2016-25143
Federal Register, Volume 81 Issue 201 (Tuesday, October 18, 2016)
[Federal Register Volume 81, Number 201 (Tuesday, October 18, 2016)]
[Rules and Regulations]
[Pages 71605-71610]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25143]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 1
Order Establishing De Minimis Threshold Phase-In Termination Date
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
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[[Page 71606]]
SUMMARY: With respect to the de minimis exception to the swap dealer
definition, the Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is issuing an order (``Order''), pursuant to the applicable
Commission regulation, to establish December 31, 2018 as the de minimis
threshold phase-in termination date.
DATES: Issued October 13, 2016.
FOR FURTHER INFORMATION CONTACT: Eileen T. Flaherty, Director, 202-418-
5326, [email protected]; Erik Remmler, Deputy Director, 202-418-7630,
[email protected]; Lauren Bennett, Special Counsel, 202-418-5290,
[email protected]; Margo Dey, Special Counsel, 202-418-5276,
[email protected]; or Rajal Patel, Special Counsel, 202-418-5261,
[email protected], Division of Swap Dealer and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory and Regulatory Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') \1\ directed the CFTC and the U.S. Securities and
Exchange Commission (``SEC'' and together with the CFTC,
``Commissions'') to jointly further define the term ``swap dealer'' and
to include therein a de minimis exception.\2\ The CFTC's further
definition of swap dealer is provided in Regulation 1.3(ggg). The de
minimis exception therein provides that a person shall not be deemed to
be a swap dealer unless its swap dealing activity exceeds an aggregate
gross notional amount threshold of $3 billion (measured over the prior
12-month period), subject to a phase-in period during which the gross
notional amount threshold is set at $8 billion.\3\ Absent further
action by the Commission, the phase-in period would terminate on
December 31, 2017, at which time the de minimis threshold would
decrease to $3 billion.\4\ This would require firms to start tracking
their swap activity beginning January 1, 2017 to determine whether
their dealing activity over the course of that year would require them
to register as swap dealers.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act can be accessed on the Commission's Web site, at
www.cftc.gov.
\2\ See Dodd-Frank Act sections 712(d) and 721. The definition
of ``swap dealer'' can be found in section 1a(49) of the Commodity
Exchange Act and as further defined in Regulation 1.3(ggg). 7 U.S.C.
1a(49) and 17 CFR 1.3(ggg). The Commodity Exchange Act is at 7
U.S.C. 1, et seq. (2014), and is accessible on the Commission's Web
site, at www.cftc.gov.
\3\ See 17 CFR 1.3(ggg)(4). See also Further Definition of
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant,'' 77 FR 30596 (May 23, 2012).
This Order does not impact the de minimis threshold for swaps
with ``special entities'' as defined in the Commodity Exchange Act,
section 4s(h)(2)(C), 7 U.S.C. 6s(h)(2)(C).
\4\ See 17 CFR 1.3(ggg)(4)(ii)(D).
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When the $3 billion de minimis exception was established, the
Commissions explained that the information then available regarding
certain portions of the swap market was limited in certain respects,
and that they expected that the implementation of swap data reporting
may enable reassessment of the de minimis exception.\5\ Accordingly,
the Commission adopted Regulation 1.3(ggg)(4), which directed CFTC
staff to issue a report, after a specified period of time, on topics
relating to the de minimis exception ``as appropriate, based on the
availability of data and information.'' \6\ Regulation 1.3(ggg)(4)
further provides that after giving due consideration to the report and
any associated public comment, the Commission may issue an order to
establish a termination date for the phase-in period or propose through
rulemaking modifications to the de minimis exception.
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\5\ See 77 FR at 30634, 30640.
\6\ SEC Regulation 240.3a71-2A similarly directs SEC staff to
prepare a report on the security-based swap dealer de minimis
exception. 17 CFR 240.3a71-2A.
