17 C.F.R. Part 240 — GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

§ 240.0-1 Definitions. (a) As used in the rules and regulations in this part, prescribed by the Commission pursuant to Title I of the Securities Exchange Act of 1934 (48 Stat. 881-905; 15 U.S.C. chapter 2B), unless the context otherwise specifically requires: (1) The term Commission means the Securities and Exchange Commission. (2) The term act means Title I of the Securities Exchange Act of 1934. (3) The term section refers to a section of the Securities Exchange Act of 1934. 1 1 The provisions of paragraph (a)(3) of 17 CFR 240.0-1 relate to the terminology of rules and regulations as published by the Securities and Exchange Commission and are inapplicable to the terminology appearing in the Code of Federal Regulations. (4) The term rules and regulations refers to all rules and regulations adopted by the Commission pursuant to the act, including the forms for registration and reports and the accompanying instructions thereto. (5) The term electronic filer means a person or an entity that submits filings electronically pursuant to Rules 100 and 101 of Regulation S-T (§§ 232.100 and 232.101 of this chapter, respectively). (6) The term electronic filing means a document under the federal securities laws that is transmitted or delivered to the Commission in electronic format. (b) Unless otherwise specifically stated, the terms used in this part shall have the meaning defined in the act. (c) A rule or regulation which defines a term without express reference to the act or to the rules and regulations, or to a portion thereof, defines such term for all purposes as used both in the act and in the rules and regulations, unless the context otherwise specifically requires. (d) Unless otherwise specified or the context otherwise requires, the term prospectus means a prospectus meeting the requirements of section 10(a) of the Securities Act of 1933 as amended. For definition of “listed”, see § 240.3b-1; “officer”, § 240.3b-2; “short sale”, § 240.3b-3. For additional definitions, see § 240.15c1-1.

§ 240.0-2 Business hours of the Commission. (a) The principal office of the Commission, at 100 F Street, NE, Washington, DC 20549, is open each day, except Saturdays, Sundays, and Federal holidays, from 9 a.m. to 5:30 p.m., Eastern Standard Time or Eastern Daylight Saving Time, whichever currently is in effect in Washington, DC, provided that hours for the filing of documents pursuant to the Act or the rules and regulations thereunder are as set forth in paragraphs (b) and (c) of this section. (b) Submissions made in paper. Paper documents filed with or otherwise furnished to the Commission may be submitted to the Commission each day, except Saturdays, Sundays and federal holidays, from 8 a.m. to 5:30 p.m., Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect. (c) Electronic filings. Filings made by direct transmission may be submitted to the Commission each day, except Saturdays, Sundays, and Federal holidays, from 6 a.m. to 10 p.m., Eastern Standard Time or Eastern Daylight Saving Time, whichever is currently in effect. For registration and exemption of exchanges, see §§ 240.6a-1 to 240.6a-3. For forms for permanent registration of securities, see § 240.12b-1. For regulations relating to registration of securities, see §§ 240.12b-1 to 240.12b-36. For forms for applications for registration of brokers and dealers, see §§ 240.15b1-1 to 240.15b9-1.

§ 240.0-3 Filing of material with the Commission. (a) All papers required to be filed with the Commission pursuant to the Act or the rules and regulations thereunder shall be filed at the principal office in Washington, DC. Material may be filed by delivery to the Commission, through the mails or otherwise. The date on which papers are actually received by the Commission shall be the date of filing thereof if all of the requirements with respect to the filing have been complied with, except that if the last day on which papers can be accepted as timely filed falls on a Saturday, Sunday or holiday, such papers may be filed on the first business day following. (b) The manually signed original (or in the case of duplicate originals, one duplicate original) of all registrations, applications, statements, reports, or other documents filed under the Securities Exchange Act of 1934, as amended, shall be numbered sequentially (in addition to any internal numbering which otherwise may be present) by handwritten, typed, printed, or other legible form of notation from the facing page of the document through the last page of that document and any exhibits or attachments thereto. Further, the total number of pages contained in a numbered original shall be set forth on the first page of the document. (c) Each document filed shall contain an exhibit index, which should immediately precede the exhibits filed with such document. The index shall list each exhibit filed and identify by handwritten, typed, printed, or other legible form of notation in the manually signed original, the page number in the sequential numbering system described in paragraph (b) of this section where such exhibit can be found or where it is stated that the exhibit is incorporated by reference. Further, the first page of the manually signed document shall list the page in the filing where the exhibit index is located.

§ 240.0-4 Nondisclosure of information obtained in examinations and investigations. Information or documents obtained by officers or employees of the Commission in the course of any examination or investigation pursuant to section 17(a) (48 Stat. 897, section 4, 49 Stat. 1379; 15 U.S.C. 78q(a)) or 21(a) (48 Stat. 899; 15 U.S.C. 78u(a)) shall, unless made a matter of public record, be deemed confidential. Except as provided by 17 CFR 203.2, officers and employees are hereby prohibited from making such confidential information or documents or any other non-public records of the Commission available to anyone other than a member, officer or employee of the Commission, unless the Commission or the General Counsel, pursuant to delegated authority, authorizes the disclosure of such information or the production of such documents as not being contrary to the public interest. Any officer or employee who is served with a subpoena requiring the disclosure of such information or the production of such documents shall appear in court and, unless the authorization described in the preceding sentence shall have been given, shall respectfully decline to disclose the information or produce the documents called for, basing his or her refusal upon this section. Any officer or employee who is served with such a subpoena shall promptly advise the General Counsel of the service of such subpoena, the nature of the information or documents sought, and any circumstances which may bear upon the desirability of making available such information or documents.

§ 240.0-5 Reference to rule by obsolete designation. Wherever in any rule, form, or instruction book specific reference is made to a rule by number or other designation which is now obsolete, such reference shall be deemed to be made to the corresponding rule or rules in the existing general rules and regulations.

§ 240.0-6 Disclosure detrimental to the national defense or foreign policy. (a) Any requirement to the contrary notwithstanding, no registration statement, report, proxy statement or other document filed with the Commission or any securities exchange shall contain any document or information which, pursuant to Executive order, has been classified by an appropriate department or agency of the United States for protection in the interests of national defense or foreign policy. (b) Where a document or information is omitted pursuant to paragraph (a) of this section, there shall be filed, in lieu of such document or information, a statement from an appropriate department or agency of the United States to the effect that such document or information has been classified or that the status thereof is awaiting determination. Where a document is omitted pursuant to paragraph (a) of this section, but information relating to the subject matter of such document is nevertheless included in material filed with the Commission pursuant to a determination of an appropriate department or agency of the United States that disclosure of such information would not be contrary to the interests of national defense or foreign policy, a statement from such department or agency to that effect shall be submitted for the information of the Commission. A registrant may rely upon any such statement in filing or omitting any document or information to which the statement relates. (c) The Commission may protect any information in its possession which may require classification in the interests of national defense or foreign policy pending determination by an appropriate department or agency as to whether such information should be classified. (d) It shall be the duty of the registrant to submit the documents or information referred to in paragraph (a) of this section to the appropriate department or agency of the United States prior to filing them with the Commission and to obtain and submit to the Commission, at the time of filing such documents or information, or in lieu thereof, as the case may be, the statements from such department or agency required by paragraph (b) of this section. All such statements shall be in writing.

§ 240.0-8 Application of rules to registered broker-dealers. Any provision of any rule or regulation under the Act which prohibits any act, practice, or course of business by any person if the mails or any means or instrumentality of interstate commerce are used in connection therewith, shall also prohibit any such act, practice, or course of business by any broker or dealer registered pursuant to section 15(b) of the Act, or any person acting on behalf of such a broker or dealer, irrespective of any use of the mails or any means or instrumentality of interstate commerce.

§ 240.0-9 Payment of filing fees. All payment of filing fees shall be made by wire transfer, debit card, or credit card or via the Automated Clearing House Network. Payment of filing fees required by this section shall be made in accordance with the directions set forth in § 202.3a of this chapter.

§ 240.0-10 Small entities under the Securities Exchange Act for purposes of the Regulatory Flexibility Act. For purposes of Commission rulemaking in accordance with the provisions of Chapter Six of the Administrative Procedure Act (5 U.S.C. 601 et seq.), and unless otherwise defined for purposes of a particular rulemaking proceeding, the term small business or small organization shall: (a) When used with reference to an “issuer” or a “person,” other than an investment company, mean an “issuer” or “person” that, on the last day of its most recent fiscal year, had total assets of $5 million or less; (b) When used with reference to an “issuer” or “person” that is an investment company, have the meaning ascribed to those terms by § 270.0-10 of this chapter; (c) When used with reference to a broker or dealer, mean a broker or dealer that: (1) Had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to § 240.17a-5(d) or, if not required to file such statements, a broker or dealer that had total capital (net worth plus subordinated liabilities) of less than $500,000 on the last business day of the preceding fiscal year (or in the time that it has been in business, if shorter); and (2) Is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in this section; (d) When used with reference to a clearing agency, mean a clearing agency that: (1) Compared, cleared and settled less than $500 million in securities transactions during the preceding fiscal year (or in the time that it has been in business, if shorter); (2) Had less than $200 million of funds and securities in its custody or control at all times during the preceding fiscal year (or in the time that it has been in business, if shorter); and (3) Is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in this section; (e) When used with reference to an exchange, mean any exchange that: (1) Has been exempted from the reporting requirements of § 242.601 of this chapter; and (2) Is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in this section; (f) When used with reference to a municipal securities dealer that is a bank (including any separately identifiable department or division of a bank), mean any such municipal securities dealer that: (1) Had, or is a department of a bank that had, total assets of less than $10 million at all times during the preceding fiscal year (or in the time that it has been in business, if shorter); (2) Had an average monthly volume of municipal securities transactions in the preceding fiscal year (or in the time it has been registered, if shorter) of less than $100,000; and (3) Is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in this section; (g) When used with reference to a securities information processor, mean a securities information processor that: (1) Had gross revenues of less than $10 million during the preceding fiscal year (or in the time it has been in business, if shorter); (2) Provided service to fewer than 100 interrogation devices or moving tickers at all times during the preceding fiscal year (or in the time that it has been in business, if shorter); and (3) Is not affiliated with any person (other than a natural person) that is not a small business or small organization under this section; and (h) When used with reference to a transfer agent, mean a transfer agent that: (1) Received less than 500 items for transfer and less than 500 items for processing during the preceding six months (or in the time that it has been in business, if shorter); (2) Transferred items only of issuers that would be deemed “small businesses” or “small organizations” as defined in this section; and (3) Maintained master shareholder files that in the aggregate contained less than 1,000 shareholder accounts or was the named transfer agent for less than 1,000 shareholder accounts at all times during the preceding fiscal year (or in the time that it has been in business, if shorter); and (4) Is not affiliated with any person (other than a natural person) that is not a small business or small organization under this section. (i) For purposes of paragraph (c) of this section, a broker or dealer is affiliated with another person if: (1) Such broker or dealer controls, is controlled by, or is under common control with such other person; a person shall be deemed to control another person if that person has the right to vote 25 percent or more of the voting securities of such other person or is entitled to receive 25 percent or more of the net profits of such other person or is otherwise able to direct or cause the direction of the management or policies of such other person; or (2) Such broker or dealer introduces transactions in securities, other than registered investment company securities or interests or participations in insurance company separate accounts, to such other person, or introduces accounts of customers or other brokers or dealers, other than accounts that hold only registered investment company securities or interests or participations in insurance company separate accounts, to such other person that carries such accounts on a fully disclosed basis. (j) For purposes of paragraphs (d) through (h) of this section, a person is affiliated with another person if that person controls, is controlled by, or is under common control with such other person; a person shall be deemed to control another person if that person has the right to vote 25 percent or more of the voting securities of such other person or is entitled to receive 25 percent or more of the net profits of such other person or is otherwise able to direct or cause the direction of the management or policies of such other person. (k) For purposes of paragraph (g) of this section, “interrogation device” shall refer to any device that may be used to read or receive securities information, including quotations, indications of interest, last sale data and transaction reports, and shall include proprietary terminals or personal computers that receive securities information via computer-to-computer interfaces or gateway access.

§ 240.0-11 Filing fees for certain acquisitions, dispositions and similar transactions. (a) General. (1) At the time of filing a disclosure document described in paragraphs (b) through (d) of this section relating to certain acquisitions, dispositions, business combinations, consolidations or similar transactions, the person filing the specified document shall pay a fee payable to the Commission to be calculated as set forth in paragraphs (b) through (d) of this section. (2) A required fee shall be reduced in an amount equal to any fee paid with respect to such transaction pursuant to either section 6(b) of the Securities Act of 1933 or any applicable provision of this section; the fee requirements under section 6(b) shall be reduced in an amount equal to the fee paid the Commission with respect to a transaction under this section. No part of a filing fee is refundable. (3) If at any time after the initial payment the aggregate consideration offered is increased, an additional filing fee based upon such increase shall be paid with the required amended filing. (4) When the fee is based upon the market value of securities, such market value shall be established by either the average of the high and low prices reported in the consolidated reporting system (for exchange traded securities and last sale reported over-the-counter securities) or the average of the bid and asked price (for other over-the-counter securities) as of a specified date within 5 business days prior to the date of the filing. If there is no market for the securities, the value shall be based upon the book value of the securities computed as of the latest practicable date prior to the date of the filing, unless the issuer of the securities is in bankruptcy or receivership or has an accumulated capital deficit, in which case one-third of the principal amount, par value or stated value of the securities shall be used. (5) An exhibit to the filing shall set forth the calculation of the fee in tabular format, as well as the amount offset by a previous filing and the identification of such filing, if applicable. (b) Section 13(e)(1) filings. At the time of filing such statement as the Commission may require pursuant to section 13(e)(1) of the Exchange Act, a fee equal to the product of the rate applicable under section 13(e) of the Exchange Act multiplied by the value of the securities proposed to be acquired by the acquiring person. The value of the securities proposed to be acquired shall be determined as follows: (1) The value of the securities to be acquired solely for cash shall be the amount of cash to be paid for them: (2) The value of the securities to be acquired with securities or other non-cash consideration, whether or not in combination with a cash payment for the same securities, shall be based upon the market value of the securities to be received by the acquiring person as established in accordance with paragraph (a)(4) of this section. (c) Proxy and information statement filings. At the time of filing a preliminary proxy statement pursuant to Rule 14a-6(a) or preliminary information statement pursuant to Rule 14c-5(a) that concerns a merger, consolidation, acquisition of a company, or proposed sale or other disposition of substantially all the assets of the registrant (including a liquidation), the following fee: (1) For preliminary material involving a vote upon a merger, consolidation or acquisition of a company, a fee equal to the product of the rate applicable under section 14(g) of the Exchange Act multiplied by the proposed cash payment or, if the consideration does not consistent entirely of cash, the value of the securities and other property to be transferred to security holders in the transaction. The fee is payable whether the registrant is acquiring another company or being acquired. (i) The value of securities or other property to be transferred to security holders, whether or not in combination with a cash payment for the same securities, shall be based upon the market value of the securities to be received by the acquiring person as established in accordance with paragraph (a)(4) of this section. (ii) Notwithstanding the above, where the acquisition, merger or consolidation is for the sole purpose of changing the registrant's domicile, no filing fee is required to be paid. (2) For preliminary material involving a vote upon a proposed sale or other disposition of substantially all the assets of the registrant, a fee equal to the product of the rate applicable under section 14(g) of the Exchange Act multiplied by the aggregate of, as applicable, the cash and the value of the securities (other than its own) and other property to be received by the registrant. In the case of a disposition in which the registrant will not receive any property, such as at liquidation or spin-off, the fee shall be equal to the product of the rate applicable under section 14(g) of the Exchange Act multiplied by the aggregate of, as applicable, the cash and the value of the securities and other property to be distributed to security holders. (i) The value of the securities to be received (or distributed in the case of a spin-off or liquidation) shall be based upon the market value of such securities as established in accordance with paragraph (a)(4) of this section. (ii) The value of other property shall be a bona fide estimate of the fair market value of such property. (3) Where two or more companies are involved in the transaction, each shall pay a proportionate share of such fee, determined by the persons involved. (4) Notwithstanding the above, the fee required by this paragraph (c) shall not be payable for a proxy statement filed by a company registered under the Investment Company Act of 1940. (d) Section 14(d)(1) filings. At the time of filing such statement as the Commission may require pursuant to section 14(d)(1) of the Act, a fee equal to the product of the rate applicable under section 14(g) of the Exchange Act multiplied by the cash or, if the consideration does not consist entirely of cash, the value of the securities and other property offered by the bidder. Where the bidder is offering securities or other non-cash consideration for some or all of the securities to be acquired, whether or not in combination with a cash payment for the same securities, the value of the consideration to be offered for such securities shall be based upon the market value of the securities to be received by the bidder as established in accordance with paragraph (a)(4) of this section.

§ 240.0-12 Commission procedures for filing applications for orders for exemptive relief under Section 36 of the Exchange Act. (a) The application shall be in writing in the form of a letter, must include any supporting documents necessary to make the application complete, and otherwise must comply with § 240.0-3. All applications must be submitted to the Office of the Secretary of the Commission. Requestors may seek confidential treatment of their applications to the extent provided under § 200.81 of this chapter. If an application is incomplete, the Commission, through the Division handling the application, may request that the application be withdrawn unless the applicant can justify, based on all the facts and circumstances, why supporting materials have not been submitted and undertakes to submit the omitted materials promptly. (b) An applicant may submit a request electronically. The electronic mailbox to use for these applications is described on the Commission's Web site at http://www.sec.gov in the “Exchange Act Exemptive Applications” section. In the event the electronic mailbox is revised in the future, applicants can find the appropriate mailbox by accessing the “Electronic Mailboxes at the Commission” section. (c) An applicant also may submit a request in paper format. Five copies of every paper application and every amendment to such an application must be submitted to the Office of the Secretary at 100 F Street, NE., Washington, DC 20549-1090. Applications must be on white paper no larger than 8 1/2 by 11 inches in size. The left margin of applications must be at least 1 1/2 inches wide, and if the application is bound, it must be bound on the left side. All typewritten or printed material must be on one side of the paper only and must be set forth in black ink so as to permit photocopying. (d) Every application (electronic or paper) must contain the name, address and telephone number of each applicant and the name, address, and telephone number of a person to whom any questions regarding the application should be directed. The Commission will not consider hypothetical or anonymous requests for exemptive relief. Each applicant shall state the basis for the relief sought, and identify the anticipated benefits for investors and any conditions or limitations the applicant believes would be appropriate for the protection of investors. Applicants should also cite to and discuss applicable precedent. (e) Amendments to the application should be prepared and submitted as set forth in these procedures and should be marked to show what changes have been made. (f) After the filing is complete, the applicable Division will review the application. Once all questions and issues have been answered to the satisfaction of the Division, the staff will make an appropriate recommendation to the Commission. After consideration of the recommendation by the Commission, the Commission's Office of the Secretary will issue an appropriate response and will notify the applicant. If the application pertains to a section of the Exchange Act pursuant to which the Commission has delegated its authority to the appropriate Division, the Division Director or his or her designee will issue an appropriate response and notify the applicant. (g) The Commission, in its sole discretion, may choose to publish in the Federal Register a notice that the application has been submitted. The notice would provide that any person may, within the period specified therein, submit to the Commission any information that relates to the Commission action requested in the application. The notice also would indicate the earliest date on which the Commission would take final action on the application, but in no event would such action be taken earlier than 25 days following publication of the notice in the Federal Register. (h) The Commission may, in its sole discretion, schedule a hearing on the matter addressed by the application.

§ 240.0-13 Commission procedures for filing applications to request a substituted compliance or listed jurisdiction order under the Exchange Act. (a) The application shall be in writing in the form of a letter, must include any supporting documents necessary to make the application complete, and otherwise must comply with § 240.0-3. All applications must be submitted to the Office of the Secretary of the Commission, by a party that potentially would comply with requirements under the Exchange Act pursuant to a substituted compliance or listed jurisdiction order, or by the relevant foreign financial regulatory authority or authorities. If an application is incomplete, the Commission may request that the application be withdrawn unless the applicant can justify, based on all the facts and circumstances, why supporting materials have not been submitted and undertakes to submit the omitted materials promptly. (b) An applicant may submit a request electronically. The electronic mailbox to use for these applications is described on the Commission's website at www.sec.gov in the “Exchange Act Substituted Compliance and Listed Jurisdiction Applications” section. In the event electronic mailboxes are revised in the future, applicants can find the appropriate mailbox by accessing the “Electronic Mailboxes at the Commission” section. (c) All filings and submissions filed pursuant to this rule must be in the English language. If a filing or submission filed pursuant to this rule requires the inclusion of a document that is in a foreign language, a party must submit instead a fair and accurate English translation of the entire foreign language document. A party may submit a copy of the unabridged foreign language document when including an English translation of a foreign language document in a filing or submission filed pursuant to this rule. A party must provide a copy of any foreign language document upon the request of Commission staff. (d) An applicant also may submit a request in paper format. Five copies of every paper application and every amendment to such an application must be submitted to the Office of the Secretary at 100 F Street NE., Washington, DC 20549-1090. Applications must be on white paper no larger than 8 1/2 by 11 inches in size. The left margin of applications must be at least 1 1/2 inches wide, and if the application is bound, it must be bound on the left side. All typewritten or printed material must be set forth in black ink so as to permit photocopying. (e) Every application (electronic or paper) must contain the name, address, telephone number, and email address of each applicant and the name, address, telephone number, and email address of a person to whom any questions regarding the application should be directed. The Commission will not consider hypothetical or anonymous requests for a substituted compliance or listed jurisdiction order. Each applicant shall provide the Commission with any supporting documentation it believes necessary for the Commission to make such determination, including information regarding applicable requirements established by the foreign financial regulatory authority or authorities, as well as the methods used by the foreign financial regulatory authority or authorities to monitor and enforce compliance with such rules. Applicants should also cite to and discuss applicable precedent. (f) Amendments to the application should be prepared and submitted as set forth in these procedures and should be marked to show what changes have been made. (g) After the filing is complete, the staff will review the application. Once all questions and issues have been answered to the satisfaction of the staff, the staff will make an appropriate recommendation to the Commission. After consideration of the recommendation and a vote by the Commission, the Commission's Office of the Secretary will issue an appropriate response and will notify the applicant. (h) The Commission shall publish in the Federal Register a notice that a complete application has been submitted. The notice will provide that any person may, within the period specified therein, submit to the Commission any information that relates to the Commission action requested in the application. The notice also will indicate the earliest date on which the Commission would take final action on the application, but in no event would such action be taken earlier than 25 days following publication of the notice in the Federal Register. (i) The Commission may, in its sole discretion, schedule a hearing on the matter addressed by the application.

§ 240.3a1-1 Exemption from the definition of “Exchange” under Section 3(a)(1) of the Act. (a) An organization, association, or group of persons shall be exempt from the definition of the term “exchange” under section 3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, association, or group of persons: (1) Is operated by a national securities association; (2) Is in compliance with Regulation ATS, 17 CFR 242.300 through 242.304; (3) Pursuant to paragraph (a) of § 242.301 of Regulation ATS, 17 CFR 242.301(a), is not required to comply with Regulation ATS, 17 CFR 242.300 through 242.304; (4) Has registered with the Commission as a security-based swap execution facility pursuant § 242.803 of this chapter and provides a market place or facilities for no securities other than security-based swaps; or (5) Has registered with the Commission as a clearing agency pursuant to section 17A of the Act (15 U.S.C. 78q-1) and limits its exchange functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations of security-based swaps. (b) Notwithstanding paragraphs (a)(1) through (3) of this section, an organization, association, or group of persons shall not be exempt under this section from the definition of “exchange,” if: (1) During three of the preceding four calendar quarters such organization, association, or group of persons had: (i) Fifty percent or more of the average daily dollar trading volume in any security and five percent or more of the average daily dollar trading volume in any class of securities; or (ii) Forty percent or more of the average daily dollar trading volume in any class of securities; and (2) The Commission determines, after notice to the organization, association, or group of persons, and an opportunity for such organization, association, or group of persons to respond, that such an exemption would not be necessary or appropriate in the public interest or consistent with the protection of investors taking into account the requirements for exchange registration under section 6 of the Act, (15 U.S.C. 78f), and the objectives of the national market system under section 11A of the Act, (15 U.S.C 78k-1). (3) For purposes of paragraph (b) of this section, each of the following shall be considered a “class of securities”: (i) Equity securities, which shall have the same meaning as in § 240.3a11-1; (ii) Listed options, which shall mean any options traded on a national securities exchange or automated facility of a national securities exchange; (iii) Unlisted options, which shall mean any options other than those traded on a national securities exchange or automated facility of a national securities association; (iv) Municipal securities, which shall have the same meaning as in section 3(a)(29) of the Act, (15 U.S.C. 78c(a)(29)); (v) Corporate debt securities, which shall mean any securities that: (A) Evidence a liability of the issuer of such securities; (B) Have a fixed maturity date that is at least one year following the date of issuance; and (C) Are not exempted securities, as defined in section 3(a)(12) of the Act, (15 U.S.C. 78c(a)(12)); (vi) Foreign corporate debt securities, which shall mean any securities that: (A) Evidence a liability of the issuer of such debt securities; (B) Are issued by a corporation or other organization incorporated or organized under the laws of any foreign country; and (C) Have a fixed maturity date that is at least one year following the date of issuance; and (vii) Foreign sovereign debt securities, which shall mean any securities that: (A) Evidence a liability of the issuer of such debt securities; (B) Are issued or guaranteed by the government of a foreign country, any political subdivision of a foreign country or any supranational entity; and (C) Do not have a maturity date of a year or less following the date of issuance.

§ 240.3a4-1 Associated persons of an issuer deemed not to be brokers. (a) An associated person of an issuer of securities shall not be deemed to be a broker solely by reason of his participation in the sale of the securities of such issuer if the associated person: (1) Is not subject to a statutory disqualification, as that term is defined in section 3(a)(39) of the Act, at the time of his participation; and (2) Is not compensated in connection with his participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities; and (3) Is not at the time of his participation an associated person of a broker or dealer; and (4) Meets the conditions of any one of paragraph (a)(4) (i), (ii), or (iii) of this section. (i) The associated person restricts his participation to transactions involving offers and sales of securities: (A) To a registered broker or dealer; a registered investment company (or registered separate account); an insurance company; a bank; a savings and loan association; a trust company or similar institution supervised by a state or federal banking authority; or a trust for which a bank, a savings and loan association, a trust company, or a registered investment adviser either is the trustee or is authorized in writing to make investment decisions; or (B) That are exempted by reason of section 3(a)(7), 3(a)(9) or 3(a)(10) of the Securities Act of 1933 from the registration provisions of that Act; or (C) That are made pursuant to a plan or agreement submitted for the vote or consent of the security holders who will receive securities of the issuer in connection with a reclassification of securities of the issuer, a merger or consolidation or a similar plan of acquisition involving an exchange of securities, or a transfer of assets of any other person to the issuer in exchange for securities of the issuer; or (D) That are made pursuant to a bonus, profit-sharing, pension, retirement, thrift, savings, incentive, stock purchase, stock ownership, stock appreciation, stock option, dividend reinvestment or similar plan for employees of an issuer or a subsidiary of the issuer; (ii) The associated person meets all of the following conditions: (A) The associated person primarily performs, or is intended primarily to perform at the end of the offering, substantial duties for or on behalf of the issuer otherwise than in connection with transactions in securities; and (B) The associated person was not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and (C) The associated person does not participate in selling an offering of securities for any issuer more than once every 12 months other than in reliance on paragraph (a)(4)(i) or (iii) of this section, except that for securities issued pursuant to rule 415 under the Securities Act of 1933, the 12 months shall begin with the last sale of any security included within one rule 415 registration. (iii) The associated person restricts his participation to any one or more of the following activities: (A) Preparing any written communication or delivering such communication through the mails or other means that does not involve oral solicitation by the associated person of a potential purchaser; Provided, however, that the content of such communication is approved by a partner, officer or director of the issuer; (B) Responding to inquiries of a potential purchaser in a communication initiated by the potential purchaser; Provided, however, That the content of such responses are limited to information contained in a registration statement filed under the Securities Act of 1933 or other offering document; or (C) Performing ministerial and clerical work involved in effecting any transaction. (b) No presumption shall arise that an associated person of an issuer has violated section 15(a) of the Act solely by reason of his participation in the sale of securities of the issuer if he does not meet the conditions specified in paragraph (a) of this section. (c) Definitions. When used in this section: (1) The term associated person of an issuer means any natural person who is a partner, officer, director, or employee of: (i) The issuer; (ii) A corporate general partner of a limited partnership that is the issuer; (iii) A company or partnership that controls, is controlled by, or is under common control with, the issuer; or (iv) An investment adviser registered under the Investment Advisers Act of 1940 to an investment company registered under the Investment Company Act of 1940 which is the issuer. (2) The term associated person of a broker or dealer means any partner, officer, director, or branch manager of such broker or dealer (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such broker or dealer, or any employee of such broker or dealer, except that any person associated with a broker or dealer whose functions are solely clerical or ministerial and any person who is required under the laws of any State to register as a broker or dealer in that State solely because such person is an issuer of securities or associated person of an issuer of securities shall not be included in the meaning of such term for purposes of this section.

§§ 240.3a4-2—240.3a4-6 §§ 240.3a4-2--240.3a4-6 [Reserved]

§ 240.3a5-1 Exemption from the definition of “dealer” for a bank engaged in riskless principal transactions. (a) A bank is exempt from the definition of the term “dealer” to the extent that it engages in or effects riskless principal transactions if the number of such riskless principal transactions during a calendar year combined with transactions in which the bank is acting as an agent for a customer pursuant to section 3(a)(4)(B)(xi) of the Act (15 U.S.C. 78c(a)(4)(B)(xi)) during that same year does not exceed 500. (b) For purposes of this section, the term riskless principal transaction means a transaction in which, after having received an order to buy from a customer, the bank purchased the security from another person to offset a contemporaneous sale to such customer or, after having received an order to sell from a customer, the bank sold the security to another person to offset a contemporaneous purchase from such customer.

§ 240.3a5-2 Exemption from the definition of “dealer” for banks effecting transactions in securities issued pursuant to Regulation S. (a) A bank is exempt from the definition of the term “dealer” under section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)), to the extent that, in a riskless principal transaction, the bank: (1) Purchases an eligible security from an issuer or a broker-dealer and sells that security in compliance with the requirements of 17 CFR 230.903 to a purchaser who is not in the United States; (2) Purchases from a person who is not a U.S. person under 17 CFR 230.902(k) an eligible security after its initial sale with a reasonable belief that the eligible security was initially sold outside of the United States within the meaning of and in compliance with the requirements of 17 CFR 230.903, and resells that security to a purchaser who is not in the United States or to a registered broker or dealer, provided that if the resale is made prior to the expiration of any applicable distribution compliance period specified in 17 CFR 230.903(b)(2) or (b)(3), the resale is made in compliance with the requirements of 17 CFR 230.904; or (3) Purchases from a registered broker or dealer an eligible security after its initial sale with a reasonable belief that the eligible security was initially sold outside of the United States within the meaning of and in compliance with the requirements of 17 CFR 230.903, and resells that security to a purchaser who is not in the United States, provided that if the resale is made prior to the expiration of any applicable distribution compliance period specified in 17 CFR 230.903(b)(2) or (b)(3), the resale is made in compliance with the requirements of 17 CFR 230.904. (b) Definitions. For purposes of this section: (1) Distributor has the same meaning as in 17 CFR 230.902(d). (2) Eligible security means a security that: (i) Is not being sold from the inventory of the bank or an affiliate of the bank; and (ii) Is not being underwritten by the bank or an affiliate of the bank on a firm-commitment basis, unless the bank acquired the security from an unaffiliated distributor that did not purchase the security from the bank or an affiliate of the bank. (3) Purchaser means a person who purchases an eligible security and who is not a U.S. person under 17 CFR 230.902(k). (4) Riskless principal transaction means a transaction in which, after having received an order to buy from a customer, the bank purchased the security from another person to offset a contemporaneous sale to such customer or, after having received an order to sell from a customer, the bank sold the security to another person to offset a contemporaneous purchase from such customer.

§ 240.3a5-3 Exemption from the definition of “dealer” for banks engaging in securities lending transactions. (a) A bank is exempt from the definition of the term “dealer” under section 3(a)(5) of the Act (15 U.S.C. 78c(a)(5)), to the extent that, as a conduit lender, it engages in or effects securities lending transactions, and any securities lending services in connection with such transactions, with or on behalf of a person the bank reasonably believes to be: (1) A qualified investor as defined in section 3(a)(54)(A) of the Act (15 U.S.C. 78c(a)(54)(A)); or (2) Any employee benefit plan that owns and invests, on a discretionary basis, not less than $25,000,000 in investments. (b) Securities lending transaction means a transaction in which the owner of a security lends the security temporarily to another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such securities, and has the right to terminate the transaction and to recall the loaned securities on terms agreed by the parties. (c) Securities lending services means: (1) Selecting and negotiating with a borrower and executing, or directing the execution of the loan with the borrower; (2) Receiving, delivering, or directing the receipt or delivery of loaned securities; (3) Receiving, delivering, or directing the receipt or delivery of collateral; (4) Providing mark-to-market, corporate action, recordkeeping or other services incidental to the administration of the securities lending transaction; (5) Investing, or directing the investment of, cash collateral; or (6) Indemnifying the lender of securities with respect to various matters. (d) For the purposes of this section, the term conduit lender means a bank that borrows or loans securities, as principal, for its own account, and contemporaneously loans or borrows the same securities, as principal, for its own account. A bank that qualifies under this definition as a conduit lender at the commencement of a transaction will continue to qualify, notwithstanding whether: (1) The lending or borrowing transaction terminates and so long as the transaction is replaced within one business day by another lending or borrowing transaction involving the same securities; and (2) Any substitutions of collateral occur.

§ 240.3a5-4 Further definition of “as a part of a regular business” in connection with certain liquidity providers. (a) A person that is engaged in buying and selling securities for its own account is engaged in such activity “as a part of a regular business” as the phrase is used in section 3(a)(5)(B) of the Act (15 U.S.C. 78c(a)(5)(B)) if that person: (1) Engages in a regular pattern of buying and selling securities that has the effect of providing liquidity to other market participants by: (i) Regularly expressing trading interest that is at or near the best available prices on both sides of the market for the same security and that is communicated and represented in a way that makes it accessible to other market participants; or (ii) Earning revenue primarily from capturing bid-ask spreads, by buying at the bid and selling at the offer, or from capturing any incentives offered by trading venues to liquidity-supplying trading interest; and (2) Is not: (i) A person that has or controls total assets of less than $50 million; (ii) An investment company registered under the Investment Company Act of 1940; or (iii) A central bank, sovereign entity, or international financial institution. (b) For purposes of this section: (1) The term person has the same meaning as prescribed in section 3(a)(9) of the Act (15 U.S.C. 78c(a)(9)). (2) A person's own account means any account: (i) Held in the name of that person; or (ii) Held for the benefit of that person. (3) The term central bank means a reserve bank or monetary authority of a central government (including the Board of Governors of the Federal Reserve System or any of the Federal Reserve Banks) and the Bank for International Settlements. (4) The term international financial institution means the African Development Bank; African Development Fund; Asian Development Bank; Banco Centroamericano de Integración Económica; Bank for Economic Cooperation and Development in the Middle East and North Africa; Caribbean Development Bank; Corporación Andina de Fomento; Council of Europe Development Bank; European Bank for Reconstruction and Development; European Investment Bank; European Investment Fund; European Stability Mechanism; Inter-American Development Bank; Inter-American Investment Corporation; International Bank for Reconstruction and Development; International Development Association; International Finance Corporation; International Monetary Fund; Islamic Development Bank; Multilateral Investment Guarantee Agency; Nordic Investment Bank; North American Development Bank; and any other entity that provides financing for national or regional development in which the U.S. Government is a shareholder or contributing member. (5) The term sovereign entity means a central government (including the U.S. Government), or an agency, department, or ministry of a central government. (c) No person shall evade the registration requirements of this section by: (1) Engaging in activities indirectly that would satisfy paragraph (a) of this section; or (2) Disaggregating accounts. (d) No presumption shall arise that a person is not a dealer within the meaning of section 3(a)(5) of the Act solely because that person does not satisfy paragraph (a) of this section.

