WASHINGTON, March 28, 2012- The registration and regulation of “swap dealers” is central to the reforms mandated in the Dodd-Frank Act, but the current proposed definition of “swap dealer” might unintentionally include hedging activity, said the Senate and House Agriculture Committees Chairs today. They sent a joint letter to Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler on the proposed definition of swap dealer to encourage improvements to the rule before it is finalized.
“We do remain concerned that the breadth of the proposed rule further defining ‘swap dealer’ will result in the registration of many entities that Congress never intended to be regulated as dealers,” said House Agriculture Committee Chairman Frank Lucas, R-Okla., and Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., in the letter.
“It is important for the Commission to finalize the swap dealer definition in a manner that is not overly broad, and that will not impose significant new regulations on entities Congress did not intend to be regulated as swap dealers,” states the letter.
The Chairs requested that end-users hedging physical commodity price risk are distinguished from “swap dealers.” In providing the exemption for hedging activities, they also said the Commission should “seek to be consistent” when defining ‘hedging’ across all regulations.
The Chairs continued to request that commercial end-users who are exposed to commodity price fluctuations and actively trade in swaps to hedge against those price risks will not be required to register as swap dealers, because they participate for their own objectives and not for the benefit of others. In other words, they do not “make” markets.
“It is also critical that businesses have access to the credit they need to fuel our economic recovery and job growth,” the letter continues. “In recognition of this, Congress provided an exception for credit institutions that offer swaps in connection with loans from designation as swap dealers.”
The Chairs said the provision ensures the flow of credit can continue between businesses and small to mid-size lenders and farm credit institutions.
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