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B. Staff Reports
Staff issued for public comment a preliminary report concerning the
de minimis exception on November 18, 2015 (``Preliminary Report'').\7\
After consideration of the public comments received, and further data
analysis, staff issued the Swap Dealer De Minimis Exception Final Staff
Report \8\ on August 15, 2016 (``Final Report,'' and together with the
Preliminary Report, ``Staff Reports''). The Staff Reports analyzed the
available swap data \9\ in conjunction with relevant policy
considerations to assess alternative de minimis threshold levels and
other potential changes to the de minimis exception.
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\7\ Swap Dealer De Minimis Exception Preliminary Report (Nov.
18, 2015), available at http://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis_1115.pdf.
\8\ Swap Dealer De Minimis Exception Final Staff Report (August
15, 2016), available at http://www.cftc.gov/idc/groups/public/@swaps/documents/file/dfreport_sddeminis081516.pdf.
\9\ The data analysis broke down the data into the following
asset classes: Interest rate swaps (``IRS''); credit default swaps
(``CDS''); non-financial commodity (``Non-Financial Commodity'')
swaps; equity (``Equity'') swaps; and foreign exchange derivatives
(``FX Derivatives'').
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C. Swap Data Analysis
As discussed in the Staff Reports, the lack of certain metrics
needed for evaluating different de minimis thresholds, as well as data
validity issues, limited the analysis of the potential impact of
changes to the current de minimis exception.\10\ The Final Report
further noted that, notwithstanding these data issues, the quality of
the swap data that is reported to the Commission appears to be
continually improving, and that the Commission is taking additional
steps to enhance swap data quality.\11\
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\10\ See Preliminary Report at 12-21; Final Report at 4-6, 19-
20. For example, the data reported does not indicate whether either
counterparty to a swap is acting as a dealer, and there are
difficulties in calculating the notional amounts for certain types
of swaps in a uniform manner useful for data analysis.
\11\ See Final Report at 18-19. For example, in June 2016, the
Commission finalized amendments related to the reporting of cleared
swaps. See Amendments to Swap Data Recordkeeping and Reporting
Requirements for Cleared Swaps, 81 FR 41736 (June 27, 2016).
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The data analysis in the Staff Reports provided some insights into
the effectiveness of the de minimis exception as currently implemented.
Staff analyzed the number of swap transactions involving at least one
registered swap dealer, which is indicative of the extent to which
swaps are subject to swap dealer regulation at the current $8 billion
threshold. Data reviewed for the Final Report indicated that
approximately 96% of all reported swap transactions involved at least
one registered swap dealer. When considering individual swap asset
classes, approximately 98% or more of swaps in each asset class, other
than the Non-Financial Commodity asset class, involved at least one
registered swap dealer. Approximately 89% of Non-Financial Commodity
swaps involved a registered swap dealer.\12\
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\12\ See Final Report at 22.
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However, as discussed above, the data available was not sufficient
to assess whether, and to what extent, specific changes to the de
minimis threshold levels would increase or decrease the coverage of
swaps by swap dealer regulation. In particular, the Staff Reports noted
that reliable notional amount data was not available for Non-Financial
Commodity, Equity, and FX Derivative swaps.
The Commission also notes that it has not yet adopted a regulation
on capital requirements for swap dealers, which is a significant
component of swap dealer registration. The Commission believes it
[[Page 71607]]
is prudent to finalize the capital rule before addressing the de
minimis threshold. In addition, the swap dealer requirements regarding
margin for uncleared swaps, another important component of swap dealer
registration, are currently being implemented. The Commission believes
that a year's delay would allow it to finalize the swap dealer capital
rule and assess the implementation of margin requirements for uncleared
swaps. Having information on these aspects associated with swap dealer
registration would be helpful in further assessing the impact of
changing the de minimis threshold.
Accordingly, the Commission believes that it is prudent to extend
the phase-in period by one year, which may provide additional time for
more information to become available to reassess the de minimis
exception. Adopting this Order at this time also provides clarity to
market participants regarding when they would need to begin preparing
for a change to the de minimis exception.
