Issue

House

Senate

Major Swap Participant Definition

Defined as an entity that maintains a substantial net position OR whose outstanding swaps create substantial net counterparty exposure which could threaten the financial system.

Defined as an entity that maintains a substantial position OR whose outstanding swaps create substantial counterparty exposure OR is a leveraged financial entity

Swap Dealer Definition

Defined as an entity that regularly engages in the purchase of swaps and their resale to customers in the ordinary course of a business, makes a market, OR is a dealer of swaps, EXCEPT when there is a de minimus level of swap dealing with customers.

Defined as an entity that regularly engages in the purchase or sale of swaps (note: every participant does this), makes a market, OR is a dealer of swaps.

End User Definition (and Exemption)

Any entity that is hedging or mitigating commercial risk, including operating or balance sheet risk is an end user.  End users are provided an exemption from central clearing and margining.

Any entity that owns, produces, or manufactures, etc. a good or service (including oil and gas producers), and is not a financial entity, is an end user. End users are provided an exemption from central clearing, if a company’s audit committee approves.

Banks Swaps Spin-off Provision

No such provision

Prohibits depository institutions from offering swaps services for themselves or their customers, unless they spin off their swaps business into a separate entity.  This includes foreign exchange commodity, and interest rate swaps.

Margin Requirements for End Users

Margin requirements do not apply when one party is an end user and isn’t a swap dealer, major swap participant OR a financial entity.  Non-cash collateral is permitted.

Margin requirements apply to all swap dealer and major swap participant trades regardless of if the counterparty is an end user.

Capital Charges

Non-cleared swaps capital charges will be substantially higher than cleared swaps, and will be set by regulators.  Capital charges could be assessed punitively without consideration for potential risk of loss.

Capital charges apply to all swap dealer and major swap participant trades regardless of if the counterparty is an end user, and will be set by regulators, the charges do not have to be tied to potential risk of loss.

Central clearing exemption for End Users

Clearly exempts end users from central clearing, if the end user notifies the regulators with information about how it generally meets its financial obligations associated with entering into non-cleared swaps.

Clearly exempts end users from central clearing (excluding any financial entity, as defined by the bank holding company act.) that is using the swap to hedge its own commercial risk.  Exemption also applies to end user's affiliates acting on behalf of the end user.  However, a company's audit committee must review the transaction and approve of the exemption.

Blanket Exemption for Foreign Exchange

Exempts foreign exchange forwards and swaps.

No exemption provided unless the Treasury Secretary deems an exemption.

Central Trade Repository

Registered third party swap repositories will collect data on derivatives transactions and report the data to the regulators.

Registered third party swap repositories will collect data on derivatives transactions and report the data to the regulators.

Retroactive Application of Law

For margin/capital, both bills would be retroactively applied to existing swaps contracts.  Central clearing would not apply to existing contracts.

For margin/capital, both bills would be retroactively applied to existing swaps contracts.  Central clearing would not apply to existing contracts.

Effective Date

270 days

180 days