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The filing of proxy statements with Dodd-Frank compliant say-on-pay proposals has become a daily event.  Public companies continue to prefer a three year frequency vote.  As pointed out on thecorporatecounsel.net, if you prefer a triennial frequency, you probably want that choice to be the first choice on the proxy card.  Some examples from recently filed proxy statements are set forth below.

Xata Corp., set for below, recommends a two year frequency, joining Hormel, another Minnesota based public company, in this board recommendation.  Xata also states the frequency option that achieves a plurality of votes cast “will be deemed to have received the advisory approval of our shareholders.”

Costco

Say-on-Pay

In accordance with recent legislation, the Company is providing shareholders with an advisory (non-binding) vote on compensation programs for our Named Executive Officers (sometimes referred to as “say on pay”). Accordingly, you may vote on the following resolution at the 2011 annual meeting:

“Resolved, that the shareholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure in this Proxy Statement.”

This vote is nonbinding. The Board and the Compensation Committee, which is comprised of independent directors, expect to take into account the outcome of the vote when considering future executive compensation decisions to the extent they can determine the cause or causes of any significant negative voting results.

As described in detail under “Compensation Discussion and Analysis” our compensation programs are designed to motivate our executives to create a successful company. If fully earned based on the achievement of performance targets, equity compensation in the form of restricted stock units that are subject to further time-based vesting is the largest component of executive compensation. We believe that our compensation program, with its balance of short-term incentives (including cash bonus awards and performance conditions for awards of restricted stock units) and long-term incentives (including equity awards that vest over up to five years) and share ownership guidelines reward sustained performance that is aligned with long-term shareholder interests. Shareholders are encouraged to read the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure.

The Board of Directors unanimously recommends that you vote FOR the approval, on an advisory basis, of the compensation of our Named Executive Officers as disclosed in the Compensation Discussion and Analysis, the accompanying compensation tables, and the related narrative disclosure.

Frequency Vote

In addition to providing shareholders with the opportunity to cast an advisory vote on executive compensation, the Company this year is providing shareholders with an advisory vote on whether the advisory vote on executive compensation should be held every one, two or three years.

The Board believes that a frequency of “every three years” for the advisory vote on executive compensation is the optimal interval for conducting and responding to a “say on pay” vote. Shareholders who have concerns about executive compensation during the interval between “say on pay” votes are welcome to bring their specific concerns to the attention of the Board. Please refer to “Shareholder Communications to the Board” in this Proxy Statement for information about communicating with the Board.

The proxy card provides shareholders with the opportunity to choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore, shareholders will not be voting to approve or disapprove the Board’s recommendation.

Although this advisory vote on the frequency of the “say on pay” vote is nonbinding, the Board and the Compensation Committee will take into account the outcome of the vote when considering the frequency of future advisory votes on executive compensation.

The Board of Directors unanimously recommends that you vote for the option of “every three years” for future advisory votes on executive compensation.

Proxy Card

IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL BE VOTED “FOR” PROPOSALS 1, 2 AND 3, “FOR” A THREE YEAR FREQUENCY, AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF SHAREHOLDERS.

Air Products

Say-on-Pay

As required by Section 14A of the Securities Exchange Act, shareholders may vote to approve or not approve the resolution below on the compensation of the Executive Officers as disclosed in the Compensation Discussion and Analysis and accompanying Executive Compensation Tables and narrative on pages 28-61:

RESOLVED, that the shareholders approve the Executive Officer compensation as discussed and disclosed in the Compensation Discussion and Analysis and the Executive Compensation Tables.

The Board recommends a vote for this resolution. Our Executive Officer compensation program is designed to reward performance that creates long-term shareholder value for you through the following features which are discussed on pages 29-31:

  • Constant performance goals, not tied to current operating or economic conditions, that require the management team to maintain and improve profitability in all economic environments to receive target compensation;
  • A compensation mix weighted toward long-term incentives to reward sustainable growth and profitability;
  • Substantial linkage of Executive Officer compensation to long-term stock performance; and
  • Median pay positioning for average performance, above median pay for above average performance, and below median pay for below median performance.

The Company has a record of providing an Executive Officer compensation program that is strongly aligned with its performance, illustrated by the charts on pages 31 and 32.

