The Commodity Futures Trading Commission (CFTC) has struck from its meeting agenda Thursday a much-anticipated and widely criticized final rule to define “swap dealers” and “major swap participants.” The rule is one of the most contentious before the Commission and would lay the groundwork for the agency to proceed with other regulatory reforms under the Dodd-Frank Wall Street Reform Act.
The entity definition rule is a joint effort of the CFTC and the Securities and Exchange Commission (SEC), and the SEC “wasn’t ready” to move forward on the final rule, according to a regulatory source.
The SEC declined to comment.
A number of energy trade groups have hotly contested the CFTC’s proposed final rule, saying that the definition of “swap dealer” is far too broad and would include end-users and hedge funds, making them subject to regulation under Dodd-Frank (see Daily GPI, Feb. 16). They asked the White House to intervene and voice its concerns about the swap dealer rule to the CFTC.
It’s unclear what, if any, part of this pressure from industry may have contributed to the delay in considering the rule.
The CFTC-SEC proposal, which was voted out in December 2010, defined a “swap dealer” as an entity that 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 activity causing itself to be commonly known in the trade as a dealer or market maker in swaps (see Daily GPI, Dec. 2, 2010).
The Dodd-Frank Act requires swap dealers (SD) and major swap participants (MSP) to clear their swaps, but it provides a de minimis exemption for companies that use over-the-counter derivatives to mitigate their commercial risk.
Although the entity definition rule is off the table at Thursday’s meeting, the CFTC said it still will consider a final rule on SD and MSP record-keeping and reporting, duties and conflicts of interest policies and procedures, and a proposed rule on establishing appropriate minimum block sizes for large notional off-facilities swaps and block traders.
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