12 CFR Part 349 — Derivatives

PART 349—DERIVATIVES Source: 76 FR 40789, July 12, 2011, unless otherwise noted. Subpart A—Margin and Capital Requirements for Covered Swap Entities 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. Source: 80 FR 74912, Nov. 30, 2015, unless otherwise noted. § 349.1 Authority, purpose, scope, exemptions and compliance dates. (a) Authority. (b) Purpose. (c) Scope. (d) Exemptions Swaps. (i) Qualifies for an exception from clearing under section 2(h)(7)(A) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(A)) and implementing regulations; (ii) Qualifies for an exemption from clearing under a rule, regulation, or order that the Commodity Futures Trading Commission issued pursuant to its authority under section 4(c)(1) of the Commodity Exchange Act of 1936 (7 U.S.C. 6(c)(1)) concerning cooperative entities that would otherwise be subject to the requirements of section 2(h)(1)(A) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(1)(A)); or (iii) Satisfies the criteria in section 2(h)(7)(D) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(D)) and implementing regulations. (2) Security-based swaps. (i) Qualifies for an exception from clearing under section 3C(g)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78c-3(g)(1)) and implementing regulations; or (ii) Satisfies the criteria in section 3C(g)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c-3(g)(4)) and implementing regulations. (e) Compliance dates. (1) September 1, 2016 with respect to the requirements in § 349.3 for initial margin and § 349.4 for variation 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, non-cleared security-based swaps, foreign exchange forwards and foreign exchange swaps for March, April and May 2016 that exceeds $3 trillion, where such amounts are calculated only for business days; and (iii) In calculating the amounts in paragraphs (e)(1)(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. (2) March 1, 2017 with respect to the requirements in § 349.4 for variation 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. (3) September 1, 2017 with respect to the requirements in § 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, non-cleared security-based swaps, foreign exchange forwards and foreign exchange swaps for March, April and May 2017 that exceeds $2.25 trillion, where such amounts are calculated only for business days; and (iii) In calculating the amounts in paragraphs (e)(3)(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. (4) September 1, 2018 with respect to the requirements in § 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, non-cleared security-based swaps, foreign exchange forwards and foreign exchange swaps for March, April and May 2018 that exceeds $1.5 trillion, where such amounts are calculated only for business days; and (iii) In calculating the amounts in paragraphs (e)(4)(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. (5) September 1, 2019 with respect to the requirements in § 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, non-cleared security-based swaps, foreign exchange forwards and foreign exchange swaps for March, April and May 2019 that exceeds $0.75 trillion, where such amounts are calculated only for business days; and (iii) In calculating the amounts in paragraphs (e)(5)(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. (6) September 1, 2021 with respect to requirements in § 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 2021 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, 2022 with respect to requirements in § 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. (f) 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 based on the compliance dates in paragraph (e) of this section, the covered swap entity shall remain subject to the requirements of this subpart with respect to that counterparty. (g)(1) If a covered swap entity's counterparty changes its status such that a non-cleared swap or non-cleared security-based swap with that counterparty becomes subject to stricter margin requirements under this subpart (such as if the counterparty's status changes from a financial end user without material swaps exposure to a financial end user with material swaps exposure), then the covered swap entity shall comply with the stricter margin requirements for any non-cleared swap or non-cleared security-based swap entered into with that counterparty after the counterparty changes its status. (2) If a covered swap entity's counterparty changes its status such that a non-cleared swap or non-cleared security-based swap with that counterparty becomes subject to less strict margin requirements under this subpart (such as if the counterparty's status changes from a financial end user with material swaps exposure to a financial end user without material swaps exposure), then the covered swap entity may comply with the less strict margin requirements for any non-cleared swap or non-cleared security-based swap entered into with that counterparty after the counterparty changes its status as well as for any outstanding non-cleared swap or non-cleared security-based swap entered into after the applicable compliance date in paragraph (e) of this section and before the counterparty changed its status. (h) Legacy swaps. (1) Amendments to the non-cleared swap or non-cleared security-based swap solely to comply with the requirements of 12 CFR part 47, 12 CFR part 252 subpart I, or 12 CFR part 382, as applicable; (2) The non-cleared swap or non-cleared security based swap was amended under the following conditions: (i) The swap was originally entered into, booked at, or otherwise held at, an entity located in the United Kingdom before the relevant compliance date established in paragraph (e) of this section and one party to the swap booked it at, or otherwise held it at, an entity (including a branch or other authorized form of establishment) located in the United Kingdom; (ii) The entity in the United Kingdom subsequently arranged to amend the swap, solely for the purpose of transferring it to an affiliate, or a branch or other authorized form of establishment, located in any European Union member state or the United States, in connection with the entity's planning for or response to the event described in paragraph (h)(2)(iii) of this section, and the transferee is: (A) A covered swap entity, or (B) A covered swap entity's counterparty to the swap, and the counterparty represents to the covered swap entity that the counterparty performed the transfer in compliance with the requirements of paragraphs (h)(2)(i) and (ii) of this section; subject to the following conditions: (iii) The law of the European Union ceases to apply [to] the United Kingdom pursuant to Article 50(3) of the Treaty on European Union, without conclusion of a Withdrawal Agreement between the United Kingdom and the European Union pursuant to Article 50(2); (iv) The amendments do not modify any of the following: The payment amount calculation methods, the maturity date, or the notional amount of the swap or non-cleared swap; (v) The amendments cause the transfer to take effect on or after the date of the event described in paragraph (h)(2)(iii) of this section transpires; and (vi) The amendments cause the transfer to take effect by the later of: (A) The date that is one year after the date of the event described in paragraph (h)(2)(iii) of this section; or (B) Such other date permitted by transitional provisions under Article 35 of Commission Delegated Regulation (E.U.) No. 2016/2251, as amended. (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 replaced or 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 (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 an interest rate described in paragraph (h)(3)(i) of this section may also incorporate spreads or other adjustments to the replacement interest rate and make other necessary technical changes to operationalize the determination of payments or other exchanges of economic value using the replacement interest rate, including changes to determination dates, calculation agents, and payment dates. The changes may not have a longer maturity or increase the total effective notional amount of the non-cleared swap or non-cleared security-based swap beyond what is necessary to accommodate the differences between market conventions for an outgoing interest rate and its replacement. (iii) Amendments to accommodate replacement of an interest rate described in paragraph (h)(3)(i) of this section may also be effectuated through portfolio compression between or among covered swap entities and their counterparties. Portfolio compression under this paragraph is not subject to the limitations in paragraph (h)(4) of this section, but any non-cleared swap[s] or non-cleared security-based swaps resulting from the portfolio compression may not extend the maturity or increase the total effective notional amount more than what is necessary to accommodate the differences between market conventions for an outgoing interest rate and its replacement. (4) Amendments solely to reduce risk or remain risk-neutral through portfolio compression between or among covered swap entities and their counterparties, as long as any non-cleared swaps or non-cleared security-based swaps resulting from the portfolio compression do not: (i) 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 resulting swap; or (ii) 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 reference, 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. [80 FR 74912, Nov. 30, 2015, as amended at 83 FR 50812, Oct. 10, 2018; 84 FR 9949, Mar. 19, 2019; 85 FR 39469, 39775, July 1, 2020] § 349.2 Definitions. Affiliate. (1) 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; (2) Both companies are consolidated with a third company on a financial statement prepared in accordance with such principles or standards; (3) For a company that is not subject to such principles or standards, if consolidation as described in paragraph (1) or (2) of this definition would have occurred if such principles or standards had applied; or (4) The FDIC has determined that a company is an affiliate of another company, based on FDIC's conclusion that either company provides significant support to, or is materially subject to the risks or losses of, the other company. Bank holding company Broker Business day Clearing agency Company Counterparty Covered swap entity Cross-currency swap Currency of settlement Day of execution (1) If each party is in a different calendar day at the time the parties enter into the non-cleared swap or non-cleared security-based swap, the day of execution is deemed the latter of the two dates; and (2) If a non-cleared swap or non-cleared security-based swap is: (i) Entered into after 4:00 p.m. in the location of a party; or (ii) Entered into on a day that is not a business day in the location of a party, then the non-cleared swap or non-cleared security-based swap is deemed to have been entered into on the immediately succeeding day that is a business day for both parties, and both parties shall determine the day of execution with reference to that business day. Dealer Depository institution Derivatives clearing organization Eligible collateral Eligible master netting agreement (1) The agreement creates a single legal obligation for all individual transactions covered by the agreement upon an event of default following any stay permitted by paragraph (2) of this definition, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty; (2) The agreement provides the covered swap entity the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default, including upon an event of receivership, conservatorship, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, (i) Any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than: (A) In receivership, conservatorship, or resolution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq. et seq. (B) Where the agreement is subject by its terms to, or incorporates, any of the laws referenced in paragraph (2)(i)(A) of this definition; and (ii) The agreement may limit the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to liquidate or set-off collateral promptly upon an event of default of the