Although the vote is non-binding, the Board and the Management Development and Compensation Committee will review the voting results. If there are a significant number of negative votes, we will seek to understand the concerns that influenced the vote, and address them in making future decisions about executive compensation programs.

The Board recommends a vote “FOR” this resolution. As described in the Compensation Discussion and Analysis, our Executive Officer compensation program has been thoughtfully designed to support our long-term business strategies and drive creation of shareholder value. It is aligned with the competitive market for talent, very sensitive to Company performance and oriented to long-term incentives to maintain and improve the Company’s long-term profitability. We believe the program delivers reasonable pay which is strongly linked to Company performance over time relative to peer companies.

Frequency Vote

As required by Section 14A of the Securities Exchange Act, shareholders may vote on the resolution below regarding how often the Company will conduct a shareholder advisory vote on Executive Officer compensation. You may vote on whether you prefer an advisory vote every one, two, or three years, or to abstain.

RESOLVED, that the shareholders be provided an opportunity for an advisory vote on the compensation of Executive Officers as required by Section 14A of the Securities Exchange Act at the interval selected.

The Board recommends a vote every three years. As described in the Compensation Discussion and Analysis, the Company’s Executive Officer compensation is designed with a long-term focus. Key elements of the program include performance measures that require creation of shareholder value across economic cycles, long-term orientation of the pay mix to reward the disciplined long-term investments that are fundamental to our business model, and substantial linkage to long-term stock performance. The Board intends that the program be responsive to shareholder concerns, but is concerned that annual votes on the program could foster a short-term focus and undermine some of its most thoughtful features.

The Board is also concerned that annual advisory votes on executive compensation for all public companies will overburden investors and require them to evaluate too many executive compensation programs annually, hindering careful evaluation of the programs. Because of this, annual votes may lead to “one size fits all” formulas for evaluating compensation that will impair the Company’s ability to design its compensation program to align with its business model and performance drivers.

Finally, the Board believes that the Company will be better served by periodic votes on compensation that afford the Committee time to understand concerns and deliberate appropriate responses, and allow shareholders time to see responsive changes. In the event an advisory vote indicates shareholder concern, the Board believes shareholders will be best served if the Board takes the time to understand the issues and thoughtfully develop responsive alternatives.

The Board recommends a vote “FOR” three-year intervals to support the long-term focus of the executive compensation program and allow for thoughtful implementation of changes when needed.

Proxy Card

This proxy will be voted as directed, but if no instructions are given for voting on the matters listed on the reverse side, this proxy will be voted as recommended by the Board of Directors.

Xata

Say-on-Pay

The Company seeks a non-binding advisory vote from its shareholders to approve the compensation of our executive officers as described under “EXECUTIVE COMPENSATION” and the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this proxy statement.

This proposal gives our shareholders the opportunity to express their views on the Company’s executive officer compensation. Because your vote is advisory, it will not be binding upon the Board of Directors. However, the Compensation Committee will take into account the outcome of the vote when making future executive officer compensation decisions.

As we discuss below in our Compensation Discussion and Analysis, we believe that our compensation policies and decisions are designed to assist the Compensation Committee meeting its objectives. The objectives of the Company’s executive compensation program are to:

  • attract and retain top quality executive talent;
  • establish and support a performance-driven culture and motivate executives to deliver strong business results; and
  • ensure that executives are aligned with shareholder expectations by closely linking total compensation with short-term business objectives and creation of long-term shareholder value.

Accordingly, we are presenting this proposal, which gives you, our shareholder, the opportunity to approve our executive officer compensation as disclosed in this proxy statement by voting for or against the following resolution:

RESOLVED, that the shareholders approve the compensation of the Company’s executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosure contained in the Company’s Proxy Statement for its 2011 Annual Meeting.

OUR BOARD OF DIRECTORS BELIEVES THAT THE COMPENSATION OF OUR EXECUTIVE OFFICERS IS APPROPRIATE AND RECOMMENDS AN ADVISORY VOTE “FOR” THIS PROPOSAL.

Frequency

The Company seeks a non-binding advisory vote from its shareholders regarding the desired frequency for holding a non-binding advisory vote to approve the compensation of our executive officers as described in our annual proxy statements.

This proposal gives our shareholders the opportunity to express their views as to whether the non-binding advisory vote on our executive officer compensation practices should occur every one, two, or three years. Because your vote is advisory, it will not be binding upon the Board of Directors. However, the Board of Directors will take into account the outcome of the vote when deciding the frequency of the non-binding advisory vote on our future executive officer compensation decisions.

