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New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Brussels
Tokyo Hong Kong Beijing Melbourne Sydney
www.sullcrom.com
June 5, 2018
Volcker Rule
Federal Banking Agencies and CFTC Approve Notice of Proposed Rulemaking to Amend Volcker Rule Regulations; SEC Expected to Follow
EXECUTIVE SUMMARY
On May 30, 2018, the Board of Governors of the Federal Reserve System (the “Federal Reserve”)
approved a notice of proposed rulemaking to amend the regulations implementing the so-called “Volcker
Rule” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”). Each of the other agencies responsible for implementing and enforcing the Volcker Rule
(collectively with the Federal Reserve, the “Agencies”)1 subsequently approved or is expected to approve
in the very near term a substantially similar notice of proposed rulemaking (collectively with the Federal
Reserve’s notice of proposed rulemaking, the “NPR”).2
The NPR follows recent statements by representatives of the Agencies,3 a 2017 report on financial reform
by the U.S. Department of the Treasury4 (the “Treasury Report”) and a public comment process initiated
by the OCC5 (the “OCC RFI”) following the Treasury Report, each of which highlighted concerns that the
current Volcker Rule regulations are overly complex and should be tailored to reduce compliance costs
and clarify the application of the regulations. The NPR also comes shortly after Congress’s May 24, 2018
enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Reform Act”),
which exempts certain smaller banking entities from the Volcker Rule entirely.6
We believe that there are two key takeaways from the NPR:
First, the NPR proposes limited and targeted changes to the proprietary trading and compliance
program provisions of the Volcker Rule regulations and, to a significantly lesser extent, the
covered funds provisions. The Agencies’ stated objectives for these changes include streamlining
and clarifying the application of their regulations and tailoring the compliance program and certain
other requirements based on the size and scope of a banking entity’s trading activities. For
example, a banking entity with less than $10 billion in gross trading assets and liabilities would be
-2- Volcker Rule June 5, 2018
subject to a substantially simpler compliance program requirement than a banking entity that
exceeds this threshold, and banking entities with less than $1 billion in gross trading assets and
liabilities would benefit from a “presumption of compliance” with all aspects of the regulations. If
adopted in the form proposed in the NPR, however, the amendments would provide a lesser
degree of relief to the firms most affected by the Volcker Rule, including larger and mid-sized
banking entities. Furthermore, the proposed changes to the proprietary trading provisions will
need to be carefully analyzed by individual banking organizations in order to assess the impact
on their businesses and operations.
Second, many recommendations and concerns raised in the Treasury Report, the OCC RFI and
industry comment letters7—especially with respect to the covered funds provisions—are not
addressed in any proposed amendment but instead are discussed only in certain of the 342
separately numbered questions (and multiple subquestions) posed in the preamble to the NPR’s
proposed amendments (the “Preamble”).
The ultimate scope and contour of many significant aspects of the Volcker Rule regulations remain open
questions and should be influenced by the comment process that will follow publication of the NPR.
Comments on the NPR will be due 60 days following publication in the Federal Register.
A comparison of the text of the Agencies’ final rule issued on December 10, 2013 (the “2013 Rule”)8
against the text of the amended regulations proposed by the NPR (the “Proposed Rule”) is attached as
Appendix A to this Memorandum.
OVERVIEW
The Volcker Rule, as implemented by the 2013 Rule, imposes broad prohibitions on proprietary trading
and investing in and sponsoring private equity funds, hedge funds and certain other investment
vehicles—referred to as “covered funds” in the 2013 Rule—by banking entities. In addition, banking
entities are generally required to establish an internal compliance program that is reasonably designed to
ensure and monitor compliance with the Volcker Rule.9 The Proposed Rule is the Agencies’ first proposal
to amend the 2013 Rule,10
although staffs of the Agencies have published a number of “Frequently Asked
Questions” (FAQs) to provide interpretive guidance11
and have also issued policy statements and other
guidance regarding the application and interpretation of various aspects of the 2013 Rule.12
As the Agencies acknowledge in the NPR, the 2013 Rule has been criticized for instituting an overly
complex and prescriptive compliance regime that has led to difficulties for banking entities seeking to
distinguish permissible from prohibited activities and created unnecessary compliance costs.13
The
Agencies state in the NPR that their proposal “would adopt a revised risk-based approach that would rely
on a set of clearly articulated standards for both prohibited and permitted activities and investments,
consistent with the requirements of [the Volcker Rule].”14
In particular, the Agencies indicate that their
proposal is intended to: (i) tailor the application of the regulations based on the size and scope of a
banking entity’s trading activities; (ii) streamline and clarify for all banking entities certain definitions and
-3- Volcker Rule June 5, 2018
requirements related to the proprietary trading prohibition and limitations on covered fund activities and
investments—including by codifying or otherwise addressing matters that previously have been clarified
through interagency FAQs and other guidance—and (iii) reduce metrics reporting, recordkeeping and
compliance program requirements for all banking entities.15
Summarized below is an overview of key aspects of the NPR and the Proposed Rule:
A. TAILORING OF REQUIREMENTS; SCOPE OF APPLICABILITY
Tailoring by amount of trading assets and liabilities. The Proposed Rule divides banking
entities into three categories, each of which is subject to different compliance program and
other requirements. The categorization applied to a banking entity is based on the extent of
the banking entity’s trading assets and liabilities—and does not also take into account total
consolidated assets, unlike the 2013 Rule’s approach to designating five tiers of compl iance
program requirements16
—as calculated in the manner detailed in Part I of this Memorandum.
The result of this calculation determines whether the banking entity is categorized as having
trading assets and liabilities that are:17
“significant” (i.e., equaling or exceeding a $10 billion threshold), in which case the banking
entity is subject to the “six-pillar” compliance program requirement, a quantitative trading
metrics reporting and recordkeeping regime, specific compliance program requirements
associated with the exemptions for underwriting and market making-related activities,
documentation requirements associated with the risk-mitigating hedging exemption, covered
fund documentation requirements and the CEO attestation requirement;
“moderate” (i.e., between the $10 billion threshold and a $1 billion threshold), in which
case the banking entity is subject to reduced compliance program requirements and to the
CEO attestation requirement; or
“limited” (i.e., under the $1 billion threshold), in which case the banking entity is subject to
significantly reduced requirements, is presumed to be in compliance with the Proposed Rule
and has no obligation to demonstrate compliance with the covered fund and proprietary
trading provisions on an ongoing basis.
Recent legislation exempting smaller, less active banking entities. The Reform Act exempts
from the Volcker Rule entirely any banking entity that has (i) less than $10 billion in total
consolidated assets and (ii) total trading assets and trading liabilities representing less than 5% of
its total consolidated assets.18
The NPR does not propose any implementation of the Reform
Act’s amendments, although it expressly states that the Agencies will not enforce the 2013 Rule
in a manner inconsistent with those amendments.19
B. PROPRIETARY TRADING PROVISIONS
“Trading account” tests. As under the 2013 Rule, the Proposed Rule provides a multi-prong
test to determine whether a purchase of a financial instrument is “for the trading account” of the
banking entity and is, therefore, within the definition of “proprietary trading.” The Proposed Rule
revises the 2013 Rule’s definition of “trading account” by eliminating the “short-term intent prong”
(including the 60-day rebuttable presumption) and adding a new “accounting prong” that generally
captures any purchase or sale of a financial instrument that is recorded at fair value on a
-4- Volcker Rule June 5, 2018
recurring basis under applicable accounting standards. The Agencies note that this would
include, among other financial instruments, derivatives, trading securities and available-for-sale
securities. The Proposed Rule also includes a presumption of compliance for trading desks that
are not captured by the “market risk capital prong” or the “dealer prong,” so long as the trading
desk operates at or below an absolute daily profit and loss threshold of $25 million (as calculated
on a rolling basis with a 90-day lookback period).
Definition of “trading desk.” The Proposed Rule retains the current definition of “trading desk.”
However, the Agencies solicit comment on a potential multi-factor definition of “trading desk” that
would be based on the same criteria typically used to establish trading desks for other
operational, management and compliance purposes.
Underwriting and market making-related activities. The Proposed Rule includes certain
changes that are intended to “tailor, streamline, and clarify” the requirements that a banking entity
must satisfy to avail itself of the exemptions for permitted underwriting and market making-related
activities. Notably, a banking entity’s purchase or sale of a financial instrument in connection with
its underwriting or market making-related activities is presumed to meet the “reasonably expected
near-term demands of clients, customers and counterparties” requirement (“RENTD”) if the
banking entity has established, and implements, maintains and enforces, the applicable
“internally set risk limits.” The Proposed Rule would also amend the compliance program
requirement for each of these exemptions by making the requirement, in each case, applicable
only to banking entities with significant trading assets and liabilities.
Risk-mitigating hedging activities. The Proposed Rule streamlines certain conditions of the
exemption for permitted risk-mitigating hedging activity by: (i) eliminating the current requirement
that the hedging activity must demonstrably reduce or otherwise significantly mitigate one or more
specific, identifiable risks; (ii) reducing documentation requirements associated with risk-
mitigating hedging transactions that are conducted by one desk to hedge positions of another
desk with pre-approved types of instruments within pre-set hedging limits; and (iii) eliminating the
2013 Rule’s requirement that banking entities undertake correlation analyses regarding their
hedges. The Proposed Rule provides for even more streamlined conditions for banking entities
that do not have significant trading assets and liabilities.
Exclusions for liquidity management activities and error trade exclusion. The Proposed
Rule broadens the current liquidity management exclusion to allow banking entities to use foreign
exchange forwards, foreign exchange swaps and physically settled cross-currency swaps as part
of their liquidity management activities. Furthermore, the Proposed Rule establishes a new
exclusion from the definition of “proprietary trading” for any purchase or sale of a financial
instrument that was made in error by a banking entity in the course of conducting a permitted or
excluded activity (or made to correct such an error).
Trading by foreign banking entities outside of the United States. The Proposed Rule retains
certain elements of the so-called “TOTUS” proprietary trading exemption (for trading activities
conducted outside of the United States) while modifying or eliminating others. To qualify for the
TOTUS exemption under the Proposed Rule, personnel engaged in the decision to purchase or
sell the relevant financial instrument must not be located in the United States (the same
requirement as under the 2013 Rule), among other conditions. However, the Proposed Rule
removes the requirement that personnel who arrange, negotiate or execute such purchase or
sale may not be located in the United States. Furthermore, the Proposed Rule removes the
TOTUS exemption’s “financing prong” (which requires that the purchase or sale not be financed
by a U.S. affiliate or branch) and the “counterparty prong” (which requires that transactions with a
-5- Volcker Rule June 5, 2018
U.S. counterparty be executed through an unaffiliated market intermediary and promptly cleared
and settled through a clearing agency or derivatives clearing organization acting as a central
counterparty, and be conducted anonymously if the unaffiliated market intermediary is not acting
as principal).
C. COVERED FUNDS PROVISIONS
Definition of “covered fund.” The Proposed Rule does not include specific changes to the
definition of “covered fund,” despite the Treasury Report’s recommendation to adopt a simple
definition that focuses on the characteristics of hedge funds and private equity funds, with
appropriate additional exemptions,20
comments in response to the OCC RFI that highlighted the
overbreadth of the 2013 Rule’s definition21
and concerns acknowledged in the OCC RFI that the
definition captures investment vehicles that facilitate lending activity and capital formation and
that are not equivalent to traditional hedge funds or private equity funds.22
The Agencies simply
request comment on numerous aspects of the definition, including (i) whether the current
definition effectively implements the statute and is appropriately tailored to identify the funds that
are the intended focus of the Volcker Rule and (ii) whether the definition has been inappropriately
imprecise and, if so, whether that has led to any unintended results.
Exclusions from covered fund status. The Proposed Rule also retains without change the
existing exclusions from the “covered fund” definition under the 2013 Rule. Comment is solicited
broadly as to whether additional exclusions or modifications to the current exclusions would be
appropriate, including for foreign public funds (“FPFs”), family wealth management vehicles, joint
ventures, securitizations and municipal securities tender option bond vehicles.
Banking entity status of foreign excluded funds. The Agencies solicit comment as to whether
changes to the “covered fund” definition are warranted to address, among other issues, the
possibility that entities excluded from the “covered fund” definition would nonetheless be treated
as banking entities. These entities may include, for example, certain foreign excluded funds, with
respect to which the NPR extends until July 21, 2019 the temporary relief from enforcement that
the federal banking agencies previously provided (as explained further in Part II.B.1.ii below), as
well as U.S. registered investment companies (“RICs”), FPFs and employees’ securities
companies. The Proposed Rule does not alter the current definition of “banking entity” under the
2013 Rule.
“Super 23A” restrictions on relationships with certain covered funds. The Agencies
specifically seek comment on whether the exemptions available under Section 23A of the Federal
Reserve Act and Regulation W should also be available under the Volcker Rule, which generally
prohibits a banking entity from entering into any transaction with related covered funds that would
be a covered transaction as defined in Section 23A of the Federal Reserve Act. The Agencies
also seek comment on whether to incorporate into the Super 23A provisions the quantitative limits
on covered transactions in Section 23A of the Federal Reserve Act and Regulation W (in lieu of
the current prohibition on covered transactions).
Underwriting and market making for third-party covered funds. The Proposed Rule removes
the requirement that a banking entity include in its aggregate funds limitation and Tier 1 capital
deduction the value of any ownership interests in a covered fund acquired or retained under the
underwriting or market making-related activities exemptions, so long as the banking entity does
not sponsor or advise that covered fund.
-6- Volcker Rule June 5, 2018
Risk-mitigating hedging investments for customer facilitation. The Proposed Rule would
amend the 2013 Rule to allow a banking entity to acquire or retain a covered fund ownership
interest as a risk-mitigating hedge when acting as an intermediary on behalf of a customer that is
not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the
covered fund, subject to compliance with all the requirements of the covered funds exemption for
permitted risk-mitigating hedging activity (as modified by the Proposed Rule). This proposal
reverses the Agencies’ position stated in the Supplementary Information accompanying the 2013
Rule that this type of activity constitutes a high-risk strategy that could threaten the safety and
soundness of the banking entity.
Permitted covered fund activities of a foreign banking entity. The Proposed Rule codifies the
Agencies’ previously issued FAQ guidance that, for purposes of the so-called “SOTUS”
exemption (for covered fund activities and investments conducted “solely outside of the United
States”), an ownership interest in a covered fund is not “offered for sale or sold to a resident of
the United States” if it is not sold, and has not been sold, pursuant to an offering that targets
residents of the United States in which the banking entity relying on the SOTUS exemption (or an
affiliate) participates. Furthermore, the Proposed Rule eliminates the requirement in the 2013
Rule that no financing may be provided by any branch or affiliate of the banking entity in the
United States for any sponsorship or investment conducted in reliance on the SOTUS exemption.
D. COMPLIANCE PROGRAM; QUANTITATIVE METRICS
Compliance program. As noted in Part A of this Overview, the Proposed Rule’s compliance
program requirements are determined only by the extent of a banking entity’s trading assets and
liabilities (and not by reference to any other measure, such as the amount of total consolidated
assets, which is a factor in determining the compliance program requirement applicable to a
banking entity under the 2013 Rule). Banking entities are subject to one of three different
compliance program tiers based on whether they have “significant trading assets and liabilities,”
“moderate trading assets and liabilities” or “limited trading assets and liabilities” (in each case, as
defined in the Proposed Rule). Part I of this Memorandum provides a detailed explanation of this
categorization and of the methodology to calculate trading assets and liabilities for this purpose.
Metrics reporting and recordkeeping requirements. The Agencies indicate that they have
assessed the utility of data gathered from banking entities’ reports of quantitative trading metrics
as well as the compliance costs of the metrics regime. Taking this evaluation into account, the
Agencies propose numerous amendments to Appendix A of the 2013 Rule, including: (i) limiting
the applicability of certain metrics only to market making and underwriting desks; (ii) replacing the
Customer-Facing Trade Ratio with a new Transaction Volumes metric; (iii) replacing Inventory
Turnover with a new Positions metric; (iv) eliminating inventory aging data for derivatives;
(v) modifying the calculation and reporting methodology for certain metrics; and (vi) adding
requirements that metrics-reporting banking entities provide (A) qualitative information regarding
each trading desk, (B) a Narrative Statement describing changes in calculation methods, trading
desk structure or trading desk strategies and (C) descriptive information about their reported
metrics. As noted in Part A of this Overview, only banking entities with significant trading assets
and liabilities are required to report quantitative trading metrics under the Proposed Rule.
CEO attestation. Under the 2013 Rule, banking entities subject to the “enhanced” compliance
program are required to provide an annual attestation of the chief executive officer that the
banking entity has in place processes to establish, maintain, enforce, review, test and modify the
compliance program in a manner reasonably designed to achieve compliance with the rule. The
-7- Volcker Rule June 5, 2018
Proposed Rule retains the CEO attestation requirement and applies it to banking entities with
significant trading assets and liabilities or moderate trading assets and liabilities. This change
would extend the CEO attestation requirement to certain banking entities that are not subject to
the “enhanced” compliance program under the 2013 Rule—for example, banking entities with
less than $50 billion of total consolidated assets and less than $10 billion (but more than $1
billion) of trading assets and liabilities—but would exempt a banking entity with limited trading
assets and liabilities from the requirement,23
absent a determination by the Agencies to exercise
its “reserved authority” to impose such requirement on the banking entity.24
The remainder of this Memorandum summarizes the significant provisions of the NPR and is organized
as follows:
Part I discusses the categorization of banking entities under the Proposed Rule, based on the
amount of their trading assets and liabilities, and under the Reform Act.
Part II provides a more detailed discussion of the Proposed Rule’s changes to specific
requirements and restrictions of the 2013 Rule.
Part III provides an overview of areas on which the NPR solicits comment, including certain topics
that are the subject of specific amendments in the Proposed Rule as well as a broad range of
topics that are not addressed by any of these amendments.
-8- Volcker Rule June 5, 2018
TABLE OF CONTENTS
I. Tailoring of the Proposed Rule’s Requirements ............................................................................... 9
II. Changes to Specific Requirements and Restrictions ..................................................................... 12
II.A. Proprietary Trading ..................................................................................................................... 12
II.A.1. Definitions of “proprietary trading” and “trading account” .............................................. 12
II.A.2. Definition of “trading desk” ............................................................................................. 14
II.A.3. Underwriting activities .................................................................................................... 15
II.A.4. Market making-related activities .................................................................................... 16
II.A.5. Risk-mitigating hedging activities................................................................................... 18
II.A.6. Liquidity management exclusion and error trade exclusion .......................................... 19
(i) Liquidity management ............................................................................................. 19
(ii) Error trade exclusion ............................................................................................... 20
II.A.7. Trading activities conducted solely outside of the United States .................................. 20
II.B. Covered Fund Activities and Investments .................................................................................. 22
II.B.1. “Banking entity” status of certain entities excluded from the definition of
“covered fund” ................................................................................................................ 23
(i) Exclusion of certain U.S. registered investment companies and foreign
public funds from “banking entity” status ................................................................ 23
(ii) Extension of relief from “banking entity” treatment for certain foreign
excluded funds ........................................................................................................ 24
II.B.2. Permitted underwriting and market making-related activities ........................................ 24
II.B.3. Covered fund activities conducted solely outside of the United States ......................... 25
II.B.4. Permitted risk-mitigating hedging activities ................................................................... 26
II.B.5. Name sharing with organized and offered covered funds ............................................. 27
II.C. Compliance Program and Quantitative Trading Metrics ............................................................. 27
II.C.1. Compliance program requirement ................................................................................. 27
II.C.2. Quantitative metrics reporting and recordkeeping requirements ................................... 28
III. Additional Areas Identified for Comment by Agencies .................................................................. 30
Overall Framework and Categorization of Banking Entities ................................................................. 30
Proprietary Trading Provisions ............................................................................................................. 31
Covered Fund Provisions ..................................................................................................................... 34
Compliance Program; Violations .......................................................................................................... 38
Quantitative Metrics Reporting and Recordkeeping ............................................................................. 39
-9- Volcker Rule June 5, 2018
I. TAILORING OF THE PROPOSED RULE’S REQUIREMENTS
Under the 2013 Rule, a banking entity’s total consolidated assets and its trading assets and liabilities
(together with those of its affiliates and subsidiaries) determine the compliance program requirements that
are applicable to the banking entity. Broadly speaking, the calculations of consolidated assets and trading
assets and liabilities for this purpose are conducted either (i) on a worldwide basis in the case of U.S.
banking entities or (ii) with respect to U.S. assets or combined U.S. operations in the case of foreign
banking entities. Depending on these calculations, a banking entity is subject under the 2013 Rule to one
of five different tiers of compliance program requirements, each of which entails a different set of required
policies and procedures, recordkeeping, internal controls and other compliance program elements, as
well as, potentially, quantitative metrics reporting and CEO attestation requirements.25
Under the Proposed Rule, banking entities are divided into three categories—each of which is subject to
a distinct set of compliance program requirements and other substantive requirements, as summarized in
Figure 1 below—based on the amount of the banking entities’ trading assets and liabilities as calculated
in the following manner (referred to as “TALs” in this Part I):
In the case of a banking entity that is not and is not controlled by a foreign banking organization
(“FBO”), the banking entity’s TALS equals the average gross sum of the banking entity’s and its
affiliates’ and subsidiaries’ trading assets and liabilities (excluding trading assets and liabilities
involving obligations of, or guaranteed by, the United States or any agency of the United States)
over the previous consecutive four quarters, as measured as of the last day of each of the four
previous calendar quarters, on a worldwide consolidated basis.
In the case of a banking entity that is a FBO or is controlled by a FBO, the calculation of TALs is
based on the combined U.S. operations of the top-tier FBO (including all subsidiaries, affiliates,
branches and agencies of the FBO operating, located or organized in the United States),26
except
that, for purposes of determining whether a FBO has “limited trading assets and liabilities” (i.e.,
TALs of less than $1 billion) the calculation is conducted on a worldwide consolidated basis.
Therefore, a FBO that has less than $1 billion in TALs based on the combined U.S. operations of
the top-tier FBO but more than $1 billion in TALs on a worldwide consolidated basis would be
deemed to have “moderate trading assets and liabilities.”
In addition to the relief that the Proposed Rule provides for banking entities with “limited trading assets
and liabilities”—i.e., banking entities with TALs of less than $1 billion, calculated on a worldwide
consolidated basis—Section 203 of the Reform Act exempts from the Volcker Rule any banking entity
that has (i) less than $10 billion in total consolidated assets and (ii) total trading assets and trading
liabilities representing less than 5% of its total consolidated assets. The Agencies indicate that they
expect to conduct a separate rulemaking process to address the Reform Act’s amendments that affect
the Volcker Rule.27
The Reform Act does not expressly state how “total trading assets and trading
liabilities” for purposes of Section 203 should be determined, and the Preamble does not specify whether
that figure will be calculated in the same manner as TALs.
-10- Volcker Rule June 5, 2018
The following table summarizes the categorization of banking entities under the Proposed Rule based on
whether they have “significant trading assets and liabilities,” “moderate trading assets and liabilities” or
“limited trading assets and liabilities” (in each case, as defined in the Proposed Rule) and whether they
are exempted from the Volcker Rule by Section 203 of the Reform Act.
Figure 1: Categorization of Banking Entities Under the Proposed Rule and the Reform Act
Categorization
Under Proposed
Rule / Reform Act Criteria for This Level
Compliance Program
Requirements
Metrics
Reporting
CEO
Attestation
Additional
Permitted Activity
Requirements
“Significant trading assets and liabilities”
TALs equal or exceed $10 billion.
Calculation of TALs is based on (i) in the case of U.S. banking entities, all affiliates and subsidiaries on a worldwide basis and (ii) in the case of FBOs and their subsidiaries, combined U.S. operations only.
Six pillars required under the 2013 Rule (i.e., written policies and procedures, internal controls, management framework, independent testing, training and records).
Subject to the same additional covered fund documentation requirements as under the 2013 Rule.
28
Yes.
A banking entity with $50 billion or more in TALs is subject to increased frequency of reporting require-ments.
Yes. Subject to compliance requirements in order to rely on exemptions for underwriting, market making-related and risk-mitigating hedging permitted activities.
“Moderate trading assets and liabilities”
TALs are less than $10 billion, but greater than or equal to the $1 billon threshold for banking entities with “limited” TALs (see below).
TALs for U.S. banking entities and for FBOs and their subsidiaries are calculated as described immediately above.
Simplified compliance program requirement, which would “allow the banking entity to comply with the applicable requirements by updating existing policies and procedures.”
29
Subject to the Agencies’ “reserved authority” to require the banking entity to apply any requirement applicable to banking entities having “significant” TALs based on size or complexity of the entity’s trading or investment activities, or the risk of evasion.
30
No, unless notified in writing by the relevant Agency.
Yes. --
“Limited trading assets and liabilities”
TALs are less than $1 billon (as calculated on a worldwide basis for all banking entities), and the banking entity is not otherwise exempted by the Reform Act (see below).
No compliance program requirement unless relevant Agency directs otherwise. Subject to the Agencies’ “reserved authority” (see above) to require the banking entity to apply any requirement applicable to banking entities having “significant” or “moderate” TALs.
31
Presumed to be in compliance with substantive provisions (subject to rebuttal by an Agency upon an examination or audit).
32
No, unless notified in writing by the relevant Agency.
--
-11- Volcker Rule June 5, 2018
Categorization
Under Proposed
Rule / Reform Act Criteria for This Level
Compliance Program
Requirements
Metrics
Reporting
CEO
Attestation
Additional
Permitted Activity
Requirements
Not engaged in covered activities
Does not engage in proprietary trading or covered fund activities (other than permitted trading in U.S. government obligations).
None, unless and until the banking entity becomes engaged in covered proprietary trading or covered fund activities.
No, unless notified in writing by the relevant Agency.
--
Exempted by the Reform Act
Banking entity has less than $10 billion in total consolidated assets; and total trading assets and liabilities representing less than 5% of its total consolidated assets.
Not subject to the Volcker Rule or any element of the Proposed Rule.
-12- Volcker Rule June 5, 2018
II. CHANGES TO SPECIFIC REQUIREMENTS AND RESTRICTIONS
This Part II provides an overview of the provisions of the Proposed Rule that would substantively amend
the 2013 Rule’s requirements and restrictions. The following discussion focuses on the aspects of the
Proposed Rule that would, if adopted, directly modify the regulatory requirements that banking entities
must meet in order to comply with the Volcker Rule’s restrictions on proprietary trading and covered fund
activities (and to qualify for certain exemptions and exclusions) and to meet the Volcker Rule’s
compliance program requirement. The extent to which certain of these restrictions and requirements
would apply to any particular banking entity under the Proposed Rule will depend on the banking entity’s
level of trading activities and the other factors explained in Part I of this Memorandum.
Many other aspects of the 2013 Rule that are not discussed in this Part II—including significant issues
that have been the subject of extensive commentary among industry participants—are acknowledged in
the Preamble as warranting further consideration and, potentially, further revisions to the 2013 Rule, but
are not addressed in the Proposed Rule. Rather, these issues are addressed only in the NPR’s questions
and solicitations for comment, as discussed in Part III of this Memorandum.
II.A. PROPRIETARY TRADING
II.A.1. Definitions of “proprietary trading” and “trading account”
As under the 2013 Rule, determining whether a purchase or sale of a financial instrument is “proprietary
trading” depends on whether the transaction is “for the trading account” of the banking entity. The 2013
Rule establishes a three-pronged test of “trading account” status: (i) the “short-term intent prong,” which
includes a rebuttable presumption that this prong captures any purchase or sale of a financial instrument
if the banking entity holds the financial instrument for fewer than 60 days or substantially transfers the risk
of the position within 60 days;33
(ii) the “market risk capital prong”;34
and (iii) the “dealer prong.”35
The Proposed Rule eliminates the “short-term intent prong,” including the 60-day rebuttable
presumption,36
and establishes a modified version of this three-pronged test, as follows:37
Market risk capital prong. As under this prong in the 2013 Rule, the “trading account” definition
captures any purchase or sale of financial instruments that is both a market risk capital rule
covered position and trading position (or a hedge of another market risk capital rule covered
position) if the banking entity, or any affiliate of the banking entity, is an insured depository
institution, bank holding company or savings and loan holding company and calculates risk-based
capital ratios under the market risk capital rule.38
The Proposed Rule modifies the market risk capital prong so that it would include, with
respect to a banking entity that is not, and is not controlled directly or indirectly by a banking
entity that is, located in or organized under the laws of the United States or any U.S. state,
-13- Volcker Rule June 5, 2018
any account used by the banking entity to purchase or sell one or more financial instruments
that are subject to capital requirements under a market risk framework established by the
home-country supervisor that is consistent with the market risk framework published by the
Basel Committee on Banking Supervision.39
Dealer prong. As under this prong in the 2013 Rule, the “trading account” definition captures any
purchase or sale of financial instruments by a banking entity that is licensed or registered, or
required to be licensed or registered, to engage in the business of a dealer, swap dealer or
security-based swap dealer, if the instrument is purchased or sold in connection with the activities
that require the banking entity to be licensed or registered as such (or if the banking entity is
engaged in the business of a dealer, swap dealer or security-based swap dealer outside of the
United States, if the instrument is purchased or sold in connection with the activities of such
business).40
Accounting prong. The Proposed Rule establishes a new prong of the “trading account”
definition (the “accounting prong”) that captures any account used by a banking entity to
purchase or sell one or more financial instruments that is recorded at fair value on a recurring
basis under applicable accounting standards. The Agencies note that this would include, among
other financial instruments, derivatives, trading securities and available-for-sale securities.41
The Proposed Rule includes a presumption of compliance with the proprietary trading
prohibition for a trading desk42
that purchases or sells financial instruments “for the trading
account” solely by virtue of the accounting prong—in other words, a trading desk that is not
captured by the market risk capital prong or the dealer prong. To qualify for this presumption,
the trading desk must, in any 90-calendar-day period, operate at or below an absolute daily
profit and loss threshold of $25 million—i.e., the sum of the absolute values of the trading
desk’s daily net gain or net loss on the trading desk’s portfolio of financial instruments each
business day, reflecting realized and unrealized gains and losses since the previous business
day, based on the banking entity’s fair value for such financial instruments for the preceding
90-calendar-day period, does not exceed $25 million.43
The Agencies state that a banking entity that elects to make use of this presumption with
respect to a trading desk would have no obligation to demonstrate that the trading desk’s
activity complies with the Volcker Rule on an ongoing basis so long as the $25 million
threshold is not breached,44
nor would the banking entity have to assess the accounting
treatment of each transaction of a trading desk that operates pursuant to this presumption of
compliance.45
If the trading desk’s absolute daily profit and loss measurement exceeds $25 million at any
point, then the banking entity would be required to notify the appropriate Agency in
accordance with the Agency’s notification policies and procedures.46
Furthermore, the
Proposed Rule reserves the Agencies’ authority to determine on a case-by-case basis that a
purchase or sale of one or more financial instruments by a banking entity either is or is not for
the trading account, notwithstanding the presumption of compliance.47
In explaining the Proposed Rule’s approach to revising or eliminating elements of the 2013 Rule’s
definition of “trading account” while retaining others, the Agencies observe that “[b]anking entities subject
to the market risk capital prong and the dealer prong have had several years of experience complying
with the requirements of the [2013 Rule] and experience with identifying these activities in other contexts,”
and such banking entities “are able to conduct appropriate trading activities in an efficient manner
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pursuant to exclusions from the definition of proprietary trading or pursuant to the exemptions for
permitted activities.”48
The Agencies indicate that the inclusion of the accounting prong is “intended to give greater certainty and
clarity . . . about what financial instruments would be included in the trading account, because banking
entities should know which instruments are recorded at fair value on their balance sheets” and to provide
an “objective means of ensuring that such positions entered into by banking entities principally for the
purpose of selling in the near term, or with the intent to resell in order to profit from short-term price
movements, are incorporated in the definition of trading account.”49
Individual firms should assess the
impact of the accounting prong in their respective cases, including the possibility that it could include
positions that are not within the trading account as defined under the 2013 Rule.
II.A.2. Definition of “trading desk”
Many of the substantive and compliance-related requirements for permitted proprietary trading under the
2013 Rule and the Proposed Rule are determined in relation to a banking entity’s “trading desks.” For
example, compliance with the underwriting and market making-related activities exemptions (including the
RENTD requirements for both such exemptions) is determined at the level of individual trading desks.50
The Proposed Rule’s presumption of compliance under the accounting prong (as discussed in Part II.A.1
above) requires trading desks operating pursuant to that presumption to calculate their profits and losses
at the trading desk level and applies to all the activities of the trading desk.
The Proposed Rule retains the current definition of “trading desk”—that is, “the smallest discrete unit of
organization of a banking entity that purchases or sells financial instruments for the trading account of the
banking entity or an affiliate thereof.”51
The Agencies request comment on various alternatives to this
definition of “trading desk,” noting that banking entities have indicated that, in practice, this definition has
led to uncertainty regarding the meaning of “smallest discrete unit” and has caused confusion and
duplicative compliance and reporting efforts for banking entities that also define trading desks for
purposes unrelated to the Volcker Rule (e.g., internal risk management and reporting and calculating
regulatory capital requirements).52
The Agencies indicate that they are seeking comment on a potential multi-factor definition of “trading
desk” that would be based on the same criteria typically used to establish trading desks for other
operational, management and compliance purposes. In particular, the Agencies suggest an alternative
definition of “trading desk” that is: (i) structured to establish efficient trading for a market sector;
(ii) organized to ensure appropriate setting, monitoring and management review of the desk’s trading and
hedging limits, current and potential future loss exposures, strategies and compensation incentives; and
(iii) characterized by a clearly-defined unit of personnel that typically: (a) engages in coordinated trading
activity with a unified approach to its key elements; (b) operates subject to a common and calibrated set
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of risk metrics, risk levels and joint trading limits; (c) submits compliance reports and other information as
a unit for monitoring by management; and (d) books its trades together.53
II.A.3. Underwriting activities
The 2013 Rule includes an exemption for a banking entity’s underwriting activities, which is statutorily
designated as a permitted activity under the Volcker Rule,54
subject to the following conditions (among
others):55
(1) The trading desk’s “underwriting position” must be related to a “distribution” of securities
in which the banking entity is acting as an “underwriter.”56
(2) The amount and type of the securities in the trading desk’s underwriting position must
be designed not to exceed the reasonably expected near-term demands of clients,
customers or counterparties, and reasonable efforts must be made to sell or otherwise
reduce the underwriting position within a reasonable period, taking into account the
liquidity, maturity and depth of the market for the relevant type of security.
(3) The banking entity must establish, implement, maintain and enforce an internal
compliance program that meets specified requirements with respect to underwriting
activity.
(4) The compensation arrangements of persons performing the banking entity’s
underwriting activities must be designed not to reward or incentivize prohibited
proprietary trading.
(5) The banking entity must be licensed or registered to engage in underwriting activity if
and to the extent required by applicable law.
The Agencies retain a number of these conditions in the Proposed Rule, but also propose changes that
are intended to “tailor, streamline, and clarify the requirements that a banking entity must satisfy to avail
itself of the underwriting exemption.”57
In explaining these changes, the Agencies note that, since the
adoption of the 2013 Rule, “public commenters have observed that the significant compliance
requirements in the regulation may unnecessarily constrain underwriting without a corresponding
reduction in the type of trading activities that the rule was designed to prohibit.”58
Accordingly, the Agencies propose the following revisions to the underwriting activities exemption:
Presumption of RENTD compliance. Under the Proposed Rule, a banking entity’s purchase or
sale of a financial instrument is presumed to meet the underwriting RENTD requirement if the
banking entity has established and implements, maintains and enforces limits, based on the
nature and amount of the trading desk’s underwriting activities, on: (i) the amount, types and risk
of its underwriting position; (ii) the level of exposures to relevant risk factors arising from its
underwriting position; and (iii) the period of time a security may be held.59
The Agencies indicate that they believe this presumption would “allow for a clearer
application of the[] exemption[], and would provide banking entities with more flexibility and
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certainty in conducting permissible underwriting . . . activities.”60
The Agencies further
indicate that they expect a banking entity to establish these limits “according to its own
internal analyses and processes around conducting its underwriting activities,” which should
include an “ongoing and internal assessment” of RENTD.61
These limits are subject to review and oversight by the appropriate Agency on an ongoing
basis to determine whether the limits are consistent with the statutory standard.62
Furthermore, a banking entity is required “promptly” to report to the appropriate Agency “(A)
to the extent that any limit is exceeded and (B) any temporary or permanent increase to any
limit(s), in each case in the form and manner as directed by the [Agency].”63
The Agencies
indicate that they would expect to closely monitor and review any instances of a banking
entity exceeding a risk limit as well as any temporary or permanent increase to a trading desk
limit.64
An Agency may rebut the presumption of compliance if it determines, based on all relevant
facts and circumstances, that a trading desk is engaging in activity that is not based on the
trading desk’s reasonably expected near-term demands of clients, customers or
counterparties by providing written notice of such a determination to the banking entity.65
Compliance program requirement limited to banking entities with significant trading
assets and liabilities. The Proposed Rule would amend the compliance program requirement66
for the exemption for permitted underwriting activities (which, under the 2013 Rule, applies to all
banking entities relying on the exemption) by making that requirement applicable only to banking
entities with significant trading assets and liabilities.67
The Agencies clarify that banking entities that do not have significant trading assets and
liabilities are not relieved of the obligation to comply with the other requirements of the
exemption for underwriting activities, but the elimination of the exemption’s compliance
program requirement for such banking entities is intended to provide these banking entities
with “an appropriate amount of flexibility to tailor the means by which they seek to ensure
compliance with the underlying requirements of the exemption for underwriting activities, and
to allow them to structure their internal compliance measures in a way that takes into account
the risk profile and underwriting activity of the particular trading desk.”68
II.A.4. Market making-related activities
The 2013 Rule includes an exemption for a banking entity’s market making-related activities, which is
statutorily designated as a permitted activity under the Volcker Rule,69
subject to the following conditions
(among others):70
(1) The trading desk that establishes and manages the “financial exposure”71
must routinely
stand ready to purchase and sell one or more types of financial instruments related to its
financial exposure and be willing and available to quote, purchase and sell or otherwise
enter into long and short positions in, those types of financial instruments for its own
account, in commercially reasonable amounts and throughout market cycles on a basis
appropriate for the liquidity, maturity and depth of the market for the relevant types of
financial instruments.
(2) The amount, types and risks of the financial instruments in the trading desk’s “market-
maker inventory”72
must be designed not to exceed, on an ongoing basis, the
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reasonably expected near-term demands of “clients, customers or counterparties,”73
based on (i) the liquidity, maturity and depth of the market for the relevant types of
financial instruments and (ii) demonstrable analysis of historical customer demand,
current inventory of financial instruments and market and other factors regarding the
amount, types and risks of or associated with financial instruments in which the trading
desk makes a market, including through block trades.
(3) The banking entity must establish, implement, maintain and enforce an internal
compliance program meeting specified requirements with respect to market making-
related activity.
(4) The compensation arrangements of persons performing the banking entity’s market
making-related activities must be designed not to reward or incentivize prohibited
proprietary trading.
(5) The banking entity must be licensed or registered to engage in market making-related
activity if and to the extent required by applicable law.
