On November 5, 2018, the Commodity Futures Trading Commission (CFTC) unanimously adopted a final rule to set a permanent $8 billion swap dealing activity threshold for purposes of the swap dealer de minimis exemption (Final Rule). The Final Rule was published in the Federal Register on November 13, 2018, and became effective immediately.1
The Commodity Exchange Act (CEA), as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), requires swap dealers to register and comply with various requirements. Section 1a(49) of the CEA defines “swap dealer” as any person that: (1) holds itself out as a dealer in swaps; (2) makes a market in swaps; (3) regularly enters into swaps with counterparties as an ordinary course of business for its own account; or (4) engages in any activity causing such person to be commonly known in the trade as a dealer or market maker in swaps.2 The CEA also requires that the CFTC exempt certain persons from the “swap dealer” designation if such person is engaged in a de minimis amount of swap dealing (the de minimis exception).3
In 2012, the CFTC adopted rules that, among other things, exempt persons from the “swap dealer” definition whose swap dealing activity does not exceed an aggregate gross notional amount threshold of $8 billion measured over the preceding 12-month period.4 Pursuant to such rules, this $8 billion threshold was scheduled to become $3 billion on December 31, 2017, but the CFTC issued orders to delay the expiration of the $8 billion threshold until December 31, 2019. The Final Rule permanently sets the de minimis swap dealing activity threshold at $8 billion. In adopting the Final Rule, the CFTC Commissioners reasoned that $8 billion is an appropriate threshold because under such a threshold, based on data reviewed by the CFTC staff, approximately 96% of swap transactions involve at least one registered swap dealer and, as a result, are subject to swap dealer regulation. In addition, a lower threshold, e.g., $3 billion, would result in only a small amount of additional swaps activity being subjected to swap dealer regulation.
1 83 Federal Register 5666 (November 13, 2018), available at https://www.cftc.gov/sites/default/files/2018-11/2018-24579a.pdf?utm_source=govdelivery.
2 7 U.S.C. § 1a(49)(A).
3 Id. at § 1a(49)(D).
4 77 FR 30596 (May 23, 2012), available at https://www.gpo.gov/fdsys/pkg/FR-2012-05-23/pdf/2012-10562.pdf; 17 CFR Part 1.3. Generally, persons must count towards their aggregate gross notional amount all swaps they enter into during the preceding 12-month period, provided that certain swaps, subject to specific conditions, do not need to be included in the calculation, including: (1) swaps between affiliates; (2) swaps entered into by cooperatives with their members; (3) swaps hedging physical positions; and (4) certain foreign exchange swaps and forwards.