CFTC Staff Issues Final Swap Dealer De Minimis Exception Report: The Staff of the CFTC Publishes Its Final Report on the De Minimis Exception to the Definition of “Swap Dealer” Under the Commodity Exchange Act

Sullivan & Cromwell LLP - August 17, 2016

On August 15, 2016, the staff of the Commodity Futures Trading Commission (the “CFTC”) released a final report (the “Final Report”) regarding the de minimis exemption from swap dealer registration under the Commodity Exchange Act (the “CEA”), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Dodd-Frank”). The Final Report supplements the staff’s preliminary report dated November 18, 2015  (the “Preliminary Report”) and provides a summary of comments received and further analysis of data related to the de minimis exception. The de minimis exception provides that a person shall not be deemed to be a swap dealer unless its swap dealing activity exceeds a specified aggregate gross notional amount threshold over any prior 12-month rolling period (which currently is set at a phase-in threshold of $8 billion, but will automatically reduce to $3 billion on December 31, 2017 absent further formal action by the CFTC). The Final Report discusses comments received on several alternatives regarding the de minimis exemption including (1) setting the gross notional de minimis threshold at an amount that is higher or lower than $3 billion, (2) setting a notional de minimis threshold specific to each asset class, (3) applying a de minimis threshold that factors in a market participant’s number of counterparties or transactions and (4) excluding swaps that are executed on a swap execution facility (“SEF”) or a designated contract market (“DCM”) or cleared through a derivatives clearing organization (“DCO”) from an entity’s de minimis calculation. The Final Report also provides analysis of an additional one-year period of data from the Preliminary Report and identifies key issues for the CFTC to consider.