The Agencies retain a number of these conditions in the Proposed Rule, but also propose changes that
are intended to “tailor, streamline, and clarify the requirements that a banking entity must satisfy to avail
itself of the market making exemption.”74
In explaining these changes, the Agencies note that their
original rulemaking in connection with the 2013 Rule sought to balance two goals: “to allow market
making to take place, which is important to well-functioning and liquid markets as well as the economy,
and simultaneously to prohibit proprietary trading unrelated to market making or other permitted
activities.”75
The Agencies go on to acknowledge that, based on their experience with the 2013 Rule, they
believe that “the significant compliance requirements and lack of clear bright lines in the regulation may
unnecessarily constrain market making” and “some of the requirements are unnecessary to prevent the
type of trading activities that the rule was designed to prohibit.”76
Accordingly, the Agencies propose to revise the exemption for market making-related activities in a
manner that parallels the proposed amendments to the underwriting exemption discussed in Part II.A.3
above. Specifically, the Proposed Rule establishes a presumption that a banking entity’s purchase or sale
of a financial instrument meets the RENTD requirement of the market making-related activities exemption
if the banking entity has established and implements, maintains and enforces the applicable “internally set
limits” for the trading desk on (i) the amount, types and risks of the trading desk’s market-maker positions;
(ii) the amount, types and risks of the products, instruments and exposures the trading desk may use for
risk management purposes; (iii) the level of exposures to relevant risk factors arising from its financial
exposure; and (iv) the period of time a financial instrument may be held,77
subject to (A) a requirement to
report breaches or increases of the limits to the relevant Agency,78
(B) review and oversight by the
relevant Agency79
and (C) the possibility of a rebuttal of the presumption by the relevant Agency.80
The
Proposed Rule would also amend the compliance program requirement for the exemption for permitted
market making-related activities (which, under the 2013 Rule, applies to all banking entities relying on the
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exemption) by making that requirement applicable only to banking entities with significant trading assets
and liabilities, similar to the amendment to the corresponding provision of the underwriting exemption.81
II.A.5. Risk-mitigating hedging activities
The Proposed Rule modifies the 2013 Rule’s exemption for permitted risk-mitigating hedging activities by
streamlining the requirements for a banking entity to rely upon this exemption in several respects.82
Under the 2013 Rule, the prohibition on proprietary trading does not apply to the risk-mitigating hedging
activities of a banking entity in connection with and related to individual or aggregated positions, contracts
or other holdings of the banking entity and designed to reduce the specific risks to the banking entity in
connection with and related to such positions, contracts or other holdings, provided that the activity
satisfies certain compliance requirements related to monitoring, analysis and documentation.83
The 2013 Rule requires potentially extensive documentation in connection with the exemption for
permitted risk-mitigating hedging activities. Specifically, the 2013 Rule requires additional documentation
for hedges that:
(1) are established at a different level of organization than the specific trading desk
establishing the related hedge positions, contracts or other holdings;
(2) are effected by the specific trading desk establishing or directly responsible for the
underlying positions, contracts or other holdings through a financial instrument,
exposure, technique or strategy that is not specifically identified in its written policies and
procedures as one that it may use for hedging; or
(3) are established to hedge aggregated positions across two or more trading desks.
This documentation must be established contemporaneously with the hedging transaction and must
document the trading desk or other business unit that is establishing and responsible for the hedge, the
risk-mitigating purpose of the transaction and the risks of the individual or aggregated positions, contracts
or other holdings that the transaction is designed to reduce. The 2013 Rule also requires each banking
entity to conduct an analysis (including correlation analysis) supporting its hedging strategy, and the
effectiveness of hedges must be monitored and recalibrated as necessary on an ongoing basis.84
With respect to banking entities with moderate or limited trading assets and liabilities, the Proposed Rule
removes all requirements under the 2013 Rule’s exemption except the requirements that the hedging
activity be designed to reduce or otherwise mitigate one or more specific, identifiable risks arising in
connection with and related to one or more identified positions, contracts or other holdings, and that the
hedging activity be recalibrated to maintain compliance with the rule.85
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With respect to banking entities with significant trading assets and liabilities, the Proposed Rule maintains
most of the exemption’s current requirements. However, the Proposed Rule modifies certain aspects of
the requirements under the 2013 Rule’s exemption, as follows:
“Demonstrably reduces” or otherwise “significantly mitigates.” The Proposed Rule
eliminates the current requirement that the hedging activity “demonstrably reduces” or otherwise
“significantly mitigates” risk.86
The Agencies note that the requirement is not directly required by
the statutory language, which requires only that the hedge “be designed” to reduce or otherwise
significantly mitigate specific risks.87
The Agencies acknowledge that, in practice, the requirement
to show that hedging activity demonstrably reduces or otherwise significantly mitigates a specific,
identifiable risk that develops over time can be complex, could potentially reduce bona fide risk-
mitigating hedging activity and has been difficult for banking entities to comply with, due in large
part to uncertainties that are inherent to hedging practices. In particular, the Agencies note that
unforeseeable changes in market conditions, event risk, sovereign risk and other factors that
cannot be known in advance could reduce or eliminate the otherwise intended hedging benefits.88
Reduce documentation requirements. The Proposed Rule reduces documentation
requirements associated with risk-mitigating hedging transactions that are conducted by one desk
to hedge positions at another desk with pre-approved types of instruments within pre-set hedging
limits.89
The limits must be appropriately tailored for: (i) the size, types and risks of the hedging
activities commonly undertaken by the trading desk; (ii) the financial instruments purchased and
sold by the trading desk for hedging activities; and (iii) the levels and duration of the risk
exposures being hedged.90
The Agencies note that this proposed change is intended to provide
clarity as to the types and characteristics of the limits needed to comply with the proposal.91
Correlation analysis. The Proposed Rule eliminates the correlation analysis requirement of the
2013 Rule’s exemption.92
The Preamble indicates that the correlation analysis requirement was
intended to indicate whether a potential hedging position, strategy or technique would
demonstrably reduce the risk it is designed to hedge, thus suggesting it was not meant for
speculative purposes.93
However, the Agencies indicate that the removal of the requirement
alleviates the practical difficulties with the correlation analysis requirement and the added delays,
costs and uncertainty associated with the requirement without significantly impacting the
conditions that risk-mitigating hedging activities must meet in order to qualify for the exemption.94
II.A.6. Liquidity management exclusion and error trade exclusion
(i) Liquidity management
The 2013 Rule does not contain a broad carve-out for banking entities’ asset-liability management
activities, which are typically directed toward mitigating liquidity, interest rate, foreign exchange or other
risks to the banking entity, including through management of the banking entity’s cash and cash
equivalents. These activities may involve short-term trading in a variety of instruments, including U.S.
Treasury securities, interest rate swaps and foreign exchange swaps. Under the 2013 Rule, the exclusion
for liquidity management activities covers only purchases or sales of “securities” by a banking entity for
the purpose of liquidity management in accordance with a documented liquidity management plan that
meets several requirements.95
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The Proposed Rule broadens the liquidity management exclusion to allow banking entities to use foreign
exchange forwards and foreign exchange swaps96
and physically settled cross-currency swaps97
as part
of their liquidity management activities.98
In proposing the change, the Agencies acknowledge that
banking entities use foreign exchange forwards, foreign exchange swaps and cross-currency swaps to
manage their liquidity in the United States and in foreign jurisdictions (for example, in the case of foreign
branches and subsidiaries of U.S. banking entities that use foreign exchange products to manage the
currency risk arising from their required holdings of foreign currencies).99
As a result of the proposed change, the Proposed Rule allows banking entities to purchase and sell
financial instruments generally as part of their liquidity management activities to the same extent they
may purchase or sell securities under the current exclusion, subject to the same conditions that currently
apply with respect to securities transactions.100
The Proposed Rule limits the inclusion of cross-currency swaps to only swaps for which all payments are
made in the currencies being exchanged, as opposed to cash-settled swaps. The Agencies indicate that
this limitation is intended to address the risk that these instruments may be used for unauthorized
proprietary trading and is necessary because, although foreign exchange forwards and foreign exchange
swaps, as defined in the Commodity Exchange Act, are by definition limited to an exchange of the
designated currencies, no similarly limited definition of the term “cross-currency swap” is available.
Therefore, the Agencies have limited the exclusion to cash-settled swaps to prevent evasionary uses of
cross-currency swaps.101
(ii) Error trade exclusion
The Proposed Rule establishes a new exclusion for any purchase or sale of a financial instrument that
was made in error by a banking entity in the course of conducting a permitted or excluded activity or is a
subsequent transaction to correct such an error, provided that the erroneously purchased (or sold)
financial instrument is promptly transferred to a separately-managed trade error account for disposition.102
The Agencies explain that this exclusion is justified by the fact that such a purchase or sale lacks the
requisite short-term trading intent under the statute.103
The Agencies note that the exclusion will depend
on the facts and circumstances of the transactions and may not be available if, for example, a banking
entity fails to make reasonable efforts to prevent errors from occurring (as indicated, for example, by the
magnitude or frequency of errors, taking into account the size, activities and risk profile of the banking
entity) or to identify and correct trading errors in a timely and appropriate manner.104
II.A.7. Trading activities conducted solely outside of the United States
The Volcker Rule provides a statutory exemption for “[p]roprietary trading conducted by a banking ent ity
pursuant to paragraph (9) or (13) of [Section 4(c) of the BHC Act], provided that the trading occurs solely
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outside of the United States and that the banking entity is not directly or indirectly controlled by a banking
entity that is organized under the laws of the United States or of one or more [U.S.] States.”105
In the 2013
Rule, the Agencies’ implementation of this exemption, referred to as the “TOTUS” exemption, requires
that:
(1) The banking entity engaging as principal in the purchase or sale (including any
personnel of the banking entity or its affiliate that arrange, negotiate or execute such
purchase or sale) is not located in the United States or organized under the laws of the
United States or of any U.S. State;
(2) The banking entity (including relevant personnel) that makes the decision to purchase or
sell as principal is not located in the United States or organized under the laws of the
United States or of any U.S. State;
(3) The purchase or sale, including any transaction arising from risk-mitigating hedging
related to the instruments purchased or sold, is not accounted for as principal directly or
on a consolidated basis by any branch or affiliate that is located in the United States or
organized under the laws of the United States or of any U.S. State;
(4) No financing for the banking entity’s purchases or sales is provided, directly or indirectly,
by any branch or affiliate that is located in the United States or organized under the laws
of the United States or of any U.S. State; and
(5) The purchase or sale is not conducted with or through any U.S. entity, other than:
(A) A purchase or sale with the foreign operations of a U.S. entity, if no personnel of
such U.S. entity that are located in the United States are involved in the
arrangement, negotiation or execution of such purchase or sale;
(B) A purchase or sale with an unaffiliated market intermediary acting as principal,
provided the purchase or sale is promptly cleared and settled through a clearing
agency or derivatives clearing organization acting as a central counterparty; or
(C) A purchase or sale through an unaffiliated market intermediary acting as agent,
provided the purchase or sale is conducted anonymously on an exchange or
similar trading facility and is promptly cleared and settled through a clearing agency
or derivatives clearing organization acting as a central counterparty.106
The Proposed Rule retains the first three requirements of the 2013 Rule, modifies the first requirement
and removes the fourth and fifth requirements, as explained below:107
U.S. personnel engaged in arranging, negotiating or executing. The first requirement is
modified to refer generally to “relevant personnel” instead of “any personnel of the banking entity
or its affiliate that arrange, negotiate or execute such purchase or sale.”108
The effect of this
change is that the Proposed Rule requires only that the relevant personnel engaged in the
decision to purchase or sell not be located in the United States—the requirement that personnel
who arrange, negotiate or execute such purchase or sale may not be located in the United States
is proposed to be removed. The Agencies indicate that the purpose of this modification is to make
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clear that some limited involvement by U.S. personnel is consistent with this exemption, so long
as the “principal risk and actions of the purchase or sale do not take place in the United
States.”109
Financing by U.S. branch of affiliate and conduct of trade “with or through any U.S.
entity.” The Agencies state that the elimination of the fourth and fifth requirements is intended to
address concerns that these requirements unduly limit banking entities’ ability to make use of the
TOTUS exemption and have resulted in an impact on foreign banking entities’ operations outside
of the United States, as foreign banking entities have found the exemption’s requirements to be
“overly difficult and costly for banking entities to monitor, track, and comply with in practice.”110
The Preamble notes that this change represents a recognition that the regulatory requirements
are broader than necessary to achieve compliance with the requirements of the Volcker Rule.111
The Agencies request comment as to whether the proposed modifications to the TOTUS exemption
would result in disadvantages for U.S. banking entities competing with foreign banking entities. The
Agencies recognize a concern that the proposal could lead to competitive disadvantages, as foreign
banking entities would be able to trade directly with U.S. counterparties without being subject to the
limitations associated with the exemptions for market making-related activities or other exemptions, which
U.S. banking entities would need to rely on with respect to their operations in the United States and
abroad.112
The Agencies note that the proposal generally seeks to balance concerns regarding
competitive impact, market bifurcation, reduced efficiency and liquidity of markets, overly burdensome
restrictions on foreign banking entities and harm to U.S. market participants.113
II.B. COVERED FUND ACTIVITIES AND INVESTMENTS
The Volcker Rule prohibits a banking entity from acquiring or retaining any equity, partnership or other
ownership interest in, or sponsoring or engaging in certain other relationships with, a hedge fund or a
private equity fund.114
The 2013 Rule captures the statute’s reference to hedge funds and private equity
funds with a single, expansive definition of a “covered fund.” Specifically, under the 2013 Rule, “covered
fund” means:
any issuer that would be an “investment company,” as defined in the Investment Company Act of
1940 (the “1940 Act”), but for Section 3(c)(1) or 3(c)(7) of the 1940 Act;
certain privately offered commodity pools; and
solely with respect to U.S. banking entities, certain foreign investment vehicles offered and sold
outside of the United States.115
Notwithstanding recommendations in the Treasury Report and comments received in response to the
OCC RFI, which contemplated that there should be changes to the definition of “covered fund” to address
concerns that the current definition is overbroad and negatively affects lending activity and capital
formation, the Proposed Rule does not include proposals for specific changes to the definition of “covered
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fund” or any exclusions from covered fund status. Instead, the Agencies request comment on these
aspects of the Proposed Rule, as discussed in greater detail below.
II.B.1. “Banking entity” status of certain entities excluded from the definition of “covered
fund”
(i) Exclusion of certain U.S. registered investment companies and foreign public funds
from “banking entity” status
The Agencies note in the Preamble that, since the adoption of the 2013 Rule, they have received a
number of requests for guidance regarding scenarios in which certain funds that are excluded from the
definition of “covered fund,” such as RICs, FPFs or foreign excluded funds, are treated as banking entities
under the 2013 Rule, with the consequence that such funds are subject to restrictions on proprietary
trading and covered fund investments that may impair their ability to carry out their business.116
These
situations may occur as a result of the sponsoring banking entity having “control” over such a fund,
including through the banking entity’s investment during a seeding period or by virtue of corporate
governance structures.
The staffs of the Agencies have addressed these requests through interagency FAQs, but without
codifying their guidance through rulemaking:
In FAQ #14,117
the Agencies addressed the “banking entity” status of FPFs sponsored by a
banking entity, stating that they would not advise that the activities and investments of an FPF
excluded from the definition of “covered fund” be attributed to the sponsoring banking entity for
purposes of the Volcker Rule, so long as the banking entity (i) does not own, control or hold with
the power to vote 25% or more of any class of voting shares of the FPF after the seeding period
and (ii) provides investment advisory, commodity trading, advisory, administrative and other
services to the fund in compliance with applicable limitations in the relevant foreign jurisdiction.
In FAQ #16,118
the Agencies addressed the treatment of RICs and FPFs during seeding periods,
stating that they would neither advise the Agencies to treat a RIC or FPF as a banking entity
solely on the basis of the level of ownership of the RIC or FPF by a banking entity during a
seeding period of “for example, three years,” nor expect that a banking entity would submit an
application to the Federal Reserve to determine the length of the seeding period.
The Agencies state in the Preamble that “nothing in the proposal would modify the application of the staff
FAQs discussed above, and the Agencies will not treat RICs or FPFs that meet the conditions included in
the applicable staff FAQs as banking entities or attribute their activities and investments to the banking
entity that sponsors the fund or otherwise may control the fund under the circumstances set forth in the
FAQs.”119
Furthermore, the Agencies clarify in the Preamble that FAQ #16’s reference to a three-year period is an
“example” of the seeding period for RICs and FPFs, and that the Agencies do not intend to “set[] any
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maximum prescribed period for a RIC or FPF seeding period” and “[r]ecogniz[e] that the length of a
seeding period can vary” and “may take some time.”120
(ii) Extension of relief from “banking entity” treatment for certain foreign excluded funds
On July 21, 2017, the federal banking agencies released a policy statement indicating that they would not
propose to take action, during the one-year period ending July 21, 2018, against a foreign banking
entity121
based on attribution of the activities and investments of a “qualifying foreign excluded fund”122
to
the foreign banking entity, or against a qualifying foreign excluded fund as a banking entity, in each case,
where the foreign banking entity’s acquisition or retention of any ownership interest in, or sponsorship of,
the qualifying foreign excluded fund would meet the requirements of the SOTUS exemption as if the
qualifying foreign excluded fund were a covered fund.123
The Preamble states that, in order to accommodate the pendency of the proposal, the Agencies will
extend the one-year stay of enforcement action for an additional year (i.e., until July 21, 2019).124
Relatedly, the Agencies pose a number of questions to solicit comments related to the “banking entity”
status of foreign excluded funds that could support longer-term relief.125
II.B.2. Permitted underwriting and market making-related activities
Under the 2013 Rule, a banking entity may generally engage in underwriting and market making-related
activities involving covered fund ownership interests, subject to the conditions of the exemptions from the
prohibition on proprietary trading for underwriting and market making-related activities, which are
discussed in Parts II.A.3 and II.A.4 of this Memorandum. However, a banking entity’s ability to rely upon
these exemptions with respect to covered fund ownership interests is conditioned on certain quantitative
limitations and on a deduction from regulatory capital. This has led to industry comments that the
exemptions for underwriting and market making-related activities involving covered fund ownership
interests pose monitoring and compliance challenges that go beyond what is required in order to rely
upon the analogous exemptions under the proprietary trading provisions.
Specifically, under the 2013 Rule, if a banking entity acquires or retains any ownership interest in the
covered fund in connection with underwriting or market making-related activities and the banking entity
guarantees, assumes or otherwise insures the obligations or performance of the fund or of any other
covered fund in which the first covered fund invests, then that ownership interest must be counted toward
(i) the so-called “per-fund limitation” on a banking entity’s permitted investment in any single covered fund
(with respect to funds that the banking entity sponsors or advises (among other relationships));126
(ii) the
so-called “aggregate funds limitation” on a banking entity’s total permitted investments in all covered
funds;127
and (iii) the deduction from Tier 1 capital for certain permitted investments in covered funds.128
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The Proposed Rule modifies in two principal respects the 2013 Rule’s treatment of covered fund
ownership interests acquired or retained in connection with underwriting or market making-related
activities:129
Disregarded in calculating aggregate funds limitation and capital deduction. The Proposed
Rule modifies the 2013 Rule by eliminating the requirement that a banking entity include the
value of any ownership interests in a covered fund that the banking entity acquires or retains in
accordance with the underwriting or market making-related activities exemption for purposes of
calculating the aggregate funds limitation and Tier 1 capital deduction, unless the banking entity
sponsors or advises the fund (among certain other relationships).130
Under the Proposed Rule,
banking entities would continue to be required to include in the per-fund limitation, aggregate
funds limitation and capital deduction any ownership interests in a covered fund acquired or
retained in connection with underwriting or market making-related activities if the banking entity
sponsors or advises the fund (among certain other relationships).131
Guarantee, assumption or insurance of obligations or performance. The Proposed Rule
eliminates the requirement in the 2013 Rule to include the value of any ownership interests in a
covered fund that the banking entity acquires or retains in accordance with the underwriting or
market making-related activities exemption for purposes of calculating the per-funds limitation,
the aggregate funds limitation and Tier 1 capital deduction solely on the basis that the banking
entity guarantees, assumes or otherwise insures the obligations or performance of the covered
fund or of any other covered fund in which the first covered fund invests.132
II.B.3. Covered fund activities conducted solely outside of the United States
The 2013 Rule’s implementation of the so-called “SOTUS” exemption133
requires, among other
conditions, that (i) no ownership interest in the covered fund is “offered for sale or sold” to a “resident of
the United States” (defined to mean a “U.S. person” as defined in the SEC’s Regulation S) (the
“Marketing Restriction”)134
and (ii) no financing for the banking entity’s ownership or sponsorship is
provided, directly or indirectly, by any branch or affiliate that is located in the United States or organized
under the laws of the United States or of any U.S. state (the “Financing Restriction”).135
The Proposed Rule modifies these two conditions in the following manner, but otherwise leaves the
SOTUS exemption unchanged from the 2013 Rule:136
Codification of guidance on Marketing Restriction. The Proposed Rule codifies the Agencies’
previously issued guidance (provided in FAQ #13) regarding the Marketing Restriction.137
Specifically, the Proposed Rule provides that an ownership interest in a covered fund is not
“offered for sale or sold to a resident of the United States” only if it is not sold and has not been
sold pursuant to an offering that targets residents of the United States in which the banking entity
or any affiliate of the banking entity participates.138
If the banking entity or an affiliate sponsors or
serves, directly or indirectly, as the investment manager, investment adviser, commodity pool
operator or commodity trading advisor to a covered fund, then the banking entity or affiliate will be
deemed to participate in any offer or sale by the covered fund of ownership interests in the
covered fund.139
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Elimination of Financing Restriction. The Proposed Rule eliminates the Financing Restriction
from the SOTUS exemption for the same reasons described in Part II.A.7 with respect to the
elimination of the analogous restriction from the TOTUS exemption.140
The Agencies explain that
this modification is intended to streamline the requirements of the SOTUS exemption, which are
designed to require that the principal risks of covered fund investments and sponsorship by
foreign banking entities occur and remain solely outside of the United States.141
II.B.4. Permitted risk-mitigating hedging activities
Under the 2013 Rule, the statutory exemption for risk-mitigating hedging activities142
is available with
respect to the prohibition on acquiring or retaining an ownership interest in a covered fund solely in the
context of an acquisition or retention that is designed to demonstrably reduce or otherwise significantly
mitigate the specific, identifiable risks to the banking entity in connection with a compensation
arrangement with an employee of the banking entity or an affiliate thereof that directly provides
investment advisory, commodity trading advisory or other services to the covered fund.143
The Proposed
Rule retains this exemption144
and adds an additional exemption as discussed immediately below.
The 2011 notice of proposed rulemaking issued prior to the adoption of the 2013 Rule indicated that the
Agencies were considering permitting a banking entity to acquire or retain an ownership interest in a
covered fund as a risk-mitigating hedge when acting as an intermediary on behalf of a customer that is
not itself a banking entity to facilitate the exposure by the customer to the profits and losses of the
covered fund.145
However, in adopting the 2013 Rule, the Agencies removed this type of activity from the
scope of the covered funds exemption for permitted risk-mitigating hedging activity based on their
determination that such transactions constituted a high-risk strategy that could threaten the safety and
soundness of the banking entity.146
The Proposed Rule would, in a reversal of the Agencies’ commentary accompanying the 2013 Rule,
permit a banking entity to acquire an ownership interest in a covered fund as a risk-mitigating hedge
when acting as an intermediary on behalf of a customer that is not itself a banking entity to facilitate the
exposure by the customer to the profits and losses of the covered fund.147
In explaining this change, the
Agencies acknowledge that, although a banking entity could be exposed to the risk of the covered fund if
the customer fails to perform, “this counterparty default risk would be present whenever a banking entity
facilitates the exposure by the customer to the profits and losses of a financial instrument and seeks to
hedge its own exposure by investing in the financial instrument.”148
A banking entity that seeks to use a covered fund ownership interest to hedge on behalf of a customer
would need to comply with all the requirements of Section _.13(a) of the Proposed Rule, which generally
track the requirements of the exemption for permitted risk-mitigating hedging activity from the proprietary
trading restriction set forth in Section _.5 of the Proposed Rule (which are modified in certain respects
from the 2013 Rule, as discussed in Part II.A.5 of this Memorandum).
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II.B.5. Name sharing with organized and offered covered funds
Section 204 of the Reform Act amends the statutory restriction on the sharing of names between a
banking entity and a covered fund that the banking entity permissibly organizes and offers. Specifically,
the Reform Act permits funds to share the name or a variation of the same name of the banking entity
that is an investment adviser to the fund so long as (i) the investment adviser is not, and does not share
the name or a variation of the same name as, an insured depository institution, a company that controls
an insured depository institution or a company that is treated as a bank holding company for purposes of
Section 8 of the International Banking Act of 1978 and (ii) the name does not contain the word “bank.”
The NPR does not propose any changes to the 2013 Rule that would implement the Reform Act’s
amendments to the Volcker Rule, although it expressly states that the Agencies will not enforce the 2013
Rule in a manner inconsistent with these amendments. The Agencies indicate that they expect to address
these amendments through a separate rulemaking process.149
II.C. COMPLIANCE PROGRAM AND QUANTITATIVE TRADING METRICS
The 2013 Rule establishes compliance program requirements for all banking entities (with simplified
requirements for smaller banking entities), as well as reporting and metrics collection requirements for
certain banking entities based on their size and the nature of their activities.150
The Agencies propose changes to the compliance program in the Proposed Rule with the stated goals of
(i) reducing burdens and uncertainty for smaller institutions and instead focusing on compliance program
requirements on banking entities with the most significant and complex trading activities;151
(ii) providing
flexibility to build on compliance regimes that already exist at banking entities, including risk limits, risk
management systems, board-level governance protocols and the level at which compliance is
monitored;152
and (iii) simplifying overly prescriptive requirements, including certain elements of the 2013
Rule’s “enhanced” compliance program.153
II.C.1. Compliance program requirement
The key aspects of the Proposed Rule’s compliance program requirement are as follows:
Categorization based on trading assets and liabilities. As explained in Part I of this
Memorandum, the Proposed Rule establishes three categories of banking entities, each defined
based on a specified threshold of trading assets and liabilities and each subject to a different set
of compliance program and other requirements.
Removal of “enhanced” tier of compliance program requirements. The Agencies indicate
that they believe many of the compliance requirements of the 2013 Rule’s “enhanced”
compliance program, as set forth in Appendix B to the 2013 Rule, “could be implemented
effectively if incorporated into a risk management framework already developed and designed to
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fit a banking entity’s organizational and reporting structure.”154
Accordingly, the Proposed Rule
eliminates Appendix B in its entirety. The Agencies further note that the “six-pillar” compliance
program requirement that applies to banking entities with significant trading assets and liabilities
“is consistent with general standards of safety and soundness as well as diligent supervision, the
implementation of which conforms with the traditional risk management processes of ensuring
governance, controls, and records appropriately tailored to the risks and activities of each
banking entity.”155
As under the 2013 Rule, the Proposed Rule’s required compliance program may be implemented on an
enterprise-wide basis or at a business-unit level, as long as the program satisfies all requirements and
can be effectively administered. In either case, the banking entity may use common policies and
procedures to the extent that they are appropriate for more than one trading desk. If an enterprise-wide
program is established, the program will be subject to supervisory review by the appropriate Agency of
each banking entity within the organization, and the organization will be expected to provide each
appropriate Agency with access to all records related to the enterprise-wide program pertaining to any
banking entity supervised by the Agency.156
II.C.2. Quantitative metrics reporting and recordkeeping requirements
The Agencies indicate that, since the adoption of the 2013 Rule and as part of its implementation, the
Agencies have reviewed the metrics submitted by banking entities and considered whether all the
quantitative measurements are useful for all asset classes and markets, as well as for all the trading
activities subject to the metrics requirement, or whether modifications are appropriate. In the Proposed
Rule, the Agencies propose amendments to Appendix A of the 2013 Rule with the stated objectives of
(i) streamlining the metrics reporting and recordkeeping requirements: (ii) reducing compliance-related
inefficiencies relative to the 2013 Rule; and (iii) allowing the collection of data to permit the Agencies to
better monitor compliance with the Volcker Rule.157
As noted in Part A of the Overview, only banking
entities with significant trading assets and liabilities are required to report quantitative trading metrics
under the Proposed Rule.
Summarized below are certain key aspects of the Proposed Rule’s changes to the 2013 Rule’s
quantitative metrics regime:
Changes to calculation and applicability of certain metrics. The Proposed Rule removes the
Inventory Turnover and Customer-Facing Trade Ratio metrics and replaces them with the
Positions and Transaction Volumes metrics, respectively.158
In addition, the proposal provides
that the Inventory Aging metric (renamed as the “Securities Inventory Aging” metric) would only
apply to securities (and not to derivatives, as is the case under the 2013 Rule).159
Furthermore,
the Positions, Transaction Volumes and Securities Inventory Aging metrics would be applicable
only to trading desks that rely upon the exemptions for underwriting or market making-related
activities.160
Finally, the proposal modifies the description of Stressed VaR to align its calculation
with that of Value-at-Risk and provides that Stressed VaR is not required to be reported for
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trading desks whose covered trading activity is conducted exclusively to hedge products excluded
from the definition of “financial instrument.”161
Trading desk information. The proposal would require banking entities to report, for each
trading desk engaged in covered trading activity: (i) the trading desk name and trading desk
identifier; (ii) the type of covered trading activity; (iii) the trading desk description; (iv) the types of
financial instruments and other products; (v) the legal entities that the trading desk uses; (vi) the
legal entity type identification; (vii) the trading day indicator; and (viii) the currency reported and
currency conversion rate.162
Quantitative metrics identifying information. The proposal would require banking entities to
submit, collectively for all relevant trading desks: (i) a Risk and Position Limits Information
Schedule; (ii) a Risk Factor Sensitivities Information Schedule; (iii) a Risk Factor Attribution
Information Schedule; (iv) a Limit/Sensitivity Cross-Reference Schedule; and (v) a Risk Factor
Sensitivity/Attribution Cross-Reference Schedule.163
Narrative Statement. The Proposed Rule includes a new requirement of a Narrative Statement
that must: (i) describe any changes in calculation methods used for quantitative measures and
indicate when such changes occurred; (ii) be prepared and submitted periodically and when there
are any changes in the banking entity’s trading desk structure or strategies;164
(iii) report any
other information the banking entity views as relevant for assessing the information schedules or
quantitative measures; (iv) explain the banking entity’s inability to report a particular quantitative
measurement; and (v) provide notice if a trading desk changes its approach to including or
excluding products that are not financial instruments in its metrics.165
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III. ADDITIONAL AREAS IDENTIFIED FOR COMMENT BY AGENCIES
In the Preamble, the Agencies pose 342 numbered questions for public comment, many of which consist
of multiple sub-questions, relating to specific aspects of the Proposed Rule. The Agencies’ questions
highlight a number of issues that are not addressed through any specific amendment in the Proposed
Rule, but which have been the subject of extensive public comment. In many cases, the Agencies’
questions appear to be designed to inform the Agencies’ consideration of further potential revisions to
significant elements of the Proposed Rule. Accordingly, the ultimate scope and contour of many
significant aspects of the Volcker Rule remain open questions and should be influenced by the comment
process that will follow publication of the NPR.
The below table provides a high-level, non-comprehensive overview of certain topics that the Agencies
identify for comment and a summary of selected questions they pose on each such topic.
Topic Areas Identified for Comment and Questions Posed
Overall Framework and Categorization of Banking Entities
Rulemaking
framework and
Agency coordination
Means to improve the transparency of the Agencies’ implementation of the Volcker Rule.
Steps that could be taken with respect to interagency coordination to make compliance with the Volcker Rule more efficient and to promote the safety and soundness of banking entities and U.S. financial stability.
166
Economic impact
and compliance
costs
Whether certain proposals would meaningfully reduce compliance costs. The specific proposals with respect to which the Agencies pose this question include:
establishing a presumption of compliance for banking entities with limited trading assets and liabilities;
changes to the “trading account” definition;
the use of internally set risk limits to meet the RENTD requirements of the underwriting and market making-related activities exemptions;
changes to streamline the conditions of the risk-mitigating hedging exemption and the TOTUS exemption; and
changes to the metrics reporting requirements and to the compliance program requirements.
167
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Topic Areas Identified for Comment and Questions Posed
Banking entity
categorization and
tailoring
Appropriateness of establishing different requirements for banking entities based on thresholds of trading assets and liabilities.
Appropriateness of the specific thresholds that are proposed to delineate between the three categories of banking entities and the requirements that would apply to each category.
Potential to further tailor application of the regulations by categorizing certain banking entities separately from their subsidiaries and affiliates (e.g., an SEC-registered broker-dealer that operates separately and independently from an affiliate with significant trading assets and liabilities).
168
Proprietary Trading Provisions
Definition of “trading
account”
Appropriateness of replacing the short-term intent prong with the proposed accounting prong, “considering the fact that entities may have discretion over whether certain financial instruments are recorded at fair value.”
169
Appropriateness of the scope of financial instruments proposed to be included in the accounting prong.
Costs of compliance with the dealer prong of the “trading account” definition.
170
Presumption of
compliance with
proprietary trading
prohibition
Appropriateness of the proposed desk-level profit and loss threshold for presumed compliance with the prohibition on proprietary trading.
Appropriateness of the process by which banking entities would notify the appropriate Agency of instances when the threshold is crossed.
Appropriateness of the process by which the Agencies may rebut the presumption of compliance.
171
Implications for
banking entities
regulated by market
regulators
Potential differences in the Proposed Rule’s implications for banking entities regulated by market regulators as compared to other banking entities, including with respect to:
the proposal to replace the short-term intent prong with an accounting prong, including the presumption of compliance;
notice and response procedures, including the requirement that banking entities relying on the presumption of compliance must notify the Agencies of instances when the absolute daily profit and loss threshold has been exceeded; and
costs of compliance.172
Definition of “trading
desk”
Potential consequences of a change to the definition of “trading desk,” including with respect to the ability of banking entities and the Agencies to detect impermissible proprietary trading.
173
Whether it would be appropriate to adopt a potential multi-factor definition of “trading desk” that would be based on the same criteria typically used to establish trading desks for other operational, management and
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Topic Areas Identified for Comment and Questions Posed
compliance purposes. This definition would be:
structured to establish efficient trading for a market sector;
organized to ensure appropriate setting, monitoring and management review of the desk’s trading and hedging limits, current and potential future loss exposures, strategies and compensation incentives; and
characterized by a clearly-defined unit of personnel that typically: (a) engages in coordinated trading activity with a unified approach to its key elements; (b) operates subject to a common and calibrated set of risk metrics, risk levels and joint trading limits; (c) submits compliance reports and other information as a unit for monitoring by management; and (d) books its trades together.
174
Reservation of
authority
Appropriateness of the reservation of authority to allow the appropriate Agency, rather than the Agencies jointly, to determine whether a particular activity is proprietary trading, and the process for the foregoing determination.
175
Underwriting
exemption – RENTD
limits and
presumption of
compliance
Effects of the proposed presumption of compliance for underwriting activity within internally set risk limits, including:
how it would impact capital formation and liquidity of particular markets;
whether further guidance on how to set internal risk limits is necessary;
whether it is appropriately tailored to the underwriting market; and
the process by which the Agencies may rebut the presumption.176
Underwriting
exemption –
Compliance program
and other
requirements
Whether compliance requirements for the underwriting activities exemption should only apply to banking entities with significant trading assets and liabilities.
Whether such requirements should be streamlined for such entities.177
Market making-
related activities
exemption – RENTD
limits and
presumption of
compliance
Effects of the proposed presumption of compliance for market making-related activities within internally set risk limits, including:
how it would impact the liquidity of particular markets;
whether further guidance on how to set internal risk limits is necessary;
whether the proposal would present problems for a trading desk that makes a market in derivatives; and
the process by which the Agencies may rebut the presumption.178
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Topic Areas Identified for Comment and Questions Posed
Market making-
related activities
exemption –
Compliance program
and other
requirements
Whether compliance requirements for the market making-related activities exemption should only apply to banking entities with significant trading assets and liabilities.
Whether such requirements should be streamlined for such entities.179
Market making-
related activities
exemption – Loan-
related swaps
Circumstances in which loan-related swaps should be permissible under the market making-related activities exemption.
Whether such swaps should be excluded from the definition of “proprietary trading” or made a permissible activity.
Whether trading in other types of swaps should also be addressed.180
Market making-
related activities
exemption – Market
making-related
hedging
Whether the Agencies should clarify the ability of banking entities to engage in market making-related hedging.
Whether current restrictions impede the ability of banking entities to effectively and efficiently engage in such hedging.
How effective the current regulations are at reducing risk.181
Permitted risk-
mitigating hedging
activities
Whether to remove the requirement that a correlation analysis be done to determine whether hedging transactions significantly mitigate specific risks.
How the correlation analysis requirement affects a banking entity’s decisions on whether to enter into different types of hedges and the timing of hedging activities.
Whether exemptions should be provided for hedging activity that is accounted for under accounting principles.
The Agencies also solicit comment on:
reductions in compliance requirements for risk-mitigating hedging activities by banking entities that do not have significant trading assets and liabilities; and
an exclusion from enhanced documentation requirements for trading desks that hedge risks of other desks.
182
Liquidity
management
exclusion
Whether the proposal to modify the liquidity management exclusion to include foreign exchange forwards, foreign exchange swaps, or physically-settled cross-currency swaps sufficiently protects against the possibility of banking entities using the exclusion to conduct impermissible speculative trading.
183
Error trades Whether the proposed exclusion to correct bona fide trade errors:
aligns with banking entities’ existing policies and procedures;
is appropriately calibrated and sufficiently clear; and
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Topic Areas Identified for Comment and Questions Posed
does not conflict with the rules of any self-regulatory organization.
184
TOTUS exemption Whether proposed modifications to the TOTUS exemption effectively focus the exemption on the location of the principal actions and risk of the transaction.
Whether these modifications ensure that principal risk remains solely outside the United States.
Whether the proposals raise competitive equity concerns for U.S. banking entities.
185
Covered Fund Provisions
Definition of
“covered fund”
In considering whether to further tailor the 2013 Rule’s general approach to defining the term “covered fund” and the 2013 Rule’s definition of “covered fund” (before applying exclusions), the Agencies solicit comment on:
whether and how to incorporate definitions of “hedge fund” and “private equity fund” into the rule’s definition of “covered fund”;
whether the current definition of “covered fund” is over- or under-inclusive;
whether the definitions of “foreign covered fund” and “commodity pool” effectively address concerns about circumvention of the Volcker Rule;
challenges arising from complying with covered fund restrictions;
costs that would arise from a change in the definition of “covered fund”; and
how proposed modifications to other provisions of the 2013 Rule (e.g., the exemptions for underwriting, market making-related and risk-mitigating hedging activities) may interact with the “covered fund” definition.
186
Alternative
definitional
approaches
Whether an exclusion from the “covered fund” definition should be provided for funds that (i) do not engage in transactions to profit from short-term price movements and (ii) do not invest in illiquid assets.
Whether to revise the base definition of “covered fund” using a characteristics-based approach.
Whether funds that lack certain traits of a hedge fund or private equity fund should be excluded from the definition of “covered fund.” The Agencies note the possibility of leveraging the definitions of “hedge fund” and “private equity fund” from the SEC’s Form PF to determine relevant traits (see below).
187
Hedge fund. Form PF defines “hedge fund” to mean any private fund (other than a securitized asset fund
188): (i) with respect to
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Topic Areas Identified for Comment and Questions Posed
which one or more investment advisers (or related persons of investment advisers) may be paid a performance fee or allocation calculated by taking into account unrealized gains (other than a fee or allocation the calculation of which may take into account unrealized gains solely for the purpose of reducing such fee or allocation to reflect net unrealized losses); (ii) that may borrow an amount in excess of one-half of its net asset value (including any committed capital) or may have gross notional exposure in excess of twice its net asset value (including any committed capital) or (iii) that may sell securities or other assets short or enter into similar transactions (other than for the purpose of hedging currency exposure or managing duration).
189
Private equity fund. Form PF defines “private equity fund” not by reference to specific characteristics or traits, but rather as any private fund that is not a hedge fund, liquidity fund, real estate fund, securitized asset fund or venture capital fund, as those terms are defined in Form PF.
