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Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations flexibility analysis that describes the impact of a proposed rule on small entities defined for purposes of the RFA to include credit unions with assets less than $100 million.10 A
regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and a short, explanatory statement in the Federal Register together with the rule.
The NCUA certified that the proposed rule would not have a significant economic impact on a substantial number of small credit unions. The Board did not receive any comments on this section.

Section 701.35 is also authorized by 42
U.S.C. 43114312.
701.21

Amended
2. Amend 701.21 by removing paragraph i.

PART 703INVESTMENT AND
DEPOSIT ACTIVITIES
3. The authority citation for part 703
continues to read as follows:

Authority: 12 U.S.C. 17577, 17578, 175715.
703.2

Amended
List of Subjects
4. Amend 703.2 by removing the definition of Derivative.
5. Amend 703.14 by revising paragraph k and adding paragraph l to read as follows:

12 CFR Part 701

703.14

Advertising, Aged, Civil rights, Credit, Credit unions, Fair housing, Individuals with disabilities, Insurance, Marital status discrimination, Mortgages, Religious discrimination, Reporting and recordkeeping requirements, Sex discrimination, Signs and symbols, Surety bonds.

12 CFR Part 703
Credit unions, Investments, Reporting and recordkeeping requirements.
12 CFR Part 741
Bank deposit insurance, Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 746
Administrative practice and procedure, Claims, Credit unions, Investigations.

For the reasons discussed in the preamble, the Board is amending 12
CFR parts 701, 703, 741, and 746 as follows:
PART 701ORGANIZATION AND
OPERATION OF FEDERAL CREDIT
UNIONS
1. The authority citation for part 701
continues to read as follows:

Authority: 12 U.S.C. 17525, 1755, 1756, 1757, 1758, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 701.6
is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601
et seq.; 42 U.S.C. 1981 and 36013610.
10 See NCUA Interpretive Ruling and Policy Statement 872, as amended by IRPS 032 and IRPS
151, 80 FR 57512 Sept. 24, 2015.

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Permissible investments.

k Loan pipeline management. A
Federal credit union may enter into the following transactions related to the management of its loan pipeline:
1 Interest rate lock commitments and forward sales commitments; and 2 Transactions to manage Interest Rate Risk, as defined in subpart B of this part.
l Embedded options. A Federal credit union may enter into embedded options not required under generally accepted accounting principles adopted in the United States GAAP to be accounted for separately from the host contract. Embedded options that are required, under GAAP, to be accounted for separately from the host contract, are addressed in 703.103b of this part.
6. Revise subpart B to read as follows:
Subpart BDerivatives Sec.
703.101 Purpose and scope.
703.102 Definitions.
703.103 Requirements related to the characteristics of permissible Interest Rate Risk Derivatives.
703.104 Requirements for Counterparty agreements, collateral and Margining.
703.105 Reporting requirements.
703.106 Operational support requirements.
703.107 External service providers.
703.108 Notification and application requirements.
703.109 Regulatory violation or unsafe and unsound condition.

By the NCUA Board on May 20, 2021.
Melane Conyers-Ausbrooks, Secretary of the Board.

VerDate Sep<11>2014

Subpart BDerivatives.
703.101

Purpose and scope.

a Purpose. This subpart grants Federal credit unions limited authority to enter into Derivatives only for the purpose of managing Interest Rate Risk.
b Scope. This subpart applies to all Federal credit unions. Except as
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provided in 741.219, this rule does not apply to federally insured, statechartered credit unions.
c Prior approvals. Any Federal credit union with an active approval, under the prior version of this subpart, on June 25, 2021 is subject to the provisions of this subpart and is no longer subject to the restrictions, limits, or terms contained in the Federal credit unions approved application.
d Pending Approvals. Any application for Derivatives authority pending on June 25, 2021, except for such applications submitted by a Federal credit union that would be subject to the requirements of 703.108b, is deemed to be withdrawn and such applicant is subject to the provisions of this subpart.
703.102

Definitions.

For purposes of this subpart:
Counterparty means a Swap Dealer, Derivatives Clearing Organization, or exchange that participates as the other party in a derivatives transaction with a Federal credit union.
Derivative means a financial contract that derives its value from the value and performance of some other underlying financial instrument or variable, such as an index or interest rate.
Derivatives Clearing Organization has the meaning as defined by the Commodity Futures Trading Commission CFTC in 17 CFR 1.3.
Domestic interest rates means interest rates derived in the United States and are U.S. dollar-denominated.
Earnings at Risk means the changes to earnings, typically in the short term for example, 12 to 36 months, caused by changes in interest rates.
Economic Effectiveness means the extent to which a Derivatives transaction results in offsetting changes in the Interest Rate Risk that the transaction was, and is, intended to provide.
External Service Provider means any entity that provides services to assist a Federal credit union in carrying out its Derivatives program and the requirements of this subpart.
Futures Commission Merchant FCM
has the meaning as defined by the CFTC
in 17 CFR 1.3.
Interest Rate Risk means the current and prospective risk to a credit unions capital and earnings arising from movements in interest rates.
Introducing Broker means a futures brokerage firm that deals directly with the client, while the trade execution is done by an FCM.
Margin means the minimum amount of eligible collateral, as defined in 703.104c, that must be deposited
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