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3 settingforth segregation requirements for swaps. For uncleared swaps, segregation would be
4 upon request ofthe counterparty (consistent with H.R. 4173). With respect to cleared swaps, the
5 provisions below would build upon the existing segregation requirements in Section 4d ofthe
6 Commodity Exchange Act, which have proven to be effective, by adapting these requirements for
7 swaps. Derivatives clearing organizations (DCOs) would be dealing on a daily basis with
8 entities (futures commission merchants - FCMs) and account procedures (CEA Section 4d
9 segregation requirements) with which they already are very familiar. Existing rules, procedures,
10 and infrastructure at FCMs and DCOs could be adapted to swaps rather than requiring the
12
14
16 TRANSACTIONS
18 Section 4d of the Commodity Exchange Act (7 U.S.C. 6d) is amended by inserting at the
20 "(d) Sw APS.-
22 any money, securities, or property (or to extend any credit in lieu of the foregoing) from,
CFTC-CREW-0251
1 through a derivatives clearing organization (including money, securities, or property
2 accruing to such customer as the result of such a swap), unless such person shall have
3 registered under this Act with the Commission as a futures commission merchant, and
4 such registration shall not have expired nor been suspended nor revoked.
7 dealer, or major swap participant shall treat and deal with all money, securities,
12 or counterparty.
15 accounted for and shall not be commingled with the funds of such futures
18 counterparty or person other than the one for whom the same are held.
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1 commingled and deposited in the same account or accounts with any bank
10 swap;
15 paragraph (2) may be commingled and deposited as provided in this section with
22 invested in obligations of the United States, in general obligations of any State or of any
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1 interest by the United States, or in any other investment that the Commission may by rule
2 or regulation prescribe, and such investments shall be made in accordance with such rules
3 and regulations and subject to such conditions as the Commission may prescribe.
6 defined in Subchapter IV of Chapter 7 of Title 11 of the United States Code with regard
7 to all money, securities, and property of any swaps customer or counterparty received to
8 margin, guarantee, or secure the swap (including money, securities, or property accruing
9 to such customer or counterparty as the result of such swap) and held at a futures
11 "(6) PROHIBITION.-It shall be unlawful for any person, including but not limited
12 to any derivatives clearing organization and any depository, that has received any money,
14 paragraph (2) to hold, dispose of, or use any such money, securities, or property as
15 belonging to the depositing futures commission merchant, swap dealer, or major swap
16 participant or any person other than the swaps customer or counterparty of such futures
18
CFTC-CREW-0254
1 Segregation Requirements for Uncleared Swaps:
2 The Commodity Exchange Act (7 U.S.C. 1 et seq) is amended by inserting after section
3 4t the following:
5 SWAP TRANSACTIONS
6 "(a) SEGREGATION REQUIRED.-At the request of a swap counterparty who provides funds
7 or other property to a swap dealer, major swap participant, or any other entity registered with the
8 Commission as initial margin or collateral to secure the obligations of the counterparty under a
9 swap between the counterparty and the swap dealer, major swap participant, or other entity
10 registered with the Commission that is not submitted for clearing to a derivatives clearing
11 organization, the swap dealer, major swap participant, or other entity registered with the
12 Commission shall-
13 "(1) segregate the funds or other property for the benefit of the counterparty; and
16 counterparty, in accordance with such rules and regulations as the Commission may
17 prescribe.
18 "(b) INDEPENDENT CUSTODIAN.-For the purpose of subsection (a), a custodian shall not
19 be considered independent if more than 20 percent of the custodian is owned by, or more than 50
20 percent representation on the board of directors of the custodian is held by, either the swap
21 dealer, major swap participant, or other entity registered with the Commission (or any affiliate
22 thereof) or the swap counterparty (or any affiliate thereof) if the swap counterparty is itself a
23 swap dealer, major swap participant, or other entity registered with the Commission.
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1 "( c) INVESTMENT OF FUNDS.-
3 regarding the investment of segregated funds or other property described in subsection (a)
4 and the related allocation of gains and losses resulting from any such investment; and
6 in subsection (a) may be invested only in such investments as the Commission permits by
7 rule or regulation.
9 does not request segregation of funds, the swap dealer, major swap participant, or any other
10 entity registered with the Commission shall report to the swap counterparty on a quarterly basis
11 that its procedures relating to margin and collateral requirements are in compliance with the
13
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