190 In this regard, the Agencies note also that
they understand private equity funds commonly (i) have restricted or limited investor redemption rights; (ii) invest in public and non-public companies through privately negotiated transactions resulting in private ownership of the business; (iii) acquire the unregistered equity or equity-like securities of such companies that are illiquid as there is no public market and third-party valuations are not readily available; (iv) require holding investments long-term; (v) have a limited duration of ten years or less; and (vi) realize returns on investments and distribute the proceeds to investors before the anticipated expiration of the fund’s duration.
191
Exclusions for FPFs
and RICs
Whether the current FPF exclusion captures funds that are sufficiently similar to RICs and excludes those that are insufficiently similar.
Whether the current RIC exclusion is appropriate.
Whether concerns about the use of FPFs to evade the 2013 Rule justify conditions imposed on FPFs but not RICs, or whether the Agencies should address such concerns through, for instance, an anti-evasion provision.
The Agencies also solicit comment on all aspects of the FPF exclusion, including the conditions to the exclusion that:
the fund must be “authorized to offer and sell ownership interests to retail investors in the issuer’s home jurisdiction”;
ownership interests must be sold “predominantly” through “public offerings” outside of the United States; and
ownership interests must be sold predominantly to persons other than the sponsoring banking entity and certain related persons.
Whether previously released FAQ #5, which allows an entity formed and operated pursuant to a written plan to become an FPF to receive the same treatment as an entity formed and operated pursuant to written plans to become a RIC or BDC, should be incorporated into the regulations.
192
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Topic Areas Identified for Comment and Questions Posed
Family wealth
management
vehicles
The Agencies solicit information on family wealth management vehicles, including:
what exclusions from the definition of “investment company” in the Investment Company Act they rely on;
whether they should be excluded from the definition of “covered fund” and how such an exclusion would be structured;
whether such an exclusion would create opportunities for evasion of the Volcker Rule;
what services banking entities provide family wealth management vehicles; and
whether there are similar vehicles that pose similar issues.193
Joint ventures Whether the exclusion for joint ventures has allowed banking entities to continue sharing the risk and cost of financing banking activities through joint ventures.
Whether changes should be made to the exclusion to clarify the condition that joint ventures may not be used to raise money from investors primarily for the purpose of trading in securities.
Whether changes should be made to clarify that the joint venture exclusion is designed to allow banking entities to structure business ventures.
How the term “joint venture” should be defined.194
Whether to incorporate in the Proposed Rule some or all the views expressed by the staffs in FAQ #15,
195 which is widely considered to have
limited significantly the utility of this exclusion.
Securitizations How exclusions from the “covered fund” definition for loan securitizations, qualifying asset-backed commercial paper conduits and qualifying covered bonds have worked in practice.
Whether there are any assets that are not “loans” that should be considered permissible assets under the exclusion (including whether the Agencies should consider permitting a loan securitization vehicle to hold 5% to 10% of assets that are considered debt securities rather than “loans”).
Whether the view expressed in FAQ #4 that servicing assets may be any type of asset, provided that any servicing asset that is a security must be a permitted security, should be incorporated into the regulations.
Whether changes should be made to the definition of “ownership interest” in the context of securitizations.
196
Selected other
issuers
Whether exclusions should be extended for entities, such as small business investment companies, that are excluded from the “covered fund” definition but may not be able to satisfy the relevant exclusion as the entity is liquidated.
Whether municipal securities tender option bond vehicles should be
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Topic Areas Identified for Comment and Questions Posed
excluded from the definition of “covered fund.”197
Underwriting and
market making for a
covered fund
What effects the proposed changes to these exemptions would have on capital-raising activities of issuers.
How to align the relevant restrictions of these exemptions with those for engaging in underwriting and market making-related activities for other financial instruments.
Whether the Agencies should remove the requirement that the banking entity include for purposes of the per-fund limitation, aggregate funds limitation and capital deduction the value of any ownership interests of the covered fund acquired or retained in accordance with the underwriting or market making-related activities exemptions.
Whether any other restrictions on underwriting or market making of ownership interests in covered funds should be included or removed.
198
SOTUS exemption –
Generally
Whether the Proposed Rule’s implementation of the SOTUS exemption is:
effective;
clear regarding when a transaction or activity will be considered to have occurred solely outside the United States; and
consistent with limiting the extraterritorial reach of the Volcker Rule with respect to FBOs.
Whether the Financing Restriction should be retained.
Whether the proposed changes to the exemption create competitive advantages for foreign banking entities.
Whether the proposal regarding the Marketing Restriction is sufficiently clear.
199
Limitations on
relationships with
certain covered
funds (Super 23A) –
Scope and
exemptions
Whether other transactions between banking entities and covered funds should be prohibited or limited.
Whether the exemptions under Section 23A of the Federal Reserve Act and Regulation W should be incorporated into the regulations.
200
Whether to incorporate the quantitative limits in Section 23A of the Federal Reserve Act and Regulation W.
201
Limitations on
relationships with
certain covered
funds (Super 23A) –
FCM activities
Whether clearing services provided by a futures commission merchant (“FCM”) to its customers are a relationship that would raise policy concerns.
Whether the no-action relief provided by the CFTC staff to an FCM on March 29, 2017 and the non-objection of the other Agencies to this relief provides sufficient certainty for market participants.
202
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Topic Areas Identified for Comment and Questions Posed
Compliance Program; Violations
Requirements for
banking entities with
significant trading
assets and liabilities
Whether the six-pillar compliance program requirements should apply only to banking entities with significant trading assets and liabilities and whether the scope of the six-pillar compliance program is appropriate.
203
Requirements for
banking entities with
limited trading
assets and liabilities
Whether to specify notice and response procedures in connection with an Agency determination that the presumption of compliance for banking entities with limited trading assets and liabilities is rebutted.
204
Tailoring of
compliance
programs generally
Whether the proposal to tailor compliance programs based on the type, size, scope and complexity of a banking entity’s activities and business structure would be effective in ensuring that banking entities with significant or moderate trading assets and liabilities comply with the proprietary trading and covered fund requirements and restrictions of the Volcker Rule.
To what extent compliance programs are implemented by registered investment advisers as opposed to other banking entity affiliates or subsidiaries.
205
CEO attestation
requirement
The Agencies solicit comment on the CEO attestation requirement, including with respect to:
its cost;
whether such attestation is redundant in light of existing business practices;
whether the scope of the requirement under the proposed three-tier scheme for banking entities is appropriate; and
whether incorporating the CEO attestation requirement would ensure that a strong governance framework is implemented with respect to compliance with the Volcker Rule.
206
Independent testing,
training and
recordkeeping
requirements
Whether the current independent testing, training and recordkeeping requirements would, if appropriately tailored to the size, scope and complexity of the banking entity’s activities, be effective in ensuring that banking entities with significant or moderate trading assets and liabilities comply with the Volcker Rule.
207
Reporting and
recordkeeping
requirements
Whether certain proposed definitions (i.e., “applicability,” “trading day” and “covered trading activity”) are effective and clear and whether any other terms should be defined.
208
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Topic Areas Identified for Comment and Questions Posed
Quantitative Metrics Reporting and Recordkeeping
Overall assessment
of metrics reporting
requirement
Whether the quantitative metrics regime is an appropriate approach to identifying potentially prohibited proprietary trading.
The costs of reporting quantitative measurements and proposed qualitative reporting requirements.
Whether a trading desk should be permitted not to furnish a quantitative measurement in certain circumstances, or be required to report activity conducted under different exemptions separately.
Whether quantitative measures should be made public in some form.209
Nature and scope of
information
reporting
The Agencies solicit comment on the proposed Trading Desk Information and Quantitative Measurements Identifying Information and the proposed Narrative Statement requirement, including:
whether such proposals are sufficiently clear;
whether such information would be helpful in understanding a trading desk’s covered trading activities and associated risks; and
the costs of preparing such information.210
Frequency and
method of required
calculation and
reporting
Whether the proposed frequency of reporting the Trading Desk Information, Quantitative Measurements Identifying Information and the Narrative Statement is appropriate and effective (specifically, with respect to the proposal to adjust the reporting schedule for banking entities with $50 billion or more in trading assets and liabilities to within 20 days of the end of each calendar month).
Whether implementing the proposed Appendix’s electronic reporting requirement and XML Schema, as well as certain record retention requirements, would be practical or appropriate.
211
Stressed Value-at-
Risk metric
Whether Stressed Value-at-Risk limits should be removed as a reporting requirement for desks engaged in permitted market making-related activity or risk-mitigating hedging activity.
Whether banking entities should be required to report the limit size of both the upper and lower bound of a limit.
212
Comprehensive
Profit and Loss
Attribution metric
Whether to clarify that Residual Profit and Loss is only profit and loss that cannot be attributed to existing or new positions, and to add a separate reporting item for Unexplained Profit and Loss from Existing Position.
How best to specify the calculation for Profit and Loss due to Risk Factor Changes (including, for example, aligning the calculation with “hypothetical” or “Clean P&L” as prescribed by the market risk capital rules; or clarifying the definition to be the sum of all profit and loss attributions regardless of whether they are reported individually).
213
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Topic Areas Identified for Comment and Questions Posed
Inventory Turnover
metric
Whether the Inventory Turnover metric should be removed or replaced.
Whether the proposed Positions metric would be effective in helping distinguish between permitted and prohibited trading activities (including with respect to the identification of high-risk strategies and the evaluation of underwriting and market making-related activities).
214
Customer-Facing
Trade Ratio metric
Whether the Customer-Facing Trade Ratio metric should be removed or replaced.
Whether the proposed Transaction Volumes metric would be effective in helping to distinguish between permitted and prohibited trading activities (including with respect to the evaluation of underwriting and market making-related activities).
Whether detailed instructions are needed regarding how different transaction life cycle events such as amendments, novations, compressions, maturations, allocations, unwinds, terminations, option exercises, option expirations and partial amendments affect the calculation of Transaction Volumes and the Comprehensive Profit and Loss Attribution.
215
Securities Inventory
Aging metric
Whether the proposed Securities Inventory Aging metric is effective in evaluating underwriting or market making-related activity.
Whether inventory aging of derivatives and/or futures is a useful metric for monitoring covered trading activity at trading desks.
216
* * *
ENDNOTES
1 The Agencies are the Federal Reserve, the Office of the Comptroller of the Currency (the “OCC”),
the Federal Deposit Insurance Corporation (the “FDIC”), the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (the “CFTC”). As of the time of publication of this Memorandum, the SEC has yet to take action to approve the NPR, but is scheduled to do so on the date hereof. The Governors of the Federal Reserve and the members of the Board of Directors of the FDIC voted unanimously to approve the NPR at their respective meetings, and Comptroller Joseph Otting stated during the meeting of the Board of Directors of the FDIC that he approved the NPR on behalf of the OCC. At the vote of the CFTC approving the NPR, Commissioner Rostin Behnam dissented from the other two Commissioners.
2 It is expected that the version of the NPR approved by each Agency and related materials
released to the public in connection with each Agency’s approval of its version of the NPR will be posted by each Agency on its website. As of the time of publication of this Memorandum, materials released by the Federal Reserve are available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180530a.htm and those of the FDIC are available at https://www.fdic.gov/regulations/reform/volcker/rule.html.
Copyright © Sullivan & Cromwell LLP 2018
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ENDNOTES (CONTINUED)
3 Preamble at 16 n.19 (citing statements by Randal K. Quarles, Vice Chair, Federal Reserve;
Daniel K. Tarullo, Former Governor, Federal Reserve; and Martin J. Gruenberg, Former Chair, FDIC). Commentaries from various regulators and policymakers have highlighted concerns with the 2013 Rule’s complexity and compliance burden. See, e.g., Janet L. Yellen, Former Chair, Federal Reserve: “[I]mplementation of [the Volcker Rule] is frankly complex, and I’m certainly open to looking at ways to reduce regulatory burden in that area.” FOMC Press Conference (June 14, 2017), available at https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20170614.pdf; Daniel K. Tarullo, Former Governor, Federal Reserve: “[S]everal years of experience have convinced me that there is merit in the contention of many firms that, as it has been drafted and implemented, the Volcker rule is too complicated.” Departing Thoughts (Apr. 4, 2017), available at https://www.federalreserve.gov/newsevents/speech/tarullo20170404a.htm; Keith A. Noreika, Former Acting Comptroller of the Currency: “I have sought the views of my colleagues at the other federal banking agencies about simplifying the regulatory framework implementing the Volcker Rule. In recent years, many of the nation’s financial institutions have struggled to understand and comply with these regulations, devoting significant resources that could have been put to more productive uses. There is near unanimous agreement that this framework needs to be simplified and clarified.” Fostering Economic Growth: Regulator Perspective: Hearing Before the Senate Banking Committee (June 22, 2017), available at https://www.banking.senate.gov/imo/media/doc/Noreika%20Testimony%206-22-17.pdf.
4 U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities:
Banks and Credit Unions (June 12, 2017), available at https://www.treasury.gov/press-center/press-releases/Documents/A%20Financial%20System.pdf. Pages 71–78 of the Treasury Report discuss the Volcker Rule. For an overview of the Treasury Report, please see our Client Memorandum, Treasury Issues Comprehensive Report on Depository System Regulatory Reforms, dated June 14, 2017, available at https://www.sullcrom.com/siteFiles/Publications/SC_Publication_Treasury_Issues_Comprehensive_Report_on_Depository_System_Regulatory_Reforms.pdf.
5 OCC, Proprietary Trading and Certain Interests in and Relationships With Covered Funds
(Volcker Rule); Request for Public Input, 82 Fed. Reg. 36692 (Aug. 7, 2017). For a discussion of the OCC RFI, please see our Client Memorandum, Volcker Rule: Comptroller of the Currency Releases Request for Information on the Volcker Rule’s Implementation, Application and Administration, dated August 3, 2017, available at https://www.sullcrom.com/volcker-rule-comptroller-of-the-currency-releases-request-for-information-on-the-volcker-rules-implementation-application-and-administration.
6 The NPR indicates that the Agencies expect to conduct a separate rulemaking process to
address the Reform Act’s amendments that affect the Volcker Rule. Preamble at 12. The Reform Act’s two-part test for exemption from the Volcker Rule is summarized in Part I of this Memorandum.
7 Public comment letters responding to the OCC RFI, including 87 unique comment letters, are
available at https://www.regulations.gov/docket?D=OCC-2017-0014. A summary of the comment letters is available at https://occ.gov/topics/capital-markets/financial-markets/trading-volcker-rule/volcker-notice-comment-summary.pdf.
8 OCC, Federal Reserve, FDIC and SEC, Prohibitions and Restrictions on Proprietary Trading and
Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 79 Fed. Reg. 5535 (Jan. 31, 2014); CFTC, Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds, 79 Fed. Reg. 5807 (Jan. 31, 2014). Each Agency adopted the 2013 Rule and codified it separately in its respective regulations. See 12 C.F.R. §§ 248 (Federal Reserve); 44 (OCC); 351 (FDIC); and 17
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ENDNOTES (CONTINUED)
C.F.R. §§ 255 (SEC); 75 (CFTC). References and citations herein to the 2013 Rule are to the common rule text.
9 For a discussion of the requirements of the 2013 Rule, please see our Client Memorandum,
Volcker Rule: U.S. Agencies Approve Final Volcker Rule, Detailing Prohibitions and Compliance Regimes Applicable to Banking Entities Worldwide, dated January 27, 2014, available at https://www.sullcrom.com/Volcker-Rule-01-27-2014.
10 The Agencies issued on January 10, 2014 an “interim final rule” to provide relief with respect to
banking entities’ legacy interests in so-called “TruPS-backed CDOs.” This interim final rule does not technically amend the 2013 Rule, but rather operates as a “companion rule” to the 2013 Rule. For further discussion of this interim final rule, please see our Client Memorandum, Volcker Rule: Agencies Issue Interim Final Rule Exempting Certain TruPS-Backed CDOs from the Volcker Rule’s Prohibition on Banking Entities’ Holding Ownership Interests in or Sponsoring Covered Funds, dated January 14, 2014, available at https://www.sullcrom.com/Volcker-Rule.
11 The staff of each Agency has released its respective version of each FAQ in substantively
identical form. The FAQs issued to date by the staff of each Agency apply to banking entities over which that Agency has jurisdiction under the Volcker Rule. The FAQs, as prepared by the staff of each Agency and updated from time to time, can be accessed at the public website of each Agency: Federal Reserve (http://www.federalreserve.gov/bankinforeg/volcker-rule/faq.html); FDIC (https://www.fdic.gov/regulations/reform/volcker/faq.html); OCC (https://occ.gov/topics/capital-markets/financial-markets/trading-volcker-rule/volcker-rule-implementation-faqs.html); SEC (https://www.sec.gov/divisions/marketreg/faq-volcker-rule-section13.htm); CFTC (https://www.cftc.gov/LawRegulation/DoddFrankAct/Rulemakings/DF_28_VolckerRule/index.htm).
12 Of particular note are the federal banking agencies’ policy statement regarding the treatment of
foreign excluded funds (as discussed in our Client Memorandum, Volcker Rule: Federal Banking Agencies Release New Guidance on the Treatment of “Foreign Excluded Funds” Under the Volcker Rule, dated July 22, 2017, available at https://www.sullcrom.com/volcker-rule-federal-banking-agencies-release-new-guidance-on-the-treatment-of-foreign-excluded-funds-under-the-volcker-rule) and the Agencies’ guidance regarding the capital treatment of certain ownership interests in covered funds (as discussed in our Client Memorandum, Volcker Rule and Bank Capital: Agencies Release Guidance on Capital Treatment of Banking Entity Investments in TruPS CDOs, dated March 4, 2016, available at https://www.sullcrom.com/volcker-rule-and-bank-capital-agencies-release-guidance-on-capital-treatment-of-banking-entity-investments-in-trups-cdos).
13 OCC RFI at 36693. See also supra note 3.
14 Preamble at 17.
15 Preamble at 17–18.
16 See infra note 25 (discussing the 2013 Rule’s five tiers of compliance program requirements).
17 See text accompanying infra note 30 (noting that the Proposed Rule includes a reservation of
authority that would allow an Agency to require a banking entity with limited or moderate trading assets and liabilities to apply any of the more extensive requirements that would otherwise apply if the banking entity had significant or moderate trading assets and liabilities under certain circumstances).
18 For a discussion of the Reform Act, please see our Client Memorandum, Financial Services
Regulatory Reform Legislation: “Economic Growth, Regulatory Relief, and Consumer Protection
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ENDNOTES (CONTINUED)
Act” is Enacted, dated May 24, 2018, available at https://www.sullcrom.com/financial-services-regulatory-reform-legislation-economic-growth-regulatory-relief-and-consumer-protection-act-is-enacted. See Part II.B.5 of this Memorandum for a discussion regarding the amendment to the name sharing restriction.
19 Preamble at 12.
20 Treasury Report at 77.
21 See supra note 7.
22 OCC RFI at 36694 n.16.
23 In her statement in connection with the Federal Reserve’s approval of the NPR, Governor Lael
Brainard observed that the “requirement of CEO attestation is critical” to the revision of the RENTD framework. Lael Brainard, Governor, Federal Reserve, Statement on the Volcker Rule Proposal, May 30, 2018, available at https://www.federalreserve.gov/newsevents/pressreleases/brainard-statement-20180530.htm. The Preamble underscores this point with respect to the compliance program-related proposals more broadly, noting that the Proposed Rule’s simplification of the compliance program requirements “should be balanced against the requirement for all banking entities to maintain compliance with [the Volcker Rule] and the implementing regulations. Accordingly, the Agencies believe that applying the CEO attestation requirement for banking entities with meaningful trading activities would ensure that the compliance programs . . . are reasonably designed to achieve compliance with [the Volcker Rule] and the implementing regulations as proposed.” Preamble at 218.
24 See infra note 30 (discussing the Agencies’ “reserved authority”).
25 The 2013 Rule’s five tiers of compliance program requirements are as follows. For further detail
regarding the specific requirements associated with each of these tiers, please see Section 10 of our Client Memorandum, Volcker Rule: U.S. Agencies Approve Final Volcker Rule, Detailing Prohibitions and Compliance Regimes Applicable to Banking Entities Worldwide, dated January 27, 2014, available at https://www.sullcrom.com/Volcker-Rule-01-27-2014/.
(1) Banking entities that engage in no restricted activities ( i.e., proprietary trading (other than permitted trading in U.S. government obligations) or covered fund-related activities or investments) are not subject to a compliance program requirement.
(2) Smaller banking entities with total consolidated assets of $10 billion or less as reported on December 31 of the previous two calendar years that engage in restricted activities are subject to a reduced compliance burden, which requires only that such banking entities include in their existing compliance policies and procedures appropriate references to the requirements of the Volcker Rule.
(3) Banking entities that engage in restricted activities and do not fall into any of the other four tiers are required to implement and maintain a compliance program that meets several baseline requirements, commonly referred to as the “standard” compliance program.
(4) Larger banking entities and banking entities with significant trading activities a re subject to “enhanced” compliance program requirements, which adds to the standard program additional and more detailed policies and procedures, internal controls, independent testing and other requirements, as well as an annual CEO certification requirement. This tier applies to banking entities with (A) total consolidated assets of $50 billion or more as of the previous calendar year-end, as calculated on the basis of
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ENDNOTES (CONTINUED)
(i) all affiliates and subsidiaries globally, in the case of U.S. banking entities, and (ii) consolidated U.S. operations only, in the case of foreign banking entities; and/or (B) total “trading assets and liabilities,” together with affiliates and subsidiaries, but excluding trading assets and liabilities involving U.S. government obligations, the average gross sum of which over the previous consecutive four quarters, as measured as of the last day of each of the four prior calendar quarters, equals or exceeds $10 billion, as calculated with respect to U.S. banking entities and foreign bank ing entities in the manner described in the foregoing clauses (A)(i) and (ii).
(5) Banking entities with significant trading activities are subject to the “enhanced” compliance program requirements as well as a requirement to calculate and report quantitative trading metrics.
26 Proposed Rule §§ ._2(ff)(2)–(3). See also Preamble at 21–22. Pages 5–6 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
27 Preamble at 12.
28 The additional documentation requirements for covered funds under § _.20(e) of the 2013 Rule,
which apply unchanged to banking entities with significant trading assets and liabilities under the Proposed Rule, include:
(1) documentation of the exclusions or exemptions other than Section 3(c)(1) or 3(c)(7) of the 1940 Act relied on by each fund sponsored by the banking entity (including all subsidiaries and affiliates) in determining that the fund is not a covered fund;
(2) for each fund sponsored by the banking entity (including all subsidiaries and affiliates) for which the banking entity relies on one or more of the exclusions from the definition of “covered fund” for foreign public funds, foreign pension or retirement funds, loan securitizations, qualifying asset-based commercial paper conduits or qualifying covered bonds, documentation supporting the banking entity’s determination that the fund is not a covered fund;
(3) for each seeding vehicle that will become a RIC or an SEC-regulated BDC, a written plan documenting: the banking entity’s determination that the seeding vehicle will become such a RIC or BDC, the period of time during which the vehicle will operate as a seeding vehicle and the banking entity’s plan to market the vehicle to third-party investors and convert it into a RIC or BDC within the time period required under the 2013 Rule; and
(4) for any banking entity that is, or is controlled directly or indirectly by a banking entity that is, located in or organized under the laws of the United States or of any U.S. state, if the aggregate amount of ownership interests in foreign public funds owned by such banking entity (including ownership interests owned by any affiliate that is controlled directly or indirectly by a banking entity that is located in or organized under the laws of the United States or of any U.S. state) exceeds $50 million at the end of two or more consecutive calendar quarters, beginning with the next succeeding calendar quarter, documentation of the value of the ownership interests owned by the banking entity (and such affiliates) in each foreign public fund and each jurisdiction in which any such foreign public fund is organized, calculated as of the end of each calendar
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ENDNOTES (CONTINUED)
quarter, which documentation must continue until the banking entity’s aggregate amount of ownership interests in foreign public funds is below $50 million for two consecutive calendar quarters.
Proposed Rule § _.20(e). See also Preamble at 220–21. Pages 49–50 of Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
29 Preamble at 34–35.
30 The Proposed Rule also includes a reservation of authority that would allow an Agency to
require a banking entity with limited or moderate trading assets and liabilities to apply any of the more extensive requirements that would otherwise apply if the banking entity had significant or moderate trading assets and liabilities. Proposed Rule at § ._20(h). See also Preamble at 22–23. Page 51 of Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
31 See supra note 30.
32 Banking entities with limited trading assets and liabilities have no affirmative obligation to
demonstrate compliance with the Proposed Rule on an ongoing basis. However, if upon examination or audit, the relevant Agency determines that the banking entity has engaged in covered activities, such Agency may rebut the presumption of compliance and require the banking entity to demonstrate compliance with the requirements of the rule applicable to a banking entity with moderate trading assets and liabilities. Proposed Rule § _.20(g). See also Preamble at 222.
33 The “short-term intent prong” includes within the definition of trading account any account used by
a banking entity to purchase or sell one or more financial instruments principally for the purpose of: (i) short-term resale; (ii) benefitting from short-term price movements; (iii) realizing short-term arbitrage profits; or (iv) hedging any of the foregoing. 2013 Rule § _.3(b)(1)(i).
34 2013 Rule § _.3(b)(1)(ii).
35 2013 Rule § _.3(b)(1)(iii).
36 The Preamble explained the removal of the short-term intent prong is meant to address concerns
that the prong requires banking entities and the Agencies to make subjective determinations with respect to each trade a banking entity conducts, and that the 60-day rebuttable presumption may scope in activities that do not involve the types of risks or transactions the statutory definition of proprietary trading appears to have been intended to cover. Preamble at 58–59.
37 Proposed Rule § _.3(b). See also Preamble at 24–25. Pages 6–8 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
38 Proposed Rule § _.3(b)(1)(i). See also Preamble at 59. Pages 6–7 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
39 Proposed Rule § _.3(b)(1)(ii). See also Preamble at 59. Pages 6–7 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
40 Proposed Rule § _3(b)(2). See also Preamble at 59. Page 7 of Appendix A of this Memorandum
contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. The Agencies note that they are proposing to retain the “market risk capital prong” and the
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ENDNOTES (CONTINUED)
“dealer prong” because “both prongs provide clear lines and well -understood standards for purposes of determining whether or not a purchase or sale of a financial instrument is in the trading account.” Preamble at 60.
41 Proposed Rule § _.3(b)(3). See also Preamble at 61. Pages 7–8 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule. For this purpose, “applicable accounting standards” means U.S. generally accepted accounting principles, or such other accounting standards applicable to a banking entity that the relevant Agency determines are appropriate and that the banking entity uses in the ordinary course of its business in preparing its consolidated financial statements. Proposed Rule § _.2(b). See also Preamble at 26 n.34. Page 2 of Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
42 As discussed further in Part II.A.2 of this Memorandum, the Proposed Rule does not change the
definition of “trading desk” from the 2013 Rule. However, the Agencies’ solicitation of comments regarding alternatives to the current definition suggests that the Agencies are considering revisions to this definition.
43 Proposed Rule § _.3(c). See also Preamble at 68. Pages 7–8 of Appendix A of this Memorandum
contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
44 Preamble at 26. The Agencies clarify that, “if the positions of a trading desk have recently
significantly contributed to the financial position of the banking entity, such that the absolute P&L-based threshold is exceeded, the proposed trading-desk-level presumption would become unavailable and the banking entity would be required to comply with more extensive requirements of the rule to ensure compliance.” Preamble at 68. A banking entity may choose to demonstrate ongoing compliance for activity captured by the accounting prong rather than calculating the profit and loss measurement for presumed compliance described above and relying on the presumption of compliance. Preamble at 67.
45 Preamble at 70 n.71.
46 Proposed Rule § _.3(c)(3)(i). See also Preamble at 71. Page 8 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
47 Proposed Rule § _.3(g)(1). See also Preamble at 71–72. Page 12 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
48 Preamble at 67.
49 Preamble at 61–62.
50 Preamble at 81. See also 2013 Rule §§ _.4(a)(2);_.4(b)(2).
51 2013 Rule § _.3(e)(13).
52 Preamble at 82.
53 Preamble at 82–83.
54 BHC Act §13(d)(1)(B) (12 U.S.C. § 1841(d)(1)(B)).
55 2013 Rule § _.4(a).
56 For purposes of the 2013 Rule, an “underwriting position” is the set of long or short positions in
one or more securities held by a banking entity or its affiliate, and managed by a particular trading desk, in connection with a particular distribution of securities for which the banking
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ENDNOTES (CONTINUED)
entity or an affiliate is acting as an underwriter. 2013 Rule § _.4(a)(6). A “distribution” includes an offering of securities: (i) whether or not subject to registration under the Securities Act, that is distinguished from ordinary trading transactions by the presence of special selling efforts and methods; or (ii) made pursuant to an effective registration statement under the Securities Act. 2013 Rule § _.4(a)(3). An “underwriter” is either: (i) a person who has an agreement with an issuer or selling security holder to purchase securities for distribution or to otherwise engage in or manage a distribution for or on behalf of the issuer or selling security holder; or (ii) a person who has agreed to participate or is participating in a distribution of such securities for or on behalf of the issuer or selling security holder. 2013 Rule § _.4(a)(4).
57 Preamble at 90.
58 Preamble at 90.
59 Proposed Rule §§ _.4(a)(8)(i)(A); _.4(a)(8)(i)(B)(1)–(3). See also Preamble at 93. Pages 14–15 of
Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
60 Preamble at 27.
61 Preamble at 93–94.
62 Proposed Rule § _.4(a)(8)(ii). See also Preamble at 94. Page 15 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
63 Proposed Rule § _.4(a)(8)(iii). See also Preamble at 94. Page 15 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
64 Preamble at 95.
65 Proposed Rule § _.4(a)(8)(iv). See also Preamble at 95. Page 15 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
66 2013 Rule § _.4(a)(2)(iii).
67 Proposed Rule § _.4(a)(2)(iii). See also Preamble at 100. Page 13 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
68 Preamble at 101.
69 BHC Act §13(d)(1)(B).
70 2013 Rule § _.4(b).
71 The 2013 Rule defines “financial exposure” to mean the aggregate risks of one or more
financial instruments and any associated loans, commodities or foreign exchange or currency held by a banking entity or its affiliate and managed by a particular trading desk as part of the trading desk’s market making-related activities. 2013 Rule § _.4(b)(4).
72 The 2013 Rule defines “market-maker inventory” to mean all the positions in the financial
instruments for which the trading desk stands ready to make a market that are managed by the trading desk, including the trading desk’s open positions or exposures arising from open transactions. 2013 Rule § _.4(b)(5).
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ENDNOTES (CONTINUED)
73
The 2013 Rule defines “clients, customers and counterparties” for purposes of the market making-related activities exemption to mean “market participants that make use of the banking entity’s market making-related services by obtaining such services, responding to quotations, or entering into a continuing relationship with respect to such services.” 2013 Rule § _.4(b)(3). A trading desk or other organizat ional unit of a second entity is not a “client, customer or counterparty” of a trading desk of the first entity, however, if the second entity has $50 billion or more in total trading assets and liabilities (as measured for purposes of the 2013 Rule’s quantitative trading metrics reporting requirements), unless: (i) the first trading desk documents how and why the second trading desk should be treated as a “client, customer, or counterparty” of the trading desk or (ii) the purchase or sale is conducted anonymously on an exchange or similar trading facility that permits trading on behalf of a broad range of market participants. 2013 Rule § _.4(b)(3)(i). The Proposed Rule does not change this definition other than by noting that the $50 billion trading assets and liabilities threshold referred to above should be calculated based on the same methodology that is used to determine whether a banking entity has “significant trading assets and liabilities.”
74 Preamble at 105.
75 Preamble at 104.
76 Preamble at 104–05.
77 Proposed Rule § _.4(b)(6)(i)(B). See also Preamble at 108. Page 17 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. As with the presumption of compliance with the underwriting exemption’s RENTD requirement, the Agencies indicate that they expect a banking entity to establish the requisite limits “according to its own internal analyses and processes around conducting its market making activities,” which should include an “ongoing and internal assessment” of RENTD. Preamble at 109–10.
78 Proposed Rule § _.4(b)(6)(iii). See also Preamble at 109. Page 17 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. The Agencies indicate that they would expect to closely monitor and review any instances of a banking entity exceeding a risk limit as well as any temporary or permanent increase to a trading desk limit. Preamble at 110.
79 Proposed Rule § _.4(b)(6)(ii). See also Preamble at 110. Page 17 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
80 Proposed Rule § _.4(b)(6)(iv). See also Preamble at 110. Page 17–18 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
81 2013 Rule § _.4(b)(2)(iii); Proposed Rule § _.4(b)(2)(iii). See also Preamble at 116. Page 15 of
Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule. As is the case with respect to the underwriting exemption, the Agencies clarify that banking entities that do not have significant trading assets and liabilities are not relieved of the obligation to comply with the other requirements of the exemption for market making-related activities, but the elimination of the compliance program requirement for such banking entities is intended to provide these banking entities with “an appropriate amount of flexibility to tailor the means by which they seek to ensure compliance with the underlying requirements of the exemption for market making-related activities, and to allow them to structure their internal compliance measures in a way that takes into account the risk profile and market making activity of the particular trading desk.” Preamble at 117.
-49- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
82
Proposed Rule § _.5. See also Preamble at 27. Pages 18–20 of Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
83 2013 Rule § _.5.
84 2013 Rule § _.5(b)(1)–(2).
85 Proposed Rule § _.5(b). See also Preamble at 307.
86 Proposed Rule §§ _.5(b)(1)(i)(C); _.5(b)(1)(ii)(B); _.5(b)(1)(ii)(D)(2). See also Preamble at 130–
31. Pages 18–19 of Appendix A of this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
87 Preamble at 130.
88 Preamble at 130.
89 Proposed Rule § _.5(c)(4). See also Preamble at 134–35. Page 20 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
90 Proposed Rule § _.5(c)(4)(ii). See also Preamble at 134–35. Page 20 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
91 Preamble at 135.
92 Proposed Rule § _.5(b)(1)(i)(C). See also Preamble at 129. Page 18 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
93 Preamble at 128.
94 Preamble at 128–29.
95 2013 Rule § _.3(d)(3).
96 The Proposed Rule’s definitions of “foreign exchange forward” and “foreign exchange swap”
reference the corresponding definitions of such terms in the Commodity Exchange Act. Proposed Rule § _.3(d)(3). See also 7 U.S.C. §§ 1a(24) and 1a(25).
97 The Proposed Rule defines a “cross-currency swap” as a swap in which one party exchanges
with another party principal and interest rate payments in one currency for principal and interest rate payments in another currency, and the exchange of principal occurs on the date the swap is entered into, with a reversal of the exchange of principal at a later date that is agreed upon when the swap is entered into. The Preamble states that this definition is consistent with regulations pertaining to margin and capital requirements for covered swap entities, swap dealers, and major swap participants. Proposed Rule § _.3(f). See also Preamble at 77 n.78 (citing 12 CFR § 45.2; 12 CFR § 237.2; 12 CFR § 349.2; 17 § CFR 23.151).
98 Proposed Rule § _.3(e)(3). See also Preamble at 76. Pages 8–9 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
99 Preamble at 76.
100 See Proposed Rule §§ _.3(e)(3)(i)–(vi). See also Preamble at 77. Pages 8–9 of Appendix A of
this Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
-50- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
101
Preamble at 77–78.
102 Proposed Rule § _.3(e)(10). See also Preamble at 79. Page 10 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
103 Preamble at 27.
104 Preamble at 80.
105 BHC Act § 13(d)(1)(H).
106 2013 Rule § _.6(e)(3).
107 Proposed Rule § _.6(e)(3). See also Preamble at 140. Pages 23–24 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
108 Proposed Rule § _.6(e)(3). See also Preamble at 140. Pages 23–24 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
109 Preamble at 141.
110 Preamble at 142–43.
111 Preamble at 142.
112 Preamble at 146.
113 Preamble at 146.
114 BHC Act § 13(a)(1).
115 2013 Rule § _.10(b).
116 Preamble at 43–45.
117 For a discussion of the response to FAQ #14, please see our Client Memorandum, Agencies
Release New Guidance Providing Clarification Regarding Banking Entity Status of Certain Foreign Public Funds and Restricting Scope of Joint Venture Exclusion, dated June 12, 2015, available at https://www.sullcrom.com/volcker-rule-agencies-release-new-guidance-providing-clarification-regarding-banking-entity-status.
118 FAQ #16 is available on the Federal Reserve’s website at https://www.federalreserve.gov/
bankinforeg/volcker-rule/faq.htm.
119 Preamble at 49.
120 Preamble at 46.
121 For purposes of the policy statement, “foreign banking entity” means a banking entity that is not,
and is not controlled directly or indirectly by a banking entity that is located in or organized under the laws of the United States or any U.S. State. See also infra note 123.
122 For purposes of the policy statement (see infra note 123), a “qualifying foreign excluded fund”
means, with respect to a foreign banking entity, an entity that:
(1) Is organized or established outside the United States and the ownership interests of which are offered and sold solely outside the United States;
-51- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
(2) Would be a covered fund were the entity organized or established in the United States, or
is, or holds itself out as being, an entity or arrangement that raises money from investors primarily for the purpose of investing in financial instruments for resale or other disposition or otherwise trading in financial instruments;
(3) Would not otherwise be a banking entity except by virtue of the foreign banking entity’s acquisition or retention of an ownership interest in, or sponsorship of, the entity;
(4) Is established and operated as part of a bona fide asset management business; and
(5) Is not operated in a manner that enables the foreign banking entity to evade the requirements of the Volcker Rule or implementing regulations.
123 For a discussion of the policy statement, please see our Client Memorandum, Federal Banking
Agencies Release New Guidance on the Treatment of “Foreign Excluded Funds” Under the Volcker Rule, dated July 22, 2017, available at https://www.sullcrom.com/volcker-rule-federal-banking-agencies-release-new-guidance-on-the-treatment-of-foreign-excluded-funds-under-the-volcker-rule.
124 Preamble at 49.
125 Preamble at 52–54 (Questions #18–21).
126 2013 Rule §§ _.11(c)(2); _.12(a)(2)(ii). The “per-fund limitation” provides that the banking entity’s
(and its affiliates’) permitted ownership interest in a single covered fund that it organizes and offers generally may not exceed 3% of the total outstanding “ownership interests” of the covered fund at any time one year or later after the “date of establishment” of the fund. Such other relationships (in addition to sponsoring or serving as investment adviser or commodity trading advisor to the fund) are that the banking entity otherwise acquires and retains an ownership interest in such covered fund in reliance upon the organizing and offering exemptions under Section _.11(a) or (b) of the 2013 Rule and the Proposed Rule. 2013 Rule § _.11(c)(2). The Supplementary Information to the 2013 Rule (the “2013 Rule Preamble”) notes that a right to put the ownership interest in the covered fund to the banking entity would be considered a guarantee for this purpose; however, the restriction does not apply to arrangements not designed to guarantee the obligations or performance of the covered fund, however, such as entering into a liquidity facility or providing a letter of credit for a covered fund.
2013 Rule
Preamble at 5723.
127 2013 Rule §§ _.11(c)(2); _.12(a)(2)(iii). The “aggregate funds limitation” provides that the
aggregate value of the banking entity’s ownership interests in covered funds held under the organizing and offering and underwriting and market making-related activities exemptions may not exceed 3% of the banking entity’s Tier 1 capital, derived according to a specific calculation.
128 2013 Rule §§ _.11(c)(2); _.12(d). Under the 2013 Rule, all covered fund ownership interests held under the organizing and offering and underwriting and market making-related activities exemptions must be deducted on a dollar-for-dollar basis from the banking entity’s actual Tier 1 capital for regulatory capital purposes.