II. Conclusion and Order
For the reasons discussed above, and pursuant to its authority
under Regulation 1.3(ggg)(4)(ii)(C)(1), the Commission is establishing
December 31, 2018 as the termination date for the de minimis threshold
phase-in period. The Commission notes that prior to the termination of
the phase-in period, the Commission may take further action regarding
the de minimis threshold by rule amendment, order, or other appropriate
action.\13\
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\13\ See 17 CFR 1.3(ggg)(4)(v).
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III. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') \14\ imposes certain
requirements on Federal agencies in connection with their conducting or
sponsoring any collection of information as defined by the PRA. This
Order does not impose any new recordkeeping or information collection
requirements, or other collections of information that require approval
of the Office of Management and Budget under the PRA.
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\14\ 44 U.S.C. 3501 et seq.
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B. Cost-Benefit Considerations
Section 15(a) of the Commodity Exchange Act (``CEA'') requires the
Commission to consider the costs and benefits of its actions before
promulgating a regulation under the CEA or issuing certain orders.\15\
Section 15(a) further specifies that the costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
(i) Protection of market participants and the public; (ii) efficiency,
competitiveness, and financial integrity of futures markets; (iii)
price discovery; (iv) sound risk management practices; and (v) other
public interest considerations. In this section, the Commission
considers the costs and benefits resulting from its determinations with
respect to the section 15(a) factors.
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\15\ 7 U.S.C. 19(a).
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1. Background
As discussed above, Regulation 1.3(ggg)(4)(i) provides an exception
from the swap dealer definition for persons who engage in a de minimis
amount of swap dealing activity. Currently, under Regulation
1.3(ggg)(4)(i), a person shall not be deemed to be a swap dealer unless
its swap dealing activity exceeds an aggregate gross notional amount
threshold of $3 billion (measured over the prior 12-month period),
subject to a phase-in period during which the gross notional amount
threshold is set at $8 billion.\16\ The phase-in period would have
terminated on December 31, 2017, and the de minimis threshold would
have decreased to $3 billion, absent this Order.\17\ This would have
required firms to start tracking their swap activity beginning January
1, 2017 to determine whether their dealing activity over the course of
that year would require them to register as swap dealers.
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\16\ 17 CFR 1.3(ggg)(4)(i). See generally 77 FR at 30626-35. See
also note 3, supra.
\17\ 17 CFR 1.3(ggg)(4).
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The $3 billion threshold, which, absent this Order, would be
effective on December 31, 2017, sets the baseline for the Commission's
consideration of the costs and benefits of this Order.\18\ Accordingly,
the Commission considers the costs and benefits that will result from
an extended phase-in period.
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\18\ See 77 FR at 30702-14 (discussing the cost-benefit
considerations with regard to the final swap dealer definition).
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2. General Cost and Benefit Considerations
There are several policy objectives underlying swap dealer
regulation and the de minimis exception to swap dealer registration.
The primary policy objectives of swap dealer regulation include the
reduction of systemic risk, increased counterparty protections, and
market efficiency, orderliness, and transparency.\19\ Registered swap
dealers are subject to a broad range of requirements, including, inter
alia, registration, internal and external business conduct standards,
reporting, recordkeeping, risk management, posting and collecting
margin, and chief compliance officer designation and responsibilities.
As noted in the Regulation 1.3(ggg) adopting release, generally, the
lower the de minimis threshold, the greater the number of entities that
are subject to these requirements, which could decrease systemic risk,
increase counterparty protections, and promote swap market efficiency,
orderliness, and transparency.\20\
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\19\ Id. at 30628-30, 30707-08.
\20\ Id. at 30628-30, 30703, 30707-08.
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The Commission also considers policy objectives furthered by a de
minimis exception, which include regulatory certainty, allowing limited
ancillary dealing, encouraging new participants to enter the swap
dealing market, and regulatory efficiency.\21\ Generally, the higher
the de minimis threshold, the greater the number of entities that are
able to engage in dealing activity without being required to register,
which could increase competition and liquidity in the swap market.\22\
In addition, because competitive markets may be more efficient, a
higher de minimis threshold might improve swap market efficiency.
