Chairman Timothy Massad of the Commodity Futures Trading Commission announced his intention to recommend to his fellow commissioners that they delay for one year the automatic reduction of the current interim swap dealer de minimis threshold amount scheduled to occur at the end of 2017. (The threshold requiring registration as a swap dealer is US $3 billion aggregate gross notional amount measured over the prior 12-month period. However, an interim threshold of US $8 billion is in effect until December 31, 2017.) Mr. Massad said he would make the recommendation to delay the de minimis threshold lowering because “a delay is the sensible and responsible thing to do – and doing it now will provide much-needed certainty to market participants.” Mr. Massad indicated that a delay would permit the CFTC to potentially adopt a capital rule for swaps dealers, as well as to study the impact of the recently implemented non-cleared swaps margin rules, before making a final decision on the de minimis threshold. It would also allow the CFTC to obtain better data on commodity swaps – markets that are different than interest rate and credit default swaps (where there is more data currently) – said Mr. Massad. Recently, staff of the CFTC’s Division of Swap Dealer and Intermediary Oversight issued a final report regarding the de minimis threshold. Among other things, staff estimated that if the de minimis threshold were lowered to US $3 billion, 84 additional entities trading IRS and CDS would have to register as swap dealers. However, staff also estimated that the amount of IRS and CDS swaps activity that would be additionally covered by a lowering of the de minimis threshold would be nominal. (Click here for details of DSIO’s study in the article, “CFTC Staff Issue Another Report but Commission Takes No Action Regarding Swap Dealer De Minimis Threshold” in the August 21, 2016 edition ofBridging the Week.)
My View: The recent study by the CFTC staff provides more than adequate support to permanently cancel the lowering of the de minimis threshold despite its limited data on commodity swaps. No matter what the stated rationale, this seems to be mostly a political decision to defer the resolution of this important matter to after the election of a new US president and the possible appointment of a new CFTC chairperson. However, a one-year delay at this time will prolong unnecessary uncertainty among smaller swaps traders. This may be a punt, but it seems more like a fumble.