129 Proposed Rule § _.11(c). See also Preamble at 194–95. Page 36 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
130 Proposed Rule § _.11(c). Page 36–37 of Appendix A of this Memorandum contain the changes
made to this provision as between the 2013 Rule and the Proposed Rule.
-52- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
131
Proposed Rule § _.11(c)(2). See supra note 126 (discussing such other relationships). See also Preamble at 194.
132 Proposed Rule § _.11(c)(2). Page 36 of Appendix A of this Memorandum contains the changes
made to this provision as between the 2013 Rule and the Proposed Rule.
133 The Volcker Rule includes a statutory exemption for “[t]he acquisition or retention of any equity, partnership, or other ownership interest in, or the sponsorship of, a hedge fund or a private equity fund by a banking entity pursuant to paragraph (9) or (13) of [Section 4(c) of the BHC Act] solely outside of the United States, provided that no ownership interest in such hedge fund or private equity fund is offered for sale or sold to a resident of the United States and that the banking entity is not directly or indirectly controlled by a banking entity that is organized under the laws of the United States or of one or more [U.S.] States.” BHC Act § 13(d)(1)(I). The 2013 Rule Preamble explains that “the purpose of this statutory exemption appears to be to limit the extraterritorial application of the statutory restrictions on covered fund activities and investments, while preserving national treatment and competitive equality among U.S. and foreign banking entities within the United States.” 2013 Rule Preamble at 5738.
134 2013 Rule §§ _.13(b)(1)(iii); _.10(d)(8).
135 2013 Rule §§ _.13(b)(1)(iv); _.13(b)(4)(iv).
136 Proposed Rule § _.13(b). See also Preamble at 204–08. Pages 42–44 of Appendix A of this
Memorandum contain the changes made to this provision as between the 2013 Rule and the Proposed Rule.
137 Following the issuance of the 2013 Rule, the Marketing Restriction became the subject of
uncertainty and industry comment, as it was unclear whether foreign banking entities would be able to rely on the SOTUS exemption with respect to investments in third-party covered funds, such as offshore feeder funds with U.S. tax-exempt investors or other covered funds, where the fund sponsor or investors other than the foreign banking entity had engaged in U.S. marketing activities. The staffs of the Agencies issued guidance through a response to FAQ #13 clarifying that the Marketing Restriction applies only to the activities of the foreign banking entity (including its affiliates) that is seeking to rely on the SOTUS exemption and not to the activities of third parties, including the sponsor of the covered fund, other investors and the covered fund itself. Thus, a foreign banking entity’s ability to rely on the exemption would not be lost as a result of third parties’ marketing or selling activities to residents of the United States, provided that the foreign banking entity has not itself offered for sale or sold an ownership interest in the fund to a resident of the United States or participated in such an offer or sale. Client Memorandum, Agencies Release New Volcker Rule FAQ with Critical Guidance for Foreign Banking Entities and Fund Sponsors; Clarify That U.S. Marketing Restriction Under “SOTUS” Covered Fund Exemption Does Not Apply to Third Parties, dated February 27 2015, available at https://www.sullcrom.com/volcker-rule-agencies-release-new-volcker-rule-faq-with-critical-guidance-for-foreign-banking-entities-and-fund-sponsors.
138 Proposed Rule § _.13(b)(3). See also Preamble at 205–07. Page 43 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
139 Proposed Rule § _.13(b)(3). See also Preamble at 205–07. Page 43 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
-53- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
140
Proposed Rule § _.13(b)(4). See also Preamble at 203. Page 44 of Appendix A of this Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
141 Preamble at 203.
142 BHC Act § 13(d)(1)(C).
143 See 2013 Rule § _.13(a)(1).
144 Proposed Rule § _. 13(a)(1). See also Preamble at 199. Page 42 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
145 See Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and
Relationships With, Hedge Funds and Private Equity Funds, 76 Fed. Reg. 68846 (Nov. 7, 2011).
146 2013 Rule Preamble at 5737. As the Agencies explain in the Preamble, “[t]he Agencies were
concerned that these transactions could expose the banking entity to the risk that the customer will fail to perform, thereby effectively exposing the banking entity to the risks of the covered fund, and that a customer’s failure to perform may be concurrent with a decline in value of the covered fund, which could expose the banking entity to additional losses.” Preamble at 198.
147 Proposed Rule § _.13(a)(1)(ii). See also Preamble at 199. Page 42 of Appendix A of this
Memorandum contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
148 Preamble at 199.
149 Preamble at 12.
150 2013 Rule § _.20.
151 Preamble at 213–14.
152 Preamble at 225.
153 Preamble at 224–26.
154 Preamble at 225.
155 Preamble at 225.
156 2013 Rule Preamble at 5758.
157 Preamble at 239–41.
158 Appendix at para. III.a. See also Preamble at 244.
159 Preamble at 286–88.
160 Preamble at 276, 282, 287.
161 Appendix at para. IV.a.3. See also Preamble at 271.
162 Appendix at para. III.b. See also Preamble at 245–53.
163 Appendix at para. III.c. See also Preamble at 256–60.
164 Preamble at 262.
165 Appendix at para. III.d. See also Preamble at 262. Page 57 of Appendix A of this Memorandum
contains the changes made to this provision as between the 2013 Rule and the Proposed Rule.
-54- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
166
Preamble at 17 (Questions #1–2).
167 Preamble at 296–313 (Questions #302–342).
168 Preamble at 38–41 (Questions #3–11).
169 Preamble at 62 (Question #24).
170 Preamble at 62–66 (Questions #23–38).
171 Preamble at 72–74 (Questions #39–48).
172 Preamble at 66, 73–74, 87, 98–99, 114 (Question #38, 44, 47, 63, 76, 95).
173 Preamble at 84–85 (Questions #57–59).
174 Preamble at 82–83.
175 Preamble at 87 (Questions #60–63).
176 Preamble at 95–99 (Questions #64–77).
177 Preamble at 102 (Questions #78–81).
178 Preamble at 111–15 (Questions #82–96).
179 Preamble at 118 (Questions #97–100).
180 Preamble at 122–23 (Questions #101–107).
181 Preamble at 126 (Questions #108–112).
182 Preamble at 135–37 (Questions #113–122).
183 Preamble at 78–79 (Questions #49–51).
184 Preamble at 80–81 (Questions # 52–56).
185 Preamble at 147–50 (Questions #123–130).
186 Preamble at 152–56 (Questions #131–139).
187 Preamble at 176–82 (Questions #160–171).
188 Form PF defines “securitized asset fund” to mean any private fund whose primary purpose is to
issue asset-backed securities and whose investors are primarily debtholders.
189 Preamble at 177.
190 Form PF defines (i) “liquidity fund” to mean any private fund that seeks to generate income by
investing in a portfolio of short-term obligations in order to maintain a stable net asset value per unit or minimize principal volatility for investors; (ii) “real estate fund” to mean any private fund that is not a hedge fund, that does not provide investors with redemption rights in the ordinary course and that invests primarily in real estate and real estate-related assets; (iii) “securitized asset fund” to mean any private fund whose primary purpose is to issue asset-backed securities and whose investors are primarily debtholders (as noted at supra note 188); and (iv) “venture capital fund” to mean any private fund meeting the definition of venture capital fund in Rule 203(l)-1 under the Investment Advisers Act of 1940. Preamble at 178 n.172.
191 Preamble at 178–79.
192 Preamble at 160–71 (Questions #140–154).
193 Preamble at 173–75 (Questions #155–159).
-55- Volcker Rule June 5, 2018
ENDNOTES (CONTINUED)
194
Preamble at 185–86 (Questions #172–175).
195 Preamble at 185 (Question #173).
196 Preamble at 186–90 (Questions #176–180).
197 Preamble at 190–92 (Questions #181–182).
198 Preamble at 195–97 (Questions #183–185).
199 Preamble at 207–08 (Questions #189–193).
200 Preamble at 212–13 (Questions #194–202).
201 Preamble at 213 (Question #199).
202 Preamble at 212 (Question #195).
203 Preamble at 217 (Question #203).
204 Preamble at 223 (Question #209).
205 Preamble at 228–31 (Questions #210–212).
206 Preamble at 218–20 (Questions #204–208).
207 Preamble at 235 (Question #214).
208 Preamble at 244 (Questions #215–218).
209 Preamble at 289–94 (Questions #285–301).
210 Preamble at 253–63 (Questions #220–244).
211 Preamble at 264–68 (Questions #245–256).
212 Preamble at 270–72 (Questions #257–260).
213 Preamble at 273–75 (Questions #261–262).
214 Preamble at 277–79 (Questions #263–270).
215 Preamble at 284–86 (Questions #271–279).
216 Preamble at 288–89 (Questions #280–284).
-56- Volcker Rule June 5, 2018
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cial statem
he same m841).
paragraph
epository in
that contro
that is treanking Act
subsidiary
ot include:
d that is no
mpany held843(k)(4)(Hlled by a sess Investmn is not itse
ng in its coe Act or Ti
overnors o
Futures T
g as in sec
x -2-
s part:
ction 2(k)
s U.S. genble to a ba
y uses in thents.
meaning as
h (cd)(2) o
nstitution;
ols an insu
ated as a bof 1978 (1
y of any en
ot itself a b
d under theH), (I)), or mall businment Act oelf a banki
orporate caitle II of the
of the Fede
Trading Co
ction 3(a)(5
of the Ban
nerally accanking enthe ordinary
s in section
f this secti
ured depos
bank holdin12 U.S.C. 3
ntity descr
banking en
e authorityany portfo
ness invesof 1958 (15ng entity u
apacity or e Dodd-Fr
eral Reserv
ommission
5) of the E
nk Holding
epted accity that they course o
n 2 of the B
ion, bankin
sitory instit
ng compan3106); and
ibed in pa
ntity under
y containedolio concertment com5 U.S.C. 6under para
as conservrank Wall S
ve System
.
Exchange A
Appendix
g Company
ounting e [Agency]of its
Bank
ng entity
tution;
ny for d
ragraphs
paragraph
d in sectiorn, as
mpany, as 662), so lonagraphs
vator or Street
m.
Act (15
x A
y
hs
n
ng
SC1:46
Depo
Comsectio
comm
1a(24term
desc
foreig2(c)(2
Exch
transguida1a(47is def
Legaof tha
seq.)
Com
Curre
the Bsectio
71524.5
(g)(h) osit Insura
(h)(i)
modity Exon 3(a)(68
modity, for
4) of the Cis defined
ribed in se
gn currenc2)(D)(i)); a
ange Act
saction thaance, or ot7) of the Cfined in se
al Certaintyat Act (7 U
(i)(j)
(j)(k) ).
(k)(l) modity Ex
(l)(m)
(m)(n) ency, and
(n)(o) Board’s Reon 1(b)(7)
Depositorynce Act (1
Derivative
(1) Ex
(i) change Ac
8) of the Ex
(ii)r deferred
(iiiCommodity
in section
(ivection 2(c)
(v)cy describeand
(vi(7 U.S.C.
(2) A d
(i) at the CFTCther action
Commodityection 3(a)
(ii)y for Bank
U.S.C. 27a
Employee
Exchange
Excluded change Ac
FDIC mea
Federal bathe FDIC.
Foreign baegulation K
of the Inte
ry institutio2 U.S.C. 1
e.
xcept as pr
Any sct (7 U.S.Cxchange A
) Any pshipment o
) Any fy Exchangen 1a(25) of
v) Any a(2)(C)(i) of
) Any aed in sectio
) Any t23(a) or (b
derivative
Any cC and SECn as not wiy Exchange(68) of the
) Any iProducts (a)).
e includes
e Act mean
commoditct (7 U.S.C
ans the Fe
anking age
anking orgK (12 CFR ernational
on has the 1813(c)).
rovided in
swap, as tC. 1a(47)),Act (15 U.S
purchase oor delivery
foreign exce Act (7 Uf the Comm
agreemenf the Comm
agreemenon 2(c)(2)(
transactionb));
does not i
consumer,C have furthin the dee Act (7 U
e Exchang
identified bAct of 200
a member
ns the Sec
ty has the C. 1a(19)).
ederal Dep
encies me
ganization 211.21(o)Banking A
Appendix
same mea
paragraph
that term is, or securitS.C. 78c(a
or sale of ay that is int
change fo.S.C. 1a(2modity Exc
t, contractmodity Ex
t, contract(D)(i) of th
n authorize
include:
, commercrther defineefinition of .S.C. 1a(4e Act (15
banking pr00 (7 U.S.C
r of the imm
curities Exc
same mea.
osit Insura
eans the Bo
has the sa)), but doeAct of 1978
x -3-
aning as in
h (hi)(2) of
s defined ity-based s
a)(68));
a commodtended to
rward (as 24)) or forechange Ac
t, or transachange Ac
t, or transahe Commo
ed under s
cial, or othed by jointf swap, as 47)), or secU.S.C. 78c
roduct, as C. 27(b)), t
mediate fa
change Ac
aning as in
ance Corp
oard, the O
ame means not inclu8 (12 U.S.C
n section 3
f this sectio
n section swap, as th
dity, that isbe physica
that term ieign exchact (7 U.S.C
action in foct (7 U.S.C
action in a odity Excha
section 19
er agreemt regulationthat term
curity-basec(a)(68)); o
defined inthat is sub
amily of the
ct of 1934
n section 1
oration.
Office of th
ning as in sude a foreigC. 3101(7)
3(c) of the
on, derivat
1a(47) of that term is
s not an exally settled
is defined ange swapC. 1a(25));
oreign currC. 2(c)(2)(C
commoditange Act (
of the Co
ment, contrn, interpreis defined ed swap, aor
n section 4bject to sec
e employe
(15 U.S.C
1a(19) of th
he Comptr
section 21gn bank, a)), that is o
Appendix
Federal
tive means
the s defined in
xcluded d;
in section p (as that
rency C)(i));
ty other tha7 U.S.C.
mmodity
ract, or tation, in section
as that term
02(b) of thction 403(a
ee.
C. 78a et
he
roller of the
1.21(o) ofas defined organized
x A
s:
n
an
n m
he a)
e
f in
SC1:46
undeState
officiaof ins
alloca
compunderegulprovi
Fedeinstitu
worldliabiliStatemeas$1,00
that t
recei
that tasset
the D
secudelivetranstermiconverequi
71524.5
er the laws es Virgin Is
(o)(p) al or agensurance co
(p)(q) ated to on
(q)(r) pany, primerwritten byator or a fsions of se
(r)(s) eral Deposution that
(t)
dwide consties involv
es) the avesured as o00,000,000
the bankin
(s)(u) vable that
(t)(v) the bankints and liab
(u)(w) Dodd-Fran
(v)(x) rity futuresery. With r
saction for nation (preyance ofre.
of the Coslands, or t
Foreign incy, of any ompanies
General ae or more
Insurancearily and py insurancforeign insection 13 o
Insured desit Insurancis describe
Limited tra
(1) Thsolidated bving obligaerage grosof the last d0; and
(2) Thg entity sh
Loan meais not a se
Moderate g entity do
bilities.
Primary fink Wall Stre
Purchase s productsrespect to future deliior to its sc, or exting
mmonweathe Comm
nsurance recountry otunder fore
account meseparate
e companypredominace companurance regof the BHC
epository ice Act (12 ed in sectio
ading asse
he bankingbasis, tradtions of or
ss sum of wday of eac
he [Agencyhould not b
ans any loaecurity or d
trading asoes not ha
nancial regeet Reform
includes a, purchasea commodivery. Withcheduled muishing of
alth of Puemonwealth
regulator mther than t
eign insura
eans all of accounts.
y means a antly engagies, subjecgulator, anC Act (12 U
institution U.S.C. 18
on 2(c)(2)(
ets and liab
g entity hasing assets
r guaranteewhich overch of the fo
y] has not be treated
an, lease, derivative.
ssets and lave signific
gulatory agm and Con
any contrae includes dity future,h respect tmaturity darights or o
Appendix
erto Rico, Gof the Nor
means the the Unitedance law.
f the assets
company ged in writct to supernd not opeU.S.C. 185
has the sa813(c)), bu(D) of the
bilities me
s, togethers and liabiled by the r the previour previou
determineas having
extension .
liabilities mcant trading
gency hasnsumer Pro
act to buy, any contr
, purchaseo a derivaate), assigobligations
x -4-
Guam, Amrthern Mar
insurance States tha
s of an ins
that is orgting insurarvision as rated for t51).
ame meanut does notBHC Act (
ans, with r
r with its aities (excluUnited Staous conseus calenda
ed pursuang limited tra
of credit,
means, witg assets a
s the sameotection Ac
purchase,act, agree
e includes tive, purch
gnment, exs under, a
merican Sariana Islan
e commissiat is engag
surance co
ganized asnce or reinsuch by a he purpos
ing as in st include a(12 U.S.C.
respect to
ffiliates anuding tradates or anyecutive fouar quarters
nt to § .20(ading asse
or secured
th respect and liabilitie
e meaning ct (12 U.S
, or otherwement, or trany contra
hase includxchange, oderivative
amoa, the Uds.
ioner, or aged in the
ompany ex
s an insuransuring risstate insu
se of evadi
section 3(can insured . 1841(c)(2
a banking
nd subsidiaing assetsy agency o
ur quarterss, is less th
g) or (h) oets and liab
d or unsec
to a bankies or limite
as in sect.C. 5301(1
wise acquirransactionact, agreemdes the exor similar tr, as the co
Appendix
United
a similar supervisio
xcept those
ance sks urance ng the
c) of the depository
2)(D)).
g entity, tha
aries on a s and of the Unite, as
han
of this part bilities.
cured
ing entity, ed trading
tion 2(12) o12)).
re. For n for futurement, or xecution, ransfer or ontext may
x A
on
e
y
at:
ed
of
e
y
SC1:46
that q211.2
secudelivetranstermiconverequi
U.S.C
Exch
(15 U
insurlegallossethe aincom
entity
tradinquartor ex
the b
paragassetguaraconso
organpurpoand lUnite
71524.5
(y) qualifies as23(a), (c),
(z)
(aa) rity futuresery. With r
saction for nation (preyance ofre.
(bb) C. 78c(a)(1
(cc) ange Act
(dd) U.S.C. 78c
(ee) rance comly segrega
es, whetheapplicable cme, gains,
(ff)
y, that:
ng assets ters, as mexceeds $10
banking en
graph (3), ts and liabanteed by olidated ba
nization oroses of thiiabilities in
ed States)
Qualifyings such undor (e)).
SEC mea
Sale and ss productsrespect to future deliior to its sc, or exting
Security h10)).
Security-b(15 U.S.C
Security fuc(a)(55)).
Separate pany in co
ated from ter or not recontract, cor losses
Significan
(1) Sig
(i) and liabiliteasured a0,000,000,
(ii)tity should
(2) Witrading as
bilities (excthe Unitedasis.
(3)
(i) r a subsidis paragrap
nvolving obof the com
g foreign bader section
ns the Sec
sell each i, such terma commodivery. Withcheduled muishing of
has the me
based swa. 78c(a)(7
uture has t
account monnection wthe insuranealized, frocredited toof the insu
t trading a
gnificant tr
The bties the avs of the las,000; or
) The [d be treate
ith respectssets and lcluding tradd States o
With ary of a foph (ff) meabligations mbined U.S
anking orgn 211.23(a
curities an
nclude anyms includedity future,h respect tmaturity darights or o
eaning spe
ap dealer h1)).
the meani
means an awith one once compa
om assets or chargeurance com
assets and
rading ass
banking enverage grosst day of e
[Agency] hed as havin
t to a bankliabilities foding assetr any agen
respect tooreign bankans the traof or guaraS. operatio
Appendix
ganization a), (c) or (e
d Exchang
y contract e any contr, such termo a derivaate), assigobligations
ecified in s
has the sam
ng specifie
account esor more insany’s otheallocated t
ed against mpany.
liabilities.
ets and lia
ntity has, tss sum of
each of the
has determng significa
king entity or purposets and liabncy of the
o a bankingking organading asseanteed by ons of the
x -5-
means a fe) of the B
ge Commi
to sell or oract, agreems includetive, such
gnment, exs under, a
ection 3(a
me meanin
ed in secti
stablished surance cor assets, uto such acsuch acco
abilities me
together wwhich ove
e four prev
mined pursant trading
other thanes of this pbilities invoUnited Sta
g entity thanization, traets and liab
the Unitedtop-tier for
foreign baoard’s Reg
ssion.
otherwise ement, or te any contr
terms inclxchange, oderivative
)(10) of th
ng as in se
on 3(a)(55
and maintontracts to under whicccount, areount witho
eans, with
with its affilier the prevvious calen
suant to § g assets an
n a bankinparagraph olving obligates) on a
at is a foreading assebilities (excd States oreign bank
anking orgagulation K
dispose otransactionract, agreelude the exor similar tr, as the co
e Exchang
ection 3(a)
5) of the Ex
tained by ahold asse
ch incomee, in accordut regard t
respect to
iates and svious consndar quarte
.20(h) of thnd liabilitie
g entity de(ff) means
gations of oworldwide
eign bankinets and liacluding tra
or any agenking organ
Appendix
anization K (12 CFR
of. For n for futureement, or xecution, ransfer or ontext may
ge Act (15
)(71) of the
xchange A
an ets that are, gains, andance withto other
o a banking
subsidiarieecutive fouers, equals
his part thaes.
escribed ins trading or e
ng abilities for ading assency of the ization
x A
e
y
e
Act
e nd h
g
es, ur s
at
n
ets
SC1:46
(incluopera
agenbankin thesubs
Rico,North
Com
or aginsur
Exch
Subp
§ __.
not etradininstru
by a
the p
move
purchthis s
markcapitainsurcalcu
71524.5
uding all suating, loca
cy, or sub that opera
e United Sidiary.
(gg) , Guam, Ahern Maria
(hh) pany Act o
(ii) gency, of arance law.
(jj) ange Act
part B––P
3 Prohib
(a) engage in png accounuments.
(b) banking e
purpose of:
ements;
hases or ssection;
ket risk capal rule cov
red deposiulates risk-
ubsidiariesated, or org
(ii)bsidiary of ates or contates sole
State meamerican S
ana Islands
Subsidiaryof 1956 (12
State insua State tha
Swap dea(7 U.S.C.
Proprietary
bition on p
Prohibitionproprietaryt of the ba
Definition ntity to:
(i) :
sales of fin
(2)(1)
(i) pital rule covered posittory institu- based ca
s, affiliatesganized in
) For pa banking ntrols that ly by virtue
ans any StSamoa, thes.
y has the s2 U.S.C. 1
urance regt is engag
aler has the1a(49)).
y Trading
proprietar
n. Except ay trading. Panking enti
of trading
Purch
(A)
(B)
(C)
(D) ancial inst
Purchovered potions), if thution, bankapital ratios
s, branchesthe United
purposes oentity is lobranch, a
e of opera
tate, the De United S
same mea841(d)).
ulator meaed in the s
e same me
ry trading
as otherwiProprietaryity in any p
account. (
hase or se
Short-te
Benefitt
Realizin
Hedgingtruments d
hase or sesitions and
he bankingk holding cs under the
Appendix
s, and aged States).
of paragrapocated in tagency, or ting or con
istrict of Ctates Virgi
aning as in
ans the inssupervision
eaning as
.
ise providey trading mpurchase o
(1) Trading
ell one or m
erm resale
ting from a
ng short-te
g one or mdescribed i
ell one or md trading pg entity, or company, oe market r
x -6-
encies of th
ph (ff)(3)(i)the United subsidiary
ntrolling th
Columbia, tin Islands,
n section 2
surance con of insura
in section
ed in this smeans engor sale of o
g account
more finan
e;
actual or e
erm arbitra
more positiin paragra
more finanpositions (oany affilia
or savingsrisk capital
he foreign
) of this seStates; ho
y is not cone U.S. bra
the Comm and the C
(d) of the
ommissionance comp
1(a)(49) o
subpart, a gaging as pone or mo
means an
ncial instru
xpected s
age profits;
ions resultphs (b)(1)
ncial instruor hedges
ate of the bs and loan rule; or
banking o
ection, a Uowever, thnsidered toanch, agen
monwealth Commonw
Bank Hold
ner, or a sipanies und
of the Com
banking eprincipal fore financia
ny account
ments prin
hort-term
; or
ting from th(i)(A), (B),
ments thaof other m
banking enholding co
Appendix
organizatio
.S. branchhe foreign o be locatency, or
of Puerto ealth of th
ding
milar officder State
mmodity
entity may or the al
t that is us
ncipally for
price
he or (C) of
t are both market riskntity, is an ompany, a
x A
on
h,
ed
e
ial
sed
r
k
and
SC1:46
direcUniteto casupeon Ba
the b
purchtradinentitythe fidemopurchparag
finanacco
for a gain reflecthe b
(c)(1)detersubp
71524.5
tly or indired States opital requirvisor thatanking Su
banking en
hase (or sang accouny holds thenancial insonstrate, bhase (or segraph (b)(1
cial instrumunting sta
(c)
trading acor net losscting realizbanking en
)(ii) of this rmined thaart B.
(ii)rectly by a or any Statrements ut is consistpervision,
(3)(2) (ii)tity:
(i)(to swcoor
(ii)bainsbu
(4) (Cale) of a fint of the ba
e financial strument wbased on aell) the fina1)(i) of this
(3) Pument that ndards.
Presumpt
(1) (i) ccount defis on the trazed and untity’s fair v
(ii)depreacthe
(2) Thsection by
at one or m
) With banking ete, purcha
under a matent with thas amend
) Purchase
(A) Is liceengage in
wap dealernnection wregistered
)(B) Is engased swap strument issiness.; or
) Rebuttabnancial ins
anking entiinstrumen
within sixtyall relevantancial insts section.
urchase or is recorde
tion of com
Each tradined in parading desknrealized gvalue for su
) If the sumetermined ieceding 90
ctivities of te prohibitio
he [Agencyy providing
more of the
respect toentity that iase or sell arket risk frhe market ded from ti
e or sell on
ensed or ren the businr, to the exwith the acd as such;
gaged in thdealer ou
s purchaser
ble presumstrument bity under p
nt for fewery days of tht facts andrument pri
r sell one od at fair va
mpliance.
ing desk tragraphs (k’s portfoligains and uch financ
m of the abin accorda0-calendarthe tradingon in parag
y] may rebg written ne banking e
Appendix
o a bankings, located one or moramework risk frameme to time
ne or more
egistered, ness of a dxtent the inctivities thaor
he businestside of thed or sold
mption for cby a bankinparagraph r than sixtyhe purcha
d circumstaincipally fo
or more finalue on a r
hat does n(b)(1) or (bo of financlosses sin
cial instrum
bsolute valance with pr-day periog desk shagraph (a) o
ut the presotice to thentity’s ac
x -7-
g entity thain or orga
ore financiaestablishe
ework puble.
e financial
or is requdealer, swanstrument iat require t
ss of a deae United Sin connec
certain purng entity s(b)(1)(i) ofy days or sse (or saleances, thaor any of th
nancial instrecurring b
not purchab)(2) of thiscial instrumce the pre
ments.
lues of theparagraph od does noall be presuof this sec
sumption oe bankingtivities vio
at is not, aanized undal instrumeed by the hlished by t
instrumen
ired to be ap dealer, is purchasthe bankin
aler, swap States, to ttion with th
rchases anhall be pref this sectisubstantiae), unless t the bankhe purpose
truments, wbasis unde
ase or sell s section mments eachevious bus
e daily net (c)(1)(i) of
ot exceed umed to betion.
of complia entity thalates the p
and is not cder the lawents that ahome-couhe Basel C
nts for any
licensed oor security
sed or soldng entity to
dealer, orthe extent he activitie
nd sales. Tesumed toon if the b
ally transfethe bankin
king entity es describ
with respeer applicab
financial inmay calculh businessiness day,
gain and lf this secti$25 millione in compl
ance in part the [Agen
prohibitions
Appendix
controlled ws of the are subjectntry Committee
y purpose,
or registerey-based d in o be license
r security-the
es of such
The o be for theanking rs the risk ng entity cadid not ed in
ect to a ble
nstrumentslate the nes day, , based on
oss figureion for the n, the liance with
ragraph ncy] has s under
x A
t
e
if
ed,
ed
e
of an
s et
n
s
h
SC1:46
exceeacco
a con
curre
delive
bankwhichstate
banksecuunderight partie
term excha
71524.5
eds the $2rdance wit
(d)
ntract of sa
ency);
ery; or
(e)
ing entity th the bankd asset, a
ing entity trity tempo
er which thto terminaes;
is definedange swap
(3) If a25 million tth any poli
(i)
(ii)ins
(iiiwil
Financial
(1) Fin
(i)
(ii)
(iiiale of a co
(2) A f
(i)
(ii)
(iii
Proprietar
(1) that arises
king entity t stated pr
(2) that arisesrarily to ore lender re
ate the tran
(3) An in sectionp (as that
a trading dthreshold iicies and p
Promptly
) Demonsstruments
) Demonsll maintain
instrumen
nancial ins
A sec
) A der
) A conommodity f
financial in
A loa
) A com
(A)
(B)
(C)
(D)
) Forei
ry trading.
Any purchs under a rhas simult
rices, and
Any purchs under a tr from anotetains the nsaction a
ny purchasn 1a(24) ofterm is de
desk operain that parprocedures
notify the
trate that tcomply wi
strate, with complian
nt.
strument m
curity, incl
rivative, in
ntract of safor future d
nstrument
an;
mmodity th
An excl
(B) A de
(C) A co
An optio
ign exchan
Proprieta
hase or sarepurchasetaneously on stated
hase or satransactionther party economicnd to reca
se or sale of the Commfined in se
Appendix
ating pursuragraph at s adopted
[Agency];
the tradingith subpart
h respect toce with su
means:
uding an o
cluding an
ale of a codelivery.
does not i
hat is not:
luded com
erivative;
ontract of
on on a co
nge or cur
ary trading
ale of one oe or reversagreed, indates or o
ale of one on in which pursuant t
c interests all the loan
of a securmodity Excection 1a(2
x -8-
uant to parany point,by the [Ag
g desk’s put B; and
o the tradibpart B on
option on a
n option on
ommodity f
include:
mmodity (ot
sale of a c
ontract of s
rrency.
g does not
or more finse repurchn writing, toon demand
or more finthe bankinto a writtenof an owned security
ity, foreignchange Ac25) of the C
ragraph (c, the bankigency]:
urchases a
ng desk, hn an ongoi
a security;
n a derivat
for future d
ther than f
commodity
sale of a c
include:
nancial inshase agreeo both purd with the s
nancial insng entity len securitieer of suchy on terms
n exchangect (7 U.S.CCommodit
)(1)(ii) of ting entity s
and sales
how the baing basis.
tive; or
delivery, o
foreign exc
y for future
ommodity
struments bement pursrchase andsame coun
struments bends or boes lending security,
s agreed b
e forward C. 1a(24), fty Exchang
Appendix
his sectionshall, in
of financia
anking ent
r option on
change or
e delivery;
for future
by a suant to d sell a nterparty;
by a orrows a agreemenand has th
by the
(as that foreign ge Act (7
x A
n
al
ity
n
or
nt he
SC1:46
U.S.Cliquidbank
secutypesmanainstru
instruthe liqactuaa pos
sold finstruexpe
liquidpurpoincludestim
analyinstruliquidparag
and e
entityfinan
clearfinan
entity
the bconn
in coproce
entity
71524.5
C. 1a(25))dity managing entity t
ritiesfinancs, and risksagement, auments ma
uments coquidity of tal or expecsition take
for liquidityuments thect to give
dity managoses, to anding devia
mated and
ysis, and inuments thadity managgraph (de)
expectatio
y that is a dcial instrum
ring agenccial marke
y, so long a
banking enection with
nnection weeding;
y that is ac
, or physicgement in athat, with r
(i) cial instrums of these and the liqay or must
(ii)ntemplatethe bankincted short-n for such
(iiiy manageme market, crise to app
(ivgement pun amount t
ations fromdocument
(v)ndependenat are not pgement an)(3) of this
(vins regardi
(4) Anderivativesments;
(5) Any, a memb
et utility;
(6) Anas:
(i) tity or its ch delivery,
(ii)with a judic
(7) Ancting solely
cally-settleaccordancrespect to
Specments to bsecurities
quidity circt be used;
) Requd and auth
ng entity, a-term priceshort-term
) Requment purpcredit, andpreciable p
v) Limitrposes, tothat is con
m normal oted pursua
) Inclunt testing tpermitted d in accordsection; a
) Is coing liquidity
ny purchass clearing
ny excludeber of a de
ny purchas
The pcustomers clearing,
) The pcial, admin
ny purchasy as agent
d cross-cuce with a dsuch finan
cifically conbe used forsfinancial inumstances
uires that ahorized byand not fore movemem purpose
uires that aposes be hd other riskprofits or lo
s any secugether wit
nsistent witperations
ant to meth
des writtento ensure under §§ _dance with
and
nsistent wy manage
se or sale oorganizati
ed clearingerivatives c
se or sale o
purchase (, includingor settlem
purchase (nistrative, s
se or sale ot, broker, o
Appendix
urrency swdocumentencial instru
ntemplatesr liquidity mnstruments in which
any purchay the plan br the purponts, realizis;
any securitighly liquid
ks of whichosses as a
uritiesfinanh any otheth the banof the banhods spec
n policies that the pu__.6(a) or h the liquid
with [Agencment;
of one or mon or a cle
activities clearing or
of one or m
(or sale) sg to prevenent activity
(or sale) sself-regula
of one or mor custodia
x -9-
wap, by a bed liquidity uments:
s and authmanagemes that are the partic
ase or salebe principaose of shoring short-t
tiesfinancid and limith the banka result of s
ncial instruer instrumeking entity
nking entityified in the
and proceurchase an(b) of this
dity manag
cy]’s super
more finanearing age
by a bankrganization
more finan
atisfies annt or close y; or
atisfies anatory organ
more finanan;
banking enmanagem
horizes theent purposconsistent
cular secur
e of securially for thert-term resterm arbitra
al instrumted to secuking entity short-term
uments puents purchy’s near-tey or any afe plan;
edures, intend sale of subpart a
gement pla
rvisory req
ncial instruency in con
king entity tn, or a mem
ncial instru
n existing dout a failu
n obligationnization, or
ncial instru
ntity for thement plan o
e particularses, the amt with liquiritiesfinanc
tiesfinancie purpose osale, benefage profits
ents purchuritiesfinandoes not r
m price mov
rchased ohased or sorm fundingffiliate ther
ernal contrsecurities
are for the an describ
quirements
ments by nnection w
that is a mmber of a
ments by
delivery obure to deliv
n of the bar arbitratio
ments by
Appendix
e purpose of the
r mount, dity
cial
ial of managifitting froms, or hedgi
hased or ncial reasonablyvements;
r sold for old for sucg needs, reof, as
rols, financial purpose o
bed in
s, guidance
a banking with clearin
member of designate
a banking
bligation ofver, in
anking ention
a banking
x A
of
ng m ing
y
ch
of
e,
ng
a d
f
ity
SC1:46
entitybankStatebankentity
entitythat tmay Board
madeis a sfinandispo
subp
the id
Exch
Exch
sale for fuU.S.C
anothpaymenterwhen
the C
regulExch
regul
71524.5
y through aing entity t
es or a foreing entity ay; or
y in the ordthe bankinthe bankind.
e in error bsubsequencial instrum
osition.
(e)(f) art:
dentity of t
ange Act
ange Act
(as that teuture deliveC. 1a(27))
her party pments in anred into, wn the swap
Commodity
ation, is eange Act
ation, is p
(8) Ana deferredthat is estaeign soveras trustee
(9) Andinary coug entity div
ng entity re
(10) Anby a bankinnt transactment is pro
Definitio
(1) Anhe other p
(2) Cle(15 U.S.C
(3) Co(7 U.S.C.
(4) Coerm is definery (as tha).
(5) Crprincipal annother curr
with a reverp is entered
(5)(6) De
(i) y Exchang
(ii)xempt from(7 U.S.C.
