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CFTC Puts Final Stamp of Approval on $8B Swap De Minimis Threshold

More than six years after the Commodity Futures Trading Commission (CFTC) first adopted an $8 billion swap dealer de minimis threshold, the agency on Monday approved a final rule making the limit official.

In April 2012, the CFTC and the Securities and Exchange Commission set the de minimis level at $8 billion, with the expectation that it would remain in effect during a phase-in period and then fall to $3 billion after CFTC conducted a study on the swap markets. The de minimis rules were included in Dodd-Frank Wall Street regulatory reforms that became effective at the end of 2012.

"Today's final rule on the numeric threshold for swap dealer will provide the market with certainty that the threshold will not fall from $8 billion to $3 billion," CFTC Chairman Christopher Giancarlo said Monday.

In October 2017, CFTC pushed the swap dealer de minimis threshold phase-in termination date to the end of 2019, and Giancarlo requested that the regulatory agency postpone a decision on the de minimis threshold by a year, effectively delaying implementation until the end of 2018.

Action on the de minimis threshold was taken without prejudice to other items in a notice of proposed rulemaking (NOPR) issued by CFTC in June, and Giancarlo said he will direct CFTC staff to continue their analysis of other items in the NOPR, including proposing a study on possible alternative metrics for the calculation of the swap dealer de minimis threshold.

Approximately 98% of all swap transactions involve at least one registered swap dealer, and at the $8 billion threshold, nearly all swap transactions benefit from swap dealer regulation, said CFTC Commissioner Dan Berkovitz.

"The staff's analysis also showed that reducing the threshold to $3 billion would have a minimal impact on the amount of swaps activity that would be subject to swap dealer regulation," Berkovitz said. "On the other hand, decreasing the threshold from its current level would impose tangible costs on market participants.

"If the threshold were lowered to $3 billion, unregistered dealers that are currently under the $8 billion level, but that could exceed the $3 billion threshold, would have to re-evaluate whether swap dealing in excess of $3 billion would continue to make business sense."

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