counterparty to the extent necessary for the counterparty to comply with the requirements of part 47, Subpart I of part 252 or part 382 of Title 12, as applicable; (3) The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting counterparty to make a lower payment than it otherwise would make under the agreement, or no payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate of the defaulter is a net creditor under the agreement); and (4) A covered swap entity that relies on the agreement for purposes of calculating the margin required by this part must: (i) Conduct sufficient legal review to conclude with a well-founded basis (and maintain sufficient written documentation of that legal review) that: (A) The agreement meets the requirements of paragraph (2) of this definition; and (B) In the event of a legal challenge (including one resulting from default or from receivership, conservatorship, insolvency, liquidation, or similar proceeding), the relevant court and administrative authorities would find the agreement to be legal, valid, binding, and enforceable under the law of the relevant jurisdictions; and (ii) Establish and maintain written procedures to monitor possible changes in relevant law and to ensure that the agreement continues to satisfy the requirements of this definition. Financial end user (1) Any counterparty that is not a swap entity and that is: (i) A bank holding company or an affiliate thereof; a savings and loan holding company; a U.S. intermediate holding company established or designated for purposes of compliance with 12 CFR 252.153; or a nonbank financial institution supervised by the Board of Governors of the Federal Reserve System under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323); (ii) A depository institution; a foreign bank; a Federal credit union or State credit union as defined in section 2 of the Federal Credit Union Act (12 U.S.C. 1752(1) & (6)); an institution that functions solely in a trust or fiduciary capacity as described in section 2(c)(2)(D) of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(D)); an industrial loan company, an industrial bank, or other similar institution described in section 2(c)(2)(H) of the Bank Holding Company Act (12 U.S.C. 1841(c)(2)(H)); (iii) An entity that is state-licensed or registered as: (A) A credit or lending entity, including a finance company; money lender; installment lender; consumer lender or lending company; mortgage lender, broker, or bank; motor vehicle title pledge lender; payday or deferred deposit lender; premium finance company; commercial finance or lending company; or commercial mortgage company; except entities registered or licensed solely on account of financing the entity's direct sales of goods or services to customers; (B) A money services business, including a check casher; money transmitter; currency dealer or exchange; or money order or traveler's check issuer; (iv) A regulated entity as defined in section 1303(20) of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, as amended (12 U.S.C. 4502(20)) or any entity for which the Federal Housing Finance Agency or its successor is the primary federal regulator; (v) Any institution chartered in accordance with the Farm Credit Act of 1971, as amended, 12 U.S.C. 2001 et seq., (vi) A securities holding company; a broker or dealer; an investment adviser as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an investment company registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq. (vii) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80-b-2(a)); an entity that would be an investment company under section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is deemed not to be an investment company under section 3 of the Investment Company Act of 1940 pursuant to Investment Company Act Rule 3a-7 (17 CFR 270.3a-7) of the U.S. Securities and Exchange Commission; (viii) A commodity pool, a commodity pool operator, or a commodity trading advisor as defined, respectively, in section 1a(10), 1a(11), and 1a(12) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(10), 1a(11), and 1a(12)); a floor broker, a floor trader, or introducing broker as defined, respectively, in 1a(22), 1a(23) and 1a(31) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(22), 1a(23), and 1a(31)); or a futures commission merchant as defined in 1a(28) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(28)); (ix) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income and Security Act of 1974 (29 U.S.C. 1002); (x) An entity that is organized as an insurance company, primarily engaged in writing insurance or reinsuring risks underwritten by insurance companies, or is subject to supervision as such by a State insurance regulator or foreign insurance regulator; (xi) An entity, person or arrangement that is, or holds itself out as being, an entity, person, or arrangement that raises money from investors, accepts money from clients, or uses its own money primarily for the purpose of investing or trading or facilitating the investing or trading in loans, securities, swaps, funds or other assets for resale or other disposition or otherwise trading in loans, securities, swaps, funds or other assets; or (xii) An entity that would be a financial end user described in paragraph (1) of this definition or a swap entity, if it were organized under the laws of the United States or any State thereof. (2) The term “financial end user” does not include any counterparty that is: (i) A sovereign entity; (ii) A multilateral development bank; (iii) The Bank for International Settlements; (iv) An entity that is exempt from the definition of financial entity pursuant to section 2(h)(7)(C)(iii) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(C)(iii)) and implementing regulations; or (v) An affiliate that qualifies for the exemption from clearing pursuant to section 2(h)(7)(D) of the Commodity Exchange Act of 1936 (7 U.S.C. 2(h)(7)(D)) or section 3C(g)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c-3(g)(4)) and implementing regulations. Foreign bank Foreign exchange forward Foreign exchange swap Initial margin Initial margin collection amount (1) In the case of a covered swap entity that does not use an initial margin model, the amount of initial margin with respect to a non-cleared swap or non-cleared security-based swap that is required under appendix A of this subpart; and (2) In the case of a covered swap entity that uses an initial margin model pursuant to § 349.8, the amount of initial margin with respect to a non-cleared swap or non-cleared security-based swap that is required under the initial margin model. Initial margin model (1) Has been developed and designed to identify an appropriate, risk-based amount of initial margin that the covered swap entity must collect with respect to one or more non-cleared swaps or non-cleared security-based swaps to which the covered swap entity is a party; and (2) Has been approved by the FDIC pursuant to § 349.8. Initial margin threshold amount Major currency (1) United States Dollar (USD); (2) Canadian Dollar (CAD); (3) Euro (EUR); (4) United Kingdom Pound (GBP); (5) Japanese Yen (JPY); (6) Swiss Franc (CHF); (7) New Zealand Dollar (NZD); (8) Australian Dollar (AUD); (9) Swedish Kronor (SEK); (10) Danish Kroner (DKK); (11) Norwegian Krone (NOK); or (12) Any other currency as determined by the FDIC. Margin Market intermediary Material swaps exposure Multilateral development bank Non-cleared swap Non-cleared security-based swap Prudential regulator Savings and loan holding company Securities holding company Security-based swap Sovereign entity State Subsidiary. : (1) The company is consolidated by the other company on financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles, the International Financial Reporting Standards, or other similar standards; (2) For a company that is not subject to such principles or standards, if consolidation as described in paragraph (1) of this definition would have occurred if such principles or standards had applied; or (3) The FDIC has determined that the company is a subsidiary of another company, based on FDIC's conclusion that either company provides significant support to, or is materially subject to the risks of loss of, the other company. Swap Swap entity et seq. et seq. U.S. Government-sponsored enterprise Variation margin Variation margin amount [80 FR 74912, Nov. 30, 2015, as amended at 83 FR 50812, Oct. 10, 2018] § 349.3 Initial margin. (a) Collection of margin. (1) Zero; or (2) The initial margin collection amount for such non-cleared swap or non-cleared security-based swap less (b) Posting of margin. (c) Timing. (d) Other counterparties. § 349.4 Variation margin. (a) General. (b) Timing. (c) Other counterparties. § 349.5 Netting arrangements, minimum transfer amount, and satisfaction of collecting and posting requirements. (a) Netting arrangements. (2) To the extent that one or more non-cleared swaps or non-cleared security-based swaps are executed pursuant to an eligible master netting agreement between a covered swap entity and its counterparty that is a swap entity or financial end user, a covered swap entity may calculate and comply with the applicable requirements of this subpart on an aggregate net basis with respect to all non-cleared swaps and non-cleared security-based swaps governed by such agreement, subject to paragraph (a)(3) of this section. (3)(i) Except as permitted in paragraph (a)(3)(ii) of this section, if an eligible master netting agreement covers non-cleared swaps and non-cleared security-based swaps entered into on or after the applicable compliance date set forth in § 349.1(e) or (g), all the non-cleared swaps and non-cleared security-based swaps covered by that agreement are subject to the requirements of this subpart and included in the aggregate netting portfolio for the purposes of calculating and complying with the margin requirements of this subpart. (ii) An eligible master netting agreement may identify one or more separate netting portfolios that independently meet the requirements in paragraph (1) of the definition of “Eligible master netting agreement” in § 349.2 and to which collection and posting of margin applies on an aggregate net basis separate from and exclusive of any other non-cleared swaps or non-cleared security-based swaps covered by the eligible master netting agreement. Any such netting portfolio that contains any non-cleared swap or non-cleared security-based swap entered into on or after the applicable compliance date set forth in § 349.1(e) or (g) is subject to the requirements of this subpart. Any such netting portfolio that contains only non-cleared swaps or non-cleared security-based swaps entered into before the applicable compliance date is not subject to the requirements of this subpart. (4) If a covered swap entity cannot conclude after sufficient legal review with a well-founded basis that the netting agreement described in this section meets the definition of eligible master netting agreement set forth in § 349.2, the covered swap entity must treat the non-cleared swaps and non-cleared security based swaps covered by the agreement on a gross basis for the purposes of calculating and complying with the requirements of this subpart to collect margin, but the covered swap entity may net those non-cleared swaps and non-cleared security-based swaps in accordance with paragraphs (a)(1) through (3) of this section for the purposes of calculating and complying with the requirements of this subpart to post margin. (b) Minimum transfer amount. (c) Satisfaction of collecting and posting requirements. (1) The counterparty has refused or otherwise failed to provide or accept the required margin to or from the covered swap entity; and (2) The covered swap entity has: (i) Made the necessary efforts to collect or post the required margin, including the timely initiation and continued pursuit of formal dispute resolution mechanisms, or has otherwise demonstrated upon request to the satisfaction of the FDIC that it has made appropriate efforts to collect or post the required margin; or (ii) Commenced termination of the non-cleared swap or non-cleared security-based swap with the counterparty promptly following the applicable cure