The Commodity Futures Trading Commission issued final amendments to two existing rules under its Project KISS initiative, designed to holistically review the Commission’s rules, regulations and practices to make them simpler, less burdensome and less expensive, where possible.
Under one set of amendments, the CFTC will require swap dealers and major swap participants to notify certain counterparties of their right to require segregation at the initiation of a relationship and not prior to each transaction (or at least annually). In addition, the SD or MSP can give such notice to an appropriate person at the counterparty, not solely to persons with designated titles. Under another set of amendments, the scope of existing requirements related to third-party experts’ evaluation of self-regulatory organization’s financial surveillance program of futures commission merchants will be modified and only required once every five years (not three years as currently mandated). Both sets of amendments lessen existing burdens on applicable parties without diminishing important protections, claimed the CFTC.
(Click here for more information regarding Project KISS in the article “CFTC Chairman Nominee Warns of Tough Love to Come: KISS But Also Aggressive and Assertive Enforcement” in the March 19, 2017 edition of Bridging the Week.)
Separately, the CFTC excluded from the calculation of swaps that would cause an entity to be registered as a swap dealer (i.e., the “de minimis exception” – a rolling annual amount equal to US $8 billion), swaps entered into by Insured Depository Institutions to hedge loans with customers. Two commissioners – Dan Berkovitz and Rostin Behnam – objected to the manner in which the Commission created this exclusion – by purportedly revising “the scope of activity that constitutes swap dealing.” According to Mr. Berkovitz, “[i]n the guise of helping small and mid-size banks, [the amendments] ope[n] the door for large banks to undertake an unlimited amount of swap dealing with loan customers without registering as swap dealers” However, Brian Quintenz, another commissioner, disagreed with this assessment, saying that “the preamble of today’s rule makes absolutely clear that if an IDI entered into a swap with an end-user for the end user’s speculative purposes, that transaction would not qualify for the de minimis exception.”
Unrelatedly, the Senate Committee on Agriculture, Nutrition and Forestry will vote on the nomination of Heath Tarbert as the next CFTC Chairman on April 1 (click here for details).