CFTC Chairman Gary Gensler said today that one of the key pieces of Dodd-Frank is the regulation of swap dealers. Although today’s rules do not redefine what the legislation means for agricultural businesses, they are two of approximately twelve proposed rules to be considered during the rest of 2011, which include end-user exceptions. Gensler said he expects CFTC to further define “swap dealer” and “swap” this fall.
Some Dodd-Frank regulations are deemed unnecessary by several agricultural interests. In particular, the House Committee on Agriculture has urged CFTC to reconsider its definition of “swap dealer.” Under the current definition, some agricultural cooperatives and businesses would be subject to the same regulations as large, financial swap dealers the CFTC attempts to oversee.
"Much like we did on July 14, this fall we also will consider further exemptive relief," Gensler said. "I've already directed staff to draft recommendations, with the relief appropriately tailored -- for instance, taking into account the possible completion of entity and product definition rules."
The current agricultural swaps rule, which takes effect on Dec. 31, 2011, will allow market participants investing in agricultural swaps to continue to do so. Those transactions will be subject to the Dodd-Frank Act’s new requirements for swaps, including mandatory clearing, margin requirements and position limits.
House Agriculture Committee member, Rep. Austin Scott (R-Ga.) recently proposed H.R. 2682, the Business Risk Mitigation and Price Stabilization Act of 2011. The bill, which has picked up bipartisan support, is said by Scott to ensure smaller agricultural businesses are not subject to the same margin requirements as large financial firms.
The two Dodd-Frank rules approved at a 4-1 vote at today’s CFTC meeting outline “implementation phasing,” or the timeline for swap transactions to be brought into compliance by clearinghouses.
“The first rule proposes a schedule for phasing in compliance with the swap clearing and trading mandates,” said Gensler. “Market participants would be required to comply with a Commission-issued clearing mandate within three, six or nine months, depending on the swap’s counterparties.”
The second rule issues a similar implementation timeline for previously proposed rules on swap trading documentation requirements and margin requirements for uncleared swaps.
The Commission seeks public input on the proposed rules and will continue to welcome public comment throughout the rule-making process. According to the new schedule released today, the process will continue into next year. The Commission will consider clearinghouse rules, end-user exception, position limits and real-time reporting this year, and rules for capital and margin, disruptive trading practices and swap execution facilities in the first quarter of 2012.
“The public has the opportunity to petition us to change a regulation” said CFTC Commissioner Michael Dunn. “If we propose a rule that is so wrong, we will get flooded with comments.”
Commissioners Gensler, Dunn, Jill Sommers and Bart Chilton all approved today’s rules, which include implementation schedules for clearing and trade execution requirements and trading documentation and margining requirements. Scott O’Malia gave the only “no” vote.
Gensler’s statements from today’s meeting and the outline of final Dodd-Frank Title VII rules the CFTC plans to consider in 2011 and the first quarter of 2012 are available here.
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