As background, the Commodity Exchange Act and CFTC Regulations exempt a person from registration as a swap dealer if the person engages in a de minimis quantity of swap dealing. CFTC Regulations specify two de minimis thresholds: a “general” de minimis threshold, i.e., currently no more than $8 billion in aggregate gross notional amount over the preceding 12 months, and a “special entity” de minimis threshold, i.e., no more than $25 million in aggregate gross notional amount over the preceding 12 months. A swap counterparty that would otherwise come within the “swap dealer definition” must register as a swap dealer if it enters into positions exceeding either threshold.
If adopted, the proposed regulations would allow a person to exclude “utility operations-related swaps” with a counterparty that is a public utility provider or “utility special entity” when calculating the aggregate gross notional amount of swap positions for purposes of the “special entity” de minimis threshold. A “utility special entity” is a special entity that (i) owns or operates electric or natural gas facilities, electric or natural gas operations or anticipated electric or natural gas facilities or operations, (ii) supplies natural gas or electric energy to other utility special entities, (iii) has public service obligations or anticipated public service obligations to deliver electric energy or natural gas service to utility customers or (iv) is a federal power-marketing agency. A “utility operations-related swap” includes an electric energy or natural gas swap or any swap associated with the operations or compliance obligations of a utility special entity that is (i) used by a utility special entity to hedge or mitigate commercial risk, and (ii) relates to an exempt commodity (e.g., natural gas or power).
While the proposed regulations permit utility operations-related swaps with utility special entities to be excluded for purposes of the “special entity” de minimis threshold, any such swaps must be included for purposes of the “general” de minimis threshold.
To rely on the exclusion for utility operations-related swaps with utility special entities, a person must file notice electronically with National Futures Association.
The CFTC’s proposed regulations are available here.