Quiz: US Regulation

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7 questions to check your understanding of the chapter “US Regulation”. Choose an answer and select “Check answer” to see the answer and explanation. You can also open “Answer and explanation” to see the answer first.

1. Question 1

   Which of the following swaps is not a security-based swap but a swap regulated by the Commodity Futures Trading Commission (CFTC)?

   1. A.A swap based on the value of a single loan
   2. B.A swap based on a narrow-based security index
   3. C.A swap based on an event that directly affects the obligations of a single issuer
   4. D.A swap based on a broad-based security index
   Answer and explanation

   Answer: D

   A security-based swap is, in principle, a swap based on one of the following: the value of a single security or loan, a narrow-based security index, or an event relating to a single issuer (or to an issuer in a narrow-based security index). In the case of an event, it must directly affect the issuer's financial condition or obligations. The Securities and Exchange Commission (SEC) regulates security-based swaps.

   A broad-based security index is not "narrow-based", so a swap based on it is not a security-based swap but falls on the CFTC's side.

   Learn more: The Roles of the CFTC and SEC

2. Question 2

   When the US Commodity Exchange Act (CEA) defines a "swap", which pair does it exclude from the definition?

   1. A.Futures, and contracts to exchange payments based on interest rates
   2. B.Futures, and security-based swaps
   3. C.Security-based swaps, and options based on interest rates, currencies, commodities and so on
   4. D.Futures, and options based on commodities
   Answer and explanation

   Answer: B

   The CEA defines a "swap" as an option or a contract to exchange payments based on interest rates, currencies, commodities, securities and so on, and excludes futures and security-based swaps from that definition. The CFTC mainly has jurisdiction over the excluded futures under the CEA. Security-based swaps are defined separately in the Securities Exchange Act, and the SEC regulates them.

   Options and contracts to exchange payments based on interest rates, currencies, or commodities fall inside the definition of a swap. US law does not treat derivatives as one group, and divides jurisdiction and rules by the name of the transaction.

   Learn more: Overview of Derivatives Regulation in the US

3. Question 3

   Title VII of the Dodd-Frank Act has an exception to the clearing requirement. Under the CFTC's rules as of October 2026, for one party to a transaction, which of the following meets the conditions for this exception?

   1. A.It is not a financial entity, uses the swap to hedge commercial risk, and notifies the CFTC how it meets its financial obligations
   2. B.It is not a financial entity, uses the swap to generate income, and notifies the CFTC how it meets its financial obligations
   3. C.It is a private fund, uses the swap to hedge commercial risk, and reports the transaction data to a swap data repository
   4. D.It is a major swap participant, uses the swap to hedge commercial risk, and notifies the CFTC how it meets its financial obligations
   Answer and explanation

   Answer: A

   The conditions are that one party is not a financial entity, uses the swap to hedge commercial risk, and notifies the CFTC how it meets its financial obligations. Only a party that meets these conditions decides whether to use the exception.

   Reporting transaction data is not a condition of the clearing exception but a separate procedure that is required. Financial entities include swap dealers, major swap participants, commodity pools, and private funds, and they do not meet the conditions even with a hedging purpose or a notice.

   Learn more: Dodd-Frank Act Title VII

4. Question 4

   A person that must register as a swap dealer is a depository institution and is already registered with the SEC as a security-based swap dealer. Under Title VII of the Dodd-Frank Act as of October 2026, how is registration as a swap dealer treated?

   1. A.The person registers with the CFTC as a major swap participant, not as a swap dealer
   2. B.Because it is a depository institution, the person registers with its prudential regulator
   3. C.The person also registers with the CFTC
   4. D.The person registers with the CFTC, and the CFTC also sets its capital and margin rules
   Answer and explanation

   Answer: C

   Swap dealers and major swap participants both register with the CFTC. This is required regardless of whether the person is a depository institution or is registered with the SEC as a security-based swap dealer. Persons in the security-based categories register with the SEC, so a person that deals in both kinds of swaps registers with both.

