Introduction
When fully implemented, the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 promises, in President Obama's
words, "clearer accountability in supervision and regulation
so that financial firms can operate under a coherent set of rules
and expectations," and "certainty to everybody, from
bankers to farmers to business owners to consumers." In the
near term, however, the promise and the reality will be polar
opposites. With the enactment of this legislation on July 21, the
financial services industry is entering an extended period of
regulatory uncertainty unlike any it has ever experienced.
Although Congress set the broad outlines of the new regulatory
regime, it left the innumerable details to the several federal
financial regulatory authorities. The challenge these agencies face
is daunting. This is particularly true in the case of the Commodity
Futures Trading Commission (CFTC), the Securities and Exchange
Commission (SEC), and the bank regulatory agencies (the
"prudential regulators"), as they develop rules to impose
a comprehensive regulatory structure on the over-the-counter (OTC)
derivatives markets, as required under Title VII of the
legislation—The Wall Street Transparency and
Accountability Act of 2010 (Title VII).
These agencies have been tasked, over the next 12 months, with
conducting a half-dozen of studies and adopting, in the aggregate,
hundreds of rules, generally in coordination with each other and
often jointly. In recognition of the tremendous time pressure they
will be under and, perhaps, their lack of meaningful expertise in
many of the areas in which they are required to promulgate rules,
both the CFTC (at http://www.cftc.gov/LawRegulation/OTCDerivatives/)
and the SEC (at http://www.sec.gov/spotlight/regreformcomments.shtml)
have taken the unusual step of inviting members of the public and
the industry to comment on issues that may be of particular
interest to assist these agencies in preparing proposed
rules.
In the meantime, since most rules adopted under Title VII will
become effective 60 days after promulgation, the financial services
industry and other financial market participants have little choice
but to anticipate the details of the rules that will be adopted and
make plans now to implement them, knowing that the final rules may
be significantly different, which will exacerbate the operational
and financial costs they will certainly incur.
This Advisory highlights several of the more significant provisions
of Title VII and, in particular, rulemakings that the CFTC, SEC and
prudential regulators will be required to promulgate to implement
Title VII and bring "coherence" and "certainty"
to the OTC derivatives markets. Unless otherwise stated below, the
rules are required to be promulgated no later than 360 days after
the July 21, 2010, effective date of Title VII.
I. Allocation of Jurisdiction Over Swaps and Security-Based
Swaps
Title VII grants the CFTC jurisdiction over all swaps, as broadly
defined, with the exception of security-based swaps and mixed
swaps. The SEC has jurisdiction over security-based swaps and joint
jurisdiction with the CFTC over mixed swaps.
- Security-Based Swaps. A "security-based swap" is any agreement, contract or transaction that is a swap and is based on: (i) an index that is a narrow-based security index, including any interest therein or on the value thereof; (ii) a single security or loan, including any interest therein or on the value thereof; or (iii) the occurrence, nonoccurrence or extent of the occurrence of an event relating to a single issuer of a security or the issuers of securities in a narrow-based security index, provided that such event directly affects the financial statements, financial condition or financial obligations of the issuer.
- Mixed Swaps. A "mixed swap" is any
security-based swap that is also based on the value of one or more
interest or other rates, currencies, commodities, instruments of
indebtedness, indices, quantitative measures, other financial or
economic interest or property of any kind (other than a single
security or a narrow-based security index), or the occurrence,
non-occurrence or extent of the occurrence of an event or
contingency associated with a potential financial, economic or
commercial consequence. Mixed swaps are deemed to be both
security-based swaps and swaps.
The CFTC and SEC are authorized to adopt rules further defining the terms "swap" and "security-based swap." In addition, the CFTC and the SEC, after consultation with the Board of Governors of the Federal Reserve, are required to adopt joint rules with respect to mixed swaps as necessary to carry out the purposes of Title VII. - Foreign Exchange Swaps and Forwards.1 Foreign exchange swaps and foreign exchange forwards will be considered swaps, unless the Secretary of the Treasury makes a written determination that either foreign exchange swaps or foreign exchange forwards or both: (i) should not be regulated as swaps, and (ii) are not structured to evade Title VII in violation of any rule promulgated by the CFTC.2
II. Registration and Regulation of Swap Dealers,
Security-Based Swap Dealers, Major Swap Participants and Major
Security-Based Swap Participants
Title VII requires (i) swap dealers and major swap participants to
be registered with, and subject to regulation by, the CFTC, and
(ii) security-based swap dealers and major security-based swap
participants to be registered with, and subject to regulation by,
the SEC. Registration with one agency does not exempt any entity
from registration with the other. Similarly, banks that fall within
the definition of a swap dealer, major swap participant,
security-based swap dealer or security-based swap participant are
not exempt from registration.
