S.Amdt. 3916

SA 3916. Mr. CHAMBLISS submitted an amendment intended to be proposed
to amendment SA 3739 proposed by Mr. Reid (for Mr. Dodd (for himself
and Mrs. Lincoln)) to the bill S. 3217, to promote the financial
stability of the United States by improving accountability and
transparency in the financial system, to end ``too big to fail,'' to
protect the American taxpayer by ending bailouts, to protect consumers
from abusive financial services practices, and for other purposes;
which was ordered to lie on the table; as follows:

Beginning on page 566, strike line 8 and all that follows
through page 584, line 7, and insert the following:
(3) Mandatory clearing of swaps.--Section 2 of the
Commodity Exchange Act (7 U.S.C. 2) is amended by inserting
after subsection (g) (as redesignated by paragraph (1)(B))
the following:
``(h) Clearing Requirement.--
``(1) Open access.--The rules of a registered derivatives
clearing organization shall--
``(A) prescribe that all swaps with the same terms and
conditions are economically equivalent and may be offset with
each other within the derivatives clearing organization; and
``(B) provide for nondiscriminatory clearing of a swap
executed bilaterally or on or through the rules of an
unaffiliated designated contract market or swap execution
facility, subject to the requirements of section 5(b).
``(2) Swaps subject to mandatory clearing requirement.--
``(A) In general.--In accordance with subparagraph (B), the
Commission shall, jointly with the Securities and Exchange
Commission and the Federal Reserve Board of Governors, adopt
rules to establish criteria for determining that a swap or
group, category, type, or class of swap is required to be
cleared.
``(B) Factors.--In carrying out subparagraph (A), the
following factors shall be considered:
``(i) Whether 1 or more derivatives clearing organizations
or clearing agencies accepts the swap or group, category,
type, or class of swap for clearing.
``(ii) Whether the swap or group, category, type, or class
of swap is traded pursuant to standard documentation and
terms.
``(iii) The liquidity of the swap or group, category, type,
or class of swap and its underlying commodity, security,
security of a reference entity, or group or index thereof.
``(iv) The ability to value the swap or group, category,
type, or class of swap and its underlying commodity,
security, security of a reference entity, or group or index
thereof consistent with an accepted pricing methodology,
including the availability of intraday prices.
``(v) The size of the market for the swap or group,
category, type, or class of swap and the available capacity,
operational expertise, and resources of the derivatives
clearing organization or clearing agency that accepts it for
clearing.
``(vi) Whether a clearing mandate would mitigate risk to
the financial system or whether it would unduly concentrate
risk in a clearing participant, derivatives clearing
organization, or clearing agency in a manner that could
threaten the solvency of that clearing participant, the
derivatives clearing organization, or the clearing agency.
``(vii) Such other factors as the Commission, the
Securities and Exchange Commission, and the Federal Reserve
Board of Governors jointly may determine are relevant.
``(C) Swaps subject to clearing requirement.--The
Commission--
``(i) shall review each swap, or any group, category, type,
or class of swap that is currently listed for clearing and
those which a derivatives clearing organization notifies the
Commission that the derivatives clearing organization plans
to list for clearing after the date of enactment of this
subsection;
``(ii) except as provided in paragraph (3), may require,
pursuant to the rules adopted under subparagraph (A) and
through notice-and-comment rulemaking, that a particular
swap, group, category, type, or class of swap must be
cleared; and
``(iii) shall rely on economic analysis provided by
economists of the Commission in making any determination
under clause (ii).
``(D) Effect.--
``(i) In general.--Nothing in this paragraph affects the
ability of a derivatives clearing organization to list for
permissive clearing any swap, or group, category, type, or
class of swaps.
``(ii) Prohibition.--The Commission shall not compel a
derivatives clearing organization to list a swap, group,
category, type, or class of swap for clearing if the
derivatives clearing organization determines that the swap,
group, category, type, or class of swap would adversely
impact its business operations, or impair the financial
integrity of the derivatives clearing organization.
``(iii) Required exemption.--The Commission shall exempt a
swap from the requirements of subparagraph (C), if no
derivatives clearing organization registered under this Act
or no derivatives clearing organization that is exempt from
registration under section 5b(j) of this Act will accept the
swap for clearing.
``(E) Prevention of evasion.--The Commission may prescribe
rules, or issue interpretations of such rules, as necessary
to prevent evasions of any requirement to clear under
subparagraph (C). In issuing such rules or interpretations,
the Commission shall consider--
``(i) the extent to which the terms of the swap, group,
category, type, or class of swap are similar to the terms of
other swaps, groups, categories, types, or classes of swap
that are required to be cleared by swap participants under
subparagraph (C); and
``(ii) whether there is an economic purpose for any
differences in the terms of the swap or group, category,
type, or class of swap that are required to be cleared by
swap participants under subparagraph (C).
``(F) Elimination of requirement to clear.--The Commission
may, pursuant to the rules adopted under subparagraph (A) and
through notice-and-comment rulemaking, rescind a requirement
imposed under subparagraph (C) with respect to a swap, group,
category, type, or class of swap.
``(G) Petition for rulemaking.--Any person may file a
petition, pursuant to the rules of practice of the
Commission, requesting that the Commission use its authority
under subparagraph (C) to require clearing of a particular
swap, group, category, type, or class of swap or to use its
authority under subparagraph (F) to rescind a requirement for
swap participants to clear a particular swap, group,
category, type, or class of swap.
``(H) Foreign exchange forwards, swaps, and options.--
Foreign exchange forwards, swaps, and options shall not be
subject to a clearing requirement under subparagraph (C)
unless the Department of the Treasury and the Board of
Governors determine that such a requirement is appropriate
after considering whether there exists an effective
settlement system for such foreign exchange forwards, swaps,
and options and any other factors that the Department of the
Treasury and the Board of Governors deem to be relevant.
``(3) End user clearing exemption.--
``(A) Definitions.--In this paragraph:
``(i) Commercial end user.--The term `commercial end user'
means any person who, as its primary business activity owns,
operates, uses, produces, processes, develops, leases,
manufacturers, distributes, merchandises, provides or markets
goods, services, physical assets, or commodities (which shall
include but not be limited to coal, natural gas, electricity,
biofuels, crude oil, gasoline, propane, distillates, and
other hydrocarbons) either individually or in a fiduciary
capacity.
``(ii) Financial entity end user.--