§ 240.3a11-1 Definition of the term “equity security.” The term equity security is hereby defined to include any stock or similar security, certificate of interest or participation in any profit sharing agreement, preorganization certificate or subscription, transferable share, voting trust certificate or certificate of deposit for an equity security, limited partnership interest, interest in a joint venture, or certificate of interest in a business trust; any security future on any such security; or any security convertible, with or without consideration into such a security, or carrying any warrant or right to subscribe to or purchase such a security; or any such warrant or right; or any put, call, straddle, or other option or privilege of buying such a security from or selling such a security to another without being bound to do so.

§ 240.3a12-1 Exemption of certain mortgages and interests in mortgages. Mortgages, as defined in section 302(d) of the Emergency Home Finance Act of 1970, which are or have been sold by the Federal Home Loan Mortgage Corporation are hereby exempted from the operation of such provisions of the Act as by their terms do not apply to an “exempted security” or to “exempted securities”.

§ 240.3a12-2 [Reserved]

§ 240.3a12-3 Exemption from sections 14(a), 14(b), 14(c), 14(f), 16(b) and 16(c) for securities of certain foreign issuers. (a) Securities for which the filing of registration statements on Form 18 [17 CFR 249.218] are authorized shall be exempt from the operation of sections 14 and 16 of the Act. (b) Securities registered by a foreign private issuer, as defined in Rule 3b-4 (§ 240.3b-4 of this chapter), shall be exempt from sections 14(a), 14(b), 14(c), 14(f), 16(b) and 16(c) of the Act.

§ 240.3a12-4 Exemptions from sections 15(a) and 15(c)(3) for certain mortgage securities. (a) When used in this Rule the following terms shall have the meanings indicated: (1) The term whole loan mortgage means an evidence of indebtedness secured by mortgage, deed of trust, or other lien upon real estate or upon leasehold interests therein where the entire mortgage, deed or other lien is transferred with the entire evidence of indebtedness. (2) The term aggregated whole loan mortgage means two or more whole loan mortgages that are grouped together and sold to one person in one transaction. (3) The term participation interest means an undivided interest representing one of only two such interests in a whole loan mortgage or in an aggregated whole loan mortgage, provided that the other interest is retained by the originator of such participation interest. (4) The term commitment means a contract to purchase a whole loan mortgage, an aggregated whole loan mortgage or a participation interest which by its terms requires that the contract be fully executed within 2 years. (5) The term mortgage security means a whole loan mortgage, an aggregated whole loan mortgage, a participation interest, or a commitment. (b) A mortgage security shall be deemed an “exempted security” for purposes of subsections (a) and (c)(3) of section 15 of the Act provided that, in the case of and at the time of any sale of the mortgage security by a broker or dealer, such mortgage security is not in default and has an unpaid principal amount of at least $50,000.

§ 240.3a12-5 Exemption of certain investment contract securities from sections 7(c) and 11(d)(1). (a) An investment contract security involving the direct ownership of specified residential real property shall be exempted from the provisions of sections 7(c) and 11(d)(1) of the Act with respect to any transaction by a broker or dealer who, directly or indirectly, arranges for the extension or maintenance of credit on the security to or from a customer, if the credit: (1) Is secured by a lien, mortgage, deed of trust, or any other similar security interest related only to real property: Provided, however, That this provision shall not prevent a lender from requiring (i) a security interest in the common areas and recreational facilities or furniture and fixtures incidental to the investment contract if the purchase of such furniture and fixtures is required by, or subject to the approval of, the issuer, as a condition of purchase; or (ii) an assignment of future rentals in the event of default by the purchaser or a co-signer or guarantor on the debt obligation other than the issuer, its affiliates, or any broker or dealer offering such securities; (2) Is to be repaid by periodic payments of principal and interest pursuant to an amortization schedule established by the governing instruments: Provided, however, That this provision shall not prevent the extension of credit on terms which require the payment of interest only, if extended in compliance with the other provisions of this rule; and (3) Is extended by a lender which is not, directly or indirectly controlling, controlled by, or under common control with the broker or dealer or the issuer of the securities or affiliates thereof. (b) For purposes of this rule: (1) Residential real property shall mean real property containing living accommodations, whether used on a permanent or transient basis, and may include furniture or fixtures if required as a condition of purchase of the investment contract or if subject to the approval of the issuer. (2) Direct ownership shall mean ownership of a fee or leasehold estate or a beneficial interest in a trust the purchase of which, under applicable local law, is financed and secured by a security interest therein similar to a mortgage or deed of trust, but it shall not include an interest in a real estate investment trust, an interest in a general or limited partnership, or similar indirect interest in the ownership of real property.

§ 240.3a12-6 Definition of “common trust fund” as used in section 3(a)(12) of the Act. The term common trust fund as used in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) shall include a common trust fund which is maintained by a bank which is a member of an affiliated group, as defined in section 1504(a) of the Internal Revenue Code of 1954 (26 U.S.C. 1504(a)), and which is maintained exclusively for the collective investment and reinvestment of monies contributed thereto by one or more bank members of such affiliated group in the capacity of trustee, executor, administrator, or guardian; Provided, That: (a) The common trust fund is operated in compliance with the same state and federal regulatory requirements as would apply if the bank maintaining such fund and any other contributing banks were the same entity; and (b) The rights of persons for whose benefit a contributing bank acts as trustee, executor, administrator, or guardian would not be diminished by reason of the maintenance of such common trust fund by another bank member of the affiliated group.

§ 240.3a12-7 Exemption for certain derivative securities traded otherwise than on a national securities exchange. Any put, call, straddle, option, or privilege traded exclusively otherwise than on a national securities exchange and for which quotations are not disseminated through an automated quotation system of a registered securities association, which relates to any securities which are direct obligations of, or obligations guaranteed as to principal or interest by, the United States, or securities issued or guaranteed by a corporation in which the United States has a direct or indirect interest as shall be designated for exemption by the Secretary of the Treasury pursuant to section 3(a)(12) of the Act, shall be exempt from all provisions of the Act which by their terms do not apply to any “exempted security” or “exempted securities,” provided that the securities underlying such put, call, straddle, option or privilege represent an obligation equal to or exceeding $250,000 principal amount.

§ 240.3a12-8 Exemption for designated foreign government securities for purposes of futures trading. (a) When used in this Rule, the following terms shall have the meaning indicated: (1) The term designated foreign government security shall mean a security not registered under the Securities Act of 1933 nor the subject of any American depositary receipt so registered, and representing a debt obligation of the government of (i) The United Kingdom of Great Britain and Northern Ireland; (ii) Canada; (iii) Japan; (iv) The Commonwealth of Australia; (v) The Republic of France; (vi) New Zealand; (vii) The Republic of Austria; (viii) The Kingdom of Denmark; (ix) The Republic of Finland; (x) The Kingdom of the Netherlands; (xi) Switzerland; (xii) The Federal Republic of Germany; (xiii) The Republic of Ireland; (xiv) The Republic of Italy; (xv) The Kingdom of Spain; (xvi) The United Mexican States; (xvii) The Federative Republic of Brazil; (xviii) The Republic of Argentina; (xix) The Republic of Venezuela; (xx) The Kingdom of Belgium; or (xxi) The Kingdom of Sweden. (2) The term qualifying foreign futures contracts shall mean any contracts for the purchase or sale of a designated foreign government security for future delivery, as “future delivery” is defined in 7 U.S.C. 2, provided such contracts require delivery outside the United States, any of its possessions or territories, and are traded on or through a board of trade, as defined at 7 U.S.C. 2. (b) Any designated foreign government security shall, for purposes only of the offer, sale or confirmation of sale of qualifying foreign futures contracts, be exempted from all provisions of the Act which by their terms do not apply to an “exempted security” or “exempted securities.”

§ 240.3a12-9 Exemption of certain direct participation program securities from the arranging provisions of sections 7(c) and 11(d)(1). (a) Direct participation program securities sold on a basis whereby the purchase price is paid to the issuer in one or more mandatory deferred payments shall be deemed to be exempted securities for purposes of the arranging provisions of sections 7(c) and 11(d)(1) of the Act, provided that: (1) The securities are registered under the Securities Act of 1933 or are sold or offered exclusively on an intrastate basis in reliance upon section 3(a)(11) of that Act; (2) The mandatory deferred payments bear a reasonable relationship to the capital needs and program objectives described in a business development plan disclosed to investors in a registration statement filed with the Commission under the Securities Act of 1933 or, where no registration statement is required to be filed with the Commission, as part of a statement filed with the relevant state securities administrator; (3) Not less than 50 percent of the purchase price of the direct participation program security is paid by the investor at the time of sale; (4) The total purchase price of the direct participation program security is due within three years in specified property programs or two years in non-specified property programs. Such pay-in periods are to be measured from the earlier of the completion of the offering or one year following the effective date of the offering. (b) For purposes of this rule: (1) Direct participation program shall mean a program financed through the sale of securities, other than securities that are listed on an exchange, quoted on NASDAQ, or will otherwise be actively traded during the pay-in period as a result of efforts by the issuer, underwriter, or other participants in the initial distribution of such securities, that provides for flow-through tax consequences to its investors; Provided, however, That the term “direct participation program” does not include real estate investment trusts, Subchapter S corporate offerings, tax qualified pension and profit sharing plans under sections 401 and 403(a) of the Internal Revenue Code (“Code”), tax shelter annuities under section 403(b) of the Code, individual retirement plans under section 408 of the Code, and any issuer, including a separate account, that is registered under the Investment Company Act of 1940. (2) Business development plan shall mean a specific plan describing the program's anticipated economic development and the amounts of future capital contributions, in the form of mandatory deferred payments, to be required at specified times or upon the occurrence of certain events. (3) Specified property program shall mean a direct participation program in which, at the date of effectiveness, more than 75 percent of the net proceeds from the sale of program securities are committed to specific purchases or expenditures. Non-specified property program shall mean any other direct participation program.

§ 240.3a12-10 Exemption of certain securities issued by the Resolution Funding Corporation. Securities that are issued by the Resolution Funding Corporation pursuant to section 21B(f) of the Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.) are exempt from the operation of all provisions of the Act that by their terms do not apply to any “exempted security” or to “exempted securities.”

§ 240.3a12-11 Exemption from sections 8(a), 14(a), 14(b), and 14(c) for debt securities listed on a national securities exchange. (a) Debt securities that are listed for trading on a national securities exchange shall be exempt from the restrictions on borrowing of section 8(a) of the Act (15 U.S.C. 78h(a)). (b) Debt securities registered pursuant to the provisions of section 12(b) of the Act (15 U.S.C. 78l(b)) shall be exempt from sections 14(a), 14(b), and 14(c) of the Act (15 U.S.C. 78n(a), (b), and (c)), except that §§ 240.14a-1, 240.14a-2(a), 240.14a-9, 240.14a-13, 240.14b-1, 240.14b-2, 240.14c-1, 240.14c-6 and 240.14c-7 shall continue to apply. (c) For purposes of this section, debt securities is defined to mean any securities that are not “equity securities” as defined in section 3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and § 240.3a11-1 thereunder.

§ 240.3a12-12 Exemption from certain provisions of section 16 of the Act for asset-backed securities. Asset-backed securities, as defined in § 229.1101 of this chapter, are exempt from section 16 of the Act (15 U.S.C. 78p).

§ 240.3a40-1 Designation of financial responsibility rules. The term financial responsibility rules for purposes of the Securities Investor Protection Act of 1970 shall include: (a) Any rule adopted by the Commission pursuant to sections 8, 15(c)(3), 17(a) or 17(e)(1)(A) of the Securities Exchange Act of 1934; (b) Any rule adopted by the Commission relating to hypothecation or lending of customer securities; (c) Any rule adopted by any self-regulatory organization relating to capital, margin, recordkeeping, hypothecation or lending requirements; and (d) Any other rule adopted by the Commission or any self-regulatory organization relating to the protection of funds or securities.

§ 240.3a43-1 Customer-related government securities activities incidental to the futures-related business of a futures commission merchant registered with the Commodity Futures Trading Commission. (a) A futures commission merchant registered with the Commodity Futures Trading Commission (“CFTC”) is not a government securities broker or government securities dealer solely because such futures commission merchant effects transactions in government securities that are defined in paragraph (b) of this section as incidental to such person's futures-related business. (b) Provided that the futures commission merchant maintains in a regulated account all funds and securities associated with such government securities transactions (except funds and securities associated with transactions under paragraph (b)(1)(i) of this section and does not advertise that it is in the business of effecting transactions in government securities otherwise than in connection with futures or options on futures trading or the investment of margin or excess funds related to such trading or the trading of any other instrument subject to CFTC jurisdiction, the following transactions in government securities are incidental to the futures-related business of such a futures commission merchant: (1) Transactions as agent for a customer— (i) To effect delivery pursuant to a futures contract; or (ii) For risk reduction or arbitrage of existing or contemporaneously created postions in futures or options on futures; (2) Transactions as agent for a customer for investment of margin and excess funds related to futures or options on futures trading or the trading of other instruments subject to CFTC jurisdiction, provided further that, (i) Such transactions involve Treasury securities with a maturity of less than 93 days at the time of the transation. (ii) Such transactions generate no monetary profit for the futures commission merchant in excess of the costs of executing such transactions, or (iii) Such transactions are unsolicited, and commissions and other income generated on transactions pursuant to this paragraph (b)(2)(iii) (including transactional fees paid by the futures commission merchant and charged to its customer) do not exceed 2% of such futures commission merchant's total commission revenues; (3) Exchange of futures for physicals transactions as agent for or as principal with a customer; and (4) Any transaction or transactions that the Commission exempts, either unconditionally or on specified terms and conditions, as incidental to the futures-related business of a specified futures commission merchant, a specified category of futures commission merchants, or futures commission merchants generally. (c) Definitions. (1) Customer means any person for whom the futures commission merchant effects or intends to effect transactions in futures, options on futures, or any other instruments subject to CFTC jurisdiction. (2) Regulated account means a customer segregation account subject to the regulations of the CFTC; provided, however, that, where such regulations do not permit to be maintained in such an account or require to be maintained in a separate regulated account funds or securities in proprietary accounts or funds or securities used as margin for or excess funds related to futures contracts, options on futures or any other instruments subject to CFTC jurisdiction that trade outside the United States, its territories, or possessions, the term regulated account means such separate regulated account or any other account subject to record-keeping regulations of the CFTC. (3) Unsolicited transaction means a transaction that is not effected in a discretionary account or recommended to a customer by the futures commission merchant, an associated person of a futures commission merchant, a business affiliate that is controlled by, controlling, or under common control with the futures commission merchant, or an introducing broker that is guaranteed by the futures commission merchant. (4) Futures and futures contracts mean contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market designated by the CFTC or traded on or subject to the rules of any board of trade located outside the United States, its territories, or possessions. (5) Options on futures means puts or calls on a futures contract traded on or subject to the rules of a contract market designated by the CFTC or traded or subject to the rules of any board of trade located outside the United States, its territories, or possessions.

§ 240.3a44-1 Proprietary government securities transactions incidental to the futures-related business of a CFTC-regulated person. (a) A person registered with the Commodity Futures Trading Commission (“CFTC”), a contract market designated by the CFTC, such a contract market's affiliated clearing organization, or any floor trader or such a contract market (hereinafter referred to collectively as a “CFTC-regulated person”) is not a government securities dealer solely because such person effects transactions for its own account in government securities that are defined in paragraph (b) of this section as incidental to such person's futures-related business. (b) Provided that a CFTC-regulated person does not advertise or otherwise hold itself out as a government securities dealer except as permitted under rule 3a43-1 (§ 240.3a43-1) the following transactions in government securities for its own account are incidental to the futures-related business of such a CFTC-regulated person: (1) Transactions to effect delivery of a government security pursuant to a futures contract; (2) Exchange of futures for physicals transactions with (i) a government securities broker or government securities dealer that has registered with the Commission or filed notice pursuant to section 15C(a) of the Act or (ii) a CFTC-regulated person; (3) Transactions (including repurchase agreements and reverse repurchase agreements) involving segregated customer funds and securities or funds and securities held by a clearing organization with (i) a government securities broker or government securities dealer that has registered with the Commission of filed notice pursuant to section 15C(a) of the Act or (ii) a bank; (4) Transactions for risk reduction or arbitrage of existing or contemporaneously created positions in futures or options on futures with (i) a government securities broker or government securities dealer that has registered with the Commission or filed notice pursuant to section 15C(a) of the Act or (ii) a CFTC-regulated person; (5) Repurchase and reverse repurchase agreement transactions between a futures commission merchant acting in a proprietary capacity and another CFTC-regulated person acting in a proprietary capacity and contemporaneous offsetting transactions between such a futures commission merchant and (i) a government securities broker or government securities dealer that has registered with the Commission or filed notice pursuant to section 15C(a) of the Act, (ii) a bank, or (iii) a CFTC-regulated person acting in a proprietary capacity; and (6) Any transaction or transactions that the Commission exempts, either unconditionally or on specified terms and conditions, as incidental to the futures related business of a specified CFTC-regulated person, a specified category of CFTC-regulated persons, or CFTC-regulated persons generally. (c) Definitions—(1) Segregated customer funds means funds subject to CFTC segregation requirements. (2) Futures and futures contracts means contracts of sale of a commodity for future delivery traded on or subject to the rules of a contract market designated by the CFTC or traded on or subject to the rules of any board of trade located outside the United States, its territories, or possessions. (3) Options on futures means puts or calls on a futures contract traded on or subject to the rules of a contract market designated by the CFTC or traded on or subject to the rules of any board of trade located outside the United States, its territories, or possessions.

§ 240.3a44-2 Further definition of “as a part of a regular business” in connection with certain liquidity providers. (a) A person that is engaged in buying and selling government securities for its own account is engaged in such activity “as a part of a regular business” as the phrase is used in section 3(a)(44)(A) of the Act (15 U.S.C. 78c(a)(44)(A)) if that person: (1) Engages in a regular pattern of buying and selling government securities that has the effect of providing liquidity to other market participants by: (i) Regularly expressing trading interest that is at or near the best available prices on both sides of the market for the same security and that is communicated and represented in a way that makes it accessible to other market participants; or (ii) Earning revenue primarily from capturing bid-ask spreads, by buying at the bid and selling at the offer, or from capturing any incentives offered by trading venues to liquidity-supplying trading interest; and (2) Is not: (i) A person that has or controls total assets of less than $50 million; or (ii) An investment company registered under the Investment Company Act of 1940; or (iii) A central bank, sovereign entity, or international financial institution. (b) For purposes of this section: (1) The term person has the same meaning as prescribed in section 3(a)(9) of the Act (15 U.S.C. 78c(a)(9)). (2) A person's own account means any account: (i) Held in the name of that person; or (ii) Held for the benefit of that person. (3) The term central bank means a reserve bank or monetary authority of a central government (including the Board of Governors of the Federal Reserve System or any of the Federal Reserve Banks) and the Bank for International Settlements. (4) The term international financial institution means the African Development Bank; African Development Fund; Asian Development Bank; Banco Centroamericano de Integración Económica; Bank for Economic Cooperation and Development in the Middle East and North Africa; Caribbean Development Bank; Corporación Andina de Fomento; Council of Europe Development Bank; European Bank for Reconstruction and Development; European Investment Bank; European Investment Fund; European Stability Mechanism; Inter-American Development Bank; Inter-American Investment Corporation; International Bank for Reconstruction and Development; International Development Association; International Finance Corporation; International Monetary Fund; Islamic Development Bank; Multilateral Investment Guarantee Agency; Nordic Investment Bank; North American Development Bank; and any other entity that provides financing for national or regional development in which the U.S. Government is a shareholder or contributing member. (5) The term sovereign entity means a central government (including the U.S. Government), or an agency, department, or ministry of a central government. (c) No person shall evade the registration requirements of this section by: (1) Engaging in activities indirectly that would satisfy paragraph (a) of this section; or (2) Disaggregating accounts. (d) No presumption shall arise that a person is not a government securities dealer within the meaning of section 3(a)(44) of the Act (15 U.S.C. 78c(a)(44)) solely because that person does not satisfy paragraph (a) of this section.

§ 240.3a51-1 Definition of “penny stock”. For purposes of section 3(a)(51) of the Act, the term “penny stock” shall mean any equity security other than a security: (a) That is an NMS stock, as defined in § 242.600(b)(65) of this chapter, provided that: (1) The security is registered, or approved for registration upon notice of issuance, on a national securities exchange that has been continuously registered as a national securities exchange since April 20, 1992 (the date of the adoption of Rule 3a51-1 (§ 240.3a51-1) by the Commission); and the national securities exchange has maintained quantitative listing standards that are substantially similar to or stricter than those listing standards that were in place on that exchange on January 8, 2004; or (2) The security is registered, or approved for registration upon notice of issuance, on a national securities exchange, or is listed, or approved for listing upon notice of issuance on, an automated quotation system sponsored by a registered national securities association, that: (i) Has established initial listing standards that meet or exceed the following criteria: (A) The issuer shall have: (1) Stockholders' equity of $5,000,000; (2) Market value of listed securities of $50 million for 90 consecutive days prior to applying for the listing (market value means the closing bid price multiplied by the number of securities listed); or (3) Net income of $750,000 (excluding non-recurring items) in the most recently completed fiscal year or in two of the last three most recently completed fiscal years; (B) The issuer shall have an operating history of at least one year or a market value of listed securities of $50 million (market value means the closing bid price multiplied by the number of securities listed); (C) The issuer's stock, common or preferred, shall have a minimum bid price of $4 per share; (D) In the case of common stock, there shall be at least 300 round lot holders of the security (a round lot holder means a holder of a normal unit of trading); (E) In the case of common stock, there shall be at least 1,000,000 publicly held shares and such shares shall have a market value of at least $5 million (market value means the closing bid price multiplied by number of publicly held shares, and shares held directly or indirectly by an officer or director of the issuer and by any person who is the beneficial owner of more than 10 percent of the total shares outstanding are not considered to be publicly held); (F) In the case of a convertible debt security, there shall be a principal amount outstanding of at least $10 million; (G) In the case of rights and warrants, there shall be at least 100,000 issued and the underlying security shall be registered on a national securities exchange or listed on an automated quotation system sponsored by a registered national securities association and shall satisfy the requirements of paragraph (a) or (e) of this section; (H) In the case of put warrants (that is, instruments that grant the holder the right to sell to the issuing company a specified number of shares of the company's common stock, at a specified price until a specified period of time), there shall be at least 100,000 issued and the underlying security shall be registered on a national securities exchange or listed on an automated quotation system sponsored by a registered national securities association and shall satisfy the requirements of paragraph (a) or (e) of this section; (I) In the case of units (that is, two or more securities traded together), all component parts shall be registered on a national securities exchange or listed on an automated quotation system sponsored by a registered national securities association and shall satisfy the requirements of paragraph (a) or (e) of this section; and (J) In the case of equity securities (other than common and preferred stock, convertible debt securities, rights and warrants, put warrants, or units), including hybrid products and derivative securities products, the national securities exchange or registered national securities association shall establish quantitative listing standards that are substantially similar to those found in paragraphs (a)(2)(i)(A) through (a)(2)(i)(I) of this section; and (ii) Has established quantitative continued listing standards that are reasonably related to the initial listing standards set forth in paragraph (a)(2)(i) of this section, and that are consistent with the maintenance of fair and orderly markets; (b) That is issued by an investment company registered under the Investment Company Act of 1940; (c) That is a put or call option issued by the Options Clearing Corporation; (d) Except for purposes of section 7(b) of the Securities Act and Rule 419 (17 CFR 230.419), that has a price of five dollars or more; (1) For purposes of paragraph (d) of this section: (i) A security has a price of five dollars or more for a particular transaction if the security is purchased or sold in that transaction at a price of five dollars or more, excluding any broker or dealer commission, commission equivalent, mark-up, or mark-down; and (ii) Other than in connection with a particular transaction, a security has a price of five dollars or more at a given time if the inside bid quotation is five dollars or more; provided, however, that if there is no such inside bid quotation, a security has a price of five dollars or more at a given time if the average of three or more interdealer bid quotations at specified prices displayed at that time in an interdealer quotation system, as defined in 17 CFR 240.15c2-7(c)(1), by three or more market makers in the security, is five dollars or more. (iii) The term “inside bid quotation” shall mean the highest bid quotation for the security displayed by a market maker in the security on an automated interdealer quotation system that has the characteristics set forth in section 17B(b)(2) of the Act, or such other automated interdealer quotation system designated by the Commission for purposes of this section, at any time in which at least two market makers are contemporaneously displaying on such system bid and offer quotations for the security at specified prices. (2) If a security is a unit composed of one or more securities, the unit price divided by the number of shares of the unit that are not warrants, options, rights, or similar securities must be five dollars or more, as determined in accordance with paragraph (d)(1) of this section, and any share of the unit that is a warrant, option, right, or similar security, or a convertible security, must have an exercise price or conversion price of five dollars or more; (e)(1) That is registered, or approved for registration upon notice of issuance, on a national securities exchange that makes transaction reports available pursuant to § 242.601, provided that: (i) Price and volume information with respect to transactions in that security is required to be reported on a current and continuing basis and is made available to vendors of market information pursuant to the rules of the national securities exchange; (ii) The security is purchased or sold in a transaction that is effected on or through the facilities of the national securities exchange, or that is part of the distribution of the security; and (iii) The security satisfies the requirements of paragraph (a)(1) or (a)(2) of this section; (2) A security that satisfies the requirements of this paragraph (e), but does not otherwise satisfy the requirements of paragraph (a), (b), (c), (d), (f), or (g) of this section, shall be a penny stock for purposes of section 15(b)(6) of the Act (15 U.S.C. 78o(b)(6)); (f) That is a security futures product listed on a national securities exchange or an automated quotation system sponsored by a registered national securities association; or (g) Whose issuer has: (1) Net tangible assets (i.e., total assets less intangible assets and liabilities) in excess of $2,000,000, if the issuer has been in continuous operation for at least three years, or $5,000,000, if the issuer has been in continuous operation for less than three years; or (2) Average revenue of at least $6,000,000 for the last three years. (3) For purposes of paragraph (g) of this section, net tangible assets or average revenues must be demonstrated by financial statements dated less than fifteen months prior to the date of the transaction that the broker or dealer has reviewed and has a reasonable basis for believing are accurate in relation to the date of the transaction, and: (i) If the issuer is other than a foreign private issuer, are the most recent financial statements for the issuer that have been audited and reported on by an independent public accountant in accordance with the provisions of 17 CFR 210.2-02; or (ii) If the issuer is a foreign private issuer, are the most recent financial statements for the issuer that have been filed with the Commission or furnished to the Commission pursuant to 17 CFR 240.12g3-2(b); provided, however, that if financial statements for the issuer dated less than fifteen months prior to the date of the transaction have not been filed with or furnished to the Commission, financial statements dated within fifteen months prior to the transaction shall be prepared in accordance with generally accepted accounting principles in the country of incorporation, audited in compliance with the requirements of that jurisdiction, and reported on by an accountant duly registered and in good standing in accordance with the regulations of that jurisdiction. (4) The broker or dealer shall preserve, as part of its records, copies of the financial statements required by paragraph (g)(3) of this section for the period specified in 17 CFR 240.17a-4(b).

§ 240.3a55-1 Method for determining market capitalization and dollar value of average daily trading volume; application of the definition of narrow-based security index. (a) Market capitalization. For purposes of Section 3(a)(55)(C)(i)(III)(bb) of the Act (15 U.S.C. 78c(a)(55)(C)(i)(III)(bb)): (1) On a particular day, a security shall be 1 of 750 securities with the largest market capitalization as of the preceding 6 full calendar months when it is included on a list of such securities designated by the Commission and the CFTC as applicable for that day. (2) In the event that the Commission and the CFTC have not designated a list under paragraph (a)(1) of this section: (i) The method to be used to determine market capitalization of a security as of the preceding 6 full calendar months is to sum the values of the market capitalization of such security for each U.S. trading day of the preceding 6 full calendar months, and to divide this sum by the total number of such trading days. (ii) The 750 securities with the largest market capitalization shall be identified from the universe of all NMS securities as defined in § 242.600 of this chapter that are common stock or depositary shares. (b) Dollar value of ADTV. (1) For purposes of Section 3(a)(55)(B) of the Act (15 U.S.C. 78c(a)(55)(B)): (i)(A) The method to be used to determine the dollar value of ADTV of a security is to sum the dollar value of ADTV of all reported transactions in such security in each jurisdiction as calculated pursuant to paragraphs (b)(1)(ii) and (iii). (B) The dollar value of ADTV of a security shall include the value of all reported transactions for such security and for any depositary share that represents such security. (C) The dollar value of ADTV of a depositary share shall include the value of all reported transactions for such depositary share and for the security that is represented by such depositary share. (ii) For trading in a security in the United States, the method to be used to determine the dollar value of ADTV as of the preceding 6 full calendar months is to sum the value of all reported transactions in such security for each U.S. trading day during the preceding 6 full calendar months, and to divide this sum by the total number of such trading days. (iii)(A) For trading in a security in a jurisdiction other than the United States, the method to be used to determine the dollar value of ADTV as of the preceding 6 full calendar months is to sum the value in U.S. dollars of all reported transactions in such security in such jurisdiction for each trading day during the preceding 6 full calendar months, and to divide this sum by the total number of trading days in such jurisdiction during the preceding 6 full calendar months. (B) If the value of reported transactions used in calculating the ADTV of securities under paragraph (b)(1)(iii)(A) is reported in a currency other than U.S. dollars, the total value of each day's transactions in such currency shall be converted into U.S. dollars on the basis of a spot rate of exchange for that day obtained from at least one independent entity that provides or disseminates foreign exchange quotations in the ordinary course of its business. (iv) The dollar value of ADTV of the lowest weighted 25% of an index is the sum of the dollar value of ADTV of each of the component securities comprising the lowest weighted 25% of such index. (2) For purposes of Section 3(a)(55)(C)(i)(III)(cc) of the Act (15 U.S.C. 78c(a)(55)(C)(i)(III)(cc)): (i) On a particular day, a security shall be 1 of 675 securities with the largest dollar value of ADTV as of the preceding 6 full calendar months when it is included on a list of such securities designated by the Commission and the CFTC as applicable for that day. (ii) In the event that the Commission and the CFTC have not designated a list under paragraph (b)(2) of this section: (A) The method to be used to determine the dollar value of ADTV of a security as of the preceding 6 full calendar months is to sum the value of all reported transactions in such security in the United States for each U.S. trading day during the preceding 6 full calendar months, and to divide this sum by the total number of such trading days. (B) The 675 securities with the largest dollar value of ADTV shall be identified from the universe of all NMS securities as defined in § 242.600 of this chapter that are common stock or depositary shares. (c) Depositary Shares and Section 12 Registration. For purposes of Section 3(a)(55)(C) of the Act (15 U.S.C. 78c(a)(55)(C)), the requirement that each component security of an index be registered pursuant to Section 12 of the Act (15 U.S.C. 78l) shall be satisfied with respect to any security that is a depositary share if the deposited securities underlying the depositary share are registered pursuant to Section 12 of the Act and the depositary share is registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) on Form F-6 (17 CFR 239.36). (d) Definitions. For purposes of this section: (1) CFTC means Commodity Futures Trading Commission. (2) Closing price of a security means: (i) If reported transactions in the security have taken place in the United States, the price at which the last transaction in such security took place in the regular trading session of the principal market for the security in the United States. (ii) If no reported transactions in a security have taken place in the United States, the closing price of such security shall be the closing price of any depositary share representing such security divided by the number of shares represented by such depositary share. (iii) If no reported transactions in a security or in a depositary share representing such security have taken place in the United States, the closing price of such security shall be the price at which the last transaction in such security took place in the regular trading session of the principal market for the security. If such price is reported in a currency other than U.S. dollars, such price shall be converted into U.S. dollars on the basis of a spot rate of exchange relevant for the time of the transaction obtained from at least one independent entity that provides or disseminates foreign exchange quotations in the ordinary course of its business. (3) Depositary share has the same meaning as in § 240.12b-2. (4) Foreign financial regulatory authority has the same meaning as in Section 3(a)(52) of the Act (15 U.S.C. 78c(a)(52)). (5) Lowest weighted 25% of an index. With respect to any particular day, the lowest weighted component securities comprising, in the aggregate, 25% of an index's weighting for purposes of Section 3(a)(55)(B)(iv) of the Act (15 U.S.C. 78c(a)(55)(B)(iv)) (“lowest weighted 25% of an index”) means those securities: (i) That are the lowest weighted securities when all the securities in such index are ranked from lowest to highest based on the index's weighting methodology; and (ii) For which the sum of the weight of such securities is equal to, or less than, 25% of the index's total weighting. (6) Market capitalization of a security on a particular day: (i) If the security is not a depositary share, is the product of: (A) The closing price of such security on that same day; and (B) The number of outstanding shares of such security on that same day. (ii) If the security is a depositary share, is the product of: (A) The closing price of the depositary share on that same day divided by the number of deposited securities represented by such depositary share; and (B) The number of outstanding shares of the security represented by the depositary share on that same day. (7) Outstanding shares of a security means the number of outstanding shares of such security as reported on the most recent Form 10-K, Form 10-Q, Form 10-KSB, Form 10-QSB, or Form 20-F (17 CFR 249.310, 249.308a, 249.310b, 249.308b, or 249.220f) filed with the Commission by the issuer of such security, including any change to such number of outstanding shares subsequently reported by the issuer on a Form 8-K (17 CFR 249.308). (8) Preceding 6 full calendar months means, with respect to a particular day, the period of time beginning on the same day of the month 6 months before and ending on the day prior to such day. (9) Principal market for a security means the single securities market with the largest reported trading volume for the security during the preceding 6 full calendar months. (10) Reported transaction means: (i) With respect to securities transactions in the United States, any transaction for which a transaction report is collected, processed, and made available pursuant to an effective transaction reporting plan, or for which a transaction report, last sale data, or quotation information is disseminated through an automated quotation system as described in Section 3(a)(51)(A)(ii) of the Act (15 U.S.C. 78c(a)(51)(A)(ii); and (ii) With respect to securities transactions outside the United States, any transaction that has been reported to a foreign financial regulatory authority in the jurisdiction where such transaction has taken place. (11) U.S. trading day means any day on which a national securities exchange is open for trading. (12) Weighting of a component security of an index means the percentage of such index's value represented, or accounted for, by such component security.

§ 240.3a55-2 Indexes underlying futures contracts trading for fewer than 30 days. (a) An index on which a contract of sale for future delivery is trading on a designated contract market, registered derivatives transaction execution facility, or foreign board of trade is not a narrow-based security index under Section 3(a)(55) of the Act (15 U.S.C. 78c(a)(55)) for the first 30 days of trading, if: (1) Such index would not have been a narrow-based security index on each trading day of the preceding 6 full calendar months with respect to a date no earlier than 30 days prior to the commencement of trading of such contract; (2) On each trading day of the preceding 6 full calendar months with respect to a date no earlier than 30 days prior to the commencement of trading such contract: (i) Such index had more than 9 component securities; (ii) No component security in such index comprised more than 30 percent of the index's weighting; (iii) The 5 highest weighted component securities in such index did not comprise, in the aggregate, more than 60 percent of the index's weighting; and (iv) The dollar value of the trading volume of the lowest weighted 25% of such index was not less than $50 million (or in the case of an index with 15 or more component securities, $30 million); or (3) On each trading day of the preceding 6 full calendar months, with respect to a date no earlier than 30 days prior to the commencement of trading such contract: (i) Such index had at least 9 component securities; (ii) No component security in such index comprised more than 30 percent of the index's weighting; and (iii) Each component security in such index was: (A) Registered pursuant to Section 12 of the Act (15 U.S.C. 78) or was a depositary share representing a security registered pursuant to Section 12 of the Act; (B) 1 of 750 securities with the largest market capitalization that day; and (C) 1 of 675 securities with the largest dollar value of trading volume that day. (b) An index that is not a narrow-based security index for the first 30 days of trading pursuant to paragraph (a) of this section, shall become a narrow-based security index if such index has been a narrow-based security index for more than 45 business days over 3 consecutive calendar months. (c) An index that becomes a narrow-based security index solely because it was a narrow-based security index for more than 45 business days over 3 consecutive calendar months pursuant to paragraph (b) of this section shall not be a narrow-based security index for the following 3 calendar months. (d) Definitions. For purposes of this section: (1) Market capitalization has the same meaning as in § 240.3a55-1(d)(6). (2) Dollar value of trading volume of a security on a particular day is the value in U.S. dollars of all reported transactions in such security on that day. If the value of reported transactions used in calculating dollar value of trading volume is reported in a currency other than U.S. dollars, the total value of each day's transactions shall be converted into U.S. dollars on the basis of a spot rate of exchange for that day obtained from at least one independent entity that provides or disseminates foreign exchange quotations in the ordinary course of its business. (3) Lowest weighted 25% of an index has the same meaning as in § 240.3a55-1(d)(5). (4) Preceding 6 full calendar months has the same meaning as in § 240.3a55-1(d)(8). (5) Reported transaction has the same meaning as in § 240.3a55-1(d)(10).

