CFTC is amending the de minimis exception within the swap dealer definition in its regulations by setting the aggregate gross notional amount threshold for the de minimis exception at USD 8 billion in swap dealing activity entered into by a person over the preceding 12 months. The effective date for this rule is November 13, 2018.
The de minimis exception states that a person shall not be deemed to be a swap dealer unless its swaps connected with swap dealing activities exceed an aggregate gross notional amount threshold of USD 3 billion (measured over the prior twelve-month period), subject to a phase-in period, during which the aggregate gross notional amount threshold is set at USD 8 billion. The phase-in period was originally scheduled to terminate on December 31, 2017 and the aggregate gross notional amount threshold was scheduled to decrease to USD 3 billion at that time. However, pursuant to paragraph (4)(ii)(C)(1) of the de minimis exception, CFTC issued two successive orders to set new termination dates; the phase-in period is currently scheduled to terminate on December 31, 2019.
CFTC received 43 letters in response to the consultation on this rule. Meanwhile, CFTC staff participated in four ex parte meetings concerning the notice of proposed rulemaking published in June 2018. CFTC proposed to amend the de minimis exception by:
- Setting the aggregate gross notional amount threshold for the de minimis exception at USD 8 billion in swap dealing activity entered into by a person over the preceding 12 months
- Adding new factors to the de minimis exception that would lead to excepting from the aggregate gross notional amount calculation. These include certain swaps entered into with a customer by an insured depository institutions (IDI) in connection with originating a loan to that customer, certain swaps entered into to hedge financial or physical positions, and certain swaps resulting from multilateral portfolio compression exercises.
- Providing that CFTC may determine the methodology to be used to calculate the notional amount for any group, category, type, or class of swaps and delegating to the Director of the Division of Swap Dealer and Intermediary Oversight, the authority to make such determinations
In addition, CFTC sought comment on the following additional potential changes to the de minimis exception:
- Adding as a factor a minimum dealing counterparty count threshold and/or a minimum dealing transaction count threshold
- Adding as a factor whether a swap is exchange-traded and/or cleared
- Adding as a factor whether a swap is categorized as a non-deliverable forward transaction
In this adopting release, CFTC is amending the de minimis exception by setting the aggregate gross notional amount threshold at USD 8 billion in swap dealing activity. CFTC may in the future separately propose or adopt rules addressing any aspect of the proposed rule that is not finalized in this release.
Related Link: Final Rule
Effective Date: November 13, 2018
Keywords: Americas, US, Banking, Securities, De Minimis Exception, Aggregate Gross Notional Amount Threshold, Swap Dealer, Swaps, CFTC
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