference rate may need to
                be amended more than once. What types of criteria should the regulation
                establish for subsequent amendments to reference rates? Please explain
                how those criteria maintain the robustness of the new reference rate
                and avoid the problems that plagued LIBOR, such as market manipulation,
                etc. Should the agencies impose a cap on the number of times a
                reference rate may be amended and, if so, how should that cap be
                structured?
                 (6) The proposed rule does not specify any criteria for a
                replacement rate, but rather leaves this open to the parties. What
                types of rates might parties settle on? Should the agencies limit the
                scope of the replacement rate to specific criteria, such as that the
                rate must be based on observable, risk-free characteristics? If so,
                what other criteria might be appropriate, or what specific rates might
                be appropriate?
                 (7) The proposed rule intends to be accommodating to accompanying
                amendments that may be necessary to maintain the relative economics of
                the non-cleared swap following the replacement of a reference rate. Do
                the accompanying amendments provide sufficient flexibility to permit
                the additional modifications that parties plan to make? If not, please
                explain what changes the agencies should contemplate and why, and
                explain how
                [[Page 59980]]
                they should be permitted under the rule. Alternatively, would the
                accompanying amendments change the non-cleared swap such that it does
                not resemble the original legacy contract? If this is a concern, how
                should the rule address it? For example, should the agencies prohibit
                an amendment to the currency from being eligible for the safe harbor?
                 (8) The proposed rule does not specify an end date by which these
                IBOR-related amendments must be completed. Should the agencies include
                an end date? Should it be one year, two years, five years, ten years?
                Are there legacy contracts that would still be in place in ten years
                such that a ten-year timeframe would be realistic?
                 (9) As noted above, the agencies propose to permit the replacement
                of an IBOR in the floating-rate leg of the swap with a new reference
                rate, and would also permit the fixed-rate leg in a fixed-floating
                interest rate swap to be modified to maintain the economics of the non-
                cleared swap. Is this approach appropriate in order for the fixed-
                floating swap to retain its legacy status, and if not, how should it be
                modified?
                B. Non-Cleared Swaps Between CSEs and an Affiliate
                 (1) What, if any, additional conditions or limitations should the
                agencies impose before allowing a covered swap entity to take advantage
                of the exemption from initial margin requirements for inter-affiliate
                swaps? For example, the CFTC imposes certain limitations and conditions
                on its initial margin exemption for inter-affiliate swaps. Discuss why
                any additional conditions may be appropriate to ensure the safety and
                soundness of the covered swap entity.
                 (2) Should the definitions of ``affiliate'' and ``control'' in
                Sec. _.11 be revised to match with the definitions of the Board's
                Regulation W, Regulation Y, Regulation Q, or any other regulations? Why
                or why not?
                C. Additional Compliance Date for Initial Margin Requirements
                 (1) Does the proposed one-year extension of the final
                implementation timeline to September 1, 2021 substantially address all
                implementation challenges? Please explain.
                D. Documentation Requirements
                 (1) What issues are there, if any, related to how parties document
                transactions in compliance with the Swap Margin Rule that should be
                considered by the agencies?
                 (2) Are there any reasons why covered swap entities would not be
                able to reasonably anticipate the point in time at which they will
                cross the $50 million initial margin threshold amount such that they
                can prepare the required documentation in time? Please explain.
                E. Portfolio Compression Exercises and Other Amendments
                 (1) What are the methods used by covered swap entities to determine
                whether portfolio compression exercises would meet the requirements set
                out in the proposal, including not extending the remaining maturity or
                increasing the total effective notional amounts?
                 (2) Should the Rule limit compression exercises to mitigating only
                certain types of risk and if so, which types of risk?
                 (3) For a replacement swap that results from a compression
                exercise, should the agencies consider a different method of
                restricting either the total effective notional amount or the remaining
                maturity? Would commenters be supportive of an approach that limits the
                remaining maturity to an ``effective maturity'' calculation based on
                the total effective notional amounts in the exercise? For example, swap
                1 has a notional amount of 10 and 3 years remaining maturity and swap 2
                has a notional amount of 8 and 5 years remaining maturity. Under the
                ``effective maturity'' calculation, the replacement swap could not
                exceed an effective maturity of 3 years and 10 months, calculated as
                (3*10 + 5*8)/(10+8). The replacement swap with a 3 year and 10 month
                maturity would also not be able to exceed a total effective notional
                amount of 18 (10+8).
                 (4) How should the Rule be more specific about technical amendments
                that are permitted? How can the Rule better explain that amending a
                swap's underlying asset or indicator, such as a security, currency,
                interest rate, commodity, or price index, is not a technical amendment?
                IX. Administrative Law Matters
                A. Solicitation of Comments on Use of Plain Language
                 Section 722 of the Gramm-Leach-Bliley Act \38\ requires the OCC,
                Board, and FDIC to use plain language in all proposed and final rules
                published after January 1, 2000. The OCC, Board, and FDIC have sought
                to present the proposed rule in a simple and straightforward manner and
                invite comments on whether the proposal is clearly stated and
                effectively organized, and how to make this proposal easier to
                understand. For example:
                ---------------------------------------------------------------------------
                 \38\ Public Law 106-102, 113 Stat. 1338, 1471 (codified at 12
                U.S.C. 4809).
                ---------------------------------------------------------------------------
                 Have we organized the material to suit your needs? If not,
                how could this material be better organized?
                 Are the requirements in the proposed rule clearly stated?
                If not, how could the proposed rule be more clearly stated?
                 Does the proposed rule contain language or jargon that is
                not clear? If so, which language requires clarification?
                 Would a different format (grouping and order of sections,
                use of headings, paragraphing) make the proposed rule easier to
                understand? If so, what changes to the format would make the proposed
                rule easier to understand?
                 What else could we do to make the proposed rule easier to
                understand?
                B. Paperwork Reduction Act Analysis
                 Certain provisions of the proposed rulemaking contain ``collection
                of information'' requirements within the meaning of the Paperwork
                Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with
                the requirements of the PRA, the agencies may not conduct or sponsor,
                and a respondent is not required to respond to, an information
                collection unless it displays a currently valid Office of Management
                and Budget (OMB) control number.
                 The agencies reviewed the proposed rulemaking and determined that
                it revises certain recordkeeping requirements that have been previously
                cleared under various OMB control numbers. In order to be consistent
                across the agencies, the agencies are also applying a conforming
                methodology for calculating the burden estimates. The agencies are
                proposing to extend for three years, with revision, these information
                collections. The OCC and FDIC have submitted to OMB for review under
                section 3507(d) of the PRA (44 U.S.C. 3507(d)) and section 1320.11 of
                the OMB's implementing regulations (5 CFR 1320). The Board has reviewed
                the information collection under its delegated authority. The OMB
                control numbers are 1557-0251 (OCC), 3064-0204 (FDIC), and 7100-0364
                (Board). The FCA has determined the notice of proposed rulemaking has
                no PRA implications because Farm Credit System institutions are
                Federally chartered instrumentalities of the United States and
                instrumentalities of the United States are specifically excepted from
                the definition of ``collection of information'' contained in 44 U.S.C.
                3502(3). The FHFA has determined that the notice of proposed rulemaking
                does not contain any
                [[Page 59981]]
                collection of information for which the agency must obtain clearance
                under the PRA.
                 Comments are invited on:
                 a. Whether the collections of information are necessary for the
                proper performance of the agencies' functions, including whether the
                information has practical utility;
                 b. The accuracy or the estimate of the burden of the information
                collections, including the validity of the methodology and assumptions
                used;
                 c. Ways to enhance the quality, utility, and clarity of the
                information to be collected;
                 d. Ways to minimize the burden of the information collections on
                respondents, including through the use of automated collection
                techniques or other forms of information technology; and
                 e. Estimates of capital or startup costs and costs of operation,
                maintenance, and purchase of services to provide information.