§ 240.3a55-3 Futures contracts on security indexes trading on or subject to the rules of a foreign board of trade. When a contract of sale for future delivery on a security index is traded on or subject to the rules of a foreign board of trade, such index shall not be a narrow-based security index if it would not be a narrow-based security index if a futures contract on such index were traded on a designated contract market or registered derivatives transaction execution facility.

§ 240.3a55-4 Exclusion from definition of narrow-based security index for indexes composed of debt securities. (a) An index is not a narrow-based security index if: (1)(i) Each of the securities of an issuer included in the index is a security, as defined in section 2(a)(1) of the Securities Act of 1933(15 U.S.C. 77b(a)(1)) and section 3(a)(10) of the Act (15 U.S.C. 78c(a)(10)) and the respective rules promulgated thereunder, that is a note, bond, debenture, or evidence of indebtedness; (ii) None of the securities of an issuer included in the index is an equity security, as defined in section 3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and the rules promulgated thereunder; (iii) The index is comprised of more than nine securities that are issued by more than nine non-affiliated issuers; (iv) The securities of any issuer included in the index do not comprise more than 30 percent of the index's weighting; (v) The securities of any five non-affiliated issuers included in the index do not comprise more than 60 percent of the index's weighting; (vi) Except as provided in paragraph (a)(1)(viii) of this section, for each security of an issuer included in the index one of the following criteria is satisfied: (A) The issuer of the security is required to file reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 78m and 78o(d)); (B) The issuer of the security has a [Worldwide market value of its outstanding common equity held by non-affiliates of $71 million or more; (C) The issuer of the security has outstanding securities that are notes, bonds, debentures, or evidences of indebtedness having a total remaining principal amount of at least $1 billion; (D) The security is an exempted security as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) and the rules promulgated thereunder; or (E) The issuer of the security is a government of a foreign country or a political subdivision of a foreign country; (vii) Except as provided in paragraph (a)(1)(viii) of this section, for each security of an issuer included in the index one of the following criteria is satisfied (A) The security has a total remaining principal amount of at least $250,000,000; or (B) The security is a municipal security, as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29)) and the rules promulgated thereunder that has a total remaining principal amount of at least $200,000,000 and the issuer of such municipal security has outstanding securities that are notes, bonds, debentures, or evidences of indebtedness having a total remaining principal amount of at least $1 billion; and (viii) Paragraphs (a)(1)(vi) and (a)(1)(vii) of this section will not apply to securities of an issuer included in the index if: (A) All securities of such issuer included in the index represent less than 5 percent of the index's weighting; and (B) Securities comprising at least 80 percent of the index's weighting satisfy the provisions of paragraphs (a)(1)(vi) and (a)(1)(vii) of this section; or (2)(i) The index includes exempted securities, other than municipal securities, as defined in section 3(a)(29) of the Act and the rules promulgated thereunder, that are: (A) Notes, bonds, debentures, or evidences of indebtedness; and (B) Not equity securities, as defined in section 3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and the rules promulgated thereunder; and (ii) Without taking into account any portion of the index composed of such exempted securities, other than municipal securities, the remaining portion of the index would not be a narrow-based security index: meeting all the conditions under paragraph (a)(1) of this section. (b) For purposes of this section: (1) An issuer is affiliated with another issuer if it controls, is controlled by, or is under common control with, that issuer. (2) For purposes of this section, control means ownership of 20 percent or more of an issuer's equity, or the ability to direct the voting of 20 percent or more of the issuer's voting equity. (3) The term issuer includes a single issuer or group of affiliated issuers.

§ 240.3a67-1 Definition of “major security-based swap participant.” (a) General. Major security-based swap participant means any person: (1) That is not a security-based swap dealer; and (2)(i) That maintains a substantial position in security-based swaps for any of the major security-based swap categories, excluding both positions held for hedging or mitigating commercial risk, and positions maintained by any employee benefit plan (or any contract held by such a plan) as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan; (ii) Whose outstanding security-based swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets; or (iii) That is a financial entity that: (A) Is highly leveraged relative to the amount of capital such entity holds and that is not subject to capital requirements established by an appropriate Federal banking agency (as defined in 15 U.S.C. 78c(a)(72)); and (B) Maintains a substantial position in outstanding security-based swaps in any major security-based swap category. (b) Scope of designation. A person that is a major security-based swap participant in general shall be deemed to be a major security-based swap participant with respect to each security-based swap it enters into, regardless of the category of the security-based swap or the person's activities in connection with the security-based swap, unless the Commission limits the person's designation as a major security-based swap participant to specified categories of security-based swaps.

§ 240.3a67-2 Categories of security-based swaps. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), and the rules thereunder, the terms major security-based swap category, category of security-based swaps and any similar terms mean either of the following categories of security-based swaps: (a) Debt security-based swaps. Any security-based swap that is based, in whole or in part, on one or more instruments of indebtedness (including loans), or on a credit event relating to one or more issuers or securities, including but not limited to any security-based swap that is a credit default swap, total return swap on one or more debt instruments, debt swap, debt index swap, or credit spread. (b) Other security-based swaps. Any security-based swap not described in paragraph (a) of this section.

§ 240.3a67-3 Definition of “substantial position.” (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), and § 240.3a67-1, the term substantial position means security-based swap positions that equal or exceed either of the following thresholds in any major category of security-based swaps: (1) $1 billion in daily average aggregate uncollateralized outward exposure; or (2) $2 billion in: (i) Daily average aggregate uncollateralized outward exposure; plus (ii) Daily average aggregate potential outward exposure. (b) Aggregate uncollateralized outward exposure—(1) General. Aggregate uncollateralized outward exposure in general means the sum of the current exposure, obtained by marking-to-market using industry standard practices, of each of the person's security-based swap positions with negative value in a major security-based swap category, less the value of the collateral the person has posted in connection with those positions. (2) Calculation of aggregate uncollateralized outward exposure. In calculating this amount the person shall, with respect to each of its security-based swap counterparties in a given major security-based swap category: (i) Determine the dollar value of the aggregate current exposure arising from each of its security-based swap positions with negative value (subject to the netting provisions described below) in that major category by marking-to-market using industry standard practices; and (ii) Deduct from that dollar amount the aggregate value of the collateral the person has posted with respect to the security-based swap positions. (iii) The aggregate uncollateralized outward exposure shall be the sum of those uncollateralized amounts across all of the person's security-based swap counterparties in the applicable major category. (3) Relevance of netting agreements. (i) If a person has one or more master netting agreements with a counterparty, the person may measure the current exposure arising from its security-based swaps in any major category on a net basis, applying the terms of those agreements. Calculation of current exposure may take into account offsetting positions entered into with that particular counterparty involving security-based swaps (in any security-based swap category) as well as swaps and securities financing transactions (consisting of securities lending and borrowing, securities margin lending and repurchase and reverse repurchase agreements), and other financial instruments that are subject to netting offsets for purposes of applicable bankruptcy law, to the extent these are consistent with the offsets permitted by the master netting agreements. (ii) Such adjustments may not take into account any offset associated with positions that the person has with separate counterparties. (4) Allocation of uncollateralized outward exposure. If a person calculates current exposure with a particular counterparty on a net basis, as provided by paragraph (b)(3) of this section, the amount of current uncollateralized exposure attributable to each “major” category of security-based swaps should be calculated according to the following formula: Where: ESBS(MC) equals the amount of aggregate current exposure attributable to the entity's security-based swap positions in the “major” category at issue (either security-based credit derivatives or other security-based swaps); Enet total equals the entity's aggregate current exposure to the counterparty at issue, after accounting for the netting of positions and the posting of collateral; OTMSBS(MC) equals the current exposure associated with the entity's out-of-the-money positions in security-based swaps in the “major” category at issue, subject to those netting arrangements; and OTMSBS(O) equals the current exposure associated with the entity's out-of-the-money positions in the other “major” category of security-based swaps, subject to those netting arrangements; and OTMnon-SBS equals the current exposure associated with the entity's out-of-the-money positions associated with instruments, other than security-based swaps, that are subject to those netting arrangements. (c) Aggregate potential outward exposure—(1) General. Aggregate potential outward exposure means the sum of: (i) The aggregate potential outward exposure for each of the person's security-based swap positions in a major security-based swap category that are neither cleared by a registered or exempt clearing agency nor subject to daily mark-to-market margining, as calculated in accordance with paragraph (c)(2) of this section; and (ii) The aggregate potential outward exposure for each of the person's security-based swap positions in a major security-based swap category that are either cleared by a registered or exempt clearing agency or subject to daily mark-to-market margining, as calculated in accordance with paragraph (c)(3) of this section. (2) Calculation of potential outward exposure for security-based swaps that are not cleared by a registered or exempt clearing agency or subject to daily mark-to-market margining—(i) General—(A)(1) For positions in security-based swaps that are not cleared by a registered or exempt clearing agency or subject to daily mark-to-market margining, potential outward exposure equals the total notional principal amount of those positions, multiplied by the following factors on a position-by-position basis reflecting the type of security-based swap. For any security-based swap that is not of the “debt” type, the “equity and other” conversion factors are to be used: (2) If a security-based swap is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the market value of the security-based swap is zero, the remaining maturity equals the time until the next reset date. (B) Use of effective notional amounts. If the stated notional amount on a position is leveraged or enhanced by the structure of the position, the calculation in paragraph (c)(2)(i)(A) of this section shall be based on the effective notional amount of the position rather than on the stated notional amount. (C) Exclusion of certain positions. The calculation in paragraph (c)(2)(i)(A) of this section shall exclude: (1) Positions that constitute the purchase of an option, such that the person has no additional payment obligations under the position; (2) Other positions for which the person has prepaid or otherwise satisfied all of its payment obligations; and (3) Positions for which, pursuant to regulatory requirement, the person has assigned an amount of cash or U.S. Treasury securities that is sufficient to pay the person's maximum possible liability under the position, and the person may not use that cash or those Treasury securities for other purposes. (D) Adjustment for certain positions. Notwithstanding paragraph (c)(2)(i)(A) of this section, the potential outward exposure associated with a position by which a person buys credit protection using a credit default swap, or associated with a position by which a person purchases an option for which the person retains additional payment obligations under the position, is capped at the net present value of the unpaid premiums. (ii) Adjustment for netting agreements. Notwithstanding paragraph (c)(2)(i) of this section, for positions subject to master netting agreements the potential outward exposure associated with the person's security-based swaps with each counterparty equals a weighted average of the potential outward exposure for the person's security-based swaps with that counterparty as calculated under paragraph (c)(2)(i) of this section, and that amount reduced by the ratio of net current exposure to gross current exposure, consistent with the following equation as calculated on a counterparty-by-counterparty basis: Where: PNet is the potential outward exposure, adjusted for bilateral netting, of the person's security-based swaps with a particular counterparty; PGross is the potential outward exposure without adjustment for bilateral netting, as calculated pursuant to paragraph (c)(2)(i) of this section; and NGR is the ratio of: 1. The current exposure arising from its security-based swaps in the major category as calculated on a net basis according to paragraphs (b)(3) and (4) of this section, divided by 2. The current exposure arising from its security-based swaps in the major category as calculated in the absence of those netting procedures. (3) Calculation of potential outward exposure for security-based swaps that are either cleared by a registered or exempt clearing agency or subject to daily mark-to-market margining. For positions in security-based swaps that are cleared by a registered or exempt clearing agency or subject to daily mark-to-market margining: (i) Potential outward exposure equals the potential outward exposure that would be attributed to such positions using the procedures in paragraph (c)(2) of this section, multiplied by: (A) 0.1, in the case of positions cleared by a registered or exempt clearing agency; or (B) 0.2, in the case of positions that are subject to daily mark-to-market margining but that are not cleared by a registered or exempt clearing agency. (ii) Solely for purposes of calculating potential outward exposure: (A) A security-based swap shall be considered to be subject to daily mark-to-market margining if, and for as long as, the counterparties follow the daily practice of exchanging collateral to reflect changes in the current exposure arising from the security-based swap (after taking into account any other financial positions addressed by a netting agreement between the counterparties). (B) If the person is permitted by agreement to maintain a threshold for which it is not required to post collateral, the position still will be considered to be subject to daily mark-to-market margining for purposes of calculating potential outward exposure, but the total amount of that threshold (regardless of the actual exposure at any time) less any initial margin posted up to the amount of that threshold, shall be added to the person's aggregate uncollateralized outward exposure for purposes of paragraph (a)(2) of this section. (C) If the minimum transfer amount under the agreement is in excess of $1 million, the position still will be considered to be subject to daily mark-to-market margining for purposes of calculating potential outward exposure, but the entirety of the minimum transfer amount shall be added to the person's aggregate uncollateralized outward exposure for purposes of paragraph (a)(2) of this section. (D) A person may, at its discretion, calculate the potential outward exposure of positions in security-based swaps that are subject to daily mark-to-market margining in accordance with paragraph (c)(2) of this section in lieu of calculating the potential outward exposure of such positions in accordance with this paragraph (c)(3). (d) Calculation of daily average. Measures of daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall equal the arithmetic mean of the applicable measure of exposure at the close of each business day, beginning the first business day of each calendar quarter and continuing through the last business day of that quarter. (e) Inter-affiliate activities. In calculating its aggregate uncollateralized outward exposure and its aggregate potential outward exposure, a person shall not consider its security-based swap positions with counterparties that are majority-owned affiliates. For these purposes the parties are majority-owned affiliates if one party directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the security-based swap, where “majority interest” is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership.

§ 240.3a67-4 Definition of “hedging or mitigating commercial risk.” For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), and § 240.3a67-1, a security-based swap position shall be deemed to be held for the purpose of hedging or mitigating commercial risk when: (a)(1) Such position is economically appropriate to the reduction of risks that are associated with the present conduct and management of a commercial enterprise (or of a majority owned affiliate of the enterprise), or are reasonably expected to arise in the future conduct and management of the commercial enterprise, where such risks arise from: (i) The potential change in the value of assets that a person owns, produces, manufactures, processes, or merchandises or reasonably anticipates owning, producing, manufacturing, processing, or merchandising in the ordinary course of business of the enterprise (or of an affiliate under common control with the enterprise); (ii) The potential change in the value of liabilities that a person has incurred or reasonably anticipates incurring in the ordinary course of business of the enterprise (or of an affiliate under common control with the enterprise); or (iii) The potential change in the value of services that a person provides, purchases, or reasonably anticipates providing or purchasing in the ordinary course of business of the enterprise (or of an affiliate under common control with the enterprise); (2) Depending on the applicable facts and circumstances, the security-based swap positions described in paragraph (a)(1) of this section may be expected to encompass, among other positions: (i) Positions established to manage the risk posed by a customer's, supplier's or counterparty's potential default in connection with: Financing provided to a customer in connection with the sale of real property or a good, product or service; a customer's lease of real property or a good, product or service; a customer's agreement to purchase real property or a good, product or service in the future; or a supplier's commitment to provide or sell a good, product or service in the future; (ii) Positions established to manage the default risk posed by a financial counterparty (different from the counterparty to the hedging position at issue) in connection with a separate transaction (including a position involving a credit derivative, equity swap, other security-based swap, interest rate swap, commodity swap, foreign exchange swap or other swap, option, or future that itself is for the purpose of hedging or mitigating commercial risk pursuant to this section or 17 CFR 1.3(kkk)); (iii) Positions established to manage equity or market risk associated with certain employee compensation plans, including the risk associated with market price variations in connection with stock-based compensation plans, such as deferred compensation plans and stock appreciation rights; (iv) Positions established to manage equity market price risks connected with certain business combinations, such as a corporate merger or consolidation or similar plan or acquisition in which securities of a person are exchanged for securities of any other person (unless the sole purpose of the transaction is to change an issuer's domicile solely within the United States), or a transfer of assets of a person to another person in consideration of the issuance of securities of such other person or any of its affiliates; (v) Positions established by a bank to manage counterparty risks in connection with loans the bank has made; and (vi) Positions to close out or reduce any of the positions described in paragraphs (a)(2)(i) through (a)(2)(v) of this section; and (b) Such position is: (1) Not held for a purpose that is in the nature of speculation or trading; and (2) Not held to hedge or mitigate the risk of another security-based swap position or swap position, unless that other position itself is held for the purpose of hedging or mitigating commercial risk as defined by this section or 17 CFR 1.3(kkk).

§ 240.3a67-5 Definition of “substantial counterparty exposure.” (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), and § 240.3a67-1, the term substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets means a security-based swap position that satisfies either of the following thresholds: (1) $2 billion in daily average aggregate uncollateralized outward exposure; or (2) $4 billion in: (i) Daily average aggregate uncollateralized outward exposure; plus (ii) Daily average aggregate potential outward exposure. (b) Calculation. For these purposes, daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall be calculated the same way as is prescribed in § 240.3a67-3, except that these amounts shall be calculated by reference to all of the person's security-based swap positions, rather than by reference to a specific major security-based swap category.

§ 240.3a67-6 Definition of “financial entity.” (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), and § 240.3a67-1, the term financial entity means: (1) A swap dealer; (2) A major swap participant; (3) A commodity pool as defined in section 1a(10) of the Commodity Exchange Act (7 U.S.C. 1a(10)); (4) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)); (5) An employee benefit plan as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002); and (6) A person predominantly engaged in activities that are in the business of banking or financial in nature, as defined in section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843k). (b) Exclusion for centralized hedging facilities—(1) General. Notwithstanding paragraph (a) of this section, for purposes of this section the term financial entity shall not encompass a person that would be a financial entity solely as a result of the person's activities that facilitate hedging and/or treasury functions on behalf of one or more majority-owned affiliates that themselves do not constitute a financial entity. (2) Meaning of majority-owned. For these purposes the counterparties to a security-based swap are majority-owned affiliates if one counterparty directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the security-based swap, where “majority interest” includes, but is not limited to, the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership.

§ 240.3a67-7 Definition of “highly leveraged.” (a) General. For purposes of section 3(a)(67) of the Act, 15 U.S.C. 78c(a)(67), and § 240.3a67-1, the term highly leveraged means the existence of a ratio of an entity's total liabilities to equity in excess of 12 to 1 as measured at the close of business on the last business day of the applicable fiscal quarter. (b) Measurement of liabilities and equity. For purposes of this section, liabilities and equity generally should each be determined in accordance with U.S. generally accepted accounting principles; provided, however, that a person that is an employee benefit plan, as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002), may, for purposes of this paragraph (b): (1) Exclude obligations to pay benefits to plan participants from the calculation of liabilities; and (2) Substitute the total value of plan assets for equity.

§ 240.3a67-8 Timing requirements, reevaluation period, and termination of status. (a) Timing requirements. A person that is not registered as a major security-based swap participant, but that meets the criteria in § 240.3a67-1 to be a major security-based swap participant as a result of its security-based swap activities in a fiscal quarter, will not be deemed to be a major security-based swap participant until the earlier of the date on which it submits a complete application for registration pursuant to section 15F of the Act (15 U.S.C. 78o-10) or two months after the end of that quarter. (b) Reevaluation period. Notwithstanding paragraph (a) of this section, if a person that is not registered as a major security-based swap participant meets the criteria in § 240.3a67-1 to be a major security-based swap participant in a fiscal quarter, but does not exceed any applicable threshold by more than twenty percent in that quarter: (1) That person will not immediately be deemed a major security-based swap participant pursuant to the timing requirements specified in paragraph (a) of this section; but (2) That person will be deemed a major security-based swap participant pursuant to the timing requirements specified in paragraph (a) of this section at the end of the next fiscal quarter if the person exceeds any of the applicable daily average thresholds in that next fiscal quarter. (c) Termination of status. A person that is deemed to be a major security-based swap participant shall continue to be deemed a major security-based swap participant until such time that its security-based swap activities do not exceed any of the daily average thresholds set forth within § 240.3a67-1 for four consecutive fiscal quarters after the date on which the person becomes registered as a major security-based swap participant.

§ 240.3a67-9 Calculation of major participant status by certain persons. A person shall not be deemed to be a major security-based swap participant, regardless of whether the criteria in § 240.3a67-1 otherwise would cause the person to be a major security-based swap participant, provided the person meets the conditions set forth in paragraph (a) of this section. (a) Conditions—(1) Caps on uncollateralized exposure and notional positions—(i) Maximum potential uncollateralized exposure. The express terms of the person's agreements or arrangements relating to security-based swaps with its counterparties at no time would permit the person to maintain a total uncollateralized exposure of more than $100 million to all such counterparties, including any exposure that may result from thresholds or minimum transfer amounts established by credit support annexes or similar arrangements; and (ii) Maximum notional amount of security-based swap positions. The person does not maintain security-based swap positions in an effective notional amount of more than $2 billion in any major category of security-based swaps, or more than $4 billion in aggregate; or (2) Caps on uncollateralized exposure plus monthly calculation—(i) Maximum potential uncollateralized exposure. The express terms of the person's agreements or arrangements relating to security-based swaps with its counterparties at no time would permit the person to maintain a total uncollateralized exposure of more than $200 million to all such counterparties (with regard to security-based swaps and any other instruments by which the person may have exposure to those counterparties), including any exposure that may result from thresholds or minimum transfer amounts established by credit support annexes or similar arrangements; and (ii) Calculation of positions. (A) At the end of each month, the person performs the calculations prescribed by §§ 240.3a67-3 and 240.3a67-5 with regard to whether the aggregate uncollateralized outward exposure plus aggregate potential outward exposure as of that day constitute a substantial position in a major category of security-based swaps, or pose substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets; these calculations shall disregard provisions of those rules that provide for the analyses to be determined based on a daily average over a calendar quarter; and (B) Each such analysis produces thresholds of no more than: (1) $1 billion in aggregate uncollateralized outward exposure plus aggregate potential outward exposure in any major category of security-based swaps; if the person is subject to § 240.3a67-3(a)(2)(iii), by virtue of being a highly leveraged financial entity that is not subject to capital requirements established by an appropriate Federal banking agency, this analysis shall account for all of the person's security-based swap positions in that major category (without excluding hedging positions), otherwise this analysis shall exclude the same hedging and related positions that are excluded from consideration pursuant to § 240.3a67-3(a)(2)(i); or (2) $2 billion in aggregate uncollateralized outward exposure plus aggregate potential outward exposure (without any positions excluded from the analysis) with regard to all of the person's security-based swap positions. (3) Calculations based on certain information. (i) At the end of each month: (A)(1) The person's aggregate uncollateralized outward exposure with respect to its security-based swap positions is less than $500 million with respect to each of the major security-based swap categories; and (2) The sum of the amount calculated under paragraph (a)(3)(i)(A)(1) of this section with respect to each major security-based swap category and the total notional principal amount of the person's security-based swap positions in each such major security-based swap category, adjusted by the multipliers set forth in § 240.3a67-3(c)(2)(i)(A) on a position-by-position basis reflecting the type of security-based swap, is less than $1 billion with respect to each of the major security-based swap categories; or (B)(1) The person's aggregate uncollateralized outward exposure with respect to its security-based swap positions across all major security-based swap categories is less than $500 million; and (2) The sum of the amount calculated under paragraph (a)(3)(i)(B)(1) of this section and the product of the total effective notional principal amount of the person's security-based swap positions in all major security-based swap categories multiplied by 0.10 is less than $1 billion. (ii) For purposes of the calculations set forth in paragraph (a)(3)(i) of this section: (A) The person's aggregate uncollateralized outward exposure for positions held with security-based swap dealers shall be equal to such exposure reported on the most recent reports of such exposure received from such security-based swap dealers; and (B) The person's aggregate uncollateralized outward exposure for positions that are not reflected in any report of exposure from a security-based swap dealer (including all security-based swap positions it holds with persons other than security-based swap dealers) shall be calculated in accordance with § 240.3a67-3(b)(2). (b) For purposes of the calculations set forth by this section, the person shall use the effective notional amount of a position rather than the stated notional amount of the position if the stated notional amount is leveraged or enhanced by the structure of the position. (c) No presumption shall arise that a person is required to perform the calculations needed to determine if it is a major security-based swap participant, solely by reason that the person does not meet the conditions specified in paragraph (a) of this section.

§ 240.3a67-10 Foreign major security-based swap participants. (a) Definitions. As used in this section, the following terms shall have the meanings indicated: (1) Conduit affiliate has the meaning set forth in § 240.3a71-3(a)(1). (2) Foreign branch has the meaning set forth in § 240.3a71-3(a)(2). (3) Transaction conducted through a foreign branch has the meaning set forth in § 240.3a71-3(a)(3). (4) U.S. person has the meaning set forth in § 240.3a71-3(a)(4). (5) U.S. major security-based swap participant means a major security-based swap participant, as defined in section 3(a)(67) of the Act (15 U.S.C. 78c(a)(67)), and the rules and regulations thereunder, that is a U.S. person. (6) Foreign major security-based swap participant means a major security-based swap participant, as defined in section 3(a)(67) of the Act (15 U.S.C. 78c(a)(67)), and the rules and regulations thereunder, that is not a U.S. person. (b) Application of major security-based swap participant tests in the cross-border context. For purposes of calculating a person's status as a major security-based swap participant as defined in section 3(a)(67) of the Act (15 U.S.C. 78c(a)(67)), and the rules and regulations thereunder, a person shall include the following security-based swap positions: (1) If such person is a U.S. person, all security-based swap positions that are entered into by the person, including positions entered into through a foreign branch; (2) If such person is a conduit affiliate, all security-based swap positions that are entered into by the person; and (3) If such person is a non-U.S. person other than a conduit affiliate, all of the following types of security-based swap positions that are entered into by the person: (i) Security-based swap positions that are entered into with a U.S. person; provided, however, that this paragraph (b)(3)(i) shall not apply to: (A) Positions with a U.S. person counterparty that arise from transactions conducted through a foreign branch of the counterparty, when the counterparty is a registered security-based swap dealer; and (B) Positions with a U.S. person counterparty that arise from transactions conducted through a foreign branch of the counterparty, when the transaction is entered into prior to 60 days following the earliest date on which the registration of security-based swap dealers is first required pursuant to the applicable final rules and regulations; and (ii) Security-based swap positions for which the non-U.S. person's counterparty to the security-based swap has rights of recourse against a U.S. person; for these purposes a counterparty has rights of recourse against the U.S. person if the counterparty has a conditional or unconditional legally enforceable right, in whole or in part, to receive payments from, or otherwise collect from, the U.S. person in connection with the security-based swap. (c) Attributed positions—(1) In general. For purposes of calculating a person's status as a major security-based swap participant as defined in section 3(a)(67) of the Act (15 U.S.C. 78c(a)(67)), and the rules and regulations thereunder, a person also shall include the following security-based swap positions: (i) If such person is a U.S. person, any security-based swap position of a non-U.S. person for which the non-U.S. person's counterparty to the security-based swap has rights of recourse against that U.S. person. This paragraph describes attribution requirements for a U.S. person solely with respect to the guarantee of the obligations of a non-U.S. person under a security-based swap. The Commission and the Commodity Futures Trading Commission previously provided an interpretation about attribution to a U.S. parent, other affiliate, or guarantor to the extent that the counterparties to those positions have recourse against that parent, other affiliate, or guarantor in connection with the position. See Intermediary Definitions Adopting Release, http://www.gpo.gov/fdsys/pkg/FR-2012-08-13/pdf/2012-18003.pdf. The Commission explained that it intended to issue separate releases addressing the application of the major participant definition, and Title VII generally, to non-U.S. persons. See id. at note 1041. (ii) If such person is a non-U.S. person: (A) Any security-based swap position of a U.S. person for which that person's counterparty has rights of recourse against the non-U.S. person; and (B) Any security-based swap position of another non-U.S. person entered into with a U.S. person counterparty who has rights of recourse against the first non-U.S. person, provided, however, that this paragraph (c)(1)(ii)(B) shall not apply to positions described in § 240.3a67-10(b)(3)(i)(A) and (B). (2) Exceptions. Notwithstanding paragraph (c)(1) of this section, a person shall not include such security-based swap positions if the person whose performance is guaranteed in connection with the security-based swap is: (i) Subject to capital regulation by the Commission or the Commodity Futures Trading Commission (including, but not limited to regulation as a swap dealer, major swap participant, security-based swap dealer, major security-based swap participant, futures commission merchant, broker, or dealer); (ii) Regulated as a bank in the United States; (iii) Subject to capital standards, adopted by the person's home country supervisor, that are consistent in all respects with the Capital Accord of the Basel Committee on Banking Supervision; or (iv) Deemed not to be a major security-based swap participant pursuant to § 240.3a67-8(a). (d) Application of customer protection requirements. (1) A registered foreign major security-based swap participant shall not be subject to the requirements relating to business conduct standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations thereunder, other than rules and regulations prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Act (15 U.S.C. 78o- 10(h)(1)(B)), with respect to a security-based swap transaction with a counterparty that is not a U.S. person or with a counterparty that is a U.S. person in a transaction conducted through a foreign branch of the U.S. person. (2) A registered U.S. major security-based swap participant shall not be subject to the requirements relating to business conduct standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations thereunder, other than rules and regulations prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Act (15 U.S.C. 78o-10(h)(1)(B)), with respect to a security-based swap transaction that constitutes a transaction conducted through a foreign branch of the registered U.S. major security-based swap participant with a non-U.S. person or with a U.S.-person counterparty that constitutes a transaction conducted through a foreign branch of that U.S.-person counterparty.

§ 240.3a68-1a Meaning of “issuers of securities in a narrow-based security index” as used in section 3(a)(68)(A)(ii)(III) of the Act. (a) Notwithstanding § 240.3a68-3(a), and solely for purposes of determining whether a credit default swap is a security-based swap under section 3(a)(68)(A)(ii)(III) of the Act (15 U.S.C. 78c(a)(68)(A)(ii)(III)), the term issuers of securities in a narrow-based security index as used in section 3(a)(68)(A)(ii)(III) of the Act means issuers of securities included in an index (including an index referencing loan borrowers or loans of such borrowers) in which: (1)(i) There are nine or fewer non-affiliated issuers of securities that are reference entities included in the index, provided that an issuer of securities shall not be deemed a reference entity included in the index for purposes of this section unless: (A) A credit event with respect to such reference entity would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such reference entity; or (B) The fact of such credit event or the calculation in accordance with paragraph (a)(1)(i)(A) of this section of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events; (ii) The effective notional amount allocated to any reference entity included in the index comprises more than 30 percent of the index's weighting; (iii) The effective notional amount allocated to any five non-affiliated reference entities included in the index comprises more than 60 percent of the index's weighting; or (iv) Except as provided in paragraph (b) of this section, for each reference entity included in the index, none of the criteria in paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(H) of this section is satisfied: (A) The reference entity included in the index is required to file reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 78m or 78o(d)); (B) The reference entity included in the index is eligible to rely on the exemption provided in § 240.12g3-2(b); (C) The reference entity included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (D) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) has outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion; (E) The reference entity included in the index is the issuer of an exempted security as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))); (F) The reference entity included in the index is a government of a foreign country or a political subdivision of a foreign country; (G) If the reference entity included in the index is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), such asset-backed security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly available distribution reports; and (H) For a credit default swap entered into solely between eligible contract participants as defined in section 3(a)(65) of the Act (15 U.S.C. 78c(a)(65)): (1) The reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) makes available to the public or otherwise makes available to such eligible contract participant information about the reference entity included in the index pursuant to § 230.144A(d)(4)) of this chapter; (2) Financial information about the reference entity included in the index (other than a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) is otherwise publicly available; or (3) In the case of a reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), information of the type and level included in publicly available distribution reports for similar asset-backed securities is publicly available about both the reference entity included in the index and such asset-backed security; and (2)(i) The index is not composed solely of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982); and (ii) Without taking into account any portion of the index composed of reference entities that are issuers of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term “issuer of securities in a narrow-based security index” under paragraph (a)(1) of this section. (b) Paragraph (a)(1)(iv) of this section will not apply with respect to a reference entity included in the index if: (1) The effective notional amounts allocated to such reference entity comprise less than five percent of the index's weighting; and (2) The effective notional amounts allocated to reference entities included in the index that satisfy paragraph (a)(1)(iv) of this section comprise at least 80 percent of the index's weighting. (c) For purposes of this section: (1) A reference entity included in the index is affiliated with another reference entity included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section) if it controls, is controlled by, or is under common control with, that other reference entity included in the index or other entity, as applicable; provided that each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) will not be considered affiliated with any other reference entity included in the index or any other entity that is an issuing entity of an asset-backed security. (2) Control for purposes of this section means ownership of more than 50 percent of the equity of a reference entity included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section), or the ability to direct the voting of more than 50 percent of the voting equity of a reference entity included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section). (3) In identifying a reference entity included in the index for purposes of this section, the term reference entity includes: (i) An issuer of securities; (ii) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)); and (iii) An issuer of securities that is a borrower with respect to any loan identified in an index of borrowers or loans. (4) For purposes of calculating the thresholds in paragraphs (a)(1)(i) through (a)(1)(iii) of this section, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated reference entities included in the index as determined in accordance with paragraph (c)(1) of this section (with each reference entity included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a separate reference entity included in the index). (5) For purposes of determining whether one of the criterion in either paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(D) of this section or paragraphs (a)(1)(iv)(H)(1) and (a)(1)(iv)(H)(2) of this section is met, the term reference entity included in the index includes a single reference entity included in the index or a group of affiliated entities as determined in accordance with paragraph (c)(1) of this section (with each issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a separate entity).

