§ 23.431. Disclosures of material information.
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/us/cfr/t17/s§ 23.431·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
(a)Disclosures of material information. At a reasonably sufficient time prior to entering into a swap, a swap entity shall disclose to any counterparty to the swap (other than a swap entity, security-based swap dealer, or major security-based swap participant) material information concerning the swap in a manner reasonably designed to allow the counterparty to assess:
(1)The material risks of the particular swap, which may include market, credit, liquidity, foreign currency, legal, operational, and any other applicable risks;
(2)The material characteristics of the particular swap, which shall include the price of the swap, the material economic terms of the swap, the terms relating to the operation of the swap, and the rights and obligations of the parties during the term of the swap to the extent that such characteristics are not reflected in transaction documentation with which the counterparty has been provided prior to entering into the swap; and
(3)The material incentives and conflicts of interest that the swap entity may have in connection with a particular swap, which shall include any compensation or other incentive from any source other than the counterparty that the swap entity may receive in connection with the swap.
(b)\[Reserved\]
(c)Exceptions. Paragraph
(a)of this section shall not apply with respect to a transaction that is:
(1)Initiated on a designated contract market;
(2)Initiated with a counterparty whose identity is not known to the swap entity prior to execution on a swap execution facility, or a trading facility currently exempted from registration as a swap execution facility by the Commission pursuant to section 5h(g) of the Act;
(3)An A-ITBC Swap;
(4)An ITBC Swap initiated on a swap execution facility, or a trading facility currently exempted from registration as a swap execution facility by the Commission pursuant to section 5h(g) of the Act; or
(5)A Permitted PB Transaction entered into pursuant to a Qualified Prime Broker Arrangement.
(d)Daily mark. A swap entity shall:
(1)For cleared swaps, notify each counterparty (other than a swap entity, security-based swap dealer, or major security-based swap participant) of the counterparty's right to receive, upon request, the daily mark for each cleared swap from the appropriate derivatives clearing organization.
(2)Paragraph (d)(1) of this section shall not apply with respect to a transaction that is:
(i)An ITBC Swap that is initiated on a designated contract market, a swap execution facility, or a trading facility currently exempted from registration as a swap execution facility by the Commission pursuant to section 5h(g) of the Act or;
(ii)An A-ITBC Swap.
(3)For uncleared swaps not subject to daily variation margining, provide the counterparty (other than a swap entity, security-based swap dealer, or major security-based swap participant) with a daily mark for each uncleared swap. The daily mark shall be provided to the counterparty during the term of the swap as of the close of business or such other time as the parties agree in writing.
(4)For uncleared swaps not subject to daily variation margining, disclose to the counterparty:
(i)The methodology and assumptions used to prepare the daily mark and any material changes during the term of the swap; provided however, that the swap entity is not required to disclose to the counterparty confidential, proprietary information about any model it may use to prepare the daily mark; and
(ii)Additional information concerning the daily mark to ensure a fair and balanced communication, including, as appropriate, that:
(A)The daily mark is an estimate and may not necessarily be a price at which either the counterparty or the swap entity would agree to replace or terminate the swap;
(B)Depending upon the agreement of the parties, calls for margin may be based on considerations other than the estimated daily mark provided to the counterparty; and
(C)The daily mark is an estimate and may not necessarily be the value of the swap that is marked on the books of the swap entity.
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§ 23.431
Disclosures of material information.
Fed. Reg.×79
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