October 12, 2102

CFTC Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter Regarding the De Minimis Threshold for Swaps with Utility Special Entities

Washington, DC — Today, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight is issuing a letter providing temporary no-action relief from certain requirements in the de minimis exception from the definition of the term swap dealer. The no-action relief would allow non-financial entities that are active in the physical energy markets to deal in swaps with publicly-owned, government-owned or federal agency utilities with an aggregate gross notional amount of up to $800 million per year, and not be required to register as swap dealers.

Under the Commission’s current rules, an entity that enters into swaps connected with its dealing activities with “special entities” (a term defined in the Commodity Exchange Act to include the publicly-owned, government-owned and federal agency utilities) must register as a swap dealer if the aggregate gross notional amount of the swaps is more than $25 million per year. The Commission has received a petition from the American Public Power Association, the Large Public Power Council, the American Public Gas Association, the Transmission Access Policy Study Group and the Bonneville Power Administration requesting that the Commission provide relief from this limitation for certain swaps that special entities with electric or natural gas operations or obligations use to hedge risks arising from those operations and obligations. The petitioners say that a variety of counterparties must be available in order for the utilities to be able to efficiently manage their risks, but that counterparties are reluctant to enter into swaps with the utility special entities because of the $25 million limitation in the Commission’s current rules.

The letter provides that while the Commission considers the issues raised in the petition, the Division of Swap Dealer and Intermediary Oversight will not recommend that the Commission commence an enforcement action against a non-financial entity that regularly transacts in the physical energy markets for failure to apply to be registered as a swap dealer, if the entity limits its swaps connected with its dealing activities with utility special entities to no more than $800 million per year and other requirements set out in the letter are met.

Last Updated: October 12, 2012