§ 240.3a68-1b Meaning of “narrow-based security index” as used in section 3(a)(68)(A)(ii)(I) of the Act. (a) Notwithstanding § 240.3a68-3(a), and solely for purposes of determining whether a credit default swap is a security-based swap under section 3(a)(68)(A)(ii)(I) of the Act (15 U.S.C. 78c(a)(68)(A)(ii)(I)), the term narrow-based security index as used in section 3(a)(68)(A)(ii)(I) of the Act means an index in which: (1)(i) The index is composed of nine or fewer securities or securities that are issued by nine or fewer non-affiliated issuers, provided that a security shall not be deemed a component of the index for purposes of this section unless: (A) A credit event with respect to the issuer of such security or a credit event with respect to such security would result in a payment by the credit protection seller to the credit protection buyer under the credit default swap based on the related notional amount allocated to such security; or (B) The fact of such credit event or the calculation in accordance with paragraph (a)(1)(i)(A) of this section of the amount owed with respect to such credit event is taken into account in determining whether to make any future payments under the credit default swap with respect to any future credit events; (ii) The effective notional amount allocated to the securities of any issuer included in the index comprises more than 30 percent of the index's weighting; (iii) The effective notional amount allocated to the securities of any five non-affiliated issuers included in the index comprises more than 60 percent of the index's weighting; or (iv) Except as provided in paragraph (b) of this section, for each security included in the index none of the criteria in paragraphs (a)(1)(iv)(A) through (a)(1)(iv)(H) of this section is satisfied: (A) The issuer of the security included in the index is required to file reports pursuant to section 13 or section 15(d) of the Act (15 U.S.C. 78m or 78o(d)); (B) The issuer of the security included in the index is eligible to rely on the exemption provided in § 240.12g3-2(b); (C) The issuer of the security included in the index has a worldwide market value of its outstanding common equity held by non-affiliates of $700 million or more; (D) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) has outstanding notes, bonds, debentures, loans, or evidences of indebtedness (other than revolving credit facilities) having a total remaining principal amount of at least $1 billion; (E) The security included in the index is an exempted security as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)) (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))); (F) The issuer of the security included in the index is a government of a foreign country or a political subdivision of a foreign country; (G) If the security included in the index is an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), the security was issued in a transaction registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) and has publicly available distribution reports; and (H) For a credit default swap entered into solely between eligible contract participants as defined in section 3(a)(65) of the Act (15 U.S.C. 78c(a)(65)): (1) The issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) makes available to the public or otherwise makes available to such eligible contract participant information about such issuer pursuant to § 230.144A(d)(4)) of this chapter; (2) Financial information about the issuer of the security included in the index (other than an issuer of the security that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79))) is otherwise publicly available; or (3) In the case of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)), information of the type and level included in public distribution reports for similar asset-backed securities is publicly available about both the issuing entity and such asset-backed security; and (2)(i) The index is not composed solely of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), as in effect on the date of enactment of the Futures Trading Act of 1982); and (ii) Without taking into account any portion of the index composed of exempted securities as defined in section 3(a)(12) of the Act (15 U.S.C. 78c(a)(12)), as in effect on the date of enactment of the Futures Trading Act of 1982 (other than any municipal security as defined in section 3(a)(29) of the Act (15 U.S.C. 78c(a)(29))), the remaining portion of the index would be within the term “narrow-based security index” under paragraph (a)(1) of this section. (b) Paragraph (a)(1)(iv) of this section will not apply with respect to securities of an issuer included in the index if: (1) The effective notional amounts allocated to all securities of such issuer included in the index comprise less than five percent of the index's weighting; and (2) The securities that satisfy paragraph (a)(1)(iv) of this section comprise at least 80 percent of the index's weighting. (c) For purposes of this section: (1) An issuer of securities included in the index is affiliated with another issuer of securities included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section) if it controls, is controlled by, or is under common control with, that other issuer or other entity, as applicable; provided that each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) will not be considered affiliated with any other issuer of securities included in the index or any other entity that is an issuing entity of an asset-backed security. (2) Control for purposes of this section means ownership of more than 50 percent of the equity of an issuer of securities included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section), or the ability to direct the voting of more than 50 percent of the voting equity an issuer of securities included in the index (for purposes of paragraph (c)(4) of this section) or another entity (for purposes of paragraph (c)(5) of this section). (3) In identifying an issuer of securities included in the index for purposes of this section, the term issuer includes: (i) An issuer of securities; and (ii) An issuer of securities that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)). (4) For purposes of calculating the thresholds in paragraphs (a)(1)(i) through (a)(1)(iii) of this section, the term issuer of the security included in the index includes a single issuer of securities included in the index or a group of affiliated issuers of securities included in the index as determined in accordance with paragraph (c)(1) of this section (with each issuer of securities included in the index that is an issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a separate issuer of securities included in the index). (5) For purposes of determining whether one of the criterion in either paragraphs (a)(1)(iv)(A) through (a)(1))(iv)(D) of this section or paragraphs (a)(1)(iv)(H)(1) and (a)(1)(iv)(H)(2) of this section is met, the term issuer of the security included in the index includes a single issuer of securities included in the index or a group affiliated entities as determined in accordance with paragraph (c)(1) of this section (with each issuing entity of an asset-backed security as defined in section 3(a)(79) of the Act (15 U.S.C. 78c(a)(79)) being considered a separate entity).

§ 240.3a68-2 Requests for interpretation of swaps, security-based swaps, and mixed swaps. (a) In general. Any person may submit a request to the Commission and the Commodity Futures Trading Commission to provide a joint interpretation of whether a particular agreement, contract, or transaction (or class thereof) is: (1) A swap, as that term is defined in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)) and the rules and regulations promulgated thereunder; (2) A security-based swap, as that term is defined in section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) and the rules and regulations promulgated thereunder; or (3) A mixed swap, as that term is defined in section 3(a)(68)(D) of the Act and the rules and regulations promulgated thereunder. (b) Request process. In making a request pursuant to paragraph (a) of this section, the requesting person must provide the Commission and the Commodity Futures Trading Commission with the following: (1) All material information regarding the terms of the agreement, contract, or transaction (or class thereof); (2) A statement of the economic characteristics and purpose of the agreement, contract, or transaction (or class thereof); (3) The requesting person's determination as to whether the agreement, contract, or transaction (or class thereof) should be characterized as a swap, a security-based swap, or both (i.e., a mixed swap), including the basis for such determination; and (4) Such other information as may be requested by the Commission or the Commodity Futures Trading Commission. (c) Request withdrawal. A person may withdraw a request made pursuant to paragraph (a) of this section at any time prior to the issuance of a joint interpretation or joint proposed rule by the Commission and the Commodity Futures Trading Commission in response to the request; provided, however, that notwithstanding such withdrawal, the Commission and the Commodity Futures Trading Commission may provide a joint interpretation of whether the agreement, contract, or transaction (or class thereof) is a swap, a security-based swap, or both (i.e., a mixed swap). (d) Request by the Commission or the Commodity Futures Trading Commission. In the absence of a request for a joint interpretation under paragraph (a) of this section: (1) If the Commission or the Commodity Futures Trading Commission receives a proposal to list, trade, or clear an agreement, contract, or transaction (or class thereof) that raises questions as to the appropriate characterization of such agreement, contract, or transaction (or class thereof) as a swap, a security-based swap, or both (i.e., a mixed swap), the Commission or the Commodity Futures Trading Commission, as applicable, promptly shall notify the other of the agreement, contract, or transaction (or class thereof); and (2) The Commission or the Commodity Futures Trading Commission, or their Chairmen jointly, may submit a request for a joint interpretation as described in paragraph (a) of this section; such submission shall be made pursuant to paragraph (b) of this section, and may be withdrawn pursuant to paragraph (c) of this section. (e) Timeframe for joint interpretation. (1) If the Commission and the Commodity Futures Trading Commission determine to issue a joint interpretation as described in paragraph (a) of this section, such joint interpretation shall be issued within 120 days after receipt of a complete submission requesting a joint interpretation under paragraph (a) or (d) of this section. (2) The Commission and the Commodity Futures Trading Commission shall consult with the Board of Governors of the Federal Reserve System prior to issuing any joint interpretation as described in paragraph (a) of this section. (3) If the Commission and the Commodity Futures Trading Commission seek public comment with respect to a joint interpretation regarding an agreement, contract, or transaction (or class thereof), the 120-day period described in paragraph (e)(1) of this section shall be stayed during the pendency of the comment period, but shall recommence with the business day after the public comment period ends. (4) Nothing in this section shall require the Commission and the Commodity Futures Trading Commission to issue any joint interpretation. (5) If the Commission and the Commodity Futures Trading Commission do not issue a joint interpretation within the time period described in paragraph (e)(1) or (e)(3) of this section, each of the Commission and the Commodity Futures Trading Commission shall publicly provide the reasons for not issuing such a joint interpretation within the applicable timeframes. (f) Joint proposed rule. (1) Rather than issue a joint interpretation pursuant to paragraph (a) of this section, the Commission and the Commodity Futures Trading Commission may issue a joint proposed rule, in consultation with the Board of Governors of the Federal Reserve System, to further define one or more of the terms swap, security-based swap, or mixed swap. (2) A joint proposed rule described in paragraph (f)(1) of this section shall be issued within the timeframe for issuing a joint interpretation set forth in paragraph (e) of this section.

§ 240.3a68-3 Meaning of “narrow-based security index” as used in the definition of “security-based swap.” (a) In general. Except as otherwise provided in § 240.3a68-1a and § 240.3a68-1b, for purposes of section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)), the term narrow-based security index has the meaning set forth in section 3(a)(55) of the Act (15 U.S.C. 78c(a)(55)), and the rules, regulations, and orders of the Commission thereunder. (b) Tolerance period for swaps traded on designated contract markets, swap execution facilities and foreign boards of trade. Notwithstanding paragraph (a) of this section, solely for purposes of swaps traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade pursuant to the Commodity Exchange Act (7 U.S.C. 1 et seq.), a security index underlying such swaps shall not be considered a narrow-based security index if: (1)(i) A swap on the index is traded on or subject to the rules of a designated contract market, swap execution facility, or foreign board of trade pursuant to the Commodity Exchange Act (7 U.S.C. 1 et seq.) for at least 30 days as a swap on an index that was not a narrow-based security index; or (ii) Such index was not a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a swap on such index on a market described in paragraph (b)(1)(i) of this section; and (2) The index has been a narrow-based security index for no more than 45 business days over three consecutive calendar months. (c) Tolerance period for security-based swaps traded on national securities exchanges or security-based swap execution facilities. Notwithstanding paragraph (a) of this section, solely for purposes of security-based swaps traded on a national securities exchange or security-based swap execution facility, a security index underlying such security-based swaps shall be considered a narrow-based security index if: (1)(i) A security-based swap on the index is traded on a national securities exchange or security-based swap execution facility for at least 30 days as a security-based swap on a narrow-based security index; or (ii) Such index was a narrow-based security index during every trading day of the six full calendar months preceding a date no earlier than 30 days prior to the commencement of trading of a security-based swap on such index on a market described in paragraph (c)(1)(i) of this section; and (2) The index has been a security index that is not a narrow-based security index for no more than 45 business days over three consecutive calendar months. (d) Grace period. (1) Solely with respect to a swap that is traded on or subject to the rules of a designated contract market, swap execution facility or foreign board of trade pursuant to the Commodity Exchange Act (7 U.S.C. 1 et seq.), an index that becomes a narrow-based security index under paragraph (b) of this section solely because it was a narrow-based security index for more than 45 business days over three consecutive calendar months shall not be a narrow-based security index for the following three calendar months. (2) Solely with respect to a security-based swap that is traded on a national securities exchange or security-based swap execution facility, an index that becomes a security index that is not a narrow-based security index under paragraph (c) of this section solely because it was not a narrow-based security index for more than 45 business days over three consecutive calendar months shall be a narrow-based security index for the following three calendar months.

§ 240.3a68-4 Regulation of mixed swaps. (a) In general. The term mixed swap has the meaning set forth in section 3(a)(68)(D) of the Act (15 U.S.C. 78c(a)(68)(D)). (b) Regulation of bilateral uncleared mixed swaps entered into by dually-registered dealers or major participants. A mixed swap: (1) That is neither executed on nor subject to the rules of a designated contract market, national securities exchange, swap execution facility, security-based swap execution facility, or foreign board of trade; (2) That will not be submitted to a derivatives clearing organization or registered or exempt clearing agency to be cleared; and (3) Where at least one party is registered with the Commission as a security-based swap dealer or major security-based swap participant and also with the Commodity Futures Trading Commission as a swap dealer or major swap participant, shall be subject to: (i) The following provisions of the Commodity Exchange Act (7 U.S.C. 1 et seq.), and the rules and regulations promulgated thereunder, set forth in the rules and regulations of the Commodity Futures Trading Commission: (A) Examinations and information sharing: 7 U.S.C. 6s(f) and 12; (B) Enforcement: 7 U.S.C. 2(a)(1)(B), 6(b), 6b, 6c, 6s(h)(1)(A), 6s(h)(4)(A), 9, 13b, 13a-1, 13a-2, 13, 13c(a), 13c(b), 15 and 26; (C) Reporting to a swap data repository: 7 U.S.C. 6r; (D) Real-time reporting: 7 U.S.C. 2(a)(13); (E) Capital: 7 U.S.C. 6s(e); and (F) Position Limits: 7 U.S.C. 6a; and (ii) The provisions of the Federal securities laws, as defined in section 3(a)(47) of the Act (15 U.S.C. 78c(a)(47)), and the rules and regulations promulgated thereunder. (c) Process for determining regulatory treatment for other mixed swaps—(1) In general. Any person who desires or intends to list, trade, or clear a mixed swap (or class thereof) that is not subject to paragraph (b) of this section may request the Commission and the Commodity Futures Trading Commission to issue a joint order permitting the requesting person (and any other person or persons that subsequently lists, trades, or clears that mixed swap) to comply, as to parallel provisions only, with specified parallel provisions of either the Act (15 U.S.C. 78a et seq.) or the Commodity Exchange Act (7 U.S.C. 1 et seq.), and the rules and regulations thereunder (collectively, specified parallel provisions), instead of being required to comply with parallel provisions of both the Act and the Commodity Exchange Act. For purposes of this paragraph (c), parallel provisions means comparable provisions of the Act and the Commodity Exchange Act that were added or amended by the Wall Street Transparency and Accountability Act of 2010 with respect to security-based swaps and swaps, and the rules and regulations thereunder. (2) Request process. A person submitting a request pursuant to paragraph (c)(1) of this section must provide the Commission and the Commodity Futures Trading Commission with the following: (i) All material information regarding the terms of the specified, or specified class of, mixed swap; (ii) The economic characteristics and purpose of the specified, or specified class of, mixed swap; (iii) The specified parallel provisions, and the reasons the person believes such specified parallel provisions would be appropriate for the mixed swap (or class thereof); and (iv) An analysis of: (A) The nature and purposes of the parallel provisions that are the subject of the request; (B) The comparability of such parallel provisions; (C) The extent of any conflicts or differences between such parallel provisions; and (D) Such other information as may be requested by the Commission or the Commodity Futures Trading Commission. (3) Request withdrawal. A person may withdraw a request made pursuant to paragraph (c)(1) of this section at any time prior to the issuance of a joint order under paragraph (c)(4) of this section by the Commission and the Commodity Futures Trading Commission in response to the request. (4) Issuance of orders. In response to a request under paragraph (c)(1) of this section, the Commission and the Commodity Futures Trading Commission, as necessary to carry out the purposes of the Wall Street Transparency and Accountability Act of 2010, may issue a joint order, after notice and opportunity for comment, permitting the requesting person (and any other person or persons that subsequently lists, trades, or clears that mixed swap) to comply, as to parallel provisions only, with the specified parallel provisions (or another subset of the parallel provisions that are the subject of the request, as the Commissions determine is appropriate), instead of being required to comply with parallel provisions of both the Act (15 U.S.C. 78a et seq.) and the Commodity Exchange Act (7 U.S.C. 1 et seq.). In determining the contents of such joint order, the Commission and the Commodity Futures Trading Commission may consider, among other things: (i) The nature and purposes of the parallel provisions that are the subject of the request; (ii) The comparability of such parallel provisions; and (iii) The extent of any conflicts or differences between such parallel provisions. (5) Timeframe. (i) If the Commission and the Commodity Futures Trading Commission determine to issue a joint order as described in paragraph (c)(4) of this section, such joint order shall be issued within 120 days after receipt of a complete request for a joint order under paragraph (c)(1) of this section, which time period shall be stayed during the pendency of the public comment period provided for in paragraph (c)(4) of this section and shall recommence with the business day after the public comment period ends. (ii) Nothing in this section shall require the Commission and the Commodity Futures Trading Commission to issue any joint order. (iii) If the Commission and the Commodity Futures Trading Commission do not issue a joint order within the time period described in paragraph (c)(5)(i) of this section, each of the Commission and the Commodity Futures Trading Commission shall publicly provide the reasons for not issuing such a joint order within that timeframe.

§ 240.3a68-5 Regulation of certain futures contracts on foreign sovereign debt. The term security-based swap as used in section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) does not include an agreement, contract, or transaction that is based on or references a qualifying foreign futures contract (as defined in § 240.3a12-8 on the debt securities of any one or more of the foreign governments enumerated in § 240.3a12-8, provided that such agreement, contract, or transaction satisfies the following conditions: (a) The futures contract that the agreement, contract, or transaction references or upon which the agreement, contract, or transaction is based is a qualifying foreign futures contract that satisfies the conditions of § 240.3a12-8 applicable to qualifying foreign futures contracts; (b) The agreement, contract, or transaction is traded on or through a board of trade (as defined in 7 U.S.C. 2); (c) The debt securities upon which the qualifying foreign futures contract is based or referenced and any security used to determine the cash settlement amount pursuant to paragraph (d) of this section were not registered under the Securities Act of 1933 (15 U.S.C. 77 et seq.) or the subject of any American depositary receipt registered under the Securities Act of 1933; (d) The agreement, contract, or transaction may only be cash settled; and (e) The agreement, contract or transaction is not entered into by the issuer of the debt securities upon which the qualifying foreign futures contract is based or referenced (including any security used to determine the cash payment due on settlement of such agreement, contract or transaction), an affiliate (as defined in the Securities Act of 1933 (15 U.S.C. 77 et seq.) and the rules and regulations thereunder) of the issuer, or an underwriter of such issuer's debt securities.

§ 240.3a69-1 Safe Harbor Definition of “security-based swap” and “swap” as used in sections 3(a)(68) and 3(a)(69) of the Act—insurance. (a) This paragraph is a non-exclusive safe harbor. The terms security-based swap as used in section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) and swap as used in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)) do not include an agreement, contract, or transaction that: (1) By its terms or by law, as a condition of performance on the agreement, contract, or transaction: (i) Requires the beneficiary of the agreement, contract, or transaction to have an insurable interest that is the subject of the agreement, contract, or transaction and thereby carry the risk of loss with respect to that interest continuously throughout the duration of the agreement, contract, or transaction; (ii) Requires that loss to occur and to be proved, and that any payment or indemnification therefor be limited to the value of the insurable interest; (iii) Is not traded, separately from the insured interest, on an organized market or over the counter; and (iv) With respect to financial guaranty insurance only, in the event of payment default or insolvency of the obligor, any acceleration of payments under the policy is at the sole discretion of the insurer; and (2) Is provided: (i)(A) By a person that is subject to supervision by the insurance commissioner (or similar official or agency) of any State, as defined in section 3(a)(16) of the Act (15 U.S.C. 78c(a)(16)), or by the United States or an agency or instrumentality thereof; and (B) Such agreement, contract, or transaction is regulated as insurance under applicable State law or the laws of the United States; (ii)(A) Directly or indirectly by the United States, any State or any of their respective agencies or instrumentalities; or (B) Pursuant to a statutorily authorized program thereof; or (iii) In the case of reinsurance only by a person to another person that satisfies the conditions set forth in paragraph (a)(2) of this section, provided that: (A) Such person is not prohibited by applicable State law or the laws of the United States from offering such agreement, contract, or transaction to such person that satisfies the conditions set forth in paragraph (a)(2) of this section; (B) The agreement, contract, or transaction to be reinsured satisfies the conditions set forth in paragraph (a)(1) or (3) of this section; and (C) Except as otherwise permitted under applicable State law, the total amount reimbursable by all reinsurers for such agreement, contract, or transaction may not exceed the claims or losses paid by the person writing the risk being ceded or transferred by such person; or (iv) In the case of non-admitted insurance by a person who: (A) Is located outside of the United States and listed on the Quarterly Listing of Alien Insurers as maintained by the International Insurers Department of the National Association of Insurance Commissioners; or (B) Meets the eligibility criteria for non-admitted insurers under applicable State law; or (3) Is provided in accordance with the conditions set forth in paragraph (a)(2) of this section and is one of the following types of products: (i) Surety bond; (ii) Fidelity bond; (iii) Life insurance; (iv) Health insurance; (v) Long term care insurance; (vi) Title insurance; (vii) Property and casualty insurance; (viii) Annuity; (ix) Disability insurance; (x) Insurance against default on individual residential mortgages; and (xi) Reinsurance of any of the foregoing products identified in paragraphs (i) through (x) of this section. (b) The terms security-based swap as used in section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) and swap as used in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)) do not include an agreement, contract, or transaction that was entered into on or before the effective date of this section and that, at such time that it was entered into, was provided in accordance with the conditions set forth in paragraph (a)(2) of this section.

§ 240.3a69-2 Definition of “swap” as used in section 3(a)(69) of the Act—additional products. (a) In general. The term swap has the meaning set forth in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)). (b) Inclusion of particular products. (1) The term swap includes, without limiting the meaning set forth in section 3(a)(69) of the Act (15 U.S.C. 78c(a)(69)), the following agreements, contracts, and transactions: (i) A cross-currency swap; (ii) A currency option, foreign currency option, foreign exchange option and foreign exchange rate option; (iii) A foreign exchange forward; (iv) A foreign exchange swap; (v) A forward rate agreement; and (vi) A non-deliverable forward involving foreign exchange. (2) The term swap does not include an agreement, contract, or transaction described in paragraph (b)(1) of this section that is otherwise excluded by section 1a(47)(B) of the Commodity Exchange Act (7 U.S.C. 1a(47)(B)). (c) Foreign exchange forwards and foreign exchange swaps. Notwithstanding paragraph (b)(2) of this section: (1) A foreign exchange forward or a foreign exchange swap shall not be considered a swap if the Secretary of the Treasury makes a determination described in section 1a(47)(E)(i) of the Commodity Exchange Act (7 U.S.C. 1a(47)(E)(i)). (2) Notwithstanding paragraph (c)(1) of this section: (i) The reporting requirements set forth in section 4r of the Commodity Exchange Act (7 U.S.C. 6r) and regulations promulgated thereunder shall apply to a foreign exchange forward or foreign exchange swap; and (ii) The business conduct standards set forth in section 4s(h) of the Commodity Exchange Act (7 U.S.C. 6s) and regulations promulgated thereunder shall apply to a swap dealer or major swap participant that is a party to a foreign exchange forward or foreign exchange swap. (3) For purposes of section 1a(47)(E) of the Commodity Exchange Act (7 U.S.C. 1a(47)(E)) and this section, the term foreign exchange forward has the meaning set forth in section 1a(24) of the Commodity Exchange Act (7 U.S.C. 1a(24)). (4) For purposes of section 1a(47)(E) of the Commodity Exchange Act (7 U.S.C. 1a(47)(E)) and this section, the term foreign exchange swap has the meaning set forth in section 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(25)). (5) For purposes of sections 1a(24) and 1a(25) of the Commodity Exchange Act (7 U.S.C. 1a(24) and (25)) and this section, the following transactions are not foreign exchange forwards or foreign exchange swaps: (i) A currency swap or a cross-currency swap; (ii) A currency option, foreign currency option, foreign exchange option, or foreign exchange rate option; and (iii) A non-deliverable forward involving foreign exchange.

§ 240.3a69-3 Books and records requirements for security-based swap agreements. (a) A person registered as a swap data repository under section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and regulations thereunder: (1) Shall not be required to keep and maintain additional books and records regarding security-based swap agreements other than the books and records regarding swaps required to be kept and maintained pursuant to section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and regulations thereunder; and (2) Shall not be required to collect and maintain additional data regarding security-based swap agreements other than the data regarding swaps required to be collected and maintained by such persons pursuant to section 21 of the Commodity Exchange Act (7 U.S.C. 24a) and the rules and regulations thereunder. (b) A person shall not be required to keep and maintain additional books and records, including daily trading records, regarding security-based swap agreements other than the books and records regarding swaps required to be kept and maintained by such persons pursuant to section 4s of the Commodity Exchange Act (7 U.S.C. 6s) and the rules and regulations thereunder if such person is registered as: (1) A swap dealer under section 4s(a)(1) of the Commodity Exchange Act (7 U.S.C. 6s(a)(1)) and the rules and regulations thereunder; (2) A major swap participant under section 4s(a)(2) of the Commodity Exchange Act (7 U.S.C. 6s(a)(2)) and the rules and regulations thereunder; (3) A security-based swap dealer under section 15F(a)(1) of the Act (15 U.S.C. 78o-10(a)(1)) and the rules and regulations thereunder; or (4) A major security-based swap participant under section 15F(a)(2) of the Act (15 U.S.C. 78o-10(a)(2)) and the rules and regulations thereunder. (c) The term security-based swap agreement has the meaning set forth in section 3(a)(78) of the Act (15 U.S.C. 78c(a)(78)).

§ 240.3a71-1 Definition of “security-based swap dealer.” (a) General. The term security-based swap dealer in general means any person who: (1) Holds itself out as a dealer in security-based swaps; (2) Makes a market in security-based swaps; (3) Regularly enters into security-based swaps with counterparties as an ordinary course of business for its own account; or (4) Engages in any activity causing it to be commonly known in the trade as a dealer or market maker in security-based swaps. (b) Exception. The term security-based swap dealer does not include a person that enters into security-based swaps for such person's own account, either individually or in a fiduciary capacity, but not as a part of regular business. (c) Scope of designation. A person that is a security-based swap dealer in general shall be deemed to be a security-based swap dealer with respect to each security-based swap it enters into, regardless of the type, class, or category of the security-based swap or the person's activities in connection with the security-based swap, unless the Commission limits the person's designation as a security-based swap dealer to specified types, classes, or categories of security-based swaps or specified activities of the person in connection with security-based swaps. (d) Inter-affiliate activities—(1) General. In determining whether a person is a security-based swap dealer, that person's security-based swaps with majority-owned affiliates shall not be considered. (2) Meaning of majority-owned. For these purposes the counterparties to a security-based swap are majority-owned affiliates if one counterparty directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both counterparties to the security-based swap, where “majority interest” is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution or the contribution of a majority of the capital of a partnership.

§ 240.3a71-2 De minimis exception. (a) Requirements. For purposes of section 3(a)(71) of the Act (15 U.S.C. 78c(a)(71)) and § 240.3a71-1, a person that is not currently registered as a security-based swap dealer shall be deemed not to be a security-based swap dealer, and, therefore, shall not be subject to section 15F of the Act (15 U.S.C. 78o-10) and the rules, regulations and interpretations issued thereunder, as a result of security-based swap dealing activity that meets the following conditions: (1) Notional thresholds. The security-based swap positions connected with the dealing activity in which the person—or any other entity controlling, controlled by or under common control with the person—engages over the course of the immediately preceding 12 months (or following the effective date of final rules implementing section 3(a)(68) of the Act (15 U.S.C. 78c(a)(68)) if that period is less than 12 months) have: (i) An aggregate gross notional amount of no more than $3 billion, subject to a phase-in level of an aggregate gross notional amount of no more than $8 billion applied in accordance with paragraph (a)(2)(i) of this section, with regard to credit default swaps that constitute security-based swaps; (ii) An aggregate gross notional amount of no more than $150 million, subject to a phase-in level of an aggregate gross notional amount of no more than $400 million applied in accordance with paragraph (a)(2)(i) of this section, with regard to security-based swaps not described in paragraph (a)(1)(i) of this section; and (iii) An aggregate gross notional amount of no more than $25 million with regard to all security-based swaps in which the counterparty is a special entity (as that term is defined in section 15F(h)(2)(C) of the Act (15 U.S.C. 78o-10(h)(2)(C)). (2) Phase-in procedure—(i) Phase-in period. For purposes of paragraphs (a)(1)(i) and (ii) of this section, a person that engages in security-based swap dealing activity that does not exceed either of the phase-in levels set forth in paragraphs (a)(1)(i) and (ii) of this section, as applicable, shall be deemed not to be a security-based swap dealer, and, therefore, shall not be subject to Section 15F of the Act (15 U.S.C. 78o-10) and the rules, regulations and interpretations issued thereunder, as a result of its security-based swap dealing activity, until the “phase-in termination date” established as provided in paragraph (a)(2)(ii) of this section; provided, however, that this phase-in period shall not be available to the extent that a person engages in security-based swap dealing activity with counterparties that are natural persons, other than natural persons who qualify as eligible contract participants by virtue of section 1a(18)(A)(xi)(II) of the Commodity Exchange Act, (7 U.S.C. 1a(18)(A)(xi)(II)). The Commission shall announce the phase-in termination date on the Commission Web site and publish such date in the Federal Register. (ii) Establishment of phase-in termination date. (A) Nine months after the publication of the staff report described in Appendix A of this section, and after giving due consideration to that report and any associated public comment, the Commission may either: (1) Terminate the phase-in period set forth in paragraph (a)(2)(i) of this section, in which case the phase-in termination date shall be established by the Commission by order published in the Federal Register; or (2) Determine that it is necessary or appropriate in the public interest to propose through rulemaking an alternative to the $3 billion and $150 million amounts set forth in paragraphs (a)(1)(i) and (ii) of this section, as applicable, that would constitute a de minimis quantity of security-based swap dealing in connection with transactions with or on behalf of customers within the meaning of section 3(a)(71)(D) of the Act, (15 U.S.C. 78c(a)(71)(D)), in which case the Commission shall by order published in the Federal Register provide notice of such determination to propose through rulemaking an alternative, which order shall also establish the phase-in termination date. (B) If the phase-in termination date has not been previously established pursuant to paragraph (a)(2)(ii)(A) of this section, then in any event the phase-in termination date shall occur five years after the data collection initiation date defined in paragraph (a)(2)(iii) of this section. (iii) Data collection initiation date. The term “data collection initiation date” shall mean the date that is the later of: the last compliance date for the registration and regulatory requirements for security-based swap dealers and major security-based swap participants under Section 15F of the Act (15 U.S.C. 78o-10); or the first date on which compliance with the trade-by-trade reporting rules for credit-related and equity-related security-based swaps to a registered security-based swap data repository is required. The Commission shall announce the data collection initiation date on the Commission Web site and publish such date in the Federal Register. (3) Use of effective notional amounts. For purposes of paragraph (a)(1) of this section, if the stated notional amount of a security-based swap is leveraged or enhanced by the structure of the security-based swap, the calculation shall be based on the effective notional amount of the security-based swap rather than on the stated notional amount. (b) Registration period for persons that no longer can take advantage of the exception. A person that has not registered as a security-based swap dealer by virtue of satisfying the requirements of paragraph (a) of this section, but that no longer can take advantage of the de minimis exception provided for in paragraph (a) of this section, will be deemed not to be a security-based swap dealer under section 3(a)(71) of the Act (15 U.S.C. 78c(a)(71)) and subject to the requirements of section 15F of the Act (15 U.S.C. 78o-10) and the rules, regulations and interpretations issued thereunder until the earlier of the date on which it submits a complete application for registration pursuant to section 15F(b) (15 U.S.C. 78o-10(b)) or two months after the end of the month in which that person becomes no longer able to take advantage of the exception. (c) Applicability to registered security-based swap dealers. A person who currently is registered as a security-based swap dealer may apply to withdraw that registration, while continuing to engage in security-based swap dealing activity in reliance on this section, so long as that person has been registered as a security-based swap dealer for at least 12 months and satisfies the conditions of paragraph (a) of this section. (d) Future adjustments to scope of the de minimis exception. The Commission may by rule or regulation change the requirements of the de minimis exception described in paragraphs (a) through (c) of this section. (e) Voluntary registration. Notwithstanding paragraph (a) of this section, a person that chooses to register with the Commission as a security-based swap dealer shall be deemed to be a security-based swap dealer, and, therefore, shall be subject to Section 15F of the Act (15 U.S.C 78o-10) and the rules, regulations and interpretations issued thereunder.

§ 240.3a71-2A Report regarding the “security-based swap dealer” and “major security-based swap participant” definitions (Appendix A to 17 CFR 240.3a71-2). Appendix A to § 240.3a71-2 sets forth guidelines applicable to a report that the Commission has directed its staff to make in connection with the rules and interpretations further defining the Act's definitions of the terms “security-based swap dealer” (including the de minimis exception to that definition) and “major security-based swap participant.” The Commission intends to consider this report in reviewing the effect and application of these rules based on the evolution of the security-based swap market following the implementation of the registration and regulatory requirements of Section 15F of the Act (15 U.S.C. 78o-10). The report may also be informative as to potential changes to the rules further defining those terms. In producing this report, the staff shall consider security-based swap data collected by the Commission pursuant to other Title VII rules, as well as any other applicable information as the staff may determine to be appropriate for its analysis. (a) Report topics. As appropriate, based on the availability of data and information, the report should address the following topics: (1) De minimis exception. In connection with the de minimis exception to the definition of “security-based swap dealer,” the report generally should assess whether any of the de minimis thresholds set forth in paragraph (a)(1) of § 240.3a71-2 should be increased or decreased; (2) General security-based swap dealer analysis. In connection with the definition of “security-based swap dealer,” the report generally should consider the factors that are useful for identifying security-based swap dealing activity, including the application of the dealer-trader distinction for that purpose, and the potential use of more objective tests or safe harbors as part of the analysis; (3) General major security-based swap participant analysis. In connection with the definition of “major security-based swap participant,” the report generally should consider the tests used to identify the presence of a “substantial position” in a major category of security-based swaps, and the tests used to identify persons whose security-based swap positions create “substantial counterparty exposure,” including the potential use of alternative tests or thresholds; (4) Commercial risk hedging exclusion. In connection with the definition of “major security-based swap participant,” the report generally should consider the definition of “hedging or mitigating commercial risk,” including whether that latter definition inappropriately permits certain positions to be excluded from the “substantial position” analysis, and whether the continued availability of the exclusion for such hedging positions should be conditioned on a person assessing and documenting the hedging effectiveness of those positions; (5) Highly leveraged financial entities. In connection with the definition of “major security-based swap participant,” the report generally should consider the definition of “highly leveraged,” including whether alternative approaches should be used to identify highly leveraged financial entities; (6) Inter-affiliate exclusions. In connection with the definitions of “security-based swap dealer” and “major security-based swap participant,” the report generally should consider the impact of rule provisions excluding inter-affiliate transactions from the relevant analyses, and should assess potential alternative approaches for such exclusions; and (7) Other topics. Any other analysis of security-based swap data and information the Commission or the staff deem relevant to this rule. (b) Timing of report. The report shall be completed no later than three years following the data collection initiation date, established pursuant to § 240.3a71-2(a)(2)(iii). (c) Public comment on the report. Following completion of the report, the report shall be published in the Federal Register for public comment.

