United States: CFTC Releases Swap Dealer De Minimis Report

CFTC Staff's Preliminary Report on whether to modify the swap dealer de minimis threshold highlights the difficulty in identifying swap dealing activity and problems with swap data reporting

When the U.S. Commodity Futures Trading Commission ("CFTC" or the "Commission") defined the activity that would require an entity to register as a swap dealer, it provided an exception for entities that engage in a volume of dealing activity below a certain threshold ("de minimis threshold").  Initially, the CFTC established a phase-in period during which the de minimis threshold is set at $8 billion in notional amount of dealing swaps over a rolling twelve-month period ($25 million for swaps with special entities).  If the CFTC does not take further action before the end of the phase-in period, the de minimis threshold automatically drops to $3 billion on December 31, 2017.

In the interim, the CFTC's rules require the CFTC to issue for public comment a report on topics relating to the scope of swap dealing activity and the size of the de minimis threshold itself.1 On November 18, 2015, staff from the Division of Swap Dealer and Intermediary Oversight and the Office of the Chief Economist of the CFTC (collectively, "Staff") released the Swap Dealer De Minimis Exception Preliminary Report ("the Preliminary Report") for public comment.  Comments to the Preliminary Report are due January 19, 2016.

The Preliminary Report generally addresses:  (1) the statutory and regulatory requirements (Section II of the Preliminary Report); (2) the available swap data and assumptions made as part of the CFTC's analysis (Section III of the Preliminary Report); (3) the policy objectives and considerations relating to the de minimis exception (Section IV of the Preliminary Report); and (4) alternatives to the de minimis exception (Section V of the Preliminary Report).

Market participants hoping to gain insight into the nature of swap dealing activities or the potential impact of decreasing or increasing the de minimis threshold may be disappointed by the Preliminary Report.  Staff did not identify the nature of activities that are indicative of dealing, nor did it make a recommendation regarding adjusting the de minimis threshold.  In fact, Staff acknowledges that their analysis "has limited value for setting a more effective single de minimis threshold for the entire swap market."  Instead, the Preliminary Report provides an overview of the substantive and significant limitations of the swap data that the CFTC is currently receiving, and then outlines several potential alternatives to the current framework for the de minimis exception.  Staff intends to review the public comments to the Preliminary Report, and thereafter, draft a final report with Staff recommendations on the definition of dealing and the size of the de minimis threshold.  The final report will similarly be subject to public comment.

Below is a brief summary of the key issues addressed in the Preliminary Report.

I. Swap Data, Methodology, and Analysis (Section III of the Preliminary Report)

To assess the likely impact of modifying the de minimis threshold, Staff analyzed swap data received from swap data repositories ("SDRs").  The Preliminary Report explains the assumptions Staff made regarding whether certain activity was dealing activity based on the swap data and to what extent modifying the de minimis threshold might alter the number of swap dealer registrants. 

Staff acknowledged several limitations to relying on SDR data to determine the impact of modifying the de minimis threshold.  First and foremost, SDR data does not indicate whether a particular swap represents a dealing swap.  The data only identifies the parties to the swap and the primary economic terms.  To counteract the limitations of the SDR data, Staff made several underlying assumptions depending on the swap asset class in order to identify dealing activity as compared to non-dealing activity.  Essentially, the Staff assumptions place each entity in a likely-dealer or non-dealer category.  For the dealer category, the Staff counted all swaps toward the de minimis threshold.  For the non-dealer category, the Staff did not count any swaps toward the de minimis threshold.  

A. Staff Assumptions to Identify Dealing Activity in the Interest Rate and Credit Default Swap Asset Classes

For the interest rate and credit default swaps asset classes, Staff assumed that collective investment vehicles, foreign central banks and other government related international financial institutions, cooperatives, insurance companies and non-bank financing companies did not engage in dealing activity, so Staff did not count swaps for these types of entities toward the de minimis threshold.  If an entity was not excluded, Staff assumed that as the notional value of an entity's swap transactions increased, it was more likely that the entity was engaged in dealing activity.  As a result, Staff assumed that entities that enter into swaps with higher notional value were engaging in dealing activity.  For these likely-dealing entities, Staff attempted to exclude inter-affiliate transactions and certain transactions involving non-U.S. persons. 