(iiiermitted to
(6)(7) Excontract m
ny purchas compensablished areign, if the
for the be
ny purchasrse of collevests the fetain such
ny purchasng entity inion to corromptly tra
on of other
nonymous party(ies) to
earing age. 78c(a)(23
ommodity h1a(9)), exc
ontract of sned in sectat term is d
ross-currennd interestrency, andrsal of the d into.
erivatives c
A dere Act (7 U
) A derm the regis7a-1); or
) A foro clear for
xchange, umarket, sw
se or sale oation, stoc
and adminie purchaseenefit of pe
se or sale oecting a definancial ininstrumen
se (or salen the coursrect such ansferred to
r terms rel
means thao the purc
ency has th3)).
has the sacept that a
sale of a ction 1a(13defined in s
ncy swap mt rate paym
d the exchaexchange
clearing or
rivatives cU.S.C. 7a-1
rivatives cstration re
eign deriva foreign
unless theap execut
Appendix
of one or mck-bonus, stered in ae or sale isersons who
of one or mebt previonstrument nt for longe
) of one orse of condan error, ao a separa
lated to pr
at each pachase or sa
he same m
ame meana commod
ommodity 3) of the Cosection 1a
means a sments in oange of pr
e of princip
rganization
clearing org1);
clearing orgquirement
atives cleaboard of tr
e context oion facility
x -10-
more finanprofit-sharaccordancs made diro are or we
more finanusly contraas soon aer than suc
r more finaducting a pnd the erro
ately-mana
roprietary t
arty to a puale.
meaning a
ing as in sity does no
y for future ommodity a(27) of the
swap in whne currencrincipal occpal at a late
n means:
ganization
ganizationts under se
aring organrade that is
otherwise ry, or foreign
ncial instruring, or pece with the rectly or inere emplo
ncial instruacted in go
as practicach period p
ancial instrpermitted ooneously paged trade
trading. Fo
urchase or
s in sectio
section 1a(ot include
delivery mExchangee Commod
hich one pcy for princcurs on theer date tha
registered
that, pursection 5b o
nization ths registere
requires, mn board of
ments by nsion plan law of thedirectly byyees of th
ments by ood faith, pble, and inpermitted
ruments thor excludepurchased
e error acc
or purpose
r sale is un
on 3(a)(23)
(9) of the Cany secur
means a coe Act (7 U.dity Excha
arty exchacipal and ie date the at is agree
d under se
suant to CFof the Com
hat, pursuaed with the
means anyf trade reg
Appendix
a banking n of the e United y the e banking
a banking provided n no eventby the
hat was d activity o
d (or sold) ount for
es of this
naware of
) of the
Commoditrity;
ontract of S.C. 1a(13nge Act (7
anges withnterest ratswap is d upon
ection 5b o
FTC mmodity
ant to CFTe CFTC.
y designateistered wit
x A
t
or
ty
3)) 7
h te
of
TC
ed th
SC1:46
clearor sasuch clearproceagendesigclear
manapurchclearproceagendesigclear
manamemutility
manaorgan
a cleamitigamarkrefere
savincapita
71524.5
ring organiale necessa
purchase ring organiedures of tcy, the rul
gnated finaring agenc
agement ohase or saring organiedures of tcy, the rul
gnated finaring agenc
agement ober of a de
y;
agement onization, o
aring agenate the ris
ket utility thence the m
ngs and loaal rule tha
the CFTCas definedsecurity-bExchange
(7)(8) Ex
(i) zation, a cary to corr or sale is zation, thethe derivates or proc
ancial mary, the rule
(ii)of a defaultale is condzation, thethe derivates or proc
ancial mary, the rule
(iiiof a defaulterivatives
(ivof the defaor a design
(v)ncy, a derik to the cle
hat would rmember or
(8)(9) Des803(4) of t
(9)(10) Iss1933 (15 U
(10)(11) Mfinancial inthose term
(i) an holdingt is applica
, or, for pud under seased swap
e Act (15 U
xcluded cl
With clearing agrect tradingconducted
e Commodtives clearcedures of ket utility ts or proce
) Any pt or threateucted in ace Commodtives clearcedures of ket utility ts or proce
) Any pt or threateclearing o
v) Any pult or threa
nated finan
) Any pvatives cleearing ageresult fromr an affiliat
signated finthe Dodd-
suer has thU.S.C. 77b
Market risknstrument ms are res
In theg companyable to the
urposes of ection 3(a)(p executio
U.S.C. 78c
learing act
respect togency, or ag errors md in accorddity Excharing organithe clearin
that is neitedures of t
purchase oened immiccordancedity Excharing organithe clearin
that is neitedures of t
purchase oened immi
organizatio
purchase oatened defncial marke
purchase oearing orgaency, deriv
m the clearte of the m
nancial maFrank Act
he same mb(a)(4)).
k capital ruthat is botpectively d
e case of ay, or insuree banking e
Appendix
f securities(1) of the E
on facility, a(a)(77)).
tivities mea
o customera designatade by or dance withnge Act, Cization, or,ng agencyher a derivhe designa
or sale in cinent defaue with, for tnge Act, Cization, or,ng agencyher a derivhe designa
or sale in cinent defau
on, or a me
or sale in cfault of a cet utility; an
or sale thaanization, vatives cleing by a m
member.
arket utility(12 U.S.C
meaning as
ule coveredth a coverdefined:
a banking ed depositoentity; and
x -11-
s or securitExchange as defined
ans:
r transactioted financion behalf
h, for transCFTC regu, for transay, or, for travatives cleated financ
connectionult of a custransaction
CFTC regu, for transay, or, for travatives cleated financ
connectionult of a meember of a
connectionclearing agnd
at is requiror a desig
earing orgamember of
y has the sC. 5462(4))
s in sectio
d position aed position
entity thatory institut
d
ty-based sAct (15 U
d under se
ons cleareal market of a custo
sactions clulations, anactions cleansactions
earing orgacial marke
n with andstomer prons clearedulations, anactions cleansactions
earing orgacial marke
n with andember of aa designate
n with andgency, a de
red by the gnated finaanization, osecurity-b
same mea).
n 2(a)(4) o
and tradinn and a tra
t is a bank tion, under
swaps, an .S.C. 78c(ction 3(a)(
ed on a deutility, any
omer provieared on and the ruleeared on a s cleared oanization net utility;
related toovided thad on a derivnd the ruleeared on a s cleared oanization net utility;
related toa clearing aed financia
related toerivatives
rules or prancial maror designabased swa
ning as in
of the Secu
ng position ading posit
holding cor the mark
Appendix
exchange(a)(1)), or (77) of the
rivatives y purchaseded that a derivatives or
clearing on a nor a
o the at such vatives
es or clearing
on a nor a
o the agency, a al market
o the clearing
rocedures ket utility t
ated financps that
section
urities Act
means a tion, as
ompany, ket risk
x A
e,
e
ves
of to cial
of
SC1:46
comprisk cbank
or saacco
of onsectioexpla
notice[Agenrespoafter time so rethe cgood
as mdeter
will dthe bone othe d
71524.5
pany or sacapital rule holding co
(g)
ale of one ount as def
e or more on, the [Aganation of
e. The resncy] consionse mustthe date operiod wh
equires, proonsent of cause.
ay be spermination.
ecide, basbanking enor more finecision in
(ii)avings and e is applicaompany o
(11)(12) Mcontainedpart 324, a
(12)(13) Missued by,any politicany politicor more S
(13)(14) Tbanking eaccount o
Reservati
(1) Thor more finfined at 12
(2) No
(i) financial igency] willthe determ
(ii)
sponse shoder in dect be in writon which then, in the ovided thathe bankin
cified by th
(iiised on a retity, wheth
nancial inswriting. Th
) In theloan hold
able, under savings a
Market risk in subparas applica
Municipal s, or an oblcal subdiviscal subdivisStates or po
Trading desntity that pf the bank
ion of Auth
he [Agencynancial ins U.S.C. 18
otice and R
Noticinstrumentl notify themination.
) Resp
(A) ould includciding wheting and dehe bankingopinion of
at the bankng entity. I
(B) he [Agenc
) After eview of thher to maintruments ihe notice w
e case of aing compar the markand loan h
k capital rurt F of 12 Cable.
security meigation gusion theresion thereolitical sub
sk means purchases king entity
hority:
y] may detstruments b851(h)(6).
Response
ce. When tts is for the
e banking e
ponse.
The bande any mather the puelivered to g entity recf the [Agenking entity n its discre
Failure y] shall co
the close he bankingntain the [As for the trwill include
Appendix
a banking any, other ket risk capholding com
ule means CFR part 3
eans a secaranteed aof, or any of, or any
bdivisions t
the smalleor sells fin
or an affili
ermine, onby a banki
Procedure
the [Agence trading aentity in wr
nking entittters that turchase orthe desig
ceived thency], the acis informeetion, the
to respondonstitute a
of bankingg entity’s reAgency]’s rading acce an expla
x -12-
entity thatthan a banpital rule thmpany.
the marke3, 12 CFR
curity that as to princagency ormunicipal thereof.
est discretnancial insate thereo
n a case-bing entity e
es.
cy] determaccount unriting of the
ty may resthe bankinr sale is fonated [Age notice. Thctivities or
ed promptly[Agency] m
d within 30waiver of
g entity’s response adetermina
count. Thenation of t
t is affiliatenking entithat is appl
et risk capiparts 208
is a directcipal or inter instrumencorporate
e unit of ostruments of.
by-case baeither is or
ines that tnder parage determin
spond to ang entity wor the tradinency] offiche [Agencyr condition y of the nemay exten
0 days or sany object
response pand other iation that th banking ethe decisio
ed with a bty to whichicable to th
tal rule thaand 225,
t obligationerest by, antality of a
e instrumen
rganizatiofor the tra
asis, that ar is not for
the purchagraph (g)(1nation and
ny or all iteould have ng accoun
cial within 3y] may shoof the ban
ew time ped the time
such othertions to the
period, thenformationhe purchaentity will bon.
Appendix
bank holdinh a market he affiliate
at is or 12 CFR
n of or a State or a State or ntality of o
n of a ding
purchasethe trading
ase or sale1) of this provide a
ems in thethe
nt. The 30 days orten the nking entityeriod, or wie period for
r time perioe [Agency
e [Agency] n concernise or sale
be notified
x A
ng
ed
R
one
e g
e
an
e
y ith r
od y]’s
ing of of
SC1:46
§ __.
doesparag
perm
secu
undeof clieof theotherliquid
liabiliinternensuincludindep
may
(a)(8activicoun
unde
each
that rdemolimit(s
activipropr
activi
71524.5
4 Permit
(a)
not apply graph (a).
mitted unde
rities and t
erwriting poents, custoe market forwise redudity, matur
ties, the bnal compliare the banding reasopendent te
purchase,
)(i) of this ities, includterparties,
erwriting po
trading de
require revonstrable as), and ind
ities descrrietary trad
ity describ
tted unde
Underwriti
(1) Peto a bank
(2) Reer paragrap
(i) the trading
(ii)osition areomers, or or the relece the undity, and de
(iiibanking enance prog
nking entityonably desesting iden
sell, or m
section;bading the re, on the:
osition; an
esk’s comp
view and aanalysis ofdependent
(ivribed in thisding; and
(v)bed in this
rwriting a
ting activiti
ermitted unking entity's
equiremenph (a)(1) o
The bg desk’s un
) (A) Te designedcounterpavant type derwriting epth of the
) In thetity has esram requiry’s compliasigned writtifying and
(A) anage as
(B) ased on theasonably
(1)
(2) d
(3)
(C) pliance wit
(D) approval off the basist review of
v) The cs paragrap
) The bparagraph
and marke
ies.
nderwritings underwri
nts. The unof this sect
banking ennderwriting
The amoun not to exc
arties, andtof securityposition w market fo
e case of astablished red by subance with tten policied addressi
The propart of its
Limits foe nature aexpected
Amount
Level o
Period o
Internalth its limits
Authorizf any trades for any tef such dem
compensaph (a) are
banking enh (a) in acc
Appendix
et making
g activitiesiting activit
nderwritingtion only if
ntity is actg position
nt and typeceed the retaking intoy, and (B)
within a reaor the relev
a banking and imple
bpart D of the require
es and prong:
oducts, insunderwriti
or each traand amoun
near term
t, types, a
f exposure
of time a s
l controls as; and
zation proe that wouemporary omonstrable
ation arrandesigned
ntity is licecordance w
x -13-
-related a
s. The prohties condu
g activities :
ing as an uis related
e of the seeasonably account treasonabl
asonable pvant type o
entity withements, mathis part thements of
ocedures, i
struments oing activitie
ading desknt of the tra
m demands
nd risk of i
es to relev
security ma
and ongoin
cedures, ild exceed or perman analysis a
gements onot to rew
ensed or rewith applic
activities.
hibition conucted in ac
of a banki
underwriteto such di
curities in y expectedthe liquiditye efforts a
period, takof security;
h significanaintains, ahat is reasparagraphnternal co
or exposues;
k, in accorading desks of clients
its underw
vant risk fa
ay be held
ng monitor
ncluding ea trading ent increaand appro
of personsward or ince
egistered tcable law.
ntained in ccordance
ing entity a
er for a disstribution;
the trading near termy, maturity
are made ting into ac;
nt trading aand enforceonably deh (a) of thi
ontrols, ana
res each t
rdance withk’s underws, custome
writing posi
ctors arisi
d;
ring and a
escalation desk’s lim
ase to a traval;
s performinentivize pr
to engage
Appendix
§__.3(a) with this
are
stribution o
g desk’s m demandsy, and depto sell or
ccount the
assets andes an signed to s section, alysis, and
trading des
h paragrapwriting ers, or
tion;
ng from its
nalysis of
procedureit(s),
ading desk
ng the rohibited
in the
x A
of
s th
d
d
sk
ph
s
es
k’s
SC1:46
a dist
undeprese
state
unde
to:
holde
issue
issue
distri
(a), sdistri
(a), ubankparticunde
paragrefer partic
requifinanenfor
sectioexceebase
71524.5
tribution o
er the Secuence of sp
ment unde
erwriter me
er for distri
er or selling
er or selling
bution of s
selling secbution is m
underwritining entity ocular distrierwriter.
graph (a), to market
cular distri
rements ocial instrumrces the lim
on shall beed the read on the n
(3) Def securities
(i) urities Act pecial sellin
(ii)er the Sec
(4) Deeans:
(i)
ibution;
g security
g security
(ii)such secur
(5) Deurity holde
made.
(6) Deng positionor its affiliabution of s
(7) Dethe terms participanbution for
(8) Re
(i)
of paragrapment if themits descri
e availableasonably enature and
efinition of s means:
An ofof 1933, thng efforts a
) An ofcurities Act
efinition of
A per
(A)
(B) holder; or
(C) holder; or
) A perrities for or
efinition of er means a
efinition of n means thate, and msecurities f
efinition of client, cus
nts that mawhich the
ebuttable p
Risk
(A) ph (a)(2)(iie banking eibed in par
(B) e with respxpected namount o
distributio
ffering of shat is distinand selling
ffering of st of 1933.
underwrite
rson who h
Purchas
Engage
Manage
rson who hr on behalf
selling seany person
underwritihe long or smanaged bfor which s
client, cusstomer, anay transacbanking e
presumptio
limits.
A banki)(A) of thisentity has ragraph (a
The prepect to limiear term d
of the tradin
(1)
Appendix
on. For pur
securities, nguished fg methods
securities m
er. For pur
has agree
se securiti
e in a distr
e a distribu
has agreef of the iss
curity holdn, other tha
ing positioshort posity a particusuch bank
stomer, annd counterpt with the b
entity is ac
on of comp
ing entity ss section westablishe
a)(8)(i)(B) a
esumption ts for each
demands ong desk’s
Amount, t
x -14-
rposes of t
whether ofrom ordin; or
made purs
rposes of t
d with an i
ies from th
ibution of s
ution of se
d to particsuer or sel
der. For puan an issu
on. For purtions in onular tradingking entity o
nd counterprparty, on abanking en
cting as un
pliance.
shall be prwith respeced and impand does n
describedh trading dof clients, cunderwriti
ypes, and
this paragr
or not subjary trading
suant to an
this parag
issuer or s
he issuer o
securities
ecurities fo
cipate or isling secur
urposes of uer, on who
rposes of tne or moreg desk, in or affiliate
rparty. For a collectiventity in conderwriter.
resumed toct to the puplements, not exceed
d in paragrdesk that acustomersng activitie
risk of its
raph (a),
ect to regig transacti
n effective
raph (a),
selling sec
or selling s
for or on b
r or on be
participatity holder.
this paragose behalf
this paragre securitiesconnectionis acting a
purposes e or individnnection w
o meet theurchase omaintainsd such lim
raph (8)(i)(are designes, or countees, on the:
underwriti
Appendix
stration ions by the
registratio
curity holde
security
behalf of th
half of the
ting in a
graph f a
raph s held by an with a as an
of this dual basis,with a
e r sale of a, and its.
(A) of this ed not to erparties, :
ing positio
x A
e
on
er
he
a
,
n;
SC1:46
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71524.5
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Appendix
Level of e
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a bankingand imple
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x -15-
exposures
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oversight. upervisory ts will inclucted near
to any limiall promptlyorary or peed by the [
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resumptionetermines
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and managre types of
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or the relev
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t to ncy] (A) to o any
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includindep
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71524.5
ding reasopendent te
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compensaph (b) are
banking eaccordance
client, cuserms clientrticipants tng such se
ct to such s
Appendix
es and prong:
ancial instagraph (b)(
tions the tromptly the 2)(iii)(C) ofor risk mannage the riategies, angate these
or each tra-related ac(b)(2)(ii6)(
The amou
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The level
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ments of th;
a bankinged pursuaaction to bmit is exce
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entity is licee with app
stomer, ant, customehat make ervices, reservices, p
x -16-
ocedures, i
ruments e(2)(i) of thi
rading desrisks of itsf this sectinagement isks of its nd personn
risks are
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unt, types,
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of exposu
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and ongoin
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g entity withant to paragbring the traeeded;
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nd counterper, and couuse of the
esponding provided th
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each tradinis section;
sk will takes financial ion; the propurposesmarket manel responand contin
k, based oat address
section, on
and risks
and risks anagemen
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a financial
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of personsward or ince
registered w.
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ontrols, ana
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on the natus the facton:;
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of the pront purpose
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instrumen
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escalation desk’s limease to a td indepen
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to engage
purposes , on a colleentity's maons, or ent
Appendix
alysis and
ands ready
nstrably consistenstruments,niques andted activitieensuring theffective;
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ket-maker
ducts, es;
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SC1:46
entityassetsubpconta
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71524.5
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or other orty of the trs measurenition of “s
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x -17-
organizatiorading des
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Appendix
banking has tradin
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SC1:46
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71524.5
graph (b)(6extent that s) , in eac
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C) Theto ensure
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risk-mitiga
) Is condequired un
) At the inhedging acrably reducg market rie risk, com
Appendix
h respect tentity shaany tempo
er as direct
presumptiocy] if the [Ais engaginclients, cu to the ban
activities
ging activitactivities contractsthe bankin
dging activermitted u
ntity has em requiredentity’s com
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x -18-
to any limiall promptlyorary or peted by the
on. The prAgency] deng in activ
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ties. The pof a banki
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vities of a bnder parag
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t identifiedy report to ermanent [Agency].
resumptionetermines
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prohibition ng entity inholdings o connectio
banking engraph (a) o
d and impleart D of thiswith the re
en policiesused for heings a parton and agi
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otherwise
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nitoring, mnd
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dit risk, curor similar ri
Appendix
t to ncy] (A) to o any
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he [Agency
in §__.3(aion with anking entity d related t
as ction only if
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SC1:46
in coentityposit
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71524.5
nnection wy, based uions, contr
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(C)(3) sure that thsection and
The comre designe
risk-mitigaand liabilitedging ac
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bject, as activity satisroprietary
uirement.
ntity that haragraphs of this sectince on this
Appendix
ositions, cces of the e risks and
oes not givnot itself he
subject to
consistent (i) of this s
designed towise signiftigating hects, and otherlying an
and liquidit
Requhe hedgingd is not pro
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ating hedgities are pe
ctivity:
n of the hectivity, is deentifiable r
ange risk, ion with anntity, basecontracts o
appropriatesfies the retrading.
has signific(c)(2) andion are mes section f
x -19-
ontracts, oidentified ud liquidity t
ve rise, at edged con
continuing
with the wection;
o reduce oficantly mitdging activher holdingd hedgingty thereof;
ires ongoing activity sohibited pr
on arrangeeward or in
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edging actiesigned torisks, incluinterest rand related ed upon theor other ho
e, to ongoiequiremen
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or other hounderlyingthereof;
the inceptntemporan
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written hedg
or otherwistigates thevities undegs of the b positionsand
ng recalibrsatisfies throprietary
ments of pncentivize
es of a bannder parag
ivity, includo reduce ouding markate risk, co
to identifiee facts andoldings an
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oldings of tg and hedg
ion of the eously in a
monitoring
ging polici
se significae specific, iertaken unbanking en, contracts
ration of thhe requiremtrading; an
persons peprohibited
nking entitgraph (a) o
ding, withor otherwisket risk, commodity ped positiond circumstd the risks
bration by tin paragra
and liabilitiunless theny purchasedging purp
Appendix
the bankinging
hedge, to accordanc
and
es and
antly identifiablender this ntity, baseds and othe
he hedgingments set nd
erforming d proprieta
ty that doeof this
out e
ounterpartyprice risk, ns, tances of ts and
the bankinaph (b)(2)
es must e se or sale poses that
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the
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of t
SC1:46
respohedg
respopurchexpopolici§__.4tradin
tradin
this ssale,
contrreduc
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respo
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71524.5
onsible foring activity
onsible forhases or ssure, techies and pro4(b)(2)(iii)(ng desk m
ng desks.
section, a bdocumen
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onsible for
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connectiontity must,
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establishedtions, contuce;
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specific, idbanking en
specific ris
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required un
ments of pial instrum
financial inal instrumey for which
e time the chase or sats for the trndertaken
Size, ty
Financi
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Appendix
d by the sptracts, or o
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dentifiable ntity that th
sk-mitigatin
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create andragraph (c)y to prompnder other
aragraphsent descri
nstrument ents that ah the financ
financial iale of the frading desfor one or
ypes, and r
al instrum
and durati
x -20-
pecific tradother holdi
fic trading other holdieffected th
y identified(b)(1) of thent, expos
gregated p
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risk(s) of the purchas
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s (c)(2) andbed in par
purchasedre commocial instrum
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risks of the
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dentified inoraneously
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s unit that
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t is purchanstrument)sing or seller trading
e hedging
hased and
risk expos
establishinsks of whic
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nique, or s
across two
n paragrapy with the p
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purchase
is establis
ficient to deno less thcords to th
s section d)(1) of this
s identifiedby the tradeing purcha
ased or sol) compliesling the findesks. Th
activities c
d sold for h
ures being
Appendix
ng or ch the
r ch the nstrument, s written
trategy su
o or more
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ns, ed to
or sale is
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SC1:46
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contaobligabankforeig
contrdirecUnite
guarato in whichsove
depo
§__.3or isswhichsoveestab
of thesecu
71524.5
6 Other
(a) __.3(a) does:
anteed by,Federal Naeral Home em institutU.S.C. 200
municipal s
C for purpoorate capaII of the D
(b)
ained in §_ation of, o of which tgn soverei
rolled by a tly or indir
ed States;
anteed by,paragraphh the foreigreign; and
ository inst
3(a) does sued or guh the foreigreign, by ablished und
e Board's Rrities deale
permitted
Permitted es not app
(1) An
(2) An, an agenc
ational MorLoan Banion charte
01 et seq.)
(3) Ansecurity; o
(4) Anose of facilacity or as odd-Frank
Permitted
(1) Aff__.3(a) doer issued othe foreigngn, by a b
(i) banking e
rectly contr
(ii), the foreigh (b)(1)(i) ogn sovere
(iiiitution.
(2) Fonot apply t
uaranteed gn soverea foreign eder the law
(i) Regulationer;
d proprieta
d trading in ly to the p
n obligation
n obligationcy of the Urtgage Assk, the Fedred under ;
n obligationor
n obligationitating the conservat
k Wall Stre
d trading in
ffiliates of fes not appr guaranten sovereigbanking en
The bentity that rolled by a
) The fgn sovereigof this sectign is a me
) The p
oreign affilito the purcby, a foreiign is a me
entity that iws of the U
The fn K (12 CF
ary tradin
domestic urchase o
n of, or iss
n, participaUnited Statsociation, tderal Agric
and subje
n of any St
n of the FDdisposal o
tor or receeet Reform
foreign go
foreign banply to the peed by, a fon is a memtity, so lon
banking enis organize
a top-tier b
financial ingn under ttion is orgaember), or
purchase o
iates of a Uchase or sgn sovereember), ors owned o
United Sta
foreign entFR 211.2(j
Appendix
ng activitie
governmer sale by a
sued or gu
ation, or otes, the Gothe Federaultural Mo
ect to the p
tate or any
DIC, or anyof assets aiver under
m and Cons
overnment
nking entitpurchase ooreign sovmber), or ang as:
ntity is orged under tanking en
nstrument the laws ofanized (incr any agen
or sale as
U.S. bankisale of a fineign (includr any agenor controlletes or any
tity is a for)), or is reg
x -21-
es.
ent obligata banking e
aranteed b
ther instruovernmental Home L
ortgage Coprovisions
y political s
y entity foracquired or the Fedesumer Pro
t obligation
ties in the or sale of avereign (inany agency
ganized unthe laws oftity that is
is an obligf which thecluding anncy or polit
principal i
ing entity. nancial insding any mncy or polited by a bay State, so
reign bankgulated by
tions. The entity of a
by, the Un
ment of, ot National oan Mortg
orporation oof the Far
subdivision
rmed by oror held by tral Deposi
otection Ac
ns.
United Staa financial cluding any or politic
der or is df a foreignorganized
gation of, oe foreign by multinattical subdiv
s not mad
The prohibstrument thmultinationatical subdivnking entitlong as:
k, as definey the foreig
prohibitionfinancial i
ited States
or issued oMortgage
gage Corpoor a Farm rm Credit A
n thereof,
r on behalthe FDIC iit Insurancct.
ates. The pinstrumen
ny multinatcal subdivis
directly or i sovereign
d under the
or issued obanking enional centrvision of th
de by an in
bition conthat is an oal central bvision of thty organize
ed in sectign sovereig
Appendix
n containenstrument
s;
or Associatiooration, a Credit
Act of 197
including
f of the n its
ce Act or
prohibitionnt that is antional centsion of suc
ndirectly n and is noe laws of th
or ntity referreral bank ofhat foreign
sured
tained in bligation obank of hat foreigned or
on 211.2(jgn as a
x A
d t
on,
1
n n tral ch
ot he
ed f
n
of,
n
j)
SC1:46
guara(incluagen
finanUnite
applya sim
custo
the fi
not aprincsell) aown a
in §__that i
instru
insurjurisd
Finanand fthat ais insstabi
sale o
71524.5
anteed by,uding any cy or polit
ced by an ed States o
(c)
y to the pumilar fiducia
omer; and
nancial ins
apply to theipal in a tra financialaccount to
(d) __.3(a) does an insur
uments so
rance comdiction in w
ncial Stabiforeign juria particulasufficient tolity of the U
(e)
of financia
(ii), the foreigmultinationical subdiv
(iii affiliate thor of any S
Permitted
(1) Fidrchase or ary capaci
(i)
(ii)struments
(2) Rise purchaseransaction l instrumeno offset a c
Permitted es not apprance com
(1) Thlely for:
(i)
(ii)
(2) Thpany inves
which such
(3) Thlity Oversiisdictions,
ar law, reguo protect thUnited Sta
Permitted
(1) Thal instrume
) The fgn sovereignal centralvision of th
) The fhat is locatState.
d trading on
duciary trasale of finty, so long
The t
) The b.
skless prine or sale oin which t
nt from a ccontempor
d trading byly to the ppany or an
he insuranc
The g
) A sep
he purchasstment law
h insurance
he appropright Councas approp
ulation, or he safety aates.
d trading ac
he prohibitients by a b
financial ingn under tl bank of what foreign
financial inted in the U
n behalf of
ansactionsancial inst
g as:
transaction
banking en
ncipal tranof financial the bankincustomer, raneous sa
y a regulaturchase on affiliate o
ce compan
general ac
parate acc
se or sale iws, regulate company
riate Federcil and the priate, havwritten guand sound
ctivities of
ion containbanking en
Appendix
nstrument the laws ofwhich the f sovereign
nstrument United Sta
f customer
. The prohtruments b
n is condu
ntity does
sactions. Tinstrumeng entity, afpurchasesale to (or p
ted insuranr sale of fiof an insur
ny or its af
ccount of t
count esta
is conducttions, and y is domic
ral bankingrelevant i
ve not jointuidance dedness of th
foreign ba
ned in §__ntity if:
x -22-
is an obligf which theforeign sovn; and
is owned bates or org
rs.
hibition conby a bankin
cted for th
not have o
The prohibnts by a bafter receivs (or sells)purchase f
nce companancial insrance com
ffiliate purc
he insuran
blished by
ted in comwritten guiled; and
g agenciesnsurance tly determiescribed inhe covered
anking enti
_.3(a) does
gation of, oe foreign evereign is
by the foreanized un
ntained in ng entity a
he account
or retain b
bition contaanking entving an ord) the financrom) the c
any. The pstruments pany if:
chases or
nce compa
y the insura
pliance wiidance of
s, after concommissioned, after paragraph
d banking e
ities.
s not apply
or issued oentity is orga member
eign entity der the law
§__.3(a) dacting as tr
t of, or on
eneficial o
ained in §_ity acting a
der to purccial instrumcustomer.
prohibition by a bank
sells the f
any; or
ance comp
ith, and suthe State
nsultation oners of thnotice andh (d)(2) of entity, or th
y to the pu
Appendix
or ganized r), or any
and is notws of the
does not rustee or in
behalf of,
ownership
__.3(a) doas risklesshase (or
ment for its
containedking entity
inancial
pany;
ubject to, thor
with the he States d commenf this sectiohe financia
urchase or
x A
t
n
a
of
oes s
s
d
he
nt, on al
SC1:46
contrState
parag
of thi
pursu(e)(1
requi
organof seapplic
bankof anfollow
the U
bankthe b
bankof the
parag
(incluexecof the
decisthe la
mitigadirecor org
proviorgan
71524.5
rolled by a e;
graph (9) o
s section.
uant to par)(ii) of this
rements o
nization, thction 211.cable; or
ing organiy State an
wing requir
United Stat
ing entity obanking en
ing entity oe banking
graph (e) i
uding anyrute such pe United S
sion to puraws of the
ating hedgtly or on aganized un
ded, direcnized unde
(i) banking e
(ii)or (13) of s
(iii
(2) A pragraph (9section on
(i) of paragrap
(ii)he banking23(a), (c)
zation, thend the banrements:
tes exceed
outside of tity in the
outside of entity in th
(3) A pf:
(i) relevant pepurchase oStates or of
(ii)rchase or s
United St
(iiiging relatea consolidander the la
(ivctly or indirer the laws
The bentity that
) The psection 4(c
) The p
purchase o9) or (13) only if:
The pph (e) of th
) (A) Wg entity meor (e) of th
(B) e banking king entity
d total asse
the UnitedUnited Sta
the Unitedhe United S
purchase o
The bersonnel oor sale) is f any State
) The bsell as prinates or of
) The pd to the in
ated basis aws of the
v) No frectly, by as of the Un
banking enis organize
purchase oc) of the B
purchase o
or sale of fof section 4
purchase ohis section
With respeceets the quhe Board's
With resentity is no
y, on a fully
(1) ets of the
(2) d States eates; or
(3) d States eStates.
or sale by
banking enf the banknot locatede;
banking enncipal is noany State
purchase ostrumentsby any braUnited Sta
financing foany branchnited State
Appendix
ntity is noted under t
or sale by HC Act; an
or sale me
financial in4(c) of the
or sale is cn; and
ct to a banualifying fos Regulatio
spect to a ot organizey-consolid
Total assebanking e
Total revexceed tota
Total net ixceeds tot
a banking
ntity engagking entity d in the Un
ntity (incluot located ; and
or sale, incs purchaseanch or afates or of
or the banh or affiliatees or of an
x -23-
t organizedthe laws of
the bankinnd
eets the re
nstrumentsBHC Act
conducted
nking entityoreign banon K (12 C
banking eed under tated basis
ets of the bntity held i
enues derival revenue
income detal net inco
g entity is p
ging as prior its affilianited State
ding relevin the Unit
cluding aned or sold, ffiliate that any State;
king entitye that is loy State; an
d or directlf the Unite
ng entity is
equirement
s by a banfor purpos
d in accord
y that is a king organ
CFR 211.23
entity that ithe laws ofs, meets a
banking enin the Unit
ved from ts derived
erived fromome derive
permitted f
incipal in tate that ares or organ
ant personted States
ny transactis not accis located
;.
y’s purchasocated in thnd
ly or indireed States o
s made pu
ts of parag
nking entityses of para
dance with
foreign banization re3(a), (c) or
is not a forf the Unitet least two
ntity held oted States
the businefrom the b
m the busined from th
for purpos
he purcharrange, negnized unde
nnel) that m or organiz
tion arisingcounted for in the Un
ses or salehe United
Appendix
ectly or of any
ursuant to
graph (e)(3
y is made agraph
the
anking equirementr (e)), as
reign ed States oo of the
outside of ;
ss of the business o
ness of thee busines
es of this
ase or salegotiate or er the laws
makes thezed under
g from riskr as principited States
es is States or
x A
3)
ts
or
f
e s
e
s
e
k-pal s
SC1:46
entity
entityarran
actingclear
intermexchaagen
contrthe U
of a fbankin thesubs
mean
Exch
Com
sectiosuch
sectioregul
§ __.
unde
entity
to a h
finan
71524.5
y, other tha
y if no persngement, n
g as princring agenc
mediary acange or sicy or deriv
rolled by, oUnited Stat
foreign ban that opera
e United Sidiary.
ns an unaf
ange Act o
modity Ex
on 15F of ; or
on 4f of thation as s
7 Limita
(a) er §§__.4 t
y and its cl
high-risk a
cial stabili
(v)an:
sonnel of snegotiation
ipal, providy or deriva
cting as agmilar tradivatives cle
(4) Foor is actingtes or orga
(5) Fonking entitates or contates sole
(6) Foffiliated en
(i) or exempt
(ii)change Ac
(iiithe Excha
(ive Commouch.
ations on p
No transahrough __
(1) Invlients, cus
(2) Reasset or a h
(3) Poty of the U
) The p
(A) such U.S. n, or execu
(B) ded the puatives clea
(C) gent, proving facility
earing orga
or purposeg on behalfanized und
or purposety is considntrols that ly by virtue
or purposetity, acting
A brot from regis
) A swct or exem
) A secange Act o
v) A futudity Excha
permitted
ction, clas_.6 if the tra
volve or retomers, or
esult, direchigh-risk tr
ose a threaUnited Stat
purchase o
A purchentity that ution of su
A purchurchase oraring organ
A purchided the puand is pro
anization a
s of this paf of, or at tder the law
s of this padered to bbranch, a
e of opera
s of this pag as an inte
oker or deastration or
wap dealer mpt from re
curity-baser exempt f
ures commange Act o
proprieta
ss of transaansaction,
esult in a mr counterpa
ctly or indirrading stra
at to the sates.
Appendix
or sale is n
hase or saare locatech purcha
hase or sar sale is prnization ac
hase or saurchase oromptly cleaacting as a
aragraph (the directio
ws of the U
aragraph (e located
agency, or ting or con
aragraph (ermediary
aler register excluded
registeredegistration
ed swap dfrom regist
mission meor exempt f
ary tradin
actions, or, class of t
material coarties;
rectly, in aategy; or
afety and s
x -24-
not conduc
le with theed in the Uase or sale
le with an omptly cle
cting as a c
le throughr sale is coared and sa central co
(e), a U.S.on of, any
United Stat
(e), a U.S.in the Unitsubsidiary
ntrolling th
(e), unaffili, that is:
ered with tfrom regu
d with the Cor exclude
ealer registration or e
erchant refrom regis
g activitie
r activity mransaction
nflict of int
material e
soundness
cted with o
e foreign oUnited Stat;
unaffiliateeared and central cou
h an unaffilonducted asettled throounterpart
entity is aother entit
tes or of an
branch, ated Statesy is not cone U.S. bra
iated mark
the SEC uulation as s
CFTC unded from re
stered withexcluded f
gistered wtration or e
es.
may be deens, or activ
terest betw
exposure b
s of the ba
or through
perations tes are inv
ed market isettled thrunterparty
liated markanonymouough a cleaty,.
any entity tty that is, lny State.
agency, or ; howevernsidered toanch, agen
ket interme
under sectisuch;
der sectiongulation a
h the SECfrom regula
with the CFexcluded f
emed permvity would:
ween the b
by the ban
anking enti
Appendix
any U.S.
of a U.S. volved in th
intermediarough a ; or
ket usly on an aring
that is, or ilocated in
subsidiary, the foreigo be locatency, or
ediary
ion 15 of th
n 4s of the s such;
under ation as
FTC under from
missible
banking
nking entity
ty or to the
x A
he
ary
is
y gn ed
he
r
y
e
SC1:46
bankin anentitywith rtaken
or en
conflmannunde
clientmateintere
informsepadesigconflor cospecreasothe cor co
sectio
held a sub
in by subst
§§ __
Subp
§ __.relat
71524.5
(b)
ing entity ay transacty's interestrespect to n at least o
ngaging in
ict of interener sufficieerstand the
t, customeerially adveest; or
mation barration of p
gned, takinict of intere
ounterpartyific transaconably knoonflict of in
ounterparty
(c) on:
by a bankbstantial fin
a bankingtantial fina
_.8__.-.9
part C––C
10 Prohionships w
(a)
Definition
(1) Foand its clieion, class ts being msuch tran
one of the
(2) Prthe specif
(i)
est, togethent to perme conflict o
er, or counerse effect
(ii)rriers that personnel, ng into conest from iny. A bankinction, clasow that, nonterest may.
Definition
(1) Higing entity, nancial los
(2) Higg entity, sigancial loss
[Reserve
Covered Fu
ibition onwith a cov
Prohibition
of materia
or purposeents, custoof transac
materially asaction, clactions in
ior to effecfic activity,
Time
(A) her with otmit a reasof interest;
(B) terparty thon the clie
) Informare memoor function
nsiderationnvolving orng entity ms or type ootwithstanday involve
of high-ris
gh-risk asssignifican
ss or would
gh-risk tragnificantly or would p
ed]
unds Acti
n acquiringvered fun
n.
al conflict o
s of this seomers, or cctions, or adverse to ass of tranparagraph
cting the s the banki
ely and effe
Has maher neces
onable clieand
Such dihe opportuent, custom
mation barorialized in ns, or limitn the naturr resulting
may not relof transactding the baor result in
sk asset an
set meanstly increasd pose a t
ding strateincrease t
pose a thr
ivities and
g or retaind.
Appendix
of interest.
ection, a mcounterparactivity thatthe interesnsactions, h (b)(2) of
pecific tranng entity:
ective disc
ade clear, sary inform
ent, custom
isclosure inity to negmer, or co
rriers. Haswritten po
tations on re of the bain a matery on such tions or acanking entn a materia
nd high-ris
s an asset se the likelhreat to th
egy meansthe likelihoreat to the
d Investm
ning an ow
x -25-
material corties existst would invsts of its cor activitythis sectio
nsaction o
closure.
timely, andmation, in mer, or cou
s made in gate, or suounterparty
s establisholicies andtypes of aanking entrially adveinformatio
ctivity, the btity's estabally advers
sk trading s
or group oihood that
he financia
s a tradingood that thfinancial s
ments
wnership
onflict of ints if the banvolve or relient, custo
y, and the on.
or class or
d effectivereasonabl
unterparty
a mannerubstantiallyy created b
ed, mainta procedure
activity, thatity's busin
erse effect on barriersbanking enblishment ose effect o
strategy. F
of related at the bankil stability o
g strategy the bankingstability of
interest i
terest betwnking entitesult in theomer, or cbanking en
type of tra
e disclosure detail anto meanin
r that provy mitigate, by the conf
ained, andes, such a
at are reasness, to preon a clien
s if, in the cntity knowof informat
on a client,
For purpos
assets thang entity wof the Unit
that would entity wouthe United
n and hav
Appendix
ween a y engages
e banking ounterpartntity has n
ansactions
re of the nd in a ngfully
ides the any flict of
d enforced as physicasonably event the t, customecase of ans or shouldtion barrie customer
ses of this
at would, if would incued States.
d, if engageuld incur ad States.
ving certa
x A
s
ty not
s,
l
er, ny d
ers, r,
ur .
ed a
ain
SC1:46
princfund.
owne
a cus
bene
pensaccoheld who a
goodpractthan
for a
the c
bene
cove
Investhat A
Exch
unde
as a
pool
beenand (
71524.5
ipal, direct
ership inte
stomer; an
eficial owne
ion plan ordance witor controllare or wer
faith, provticable, ansuch perio
customer
ustomer; a
eficial owne
(b) red fund m
stment CoAct (15 U.S
ange Act
er 17 CFR
commodit
are owned
publicly o(3); or
(1) Extly or indire
(2) Parest in a co
(i)
nd
ership of s
(ii)f the bankth the law ed directlyre employe
(iiivided that d in no evod permitte
(ivthat is not
and
ership of s
Definition means:
(i) mpany AcS.C. 80a-3
(ii)(7 U.S.C.
4.7; or
y pool ope
d by qualif
offered to p
xcept as otectly, acqu
aragraph (aovered fun
Actin
(A)
(B) such owne
) Throuking entity of the Uni
y or indirecees of the
) In thethe bankinent may thed by the B
v) On bt a covered
(A)
(B) such owne
of covered
An isct of 1940 (3(c)(1) or (
) Any c1a(10)) fo
(A)
(B) erator in co
fied eligible
persons w
therwise puire or reta
a)(1) of thind by a ba
ng solely as
The act
The banrship inter
ugh a defe(or an affilted Statesctly by the banking e
e ordinary ng entity dhe bankingBoard; or
behalf of cud fund, so
The act
The banrship inter
d fund. (1)
ssuer that w(15 U.S.C.(7));
commodityr which:
The com
(1) A coonnection
(2) e persons
(3) ho are not
Appendix
rovided inain any ow
is section dnking enti
s agent, b
tivity is con
nking entitrest;
erred compiate thereo
s or a foreibanking e
entity (or an
course of divests the g entity ret
ustomers along as:
tivity is con
nking entitrest.
) Except as
would be a. 80a-1 et
y pool und
mmodity p
ommodity with the o
Substantiaunder 17
Participatit qualified
x -26-
this subpawnership in
does not inty:
roker, or c
nducted fo
ty and its a
pensation,of) that is egn sovere
entity as trun affiliate t
collectingownership
tain such o
as trustee
nducted fo
ty and its a
s provided
an investmseq.), but
der section
pool operat
pool operaperation o
ally all parCFR 4.7(a
ion units oeligible pe
art, a banknterest in o
nclude acq
custodian,
or the acco
affiliates do
, stock-bonestablishe
eign, if the ustee for tthereof);
a debt prep interest aownership
or in a sim
or the acco
affiliates do
d in paragr
ment compfor section
n 1a(10) of
tor has cla
ator is regiof the comm
rticipation ua)(2) and (
of the commersons und
king entity or sponsor
quiring or
so long as
ount of, or
o not have
nus, profit-ed and admownershiphe benefit
eviously coas soon asinterest fo
milar fiducia
ount of, or
o not have
raph (c) of
pany, as den 3(c)(1) o
f the Comm
aimed an e
istered witmodity poo
units of the3); and
modity pooder 17 CFR
Appendix
may not, a covered
retaining a
s;
on behalf
e or retain
-sharing, oministered p interest ist of person
ontracted s or longer
ary capaci
on behalf
e or retain
this sectio
efined in thor 3(c)(7) o
modity
exemption
th the CFTol;
e commod
ol have noR 4.7(a)(2)
x A
as d
an
of,
or in s
ns
in
ity
of,
on,
he of
TC
dity
ot )
SC1:46
by a State
the o
that rother
there
direc
(b)(1on anCom3(c)(
agenforeiglocateor su
bankinclud
inves
more
indireor of bankunles
and
71524.5
banking ee, an entity
ownership
raises monr dispositio
eof); or
tly or indir
)(iii) of thisn exclusionpany Act o1) and 3(c
cy, or subgn bank thed in the Ubsidiary.