   What the prudential regulator decides is not registration but the capital and margin rules for registrants under that regulator's jurisdiction.

   Learn more: Dodd-Frank Act Title VII

5. Question 5

   The Volcker Rule was established by Section 619 of Title VI of the Dodd-Frank Act. Which of the following does the law prohibit banking entities from doing, except as otherwise provided?

   1. A.Submitting swaps that are required to be cleared to a clearing organization, and making transaction data public
   2. B.Registering as a swap dealer, and registering as a major swap participant
   3. C.Following the rules on initial margin for uncleared swaps, and the rules on variation margin
   4. D.Reporting swap transaction data, and making it public
   5. E.Proprietary trading, and acquiring, holding, or sponsoring ownership interests in hedge funds and the like
   Answer and explanation

   Answer: E

   The law prohibits banking entities, except as otherwise provided, from proprietary trading and from acquiring, holding, or sponsoring ownership interests in hedge funds and private equity funds (which the rule calls covered funds).

   The other options are matters set by Title VII and by the Commodity Exchange Act as amended by it. Title VII is a different title from Title VI, which contains the Volcker Rule. The Volcker Rule's prohibitions also have activities that the rule provides as permitted, such as underwriting and risk-mitigating hedging. Even permitted activities are not allowed if, for example, they involve a material conflict of interest with customers.

   Learn more: The Volcker Rule

6. Question 6

   As a hypothetical example, a person not registered as a swap dealer entered into swaps in connection with its dealing activity over the past 12 months, together with its controlled affiliates. The notional amount was USD 5.5 billion for the person itself and USD 2 billion for its affiliates, and the swaps with special entities (such as state government bodies) as counterparties totaled USD 30 million. Under the CFTC's rules as of October 2026, which determination fits the standard for the de minimis exception?

   1. A.The total is USD 7.5 billion, at or below USD 8 billion, so the person is within the exception regardless of the amount of swaps with special entities
   2. B.Affiliates' swaps are not counted, and the person is judged on its own USD 5.5 billion and the USD 30 million with special entities, so it is within the exception
   3. C.The total is at or below USD 8 billion, but the USD 30 million with special entities exceeds USD 25 million, so the person is not within the exception
   4. D.The USD 30 million with special entities is less than 1% of the total, so the person is judged on the total alone and is within the exception
   Answer and explanation

   Answer: C

   The standard for the exception is that the total notional amount over the past 12 months is at or below USD 8 billion and that swaps with special entities as counterparties are at or below USD 25 million.

   The total combines the swaps of the person and of those in a control relationship with it, so in this example it is 5.5 + 2 = USD 7.5 billion, at or below USD 8 billion.

   However, the USD 30 million with special entities exceeds USD 25 million, so one of the two standards is exceeded and the person is not within the exception.

   Learn more: Swap Dealer Registration

7. Question 7

   A financial entity that is not a swap dealer, a major swap participant, or a derivatives clearing organization entered into a swap with a counterparty that meets the same condition. The swap did not go through a swap execution facility or a designated contract market, did not arise from clearing, and the financial entity is the reporting counterparty. Under the CFTC's rules as of October 2026 (Part 45), by when must the creation data be reported to a swap data repository?

   1. A.As soon as technologically practicable after execution
   2. B.By the end of the second business day after execution
   3. C.By the end of the next business day following the execution date
   4. D.By the end of the execution date
   Answer and explanation

   Answer: B

   Creation data must be reported to a swap data repository (SDR) by the end of the next business day following the execution date if the reporter is a swap execution facility, a designated contract market, a swap dealer, a major swap participant, or a derivatives clearing organization. For any other reporter, the deadline is the end of the second business day, and this example is the latter.

   The end of the next business day is the deadline for the former reporters. "As soon as technologically practicable" is the deadline for the Part 43 reporting that makes transactions and prices public, not for reporting to an SDR. The end of the execution date is the form of the deadline for submitting a swap subject to clearing to a clearing organization, not a reporting deadline.

   Learn more: Clearing, Reporting, and Trade Execution Requirements