Each of these categories is defined in some detail in Title VII.
Nonetheless, the CFTC and SEC are authorized to adopt rules
defining swap dealers and major swap participants, and
security-based swap dealers and major security-based swap
participants, respectively. To assure regulatory consistency and
comparability to the extent practicable, the agencies are
instructed to consult with each other and coordinate such
definitions (and consider the views of the prudential
regulators).
The more challenging rulemaking for the agencies will be defining
major swap participants and major security-based swap participants.
Under Title VII, a "major swap participant" is defined to
mean:
A person that is not a swap dealer[3] and: (i) maintains a substantial position in swaps for any of the major swap categories as determined by the [CFTC], excluding (I) positions held for hedging or mitigating commercial risk; and (II) positions maintained by any employee benefit plan . . . for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan; or (ii) whose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the US banking system or financial markets; or (iii)(I) is a financial entity,[4] other than an entity predominantly engaged in providing financing for the purchase of an affiliate's merchandise or manufactured goods, that is highly leveraged relative to the amount of capital it holds and is not subject to capital requirements established by an appropriate federal banking agency; and (II) maintains a substantial position in outstanding swaps in any major swap category as determined by the [CFTC]. |
A "major security-based swap participant" is similarly
defined.
The CFTC and SEC must each define the terms "commercial
risk," "substantial counterparty exposure" and
"substantial position." The agencies' interpretations
of these terms will determine whether an entity that is not a swap
dealer is simply a customer or an entity required to be registered
and subject to comprehensive regulation as described immediately
below.
2. Capital and Margin Requirements. The CFTC, SEC and prudential regulators must adopt rules imposing capital requirements on swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. In addition, the agencies are instructed to impose initial and variation margin requirements with respect to all swaps that are not cleared through a derivatives clearing organization or a securities clearing agency.5 To the maximum extent practicable, the agencies and prudential regulators must establish and maintain comparable minimum capital requirements and minimum initial and variation margin requirements, including the use of non-cash collateral.6
3. Business Conduct Standards. The CFTC and SEC are required to adopt rules establishing business conduct standards for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. The standards must address: (i) fraud, manipulation and other abusive practices involving swaps (including swaps that are offered but not entered into); (ii) diligent supervision of the business of the registered swap dealer and major swap participant; (iii) adherence to all applicable position limits; and (iv) such other matters as the agencies determine to be appropriate.7
4. Conflicts of Interest. Swap dealers, major swap participants, security-based swap dealers and security-based swap participants are required to implement conflict-of-interest systems and procedures that: (i) establish structural and institutional safeguards to ensure that the activities of any person within the firm relating to research or analysis of the price or market for any commodity or swap, or acting in a role of providing clearing activities or making determinations as to accepting clearing customers, are separated by appropriate informational partitions within the firm from the review, pressure or oversight of persons whose involvement in pricing, trading or clearing activities might potentially bias their judgment or supervision and contravene the core principles of open access and the business conduct standards described in the Act; and (ii) address such other issues as the CFTC or SEC determines to be appropriate.
5. Heightened Business Conduct Standards. Separately, a swap dealer or security-based swap dealer that provides advice regarding a swap to a counterparty that is a governmental agency, pension plan, 501(c)(3) endowment or retirement plan (each, a "Special Entity") has a fiduciary duty to the governmental agency, pension plan, endowment or retirement plan. A swap dealer must exercise reasonable efforts to obtain such information about the Special Entity as is necessary to make a reasonable determination that any swap recommended by the swap dealer is in the best interest of the Special Entity.
6. Recordkeeping and Reporting Requirements. Title VII requires the CFTC and SEC to adopt rules requiring swap dealers, major swap participants, security-based swap dealers and major security-based swap participants to comply with various reporting and recordkeeping requirements. These entities must also comply with rules prescribed by the agencies relating to the timely and accurate confirmation, processing, netting, documentation and valuation of all swaps.