We recommend that a non-binding advisory vote to approve the compensation of our executive officers as disclosed in our annual proxy statements occur once every two years. We believe holding that vote every two years provides the most effective timeframe because it allows our Board of Directors and Compensation Committee sufficient time to engage our shareholders following each such vote in order to understand any concerns they may have, and to respond with any changes to the compensation of our executive officers and/or related disclosure deemed appropriate in response to the results of a shareholder advisory vote. In addition, our compensation program objectives include establishing and supporting a performance-driven culture and motivating executives to deliver strong business results. Accordingly, we believe that a vote every two years would provide our shareholders with additional time to evaluate the effectiveness of our executive compensation philosophy as it relates to our performance. In the future we may determine that a more or less frequent advisory vote is appropriate, either in response to the vote of our shareholders on this Proposal 3 or for other reasons.

While we believe our recommendation is appropriate at this time, the shareholders are not voting to approve or disapprove our recommendation, but are instead asked to provide an advisory vote on whether the non-binding advisory vote on the approval of our executive officer compensation practices should be held every one, two or three years. The option among those choices that obtains a plurality of votes cast by the shares present or represented by proxy and entitled to vote at the Annual Meeting will be deemed to have received the advisory approval of our shareholders.

OUR BOARD OF DIRECTORS RECOMMENDS AN ADVISORY VOTE FOR “2 YEARS” FOR THIS PROPOSAL.

Proxy Card

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES LISTED IN PROPOSAL 1, “FOR” PROPOSAL 2, “2 YEARS” FOR PROPOSAL 3, AND IN THE DISCRETION OF THE PROXY HOLDER ON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Dodd-Frank Act broadly requires that most swaps be cleared through a derivative clearing organization.  The Dodd-Frank Act also contains an elective exception, referred to as the “end-user exception,” from the clearing requirement if one party to the swap is not a financial entity, is using swaps to hedge or mitigate risk, and notifies the CFTC of certain matters.  The CFTC has recently proposed rules to implement this exception.  We believe most public companies will want to rely on this exception, where permitted.   We recommend public companies begin to consider the process of how to implement use of the exception when it becomes available.

 For public companies, here meaning those companies having a class of securities registered under Section 12 of the Exchange Act or being required to file reports under Section 15(d) of the Exchange Act, the notification must include a statement as to whether or not an appropriate committee of the board of directors has reviewed and approved the decision not to clear the swap.  Two questions immediately jump out – how is this accomplished and what must the board or committee consider when making this decision?

The CFTC rule proposal states the approval could take the form of “a board resolution or an amendment to a board committee’s charter could expressly authorize such committee to review and approve decisions of the electing person not to clear the swap being reported.  In turn such board committee could adopt policies and procedures to review and approve decisions not to clear swaps, on a periodic basis or subject to other conditions determined to be satisfactory to the board committee.”  The statement is a bit muddy as to whether each and every uncleared swap must be specifically approved by the board or a committee.  Taken as a whole however, it seems that approval of policies and procedures necessary to enter into uncleared swaps would suffice, as long as they are periodically evaluated.  So one key step to consider is what mechanics are going to be used to satisfy this requirement.

 What should the board or committee consider?  It seems to us that one key component is what benefit is forgone by not using a clearing organization.  Essentially, the clearing organization generally acts as a middleman between the parties to a transaction, and assumes the risk should there be a default.  When structured and operated appropriately, clearing organizations can provide benefits such as improving the management of counterparty risk and reducing outstanding exposures through multilateral netting of trades.

 If the benefit of a cleared swap is to eliminate counterparty risks, then one of the key elements of a decision not use a cleared swap is the financial strength of the counterparty to the uncleared swap.  Boards and committees will want to establish appropriate metrics for approved counterparties or limit transactions to a list of specifically named counterparties where the financial strength of the counterparty has been evaluated.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The SEC has proposed rules required under the Dodd-Frank Act that would set out the way in which clearing agencies provide information to the SEC about security-based swaps that the clearing agencies plan to accept for clearing. This information is designed to aid the SEC in determining whether such security-based swaps are, in fact, required to be cleared.  The SEC also proposed rules that would set out the way in which those clearing agencies that are designated as “systemically important” must submit advance notices for changes to their rules, procedures, or operations that could materially affect the nature or level of risk presented at such clearing agencies.