Further, the Commission notes that it has been suggested that a higher
threshold could allow the Commission to expend its resources on
entities with larger swap dealing activities warranting more oversight.
An alternative view is that the de minimis threshold should be set
based on policy independent of consideration of the Commission's
resources.
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\21\ Id. at 30628-30, 30707-08.
\22\ Alternatively, the Commission notes that a lower de minimis
threshold may lead to potential changes in market behavior,
including, for example, product innovation.
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Extending the phase-in period by one year will delay realization of
the policy benefits associated with the $3 billion de minimis
threshold, but will also extend the policy benefits associated with a
higher de minimis threshold. The additional time to adjust to the $3
billion de minimis threshold also would potentially increase regulatory
certainty for some market participants. Given that the de minimis
exception is subject to a 12-month look-back, extending the phase-in
period to December 31, 2018 would allow entities that would potentially
have to register as swap dealers additional time to adjust their
activities and prepare for the compliance obligations related to swap
dealer registration.
3. Section 15(a)
Section 15(a) of the CEA requires the Commission to consider the
effects of its
[[Page 71608]]
actions in light of the following five factors. This Order will delay
the potential costs and benefits discussed below by one year.
(i) Protection of Market Participants and the Public
Providing regulatory protections for swap counterparties who may be
less experienced or knowledgeable about the swap products offered by
swap dealers (particularly end-users who use swaps for hedging or
investment purposes) is a fundamental policy goal advanced by the
regulation of swap dealers. The Commission recognizes that the $3
billion de minimis threshold may result in more entities being required
to register as swap dealers compared to an $8 billion threshold,
thereby extending counterparty protections to a greater number of
market participants. Further, swap dealer regulation is intended to
reduce systemic risk in the swap market. Pursuant to the Dodd-Frank
Act, the Commission has proposed or adopted regulations for swap
dealers--including margin and risk management requirements--designed to
mitigate the potential systemic risk inherent in the swap market.
Therefore, the Commission recognizes that a lower de minimis threshold
may result in more entities being required to register as swap dealers,
thereby potentially further reducing systemic risk.
(ii) Efficiency, Competitiveness, and Financial Integrity of Markets
Other goals of swap dealer regulation are swap market transparency,
orderliness, and efficiency. These benefits are achieved through
regulations requiring, for example, swap dealers to keep trading
records and report trades, provide counterparty disclosures about swap
risks and pricing, and undertake portfolio reconciliation and
compression exercises. Accordingly, the Commission notes that a lower
de minimis threshold may have a positive effect on the efficiency and
integrity of the markets.
However, the Commission also recognizes that the efficiency and
competitiveness of the swap market may be negatively impacted if the de
minimis threshold is set too low by potentially increasing barriers to
entry that may stifle competition and reduce swap market efficiency.
For example, if entities choose to reduce or cease their swap dealing
activities so that they would not need to register if the de minimis
threshold decreases to $3 billion, the number or availability of market
makers for swaps may be reduced, which could lead to increased costs
for potential counterparties and end-users.
(iii) Price Discovery
The Commission preliminarily believes that a $3 billion de minimis
threshold may discourage participation of new swap dealers and
ancillary dealing. If there are fewer entities engaged in dealing,
there may be a negative effect on price discovery.
(iv) Sound Risk Management
The Commission notes that a $3 billion de minimis threshold could
lead to better risk management practices because a greater number of
entities would be required by regulation to: (i) Develop and implement
detailed risk management programs; (ii) adhere to business conduct
standards that reduce operational and other risks; and (iii) satisfy
margin requirements for uncleared swaps.
(v) Other Public Interest Considerations
The Commission has not identified any other public purpose
considerations for this Order.
