July 24, 2018

CFTC Issues Proposal to Streamline Regulations for Swap Dealers, Help End Users 

Washington, DC — The Commodity Futures Trading Commission (CFTC) today issued a proposal approved unanimously by the Commission to reduce unnecessary burdens on registrants and market participants by simplifying overly complex notification provisions, thereby reducing certain intricate and prescriptive requirements that have been found to provide little or no benefit. 

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress mandated that a swap dealer notify each counterparty that the counterparty has the right to choose whether to require their funds to be kept in a segregated account with an independent third party, separate from the assets and other interests of the swap dealer. The CFTC regulations 23.700 through 23.704 implemented this legislation (Section 4s(l) of the Commodity Exchange Act).

“The CFTC regulations implementing segregation notification are very specific about the manner in which counterparties must be notified of their right to segregate their funds and how those funds must be held,” said Matt Kulkin, Director of the Division of Swap Dealer & Intermediary Oversight. “After four years of administering these rules, division staff has found that the prescriptive nature of the CFTC’s rules provides little benefit, if any, and yet, adds a level of complexity that deters end-user swap counterparties from exercising their right to choose to require their funds to be segregated. By allowing for more flexibility, we believe this proposal would encourage more end-user counterparties to elect to segregate their funds.”

This proposal comes from the Commission’s 2017 “Project K.I.S.S.” initiative, which drew numerous suggestions from the public for simplifying the Commission’s regulations and practices, removing unnecessary burdens, and reducing costs. 

The proposal aims to better implement the intent of CEA Section 4s(l) while simplifying or eliminating certain additional requirements not required in the statute.  By adding greater flexibility in how the swap parties can comply with the notification, segregation and custody requirements, the Commission hopes to encourage more counterparties to take advantage of segregation, and to avoid unnecessary complication and interference with swap transactions that are essential for hedging and other commercial needs.  The deadline for submission of comments by interested persons is 60 days after the proposal is published in the Federal Register.