III. Segregation of Customer Funds; Bankruptcy
Protections
- Cleared Swaps. Any person that accepts
customer funds in connection with cleared swaps or cleared
security-based swaps must be registered with the CFTC as a futures
commission merchant (FCM) or with the SEC as a broker-dealer or
security-based swap dealer, as appropriate, and must hold funds in
a segregated account comparable to the customer segregated account
for customer futures and options on futures transactions executed
on a designated contract market. The CFTC may adopt rules
authorizing funds held in connection with cleared swaps to be held
in the same account as funds relating to customer futures and
options on futures transactions.8
Title VII further provides that cleared swaps will be deemed to be "commodity contracts" under the Bankruptcy Code and amends the definition of this term in the Bankruptcy Code to include transactions that are cleared by a derivatives clearing organization. The purpose of these latter amendments is to ensure that customers trading cleared swaps receive a priority in the event of an FCM default that is comparable to the priority provided to customers trading futures executed on a designated contract market. It similarly provides that security-based swaps will be deemed securities under the Bankruptcy Code, and that an account, other than a portfolio margining account, holding such swaps will be deemed a "securities account," and extends the customer property protections to any collateral or margin provided that is subject to the segregation requirement.
- Uncleared Swaps. A swap dealer, major swap
participant, security-based swap dealer or major security-based
swap participant must notify its counterparty at the beginning of a
transaction that the counterparty has the right to require
segregation of the funds or other property supplied to margin,
guarantee or secure the obligations of the counterparty. If the
counterparty requests, the dealer or participant must segregate
such funds or other property for the benefit of the counterparty
and maintain the funds or other property in a segregated account
separate from its own property. The segregated account must be
carried by an independent third-party custodian and must be
designated as a segregated account being held for and on behalf of
the counterparty.
If the counterparty does not choose to require segregation, a dealer or participant must notify the counterparty on a quarterly basis that its back-office procedures relating to margin and collateral satisfy the requirements set forth in any agreement between the parties.9
IV. Mandatory Clearing and Execution
- Mandatory Clearing. All swaps and
security-based swaps that are required to be cleared must be
submitted for clearing to the appropriate derivatives clearing
organization or securities clearing agency. As an initial matter,
the CFTC will determine which swaps are required to be cleared, and
the SEC will determine which security-based swaps are required to
be cleared. The agencies, on an ongoing basis, are required to
review each swap (and security-based swap), or any group, category,
type or class of swaps to make a determination as to whether the
swap or group, category, type or class of swaps (or security-based
swaps) should be required to be cleared.10 The CFTC and
SEC must provide at least a 30-day public comment period prior to
determining that any swap or group, category, type or class of
swaps should be required to be cleared.
A derivatives clearing organization or securities clearing agency must submit for prior approval to the CFTC or the SEC, as appropriate, each swap (or security-based swap), or any group, category, type or class of swaps (or security-based swaps) that it plans to accept for clearing and provide notice to its members of such submission. The CFTC and SEC must provide at least a 30-day public comment period prior to determining that any such swap (or security-based swap), or group, category, type or class of swaps (or security-based swaps) should be required to be cleared.
The CFTC and SEC must adopt rules establishing the procedures by which a derivatives clearing organization or securities clearing agency must submit for approval the swap (or security-based swap), or any group, category, type or class of swaps (or security-based swaps) that it intends to clear. Further, the CFTC and SEC must adopt rules for reviewing a derivatives clearing organization's or securities clearing agency's clearing of any such transactions.
Subject to any rule or regulation prescribed by the CFTC, a derivatives clearing organization, and subject to any rule or regulation prescribed by the SEC, a securities clearing agency for security-based swaps, will have reasonable discretion in establishing the manner by which the derivatives clearing organization or securities clearing agency complies with each applicable core principle. Membership and participation requirements must be objective, publicly disclosed and permit fair and open access. - Exemption from Mandatory Clearing. A swap or
security-based swap is not required to be submitted for clearing if
one of the counterparties (i) is not a financial entity; (ii) is
using swaps or security-based swaps to hedge or mitigate commercial
risk; and (iii) notifies the CFTC or SEC, as appropriate, how it
generally meets its financial obligations associated with entering
into non-cleared swaps. A "financial entity" includes
swap dealers, security-based swap dealers, major swap participants,
major security-based swap participants, commodity pools, private
funds, employee benefit plans and banking or financial
institutions.
