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Federal Register / Vol. 86, No. 37 / Friday, February 26, 2021 / Rules and Regulations institution as a broker or dealer, a depository institution, a futures commission merchant, or any other institution as determined by the Board.
Regulation EE expands the FDICIA
definition of financial institution and therefore expands FDICIAs netting protectionsusing an activities-based test that includes a qualitative component and a quantitative component. The qualitative component requires that the person represent, orally or in writing, that it will engage in financial contracts as a counterparty on both sides of one or more financial markets. 3 A person that makes this representation demonstrates that it is willing to engage in transactions on both sides of the market and is, in effect, holding itself out as a market intermediary.4 The quantitative component requires that the person have either 1 one or more financial contracts of a total gross dollar value of at least $1 billion in notional principal amount outstanding on any day during the previous 15-month period with counterparties that are not its affiliates or 2 total gross mark-to-market positions of at least $100 million aggregated across counterparties in one or more financial contracts on any day during the previous 15-month period with counterparties that are not its affiliates.5
On May 2, 2019, consistent with the purposes of FDICIAs netting provisions, and in order to reduce systemic risk and increase efficiency in the financial markets, the Board proposed to amend Regulation EE to include additional categories of entities in the definition of financial institution.6 The Board also proposed to clarify certain aspects of Regulation EEs existing activities-based test for qualifying as a financial institution.

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II. Public Comments The Board received five responsive comments from private-sector financial institutions, industry associations, and an international organization.
Commission SEC as a clearing agency or has been exempted from registration by the SEC or 2
registered with the Commodity Futures Trading Commission CFTC as a derivatives clearing organization or has been exempted from registration by the CFTC.
3 12 CFR 231.3a. Regulation EE generally defines the term financial contract by reference to the term qualified financial contract under section 11e8D of the Federal Deposit Insurance Act, 12
U.S.C. 1821e8D. 12 CFR 231.2c.
4 59 FR 4780, 4782 February 2, 1994.
5 Id.
6 84 FR 18741 May 2, 2019. FDICIA section 4029 defines the term financial institution to include an enumerated list of entities and any other institution as determined by the Board of Governors of the Federal Reserve System.

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Commenters supported the proposed revisions to Regulation EE and, in some cases, suggested additional revisions.
Several commenters suggested that the Board extend the financial institution definition to additional categories of entities. One commenter suggested that the Board make two minor clarifications related to the proposed changes to the activities-based test.
A. Qualification as a Financial Institution Based on Type of Entity The Board is amending Regulation EE
to include in the definition of financial institution the entities identified in the proposal. Additionally, the Board is including two other categories of entities, as well as the Bank for International Settlements BIS, in the definition of financial institution.
The Board proposed to define the following entities as financial institutions: Swap dealers and securitybased swap dealers; 7 major swap participants MSPs and major securitybased swap participants MSBSPs; 8
nonbank financial companies that the Financial Stability Oversight Council FSOC has determined shall be supervised by the Board and subject to prudential standards nonbank systemically important financial institutions, or SIFIs; 9 derivatives clearing organizations DCOs that are registered with the CFTC or have been exempted from registration by the CFTC; 10 clearing agencies that are registered with the SEC or have been exempted from registration by the SEC; 11 financial market utilities that the FSOC has designated as, or as likely to become, systemically important designated financial market utilities, or DFMUs; 12 foreign banks as defined in the International Banking Act; 13 bridge institutions established for the purpose of resolving financial institutions; and Federal Reserve Banks. Commenters supported extending the financial institution definition to the entities identified in the proposal.
7 See 7 U.S.C. 6s swap dealer registration requirement and 17 CFR 1.3 swap dealer definition and de minimis thresholds; 15 U.S.C.
78o10 security-based swap dealer registration requirement and 17 CFR 240.3a711 and 240.3a71
2 security-based swap dealer definition and de minimis thresholds.
8 See 7 U.S.C. 6s MSP registration requirement and 15 U.S.C. 78o10 MSBSP registration requirement.
9 12 U.S.C. 5323.
10 See 7 U.S.C. 7a1a and h.
11 See 15 U.S.C. 78q1b and k.
12 12 U.S.C. 5463.
13 12 U.S.C. 3101. As described in the proposal, the Board believes that foreign banks qualify as financial institutions under FDICIAs statutory definition.

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The Board believes that adding these entities to the definition of financial institution would promote the purposes of FDICIAs netting provisionsnamely to reduce systemic risk and increase efficiency in the financial markets. The Board recognizes that Congress has imposed or expanded federal supervision and regulation for many of these entities since the Board first promulgated Regulation EE. In subjecting these entities to higher levels of regulation and supervision due to their activities, transaction volumes, and risks presented to the financial markets, Congress indicated the importance of the smooth functioning of these entities to the financial markets.
Accordingly, the Board is finalizing its proposal to extend the financial institution definition to include swap dealers, security-based swap dealers, MSPs, MSBSPs, nonbank SIFIs, DCOs, clearing agencies, DFMUs, foreign banks, bridge institutions established for the purpose of resolving financial institutions, and Federal Reserve Banks.
The Board is also amending Regulation EE to define qualifying central counterparties QCCPs, foreign central banks, and the BIS as financial institutions.
1. QCCPs In the preamble to the proposed rule, the Board requested comment on whether it should include in the definition of financial institution an entity that is a QCCP under the Boards Regulation Q.14 One industry association supported this addition.
The Boards Regulation Q establishes criteria for identifying QCCPs.
Generally, a Board-supervised institution that clears financial transactions through a QCCP can receive preferential capital treatment for those transactions.15 To qualify as a QCCP, an entity based outside the United States must generally among other things be subject to home-country riskmanagement standards that are comparable to those that apply to DFMUs.
As noted above, the Board is amending the definition of financial institution to include DCOs and clearing agencies that are registered with, or have been exempted from registration by, the CFTC or SEC. All domestic QCCPs and many foreign-based QCCPs are registered or exempt DCOs/clearing agencies. To ensure that all foreign14 12

CFR 217.2.
to a QCCP are risk-weighted at either 2 or 4 percent see 12 CFR 217.35b3 and c3, whereas exposures to a CCP that is not a QCCP are risk-weighted based on the risk weight otherwise assignable to the CCP.
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