                 All comments will become a matter of public record. Comments on
                aspects of this notice that may affect reporting, recordkeeping, or
                disclosure requirements and burden estimates should be sent to the
                addresses listed in the ADDRESSES section of this document. A copy of
                the comments may also be submitted to the OMB desk officer by mail to
                U.S. Office of Management and Budget, 725 17th Street NW, #10235,
                Washington, DC 20503; facsimile to (202) 395-6974; or email to
                [email protected], Attention, Federal Banking Agency Desk
                Officer.
                Current Actions
                 The proposed rulemaking removes the recordkeeping requirement in
                section _.11(b) that a covered swap entity shall calculate the amount
                of initial margin that would be required to be posted to an affiliate
                that is a financial end user with material swaps exposure pursuant to
                section _.3(b) and provide documentation of such amount to each
                affiliate on a daily basis.
                Proposed Revision, With Extension, of the Following Information
                Collections
                 Title of Information Collection: Reporting and Recordkeeping
                Requirements Associated with Swaps Margin and Swaps Push-Out.
                 Frequency: Annual and event generated.
                 Affected Public: Businesses or other for-profit.
                 Estimated average hours per response:
                Reporting
                 Section _.1(d)--1 hour (on average of 1,000 times per year).
                 Sections _.8(c) and _.8(d)--240 hours.
                 Section _.8(f)(3)--50 hours.
                 Section _.9(e)--10 hours (on average of 3 times per year).
                 Sections 237.22(a)(1) and 237.22(e) (Board only)--7 hours.
                Recordkeeping
                 Sections _.2 (definition of ``eligible master netting agreement,''
                item 4), 237.8(g), and 237.10--5 hours.
                 Section _.5(c)(2)(i)--4 hours.
                 Section _.7(c)--100 hours.
                 Sections _.8(e) and 237.8(f)--40 hours.
                 Section _.8(h)--20 hours.
                Disclosure
                 Section _.1(h)--1 hour.
                OCC
                 Respondents: Any national bank or a subsidiary thereof, Federal
                savings association or a subsidiary thereof, or Federal branch or
                agency of a foreign bank that is registered as a swap dealer, major
                swap participant, security-based swap dealer, or major security-based
                swap participant.
                 Estimated number of respondents: 10.
                 Proposed revisions only estimated annual burden: -2,500 hours.
                 Total estimated annual burden: 14,900 hours.
                Board
                 Respondents: Any state member bank (as defined in 12 CFR 208.2(g)),
                bank holding company (as defined in 12 U.S.C. 1841), savings and loan
                holding company (as defined in 12 U.S.C. 1467a), foreign banking
                organization (as defined in 12 CFR 211.21(o)), foreign bank that does
                not operate an insured branch, state branch or state agency of a
                foreign bank (as defined in 12 U.S.C. 3101(b)(11) and (12)), or Edge or
                agreement corporation (as defined in 12 CFR 211.1(c)(2) and (3)) that
                is registered as a swap dealer, major swap participant, security-based
                swap dealer, or major security-based swap participant.
                 Estimated number of respondents: 41.
                 Proposed revisions only estimated annual burden: -10,209 hours.
                 Total estimated annual burden: 61,104 hours.
                FDIC
                 FDIC: Any FDIC-insured state-chartered bank that is not a member of
                the Federal Reserve System or FDIC-insured state-chartered savings
                association that is registered as a swap dealer, major swap
                participant, security-based swap dealer, or major security-based swap
                participant.
                 Estimated number of respondents: 1.\39\
                ---------------------------------------------------------------------------
                 \39\ The FDIC estimates zero entities, but is estimating one
                here as a placeholder.
                ---------------------------------------------------------------------------
                 Proposed revisions only estimated annual burden: -249 hours.
                 Total estimated annual burden: 1,490 hours.
                C. Regulatory Flexibility Act Analysis
                 OCC: In general, the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
                et seq.) requires that in connection with a rulemaking, an agency
                prepare and make available for public comment a regulatory flexibility
                analysis that describes the impact of the rule on small entities. Under
                section 605(b) of the RFA, this analysis is not required if an agency
                certifies that the rule will not have a significant economic impact on
                a substantial number of small entities and publishes its certification
                and a brief explanatory statement in the Federal Register along with
                its rule.
                 As part of our analysis, we consider whether, pursuant to the RFA,
                the proposed rule would have a significant economic impact on a
                substantial number of small entities. The OCC currently supervises
                approximately 782 small entities.\40\ Among these 782 small entities,
                44 could be affected by the proposed rule if one or more of these small
                entities are a party to a financial contract with a covered swap
                entity. Because we believe banks will incur de minimis costs, if any,
                to comply with the proposed rule, we conclude that the proposed rule,
                if implemented, would not have a significant economic impact on a
                substantial number of small entities.\41\
                ---------------------------------------------------------------------------
                 \40\ We base our estimate of the number of small entities on the
                Small Business Administration's (SBA's) size thresholds for
                commercial banks and savings institutions, and trust companies,
                which are $600 million and $41.5 million, respectively. Consistent
                with the General Principles of Affiliation, 13 CFR 121.103(a), we
                count the assets of affiliated financial institutions when
                determining if we should classify an OCC-supervised institution as a
                small entity. We use December 31, 2018, to determine size because a
                ``financial institution's assets are determined by averaging the
                assets reported on its four quarterly financial statements for the
                preceding year.'' See footnote 8 of the SBA's Table of Size
                Standards.
                 \41\ As one way of determining whether any of the small entities
                is a covered swap entity, the OCC reviewed the CFTC's listing of
                registered swap dealers at http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer. The SEC has not yet imposed a
                registration requirement on entities that meet the definition of
                security-based swap dealer or major security-based swap participant.
                ---------------------------------------------------------------------------
                 Board: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
                generally requires that an agency prepare and make available for public
                comment an initial regulatory flexibility analysis in connection with a
                notice of proposed
                [[Page 59982]]
                rulemaking or certify that the proposed rule will not have a
                significant economic impact on a substantial number of small
                entities.\42\ The Board welcomes comment on all aspects of the initial
                regulatory flexibility analysis. A final regulatory flexibility
                analysis will be conducted after consideration of comments received
                during the public comment period.
                ---------------------------------------------------------------------------
                 \42\ See 5 U.S.C. 603(a).
                ---------------------------------------------------------------------------
                 As described above, the proposed rule would (i) permit legacy swaps
                to retain their legacy status in the event that they are amended to
                replace an IBOR or other discontinued rate, (ii) repeal the inter-
                affiliate initial margin provisions, introduce an additional compliance
                date for initial margin requirements, (iii) introduce an additional
                compliance date for initial margin requirements, (iv) clarify the point
                in time at which trading documentation must be in place, (v) permit
                legacy swaps to retain their legacy status in the event that they are
                amended due to technical amendments, notional reductions, or portfolio
                compression exercises, and (vi) make technical changes to relocate the
                provision addressing amendments to legacy swaps that are made to comply
                with the QFC Rules.
                 This proposed rule applies to financial institutions that are
                covered swap entities that are subject to the requirements of the Swap
                Margin Rule. Under SBA regulations, the finance and insurance sector
                includes commercial banking, savings institutions, credit unions, other
                depository credit intermediation and credit card issuing entities
                (financial institutions). With respect to financial institutions that
                are covered swap entities under the Swap Margin Rule, a financial
                institution generally is considered small if it has assets of $600
                million or less.\43\ Covered swap entities would be considered
                financial institutions for purposes of the RFA in accordance with SBA
                regulations. The Board does not expect that any covered swap entity is
                likely to be a small financial institution, because a small financial
                institution is unlikely to engage in the level of swap activity that
                would require it to register as a swap dealer or a major swap
                participant with the CFTC or a security-based swap dealer or security-
                based major swap participant with the U.S. Securities and Exchange
                Commission (SEC).\44\ None of the current Board-regulated covered swap
                entities are small entities.
