CFTC Proposes Amendments to Swap Dealer De Minimis Exception: CFTC Proposes Rule to Amend the De Minimis Exception to the Definition of “Swap Dealer” and Requests Comments Regarding Further Potential Changes

Sullivan & Cromwell LLP - June 12, 2018
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On June 4, 2018, the Commodity Futures Trading Commission voted 2-1, along party lines, to propose a rule (the “Proposed Rule”) amending the definition of “swap dealer” under the Commodity Exchange Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, the Proposed Rule would (1) set the threshold of the de minimis exception from swap dealer registration at $8 billion of gross notional amount in swap dealing activity entered into over the preceding twelve months; (2) exclude certain activity from the threshold calculation including (a) a broader category of swaps entered into with a customer by an insured depository institution in connection with originating a loan; (b) swaps entered into to hedge financial or physical positions; and (c) swaps resulting from multilateral portfolio compression exercises; and (3) allow the Commission to determine the methodology for calculating the aggregate gross notional amount for swaps, and, in turn, delegate that authority to the Director of the Division of Swap Dealer and Intermediary Oversight. The Proposed Rule also seeks comments on three potential additional changes to the de minimis exemption: (i) adding minimum counterparty and transaction count thresholds; (ii) exempting exchange-traded and/or cleared swaps from the de minimis calculation; and (iii) exempting non-deliverable forward transactions from the de minimis calculation. Comments on the Proposed Rule are due on or before August 13, 2018.