1. Title VII of the Dodd-Frank Act Regulation of Over-the-Counter Derivatives

2. Objectives of Title VII The Objectives of Title VII of the Dodd-Frank Act (the “Act”) include: managing perceived systematic risk in the over-the-counter (“OTC”) derivatives market; and increasing transparency in the OTC derivatives market. The Act seeks to achieve its objectives by: establishing a regulatory framework for the primary regulators of the OTC derivatives markets; requiring certain OTC derivatives transactions to be cleared and exchange traded; imposing margin and capital requirements on certain OTC derivatives market participants; and requiring OTC derivatives transactions to be reported and certain information regarding such transactions to be publicly disseminated.

3. CFTC and SEC Jurisdiction CFTC The Act grants the CFTC new regulatory authority over commodities derivatives and swaps as well as swap dealers, major swap participants (“MSP” or “MSPs”), swap data repositories, swap execution facilities for swaps, and clearing organizations for swaps. SEC The Act grants the SEC new regulatory authority over security- based swaps as well as security-based swap dealers, major security-based swap participants, security-based swap data repositories, swap execution facilities for security-based swaps, and clearing agencies for security-based swaps.

4. Swaps, Security-based Swaps, and Mixed Swaps Swap Any agreement, contract, or transaction that: (i) provides for an exchange of payments based upon the value or level of interest or other rates, currencies, commodities, securities, debt instruments, indices, quantitative measures, or other financial or economic interests or property of any kind that transfers financial risk without transferring ownership risk; (ii) is an option on such interests or property; or (iii) provides for any purchase, sale, payment, or delivery that is dependent upon the occurrence, non-occurrence or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence. Security-Based Swap A swap that is based on a narrow-based security index, a single security or a loan, or the occurrence, non-occurrence or the extent of the occurrence of an event relating to a single issuer of a security or the issuers of securities in a narrow-based security index. Mixed Swap A security-based swap that is also based on the value of one or more interest or other rates, currencies, commodities, instruments of indebtedness, indices, quantitative measures, other financial or economic interest or property of any kind (other than a single security or a narrow- based security index), or the occurrence, non-occurrence or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence. *For ease of presentation, unless otherwise indicated, references to swap, swap dealer, and major swap participant also refers to security-based swap, security-based swap dealer, and major security-based swap participant, respectively.

5. Newly Regulated OTC Derivatives Market Participants -- Swap Dealers Swap Dealer A person who meets any one of the following criteria: ºholds itself out as a dealer in swaps; ºmakes a market in swaps; ºregularly enters into swaps with counterparties in the ordinary course of business for its own account; or ºengaged in any activity causing such person to be commonly known in the trade as a dealer or market maker in swaps. Exceptions ºDoes not include a person that enters into swaps for such person’s own account, either individually or in a fiduciary capacity, but not as a part of a regular business. ºA insured depository institution that enters into a swap with a customer in connection with a loan that such institution has extended to the customer would not be considered a “swap dealer” as result of that transaction. ºDe minimis exception for entities that engage in a de minimis quantity of swap dealings in connection with transactions with or on behalf of its customers. Status ºThe Act authorizes the appropriate regulator to designate a swap dealer for a single, type, class, or category and not other types, classes, or categories.

6. Newly Regulated OTC Derivatives Market Participants -- Major Swap Participants Major Swap Participant Any person that is not a swap dealer and meets any of the following criteria: ºmaintains a substantial position in swaps, excluding (i) positions held for hedging or mitigating commercial risk and (ii) swaps (but not security-based swaps) maintained by an employee benefit plan as defined in ERISA for the primary purpose of hedging or mitigating any risk associated with the operation of the plan; ºwhose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the U.S. banking system or financial markets; or ºis a financial entity that is highly leveraged relative to the amount of capital it holds and is not subject to capital requirements established by an appropriate federal banking agency and also maintains a substantial potion in outstanding swaps. Certain captive finance affiliates are excluded from this definition (but not the definition of major security-based swap participant). The CFTC and SEC are charged with separately defining “substantial position” and are authorized to define “commercial risk”. The Act authorizes the appropriate regulator to designate a MSP for a single, type, class, or category and not other types, classes, or categories.

7. Reporting and Recordkeeping Requirements and Business Conduct Standards Swap dealers and MSPs will be subject to robust reporting and record keeping requirements, including disclosing transactions, positions and their financial condition. The appropriate regulator is required to adopt business conduct standards applicable to swap dealers and MSPs. Different standards are to be implemented for swap dealers and MSPs when they are dealing with “Special Entities” such as governmental entities, pension plans, and endowments. Swap dealers and MSPs are required to designate chief compliance officers.

8. Clearing Requirements General rule If the appropriate regulator determines that a swap is required to be cleared, the parties to such transaction are required to clear the transaction by submitting it to a derivatives clearing organization or agency unless a clearing exception is applicable. Exceptions A swap entered into prior to the enactment of the Act is not required to be cleared so long as it is reported to a registered data repository or the appropriate regulator no later than 180 days after the effective date of the Act. A swap entered into on or after the date of enactment must be reported within (i) 90 days after the effective date or (ii) such other time as the appropriate regulator may prescribe. The “commercial end-user” exception is satisfied.

9. “Commercial End-User” Exception from Clearing The term “commercial end-user” is not defined under the Act. The term generally refers to those parties opposite a dealer in an OTC derivatives transaction. The Act contains an optional exception from the clearing requirement for a counterparty that (i) is NOT a financial entity; (ii) uses the swap to hedge or mitigate “commercial risk”; and (iii) notifies the appropriate regulator how it meets its financial obligations associated with entering into non-cleared swaps. “Financial Entity” means: Swap dealer MSP Commodity pool Private fund ERISA plan A person predominantly engaged in activities that are in the business of banking or financial in nature The CFTC is directed to make a determination whether to exclude banks with less than $10 billion in assets from the definition of financial entity. Certain captive finance entities are excluded from the definition of financial entity. The “commercial end-user” exception is available to publicly-traded companies if the appropriate committee of the company’s board or governing body reviewed and approved its decision to enter into non-cleared swap transactions.

10. Exchange Trading and Information Disclosure The Act requires that all swaps subject to the clearing requirement be traded on a board of trade designated as a contract market or securities exchange or through a swap execution facility unless no such entity accepts the swap for trading. A “Swap Execution Facility” is a facility trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system through any means of interstate commerce. Information on the economic terms and certain other terms will be required to be reported to swap data repositories or the appropriate regulator, whether or not the applicable transaction is required to be cleared or exchange traded.

11. Capital and Margin Requirements The appropriate regulators must establish capital requirements and, for uncleared swaps, initial and variation margin on swap dealers and MSPs. Derivatives clearing organizations and agencies will establish margin requirements for cleared swaps. The Act does not expressly exempt existing swaps from margin requirements. The Act does not contain an express exemption for “commercial end-users” from the Act’s margin requirements.

12. Section 716 Push-Out Provision Subject to a two-year phase in process, swaps entities receiving “federal assistance” are required to “push-out” derivatives transactions prohibited by the Act. The prohibition does not apply to derivatives transactions that (i) are part of a swaps entity’s hedging or risk mitigating activities or (ii) involve rates or referenced assets permissible for investment by a national bank.

13. Effective Date of Title VII Unless otherwise provided, the provisions of Title VII become effective on a date that is the later of (i) 360 days following the enactment of the Act or (ii) if a provision requires rulemaking, not less than 60 days after the publication of the applicable final rule or regulation.

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