                ---------------------------------------------------------------------------
                 \43\ See 13 CFR 121.201 (effective December 2, 2014, as amended
                by 84 FR 34261, effective August 19, 2019); see also 13 CFR
                121.103(a)(6) (noting factors that the SBA considers in determining
                whether an entity qualifies as a small business, including receipts,
                employees, and other measures of its domestic and foreign
                affiliates).
                 \44\ The CFTC has published a list of provisionally registered
                swap dealers as of October 17, 2017 that does not include any small
                financial institutions. See http://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer. The SEC has not yet imposed a
                registration requirement on entities that meet the definition of
                security-based swap dealer or major security-based swap participant.
                ---------------------------------------------------------------------------
                 The Board does not believe the proposed rule will result in any new
                reporting, recordkeeping or other compliance requirements. In light of
                the foregoing, the Board does not believe that this proposed rule would
                have a significant economic impact on a substantial number of small
                entities and therefore there are no significant alternatives to the
                proposed rule that would reduce the impact on small entities.
                 FDIC: The RFA generally requires that, in connection with a
                proposed rulemaking, an agency prepare and make available for public
                comment an initial regulatory flexibility analysis describing the
                impact of the proposed rule on small entities. However, a regulatory
                flexibility analysis is not required if the agency certifies that the
                proposed rule will not have a significant economic impact on a
                substantial number of small entities. The SBA has defined ``small
                entities'' to include banking organizations with total assets of less
                than or equal to $600 million that are independently owned and operated
                or owned by a holding company with less than or equal to $600 million
                in total assets.\45\ Generally, the FDIC considers a significant effect
                to be a quantified effect in excess of 5 percent of total annual
                salaries and benefits per institution, or 2.5 percent of total non-
                interest expenses. The FDIC believes that effects in excess of these
                thresholds typically represent significant effects for FDIC-supervised
                institutions. For the reasons described below, the FDIC certifies
                pursuant to section 605(b) of the RFA that the proposed rule will not
                have a significant economic impact on a substantial number of small
                entities.
                ---------------------------------------------------------------------------
                 \45\ The SBA defines a small banking organization as having $600
                million or less in assets, where an organization's ``assets are
                determined by averaging the assets reported on its four quarterly
                financial statements for the preceding year.'' See 13 CFR 121.201
                (as amended by 84 FR 34261, effective August 19, 2019). In its
                determination, the ``SBA counts the receipts, employees, or other
                measure of size of the concern whose size is at issue and all of its
                domestic and foreign affiliates.'' See 13 CFR 121.103. Following
                these regulations, the FDIC uses a covered entity's affiliated and
                acquired assets, averaged over the preceding four quarters, to
                determine whether the covered entity is ``small'' for the purposes
                of RFA.
                ---------------------------------------------------------------------------
                 According to data from recent Consolidated Reports of Income and
                Condition (Call Report),\46\ the FDIC supervised 3,465 institutions. Of
                those, 2,705 are considered ``small,'' according to the terms of the
                RFA. As discussed previously, the proposed rule directly applies to
                covered swap entities (which includes persons registered with the CFTC
                as swap dealers or major swap participants pursuant to the Commodity
                Exchange Act of 1936 and persons registered with the SEC as security-
                based swap dealers and major security-based swap participants under the
                Securities Exchange Act of 1934) that are subject to the requirements
                of the Swap Margin Rule. The FDIC has identified 105 swap dealers and
                major swap participants that, as of May 22, 2019, have registered as
                swap entities.\47\ None of these institutions are supervised by the
                FDIC.
                ---------------------------------------------------------------------------
                 \46\ FDIC Call Report, March 31, 2019.
                 \47\ While the SEC had adopted a regulation that would require
                registration of security-based swap dealers and major security-based
                swap participants, as of June 28, 2019, there was no date
                established as the compliance date and no SEC-published list of any
                such entities that so registered (see 84 FR 4906 at 4925).
                Accordingly, no security-based swap dealers and no major security-
                based swap participants have been identified as swap entities by the
                FDIC. In identifying the 105 institutions referred to in the text,
                the FDIC used the list of swap dealers set forth, on June 28, 2019
                (providing data as of May 22, 2019) at https://www.cftc.gov/LawRegulation/DoddFrankAct/registerswapdealer.html. Major swap
                participants, among others, are required to apply for registration
                through a filing with the National Futures Association. Accordingly,
                the FDIC reviewed the National Futures Association https://www.nfa.futures.org/members/sd/index.html to determine whether there
                were registered major swap participants. As of June 21, 2019, there
                were no major swap participants listed on this link.
                ---------------------------------------------------------------------------
                 As an amendment to the Swap Margin Rule, the proposed rule also
                affects counterparties to swaps entered into by covered swap entities.
                However, the Terrorism Risk Insurance Program Reauthorization Act of
                2015 excludes non-cleared swaps entered into for hedging purposes by a
                financial institution with total assets of $10 billion or less from the
                requirements of the Swap Margin Rule. Given this exclusion, a non-
                cleared swap between a covered swap entity and a small FDIC-supervised
                entity that is used to hedge a commercial risk of the small entity will
                not be subject to the Swap Margin Rule. The FDIC believes that it is
                unlikely that any small entity it supervises will engage in non-cleared
                swaps for purposes other than hedging.
                 Given that no FDIC-supervised small entities are covered swap
                entities and that it is unlikely that FDIC-supervised small entities
                enter into non-cleared swaps for purposes other than hedging, this
                proposed rule is not expected to have a significant economic impact on
                [[Page 59983]]
                a substantial number of small entities supervised by the FDIC. For
                these reasons, the FDIC certifies that the proposed rule will not have
                a significant economic impact on a substantial number of small
                entities, within the meaning of those terms as used in the RFA.
                Accordingly, a regulatory flexibility analysis is not required.
                 The FDIC invites comments on all aspects of the supporting
                information provided in this section, and in particular, whether the
                proposed rule would have any significant effects on small entities that
                the FDIC has not identified.
                 FCA: Pursuant to section 605(b) of the Regulatory Flexibility Act
                (5 U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule
                will not have a significant economic impact on a substantial number of
                small entities. Each of the banks in the Farm Credit System, considered
                together with its affiliated associations, has assets and annual income
                in excess of the amounts that would qualify them as small entities; nor
                does the Federal Agricultural Mortgage Corporation meet the definition
                of ``small entity.'' Therefore, Farm Credit System institutions are not
                ``small entities'' as defined in the Regulatory Flexibility Act.
                 FHFA: The Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
                requires that a regulation that has a significant economic impact on a
                substantial number of small entities, small businesses, or small
                organizations must include an initial regulatory flexibility analysis
                describing the regulation's impact on small entities. FHFA need not
                undertake such an analysis if the agency has certified the regulation
                will not have a significant economic impact on a substantial number of
                small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the
                proposed rule under the Regulatory Flexibility Act, and certifies that
                the proposed rule does not have a significant economic impact on a
                substantial number of small entities because the proposed rule is
                applicable only to FHFA's regulated entities, which are not small
                entities for purposes of the Regulatory Flexibility Act.
                D. Unfunded Mandates Reform Act of 1995
                 Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
                Mandates Act) (2 U.S.C. 1532) requires that the OCC prepare a budgetary
                impact statement before promulgating a rule that includes any Federal
                mandate that may result in the expenditure by State, local, and Tribal
                governments, in the aggregate, or by the private sector, of $100
                million or more (adjusted annually for inflation, currently $154
                million) in any one year. If a budgetary impact statement is required,
                section 205 of the Unfunded Mandates Act also requires the OCC to
                identify and consider a reasonable number of regulatory alternatives
                before promulgating a rule.