The CFTC and SEC may adopt rules to prevent abuse of this exemption. Use of this exemption is solely at the discretion of the counterparty. - Mandatory Execution. All swaps and
security-based swaps that are required to be cleared must be
executed, as appropriate, on a designated contract market or swap
execution facility, or a national securities exchange or
security-based swap execution facility.11
A "swap execution facility" is defined to mean a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility, that (i) facilitates the execution of swaps between persons, and (ii) is not a designated contract market.12 Swap execution facilities must be registered with the CFTC or SEC, as appropriate, and comply with certain core principles set out in Title VII, relating, among other things, to enforcement, position limits, emergency powers, recordkeeping and reporting, and conflicts of interest. The CFTC and SEC are authorized to adopt rules prescribing the manner in which swap execution facilities must comply with the core principles. - Conflicts of Interest. Within 180 days of enactment of Title VII, the CFTC and SEC are required to adopt rules, which may include numerical limits on the control of, or the voting rights with respect to, any derivatives clearing organization or securities clearing agency that clears swaps or security-based swaps, or swap execution facility or board of trade designated as a contract market that posts swaps or makes swaps available for trading, by a bank holding company with total consolidated assets of $50,000,000,000 or more; a nonbank financial company supervised by the Federal Reserve Board; an affiliate of such a bank holding company or nonbank financial company; or a swap dealer, major swap participant, security-based swap dealer, major security-based swap participant or associated person thereof.13
V. Swap and Security-Based Swap Data
Repositories
Title VII requires all swaps and security-based swaps (both cleared
and uncleared) to be reported to a registered swap data repository
or the appropriate agency. A swap data repository must be
registered with the CFTC or SEC, as appropriate, and must comply
with the rules these agencies adopt governing their conduct. A swap
data repository is required to accept, maintain and make available
swap data as prescribed by the appropriate agency, and is subject
to inspection and examination.
The CFTC and SEC must issue interim final rules, within 90 days
after the enactment of the Act, requiring swaps and security-based
swaps to be reported to a registered swap data repository or the
appropriate agency. Each swap or security-based swap that is
entered into before the date of enactment of Title VII must be
reported to a registered swap data repository or the appropriate
agency within 30 days after adoption of such rules or at such later
time as the agencies determine. If one of the parties to these
transactions is a swap dealer or security-based swap dealer, then
the dealer is responsible for reporting the transaction; otherwise,
the parties must select the person that will be responsible for
reporting.
The Act also requires the agencies to issue rules requiring the
real-time public reporting of swaps. For swaps that are not cleared
but which are reported to a swap data repository or an agency, the
repository or agency must make available aggregate data on such
swap trading volumes and positions in a manner that does not
disclose the business transactions and market positions of any
person.
VI. Restrictions on Bank Proprietary Trading
Title VII prohibits federal assistance to any swaps entity with
respect to any swap, security-based swap or other activity of the
swaps entity. A "swaps entity" is defined to include any
swap dealer, security-based swap dealer, major swap participant or
major security-based swap participant that is registered as such
with the CFTC or SEC.14 Federal assistance includes
advances from any Federal Reserve credit facility or discount
window that is not part of a program with broad-based eligibility
under the Federal Reserve Act and Federal Deposit Insurance
Corporation insurance or guarantees.
The practical effect of this provision is to force banks to spin
off, or "push out," their swaps dealing activities to
their affiliates. Title VII permits these activities to be
conducted by such affiliates so long as the affiliate is part of a
bank or savings and loan holding company that is supervised by the
Federal Reserve Board and such affiliates conduct such activity in
accordance with Sections 23A and 23B of the Federal Reserve
Act15 and any other requirements prescribed by the
Board, the CFTC or the SEC.
The push-out requirements noted above are subject to exceptions
for: (i) hedging and risk mitigation activities that relate to the
bank's business; (ii) acting as swap dealer for rates and
assets that are permitted investments under the federal banking
laws;16 and (iii) acting as a swap dealer for certain
cleared credit default swaps.
