CFTC Chairman Timothy Massad is continuing a push to review rules put in place by the previous administration run by Gary Gensler.
Massad announced today that the CFTC will conduct a study on whether or not a planned reduction of the ‘de minimis’ threshold for determining whether or not an entity is designated a swap dealer under federal rules is appropriate.
“I believe it is vital that our actions be data-driven, and so we have started work on a comprehensive report to analyse this issue,” Massad said in a keynote address at the Natural Gas Roundtable run by the American Gas Association.
The threshold – currently at US$8bn of swaps activity – ropes financial entities into tougher requirements around business conduct as well as documentation and reporting standards.
As it stands, the threshold will be reduced to US$3bn in December of 2017 – ostensibly looping in a host of other firms currently outside of the requirements – as part of a final rulemaking passed in 2012 by the Gensler administration.
“We will make a preliminary version available for public comment, and seek comment not only on the methodology and data, but also on the policy questions as to what the threshold should be, and why,” said Massad.
”I want us to complete this process well in advance of the December 2017 date so that the Commission has some data, analysis and public input with which to decide what to do.”
The decision to review the plan is yet another reconsideration of Dodd-Frank rules passed between 2010 and 2013 under Gary Gensler.
A month ago, Massad announced plans to review the regulatory framework for determining which types of over-the-counter swaps must be traded on newly created exchange-like platforms known as swap execution facilities. (See story ‘CFTC’s Massad plans MAT review’)
The approach is a generally industry-friendly stance in contrast to Gensler’s, though corporates that use derivatives have not always been pleased with the new administration’s approach. “See story ‘Utilities fire off at CFTC’)
In this case though, Massad appears to be paying particular attention to the ability for dealers to make markets for corporate end users of derivatives.
The CFTC Chairman pointed out that the de minimis threshold review has come to the forefront as the agency considers market complaints around a separate, not-yet-finalised rule under consideration – margin rules for uncleared swaps.
Industry participants worry that overly punitive rules on the bespoke instruments often used to address specific hedging needs will lead to reduced liquidity in the market as dealers exit the business due to higher regulatory costs.
In the same way, says Massad, a reduction of the de minimis threshold could crimp dealer ability to make markets in OTC swaps.
“Let me add that as we think about the swap dealer de minimis rule and the margin for uncleared swaps rule, we are thinking about the implications for the costs of transactions and for liquidity in our markets,” he said.
“We recognize, for example, that while the margin rule for uncleared swaps exempts commercial end users, it is still relevant to them insofar as it may affect the cost of doing business for swap dealers. And the same is true with the swap dealer de minimis threshold.”