                 The OCC analyzed the amendments proposed in this notice of proposed
                rulemaking, and has determined that they would not result in
                expenditures by State, local, and Tribal governments, in the aggregate,
                or by the private sector, of $154 million in any one year. Accordingly,
                the OCC has not prepared a written statement under sections 202 and
                205.
                E. Riegle Community Development and Regulatory Improvement Act of 1994
                 Pursuant to section 302(a) of the Riegle Community Development and
                Regulatory Improvement Act of 1994 (RCDRIA), in determining the
                effective date and administrative compliance requirements for new
                regulations that impose additional reporting, disclosure, or other
                requirements on insured depository institutions, each Federal banking
                agency must consider, consistent with principles of safety and
                soundness and the public interest, any administrative burdens that such
                regulations would place on depository institutions, including small
                depository institutions, and customers of depository institutions, as
                well as the benefits of such regulations.\48\ In addition, section
                302(b) of RCDRIA requires new regulations and amendments to regulations
                that impose additional reporting, disclosures, or other new
                requirements on insured depository institutions generally to take
                effect on the first day of a calendar quarter that begins on or after
                the date on which the regulations are published in final form.\49\ Each
                Federal banking agency has determined that the proposed rule would not
                impose additional reporting, disclosure, or other requirements;
                therefore the requirements of the RCDRIA do not apply. However, the
                agencies note that comments on these matters have been solicited in
                other sections of this Supplementary Information section, and that the
                requirements of RCDRIA will be considered as part of the overall
                rulemaking process. In addition, the agencies also invite any other
                comments that will further inform the agencies' consideration of
                RCDRIA.
                ---------------------------------------------------------------------------
                 \48\ 12 U.S.C. 4802(a).
                 \49\ 12 U.S.C. 4802.
                ---------------------------------------------------------------------------
                List of Subjects
                12 CFR Part 45
                 Administrative practice and procedure, Capital, Margin
                requirements, National Banks, Federal Savings Associations, Reporting
                and recordkeeping requirements, Risk.
                12 CFR Part 237
                 Administrative practice and procedure, Banks, banking, Foreign
                banking, Holding companies, Reporting and recordkeeping requirements,
                Swaps.
                 12 CFR Part 349
                 Administrative practice and procedure, Banks, banking, Holding
                companies, Capital, Margin Requirements, Reporting and recordkeeping
                requirements, Savings associations, Risk, Swaps.
                12 CFR Part 624
                 Accounting, Agriculture, Banks, Banking, Capital, Cooperatives,
                Credit, Margin requirements, Reporting and recordkeeping requirements,
                Risk, Rural areas, Swaps.
                12 CFR Part 1221
                 Government-sponsored enterprises, Mortgages, Securities.
                DEPARTMENT OF THE TREASURY
                Office of the Comptroller of the Currency
                12 CFR Chapter I
                Authority and Issuance
                 For the reasons set forth in the common preamble and under the
                authority of 12 U.S.C. 93a and 5412(b)(2)(B), the Office of the
                Comptroller of the Currency proposes to amend part 45 of Title 12, Code
                of Federal Regulations, as follows:
                PART 45--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
                0
                1. The authority citation for part 45 continues to read as follows:
                 Authority: 7 U.S.C. 6s(e), 12 U.S.C. 1 et seq., 12 U.S.C. 93a,
                161, 481, 1818, 3907, 3909, 5412(b)(2)(B), and 15 U.S.C. 78o-10(e).
                0
                2. Section 45.1 is amended by:
                0
                a. Revising paragraphs (e)(6), (e)(7), (h) introductory text, and
                (h)(1); and
                0
                b. Adding paragraphs (h)(3) through (h)(5).
                 The revisions and additions read as follows:
                Sec. 45.1 Authority, purpose, scope, exemptions and compliance dates.
                * * * * *
                [[Page 59984]]
                 (e) Compliance dates. * * *
                * * * * *
                 (6) September 1, 2020 with respect to requirements in Sec. 45.3
                for initial margin for any non-cleared swaps and non-cleared security-
                based swaps, where both:
                 (i) The covered swap entity combined with all its affiliates; and
                 (ii) Its counterparty combined with all its affiliates, have an
                average daily aggregate notional amount of non-cleared swaps, foreign
                exchange forwards and foreign exchange swaps for March, April and May
                2020 that exceeds $50 billion, where such amounts are calculated only
                for business days; and
                 (iii) In calculating the amounts in paragraphs (e)(6)(i) and (ii)
                of this section, an entity shall count the average daily aggregate
                notional amount of a non-cleared swap, a non-cleared security-based
                swap, a foreign exchange forward or a foreign exchange swap between the
                entity and an affiliate only one time, and shall not count a swap or
                security-based swap that is exempt pursuant to paragraph (d) of this
                section.
                 (7) September 1, 2021 with respect to requirements in Sec. 45.3
                for initial margin for any other covered swap entity with respect to
                non-cleared swaps and non-cleared security-based swaps entered into
                with any other counterparty.
                * * * * *
                 (h) Legacy swaps. Covered swaps entities are required to comply
                with the requirements of this part for non-cleared swaps and non-
                cleared security-based swaps entered into on or after the relevant
                compliance dates for variation margin and for initial margin
                established in paragraph (e) of this section. Any non-cleared swap or
                non-cleared security-based swap entered into before such relevant date
                shall remain outside the scope of this part if amendments are made to
                the non-cleared swap or non-cleared security-based swap by method of
                adherence to a protocol, contractual amendment of an agreement or
                confirmation, or execution of a new contract in replacement of and
                immediately upon termination of an existing contract, as follows:
                 (1) Amendments to the non-cleared swap or non-cleared security-
                based swap solely to comply with the requirements of part 47, subpart I
                of part 252 or part 382 of title 12, as applicable;
                * * * * *
                 (3)(i) Amendments to the non-cleared swap or non-cleared security-
                based swap that are made solely to accommodate the replacement of:
                 (A) An interbank offered rate (IBOR) including, but not limited to,
                the London Interbank Offered Rate (LIBOR), the Tokyo Interbank Offered
                Rate (TIBOR), the Bank Bill Swap Rate (BBSW), the Singapore Interbank
                Offered Rate (SIBOR), the Canadian Dollar Offered Rate (CDOR), Euro
                Interbank Offered Rate (EURIBOR), and the Hong Kong Interbank Offered
                Rate (HIBOR);
                 (B) Any other interest rate that a covered swap entity reasonably
                expects to be discontinued or reasonably determines has lost its
                relevance as a reliable benchmark due to a significant impairment; or
                 (C) Any other interest rate that succeeds a rate referenced in
                paragraph (h)(3)(i)(A) or (h)(3)(i)(B) of this section. An amendment
                made under this paragraph (h)(3)(i)(C) could be one of multiple
                amendments made under this paragraph (h)(3)(i)(C). For example, an
                amendment could replace an IBOR with a temporary interest rate and
                later replace the temporary interest rate with a permanent interest
                rate.
                 (ii) Amendments to accommodate replacement of a rate described in
                paragraph (h)(3)(i) may also incorporate spreads or other adjustments
                to the replacement rate and make other necessary technical changes to
                operationalize the determination of payments or other exchanges of
                economic value using the replacement rate, including changes to
                determination dates, calculation agents, and payment dates, so long as
                the changes do not extend the maturity or increase the total effective
                notional amount of the non-cleared swap or non-cleared security-based
                swap.
                 (4) The non-cleared swap or non-cleared security-based swap was
                amended or replaced solely to reduce risk or remain risk-neutral
                through portfolio compression between or among covered swap entities
                and their counterparties as long as:
                 (i) A non-cleared swap or non-cleared security-based swap that is
                amended to reflect the outcome of the compression exercise does not:
                 (A) Extend the remaining maturity; or
                 (B) Increase the total effective notional amount of that swap; or
                 (ii) A non-cleared swap or non-cleared security-based swap that is
                entered into as a replacement to reflect the outcome of the compression
                exercise does not:
                 (A) Exceed the sum of the total effective notional amounts of all
                of the swaps that were submitted to the compression exercise that had
                the same or longer remaining maturity as the replacement swap; or
                 (B) Exceed the longest remaining maturity of all the swaps
                submitted to the compression exercise.
