Chairman of the Commodity Futures Trading Commission, J. Christopher Giancarlo, said he would soon call for another one year delay in the automatic reduction of the current interim swap dealer de minimis threshold amount scheduled to occur at the end of 2018.
Mr. Giancarlo called for this extension during an appearance before the House of Representatives’ Committee on Agriculture on October 11, saying it was appropriate because of the recent turnover of commissioners and staff at the CFTC, and the Commission’s current vacancy of two commissioners. The objective, Mr. Giancarlo said, “is to get the right result, not a rushed result.”
Under CFTC regulation, a person is not to be considered a swap dealer unless its swap dealing activities for the prior 12-month period exceeds a gross notional threshold amount of US $3 billion after a phase-in requirement of US $8 billion (click here to access CFTC Rule 1.3(ggg)(4)). The phase-in period was originally scheduled to expire on December 31, 2017, but was extended by the CFTC to the end of 2018, following issuance of an August 2016 final report by the Commission’s Division of Swap Dealer and Intermediary Oversight. (Click here for background in the article “Just in Time for Football Season, CFTC Chairman Decides to Punt Swap De Minimis Threshold for One Year” in the September 18, 2016 edition of Bridging the Week.)
Virtually contemporaneously with Mr. Giancarlo’s testimony, the two new CFTC commissioners issued press releases suggesting that no delay in finalizing the de minimis threshold amount should occur. According to one of the new commissioners, Brian Quintenz, “[w]hile we should always consider new data in the ongoing evaluation of public policy, it is well past time to address this issue head-on, finalize a rational and effective threshold, and provide the market with clarity.” Rostin Behnam, the other new commissioner, said “[a]dditional delays of the swap dealer de minimis threshold will only serve to prolong uncertainty for market participants and create market risk.”
Separately, in his testimony, Mr. Giancarlo reiterated his strong commitment to ensuring that “America’s derivatives markets operate free from fraud, manipulation, and other trading abuses,” and discussed the Division of Enforcement’s new self-reporting program to help the Commission “identify the individuals… most culpable for any wrongdoing.” (Click here for background on this reporting program in the article “New Math: Come Forward + Come Clean + Remediate = Substantial Settlement Benefits Says CFTC Enforcement Chief” in the October 1, 2017 edition of Bridging the Week.)
Additionally, Mr. Giancarlo provided an overview of the Commission’s LabCFTC and Project KISS initiatives, as well as his promotion of efforts to support cybersecurity at the CFTC and at derivatives markets. He also pointed to the need to amend current swaps trading rules, to enhance swaps data reporting, and to work with international regulators to promote cooperation and coordination. He cautioned European regulators not to unilaterally amend agreements regarding the oversight of systematically important cross-border clearinghouses in anticipation of Brexit as potentially contemplated. “If the EU must reconsider its approach to cross‑border supervision of systemically important CCPs, then we cannot have piecemeal and contradictory rule making,” said Mr. Giancarlo.
Mr. Giancarlo also indicated that he and Jay Clayton, Chairman of the Securities and Exchange Commission, had been regularly speaking since they both became chairman of their respective agencies, in order to help harmonize and simplify overlapping rules. According to Mr. Giancarlo, “[w]e hope to soon announce some interagency understandings that will result in real regulatory efficiencies,” perhaps as early as year-end.
My View: It is not clear that further delay in assessing an appropriate de minimis threshold amount will likely change the outcome of any CFTC vote. Although, in his testimony before the House Agriculture Committee, Mr. Giancarlo promised that he would make a recommendation in early 2018 on this matter, it seems a foregone conclusion – and the CFTC should save precious resources by formally proposing now to maintain the de minimis exception at US $8 billion, consistent with findings in DSIO’s 2016 final report.