Proposed Rule Regarding Submissions About Security-Based Swaps to Be Cleared

 Under the proposed rule, a clearing agency would be required to file information with the SEC regarding any security-based swap, or any group, category — type or class of security-based swaps — that a clearing agency plans to accept for clearing. These security-based swap submissions” would be filed electronically with the SEC using the existing Electronic Form 19b-4 Filing System and Form 19b-4.

 The proposed rule, which would amend Rules 19b-4 and Form 19b-4 under the Exchange Act, would also describe the information that each submission must contain so that the SEC would be able to determine whether the security-based swap submission should be subject to mandatory clearing. This information includes quantitative and qualitative information to assist the SEC in the assessment of the factors set forth under Dodd-Frank Act which the SEC is required to take into account in its review of the mandatory clearing requirement.

 The proposed rule also would specify how the clearing agency must notify its members about the submissions it makes. And, the rule would require clearing agencies to post copies of their submissions on their public websites within two business days.

 Proposed Rule Regarding Advance Notice by “Systemically Important” Clearing Agencies

 As with the proposed rule regarding security-based swap submissions, the SEC is proposing rules that would require a designated “systemically important” clearing agency to provide advance notice to the SEC before it makes certain changes to its rules or procedures. That notice would need to be filed electronically with the SEC using the existing Electronic Form 19b-4 Filing System and Form 19b-4.

 The proposed rule also would generally require advance notice when:

  • The proposed change would affect the risk management functions performed by the clearing agency that are related to systemic risk.
  • The proposed change could affect the clearing agency’s ability to continue to perform its core clearance and settlement functions.

 Changes that could require advance notice may include, but are not limited to, changes that materially affect participant and product eligibility, risk management, daily or intraday settlement procedures, default procedures, system safeguards, governance or financial resources of the designated clearing agency.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The SEC has proposed rules on three specialized disclosures required of public companies under the Dodd-Frank Act.

 Disclosure of Use of Conflict Minerals

 The proposed rules mandated by the Dodd-Frank Act would require new disclosures by reporting issuers concerning conflict minerals that originated in the Democratic Republic of the Congo or an adjoining country. Specifically, companies would be required to disclose annually whether they use “conflict minerals” that are “necessary to the functionality or production” of a product that they either manufacture or contract to be manufactured that originate from the Democratic Republic of the Congo or adjoining countries. The conflict minerals are cassiterite, columbite-tantalite, gold, wolframite or their derivatives. These minerals are essential to many products – from jewelry to cell phones to jet engines.

 Disclosure of Mine Safety Information

 The proposed rules would implement Section 1503 of the Dodd-Frank Act, which requires mining companies to include information about mine safety and health standards in their annual and quarterly reports filed with the SEC.  Mining companies also would be required to file a Form 8-K with the SEC when they receive certain notices from the Mine Safety and Health Administration.

 Resource Extraction Issuers

 The proposed rules mandated by the Dodd-Frank Act will require resource extraction issuers to disclose payments made to the U.S. or foreign governments.  Under the proposed rules, any resource extraction issuer would be required to disclose payments made to governments if the issuer:

  •  Is required to file an annual report with the SEC, and
  • Engages in the commercial development of oil, natural gas, or minerals.

 The rules would apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The SEC has proposed requirements of end-users when they engage in a security-based swap transaction that is not subject to mandatory clearing. The proposed rule, required under the Dodd-Frank Act, specifies the steps that end-users must follow to notify the SEC of how they generally meet their financial obligations when engaging in a security-based swap transaction exempt from the mandatory clearing requirement.

 The Dodd-Frank Act creates an “end-user clearing exception” that exempts clearing for a security-based swap transaction if one party to the transaction:

  • Is not a financial entity.
  • Is using the swap to hedge or mitigate commercial risk.
  • Notifies the SEC (in a manner set forth by the SEC) how it generally meets its financial obligations associated with entering into non-cleared security-based swaps (the “end-user clearing exception”).

 Title VII of the Dodd-Frank Act requires that a counterparty electing to use the end-user clearing exception must notify the SEC of how it generally meets its financial obligations associated with non-cleared security-based swaps.