C. Antitrust Considerations
Section 15(b) of the CEA requires the Commission to take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
objectives of the CEA, in issuing any order or adopting any Commission
rule or regulation. The Commission does not anticipate that the Order
discussed herein will result in anti-competitive behavior.
IV. Order
In light of the foregoing, it is ordered, pursuant to the
Commission's authority under Regulation 1.3(ggg)(4)(ii)(C)(1), that the
de minimis threshold phase-in termination date shall be December 31,
2018. Absent further action by the Commission, the phase-in period
would terminate on December 31, 2018, at which time the de minimis
threshold will be $3 billion.
The Commission retains the authority to condition further, modify,
suspend, terminate, or otherwise restrict any of the terms of the Order
provided herein, in its discretion.
Issued in Washington, DC, on October 13, 2016, by the
Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.
Appendices To Order Establishing De Minimis Threshold Phase-In
Termination Date Pursuant to Commission Regulation
1.3(ggg)(4)(ii)(C)(1)--Commission Voting Summary, Chairman's Statement,
and Commissioner's Statement
Appendix 1--Commission Voting Summary
On this matter, Chairman Massad and Commissioners Bowen and
Giancarlo voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2--Statement of Chairman Timothy G. Massad
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
[[Page 71609]]
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.
Appendix 3--Concurring Statement of Commissioner Sharon Y. Bowen
While we might disagree on the details of today's order, I think
we can all agree on one thing: Today's action is very important to
how the swaps industry operates and our system of financial
regulation functions. If we do not accurately and appropriately set
the mandatory level of trading for swap dealer registration, our
entire regulatory regime for the swaps market will be weakened.
I know that a great deal has been said about the subject of the
de minimis threshold, and I expect that just about everyone
reviewing today's decision to extend the current phase-in of the $3
billion threshold by one year is all-too familiar with its
substance. Yet, given the amount of prior actions that the
Commission has taken on this topic, I think we cannot fully consider
how to view today's action without first reviewing how we got here.
Following the 2008 financial crisis, which was exacerbated by the
absence of regulation of the swaps market, Congress passed the Dodd-
Frank Wall Street Reform and Consumer Protection Act. Among the many
things in that Act were a raft of robust regulatory requirements on
the swaps market, including mandatory clearing, a system of data
reporting, and a mandate to trade many products on Swap Execution
Facilities (SEFs).
Some of the most significant new regulatory requirements were
crafted for what we now call swap dealers, those entities which had
significant involvement in the swaps market.\1\ For instance, along
with major swap participants, swap dealers were at the heart of our
new regulation regarding margin for uncleared swaps and the related
cross-border rulemaking. Swap dealers will similarly be
substantially impacted by our upcoming rule proposal on capital.
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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act (Dodd-Frank), section 721(49)(A), available at: http://www.cftc.gov/idc/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf. That provision states that the term ``swap
dealer'' means any person who holds itself out as a dealer in swaps;
makes a market in swaps; regularly enters into swaps with
counterparties as an ordinary course of business for its own
account; or engages in any activity causing the person to be
commonly known in the trade as a dealer or market maker in swaps,
with the proviso that, in no event shall an insured depository
institution be considered to be a swap dealer to the extent it
offers to enter into a swap with a customer in connection with
originating a loan with that customer.
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Who has to register as a swap dealer is therefore one of the
linchpins of the entire swaps regulatory regime. If the level of
swap dealing activity is not sufficient to capture entities that
should be registered as swap dealers, then many of our other rules,
including margin and capital, will not apply to these entities, and
the markets may not be adequately protected. On the other hand, if
the level of swap dealing activity is too low, many entities, that
do not pose a meaningful risk to the financial system, will be
required to register as swap dealers, thereby unnecessarily
burdening markets.
It was with this concern in mind that Congress required that we
create a threshold for swap dealer registration. Dodd-Frank requires
that the Commission shall exempt from designation as a swap dealer
an entity that engages in a de minimis quantity of swap dealing in
connection with transactions with or on behalf of its customers. The
Commission shall promulgate regulations to establish factors with
respect to the making of this determination to exempt.\2\ We are
thus required to give entities an exemption from swap dealer
registration if the quantity of their swap transactions falls below
a certain level.
