CFTC Chair Timothy Massad will recommend a one-year delay of the
swap de minimis threshold. The threshold will determine
when an entity's swap-dealing activity triggers registration as
a swap dealer. He made the announcement at the North-American OTC
Chair Massad stated that his decision was based partly on the
need to allay uncertainty:
Today, I am announcing that I will
recommend to my fellow commissioners a one-year extension of the
date on which the swap dealer de minimis threshold is
scheduled to drop. . . . Given its importance, a delay is the
sensible and responsible thing to do – and doing it now will
provide much-needed certainty to market participants.
Currently, the de minimis threshold is set at $8
billion of notional amount of swap dealing activity. This level
will drop to $3 billion automatically at the end of 2017 unless the
CFTC takes action. Chair Massad explained that due to
"limitations" on data the CFTC received in order to
evaluate the issue, along with the potential adverse effect of a
threshold drop on small banks with modest swap activity, it is
appropriate to take a "pause" until better data becomes
available. In further remarks, Chair Massad reviewed the CFTC's
progress on implementing Dodd-Frank reforms, and commented that
"today's derivatives debate is about the details of
regulation, not whether we should regulate." He announced his
intention "to repropose a rule that would set capital
requirements for swap dealers, and stated that finalizing "one
of the most important rules in our regulation of swap dealers"
before addressing the threshold question makes sense.
Chair Massad's decision to delay the de minimis
threshold is welcome. It means that the CFTC intends to
avoid issuing a formal exemption at the last possible minute.
Despite the data limitations of the study, the results seem
unambiguous: dropping the registration threshold from $8 billion to
$3 billion now would have caused small swap dealers to either (i)
decrease their dealing activity even more than they have, or (ii)
drop out of the market entirely, which in turn would give market
participants fewer choices. Given the costs of swap-dealer
regulation under Dodd-Frank, small swap dealers cannot register
with the CFTC and remain sustainable.
Chair Massad's comment that the debate over swaps regulation
is merely about the "details" should not go unnoticed. To
the contrary, there still is a lot to debate on the big-picture
side, starting with the risks that have been introduced into the
system by central clearing and the questionable benefits provided
by an expensive regulatory scheme of position limits.
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