§ 240.3a71-3 Cross-border security-based swap dealing activity. (a) Definitions. As used in this section, the following terms shall have the meanings indicated: (1) Conduit affiliate—(i) Definition. Conduit affiliate means a person, other than a U.S. person, that: (A) Is directly or indirectly majority-owned by one or more U.S. persons; and (B) In the regular course of business enters into security-based swaps with one or more other non-U.S. persons, or with foreign branches of U.S. banks that are registered as security-based swap dealers, for the purpose of hedging or mitigating risks faced by, or otherwise taking positions on behalf of, one or more U.S. persons (other than U.S. persons that are registered as security-based swap dealers or major security-based swap participants) who are controlling, controlled by, or under common control with the person, and enters into offsetting security-based swaps or other arrangements with such U.S. persons to transfer risks and benefits of those security-based swaps. (ii) Majority-ownership standard. The majority-ownership standard in paragraph (a)(1)(i)(A) of this section is satisfied if one or more persons described in § 240.3a71-3(a)(4)(i)(B) directly or indirectly own a majority interest in the non-U.S. person, where “majority interest” is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution, or the contribution of, a majority of the capital of a partnership. (2) Foreign branch means any branch of a U.S. bank if: (i) The branch is located outside the United States; (ii) The branch operates for valid business reasons; and (iii) The branch is engaged in the business of banking and is subject to substantive banking regulation in the jurisdiction where located. (3) Transaction conducted through a foreign branch—(i) Definition. Transaction conducted through a foreign branch means a security-based swap transaction that is arranged, negotiated, and executed by a U.S. person through a foreign branch of such U.S. person if: (A) The foreign branch is the counterparty to such security-based swap transaction; and (B) The security-based swap transaction is arranged, negotiated, and executed on behalf of the foreign branch solely by persons located outside the United States. (ii) Representations. A person shall not be required to consider its counterparty's activity in connection with paragraph (a)(3)(i)(B) of this section in determining whether a security-based swap transaction is a transaction conducted through a foreign branch if such person receives a representation from its counterparty that the security-based swap transaction is arranged, negotiated, and executed on behalf of the foreign branch solely by persons located outside the United States, unless such person knows or has reason to know that the representation is not accurate; for the purposes of this final rule a person would have reason to know the representation is not accurate if a reasonable person should know, under all of the facts of which the person is aware, that it is not accurate. (4) U.S. person. (i) Except as provided in paragraph (a)(4)(iii) of this section, U.S. person means any person that is: (A) A natural person resident in the United States; (B) A partnership, corporation, trust, investment vehicle, or other legal person organized, incorporated, or established under the laws of the United States or having its principal place of business in the United States; (C) An account (whether discretionary or non-discretionary) of a U.S. person; or (D) An estate of a decedent who was a resident of the United States at the time of death. (ii) For purposes of this section, principal place of business means the location from which the officers, partners, or managers of the legal person primarily direct, control, and coordinate the activities of the legal person. With respect to an externally managed investment vehicle, this location is the office from which the manager of the vehicle primarily directs, controls, and coordinates the investment activities of the vehicle. (iii) The term U.S. person does not include the International Monetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the United Nations, and their agencies and pension plans, and any other similar international organizations, their agencies and pension plans. (iv) A person shall not be required to consider its counterparty to a security-based swap to be a U.S. person if such person receives a representation from the counterparty that the counterparty does not satisfy the criteria set forth in paragraph (a)(4)(i) of this section, unless such person knows or has reason to know that the representation is not accurate; for the purposes of this final rule a person would have reason to know the representation is not accurate if a reasonable person should know, under all of the facts of which the person is aware, that it is not accurate. (5) United States means the United States of America, its territories and possessions, any State of the United States, and the District of Columbia. (6) U.S. security-based swap dealer means a security-based swap dealer, as defined in section 3(a)(71) of the Act (15 U.S.C. 78c(a)(71)), and the rules and regulations thereunder, that is a U.S. person. (7) Foreign security-based swap dealer means a security-based swap dealer, as defined in section 3(a)(71) of the Act (15 U.S.C. 78c(a)(71)), and the rules and regulations thereunder, that is not a U.S. person. (8) U.S. business means: (i) With respect to a foreign security-based swap dealer: (A) Any security-based swap transaction entered into, or offered to be entered into, by or on behalf of such foreign security-based swap dealer, with a U.S. person (other than a transaction conducted through a foreign branch of that person); or (B) Any security-based swap transaction arranged, negotiated, or executed by personnel of the foreign security-based swap dealer located in a U.S. branch or office, or by personnel of an agent of the foreign security-based swap dealer located in a U.S. branch or office; and (ii) With respect to a U.S. security-based swap dealer, any transaction entered into or offered to be entered into by or on behalf of such U.S. security-based swap dealer, other than a transaction conducted through a foreign branch with a non-U.S. person or with a U.S.-person counterparty that constitutes a transaction conducted through a foreign branch of the counterparty. (9) Foreign business means security-based swap transactions entered into, or offered to be entered into, by or on behalf of a security-based swap dealer, other than the U.S. business of such person. (10) An entity is a majority-owned affiliate of another entity if the entity directly or indirectly owns a majority interest in the other, or if a third party directly or indirectly owns a majority interest in both entities, where “majority interest” is the right to vote or direct the vote of a majority of a class of voting securities of an entity, the power to sell or direct the sale of a majority of a class of voting securities of an entity, or the right to receive upon dissolution, or the contribution of, a majority of the capital of a partnership. (11) Foreign associated person means a natural person domiciled outside the United States who—with respect to a non-U.S. person relying on the exception set forth in paragraph (d) of this section—is a partner, officer, director, or branch manager of such non-U.S. person (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such non-U.S. person, or any employee of such non-U.S. person. (12) Listed jurisdiction means any jurisdiction that the Commission by order has designated as a listed jurisdiction for purposes of the exception specified in paragraph (d) of this section. (13) Covered inter-dealer security-based swap means any security-based swap between: (i) A non-U.S. person relying on the exception in paragraph (d) of this section; and (ii) A non-U.S. person that is, or is an affiliate of, a registered security-based swap dealer or registered broker that has filed with the Commission a notice pursuant to paragraph (d)(1)(vi) of this section; provided, however, that a covered inter-dealer security-based swap does not include a security-based swap with a non-U.S. person that the non-U.S. person relying on the exception in paragraph (d) of this section reasonably determines at the time of execution of the security-based swap is neither a registered security-based swap dealer or registered broker that has filed with the Commission a notice pursuant to paragraph (d)(1)(vi) of this section nor an affiliate of such a registered security-based swap dealer or registered broker. (b) Application of de minimis exception to cross-border dealing activity. For purposes of calculating the amount of security-based swap positions connected with dealing activity under § 240.3a71-2(a)(1), except as provided in § 240.3a71-5, a person shall include the following security-based swap transactions: (1)(i) If such person is a U.S. person, all security-based swap transactions connected with the dealing activity in which such person engages, including transactions conducted through a foreign branch; (ii) If such person is a conduit affiliate, all security-based swap transactions connected with the dealing activity in which such person engages; and (iii) If such person is a non-U.S. person other than a conduit affiliate, all of the following types of transactions: (A) Security-based swap transactions connected with the dealing activity in which such person engages that are entered into with a U.S. person; provided, however, that this paragraph (b)(1)(iii)(A) shall not apply to: (1) Transactions with a U.S. person counterparty that constitute transactions conducted through a foreign branch of the counterparty, when the counterparty is a registered security-based swap dealer; and (2) Transactions with a U.S. person counterparty that constitute transactions conducted through a foreign branch of the counterparty, when the transaction is entered into prior to 60 days following the earliest date on which the registration of security-based swap dealers is first required pursuant to the applicable final rules and regulations; and (B) Security-based swap transactions connected with the dealing activity in which such person engages for which the counterparty to the security-based swap has rights of recourse against a U.S. person that is controlling, controlled by, or under common control with the non-U.S. person; for these purposes a counterparty has rights of recourse against the U.S. person if the counterparty has a conditional or unconditional legally enforceable right, in whole or in part, to receive payments from, or otherwise collect from, the U.S. person in connection with the security-based swap; and (C) Except as provided in paragraph (d) of this section, or unless such person is a person described in paragraph (a)(4)(iii) of this section, security-based swap transactions connected with such person's security-based swap dealing activity that are arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office; and (2) If such person engages in transactions described in paragraph (b)(1) of this section, except as provided in § 240.3a71-4, all of the following types of security-based swap transactions: (i) Security-based swap transactions connected with the dealing activity in which any U.S. person controlling, controlled by, or under common control with such person engages, including transactions conducted through a foreign branch; (ii) Security-based swap transactions connected with the dealing activity in which any conduit affiliate controlling, controlled by, or under common control with such person engages; and (iii) Security-based swap transactions connected with the dealing activity of any non-U.S. person, other than a conduit affiliate, that is controlling, controlled by, or under common control with such person, that are described in paragraph (b)(1)(iii) of this section. (c) Application of customer protection requirements. A registered security-based swap dealer, with respect to its foreign business, shall not be subject to the requirements relating to business conduct standards described in section 15F(h) of the Act (15 U.S.C. 78o-10(h)), and the rules and regulations thereunder, other than the rules and regulations prescribed by the Commission pursuant to section 15F(h)(1)(B) of the Act (15 U.S.C. 78o-10(h)(1)(B)). (d) Exception from counting certain transactions. The counting requirement described by paragraph (b)(1)(iii)(C) of this section will not apply to the security-based swap dealing transactions of a non-U.S. person if the conditions of paragraph (d)(1) of this section have been satisfied. (1) Conditions—(i) Entity conducting U.S. activity. All activity that otherwise would cause a security-based swap transaction to be described by paragraph (b)(1)(iii)(C) of this section—namely, all arranging, negotiating or executing activity that is conducted by personnel of the entity (or its agent) located in a branch or office in the United States—is conducted by such U.S. personnel in their capacity as persons associated with an entity that: (A) Is registered with the Commission as: (1) A broker registered under section 15 of the Act (15 U.S.C. 78o) that is subject to and complies with § 240.15c3-1(a)(7); (2) A broker registered under section 15 of the Act (15 U.S.C. 78o), other than a broker that is subject to § 240.15c3-1(a)(7), that complies with § 240.15c3-1(a)(10), as if that entity were registered with the Commission as a security-based swap dealer, if it is not so registered; or (3) A security-based swap dealer; and (B) Is a majority-owned affiliate of the non-U.S. person relying on this exception. (ii) Compliance with specified security-based swap dealer requirements—(A) Compliance required. In connection with such transactions, the registered entity described in paragraph (d)(1)(i) of this section complies with the requirements described in paragraph (d)(1)(ii)(B) of this section (1) As if the counterparties to the non-U.S. person relying on this exception also were counterparties to that entity; and (2) As if that entity were registered with the Commission as a security-based swap dealer, if it is not so registered. (B) Applicable requirements. The compliance obligation described in paragraph (d)(1)(ii)(A) of this section applies to the following provisions of the Act and the rules and regulations thereunder: (1) Section 15F(h)(3)(B)(i), (ii) and § 240.15Fh-3(b), including in connection with material incentives and conflicts of interest associated with the non-U.S. person relying on the exception; (2) Section 240.15Fh-3(f)(1); provided, however, that if the registered entity described in paragraph (d)(1)(i) of this section reasonably determines that the counterparty to whom it recommends a security-based swap or trading strategy involving a security-based swap is an “institutional counterparty” as defined in § 240.15Fh-3(f)(4), the registered entity instead may fulfill its obligations under § 240.15Fh-3(f)(1)(ii) if it discloses to the counterparty that it is not undertaking to assess the suitability of the security-based swap or trading strategy involving a security-based swap for the counterparty; (3) Section 15F(h)(3)(C) of the Act and § 240.15Fh-3(g); and (4) Sections 240.15Fi-1 and 240.15Fi-2. (iii) Commission access to books, records and testimony. (A) The non-U.S. person relying on this exception promptly provides representatives of the Commission (upon request of the Commission or its representatives or pursuant to a supervisory or enforcement memorandum of understanding or other arrangement or agreement reached between any foreign securities authority, including any foreign government, as specified in section 3(a)(50) of the Act, and the Commission or the U.S. Government) with any information or documents within the non-U.S. person's possession, custody, or control, promptly makes its foreign associated persons available for testimony, and provides any assistance in taking the evidence of other persons, wherever located, that the Commission or its representatives requests and that relates to transactions subject to this exception; provided, however, that if, after exercising its best efforts, the non-U.S. person is prohibited by applicable foreign law or regulations from providing such information, documents, testimony, or assistance, the non-U.S. person may continue to rely on this exception until the Commission issues an order modifying or withdrawing an associated “listed jurisdiction” determination pursuant to paragraph (d)(2)(iii) of this section. (B) The registered entity described in paragraph (d)(1)(i) of this section: (1) Creates and maintains books and records relating to the transactions subject to this exception that are required, as applicable, by §§ 240.17a-3 and 240.17a-4, or by §§ 240.18a-5 and 240.18a-6, including any books and records requirements relating to the provisions specified in paragraph (d)(1)(ii)(B) of this section; (2) Obtains from the non-U.S. person relying on the exception, and maintains for not less than three years following the activity described in paragraph (d)(1)(i) of this section, the first two years in an easily accessible place, documentation regarding such non-U.S. person's compliance with the condition in paragraph (d)(1)(vii) of this section; (3) Obtains from the non-U.S. person relying on the exception, and maintains for not less than three years following the activity described in paragraph (d)(1)(i) of this section, the first two years in an easily accessible place, documentation encompassing all terms governing the trading relationship between the non-U.S. person and its counterparty relating to the transactions subject to this exception, including, without limitation, terms addressing payment obligations, netting of payments, events of default or other termination events, calculation and netting of obligations upon termination, transfer of rights and obligations, allocation of any applicable regulatory reporting obligations, governing law, valuation, and dispute resolution; and (4) Obtains from the non-U.S. person relying on this exception, and maintains for not less than three years following the activity described in paragraph (d)(1)(i) of this section, the first two years in an easily accessible place, written consent to service of process for any civil action brought by or proceeding before the Commission, providing that process may be served on the non-U.S. person by service on the registered entity in the manner set forth in the registered entity's current Form BD, SBSE, SBSE-A or SBSE-BD, as applicable. (iv) Counterparty notification In connection with the transaction, the registered entity described in paragraph (d)(1)(i) of this section notifies the counterparties of the non-U.S. person relying on this exception that the non-U.S. person is not registered with the Commission as a security-based swap dealer, and that certain Exchange Act provisions or rules addressing the regulation of security-based swaps would not be applicable in connection with the transaction, including provisions affording clearing rights to counterparties. Such notice shall be provided contemporaneously with, and in the same manner as, the arranging, negotiating, or executing activity at issue; provided, however, that during a period in which a counterparty is neither a customer (as such term is defined in § 240.15c3-3) of the registered entity described in paragraph (d)(1)(i) of this section (if such registered entity is a registered broker or dealer) nor a counterparty to a security-based swap with the registered entity described in paragraph (d)(1)(i) of this section, such notice need only be provided contemporaneously with, and in the same manner as, the first such arranging, negotiating, or executing activity during such period. This disclosure will not be required if the identity of that counterparty is not known to that registered entity at a reasonably sufficient time prior to the execution of the transaction to permit such disclosure. (v) Subject to regulation of a listed jurisdiction. The non-U.S. person relying on this exception is subject to the margin and capital requirements of a listed jurisdiction when engaging in the transactions subject to this exception. (vi) Notices and withdrawals of notices by registered entity. Before an associated person of the registered entity described in paragraph (d)(1)(i) of this section commences the activity described in paragraph (d)(1)(i) of this section, such registered entity shall have filed a notice with the Commission (that has not been withdrawn) that its associated persons may conduct such activity. Such registered entity shall file this notice electronically on EDGAR in accordance with the EDGAR Filer Manual, as defined in 17 CFR 232.11 (Rule 11 of Regulation S-T), and in accordance with the requirements of 17 CFR part 232 (Regulation S-T). A registered entity whose associated persons will no longer conduct the activity described in paragraph (d)(1)(i) of this section may withdraw, and an entity that no longer is described in paragraph (d)(1) of this section shall promptly withdraw, its previously filed notice by filing a withdrawal electronically on EDGAR in accordance with the EDGAR Filer Manual, as defined in Rule 11 of Regulation S-T, and in accordance with the requirements of Regulation S-T. Such notices and withdrawals shall be publicly disseminated through the Commission's EDGAR system. (2) Order for listed jurisdiction designation. The Commission by order, may conditionally or unconditionally determine that a foreign jurisdiction is a listed jurisdiction for purposes of this section. The Commission may make listed jurisdiction determinations in response to applications, or upon the Commission's own initiative. (i) Applications. Applications for an order requesting listed jurisdiction status may be made by a party or group of parties that potentially would seek to rely on the exception provided by paragraph (d) of this section, or by any foreign financial regulatory authority or authorities supervising such a party or its security-based swap activities. Applications must be filed pursuant to the procedures set forth in § 240.0-13. (ii) Criteria considered. In considering a foreign jurisdiction's potential status as a listed jurisdiction, the Commission may consider factors relevant for purposes of assessing whether such an order would be in the public interest, including: (A) Applicable margin and capital requirements of the foreign financial regulatory system; and (B) The effectiveness of the supervisory compliance program administered by, and the enforcement authority exercised by, the foreign financial regulatory authority in connection with such requirements, including the application of those requirements in connection with an entity's cross-border business. (iii) Withdrawal or modification of listed jurisdiction status. The Commission may, on its own initiative, by order after notice and opportunity for comment, modify or withdraw a jurisdiction's status as a listed jurisdiction, if the Commission determines that continued listed jurisdiction status no longer would be in the public interest, based on: (A) The criteria set forth in paragraph (d)(2)(ii) of this section; (B) Any laws or regulations that have had the effect of preventing the Commission or its representatives, on request, to promptly access information or documents regarding the activities of persons relying on the exception provided by this paragraph (d), to obtain the testimony of their foreign associated persons, and to obtain the assistance of persons relying on this exception in taking the evidence of other persons, wherever located, as described in paragraph (d)(1)(iii)(A) of this section; and (C) Any other factor the Commission determines to be relevant to whether continued status as a listed jurisdiction would be in the public interest. (3) Exception for person that engages in arranging, negotiating, or executing activity as agent. The registered entity described in paragraph (d)(1)(i) of this section need not count, against the de minimis thresholds described in § 240.3a71-2(a)(1), the transactions described by paragraph (d) of this section. (4) Limited exemption from registration as a broker. A registered security-based swap dealer and its associated persons who conduct the activities described in paragraph (d)(1)(i) of this section shall not be subject to registration as a broker pursuant to section 15(a)(1) of the Act solely because the registered entity or the associated person conducts any activity described in paragraph (d)(1)(i) of this section with or for a person that is an eligible contract participant, provided that: (i) The conditions of paragraph (d)(1) of this section are satisfied in connection with such activities; and (ii) If § 240.10b-10 would apply to an activity subject to the exception in paragraph (d)(1)(i), such registered security-based swap dealer provides to the customer the disclosures required by § 240.10b-10(a)(2) (excluding § 240.10b-10(a)(2)(i) and (ii)) and § 240.10b-10(a)(8) in accordance with the time and form requirements set forth in § 240.15Fi-2(b) and (c) or, alternatively, promptly after discovery of any defect in the registered security-based swap dealer's good faith effort to comply with such requirements. (5) Exemption from § 240.10b-10. A broker or dealer that is also a registered security-based swap dealer or registered broker described in paragraph (d)(1)(i) of this section shall be exempt from the requirements of § 240.10b-10 with respect to activity described in paragraph (d)(1)(i) of this section, provided that such broker or dealer: (i) Complies with paragraph (d)(1)(ii)(B)(4) of this section in connection with such activity; and (ii) Provides to the customer the disclosures required by § 240.10b-10(a)(2) (excluding § 240.10b-10(a)(2)(i) and (ii)) and § 240.10b-10(a)(8) in accordance with the time and form requirements set forth in § 240.15Fi-2(b) and (c) or, alternatively, promptly after discovery of any defect in the broker or dealer's good faith effort to comply with such requirements. (6) Limitation for covered inter-dealer security-based swaps—(i) Scope of limitation for covered inter-dealer security-based swaps. The threshold described in paragraph (d)(1)(vii) of this section applies to covered inter-dealer security-based swap positions connected with dealing activity subject to the exception in this paragraph (d) engaged in by any of the following persons: (A) The non-U.S. person relying on the exception in this paragraph (d); and (B) Any affiliate of such person, except for an affiliate that is deemed not to be a security-based swap dealer pursuant to Rule 3a71-2(b). (ii) Impact of exceeding exception threshold. If the threshold described in paragraph (d)(1)(vii) of this section is exceeded, then (A) As of the date the condition in paragraph (d)(1)(vii) of this section is no longer satisfied, the non-U.S. person that is no longer able to satisfy that condition may not rely on the exception in this paragraph (d) for future security-based swap transactions. (B) For purposes of calculating the amount of security-based swap positions connected with dealing activity under § 240.3a71-2(a)(1), the non-U.S. person that is no longer able to satisfy the condition in paragraph (d)(1)(vii) of this section shall include all covered inter-dealer security-based swap positions connected with dealing activity subject to the exception in this paragraph (d) engaged in by persons described in paragraph (d)(6)(i) of this section over the course of the immediately preceding 12 months, such positions to be included in such calculation as of the date that the condition in paragraph (d)(1)(vii) of this section is no longer satisfied.

§ 240.3a71-4 Exception from aggregation for affiliated groups with registered security-based swap dealers. Notwithstanding §§ 240.3a71-2(a)(1) and 240.3a71-3(b)(2), a person shall not include the security-based swap transactions of another person (an “affiliate”) controlling, controlled by, or under common control with such person where such affiliate either is: (a) Registered with the Commission as a security-based swap dealer; or (b) Deemed not to be a security-based swap dealer pursuant to § 240.3a71-2(b).

§ 240.3a71-5 Exception for cleared transactions executed on a swap execution facility. (a) For purposes of § 240.3a71-3(b)(1), a non-U.S. person, other than a conduit affiliate, shall not include its security-based swap transactions that are entered into anonymously on an execution facility or national securities exchange and are cleared through a clearing agency; and (b) For purposes of § 240.3a71-3(b)(2), a person shall not include security-based swap transactions of an affiliated non-U.S. person, other than a conduit affiliate, when such transactions are entered into anonymously on an execution facility or national securities exchange and are cleared through a clearing agency. (c) The exceptions in paragraphs (a) and (b) of this section shall not apply to any security-based swap transactions of a non-U.S. person or of an affiliated non-U.S. person connected with the person's security-based swap dealing activity that are arranged, negotiated, or executed by personnel of such non-U.S. person located in a U.S. branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office.

§ 240.3a71-6 Substituted compliance for security-based swap dealers and major security-based swap participants. (a) Determinations—(1) In general. Subject to paragraph (a)(2) of this section, the Commission may, conditionally or unconditionally, by order, make a determination with respect to a foreign financial regulatory system that compliance with specified requirements under such foreign financial regulatory system by a registered security-based swap dealer and/or by a registered major security-based swap participant (each a “security-based swap entity”), or class thereof, may satisfy the corresponding requirements identified in paragraph (d) of this section that would otherwise apply to such security-based swap entity (or class thereof). (2) Standard. The Commission shall not make a substituted compliance determination under paragraph (a)(1) of this section unless the Commission: (i) Determines that the requirements of such foreign financial regulatory system applicable to such security-based swap entity (or class thereof) or to the activities of such security-based swap entity (or class thereof) are comparable to otherwise applicable requirements, after taking into account such factors as the Commission determines are appropriate, such as the scope and objectives of the relevant foreign regulatory requirements (taking into account the applicable criteria set forth in paragraph (d) of this section), as well as the effectiveness of the supervisory compliance program administered, and the enforcement authority exercised, by a foreign financial regulatory authority or authorities in such system to support its oversight of such security-based swap entity (or class thereof) or of the activities of such security-based swap entity (or class thereof); and (ii) Has entered into a supervisory and enforcement memorandum of understanding and/or other arrangement with the relevant foreign financial regulatory authority or authorities under such foreign financial regulatory system addressing supervisory and enforcement cooperation and other matters arising under the substituted compliance determination. (3) Withdrawal or modification. The Commission may, on its own initiative, by order, modify or withdraw a substituted compliance determination under paragraph (a)(1) of this section, after appropriate notice and opportunity for comment. (b) Reliance by security-based swap entities. A registered security-based swap entity may satisfy the requirements described in paragraph (d) of this section by complying with corresponding law, rules and regulations under a foreign financial regulatory system, provided: (1) The Commission has made a substituted compliance determination pursuant to paragraph (a)(1) of this section regarding such foreign financial regulatory system providing that compliance with specified requirements under such foreign financial regulatory system by such registered security-based swap entity (or class thereof) may satisfy the corresponding requirements described in paragraph (d) of this section; and (2) Such registered security-based swap entity satisfies any conditions set forth in a substituted compliance determination made by the Commission pursuant to paragraph (a)(1) of this section. (c) Requests for determinations. (1) A party or group of parties that potentially would comply with specified requirements pursuant to paragraph (a)(1), or any foreign financial regulatory authority or authorities supervising such a party or its security-based swap activities, may file an application, pursuant to the procedures set forth in § 240.0-13, requesting that the Commission make a substituted compliance determination pursuant to paragraph (a)(1) of this section, with respect to one or more requirements described in paragraph (d) of this section. (2) Such a party or group of parties may make a request under paragraph (c)(1) of this section only if: (i) Each such party, or the party's activities, is directly supervised by the foreign financial regulatory authority or authorities with respect to the foreign regulatory requirements relating to the applicable requirements described in paragraph (d) of this section; and (ii) Each such party provides the certification and opinion of counsel as described in § 240.15Fb2-4(c), as if the party were subject to that requirement at the time of the request. (3) Such foreign financial authority or authorities may make a request under paragraph (c)(1) of this section only if each such authority provides adequate assurances that no law or policy of any relevant foreign jurisdiction would impede the ability of any entity that is directly supervised by the foreign financial regulatory authority and that may register with the Commission as a security-based swap dealer or major security-based swap participant to provide prompt access to the Commission to such entity's books and records or to submit to onsite inspection or examination by the Commission. (d) Eligible requirements. The Commission may make a substituted compliance determination under paragraph (a)(1) of this section to permit security-based swap entities that are not U.S. persons (as defined in § 240.3a71-3(a)(4)), but not security-based swap entities that are U.S. persons, to satisfy the following requirements by complying with comparable foreign requirements: (1) Business conduct and supervision. The business conduct and supervision requirements of sections 15F(h) and (j) of the Act (15 U.S.C. 78o-10(h) and (j)) and §§ 240.15Fh-3 through 15Fh-6, other than the antifraud provisions of section 15F(h)(4)(A) of the Act and § 240.15Fh-4(a), and other than the provisions of sections 15F(j)(3) and 15F(j)(4)(B) of the Act; provided, however, that prior to making such a substituted compliance determination the Commission intends to consider whether the information that is required to be provided to counterparties pursuant to the requirements of the foreign financial regulatory system, the counterparty protections under the requirements of the foreign financial regulatory system, the mandates for supervisory systems under the requirements of the foreign financial regulatory system, and the duties imposed by the foreign financial regulatory system, are comparable to those associated with the applicable provisions arising under the Act and its rules and regulations. (2) Chief compliance officer. The chief compliance officer requirements of section 15F(k) of the Act (15 U.S.C. 78o-10(k)) and § 240.15Fk-1; provided, however, that prior to making such a substituted compliance determination the Commission intends to consider whether the requirements of the foreign financial regulatory system regarding chief compliance officer obligations are comparable to those required pursuant to the applicable provisions arising under the Act and its rules and regulations. (3) Trade acknowledgment and verification. The trade acknowledgment and verification requirements of section 15F(i) of the Act (15 U.S.C. 78o-10(i)) and § 240.15Fi-2; provided, however, that prior to making such a substituted compliance determination the Commission intends to consider whether the information that is required to be provided pursuant to the requirements of the foreign financial regulatory system, and the manner and timeframe by which that information must be provided, are comparable to those required pursuant to the applicable provisions arising under the Act and its rules and regulations. (4) Capital—(i) Security-based swap dealers. The capital requirements of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and § 240.18a-1; provided, however, that prior to making such substituted compliance determination, the Commission intends to consider (in addition to any conditions imposed) whether the capital requirements of the foreign financial regulatory system are designed to help ensure the safety and soundness of registrants in a manner that is comparable to the applicable provisions arising under the Act and its rules and regulations. (ii) Major security-based swap participants. The capital requirements of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and § 240.18a-2; provided, however, that prior to making such substituted compliance determination, the Commission intends to consider (in addition to any conditions imposed) whether the capital requirements of the foreign financial regulatory system are comparable to the applicable provisions arising under the Act and its rules and regulations. (5) Margin—(i) Security-based swap dealers. The margin requirements of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and § 240.18a-3; provided, however, that prior to making such substituted compliance determination, the Commission intends to consider (in addition to any conditions imposed) whether the foreign financial regulatory system requires registrants to adequately cover their current and potential future exposure to over-the-counter derivatives counterparties, and ensures registrants' safety and soundness, in a manner comparable to the applicable provisions arising under the Act and its rules and regulations. (ii) Major security-based swap participants. The margin requirements of section 15F(e) of the Act (15 U.S.C. 78o-10(e)) and § 240.18a-3; provided, however, that prior to making such substituted compliance determination, the Commission intends to consider (in addition to any conditions imposed) whether the foreign financial regulatory system requires registrants to adequately cover their current exposure to over-the-counter derivatives counterparties, and ensures registrants' safety and soundness, in a manner comparable to the applicable provisions arising under the Act and its rules and regulations. (6) Recordkeeping and reporting. The recordkeeping and reporting requirements of Section 15F of the Act (15 U.S.C. 78o-10) and §§ 240.18a-5 through 240.18a-9; provided, however, that prior to making such a substituted compliance determination the Commission intends to consider (in addition to any conditions imposed), whether the foreign financial regulatory system's required records and reports, the timeframes for recording or reporting information, the accounting standards governing the records and reports, and the required format of the records and reports are comparable to applicable provisions arising under the Act and its rules and regulations and would permit the Commission to examine and inspect regulated firms' compliance with the applicable securities laws. (7) Portfolio reconciliation, portfolio compression, and trading relationship documentation requirements. The portfolio reconciliation, portfolio compression, and trading relationship documentation requirements of section 15F(i) of the Act (15 U.S.C. 78o-10(i)) and §§ 240.15Fi-3 through 240.15Fi-5; provided, however, that prior to making such a substituted compliance determination the Commission intends to consider whether the requirements of the foreign financial regulatory system for engaging in portfolio reconciliation and portfolio compression and for executing trading relationship documentation with counterparties, the duties imposed by the foreign financial regulatory system, and the information that is required to be provided to counterparties pursuant to the requirements of the foreign financial regulatory system, are comparable to those required pursuant to the applicable provisions arising under the Act and its rules and regulations.

§ 240.3b-1 Definition of “listed”. The term listed means admitted to full trading privileges upon application by the issuer or its fiscal agent or, in the case of the securities of a foreign corporation, upon application by a banker engaged in distributing them; and includes securities for which authority to add to the list on official notice of issuance has been granted.

§ 240.3b-2 Definition of “officer”. The term officer means a president, vice president, secretary, treasury or principal financial officer, comptroller or principal accounting officer, and any person routinely performing corresponding functions with respect to any organization whether incorporated or unincorporated.

§ 240.3b-3 [Reserved]

§ 240.3b-4 Definition of “foreign government,” “foreign issuer” and “foreign private issuer”. (a) The term foreign government means the government of any foreign country or of any political subdivision of a foreign country. (b) The term foreign issuer means any issuer which is a foreign government, a national of any foreign country or a corporation or other organization incorporated or organized under the laws of any foreign country. (c) The term foreign private issuer means any foreign issuer other than a foreign government except for an issuer meeting the following conditions as of the last business day of its most recently completed second fiscal quarter: (1) More than 50 percent of the issuer's outstanding voting securities are directly or indirectly held of record by residents of the United States; and (2) Any of the following: (i) The majority of the executive officers or directors are United States citizens or residents; (ii) More than 50 percent of the assets of the issuer are located in the United States; or (iii) The business of the issuer is administered principally in the United States. To determine the percentage of outstanding voting securities held by U.S. residents: A. Use the method of calculating record ownership in § 240.12g3-2(a), except that: (1) Your inquiry as to the amount of shares represented by accounts of customers resident in the United States may be limited to brokers, dealers, banks and other nominees located in: (i) The United States, (ii) Your jurisdiction of incorporation, and (iii) The jurisdiction that is the primary trading market for your voting securities, if different than your jurisdiction of incorporation; and (2) Notwithstanding § 240.12g5-1(a)(8) of this chapter, you shall not exclude securities held by persons who received the securities pursuant to an employee compensation plan. B. If, after reasonable inquiry, you are unable to obtain information about the amount of shares represented by accounts of customers resident in the United States, you may assume, for purposes of this definition, that the customers are residents of the jurisdiction in which the nominee has its principal place of business. C. Count shares of voting securities beneficially owned by residents of the United States as reported on reports of beneficial ownership provided to you or filed publicly and based on information otherwise provided to you. (d) Notwithstanding paragraph (c) of this section, in the case of a new registrant with the Commission, the determination of whether an issuer is a foreign private issuer will be made as of a date within 30 days prior to the issuer's filing of an initial registration statement under either the Act or the Securities Act of 1933. (e) Once an issuer qualifies as a foreign private issuer, it will immediately be able to use the forms and rules designated for foreign private issuers until it fails to qualify for this status at the end of its most recently completed second fiscal quarter. An issuer's determination that it fails to qualify as a foreign private issuer governs its eligibility to use the forms and rules designated for foreign private issuers beginning on the first day of the fiscal year following the determination date. Once an issuer fails to qualify for foreign private issuer status, it will remain unqualified unless it meets the requirements for foreign private issuer status as of the last business day of its second fiscal quarter.

§ 240.3b-5 Non-exempt securities issued under governmental obligations. (a) Any part of an obligation evidenced by any bond, note, debenture, or other evidence of indebtedness issued by any governmental unit specified in section 3(a)(12) of the Act which is payable from payments to be made in respect of property or money which is or will be used, under a lease, sale, or loan arrangement, by or for industrial or commercial enterprise, shall be deemed to be a separate “security” within the meaning of section 3(a)(10) of the Act, issued by the lessee or obligor under the lease, sale or loan arrangement. (b) An obligation shall not be deemed a separate “security” as defined in paragraph (a) of this section if, (1) the obligation is payable from the general revenues of a governmental unit, specified in section 3(a)(12) of the Act, having other resources which may be used for the payment of the obligation, or (2) the obligation relates to a public project or facility owned and operated by or on behalf of and under the control of a governmental unit specified in such section, or (3) the obligation relates to a facility which is leased to and under the control of an industrial or commercial enterprise but is a part of a public project which, as a whole, is owned by and under the general control of a governmental unit specified in such section, or an instrumentality thereof. (c) This rule shall apply to transactions of the character described in paragraph (a) of this section only with respect to bonds, notes, debentures or other evidences of indebtedness sold after December 31, 1968.

§ 240.3b-6 Liability for certain statements by issuers. (a) A statement within the coverage of paragraph (b) of this section which is made by or on behalf of an issuer or by an outside reviewer retained by the issuer shall be deemed not to be a fraudulent statement (as defined in paragraph (d) of this section), unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith. (b) This rule applies to the following statements: (1) A forward-looking statement (as defined in paragraph (c) of this section) made in a document filed with the Commission, in Part I of a quarterly report on Form 10-Q, § 249.308a of this chapter, or in an annual report to security holders meeting the requirements of Rules 14a-3(b) and (c) or 14c-3(a) and (b) (§ 240.14a-3(b) and (c) or § 240.14c-3(a) and (b)), a statement reaffirming such forward-looking statement after the date the document was filed or the annual report was made publicly available, or a forward-looking statement made before the date the document was filed or the date the annual report was made publicly available if such statement is reaffirmed in a filed document, in Part I of a quarterly report on Form 10-Q, or in an annual report made publicly available within a reasonable time after the making of such forward-looking statement; Provided, that: (i) At the time such statements are made or reaffirmed, either the issuer is subject to the reporting requirements of Section 13(a) or 15(d) of the Act and has complied with the requirements of Rule 13a-1 or 15d-1 thereunder, if applicable, to file its most recent annual report on Form 10-K, Form 20-F or Form 40-F; or if the issuer is not subject to the reporting requirements of Section 13(a) or 15(d) of the Act, the statements are made in a registration statement filed under the Securities Act of 1933 offering statement or solicitation of interest, written document or broadcast script under Regulation A or pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934; and (ii) The statements are not made by or on behalf of an issuer that is an investment company registered under the Investment Company Act of 1940; and (2) Information that is disclosed in a document filed with the Commission in Part I of a quarterly report on Form 10-Q (§ 249.308a of this chapter) or in an annual report to security holders meeting the requirements of Rules 14a-3(b) and (c) or 14c-3(a) and (b) under the Act (§ 240.14a-3(b) and (c) or § 240.14c-3(a) and (b) of this chapter) and that relates to: (i) The effects of changing prices on the business enterprise, presented voluntarily or pursuant to Item 303 of Regulation S-K (§ 229.303 of this chapter), “Management's Discussion and Analysis of Financial Condition and Results of Operations,” Item 5 of Form 20-F (§ 240.220(f) of this chapter), “Operating and Financial Review and Prospects,” Item 302 of Regulation S-K (§ 229.302 of this chapter) “Supplementary Financial Information,” or Rule 3-20(c) of Regulation S-X (§ 210.3-20(c) of this chapter); or (ii) The value of proved oil and gas reserves (such as a standardized measure of discounted future net cash flows relating to proved oil and gas reserves as set forth in FASB ASC paragraphs 932-235-50-29 through 932-235-50-36 (Extractive Activities—Oil and Gas Topic)), presented voluntarily or pursuant to Item 302 of Regulation S-K (§ 229.302 of this chapter). (c) For the purpose of this rule, the term forward-looking statement shall mean and shall be limited to: (1) A statement containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure or other financial items; (2) A statement of management's plans and objectives for future operations; (3) A statement of future economic performance contained in management's discussion and analysis of financial condition and results of operations included pursuant to Item 303 of Regulation S-K (§ 229.303 of this chapter) or Item 5 of Form 20-F or (4) Disclosed statements of the assumptions underlying or relating to any of the statements described in paragraphs (c) (1), (2), or (3) of this section. (d) For the purpose of this rule the term fraudulent statement shall mean a statement which is an untrue statement of a material fact, a statement false or misleading with respect to any material fact, an omission to state a material fact necessary to make a statement not misleading, or which constitutes the employment of a manipulative, deceptive, or fraudulent device, contrivance, scheme, transaction, act, practice, course of business, or an artifice to defraud, as those terms are used in the Securities Exchange Act of 1934 or the rules or regulations promulgated thereunder.