                 (5) The non-cleared swap or non-cleared security-based swap was
                amended solely for one of the following reasons:
                 (i) To reflect technical changes, such as addresses, identities of
                parties for delivery of formal notices, and other administrative or
                operational provisions as long as they do not alter the non-cleared
                swap's or non-cleared security-based swap's underlying asset or
                indicator, the remaining maturity, or the total effective notional
                amount; or
                 (ii) To reduce the notional amount, so long as:
                 (A) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                terminated; or
                 (B) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                novated to a third party, who complies with applicable margin rules for
                the novated portion upon the transfer.
                0
                3. Amend Sec. 45.10 by revising paragraph (a) to read as follows:
                Sec. 45.10 Documentation of margin matters.
                * * * * *
                 (a) Provides the covered swap entity and its counterparty with the
                contractual right to collect and post initial margin and variation
                margin in such amounts, in such form, and under such circumstances as
                are required by this subpart, and at such time as initial margin or
                variation margin is required to be collected or posted under Sec. 45.3
                or Sec. 45.4, as applicable; and
                * * * * *
                0
                4. Section 45.11 is revised to read as follows:
                Sec. 45.11 Initial margin exemption for affiliates.
                 (a) The requirement for a covered swap entity to collect or post
                initial margin under Sec. 45.3 does not apply with respect to any non-
                cleared swap or non-cleared security-based swap with a counterparty
                that is an affiliate.
                 (b) For purposes of this section, an affiliate means:
                 (1) An affiliate as defined in Sec. 45.2; and
                 (2) Any company that controls, is controlled by, or is under common
                control with the covered swap entity through the direct or indirect
                exercise of controlling influence over the management or policies of
                the controlled company.
                [[Page 59985]]
                Board of Governors of the Federal Reserve System
                12 CFR Chapter II
                Authority and Issuance
                 For the reasons set forth in the common preamble, the Board of
                Governors of the Federal Reserve System proposes to amend 12 CFR part
                237 to read as follows:
                PART 237--SWAPS MARGIN AND SWAPS PUSH-OUT
                0
                5. The authority citation for part 237 continues to read as follows:
                 Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 15 U.S.C. 8305,
                12 U.S.C. 221 et seq., 12 U.S.C. 343-350, 12 U.S.C. 1818, 12 U.S.C.
                1841 et seq., 12 U.S.C. 3101 et seq., and 12 U.S.C. 1461 et seq.
                Subpart A-- Margin and Capital Requirements for Covered Swap
                Entities (Regulation KK)
                0
                6. Section 237.1 is amended by:
                0
                a. Revising paragraphs (e)(6), (e)(7), (h) introductory text, and
                (h)(1); and
                0
                b. Adding paragraphs (h)(3) through (h)(5).
                 The revisions and additions read as follows:
                Sec. 237.1 Authority, purpose, scope, exemptions and compliance
                dates.
                * * * * *
                 (e) * * *
                 (6) September 1, 2020 with respect to requirements in Sec. 237.3
                for initial margin for any non-cleared swaps and non-cleared security-
                based swaps, where both:
                 (i) The covered swap entity combined with all its affiliates; and
                 (ii) Its counterparty combined with all its affiliates, have an
                average daily aggregate notional amount of non-cleared swaps, foreign
                exchange forwards and foreign exchange swaps for March, April and May
                2020 that exceeds $50 billion, where such amounts are calculated only
                for business days; and
                 (iii) In calculating the amounts in paragraphs (e)(6)(i) and (ii)
                of this section, an entity shall count the average daily aggregate
                notional amount of a non-cleared swap, a non-cleared security-based
                swap, a foreign exchange forward or a foreign exchange swap between the
                entity and an affiliate only one time, and shall not count a swap or
                security-based swap that is exempt pursuant to paragraph (d) of this
                section.
                 (7) September 1, 2021 with respect to requirements in Sec. 237.3
                for initial margin for any other covered swap entity with respect to
                non-cleared swaps and non-cleared security-based swaps entered into
                with any other counterparty.
                * * * * *
                 (h) Legacy swaps. Covered swaps entities are required to comply
                with the requirements of this subpart for non-cleared swaps and non-
                cleared security-based swaps entered into on or after the relevant
                compliance dates for variation margin and for initial margin
                established in paragraph (e) of this section. Any non-cleared swap or
                non-cleared security-based swap entered into before such relevant date
                shall remain outside the scope of this subpart if amendments are made
                to the non-cleared swap or non-cleared security-based swap by method of
                adherence to a protocol, contractual amendment of an agreement or
                confirmation, or execution of a new contract in replacement of and
                immediately upon termination of an existing contract, as follows:
                 (1) Amendments to the non-cleared swap or non-cleared security-
                based swap solely to comply with the requirements of part 47, subpart I
                of part 252 or part 382 of title 12, as applicable;
                * * * * *
                 (3)(i) Amendments to the non-cleared swap or non-cleared security-
                based swap that are made solely to accommodate the replacement of:
                 (A) An interbank offered rate (IBOR) including, but not limited to,
                the London Interbank Offered Rate (LIBOR), the Tokyo Interbank Offered
                Rate (TIBOR), the Bank Bill Swap Rate (BBSW), the Singapore Interbank
                Offered Rate (SIBOR), the Canadian Dollar Offered Rate (CDOR), Euro
                Interbank Offered Rate (EURIBOR), and the Hong Kong Interbank Offered
                Rate (HIBOR);
                 (B) Any other interest rate that a covered swap entity reasonably
                expects to be discontinued or reasonably determines has lost its
                relevance as a reliable benchmark due to a significant impairment; or
                 (C) Any other interest rate that succeeds a rate referenced in
                paragraph (h)(3)(i)(A) or (h)(3)(i)(B) of this section. An amendment
                made under this paragraph (h)(3)(i)(C) could be one of multiple
                amendments made under this paragraph (h)(3)(i)(C). For example, an
                amendment could replace an IBOR with a temporary interest rate and
                later replace the temporary interest rate with a permanent interest
                rate.
                 (ii) Amendments to accommodate replacement of a rate described in
                paragraph (h)(3)(i) may also incorporate spreads or other adjustments
                to the replacement rate and make other necessary technical changes to
                operationalize the determination of payments or other exchanges of
                economic value using the replacement rate, including changes to
                determination dates, calculation agents, and payment dates, so long as
                the changes do not extend the maturity or increase the total effective
                notional amount of the non-cleared swap or non-cleared security-based
                swap.
                 (4) The non-cleared swap or non-cleared security-based swap was
                amended or replaced solely to reduce risk or remain risk-neutral
                through portfolio compression between or among covered swap entities
                and their counterparties as long as:
                 (i) A non-cleared swap or non-cleared security-based swap that is
                amended to reflect the outcome of the compression exercise does not:
                 (A) Extend the remaining maturity; or
                 (B) Increase the total effective notional amount of that swap; or
                 (ii) A non-cleared swap or non-cleared security-based swap that is
                entered into as a replacement to reflect the outcome of the compression
                exercise does not:
                 (A) Exceed the sum of the total effective notional amounts of all
                of the swaps that were submitted to the compression exercise that had
                the same or longer remaining maturity as the replacement swap; or
                 (B) Exceed the longest remaining maturity of all the swaps
                submitted to the compression exercise.