B. Staff Assumptions to Identify Dealing Activity in the Equities, FX, and Non-Financial Commodity Swap Asset Classes

For the equities, FX, and non-financial commodity swaps asset classes, Staff indicated that it could not rely on notional amount data due to errors in the data reported to SDRs.  Consequently, Staff could not evaluate the impact of modifying the de minimis threshold and therefore developed a different approach to identify swap dealing activity for these asset classes.  First, Staff assumed that certain entities likely do not engage in regulated swap dealing activity or are not within the CFTC's jurisdiction.2  For all entities that were not excluded, Staff evaluated whether entering into more CFTC-jurisdictional swap transactions with a greater number of counterparties is indicative of swap dealing activity.  Staff acknowledged such metrics are not determinative in identifying dealing activity and requested comments on alternative techniques to use to more accurately identify swap dealing activity. 

II. Findings of the Preliminary Report

Although the swap dealer de minimis threshold is based upon total notional amount across all swap asset classes, the Preliminary Report only evaluated the impact of modifying the de minimis threshold for interest rate and credit default swap asset classes due to data limitations for the other asset classes.  After assuming a level of swap dealing activity for various entities in the interest rate and credit default swap asset classes, Staff attempted to identify the number of entities that would be subject to swap dealer registration if the CFTC were to increase or decrease the de minimis threshold.  For example, Staff concluded that reducing the de minimis threshold to $3 billion would result in up to 83 additional entities being subject to swap dealer registration (approximately 212 entities would be subject to swap dealer registration in total), while increasing the threshold to $15 billion would result in as many as 22 fewer entities being subject to swap dealer registration (approximately 107 entities would be subject to swap dealer registration in total).3 However, these changes would not have an appreciable impact on regulatory coverage as measured by notional amount attributable to registered swap dealers.  In fact, Staff noted that such changes only would impact the amount of notional activity subject to swap dealer regulation by less than one percent. 

For the equities, FX, and non-financial commodity swaps asset classes, Staff did not evaluate the impact of modifying the de minimis threshold.  Rather, Staff evaluated the transaction count and counterparty count for potential swap dealers and compared those counts to the number of registered swap dealers with similar counts.  According to the report, "the 51 to 75 Counterparty Count range is the lowest level at which the majority of Potential Swap Dealing Entities in each asset class were registered swap dealers. Similarly, the 10,001 to 100,000 Transaction Count range was the lowest level at which the majority of Potential Swap Dealing Entities in each asset class were registered."  It is unclear if Staff assumed that counterparty or transaction counts at those levels are indicative of swap dealing. 

III. Alternatives to the De Minimis Exception (Section V of the Preliminary Report)

The Preliminary Report requests comment regarding several potential "alternative approaches" to the current de minimis calculation, including:  (1) a notional de minimis threshold specific to each asset class;  (2) a multi-factor approach that would potentially include Counterparty Count and/or Transaction Count metrics in the de minimis exception, in addition to a gross notional dealing threshold; (3) a multi-tiered approach where the regulatory requirements associated with swap dealer registration are commensurate with an entity's level of dealing activity; and (4) the exclusion from the de minimis calculation of swaps that are traded on a registered or exempted swap execution facility ("SEF") or designated contract market ("DCM"), and/or cleared.  Staff does not provide recommendations regarding which of these alternatives is preferable, if any, but does describe some of the possible ramifications with respect to each.

IV.  Conclusion

Given the potential for a significant change in the level and methodology for calculating the de minimis threshold, market participants should begin to assess the potential impact of the various approaches discussed in the Preliminary Report and the likely time required to implement commercial changes (if any) if the goal is to remain unregistered.  Additionally, market participants should take note of the CFTC's description of deficiencies in swap data reporting, particularly in light of recent enforcement actions and statements made by both the Chairman and Director of Enforcement regarding the Commission's intention to investigate and address reporting deficiencies through enforcement actions. 


1 CFTC Rule 1.3(ggg)(4)(ii)(B); Further Definition of "Swap Dealer," "Security-Based Swap Dealer," "Major Swap Participant," "Major Security-based Swap Participant" and "Eligible Contract Participant", 77 Fed. Reg. 30596 (May  23, 2012).

2 The entities that Staff assumed do not engage in swap dealing activity include: collective investment vehicles, foreign central banks and other government related international financial institutions, cooperatives, insurance companies, non-bank financing companies, commodity pools whose operators were registered with the Commission as commodity pool operators, entities listed on the SEC's Investment Company Series and Class Report, and entities whose names matched any of a set of keywords that likely indicated the entity was in one of the categories to be excluded (e.g., "fund" or "insurance").

3 Staff noted that the impact of lowering the threshold to $3 billion would likely be even less than their analysis suggests because their analysis did not allow for Staff to separate out hedging and proprietary trading.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Kramer Levin Naftalis & Frankel LLP
Cadwalader, Wickersham & Taft LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Kramer Levin Naftalis & Frankel LLP
Cadwalader, Wickersham & Taft LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions