Statement of Chairman Timothy Massad on Order Extending De Minimis Threshold Phase-In Termination Date

October 13, 2016

I thank my fellow Commissioners for unanimously supporting this order, which extends the phase-in of the de minimis threshold for swap dealing by one year.

The de minimis threshold determines when an entity’s swap dealing activity requires registration with the CFTC. Registration triggers capital and margin requirements as well as other responsibilities, such as disclosure, recordkeeping, and documentation requirements. In 2012, the CFTC set the threshold initially at $8 billion in notional amount of swap dealing activity over the course of a year, and provided that it would fall to $3 billion at the end of 2017.

This registration requirement is a pillar of the framework for swap regulation mandated by the Dodd-Frank Act. Congress required this framework because excessive risk related to over-the-counter derivatives contributed to the intensity of the worst financial crisis since the Great Depression, one which resulted in millions of American families losing their jobs, their homes and their savings. At the same time, Congress recognized that derivatives play an important role in enabling businesses to hedge risk. Therefore, getting this framework right is very important.

There are now more than 100 swap dealers provisionally registered with the CFTC, which include most of the largest global banking entities. Absent our action today, the threshold would have dropped from $8 billion to $3 billion at the end of 2017. That means firms would have been required to start determining whether their activity exceeds that lower threshold just a few months from now – in January of next year. Pushing back this date is a sensible and responsible step for several reasons.

First, our staff has completed the study required by the rule on the threshold. They estimated that lowering the threshold would not increase significantly the percentage of interest rate swaps (IRS) and credit default swaps (CDS) covered by swap dealer regulation, but it would require many additional firms to register. This might include some smaller banks whose swap activity is related to their commercial lending business. At the same time, the study notes that the data has certain shortcomings, particularly when it comes to nonfinancial commodity swaps. This market is very different than the IRS and CDS markets, and I know there is much concern about the threshold with respect to it. This delay will allow us to consider all these issues further.

In addition, I believe it makes sense to adopt a rule setting capital requirements for swap dealers before addressing the threshold. This rule, which is required by Dodd Frank, is one of the most important in our regulation of swap dealers, and I am hoping the Commission can act on a reproposal of it soon. This one-year delay will also allow us to more fully assess how the new margin requirements are working.

These are just some of the reasons we have taken this action. I thank the CFTC staff for their hard work on this order and on this issue generally. And I again thank my fellow Commissioners for their support.

Last Updated: October 13, 2016