17 CFR 240.15c3-4 - Internal risk management control systems for OTC derivatives dealers.

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§ 240.15c3-4 Internal risk management control systems for OTC derivatives dealers.
(a) An OTC derivatives dealer shall establish, document, and maintain a system of internal risk management controls to assist it in managing the risks associated with its business activities, including market, credit, leverage, liquidity, legal, and operational risks.
(b) An OTC derivatives dealer shall consider the following when adopting its internal control system guidelines, policies, and procedures:
(1) The ownership and governance structure of the OTC derivatives dealer;
(2) The composition of the governing body of the OTC derivatives dealer;
(3) The management philosophy of the OTC derivatives dealer;
(4) The scope and nature of established risk management guidelines;
(5) The scope and nature of the permissible OTC derivatives activities;
(6) The sophistication and experience of relevant trading, risk management, and internal audit personnel;
(7) The sophistication and functionality of information and reporting systems; and
(8) The scope and frequency of monitoring, reporting, and auditing activities.
(c) An OTC derivatives dealer's internal risk management control system shall include the following elements:
(1) A risk control unit that reports directly to senior management and is independent from business trading units;
(2) Separation of duties between personnel responsible for entering into a transaction and those responsible for recording the transaction in the books and records of the OTC derivatives dealer;
(3) Periodic reviews (which may be performed by internal audit staff) and annual reviews (which must be conducted by independent certified public accountants) of the OTC derivatives dealer's risk management systems;
(4) Definitions of risk, risk monitoring, and risk management; and
(5) Written guidelines, approved by the OTC derivatives dealer's governing body, that include and discuss the following:
(i) The OTC derivatives dealer's consideration of the elements in paragraph (b) of this section;
(ii) The scope, and the procedures for determining the scope, of authorized activities or any nonquantitative limitation on the scope of authorized activities;
(iii) Quantitative guidelines for managing the OTC derivatives dealer's overall risk exposure;
(iv) The type, scope, and frequency of reporting by management on risk exposures;
(v) The procedures for and the timing of the governing body's periodic review of the risk monitoring and risk management written guidelines, systems, and processes;
(vi) The process for monitoring risk independent of the business or trading units whose activities create the risks being monitored;
(vii) The performance of the risk management function by persons independent from or senior to the business or trading units whose activities create the risks;
(viii) The authority and resources of the groups or persons performing the risk monitoring and risk management functions;
(ix) The appropriate response by management when internal risk management guidelines have been exceeded;
(x) The procedures to monitor and address the risk that an OTC derivatives transaction contract will be unenforceable;
(xi) The procedures requiring the documentation of the principal terms of OTC derivatives transactions and other relevant information regarding such transactions;
(xii) The procedures authorizing specified employees to commit the OTC derivatives dealer to particular types of transactions;
(xiii) The procedures to prevent the OTC derivatives dealer from engaging in any securities transaction that is not permitted under § 240.15a-1; and
(xiv) The procedures to prevent the OTC derivatives dealer from improperly relying on the exceptions to § 240.15a-1(c) and § 240.15a-1(d), including the procedures to determine whether a counterparty is acting in the capacity of principal or agent.
(d) Management must periodically review, in accordance with written procedures, the OTC derivatives dealer's business activities for consistency with risk management guidelines including that:
(1) Risks arising from the OTC derivatives dealer's OTC derivatives activities are consistent with prescribed guidelines;
(2) Risk exposure guidelines for each business unit are appropriate for the business unit;
(3) The data necessary to conduct the risk monitoring and risk management function as well as the valuation process over the OTC derivatives dealer's portfolio of products is accessible on a timely basis and information systems are available to capture, monitor, analyze, and report relevant data;
(4) Procedures are in place to enable management to take action when internal risk management guidelines have been exceeded;
(5) Procedures are in place to monitor and address the risk that an OTC derivatives transaction contract will be unenforceable;
(6) Procedures are in place to identify and address any deficiencies in the operating systems and to contain the extent of losses arising from unidentified deficiencies;
(7) Procedures are in place to authorize specified employees to commit the OTC derivatives dealer to particular types of transactions, to specify any quantitative limits on such authority, and to provide for the oversight of their exercise of such authority;
(8) Procedures are in place to prevent the OTC derivatives dealer from engaging in any securities transaction that is not permitted under § 240.15a-1;
(9) Procedures are in place to prevent the OTC derivatives dealer from improperly relying on the exceptions to § 240.15a-1(c) and § 240.15a-1(d), including procedures to determine whether a counterparty is acting in the capacity of principal or agent;
(10) Procedures are in place to provide for adequate documentation of the principal terms of OTC derivatives transactions and other relevant information regarding such transactions;
(11) Personnel resources with appropriate expertise are committed to implementing the risk monitoring and risk management systems and processes; and
(12) Procedures are in place for the periodic internal and external review of the risk monitoring and risk management functions.
[63 FR 59400, Nov. 3, 1998]

