7 U.S.C. § 6s — Registration and regulation of swap dealers and major swap participants

(a) Registration (1) It's illegal to act as a swap dealer unless you're registered with the Commission as one. (2) It's illegal to act as a major swap participant unless you're registered as one. (b) Requirements (1) You register by filing an application with the Commission. (2)(A) The application must be in the form the Commission prescribes and contain the information the Commission needs about your business. (B) Once registered, you must keep filing reports the Commission requires about your business. (3) Registration expires when the Commission prescribes by rule. (4) Except as subsections (d) and (e) provide, the Commission can write rules for swap dealers and major swap participants, including rules limiting their activities. (5) Rules under this section had to provide for registration within one year of July 21, 2010. (6) Unless a rule, regulation, or order says otherwise, it's illegal for a swap dealer or major swap participant to let an associated person who is statutorily disqualified effect or help effect swaps on its behalf, if the firm knew or reasonably should have known about the disqualification. (c) Dual registration (1) Anyone required to register as a swap dealer must do so regardless of also being a depository institution or an SEC-registered security-based swap dealer. (2) The same rule applies to major swap participants regarding SEC registration as a major security-based swap participant. (d) Rulemakings (1) The Commission must adopt rules for registered swap dealers and major swap participants. (2)(A) The Commission can't impose prudential requirements on swap dealers or major swap participants that already have a prudential regulator. (B) But that doesn't limit the Commission's other rulemaking authority under this section. (e) Capital and margin requirements (1)(A) A registered swap dealer or major swap participant that has a prudential regulator must meet the minimum capital and minimum initial and variation margin requirements that regulator sets. (B) One without a prudential regulator must meet the minimum capital and margin requirements the Commission sets. (2)(A) For entities with a prudential regulator, the prudential regulators — consulting the Commission and the SEC — must jointly adopt rules imposing capital requirements and initial-and-variation margin requirements on all swaps not cleared by a registered derivatives clearing organization. (B) For entities without a prudential regulator, the Commission adopts the same kind of rules. (C) Capital. When setting capital requirements for someone designated a swap dealer or major swap participant for only one type or class of swap, the prudential regulator or Commission must consider the risks from that person's other swap activities and other business, even where those aren't otherwise regulated because of the person's swap-dealer or major-swap-participant status. (3)(A) Standards. These capital and margin requirements must help keep the swap dealer or major swap participant safe and sound, and must fit the risk of the uncleared swaps it holds. (B) Rule of construction. Nothing here limits the Commission's existing authority to set financial responsibility rules for a futures commission merchant or introducing broker under section 6f, or the SEC's existing authority to set financial responsibility rules for a broker or dealer under the Securities Exchange Act of 1934. A futures commission merchant, introducing broker, broker, or dealer must meet whichever capital requirement is stricter — the one under this chapter or the one under the Securities Exchange Act of 1934. (C) Margin requirements. In setting margin rules, the prudential regulator and the Commission must allow noncash collateral, to the extent that's consistent with keeping swap markets financially sound and the U.S. financial system stable. (D) Comparability. The prudential regulators, the Commission, and the SEC must consult at least once a year on minimum capital and margin requirements, and must, as much as practical, keep those requirements comparable for swap dealers and for major swap participants. (4) Applicability with respect to counterparties. The margin requirements above don't apply to a swap where the counterparty qualifies for the commercial end-user exception in section 2(h)(7)(A), qualifies for a cooperative-entity exemption issued under section 6(c)(1), or meets the criteria in section 2(h)(7)(D). (f) Reporting and recordkeeping (1) Each registered swap dealer and major swap participant must: (A) file the reports the Commission requires about its transactions, positions, and financial condition; (B) keep books and records about its swap-dealing or major-swap-participant business, in the form and for the period the Commission prescribes, whether or not it has a prudential regulator; (C) keep those records open to Commission inspection; and (D) keep records relating to swaps defined in section 1a(47)(A)(v) open to SEC inspection. (2) The Commission must adopt rules governing this reporting and recordkeeping. (g) Daily trading records (1) Each registered swap dealer and major swap participant must keep daily trading records of its swaps, related cash or forward transactions, and recorded communications — including email, instant messages, and phone-call recordings — for as long as the Commission requires. (2) These records must include whatever information the Commission requires. (3) Records must be kept per counterparty, in a way that matches each swap transaction. (4) The firm must maintain a complete audit trail for reconstructing trades accurately. (5) The Commission must adopt rules governing these daily trading records. (h) Business conduct standards (1) Each registered swap dealer and major swap participant must meet business conduct standards — set out in paragraph (3) and by Commission rule — covering: (A) fraud, manipulation, and other abusive practices involving swaps, including swaps offered but never entered into; (B) diligent supervision of its business; (C) following all applicable position limits; and (D) other matters the Commission decides are appropriate. (2) Special entities. (A) A swap dealer or major swap participant that advises a "special entity" on