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

Sullivan & Cromwell LLP - December 3, 2015

On November 18, 2015, the staff of the Commodity Futures Trading Commission (the “CFTC”) released a preliminary report (the “Report”) reviewing and requesting comment on the de minimis exception to the definition of “swap dealer” 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 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 the prior 12 months (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 action by the CFTC). The Report discusses and seeks comment on several options 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) a de minimis threshold that factors in a market participant’s number of counterparties or transactions, (4) a multi-tiered regulatory approach that would “establish different levels of swap dealer regulation based on two gross notional thresholds,” and (5) excluding swaps that are executed on a swap execution facility (“SEF”) or a designated contract market (“DCM”) and/or cleared through a derivatives clearing organization (“DCO”) from an entity’s de minimis calculation. The Report includes requests for public comment which must be submitted on or before January 19, 2016.