	Background

Derivatives are financial instruments that come in several different forms, including futures , options , and swaps . A derivative is a contract that derives its value from some underlying asset at a designated point in time. The derivative may be tied to a physical commodity, a stock index, an interest rate, or some other asset. Such debates led, in 2010, to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. Prior to Dodd-Frank, swaps (also called OTC derivatives) were largely unregulated, whereas futures and options were regulated by the Commodity Futures Trading Commission (CFTC) or the Securities and Exchange Commission (SEC). A good example is insurance giant American International Group (AIG), which sold billions of dollars in credit-default swaps and had to be rescued by the government, thus preventing massive losses to AIG's counterparties that could have exacerbated the downward global financial spiral. The Financial Crisis Inquiry Commission concluded that derivatives contributed to the 2008 financial crisis in three major ways. Second, these swaps also are required to be traded on an exchange or an exchange-like electronic platform called a swap execution facility (SEF), with the goal of promoting pre-trade and post-trade price transparency. Fifth, swaps that remain uncleared, or OTC, are subject to margin and capital requirements set by the regulators to prevent large uncollateralized exposures from accumulating. Clearing Requirement

Title VII of the Dodd-Frank Act creates largely parallel clearing and exchange-trading requirements for swaps and security-based swaps, as those terms are defined by Title VII and further clarified by the CFTC and the SEC in a joint rulemaking. Section 763 creates largely parallel requirements for security-based swaps, over which the SEC has authority. S. 2917 shares certain provisions with H.R. 22; H.R. 114-94 on December 4, 2015, removed a requirement added in the Dodd-Frank Act's Title VII that foreign regulators indemnify a U.S.-based swap data repository (SDR) and the CFTC for any expenses arising from litigation related to a request for market data. 1847 , which is substantially similar to the provision in P.L. 2289 , as in H.R. Centralized Treasury Units Exemption (P.L. 1317 , a bill to allow certain corporate affiliates to use an existing exception from the derivatives regulatory requirements in the Dodd-Frank Act. This provision means Congress must periodically reauthorize appropriations to carry out the CEA. On April 14, 2016, the Senate Committee on Agriculture, Nutrition, and Forestry marked up and ordered to be reported a CFTC reauthorization bill, S. 2917 . 2289 as passed, and S. 2917 , would amend the short "Authorization of Appropriations" section in the CEA (7 U.S.C. Cost-Benefit Analysis (H.R. 2289 as passed includes the following 12 factors: 
(A) considerations of protection of market participants and the public;
(B) considerations of the efficiency, competitiveness, and financial integrity of futures and swaps markets; 
(C) considerations of the impact on market liquidity in the futures and swaps markets; 
(D) considerations of price discovery; 
(E) considerations of sound risk-management practices; 
(F) available alternatives to direct regulation;
(G) the degree and nature of the risks posed by various activities within the scope of its jurisdiction;
(H) the costs of complying with the proposed regulation or order by all regulated entities, including a methodology for quantifying the costs (recognizing that some costs are difficult to quantify);
(I) whether the proposed regulation or order is inconsistent, incompatible, or duplicative of other federal regulations or orders;
(J) the cost to the Commission of implementing the proposed regulation or order by the Commission staff, including a methodology for quantifying the costs;
(K) whether, in choosing among alternative regulatory approaches, those approaches maximize net benefits (including potential economic and other benefits, distributive impacts, and equity); and 
(L) other public interest considerations. 2289 , H.R. 114-113; H.R. Changes to Definition of Bona Fide Hedging (H.R. The current definition of a bona fide hedge in the CEA specifies, among other factors, that
(2) For the purposes of implementation of subsection (a)(2) for contracts of sale for future delivery or options on the contracts or commodities, the Commission shall define what constitutes a bona fide hedging transaction or position as a transaction or position that—
(A) (i) represents a substitute for transactions made or to be made or positions taken or to be taken at a later time in a physical marketing channel;
(ii) is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise; and... 1256 , the current bill would mandate that, starting 18 months from its enactment, the swaps regulatory requirements of the eight largest foreign swaps markets must be considered comparable to those of the United States—unless the CFTC issues a rule or order finding that any of those foreign jurisdictions' requirements are not comparable to or as comprehensive as those of the United States. Under H.R. Residual Interest (S. 1560, H.R. 2289; S. 2917)

