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Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations
between parties to a Derivatives transaction, as detailed in a Master Services Agreement.
Master Services Agreement means a document agreed upon between two parties that sets out standard terms that apply to all transactions entered into between those parties. The most common form of a Master Services Agreement for Derivatives is an International Swap Dealer Association Master Agreement.
Net Economic Value means the measurement of changes in the economic value of Net Worth caused by changes in interest rates.
Net Worth has the meaning specified in part 702 of this chapter.
Non-cleared means transactions that do not go through a Derivatives Clearing Organization Regional Director means an NCUA
Regional Director or the Director of the Office of National Examinations and Supervision.
Senior Executive Officer has the meaning specified in 701.14 of this chapter and includes any other similar employee that is directly within the chain of command for the oversight of a Federal credit unions Derivatives program.
Structured Liability Offering means a share product created by a Federal credit union with contractual option features, such as periodic caps and calls, similar to those found in structured securities or structured notes.
Swap Dealer has the meaning as defined by the CFTC in 17 CFR 1.3.
Threshold Amount means an unsecured credit exposure that a party to a Derivatives transaction is prepared to accept before requesting additional eligible collateral, as defined in 703.104c, from the other party.
Trade Date means the date that a Derivatives order new transactions, terminations, or assignments is executed with a Counterparty.
703.103 Requirements related to the characteristics of permissible Interest Rate Risk Derivatives.

a Under this subpart, a Federal credit union may only enter into Derivatives that have the following characteristics:
1 Are for the purpose of managing Interest Rate Risk;
2 Denominated in U.S. dollars;
3 Based on Domestic Interest Rates or the U.S. dollar-denominated London Interbank Offered Rate LIBOR;
4 A contract maturity equal to or less than 15 years, as of the Trade Date; and 5 Not used to create Structured Liability Offerings for members or nonmembers.

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b A Federal credit union may not engage in embedded options required under U.S. Generally Accepted Accounting Principles GAAP to be accounted for separately from the host contract.
703.104 Requirements for Counterparty agreements, collateral and Margining.

To enter into Derivative transactions under this subpart, a Federal credit union must:
a Have an executed Master Services Agreement with a Counterparty. Such agreement must be reviewed by counsel with expertise in similar types of transactions to ensure the agreement reasonably protects the interests of the Federal credit union;
b Use only the following Counterparties:
1 For exchange-traded and cleared Derivatives: Swap Dealers, Introducing Brokers, and/or FCMs that are current registrants of the CFTC; or 2 For Non-cleared Derivative transactions: Swap Dealers that are current registrants of the CFTC.
c Utilize contracted Margin requirements with a maximum Margin threshold amount of $250,000; and d For Non-cleared Derivative transactions, accept as eligible collateral, for Margin requirements, only the following: Cash U.S. dollars, U.S.
Treasuries, government-sponsored enterprise debt, U.S. government agency debt, government-sponsored enterprise residential mortgage-backed security pass-through securities, and U.S.
government agency residential mortgage-backed security pass-through securities.
703.105

Reporting requirements.

a Board reporting. At least quarterly, a Federal credit unions Senior Executive Officers must deliver a comprehensive Derivatives report, as described in paragraph c of this section to the Federal credit unions board of directors.
b Senior Executive Officer and asset liability or similarly functioning committee. At least monthly, Federal credit union staff must deliver a comprehensive Derivatives report, as described in paragraph c of this section to the Federal credit unions Senior Executive Officers and, if applicable, the Federal credit unions asset liability or similarly functioning committee.
c Comprehensive Derivatives management report. At a minimum, the reports required in paragraphs a and b of this section must include:
1 Identification of any areas of noncompliance with any provision of
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this subpart or the Federal credit unions policies, and the planned remediation of such noncompliance;
2 An itemization of the Federal credit unions individual transactions subject to this subpart, the current values of such transactions, and each individual transactions intended use for Interest Rate Risk mitigation; and 3 A comprehensive view of the Federal credit unions risk reports, including, but not limited to, Interest Rate Risk calculations with details of the transactions subject to this subpart.
d Retention requirement. Reports required by this section must, at a minimum, be retained in accordance with the requirements in Appendix A to part 749.
e Notification of noncompliance.
Notification of any noncompliance as part of the Derivatives management report required in paragraph c1 of this section must be submitted to the applicable Regional Director immediately after it has been submitted to the Federal credit unions board of directors.
f NCUA request. The NCUA may, at any time, request the Derivatives management report required by paragraph c of this section.
703.106 Operational support requirements.

a Required experience and competencies. A Federal credit union using Derivative transactions subject to this subpart must internally possess the following experience and competencies:
1 Board. i Before entering into the initial Derivatives transaction, a Federal credit unions board members must receive training that provides a general understanding of Derivative transactions, and the knowledge required to provide strategic oversight of the Federal credit unions Derivatives program.
ii Any person that becomes a board member after the initial Derivatives transaction must receive the same training, updated if necessary, as required by paragraph a1i of this section.
iii At least annually after the initial Derivatives transaction, as part of the Derivatives reporting requirement in 703.105a, the Federal credit unions Senior Executive Officers must brief the board members on the Federal credit unions use of Derivatives to manage Interest Rate Risk.
2 Senior Executive Officers. A
Federal credit unions Senior Executive Officers must be able to understand, approve, and provide oversight for the Derivatives program. These individuals must have a comprehensive
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