period and notification requirements. § 349.6 Eligible collateral. (a) Non-cleared swaps and non-cleared security-based swaps with a swap entity. (1) Immediately available cash funds that are denominated in: (i) U.S. dollars or another major currency; or (ii) The currency of settlement for the non-cleared swap or non-cleared security-based swap; (2) With respect to initial margin only: (i) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, the U.S. Department of the Treasury; (ii) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, a U.S. government agency (other than the U.S. Department of Treasury) whose obligations are fully guaranteed by the full faith and credit of the United States government; (iii) A security that is issued by, or fully guaranteed as to the payment of principal and interest by, the European Central Bank or a sovereign entity that is assigned no higher than a 20 percent risk weight under the capital rules applicable to the covered swap entity as set forth in § 349.12; (iv) A publicly traded debt security issued by, or an asset-backed security fully guaranteed as to the payment of principal and interest by, a U.S. Government-sponsored enterprise that is operating with capital support or another form of direct financial assistance received from the U.S. government that enables the repayments of the U.S. Government-sponsored enterprise's eligible securities; (v) A publicly traded debt security that meets the terms of 12 CFR 1.2(d) and is issued by a U.S. Government-sponsored enterprise not operating with capital support or another form of direct financial assistance from the U.S. government, and is not an asset-backed security; (vi) A security that is issued by, or fully guaranteed as to the payment of principal and interest by, the Bank for International Settlements, the International Monetary Fund, or a multilateral development bank; (vii) A security solely in the form of: (A) Publicly traded debt not otherwise described in paragraph (a)(2) of this section that meets the terms of 12 CFR 1.2(d) and is not an asset-backed security; (B) Publicly traded common equity that is included in: ( 1 ( 2 (viii) Securities in the form of redeemable securities in a pooled investment fund representing the security-holder's proportional interest in the fund's net assets and that are issued and redeemed only on the basis of the market value of the fund's net assets prepared each business day after the security-holder makes its investment commitment or redemption request to the fund, if: (A) The fund's investments are limited to the following: ( 1 ( 2 (B) Assets of the fund may not be transferred through securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, or other means that involve the fund having rights to acquire the same or similar assets from the transferee; or (ix) Gold. (b) Non-cleared swaps and non-cleared security-based swaps with a financial end user. (1) Immediately available cash funds that are denominated in: (i) U.S. dollars or another major currency; or (ii) The currency of settlement for the non-cleared swap or non-cleared security-based swap; (2) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, the U.S. Department of the Treasury; (3) A security that is issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, a U.S. government agency (other than the U.S. Department of Treasury) whose obligations are fully guaranteed by the full faith and credit of the United States government; (4) A security that is issued by, or fully guaranteed as to the payment of principal and interest by, the European Central Bank or a sovereign entity that is assigned no higher than a 20 percent risk weight under the capital rules applicable to the covered swap entity as set forth in § 349.12; (5) A publicly traded debt security issued by, or an asset-backed security fully guaranteed as to the payment of principal and interest by, a U.S. Government-sponsored enterprise that is operating with capital support or another form of direct financial assistance received from the U.S. government that enables the repayments of the U.S. Government-sponsored enterprise's eligible securities; (6) A publicly traded debt security that meets the terms of 12 CFR 1.2(d) and is issued by a U.S. Government-sponsored enterprise not operating with capital support or another form of direct financial assistance from the U.S. government, and is not an asset-backed security; (7) A security that is issued by, or fully guaranteed as to the payment of principal and interest by, the Bank for International Settlements, the International Monetary Fund, or a multilateral development bank; (8) A security solely in the form of: (i) Publicly traded debt not otherwise described in this paragraph (b) that meets the terms of 12 CFR 1.2(d) and is not an asset-backed security; (ii) Publicly traded common equity that is included in: (A) The Standard & Poor's Composite 1500 Index or any other similar index of liquid and readily marketable equity securities as determined by the FDIC; or (B) An index that a covered swap entity's supervisor in a foreign jurisdiction recognizes for purposes of including publicly traded common equity as initial margin under applicable regulatory policy, if held in that foreign jurisdiction; (9) Securities in the form of redeemable securities in a pooled investment fund representing the security-holder's proportional interest in the fund's net assets and that are issued and redeemed only on the basis of the market value of the fund's net assets prepared each business day after the security-holder makes its investment commitment or redemption request to the fund, if: (i) The fund's investments are limited to the following: (A) Securities that are issued by, or unconditionally guaranteed as to the timely payment of principal and interest by, the U.S. Department of the Treasury, and immediately-available cash funds denominated in U.S. dollars; or (B) Securities denominated in a common currency and issued by, or fully guaranteed as to the payment of principal and interest by, the European Central Bank or a sovereign entity that is assigned no higher than a 20 percent risk weight under the capital rules applicable to the covered swap entity as set forth in § 349.12, and immediately-available cash funds denominated in the same currency; and (ii) Assets of the fund may not be transferred through securities lending, securities borrowing, repurchase agreements, reverse repurchase agreements, or other means that involve the fund having rights to acquire the same or similar assets from the transferee; or (10) Gold. (c)(1) The value of any eligible collateral collected or posted to satisfy margin requirements pursuant to this subpart is subject to the sum of the following discounts, as applicable: (i) An 8 percent discount for variation margin collateral denominated in a currency that is not the currency of settlement for the non-cleared swap or non-cleared security-based swap, except for immediately available cash funds denominated in U.S. dollars or another major currency; (ii) An 8 percent discount for initial margin collateral denominated in a currency that is not the currency of settlement for the non-cleared swap or non-cleared security-based swap, except for eligible types of collateral denominated in a single termination currency designated as payable to the non-posting counterparty as part of the eligible master netting agreement; and (iii) For variation and initial margin non-cash collateral, the discounts described in appendix B of this subpart. (2) The value of variation margin or initial margin collateral is computed as the product of the cash or market value of the eligible collateral asset times one minus the applicable discounts pursuant to paragraph (c)(1) of this section expressed in percentage terms. The total value of all variation margin or initial margin collateral is calculated as the sum of those values for each eligible collateral asset. (d) Notwithstanding paragraphs (a) and (b) of this section, eligible collateral for initial margin and variation margin required by this subpart does not include a security issued by: (1) The party or an affiliate of the party pledging such collateral; (2) A bank holding company, a savings and loan holding company, a U.S. intermediate holding company established or designated for purposes of compliance with 12 CFR 252.153, a foreign bank, a depository institution, a market intermediary, a company that would be any of the foregoing if it were organized under the laws of the United States or any State, or an affiliate of any of the foregoing institutions; or (3) A nonbank financial institution supervised by the Board of Governors of the Federal Reserve System under Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5323). (e) A covered swap entity shall monitor the market value and eligibility of all collateral collected and posted to satisfy the minimum initial margin and minimum variation margin requirements of this subpart. To the extent that the market value of such collateral has declined, the covered swap entity shall promptly collect or post such additional eligible collateral as is necessary to maintain compliance with the margin requirements of this subpart. To the extent that the collateral is no longer eligible, the covered swap entity shall promptly collect or post sufficient eligible replacement collateral to comply with the margin requirements of this subpart. (f) A covered swap entity may collect or post initial margin and variation margin that is required by § 349.3(d) or § 349.4(c) or that is not required pursuant to this subpart in any form of collateral. [80 FR 74912, Nov. 30, 2015] § 349.7 Segregation of collateral. (a) A covered swap entity that posts any collateral other than for variation margin with respect to a non-cleared swap or a non-cleared security-based swap shall require that all funds or other property other than variation margin provided by the covered swap entity be held by one or more custodians that are not the covered swap entity or counterparty and not affiliates of the covered swap entity or the counterparty. (b) A covered swap entity that collects initial margin required by § 349.3(a) with respect to a non-cleared swap or a non-cleared security-based swap shall require that such initial margin be held by one or more custodians that are not the covered swap entity or counterparty and not affiliates of the covered swap entity or the counterparty. (c) For purposes of paragraphs (a) and (b) of this section, the custodian must act pursuant to a custody agreement that: (1) Prohibits the custodian from rehypothecating, repledging, reusing, or otherwise transferring (through securities lending, securities borrowing, repurchase agreement, reverse repurchase agreement or other means) the collateral held by the custodian, except that cash collateral may be held in a general deposit account with the custodian if the funds in the account are used to purchase an asset described in § 349.6(a)(2) or (b), such asset is held in compliance with this § 349.7, and such purchase takes place within a time period reasonably necessary to consummate such purchase after the cash collateral is posted as initial margin; and (2) Is a legal, valid, binding, and enforceable agreement under the laws of all relevant jurisdictions, including in the event of bankruptcy, insolvency, or a similar proceeding. (d) Notwithstanding paragraph (c)(1) of this section, a custody agreement may permit the posting party to substitute or direct any reinvestment of posted collateral held by the custodian, provided that, with respect to collateral collected by a covered swap entity pursuant to § 349.3(a) or posted by a covered swap entity pursuant to § 349.3(b), the agreement requires the posting party to: (1) Substitute only funds or other property that would qualify as eligible collateral under § 349.6, and for which the amount net of applicable discounts described in appendix B of this subpart would be sufficient to meet the requirements of § 349.3; and (2) Direct reinvestment of funds only in assets that would qualify as eligible collateral under § 349.6, and for which the amount net of applicable discounts described in appendix B of this subpart would be