(c) ing agencde:
stors in the
e public off
ectly by a bany State ing entity
ss ownersh
(iiintity that is
y that:
interests o
ney from inon or other
rectly by th
(2) Ans section ifn or exemof 1940 (15c)(7) of tha
(3) Fobsidiary of hat operateUnited Sta
Notwithstaies, the SE
(1) Fo
(i)
e issuer's h
ferings out
(ii)banking enand any is
may not rehip interes
) For as, located
(A) of which ar
(B) nvestors prwise tradi
(C)
hat banking
n issuer shf, were theption from5 U.S.C. 8t Act.
or purposea foreign bes or contrtes solely
anding parEC, and th
oreign publ
Subje
(A)
(B) home juris
(C) tside of the
) With ntity that isssuer for wely on the sts in the is
(A)
(B)
(C)
any bankinin or orga
Is organre offered
Is, or hoprimarily fong in secu
(1) Has
(2) g entity (or
hall not be e issuer su
m the defini80a-1 et se
s of paragbanking enrols that brby virtue o
ragraph (bhe CFTC jo
lic funds.
ect to para
Is organ
Is authodiction; an
Sells owe United S
respect tos, located which suchexemptionssuer are s
Such sp
Such is
Affiliate
Appendix
ng entity thnized und
nized or esand sold s
olds itself or the purp
urities; and
s as its spo
Has issuer an affiliat
deemed tobject to Ution of “inv
eq.) other t
graph (b)(1ntity is locaranch, ageof operatin
b) of this seointly dete
agraphs (ii
nized or es
orized to ond
wnership iStates.
o a bankingin or organh banking n in paragrsold predo
ponsoring
ssuer;
es of such
x -27-
hat is, or iser the laws
stablishedsolely outs
out as beinose of inve
d
onsor that
ed an ownete thereof)
o be a cov.S. securitvestment cthan the e
)(iii) of thisated in theency, or sung or contr
ection, unlrmine othe
) and (iii) b
stablished
offer and se
nterests p
g entity thanized undeentity actsraph (c)(1)ominantly t
banking e
sponsorin
controlleds of the Un
outside thside the Un
ng, an entesting in s
banking e
ership inte).
vered fundties laws, tcompany” xclusions
s section, e United Stubsidiary isrolling the
ess the aperwise, a c
below, an
outside o
ell owners
redominan
at is, or is er the lawss as spons)(i) of this sto persons
entity;
g banking
d directly onited State
he United nited State
tity or arransecurities f
ntity (or an
erest that is
under parthe issuer under the contained
a U.S. bratates; hows not consU.S. branc
ppropriate covered fu
issuer tha
f the Unite
ship interes
ntly throug
controlleds of the Unsor, the spsection fors other tha
entity or s
Appendix
or indirectlyes or of an
States andes;
ngement for resale o
n affiliate
s owned
ragraph could rely Investme in section
anch, wever, the idered to bch, agency
Federal und does n
t:
ed States;
sts to retai
gh one or
directly onited Stateonsoring r such issu
an:
such issue
x A
y ny
d
or
nt n
be y,
not
il
r es
uer
er;
SC1:46
“publjurisd
in the
havin
regulavaila
intereexce
less aempldirecbank
may the psimila
affilia
the band
arranfor re
or ac
trans
pens
71524.5
ic offeringdiction outs
e jurisdictio
ng a minim
atory authable.
ests of whpt that:
any amouoyees or dtors if theiing entity)
be held bypurpose of ar concern
ates and o
banking en
ngement thesale or ot
cquisition t
saction.
ion, retirem
(iii” means aside the U
on in which
mum level o
hority in su
(2) Which are ow
(i) nts outstandirectors or ownersh; and
(ii)y a third paestablishi
ns.
(3) Jone or more
(i)
(ii)tity or affil
(iiihat raises her dispos
(4) Ac
(i) ransaction
(ii)
(5) Foment, or si
(i)
(D)
) For pa distributionited State
(A) h such dis
(B) of net wort
(C) uch jurisdic
Wholly-ownewned direct
Up tonding unde
of the bankip interest
) Up toarty if the ong corpora
oint venturee unaffiliat
Is co
) Is in iate, other
) Is nomoney fro
sition or ot
cquisition v
Formn; and
) That
oreign pensimilar bene
Orga
Directo
purposes oon (as defies to inves
The disstribution is
The disth or net in
The issction, offer
ed subsidiatly or indire
o five percer paragra
king entity t was acqu
o 0.5 perceownershipate separa
es. A joint ted person
mprised o
the businer than inve
ot, and doeom investoherwise tra
vehicles. A
med solely
exists only
sion or retefits that is
anized and
Appendix
rs and em
of paragrapined in §__stors, inclu
stribution cs being ma
stribution dnvestment
uer has filring disclos
aries. An eectly by th
ent of the aph (c)(2)(or such af
uired while
ent of the ep interest isateness or
venture bens, provide
f no more
ess of engasting in se
es not holdrs primarilading in se
An issuer:
for the pu
y for such
tirement fus:
d administe
x -28-
ployees of
ph (c)(1)(i)_.4(a)(3) ouding retai
complies wade;
does not reassets; an
ed or submsure docum
entity, all oe banking
entity's ouii) of this sffiliate (inc employed
entity's ous acquiredaddressin
etween a bed that the
than 10 u
aging in acecurities fo
d itself out y for the pecurities.
rpose of e
period as
unds. A pla
ered outsid
f such ent
)(C) of thisof subpart l investors
with all app
estrict avaind
mitted, witments that
of the outst entity (or
utstanding section, maluding formd by or in t
tstanding or retaine
ng bankrup
banking enjoint ventu
naffiliated
ctivities thor resale or
as being, purpose of
engaging in
necessary
an, fund, o
de the Unit
ities.
s section, tB) of secu
s, provided
plicable req
ilability to i
h the apprt are public
tanding owan affiliate
ownershipay be heldmer emplothe service
ownershiped by the thptcy, insolv
ntity or anyure:
co-ventur
at are permr other dis
an entity oinvesting
n a bona fi
y to effect
r program
ted States
Appendix
the term urities in and that:
quirements
investors
ropriate cly
wnership e thereof),
p interestsd by oyees or e of the
p interests hird party vency, or
y of its
rers;
missible foposition;
or in securitie
ide merger
uate the
providing
s;
x A
ny
s
s,
for
or
es
r
SC1:46
regulplan,
foreig
no balosse
purpothe bpolicy
or ho
than
all thesolely
timelyrelateeach
requi
that m
asset
interesectio
requi
sectio
parag
71524.5
ation as a fund, or p
gn soverei
anking entes.
ose of allobanking eny:
oldings of t
in complia
e conditiony of:
y distributied or incid asset me
rements o
meet the re
ts or holdin
est in an eon;
rements o
on, the iss
graph (c)(8
(ii)a pension, program is
(iiigns or any
(6) Instity other th
(7) Baowing one
tity or enti
(i) the separa
(ii)ance with a
(8) Lo
(i) ns of this p
ion of procental to puets the req
of paragrap
equiremen
(ii)ngs of the
equity or de
of paragrap
(iiisuing entity
8)(i)(B) of t
) A broretirementorganized
) Estaby political s
surance cohan the ins
ank ownedor more baties is ben
Contate accoun
) Particapplicable
oan securit
Scopparagraph
(A)
(B) ceeds to hourchasing quirements
(C) ph (c)(8)(iv
(D) nts of para
) Impeissuing en
(A) ebt securit
(B) ph (c)(8)(iv
(C)
) Permy may hold
(A) this sectio
oad-basedt, or similad and adm
blished forsubdivision
ompany sesurance co
d life insuraanking entneficiary, p
rols the invnt; or
cipates in superviso
tizations.
pe. An issu (c)(8) and
Loans a
Rights oolders of sor otherwis of parag
Interestv) of this s
Specialagraph (c)(
ermissible ntity shall n
A securty other tha
A derivav) of this s
A comm
mitted secud securities
Cash eon; or
Appendix
d plan for ear plan undministered;
r the benefn thereof.
eparate acompany pa
ance. A setities to pu
provided th
vestment d
the profitsory guidanc
uing entity d the asse
as defined
or other assuch securise acquiriraph (c)(8
t rate or foection; an
l units of b(8)(v) of th
assets. Fonot include
rity, includan as perm
ative, otheection; or
modity forw
urities. Nots if those s
quivalents
x -29-
employeesder the lawand
fit of citize
ccounts. A articipates
eparate accurchase a lhat no ban
decisions
s and lossece regardi
for asset-bts or holdi
in §__.2(s
ssets desigrities and rng and ho)(iii) of this
oreign exchd
beneficial inis section.
or purposee any of th
ing an assmitted in pa
er than a d
ward contr
twithstandisecurities
s for purpo
s or citizenws of the ju
ens or resid
separate s in the acc
count that ife insuranking entity
regarding
es of the sng bank o
backed sengs of whi
su) of subp
gned to asrights or otolding the ls section;
hange deri
nterest an.
es of this phe followin
set-backedaragraph (
erivative t
act.
ing paragrare:
ses of the
s that is suurisdiction
dents of on
account, pcount's pro
is used sonce policy y that purc
the under
eparate acowned life i
ecurities thich are com
part A;
ssure the sther assetoans, prov
ivatives th
d collatera
aragraph g:
d security, (c)(8)(iii) o
hat meets
raph (c)(8)
rights and
Appendix
ubject to in which th
ne or more
provided thofits and
olely for thfor which hases the
rlying asse
ccount othinsurance
hat satisfiesmprised
servicing os that are vided that
at meet th
al certificat
(c)(8), the
or an of this
the
)(ii)(A) of th
d assets in
x A
he
e
hat
he
ets
her .
s
or
he
tes
his
n
SC1:46
with r
be limcond
loansparag
exchaother
assetbene
bene
is useeconparagfinan
is cresecu
benedirec
all of
secu
that aacqudirecthe d
asset397 d
bindi
71524.5
respect to
mited to intitions:
s, the assegraph (c)(8
ange risksr assets de
ts or holdineficial intere
eficial intere
ed for the omic risksgraph (c)(8cial expos
eated solelritization; a
eficial interetion of the
the follow
ritization u
are permisired by thetly from thistribution
t-backed sdays or les
ng commit
the loans
(ivterest rate
et-backed 8)(i)(B) of t
s related toescribed in
(v)ngs of the est issued
est or colla
sole purpos and bene8) and doesure;
ly to satisfand
est or collae same ent
(9) Qu
(i) wing require
under para
ssible for loe asset-bae issuing eof the ass
securities, ss; and
tment to p
(B) supporting
v) Derive or foreign
(A) securities,this sectio
(B) o the loansn paragrap
) Specissuing en
d by a spec
(A) ateral cert
(B) ose of tranefits of the es not dire
(C) fy legal req
(D) ateral certtity that init
ualifying as
An isements:
(A)
agraph (c)(
oan securiacked comentity of thset-backed
(B) comprised
(C) rovide full
Securitig the asse
vatives. Thn exchange
The wri, or the con
on; and
The ders, the asseph (c)(8)(i)(
cial units ontity may icial purpos
The speificate mee
The spensferring toassets thactly or indi
The spequirements
The speificate andtiated the
sset-backe
ssuing enti
The ass
(1) (8)(i) of this
(2) itizations umercial pa
he asset-bad securities
The assd of a resid
A regulaand unco
Appendix
ies receiveet-backed
he holdingse derivativ
itten termsntractual r
rivatives reet-backed (B) of this
of beneficianclude cose vehicle,
ecial purpoets the req
ecial unit oo the issuinat are permirectly tran
ecial unit os or otherw
ecial purpod the issuinloan secur
ed comme
ty for asse
set-backed
Loans ands section;
Asset-bacunder paraaper conduacked secs;
set-backeddual intere
ated liquidnditional li
x -30-
ed in lieu osecurities.
s of derivaves that sa
s of the derights of ot
educe the securities,section.
al interest allateral cer, provided
ose vehiclequirements
of beneficiang entity fomissible fonsfer any in
of beneficiawise facilita
ose vehicleng entity aritization.
ercial pape
et-backed
d commerc
d other assand
cked securagraph (c)(uit as part curities or d
d commercest and sec
dity provideiquidity cov
of debts pr.
atives by thatisfy all of
rivative dirther assets
interest ra, or the co
and collatertificates athat:
e that issus in this pa
al interest or the loanor loan secnterest in a
al interest ate the str
e that issure establis
er conduits
commerci
cial paper
sets perm
rities supp(8)(i) of thiof an initia
directly fro
cial paper curities wit
er has enteverage wit
reviously c
he issuing the follow
rectly relats describe
ate and/or ntractual r
eral certificand specia
ues the spearagraph (c
or collatern securitizacuritizationany other
or collaterructuring o
ues the speshed unde
s.
al paper th
conduit ho
issible for
orted soles section aal issuanceom an unde
conduit isth a legal m
ered into ath respect
Appendix
contracted
entity shawing
te to the d in
foreign rights or
cates. Thel units of
ecial unit oc)(8);
ral certificaation the s under theconomic
ral certificaof the loan
ecial unit oer the
hat satisfie
olds only:
a loan
ely by asseand e either erwriter in
ssues only maturity of
a legally to all of th
x A
all
e
of
ate
his or
ate
of
es
ets
f
he
SC1:46
outst(othebacke
mean
Fede
Bank
10a oholdiof the
in §2consamen
loansof cothe c
bond
definunco(c)(10
forth uncoand tsuch
sectioreceismal
type
71524.5
tanding aser than anyed securit
ns:
eral Depos
k Holding C
of the Homng compae Bank Ho
11.21(q) oistent withnded, and
s or other avered bononditions
means:
ition of fornditionally0)(i) of this
in paragranditionallythe entity iforeign ba
on 103(3) ved from tl business
permitted
set-backey residual iies.
(ii)
sit Insuranc
Company A
me Ownersny's activit
olding Com
of the Boar the Capitthat is sub
(10) Qu
(i) assets as
nds, providin paragra
(ii)
reign banky guarantes section; o
aph (c)(10)y guarantes a whollyanking org
(11) SB
(i) of the Smthe Small Bs investme
(ii)
under par
d securitieinterest) in
) For p
(A) ce Act (12
(B) Act of 195
(C) s' Loan Acties are pe
mpany Act
(D) rd's Regulal Accord bject to su
(E)
ualifying co
Scopprovided i
ded that theaph (c)(8)(i
) Cove
(A) king organied by an eor
(B) )(i) of this ed by an e
y-owned suganization.
BICs and p
That all BusineBusiness Ant compan
) The b
(A) ragraph (1
es issued bn the even
purposes o
A deposU.S.C. 18
A bank 56 (12 U.S
A savinct (12 U.S.Cermissible of 1956 (1
A foreigation K (12for the Bach standa
The Un
overed bon
pe. An entin paragrae assets ini) of this se
ered bond.
A debt oization, theentity that
A debt osection, prentity that ubsidiary, a
public welf
is a small ss InvestmAdministrany, which n
business o
Designe1) of sectio
Appendix
by the asst that fund
of this para
sitory insti813(c));
holding co.C. 1841(a
gs and loaC. 1467a)for a finan
12 U.S.C.
gn bank wh2 CFR 211
asel Commrds, or a s
ited States
nds.
ty owning ph (c)(8) on the pool ection.
For purpo
obligation e paymentmeets the
obligation rovided thmeets theas defined
fare investm
business ment Act oation noticenotice or li
of which is
ed primarion 5136 o
x -31-
et-backedds are requ
agraph (c)(
tution, as
ompany, aa)), or a su
an holding, provided
ncial holdin1843(k)), o
hose home1.21(q)), h
mittee on basubsidiary
s or a fore
or holdingof this sectare compr
oses of thi
issued byt obligation
e conditions
of an entitat the pay
e definition d in paragr
tment fund
investmenof 1958 (15e to procecense has
s to make i
ly to promof the Revis
commercuired to red
(9), a regu
defined in
as defined ubsidiary th
companyall or subs
ng companor a subsid
e country shas adopteanking Suthereof; or
eign sovere
g a dynamtion for therised solel
s paragrap
y an entity ns of whichs set forth
ty that meyment oblig
of foreignraph (c)(2)
ds. An issu
nt compan5 U.S.C. 66ed to qual
s not been
nvestmen
ote the pused Statut
cial paper cdeem mat
ulated liqui
section 3
in sectionhereof;
y, as definestantially any under sdiary there
supervisored capital spervision, r
eign.
ic or fixed e benefit ofy of asset
ph (c)(10),
that meetsh are fully in paragra
ets the cogations are banking o
) of this se
er:
ny, as defin62), or thaify for a lic revoked;
ts that are
ublic welfartes of the U
Appendix
conduit uring asse
dity provid
(c) of the
2(a) of the
ed in sectioall of the section 4(keof;
r, as definestandards as
pool of f the holdes that mee
, a covered
s the and aph
nditions see fully and organizatioction, of
ned in at has cense as aor
e:
re, of the United
x A
et-
der
e
on
k)
ed
ers et
d
et
on
a
SC1:46
Statefamil
qualif47 of
the Inpursu§__.2Inves
“inveother
compelectdeverequi
operafacilitundeCons
SEC,sectio
will b
acco[Agenits bu
the E
Board
Com
71524.5
es (12 U.Sies (such a
fied rehabf the Intern
nvestmentuant to a w20(e)(3) ofstment Co
stment cor than the e
pany pursuion, or thalopment crements o
ations. An tating the d
er the Fedesumer Prot
, and the Con 13 of th
be promptly
(d)
unting prinncy] deterusiness in
Exchange A
d's Regula
pany Act o
.C. 24), inas providin
bilitated bunal Revenu
(12) Re
(i) t Companywritten planf subpart Dmpany Ac
(ii)mpany” unexclusions
(iiiuant to sec
at is formedompany a
of section 6
(13) Ississuer tha
disposal oeral Depostection Ac
(14) Ot
(i) CFTC jointhe BHC Ac
(ii)y made pu
Definition
(1) Apnciples, or mines are preparing
(2)(1) AsAct (15 U.
(3)(2) Diration O (12
(4)(3) Issof 1940 (15
cluding theng housing
(B) ilding or ceue Code o
egistered in
That y Act of 19n to becomD and that ct of 1940 (
) That nder the Ins contained
) That ction 54(a)d and opers describe61 of the In
suers in coat is an entf assets ac
sit Insuranct.
ther exclud
Any itly determict.
) A detublic.
of other te
pplicable asuch otheappropriaits consol
sset-backeS.C. 78c(a
rector has 2 CFR 215
suer has th5 U.S.C. 8
e welfare og, services
Qualifieertified his
of 1986 or a
nvestment
is register940 (15 U.Sme a regist
complies (15 U.S.C.
may rely onvestment d in sectio
has electe) of that Acrated pursed in §__.2nvestment
onjunction tity formedcquired in ce Act or T
ded issuer
issuer thatine the exc
terminatio
erms relate
accounting er accountate and thaidated fina
ed securitya)(79).
the same5.2(d)(1)).
he same m80a-2(a)(22
Appendix
of low- ands, or jobs);
ed rehabilitstoric struca similar S
t companie
red as an iS.C. 80a-8tered inveswith the re. 80a-18);
on an exclCompany
on 3(c)(1) a
ed to be rect (15 U.Ssuant to a w20(e)(3) oft Company
with the Fd by or on the FDIC'
Title II of th
rs.
t the approclusion of
n made un
ed to cove
standardsing standa
at the bankancial state
y has the m
meaning
meaning as2)).
x -32-
d moderat or
tation expecture, as suState histo
es and exc
investmen8), or that stment comequiremen
usion or ey Act of 19and 3(c)(7
egulated a.C. 80a-53written plaf subpart Dy Act of 19
FDIC's recebehalf of t's capacityhe Dodd-F
opriate Fedwhich is c
nder parag
ered funds.
s means Uards applicking entity ements.
meaning sp
as provide
s in sectio
te-income
enditures wuch terms ric tax cred
cluded ent
nt companyis formed mpany as
nts of secti
exemption 40 (15 U.S) of that A
s a busine3) and hasan to becomD and that 940 (15 U.
eivership othe FDIC fy as conseFrank Wall
deral bankconsistent w
graph (c)(1
. For purpo
U.S. generacable to a buses in th
pecified in
ed in sectio
n 2(a)(22)
communit
with respeare definedit program
tities. An is
y under seand operadescribedon 18 of th
from the dS.C. 80a-1ct; or
ess develos not withdme a busincomplies wS.C. 80a-6
or conservfor the purervator or r Street Re
king agencwith the pu
14)(i) of thi
oses of thi
ally accepbanking en
he ordinary
Section 3
on 215.2(d
of the Inv
Appendix
ties or
ect to a ed in sectiom.
ssuer:
ection 8 of ated d in he
definition o1 et seq.)
opment rawn its ness with the 60).
vatorship pose of receiver eform and
cies, the urposes of
is section
is subpart:
ted ntity that thy course of
(a)(79) of
d)(1) of the
vestment
x A
on
of
f
:
he f
e
SC1:46
purpowhos
intere
genemanarightsacce
share
coverightsacce
(the pundeoutst
payaarisinor chand p
coveunde
the ri
interewhichcomm
entityperfotradinformemay
emplretaincontr
71524.5
ose vehiclese name th
est. An “ot
eral partneager, invess of a credleration ev
e of the inc
red fund as of a credleration ev
positive diferlying assetanding int
ble by the ng from theharge-offs opayable on
red fund, oerlying asse
ghts in pa
est held byh the entitymodity trad
y (or emploormance cong advisorer employebe obligat
oyee or foned by theractual obl
(5)(4) Isse that ownhe asset-b
(6)(5) Ow
(i) her similar
r, managinstment advditor to exevent);
come, gain
after all othditor to exevent);
fference, ifets of the erests);
covered fe underlyinof the outsn the intere
or has a raets of the
aragraphs (
(ii)y an entity y (or emploding adviso
oyee or forompensatiry, or otheree thereofed under t
ormer empe covered figations w
suing entityns or holdsacked sec
wnership in
Owner interest”
(A) ng membeviser, or co
ercise reme
(B) ns or profit
(C) her interestercise reme
(D) f any, betwcovered fu
(E) fund with rng assets standing pest;
(F) ate of returcovered fu
(G) (d)(65)(i)(A
) Owne(or an em
oyee thereor, or othe
(A) rmer emplion for ther services f), providedthe terms o
(B) loyee therfund for th
with respec
y means ws the pool acurities sup
nterest.
ership intemeans an
Has theer, membeommodity edies upon
Has thets of the co
Has thets have beedies upon
Has theween the aund and th
Providerespect to of the covrincipal ba
Receivern that is dund; or
Any synA) through
ership intemployee or eof) serveser service p
The soloyee there investmeprovided td that the eof such int
All suchreof) prome sole pur
ct to subse
Appendix
with respecassets undpported or
erest meann interest th
e right to pr of the botrading adn the occu
e right undovered fun
e right to reeen redeemn the occu
e right to reaggregate he aggrega
es under ththe interesered fund,
alance, or
es incomedetermined
nthetic righh (F) of this
erest does former em
s as investprovider so
le purposeeof) to shant manageto the coveentity (or eterest to re
h profit, onptly after brpose of esequent loss
x -33-
ct to assetderlying asr serviced
ns any equhat:
participate oard of diredvisor of thurrence of
er the termnd;
eceive themed and/ourrence of
eceive all ointerest pa
ate interes
he terms ost could be, such as areductions
e on a passd by refere
ht to have,s section.
not includmployee thtment mano long as:
e and effecare in the pement, invered fund employee eturn profit
nce allocatbeing earnstablishingses of the
t-backed ssset-backeby the poo
uity, partne
in the seleectors or trhe coveredan event o
ms of the i
underlyinor paid in fan event o
or a portioayments ret paid to th
of the interee reduced allocation os in the am
s-through ence to the
receive, o
de: Restrichereof) in anager, inve
ct of the intprofits of thvestment aby the entor former ts previous
ed, is distrned or, if nog a reservecovered fu
ecurities ted securitiol assets a
ership, or o
ection or rerustees, ind fund (excof default o
nterest to
g assets oull (excludof default o
on of exceseceived frohe holders
est that thebased on of losses,
mount of in
basis frome performa
or be alloc
cted profit ia covered estment ad
terest is tohe covered
advisory, coity (or empemployee sly receive
ributed to tot so distrie amount tund and su
Appendix
he speciales and in
are issued.
other simil
emoval of nvestment cluding theor an
receive a
of the ding the or an
ss spread om the
s of other
e amountslosses write-dowterest due
m the ance of the
cated any o
interest. Afund for dviser,
o allow thed fund as ommodity ployee or thereof)
ed;
the entity (ibuted, is to satisfy uch
x A
l
.
ar
a
e
s
wns e
e
of
An
e
(or
SC1:46
undissubse
amouobtai
or foror affemplintereproviservic
cove371cborroadmi
defin
covedefin
officemana
prom
subp
respenameIncom
undeof thi
of thidecisa trus
71524.5
stributed pequent inv
unts paid bning the re
rmer emplfiliate), to ioyee, or inest by the des investces to the
red transa(b)(7)), tha
owing or lenistrative s
ed in rule
red fund, oed in (b)(1
ers, or direagement o
motional, or
art C, a tru
ect to a coed fiduciarme Securit
er foreign las section;
s section, sions of a cstee of suc
profit of thevestment g
by the entiestricted p
oyee theremmediaten connectientity (or etment manfund.
(7)(6) Priaction, as dat is provid
ending servsupport.
(8)(7) Re902(k) of t
(9)(8) Sp
(i) or to serve1)(ii) of this
(ii)ectors, or aof a covere
(iiir other pur
(10)(9) Tru
(i) ustee does
overed fundry who is nty Act (29
aw that are
(ii)or that pocovered fuch covered
e entity (or gains of the
(C) ty (or emp
profit intere
(D) eof) excep
e family meon with a semployee nagement,
rime brokedefined in ded in convices, trad
esident of tthe SEC's
ponsor me
To see as a coms section;
) In anagents whoed fund; or
) To shrposes, the
ustee.
For ps not inclu
(A) d, includinnot a trusteU.S.C. 11
(B) e substant
) Any essesses a
und for whd fund.
employeee covered
Any amployee or foest, are wit
The intept to an affiembers, orsale of theor former investme
rage transsection 23nection wie executio
the UnitedRegulatio
ans, with r
erve as a gmmodity po
ny manner o constitutr
hare with ae same na
purposes ode:
A trusteg a trustee
ee pursuan03(a)(1));
A trustetially equiv
entity that authority anich such p
Appendix
e or formerfund;
mounts inveormer empthin the lim
erest is noiliate therer through te businessemployeent advisor
saction me3A(b)(7) ofith custodyon, financin
d States mon S (17 C
respect to
general paool operato
to select ote) a major
a covered ame or a va
of paragrap
ee that doee that is sunt to sectioor
ee that is svalent to th
directs a pnd discreti
person serv
x -34-
r employee
ested in thployee the
mits of §__
ot transferaeof (or an ethe intesta that gave
e thereof) ty, commod
eans any trf the Fedey, clearancng, or data
eans a peFR 230.90
a covered
artner, manor with res
or to contrrity of the d
fund, for cariation of
ph (d)(98)
es not exeubject to thon 403(a)(
subject to fhose descr
person desion to manves as trus
e thereof)
he coveredereof) in co_.12 of this
able by theemployee cy, of the
e rise to theto an unaffdity trading
ransactionral Reservce and seta, operatio
erson that i02(k)).
d fund:
naging mepect to a c
rol (or to hadirectors, t
corporate, f the same
of this sec
rcise inveshe directio1) of the E
fiduciary sribed in pa
scribed in nage and cstee, shall
does not s
d fund, inclonnection w subpart; a
e entity (orof the banemployee e restrictedfiliated parg advisory
n that woulve Act (12 ttlement, sonal, and
is a “U.S. p
ember, or tcovered fu
ave emplotrustees, o
marketing name.
ction and §
stment disn of an un
Employee's
tandards iaragraph (d
paragraphcontrol the be consid
Appendix
share in th
uding anywith and
r employeenking entity
or former d profit rty that y, or other
d be a U.S.C. ecurities
person” as
trustee of and as
oyees, or
g,
§__.11 of
scretion witnaffiliated s Retireme
mposed d)(109)(i)(
h (d)(109)(e investmedered to be
x A
he
y
e y
s
a
th
ent
A)
(i) nt e
SC1:46
§ __.respe
this sin, orand oor cohavintrusteforeg
fiduc
proviservicaffiliaentityorgan
intere
§__.1
guaraany c
purpo
with t
or retbankcommempl
and aofferi
by invbankowne
71524.5
11 Permect to a co
(a) subpart, a r acting as offering a commodity png employeees, or magoing, only
iary, inves
sion of boces and o
ate thereofy or such anizing and
est in the c
14 of this s
antee, asscovered fu
oses:
the bankin
tains an owing entity omodity tradoyee take
actual inveng docum
vestors in ing entity's
ership inte
mitted orgaovered fu
Organizingbanking e sponsor tcovered fupool operaees, office
anagementy if:
(1) Thstment adv
(2) Thna fide trunly to persf), pursuanaffiliate inte offering s
(3) Thcovered fu
(4) Thsubpart;
(5) Thsume, or ond in whic
(6) Th
(i) ng entity (o
(ii)
(7) Nownership ior such affding advisos the owne
(8) Th
(i) estor in the
ments):
[the covers] losses inrests in the
anizing anund.
g and offentity is notto, a coverund, includator of the ers, directot of the co
he bankingvisory, or c
he coveredust, fiduciasons that ant to a writtends to prosuch fund;
he bankingund except
he banking
he bankingtherwise in
ch such co
he covered
Doesor an affilia
) Does
o director onterest in
ffiliate whoory, or othership inte
he banking
Cleare covered
(A) red fund] an [such coe covered
nd offerin
ering a covt prohibitedred fund inding servincovered fu
ors, or agevered fund
g entity (or commodity
d fund is orry, investmare customten plan orovide advi
g entity andt as permit
g entity and
g entity andnsure the o
overed fund
d fund, for
s not shareate thereof
s not use t
or employethe covere
o is directlyher serviceerest; and
g entity:
rly and confund (such
That “aand not byovered fund
fund held
Appendix
g, underw
vered fund d from acq
n connectiog as a genund and inents who cod, includin
an affiliatey trading ad
rganized ament advismers of sucr similar doisory or sim
d its affiliattted under
d its affiliat
d its affiliatobligationsd invests;
corporate,
e the samef); and
he word “b
ee of the bed fund, exy engaged es to the co
nspicuoush as throug
ny losses y [the bankd] will be lby [the ba
x -35-
writing, an
in generaquiring or ron with, dirneral partnn any mannonstitute) ag any nec
e thereof) dvisory se
and offeredsory, or comch servicesocumentatmilar servi
tes do not r §__.12 of
tes comply
tes do nots or perfor
, marketing
e name or
bank” in its
banking enxcept for ain providin
overed fun
sly disclosegh disclos
in [such coking entity]imited to loanking ent
nd market
l. Notwithsretaining arectly or inner, managner selectia majority essary exp
provides bervices;
d only in commodity trs of the bation outlinices to its c
acquire of this subp
y with the
, directly ormance of
g, promoti
a variation
s name;
ntity (or an any directong investm
nd at the tim
es, in writinure in the
overed fun or its affilosses attritity] and an
t making w
standing §an ownershndirectly, oging membng or contof the dire
penses for
bona fide t
onnection rading advanking entiing how thcustomers
r retain anart;
requireme
or indirectlythe covere
onal, or ot
n of the sa
affiliate thor or emploment advisme the dir
ng, to any covered fu
nd] will be iates; theributable tony affiliate
Appendix
with
__.10(a) ohip interes
organizing ber, trustetrolling (or ectors, r the
trust,
with the visory ity (or an
he bankings through
n ownershi
ents of
y, ed fund or
ther
ame name
hereof) takoyee of theory, ector or
prospectivund's
borne solerefore, [theo the
in its
x A
of st
e,
g
ip
r of
e
kes e
ve
ely e
SC1:46
capa[the b
docu
insurway,
empl
bankdesigcove
prohicoveindireaffilia
fund term entity15G
prohiunde
__.4(
sponotherparagand iU.S.Cin coissueguaraor of intereundethe cunde
71524.5
city as invbanking en
ments bef
red by the by any ba
oyees in s
ing agencgned to enred fund a
(b)
bited fromred fund thectly, orgaates compl
that is an is used in
y, or acquiof that Act
(c) bition con
erwriting ac
(a) or § _
sor, investrwise acqugraph (a) os either a C. 78o- 11mpliance w
ed thereunantees, asany cover
ests acquirerwriting analculation
er the limita
vestor in thntity] or an
fore invest
FDIC, andanking enti
sponsoring
(ii)ies, the SEsure that l
and not by
Organizing
(1) Nom acquiringhat is an isnizing andly with all o
(2) Foissuing ensection 15ring or retat (15 U.S.C
Underwrititained in §ctivities or
(1) Th__.4(b) of
(2) Witment advuires and rof this secsecuritizer(a)(3)), or with sectioder each a
ssumes, orred fund inred or retand market of owners
ations of §
he [coveredny affiliate”
(B) ting in the
(C) d are not dity” (unless
(D) g or provid
) ComEC, or the losses in sthe covere
g and offe
otwithstandg or retainissuing entd offering tof the requ
or purposentity of ass5G(a)(3) oaining an oC.78o-11)
ting and m§ __.10(amarket ma
hose activitsubpart B,
ith respectiser or comretains an tion; or acr, as that tis acquirin
on 15G of tas permitter otherwisen which sucained by thmaking re
ship interes __.12(a)
d fund] or ;
That sucovered fu
That thedeposits, os that happ
The roleing any se
plies with CFTC, as
such covered banking
ering an iss
ding §__.1ng an ownity of assethat issuinguirements
s of this paset-backedof the Exchownershipand the im
arket maka) of this suaking-rela
ties are co, respectiv
t to any bammodity trownership
cquires andterm is useng and retthat Act (1ed by parae insures tch fund inv
he bankingelated activsts permitt(2)(ii); § __
Appendix
as benefic
uch investound;
e “ownersobligations pens to be
e of the baervices to t
any additios provided red fund ag entity an
suing entity
0(a) of thinership inteet-backed sg entity, soof paragra
aragraph (d securitieshange Act p interest inmplementin
king in ownubpart doeted activiti
onducted invely; and
anking entirading advp interest ind retains aed in sectioaining an 5 U.S.C.7
agraph (b) the obligatvests, then
g entity andvities for thted to be h_.12(a)(2)(
x -36-
ciary of a r
or should r
hip interesof, or end
e the case)
anking entthe covere
onal rules in sectionre borne s
nd its affilia
ty of asset-
s subpart,erest in, osecurities o long as taph (a)(3)
(b), organis means a(15 U.S.C
n the issuing regulat
nership intees not appies involvin
n accorda
ity (or any visor to a pn such cov
an ownershon 15G(a)ownership
78o-11) anof this sec
tions or pen in each sd its affiliathat particuheld by the(iii), and §
restricted p
read the fu
sts in the corsed or g); and
ity and its ed fund; an
of the app 13(b)(2) o
solely by inates.
-backed se
a bankingr acting asin connectthe bankinthrough (8
zing and octing as th
C. 78o-11(ang entity aions issue
erests of aly to a banng a cover
nce with th
affiliate thparticular cvered fundhip interes(3) of the
p interest ind the implction; or, d
erformancesuch casetes in conn
ular coveree banking e __.12(d)
profit intere
und offerin
covered fuguaranteed
affiliates and
propriate Fof the BHCnvestors in
ecurities.
g entity is ns sponsor tion with, dg entity an
8) of this se
offering a che securitiza)(3)) of thas requireded thereund
a covered nking entityred fund so
he require
hereof) thacovered fund in reliancst in such cExchangen such covementing
directly or ie of the cov any ownenection wit
ed fund areentity and ) of this su
Appendix
est held by
g
nd are notd in any
and
Federal C Act, n the
not to, a directly or nd its ection.
covered zer, as thahe issuing d by sectioder.
fund. The y’s o long as:
ments of §
at: Acts as nd or ce on covered fue Act (15 vered fundregulationindirectly, vered fund
ership th e included its affiliate
ubpart; and
x A
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t
at
on
§
a
nd
d ns
d
in es d.
SC1:46
intere§__.1ownepermunde
§ __.
bankentity
sufficthe li
cove
fund affilia
redemthe bsectio
the futhis s(a)(2
sectiopursuvalue
covethe toparagand iU.S.Cinves
71524.5
ests of the11 of this sership inte
mitted undeer §__.12(a
12 Perm
(a)
ing entity y or an affi
cient initial mits conta
red fund s
made or hates:
mption, sabanking enon; and
und (or sucsection), co)(ii) of this
on, an inveuant to pare of the ou
red fund thotal fair magraph (b)(3ts affiliatesC. 78o-11)stment by t
(3) Wie banking esubpart, inrest in con
er this paraa)(2)(iii) an
mitted inve
Authority a
(1) Nomay acquiliate there
(i) equity for
ained in pa
(ii)subject to t
(2) Inv
(i) held pursu
ale, dilutiontity in the
ch longer onform its section;
(ii)
estment byragraph (atstanding
hat is an isarket value3) of this ss in compl) and the imthe bankin
ith respectentity and ncluding alnnection wagraph (c),nd §__.12(
estment in
and limitat
otwithstandire and ret
eof organiz
Estabr investmearagraphs
) De mthe limits c
vestment l
Seedant to para
(A) n, or other covered fu
(B) period as ownership
) Per-f
(A) y a bankin
a)(1)(ii) of townership
(B) ssuing ente of the owsection, uniance withmplementng entity an
t to any baits affiliatel covered f
with underw, are includ(d) of this s
n a covere
tions on pe
ding the prtain an owzes and off
blishment.nt to perm(a)(2)(i) an
minimis invcontained i
limits.
ding periodagraph (a)
Must acmethods,
und to the
Must, nmay be prp interest i
fund limits.
Except ng entity anthis sectionp interests
An inveity of asse
wnership innless a greh the requiring reguland its affili
Appendix
anking enties in all covfunds in w
writing andded in the subpart.
ed fund.
ermitted in
rohibition cnership intfers pursu
Establishmit the fundnd (iii) of th
vestment. Min paragra
d. With res)(1)(i) of th
ctively seethe aggreamount pe
o later tharovided byin the cove
.
as providend its affilian may not of the fun
estment byet-backed snterests ofeater percerements otions issueates in the
x -37-
ity, the aggvered fund
which the bd market m
calculatio
nvestments
contained terest in aant to § __
hing the fund to attract his section
Making anaphs (a)(2)
spect to anhis section,
ek unaffiliategate amouermitted in
an 1 year ay the Boardered fund t
ed in paragates in anyexceed 3 d.
y a bankingsecurities f the fund mentage is rf section 1ed thereune covered
gregate vads acquirebanking enmaking rela
n of all ow
s in covere
in § __.10 covered f_.11, for th
nd and prounaffiliate
n; or
d retaining(ii) and (iii
n investme, the bank
ted investount of all on paragrap
after the dad pursuantto the limit
graph (a)(2y covered percent o
g entity anmay not emeasuredretained by15G of the nder, in whfund may
alue of all od and retatity holds a
ated activitwnership in
ed funds.