a swap must follow the advisor duties in paragraph (4). (B) A swap dealer that enters or offers to enter a swap with a special entity must follow the counterparty duties in paragraph (5). (C) A "special entity" means: (i) a federal agency; (ii) a state, state agency, city, county, municipality, or other political subdivision of a state; (iii) an ERISA employee benefit plan; (iv) a governmental plan under ERISA; or (v) certain tax-exempt endowments under 26 U.S.C. § 501(c)(3). (3) Business conduct requirements the Commission adopts must: (A) require verifying that a counterparty qualifies as an eligible contract participant; (B) require disclosing to non-dealer counterparties the material risks and characteristics of the swap, any material conflicts of interest the firm has, and — for cleared swaps, the daily mark on request from the clearing organization, or for uncleared swaps, the daily mark from the dealer or major participant itself; (C) require communicating fairly and in good faith; and (D) set any other standards the Commission finds appropriate in the public interest, for investor protection, or otherwise furthering this chapter's purposes. (4) Special requirements for swap dealers acting as advisors. (A) It's illegal for a swap dealer or major swap participant to defraud, deceive, or manipulate a special entity or prospective special-entity customer. (B) A swap dealer advising a special entity has a duty to act in that entity's best interests. (C) It must make reasonable efforts to learn the special entity's financial status, tax status, investment or financing objectives, and any other information the Commission requires, so it can reasonably determine that a recommended swap is in the entity's best interests. (5) Special requirements for swap dealers as counterparties to special entities. (A) A swap dealer or major swap participant offering or entering a swap with a special entity must (i) have a reasonable basis to believe the special entity has an independent representative who is knowledgeable, not disqualified, independent of the dealer, duty-bound to act in the entity's best interests, makes appropriate disclosures, will give written representations on fair pricing and appropriateness, and — for ERISA plans — is a fiduciary under ERISA; and (ii) disclose in writing, before the transaction, the capacity in which the dealer is acting. (B) The Commission may set other standards it finds appropriate. (6) The Commission must prescribe rules governing these business conduct standards. (7) This subsection doesn't apply to a transaction that a special entity initiates on an exchange or swap execution facility, where the dealer or major participant doesn't know who the counterparty is. (i) Documentation standards (1) Each registered swap dealer and major swap participant must meet Commission standards for timely, accurate confirmation, processing, netting, documentation, and valuation of its swaps. (2) The Commission must adopt rules governing these documentation standards. (j) Duties Each registered swap dealer and major swap participant must at all times: (1) monitor its swap trading to prevent position-limit violations; (2) maintain robust, professional risk management systems for its day-to-day business; (3) disclose to the Commission and its prudential regulator information about its swap terms and conditions, trading operations and practices, financial integrity protections, and other relevant information; (4) build internal systems to gather necessary information and provide it to the Commission and prudential regulator on request; (5) run conflict-of-interest systems that wall off staff doing pricing or market research, or making clearing-acceptance decisions, from anyone whose pressure could bias their judgment, plus address any other issue the Commission flags; (6) avoid — unless necessary for this chapter's purposes — any action that unreasonably restrains trade or imposes a material anticompetitive burden on trading or clearing; and (7) follow the rules the Commission prescribes under this subsection. (k) Designation of chief compliance officer (1) Each swap dealer and major swap participant must designate a chief compliance officer. (2) That officer must: (A) report directly to the board or senior officer; (B) review the firm's compliance with this section's requirements; (C) resolve conflicts of interest in consultation with the board or senior officer; (D) administer the required policies and procedures; (E) ensure compliance with this chapter's swap-related rules; (F) set up procedures to fix noncompliance found through compliance reviews, look-backs, audits, self-reported errors, or validated complaints; and (G) set up procedures for handling, responding to, remediating, retesting, and closing out noncompliance issues. (3)(A) Each year, the chief compliance officer must sign a report describing the firm's compliance with this chapter and its own policies and procedures, including its code of ethics and conflict-of-interest policies. (B) This report must accompany the firm's required financial reports to the Commission and include a certification, under penalty of law, that it is accurate and complete. (l) Segregation requirements (1) Segregation of collateral in uncleared swaps. (A) A swap dealer or major swap participant must tell its counterparty, at the start of a swap, that the counterparty can require its margin or collateral to be segregated. (B) If the counterparty asks, the dealer or major participant must segregate those funds or property for the counterparty's benefit and hold them in a separate account, following Commission rules. (2) Applicability. These segregation rules only apply to swaps not cleared by a derivatives clearing organization. They don't apply to variation margin payments, and they don't block commercial arrangements about investing segregated funds (limited to investments the Commission permits) or splitting the resulting gains and losses. (3) The segregated account must be held by an independent third-party custodian and designated as belonging to the counterparty. (4) If the counterparty doesn't ask for segregation, the dealer or major participant must report to it every quarter that its back-office margin and collateral procedures comply with their agreement.