CFTC Proposes a Swap Product Definition and Capital Requirements Under Dodd-Frank

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At a public meeting on April 27, the Commodity Futures Trading Commission (CFTC or the Commission) proposed two new rulemakings pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to address: (i) the further definition of certain products regulated by the Commission and the Securities and Exchange Commission (SEC) under Dodd-Frank, including "swap"; and (ii) capital requirements for non-bank swap dealers and major swap participants (SD/MSPs).

Definition of "Swap"

Although "swap" was generally defined for the purposes of Dodd-Frank in Section 721 of the statute, the CFTC and SEC were tasked with further defining the term along with several other product definitions pertinent to Dodd-Frank, including "security-based swap" and "mixed swap." During the course of the last six months of Dodd-Frank rulemaking proposals made by the CFTC and SEC, many commentators have criticized the lack of a refined swap definition, pointing out that a proper evaluation of the effects of Dodd-Frank implementing regulations hinged on how the term would ultimately be defined. In a separate rulemaking proposed by the CFTC earlier this year regarding Commodity Options and Agricultural Swaps,1 the agency has suggested that physically settling options would be considered swaps.

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