CFTC and SEC Exclude Most Non-Dealers from OTC Swap Registration Requirement


The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) directs the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to identify the OTC market participants required to register with the CFTC and/or SEC and adhere to a wide variety of new requirements, including capital, margin, and business conduct requirements.

The Dodd-Frank Act split oversight of OTC derivatives between the SEC and CFTC. The SEC will regulate “security-based swaps,” which include swaps based on a single security or single loan or narrow-based security or loan index and credit default swaps based on a single issuer of securities or issuers of securities in a narrow-based index. The CFTC will oversee other derivatives, including swaps based on interest rates, broad-based security and credit default swap indexes, foreign currencies, and commodities.

The CFTC has proposed definitions of the terms “swap dealer” and “major swap participant,” the entities that must register with the CFTC under the Dodd-Frank Act1. Simultaneously, the SEC has proposed definitions of the terms “security-based swap dealer” and “major security-based swap participant,” the entities that must register with the SEC under the Dodd-Frank Act.

The proposed rules set a high bar for the “major swap participant” (MSP) and “major security-based swap participant” (MSSP) categories, excluding most non-dealers from the registration requirement.

In addition, both regulators construe the “dealer” definition narrowly, thereby including for the most part only traditional dealers in the OTC derivatives market.

The proposed rules ask OTC market participants for input on these definitions. The deadline for comments is 60 days following the publication of the proposed rules in the Federal Register.

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