CFTC Proposes Key Rulemakings that Complete the “Mosaic” of Proposed Rules to Implement Title VII of the Dodd-Frank Act


The Commodity Futures Trading Commission (“CFTC”) held an open meeting yesterday to issue several key proposed rulemakings that, together with the CFTC’s other proposed rulemakings to date, complete the so-called “mosaic” of CFTC proposed rules to implement Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).1 Topics addressed by yesterday’s proposed rules include definitions for the terms “swap”, “security-based swap” and “security-based swap agreement” (collectively the “product definitions”) as well as capital requirements for swap dealers and major swap participants, segregation of cleared swaps customer collateral and conforming amendments to existing CFTC regulations. The Securities and Exchange Commission (“SEC”) also held an open meeting yesterday to consider the proposed rule on the product definitions, which is a joint proposed rule by the CFTC and the SEC.

The texts of the proposed rules will not be published in the Federal Register for several days. The discussion below is based on comments made by CFTC Commissioners and staff during yesterday’s open meeting as well as CFTC fact sheets and Q&As and an SEC press release.

Product Definitions

The CFTC and SEC jointly proposed rules that further define the terms “swap”, “security-based swap” and “security-based swap agreement” contained in Section 721 of the Dodd-Frank Act.

The proposed rules are comprehensive: they clarify which products will fall within the definitions listed above, and which products will not. In general, the proposed rules classify as swaps those derivatives transactions that market participants already consider swaps, namely those that are listed in the definition of a swap contained in Section 721(a) of the Dodd-Frank Act, but clarify which products will not be picked up by the definition’s catch-all provision that has generated considerable concern.2 In addition, the proposed rules clarify that foreign exchange (“FX”) forwards and FX swaps will be swaps until such time they are exempted, if ever, from the swap definition by the Secretary of the U.S. Treasury and also make clear that other FX products, including FX options and currency swaps, cannot be exempted and are swaps.3 The proposed rules clarify that the following are not swaps:

-Insurance products meeting specific criteria that are issued by U.S. state-regulated insurers, as well as specific products issued by such insurers including surety bonds, life insurance, health

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