The CFTC approved an Order establishing December 31, 2018 as the termination date for the swap dealer ("SD") registration de minimis threshold phase-in. Prior to the Order's approval, the phase-in was scheduled to terminate (in accordance with CFTC Regulation 1.3(ggg)) on December 31, 2017, at which time the de minimis threshold would have dropped from an aggregate gross notional amount of $8 billion to $3 billion. The approval was unanimous.
In his supporting statement, CFTC Chair Timothy Massad referred to a study of the de minimis threshold by CFTC staff, and indicated that the CFTC should also consider whether a threshold of $3 billion would capture smaller banks that entered into swaps as part of their commercial lending business. He noted that the data used in the study had "shortcomings" (especially its failure to address nonfinancial commodity swaps). Chair Massad also voiced his belief that the CFTC should adopt capital requirements for swap dealers before addressing the de minimis threshold.
In her concurring statement, CFTC Commissioner Sharon Y. Bowen emphasized that the CFTC must see "hard data" before allowing the threshold to drop to $3 billion, and added that it would be a "disservice to the industry and to the public" to change the threshold without strong supporting evidence of a positive effect. Commissioner Bowen also found "some merit" in the idea of modifying the de minimis counting requirement to exclude cleared swaps, and asserted that "cleared swaps are safer than uncleared swaps."
Commentary / Nihal Patel
The CFTC's action was long expected. Chair Massad has stressed the view repeatedly that delaying the date would be appropriate. Unless the term of the Order is extended, market participants must stay below the $3 billion threshold in order to avoid having to register in January 2018, since CFTC Regulation 1.3(ggg) has a one-year lookback period (i.e., if the threshold drops to $3 billion on January 1, 2019, firms that have dealt in larger notional amounts over calendar year 2018 will need to register). In general, the Commissioners' statements are encouraging. It is true that the CFTC should (i) adopt capital requirements before amending the registration requirements, so that firms know what they are getting into before registering, (ii) look at hard data before establishing a threshold (and perhaps contemplate, for example, whether notionals are the right measurement), and (iii) consider whether counting or excluding cleared or loan-hedging swaps toward the registration requirement is the better policy. It might have been preferable for the CFTC to consider these issues before requiring firms to decide whether to register four years ago, but better late than never.
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