sufficient to meet the requirements of § 349.3. § 349.8 Initial margin models and standardized amounts. (a) Standardized amounts. (b) Use of initial margin models. (c) Requirements for initial margin model. (2) A covered swap entity must demonstrate that the initial margin model satisfies all of the requirements of this section on an ongoing basis. (3) A covered swap entity must notify the FDIC in writing 60 days prior to: (i) Extending the use of an initial margin model that the FDIC has approved under this section to an additional product type; (ii) Making any change to any initial margin model approved by the FDIC under this section that would result in a material change in the covered swap entity's assessment of initial margin requirements; or (iii) Making any material change to modeling assumptions used by the initial margin model. (4) The FDIC may rescind its approval of the use of any initial margin model, in whole or in part, or may impose additional conditions or requirements if the FDIC determines, in its sole discretion, that the initial margin model no longer complies with this section. (d) Quantitative requirements. (2) All data used to calibrate the initial margin model must be based on an equally weighted historical observation period of at least one year and not more than five years and must incorporate a period of significant financial stress for each broad asset class that is appropriate to the non-cleared swaps and non-cleared security-based swaps to which the initial margin model is applied. (3) The covered swap entity's initial margin model must use risk factors sufficient to measure all material price risks inherent in the transactions for which initial margin is being calculated. The risk categories must include, but should not be limited to, foreign exchange or interest rate risk, credit risk, equity risk, and commodity risk, as appropriate. For material exposures in significant currencies and markets, modeling techniques must capture spread and basis risk and must incorporate a sufficient number of segments of the yield curve to capture differences in volatility and imperfect correlation of rates along the yield curve. (4) In the case of a non-cleared cross-currency swap, the covered swap entity's initial margin model need not recognize any risks or risk factors associated with the fixed, physically-settled foreign exchange transaction associated with the exchange of principal embedded in the non-cleared cross-currency swap. The initial margin model must recognize all material risks and risk factors associated with all other payments and cash flows that occur during the life of the non-cleared cross-currency swap. (5) The initial margin model may calculate initial margin for a non-cleared swap or non-cleared security-based swap or a netting portfolio of non-cleared swaps or non-cleared security-based swaps covered by an eligible master netting agreement. It may reflect offsetting exposures, diversification, and other hedging benefits for non-cleared swaps and non-cleared security-based swaps that are governed by the same eligible master netting agreement by incorporating empirical correlations within the following broad risk categories, provided the covered swap entity validates and demonstrates the reasonableness of its process for modeling and measuring hedging benefits: Commodity, credit, equity, and foreign exchange or interest rate. Empirical correlations under an eligible master netting agreement may be recognized by the initial margin model within each broad risk category, but not across broad risk categories. (6) If the initial margin model does not explicitly reflect offsetting exposures, diversification, and hedging benefits between subsets of non-cleared swaps or non-cleared security-based swaps within a broad risk category, the covered swap entity must calculate an amount of initial margin separately for each subset within which such relationships are explicitly recognized by the initial margin model. The sum of the initial margin amounts calculated for each subset of non-cleared swaps and non-cleared security-based swaps within a broad risk category will be used to determine the aggregate initial margin due from the counterparty for the portfolio of non-cleared swaps and non-cleared security-based swaps within the broad risk category. (7) The sum of the initial margin amounts calculated for each broad risk category will be used to determine the aggregate initial margin due from the counterparty. (8) The initial margin model may not permit the calculation of any initial margin collection amount to be offset by, or otherwise take into account, any initial margin that may be owed or otherwise payable by the covered swap entity to the counterparty. (9) The initial margin model must include all material risks arising from the nonlinear price characteristics of option positions or positions with embedded optionality and the sensitivity of the market value of the positions to changes in the volatility of the underlying rates, prices, or other material risk factors. (10) The covered swap entity may not omit any risk factor from the calculation of its initial margin that the covered swap entity uses in its initial margin model unless it has first demonstrated to the satisfaction of the FDIC that such omission is appropriate. (11) The covered swap entity may not incorporate any proxy or approximation used to capture the risks of the covered swap entity's non-cleared swaps or non-cleared security-based swaps unless it has first demonstrated to the satisfaction of the FDIC that such proxy or approximation is appropriate. (12) The covered swap entity must have a rigorous and well-defined process for re-estimating, re-evaluating, and updating its internal margin model to ensure continued applicability and relevance. (13) The covered swap entity must review and, as necessary, revise the data used to calibrate the initial margin model at least annually, and more frequently as market conditions warrant, to ensure that the data incorporate a period of significant financial stress appropriate to the non-cleared swaps and non-cleared security-based swaps to which the initial margin model is applied. (14) The level of sophistication of the initial margin model must be commensurate with the complexity of the non-cleared swaps and non-cleared security-based swaps to which it is applied. In calculating an initial margin collection amount, the initial margin model may make use of any of the generally accepted approaches for modeling the risk of a single instrument or portfolio of instruments. (15) The FDIC may in its sole discretion require a covered swap entity using an initial margin model to collect a greater amount of initial margin than that determined by the covered swap entity's initial margin model if the FDIC determines that the additional collateral is appropriate due to the nature, structure, or characteristics of the covered swap entity's transaction(s), or is commensurate with the risks associated with the transaction(s). (e) Periodic review. (f) Control, oversight, and validation mechanisms. (2) The covered swap entity's risk control unit must validate its initial margin model prior to implementation and on an ongoing basis. The covered swap entity's validation process must be independent of the development, implementation, and operation of the initial margin model, or the validation process must be subject to an independent review of its adequacy and effectiveness. The validation process must include: (i) An evaluation of the conceptual soundness of (including developmental evidence supporting) the initial margin model; (ii) An ongoing monitoring process that includes verification of processes and benchmarking by comparing the covered swap entity's initial margin model outputs (estimation of initial margin) with relevant alternative internal and external data sources or estimation techniques. The benchmark(s) must address the chosen model's limitations. When applicable, the covered swap entity should consider benchmarks that allow for non-normal distributions such as historical and Monte Carlo simulations. When applicable, validation shall include benchmarking against observable margin standards to ensure that the initial margin required is not less than what a derivatives clearing organization or a clearing agency would require for similar cleared transactions; and (iii) An outcomes analysis process that includes backtesting the initial margin model. This analysis must recognize and compensate for the challenges inherent in back-testing over periods that do not contain significant financial stress. (3) If the validation process reveals any material problems with the initial margin model, the covered swap entity must promptly notify the FDIC of the problems, describe to the FDIC any remedial actions being taken, and adjust the initial margin model to ensure an appropriately conservative amount of required initial margin is being calculated. (4) The covered swap entity must have an internal audit function independent of business-line management and the risk control unit that at least annually assesses the effectiveness of the controls supporting the covered swap entity's initial margin model measurement systems, including the activities of the business trading units and risk control unit, compliance with policies and procedures, and calculation of the covered swap entity's initial margin requirements under this subpart. At least annually, the internal audit function must report its findings to the covered swap entity's board of directors or a committee thereof. (g) Documentation. (h) Escalation procedures. § 349.9 Cross-border application of margin requirements. (a) Transactions to which this rule does not apply. (b) For purposes of this section, a foreign non-cleared swap foreign non-cleared security-based swap (1) An entity organized under the laws of the United States or any State (including a U.S. branch, agency, or subsidiary of a foreign bank) or a natural person who is a resident of the United States; (2) A branch or office of an entity organized under the laws of the United States or any State; or (3) A swap entity that is a subsidiary of an entity that is organized under the laws of the United States or any State. (c) For purposes of this section, a foreign covered swap entity (1) An entity organized under the laws of the United States or any State, including a U.S. branch, agency, or subsidiary of a foreign bank; (2) A branch or office of an entity organized under the laws of the United States or any State; or (3) An entity that is a subsidiary of an entity that is organized under the laws of the United States or any State. (d) Transactions for which substituted compliance determination may apply Determinations and reliance. (2) Standard. (3) Covered swap entities eligible for substituted compliance. (i) The covered swap entity's obligations under the non-cleared swap or non-cleared security-based swap do not have a guarantee from: (A) An entity organized under the laws of the United States or any State (other than a U.S. branch or agency of a foreign bank) or a natural person who is a resident of the United States; or (B) A branch or office of an entity organized under the laws of the United States or any State; and (ii) The covered swap entity is: (A) A foreign covered swap entity; (B) A U.S. branch or agency of a foreign bank; or (C) An entity that is not organized under the laws of the United States or any State and is a subsidiary of a depository institution, Edge corporation, or agreement corporation. (4) Compliance with foreign margin collection requirement. (i) An entity organized under the laws of the United States or any State (including a U.S. branch, agency, or subsidiary of a foreign bank) or a natural person who is a resident of the United States; or (ii) A branch or office of an entity organized under the laws of the United States or any State. (e) Requests for determinations. (i) The scope and objectives of the foreign regulatory framework for non-cleared swaps and non-cleared security-based swaps; (ii) The specific provisions of the foreign regulatory framework for non-cleared swaps and non-cleared security-based swaps that govern: (A) The scope of transactions covered; (B) The determination of the amount of initial margin and variation margin required and how that amount is calculated; (C) The timing of margin requirements; (D) Any documentation requirements; (E) The forms of eligible collateral; (F) Any segregation and rehypothecation requirements; and (G) The approval process and standards for models used in calculating initial margin and variation margin; (iii) The supervisory compliance program and enforcement authority exercised by a foreign financial regulatory authority or authorities in such system to support its oversight of the application of the non-cleared swap or non-cleared security-based swap regulatory framework and how that framework applies to the non-cleared swaps or non-cleared security-based swaps of the covered swap entity; and (iv) Any other descriptions and documentation that the prudential regulators determine are appropriate. (2) A covered swap entity described in paragraph (d)(3) of this section may make a request under this section only if the non-cleared swap or non-cleared security-based swap activities of the covered swap entity are directly supervised by the authorities administering the foreign regulatory framework for non-cleared swaps and non-cleared security-based swaps. (f) Segregation unavailable. (1) A foreign branch of a covered swap entity that is a depository institution; or (2) A covered swap entity that is not organized under the laws of the United States or any State and is a subsidiary of a depository institution, Edge corporation, or agreement corporation, if: (i) Inherent limitations in the legal or operational infrastructure in the foreign jurisdiction make it impracticable for the covered swap entity and the counterparty to post any form of eligible initial margin collateral recognized pursuant to § 349.6(b) in compliance with the segregation requirements of § 349.7; (ii) The covered swap entity is subject to foreign regulatory restrictions that require the covered swap entity to transact in the non-cleared swap or non-cleared security-based swap with the counterparty through an establishment within the foreign jurisdiction and do not accommodate the posting of collateral for the non-cleared swap or non-cleared security-based swap outside the jurisdiction; (iii) The counterparty to the non-cleared swap or non-cleared security-based swap is not, and the counterparty's obligations under the non-cleared swap or non-cleared security-based swap do not have a guarantee from: (A) An entity organized under the laws of the United States or any State (including a U.S. branch, agency, or subsidiary of a foreign bank) or a natural person who is a resident of the United States; or (B) A branch or office of an entity organized under the laws of the United States or any State; (iv) The covered swap entity collects initial margin for the non-cleared swap or non-cleared security-based swap in accordance with § 349.3(a) in the form of cash pursuant to § 349.6(b)(1), and posts and collects variation margin in accordance with § 349.4(a) in the form of cash pursuant to § 349.6(b)(1); and (v) The FDIC provides the covered swap entity with prior written approval for the covered swap entity's reliance on this paragraph (f) for the foreign jurisdiction. (g) Guarantee (h)(1) A covered swap entity described in paragraphs (d)(3)(i) and (ii) is not subject to the requirements of § 349.3(a) or § 349.11 for any non-cleared swap or non-cleared security-based swap executed with an affiliate of the covered swap entity; and (2) For purposes of paragraph (h)(1) of this section, “affiliate” has the same meaning provided in § 349.11(d). [80 FR 74912, Nov. 30, 2015, as amended at 85 FR 39775, July 1, 2020] § 349.10 Documentation of margin matters. A covered swap entity shall execute trading documentation with each counterparty that is either a swap entity or financial end user regarding credit support arrangements that: (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 § 349.3 or § 349.4, as applicable; and (b) Specifies: (1) The methods, procedures, rules, and inputs for determining the value of each non-cleared swap or non-cleared security-based swap for purposes of calculating variation margin requirements; and (2) The procedures by which any disputes concerning the valuation of non-cleared swaps or non-cleared security-based swaps, or the valuation of assets collected or posted as initial margin or variation margin, may be resolved; and (c) Describes the methods, procedures, rules, and inputs used to calculate initial margin for non-cleared swaps and non-cleared security based swaps entered into between the covered swap entity and the counterparty. [80 FR 74912, Nov. 30, 2015, as amended at 85 FR 39775, July 1, 2020] § 349.11 Special rules for affiliates. (a)(1) A covered swap entity shall calculate on each business day an initial margin collection amount for each counterparty that is a swap entity or financial end user with a material swaps exposure and an affiliate of the covered swap entity. (2) If the aggregate of all initial margin collection amounts calculated under paragraph (a)(1) of this section does not exceed 15 percent of the covered swap entity's tier 1 capital, the requirements for a covered swap entity to collect initial margin under § 349.3(a) do not apply with respect to any non-cleared swap or non-cleared security-based swap with a counterparty that is an affiliate. (3) On each business day that the aggregate of all initial margin collection amounts calculated under paragraph (a)(1) of this section exceeds 15 percent of the covered swap entity's tier 1 capital: (i) The covered swap entity shall collect initial margin under § 349.3(a) for each additional non-cleared swap and non-cleared security-based swap executed that business day with a counterparty that is a swap entity or financial end user with a material swaps exposure and an affiliate of the covered swap entity, commencing on the day after execution and continuing on a daily basis as required under § 45.3(c), until the earlier of: (A) The termination date of such non-cleared swap or non-cleared security-based swap, or (B) The business day on which the aggregate of all initial margin collection amounts calculated under paragraph (a)(1) of this section falls below 15 percent of the covered swap entity's tier 1 capital; (ii) Notwithstanding § 349.7(b), to the extent the covered swap entity collects initial margin pursuant to paragraph (a)(3)(i) of this section in the form of collateral other than cash collateral, the custodian for such collateral may be the covered swap entity or an affiliate of the covered swap entity; (4) For purposes of this paragraph (a), “tier 1 capital” means the sum of common equity tier 1 capital as defined in 12 CFR 324.20(b) and additional tier 1 capital as defined in 12 CFR 324.20(c), as reported in the institution's most recent Consolidated Reports of Income and Condition (Call Report); and (5) If any subsidiary of the covered swap entity (including a subsidiary described in § 349.9(h)) executes any non-cleared swap or non-cleared security-based swap with any counterparty that is a swap entity or financial end user with a material swaps exposure and an affiliate of the covered swap entity: (i) The covered swap entity shall treat such non-cleared swap or security-based swap as its own for purposes of this paragraph (a); and (ii) If the subsidiary is itself a covered swap entity, the compliance by its parent covered swap entity with this paragraph (a)(5) shall be deemed to establish the subsidiary's compliance with the requirements of this paragraph (a) and to exempt the subsidiary from the requirements for a covered swap entity to collect initial margin under § 349.3(a) from an affiliate. (b) The requirement for a covered swap entity to post initial margin under § 349.3(b) does not apply with respect to any non-cleared swap or non-cleared security-based swap with a counterparty that is an affiliate. (c) Section 349.3(d) shall apply to a counterparty that is an affiliate in the same manner as it applies to any counterparty that is neither a financial end user without a material swap exposure nor a swap entity. (d) For purposes of this section: (1) An affiliate (i) An affiliate as defined in § 349.2; or (ii) 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. (2) A subsidiary (i) A subsidiary as defined in § 349.2; or (ii) Any company that is controlled by the covered swap entity through the direct or indirect exercise of controlling influence over the management or policies of the controlled company. [85 FR 39776, July 1, 2020] § 349.12 Capital. A covered swap entity shall comply with the capital requirements that are applicable to the covered swap entity under part 324 of this chapter. [80 FR 74912, Nov. 30, 2015] Appendix A to Subpart A of Part 349—Standardized Minimum Initial Margin Requirements for Non-cleared Swaps and Non—cleared Security-based Swaps Table A—Standardized Minimum Gross Initial Margin Requirements for Non-cleared Swaps and Non-cleared Security-Based Swaps 1 Asset Class Gross initial margin Credit: 0-2 year duration 2 Credit: 2-5 year duration 5 Credit: 5+ year duration 10 Commodity 15 Equity 15 Foreign Exchange/Currency 6 Cross Currency Swaps: 0-2 year duration 1 Cross-Currency Swaps: 2-5 year duration 2 Cross-Currency Swaps: 5+ year duration 4 Interest Rate: 0-2 year duration 1 Interest Rate: 2-5 year duration 2 Interest Rate: 5+ year duration 4 Other 15 1 Initial Margin=0.4xGross Initial Margin +0.6x NGRxGross Initial Margin where; Gross Initial Margin = the sum of the product of each non-cleared swap's or non-cleared security-based swap's effective notional amount and the gross initial margin requirement for all non-cleared swaps and non-cleared security-based swaps subject to the eligible master netting agreement; and NGR = the net-to-gross ratio (that is, the ratio of the net current replacement cost to the gross current replacement cost). In calculating NGR, the gross current replacement cost equals the sum of the replacement cost for each non-cleared swap and non-cleared security-based swap subject to the eligible master netting agreement for which the cost is positive. The net current replacement cost equals the total replacement cost for all non-cleared swaps and non-cleared security-based swaps subject to the eligible master netting agreement. In cases where the gross replacement cost is zero, the NGR should be set to 1.0. Appendix B to Subpart A of Part 349—Margin Values for Eligible Noncash Margin Collateral Table B—Margin Values for Eligible Noncash Margin Collateral Asset class Discount (%) Eligible government and related (e.g., central bank, multilateral development bank, GSE securities identified in § 349.6(a)(2)(iv) or (b)(5) debt: residual maturity less than one-year 0.5 Eligible government and related (e.g., central bank, multilateral development bank, GSE securities identified in § 349.6(a)(2)(iv) or (b)(5) debt: residual maturity between one and five years 2.0 Eligible government and related (e.g., central bank, multilateral development bank, GSE securities identified in § 349.6(a)(2)(iv) or (b)(5) debt: residual maturity greater than five years 4.0 Eligible GSE debt securities not identified in § 349.6(a)(2)(iv) or (b)(5): residual maturity less than one-year 1.0 Eligible GSE debt securities not identified in § 349.6(a)(2)(iv) or (b)(5): residual maturity between one and five years: 4.0 Eligible GSE debt securities not identified in § 349.6(a)(2)(iv) or (b)(5): residual maturity greater than five years: 8.0 Other eligible publicly traded debt: residual maturity less than one-year 1.0 Other eligible publicly traded debt: residual maturity between one and five years 4.0 Other eligible publicly traded debt: residual maturity greater than five years 8.0 Equities included in S&P 500 or related index 15.0 Equities included in S&P 1500 Composite or related index but not S&P 500 or related index 25.0 Gold 15.0 1 Subpart B—Retail Foreign Exchange Transactions Authority: 12 U.S.C.1813(q), 1818, 1819, and 3108; 7 U.S.C. 2(c)(2)(E), 27 et seq. § 349.13 Authority, purpose, and scope. (a) Authority. (b) Purpose. (c) Scope. (d) International