124 STAT. 1756 PUBLIC LAW 111–203—JULY 21, 2010 ‘‘(II) whose outstanding security-based swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial mar- kets; or ‘‘(III) that is a financial entity that— ‘‘(aa) is highly leveraged relative to the amount of capital such entity holds and that is not subject to capital requirements established by an appro- priate Federal banking agency; and ‘‘(bb) maintains a substantial position in out- standing security-based swaps in any major secu- rity-based swap category, as such categories are determined by the Commission. ‘‘(B) DEFINITION OF SUBSTANTIAL POSITION.—For pur- poses of subparagraph (A), the Commission shall define, by rule or regulation, the term ‘substantial position’ at the threshold that the Commission determines to be pru- dent for the effective monitoring, management, and over- sight of entities that are systemically important or can significantly impact the financial system of the United States. In setting the definition under this subparagraph, the Commission shall consider the person’s relative position in uncleared as opposed to cleared security-based swaps and may take into consideration the value and quality of collateral held against counterparty exposures. ‘‘(C) SCOPE OF DESIGNATION.—For purposes of subpara- graph (A), a person may be designated as a major security- based swap participant for 1 or more categories of security- based swaps without being classified as a major security- based swap participant for all classes of security-based swaps. ‘‘(68) SECURITY-BASED SWAP.— ‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), the term ‘security-based swap’ means any agreement, contract, or transaction that— ‘‘(i) is a swap, as that term is defined under section 1a of the Commodity Exchange Act (without regard to paragraph (47)(B)(x) of such section); and ‘‘(ii) is based on— ‘‘(I) an index that is a narrow-based security index, including any interest therein or on the value thereof; ‘‘(II) a single security or loan, including any interest therein or on the value thereof; or ‘‘(III) the occurrence, nonoccurrence, or extent of the occurrence of an event relating to a single issuer of a security or the issuers of securities in a narrow-based security index, provided that such event directly affects the financial state- ments, financial condition, or financial obligations of the issuer. ‘‘(B) RULE OF CONSTRUCTION REGARDING MASTER AGREEMENTS.—The term ‘security-based swap’ shall be con- strued to include a master agreement that provides for an agreement, contract, or transaction that is a security- based swap pursuant to subparagraph (A), together with