The term residual interest generally refers to capital from a futures commission merchant (FCM) committed to temporarily make up the difference for insufficient margin in a customer's account. 2289 's Section 104 would all essentially codify the deadline for FCMs to deposit any capital to cover residual interest as no earlier than 6:00 p.m. on the following business day.
Derivatives are financial instruments that come in several different forms, including futures, options, and swaps. A derivative is a contract that derives its value from some underlying asset at a designated point in time. The derivative may be tied to a physical commodity, a stock index, an interest rate, or some other asset.
Derivatives played a role in the 2008 financial crisis in a variety of ways. The unmonitored buildup of derivatives positions in the largely unregulated "over-the-counter" (OTC) market led many major financial institutions into large financial losses. Possibly the best-known example of such losses was the insurance giant American International Group (AIG), whose massive losses from selling credit-default swaps ultimately contributed to the need for government assistance. OTC derivatives, prior to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203), were traded bilaterally rather than cleared through a clearinghouse, and no reporting trail existed, which created uncertainty during the crisis over the web of exposures to large derivatives losses.
The Dodd-Frank Act aimed to address these policy concerns by bringing the swaps market into a regulatory framework based on that of the futures markets, which had long been regulated by the Commodity Futures Trading Commission (CFTC). Security-based swaps tied to equities or narrow-based credit indexes were placed under the jurisdiction of the Securities and Exchange Commission (SEC) within a similar framework.
Broadly, Dodd-Frank included five major reforms. It required the
1. clearing of certain swaps through a clearinghouse, entailing the posting of margin, or cash, to cover accumulating losses; 2. trading of certain swaps on an exchange or swap execution facility (an electronic trading platform), with the aim of increasing price transparency; 3. reporting of all swaps transactions to a swaps data repository (SDR) to create an audit trail and more market data for regulators; 4. registration of swap dealers and major swap participants, subjecting them to regulatory oversight; and 5. establishment of margin and capital requirements by regulators for swaps that remain uncleared. Parallel provisions were enacted for security-based swaps under the SEC.
In the 114th Congress, several bills have been introduced, and two have been enacted as part of other legislation, impacting various aspects of swaps regulation largely stemming from Dodd-Frank. One of the provisions, originally in H.R. 1847 but enacted in P.L. 114-94/H.R. 22, removed a requirement added in Dodd-Frank that foreign regulators indemnify a U.S.-based SDR and the CFTC for any expenses arising from litigation related to a request for market data (with a parallel SEC provision). The other provision, originally in H.R. 1317 but enacted in P.L. 114-113/H.R. 2029, created an exception for certain corporate affiliates of nonfinancial companies, dubbed "centralized treasury units," to the clearing and exchange-trading requirements.
The House has passed legislation, H.R. 2289, that would reauthorize appropriations to carry out the Commodity Exchange Act (CEA; 7 U.S.C. §§1 et seq.)—a process that historically has recurred every five years. The Senate Committee on Agriculture, Nutrition and Forestry marked up and ordered to be reported S. 2917 which would also reauthorize such appropriations, as well as making other changes to the CEA. S. 2917 and H.R. 2289 would each modify the definition of who is a financial entity—relevant for determining who must clear their swaps—but the bills do so in different ways. H.R. 2289 and S. 2917 would—in substantially identical ways—broaden the definition of bona fide hedging to allow anticipated, as well as current, risks to be hedged, likely increasing the number of swaps qualifying as hedges for position limits, registration requirements, and other purposes. H.R. 2289, S. 2917 and S. 1560 also contain provisions to codify the deadline for brokers to deposit residual interest (capital from a futures broker that temporarily makes up the difference for insufficient margin in a customer's account) as no earlier than 6:00 p.m. on the following business day.
H.R. 2289 (but not S. 2917) includes measures that would increase required cost-benefit analysis by the CFTC in rulemakings. H.R. 2289 (but not S. 2917) would mandate that, starting 18 months from enactment, the swaps regulatory requirements of the eight largest foreign swaps markets must be considered comparable to those of the United States—unless the CFTC were to issue a rule finding that any of those foreign jurisdictions' requirements were not comparable to U.S. requirements.