The push-out requirements come into effect two years after the
effective date of Title VII and are subject to a transition period
that may last for up to 24 months thereafter.
VII. Position Limits
The CFTC is required to establish limits (including related hedge
exemption provisions) on the aggregate number or amount of
positions in contracts based on the same underlying commodity (as
defined by the CFTC) that may be held by any person, including any
group or class of traders, for each contract month across: (i)
contracts listed by designated contract markets; (ii) with respect
to an agreement, contract or transaction that settles against, or
in relation to, any price (including the daily or final settlement
price) of one or more contracts listed for trading on a registered
entity, contracts traded on a foreign board of trade that provides
members or other participants located in the United State with
direct access to the electronic trading and order matching system
of the foreign board of trade; and (iii) swaps that perform or
affect a significant price discovery function with respect to a
regulated entity.
A foreign board of trade that lists for trading an agreement,
contract or transaction that settles against any price (including
the daily or final settlement price) of one or more contracts
listed for trading on a registered entity may not provide
participants located in the United States direct access to the
board of trade's electronic trading and order-matching system,
unless the CFTC determines, among other things, that the foreign
board of trade, or the foreign futures authority that oversees the
foreign board of trade, adopts position limits (including related
hedge exemption provisions) for the agreement, contract or
transaction that are comparable to the position limits (including
related hedge exemption provisions) adopted by the registered
entity for the one or more contracts against which the agreement,
contract or transaction traded on the foreign board of trade
settles.
VIII. Portfolio Margining
Title VII amends the Commodity Exchange Act and the Securities
Exchange Act of 1934 to facilitate the use of portfolio margining.
In general, Title VII instructs the CFTC and SEC to issue rules or
exemptive orders as necessary to permit customers that hold
portfolio margin positions at a joint FCM/broker-dealer to choose
whether such positions will be carried in a futures account or a
securities account. Thus, portfolio margin customers may have the
same ability to choose the customer protection regime that applies
to their portfolio margin accounts that is currently available to
customers that engage in single stock futures transactions.
Title VII also directs the CFTC to ensure that portfolio margin
positions held in a futures account are subject to the same
customer protection regime that applies to futures contracts.
Similarly, a person that holds portfolio margin positions in a
securities account at a joint FCM/BD should receive the benefits of
the protections that are available to customers under the
Securities Investor Protection Act.
Conclusion
This Advisory only highlights several of the many issues that the
federal financial regulators, the financial services industry and
all financial market participants will have to tackle in the year
ahead to implement Title VII. The challenges that will confront all
affected parties in the effort to achieve a rational and coherent
regulatory regime for the OTC derivatives markets are
substantial.
Footnotes
1 A "foreign exchange swap" is a transaction
that solely involves the exchange of two different currencies on a
specific date at a fixed rate agreed at the inception of the
contract, and a reverse exchange of the same two currencies at a
date further in the future and at a fixed rate agreed at the
inception of the contract covering the exchange. A "foreign
exchange forward" is a transaction that solely involves the
exchange of two different currencies on a specific future date at a
fixed rate agreed upon at the inception of the contract covering
the exchange.
2 In determining whether foreign exchange swaps should be regulated
as swaps under the Act or whether such swaps are structured to
evade the Act, the Secretary of the Treasury must take into
account: (i) whether imposing mandatory exchange trading and
clearing requirements on foreign exchange swaps and foreign
exchange forwards would create systemic risk, lower transparency or
threaten the financial stability of the United States; (ii) whether
foreign exchange swaps and foreign exchange forwards are already
subject to a regulatory scheme that is materially comparable to
that established by this Act for other classes of swaps; (iii) the
extent to which bank regulators of participants in the foreign
exchange market provide adequate supervision, including capital and
margin requirements; (iv) the extent of adequate payment and
settlement systems; and (v) the use of a potential exemption of
foreign exchange swaps and foreign exchange forwards to evade
otherwise applicable regulatory requirements.
3 A "swap dealer" is any person that holds itself out as
a swap dealer, makes a market in swaps, regularly engages in the
purchase and sale of swaps in the ordinary course of a business, or
engages in activity causing the person to be commonly known as a
dealer or market maker in swaps. A "security-based swap
dealer" is similarly defined. The agencies may adopt rules
exempting from registration as a swap dealer or security-based swap
dealer an entity that engages in de minimis transactions
with customers.
