CFTC narrows oversight scope with Dodd-Frank definitions rule
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WASHINGTON, April 18, 2012- The Commodity Futures Trading Commission (CFTC) finalized rules under the Dodd-Frank Act today narrowing the definition “swap dealer” and clarifying which commodity market participations must register to face higher oversight.
“The rule fulfills Congress' direction to further define the terms ‘swap dealer,' ‘major swap participant' and ‘eligible contract participant' and appropriately addresses the many comments we received,” said CFTC Chairman Gary Gensler. “It will provide essential direction to market participants on whether they will be required to register.”
Among other provisions, the rule clarifies that swaps between an agricultural cooperative or cooperative financial institution and its members does not constitute dealing. It also provides direction on the distinction between hedging and dealing, while providing a specific rule for swaps that hedge price risk associated with a physical commodity.
The threshold for swap dealing is set at $3 billion total, across all asset classes, subject to a phase in level of $8 billion, said Gensler. CFTC originally said firms would be counted as swap dealers if they traded more than $100 million in swaps over a 12-month period.
House Agriculture Committee Chairman Frank Lucas, R-Okla., expressed concerns in previous public hearings that the comprehensive regulation of swap dealers would sweep smaller, agricultural entities into regulations designed for the largest global banks.
“From what I can tell today, there were improvements made to the final rule that will reduce the negative impact on end-users out in the countryside,” Lucas said. “As we wait for the details of the rule, I would like to commend the Commissioners for working diligently and in a bipartisan manner to protect end-users from unnecessary harm.”
Gesnsler said CFTC must next move to the joint rule with the Securities and Exchange Commission (SEC) further defining the terms “swap” and “security-based” swap, which is necessary to implement position limits. With the completion of today's two rules, the CFTC has finalized 31 Dodd-Frank financial reforms.
“When compared with the December 2010 proposed rules, the final rules we consider today reflect substantial progress toward crafting sensible and reasonable rules that have built-in flexibility where appropriate,” said CFTC Commissioner Jill Sommers.
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