                 (5) The non-cleared swap or non-cleared security-based swap was
                amended solely for one of the following reasons:
                 (i) To reflect technical changes, such as addresses, identities of
                parties for delivery of formal notices, and other administrative or
                operational provisions as long as they do not alter the non-cleared
                swap's or non-cleared security-based swap's underlying asset or
                indicator, the remaining maturity, or the total effective notional
                amount; or
                 (ii) To reduce the notional amount, so long as:
                 (A) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                terminated; or
                 (B) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                novated to a third party, who complies with applicable margin rules for
                the novated portion upon the transfer.
                0
                7. Amend Sec. 237.10 by revising paragraph (a) to read as follows:
                Sec. 237.10 Documentation of margin matters.
                * * * * *
                [[Page 59986]]
                 (a) Provides the covered swap entity and its counterparty with the
                contractual right to collect and post initial margin and variation
                margin in such amounts, in such form, and under such circumstances as
                are required by this subpart, and at such time as initial margin or
                variation margin is required to be collected or posted under Sec.
                237.3 or Sec. 237.4, as applicable; and
                * * * * *
                0
                8. Section 237.11 is revised to read as follows:
                Sec. 237.11 Initial margin exemption for affiliates.
                 (a) The requirement for a covered swap entity to collect or post
                initial margin under Sec. 237.3 does not apply with respect to any
                non-cleared swap or non-cleared security-based swap with a counterparty
                that is an affiliate.
                 (b) For purposes of this section, an affiliate means:
                 (1) An affiliate as defined in Sec. 237.2; and
                 (2) Any company that controls, is controlled by, or is under common
                control with the covered swap entity through the direct or indirect
                exercise of controlling influence over the management or policies of
                the controlled company.
                Federal Deposit Insurance Corporation
                12 CFR Chapter III
                Authority and Issuance
                 For the reasons set forth in the Supplementary Information section,
                the Federal Deposit Insurance Corporation proposes to amend 12 CFR
                Chapter III as follows:
                PART 349--DERIVATIVES
                0
                9. The authority citation for subpart A of part 349 continues to read
                as follows:
                 Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), and 12 U.S.C.
                1818 and 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1813(q), 1818, 1819,
                and 3108.
                0
                10. Section 349.1 is amended by:
                0
                a. Revising paragraphs (e)(6), (e)(7), (h) introductory text, and
                (h)(1); and
                0
                b. Adding paragraphs (h)(3) through (h)(5).
                 The revisions and additions read as follows:
                Sec. 349.1 Authority, purpose, scope, exemptions and compliance
                dates.
                * * * * *
                 (e) * * *
                * * * * *
                 (6) September 1, 2020 with respect to requirements in Sec. 349.3
                for initial margin for any non-cleared swaps and non-cleared security-
                based swaps, where both:
                 (i) The covered swap entity combined with all its affiliates; and
                 (ii) Its counterparty combined with all its affiliates, have an
                average daily aggregate notional amount of non-cleared swaps, foreign
                exchange forwards and foreign exchange swaps for March, April and May
                2020 that exceeds $50 billion, where such amounts are calculated only
                for business days; and
                 (iii) In calculating the amounts in paragraphs (e)(6)(i) and (ii)
                of this section, an entity shall count the average daily aggregate
                notional amount of a non-cleared swap, a non-cleared security-based
                swap, a foreign exchange forward or a foreign exchange swap between the
                entity and an affiliate only one time, and shall not count a swap or
                security-based swap that is exempt pursuant to paragraph (d) of this
                section.
                 (7) September 1, 2021 with respect to requirements in Sec. 349.3
                for initial margin for any other covered swap entity with respect to
                non-cleared swaps and non-cleared security-based swaps entered into
                with any other counterparty.
                * * * * *
                 (h) Legacy swaps. Covered swaps entities are required to comply
                with the requirements of this part for non-cleared swaps and non-
                cleared security-based swaps entered into on or after the relevant
                compliance dates for variation margin and for initial margin
                established in paragraph (e) of this section. Any non-cleared swap or
                non-cleared security-based swap entered into before such relevant date
                shall remain outside the scope of this part if amendments are made to
                the non-cleared swap or non-cleared security-based swap by method of
                adherence to a protocol, contractual amendment of an agreement or
                confirmation, or execution of a new contract in replacement of and
                immediately upon termination of an existing contract, as follows:
                 (1) Amendments to the non-cleared swap or non-cleared security-
                based swap solely to comply with the requirements of part 47, subpart I
                of part 252 or part 382 of title 12, as applicable;
                * * * * *
                 (3)(i) Amendments to the non-cleared swap or non-cleared security-
                based swap that are made solely to accommodate the replacement of:
                 (A) An interbank offered rate (IBOR) including, but not limited to,
                the London Interbank Offered Rate (LIBOR), the Tokyo Interbank Offered
                Rate (TIBOR), the Bank Bill Swap Rate (BBSW), the Singapore Interbank
                Offered Rate (SIBOR), the Canadian Dollar Offered Rate (CDOR), Euro
                Interbank Offered Rate (EURIBOR), and the Hong Kong Interbank Offered
                Rate (HIBOR);
                 (B) Any other interest rate that a covered swap entity reasonably
                expects to be discontinued or reasonably determines has lost its
                relevance as a reliable benchmark due to a significant impairment; or
                 (C) Any other interest rate that succeeds a rate referenced in
                paragraph (h)(3)(i)(A) or (h)(3)(i)(B) of this section. An amendment
                made under this paragraph (h)(3)(i)(C) could be one of multiple
                amendments made under this paragraph (h)(3)(i)(C). For example, an
                amendment could replace an IBOR with a temporary interest rate and
                later replace the temporary interest rate with a permanent interest
                rate.
                 (ii) Amendments to accommodate replacement of a rate described in
                paragraph (h)(3)(i) may also incorporate spreads or other adjustments
                to the replacement rate and make other necessary technical changes to
                operationalize the determination of payments or other exchanges of
                economic value using the replacement rate, including changes to
                determination dates, calculation agents, and payment dates, so long as
                the changes do not extend the maturity or increase the total effective
                notional amount of the non-cleared swap or non-cleared security-based
                swap.
                 (4) The non-cleared swap or non-cleared security-based swap was
                amended or replaced solely to reduce risk or remain risk-neutral
                through portfolio compression between or among covered swap entities
                and their counterparties as long as:
                 (i) A non-cleared swap or non-cleared security-based swap that is
                amended to reflect the outcome of the compression exercise does not:
                 (A) Extend the remaining maturity; or
                 (B) Increase the total effective notional amount of that swap; or
                 (ii) A non-cleared swap or non-cleared security-based swap that is
                entered into as a replacement to reflect the outcome of the compression
                exercise does not:
                 (A) Exceed the sum of the total effective notional amounts of all
                of the swaps that were submitted to the compression exercise that had
                the same or longer remaining maturity as the replacement swap; or
                 (B) Exceed the longest remaining maturity of all the swaps
                submitted to the compression exercise.
                 (5) The non-cleared swap or non-cleared security-based swap was
                amended solely for one of the following reasons:
                [[Page 59987]]
                 (i) To reflect technical changes, such as addresses, identities of
                parties for delivery of formal notices, and other administrative or
                operational provisions as long as they do not alter the non-cleared
                swap's or non-cleared security-based swap's underlying asset or
                indicator, the remaining maturity, or the total effective notional
                amount; or
                 (ii) To reduce the notional amount, so long as:
                 (A) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                terminated; or
                 (B) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                novated to a third party, who complies with applicable margin rules for
                the novated portion upon the transfer.
                0
                11. Amend Sec. 349.10 by revising paragraph (a) to read as follows:
                Sec. 349.10 Documentation of margin matters.
                * * * * *
                 (a) Provides the covered swap entity and its counterparty with the
                contractual right to collect and post initial margin and variation
                margin in such amounts, in such form, and under such circumstances as
                are required by this subpart, and at such time as initial margin or
                variation margin is required to be collected or posted under Sec.