§ 240.3b-7 Definition of “executive officer”. The term executive officer, when used with reference to a registrant, means its president, any vice president of the registrant in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the registrant. Executive officers of subsidiaries may be deemed executive officers of the registrant if they perform such policy making functions for the registrant.

§ 240.3b-8 Definitions of “Qualified OTC Market Maker, Qualified Third Market Maker” and “Qualified Block Positioner”. For the purposes of Regulation U under the Act (12 CFR part 221): (a) The term Qualified OTC Market Maker in an over-the-counter (“OTC”) margin security means a dealer in any “OTC Margin Security” (as that term is defined in section 2(j) of Regulation U (12 CFR 221.2(j)) who (1) is a broker or dealer registered pursuant to section 15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as defined in Rule 15c3-1, of the lesser of (i) $250,000 or (ii) $25,000 plus $5,000 for each security in excess of five with regard to which the broker or dealer is, or is seeking to become a Qualified OTC Market Maker, and (4) except when such activity is unlawful, meets all of the following conditions with respect to such security: (i) He regularly publishes bona fide, competitive bid and offer quotations in a recognized inter-dealer quotation system, (ii) he furnishes bona fide, competitive bid and offer quotations to other brokers and dealers on request, (iii) he is ready, willing and able to effect transactions in reasonable amounts, and at his quoted prices, with other brokers and dealers, and (iv) he has a reasonable average rate of inventory turnover in such security. (b) The term Qualified Third Market Maker means a dealer in any stock registered on a national securities exchange (“exchange”) who (1) is a broker or dealer registered pursuant to section 15 of the Act, (2) is subject to and is in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as defined in Rule 15c3-1, of the lesser of (i) $500,000 or (ii) $100,000 plus $20,000 for each security in excess of five with regard to which the broker or dealer is, or is seeking to become, a Qualified Third Market Maker, and (4) except when such activity is unlawful, meets all of the following conditions with respect to such security: (i) He furnishes bona fide, competitive bid and offer quotations at all times to other brokers and dealers on request, (ii) he is ready, willing and able to effect transactions for his own account in reasonable amounts, and at his quoted prices with other brokers and dealers, and (iii) he has a reasonable average rate of inventory turnover in such security. (c) The term Qualified Block Positioner means a dealer who (1) is a broker or dealer registered pursuant to section 15 of the Act, (2) is subject to and in compliance with Rule 15c3-1 (17 CFR 240.15c3-1), (3) has and maintains minimum net capital, as defined in Rule 15c3-1 of $1,000,000 and (4) except when such activity is unlawful, meets all of the following conditions: (i) He engages in the activity of purchasing long or selling short, from time to time, from or to a customer (other than a partner or a joint venture or other entity in which a partner, the dealer, or a person associated with such dealer, as defined in section 3(a) (18) of the Act, participates) a block of stock with a current market value of $200,000 or more in a single transaction, or in several transactions at approximately the same time, from a single source to facilitate a sale or purchase by such customer, (ii) he has determined in the exercise of reasonable diligence that the block could not be sold to or purchased from others on equivalent or better terms, and (iii) he sells the shares comprising the block as rapidly as possible commensurate with the circumstances.

§§ 240.3b-9—240.3b-10 §§ 240.3b-9--240.3b-10 [Reserved]

§ 240.3b-11 Definitions relating to limited partnership roll-up transactions for purposes of sections 6(b)(9), 14(h) and 15A(b)(12)-(13). For purposes of sections 6(b)(9), 14(h) and 15A(b)(12)-(13) of the Act (15 U.S.C. 78f(b)(9), 78n(h) and 78o-3(b)(12)-(13)): (a) The term limited partnership roll-up transaction does not include a transaction involving only entities that are not “finite-life” as defined in Item 901(b)(2) of Regulation S-K (§ 229.901(b)(2) of this chapter). (b) The term limited partnership roll-up transaction does not include a transaction involving only entities registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or any Business Development Company as defined in section 2(a)(48) of that Act (15 U.S.C. 80a-2(a)(48)). (c) The term regularly traded shall be defined as in Item 901(c)(2)(v)(C) of Regulation S-K (§ 229.901(c)(2)(v)(C) of this chapter).

§ 240.3b-12 Definition of OTC derivatives dealer. The term OTC derivatives dealer means any dealer that is affiliated with a registered broker or dealer (other than an OTC derivatives dealer), and whose securities activities: (a) Are limited to: (1) Engaging in dealer activities in eligible OTC derivative instruments that are securities; (2) Issuing and reacquiring securities that are issued by the dealer, including warrants on securities, hybrid securities, and structured notes; (3) Engaging in cash management securities activities; (4) Engaging in ancillary portfolio management securities activities; and (5) Engaging in such other securities activities that the Commission designates by order pursuant to § 240.15a-1(b)(1); and (b) Consist primarily of the activities described in paragraphs (a)(1), (a)(2), and (a)(3) of this section; and (c) Do not consist of any other securities activities, including engaging in any transaction in any security that is not an eligible OTC derivative instrument, except as permitted under paragraphs (a)(3), (a)(4), and (a)(5) of this section. (d) For purposes of this section, the term hybrid security means a security that incorporates payment features economically similar to options, forwards, futures, swap agreements, or collars involving currencies, interest or other rates, commodities, securities, indices, quantitative measures, or other financial or economic interests or property of any kind, or any payment or delivery that is dependent on the occurrence or nonoccurrence of any event associated with a potential financial, economic, or commercial consequence (or any combination, permutation, or derivative of such contract or underlying interest).

§ 240.3b-13 Definition of eligible OTC derivative instrument. (a) Except as otherwise provided in paragraph (b) of this section, the term eligible OTC derivative instrument means any contract, agreement, or transaction that: (1) Provides, in whole or in part, on a firm or contingent basis, for the purchase or sale of, or is based on the value of, or any interest in, one or more commodities, securities, currencies, interest or other rates, indices, quantitative measures, or other financial or economic interests or property of any kind; or (2) Involves any payment or delivery that is dependent on the occurrence or nonoccurrence of any event associated with a potential financial, economic, or commercial consequence; or (3) Involves any combination or permutation of any contract, agreement, or transaction or underlying interest, property, or event described in paragraphs (a)(1) or (a)(2) of this section. (b) The term eligible OTC derivative instrument does not include any contract, agreement, or transaction that: (1) Provides for the purchase or sale of a security, on a firm basis, unless: (i) The settlement date for such purchase or sale occurs at least one year following the trade date or, in the case of an eligible forward contract, at least four months following the trade date; or (ii) The material economic features of the contract, agreement, or transaction consist primarily of features of a type described in paragraph (a) of this section other than the provision for the purchase or sale of a security on a firm basis; or (2) Provides, in whole or in part, on a firm or contingent basis, for the purchase or sale of, or is based on the value of, or any interest in, any security (or group or index of securities), and is: (i) Listed on, or traded on or through, a national securities exchange or registered national securities association, or facility or market thereof; or (ii) Except as otherwise determined by the Commission by order pursuant to § 240.15a-1(b)(2), one of a class of fungible instruments that are standardized as to their material economic terms. (c) The Commission may issue an order pursuant to § 240.15a-1(b)(3) clarifying whether certain contracts, agreements, or transactions are within the scope of eligible OTC derivative instrument. (d) For purposes of this section, the term eligible forward contract means a forward contract that provides for the purchase or sale of a security other than a government security, provided that, if such contract provides for the purchase or sale of margin stock (as defined in Regulation U of the Regulations of the Board of Governors of the Federal Reserve System, 12 CFR Part 221), such contract either: (1) Provides for the purchase or sale of such stock by the issuer thereof (or an affiliate that is not a bank or a broker or dealer); or (2) Provides for the transfer of transaction collateral in an amount that would satisfy the requirements, if any, that would be applicable assuming the OTC derivatives dealer party to such transaction were not eligible for the exemption from Regulation T of the Regulations of the Board of Governors of the Federal Reserve System, 12 CFR part 220, set forth in § 240.36a1-1.

§ 240.3b-14 Definition of cash management securities activities. The term cash management securities activities means securities activities that are limited to transactions involving: (a) Any taking possession of, and any subsequent sale or disposition of, collateral provided by a counterparty, or any acquisition of, and any subsequent sale or disposition of, collateral to be provided to a counterparty, in connection with any securities activities of the dealer permitted under § 240.15a-1 or any non-securities activities of the dealer that involve eligible OTC derivative instruments or other financial instruments; (b) Cash management, in connection with any securities activities of the dealer permitted under § 240.15a-1 or any non-securities activities of the dealer that involve eligible OTC derivative instruments or other financial instruments; or (c) Financing of positions of the dealer acquired in connection with any securities activities of the dealer permitted under § 240.15a-1 or any non-securities activities that involve eligible OTC derivative instruments or other financial instruments.

§ 240.3b-15 Definition of ancillary portfolio management securities activities. (a) The term ancillary portfolio management securities activities means securities activities that: (1) Are limited to transactions in connection with: (i) Dealer activities in eligible OTC derivative instruments; (ii) The issuance of securities by the dealer; or (iii) Such other securities activities that the Commission designates by order pursuant to § 240.15a-1(b)(1); and (2) Are conducted for the purpose of reducing the market or credit risk of the dealer or consist of incidental trading activities for portfolio management purposes; and (3) Are limited to risk exposures within the market, credit, leverage, and liquidity risk parameters set forth in: (i) The trading authorizations granted to the associated person (or to the supervisor of such associated person) who executes a particular transaction for, or on behalf of, the dealer; and (ii) The written guidelines approved by the governing body of the dealer and included in the internal risk management control system for the dealer pursuant to § 240.15c3-4; and (4) Are conducted solely by one or more associated persons of the dealer who perform substantial duties for, or on behalf of, the dealer in connection with its dealer activities in eligible OTC derivative instruments. (b) The Commission may issue an order pursuant to § 240.15a-1(b)(4) clarifying whether certain securities activities are within the scope of ancillary portfolio management securities activities.

§ 240.3b-16 Definitions of terms used in Section 3(a)(1) of the Act. (a) An organization, association, or group of persons shall be considered to constitute, maintain, or provide “a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,” as those terms are used in section 3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)), if such organization, association, or group of persons: (1) Brings together the orders for securities of multiple buyers and sellers; and (2) Uses established, non-discretionary methods (whether by providing a trading facility or by setting rules) under which such orders interact with each other, and the buyers and sellers entering such orders agree to the terms of a trade. (b) An organization, association, or group of persons shall not be considered to constitute, maintain, or provide “a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange,” solely because such organization, association, or group of persons engages in one or more of the following activities: (1) Routes orders to a national securities exchange, a market operated by a national securities association, or a broker-dealer for execution; or (2) Allows persons to enter orders for execution against the bids and offers of a single dealer; and (i) As an incidental part of these activities, matches orders that are not displayed to any person other than the dealer and its employees; or (ii) In the course of acting as a market maker registered with a self-regulatory organization, displays the limit orders of such market maker's, or other broker-dealer's, customers; and (A) Matches customer orders with such displayed limit orders; and (B) As an incidental part of its market making activities, crosses or matches orders that are not displayed to any person other than the market maker and its employees. (c) For purposes of this section the term order means any firm indication of a willingness to buy or sell a security, as either principal or agent, including any bid or offer quotation, market order, limit order, or other priced order. (d) For the purposes of this section, the terms bid and offer shall have the same meaning as under § 242.600 of this chapter. (e) The Commission may conditionally or unconditionally exempt any organization, association, or group of persons from the definition in paragraph (a) of this section.

§ 240.3b-17 [Reserved]

§ 240.3b-18 Definitions of terms used in Section 3(a)(5) of the Act. For the purposes of section 3(a)(5)(C) of the Act (15 U.S.C. 78c(a)(5)(C): (a) The term affiliate means any company that controls, is controlled by, or is under common control with another company. (b) The term consumer-related receivable means any obligation incurred by any natural person to pay money arising out of a transaction in which the money, property, insurance, or services (being purchased) are primarily for personal, family, or household purposes. (c) The term member as it relates to the term “syndicate of banks” means a bank that is a participant in a syndicate of banks and together with its affiliates, other than its broker or dealer affiliates, originates no less than 10% of the value of the obligations in a pool of obligations used to back the securities issued through a grantor trust or other separate entity. (d) The term obligation means any note, draft, acceptance, loan, lease, receivable, or other evidence of indebtedness that is not a security issued by a person other than the bank. (e) The term originated means: (1) Funding an obligation at the time that the obligation is created; or (2) Initially approving and underwriting the obligation, or initially agreeing to purchase the obligation, provided that: (i) The obligation conforms to the underwriting standards or is evidenced by the loan documents of the bank or its affiliates, other than its broker or dealer affiliates; and (ii) The bank or its affiliates, other than its broker or dealer affiliates, fund the obligation in a timely manner, not to exceed six months after the obligation is created. (f) The term pool means more than one obligation or type of obligation grouped together to provide collateral for a securities offering. (g) The term predominantly originated means that no less than 85% of the value of the obligations in any pool were originated by: (1) The bank or its affiliates, other than its broker or dealer affiliates; or (2) Banks that are members of a syndicate of banks and affiliates of such banks, other than their broker or dealer affiliates, if the obligations or pool of obligations consist of mortgage obligations or consumer-related receivables. (3) For this purpose, the bank and its affiliates include any financial institution with which the bank or its affiliates have merged but does not include the purchase of a pool of obligations or the purchase of a line of business. (h) The term syndicate of banks means a group of banks that acts jointly, on a temporary basis, to issue through a grantor trust or other separate entity, securities backed by obligations originated by each of the individual banks or their affiliates, other than their broker or dealer affiliates.

§ 240.3b-19 Definition of “issuer” in section 3(a)(8) of the Act in relation to asset-backed securities. The following applies with respect to asset-backed securities under the Act. Terms used in this section have the same meaning as in Item 1101 of Regulation AB (§ 229.1101 of this chapter). (a) The depositor for the asset-backed securities acting solely in its capacity as depositor to the issuing entity is the “issuer” for purposes of the asset-backed securities of that issuing entity. (b) The person acting in the capacity as the depositor specified in paragraph (a) of this section is a different “issuer” from that same person acting as a depositor for another issuing entity or for purposes of that person's own securities.

§ 240.3Ca-1 Stay of clearing requirement and review by the Commission. (a) After making a determination pursuant to a clearing agency's security-based swap submission that a security-based swap, or any group, category, type or class of security-based swaps, is required to be cleared, the Commission, on application of a counterparty to a security-based swap or on the Commission's own initiative, may stay the clearing requirement until the Commission completes a review of the terms of the security-based swap (or group, category, type, or class of security-based swaps) and the clearing of the security-based swap (or group, category, type, or class of security-based swaps) by the clearing agency that has accepted it for clearing. (b) A counterparty to a security-based swap applying for a stay of the clearing requirement for a security-based swap (or group, category, type, or class of security-based swaps) shall submit a written statement to the Commission that includes: (1) A request for a stay of the clearing requirement; (2) The identity of the counterparties to the security-based swap and a contact at the counterparty requesting the stay; (3) The identity of the clearing agency clearing the security-based swap; (4) The terms of the security-based swap subject to the clearing requirement and a description of the clearing arrangement; and (5) Reasons why such stay should be granted and why the security-based swap should not be subject to a clearing requirement, specifically addressing the same factors a clearing agency must address in its security-based-swap submission pursuant to § 240.19b-4(o)(3). (c) A stay of the clearing requirement may be granted with respect to a security-based swap, or the group, category, type, or class of security-based swaps, as determined by the Commission. (d) The Commission's review shall include a quantitative and qualitative assessment of the factors specified in § 240.19b-4(o)(3). Any clearing agency that has accepted for clearing a security-based swap, or any group, category, type or class of security-based swaps, that is subject to the stay of the clearing requirement shall provide information requested by the Commission as necessary to assess any of the factors it determines to be appropriate in the course of its review. (e) Upon completion of its review, the Commission may: (1) Determine, subject to any terms and conditions that the Commission determines to be appropriate in the public interest, that the security-based swap, or group, category, type, or class of security-based swaps must be cleared; or (2) Determine that the clearing requirement will not apply to the security-based swap, or group, category, type, or class of security-based swaps, but clearing may continue on a non-mandatory basis.

§ 240.3Ca-2 Submission of security-based swaps for clearing. Pursuant to section 3C(a)(1) of the Act (15 U.S.C. 78c-3(a)(1)), it shall be unlawful for any person to engage in a security-based swap unless that person submits such security-based swap for clearing to a clearing agency that is registered under this Act or a clearing agency that is exempt from registration under the Act if the security-based swap is required to be cleared. The phrase submits such security-based swap for clearing to a clearing agency in the clearing requirement of Section 3C(a)(1) of the Act shall mean that the security-based swap will be submitted for central clearing to a clearing agency that functions as a central counterparty.

§ 240.6a-1 Application for registration as a national securities exchange or exemption from registration based on limited volume. (a) An application for registration as a national securities exchange, or for exemption from such registration based on limited volume, shall be filed on Form 1 (§ 249.1 of this chapter), in accordance with the instructions contained therein. (b) Promptly after the discovery that any information filed on Form 1 was inaccurate when filed, the exchange shall file with the Commission an amendment correcting such inaccuracy. (c) Promptly after the discovery that any information in the statement, any exhibit, or any amendment was inaccurate when filed, the exchange shall file with the Commission an amendment correcting such inaccuracy. (d) Whenever the number of changes to be reported in an amendment, or the number of amendments filed, are so great that the purpose of clarity will be promoted by the filing of a new complete statement and exhibits, an exchange may, at its election, or shall, upon request of the Commission, file as an amendment a complete new statement together with all exhibits which are prescribed to be filed in connection with Form 1. (e) Filings on Form 1 (§ 249.1 of this chapter) submitted pursuant to this chapter shall be filed electronically on EDGAR in accordance with the requirements of 17 CFR part 232 (Regulation S-T). Except as otherwise specified on Form 1, the disclosure required to be included in Exhibits D, E, and I must be provided as an Interactive Data File in accordance with § 232.405 of this chapter (Rule 405 of Regulation S-T).

§ 240.6a-2 Amendments to application. (a) A national securities exchange, or an exchange exempted from such registration based on limited volume, shall electronically file an amendment to Form 1 (§ 249.1 of this chapter), in accordance with § 240.6a-1(e), which shall set forth the nature and effective date of the action taken and shall provide any new information and correct any information rendered inaccurate, on Form 1 (§ 249.1 of this chapter), within 10 days after any action is taken that renders inaccurate, or that causes to be incomplete, any of the following: (1) Information filed on Sections I and II of Form 1, or amendment thereto; or (2) Information filed as part of Exhibits C, F, G, H, J, K or M, or any amendments thereto. (b) On or before June 30 of each year, a national securities exchange, or an exchange exempted from such registration based on limited volume, shall electronically file, as an amendment to Form 1, in accordance with § 240.6a-1(e), the following: (1) Exhibits D and I as of the end of the latest fiscal year of the exchange; and (2) Exhibits K, M, and N, which shall be up to date as of the latest date practicable within 3 months of the date the amendment is filed. (c) On or before June 30, 2025, and every three years thereafter, a national securities exchange, or an exchange exempted from such registration based on limited volume, shall electronically file, as an amendment to Form 1, in accordance with § 240.6a-1(e), complete Exhibits A, B, C, and J. The information filed under this paragraph (c) shall be current as of the latest practicable date, but shall, at a minimum, be up to date within 3 months as of the date the amendment is filed. (d)(1) If an exchange, on an annual or more frequent basis, publishes, or cooperates in the publication of, any of the information required to be filed by paragraphs (b)(2) and (c) of this section, in lieu of filing such information, an exchange may: (i) Identify on Form 1 the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price of such publication; and (ii) Certify on Form 1 to the accuracy of such information as of its publication date. (2) If an exchange keeps the information required under paragraphs (b)(2) and (c) of this section up to date and makes it available to the Commission and the public upon request, in lieu of filing such information, an exchange may certify on Form 1 that the information is kept up to date and is available to the Commission and the public upon request. (3) If the information required to be filed under paragraphs (b)(2) and (c) of this section is available continuously on an internet website controlled by an exchange, in lieu of filing such information with the Commission, such exchange may: (i) Provide on Form 1 the Uniform Resource Locator(s) (URL(s)) of the location(s) on the internet website where such information may be found; and (ii) Certify on Form 1 that the information available at such location(s) is accurate as of its date and is free and accessible (without any encumbrances or restrictions) by the general public. (e) The Commission may exempt a national securities exchange, or an exchange exempted from such registration based on limited volume, from filing the amendment required by this section for any affiliate or subsidiary listed in Exhibit C of the exchange's application for registration, as amended, that either: (1) Is listed in Exhibit C of the application for registration or notice of registration, as amended, of one or more other national securities exchanges; or (2) Was an inactive subsidiary throughout the subsidiary's latest fiscal year. Any such exemption may be granted upon terms and conditions the Commission deems necessary or appropriate in the public interest or for the protection of investors, provided however, that at least one national securities exchange shall be required to file the amendments required by this section for an affiliate or subsidiary described in paragraph (e)(1) of this section. (f) A national securities exchange registered pursuant to Section 6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) shall be exempt from the requirements of this section.

§ 240.6a-3 Supplemental material to be filed by exchanges. (a)(1) A national securities exchange, or an exchange exempted from such registration based on limited volume, shall file with the Commission any material (including notices, circulars, bulletins, lists, and periodicals) issued or made generally available to members of, or participants or subscribers to, the exchange. Such material shall be electronically filed with the Commission on Form 1 (§ 249.1 of this chapter), in accordance with § 240.6a-1(e), within 10 days after issuing or making such material available to members, participants or subscribers. (2) If the information required to be filed under paragraph (a)(1) of this section is available continuously on an internet website controlled by an exchange, in lieu of filing such information with the Commission, such exchange may: (i) Provide on Form 1 the Uniform Resource Locator(s) (URL(s)) of the location(s) on the internet website where such information may be found; and (ii) Certify on Form 1 that the information available at such location(s) is accurate as of its date and is free and accessible (without any encumbrances or restrictions) by the general public. (b) Within 15 days after the end of each calendar month, a national securities exchange or an exchange exempted from such registration based on limited volume, shall electronically file on Form 1 (§ 249.1 of this chapter), in accordance with § 240.6a-1(e), a report concerning the securities sold on such exchange during the calendar month. Such report shall set forth: (1) The number of shares of stock sold and the aggregate dollar amount of such stock sold; (2) The principal amount of bonds sold and the aggregate dollar amount of such bonds sold; and (3) The number of rights and warrants sold and the aggregate dollar amount of such rights and warrants sold. (c) A national securities exchange registered pursuant to Section 6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) shall be exempt from the requirements of this section.

§ 240.6a-4 Notice of registration under Section 6(g) of the Act, amendment to such notice, and supplemental materials to be filed by exchanges registered under Section 6(g) of the Act. (a) Notice of registration. (1) An exchange may register as a national securities exchange solely for the purposes of trading security futures products by filing Form 1-N (§ 249.10 of this chapter) (“notice of registration”), in accordance with the instructions contained therein, if: (i) The exchange is a board of trade, as that term is defined in the Commodity Exchange Act (7 U.S.C. 1a(6)), that: (A) Has been designated a contract market by the Commodity Futures Trading Commission and such designation is not suspended by order of the Commodity Futures Trading Commission; or (B) Is registered as a derivative transaction execution facility under Section 6(a) of the Commodity Exchange Act (7 U.S.C. 8(a)) and such registration is not suspended by the Commodity Futures Trading Commission; and (ii) Such exchange does not serve as a marketplace for transactions in securities other than: (A) Security futures products; or (B) Futures on exempted securities or on groups or indexes of securities or options thereon that have been authorized under Section 2(a)(1)(C) of the Commodity Exchange Act (7 U.S.C. 2(a)(1)(C)). (2) Promptly after the discovery that any information filed on Form 1-N (§ 249.10 of this chapter) was inaccurate when filed, the exchange shall file with the Commission an amendment correcting such inaccuracy. (b) Amendment to notice of registration. (1) A national securities exchange registered pursuant to Section 6(g)(1) of the Act (15 U.S.C. 78f(g)(1)) (“Security Futures Product Exchange”) shall file an amendment to Form 1-N (§ 249.10 of this chapter), which shall set forth the nature and effective date of the action taken and shall provide any new information and correct any information rendered inaccurate, on Form 1-N (§ 249.10 of this chapter), within: (i) Ten days after any action is taken that renders inaccurate, or that causes to be incomplete, any information filed on Sections I through III of Form 1-N (§ 249.10 of this chapter), or amendment thereto; or (ii) 30 days after any action is taken that renders inaccurate, or that causes to be incomplete, any information filed as part of Exhibit F to Form 1-N (§ 249.10 of this chapter), or any amendments thereto. (2) A Security Futures Product Exchange shall maintain records relating to changes in information required in Exhibits C and E to Form 1-N (§ 249.10 of this chapter) which shall be current of as of the latest practicable date, but shall, at a minimum, be up-to-date within 30 days. A Security Futures Product Exchange shall make such records available to the Commission and the public upon request. (3) On or before June 30, 2023, and by June 30 every year thereafter, a Security Futures Product Exchange shall file, as an amendment to Form 1-N (§ 249.10 of this chapter), Exhibits F, H, and I, which shall be current as of the latest practicable date, but shall, at a minimum, be up to date within three months as of the date the amendment is filed. (4) On or before June 30, 2025, and by June 30 every three years thereafter, a Security Futures Product Exchange shall file, as an amendment to Form 1-N (§ 249.10 of this chapter), complete Exhibits A, B, C, and E, which shall be current as of the latest practicable date, but shall, at a minimum, be up to date within three months as of the date the amendment is filed. (5)(i) If a Security Futures Product Exchange, on an annual or more frequent basis, publishes, or cooperates in the publication of, any of the information required to be filed by paragraphs (b)(3) and (4) of this section, in lieu of filing such information, a Security Futures Product Exchange may: (A) Identify on Form 1-N the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price of such publication; and (B) Certify on Form 1-N to the accuracy of such information as of its publication date. (ii) If a Security Futures Product Exchange keeps the information required under paragraphs (b)(3) and (4) of this section up to date and makes it available to the Commission and the public upon request, in lieu of filing such information, a Security Futures Product Exchange may certify on Form 1-N that the information is kept up to date and is available to the Commission and the public upon request. (iii) If the information required to be filed under paragraphs (b)(3) and (4) of this section is available continuously on an internet website controlled by a Security Futures Product Exchange, in lieu of filing such information with the Commission, such Security Futures Product Exchange may: (A) Provide on Form 1-N the Uniform Resource Locator(s) (URL(s)) of the location(s) of the internet website where such information may be found; and (B) Certify on Form 1-N that the information available at such location(s) is accurate as of its date and is free and accessible (without any encumbrances or restrictions) by the general public. (6)(i) The Commission may exempt a Security Futures Product Exchange from filing the amendment required by this section for any affiliate or subsidiary listed in Exhibit C to Form 1-N (§ 249.10 of this chapter), as amended, that either: (A) Is listed in Exhibit C to Form 1 (§ 249.1 of this chapter) or to Form 1-N (§ 249.10 of this chapter), as amended, of one or more other national securities exchanges; or (B) Was an inactive affiliate or subsidiary throughout the affiliate's or subsidiary's latest fiscal year. (ii) Any such exemption may be granted upon terms and conditions the Commission deems necessary or appropriate in the public interest or for the protection of investors, provided however, that at least one national securities exchange shall be required to file the amendments required by this section for an affiliate or subsidiary described in paragraph (b)(6)(i) of this section. (7) If a Security Futures Product Exchange has filed documents with the Commodity Futures Trading Commission, to the extent that such documents contain information satisfying the Commission's informational requirements, copies of such documents may be filed with the Commission in lieu of the required written notice. (c) Supplemental material to be filed by Security Futures Product Exchanges. (1)(i) A Security Futures Product Exchange shall file with the Commission any material related to the trading of security futures products (including notices, circulars, bulletins, lists, and periodicals) issued or made generally available to members of, participants in, or subscribers to, the exchange. Such material shall be filed with the Commission within ten days after issuing or making such material available to members, participants, or subscribers. (ii) If the information required to be filed under paragraph (c)(1)(i) of this section is available continuously on an internet website controlled by an exchange, in lieu of filing such information with the Commission, such exchange may: (A) Provide on Form 1-N the Uniform Resource Locator(s) (URL(s)) of the location(s) of the internet website where such information may be found; and (B) Certify on Form 1-N that the information available at such location(s) is accurate as of its date and is free and accessible (without any encumbrances or restrictions) by the general public. (2) Within 15 days after the end of each calendar month, a Security Futures Product Exchange shall file a report concerning the security futures products traded on such exchange during the previous calendar month. Such a report shall state: (i) For each contract of sale for future delivery of a single security, the number of contracts traded on such exchange during the relevant calendar month and the total number of shares underlying such contracts traded; and (ii) For each contract of sale for future delivery of a narrow-based security index, the number of contracts traded on such exchange during the relevant calendar month and the total number of shares represented by the index underlying such contracts traded. (d) Filings on Form 1-N (§ 249.10 of this chapter) submitted pursuant to this section shall be filed electronically on EDGAR in accordance with the requirements of 17 CFR part 232 (Regulation S-T).

§ 240.6h-1 Settlement and regulatory halt requirements for security futures products. (a) For the purposes of this section: (1) Opening price means the price at which a security opened for trading, or a price that fairly reflects the price at which a security opened for trading, during the regular trading session of the national securities exchange or national securities association that lists the security. If the security is not listed on a national securities exchange or a national securities association, then opening price shall mean the price at which a security opened for trading, or a price that fairly reflects the price at which a security opened for trading, on the primary market for the security. (2) Regular trading session of a security means the normal hours for business of a national securities exchange or national securities association that lists the security. (3) Regulatory halt means a delay, halt, or suspension in the trading of a security, that is instituted by the national securities exchange or national securities association that lists the security, as a result of: (i) A determination that there are matters relating to the security or issuer that have not been adequately disclosed to the public, or that there are regulatory problems relating to the security which should be clarified before trading is permitted to continue; or (ii) The operation of circuit breaker procedures to halt or suspend trading in all equity securities trading on that national securities exchange or national securities association. (b) Final settlement prices for security futures products. (1) The final settlement price of a cash-settled security futures product must fairly reflect the opening price of the underlying security or securities. (2) Notwithstanding paragraph (b)(1) of this section, if an opening price for one or more securities underlying a security futures product is not readily available, the final settlement price of the security futures product shall fairly reflect: (i) The price of the underlying security or securities during the most recent regular trading session for such security or securities; or (ii) The next available opening price of the underlying security or securities. (3) Notwithstanding paragraph (b)(1) or (b)(2) of this section, if a clearing agency registered under Section 17A of the Act (15 U.S.C. 78q-1), or exempt from registration pursuant to Section 17A(b)(7) of the Act (15 U.S.C. 78q-1(b)(7)), to which the final settlement price of a security futures product is or would be reported determines, pursuant to its rules, that such final settlement price is not consistent with the protection of investors and the public interest, taking into account such factors as fairness to buyers and sellers of the affected security futures product, the maintenance of a fair and orderly market in such security futures product, and consistency of interpretation and practice, the clearing agency shall have the authority to determine, under its rules, a final settlement price for such security futures product. (c) Regulatory trading halts. The rules of a national securities exchange or national securities association registered pursuant to Section 15A(a) of the Act (15 U.S.C. 78o-3(a)) that lists or trades one or more security futures products must include the following provisions: (1) Trading of a security futures product based on a single security shall be halted at all times that a regulatory halt has been instituted for the underlying security; and (2) Trading of a security futures product based on a narrow-based security index shall be halted at all times that a regulatory halt has been instituted for one or more underlying securities that constitute 50 percent or more of the market capitalization of the narrow-based security index. (d) The Commission may exempt from the requirements of this section, either unconditionally or on specified terms and conditions, any national securities exchange or national securities association, if the Commission determines that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors. An exemption granted pursuant to this paragraph shall not operate as an exemption from any Commodity Futures Trading Commission rules. Any exemption that may be required from such rules must be obtained separately from the Commodity Futures Trading Commission.

§ 240.6h-2 Security future based on note, bond, debenture, or evidence of indebtedness. A security future may be based upon a security that is a note, bond, debenture, or evidence of indebtedness or a narrow-based security index composed of such securities.