0(a) of this fund that thhe purpose
oviding theed investor
g an inves) of this se
ent in any cing entity a
ors to reduownership ph (a)(2)(i)
ate of estat to paragrts in parag
2)(ii)(B) offund mad
of the total
d its affiliaexceed 3 p in accordy the bankExchange
hich case tnot excee
Appendix
ownershipained undean ties nterests
subpart, ahe bankinges of:
e fund withrs, subject
tment in thection.
covered and its
uce, througinterests o(B) of this
ablishmentraph (e) of graph
f this e or held number o
ates in a percent of ance with
king entity e Act (15 the
ed the
x A
p er
a g
h t to
he
gh of
t of f
r
SC1:46
amouExch
the bmay parag
estab
similastrate
an issinto t
valueownebank
businof thicompcons
perce
admiunde
a covcove
bankemplin a cbankemplowne
fund.
71524.5
unt, numbeange Act a
banking ennot exceegraph (c) o
blishment o
ar entity toegy for the
suing entithe issuing
(b)
e of a bankership inteing entity.
ness devels section, panies or fidered to b
ent or mor
nistrative, er applicab
vered fundred fund is
king entity. oyee of a covered fuing entity, oyee to ac
ership inte
Except as
er, or valuand the im
(iiitity and itsd 3 percenof this sect
(ivof a cover
o the covere fund;
ty of assetg entity of a
Rules of c
(1) Att
(i) king entity'rest held u
(ii)lopment coa register
foreign pubbe an affili
re of the vo
and otherble regulati
(iiid will not bes held in co
(ivFor purpobanking end sponsodirectly or
cquire the rest in the
(2) Cas provided
e of ownemplementin
) Aggrs affiliates nt of the tietion, and s
v) Date ed fund sh
(A) red fund b
(B) t-backed sasset-back
constructio
tribution of
For p's permitteunder § __
) Treatompanies ed investmblic fund aate of the
(A) oting share
(B) r services ton, order,
) Covee considerompliance
v) Treatoses of parntity who aored by ther indirectlyownershipcovered f
alculation od in paragr
rship interng regulati
regate limitin all coveer 1 capitashall be ca
of establishall be:
In geneegins mak
Issuing securities, ked securi
on.
f ownershi
purposes oed investm_.12 directl
tment of reand foreig
ment compas describe
banking e
Does noes of the c
Provideto the comor other a
ered fundsred to be ae with the r
tment of eragraph (bacquires ae banking y, extends p interest ifund.
of permitteraph (b)(3)
Appendix
rests of theons issued
t. The aggered funds al of the baalculated a
shment. F
eral. The dking invest
entities ofthe date oties.
ip interests
of paragrapment in any
ly by the b
egistered ign public fupany, SECed in § __.entity so lon
ot own, cocompany o
es investmmpany or fuauthority.
s. For purpan affiliate requiremen
mployee ab)(1)(i) of than ownershentity will financing fn the fund
ed ownersh) or (4), for
x -38-
e fund requd thereund
gregate valacquired
anking entis of the la
or purpose
ate on whtments pur
f asset-bacon which th
s to a cove
ph (a)(2) oy single covbanking en
investmenunds. For
C-regulated10(c)(1) ong as the
ontrol, or hor fund; and
ent advisound in com
oses of paof a banknts of this
and directohis sectionhip interesbe attributfor the pur
d and the fi
hip interesr purposes
uired undeder.
lue of all oor retainedity, as provst day of e
es of this s
ich the invrsuant to th
cked secuhe assets a
ered banki
of this sectvered fundtity, includ
nt companipurposes
d businessf this subpbanking e
old with thd
ory, commmpliance w
aragraph (ing entity ssubpart.
or investmn, an invesst in his or ted to the rpose of einancing is
sts in a sins of determ
er section
ownership d under thvided undeeach calen
section, th
vestment ahe written
urities. In thare initially
ing entity.
tion, the amd shall inclding any af
ies, SEC-rof paragra
s developmpart will nontity:
he power to
odity tradiwith the lim
b)(1)(i) of so long as
ments finanstment by her persobanking enabling thes used to a
ngle coveremining whe
Appendix
15G of the
interests ois section er ndar quarte
e date of
adviser or investmen
he case ofy transferre
mount andude any ffiliate of th
regulated aph (b)(1)(ment ot be
o vote 25
ng advisormitations
this sectios the
ced by thea director nal capacintity if the e director acquire su
ed ether an
x A
e
of
er.
nt
f ed
d
he
(i)
ry,
on,
e or ity
or ch
SC1:46
invesparag
held sectiointere(both
by thcontrinvesday oinvesbasis
sectioits invacco
intereinvesparag
the Eaccoof the
date apply(a)(2valueadditthe s
date applythe faotherconspurpo
sectiointereownethe s
71524.5
stment in agraphs (a)
by the banon by the ests held bh measured
e banking ributions mstments in of each castment). If s of all inve
on, once avestment arding to th
est in an isstment in agraphs (a)
Exchange Arding to the Exchang
of such imy), the calc)(iv)(B) of
ed for purpional secuales of ow
of such imy), the aggair market r assets otistent withoses.
on, the vaests must ership inteame stand
a single co)(2)(i)(B) a
(i) nking entitbanking enby all entitid without r
(ii) entity sha
made to theand capitalendar quafair markeestments i
(iiia valuationand the inve same st
(3) Issssuing entia single co)(2)(i)(B) a
(i) Act (15 U.e valuatio
ge Act (15
(ii)mplementinculations sthis sectio
poses of traurities of thwnership in
(iiimplementingregate val
value of ththerwise h its determ
(ivluation mebe the samrests held dards.
(4) Mu
overed fundnd (a)(2)(i
The ay shall be ntity in a cies in that regard to c
) The aall be the ae covered al contribuarter (all met value can and con
) For pn methodovestmentstandards.
suing entitiity of asse
overed fundnd (a)(2)(i
For sS.C. 78o-1n methodoU.S.C. 78
) For sng regulatishall be maon or such ansfer to t
he issuing nterests to
) For sng regulatilue of the ohe assets eld by the
mination of
v) For pethodologyme for bothby all othe
ulti-tier fun
d compliesi)(A) of thi
aggregatethe total n
covered funcovered fucommitted
aggregateaggregate fund by th
utions madmeasured wannot be detributions
purposes ology is cho
s of all othe
ies of asseet-backed sd compliesi)(B) of thi
securitizati11), the caology appl8o-11) and
securitizations (or asade as of tearlier da
the covereentity of aunaffiliate
securitizations (or asoutstandintransferreissuing en
f the fair m
purposes oy used to ch the owneers in the c
nd investm
Appendix
s with the s section:
number onumber of nd dividedund, as of funds not
value of tfair marke
he bankingde to that cwithout regeterminedmade by t
of the calcuosen, the bers in the c
et-backed securities, s with the s section:
ons subjecalculationsicable pur the imple
on transacs to which the date ofte on whic
ed fund, ansset-backe
ed investor
on transacs to which ng ownershd to the isntity at suc
market valu
of the calcucalculate thership intecovered fu
ments.
x -39-
restrictions
of the outstownership
d by the totthe last da
t yet called
the outstanet value of g entity, divcovered fugard to com, then the the bankin
ulation undbanking encovered fu
securitiesfor purpos
restrictions
ct to the re shall be m
rsuant to thmenting re
ctions comsuch implef establish
ch the trannd thereafted securitirs.
ctions comsuch implehip interessuing entitch time, deue of those
ulation undhe fair marerests heldund in the s
s on owne
tanding owp interests tal numberay of eachd for invest
nding ownall investm
vided by thnd by all emmitted fuvalue shag entity to
der paragrntity must und in the s
. In the cases of detes on owne
equiremenmade as ohe requiremegulations
mpleted priementing r
hment as dsferred aster only upies are pric
mpleted priementing rsts in the cty of the seetermined e assets fo
der paragrrket value
d by a banksame man
ership inter
wnership inheld unde
r of ownerh calendar tment);
ership intements in ahe value ofentities, asunds not yell be the hthe cover
raph (b)(2)calculate tsame man
se of an oermining w
ership inter
nts of sectif the date ments of s issued the
or to the cregulations
defined in pssets havepon the datced for pu
or to the cregulationscovered funecuritizatioin a mann
or financial
raph (b)(3)of the ownking entitynner and a
Appendix
rests unde
nterests er this ship quarter
erests heldnd capital f all of the laset called foistorical co
red fund;
)(ii) of this the value onner and
ownership whether anrests unde
on 15G ofand
section 15Gereunder;
compliances do not paragraph been te on whicrposes of
compliances do not nd shall beon and anyner that is statemen
)(iii) of thisnership
y and the according t
x A
er
d
t or ost
of
n er
f
G or
e
ch
e
e y
nt
s
to
SC1:46
stratesingleparagsuch entityentityof the
offerscovethat totherbankof funamou
of all contrin covconnhisto
sectio
bankshall recen
capita
indireamoudesc
direc
entitycompcoveparag
affiliacomp
71524.5
egy of a coe covered graphs (a)funds sha
y's permittey in the mae master fu
s a coverered funds the bankinr fund shaling entity'snds. The inunt or valu
(c)
ownershipributed by vered fundection withrical cost b
on:
ing entity be equal t
nt calenda
al, the ban
ectly, by a unt of tier 1ribed in pa
tly or indir
y is a subspany, be ered bankingraph (c)(2
ate thereofpany that i
(i) overed funfund (the
)(2)(i)(B) aall be meased investmaster fund,und that is
(ii)ed fund pur(a “fund ofg entity is ll include as pro-rata nvestmentue of any s
Aggregate
(1) Fop intereststhe bankinds (togetheh obtainingbasis.
(2) Ca
(i) is requiredto the amo
ar quarter,
(ii)nking entity
depository1 capital rearagraph (
rectly, by a
sidiary of aequal to theng entity th2)(i) of this
f. If the bans treated a
Mastnd (the “fee“master fund (a)(2)(isured only
ment in the, as well ass held thro
) Fundrsuant to §f funds”) apermitted
any investmshare of at of the bansingle cove
e permitted
or purposes held by ang entity iner with anyg a restrict
alculation o
Entitid to calculaount of tieras reporte
) If a by's tier 1 c
(A) y institutioeported byc)(2)(i) of t
(B) a depositor
a bank holde amount ohat calculas section; a
nking entitas a bank
ter-feeder eder fund”und”), theni) of this se
y by referee master fus the bankugh the fe
d-of-funds § __.11 of and that fun to own, thment by thany ownersnking entitered fund.
d investme
s of paraga banking en connectioy amountsted profit in
of tier 1 ca
ies that areate and rer 1 capital ed to its pr
banking encapital sha
In the cn that calcy such conthis sectio
In the cry institutio
(1) ding compof tier 1 ca
ates and reand
(2) ty is not a holding co
Appendix
fund inves) is to inve
n for purpoection, the
ence to theund shall inking entity'eeder fund
investmenthis subpand of fundhen the bahe bankingship interety may not
ents in all c
graph (a)(2entity shalon with ac
s paid by thnterest un
apital. For
e requiredport tier 1 of the banimary finan
ntity is not ll be deter
case of a bculates andntrolling deon;
case of a bon that cal
Bank holdpany or comapital repoeports tier
Other holdsubsidiaryompany, b
x -40-
stments. If est substanoses of thee banking ee value of tnclude anys pro-rata ; and
nts. If a baart for the s itself inv
anking entig entity in test of the fut represent
covered fu
2)(iii) of thisl be the su
cquiring or he entity (oder § __.1
purposes
d to hold ancapital, th
nking entityncial regul
required tormined to b
banking end reports t
epository in
banking enculates an
ding compampany tharted by the1 capital in
ding compy of a bankbe equal to
f the princintially all o
e investmeentity's pethe mastery investmeshare of a
nking entitpurpose o
vests in anty's permitthat other fund that ist more tha
unds.
s section, um of all amretaining a
or employe0(d)(65)(ii
of paragra
nd report the bankingy as of thelatory age
o calculatebe equal to
ntity that is tier 1 capitnstitution i
ntity that is nd reports
any subsidat is treatede top-tier an the man
panies andk holding co the total a
pal investmof its assetnt limitatiormitted invr fund. Theent by the any owner
ty organizeof investingother covetted investfund, as w
s held throan 3 percen
the aggregmounts paan ownersee thereofi) of this su
aph (a)(2)(
tier 1 capit entity's tie
e last day oncy; and
e and repoo:
controlledtal, be equn the man
not controtier 1 capi
diaries. If td as a banaffiliate of sner descri
d any subscompany oamount of
Appendix
ment ts in anothons in vestment ie banking banking
rship intere
es and g in other ered fund tment in th
well as the ugh the funt of the
gate valueaid or ship interesf) in ubpart), on
iii) of this
tal. If a er 1 capitaof the mos
ort tier 1
d, directly oual to the ner
olled, tal:
he bankinnk holding such bed in
sidiary or or a
x A
er
n
est
hat
nd
e
st
n a
al t
or
g
SC1:46
sharemoststand
(c)(2)direcStatecapita
bankand isectioof thi
calcudedusectio
connthe e__.10
coveamouinterelosse
undeextenintere
of the
addre
invesparag
underelate
71524.5
eholders' et recent cadards.
)(iii)(B) of ttly or indir
es or of anal of the e
ing entity ts controlleon, the bas section.
(d) ulating comct from theon) the gre
ection withentity (or em0(d)(65)(ii)
red fund aunts paid best under §es) of the f
(e)
er paragrapnsion woulest. An ap
e applicab
esses the
stment in agraph (a)(2
er paragraped to the p
equity of thalendar qua
(iii
this sectiorectly by, ay State, thntity as ca
that is locaed by a fornking entit
Capital trempliance we banking eater of:
(1) Thh acquiringmployee th) of subpar
(2) Thas determinby the enti§ __.10(d)fund invest
Extension
(1) Upph (a)(2)(i)ld be consplication fo
(i) le time pe
(ii)factors in
(iiia covered f2) of this s
(2) Faph (e)(1) opermitted in
he top-tier arter that h
) Treat
(A) n, with res
a banking ehe tier 1 caalculated u
(B) ated or orgreign bankty's tier 1 c
eatment fowith the ap
entity's tie
he sum of ag or retainhereof) in rt C), on a
he fair marned underty (or emp)(65)(ii) of tment in its
n of time to
pon applica) of this sesistent withor extensio
Be suriod;
) Proviparagraph
) Explafund throu
section.
actors goveof this sectnvestment
affiliate whas ended
tment of fo
Foreignspect to a entity that apital of thender appli
U.S. affganized unking entity capital sha
or a permittplicable re
er 1 capita
all amounting an ownconnectionhistorical
rket value or paragrapployee thersubpart Cs financial
o divest an
ation by a ection for uh safety anon must:
ubmitted to
ide the reah (e)(2) of
ain the banugh redem
erning the ion, the Bot in a cove
Appendix
ithin such d, as deter
oreign ban
n banking ebanking eis located e banking icable hom
filiates of fnder the laidentified uall be as ca
ted investmegulatory cl (as deter
ts paid or cnership intn with obtacost basis
of the banh (b)(2)(ii) reof) in co), if the bastatemen
n ownership
banking eup to 2 addnd soundne
o the Boar
asons for athis sectio
nking entitption, sale
Board detoard may cered fund,
x -41-
organizatimined und
nking entiti
entities. Exntity that isor organizentity sha
me country
foreign banaws of the under paraalculated u
ment in a ccapital requrmined und
contributedterest (togaining a res, plus any
king entityor (b)(3) onnection w
anking entits.
ip interest.
entity, the Bditional yeaess and no
rd at least
applicationon; and
ty's plan foe, dilution o
terminationconsider aincluding:
ion as of thder applica
ies.
xcept as ps not itselfzed under
all be the cy standards
nking entitUnited Staagraph (c)under para
covered fuuirementsder paragr
d by the bether with
estricted pry earnings
y's ownersof this sectwith obtainty account
Board mayars if the Bot detrime
90 days p
n, including
or reducingor other m
ns. In revieall the facts
he last dayable accou
provided inf, and is nothe laws oonsolidates.
ties. With rates or of a(2)(iii)(A) o
agraphs (c
und. For pu, a bankingraph (c)(2)
anking ent any amourofit interereceived;
hip interestion (toget
ning a restrts for the p
y extend thBoard findsntal to the
prior to the
g informati
g the permethods as
ewing anys and circu
Appendix
y of the unting
n paragrapot controlleof the United tier 1
respect to any State of this c)(2)(i) or (i
urposes ofg entity sh) of this
tity in unts paid bst under §and
sts in the ther with aricted profprofits (or
he period s that an e public
expiration
ion that
mitted s required i
y applicatioumstances
x A
ph ed ted
a
ii)
f hall
by §
ny fit
n
in
on s
SC1:46
mate
cove
sufficentity
and tthe b
inves
invesand u
sale, relate
extenparagthe saddrethe p
anothagen(e)(1
§ __.
respeis desrisks
entityadvis
on becusto
71524.5
erial expos
red fund;
cient invesy to comply
the risks thbanking en
stment with
stment wouunaffiliated
dilution, oed to the m
nsion periograph (e)(1afety and ess materi
purposes o
her Federacy prior to) of this se
13 Othe
(a)
ect to an osigned to dto the ban
y or an affisory or oth
ehalf of a comer to the
(i) ure by the
(ii)
(iiistments froy with the
(ivhat dispositity and th
(v)hin the app
(viuld involved parties, i
(vior other memarketing o
(vi
(ix
(3) Auod. The Bo1) of this ssoundnesial conflicts
of section 1
(4) Coal banking o acting onection.
r permitte
Permitted
(1) Thownership demonstranking entity
(i) liate thereer service
(ii)customer te profits an
Whete banking e
) The c
) The dom investolimitations
v) The ting of, or me financia
) The cplicable pe
) Whete or result ncluding c
i) The bethods its of interests
ii) Mark
x) Any o
uthority to ioard may isection as s of the bas of interes13 of the B
onsultationagency, t
n an applic
ed covered
d risk-mitiga
he prohibitiinterest in
ably reducy in conne
a comeof that dires to the co
) A posthat is not nd losses
ther the inentity to hi
contractua
date on whors unaffilias in paragr
total exposmaintainingl stability o
cost to theeriod;
ther the inin a mater
clients, cus
banking enownerships in such c
ket conditio
other facto
impose rempose suthe Boardanking entst or other
BHC Act an
n. In the cahe SEC, oation by th
d fund ac
ating hedg
ion contain a coverede or otherw
ection with
mpensatioectly proviovered fun
sition takeitself a baof the cov
Appendix
vestment gh-risk as
al terms go
hich the coated with thraph (a)(2)
sure of theg, the inveof the Unite
e banking e
vestment rial conflictstomers or
ntity's priop interests covered fu
ons; and
or that the
strictions och conditio determinetity or the fr unsound nd this par
ase of a baor the CFThe banking
ctivities an
ging activit
ned in § __d fund acqwise signif:
n arrangedes invest
nd.; or
en by the banking entiered fund.
x -42-
would resusets or hig
overning th
overed funhe banking)(i) of this s
e covered estment in ed States;
entity of di
or the divet of interesr counterpa
r efforts toin the cov
und;
Board bel
on activitieons on anyes are necfinancial stbanking p
rt.
anking entTC, the Boag entity for
nd investm
ties.
_.10(a) of quired or reficantly mi
ment with tment adv
banking enty to facilit.
ult, directlygh-risk trad
he banking
nd is expecg entity to section;
banking ethe covere
vesting or
estiture or st betweenarties to w
o reduce thvered fund
ieves app
es or invesy extensiocessary or tability of t
practices, o
ity that is pard will cor an extens
ments.
this subpaetained by tigate the
an employisory, com
ntity when tate the ex
y or indirecding strate
g entity's in
cted to havenable the
ntity to theed fund m
r disposing
conforman the bankwhich it owe
hrough red, including
ropriate.
stment duron approve
appropriathe United or otherwis
primarily rensult with sion under
art does noy a bankingspecific, id
yee of the mmodity tra
acting as ixposure by
Appendix
ctly, in a egies;
nterest in t
ve attractee banking
e investmeay pose to
g of the
nce of the ing entity es a duty;
demption, g activities
ring any ed under ate to prote
States, se further
egulated bsuch r paragrap
ot apply wg entity thadentifiable
banking ading
intermediay the
x A
the
ed
ent o
ect
by
h
ith at
ary
SC1:46
are p
and epart trequi
and a
proce
otherone oaccowith tadvis
signifthis s
mana
to pathe b(a)(1entityunde
State
the aby a
contrmore
parag
sold t
71524.5
permitted u
enforces athat is reasrements o
authorizati
edures, an
rwise signior more spmmodate the compesory, comm
ficant newsection; an
agement b
aragraph (abanking en)(i) and suy on such oer such com
(b) es.
acquisition banking e
rolled by a e States;
graph (9) o
to a reside
(1)(2) Reunder this
(i) an internal sonably deof this sect
on proced
(ii)
nd internal
ificantly mpecific, idea specific
ensation armodity trad
w or additiond
by the bank
(iiia)(1)(i), thetity or any
uch compeownershipmpensatio
Certain pe
(1) Thor retentiontity only i
(i) banking e
(ii)or (13) of s
(iiient of the U
equiremenparagraph
The bcomplianc
esigned totion, includ
(A)
(B) dures, inclu
) The a
(A) controls re
(B) itigate andntifiable riscustomer rrangemending adviso
(C) onal risk th
(D) king entity
) With e compensy affiliate haensation arp interest wn arrange
ermitted co
he prohibition of any oif:
The bentity that
) The asection 4(c
) No owUnited Sta
nts. The rish (a) only if
banking ence programo ensure thding:
Reason
Internaluding relev
acquisition
Is madeequired un
At the ind demonstsks arisingrequest w
nt with theory, or oth
Does noat is not its
Is subjey.
respect tosation arraas acquirerrangemenwill be offsement.
overed fun
ion containownership
banking enis organize
activity or c) of the B
wnership iates; and
Appendix
sk-mitigatinf:
ntity has em requiredhe banking
nably desig
l controls avant escal
n or retenti
e in accordnder this s
nception orably redug (1) out of
with respece employeeer service
ot give riseself hedge
ect to cont
o risk-mitigangement ed an ownent provideset by corre
nd activitie
ned in § __interest in
ntity is noted under t
investmenHC Act;
interest in
x -43-
ng hedging
establishedd by in accog entity’s co
gned writte
and ongoination proc
ion of the o
dance withection;
of the hedguces or othf a transac
ct to the coe that direcs to the co
e, at the ined contem
inuing revi
gating hedgrelates soership intes that any esponding
s and inve
_.10(a) of n, or the sp
t organizedthe laws of
nt by the b
the covere
g activities
d and impleordance wompliance
en policies
ng monitorcedures; an
ownership
h the writte
ge, is desigherwise sigction condovered functly providovered fun
nception ofporaneous
iew, monit
ging activitlely to the
erest pursulosses inc decrease
estments o
this subpaponsorship
d or directlf the Unite
anking ent
ed fund is
s of a bank
ements, mwith subpare with the
s and proc
ring, manand
p interest:
en policies
gned to regnificantly ucted soled or (2) in es investmd;
f the hedgsly in acco
toring and
ty conductcovered f
uant to thiscurred by thes in amou
outside of t
art does nop of, a cov
ly or indireed States o
tity is purs
offered fo
Appendix
king entity
maintains rt D of this
cedures; an
agement,
,
duce or mitigates
ely to connectio
ment
e, to any ordance wi
ted pursuafund in whis paragraphe bankingnts payab
the United
ot apply tovered fund
ectly or of one o
suant to
or sale or
x A
s
nd
on
ith
ant ich ph g le
d
o
or
SC1:46
State
(9) orif:
requi
organof seapplic
bankof onthe fo
the U
bankthe b
bankof the
residor hasold awhichan afadvisbankany o
purpo
the acontrorgan
decislocateand
from
71524.5
es.
r (13) of se
rements o
nization, thction 211.cable; or
ing organie or more ollowing re
United Stat
ing entity obanking en
ing entity oe banking
ent of the as been soand has nh the bankffiliate sposer, comming entity o
offer or sal
oses of pa
acquisition rolled direcnized unde
sion to acqed in the U
risk-mitiga
(iv
(2) Anection 4(c)
(i) of this sect
(ii)he banking23(a), (c)
zation, the States an
equiremen
tes exceed
outside of tity in the
outside of entity in th
(3) AnUnited Sta
old pursuanot been so
king entity nsors or sodity pool or affiliate le by the c
(4) Anaragraph (b
(i) or retentio
ctly or indirer the laws
(ii)quire or retUnited Sta
(iiiating hedg
v) The a
n activity o) of the BH
The ation; and
) (A) Wg entity meor (e) of th
(B) e banking nd the bants:
d total asse
the UnitedUnited Sta
the Unitedhe United S
n ownershiates for punt to an offold pursuaor any affierves, direoperator owill be de
covered fun
n activity ob)(1)(iv) of
The bon of an owrectly by, as of the Un
) The btain the owtes or orga
) The iging related
activity or
r investmeHC Act for
activity or
With respeceets the quhe Board's
With resentity is noking entity
(1) ets of the
(2) d States eates; or
(3) d States eStates.
ip interest urposes of fering that
ant to an ofiliate of theectly or indor commodemed for pnd of owne
r investmef this sectio
banking enwnership ia banking nited State
banking enwnership inanized und
investmend to an ow
Appendix
investmen
ent by the purposes
investmen
ct to a banualifying fos Regulatio
spect to a ot organizey, on a fully
Total assebanking e
Total revexceed tota
Total net ixceeds tot
in a coverf paragrapht does not ffering thae banking directly, asdity tradingpurposes oership inte
ent occurs on only if:
ntity actingnterest in entity that
es or of an
ntity (inclunterest or ader the law
nt or sponswnership in
x -44-
nt occurs s
banking eof paragra
nt is condu
nking entityoreign banon K (12 C
banking eed under ty-consolida
ets of the bntity held i
enues derival revenue
income detal net inco
red fund ish (b)(1)(iii)target rest targets reentity part
s the invesg advisor tof this para
erests in th
solely out
g as sponsthe coveret is locatedy State;
ding relevact as spows of the U
sorship, incnterest, is n
solely outs
ntity is puraph (b)(1)(
ucted in ac
y that is a king organ
CFR 211.23
entity that ithe laws ofated basis
banking enin the Unit
ved from ts derived
erived fromome derive
s not offere) of this seidents of tesidents oticipates. Itment manto a covereagraph (b)
he covered
tside of the
sor, or enged fund, isd in the Un
ant persononsor to theUnited Stat
cluding annot accoun
ide of the
rsuant to p(ii) of this s
ccordance
foreign banization re3(a), (c) or
is not a forf the Unites, meets at
ntity held oted States
the businefrom the b
m the busined from th
ed for saleection only he United
of the Unitef the banknager, inveed fund, th)(3) to partd fund.
e United S
gaging as ps not itself, nited State
nnel) that me covered tes or of a
y transactnted for as
Appendix
United
paragraph section on
with the
anking equirementr (e)), as
reign ed States ot least two
outside of ;
ss of the business o
ness of thee busines
or sold toif it is soldStates no
ed States iking entity oestment hen the ticipate in
States for
principal inand is not
es or
makes thefund is no
any State;
tion arisings principal
x A
ly
ts
or o of
f
e s
o a d t in or
n t
e ot
g
SC1:46
direcUnite
proviorgan
foreigof whState
compacquintere
intereacco
compwritte
Finanand fthat ais insof the
§ __.
entitycommfund accotranscoveResemem
acco
in whthere
71524.5
tly or indired States o
ded, direcnized unde
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(c) pany. The isition or rest in, or th
est solely funts estab
pliance witen guidanc
ncial Stabiforeign juria particulasufficient toe United S
14 Limit
(a)
y that servmodity tradpursuant trdance wit
saction withred fund, t
erve Act (1ber bank a
rdance wit
hich a coveeof) has tak
rectly on a or organize
(ivctly or indirer the laws
(5) Foor any subsranch, agey virtue of
Permitted prohibition
retention bhe sponso
(1) Thfor the genblished by
(2) Thth, and subce of the S
(3) Thlity Oversiisdictions,
ar law, reguo protect th
States.
tations on
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(1) Exes, directlyding advisoto § __.11 th § __.11h the covethat would2 U.S.C. 3and the co
(2) No
(i) th the requ
(ii)ered fund mken an ow
consolidaed under t
v) No finanrectly, by as of the Un
or purposesidiary theency, or suf operation
d covered fn containey an insur
orship of, a
he insurancneral accothe insura
he acquisitbject to, th
State or jur
he appropright Councas approp
ulation, or he safety a
n relations
hips with a
xcept as pry or indirecor, or sponof this sub(b) of this
ered fund, be a cove371c(b)(7)overed fun
otwithstand
Acquuirements
) Entermanaged,
wnership in
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cing for thany branchnited State
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fund intereed in § __.1rance coma covered f
ce companunt of the
ance comp
ion and rehe insurancrisdiction in
riate Federcil and the priate, havwritten guand sound
ships with
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rovided forctly, as thensor to a cbpart, or thsubpart, aor with anered transa)), as if sucd were an
ding parag
uire and reof § __.11
r into any sponsore
nterest, if:
Appendix
by any braf the Unite
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ection, a Ucated in ths a part is S. branch,
ests and ac10(a) of thpany, or afund only i
ny or its afinsurance
pany;
etention of ce compann which su
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h a covere
fund.
r in paragre investmecovered funhat continuand no affily other coaction as dch banking affiliate th
graph (a)(1
tain any o, § __.12,
prime broked, or advis
x -45-
anch or affed States o
entity's owe that is loy State.
U.S. brance United Snot considagency, o
ctivities byis subpart
an affiliate if:
ffiliate acqe company
the ownerny investmuch insuran
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raph (a)(2)ent managnd, that orues to holdliate of suc
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1) of this se
wnership ior § __.13
kerage trased by suc
filiate that or of any S
wnership oocated in th
h, agency,States; howdered to beor subsidia
y a regulatet does not thereof, of
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rship interement laws, nce compa
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g entity, or
) of this seger, investmrganizes ad an ownech entity, md that is cosection 23d the affilia
ection, a b
interest in 3 of this su
nsaction wch banking
is located State.; and
or sponsorhe United
, or subsidwever, a foe located
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ed insuranapply to thf any owne
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nsultation oners of thnotice andh (c)(2) of the financ
ction, no bment advisnd offers a
ership intermay enter ontrolled b3A of the Fate thereo
banking en
a coveredubpart; and
with any cog entity (or
Appendix
in the
rship is States or
diary of a oreign banin the Unit
nce he ership
e ownershseparate
ducted in ns, and miciled; and
with the he States d commenthis sectio
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banking ser, a covered rest in into a
by such Federal of were a
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71524.5
ations set fed by such
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15 Othe
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ngaging in
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certifies intification if , directly of the cover
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Restrictioner paragrap2 U.S.C. 3
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Definition ct of interenking entitor result instomer, or e banking
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volve or retomers, or
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ose a threaUnited Stat
of materiast betweenty engages
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al conflict on a bankins in any traing entity'sarty with res not taken
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nking entitwith respe
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he certificaee, assumovered fun
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with covereager, invesat organizeld an owne
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material coarties;
rectly, in aategy; or
afety and s
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pecific tranng entity:
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x -46-
ty is in comect to a co
ve officer March 31
ation mateme, or othend in which
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by the ban
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type of tra
Appendix
of the ed and
r) of the th a duty tothe bankinigations o invests;
action is
t serves, ding ursuant towith § (12 U.S.C.e an affiliat
nsaction f the Federg entity.
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banking
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71524.5
ict of interener sufficieerstand the
t, customeerially adveest; or
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Definition
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he bankingere investe
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Qualifyingument issund of any rtrust prefe
x -47-
timely, andmation, in mer, or cou
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period withrity or sub
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assets thang entity wof the Unit
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hall mean 2010 by ain 12 mon
bordinated
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re of the nd in a ngfully
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d enforced as physicasonably event the t, customecase of ans or shouldtion barrie customer
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at would, if would incued States.
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71524.5
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PART D––
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ent framewsection 13f trading limmatters id
Appendix
less than $
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banking envelop and ed to ensuading and is part. Ththe types
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work that c3 of the BHmits, strateentified in
x -48-
$15,000,00
s section, ar described4 and __.1
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71524.5
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our prior cathis sectio
x -49-
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71524.5
rading assuding all suating, locaving obligathe previocalendar qon; or
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exclusions of 1940 reaffiliates)
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that is, or d under theinterests ibanking e
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x -50-
banking enoperationsncies of thnd excludintates or anured as of told establis
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ntity, the avs of the forhe foreign ng trading ny agency the last da
shed in pa
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ency] notify with $50 aragraph (ities” conta
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ubsidiariesom the (c)(9), or tion that th
of subpart lopment eding vehic
ment cle; and tha registerme period
ctly by a of any
e describederests is located
x A
f
s s) r s
ty
gy is
h ys dix hin
e 1
(1)
s
he
C
cle
e red d
d
in
SC1:46
or orgof twoquartsuch fund contifunds
substhat othe Usubs
engaactivisectioactivi__.6(
liabiliDecepursusubpincludrequithe a
asse
a bansubpon an
bankprohitreate
of andesc
71524.5
ganized uno or more ter, documaffiliates) is organiznue until ths is below
idiary of a operates oUnited Statidiary.
(f)
age in activities permion by estaities or ma(a) of subp
ities. A banember 31 ouant to subart B)modding in its rements o
activities, s
(g) Rts and liab
nking entitart B and n ongoing
ing entity bited undeed under t
y determinribed in th
nder the laconsecuti
mentation oin each foed, calculahe banking$50 millio
(5) Forforeign ba
or controls tes solely b
Simplified
(1) Banvities or invitted pursuablishing thaking suchpart B).
(2) Bannking entitof the prevbpart B or erate tradexisting co
of section 1size, scope
Rebuttablebilities.
(1) Rey with limitsubpart C basis.
(2) Re
(i) has engager subpart his part as
(ii)
nation pursis paragra
aws of the ve calenda
of the valueoreign pubated as of g entity's an for two c
r purposesanking entthat brancby virtue o
programs
nking entitvestmentsuant to § __he required investme
nking entitiety with totavious two csubpart Cing assetsompliance13 of the Be, and com
e presumpt
ebuttable pted tradingand shall
ebuttal of p
If upoged in propB or subp
s if it did no
) Notic
(A) suant to pa
aph (g) and
(B)
United Staar quarterse of the owlic fund anthe end o
aggregate consecutiv
s of paragrtity is locatch, agencyof operatin
s for less a
ties with nos pursuant __.6(a) of sd compliannts (other
es with moal consolidcalendar y
C (other thas and liabile policies aBHC Act anmplexity of
tion of com
presumptiog assets ahave no o
presumptio
on examinprietary trapart C, the ot have lim
ce and Res
Notice. aragraph (d will provi
Respon
Appendix
ates or of s, beginninwnership innd each jurf each caleamount o
ve calenda
raph (e)(4)ted in the Uy, or subsig or contro
active bank
o covered to subpar
subpart B) nce prograthan tradin
odest activated asseears that ean trading ities may s
and procednd this parthe bankin
mpliance fo
on. Exceptnd liabilitie
obligation t
on.
ation or auading or co
[Agency] mited tradin
sponse Pr
The [Agen(g)(2)(i) of de an exp
nse.
x -51-
any State)ng with thenterests owrisdiction iendar quaf ownersh
ar quarters
) of this seUnited Stadiary is noolling the U
king entitie
activities. t B or subpmay satis
am prior tong activitie
vities.modeets of $10 bengages inactivities p
satisfy thedures apprrt and adjung entity.
or banking
t as otherwes shall beto demons
udit, the [Aovered funmay requing assets
rocedures.
ncy] will nof this sectioplanation o
) exceeds e next sucwned by thn which an
arter, whichip interests; and
ction, a U.ates; howeot considerU.S. branc
es.
A bankingpart C (oth
sfy the requo becominges permitte
erate tradibillion or len activitiespermitted requiremeropriate reustments a
g entities w
wise provide presumestrate com
Agency] ded activitiesre the banand liabilit
otify the baon to rebutof the deter
$50 millioceeding cahe bankingny such foh documens in foreig
.S. branchever, the fored to be loch, agency
g entity thaher than trauirements g engageded pursuan
ing assets ess as repos or investmunder § .6ents of thisferences tas appropr
with limited
ded in this d to be copliance wi
etermines s that are nking entityties.
anking entt the presurmination.
Appendix
n at the enalendar g entity (an
oreign publntation mun public
h, agency, oreign banocated in y, or
at does noading of this
d in such nt to §
and orted on ments 6(a) of s section bto the riate given
d trading
paragraphompliant with this par
that the otherwise y to be
tity in writinumption
x A
nd
nd lic ust
or k
t
by
h, ith rt
ng
SC1:46
in theany mbanksubp[AgenThe [condof themay
time the [A
[Agenconceentitysubpan ex
[Ageliabihad or cosubpthis appl
§ __.
of serequiactivirequithe a
engapart, requiby lawthe bany i
71524.5
e notice dematters thaing entity art B or suncy] officia[Agency] mition of thee new timeextend the
period as Agency]’s
ncy] will deerning they has engaart C. Thexplanation
(h) ency] retailities to apsignificanomplexity part B or ssection orlicable.
21 Term
(a) ction 13 orements oity or invesrements o
activity and
(b) aged in an
or engagerements ow to enfor
banking ennvestment
escribed inat the bankhas engagubpart C. Tal within 30may shortee banking e period, oe time peri
may be spdetermina
ecide, base banking eaged in proe banking e of the dec
Reservations its auth
pply any ret or moderof the ban
subpart C, r treatment
mination of
Any bankif the BHC
of section 1stment perof section 1d, as releva
Wheneveractivity or
ed in any aof section 1rce compliatity to restt.
n paragrapking entityged in propThe respon0 days afteen the timeentity so re
or with the iod for goo
pecified byation.
(C) sed on a reentity, wheoprietary trentity will bcision.
on of authhority to reequirementrate tradinnking entity
does not wt as a ban
f activities
ing entity tAct or this
13 of the Brmitted und13 of the Bant, dispos
r the Boardmade an
activity or m13 of the Bance with trict, limit, o
(I) ph (g)(2)(ii)y would haprietary transe must ber the datee period wequires, pconsent o
od cause.