Title 17 published on 2013-04-01

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  • 2014-02-10; vol. 79 # 27 - Monday, February 10, 2014
    1. 79 FR 7570 - Extension of Exemptions for Security-Based Swaps
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      SECURITIES AND EXCHANGE COMMISSION
      Interim final rule; extension.
      The amendments are effective February 10, 2014. See Section I of the SUPPLEMENTARY INFORMATION concerning amendment of expiration dates in the interim final rules.
      17 CFR Parts 230, 240 and 260

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United States Code
U.S. Code: Title 12 - BANKS AND BANKING
U.S. Code: Title 15 - COMMERCE AND TRADE

§ 27dd

§ 77c - Classes of securities under this subchapter

§ 77d - Exempted transactions

§ 77g - Information required in registration statement

§ 77j - Information required in prospectus

§ 77s - Special powers of Commission

15 U.S. Code § 77z–2 - Application of safe harbor for forward-looking statements

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§ 77eee - Securities required to be registered under Securities Act

§ 77ggg - Qualification of indentures covering securities not required to be registered

§ 77nnn - Reports by obligor; evidence of compliance with indenture provisions

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§ 78c - Definitions and application

15 U.S. Code § 78c–3 - Clearing for security-based swaps

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§ 78i - Manipulation of security prices

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15 U.S. Code § 78j–1 - Audit requirements

§ 78k - Trading by members of exchanges, brokers, and dealers

15 U.S. Code § 78k–1 - National market system for securities; securities information processors

15 U.S. Code § -

§ 78m - Periodical and other reports

§ 78n - Proxies

15 U.S. Code § -

15 U.S. Code § -

§ 78p - Directors, officers, and principal stockholders

§ 78q - Records and reports

§ 78s - Registration, responsibilities, and oversight of self-regulatory organizations

15 U.S. Code § 78u–5 - Application of safe harbor for forward-looking statements

§ 78w - Rules, regulations, and orders; annual reports

§ 78x - Public availability of information

15 U.S. Code § -

§ 78mm - General exemptive authority

15 U.S. Code § 80a–20 - Proxies; voting trusts; circular ownership

15 U.S. Code § 80a–23 - Closed-end companies

15 U.S. Code § 80a–29 - Reports and financial statements of investment companies and affiliated persons

15 U.S. Code § 80a–37 - Rules, regulations, and orders

15 U.S. Code § 80b–3 - Registration of investment advisers

15 U.S. Code § 80b–4 - Reports by investment advisers

15 U.S. Code § 80b–11 - Rules, regulations, and orders of Commission

§ 7201 - Definitions

§ 7202 - Commission rules and enforcement

U.S. Code: Title 18 - CRIMES AND CRIMINAL PROCEDURE
Statutes at Large

Title 17 published on 2013-04-01

The following are ALL rules, proposed rules, and notices (chronologically) published in the Federal Register relating to 17 CFR 240 after this date.

  • 2014-02-28; vol. 79 # 40 - Friday, February 28, 2014
    1. 79 FR 11361 - Re-Opening of Comment Period for Asset-Backed Securities Release
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      SECURITIES AND EXCHANGE COMMISSION
      Re-opening of comment period.
      Comments should be received on or before March 28, 2014.
      17 CFR Parts 200, 229, 230, 232, 239, 240, 243, and 249