§ 240.7c2-1 [Reserved]

§ 240.8c-1 Hypothecation of customers' securities. (a) General provisions. No member of a national securities exchange, and no broker or dealer who transacts a business in securities through the medium of any such member shall, directly or indirectly, hypothecate or arrange for or permit the continued hypothecation of any securities carried for the account of any customer under circumstances: (1) That will permit the commingling of securities carried for the account of any such customer with securities carried for the account of any other customer, without first obtaining the written consent of each such customer to such hypothecation; (2) That will permit such securities to be commingled with securities carried for the account of any person other than a bona fide customer of such member, broker or dealer under a lien for a loan made to such member, broker or dealer; or (3) That will permit securities carried for the account of customers to be hypothecated or subjected to any lien or liens or claim or claims of the pledges or pledgees, for a sum which exceeds the aggregate indebtedness of all customers in respect of securities carried for their accounts; except that this clause shall not be deemed to be violated by reason of an excess arising on any day through the reduction of the aggregate indebtedness of customers on such day, provided that funds or securities in an amount sufficient to eliminate such excess are paid or placed in transfer to pledgees for the purpose of reducing the sum of the liens or claims to which securities carried for the account of customers are subjected as promptly as practicable after such reduction occurs, but before the lapse of one-half hour after the commencement of banking hours on the next banking day at the place where the largest principal amount of loans of such member, broker or dealer are payable and, in any event, before such member, broker or dealer on such day has obtained or increased any bank loan collateralized by securities carried for the account of customers. (b) Definitions. For the purposes of this section: (1) The term customer shall not include any general or special partner or any director or officer of such member, broker or dealer, or any participant, as such, in any joint, group or syndicate account with such member, broker or dealer or with any partner, officer or director thereof. The term also shall not include any counterparty who has delivered collateral to an OTC derivatives dealer pursuant to a transaction in an eligible OTC derivative instrument, or pursuant to the OTC derivatives dealer's cash management securities activities or ancillary portfolio management securities activities, and who has received a prominent written notice from the OTC derivatives dealer that: (i) Except as otherwise agreed in writing by the OTC derivatives dealer and the counterparty, the dealer may repledge or otherwise use the collateral in its business; (ii) In the event of the OTC derivatives dealer's failure, the counterparty will likely be considered an unsecured creditor of the dealer as to that collateral; (iii) The Securities Investor Protection Act of 1970 (15 U.S.C. 78aaa through 78lll) does not protect the counterparty; and (iv) The collateral will not be subject to the requirements of § 240.8c-1, § 240.15c2-1, § 240.15c3-2, or § 240.15c3-3; (2) The term securities carried for the account of any customer shall be deemed to mean: (i) Securities received by or on behalf of such member, broker or dealer for the account of any customer; (ii) Securities sold and appropriated by such member, broker or dealer to a customer, except that if such securities were subject to a lien when appropriated to a customer they shall not be deemed to be “securities carried for the account of any customer” pending their release from such lien as promptly as practicable: (iii) Securities sold, but not appropriated, by such member, broker or dealer to a customer who has made any payment therefor, to the extent that such member, broker or dealer owns and has received delivery of securities of like kind, except that if such securities were subject to a lien when such payment was made they shall not be deemed to be “securities carried for the account of any customer” pending their release from such lien as promptly as practicable: (3) “Aggregate indebtedness” shall not be deemed to be reduced by reason of uncollected items. In computing aggregate indebtedness, related guaranteed and guarantor accounts shall be treated as a single account and considered on a consolidated basis, and balances in accounts carrying both long and short positions shall be adjusted by treating the market value of the securities required to cover such short positions as though such market value were a debit; and (4) In computing the sum of the liens or claims to which securities carried for the account of customers of a member, broker or dealer are subject, any rehypothecation of such securities by another member, broker or dealer who is subject to this section or to § 240.15c2-1 shall be disregarded. (c) Exemption for cash accounts. The provisions of paragraph (a)(1) of this section shall not apply to any hypothecation of securities carried for the account of a customer in a special cash account within the meaning of 12 CFR 220.4(c): Provided, That at or before the completion of the transaction of purchase of such securities for, or of sale of such securities to, such customer, written notice is given or sent to such customer disclosing that such securities are or may be hypothecated under circumstances which will permit the commingling thereof with securities carried for the account of other customers. The term the completion of the transaction shall have the meaning given to such term by § 240.15c1-1(b). (d) Exemption for clearinghouse liens. The provisions of paragraphs (a)(2), (a)(3), and (f) of this section shall not apply to any lien or claim of the clearing corporation, or similar department or association, of a national securities exchange or a registered national securities association for a loan made and to be repaid on the same calendar day, which is incidental to the clearing of transactions in securities or loans through such corporation, department, or association: Provided, however, That for the purpose of paragraph (a)(3) of this section, “aggregate indebtedness of all customers in respect of securities carried for their accounts” shall not include indebtedness in respect of any securities subject to any lien or claim exempted by this paragraph. (e) Exemption for certain liens on securities of noncustomers. The provisions of paragraph (a)(2) of this section shall not be deemed to prevent such member, broker or dealer from permitting securities not carried for the account of a customer to be subjected (1) to a lien for a loan made against securities carried for the account of customers, or (2) to a lien for a loan made and to be repaid on the same calendar day. For the purpose of this exemption, a loan shall be deemed to be “made against securities carried for the account of customers” if only securities carried for the account of customers are used to obtain or to increase such loan or as substitutes for other securities carried for the account of customers. (f) Notice and certification requirements. No person subject to this section shall hypothecate any security carried for the account of a customer unless at or prior to the time of each such hypothecation, he gives written notice to the pledgee that the security pledged is carried for the account of a customer and that such hypothecation does not contravene any provision of this section, except that in the case of an omnibus account the members, broker or dealer for whom such account is carried may furnish a signed statement to the person carrying such account that all securities carried therein by such member, broker or dealer will be securities carried for the account of his customers and that the hypothecation thereof by such member, broker or dealer will not contravene any provision of this section. The provisions of this paragraph shall not apply to any hypothecation of securities under any lien or claim of a pledgee securing a loan made and to be repaid on the same calendar day. (g) The fact that securities carried for the accounts of customers and securities carried for the accounts of others are represented by one or more certificates in the custody of a clearing corporation or other subsidiary organization of either a national securities exchange or of a registered national securities association, or of a custodian bank, in accordance with a system for the central handling of securities established by a national securities exchange or a registered national securities association, pursuant to which system the hypothecation of such securities is effected by bookkeeping entries without physical delivery of such securities, shall not, in and of itself, result in a commingling of securities prohibited by paragraph (a)(1) or (a)(2) of this section, whenever a participating member, broker or dealer hypothecates securities in accordance with such system: Provided, however, That (1) any such custodian of any securities held by or for such system shall agree that it will not for any reason, including the assertion of any claim, right or lien of any kind, refuse to refrain from promptly delivering any such securities (other than securities then hypothecated in accordance with such system) to such clearing corporation or other subsidiary organization or as directed by it, except that nothing in such agreement shall be deemed to require the custodian to deliver any securities in contravention of any notice of levy, seizure or similar notice, or order or judgment, issued or directed by a governmental agency or court, or officer thereof, having jurisdiction over such custodian, which on its face affects such securities; (2) such systems shall have safeguards in the handling, transfer and delivery of securities and provisions for fidelity bond coverage of the employees and agents of the clearing corporation or other subsidiary organization and for periodic examinations by independent public accountants; and (3) the provisions of this paragraph shall not be effective with respect to any particular system unless the agreement required by paragraph (g)(1) of this section and the safeguards and provisions required by paragraph (g)(2) of this section shall have been deemed adequate by the Commission for the protection of investors, and unless any subsequent amendments to such agreement, safeguards or provisions shall have been deemed adequate by the Commission for the protection of investors. For interpretative releases applicable to § 240.8c-1, see Nos. 2690 and 2822 in tabulation, part 241 of this chapter.

§ 240.9b-1 Options disclosure document. (a) Definitions. The following definitions shall apply for the purpose of this rule. (1) Options market means a national securities exchange, an automated quotation system of a registered securities association or a foreign securities exchange on which standardized options are traded. (2) Options class means all options contracts covering the same underlying instrument. (3) Options disclosure document means a document, including all amendments and supplements thereto, prepared by one or more options markets which has been filed with the Commission or distributed in accordance with paragraph (b) of this section. Definitive options disclosure document or document means an options disclosure document furnished to customers in accordance with paragraph (b) of this section. (4) Standardized options are options contracts trading on a national securities exchange, an automated quotation system of a registered securities association, or a foreign securities exchange which relate to options classes the terms of which are limited to specific expiration dates and exercise prices, or such other securities as the Commission may, by order, designate. (b)(1) Five preliminary copies of an options disclosure document containing the information specified in paragraph (c) of this section shall be filed with the Commission by an options market at least 60 days prior to the date definitive copies are furnished to customers, unless the commission determines otherwise having due regard to the adequacy of the information disclosed and the public interest and protection of investors. Five copies of the definitive options disclosure document shall be filed with the Commission not later than the date the options disclosure document is furnished to customers. Notwithstanding the above, the use of an options disclosure document shall not be permitted unless the options class to which such document relates is the subject of an effective registration statement on Form S-20 under the Securities Act of 1933, or is exempt from registration under the Securities Act of 1933 (15 U.S.C. 77a et seq.). (2)(i) If the information contained in the options disclosure document becomes or will become materially inaccurate or incomplete or there is or will be an omission of material information necessary to make the options disclosure document not misleading, the options market shall amend or supplement its options disclosure document by filing five copies of an amendment or supplement to such options disclosure document with the Commission at least 30 days prior to the date definitive copies are furnished to customers, unless the Commission determines otherwise having due regard to the adequacy of the information disclosed and the public interest and protection of investors. Five copies of the definitive options disclosure document, as amended or supplemented, shall be filed with the Commission not later than the date the amendment or supplement, or the amended options disclosure document, is furnished to customers. (ii) Notwithstanding paragraph (b)(2)(i) of this section, an options market may distribute an amendment or supplement to an options disclosure document prior to such 30 day period if it determines, in good faith, that such delivery is necessary to ensure timely and accurate disclosure with respect to one or more of the options classes covered by the document. Five copies of any amendment or supplement distributed pursuant to this paragraph shall be filed with the Commission at the time of distribution. In that instance, if the Commission determines, having given due regard to the adequacy of the information disclosed and the public interest and the protection of investors, it may require refiling of the amendment pursuant to paragraph (b)(2)(i) of this section. (c) Information required in an options disclosure document. An options disclosure document shall contain the following information, unless otherwise provided by the Commission, with respect to the options classes covered by the document: (1) A glossary of terms; (2) A discussion of the mechanics of exercising the options; (3) A discussion of the risks of being a holder or writer of the options; (4) The identification of the market or markets in which the options are traded; (5) A brief reference to the transaction costs, margin requirements and tax consequences of options trading; (6) The identification of the issuer of the options; (7) A general identification of the type of instrument or instruments underlying the options class or classes covered by the document; (8) If the options are not exempt from registration under the Securities Act of 1933 (15 U.S.C. 77a et seq.), the registration of the options on form S-20 (17 CFR 239.20) and the availability of the prospectus and the information in part II of the registration statement; and (9) Such other information as the Commission may specify. (d) Broker-dealer obligations. (1) No broker or dealer shall accept an order from a customer to purchase or sell an option contract relating to an options class that is the subject of a definitive options disclosure document, or approve the customer's account for the trading of such option, unless the broker or dealer furnishes or has furnished to the customer a copy of the definitive options disclosure document. (2) If a definitive options disclosure document relating to an options class is amended or supplemented, each broker and dealer shall promptly send a copy of the definitive amendment or supplement or a copy of the definitive options disclosure document as amended to each customer whose account is approved for trading the options class or classes to which the amendment or supplement relates.

§ 240.9j-1 Prohibition against fraud, manipulation, or deception in connection with security-based swaps. (a) It shall be unlawful for any person, directly or indirectly, to effect any transaction in, or attempt to effect any transaction in, any security-based swap, or to purchase or sell, or induce or attempt to induce the purchase or sale of, any security-based swap (including but not limited to, in whole or in part, the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of any rights or obligations under, a security based-swap, as the context may require), in connection with which such person: (1) Employs or attempts to employ any device, scheme, or artifice to defraud or manipulate; (2) Makes or attempts to make any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; (3) Obtains money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; (4) Engages in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person; (5) Attempts to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or attempts to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person; or (6) Manipulates or attempts to manipulate the price or valuation of any security-based swap, or any payment or delivery related thereto. (b) Wherever communicating, or purchasing or selling a security (other than a security-based swap) while in possession of material nonpublic information would violate, or result in liability to any purchaser or seller of the security under, either the Act or the Securities Act of 1933, or any rule or regulation thereunder, such conduct in connection with a purchase or sale of a security-based swap with respect to such security or with respect to a group or index of securities including such security shall also violate, and result in comparable liability to any purchaser or seller of that security under, such provision, rule, or regulation. (c) Wherever taking any of the actions set forth in paragraph (a) of this section involving a security-based swap would violate, or result in liability under, Section 9(j) of the Act or this section, such conduct, when taken by a counterparty to such security-based swap (or any affiliate of, or a person acting in concert with, such security-based swap counterparty in furtherance of such prohibited activity), in connection with a purchase or sale of a security, loan, or group or index of securities on which such security-based swap is based, shall also violate, and shall be deemed a violation of, section 9(j) of the Act or paragraph (a) of this section. (d) For purposes of this section, the terms “purchase” and “sale” shall have the same meanings as set forth in Sections 3(a)(13) (15 U.S.C. 78c(a)(13)) and 3(a)(14) (15 U.S.C. 78c(a)(14)) of the Act. (e) A person shall not be liable under paragraphs (a)(1) through (a)(5) of this section solely for being aware of material nonpublic information while taking the following actions: (1) Actions taken by a person in accordance with binding contractual rights and obligations under a security-based swap (as reflected in the written documentation governing such security-based swap or any amendment thereto) so long as the person demonstrates that: (i) The security-based swap was entered into, or the amendment was made, before the person became aware of such material nonpublic information, and (ii) The security-based swap was entered into in good faith and not as part of a plan or scheme to evade the prohibitions of this section. (2) Actions taken by a person other than a natural person if the person demonstrates that: (i) The individual making the investment decision on behalf of the person taking the action was not aware of the material nonpublic information, and (ii) The person had implemented reasonable policies and procedures, taking into consideration the nature of the person's business, to ensure that individuals making investment decisions would not be in violation of paragraphs (a)(1) through (a)(5) of this section. These policies and procedures may include those that restrict effecting a transaction in, or purchasing or selling, any security, including any security-based swap, as to which the person has material nonpublic information, or those that prevent such individuals from becoming aware of such information.

§§ 240.10a-1—240.10a-2 §§ 240.10a-1--240.10a-2 [Reserved]

§ 240.10b-1 Prohibition of use of manipulative or deceptive devices or contrivances with respect to certain securities exempted from registration. The term manipulative or deceptive device or contrivance, as used in section 10(b) (48 Stat. 891; 15 U.S.C. 78j(b)), is hereby defined to include any act or omission to act with respect to any security exempted from the operation of section 12(a) (48 Stat. 892; 15 U.S.C. 78l(a)) pursuant to any section in this part which specifically provides that this section shall be applicable to such security if such act or omission to act would have been unlawful under section 9(a) (48 Stat. 889; 15 U.S.C. 78i(a)), or any rule or regulation heretofore or hereafter prescribed thereunder, if done or omitted to be done with respect to a security registered on a national securities exchange, and the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange to use or employ any such device or contrivance in connection with the purchase or sale of any such security is hereby prohibited. For applicability of this section, see §§ 240.12a-4 and 240.12a-5. For regulations relating to employment of manipulative and deceptive devices, see §§ 240.10b-3 and 240.10b-5.

§ 240.10b-2 [Reserved]

§ 240.10b-3 Employment of manipulative and deceptive devices by brokers or dealers. (a) It shall be unlawful for any broker or dealer, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, to use or employ, in connection with the purchase or sale of any security otherwise than on a national securities exchange, any act, practice, or course of business defined by the Commission to be included within the term “manipulative, deceptive, or other fraudulent device or contrivance”, as such term is used in section 15(c)(1) of the act. (b) It shall be unlawful for any municipal securities dealer directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, to use or employ, in connection with the purchase or sale of any municipal security, any act, practice, or course of business defined by the Commission to be included within the term “manipulative, deceptive, or other fraudulent device or contrivance,” as such term is used in section 15(c)(1) of the act. See also § 240.10b-5. For regulation relating to prohibition of manipulative or deceptive devices, see § 240.10b-1. For the term “manipulative, deceptive, or other fraudulent device or contrivance”, as used in section 15(c)(1) of the act, see §§ 240.15c1-2 to 240.15c1-9.

§ 240.10b-4 [Reserved]

§ 240.10b-5 Employment of manipulative and deceptive devices. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

§ 240.10b5-1 Trading “on the basis of” material nonpublic information in insider trading cases. (a) Manipulative or deceptive devices. The “manipulative or deceptive device[s] or contrivance[s]” prohibited by Section 10(b) of the Act (15 U.S.C. 78j) and § 240.10b-5 (Rule 10b-5) thereunder include, among other things, the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security or issuer, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information. (b) Awareness of material nonpublic information. Subject to the affirmative defenses in paragraph (c) of this section, a purchase or sale of a security of an issuer is on the basis of material nonpublic information for purposes of Section 10(b) and Rule 10b-5 if the person making the purchase or sale was aware of the material nonpublic information when the person made the purchase or sale. The law of insider trading is otherwise defined by judicial opinions construing Rule 10b-5, and Rule 10b5-1 does not modify the scope of insider trading law in any other respect. (c) Affirmative defenses. (1)(i) Subject to paragraph (1)(ii) of this section, a person's purchase or sale is not on the basis of material nonpublic information if the person making the purchase or sale demonstrates that: (A) Before becoming aware of the information, the person had: (1) Entered into a binding contract to purchase or sell the security, (2) Instructed another person to purchase or sell the security for the instructing person's account, or (3) Adopted a written plan for trading securities; (B) The contract, instruction, or plan described in paragraph (c)(1)(i)(A) of this section: (1) Specified the amount of securities to be purchased or sold and the price at which and the date on which the securities were to be purchased or sold; (2) Included a written formula or algorithm, or computer program, for determining the amount of securities to be purchased or sold and the price at which and the date on which the securities were to be purchased or sold; or (3) Did not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales; provided, in addition, that any other person who, pursuant to the contract, instruction, or plan, did exercise such influence must not have been aware of the material nonpublic information when doing so; and (C) The purchase or sale that occurred was pursuant to the contract, instruction, or plan. A purchase or sale is not “pursuant to a contract, instruction, or plan” if, among other things, the person who entered into the contract, instruction, or plan altered or deviated from the contract, instruction, or plan to purchase or sell securities (whether by changing the amount, price, or timing of the purchase or sale), or entered into or altered a corresponding or hedging transaction or position with respect to those securities. (ii) Paragraph (c)(1)(i) of this section is applicable only when: (A) The contract, instruction, or plan to purchase or sell securities was given or entered into in good faith and not as part of a plan or scheme to evade the prohibitions of this section, and the person who entered into the contract, instruction, or plan has acted in good faith with respect to the contract, instruction or plan; (B) If the person who entered into the contract, instruction, or plan is: (1) A director or officer (as defined in § 240.16a-1(f) (Rule 16a-1(f)) of the issuer, no purchases or sales occur until expiration of a cooling-off period consisting of the later of: (i) Ninety days after the adoption of the contract, instruction, or plan or (ii) Two business days following the disclosure of the issuer's financial results in a Form 10-Q (§ 249.308a of this chapter) or Form 10-K (§ 249.310 of this chapter) for the completed fiscal quarter in which the plan was adopted or, for foreign private issuers, in a Form 20-F (§ 249.220f of this chapter) or Form 6-K (§ 249.306 of this chapter) that discloses the issuer's financial results (but, in any event, this required cooling-off period is subject to a maximum of 120 days after adoption of the contract, instruction, or plan); or (2) Not the issuer and not a director or officer (as defined in § 240.16a-1(f) (Rule 16a-1(f)) of the issuer, no purchases or sales occur until the expiration of a cooling-off period that is 30 days after the adoption of the contract, instruction or plan; (C) If the person who entered into a plan as described in paragraph (c)(1)(i)(A)(3) of this section is a director or officer (as defined in Rule 16a-1(f) (§ 240.16a-1(f)) of the issuer of the securities, such director or officer included a representation in the plan certifying that, on the date of adoption of the plan: (1) The individual director or officer is not aware of any material nonpublic information about the security or issuer; and (2) The individual director or officer is adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of this section; (D) The person (other than the issuer) who entered into the contract, instruction, or plan has no outstanding (and does not subsequently enter into any additional) contract, instruction, or plan that would qualify for the affirmative defense under paragraph (c)(1) of this section for purchases or sales of the issuer's securities on the open market; except that: (1) For purposes of this paragraph (c)(1)(ii)(D), a series of separate contracts with different broker-dealers or other agents acting on behalf of the person (other than the issuer) to execute trades thereunder may be treated as a single “plan,” provided that the individual constituent contracts with each broker-dealer or other agent, when taken together as a whole, meet all of the applicable conditions of and remain collectively subject to the provisions of this rule, including that a modification of any individual contract acts as modification of the whole contract, instruction of plan, as defined in paragraph (c)(1)(iv) of this section. The substitution of a broker-dealer or other agent acting on behalf of the person (other than the issuer) for another broker-dealer that is executing trades pursuant to a contract, instruction or plan shall not be a modification of the contract, instruction, or plan (as defined in paragraph (c)(1)(iv) of this section) as long as the purchase or sales instructions applicable to the substitute and substituted broker are identical with respect to the prices of securities to be purchased or sold, dates of the purchases or sales to be executed, and amount of securities to be purchased or sold; and (2) The person (other than the issuer) may have one later-commencing contract, instruction, or plan for purchases or sales of any securities of the issuer on the open market under which trading is not authorized to begin until after all trades under the earlier-commencing contract, instruction, or plan are completed or expired without execution; provided, however, that if the first trade under the later-commencing contract, instruction, or plan is scheduled during the Effective Cooling-Off Period, the later-commencing contract, instruction, or plan may not rely on this paragraph (c)(1)(ii)(D)(2). For purposes of this paragraph (c)(1)(ii)(D)(2), “Effective Cooling-Off Period” means the cooling-off period that would be applicable under paragraph (c)(1)(ii)(B) of this section with respect to the later-commencing contract, instruction, or plan if the date of adoption of the later-commencing contract, instruction, or plan were deemed to be the date of termination of the earlier-commencing contract, instruction, or plan; and (3) A contract, instruction, or plan providing for an eligible sell-to-cover transaction shall not be considered an outstanding or additional contract, instruction, or plan under paragraph (c)(1)(ii)(D) of this section, and such eligible sell-to-cover transaction shall not be subject to the limitation under paragraph (c)(1)(ii)(D) of this section. A contract, instruction, or plan provides for an eligible sell-to-cover transaction where the contract, instruction, or plan authorizes an agent to sell only such securities as are necessary to satisfy tax withholding obligations arising exclusively from the vesting of a compensatory award, such as restricted stock or stock appreciation rights, and the insider does not otherwise exercise control over the timing of such sales; and (E) With respect to persons (other than the issuer), if the contract, instruction, or plan does not provide for an eligible sell-to-cover transaction as described in paragraph (c)(1)(ii)(D)(3) of this section and is designed to effect the open-market purchase or sale of the total amount of securities as a single transaction, the person who entered into the contract, instruction, or plan has not during the prior 12-month period adopted a contract, instruction, or plan that: (1) was designed to effect the open-market purchase or sale of all of the securities covered by such prior contract, instruction or plan, in a single transaction; and (2) Would otherwise qualify for the affirmative defense under paragraph (c)(1) of this section. (iii) This paragraph (c)(1)(iii) defines certain terms as used in paragraph (c) of this Section. (A) Amount. “Amount” means either a specified number of shares or other securities or a specified dollar value of securities. (B) Price. “Price” means the market price on a particular date or a limit price, or a particular dollar price. (C) Date. “Date” means, in the case of a market order, the specific day of the year on which the order is to be executed (or as soon thereafter as is practicable under ordinary principles of best execution). “Date” means, in the case of a limit order, a day of the year on which the limit order is in force. (iv) Any modification or change to the amount, price, or timing of the purchase or sale of the securities underlying a contract, instruction, or written plan as described in paragraph (c)(1)(i)(A) of this section is a termination of such contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan. A plan modification, such as the substitution or removal of a broker that is executing trades pursuant to a Rule 10b5-1 arrangement on behalf of the person, that changes the price or date on which purchases or sales are to be executed, is a termination of such plan and the adoption of a new plan. (2) A person other than a natural person also may demonstrate that a purchase or sale of securities is not “on the basis of” material nonpublic information if the person demonstrates that: (i) The individual making the investment decision on behalf of the person to purchase or sell the securities was not aware of the information; and (ii) The person had implemented reasonable policies and procedures, taking into consideration the nature of the person's business, to ensure that individuals making investment decisions would not violate the laws prohibiting trading on the basis of material nonpublic information. These policies and procedures may include those that restrict any purchase, sale, and causing any purchase or sale of any security as to which the person has material nonpublic information, or those that prevent such individuals from becoming aware of such information.

§ 240.10b5-2 Duties of trust or confidence in misappropriation insider trading cases. This section provides a non-exclusive definition of circumstances in which a person has a duty of trust or confidence for purposes of the “misappropriation” theory of insider trading under Section 10(b) of the Act and Rule 10b-5. The law of insider trading is otherwise defined by judicial opinions construing Rule 10b-5, and Rule 10b5-2 does not modify the scope of insider trading law in any other respect. (a) Scope of Rule. This section shall apply to any violation of Section 10(b) of the Act (15 U.S.C. 78j(b)) and § 240.10b-5 thereunder that is based on the purchase or sale of securities on the basis of, or the communication of, material nonpublic information misappropriated in breach of a duty of trust or confidence. (b) Enumerated “duties of trust or confidence.” For purposes of this section, a “duty of trust or confidence” exists in the following circumstances, among others: (1) Whenever a person agrees to maintain information in confidence; (2) Whenever the person communicating the material nonpublic information and the person to whom it is communicated have a history, pattern, or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material nonpublic information expects that the recipient will maintain its confidentiality; or (3) Whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling; provided, however, that the person receiving or obtaining the information may demonstrate that no duty of trust or confidence existed with respect to the information, by establishing that he or she neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential, because of the parties' history, pattern, or practice of sharing and maintaining confidences, and because there was no agreement or understanding to maintain the confidentiality of the information.

§§ 240.10b-6—240.10b-8 §§ 240.10b-6--240.10b-8 [Reserved]

§ 240.10b-9 Prohibited representations in connection with certain offerings. (a) It shall constitute a manipulative or deception device or contrivance, as used in section 10(b) of the Act, for any person, directly or indirectly, in connection with the offer or sale of any security, to make any representation: (1) To the effect that the security is being offered or sold on an “all-or-none” basis, unless the security is part of an offering or distribution being made on the condition that all or a specified amount of the consideration paid for such security will be promptly refunded to the purchaser unless (i) all of the securities being offered are sold at a specified price within a specified time, and (ii) the total amount due to the seller is received by him by a specified date; or (2) To the effect that the security is being offered or sold on any other basis whereby all or part of the consideration paid for any such security will be refunded to the purchaser if all or some of the securities are not sold, unless the security is part of an offering or distribution being made on the condition that all or a specified part of the consideration paid for such security will be promptly refunded to the purchaser unless (i) a specified number of units of the security are sold at a specified price within a specified time, and (ii) the total amount due to the seller is received by him by a specified date. (b) This rule shall not apply to any offer or sale of securities as to which the seller has a firm commitment from underwriters or others (subject only to customary conditions precedent, including “market outs”) for the purchase of all the securities being offered.

§ 240.10b-10 Confirmation of transactions. This section requires broker-dealers to disclose specified information in writing to customers at or before completion of a transaction. The requirements under this section that particular information be disclosed is not determinative of a broker-dealer's obligation under the general antifraud provisions of the federal securities laws to disclose additional information to a customer at the time of the customer's investment decision. (a) Disclosure requirement. It shall be unlawful for any broker or dealer to effect for or with an account of a customer any transaction in, or to induce the purchase or sale by such customer of, any security (other than U.S. Savings Bonds or municipal securities) unless such broker or dealer, at or before completion of such transaction, gives or sends to such customer written notification disclosing: (1) The date and time of the transaction (or the fact that the time of the transaction will be furnished upon written request to such customer) and the identity, price, and number of shares or units (or principal amount) of such security purchased or sold by such customer; and (2) Whether the broker or dealer is acting as agent for such customer, as agent for some other person, as agent for both such customer and some other person, or as principal for its own account; and if the broker or dealer is acting as principal, whether it is a market maker in the security (other than by reason of acting as a block positioner); and (i) If the broker or dealer is acting as agent for such customer, for some other person, or for both such customer and some other person: (A) The name of the person from whom the security was purchased, or to whom it was sold, for such customer or the fact that the information will be furnished upon written request of such customer; and (B) The amount of any remuneration received or to be received by the broker from such customer in connection with the transaction unless remuneration paid by such customer is determined pursuant to written agreement with such customer, otherwise than on a transaction basis; and (C) For a transaction in any NMS stock as defined in § 242.600 of this chapter or a security authorized for quotation on an automated interdealer quotation system that has the characteristics set forth in section 17B of the Act (15 U.S.C. 78q-2), a statement whether payment for order flow is received by the broker or dealer for transactions in such securities and the fact that the source and nature of the compensation received in connection with the particular transaction will be furnished upon written request of the customer; provided, however, that brokers or dealers that do not receive payment for order flow in connection with any transaction have no disclosure obligations under this paragraph; and (D) The source and amount of any other remuneration received or to be received by the broker in connection with the transaction: Provided, however, that if, in the case of a purchase, the broker was not participating in a distribution, or in the case of a sale, was not participating in a tender offer, the written notification may state whether any other remuneration has been or will be received and the fact that the source and amount of such other remuneration will be furnished upon written request of such customer; or (ii) If the broker or dealer is acting as principal for its own account: (A) In the case where such broker or dealer is not a market maker in an equity security and, if, after having received an order to buy from a customer, the broker or dealer purchased the equity security from another person to offset a contemporaneous sale to such customer or, after having received an order to sell from a customer, the broker or dealer sold the security to another person to offset a contemporaneous purchase from such customer, the difference between the price to the customer and the dealer's contemporaneous purchase (for customer purchases) or sale price (for customer sales); or (B) In the case of any other transaction in an NMS stock as defined by § 242.600 of this chapter, or an equity security that is traded on a national securities exchange and that is subject to last sale reporting, the reported trade price, the price to the customer in the transaction, and the difference, if any, between the reported trade price and the price to the customer. (3) Whether any odd-lot differential or equivalent fee has been paid by such customer in connection with the execution of an order for an odd-lot number of shares or units (or principal amount) of a security and the fact that the amount of any such differential or fee will be furnished upon oral or written request: Provided, however, that such disclosure need not be made if the differential or fee is included in the remuneration disclosure, or exempted from disclosure, pursuant to paragraph (a)(2)(i)(B) of this section; and (4) In the case of any transaction in a debt security subject to redemption before maturity, a statement to the effect that such debt security may be redeemed in whole or in part before maturity, that such a redemption could affect the yield represented and the fact that additional information is available upon request; and (5) In the case of a transaction in a debt security effected exclusively on the basis of a dollar price: (i) The dollar price at which the transaction was effected, and (ii) The yield to maturity calculated from the dollar price: Provided, however, that this paragraph (a)(5)(ii) shall not apply to a transaction in a debt security that either: (A) Has a maturity date that may be extended by the issuer thereof, with a variable interest payable thereon; or (B) Is an asset-backed security, that represents an interest in or is secured by a pool of receivables or other financial assets that are subject continuously to prepayment; and (6) In the case of a transaction in a debt security effected on the basis of yield: (i) The yield at which the transaction was effected, including the percentage amount and its characterization (e.g., current yield, yield to maturity, or yield to call) and if effected at yield to call, the type of call, the call date and call price; and (ii) The dollar price calculated from the yield at which the transaction was effected; and (iii) If effected on a basis other than yield to maturity and the yield to maturity is lower than the represented yield, the yield to maturity as well as the represented yield; Provided, however, that this paragraph (a)(6)(iii) shall not apply to a transaction in a debt security that either: (A) Has a maturity date that may be extended by the issuer thereof, with a variable interest rate payable thereon; or (B) Is an asset-backed security, that represents an interest in or is secured by a pool of receivables or other financial assets that are subject continuously to prepayment; and (7) In the case of a transaction in a debt security that is an asset-backed security, which represents an interest in or is secured by a pool of receivables or other financial assets that are subject continuously to prepayment, a statement indicating that the actual yield of such asset-backed security may vary according to the rate at which the underlying receivables or other financial assets are prepaid and a statement of the fact that information concerning the factors that affect yield (including at a minimum estimated yield, weighted average life, and the prepayment assumptions underlying yield) will be furnished upon written request of such customer; and (8) That the broker or dealer is not a member of the Securities Investor Protection Corporation (SIPC), or that the broker or dealer clearing or carrying the customer account is not a member of SIPC, if such is the case: Provided, however, that this paragraph (a)(9) shall not apply in the case of a transaction in shares of a registered open-end investment company or unit investment trust if: (i) The customer sends funds or securities directly to, or receives funds or securities directly from, the registered open-end investment company or unit investment trust, its transfer agent, its custodian, or other designated agent, and such person is not an associated person of the broker or dealer required by paragraph (a) of this section to send written notification to the customer; and (ii) The written notification required by paragraph (a) of this section is sent on behalf of the broker or dealer to the customer by a person described in paragraph (a)(9)(i) of this section. (b) Alternative periodic reporting. A broker or dealer may effect transactions for or with the account of a customer without giving or sending to such customer the written notification described in paragraph (a) of this section if: (1) Such transactions are effected pursuant to a periodic plan or an investment company plan, or effected in shares of any open-end management investment company registered under the Investment Company Act of 1940 that holds itself out as a money market fund and attempts to maintain a stable net asset value per share: Provided, however, that no sales load is deducted upon the purchase or redemption of shares in the money market fund; and (2) Such broker or dealer gives or sends to such customer within five business days after the end of each quarterly period, for transactions involving investment company and periodic plans, and after the end of each monthly period, for other transactions described in paragraph (b)(1) of this section, a written statement disclosing each purchase or redemption, effected for or with, and each dividend or distribution credited to or reinvested for, the account of such customer during the month; the date of such transaction; the identity, number, and price of any securities purchased or redeemed by such customer in each such transaction; the total number of shares of such securities in such customer's account; any remuneration received or to be received by the broker or dealer in connection therewith; and that any other information required by paragraph (a) of this section will be furnished upon written request: Provided, however, that the written statement may be delivered to some other person designated by the customer for distribution to the customer; and (3) Such customer is provided with prior notification in writing disclosing the intention to send the written information referred to in paragraph (b)(1) of this section in lieu of an immediate confirmation. (c) A broker or dealer shall give or send to a customer information requested pursuant to this rule within 5 business days of receipt of the request: Provided, however, That in the case of information pertaining to a transaction effected more than 30 days prior to receipt of the request, the information shall be given or sent to the customer within 15 business days. (d) Definitions. For the purposes of this section: (1) Customer shall not include a broker or dealer; (2) Completion of the transaction shall have the meaning provided in rule 15c1-1 under the Act; (3) Time of the transaction means the time of execution, to the extent feasible, of the customer's order; (4) Debt security as used in paragraphs (a)(3), (4), and (5) only, means any security, such as a bond, debenture, note, or any other similar instrument which evidences a liability of the issuer (including any such security that is convertible into stock or a similar security) and fractional or participation interests in one or more of any of the foregoing: Provided, however, That securities issued by an investment company registered under the Investment Company Act of 1940 shall not be included in this definition; (5) Periodic plan means any written authorization for a broker acting as agent to purchase or sell for a customer a specific security or securities (other than securities issued by an open end investment company or unit investment trust registered under the Investment Company Act of 1940), in specific amounts (calculated in security units or dollars), at specific time intervals and setting forth the commissions or charges to be paid by the customer in connection therewith (or the manner of calculating them); and (6) Investment company plan means any plan under which securities issued by an open-end investment company or unit investment trust registered under the Investment Company Act of 1940 are purchased by a customer (the payments being made directly to, or made payable to, the registered investment company, or the principal underwriter, custodian, trustee, or other designated agent of the registered investment company), or sold by a customer pursuant to: (i) An individual retirement or individual pension plan qualified under the Internal Revenue Code; (ii) A contractual or systematic agreement under which the customer purchases at the applicable public offering price, or redeems at the applicable redemption price, such securities in specified amounts (calculated in security units or dollars) at specified time intervals and setting forth the commissions or charges to be paid by such customer in connection therewith (or the manner of calculating them; or (iii) Any other arrangement involving a group of two or more customers and contemplating periodic purchases of such securities by each customer through a person designated by the group: Provided, That such arrangement requires the registered investment company or its agent— (A) To give or send to the designated person, at or before the completion of the transaction for the purchase of such securities, a written notification of the receipt of the total amount paid by the group; (B) To send to anyone in the group who was a customer in the prior quarter and on whose behalf payment has not been received in the current quarter a quarterly written statement reflecting that a payment was not received on his behalf; and (C) To advise each customer in the group if a payment is not received from the designated person on behalf of the group within 10 days of a date certain specified in the arrangement for delivery of that payment by the designated person and thereafter to send to each such customer the written notification described in paragraph (a) of this section for the next three succeeding payments. (7) NMS stock shall have the meaning provided in § 242.600 of this chapter. (8) Payment for order flow shall mean any monetary payment, service, property, or other benefit that results in remuneration, compensation, or consideration to a broker or dealer from any broker or dealer, national securities exchange, registered securities association, or exchange member in return for the routing of customer orders by such broker or dealer to any broker or dealer, national securities exchange, registered securities association, or exchange member for execution, including but not limited to: research, clearance, custody, products or services; reciprocal agreements for the provision of order flow; adjustment of a broker or dealer's unfavorable trading errors; offers to participate as underwriter in public offerings; stock loans or shared interest accrued thereon; discounts, rebates, or any other reductions of or credits against any fee to, or expense or other financial obligation of, the broker or dealer routing a customer order that exceeds that fee, expense or financial obligation. (9) Asset-backed security means a security that is primarily serviced by the cashflows of a discrete pool of receivables or other financial assets, either fixed or revolving, that by their terms convert into cash within a finite time period plus any rights or other assets designed to assure the servicing or timely distribution of proceeds to the security holders. (e) Security futures products. The provisions of paragraphs (a) and (b) of this section shall not apply to a broker or dealer registered pursuant to section 15(b)(11)(A) of the Act (15 U.S.C. 78o(b)(11)(A)) to the extent that it effects transactions for customers in security futures products in a futures account (as that term is defined in § 240.15c3-3(a)(15)) and a broker or dealer registered pursuant to section 15(b)(1) of the Act (15 U.S.C. 78o(b)(1)) that is also a futures commission merchant registered pursuant to section 4f(a)(1) of the Commodity Exchange Act (7 U.S.C. 6f(a)(1)), to the extent that it effects transactions for customers in security futures products in a futures account (as that term is defined in § 240.15c3-3(a)(15)), Provided that: (1) The broker or dealer that effects any transaction for a customer in security futures products in a futures account gives or sends to the customer no later than the next business day after execution of any futures securities product transaction, written notification disclosing: (i) The date the transaction was executed, the identity of the single security or narrow-based security index underlying the contract for the security futures product, the number of contracts of such security futures product purchased or sold, the price, and the delivery month; (ii) The source and amount of any remuneration received or to be received by the broker or dealer in connection with the transaction, including, but not limited to, markups, commissions, costs, fees, and other charges incurred in connection with the transaction, provided, however, that if no remuneration is to be paid for an initiating transaction until the occurrence of the corresponding liquidating transaction, that the broker or dealer may disclose the amount of remuneration only on the confirmation for the liquidating transaction; (iii) The fact that information about the time of the execution of the transaction, the identity of the other party to the contract, and whether the broker or dealer is acting as agent for such customer, as agent for some other person, as agent for both such customer and some other person, or as principal for its own account, and if the broker or dealer is acting as principal, whether it is engaging in a block transaction or an exchange of security futures products for physical securities, will be available upon written request of the customer; and (iv) Whether payment for order flow is received by the broker or dealer for such transactions, the amount of this payment and the fact that the source and nature of the compensation received in connection with the particular transaction will be furnished upon written request of the customer; provided, however, that brokers or dealers that do not receive payment for order flow have no disclosure obligation under this paragraph. (2) Transitional provision. (i) Broker-dealers are not required to comply with paragraph (e)(1)(iii) of this section until June 1, 2003, Provided that, if, not withstanding the absence of the disclosure required in that paragraph, the broker-dealer receives a written request from a customer for the information described in paragraph (e)(1)(iii) of this section, the broker-dealer must make the information available to the customer; and (ii) Broker-dealers are not required to comply with paragraph (e)(1)(iv) of this section until June 1, 2003. (f) The Commission may exempt any broker or dealer from the requirements of paragraphs (a) and (b) of this section with regard to specific transactions of specific classes of transactions for which the broker or dealer will provide alternative procedures to effect the purposes of this section; any such exemption may be granted subject to compliance with such alternative procedures and upon such other stated terms and conditions as the Commission may impose.