applicability. [76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912, Nov. 30, 2015] § 349.14 Definitions. For purposes of this part— The following terms have the same meaning as in the Commodity Exchange Act: “Affiliated person of a futures commission merchant”; “Associated person”; “Contract of sale”; “Commodity”; “Eligible contract participant”; “Futures commission merchant”; “Security”; and “Security futures product”. Affiliate Commodity Exchange Act et seq. FDIC-supervised insured depository institution Forex Institution-affiliated party IAP Insured depository institution IDI Introducing broker Related person, (1) Any general partner, officer, director, or owner of ten percent or more of the capital stock of the FDIC-supervised insured depository institution; (2) An associated person or employee of the retail forex counterparty, if the retail forex counterparty is not an FDIC-supervised insured depository institution; (3) An IAP, if the retail forex counterparty is an FDIC-supervised insured depository institution; and (4) Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who shares the same home as any of the foregoing persons. Retail forex account Retail forex account agreement Retail forex business Retail forex counterparty (1) An FDIC-supervised insured depository institution; (2) A retail foreign exchange dealer; (3) A futures commission merchant; and (4) An affiliated person of a futures commission merchant. Retail forex customer Retail forex obligations Retail forex proprietary account (1) The FDIC-supervised insured depository institution; (2) An officer, director or owner of ten percent or more of the capital stock of the FDIC-supervised insured depository institution; or (3) An employee of the FDIC-supervised insured depository institution, whose duties include: (i) The management of the FDIC-supervised insured depository institution's business; (ii) The handling of the FDIC-supervised insured depository institution's retail forex transactions; (iii) The keeping of records, including without limitation the software used to make or maintain those records, pertaining to the FDIC-supervised insured depository institution's retail forex transactions; or (iv) The signing or co-signing of checks or drafts on behalf of the FDIC-supervised insured depository institution; (4) A spouse or minor dependent living in the same household as of any of the foregoing persons; or (5) An affiliate of the FDIC-supervised insured depository institution; Retail forex transaction (1) A contract of sale of a commodity for future delivery or an option on such a contract; (2) An option, other than an option executed or traded on a national securities exchange registered pursuant to § 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78(f)(a)); or (3) Offered or entered into on a leveraged or margined basis, or financed by an FDIC-supervised insured depository institution, its affiliate, or any person acting in concert with the FDIC-supervised insured depository institution or its affiliate on a similar basis, other than: (i) A security that is not a security futures product as defined in § 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or (ii) A contract of sale that— (A) Results in actual delivery within two days; or (B) Creates an enforceable obligation to deliver between a seller and buyer that have the ability to deliver and accept delivery, respectively, in connection with their line of business; or (iii) An agreement, contract, or transaction that the FDIC determines is not functionally or economically similar to: (A) A contract of sale of a commodity for future delivery or an option on such a contract; or (B) An option, other than an option executed or traded on a national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78(f)(a)). Retail forex obligations [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.15 Prohibited transactions. (a) Fraudulent conduct prohibited. (1) Cheat or defraud or attempt to cheat or defraud any person; (2) Willfully make or cause to be made to any person any false report or statement or cause to be entered for any person any false record; or (3) Willfully deceive or attempt to deceive any person by any means whatsoever. (b) Acting as counterparty and exercising discretion prohibited. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.16 Filing procedures. (a) General. (b) Where to file. (c) Contents of filing. (1) Filings generally. (ii) The amount of the institution's existing or proposed direct or indirect investment in the retail forex business as well as calculations sufficient to indicate compliance with all capital requirements in § 349.20 and all other applicable capital standards; (iii) A copy of the FDIC-supervised insured depository institution's comprehensive business plan that includes a discussion of, among other things, how the operation of the retail forex business is consistent with the institution's overall strategy; (iv) A description of the FDIC-supervised insured depository institution's target customers for its proposed retail forex business and related information, including without limitation credit evaluations, customer appropriateness, and “know your customer” documentation; (v) A resolution by the FDIC-supervised insured depository institution's board of directors that the proposed retail forex business is an appropriate activity for the institution and that the institution's written policies, procedures, and risk measurement and management systems and controls address conducting retail forex business in a safe and sound manner and in compliance with this part; (vi) Sample risk disclosures sufficient to demonstrate compliance with § 349.18. (2) Copy of application or notice filed with another agency. (3) Additional information. (d) Treatment of Existing Retail Forex Business. (e) Compliance with the Commodities Exchange Act. [76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912, Nov. 30, 2015] § 349.17 Application and closing out of offsetting long and short positions. (a) Application of purchases and sales. (1) Engages in a retail forex transaction involving the purchase of any currency for the account of any retail forex customer when the account of such retail forex customer at the time of such purchase has an open retail forex transaction for the sale of the same currency; (2) Engages in a retail forex transaction involving the sale of any currency for the account of any retail forex customer when the account of such retail forex customer at the time of such sale has an open retail forex transaction for the purchase of the same currency; (3) Purchases a put or call option involving foreign currency for the account of any retail forex customer when the account of such retail forex customer at the time of such purchase has a short put or call option position with the same underlying currency, strike price, and expiration date as that purchased; or (4) Sells a put or call option involving foreign currency for the account of any retail forex customer when the account of such retail forex customer at the time of such sale has a long put or call option position with the same underlying currency, strike price, and expiration date as that sold shall: (i) Immediately apply such purchase or sale against such previously held opposite transaction; and (ii) Promptly furnish such retail forex customer with a statement showing the financial result of the transactions involved and the name of any introducing broker to the account. (b) Close-out against oldest open position. (c) Transactions to be applied as directed by customer. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.18 Disclosure. (a) Risk disclosure statement required. (b) Acknowledgement of risk disclosure statement required. (c) Placement of risk disclosure statement. (d) Content of risk disclosure statement. Risk Disclosure Statement Retail forex transactions involve the leveraged trading of contracts denominated in foreign currency with an FDIC-supervised insured depository institution as your counterparty. Because of the leverage and the other risks disclosed here, you can rapidly lose all of the funds or property you give the FDIC-supervised insured depository institution as margin for such trading and you may lose more than you pledge as margin. Your FDIC-supervised insured depository institution is prohibited from applying losses that you experience on retail forex transactions on any funds or property of yours other than funds or property that you have given or pledged as margin for retail forex transactions. You should be aware of and carefully consider the following points before determining whether such trading is appropriate for you. (1) Trading is a not on a regulated market or exchange—your FDIC-supervised insured depository institution is your trading counterparty and has conflicting interests. The retail forex transaction you are entering into is not conducted on an interbank market, nor is it conducted on a futures exchange subject to regulation as a designated contract market by the Commodity Futures Trading Commission. The foreign currency trades you transact are trades with your FDIC-supervised insured depository institution as the counterparty. When you sell, the FDIC-supervised insured depository institution is the buyer. When you buy, the FDIC-supervised insured depository institution is the seller. As a result, when you lose money trading, your FDIC-supervised insured depository institution is making money on such trades, in addition to any fees, commissions, or spreads the FDIC-supervised insured depository institution may charge. (2) An electronic trading platform for retail foreign currency transactions is not an exchange. It is an electronic connection for accessing your FDIC-supervised insured depository institution. The terms of availability of such a platform are governed only by your contract with your FDIC-supervised insured depository institution. Any trading platform that you may use to enter into off-exchange foreign currency transactions is only connected to your FDIC-supervised insured depository institution. You are accessing that trading platform only to transact with your FDIC-supervised insured depository institution. You are not trading with any other entities or customers of the FDIC-supervised insured depository institution by accessing such platform. The availability and operation of any such platform, including the consequences of the unavailability of the trading platform for any reason, is governed only by the terms of your account agreement with the FDIC-supervised insured depository institution. (3) You may be able to offset or liquidate any trading positions only through your banking entity because the transactions are not made on an exchange or regulated contract market, and your FDIC-supervised insured depository institution may set its own prices. Your ability to close your transactions or offset positions is limited to what your FDIC-supervised insured depository institution will offer to you, as there is no other market for these transactions. Your FDIC-supervised insured depository institution may offer any prices it wishes, including prices derived from outside sources or not in its discretion. Your FDIC-supervised insured depository institution may establish its prices by offering spreads from third party prices, but it is under no obligation to do so or to continue to do so. Your FDIC-supervised insured depository institution may offer different prices to different customers at any point in time on its own terms. The terms of your account agreement alone govern the obligations your FDIC-supervised insured depository institution has to you to offer prices and offer offset or liquidating transactions in your account and make any payments to you. The prices offered by your FDIC-supervised insured depository institution may or may not reflect prices available elsewhere at any exchange, interbank, or other market for foreign currency. (4) Paid solicitors may have undisclosed conflicts. The FDIC-supervised insured depository institution may compensate introducing brokers for introducing your account in ways that are not disclosed to you. Such paid solicitors are not required to have, and may not have, any special expertise in