                349.3 or Sec. 349.4, as applicable; and
                * * * * *
                0
                12. Section 349.11 is revised to read as follows:
                Sec. 349.11 Initial margin exemption for affiliates.
                 (a) The requirement for a covered swap entity to collect or post
                initial margin under Sec. 349.3 does not apply with respect to any
                non-cleared swap or non-cleared security-based swap with a counterparty
                that is an affiliate.
                 (b) For purposes of this section, an affiliate means:
                 (1) An affiliate as defined in Sec. 349.2; and
                 (2) Any company that controls, is controlled by, or is under common
                control with the covered swap entity through the direct or indirect
                exercise of controlling influence over the management or policies of
                the controlled company.
                Farm Credit Administration
                Authority and Issuance
                 For the reasons set forth in the preamble, the Farm Credit
                Administration proposes to amend chapter VI of title 12, Code of
                Federal Regulations, as follows:
                PART 624--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP ENTITIES
                0
                13. The authority citation for part 624 continues to read as follows:
                 Authority: 7 U.S.C 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 2154,
                12 U.S.C. 2243, 12 U.S.C. 2252, 12 U.S.C. 2279bb-1.
                0
                14. Section 624.1 is amended by
                0
                a. Revising paragraphs (e)(6), (e)(7), (h) introductory text, and
                (h)(1); and
                0
                b. Adding paragraphs (h)(3) through (h)(5).
                 The revisions and additions read as follows:
                Sec. 624.1 Authority, purpose, scope, exemptions and compliance
                dates.
                * * * * *
                 (e) * * *
                * * * * *
                 (6) September 1, 2020 with respect to requirements in Sec. 624.3
                for initial margin for any non-cleared swaps and non-cleared security-
                based swaps, where both:
                 (i) The covered swap entity combined with all its affiliates; and
                 (ii) Its counterparty combined with all its affiliates, have an
                average daily aggregate notional amount of non-cleared swaps, foreign
                exchange forwards and foreign exchange swaps for March, April and May
                2020 that exceeds $50 billion, where such amounts are calculated only
                for business days; and
                 (iii) In calculating the amounts in paragraphs (e)(6)(i) and (ii)
                of this section, an entity shall count the average daily aggregate
                notional amount of a non-cleared swap, a non-cleared security-based
                swap, a foreign exchange forward or a foreign exchange swap between the
                entity and an affiliate only one time, and shall not count a swap or
                security-based swap that is exempt pursuant to paragraph (d) of this
                section.
                 (7) September 1, 2021 with respect to requirements in Sec. 624.3
                for initial margin for any other covered swap entity with respect to
                non-cleared swaps and non-cleared security-based swaps entered into
                with any other counterparty.
                * * * * *
                 (h) Legacy swaps. Covered swaps entities are required to comply
                with the requirements of this part for non-cleared swaps and non-
                cleared security-based swaps entered into on or after the relevant
                compliance dates for variation margin and for initial margin
                established in paragraph (e) of this section. Any non-cleared swap or
                non-cleared security-based swap entered into before such relevant date
                shall remain outside the scope of this part if amendments are made to
                the non-cleared swap or non-cleared security-based swap by method of
                adherence to a protocol, contractual amendment of an agreement or
                confirmation, or execution of a new contract in replacement of and
                immediately upon termination of an existing contract, as follows:
                 (1) Amendments to the non-cleared swap or non-cleared security-
                based swap solely to comply with the requirements of part 47, subpart I
                of part 252 or part 382 of title 12, as applicable;
                * * * * *
                 (3)(i) Amendments to the non-cleared swap or non-cleared security-
                based swap that are made solely to accommodate the replacement of:
                 (A) An interbank offered rate (IBOR) including, but not limited to,
                the London Interbank Offered Rate (LIBOR), the Tokyo Interbank Offered
                Rate (TIBOR), the Bank Bill Swap Rate (BBSW), the Singapore Interbank
                Offered Rate (SIBOR), the Canadian Dollar Offered Rate (CDOR), Euro
                Interbank Offered Rate (EURIBOR), and the Hong Kong Interbank Offered
                Rate (HIBOR);
                 (B) Any other interest rate that a covered swap entity reasonably
                expects to be discontinued or reasonably determines has lost its
                relevance as a reliable benchmark due to a significant impairment; or
                 (C) Any other interest rate that succeeds a rate referenced in
                paragraph (h)(3)(i)(A) or (h)(3)(i)(B) of this section. An amendment
                made under this paragraph (h)(3)(i)(C) could be one of multiple
                amendments made under this paragraph (h)(3)(i)(C). For example, an
                amendment could replace an IBOR with a temporary interest rate and
                later replace the temporary interest rate with a permanent interest
                rate.
                 (ii) Amendments to accommodate replacement of a rate described in
                paragraph (h)(3)(i) may also incorporate spreads or other adjustments
                to the replacement rate and make other necessary technical changes to
                operationalize the determination of payments or other exchanges of
                economic value using the replacement rate, including changes to
                determination dates, calculation agents, and payment dates, so long as
                the changes do not extend the maturity or increase the total effective
                notional amount of the non-cleared swap or non-cleared security-based
                swap.
                 (4) The non-cleared swap or non-cleared security-based swap was
                amended or replaced solely to reduce risk or remain risk-neutral
                through portfolio compression between or
                [[Page 59988]]
                among covered swap entities and their counterparties as long as:
                 (i) A non-cleared swap or non-cleared security-based swap that is
                amended to reflect the outcome of the compression exercise does not:
                 (A) Extend the remaining maturity; or
                 (B) Increase the total effective notional amount of that swap; or
                 (ii) A non-cleared swap or non-cleared security-based swap that is
                entered into as a replacement to reflect the outcome of the compression
                exercise does not:
                 (A) Exceed the sum of the total effective notional amounts of all
                of the swaps that were submitted to the compression exercise that had
                the same or longer remaining maturity as the replacement swap; or
                 (B) Exceed the longest remaining maturity of all the swaps
                submitted to the compression exercise.
                 (5) The non-cleared swap or non-cleared security-based swap was
                amended solely for one of the following reasons:
                 (i) To reflect technical changes, such as addresses, identities of
                parties for delivery of formal notices, and other administrative or
                operational provisions as long as they do not alter the non-cleared
                swap's or non-cleared security-based swap's underlying asset or
                indicator, the remaining maturity, or the total effective notional
                amount; or
                 (ii) To reduce the notional amount, so long as:
                 (A) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                terminated; or (B) All payment obligations attached to the total
                effective notional amount being eliminated as a result of the amendment
                are fully novated to a third party, who complies with applicable margin
                rules for the novated portion upon the transfer.
                0
                15. Amend Sec. 624.10 by revising paragraph (a) to read as follows:
                Sec. 624.10 Documentation of margin matters.
                * * * * *
                 (a) Provides the covered swap entity and its counterparty with the
                contractual right to collect and post initial margin and variation
                margin in such amounts, in such form, and under such circumstances as
                are required by this subpart, and at such time as initial margin or
                variation margin is required to be collected or posted under Sec.
                624.3 or Sec. 624.4, as applicable; and
                * * * * *
                0
                16. Section 624.11 is revised to read as follows:
                Sec. 624.11 Initial margin exemption for affiliates.
                 (a) The requirement for a covered swap entity to collect or post
                initial margin under Sec. 624.3 does not apply with respect to any
                non-cleared swap or non-cleared security-based swap with a counterparty
                that is an affiliate.
                 (b) For purposes of this section, an affiliate means:
                 (1) An affiliate as defined in Sec. 624.2, and
                 (2) Any company that controls, is controlled by, or is under common
                control with the covered swap entity through the direct or indirect
                exercise of controlling influence over the management or policies of
                the controlled company.