The proposed rule would require that a counterparty relying on the end-user clearing exception submit information to the SEC regarding how it generally expects to meets its financial obligations associated with a security-based swap by using one of the following:

  • A written credit support agreement.
  • A written agreement to pledge or segregate assets.
  • A written third-party guarantee.
  • Solely the counterparty’s available financial resources.
  • Means other than those described above.

 The proposed rule also requires counterparties relying on the end-user clearing exception to submit additional information to the SEC intended to aid the SEC in its efforts to prevent abuse of the end-user clearing exception. The information required includes:

  • The identity of the counterparty relying on the clearing exception;
  • Whether the counterparty invoking the clearing exception is a “financial entity” as defined in the Dodd-Frank Act;
  • Whether the counterparty invoking the clearing exception is a finance affiliate meeting certain requirements described in the Dodd-Frank Act;
  • Whether the security-based swap is used by the counterparty invoking the clearing exception to hedge or mitigate commercial risk as defined in the Exchange Act and through rules separately proposed by the SEC; and
  • Whether the counterparty electing to use the clearing exception is an issuer of securities registered under Section 12 of the Exchange Act or subject to reporting requirements pursuant to Section 15(d) of the Exchange Act. SEC filers are also required to provide  additional information.

The information reported to the SEC under this proposed rule would be delivered to a security-based swap data repository together with other information that will be required to be submitted to a security-based swap data repository concerning all non-cleared security-based swaps.  The rules detailing how data will be reported to a security-based swap data repository are the subject of a separate SEC proposal published last month.

 The SEC is required under the Dodd-Frank Act to consider whether to allow small banks, savings associations, farm credit system institutions and credit unions with total assets under $10 billion to use the end-user clearing exception on the same terms as end-users. The SEC is considering a proposed rule that would implement such a proposal.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Federal Deposit Insurance Corporation, or FDIC, announced the appointment of Jim Wigand as the Director of the newly established Office of Complex Financial Institutions, or CFI. The CFI was created to better position the FDIC to carry out its responsibilities under the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act.  The CFI is responsible for the continuous review and oversight of bank holding companies with more than $100 billion in assets as well as non-bank financial companies designated as systemically important by the new Financial Stability Oversight Council.  CFI will also be responsible for carrying out the FDIC’s joint responsibility with the Federal Reserve Board to require, review, and approve resolution plans for large bank and nonbank institutions.  Finally, and most importantly, the CFI will be charged with implementing the FDIC’s new authority for the orderly liquidations of bank holding companies and non-bank financial companies that fail.

 Jim Wigand has served as the Deputy Director for Franchise and Asset Marketing in the Division of Resolutions and Receiverships, or DRR, since 1997. In this capacity, Wigand oversaw the resolution of failing insured financial institutions and the sale of their assets.  While in this position, Wigand directed the sale of over 300 deposit franchises and over $600 billion in failed bank and thrift assets.  Prior to 1997, Wigand served in various executive positions at the FDIC and Resolution Trust Corporation. Wigand received a Bachelor of Science degree from the University of Maryland and a Master of Business Administration degree with specialization in finance from the University of Chicago Graduate School of Business.  Bret Edwards, Director of the Division of Finance, will replace Wigand as Acting Director of DRR pending a search for a permanent Director.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Federal Reserve Board has proposed two rules that would expand the coverage of consumer protection regulations to credit transactions and leases of higher dollar amounts.

 The proposed rules would amend Regulation Z (Truth in Lending) and Regulation M (Consumer Leasing) to implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Effective July 21, 2011, the Dodd-Frank Act requires that the protections of the Truth in Lending Act, or TILA, and the Consumer Leasing Act, or CLA, apply to consumer credit transactions and consumer leases up to $50,000, compared with $25,000 currently. This amount will be adjusted annually to reflect any increase in the Consumer Price Index.

 TILA requires creditors to disclose key terms of consumer loans and prohibits creditors from engaging in certain practices with respect to those loans. Currently, consumer loans of more than $25,000 are generally exempt from TILA. However, private education loans and loans secured by real property (such as mortgages) are subject to TILA regardless of the amount of the loan.

 The CLA requires lessors to provide consumers with disclosures regarding the cost and other terms of personal property leases. An automobile lease is the most common type of consumer lease covered by the CLA. Currently, a lease is exempt from the CLA if the consumer’s total obligation exceeds $25,000.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Board of Directors of the Federal Deposit Insurance Corporation, or FDIC, today voted on a final rule to set the insurance fund’s designated reserve ratio, or DRR, at two percent of estimated insured deposits.

