Statement of Concurrence of Commissioner Rostin Behnam Regarding De Minimis Exception to the Swap Dealer Definition

November 5, 2018

Today, the Commission acts decisively to set the aggregate gross notional amount (“AGNA”) threshold for the de minimis exception at $8 billion in swap dealing activity entered into by a person over the preceding 12 months.  I am comfortable supporting today’s final rule because it is limited to establishing a clear and certain de minimis threshold.  While I was unable to support the proposed rule—which moved the Commission far beyond the task before it towards unilaterally redefining swap dealing activity absent meaningful, congressionally-required collaboration with the Securities and Exchange Commission (“SEC”)—I am gratified that the Commission is not moving forward with aspects of the Proposal which would have further complicated the distinction between dealing and non-dealing activities. [1]  Such action would have been detrimental to market participants.  To the extent the Commission continues to consider addressing long standing concerns with the IDI Swap Dealing Exclusion,[2] ambiguity regarding the treatment of swaps used for hedging, or relief applicable to swaps that result from multilateral portfolio compression exercises, it should do so jointly with the SEC.

NFC Swap Data

Today’s decision to maintain the AGNA threshold at $8 billion follows a period of prolonged uncertainty during which Commission staff conducted more complete data analysis regarding the de minimis exception.[3]  While swap data repository (“SDR”) data quality has improved, AGNA data was unavailable for non-financial commodity (“NFC”) swaps.[4]  Nevertheless, Commission staff used counterparty and transaction counts and a series of assumptions to analyze likely swap dealing activity in the NFC swap market and concluded that reducing the $8 billion AGNA threshold could lead to reduced liquidity in NFC swaps, negatively impacting end-users and commercial entities who utilize NFC swaps for hedging.[5]  The Commission further relied upon findings and comments that the unique characteristics of the NFC swap market pose less systemic risk than financial swaps.[6]  

It is my hope that Commission staff will continue to examine and monitor data and activities in the NFC swap market to ensure that concentrated activity by unregistered NFC counterparties in segments of that swap market, such as in energy-related swaps, do not present outsized risk or harm to end-users, and most importantly, the general public. 

[1] De Minimis Exception to the Swap Dealer Definition, 83 FR 27444, 27481-2 (proposed June 12, 2018).

[2] If the proposed IDI Minimis Provision truly better aligns the swap dealer regulatory framework with the risk mitigation demands of bank customers, as commenters suggested, then it would seem that there should be few hurdles in the way of the CFTC and SEC engaging to reconsider the parameters of the IDI Swap Dealing Exclusion.

[3] 83 FR at 27445-6.

[4] 83 FR at 27445.

[5] 83 FR at 27450, 27456-7.

[6] 83 FR at 27457; De Minimis Exception to the Swap Dealer Definition, 83 FR 56666, 56675 (Nov. 13, 2018).