                Federal Housing Finance Agency
                Authority and Issuance
                 For the reasons set forth in the preamble, the Federal Housing
                Finance Agency proposes to amend chapter XII of title 12, Code of
                Federal Regulations, as follows:
                PART 1221--MARGIN AND CAPITAL REQUIREMENTS FOR COVERED SWAP
                ENTITIES
                0
                17. The authority citation for part 1221 continues to read as follows:
                 Authority: 7 U.S.C. 6s(e), 15 U.S.C. 78o-10(e), 12 U.S.C. 4513,
                and 12 U.S.C. 4526(a).
                0
                18. Section 1221.1 is amended by:
                0
                a. Revising paragraphs (e)(6), (e)(7), (h) introductory text, and
                (h)(1); and
                0
                b. Adding paragraphs (h)(3) through (h)(5).
                 The revisions and additions read as follows:
                Sec. 1221.1 Authority, purpose, scope, exemptions and compliance
                dates.
                * * * * *
                 (e) * * *
                * * * * *
                 (6) September 1, 2020 with respect to requirements in Sec. 1221.3
                for initial margin for any non-cleared swaps and non-cleared security-
                based swaps, where both:
                 (i) The covered swap entity combined with all its affiliates; and
                 (ii) Its counterparty combined with all its affiliates, have an
                average daily aggregate notional amount of non-cleared swaps, foreign
                exchange forwards and foreign exchange swaps for March, April and May
                2020 that exceeds $50 billion, where such amounts are calculated only
                for business days; and
                 (iii) In calculating the amounts in paragraphs (e)(6)(i) and (ii)
                of this section, an entity shall count the average daily aggregate
                notional amount of a non-cleared swap, a non-cleared security-based
                swap, a foreign exchange forward or a foreign exchange swap between the
                entity and an affiliate only one time, and shall not count a swap or
                security-based swap that is exempt pursuant to paragraph (d) of this
                section.
                 (7) September 1, 2021 with respect to requirements in Sec. 1221.3
                for initial margin for any other covered swap entity with respect to
                non-cleared swaps and non-cleared security-based swaps entered into
                with any other counterparty.
                 (h) Legacy swaps. Covered swaps entities are required to comply
                with the requirements of this part for non-cleared swaps and non-
                cleared security-based swaps entered into on or after the relevant
                compliance dates for variation margin and for initial margin
                established in paragraph (e) of this section. Any non-cleared swap or
                non-cleared security-based swap entered into before such relevant date
                shall remain outside the scope of this part if amendments are made to
                the non-cleared swap or non-cleared security-based swap by method of
                adherence to a protocol, contractual amendment of an agreement or
                confirmation, or execution of a new contract in replacement of and
                immediately upon termination of an existing contract, as follows:
                 (1) Amendments to the non-cleared swap or non-cleared security-
                based swap solely to comply with the requirements of part 47, subpart I
                of part 252 or part 382 of title 12, as applicable;
                * * * * *
                 (3)(i) Amendments to the non-cleared swap or non-cleared security-
                based swap that are made solely to accommodate the replacement of:
                 (A) An interbank offered rate (IBOR) including, but not limited to,
                the London Interbank Offered Rate (LIBOR), the Tokyo Interbank Offered
                Rate (TIBOR), the Bank Bill Swap Rate (BBSW), the Singapore Interbank
                Offered Rate (SIBOR), the Canadian Dollar Offered Rate (CDOR), the Euro
                Interbank Offered Rate (EURIBOR), and the Hong Kong Interbank Offered
                Rate (HIBOR);
                 (B) Any other interest rate that a covered swap entity reasonably
                expects to be discontinued or reasonably determines has lost its
                relevance as a reliable benchmark due to a significant impairment; or
                 (C) Any other interest rate that succeeds a rate referenced in
                paragraph (h)(3)(i)(A) or (h)(3)(i)(B) of this section. An amendment
                made under this paragraph (h)(3)(i)(C) could be one of multiple
                amendments made under this
                [[Page 59989]]
                paragraph (h)(3)(i)(C). For example, an amendment could replace an IBOR
                with a temporary interest rate and later replace the temporary interest
                rate with a permanent interest rate.
                 (ii) Amendments to accommodate replacement of a rate described in
                paragraph (h)(3)(i) may also incorporate spreads or other adjustments
                to the replacement rate and make other necessary technical changes to
                operationalize the determination of payments or other exchanges of
                economic value using the replacement rate, including changes to
                determination dates, calculation agents, and payment dates, so long as
                the changes do not extend the maturity or increase the total effective
                notional amount of the non-cleared swap or non-cleared security-based
                swap.
                 (4) The non-cleared swap or non-cleared security-based swap was
                amended or replaced solely to reduce risk or remain risk-neutral
                through portfolio compression between or among covered swap entities
                and their counterparties as long as:
                 (i) A non-cleared swap or non-cleared security-based swap that is
                amended to reflect the outcome of the compression exercise does not:
                 (A) Extend the remaining maturity; or
                 (B) Increase the total effective notional amount of that swap; or
                 (ii) A non-cleared swap or non-cleared security-based swap that is
                entered into as a replacement to reflect the outcome of the compression
                exercise does not:
                 (A) Exceed the sum of the total effective notional amounts of all
                of the swaps that were submitted to the compression exercise that had
                the same or longer remaining maturity as the replacement swap; or
                 (B) Exceed the longest remaining maturity of all the swaps
                submitted to the compression exercise.
                 (5) The non-cleared swap or non-cleared security-based swap was
                amended solely for one of the following reasons:
                 (i) To reflect technical changes, such as addresses, identities of
                parties for delivery of formal notices, and other administrative or
                operational provisions as long as they do not alter the non-cleared
                swap's or non-cleared security-based swap's underlying asset or
                indicator, the remaining maturity, or the total effective notional
                amount; or
                 (ii) To reduce the notional amount, so long as:
                 (A) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                terminated; or
                 (B) All payment obligations attached to the total effective
                notional amount being eliminated as a result of the amendment are fully
                novated to a third party, who complies with applicable margin rules for
                the novated portion upon the transfer.
                0
                19. Amend Sec. 1221.10 by revising paragraph (a) to read as follows:
                Sec. 1221.10 Documentation of margin matters.
                * * * * *
                 (a) Provides the covered swap entity and its counterparty with the
                contractual right to collect and post initial margin and variation
                margin in such amounts, in such form, and under such circumstances as
                are required by this part, and at such time as initial margin or
                variation margin is required to be collected or posted under Sec.
                1221.3 or Sec. 1221.4, as applicable; and
                * * * * *
                0
                20. Section 1221.11 is revised to read as follows:
                Sec. 1221.11 Initial margin exemption for affiliates.
                 (a) The requirement for a covered swap entity to collect or post
                initial margin under Sec. 1221.3 does not apply with respect to any
                non-cleared swap or non-cleared security-based swap with a counterparty
                that is an affiliate.
                 (b) For purposes of this section, an affiliate means:
                 (1) An affiliate as defined in Sec. 1221.2; and
                 (2) Any company that controls, is controlled by, or is under common
                control with the covered swap entity through the direct or indirect
                exercise of controlling influence over the management or policies of
                the controlled company.
                 Dated: September 17th, 2019.
                Joseph M. Otting,
                Comptroller of the Currency.
                 By order of the Board of Governors of the Federal Reserve
                System, October 21, 2019.
                Ann E. Misback,
                Secretary of the Board. Federal Deposit Insurance Corporation. By order
                of the Board of Directors.
                 Dated at Washington, DC, on September 17, 2019.
                Robert E. Feldman,
                Executive Secretary.
                 By order of the Board of the Farm Credit Administration.
                 Dated at McLean, VA, this 17th day of September, 2019.
                Dale L. Aultman,
                Secretary.
                 Dated: August 27, 2019.
                Mark A. Calabria,
                Director, Federal Housing Finance Agency.
                [FR Doc. 2019-23541 Filed 11-6-19; 8:45 am]
                 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 8070-01-P; 6705-01-P
                

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