financial entity
(7) Exceptions (A) In general The requirements of paragraph (1)(A) shall not apply to a swap if 1 of the counterparties to the swap— (i) is not a financial entity; (ii) is using swaps to hedge or mitigate commercial risk; and (iii) notifies the Commission, in a manner set forth by the Commission, how it generally meets its financial obligations associated with entering into non-cleared swaps. (B) Option to clear The application of the clearing exception in subparagraph (A) is solely at the discretion of the counterparty to the swap that meets the conditions of clauses (i) through (iii) of subparagraph (A). (C) Financial entity definition (i) In general For the purposes of this paragraph, the term “financial entity” means— (I) a swap dealer; (II) a security-based swap dealer; (III) a major swap participant; (IV) a major security-based swap participant; (V) a commodity pool; (VI) a private fund as defined in section 80b–2(a) of title 15 ; (VII) an employee benefit plan as defined in paragraphs (3) and (32) of section 1002 of title 29 ; (VIII) a person predominantly engaged in activities that are in the business of banking, or in activities that are financial in nature, as defined in section 1843(k) of title 12 . (ii) Exclusion The Commission shall consider whether to exempt small banks, savings associations, farm credit system institutions, and credit unions, including— (I) depository institutions with total assets of $10,000,000,000 or less; (II) farm credit system institutions with total assets of $10,000,000,000 or less; or (III) credit unions with total assets of $10,000,000,000 or less. (iii) Limitation Such definition shall not include an entity whose primary business is providing financing, and uses derivatives for the purpose of hedging underlying commercial risks related to interest rate and foreign currency exposures, 90 percent or more of which arise from financing that facilitates the purchase or lease of products, 90 percent or more of which are manufactured by the parent company or another subsidiary of the parent company. (D) Treatment of affiliates (i) In general An affiliate of a person that qualifies for an exception under subparagraph (A) (including affiliate entities predominantly engaged in providing financing for the purchase of the merchandise or manufactured goods of the person) may qualify for the exception only if the affiliate— (I) enters into the swap to hedge or mitigate the commercial risk of the person or other affiliate of the person that is not a financial entity, and the commercial risk that the affiliate is hedging or mitigating has been transferred to the affiliate; (II) is directly and wholly-owned by another affiliate qualified for the exception under this subparagraph or an entity that is not a financial entity; (III) is not indirectly majority-owned by a financial entity; (IV) is not ultimately owned by a parent company that is a financial entity; and (V) does not provide any services, financial or otherwise, to any affiliate that is a nonbank financial company supervised by the Board of Governors (as defined under section 5311 of title 12 ). (ii) Limitation on qualifying affiliates The exception in clause (i) shall not apply if the affiliate is— (I) a swap dealer; (II) a security-based swap dealer; (III) a major swap participant; (IV) a major security-based swap participant; (V) a commodity pool; (VI) a bank holding company; (VII) a private fund, as defined in section 80b–2(a) of title 15 ; (VIII) an employee benefit plan or government plan, as defined in paragraphs (3) and (32) of section 1002 of title 29 ; (IX) an insured depository institution; (X) a farm credit system institution; (XI) a credit union; (XII) a nonbank financial company supervised by the Board of Governors (as defined under section 5311 of title 12 ); or (XIII) an entity engaged in the business of insurance and subject to capital requirements established by an insurance governmental authority of a State, a territory of the United States, the District of Columbia, a country other than the United States, or a political subdivision of a country other than the United States that is engaged in the supervision of insurance companies under insurance law. (iii) Limitation on affiliates’ affiliates Unless the Commission determines, by order, rule, or regulation, that it is in the public interest, the exception in clause (i) shall not apply with respect to an affiliate if the affiliate is itself affiliated with— (I) a major security-based swap participant; (II) a security-based swap dealer; (III) a major swap participant; or (IV) a swap dealer. (iv) Conditions on transactions With respect to an affiliate that qualifies for the exception in clause (i)— (I) the affiliate may not enter into any swap other than for the purpose of hedging or mitigating commercial risk; and (II) neither the affiliate nor any person affiliated with the affiliate that is not a financial entity may enter into a swap with or on behalf of any affiliate that is a financial entity or otherwise assume, net, combine, or consolidate the risk of swaps entered into by any such financial entity, except one that is an affiliate that qualifies for the exception under clause (i). (v) Transition rule for affiliates An affiliate, subsidiary, or a wholly owned entity of a person that qualifies for an exception under subparagraph (A) and is predominantly engaged in providing financing for the purchase or lease of merchandise or manufactured goods of the person shall be exempt from the margin requirement described in section 6s(e) of this title and the clearing requirement described in paragraph (1) with regard to swaps entered into to mitigate the risk of the financing activities for not less than a 2-year period beginning on July 21, 2010 . (vi) Risk management program Any swap entered into by an affiliate that qualifies for the exception in clause (i) shall be subject to a centralized risk management program of the affiliate, which is reasonably designed both to monitor and manage the risks associated with the swap and to identify each of the affiliates on whose behalf a swap was entered into. (E) Election of counterparty (i) Swaps required to be cleared With respect to any swap that is subject to the mandatory clearing requirement under this subsection and entered into by a swap dealer or a major swap participant with a counterparty that is not a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant, the counterparty shall have the sole right to select the derivatives clearing organization at which the swap will be cleared. (ii) Swaps not required to be cleared With respect to any swap that is not subject to the mandatory clearing requirement under this subsection and entered into by a swap dealer or a major swap participant with a counterparty that is not a swap dealer, major swap participant, security-based swap dealer, or major security-based swap participant, the counterparty— (I) may elect to require clearing of the swap; and (II) shall have the sole right to select the derivatives clearing organization at which the swap will be cleared. (F) Abuse of exception The Commission may prescribe such rules or issue interpretations of the rules as the Commission determines to be necessary to prevent abuse of the exceptions described in this paragraph. The Commission may also request information from those persons claiming the clearing exception as necessary to prevent abuse of the exceptions described in this paragraph.