(II) y the [Agen
After theview of thether to marading or cbe notified
ority. Notwquire a bats of this pg assets ay’s tradingwarrant a king entity
s or inves
that engags part, or aBHC Act order subpa
BHC Act orse of the in
d finds reainvestmenmade any BHC Act orsection 13or termina
Appendix
The banki)(A) of thisve the [Ag
ading or cobe in writine on whichhen, in therovided th
of the bank
Failure to ncy] shall c
e close of he bankingaintain thecovered fu of the dec
withstandinanking entipart that woand liabiliti or investmpresumpti
y with mod
stments; p
ges in an aacts in a mr this part,
arts B or Cr this part,nvestment
asonable cnt in violatiinvestmenr this part,3 of the BHate any or a
x -52-
ing entity ms section. Tgency] conovered funng and delh the bankie opinion oat the ban
king entity.
respond wconstitute
banking eg entity’s re [Agency]’
und activitiecision in w
ng any othty without ould otheres if the [Ament activion of comerate trad
penalties
activity or mmanner tha
including , or otherw shall, upot.
cause to beion of sectnt that func the Board
HC Act andall activitie
may respoThe responsider in ded activitieslivered to ting entity rof the [Agenking entity In its disc
within 30 da waiver o
entity’s resesponse as determines prohibit
writing. The
her provisiosignifican
rwise applyAgency] deities, or the
mpliance uning assets
for violati
makes an at functions
through awise violateon discove
elieve anytion 13 of tctions as ad may taked this part,es under th
ond to any nse shouldeciding whs prohibitethe designreceived thency], the ay is informcretion, the
days or sucof any obje
sponse pernd other innation thatted under e notice w
on of this pt trading ay if the banetermines e risk of evnder parags and liabil
ions.
investmens as an ev
an abuse oes the restery, promp
y banking ethe BHC Aan evasione any actio, including his part an
Appendix
or all itemd include hether the ed under nated he notice. activities oed prompte [Agency
ch other ections to
riod, the nformationt banking subpart B
will include
part, the assets andnking entitthat the sivasion of graph (g) oities, as
nt in violatiasion of th
of any trictions antly termina
entity has Act or this n of the on permitte
directing d dispose
x A
ms
or tly
y]
n
or
ty ize
of
on he
nd ate
ed
of
SC1:46
AppeTrad
I.
banksubpapplietradin[Agenwhichmainof thiunde
bank
exam
engarequi
engaand mgoveor ind
entityfrequ
cove
this aor im
metrithe dreviseSepte
entityeffecand t
71524.5
endix A toing Activi
Purposa.
ing entitiesart B (“proes to a bang assets ncy] regarh vary deptain records appendi
er § __.20
b.
ing entity’s
mination by
aged in marements g
aged in permarket marnment obdirectly, in
y, and the uency and
red trading
c. appendix apermissib
In ordercs, bankinates estabe this colleember 30,
d. y may neetively monthis part an
o Part __ —ities
se This appes must sat
oprietary trnking entitand liabilit
rding a varpending onds documex must be and Appe
The purpo
(i) Bes covered
(ii) Mo
(iii) Idey the bank
(iv) Evarket makingoverning p
(v) Evrmitted traaking-relatebligations)
a materia
(vi) Ideindividual scope of e
(vii) Asg activities
The quantareis not inle activitie
r to allow bng entities blished in §ection requ 2015.
In additiond to devel
nitor its covnd to have
—Reporti
endix sets ftisfy in conrading restty that, togties. Theseriety of quan the scopeenting the incorpora
endix B.
ose of this
etter undertrading ac
onitoring th
entifying coing entity t
valuating wng-related permitted
valuating wding activied relatedare consisl exposure
entifying thtrading de
examinatio
ssessing as.
titative mentended tos.
banking enmust colle§.20 of theuirement a
n to the quop and imvered trade an effecti
ng and Re
forth repornnection wtrictions”). gether withe entities aantitative me and sizepreparatio
ated into th
appendix
rstanding activities;
he banking
overed trato verify co
whether theactivities market ma
whether thety subject activity, ristent with te to high-ri
he profile oesks of theon by the [
nd addres
easuremen serve as
ntities and ect and repe final ruleas appropr
uantitative plement oing activitiive compli
Appendix
ecordkee
rting and rwith the res
Pursuant h its affiliatare requiremeasureme of covereon and conhe banking
is to assis
and evalua
g entity’s c
ading activompliance
e covered subject to aking-relat
e covered to §§ __.4
isk-mitigatthe requireisk assets
of particulae banking e[Agency] o
ssing the ri
ntsInformaa dispositi
the Agencport these . The Ageriate based
measuremother quantes for comance prog
x -53-
ping Requ
recordkeepstrictions oto § __.20tes and sued to (i) furents of the
ed trading antent of theg entity’s in
st banking
ating the s
covered tra
ities that we with the p
trading ac§ __.4(b)
ted activitie
trading ac4, __.5, or ting hedginement thator high-ris
ar coveredentity, to h
of such act
isks assoc
tion that mive tool for
cies to evametrics foncies will rd on a revi
ments requtitative me
mpliance wgram, as re
uirements
ping requiron proprieta0(d), this apbsidiaries,rnish perioeir coveredactivities, ese reportnternal com
entities an
scope, type
ading activ
warrant furproprietary
ctivities of are consises;
ctivities of __.6(a)-(b
ng, or tradit such actisk trading
d trading achelp establtivities; and
ciated with
must be furr the identi
aluate the or all tradinreview theew of the
uired in thieasuremenwith sectionequired by
s for Cove
rements thary tradingppendix ge, has signi
odic reportsd trading aand (ii) cres. The req
mpliance p
nd the [Ag
e, and prof
vities;
rther reviewy trading re
trading destent with t
trading deb) (i.e., unding in certavity not restrategies
ctivities of ish the apd
the banki
rnished puification of
effectivenng desks be data colledata colle
s appendixnts in orden 13 of the§.20 and
Appendix
ered
hat certain g set forth enerally ficant s to the activities, eate and quirementsprogram
ency] in:
file of the
w or estrictions;
esks the
esks that aderwriting ain
esult, direct;
f the bankippropriate
ng entity’s
ursuant to f permissib
ess of thebeginning oected and cted prior
x, a bankinr to
e BHC Act Appendix
x A
in
s
;
are
tly
ng
s
ble
se on
to
ng
B
SC1:46
to thion thparticand hmakethey activientitypart.
evaluutilizemeasincludresulescaremeshoucove
II.
__.3.
and rcond
meas
sourcdecreand e
__.6(cond
must
purchaffilia
71524.5
s part. _ .2e profile o
cular tradinhistory ander or a newhave robuities, to eny, and to m
e. uate all fure in order surement rding with rt in a matelated withi
ediation, wld be helpred trading
DefinitiThe term
In additio
Applicareport a paucted by t
Calculasurement m
Compreces of tradease in theexpense.
Covere(a), or __.6ucted und
Measurt be calcula
Tradinghases or sate thereof
III. Trad
20. The effof the bankng desk, ind experienw entrant tust measurnsure that tmonitor and
On an ongrnished quto maintairesults tharespect to erial exposn the bankhere approful to bankg activities
ions ms used in
on, for purp
ability identarticular quhe trading
ation periodmust be ca
ehensive pding revenue market v
d trading a6(b). A baer §§ _.3(
rement freated and r
g desk measells financf.
ding day m
ffectivenesking entity’ncluding tynce (e.g., wo a comperes in placthe activitid examine
going basiantitative mn complian
at indicate otherwise
sure to higking entityopriate. Thking entities.
n this appeposes of th
tifies the truantitative g desk.
d means thalculated.
profit and lue over a svalue of a t
activity meanking entid), e), __.6
quency merecorded.
ans the smcial instrum
means a ca
ss of partics business
ypes of inswhether theetitive mare to identifes are with
e for comp
s, bankingmeasuremnce with sa heighten-permittedh-risk ass
y for reviewhe quantitaes in identi
endix havehis append
rading desmeasurem
he period
loss meanspecific petrading des
eans tradinty may inc6(c), __.6(
eans the f
mallest discments for th
alendar da
Appendix
cular quantses in gen
struments te trading dket). In all fy and mohin risk tolliance with
g entities mments, as wection 13 ned risk ofd activities ets or high
w, further aative measfying and
e the samedix, the foll
sks for whiment base
of time for
s the net period of timsk’s holdin
ng conductclude in its(d), or __.6
frequency
crete unit he trading
ay on whic
x -54-
titative meneral and, mtraded, tradesk is an cases, ba
onitor the rilerances eh the propr
must carefwell as anyof the BHCf impermisunder §§
h-risk tradianalysis, esurementsmanaging
e meaninglowing def
ch a banked on the ty
r which a p
profit or losme, includings, divide
ted by a tr covered t6(e).
with which
of organizaccount o
ch a trading
easuremenmore spec
ading activestablishe
anking entiisks taken
establishedrietary trad
ully monitoy others thC Act and ssible prop__.4 throung strategxplanation
s discussedg the risks
gs as set fofinitions ap
ing entity iype of cov
particular q
ss of a tradng, for exa
end income
rading destrading act
h a particu
zation of a of the bank
g desk is o
nts may difcifically, of ities and sed, succesities must in their tra
d by the bading restric
or, review,hat they chthis part. A
prietary tradugh __6(a)gies, must n to the [Agd in this aprelated to
orth in §§ _pply:
is requiredvered tradi
quantitative
ding desk’ample, anye, and inte
k under §§tivity tradin
lar quantit
banking eking entity
open for tr
Appendix
ffer based f the strategies, ssful markeensure thaading anking ctions in th
and hoose to All ding, )-(b), or thabe gency], anppendix their
__.2 and
d to calculang activity
e
s material y increaseerest incom
§ __.4, __.ng
tative metr
entity that or an
ading.
x A
et at
his
at
nd
ate y
or
me
.5,
ric
SC1:46
III.
this papplicactivi
___.2regar
subjeas fu
must
§ __.this abanktime.
enga
71524.5
Reporta.
1. partappendcable, for ities and c
2. 20 must prrding each
3. ect to this arther desc
4. t provide a
5. 20 must p
appendix, ing entity
b.
Each baaged in cov
ing and RA. Scope General sdix by § __each tradi
calculate th
• Risk
• Risk
• Valu
• Com
• Posit
Transa
Secur
• Custom
Trading derovide certh trading d
Quantitatiappendix b
cribed in th
Narrative a separate
File identiprovide fileincluding tby the Boa
Trading Danking entvered tradi
Name identif
Identifis eng
Brief d
A list osold binstrumtradingspecif
Recordkeeof Requir
scope.Qua_.20 must ng desk o
hese quan
k and Posit
k Factor Se
ue-at-Risk
mprehensiv
tions;
action Volu
ities Inven
mer-Facing
esk informtain descriesk engag
ive measurby § _.20 m
his append
statementnarrative s
ifying inform identifyingthe name oard, and id
Desk Infortity must ping activitie
of the tradfication lab
fication of eaged;
description
of the typey the tradiments or pg desks enication of w
eping of Qred Reporntitative mfurnish thef the banktitative me
tion Limits
ensitivities
and Stres
ve Profit a
umes; and
tory Aging
Trade Ra
mation. Eaciptive inforged in cove
rements idmust provi
dix, regardi
t. Each banstatement
rmation. Eag informatof the bandentificatio
rmation provide deses, includi
ding desk bel for the t
each type
n of the ge
es of financng desk; a
products pungaged in whether ea
Appendix
Quantitativrting
measuremee following
king entity, easuremen
s and Usag
s;
ss VaRStre
nd Loss A
d
g; and.
tio
ch bankingrmation, asered tradin
dentifying iide certaining its qua
nking entit, as furthe
ach bankinion in eachking entity
on of the re
scriptive inng:
used intertrading de
of covere
neral strat
cial instruman indicatiourchased amarket maach type o
x -55-
ve Measu
ents. Eachg quantitat
calculatednts in acco
ge;
essed Valu
Attribution;
g entity mas further deng activitie
informationn identifyinantitative m
ty made suer describe
ng entity mh submissy, the RSSeporting pe
nformation
rnally by thesk;
d trading a
tegy of the
ments and on of whicand sold baking-relat
of financial
rements
h banking ive measud engagedordance wi
ue-at-Risk
ade subjecescribed in
es.
n. Each bag and des
measureme
ubject to thed in this a
made subjesion to the SD ID assigeriod and c
regarding
he banking
activity in w
e trading de
other prodch of theseby the tradted activiti instrumen
entity madurements, d in covereith this app
;
ct to this apn this appe
anking entscriptive infents.
his appendappendix.
ect to this a[Agency] p
gned to thecreation da
g each trad
g entity and
which the
esk;
ducts purce are the ming desk; aes under §nt is includ
Appendix
de subjectas
ed trading pendix:
ppendix byendix,
tity made formation,
dix by § _.
appendix bpursuant te top-tier ate and
ding desk
d a unique
trading de
chased andmain financand, for § __.4(b), ded in
x A
t to
y §
,
20
by to
e
esk
d cial
SC1:46
meas
71524.5
c.
Each basurements
markeadditiomeasuunder
Identifentity findicatfor cov
For eaactivitilegal e
o NaFe
o Stasa
o U.de
o Swfuttrade
o Sta
o Ba
o Fo
o Un
o Otdeab
Indicafor the
Curren
Quantitatanking ents:
A RiskdescriPositiothe limwhethlimit, wlimit;
et-maker poon, indicateurements p§ __.3(d)(
fication by for coveretion of whivered trad
ach legal eies, specifentity:
ational banederal savi
ate nonmevings asso
S.-registerealer, U.S.-
wap dealertures commading advisealer;
ate memb
ank holding
oreign bank
ninsured S
ther entity escribed abbove;
tion of whee trading de
ncy reporte
tive Measutity must p
k and Posiptive inforon Limits a
mit, a uniquer the limit
whether th
ositions ore whether products e(2) and, if s
complete ed trading aich of the iing activiti
entity that sication of a
nk, Federangs assoc
ember banociation;
red broker- registere
r, major swmission msor, introdu
er bank;
g company
king organ
State-licens
type not lisbove wher
ether eachesk; and
ed and da
urementsprovide the
tion Limitsmation forand Usageue identifict is intradae limit mea
Appendix
r not includthe tradin
excluded frso, identify
name of eactivities cdentified les of the t
serves as any of the
al branch ociation, Fe
nk, foreign
r-dealer, Ud major se
wap particierchant, cucing brok
y, savings
nization as
sed branch
sted abovere the subs
h calendar
ily currenc
s Identifyine following
s Informatir each limite quantitatcation labeay or end-oasures risk
x -56-
ded in marg desk is irom the dey such pro
each legal conducted egal entitietrading des
a bookingfollowing
or Federal deral savin
bank havi
U.S.-registeecurity-bas
ipant, derivcommodity ker, floor tr
and loan
s defined in
h or agenc
e, includinsidiary itse
r date is a
cy convers
ng Informinformatio
on Schedut reported ive measu
el for the limof-day, thek on a net
rket- makeincluding iefinition of oducts;
entity thatby the tra
es are thesk;
entity for applicable
agency ofngs bank;
ing an insu
ered secursed swap
vatives clepool oper
rader, reta
holding co
n 12 CFR
cy of a fore
ng a subsidelf is not an
trading da
sion rate.’
mation on regardin
ule that propursuant t
urement, inmit, a desce unit of meor gross b
er positionsn its quan“financial
t serves asding desk main boo
covered tre entity typ
f a foreign
ured branc
rity-based participant
earing orgarator, commil foreign e
ompany;
211.21(o)
eign bank;
diary of a ln entity typ
ay or not a
ng the qua
ovides ideto the Riskncluding thcription of easuremebasis, and
Appendix
s. In titative instrumen
s a bookin; and
oking entitie
rading pes for that
bank,
ch, State
swap t;
anization, modity exchange
;
or
egal entitype listed
trading da
antitative
entifying ank and he name ofthe limit,
ent for the the type o
x A
nt”
ng
es
t
y
ay
nd
f
of
SC1:46
electcalcutradinNarraasses
bankto rep
tradinthe QmeasunlesperioIdentacco
pursuprepathe [Athe c
71524.5
b.d.
Each baronic docu
ulation metng desk stative Statessing the i
If a baning entity port in a N
c.e.
A banking day. A
Quantitativesurement ess otherwisod requiredtifying Infordance wit
f. A banki
uant to thisaration andAgency] toalendar ye
A RiskdescriRisk Fsensitsensit
A RiskdescriCompincludilabel ffactor,
A LimiuniqueInformRisk F
A Riskreferethe Risattribu
Narrativeanking entument a Nathods usedructure or
ement musinformation
nking entitymust subm
Narrative S
B. Frequeing entity mbanking ene Measureelectronicase requestd by §.20rermation, ath the XML
C. Recording entity ms appendixd content
o verify theear for whi
k Factor Septive infor
Factor Senivity, a uniivity, and t
k Factor Atptive inforrehensive ing the nafor the risk, and the r
it/Sensitivie identifica
mation SchFactor Sen
k Factor Sences, by usk Factor
utions iden
e Statementity made sarrative Std, a descritrading de
st include an reported
y does notmit an electatement.
ency and must calcuntity must ements Ideally to the ted by the eport the Tand each aL Schema
rdkeeping must, for ax and § __of these re
e accuracyich the me
ensitivitiesmation forsitivities qque identithe sensitiv
ttribution Imation forProfit andme of the
k factor or oisk factor o
ty Cross-Ration label,edule to asitivities In
ensitivity/Aunique idenSensitivitietified in the
nt subject to tatement toiption of anesk strategany informd, such as
t have any ctronic doc
Method oulate any areport the
entifying In[Agency] o[Agency].
Trading Deapplicable
specified
any quantit_.20(d), creeports, as y of such reeasuremen
Appendix
s Informatir each risk uantitativefication labvity’s risk f
nformationr each risk d Loss Attrrisk factorother factoor other fa
Reference , limits idenssociated nformation
Attribution ntification es Informae Risk Fac
this appeno the [Agend reasongies, and w
mation the bfurther de
informatiocument sta
of Requireapplicable e Narrativenformationon the rep A banking
esk Informquantitativand publis
tative meaeate and mwell as sueports, for nt was take
x -57-
on Schedufactor sen
e measurebel for the factor cha
n Schedulefactor attr
ribution qur or other for, a descractor’s cha
Schedulentified in thrisk factor
n Schedule
Cross-Reflabel, risk
ation Schector Attribu
ndix by § _ency] descs for chanwhen any sbanking enscription o
on to reporating that it
ed Calculaquantitativ Statemen
n, and eachorting scheg entity muation, the ve measurshed on th
asurement maintain reuch informa
a period oen. A bank
ule that pronsitivity repement, incl
sensitivitynge unit;
e that provribution repantitative
factor, a unription of thnge unit;
that crosshe Risk anr sensitivitie; and
ference Scfactor sendule to asution Inform
__.20 muscribing any ges in thesuch channtity viewsof calculati
rt in a Narrt does not
ation and ve measurnt, the Tradh applicabedule estaust be repoQuantitativ
rement to the [Agency
furnished ecords docation as isof 5five yeking entity
ovides ideported puruding the y, a descri
vides identported purmeasuremnique idenhe risk fac
s-referencend Positionies identifi
chedule thnsitivities idsociated rmation Sc
t submit inchanges banking e
nge occurres as relevaon method
rative Stathave any
Reportingrement for ding Desk
ble quantitaablished inorted withive Measurthe [Agency]’s websit
to the Boacumenting s necessarars from thmust reta
Appendix
entifying anrsuant to thname of thption of th
tifying andrsuant to thment, tification tor or othe
es, by n Limits ed in the
hat cross-dentified inrisk factor hedule.
n a separain entity’s ed. The
ant for ds used.
tement, theinformatio
g
each Informatio
ative n § __.20 in the timerements cy] in e.
ard[Agencthe
ry to permihe end of in the
x A
nd he he e
d he
er
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te
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on,
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cy]
it
SC1:46
NarraIdentinform
IV.
the ctime, portiocurretools in § Sensposittradinand hand §__.5(a minexceRisk”desk
formaRisk FactoopenRisk varia
pursuthe Ruppe
chanevendeskmonirisk faexpe
71524.5
ative Statetifying Infomation wa
Quantita.
onstraints as defineonvalue ofent activity
used to co .4 and §
sitivities” aion limits ang desk’s ohedging ac§ __.5(b(b)(1)(i)(A)nimum, thept to the e” metrics abased on
at used byand Positior Sensitiv positionsand Positibles used
uant to thisRisk and Per and a low
ges in a trt of a chan’s profitabtored and actor senscted price
ement, the rmation fos reported
tative MeaA. Risk-M1. Risi. De that defind by the bf the tradinof the desontrol and__.5. A nnd “Value-and are usoverall actctivity undeb)(1)(i)(A) m) and also e “Risk Faextent any are demons the types
General Cy the bankiion Limits
vities, but m. When criion Limits,to assess
A. A banks quantitatosition Limwer limit),
ii. Ca
iii. Me
iv. Ap
2. Risi. De
rading desnge in oneility and rismanaged
sitivities m variation
Trading Dor a period d to the [Ag
asuremenManagemesk and Po
escription: e the amoanking en
ng desk's lisk. Risk an monitor riumber of t-at-Risk anseful in evativities, paer § __.5must meetmust incluctor Sensiof the “Risstrably ineof position
Calculationing entity fare often emay also biteria other both the v
s whether t
king entity mtive measumits Informand the va
alculation P
easuremen
pplicability:
sk Factorescription: k’s Compr
e or more usk. A bankas part ofust be suffin the trad
Desk Informof five yea
gency].
nts ent Measuosition LimFor purpo
ount of risktity for a simitsdesk’snd positionisk taking the metricsnd Stress Valuating anrticularly fo5. Accordt the applicude approptivities” an
sk Factor Seffective fons traded
n Guidancefor the purexpressedbe expressr than VaRvalue of ththese limit
must provurement: th
mation Schalue of usa
Period: On
nt Frequen
: All trading
r SensitiviFor purpo
rehensive underlying king entity f the tradinficiently gring desk’s
Appendix
mation, anars from th
urements mits and Uoses of thisk that a trapecific trads risk or po
n limits andand includs that are Value-at-Rnd setting or the maringly, the lcable requpriate metrnd “Value-aSensitivitieor measurinby, and ris
e: Risk andrposes of rd in terms osed in termR or Risk Fhe Risk ands have be
ide the folhe unique edule, theage of the
ne trading
ncy: Daily.
g desks en
ties oses of thisProfit andvariables must repo
ng desk’s oranular to as holdings.
x -58-
nd the Quahe end of t
Usage s appendixding desk ding desk.ositions thd their usade, but aredescribed
Risk,” relatthese limitrket makinlimits requuirements rics for theat-Risk anes” or “Valung and mosk exposur
d Position risk managof risk mea
ms of otherFactor Send Position en reache
lowing infoidentificat limit size limit.
day.
ngaged in
s appendix Loss thatthat are s
ort the risk overall riskaccount fo. A banking
antitative Mthe calend
x, Risk andis permitte
. Usage rehat are accage are keye not limite below, incte to a tradts in the brg activitiesired underunder § _
e trading dd Stress Vue-at-Riskonitoring thres of, tha
Limits mugement of asures, sur observabnsitivities a
Limits anded must be
ormation fotion label f(distinguis
covered t
x, Risk Fact are expecignificant sfactor sen
k managemor a prepong entity mu
Measuremedar year fo
d Position ed to take
epresents tcounted foy risk mand, to, the lcluding “Rding desk’sroader cons under § r § __.4
__.4(b)(2)(esk limits
Value-at-Rk and Streshe risks of t desk.
ust be repoeach tradi
uch as VaRble criteria,are used tod the value
e reported.
or each limfor the limishing betw
rading act
ctor Sensitcted to occsources ofnsitivities thment policynderance oust provide
Appendix
ents r which the
Limits areat a point
the r by the
nagement imits set o
Risk Factors risk and ntext of the __.4(b) (b)(2)(iii) iii) and § including,
Risk” metricss Value-af a trading
orted in theing desk. R and Risk, such as no define the of the
mit reportet reported
ween an
tivities.
tivities arecur in the f the tradinhat are y. Reporteof the e the
x A
e
e in
out r
e
at cs at-
e
k net e
d in
e
ng
ed
SC1:46
followmeasFactofactochan
sensmanaFactomanamoniexplicmustthe tr
Facto
commsensmatu
granuposit
spreasensmatu
volatsignif
betweand i
currecorrelinea
with rsens(paraposit
factoconsdesk
71524.5
wing informsurement: or Sensitivr sensitivitge in risk f
itivities thaagement por Sensitivagement mtored and cit risks ast be sufficierading des
or Sensitiv
modities seitivities (exrity profile
ular to accions, and
ads, shifts itivities (exrity profile
ility, and/oficant non-
een impornternation
ency pairs elation senrities), as w
respect to itivities (ex
allel and noions.
r shared bistently acto anothe
mation for the unique
vities Informty, and thefactor.
General Cat are monpolicy. Thevities will dmodels emmanaged
ssumed byently granusk's holding
Trading devities, inclu
• Commoet out in 17xpressed i
e of the pos
• Credit pcount for sprisk factors
• Credit-re(parallel a
xpressed ie of the pos
• Equity dor correlatio-linearities
• Equity prtant equitynal equities
• Foreign and matursitivities (ewell as the
• Interest major inte
xpressed ion-parallel
The methoby multiplecross its traer.
each sense identificamation Sche aggregat
Calculationnitored ande underlyinepend on
mployed. Thby a tradi
y the tradinular to accgs.
esks mustuding, for e
odity deriva7 CFR 20.n a mannesitions;
positions: rpecific cres with resp
elated derand non-pan a mannesitions;
derivative pon sensitiv
s), and the
positions: ry market ss;
exchangerities, expoexpressede maturity
rate positerest rate cn a mannel) in the int
ods used b trading deading desk
sitivity that ation label hedule, thete change
n Guidanced managedg data andthe specifhe numbeng desk, ang desk. Incount for a
t take into example, th
ative positi.2, the mater that dem
risk factorsedit sectorspect to inte
rivative posarallel) in cer that dem
positions: vities (exprmaturity p
risk factorssectors and
e derivativeosure to in in a mannprofile of t
ions, inclucategorieser that demterest rate
by a bankiesks, suchks so that t
Appendix
is reportefor the ris
e change in value a
e: A bankind as part od methodsfic functionr and typeand furnishn general, a preponde
account ahe followin
ions: risk fturity of thmonstrates
s with resps and markerest rates
sitions: riscredit spremonstrates
risk factor ressed in aprofile of th
s for equityd segment
e positionsnterest ratener that dethe positio
ding interes and matumonstratese curve, as
ing entity th as an eqthe sensiti
x -59-
ed pursuansk factor sein risk factcross all p
ng entity mof the tradis used to cn of the trae of Risk Fahed to the however,
erance of t
ny relevanng with res
factors withe positionss any signi
pect to credket segmes of all rele
k factor seeads—volas any signi
sensitivitiea manner he position
y prices ants, such as
s: risk factoes at relevaemonstratens; and
est rate deurities and s any signi well as th
to calculateuity price fivities can
nt to this quensitivity litor used topositions o
must reporng desk's compute a ading desk actor SensBoard, wiReported
the expect
nt factors ispect to pa
h respect ts, volatilityificant non
dit spreadsents, the mevant matu
ensitivitiesatility, and/ificant non
es such asthat demo
ns;
nd risk facts a small c
ors with reant maturies any sign
erivative povolatility aificant non
he maturity
e sensitivifactor, mube compa
uantitativested in the
o determinf the desk
t the risk foverall ristrading deand the in
sitivities thll depend orisk factored price v
n calculatiarticular as
to the relay and/or con-linearities
s that are maturity prourities;
, for exam/or correlan-linearities
s equity poonstrates a
tors that dcapitalizati
espect to mties, volatinificant no
ositions: riand/or corrn-linearitiesy profile of
ties to a cost be appl
ared from o
Appendix
e e Risk e the risk given the
factor k esk's Risk nternal riskhat are on the r sensitivitiariation in
ing Risk sset classe
ated orrelation s), and the
sufficientlyofile of the
ple credit tion s), and the
ositions, any
ifferentiateon equities
major ility, and/o
on-
sk factors relation s), and shithe
ommon ied one trading
x A
k
ies
es:
e
y
e
e s
or
ifts
g
SC1:46
commgivena speappeof thepositbase
and Sshouthe tirequiand rwherlargeor Stconsof po
activitradinexclu
Loss positinto twere (ii) pr(“newpositcompmusttradin60- abankloss a
71524.5
monly usedn set oftradecifiedone-endix, Strese risk of fuions at thed on mark
Stress VaRld reflect ame over arements imreported inre a tradinger aggregaress VaR istent with
ositions.
ities. For Sng desks wuded from
b.
Attributionions to varhree categ also positrofit and low positionsions or newprehensivet calculate ng desk's oand 90-daying entity dat each po
ii. Ca
iii. Me
iv. Ap
3. Vai. Ded percentiding desk’s-day periossStresseture financ
e ninety-ninket conditio
General CR by emploa loss in a a one-day pmposed byn a manneg desk doetion of poscalculation the VaR o
ii. Ca
iii. Me
iv. ApStressed Vwhose covthe definit
Source-o1. Coi. Den is an anarious sourcgories: (i) ptions held
oss attributs”); and (iiiw position
e profit andvolatility oone-day py lag periodeems ne
oint in time
alculation P
easuremen
pplicability:
alue-at-Risescription: le measurs aggregad of time, d Value-atcial loss inne percenons during
Calculationoying genetrading deperiod. Foy a Federar that is coes not havsitions for wn that incluor Stress V
alculation P
easuremen
pplicability:VaR, all travered tradition of “fina
of-Revenueomprehenescription: alysis that ces. First, profit and by the tradtable to ne) residual
ns. The sumd loss at eof comprehrofit and lod, from thecessary to
e.
Period: On
nt Frequen
: All trading
sk and StrFor purpo
rement of tted positiobased on t-Risk (“St
n the valuet confiden a period o
n Guidanceerally acceesk that is or those baal banking onsistent wve a standawhich a Vaudes only tVaR mode
Period: On
nt Frequen
: For VaR,ading deskng activityancial instr
e Measurensive Prof
For purpoattributes the daily ploss attribuding desk
ew positionprofit and m of (i), (ii)ach point
hensive pross, in dolle end of tho meet the
Appendix
ne trading
ncy: Daily.
g desks en
ressStresoses of thisthe risk of ons at the current mressStress
e of a givence level ovof significa
e: Bankingepted stanexpected
anking entiagency, V
with such ralone VaRaR or Strethe trading
el and meth
ne trading
ncy: Daily.
all tradingks engagedy is conducrument” un
rements fit and Lososes of this
the daily fprofit and lutable to aas of the e
ns resultingloss that c), and (iii) in time. In
rofit and lolar terms) he reportin
requireme
x -60-
day.
ngaged in
ssed Values appendixfuture finaninety-ninearket condsed VaR”)n set oftradver a specant financia
g entities mndards andto be exceities that aVaR and Sregulatory
R or Stressess VaR cag desk's hohodology u
day.
g desks end in coverected exclusnder § .3
ss Attribus appendixfluctuationloss of thea trading dend of the g from thecannot be must equaaddition,
ss (i.e., thefor the rep
ng period, aents of the
covered t
e-at-Risk x, Value-atancial loss e percent ditions. Fo is the perding desk’
cifiedone-dal stress.
must compd methods eeded lessare subjectStress VaR
capital reqs VaR calcalculation oldings muused for th
ngaged in ed trading sively to he3(d)(2).
ution x, Compre in the val
e aggregatesk’s exisprior day current daspecificall
al the tradiprofit and e standardporting perand any ote rulecomp
rading act
t-Risk (“Vain the valuconfidencr purposes
rcentile mes aggrega
day period
ute and reof calcula
s than onet to regulat
R must be cquirementsulation buis performust be perfhe larger a
covered tractivities, edge prod
hensive Pue of a traed position
sting positio(“existing ay’s tradinly attributeing desk’s loss meas
d deviationriod for at ther periodprehensive
Appendix
tivities.
aR”) is the ue of a e level oves of this easuremenated
of time,
eport VaR ation. VaR e percent otory capitacomputed s. In casest is part ofed, a VaRformed
aggregatio
rading except
ducts
Profit and ading deskns is divideons that positions”
ng activity ed to existi
surementsn of the least a 30-d that the e profit and
x A
er
nt
of al
s f a
R
n
k’s ed
);
ng
-,
d
SC1:46
chan
The capplicmanaany ocorre
specthe fachanAttribchan
commtransfinanpositaggre
to knof thefor fu
desk type attribinstrumarkeachassocdiffercomp
Meas
secuquan
71524.5
A. ges in the
comprehecable, to caged as paother appliection, can
B. ific risk facactors thatges: the u
bution Infoge.
C. missions asactions excial instrumions. The egate and
D. own source comprehurther inves
in the attrand amou
bution musuments weket at the c purchaseciated withrence. Theparisons.
c. surements
rities and dtitative me
The comp value of t
nsive profichanges inart of the tcable elemcellation, o
For the attctors and ot explain thnique idenrmation Sc
The compand fee incxecuted onments andcomprehedoes not
The portioces must bhensive prostigation a
ii. Geribution anunt of tradinst be compere boughtclose of bue or sale. Ah transactiese factors
ii. Ca iii. Me iv. Ap
Positionss 1. Poi. Dederivativeseasuremen
prehensivehese posit
it and lossn (i) the sperading desments, sucor exercise
tribution oother factohe prepondntification lchedule, a
prehensivecome or exn the applicd other assensive profneed to be
on of compbe allocateofit and los
and analys
eneral Calcalysis andng activitie
puted by cat and/or sousiness on Any fees, cons execu
s must be m
alculation P
easuremen
pplicability:
s, Transac
ositions escription: s positionsnt, do not i
e profit andtions on th
s from exisecific risk sk’s overach as cashe of a trad
f comprehors, a bankderance olabel for th
and the pro
e profit andxpense andcable day.sets/liabilitfit and losse further a
prehensiveed to a resss. Signific
sis.
culation Gd amount oes undertaalculating told and the
that day mcommissiouted on thameasured
Period: On
nt Frequen
: All tradin
ction Volu
For purpos managedinclude in
Appendix
d loss assohe applicab
ting positiofactors anll risk man
h flows, care.
hensive proking entity f the profit
he risk factofit or loss
d loss attribd market g. New posies and ne
s from newttributed to
e profit andidual categcant unexp
Guidance: Tof detail foraken by thethe differee prices at multiplied bns, or otheat day musconsisten
ne trading
ncy: Daily.
ng desks e
umes, and
oses of thisd by the trathe Positio
x -61-
ociated witble day.
ons must bd other fac
nagement prry, chang
ofit and losmust prov
t or loss chtor or othedue to the
buted to negains or loitions incluegotiated aw positionso specific s
d loss that gory identiplained pro
The specifr the analye trading d
ence betwewhich tho
by the notier paymenst be addently over tim
day.
engaged in
d Securitie
s appendixading deskons calcula
th existing
be further ctors that apolicies anes in rese
ss from exvide the folhanges duer factor lise risk facto
ew positiosses assoude purchaamendmens may be resources.
cannot beified as anofit and los
fic categorysis shoulddesk. The een the priose instrumional or prnts receiveed (subtracme to facil
n covered
es Invento
x, Positionk. For purpation for “s
positions
attributedare monitond procedurves, and
xisting posillowing infe to risk fa
sted in the or or other
ns must reociated withases and snts to exiseported in
e specifican unexplainss must be
ries used bd be tailorenew positices at whi
ments are mrincipal amed (paid) thcted) from itate histor
trading ac
ory Aging
s is the vaposes of thsecurities”
Appendix
must refle
, as ored and ures; and (the
itions to formation factor Risk Factofactor
eflect h sales of ting the
ally attributned portione escalated
by a tradined to the on ich marked to
mount of hat are such rical
ctivities.
g
alue of he Positionthose
x A
ect
(ii)
for
or
ted n d
g
ns
SC1:46
secuthosesepashortpaya
[FN 2“secubase
cond
measbankcondcustowherorgansecuFor pin the“derivare aquanundedesk ident
[FN 2
cond
C. Cu
that mabsovalue
deriv
71524.5
rities that ae securitiesrately repot securitiesbles, notio
283: See §urity” and ad swaps a
uct underw
sures four ing entity ucted by t
omers, excre the transnizational rities, valu
purposes oe Transactvatives,” aalso derivatitative me
erwriting acthat reliesified in § _
284: See §
uct underw
ustomer-F
measures lute value
e of the tra
atives, oth
are also “ds that are ort the trads positionsonal value
§§ __.2(i),a “derivativare reporte
ii. Ca
iii. Me
iv. Apwriting act
2. Trai. Deexclusive is requiredhe trading
cluding intesaction is units wher
ue means gof calculatition Volum
as those teatives as “deasuremenctivity is a s on § __.4__.4(b)(3)
§§ __.2(i),
ii. Ca
iii. Me
iv. Apwriting act
Facing Ac1. Invi. Dethe turnovof all tran
ading desk
ii. Geher than op
derivativesalso derivading desk’ss, market v
of derivati
, (bb). For ve.” For pu
ed as deriv
alculation P
easuremen
pplicability:ivity or ma
ansactionescription: categories
d to report g desk withernal transbooked in re the trangross marng the Tra
mes calcularms are de
derivativesnt, a customarket pa4(b) to con.
, (bb).]
alculation P
easuremen
pplicability:ivity or ma
ctivity Meaventory Tescription: ver of a trasactions o
k's inventor
eneral Calcptions and
s,” as thoseatives as “s market vvalue of deives receiv
example, urposes ofvatives rath
Period: On
nt Frequen
: All tradingarket-makin
n VolumesFor purpos of coverethe value
h: (i) custosactions; (ithe same saction is ket value. ansaction Vation for “sefined und
s.”[FN 284]omer of a tarticipant idnduct mark
Period: On
nt Frequen
: All tradingarket-makin
asuremenurnover For purpo
ading deskover the rery at the b
culation G interest ra
Appendix
e terms ar“derivativevalue of lonerivatives rvables, an
under thisf the Positiher than se
ne trading
ncy: Daily.
g desks thng-related
s oses of thised tradingand numbmers, excliii) trading banking ebooked inFor derivaVolumes qsecurities” der subpar] Further, frading desdentified inket making
ne trading
ncy: Daily.
g desks thng-related
nts
oses of thisk's inventorporting peeginning o
Guidance: Fate derivat
x -62-
re defined es.”[FN 283ng securitireceivablesd notional
s part, a seions quantecurities.]
day.
hat rely on d activity, re
s appendix activity co
ber of seculuding intedesks and
entity; and nto an affiliatives, valuquantitativethose sec
rt A; insteafor purpossk that relien § __.4(a)g-related a
day.
hat rely on d activity, re
s appendixry. The nu
eriod. The dof the repo
For purpostives, valu
under sub3] A bankiies positios, market vvalue of d
ecurity-bastitative me
§ __..4(a)espectivel
x, Transaconducted burity and dernal transad other org(iv) tradinated bankue means e measure
curities thaad, report tses of the Tes on § .4)(7), and a
activity is a
§ __..4(a)espectivel
x, Inventormerator ofdenomina
orting perio
ses of this e means g
bpart A; insng entity mns, markevalue of d
derivatives
sed swap ieasuremen
) or § __..4y.
ction Volumby a tradinerivative tactions; (iiganizationg desks a
king entity.gross not
ement, do t are also those secuTransactio(a) to cond
a customera market pa
) or § __..4y.
ry Turnovef the ratio tor of the r
od.
appendix,gross notio
Appendix
stead, repomust t value of erivatives
s payables
is both a nt, security
4(b) to
mes ng desk. A ransactioni) non-al units nd other For ional valuenot includ
urities thaton Volumeduct r of a tradiarticipant
4(b) to
er is a ratiois the ratio is the
, for onal value
x A
ort
.
y-
ns
e. e
t s
ng
o
e
,
SC1:46
for opmean
purpoof theof timAgingpositdaysSecusecumeasunde
[FN 2
usingaggreschedliabiliderivvalue
Ratiotradindeskinvolvinvolvcompthe trthe tr
Facincounrelateconti
71524.5
ptions, valns 10-year
oses of thie trading d
me that thog shouldmions for th; 91-180 c
urities Inverity liabilitysurement, er subpart A
285: See §
g a tradingegate assedule and aties held oatives, val
e and, for i
o is a ratio ng desk to. A trade cving a couving a couputed that rading desrading des
ng Trade Rterparty ised servicenuing rela
ue meansr bond equ
iii. Ca
iv. Me
2. In3. Sei. Des appendi
desk's aggose assets
must measue following
calendar daentory Aginy-aging schdo not incA. [FN 285
§§ __.2(i),
General C desk's traets and liaa liability-aover all holue meansnterest rat
ii. Ca
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iv. ApunderwritiCustomei. Decomparing
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