``(I) In general.--The term `financial entity end user'
means any person predominately engaged in activities that are
financial in nature, as determined by the Commission.
``(II) Exclusions.--The term `financial entity end user'
does not include--

``(aa) any person who is a swap dealer, security-based swap
dealer, major swap participant, major security-based swap
participant;
``(bb) an investment fund that would be an investment
company (as defined in section 3 of the Investment Company
Act o f 1940 (15

[[Page S3428]]

U.S.C. 80a-3)) but for paragraph (1) or (7) of section 3(c)
of that Act (15 U.S.C. 80a-3(c)); and is not a partnership or
other entity or any subsidiary that is primarily invested in
physical assets (which shall include but not be limited to
commercial real estate) directly or through interests in
partnerships or limited liability companies that own such
assets;
``(cc) entities defined in section 1303(20) of the Federal
Housing Enterprises Financial Safety and Soundness Act of
1992 (12 U.S.C. 4502(20));
``(dd) a commodity pool; or
``(ee) a commercial end user.
``(B) End user clearing exemption.--
``(i) In general.--Subject to clause (ii), in the event
that a swap is subject to the mandatory clearing requirement
under paragraph (2), and 1 of the counterparties to the swap
is a commercial end user or a financial entity end user, that
counterparty--

``(I)(aa) may elect not to clear the swap, as required
under paragraph (2); or
``(bb) may elect, prior to entering into the swap
transaction, to require clearing of the swap; and
``(II) if the end user makes an election under subclause
(I)(bb), shall have the sole right to select the derivatives
clearing organization at which the swap will be cleared.

``(ii) Limitation.--A commercial end user or a financial
entity end user may only make an election under clause (i) if
the end user is using the swap to hedge commercial risk,
including operating risk and balance sheet risk.
``(C) Treatment of affiliates.--
``(i) In general.--An affiliate of a commercial end user
(including affiliate entities predominated engaged in
providing financing for the purchase of merchandise or
manufactured goods of the commercial end user) or a financial
entity end user may make an election under subparagraph
(B)(i) only if the affiliate uses the swap to hedge or
mitigate the commercial risk, including operating risk and
balance sheet risk, of the commercial end user or the
financial entity end user or other affiliate of the
commercial end user or financial entity end user.
``(ii) Prohibition relating to certain affiliates.--An
affiliate of a commercial end user or a financial entity end
user shall not use the exemption under subparagraph (B) if
the affiliate is--

``(I) a swap dealer;
``(II) a security-based swap dealer;
``(III) a major swap participant;
``(IV) a major security-based swap participant;
``(V) an investment fund that would be an investment
company (as defined in section 3 of the Investment Company
Act o f 1940 (15 U.S.C. 80a-3)) but for paragraph (1) or (7)
of section 3(c) of that Act (15 U.S.C. 80a-3(c)); and is not
a partnership or other entity or any subsidiary that is
primarily invested in physical assets (which shall include
but not be limited to commercial real estate) directly or
through interests in partnerships or limited liability
companies that own such assets; or
``(VI) a commodity pool.

``(D) Abuse of exemption.--The Commission may prescribe
such rules or issue interpretations of the rules as the
Commission determines to be necessary to prevent abuse of the
exemption described in subparagraph (B). The Commission may
also request information from those entities claiming the
clearing exemption as necessary to prevent abuse of the
exemption described in subparagraph (B).
``(4) Required reporting.--Each swap that is not cleared by
any derivatives clearing organization shall be reported
either to a registered swap repository described in section
21 or, if there is no repository that would accept the swap,
to the Commission pursuant to section 4r.
``(5) Transition rules.--
``(A) Reporting transition rules.--The Commission shall
provide for the reporting of data, as follows:
``(i) Swaps entered into before date of enactment of this
subsection.--Swaps entered into before the date of the
enactment of this subsection shall be reported to a
registered swap repository or the Commission not later than
180 days after the effective date of this subsection.
``(ii) Swaps entered into on or after date of enactment of
this subsection.--Swaps entered into on or after such date of
enactment shall be reported to a registered swap repository
or the Commission not later than such time period as the
Commission prescribe.
``(B) Clearing transition rules.--Swaps entered into before
the effective date of any requirement under paragraph (2)(C)
are exempt from the clearing requirements of this subsection.
``(6) Reporting obligations.--
``(A) Swaps in which only 1 counterparty is a swap dealer
or major swap participant.--With respect to a swap in which
only 1 counterparty is a swap dealer or major swap
participant, the swap dealer or major swap participant shall
report the swap as required under paragraphs (4) and (5).
``(B) Swaps in which 1 counterparty is a swap dealer and
the other a major swap participant.--With respect to a swap
in which 1 counterparty is a swap dealer and the other a
major swap participant, the swap dealer shall report the swap
as required under paragraphs (4) and (5).
``(C) Other swaps.--With respect to any other swap not
described in subparagraph (A) or (B), the counterparties to
the swap shall select a counterparty to report the swap as
required under paragraphs (4) and (5).''.
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