 The Dodd-Frank Wall Street Reform and Consumer Protection Act set a minimum DRR of 1.35 percent, and left unchanged the requirement that the FDIC Board set a DRR annually. The Board must set the DRR according to the following factors: risk of loss to the insurance fund; economic conditions affecting the banking industry; preventing sharp swings in the assessment rates; and any other factors it deems important.

 The decision to set the DRR at two percent was based on a historical analysis of losses to the insurance fund. The analysis showed in order to maintain a positive fund balance and steady, predictable assessment rates, the reserve ratio must be at least two percent as a long-term, minimum goal.

 The final rule is part of a comprehensive fund management plan proposed by the Board on October 19, 2010. The plan is meant to provide insured institutions with moderate, steady assessment rates throughout economic cycles, and to maintain a positive fund balance even during severe economic times. The Board expects to act on the remaining aspects of the comprehensive plan—assessment rates and assessment dividends—in the first quarter of next year.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The Board of Directors of the Federal Deposit Insurance Corporation, or FDIC, today approved an interagency proposed rulemaking to implement certain provisions of Section 171 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 171 is more commonly known as the Collins Amendment.

 Section 171 provides that the capital requirements generally applicable to insured banks shall serve as a floor for other capital requirements the agencies establish. The advanced approaches of Basel II allow for reductions in risk-based capital requirements below those generally applicable to insured banks, and accordingly need to be modified to be consistent with Section 171.

 The proposed rule replaces the transitional floors in the advanced approaches rule with permanent risk-based capital floors equal to the capital requirements computed using the agencies’ general risk-based capital rules. The preamble to the proposed rules notes that the agencies may amend the generally applicable capital requirements over time, and that such amended requirements would serve as the new floor for banking organizations using the advanced approaches.

 The proposal also modifies the agencies’ general capital requirements in a way intended to provide the Federal Reserve with additional flexibility to craft capital requirements for nonbanks it supervises as a result of determinations by the Financial Stability Oversight Council. Other provisions of the Collins amendment will be addressed in subsequent rulemakings.

 Comments are due 60 days from publication in the Federal Register.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.

The CFTC has adopted an interim final rule that clarifies the reporting obligations of market participants with respect to swaps entered into on or after the date of enactment of the Dodd-Frank Act and prior to the effective date of swap data reporting rules implementing Section 2(h)(5)(B) of the Commodity Exchange Act, or CEA.  The rule refers to these swaps as transition swaps. The rule does not impose a present reporting requirement, but rather is intended to advise potential counterparties that (1) reporting requirements applicable to transition swaps will be adopted by the CFTC in a separate rulemaking pursuant to Section 2(h)(5)(B) of the CEA; and (2) implicit in a reporting requirement is the obligation to preserve certain data pending implementation of the provisions of Section 2(h)(5)(B).  The rule is codified in CFTC Regulation 44.03.

 Although the CFTC has not yet proposed permanent rules implementing Section 2(h)(5)(B) of the CEA, the CFTC believes that the reporting obligations imposed by that statutory provision became effective upon enactment of the Dodd-Frank Act.  Accordingly, counterparties who are or may become subject to those obligations should be prepared to report swap data relating to transition swaps at such time as reporting is required under a permanent rule.  While Section 2(h)(5) does not expressly require that counterparties retain data related to transition swaps, implicit in the reporting requirement established by this provision is the obligation to preserve data related to the terms of each transition swap so that it may be reported when permanent reporting rules implementing Section 2(h)(5)(B) are adopted by the CFTC.

 The CFTC stated it is mindful that the data retention obligation may be perceived as burdensome, and in that regard the Note to Regulation 44.03 attempts to limit the data to material information that may be expected to assist the CFTC in performing its oversight functions under the CEA.  To ensure that important information relating to the terms of transition swaps may be preserved with minimal burden on counterparties, the Note specifically does not require any counterparty to a transition swap to create new records and permits records to be retained in their existing format.  Similarly, the Note specifies that information not in the counterparty’s possession prior to the effective date of the interim final rule need not be reported.

 While the final regulations are not yet available, we believe interested persons can review the record retention requirements for pre-enactment swaps that have been promulgated by the CFTC for guidance.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.