The Commodity Futures Trading Commission (CFTC) on Wednesday approved a final rule on exclusion of utility operations-related swaps with utility special entities from de minimis threshold for swaps with special entities, a decision that Chairman Timothy Massad said would help to ensure that small utility companies can reduce their risk of doing business.
The rule amendment to adjust the de minimis threshold was proposed by CFTC in May (see Daily GPI, May 27). The proposal amends CFTC’s swap dealer definition to permit a person dealing in “utility operations-related swaps” with “utility special entities” to exclude those swaps in determining whether that person has exceeded the de minimis threshold specific to dealing with special entities. But such swaps would be counted for determining whether the general dealing de minimis threshold applies.
Because Congress defined “special entity” broadly in its Dodd-Frank reforms, CFTC’s implementation of the reforms “applied to many utility companies that are government owned,” Massad said. “These are companies responsible for keeping the lights on in communities across our country, for heating and cooling our homes, and powering the kitchen appliances we use every day to feed our families. To do their job, they must manage the risk of their own fuel costs, and to do that, they must be able to access the energy commodity markets.
“They engage in energy swaps. The counterparties with whom they transact business were often not registered swap dealers, nor were they the dealers that engage in the abusive practices that led to Congress’s concerns. The imposition of these requirements through a designation as a swap dealer could unduly burden their business and thereby threaten the ability of our local utility companies to manage their risks.”
The rule amendment, which was approved by a 4-0 vote, “provides a permanent solution to enable such utility companies to continue to used these markets effectively,” Massad said.
Commissioners also gave unanimous approval to a proposed rule that would require swap dealers and major swap participants to post and collect margin in their swaps with one another.That proposed rule must now go through a public comment period and be approved by a subsequent CFTC vote before it would go into effect.
CFTC staff consulted with staff of the Federal Reserve Board and other U.S. authorities in developing the proposal, and said it is similar to standards issued by the Basel Committee on Banking Supervisions and the International Organization of Securities Commissions last year.
In April, energy industry representatives at a CFTC public roundtable told the agency that a previously approved swap product definition rule needed to be clarified or repealed (see Daily GPI, April 3; July 11, 2012).
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