4 A "financial entity" includes swap dealers,
security-based swap dealers, major swap participants, major
security-based swap participants, commodity pools, private funds,
employee benefit plans and banking or financial institutions.
5 Initial and variation margin for cleared swaps will be
established by the relevant derivatives clearing organization or
securities clearing agency, subject to the oversight of the CFTC or
SEC, as appropriate.
6 Further, the capital and margin rules imposed should: (i) help
ensure the safety and soundness of the swap dealer or major swap
participant, and (ii) be appropriate for the risk associated with
the non-cleared swaps held as a swap dealer or major swap
participant.
7 Title VII further provides that the business conduct requirements
must: (i) establish a duty to verify that any counterparty meets
the eligibility standards for an eligible contract participant;
(ii) require disclosure to any counterparty (other than another
swap registrant) of (a) the material risks and characteristics of
the swap; (b) any material incentives or conflicts of interest; (c)
for cleared swaps, upon the request of the counterparty, receipt of
the daily mark of the transaction from the appropriate derivatives
clearing organization or securities clearing agency; and (d) for
uncleared swaps, receipt of the daily mark of the transaction from
the swap dealer or the major swap participant; (iii) establish a
duty to communicate in a fair and balanced manner based on
principles of fair dealing and good faith; and (iv) establish such
other standards and requirements as are appropriate in the public
interest, for the protection of investors or otherwise in
furtherance of the purposes of Title VII.
8 The CFTC and SEC are also authorized to adopt rules regarding
permitted investments of such funds.
9 The requirement to segregate initial margin does not apply to
variation margin payments or preclude any commercial arrangement
regarding the investment of segregated funds or other property in
accordance with CFTC or SEC rules.
10 If the CFTC or SEC determines that a swap or security-based swap
is required to be cleared but no derivatives clearing organization
or securities clearing agency offers to clear such instrument, the
CFTC or SEC, as appropriate, must investigate, publicly report and
take such action as may be necessary and in the public
interest.
11 This requirement does not apply if no exchange or swap execution
facility has made the swap available for trading.
12 The CFTC and SEC may promulgate rules defining the universe of
swaps that can be executed on a swap execution facility.
13 The CFTC and SEC, as appropriate, must adopt rules if they
determine that such rules are necessary or appropriate to improve
the governance of, or to mitigate systemic risk, promote
competition or mitigate conflicts of interest in connection with a
swap dealer or major swap participant's conduct of business
with, a DCO, contract market or swap execution facility that clears
or posts swaps or makes swaps available for trading and in which
such swap dealer or major swap participant has a material debt or
equity investment.
14 However, the term "swaps entity" does not include a
major swap participant or major security-based swap participant
that is a bank. This term also does not include a bank that is in
conservatorship or receivership, or a bridge bank operated by the
FDIC.
15 In general, Section 23A prohibits a bank from initiating a
"covered transaction" with an affiliate if, after the
transaction, (i) the aggregate amount of the bank's covered
transactions with that particular affiliate would exceed 10 percent
of the bank's capital stock and surplus, or (ii) the aggregate
amount of the bank's covered transactions with all affiliates
would exceed 20 percent of the bank's capital stock and
surplus. Covered transactions include loans and other extensions of
credit to an affiliate, investments in the securities of an
affiliate, purchases of assets from an affiliate, and certain other
transactions that expose the bank to the risks of its affiliates.
Section 23B generally requires that certain transactions, including
all covered transactions, be on market terms and conditions (Market
Terms Requirement). In addition to covered transactions, the Market
Terms Requirement applies to: (i) any sale of assets by the bank to
an affiliate; (ii) any payment of money or furnishing of services
by the bank to an affiliate; (iii) any transaction in which an
affiliate acts as agent or broker for the bank or any other person
if the bank is a participant in the transaction; and (iv) any
transaction by the bank with a third party if an affiliate has a
financial interest in the third party or an affiliate is a
participant in the transaction.
16 These assets include U.S. government and government agency
securities (including asset-backed securities insured by a
government agency), general obligation bonds issued by states or
their political subdivisions, and corporate bonds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.