trading, and may have conflicts of interest based on the method by which they are compensated. You should thoroughly investigate the manner in which all such solicitors are compensated and be very cautious in granting any person or entity authority to trade on your behalf. You should always consider obtaining dated written confirmation of any information you are relying on from your FDIC-supervised insured depository institution in making any trading or account decisions. (5) Retail forex transactions are not insured by the Federal Deposit Insurance Corporation. (6) Retail forex transactions are not a deposit in, or guaranteed by, an FDIC-supervised insured depository institution. (7) Retail forex transactions are subject to investment risks, including possible loss of all amounts invested. Finally, you should thoroughly investigate any statements by any FDIC-supervised insured depository institution that minimize the importance of, or contradict, any of the terms of this risk disclosure. These statements may indicate sales fraud. This brief statement cannot, of course, disclose all the risks and other aspects of trading off-exchange foreign currency with an FDIC-supervised insured depository institution. I hereby acknowledge that I have received and understood this risk disclosure statement. Date Signature of Customer (e)(1) Disclosure of profitable accounts ratio. (i) The total number of retail forex customer accounts maintained by the FDIC-supervised insured depository institution over which the FDIC-supervised insured depository institution does not exercise investment discretion; (ii) The percentage of such accounts that were profitable for retail forex customer accounts during the quarter; and (iii) The percentage of such accounts that were not profitable for retail forex customer accounts during the quarter. (2) The FDIC-supervised insured depository institution's statement of profitable trades shall include the following legend: “Past performance is not necessarily indicative of future results.” Each FDIC-supervised insured depository institution shall provide, upon request, to any retail forex customer or prospective retail forex customer the total number of retail forex accounts maintained by the FDIC-supervised insured depository institution for which the FDIC-supervised insured depository institution does not exercise investment discretion, the percentage of such accounts that were profitable, and the percentage of such accounts that were not profitable for each calendar quarter during the most recent five-year period during which the FDIC-supervised insured depository institution maintained such accounts. (f) Disclosure of fees and other charges. (1) The amount of any fee, charge, commission, or spreads that the FDIC-supervised insured depository institution may impose on the retail forex customer in connection with a retail forex account or retail forex transaction; (2) An explanation of how the FDIC-supervised insured depository institution will determine the amount of such fees, charges, commissions, or spreads; and (3) The circumstances under which the FDIC-supervised insured depository institution may impose such fees, charges, commissions, or spreads. (g) Future disclosure requirements. (h) Form of disclosure requirements. (i) Other disclosure requirements unaffected. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.19 Recordkeeping. (a) General rule. (1) Retail forex account records. (i) The name and address of the person for whom the account is carried or introduced and the principal occupation or business of the person. (ii) The name of any other person guaranteeing the account or exercising trading control with respect to the account; (iii) The establishment or termination of the account; and (iv) A means to identify the person who has solicited and is responsible for the account or assign account numbers in such a manner as to identify that person. (v) The funds in the account, net of any commissions and fees; (vi) The account's net profits and losses on open trades; (vii) The funds in the account plus or minus the net profits and losses on open trades, adjusted for the net option value in the case of open options positions; (viii) Financial ledger records that show separately for each retail forex customer all charges against and credits to such retail forex customer's account, including deposits, withdrawals, and transfers, and charges or credits resulting from losses or gains on closed transactions; and (ix) A list of all retail forex transactions executed for the account, with the details specified in paragraph (a)(2) of this section; (2) Retail forex transaction records. (i) The price at which the FDIC-supervised insured depository institution placed the order, or, in the case of an option, the premium that the retail forex customer paid; (ii) The customer account identification information; (iii) The currency pair; (iv) The size or quantity of the order; (v) Whether the order was a buy or sell order; (vi) The type of order, if the order was not a market order; (vii) The size and price at which the order is executed, or in the case of an option, the amount of the premium paid for each option purchased, or the amount credited for each option sold; (viii) For options, whether the option is a put or call, expiration date, quantity, underlying contract for future delivery or underlying physical, strike price, and details of the purchase price of the option, including premium, mark-up, commission, and fees; and (ix) For futures, the delivery date; and (x) If the order was made on a trading platform: (A) The price quoted on the trading platform when the order was placed, or, in the case of an option, the premium quoted; (B) The date and time the order was transmitted to the trading platform; and (C) The date and time the order was executed; (3) Price changes on a trading platform. (4) Methods or algorithms. (5) Daily records (i) All retail forex transactions that are futures transactions executed on that day, including the date, price, quantity, market, currency pair, delivery date, and the person for whom such transaction was made; (ii) All retail forex transactions that are option transactions executed on that day, including the date, whether the transaction involved a put or call, the expiration date, quantity, currency pair, delivery date, strike price, details of the purchase price of the option, including premium, mark-up, commission and fees, and the person for whom the transaction was made; (iii) All other retail forex transactions executed on that day for such account, including the date, price, quantity, currency and the person for whom such transaction was made; and (6) Other records. (b) Ratio of profitable accounts. (i) A calculation of the percentage of such accounts that were profitable; (ii) A calculation of the percentage of such accounts that were not profitable; and (iii) Data supporting the calculations described in paragraphs (b)(1)(i) and (b)(1)(ii) of this section. (2) In calculating whether a retail forex account was profitable or not profitable during the quarter, the FDIC-supervised insured depository institution shall compute the realized and unrealized gains or losses on all retail forex transactions carried in the retail forex account at any time during the quarter, and subtract all fees, commissions, and any other charges posted to the retail forex account during the quarter, and add any interest income and other income or rebates credited to the retail forex account during the quarter. All deposits and withdrawals of funds made by the retail forex customer during the quarter must be excluded from the computation of whether the retail forex account was profitable or not profitable during the quarter. Computations that result in a zero or negative number shall be considered a retail forex account that was not profitable. Computations that result in a positive number shall be considered a retail forex account that was profitable. (3) A retail forex account shall be considered “active” for purposes of paragraph (b)(1) of this section if and only if, for the relevant calendar quarter, a retail forex transaction was executed in that account or the retail forex account contained an open position resulting from a retail forex transaction. (c) Records related to possible violations of law. (d) Records for noncash margin. (1) A description of the securities or property received; (2) The name and address of such retail forex customer; (3) The dates when the securities or property were received; (4) The identity of the depositories or other places where such securities or property are segregated or held, if applicable; (5) The dates in which the FDIC-supervised insured depository institution placed or removed such securities or property into or from such depositories; and (6) The dates of return of such securities or property to such retail forex customer, or other disposition thereof, together with the facts and circumstances of such other disposition. (e) Order Tickets. (i) Account identification (account or customer name with which the retail forex transaction was effected); (ii) Order number; (iii) Type of order (market order, limit order, or subject to special instructions); (iv) Date and time, to the nearest minute, the retail forex transaction order was received (as evidenced by timestamp or other timing device); (v) Time, to the nearest minute, the retail forex transaction order was executed; and (vi) Price at which the retail forex transaction was executed. (2) Post-execution allocation of bunched orders. (i) The FDIC-supervised insured depository institution placing and directing the allocation of an order eligible for post-execution allocation has been granted written investment discretion with regard to participating customer accounts and makes the following information available to retail forex customers upon request: (A) The general nature of the post-execution allocation methodology the FDIC-supervised insured depository institution will use; (B) Whether the FDIC-supervised insured depository institution has any interest in accounts which may be included with customer accounts in bunched orders eligible for post-execution allocation; and (C) Summary or composite data sufficient for that customer to compare its results with those of other comparable customers and, if applicable, any account in which the FDIC-supervised insured depository institution has an interest. (ii) Post-execution allocations are made as soon as practicable after the entire transaction is executed; (iii) Post-execution allocations are fair and equitable, with no account or group of accounts receiving consistently favorable or unfavorable treatment; and (iv) The post-execution allocation methodology is sufficiently objective and specific to permit the FDIC to verify the fairness of the allocations using that methodology. (f) Record of monthly statements and confirmations. (g) Manner of maintenance. (h) Length of maintenance. [76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912, Nov. 30, 2015] § 349.20 Capital requirements. An FDIC-supervised insured depository institution offering or entering into retail forex transactions must be well capitalized as defined by 12 CFR part 324, unless specifically exempted by the FDIC in writing. [83 FR 17741, Apr. 24, 2018] § 349.21 Margin requirements. (a) Margin required. (1) Two percent of the notional value of the retail forex transaction for major currency pairs and 5 percent of the notional value of the retail forex transaction for all other currency pairs; (2) For short options, 2 percent for major currency pairs and 5 percent for all other currency pairs of the notional value of the retail forex transaction, plus the premium received by the retail forex customer; or (3) For long options, the full premium charged and received by the FDIC-supervised insured depository institution. (b)(1) Form of margin. (i) Obligations of the United States and obligations fully guaranteed as to principal and interest by the United States; (ii) General obligations of any State or of any political subdivision thereof; (iii) General obligations issued or guaranteed by any enterprise, as defined in 12 U.S.C. 4502(10); (iv) Certificates of deposit issued by an insured depository institution, as defined in § 3(c)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)(2)); (v) Commercial paper; (vi) Corporate notes or bonds; (vii) General obligations of a sovereign nation; (viii) Interests in money market mutual funds; and (ix) Such other financial instruments as the FDIC deems appropriate. (2) Haircuts. (i) Haircuts for noncash margin collected under this section; and (ii) Annual evaluation, and, if appropriate, modification of the haircuts. (c) Separate margin account. (d) Margin calls; liquidation of position. (1) Mark the value of the retail forex customer's open retail forex positions to market; (2) Mark the value of the margin collected under this section from the retail forex customer to market; (3) Determine if, based on the marks in paragraphs (c)(1) and (2) of this section, the FDIC-supervised insured depository institution has collected margin from the retail forex customer sufficient to satisfy the requirements of this section; and (4) Collect such margin from the retail forex customer as the FDIC-supervised insured depository institution may require to satisfy the requirements of this section, or liquidate the retail forex customer's retail forex transactions. (e) Set-off prohibited. (1) Apply a retail forex customer's retail forex obligations against any funds or other asset of the retail forex customer other than margin in the separate margin account described in paragraph (c) of this section; (2) Apply a retail forex customer's retail forex obligations to increase the amount owed by the retail forex customer to the FDIC-supervised insured depository institution under any loan; or (3) Collect the margin required under this section by use of any right of set-off. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.22 Required reporting to customers. (a) Monthly statements. (1) For each retail forex customer: (i) The open retail forex transactions with prices at which acquired; (ii) The net unrealized profits or losses in all open retail forex transactions marked to the market; (iii) Any money, securities or other property in the separate margin account required by § 349.21(c); and (iv) A detailed accounting of all financial charges and credits to the retail forex customer's retail forex accounts during the monthly reporting period, including: money, securities, or property received from or disbursed to such customer; realized profits and losses; and fees, charges, commissions, and spreads. (2) For each retail forex customer engaging in retail forex transactions that are options: (i) All such options purchased, sold, exercised, or expired during the monthly reporting period, identified by underlying retail forex transaction or underlying currency, strike price, transaction date, and expiration date; (ii) The open option positions carried for such customer and arising as of the end of the monthly reporting period, identified by underlying retail forex transaction or underlying currency, strike price, transaction date, and expiration date; (iii) All such option positions marked to the market and the amount each position is in the money, if any; (iv) Any money, securities or other property in the separate margin account required by § 349.21(c); and (v) A detailed accounting of all financial charges and credits to the retail forex customer's retail forex accounts during the monthly reporting period, including: money, securities, or property received from or disbursed to such customer; realized profits and losses; premiums and mark-ups; and fees, charges, and commissions. (b) Confirmation statement. (1) To each retail forex customer, a written confirmation of each retail forex transaction caused to be executed by it for the customer, including offsetting transactions executed during the same business day and the rollover of an open retail forex transaction to the next business day; (2) To each retail forex customer engaging in forex option transactions, a written confirmation of each forex option transaction, containing at least the following information: (i) The retail forex customer's account identification number; (ii) A separate listing of the actual amount of the premium, as well as each mark-up thereon, if applicable, and all other commissions, costs, fees and other charges incurred in connection with the forex option transaction; (iii) The strike price; (iv) The underlying retail forex transaction or underlying currency; (v) The final exercise date of the forex option purchased or sold; and (vi) The date the forex option transaction was executed. (3) To each retail forex customer engaging in forex option transactions, upon the expiration or exercise of any option, a written confirmation statement thereof, which statement shall include the date of such occurrence, a description of the option involved, and, in the case of exercise, the details of the retail forex or physical currency position which resulted therefrom including, if applicable, the final trading date of the retail forex transaction underlying the option. (c) Notwithstanding the provisions of paragraphs (b)(1) through (3) of this section, a retail forex transaction that is caused to be executed for a pooled investment vehicle that engages in retail forex transactions need be confirmed only to the operator of such pooled investment vehicle. (d) Controlled accounts. (e) Introduced accounts. [76 FR 40789, July 12, 2011. Redesignated and amended at 80 FR 74912, Nov. 30, 2015] § 349.23 Unlawful representations. (a) No implication or representation of limiting losses. (1) Guarantee such person or account against loss; (2) Limit the loss of such person or account; or (3) Not call for or attempt to collect margin as established for retail forex customers. (b) No implication of representation of engaging in prohibited acts. (c) No Federal government endorsement. (d) Assuming or sharing of liability from bank error. (e) Certain guaranties unaffected. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.24 Authorization to trade. (a) Specific authorization required. (b) Requirements for specific authorization. A retail forex transaction is “specifically authorized” for purposes of this section if the retail forex customer specifies: (1) The precise retail forex transaction to be effected; (2) The exact amount of the foreign currency to be purchased or sold; and (3) In the case of an option, the identity of the foreign currency or contract that underlies the option. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.25 Trading and operational standards. (a) Internal rules, procedures, and controls required. (1) Ensure, to the extent reasonable, that each order received from a retail forex transaction that is executable at or near the price that the FDIC-supervised insured depository institution has quoted to the retail forex customer is entered for execution before any order in any retail forex transaction for (i) A any proprietary account; (ii) An account in which a related person has an interest, or any account for which such a related person may originate orders without the prior specific consent of the account owner if the related person has gained knowledge of the retail forex customer's order prior to the transmission of an order for a proprietary account; (iii) an account in which such a related person has an interest, if the related person has gained knowledge of the retail forex customer's order prior to the transmission of an order for a proprietary account; or (iv) an account in which such a related person may originate orders without the prior specific consent of the account owner if the related person has gained knowledge of the retail forex customer's order prior to the transmission of an order for a proprietary account. (2) Prevent FDIC-supervised insured depository institution related persons from placing orders, directly or indirectly, with another person in a manner designed to circumvent the provisions of paragraph (a)(1) of this section; (3) Fairly and objectively establish settlement prices for retail forex transactions; and (b) Disclosure of retail forex transactions. (c) Handling of retail forex accounts of related persons of retail forex counterparties. (1) Receives written authorization from a person designated by the other retail forex counterparty with responsibility for the surveillance over the account pursuant to paragraph (a)(2) of this section; (2) Prepares immediately upon receipt of an order for the account a written record of the order, including the account identification and order number, and records thereon to the nearest minute, by time-stamp or other timing device, the date and time the order is received; and (3) Transmits on a regular basis to the other retail forex counterparty copies of all statements for the account and of all written records prepared upon the receipt of orders for such account pursuant to paragraph (a)(2) of this section. (d) Related person of FDIC-supervised insured depository institution establishing account at another retail forex counterparty. (1) Receives written authorization to open and maintain the an account from a person designated by the FDIC-supervised insured depository institution of which it is a related person with responsibility for the surveillance over the account pursuant to paragraph (a)(2) of this section; and (2) Transmits on a regular basis to the FDIC-supervised insured depository institution copies of all statements for such account and of all written records prepared by the other retail forex counterparty upon receipt of orders for the account pursuant to paragraph (c)(2) of this section are transmitted on a regular basis to the retail forex counterparty of which it is a related person. (e) Prohibited trading practices. (1) Enter into a retail forex transaction, to be executed pursuant to a market or limit order at a price that is not at or near the price at which other retail forex customers, during that same time period, have executed retail forex transactions with the FDIC-supervised insured depository institution; (2) Adjust or alter prices for a retail forex transaction after the transaction has been confirmed to the retail forex customer; (3) Provide a retail forex customer a new bid price for a retail forex transaction that is higher than its previous bid without providing a new asked price that is also higher than its previous asked price by a similar amount; (4) Provide a retail forex customer a new bid price for a retail forex transaction that is lower than its previous bid without providing a new asked price that is also lower than its previous asked price by a similar amount; or (5) Establish a new position for a retail forex customer (except one that offsets an existing position for that retail forex customer) where the FDIC-supervised insured depository institution holds outstanding orders of other retail forex customers for the same currency pair at a comparable price. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.26 Supervision. (a) Supervision by the FDIC-supervised insured depository institution. (b) Supervision by officers, employees, or agents. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.27 Notice of transfers. (a) Prior notice generally required. (b) Exceptions. (1) Requested by the retail forex customer; (2) Made by the Federal Deposit Insurance Corporation as receiver or conservator under the Federal Deposit Insurance Act; or (3) Otherwise authorized by applicable law. (c) Obligations of transferee FDIC-supervised insured depository institution. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015] § 349.28 Customer dispute resolution. (a) Voluntary submission of claims to dispute or settlement procedures. (b) Election of forum. (2) The customer shall, within 45 days after receipt of such list, notify the FDIC-supervised insured depository institution of the person selected. The customer's failure to provide such notice shall give the FDIC-supervised insured depository institution the right to select a person from the list. (c) Enforceability. (d) Time limits for submission of claims. (e) Counterclaims. [76 FR 40789, July 12, 2011. Redesignated at 80 FR 74912, Nov. 30, 2015]

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