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\2\ Dodd-Frank section 721(49)(D).
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As required, the Commission set that level in 2012. As part of a
rulemaking released in May 2012, the Commission set the level of the
de minimis exemption at $3 billion, with a temporary phase-in level
of $8 billion during the first few years.\3\ The Commission also
agreed to release a report within the next few years as more data
from the various industry participants involved in the swaps market
was reported to the CFTC.\4\ The Commission further committed, once
nine months had passed after the report was published ``and after
giving due consideration to the report and any associated public
comment,'' to give itself three options for how to deal with the
threshold.\5\ First, we could terminate the phase-in period and have
the threshold immediately drop to $3 billion. Second, if we decided
it was ``necessary or appropriate in the public interest'' to
propose a new threshold limit, we could do so via our typical
rulemaking authority.\6\ Third, if we failed to pursue either the
first or second options before a date certain--December 31, 2017,
the phase-in period would automatically and immediately end, and the
threshold would simply be $3 billion.\7\
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\3\ See Further Definition of ``Swap Dealer,'' ``Security-Based
Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-Based
Swap Participant,'' and ``Eligible Contract Participant,'' 77 FR
30596 (May 23, 2012), available at: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2012-10562a.pdf.
\4\ Id. at 30756.
\5\ Id.
\6\ Id.
\7\ Id.
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We have now published our final staff report on the de minimis
threshold and the nine month period of considering whether to change
the threshold has formally begun. I am grateful for the staff for
all their hard work and appreciate that it has not been an easy
undertaking. I am also grateful to market participants and the
public for the comments and opinions that they have provided on the
first and final drafts of the report. That said, it is clear from
the report that our staff does not have sufficient data to make a
fully informed decision.
Today, the Commission is augmenting our efforts to get better
data on this issue by extending the phase-in period of the threshold
by one year. Because of the Commission's action, the threshold will
continue to be at $8 billion until December 31, 2018. At that point,
absent additional action by the Commission, the phase-in period will
end and the threshold will be $3 billion.
I support this initiative to get additional data on this
subject, and I do not support changing the threshold at this time.
But I wish to make something clear: We need to see hard data backing
up the opinions we will receive during this delay about why we
should not just allow the threshold to be $3 billion as established
in the rule. I know that there is a great deal of disagreement about
this issue, and I do not think we will be able to reach a consensus
unless we have real economic analysis and evidence to back up
people's comments. If you believe the threshold should be changed to
$8 billion, or some other amount, because of market conditions,
please, provide us with supporting data. Or, if you believe that the
threshold should be even lower, as low as the $150 million threshold
that was once contemplated, please provide us with supporting data.
If we stay focused on hard, economic analysis and an objective view
about the state of the market, the final determination of the
threshold will be more understandable and transparent. Given the
years of existing discussion and analysis and the established
process the Commission has created, we would do both a disservice to
the industry and to the public to change the threshold now absent
strong evidence for doing so.
I am sympathetic to the concerns that there may be onerous
impacts on the market just because of this threshold. We know that
cleared swaps are safer than uncleared swaps, which is why we have
tried to encourage increased clearing of swaps. As such, I think
there is some merit to modifying the threshold in the future by
exempting cleared swaps from being counted in calculations of
whether a firm is above it. If market participants or observers have
strong thoughts on this idea or other ways that we might help make
the $3 billion threshold less arduous, I encourage you to reach out
to my office and my staff.
I believe we should receive empirical data that can justify
where the threshold number needs to be. I therefore expect that,
near the start of 2017, we will start to collect additional data
from market participants regarding those portions of the swaps
market for which we still lack full and detailed
[[Page 71610]]
information. Absent that, I will have no basis from which to change
the phase-in or move the threshold to something other than $3
billion.
[FR Doc. 2016-25143 Filed 10-17-16; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: October 18, 2016