§ 240.10b-13 [Reserved]

§ 240.10b-16 Disclosure of credit terms in margin transactions. (a) It shall be unlawful for any broker or dealer to extend credit, directly or indirectly, to any customer in connection with any securities transaction unless such broker or dealer has established procedures to assure that each customer: (1) Is given or sent at the time of opening the account, a written statement or statements disclosing (i) the conditions under which an interest charge will be imposed; (ii) the annual rate or rates of interest that can be imposed; (iii) the method of computing interest; (iv) if rates of interest are subject to change without prior notice, the specific conditions under which they can be changed; (v) the method of determining the debit balance or balances on which interest is to be charged and whether credit is to be given for credit balances in cash accounts; (vi) what other charges resulting from the extension of credit, if any, will be made and under what conditions; and (vii) the nature of any interest or lien retained by the broker or dealer in the security or other property held as collateral and the conditions under which additional collateral can be required: Provided, however, That the requirements of this subparagraph will be met in any case where the account is opened by telephone if the information required to be disclosed is orally communicated to the customer at that time and the required written statement or statements are sent to the customer immediately thereafter: And provided, further, That in the case of customers to whom credit is already being extended on the effective date of this section, the written statement or statements required hereunder must be given or sent to said customers within 90 days after the effective date of this section; and (2) Is given or sent a written statement or statements, at least quarterly, for each account in which credit was extended, disclosing (i) the balance at the beginning of the period; the date, amount and a brief description of each debit and credit entered during such period; the closing balance; and, if interest is charged for a period different from the period covered by the statement, the balance as of the last day of the interest period; (ii) the total interest charge for the period during which interest is charged (or, if interest is charged separately for separate accounts, the total interest charge for each such account), itemized to show the dates on which the interest period began and ended; the annual rate or rates of interest charged and the interest charge for each such different annual rate of interest; and either each different debit balance on which an interest calculation was based or the average debit balance for the interest period, except that if an average debit balance is used, a separate average debit balance must be disclosed for each interest rate applied; and (iii) all other charges resulting from the extension of credit in that account: Provided, however, That if the interest charge disclosed on a statement is for a period different from the period covered by the statement, there must be printed on the statement appropriate language to the effect that it should be retained for use in conjunction with the next statement containing the remainder of the required information: And provided further, That in the case of “equity funding programs” registered under the Securities Act of 1933, the requirements of this paragraph will be met if the broker or dealer furnishes to the customer, within 1 month after each extension of credit, a written statement or statements containing the information required to be disclosed under this paragraph. (b) It shall be unlawful for any broker or dealer to make any changes in the terms and conditions under which credit charges will be made (as described in the initial statement made under paragraph (a) of this section), unless the customer shall have been given not less than thirty (30) days written notice of such changes, except that no such prior notice shall be necessary where such changes are required by law: Provided, however, That if any change for which prior notice would otherwise be required under this paragraph results in a lower interest charge to the customer than would have been imposed before the change, notice of such change may be given within a reasonable time after the effective date of the change.

§ 240.10b-17 Untimely announcements of record dates. (a) It shall constitute a “manipulative or deceptive device or contrivance” as used in section 10(b) of the Act for any issuer of a class of securities publicly traded by the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange to fail to give notice in accordance with paragraph (b) of this section of the following actions relating to such class of securities: (1) A dividend or other distribution in cash or in kind, except an ordinary interest payment on a debt security, but including a dividend or distribution of any security of the same or another issuer; (2) A stock split or reverse split; or (3) A rights or other subscription offering. (b) Notice shall be deemed to have been given in accordance with this section only if: (1) Given to the National Association of Securities Dealers, Inc., no later than 10 days prior to the record date involved or, in case of a rights subscription or other offering if such 10 days advance notice is not practical, on or before the record date and in no event later than the effective date of the registration statement to which the offering relates, and such notice includes: (i) Title of the security to which the declaration relates; (ii) Date of declaration; (iii) Date of record for determining holders entitled to receive the dividend or other distribution or to participate in the stock or reverse split; (iv) Date of payment or distribution or, in the case of a stock or reverse split or rights or other subscription offering, the date of delivery; (v) For a dividend or other distribution including a stock or reverse split or rights or other subscription offering: (a) In cash, the amount of cash to be paid or distributed per share, except if exact per share cash distributions cannot be given because of existing conversion rights which may be exercised during the notice period and which may affect the per share cash distribution, then a reasonable approximation of the per share distribution may be provided so long as the actual per share distribution is subsequently provided on the record date, (b) In the same security, the amount of the security outstanding immediately prior to and immediately following the dividend or distribution and the rate of the dividend or distribution, (c) In any other security of the same issuer, the amount to be paid or distributed and the rate of the dividend or distribution, (d) In any security of another issuer, the name of the issuer and title of that security, the amount to be paid or distributed, and the rate of the dividend or distribution and if that security is a right or a warrant, the subscription price, (e) In any other property (including securities not covered under paragraphs (b)(1)(v) (b) through (d) of this section) the identity of the property and its value and basis for assigning that value; (vi) Method of settlement of fractional interests; (vii) Details of any condition which must be satisfied or Government approval which must be secured to enable payment of distribution; and in (viii) The case of stock or reverse split in addition to the aforementioned information; (a) The name and address of the transfer or exchange agent; or (2) The Commission, upon written request or upon its own motion, exempts the issuer from compliance with paragraph (b)(1) of this section either unconditionally or on specified terms or conditions, as not constituting a manipulative or deceptive device or contrivance comprehended within the purpose of this section; or (3) Given in accordance with procedures of the national securities exchange or exchanges upon which a security of such issuer is registered pursuant to section 12 of the Act which contain requirements substantially comparable to those set forth in paragraph (b)(1) of this section. (c) The provisions of this rule shall not apply, however, to redeemable securities issued by open-end investment companies and unit investment trusts registered with the Commission under the Investment Company Act of 1940.

§ 240.10b-18 Purchases of certain equity securities by the issuer and others. 1. Section 240.10b-18 provides an issuer (and its affiliated purchasers) with a “safe harbor” from liability for manipulation under sections 9(a)(2) of the Act and § 240.10b-5 under the Act solely by reason of the manner, timing, price, and volume of their repurchases when they repurchase the issuer's common stock in the market in accordance with the section's manner, timing, price, and volume conditions. As a safe harbor, compliance with § 240.10b-18 is voluntary. To come within the safe harbor, however, an issuer's repurchases must satisfy (on a daily basis) each of the section's four conditions. Failure to meet any one of the four conditions will remove all of the issuer's repurchases from the safe harbor for that day. The safe harbor, moreover, is not available for repurchases that, although made in technical compliance with the section, are part of a plan or scheme to evade the federal securities laws. 2. Regardless of whether the repurchases are effected in accordance with § 240.10b-18, reporting issuers must report their repurchasing activity as required by Item 703 of Regulations S-K and S-B (17 CFR 229.703 and 228.703) and Item 15(e) of Form 20-F (17 CFR 249.220f) (regarding foreign private issuers), and closed-end management investment companies that are registered under the Investment Company Act of 1940 must report their repurchasing activity as required by Item 8 of Form N-CSR (17 CFR 249.331; 17 CFR 274.128). (a) Definitions. Unless otherwise provided, all terms used in this section shall have the same meaning as in the Act. In addition, the following definitions shall apply: (1) ADTV means the average daily trading volume reported for the security during the four calendar weeks preceding the week in which the Rule 10b-18 purchase is to be effected. (2) Affiliate means any person that directly or indirectly controls, is controlled by, or is under common control with, the issuer. (3) Affiliated purchaser means: (i) A person acting, directly or indirectly, in concert with the issuer for the purpose of acquiring the issuer's securities; or (ii) An affiliate who, directly or indirectly, controls the issuer's purchases of such securities, whose purchases are controlled by the issuer, or whose purchases are under common control with those of the issuer; Provided, however, that “affiliated purchaser” shall not include a broker, dealer, or other person solely by reason of such broker, dealer, or other person effecting Rule 10b-18 purchases on behalf of the issuer or for its account, and shall not include an officer or director of the issuer solely by reason of that officer or director's participation in the decision to authorize Rule 10b-18 purchases by or on behalf of the issuer. (4) Agent independent of the issuer has the meaning contained in § 242.100 of this chapter. (5) Block means a quantity of stock that either: (i) Has a purchase price of $200,000 or more; or (ii) Is at least 5,000 shares and has a purchase price of at least $50,000; or (iii) Is at least 20 round lots of the security and totals 150 percent or more of the trading volume for that security or, in the event that trading volume data are unavailable, is at least 20 round lots of the security and totals at least one-tenth of one percent (.001) of the outstanding shares of the security, exclusive of any shares owned by any affiliate; Provided, however, That a block under paragraph (a)(5)(i), (ii), and (iii) shall not include any amount a broker or dealer, acting as principal, has accumulated for the purpose of sale or resale to the issuer or to any affiliated purchaser of the issuer if the issuer or such affiliated purchaser knows or has reason to know that such amount was accumulated for such purpose, nor shall it include any amount that a broker or dealer has sold short to the issuer or to any affiliated purchaser of the issuer if the issuer or such affiliated purchaser knows or has reason to know that the sale was a short sale. (6) Consolidated system means a consolidated transaction or quotation reporting system that collects and publicly disseminates on a current and continuous basis transaction or quotation information in common equity securities pursuant to an effective transaction reporting plan or an effective national market system plan (as those terms are defined in § 242.600 of this chapter). (7) Market-wide trading suspension means a market-wide trading halt of 30 minutes or more that is: (i) Imposed pursuant to the rules of a national securities exchange or a national securities association in response to a market-wide decline during a single trading session; or (ii) Declared by the Commission pursuant to its authority under section 12(k) of the Act (15 U.S.C. 78l (k)). (8) Plan has the meaning contained in § 242.100 of this chapter. (9) Principal market for a security means the single securities market with the largest reported trading volume for the security during the six full calendar months preceding the week in which the Rule 10b-18 purchase is to be effected. (10) Public float value has the meaning contained in § 242.100 of this chapter. (11) Purchase price means the price paid per share as reported, exclusive of any commission paid to a broker acting as agent, or commission equivalent, mark-up, or differential paid to a dealer. (12) Riskless principal transaction means a transaction in which a broker or dealer after having received an order from an issuer to buy its security, buys the security as principal in the market at the same price to satisfy the issuer's buy order. The issuer's buy order must be effected at the same price per-share at which the broker or dealer bought the shares to satisfy the issuer's buy order, exclusive of any explicitly disclosed markup or markdown, commission equivalent, or other fee. In addition, only the first leg of the transaction, when the broker or dealer buys the security in the market as principal, is reported under the rules of a self-regulatory organization or under the Act. For purposes of this section, the broker or dealer must have written policies and procedures in place to assure that, at a minimum, the issuer's buy order was received prior to the offsetting transaction; the offsetting transaction is allocated to a riskless principal account or the issuer's account within 60 seconds of the execution; and the broker or dealer has supervisory systems in place to produce records that enable the broker or dealer to accurately and readily reconstruct, in a time-sequenced manner, all orders effected on a riskless principal basis. (13) Rule 10b-18 purchase means a purchase (or any bid or limit order that would effect such purchase) of an issuer's common stock (or an equivalent interest, including a unit of beneficial interest in a trust or limited partnership or a depository share) by or for the issuer or any affiliated purchaser (including riskless principal transactions). However, it does not include any purchase of such security: (i) Effected during the applicable restricted period of a distribution that is subject to § 242.102 of this chapter; (ii) Effected by or for an issuer plan by an agent independent of the issuer; (iii) Effected as a fractional share purchase (a fractional interest in a security) evidenced by a script certificate, order form, or similar document; (iv) Effected during the period from the time of public announcement (as defined in § 230.165(f)) of a merger, acquisition, or similar transaction involving a recapitalization, until the earlier of the completion of such transaction or the completion of the vote by target shareholders. This exclusion does not apply to Rule 10b-18 purchases: (A) Effected during such transaction in which the consideration is solely cash and there is no valuation period; or (B) Where: (1) The total volume of Rule 10b-18 purchases effected on any single day does not exceed the lesser of 25% of the security's four-week ADTV or the issuer's average daily Rule 10b-18 purchases during the three full calendar months preceding the date of the announcement of such transaction; (2) The issuer's block purchases effected pursuant to paragraph (b)(4) of this section do not exceed the average size and frequency of the issuer's block purchases effected pursuant to paragraph (b)(4) of this section during the three full calendar months preceding the date of the announcement of such transaction; and (3) Such purchases are not otherwise restricted or prohibited; (v) Effected pursuant to § 240.13e-1; (vi) Effected pursuant to a tender offer that is subject to § 240.13e-4 or specifically excepted from § 240.13e-4; or (vii) Effected pursuant to a tender offer that is subject to section 14(d) of the Act (15 U.S.C. 78n(d)) and the rules and regulations thereunder. (b) Conditions to be met. Rule 10b-18 purchases shall not be deemed to have violated the anti-manipulation provisions of sections 9(a)(2) or 10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or § 240.10b-5 under the Act, solely by reason of the time, price, or amount of the Rule 10b-18 purchases, or the number of brokers or dealers used in connection with such purchases, if the issuer or affiliated purchaser of the issuer effects the Rule 10b-18 purchases according to each of the following conditions: (1) One broker or dealer. Rule 10b-18 purchases must be effected from or through only one broker or dealer on any single day; Provided, however, that: (i) The “one broker or dealer” condition shall not apply to Rule 10b-18 purchases that are not solicited by or on behalf of the issuer or its affiliated purchaser(s); (ii) Where Rule 10b-18 purchases are effected by or on behalf of more than one affiliated purchaser of the issuer (or the issuer and one or more of its affiliated purchasers) on a single day, the issuer and all affiliated purchasers must use the same broker or dealer; and (iii) Where Rule 10b-18 purchases are effected on behalf of the issuer by a broker-dealer that is not an electronic communication network (ECN) or other alternative trading system (ATS), that broker-dealer can access ECN or other ATS liquidity in order to execute repurchases on behalf of the issuer (or any affiliated purchaser of the issuer) on that day. (2) Time of purchases. Rule 10b-18 purchases must not be: (i) The opening (regular way) purchase reported in the consolidated system; (ii) Effected during the 10 minutes before the scheduled close of the primary trading session in the principal market for the security, and the 10 minutes before the scheduled close of the primary trading session in the market where the purchase is effected, for a security that has an ADTV value of $1 million or more and a public float value of $150 million or more; and (iii) Effected during the 30 minutes before the scheduled close of the primary trading session in the principal market for the security, and the 30 minutes before the scheduled close of the primary trading session in the market where the purchase is effected, for all other securities; (iv) However, for purposes of this section, Rule 10b-18 purchases may be effected following the close of the primary trading session until the termination of the period in which last sale prices are reported in the consolidated system so long as such purchases are effected at prices that do not exceed the lower of the closing price of the primary trading session in the principal market for the security and any lower bids or sale prices subsequently reported in the consolidated system, and all of this section's conditions are met. However, for purposes of this section, the issuer may use one broker or dealer to effect Rule 10b-18 purchases during this period that may be different from the broker or dealer that it used during the primary trading session. However, the issuer's Rule 10b-18 purchase may not be the opening transaction of the session following the close of the primary trading session. (3) Price of purchases. Rule 10b-18 purchases must be effected at a purchase price that: (i) Does not exceed the highest independent bid or the last independent transaction price, whichever is higher, quoted or reported in the consolidated system at the time the Rule 10b-18 purchase is effected; (ii) For securities for which bids and transaction prices are not quoted or reported in the consolidated system, Rule 10b-18 purchases must be effected at a purchase price that does not exceed the highest independent bid or the last independent transaction price, whichever is higher, displayed and disseminated on any national securities exchange or on any inter-dealer quotation system (as defined in § 240.15c2-11) that displays at least two priced quotations for the security, at the time the Rule 10b-18 purchase is effected; and (iii) For all other securities, Rule 10b-18 purchases must be effected at a price no higher than the highest independent bid obtained from three independent dealers. (4) Volume of purchases. The total volume of Rule 10b-18 purchases effected by or for the issuer and any affiliated purchasers effected on any single day must not exceed 25 percent of the ADTV for that security; However, once each week, in lieu of purchasing under the 25 percent of ADTV limit for that day, the issuer or an affiliated purchaser of the issuer may effect one block purchase if: (i) No other Rule 10b-18 purchases are effected that day, and (ii) The block purchase is not included when calculating a security's four week ADTV under this section. (c) Alternative conditions. The conditions of paragraph (b) of this section shall apply in connection with Rule 10b-18 purchases effected during a trading session following the imposition of a market-wide trading suspension, except: (1) That the time of purchases condition in paragraph (b)(2) of this section shall not apply, either: (i) From the reopening of trading until the scheduled close of trading on the day that the market-wide trading suspension is imposed; or (ii) At the opening of trading on the next trading day until the scheduled close of trading that day, if a market-wide trading suspension was in effect at the close of trading on the preceding day; and (2) The volume of purchases condition in paragraph (b)(4) of this section is modified so that the amount of Rule 10b-18 purchases must not exceed 100 percent of the ADTV for that security. (d) Other purchases. No presumption shall arise that an issuer or an affiliated purchaser has violated the anti-manipulation provisions of sections 9(a)(2) or 10(b) of the Act (15 U.S.C. 78i(a)(2) or 78j(b)), or § 240.10b-5 under the Act, if the Rule 10b-18 purchases of such issuer or affiliated purchaser do not meet the conditions specified in paragraph (b) or (c) of this section.

§ 240.10b-21 Deception in connection with a seller's ability or intent to deliver securities on the date delivery is due. This rule is not intended to limit, or restrict, the applicability of the general antifraud provisions of the federal securities laws, such as section 10(b) of the Act and rule 10b-5 thereunder. (a) It shall also constitute a “manipulative or deceptive device or contrivance” as used in section 10(b) of this Act for any person to submit an order to sell an equity security if such person deceives a broker or dealer, a participant of a registered clearing agency, or a purchaser about its intention or ability to deliver the security on or before the settlement date, and such person fails to deliver the security on or before the settlement date. (b) For purposes of this rule, the term settlement date shall mean the business day on which delivery of a security and payment of money is to be made through the facilities of a registered clearing agency in connection with the sale of a security.

§ 240.10c-1a Securities lending transparency. (a) Reporting requirements for covered persons. Any covered person who agrees to a covered securities loan on behalf of itself or another person shall: (1) Provide to a registered national securities association (“RNSA”) the information in paragraphs (c) through (e) of this section (“Rule 10c-1a information”), in the format and manner required by the applicable rule(s) of such RNSA, and within the time periods specified in paragraphs (c) through (e) of this section. (2) Provided, however, a covered person may rely on a reporting agent to fulfill its reporting obligations under paragraph (a)(1) of this section if such covered person: (i) Enters into a written agreement with a reporting agent that agrees to provide the Rule 10c-1a information to an RNSA on behalf of such covered person in accordance with the requirements in paragraph (b) of this section; and, (ii) Provides such reporting agent with timely access to the Rule 10c-1a information. (b) Reporting agent requirements. Any reporting agent that assumes the reporting obligation on behalf of a covered person pursuant to paragraph (a)(2) of this section shall: (1) Provide such Rule 10c-1a information to an RNSA, in the format and manner required by the applicable rule(s) of such RNSA, and within the time periods specified in paragraphs (c) through (e) of this section; (2) Establish, maintain, and enforce written policies and procedures that are reasonably designed to provide Rule 10c-1a information to an RNSA on behalf of a covered person in the format and manner required by the applicable rule(s) of an RNSA, and within the time periods specified in paragraphs (c) through (e) of this section; (3) Enter into a written agreement with an RNSA that permits the reporting agent to provide Rule 10c-1a information to an RNSA on behalf of a covered person; (4) Provide an RNSA with a list naming each covered person on whose behalf the reporting agent is providing Rule 10c-1a information to an RNSA and provide an RNSA with any updates to the list of such persons by the end of the day such list changes; and (5) Preserve for a period of not less than three years, the first two years in an easily accessible place: (i) The Rule 10c-1a information obtained by the reporting agent from the covered person pursuant to paragraph (a)(2) of this section, including the time of receipt, and the corresponding Rule 10c-1a information provided by the reporting agent to an RNSA, including the time of transmission to an RNSA; and (ii) The written agreements under paragraphs (a)(2) and (b)(3) of this section. (c) Data elements. A covered person shall provide the following information, if applicable, to an RNSA, by the end of the day on which a covered securities loan is effected: (1) The legal name of the security issuer, and the Legal Entity Identifier (“LEI”) of the issuer, if the issuer has a non-lapsed LEI; (2) The ticker symbol, International Securities Identification Number (“ISIN”), Committee on Uniform Securities Identification Procedures (“CUSIP”), or Financial Instrument Global Identifier (“FIGI”) of the security, or other security identifier; (3) The date the covered securities loan was effected; (4) The time the covered securities loan was effected; (5) The name of the platform or venue where the covered securities loan was effected; (6) The amount, such as size, volume, or both, of the reportable securities loaned; (7) The type of collateral used to secure the covered securities loan; (8) For a covered securities loan collateralized by cash, the rebate rate or any other fee or charges; (9) For a covered securities loan not collateralized by cash, the securities lending fee or rate, or any other fee or charges; (10) The percentage of collateral to value of reportable securities loaned required to secure such covered securities loan; (11) The termination date of the covered securities loan; and (12) Whether the borrower is a broker or dealer, a customer (if the person lending securities is a broker or dealer), a clearing agency, a bank, a custodian, or other person. (d) Loan modification data elements. A covered person shall provide the following information to an RNSA by the end of the day on which a covered securities loan is modified: (1) If the modification occurs after the data elements under paragraph (c) of this section for such covered securities loan are provided to an RNSA, and results in a change to information previously required to be provided to an RNSA under paragraph (c) of this section: (i) The date and time of the modification; (ii) The specific modification and the specific data element in paragraph (c) of this section being modified; and (iii) The unique identifier assigned to the original covered securities loan under paragraph (g)(1) or (g)(3) of this section; (2) If the modification is to a covered securities loan for which reporting under paragraph (a) was not required on the date the loan was agreed to or last modified and results in a change to any of the data elements in paragraphs (c)(1) through (12) of this section: (i) The data elements in paragraphs (c)(1) through (12) of this section as of the date of modification and the date and time of the modification. (ii) [Reserved] (e) Confidential data elements. A covered person shall provide the following information to an RNSA, if applicable, by the end of the day on which a covered securities loan is effected: (1) If known, the legal name of each party to the covered securities loan, other than the customer from whom a broker or dealer borrows fully paid or excess margin securities pursuant to § 240.15c3-3(b)(3) (“Rule 15c3-3(b)(3)”) of the Exchange Act, Central Registration Depository (“CRD”) or Investment Adviser Registration Depository (“IARD”) Number, market participant identification (“MPID”), and the LEI of each party to the covered securities loan, and whether such person is the lender, the borrower, or an intermediary between the lender and the borrower; (2) If the person lending securities is a broker or dealer and the borrower is its customer, whether the security is loaned from a broker's or dealer's securities inventory to a customer of such broker or dealer; and (3) If known, whether the covered securities loan is being used to close out a fail to deliver pursuant to § 242.204 of this chapter (“Rule 204 of Regulation SHO”) or to close out a fail to deliver outside of §§ 242.200 through 242.204 of this chapter (“Regulation SHO”). (f) RNSA rules. An RNSA shall implement rules regarding the format and manner of its collection of information described in paragraphs (c) through (e) of this section and make publicly available such information in accordance with rules promulgated pursuant to 15 U.S.C. 78s(b) (“section 19(b)”) and § 240.19b-4 (“Rule 19b-4”) of the Exchange Act. (g) RNSA publication of data. An RNSA shall: (1) Following receipt of information pursuant to paragraph (c) of this section, as soon as practicable, and not later than the morning of the business day after the covered securities loan is effected, assign a unique identifier to the covered securities loan and make publicly available the following information: (i) For each covered securities loan effected on the previous business day: (A) The unique identifier assigned by an RNSA; (B) The information it receives under paragraphs (c)(1) through (5) and (7) through (12) of this section; and (C) The security identifier(s) under paragraphs (c)(1) or (2) of this section that an RNSA determines is appropriate to identify the relevant reportable security. (2) Following receipt of information pursuant to paragraph (c) of this section, on the twentieth business day after the covered securities loan is effected, make publicly available the information specified in paragraph (c)(6) of this section along with the loan and security identifying information specified in paragraphs (g)(1)(i)(A) and (C) of this section. (3) Following receipt of information pursuant to paragraph (d) of this section, assign a unique identifier to the covered securities loan if one was not assigned pursuant to paragraph (g)(1)(i)(A) of this section; and: (i) As soon as practicable, and not later than the morning of the business day after the covered securities loan is modified, make publicly available information pertaining to any modification to the data specified in paragraphs (c)(1) through (5) and (7) through (12) of this section; provided however, for a covered securities loan for which paragraph (c) information is reported to an RNSA pursuant to paragraph (d)(2) of this section, make publicly available the data specified in paragraphs (c)(1) through (5) and (7) through (12); and (ii) On the twentieth business day after the covered securities loan is modified, make publicly available the data specified in paragraph (c)(6) of this section along with the loan and security identifying information specified in paragraphs (g)(1)(i)(A) or (g)(3), as applicable, and (g)(1)(i)(C) of this section. (4) Following receipt of information pursuant to paragraph (e) of this section, keep such information confidential, in accordance with the provisions of paragraph (h) of this section and applicable law. (5) Following the receipt of information specified in paragraphs (c) and (d) of this section, as soon as practicable, and not later than the morning of the business day after covered securities loans are effected or modified, make publicly available, on a daily basis, information pertaining to the aggregate transaction activity and distribution of loan rates for each reportable security and the security identifier(s) under paragraphs (c)(1) or (2) of this section for which an RNSA determines is appropriate to identify. (h) Data retention and availability. An RNSA shall: (1) Retain the information collected pursuant to paragraphs (c) through (e) of this section in a convenient and usable standard electronic data format that is machine readable and text searchable without any manual intervention for a period of five years; (2) Make the information collected pursuant to paragraphs (b)(4) and (c) through (e) of this section available to the Commission; or other persons as the Commission may designate by order upon a demonstrated regulatory need; (3) Make the information collected under paragraphs (c) and (d) of this section available to the public in the same manner such information is maintained pursuant to paragraph (h)(1) of this section on an RNSA's website or similar means of electronic distribution, without use restrictions, for a period of at least five years; and (4) Establish, maintain, and enforce reasonably designed written policies and procedures to maintain the security and confidentiality of confidential information required by paragraph (e) of this section. (i) RNSA fees. An RNSA may establish and collect reasonable fees, pursuant to rules that are promulgated pursuant to section 19(b) and Rule 19b-4 of the Exchange Act. (j) Definitions. For purposes of this section: (1) The term covered person means: (i) Any person that agrees to a covered securities loan on behalf of a lender (“intermediary”) other than a clearing agency when providing only the functions of a central counterparty pursuant to § 240.17Ad-22(a)(2) (“Rule 17Ad-22(a)(2)”) of the Exchange Act or a central securities depository pursuant to § 240.17Ad-22(a)(3) (“Rule 17Ad-22(a)(3)”) of the Exchange Act; or (ii) Any person that agrees to a covered securities loan as a lender when an intermediary is not used unless paragraph (j)(1)(iii) of this section applies; or (iii) A broker or dealer when borrowing fully paid or excess margin securities pursuant to Rule 15c3-3(b)(3) of the Exchange Act. (2) The term covered securities loan means: (i) A transaction in which any person on behalf of itself or one or more other persons, lends a reportable security to another person. (ii) Notwithstanding paragraph (j)(2)(i) of this section, a position at a clearing agency that results from central counterparty services pursuant to Rule 17Ad-22(a)(2) of the Exchange Act or central securities depository services pursuant to Rule 17Ad-22(a)(3) of the Exchange Act will not be a covered securities loan for purposes of this rule. (iii) Notwithstanding paragraph (j)(2)(i) of this section, the use of margin securities, as defined in § 240.15c3-3(a)(4) (“Rule 15c3-3(a)(4)”) of the Exchange Act, by a broker or dealer will not be a covered securities loan for purposes of this rule. (A) Provided, however, if a broker or dealer lends such margin securities to another person, the loan to the other person is a covered securities loan for purposes of this rule. (B) [Reserved] (3) The term reportable security means any security or class of an issuer's securities for which information is reported or required to be reported to the consolidated audit trail as required by § 242.613 (“Rule 613”) of the Exchange Act and the CAT NMS Plan (“CAT”), the Financial Industry Regulatory Authority's Trade Reporting and Compliance Engine (“TRACE”), or the Municipal Securities Rulemaking Board's Real-Time Transaction Reporting System (“RTRS”), or any reporting system that replaces one of these systems. (4) The term reporting agent means a broker, dealer, or registered clearing agency that enters into a written agreement with a covered person under paragraph (a)(2) of this section. (5) The term RNSA means an association of brokers and dealers that is registered as a national securities association pursuant to 15 U.S.C. 78o-3 (“section 15A”) of the Exchange Act.

§ 240.10A-1 Notice to the Commission Pursuant to Section 10A of the Act. (a)(1) If any issuer with a reporting obligation under the Act receives a report requiring a notice to the Commission in accordance with section 10A(b)(3) of the Act, 15 U.S.C. 78j-1(b)(3), the issuer shall submit such notice to the Commission's Office of the Chief Accountant within the time period prescribed in that section. The notice may be provided by facsimile, telegraph, personal delivery, or any other means, provided it is received by the Office of the Chief Accountant within the required time period. (2) The notice specified in paragraph (a)(1) of this section shall be in writing and: (i) Shall identify the issuer (including the issuer's name, address, phone number, and file number assigned to the issuer's filings by the Commission) and the independent accountant (including the independent accountant's name and phone number, and the address of the independent accountant's principal office); (ii) Shall state the date that the issuer received from the independent accountant the report specified in section 10A(b)(2) of the Act, 15 U.S.C. 78j-1(b)(2); (iii) Shall provide, at the election of the issuer, either: (A) A summary of the independent accountant's report, including a description of the act that the independent accountant has identified as a likely illegal act and the possible effect of that act on all affected financial statements of the issuer or those related to the most current three-year period, whichever is shorter; or (B) A copy of the independent accountant's report; and (iv) May provide additional information regarding the issuer's views of and response to the independent accountant's report. (3) Reports of the independent accountant submitted by the issuer to the Commission's Office of the Chief Accountant in accordance with paragraph (a)(2)(iii)(B) of this section shall be deemed to have been made pursuant to section 10A(b)(3) or section 10A(b)(4) of the Act, 15 U.S.C. 78j-1(b)(3) or 78j-1(b)(4), for purposes of the safe harbor provided by section 10A(c) of the Act, 15 U.S.C. 78j-1(c). (4) Submission of the notice in paragraphs (a)(1) and (a)(2) of this section shall not relieve the issuer from its obligations to comply fully with all other reporting requirements, including, without limitation: (i) The filing requirements of Form 8-K, § 249.308 of this chapter, and Form N-CSR, § 274.128 of this chapter, regarding a change in the issuer's certifying accountant and (ii) The disclosure requirements of Item 304 of Regulation S-K, § 229.304 of this chapter. (b)(1) Any independent accountant furnishing to the Commission a copy of a report (or the documentation of any oral report) in accordance with section 10A(b)(3) or section 10A(b)(4) of the Act, 15 U.S.C. 78j-1(b)(3) or 78j-1(b)(4), shall submit that report (or documentation) to the Commission's Office of the Chief Accountant within the time period prescribed by the appropriate section of the Act. The report (or documentation) may be submitted to the Commission's Office of the Chief Accountant by facsimile, telegraph, personal delivery, or any other means, provided it is received by the Office of the Chief Accountant within the time period set forth in section 10A(b)(3) or 10A(b)(4) of the Act, 15 U.S.C. 78j-1(b)(3) or 78j-(b)(4), whichever is applicable in the circumstances. (2) If the report (or documentation) submitted to the Office of the Chief Accountant in accordance with paragraph (b)(1) of this section does not clearly identify both the issuer (including the issuer's name, address, phone number, and file number assigned to the issuer's filings with the Commission) and the independent accountant (including the independent accountant's name and phone number, and the address of the independent accountant's principal office), then the independent accountant shall place that information in a prominent attachment to the report (or documentation) and shall submit that attachment to the Office of the Chief Accountant at the same time and in the same manner as the report (or documentation) is submitted to that Office. (3) Submission of the report (or documentation) by the independent accountant as described in paragraphs (b)(1) and (2) of this section shall not replace, or otherwise satisfy the need for, the newly engaged and former accountants' letters under §§ 229.304(a)(2)(D) and 229.304(a)(3) of this chapter (Items 304(a)(2)(D) and 304(a)(3) of Regulation S-K, respectively) and shall not limit, reduce, or affect in any way the independent accountant's obligations to comply fully with all other legal and professional responsibilities, including, without limitation, those under the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”) and the rules or interpretations of the Commission that modify or supplement those auditing standards. (c) A notice or report submitted to the Office of the Chief Accountant in accordance with paragraphs (a) and (b) of this section shall be deemed to be an investigative record and shall be nonpublic and exempt from disclosure pursuant to the Freedom of Information Act to the same extent and for the same periods of time that the Commission's investigative records are nonpublic and exempt from disclosure under, among other applicable provisions, 5 U.S.C. 552(b)(7). Nothing in this paragraph, however, shall relieve, limit, delay, or affect in any way, the obligation of any issuer or any independent accountant to make all public disclosures required by law, by any Commission disclosure item, rule, report, or form, or by any applicable accounting, auditing, or professional standard. Issuers and independent accountants may apply for additional bases for confidential treatment for a notice, report, or part thereof, in accordance with § 200.83 of this chapter. That section indicates, in part, that any person who, pursuant to any requirement of law, submits any information or causes or permits any information to be submitted to the Commission, may request that the Commission afford it confidential treatment by reason of personal privacy or business confidentiality, or for any other reason permitted by Federal law.

§ 240.10A-2 Auditor independence. It shall be unlawful for an auditor not to be independent under § 210.2-01(c)(2)(iii)(B), (c)(4), (c)(6), (c)(7), and § 210.2-07.

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